2020 Economic Environment
The coronavirus pandemic wreaked havoc on the global economy in 2020, with global GDP growth estimated to contract 3.5% for the year, representing the lowest annual growth year in decades.1
The Canadian government has deployed unprecedented stimulus in an effort to mitigate the impact of the pandemic. These measures include the Bank of Canada reducing its overnight lending rate by 150 bps to 25 bps, implementing large-scale bond buying programs, and providing direct support to individuals and businesses. While these programs have helped to limit the pandemic’s economic impacts, Canada’s GDP is nevertheless estimated to contract 5.5% in 2020, worse than the average contraction of 4.9% amongst advanced economies.1 Inflation is estimated at 0.7% for the year, below the Bank of Canada’s target range.2 At the provincial level, BC’s provincial GDP growth is estimated at negative 5.3% and unemployment at 8.9% in 2020.2
In spite of the pandemic and recession, the BC housing market experienced a very strong 2020. This strength was largely attributable to historically low mortgage rates, a high sales-to-listing ratio throughout the year, and lower discretionary spending (e.g. on travel). Residential unit sales and average residential prices were up 21.5% and 11.7% year-over-year respectively.3
“BlueShore performed well in 2020’s challenging environment, and our total AUA reached $6.5 billion. With the pandemic accelerating digital transformation, we will continue our focus on investments in technology to enhance our client experience across all channels.” - Richard Butterworth, Chief Financial Officer
2020 Financial Performance
BlueShore Financial performed well in 2020’s challenging environment: we maintained excellent client service while taking effective precautions to ensure the safety of our clients and staff; we offered multiple programs to help clients impacted by the pandemic return to financial stability; and we avoided harmful layoffs and branch closures.
Total Assets Under Administration grew $250.1 million or 4.0% to reach $6.5 billion. The growth was primarily driven by a $176.4 million increase in wealth assets under administration and conservative loan growth of $74.9 million.
Net Operating Income (NOI) increased to $32.0 million (2019, $22.1 million), primarily due to a one-time gain of $9.4 million. Return on Retained Earnings (RORE) was 15.5% (2019, 11.7%) and Return on Average Assets (ROAA) was 65 bps (2019, 48 bps).
Net Interest Income grew $2.5 million or 3.2% in 2020 despite significant COVID-19 related challenges that emerged during the year. These included slower loan growth, variable loan yield reductions due to 150 bps of Bank of Canada rate cuts, and the costs of adding supplemental liquidity and contingent liquidity to weather the crisis. However, protection from our effective hedging strategy in the form of increased swap income, deposits repricing lower due to the aforementioned rate cuts, and diligent liquidity management all helped to mitigate the impact of the rate cuts.
BlueShore prudently set aside an increased provision for credit losses of $5.0 million in 2020 due to the challenging environment (2019, $2.5 million). In order to assist impacted clients, BlueShore instituted a payment deferral program allowing eligible clients to defer loan payments for a period of time. This program was extremely successful in helping our clients return to financial normalcy, with virtually all clients resuming regular payments by the end of 2020.
Non-Interest Expenses grew $2.4 million or 3.3% in 2020, slower than the pace of total income growth. While many discretionary general and administrative expenses were reduced in light of pandemic-induced uncertainty, BlueShore reaffirmed its commitment to staff and clients by delivering excellent client service, avoiding layoffs during the pandemic, and growing staffing levels during the year. We also continued to invest significantly in technology, completing our banking system upgrade.
DBRS Morningstar reconfirmed BlueShore Financial’s Long-Term Issuer Rating of BBB (high) and Short-Term Issuer Ratings of R-1 (low). The ratings reflect BlueShore Financial’s strong franchise position, asset quality, liquidity and capitalization.
2021 Economic Outlook
The Bank of Canada forecasts Canadian GDP growth of 4.0% in 2021.4 However, growth is projected to be choppy, as the spread of the virus in Q4 2020 and the resulting lockdowns curb consumption of non-essential goods and contact-intensive services in Q1 2021.
BC is expected to be one of the strongest provinces in terms of GDP growth and employment. This is largely due to the fact that the provincial government permitted retail stores, restaurants, and most personal services businesses to remain open through the second wave of the pandemic. Significant infrastructure spending and favourable changes in the lumber industry are also expected to contribute to the forecasted economic improvement in 2021.
The Greater Vancouver real estate market finished 2020 strongly, and this strength has continued through early 2021. Historically low interest rates and a low supply of homes listed for sale have created a seller’s market and driven prices higher. Sales are forecast to rise 15.6% in 2021 and average prices are expected to increase 7.7%.5
In light of uncertainty created by the pandemic, we will continue to seek prudent opportunities to grow our highly-secured, high quality asset portfolio while maintaining our credit standards, supported by appropriate levels of liquidity and a solid capital base. With the pandemic accelerating digital transformation across all industries, we will continue our focus on investments in technology to enhance our client experience across all channels.