Mortgage News

Q3 2020 Bank Earnings – An Update on Big Bank Deferrals

The country’s Big Six banks provided an update on the state of their mortgage deferrals, with each reporting varying results in terms of getting those borrowers back to making regular payments.

Both RBC and National Bank of Canada saw their mortgages under deferral drop substantially from Q2 to Q3. RBC said 12% of its loan portfolio remains in deferral (vs. 18% in Q2), while NBC’s deferrals are down to 5% of its loan portfolio (vs. 11.9% in Q2).

Others are seeing a slower transition. TD said its mortgage deferrals fell to 12% of the portfolio from 14% in the previous quarter, while deferrals actually rose at Scotiabank from 17% of its portfolio in Q2 to 18% in Q3.

All of the big banks, however, expressed confidence in the ability of the far majority of those mortgagors to get back on schedule, with several offering insight into the financial strength of some of those clients.

“If we look at the LTVs and the FICO scores on the uninsured book, I think that’s the place we take a lot of comfort in, in terms of the underlying risk,” said Neil McLaughlin, Group Head, Personal and Commercial Banking at RBC. “LTVs in the mid-50%…and then average FICO at 758. I mean, these are strong credit clients with a lot of absorption capability.”

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.

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Bank of MontrealBMO

Q3 net income: $1.23 million (-21% Y/Y)
Earnings per share: $1.85

  • BMO’s residential mortgage portfolio rose to $115.6 billion, up from $110.5 billion a year earlier.
  • The HELOC portfolio—62% of which is amortizing—rose to $35 billion from $33 billion a year ago.
  • Mortgage growth through proprietary channels, including amortizing HELOCs, was up 7% year-over-year.
  • 40% of BMO’s residential mortgage portfolio is insured, down from 43% a year ago.
  • The loan-to-value on the uninsured portfolio is 54%, down from 55% a year ago.
  • 80% of the portfolio has an effective remaining amortization of 25 years or less, up from 71% a year ago.
  • Net interest margin (NIM) in the quarter was 2.54%, down from 2.66% in Q3 2019.

Deferrals & Provisions

  • The average credit score for clients with deferred balances is 745, and the average loan-to-value is 59%, BMO reported.
  • Total provisions for credit losses in Q3 was to $1.05 billion, down from $1.12 billion in Q2 but up from $306 million in Q3 2019.

Source: BMO Q3 Investor Presentation

Conference Call

  • “We have been pleased with our credit experience so far during this crisis, with credit migration, payment deferral expiry and impaired loan loss provisions well within expectations and utilization rates back to normal levels,” said Pat Cronin, Chief Risk Officer. “With that said, we do expect to see our impaired loan loss rate rise in the coming quarters and would guide to a rate in the 40s in terms of basis points for the next few quarters.”
  • “We would expect the bulk of the consumer deferrals to roll off in Q4. We wouldn’t anticipate giving out additional deferrals there,” Cronin added. “We think we will move much more just simply to a case by case with our consumer customers after that.”
  • “Overall, we have seen good performance on deferrals that have matured reflecting the quality of the clients and the collateral,” Cronin said.

Source: BMO Conference Call

CIBCCIBC

Q3 net income: $1.17 billion (-16% Y/Y)
Earnings per share: $2.55

  • CIBC’s residential mortgage portfolio rose to $207 billion in Q3, up from $201 billion in Q3 2019.
  • Of the portfolio, $27 billion is from the Greater Vancouver Area (unchanged a year earlier), and $65 billion is from the Greater Toronto Area (up from $63 billion a year ago).
  • Of the uninsured portfolio, the LTV was 52%, unchanged from a year ago.
  • The bank reported $11 billion in originations in the quarter, up from $9 billion last quarter.
  • The bank’s HELOC portfolio ended the quarter at $19.5 billion, down from $21.6 billion a year ago.
  • Net interest margin in Q3 was 238 bps, down from 254 bps in Q3 2019.

Deferrals & Provisions

  • CIBC reported $33.3 billion worth of mortgage balances still in deferral in Q3, down slightly from $35.5 billion reported in Q2.
  • Of the bank’s uninsured residential mortgage portfolio, 0.36% are in arrears by 90+ days, up from 0.32% in Q2 and 0.27% in Q3 2019.
    • CIBC says this is “due to the stopping of collection efforts during the peak COVID period. Delinquencies are expected to trend lower in Q4/20.
    • “We experienced a small increase in gross impaired balances,” said Shawn Beber, Chief Risk Officer. “However, given the moderate average loan-to-value ratio of this portfolio, we do not expect this increase to translate into material losses.
  • Provisions for credit losses were $525 million for the period ended July 31, up from $291 million a year ago, but down from $1.41 billion in the second quarter.
  • “Provisions on impaired loans were lower this quarter than the second quarter,” he added. “However, we do expect to see impaired provisions trend higher over time, as relief programs come to an end and flow write-offs and insolvencies increase.
  • “The overall Canadian consumer late-stage delinquency rate was up this quarter, with a higher rate in residential mortgages and a lower rate in credit cards and personal lending,” Beber added.

Source: CIBC Q3 Investor Presentation

Conference Call

  • “We drove year-over-year growth in mortgage balances of 3% on a spot basis as the real estate market started to recover in June and July,” said CEO Victor Dodig. “And while our performance is not yet where we want it to be, our recent growth has returned closer to market levels, supported by additions to our more mobile advisor team and a streamlined application process. We continue to see very high levels of digital engagement with digital banking sessions and transactions up approximately 25% from pre-pandemic levels.”

Source: CIBC Conference Call

NBC

National Bank of Canada

Q3 net income: $602 million (-1% Y/Y)
Earnings per share: $1.66 a share

  • The bank’s residential mortgage and HELOC portfolio rose to $85.6 billion in Q3, up from $78.7 billion a year ago.
  • The bank’s residential mortgage portfolio is 38% insured (70% in Alberta), down from 40% a year ago.
  • The average LTV on the uninsured mortgage portfolio was 59%, while the average LTV on the HELOC portfolio was 56%.
  • Quebec represented 55% of the mortgage book (up from 54% from a year ago), while Ontario made up 26% (unchanged) and Alberta 8% (unchanged).
  • Net interest margin was 2.15% in Q3, down from 2.23% a year earlier.

Deferrals & Provisions

  • NBC reported 14,405 real estate secured loans (5% of loan balances) still under deferral as of July 31, down from 36,682 loans (11.9%) as of April 30.
  • The bank said it handled 10k payment deferral requests in Q3 vs. 75k in Q2.
  • About 99% of the bank’s deferrals will expire by Oct. 31.
  • Insured mortgages represent nearly half of all mortgages under deferral.
  • 98% of expired residential mortgage deferrals have restarted regular payments.
  • Since Q1, total allowances for credit losses has increased from $769 million to $1.3 billion.
  • Of the bank’s uninsured residential mortgage portfolio, 0.34% are in arrears by 90+ days, up from 0.21% in Q3 2019.

Source: National Bank Q3 Investor Presentation

Conference Call

  • Since Q2, the value of retail loans on the deferrals is down 60%,” said CEO Louis Vachon. “In addition, the vast majority of clients are resuming payments as scheduled as they exit deferral programs.
  • On mortgages…we offered up to six months [payment deferral], but we approached it to work proactively with our customers for a first three-month period, and then proceed with another three months at their request based on each individual need for hardship,” said Lucie Blanchet, VP Personal Banking and Marketing.
  • “So, there were a couple of reasons why we did that. First, we wanted to be proactive and work with our customers quicker than in six months to better understand their situation and find proactive solution,” she said. “But we also understood that there was a cost for them to defer their payments. And we wanted to limit that impact as much as possible. And obviously, it gave us some insights on the restraints before six months.

Source: NBC Conference Call

Royal Bank of CanadaRBC

Q3 net income: $3.2 billion (-1.8% Y/Y)
Earnings per share: $2.20

  • RBC’s residential mortgage portfolio rose this quarter to $283 billion, up from $276 billion a year ago.
  • Mortgage volume was up 10% year-over-year.
  • The bank’s HELOC portfolio fell to $37 billion from $39.4 billion a year ago.
  • 66% of its mortgages are uninsured, up from 64% a year ago. The average LTV on the uninsured portion is 51%, down from 52% a year ago.
  • 90+ day delinquencies in the overall residential mortgage portfolio rose to 0.18% from 0.17% a year ago.
  • The bank’s uninsured mortgage portfolio has an average FICO score of greater than 800, up from 797 in Q3 2019.
  • Net interest margin was 2.58%, down from 2.80% in Q3 2019 “due to lower interest rates and the impact of competitive pricing pressures.”

Mortgage Deferrals & Provisions

  • RBC approved about 350,000 Canadians as part of its deferral program.
  • As of Q3, $55 billion worth of loans were still being deferred (12% of total Canadian banking loans).
  • RBC said 83% of its active deferral balances will expire in Q4. The average remaining term on active deferrals is 2.5 months.
  • To date, $23 billion worth of loan deferrals have expired, and 80% have resumed regular payments, while 19% have extended their deferrals by up to 6 months. The remaining 1% became delinquent.
  • Total allowances for credit losses grew to $6.1 billion in Q3, up from $5.9 billion in Q2.

Source: RBC Q3 Investor Presentation

Conference Call

  • Our e-signature solution is helping our mortgage specialists in the field and our clients are benefiting from investments we made in digital tools to allow for self serve renewals,” said CEO Dave McKay. “While it’s too early to comment on the sustainability of these trends, we will continue to help Canadian homeowners while supporting balanced growth in the market.”
  • Many clients took deferrals as a precaution, and we expect most to resume payments when deferrals expire,” McKay added.
  • “We’re reaching out to these clients,” said Neil McLaughlin, Group Head, Personal and Commercial Banking. “I think we’re quite encouraged by the feedback we’re getting from clients and their ability to resume these payments.
  • In terms of geographic breakdown of RBC’s mortgage deferrals, Graeme Hepworth, Chief Risk Officer, said this: “…the highest deferral rates would be in Alberta, consistent with… the kind of dual impact that Alberta is facing, both with the pandemic and the impact on the oil and gas environment. GTA would be next highest there. And again, that’s a reflection of two things, I would say. One is kind of a lot of the service economy that comes out of Toronto, but also kind of the higher level of home prices. And then, on the lower side, you’d see Quebec and some of the other parts of Ontario outside of the GTA.”
  • Commenting on the makeup of its deferral clients, McLaughlin said this: “if we look at the LTVs and the FICO scores on the uninsured book, I think that’s the place we take a lot of comfort in, in terms of the underlying risk. LTVs in the sort of the mid-50%…and then average FICO at 758. I mean, these are strong credit clients with a lot of absorption capability.

Source: RBC Conference Call

ScotiabankScotiabank

Q3 net income: $1.3 billion (-34% Y/Y)
Earnings per share: $1.04

  • The total portfolio of residential retail mortgages rose to $221 billion in Q3, up 6% from $207 billion in Q3 2019.
  • Net interest margin fell to 2.26%, down 18 bps from Q3 2019.

Deferrals & Provisions

  • Gross impaired loans were up 34 bps as of Q3 vs. 31 bps in Q3 2019. Mortgage loans that were 90+ days past due rose to 0.21%, up from 0.19% a year ago.
  • Scotia reported that 41.5% of its mortgage deferrals expired in July, with another 23.3% coming up for expiry this month. Another 11.9% are set to expire in October.
  • Scotia had 137,000 active deferral requests as of Q3, representing $39 billion of its mortgage portfolio.

Source: Scotiabank Q3 Investor Presentation

Conference Call

  • Of the mortgage holders still in deferral, their average credit score is 750 and higher, “close to those that are not in deferral,” noted Dan Rees, VP of Canadian Banking.
  • “We have identified in June…the customers we would qualify or characterize as vulnerable, through the course of July and into August we will have contacted all of those mortgage customers two months ahead of their scheduled prepayment and are working with them on a case-by-case basis and we are encouraged by what we saw through the month of August,” said Rees.
  • Asked what proportion of those would be considered “vulnerable,” Rees replied, “Less than 10% of those that are still in deferral.”

Source: Scotiabank Conference Call

TD BankTD-Bank

Q3 net income: $2.25 billion (-31% Y/Y)
Earnings per share: $1.21

  • TD’s residential mortgage portfolio was $206.1 billion in Q4, up from $197.5 billion in Q3 2019.
  • The bank’s HELOC portfolio rose to $92.1 billion from $90 billion a year ago.
  • TD’s residential real estate secured lending portfolio is 72% uninsured (up from 68% a year ago) with a 53% LTV for the uninsured portion (down from 54% in Q3 2019).
  • Gross impaired loans in the residential mortgage portfolio rose to 0.17%, up from 0.16% a year ago.
  • Net interest margin in the bank’s retail portfolio fell to 2.68% in Q3, down 15 bps from the previous quarter and down 28 bps from a year ago.
  • 56% of the bank’s residential mortgage portfolio is in Ontario (down from 51%), followed by B.C. at 20%, the Prairies at 14%, Quebec at 8% and just 2% in Atlantic Canada.

Deferrals & Provisions

  • Provisions for credit losses rose 74% over the last two quarters to $9.2 billion (124 bps) in Q3, up from 7.9 billion in Q2 and $4.9 billion a year ago.
  • Impaired residential mortgage loans ticked up to 0.07% from 0.06% in Q2.
  • Mortgages under deferral fell to 12% of the portfolio from 14% in the previous quarter.

Source: TD Bank Q3 Investor Presentation

Conference Call

  • “We continue to operate through challenging and uncertain conditions given the unprecedented impact from the COVID-19 pandemic and have added allowances for credit losses accordingly,” said Chief Risk Officer Ajai Bambawale. “I’m satisfied with the bank’s allowance coverage, which reflects our current economic outlook and our portfolio and geographic mix.”
  • In terms of sequential volume growth, TD was third among its competitors, noted Theresa Currie, Group Head, Personal Banking. “If I think about the quarter, we were competing in some sense with one arm tied behind our back,” she said. “As of August 24, we have fewer branches open than three of our four top competitors, and I think we’ve been somewhat more conservative with our safe reopening.”
  • Still, Currie added: “with the investments we’ve made in distribution, in operations, in automation, in training and with the network open, I feel like we’re well positioned to grow the business. And our retention was very strong at 60 basis points in the quarter.

Source: TD Conference Call


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


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