Bank earnings_sq

Just when you thought profits at the Big Banks couldn’t soar any higher, they do. And then some.

The Big 6 Banks earned a whopping $35 billion combined in 2015. Much of that is thanks to strong performance from residential mortgages, despite the slowdown in Alberta and Saskatchewan. Wider spreads on variable rate products also helped boost net interest margin for several of the banks.

There was ample discussion about the expected impact from slowing economies in the prairie provinces. The consensus from banks is that they haven’t seen a substantial increase in defaults so far, but that it will take more time for the full effects to flow through to their balance sheets.

As we do every quarter, CMT has dug through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage-related highlights. The more interesting observations appear in blue.




If you’re a mortgage industry watcher, you’ll find occasional wisdom in the earnings calls of Canada’s non-bank lenders. So we’ve decided to cherry-pick some of their soundbites and post them in a new series called Lender Call Roundups.

This quarter, we heard from Home Trust on its terminated brokers, Street Capital on its bank application and the end of its loyalty program, and First National on the success of its TD partnership.

Here’s a quick rundown of their comments, with highlights in blue.


Street Capital

Notables from its call:

  • “Consistent with last year’s quarter’s drivers, the strong uptick in revenue for the first three and nine months of the year was partly due to above-trend renewal volumes in 2015,” said Marissa Lauder, Chief Financial Officer, Street Capital Group. “Renewals are above trend this year because they reflect both five-year terms originated in 2010, and higher-than-usual renewals of three- and four-year terms originated in 2011 and 2012, respectively. This is a result of promotions we implemented in those years to meet investor demand for three- and four-year product.”
  • “Moving into 2016, renewal volumes will revert to normalized levels, which will be primarily limited to five-year terms originated in 2011. We expect this to translate into approximately 15 percent lower renewals in 2016 compared to 2015,” she added.
  • New origination volumes were negatively impacted in the quarter by the discontinuation of our loyalty product, which paid trailer fee commissions to brokers. As well, we made some normal course credit underwriting adjustments to maintain strong credit performance.”
  • Asked why the loyalty product was being discontinued, Lazaro DaRocha, President, Street Capital replied: “…after running it for the couple years that we did, we weren’t seeing a material difference between that product and our normal product. So what we were finding is that the net margin on that loyalty product, because we weren’t seeing the lifts that we needed, was actually being lower than our standard product.
  • Street Capital CEO Ed Gettings noted the company is presently in the pre-commencement review phase of its application to the Minister of Finance to continue as a Schedule I bank. “If we receive our bank licence approval within a relatively short period of time we can move fairly quickly to introduce deposits and uninsured lending products, but we haven’t built any meaningful contribution to our profitability and to our expectations until 2017 for these balance sheet items.”
  • “Our credit quality continues to be strong,” noted DaRocha. “At September 30th, the serious arrears rate on our portfolio of mortgages was 14 basis points, well below the high 20s, low 30s reported in the CBA stats. This is well below last year, which was 27 basis points…”
  • The company said it sold $2.3 billion of mortgages during Q3, roughly flat with Q3 2014.
  • Its gain of sale, as a percentage of mortgages in Q3, was up 180 bps, which it attributed to wider spreads.


Home Capital

HCG-LOGONotables from its call:

(Quotes from CEO Gerald Soloway unless otherwise specified)

  • “We…changed our underwriting processes to separate sales and underwriting of mortgage products. While it’s simple to say, it’s a very difficult process to change, the culture of a company, and do that separation effectively.”
  • “While we had some growing pains during the second quarter, we now see very promising signs that our efforts to change our processes and grow our mortgage broker network are working…The third-quarter results bear that out. We reported traditional residential mortgage originations of $1.51 billion in Q3, an increase of 17% from the $1.29 billion in Q2.”
  • “In Q2 2015, we stated that the amount originated only in 2014 from the suspended brokers was $960 million. The total value of the loans that they originated (from the time that the brokers first started doing business with Home, which in some cases was several years ago, and that were outstanding on September 30) was $1.72 billion, out of a total mortgage portfolio of $23.4 billion. That is down from the $1.93 billion as of June 30. I want to point out that the $200-million decrease in the quarter was due to normal run-off and there were no losses involved in the $200-million run-off.”
  • “As we have disclosed, we are reviewing and revalidating, where appropriate, the income documentation related to all of the loans from the suspended brokers. We are approximately one quarter of the way through the review of the loans and we plan to complete it sometime in 2016.”
  • Asked what that process entails, Soloway responded: “We looked at them with increased scrutiny. We went through every piece of documentation. We re-verified income proof. We confirmed property valuations. Every part of the file, we wanted to know exactly where we stood.
  • “So far, more than 90% of the mortgages renewed are eligible for renewal on our books, either because we are comfortable with the original documentation or we have sought and received updated income documentation. As for the remainder, which is less than 10% and actually around 7% or 8% at the present time, of what we have reviewed so far, either the customer wasn’t cooperative or has not provided adequate income documentation to date. These mortgages are performing very well, in line with or better than our broader mortgage portfolio. I emphasize that there have been no unusual credit issues. And I repeat, for the first nine months of 2015, total credit write-offs on our entire portfolio were only three basis points compared to five basis points last year.”
  • “Over the past year, we have added more than 600 new brokers to the list of active brokers, so that the total number of active brokers who have completed at least one transaction with Home in the last 12 months is now approximately 4,800 and that number is continuing to grow.”
  • Of those 600 brokers, Pino Decina, Executive VP, Residential Mortgage Lending, said, “Those amount to just over 100 actual brokerages across the country, the majority being obviously in Southern Ontario.”
  • Asked why it seems like the 45 suspended brokers generated around 70% of Home Capital’s loan book and need to be replaced by 600 brokers, President Martin Reid said: “The volume takes a while to build up for a new broker. They don’t necessarily give you all the business upfront versus when you cut off a broker and they are generating a lot of volume, you lose that right away. So, it does take time for that volume to pick up, but that’s where the addition of new brokers, the addition of the CFF network, …we think over time not only replace that business, but replace it with better-quality business.”
  • “Perhaps the biggest news after the quarter end is the closing of our purchase of CFF Bank for approximately $17.80 million subject to final adjustments. CFF also gives us a distribution agreement with a network of more than 30 Canadian First Financial Centers located across Canada. This is another channel for originations and since closing on October 1, little over a month ago, we have received a positive response from the CFF broker network regarding CFF and the whole mortgage products.”
  • Asked if they are seeing any rate increases for renewals that are being reviewed, Soloway said: “No, because we are not renewing those who may have any impairments on their proof of income. We have just taken a very strict line. If they can’t confirm their income, we haven’t increased the rate. We have just told them that we are de-marketing them, if they can’t prove their income to proper standards.”
  • Soloway was also asked about insured mortgages that were purchased from a third party during the quarter, and whether this was done to accelerate Home Capital’s originations, and whether this has been done in the past. Soloway responded: “No, it was – we were quite pleased with the purchase terms. It was an entity that was broker-driven type of loans – we just found it economically feasible to make the purchase. We may well make further purchases depending on the market conditions.”


First National

First-National.gifNotables from its call:

  • “…we’ve seen no pickup in arrears rates in…Alberta at this stage, and I would think we would expect to see some upticks in 2016 as there are more layoffs…but…all of our assets that we have in Alberta are insured so that we don’t have material…exposure there,” said Stephen Smith, Chairman and President of First National.
  • Asked about First National’s arrangement to provide underwriting to TD Bank, Smith said: “Well I think our launch…of that third-party underwriting has…exceeded expectations. It was on time…[and]…volumes are higher than anticipated. That’s a fairly substantial implementation with integration across credit information technology sales channels – very successful. It certainly would be something we could put out and launch for any other institution. Certainly the big advantage…that makes it very efficient, is our Merlin technology [which] enables the brokers in real-time to track all their deals also. So, it works well that we can very easily integrate into the back offices…so, certainly it would be more efficient, a lower cost solution for other institutions.”
  • Asked if First National saw any kind of fallout from Home Capital’s suspension of dozens of brokers in October for alleged fraud, Smith replied, “I don’t believe so. We’ve always had a standard of underwriting, which is among the best in the country. We have adhered to that standard…”
  • On the growth in market share of commercial originations: “We put a big push on this year to increase our share of commercial mortgages, including launching some different products and going after some different clients,” said Moray Tawse, Executive Vice President, Mortgage Investments. “I think the marketing that we did over the last year or so is really starting to pay off. We see that the gains that we’ve got in that marketing are going to continue, I think, and we’re going to be strong players and hopefully gain a little bit more market share as we go forward – so I think those gains are sustainable and not sort of a one-time bump.
  • First National said its net income fell 18% YoY due partly to “volatility in the bond market that negatively affected the Company’s economic hedging program.”

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

Steve Huebl & Robert McLister


Bank earnings_sqTo no one’s amazement, Canada’s Big 6 Banks made money again last quarter, despite a recession triggered by the oil patch.

More interesting than their profitability was the focus on bank underwriting in the wake of Home Trust’s very public fraud experience. Analysts drilled and grilled bank executives on the quarterly conference calls to find out exactly what banks are doing to verify income and address application fraud. You’ll find the banks’ responses below.

Like every quarter, CMT has dug through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls, and compiled the following mortgage highlights. The most notable observations appear in red.




Bank earnings_sqCanada’s Big 6 Banks earned a whopping $8.04 billion in the second quarter, up from just $6.3 billion a year ago.

They got a boost, in part, from improving margins on variable-rate mortgages. That was largely due to the banks pocketing 10 basis points from the Bank of Canada’s 1/4 point rate cut in January. It helped Scotiabank, for example, post an impressive 12-bps rise in net interest margin (NIM) last quarter.

The question on many analysts’ minds, however, was housing and interest rate risk. On that note, RBC said its stress tests confirmed that an enormous 400-bps rate increase would still be “within (the bank’s) risk appetite.” That’s at least somewhat reassuring, given that such a hike would make debt servicing near impossible for a small minority of borrowers.

Like every quarter, CMT has dug through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls, and compiled the following mortgage tidbits. The most notable observations are in red.




Bank-roundupCanada’s big banks defied expectations for first-quarter earnings, despite the collapse in oil prices and its spinoff effects on consumer credit.

In their conference calls, the banks addressed concerns about their exposure to Alberta’s housing market. They reassured analysts that they are actively stress-testing their portfolios given the possibility for sustained low oil prices and increasing unemployment in the province. “We have determined that the potential losses would still be manageable and within our risk appetite,” said one executive at RBC, which has 19% of its portfolio in Alberta.

RBC was also in the hot seat for leading the banks in only partially dropping prime rate. In January, RBC was the first to lower its prime rate by only 15 basis points following the Bank of Canada’s 25-basis-point rate cut. President and CEO David McKay answers to that below.

As we do every quarter, CMT has dug through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls, and pulled together these mortgage tidbits. The most notable observations are in blue.



Year-End Bank Earnings – Mortgage Morsels

Bank-roundupSure, you paid out the nose in interest charges and assorted bank fees this year, but take comfort in knowing that you helped pad the Big 6 Banks’ bottom lines—to the tune of $33 billion of net income in 2014.

That enabled Canada’s banks to post a reasonably strong year, despite a modest spring housing market and the continued low interest rate environment.

On the mortgage end of things, loan losses were down and most of the majors saw their ratio of insured mortgages fall—not surprising given Ottawa’s push to de-risk its mortgage exposure. As of October, banks had grown their mortgage books by 4.8% year-over-year.

As we do every quarter, CMT has dug through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls, and pulled together these mortgage tidbits. The more notable observations are in blue.


Q3 2014 Bank Earnings – Mortgage Morsels

Bank-roundupA slower-than-anticipated spring housing market couldn’t keep Canada’s banks from posting another blockbuster quarter.

Activity picked up over the summer months, translating into across-the-board gains in year-over-year income. At most banks, however, margins are still facing headwinds due to the continued “competitive and low interest rate environment,” as RBC puts it.

Of particular note were retail-focused lenders BMO and CIBC who both posted above-market mortgage growth. Unfortunately, there’s no telling how lucrative that growth was since the banks don’t detail their mortgage profitability. Both banks have invested heavily in retail mortgage origination to make up for lost broker-generated volume.

In any event, as we do every quarter, CMT has dug through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls and pulled together these mortgage tidbits. The most notable observations are in blue.



Q2 2014 Bank Earnings – Mortgage Morsels

Bank-roundup The unusually harsh winter took its toll on the economy in the second quarter, and mortgage activity was no exception.

A number of "Big 6" banks posted tempered mortgage growth in Q2, a period that typically encompasses the busy spring market. But this spring got off to a slow start. Weather was partly blamed, but clearly other factors were at work (including modest economic growth and drag from mortgage policy changes).

As we do every quarter, we've gone through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls and pulled together these mortgage tidbits. Admittedly, this quarter was rather dull from an industry insights perspective. The most notable observations are highlighted.



Q1 2014 Bank Earnings – Mortgage Morsels

Bank-roundupSlowing consumer lending and margin pressure from low rates didn't kill the earnings party for Canada's banks. As they seem to do more often than not, the "Big 6" pulled off another solid quarter.

From a mortgage perspective, all major banks saw their residential mortgage portfolios continue to rise or at least hold steady.

Below we've extracted additional mortgage tidbits from the Big 6 Banks’ quarterly earnings reports, presentations and conference calls. We have to be honest though, this quarter was kind of dull from an industry insights perspective. Unless you're a mortgage data geek, you'll find the most notable stuff to be highlighted.


Q4 2013 Bank Earnings – Mortgage Morsels

Big-6-BanksIt was just another record year of profits for Canada’s Big 5 banks. And they couldn’t have done it without mortgages.

As is customary every quarter, we’ve poured through all the major banks’ earnings reports, presentations and conference calls to pull out the mortgage tidbits.

Below you’ll read comments from CIBC about the broker channel; BMO on its growing mortgage portfolio; National Bank on its decision to decrease its exposure to the broker channel; RBC on its new mortgage origination system and Scotiabank on its openness to acquiring brokerage firms. (Yep, that last point surprised us too.)

If you’re time-pressed, the focal points are highlighted in green