Street Capital Announces 2015 Second Quarter Results

Revenue +71%; adjusted shareholders' diluted EPS of $0.09

TORONTO, Aug. 12, 2015 /CNW/ - Street Capital Group Inc. ("Street" or the "Company") (TSX: SCB), today announced financial results for the three months and six months ended June 30, 2015.

Q2-2015 Highlights

  • Revenue grew 71% to $26.4 million in Q2-2015 from $15.4 million in Q2-2014.
  • Adjusted shareholders' diluted earnings per share1 were $0.09, compared with $0.04 in Q2-2014.
  • Street maintained its #3 market share position in the mortgage broker channel.
  • Mortgages under administration were $23.4 billion, up 21% from $19.3 billion in Q2-2014 and up from $22.2 billion in Q1-2015.
  • Mortgages sold were $3.0 billion, compared to $1.9 billion in Q2-2014.
  • Renewals were 16% of total mortgages sold in Q2-2015, compared to 11% in Q2-2014
  • The serious arrears rate2 was 0.16% at the end of Q2-2015 compared to 0.26% at the end of Q2-2014

"Our business grew significantly in Q2 driven by a 46% increase in new originations and renewal volume that was double what we delivered in Q2-2014," said Ed Gettings, Chief Executive Officer of Street Capital Group Inc. "In addition, we maintained stringent operating expense control in the quarter despite the additional costs we are carrying to prepare to become a Schedule I bank. We feel that we are well-positioned to receive our bank license in the short-term and look forward to broadening our retail lending platform, leveraging our significant in-house expertise."

"Our business model continues to prove its strength, driving growth in a stable market," added Lazaro DaRocha, President of Street Capital Group Inc. "We remain committed to our top-tier underwriting quality assurance program and have demonstrated strong portfolio performance. Our default rate has consistently remained well below the CBA average and our early default rate is significantly better than the CMHC average."

Financial Highlights

The following table sets out the financial highlights as at and for the three and six months ending June 30, 2015:




For the three months ended 

For the six months ended

(in thousands $, except where defined)

June 30,

March 31,

June 30,

June 30,

June 30,


2015

2015

2014

2015

2014

Shareholders' net income 

$

(37,666)

$

3,750

$

6,239

$

(33,916)

$

(187)

Adjusted shareholders' net income 1   

8,767

3,305

3,732

12,076

8,050

Shareholders' diluted earnings per share 

(0.37)

0.04

0.06

(0.34)

0.00

Adjusted shareholders' diluted earnings per share ¹

0.09

0.03

0.04

0.12

0.08

Adjusted return on equity

30.6%

11.7%

15.7%

21.5%

15.0%

Mortgages sold

$

2,994,642

$

1,617,090

$

1,936,018

$

4,611,732

$

3,311,704

Gain on sale of mortgages

$

56,749

$

31,121

$

35,535

$

87,870

$

60,892

Gain as a % of mortgages sold

1.90%

1.92%

1.84%

1.91%

1.84%

Acquisition expenses

$

30,544

$

16,877

$

20,073

$

47,421

$

35,318

Acquisition expenses as % of mortgages sold

1.02%

1.04%

1.04%

1.03%

1.07%

Operating expenses

$

10,994

$

9,976

$

9,571

$

20,970

$

18,032

Operating expenses as % of mortgages sold

0.37%

0.62%

0.49%

0.45%

0.54%











As at 



June 30,

March 31,

Dec 31,

June 30,



2015

2015

2014

2014


Mortgages under administration in billions ("MUA")

$

23.38

$

22.16

$

21.59

$

19.27


Serious arrears rate % 2 

0.16%

0.21%

0.23%

0.26%


Shareholders' equity

$

113,985

$

115,024

$

110,876

$

97,858


Number of shares outstanding end of period

120,866

99,903

99,358

99,071


Share price at close of market

$

2.35

$

2.11

$

1.82

$

1.95


Market capitalization 

$

284,035

$

210,795

$

180,832

$

193,188


Book value per share

$

0.94

$

1.15

$

1.12

$

0.99








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 between 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 and  fair value adjustments and the results discontinued operations associated with the legacy businesses.







Reconcilation of Shareholders' Net Income to Adjusted Shareholders' Net Income 



Net Income 

$

(37,666)

$

3,750

$

6,239

$

(33,916)

$

(187)

Restructuring expenses (net of applicable tax) 

$

46,602

$

-

$

-

$

46,602

$

-

Fair value adjustments net  of non-controlling interest

$

(175)

$

(437)

$

(2,338)

$

(612)

$

(3,376)

Discontinued Operations

$

6

$

(8)

$

(169)

$

2

$

11,613

Adjusted Net Income 

$

8,767

$

3,305

$

3,732

$

12,076

$

8,050


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 teh number of mortgages that are greater than 90 days in arrears divided by the number mortgages under administration. The calculation includes mortgages that have been sold to institutional investors.

Outlook

Continued growth in MUA reflects the Company's successful and focused sales efforts and high quality service levels supported by strong housing markets in most regions. Looking forward, management expects continued low interest rates, stable employment and stable economic conditions in most regions, with the potential 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 remainder of 2015 and into 2016 which should support growth in mortgage demand, but perhaps at a slower rate than 2014 and the first half of 2015. 

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.    

The Company will continue to focus on realizing the significant renewal opportunities in the Company's MUA that leads to higher net gains on sale than new originations and sustainable profitability. Renewal volumes in 2015 reflect both 5 year terms originated in 2010 and higher than usual 4 and 3 year terms originated in 2011 and 2012 respectively that reflected investor demand at that time. Moving into 2016 renewal volumes will be limited to primarily 5 year terms originated in 2011 leading to relatively lower renewal volumes than in 2015.  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.  It will continue to build on, and invest in, both its processes and capabilities. 

Mortgage Sales

Increased gains on sale of mortgages reflect increasing origination and renewal volumes, quarter over quarter and year over year, supported by strong housing market activity in most regions, price appreciation and the Company's increased market share. Additionally, spreads earned on mortgages sold widened by six basis points year over year and were marginally lower by two basis points compared to last quarter. Spreads reflect market rates and the duration of the underlying mortgages sold.  Acquisition costs as a percentage of mortgages sold have remained relatively stable quarter over quarter but have improved compared to the first six months of 2014. Mortgage originations tend to follow seasonal housing market trends, where the spring and summer markets outperform the fall and winter.

Corporate Reorganization

As part of the Company's transition from operating multiple businesses in diverse markets to a focused financial services company, on June 23, 2015 the Company realigned its organizational structure resulting in restructuring charges during the quarter.  As part of the realignment the Company's name was changed from Counsel Corporation to Street Capital Group Inc. During the second quarter, the Company completed negotiations with certain members of management of its subsidiary Street Capital Financial Corporation ("Street Capital") to extinguish existing Class C non-voting shares (the "Class C Shares" and the related contingent liability.   The measurement of and subsequent extinguishment of the contingent liability took place in the second quarter, the first period in which management was able to reliably measure the liability.  The negotiations arose as a result of the Company's goal to strengthen its capital position and flexibility as it transitions to a focused financial services company.

On June 23, 2015 the Company  purchased all the issued and outstanding Class C Shares of its subsidiary, Street Capital that were held by certain members of Street Capital's management  in exchange for 20 million common shares of Street Capital Group Inc. and $2.9 million in cash.  Subject to the occurrence of certain events, the vendors of the Class C Shares have agreed not to transfer the common shares issued to them except that i) 25% of such shares may be transferred on or after June1, 2017; ii) 50% of such shares may be transferred on or after June 1, 2018; and iii) 100% of such shares may be transferred on or after June 1, 2019. As part of the exchange of Class C Shares for common shares the remaining contingent consideration and earn-out payments attached to the Class C Shares were extinguished.

The effect of the issuance of common shares, the extinguishment of the contingent liability and additional reorganization expenses were recognized as charges to income in the quarter through restructuring expenses as follows: 



June 30

in thousands $


2015




Issuance of 20 million common shares of Street Capital Group Inc. (1)


$

36,300

Cash consideration


2,919

Settlement of contingent liability


(955)

Cost to extinguish contingent liability


38,264

Restructuring costs and severance


11,976

Total restructuring costs


$

50,240

(1)

Calculated at $2.42 per share which was the market closing price on June 23, 2015
less a 25% discount reflecting the sale restrictions on the shares issued.

Concurrent with the share exchange, certain existing executive officers of the Company retired and were replaced by the following: Chief Executive Officer, Ed Gettings; President, Lazaro DaRocha; and Chief Financial Officer, Marissa Lauder. The management team of Street Capital remains the same, including the above named members of management. 

Conference Call

Street will host a conference call later today, August 12, 2015 at 11:00 a.m. ET to discuss its financial results. Allan Silber, Chairman of Street, 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

August 12, 2015 at 11:00AM

647-427-7450; or

1-888-231-8191

http://bit.ly/1HXiapG


Replay

(available for 2 weeks)

416-849-0833; or

1-855-859-2056


94640213

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 June 30, 2015.  













Unaudited
(in thousands of $, except per share amounts)

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2


2014

YTD

2015

YTD


$

$

$

$

$

$

$

$


$

$













Revenue












Gain on sale of mortgages 

38,032

26,605

25,357

35,535

39,774

38,298

31,121

56,749


60,892

87,870

Acquistion costs 

(25,018)

(13,773)

(15,245)

(20,073)

(23,956)

(23,207)

(16,877)

(30,544)


(35,318)

(47,421)

Net gain on sale of mortgages 

13,014

12,832

10,112

15,462

15,818

15,091

14,244

26,205


25,574

40,449













Net interest and other income (loss)

(356)

1,248

4,114

(34)

1,760

(51)

(106)

151


4,080

45













Total revenue

12,658

14,080

14,226

15,428

17,578

15,040

14,138

26,356


29,654

40,494













Expenses












Salaries and benefits

4,827

5,679

5,592

6,130

6,252

6,081

6,936

7,200


11,722

14,136

Selling, general and admininstrative expenses

3,718

2,916

2,869

3,441

3,702

3,725

3,040

3,794


6,310

6,834













Operating Expenses

8,545

8,595

8,461

9,571

9,954

9,806

9,976

10,994


18,032

20,970













Income before restructuring expenses and fair value adjustments

4,113

5,485

5,765

5,857

7,624

5,234

4,162

15,362


11,622

19,524













Restructuring expenses

-


-

-

-

-

-

(50,240)


-

(50,240)

Fair value adjustments 

159

4,813

3,099

6,420

8,028

9,436

(2,710)

2


9,519

(2,708)













Income (loss) before income taxes and discontinued operations

4,272

10,298

8,864

12,277

15,652

14,670

1,452

(34,876)


21,141

(33,424)













Income taxes 

1,206

2,297

1,447

2,125

2,073

1,400

857

2,957


3,572

3,814

Income (loss) from continuing operations

3,066

8,001

7,417

10,152

13,579

13,270

595

(37,833)


17,569

(37,238)













Income (loss) from discontinued operations

307

(6,156)

(11,782)

169

11

8

8

(6)


(11,613)

2

Net income (loss)

3,373

1,845

(4,365)

10,321

13,590

13,278

603

(37,839)


5,956

(37,236)













Net (income) loss attributable to non-controlling interest

211

(1,190)

(2,061)

(4,082)

(5,378)

(8,374)

3,147

173


(6,143)

3,320

Net income (loss) attributable to shareholders

3,584

655

(6,426)

6,239

8,212

4,904

3,750

(37,666)


(187)

(33,916)

 

The following table sets out the Company's MUA and Mortgage Sales for the last eight quarters













(in billions $)











As at





Sep 30,

Dec 31,

Mar 31,

Jun 30,

Sep 30,

Dec 31,

Mar 31, 

June 30,





2013

2013

2014

2014

2014

2014

2015

2015

Mortgages under administration 



16.71

17.52

18.21

19.27

20.38

21.59

22.16

23.38

















2013

2013

2014

2014

2014

2014

2015

2015




Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Mortgages sold - orginations



2.16

1.19

1.21

1.73

2.03

1.96

1.32

2.52

Mortgages sold - renewals



0.11

0.19

0.17

0.21

0.24

0.27

0.30

0.47

Total mortgages sold



2.27

1.38

1.38

1.94

2.27

2.23

1.62

2.99

% Renewals



4.8%

13.8%

12.3%

10.8%

10.6%

12.1%

18.5%

15.7%

 

The following Table Sets out the Company's financial position for June 30, 2015, March 31, 2015 and December 31, 2014







As at 

Unaudited 

June 30


March 31


December 31

(in thousands of $) 

2015


2015


2014








Assets






Cash and securities

$

40,767


$

33,508


$

36,571

Deferred placement fees receivable 

43,806


39,593


38,749

Prepaid portfolio insurance

60,239


54,931


50,888

Securitized mortgage loans 

45,975


48,683


50,318

Non-securitized mortgages and loans

27,013


5,007


4,285

Portfolio Investments

22,595


22,595


40,010

Other assets

69,055


57,890


57,102



309,450


262,207


277,923

Assets of discontinued operations

1,346


1,348


1,341

Total assets

$

310,796


$

263,555


$

279,264








Liabilities






Bank facilities and loans payable

31,544


18,290


18,907

Securitization liabilities

46,830


48,483


50,546

Other liabilities

109,877


73,025


77,091



188,251


139,798


146,544

Liabilities of discontinued operations

1,167


1,167


1,167

Total liabilities

189,418


140,965


147,711








Total shareholders' equity

113,985


115,024


110,876

Non-controlling interests

7,393


7,566


20,677

Total liabilities and equity

$

310,796


$

263,555


$

279,264

 

SOURCE Street Capital Group Inc.

For further information: W.E. Gettings, CEO, Street Capital Group Inc., Ed.Gettings@streetcapital.ca, Tel: (647) 259-7875; Jonathan Ross, CFA, LodeRock Advisors Inc., Inv. Relations, jon.ross@loderockadvisors.com, Tel: (905) 334-0095


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