Fourth Quarter Profit Mortgage Pieces: Scotiabank and RBC

A reduction in provisions made for potential credit losses boosted Scotiabank and RBC’s fourth quarter results this week.

Both big banks saw strong growth in their mortgage portfolios, but faced a squeeze in net interest margin (NIM), largely due to lower spreads earned on mortgages versus d ‘other products, such as credit cards.

As Scotia CFO Raj Viswanathan noted during the conference call, the NIM decline was “driven by the shift in portfolio mix from loans to mortgages.”

Scotia and RBC also announced dividend increases, the first such increase for shareholders since the start of the pandemic. This follows a decision by the Office of the Superintendent of Financial Institutions (OSFI) last month to lift the pandemic restrictions that prevented federally regulated financial institutions from raising dividends, repurchasing shares and increasing the executive compensation.

We’ve selected quarterly earnings reports, bank presentations and conference calls, and compiled all the mortgage notables below.


Q4 net income: $ 2.6 billion (+ 37% year-on-year)
Earnings per share: $ 2.10
Net income for fiscal year 2021: $ 10 billion (+ 45%)

  • The total retail residential mortgage portfolio reached $ 255 billion in the fourth quarter, up from $ 243 billion in the third quarter and $ 215 billion in the fourth quarter of 2020.
  • The volume of residential mortgages increased 13% year-on-year.
  • Scotia increased its dividend from 11% to $ 1 per share and announced it will repurchase 24 million shares, or 2% of its outstanding shares.
  • The net interest margin fell to 2.20%, from 2.23% in the third quarter of 2021 and 2.26% in the fourth quarter of 2020, “due to the change in the composition of the loan portfolio. mortgage, ”said CFO Raj Viswanathan.
  • Mortgages over 90 days past due fell to 0.12%, from 0.13% in the third quarter and 0.15% a year ago, “due to lower staff costs, partially offset through higher advertising and business development costs, ”noted Viswanathan.
  • Scotia credit loss provisions fell to $ 168 million, from $ 1.1 billion a year ago and a high of $ 2.2 billion in the third quarter of 2020.

Source: Scotiabank Fourth Quarter Investor Presentation

Conference call

  • “The quality of our assets has remained high, driven by client demand for secured retail borrowing in Canada and in international banking,” said Phil Thomas, chief risk officer. “Secured loans in our retail portfolio remain above pre-pandemic levels.”
  • The bank expects radiation to remain below pre-pandemic levels through fiscal 2022, Thomas added.
  • “We ended the year with provisions for credit losses of $ 5.7 billion [down from a peak of $7.8 billion in Q4 2020], which is above pre-pandemic levels of $ 5.1 billion, ”Thomas said. “The ACL ratio is now 86 basis points against 82 basis points before the pandemic. The ACL ratio will continue to decline throughout FY22 due to our expectation of lower write-offs compared to historical trends. “
  • Looking ahead, Thomas said: “We expect the strong credit performance to continue, with improved credit measures driven by better credit quality of originals, as well as a favorable macroeconomic environment. “
  • “We are aware of reports of a new variant of concern called Omnicron, but remain comfortable with our allocations, which foresee pessimistic COVID-19 scenarios, including both a sharp increase in cases and a longer duration. “Thomas added.
  • “… mortgages have grown much faster than other businesses, as has business banking. We love it, but except it impacts margin expansion, ”Porter said in response to a question about margin squeeze. “… we think there will be an expansion of the margin. And as I mentioned in my previous calls, we are positioned for rate increases, even from a hedging perspective. “
  • Asked about potential concerns about the pace of mortgage lending growth in Canada, Dan Rees, Group Head, Canadian Banking Services, said: Activity in recent quarters … Our outlook for year-round mortgage growth next should start to slow down. We believe the supply underlies the price appreciation. And as long as that persists, if rates go up earlier in the year, as I think many of us expect, we expect that to slow demand. “
  • He continued: “The growth of the expansion, the purchase of second properties and the entry into the market were, in a way, supported by intergenerational donations through families, and this is a source significant movement in equity, which we believe supports mortgage growth from here, including through the lens of risk. And to highlight during our quarter and throughout the year, we haven’t seen any growth in the HELOC portfolio, which I know is a concern. ”
  • Asked about inflation concerns, Viswanathan said: “… the opinion of our economists is that there is a certain level of transient inflation in the numbers that we are seeing… And we believe there will be a normal range. once you see some of the supply chain issues normalizing, and it could be a quarter or two from our perspective.

Source: Scotiabank Conference Call

Royal Bank of CanadaRBC

Q4 net income: $ 3.9 billion (+ 20% year-on-year)
Earnings per share: $ 2.68
Net income for fiscal 2021: $ 16.1 billion (+ 41%)

  • RBC’s residential mortgage portfolio increased this quarter to $ 322.4 billion from $ 291 billion a year ago.
  • The bank’s HELOC portfolio fell to $ 35.2 billion from $ 37 billion a year ago.
  • RBC also increased its dividend to $ 1.20 per share, from $ 1.08.
  • 72% of its mortgages are uninsured, up from 67% a year ago. The average LTV on the uninsured part is 47%, compared to 51% a year ago.
  • Over 90 days delinquencies in the residential mortgage portfolio fell to 0.13%, from 0.14% in the third quarter and 0.14% a year ago.
  • RBC recovered $ 277 million of its allowance for credit losses in the quarter, compared to the $ 427 million it set aside for bad debts in the fourth quarter of 2020.
  • 53% of the bank’s uninsured mortgage portfolio has an average FICO score of at least 800.
  • Condominiums represent 11% of the outstanding balances of the Bank’s residential loan portfolio, unchanged from the previous quarter.
  • Canadian Banking’s net interest margin was 2.42%, down from 2.58% in the third quarter and 2.56% in the fourth quarter of 2020.

Source: RBC Fourth Quarter Investor Presentation

Conference call

  • “We see growth opportunities in each of our Canadian businesses and our results this year reflect the value we create for our clients,” said Dave McKay, President and CEO. “In Canadian Banking, we added over $ 35 billion in mortgages and over $ 22 billion in personal deposits over the past year, leading to market share gains for these two products. headlights.
  • “Although higher interest rates may slow economic growth, we do not see significant credit problems, given excess customer liquidity, strong underwriting, including more rate tests. high, ”McKay added.

Source: RBC Conference Call

To note: Transcripts are provided as is by the companies and / or third party sources, and their accuracy cannot be 100% guaranteed.
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