TORONTO, Aug. 2, 2017 /CNW/ - Home Capital Group ("Home
Capital" or "the Company") (TSX: HCG) today provided a business
update and reported financial results for the three and six months
ended June 30, 2017. This press
release should be read in conjunction with the Company's 2017
Second Quarter Report including Financial Statements and
Management's Discussion and Analysis (MD&A), which are
available on Home Capital's website at www.homecapital.com and on
SEDAR at www.sedar.com.
Bonita Then, Interim President
and Chief Executive Officer, Home Capital said, "We've made
tremendous progress toward our goal of ensuring Home Capital is
ready to take advantage of opportunities we see to grow our
business in a sustainable way. We have achieved a strong liquidity
position, named a highly experienced mortgage industry expert as
our new Chief Executive Officer, added Berkshire Hathaway as a
corporate sponsor and investor, and fully repaid our $2 billion backstop credit line with Berkshire.
Depositors are demonstrating their confidence in us through
increased inflows to our Guaranteed Investment Certificates, and we
are looking forward to putting that funding to work by increasing
our lending activity. Moving ahead, we will continue to look at
every opportunity, including more attractive and alternate funding
sources, to build our platform for future growth."
Yousry Bissada, incoming
President and Chief Executive Officer, Home Capital said, "Home
plays a critically important role by helping deserving Canadians
realize their dream of home ownership. I am excited about the
opportunity to work with the strong team at Home Capital to build
on the Company's leading position in the alternative mortgage
lending market. We want to be the first choice for depositors,
borrowers and brokers in the markets we serve, and over the coming
months I will be fully engaged in crafting a strategy to make that
happen."
Going Concern Uncertainty Resolved
The Company's
business plan and cash flow forecast suggest that the current
liquidity and credit facilities are sufficient to support ongoing
business for the foreseeable future. Management has concluded that
there is no longer material uncertainty that casts significant
doubt as to the ability of the Company to continue as a going
concern.
Recent Highlights
- Yousry Bissada named President
and Chief Executive Officer. Search for a Chief Financial Officer
is nearing completion.
- Significantly strengthened liquidity position following
stabilization and subsequent increase in deposit inflows,
completion of asset sales and the closing of a $2 billion backstop credit facility, with a
wholly owned subsidiary of Berkshire Hathaway Inc. (Berkshire),
replacing a previous $2 billion
emergency credit facility on better terms.
- Repaid all outstanding amounts under the Berkshire credit
facility subsequent to the end of Q2, giving the Company the
ability to draw up to $2.0 billion
going forward if required. In addition, the Company held total
liquid assets of approximately $1.94
billion as of August 1, 2017.
The reported liquidity position includes proceeds received from the
initial equity investment by Berkshire.
- Closed initial equity investment by Berkshire, through its
wholly owned subsidiary Columbia Insurance Company, of
approximately $153.2 million to
acquire a 19.99% equity stake in the Company on a private placement
basis, as previously announced. Investment by Berkshire of
approximately $246.8 million to
acquire an additional approximate 18.4% remains subject to approval
at a Special Meeting of Shareholders scheduled for September 12, 2017.
- Closed initial tranche of previously announced sale of
commercial mortgage assets, receiving proceeds of approximately
$1.13 billion as of July 25, 2017, with a further tranche expected to
close by the end of Q3 2017.
- Closed sales of residential mortgage assets for total proceeds
of approximately $300 million.
- Reached two agreements comprising a global settlement with the
Ontario Securities Commission and a class action lawsuit subject to
final approval from the Ontario Securities Commission and the
Ontario Superior Court of Justice.
Second Quarter 2017 Financial Statement Highlights
Second Quarter 2017, compared with the Second Quarter
2016:
- Reported net loss of $111.1
million and $1.73 loss per
share fully diluted, compared with net income of $66.3 million and $0.99 diluted earnings per share.
- Net loss for second quarter 2017 includes the impact of
elevated expenses of approximately $233.7
million pre-tax.
- Total loans under administration were $25.9 billion compared to $25.7 billion.
- Mortgage portfolio continues to perform well, maintaining low
provisions for credit losses. Provision for credit losses as a
percentage of gross uninsured loans was 0.07% as at June 30, 2017, compared to 0.08% as at
June 30, 2016. During the quarter
there was an increase in the collective allowance of $1.0 million due to growth in land and
development loans in the commercial portfolio.
- Improved capital position with CET 1 ratio at 17.06%, as
compared to 16.38%, well in excess of regulatory minimums. This
ratio is expected to rise further after the execution of
transactions previously announced.
Second Quarter 2017 Elevated Expenses
In late
April 2017, the Company experienced a
serious liquidity event that required the Company to take urgent
and deliberate steps to liquidate assets and arrange an emergency
credit facility. The costs associated with these actions are
reflected in the second quarter. In addition, the Company recorded
the expenses associated with the global settlement of the OSC and
class action matters, net of insurance, and an increased provision
for costs associated with the repositioning of the business. These
expenses, which totaled $233.7
million ($173.5 million after
tax) and are in addition to normal operating costs, reduced diluted
earnings per share by $2.70 and were
the main reason the Company reported a net loss in the second
quarter. Further details regarding these elevated expenses are
explained below.
- Incremental costs incurred in connection with the liquidity
event totaled $213.6 million (or
$157.0 million after tax and
$2.44 diluted earnings per share) and
included the following: 1) $130.6
million in commitment fees and interest charges related to
the emergency credit facility and Berkshire line of credit and
related professional and advisory fees and 2) a $72.9 million realized loss on the urgent sale of
the Company's available for sale asset portfolio.
- The Company determined it will exit its payment card and
payment processing (PsiGate) business and its prepaid card
business. As a result, the Company recorded an asset impairment
related to the remaining goodwill, intangible and other assets
within these businesses of $7.3
million (or $6.6 million after
tax and $0.10 diluted earnings per
share).
- Additional restructuring costs related to Project Expo, the
Company's expense savings initiative, of $5.8 million (or $4.2
million after tax and $0.07
diluted earnings per share) were also recorded during the
quarter.
- Costs related to the OSC matter and related class action were
$7.0 million (or $5.7 million after tax and $0.09 diluted earnings per share), net of
expected insurance recoveries.
2017 Outlook
In the coming months, the Company's
incoming President and Chief Executive Officer, along with
management and the Board, will reassess business plans and set new
strategic goals and objectives. In the interim, management will
focus on further strengthening its financial position and returning
its lending and deposit taking activities to a more normal level.
The Company intends to focus on Guaranteed Investment Certificates
and term deposits, while demand deposits are likely to remain
limited to the current low level.
Given the events of the second quarter, the Company will
cautiously increase lending activity with a view to growing the
mortgage origination flow in step with the growth of deposit
funding and adequate liquidity. While deposit funding has grown in
recent weeks, the Company has been paying a premium rate of
interest on new deposits. These rates will reduce the interest
spread earned on new business and the Company will look to reduce
deposit interest rates to more sustainable levels in the coming
months. This may have a dampening effect on deposit growth and
consequently constrain growth of mortgage originations. During the
second quarter, the Company had a very low level of new loan
originations and sold residential and commercial mortgage assets as
well as consumer lending assets. The accompanying reduction in
interest income is only partly reflected in the current quarter, as
most of the asset sales took place near the quarter end. The
Company closed significant commercial mortgage asset
sales during July, 2017. The proceeds from asset sales have
been used to repay the Berkshire credit facility in full.
Consequently, the Company will experience lower interest costs
partly offset by lower interest income in the third quarter. The
Company can also expect elevated non-interest expenses as it will
continue to be subject to scrutiny from a wide range of
stakeholders.
Guideline B-20
In July, OSFI introduced for comment
and consultation a revised draft of Guideline B-20 (B-20)
Residential Mortgage Underwriting Practices and Procedures. The
draft revisions include a qualifying stress test for uninsured
mortgages, a prohibition on certain co-lending arrangements and
additional guidance on income verification and expectation to
account for property price inflation when determining appropriate
loan to value. Based on the Company's preliminary analysis and
interpretation, the revisions to B-20, if implemented as proposed,
would reduce, possibly materially, the size of the uninsured
mortgage market available to the Company and its federally
regulated competitors. The Company also believes that the
revisions, if implemented as proposed, would increase the rate of
renewals of mortgage loans with the existing lenders. The draft
guideline is in the consultation stage and may be further revised
before implementation, and it is unclear in any event what impact
the revisions to B-20 would have on the real estate and mortgage
markets as a whole. If implemented as proposed, the draft guideline
would be expected to have a material impact on the Company's
business strategy going forward. At this time, there can be no
certainty as to the final revisions of the guideline.
(signed)
|
(signed)
|
BONITA
THEN
|
BRENDA
EPRILE
|
Interim President
& Chief Executive Officer
|
Chair of the
Board
|
August 2,
2017
|
|
The Company's 2017 Second Quarter Financial Report, including
Management's Discussion and Analysis, for the three and six
months ended June 30, 2017 is
available at www.homecapital.com and on the Canadian Securities
Administrators' website at www.sedar.com.
Second Quarter 2017 Results Conference Call and
Webcast
The conference call will take place on Thursday, August 3, 2017, at 8:30 a.m. ET. Participants are asked to call
approximately 10 minutes in advance at 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout
North America. The call will also
be accessible in listen-only mode on Home Capital's website at
www.homecapital.com in the Investor Relations section of the
website.
Conference Call Archive
A telephone replay of the call will be available between
11:30 a.m. ET Thursday, August 3,
2017 and 12:00 a.m. ET Thursday,
August 10, 2017 by calling 416-849-0833 or 1-855-859-2056
(enter passcode 51553293). The archived audio webcast will be
available for 90 days on CNW Group's website at www.newswire.ca and
Home Capital's website at www.homecapital.com.
Special Meeting Notice
The Company has set the record and meeting date for the special
meeting of its shareholders to consider an additional investment of
23,955,420 Common Shares of the Company by a wholly owned
subsidiary of Berkshire Hathaway Inc. (Berkshire), on a private
placement basis.
Shareholders of record as of the close of business on
August 8, 2017 will be entitled to
vote at the special meeting, which will be held on September 12, 2017 at a time and location to be
announced. The additional investment by Berkshire must be approved
by a majority of votes cast at the special meeting, excluding the
Common Shares of the Company beneficially held by Berkshire, or
over which it exercises control or direction. The Company expects
to file the Management Information Circular and Form of Proxy for
the special meeting no later than August 21,
2017.
|
|
|
Financial
Highlights
|
|
|
|
|
|
|
|
|
(Unaudited)
|
For the three months
ended
|
For the six months
ended
|
(000s, except
Percentage and Per Share Amounts)
|
June
30
|
March
31
|
June
30
|
June
30
|
June
30
|
|
|
2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
OPERATING
RESULTS
|
|
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
$
|
(111,116)
|
$
|
58,041
|
$
|
66,252
|
$
|
(53,075)
|
$
|
130,500
|
Net Interest Income
(Loss)
|
|
(3,407)
|
|
125,857
|
|
122,103
|
|
122,450
|
|
244,620
|
Total
Revenue1
|
|
(61,293)
|
|
147,742
|
|
146,761
|
|
86,449
|
|
292,267
|
Diluted Earnings
(Loss) per Share
|
$
|
(1.73)
|
$
|
0.90
|
$
|
0.99
|
$
|
(0.83)
|
$
|
1.91
|
Return on
Shareholders' Equity
|
|
(26.1)%
|
|
14.1%
|
|
16.5%
|
|
(6.3)%
|
|
16.4%
|
Return on Average
Assets
|
|
(2.2)%
|
|
1.1%
|
|
1.3%
|
|
(0.5)%
|
|
1.3%
|
Net Interest Margin
(TEB)2
|
|
(0.07)%
|
|
2.44%
|
|
2.38%
|
|
1.20%
|
|
2.38%
|
Provision as a
Percentage of Gross Uninsured Loans (annualized)
|
|
0.07%
|
|
0.16%
|
|
0.08%
|
|
0.12%
|
|
0.06%
|
Provision as a
Percentage of Gross Loans (annualized)
|
|
0.05%
|
|
0.13%
|
|
0.06%
|
|
0.09%
|
|
0.05%
|
Efficiency Ratio
(TEB)2
|
|
(138.9)%
|
|
43.4%
|
|
37.2%
|
|
171.0%
|
|
38.4%
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
June
30
|
|
March
31
|
|
December
31
|
|
June
30
|
|
|
|
|
2017
|
|
2017
|
|
2016
|
|
2016
|
|
|
BALANCE SHEET
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
20,077,150
|
$
|
20,993,385
|
$
|
20,528,777
|
$
|
20,763,147
|
|
|
Total Assets Under
Administration3
|
|
28,292,436
|
|
29,583,545
|
|
28,917,534
|
|
28,430,730
|
|
|
Total
Loans4
|
|
17,648,114
|
|
18,573,476
|
|
18,035,317
|
|
18,065,074
|
|
|
Total Loans Under
Administration3,4
|
|
25,863,400
|
|
27,163,636
|
|
26,424,074
|
|
25,732,657
|
|
|
Liquid
Assets
|
|
1,737,417
|
|
2,098,192
|
|
2,067,981
|
|
2,391,225
|
|
|
Deposits
|
|
13,104,606
|
|
16,249,611
|
|
15,886,030
|
|
16,022,219
|
|
|
Line of Credit
Facility
|
|
1,396,959
|
|
-
|
|
-
|
|
-
|
|
|
Shareholders'
Equity
|
|
1,735,692
|
|
1,665,503
|
|
1,617,192
|
|
1,555,893
|
|
|
FINANCIAL
STRENGTH
|
|
|
|
|
|
|
|
|
|
|
Capital
Measures5
|
|
|
|
|
|
|
|
|
|
|
Risk-Weighted
Assets
|
$
|
8,328,024
|
$
|
9,086,886
|
$
|
8,643,267
|
$
|
8,310,406
|
|
|
Common Equity Tier 1
Capital Ratio
|
|
17.06%
|
|
16.34%
|
|
16.55%
|
|
16.38%
|
|
|
Tier 1 Capital
Ratio
|
|
17.06%
|
|
16.34%
|
|
16.54%
|
|
16.38%
|
|
|
Total Capital
Ratio
|
|
17.54%
|
|
16.77%
|
|
16.97%
|
|
16.82%
|
|
|
Leverage
Ratio
|
|
7.19%
|
|
7.29%
|
|
7.20%
|
|
6.77%
|
|
|
Credit
Quality
|
|
|
|
|
|
|
|
|
|
|
Net Non-Performing
Loans as a Percentage of Gross Loans
|
|
0.23%
|
|
0.24%
|
|
0.30%
|
|
0.33%
|
|
|
Allowance as a
Percentage of Gross Non-Performing Loans
|
|
100.5%
|
|
91.8%
|
|
73.4%
|
|
66.0%
|
|
|
Share
Information
|
|
|
|
|
|
|
|
|
|
|
Book Value per Common
Share
|
$
|
21.63
|
$
|
25.94
|
$
|
25.12
|
$
|
23.67
|
|
|
Common Share Price –
Close
|
$
|
16.99
|
$
|
26.03
|
$
|
31.34
|
$
|
32.02
|
|
|
Dividend paid during
the period ended
|
$
|
-
|
$
|
0.26
|
$
|
0.26
|
$
|
0.24
|
|
|
Dividend Payout
Ratio
|
|
-
|
|
28.9%
|
|
32.9%
|
|
24.2%
|
|
|
Market
Capitalization
|
$
|
1,363,380
|
$
|
1,671,230
|
$
|
2,017,920
|
$
|
2,105,027
|
|
|
Number of Common
Shares Outstanding
|
|
80,246
|
|
64,204
|
|
64,388
|
|
65,741
|
|
|
1 The
Company has revised its definition of Total Revenue and restated
amounts in prior periods accordingly. Please see the revised
definition under Non-GAAP Measures in the Company's 2017 Second
Quarter Report.
|
2 See
definition of Taxable Equivalent Basis (TEB) under Non-GAAP
Measures in the Company's 2017 Second Quarter Report.
|
3 Total
assets and loans under administration include both on- and
off-balance sheet amounts.
|
4 Total
loans include loans held for sale.
|
5 These
figures relate to the Company's operating subsidiary, Home Trust
Company.
|
Consolidated
Statements of Income (Loss)
|
|
|
|
|
|
|
For the three months
ended
|
For the six months
ended
|
thousands of
Canadian dollars, except per share amounts
|
June
30
|
March
31
|
June
30
|
June
30
|
June
30
|
(Unaudited)
|
|
2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Interest
Income (Loss) Non-Securitized Assets
|
|
|
|
|
|
|
|
|
|
|
Interest from
loans
|
$
|
192,394
|
$
|
192,435
|
$
|
191,704
|
$
|
384,829
|
$
|
385,250
|
Dividends from
securities
|
|
300
|
|
2,286
|
|
2,447
|
|
2,586
|
|
5,139
|
Other
interest
|
|
1,627
|
|
2,920
|
|
2,985
|
|
4,547
|
|
5,513
|
|
|
|
194,321
|
|
197,641
|
|
197,136
|
|
391,962
|
|
395,902
|
Interest on deposits
and other
|
|
71,673
|
|
77,252
|
|
78,312
|
|
148,925
|
|
157,775
|
Interest and fees on
line of credit facility
|
|
130,630
|
|
-
|
|
-
|
|
130,630
|
|
-
|
Net interest income
(loss) non-securitized assets
|
|
(7,982)
|
|
120,389
|
|
118,824
|
|
112,407
|
|
238,127
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest
Income Securitized Loans and Assets
|
|
|
|
|
|
|
|
|
|
|
Interest income from
securitized loans and assets
|
|
22,678
|
|
21,558
|
|
20,732
|
|
44,236
|
|
40,825
|
Interest expense on
securitization liabilities
|
|
18,103
|
|
16,090
|
|
17,453
|
|
34,193
|
|
34,332
|
Net interest income
securitized loans and assets
|
|
4,575
|
|
5,468
|
|
3,279
|
|
10,043
|
|
6,493
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Interest
Income (Loss)
|
|
(3,407)
|
|
125,857
|
|
122,103
|
|
122,450
|
|
244,620
|
Provision for credit
losses
|
|
2,420
|
|
5,919
|
|
2,760
|
|
8,339
|
|
4,154
|
|
|
|
(5,827)
|
|
119,938
|
|
119,343
|
|
114,111
|
|
240,466
|
Non-Interest
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Fees and other
income
|
|
17,168
|
|
16,331
|
|
17,328
|
|
33,499
|
|
36,493
|
Securitization
income
|
|
1,877
|
|
6,432
|
|
9,452
|
|
8,309
|
|
17,134
|
Gain on acquisition
of CFF Bank
|
|
-
|
|
-
|
|
-
|
|
-
|
|
651
|
Net realized and
unrealized losses on securities and loans
|
|
(76,912)
|
|
(3)
|
|
-
|
|
(76,915)
|
|
(175)
|
Net realized and
unrealized losses on derivatives
|
|
(19)
|
|
(875)
|
|
(2,122)
|
|
(894)
|
|
(6,456)
|
|
|
|
(57,886)
|
|
21,885
|
|
24,658
|
|
(36,001)
|
|
47,647
|
|
|
|
(63,713)
|
|
141,823
|
|
144,001
|
|
78,110
|
|
288,113
|
Non-Interest
Expenses
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
29,303
|
|
29,619
|
|
24,685
|
|
58,922
|
|
53,396
|
Premises
|
|
3,365
|
|
3,752
|
|
3,575
|
|
7,117
|
|
7,426
|
Other operating
expenses
|
|
52,333
|
|
31,094
|
|
26,652
|
|
83,427
|
|
52,107
|
|
|
|
85,001
|
|
64,465
|
|
54,912
|
|
149,466
|
|
112,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss)
Before Income Taxes
|
|
(148,714)
|
|
77,358
|
|
89,089
|
|
(71,356)
|
|
175,184
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
(39,616)
|
|
23,142
|
|
24,911
|
|
(16,474)
|
|
44,997
|
|
Deferred
|
|
2,018
|
|
(3,825)
|
|
(2,074)
|
|
(1,807)
|
|
(313)
|
|
|
|
(37,598)
|
|
19,317
|
|
22,837
|
|
(18,281)
|
|
44,684
|
NET INCOME
(LOSS)
|
$
|
(111,116)
|
$
|
58,041
|
$
|
66,252
|
$
|
(53,075)
|
$
|
130,500
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.73)
|
$
|
0.90
|
$
|
0.99
|
$
|
(0.83)
|
$
|
1.91
|
Diluted
|
$
|
(1.73)
|
$
|
0.90
|
$
|
0.99
|
$
|
(0.83)
|
$
|
1.91
|
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
64,378
|
|
64,263
|
|
66,663
|
|
64,321
|
|
68,324
|
Diluted
|
|
64,378
|
|
64,294
|
|
66,798
|
|
64,321
|
|
68,420
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of
outstanding common shares
|
|
80,246
|
|
64,204
|
|
65,741
|
|
80,246
|
|
65,741
|
Book value per common
share
|
$
|
21.63
|
$
|
25.94
|
$
|
23.67
|
$
|
21.63
|
$
|
23.67
|
Consolidated
Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended
|
For the six months
ended
|
|
June
30
|
March 31
|
June 30
|
June
30
|
June 30
|
thousands of
Canadian dollars (Unaudited)
|
|
2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
(LOSS)
|
$
|
(111,116)
|
$
|
58,041
|
$
|
66,252
|
$
|
(53,075)
|
$
|
130,500
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
Securities and Retained Interests
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses)
|
|
550
|
|
16,414
|
|
4,272
|
|
16,964
|
|
(8,742)
|
Net losses
reclassified to net income
|
|
46,647
|
|
3
|
|
-
|
|
46,650
|
|
204
|
|
|
47,197
|
|
16,417
|
|
4,272
|
|
63,614
|
|
(8,538)
|
Income tax expense
(recovery)
|
|
12,514
|
|
4,358
|
|
1,134
|
|
16,872
|
|
(2,287)
|
|
|
34,683
|
|
12,059
|
|
3,138
|
|
46,742
|
|
(6,251)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses)
|
|
(525)
|
|
(85)
|
|
(1,312)
|
|
(610)
|
|
1,909
|
Net losses
reclassified to net income
|
|
572
|
|
329
|
|
341
|
|
901
|
|
705
|
|
|
47
|
|
244
|
|
(971)
|
|
291
|
|
2,614
|
Income tax expense
(recovery)
|
|
12
|
|
72
|
|
(257)
|
|
84
|
|
694
|
|
|
35
|
|
172
|
|
(714)
|
|
207
|
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
Total other
comprehensive income (loss)
|
|
34,718
|
|
12,231
|
|
2,424
|
|
46,949
|
|
(4,331)
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
$
|
(76,398)
|
$
|
70,272
|
$
|
68,676
|
$
|
(6,126)
|
$
|
126,169
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
June
30
|
March
31
|
December
31
|
thousands of
Canadian dollars (Unaudited)
|
|
2017
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
Cash and Cash
Equivalents
|
$
|
1,682,982
|
$
|
1,251,190
|
$
|
1,205,394
|
Available for Sale
Securities
|
|
31,495
|
|
549,456
|
|
534,924
|
Loans Held for
Sale
|
|
-
|
|
40,721
|
|
77,918
|
Loans
|
|
|
|
|
|
|
Securitized
mortgages
|
|
3,257,104
|
|
2,647,014
|
|
2,526,804
|
Non-securitized
mortgages and loans
|
|
14,391,010
|
|
15,885,741
|
|
15,430,595
|
|
|
|
17,648,114
|
|
18,532,755
|
|
17,957,399
|
Collective allowance
for credit losses
|
|
(40,063)
|
|
(39,063)
|
|
(37,063)
|
|
|
|
17,608,051
|
|
18,493,692
|
|
17,920,336
|
Other
|
|
|
|
|
|
|
Restricted
assets
|
|
216,596
|
|
140,325
|
|
265,374
|
Derivative
assets
|
|
21,804
|
|
33,480
|
|
37,524
|
Other
assets
|
|
384,676
|
|
347,477
|
|
348,638
|
Deferred tax
assets
|
|
19,510
|
|
18,048
|
|
16,914
|
Goodwill and
intangible assets
|
|
112,036
|
|
118,996
|
|
121,755
|
|
|
|
754,622
|
|
658,326
|
|
790,205
|
|
|
$
|
20,077,150
|
$
|
20,993,385
|
$
|
20,528,777
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
Deposits payable on
demand
|
$
|
372,912
|
$
|
2,377,400
|
$
|
2,531,803
|
Deposits payable on a
fixed date
|
|
12,731,694
|
|
13,872,211
|
|
13,354,227
|
|
|
|
13,104,606
|
|
16,249,611
|
|
15,886,030
|
Line of Credit
Facility
|
|
1,396,959
|
|
-
|
|
-
|
Securitization
Liabilities
|
|
|
|
|
|
|
CMHC-sponsored
mortgage-backed security liabilities
|
|
1,649,637
|
|
922,377
|
|
898,386
|
CMHC-sponsored Canada
Mortgage Bond liabilities
|
|
1,474,001
|
|
1,474,539
|
|
1,637,117
|
Bank-sponsored
securitization conduit liabilities
|
|
203,991
|
|
250,129
|
|
114,146
|
|
|
|
3,327,629
|
|
2,647,045
|
|
2,649,649
|
Other
|
|
|
|
|
|
|
Derivative
liabilities
|
|
11,322
|
|
2,871
|
|
3,490
|
Other
liabilities
|
|
466,320
|
|
394,762
|
|
336,132
|
Deferred tax
liabilities
|
|
34,622
|
|
33,593
|
|
36,284
|
|
|
|
512,264
|
|
431,226
|
|
375,906
|
|
|
|
18,341,458
|
|
19,327,882
|
|
18,911,585
|
Shareholders'
Equity
|
|
|
|
|
|
|
Capital
stock
|
|
231,618
|
|
85,194
|
|
84,910
|
Contributed
surplus
|
|
4,922
|
|
4,725
|
|
4,562
|
Retained
earnings
|
|
1,507,268
|
|
1,618,418
|
|
1,582,785
|
Accumulated other
comprehensive loss
|
|
(8,116)
|
|
(42,834)
|
|
(55,065)
|
|
|
|
1,735,692
|
|
1,665,503
|
|
1,617,192
|
|
|
$
|
20,077,150
|
$
|
20,993,385
|
$
|
20,528,777
|
Consolidated
Statements of Changes in Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Unrealized
|
|
|
|
|
|
|
|
Losses
|
Net
Unrealized
|
Total
|
|
|
|
|
|
on Securities
and
|
Losses on
|
Accumulated
|
|
|
|
|
|
|
|
|
Retained
Interests
|
Cash Flow
|
Other
|
Total
|
thousands of
Canadian dollars,
|
Capital
|
Contributed
|
Retained
|
Available
|
Hedges,
|
Comprehensive
|
Shareholders'
|
except per share
amounts (Unaudited)
|
Stock
|
Surplus
|
Earnings
|
for Sale, after
Tax
|
after Tax
|
Loss
|
Equity
|
Balance at
December 31, 2016
|
$
|
84,910
|
$
|
4,562
|
$
|
1,582,785
|
$
|
(53,589)
|
$
|
(1,476)
|
$
|
(55,065)
|
$
|
1,617,192
|
Comprehensive
income (loss)
|
|
-
|
|
-
|
|
(53,075)
|
|
46,742
|
|
207
|
|
46,949
|
|
(6,126)
|
Stock options
settled
|
|
548
|
|
(141)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
407
|
Amortization of
fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee stock
options
|
|
-
|
|
501
|
|
-
|
|
-
|
|
-
|
|
-
|
|
501
|
Repurchase of
shares
|
|
(267)
|
|
-
|
|
(5,732)
|
|
-
|
|
-
|
|
-
|
|
(5,999)
|
Issuance of
shares
|
|
146,427
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
146,427
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($0.26 per
share)
|
|
-
|
|
-
|
|
(16,710)
|
|
-
|
|
-
|
|
-
|
|
(16,710)
|
Balance at June
30, 2017
|
$
|
231,618
|
$
|
4,922
|
$
|
1,507,268
|
$
|
(6,847)
|
$
|
(1,269)
|
$
|
(8,116)
|
$
|
1,735,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2015
|
$
|
90,247
|
$
|
3,965
|
$
|
1,592,438
|
$
|
(62,466)
|
$
|
(3,078)
|
$
|
(65,544)
|
$
|
1,621,106
|
Comprehensive
income
|
|
-
|
|
-
|
|
130,500
|
|
(6,251)
|
|
1,920
|
|
(4,331)
|
|
126,169
|
Stock options
settled
|
|
780
|
|
(182)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
598
|
Amortization of fair
value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee stock
options
|
|
-
|
|
472
|
|
-
|
|
-
|
|
-
|
|
-
|
|
472
|
Repurchase of
shares
|
|
(5,514)
|
|
-
|
|
(154,309)
|
|
-
|
|
-
|
|
-
|
|
(159,823)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($0.48 per
share)
|
|
-
|
|
-
|
|
(32,629)
|
|
-
|
|
-
|
|
-
|
|
(32,629)
|
Balance at June 30,
2016
|
$
|
85,513
|
$
|
4,255
|
$
|
1,536,000
|
$
|
(68,717)
|
$
|
(1,158)
|
$
|
(69,875)
|
$
|
1,555,893
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
For the three months
ended
|
For the six months
ended
|
|
|
|
June
30
|
June
30
|
June
30
|
June
30
|
thousands of
Canadian dollars (Unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income (loss) for
the period
|
$
|
(111,116)
|
$
|
66,252
|
$
|
(53,075)
|
$
|
130,500
|
Adjustments to
determine cash flows relating to operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of net
discount on securities
|
|
(137)
|
|
(182)
|
|
(223)
|
|
(317)
|
|
Provision for credit
losses
|
|
2,420
|
|
2,760
|
|
8,339
|
|
4,154
|
|
Loss on sale of loan
portfolios
|
|
5,005
|
|
-
|
|
5,005
|
|
-
|
|
Gain on sale of
mortgages or residual interest
|
|
(360)
|
|
(7,976)
|
|
(5,098)
|
|
(13,911)
|
|
Net realized and
unrealized losses on securities
|
|
71,907
|
|
-
|
|
71,910
|
|
175
|
|
Amortization and
impairment losses¹
|
|
10,526
|
|
3,827
|
|
16,745
|
|
7,473
|
|
Amortization of fair
value of employee stock options
|
|
197
|
|
195
|
|
501
|
|
472
|
|
Deferred income
taxes
|
|
2,018
|
|
(2,074)
|
|
(1,807)
|
|
(313)
|
Changes in operating
assets and liabilities
|
|
|
|
|
|
|
|
|
|
Loans, net of gains
or losses on securitization and sales
|
|
919,162
|
|
(108,969)
|
|
381,893
|
|
214,525
|
|
Restricted
assets
|
|
(76,271)
|
|
61,637
|
|
48,778
|
|
(36,079)
|
|
Derivative assets and
liabilities
|
|
20,174
|
|
6,979
|
|
23,843
|
|
7,022
|
|
Accrued interest
receivable
|
|
2,263
|
|
1,225
|
|
1,751
|
|
2,718
|
|
Accrued interest
payable
|
|
(28,204)
|
|
(12,119)
|
|
(8,556)
|
|
5,660
|
|
Deposits
|
|
(3,145,005)
|
|
197,320
|
|
(2,781,424)
|
|
356,261
|
|
Line of credit
facility
|
|
1,396,959
|
|
-
|
|
1,396,959
|
|
-
|
|
Securitization
liabilities
|
|
680,584
|
|
103,647
|
|
677,980
|
|
56,923
|
|
Taxes receivable or
payable and other
|
|
45,256
|
|
39,384
|
|
79,063
|
|
(7,841)
|
Cash flows (used in)
provided by operating activities
|
|
(204,622)
|
|
351,906
|
|
(137,416)
|
|
727,422
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of
shares
|
|
146,427
|
|
-
|
|
146,427
|
|
-
|
Repurchase of
shares
|
|
(37)
|
|
(159,460)
|
|
(5,999)
|
|
(159,823)
|
Exercise of employee
stock options
|
|
-
|
|
557
|
|
407
|
|
598
|
Repayment of senior
debt
|
|
-
|
|
(150,000)
|
|
-
|
|
(150,000)
|
Dividends paid to
shareholders
|
|
-
|
|
(15,834)
|
|
(16,710)
|
|
(32,629)
|
Cash flows provided
by (used in) financing activities
|
|
146,390
|
|
(324,737)
|
|
124,125
|
|
(341,854)
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Activity in
securities
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
-
|
|
(103,942)
|
|
(5,803)
|
|
(189,361)
|
|
Proceeds from
sales
|
|
491,883
|
|
-
|
|
491,883
|
|
-
|
|
Proceeds from
maturities
|
|
1,220
|
|
76,933
|
|
10,271
|
|
114,104
|
Purchases of capital
assets
|
|
(530)
|
|
(1,095)
|
|
(586)
|
|
(1,319)
|
Capitalized
intangible development costs
|
|
(2,549)
|
|
(5,269)
|
|
(4,886)
|
|
(10,293)
|
Cash flows provided
by (used in) investing activities
|
|
490,024
|
|
(33,373)
|
|
490,879
|
|
(86,869)
|
Net increase
(decrease) in cash and cash equivalents during the
period
|
|
431,792
|
|
(6,204)
|
|
477,588
|
|
298,699
|
Cash and cash
equivalents at beginning of the period
|
|
1,251,190
|
|
1,454,752
|
|
1,205,394
|
|
1,149,849
|
Cash and Cash
Equivalents at End of the Period
|
$
|
1,682,982
|
$
|
1,448,548
|
$
|
1,682,982
|
$
|
1,448,548
|
Supplementary
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Dividends received on
investments
|
$
|
1,008
|
$
|
2,772
|
$
|
4,036
|
$
|
5,551
|
Interest
received
|
|
216,122
|
|
216,513
|
|
431,766
|
|
433,897
|
Interest
paid
|
|
248,610
|
|
111,196
|
|
322,304
|
|
187,815
|
Income taxes
paid
|
|
6,646
|
|
16,647
|
|
26,868
|
|
44,126
|
¹Amortization and
impairment losses include amortization on capital and intangible
assets and impairment losses on intangible assets and
goodwill.
|
Caution Regarding Forward-looking Statements
From time to time Home Capital Group Inc. makes written and
verbal forward-looking statements. These are included in the Annual
Report, periodic reports to shareholders, regulatory filings, press
releases, Company presentations and other Company communications.
Forward-looking statements are made in connection with business
objectives and targets, Company strategies, operations, anticipated
financial results and the outlook for the Company, its industry,
and the Canadian economy. These statements regarding expected
future performance are "financial outlooks" within the meaning of
National Instrument 51-102. Please see the risk factors, which are
set forth in detail in the Risk Management section of the 2017
Second Quarter Report, as well as the Company's other publicly
filed information, which is available on the System for Electronic
Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the
material factors that could cause the Company's actual results to
differ materially from these statements. These risk factors
are material risk factors a reader should consider, and include
credit risk, liquidity and funding risk, structural interest rate
risk, operational risk, investment risk, strategic risk,
reputational risk, compliance risk and capital adequacy risk along
with additional risk factors that may affect future results.
Forward-looking statements can be found in the Report to the
Shareholders and the Overview of the Second Quarter and Outlook
section in the 2017 Second Quarter Report. Forward-looking
statements are typically identified by words such as "will,"
"believe," "expect," "anticipate," "intend," "should," "estimate,"
"plan," "forecast," "may," and "could" or other similar
expressions.
By their very nature, these statements require the Company to
make assumptions and are subject to inherent risks and uncertainty,
general and specific, which may cause actual results to differ
materially from the expectations expressed in the forward-looking
statements. These risks and uncertainties include, but are
not limited to, global capital market activity, changes in
government monetary and economic policies, changes in interest
rates, inflation levels and general economic conditions,
legislative and regulatory developments, competition and
technological change. Please also refer to the Overview of
the Second Quarter and Outlook section of the 2017 Second
Quarter Report for risks and uncertainties related to the
Company's going concern assessment. The preceding list is not
exhaustive of possible factors.
These and other factors should be considered carefully and
readers are cautioned not to place undue reliance on these
forward-looking statements. The Company presents forward-looking
statements to assist shareholders in understanding the Company's
assumptions and expectations about the future that are relevant in
management's setting of performance goals, strategic priorities and
outlook. The Company presents its outlook to assist shareholders in
understanding management's expectations on how the future will
impact the financial performance of the Company. These
forward-looking statements may not be appropriate for other
purposes. The Company does not undertake to update any
forward-looking statements, whether written or verbal, that may be
made from time to time by it or on its behalf, except as required
by securities laws.
Assumptions about the performance of the Canadian economy in
2017 and its effect on Home Capital's business are material factors
the Company considers when setting its performance goals, strategic
priorities and outlook. In determining expectations for economic
growth, both broadly and in the financial services sector, the
Company primarily considers historical and forecasted economic data
provided by the Canadian government and its agencies. In
determining the outlook for the remainder of 2017, management's
expectations continue to assume:
- The Canadian economy is expected to be relatively stable in
2017, supported by expanded Federal Government spending.
- Generally the Company expects stable employment conditions in
its established regions. Also, the Company expects inflation will
generally be within the Bank of Canada's target of 1% to 3%, leading to stable
credit losses and demand for the Company's lending products in its
established regions.
- The Canadian economy will continue to be influenced by the
economic conditions in the United
States and global markets and further adjustments in
commodity prices; as such, the Company is prepared for the
variability that may result.
- The Company is assuming that interest rates will generally
remain at the current very low rates for 2017. This is expected to
continue to support relatively low mortgage interest rates for the
foreseeable future.
- The Company believes that the current and expected levels of
housing activity indicate a relatively stable real estate market
overall. Please see Market Conditions under the Overview of the
Second Quarter and Outlook section of the 2017 Second Quarter
Report for more discussion on the Company's expectations for the
housing market.
- The Company expects that consumer debt levels, while elevated,
will remain serviceable by Canadian households.
- The Company will have access to the mortgage and deposit
markets through broker networks.
Non-GAAP Measures
The Company has adopted IFRS as its accounting framework. IFRS
are the generally accepted accounting principles (GAAP) for
Canadian publicly accountable enterprises for years beginning on or
after January 1, 2011. The Company
uses a number of financial measures to assess its
performance. Some of these measures are not calculated in
accordance with GAAP, are not defined by GAAP, and do not have
standardized meanings that would ensure consistency and
comparability between companies using these measures.
Definitions of non-GAAP measures can be found under Non-GAAP
Measures in the Management's Discussion and Analysis included in
the Company's 2017 Second Quarter Report.
Regulatory Filings
The Company's continuous disclosure materials, including interim
filings, annual Management's Discussion and Analysis and audited
consolidated financial statements, Annual Information Form, Notice
of Annual Meeting of Shareholders, and Proxy Circular are available
on the Company's website at www.homecapital.com and on the Canadian
Securities Administrators' website at www.sedar.com.
About Home Capital
Home Capital Group Inc. is a public company, traded on the
Toronto Stock Exchange (HCG), operating through its principal
subsidiary, Home Trust Company. Home Trust is a federally regulated
trust company offering deposits, residential and non-residential
mortgage lending, securitization of insured residential first
mortgage products, consumer lending and credit card services.
In addition, Home Trust offers deposits via brokers and financial
planners, and through its direct to consumer brand, Oaken
Financial. Home Trust also conducts business through its
wholly owned subsidiary, Home Bank. Licensed to conduct business
across Canada, Home Trust has
offices in Ontario, Alberta, British
Columbia, Nova Scotia,
Quebec and Manitoba.
SOURCE Home Capital Group Inc.