• Lender’s earnings hurt by operating losses at CFF Bank
  • Company results miss analysts’ estimates for second quarter

Home Capital Group Inc. slipped the most in a year after reporting second-quarter earnings that missed analysts’ estimates.

The non-bank mortgage lender tumbled 6.7 percent to C$29.42 at 1:32 p.m. in Toronto trading after earlier falling as much as 9.8 percent. That was the biggest decline since the shares fell 21 percent in July 2015, when Home Capital announced a drop in originations after it sidelined brokers who submitted loan documents with falsified data.

Operating losses at CFF Bank, the lender Home Capital bought last year, shaved 2 cents off the company’s earnings per share, and total non-interest expenses rose 16 percent from a year earlier to C$54.9 million, according to a statement Wednesday. Net income fell 8.3 percent to C$66.3 million. Earnings excluding some items were 99 cents a share, down from C$1.03 and less than the C$1.07 average estimate of eight analysts, according to data compiled by Bloomberg.

“Operating expenses reflect the significant strides we are making as we position the company for long-term success through continued investments to improve our processes and controls, further strengthen originations and increase customer retention,” Chief Executive Officer Martin Reid, who replaced Gerald Soloway in May, said in the statement.

Mortgage originations rose 22 percent to C$2.47 billion. Uninsured single-family home loans, the company’s main line of business, gained 6.2 percent to C$1.37 billion, while insured loans climbed 66 percent to C$464.8 million.

Broker Review

Home Capital said it’s 90 percent through its review of the 45 brokers it cut ties with after finding they submitted loan documents with falsified income information last year, and has found no unusual credit activity in those loans.

“It will take time to drive stronger loan growth given that the company first needs to replace those lost originations,” Geoffrey Kwan, an analyst at RBC Capital Markets, said in a note to clients after results were released Wednesday. “This challenge becomes slightly more difficult in a mortgage environment that remains highly competitive and is likely to see eventual signs of slowing.”

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