The second quarter proved a good one for the country’s key broker channel lenders.
Mortgage originations were mostly up across the board. One notable exception was Street Capital’s Street Solutions product, which targets the uninsured segment of the mortgage market. It saw a 60% year-over-year decline in originations.
Given the pending takeover of Street Capital by RFA Capital Inc., the lender had no earnings call to discuss the quarterly results.
Home Capital continued its rebound, posting a 7.8% increase in net income and announcing it plans to deploy excess capital for the purchase of another 1.25 million shares authorized under its normal course issuer bid (NCIB).
“As we’ve said in the past, Home has committed to continue deploying our excess capital in a manner to create sustainable value consistent with our long-term strategic objectives,” said CEO Yousry Bissada during the company’s conference call.
More highlights from the conference call transcripts from Street Capital, Home Capital and First National are below.
Single-family originations grew by 12% year-over-year to $1 billion. Meanwhile, Home “deemphasized” its prime Accelerator product as yields in this market were “not consistent with our margin objectives,” noted Yousry Bissada, CEO of Home Capital.
“The latest data on economic growth, employment and interest rate expectations are consistent with our outlook for a stable and balanced real estate market for the rest of 2019,” he added. “Looking ahead, we believe we will have an effective funding solution to make Home Capital more competitive in that market segment.”
As of August 2, Home had repurchased nearly 3.5 million shares out of its approved purchase limit of 4.75 million shares at an average price of $18.05 per share, at an average 35% discount to our quarter-end book value of $27.80 per share. “We intend to purchase remaining 1.25 million shares authorized under our NCIB during the remainder of 2019,” said Bissada. “As we’ve said in the past Home has committed to continue deploying our excess capital in a manner to create sustainable value consistent with our long-term strategic objectives.”
Commenting on the B.C. lending market, Bissada said this: “There are pockets that we will not lend into, (and other) pockets that we still believe are very steady and in fact growing. So, we are continuously upgrading our risk models as to what we can and can’t (do), and it’s been a healthy market for us. We’re very confident in the business that we have been doing.”
Management noted Street Solutions originations were down “meaningfully,” as lower originations and the active management of renewal rates has reduced the portfolio to $612.8 million from $622.0 million last quarter. “The Company will continue to conservatively manage this portfolio around these levels until additional regulatory capital is available to the Bank.”
A modest increase in prime insured originations was attributed to “improved price competitiveness.”
Notables from its call:
In its report to shareholders, the company said the decrease in income was largely due to “changing capital market conditions.”
Commenting on First National hitting a new record for Mortgages Under Administration, CEO Stephen Smith said, “After a slow start to the year, we’re pleased with this pace of growth, which reflects the continued successful execution of our business model against the backdrop of the solid economy and a low interest rate environment.”
Single-family new originations were $500 million, or 13% above last year.
First National posted origination growth of 25% in Ontario and the Maritimes. Originations in B.C., however, were down 2%, while single-family renewals were down by $400 million, or 23%, “which partly reflects a smaller pool of renewal opportunities for us and partly the competitive environment,” Smith noted.
“Our placement fees, they grew faster than other components of revenue,” said Rob Inglis, Chief Financial Officer. “These were up $29.4 million or 95% above last year, largely reflecting the change of funding mix and wider mortgage spreads, which are the results of market interest rates, which declined notably in the first six months of the year.”
Inglis noted that despite lower single-family renewals, “the value of renewals increased with the spread widening.”
First National’s commercial division also posted a record quarter, with originations up 50%, or $900 million, compared to a year ago, while commercial renewals were up 222%, or $365 million. Smith said First National “took advantage of increased demand, which (rose) with the recent decline in interest rates.”