May 6, 2009 / 12:15 PM / in 9 years

UPDATE 2-Home Capital Q1 profit tops estimates, shares up

* Q1 EPS C$0.91 vs est C$0.80

* Non-interest income doubles to C$32 mln

* Declares dividend of C$0.14/shr (Adds conf call details, analyst’s comment; share movement)

BANGALORE, May 6 (Reuters) - Home Capital Group Inc’s HCG.TO quarterly profit beat market estimates as non-interest income more than doubled, and the mortgage lender raised its quarterly dividend, sending its shares up 12 percent.

In a conference call, Chief Executive Gerald Soloway said the company was looking forward to a strong second quarter and expects to fund over C$1 billion in originations, mostly comprising of residential first mortgage loans.

However, it does not see any growth in non-residential portfolio over the next few quarters.

Home Capital, which mainly underwrites residential mortgages, said the recent interest rate changes have made it attractive to keep mortgages in its books.

“In the second quarter and going forward we will probably keep more of insured mortgages on our balance sheets and fund them internally. However, that will be on a pool by pool basis,” Soloway said.

Net impaired loans formed 1.2 percent of the company’s total loans portfolio and it expects impaired loans to increase over the next one or two quarters.

“The impaired loans will not impair our profit picture. I know it is a subject where everyone has a concern but we have done a lot of work, we think its well under control,” the CEO said.

Analyst Marc Charbin of Jennings Capital Inc said the company’s loan portfolio has “lower risk relative to other lenders, owing to its high concentration of residential loans.”

Charbin, who has a “buy” rating on the stock, raised his price target to C$36.50 from C$30.

Home Capital has excess liquidity and this should allow it to “step on the gas” whenever it feels the time is right, without excessive financial constraints, Charbin said in a note to clients.

The lender, which extends loan to people who do not qualify for a bank loan, had a Tier 1 capital ratio of 13.8 percent and total capital ratio of 15.2 percent for the quarter.

In March, Home Capital adopted a shareholder rights plan, fuelling speculation of a possible takeover.

Q1 TOPS STREET

For the quarter ended March 31, Home Capital reported earnings of C$31.4 million, or 91 Canadian cents a share, compared with C$25.2 million, or 72 Canadian cents, a year ago.

Analysts were expecting earnings of 80 Canadian cents a share, excluding items, according to Reuters Estimates.

Non-interest income jumped to C$32 million from C$14.3 million a year earlier. Net interest income fell 4 percent to C$36.2 million.

Separately, the company said it declared a cash dividend of 14 Canadian cents a share, payable on June 1 to shareholders of record on May 15.

Shares of the company closed up 11 percent at C$32.50 Wednesday on the Toronto Stock Exchange. (Reporting by Kunal Raina, Ashutosh Joshi in Bangalore; Editing by Deepak Kannan, Ratul Ray Chaudhuri)

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