National Bank of Canada, the smallest of the Big 6 banks, reported third-quarter earnings in line with market expectations.

The bank’s executive team said its real estate-secured lending portfolio (i.e. mortgages and home equity lines of credit), performed well in Q3, but that a slowdown is imminent in the coming quarters due to rising interest rates.

“While higher rates have already impacted the housing market through lower volumes and prices, the resilience in our RESL portfolio remains strong,” said President and CEO Laurent Ferreira. “Borrowers’ incomes are rising, delinquency rates improved, and clients have built up very healthy levels of equity as demonstrated by the low LTVs.”

The bank noted that nearly a third of its mortgages (31%) have variable rates and that 11% of its mortgage borrowers are investors.

Ferreira added that the current environment is “uncertain and complex,” due to high inflation, rising interest rates and heightened geopolitical risks.

“Our credit portfolios continue to perform well. We are maintaining a disciplined and balanced approach in underwriting new deals, and we continue to carry a prudent level of reserves,” he said on the bank’s conference call.”

Lucie Blanchet, Executive Vice-President, Personal Banking and Client Experience, added that the bank is seeing a “market normalization” in its mortgage portfolio, not a “market collapse.”

“So, we think rising rates will continue to reduce the number of transactions, which should lead to more balanced markets across the country,” she said.

NBC earnings highlights

Here’s a run-down of NBC’s mortgage portfolio performance in the quarter…

Q3 net income: $826 million (-2% Y/Y)
Earnings per share: $2.35 a share

• The bank’s residential mortgage portfolio rose to $88 billion in Q3, up from $82.2 billion a year ago.
• The bank’s residential mortgage portfolio is 37% uninsured, up from 34% a year ago.
• The average LTV on the uninsured mortgage portfolio was 50% (down from 55%), while the average LTV on the HELOC portfolio was 46% (down from 50%).
• Quebec represented 55% of the mortgage book (up from 54% a year ago), while Ontario made up 28% (up from 27%) and Alberta 7% (unchanged).
• Net interest margin was 2.17% in Q3, up from 2.09% a year earlier.
• Of the bank’s uninsured residential mortgage portfolio, 0.07% is in arrears by 90+ days, down from 0.11% in Q3 2021.
• The bank added $57 million to its provisions for credit losses in the quarter, compared to the $3 million set aside for bad loans in Q2 and the recuperation of $43 million a year ago.

Source: National Bank Q3 Investor Presentation

Conference Call

• On the bank’s current economic outlook, President and CEO Laurent Ferreira said this: “Although the probability of a recession has increased over the past few weeks, it is not our base case. Our economics team is currently calling for a soft landing of the Canadian economy. In our view, inflation should continue to decelerate and interest rates should normalize this fall to just over 3%.”
• The bank’s mortgage volumes were up 8% year-over-year, but Ferreira noted that, “Given the rising interest rate environment, we anticipate the demand for real estate secured lending to continue to normalize back to pre-COVID levels.”
• “Several factors continue to support the Canadian housing market, including strong immigration and unemployment at historic lows,” he added. “We also expect Quebec’s housing market to be resilient given better relative housing affordability, consumer savings and debt levels in the province.”
• “As demonstrated by our Q3 results, the Bank is benefiting from higher interest rates,” said Chief Financial Officer Marie Chantal Gingras. “On a total Bank basis, [net interest income] was up 16% year-over-year, and our net interest margin, excluding trading, was up 9 basis points year-over-year.”
• Asked why NBC outperformed its other big-bank peers this quarter on revenue and earnings, Ferreira said, aside from a “disciplined approach, …one of the big differences that you should be aware of is we are focused on Canada. We have a Canadian platform and most of our peers have businesses in the U.S. I think that could be a big delta in the results that you’re seeing so far.”
• William Bonnell, Executive Vice-President, Risk Management, commented on why the bank has confidence in Quebec mortgage consumers and their increased capacity to absorb higher interest rates and cost of living compared to consumers in the rest of Canada (keeping in mind half of the bank’s portfolio is originated in Quebec):
  • “One we’ve talked about a lot in the last 10 or 15 quarters is that Quebec households have got higher dual income households because of the very high participation rate of women in the workforce in Quebec. You know, of course, that the consumer debt-to-disposable income in Quebec is much lower than the average,” he said, adding that energy costs for households, the majority of which rely on electricity, has also been more stable compared to other parts of Canada.
• Lucie Blanchet, Executive Vice-President, Personal Banking and Client Experience, noted that the rapid rise in interest rates had an impact on mortgage demand. “We had two years of unsustainable level in terms of transactions,” she said. “So, I think we’re getting back to normal. And with the further rate hikes that we expect this fall, we believe that originations will continue to grow at a slower pace in Q4.”
• “We’re well-positioned because 50% of our originations are in Quebec and we see the market as being more resilient in Quebec,” Blanchet added.

Source: NBC Conference Call

Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.

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Last modified: March 20, 2025