Home Capital Reports Q2 2016 Financial Results

TORONTO, July 27, 2016 /CNW/ - Home Capital Group Inc. (TSX:HCG) ("Home Capital" or the "Company") today reported financial results for the second quarter ended June 30, 2016. The Company delivered solid results across its business, including strong net interest margins, a healthy loan portfolio evidenced by low non-performing loans and credit losses, year-over-year single-family mortgage originations growth, and a continued strong capital position.

This press release should be read in conjunction with the Company's Second Quarter Report, including Financial Statements and Management's Discussion and Analysis, which are available on Home Capital's website at www.homecapital.com and the Canadian Securities Administrators' website at www.sedar.com.

SECOND QUARTER 2016 HIGHLIGHTS

"Our second quarter operating results marked another step forward for Home Capital, building on the momentum we saw in the first quarter and showing yet again that we are on track to achieve our goal of driving origination growth," said Martin Reid, Home Capital's President and Chief Executive Officer. "In the second quarter, total originations increased 22.3% year over year to $2.47 billion. Also, we made further progress on our deposit diversification strategy, with deposits exceeding $16 billion for the first time with more than 26% of our deposits from diversified sources."

"Operating expenses reflect the significant strides we are making as we position the Company for long-term success through continued investments to improve our processes and controls, further strengthen originations and increase customer retention. In addition, over the last year we have made excellent progress on improving our risk management processes while also enhancing the safety and soundness of our portfolio as highlighted by continued low credit losses."

"In the first half of 2016 we demonstrated our commitment to creating shareholder value by maintaining excellent credit performance, maintaining the strength of our balance sheet and returning capital to shareholders through our dividend and share buybacks," Mr. Reid added. "As we enter the next stage of our evolution, we are focused on creating sustainable growth and delivering fully on the value we can create."

Martin Reid assumed his new role as President and Chief Executive Officer on May 11, 2016 following the Company's Annual General Meeting and the retirement of Gerald (Jerry) M. Soloway.

Second Quarter 2016, compared with the Second Quarter 2015:
- Reported net income was $66.3 million, compared with $72.3 million.
- Reported diluted earnings per share were $0.99, compared with $1.03.
- There were no adjustments to net income during Q2 2016 and Q2 2015.
First Six Months ended June 30, 2016, compared with First Six Months ended June 30, 2015:
- Reported net income was $130.5 million, compared with $144.6 million.
- Reported diluted earnings per share were $1.91, compared with $2.05.
- Adjusted net income was $133.7 million, compared with $144.6 million.
- Adjusted diluted earnings per share were $1.95, compared with $2.05.
Included in Q2 2016 reported net income of $66.3 million and reported diluted earnings per share of $0.99 is $1.4 million of losses ($1.1 million, after tax and $0.02 diluted earnings per share) from continuing operations of CFF Bank, $0.8 million ($0.6 million, after tax and $0.01 diluted earnings per share) of derivative losses related to the senior debt, which was retired early in Q2 2016 and a reduction in fee revenue of $2.0 million ($1.5 million, after tax and $0.02 diluted earnings per share) resulting from changes in the Company's fee structure. The total negative impact to reported diluted earnings per share of the above amounts is $0.05. Reported diluted earnings per share were also positively impacted by the reduction in shares resulting from the repurchase of shares following the substantial issuer bid which was completed in early Q2 2016. The impact of the share repurchase on diluted earnings per share is $0.05.
Provision for credit losses as a percentage of gross uninsured loans was 0.08% on an annualized basis for Q2 2016 compared to 0.04% in Q1 2016 and 0.07% in Q2 2015. Net non-performing loans as a percentage of gross loans were 0.33% at the end of Q2 2016 compared to 0.34% at the end of Q1 2016 and 0.28% at the end of Q2 2015.
Total capital ratio of 16.82% declined following the repurchase of shares and the retirement of the subordinated debentures of Home Trust, which were retired in connection with the retirement of the Company's senior debt. However, capital ratios continue to be well in excess of regulatory minimums and internal Company targets.

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
		2016		2016		2015		2016		2015
OPERATING RESULTS
Net Income	$	66,252	$	64,248	$	72,317	$	130,500	$	144,603
Adjusted Net Income¹		66,252		67,497		72,317		133,749		144,603
Net Interest Income		122,103		122,517		117,210		244,620		232,734
Total Adjusted Revenue¹	$	242,526	$	241,197	$	250,879	$	483,723	$	500,111
Diluted Earnings per Share		0.99		0.92		1.03		1.91		2.05
Adjusted Diluted Earnings per Share¹		0.99		0.96		1.03		1.95		2.05
Return on Shareholders' Equity		16.5%		15.7%		19.1%		16.4%		19.4%
Adjusted Return on Shareholders' Equity¹		16.5%		16.4%		19.1%		16.8%		19.4%
Return on Average Assets		1.3%		1.2%		1.4%		1.3%		1.4%
Net Interest Margin (TEB)²		2.38%		2.38%		2.29%		2.38%		2.28%
Provision as a Percentage of Gross Uninsured Loans (annualized)		0.08%		0.04%		0.07%		0.06%		0.07%
Provision as a Percentage of Gross Loans (annualized)		0.06%		0.03%		0.05%		0.05%		0.05%
Efficiency Ratio (TEB)²		37.2%		39.6%		32.2%		38.4%		31.3%
Adjusted Efficiency Ratio (TEB)^1,2		37.2%		36.3%		32.2%		36.8%		31.3%

								As at
		June 30		March 31		December 31		June 30
		2016		2016		2015		2015
BALANCE SHEET HIGHLIGHTS
Total Assets	$	20,763,147	$	20,687,984	$	20,527,062	$	20,516,247
Total Assets Under Administration³		28,430,730		27,960,592		27,316,476		25,456,212
Total Loans⁴		18,065,074		17,949,915		18,268,708		17,982,475
Total Loans Under Administration^3,4		25,732,657		25,222,523		25,058,122		22,922,440
Liquid Assets		2,391,225		2,459,859		2,095,145		1,815,817
Deposits		16,022,219		15,824,899		15,665,958		14,966,544
Shareholders' Equity		1,555,893		1,661,759		1,621,106		1,536,099
FINANCIAL STRENGTH
Capital Measures⁵
Risk-Weighted Assets	$	8,310,406	$	8,169,818	$	7,985,498	$	7,634,392
Common Equity Tier 1 Capital Ratio		16.38%		18.28%		18.31%		18.03%
Tier 1 Capital Ratio		16.38%		18.28%		18.30%		18.03%
Total Capital Ratio		16.82%		20.63%		20.70%		20.53%
Leverage Ratio		6.77%		7.46%		7.36%		6.94%
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans		0.33%		0.34%		0.28%		0.33%
Allowance as a Percentage of Gross Non-Performing Loans		66.0%		62.9%		74.0%		62.9%
Share Information
Book Value per Common Share	$	23.67	$	23.75	$	23.17	$	21.87
Common Share Price – Close	$	32.02	$	35.06	$	26.92	$	43.28
Dividend paid during the period ended	$	0.24	$	0.24	$	0.22	$	0.22
Market Capitalization	$	2,105,027	$	2,453,008	$	1,883,808	$	3,040,290
Number of Common Shares Outstanding		65,741		69,966		69,978		70,247

¹ See definition of Adjusted Net Income, Total Adjusted Revenue, Adjusted Diluted Earnings per Share, Adjusted Return on Shareholders' Equity and Adjusted Efficiency Ratio under Non-GAAP Measures in the 2016 Second Quarter Report and the Reconciliation of Net Income to Adjusted Net Income in the following table.

² See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the 2016 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.

Reconciliation of Net Income to Adjusted Net Income
			Quarter									Year to date
(000s, except % and per share amounts)	Q2		Q1			Q2
	2016		2016		Change	2015		Change		2016		2015	Change
Net income under GAAP	$	66,252	$	64,248	3.1%	$	72,317	(8.4)%	$	130,500	$	144,603	(9.8)%
Adjustment for gain recognized on acquisition of CFF Bank (net of tax)		-		(478)	(100.0)%		-	-		(478)		-	-
Adjustment for certain severance and other related costs (net of tax)		-		3,727	(100.0)%		-	-		3,727		-	-
Adjusted Net Income¹	$	66,252	$	67,497	(1.8)%	$	72,317	(8.4)%	$	133,749	$	144,603	(7.5)%
Adjusted Basic Earnings per Share¹	$	0.99	$	0.96	3.1%	$	1.03	(3.9)%	$	1.96	$	2.06	(4.9)%
Adjusted Diluted Earnings per Share¹	$	0.99	$	0.96	3.1%	$	1.03	(3.9)%	$	1.95	$	2.05	(4.9)%
¹ Adjusted Net Income and Adjusted Earnings per share are defined in the Non-GAAP section of the 2016 Second Quarter Report.

The Company's results were not affected by any items of note during the second quarter of 2016.

In Q1 2016, the Company's results were affected by the following items of note that aggregated to a negative impact on after-tax net income of $3.2 million or $0.04 diluted earnings per share. The items of note for Q1 2016 identified in the above table include the following:

Adjustment to gain recognized on the acquisition of CFF Bank in the amount of $651 thousand ($478 thousand, after tax).
Expenses including severance and other related costs in the amount of $5.1 million ($3.7 million, after tax), that are not expected to be indicative of future results (see the Non-Interest Expense section of the 2016 Second Quarter Report).

The Company's results were not affected by any items of note during the first six months of 2015.

Growing Our Core Business

Home Capital's second quarter results reflect the Company's continued profitability as measured by its strong net interest margin (TEB) of 2.38%, a healthy loan portfolio as evidenced by continued low non-performing loans and credit losses, and a strong capital position.

Total originations were $2.47 billion in Q2 2016 and $4.26 billion for the first six months of 2016, increases of 22.3% and 24.9% compared to the same periods from 2015. The Company reported combined traditional and ACE Plus (uninsured single-family) residential mortgage originations of $1.37 billion in Q2 2016 and $2.43 billion for the first six months of 2016, compared to $1.29 billion and $2.26 billion for the comparable periods of 2015, increases of 5.7% and 7.8% respectively. Introduced in the second half of 2015, ACE Plus is a lower rate mortgage product directed toward lower risk borrowers. Accelerator originations increased 66.3% to $464.8 million in Q2 2016 and 80.3% to $828.6 million for the first six months of 2016, from the comparable periods in 2015. Originations from all other sources increased 42.9% to $641.7 million in Q2 2016 and 44.0% to $995.7 million in the first six months of 2016 from the same periods in 2015. The Company continues to take a prudent approach to growing its traditional residential mortgage business.

The Company is over 90% of the way through its review of the impacted portfolio related to the suspension of 45 individual mortgage brokers last year, which will be completed by the end of 2016. The Company has not experienced any unusual credit issues with respect to the identified mortgages.

Home Capital's top priority continues to be growing its origination volumes, specifically to take advantage of the solid demand for its traditional mortgages within its established regions. On April 1, 2016, the Company launched its new broker partnership program, Spire, with all broker partners now participating in the program. Through the rest of 2016, the Company will continue with its roll out of its broker portal technology, Loft, in an effort to enhance the broker experience. Additionally, the Company is also focusing on growing the loan portfolio by improving retention levels of existing customers. The Company has added to its retention team with a focus on retaining these customers, especially those seeking early discharge.

The Company's commercial lending products continue to demonstrate strength in origination volumes through the second quarter of the year.

Other lending, comprising credit cards, lines of credit and other consumer retail loans, continues to be an important source of loan assets with attractive returns. While representing 4.0% of the total on-balance sheet loan portfolio, these assets generated 7.5% of the interest income from loans for the quarter.

The Company has made excellent progress on its deposit diversification strategy, with deposits exceeding $16 billion for the first time with more than 26% of our deposits from diversified sources. At the end of the quarter, the balance of Oaken deposits was $1.46 billion, up 34.2% from the end of 2015, demonstrating continued progress in the Company's efforts towards deposit diversification.

Building on Operational Excellence

Home Capital continues to experience strong credit performance, with net non-performing loans as a percentage of gross loans at 0.33%. The results reflect the high credit quality of the Company's loan portfolio, supported by the Company's continued investments in its risk management and control infrastructure.

Home Capital continued to make disciplined and measured investments related to the long-term growth of the business, including ongoing investments in information technology to move the Company towards operating as a digital enterprise. In addition, the Company incurred expenses of approximately $0.6 million during the quarter related to its efforts to realign some of its business partnerships.

In 2015, the Company, through its subsidiary Home Trust Company, acquired all of the outstanding common shares of CFF Bank for a purchase price of $23.2 million. The integration of CFF Bank is proceeding to plan, as the Company decommissions redundant systems and facilities in order to realize cost savings and to facilitate growth. The operating losses of CFF Bank reduced diluted earnings per share by $0.02 in Q2 2016. Effective August 22, 2016, CFF Bank will be renamed Home Bank. The Company is excited to welcome the Home Bank name to the Home Capital family. Home Bank is a second deposit issuer in the Company's deposit broker channel and for Oaken Financial. Home Bank represents the Company's ongoing commitment to adding new products to its existing offering and also further advances Home Trust's deposit diversification initiatives.

Solid Shareholder Returns, Strong and Conservative Financial Position

Home Capital continued to focus on maintaining its strong and conservative financial position while delivering value to shareholders in Q2 2016. Home Capital delivered a return on average shareholders' equity of 16.5% for the second quarter.

On April 18, 2016, Home Capital repurchased for cancellation 3,989,361 common shares at a price of $37.60 per share totalling $150 million under the Company's previously announced substantial issuer bid. The Company also increased normal course issuer bid activity during the quarter. In addition, on May 4, 2016, the Company repaid and retired its senior debt in the principal amount of $150 million, resulting in future savings of the related interest expense.

Subsequent to the end of the quarter, and in light of the Company's performance, profitability and strong financial position, the Board of Directors approved a quarterly dividend of $0.24 per common share, payable on September 1, 2016 to shareholders of record at the close of business on August 15, 2016.

In summary, the Company will continue to focus on delivering success over the long-term by providing the best service and support to its customers and valued partners, generating future growth that is sustainable and prudent, and making investments in the business to help achieve those goals.

Looking ahead, the Board of Directors and management expect that Home Capital will continue generating solid returns for shareholders for the remainder of 2016 and beyond.

*(signed)*	*(signed)*

MARTIN REID	KEVIN P.D. SMITH
President & Chief Executive Officer	Chair of the Board
July 27, 2016

Additional information concerning the Company's targets and related expectations for 2016, including the risks and assumptions underlying these expectations, may be found in the MD&A of the 2016 Second Quarter Report.

Second Quarter 2016 Financial Results Conference Call Details
The conference call will take place on Thursday, July 28, 2016 at 10:30 a.m. ET. Participants are asked to dial-in approximately 10 minutes in advance in Toronto at 647-427-7450 or toll-free at 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at www.homecapital.com.

Conference Call Archive
A telephone replay of the call will be available between 1:30 p.m. ET Thursday, July 28, 2016 and 12:00 a.m. ET Thursday, August 4, 2016 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 47154323). The archived audio webcast will be available for 90 days on CNW Group's website at www.newswire.ca and on Home Capital's website at www.homecapital.com.

Supplemental Financial Information
Home Capital has provided a Supplemental Financial Information package available at the Company's website at www.homecapital.com to improve readers' understanding of the financial position and performance of the Company. This information should be used in conjunction with the Company's second quarter unaudited interim consolidated financial report, as well as the Company's 2015 Annual Report.

Consolidated Statements of Income
		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)			2016		2016		2015		2016		2015
Net Interest Income Non-Securitized Assets
Interest from loans		$	191,704	$	193,546	$	190,559	$	385,250	$	377,459
Dividends from securities			2,447		2,692		2,677		5,139		5,415
Other interest			2,985		2,528		2,303		5,513		4,411
			197,136		198,766		195,539		395,902		387,285
Interest on deposits and other			77,847		77,685		80,669		155,532		160,064
Interest on senior debt			465		1,778		1,516		2,243		3,060
Net interest income non-securitized assets			118,824		119,303		113,354		238,127		224,161

Net Interest Income Securitized Loans and Assets
Interest income from securitized loans and assets			20,732		20,093		26,279		40,825		56,673
Interest expense on securitization liabilities			17,453		16,879		22,423		34,332		48,100
Net interest income securitized loans and assets			3,279		3,214		3,856		6,493		8,573

Total Net Interest Income			122,103		122,517		117,210		244,620		232,734
Provision for credit losses			2,760		1,394		2,266		4,154		4,669
			119,343		121,123		114,944		240,466		228,065
Non-Interest Income
Fees and other income			17,328		19,165		21,390		36,493		42,609
Securitization income			9,452		7,682		9,251		17,134		14,660
Gain on acquisition of CFF Bank			-		651		-		651		-
Net realized and unrealized (losses) gains on securities			-		(175)		-		(175)		1,444
Net realized and unrealized losses on derivatives			(2,122)		(4,334)		(1,580)		(6,456)		(2,560)
			24,658		22,989		29,061		47,647		56,153
			144,001		144,112		144,005		288,113		284,218
Non-Interest Expenses
Salaries and benefits			24,685		28,711		21,603		53,396		43,617
Premises			3,575		3,851		3,260		7,426		6,394
Other operating expenses			26,652		25,455		22,511		52,107		41,026
			54,912		58,017		47,374		112,929		91,037

Income Before Income Taxes			89,089		86,095		96,631		175,184		193,181
Income taxes
	Current		24,911		20,086		25,193		44,997		49,744
	Deferred		(2,074)		1,761		(879)		(313)		(1,166)
			22,837		21,847		24,314		44,684		48,578
NET INCOME		$	66,252	$	64,248	$	72,317	$	130,500	$	144,603

NET INCOME PER COMMON SHARE
Basic		$	0.99	$	0.92	$	1.03	$	1.91	$	2.06
Diluted		$	0.99	$	0.92	$	1.03	$	1.91	$	2.05
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic			66,663		69,972		70,230		68,324		70,184
Diluted			66,798		70,047		70,488		68,420		70,488

Total number of outstanding common shares			65,741		69,966		70,247		65,741		70,247
Book value per common share		$	23.67	$	23.75	$	21.87	$	23.67	$	21.87

Consolidated Statements of Comprehensive Income
	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)		2016		2016		2015		2016		2015

NET INCOME	$	66,252	$	64,248	$	72,317	$	130,500	$	144,603

OTHER COMPREHENSIVE INCOME (LOSS)

Available for Sale Securities and Retained Interests
Net unrealized gains (losses)		4,272		(13,014)		(12,860)		(8,742)		(38,432)
Net losses (gains) reclassified to net income		-		204		-		204		(1,443)
		4,272		(12,810)		(12,860)		(8,538)		(39,875)
Income tax expense (recovery)		1,134		(3,421)		(3,422)		(2,287)		(10,578)
		3,138		(9,389)		(9,438)		(6,251)		(29,297)

Cash Flow Hedges
Net unrealized (losses) gains		(1,312)		3,221		345		1,909		(469)
Net losses reclassified to net income		341		364		370		705		736
		(971)		3,585		715		2,614		267
Income tax (recovery) expense		(257)		951		188		694		69
		(714)		2,634		527		1,920		198

Total other comprehensive income (loss)		2,424		(6,755)		(8,911)		(4,331)		(29,099)

COMPREHENSIVE INCOME	$	68,676	$	57,493	$	63,406	$	126,169	$	115,504

Consolidated Balance Sheets
						As at
	June 30		March 31		December 31
thousands of Canadian dollars (Unaudited)		2016		2016		2015
ASSETS
Cash and Cash Equivalents	$	1,448,548	$	1,454,752	$	1,149,849
Available for Sale Securities		519,067		488,211		453,230
Loans Held for Sale		117,691		70,187		135,043
Loans
Securitized mortgages		2,704,230		2,516,944		2,674,475
Non-securitized mortgages and loans		15,243,153		15,362,784		15,459,190
		17,947,383		17,879,728		18,133,665
Collective allowance for credit losses		(37,063)		(36,463)		(36,249)
		17,910,320		17,843,265		18,097,416
Other
Restricted assets		232,000		293,637		195,921
Derivative assets		58,086		63,931		64,796
Other assets		329,009		328,013		287,417
Deferred tax assets		15,798		15,562		15,043
Goodwill and intangible assets		132,628		130,426		128,347
		767,521		831,569		691,524
	$	20,763,147	$	20,687,984	$	20,527,062
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Deposits payable on demand	$	2,274,577	$	2,321,093	$	1,986,136
Deposits payable on a fixed date		13,747,642		13,503,806		13,679,822
		16,022,219		15,824,899		15,665,958
Senior Debt		-		153,283		151,480
Securitization Liabilities
CMHC-sponsored mortgage-backed security liabilities		928,312		863,284		531,326
CMHC-sponsored Canada Mortgage Bond liabilities		1,766,143		1,870,548		2,249,230
Bank-sponsored securitization conduit liabilities		143,024		-		-
		2,837,479		2,733,832		2,780,556
Other
Derivative liabilities		3,145		1,040		5,447
Other liabilities		306,395		273,317		264,941
Deferred tax liabilities		38,016		39,854		37,574
		347,556		314,211		307,962
		19,207,254		19,026,225		18,905,956
Shareholders' Equity
Capital stock		85,513		90,283		90,247
Contributed surplus		4,255		4,230		3,965
Retained earnings		1,536,000		1,639,545		1,592,438
Accumulated other comprehensive loss		(69,875)		(72,299)		(65,544)
		1,555,893		1,661,759		1,621,106
	$	20,763,147	$	20,687,984	$	20,527,062

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, 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

Balance at December 31, 2014		$	84,687	$	3,989	$	1,378,562	$	(16,242)	$	(2,363)	$	(18,605)	$	1,448,633
Comprehensive income			-		-		144,603		(29,297)		198		(29,099)		115,504
Stock options settled			4,920		(1,323)		-		-		-		-		3,597
Amortization of fair value of
	employee stock options		-		808		-		-		-		-		808
Repurchase of shares			(4)		-		(124)		-		-		-		(128)
Dividends
($0.44 per share)			-		-		(32,315)		-		-		-		(32,315)
Balance at June 30, 2015		$	89,603	$	3,474	$	1,490,726	$	(45,539)	$	(2,165)	$	(47,704)	$	1,536,099

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)			2016		2015		2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period		$	66,252	$	72,317	$	130,500	$	144,603
Adjustments to determine cash flows relating to operating activities:
	Amortization of net (discount) premium on securities		(182)		29		(317)		23
	Provision for credit losses		2,760		2,266		4,154		4,669
	Gain on sale of mortgages or residual interest		(7,976)		(7,804)		(13,911)		(12,231)
	Net realized and unrealized gains (losses) on securities		-		-		175		(1,444)
	Amortization of capital and intangible assets		3,827		3,423		7,473		6,347
	Amortization of fair value of employee stock options		195		389		472		808
	Deferred income taxes		(2,074)		(879)		(313)		(1,166)
Changes in operating assets and liabilities
	Loans, net of securitization and sales		(108,969)		214,733		214,525		391,509
	Restricted assets		61,637		(194,152)		(36,079)		(312,102)
	Derivative assets and liabilities		6,979		19,525		7,022		(23,529)
	Accrued interest receivable		1,225		1,274		2,718		1,320
	Accrued interest payable		(12,119)		(15,426)		5,660		20,780
	Deposits		197,320		224,642		356,261		1,026,573
	Securitization liabilities		103,647		(313,346)		56,923		(792,619)
	Taxes receivable or payable and other		39,384		46,108		(7,841)		47,167
Cash flows provided by operating activities			351,906		53,099		727,422		500,708
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of shares			(159,460)		(43)		(159,823)		(128)
Exercise of employee stock options			557		543		598		3,597
Repayment of senior debt			(150,000)		-		(150,000)		-
Dividends paid to shareholders			(15,834)		(15,450)		(32,629)		(30,880)
Cash flows used in financing activities			(324,737)		(14,950)		(341,854)		(27,411)
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in securities
	Purchases		(103,942)		-		(189,361)		-
	Proceeds from sales		-		-		-		76,924
	Proceeds from maturities		76,933		2,932		114,104		19,593
Purchases of capital assets			(1,095)		(870)		(1,319)		(2,693)
Capitalized intangible development costs			(5,269)		(6,789)		(10,293)		(12,193)
Cash flows (used in) provided by investing activities			(33,373)		(4,727)		(86,869)		81,631
Net (decrease) increase in cash and cash equivalents during the period			(6,204)		33,422		298,699		554,928
Cash and cash equivalents at beginning of the period			1,454,752		882,252		1,149,849		360,746
Cash and Cash Equivalents at End of the Period		$	1,448,548	$	915,674	$	1,448,548	$	915,674
Supplementary Disclosure of Cash Flow Information
Dividends received on investments		$	2,772	$	2,463	$	5,551	$	4,948
Interest received			216,513		220,829		433,897		440,619
Interest paid			111,196		121,989		187,815		190,476
Income taxes paid			16,647		27,351		44,126		75,506

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 2016 Second Quarter Report, as well as its other publicly filed information, which are 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, funding and liquidity risk, structural interest rate risk, operational risk, investment risk, strategic and business 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 Outlook Section in the 2016 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 uncertainties, 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 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 2016 and its effect on Home Capital's business are material factors the Company considers when setting its objectives, targets 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 setting and reviewing its targets, objectives and outlook for the remainder of 2016, management's expectations continue to assume:

The Canadian economy is expected to be relatively stable in 2016, supported by expanded Federal Government spending; however, it will continue to be impacted by adverse effects related to fluctuations in oil prices and other commodities. The Company has limited exposure in energy producing regions.
Generally the Company expects stable employment conditions, in its established regions; however, unemployment rates in energy producing regions are expected to continue to increase in 2016. 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 consistent demand for the Company's lending products in its established regions. Credit losses and delinquencies in the energy producing regions may increase, but given the Company's limited exposure, this is not expected to be significant.
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 to plan that may result.
The Company is assuming that overnight interest rates will remain at the current very low rate for 2016. 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 healthy real estate market overall. Please see Market Conditions under the 2016 Outlook in the Management's Discussion and Analysis included in the Company's 2016 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 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 2016 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 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 deposit brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, CFF Bank. Licensed to conduct business across Canada, Home Trust has branch offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.

SOURCE Home Capital Group Inc.

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