CIBC mortgage delinquencies rise, but losses remain low

CIBC’s mortgage delinquencies moved higher again in the third quarter as a slower housing market continued to strain some borrowers, even as the bank reported only modest growth in its mortgage portfolio.

The share of residential mortgages at least 90 days past due rose to 0.51%, up from 0.47% in the second quarter and 0.36% a year earlier. The increase was more pronounced in the Greater Toronto Area, where the delinquency rate on uninsured mortgages reached 0.66%, compared with 0.44% a year ago. In Greater Vancouver, it rose to 0.53% from 0.36%.

Despite the increase, CIBC said mortgage losses remain very low and in line with historical levels, supported by the amount of equity borrowers continue to hold in their homes.

“While mortgages continue to experience an increase in impairments this quarter, we do not expect a material increase in losses given the prudent loan-to-value ratio of our uninsured mortgage book,” Chief Risk Officer Frank Guse told analysts on the bank’s earnings call.

CIBC’s Canadian residential mortgage portfolio stood at $275 billion at quarter-end, up about 1% from $272 billion a year earlier and unchanged from the previous quarter. Home equity line of credit balances were also unchanged year over year at $19.8 billion.

Higher delinquencies, but a substantial equity buffer

The bank’s uninsured mortgages made up 86% of its Canadian mortgage book, unchanged from a year earlier. The average loan-to-value ratio across the uninsured portfolio increased to 58% from 54%, reflecting the effect of softer home prices, but still leaves a sizeable equity cushion.

The increase was more visible in CIBC’s largest markets. The average LTV on uninsured mortgages rose to 62% in the GTA from 56% a year ago, while the GVA average increased to 53% from 48%.

Guse said the weaker housing market is contributing to pressure on household cash flow, alongside the broader effects of unemployment and economic uncertainty.

“Actual mortgage losses remain very low and continue to track in line with historical performance,” he said. “So while consumer stress is higher than it was a year ago, the portfolio performance remains consistent with the environment and well within our expectations.”

CIBC also pointed to the performance of its condominium mortgage portfolio, which totalled $45.5 billion, or about 17% of the Canadian mortgage book. Only 16% of those loans were insured, but the bank said the segment continues to perform better than its broader mortgage portfolio.

CIBC remains selective as renewals ease

The bank said it is taking a measured approach to mortgage growth as competition continues to pressure pricing.

“We’re being more careful on mortgages and the margins on the mortgages,” Hratch Panossian, CIBC’s head of Canadian personal and business banking, said during the call.

That discipline has helped support wider margins across the Canadian personal and business banking division. Net interest margin rose to 3.16%, up 25 basis points from a year earlier and four basis points from the previous quarter.

The remaining renewal wave also appears manageable. About $71 billion of mortgages are scheduled to renew over the four quarters through the third quarter of fiscal 2027, equivalent to roughly 26% of the current portfolio. That compares with about 31% facing renewal over the comparable forward period a year earlier.

Using illustrative renewal rates of 4.0% and 4.5%, and assuming no income growth since origination, CIBC estimates the average payment increase over the next five quarters will amount to less than 1.8% of borrowers’ income. The average LTV of those renewal cohorts ranges from 56% to 62%.

Bank-wide, CIBC reported adjusted net income of $2.65 billion, up 26% from a year earlier, while adjusted earnings per share rose to $2.73 from $2.16. Total provisions for credit losses edged up to $564 million from $559 million.

The bank ended the quarter with a Common Equity Tier 1 ratio of 13.4%, unchanged from a year earlier and down from 13.6% in the second quarter.