Home Capital Reports Net Income up 16.0% year over year:

  • Diluted Earnings per Share are $1.90, up 15.2%;
  • Return on Equity was 24.3% for the quarter.

TORONTO, Nov. 6, 2013 /CNW/ - Home Capital today reported another quarter of solid results and strong origination volumes.

The Company's Third Quarter Report, including Management's Discussion and Analysis, is available on Home Capital's website at www.homecapital.com and 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
    2013   2013   2012   2013   2012
OPERATING RESULTS                    
Net Income $ 66,417 $ 61,573 $ 57,254 $ 187,715 $ 163,018
Total Revenue   239,433   232,555   226,603   703,182   660,036
Diluted Earnings per Share $ 1.90 $ 1.77 $ 1.65 $ 5.37 $ 4.68
Return on Shareholders' Equity   24.3%   23.6%   25.6%   24.0%   25.7%
Return on Average Assets   1.3%   1.3%   1.2%   1.3%   1.2%
Net Interest Margin (TEB)1   2.16%   2.14%   2.14%   2.16%   2.08%
Provision as a Percentage of Gross Loans (annualized)   0.06%   0.10%   0.10%   0.09%   0.08%
Efficiency Ratio (TEB)1   29.6%   28.6%   28.1%   28.8%   27.9%
                     
                As at    
    September 30   June 30   December 31   September 30    
    2013   2013   2012   2012    
BALANCE SHEET HIGHLIGHTS                    
Total Assets $ 19,840,797 $ 19,532,958 $ 18,800,079 $ 19,241,999    
Total Assets Under Administration 2   21,287,095   20,577,505   19,681,750   19,410,132    
Total Loans 3,4   18,084,382   17,794,420   17,159,913   17,468,655    
Securitized Loans On-Balance Sheet 3   6,164,544   6,570,837   6,706,160   7,415,206    
Total Loans Under Administration 3,4,5   19,530,680   18,838,967   18,041,584   17,636,788    
Liquid Assets   1,097,429   884,908   771,772   998,219    
Deposits   11,936,647   11,168,639   10,136,599   9,870,691    
Shareholders' Equity   1,121,362   1,068,017   968,213   919,618    
FINANCIAL STRENGTH                    
Capital Measures 6                    
Risk-Weighted Assets $ 6,240,690 $ 5,984,644 $ 5,491,513 $ 5,271,674    
Common Equity Tier 1 Capital Ratio   16.72%   16.63%   N/A   N/A    
Tier 1 Capital Ratio   16.72%   16.63%   17.01%   16.97%    
Total Capital Ratio   19.72%   19.74%   20.68%   20.78%    
Assets to Regulatory Capital Multiple7   13.34   13.36   13.39   14.07    
Credit Quality                    
Net Non-Performing Loans as a Percentage of Gross Loans   0.32%   0.31%   0.33%   0.28%    
Allowance as a Percentage of Gross Non-Performing Loans   57.0%   58.3%   57.0%   64.7%    
Share Information                    
Book Value per Common Share $ 32.27 $ 30.83 $ 27.96 $ 26.53    
Common Share Price - Close $ 72.03 $ 55.53 $ 59.07 $ 51.44    
Market Capitalization $ 2,502,754 $ 1,923,948 $ 2,045,594 $ 1,783,322    
Number of Common Shares Outstanding   34,746   34,647   34,630   34,668    

1See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures of the unaudited interim consolidated financial report.
2Total assets under administration include total on-balance sheet assets and off-balance sheet loans.
3In 2013 the Company classified Home Trust mortgages used as CMB replacement assets as securitized mortgages.  In 2012 these were classified as pledged securities.  Prior periods in 2012 have been restated to reflect the current classification.
4Total loans include loans held for sale.
5Loans under administration includes total loans and off-balance sheet loans.
6These figures relate to the Company's operating subsidiary, Home Trust Company and are calculated under Basel III for 2013 and Basel II for 2012.
7During Q3 2013, the Company excluded from its assets, for purposes of calculating the Assets to Regulatory Capital Multiple, mortgages that are off-balance sheet as a result of sales of interest only strips in light of regulatory communications confirming this treatment.  The comparative multiples have been restated to reflect this treatment.

THIRD QUARTER 2013 HIGHLIGHTS

Key results for the third quarter and the first nine months of 2013 included:

  • Net income increased to $66.4 million for the third quarter and $187.7 million for the first nine months of 2013, up 16.0% and 15.1% over the comparable periods in 2012. Adjusted net income, as defined in Table 2, was $64.6 million for Q3 2013 and $189.5 million for the first nine months of 2013, representing increases of 12.9% and 16.3% over the comparable periods of 2012. Adjusted net income was also up 4.4% from $61.9 million in Q2 2013.

  • Diluted earnings per share were $1.90 for the quarter and $5.37 year to date representing increases of 15.2% and 14.7% over the $1.65 and $4.68 earned in the comparable periods of 2012 and an increase of 7.3% over the $1.77 last quarter.

  • During the quarter, the Company recognized $1.9 million in a gain on sale from the sale of interest only strips of underlying mortgages with a principal value of $191.8 million. In the quarter, Home Capital received a favorable regulatory ruling confirming that the underlying mortgages in these transactions can be excluded from the calculation of the assets to capital multiple.  Please see the discussion below.

  • Net interest income, before provisions, continued in an upward trend, reaching $106.6 million in the third quarter and $311.0 million year to date, increasing from $99.5 million and $281.6 million recorded in the same periods of 2012 and from $102.5 million earned in Q2 2013. The growth in net interest income reflects strong net on-balance sheet loan growth in the traditional loan portfolio.

  • Net interest margin (TEB) was 2.16% in both the quarter and on a year-to-date basis. This is up from 2.14% and 2.08% in the same periods of 2012 and the 2.14% recorded last quarter. The increase year over year reflects the combination of the shift to higher yielding traditional mortgages relative to securitized mortgages and improved spreads earned on non-securitized lending year to date.

  • Return on equity was strong at 24.3% for the quarter and continues to be in excess of the Company's minimum performance objective of 20%.

  • The credit quality of the loan portfolio remains strong with continued low non-performing loans and credit losses that are well within expected levels. Net non-performing loans as a percentage of gross loans (NPL ratio) ended the quarter at 0.32% compared to 0.31% at the end of last quarter, 0.33% at the end of last year and 0.28% one year ago. The annualized credit provision as a percentage of gross loans (PCL ratio) of 0.06% has decreased from the 0.10% in both last quarter and one year ago.

  • Capital ratios remain high with Home Trust's Common Equity Tier 1 ratio (CET 1 ratio) ending the quarter at 16.80%, while Tier 1 and Total Capital Ratios were 16.80% and 19.81%, respectively.  Home Trust's Assets to Capital (ACM) multiple was 13.33 at the end of the quarter compared to 13.36 at June 30, 2013 and 14.07 one year ago.

  • Total loans under administration, which includes securitized mortgages that qualify for off-balance sheet accounting, increased to $19.53 billion, reflecting increases of $1.89 billion or 10.7% from $17.64 billion one year ago, and $1.49 billion or 8.3% from $18.04 billion at the end of 2012 (11.0% on an annualized basis).

  • Strong demand for the Company's products continues to support residential loan growth. Total mortgage originations in the quarter increased to $1.99 billion from $1.63 billion last quarter and $1.68 billion in the same quarter last year.  Year-to-date loan originations were $5.01 billion, up from $4.53 billion in 2012.

  • Traditional residential mortgage originations increased to $1.31 billion in the quarter, up from $1.23 billion in Q3 2012 and $1.24 billion in Q2 2013. Year-to-date traditional mortgage originations were $3.54 billion, up from $3.33 billion last year. The Company continues to experience strong demand for its traditional product offerings, which continue to be of high credit quality. This continues to enhance profitability and asset quality.

  • Accelerator (insured) residential mortgage originations increased to $272.6 million in the quarter, up from $236.7 million in Q3 2012 and $260.3 million in last quarter. Year-to-date originations of $654.5 million are up from the $630.5 million originated in the same period last year. Accelerator originations are expected to increase compared to current levels as the Company increases its focus on origination of new Accelerator mortgages and the renewal of its existing portfolios.

  • Multi-unit residential mortgage originations were $326.3 million in the quarter and $583.3 million year to date compared to $114.3 million and $229.6 million in the same periods last year and $54.3 million last quarter. The Company securitized and sold $235.5 million in Q3 2013 resulting in $2.9 million in securitization gains. The insured multi-unit residential market is relatively limited and the Company participates as appropriate opportunities are available through various origination channels. Consequently, origination volumes can vary significantly from quarter to quarter.

  • Commercial mortgage advances were $49.3 million for the quarter and $124.0 million year to date compared to $52.6 million and $186.3 million in the comparable periods of 2012 and $44.0 million last quarter. Store and apartment mortgage advances were $24.3 million in the quarter and $75.4 million year to date compared to $18.2 million and $93.9 million in the comparable periods of 2012 and $27.5 million last quarter.

  • The consumer retail credit portfolio, which includes durable household goods, such as water heaters and larger-ticket home improvement items, reached $328.0 million in Q3 2013, up 47.9% from $221.8 million one year ago. The Company has been successful at expanding relationships with its business partners to increase this portfolio which offers attractive returns for the risk profile.

During the quarter, OSFI confirmed the Company's proposed treatment of mortgages underlying sales of interest only strips as it affects the measurement of the regulatory asset to capital multiple. This favourable ruling confirms that off-balance sheet capital treatment can be achieved for securitized mortgages in certain situations and has resulted in an immediate increase of the Company's unutilized lending capacity. The ruling also provides significant flexibility with respect to growth of the portfolio of insured prime residential mortgages originated or renewed by the Company. The significance of this development is discussed under Capital and Lending Capacity in the Capital Management section of the Management's Discussion and Analysis in the Company's Third Quarter 2013 Report, which is available on Home Capital's website. As discussed above, in September the Company sold interest only strips of underlying mortgages with a principal value of $191.8 million. This resulted in a gain of $1.9 million in the quarter.

The Company continues to experience strong demand for its mortgage lending products.  Recent information indicates that modest increases in sales volumes and prices occurred in the quarter, which is reflective of relatively balanced markets. This is consistent with the Company's experience and observations of a healthy market with listings and sales in balance. The Company has not observed evidence of a "housing bubble" and expects that it will be able to continue to expand its share of the market through its network of brokers and its business development programs.

In the previous quarter, the Company reported that, based on its review of properties, it did not expect to incur significant losses as a result of the dramatic flooding in Alberta that occurred late in the second quarter.  We are pleased to report that, although a number of borrowers were affected by the flooding and a small number have asked for revisions to payments, no significant losses have been reported as of this date and the Company does not expect significant losses.

Senior Management and the Board of Directors are pleased to announce that the Company further strengthened its senior executive team during the quarter with the appointment of Fariba Rawhani to the position of Senior Vice President and Chief Information Officer, along with Carol Ferguson to the position of Vice President, Human Resources. Ms. Rawhani is a seasoned information technology executive with 28 years of experience in IT leadership and transformation spanning public sector agencies, and numerous private sector industries including 16 years in the financial services industry.  She has managed highly complex IT programs involving large teams of professionals, delivering senior IT leadership for national and international Fortune 100 companies. Ms. Ferguson brings to the organization over 25 years of financial services industry experience and a proven track record of building strong Human Resources teams. She specializes in delivering customized, practical human capital solutions, most notably in succession planning and leadership development.

On September 25, 2013, Home Trust was pleased to host and sponsor the first annual Home Trust Tom Trenouth Charity Golf Tournament.  Over 144 brokers and industry partners were in attendance and overwhelming support was received from everyone involved.  The proceeds of $67 thousand from the tournament were donated to the Breast Cancer Society of Canada.  The Company is looking forward to the second annual tournament which promises to be even more successful. 

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 approved a quarterly dividend of $0.28 per common share, payable on December 1, 2013 to shareholders of record at the close of business on November 15, 2013.

The Company continues to deliver solid results in terms of growth, high 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 its core strategy.

With solid performance in all aspects of Home Capital's business, management continues to expect the positive performance the Company experienced during the first nine months 2013 to continue for the remainder of year and into 2014.

(signed)
GERALD M. SOLOWAY     
Chief Executive Officer     
November 6, 2013                        
(signed)
KEVIN P.D. SMITH
Chair of the Board

Additional information concerning the Company's targets and related expectations for 2013, including the risks and assumptions underlying these expectations, may be found in Management's Discussion and Analysis (MD&A) of the quarterly report.

Third Quarter Results Conference Call
The conference call will take place on Thursday, November 7, 2013 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 2:30 p.m. Thursday, November 7, 2013 and midnight Thursday, November 14, 2013 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 80101898). 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.

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)     2013     2013     2012     2013     2012
Net Interest Income Non-Securitized Assets                              
Interest from loans   $ 159,573   $ 153,598   $ 138,271   $ 461,202   $ 381,412
Dividends from securities     2,621     2,795     3,172     8,609     10,669
Other interest     2,386     1,778     1,093     5,620     3,070
        164,580     158,171     142,536     475,431     395,151
Interest on deposits     67,911     65,640     58,962     196,489     168,133
Interest on senior debt     1,635     1,601     1,648     4,819     5,006
Net interest income non-securitized assets     95,034     90,930     81,926     274,123     222,012
                                 
Net Interest Income Securitized Loans and Assets                              
Interest income from securitized loans and assets     55,229     57,953     70,618     174,519     223,520
Interest expense on securitization liabilities     43,669     46,351     53,053     137,630     163,968
Net interest income securitized loans and assets     11,560     11,602     17,565     36,889     59,552
                                 
Total Net Interest Income     106,594     102,532     99,491     311,012     281,564
Provision for credit losses     2,768     4,429     4,239     11,864     11,035
        103,826     98,103     95,252     299,148     270,529
Non-Interest Income                              
Fees and other income     15,472     15,406     11,281     45,850     32,935
Securitization income     4,864     508     1,507     6,878     2,545
Net realized and unrealized (losses) gains on securities     (668)     1,163     (1,141)     2,441     402
Net realized and unrealized (loss) gain on derivatives     (44)     (646)     1,802     (1,937)     5,483
        19,624     16,431     13,449     53,232     41,365
        123,450     114,534     108,701     352,380     311,894
Non-Interest Expenses                              
Salaries and benefits     17,768     16,673     15,465     51,391     43,965
Premises     2,407     2,439     2,296     7,291     6,271
Other operating expenses     17,460     15,160     14,304     47,194     40,879
        37,635     34,272     32,065     105,876     91,115
                                 
Income Before Income Taxes     85,815     80,262     76,636     246,504     220,779
Income taxes                              
  Current     20,258     16,077     19,904     59,791     59,527
  Deferred     (860)     2,612     (522)     (1,002)     (1,766)
        19,398     18,689     19,382     58,789     57,761
NET INCOME   $ 66,417   $ 61,573   $ 57,254   $ 187,715   $ 163,018
                                 
NET INCOME PER COMMON SHARE                              
Basic   $ 1.91   $ 1.78   $ 1.65   $ 5.42   $ 4.70
Diluted   $ 1.90   $ 1.77   $ 1.65   $ 5.37   $ 4.68
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                              
Basic     34,703     34,612     34,697     34,645     34,705
Diluted     34,953     34,850     34,803     34,962     34,826
                                 
Total number of outstanding common shares     34,746     34,647     34,668     34,746     34,668
Book value per common share   $ 32.27   $ 30.83   $ 26.53   $ 32.27   $ 26.53

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)     2013     2013     2012     2013     2012
                               
NET INCOME   $ 66,417   $ 61,573   $ 57,254   $ 187,715   $ 163,018
                               
OTHER COMPREHENSIVE (LOSS) INCOME                              
                               
Available for Sale Securities                              
Net unrealized (losses) gains on securities available for sale     (10,638)     (10,737)     1,667     (14,210)     4,991
Net losses (gains) reclassified to net income     671     (1,162)     1,141     (2,437)     (571)
      (9,967)     (11,899)     2,808     (16,647)     4,420
Income tax (recovery) expense     (2,640)     (3,151)     742     (4,410)     1,266
      (7,327)     (8,748)     2,066     (12,237)     3,154
                               
Cash Flow Hedges                              
Net unrealized losses on cash flow hedges     (195)     -     -     (195)     (370)
Net losses reclassified to net income     376     372     376     1,115     1,086
      181     372     376     920     716
Income tax expense     48     97     99     240     120
      133     275     277     680     596
                               
Total other comprehensive (loss) income     (7,194)     (8,473)     2,343     (11,557)     3,750
                               
COMPREHENSIVE INCOME   $ 59,223   $ 53,100   $ 59,597   $ 176,158   $ 166,768

Consolidated Balance Sheets                  
                     
      September 30   June 30   December 31
thousands of Canadian dollars (Unaudited)     2013     2013     2012
ASSETS                   
Cash and Cash Equivalents   $ 774,591   $ 707,240   $ 301,863
Available for Sale Securities     441,689     396,557     414,344
Loans Held for Sale     77,655     25,508     21,921
Loans                  
Securitized mortgages     6,164,544     6,570,837     6,706,160
Non-securitized mortgages and loans     11,842,183     11,198,075     10,431,832
        18,006,727     17,768,912     17,137,992
Collective allowance for credit losses     (30,900)     (30,500)     (30,000)
        17,975,827     17,738,412     17,107,992
Other                  
Restricted cash      108,223     136,165     137,424
Pledged securities      195,187     304,269     588,069
Derivative assets     32,731     28,739     45,388
Other assets      148,548     110,958     100,983
Goodwill and intangible assets     86,346     85,110     82,095
        571,035     665,241     953,959
      $ 19,840,797   $ 19,532,958   $ 18,800,079
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Liabilities                  
Deposits                  
Deposits payable on demand   $ 281,348   $ 172,370   $ 105,923
Deposits payable on a fixed date     11,655,299     10,996,269     10,030,676
        11,936,647     11,168,639     10,136,599
Senior Debt     149,822     148,300     150,684
Securitization Liabilities                  
Mortgage-backed security liabilities     913,103     1,103,266     1,301,693
Canada Mortgage Bond liabilities     5,495,144     5,820,394     6,034,202
        6,408,247     6,923,660     7,335,895
Other                  
Derivative liabilities      2,378     1,704     2,386
Other liabilities      187,301     186,744     170,502
Deferred tax liabilities      35,040     35,894     35,800
        224,719     224,342     208,688
        18,719,435     18,464,941     17,831,866
Shareholders' Equity                  
Capital stock      70,237     64,662     61,903
Contributed surplus     5,412     6,419     6,224
Retained earnings     1,061,015     1,005,044     903,831
Accumulated other comprehensive loss      (15,302)     (8,108)     (3,745)
        1,121,362     1,068,017     968,213
      $ 19,840,797   $ 19,532,958   $ 18,800,079

Consolidated Statements of Changes in Shareholders' Equity
                             
        Net Unrealized Net Unrealized Total  
        Gains (Losses) 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 Equity
Balance at December 31, 2012 $ 61,903 $ 6,224 $ 903,831 $ 432 $ (4,177) $ (3,745) $ 968,213
Comprehensive income   -   -   187,715   (12,237)   680   (11,557)   176,158
Stock options settled   8,400   (2,202)   -   -   -   -   6,198
Amortization of fair value of                            
    employee stock options   -   1,390   -   -   -   -   1,390
Repurchase of shares   (66)   -   (2,077)   -   -   -   (2,143)
Dividends                            
($0.80 per share)   -   -   (28,454)   -   -   -   (28,454)
Balance at September 30, 2013 $ 70,237 $ 5,412 $ 1,061,015 $ (11,805) $ (3,497) $ (15,302) $ 1,121,362
                             
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   6,988   (1,379)   -   -   -   -   5,609
Amortization of fair value of                            
    employee stock options   -   1,353   -   -   -   -   1,353
Repurchase of shares   (219)   -   (5,743)   -   -   -   (5,962)
Dividends                            
($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

Consolidated Statements of Cash Flows
      For the nine months ended
      September 30 September 30
thousands of Canadian dollars (Unaudited)   2013   2012
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income for the period $ 187,715 $ 163,018
Adjustments to determine cash flows relating to operating activities:        
  Deferred income taxes   (1,002)   (1,766)
  Amortization of capital assets   2,455   2,477
  Amortization of intangible assets    5,907   4,854
  Amortization of net premium on securities   1,877   2,046
  Amortization of securitization and senior debt transaction costs   11,144   10,141
  Provision for credit losses   11,864   11,035
  Change in accrued interest payable   25,996   31,090
  Change in accrued interest receivable   (962)   (6,733)
  Net realized and unrealized gains on securities    (2,441)   (402)
  Realized gain on securitization   (6,878)   (2,545)
  Settlement of derivatives   3,115   (370)
  Loss (gain) on derivatives   2,151   (5,483)
  Net increase in mortgages   (1,540,523)   (1,551,261)
  Net decrease (increase) in pledged assets   392,882   (266,250)
  Net increase in credit card loans and other consumer retail loans   (27,706)   (7,112)
  Net increase in deposits   1,800,048   1,948,567
  Activity in securitization liabilities        
    Proceeds from sale of mortgage-backed securities derecognized   427,232   173,178
    Proceeds from sale of mortgage-backed securities   479,247   152,303
    Settlement and repayment of securitization liabilities   (1,217,173)   (710,644)
  Amortization of fair value of employee stock options   1,390   1,353
  Changes in taxes payable and other   656   (20,241)
Cash flows provided by (used in) operating activities   556,994   (72,745)
CASH FLOWS FROM FINANCING ACTIVITIES        
Repurchase of shares   (2,143)   (5,962)
Exercise of employee stock options   6,198   5,609
Dividends paid to shareholders   (27,729)   (22,233)
Cash flows used in financing activities   (23,674)   (22,586)
CASH FLOWS FROM INVESTING ACTIVITIES        
Activity in securities        
  Purchases   (182,382)   (276,922)
  Proceeds from sales   138,216   270,826
Purchases of capital assets   (6,268)   (4,270)
Purchases of intangible assets   (10,158)   (7,279)
Cash flows used in investing activities   (60,592)   (17,645)
Net increase (decrease) in cash and cash equivalents during the period   472,728   (112,976)
Cash and cash equivalents at beginning of the period   301,863   534,394
Cash and Cash Equivalents at End of the Period $ 774,591 $ 421,418
Supplementary Disclosure of Cash Flow Information        
Dividends received on investments $ 7,175 $ 8,898
Interest received   459,720   372,892
Interest paid   175,312   142,049
Income taxes paid   77,534   72,262

Home Capital published its financial objectives for 2013 on page 18 of the Company's 2012 Annual Report. The following table compares actual performance to date against each of these objectives.

Table 1: 2013 Targets and Performance            
               
      For the nine months ended September 30, 2013
    2013 Targets Actual Results   Amount Increase over 2012
Growth in net income 13%-18% 15.1% $ 187,715 $ 24,697
Growth in diluted earnings per share 13%-18% 14.7%   5.37   0.69
Growth in total loans under administration1 10%-15% 11.0%   19,530,680   1,489,096
Return on shareholders' equity 20.0% 24.0%        
Efficiency ratio (TEB)2 28.0% - 34.0% 28.8%        
Provision as a percentage of gross loans (annualized) 0.10% - 0.18% 0.09%        
1 Change represents growth over December 31, 2012 on an annualized basis and includes loans held for sale.
2 See definition of TEB under Non-GAAP Measures in the unaudited interim consolidated financial report.

Table 2: Reconciliation of Net Income to Adjusted Net Income

    Quarter Year to date
(000s, except % and per share amounts) Q3 Q2 % Q3 %     %
      2013   2013 Change   2012 Change   2013   2012 Change
Reconciliation of Net Income to Adjusted Net Income                          
Net income $ 66,417 $ 61,573 7.9% $ 57,254 16.0% $ 187,715 $ 163,018 15.1%
Adjustment for derivative restructuring - IFRS conversion (net of tax)   931   2,309 (59.7)%   - -   5,023 $ - -
Adjustment for disputed loans to condominium corporations (net of tax)   -   - -   - -   1,508   - -
Adjustment for investment tax credit benefits (net of tax)   (2,735)   (1,985) 37.8%   - -   (4,720)   - -
Adjusted Net Income1 $ 64,613 $ 61,897 4.4% $ 57,254 12.9% $ 189,526 $ 163,018 16.3%
Adjusted Basic Earnings per Share1 $ 1.86 $ 1.79 3.9% $ 1.65 12.7% $ 5.47 $ 4.70 16.4%
Adjusted Diluted Earnings per Share1 $ 1.85 $ 1.78 3.9% $ 1.65 12.1% $ 5.42 $ 4.68 15.8%
1 Adjusted net income and Adjusted earnings per share are defined in the Non-GAAP section of the MD&A.  

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 on pages 55 through 68 of the Company's 2012 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, funding and liquidity 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," "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 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 2013, management's expectations continue to assume:

  • The Canadian economy will produce modest growth in 2013 with relatively stable to modestly improving employment conditions in most regions and inflation will generally be within the Bank of Canada's target of 1% to 3%, leading to stable credit losses and continued strong demand for the Company's lending products.

  • The Canadian economy will continue to be heavily influenced by the economic conditions in the United States and global markets and, as such, the Company is prepared for the variability to plan that this may lead to.

  • The Bank of Canada continues to indicate that increases to its target overnight interest rate are not imminent and, as such, the Company is assuming the rate will remain at its current level for the balance of 2013 and for the foreseeable future. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.

  • The housing market will remain relatively stable with balanced supply and demand conditions in most regions supported by continued low interest rates, relatively stable to modestly improving employment, and immigration.  There will be declines in housing starts and resale activity compared to prior years with relatively stable prices throughout most of Canada. This supports continued stable credit quality and strong demand for the Company's products.

  • Consumer debt levels will remain serviceable by Canadian households.

  • The Company will have uninterrupted 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 Third Quarter 2013 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. 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