Home Capital Delivers Q4 Results, Reinstates Dividend
For the first time in five years, Home Capital Group will be paying its shareholders a dividend.
The lender announced the reinstatement of its dividend payments during its fourth-quarter earnings results. This is the first time dividends have been paid since February 2017, during the run on deposits it experienced following an investigation into the underwriting practices of 45 brokers accused of falsifying income verification documents.
Since then, and with new leadership, Home has turned its financial situation around. In 2021, it recorded $244.7 million in net income, up nearly 40% from 2020 and a 700% turnaround from Q4 2017.
“The dividend that we announced today is another way of delivering value to shareholders,” said Chief Financial Officer Brad Kotush. “We have said consistently that we would introduce a common share dividend when it made sense.”
Kotush added that the company is looking to increase the dividend on an annual basis going forward.
Highlights from the Q4 earnings report
Net income: $52.7 million (-4% YoY)
Total originations: $2.72 billion (+44%)
Loans under administration: $24.15 billion (+5.2%)
Net interest margin: 2.46% (vs. 2.58% in Q3 and 2.55% in Q4 2020)
Net non-performing loans as a % of gross loans: 0.13% (vs. 0.15% in Q3 and 0.57% in Q4 2020)
Notables from its call:
“Our funding teams expanded our funding capabilities and have just issued our latest RMBS [Residential Mortgage-Backed Securities] offering,” said President and CEO Yousry Bissada. “That’s happening from growing investor interest in this attractive instrument.” This week, Home Capital announced the closing of a $425-million tranche of RMBS backed by near-prime, uninsured mortgages. This follows a previous $425-million tranche that was sold in October.
“In mid-2017, the company had over 80 million shares outstanding. As of December 31, 2021, we had bought back more than 37 million, or over 45% of shares outstanding,” Bissada noted.
CFO Kotush said the company is banking on 20% growth in loans under administration in 2022 vs. the 5% growth seen in 2021. Asked what would drive that level of growth, Kotush said, “originations, continuing high-growth originations in our Classic portfolio, residential portfolio and commercial portfolio, and retention.”
Home continued to reduce its provisions for credit losses in the quarter. Current loss provisions stand at $36.5 million, which is down 48% from a year earlier.
“Deposits through our Oaken channel grew by more than 10% during the year and now make up over 31% of our overall total deposits,” noted Bissada.
Bissada welcomed Brian Leland as Home Trust’s new Executive Vice President of Underwriting. Leland was previously Senior VP of Residential Lending at Equitable Bank.
Commenting on the expected rising rate environment we’re entering, Bissada said this: “We’re not too concerned at this point of what the impact on credit quality from rising rates will be, because of the cushion from the B-20 stress test along with our own prudent underwriting criteria. It is likely that higher rates will reduce, but not eliminate, demand for homeownership.”
Bissada added that the impact of rising rates on affordability can be mitigated by buyers adjusting the size and/or location of their purchases. “We believe that the mortgage broker community is best-suited to help Canadians understand the impact of these changes,” he said. “Demand for homeownership is still strong and it will be supported by growing immigration numbers, our growing cohort of millennials buying their first homes, and a return to employment growth.”
Kotush commented on the net interest margin outlook for 2022. “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,” he said. “We’re seeing substantial loan growth and, based on our estimates…even if NIM decreases, we’ll achieve the same level of net interest income.”
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
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