Q3 2019 Earnings Call
Hello.
Those are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today.
Joe Mcrae head of Investor Relations. Thank you. Please go ahead.
Thank you Lisa good morning, everybody and thank you for joining US today, we'll begin the call with remarks from use Rapisarda, President and Chief Executive Officer Holiday review of our financials by Brad Code is Chief Financial Officer.
After the presentation, we'll have a question and answer session for analyst and investors.
With this on the call to answer your questions or Ed card has ATP of sales and marketing like bushy VP of underwriting David Clark Chief Risk Officer, Benji, catching chief digital and strategy Officer and did you do easier Chief Information Officer.
Before we begin I'd like to caution listeners at this conference call Me provides management.
With the opportunity to discuss financial performance and conditions at home capital.
Such comments may contain forward looking statements about strategies and expect to financial results.
Various factors could cause actual results to differ materially from results projected in forward looking state.
Accordingly, the audience is trying to guess undue reliance on these remarks.
Finally, a link to the slides accompanying this live webcast is available on our website at home capital Dot Com.
I like to introduce usually the sudden president that get sick.
Good morning, Thank you for joining us for our third quarter 2019 conference call.
I'm pleased to be speaking with you today about on capital and our financial results, we reported a number of achievements this quarter.
Primary for primary financial metrics net income earnings per share and return on equity all showed significant improvement both sequentially and year over year.
We are building a platform for future innovation and service upgrades.
We launched an innovative new funding option.
And we're delivering on our commitment to return capital to shareholders.
During the phone capital beyond the results of one quarter.
Making the dream of home ownership possible for our target market group of high quality Canadian borrowers.
We succeed.
By focusing on the alternative market.
By providing best in class service.
And by preparing our company for our ongoing digital journey.
Today, we have all the elements in place for sustainable value creation.
We had the benefit of a healthy housing market this quarter.
The pick up in the activity that began in Q Ti in our major markets Q2 in our major markets has continued into Q3.
Economic conditions, including low interest rates and strong employment data are supportive of a balanced market.
We expect these conditions to remain in place for the rest of the year.
[laughter] grabbing speak about our financial results in more detail.
But I wanted to highlight that we grew our earnings per share by 63% over Q3 of last year.
And by 76% after adjusting for onetime items associated with our technology investment.
Our line of businesses are continuing to see benefits from the progress of our IP transformation internally known as ignite.
[laughter].
Upgraded our lost broker portal to a new platform with greater flexibility.
This allows us to execute easier and faster enhancements to meet our customers' needs.
We launched a new customer relationship management platform for our sales team that is now mobile and offers better integration with multiple mobile platforms.
We completed our datacenter migration to the IBM cloud with no business disruption.
We implemented our second robotic process automation for the mortgage discharge process.
Today, 70% of all mortgage just charges are now process without employees intervention.
This quarter, we also announced the closing of a private placement of residential mortgage backed securities or RMBS for the primary purpose of diversifying our funding options.
This issue was the result of a strong cross functional team effort throughout home capital and we're gratified by the investors response.
We expect to grow our RMBS issuance in 2020.
In addition, we announced today our intention to launch a substantial issuer bid or S. IB this quarter to be completed in Q1 of 2020 .
Upon completion that he s. IB, we will apply to the TSX for renewal of our normal course issuer bid.
Brad will discuss this in more detail.
I want to emphasize that a regular review of our capital position is a key element of our sustainable risk culture.
We will be prudent as we take a responsible approach to growing our assets and returning our capital to our shareholders.
I'll now turn the call over from Brad to discuss the quarter in more detail.
Thanks history, and good morning, everyone.
We'll continue with the Investor presentation, beginning on slide seven.
This slide highlights a significant RMBS transactions by the home team.
The placement of the eight tranche of our RMBS issue at the end of the quarter is important for a number of reasons.
It is the first private cross border Canadian RMBS transaction.
It provides us with another funding option to give us greater flexibility effectively replacing 425 million that we would otherwise have to raise in the competitive g. I see market.
Two rating agencies provided AAA ratings.
This transaction was a team effort requiring a significant time commitment from a cross functional group.
This team approach demonstrates our culture in action, where innovators and coming to market with us RMBS issue and we believe we have contributed to building the private RMBS market in Canada.
The response to our issue gives us the confidence to plan for subsequent RMBS issues.
Our earnings discussion begins on slide eight.
Our Q3 earnings were 67 cents per share or 72 cents per share after adjusting for items of note associated with implementing our IP roadmap.
This represents a year over year increase in EPS of 63% and 76% on an adjusted basis.
We achieved a return on equity of 9.5% in the quarter and 10.2% on an adjusted basis and we ended the quarter with a book value per share of 20 864.
20% higher than our book value at the end of Q3 2018.
This quarter. The most important driver of earnings growth was an expansion in our net interest income margin from 2.03% in Q3 of 2018% to 2.22% in Q3 of 2019.
This increase is due to the expansion in asset yields outpacing slightly higher funding costs.
Our expenses were higher year over year, but our efficiency ratio improved from 52.9% in Q3, 2018% to 51.3% on a reported basis and 47.8% on an adjusted basis.
Proven of over five percentage points.
Some of this is due to normal fluctuations in our quarterly spending and Sun as positive operating leverage related to revenue growth exceeding expense growth this quarter.
Further there's earnings accretion from having fewer shares outstanding as a result ever Q4 2018 substantial issuer bid.
And our 2019 normal course issuer bid.
Average shares outstanding were 58.3 million this quarter on a fully diluted basis compared with 80.2 million for Q3 2018.
Slide nine has a summary of the adjustments treated as items of note adjustments this quarter amounted to 2.9 million or five cents per share of net income, 3.5% to the efficiency ratio and 0.7% in return on equity.
We expect our financial reports include adjustments for items of note connected to our IP Road map implementation for the duration of the project expected to be stage over three years ending in 2021.
Fundamentally the growth in earnings is driven by the growth in our business Slide 10 shows the growth of our core business single family residential mortgage originations grew by 16.8% year over year led by over 1.1 billion in our classic near Prime offering.
Our total loan portfolio on slide 11 has grown by 6.4% over Q3 of 2018.
As we grew our originations we maintain the risk based pricing discipline that is a key component of our strategy.
We are into net interest margin of 2.22% in Q3 compared to 2.03% last year. The significant expansion in our margins is largely attributable to higher earning asset yields combined with a more favorable asset mix.
Our funding costs are still influenced by the higher costs of GE Icees raise in Q4 2018 to repay 300 million of deposit notes and fund that quarter 300 million substantial issuer bid.
As these guys sees mature we expect to be able to replace them with lower cost funding.
On the deposit side, we continue to be pleased with the growth ever open direct to consumer channel with deposit growth of 28% over the last 12 months are open customers now make up over 24% of our deposit funding importantly about 87% of this funding is in Gi sees rather than savings account.
Yes.
We expect to continue to diversify our funding mix with further progress at open additional RMBS issuance and other funding options.
Credit quality of our single family residential mortgage portfolio on slide 14 is consistent with the levels. We reported earlier in the air our average Beacon score is 703 across our classic all day mortgages.
Average loan to value across all uninsured single family residential mortgages is 58.8%.
Slide 15 shows that the level of nonperforming loans is stable both in our single family residential portfolio and across our total loan portfolio.
Credit provisioning as 0.09% of gross loans on an annualized basis is in line with historical experience.
Annualized net write offs were 0.06% of loans and the total portfolio and 0.02% of loans and our single family residential loan portfolio.
Management of liquidity risk is a key element of our sustainable risk culture.
As at the end of Q3, we are holding 1.34 billion of liquid assets on our balance sheet or 7.1% of total assets.
Our liquidity position has further strengthened through access to a committed standby credit facility in the amount of 500 million by actively managing our balance sheet are nearing our near term deposit maturities are more than covered by near term loan maturities.
Turning to our regulatory capital levels, our common equity tier one capital level stood at 19.67% and our total capital at 20.13% significantly above the minimum requirements.
This 19.67% seating one is after completion of our normal course issuer bid in the third quarter of 2018 training team the growth in our common equity through retained earnings for the first three quarters of the year exceed the amount spent to complete the NCB leading to a year to date increase in CE one.
Finally, I would like to turning to slide 19 for a discussion of our capital plan in Q4 of last year home capital executed a substantial issuer bid and successfully repurchased over 18 million shares at 16 50 per share.
In 2019, we completed our normal course issuer bid and repurchased over 4.7 million shares at an average price of 19.8 $5 per share in total we have bought back nearly 23 million shares at a weighted average price of 17 19 per share. This is a discount of 40% to our Q.
Three book value per share we consider this to be an effective method of creating value through strategic deployment of capital.
This morning, we announced their intention to launch another substantial issuer bid of up to 150 million that we expect to complete in Q1 of 2020, we will announce a pricing in terms of the bid in Q4.
Upon completing the S&P in early 2020, we intend to apply to the TSX, where a renewal of our normal course issuer bid.
Looking back at the past 12 months the decisions we've made about deploying our excess capital have been consistent with our long term goal of creating sustainable value.
Board and management are committed to proceeding with the strategy of prudent capital deployment, taking into consideration all opportunities. We continue to believe that buying back our own shares as an attractive option.
I will now turn the call back to use three for concluding remarks.
Thank you Brad while we're enjoying the benefits of a rebound in our key housing markets the growth and profitability that we are reporting today is not only the result of helpful. Tailwinds in the industry.
We believe our borrowers and select broker partners are recognizing the value of our commitment to superior customer service.
That commitment will drive our execution in good and bad markets.
And our IP transformation will make us more flexible and responsive to further enhance our customer experience. We are excited about the future of home capital and we appreciate the support of our borrowers depositors' broker partners and investors.
I'd like to remind I would like to remind investors and analysts of our upcoming Investor day on November 25th.
We look forward to meeting with you end to end to reducing some key members of our leadership team.
And now I'll ask the operator to pull for questions.
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key please standby will be compiler Q and a roster.
And our first question comes from the line of Nick Previ from BMO capital markets. Your line is open.
Okay. Thanks, Good morning, I want to start with the question on net interest margin in the quarter.
Just one observation that liquidity it looks like it was managed more tightly and a third quarter than it had been in other periods.
At least post crisis I understand there's a bit of a seasonal element the factors into the optimal size of that liquidity portfolio, but.
Is this level more representative of where you'd expect to manage liquidity going forward all else equal or do you feel the liquidity position could be tightened up a little further from these levels.
Nick work, we're comfortable going forward with the current liquidity profile.
Okay, Okay, and just switching over to non interest expenses.
If I'm looking at other operating expenses in the quarter, removing the effect of IP related expenses. It looks like other operating expenses were down 7% sequentially Wonder if you could just provide a little bit of color on the delta there.
The main enough factor there Nick was that we had.
In our IP Roadmaps some of the expenses and digital improvement expenditures.
Did not occur in Q3 as noted in my remarks. Some there are some timing elements in relation to that we do expect to report higher.
Expenses in the fourth quarter, probably five to 6 million, but we believe those will be offset.
Based on our current projections by increased revenue. So we don't currently see that having a real drag on earnings.
Okay got it that's helpful. And then just a two part question.
On the rate of active employee growth.
If I if I'm looking at that rate year over year, I think with about 6%.
First part of my question I was I was wondering if you could roughly give us an estimate of how much of that would have been attributable to the implementation of the I.T. Road map.
And the second part I was also hoping you could kind of help us understand or or kind of frame, what a reasonable assumption might be for that growth rate in the future like should we expect that the growth rate of full time employees grows broadly in line with the balance sheet or is there some excess capacity that you see either on the underwriting or the servicing.
Side that might allow you to constrain the growth of full time employees as your balance sheet continues to growth. So two questions layered in there, but just looking for a little bit of direction on that.
We're we're thinking that we are going to continue adding employees through the course of of the roadmap. Nick They are concentrated in the next year and our plans in our IP group, we have a number of open positions that remain to be filled but we're confident that we can retain operating leverage in the business.
As we continue to grow.
Okay. Okay got it and then one last one before it for me before I pass the line.
Augment on this if you ask you to re queue. If that's okay. That's for questions now Oh, Okay sure sure no problem I'll requeue. Thanks.
Our next question comes from the line of Marco Girls ill from CBC. Your line is open.
Good morning.
My first question is for a is for Brad I, just just a follow up on the the expense guidance. So you mentioned, a five to 6 million and Nick incremental costs related to.
Digital and technology in Q4, <unk> do you expect that to be sustained through.
Through 2020 or is there anything onetime ish there.
I think we are.
I think you probably want to average it out over the year would be the best way to do that Marco and we expect that to be roughly similar in the next year. So we will continue to have elevated.
Operating DNA expenses related to implementing the roadmap through the course of that we expect that to tail off in 2021.
Okay.
And is that.
These these aren't items of note correct. This these are correct okay.
Great. My next question is with respect to the margin we've seen.
Pretty sizable lift in the margin in the last couple of quarters.
You called out.
Expansion in an asset yield I was wondering if you can I'm just give us a little more color on on the the factors driving the increase.
I think it it's a the work that's being done in our underwriting team too.
Accurately price for risk.
There's a lot of work that's going into the.
Evaluation of business for self borrowers that as a result of that work, we do have have our pricing.
And we are focused on the mix, we may move towards some more lower beacon over the course of.
This next year and it's just generally focus on our business and in addition, we're focusing on our renewals and that has also helpful in terms of improving or net interest margin.
Okay. So so you do see this is a sustainable run rate and possible.
It'd be fair to say, yes possible upside from from these levels on the margin yes.
Alright, great and if I could just sneak one last one on on the capital on the capital front, a 150 million ESI B. I have that getting a pro forma C. One down to around 17.7%.
Is this a good.
Is this a targeted capital level for you guys or do you still see a see yourselves as overcapitalized sat around 17.7.
I think we'd be very well capitalized at 17.7 with opportunities to move down we are going to exercise, we are intending to renew or NC I'd and.
We'll deploy further capital that when it's as we saw this year we were we.
We deployed a significant amount of capital, but we still ended up.
Rebuilding some of RCT one through earnings.
Okay, great. Thank you.
Our next our next question comes from the line of Jeff Kwan from RBC capital markets. Your line is open.
Hi, good morning.
Just wanted to follow up on that's 81, because I think a couple of conference calls ago, you guys talked about a seed CE T. One target of 16% to 17%.
And so.
Closer to 18% for this S&P that you've got coming up just wondering what's there are thought to doing a bit of a bigger one and then the second part of that question is is he is that target something that it sounds like you think that.
Over time that you may want to operate as CE T. One that is.
Below the 16% level is that fair characterization.
Well I think consistently we have said that 16 to 18, Jeff and.
With a view to where we are in our operations and what our plans are a we could see getting below that but I think those are statements that we've made now I'm specifically addressing your question on the sizing of the S&P.
We chose that level after having taken a look at what we believe.
We could actually repurchase.
Based on a review of our current.
Shareholders shareholdings and our experience from the last as I'd be that we did in Q4 2018.
Okay, and then any sort of update on thoughts on reinstituting the dividend.
Oh, we are.
As noted in our remarks 'em, we continually review that with our board every quarter and we'll have further updates on that when we report our Q4 results.
Okay, and if I can ask you just one last question from a competitive standpoint on the I'll tell you side just curious.
How you're finding that environment in terms of on the pricing dynamic, but also competition from some of the mix and also from the other side.
Some of the prime in the bank lenders.
Are you story here, Jeff ill try to answer.
The competition on all a is steady.
There are a few people that are in the all day game some playing at the higher Beacon some playing across the board as we are.
There is weve I think we're competing more on service than we are on price, there's occasionally somebody running price but.
More on service.
The banks they are very consistent the large banks the business that they were doing as a result to be 20 changes as the business. There is still doing so we've seen some higher beacon business that two or three years ago, we may not have seen.
Okay. Thank you.
Okay.
And our next question comes from the line of Graham riding from TD Securities. Your line is open.
Hi, good morning.
The.
Brad just jumping back to the net interest margin.
There was some commentary in your Mdna, just a lower level of average cash in the corner I think 620% of non securitize since you've been around the 9% to 11% over the last.
Quarter or year, how much of an impact.
On the net interest margin in the corner.
I cant specifically quote basis points right now Graham, but clearly it would have had somehow but again you know it's really driven by.
Our mix and obviously, we use that cash to fund higher margin.
Classic mortgages, so well continue to do that and as as I spoke earlier, we're comfortable maintaining this level of.
Liquidity going forward. So further to the statements I also made we think that.
This level of NIM in the current environment is sustainable and it's possible to increase overtime.
And the the $300 million of Geo sees that are you funded this time last year and I assume are going to be rolling off this quarter.
Are you able to quantify what the what the NIM impact on that from that could be in and if so is that felt in.
In Q4 or is it primarily going to be or something that you would.
Possibly see in Q1 20.
I think it's going to it will show up Graham the some of those.
Guys sees were more than one year, so what you're going to see currently is we have G. Cds maturing that are being replaced by lower cost you guys to ease up because of the then just slightly correctly, we had roughly almost.
600 million of additional funding that we needed in Q4, both for the deposit note and.
The S&P and we don't see it well, we clearly don't see that this year and.
The average is.
Quoted rates, we're paying more than.
3.3% for a new money in December and we're seeing it around 2.5 now the but as I said a portion of that of Q4 with that we raise last year was more than a year, but we'll see is at least in equalization of those higher.
Rates and we do expect that overall, we should see a reduction or funding costs I just can't quantify that for you right now.
Okay got it.
So bottom line it sounds like you feel like this level of a net interest margin there was no sort of onetime seasonality or dynamics or this is sustainable run rate.
If not higher.
Yes.
Okay got it and then for just one more on on the Pcls in them that I'm. Good just a single family side you had a you had a release I think 3.7 million.
Dollars on your residential mortgage portfolio, but you had you increased your provisions.
On the consumer loan and the commercial side. So maybe just some color on what drove the.
The lack of provision on the on the residential side versus others.
Well we had.
Lower stage, two and three in our in our classic portfolio. So that's what's on the on the residential side.
Looking through the others, we do think that there will be some variability because of how the modeling works and the movement between stages. We did have a reduction in some of our commercial we did a busy also added a new one new exposure that we.
We had discussed interim DNA. So as we go through every quarter, we're going to see a.
Mix and and.
We think that Theres nothing.
That we see right now that's going to.
Significantly diverged from our historical averages.
We'll have gives and takes every quarter and that's the variability that comes with the IRS nine and one other things that we started to put in our.
Financial highlight page, although it was always disclosed this to include net write offs as a percentage of gross loans and we'll start referring to that more because at the end of the day that's.
Really one other things that Joe we also closely monitor in one or.
The users of our financial statements to focus on as well.
Okay. So there was no there's no key sort of inputs that you would call out in terms of sort of.
Your model inputs that caused that.
The provision to be released.
No.
Okay. That's it for me thank you.
Our next question comes from the line of Ci Han Chunky from GMP Securities. Your line is open.
Hi, Tim Good morning, I'm, just wondering if you could comment on how do you intend to from 150 million dollar if I'd be is just going to be from the capital. The hub on the balance sheet are big enough to come back to market for 'em G.I. seems like you did last year or is it going to be a mix. If you could use to provide some commentary around that please.
One of the one of the key things that are RMBS issue, a allowed us to do as raise a significant amount of cash at one time without putting pressure on that GE I see markets. So we don't see any and obviously due to the extent.
Competitors have needs for funds that may drive that but we don't see any.
Any demand.
For our liquidity to being a driving changes on the GRC ports.
So we'll find it from our existing resources.
I appreciate that Brad and just on that line of questioning on RMBS issue is a successful issue. Just wondering you know going forward how much of your liquidity do you think you could derive from that market you know one or run rate basis or do you have any targets in mind, how much you could we just don't approve you basis.
What the potential impact on 'em NIM could be as that becomes a larger portion of your of your liquidity. This.
Well right now we think that the RMBS is a competitive with the fully fully costed open channel or.
Overtime.
It could get and I'm I'm talking years not quarters.
Could approach, 10% again this is dependent on Oh of our total funding.
So.
Again, depending on market conditions.
Whether we have a you know we're continuing to looking for other sources of liquidity as well, but I don't think a 10% will be a very high end for us we anticipate going to market again subject to market conditions twice in 2020 to raise anywhere between five.
Hundred too.
750 million depending on market conditions.
Okay. Thanks, Brent I appreciate that and then maybe a question for use read just overall.
Hi level question I'm not sure. This has come up too often in the past, but as you know you you're seeing really strong levels of growth on the origination side and volumes you're also optimizing your capital structure, how do you see acquisitions or potential acquisitions coming to before.
Sure I'm going forward from here or is that something you guys have talked about is that a potential source of growth that you're looking at going forward as well or is it just gonna be on the increasing your your organic volumes and just rightsizing the balance sheet, but if you just get some commentary on what you're thinking about acquisitions.
That'd be good.
She and I think it's more the latter we are focusing on.
Building our business, we're focusing on the digital age and the upgrades in our system. The ignite project as I talk about we feel.
That combined with a good service and getting out there and marketing ourselves is very very healthy for the company.
Now, having said that if opportunistically something came along you know we wouldn't do not look at it depending on what it is but we're really more focused on building ourselves to to organically grow.
Thank you.
Our next question comes from the line of Jamie Glean from National Bank Financial Your line is open.
Yes, thanks, good morning.
Turning first questions related to the to the F.I. BNC I'd be a your strategy looking at the share price now trading non north of book value, where you where are you seeing intrinsic value what are your thoughts on buying back shares north of book value now in this and this new context.
Jim I mean, we're getting ready to price in S&P, So I don't want to get too far.
Ahead of ourselves.
We're we're going to announce that pricing somewhere in the near term so we'd like to see where the the stock trades, but you know will well as we're looking we want to make it a accretive on a book value basis, probably within a 12 month period, so that will be one of the methodologies we would use.
And depending on the circumstances, we we may be more focused on other measures of accretion, including SNR OE. So.
As you noted it was a much easier decision to buy back stock at a when you're trading at such a substantial discount to book and obviously, there will be more thoughtful, but I really don't want to get out in front of anything when we were.
Actively announced in the market that we're going to be buying back stock and.
I'm going to do the pricing this quarter so.
You'll forgive me, if I'm being a little kg on that.
Good for fair enough in terms of the deposit growth North Sea me a pickup in demand deposits.
The expense of fixed term deposits can you can you speak to some of the strategies in place that are that are driving Vod divergence in growth. When you know, let's say normally we would prefer to see term deposit growth as opposed to demand deposit.
Well I I think you're right, Jim we have been growing demand deposits, but just remember that we have a in comparison to peers or almost any other financial institution. We have not had a very strong reliance at all on demand deposits and we think now with the maturity of our business the growth in our base.
Balance sheet that it's appropriate for us to.
Increased the level of demand deposits as as you know any financial institution would looking through their liquidity profile, so well prudently managed SAP, but you're not going to see us have a 15% of our deposit base in demand deposits, which.
The company had at one time.
We're not thinking of growing it substantially more.
But you know you could see that you know in the range of adding another 200 300 million to that overtime, but that's really where appetite.
What.
Stop but certainly in the near term.
Yeah, I guess through my question was going going towards.
Was there something in place from a marketing standpoint, or incentive standpoint to drive that demand deposit growth relative to term deposits.
No I was just us becoming more comfortable with our risk appetite.
Okay and maybe this is more for a for the Investor day, but I'm looking at the alternative market and there was a question room competition earlier, but if I look at a yourselves and your and your your closest peer roughly originating similar levels of all the mortgages.
I would compare to levels seen in sort of like the 2013 2014 periods.
Can you speak to sort of the old markets growth prospects in general and how you how you view yourselves and within that market.
It's usually hear James so the market is.
Growing.
Has been steadily growing this year as you know we focus on business for self and new Canadians.
Both those have been growing and we focus on major urban centers, only which is where we get a lot of that business. So.
The levels of volume the absolute levels to us what matters is market share.
The market in certain years was much bigger overall and home got it sure then and we're getting our share now our goal continues to be the number one all day lender in the country and as long as we achieved that relative to the size of the market. We're happy so.
The we think it's going to continue to grow all the data we read on our segments are positive and ER with it we want to grow our market share maybe we can as you suggested talk more about this at the Investor day.
Yes, I think it'd be great to have a little bit of market sizing exercise at the Investor day.
And the the Watson for me just around the a the interest rates are on the ulti mortgage products looking at your rates around the fivethirty level versus your competitors rates a sub five he is there anything that you are aware of within a within the context of that those data points that's driving the.
Difference between the two.
Leading players.
No not that we're aware of well, we're able to continue to originate to our near prime mortgages, and we're comfortable with our pricing.
Okay. Thank you.
And again, if he'd like to ask a question that star one on your telephone. Our next question comes from the line of Brenna feeling from Raymond James Your line is open.
Hi, good morning.
Good morning.
I wanted to ask about the yield on the classic product to maybe in the context of <unk> in your own portfolio sort of the moving parts, that's helping to drive that yield expansion sequentially and.
Quite meaningfully year on year and I think in your prepared remarks, you referenced.
Growth going forward.
You could see some lower beacon and coming into the next so how's that going to contribute the yield you expect to see and commensurately, how you'd expect that to show up in the provision you'd have to take.
So Brian as you see here.
And.
As we the way we price is deal by deal. So we've got a starting price for a one year or to your three year.
It's a mortgage and then.
We would add or not add depending on the deal. So one of the factors of adding or not I think as the beacon score and another is the LTV. So that that's what differentiates you know pricing. So if we get a lot lower beacon score.
In a particular quarter than we would have expect to have higher pricing.
For our portfolio, which we like because we understand that risk not a price and properly.
Same with LTV and same and depending on where they come so thats what berries in our pricing, but we've got it a pretty systemic system of figuring out how to price things with our underwriting team and anyway. That's the variance as you get did I answer your question Uh Huh.
Yep and just a follow up then you also reference renewals are helping not yield and that could you quantify that and.
Do you feel like here, where do you need to be on on capitalizing on those are long.
Yeah, well, yes, we have we had a higher renewal rate.
If you want to compare to previous periods, we've seen a slight reduction in that but we do think has we're going to be above.
Our.
Historical rate of renewals pre be 20 and on renewals, we can get up to 50 bips higher in terms of rate net rate.
So focusing on renewals is been one of the focus of our underwriting team and we'll continue to do that another thing that further to use for his comments, we do have some lower rate mortgages that are rolling off so when they renew not only do they run the 50 bips higher than what we are.
Meeting, but they're also probably adding an increase in their underlying rate. So right now that trend is.
Contributing to our increase yield.
Okay. That's helpful. Thank you and then any any color you can give on the strategic review any other consumer loan portfolio and whether or not.
That sort of helping to be earmarked for the incremental capital return that you're expecting over the next two quarters.
I think anything with with that business as we said in our notes will we'll be making announcements this quarter.
The the capital that's available there.
Would be redeployed into these new assets, we don't foresee that is being any mechanism to via director fair enough capital to shareholders.
Okay. Thank you.
We have no further questions. Thank you I'll turn back to the presenters for closing remarks.
Well there. Thank you all for your questions and your interest in home capital Group, We look forward to speaking with you again soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.