Home Capital Group Inc

TSX:HCG

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Home Capital Group Fourth 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, Investor Relations at Home Capital. Thank you. Please go ahead, madam.

[Jill MacRae, Director of Investor Relations]

Thank you, Cindy. Good morning, everyone, and thank you for joining us today. Our agenda for today's investor presentation is as follows: We'll begin the call with remarks from Yousry Bissada, Home's CEO; our CFO, Brad Kotush, will then review our financial performance, which will be followed by a question-and-answer period for participants. We have a number of members of our senior management team with us on the call to help answer your questions.On behalf of those speaking today, I note that this call may contain forward-looking statements and that actual results could differ materially from forecasts, projections or conclusions in these statements. Please refer to our advisory on forward-looking statements on Slide 2 of the presentation. I would also remind listeners that Home uses non-GAAP financial measures to arrive at adjusted results and that management will be referring to adjusted results as well as reported results in their remarks.Finally, a link to the slides accompanying this presentation is available in the Investors section of Home Capital's website. And now I'd like to turn the call over to Yousry Bissada.

[Yousry Bissada, President, CEO & Non]

Thank you, Jill, and Good morning, everyone. Thank you for joining us today for our Fourth Quarter and 2020 Full Year Results Conference Call. Earlier today, we announced another quarter of solid operating results with earnings per share of $1.06 for the quarter and $3.33 for the full year. This represents strong growth over the same period in 2019.Just as important as the results themselves are the conditions in which we achieve them. The onset of COVID-19 and ensuing lockdown created uncertainty throughout the industry. When the first stay-at-home order was issued, people were concerned about the consequences of declining GDP and rising unemployment on housing demand and therefore, mortgage demand. However, the lockdown conditions had the opposite effect.Following a sharp decline in the spring, the demand for homeownership rebounded in the summer and grew stronger than ever through the rest of the year. Many people ended up with a renewed focus on their living and working spaces. The persistence of low interest rates and remote working capabilities led to higher home prices and sales volumes across the country.The global health crisis made 2020 an extraordinary year with wide-ranging impacts on people, organizations and the Canadian economy. Home capital was no exception. In fact, 2020 presented us with 3 unique challenges, all at the same time. The first was the challenge to shift our operations to a work-from-home model to protect our employees and business partners.The second was to create, launch and administer a loan deferral program that would offer meaningful support to our customers. And the third was to implement our Ignite program, which had some critical milestones in 2020. I'll discuss each of these in turn.To begin with, the decision to work from home came about swiftly and without much advanced notice. It was more than just a change in physical location. We had to find new ways of communicating with our employees, supporting them through this transition, providing them with systems and tools they needed to look after our customers and above all, safeguarding their health and safety. At the end of the year, I can look back and say we accomplished all this and more.Our move to remote working was done in a secure environment to protect our customers' information. We created new online tools to work with solicitors, appraisers, title companies and other suppliers to fund mortgages. We hired new people who have never set foot in our office and had only met their colleagues virtually. And those new team members were interviewed, hired, onboarded and trained in their new position in our sustainable risk culture, all while working remotely.I continue to be inspired by the resilience of our team members. At the same time, as a shift to remote working, we were given an opportunity by our industry partners and regulators to support the financial well-being of our customers by offering a deferral program. We moved quickly to develop, launch, communicate and administer this program, and our people rose to this challenge as well.Looking back, we can conclude that our deferral program was a success, whether we measure our success by the number of people we helped, the number of calls we handled in our contact center, the number of loan payments we deferred or the percentage of our borrowers that returned to making their regular loan payments. We were able to allocate talent and capital to help people cope with the economic impacts of COVID-19. I'm proud that Home was able to help people stay in their homes when they most needed our support.In 2020, we also had some key milestones in our Ignite program. Many of our people had to devote significant time to setting up and testing new system and processes while executing their day-to-day functions. They rose to this challenge as well. We went live with a complete replatforming of our core banking system. This will eliminate many of the customizations from the old system.Our operations will be more flexible and agile, allowing for faster product introductions and advanced analytics. There's a lot of excitement internally about the potential for this new platform.We continue to execute on our strategic objectives. We launched our Accelerator program, the [ A Mortgage ] product, which was met with great acceptance despite our more conservative underwriting parameters associated with the pandemic. We substantially reduced our exposure to our consumer retail through the disposal of our point-of-sale business and select HVAC loans. We implemented 10 robotic process automation programs to manage high-volume tasks. We grew Oaken deposits by successfully migrating to an online environment when our stores were closed.Through it all, we stayed focused on our relationship with our customers and business partners, finding new ways to support them and maintain quality service levels. Again, I'm proud to report Home has done this again. We were also recognized, again, as the bank lender of the year at the 2020 Mortgage Awards of Excellence.Finally, we turned to strong financial performance for the quarter and for the year. We grew our originations in the residential and commercial market, delivered a record high net interest margin and completed $150 million substantial issuer bid in the first quarter. We ended the year with an industry-leading CET1 ratio. You should expect that we'll continue to be prudent with our capital in the future.Looking ahead to 2021, the path towards reopening remains uncertain. We know that some restrictive measures are still necessary to contain the spread of COVID-19. We can be encouraged by the growing availability of vaccines. We look forward to further economic improvement as the year progresses. We appreciate the continued confidence of our customers and broker partners and the perseverance of our employees through all the challenges of 2020. We may be physically apart, but in some ways, we're closer than ever.I'll now invite Brad to discuss our financial results.

[Bradley William Kotush, Executive VP & CFO]

Thanks, Yousry, and Good morning, everyone. I will begin by turning to Slide 6, which highlights our financial performance for the fourth quarter. Net income of $55.3 million grew by approximately 49% compared with Q4 2019. Net income per share was $1.06, an increase of 63% compared with Q4 2019. Return on equity was 13.4% for the quarter, an increase of 440 basis points over the same quarter last year.On Slide 7. Full year net income grew by 29% year-over-year to $176 million from $136 million. Fully diluted earnings per share increased by 45% to $3.33 per share. Adjusted earnings per share grew by 42% to $3.54 per share. Return on equity for the full year was 10.5%, an increase of 230 basis points over last year's 8.2%.Growth in net interest income and a release of credit provisions during the quarter were the most significant contributors to the increase in Q4 earnings per share compared with last year, as shown on Slide 8. Our net interest margin expanded by 24 basis points to 2.55%, while the efficiency ratio dropped to 51.2% from 55.6%. Provisions for credit losses swung from $4 million in Q4 2019 to a release of $7.7 million in Q4 2020.For the full year, as shown on Slide 9, our 45% growth in earnings per share was driven by growth in net interest income, reduced shares outstanding, offset by increased noninterest expenses and a significant increase in provisions for credit losses during the year. Our net interest margin reached 2.46% for the full year, and we achieved a 49% efficiency ratio.The reduction in shares outstanding during the year resulted primarily from the repurchase of 4.4 million shares under a substantially short bid in January of 2020 as well as repurchases under our normal course issuer debt, which totaled approximately 650,000 shares during 2020. We reported adjusted earnings per share for the year of $3.54 compared to adjusted earnings per share of $2.49 in 2019.Turning to Slide 10. Home reported strong growth in residential originations, up 24% for the quarter and 18% for the year, with particular strength in our accelerator mortgages.Slide 11 shows our commercial originations higher by 39% for the year with virtually all of the growth in residential commercial. Earlier in the year, we made the prudent decision to pull back from a lot of location-driven segments of this market, including office buildings, land, retail and hospitality. As of year-end, commercial mortgages were 10.9% of total on balance sheet loans.Home also grew deposits through our open direct-to-consumer channel, as shown on Slide 12. Oaken now accounts for 29% of our total deposits compared with just under 25% 1 year ago, with 80% of that total in GICs.I would now like to spend some time discussing our loan book and our credit provisioning, beginning on Slide 13. The average FICO score of our single-family borrowers is 727 and the average loan-to-value of our uninsured single-family mortgages is 59%, which demonstrates that we have a high-quality customer base with high levels of equity in their homes.Slide 14 shows our credit provisions and write-offs quarterly and for the full year. Provisions for credit losses totaled $34.1 million for 2020, an increase of 72% over 2019. These provisions change by taking into account various forward-looking macroeconomic assumptions and the weights assigned to these scenarios as well as management expectations of further future performance.Slide 15 shows provisions for the quarter and the full year by business segment. The primary contributors to provision for 2020 were the commercial portfolio, which continues to be impacted by uncertainty related to the impact of COVID-19 as well as the other consumer retail portfolio where there was a significant provision for credit deterioration. One component of the other consumer retail portfolio was sold in the third quarter of 2020.This part of the portfolio contributed over $22 million to net write-offs of $25.7 million for the year. Expressed as a percentage, net write-offs were 15 basis points of gross loans this year compared to 5 basis points the year before. In the fourth quarter, our credit provisioning resulted in a recovery of provision for credit losses of $7.7 million, reflecting an improvement in the forward-looking assumptions in our economic models compared with inputs to those models used earlier in the year.Slide 16 shows the economic assumptions underlying our allowance for credit losses. In Q3 of 2020, our base assumption for housing prices was a decline of 8.74% compared to a base case decline of 3.66% in Q4. The improvement in the HPI resulted in a reversal of provisions in our residential lending book in Q4. Our use of multiple scenarios, as shown on this slide, has $14.5 million to what the allowance would be using just the base case.Slide 17 gives a breakdown of our allowance by credit losses by segment. The total allowance of $71 million increased by $8.4 million over last year's figure, with an increase of $15 million in our commercial portfolio, partially offset by a decline in the allowance attributable to our other consumer retail business due to the write-offs discussed earlier. $53 million of that $71 million or 75% is attributable to loans classified as either stage 1 or stage 2, which is still considered performing under IFRS.Our allowance on performing loans will continue to fluctuate as new estimates become available of the future impact of COVID-19 on the economy. With our prudent underwriting standards and the shorter contractual term to maturity of most of our loans, we consider our loan portfolio to be well provisioned.Net nonperforming loans on slide -- net nonperforming loans on Slide 18 are at 57 basis points of gross loans as of Q4 compared with 47 basis points at the end of Q3 and 44 basis points at the end of Q4 2019. The allowance specific to stage 3 loans is 15% of the total. As home security in the form of real property or cash deposits for most of the stage 3 loan portfolio, we consider this coverage level to be prudent.Our liquidity and capital metrics are on Slide 19. We continue to hold over $1.3 billion in high-quality liquid assets with access to additional short-term funding as needed. Our CET1 capital ratio of 19.82% at the end of Q4 increased by 47 basis points in the quarter and 218 basis points for the year-to-date. This is after accounting for transitional arrangements, which allow for a portion of certain credit allowances to be classified within CET1 rather than CET2 capital. This transitional arrangement added 10 basis points to our CET1.The increase in our CET1 was due to internally generated capital, which more than offset the decrease in capital from our $150 million substantial issuer bid completed in January and our NCIB activity during the year. We will continue to be prudent in our capital management decisions and key economic conditions.And now I will turn the call back to Yousry for closing remarks.

[Yousry Bissada, President, CEO & Non]

Thank you, Brad. When the initial lockdown was announced back in Q1, it was difficult to forecast what the eventual impact would be on our industry and our people while we entered this pandemic with all the elements we needed to ensure our resilience in any conditions. We had ample reserves of capital and liquidity that we could put to good use to support the recovery effort. We had our sustainable risk culture to ensure a prudent risk management in all scenarios.And above all, the resilience of our company is due to the strength of the Home team. I thank them for their extraordinary achievements in 2020. And I thank you all for your participation on today's call. I will now ask Cindy to poll for questions.

[Operator]

[Operator Instructions] Your first question comes from Geoff Kwan with RBC Capital Markets.

[Geoffrey Kwan, Analyst]

My first question is just any insights you have in terms of how the spring housing market is shaping up. And just in general, we've obviously seen elevated levels of housing activity coming out of the pandemic. Just what your crystal ball suggest that how much longer we are likely to see the elevated housing activity?

[Yousry Bissada, President, CEO & Non]

Thanks, Geoff. My crystal ball has been wrong so much in the last year. But I can just tell you based on momentum so far it seems that it's going to be a strong spring market. It's not -- the technical spring market starts in February. What appears to still be low at least in GPA is the number of listings, but the market appears to be hot, and there's a lot of buyers is our initial impressions. How long it will last, I'm unsure.

[Geoffrey Kwan, Analyst]

Okay. With respect to the NIM yields, if you can -- like, what's your expectation? Or how are you looking at the NIM yields evolving over the next several quarters in relation to your prime, your classic as well as in the commercial book?

[Yousry Bissada, President, CEO & Non]

Brad?

[Bradley William Kotush, Executive VP & CFO]

Yes. Geoff, I think we've seen a pretty stable or positive trend for the past few quarters, and we expect that we'll be able to maintain that if interest rates remain at their current levels, obviously, subject to competitive conditions.

[Geoffrey Kwan, Analyst]

Okay. And just my last question was on the compensation expense. It was up, I think, about $6 million quarter-over-quarter. Just wanted to get some color into that the quarter-over-quarter increase?

[Yousry Bissada, President, CEO & Non]

Yes. Sure, Geoff. Usually, in Q4, we'll do some true-ups for annual compensation expense items. You would have seen an increase in the last year as well over the run rate. We've also added employees over the quarter. The annual average was 755, we're around 760 or more. We think that we're going to have slightly higher compensation expense this year, probably more closer to $26 million a quarter on average through 2021.

[Operator]

Your next question comes from Stephen Boland with Raymond James.

[Stephen Boland, MD & Equity Research Analyst]

Maybe, Brad, if I could start with you and the provision. If you could remind me, when you set up the main provision back at the end of I guess Q1, the $30 million, was there a time frame that, that modeled out to? Like was that a 12-month outlook or an 18-month outlook? And I'm just trying to gauge the pace of releases that could be coming over the next quarter or 2.

[Bradley William Kotush, Executive VP & CFO]

Well, effectively, the provisioning is done over the life of the loans or expected life of the loans. So probability of default varies depending on the length of time. And we typically look out with some of that economic forecasting for the next year. But it's done over the probability of default over the life of the loans, depending on the aging.

[Stephen Boland, MD & Equity Research Analyst]

Okay. But most of the -- most of your loans I presume are at like 1 to 3 years. Is it that -- what you're [indiscernible]?

[Bradley William Kotush, Executive VP & CFO]

Yes, I think that's a fair assumption. I mean, all the stage 1 is done on a 1-year basis. So yes, I guess to directly answer your question, the term of that forecasting is generally for a 1-year period.

[Stephen Boland, MD & Equity Research Analyst]

Okay. And Yousry, you mentioned you seem cautious on the outlook of the housing market is certainly strong and it's seeing multiple bids. And how is this going over asking? Are you -- do you get concerned again about the -- you typically pull back your loan to values when you thought the certain areas of the market were getting too hot. Is that starting to play into your thoughts here heading into the spring?

[Yousry Bissada, President, CEO & Non]

Well, we're not concerned because we do one deal at a time. We will look at the circumstances of that particular situation in the mortgage before saying yes or no, which will take into account activity in the area and price adjustments and so on. But at the same time, the activity seems to continue to be strong and people rethinking where they're going to live and with the low interest rates that are there. So we would probably relax some of our loan-to-value ratios, as you've suggested. We -- to be more clear, when this started, we got more conservative in certain areas on our loan-to-value. We would probably look at that only when we felt the economy was coming back and that it was prudent to do so. So like everyone else, we are waiting to see the full effects of the lockdown on the economy as well as the vaccine effectiveness and so on.

[Operator]

Your next question comes from Jaeme Gloyn with National Bank Financial.

[Jaeme Gloyn, Analyst]

Yes. Couple of questions here just to run through. The -- I noticed there was a sale of residential mortgages in Q4. Can you give us a little bit more color as to what's the strategy here? Where do you see the size going to and maybe some income expectations around this strategy to sell mortgages?

[Bradley William Kotush, Executive VP & CFO]

Yes. We had a -- we've just begun the program in the Q4. We did not sell a significant amount of mortgages. We do expect that over time we can grow it. We want to see what kind of traction we can get. We anticipate probably doing in the order of $25 million this first quarter, but we think that there's lots of room to expand that program. And part of it is to be able to continue to grow our loans under administration, while not taking loans off balance sheet.

[Jaeme Gloyn, Analyst]

Okay. And are you able to give us any sort of income guidance around that? Like what kind of fees are you receiving to all those [indiscernible]?

[Bradley William Kotush, Executive VP & CFO]

I think we'll be able to give you a much -- sorry to interrupt you, but I think we'll be able to give you a much better idea of what the potential can be when we report Q1. As I said earlier, we're just beginning this program, and we're trying to establish what we can get as an effective run rate before it makes sense to provide any sort of outlook in that respect.

[Jaeme Gloyn, Analyst]

Okay. That sounds good. In the RMBS portfolio, I noticed there was a spike in interest expenses in Q4. Can you talk about what's going on there?

[Bradley William Kotush, Executive VP & CFO]

I'll get back to you, Jaeme. I don't have a answer for you right now.

[Jaeme Gloyn, Analyst]

Okay. The -- and I apologize if you addressed this in the prepared remarks. The increase in single-family net impaired loans looks like it was pretty significant quarter-over-quarter and year-over-year. Can you talk about what was driving that increase in single-family net impaired loans?

[Bradley William Kotush, Executive VP & CFO]

Overall, I think general economic conditions, some of our borrowers have been impacted by COVID-19. In addition, we weren't able to -- all the collection proceedings were suspended. So in the ordinary course of business, we weren't able to realize on security. So that also had a contribution to the increase.

[Jaeme Gloyn, Analyst]

Okay. So just to follow up on that then. So if I understand correctly, the underlying characteristics of specific borrowers has deteriorated. And so that caused some impairment in the loans. At the same time that because you suspended collections or foreclosure processes, your ability to realize upon I guess defaulted loans is impaired. And so this is -- should we look at this as being a temporary number that would sort of clear in Q1 or Q2? Like how should I think about that?

[Bradley William Kotush, Executive VP & CFO]

Well, I think we've grown the portfolio as well. So we'd expect -- and I agree that that has increased as an overall percentage. We had the overall coverage ratio in that stage 3 was close to 12% this quarter. And last year, it was 12.75%. So we've seen a pandemic, and as I think as you mentioned, we have had some borrowers who have gone into default or into stage 3. And I probably emphasize probably that condition more. We don't see any major further movement. But again, that's going to depend on the way the economic circumstances unfold. So I think that's probably more of a factor than the ordinary course of collection activities, which should they resume will moderate that balance somewhat. But I think overall it's more economic conditions as opposed to delays in collection proceedings.

[Jaeme Gloyn, Analyst]

Okay. Yes, I see that...

[Yousry Bissada, President, CEO & Non]

Hey, Jaeme, it's Yousry.

[Jaeme Gloyn, Analyst]

Yes.

[Yousry Bissada, President, CEO & Non]

Just to -- I think you noticed, but just to be clear, part of our delays is because the courts are closed, and they have announced that they may start opening them over the next couple of weeks. So we do expect a part of that will normalize as either the client sells to our home because the LTVs are getting quite good for them and/or we have options that will open to us once the courts open.

[Jaeme Gloyn, Analyst]

Okay. Okay. And so it's -- yes, when I look at that net impaired volume, we should see that sort of begin to clear as that opens up a little bit. Okay. That's good. And just one last one from my end. If I'm looking at the other consumer retail loans, mortgage continuity table, there were no advances in drawdowns. Is that like a signal that this is a complete shutdown of anything going on in other consumer retail loans? Or is there something else we should think about there?

[Bradley William Kotush, Executive VP & CFO]

Yes. We've stated that we've effectively stopped originations in that category. So it's effectively in runoff.

[Operator]

Your next question comes from Etienne Ricard with BMO Capital Markets.

[Etienne Ricard, Analyst]

So first on the loan growth outlook. So when we look into the classic portfolio in particular, you've seen originations picking up quite nicely, although the loan balances remained flat year-over-year. I'd just like to get an update on competitive dynamics and how has your attrition rate trended in recent quarters?

[Yousry Bissada, President, CEO & Non]

I can answer that. So there's a number of dynamics here, as you suggested. First is we got more conservative when the lockdown started last March. We got more conservative in certain regions. We -- in other regions, we pulled back the maximum LTV we will do. So even with that, we increased our originations on classic, we would have increased it even more had we been more relaxed. So that is one, for sure. On the competition, there is a few players that are in the Alt-A space. I think they've also had good volumes. We continue to be the #1 lender in Alt-A, so we're proud of that.In one subsection, the private lenders, some have continued to do well, and others seem to be doing less business. I don't know exactly why. Maybe they're funding or maybe they're taking a more prudent approach. But the main competition from us remains financial institutions that have interest in Alt-A. There's only 1 or 2 large ones like ours and there's a lot -- much smaller ones that participate in the space.

[Etienne Ricard, Analyst]

Okay. Switching to -- on the funding side, you continue to -- you're seeing good momentum at Oaken. Could you remind us how significant that channel could become as a percentage of total deposits and over the next couple of years? And what is the associated impact on cost of funding relative to the broker market?

[Yousry Bissada, President, CEO & Non]

So over a 2, 3, 4-year period, we would want to get it to the 40% to 50% range of our total deposits Oaken. Oaken has many advantages for us. There is much stronger customer loyalty upon renewal. Having a direct relationship with the consumer has many advantages. When we compare Oaken to overall deposit broker, when you compare what we've got to pay commissions to broker versus our cost of running Oaken and ads and so on, it's about 20 to 30 basis points more on average, but that is a value to us because the retention is much higher. So over a longer period of time, that tends to close the gap because we can keep them. So it will continue to be an important part of our brand.And this year in particular, Oaken did very well by -- as I mentioned in my comments, by going digital and allowing consumers to buy and check and renew digitally. There have been a number of improvements made in the Oaken that make it very easy for our customer to deal with us from their home.

[Etienne Ricard, Analyst]

All right. Makes sense. One last for me. On the RMBS market, how has market appetite changed? And what would you expect it to become more recurring source of funding over the short term?

[Bradley William Kotush, Executive VP & CFO]

Yes, Etienne, it's Brad. We have seen stabilization in that overall market. And we do expect to come to market in the first half of this year.

[Operator]

Your next question comes from Cihan Tuncay with Stifel.

[Cihan Tuncay, Director]

Most of my questions have been answered already, but maybe we can get -- Yousry, you mentioned that housing activity remains very strong. Can you give us a read-through on how your asset yields are holding in and kind of how funding costs have trended throughout the kind of first 2 months of the quarter?

[Yousry Bissada, President, CEO & Non]

Yes. Hi, Cihan, by the way. The funding costs have been healthy for us. I think what happened in the second quarter of 2020 when the Bank of Canada dropped rates fairly rapidly to offset what was happening in the economy, over a few weeks, the GIC rates followed them and widened our spreads to mortgages. Over the year, the mortgage rates have come down, our competitors as well as ourselves, have come down and brought the margins a little closer to normal, but still healthy, and we're able to keep our rates competitive yet we're not the cheapest guys in town.We compete, as you've heard me say before, a lot on our service and relationships and education. So we -- I think the margins for now are healthy. There is more competition in the space. There is -- there can and tend to be 1 or 2 that are trying to buy market share with price, which can be a short term okay. But in the Alt-A space, there's much more to it than just rates. There's the complexity of the deal and understanding the risk within that deal. So that helps from the A business where you might get somebody just going on rate. There has been very low rates, 139, 159 on the A side that are very commodity. It is a very, very basic mortgage. And as long as you qualify, you can have it.But on the Alt-A side, there's a lot more complexity. Where is the mortgage, the income proof. So it tends to leave at a little more normal spread. I think our competitors and us do a lot more work to do that. So we require the spread to be successful.

[Cihan Tuncay, Director]

I appreciate that. Maybe just getting into a little bit more detail there. You talk about -- you just mentioned that you're looking to come to market for another RMBS issue in the first half of this year and as well as initiatives to increase your open deposits in your overall deposit book. Do you think then that your NIM of Q4, which is pretty strong, is that sustainable over the course of the year? Do you think there'll be some volatility in there? Or how should we think about that going forward?

[Yousry Bissada, President, CEO & Non]

Well, I think that the big assumption under all this is there's no movement either in the government rates as well as some consistent competition on the -- for broker deposits as well as on the asset side. So if all of those sort of stay similar to where they are today, then we expect that we will be able to maintain NIM at current levels at probably certainly in Q1, and that's kind of where we have site to or some confidence in.

[Cihan Tuncay, Director]

Okay. And just with respect to the Oaken branches, looks like you've got good growth in internally sourced deposits, although there isn't that many. How do you think of that strategy of having physical locations now in this post-pandemic world going forward? And what's the outlook there?

[Yousry Bissada, President, CEO & Non]

We think it will still be important, Cihan. A large number of our clients are over the age of 50, and they still value coming into the branch and the relationship and being able to do that. Like everyone else, they pivoted and -- to using digital to continue to deal with us. But we had, in the last year, certain branches would open and then close again in Toronto and Vancouver and Calgary, they're still open. And it was our first step to see what happens when the branch opens, and it got very busy, even with social distancing and lockdowns.And so we really believe that it is going to continue to be an important part of the Oaken service, but now we've even added digital so that we'll have more able to do so. So there's still a certain amount of clients that value these relationships and trust. And then those who want to deal with us digitally, we've made ourselves much better than the last year for that.

[Cihan Tuncay, Director]

Okay. Just one more question for me. So operation -- organic growth opportunities sound quite strong going through this year. How do you think about maybe more strategic decisions longer term, whether you evaluated any acquisitions or potential new verticals or perhaps acquisitions to boost the mortgage business? How do you think about it from a strategic perspective kind of beyond this year over the next 3 to 5 years, any inorganic growth opportunities?

[Yousry Bissada, President, CEO & Non]

Yes. We are very focused on our foundation in building the company to be stronger and stronger. I mentioned Ignite and building our technology. We're not complete. We're about halfway through what we want to achieve there. It allows us to more -- be more digitally competitive, to be more data management competitive, CRM competitive. It just updates Home on many, many levels. So that's our focus.But if some opportunity came up that was on strategy and made sense, we would look for sure. I don't think anybody wouldn't look if it didn't make sense. I think we're in a good position and our capital base allows us lots of options. If something made sense that was accretive, it would be a choice for us. And if not, we have the opportunity to give capital back to our shareholders. So we're in a good seat in terms of those -- that thought process.

[Operator]

[Operator Instructions] And your next question comes from Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Just following on that last topic with Ignite. I think from the adjustments for your expenses, I think they've been going for a couple of years now, should we expect adjustments to continue for another couple of years? Or what's the outlook there with sort of Ignite-related adjustments?

[Yousry Bissada, President, CEO & Non]

Okay. Graham, we expect this fiscal year will be the last year where we'll be making those adjustments.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Perfect. And then on the sort of the ECL modeling and whatnot, is there any sort of material changes year-to-date relative to some of the key HPI and employment inputs that you would have put in as of December 31 that you would want to flag or could flag for us?

[Bradley William Kotush, Executive VP & CFO]

Well, I -- again, it's all subject to significant volatility, but we have so far seen improvements in the HPI forecast as well as unemployment measures.

[Graham Ryding, Research Analyst of Financial Services]

Yes. Okay. That makes sense because there was obviously a bit of a decline in the sort of employment picture just at the year-end, but it sounds like offsetting is the outlook for employment has actually got a little bit better since then. Is that...

[Bradley William Kotush, Executive VP & CFO]

Yes. I guess I'd just leave you with that it's volatile. And -- but so far, we've seen improvements.

[Graham Ryding, Research Analyst of Financial Services]

Got it. And then my last question would just be -- I appreciate the -- one of the slides you gave the FICO score. Is that for your total residential book, i.e., your accelerator and your classic? And if so, what would it be for just your uninsured single-family or your classic portfolio, has that FICO score changed at all over 2020?

[Yousry Bissada, President, CEO & Non]

Sorry, Brad and I are remote. I was -- I don't have that handy. I don't know if you do, Brad, we can look into it.

[Bradley William Kotush, Executive VP & CFO]

I don't have it at hand, Yousry.

[Yousry Bissada, President, CEO & Non]

Okay. We'll get back to you.

[Operator]

Your next question comes from Stephen Boland with Raymond James.

[Stephen Boland, MD & Equity Research Analyst]

Just one follow-up for Brad. Just on your Tier 1 capital ratio, maybe the highest we've seen now in a couple of years, I know things are not normal with buybacks and dividends and things of that sort. But when things do normalize, what capital level or Tier 1 would you like to be running at? Or what do you think you'd like to get that down to?

[Bradley William Kotush, Executive VP & CFO]

We've operated over the past looking back between 15% to 17%, so about kind of -- yes, that's probably a run rate that we could get to over time.

[Operator]

I'm showing no further questions at this time. I would like to turn the call back to CEO, Yousry Bissada.

[Yousry Bissada, President, CEO & Non]

Thank you, Cindy. Thank you, everyone, for joining us. Stay safe, and we look forward to seeing you live in the near future.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.