Q4 2021 Home Capital Group Inc Earnings Call
Good morning, My name is Rob and I will be your conference operator today.
Speaker 1: Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Home Capital Group fourth quarter 2021 financial results conference call. All lines have been placed on mute to prevent any background noise.
At this time I would like to welcome everyone to the home capital Group fourth quarter 2021 financial results Conference call.
All lines have been placed on mute to prevent any background noise. After.
Speaker 1: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one.
The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad if.
If you would like to withdraw your question again press the star one.
Speaker 1: Thank you. Jill McCray, Head of Investor Relations. You may begin your conference.
Jill Macrae head of Investor Relations you May begin your conference.
Speaker 2: Thank you, Bob. Good morning, everyone, and thank you for joining us today.
Thank you Bob Good morning, everyone and thank you for joining us today.
Speaker 2: Our agenda for today's presentation is as follows. We'll begin the call with remarks from Youssoue Basada, home's president and CEO . Brad Kotisch, our CFO , will then review our financial performance, which will be followed by a question and answer period for participants. We have a few members of our senior management team with us on the call to help answer your questions.
Our agenda for today's presentation is as follows we will begin the call with remarks from Youtube beside a host president and CEO Greg.
Brad <unk>, our CFO will then review our financial performance, which will be followed by a question and answer period for participants we have a few members of our senior management team with us on the call to help answer your questions.
Speaker 2: On behalf of those speaking today, I note that this call may contain forward-looking statements and that actual results could differ materially from forecasts, projections, or conclusions in these statements. Please refer to our advising and forward-looking statements on page two of the presentation.
On behalf of those speaking today I note that this call may contain forward looking statements and that actual results could differ materially from forecasts projections or conclusions in these statements.
Please refer to our advisory on forward looking statements on page two of the presentation.
Speaker 2: I would also remind listeners that HOME uses non-GAAP financial measures to arrive at adjusted results and that management will be referring to both reported and adjusted results in their remarks. I would now like to turn the call over to the next speaker. Thank you,
I would also remind listeners that home uses non-GAAP financial measures to arrive at adjusted results and the management will be referring to both reported and adjusted results in their remarks.
I'd now like to turn the call over to decide.
Speaker 1: Good morning and thank you for joining us today for our 2021 fourth quarter and full year results conference call.
Good morning, and thank you for joining us today for our 2021 fourth quarter and full year results conference call.
Speaker 1: In addition to our results, I'll also spend some time talking about what we see ahead of us in 2022.
In addition to our results I'll also spend some time talking about what we see ahead of us in 2020.
Let me start with what we announced today.
Speaker 1: He reported only the movie's next income for share of $4.78 in 2021, an increase of 44% over 2020.
Reported fully diluted net income per share of $4 78, and 2021, an increase of 44% over 2020.
Speaker 1: This is the second straight year that we reported year-over-year earnings grow above 40%. We achieved a 16.1% return on equity.
This is a phase III tier that we reported year over year earnings grew about 40%.
We achieved a 15, 1% return on equity.
We are pleased to announce.
Speaker 1: We are pleased to announce the initiation of a regular quarterly common share dividend in the amount of 15 cents per share.
Creation of a regular quarterly common share dividend.
<unk> 15 per share.
We grew our mortgage originations by 27% year over year to nearly 89 billion.
Speaker 1: We grew our mortgage originations by 27% year over year to near 8.9 billion.
Speaker 1: Of that, our ultimate mortgages were $6.3 billion, an all-time record.
Objects are openly mortgages were $6 3 billion, an all time record.
Revenue sharing more details on the above.
Yeah.
Speaker 1: Over the last four years, we have delivered consistent increases in our earnings and our return on equity as shown on slide four.
Over the last 40 years, we have delivered consistent increases in our earnings and our return on equity as shown on slide four.
Speaker 1: Our shared-break performance during that time is the highest of any of the banks.
Our share price performance during that time is the highest of any of the banks.
Speaker 1: On the capital front, we returned over $360 million to shareholders to our share repurchases, including our $300 million substantial issuer bid completed at the end of December .
On the capital front, we returned over $360 million to shareholders through our share repurchases, including our $300 million substantial issuer bid completed at the end of December .
Speaker 1: In total, we've up that 8.9 million shares during the year or about one-sixth of all the shares that were outstanding at the beginning of 2021.
In total we left at $8 9 million shares during the year or about $1 six of all the shares that were outstanding at the beginning of 2021.
Speaker 1: Looking back, 2021 was an eventful year.
Looking back <unk>.
One was an eventful year.
Speaker 1: Once again, we began the year faced with uncertainty due to COVID.
Once again, we began to year faced with uncertainty due to COVID-19 .
Speaker 1: But this time, informed and strengthened by earlier experiences, we entered 2021 with confidence.
But this time informed and strengthened by our earlier experiences we entered 2021 with confidence.
This is because.
Speaker 1: Medical science has introduced vaccines that promise to make normal business operations possible. We have an even better understanding of the ways COVID has impacted the housing market.
Medical Science had introduced the promise to make normal business operations possible.
We had an even better understanding abilities COVID-19 has impacted the housing market.
Speaker 1: We knew how important it is for people to have the opportunity to buy and keep their homes.
We knew how important it is for people to have the opportunity to buy and keep their homes.
Speaker 1: Our people have shown themselves to be capable and resilient in the face of constantly changing working conditions.
Our people have shown themselves to be capable and resilient in the face of constantly changing working conditions.
Speaker 1: Each of our business units rose to the challenge of a volatile year.
Each of our business units rose to the challenge of a volatile year.
Starting with our sales and underwriting teams.
Speaker 1: They worked hard throughout the year and delivered compressive volume growth while staying within our risk appetite.
They work hard throughout the year and delivered impressive volume growth, while staying within our risk appetite.
Speaker 1: That included a return to pre-pandemic underwriting conditions in all areas by mid-July.
That included a return to pre pandemic underwriting conditions and all areas by mid July .
Speaker 1: They delivered the quality of service that our broker partners have come to expect from us.
They delivered the quality of service that our broker partners have come to expect from us.
Speaker 1: At Investor Day, we share information about how we value our broker partners and work with them.
At Investor Day, we shared information about how we value our broker partners and work with them.
Our deposit and funding teams were equally happy.
Speaker 1: deposits to our open channel grew by more than 10% during the year and now make up over 31% of our overall total deposits
It allows us to our broker channel grew by more than 10% during the year and now make up over 31% of our overall total deposits.
Speaker 1: We return to the RMBS market with two cross-border offerings totaling $765 million.
We returned to the RMS market with two cross border offerings totaling $765 million.
Speaker 1: We added a whole loan sale program for insured mortgages with a range of financial counterparties and participated in a bank-sponsored securitization conduit.
We added a wholesale program for insured mortgages with a range of financial Counterparties and participated in the bank sponsored securitization conduit.
Speaker 1: Our IT team implemented the transformation of our core mortgage banking system.
Our it team implemented the transformation of our core mortgage banking system.
Speaker 1: We launched a mobile banking app for our open customers and upgraded the functionality of our law platform for better engagement with our corporate partners.
We launched our mobile banking app for our open customers and upgrading the functionality of our platform for better engagement with our broker partners.
Speaker 1: We are continuing to find ways to use robotic process automation to perform repetitive tasks.
We are continuing to find ways to use robotic process automation to perform repetitive tasks.
Speaker 1: The benefits of Ignite, our internal multi-system upgrades, are not just process efficiency.
The benefits of ignite our internal multi system upgrades are not just process efficiencies.
Speaker 1: but an improvement in the type of work we're able to perform, including the quality of engagement with our brokers and customers.
But an improvement in the paperboard, we're able to perform including the quality of engagement with our brokers and customers.
Speaker 1: Our HR team led us in adapting to a virtual work from home, so a hybrid work from the office and back to virtual work from home. Pivoting in our work environment.
Our HR team led us and adapting to a virtual work from home.
A hybrid work from the office and back to virtual work from home.
Pivoting in our work environment has become the new norm.
Speaker 1: Even with these challenges, we won a number of best workplace awards, including best place for hybrid work this week. We are proud of our...
Even with these challenges we won a number of best workplace awards, including best place for hybrid work this week.
We are proud of our own and of our culture.
Speaker 1: And welcome Betty Delita as a new director.
And we welcome very Davita as a new director.
Speaker 1: Many years of experience in banking and payments make her a valuable asset to our board.
That has years of experience in banking and payments make her a valuable asset to our board.
On our leadership front, we added bench strength.
Speaker 1: In January of this year, we welcomed Brian Leland as EVP Underwriter.
In January of this year, we welcomed Brian Leland as EVP underwriting.
Speaker 1: Brian comes to us with over 20 years experience in all aspects of building and growing residential mortgage teams.
Brian comes to us with over 20 years of experience in all aspects of building and growing residential mortgage teams.
Speaker 1: He started his career at Home Trust and we're pleased to welcome him back.
He started his career at home for Us and we're pleased to welcome them back.
Okay.
Speaker 1: We also welcome Mike Henry as our EVP of digital and strategy.
We also welcome Mike Henry as our EVP of digital and strategy.
Speaker 1: As a senior executive with more than 25 years at a major bank, Mike brings strategic and deep financial service experience to our team.
As a senior executive with more than 25 years at a major bank.
Mike brings strategic and financial service experience to our team.
Speaker 1: As we look ahead, we have reasons for optimism in 2022 as well.
As we look ahead, we are reasons for optimism in 2022 as well.
Speaker 1: The housing market is starting 2022 the way it ended in 2021, with strong demands supported by low-interest rates, growing consumer savings, and intergenerational support.
The housing market is starting 2022 the way it ended in 2021 with strong demand supported by low interest rates growing consumer savings and intergenerational support.
Speaker 1: Interest rates are still low but are rising and expected to increase through the year.
Interest rates are still low, but far right, there and expect it to increase through the year.
Speaker 1: We're not too concerned at this point about the impact on credit quality from rising rates because of the cushion from the B20 stress test along with our own prudent underwriting criteria.
We're not too concerned at this point about the impact on credit quality from rising rates because of the cushion from the <unk> stressed that along with our own prudent underwriting criteria.
It is likely that higher rates will reduce but not eliminate demand for home ownership.
Speaker 1: It is likely that higher rates will reduce, but not eliminate, demand for homeownership.
Speaker 1: impact of rising rates on affordability and also be mitigated by buyers changing the location or the size of their home bridges.
The impact of rising rates on affordability and also be mitigated by buyers changing the location or the size of their home purchase.
Speaker 1: We believe that the mortgage broker community is best suited to help Canadians understand the impact of these changes.
We believe that the mortgage broker community is best suited to help Canadians understand the impact of these changes.
Speaker 1: Demand for home ownership is still strong, and it will be supported by growing immigration numbers.
Demand for home ownership is still strong.
And it will be supported by.
Growing immigration numbers.
Speaker 1: A growing cohort of millennials buying their first moments and return to...
A growing cohort of millennials buying their first normals.
And the return to employment growth.
Speaker 1: As working conditions evolve, we can see more transactions driven by changing housing needs.
As working conditions evolve, we could see more transactions driven by changing our leads.
Speaker 1: Our funding teams expanded our funding capabilities and have just issued our latest RMDS offering, benefiting from growing investor interest in this attractive instrument.
Our funding teams expanded our funding capabilities and have just issued our latest R&D software benefiting from growing investor interest in this attractive instruments.
On our capital strategy, we are on track.
Speaker 1: Following the completion of our SIB in December , we're announcing today that the TSX has approved our application for normal-force issuer bits.
Following the completion of our savvy in December we're announcing today to the PSX has approved our application for a normal course issuer bid.
Speaker 1: This will make strategic share repurchases throughout the year as we work towards our stated target CBT1 capital ratio of 14 to 15%.
This will make strategic share repurchases throughout the year as we work towards our stated target CET, one capital ratio of 14% to 15%.
Speaker 1: We have a track record of success in this method of delivering value to our shareholders.
We have a track record of success in this method of delivering value to our shareholders.
Speaker 1: In mid-2017, the company had over 80 million shares outstanding. As of December 31, 2021, we have backed back more than 37 million, or over 45% of shares outstanding.
In mid 2017 the company.
Over 80 million shares outstanding.
As of December 31, 2021, we have bought back more than $37 million or over 45% of shares outstanding.
Speaker 1: Together with our strong operating performance, buybacks have been a key component of our shareholder value proposition.
Together with our strong operating performance buybacks have been a key component of our shareholder value proposition.
Speaker 1: 2021 was a year in which Canadians continue to show how much they value the ownership.
2021 was a year in which Canadians continue to show how much they value homeownership.
Speaker 1: And here at home, we're dedicated to helping them achieve it.
And here at home, we're dedicated to helping them achieve it.
Speaker 1: Despite the changes in working conditions brought about by the path of the variants, we were consistent in our focus of serving our business partners, responding to the needs of our customers, and meeting our financial objectives, and supporting our employees.
Despite the changes in working conditions brought about by the path of the variance we were consistent in our focus of serving our business partners responding to the needs of our customers and meeting our financial objectives and supporting our employees.
Speaker 1: In 2022, we are starting the year with.
In 2022, we're starting the year with.
A strong market.
Speaker 1: a strong capital base and engage the group of employees and a strong
Our strong capital base.
And engaged group of employees.
And a strong leadership team.
Speaker 1: We are ready to convey meaningful benefits to all our stakeholders while delivering value to our shareholders. I'll now invite Brad to discuss our financial results.
We are ready as a meaningful benefits to all our stakeholders, while delivering value to our shareholders.
I'll now invite Brad to discuss our financial results.
Thank you <unk> and good morning, everyone.
Speaker 1: Starting on slide seven this morning, we reported net income of $52.7 million and diluted earnings of $1.04 per share for the fourth quarter of 2021.
Starting on slide seven this morning, we reported net income of $52 7 million and diluted earnings of $1 four per share for the fourth quarter of 2021.
Speaker 1: Adjusting for items related to our Ignite program, net income for the quarter was $53.7 million or $1.06 per share.
Adjusting for items related to our ignite program net income for the quarter was $53 7 million or $1 six per share.
Speaker 1: This will be the final quarter that we will be adjusting our reported results in relation to our GNITE program as it draws to a close in 2022.
This will be the final quarter that we will be adjusting our reported results in relation to our ignite program as it draws to a close in 2022.
Speaker 1: Full year 2021 earnings were $244.7 million or $478 per share.
Full year 2021 earnings were $244 7 million or $4 78 per share.
Speaker 1: Our reported earnings per share increased by 43% over 2020, continuing our trend of delivering strong growth in earnings per share throughout a volatile period for the economy and the housing market.
Our reported earnings per share increased by 43% over 2020.
Continuing our trend of delivering strong growth in earnings per share throughout a volatile period for the economy and the housing market.
Speaker 1: Book value per share, as shown on slide 8, by 12.7% year over year to $36.55, and a return on equity was 12.4% during the quarter and 15.1% for the full year.
Book value per share as shown on slide eight grew by 12, 7% year over year to $36 55.
And our return on equity was 12, 4% during the quarter and 15, 1% for the full year.
Speaker 1: Once again, we generated double-digit return on equity, despite carrying significant capital above our target range for most of the year.
Once again, we generated double digit return on equity despite carrying significant capital above our target range for most of the year.
Speaker 1: Following the conclusion of our Substantial Issuer Bid at the end of 2021, we ended the year with 18.43% in CET1 Capital, moving closer to our target range of 14-15%.
Following the conclusion of our substantial issuer bid at the end of 2020 was we ended the year with $18, 43% and CET, one capital moving closer to our target range of 14% to 15%.
Speaker 1: Slide 9 shows the factors contributing to our growth in earnings per share for the full year. Our net interest margin was 2.56% for the year compared with 2.46% in 2020.
Slide nine shows the factors contributing to our growth in earnings per share for the full year.
Our net interest margin was 256% for the year compared with 246% in 2020.
Speaker 1: The year-over-year increase in NIM is mainly due to lower funding costs and added 26 cents to our earnings growth, somewhat offset by a decrease in non-interest income.
The year over year increase in NIM is mainly due to lower funding costs and added 26 cents to our earnings growth somewhat offset by a decrease in noninterest income.
Speaker 1: Reduction in non-interest expense added a further 19 cents.
Reduction in noninterest expense added a further 19.
Speaker 1: Overall, pre-tax, pre-provision net income increased by 10% over 2020.
Overall pre tax pre provision net income increased by 10% over 2020.
Speaker 1: Looking at provisions, the change from a provisions expense in 2020 to a recovery of credit provisions added 94 cents to earnings per share.
Looking at provisions the change from our provision expense in 2020 to a recovery of credit provisions added 94 cents to earnings per share.
Speaker 1: A 3% reduction in the number of average shares outstanding during the year contributed $0.13.
A 3% reduction in the number of average shares outstanding during the year contributed 13.
Speaker 1: Our expectation based on our current outlook for interest rates, asset mix and competition with other lenders is that there will be a decrease in our net interest margin in 2022 and the impact on non-net interest income will be offset by higher loan balance.
Our expectation based on our current outlook for interest rates asset mix and competition with other lenders is that there will be a decrease in our net interest margin at 2022 and the impact on non interest net interest income will be offset by higher loan balances.
Speaker 1: Looking at our lending operations on slide 10, originations in a single family residential portfolio grew by 52% in the fourth quarter, 44% a year.
Looking at our lending operations on slide 10 originations at our single family residential portfolio grew by 52% in the fourth quarter at 44% for the year.
Speaker 1: Commercial originations on slide nine increased in the fourth quarter but decreased during the year. Commercial originations got off to a slow start in Q1 and Q2 partly due to pandemic underwriting conditions and planned reductions in some loan categories, but increased in every successive quarter. We are feeling puzzled about the opportunities in commercial lending in 2022.
Commercial originations on slide nine increase in the fourth quarter, but decreased during the year commercial originations got off to a slow start in Q1 and Q2, partly due to pandemic underwriting conditions of planned reductions of loan categories that increased in every successive quarter.
We are feeling positive about the opportunities in commercial lending in 2020.
Speaker 1: As of the end of the year, single-family residential loans on balance sheet had increased by 8% to $16.2 billion through robust origination volume and retention efforts.
As of the end of the year single family residential loans on balance sheet had increased by 8% to $16 2 billion through very robust origination volume and retention efforts.
Yes.
Speaker 1: Commercial on-balance sheet loans declined to $1.8 billion with the largest year-over-year reduction in exposure to retail stores.
Commercial on balance sheet loans declined to one 8 billion with the largest year over year reduction in exposure to retail stores.
Speaker 1: Deposits gathered through our open channels by more than 10% during 2021 and make up more than 31% of our total deposit funding.
Deposit gathering through our oaken channel grew by more than 10% during 2021 and make up more than 31% of our total deposit funded.
Speaker 1: Significantly, deposits gathered through deposit brokers decreased year over year as we were able to diversify our funding sources.
Significantly deposits gathered through deposit brokers decrease year over year, as we were able to diversify our funding sources.
Speaker 1: Oaken's savings accounts were just under 24% of total oaken deposits at the end of the year.
Okay savings accounts were just under 24% of total oaken deposits at the end of the year.
Speaker 1: We expect the percentage of demand deposits to decrease as higher interest rates make term instruments more attractive and as a reopening of retail, entertainment and travel options give customers more outlets to spend the cash balances they built up during pandemic restrictions.
We expect the percentage of demand deposits.
As higher interest rates make term instruments more attractive and as a reopening of retail entertainment and travel options give customers more outlet suspend the cash balances they built up during the pandemic restrictions.
Speaker 1: We are getting good customer response to our digital banking app and look forward to further continuous agile enhancements to this app.
We are getting good customer response to our digital banking App and look forward to further continuous agile enhancements to this app.
Speaker 1: During the year, Home made significant progress in our objective of diversifying our funding base.
During the year home made significant progress in our objective of diversifying our funding base.
Speaker 1: We executed whole loan sales of our insured mortgages with several financial counterparties, participated in a bank-sponsored securitization conduit, and completed two successful cross-border offerings of residential mortgage-backed securities.
We executed whole loan sales of our insured mortgages with several financial Counterparties participated in a bank sponsored securitization conduit and completed two successful cross border offerings of residential mortgage backed securities.
Speaker 1: In 2022, our funding initiatives are gaining momentum. We have doubled the size of Securitization Conduit to 500 million, and it will be an effective source of funding for classic mortgages.
In 2022 are funding initiatives are gaining momentum.
<unk> doubled the size of the securitization conduit to $500 million and it will be an effective source of funding for our classic mortgages.
Speaker 1: We have just priced the first R&DS offering of 2022. The A-Tronch of 425 million was priced at 2.63% and is expected to close on February 23rd.
We have just price the first our mes offering of 2020 to the.
The a tranche of $425 million it was priced at $2, 63% and is expected to close on February 23rd.
Speaker 1: We continue to see strong credit performance in Q4, even while the Omicron variant added uncertainty to the outlook for economic recovery.
We continue to see strong credit performance in Q4, even while the crown various added uncertainty to the outlook for economic recovery.
Speaker 1: The base case inputs to our economic model show an improvement in employment through the year and modest appreciation in housing prices.
The base case input to our economic model show, an improvement employment through the year and modest depreciation in housing prices.
Speaker 1: After reporting reversals of credit provisions for the first three quarters of the year, he had provisions for credit losses of about $1 million in the fourth quarter, or two basis points of gross loans on an annualized basis.
After reporting reversals of credit provisions for the first three quarters of the year, we had provisions for credit losses of about $1 million in the fourth quarter or two basis points of gross loans on an annualized basis.
Speaker 1: There was a modest reversal in provisions on impaired loans identified as Stage 3, and a provision of $1.3 million in our loans designated as Stage 1 and Stage 2 in both our single-family residential and our commercial loan portfolios.
There was a modest reversal of provisions on impaired loans identified as stage, three and a provision of $1 3 million and our loans designated as stage, one and stage two and both are single family residential and our commercial loan portfolios.
Speaker 1: Going forward, we expect credit provisions on both our retail and commercial portfolios to be similar to pre-pandemic levels.
Going forward, we expect credit provisions on both our retail and commercial performance portfolios to be similar to pre pandemic levels.
Speaker 1: Net write-offs for the year were $0.6 million or less than one basis point of gross loans.
Net write offs for the year.
Sure.
$6 million or less than one basis points of gross loans.
Speaker 1: Looking at the full year, we booked a reversal of credit provisions on Stage 3 loans totaling $10.3 million and a provision reversal of $23.4 million on performing loans for a total of $33.7 million.
Looking at the full year, we booked a reversal of credit provisions on stage three loans totaling $10 3 million and a provision reversal of $23 $4 million on performing loans for a total of $33 7 million.
Speaker 1: This was due to the impact of an improvement in the forward-looking economic models used to estimate credit losses.
This was due to the impact of an improvement in the forward looking economic models used to estimate credit losses.
Speaker 1: loan repayments, and a lower balance of loans in Stage 3.
Loan repayments and a lower balance of loans in stage III.
Speaker 1: Slide 16 shows details of our allowance coverage. Total allowance for credit losses was 36.5 million at the end of 2021.
Slide 16 shows details of our allowance coverage.
Total allowance for credit losses was $36 5 million at the end of 2021.
Speaker 1: which is a decrease of 48% from the total of 70.891 year earlier.
Which is a decrease of 48% from the total of $17 8 million one year earlier.
Speaker 1: Approximately 80% of the allowance is attributable to Stage 1 and Stage 2 loans.
Approximately 80% of the allowances attributable to stage, one and stage two loans allow.
Speaker 1: Allowance coverage of non-performing loans increased to 22.8% as of December 31st.
Allowance coverage of nonperforming loans increased to 22, 8% as of December 31.
Speaker 1: Turning to slide 17, we have provided details of our non-performing loans by business line. Our credit quality continues to be strong, reflecting a steady improvement from previous quarters.
Turning to slide 17, we provided details of our nonperforming loans by business line.
Our credit quality continues to be strong, reflecting a steady improvement from previous quarters net.
Speaker 1: Net non-performing loans at the end of the year have declined substantially in both dollars and percentage terms and now represent only 13 basis points of our total loans outstanding.
Net nonperforming loans at the end of the year have declined substantially in both dollars and percentage terms and now represents only 13 basis points of our total loans outstanding.
Speaker 1: This is a credit to our sales and underwriting teams and to the risk culture of the company as a whole.
This is a credit to our sales and underwriting teams and to the risk culture of the company as a whole.
Speaker 1: We concluded a $300 million substantial issuer bid at the end of the year.
We concluded a 300 million substantial issuer bid at the end of the year for.
Speaker 1: For the full year, HomeRepur to 8.9 million shares at an average price of $41.13 per share through the SIB and NCIB.
For the full year home repurchased eight 9 million shares at an average price of $41 13 per share through the SIV an NCIC.
Speaker 1: We ended with a CED-1 capital ratio of 18.43%, which is still above our stated target range.
We ended with a CET one capital ratio of $18, four 3%, which is still above our stated target range.
Speaker 1: The renewed normal course issuer bid that you three referred to will allow us to repurchase up to approximately 3.7 million shares as part of our program to reach our target capital range.
The renewed normal course issuer bid that used to be referred to will allow us to repurchase up to approximately $3 7 million shares as part of our program to reach our target capital range.
Speaker 1: The dividend that we announced today is another way of delivering value to shareholders.
The dividend that we announced today is another way of delivering value to shareholders.
Speaker 1: We have said consistently that we would introduce a common share dividend when it makes sense.
We have said consistently that we would introduce a common share dividend when it makes sense.
Speaker 1: Having made material progress toward our target capital ratio, the board of management believes that the company and its shareholders would benefit from a regular quarterly dividend.
Having made material progress toward our target capital ratio the board of management's belief that the company and its shareholders would benefit from a regular quarterly dividend.
Speaker 1: The initial dividend is set at 15 cents per share, payable on March 31, 2022, to shareholders of record as of March 15, 2022.
The initial dividend is set at <unk> 15 per share payable on March 31, 2022 to shareholders of record as of March 15 2022.
Speaker 1: This payout is sustainable with potential for growth over time.
This payout is sustainable with potential for growth over time.
Speaker 1: Board reviews its capital strategy on an ongoing basis, and we'll look at all opportunities to achieve a CET-1 within our stated target range by the end of the year. And now.
The board reviews, its capital strategy on an ongoing basis, and we'll look at all opportunities to achieve a CET one within our stated target range by the end of the year.
And now I will ask the operator to poll for questions.
Speaker 3: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Speaker 3: And your first question comes from the line of Etienne Ricard from BMO Capital Markets. Your line is open.
And your first question comes from the line of Rich and Ricard from BMO capital markets. Your line is open.
Thank you and good morning.
Good morning.
Speaker 4: The 2022 outlook is guiding towards declining net interest margin.
The so the 2022 outlook is guiding towards declining that.
Net interest margins.
Speaker 4: First, are you expecting net interest margin decreases relative to Q4 or annual 2021 levels?
First <unk>.
Net interest margin decreased relative to Q4, our annual 2021 levels.
Second is if.
Speaker 4: Is the focus on capturing higher origination volumes aimed at gaining market share? In other words, what do you estimate your current market share to be relative to your target level?
With a focus on capturing higher origination volumes in aimed at gaining market share.
In other words, what do you estimate your market share today.
Relative to.
You are talking about.
Speaker 5: Um, sorry, if you didn't go ahead.
Sorry, Greg.
Speaker 4: I'll answer first and then Brad might add just on the market share.
Given Q3 I'll answer first and then Brian just on market share.
Speaker 4: It's not to gain market share, it's just as rates increase.
It's not.
Jean Marc maturity.
Rates increase.
Speaker 4: As Canada's increase, deposits react very quickly. Mortgage rates react a little slower. There are competitive regions. There's a lot of people trying to get mortgages. Someone has to take the lead. And that, as that happens, you get deposit rates going up and mortgages lagging someone. That's what causes it.
Canada increased deposits react very quickly mortgage rates react a little slower.
We're competitive.
There's a lot of people trying to get mortgages somewhat.
And as that happens you get deposit rates going up and mortgages lagging somewhat thats what causes that.
Speaker 4: It's not so much the market. We're typically been the highest rate in the AUG area and competitive in the AUG area. So we would expect them using that. So I think this is a good market for us to actually really find some basin as well.
So most of these markets.
Typically the highest.
Right.
Eight area and competitive in the area.
So we would expect to see vessel if interest rates go up quickly.
Speaker 4: If industries go up quickly, you have to reset mortgages quickly. If they go up slowly, it's much more manageable. The reverse happens in other environments. When rates go down, mortgages are the last to go down, and it widens spreads for all lenders. Brett? The specific answer to your question is off of the Q4 NIM that we reported, and what's been happening is the— what we've seen in our market is that the rise in—
You have two mortgages quickly figure out slowly it's much more manageable the reverse happens in other environments. When rates were down mortgages are the last to go down and it widespread or all lenders.
Brett.
The specific answer to your question is off of the Q4 NIM that we reported.
And what's been happening.
What we've seen in our market is that the rise in.
Speaker 3: the overall deposit cost which is based typically off the government curves has increased and we haven't seen behavior of rate increases there has been a very significant volume of origination so to stay competitive and relevant we can only raise rates so much we have we consider to have been leading the way in rate increases this quarter and we the path that we see is
The overall deposit cost, which is base typically asked the government curves has increased and we havent seen behavior.
The rate increases.
It's been a very significant volume of origination so to stay competitive and relevant.
Can only raise rates. So much we have we considered to have been leading the way in rate increases this quarter and we the path that we see is <unk>.
Speaker 1: Certainly the announcement today, Bank of Canada expects to raise rates. We saw rates go up on the curve 10 basis points. So what's offsetting the decrease in NIM is really record originations in our classic business. So we're seeing substantial loan growth and based on our estimates and what we know for the year, we're projecting for the year even if NIM decreases, we'll achieve the same level of net interest income.
Certainly the announcement today bank candidate expects to raise rates, we saw rates go up the curve.
<unk> 10 basis points, so what what's offsetting the decrease in NIM.
Is really record originations in our classic business. So we're seeing.
Substantial loan growth and based on our estimates of what we know of for the year are projecting for the year.
Even if NIM decreases will achieve the same level of net interest income.
Speaker 6: Great. Thank you. And so I guess as a follow up, when would you expect?
Great. Thank you.
I guess as a follow up when would you expect.
Speaker 6: all the mortgage rates to start increasing and you know match the increase in deposit costs.
Alt a mortgage rates.
Increasing in.
Match the increase in.
And deposit costs.
Speaker 1: I think that's a process that's going to take time. What I can say is we have raised rates.
I think thats a process thats going to take time.
I can say is we have we have raised rates.
Speaker 1: and we'll continue to raise rates to match increase in deposits. What happened was there was probably
<unk>.
We will continue to raise rates to match increase in deposits. What's happened was there was probably.
Speaker 1: around a two and a half month to three month lag in matching those increases. So we're playing a bit of catch up and I think that's something that we've consistently said in relation to Alt-A where it takes some time for rates to move and it does appear as the competition in the market is also looking to gain market share.
Around two five months to three months lag in matching those increases so we're playing a bit of catch up and I think that's something that we've consistently said in relation to all pay where it takes some time for rates to move and it does appear as the competition in the market is also looking to gain market share.
Speaker 1: But based on what we know, we are the price leader in terms of moving up mortgage rates, and we have to adapt to those circumstances and to continue being relevant to our customers and mortgage brokers. OK.
But based on what we know we are a price leader in terms of moving up mortgage rates and we have to adapt to those circumstances to continue to remain relevant to.
Our customers and mortgage brokers.
Okay.
On the funding side.
Speaker 6: We talked about OCHIN and RMBS issuances in the past.
We've talked about Okay, then our MBS issuances in the past.
Speaker 6: As we look into 2022, could you remind us of your priorities as it relates to drive
As we look into 2022 could you remind us.
Of your priorities.
As it relates to driving cost of funding.
Speaker 4: Well, we will continue. We showed great progress in diversifying our funding sources. We're going to continue down that path. And I did mention in our call that we have just priced an RBS. We expect to continue to be programmatic, as you're a subject.
We will continue we showed great progress in diversifying our funding sources, we're going to continue down that path.
Yes.
I did mentioned in our call that we have kept pricing RFP as we expect that these programmatic continues to be programmatic issuers subject to market conditions, we issued the rvs in a particularly volatile market and what we hope is that some of the uncertainties related to.
Speaker 3: to market conditions. We issued the RBS in a particularly volatile market. And what we hope is that some of the uncertainties related to factors outside of our control that are happening in the broader world will...
Factors outside of our control that are happening in the broader world.
Well.
Speaker 1: what we all hope is none of those issues manifest themselves and that will be a more stable
While we all hope is none of those issues manifest themselves at that.
But there will be a more stable market. So.
Speaker 3: So again, we're looking at further DBCP conduits and other RPS issuance.
We were looking at further Dbcp conduits, another RPX issuance.
Speaker 3: uh... to the extent that uh... we could explore the market for deposit notes we work towards that uh... we're really trying to access all sources of funding and again
To the extent that.
We could explore the market for deposit notes, we work towards that we're really trying to access all sources of funding as well.
Again part of our whole loan sale program to make sure that it's effective creative.
Speaker 1: Part of our Home Altair program is to make sure that it's effective at creating value. So we need to see some increase in the spreads on our accelerator mortgages to really get back into that program but we do see a lot of potential.
Creating value so we need to see some increase in spreads or accelerate our market is to really get back into that program, but we do see a lot of potential.
Thank you for your comments.
Speaker 4: Your next question comes from the line of James Bloyne from National Bank Financial. Our line is open.
Your next question comes from the line of Jim <unk> from National Bank Financial Your line is open.
Speaker 4: Yeah, thanks. First question, I wanted to just get into the thought process behind the sizing the dividends. And how should we think about that dividend going forward? Is this something that you would seek to increase quarterly, semi-annually, annually, maybe a little bit more color around the strategy for the dividend?
Yes. Thanks.
First question I wanted to just get into the thought process behind the sizing of the dividend.
And.
And how should we think about that dividend going forward is this something that you would seek to increase.
Quarterly semiannually or annually, maybe a little bit more color around the strategy for the dividend.
Speaker 7: Our strategy is to keep it consistent for the year. However, that may change subject to circumstances and those circumstances would probably be more biased to an increase. But we fully expect to keep it constant for this year based on the decisions that were made by the board at its most recent meeting.
Yes, sure Jim our strategy is to keep it consistent.
For the year however.
That may change subject to circumstances in those circumstances would probably be more.
Bias to what increase but we fully expect to keep it constant for this year based on the decisions that were made by the board at its most recent meeting.
And there is also a.
Speaker 3: expectation that we will be increasing that on an annual basis. So that's our current plan on reviewing the level of common share dividend and it's going to be based on what we think is happening in terms of book growth, market conditions and all the other factors that you would expect a board to consider in making a decision related to a recurring dividend.
Sure.
Expectation that we will be increasing that.
On an annual basis, so thats, our current plan on reviewing the level of common share dividends and it's going to be based on what we think is happening in terms of growth market conditions and all the other factors that you would expect our board to consider in making a decision related to our recurring dividend.
Speaker 4: Okay, great. And then on the factors that went into sizing the dividend, it looks to me like it's at the low double digits percentage basis on a payout ratio versus EPS. So, what led you to start with that level of a payout ratio or any other considerations that were factored into the decision?
Okay great.
And then on the factors that went into the dividend.
It looks to me like it.
The low double digits.
Managed basis on a payout ratio versus EPS. So what led you to what led you to start with that level of a payout ratio or any other considerations that were factored into the decision.
Speaker 3: Well we we still think that our shares are undervalued so we're going to buy them back and are devoting capital to those sorts of repurchases and but we did think it was the appropriate time to start a recurring dividend so that's why we picked a relatively low payout ratio historically the company paid between 20 to 25 percent when it was not behind I think there are a couple of
Well, we still think that our shares are undervalued. So we're going to buy them back and are devoting capital to those sorts of repurchases as but we did think it was the appropriate time to start a recurring dividend. So that's why we picked a relatively low payout ratio.
Historically, the company paid between 20% to 25.
<unk> when it was not.
I think there are a couple of.
Speaker 3: NCIBs and SIBs, but primarily most of the return of capital was done through dividends.
Cib's NSF fees, but primarily most of the return of capital was done through dividends. So.
Speaker 3: thinking years ahead, that's probably a place that we will get to.
Thinking years ahead, thats, probably have a place that we will get to.
Okay great.
That's fair enough.
Speaker 8: The Ignite program or Ignite cost expenses, it seems like it's extending a couple of quarters. I believe that a previous guidance was that I would wrap up NQ222.
The the ignite program or.
Ignite.
Cost expenses it seems like it.
It's extending a couple of quarters that we will be prudent guidance with all would wrap up in Q2 'twenty two.
Speaker 4: Now it seems like it's going to go through all of 2022. Can you give us a little bit more details as to why it's extending, what other initiatives might have been added to the program or what's causing delays? I'll give you a little more detail on that.
Now it seems like it's going to go through all of 2022.
You give us a little bit more details as to why.
And then what other initial.
Initiatives might've been added to the program or what's causing delays.
More detail on that please.
Speaker 3: Yeah, sure, Jane. We think we have, we still think it's gonna be done midway through the year. So if we gave the impression that it was gonna be a full year, like saying it would end in 2022, I'll correct that now. We think it's gonna be largely complete in the first half of the year and our...
Yes, sure Jamie we think we have we still think it's going to be done midway through the year. So if we gave the impression that it was going to be a full year, but I am saying it would end in 2022.
You're correct that now we think it's going to be largely complete.
In the first half of the year.
<unk> RF.
Speaker 3: and why we're saying we're not going to be reporting adjusted earnings anymore is the more meaningful aspects of it to give a look at the underlying business, which was a purpose for reporting the adjusted earnings aren't really relevant in looking at it.
And why we're saying, we're not going to be reporting adjusted earnings anymore.
The more meaningful aspects of it to give a look at the underlying business, which was the purpose for reporting we adjusted earnings.
Aren't really relevant to looking at it.
Speaker 4: Okay, great. So from the first questions, it sounds like the guidance or the expectation for 2022 is that net interest income on a dollar basis.
Okay great.
So from from the first question is it sounds like the guidance or the expectation for 2022 with flat net interest income on a dollar basis.
Speaker 4: should be pretty flat in 2022 versus 2021, given some of the NIM decline guidance overall. Is that a fair characterization for net interest income? And then some follow-ups in terms of the movements within that.
Should be pretty flat in 2022 versus 2021.
Given.
The NIM decline guidance.
<unk>.
Is that a fair characterization for net interest income and then some follow ups in terms of.
The movements within that.
Speaker 7: I think that's right. James, based on what we know today, there's a lot of things that can change over time, but that's our current thinking and the components of that are really...
I think thats right.
Jane based on what we know today there is a lot of things that can change over time, but that's our current thinking and the components of that are really.
Sure.
Speaker 3: working through getting back to the mean in terms of spread over deposits.
Working through getting back to the mean in terms of spread over deposits.
Speaker 3: that has been compressed and as I said earlier we have been leading with price increases so far this quarter and we'll continue to work towards getting back to the historical levels of spread on classic origination.
That has been compressed and as I said earlier, we are we have been leading with price increases so far this quarter.
And we will continue to work towards getting back to the historical levels of spreads on classic originations.
Speaker 4: Okay, and then so in terms of how you're going to market, can you elaborate on the pricing strategy or what goes in, what factors into how you're pricing the mortgages? Are you targeting a specific ROE outcome? What are the inputs and drivers of determining the ultimate rate?
Okay, Okay, and then so in terms of.
In terms of how youre going to market.
Can you elaborate on the pricing strategy or.
What goes in which factors into how you're pricing the mortgages are Utah.
Are you targeting a specific.
Targeting specific Roe.
What is the.
What are the inputs in and.
And drivers though.
Determining the ultimate rate.
In Q3.
Speaker 3: Ultimately, we're driving towards the ROE targets, which subsection is NIM, which is the spread obviously between deposits and mortgages.
Ultimately we're driving towards.
Targets.
Subsection is.
NIM, which assumption is the spread obviously between deposits and mortgages.
Speaker 3: This is a very normal thing when interest rates are going up, is that the deposits reset quickly, government account bonds reset instantly, deposits reset.
Okay.
This is a very normal clean when interest rates are going up.
<unk> just quickly go over the coming months instantly deposits.
Speaker 3: almost right away and then if the mortgage is like as we said we are leaders in stretching it we want to get back to normal the slower interest rates move up the faster we can get to the mean between uh mortgage and deposits but as they you know you can go up today and then tomorrow deposits go up again and you got another increase so we will i assume we're going to probably lead the way of trying to get the spreads uh to normal and we'll get there it's just how fast uh that happens
Right away and then it's the mortgages not Mike.
We are leaders in stretching it we want to get back to normal the slower interest rates move up the faster, we can get to the meat between mortgage and deposits.
You can go out today and tomorrow deposits go up again and you got another increase so we will I assume we're going to probably lead the way of trying to get the spreads to normal and we will get there. It's just how fast.
Speaker 3: So yes, ultimately driven by ROE, ultimately driven by NIM, there's a whole bunch of metrics behind what it should be and how fast we can get ourselves there.
So, yes, ultimately driven by ROE ultimately driven by mix, there's a whole bunch of metrics behind what it should be and how fast we can get ourselves there.
Speaker 4: Right, and is the ROE, are you pricing to a ROE target of 15%? 16%, what is that ROE target or true mark that you're looking to achieve in any deal?
Right and then the.
Ro.
Pricing to a ROE target of 15%.
16% view.
Or does that Roe.
Target more true mark that Youre looking to achieve in any deal.
Speaker 7: Well, our goal team is mid-teens or ROEs, so that'll move around, but 15 is...
While our growth team is mid teens ROE so that'll that'll move around.
But <unk> is.
Speaker 1: is a goal of ours and we achieved it this year and we'll certainly work towards achieving it in 2022 but there's a whole bunch of work we have to do to get there this year including managing the spread on classic originations and as a reminder it is it is competitive so we need to be relevant and and we can't we can't simply wave a wand ourselves to move the market but uh we're we're definitely trying
As a goal of ours.
And we achieved this year and we'll certainly work towards achieving it.
2022, but there is a whole bunch of work or we have to do to get there this year, including managing the spread on classic originations.
It is competitive so we need to be relevant and we can't we can't simply wave a wand ourselves dilute the market but.
We're definitely trying to.
Speaker 4: Got it. And last one for me. James, I'm going to have to ask you to read queue, James, because there's other people in the queue and yeah, we will pick you up at the end if that's all right.
Okay got it and last one for meeting.
Ask you to requeue Jane because there's other people in the queue and.
Yes.
He will take you up at the end if that's all right.
Speaker 4: Your next question comes from the line of Nigel DeSouva from Veritas Investment Research. Your line is open.
Your next question comes from the line of Nigel D'souza from Veritas investment Research. Your line is open.
Speaker 6: Thank you, good morning. I just had a couple quick questions on your margins here. I noticed that there's a decline quarter over quarter seems to have been largely driven by single-family residential mortgages and a lower yield there. Is that, you know, I think I heard you correctly, is that just mainly driven by the new originations in the quarter at a lower rate? Could you provide some color on the decline?
Thank you good morning, I just had a couple quick questions on on on your margins here.
I noticed that there was a decline quarter over quarter seems to have been largely driven by single family.
Residential mortgages in a low yield there is that I think I heard you correctly is that just mainly driven by the new originations in the quarter at a lower rate could you provide some color on what drove the decline.
Speaker 1: That is the primary reason is the origination coming in at lower spread. Our retention is...
Okay.
That is.
The primary reason is the.
<unk> coming in at lower spreads.
Our retention is.
Speaker 1: rates are working relatively well in terms of our expectations, but that is the case.
Rates are working relatively well in terms of our expectations.
That is the case.
Speaker 6: Okay, great. And just on term deposits, if I could maybe...
Okay, great and just on term deposits if I could maybe.
Speaker 6: get some insights on the pricing dynamics in the rising rate environment. I think you mentioned that rising rates are attractive from a market dynamic standpoint for your term deposit funding. But in terms of pricing, compared to lower rate term deposits on the market, does the spread between your term rates and competitive term rates narrow in a rising rate environment? As a main team, could you just kind of set some color on how the pricing dynamics might play out?
Get some insights on the pricing dynamics in a rising rate environment I think you mentioned that.
Rising rates are attractive from a market dynamic standpoint for for your term deposit funding, but in terms of pricing compared to lower rate from deposits on the market does this spread between your your term rates.
And competitive rates narrow in a rising rate environment as it maintains and could you just kind of shed some color on how the pricing dynamics might play out.
Speaker 1: When we look at our pricing, we do have competitive pressure, certainly on the broker deposit, but in relation to Oakin and others, when we evaluate how we're doing, we look at how we're getting based off the spread of a government curve.
When we look at our pricing, we do have competitive pressure certainly on the broker deposits that in relation to open and others with when we evaluate how we're doing we look at how we're doing based off the spread of our government Kirk.
Speaker 6: Okay, that's helpful and if I could just say very quickly to capital, when I look at your current capital level, if you
Okay.
Okay, that's helpful and.
If I could just pivot quickly to capital when I look at your current capital level if you.
Speaker 6: Assuming you action that NCIB, that still doesn't get you to your 14 to 15 percent CT1 target range. And then even with the dividend payout, you're still going to have some internal capital generation. Do you have any comment on what bridges, I guess, the final remaining excess capital from where we might end up to your target range over to next year?
Assuming you action that in CIB.
That still doesn't get you to your 40% to 50% CET one target range.
And then even with the dividend payout you're still going to have strong capital generation. So do you have any comments on what bridges I guess the final.
Remaining excess capital from from where we might end up to your target range next.
Next year.
Speaker 1: You're right, there is a gap to get there. Part of it's going to be filled with what we think, or what we're thinking is broken our balance sheet and risk-related assets.
Youre right. There is there is a gap to get there part of it is going to be filled with.
What we think what we're thinking is broken our balance sheet and risk weighted assets. So that's going to absorb some of it and when we get closer to the end of the year, we'll evaluate whether it makes sense too.
Speaker 1: So that's going to absorb some of it and when we get closer to the end of the year we'll evaluate whether it makes sense to retain capital to fund future growth or look at higher rate dividends in the next year. What we're really trying to do is...
<unk> capital to fund future growth.
Or.
Look at higher rate dividends in the next year.
What we're really trying to do is.
Speaker 1: work towards a range in the best way that's going to create value for shareholders, and looking at it now, we'll know as we progress throughout the year what the best alternative would be. For example, one could be another choice to be another substantial issuer bid, and that's the potential to get there relatively quickly with one transaction.
We're toward the range and the best way that is going to create value for shareholders and looking at it now.
Well no.
Progress throughout the year, what the best alternative would be for example, one could be another choice to be another substantial issuer bid.
That's the potential to.
Get there relatively quickly with one transaction.
Speaker 6: Okay, and last quick question. Any comments on the decision of deciding to pursue NTIB versus an SIB and look at your current share prices below the average SIB purchase price that you recently completed? So is there a rationale that makes NTIB more attractive in current environment or how do you think?
Okay and last quick question any comments on the.
The decision us deciding to pursue and CIB versus in <unk> and look at your current share price is below.
The average purchase price recently.
Is there.
Now, let me turn so it'd be more attractive.
Current environment, how would you think about that.
Speaker 1: Well, I think we have a good opportunity to utilize the NCIB and the ability to have a more discretionary aspect to when we're repurchasing shares and not having to pay the premium on an SIB led us to maximize an NCIB over immediately putting together another SIB.
Well I think we have a good opportunity to utilize the NCIC.
And the ability to have a lot of discretionary aspect to when we're repurchasing shares.
And not having to pay the premium on S. ICD.
Let us to maximize and NCIC over immediately put it together.
SIV.
Great. That's helpful. That's it for me thank you.
Speaker 4: Your next question comes from a line of Graham writing from TD Securities. Your line is open.
Your next question comes from the line of Graham Ryding from TD Securities. Your line is open.
Speaker 9: Good morning. Just appreciate the color on the offset, lower NIM but higher long growth. You think net interest income will be flat in 2022. Just wondering what sort of long growth are you targeting for 2022? What do you think? Is it capable of getting your outlook?
Hi, good morning.
I appreciate the color on <unk>.
The offset.
Our NIM, but higher loan growth.
Net interest income will be flat in 2022, just wondering what sort of loan growth that you're targeting for 2022, what do you think.
Capable capable of given your outlook.
Speaker 1: we're capable of close to 20 percent.
We're we're capable of close to 20%.
20% loan growth.
Yes.
Our alleyway.
Speaker 9: Okay, so that's a pretty material increase from I think you did 5% this year. What drives that uptick?
Okay.
Material increase from I think you.
You had 5% this year.
Drive uptake.
Speaker 7: of originations, continuing high growth of originations in our classic portfolio, residential portfolio and commercial portfolio.
Originations continuing high growth of originations in our classic portfolio, our residential portfolio and commercial portfolio.
And retention.
Okay.
And the.
Speaker 9: You know, obviously we talked about some spread compression on the classic side, but what about on the commercial side? Have you seen any spread compression there?
Obviously, you talked about some spread compression on the classic study, but what about on the commercial side are you seeing any spread compression of Baird.
We'll be okay on that side.
Speaker 1: There has been a little, but not to the extent on the residential side.
There has been a little but not to the extent on the residential side.
Speaker 3: That's more because commercials price deal by deal whereas single-family you price it and a whole bunch of deals arrive.
That's more because commercial price deal by deal, whereas single family.
And a whole bunch of deals.
Got it understood.
Speaker 9: And then my last question, there's a slight increase in your commercial impairment, is there any color behind what was behind that?
And then my last question, which was a slight increase in your commercial impairments any color.
Yes.
Speaker 7: Um, you know, it's just, uh, there there are, um
No just the.
There are.
Bob.
Speaker 7: individual loans of size so if anything moves in any of those you're going to show a change. We consider ourselves to be very well provided and looking at the trend over the year we've shown a substantial reduction in those provisions so it's not unexpected that we would see some variability or volatility there.
Yeah.
Individual loans a side so if anything moves in any of those youre going to show.
A change.
We consider ourselves to be very well provided in looking at the trend over the year, we've shown a substantial reduction in those provisions. So it's not unexpected that we would see some variability or volatility there.
Speaker 9: Yeah, that's fair. That's it for me. Thank you.
Yes, that's fair.
Okay, great. Thank you.
Speaker 4: And we have a follow-up question from the line of Jayne Gloine from National Bank Financial. Airline is open.
And we have a follow up question from the line of James <unk> from National Bank Financial Your line is open.
Speaker 9: Yeah, thank you. Um, so I do want to thank you.
Yes. Thank you.
So I just wanted to.
Speaker 9: Thank you. Just wanted to dig into the, I guess the two main sub-sectors of the NIM forecast. So we did the, we completed the R&DF.
Thank you.
Just wanted to dig into the <unk>.
I guess, the two main subsectors of the NIM forecast.
So we did the you completed the RMB.
Speaker 9: latest RMVS transaction. Can you compare the spread on that transaction, so mortgage rates versus the cost of that RMVS deal versus the previous deals, and is that going to be accretive to the spread on securitized assets or diluted?
The latest.
Latest RBS transaction.
Can you compare the spread on that transaction, so mortgage rates versus the Costco.
About RMB.
The old versus the previous deals and is that going to be accretive to.
Two the spread on securitized assets or diluted.
Speaker 7: It may be slightly diluted, but again, over time.
It may be slightly diluted but.
Again over time.
Speaker 1: we'll see where overall rates move because this, you know, the RBS is an amortizing.
We'll see where our overall rates move because the.
The R&D.
Is an amortizing.
Speaker 7: So, depending on the renewals in there, it may turn out to be attractive long-term funding for a change.
Facility, so depending on the renewals in there it may turn out.
Attractive long term funding first Jamie.
Speaker 7: We really do like the R&DS, the funding mechanism. We issued it in a pretty volatile environment, so the spread over the curve was higher on this transaction than our last transaction that I think has been...
Really do like the Rps.
The mechanism.
We issued it.
A pretty volatile environment so.
The spread over the curve was higher on this transaction then our last transaction that I think gets that.
Speaker 7: Based on what we've heard in the market, does spread tab?
On our what we've heard in the market as spreads have.
Speaker 7: on these types of vehicles have expanded. So we did the last one at 85 over, and that's when we've been at 105 over.
These types of vehicles.
Expanded so we get the last one at 85 over it has always been at 105 over.
Speaker 6: Okay, so still tighter than the one prior to that, but I guess the bottom line is there's...
Okay, so still still tighter than the one prior to that but.
But I guess the.
Speaker 9: Some dilution on the securitized side, but the biggest NIM pressure is going to be coming from non-securitized loans in 2022. Now going back to Graham's question about the 20 percent.
The bottom line is there is some some dilution on the securitized side, but the the biggest NIM pressure is going to be coming from non securitized loans.
In 2022, now going back to <unk> question about the 20%.
Speaker 9: loan growth forecast or I don't know if it was a forecast or it was a capacity question so maybe just a little bit of clarity is that is that what you're baking in for you know providing that guidance of flat NII is that you will have 20% loan growth overall and and how do you think about breaking that down between single-family residential mortgages and and non-resident commercial mortgages or other products
Loan growth forecast and I don't know if it was a forecast or the capacity questions. So maybe just a little bit of clarity of thought.
That what youre baking in.
For providing that guidance a flat NII is that you will have 20% loan growth overall.
And how do you think about breaking that down between.
Single family residential mortgages, and non ready commercial mortgages or other products.
Speaker 1: I think right now we're comfortable with seeing that overall level of growth and that level of net interest income.
I think right now, we're comfortable with saying that overall level of growth.
That level of net interest income.
Okay.
Speaker 9: Great. I think that's it for me. Thank you.
Great I think that the.
That's it for me thank you.
Speaker 4: Your next question comes from the line of Nagel Dusova from Veritas Investment Research. Your line is open.
Your next question comes from the line of Nick I'll, just yoga from Veritas investment Research. Your line is open.
Speaker 6: Thanks for taking my follow-up. I wanted to touch on another dynamic in a rising rate environment and I was wondering if you could expand on how sensitive the retention rates are in a rising rate environment. I mean, I know there's an interplay between the prime space and the near prime space for your mortgage book. So maybe if you could color that in the context of between 100 basis points or 200 basis points increase, how meaningful of a difference does that make to retention?
Thanks for taking my follow up I wanted to touch on another dynamic in a rising rate environment and I was wondering if you could expand on how sensitive.
Our retention rates are in.
Advising in a rising rate environment.
Between the prime space in the near Prime space for your mortgage book.
So maybe you can color that in the context of between 100 basis points or 200 basis points increase.
Meaningful differences that make to retention.
Speaker 3: We think, oh sorry, go ahead. Sorry, we're both going to answer.
When we think.
So we both want answered.
Speaker 3: In retention it's a little bit different. It's a little bit stickier in a writing rate environment. People would have to re-qualify under a higher rate elsewhere. So you mentioned people who are moving from alt-A to A. That's a little more competitive on the renewal side. And we're getting better and better at offering our own alt-A clients an A to keep them. So it generally drives higher rates.
Okay.
Presented as a little bit different.
It's a little bit stickier and the rising rate environment.
People would have to requalify under a higher rate elsewhere.
You mentioned people, who are moving from or not.
It was more competitive.
On the renewal side.
We're getting better and better at operating our own multi clients and keep them.
So it.
Generally drives higher rents.
Speaker 6: Generally, so I assume that higher retention rate assumption is baked into your long-growth outlook as well. Is that fair?
General generally so I assume the higher retention rate assumption is baked into your <unk>.
Loan growth outlook as well is that fair.
Yeah.
Okay. That's it for me thank you.
Speaker 4: Your next question comes from the line of Stephen Boland from Raymond James. Your line is open.
Your next question comes from the line of.
Stephen Boland from Raymond James Your line is open.
Speaker 9: Thanks, just a quick question. Just in terms of borrowing behavior, have you seen any change in demand for different lengths of mortgages, with the anticipation of rates moving up, things moved out, more demand for fixed, anything like that in terms of borrowed behavior?
Thanks.
Quick question just in terms of borrowing.
Behavior have you seen any change in demand for different lengths of mortgages another.
With the anticipation of.
Rates moving up of things moved out.
More demand for fixed or anything like that in terms of borrower behavior.
Speaker 9: We've seen typically on Alt-A, a client will take a one-year mortgage because they believe there might be an A in the year or want to see the circumstances later, we've seen a bit of shift to two and even three-year on Alt-A. On the A side, five-year is the most common term and that continues to be the same.
Yes, Hi, Steve.
A little later.
We have seen.
Typically on all our.
Our clients will take that one year in mortgage.
Because they believe it might be in the year or circumstances later, we're seeing a bit of a shift to two and even three year on hold.
On the 85 five years with most common term and that continues to be seen.
Speaker 9: Okay, and just second, what is the
Okay.
<unk>.
What is the.
Speaker 9: You mentioned that you have been adjusting rates, LTVs, things of that sort. Can you just give a little bit more color in terms of job acuity, loan to value adjustments that you've had, especially I guess in the PTA where the markets are pretty hot?
Yes.
You mentioned that you have been adjusting.
Rates ltvs things of that sort.
Can you just give a little bit more color in terms of geography.
Loan to value adjustments or you've had.
Especially I guess pega, where the markets are pretty hot.
Speaker 3: Yeah, I don't know Steve if you're referring to that when initially the lockdowns came in 2020, we pulled back in certain areas and we pulled back certain loans to values, but in mid-2021 we're back to our normal loans to values. In fact, since July 2021 we added areas that we loaned, we've added FSH that we lend to, so we've expanded as the dynamics are shifting on where people are buying homes, they're actually redefining where major urban centers are.
Yes.
See if you are referring to that when initially the lockdowns came in 2020, we pulled back in certain periods. When we pulled back certain loan to values, but in mid 2021, we're back to a normal loan to values in fact since.
Since July 2021, we added areas when the loan we got an FSA.
What we do.
So we've expanded as well.
And as the dynamics are shifting on where people are buying homes, they're actually redefining where major urban centers are.
Speaker 3: So we're just looking at and studying exhaustively, the way we understand the market, and then when we get comfortable, we expand. So today we are lending more than we would have last year, and certainly more than we would have in 2020. And back to our full risk appetite adjustments of LTV, which is generally up to 80% on all of it.
So we're just.
Look when we look at that and studied exhaustively liquidity to understand the market and then when we get comfortable we experience. So today, we are limiting and more than we would have last year and certainly more than we would have in 2020 and not to a full risk appetite adjustments of LTV, which is generally up to 80% on OPEC.
Speaker 9: Okay, so again, you're not concerned with the rising average prices here, especially in the GTA. You're still comfortable with your levels.
Okay, So youre not youre not concerned with the.
The rising average pricing.
In the GTA like that.
You are still comfortable with your levels.
Speaker 3: We are comfortable because in our risk appetite, the first thing is we qualify the borrower of what they want to borrow.
We are comfortable because in our risk appetite and the first thing is we qualify the borrower what they want to borrow irrespective of LTV that has protract before when you look at the LTV and the prices and so on so we get comfortable that that person can carry that mortgage first so that gives us a lot.
Speaker 3: irrespective of LTV. That has to check before we look at the LTV and the prices and so on. So we get comfortable that that person can carry that mortgage first, so that gives us a lot. And we have to be comfortable of the certainty of the income in the term of the mortgage.
<unk> be comfortable certainty of income in the terms of the mortgage so.
Speaker 3: That being the first check that has to pass, then you look at the loans value and what the appraisal is.
That being the first chapter.
Then when you look at the loan to value and what the appraisal list.
Okay. Thanks, Andrew.
Yes.
Speaker 4: Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Speaker 4: And there are no further questions at this time. Mr. Yousri
And there are no further questions at this time Mr. <unk>.
Turn the call back over to you for some closing remarks.
Speaker 3: Thank you, Rob. As you can see, we're moving forward with a lot of momentum in all our business areas. We'll continue to execute our strategy to grow business while returning capital to our shareholders to our NCID and common share.
Thank you Rob.
As you can see we are moving forward with a lot of momentum in all our business areas. We will continue to execute our strategy to grow business, while returning capital to our shareholders through our NPI.
Speaker 3: Thank you all for attending, and we look forward to speaking with you again soon.
Commentary.
Thank you all for attending and we look forward to speaking with you again soon.
Speaker 4: This concludes today's conference call. Thank you for your participation. You may now dis-
This concludes today's conference call. Thank you for your participation you may now.
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