While some of the Big 6 banks have reported continued strong mortgage growth in the first quarter, TD Bank’s mortgage book was basically flat compared to Q4 and up just 4% year-over-year.
On a quarterly basis, TD’s Canadian mortgage portfolio actually dipped slightly to $244.5 billion in Q1 from $244.9 billion in Q4.
“For the quarter, sequentially, we were basically flat,” said Michael Rhodes, Group Head, Canadian Personal Banking.
Commenting on the slowdown in mortgage activity, Rhodes noted that the first quarter is traditionally a “relatively low quarter” to begin with. He added that he feels “more optimistic” looking ahead at TD’s mortgage pipeline.
“We see our advisers are being quite productive and we are making some operational enhancements to our processes,” he said during the bank’s first-quarter earnings call. “And so, the data I look at gives me some optimism on a go-forward basis, recognizing the market is soft. If the market softens up a whole bunch more, then I might change my tone. But just given what I see today, I think, that’s achievable.”
Amortizations for variable mortgages continued to increase
Like some of the other big banks, including BMO and CIBC, TD has seen the length of amortizations for its variable-rate mortgage portfolio continue to increase.
As of Q1, over 27% of the bank’s mortgage portfolio had an amortization period of over 35 years.
Remaining amortizations for TD residential mortgages
Q1 2023Q1 202215-20 years13.6%18.7%20-25 years29.1%40.9%25-30 years19.0%29.5%30-35 years1.9%0.3%35 years and more27.4%NA
For those with fixed-payment variable-rate mortgages, “as rates go up, the amount you amortize basically is going down until you could reach a point where you do end up [with negative amortization] and your loan base has some capital added to it each period,” Rhodes explained during the conference call. “And then, either at a trigger point or at renewal, things get reset.”
Chief Risk Officer Ajai Bambawale said the bank has been encouraged by the number of customers who have preemptively stepped forward to increase their payments upon hitting their trigger rate.
“Keep in mind, when they hit their trigger rate, there’s no requirement to repay us,” he added. “But we are very encouraged by what we are seeing, where they are voluntarily coming forward and making principal payments.”
Mortgage credit quality is “strong”
Overall, TD’s residential mortgage quality remains strong, Bambawale said.
“If I look at delinquencies and I see the quarter-over-quarter change, it’s nominal,” he said, adding that formations of credit losses in the residential mortgage book are “flat,” while write-offs are “near zero.”
“The quality is strong,” Bambawale added. “We are definitely watching the variable interest rate mortgages, in particular, the trigger point population. We are watching rate renewal risk across both the variable and fixed books as well. But overall, we are seeing strong quality.”
TD earnings highlights
Q1 net income (adjusted): $4.16 billion (+8% Y/Y)Earnings per share: $2.23
Q1 2023Q4 2022Q1 2022Residential mortgage portfolio$244.5B$244.9B$234.9BHELOC portfolio$113.3B$113.7B$102.1BPercentage of mortgage portfolio uninsured81%80%78%Avg. loan-to-value (LTV) of uninsured book51%49%49%Portfolio mix: percentage with variable rates45%45%NAMortgages renewing in the next 12 months~9%~10%NAResidential mortgage gross impaired loans0.07%0.07%0.09%Canadian banking net interest margin (NIM)2.80%2.70%2.53%Provisions for credit losses$690M$617M$72M
Source: TD Bank Q1 Investor Presentation
“In our real estate secured lending business, our teams delivered robust retention rates and enhancements in mobile mortgage specialist productivity despite a softening housing market,” said President and CEO Bharat Masrani.
Average loan volumes rose 8%, reflecting 6% growth in personal volumes and 14% growth in business volume, the bank noted.
Source: TD Conference Call
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