Q1 Earnings Mortgage Morsels: National Bank of Canada
National Bank of Canada posted strong first-quarter earnings, driven largely by trading revenues, while mortgage growth was slower than that of its big-bank peers.
The bank saw retail mortgage growth of 2% in the quarter, while executives addressed a loss of market share in Quebec over recent quarters.
“I think the mortgage market is always very competitive and, especially in a rising rate environment, client rate lags a little bit, and we see more market competitiveness,” Lucie Blanchet, VP of Personal Banking & Client Experiences, said during the conference call. “So, we’ve seen some of that in the last quarters…”
Here’s a run-down of NBC’s mortgage portfolio performance in the quarter…
Q1 net income: $932 million (+22.5% Y/Y) Earnings per share: $2.65 a share
The bank’s residential mortgage portfolio rose to $84.9 billion in Q1,up from $78 billion a year ago.
The bank’s residential mortgage portfolio is 32% insured, down from 37% a year ago.
The average LTV on the uninsured mortgage portfolio was 54%(down from 57%), while the average LTV on the HELOC portfolio was 49% (down from 54%).
Quebec represented 54% of the mortgage book (down from 56% from a year ago), while Ontario made up 28% (up from 27%)and Alberta 7% (down from 8%).
Net interest margin was 2.05% in Q1, down from 2.16% a year earlier.
Of the bank’s uninsured residential mortgage portfolio, 0.12% are in arrears by 90+ days,down from 0.17% in Q1 2021.
The bank recovered $2 million from its provisions for credit losses in the quarter, compared to the $81 million set aside for bad loans in Q1 2021.
“We are obviously keeping a close eye on inflation. Global supply challenge — global supply chain challenges, as well as unfolding geopolitical events, which could exacerbate inflation and volatility, and potentially have an impact on the global economic outlook,” said President and CEO Laurent Ferreira. “That being said, our current outlook for Canada and Quebec, is positive.”
“The housing market remains robust, with retail mortgage loans up 2% sequentially,” said Ferreira.
Asked for an outlook on the bank’s residential mortgage growth in 2022, Blanchet said this: “We are comfortable with our disciplined approach between balancing volume, margin, and risk, and the way we see the market right now, we are confident to perform close to high, into the double-digit, similar to what we achieved in Q1. And we think that despite the rising in rates, the imbalance between supply and demand should continue to stimulate the real-estate market during 2022.”
Asked why mortgage growth in the quarter was below that of NBC’s peers, Blanchet replied, “I would say that we’ve seen originations a little softer this quarter and probably link that with the increasing rate environment. But just as a reminder, originations have reached record high in 2020 and 2021, so it’s nothing that is really material at this point.”
One analyst on the call remarked that National Bank had lost much of the market share gains the bank had gained during the pandemic. Blanchet said, “I think the mortgage market is always very competitive and especially in a rising rate environment, client rate lags a little bit, and we see more market competitiveness, so we’ve seen some of that in the last quarters, the last two quarters maybe, so that lag is really there.”
She continued, “…lately, I would say that margin has been tight for sure, in the context of rising rate environment. However, we do see much more customer engagement coming from mortgage activity.”
Asked about the impact that the broker channel is having on National Bank’s Quebec mortgage share, Blanchet said, “70%, 75% is based on our internal channel. As you know, we made a big change with our strategy on brokers a couple of years ago. And we are backing the channel now because it’s a channel that customers, specifically first-time homebuyers, preferred. So, we are present, but our stride is based on our internal channel.”
Blanchet later confirmed that the recent losses in National Bank’s market share came predominantly from the broker channel.
“Our performing provisions should be driven by changes to the macroeconomic outlook, portfolio growth, and migration,” said William Bonnell, Chief Risk Officer. “Absent a significant deterioration in the macroeconomic outlook, we would expect additional releases from our performing allowance in the coming quarters.”