Home Capital Group profit dips in first quarter

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Home Capital Group Inc.'s first-quarter profit slipped nearly 20 per cent lower year over year as the alternative mortgage lender issued new loans at a slower pace amid softer housing markets.

New mortgage originations totalled $1.22-billion, including $933-million in residential mortgages. Both figures were modestly higher than in the first quarter a year ago, which is typically a slow season for mortgages, but well shy of the totals Home Capital tallied in the fourth quarter last year.

Home Capital is still working through a long recovery from a liquidity crisis sparked by a run on the lender’s deposits in 2017, after regulatory proceedings that have since been settled highlighted a lack of disclosure about fraud discovered in the company’s mortgage book. While signs of imminent danger have receded, Home Capital’s challenge is now to show investors it can steadily grow its loan books and regain its front-runner status among alternative lenders, which cater to borrowers such as self-employed workers or new immigrants who sometimes struggle to qualify for loans from big banks.

Home Capital is in the midst of a multiyear plan to update its technology, looking to make better use of data and streamline mortgage applications and underwriting, dispensing with stacks of paper and digitizing manual processes. But as activity in major housing markets such as Toronto and Vancouver has slowed, and new stress-test regulations make it tougher to qualify for some uninsured loans, Home Capital faces stiffer competition for new business from rivals, including private lenders and credit unions.

The company’s current strategy “is taking us in the right direction,” said chief executive officer Yousry Bissada, on a conference call with analysts. “Despite industry conditions that are still showing the effects of regulatory changes, Home has succeeded in growing our assets, our customer deposits and our value to our shareholders."

Shares in Home Capital fell to $18.01 on Wednesday, down more than 4 per cent on the Toronto Stock Exchange.

Home Capital reported nearly $28-million in profit in the three months that ended March 31, or 45 cents a share, compared with $34.6-million, or 43 cents a share, a year ago.

Adjusted for certain items, Home Capital earned 49 cents a share, whereas analysts surveyed by Thomson Reuters expected 48 cents a share.

Revenue of $103.8-billion was effectively flat year over year.

Total loans of $16.68-billion rose 9 per cent from a year ago, outpaced by growth in total deposits, which increased by 12 per cent compared with a year earlier. But newly issued commercial mortgages, which are an important part of the company’s expansion plan, fell 2.3 per cent in the quarter.

Expected credit losses also edged higher, as Home Capital set aside $6.1-million to cover loans that may go bad, largely because a greater proportion of loans in a business line that rents and finances heating, air conditioning and other large equipment to homeowners were labelled as impaired.

The company expects to continue buying back shares, after repurchasing more than 1.9 million shares through a buyback program announced late last year.