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Ladies and gentlemen, thank you for standing by, and welcome to the Home Capital Group's third quarter financial results conference call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jill MacRae, Head of Investor Relations. Thank you. Please go ahead.
Thank you, Lisa. Good morning, everybody, and thank you for joining us today. We'll begin the call with remarks from Yousry Bissada, President and Chief Executive Officer; followed by review of our financials by Brad Kotush, Chief Financial Officer. After the presentation, we'll have a question-and-answer session for analysts and investors. With us on the call to answer your questions are Ed Karthaus, EVP of Sales and Marketing; Mike Forshee, EVP of Underwriting; David Cluff, Chief Risk Officer; Benjy Katchen, Chief Digital and Strategy Officer; and Victor DiRisio, Chief Information Officer. Before we begin, I'd like to caution listeners that this conference call may provide management with the opportunity to discuss financial performance and conditions of Home Capital. As such, comments may contain forward-looking statements about strategies and expected financial results. Various factors could cause actual results to differ materially from results projected in forward-looking statements. Accordingly, the audience is cautioned against undue reliance on these remarks. Finally, a link to the slides accompanying this live webcast is available on our website at homecapital.com. I'd now like to introduce Yousry Bissada, President and Chief Executive Officer.
Good morning. Thank you for joining us for our third quarter 2019 conference call. I'm pleased to be speaking with you today about Home Capital and our financial results. We reported a number of achievements this quarter. Our primary financial metrics, net income, earnings per share and return on equity all showed significant improvement both sequentially and year-over-year. We are building a platform for future innovation and service upgrades. We launched an innovative new funding option, and we're delivering on our commitment to return capital to shareholders. Strength of Home Capital goes beyond the results of 1 quarter. We're making the dream of home ownership possible for our target market group of high-quality Canadian borrowers. We succeed by focusing on the alternative market, by providing best-in-class service and by preparing our company for our ongoing digital journey. Today, we have all the elements in place for sustainable value creation. We had the benefit of a healthy housing market this quarter. The pickup in the activity that began in Q2 in our major markets -- Q2 in our major markets has continued into Q3. Economic conditions, including low interest rates and strong employment data are supportive of a balanced market. We expect these conditions to remain in place for the rest of the year. Brad will speak about our financial results in more detail. But I wanted to highlight that we grew our earnings per share by 63% over Q3 of last year and by 76% after adjusting for onetime items associated with our technology investment. Our line of businesses are continuing to see benefits from the progress of our IT transformation, internally known as IGNITE. We upgraded our Loft broker portal to a new platform with greater flexibility. This allows us to execute easier and faster enhancements to meet our customers' needs. We launched a new customer relationship management platform for our sales team that is now mobile and offers better integration with multiple mobile platforms. We completed our data center migration to the IBM Cloud with no business disruption. We implemented our second robotic process automation for the mortgage discharge process. Today, 70% of all mortgage discharges are now processed without employees' intervention. This quarter, we also announced the closing of a private placement of residential mortgage-backed securities or RMBS for the primary purpose of diversifying our funding options. This issue was a result of a strong cross-functional team effort throughout Home Capital, and we're gratified by the investors' response. We expect to grow our RMBS issuance in 2020. In addition, we announced today our intention to launch a substantial issuer bid or SIB this quarter to be completed in Q1 of 2020.Upon completion of the SIB, we will apply to the TSX for renewal of our normal course issuer bid. Brad will discuss this in more detail. I want to emphasize that a regular review of our capital position is a key element of our sustainable risk culture. We will be prudent as we take a responsible approach to growing our assets and returning our capital to our shareholders. I'll now turn the call over to Brad to discuss the quarter in more detail.
Thanks, Yousry, and good morning, everyone. We'll continue with the investor presentation beginning on Slide 7. This slide highlights a significant RMBS transaction by the Home team. The placement of the A tranche of our RMBS issue at the end of the quarter is important for a number of reasons. It is the first private cross-border Canadian RMBS transaction. It provides us with another funding option to give us greater flexibility, effectively replacing $425 million that we would otherwise have to raise in the competitive GIC market, 2 rating agencies provided AAA ratings. This transaction was a team effort, requiring a significant time commitment from a cross-functional group. This team approach demonstrates our culture in action. We are innovators in coming to market with this RMBS issue, and we believe we have contributed to building the private RMBS market in Canada. The response to our issue gives us the confidence to plan for subsequent RMBS issues. Our earnings discussion begins on Slide 8. Our Q3 earnings were $0.67 per share or $0.72 per share after adjusting for items of note associated with implementing our IT road map. This represents a year-over-year increase in EPS of 63% and 76% on an adjusted basis. We achieved a return on equity of 9.5% in the quarter and 10.2% on an adjusted basis, and we ended the quarter with a book value per share of $28.64, 20% higher than our book value at the end of Q3 2018. This quarter, the most important driver of our earnings growth was an expansion in our net interest income margin from 2.03% in Q3 of 2018 to 2.22% in Q3 of 2019. This increase is due to the expansion in asset yields outpacing slightly higher funding costs. Our expenses were higher year-over-year, but our efficiency ratio improved from 52.9% in Q3 2018 to 51.3% on a reported basis and 47.8% on an adjusted basis, improvement of over 5 percentage points. Some of this is due to normal fluctuations in our quarterly spending and some is positive operating leverage related to revenue growth exceeding expense growth this quarter. Further, there is earnings accretion from having fewer shares outstanding as a result of our Q4 2018 substantial issuer bid and our 2019 normal course issuer bid. Average shares outstanding were 58.3 million this quarter on a fully diluted basis compared with 80.2 million for Q3 2018. Slide 9 has a summary of the adjustments treated as items of note. Adjustments this quarter amounted to $2.9 million or $0.05 per share of net income, 3.5% to the efficiency ratio and 0.7% in return on equity. We expect our financial reports to include adjustments for items of note connected to our IT road map implementation for the duration of the project, expected to be staged over 3 years ending in 2021. Fundamentally, the growth in our earnings is driven by the growth in our business. Slide 10 shows the growth of our core business. Single-family residential mortgage originations grew by 16.8% year-over-year led by over $1.1 billion in our classic near-prime offering. Our total loan portfolio on Slide 11 has grown by 6.4% over Q3 of 2018. As we grew our originations, we maintained the risk-based pricing discipline that is a key component of our strategy. We earned a net interest margin of 2.22% in Q3 compared to 2.03% last year. The significant expansion in our margins is largely attributable to higher earning asset yields, combined with a more favorable asset mix. Our funding costs are still influenced by the higher cost of GICs raised in Q4 2018 to repay $300 million of deposit notes and fund that quarter's $300 million substantial issuer bid. As these GICs mature, we expect to be able to replace them with lower cost funding. On the deposit side, we continue to be pleased with the growth of our Oaken direct-to-consumer channel with deposit growth of 28% over the last 12 months. Our Oaken customers now make up over 24% of our deposit funding. Importantly, about 87% of this funding is in GICs rather than savings accounts. We expect to continue to diversify our funding mix with further progress at Oaken, additional RMBS issuance and other funding options. The credit quality of our single-family residential mortgage portfolio on Slide 14 is consistent with the levels we have reported earlier in the year. Our average Beacon score is 703 across our classic Alt-A mortgages. Our average loan-to-value across all uninsured single-family residential mortgages is 58.8%. Slide 15 shows that the level of nonperforming loans is stable, both in our single-family residential portfolio and across our total loan portfolio. Credit provisioning at 0.09% of gross loans on an annualized basis is in line with historical experience. Annualized net write-offs were 0.06% of loans in the total portfolio and 0.02% of loans in our single-family residential loan portfolio. Management of liquidity risk is a key element of our sustainable risk culture. As at the end of Q3, we are holding $1.34 billion of liquid assets on our balance sheet or 7.1% of total assets. Our liquidity position has further strengthened through access to a committed standby credit facility in the amount of $500 million and by actively managing our balance sheet. Our near-term deposit maturities are more than covered by near-term loan maturities. Turning to our regulatory capital levels, our common equity Tier 1 capital level stood at 19.67% and our total capital at 20.13%, significantly above the minimum requirements. This 19.67% CET1 is after completion of our normal course issuer bid in the third quarter of 2018 -- 2019. The growth in our common equity through retained earnings for the first 3 quarters of the year exceeds the amount spent to complete the NCIB, leading to a year-to-date increase of CET1. Finally, I would like to turn to Slide 19 for a discussion of our capital plan. In Q4 of last year, Home Capital executed a substantial issuer bid and successfully repurchased over 18 million shares at $16.50 per share. In 2019, we completed our normal course issuer bid and repurchased over 4.7 million shares at an average price of $19.85 per share. In total, we have bought back nearly 23 million shares at a weighted average price of $17.19 per share. This is a discount of 40% to our Q3 book value per share. We consider this to be an effective method of creating value through strategic deployment of capital. This morning, we announced our intention to launch another substantial issuer bid of up to $150 million that we expect to complete in Q1 of 2020. We will announce the pricing and terms of the bid in Q4. Upon completing the SIB in early 2020, we intend to apply to the TSX for a renewal of our normal course issuer bid. Looking back at the past 12 months, the decisions we have made about deploying our excess capital have been consistent with our long-term goal of creating sustainable value. Board and management are committed to proceeding with a strategy of prudent capital deployment, taking into consideration all opportunities. We continue to believe that buying back our own shares is an attractive option. I will now turn the call back to Yousry for concluding remarks.
Thank you, Brad. While we're enjoying the benefits of a rebound in our key housing markets, the growth and profitability that we are reporting today is not only the result of helpful tailwinds in the industry. We believe our borrowers and select broker partners are recognizing the value of our commitment to superior customer service. That commitment will drive our execution in good and bad markets. And our IT transformation will make us more flexible and responsive to further enhance our customer experience. We are excited about the future of Home Capital, and we appreciate the support of our borrowers, depositors, broker partners and investors. I would like to remind investors and analysts of our upcoming Investor Day on November 25. We look forward to meeting with you and to introducing some key members of our leadership team. I'd now ask the operator to poll for questions.
[Operator Instructions] And our first question comes from the line of Nik Priebe from BMO Capital Markets.
Want to start with a question on net interest margin in the quarter. Just one observation, liquidity looks like it was managed more tightly in the third quarter than it had been in other periods, at least post crisis. I understand there's a bit of a seasonal element that factors into the optimal size of that liquidity portfolio. But is this level more representative of where you'd expect to manage liquidity going forward, all else equal? Or do you feel the liquidity position could be tightened up a little further from these levels?
Nik, we're comfortable going forward with the current liquidity profile.
Okay. Okay. And just switching over to noninterest expenses. If I'm looking at other operating expenses in the quarter, removing the effect of IT-related expenses, it looks like other operating expenses were down 7% sequentially. I was wondering if you could just provide a little bit of color on the delta there?
The main factor there, Nik, was that we had -- in our IT road map, some of the expenses and digital improvement expenditures did not occur in Q3 as -- and noted in my remarks, there are some timing elements in relation to that. We do expect to report higher expenses in the fourth quarter, probably $5 million to $6 million, but we believe those will be offset based on our current projections by increased revenue. So we don't currently see that having a real drag on earnings.
Okay. Got it. That's helpful. And then just a 2-part question on the rate of active employee growth. If I'm looking at that rate year-over-year, I think it was about 6%. First part of my question, I was wondering if you could roughly give us an estimate of how much of that would have been attributable to the implementation of the IT road map? And the second part, I was also hoping you could kind of help us understand or kind of frame what a reasonable assumption might be for that growth rate in the future? Like should we expect that the growth rate of full-time employees grows broadly in line with the balance sheet? Or is there some excess capacity that you see either on the underwriting or the servicing side, that might allow you to constrain the growth of full-time employees as your balance sheet continues to grow? So a few questions layered in there, but just looking for little bit of direction on that.
We're thinking that we are going to continue adding employees through the course of the road map, Nik. They are concentrated in the next year in our plans in our IT group. We have a number of open positions that remain to be filled, but we're confident that we can retain operating leverage in the business as we continue to grow.
And then one last one from me before I pass the line. On the...
Nik, we ask you to requeue, if that's okay. That's four questions now.
Oh, okay. Sure. No problem. I'll requeue.
Our next question comes from the line of Marco Giurleo from CIBC.
My first question is for Brad. Just a follow-up on the expense guidance. So you mentioned $5 million to $6 million in the incremental costs related to digital and technology in Q4. Do you expect that to be sustained through 2020? Or is there anything onetime-ish there?
I think we are -- I think you probably want to average it out over the year, would be the best way to do that, Marco. And we expect that to be roughly similar in the next year. So we will continue to have elevated operating G&A expenses related to implementing the road map through the course of that, and we expect that to tail off in 2021.
Okay. Great. And is that -- these aren't items of note, correct? These are...
That's correct.
Okay, great. My next question is with respect to the margin. We've seen a pretty sizable lift in the margin the last couple of quarters. You called out expansion in asset yields. I was wondering if you can just give us a little more color on the factors driving the increase?
I think it's -- the work that's being done in our underwriting team to accurately price for risk. There's a lot of work that's going into the evaluation of business for self borrowers, that as a result of that work, we do have our pricing. And we are focused on the mix. We may move towards some more lower Beacon over the course of this next year, and -- it's just generally focused on our business. And in addition, we're focusing on our renewals. And that is also helpful in terms of improving our net interest margin.
Okay. So you do see this as a sustainable run rate and possible -- would it be fair to say there's possible upside from these levels on the margin?
Yes. Yes.
Great. Great. And if I could just sneak one last one on the capital front. The $150 million SIB, I have that to getting pro forma CET1 down to around 17.7%. Is this a good -- is this a targeted capital level for you guys? Or do you still see yourselves as overcapitalized at around 17.7%?
I think we'd be very well capitalized at 17.7% with opportunities to move down. We are going to exercise -- we are intending to renew our NCIB and deploy further capital that way. As we saw this year, we were -- we deployed a significant amount of capital, but we still ended up rebuilding some of our CET1 through earnings.
Our next question comes from the line of Geoff Kwan from RBC Capital Markets.
Just wanted to follow-up on the CET1. Because I think a couple of conference calls ago, you guys talked about a CET1 target of 16% to 17%. And so being closer to 18% for this SIB that you've got coming up, just wondering was there a thought to doing a bit of bigger one? And then the second part of that question is, is that target something that -- it sounds like you think that over time that you may want to operate at CET1 that is below the 16% level. Is that the fair characterization?
Well, I think consistently, we have said that 16% to 18%, Geoff. And with a view to where we are in our operations and what our plans are, we could see getting below that. But I think those are statements that we've made now. Specifically addressing your question on the sizing of the SIB, we chose that level after having taken a look at what we believe we could actually repurchase based on a review of our current shareholder shareholdings and our experience from the last SIB that we did in Q4 2018.
Okay. And then any sort of update on thoughts on reinstituting the dividend?
We are, as noted in our remarks, we continually review that with our Board every quarter, and we'll have further updates on that when we report our Q4 results.
Okay. And if I can ask just one last question from a competitive standpoint on the Alt-A side. Just curious how you're finding that environment in terms of on the pricing dynamic, but also competition from some of the mix, and also from the other side, some of the prime and the bank lenders?
Yousry here, Geoff. I'll try to answer. The competition on Alt-A is steady. There are a few people that are in the Alt-A game, some playing at the higher Beacon, some playing across the Board as we are. There -- we -- I think we're competing more on service than we are on price. There's occasionally somebody running price, but more on service. On the banks, they're very consistent, the large banks, the business that they were doing as a result of B-20 changes is the business they're still doing. So we've seen some higher Beacon business that 2 or 3 years ago, we may not have seen.
And our next question comes from the line of Graham Ryding from TD Securities.
Brad, just jumping back to the net interest margin. There was some commentary in your MD&A, just a lower level of average cash in the quarter, I think, 6.8% of nonsecuritized assets, and you've been around the 9% to 11% over the last quarter or year. How much of an impact did that have on the net interest margin in the quarter?
I can't specifically quote basis points right now, Graham, but clearly it would have had some help. But again, it's really driven by our mix, and obviously, we use that cash to fund higher margin classic mortgages. So we'll continue to do that. And as I spoke earlier, we are comfortable maintaining this level of liquidity going forward. So further to the statements I also made, we think that this level of NIM in the current environment is sustainable and it's possible to increase over time.
And the $300 million of GICs that you funded this time last year, and I assume you're going to be rolling off this quarter. Are you able to quantify what the NIM impact on that -- from that could be? And if so, is that felt in Q4, or is it primarily going to be something that you would possibly see in Q1 '20?
I think it's going to -- it will show up, Graham, the -- some of those GICs were more than 1 year. So what you're going to see currently is we have GICs maturing that are being replaced by lower cost GICs because of -- and to slide it correctly, we had roughly -- almost $600 million of additional funding that we needed in Q4, both for the deposit note and the SIB, and we don't see -- well, we clearly don't see that this year. And the average is -- quoted rates, we are paying more than 3.3% for new money in December, and we're seeing it around 2.5% now. The -- but as I said, a portion of that Q4 that we raised last year was more than a year. But what we'll see is at least an equalization of those higher rates. And we do expect that, overall, we should see a reduction in funding costs. I just can't quantify that for you right now.
Okay. Got it. So bottom line, it sounds like you feel like this level of net interest margin, there was no sort of onetime seasonality or dynamics here. This is a sustainable run rate, if not higher?
Yes.
Okay. Got it. And then if I could just do one more on PCLs, and then I'm good. Just the single-family side, you had a release, I think, $3.7 million on your residential mortgage portfolio, but you had -- you increased your provisions on the consumer loan and the commercial side. So maybe just some color on what drove the lack of provisioning on the residential side versus those other areas.
Well, we had lower Stage 2 and 3 in our classic portfolio. So that's what's on the residential side. Looking through the others, we do think that there will be some variability because of how the modeling works and the movement between stages. We did have a reduction in some of our commercial. We did, we also added a new -- one new exposure that we had discussed in our MD&A. So as we go through every quarter, we're going to see a mix. And we think that there's nothing that we see right now that's going to significantly diverge from our historical averages. We'll have gives and takes every quarter, and that's the variability that comes with IFRS 9 and one of the things that we started to put in our financial highlight page, although it was always disclosed as to include net write-offs as a percentage of gross loans, and we'll start referring to that more. Because at the end of the day, that's really one of the things that we also closely monitoring and want our -- the users of our financial statements to focus on as well.
Okay. So there's no key sort of inputs that you would call out in terms of sort of your model inputs that caused that provision to be released?
No.
Our next question comes from the line of Cihan Tuncay from GMP Securities.
I'm just wondering if you could comment on how you intend to fund the $150 million SIB? Is it just going to be from the capital you have on the balance sheet? Are you going to have to come back to market for GICs like you did last year? Or is it going to be a mix? If you could just provide some commentary around that, please?
One of the key things that our RMBS issue allowed us to do was raise a significant amount of cash at one time without putting pressure on the GIC market. So we don't see any -- and obviously to the extent competitors have needs for funds that may drive that, but we don't see any demand for our liquidity to be driving changes on the GIC boards. So we'll fund it from our existing resources.
I appreciate that, Brad. And just on that line of questioning on RMBS issue was a successful issue. Just wondering, going forward, how much of your liquidity do you think you could derive from that market on a run rate basis? Or do you have any targets in mind of how much you could raise on a per-year basis and what the potential impact on NIM could be as that becomes a larger portion of your liquidity base?
Well, right now we think that the RMBS is competitive with the fully costed Oaken channel. Over time, it could get -- and I'm talking years, not quarters, could approach 10%. Again, this is dependent on our total funding. It -- again, depending on market conditions, whether we have -- we're continually looking for other sources of liquidity as well. But I don't think 10% would be a very high end for us. We anticipate going to market, again subject to market conditions, twice in 2020 to raise anywhere between $500 million to $750 million, depending on market conditions.
Okay. Appreciate that. And then maybe a question for Yousry, just overall high-level question. I'm not sure this has come up too often in the past. But as you're seeing really strong levels of growth on the origination side and volumes, you're also optimizing your capital structure. How do you see acquisitions or potential acquisitions coming to the floor going forward from here? Is that something you guys have talked about, is that a potential source of growth that you're looking at going forward as well? Or is it just going to be on the -- increasing your organic volumes and just rightsizing the balance sheet? But if you could just give some commentary on what you think about acquisitions, that would be great.
Cihan, I think it's more of the latter. We are focusing on building our business. We're focusing on the digital age and the upgrades in our system, the IGNITE project as I talked about. We feel that, combined with the good service and getting out there and marketing ourselves, is very, very healthy for the company. Now having said that, if opportunistically something came along, we wouldn't not look at it depending on what it is, but we're really more focused on building ourselves to organically grow.
Our next question comes from the line of Jaeme Gloyn from National Bank Financial.
First question is related to the SIB-NCIB, I guess, strategy. Looking at the share price now trading north of book value, where are you seeing intrinsic value? What are your thoughts on buying back shares north of book value now in this new context?
Jaeme, I mean, we're getting ready to price an SIB. So I don't want to get too far ahead of ourselves. We're going to announce that pricing somewhere in the near term. So we'd like to see where the stock trades. But we'll -- as we're looking, we want to make it accretive on a book value basis, probably within a 12-month period. So that will be one of the methodologies we would use. And depending on the circumstances, we may be more focused on other measures of accretion, including EPS and ROE. So as you noted, it was a much easier decision to buy back stock at -- when we're trading at such a substantial discount to book. And obviously we'll be more thoughtful, but I really don't want to get out in front of anything when we -- we're actively announced in the market that we're going to be buying back stock and going to do the pricing this quarter. So forgive me if I'm being a little cagey on that.
Okay. Fair enough. In terms of the deposit growth, noticing a pickup in demand deposits at the expense of fixed-term deposits, can you speak to some of the strategies in place that are driving that divergence in growth when, let's say normally, we would prefer to see term deposit growth as opposed to demand deposit?
Well, I think you're right, Jaeme. We have been growing demand deposits. But just remember that we -- in comparison to peers or almost any other financial institution, we have not had a very strong reliance at all on demand deposits. And we think now with the maturity of our business, the growth in our balance sheet, that it's appropriate for us to increase the level of demand deposits as any financial institution would looking through their liquidity profile. So we'll prudently manage that. But you're not going to see us have 15% of our deposit base and demand deposits, which the company had at one time. We're not thinking of growing it substantially more, but you could see that in the range of adding another $200 million, $300 million to that over time. But that's really where our appetite would stop, certainly in the near term.
Yes. I guess -- sorry, my question was kind of going towards, was there something in place from a marketing standpoint or incentive standpoint to drive that demand deposit growth relative to term deposits?
No, it was just us becoming more comfortable with our risk appetite.
Okay. And maybe this is more for the Investor Day. But looking at the alternative market, and there was a question around competition earlier. But if I look at yourselves and your closest peer, roughly originating similar levels of Alt-A mortgages. That would compare to levels seen in sort of like the 2013, 2014 periods. Can you speak to sort of the Alt market growth prospects in general and how you view yourselves within that market?
It's Yousry here, Jaeme. So the market is growing -- has been steadily growing this year. As you know, we focus on business for self and new Canadians. Both of those have been growing, and we focus on major urban centers only, which is where we get a lot of that business. So the levels of volume, the absolute levels, to us what matters is market share. The market in certain years was much bigger overall, and Home got its share then, and we're getting our share now. Our goal continues to be the #1 Alt-A lender in the country. And as long as we achieve that relative to the size of the market, we're happy. So the -- we think it's going to continue to grow. All the data we read on our segments are positive. And with it, we want to grow our market share. Maybe we can, as you suggested, talk more about this at the Investor Day.
Yes. I think it would be great to have a little bit of market sizing exercise at the Investor Day. And the last one from me, just around the interest rates on the Alt-A mortgage product, looking at your rates around the 5.30% level versus your competitors' rates, sub-5. Is there anything that you're aware of within the context of that -- those data points that's driving the difference between the 2 leading players?
Not that we're aware of, but we're able to continue to originate our near-prime mortgages, and we're comfortable with our pricing.
[Operator Instructions] Our next question comes from the line of Brenna Phelan from Raymond James.
So I wanted to ask about the yield on the classic product too, maybe in the context of -- in your own portfolio, sort of the moving parts that's helping to drive that yield expansion sequentially and quite meaningfully year-on-year. And I think in your prepared remarks, you referenced growth going forward. You could see some lower Beacons coming into the mix. So how that's going to contribute to the yield you expect to see? And commensurately, how you'd expect that to show up in the provision you'd have to take?
So Brenna, it's Yousry here. As I -- as we -- the way we price is deal by deal. So we've got a starting price for a 1-year or 2-year or 3-year Alt-A mortgage, and then we would add or not add, depending on the deal. So one of the factors of adding or not adding is the Beacon score and another is the LTV. So that's what differentiates pricing. So if we get a lower Beacon score in a particular quarter, then we would have -- expect to have higher pricing for our portfolio, which we like, because we understand that risk and we know how to price it properly, same with LTV and same with -- depending on where they come. So that's what varies in our pricing. But we've got a pretty systemic system of figuring out how to price things with our underwriting team. And -- anyway, that's the variances you get. Did I answer your question, Brenna?
Yes. And just to follow-up then. You also referenced renewals are helping that yields? Is that -- could you quantify that? And do you feel like you're where you need to be on capitalizing on those renewals?
Yes. Well, yes, we have -- had a higher renewal rate. If you want to compare to previous periods, we've seen a slight reduction in that, but we do think we're going to be above our historical rate of renewals pre B-20. And on renewals, we can get up to 50 bps higher in terms of rate -- net rate. So focusing on renewals has been one of the focuses of our underwriting team, and we'll continue to do that. Another thing that further to Yousry's comments, we do have some lower rate mortgages that are rolling off. So when they renew, not only do they run the 50 bps higher than what we would be originating, but they're also probably having an increase in their underlying rates. So right now that trend is contributing to our increased yield.
Okay. That's helpful. And then any color you can give on the strategic review, any the other consumer loan portfolio, and whether or not that's sort of helping to be earmarked for the incremental capital return that you're expecting over the next 2 quarters?
I think anything with that business, as we said in our notes, we'll be making announcement this quarter. The capital that's available there would be redeployed into assets. We don't foresee that as being any mechanism to be a direct return of capital to shareholders.
We have no further questions in queue. I'll turn back to the presenters for closing remarks.
Well, thank you all for your questions and your interest in Home Capital Group. We look forward to speaking with you again soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.