HCG Home Capital Group Inc

TORONTO, May 11, 2017 /CNW/ - Home Capital Group ("Home Capital" or "the Company") (TSX: HCG) today provided a business update and reported financial results for the three months ended March 31, 2017. This press release should be read in conjunction with the Company's 2017 First 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.

Brenda Eprile, Chair, Home Capital said, "Home plays a very important role in the Canadian housing market, providing financing for thousands of deserving customers, including entrepreneurs and new Canadians, and we are committed to ensuring the sustainability of this key enterprise. We are taking the steps required to regain the full confidence of Home's stakeholders, most notably by adding four outstanding new directors with considerable expertise in governance and business, and we will continue to look at every opportunity to strengthen Home as we move ahead."

Business Highlights

• Addition of four new Board members: Claude Lamoureux, Paul Haggis, Sharon Sallows and Alan Hibben; Brenda Eprile named Chair.
• Total available liquidity and credit capacity of approximately $1.61 billion as of May 9, 2017 including liquid assets of $1.01 billion and $600 million undrawn amount from the $2.0 billion syndicated credit facility.
• Non-binding agreement reached with independent third party to purchase funded mortgages or accept mortgage commitments and renewals up to a total of $1.5 billion, providing additional sources of funding as the Company repositions the business.
• Mortgage portfolio continues to perform well; maintaining low provisions for credit losses.
• The search for a new Chief Executive Officer and Chief Financial Officer are underway.
• Management continues to work with its financial advisers to identify and explore a number of permanent solutions to strengthen the Company's historically successful underlying business model.

Bonita Then, Interim Chief Executive Officer said, "Management's focus is on finding more sources of funding in the near term so we can be more active serving our customers, and on seeking longer-term solutions that put the business back on track."

First Quarter 2017 Highlights

First Quarter 2017, compared with the First Quarter 2016:

• Reported net income was $58.0 million and diluted earnings per share were $0.90, compared with $64.2 million and $0.92. Adjusted net income was $65.5 million and adjusted diluted earnings per share were $1.02, compared with $67.5 million and $0.96.
• Adjusted net income and adjusted diluted earnings per share exclude the impact of a restructuring provision related to Project Expo, the Company's expense savings initiative, of $5.5 million net of tax (or $0.09 diluted earnings per share) and an impairment loss on intangible and other assets for a non-core prepaid card business of $2.0 million net of tax (or $0.03 diluted earnings per share).
• Traditional single-family residential mortgages balance was $11.42 billion following record first quarter originations.
• Provision for credit losses as a percentage of gross uninsured loans was 0.16%, compared to 0.04%, primarily related to an increase in the collective allowance of $2.0 million due to growth in the commercial portfolio and a provision of $2.3 million for losses within the non-core prepaid card business.
• Capital position with CET 1 ratio at 16.34%, well in excess of regulatory minimums and internal targets.
• The interim consolidated financial statements for the first quarter ended March 31, 2017 were prepared on a going concern basis; however, management believes that material uncertainty exists regarding the Company's future funding capabilities as a result of reputational concerns that may cast significant doubt upon the Company's ability to continue as a going concern. Please see the Outlook and Going Concern Uncertainty section of the 2017 First Quarter Report for further information.

Dividend

Subsequent to the end of the quarter, the Company suspended its dividend to help prudently manage its liquidity position.

The Company's 2017 First Quarter Financial Report, including Management's Discussion and Analysis, for the three months ended March 31, 2017 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

First Quarter 2017 Results Conference Call and Webcast

The conference call will take place on Friday, May 12, 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 Friday, May 12, 2017 and 12:00 a.m. ET Friday, May 19, 2017 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 91746831). 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.

Annual Meeting Notice

The Annual Meeting of Shareholders of Home Capital Group Inc. will be held at One King West, Grand Banking Hall, Toronto, Ontario, M5H 1A1, on June 29, 2017 at 11:00 a.m. ET.

Items of Note

Items of note are removed from reported results in determining adjusted results. Adjusted results are designed to provide a better understanding of how management assesses underlying business performance and to facilitate a more informed analysis of trends.

The Company's results were affected by the following items of note that aggregated to a negative impact of $7.4 million, net of tax, or $0.12 diluted earnings per share in Q1 2017:

• $7.4 million of restructuring charges in relation to the Company's expense savings initiative, Project EXPO ($5.5 million net of tax and $0.09 diluted earnings per share). Please see the Non-Interest Expenses section of the 2017 First Quarter Report for more information.
• $2.7 million of impairment losses on intangible and other assets related to the non-core prepaid card business ($2.0 million net of tax and $0.03 diluted earnings per share). Please see the Non-Interest Expenses section of the 2017 First Quarter Report for more information.

The Company's results were also affected by the following items of note that aggregated to a negative impact of $12.8 million, net of tax, or $0.19 diluted earnings per share in Q4 2016:

• $9.0 million of goodwill impairment loss related the Company's PSiGate business ($9.0 million net of tax and $0.13 diluted earnings per share).
• $5.1 million of intangible asset impairment loss related to internally developed software costs ($3.8 million net of tax and $0.06 diluted earnings per share).

The Company's results were also affected by the following items of note that aggregated to a negative impact of $3.2 million, net of tax, or $0.04 diluted earnings per share in Q1 2016:

• $5.1 million of expenses including severance and other related costs ($3.7 million net of tax and $0.05 diluted earnings per share).
• $651 thousand for a positive adjustment to the gain recognized on the acquisition of CFF Bank ($478 thousand net of tax and $0.01 diluted earnings per share).

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 First 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 Outlook and Going Concern Uncertainty section in the 2017 First 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.  Please also refer to the Outlook and Going Concern Uncertainty section of the 2017 First Quarter Report for risks and uncertainties related to the Company's going concern assessment.  The preceding list is not exhaustive of possible factors.

These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements. The Company presents forward-looking statements to assist shareholders in understanding the Company's assumptions and expectations about the future that are relevant in management's setting of performance goals, strategic priorities and outlook. The Company presents its outlook to assist shareholders in understanding management's expectations on how the future will impact the financial performance of the Company. These forward-looking statements may not be appropriate for other purposes. The Company does not undertake to update any forward-looking statements, whether written or verbal, that may be made from time to time by it or on its behalf, except as required by securities laws.

Assumptions about the performance of the Canadian economy in 2017 and its effect on Home Capital's business are material factors the Company considers when setting its performance goals, strategic priorities and outlook.  In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies.  In setting and reviewing its performance goals, strategic priorities and 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; 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 remain elevated in 2017. 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 interest rates will remain at the current very low rate 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 stable real estate market overall. Please see Market Conditions under the Outlook and Going Concern Uncertainty section in the 2017 First Quarter Report for more discussion on the Company's expectations for the housing market and the impact of the changes to the mortgage market unveiled by the government in the second half of 2016.
  
  
• 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. However, this access has been and will be reduced in light of the reputational and liquidity events that have occurred at the end of the quarter and continued into the second quarter. The degree to which such access may decline is currently uncertain. Please see the Outlook and Going Concern Uncertainty section in the 2017 First Quarter Report for further information.
  

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 First 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.