Home Capital Reports Another Record Quarter and Dividend Increase

  • Diluted Earnings per Share of $1.65 up 18.7% Year over Year;
  • Dividend Increase of 18.2%, or 4 Cents per Share to $0.26 Quarterly;
  • Return on Equity Continues Strong at 25.6% for the Quarter and 25.7% Year to Date

TORONTO, Nov. 7, 2012 /CNW/ - Home Capital Group (TSX: HCG) today reported another quarter of strong results for the three months ended September 30, 2012.

The Company's Third Quarter Report, including Management's Discussion and Analysis, is available on www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

FINANCIAL HIGHLIGHTS

                     
(Unaudited) For the three months ended For the nine months ended
(000s, except Per Share and Percentage Amounts) September 30 June 30 September 30 September 30 September 30
    2012    2012    2011    2012    2011 
OPERATING RESULTS                    
Net Income $ 57,254 $ 53,230 $ 48,417 $ 163,018 $ 139,747
Adjusted Net Income   57,254   53,230   48,417   163,018   142,172
Total Revenue   226,603   218,751   198,694   660,036   581,875
Earnings per Share - Basic/Diluted $ 1.65/1.65 $ 1.54/1.54 $ 1.40/1.39 $ 4.70/4.68 $ 4.03/4.02
Adjusted Earnings per Share - Basic/Diluted   1.65/1.65   1.54/1.54   1.40/1.39   4.70/4.68   4.10/4.09
Return on Shareholders' Equity   25.6%   25.1%   27.0%   25.7%   27.4%
Return on Average Assets   1.2%   1.2%   1.2%   1.2%   1.1%
Net Interest Margin (TEB)   2.14%   2.09%   2.14%   2.08%   2.06%
Net Interest Margin Non-Securitized Assets (TEB)   3.17%   3.05%   3.11%   3.09%   3.04%
Net Interest Margin Securitized Assets   0.89%   1.05%   1.35%   0.97%   1.28%
Provision as a Percentage of Gross Loans (annualized)   0.10%   0.05%   0.06%   0.09%   0.04%
Efficiency Ratio (TEB)   28.1%   27.8%   27.4%   27.9%   28.2%
As at September 30 June 30 December 31 September 30    
    2012    2012    2011    2011     
BALANCE SHEET HIGHLIGHTS                    
Total Assets $ 19,241,999  $ 18,526,458  $ 17,696,471  $ 17,072,125     
Total Loans   17,292,395    16,966,961    16,089,648    15,782,646     
Securitized Loans On-Balance Sheet   7,238,946    7,582,154    8,243,350    8,502,466     
Loans Under Administration   17,460,528    17,039,727    16,089,648    15,782,646     
Liquid Assets   998,219    669,681    808,222    646,695     
Deposits   9,870,691    9,007,464    7,922,124    7,220,517     
Shareholders' Equity   919,618    869,439    774,785    731,216     
FINANCIAL STRENGTH                    
Capital Measures                    
Risk-Weighted Assets $ 5,271,674  $ 5,003,579  $ 4,549,696  $ 4,269,175     
Tier 1 Capital Ratio   16.97%   17.09%   17.29%   17.67%    
Total Capital Ratio   20.78%   21.09%   20.46%   21.05%    
Credit Quality                    
Non-Performing Loans as a Percentage of Gross Loans   0.28%   0.31%   0.25%   0.32%    
Allowance as a Percentage of Gross Non-Performing Loans   64.7%   58.7%   74.9%   62.6%    
Share Information                    
Book Value per Common Share $ 26.53  $ 25.05  $ 22.38  $ 21.10     
Common Share Price - Close $ 51.44  $ 45.18  $ 49.10  $ 43.60     
Market Capitalization $ 1,783,322  $ 1,568,243  $ 1,700,088  $ 1,510,696     
Number of Common Shares Outstanding   34,668    34,711    34,625    34,649     
                     

1 See definition of Adjusted Net Income under Non-GAAP Measures of the unaudited interim consolidated financial report and reconciliation to net income in Table 2 of the Management's Discussion and Analysis.
2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures of the unaudited interim consolidated financial report.
3 Total loans include loans held for sale.
4 Loans under administration includes total loans and off-balance sheet loans.
5 These figures relate to the Company's operating subsidiary, Home Trust Company

THIRD QUARTER 2012 HIGHLIGHTS

Key results for the third quarter of 2012 included:

  • Net income increased to $57.3 million in the third quarter and to $163.0 million for the nine months ended September 30, 2012, representing increases of 18.3% and 16.7% over the $48.4 million and $139.7 million earned in the comparable periods of 2011. The second quarter included an unfavourable tax adjustment of $2.0 million related to Ontario tax rate adjustments and, excluding this adjustment, net income is up 18.1% year over year. Net income for the third quarter is also up 7.6% from the $53.2 million recorded in the second quarter of 2012. These results put the Company solidly within the 13%-18% net income growth target for 2012.

  • Diluted earnings per share were $1.65 for the quarter and $4.68 for the first nine months of 2012 representing increases of 18.7% and 16.4% from $1.39 and $4.02 for the respective periods of 2011.

  • Net interest income, before provisions, continued its upward trend, reaching $99.5 million in the third quarter and $281.6 million year to date. This represents increases of 13.6% over the $87.6 million recorded in the third quarter of 2011 and 14.7% over the $245.5 million earned in the first nine months of 2011 and reflects solid loan growth and continued strong demand for the Company's products.

  • Net interest margin (TEB) of 2.14% in the third quarter was consistent with 2.14% in the third quarter of 2011 and up from 2.09% in the second quarter of 2012.  On a year-to-date basis, net interest margin (TEB) increased to 2.08% compared to 2.06% in the same period last year.  Net interest margin (TEB) on non-securitized assets rose to 3.17% compared to 3.11% in the third quarter of 2011 and 3.05% in the second quarter of 2012.

  • Net interest margin on securitized assets was 0.89%, a decline from 1.35% one year ago and 1.05% last quarter. During the second quarter the Company benefited from higher than expected prepayment penalties in the securitized portfolio producing an increase in the net interest margin. Compared to a year ago, the utilization of lower yielding assets as replacement assets in the CMB program and the maturity of higher yielding MBS portfolios are the primary contributors to lower margins in the securitized asset group.

  • Return on equity at 25.6% for the quarter and 25.7% year to date remains solid and continues well in excess of the Company's minimum performance objective of 20%.

  • The credit quality of the loans portfolio remains solid and credit losses are well within expected levels. Net non-performing loans ended the quarter at 0.28% of the total loans portfolio, up marginally from 0.25% at the end of 2011 and down from 0.31% at the end of the second quarter. The provision for credit losses remains within expectations at 0.10% of gross loans on an annualized basis, compared to 0.06% in the third quarter of 2011 and 0.05% in the second quarter of 2012. The provision for credit losses ratio is within the Company's objective of 0.05% to 0.15% of gross loans. The increase in provisions reflects the repositioning of the portfolio to a higher proportion of uninsured loans.

  • Tier 1 and Total capital ratios of 16.97% and 20.78%, respectively, at September 30, 2012 remain well above the Company's minimum targets.  Home Trust's asset to capital multiple was 14.07 at the end of the quarter compared to 14.44 at December 31, 2011 and 13.78 at the end of the second quarter. The Company continues growing its assets, revenue and net income while maintaining prudent levels of capital.

  • Total loans grew to $17.29 billion, reflecting increases of $1.51 billion or 9.6% from $15.78 billion one year ago, $1.20 billion or 7.5% from $16.09 billion at the end of 2011 (10.0% on an annualized basis) and $325.4 million or 1.9% over $16.97 billion at the end of last quarter. Total loans under administration, which includes mortgages securitized that qualify for off-balance sheet accounting, were $17.46 billion, representing an annualized increase of 11.4%. Annualized growth of loans and loans under administration year to date remains below the Company's growth target due to a higher than planned net reduction of insured loans which repositioned the loan portfolio to a smaller than planned, yet more profitable, total portfolio. The Company expects year-over-year loan growth to remain below the target range of 13%-18% for the balance of 2012, while net income remains solidly within the target range.

  • The total value of mortgages originated in the third quarter grew to $1.68 billion from $1.30 billion originated in the third quarter of 2011. Originations were $4.53 billion for the first nine months of the year compared to $3.87 billion in the same period last year.

  • Originations of traditional mortgages increased to $1.26 billion in the third quarter and $3.39 billion year to date from $941.1 million and $2.57 billion in the comparable periods of 2011. The Company is experiencing strong demand for its traditional product offerings combined with high credit quality. This continues to enhance profitability.

  • Accelerator (insured) mortgage originations declined to $236.7 million in the third quarter and $630.5 million year to date from $293.5 million and $915.1 million in the comparative periods of 2011. The Company expects to increase the rate of origination of Accelerator mortgages in the coming months.

  • Multi-unit residential mortgage originations were $114.3 million in the quarter and $229.6 million year to date compared to $7.0 million and $130.5 million in the comparable periods of 2011. The Company securitized and sold $96.5 million of multi-unit residential mortgages in the quarter and $72.8 million last quarter.  These transactions qualified for off-balance sheet and gain on sale accounting and resulted in securitization gains of $1.2 million in the quarter and $1.3 million last quarter. This securitization program was initiated in the second quarter of this year.  The Company is pleased with the results and anticipates that this program will experience modest growth going forward.

  • Non-residential mortgage advances were $46.6 million in the quarter and $157.8 million year to date compared to $32.4 million and $140.7 million in the comparable periods of 2011. The Company continues to be very selective and focuses on opportunities that present strong credit and risk profiles and that are within the Company's risk tolerance.

  • Store and apartment advances were $18.2 million for the quarter and $93.9 million year to date compared to $26.8 million and $87.4 million in the comparable periods of 2011.

  • The Company opened 847 new Visa accounts in the third quarter compared to 2,108 accounts opened in the third quarter of 2011 and 1,793 accounts last quarter. The decline through the current year reflects the Company's caution in marketing, approvals and advances and the anticipated adoption of OSFI's B-20 draft guideline provisions.  After further review and confirmation of the requirements of B-20, the Company is pleased that it can resume prudent growth of its Equityline Visa program within the requirements of Guideline B-20 and the Company's risk appetite.  The Company will again increase focus on this product segment and expects growth to resume within its risk tolerance and OSFI's guidelines, beginning in the fourth quarter.

Favourable market opportunities continue to support the Company's strategy and the Company has been able to expand the loans portfolio while generally improving credit quality. The average credit score for traditional mortgage originations for the first nine months of 2012 is up from the same period of 2011, while loan to value ratios are relatively stable. The Company remains proactive and prudent in its lending practices, taking into account local economic and market conditions.  Continued low levels of loan losses reflect the Company's diligent underwriting combined with strong collection standards and loan resolution strategies. As mentioned last quarter, OSFI released Final Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures requiring full implementation by the end of 2012. The Company has already made changes, where required, to comply with a significant number of the B-20 provisions and will be fully compliant before the end of 2012. The changes required for B-20 are not expected to materially affect the Company's growth or progress.

This quarter marked the beginning of two exciting new initiatives for the Company, a high interest savings account and a preferred Visa product. The high interest savings account provides an alternative to financial advisors for their clients who are looking for higher interest savings. This initiative is an important part of a wider strategy to diversify funding sources over time. Late in the third quarter, the Company also launched a new preferred Visa card product focused exclusively on existing mortgage customers of the Company. The program offers an unsecured Visa with modest credit limits at attractive rates to customers who have demonstrated good credit behavior. This product further broadens the array of products and services available to the Company's customers.  These initiatives further position the Company for growth, but did not have a significant impact on quarterly results.

Also during the quarter, OSFI released the anticipated draft guidelines for Basel III, which will become effective in January 2013. The changes that affect Home Trust primarily relate to the components and definitions of regulatory capital, minimum capital targets and new liquidity requirements. The Company's analysis indicates that Home Trust presently meets the requirements of Basel III. Please see the Capital Management section of the MD&A for further discussion.

Subsequent to the end of the quarter, and in light of the Company's solid performance, profitability and strong financial position, the Board of Directors declared an increase of $0.04 in the quarterly dividend to $0.26 per Common share, payable on December 1, 2012 to shareholders of record at the close of business on November 16, 2012.

The Company continues to deliver solid results in terms of growth, increased returns and increased dividends. Despite the persistent international economic instability and modest economic improvement in Canada, the Company's performance continues to reflect the strength and the successful execution of the Company's core strategy.

With solid performance in all aspects of Home Capital's business, management expects that the positive performance the Company experienced during the first three quarters of 2012 will continue in the fourth quarter and into 2013.

(signed) (signed)
GERALD M. SOLOWAY      KEVIN P.D. SMITH
Chief Executive Officer      Chairman of the Board
November 7, 2012                        

Additional information concerning the Company's targets and related expectations for 2012, including the risks and assumptions underlying these expectations, may be found in Management's Discussion and Analysis (MD&A) of this quarterly report.

Conference Call and Webcast

Third Quarter Results Conference Call
The conference call will take place on Thursday, November 8, 2012, at 10:30 a.m. 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 1:30 p.m. Thursday, November 8, 2012 and midnight Thursday, November 15, 2012 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 39208745). 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.

2012 OBJECTIVES AND PERFORMANCE

Home Capital published its financial objectives for 2012 on page 15 of the Company's 2011 Annual Report. The following table compares actual performance to date against each of these objectives.

               
Table 1: 2012 Targets and Performance            
               
      For the nine months ended September 30, 2012
  2012 Targets Actual Results   Amount Increase over 2011
Growth in net income 13%-18% 16.7% $ 163,018  $ 23,271
Growth in diluted earnings per share 13%-18% 16.4%   4.68    0.66
Growth in total loans 13%-18% 10.0%   17,292,395    1,202,747
Return on shareholders' equity 20.0% 25.7%        
Efficiency ratio (TEB) 28.0% - 34.0% 27.9%        
Capital ratios            
  Tier 1 Minimum of 13% 16.97%        
  Total Minimum of 14% 20.78%        
Provision as a percentage of gross loans (annualized) 0.05% - 0.15% 0.09%        
               

1 Objectives and results for net income and diluted earnings per share are for the current year.
2 Change represents growth over December 31, 2011 on an annualized basis and includes loans held for sale.
3 See definition of TEB under Non-GAAP Measures in the unaudited interim consolidated financial report.
4 Based on the Company's wholly owned subsidiary, Home Trust Company.

         
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)   2012    2012    2011    2012    2011 
Net Interest Income Non-Securitized Assets                    
Interest from loans $ 138,271  $ 125,576  $ 102,617  $ 381,412  $ 289,932 
Dividends from securities   3,172    3,533    4,887    10,669    13,858 
Other interest   1,093    930    1,334    3,070    4,246 
        142,536    130,039    108,838    395,151    308,036 
Interest on deposits   58,962    56,043    48,160    168,133    140,368 
Interest on senior debt   1,648    1,705    1,644    5,006    2,691 
Net interest income non-securitized assets   81,926    72,291    59,034    222,012    164,977 
                         
Net Interest Income Securitized Loans and Assets                    
Interest income from securitized loans and assets   70,618    76,286    84,195    223,520    248,615 
Interest expense on securitization liabilities   53,053    54,723    55,617    163,968    168,052 
Net interest income securitized loans and assets   17,565    21,563    28,578    59,552    80,563 
                         
Total Net Interest Income   99,491    93,854    87,612    281,564    245,540 
Provision for credit losses (note 5(E))   4,239    2,298    2,349    11,035    4,540 
        95,252    91,556    85,263    270,529    241,000 
Non-Interest Income                    
Fees and other income   12,485    12,025    9,697    35,407    26,703 
Realized net gains and unrealized losses on securities and mortgages   (1,172)   1,676    1,224    812    5,394 
Net realized and unrealized gain (loss) on derivatives (note 14)   2,136    (1,275)   (5,260)   5,146    (6,873)
        13,449    12,426    5,661    41,365    25,224 
        108,701    103,982    90,924    311,894    266,224 
Non-Interest Expenses                     
Salaries and benefits   15,465    14,501    13,509    43,965    39,339 
Premises   2,296    1,977    1,997    6,271    5,769 
Other operating expenses   14,304    13,404    10,530    40,879    32,787 
        32,065    29,882    26,036    91,115    77,895 
                         
Income Before Income Taxes    76,636    74,100    64,888    220,779    188,329 
Income taxes (note 12(A))                    
  Current   19,904    20,568    18,249    59,527    50,414 
  Deferred   (522)   302    (1,778)   (1,766)   (1,832)
        19,382    20,870    16,471    57,761    48,582 
NET INCOME $ 57,254  $ 53,230  $ 48,417  $ 163,018  $ 139,747 
                         
NET INCOME PER COMMON SHARE                    
Basic $ 1.65  $ 1.54  $ 1.40  $ 4.70  $ 4.03 
Diluted $ 1.65  $ 1.54  $ 1.39  $ 4.68  $ 4.02 
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                     
Basic   34,697    34,476    34,682    34,705    34,691 
Diluted   34,803    34,509    34,804    34,825    34,804 
                         
Total number of outstanding common shares (note 9(A))   34,668    34,711    34,649    34,668    34,649 
Book value per common share $ 26.53  $ 25.05  $ 21.10  $ 26.53  $ 21.10 
                         
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.        
                       

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)   2012    2012    2011    2012    2011 
                       
NET INCOME $ 57,254  $ 53,230  $ 48,417  $ 163,018  $ 139,747 
                       
OTHER COMPREHENSIVE INCOME (LOSS)                    
                       
Available for Sale Securities (note 4(B))                    
Net unrealized gains (losses) on securities available for sale   1,667    (1,069)   (9,221)   4,991    (9,302)
Net losses (gains) reclassified to net income   1,141    (1,348)   (1,499)   (571)   (5,989)
      2,808    (2,417)   (10,720)   4,420    (15,291)
Income tax expense (recovery)   742    (643)   (2,707)   1,266    (3,875)
      2,066    (1,774)   (8,013)   3,154    (11,416)
                       
Cash Flow Hedges (note 14)                    
Net unrealized losses on cash flow hedges     (396)   (3,430)   (370)   (6,747)
Net losses reclassified to net income   376    357    189    1,086    280 
      376    (39)   (3,241)   716    (6,467)
Income tax expense (recovery)   99    (89)   (843)   120    (1,682)
      277    50    (2,398)   596    (4,785)
                       
Total other comprehensive income (loss)   2,343    (1,724)   (10,411)   3,750    (16,201)
                       
COMPREHENSIVE INCOME $ 59,597  $ 51,506  $ 38,006  $ 166,768  $ 123,546 
                       
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.        
                     

Consolidated Balance Sheets        
                 
      September 30 June 30 December 31
thousands of Canadian dollars (Unaudited)   2012    2012    2011 
ASSETS             
Cash Resources (note 4(A)) $ 543,825  $ 301,330  $ 665,806 
Securities (note 4(B))            
Available for sale   401,830    425,834    391,754 
Pledged securities (notes 4(C) and 6(B))   784,098    628,836    341,588 
        1,185,928    1,054,670    733,342 
Loans held for sale   36,405    29,811   
Loans (note 5)            
Residential mortgages   8,456,791    7,749,484    6,339,883 
Securitized residential mortgages (note 6)   7,238,946    7,582,154    8,243,350 
Non-residential mortgages   993,174    1,037,385    946,222 
Personal and credit card loans   567,079    568,127    560,193 
        17,255,990    16,937,150    16,089,648 
Collective allowance for credit losses (note 5(E))   (29,800)   (29,500)   (29,440)
        17,226,190    16,907,650    16,060,208 
Other            
Derivative assets (note 14)   57,651    59,284    72,424 
Other assets (note 7)   102,741    84,534    79,650 
Capital assets   7,165    7,278    5,372 
Intangible assets   66,342    66,149    63,917 
Goodwill   15,752    15,752    15,752 
        249,651    232,997    237,115 
      $ 19,241,999  $ 18,526,458  $ 17,696,471 
LIABILITIES AND SHAREHOLDERS' EQUITY            
Liabilities            
Deposits            
  Deposits payable on demand $ 31,736  $ 42,098  $ 62,746 
  Deposits payable on a fixed date   9,838,955    8,965,366    7,859,378 
        9,870,691    9,007,464    7,922,124 
Senior Debt (note 13)   153,724    152,524    153,336 
Securitization Liabilities (note 6(C))            
  Mortgage-backed security liabilities   1,923,017    2,078,300    2,417,801 
  Canada Mortgage Bond liabilities   6,155,475    6,160,259    6,231,274 
        8,078,492    8,238,559    8,649,075 
Other            
Obligations related to securities sold under repurchase agreement (notes 4(C) and 5(F))     43,418   
Derivative liabilities (note 14)   3,767    4,043    3,458 
Income taxes payable   8,689    15,893    17,628 
Other liabilities (note 8)   168,743    156,320    136,025 
Deferred tax liabilities (note 12(C))   38,275    38,798    40,040 
        219,474    258,472    197,151 
        18,322,381    17,657,019    16,921,686 
Shareholders' Equity            
Capital stock (note 9)   61,873    61,662    55,104 
Contributed surplus   5,847    5,543    5,873 
Retained earnings   857,339    810,018    722,999 
Accumulated other comprehensive loss (note 11)   (5,441)   (7,784)   (9,191)
        919,618    869,439    774,785 
      $ 19,241,999  $ 18,526,458  $ 17,696,471 
                 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.    
               

Consolidated Statements of Changes in Shareholders' Equity
                               
        Net Unrealized Net Unrealized Total  
        (Losses) Gains Losses on Accumulated  
        on Securities Cash Flow Other Total
thousands of Canadian dollars, Capital Contributed Retained Available for Hedges, Comprehensive Shareholders'
except per share amounts (Unaudited) Stock Surplus Earnings Sale, after Tax after Tax (Loss) Income Equity
Balance at December 31, 2011 $ 55,104  $ 5,873  $ 722,999  $ (4,141) $ (5,050) $ (9,191) $ 774,785 
Comprehensive income       163,018    3,154    596    3,750    166,768 
Stock options settled (note 9(A))   6,988    (1,379)           5,609 
Amortization of fair value of                            
employee stock options (note 10(A))     1,353            1,353 
Repurchase of shares (note 9(A))   (219)     (5,743)         (5,962)
Dividends paid                            
($0.64 per share)       (22,935)         (22,935)
Balance at September 30, 2012 $ 61,873  $ 5,847  $ 857,339  $ (987) $ (4,454) $ (5,441) $ 919,618 
                             
Balance at December 31, 2010 $ 50,427  $ 4,571  $ 567,681  $ 5,906  $ $ 5,906  $ 628,585 
Comprehensive income       139,747    (11,416)   (4,785)   (16,201)   123,546 
Stock options settled (note 9(A))   4,237    (933)           3,304 
Amortization of fair value of                            
employee stock options (note 10(A))     1,815            1,815 
Repurchase of shares (note 9(A))   (175)     (5,724)         (5,899)
Dividends paid                            
($0.56 per share)       (20,135)         (20,135)
Balance at September 30, 2011 $ 54,489  $ 5,453  $ 681,569  $ (5,510) $ (4,785) $ (10,295) $ 731,216 
                               
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.  
                             

Consolidated Statements of Cash Flows
        For the nine months ended
        September 30 September 30
thousands of Canadian dollars (Unaudited)   2012    2011 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income for the period $ 163,018  $ 139,747 
Adjustments to determine cash flows relating to operating activities:        
  Deferred income taxes   (1,766)   (1,832)
  Amortization of capital assets   2,477    2,181 
  Amortization of intangible assets    4,854    65 
  Amortization of net premium on securities   2,046    33 
  Amortization of securitization and senior debt transaction costs   10,141    6,736 
  Provision for credit losses   11,035    4,540 
  Change in accrued interest payable   31,090    21,581 
  Change in accrued interest receivable   (6,733)   (3,647)
  Realized net gains and unrealized losses on securities and mortgages   (812)   (5,394)
  Settlement of derivatives   (370)   (6,747)
  (Gain) loss on derivatives   (5,147)   6,265 
  Net increase in mortgages   (1,205,378)   (1,602,452)
  Net increase in personal and credit card loans   (7,112)   (92,742)
  Net increase in deposits   1,948,567    624,538 
  Activity in securitization liabilities        
    Proceeds from securitization of mortgage-backed security liabilities   152,303    1,044,863 
    Settlement and repayment of securitization liabilities   (710,644)   (456,891)
  Amortization of fair value of employee stock options   1,353    1,815 
  Changes in taxes payable and other   (28,162)   8,720 
Cash flows provided by (used in) operating activities   360,760    (308,621)
CASH FLOWS FROM FINANCING ACTIVITIES        
Repurchase of shares   (5,962)   (5,899)
Exercise of employee stock options   5,609    3,304 
Issuance of senior debt     149,072 
Dividends paid to shareholders   (22,233)   (19,440)
Cash flows (used in) provided by financing activities   (22,586)   127,037 
CASH FLOWS FROM INVESTING ACTIVITIES        
Activity in securities        
  Purchases   (2,912,033)   (592,802)
  Proceeds from sales   325,515    273,078 
  Proceeds from maturities   2,137,912    87,158 
Purchases of capital assets   (4,270)   (1,774)
Purchases of intangible assets   (7,279)   (13,199)
Cash flows used in investing activities   (460,155)   (247,539)
Net decrease in cash and cash equivalents during the period   (121,981)   (429,123)
Cash and cash equivalents at beginning of the period   665,806    846,824 
Cash and Cash Equivalents at End of the Period (note 4(A)) $ 543,825  $ 417,701 
Supplementary Disclosure of Cash Flow Information        
Dividends received on investments $ 8,898  $ 13,034 
Interest received   372,892    536,701 
Interest paid   142,049    291,124 
Income taxes paid   72,262    27,952 
               
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
             

Caution Regarding Forward-Looking Statements

From time to time Home Capital Group Inc. (the "Company" or "Home Capital") 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 on pages 48 through 58 of the Company's 2011 Annual 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, liquidity and funding risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk and regulatory and legal 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 quarterly report.   Forward-looking statements are typically identified by words such as "will,"  "believe," "expect," "anticipate," "estimate," "plan," "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 2012 and its effect on Home Capital's business are material factors the Company considers when setting its objectives and outlook.  In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical economic data provided by the Canadian government and its agencies.  In setting and reviewing the outlook and objectives for 2012, management's expectations assume:

  • The Canadian economy will continue to produce modest growth in 2012, but will be heavily influenced by the economic conditions in the United States and global markets.  Inflation will generally be within the Bank of Canada's target of 1%-3%.
  • Interest rates will remain at current rates for the balance of 2012 as the Bank of Canada leaves its target for the overnight rate at its current level.
  • The housing market will remain resilient to global uncertainty with balanced supply and demand conditions in most regions.  Declining housing starts and softening resale activity on stable prices through most of Canada will continue with the market moderating from previous activity levels.
  • Unemployment will remain stable or improve slightly as the economy grows, while a larger labour force will tend to offset job growth.
  • Consumer debt levels will remain serviceable by Canadian households.
  • Net interest margins overall are expected to remain in the current range.  Margins are expected to remain stable as returns on the increased traditional portfolio offset declining returns on the securitized portfolio throughout 2012.
  • Credit quality will remain sound with actual losses within the low end of Home Capital's historical range.
  • The recent changes to Canada Mortgage and Housing Corporation (CMHC) policies will continue to temper the real estate market.

Non-GAAP Measures

The Company applies International Financial Reporting Standards (IFRS) which are the generally accepted accounting principles (GAAP) for Canadian publically accountable enterprises. 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 Third Quarter 2012 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.

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. 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.

For further information:

Gerald M. Soloway, CEO, or
Martin Reid, President
416-360-4663
www.homecapital.com