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spk02: 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. 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. Thank you. Jill McCrae, Head of Investor Relations. You may begin your conference.
spk00: Thank you, Rob. Good morning, everyone, and thank you for joining us today. Our agenda for today's presentation is as follows. We'll begin the call with remarks from Yusri Basada, Homes President and CEO. Brad Kodesh, 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. 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. 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. And now I'd like to turn the call over to you, Srivastava.
spk05: Good morning, and thank you for joining us today for our 2021 fourth quarter and full year results conference call. In addition to our results, I'll also spend some time talking about what we see ahead of us in 2022. Let me start with what we announced today. We reported fully diluted net income per share of $4.78 in 2021, an increase of 44% over 2020. This is the second straight year that we've reported year-over-year earnings growth above 40%. We achieved a 15.1% return on equity. We are pleased to announce the initiation of a regular quarterly common share dividend in the amount of 15 cents per share. We grew our mortgage originations by 27% year-over-year to near as $8.9 billion. Of that, our ultimate mortgages were $6.3 billion, an all-time record. Brad will share more details on the above. Over the last four years, we have delivered consistent increases in our earnings and our return on equity as shown on slide four. Our share price performance during that time is the highest of any of the banks. 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. In total, we left back 8.9 million shares during the year or about one-sixth of all the shares that were outstanding at the beginning of 2021. Looking back, 2021 was an eventful year. Once again, we began the year faced with uncertainty due to COVID. But this time, informed and strengthened by our earlier experiences, we entered 2021 with confidence. This is because medical science has introduced vaccines that promise to make normal business operations possible. We had an even better understanding of the ways COVID has impacted the housing market. We knew how important it is for people to have the opportunity to buy and keep their homes. Our people have shown themselves to be capable and resilient in the face of constantly changing working conditions. Each of our business units rose to the challenge of a volatile year, starting with our sales and underwriting teams. They worked hard throughout the year and delivered impressive volume growth while staying within our risk appetite. That included a return to pre-pandemic underwriting conditions in all areas by mid-July. They delivered the quality of service that our broker partners have come to expect from us. At investor day, we shared information about how we value our broker partners and work with them. Our deposits and funding teams were equally active. Deposits to our open channel grew by more than 10% during the year and now make up over 31% of our overall total deposits. We returned to the RMBS market with two cross-border offerings totaling $765 million. We added a whole loan sale program for insured mortgages with a range of financial counterparties and participated in a bank-sponsored securitization conduit. Our IT team implemented the transformation of our core mortgage banking system. We launched a mobile banking app for our open customers and upgraded the functionality of our law platform for better engagement with our broker partners. We are continuing to find ways to use robotic process automation to perform repetitive tasks. The benefits of Ignite, our internal multi-system upgrades, are not just process efficiencies, but an improvement in the type of work we're able to perform, including the quality of engagement with our brokers and customers. Our HR team led us in adapting to a virtual work from home, to a hybrid work from the office, and back to virtual work from home. Pivoting in our work environment has become the new norm. 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 home and of our culture. And we welcomed Betty DeVita as a new director. Betty's years of experience in banking and payments make her a valuable asset to our board. On our leadership fronts, we added Ben Strick. In January of this year, we welcomed Brian Leland as EVP underwriter. Brian comes to us with over 20 years experience in all aspects of building and growing residential mortgage teams. He started his career at HomeTrust and we're pleased to welcome him back. We also welcome Mike Henry as our EVP of digital and strategy. As a senior executive with more than 25 years at a major bank, might bring strategic and deep financial service experience to our team. As we look ahead, we have reasons for optimism in 2022 as well. 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. Interest rates are still low but are rising and expected to increase through the year. 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. It is likely that higher rates will reduce but not eliminate demand for home ownership. The impact of rising rates on affordability can also be mitigated by buyers changing the location or the size of their home purchase. We believe that the mortgage broker community is best suited to help Canadians understand the impact of these changes. Demand for home ownership is still strong, and it will be supported by growing immigration numbers, a growing cohort of millennials buying their first homes, and a return to employment growth. As working conditions evolve, we can see more transactions driven by changing housing needs. Our funding teams expanded our funding capabilities and have just issued our latest RMBS offering, benefiting from growing investor interest in this attractive instrument. On our capital strategy, we are on track. Following the completion of our SIP in December, we're announcing today that the TSX has approved our application for normal course issuer bid. This will make strategic share repurchases throughout the year as we work towards our stated target CDT1 capital ratio of 14% to 15%. We have a track record of success in this method of delivering value to our shareholders. 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. Together with our strong operating performance, buybacks have been a key component of our shareholder value proposition. 2021 was a year in which Canadians continued to show how much they value home ownership. And here at home, we're dedicated to helping them achieve it. 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. In 2022, we are starting the year with a strong market, a strong capital base, an engaged group of employees, and a strong leadership team. 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.
spk01: Thank you, Yusri, and good morning, everyone. 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. Adjusting for items related to our IGNITE program, net income for the quarter was $53.7 million or $1.06 per share. 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. Full year 2021 earnings were 244.7 million or 478 per share. 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. Book value per share as shown on slide eight grew 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. Once again, we generated double-digit return on equity despite carrying significant capital above our target range for most of the year. 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% to 15%. 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. 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. Reduction in non-interest expense added a further 19 cents. Overall, pre-tax, pre-provision net income increased by 10% over 2020. Looking at provisions, the change from a provisions expense in 2020 to a recovery of credit provisions added 94 cents to earnings per share. A 3% reduction in the number of average shares outstanding during the year contributed 13 cents. 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 net interest income will be offset by higher loan balances. Looking at our lending operations on slide 10, originations in our single-family residential portfolio grew by 52% in the fourth quarter, 44% per year. Commercial originations on slide 9 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 positive about the opportunities in commercial lending in 2022. 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. Commercial on balance sheet loans declined to $1.8 billion with the largest year-over-year reduction in exposure to retail stores. Deposits gathered through our Okin channel by more than 10% during 2021 and make up more than 31% of our total deposit funding. Significantly, deposits gathered through deposit brokers decrease year over year as we were able to diversify our funding sources. Okin savings accounts were just under 24% of total Okin deposits at the end of the year. 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 are getting good customer response to our digital banking app and look forward to further continuous agile enhancements to this app. During the year, Home made significant progress in our objective of diversifying our funding base. 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. 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 our classic mortgages. We have just priced the first RMBS offering of 2022. The ATRON for $425 million was priced at 2.63% and is expected to close on February 23rd. We continue to see strong credit performance in Q4, even while the Omicron variant added uncertainty to the outlook for economic recovery. The base case inputs to our economic model show an improvement in employment through the year and modest appreciation in housing prices. 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. 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. Going forward, we expect credit provisions on both our retail and commercial portfolios to be similar to pre-pandemic levels. Net write-offs for the year were... or less than one basis point of gross loans. 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. This was due to the impact of an improvement in the forward-looking economic models used to estimate credit losses, loan repayments, and a lower balance of loans in Stage 3. Slide 16 shows details of our allowance coverage. Total allowance for credit losses was $36.5 million at the end of 2021, which is a decrease of 48% from the total of $70.8 million one year earlier. Approximately 80% of the allowance is attributable to Stage 1 and Stage 2 loans. Allowance coverage of non-performing loans increased to 22.8% as of December 31st. Turning to slide 17, we provided details of our non-performing loans by business line. Our credit quality continues to be strong, reflecting a steady improvement from previous quarters. 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. This is a credit to our sales and underwriting teams and to the risk culture of the company as a whole. We concluded a $300 million substantial issuer bid at the end of the year. For the full year, Home repurchased 8.9 million shares at an average price of $41.13 per share through the SIB and NCIB. We ended with a CET1 capital ratio of 18.43%, which is still above our stated target range. The renewed normal course issuer bid that Yusri 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 dividend that we announced today is another way of delivering value to shareholders. We have said consistently that we would introduce a common share dividend when it made sense. Having made material progress toward our target capital ratio, the board of management believed that the company and its shareholders would benefit from a regular quarterly dividend. The initial dividend is set at 15 cents per share, payable on March 31st, 2022, to shareholders of record as of March 15th, 2022. This payout is sustainable with potential for growth over time. The board reviews its capital strategy on an ongoing basis and will look at all opportunities to achieve a CET1 within our stated target range by the end of the year. And now, I will ask the operator to poll for questions.
spk02: At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Etienne Ricard from BMO Capital Markets. Your line is open.
spk04: Thank you and good morning. Good morning. So the 2022 outlook is guiding towards declining net interest margins. First, are you expecting... net interest margin increases relative to Q4 or annual 2021 levels? And second, is the focus on capturing high 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?
spk05: Sorry, again, go ahead. I'll answer first and then Brad might add just on the market share. It's not to gain market share, it is just as rates increase, 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 lead. And as that happens, you get deposit rates going up and mortgages lagging somewhat. That's what causes that. It's not so much the market rate. We've typically been the highest rate in the Alt-A area and competitive in the A area. So we would expect to maintain that. So if interest rates 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.
spk01: Brad? The specific answer to your question is off of the Q4 NIM that we reported. And what's been happening is what we've seen in our market is that the rise in the Overall deposit costs, 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 consider to have been leading the way in rate increases this quarter, and the path that we see is... 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 or projecting for the year, even if NIM decreases, we'll achieve the same level of net interest income.
spk04: Great, thank you. So I guess as a follow-up, when would you expect all the mortgage rates to start increasing and, you know, match the increase in deposit costs?
spk01: I think that's a process that's going to take time. What I can say is we have raised rates. And we'll continue to raise rates to match increase in deposits. What happened was there was probably 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 all day 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. But based on what we know, we are the price leaders 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. Okay.
spk04: And so on the funding side, we've talked about Okin and RMBS issuances in the past. As we look into 2022, could you remind us of your priorities as it relates to driving cost of funding improvement?
spk01: Well, we will continue. We showed great progress in diversifying our funding sources. We're going to continue doing that now. And I did mention in our call that we have just priced an RMBS. We expect to be programmatic, continue to be programmatic issuers subject to market conditions. We issued the RMBS 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, what we all hope is none of those issues manifest themselves and that there'll be a more stable market. So, again, we're looking at further ABCP conduits and other RDS issuance 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 and, again, Part of our wholesale program is to make sure that it's effective on creating value, so we need to see some increase in spreads on our accelerator mortgages to really get back into that program, but we do see a lot of potential.
spk04: Thank you for your comments.
spk02: Your next question comes from the line of James Gloyne from National Bank Financial. Your line is open.
spk05: Yeah, thanks. First question, I wanted to just get into the thought process behind sizing the dividend 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?
spk01: Sure, James. Our strategy is to keep it consistent for the year. However, that may change subject to circumstances, and those circumstances will 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. And there is also a... 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
spk05: Okay, great. And then on the factors that went into sizing the dividend, it looks to me like it's at the low double-digit 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 decisions?
spk01: 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. 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% when it was not. I think there were a couple of and SIDs, but primarily most of the return of capital was done through dividends. So, thinking years ahead, that's probably a place that we would get to.
spk05: Okay, great. Yeah, that's fair enough. The Ignite program or Ignite cost expenses, it seems like it's extending a couple of quarters. I believe the previous guidance was that it would wrap up in Q2 2022. 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? A little more detail on that, please.
spk01: yeah sure jane um we think we have uh 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 like saying it would end in 2022 i'll correct that now we think it's going to be largely complete in the first half of the year and rs and why we're saying we're not going to be reporting adjusted earnings anymore is the 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.
spk05: Okay, great. So from the first question, it sounds like the guidance or the expectation for 2022 is that net interest income on a dollar basis 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 just in terms of the movements within that.
spk01: I think that's right. um james based on what we know today there's a lot of things that can change over time but uh that's our current thinking and the components of that are really uh working through uh getting back to the mean in terms of spread over deposits that has been compressed and as i said earlier we are uh we have been leading uh with price increases so far this quarter And we'll continue to work towards getting back to the historical levels of spread on classic originations.
spk05: 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 market? are you targeting a specific ROE outcome? What is the, what are the inputs and drivers of determining the ultimate rate? Yeah, ultimately we're driving towards the ROE targets, which, you know, subsection is NIM, which is subsection is the spread obviously between deposits and mortgages. This is a very normal thing when interest rates are going up, is that deposits reset quickly. Government account bonds set instantly, deposits reset almost right away, and then it's the mortgages that lie. As we've 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 mortgage and deposits. But as they, you know, you can go up today and then tomorrow deposits go up again and you've 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'll get there. It's just how fast that happens. 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. 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?
spk01: Well, our goal team is mid-teens ROE, so that'll move around. But 15 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 that we have to do to get there this year, including managing the spread on classic originations. And as a reminder, it is competitive. We need to be relevant, and we can't simply wave a wand ourselves to move the market, but we're definitely trying. Got it.
spk05: And last one for me.
spk00: I'm going to have to ask you to read Q, James, because there's other people in the queue, and, yeah, we will pick you up at the end if that's all right.
spk02: Your next question comes from the line of Nigel DeSuvo from Veritas Investment Research. Your line is open.
spk04: Thank you. Good morning. I just had a couple quick questions on your margins here. I noticed that there was a decline quarter over quarter. It seems to have been largely driven by single-family investments. 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 what drove the decline?
spk01: That is the primary reason is the originations coming in at lower spread. Our retention rates are working relatively well in terms of our expectations, but that is the case.
spk04: Okay, great. And just on term deposits, if I could maybe 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 – And competitive term rates narrow in a rising rate environment. Is it maintained? Could you just kind of set some color on how the pricing dynamics might play out?
spk01: When we look at our pricing, we do have competitive pressure, certainly on the broker deposit, but in relation to Oken and others. When we evaluate how we're doing, we look at how we're doing based off the spread of a government curve.
spk04: Okay. Okay, that's helpful. And if I could just pivot quickly to capital when I when I look at your current capital level, if you assuming you your action that NCIB that still doesn't get you to your 14 to 15% CT one target range. And then even with the dividend payout, you're still going to have some internal capital generation. So do you have any comments on what bridges I guess the final remaining excess capital from where we might end up to your target range over the next year?
spk01: You're right. There is a gap to get there. Part of it is going to be filled with what we think or what we're thinking is broken or 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 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 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.
spk04: Okay, and last quick question. Any comments on... the decision of deciding to pursue NCIB versus an SIV. I mean, look at your current share price. It's below the average SIV purchase price you recently completed. So is there, you know, rationale that makes NCIB more attractive in the current environment, or how do you think about that?
spk01: Well, I think we have a good opportunity to utilize the NCIB, and, you know, The ability to have a more discretionary aspect to when we're repurchasing shares and not having to pay the premium on an SID led us to maximize an NCIB over immediately putting together another SID.
spk04: Okay, that's helpful. That's it for me. Thank you.
spk02: Your next question comes from a line of Graham writing from TD Securities. Your line is open.
spk06: Good morning. Just appreciate the color on, you know, the offset of, you know, lower NIM, but higher loan growth. You think net interest income hopefully will be flat in 2022. Just wondering what sort of loan growth are you targeting for 2020? What do you think the business is capable of, given your outlook?
spk01: We're capable of close to 20%. 20% loan growth?
spk06: Yeah. Or LUA.
spk01: Okay.
spk06: So that's a pretty material increase from I think you did 5% this year. But what drives that uptick? Uptick?
spk01: Originations, continuing high growth of originations in our classic portfolio, residential portfolio, and commercial portfolio. And retention.
spk06: Okay. And the, you know, obviously you've been talking about some spread compression on the classic side of your business. What about on the commercial side? Are you seeing any spread compression there or holding in, okay, on that side of your business?
spk01: There has been a little, but not to the extent on the residential side.
spk05: That's more because commercials price deal by deal, whereas single family, you price it and a whole bunch of deals arrive.
spk06: Got it. Understood. And then my last question, there's a slight increase in your commercial impairments. Any color behind what was behind that?
spk01: No, it's just there are individual loans of size, so if anything moves in any of those, you're going to have 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.
spk06: Yeah, that's fair. That's it for me. Thank you.
spk02: And we have a follow-up question from the line of James Gloyne from National Bank Financial. Your line is open.
spk05: James Gloyne Yeah, thank you. So, I just wanted to dig into the two main subsectors of the NIM forecast. So, we completed the R&DF, the latest R&DF transaction. Can you compare the spread on that transaction, so mortgage rates versus the cost of that RMBS deal versus the previous deals, and is that going to be accretive to the spread on securitized assets or dilutive?
spk01: It may be slightly dilutive, but again, over time, We'll see where overall rates move because the RMBS is an amortizing facility, so depending on the renewals in there, it may turn out to be an attractive long-term funding for us, Shane. We really do like the RMBS as a funding mechanism. We issued it in a pretty volatile environment. The spread over the curve was higher on this transaction than our last transaction that I think has been based on what we've heard in the market is the spread tab on these types of vehicles have expanded. So we did the last one at 85 over and this one was done at 105 over.
spk05: Okay, so still tighter than the one prior to that, but I guess the bottom line is there's 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% loan growth forecast, 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 providing that guidance of 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-resident commercial mortgages or other products?
spk01: I think right now we're comfortable with saying that overall level of growth and that level of net interest income.
spk05: Okay. Great. I think that's it for me. Thank you.
spk02: Your next question comes from the line of Nigel D'Souza from Veritas Investment Research. Your line is open.
spk04: 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 color that, you know, in the context of between 100 basis points or 200 basis points increase, how meaningful of a difference does that make to retentions?
spk05: What do we think? Oh, sorry. No, go ahead. Sorry. We both want to answer. In retention, it's a little bit different. It's a little bit stickier in the right 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 retention.
spk04: Generally. So I assume the higher retention rate assumption is baked into your long-growth outlook as well. Is that fair?
spk01: Yes.
spk04: Okay. That's it for me. Thank you.
spk02: Your next question comes from the line of Stephen Boland from Raymond James. Your line is open. I am open.
spk03: 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, of things moved out, more demand for fixed, anything like that in terms of borrowed behavior?
spk05: Yeah. Hi, Steve. 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're seeing 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.
spk03: Okay. And just second, what is the – 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 that you've had, especially, I guess, BTA, where the markets are pretty hot?
spk05: 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 loan-to-values. But in mid-2021, we're back to our normal loan-to-values. In fact, since July 2021, we've added areas that we loaned. We've added FSAs that we lend to. So we've expanded as As the dynamics are shifting on where people are buying homes, they're actually redefining where major urban centers are. So we look at that and study it exhaustively to look at liquidity to understand the market, and then when we get comfortable, we expand. So today we are lending in 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.
spk03: Okay. So again, you're not, you're not concerned with the, you know, the, the rising, you know, average prices here, especially in the GTA like that. Um, you're still comfortable with your, your levels.
spk05: You're comfortable because in our risk appetite, the first thing is we qualify the borrower of what they want to borrow. 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. So that being the first check that has to pass, then we look at the loans value and what the appraisal is. Okay. Thank you, Drew.
spk02: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. And there are no further questions at this time. Mr. Usri Desada, I turn the call back over to you for some closing remarks.
spk05: 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 through our NCID and common share business. Thank you all for attending, and we look forward to speaking with you again soon.
spk02: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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