Home Capital reports fourth quarter and full year 2016 results

TORONTO, Feb. 8, 2017 /CNW/ - Home Capital Group ("Home Capital" or "the Company") (TSX: HCG) today reported results for the three and twelve months ended December 31, 2016. This press release should be read in conjunction with the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report including Financial Statements and Management's Discussion and Analysis (MD&A), which are available on Home Capital's website at www.homecapital.com and on SEDAR at www.sedar.com.

Fourth Quarter and Full Year 2016 Highlights

Fourth Quarter 2016, compared with the Fourth Quarter 2015:

  • Reported net income was $50.7 million and diluted earnings per share were $0.79, compared with $70.2 million and $1.00
  • Adjusted net income was $63.5 million and adjusted diluted earnings per share were $0.98, compared with $71.8 million
  • and $1.02
  • Adjusted net income and adjusted diluted earnings per share exclude the impact of a goodwill impairment charge of $9.0 million net of tax (or $0.13 diluted earnings per share) for the Company's subsidiary Payment Services Interactive Gateway Inc. (PSiGate), and an intangible asset impairment of $3.8 million net of tax (or $0.06 diluted earnings per share)
  • Repurchased approximately $5.7 million of common shares in the quarter. Normal Course Issuer Bid (NCIB) renewed through December 2017, providing ability to repurchase common shares up to 10% of the public float.

Year Ended December 31, 2016, compared with Year Ended December 31, 2015:

  • Reported net income was $247.4 million and diluted earnings per share were $3.71, compared with $287.3 million and $4.09
  • Adjusted net income was $263.4 million and adjusted diluted earnings per share were $3.95, compared with $288.9 million and $4.11
  • Adjusted net income and adjusted diluted earnings per share exclude total impact of $16.0 million net of tax or $0.24 diluted earnings per share(1)
  • Provision for credit losses as a percentage of gross uninsured loans was 0.05%, compared to 0.06%
  • CET 1 capital ratio of 16.55% and Total capital ratio of 16.97%, well in excess of regulatory minimums and internal targets
  • Repurchased a total of $199.2 million of common shares inclusive of $150.0 million of common shares through the Substantial Issuer Bid (SIB) and $49.2 million common shares through the NCIB. The resulting outstanding common shares totalled 64,387,519 at the end of 2016

(1)

See "Items of Note" under Reconciliation of Net Income to Adjusted Net Income in this press release for full details impacting reported and adjusted net income and diluted earnings per share results for 2016 and 2015 and in Table 2 of the Q4 2016 Management Discussion and Analysis.



Management Comments

"In 2016 we took significant strides to improve our business and we look forward to building on these accomplishments in 2017," said Martin Reid, President and Chief Executive Officer, Home Capital. "Our core traditional mortgage originations continue to drive revenues alongside stronger performance from our commercial lending business. Our performance was muted by lower-than-anticipated retention and renewal levels and elevated expenses. In addition, as a result of the ongoing review of our goodwill and intangible assets, we recorded a goodwill impairment charge of $9.0 million net of tax reflecting lower expected future profitability of the PSiGate business and an intangible asset impairment of $5.1 million, or $3.8 million, net of tax, related to software development costs."

"In 2017, we remain committed to improving customer retention, increasing our loans under administration and growing revenue as well as lowering our expense base to help drive positive operating leverage and increase profitability. We have launched an expense savings initiative, Project EXPO, which targets, at minimum, an annualized $15.0 million of cost savings based on an annualized run rate of Q4 2016 expenses (excluding items of note), over the course of 2017. This will encompass most expense categories including employees, premises and other operating costs, and will result in restructuring provisions to be taken in 2017. Moving forward, we will continue to make the necessary investments that will enable the Company to meet its strategic goals, but in a manner that results in future costs rising in a more measured way."

"In 2016 we were pleased to return $199.2 million to shareholders through a SIB and through our NCIB. With two dividend increases in 2016, we returned an additional $65.2 million to shareholders. We maintained a strong CET 1 capital ratio of 16.55%, well in excess of regulatory minimums and internal targets. Our solid balance sheet will continue to provide the necessary foundation required to execute on our strategy, remain agile in an evolving economic and regulatory landscape, and support investments in the business to deliver excellent customer service."

"We believe our 2017 priorities put us on track to deliver our long-term goals of generating prudent and profitable growth, providing healthy returns to our shareholders and solidifying our position as the leading provider of financial services to underserved Canadians."

Performance Goals

Following completion of the Company's annual planning process and review of the prior mid-term targets, Home Capital Group is introducing new performance goals moving forward.  These goals are consistent with the Company's strategic plans and long-term objectives. The Company expects to achieve these goals over the long-term, and management will report on progress regularly.

Measure(1)

Previous(2)

2016 Performance(2)

New

Revenue Growth

-

-

5% or greater

Diluted Earnings Per Share Growth

8% to 13%

Declined 3.9%
year over year

7% or greater

Return on Shareholders' Equity (ROE)

Annual ROE >16%

ROE of 16.3%

15% or greater

Dividend Payout Ratio

19% to 26%

Dividend Payout Ratio of 25%

-

(1)

Measures are calculated on an adjusted basis.

(2)

2016 Mid-term targets and performance were calculated on an adjusted basis. Previous targets included a measure to maintain a strong capital ratio that exceeds regulatory minimums by a safe margin commensurate with our risk profile. The Company maintained a strong CET 1 Ratio of 16.55% at the end of 2016.

 

Management expects that 2017 will be a transition period in which cost reductions and revenue generation initiatives continue to unfold. Successful delivery of these items is expected to translate into improved results consistent with the above goals later in 2017 and beyond.

2017 Strategic Priorities

The Company has updated its vision, mission, values, and strategic priorities, which inform and are reflected in new performance goals. Home Capital's foundation and culture support achievement of the Company's strategic priorities and vision of being a leader in providing financial services to underserved Canadians. The Company's foundation is comprised of the key strengths of Talent, Service, Technology, Agility, and Risk Management.

Beginning in 2017 and moving forward, Home Capital is focused on the following strategic priorities to position the Company for long-term success:

  • Prudent Growth in the Core Residential Mortgage Business
  • Provide Innovative Products and Solutions
  • Positive Operating Leverage
  • Efficient Balance Sheet and Capital Utilization

Fourth Quarter Ended December 31, 2016 Summary

Home Capital reported fourth quarter 2016 net income of $50.7 million, compared with net income of $70.2 million in Q4 2015. Diluted earnings per share (EPS) for Q4 2016 were $0.79, a 21% decrease from Q4 2015. Adjusted net income was $63.5 million in Q4 2016, compared to $71.8 million a year ago. Adjusted EPS was $0.98, compared to $1.02.

Q4 2016 adjusted net income and EPS exclude the impact of a goodwill impairment charge of $9.0 million net of tax (or $0.13 diluted EPS) for PSiGate, and an intangible asset impairment of $3.8 million net of tax (or $0.06 diluted EPS).

Q4 2016 results reflect the Company's continued profitability as measured by its net interest margin (TEB) of 2.38%, a healthy loan portfolio as evidenced by continued low non-performing loans and credit losses, and a strong capital position.

At the end of Q4 2016, total loans under administration increased to $26.42 billion, driven by a solid core residential business and a growing commercial lending portfolio. 

Core Business

A continued focus on growing mortgage origination volumes resulted in a 12.7% increase in total mortgage originations in Q4 2016 to $2.43 billion, compared to Q4 2015.  Total originations decreased 4.4% from Q3 2016 mainly due to seasonality. Q4 2016 total mortgage origination growth was led by the traditional single-family line of business which increased 14.0% to $1.33 billion compared to Q4 2015, and by strong performance of the commercial lending line of business.

For the year ended December 31 2016, total mortgage originations were $9.23 billion, up 14.5% from 2015, reflecting good progress on initiatives to increase volumes through improved service levels. The core traditional single-family residential mortgage originations increased 3.5% in 2016 to $4.99 billion compared to 2015. Ace Plus originations grew to $407.8 million from $253.1 million in 2015, while Accelerator originations increased 16.5% to $1.62 billion compared to 2015.  Commercial mortgage originations continued to grow with strong performance in both multi-unit residential and non-residential mortgages.

Following the Government of Canada's announcement in early October 2016, which placed certain limitations on eligibility criteria for low-ratio government-backed insured mortgages (mortgage rules), the Company reported  that these limitations may significantly reduce the Company's ability to profitably originate and fund these mortgages (see the Company's press release dated October 20, 2016). Specifically, low-ratio lending for the purpose of refinancing and rental properties will be primarily impacted within the Company's Accelerator program.

The Company also reported that since the Accelerator program has traditionally been a low margin product offering it anticipates the negative impact on net income before tax to be relatively limited at approximately $6.5 million, and after-tax net income of approximately $4.8 million on an annualized basis. This estimate assumes that the Company sells its residual interest in fixed-rate mortgages which is an activity that the Company does from time to time.

While the Company did experience some weakness in the Accelerator insured product primarily in December, the mortgage rules had minimal impact on overall 2016 results. Management expects that the impact of these rules on the housing market, and on consumers and competitors, will become clearer as we move further into 2017, especially as the seasonally active spring market arrives. Further policy changes, particularly pertaining to risk sharing, are expected to become more defined in 2017.

Consumer Lending

Consumer lending, comprising credit cards, lines of credit and other consumer retail loans, continues to be an important source of loan assets with attractive returns. While representing 4.2% of the total on-balance sheet loan portfolio, these assets generated 7.7% of the interest income from loans for the quarter.

Deposits

At the end of Q4 2016, total deposits were $15.89 billion. Approximately 28.9% of deposits were from diversified sources. In addition to sourcing deposits through investment dealers and deposit brokers, diversification continues to be a focus that includes growing deposits through Oaken Financial, a direct-to-consumer business, and through Home Bank. In Q4 2016, the ending balance of Oaken deposits was $1.77 billion, up 62.6% from the end of 2015, demonstrating significant progress in the Company's efforts towards deposit diversification.

Operational Highlights

Home Capital continued to deliver strong credit performance, with net non-performing loans as a percentage of gross loans (NPL ratio) at 0.30% at the end of Q4 2016, consistent with 0.31% at the end of Q3 2016 and slightly higher than 0.28% in Q4 2015. These results reflect the high credit quality of the Company's loan portfolio resulting from regulatory changes to mortgage rules over the past few years, among other variables and are supported by the Company's continued investments in its risk management framework and control infrastructure.

During 2016, the Company invested in processes to improve service and retention levels. The Company has improved response times for commitments within its risk management framework while ensuring the documentation process is completed quickly and accurately. Efforts to improve retention during 2016 did not materialize as planned, resulting in lower-than-anticipated retention levels which also muted revenue growth, although some progress was seen later in Q4 2016. As a result, management is increasing efforts to change processes to significantly improve retention levels of existing customers, especially those seeking early discharge.

Non-interest expenses in Q4 2016 increased to $71.0 million from $54.7 million in Q4 2015. As a result of the ongoing review of goodwill and intangible assets, Q4 2016 expenses included a goodwill impairment charge of $9.0 million reflecting lower expected future profitability of the PSiGate business and an intangible asset impairment of $5.1 million. Full year 2016 expenses totaled $238.9 million, up 25.3% compared to $190.7 million in 2015 as a result of elevated costs and investments across the business. In addition, full year expenses include the costs related to goodwill impairment and intangible asset impairment, and $5.1 million in severance and other related costs recorded in Q1 2016.

The Company is working hard to become more efficient and reduce expenses to achieve positive operating leverage, a key priority. In Q3 2016, the Company announced it would take a hard look at expenses which have significantly outpaced revenue growth over the last year. As a result, the Company has started to implement an expense-savings initiative, Project EXPO, which targets, at minimum, an annualized $15.0 million of cost savings based on an annualized run rate of Q4 2016 expenses (excluding items of note), over the course of 2017. Project EXPO will encompass most expense categories including employees, premises and other operating costs, and will also result in restructuring provisions to be taken in 2017. Moving ahead, management will continue to make the necessary investments required to enable the Company to meet its strategic goals, but in a manner that results in future costs rising in a more measured way. While this is a key initiative for 2017, a focus on effectively managing expenses company-wide will remain an ongoing operational priority.

Strong and Conservative Financial Position

Home Capital continued to focus on maintaining a strong and conservative financial position while delivering value to shareholders in Q4 2016 and the full year 2016. Home Capital delivered ROE and adjusted ROE of 15.3% and 16.3%, respectively.

With two dividend increases, a SIB and share buybacks through the NCIB, the Company returned more than $264 million to shareholders in 2016. The Company's capital position remained strong with a CET 1 ratio of 16.55% at year end, well in excess of regulatory minimums and internal targets. The Company's strong balance sheet continues to provide a firm foundation that will enable management to execute on its longer term strategy and continue to support investments made in the business to deliver a consistent and optimal experience for all customers and stakeholders.

Subsequent to the end of the quarter, and in light of the Company's performance, profitability and strong financial position, the Board of Directors approved a quarterly dividend of $0.26 per common share payable on March 1, 2017 to shareholders of record at the close of business on February 17, 2017.

Outlook

Home Capital has built a solid foundation comprised of its strong balance sheet and its core traditional business. In 2016, the Company completed a review of its strategic agenda, business and operational initiatives to ensure its strategic priorities remain aligned with the Company's long-term goals of generating prudent and profitable growth, providing healthy returns to shareholders and solidifying Home Capital's position as the leading provider of financial services to underserved Canadians.

Looking ahead, the Company is committed to building on its foundation by more stringently managing costs as one of the ways to drive positive operating leverage, reviewing product offerings and related operations, and strengthening revenue growth.

The Board of Directors and management expect that Home Capital will deliver on its long-term business and financial performance goals, and continue to generate solid shareholder returns in 2017 and beyond.                                  

(signed)

(signed)

MARTIN REID                                                                                     

President & Chief Executive Officer                                                         
February 8, 2017                                               

 KEVIN P.D. SMITH
 Chair of the Board



The Company's 2016 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, 2016 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

Fourth Quarter and Year-End 2016 Results Conference Call and Webcast

The conference call will take place on Thursday, February 9, 2017, at 8:00 a.m. ET. Participants are asked to call approximately 10 minutes in advance at 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode on Home Capital's website at www.homecapital.com in the Investor Relations section of the website.

Conference Call Archive

A telephone replay of the call will be available between 11:00 a.m. ET Thursday, February 9, 2017 and 12:00 a.m. ET Thursday, February 16, 2017 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 44438639). The archived audio webcast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com.

Annual Meeting Notice

The Annual Meeting of Shareholders of Home Capital Group Inc. will be held at One King West, Grand Banking Hall, Toronto, Ontario, M5H 1A1, on Thursday, May 11, 2017 at 11:00 a.m. ET. Shareholders and guests are invited to join Directors and Management for refreshments following the Annual Meeting. All shareholders are encouraged to attend.

 

Financial Highlights












For the three months ended

For the year ended

(000s, except Percentage and Per Share Amounts)


December 31

September 30

December 31

December 31

December 31



2016


2016


2015


2016


2015

OPERATING RESULTS











Net Income

$

50,706

$

66,190

$

70,239

$

247,396

$

287,285

Adjusted Net Income1


63,475


66,190


71,811


263,414


288,857

Net Interest Income


120,620


119,924


126,658


485,164


481,090

Total Revenue


239,417


243,928


248,462


967,719


995,767

Diluted Earnings per Share

$

0.79

$

1.01

$

1.00

$

3.71

$

4.09

Adjusted Diluted Earnings per Share1

$

0.98

$

1.01

$

1.02

$

3.95

$

4.11

Return on Shareholders' Equity


12.7%


16.9%


17.6%


15.3%


18.7%

Adjusted Return on Shareholders' Equity1


15.9%


16.9%


18.0%


16.3%


18.8%

Return on Average Assets


1.0%


1.3%


1.4%


1.2%


1.4%

Net Interest Margin (TEB)2


2.38%


2.34%


2.46%


2.37%


2.36%

Provision as a Percentage of Gross Uninsured Loans (annualized)


0.07%


0.04%


0.04%


0.05%


0.06%

Provision as a Percentage of Gross Loans (annualized)


0.05%


0.03%


0.03%


0.04%


0.05%

Efficiency Ratio (TEB)2


48.8%


37.7%


36.0%


40.8%


32.4%

Adjusted Efficiency Ratio (TEB)1,2


39.1%


37.7%


33.7%


37.6%


31.8%







As at






December 31

September 30

December 31







2016


2016


2015





BALANCE SHEET HIGHLIGHTS











Total Assets

$

20,528,777

$

20,317,030

$

20,527,062





Total Assets Under Administration3


28,917,534


28,327,676


27,316,476





Total Loans4


18,035,317


18,002,238


18,268,708





Total Loans Under Administration3,4


26,424,074


26,012,884


25,058,122





Liquid Assets


2,067,981


1,878,082


2,095,145





Deposits


15,886,030


15,694,102


15,665,958





Shareholders' Equity


1,617,192


1,579,478


1,621,106





FINANCIAL STRENGTH











Capital Measures5











Risk-Weighted Assets

$

8,643,267

$

8,414,960

$

7,985,498





Common Equity Tier 1 Capital Ratio


16.55%


16.54%


18.31%





Tier 1 Capital Ratio


16.54%


16.53%


18.30%





Total Capital Ratio


16.97%


16.97%


20.70%





Leverage Ratio


7.20%


7.08%


7.36%





Credit Quality











Net Non-Performing Loans as a Percentage of Gross Loans


0.30%


0.31%


0.28%





Allowance as a Percentage of Gross Non-Performing Loans


73.4%


69.3%


74.0%





Share Information











Book Value per Common Share

$

25.12

$

24.47

$

23.17





Common Share Price – Close

$

31.34

$

27.00

$

26.92





Dividend paid during the period ended

$

0.26

$

0.24

$

0.22





Market Capitalization

$

2,017,920

$

1,743,093

$

1,883,808





Number of Common Shares Outstanding


64,388


64,559


69,978





1 See definition of Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Return on Shareholders' Equity and Adjusted Efficiency Ratio under Non-GAAP measures in the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report and the reconciliation of net income to adjusted net income in the following table.

2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report.

3 Total assets and loans under administration include both on- and off- balance sheet amounts.

4 Total loans include loans held for sale.

5 These figures relate to the Company's operating subsidiary, Home Trust Company.



Reconciliation of Net Income to Adjusted Net Income














Quarter

Year

(000s, except % and per share amounts)

Q4

Q3


Q4







2016

2016

Change

2015

Change

2016

2015

Change

Net income under GAAP

$

50,706

$

66,190

(23.4)%

$

70,239

(27.8)%

$

247,396

$

287,285

(13.9)%

Adjustment for acquisition and integration costs, net of gain














recognized on acquisition of CFF Bank (net of tax)


-


-

-


1,572

(100.0)%


(478)


1,572

(130.4)%

Adjustment for severance and other related costs (net of tax)


-


-

-


-

-


3,727


-

-

Adjustment for goodwill impairment loss (net of tax)


9,000


-

-


-

-


9,000


-

-

Adjustment for intangible assets impairment loss (net of tax)


3,769


-

-


-

-


3,769


-

-

Adjusted Net Income1

$

63,475

$

66,190

(4.1)%

$

71,811

(11.6)%

$

263,414

$

288,857

(8.8)%

Adjusted Basic Earnings per Share1

$

0.98

$

1.01

(3.0)%

$

1.02

(3.9)%

$

3.96

$

4.12

(3.9)%

Adjusted Diluted Earnings per Share1

$

0.98

$

1.01

(3.0)%

$

1.02

(3.9)%

$

3.95

$

4.11

(3.9)%

1 Adjusted Net Income and Adjusted Earnings per share are defined in the Non-GAAP section of the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report.


 

Items of Note

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

The Company's results were affected by the following items of note that aggregated to a negative impact of $16.0 million, net of tax, or $0.24 diluted earnings per share in 2016:

  • $9.0 million of goodwill impairment loss related to the Company's PSiGate business ($9.0 million net of tax and $0.13 diluted earnings per share).
  • $5.1 million of intangible asset impairment loss related to internally developed software costs ($3.8 million net of tax and $0.06 diluted earnings per share).
  • Expenses including severance and other related costs in the amount of $5.1 million ($3.7 million, net of tax and $0.06 diluted earnings per share), that were recognized in the first quarter of 2016.
  • Positive adjustment to gain recognized on the acquisition of CFF Bank in the amount of $651 thousand ($478 thousand, net of tax and $0.01 diluted earnings per share).

The Company's results were also affected by the following items of note in 2015:

  • $0.7 million in acquisition costs and $3.5 million in integration costs, less $2.1 million in relation to a bargain purchase gain for a net negative impact of $2.1 million related to the acquisition of CFF Bank in 2015 ($1.6 million after tax and $0.02 diluted earnings per share).

Consolidated Balance Sheets












As at




 December 31


September 30


December 31

thousands of Canadian dollars


2016


2016


2015

ASSETS







Cash and Cash Equivalents

$

1,205,394

$

1,058,940

$

1,149,849

Available for Sale Securities


534,924


523,482


453,230

Loans Held for Sale


77,918


74,207


135,043

Loans







Securitized mortgages


2,526,804


2,549,205


2,674,475

Non-securitized mortgages and loans


15,430,595


15,378,826


15,459,190



17,957,399


17,928,031


18,133,665

Collective allowance for credit losses


(37,063)


(37,063)


(36,249)



17,920,336


17,890,968


18,097,416

Other







Restricted assets


265,374


231,235


195,921

Derivative assets


37,524


52,178


64,796

Other assets


348,638


336,077


287,417

Deferred tax assets


16,914


16,362


15,043

Goodwill and intangible assets


121,755


133,581


128,347



790,205


769,433


691,524


$

20,528,777

$

20,317,030

$

20,527,062

LIABILITIES AND SHAREHOLDERS' EQUITY







Liabilities







Deposits







Deposits payable on demand

$

2,531,803

$

2,432,283

$

1,986,136

Deposits payable on a fixed date


13,354,227


13,261,819


13,679,822



15,886,030


15,694,102


15,665,958

Senior Debt


-


-


151,480

Securitization Liabilities







CMHC-sponsored mortgage-backed security liabilities


898,386


930,614


531,326

CMHC-sponsored Canada Mortgage Bond liabilities


1,637,117


1,610,482


2,249,230

Bank-sponsored securitization conduit liabilities


114,146


139,115


-



2,649,649


2,680,211


2,780,556

Other







Derivative liabilities


3,490


959


5,447

Other liabilities


336,132


324,070


264,941

Deferred tax liabilities


36,284


38,210


37,574



375,906


363,239


307,962



18,911,585


18,737,552


18,905,956

Shareholders' Equity







Capital stock


84,910


83,975


90,247

Contributed surplus


4,562


4,588


3,965

Retained earnings


1,582,785


1,554,258


1,592,438

Accumulated other comprehensive loss


(55,065)


(63,343)


(65,544)



1,617,192


1,579,478


1,621,106


$

20,528,777

$

20,317,030

$

20,527,062






















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


2016


2016


2015


2016


2015

Net Interest Income Non-Securitized Assets











Interest from loans

$

190,389

$

192,395

$

197,052

$

768,034

$

769,562

Dividends from securities


2,614


2,359


2,608


10,112


10,620

Other interest


2,514


3,046


1,694


11,073


7,951



195,517


197,800


201,354


789,219


788,133

Interest on deposits and other


78,868


81,519


77,762


315,919


318,597

Interest on senior debt


-


-


1,824


2,243


6,396

Net interest income non-securitized assets


116,649


116,281


121,768


471,057


463,140












Net Interest Income Securitized Loans and Assets











Interest income from securitized loans and assets


19,923


20,957


22,853


81,705


103,841

Interest expense on securitization liabilities


15,952


17,314


17,963


67,598


85,891

Net interest income securitized loans and assets


3,971


3,643


4,890


14,107


17,950












Total Net Interest Income


120,620


119,924


126,658


485,164


481,090

Provision for credit losses


2,400


1,336


1,415


7,890


8,933



118,220


118,588


125,243


477,274


472,157

Non-Interest Income











Fees and other income


17,613


17,223


19,927


71,329


82,632

Securitization income


9,064


7,599


5,760


33,797


26,208

Gain on acquisition of CFF Bank


-


-


2,056


651


2,056

Net realized and unrealized (losses) gains on securities


-


-


(66)


(175)


836

Net realized and unrealized losses (gains) on derivatives


(2,700)


349


(3,422)


(8,807)


(7,939)



23,977


25,171


24,255


96,795


103,793



142,197


143,759


149,498


574,069


575,950












Non-Interest Expenses











Salaries and benefits


24,134


24,350


25,874


101,880


88,873

Premises


3,607


3,472


2,731


14,505


12,274

Other operating expenses


43,287


27,160


26,076


122,554


89,526



71,028


54,982


54,681


238,939


190,673












Income Before Income Taxes


71,169


88,777


94,817


335,130


385,277

Income taxes












Current


22,941


22,957


25,548


90,895


98,481


Deferred


(2,478)


(370)


(970)


(3,161)


(489)



20,463


22,587


24,578


87,734

-

97,992

NET INCOME

$

50,706

$

66,190

$

70,239

$

247,396

$

287,285












NET INCOME PER COMMON SHARE











Basic

$

0.79

$

1.01

$

1.00

$

3.71

$

4.09

Diluted

$

0.79

$

1.01

$

1.00

$

3.71

$

4.09

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING











Basic


64,479


65,386


70,157


66,601


70,170

Diluted


64,519


65,435


70,237


66,668


70,323













Total number of outstanding common shares


64,388


64,559


69,978


64,388


69,978

Book value per common share

$

25.12

$

24.47

$

23.17

$

25.12

$

23.17


































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

2016

2016

2015

2016

2015












NET INCOME

$

50,706

$

66,190

$

70,239

$

247,396

$

287,285












OTHER COMPREHENSIVE INCOME (LOSS)






















Available for Sale Securities and Retained Interests











Net unrealized gains (losses)


12,774


7,820


6,171


11,852


(61,991)

Net losses (gains) reclassified to net income


-


-


66


204


(917)



12,774


7,820


6,237


12,056


(62,908)

Income tax expense (recovery)


3,391


2,075


1,654


3,179


(16,684)



9,383


5,745


4,583


8,877


(46,224)












Cash Flow Hedges











Net unrealized (losses) gains


(1,677)


803


(2,110)


1,035


(2,449)

Net losses reclassified to net income


174


268


369


1,147


1,474



(1,503)


1,071


(1,741)


2,182


(975)

Income tax (recovery) expense


(398)


284


(462)


580


(260)



(1,105)


787


(1,279)


1,602


(715)












Total other comprehensive income (loss)


8,278


6,532


3,304


10,479


(46,939)












COMPREHENSIVE INCOME

$

58,984

$

72,722

$

73,543

$

257,875

$

240,346


































Consolidated Statements of Changes in Shareholders' Equity




















Net Unrealized








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, 2015

$

90,247

$

3,965

$

1,592,438

$

(62,466)

$

(3,078)

$

(65,544)

$

1,621,106

Comprehensive income


-


-


247,396


8,877


1,602


10,479


257,875

Stock options settled


1,984


(530)


-


-


-


-


1,454

Amortization of fair value of
















employee stock options


-


1,127


-


-


-


-


1,127

Repurchase of shares


(7,321)


-


(191,875)


-


-


-


(199,196)

Dividends















($0.98 per share)


-


-


(65,174)


-


-


-


(65,174)

Balance at December 31, 2016

$

84,910

$

4,562

$

1,582,785

$

(53,589)

$

(1,476)

$

(55,065)

$

1,617,192































Balance at December 31, 2014

$

84,687

$

3,989

$

1,378,562

$

(16,242)

$

(2,363)

$

(18,605)

$

1,448,633

Comprehensive income


-


-


287,285


(46,224)


(715)


(46,939)


240,346

Stock options settled


6,002


(1,605)


-


-


-


-


4,397

Amortization of fair value of
















employee stock options


-


1,581


-


-


-


-


1,581

Repurchase of shares


(442)


-


(10,270)


-


-


-


(10,712)

Dividends















($0.88 per share)


-


-


(63,139)


-


-


-


(63,139)

Balance at December 31, 2015

$

90,247

$

3,965

$

1,592,438

$

(62,466)

$

(3,078)

$

(65,544)

$

1,621,106


























Consolidated Statements of Cash Flows




For the three months ended

For the year ended





December 31


December 31


December 31


 December 31

thousands of Canadian dollars


2016


2015


2016


2015

CASH FLOWS FROM OPERATING ACTIVITIES









Net income for the period

$

50,706

$

70,239

$

247,396

$

287,285

Adjustments to determine cash flows relating to operating activities:










Amortization of net discount on securities


(79)


(221)


(458)


(169)


Provision for credit losses


2,400


1,415


7,890


8,933


Gain on acquisition of CFF Bank


-


(2,056)


-


(2,056)


Gain on sale of mortgages or residual interest


(7,006)


(4,728)


(26,972)


(21,412)


Net realized and unrealized losses (gains) on securities


-


66


175


(836)


Amortization and impairment losses 1


18,104


2,918


29,686


12,922


Amortization of fair value of employee stock options


322


418


1,127


1,581


Deferred income taxes


(2,478)


(970)


(3,161)


(489)

Changes in operating assets and liabilities










Loans, net of securitization and sales


(28,184)


165,761


253,837


205,412


Restricted assets


(34,139)


302,883


(69,453)


229,833


Derivative assets and liabilities


15,682


13,844


27,497


(24,075)


Accrued interest receivable


(506)


495


2,668


1,319


Accrued interest payable


(1,855)


(10,146)


(1,312)


4,399


Deposits


191,928


514,361


220,072


1,524,232


Securitization liabilities


(30,562)


(557,308)


(130,907)


(1,542,653)


Taxes receivable or payable and other


(1,489)


(11,072)


2,757


20,358

Cash flows provided by operating activities


172,844


485,899


560,842


704,584

CASH FLOWS FROM FINANCING ACTIVITIES









Repurchase of shares


(5,678)


(7,334)


(199,196)


(10,712)

Exercise of employee stock options


856


638


1,454


4,397

Repayment of senior debt


-


-


(150,000)


-

Dividends paid to shareholders


(16,770)


(15,429)


(65,174)


(61,763)

Cash flows used in financing activities


(21,592)


(22,125)


(412,916)


(68,078)

CASH FLOWS FROM INVESTING ACTIVITIES









Activity in securities










Purchases


(2,978)


(35,020)


(203,674)


(35,020)


Proceeds from sales


-


-


-


76,924


Proceeds from maturities


3,992


1,618


132,932


25,350

Acquisition of CFF Bank, net of cash acquired


-


115,892


-


115,892

Purchases of capital assets


(460)


(1,628)


(2,550)


(5,302)

Capitalized intangible development costs


(5,352)


(7,006)


(19,089)


(25,247)

Cash flows (used in) provided by investing activities


(4,798)


73,856


(92,381)


152,597

Net increase in cash and cash equivalents during the period


146,454


537,630


55,545


789,103

Cash and cash equivalents at beginning of the period


1,058,940


612,218


1,149,849


360,746

Cash and Cash Equivalents at End of the Period

$

1,205,394

$

1,149,848

$

1,205,394

$

1,149,849

Supplementary Disclosure of Cash Flow Information









Dividends received on investments

$

1,898

$

4,513

$

10,037

$

11,656

Interest received


212,920


220,787


863,321


881,749

Interest paid


96,675


109,628


388,440


406,485

Income taxes paid


16,314


26,374


84,559


128,763

¹Amortization and impairment losses include amortization on capital and intangible assets and impairment losses on intangible assets and goodwill.




Net Interest Margin




For the three months ended

For the year ended


December 31

September 30

December 31

December 31

December 31


2016

2016

2015

2016

2015

Net interest margin non-securitized interest-earning assets (non-TEB)

2.71%

2.68%

2.87%

2.71%

2.80%

Net interest margin non-securitized interest-earning assets (TEB)

2.73%

2.70%

2.89%

2.73%

2.83%

Net interest margin CMHC-sponsored securitized assets

0.53%

0.45%

0.60%

0.47%

0.49%

Net interest margin bank-sponsored securitization conduit assets

1.90%

1.85%

-

1.90%

-

Total net interest margin (non-TEB)

2.36%

2.33%

2.45%

2.35%

2.34%

Total net interest margin (TEB)

2.38%

2.34%

2.46%

2.37%

2.36%

Spread of non-securitized loans over deposits and other

2.86%

2.89%

2.97%

2.91%

2.91%



Net Interest Income












For the three months ended


December 31, 2016

September 30, 2016

December 31, 2015

(000s, except %)


Income/

Average


Income/

Average


Income/

Average



Expense

Rate 1


Expense

Rate 1


Expense

Rate 1

Interest-bearing assets










Cash resources and securities

$

5,128

1.31%

$

5,405

1.21%

$

4,302

1.39%

Traditional single-family residential mortgages


131,029

4.75%


133,997

4.84%


144,335

4.98%

ACE Plus single-family residential mortgages


3,344

3.38%


3,104

3.36%


1,532

3.37%

Accelerator single-family residential mortgages 


6,505

2.24%


7,342

2.40%


8,651

2.63%

Residential commercial mortgages2


4,291

3.99%


4,483

4.26%


5,036

3.97%

Non-residential commercial mortgages


28,233

5.93%


26,741

6.08%


22,205

5.95%

Credit card loans and lines of credit


8,389

9.02%


8,432

9.03%


8,388

9.05%

Other consumer retail loans


8,598

9.32%


8,296

9.40%


6,905

9.81%

Total non-securitized loans


190,389

4.86%


192,395

4.94%


197,052

5.00%

Taxable equivalent adjustment


944

-


853

-


941

-

Total non-securitized interest earning assets


196,461

4.56%


198,653

4.58%


202,295

4.76%

CMHC-sponsored securitized single-family residential mortgages


11,115

2.50%


11,921

2.57%


13,549

2.74%

CMHC-sponsored securitized multi-unit residential mortgages


7,197

4.63%


7,238

4.61%


8,580

4.28%

Assets pledged as collateral for CMHC-sponsored securitization


495

1.35%


489

1.27%


724

0.63%

Total CMHC-sponsored securitized residential mortgages


18,807

2.96%


19,648

2.98%


22,853

2.82%

Bank-sponsored securitization conduit assets


1,116

3.53%

$

1,309

3.52%

$

-

-

Total assets

$

216,384

4.24%


219,610

4.25%


225,148

4.35%

Interest-bearing liabilities










Deposits and other

$

78,868

2.00%

$

81,519

2.05%

$

77,762

2.03%

Senior debt


-

-


-

-


1,824

4.78%

CMHC-sponsored securitization liabilities


15,438

2.41%


16,693

2.49%


17,963

2.20%

Bank-sponsored securitization conduit liabilities


514

1.61%


621

1.76%


-

-

Total liabilities

$

94,820

1.86%

$

98,833

1.91%

$

97,549

1.89%

Net Interest Income (TEB)

$

121,564


$

120,777


$

127,599


Taxable Equivalent Adjustment


(944)



(853)



(941)


Net Interest Income per Financial Statements

$

120,620


$

119,924


$

126,658



 




2016



2015

(000s, except %)


Income/

Average


Income/

Average



Expense

Rate 1


Expense

Rate 1

Interest-bearing assets







Cash resources and securities

$

21,185

1.25%

$

18,571

1.44%

Traditional single-family residential mortgages


540,522

4.84%


587,005

4.99%

ACE Plus single-family residential mortgages


11,490

3.31%


1,849

3.31%

Accelerator single-family residential mortgages 


30,935

2.38%


28,777

2.58%

Residential commercial mortgages2


17,614

4.12%


17,053

4.16%

Non-residential commercial mortgages


102,465

6.01%


80,032

6.06%

Credit card loans and lines of credit


33,536

8.99%


31,427

9.06%

Other consumer retail loans


31,472

9.22%


23,419

9.88%

Total non-securitized loans


768,034

4.90%


769,562

5.05%

Taxable equivalent adjustment


3,654

-


3,830

-

Total non-securitized interest earning assets


792,873

4.56%


791,963

4.79%

CMHC-sponsored securitized single-family residential mortgages


46,642

2.60%


62,891

2.79%

CMHC-sponsored securitized multi-unit residential mortgages


29,866

4.58%


36,625

4.23%

Assets pledged as collateral for CMHC-sponsored securitization


2,246

0.96%


4,325

0.84%

Total CMHC-sponsored securitized residential mortgages


78,754

2.94%


103,841

2.86%

Bank-sponsored securitization conduit assets


2,951

3.43%


-

-

Total assets

$

874,578

4.24%

$

895,804

4.35%

Interest-bearing liabilities







Deposits and other

$

315,919

1.99%

$

318,597

2.14%

Senior debt


2,243

3.91%


6,396

4.18%

CMHC-sponsored securitization liabilities


66,278

2.44%


85,891

2.32%

Bank-sponsored securitization conduit liabilities


1,320

1.58%


-

0.00%

Total liabilities

$

385,760

1.87%

$

410,884

1.99%

Net Interest Income (TEB)

$

488,818


$

484,920


Taxable Equivalent Adjustment


(3,654)



(3,830)


Net Interest Income per Financial Statements

$

485,164


$

481,090


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 Advances
















For the three months ended


For the year ended




December 31


September 30


December 31


December 31


December 31

(000s)


2016


2016


2015


2016


2015

Single-family residential mortgages












Traditional

$

1,325,896

$

1,416,842

$

1,163,285

$

4,991,051

$

4,821,659


ACE Plus


106,477


116,666


140,983


407,767


253,064


Accelerator


346,690


446,734


515,891


1,622,003


1,391,740

Residential commercial mortgages












Multi-unit uninsured residential mortgages


53,999


17,947


23,503


142,026


105,098


Multi-unit insured residential mortgages


293,306


194,875


101,683


956,406


688,743


Other1


24,179


-


8,535


50,772


43,957

Non-residential commercial mortgages












Stores and apartments


14,878


35,018


26,462


80,888


109,115


Commercial


262,423


312,618


173,825


974,864


646,033

Total mortgage advances

$

2,427,848

$

2,540,700

$

2,154,167

$

9,225,777

$

8,059,409

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


 

Provision for Credit Losses  and Net Write-offs as a Percentage of Gross Loans on an Annualized Basis













For the three months ended

(000s, except %)

 December 31, 2016

 September 30, 2016

 December 31, 2015



% of Gross


% of Gross


% of Gross


Amount

Loans1

Amount

Loans1

Amount

Loans1

Provision2










Single-family residential mortgages

$

1,029

0.03%

$

1,006

0.03%

$

986

0.03%

Residential commercial mortgages


2

0.00%


(128)

(0.19)%


-

-

Non-residential commercial mortgages


45

0.01%


(37)

(0.01)%


(40)

(0.01)%

Credit card loans and lines of credit


1,164

1.26%


280

0.30%


343

0.37%

Other consumer retail loans


160

0.17%


215

0.23%


101

0.14%

Securitized single-family residential mortgages


-

-


-

-


-

-

Securitized multi-unit residential mortgages


-

-


-

-


-

-

Total individual provision


2,400

0.05%


1,336

0.03%


1,390

0.03%

Total collective provision


-

-


-

-


25

0.00%

Total provision

$

2,400

0.05%

$

1,336

0.03%

$

1,415

0.03%

Net Write-offs2










Single-family residential mortgages

$

440

0.01%

$

664

0.02%

$

1,415

0.04%

Residential commercial mortgages


2

0.00%


-

-


-

-

Non-residential commercial mortgages


(5)

(0.00)%


100

0.02%


127

0.03%

Credit card loans and lines of credit


469

0.51%


397

0.42%


502

0.54%

Other consumer retail loans


48

0.05%


77

0.09%


94

0.13%

Securitized single-family residential mortgages


-

-


-

-


-

-

Securitized multi-unit residential mortgages


-

-


-

-


-

-

Net write-offs

$

954

0.02%

$

1,238

0.03%

$

2,138

0.05%











(000s, except %)


2016

2015






% of Gross


% of Gross





Amount

Loans1

Amount

Loans1

Provision2










Single-family residential mortgages




$

3,917

0.03%

$

5,415

0.04%

Residential commercial mortgages





2

0.00%


4

0.00%

Non-residential commercial mortgages





246

0.01%


720

0.05%

Credit card loans and lines of credit





2,379

0.64%


798

0.22%

Other consumer retail loans





532

0.14%


171

0.06%

Securitized single-family residential mortgages





-

-


-

-

Securitized multi-unit residential mortgages





-

-


-

-

Total individual provision





7,076

0.04%


7,108

0.04%

Total collective provision





814

0.00%


1,825

0.01%

Total provision




$

7,890

0.04%

$

8,933

0.05%

Net Write-offs2










Single-family residential mortgages




$

3,087

0.02%

$

5,292

0.04%

Residential commercial mortgages





2

0.00%


4

0.00%

Non-residential commercial mortgages





515

0.03%


435

0.03%

Credit card loans and lines of credit





1,928

0.52%


969

0.26%

Other consumer retail loans





275

0.07%


168

0.06%

Securitized single-family residential mortgages





-

-


-

-

Securitized multi-unit residential mortgages





-

-


-

-

Net write-offs




$

5,807

0.03%

$

6,868

0.04%

1 Gross loans used in the calculation of total Company ratio includes securitized on-balance sheet loans.

2 There were no individual provisions, allowances or net write-offs on securitized mortgages.




Loans by Geographic Region and Type (net of individual allowances for credit losses)














(000s, except %)




As at December 31, 2016


British








Columbia

Alberta

Ontario

Quebec


Other


Total

Securitized single-family residential mortgages1

$

200,882

$

211,131

$

1,298,919

$

68,229

$

127,450

$

1,906,611

Securitized multi-unit residential mortgages


86,479


45,819


281,923


47,638


158,334


620,193

Total securitized mortgages


287,361


256,950


1,580,842


115,867


285,784


2,526,804

Single-family residential mortgages


688,939


401,820


10,796,570


326,253


208,426


12,422,008

Residential commercial mortgages2


15,387


21,271


232,819


24,058


11,653


305,188

Non-residential commercial mortgages


48,335


58,688


1,795,461


35,820


16,516


1,954,820

Credit card loans and lines of credit


7,548


20,265


333,903


1,253


6,709


369,678

Other consumer retail loans


950


20,492


354,356


-


3,103


378,901

Total non-securitized mortgages and loans3


761,159


522,536


13,513,109


387,384


246,407


15,430,595


$

1,048,520

$

779,486

$

15,093,951

$

503,251

$

532,191

$

17,957,399

As a % of portfolio


5.8%


4.3%


84.1%


2.8%


3.0%


100.0%














thousands of Canadian dollars, except %










As at September 30, 2016



British













Columbia


Alberta


Ontario


Quebec


Other


Total

Securitized single-family residential mortgages1

$

196,176

$

211,470

$

1,323,658

$

69,580

$

123,947

$

1,924,831

Securitized multi-unit residential mortgages


86,877


46,086


284,161


48,122


159,128


624,374

Total securitized mortgages


283,053


257,556


1,607,819


117,702


283,075


2,549,205

Single-family residential mortgages


693,783


409,703


10,851,113


346,199


224,167


12,524,965

Residential commercial mortgages2


13,737


7,026


208,049


25,440


9,963


264,215

Non-residential commercial mortgages


28,572


56,701


1,705,435


47,354


16,053


1,854,115

Credit card loans and lines of credit


8,392


21,431


336,348


1,326


6,851


374,348

Other consumer retail loans


954


18,299


340,307


-


1,623


361,183

Total non-securitized mortgages and loans3


745,438


513,160


13,441,252


420,319


258,657


15,378,826


$

1,028,491

$

770,716

$

15,049,071

$

538,021

$

541,732

$

17,928,031

As a % of portfolio


5.7%


4.3%


84.0%


3.0%


3.0%


100.0%














thousands of Canadian dollars, except %










As at December 31, 2015



British













Columbia


Alberta


Ontario


Quebec


Other


Total

Securitized single-family residential mortgages

$

125,239

$

114,807

$

1,559,536

$

81,262

$

67,266

$

1,948,110

Securitized multi-unit residential mortgages


94,676


46,848


372,141


51,309


161,391


726,365

Total securitized mortgages


219,915


161,655


1,931,677


132,571


228,657


2,674,475

Single-family residential mortgages


706,555


525,984


11,060,894


419,075


266,910


12,979,418

Residential commercial mortgages2


21,128


14,215


216,407


27,265


42,427


321,442

Non-residential commercial mortgages


25,157


59,861


1,358,295


14,505


32,830


1,490,648

Credit card loans and lines of credit


9,598


22,709


330,188


1,489


6,841


370,825

Other consumer retail loans


783


11,090


284,231


-


753


296,857

Total non-securitized mortgages and loans3


763,221


633,859


13,250,015


462,334


349,761


15,459,190


$

983,136

$

795,514

$

15,181,692

$

594,905

$

578,418

$

18,133,665

As a % of portfolio


5.4%


4.4%


83.7%


3.3%


3.2%


100.0%

1 Securitized single-family residential mortgages include both CMHC-sponsored securitized insured mortgages and bank-sponsored securitization conduit uninsured mortgages.

2 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.

3 Loans exclude mortgages held for sale.




Impaired Loans and Individual Allowances for Credit Losses




















(000s, except %)






As at December 31, 2016


Single-family


Residential

Non-residential


Credit Card


Other





Residential


Commercial


Commercial


Loans and


Consumer





 Mortgages


 Mortgages


 Mortgages

Lines of Credit

Retail Loans


Total

Gross amount of impaired loans

$

49,834

$

-

$

4,577

$

2,049

$

411

$

56,871

Individual allowances on principal


(1,980)


-


(30)


(780)


(411)


(3,201)

Net amount of impaired loans

$

47,854

$

-

$

4,547

$

1,269

$

-

$

53,670

Net impaired loans as a % of gross loans


0.39%


-


0.23%


0.34%


-


0.30%














(000s, except %)









As at September 30, 2016



Single-family


Residential

Non-residential


Credit Card


Other





Residential


Commercial


Commercial


Loans and


Consumer





 Mortgages


 Mortgages


 Mortgages

Lines of Credit

Retail Loans


Total

Gross amount of impaired loans

$

52,349

$

-

$

3,388

$

2,091

$

302

$

58,130

Individual allowances on principal


(1,637)


-


(20)


(85)


(302)


(2,044)

Net amount of impaired loans

$

50,712

$

-

$

3,368

$

2,006

$

-

$

56,086

Net impaired loans as a % of gross loans


0.40%


-


0.18%


0.54%


-


0.31%














(000s, except %)









As at December 31, 2015



Single-Family


Residential

Non-Residential


Credit Card


Other





Residential


Commercial


Commercial


Loans and


Consumer





 Mortgages


 Mortgages


 Mortgages

Lines of Credit

Retail Loans


Total

Gross amount of impaired loans

$

49,285

$

-

$

2,558

$

1,518

$

161

$

53,522

Individual allowances on principal


(1,652)


-


(340)


(329)


(161)


(2,482)

Net amount of impaired loans

$

47,633

$

-

$

2,218

$

1,189

$

-

$

51,040

Net impaired loans as a % of gross loans


0.37%


-


0.15%


0.32%


-


0.28%

 

Allowance for Credit Losses

















(000s)






For the three months ended December 31, 2016


Single-family


Residential

Non-residential


Credit Card


Other





Residential


Commercial


Commercial


Loans and


Consumer





 Mortgages


 Mortgages


Mortgages

Lines of Credit


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the period

$

1,637

$

-

$

20

$

85

$

302

$

2,044

Provision for credit losses


783


2


5


1,164


157


2,111

Write-offs


(619)


(2)


(5)


(493)


(126)


(1,245)

Recoveries


179


-


10


24


78


291



1,980


-


30


780


411


3,201

Allowance on accrued interest receivable













Balance at the beginning of the period


1,095


-


58


-


9


1,162

Provision for credit losses


246


-


40


-


3


289



1,341


-


98


-


12


1,451

Total individual allowance


3,321


-


128


780


423


4,652

Collective allowance













Balance at the beginning of the period


23,032


327


9,500


3,904


300


37,063

Provision for credit losses


-


-


-


-


-


-



23,032


327


9,500


3,904


300


37,063

Total allowance

$

26,353

$

327

$

9,628

$

4,684

$

723

$

41,715

Total provision

$

1,029

$

2

$

45

$

1,164

$

160

$

2,400



























(000s)





For the three months ended September 30, 2015


Single-family


Residential

Non-residential


Credit Card


Other





Residential


Commercial


Commercial


Loans and


Consumer





 Mortgages


 Mortgages


Mortgages

Lines of Credit


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the period

$

1,358

$

-

$

160

$

202

$

167

$

1,887

Provision for credit losses


943


-


(40)


280


212


1,395

Write-offs


(745)


-


(104)


(420)


(127)


(1,396)

Recoveries


81


-


4


23


50


158



1,637


-


20


85


302


2,044

Allowance on accrued interest receivable













Balance at the beginning of the period


1,032


128


55


-


6


1,221

Provision for credit losses


63


(128)


3


-


3


(59)



1,095


-


58


-


9


1,162

Total individual allowance


2,732


-


78


85


311


3,206

Collective allowance













Balance at the beginning of the period


23,032


327


9,500


3,904


300


37,063

Provision for credit losses


-


-


-


-


-


-



23,032


327


9,500


3,904


300


37,063

Total allowance

$

25,764

$

327

$

9,578

$

3,989

$

611

$

40,269

Total provision

$

1,006

$

(128)

$

(37)

$

280

$

215

$

1,336








































Allowance for Credit Losses (continued)

















(000s)






For the three months ended December 31, 2015


Single-family


Residential

Non-residential


Credit Card


Other





Residential


Commercial


Commercial


Loans and


Consumer





 Mortgages


 Mortgages


Mortgages

Lines of Credit

Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the period

$

1,952

$

-

$

405

$

68

$

155

$

2,580

Allowance assumed on purchase of CFF Bank


-


-


-


420


-


420

Provision for credit losses


1,115


-


62


343


100


1,620

Write-offs


(1,531)


-


(167)


(519)


(123)


(2,340)

Recoveries


116


-


40


17


29


202



1,652


-


340


329


161


2,482

Allowance on accrued interest receivable













Balance at the beginning of the period


968


-


159


-


4


1,131

Provision for credit losses


(129)


-


(102)


-


1


(230)



839


-


57


-


5


901

Total individual allowance


2,491


-


397


329


166


3,383

Collective allowance













Balance at the beginning of the period


22,232


327


9,500


3,541


300


35,900

Allowance assumed on purchase of CFF Bank


-


-


-


324


-


324

Provision for credit losses


-


-


-


25


-


25



22,232


327


9,500


3,890


300


36,249

Total allowance

$

24,723

$

327

$

9,897

$

4,219

$

466

$

39,632

Total provision

$

986

$

-

$

(40)

$

368

$

101

$

1,415

 


Allowance for Credit Losses (continued)






















(000s)






For the year ended December 31, 2016


Single-family

Residential

Non-residential


Credit Card


Other





Residential

Commercial

Commercial


Loans and


Consumer





 Mortgages

 Mortgages

Mortgages

Lines of Credit


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the year

$

1,652

$

-

$

340

$

329

$

161

$

2,482

Provision for credit losses


3,415


2


205


2,379


525


6,526

Write-offs


(3,608)


(2)


(537)


(2,117)


(519)


(6,783)

Recoveries


521


-


22


189


244


976



1,980


-


30


780


411


3,201

Allowance on accrued interest receivable













Balance at the beginning of the year


839


-


57


-


5


901

Provision for credit losses


502


-


41


-


7


550



1,341


-


98


-


12


1,451

Total individual allowance


3,321


-


128


780


423


4,652

Collective allowance













Balance at the beginning of the year


22,232


327


9,500


3,890


300


36,249

Provision for credit losses


800


-


-


14


-


814



23,032


327


9,500


3,904


300


37,063

Total allowance

$

26,353

$

327

$

9,628

$

4,684

$

723

$

41,715

Total provision

$

4,717

$

2

$

246

$

2,393

$

532

$

7,890














(000s)








For the year ended December 31, 2015


Single-family

Residential

Non-residential


Credit Card


Other





Residential

Commercial

Commercial


Loans and


Consumer





 Mortgages


 Mortgages


Mortgages

Lines of Credit


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the year

$

1,808

$

-

$

55

$

80

$

160

$

2,103

Allowance assumed on purchase of CFF Bank


-


-


-


420


-


420

Provision for credit losses


5,136


4


720


798


169


6,827

Write-offs


(6,357)


(9)


(486)


(1,005)


(442)


(8,299)

Recoveries


1,065


5


51


36


274


1,431



1,652


-


340


329


161


2,482

Allowance on accrued interest receivable













Balance at the beginning of the year


560


-


57


-


3


620

Provision for credit losses


279


-


-


-


2


281



839


-


57


-


5


901

Total individual allowance


2,491


-


397


329


166


3,383

Collective allowance













Balance at the beginning of the year


20,632


327


9,300


3,541


300


34,100

Allowance assumed on purchase of CFF Bank


-


-


-


324


-


324

Provision for credit losses


1,600


-


200


25


-


1,825



22,232


327


9,500


3,890


300


36,249

Total allowance

$

24,723

$

327

$

9,897

$

4,219

$

466

$

39,632

Total provision

$

7,015

$

4

$

920

$

823

$

171

$

8,933


There were no individual provisions, allowances, or net write-offs on securitized residential mortgages.

 


Securitization Activities


























(000s)










For the three months ended





December 31



September 30







2016






2016


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

$

392,298

$

314,985

$

707,283

$

400,764

$

242,894

$

643,658

Net gains on sale of mortgages or residual interest 1


4,284


2,722


7,006


3,904


2,151


6,055

Retained interests recorded


-


10,004


10,004


-


10,077


10,077

Servicing liability recorded


-


2,408


2,408


-


2,313


2,313














(000s)








For the three months ended








December 31













2015






Single-family

Multi-unit








Residential MBS

Residential MBS

Total MBS

Carrying value of underlying mortgages derecognized







$

371,473

$

161,757

$

533,230

Net gains on sale of mortgages or residual interest 1








3,362


1,366


4,728

Retained interests recorded








-


5,933


5,933

Servicing liability recorded








-


1,278


1,278














(000s)


2016


2015


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

$

1,490,850

$

1,046,457

$

2,537,307

$

1,184,253

$

713,635

$

1,897,888

Net gains on sale of mortgages or residual interest 1


17,368


9,604


26,972


15,499


5,913


21,412

Retained interests recorded


-


41,900


41,900


-


33,228


33,228

Servicing liability recorded


-


8,955


8,955


-


6,229


6,229

¹Gains on sale of mortgages and residual interest are net of hedging impact.





(000s)



For the three months ended


December 31, 2016

September 30, 2016

December 31, 2015

Net gain on sale of mortgages and residual interest1

$

7,006

$

6,055

$

4,728

Net change in unrealized gain or loss on hedging activities


276


(121)


(232)

Servicing income


1,782


1,665


1,264

Total securitization income

$

9,064

$

7,599

$

5,760






(000s)


2016


2015

Net gain on sale of mortgages and residual interest 1

$

26,972

$

21,412

Net change in unrealized gain or loss on hedging activities


399


(313)

Servicing income


6,426


5,109

Total securitization income

$

33,797

$

26,208

¹Gains on sale of mortgages and residual interest are net of hedging impact.






Management's Responsibility for Financial Information

The Company's Audit Committee reviewed this document along with the Company's 2016 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 2016 Annual and Fourth Quarter Consolidated Financial Report.

Caution Regarding Forward-looking Statements

From time to time Home Capital Group Inc. makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are "financial outlooks" within the meaning of National Instrument 51-102.  Please see the risk factors, which are set forth in detail in the Risk Management section of the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report as well as the Company's other publicly filed information, which is available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company's actual results to differ materially from these statements.  These risk factors are material risk factors a reader should consider, and include credit risk, liquidity and funding risk, structural interest rate risk, operational risk, investment risk, strategic risk, reputational risk, compliance risk and capital adequacy risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook section in the Annual Report. Forward-looking statements are typically identified by words such as "will,"  "believe," "expect," "anticipate," "intend," "should," "estimate," "plan," "forecast," "may," and "could" or other similar expressions. 

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

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

Assumptions about the performance of the Canadian economy in 2017 and its effect on Home Capital's business are material factors the Company considers when setting its performance goals, strategic priorities and outlook.  In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies.  In setting and reviewing its performance goals, strategic priorities and outlook for 2017, management's expectations continue to assume:  

  • The Canadian economy is expected to be relatively stable in 2017, supported by expanded Federal Government spending; however, it will continue to be impacted by adverse effects related to fluctuations in oil prices and other commodities. The Company has limited exposure in energy-producing regions.
  • Generally the Company expects stable employment conditions in its established regions; however, unemployment rates in energy producing regions are expected to remain elevated in 2017. Also the Company expects inflation will generally be within the Bank of Canada's target of 1% to 3%, leading to stable credit losses and consistent demand for the Company's lending products in its established regions. Credit losses and delinquencies in the energy-producing regions may increase, but given the Company's limited exposure, this is not expected to be significant.
  • The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets and further adjustments in commodity prices; as such, the Company is prepared for the variability to plan that may result.
  • The Company is assuming that interest rates will remain at the current very low rate for 2017. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.
  • The Company believes that the current and expected levels of housing activity indicate a stable real estate market overall. Please see Market Conditions under the 2017 Overall Outlook section of the 2016 Annual and Fourth Quarter Consolidated Financial Report for more discussion on the Company's expectations for the housing market and the impact of the recent changes unveiled by the government to the mortgage market.
  • The Company expects that consumer debt levels, while elevated, will remain serviceable by Canadian households.
  • The Company will have access to the mortgage and deposit markets through broker networks.

Non-GAAP Measures

The Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises for years beginning on or after January 1, 2011. The Company uses a number of financial measures to assess its performance.  Some of these measures are not calculated in accordance with GAAP, are not defined by GAAP, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures.  Definitions of non-GAAP measures can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2016 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.  In addition, Home Trust offers deposits via brokers and financial planners, and through its direct to consumer brand, Oaken Financial.  Home Trust also conducts business through its wholly owned subsidiary, Home Bank. Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.

SOURCE Home Capital Group Inc.

For further information: Laura Lepore, AVP, Investor Relations, 416-933-5652, laura.lepore@hometrust.ca, www.homecapital.com

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