TORONTO, Nov. 2, 2016 /CNW/ - Home Capital Group
("Home Capital" or "the Company") (TSX:HCG) today reported
results for the third quarter and nine months ended September 30, 2016. This press release should be
read in conjunction with the Company's 2016 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 the Canadian Securities
Administrators' website at www.sedar.com.
Third Quarter 2016 Highlights
Third Quarter 2016, compared with the Third Quarter
2015:
- Increased quarterly dividend by $0.02 to $0.26.
- Reported net income was $66.2
million, compared with $72.4
million.
- Reported diluted earnings per share were $1.01, compared with $1.03.
- Provision for credit losses as a percentage of gross uninsured
loans was 0.04% on an annualized basis, compared to
0.08%.
- Net non-performing loans as a percentage of gross loans were
0.31%, compared with 0.30%.
- Total capital ratio of 16.97%. Capital ratios continue to be
well in excess of regulatory minimums and internal targets.
- Total mortgage originations of $2.54
billion, compared with $2.50
billion.
First Nine Months ended September 30,
2016, compared with First Nine Months ended September 30, 2015:
- Reported net income was $196.7
million, compared with $217.0
million.
- Reported diluted earnings per share were $2.92, compared with $3.09.
- Adjusted net income was $199.9
million, compared with $217.0
million.
- Adjusted diluted earnings per share were $2.97, compared with $3.09.
- Total mortgage originations of $6.80
billion, compared with $5.91
billion.
- Repurchased a total of $43.5
million of common shares through the Normal Course Issuer
Bid ("NCIB") and $150 million of
common shares through the Substantial Issuer Bid. NCIB renewed
through September 2017, providing
option to repurchase up to 5% of outstanding shares.
Management Comments
"Our Company continues to deliver solid returns on
shareholders' equity, excellent credit
performance and a strong balance sheet that enables us to
return capital to our investors though share buybacks and increased
dividends," said Martin Reid, President and Chief Executive
Officer, Home Capital Group Inc. "However, the operating
results from a revenue generation and net income perspective have
been disappointing to management and the Board. In response to
a more challenging business environment, the Company has upgraded
processes, changed business relationships, increased regulatory
compliance activities and introduced additional risk management
procedures. This is essential for the future health of our
Company.
These changes have resulted in increased costs and strained
the Company's ability to grow assets and net
revenue. We are committed to addressing this concern.
We are focused on increasing operating leverage by improving
revenue growth from potential opportunities that the evolving
housing environment presents and by taking a harder look at
expenses. However, looking ahead,
it's likely that the Company will reduce its
mid-term targets when we provide our updated targets with our
fourth quarter results."
Mr. Reid continued: "We support measures taken by the
Government of Canada to ensure the
stability of our financial system and the housing market. We
anticipate the recent mortgage rule changes will significantly
reduce the Company's ability to profitably originate and fund our
Accelerator product, a relatively small portion of our overall
mortgage business. Our core Traditional single-family mortgage
business line remains solid and we believe the strength in our
business will enable us to seize opportunities that may
result."
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
For the three months
ended
|
For the nine months
ended
|
(000s, except
Percentage, Multiples and Per Share Amounts)
|
September
30
|
June 30
|
September
30
|
September
30
|
September
30
|
|
|
2016
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
OPERATING
RESULTS
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
66,190
|
$
|
66,252
|
$
|
72,443
|
$
|
196,690
|
$
|
217,046
|
Adjusted Net
Income1
|
|
66,190
|
|
66,252
|
|
72,443
|
|
199,939
|
|
217,046
|
Net Interest
Income
|
|
119,924
|
|
122,103
|
|
121,698
|
|
364,544
|
|
354,432
|
Total Adjusted
Revenue1
|
$
|
243,928
|
$
|
242,526
|
$
|
247,194
|
$
|
727,651
|
$
|
747,305
|
Diluted Earnings per
Share
|
|
1.01
|
|
0.99
|
|
1.03
|
|
2.92
|
|
3.09
|
Adjusted Diluted
Earnings per Share1
|
|
1.01
|
|
0.99
|
|
1.03
|
|
2.97
|
|
3.09
|
Return on
Shareholders' Equity
|
|
16.9%
|
|
16.5%
|
|
18.7%
|
|
16.4%
|
|
19.2%
|
Adjusted Return on
Shareholders' Equity1
|
|
16.9%
|
|
16.5%
|
|
18.7%
|
|
16.7%
|
|
19.2%
|
Return on Average
Assets
|
|
1.3%
|
|
1.3%
|
|
1.4%
|
|
1.3%
|
|
1.4%
|
Net Interest Margin
(TEB)2
|
|
2.34%
|
|
2.38%
|
|
2.38%
|
|
2.37%
|
|
2.32%
|
Provision as a
Percentage of Gross Uninsured Loans (annualized)
|
|
0.04%
|
|
0.08%
|
|
0.08%
|
|
0.05%
|
|
0.07%
|
Provision as a
Percentage of Gross Loans (annualized)
|
|
0.03%
|
|
0.06%
|
|
0.06%
|
|
0.04%
|
|
0.06%
|
Efficiency Ratio
(TEB)2
|
|
37.7%
|
|
37.2%
|
|
30.8%
|
|
38.2%
|
|
31.1%
|
Adjusted Efficiency
Ratio (TEB)1,2
|
|
37.7%
|
|
37.2%
|
|
30.8%
|
|
37.1%
|
|
31.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
September
30
|
|
June 30
|
|
December
31
|
|
September
30
|
|
|
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
|
BALANCE SHEET
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
20,317,030
|
$
|
20,763,147
|
$
|
20,527,062
|
$
|
20,314,220
|
|
|
Total Assets Under
Administration3
|
|
28,327,676
|
|
28,430,730
|
|
27,316,476
|
|
25,404,219
|
|
|
Total
Loans4
|
|
18,002,238
|
|
18,065,074
|
|
18,268,708
|
|
18,336,736
|
|
|
Total Loans Under
Administration3,4
|
|
26,012,884
|
|
25,732,657
|
|
25,058,122
|
|
23,426,735
|
|
|
Liquid
Assets
|
|
1,878,082
|
|
2,391,225
|
|
2,095,145
|
|
1,477,493
|
|
|
Deposits
|
|
15,694,102
|
|
16,022,219
|
|
15,665,958
|
|
14,949,842
|
|
|
Shareholders'
Equity
|
|
1,579,478
|
|
1,555,893
|
|
1,621,106
|
|
1,569,230
|
|
|
FINANCIAL
STRENGTH
|
|
|
|
|
|
|
|
|
|
|
Capital
Measures5
|
|
|
|
|
|
|
|
|
|
|
Risk-Weighted
Assets
|
$
|
8,414,960
|
$
|
8,310,406
|
$
|
7,985,498
|
$
|
7,797,987
|
|
|
Common Equity Tier 1
Capital Ratio
|
|
16.54%
|
|
16.38%
|
|
18.31%
|
|
18.06%
|
|
|
Tier 1 Capital
Ratio
|
|
16.53%
|
|
16.38%
|
|
18.30%
|
|
18.06%
|
|
|
Total Capital
Ratio
|
|
16.97%
|
|
16.82%
|
|
20.70%
|
|
20.51%
|
|
|
Leverage
Ratio
|
|
7.08%
|
|
6.77%
|
|
7.36%
|
|
7.17%
|
|
|
Credit
Quality
|
|
|
|
|
|
|
|
|
|
|
Net Non-Performing
Loans as a Percentage of Gross Loans
|
|
0.31%
|
|
0.33%
|
|
0.28%
|
|
0.30%
|
|
|
Allowance as a
Percentage of Gross Non-Performing Loans
|
|
69.3%
|
|
66.0%
|
|
74.0%
|
|
69.4%
|
|
|
Share
Information
|
|
|
|
|
|
|
|
|
|
|
Book Value per Common
Share
|
$
|
24.47
|
$
|
23.67
|
$
|
23.17
|
$
|
22.37
|
|
|
Common Share Price –
Close
|
$
|
27.00
|
$
|
32.02
|
$
|
26.92
|
$
|
32.03
|
|
|
Dividend paid during
the period ended
|
$
|
0.24
|
$
|
0.24
|
$
|
0.22
|
$
|
0.22
|
|
|
Market
Capitalization
|
$
|
1,743,093
|
$
|
2,105,027
|
$
|
1,883,808
|
$
|
2,247,225
|
|
|
Number of Common
Shares Outstanding
|
|
64,559
|
|
65,741
|
|
69,978
|
|
70,160
|
|
|
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
third 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 third 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)
|
Q3
|
|
Q2
|
|
|
Q3
|
|
|
|
|
|
|
|
|
|
2016
|
|
2016
|
Change
|
|
2015
|
Change
|
|
2016
|
|
2015
|
Change
|
Net income under
GAAP
|
$
|
66,190
|
$
|
66,252
|
(0.1)%
|
$
|
72,443
|
(8.6)%
|
$
|
196,690
|
$
|
217,046
|
(9.4)%
|
Adjustment for gain
recognized on acquisition of CFF Bank (net of tax)
|
|
-
|
|
-
|
-
|
|
-
|
-
|
|
(478)
|
|
-
|
-
|
Adjustment for
certain severance and other related costs (net of tax)
|
|
-
|
|
-
|
-
|
|
-
|
-
|
|
3,727
|
|
-
|
-
|
Adjusted Net
Income1
|
$
|
66,190
|
$
|
66,252
|
(0.1)%
|
$
|
72,443
|
(8.6)%
|
$
|
199,939
|
$
|
217,046
|
(7.9)%
|
Adjusted Basic
Earnings per Share1
|
$
|
1.01
|
$
|
0.99
|
2.0%
|
$
|
1.03
|
(1.9)%
|
$
|
2.97
|
$
|
3.09
|
(3.9)%
|
Adjusted Diluted
Earnings per Share1
|
$
|
1.01
|
$
|
0.99
|
2.0%
|
$
|
1.03
|
(1.9)%
|
$
|
2.97
|
$
|
3.09
|
(3.9)%
|
1 Adjusted
Net Income and Adjusted Earnings per share are defined in the
Non-GAAP section and discussed in the Income Statement Review
section of the MD&A included
in the 2016 Third
Quarter Report.
|
THIRD QUARTER 2016 HIGHLIGHTS
Core Business
Home Capital's third quarter 2016 (Q3 2016) results reflect the
Company's continued profitability as measured by its net interest
margin (TEB) of 2.34%, a healthy loan portfolio as evidenced by
continued low non-performing loans and credit losses, and a strong
capital position.
The Company continues to focus on growing origination volumes,
specifically for traditional mortgages across Home Capital's
established regions. Total mortgage originations were $2.54 billion in Q3 2016 and $6.80 billion for the first nine months of 2016,
increases of 1.7% and 15.1% respectively compared to the same
periods from 2015.
Combined traditional and ACE Plus residential mortgage
originations grew to $1.53 billion in
Q3 2016 and $3.97 billion for the
first nine months of 2016, up 1.3% and 5.2% respectively compared
to $1.51 billion and $3.77 billion for the comparable periods of 2015.
Sales of ACE Plus, an uninsured single-family lower-rate mortgage
product, commenced in second half of 2015 and originations have
risen 4.1% year over year to a total $116.7
million for the third quarter 2016.
Accelerator originations increased 7.3% to $446.7 million in Q3 2016 and 45.6% to
$1.28 billion for the first nine
months of 2016 from the comparable periods in 2015. Following
the Government of Canada's
announcement in early October 2016,
which placed certain limitations on eligibility criteria for
low-ratio government-backed insured mortgages ("mortgage rules"),
the Company previously reported (see the Company's press release
dated October 20, 2016) that it
anticipates these limitations to potentially significantly reduce
the Company's ability to profitably originate and fund these
mortgages. Specifically, low-ratio lending for the purpose of
refinancing and to rental properties will be primarily impacted
within the Company's Accelerator program.
The Company also previously reported that since the Accelerator
program has traditionally been a low margin product offering, as a
result, it anticipates the negative impact on net income before tax
to be relatively limited, approximately $6.5
million and after tax net income of approximately
$4.8 million on an annualized basis.
This estimate assumes that the Company sells its residual interest
in fixed-rate mortgages which is an activity that the Company does
from time to time.
Originations from all other sources decreased 1.2% to
$560.5 million in Q3 2016 and
increased 23.6% to $1.56 billion in
the first nine months of 2016 from the same periods in
2015.
Looking ahead at originations for the balance of 2016, the
Company does not expect any significant impact from the Government
mortgage rules changes, with the exception of a reduction in
Accelerator originations in the final month of the year, which is
also a seasonally slow month.
The Company has reviewed all of the customer files and the
income documentation submitted in relation to the mortgages
referred by the 45 individual mortgage brokers previously
suspended. There have been no unusual credit issues on these
mortgages.
Consumer Lending
Consumer 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 4.1%
of the total on-balance sheet loan portfolio, these assets
generated 7.8% of the interest income from loans for the
quarter.
Deposits
At the end of the third quarter, total deposits were
$15.69 billion. Approximately 29% of
deposits were from diversified sources. In addition to
sourcing deposits through investment dealers and deposit brokers,
the Company will continue to focus on diversification, which
includes growing deposits from its direct-to-consumer business,
Oaken Financial and through Home Bank. In Q3 2016, the ending
balance of Oaken deposits was $1.72
billion, up 58.2% from the end of 2015, demonstrating
significant progress in the Company's efforts towards deposit
diversification. Also during the third quarter, the Company
completed the integration of Home Bank's deposit business into the
Company's infrastructure. Home Bank is now seamlessly available
through both the intermediary and the Oaken channels. Deposit
funding generated through Home Bank will further facilitate the
Company's deposit diversification.
Operational Capabilities
Home Capital continues to experience healthy credit performance,
with net non-performing loans as a percentage of gross loans at
0.31%. The results reflect the credit quality of the Company's loan
portfolio, supported by the Company's continued investments in its
risk management and control infrastructure.
The Company has been focusing on refining and investing in
processes to improve service and retention performance levels. The
Company continues to work towards reducing response times for
commitments within its risk management framework. This
includes enhancing processes and improving relationships and
discussions with brokers to ensure the documentation process is
completed quickly and accurately. Additionally, the Company
continues to focus on improving retention levels of existing
customers, especially those seeking early discharge. Management
continues to investigate opportunities to further enhance retention
as part of its strategic plans.
The Company has also invested in improving service and retention
performance levels through two initiatives: Spire, a broker
partnership and incentive program rolled out earlier this year, and
Loft, a broker portal technology that was created to enhance the
broker experience as well as improve service levels. The
launch of Spire has been successful with excellent participation
from all of its broker partners. The Company will continue to roll
out its broker portal technology, Loft through 2017.
Shareholder Returns and Financial Position
Home Capital continued to focus on maintaining a strong and
conservative financial position while delivering value to
shareholders, including a return on average shareholders' equity of
16.9% for Q3 2016.
The Company has continued to return capital to shareholders
through its dividends and share buybacks. For the nine months ended
September 30, 2016, the Company has
returned a total of $48.4 million in
dividends to shareholders. 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 increase of $0.02 to
$0.26 per common share payable on
December 1, 2016 to shareholders of
record at the close of business on November
15, 2016.
Outlook
The magnitude of the impact of recent regulatory changes on our
business and the mortgage lending market as a whole is uncertain.
Management will monitor the effect on the business as more
information becomes available, and will explore any opportunities
that may result.
Management does not expect the current challenges in the
business environment to diminish as new regulatory restrictions
take effect, housing markets adjust and competition responds.
In this environment, management and the Board are reviewing the
Company's strategies with a view to more stringently managing
costs, reviewing product offerings and related operations, and
strengthening revenue growth. This would be in addition to several
initiatives that have taken place in the past nine months,
including hiring new personnel at the executive levels in
underwriting, operations and risk management, as well as the
introduction of new programs and tools for mortgage brokers.
Moreover, management and the Board continue to sharpen the focus on
business and financial performance improvement and will provide
updated targets with fourth quarter results.
On behalf of the Board,
(signed)
|
(signed)
|
Martin
Reid
|
KEVIN P.D.
SMITH
|
President & Chief
Executive
Officer
|
Chair of the
Board
|
November 2,
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 third quarter report.
Third Quarter Results Conference Call
The conference
call will take place on Thursday, November
3, 2016 at 8:00 a.m. ET.
Participants are asked to call 5 to 15 minutes in advance,
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 via the Internet at www.homecapital.com.
Conference Call Archive
A telephone replay of the
call will be available between 11:00 a.m.
ET. Thursday, November 3, 2016
and midnight Thursday, November 10,
2016 by calling 416-849-0833 or 1-855-859-2056 (enter
passcode 96768072). The archived audio web cast will be available
for 90 days on CNW Group's website at www.newswire.ca and Home
Capital's website at www.homecapital.com.
Supplemental Financial Information
Home Capital has
provided a Supplementary 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 2016 Third Quarter Report, as well as the Company's
2015 Annual Report.
Consolidated
Statements of Income
|
|
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)
|
|
2016
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Interest
Income Non-Securitized Assets
|
|
|
|
|
|
|
|
|
|
|
Interest from
loans
|
$
|
192,395
|
$
|
191,704
|
$
|
195,051
|
$
|
577,645
|
$
|
572,510
|
Dividends from
securities
|
|
2,359
|
|
2,447
|
|
2,597
|
|
7,498
|
|
8,012
|
Other
interest
|
|
3,046
|
|
2,985
|
|
1,846
|
|
8,559
|
|
6,257
|
|
|
197,800
|
|
197,136
|
|
199,494
|
|
593,702
|
|
586,779
|
Interest on deposits
and other
|
|
81,519
|
|
77,847
|
|
80,771
|
|
237,051
|
|
240,835
|
Interest on senior
debt
|
|
-
|
|
465
|
|
1,512
|
|
2,243
|
|
4,572
|
Net interest income
non-securitized assets
|
|
116,281
|
|
118,824
|
|
117,211
|
|
354,408
|
|
341,372
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest
Income Securitized Loans and Assets
|
|
|
|
|
|
|
|
|
|
|
Interest income from
securitized loans and assets
|
|
20,957
|
|
20,732
|
|
24,315
|
|
61,782
|
|
80,988
|
Interest expense on
securitization liabilities
|
|
17,314
|
|
17,453
|
|
19,828
|
|
51,646
|
|
67,928
|
Net interest income
securitized loans and assets
|
|
3,643
|
|
3,279
|
|
4,487
|
|
10,136
|
|
13,060
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Interest
Income
|
|
119,924
|
|
122,103
|
|
121,698
|
|
364,544
|
|
354,432
|
Provision for credit
losses
|
|
1,336
|
|
2,760
|
|
2,849
|
|
5,490
|
|
7,518
|
|
|
118,588
|
|
119,343
|
|
118,849
|
|
359,054
|
|
346,914
|
Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
Fees and other
income
|
|
17,223
|
|
17,328
|
|
20,096
|
|
53,716
|
|
62,705
|
Securitization
income
|
|
7,599
|
|
9,452
|
|
5,788
|
|
24,733
|
|
20,448
|
Gain on acquisition
of CFF Bank
|
|
-
|
|
-
|
|
-
|
|
651
|
|
-
|
Net realized and
unrealized (losses) gains on securities
|
|
-
|
|
-
|
|
(542)
|
|
(175)
|
|
902
|
Net realized and
unrealized gains (losses) on derivatives
|
|
349
|
|
(2,122)
|
|
(1,957)
|
|
(6,107)
|
|
(4,517)
|
|
|
25,171
|
|
24,658
|
|
23,385
|
|
72,818
|
|
79,538
|
|
|
143,759
|
|
144,001
|
|
142,234
|
|
431,872
|
|
426,452
|
Non-Interest
Expenses
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
24,350
|
|
24,685
|
|
19,382
|
|
77,746
|
|
62,999
|
Premises
|
|
3,472
|
|
3,575
|
|
3,149
|
|
10,898
|
|
9,543
|
Other operating
expenses
|
|
27,160
|
|
26,652
|
|
22,424
|
|
79,267
|
|
63,450
|
|
|
54,982
|
|
54,912
|
|
44,955
|
|
167,911
|
|
135,992
|
|
|
|
|
|
|
|
|
|
|
|
Income Before
Income Taxes
|
|
88,777
|
|
89,089
|
|
97,279
|
|
263,961
|
|
290,460
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
22,957
|
|
24,911
|
|
23,189
|
|
67,954
|
|
72,933
|
|
Deferred
|
|
(370)
|
|
(2,074)
|
|
1,647
|
|
(683)
|
|
481
|
|
|
22,587
|
|
22,837
|
|
24,836
|
|
67,271
|
|
73,414
|
NET
INCOME
|
$
|
66,190
|
$
|
66,252
|
$
|
72,443
|
$
|
196,690
|
$
|
217,046
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER
COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.01
|
$
|
0.99
|
$
|
1.03
|
$
|
2.92
|
$
|
3.09
|
Diluted
|
$
|
1.01
|
$
|
0.99
|
$
|
1.03
|
$
|
2.92
|
$
|
3.09
|
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
65,386
|
|
66,663
|
|
70,218
|
|
67,326
|
|
70,195
|
Diluted
|
|
65,435
|
|
66,798
|
|
70,380
|
|
67,413
|
|
70,337
|
|
|
|
|
|
|
|
|
|
|
|
Total number of
outstanding common shares
|
|
64,559
|
|
65,741
|
|
70,160
|
|
64,559
|
|
70,160
|
Book value per common
share
|
$
|
24.47
|
$
|
23.67
|
$
|
22.37
|
$
|
24.47
|
$
|
22.37
|
Consolidated
Statements of Comprehensive Income
|
|
|
|
|
|
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)
|
|
2016
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
$
|
66,190
|
$
|
66,252
|
$
|
72,443
|
$
|
196,690
|
$
|
217,046
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
Securities and Retained Interests
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses)
|
|
7,820
|
|
4,272
|
|
(29,730)
|
|
(922)
|
|
(68,162)
|
Net losses (gains)
reclassified to net income
|
|
-
|
|
-
|
|
460
|
|
204
|
|
(983)
|
|
|
7,820
|
|
4,272
|
|
(29,270)
|
|
(718)
|
|
(69,145)
|
Income tax expense
(recovery)
|
|
2,075
|
|
1,134
|
|
(7,760)
|
|
(212)
|
|
(18,338)
|
|
|
5,745
|
|
3,138
|
|
(21,510)
|
|
(506)
|
|
(50,807)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses)
|
|
803
|
|
(1,312)
|
|
130
|
|
2,712
|
|
(339)
|
Net losses
reclassified to net income
|
|
268
|
|
341
|
|
369
|
|
973
|
|
1,105
|
|
|
1,071
|
|
(971)
|
|
499
|
|
3,685
|
|
766
|
Income tax expense
(recovery)
|
|
284
|
|
(257)
|
|
133
|
|
978
|
|
202
|
|
|
787
|
|
(714)
|
|
366
|
|
2,707
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
Total other
comprehensive income (loss)
|
|
6,532
|
|
2,424
|
|
(21,144)
|
|
2,201
|
|
(50,243)
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME
|
$
|
72,722
|
$
|
68,676
|
$
|
51,299
|
$
|
198,891
|
$
|
166,803
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
September
30
|
June 30
|
December
31
|
thousands of
Canadian dollars (Unaudited)
|
|
2016
|
|
2016
|
|
2015
|
ASSETS
|
|
|
|
|
|
|
Cash and Cash
Equivalents
|
$
|
1,058,940
|
$
|
1,448,548
|
$
|
1,149,849
|
Available for Sale
Securities
|
|
523,482
|
|
519,067
|
|
453,230
|
Loans Held for
Sale
|
|
74,207
|
|
117,691
|
|
135,043
|
Loans
|
|
|
|
|
|
|
Securitized
mortgages
|
|
2,549,205
|
|
2,704,230
|
|
2,674,475
|
Non-securitized
mortgages and loans
|
|
15,378,826
|
|
15,243,153
|
|
15,459,190
|
|
|
|
17,928,031
|
|
17,947,383
|
|
18,133,665
|
Collective allowance
for credit losses
|
|
(37,063)
|
|
(37,063)
|
|
(36,249)
|
|
|
|
17,890,968
|
|
17,910,320
|
|
18,097,416
|
Other
|
|
|
|
|
|
|
Restricted
assets
|
|
231,235
|
|
232,000
|
|
195,921
|
Derivative
assets
|
|
52,178
|
|
58,086
|
|
64,796
|
Other
assets
|
|
336,077
|
|
329,009
|
|
287,417
|
Deferred tax
assets
|
|
16,362
|
|
15,798
|
|
15,043
|
Goodwill and
intangible assets
|
|
133,581
|
|
132,628
|
|
128,347
|
|
|
|
769,433
|
|
767,521
|
|
691,524
|
|
|
$
|
20,317,030
|
$
|
20,763,147
|
$
|
20,527,062
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
Deposits payable on
demand
|
$
|
2,432,283
|
$
|
2,274,577
|
$
|
1,986,136
|
Deposits payable on a
fixed date
|
|
13,261,819
|
|
13,747,642
|
|
13,679,822
|
|
|
|
15,694,102
|
|
16,022,219
|
|
15,665,958
|
Senior
Debt
|
|
-
|
|
-
|
|
151,480
|
Securitization
Liabilities
|
|
|
|
|
|
|
CMHC-sponsored
mortgage-backed security liabilities
|
|
930,614
|
|
928,312
|
|
531,326
|
CMHC-sponsored Canada
Mortgage Bond liabilities
|
|
1,610,482
|
|
1,766,143
|
|
2,249,230
|
Bank-sponsored
securitization conduit liabilities
|
|
139,115
|
|
143,024
|
|
-
|
|
|
|
2,680,211
|
|
2,837,479
|
|
2,780,556
|
Other
|
|
|
|
|
|
|
Derivative
liabilities
|
|
959
|
|
3,145
|
|
5,447
|
Other
liabilities
|
|
324,070
|
|
306,395
|
|
264,941
|
Deferred tax
liabilities
|
|
38,210
|
|
38,016
|
|
37,574
|
|
|
|
363,239
|
|
347,556
|
|
307,962
|
|
|
|
18,737,552
|
|
19,207,254
|
|
18,905,956
|
Shareholders'
Equity
|
|
|
|
|
|
|
Capital
stock
|
|
83,975
|
|
85,513
|
|
90,247
|
Contributed
surplus
|
|
4,588
|
|
4,255
|
|
3,965
|
Retained
earnings
|
|
1,554,258
|
|
1,536,000
|
|
1,592,438
|
Accumulated other
comprehensive loss
|
|
(63,343)
|
|
(69,875)
|
|
(65,544)
|
|
|
|
1,579,478
|
|
1,555,893
|
|
1,621,106
|
|
|
$
|
20,317,030
|
$
|
20,763,147
|
$
|
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
|
|
-
|
|
-
|
|
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, 2016
|
$
|
83,975
|
$
|
4,588
|
$
|
1,554,258
|
$
|
(62,972)
|
$
|
(371)
|
$
|
(63,343)
|
$
|
1,579,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2014
|
$
|
84,687
|
$
|
3,989
|
$
|
1,378,562
|
$
|
(16,242)
|
$
|
(2,363)
|
$
|
(18,605)
|
$
|
1,448,633
|
Comprehensive
income
|
|
-
|
|
-
|
|
217,046
|
|
(50,807)
|
|
564
|
|
(50,243)
|
|
166,803
|
Stock options
settled
|
|
5,136
|
|
(1,377)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,759
|
Amortization of fair
value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee stock
options
|
|
-
|
|
1,163
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,163
|
Repurchase of
shares
|
|
(140)
|
|
-
|
|
(3,238)
|
|
-
|
|
-
|
|
-
|
|
(3,378)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($0.66 per
share)
|
|
-
|
|
-
|
|
(47,750)
|
|
-
|
|
-
|
|
-
|
|
(47,750)
|
Balance at September
30, 2015
|
$
|
89,683
|
$
|
3,775
|
$
|
1,544,620
|
$
|
(67,049)
|
$
|
(1,799)
|
$
|
(68,848)
|
$
|
1,569,230
|
|
|
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)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income for the
period
|
$
|
66,190
|
$
|
72,443
|
$
|
196,690
|
$
|
217,046
|
Adjustments to
determine cash flows relating to operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of net
(discount) premium on securities
|
|
(62)
|
|
29
|
|
(379)
|
|
52
|
|
Provision for credit
losses
|
|
1,336
|
|
2,849
|
|
5,490
|
|
7,518
|
|
Gain on sale of
mortgages or residual interest
|
|
(6,055)
|
|
(4,453)
|
|
(19,966)
|
|
(16,684)
|
|
Net realized and
unrealized losses (gains) on securities
|
|
-
|
|
542
|
|
175
|
|
(902)
|
|
Amortization of
capital and intangible assets
|
|
4,109
|
|
3,657
|
|
11,582
|
|
10,004
|
|
Amortization of fair
value of employee stock options
|
|
333
|
|
355
|
|
805
|
|
1,163
|
|
Deferred income
taxes
|
|
(370)
|
|
1,647
|
|
(683)
|
|
481
|
Changes in operating
assets and liabilities
|
|
|
|
|
|
|
|
|
|
Loans, net of
securitization and sales
|
|
67,496
|
|
(351,858)
|
|
282,021
|
|
39,651
|
|
Restricted
assets
|
|
765
|
|
239,052
|
|
(35,314)
|
|
(73,050)
|
|
Derivative assets and
liabilities
|
|
4,793
|
|
(14,390)
|
|
11,815
|
|
(37,919)
|
|
Accrued interest
receivable
|
|
456
|
|
(496)
|
|
3,174
|
|
824
|
|
Accrued interest
payable
|
|
(5,117)
|
|
(6,235)
|
|
543
|
|
14,545
|
|
Deposits
|
|
(328,117)
|
|
(16,702)
|
|
28,144
|
|
1,009,871
|
|
Securitization
liabilities
|
|
(157,268)
|
|
(192,726)
|
|
(100,345)
|
|
(985,345)
|
|
Taxes receivable or
payable and other
|
|
12,087
|
|
(15,737)
|
|
4,246
|
|
31,430
|
Cash flows (used in)
provided by operating activities
|
|
(339,424)
|
|
(282,023)
|
|
387,998
|
|
218,685
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repurchase of
shares
|
|
(33,695)
|
|
(3,250)
|
|
(193,518)
|
|
(3,378)
|
Exercise of employee
stock options
|
|
-
|
|
162
|
|
598
|
|
3,759
|
Repayment of senior
debt
|
|
-
|
|
-
|
|
(150,000)
|
|
-
|
Dividends paid to
shareholders
|
|
(15,775)
|
|
(15,454)
|
|
(48,404)
|
|
(46,334)
|
Cash flows used in
financing activities
|
|
(49,470)
|
|
(18,542)
|
|
(391,324)
|
|
(45,953)
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Activity in
securities
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
(11,335)
|
|
-
|
|
(200,696)
|
|
-
|
|
Proceeds from
sales
|
|
-
|
|
-
|
|
-
|
|
76,924
|
|
Proceeds from
maturities
|
|
14,836
|
|
4,139
|
|
128,940
|
|
23,732
|
Purchases of capital
assets
|
|
(771)
|
|
(981)
|
|
(2,090)
|
|
(3,674)
|
Capitalized
intangible development costs
|
|
(3,444)
|
|
(6,048)
|
|
(13,737)
|
|
(18,241)
|
Cash flows (used in)
provided by investing activities
|
|
(714)
|
|
(2,890)
|
|
(87,583)
|
|
78,741
|
Net (decrease)
increase in cash and cash equivalents during the period
|
|
(389,608)
|
|
(303,455)
|
|
(90,909)
|
|
251,473
|
Cash and cash
equivalents at beginning of the period
|
|
1,448,548
|
|
915,674
|
|
1,149,849
|
|
360,746
|
Cash and Cash
Equivalents at End of the Period (note 4(A))
|
$
|
1,058,940
|
$
|
612,219
|
$
|
1,058,940
|
$
|
612,219
|
Supplementary
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Dividends received on
investments
|
$
|
2,588
|
$
|
2,366
|
$
|
8,139
|
$
|
7,314
|
Interest
received
|
|
216,504
|
|
220,343
|
|
650,401
|
|
660,962
|
Interest
paid
|
|
103,950
|
|
106,381
|
|
291,765
|
|
296,857
|
Income taxes
paid
|
|
24,119
|
|
26,883
|
|
68,245
|
|
102,389
|
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 Third 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
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
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 stable real estate market overall.
Please see Market Conditions under the 2016 Outlook for more
discussion on the Company's expectations for the housing market and
the impact of the recent changes unveiled by the government to the
mortgage 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 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 deposit brand, Oaken
Financial. Home Trust also conducts business through its wholly
owned subsidiary, Home 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.