The Big 6 banks saw profits soar in the second quarter thanks to strong mortgage growth and massive loan-loss provision reductions.

Three of the banks saw net income more than double, while CIBC posted 320% year-over-year growth.

Executives weighed in on a variety of topics, including current market conditions that have seen home prices soar over 38% in the past year, falling loan-loss provisions and the recent tightening of the stress tests for insured and uninsured mortgages.

As we do every quarter, we’ve picked through the Big Banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage notables right here. Key tidbits are highlighted in blue.

QUICK LINKS:

• Bank of Montreal
• CIBC
• National Bank of Canada
• Royal Bank of Canada
• Scotiabank
• TD Bank

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Source: BMO Q2 Investor Presentation

Conference Call

• “Performance was supported by continued strong mortgage growth and a resumption of commercial lending growth,” said President and CEO Darryl White.
• Asked about revenue from mortgage prepayments, Ernie Johannson, Group Head, North American Personal and Business Banking, said this: “Consumers are taking advantage of a lower interest rate environment to refinance…this will be a phenomena that continues as we have low interest rates. Do I anticipate it to diminish? I think over the coming months, you will see that…consumers…who were interested in taking advantage of making payments have done so. And then also as we go forward, we’re going to see increased spend…“
• “The vast majority of what’s left on deferral is mortgages, so I don’t expect those delinquency numbers to actually change a whole lot,” said Pat Cronin, Chief Risk Officer. “…we’ll watch it carefully as we go, but so far we’re seeing pretty good signs.”
• Asked about the impact of rapidly rising home prices from a credit risk standpoint, Cronin said, “With existing homeowners, that has the effect of actually improving LTV, so that’s a credit positive. We are looking, though, very carefully at existing originations. The elevated home prices may exaggerate LTVs and so…through the cycle, as prices change, we adjust our practices.“
• Cronin added: “And, we’re routing more mortgages to manual adjudication, particularly where we’re looking at areas where we’ve seen rapid house price appreciation, just to make sure that we’re comfortable, but ultimately, our mortgages and loans are to the borrower’s ability to pay, not the house price. And so to the extent we’re satisfied with that, then we’re comfortable from a risk perspective.”
• Asked about the more stringent stress test, Johannson said, “The impact will be, probably about 5% to 10%, max, from the perspective of impacted borrowers. That said, there are ways in which they can obviously find a lower priced house, being able to either, find more equity somewhere from parents and gifting and all those sorts of good things…but we can assume…that there will be some moderation. That would be our expectation over the next little while, but it will still remain a fairly robust mortgage market in Canada for sure over the next little while.”

Source: BMO Conference Call