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Lender Calls – Q1 Roundup

The country’s largest broker channel lenders wrapped up another earnings season, again delivering a mixed bag of results.

Home Capital is on track in its recovery from the 2017 liquidity event, with CEO Yousry Bissada declaring: “Home is back.”

Street Capital finds itself in its own period of transformation. During its conference call, CEO Duncan Hannay said the company is building the foundation for a “more diversified, modern, digitally enabled banking offering.”

First National, meanwhile, delivered better-than-forecast origination results as the effects of B-20 were muted thanks to a high volume of “spillover” originations from Q4. The true effects of B-20, they say, are likely to be seen in Q2.

Highlights from the conference call transcripts from Street Capital, Home Capital and First National are below. The comments in blue deserve particular attention.

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Home Capital GroupHCG-LOGO

Notables from its call:

  • Home Capital reported net income of $34.6 million, up 13% quarter-over-quarter but down 40% from a year earlier, “mainly due to reduced revenue from lower loan balances, taking into account loan sales, and reduced mortgage originations in 2017,” said Brad Kotush, Chief Financial Officer. “Lower mortgage loan balances combined with some elevated expenses will continue to be a headwind when comparing the results prior to the liquidity event.”
  • Total loans under administration stood at $22.8 billion, flat from Q4 and down 17.3% from Q1 2017.
  • Total originations increased 32.9% from Q4 to $1.16 billion, but are still down 25% from a year ago.
  • Home’s turn-down rate on mortgage applications “continued to improve.”
  • Net interest margin stood at 2.02% in Q1, unchanged from Q4 but down from 2.44% in Q1 2017.
  • The average LTV of Home’s uninsured portfolio is 58.5%, up from 55.3% in Q4 and down from 60.4% in Q1 2017.
  • CEO Yousry Bissada kicked off the conference call by saying the company has “taken another positive step forward toward our goal of establishing Home as the number one Alt-A lender in Canada…Home is back.”
  • Bissada said renewals are expected to continue to improve as a result of some process enhancements, as well as effects from the new B-20 stress test. “B-20, as we have discussed in the past, is expected to make it more difficult for certain customers to re-qualify elsewhere,” Bissada said, though noted it’s too soon to know how much of the renewal growth can be attributed strictly to B-20. “We expect to get better renewal rates than the company has ever had in its 30 years of history…we have a lot of smart initiatives to help us with renewals, and B-20 will also help.”
  • On the improved application efficiency, Bissada said this: “Mortgage applications are matching better with our product offerings as brokers are including more complete documentation upfront, helping to reduce the turnaround times. We continue to invest in educating our brokers on what fits our profile so our underwriting teams are able to focus on the right applications, rather than the applications that don’t meet the most rigorous risk profile. This improves turnaround times to brokers, resulting in improved service to the broker and their client.”
  • Speaking about Home Capital’s long-term digital strategy, Bissada said, “we believe that customers are demanding different ways of dealing with financial institutions and we want to have options for them, on whether they prefer mobile, online, face-to-face service or over-the-phone service…Over the coming months and years we’re looking to transform the way [we interact with] our brokers and customers who wish to deal with us digitally.
  • The company noted that other products and services will be added at “opportune times.”


Street Capital Bank

Notables from its call:

  • In Q1, Street originated $1.35 billion of new prime mortgages, down 31% from Q1 2017.
  • The renewal rate remained at 75% in the quarter, slightly off from Street’s 75-80% ongoing target.
  • Street originated $98.3 million in Street Solutions mortgages in the quarter, up from $62 million in the previous quarter.
  • Street’s banking operations generated a deposit base of $382.5 million, up by $89.5 million from Q4 and up slightly from $380.1 million a year ago. “The company continues to onboard new brokers in order to increase diversification and volume in the channel, and will remain very active in this regard,” Street noted in its investor presentation.
  • Street added it is “taking steps to further transform the organization by entering exclusive negotiations with a core banking platform provider and premier cloud platform partner as the company works towards a digital banking launch in 2019.”
  • “Q1 was another challenging period for Street Capital and the mortgage industry in Canada overall as the market continues to adjust to the regulatory changes announced over the last 12 months,” said CEO Duncan Hannay. “Market volumes were lower year over year across the board, and stiff competition kept spreads tight, particularly on the prime insurable product.”
  • Speaking to the quarterly loss of $0.01 per share, which he said was expected but “not something we are comfortable with, nor is it something we foresee in the quarters ahead,” Hannay said, “we are well on our way to diversifying the company’s business away from a legacy reliance on prime insurable flow alone where we are principally a price taker and into business lines where we have more pricing power.”
  • He added: “We remain laser focused on optimizing our current platform and driving near-term results for shareholders as we set the foundation for a more diversified, modern, digitally enabled banking offering.”
  • Despite the challenges, Street was able to increase its market share in the broker channel quarter-over-quarter to 5.2% (though is down 220 bps from last year).



First National

Notables from its call:First National NEW

  • Mortgages under Administration in Q1 increased 3% year-over-year to $102.2 billion.
  • Single-family originations in Q4 were up 12% from a year ago and single-family renewals were unchanged.
  • First National’s commercial originations were up 27% year-over-year, while renewals were down 54%.
  • Net income was down slightly to $35.9 million in the quarter, down from $36.1 million a year earlier.
  • Explaining the 12% growth in single-family home originations despite the introduction of OSFI’s stress test rules on Jan. 1, CEO Stephen Smith said, “There were several reasons for that growth, including accelerated home-buying activity seen late in 2017 as consumers moved to qualify before B-20 became effective. Some of these commitments closed in the first quarter of 2018.”
  • This growth helped First National increase its broker lender market share in the quarter, capturing 12.7% of the market.
  • “While earnings, adjusted for fair-value considerations, were 5% lower than a year ago, a large part of this reduction reflected our choice to shift mortgages to securitization programs, which had the effect of delaying the earnings process,” Smith said.
  • Commenting on First National’s initial forecasts about the effect of the B-20 guidelines vs. how things actually transpired, Moray Tawse, Executive VP, said this: “Our early thinking was that B-20 would reduce the size of the addressable residential market, lead to increased competition and have a dampening effect on new single-family originations. The first quarter did not play out quite that way for First National as we saw strong residential originations pretty well across the country. The only exception was in Alberta. Does this change our thinking on the impact of B-20? I think the jury is still out on the ultimate effect…Before drawing conclusions about B-20, it’s important to acknowledge this spillover effect on Q1 originations. In our view, it will likely be the second quarter of 2018 before we see the full impact from the B-20 policy- driven adjustments.”


Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.