Home Capital Reports Strong Fourth Quarter Results, 14.3% Dividend Increase, and Stock Dividend Effecting a Two-for-One Split

  • Net income up 15.6% year over year and earnings per share up 14.7%
  • Dividend increased 14.3% to $0.32 quarterly, for a total dividend increase of 23% year over year
  • Stock dividend declared of one common share per each issued and outstanding common share, providing a two-for-one split

TORONTO, Feb. 12, 2014 /CNW/ - Home Capital Group Inc. (TSX: HCG) today reported positive results for the fourth quarter and for the year, meeting the Company's targets for growth in net income, earnings per share and loans under administration, and recording an annual return on equity surpassing 20% for the 16th consecutive year.

"We are very pleased with our results for the fourth quarter and the year," commented CEO Gerald Soloway. "The growth of revenue and earnings reflect the continued strength of our business model, the commitment of the Home Capital team, and our consistent success in growing our market share."

The Company's Annual and Fourth Quarter Consolidated Financial Report, including Management's Discussion and Analysis, for each of the three- and twelve-month periods ended December 31, 2013 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

Financial Highlights                    
  For the three months ended For the year ended
(000s, except Per Share and Percentage Amounts) December 31 September 30 December 31 December 31 December 31
    2013   2013   2012   2013   2012
OPERATING RESULTS                    
Net Income $ 68,827 $ 66,417 $ 58,965 $ 256,542 $ 221,983
Total Revenue   246,365   239,433   227,649   949,547   887,685
Diluted Earnings per Share $ 1.97 $ 1.90 $ 1.70 $ 7.32 $ 6.38
Return on Shareholders' Equity   23.9%   24.3%   25.0%   23.9%   25.5%
Return on Average Assets   1.4%   1.3%   1.2%   1.3%   1.2%
Net Interest Margin (TEB)1   2.22%   2.16%   2.13%   2.17%   2.09%
Provision as a Percentage of Gross Loans (annualized)   0.09%   0.06%   0.09%   0.09%   0.09%
Efficiency Ratio (TEB)1   28.3%   29.6%   27.3%   28.7%   27.7%
            As at        
  December 31 September 30 December 31        
    2013   2013   2012        
BALANCE SHEET HIGHLIGHTS                    
Total Assets $ 20,075,850 $ 19,840,797 $ 18,800,079        
Total Assets Under Administration2   21,997,781   21,287,095   19,681,750        
Total Loans3,4   18,019,901   18,084,382   17,159,913        
Securitized Loans On-Balance Sheet3   5,210,021   6,164,544   6,706,160        
Total Loans Under Administration3,4,5   19,941,832   19,530,680   18,041,584        
Liquid Assets   1,492,977   1,097,429   771,772        
Deposits   12,765,954   11,936,647   10,136,599        
Shareholders' Equity   1,177,697   1,121,362   968,213        
FINANCIAL STRENGTH                    
Capital Measures6                    
Risk-Weighted Assets $ 6,495,767 $ 6,240,690 $ 5,491,513        
Common Equity Tier 1 Capital Ratio   16.80%   16.72%   N/A        
Tier 1 Capital Ratio   16.80%   16.72%   17.01%        
Total Capital Ratio   19.69%   19.72%   20.68%        
Assets to Regulatory Capital Multiple7   13.19   13.34   13.39        
Credit Quality                    
Net Non-Performing Loans as a Percentage of Gross Loans   0.35%   0.32%   0.33%        
Allowance as a Percentage of Gross Non-Performing Loans   52.4%   57.0%   57.0%        
Share Information                    
Book Value per Common Share $ 33.90 $ 32.27 $ 27.96        
Common Share Price - Close $ 80.93 $ 72.03 $ 59.07        
Market Capitalization $ 2,811,832 $ 2,502,754 $ 2,045,594        
Number of Common Shares Outstanding   34,744   34,746   34,630        

1 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2013 Annual and Fourth Quarter Consolidated Financial Report.
2 Total assets under administration include total on-balance sheet assets and off-balance sheet loans.
3 In 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.
4 Total loans include loans held for sale.
5 Loans under administration includes total loans and off-balance sheet loans.
6 These figures relate to the Company's operating subsidiary, Home Trust Company and are calculated under Basel III for 2013 and Basel II for 2012.
7 Commencing in Q3 2013, the Company excluded from its assets, for the purposes of calculating the Assets to Regulatory Capital Multiple, mortgages that are off-balance sheet as a result of sales of residual interests in light of regulatory communications confirming this treatment.  The comparative multiples have been restated to reflect this treatment.

 

2013 Targets and Performance            
    For the year ended December 31, 2013
  2013 Targets Actual Results   Amount   Increase over 2012
Growth in net income 13%-18% 15.6% $ 256,542 $ 34,559
Growth in diluted earnings per share 13%-18% 14.7%   7.32   0.94
Growth in total loans under administration1 10%-15% 10.5%   19,941,832   1,900,248
Return on shareholders' equity 20.0% 23.9%        
Efficiency ratio (TEB)2 28.0% - 34.0% 28.7%        
Provision as a percentage of gross loans 0.10%-0.18% 0.09%        

1 Includes loans held for sale.
2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2013 Annual and Fourth Quarter Consolidated Financial Report.

Key assumptions underlying the Company's targets are related to interest rates, unemployment levels, inflation, economic growth, and consumer debt levels.  These assumptions are set out in the Company's 2013 Annual and Fourth Quarter Consolidated Financial Report.  Developments within the general Canadian economy and the real estate market have been, and are expected to be, consistent with these assumptions.  The Company was successful in meeting or exceeding all of its performance targets in 2013.

FOURTH QUARTER AND 2013 HIGHLIGHTS

The Company recorded another period of solid performance in the fourth quarter of 2013 and for the year. Key results and accomplishments for the fourth quarter of 2013 and the year are as follows:

  • Net income was $68.8 million in the fourth quarter and $256.5 million for the year, increasing 16.7% over the comparable quarter of 2012 and 15.6% over 2012. Sequentially in 2013, fourth quarter net income increased by 3.6% over third quarter net income. The annual results were well within the Company's 2013 objective of 13% to 18% growth in net income over 2012, and reflect the continued strong loan growth in the traditional portfolio, strengthening total net interest margin, continued low provisions for credit losses and a low efficiency ratio.

  • Diluted earnings per share reached $1.97 for the fourth quarter and $7.32 for the year.  This represents an increase of 15.9% from the $1.70 diluted earnings per share in the fourth quarter of 2012 and an increase of 14.7% over the $6.38 diluted earnings per share earned in 2012. These results are well within the Company's 2013 annual objective of 13% to 18% growth in diluted earnings per share.

  • Adjusted net income, as defined in the Non-GAAP Measures section of the Company's 2013 Annual and Fourth Quarter Consolidated Financial Report, was $68.2 million in the quarter and $257.7 million for the year, representing increases of 10.8% and 14.8% over the comparable periods of 2012.

  • Return on equity was 23.9% and for the year, well in excess of the Company's minimum performance objective of 20% for the sixteenth consecutive year.

  • The Company recorded $3.5 million in gains on the sale of residual interests in Q4 2013 and $5.4 million for the year compared to $4.8 million in gains in Q4 2012 and for 2012. In Q3 2013, the Company received a favourable regulatory ruling confirming that the underlying mortgages in these transactions can be excluded from the regulatory Assets to Capital Multiple (ACM) allowing the Company to continue generating stable income from this source going forward.  The Company also recorded gains on the securitization of multi-unit residential mortgages of $1.2 million in the quarter and $5.7 million for the year, compared to $0.9 million and $3.3 million in the same periods last year. The Company expects these transactions to provide ongoing income.

  • Net interest income rose to $111.0 million in Q4 2013 and to $422.0 million for the year. This represents an increase of 11.1% over $99.9 million recorded in Q4 2012 and 10.6% over $381.5 million recorded in 2012. Net interest income increased 4.1% over the $106.6 million recorded in Q3 2013. Net interest income growth is lower than net income growth as the gain on sale of retained interest replaces net interest income on certain securitized assets.

  • Net interest margin (TEB) continued strong at 2.22% in the quarter and 2.17% for 2013 up from 2.13% Q4 2012 and 2.09% for 2012 and up from 2.16% in Q3 2013. Total net interest margin has been positively influenced by the mix of the loan portfolio between non-securitized and securitized mortgages and the net interest margin on each of these portfolios. Beginning in 2011 and continuing through 2013, the weighting of lower-yielding securitized mortgages in the total portfolio declined, generally leading to higher total net interest margins. The net interest margin on the non-securitized portfolio also generally remained strong over that period, with some fluctuations quarter to quarter with relatively stable interest rate spreads. Net interest margin for non-securitized assets was 2.94% for Q4 2013, a decline from 2.99% in the third quarter, primarily reflecting a  larger proportion of lower yielding insured mortgages awaiting securitization as the Company began to increase originations of insured mortgages, while spreads of the traditional portfolio over deposits rates improved marginally in Q4 2013 compared to Q3 2013.

  • The credit performance of the loans portfolio remained strong in the quarter and for the year and was better than the Company's objectives. The annualized credit provision as percentage of gross loans (PCL ratio) was 0.09% in the quarter and for the year, consistent with the comparable periods of 2012. The Company's objective was a PCL ratio of between 0.10% and 0.18% for 2013. Net non-performing loans ended 2013 at 0.35% of the total loans portfolio compared to 0.33% at the end of 2012 and 0.32% at the end Q3 2013, with the marginal increase primarily reflecting a specific larger commercial loan where no losses are expected.  Excluding this commercial loan would result in net non-performing loans ending 2013 at 0.31% of the total loans portfolio.  The ratio has remained stable despite the relatively higher proportion of uninsured mortgages in the total portfolio.

  • The efficiency ratio declined to 28.5% in Q4 2013, as expenses were relatively flat quarter over quarter.  The Company has been reducing consulting costs, while increasing permanent employees leading to increased efficiencies.

  • Home Trust's Common Equity Tier 1 (CET 1) and Total capital ratios remained very strong at 16.80% and 19.69%, respectively, at December 31, 2013, and well above Company and regulatory minimum targets.  Home Trust's ACM was 13.19 at December 31, 2013 compared to 13.39 at December 31, 2012 and 13.34 at September 30, 2013. ACM declined from one year ago as the Company completed sales of residual interests and removed underlying mortgage loans from the calculation of the ACM.

  • Total loans under administration, including off-balance sheet mortgages, increased by almost $2 billion in 2013 to $19.94 billion, an increase of 10.5% from $18.04 billion one year ago and up $411.2 million from Q3 2013.  Annual growth met the Company's 2013 target range of 10-15% despite a slower start than planned for Accelerator (insured) originations as the Company awaited the ruling on the residual interest regulatory treatment.

  • Total Q4 2013 mortgage originations were $1.91 billion and $6.92 billion for the year, compared to $1.47 billion and $6.01 billion in the same periods of 2012.  Total originations were $1.99 billion in the third quarter of 2013. The year-over-year increase in originations reflects increased focus on and increased demand for the Company's traditional mortgage products and an increase in Accelerator originations later in 2013. Compared to the third quarter, a decline in originations reflects normal and expected seasonal factors.  The Company has generally observed stable credit quality on new originations over 2013 and improved credit quality compared to 2012.

  • Traditional mortgage originations were $1.23 billion in Q4 2013 and $4.77 billion for the year, compared to $1.16 billion and $4.49 billion in the comparative periods of 2012 and $1.31 billion in Q3 2013.

  • Accelerator (insured) mortgage originations were $357.1 million in Q4 2013, more than double the $174.2 million originated in Q4 2012 and up from $272.6 million originated last quarter, reflecting the Company's renewed focus on this product.  Accelerator originations were $1.01 billion for the year, up 25.7% from $804.7 million in 2012. The Company is pleased with the positive market response to its renewed focus in the product and expects increasing originations in 2014.

  • Multi-unit residential originations were $239.9 million in Q4 2013 and $823.2 million for the year, up from $57.2 million and $286.9 million in the same periods of 2012 and down from $326.6 million in the third quarter of 2013. A significant portion of multi-unit residential mortgages originated in 2013 and 2012 were insured and securitized through programs that qualified for off-balance sheet accounting.

  • Commercial mortgage advances were $56.1 million in Q4 2013 and $180.1 million for the year, compared to $52.4 million and $238.7 million in the same periods of 2012, and $49.3 million in the third quarter of 2013. The Company continues to maintain a cautious approach to increases in this portfolio.

  • Store and apartment advances were $24.5 million for the quarter and $100.0 million for the year, compared to $24.8 million and $118.7 million in the same periods in 2012, and $24.3 million in the third quarter of 2013.

  • The consumer retail portfolio, which includes durable household good, such as water heaters and larger ticket home improvement items, reached $340.0 million in Q4 2013, up 25.0% from $272.0 million one year ago and 3.7% from $328.0 million last quarter.

  • In Q4 2013, Home Trust launched a new direct to consumer brand, Oaken Financial, offering a line of consumer deposit products, including Guaranteed Investment Certificates (GICs) and a new Oaken Savings Account as part of its strategy to continue to diversify funding sources and to provide customers with a secure alternative to managing their savings independently.

  • In Q4 2013, Home Trust successfully closed its inaugural issuance of institutional five-year deposit notes. Given strong investor demand, the transaction was upsized from $250 million to $300 million and priced at the tight end of initial guidance. The Company expects that it will become a regular issuer of wholesale deposit notes, likely on a semi-annual basis.

  • 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 in the quarterly dividend by $0.04 to $0.32 per Common share, payable on March 1, 2014 to shareholders of record at the close of business on February 24, 2014, representing an increase of 14.3%.  In addition, the Board approved a stock dividend of one share per each issued and outstanding common share, effecting a two-for-one stock split.

2014 Overall Outlook

Supported by the stable Canadian economy and healthy real estate market in 2013, the Company continued to grow its traditional mortgage loan portfolio and market share, taking advantage of the attractive returns available in the alternative mortgage space. This business, which is the Company's historical core business, provides superior returns on the allocated capital. The continued expansion of the traditional business was accompanied by commensurate strengthening of governance, risk management and control processes through further investment in tools, technology and people.  The Company maintained very low loss ratios, even with a continued shift to the traditional portfolio which carries inherently higher credit risk than the insured Accelerator products. The Company expects continued growth of the traditional mortgage loan portfolio and will continue to strengthen risk management and control processes to manage the business within its risk appetite.

In the third quarter of 2013, the Company received a favourable ruling from the Office of the Superintendent of Financial Institutions Canada (OSFI) with respect to the Company's initiative to structure its Accelerator lending and securitization activity in a manner that allows off-balance sheet treatment of securitized loans and effectively expands the Company's capacity and appetite for prime insured single-family mortgage lending. In this connection, the Company will increase its efforts and focus on Accelerator lending and anticipates renewed growth of this portfolio, which will be included in assets under administration and will reinforce the Company's "one-stop" and "flexible lending solutions" strategies. The Company will also continue to increase its presence in suitable urban and suburban markets across Canada. Additional focus will be placed on growth of the Company's high-margin non-residential and consumer lending portfolios within the Company's risk tolerance.

The Company expects supply and demand in the real estate market to remain balanced in 2014, with moderating conditions in most markets when compared to the activity levels of recent years. The tightening of mortgage underwriting requirements and changes in mortgage insurance qualification that have occurred over the past few years can be expected to continue to dampen the level of new and resale residential transaction activity in 2014, reducing the risk of a major disruption of the real estate market.  The Company believes that slowing housing activity will lead to healthier real estate markets overall that are supported by continued low interest rates, stable to improving employment and stable net immigration. Should interest rates increase modestly over the next year, there will be no disruption to the Company's business plans. The Company expects continued strong demand for its traditional mortgage and other retail products, reflecting the balanced real estate markets and an increasing market share.

The Company will continue to maintain relatively high levels of liquidity and low overall leverage, as measured by the assets to capital multiple (ACM), to provide safety and soundness for depositors.  The Company expects that the rate of growth in the Company's non-securitized loan portfolio in 2014 will be relatively consistent with the growth rate experienced in 2013.

The Company expects that loans under administration will grow in the range of 15% to 20% in 2014. The relative growth of the traditional mortgage portfolio will moderate compared to 2013 as the Company achieves the balance in the portfolios to support sustained growth in earnings and returns on equity.  The Company will expand offerings of insured mortgages through the Accelerator insured mortgage program, supporting the "one-stop" and "flexible lending solutions" lender strategies.

The traditional mortgage business is expected to maintain strong net interest margin and net interest income levels, while net interest margins on securitized assets continue to decline as older securitization programs reach maturity. The securitized portfolio carried on-balance sheet will decline as older portfolios mature and are replaced by portfolios that qualify for off-balance sheet accounting treatment. Consequently, the contribution to net interest income from these portfolios will become less significant and the Company will record more gains as securitized portfolios are sold.  The Company will also record increased revenue from the servicing of such portfolios.  The Company will increase its marketing and sales activities related to the development of more diversified sources of deposits, including its Oaken Financial business which will include an e-banking platform for direct to consumer business and additional costs will be incurred in connection to this. Increases in net interest income and gains on sales of securitized portfolios will tend to mitigate these increases in costs, and the Company expects that its efficiency ratio for 2014 will be in the target range of 28% to 32%.

Conference Call and Webcast

Fourth Quarter Results Conference Call

The conference call will take place on Thursday, February 13, 2014, 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, February 13, 2014 and midnight Thursday, February 20, 2014 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 35336026). 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.

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 Wednesday, May 14, 2014 at 11:00 a.m. local time. Shareholders and guests are invited to join Directors and Management for lunch and refreshments following the Annual Meeting. All shareholders are encouraged to attend.

Consolidated Balance Sheets            
            As at
      December 31   September 30   December 31
thousands of Canadian dollars   2013   2013   2012
ASSETS             
Cash and Cash Equivalents $ 728,469 $ 774,591 $ 301,863
Available for Sale Securities   424,272   441,689   414,344
Loans Held for Sale   137,975   77,655   21,921
Loans            
Securitized mortgages   5,210,021   6,164,544   6,706,160
Non-securitized mortgages and loans   12,671,905   11,842,183   10,431,832
    17,881,926   18,006,727   17,137,992
Collective allowance for credit losses   (31,500)   (30,900)   (30,000)
    17,850,426   17,975,827   17,107,992
Other            
Restricted assets   652,986   303,410   725,493
Derivative assets   29,886   32,731   45,388
Other assets   162,679   148,548   100,983
Goodwill and intangible assets   89,157   86,346   82,095
      934,708   571,035   953,959
  $ 20,075,850 $ 19,840,797 $ 18,800,079
LIABILITIES AND SHAREHOLDERS' EQUITY            
Liabilities            
Deposits            
Deposits payable on demand $ 429,269 $ 281,348 $ 105,923
Deposits payable on a fixed date   12,336,685   11,655,299   10,030,676
    12,765,954   11,936,647   10,136,599
Senior Debt   147,343   149,822   150,684
Securitization Liabilities            
Mortgage-backed security liabilities   660,964   913,103   1,301,693
Canada Mortgage Bond liabilities   5,112,100   5,495,144   6,034,202
    5,773,064   6,408,247   7,335,895
Other            
Derivative liabilities   3,809   2,378   2,386
Other liabilities   173,558   187,301   170,502
Deferred tax liabilities   34,425   35,040   35,800
    211,792   224,719   208,688
      18,898,153   18,719,435   17,831,866
Shareholders' Equity            
Capital stock   70,233   70,237   61,903
Contributed surplus   5,984   5,412   6,224
Retained earnings   1,119,959   1,061,015   903,831
Accumulated other comprehensive loss   (18,479)   (15,302)   (3,745)
    1,177,697   1,121,362   968,213
  $ 20,075,850 $ 19,840,797 $ 18,800,079




Consolidated Statements of Income                    
          For the three months ended       For the year ended
    December 31   September 30   December 31   December 31   December 31
thousands of Canadian dollars, except per share amounts   2013   2013   2012   2013   2012
Net Interest Income Non-Securitized Assets                    
Interest from loans $ 168,045 $ 159,573 $ 144,310 $ 629,247 $ 525,722
Dividends from securities   2,556   2,621   3,502   11,165   14,171
Other interest   2,663   2,386   949   8,283   4,019
      173,264   164,580   148,761   648,695   543,912
Interest on deposits   71,744   67,911   61,873   268,233   230,006
Interest on senior debt   1,793   1,635   1,825   6,612   6,831
Net interest income non-securitized assets   99,727   95,034   85,063   373,850   307,075
                       
Net Interest Income Securitized Loans and Assets                    
Interest income from securitized loans and assets   51,274   55,229   64,351   225,793   287,871
Interest expense on securitization liabilities   40,034   43,669   49,506   177,664   213,474
Net interest income securitized loans and assets   11,240   11,560   14,845   48,129   74,397
                       
Total Net Interest Income   110,967   106,594   99,908   421,979   381,472
Provision for credit losses   4,004   2,768   3,685   15,868   14,720
      106,963   103,826   96,223   406,111   366,752
Non-Interest Income                    
Fees and other income   15,402   15,472   10,928   61,252   43,863
Securitization income   5,770   4,864   5,761   12,648   8,306
Net realized and unrealized gains (losses) on securities   148   (668)   (457)   2,589   (55)
Net realized and unrealized gain (loss) on derivatives   507   (44)   (1,695)   (1,430)   3,788
      21,827   19,624   14,537   75,059   55,902
      128,790   123,450   110,760   481,170   422,654
Non-Interest Expenses                    
Salaries and benefits   19,563   17,768   14,991   70,954   58,956
Premises   2,610   2,407   2,562   9,901   8,833
Other operating expenses   15,689   17,460   14,067   62,883   54,946
      37,862   37,635   31,620   143,738   122,735
                       
Income Before Income Taxes   90,928   85,815   79,140   337,432   299,919
Income taxes                    
     Current   22,337   20,258   22,649   82,128   82,176
     Deferred   (236)   (860)   (2,474)   (1,238)   (4,240)
      22,101   19,398   20,175   80,890   77,936
NET INCOME $ 68,827 $ 66,417 $ 58,965 $ 256,542 $ 221,983
                       
NET INCOME PER COMMON SHARE                    
Basic $ 1.98 $ 1.91 $ 1.70 $ 7.40 $ 6.40
Diluted $ 1.97 $ 1.90 $ 1.70 $ 7.32 $ 6.38
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                    
Basic   34,745   34,703   34,655   34,670   34,692
Diluted   34,969   34,953   34,779   35,023   34,820
                       
Total number of outstanding common shares   34,744   34,746   34,630   34,744   34,630
Book value per common share $ 33.90 $ 32.27 $ 27.96 $ 33.90 $ 27.96




Consolidated Statements of Comprehensive Income    
        For the three months ended     For the year ended
    December 31   September 30   December 31   December 31   December 31
thousands of Canadian dollars   2013   2013   2012   2013   2012
                     
NET INCOME $ 68,827 $ 66,417 $ 58,965 $ 256,542 $ 221,983
                     
OTHER COMPREHENSIVE (LOSS) INCOME                    
                     
Available for Sale Securities and Retained Interests                    
Net unrealized (losses) gains   (5,320)   (10,638)   1,471   (19,530)   6,462
Net (gains) losses reclassified to net income   (147)   671   457   (2,584)   (114)
    (5,467)   (9,967)   1,928   (22,114)   6,348
Income tax (recovery) expense   (1,449)   (2,640)   509   (5,859)   1,775
    (4,018)   (7,327)   1,419   (16,255)   4,573
                     
Cash Flow Hedges                    
Net unrealized gains (losses)   897   (195)   -   702   (370)
Net losses reclassified to net income   247   376   376   1,362   1,462
    1,144   181   376   2,064   1,092
Income tax expense   303   48   99   543   219
    841   133   277   1,521   873
                     
Total other comprehensive (loss) income   (3,177)   (7,194)   1,696   (14,734)   5,446
                     
COMPREHENSIVE INCOME $ 65,650 $ 59,223 $ 60,661 $ 241,808 $ 227,429




Consolidated Statements of Changes in Shareholders' Equity
                             
                Net Unrealized            
                Gains (Losses)   Net Unrealized   Total    
                on Securities and   Losses on    Accumulated    
                Retained   Cash Flow   Other   Total
thousands of Canadian dollars,   Capital   Contributed   Retained   Interests Available   Hedges,   Comprehensive   Shareholders'
except per share amounts   Stock   Surplus   Earnings   for 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   -   -   256,542   (16,255)   1,521   (14,734)   241,808
Stock options settled   8,400   (2,202)   -   -   -   -   6,198
Amortization of fair value of                            
employee stock options   -   1,962   -   -   -   -   1,962
Repurchase of shares   (70)   -   (2,232)   -   -   -   (2,302)
Dividends                            
($1.08 per share)   -   -   (38,182)   -   -   -   (38,182)
Balance at December 31, 2013 $ 70,233 $ 5,984 $ 1,119,959 $ (15,823) $ (2,656) $ (18,479) $ 1,177,697
                             
                             
Balance at December 31, 2011 $ 55,104 $ 5,873 $ 722,999 $ (4,141) $ (5,050) $ (9,191) $ 774,785
Comprehensive income   -   -   221,983   4,573   873   5,446   227,429
Stock options settled   7,088   (1,408)   -   -   -   -   5,680
Amortization of fair value of                            
employee stock options   -   1,759   -   -   -   -   1,759
Repurchase of shares   (289)   -   (7,828)   -   -   -   (8,117)
Dividends                            
($0.90 per share)   -   -   (33,323)   -   -   -   (33,323)
Balance at December 31, 2012 $ 61,903 $ 6,224 $ 903,831 $ 432 $ (4,177) $ (3,745) $ 968,213




Consolidated Statements of Cash Flows
        For the year ended
        December 31   December 31
thousands of Canadian dollars   2013   2012
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income for the year $ 256,542 $ 221,983
Adjustments to determine cash flows relating to operating activities:        
  Deferred income taxes   (1,238)   (4,240)
  Amortization of capital assets   3,504   3,118
  Amortization of intangible assets    7,864   6,715
  Amortization of net premium on securities   2,562   2,460
  Amortization of securitization and senior debt transaction costs   18,729   13,396
  Provision for credit losses   15,868   14,720
  Change in accrued interest payable   13,624   13,519
  Change in accrued interest receivable   (1,388)   (5,434)
  Net realized and unrealized (gains) losses on securities   (2,589)   55
  Realized gain on securitization   (12,648)   (8,306)
  Settlement of derivatives   3,816   (370)
  Loss (gain) on derivatives   1,643   (3,788)
  Net increase in mortgages   (1,980,163)   (1,943,195)
  Net decrease (increase) in restricted assets   72,507   (252,493)
  Net increase in credit card loans and other consumer retail loans   (35,002)   (40,845)
  Net increase in deposits   2,629,355   2,214,475
  Activity in securitization liabilities        
      Proceeds from sale of mortgage-backed securities derecognized   602,948   242,576
      Proceeds from sale of mortgage-backed securities    635,101   407,848
      Settlement and repayment of securitization liabilities   (1,686,739)   (1,044,674)
  Amortization of fair value of employee stock options   1,962   1,759
  Changes in taxes payable and other   (31,475)   (7,194)
Cash flows provided by (used in) operating activities   514,783   (167,915)
CASH FLOWS FROM FINANCING ACTIVITIES        
Repurchase of shares   (2,302)   (8,117)
Exercise of employee stock options   6,198   5,680
Dividends paid to shareholders   (37,458)   (31,244)
Cash flows used in financing activities   (33,562)   (33,681)
CASH FLOWS FROM INVESTING ACTIVITIES        
Activity in securities        
  Purchases   (182,382)   (335,218)
  Proceeds from sales   150,494   317,748
Purchases of capital assets   (7,801)   (4,324)
Capitalized intangible development costs   (14,926)   (9,141)
Cash flows used in investing activities   (54,615)   (30,935)
Net increase (decrease) in cash and cash equivalents during the year   426,606   (232,531)
Cash and cash equivalents at beginning of the year   301,863   534,394
Cash and Cash Equivalents at End of the Year $ 728,469 $ 301,863
Supplementary Disclosure of Cash Flow Information        
Dividends received on investments $ 9,022 $ 12,626
Interest received   853,125   807,870
Interest paid   443,646   438,026
Income taxes paid   98,724   79,887




Net Interest Margin
   
  For the three months ended   For the year ended
  December 31 September 30 December 31 December 31 December 31
  2013 2013 2012 2013 2012
Net interest margin non-securitized interest earning assets (non-TEB) 2.92% 2.96% 3.07% 2.98% 3.05%
Net interest margin non-securitized interest earning assets (TEB) 2.94% 2.99% 3.11% 3.01% 3.10%
Net interest margin securitized assets 0.74% 0.69% 0.79% 0.73% 0.93%
Total net interest margin (non-TEB) 2.20% 2.14% 2.11% 2.15% 2.07%
Total net interest margin (TEB) 2.22% 2.16% 2.13% 2.17% 2.09%
Spread of non-securitized loans over deposits only 3.11% 3.16% 3.13% 3.14% 3.13%





Net Interest Income by Product and Average Rate                
  For the three months ended December 31, 2013   For the three months ended September 30, 2013
(000s, except %)   Average   Income/ Average   Average   Income/ Average
    Balance 1   Expense Rate 1   Balance 1   Expense Rate 1
Assets                    
Cash resources and securities $ 1,292,322 $ 5,219 1.62% $ 1,248,482 $ 5,007 1.60%
Traditional single-family residential mortgages   9,819,720   128,659 5.24%   9,331,924   122,329 5.24%
Accelerator single-family residential mortgages   617,356   5,282 3.42%   407,046   3,604 3.54%
Residential commercial mortgages 2   327,988   4,043 4.93%   280,565   3,393 4.84%
Non-residential commercial mortgages   987,049   15,749 6.38%   965,285   15,932 6.60%
Credit card loans   295,315   6,934 9.39%   300,776   7,147 9.50%
Other consumer retail loans   333,521   7,378 8.85%   318,300   7,168 9.01%
Total non-securitized loans   12,380,949   168,045 5.43%   11,603,896   159,573 5.50%
Taxable equivalent adjustment   -   921 -   -   942 -
Total on non-securitized interest-earning assets   13,673,271   174,185 5.10%   12,852,378   165,522 5.15%
Securitized single-family residential mortgages   4,151,111   33,112 3.19%   4,605,786   35,943 3.12%
Securitized multi-unit residential mortgages   1,639,678   16,429 4.01%   1,795,004   17,715 3.95%
Assets pledged as collateral for securitization   440,539   1,733 1.57%   379,419   1,571 1.66%
Total securitized residential mortgages   6,231,328   51,274 3.29%   6,780,209   55,229 3.26%
Other assets   282,816   - -   254,310   - -
Total Assets $ 20,187,415 $ 225,459 4.47% $ 19,886,897 $ 220,751 4.44%
Liabilities and Shareholders' Equity                    
Deposits $ 12,383,947 $ 71,744 2.32% $ 11,629,822 $ 67,911 2.34%
Senior debt   148,725   1,793 4.82%   149,025   1,635 4.39%
Securitization liabilities   6,271,332   40,034 2.55%   6,785,334   43,669 2.57%
Other liabilities and shareholders' equity   1,383,411   - -   1,322,716   - -
Total Liabilities and Shareholders' Equity $ 20,187,415 $ 113,571 2.25% $ 19,886,897 $ 113,215 2.28%
Net Interest Income (TEB)     $ 111,888       $ 107,536  
Tax Equivalent Adjustment       (921)         (942)  
Net Interest Income per Financial Statements     $ 110,967       $ 106,594  
                     
              For the three months ended December 31, 2012
(000s, except %)             Average   Income/ Average
              Balance 1   Expense Rate 1
Assets                    
Cash resources and securities           $ 817,669 $ 4,451 2.18%
Traditional single-family residential mortgages             7,919,965   107,692 5.44%
Accelerator single-family residential mortgages             582,728   4,470 3.07%
Residential commercial mortgages 2             205,425   2,790 5.43%
Non-residential commercial mortgages             981,483   15,789 6.43%
Credit card loans             334,778   7,998 9.56%
Other consumer retail loans             243,338   5,571 9.16%
Total non-securitized loans             10,267,717   144,310 5.62%
Taxable equivalent adjustment             -   1,243 -
Total on non-securitized interest-earning assets             11,085,386   150,004 5.41%
Securitized single-family residential mortgages             5,136,096   43,081 3.36%
Securitized multi-unit residential mortgages             1,949,071   19,704 4.04%
Assets pledged as collateral for securitization             541,946   1,566 1.16%
Total securitized residential mortgages             7,627,113   64,351 3.37%
Other assets             294,020   - -
Total Assets           $ 19,006,519 $ 214,355 4.51%
Liabilities and Shareholders' Equity                    
Deposits           $ 9,944,774 $ 61,873 2.49%
Senior debt             152,283   1,825 4.79%
Securitization liabilities             7,661,311   49,506 2.58%
Other liabilities and shareholders' equity             1,248,151   - -
Total Liabilities and Shareholders' Equity           $ 19,006,519 $ 113,204 2.38%
Net Interest Income (TEB)               $ 101,151  
Tax Equivalent Adjustment                 (1,243)  
Net Interest Income per Financial Statements               $ 99,908  
                     
  For the year ended December 31, 2013 For the year ended December 31, 2012
(000s, except %)   Average   Income/ Average   Average   Income/ Average
    Balance 1   Expense Rate 1   Balance 1   Expense Rate 1
Assets                    
Cash resources and securities $ 1,149,994 $ 19,448 1.69% $ 807,022 $ 18,190 2.25%
Traditional single-family residential mortgages   9,116,538   482,491 5.29%   6,961,740   381,971 5.49%
Accelerator single-family residential mortgages   446,636   15,044 3.37%   540,610   17,440 3.23%
Residential commercial mortgages 2   263,447   12,954 4.92%   202,027   11,000 5.44%
Non-residential commercial mortgages   975,217   62,681 6.43%   985,089   61,229 6.22%
Credit card loans   307,310   28,966 9.43%   361,808   34,722 9.60%
Other consumer retail loans   308,155   27,111 8.80%   206,978   19,360 9.35%
Total non-securitized loans   11,417,303   629,247 5.51%   9,258,252   525,722 5.68%
Taxable equivalent adjustment   -   4,016 -   -   5,031 -
Total on non-securitized interest-earning assets   12,567,297   652,711 5.19%   10,065,274   548,943 5.45%
Securitized single-family residential mortgages   4,559,463   144,702 3.17%   5,651,599   200,679 3.55%
Securitized multi-unit residential mortgages   1,780,245   73,712 4.14%   1,985,035   80,757 4.07%
Assets pledged as collateral for securitization   467,481   7,379 1.58%   497,312   6,435 1.29%
Total securitized residential mortgages   6,807,189   225,793 3.32%   8,133,946   287,871 3.54%
Other assets   257,386   - -   260,470   - -
Total Assets $ 19,631,872 $ 878,504 4.47% $ 18,459,690 $ 836,814 4.53%
Liabilities and Shareholders' Equity                    
Deposits $ 11,327,983 $ 268,233 2.37% $ 9,004,518 $ 230,006 2.55%
Senior debt   149,899   6,612 4.41%   153,285   6,831 4.46%
Securitization liabilities   6,849,261   177,664 2.59%   8,170,337   213,474 2.61%
Other liabilities and shareholders' equity   1,304,729   - -   1,131,550   - -
Total Liabilities and Shareholders' Equity $ 19,631,872 $ 452,509 2.30% $ 18,459,690 $ 450,311 2.44%
Net Interest Income (TEB)     $ 425,995       $ 386,503  
Tax Equivalent Adjustment       (4,016)         (5,031)  
Net Interest Income per Financial Statements     $ 421,979       $ 381,472  

1 The average is calculated with reference to opening and closing monthly asset and liability balances.
2 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.




Mortgage Production                    
          For the three months ended   For the year ended
      December 31   September 30   December 31   December 31   December 31
(000s)   2013   2013   2012   2013   2012
Single-family residential mortgages                    
  Traditional $ 1,227,462 $ 1,312,648 $ 1,159,387 $ 4,770,773 $ 4,487,473
  Accelerator   357,125   272,576   174,214   1,011,650   804,692
Residential commercial mortgages                    
  Multi-unit uninsured residential mortgages   62,276   19,475   7,786   129,738   30,605
  Multi-unit insured residential mortgages   177,632   306,863   49,459   693,461   256,274
  Other1   4,411   9,000   4,650   31,479   68,906
Non-residential commercial mortgages                    
  Stores and apartments   24,514   24,347   24,835   99,951   118,689
  Commercial   56,134   49,320   52,417   180,131   238,728
Total mortgage advances $ 1,909,554 $ 1,994,229 $ 1,472,748 $ 6,917,183 $ 6,005,367

1 Other residential commercial mortgages include mortgages such as builders' inventory.


Provision for Credit Losses                   
As at December 31, 2013 For the three months ended December 31, 2013
(000s, except %) Net Non-Performing Loans   Provision 1   Net Write-Offs
          Annualized   Annualized
      % of Gross   % of Gross   % of Gross
    Amount Loans   Amount Loans   Amount Loans
Single-family residential mortgages $ 51,636 0.48% $ 3,560 0.13% $ 3,135 0.12%
Residential commercial mortgages   1,836 2 0.93%   49 0.10%   168 0.34%
Non-residential commercial mortgages   7,189 3 0.72%   99 0.04%   79 0.03%
Credit card loans   2,584 0.88%   183 0.25%   293 0.40%
Other consumer retail loans   - -   113 0.13%   94 0.11%
Securitized single-family residential mortgages   - -   - -   - -
Securitized multi-unit residential mortgages   - -   - -   - -
Total  $ 63,245 0.35% $ 4,004 0.09% $ 3,769 0.08%
                   
As at September 30, 2013   For the three months ended September 30, 2013
(000s, except %) Net Non-Performing Loans Provision 1   Net Write-Offs
          Annualized   Annualized
      % of Gross   % of Gross   % of Gross
    Amount Loans   Amount Loans   Amount Loans
Single-family residential mortgages $ 50,224 0.50% $ 2,704 0.11% $ 1,734 0.07%
Residential commercial mortgages   1,836 2 0.71%   152 0.24%   - -
Non-residential commercial mortgages   1,576 0.16%   (38) (0.02)%   153 0.06%
Credit card loans   3,603 1.21%   (99) (0.13)%   96 0.13%
Other consumer retail loans   - -   49 0.06%   96 0.12%
Securitized single-family residential mortgages   - -   - -   - -
Securitized multi-unit residential mortgages   - -   - -   - -
Total  $ 57,239 0.32% $ 2,768 0.06% $ 2,079 0.05%
                   

  As at December 31, 2012   For the three months ended December 31, 2012
(000s, except %) Net Non-Performing Loans Provision 1   Net Write-Offs
        Annualized Annualized
      % of Gross % of Gross % of Gross
    Amount Loans   Amount Loans   Amount Loans
Single-family residential mortgages $ 47,788 0.55% $ 3,470 0.16% $ 2,546 0.12%
Residential commercial mortgages   4,527 2.93%   48 0.12%   - -
Non-residential commercial mortgages   501 0.05%   146 0.06%   146 0.06%
Credit card loans   3,505 1.07%   (5) (0.01)%   512 0.63%
Other consumer retail loans   - -   26 0.04%   90 0.13%
Securitized single-family residential mortgages   - -   - -   - -
Securitized multi-unit residential mortgages   - -   - -   - -
Total  $ 56,321 0.33% $ 3,685 0.09% $ 3,294 0.08%
                   
                   
          For the year ended December 31, 2013
(000s, except %)   Provision 1   Net Write-Offs
        % of Gross % of Gross
          Amount Loans   Amount Loans
Single-family residential mortgages       $ 11,766 0.11% $ 11,165 0.10%
Residential commercial mortgages         2,783 1.41%   3,199 1.62%
Non-residential commercial mortgages         274 0.03%   230 0.02%
Credit card loans         679 0.23%   589 0.20%
Other consumer retail loans         366 0.11%   345 0.10%
Securitized single-family residential mortgages         -   -   -   -
Securitized multi-unit residential mortgages         -   -   -   -
Total        $ 15,868 0.09% $ 15,528 0.09%
                   
      For the year ended December 31, 2012
(000s, except %)   Provision 1   Net Write-Offs
        % of Gross % of Gross
          Amount Loans   Amount Loans
Single-family residential mortgages       $ 12,581 0.14% $ 10,148 0.12%
Residential commercial mortgages         340 0.22%   - -
Non-residential commercial mortgages         241 0.02%   319 0.03%
Credit card loans         1,291 0.39%   1,572 0.48%
Other consumer retail loans         267 0.10%   342 0.13%
Securitized single-family residential mortgages         - -   - -
Securitized multi-unit residential mortgages         - -   - -
Total       $ 14,720 0.09% $ 12,381 0.07%
1 Provisions include both individual and collective provisions.
2 The non-performing residential commercial amount comprises one loan.
3 The non-performing non-residential commercial amount includes $6.4 million related to one loan.




Loans by Geographic Region and Type (net of individual allowances for credit losses)    
                         
(000s, except %)       As at December 31, 2013
  British            
  Columbia Alberta Ontario Quebec   Other   Total
Securitized single-family residential mortgages $ 334,511 $ 256,770 $ 2,835,878 $ 192,751 $ 100,187 $ 3,720,097
Securitized multi-unit residential mortgages   201,181   191,910   706,883   186,521   203,429   1,489,924
Total securitized mortgages   535,692   448,680   3,542,761   379,272   303,616   5,210,021
Single-family residential mortgages   536,228   367,291   9,391,586   360,684   191,578   10,847,367
Residential commercial mortgages1   8,897   16,192   135,133   28,689   7,969   196,880
Non-residential commercial mortgages   7,753   38,660   881,702   16,234   49,861   994,210
Credit card loans   7,230   19,324   262,016   1,260   3,655   293,485
Other consumer retail loans   899   1,256   334,652   2,900   256   339,963
Total non-securitized mortgages and loans2   561,007   442,723   11,005,089   409,767   253,319   12,671,905
  $ 1,096,699 $ 891,403 $ 14,547,850 $ 789,039 $ 556,935 $ 17,881,926
As a % of portfolio   6.1%   5.0%   81.4%   4.4%   3.1%   100.0%
                         
(000s, except % )                   As at September 30, 2012
    British                    
    Columbia   Alberta   Ontario   Quebec   Other   Total
Securitized single-family residential mortgages $ 382,042 $ 298,719 $ 3,409,845 $ 229,049 $ 114,187 $ 4,433,842
Securitized multi-unit residential mortgages   239,146   198,938   849,537   215,291   227,790   1,730,702
Total securitized mortgages   621,188   497,657   4,259,382   444,340   341,977   6,164,544
Single-family residential mortgages   475,002   336,318   8,686,457   323,892   164,964   9,986,633
Residential commercial mortgages1   20,319   20,810   159,334   52,788   3,739   256,990
Non-residential commercial mortgages   3,851   37,745   867,132   16,071   47,313   972,112
Credit card loans   7,550   21,322   264,691   1,274   3,632   298,469
Other consumer retail loans   946   1,103   325,616   -   314   327,979
Total non-securitized mortgages and loans2   507,668   417,298   10,303,230   394,025   219,962   11,842,183
  $ 1,128,856 $ 914,955 $ 14,562,612 $ 838,365 $ 561,939 $ 18,006,727
As a % of portfolio   6.3%   5.1%   80.8%   4.7%   3.1%   100.0%
                         
(000s, except % )                   As at December 31, 2012
    British                    
    Columbia   Alberta   Ontario   Quebec   Other   Total
Securitized single-family residential mortgages $ 433,529 $ 343,318 $ 3,616,877 $ 256,953 $ 113,080 $ 4,763,757
Securitized multi-unit residential mortgages   258,757   203,081   908,513   339,477   232,575   1,942,403
Total securitized mortgages   692,286   546,399   4,525,390   596,430   345,655   6,706,160
Single-family residential mortgages   420,953   342,841   7,499,242   278,671   147,739   8,689,446
Residential commercial mortgages1   5,642   19,380   102,674   25,201   1,580   154,477
Non-residential commercial mortgages   3,521   25,953   860,703   61,691   36,548   988,416
Credit card loans   9,104   25,062   287,877   1,532   3,941   327,516
Other consumer retail loans   975   787   269,594   -   621   271,977
Total non-securitized mortgages and loans2   440,195   414,023   9,020,090   367,095   190,429   10,431,832
  $ 1,132,481 $ 960,422 $ 13,545,480 $ 963,525 $ 536,084 $ 17,137,992
As a % of portfolio   6.6%   5.6%   79.1%   5.6%   3.1%   100.0%
1 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.
2 Loans exclude mortgages held for sale.



Impaired Loans                        
                         
(000s)                 As at December 31, 2013
  Single-Family   Residential Non-Residential       Other    
    Residential   Commercial   Commercial   Credit Card   Consumer    
      Mortgages     Mortgages     Mortgages   Loans   Retail Loans   Total
Gross amount of impaired loans $ 52,837 $ 1,836 $ 7,189 $ 2,785 $ 236 $ 64,883
Individual allowances on principal   (1,201)   -   -   (201)   (236)   (1,638)
Net amount of impaired loans $ 51,636 $ 1,836 $ 7,189 $ 2,584 $ - $ 63,245
                         
(000s)                 As at September 30, 2013
    Single-Family   Residential   Non-Residential       Other    
    Residential   Commercial   Commercial   Credit Card   Consumer    
      Mortgages     Mortgages     Mortgages   Loans   Retail Loans   Total
Gross amount of impaired loans $ 51,665 $ 1,836 $ 1,576 $ 3,914 $ 219 $ 59,210
Individual allowances on principal   (1,441)   -   -   (311)   (219)   (1,971)
Net amount of impaired loans $ 50,224 $ 1,836 $ 1,576 $ 3,603 $ - $ 57,239
                         
                         
(000s)                 As at December 31, 2012
    Single-Family   Residential   Non-Residential       Other    
    Residential   Commercial   Commercial   Credit Card   Consumer    
      Mortgages     Mortgages     Mortgages   Loans   Retail Loans   Total
Gross amount of impaired loans $ 50,169 $ 4,527 $ 501 $ 3,616 $ 214 $ 59,027
Individual allowances on principal   (2,381)   -   -   (111)   (214)   (2,706)
Net amount of impaired loans $ 47,788 $ 4,527 $ 501 $ 3,505 $ - $ 56,321

Allowance for Credit Losses      
                         
                         
(000s)           For the three months ended December 31, 2013
  Single-family   Residential Non-residential       Other    
    Residential   Commercial   Commercial   Credit Card   Consumer    
      Mortgages     Mortgages Mortgages   Loans   Retail Loans   Total
Individual allowances                        
Allowance on loan principal                        
Balance at the beginning of the period $ 1,441 $ - $ - $ 311 $ 219 $ 1,971
Provision for credit losses   2,895   168   79   183   111   3,436
Write-offs   (3,259)   (376)   (87)   (314)   (118)   (4,154)
Recoveries   124   208   8   21   24   385
    1,201   -   -   201   236   1,638
Allowance on accrued interest receivable                        
Balance at the beginning of the period   813   25   24   -   10   872
Provision for credit losses   (54)   -   20   -   2   (32)
    759   25   44   -   12   840
Total individual allowance   1,960   25   44   201   248   2,478
Collective allowance                        
Balance at the beginning of the period   17,313   446   9,300   3,541   300   30,900
Provision for credit losses   719   (119)   -   -   -   600
    18,032   327   9,300   3,541   300   31,500
Total allowance $ 19,992 $ 352 $ 9,344 $ 3,742 $ 548 $ 33,978
Total provision $ 3,560 $ 49 $ 99 $ 183 $ 113 $ 4,004
                         
(000s)         For the three months ended September 30, 2013
  Single-family   Residential Non-residential       Other    
    Residential   Commercial   Commercial   Credit Card   Consumer    
      Mortgages     Mortgages Mortgages   Loans   Retail Loans   Total
Individual allowances                        
Allowance on loan principal                        
Balance at the beginning of the period $ 929 $ - $ 170 $ 506 $ 262 $ 1,867
Provision for credit losses   2,246   -   (17)   (99)   53   2,183
Write-offs   (2,123)   -   (154)   (106)   (111)   (2,494)
Recoveries   389   -   1   10   15   415
    1,441   -   -   311   219   1,971
Allowance on accrued interest receivable                        
Balance at the beginning of the period   628   -   45   -   14   687
Provision for credit losses   185   25   (21)   -   (4)   185
    813   25   24   -   10   872
Total individual allowance   2,254   25   24   311   229   2,843
Collective allowance                        
Balance at the beginning of the period   17,040   319   9,300   3,541   300   30,500
Provision for credit losses   273   127   -   -   -   400
    17,313   446   9,300   3,541   300   30,900
Total allowance $ 19,567 $ 471 $ 9,324 $ 3,852 $ 529 $ 33,743
Total provision $ 2,704 $ 152 $ (38) $ (99) $ 49 $ 2,768


                         
(000s)           For the three months ended December 31, 2012
  Single-family   Residential Non-residential       Other    
    Residential   Commercial   Commercial   Credit Card   Consumer    
      Mortgages     Mortgages Mortgages   Loans   Retail Loans   Total
Individual allowances                        
Allowance on loan principal                        
Balance at the beginning of the period $ 1,660 $ - $ - $ 628 $ 291 $ 2,579
Provision for credit losses   3,267   -   146   (5)   13   3,421
Write-offs   (2,699)   -   (149)   (685)   (109)   (3,642)
Recoveries   153   -   3   173   19   348
    2,381   -   -   111   214   2,706
Allowance on accrued interest receivable                        
Balance at the beginning of the period   503   365   -   -   -   868
Provision for credit losses   (16)   67   -   -   13   64
    487   432   -   -   13   932
Total individual allowance   2,868   432   -   111   227   3,638
Collective allowance                        
Balance at the beginning of the period   16,304   355   9,300   3,541   300   29,800
Provision for credit losses   219   (19)   -   -   -   200
    16,523   336   9,300   3,541   300   30,000
Total allowance $ 19,391 $ 768 $ 9,300 $ 3,652 $ 527 $ 33,638
Total provision $ 3,470 $ 48 $ 146 $ (5) $ 26 $ 3,685

                         
(000s)           For the year ended December 31, 2013
  Single-family Residential Non-residential       Other    
    Residential Commercial Commercial   Credit Card   Consumer    
      Mortgages   Mortgages Mortgages   Loans   Retail Loans   Total
Individual allowances                        
Allowance on loan principal                        
Balance at the beginning of the year $ 2,381 $ - $ - $ 111 $ 214 $ 2,706
Provision for credit losses   9,985   3,199   230   679   367   14,460
Write-offs   (12,048)   (3,407)   (241)   (1,129)   (436)   (17,261)
Recoveries   883   208   11   540   91   1,733
    1,201   -   -   201   236   1,638
Allowance on accrued interest receivable                        
Balance at the beginning of the year   487   432   -   -   13   932
Provision for credit losses   272   (407)   44   -   (1)   (92)
    759   25   44   -   12   840
Total individual allowance   1,960   25   44   201   248   2,478
Collective allowance                        
Balance at the beginning of the year   16,523   336   9,300   3,541   300   30,000
Provision for credit losses   1,509   (9)   -   -   -   1,500
    18,032   327   9,300   3,541   300   31,500
Total allowance $ 19,992 $ 352 $ 9,344 $ 3,742 $ 548 $ 33,978
Total provision $ 11,766 $ 2,783 $ 274 $ 679 $ 366 $ 15,868
                         
(000s)               For the year ended December 31, 2012
  Single-family   Residential Non-residential       Other    
  Residential   Commercial Commercial   Credit Card   Consumer    
      Mortgages     Mortgages   Mortgages   Loans   Retail Loans   Total
Individual allowances                        
Allowance on loan principal                        
Balance at the beginning of the year $ 760 $ - $ 60 $ 392 $ 290 $ 1,502
Provision for credit losses   11,769   -   259   1,291   266   13,585
Write-offs   (10,598)   -   (322)   (1,914)   (419)   (13,253)
Recoveries   450   -   3   342   77   872
    2,381   -   -   111   214   2,706
Allowance on accrued interest receivable                        
Balance at the beginning of the year   327   -   18   -   12   357
Provision for credit losses   160   432   (18)   -   1   575
    487   432   -   -   13   932
Total individual allowance   2,868   432   -   111   227   3,638
Collective allowance                        
Balance at the beginning of the year   15,871   428   9,300   3,541   300   29,440
Provision for credit losses   652   (92)   -   -   -   560
    16,523   336   9,300   3,541   300   30,000
Total allowance $ 19,391 $ 768 $ 9,300 $ 3,652 $ 527 $ 33,638
Total provision $ 12,581 $ 340 $ 241 $ 1,291 $ 267 $ 14,720

Securitization Activities                        
                         
(000s)                   For the three months ended
        December 31     September 30
            2013           2013
  Single-Family Multi-Unit     Single-Family Multi-Unit    
  Residential MBS Residential MBS Total MBS Residential MBS Residential MBS Total MBS
Carrying value of underlying mortgages derecognized $ 327,500 $ 177,700 $ 505,200 $ 191,761 $ 235,483 $ 427,244
Gains on sale of mortgages or residual interest 1   3,460   1,189   4,649   1,894   2,647   4,541
Retained interests recorded   -   7,983   7,983   -   11,146   11,146
Servicing liability recorded   -   1,186   1,186   -   1,809   1,809
                         
(000s)               For the three months ended
              December 31
                        2012
          Single-Family Multi-Unit    
          Residential MBS Residential MBS Total MBS
Carrying value of underlying mortgages derecognized             $ 662,153 $ 64,634 $ 726,787
Gains on sale of mortgages or residual interest 1               4,845   891   5,736
Retained interests recorded               -   2,447   2,447
Servicing liability recorded               -   487   487
                         
(000s)   For the year ended December 31, 2013   For the year ended December 31, 2012
  Single-Family Multi-Unit     Single Family Multi-Unit    
  Residential MBS Residential MBS Total MBS Residential MBS Residential MBS Total MBS
Carrying value of underlying mortgages derecognized $ 519,261 $ 617,244 $ 1,136,505 $ 662,153 $ 233,892 $ 896,045
Gains on sale of mortgages or residual interest 1   5,354   5,687   11,041   4,845   3,300   8,145
Retained interests recorded   -   26,131   26,131   -   9,691   9,691
Servicing liability recorded   -   4,563   4,563   -   1,786   1,786

1 Gains on sale of mortgages are net of hedging impact.

Management's Responsibility for Financial Information

The Company's Audit Committee reviewed this document along with the Company's 2013 Annual and Fourth Quarter Consolidated Financial Report.  The Company's Board of Directors approved both documents prior to their release.   A full description of management's responsibility for financial information is included in the Company's 2013 Annual and Fourth Quarter Consolidated Financial Report.

Caution Regarding Forward-looking Statements

From time to time 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 in the Risk Management and Other Risks sections of the Company's 2013 Annual and Fourth Quarter Consolidated Financial 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 sections in the Annual 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 in 2014 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 and forecasted economic data provided by the Canadian government and its agencies.  In setting and reviewing its target, objectives and outlook for 2014, management's expectations assume:

  • The Canadian economy will continue produce modest growth in 2014 with 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 strong demand for the Company's lending products.
  • The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets; as such, the Company is prepared for the variability to plan that may result.
  • 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 rate into 2014, with the potential for modest increases later in 2014. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.
  • The housing market will likely remain stable with balanced supply and demand conditions in most regions supported by continued low interest rates, stable to improving employment, and immigration.  There will be modest declines in housing starts and resale activity with stable prices throughout most of Canada. This supports stable credit losses and strong demand for the Company's lending products.
  • Consumer debt levels will remain serviceable by Canadian households.
  • The Company will maintain uninterrupted access to the mortgage and deposit markets through broker networks.

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 used in this report can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2013 Annual and Fourth Quarter Consolidated Financial Report.

Reconciliation of Net Income to Adjusted Net Income                          
        Quarter Year to date
                 
(000s, except % and per share amounts) Q4 Q3 % Q4 %     %
                             
      2013   2013 Change   2012 Change   2013   2012 Change
Net income $ 68,827 $ 66,417 3.6% $ 58,965 16.7% $ 256,542 $ 221,983 15.6%
Adjustment for derivative restructuring - IFRS conversion (net of tax)   850   931 (8.7)%   2,602 (67.3)%   5,873   2,602 125.7%
Adjustment for disputed loans to condominium corporations (net of tax)   -   - -   - -   1,508   - -
Adjustment for investment tax credit benefits (net of tax)   (1,470)   (2,735) (46.3)%   - -   (6,190)   - -
Adjusted Net Income1 $ 68,207 $ 64,613 5.6% $ 61,567 10.8% $ 257,733 $ 224,585 14.8%
Adjusted Basic Earnings per Share1 $ 1.96 $ 1.86 5.4% $ 1.78 10.1% $ 7.43 $ 6.47 14.8%
Adjusted Diluted Earnings per Share1 $ 1.95 $ 1.85 5.4% $ 1.77 10.2% $ 7.36 $ 6.45 14.1%
                           
1 Adjusted net income and Adjusted earnings per share are defined in the Non-GAAP section of the Company's 2013 Annual and Fourth Quarter Consolidated Financial 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 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