National Bank leans on broker channel as mortgage growth hits record pace

National Bank of Canada recorded its strongest quarter for mortgage originations as growth through its branch and broker channels pushed residential balances sharply higher.

The bank’s residential mortgage portfolio reached $89 billion at the end of the fiscal third quarter, up 14% from $78.1 billion a year earlier. Its HELOC portfolio grew 12% to $34.5 billion.

The mortgage gains contributed to a 14% increase in Personal and Commercial Banking profit, which reached $421 million.

National Bank attributed the growth to renewal activity, a resilient Quebec housing market and market share gains, rather than more aggressive pricing or looser underwriting.

“Our mortgage growth continued to be driven primarily by market share gains rather than aggressive pricing,” Julie Levesque, National Bank’s executive vice-president of personal banking, told analysts.

“We’ve maintained a consistent pricing strategy across all of our channels, and we remain focused on profitable, sustainable growth.”

Broker channel supports expansion beyond Quebec

National Bank said its branch network and broker channel both contributed to the increase, with particularly strong momentum in Quebec. The third quarter is typically a busy period in the province because of the high volume of residential moves around July 1.

“We have and maintain a strong relationship with our brokers, and those two [channels] are paying off,” Levesque said.

National Bank is also expanding beyond its traditional Quebec base, with growth in Ontario and new opportunities to broaden its reach through its acquisition of Canadian Western Bank and partnership with First National.

Insured mortgage balances rose 8% quarter over quarter, including an increase of more than 9% in Ontario. Chief Risk Officer Jean-Sébastien Grisé said falling home prices may have brought more purchases within mortgage-insurance eligibility limits.

“As we have seen the Ontario market correct a little bit, there is going to be a naturally higher number of clients that could qualify for insured mortgages,” he said.

Grisé added that the bank had not changed its risk parameters to generate the growth. Total debt service ratios, loan-to-income ratios and credit scores remained broadly stable among newly originated borrowers.

Mortgage growth pressures margins

The rapid expansion of the mortgage book contributed to a seven-basis-point quarterly decline in National Bank’s Personal and Commercial Banking net interest margin, which fell to 2.19%.

Management acknowledged that competition for new originations and renewals weighed on mortgage spreads, but said the portfolio remains profitable and serves as an important source of new clients.

“Mortgages are really one of our most effective client acquisition vehicles,” Levesque said. “Our strategy has always been to view the mortgage as an entry point to a broader banking relationship.”

The bank expects those borrowers to add deposits, investments, credit cards and advisory services over time. Despite the margin compression, net interest income in Personal and Commercial Banking rose 10% year over year.

Mortgage delinquencies continued to edge higher, with the share of loans at least 90 days past due rising to 0.33% from 0.26% a year earlier. Grisé said early-stage delinquencies improved across most retail categories during the quarter, with insured mortgages the exception, although he cautioned that it was too early to call it a trend.

Overall provisions for credit losses rose to $246 million from $203 million a year earlier. National Bank maintained its full-year guidance for impaired provisions of between 25 and 35 basis points.

Bank-wide adjusted earnings rose 23% to $1.36 billion, or $3.39 per share, topping analysts’ expectations of $3.21. Capital Markets led the gains, with profit rising 32% to $442 million.