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TD Bank Q3 2023 earnings

TD reports strong mortgage volumes and stabilizing amortizations

Despite a sharp slowdown in mortgage originations this year, TD Bank reported strong annual volume growth of 4% in the third quarter.

That helped drive overall loan volume growth across all of its Canadian personal and business lending of 6%.

“TD continued to execute against the strategies outlined at our recent Investor Day, taking share in a slower growth market and expanding our portfolio,” TD’s President and CEO Bharat Masrani said during the bank’s earnings call.

Amortization lengths starting to stabilize

In previous quarters, TD, like other banks that offer fixed-payment variable-rate mortgages like BMO, RBC and CIBC, had seen the amortization periods for those mortgages lengthen dramatically.

As of Q3, 22.8% of the bank’s mortgage portfolio had an amortization period of over 35 years, down from a high of 27.4% reached in the first quarter.

Remaining amortizations for TD residential mortgages

Q3 2022Q2 2023Q3 2023
15-20 years15.6%13.8%13.7%
20-25 years40%29.7%29.3%
25-30 years34.2%20.5%22.3%
30-35 years1%1.8%2.9%
35 years and moreNA25.1%22.8%

“What we’re seeing is our customers, when they’re hitting [their] trigger rate, we have a proactive program to reach out…and give them the options, which include lump sum payments, increasing their payments, switching to a fixed-rate product, etc.,” explained Michael Rhodes, Group Head, Canadian Personal Banking.

“And we’re having good uptake,” he added. “So I think that table shows consumers reacting to our outreaches with respect to the customers who have [reached their] trigger rate.”

Asked specifically what percentage of the bank’s mortgage portfolio that might represent, Rhodes simply said it’s a “meaningful number of customers who we reach out to who are making the changes.”

TD earnings highlights

Q3 net income (adjusted): $2.96 billion (+8% Y/Y)
Earnings per share: $1.57

Q3 2022Q2 2023Q3 2023
Residential mortgage portfolio$244.5B$247.7B$256.4B
HELOC portfolio$112.2B$114.4B$117B
Percentage of mortgage portfolio uninsured80%81%82%
Avg. loan-to-value (LTV) of uninsured book47%53%52%
Portfolio mix: percentage with variable rates44%43%39%
Mortgages renewing in the next 12 monthsNA~9%~9%
Canadian banking gross impaired loans0.16%0.22%0.24%
Canadian banking net interest margin (NIM)2.70%2.74%2.74%
Provisions for credit losses$351M$247M$766M

Source: TD Bank Q3 Investor Presentation

Conference Call

  • Asked about TD’s current competitive mortgage rate pricing, Michael Rhodes, Group Head, Canadian Personal Banking, said the following: “the market is competitive. Consumers are pushing on rates as they face a higher and a different rate environment they have in the past few years. There’s also less volume in the market. And so, this is increased competition levels of that doubt. But let me be clear, we have walked away from business this quarter based upon pricing offered by some competitors. And so, there is margin pressure, and a lot of market factors come into play. One of the market factors is when the yield curve is moving around a lot, we have to adjust kind of in the moment.”
  • Rhodes added that TD’s success with its loan volume growth is attributable to three key investments the bank has made to improve its execution:
    • “…you heard me talk about lead management in the past. And this is just fundamentally taking shoppers and converting them into buyers. And we’ve actually seen double-digit increases on a year-over-year basis in our conversion of shoppers to buyers through our lead management program. We’re seeing, first of all, more leads, better contact rates and better pull-through. So, that’s actually turning more of our franchise customers into mortgage customers.”
    • “Second is we had a marketing campaign this spring, which was very successful and actually drove market-leading consideration.”
    • “Third is [that] our sales force productivity…is improving. And so then again, that’s translating into more business. And then we also do have a broad distribution play. In a slower market, we think this helps, as we have much more reach versus others in many segments. And pile on top of all this, on the retention side, we’ve got some great analytic capabilities that really helped us retain some higher-risk attrition customers.”

Source: TD Conference Call

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

Featured image: Cole Burston/Bloomberg via Getty Images