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Good morning. My name is Carol, and I will be your operator today. At this time, I would like to welcome everyone to the Home Capital Group Q4 2017 Financial Results Conference Call. [Operator Instructions]At this time, I would like to turn the call over to Laura Lepore, EVP of Investor Relations. You may begin.
Thank you, operator, and good morning, everyone. Thank you for joining us to hear about our financial results for the fourth quarter and full year 2017.I'm pleased to introduce with me on the call today Yousry Bissada, President and Chief Executive Officer; and Brad Kotush, Chief Financial Officer. We also have several members of our management team on the call this morning: David Cluff, our Chief Risk Officer; Ed Karthaus, Executive Vice President of Sales; and Benjy Katchen, Executive Vice President of Deposits and Consumer Lending.Before we begin, I'd like to caution listeners that this conference call may provide management the opportunity to discuss the financial performance and conditions of Home Capital, and as such, comments may contain forward-looking information about strategies and expected financial results. Various factors, many difficult to project or control, 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 slides accompanying this webcast is available on our website at homecapital.com.With that, I'll now turn it over to Yousry.
Good morning. Thank you for joining us.2017 was an important year for Home Capital employees, customers, brokers and shareholders. We're turning the page on a year that presented some challenges and demonstrated the resilience of our organization. We have emerged from an exceptional year with momentum in our business. This is thanks to the very hard work that our employees, management and board have done and continue to do every day. We're all extremely proud of what we've accomplished.I'd like to share some of the opportunities ahead of us and why we believe we are so well positioned to create meaningful value for our shareholders moving forward. First, we are well positioned to take back our place as the leading alternative A lender in Canada by delivering solutions for our targeted Canadian clients. We will grow responsibly with sustainable risk management practices embedded in our day-to-day routine. Protecting our reputation at all times and always is our top value. Second, we have the capital needed to invest in the business to drive growth and withstand future unforeseen headwinds not just in 2018, but over the next decade. Third, we are focused on providing leading customer service and delivering innovative solutions to our brokers and customers. I will look at these 3 areas in my comments this morning.First, looking at our expectations for growth. We not only play an important role in the homeownership financing marketplace, we help deserving Canadians achieve one of life's financial goals, buying and owning a home. We have a renewed management team, a mix of new and existing leaders with deep mortgage, operating, financial, technology and capital market expertise. And we have a Board of Directors committed to continuously enhancing corporate governance and risk management practices. All are ready to safeguard and grow our business. We are growing responsibly. We will ensure that risk principles and practices already embedded in our culture will continue to guide our everyday decision-making, ensuring that every transaction, whether it's a funding a loan or taking a deposit, is managed prudently.It terms of our expectations for growth, we're very optimistic for our future. We ended 2017 with good momentum, following a meaningful increase in residential and commercial originations during the fourth quarter. In particular, our mortgage originations increased by 126% over Q3, showing the strength of the franchise and broker relationships. Our turndown rate on applications has improved to approximately 60% compared with over 70% just a quarter ago. We believe this will continue to improve and drive increased productivity.On the commercial side, we added new staff that will be able to take on increasing volume as we continue to rebuild our pipeline. We are seeing good opportunities and quality deals. We are focusing on our priority of growing our residential and commercial business lines to more normal monthly run rates. We're pleased with the progress we have seen so far as our service continues to improve. Our mortgage broker relationship teams are educating our brokers about our products, our risk and credit appetite so there is greater clarity on the products that fit within our profile. This is key for us. This will help our underwriting teams execute more quickly and improve service levels to brokers.On the underwriting side, we continue to improve efficiency through employee training and technology updates to our internal platforms and systems. We are pleased with the progress we've made in the last quarter. As we build this business for the long term, we want to ensure we have the right skills and expertise to deliver the best service to brokers with every transaction.Now looking at our capital base. We have a very strong balance sheet with one of the highest levels of CET1 capital among the alternative mortgage lenders and large Canadian banks. This provides us with an abundant layer of security and the flexibility to be very competitive in our markets for many years to come. We are crafting our strategy to build and deploy our capital in a manner that emphasizes creating long-term value. We believe this is the right approach for shareholders while also avoiding excessive risks. Our capital base is a key strength for our company that provides a unique value creation opportunity.Now looking at our focus on providing leading service. With our capital, our strong executive team and good prospects for growth, we are focused on staying ahead of the curve by providing lean service and innovative solutions. We know that to grow, we must provide exceptional service. It is a key differentiator for brokers and customers. We are investing in people, process and technology for a better broker and customer experience.In the field, we're deploying new technology to sales teams that will enable them to be more effective. We expect to implement process improvements and technology that help mortgage brokers and customers have better and more efficient access to our business offerings. We will also leverage technology to support our retention and renewal efforts, making better use of analytics. As our environment continues to evolve, we will remain innovative and -- with new solutions to attract and retain brokers and customers. With the recent regulatory changes, we are investing in new products and opportunities to be competitive.Now on B-20. OSFI Guideline B-20 came into effect January 1, and it's too early to tell what the impact has been on our addressable market and will be on origination volumes looking forward into 2018. Precisely quantifying the impact of B-20 is difficult, given the following 3 points: first, our origination volume continues to increase month-over-month as we see brokers sending us more deals and as we continue to offer very competitive products; second, some demand may have been moved forward as borrowers attempting to be qualified under the old mortgage rules; and third, we're in a moderately rising interest rate environment. We have observed that some of our customers have been impacted by the stress test and have, therefore, qualified for smaller loans than they would have last year. We will need more months of data to determine how borrowers have reacted to revised terms offered to them. It will also take time to observe how much of our addressable market expands as a result of borrowers not qualifying at big banks. We also expect the lenders will adapt to the post-B-20 era with adjustments to their products or lending criteria.Early 2018 results suggest that our credit qualities of origination is improving, which will be an indication that some of the business previously booked at the Big Six banks is migrating to us for mortgage solutions. While rising interest rates and the slowing housing market in -- is our key markets as a potential headwinds, given the early indication on the environment post-B-20, we remain confident about the ability of Home Capital group to meet our objectives.With that, I'll turn it over to Brad to review our fourth quarter results in more detail and then wrap up with some closing comments.
Thank you, Yousry.Before I begin, I'd like to draw your attention to the reissued press release we put out earlier this morning, correcting the fourth quarter and full year 2017 results press release we originally issued last night. The reissued press release corrects errors in the comparative figures on the consolidated balance sheet for September 30, 2017, and balances for the 3 months ended December 31, 2017 and 2016, in the consolidated statements of cash flows. We regret the errors.We're pleased with our improved sequential performance in Q4 and where we ended the year on a number of measures. We made progress towards stabilizing our residential business and growing our commercial business lines. We focused on improving service, which helped to increase origination volumes in the fourth quarter. Our portfolio continued to perform well, and we were profitable. The fourth quarter results continued to reflect the number of factors stemming from the liquidity events that occurred in the first half of 2017. Our deposit funding and liquidity position is stable, and we have the ability to raise deposits in a competitive market in step with origination growth. We plan on achieving higher origination volumes that will translate into increased top line revenue growth and profitability.Starting on Slide 10 of our presentation. We finished the fourth quarter generating net income of $30.6 million. On a year-over-year basis, net income declined 39.6%, mainly due to reduced revenue from lower loan balances following the loan sales completed during the second and third quarters of 2017. Compared to Q3, net income improved slightly by 2.1%. Lower mortgage loan balances combined with some elevated expenses will continue to be a headwind comparing results periods prior to the liquidity event.Diluted earnings per share of $0.38 increased 52% from $0.79 in Q4 2016, and increase by $0.01 from $0.37 in Q3 2017. Lower diluted EPS year-over-year was a result of lower net income and an increase in issued and outstanding common shares.For the full year 2017, net income was $7.5 million, considerably lower than the $247.4 million generated in 2016, and diluted earnings per share were $0.10 compared to diluted earnings per share of $3.71. In addition to lower loan balances in 2017, year-over-year net income and diluted earnings per share were impacted by significantly elevated expenses associated with actions taken in the second quarter to stabilize and manage our liquidity position.In terms of expenses. Noninterest expenses improved 7.8% to $65.5 million in Q4 2017 and were $5.5 million lower from $71.2 million in Q4 2016, reflecting lower salaries and benefits related to Project EXPO. We also recorded approximately $11.4 million in increased noninterest expense. Of the $11.4 million, approximately $6.3 million is attributable to impairment losses on intangible assets and other costs related to the exit of the PSiGate and prepaid business as well as litigation expenses. Higher noninterest expenses were partially offset by lower salaries and benefits.In 2017, total noninterest expenses increased 15% to $274.9 million from 2016, partially offset by expense reduction initiatives completed during the year.In terms of total net interest income and net interest margin. Q4 2017 total net interest income decreased 24% from Q4 2016 to $91.7 million as total net interest margin declined to 2.02% from 2.38% last year. However, compared to Q3, net interest margin saw a 17 basis point improvement from 1.5%.NIM improved over the third quarter as a result of higher interest income earned in Q4 2017 on the early payment of a consumer retail loan portfolio and higher interest earned on government bonds, combined with lower interest and fees on the credit facility, as we fully repaid all outstanding balances in Q3 2017. Full year 2017 NIM was 1.55%, down 82 basis points from 2.37% in 2016. Looking forward, we would expect net interest income to continue to improve as we increase loan originations and focus on growing our book.Total loans under administration were $22.5 billion at the end of 2017, down approximately 15% from the end of 2016, reflecting loan sales and reduced originations in the latter half of 2017. Total loan balances, which drive our core results, declined 16.5% to $15.1 billion on balance sheet at the end of Q4 2017 compared to $18 billion at the end of Q4 2016 and 2.4% lower than $15.4 billion at the end of Q3 2017. We stabilized our nonsecuritized single-family residential loan balances at $10 billion at year-end. While this was still a 3.5% decline or approximately $0.4 billion lower than the $10.4 billion at the end of Q3 2017, we are optimistic we have turned the corner and stabilized our loan balances. We hope to see loan growth resume by mid-2018 in step with originations volume growth as we continue to take back market share.Turning to originations on Slide 11. By the end of Q4 2017, we achieved good momentum with the total mortgages originated of $872.1 million. Although Q4 2017 originations remain well below historical levels, total originations were up 126% from $385.1 million in Q3 2017 as improving service levels and sales initiatives had a positive impact. Q4 2017 originations were led by our single-family residential mortgage lending, which were $566 million compared to $224 million in Q3 2017. Multiunit residential contributed originations of $194.8 million while nonresidential commercial mortgages originated, which includes store and apartment mortgages, increased to $111.2 million compared to $62 million in Q3 2017. Looking at the full year, we ended 2017 with total originations of $4.7 billion, of which $3.3 billion was from single-family mortgage lending, significantly lower than total originations of $9.2 billion in 2016, which included single-family residential lending of $7 billion.On Slide 12, credit performance. Our mortgage portfolio performed well throughout 2017. At the end of the Q4 2017, 98.4% of the mortgage portfolio is current with 0.2% over 90 days past due. While we do expect our losses to remain low going forward, we did see an uptick in our provisions for credit losses as our specific provision in Q4 2017 included $2.3 million provision against one nonresidential commercial mortgage. As a result, provision for credit losses for the quarter was $3.4 million compared to $2.4 million in Q4 2016. Net nonperforming loans over gross loans have remained low year-over-year and were 0.3% at the end of 2017. However, nonperforming nonresidential commercial mortgages increased while total nonperforming single-family residential mortgages declined. Additionally, total net nonperforming loan balances decreased to $45.4 million at Q4 2017 from $53.7 million at Q4 2016.Turning to liquidity and deposits on Slide 13. During the fourth quarter, we continued to manage our liquidity prudently, ensuring we maintain an adequate level of liquidity to fund origination growth. Given our funding needs during the fourth quarter, we reduced our liquid assets to approximately $1.7 billion as at December 31, 2017. Total liquid assets were approximately $2.7 billion at the end of Q3 2017 and $2.1 billion at the end of 2016.Total deposits at the end of 2017 were $12.2 billion compared to $15.9 billion at the end of 2016 and $13.4 billion at the end of Q3 2017. The lower deposit level from the end of 2016 reflects the elevated level of redemption of the company's high-interest savings account during Q2 2017 and lower funding requirements due to lower originations. Of our total deposit balances at the end of 2017, demand deposits were approximately $539 million compared with $11.7 billion of deposits that are payable on fixed dates, including $475 million in institutional deposit notes. After successfully increasing deposit inflows and building our deposit balances during the third quarter, we intentionally reduced interest rates on new deposits to lower deposit growth until mortgage balances began to grow. Midway through the fourth quarter, we began to increase interest rates paid on new and renewed deposits to increase deposit inflows. While we will likely see some increased competition for customer deposits that may require us to offer higher interest rates on new deposits, we would also expect to offset any such increases with higher interest rates on future mortgages originated or renewed. An inability to pass on any increased funding cost would negatively impact net interest margins.Finally, looking at our capital on Slide 14. As Yousry mentioned, our capital position is strong, and our capital ratios remain well above internal targets of regulatory minimums. At the end of 2017, our CET1 capital ratio increased to 23.17% compared to 16.55% at the end of 2016, mainly as a result of the sale of mortgages that reduced our risk-weighted assets. Moving forward, we'll look at opportunities to efficiently deploy our capital to generate the highest return. Our current priority is to support organic growth.With that, I'll turn it back over to Yousry.
Thank you, Brad.Home Capital demonstrated its ability to perform and build momentum even after an extraordinary year while in the face of current regulatory environment.Before we open it to questions, let me wrap up with key messages for today. First, we are well positioned for growth and to take back our position as Canada's leading Alt-A mortgage lender. We believe we have turned the corner and expect to see our books are growing again. We began 2018 with strong momentum in residential and commercial originations with our broker relationships intact. Second, our capital is a key strength. We have the capital needed to invest in the business to drive growth and withstand future headwinds over the next decade. Our capital position also provides us with a uniquely competitive position. And third, we are focused on being a service leader by investing in people, process and technology to win in our markets. Thank you, and we welcome your questions.
[Operator Instructions] Our first question this morning comes from Geoff Kwan from RBC Capital Markets.
I know you talked about the B-20 impact, and I know it's a little bit early, but I was actually wondering is -- in your MD&A, when you kind of gave that stress test and a drop in originations, what it does to loan growth, do you have the numbers handy on what it would look like if you just did the classic business? Because I suspect when you include the Accelerator side, that somewhat maybe mitigates because the terms there tend to be a bit longer.
Yes. Geoff, we haven't really run the numbers that way. We've taken a look at overall portfolio in our estimate and applied these percentages where -- I understand your thesis, but for the purpose of the exercise, we just applied it to the total portfolio.
Okay. And then just my follow-up question was on your 2 -- 2 of your lines of business, on Accelerator and the ACE Plus. I think the accelerator, you were using a warehouse to try and get that business going. I was just wondering if you have that back. And then also on the ACE Plus, if there's a line of sight on getting the securitization access back.
We don't have any current requirement for that, Geoff. However, to the extent that becomes necessary, we will seek to replace those lines and we've had some preliminary discussions, but it's not a requirement for us right now in our funding needs.
Our next question comes from Graham Ryding from TD Securities.
Could I just start with the -- on the deposit side? You started to raise rates, I think, in December and then a pretty material jump in 2018. Can you give us some context of what sort of flows you're seeing year-to-date?
It's Benjy Katchen here. The flows that we're seeing are to match our mortgage funding needs. The rates through the fourth quarter were dropped as we were picking up originations and we were soaking up our excess liquidity. We have raised our rates at the end of the fourth quarter and in Q1 back to where we would have historically been positioned, both on the broker channel as well as Oaken direct-to-consumer.
Yes. Maybe a bit more color. We're in a competitive market for deposits. And we can see those are generally published almost every day on the broker side. And we still think that we'll be able to maintain margins in a competitive environment, but we'll see. I mean, we -- there are a large number of competitors looking for that, but as we've increased rates, we've been able to fund ourselves.
So can you say whether you've seen a noticeable improvement in your flows once you started raising rates?
Deposits are very sensitive to the rates, so absolutely.
Okay. Got it. And then have you made any changes to your mortgage rates, given you've raised GST rates? Or are those relatively unchanged relative to Q3?
Not during the fourth quarter. We -- but that's something I was -- it's Yousry speaking, by the way. That's something we watch on a daily basis to see if we need to make changes.
Our next question comes from Marco Giurleo from CIBC.
Just following up on Graham's line of questioning. Just with regards to liquidity, your liquid assets were down 38% quarter-over-quarter, so about $1 billion. I appreciate that you're absorbing the excess liquidity in the book. So I'm just wondering, have -- or what type of liquidity level should we expect going forward?
I think the best way to look at it, Marco, was in the relation liquid assets and relation to deposits and looking at some of our historic ratios. Keeping in mind that we're only carrying about 25% of demand deposits that we used to. So it's at historic -- if we're close to where we were historically, then we'll be well covered.
All right. My next question is with regards to the possible reinstatement of the NCIB and the dividend. So what would it take for the -- for that management team to adopt a new NCIB and dividend? And are there any regulatory considerations that may preclude you from doing so?
Marco, we're looking to -- and we said this before, we're taking very long-term view in managing our business and our strategy. And we will take all of the appropriate steps we think to deploy that capital. I said earlier, we're focused right now on organic growth. And probably in the latter half of the year, depending on the outcome of our strategies, then we'll return -- or turn our minds to a more structured dividend or NCIB program.
All right. Great. And lastly, just on -- with regards to financial targets. I noticed there weren't any presented in this year-end report. Can you tell us if we can expect any coming midway through the year? Or...
I think we've moved away from guidance until we normalize more of our operations, and that's both internal and external. There's a lot of macro things happening outside of our environment as well as us trying to improve our internal processes. So we'll wait and see as we continue through -- I wouldn't see us reinstituting any of that in the year. We might give some factors, but we're probably not going to be providing any EPS or other sorts of guidance, but we might provide some other financial metrics that will allow users of our financial statements to make some -- help them with some forward-looking information.
[Operator Instructions] Our next question comes from Jaeme Gloyn from National Bank Financial.
My first question is related to the net interest margin in the quarter. The sequential increase driven by prepayment income from consumer retail loans. Can you quantify that in, I guess, dollars or basis points? And the second component of the increase was higher government bond yields, a breakdown of that as well in terms of contribution to the sequential increase.
I can tell you the prepayment. It was $3 million, and I don't have that other information to hand, Jaeme, but we can try to take that up.
Okay. And the next question's related to, well, comments in Q3 and then on the call today just around the turning down -- turndown ratio from 70% to 60% in Q3. The rationale was around systems needed to be updated. Can you just give us a little bit more color as to where we are on systems? Or what's driving the 60%? And I guess, timing around when we get back to a normal level and what that normal level is?
Sure. It's Yousry here. It wasn't just systems in Q3. It was kind of restarting up. Brokers aren't sure what our guidelines are, so we've done a lot of education to brokers. We've done a lot of training internally. We've improved systems, and it's starting to show. As I said, we're down to 60%. We don't know for sure what's normal, but we think it's going to be around 50%. It -- big A lenders are probably turning down 25% to 40% because we're in the alternative A business, we're always -- we're on a higher side of that. But as the world unfolds and sorts out B-20, there is a lack of clarity out in the industry on who's accepting what. So we'll probably get a higher hit rate over the next few months as everybody's sorting out where they're going to send the business. So we think normal will be around 50% for a while, and we're getting there and improving all the time.
Okay. Great. And last one from me for -- and then I'll requeue, is around the -- is around staffing really and the OpEx guidance. So we -- the guidance is -- states that it's somewhat elevated. That was related, I guess, in Q4 to some onetime-type expenses around PSiGate and litigation. But around the expenses on salaries and benefits, that was considerably lower. How are you thinking about salaries and benefits in staffing right now? Do we have appropriate staffing levels to manage the expected growth in 2018? Or has employee attrition gone maybe a little bit too far on that side and salaries and benefits are artificially low?
I'll answer it, and maybe somebody else will jump in with some numbers. We are hiring. So we were very pleased that we're bringing in some very good people. And I'm confident in saying we've become an attractive place to work. We've got a lot of people who want to join us, and that's -- doesn't sound like a big deal, but 6, 7 or 8 months ago, the company had trouble drawing talent into it. So we're very pleased with how that shifted. We think -- with the hiring of the people that we have, we think we're staffed properly for the levels, and we are very flexible. We can add people relatively quickly. We can add contract and consultants if we need them for short bursts. So I think we're going to be properly staffed. We will be overall a lower number than, say, a year ago. We've become more efficient. The one thing about the company is that systems continue to develop notwithstanding anything else that was happening in the marketplace, which have made us more efficient. And we'll continue to invest in systems and new technologies to keep improving our efficiency and become a great tool for our brokers and our employees in the decision-making process.
Okay. And just to clarify around the -- some of the guidance around somewhat elevated OpEx. I guess, is it fair to just strip out that $6.3 million in impairment and then that's kind of like your run rate for H1 '18? Or are there other factors to think about?
I think that's a fair way of looking at it.
Our next question comes from Brenna Phelan from Raymond James.
Can you talk about the $2.2 million specific provision in the nonresidential commercial mortgage portfolio? And the increase we saw in that nonperforming loans in that book, too. Is that just related to volume? Or anything to watch there?
Well, on the one that we booked a specific on, it -- we took a look at the specific property, took a look at the range of value, and we picked the bottom end of the range and, therefore, booked the provision on the difference between the value and the principal. So we took a conservative approach or -- that was our view in terms of making a specific overall. On the other property, again, it was a single property that we've put into our impaired loan category, but we haven't taken a provision. And based on our current understanding of value relative to our principal, we don't think we'll be taking any provision. We're adequately secured by the property.
Okay. And are you seeing that space -- you're hiring, you're trying to grow, is it becoming more competitive as the group tries to diversify away from residential mortgages?
I think it's become a competitive space. And because you follow it, you would have heard a lot of our competitors say they're concentrating there as well. However, these loans have been on our books for some time.
Okay. And I just wanted to follow up on the excess capital question. So I appreciate it's probably back half of 2018, but can you quantify either in dollars or CET1 percent where you think you can -- what -- like what you view as excess capital after factoring in a conservative buffer and taking off what you expect you'd need to grow? How much are we looking at, at some time that's excess?
Well, Brenna, right now I think we can -- potentially, our plan is to utilize all of it. So we'll see. And when we have something concrete or something more further to say, we'll certainly reach out and say it. But that's where we are right now.
Use all of it for growth?
Well, we may use it for a bunch of different things that we've already discussed. It could be a growth, it could be M&A, it could be NCIB. There are a lot of different things that we could be looking at investing back in -- and again, for organic growth, investing in technology. There's lots of opportunities to utilize that capital when you're taking a very long-term view of your business.
Our next question comes from Jaeme Gloyn from National Bank Financial.
So I just want to dive into the risk management section for a second. In the section kind of talking about the regulatory and political risks, there was a line in there that states that regulators or other reviewers may challenge the interpretation or implementation of such compliance. And I'm thinking about that in the context of the -- of OSFI's review of the 2016 ICAP results, where they essentially say the results don't show enough stress in uninsured mortgage portfolios and that perhaps internal capital targets still don't reflect the higher capital needed. Can you give us your interpretation and commentary around the OSFI's review of ICAP results? And then related to that comment about interpretation and implementation.
It's Yousry here. A little bit difficult to comment on what you're asking. It's hard to interpret, but I'd just tell you that like every financial institution, we have to do a variety of tests. We haven't had any challenge from regulators. They feel we -- we're well capitalized, and we passed every test. And it's not -- some tests are standard and some are not. So there's definitely a reason about the comment. But back to what we were saying, having excess capital is a privilege and a great position to be on. And we don't apologize because of headwinds, because of regulatory stress test, because of all the thing we want to do with it. So I don't know if I've answered your question fully, but it's hard to comment. It's a very big and onerous test, and we passed all.
Okay. And still in the risk management section. I noticed that specific mention of the accuracy of broker information was removed. Maybe this is contained in risks somewhere else, but do you feel that risk has diminished? And I guess, why or why not?
It's David Cluff here. We -- we're confident in our data collection and our brokers. We keep track of all the information coming in. We have good monitoring processes on that. And we continue to believe that's the case.
Okay. And last one in the risk management section. There's talk around investments in defensive technology resources, processes to prevent, detect, manage information security and privacy threats. Can you just talk about what some of those investments are and what some of those resources and processes are to prevent security and privacy threats?
So we have a regular IT review of all of our protocols around protection of the information and security. It's something we're continually reviewing, but we do have third-party sources or software that we use to help on those efforts. I can't speak specifically around some of those details on this, but we could get back to you if you wish.
Yes. And I guess maybe just following up on that. Is there -- do you feel like they're adequate at this point? Or do you think there's further investments that's required just given the rising incident of cybersecurity threats and the like?
We think it's an elevated risk, but we do feel our controls are adequate.
And I'll just add. While we feel it's adequate, we know as time goes on, we will have to continue to invest. This world's only getting more complex, and we will stay up to date.
Okay. Great. And then last one from me before I turn it over again. You talked about focusing on improving service levels, adding competitive products and expanding the broker outreach programs. This is something that's been talked about quite a bit over the history of Home Capital and other lenders as well. Can you just give us some data on service levels today versus historic and looking ahead to targets on those service levels and as well as some specifics around products and broker programs that you're -- that you feel is different today than previously?
Okay. I'll start. And if I don't fully answer it, you can -- maybe Ed Karthaus will want to add, and then you can ask again. So service is measured by how fast we say yes or no to a broker on a deal. And then assuming we say yes, how the process goes through right to funding. How you communicate with the broker and how -- what you use as a medium to communicate with them to ensure that the paperwork and all that is required to get to the funding is efficient, effective, no surprises to anyone on any side. Home has been investing in this area. We've invested further in the last couple of quarters with technologies. One of them that we've been public about is a product called Loft. And Loft is a way for a mortgage broker to send us documentation and to learn about the status of their business. There are some other lenders that have equivalent products but there are many lenders that don't have it, and they rely on e-mail and other ways to move information around. So it is taking products like Loft and improving them. It is improving the training of our underwriters so that they can get to a position where they are faster using our technology, internal technology at saying yes or no. And if no, here's why it's no. So that if there's an opportunity to change the deal to become a smaller mortgage or what have you that is understandable by the broker. And those are what we consider service. Now once the deal funds, a big part of service past that is that the customers, the mortgage owners that are using Home to finance their homes have ways to access information about their mortgage. Clearly, some prefer to make phone calls. And we have a call center equipped for that. But in the future, we think more and more may want to check online and/or may want to check on their phone what is the status. So we're building technologies to be able to support that part of the business in that way. We talk a lot about our mortgage business. We also have other retail businesses where the same challenges of being quick to say yes or no and being able to find out the status of your deal. So I don't know if that's too wide for what you're looking for, but that's what we're doing. And we, myself and a lot of the management team, knew -- and a lot of the management team with that was here before, are big believers in the world of digital and Fintech as a competitive toolset. And we are going to continue to invest in that regard to meet what we think is the market demanding on how they get data dealt with. I don't know if I've said enough, but Ed Karthaus, if you want to add.
It's Ed Karthaus. I would just say that, capturing a couple of points previously made, what we're doing is all about people, process and technology. On the people side, as Yousry and Brad have indicated, we have ramped up staff both on the sales underwriting side of the house. From a process side, we've actually implemented a number of changes there to drive greater overall efficiencies. And on the technology side, making changes not only to our in-house systems, but the tools that our staff are using in order to engage the market properly and effectively. So the combination of all those things seem to be driving a good result, and we're committed to continue forward with that program as we move up throughout the year.
Okay. And just to follow up. Any specific data you can provide us around service levels? And I guess my only comment or reaction is, I feel like Loft has been around since like 2015. What's different today on that?
So first on data. There's lots of data. We do brokers where -- broker surveys. We constantly survey. There's macro data like we've already shared 70% decline that's gone down to 60%. It will be on its way to 50%. So there's lots of data that we get on whether we're doing a good job or not. Yes, Loft has been around, but it started as beta. It was very loose. It is continuous improvement. It's not like a product that you just send out in the field and you're done. It's continuously, continuously improving, and that's what we're doing to it. It is a -- a year from now, I'll be talking about Loft again because it will have moved a year's worth of forward.
[Operator Instructions] Our next question comes from Brenna Phelan from Raymond James.
So following up a little bit on Jaeme's line of question related to service levels I see complementing this broker commissions. So have you made any changes to your -- the structure of your commissions? And would you say you're competitive relative to peers? More generous, less generous? Can you just give some color there?
It's Ed Karthaus. We've -- we actually suspended the broker compensation program back during our liquidity crisis days. We are in the final throes of -- we're doing our across Canada outreach to collect information, feedback from the broker community on what we believe would be a well-received program. We're getting ready to finalize that and launch that in -- sometime later on in Q1. And we believe it will address both our requirements as a provider of mortgage solutions, but also deal with the regionality that's seen across the country with the different demographics in different markets.
So slightly -- so tailored to commission programs based on geographic location?
Yes. Well, I mean, historically, most lenders take a look at programs that are based upon funded volume, and our brokers go coast-to-coast. If you're broker, for example, in Atlantic Canada, it's hard to drive the same type of funded volume as, say, a broker in the GTA. So what we're looking at is to try and drive a element of fairness on a national level to drive quality business to us coast-to-coast.
Okay. And that's helpful. And then just in year-to-date post-B-20, is there any data or performance metrics you can give us just on how renewals and retention are trending? Is that -- are you seeing stickier business in the few weeks since the new rules?
It's Yousry here, Brenna. One dot doesn't make a line yet. 6 weeks hasn't given us experience. But in the fourth quarter, we were renewing at over 80%, so it's getting healthy as before B-20 kicking in. First impressions into 2018 is we're going to continue to be in that range, possibly more. What we've always wondered about B-20 is, it's possible for us as well as for other lenders that people that may not qualify in other institutions. So we expect that might drive our renewals up a little bit, but we will have to wait and see.
Okay. And just to clarify the $6.3 million impairment charge. Is that related to the PSiGate business?
No.
No?
No.
Can you talk about what that's related to?
It's related to our software and core banking systems.
Our next question comes from Dylan Steuart from Industrial Alliance Securities.
Just to clarify, just on the originations, it sounds like things improving month to month. So I guess it's fair to say the originations we saw this quarter are heavily weighted or more heavily weighted to December than the previous 2 months?
Not fair to use the word heavily weighted, but you're right. Every month has been better than the prior month.
And I know you don't give guidance about how January, but it sounds like improvements are continuing into January, B-20 notwithstanding.
Yes.
And I guess just my next question. Early days, I guess, but a lot of commentary about -- with refinancings being a bit more difficult and price increases certainly not what they were at this time last year. Are you seeing any early signs of difficulties working out problematic loans on the residential side?
No, we are not.
No, we're not. It's -- again, it's a bit early. We need a few months to gather our own data, but none -- no unusual observations so far.
We've no further questions in queue at this time. This does conclude our conference call. Thank you for all for attending. You may disconnect now, and have a great day.