Home Capital earnings slump as CEO fears mortgage headwinds

Home Capital Group Inc.'s bottom line took a hit in the first quarter due to rising deposit costs, but it is the prospect of a slowdown in sizzling mortgage growth that was a bigger cause for concern following Wednesday's earnings announcement.

Home Capital's net income slumped nearly 18 per cent yearover-year to $44.7 million, or $1.02 per share, for the three months ending March 31, the lender said.

Rising rates have yet to hit the company's mortgage originations, which jumped more than 72 per cent to over $2.76 billion for the quarter.

That included a small gain in single-family mortgage originations, which edged up to $2.3 billion from $2.27 billion last quarter.

“We are starting off with good momentum in growing our mortgage book including record originations in our classic single-family mortgages,” Home Capital president and chief executive officer Yousry Bissada said in a news release. “Although our net interest margin fell this quarter due to increases in our cost of funds outpacing increases in mortgage rates, we expect to benefit over time from margin increases as spreads normalize.”

The company's net interest margin fell to 2.18 per cent from 2.46 per cent last quarter.

Home Capital's stock had been under pressure leading up to the earnings report, sliding nearly 14 per cent in the month prior as markets weighed risks to mortgage lenders in a slowing housing market. Shares of the Toronto-based company fell 8.9 per cent on Wednesday to close at $29.60 in Toronto.

During the Wednesday morning conference call, Bissada pointed out potential mortgage headwinds, noting the origination growth came during a more robust mortgage market.

“We delivered this growth in a market that is starting to show signs of slowing after the rapid growth of prices and volumes last year,” Bissada said. “Reports from the Canadian Real Estate Association indicate that sales volumes for the first three months of the year have moderated from the record levels of 2021. We believe this is healthy for the long-term sustainability of the housing market.

“We're also seeing upward pressure on interest rates for the first time since the start of the pandemic,” Bissada added.