Canada’s big banks saw moderate mortgage growth in the third quarter in the midst of worsening macro economic conditions.
The headwinds seem most pronounced for CIBC, which announced recently that it’s in the process of reorienting its mortgage strategy after “falling short” for investors.
The bank, which has nearly 45% of its mortgage portfolio comprised of loans in the Greater Vancouver and Toronto areas, saw mortgage balances fall to $201 billion in the third quarter, down from $203 billion for the same period in 2018.
National Bank of Canada, on the other hand, beat earnings expectations and saw its net income rise nearly 7% thanks to a robust economy in its home province of Quebec.
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.
“Canadian margin should be flat to flattish in the fourth quarter,” said Tom Flynn, Chief Financial Officer. “And looking out to next year for the Canadian business, we think the margin will be again flattish, if the Bank of Canada moves, there’s maybe a little bit of pressure but nothing significant from what we’re seeing here today.”
“We all know we’re operating in a challenging macroeconomic environment with geopolitical tensions and global trade uncertainties,” said President and CEO Victor Dodig. “But having said that, we remain confident in our ability to manage through this environment.”
Dodig added: “Our long-term client-focused strategy is going to continue to shape our decision-making, aimed at further diversifying earnings growth, improving our operational efficiency and deepening our client relationships. I believe we’re well-positioned to be flexible in a changing market.”
Q3 net income: $606 million (6.5% Y/Y) Earnings per share: $1.66 a share
The bank’s residential mortgage and HELOC portfolio rose to $69.3 billion in Q3, up nearly 4% from $66.7 billion a year ago.
The bank’s residential mortgage portfolio is 40% insured, down from 42% a year ago.
The average LTV on the uninsured mortgage portfolio was 60%, while the average LTV on the HELOC portfolio was 58%.
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 was 2.23% in Q3, down from 2.26% a year earlier.
Uninsured mortgages and HELOCs in the GTA and GTV represented 10% (up from 9% in Q3 2018) and 2% (unchanged) of the portfolio, respectively, and have an average LTV of 52% (up from 51% a year ago) and 52% (up from 45%), respectively.
22% of the bank’s residential mortgage portfolio has a remaining amortization of 25–30 years (down from 24.9% in Q3 2018). Another 25.5% have a remaining amortization of 0–20 years.
Of the bank’s uninsured residential mortgage portfolio, 0.21% are in arrears by 90+ days.
“Being conscious of the uncertainties in the macro environment, we are being prudent in our risk/reward discipline and our loan growth targets,” noted William Bonnell, EVP, Risk Management. “We remain very comfortable with the quality of our portfolios and with our geographic and product mix.
Commenting on NBC’s growth in real estate secured loans, Lucie Blanchet, EVP, Personal Banking & Client Experience, said this: “…we were quite pleased with our mortgage growth. Through the last four quarters, we’re very strong…The market remains good and healthy in Quebec, as you know…In terms of region, true, Quebec is performing very well. And…outside of Quebec it’s operating in line with the market conditions in Ontario and B.C.”
Q3 net income: $3.3 billion (5% Y/Y) Earnings per share: $2.26
RBC’s residential mortgage portfolio rose this quarter to $256 billion, up from $239 billion a year ago.
Mortgage volume was up 6% year-over-year.
The bank’s HELOC portfolio fell to $39.4 billion from $40.2 billion a year ago.
64% of its mortgages are uninsured, up from 59% a year ago. The average LTV on the uninsured portion is 52%, up from 50% a year ago.
90+ day delinquencies in the overall residential mortgage portfolio remained unchanged at 0.19%. For the uninsured portion, delinquencies were steady at 0.16%.
The bank’s uninsured mortgage portfolio has an average FICO score of 797, up from 795 in Q3 2018.
The average remaining amortization of RBC’s residential mortgages is 18 years.
Condo exposure increased 20 bps to 10.4% of the bank’s residential lending portfolio.
Net interest margin was 2.80%, up from 2.74% in Q3 2018. “Going forward, we expect NIM to potentially drop as much as four to five basis points over the next year if the current interest rate outlook and market pricing holds,” CEO David McKay explained.
“Over the last few years, we’ve made significant investments in our digital capabilities including My Advisor and Know Me,” said McKay. “Our active mobile user base increased 17% year-over-year to 4.3 million this quarter.”
“We are also seeing increased momentum in our mortgage portfolio benefiting from additional sales capacity and new digital tools,” McKay added. “We remain prudent on our new mortgage underwriting with FICO scores in line with our existing portfolio.”
“Residential mortgages grew 6% year-over-year as we continued to gain market share through increased originations and client retention,” said McKay.
Commenting on growth in the portfolio, McKay said this: “there has been a trend of customers rolling out of the HELOC, looking to fixed and lock into the mortgage segment, that continues.”
Q3 net income: $1.98 billion (2.3% Y/Y) Earnings per share: $1.88
The total portfolio of residential retail mortgages rose to $222 billion in Q3, up from $212 billion in Q3 2018.
The portfolio is comprised of $192 billion in freehold properties (up from $185 billion a year ago) and $30 billion in condos (up from $27 billion a year ago).
Residential mortgages grew 3% year-over-year.
60% of the residential mortgage portfolio was uninsured in Q3, up from 55% in Q3 2018.
The average LTV of the uninsured portfolio was 55%, up from 53% in Q3 2018.
Net interest margin rose to 2.49%, up from 2.46% in Q3 2018, “driven by the impact of prior rate increases by the Bank of Canada,” said Raj Viswanathan, Chief Financial Officer. “We expect margins to be stable to modestly higher for the balance of the year.”
90+ day delinquencies in the residential mortgage portfolio ticked up to 0.21%, up from 0.20% a year ago.
58% of the bank’s uninsured portfolio has a FICO score of 788 or greater. The average score is 790 nationwide, and 791 in the GTA and 795 in the GVA.
“Given the slower start to the housing market in 2019, we expect to finish the year at low-single-digit volume growth in mortgages,” noted Viswanathan.
CEO Brian Porter said this about the bank’s outlook: “In terms of our footprint, there will be growth in 2020. There is no question about that. I think what you’re seeing is a divergence globally of the corporate economy and the retail economy…And so, corporate spending might come off a bit here. You’re seeing that in the UK. But, the consumer is still strong. So, if you cut rates from 2.00% to 1.75%, that might not mean a lot to a corporation, but it does to an individual. And so…if you look at Canada, the unemployment rates are at a 40-year low, wages are growing at 4%, mortgage rates are inexpensive, on any historic basis, fuel prices, energy prices are low. It’s a sweet spot for the consumer… So, we’re optimistic about the growth profile of this Bank.”
TD has been investing in hiring more mobile mortgage specialists, noted Teri Currie, Head of Canadian Personal Banking.
Asked about growth in mortgage products following previously strong growth in HELOCs, Currie said, “…customer by customer, we will help them make the right decision about the…RESL product that makes sense for them. And it is often the case that the hybrid HELOC product with its flexibility makes sense. We’re seeing a little bit right now (of) people going to fixed rates versus floating, and so that would explain a little bit of the mortgage growth.”