CIBC and TD Bank closed the third quarter earnings season for the Big 6 banks with impressive gains, much like their peers reported earlier this week.
As with other banks, CIBC and TD’s earnings growth was largely due to declining loan loss provisions, money banks must set aside to cover expected bad loans. Since the peak last year, banks have been able to steadily reduce their provisioning as the economic situation improves and the risk of late payments decreases.
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We went through the quarterly reports, presentations and conference calls from both banks and collected all the mortgage notes below.
Net income Q3: $1.73 billion (+48% Y/Y)
Profit per share: $3.93
- CIBC’s residential mortgage portfolio rose to $236 billion in the third quarter, up 14% from $207 billion in the third quarter of 2020.
- Of the portfolio, $31 billion comes from the Greater Vancouver Area (versus $27 billion) and $77 billion from the Greater Toronto Area (versus $65 billion a year ago).
- Of the uninsured portfolio, LTV was 48%, down from 53% a year ago, “due to the strong housing market,” CIBC noted.
- The bank’s HELOC portfolio closed the quarter at $18.4 billion, down from $19.5 billion a year ago.
- Overdue payments of more than 90 days in the residential mortgage portfolio decreased from 0.25% in the previous quarter to 0.19% and to 0.36% in the third quarter of 2020.
- Net interest margin in the third quarter was 237 bps, down from 244 bps in the third quarter of 2020.
- The bank noted that an “immediate and sustained increase of 100 basis points would have a positive effect of $413 million on net interest income over a period of 12 years–month period. “If prices stay at current levels, expect some headwind from the roll–from investments in fixed assets with a higher interest rate,” the bank reported.
- CIBC released $99 million of funds set aside for bad loans.
- About 3% of the bank’s uninsured portfolio has a Beacon score of 650 or less (up 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. “Year-over, CIBC was number one in market share growth in personal loans.”
- “Overall, we remain comfortable with the quality of our portfolios and will remain cautious in determining our fees over the coming quarters,” he added.
- “We’ve seen some really strong ones” [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 very happy with our performance and a lot of it was the result of a lot of the actions and investments we’ve made.”
- “Looking at our business in the pipeline, we expect business to continue, although I would just say that the growth rate is likely to moderate as we get closer, call it the recent highs in the market,” she added . “So think of it more as a return to normality in the housing market.”
- Speaking about strong growth across all of the bank’s portfolios, Dodig said: “You see deeper customer relationships that drive growth and you see new customer relationships that drive growth. The strategy we have mapped out [is] a relationship-oriented bank with our existing customers and attracting new customers works. It drives the revenue growth that you see across the entire CIBC franchise.”
- In terms of multi-product sales in the mortgage advisor channel, the bank gets “nearly 70% of our new mortgage customers who actually franchise with complementary products, such as our smart bank account,” noted Dottori-Attanasio. That’s an increase from about 40% two years ago.
Source: CIBC Conference Call
Net income Q3: $3.6 billion (+56% Y/Y)
Profit per share: $1.96
- TD’s residential mortgage portfolio was $220.5 billion in the third quarter, down from $226.3 billion in the second quarter, but up from $206.1 billion a year ago.
- The bank’s HELOC portfolio was $97.7 billion, down from $99.9 billion in the second quarter, but up from $92.1 billion a year ago. 69% of the bank’s HELOC portfolio is being written off.
- TD’s secured residential loan portfolio is 76% uninsured (up from 72% a year ago) with an LTV of 49% for the uninsured portion (up from 53% in Q3 2020).
- Gross write-downs in the residential mortgage portfolio fell from 0.17% a year ago to 0.11% – a 16-year low.
- The net interest margin in the bank’s retail portfolio declined to 2.61% in the third quarter, flat on the previous quarter and 7 basis points lower than a year ago.
- 53% of the bank’s residential mortgage portfolio is in Ontario (up from 56%), followed by BC at 20%, the Prairies at 16% (up 14%), Quebec at 9% (up 8%) and 2% in Atlantic Canada.
- TD saw a credit loss recovery of $37 million in the quarter. A year ago, loan loss provisions peaked at $2.19 billion.
Source: TD Bank Q3 Investor presentation
- “We had strong top line growth in the retail and commercial banking activities as increased client activity led to higher volumes and fee income and reduced pressure on margins,” said President and CEO Bharat Masrani.
- “Large loan impairments declined 3 basis points, or $152 million quarterly to $2.65 billion, as a result of the continued impact of support programs, customer resilience and the economic recovery,” said Chief Risk Officer Ajai Bambawale.
Source: TD conference call
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