Home Capital Group’s $30mln third-quarter net income is substantially less than it was during the same period last year, but the embattled lender claims it’s on the cusp of becoming a major player again.
Thanks to considerable capital inflow from Berkshire Hathaway, Home Capital’s President and CEO Yousry Bissada says significant commercial mortgage investment will be forthcoming—provided the mortgages meet strict criteria.
“We have ample liquidity and what we’re focused on is growing originations to utilize that liquidity,” said Bissada during a conference call. “We don’t think we have to do much, if anything, on our deposits right now to fund a substantial increase in our originations. We have the ability to increase 15 basis points, and that’s enough to attract additional basis inflows.”
Bissada also hinted at plans to cultivate stronger presences in Western Canada and Quebec.
“We’re in those markets today but believe we could be more aggressive,” he said.
Home Capital has been rocked by allegations that it misled shareholders, and it prompted a run on deposits by customers this past April.
The resulting scrutiny and liquidity episode has inflated its expenses.
Home Capital’s 2016 Q3 net income was $66.2mln. Last year’s Q3 revenue of $145mln dropped to $95.4mln this year as consequence of the liquidity episode.
“Third quarter performance continued to reflect a number of negative factors stemming from the liquidity event including lower residential and commercial loan assets, higher deposit interest costs and elevated non-interest costs,” the company said in a statement.
“New loan originations were well below historical levels and are not adequate to replace loan assets reduced through sales.''
Home Capital’s Executive Vice President and CFO also revealed the company has turned down about 70% borrowers.
“When we reopened the gates, a lot of mortgages came in, but we’re under stringent provisions with risk,” said Brad Kotush. “We have to go out and recommunicate what kind of deals fit our priorities. The deals being sent here have a higher chance of being approved now.”
He added that Home Capital is looking to reaffirm its broker relationships, but he reminded reporters that at least a few more weeks are needed to tie up loose ends.
“Our broker relationships are very strong,” said Kotush. “They’re all very keen to deal with us again. It’s about the process and getting back into their paths with the right incentives in place.
“There’s large appetite for doing business within the new framework, but it’s inconsistent today. There are times when we’ll give same-day approval and others where we take a few days, so we need to get to a tighter turnaround of 24 hours or less.”