Shares of Home Capital Group Inc. jumped to their highest price in more than five and a half years Thursday, after the lender reported a big gain in profit. The company also hinted it may return to paying a dividend – something it has not done since May of 2017.
 
Home Capital, an alternative mortgage lender, also said it released funds from loan loss reserves it had booked in earlier quarters.
 
The company beat Bay Street earnings expectations with adjusted earnings per share of $1.26. That was versus the $1.04 expected by analysts.
 
In the aggregate, adjusted net income was $65.7 million – up 119 per cent from the first quarter of 2020.
 
The results reflected the red-hot housing markets in many parts of Canada, with new mortgages to buyers of single-family homes rising 27 per cent from a year earlier. Home Capital specializes in lending to home purchasers who cannot get a mortgage from a big Canadian bank.
 
The company also reported an eye-catching increase in the amount of capital on its books, which now stands at a level much greater than required by regulators. Home Capital’s common equity tier-1 ratio stood at 21 per cent at the end of the quarter. It is required to maintain a minimum ratio of 7 per cent.
 
Capital levels have increased during the pandemic at most Canadian financial institutions – including all of the big banks – because they have been prevented by a key regulator from increasing dividends or buying back shares. That restriction was imposed by the Office of the Superintendent of Financial Institutions (OSFI) as a way of ensuring institutions would manage pandemic-related loan losses without damaging declines in their capital levels.
 
When OSFI lifts its ban, the company will “consider appropriate mechanisms to optimize its capital levels, including share repurchases and dividends,” CEO Yousry Bissada said in a release Thursday.
 
Home Capital suspended its dividend in May of 2017, when it was dealing with a crisis arising from improperly documented income verification on some of its mortgages.
 
In the most recent quarter, the company bought back 1.1 million shares at an average price of $31.08, but those purchases were made with cash held by its holding company, and were thus not affected by OSFI’s ban.