CIBC and TD Bank closed out the third-quarter earnings season for the Big 6 banks with impressive profits, much like their peers that reported earlier in the week.
Also similar to the other banks, the profit growth achieved by CIBC and TD was largely due to falling credit loss provisions, which is money the banks must set aside to cover anticipated bad loans. Since peaking last year, the banks have been able to steadily reduce their provisions as the economic situation improves and the risk of delinquencies diminishes.
We’ve picked through both banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage notables below.
Q3 net income: $1.73 billion (+48% Y/Y)
Earnings per share: $3.93
- CIBC’s residential mortgage portfolio rose to $236 billion in Q3, up 14% from $207 billion in Q3 2020.
- Of the portfolio, $31 billion is from the Greater Vancouver Area (up from $27 billion), and $77 billion is from the Greater Toronto Area (up from $65 billion a year ago).
- Of the uninsured portfolio, the LTV was 48%, down from 53% a year ago, “as a result of the strong housing market,” CIBC noted.
- The bank’s HELOC portfolio ended the quarter at $18.4 billion, down from $19.5 billion a year ago.
- 90+ day delinquencies in the residential mortgage portfolio fell to 0.19% from 0.25% last quarter and 0.36% in Q3 2020.
- Net interest margin in Q3 was 237 bps, down from 244 bps in Q3 2020.
- The bank noted that an “immediate and sustained 100-bps increase would have a $413-million positive impact on net interest income over a 12–month period. “If rates remain at current levels, expect some headwinds due to roll–off of higher rate fixed investments,” the bank reported.
- CIBC released $99 million from funds that had been set aside for bad loans.
- About 3% of the bank’s uninsured portfolio has a Beacon score of 650 or less (down from 7% last year).
Source: CIBC Q3 Investor Presentation
- “We…continue to see solid growth in our mortgage portfolio and momentum in franchising our new clients,” said President and CEO Victor Dodig. “On a year-to-date basis, CIBC ranked number one in market share growth in personal loans.”
- “Overall, we remain comfortable with the quality of our portfolios and will continue to be prudent as we determine our allowance levels in coming quarters,” he added.
- “We’ve seen some really strong [mortgage] growth including some good market share gains,” said Laura Dottori-Attanasio, Senior VP and Group Head, Personal and Business Banking, Canada. “So we’re really pleased with our performance and a lot of that was just a result of a lot of the actions and investments that we took.”
- “On a go-forward basis, again, when we look at our pipeline of activity, we expect things to continue, although I would just say that the pace of growth will likely moderate as we come off, call it the recent highs in the market,” she added. “So, think of it as more of a return to normal in the housing market.”
- Speaking about the strong growth seen across all of the bank’s portfolios, Dodig said this: “You are seeing deeper client relationships driving growth and you’re seeing new client relationships driving growth. The strategy that we’ve laid out [is] a relationship-focused bank with our existing clients and attracting new clients is working. It is driving that top line growth that you’re seeing across the CIBC franchise.”
- In terms of cross-product selling in the mortgage advisor channel, the bank is “getting close to 70% of our new mortgage clients that were actually franchising with additional products, such as our smart banking account,” noted Dottori-Attanasio. That’s up from about 40% two years ago.
Q3 net income: $3.6 billion (+56% Y/Y)
Earnings per share: $1.96
- TD’s residential mortgage portfolio was $220.5 billion in Q3, down from $226.3 billion in Q2 but up from $206.1 billion a year ago.
- The bank’s HELOC portfolio stood at $97.7 billion, down from $99.9 billion in Q2 but up from $92.1 billion a year ago. 69% of the bank’s HELOC portfolio is amortizing.
- TD’s residential real estate secured lending portfolio is 76% uninsured (up from 72% a year ago) with a 49% LTV for the uninsured portion (down from 53% in Q3 2020).
- Gross impaired loans in the residential mortgage portfolio fell to 0.11%—a 16-year low—from 0.17% a year ago.
- Net interest margin in the bank’s retail portfolio fell to 2.61% in Q3, unchanged from the previous quarter and down 7 bps from a year ago.
- 53% of the bank’s residential mortgage portfolio is in Ontario (down from 56%), followed by B.C. at 20%, the Prairies at 16% (up from 14%), Quebec at 9% (up from 8%) and 2% in Atlantic Canada.
- TD saw a recovery of credit losses of $37 million in the quarter. A year ago, provisions for credit losses reached a high of $2.19 billion.
Source: TD Bank Q3 Investor Presentation
- “We had strong revenue growth in the Personal and Commercial banking businesses as rising customer activity drove higher volumes and fee income and margin pressure eased,” said President and CEO Bharat Masrani.
- “Gross impaired loans declined 3 basis points, or $152 million quarter-over-quarter to $2.65 billion, reflecting the ongoing impact of support programs, customer resilience and the economic recovery,” said Ajai Bambawale, Chief Risk Officer.
Source: TD Conference Call