Q1 Earnings Mortgage Morsels: RBC

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When RBC kicked off the first-quarter earnings season just lately, it did so with a bang, asserting earnings of $4.1 billion, its second-highest end result on report.

The financial institution’s mortgage e book additionally noticed substantial development, rising over 10% to $338.2 billion.

Regardless of the “regarding” stage of inflation, imminent charge hikes heading into the 12 months, and an acceleration of the Financial institution of Canada’s quantitative tightening program, RBC President and CEO Dave McKay stated the financial institution is “well-positioned to learn from rising rates of interest. ”

Here is a run-down of RBC’s mortgage portfolio efficiency within the quarter…

Q1 internet earnings: $4.1 billion (+6% Y/Y)
Earnings per share: $2.84

  • RBC’s residential mortgage portfolio rose this quarter to $338.2 billion, up from $305 billion a 12 months in the past.
  • The financial institution’s HELOC portfolio fell to $35.2 billion from $35.8 billion a 12 months in the past.
  • 73% of its mortgages are uninsured, up from 68% a 12 months in the past. The typical LTV on the uninsured portion is 48%, down from 50% a 12 months in the past.
  • 90+ day delinquencies within the residential mortgage portfolio fell to 0.13% from 0.15% a 12 months in the past.
  • RBC raised provisions for credit score losses (PCL) within the quarter, setting apart an extra $129 million after releasing $208 from its provisions final quarter.
  • 52% of the financial institution’s uninsured mortgage portfolio has a mean FICO rating of not less than 800., down from 53% a 12 months in the past.
  • Condos make up 11.5% of balances within the financial institution’s excellent residential lending portfolio, up half a p.c from a 12 months in the past.
  • Canadian Banking internet curiosity margin was 2.41%, down from 2.42% in This fall and a pair of.54% in Q1 2021.
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Supply: RBC Q1 Investor Presentation

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  • RBC’s first-quarter mortgage quantity was up 11% year-over-year, including about $9 billion price of mortgage loans to its books.
  • “We anticipate sturdy Canadian mortgage development to proceed within the excessive single-digit vary, pushed by renewed ranges of immigration, pent-up demand meant by elevated provide and our continued funding in increasing our mortgage gross sales power to seize this chance,” stated President and CEO Dave McKay.
  • RBC reviews an “exceptionally sturdy” mortgage retention charge of 90%.
  • McKay stated that over the previous two years, RBC has gained “practically 50 foundation factors of market share in mortgages.”
  • “Whereas the influence of low rates of interest continued to persist, we began to see a stabilization of internet curiosity margins in our banking franchises on each side of the border,” McKay stated. “We proceed to see decrease advantages from mortgage prepayment income, a pattern we anticipate to average going ahead.”
  • On rising rates of interest, McKay stated: “Going ahead, we’re well-positioned to learn from the doubtless state of affairs of rising rates of interest. We estimate {that a} 25-basis-point improve in short-term rates of interest may lead to over $175 million of further income over 12 months in our Canadian Banking and US Wealth Administration companies.”
  • Requested in regards to the financial institution’s outlook following a comparatively “bullish” fourth-quarter earnings report, McKay stated this: “After we have a look at the stage of the financial cycle, you’d say industrial utilization and even financial coverage could be early cycle, however capability left within the economic system could be late cycle. And the stability of the place the buyer is, the place the economic system is, is strong mid-cycle, which may imply, and we anticipate there is a good, strong couple of years of development right here, or extra…the danger elements are…geopolitical threat , threat of inflation.”
  • McKay added, “And one of many high threat elements is the dearth of labor capability within the workforce. And, does the liquidity that is sitting on client stability sheets result in inflation, or does it result in development?”
  • Chief Danger Officer Graeme Hepworth was requested, “at what level does inflation grow to be an issue?” Here is his reply: “I believe you mix the truth that we have had very sturdy underwriting and really persistent underwriting requirements for a very long time which are conscious of an working surroundings of upper charges and better inflation.”
  • Particularly on mortgage shoppers, Hepworth stated, “Purchasers each have a variety of capability there, and there’s a time frame there earlier than you’ll see shoppers turning over and having to refinance right into a higher-rate, higher-cost surroundings.”
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Supply: RBC Convention Name

Grade: Transcripts are supplied as-is from the businesses and/or third-party sources, and their accuracy can’t be 100% assured.

Characteristic picture: Steve Russell/Toronto Star by way of Getty Photographs

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