Home Trust earnings
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Home Capital Buys Back $300 Million in Shares Following Q3 Earnings

On the heels of its third-quarter earnings report, alternative-lender Home Capital announced its board had approved a share-buyback of up to $300 million.

The news came just weeks after the Office of the Superintendent of Financial Institutions (OSFI) lifted pandemic-related restrictions on federally regulated financial institutions that prevented them from hiking dividend payments, executive compensation and share buybacks.

“We know one of our responsibilities to our shareholders is to optimize capital and we’ve been—for quite a while—sending clear messages that we will buy back capital, and we were delighted when OSFI announced that financial institutions can do that now,” Home Capital President and CEO Yousry Bissada said during an interview with BNN.

Strong housing demand helped propel Home’s residential mortgage originations up 34% compared to a year earlier.

“It continues to be really robust,” Bissada told BNN. “The biggest issue continues to be demand exceeding supply…and it looks like the supply is now being addressed, although I believe it’s going to take a few years.”

Asked if they’ve seen a rush of buyers trying to finalize their purchases before the expected interest rate hikes, Bissada said, “there’s so much volume now it’s hard to tell if it’s a rush or if it’s the demand continuing.”

But he noted that all those mortgages are being underwritten under the B-20 stress test, meaning homebuyers must prove they can afford payments at a rate at least two percentage points above their actual rate. “So there’s a long way to go before the people who currently have mortgages would hit that,” he said.

More highlights from Home Capital’s conference call transcript follows below.


HCG-LOGO

  • Net income: $54.8 million (-6.3% YoY)
  • Total originations: $2.01 billion (+34%)
  • Loans under administration: $23.35 billion (+1.2%)
  • Net interest margin: 2.58% (vs. 2.51% in Q3 2020)
  • Net non-performing loans as a % of gross loans: 0.15% (vs. 0.24% in Q2 and 0.47% in Q3 2020)

 Notables from its call:

  • “The processes and strategies we have put in place to drive growth are functioning the way we intended,” Bissada said. “For instance, working with our broker partners to become more efficient at processing applications, and using the capability of our new CRM system to increase broker engagement.”
  • “Not only were our credit losses minimum, but the percentage of non-performing loans as a share of gross loans has declined to more pre-pandemic levels,” he added.
  • On future interest rate increases, Bissada said this: “We continue to follow the Bank of Canada on the timing and the magnitude of rate increases and the potential effect on the market. However, we are not yet seeing causes for concern about credit. Our economic indicators are strong and the B-20 stress test provides some affordability cushion against higher rates. In addition, the shorter duration of alternative mortgage book provides an up-to-date view on borrowers’ ability to pay.”
  • Looking ahead, Bissada said, “we still believe the conditions are in place for a healthy housing market. Our broker partners report robust demand in our major markets, with sale gains in all categories of homes, including renewed strength and condominium sales.”
  • Single-family mortgage originations grew 34% year-over-year.
  • Asked what Home has in store to return more capital to shareholders, Bissada said this: “We’ve been consistent in focusing on share repurchases and mechanisms to repurchase shares. We think that the valuation is where we view it attractive for us to repurchase shares. So that’s been our focus…We do plan on renewing our NCIB [normal-course issuer bid] and, further to our previous commentary, we would contemplate the resumption of a quarterly dividend after we’ve completed those share repurchase activities.”
  • Asked if there are any concerns about recent loan-loss reversals given the anticipated rise in interest rates, Bissada said this: “With the introduction of the stress test in 2018, all the mortgages are stressed to a 2% increase. So that’s something that gives us a lot of comfort.”
  • Asked about net interest margin, which has been in decline for the past several quarters but is still high by historical standards, Brad Kotush, Executive VP and Chief Financial Officer, said this: “It’s a competitive market…we’re very much focused on growing our book through origination and so, to a certain extent, we are being perhaps more competitive on rates than we have been previously and particularly through the pandemic.”

Home Capital Q3 earnings call


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

Article feature image: Photographer Carlos Osorio/Toronto Star via Getty Images