August 5, 2008 / 6:02 PM / 9 years ago

Home Capital profit surges 21 percent, stock rises

TORONTO (Reuters) - Quarterly profit at Home Capital Group (HCG.TO) jumped 21 percent, the alternative lender said on Tuesday as it raised its dividend and its top executive expressed confidence that Canada's housing market is healthy.

Capital's shares were up 8 percent at C$39.48 by early afternoon on the Toronto Stock Exchange.

The company, which mainly underwrites nontraditional residential mortgages, said it earned C$26.6 million ($25.6 million), or 76 Canadian cents a share, in the three months ended June 30. That compared with C$22.0 million, or 63 Canadian cents a share, in the same 2007 period.

"Despite a year of turmoil in the financial markets, Home continues to meet its targets and deliver strong results," Chief Executive Gerald Soloway said on a conference call.

The quarterly dividend was raised to 13 Canadian cents a share from 12 Canadian cents, and the company said it continues to manage its core lending business with "an appropriate balance of prudence and opportunity."

Aside from some softness in housing markets in Eastern Canada, and in the cities of Windsor, Ontario, and Oshawa, Ontario, where auto manufacturing job losses have mounted, there are no real problems in the Canadian housing market, Soloway said on the call.

"The economy's much better in Canada (than in the United States)," Soloway said, adding that U.S. borrowers who should have been renters were "seduced" into buying homes at teaser interest rates, with a huge number of properties now coming on to the U.S. market.

"Even if the market does come off 5-10 percent in Canada, which is possible...I don't think that the Canadian housing market is on the verge of the kind of collapse that's occurred in the United States...I really do see quite a good market in Canada."

Home Capital said total mortgage originations hit C$886.9 million in the second quarter, up 42.5 percent from the C$622.6 million that was advanced during the same 2007 period. Most of the advances were in residential mortgages, with the remainder in commercial, apartment and warehouse mortgages.

In the residential area, Home Capital lends to customers that the big banks often avoid: the self-employed, people with credit-record blemishes such as bankruptcies, immigrants with no Canadian credit history, and people with new jobs.

But it recently started a new business offering fully insured high-quality mortgages, backed by Canada Mortgage and Housing Corp or other regulated insurers.

Not only is this "a quality business with good spreads," it allows Home Capital to become a one-stop shop for mortgage brokers, offering a full range of products for all types of borrowers, Soloway said on the call.

"We are finding that having an 'A' program...has proved to be extremely beneficial in the short time that we've been running the program," Soloway said.

The company also has a Visa credit card product, Equityline Visa, which allows borrowers to access some of the equity in their homes. Outstanding balances on the Equityline Visa portfolio rose 25 percent in the quarter to C$339.1 million.

($1=$1.04 Canadian)

Reporting by Lynne Olver; Editing by Peter Galloway

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