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Scotiabank Q4 2021 earnings
Photo by Artur Widak/NurPhoto via Getty Images

Q4 Earnings Mortgage Morsels: Scotiabank & RBC

A reduction in provisions set aside for potential credit losses boosted fourth-quarter earnings results for both Scotiabank and RBC this week.

Both big banks reported strong growth in their mortgage portfolios, but faced compression in net interest margin (NIM), due largely to the lower spreads earned on mortgages compared to other products, such as credit cards.

As Scotia’s Chief Financial Officer Raj Viswanathan noted during the conference call, the decline in NIM was “driven by the shift in the loan portfolio mix towards mortgages.”

Both Scotia and RBC also announced dividend hikes, the first such increase for shareholders since the start of the pandemic. This follows a decision by the Office of the Superintendent of Financial Institutions (OSFI) last month to lift pandemic-related restrictions that prevented federally regulated financial institutions from raising dividends, buying back shares and increasing executive compensation.

We’ve picked through the banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage notables below.


Q4 net income: $2.6 billion (+37% Y/Y)
Earnings per share: $2.10
Fiscal year 2021 net income: $10 billion (+45%)

  • The total portfolio of residential retail mortgages rose to $255 billion in Q4, up from $243 billion in Q3 and $215 billion in Q4 2020.
  • Residential mortgage volume was up 13% year-over-year.
  • Scotia raised its dividend by 11% to $1 a share, and announced it will buy back 24 million shares, or 2% of its outstanding shares. 
  • Net interest margin fell to 2.20% from 2.23% in Q3 2021 and 2.26% in Q4 2020,”driven by the shift in the loan portfolio mix towards mortgages,” said Chief Financial Officer Raj Viswanathan.
  • Mortgage loans that were 90+ days past due fell to 0.12% from 0.13% in Q3 and 0.15% a year ago, “driven by lower personnel costs, partially offset by higher advertising and business development costs,” Viswanathan noted.
  • Scotia’s provisions for credit losses fell to $168 million, down from $1.1 billion a year ago and a peak of $2.2 billion in Q3 2020.

Source: Scotiabank Q4 Investor Presentation

Conference Call

  • “Our asset quality remained high, driven by customer demand for retail secured borrowing in Canada and in International Banking,” said Chief Risk Officer, Phil Thomas. “Secured lending in our retail portfolio remains higher than pre-pandemic levels.”
  • The bank is expecting write-offs to remain lower than pre-pandemic levels through fiscal 2022, Thomas added.
  • “We ended the year with allowances for credit losses of $5.7 billion [down from a peak of $7.8 billion in Q4 2020], which is higher than pre-pandemic levels of $5.1 billion,” Thomas said. “The ACL ratio is now 86 basis points compared to 82 bps prior to the pandemic. The ACL ratio will continue to trend lower through fiscal ’22 due to our expectation of lower write-offs compared to historical trends.”
  • Looking ahead, Thomas said this: “We expect strong credit performance to continue, with improved credit metrics driven by higher credit quality of originations, as well as a favourable macroeconomic environment.”
  • “We are mindful of reports of a new variant of concern termed, Omnicron, but remain comfortable with our allowances, which provide for pessimistic COVID-19 scenarios, including both a sharp rise in cases and a longer duration,” Thomas added.
  • “…mortgages have been growing significantly faster than other businesses, likewise business banking. We love it, but except that it does impact the margin expansion,” Porter said in response to a question about margin compression. “…we believe that there will be margin expansion. And like I mentioned in my previous calls, we are positioned for rate increases even from a hedging perspective.”
  • Asked about potential concerns over the pace of mortgage growth in Canada, Dan Rees, Group Head, Canadian Banking, said this: “Originations were stronger than we expected, as well as retention, which is an item we’ve been re-engineering through the business for the last number of quarters…Our outlook for mortgage growth next year is to begin to slow. We do believe that supply underpins price appreciation. And while that persists, should rates rise sooner in the year, as I think many of us are expecting, we expect that to soften demand.”
  • He continued, “the growth in upsizing, the purchase of second properties and entering the market was, in some fashion, supported by gifts inter-generationally through families, and that’s an important source of equity movement, which we think supports mortgage growth from here, including through the risk lens. And to underline in our quarter and all year long, we did not see a HELOC book growth, which I know is an area of concern.”
  • Asked about inflation concerns, Viswanathan said, “…our economists’ view is there’s some level of transitory inflation in the numbers that we’re seeing…And that we believe will normalize once you see some of the supply chain issues normalize, and that could be in a quarter or two away from our perspective.”

Source: Scotiabank Conference Call


Royal Bank of CanadaRBC

Q4 net income: $3.9 billion (+20% Y/Y)
Earnings per share: $2.68
Fiscal year 2021 net income: $16.1 billion (+41%)

  • RBC’s residential mortgage portfolio rose this quarter to $322.4 billion, up from $291 billion a year ago.
  • The bank’s HELOC portfolio fell to $35.2 billion from $37 billion a year ago.
  • RBC also hiked its dividend to $1.20 per share, up from $1.08.
  • 72% of its mortgages are uninsured, up from 67% a year ago. The average LTV on the uninsured portion is 47%, down from 51% a year ago.
  • 90+ day delinquencies in the residential mortgage portfolio fell to 0.13% from 0.14% in Q3 and 0.14% a year ago.
  • RBC recovered $277 million of its provisions for credit losses in the quarter compared with the $427 million it set aside for bad loans in Q4 2020.
  • 53% of the bank’s uninsured mortgage portfolio has an average FICO score of at least 800.
  • Condos make up 11% of balances in the bank’s outstanding residential lending portfolio, unchanged from the previous quarter.
  • Canadian Banking net interest margin was 2.42%, down from 2.58% in Q3 and 2.56% in Q4 2020.

Source: RBC Q4 Investor Presentation

Conference Call

  • “We see growth opportunities in each of our Canadian businesses and our results this year reflect the value we create for our clients,” said President and CEO Dave McKay. “In Canadian Banking, we added over $35 billion in mortgages and over $22 billion in personal deposits over the last year, leading to market share gains in both these anchor products.”
  • “While higher interest rates could add some drag to economic growth, we do not see material credit concerns, given excess client liquidity, strong underwriting, including testing for higher rates,” McKay added.

Source: RBC Conference Call

Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
Feature image by Artur Widak/NurPhoto via Getty Images