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May 9, 2018

Home Capital ‘is back’, CEO says despite 40% plunge in profit

Home Capital wary of new stress-test rules

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Home Capital Group, the alternative Canadian mortgage lender that was pushed to the brink last year amid a run on deposits, is striking an optimistic tone despite a sharp plunge in profitability in its fiscal first quarter.

The company said late Tuesday its net income in the first three months of the year sank 40.4 per cent year-over-year to $34.6 million. The drop in profit was attributed in large part to a collapse in mortgage growth in the period, as originations tumbled 50.6 per cent to $1.16 billion.

While the 12-month comparisons showed dramatic declines in the company's core metrics, both profit and originations were higher on a sequential basis from the fourth quarter of last year.

“We have taken another step forward on our journey to renewed growth," said CEO Yousry Bissada in a release. "We had a good start to the year building on the momentum in our business from the past two quarters and our first quarter results demonstrate that Home is back."

"Looking forward, we are ready to grow. Our capital and liquidity position provides flexibility to be competitive in our markets," he added.

Home Capital Group survived a tumultuous year in 2017 that saw depositors yank their money in droves from the bank's high-interest savings accounts after the Ontario Securities Regulator levelled high-profile allegations that the company and three former executives misled investors. The company and former executives later settled with the regulator, Home Capital overhauled its board and senior management, and it brought Warren Buffett's Berkshire Hathaway into its corner as an investor in a bid to soothe investor nerves.

Throughout the turmoil, investors have closely watched for any sign of deterioration in Home Capital's credit quality. In the first quarter of 2018, total provisions for credit losses rose to $5.97 million from $5.92 million a year earlier.

In its release, the lender said it's prepared for "volatility" in credit quality this year amid the uncertain impact of the Office of the Superintendent of Financial Institutions B-20 guideline, which took effect in January and imposes tough stress testing requirements on borrowers who put down 20 per cent or more in their down payment.

Shares of Home Capital have dropped 20 per cent so far this year, as of the end of trading on Tuesday.