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TD saw a drop in negatively amortizing mortgages in the fourth quarter

TD Bank said “positive payment actions” taken by its mortgage clients have reduced the number of mortgages that currently have a negative amortization.

In its fourth-quarter earnings report, the bank revealed that about 14% of its fixed-payment variable rate mortgage portfolio is currently in negative amortization, meaning the monthly payments of those clients aren’t enough to cover the total interest cost, which is being added to the principal balance. That’s down from roughly 18% in the previous quarter.

“We are seeing positive payment actions by clients that are reaching trigger rates and we reach out to those clients well in advance of them reaching trigger rate,” said Chief Risk Officer Ajai Bambawale. “And they’re responding positively by either making lump sum payments or moving to a fixed rate or increasing the [principal and interest].”

Amortization lengths coming back down

As a result of that outreach and action being taken by borrowers who temporarily saw their amortization periods grow, those amortizations are slowly coming back down. It’s a trend that’s also been seen at BMO and CIBC, which also offer fixed-payment variable-rate mortgages and allow them to negatively amortize.

When these mortgages come up for renewal, the amortization period also resets back to its contracted period, typically resulting in higher monthly payments.

As of Q4, about 19% of TD’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

Q4 2022Q3 2023Q4 2023
15-20 years13.5%13.7%14.1%
20-25 years29.5%29.3%31.5%
25-30 years19.2%22.3%24.6%
30-35 years3.7%2.9%1.4%
35 years and more25.2%22.8%19.2%

TD earnings highlights

Q4 net income (adjusted): $3.5 billion (-14% Y/Y)
Earnings per share: $1.83

Q4 2022Q3 2023Q4 2023
Residential mortgage portfolio$244.9B$256.4B$261.3B
HELOC portfolio$113.7B$117B$117.6B
Percentage of mortgage portfolio uninsured80%82%83%
Avg. loan-to-value (LTV) of uninsured book49%52%50%
Portfolio mix: percentage with variable rates45%39%37%
Mortgages renewing in the next 12 months~10%~9%~13%
Canadian banking gross impaired loans0.11%0.13%0.14%
Canadian banking net interest margin (NIM)2.70%2.74%2.78%
Provisions for credit losses$617M$766M$878M
Source: TD Bank Q4 Investor Presentation

Conference Call

  • With expenses up 25%, President and CEO Bharat Masrani said, “…we recognize that the bank’s cost base is higher than it should be. We’re undertaking a broad-based restructuring program to deliver efficiencies and drive profitability across the enterprise.” He added the program includes “real estate optimization.”

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: Alex Tai/SOPA Images via Getty Images