Home Capital Reports Strong 4th Quarter and Annual Results

  • Adjusted basic earnings per share were $1.45 for the quarter and $5.55 for 2011, up 46.5% and 30.6%, respectively, from the comparative periods.
  • Adjusted net income for 2011 was $192.5 million, an increase of 30.4% over 2010.
  • Return on equity for the year was 27.4% on an adjusted basis, surpassing 20% for the 14th consecutive year.

TORONTO, Feb. 14, 2012 /CNW/ - Home Capital Group Inc. (TSX: HCG) today reported strong results for the fourth quarter and for the year, exceeding the Company's targets for growth in adjusted net income, diluted earnings per share and total assets, and recording annual return on equity in excess of 25% for nine consecutive years and surpassing 20% for 14 consecutive years.

"All of our business units produced positive results and the Company is well positioned to continue to deliver solid earnings," commented CEO Gerald Soloway. "We have a proven business model and continue to execute well on our strategy."

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, 2011 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

FINANCIAL HIGHLIGHTS                
                 
(000s, except Per Share and Percentage Amounts)   For the three months ended   For the year ended
For the period ended December 31   2011    2010    2011    2010 
OPERATING RESULTS                
Net Income $ 50,280  $ 30,109  $ 190,080  $ 154,752 
Adjusted Net Income   50,280    34,233    192,505    147,610 
Total Revenue   207,122    176,044    790,591    687,249 
Earnings per Share Basic/Diluted $ 1.45/1.45 $ 0.87/0.87 $ 5.48/5.46 $ 4.46/4.45
Adjusted Earnings per Share Basic/Diluted   1.45/1.45   0.99/0.98   5.55/5.53   4.25/4.24
Adjusted Return on Shareholders' Equity   26.7%   22.2%   27.4%   26.1%
Return on Average Assets   1.2%   0.9%   1.2%   1.1%
Net Interest Margin (TEB)   2.06%   1.99%   2.06%   2.07%
Net Interest Margin Non-Securitized Assets (TEB)   3.03%   2.80%   3.05%   2.82%
Net Interest Margin Securitized Assets   1.16%   1.26%   1.23%   1.23%
Provision as a Percentage of Gross Loans (annualized)   0.07%   0.17%   0.05%   0.07%
Efficiency Ratio (TEB)   27.1%   35.0%   27.9%   29.3%
                 
As at December 31         2011    2010 
BALANCE SHEET HIGHLIGHTS                
Total Assets         $ 17,696,471  $ 15,518,818 
Total Loans           16,089,648    14,091,755 
Securitized Loans           8,243,350    8,116,636 
Liquid Assets           763,279    951,271 
Deposits           7,922,124    6,595,979 
Shareholders' Equity           774,785    628,585 
FINANCIAL STRENGTH                
Capital Measures                
Risk-Weighted Assets         $ 4,549,696  $ 3,777,267 
Tier 1 Capital Ratio           17.3%   18.1%
Total Capital Ratio           20.5%   19.4%
Credit Quality                
Non-Performing Loans as a Percentage of Gross Loans           0.25%   0.24%
Allowance as a Percentage of Gross Non-Performing Loans           74.9%   88.1%
Share Information                
Book Value per Common Share         $ 22.38  $ 18.14 
Common Share Price - Close         $ 49.10  $ 51.79 
Market Capitalization         $ 1,700,088  $ 1,794,316 
Number of Common Shares Outstanding           34,625    34,646 

1 2010 figures have been restated to an International Financial Reporting Standards (IFRS) basis.
2 Adjusted net income represents net income plus an adjustment for unmatched derivative positions. See definition of Adjusted Net Income under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report for further details. The adjustments from net income to adjusted net income for these unmatched derivative positions were $nil for the fourth quarter of 2011 ($4.1 million increase in net income in Q4 2010) and a $2.4 million increase in net income for the year ($7.1 million decrease in net income for 2010).
3 This key performance indicator has not been recalculated on an adjusted net income basis.
4 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report.
5 These figures relate to the Company's operating subsidiary, Home Trust Company. 2010 has not been recalculated on an IFRS basis.

2011 Targets and Performance            
               
      For the year ended December 31, 2011
  2011 Targets Actual Results   Amount Increase over 2010
Growth in adjusted net income 15%-20% 30.4% $ 192,505  $ 44,895 
Growth in adjusted diluted earnings per share 15%-20% 30.4%   5.53    1.29 
Growth in total assets 13%-18% 14.0%   17,696,471    2,177,653 
Growth in total loans 13%-18% 14.2%   16,089,648    1,997,893 
Adjusted return on shareholders' equity 20.0% 27.4%        
Efficiency ratio (TEB) 28.0% - 34.0% 27.9%        
Capital ratios            
  Tier 1 Minimum of 13% 17.3%        
  Total Minimum of 14% 20.5%        
Provision as a percentage of gross loans 0.05% - 0.15% 0.05%        

1 Targets and results for adjusted net income and diluted earnings per share are for the current year.
2 Targets are based on adjusted 2010 net income. See definition of Adjusted Net Income under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. Change represents change over 2010.
3 Change represents growth over December 31, 2010.
4 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. 
5 Based on the Company's wholly owned subsidiary, Home Trust Company.

FOURTH QUARTER AND 2011 HIGHLIGHTS

The Company continued its strong performance in the fourth quarter of 2011 and for the year. Key results for the fourth quarter of 2011 and the year are as follows:

  • Net income was $50.3 million in the fourth quarter and $190.1 million for the year, while adjusted net income for 2011 was $192.5 million. Quarterly earnings increased by 47.1% over the $34.2 million adjusted net income recorded in the fourth quarter of 2010, and 2011 adjusted net income was 30.4% higher than 2010 adjusted net income. Sequentially in 2011, fourth quarter net income increased by 3.9% over third quarter net income. The annual results exceeded the Company's 2011 objective of 15% to 20% growth in adjusted net income over 2010, reflecting strong loan growth in the traditional portfolio, stable total net interest margin, low provisions for credit losses and a continued low efficiency ratio.

  • Core earnings of $96.7 million (net interest income after provision plus fee and other income) was up by 1.8% over third quarter core earnings of $95.0 million and up 28.4% over 2010 fourth quarter core earnings of $75.3 million.

  • Adjusted basic and diluted earnings per share were $1.45 for the fourth quarter and $5.55 and $5.53 for the year. This represents an increase of 46.5% and 48.0%, respectively, from $0.99 and $0.98 adjusted basic and diluted earnings per share in the fourth quarter of 2010 and an increase of 30.6% and 30.4%, respectively, over the $4.25 and $4.24 adjusted basic and diluted earnings per share earned in 2010. These results exceeded the Company's 2011 annual objective of 15% to 20% growth in diluted earnings per share.

  • Adjusted return on equity was 26.7% in the quarter and 27.4% in 2011, well in excess of the Company's minimum performance objective of 20% for the fourteenth consecutive year and exceeding 25% for the ninth consecutive year.

  • Net interest income rose to $88.4 million in the fourth quarter and to $334.0 million for the year. This represents an increase of 21.9% over the $72.5 million recorded in the fourth quarter of 2010 and 26.5% over the $264.0 million recorded for the 2010 year.

  • Net interest margin was 2.06% in the fourth quarter and for the year 2011 compared to 1.99% in the fourth quarter of 2010 and 2.07% for the year 2010. Net interest margin was 2.14% in the third quarter of 2011. Total net interest margin is influenced by the mix of the loan portfolio between securitized and non-securitized mortgages and the net interest margin on each of these portfolios. Over 2011 the weighting of securitized mortgages has declined when compared to the weighting at the end of 2010. The net interest margin on the non-securitized portfolio has generally improved compared to 2010 and declined from the prior quarter, as the Company was holding higher liquidity earning a lower rate. The securitized portfolio net interest margin declined in the fourth quarter, compared to the prior quarter reflecting the maturity of higher-rate assets during the quarter.

  • The credit quality of the loans portfolio remained solid in the fourth quarter and for the year. Net non-performing loans ended 2011 at 0.25% of the total loans portfolio compared to 0.24% at the end of 2010 and 0.32% at the end of the third quarter of 2011. The provision for credit losses for the fourth quarter was 0.07% of gross loans on an annualized basis and 0.05% for the year compared to 0.17% in the comparable quarter of 2010 and 0.07% in 2010 and 0.06% in the third quarter of 2011. 2011 results are within the Company's objective of 0.05% to 0.15% of gross loans.

  • Home Trust's Tier 1 and Total Capital ratios were robust at 17.3% and 20.5%, respectively, at December 31, 2011 and well above the Company's minimum targets. Home Trust's asset to capital multiple was 14.4 at December 31, 2011 compared to 14.0 at September 30, 2011. Early in 2012 the Company provided Home Trust with an additional $45 million in subordinated debt, putting Home Trust and the Company in a position to continue growing assets, revenue and net income. These funds were from the Company's $150 million senior debt issue, of which $100 million was provided to Home Trust in 2011.

  • Total assets grew to $17.70 billion at the end of 2011, an increase of $2.18 billion or 14.0% over the $15.52 billion at the end of 2010 and $624.3 million or 3.7% over the $17.07 billion at the end of the third quarter of 2011. Total loans increased by $2.00 billion in 2011 to $16.09 billion, representing growth of 14.2% over the $14.09 billion at the end of 2010. Total loans increased $307.0 million or 1.9% from the $15.78 billion at the end of the third quarter of 2011. Total assets and loan growth were within the Company's 2011 growth objective of 13% to 18%.

  • The total value of mortgages originated in the fourth quarter of 2011 was $1.25 billion and $5.12 billion for the year, compared to $1.85 billion in the fourth quarter of 2010 and $6.87 billion in 2010. The year-over-year decrease in originations reflects the Company's strategy to shift origination focus from Accelerator (insured) mortgage products, which are generally securitized, to originations of higher yielding traditional mortgages. The regulatory and accounting treatment of Accelerator (insured) securitized mortgages upon adoption of International Financial Reporting Standards (IFRS) has introduced new capital constraints and effectively increased the cost of capital allocated to Accelerator mortgages. Consequently, the Company scaled back lending in this segment in favour of higher margin products within the Company's risk appetite. The Company continues to explore opportunities that may ultimately lead to future growth in originations of the Accelerator mortgage product.

  • The Company originated $948.8 million of traditional mortgages in the fourth quarter and $3.51 billion for the year, compared to $683.5 million and $2.85 billion in the comparative periods of 2010 and $941.1 million in the third quarter of 2011.

  • Accelerator (insured) mortgage originations were $188.5 million in the fourth quarter of 2011 and $1.10 billion for the year, compared to $755.6 million and $2.84 billion in the comparable periods of 2010 and $293.5 million in the third quarter of 2011.

  • Multi-unit residential originations were $6.5 million for the fourth quarter of 2011 and $137.0 million year-to-date compared to $285.0 million and $766.5 million in the same periods of 2010 and $7.0 million in the third quarter of 2011. A significant portion of multi-unit residential mortgages originated in 2010 were insured and securitized, and the reduction in origination volume is a result of narrowing margins and the cost of increased capital required to support this product.

  • Non-residential mortgage advances were $41.5 million in the fourth quarter of 2011 and $182.2 million for the year, compared to $72.9 million and $219.8 million in the comparable periods of 2010 and $32.4 million in the third quarter of 2011. The Company maintains a cautious approach to increases in this portfolio.

  • Store and apartment advances were $35.5 million for the quarter and $123.0 million for the year, compared to $33.6 million and $108.8 million in the same periods of 2010 and $26.8 million in the third quarter of 2011.

  • As a source of funding and replacement assets for the Canada Mortgage Bond (CMB) program, the Company securitized and sold $272.9 million in insured residential mortgages in the fourth quarter and $1.87 billion for the year compared to $1.86 billion in the fourth quarter of 2010 and $5.17 billion in 2010 and $396.8 million in the third quarter of 2011.

  • The mortgage lending segment recorded net income of $42.7 million in the fourth quarter and $155.3 million for 2011, increasing from $25.6 million and $114.5 million in the comparable periods of 2010. This reflects strong originations in the traditional portfolio coupled with strong net interest margins in that portfolio. The securitized portfolio, while experiencing modest growth, continues to contribute to the net income of the segment.

  • The consumer lending segment recorded net income of $7.6 million in the fourth quarter and $30.1 million for the year compared to $3.8 million and $24.7 million in the comparable periods of 2010. The segment's Equityline Visa product continued its strong performance, opening 1,814 new Equityline Visa accounts in the fourth quarter and 7,697 for the year compared to 1,864 accounts and 6,263 accounts opened in the comparable periods of 2010. The consumer lending segment also added $14.5 million in receivables in the retail credit portfolio in the fourth quarter and $57.1 million for the year, compared to $10.1 million and $77.4 million in the comparable periods of 2010. The 2010 retail credit receivables increased dramatically on the initiation of the water heater program.

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 a quarterly dividend of $0.20 per Common share, payable on March 1, 2012 to shareholders of record at the close of business on February 23, 2012.

2012 Overall Outlook

Through 2011, the Company successfully repositioned the business to take advantage of the attractive returns available in the alternative mortgage space, the Company's traditional business. This business provides superior returns to the allocated capital and the Company will continue to prudently expand this business while continuing to strengthen operating controls and risk management processes. The Company will continue to offer insured mortgages through the Accelerator program, supporting the "one-stop" and "flexible lending solutions" lender strategy. The Company will also continue to increase its geographic footprint across Canada, taking advantage of opportunities within its risk profile in Quebec, and eastern and western Canada. Growth of the consumer portfolio at the current rate is expected for 2012.

In view of the global financial environment, the Company will maintain relatively high levels of liquidity and low overall leverage, as measured by the asset to capital multiple (ACM), to ensure safety and soundness for its depositors. This conservative approach to liquidity and leverage will drive a new complementary strategy that will focus on fee revenue from loan origination and administration for other mortgage funders.

The Company expects that the rate of growth in the Company's funded loan portfolio in 2012 will be consistent with the moderate pace of growth experienced in 2011. The traditional mortgage business is expected to maintain strong net interest margin and net interest income levels, while net interest margins on securitized assets are anticipated to decline modestly from the levels experienced in 2011. The decline primarily reflects a combination of two factors; spreads on new securitization transactions are generally lower than the spreads earned on the maturing pools and are lower than the spreads earned on the 2008 and 2009 securitization transactions; and, the assets provided as replacement assets in the CMB program are generally lower yielding when compared to the maturing or discharging assets. While the Company actively hedges the CMB reinvestment risk, the hedges cannot absorb 100% of this risk. This dynamic will tend to put pressure on the overall net interest margin. The increased weighting of the Company's traditional uninsured mortgages tends to offset this downward pressure, as the margins on these products are more favourable.

The Company will record amortization expenses related to its new core banking system for the full year 2012. These charges, along with related support costs, will tend to increase the cost structure and efficiency ratio. Reductions in other areas and increases in net interest income will tend to mitigate the increases in amortization and other costs. The Company expects its efficiency ratio for 2012 to fall within the target range of 28.0% to 34.0%.

Conference Call and Webcast

Fourth Quarter Results Conference Call

The conference call will take place on Wednesday, February 15, 2012, at 10:30 a.m. Participants are asked to call 5 to 15 minutes in advance, 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at www.homecapital.com.

Conference Call Archive

A telephone replay of the call will be available between 1:30 p.m. Wednesday, February 15, 2012 and midnight Wednesday, February 22, 2012 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 43320361). The archived audio webcast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com.

Annual and Special Meeting Notice

The Annual and Special Meeting of Shareholders of Home Capital Group Inc. will be held at the Design Exchange, Trading Floor, Second Floor, 234 Bay Street, Toronto, Ontario, on Wednesday, May 16, 2012 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.

Net Interest Income and Margin                    
  For the three months ended For the year ended
(000s, except %) December 31, 2011 December 31, 2010 December 31, 2011 December 31, 2010
  Income/ Average Income/ Average Income/ Average Income/ Average
  Expense Rate Expense Rate Expense Rate Expense Rate
Assets                        
Cash and cash resources $ 986  0.67% $ 1,944  1.11% $ 3,386  0.70% $ 5,337  0.83%
Securities   4,664  4.69%   5,430  3.09%   20,161  4.74%   22,673  3.54%
Non-securitized loans   109,938  5.81%   90,195  5.84%   401,671  5.90%   353,779  5.84%
Taxable equivalent adjustment   1,785  -   1,779  -   7,212  -   7,900  -
Total on non-securitized interest earning assets   117,373  5.48%   99,348  5.42%   432,430  5.60%   389,689  5.45%
Securitized loans   81,876  3.76%   76,584  4.22%   330,491  3.86%   251,292  4.39%
Other assets   -   -   -   -
Total Assets $ 199,249  4.55% $ 175,932  4.72% $ 762,921  4.61% $ 640,981  4.88%
Liabilities and Shareholders' Equity                        
Deposits $ 50,371  2.63% $ 47,988  2.90% $ 191,745  2.79% $ 188,370  2.90%
Securitization liabilities   56,667  2.60%   53,706  2.96%   224,719  2.63%   180,681  3.16%
Other liabilities and shareholders' equity   2,014  5.25%   -   5,293  6.22%   -
Total Liabilities and Shareholders' Equity $ 109,052  2.49% $ 101,694  2.73% $ 421,757  2.55% $ 369,051  2.81%
Net Interest Income (TEB) $ 90,197    $ 74,238    $ 341,164    $ 271,930   
Tax Equivalent Adjustment   (1,785)     (1,779)     (7,212)     (7,900)  
Net Interest Income per Financial                        
Statements $ 88,412    $ 72,459    $ 333,952    $ 264,030   
Net Interest Margin Non-Securitized                        
Interest Earning Assets     3.03%     2.80%     3.05%     2.82%
Net Interest Margin Securitized Assets     1.16%     1.26%     1.23%     1.23%
Total Net Interest Margin     2.06%     1.99%     2.06%     2.07%
Spread of Non-securitized Loans over                        
Deposits Only     3.18%     2.94%     3.11%     2.94%
The average rate is an average calculated with reference to opening and closing monthly asset and liability balances.
Net interest margin is calculated on a TEB.

Mortgage Production                
  For the three months ended   For the year ended
(000s) December 31 December 31 December 31 December 31
  2011  2010  2011  2010 
Traditional single family residential mortgages $ 948,848  $ 683,511  $ 3,514,430  $ 2,853,385 
Accelerator single family residential mortgages   188,484    755,632    1,103,555    2,839,394 
Multi-unit residential mortgages   6,522    285,042    137,005    766,483 
Non-residential mortgages   41,508    72,855    182,163    219,760 
Store and apartments   35,544    33,623    122,957    108,769 
Warehouse commercial mortgages   27,000    20,750    56,750    80,800 
Total mortgage advances $ 1,247,906  $ 1,851,413  $ 5,116,860  $ 6,868,591 

Consolidated Balance Sheets
               
      December 31   December 31   January 1
    2011    2010    2010 
thousands of Canadian dollars       (restated to IFRS)   (restated to IFRS)
ASSETS            
Cash Resources $ 665,806  $ 846,824  $ 930,134 
Securities            
Held for trading       99,938 
Available for sale   391,754    424,168    494,602 
Pledged securities   341,588    2,954   
      733,342    427,122    594,540 
Loans            
Residential mortgages   6,339,883    4,683,527    4,473,255 
Securitized residential mortgages   8,243,350    8,116,636    4,126,707 
Non-residential mortgages   946,222    838,253    708,425 
Personal and credit card loans   560,193    453,339    342,918 
      16,089,648    14,091,755    9,651,305 
Collective allowance for credit losses   (29,440)   (29,153)   (27,793)
      16,060,208    14,062,602    9,623,512 
Other            
Income taxes receivable     9,451    6,466 
Derivative assets   72,424    24,157    13,186 
Other assets   79,650    80,099    75,322 
Capital assets   5,372    4,894    4,863 
Intangible assets   63,917    47,917    26,811 
Goodwill   15,752    15,752    15,752 
      237,115    182,270    142,400 
    $ 17,696,471  $ 15,518,818  $ 11,290,586 
LIABILITIES AND SHAREHOLDERS' EQUITY            
Liabilities            
Deposits            
  Deposits payable on demand $ 62,746  $ 50,359  $ 38,223 
  Deposits payable on a fixed date   7,859,378    6,545,620    6,433,533 
      7,922,124    6,595,979    6,471,756 
Senior Debt   153,336     
Securitization Liabilities            
  Mortgage-backed security liabilities   2,417,801    2,826,105    1,191,552 
  Canada Mortgage Bond liabilities   6,231,274    5,278,473    2,964,904 
      8,649,075    8,104,578    4,156,456 
Other            
Derivative liabilities   3,458    9,009    11,099 
Income taxes payable   17,628     
Other liabilities   136,025    140,554    130,823 
Deferred tax liabilities   40,040    40,113    16,829 
      197,151    189,676    158,751 
      16,921,686    14,890,233    10,786,963 
Shareholders' Equity            
Capital stock   55,104    50,427    45,396 
Contributed surplus   5,873    4,571    3,606 
Retained earnings   722,999    567,681    444,416 
Accumulated other comprehensive (loss) income   (9,191)   5,906    10,205 
      774,785    628,585    503,623 
    $ 17,696,471  $ 15,518,818  $ 11,290,586 

Consolidated Statements of Income            
      For the three months ended   For the year ended
      December 31   December 31   December 31   December 31
      2011    2010    2011    2010 
thousands of Canadian dollars, except per share amounts       (restated to IFRS)       (restated to IFRS)
Net Interest Income Non-Securitized Assets                
Interest from loans $ 109,938  $ 90,195  $ 401,671  $ 353,779 
Dividends from securities   4,559    4,098    18,417    18,204 
Other interest   1,091    3,276    5,130    9,806 
      115,588    97,569    425,218    381,789 
Interest on deposits   50,371    47,988    191,745    188,370 
Interest on senior debt   2,014      5,293   
Net interest income non-securitized assets   63,203    49,581    228,180    193,419 
                   
Net Interest Income Securitized Loans and Assets                
Interest income from securitized loans and assets   81,876    76,584    330,491    251,292 
Interest expense on securitization liabilities   56,667    53,706    224,719    180,681 
Net interest income securitized loans and assets   25,209    22,878    105,772    70,611 
                   
Total Net Interest Income   88,412    72,459    333,952    264,030 
Provision for credit losses   2,979    5,816    7,519    9,431 
      85,433    66,643    326,433    254,599 
Non-Interest Income                
Fees and other income   11,294    8,621    37,997    30,690 
Gain on sale of loan portfolio         3,917 
Realized net gains and unrealized losses on securities   (1,306)   (985)   4,088    9,740 
Net realized and unrealized (loss) gain on derivatives   (330)   (5,745)   (7,203)   9,821 
      9,658    1,891    34,882    54,168 
      95,091    68,534    361,315    308,767 
Non-Interest Expenses                
Salaries and benefits   13,184    12,405    52,523    46,739 
Premises   2,007    1,820    7,776    6,894 
Other operating expenses   11,916    12,384    44,703    41,843 
      27,107    26,609    105,002    95,476 
                   
Income Before Income Taxes   67,984    41,925    256,313    213,291 
Income taxes                
  Current   15,909    9,947    66,270    35,231 
  Deferred   1,795    1,869    (37)   23,308 
      17,704    11,816    66,233    58,539 
NET INCOME $ 50,280  $ 30,109  $ 190,080  $ 154,752 
                   
NET INCOME PER COMMON SHARE                
Basic $ 1.45  $ 0.87  $ 5.48  $ 4.46 
Diluted $ 1.45  $ 0.87  $ 5.46  $ 4.45 
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                
Basic   34,668    34,685    34,677    34,697 
Diluted   34,782    34,778    34,787    34,776 
                   
Total number of outstanding common shares   34,625    34,646    34,625    34,646 
Book value per common share $ 22.38  $ 18.14  $ 22.38  $ 18.14 

Consolidated Statements of Comprehensive Income            
  For the three months ended   For the year ended
    December 31   December 31   December 31   December 31
    2011    2010    2011    2010 
thousands of Canadian dollars       (restated to IFRS)       (restated to IFRS)
                 
NET INCOME $ 50,280  $ 30,109  $ 190,080  $ 154,752 
                 
OTHER COMPREHENSIVE INCOME (LOSS)                
                 
Available for Sale Securities                
Net unrealized gains (losses) on securities available for sale   700    744    (8,602)   3,224 
Net losses (gains) reclassified to net income   1,174    759    (4,815)   (8,509)
    1,874    1,503    (13,417)   (5,285)
Income tax expense (recovery)   505    (327)   (3,370)   (986)
    1,369    1,830    (10,047)   (4,299)
                 
Cash Flow Hedges                
Net unrealized losses on cash flow hedges   (639)     (7,386)  
Net losses reclassified to net income   338      618   
    (301)     (6,768)  
Income tax recovery   (36)     (1,718)  
    (265)     (5,050)  
                 
Total other comprehensive income (loss)   1,104    1,830    (15,097)   (4,299)
                 
COMPREHENSIVE INCOME $ 51,384  $ 31,939  $ 174,983  $ 150,453 

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 Stock Surplus Earnings Sale, after Tax after Tax Income (Loss) Equity
Balance at December 31, 2010                            
(restated to IFRS) $ 50,427  $ 4,571  $ 567,681  $ 5,906  $ $ 5,906  $ 628,585 
Comprehensive income       190,080    (10,047)   (5,050)   (15,097)   174,983 
Stock options settled   4,921    (1,098)           3,823 
Amortization of fair value of                            
employee stock options     2,400            2,400 
Repurchase of shares   (244)     (7,702)         (7,946)
Dividends paid                            
($0.76 per share)       (27,060)         (27,060)
Balance at December 31, 2011 $ 55,104  $ 5,873  $ 722,999  $ (4,141) $ (5,050) $ (9,191) $ 774,785 
                             
Balance at January 1, 2010 $ 45,396  $ 3,606  $ 444,416  $ 10,205  $ $ 10,205  $ 503,623 
Comprehensive income       154,752    (4,299)     (4,299)   150,453 
Exercise of stock appreciation rights     (280)           (280)
Stock options settled   5,309    (880)           4,429 
Amortization of fair value of                            
employee stock options     2,125            2,125 
Repurchase of shares   (278)     (8,246)         (8,524)
Dividends paid                            
($0.66 per share)       (23,241)         (23,241)
Balance at December 31, 2010                            
(restated to IFRS) $ 50,427  $ 4,571  $ 567,681  $ 5,906  $ $ 5,906  $ 628,585 

Consolidated Statements of Cash Flows
      For the year ended
        December 31   December 31
        2011    2010 
thousands of Canadian dollars       (restated to IFRS)
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income for the year $ 190,080  $ 154,752 
Adjustments to determine cash flows relating to operating activities:        
  Deferred income taxes   (37)   23,308 
  Amortization of capital assets   3,052    2,881 
  Amortization of intangible assets   679    334 
  Amortization of (premium) discount on securities   (49)   2,423 
  Amortization of securitization and senior debt transaction costs   14,153    9,705 
  Provision for credit losses   7,519    9,431 
  Change in accrued interest payable   4,993    4,958 
  Change in accrued interest receivable   (6,686)   (6,651)
  Realized net gains and unrealized losses on securities   (4,088)   (9,740)
  Settlement of derivatives   (7,385)  
  Loss (gain) on derivatives   7,203    (20,890)
  Net increase in mortgages   (1,897,308)   (4,334,003)
  Net increase in personal and credit card loans   (107,817)   (110,581)
  Net increase in deposits   1,326,145    124,223 
  Activity in securitization liabilities        
    Proceeds from securitization of mortgage-backed security liabilities   1,233,754    4,572,264 
    Settlement and repayment of securitization liabilities   (753,085)   (629,934)
  Amortization of fair value of employee stock options   2,400    2,125 
  Changes in taxes payable and other   23,293    4,352 
Cash flows provided by (used in) operating activities   36,816    (201,043)
CASH FLOWS FROM FINANCING ACTIVITIES        
Repurchase of shares   (7,946)   (8,524)
Exercise of employee stock options and stock appreciation rights   3,823    4,149 
Issuance of senior debt   149,052   
Dividends paid   (26,371)   (22,906)
Cash flows provided by (used in) financing activities   118,558    (27,281)
CASH FLOWS FROM INVESTING ACTIVITIES        
Activity in available for sale and held for trading securities        
  Purchases   (1,641,985)   (203,172)
  Proceeds from sales   389,978    214,126 
  Proceeds from maturities   935,824    158,412 
Purchases of capital assets   (3,530)   (2,912)
Purchases of intangible assets   (16,679)   (21,440)
Cash flows (used in) provided by investing activities   (336,392)   145,014 
Net decrease in cash and cash equivalents during the year   (181,018)   (83,310)
Cash and cash equivalents at beginning of the year   846,824    930,134 
Cash and Cash Equivalents at End of the Year $ 665,806  $ 846,824 
Supplementary Disclosure of Cash Flow Information        
Dividends received $ 17,318  $ 16,840 
Interest received   725,476    598,419 
Interest paid   416,764    364,093 
Income taxes paid   36,636    42,114 

Earnings by Business Segment
                                   
                        For the three months ended
(000s) Mortgage Lending Consumer Lending Other Total
      December 31   December 31   December 31   December 31   December 31   December 31   December 31   December 31
      2011    2010    2011    2010    2011    2010    2011    2010 
Net interest income $ 74,164  $ 57,053  $ 10,639  $ 8,990  $ 3,609  $ 6,416  $ 88,412  $ 72,459 
Provision for credit                                
  losses   (1,975)   (2,377)   (1,004)   (3,439)       (2,979)   (5,816)
Fees and other income   6,829    4,624    4,343    3,928    122    69    11,294    8,621 
Net (loss) gain on                                
  securities and others   (1,095)   (5,697)       (541)   (1,033)   (1,636)   (6,730)
Non-interest expenses   (18,824)   (16,948)   (3,417)   (3,853)   (4,866)   (5,808)   (27,107)   (26,609)
Income before income                                
  taxes   59,099    36,655    10,561    5,626    (1,676)   (356)   67,984    41,925 
Income taxes   (16,370)   (11,102)   (2,987)   (1,780)   1,653    1,066    (17,704)   (11,816)
Net income $ 42,729  $ 25,553  $ 7,574  $ 3,846  $ (23) $ 710  $ 50,280  $ 30,109 
Goodwill $ 2,324  $ 2,324  $ 13,428  $ 13,428  $ $ $ 15,752  $ 15,752 
Total assets $ 15,997,106  $ 13,797,202  $ 614,626  $ 514,872  $ 1,084,739  $ 1,206,744  $ 17,696,471  $ 15,518,818 
                                   
                        For the year ended
(000s) Mortgage Lending Consumer Lending Other Total
      December 31   December 31   December 31   December 31   December 31   December 31   December 31   December 31
      2011    2010    2011    2010    2011    2010    2011    2010 
Net interest income $ 273,738  $ 202,745  $ 41,782  $ 35,761  $ 18,432  $ 25,524  $ 333,952  $ 264,030 
Provision for credit                                
  losses   (5,916)   (5,304)   (1,603)   (4,127)       (7,519)   (9,431)
Fees and other income   19,457    15,243    18,051    15,229    489    218    37,997    30,690 
Net (loss) gain on                                
  securities and others   (4,821)   10,608      3,917    1,706    8,953    (3,115)   23,478 
Non-interest expenses   (67,851)   (61,114)   (16,255)   (14,945)   (20,896)   (19,417)   (105,002)   (95,476)
Income before income                                
  taxes   214,607    162,178    41,975    35,835    (269)   15,278    256,313    213,291 
Income taxes   (59,331)   (47,676)   (11,872)   (11,129)   4,970    266    (66,233)   (58,539)
Net income $ 155,276  $ 114,502  $ 30,103  $ 24,706  $ 4,701  $ 15,544  $ 190,080  $ 154,752 
Goodwill $ 2,324  $ 2,324  $ 13,428  $ 13,428  $ $ $ 15,752  $ 15,752 
Total assets $ 15,997,106  $ 13,797,202  $ 614,626  $ 514,872  $ 1,084,739  $ 1,206,744  $ 17,696,471  $ 15,518,818 

Management's Responsibility for Financial Information

The Company's Audit Committee reviewed this document along with the Company's 2011 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 2011 Annual and Fourth Quarter Consolidated Financial Report.

Caution Regarding Forward-looking Statements

From time to time Home Capital Group Inc. (the "Company" or "Home Capital") makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are "financial outlooks" within the meaning of National Instrument 51-102. Please see the risk factors, which are set forth in detail in the Risk Management section of this report, as well as its other publicly filed information, which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company's actual results to differ materially from these statements. These risk factors are material risk factors a reader should consider, and include credit risk, liquidity and funding risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk and regulatory and legal risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook Section in the Annual Report.  Forward-looking statements are typically identified by words such as "will,"  "believe," "expect," "anticipate," "estimate," "plan," "may," and "could" or other similar expressions. 

By their very nature, these statements require the Company to make assumptions and are subject to inherent risks and uncertainties, general and specific, which may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These risks and uncertainties include, but are not limited to, global capital market activity, changes in government monetary and economic policies, changes in interest rates, inflation levels and general economic conditions, legislative and regulatory developments, competition and technological change. The preceding list is not exhaustive of possible factors.

These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements. The Company does not undertake to update any forward-looking statements, whether written or verbal, that may be made from time to time by it or on its behalf, except as required by securities laws.

Assumptions about the performance of the Canadian economy in 2012 and its effect on Home Capital's business are material factors the Company considers when setting its objectives and outlook. In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies.  In setting and reviewing the outlook and objectives for 2012, management's expectations assume:
  • The Canadian economy will produce modest growth in 2012, but will be heavily influenced by the economic conditions in the United States and international markets. Inflation will generally be within the Bank of Canada's target of 1%-3%.

  • Interest rates will remain at current rates for 2012 as the Bank of Canada leaves its target for the overnight rate at its current level. 

  • The housing market will remain resilient to global uncertainty with balanced supply and demand conditions in most regions.  Declining housing starts and flat resale activity on stable prices through most of Canada will continue with the market stabilizing from previous activity levels.

  • Unemployment will remain stable or improve slightly as the economy grows, while a larger labour force will tend to offset job growth. Consumer debt levels will remain serviceable by Canadian households.

  • Net interest margins overall are expected to remain in the current range. Margins are expected to remain stable as returns on the increased traditional portfolio offset declining returns on the securitized portfolio throughout 2012.

  • Credit quality will remain sound with actual losses within Home Capital's historical range of acceptable levels.

  • Current Canada Mortgage Housing Corporation (CMHC) policies remain substantially unchanged.


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 2011 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 deposit, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending, Visa and payment card services. Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia and Quebec.

 

SOURCE Home Capital Group Inc.

For further information:

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


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