Street Capital Announces 2015 Third Quarter Results
Gain on sale of mortgages $41.2 million; Total Revenue $19.4 million; adjusted shareholders' diluted EPS of $0.06
TORONTO, Nov. 10, 2015 /CNW/ - Street Capital Group Inc. ("Street" or the "Company") (TSX: SCB), today announced financial results for the three months and nine months ended September 30, 2015.
Q3-2015 Highlights
- Gain on sale of mortgages were $41.2 million in Q3-2015, up 3.5% from $39.8 million in Q3-2014
- Total Revenue grew 10.2% to $19.4 million in Q3-2015 from $17.6 million in Q3-2014.
- Adjusted shareholders' diluted earnings per share1 were $0.06, compared with $0.05 in Q3-2014.
- Street was #4 in the mortgage broker channel in Q3-2015, compared to #3 in Q2-2015.
- Mortgages under administration were $24.3 billion, up 19% from $20.4 billion in Q3-2014 and up from $23.4 billion in Q2-2015.
- Mortgages sold were flat with Q3-2014, at $2.3 billion.
- Renewals were 18.4% of total mortgages sold in Q3-2015, compared to 10.6% in Q3-2014.
- The serious arrears rate2 was 0.14% at the end of Q3-2015 compared to 0.27% at the end of Q3-2014.
"During Q3, we continued to grow mortgages under administration through both new originations and renewals, while taking the necessary steps to position the business appropriately for its future as a diversified financial institution," said Ed Gettings, Chief Executive Officer of Street Capital Group Inc. "New origination volumes in the quarter were impacted by the discontinuation of our Loyalty product, which paid trailer fees to brokers, and some normal course credit underwriting adjustments to maintain strong credit performance. Volumes have rebounded to normal levels in October and based on our pipeline, we anticipate that this will continue."
Bank Update
Street Capital is presently in the Pre-Commencement Review phase of its application to the Minister of Finance to continue as a Schedule I bank. This phase, which is one of the last stages of the continuation process, includes an on-site review by OSFI to determine whether Street Capital is sufficiently prepared to commence business operations as a federally regulated financial institution. Once the on-site review has been completed, Street Capital will be expected to address any concerns and material findings coming out of that review prior to OSFI making a recommendation to the Minister of Finance for Letters Patent of Continuation and to the Superintendent of Financial Institutions for an Order to Commence and Carry on Business.
Financial Highlights
The following table sets out the financial highlights as at and for the three and nine months ending September 30, 2015:
| For the three months ended |
For the nine months ended |
|||||||||
| (in thousands $, except where defined) |
September 30, |
June 30, |
September 30, |
September 30, |
September 30, |
|||||
| 2015 |
2015 |
2014 |
2015 |
2014 |
||||||
| Shareholders' net income (loss) |
$ |
6,676 |
$ |
(37,666) |
$ |
8,212 |
$ |
(27,240) |
$ |
8,025 |
| Adjusted shareholders' net income ¹ |
6,909 |
8,767 |
5,551 |
18,981 |
13,601 |
|||||
| Shareholders' diluted earnings per share |
0.06 |
(0.37) |
0.08 |
(0.25) |
0.08 |
|||||
| Adjusted shareholders' diluted earnings per share ¹ |
0.06 |
0.09 |
0.05 |
0.17 |
0.13 |
|||||
| Adjusted return on equity |
23.5% |
30.6% |
21.8% |
22.0% |
17.6% |
|||||
| Mortgages sold |
$ |
2,284,829 |
$ |
2,994,642 |
$ |
2,261,258 |
$ |
6,896,561 |
$ |
5,572,962 |
| Gain on sale of mortgages |
$ |
41,197 |
$ |
56,749 |
$ |
39,774 |
$ |
129,067 |
$ |
100,666 |
| Gain as a % of mortgages sold |
1.80% |
1.90% |
1.76% |
1.87% |
1.81% |
|||||
| Acquisition expenses |
$ |
21,994 |
$ |
30,544 |
$ |
23,956 |
$ |
69,415 |
$ |
59,274 |
| Acquisition expenses as % of mortgages sold |
0.96% |
1.02% |
1.06% |
1.01% |
1.06% |
|||||
| Operating expenses |
$ |
10,385 |
$ |
10,994 |
$ |
9,954 |
$ |
31,355 |
$ |
27,986 |
| Operating expenses as % of mortgages sold |
0.45% |
0.37% |
0.44% |
0.45% |
0.50% |
|||||
| As at |
||||||||
| September 30, |
June 30, |
Dec 31, |
September 30, |
|||||
| 2015 |
2015 |
2014 |
2014 |
|||||
| Mortgages under administration in billions ("MUA") |
$ |
24.30 |
$ |
23.38 |
$ |
21.59 |
$ |
20.38 |
| Serious arrears rate %² |
0.14% |
0.16% |
0.23% |
0.27% |
||||
| Shareholders' equity |
$ |
120,752 |
$ |
113,985 |
$ |
110,876 |
$ |
106,191 |
| Number of shares outstanding end of period |
120,866 |
120,866 |
99,358 |
99,101 |
||||
| Share price at close of market |
$ |
1.65 |
$ |
2.35 |
$ 1.82 |
$ |
1.60 |
|
| Market capitalization |
$ |
199,429 |
$ |
284,035 |
$ |
180,832 |
$ |
158,562 |
| Book value per share |
$ |
1.00 |
$ |
0.94 |
$ |
1.12 |
$ |
1.07 |
| ¹ |
Adjusted shareholders' net income , adjusted diluted shareholders' earnings per share and adjusted return on equity are Non-GAAP measures that the Company uses to measure its performance. These measures are not calculated in accordance with GAAP and are not defined by GAAP and do not have standardized meanings that would ensure consistency and comparability among companies using these measures. The adjusted results are intended to give readers a view of the core operating business of the Company by removing restructuring expenses incurred in Q2 2015, net of applicable taxes, given their non-recurring nature , along with fair value adjustments and the results of discontinued operations associated with the legacy businesses. |
| Reconcilation of Shareholders' Net Income to Adjusted Shareholders' Net Income |
||||||||||
| For the three months ended |
For the nine months ended |
|||||||||
| (in thousands $, except where defined) |
September 30, |
June 30, |
September 30, |
September 30, |
September 30, |
|||||
| 2015 |
2015 |
2014 |
2015 |
2014 |
||||||
| Net Income |
$ |
6,676 |
$ |
(37,666) |
$ |
8,212 |
$ |
(27,240) |
$ |
8,025 |
| Restructuring expenses (net of applicable tax) |
$ |
- |
$ |
46,602 |
$ |
- |
$ |
46,602 |
$ |
- |
| Fair value adjustments net of non-controlling interest |
$ |
242 |
$ |
(175) |
$ |
(2,650) |
$ |
(370) |
$ |
(6,026) |
| Discontinued Operations |
$ |
(9) |
$ |
6 |
$ |
(11) |
$ |
(11) |
$ |
11,602 |
| Adjusted Net Income |
$ |
6,909 |
$ |
8,767 |
$ |
5,551 |
$ |
18,981 |
$ |
13,601 |
| Adjusted diluted EPS is calculated using adjusted net income. Adjusted ROE is calculated using adjusted net income with no adjustment to shareholders' equity. |
||||||||||
| ² |
Serious arrears rate is defined as the number of mortgages that are greater than 90 days in arrears divided by the number of mortgages under administration . The calculation includes mortgages that have been sold to institutional investors. |
Outlook
Note to readers: This section includes forward looking information and readers are reminded to refer to the discussion about forward looking information on page 2 of the Company's Management's Discussion & Analysis, for the three and nine months ended September 30, 2015.
Looking forward, management expects market conditions to include continued low interest rates with perhaps marginal increases in late 2016, stable employment and economic conditions in most regions, with the exception of oil producing locations, along with positive demographic trends and immigration levels. These factors are expected to contribute to relatively stable housing markets for the last quarter of 2015 and into 2016.
The Company will continue to focus on realizing the significant renewal opportunities in the Company's MUA that lead to higher net gains on sale than new originations, and contribute to sustainable profitability. Renewal volumes in 2015 relate both to 5 year terms originated in 2010 and to higher than usual 4 and 3 year terms originated in 2011 and 2012, which reflected investor demand at that time. Moving into 2016, renewal volumes will be limited to primarily 5 year terms originated in 2011, which will lead to renewal volumes approximately 15% lower than 2015.
The Company is anticipating total sales of new and renewal mortgages in 2016 to be in line with the higher than expected volumes experienced in 2015 but with lower relative renewal volumes discussed above, leading to lower gain on sales than 2015. The Company's 2015 results have been very strong, with new mortgage origination volumes and spreads coming in better than expectation.
The Company has made significant investments in processes and people, including technology, risk management and internal audit, to both support its bank application, and to realize on its growth strategies. The Company will continue to build on, and invest in, its processes and capabilities in anticipation of, and to support, its future growth and product diversification strategies. In the shorter term in 2016, this will lead to some disciplined increases in expenditures ahead of expansion and revenue growth that will increase the Company's relative cost structure in 2016 as the processes, people and infrastructure are put in place to support strategic objectives.
Given relatively higher expenses combined with anticipated lower gains on sale in 2016, management expects lower net income in 2016 compared to a very strong 2015. Management is committed to process efficiency, along with product diversification and sales growth as strategic objectives and expects to drive higher profitability beyond 2016 as revenue begins to grow to match the expenditures required to build a diversified financial institution.
If the Company receives approval from Canada's Minister of Finance to operate as a federally regulated Schedule I bank in 2016, management expects to introduce its deposit taking and uninsured mortgage products in a measured and prudent manner over 2016 with the addition of other retail products in future years. Given the uncertainty of the potential timing of the launch of deposit and uninsured mortgage lending, along with the measured approach to launching the products, the profit contribution of the uninsured mortgage lending is not expected to contribute materially to results in 2016.
The Company continuously monitors market conditions though frequent evaluation of macro, regional and localized economic indicators and the credit performance of its MUA. The Company is also engaged in ongoing dialogue with its business partners about market conditions, credit performance and other observations, and will adjust lending criteria, as required, to ensure the quality of the mortgage portfolio reflects both the Company's and its business partners' risk appetite.
Mortgage Sales
Compared to Q3 2014 net gains on sale are up $3.39 million or 21.4% in Q3 2015 on slightly higher volumes sold, improved spreads and higher relative proportion of renewals (18.4% of total in Q3 2015 versus 10.6% in Q3 2014). Renewals have lower acquisition costs leading to higher net gains on sale.
Year to date net gains on sale increased $18.26 million or 44.1% compared to the first nine months of 2014, reflecting an increase in mortgages sold of 23.9%, combined with higher spreads and a higher proportion of renewal mortgages sold.
Net gains on sale are down $7.0 million from Q2 2015 due to lower gains on sale on lower mortgage sales volume and slight margin compression compared to the prior quarter. Spreads reflect market rates and the duration of the underlying mortgages sold. The decline in mortgage sales compared to Q2 2015 reflects certain combined factors. In July the Company discontinued its Loyalty product, which offered trailer fee commissions, and in Q3 2015 there were some normal course credit underwriting adjustments to maintain strong credit performance. These actions led to some softening in new mortgage origination volumes over the short term. Management has observed a rebound in origination volumes into the beginning of Q4 2015 and anticipates new mortgage origination volumes will have returned to expected seasonally adjusted levels in Q4 2015.
Conference Call
Street will host a conference call tomorrow, November 11, 2015 at 9:00 a.m. ET to discuss its financial results. Ed Gettings, Chief Executive Officer of Street, and Lazaro DaRocha, President of Street, will chair the call.
| Participant Dial-in |
Webcast |
Reference Number |
|
| Conference Call November 11, 2015 at 9:00AM |
647-427-7450; or 1-888-231-8191 |
||
| Replay (available for 2 weeks) |
416-849-0833; or 1-855-859-2056 |
67261606 |
About Street Capital Group Inc. (www.streetcapitalgroup.ca)
The Company (TSX: SCB) is a financial services company operating in residential mortgage lending through its wholly owned subsidiary Street Capital Financial Corporation (www.streetcapital.ca), one of the largest non-bank mortgage lenders in Canada. Founded in 1979 and a public company for more than a quarter century, the Company's goal is to create shareholder value by building a substantial, diversified financial services organization. Street Capital Financial Corporation sources its mortgages primarily through a network of independent, high quality mortgage brokers across Canada with whom it has built relationships. Street Capital Financial Corporation offers a broad lineup of high ratio and conventional mortgages, predominantly to prime borrowers, and sells the mortgages it underwrites to top-tier financial institutions. Business revenues are almost entirely from the gain on sale of mortgages.
Forward-Looking Statements
The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, other than statements of historical facts, which address Street Capital Group Inc.'s expectations, should be considered as forward-looking statements and therefore subject to various risks and uncertainties. The words "may", "will", "could", "should", "would", "suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast", "objective", "hope" and "continue" (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.
Such statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company's control, actual results may differ materially from the expectations expressed in the forward-looking statements. The Company undertakes no obligation, and does not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events.
The following table sets out the Company's consolidated quarterly results of operations for the eight quarters ended September 30, 2015.
| Unaudited |
2013 |
2014 |
2014 |
2014 |
2014 |
2015 |
2015 |
2015 |
2014 |
2015 |
|
| (in thousands of $) |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
YTD |
YTD |
|
| $ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||
| Revenue |
|||||||||||
| Gain on sale of mortgages |
26,605 |
25,357 |
35,535 |
39,774 |
38,298 |
31,121 |
56,749 |
41,197 |
100,666 |
129,067 |
|
| Acquistion costs |
(13,773) |
(15,245) |
(20,073) |
(23,956) |
(23,207) |
(16,877) |
(30,544) |
(21,994) |
(59,274) |
(69,415) |
|
| Net gain on sale of mortgages |
12,832 |
10,112 |
15,462 |
15,818 |
15,091 |
14,244 |
26,205 |
19,203 |
41,392 |
59,652 |
|
| Net interest and other income (loss) |
1,248 |
4,114 |
(34) |
1,760 |
(51) |
(106) |
151 |
227 |
5,840 |
272 |
|
| Total revenue |
14,080 |
14,226 |
15,428 |
17,578 |
15,040 |
14,138 |
26,356 |
19,430 |
47,232 |
59,924 |
|
| Expenses |
|||||||||||
| Salaries and benefits |
5,679 |
5,592 |
6,130 |
6,253 |
6,081 |
6,936 |
7,200 |
7,039 |
17,975 |
21,175 |
|
| Selling, general and admininstrative expenses |
2,916 |
2,869 |
3,441 |
3,701 |
3,725 |
3,040 |
3,794 |
3,346 |
10,011 |
10,180 |
|
| Operating Expenses |
8,595 |
8,461 |
9,571 |
9,954 |
9,806 |
9,976 |
10,994 |
10,385 |
27,986 |
31,355 |
|
| Income before restructuring expenses and fair value adjustments |
5,485 |
5,765 |
5,857 |
7,624 |
5,234 |
4,162 |
15,362 |
9,045 |
19,246 |
28,569 |
|
| Restructuring expenses |
- |
- |
- |
- |
- |
- |
(50,240) |
- |
- |
(50,240) |
|
| Fair value adjustments |
4,813 |
3,099 |
6,420 |
8,028 |
9,436 |
(2,710) |
2 |
2,783 |
17,547 |
75 |
|
| Income (loss) before income taxes and discontinued operations |
10,298 |
8,864 |
12,277 |
15,652 |
14,670 |
1,452 |
(34,876) |
11,828 |
36,793 |
(21,596) |
|
| Income taxes |
2,297 |
1,447 |
2,125 |
2,073 |
1,400 |
857 |
2,957 |
2,136 |
5,645 |
5,950 |
|
| Income (loss) from continuing operations |
8,001 |
7,417 |
10,152 |
13,579 |
13,270 |
595 |
(37,833) |
9,692 |
31,148 |
(27,546) |
|
| Income (loss) from discontinued operations |
(6,156) |
(11,782) |
169 |
11 |
8 |
8 |
(6) |
9 |
(11,602) |
11 |
|
| Net income (loss) |
1,845 |
(4,365) |
10,321 |
13,590 |
13,278 |
603 |
(37,839) |
9,701 |
19,546 |
(27,535) |
|
| Net (income) loss attributable to non-controlling interest |
(1,190) |
(2,061) |
(4,082) |
(5,378) |
(8,374) |
3,147 |
173 |
(3,025) |
(11,521) |
295 |
|
| Net income (loss) attributable to shareholders |
655 |
(6,426) |
6,239 |
8,212 |
4,904 |
3,750 |
(37,666) |
6,676 |
8,025 |
(27,240) |
|
The following table sets out the Company's MUA and Mortgage Sales for the last eight quarters.
| (in billions $) |
|||||||||||
| As at |
|||||||||||
| Dec 31, |
Mar 31, |
Jun 30, |
Sep 30, |
Dec 31, |
Mar 31, |
June 30, |
Sep 30, |
||||
| 2013 |
2014 |
2014 |
2014 |
2014 |
2015 |
2015 |
2015 |
||||
| Mortgages under administration |
17.52 |
18.21 |
19.27 |
20.38 |
21.59 |
22.16 |
23.38 |
24.30 |
|||
| 2013 |
2014 |
2014 |
2014 |
2014 |
2015 |
2015 |
2015 |
||||
| Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
||||
| Mortgages sold - orginations |
1.19 |
1.21 |
1.73 |
2.03 |
1.96 |
1.32 |
2.52 |
1.86 |
|||
| Mortgages sold - renewals |
0.19 |
0.17 |
0.21 |
0.24 |
0.27 |
0.30 |
0.47 |
0.42 |
|||
| Total mortgages sold |
1.38 |
1.38 |
1.94 |
2.27 |
2.23 |
1.62 |
2.99 |
2.28 |
|||
| % Renewals |
13.8% |
12.3% |
10.8% |
10.6% |
12.1% |
18.5% |
15.7% |
18.4% |
The following table sets out the Company's financial position as at September 30, 2015, June 30, 2015 and September 30, 2014.
| As at |
||||||
| Unaudited |
September 30 |
June 30 |
December 31 |
|||
| (in thousands of $) |
2015 |
2015 |
2014 |
|||
| Assets |
||||||
| Cash and cash equivalents |
$ 44,877 |
$ 40,340 |
$ 36,152 |
|||
| Deferred placement fees receivable |
45,236 |
43,806 |
38,749 |
|||
| Prepaid portfolio insurance |
64,776 |
60,239 |
50,888 |
|||
| Securitized mortgage loans |
101,837 |
45,975 |
50,318 |
|||
| Non-securitized mortgages and loans |
37,241 |
27,013 |
4,285 |
|||
| Portfolio Investments |
25,375 |
22,595 |
40,010 |
|||
| Other assets |
59,110 |
69,482 |
57,521 |
|||
| 378,452 |
309,450 |
277,923 |
||||
| Assets of discontinued operations |
1,329 |
1,346 |
1,341 |
|||
| Total assets |
$ 379,781 |
$ 310,796 |
$ 279,264 |
|||
| Liabilities |
||||||
| Bank facilities and loans payable |
50,459 |
31,544 |
18,907 |
|||
| Securitization liabilities |
101,213 |
46,830 |
50,546 |
|||
| Other liabilities |
95,675 |
109,877 |
77,091 |
|||
| 247,347 |
188,251 |
146,544 |
||||
| Liabilities of discontinued operations |
1,167 |
1,167 |
1,167 |
|||
| Total liabilities |
248,514 |
189,418 |
147,711 |
|||
| Total shareholders' equity |
120,752 |
113,985 |
110,876 |
|||
| Non-controlling interests |
10,515 |
7,393 |
20,677 |
|||
| Total liabilities and equity |
$ 379,781 |
$ 310,796 |
$ 279,264 |
|||
SOURCE Street Capital Group Inc.
W.E. Gettings, CEO, Street Capital Group Inc., [email protected]; Jonathan Ross, CFA, LodeRock Advisors Inc., Inv. Relations, [email protected]; Tel: (905) 334-0095
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