Q4 Earnings Mortgage Morsels: TD & National Bank of Canada
TD Bank’s fourth-quarter earnings beat analyst expectations this week thanks to record loan originations across its businesses, including mortgages.
The bank’s residential mortgage portfolio has grown nearly 9% over the past year.
National Bank of Canada also reported its quarterly results, showing its residential mortgage book growing nearly 10% since last year.
Both banks benefited from a reduction in provisions set aside for potential credit losses. And likeRBC and Scotiabank, both TD and NBC announced increases to their quarterly dividends of 13% and 23%, respectively.
We’ve picked through the banks’ quarterly earnings presentations and conference calls and compiled all the mortgage notables below. Key details are highlighted in blue.
Q4 net income: $3.8 billion (-25% Y/Y) Earnings per share: $2.04
Fiscal Year 2021: $14.3 billion (+20%)
TD’s residential mortgage portfolio rose to $230.5 billion in Q4, up from $226.3 billion in Q3 and $211.7 billion a year ago.
The bank’s HELOC portfolio grew to $102.1 billion, up from $99.9 billion in Q3 and $94.5 billion a year ago.70% of the bank’s HELOC portfolio is amortizing, up from 69% in Q3.
TD’s residential real estate secured lending portfolio is 77% uninsured (up from 73% a year ago) with a 49% LTV for the uninsured portion (down from 53% in Q4 2020).
Gross impaired loans in the residential mortgage portfolio were 0.19%, down from 0.22% in Q3 and 0.28% a year ago.
Net interest margin in the bank’s retail portfolio fell to 2.57% in Q4, down from 2.61% in the previous quarter and 2.71% a year ago, “reflecting lower mortgage prepayment revenue,” said Chief Financial Officer Kelvin Tran.
54% of the bank’s residential mortgage portfolio is in Ontario (up from 52%), followed by B.C. at 20% (up from 18%), the Prairies at 15% (down from 17%), Quebec at 9% (unchanged) and 2% in Atlantic Canada (down from 3%).
TD raised its dividend by 13%, from 79 cents a share to 89 cents. It also said it could repurchase up to 2.7% of its shares this year.
TD recuperated another $123 million that had been set aside for credit loss provisions.
“Our retail businesses recorded strong volume and fee income growth as we added new customers and deepened existing relationships in an environment of rising activity,” said President and CEO Bharat Masrani. “We delivered record real estate secure lending originations, card retail sales, wealth assets and insurance premiums.“
Speaking to provisions for credit losses and outlook for next year, Chief Risk Officer Ajai Bambawale said this: “Credit performance trended positively in 2021 as we progress through the pandemic, as evidenced by cyclically low gross impaired loan formations, gross unpaid loans, and PCL. I expect PCLs to be higher in 2022 increasing from unsustainably low levels this year as the benefit from support programs subside and credit conditions begin to normalize.“
“The bank generated an industry-leading return on equity, while maintaining strong capital levels and prudent credit reserves,” said the bank’s new President and CEO, Laurent Ferreira. “Our credit quality remains strong and our portfolios have performed very well since the beginning of the pandemic.”
The bank saw its commercial loan balances increase 18% year-over-year, or 5% compared to Q3, with retail mortgage loans up 11%.
“We expect the strength in residential mortgages to continue, due to factors such as the imbalance in the housing market, labour market recovery, immigration picking up, the low interest rate environment and strong household balance sheet,” Ferreira added.
“For impaired loan provisions, we should begin to see a return to more normalized levels during the year,” said Chief Risk Officer William Bonnell. “… this normalization is likely to happen over the next year and into 2023.”
Commenting on the commercial loan growth, Stephane Achard, Executive VP of Commercial Banking and Insurance, said this: “The growth was phenomenal last year at 18% and it was largely driven by the book of insured real estate. And that book has almost doubled over the last year. We took opportunity in the market and we wanted to grow that book outside of Quebec, particularly. And obviously, those loans call for much smaller premiums, because of their insured nature.”
Commenting on the current spread between variable and fixed mortgage rates, Lucie Blanchet, Executive VP of Personal Banking and Client Experience, said, “…since Q2, variable rates have been most popular at origination given the difference in pricing that we see…we follow consumer behaviour and consumer appetite on interest rate volatility. And with what we see right now, it’s also a positive on the margin side.“
Asked about compressed interest margins in the residential mortgage portfolio, Blanchet said this: “Our strategy is not to lead with price but be more of a smart follower with a competitive positioning for our clients. So we’ve seen some peers with superior mortgage growth being more aggressive since last summer, but we always try to remain very disciplined on our approach…So in the past quarter, we’ve seen some margin compression due to competitiveness for sure. But also in the last two quarters, there’s been some lag between cost of funding increases and increases in clients’ rates.”