Home Capital Reports Third Quarter 2017 Results

Date : 11/14/2017 @ 6:52PM
Source : PR Newswire (Canada)
Stock : Home Capital Group Inc. (HCG)
Quote : 16.8  1.13 (7.21%) @ 12:02PM

Home Capital Reports Third Quarter 2017 Results

Home Capital Group Inc. (TSX:HCG)
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1 Month : From Oct 2017 to Nov 2017

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TORONTO, Nov. 14, 2017 /CNW/ - Home Capital Group ("Home Capital" or "the Company") (TSX: HCG) today reported financial results for the three and nine months ended September 30, 2017. This press release should be read in conjunction with the Company's 2017 Third 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.

Yousry Bissada, President and Chief Executive Officer, Home Capital said, "We achieved a number of key milestones during the third quarter to set the Company on the right course for future growth.  We strengthened our liquidity position and maintained access to deposit funding which we can quickly flex up or dial back in line with seasonal demand. We made initial progress growing originations from a low base to more profitably utilize our deposits. We successfully completed Project EXPO reducing our ongoing expenses and we added experienced and capable members to our senior management team. Importantly, Home Capital returned to profitability."

"Looking ahead, our top priority is to grow our residential and commercial business lines to more normal and sustainable levels. We are enhancing our sales and underwriting processes to improve service levels and win business. With our strong capital and liquidity base, we are well positioned to take advantage of opportunities to build our business. We will do this in the context of an evolving regulatory landscape which we are assessing to quickly adapt. All the while we will continue to prudently manage credit risk and maintain an enhanced risk management and governance framework."

Third Quarter 2017 Financial Statement Highlights

Third Quarter 2017, compared with the Third Quarter 2016:

  • Returned to profitability and reported net income of $30.0 million and $0.37 per share fully diluted, compared with net income of $66.2 million and $1.01 diluted earnings per share.
  • Net income for third quarter 2017 includes the impact of reduced loan balances, increased interest expenses, elevated non-interest expenses and loss on sale of mortgage assets.
  • Total loans under administration were $23.2 billion compared to $26.0 billion as a result of the sale of loans and lower originations.
  • Total mortgage originations of $385 million, compared with $2.54 billion.
  • Provisions for credit losses (PCL) decreased reflecting the impact of a $6.5 million release of the collective allowance due to the sale of $963 million of commercial portfolio assets. PCL as a percentage of gross uninsured loans was (0.14)%, or 0.07% if the impact of the reduction in the collective allowance was excluded for ease of comparison, compared to 0.04%.
  • Robust capital position to enable future growth with CET 1 ratio at 21.25% compared to 16.54%.

First Nine Months ended September 30, 2017, compared with First Nine Months ended September 30, 2016:

  • Reported net loss was $23.1 million, compared with net income of $196.7 million.
  • Reported diluted loss per share was $0.33, compared with diluted earnings per share of $2.92.
  • Total mortgage originations of $3.8 billion, compared with $6.8 billion.
  • PCL as a percentage of gross uninsured loans was 0.05%, compared to 0.05%.

Recent Events

  • Yousry Bissada named President and Chief Executive Officer, Brad Kotush named Executive Vice President and Chief Financial Officer and Edward Karthaus named Executive Vice President, Sales.
  • Liquidity position of $4.66 billion including $2 billion undrawn balance of Berkshire Hathaway (BH) credit facility at end of Q3 2017.
  • Announced agreement with a third party to sell the Company's payment processing and prepaid card business including its Payment Services Interactive Gateway (PSiGate) subsidiaries.
  • Project EXPO successfully completed; expected to result in future annualized cost savings of $15 million when compared to the annualized run rate of Q4 2016 expenses (excluding items of note).
  • Closed final tranche of a previously announced sale of certain commercial mortgage assets, for aggregate proceeds of approximately $1.0 billion.
  • Received final approval of two agreements comprising a global settlement with the Ontario Securities Commission and a class action lawsuit from Ontario Superior Court of Justice.

Strategic Update

The Company's new Chief Executive Officer and Chief Financial Officer, along with the Board of Directors, are focused on setting a long-term strategy to grow the business and create shareholder value.

In the near term, the Company's priorities are to grow residential and commercial business lines and take back market share. To achieve this, management is focused on improving service levels, introducing competitive product offerings and increasing outreach in the broker community. 

The Company has successfully restored ample liquidity and stabilized its deposit funding; however, third quarter performance continued to reflect a number of negative factors stemming from the liquidity event including lower residential and commercial loan assets, higher deposit interest costs and elevated non-interest costs. New loan originations were well below historical levels and are not adequate to replace loan assets reduced through sales. Although the Company successfully stabilized its liquidity position and quickly restored deposit funding, the process of restoring loan growth has been slower than planned and is management's top priority.

In addition, the Company is operating in the context of an evolving regulatory landscape that will affect its primary residential mortgage market, though the extent of any impact is not yet clear.

Against this backdrop, Management and the Board of Directors are reassessing opportunities for the business and actively updating and executing its corporate strategy during the fourth quarter 2017 and first quarter of 2018.

Third Quarter Expenses

During the third quarter, the Company's expenses were in line with management expectations. Costs were elevated following the significant liquidity event that occurred during the second quarter 2017, which required the Company to liquidate securities and sell mortgage assets and establish a $2 billion credit facility (later replaced by the $2 billion credit facility on better terms from a wholly owned subsidiary of Berkshire Hathaway).

Some expenses associated with the liquidity event declined during the third quarter, such as the interest expense on the credit facilities which were repaid by the end of July. However, other operating expenses remained elevated, as expected, compared to historical levels due to increased professional fees, and legal fees and other expenses related to the liquidity event. In addition, the Company recognized a loss of $13.2 million on the completion of the previously announced asset sales required to repay the outstanding balance on the credit facility.  Project EXPO, the Company's expense savings initiative announced early in 2017, has been successfully completed and no additional severance or other expense related to Project EXPO was recognized during the third quarter.

Moving forward into Q4 2017 and the first half of 2018, the Company expects to experience some continued elevated costs associated with the liquidity event that should be partially offset by Project EXPO savings.

Fourth Quarter 2017 Outlook

During the third quarter, the Company focused on carefully increasing lending activity and growing mortgage originations in step with deposit funding growth. Origination growth was lower than anticipated and the process of growing the lending book is an ongoing priority.  Based on the current rate of funding new mortgages, the Company now estimates that the balance of non-securitized single-family residential mortgages will be approximately $10 billion at the end of 2017, compared to $10.4 billion at the end of the third quarter.

Improved depositor confidence, combined with premium interest rates offered on new fixed-term deposits, increased net deposit inflows and stabilized the Company's deposit funding. This positioned the Company with excess liquidity and increased funding capacity to significantly increase originations and achieve higher levels of new business going forward.

A focus on deploying excess liquidity and growing the loan book is expected to have a positive effect on net interest margins going forward. During the third quarter, the growth of deposits outpaced loan growth which resulted in a substantial increase in lower yielding liquid assets and contributed to lower net interest margins. The Company was required to offer premium rates on deposits, to increase inflows, which reduced the interest spread earned.  The interest spread earned was also reduced by the significant decline in lower cost demand deposits relative to higher cost fixed-term deposits.  By the end of the third quarter, the Company reduced deposit interest rates on new deposits to market levels, intentionally lowering deposit growth, as efforts turned to growing mortgage balances.

In addition, because of the overhang of the liquidity event, internal management and process changes, and timing of the shift in focus to growing mortgage balances, new loan originations are expected to be well below historical levels. Furthermore, the sale of commercial and residential mortgage assets and early payouts of consumer lending assets also contributed to reduced interest earning assets.

Net interest income is also expected to improve due to the full repayment of the outstanding debt under the BH credit facility; however, interest income is expected to remain at reduced levels until the Company can grow its loan portfolios to desired levels. 

Strong capital levels are expected to be maintained as management continues to review opportunities to deploy capital in the most efficient manner to maximize shareholder value.  The Company anticipates that return on shareholders' equity will continue to be dampened compared to prior periods by a combination of lower earnings and the increased share capital.

Management Comments on Revisions to Guideline B-20

In October 2017, OSFI announced revisions to Guideline B-20 Residential Mortgage Underwriting Practices and Procedures (B20), effective January 1, 2018. Management is interpreting the revisions to determine what potential operational adjustments will be required to be implemented prior to the effective date. The revisions include the following new standards:

  1. a qualifying stress test for uninsured mortgages;
  2. guidance on co-lending and bundling arrangements and;
  3. additional guidance on income verification and expectations to account for property price inflation when determining appropriate loan to value.

The stress test requirement is expected to have the most material impact on the mortgage market and would result in a material portion of the Company's existing portfolio qualifying for smaller loan size, if re-qualified under the new rules.  The net impact to future originations volume will be affected by borrower behaviour with respect to loan size requested and down-payments, and the potential for the Company to take on a part of the market that may no longer qualify at other federally regulated institutions. The Company also expects these revisions will increase the rate of renewals of mortgage loans with the existing lenders.

The Company has identified a number of strategies to mitigate the impact of stress testing and co-lending changes while maintaining overall credit quality. However, management will require a period of time to fully assess the market impact from the changes and what the net impact will be on the Company's addressable market and product suite offering. The Company will attend OSFI information sessions before the end of the year to receive further clarity on certain revisions such as income verification and
co-lending standards. 

It is unclear what impact the revisions to B-20 will have on the real estate and mortgage markets as a whole, particularly when combined with changes under the Ontario Fair Housing Plan announced by the Ontario Ministry of Finance in April 2017.

Management and Board of Directors will continue to reassess the corporate strategy and opportunities for the business during the fourth quarter 2017 and first quarter of 2018.

Governance and Risk Management

Over the past few years, the Company has worked to continuously strengthen its governance and risk management processes (Risk Framework) and has significantly invested in enhancing systems and controls throughout the organization to support responsible growth. Today the Company has a more robust Risk Framework and is well positioned to sustainably grow its business with a renewed Board of Directors. Earlier this year, five new independent Directors were appointed to the Board, adding deep governance, risk and regulatory, finance, banking and investment experience.  In addition, the Company has new Board and Board Committee Chairs, a new President and Chief Executive Officer and a new Chief Financial Officer. All are focused on driving governance, risk management and strategy to enhance long-term Company performance.

Brenda Eprile, Chair, Board of Directors of Home Capital commented, "Our renewed Board of Directors and strengthened corporate governance practices are the foundation to how we will grow and win future business and will also guide our strategies in the markets we serve.  I look forward to working with our management team and Board on a longer term strategy to increase our revenues, manage risk and expenses, expand our geographic footprint and build long-term shareholder value."

(signed)

(signed)

YOUSRY BISSADA

BRENDA EPRILE

President & Chief Executive Officer

Chair of the Board

November 14, 2017


 

The Company's 2017 Third Quarter Financial Report, including Management's Discussion and Analysis, for the three and nine months ended September 30, 2017 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

Third Quarter 2017 Results Conference Call and Webcast

The conference call will take place on Wednesday, November 15, 2017, at 8:00 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 11:00 a.m. ET Wednesday, November 15, 2017 and 12:00 a.m. ET Wednesday, November 22, 2017 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 96245439). 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.

Financial Highlights




(Unaudited)

For the three months ended

For the nine months ended

(000s, except Percentage and Per Share Amounts)

September 30

June 30

September 30

September 30

September 30



2017


2017


2016


2017


2016

OPERATING RESULTS











Net Income (Loss)

$

29,983

$

(111,116)

$

66,190

$

(23,092)

$

196,690

Net Interest Income (Loss)


88,762


(3,407)


119,924


211,212


364,544

Total Revenue1


95,407


(61,293)


145,095


181,856


437,362

Diluted Earnings (Loss) per Share

$

0.37

$

(1.73)

$

1.01

$

(0.33)

$

2.92

Return on Shareholders' Equity


6.8%


(25.9)%


16.7%


(1.8)%


16.2%

Return on Average Assets


0.6%


(2.2)%


1.3%


(0.2)%


1.3%

Net Interest Margin (TEB)2


1.85%


(0.07)%


2.34%


1.41%


2.37%

Provision as a Percentage of Gross Uninsured Loans (annualized)3


(0.14)%


0.07%


0.04%


0.05%


0.05%

Provision as a Percentage of Gross Loans (annualized)3


(0.11)%


0.05%


0.03%


0.04%


0.04%

Efficiency Ratio (TEB)2


62.7%


(138.9)%


37.7%


114.5%


38.2%









As at




September 30


June 30


December 31


September 30





2017


2017


2016


2016



BALANCE SHEET HIGHLIGHTS











Total Assets

$

18,856,294

$

20,077,150

$

20,528,777

$

20,317,030



Total Assets Under Administration4


26,659,330


28,292,436


28,917,534


28,327,676



Total Loans5


15,429,650


17,648,114


18,035,317


18,002,238



Total Loans Under Administration4,5


23,232,686


25,863,400


26,424,074


26,012,884



Liquid Assets


2,657,055


1,737,417


2,067,981


1,878,082



Deposits


13,358,618


13,104,606


15,886,030


15,694,102



Line of Credit Facility


-


1,396,959


-


-



Shareholders' Equity


1,781,741


1,751,087


1,632,587


1,594,873



FINANCIAL STRENGTH











Capital Measures6











Risk-Weighted Assets

$

6,890,938

$

8,328,024

$

8,643,267

$

8,414,960



Common Equity Tier 1 Capital Ratio


21.25%


17.06%


16.55%


16.54%



Tier 1 Capital Ratio


21.25%


17.06%


16.54%


16.53%



Total Capital Ratio


21.74%


17.54%


16.97%


16.97%



Leverage Ratio


7.89%


7.19%


7.20%


7.08%



Credit Quality











Net Non-Performing Loans as a Percentage of Gross Loans


0.28%


0.23%


0.30%


0.31%



Allowance as a Percentage of Gross Non-Performing Loans


82.6%


100.5%


73.4%


69.3%



Share Information











Book Value per Common Share

$

22.20

$

21.82

$

25.36

$

24.70



Common Share Price – Close

$

13.89

$

16.99

$

31.34

$

27.00



Dividend paid during the period ended

$

-

$

-

$

0.26

$

0.24



Dividend Payout Ratio


-


-


32.9%


23.8%



Market Capitalization

$

1,114,617

$

1,363,380

$

2,017,920

$

1,743,093



Number of Common Shares Outstanding


80,246


80,246


64,388


64,559



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 Third Quarter Report.

2

See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2017 Third Quarter Report.

3

Provision as a percentage of both gross uninsured loans and gross loans for the three months ended September 30, 2017 include a release of $6.5 million in the collective allowance (please see Note 5(G) to the unaudited interim consolidated financial statements included in the Company's 2017 Third Quarter Report for more information). In the absence of this release, annualized provision for credit losses was 0.07% of gross uninsured loans and 0.06% of gross loans for the three months ended September 30, 2017.

4

Total assets and loans under administration include both on- and off-balance sheet amounts.

5

Total loans include loans held for sale.

6

These figures relate to the Company's operating subsidiary, Home Trust Company.


 

Consolidated Statements of Income (Loss)







For the three months ended

For the nine months ended

thousands of Canadian dollars, except per share amounts

September 30

June 30

September 30

September 30

September 30

(Unaudited)


2017


2017


2016


2017


2016

Net Interest Income (Loss) Non-Securitized Assets











Interest from loans

$

167,159

$

192,394

$

192,395

$

551,988

$

577,645

Dividends from securities


253


300


2,359


2,839


7,498

Other interest


4,303


1,627


3,046


8,850


8,559



171,715


194,321


197,800


563,677


593,702

Interest on deposits and other


75,430


71,673


81,519


224,355


239,294

Interest and fees on line of credit facility


11,368


130,630


-


141,998


-

Net interest income (loss) non-securitized assets


84,917


(7,982)


116,281


197,324


354,408












Net Interest Income Securitized Loans and Assets











Interest income from securitized loans and assets


23,130


22,678


20,957


67,366


61,782

Interest expense on securitization liabilities


19,285


18,103


17,314


53,478


51,646

Net interest income securitized loans and assets


3,845


4,575


3,643


13,888


10,136












Total Net Interest Income (Loss)


88,762


(3,407)


119,924


211,212


364,544

Provision for credit losses


(4,257)


2,420


1,336


4,082


5,490



93,019


(5,827)


118,588


207,130


359,054

Non-Interest Income (Loss)











Fees and other income


18,087


17,168


17,223


51,586


53,716

Securitization income


2,525


1,877


7,599


10,834


24,733

Gain on acquisition of CFF Bank


-


-


-


-


651

Net realized and unrealized losses on securities and loans


(13,155)


(76,912)


-


(90,070)


(175)

Net realized and unrealized gains (losses) on derivatives


(812)


(19)


349


(1,706)


(6,107)



6,645


(57,886)


25,171


(29,356)


72,818



99,664


(63,713)


143,759


177,774


431,872

Non-Interest Expenses











Salaries and benefits


22,610


29,303


24,350


81,532


77,746

Premises


3,283


3,365


3,472


10,400


10,898

Other operating expenses


34,031


52,333


27,160


117,458


79,267



59,924


85,001


54,982


209,390


167,911












Income (Loss) Before Income Taxes


39,740


(148,714)


88,777


(31,616)


263,961

Income taxes












Current


5,839


(39,616)


22,957


(10,635)


67,954


Deferred                                                                        


3,918


2,018


(370)


2,111


(683)




9,757


(37,598)


22,587


(8,524)


67,271

NET INCOME (LOSS)

$

29,983

$

(111,116)

$

66,190

$

(23,092)

$

196,690












NET INCOME (LOSS) PER COMMON SHARE











Basic

$

0.37

$

(1.73)

$

1.01

$

(0.33)

$

2.92

Diluted

$

0.37

$

(1.73)

$

1.01

$

(0.33)

$

2.92

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING











Basic


80,246


64,378


65,386


69,621


67,326

Diluted


80,246


64,378


65,435


69,621


67,413













Total number of outstanding common shares


80,246


80,246


64,559


80,246


64,559

Book value per common share

$

22.20

$

21.82

$

24.70

$

22.20

$

24.70

 

Consolidated Statements of Comprehensive Income (Loss)






For the three months ended

For the nine months ended


September 30

June 30

September 30

September 30

September 30

thousands of Canadian dollars (Unaudited)


2017


2017


2016


2017


2016












NET INCOME (LOSS)

$

29,983

$

(111,116)

$

66,190

$

(23,092)

$

196,690












OTHER COMPREHENSIVE INCOME (LOSS)






















Available for Sale Securities and Retained Interests











Net unrealized gains (losses)


1,483


550


7,820


18,447


(922)

Net losses reclassified to net income


-


46,647


-


46,650


204



1,483


47,197


7,820


65,097


(718)

Income tax expense (recovery)


394


12,514


2,075


17,266


(212)



1,089


34,683


5,745


47,831


(506)












Cash Flow Hedges











Net unrealized gains (losses)


(467)


(525)


803


(1,077)


2,712

Net losses reclassified to net income


287


572


268


1,188


973



(180)


47


1,071


111


3,685

Income tax expense (recovery)


(50)


12


284


34


978



(130)


35


787


77


2,707












Total other comprehensive income


959


34,718


6,532


47,908


2,201












COMPREHENSIVE INCOME (LOSS)

$

30,942

$

(76,398)

$

72,722

$

24,816

$

198,891


 

Consolidated Balance Sheets











As at


September 30

June 30

 December 31

thousands of Canadian dollars (Unaudited)


2017


2017


2016

ASSETS







Cash and Cash Equivalents

$

2,337,760

$

1,682,982

$

1,205,394

Available for Sale Securities


331,544


31,495


534,924

Loans Held for Sale


40,320


-


77,918

Loans







Securitized mortgages


3,133,906


3,257,104


2,526,804

Non-securitized mortgages and loans


12,255,424


14,391,010


15,430,595



15,389,330


17,648,114


17,957,399

Collective allowance for credit losses


(33,563)


(40,063)


(37,063)



15,355,767


17,608,051


17,920,336

Other







Restricted assets


289,870


216,596


265,374

Derivative assets


10,177


21,804


37,524

Other assets


365,685


384,676


348,638

Deferred tax assets


15,873


19,510


16,914

Goodwill and intangible assets


109,298


112,036


121,755



790,903


754,622


790,205


$

18,856,294

$

20,077,150

$

20,528,777

LIABILITIES AND SHAREHOLDERS' EQUITY







Liabilities







Deposits







Deposits payable on demand

$

441,008

$

372,912

$

2,531,803

Deposits payable on a fixed date


12,917,610


12,731,694


13,354,227



13,358,618


13,104,606


15,886,030

Line of Credit Facility


-


1,396,959


-

Securitization Liabilities







CMHC-sponsored mortgage-backed security liabilities


1,606,818


1,649,637


898,386

CMHC-sponsored Canada Mortgage Bond liabilities


1,473,350


1,474,001


1,637,117

Bank-sponsored securitization conduit liabilities


174,511


203,991


114,146



3,254,679


3,327,629


2,649,649

Other







Derivative liabilities


31,192


11,322


3,490

Other liabilities1


395,291


450,925


320,737

Deferred tax liabilities


34,773


34,622


36,284



461,256


496,869


360,511



17,074,553


18,326,063


18,896,190

Shareholders' Equity







Capital stock


231,156


231,618


84,910

Contributed surplus


5,096


4,922


4,562

Retained earnings1


1,552,646


1,522,663


1,598,180

Accumulated other comprehensive loss


(7,157)


(8,116)


(55,065)



1,781,741


1,751,087


1,632,587


$

18,856,294

$

20,077,150

$

20,528,777


1 During the quarter, the Company made an adjustment to retained earnings and other liabilities as it was determined that a dividend recognized in a prior
period was accrued prior to being declared by the Company. This adjustment is not significant to the consolidated financial statements of the Company.
As a result of the adjustment, retained earnings increased by $15.4 million and other liabilities decreased by a corresponding amount as at December 31, 2015.


 

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, 20161

$

84,910

$

4,562

$

1,598,180

$

(53,589)

$

(1,476)

$

(55,065)

$

1,632,587

Comprehensive income (loss)


-


-


(23,092)


47,831


77


47,908


24,816

Stock options settled


548


(141)


-


-


-


-


407

Amortization of fair value of















   employee stock options


-


675


-


-


-


-


675

Repurchase of shares


(267)


-


(5,732)


-


-


-


(5,999)

Issuance of shares


145,965


-


-


-


-


-


145,965

Dividends















($0.26 per share)


-


-


(16,710)


-


-


-


(16,710)

Balance at September 30, 2017

$

231,156

$

5,096

$

1,552,646

$

(5,758)

$

(1,399)

$

(7,157)

$

1,781,741
















Balance at December 31, 20151

$

90,247

$

3,965

$

1,607,833

$

(62,466)

$

(3,078)

$

(65,544)

$

1,636,501

Comprehensive income


-


-


196,690


(506)


2,707


2,201


198,891

Stock options settled


780


(182)


-


-


-


-


598

Amortization of fair value of















   employee stock options


-


805


-


-


-


-


805

Repurchase of shares


(7,052)


-


(186,466)


-


-


-


(193,518)

Dividends















($0.72 per share)


-


-


(48,404)


-


-


-


(48,404)

Balance at September 30, 20161

$

83,975

$

4,588

$

1,569,653

$

(62,972)

$

(371)

$

(63,343)

$

1,594,873

1 During the quarter, the Company made an adjustment to retained earnings and other liabilities as it was determined that a dividend recognized in a prior period was accrued prior to being declared by the Company. This adjustment is not significant to the consolidated financial statements of the Company. As a result of the adjustment, retained earnings increased by $15.4 million and other liabilities decreased by a corresponding amount as at December 31, 2015.

 


Consolidated Statements of Cash Flows






For the three months ended

For the nine months ended


September 30

September 30

September 30

September 30

thousands of Canadian dollars (Unaudited)


2017


2016


2017


2016

CASH FLOWS FROM OPERATING ACTIVITIES









Net income (loss) for the period

$

29,983

$

66,190

$

(23,092)

$

196,690

Adjustments to determine cash flows relating to operating activities:










Amortization of net discount on securities


(107)


(62)


(330)


(379)


Provision for credit losses


(4,257)


1,336


4,082


5,490


Loss on sale of loan portfolios


13,155


-


18,160


-


Gain on sale of mortgages or residual interest


(434)


(6,055)


(5,532)


(19,966)


Net realized and unrealized losses on securities


-


-


71,910


175


Amortization and impairment losses¹


5,565


4,109


22,310


11,582


Amortization of fair value of employee stock options


174


333


675


805


Deferred income taxes


3,918


(370)


2,111


(683)

Changes in operating assets and liabilities










Loans, net of gains or losses on securitization and sales


2,203,614


67,496


2,585,507


282,021


Restricted assets


(73,274)


765


(24,496)


(35,314)


Derivative assets and liabilities


31,317


4,793


55,160


11,815


Accrued interest receivable


7,477


456


9,228


3,174


Accrued interest payable


6,787


(5,117)


(1,769)


543


Deposits


254,012


(328,117)


(2,527,412)


28,144


Line of credit facility


(1,396,959)


-


-


-


Securitization liabilities


(72,950)


(157,268)


605,030


(100,345)


Taxes receivable or payable and other


(52,054)


12,087


27,009


4,246

Cash flows provided by (used in) operating activities


955,967


(339,424)


818,551


387,998

CASH FLOWS FROM FINANCING ACTIVITIES









Issuance of shares


(462)


-


145,965


-

Repurchase of shares


-


(33,695)


(5,999)


(193,518)

Exercise of employee stock options


-


-


407


598

Repayment of senior debt


-


-


-


(150,000)

Dividends paid to shareholders


-


(15,775)


(16,710)


(48,404)

Cash flows (used in) provided by financing activities


(462)


(49,470)


123,663


(391,324)

CASH FLOWS FROM INVESTING ACTIVITIES









Activity in securities










Purchases


(299,152)


(11,335)


(304,955)


(200,696)


Proceeds from sales


-


-


491,883


-


Proceeds from maturities                        


947


14,836


11,218


128,940

Purchases of capital assets


(815)


(771)


(1,401)


(2,090)

Capitalized intangible development costs


(1,707)


(3,444)


(6,593)


(13,737)

Cash flows (used in) provided by investing activities


(300,727)


(714)


190,152


(87,583)

Net increase (decrease) in cash and cash equivalents during the period


654,778


(389,608)


1,132,366


(90,909)

Cash and cash equivalents at beginning of the period


1,682,982


1,448,548


1,205,394


1,149,849

Cash and Cash Equivalents at End of the Period

$

2,337,760

$

1,058,940

$

2,337,760

$

1,058,940

Supplementary Disclosure of Cash Flow Information









Dividends received on investments

$

232

$

2,588

$

4,268

$

8,139

Interest received


203,957


216,504


635,723


650,401

Interest paid


94,926


103,950


417,230


291,765

Income taxes (refunded) paid


(30,854)


24,119


(3,986)


68,245

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 Third 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 Performance Overview and Outlook section in the 2017 Third 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. 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 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 Performance Overview and Outlook section of the 2017 Third 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 Third 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.

Copyright 2017 Canada NewsWire

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