Home Capital Reports Q3 2016 Results

TORONTO, Nov. 2, 2016 /CNW/ - Home Capital Group ("Home Capital" or "the Company") (TSX:HCG)  today reported results for the third quarter and nine months ended September 30, 2016. This press release should be read in conjunction with the Company's 2016 Third Quarter 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 the Canadian Securities Administrators' website at www.sedar.com.

Third Quarter 2016 Highlights

Third Quarter 2016, compared with the Third Quarter 2015:

  • Increased quarterly dividend by $0.02 to $0.26.
  • Reported net income was $66.2 million, compared with $72.4 million.
  • Reported diluted earnings per share were $1.01, compared with $1.03.
  • Provision for credit losses as a percentage of gross uninsured loans was 0.04% on an annualized basis, compared to 0.08%. 
  • Net non-performing loans as a percentage of gross loans were 0.31%, compared with 0.30%.
  • Total capital ratio of 16.97%. Capital ratios continue to be well in excess of regulatory minimums and internal targets.
  • Total mortgage originations of $2.54 billion, compared with $2.50 billion.

First Nine Months ended September 30, 2016, compared with First Nine Months ended September 30, 2015:

  • Reported net income was $196.7 million, compared with $217.0 million.
  • Reported diluted earnings per share were $2.92, compared with $3.09.
  • Adjusted net income was $199.9 million, compared with $217.0 million.
  • Adjusted diluted earnings per share were $2.97, compared with $3.09.
  • Total mortgage originations of $6.80 billion, compared with $5.91 billion.
  • Repurchased a total of $43.5 million of common shares through the Normal Course Issuer Bid ("NCIB") and $150 million of common shares through the Substantial Issuer Bid. NCIB renewed through September 2017, providing option to repurchase up to 5% of outstanding shares.

Management Comments

"Our Company continues to deliver solid returns on shareholders' equity, excellent credit performance and a strong balance sheet that enables us to return capital to our investors though share buybacks and increased dividends," said Martin Reid, President and Chief Executive Officer, Home Capital Group Inc. "However, the operating results from a revenue generation and net income perspective have been disappointing to management and the Board. In response to a more challenging business environment, the Company has upgraded processes, changed business relationships, increased regulatory compliance activities and introduced additional risk management procedures. This is essential for the future health of our Company.

These changes have resulted in increased costs and strained the Company's ability to grow assets and net revenue. We are committed to addressing this concern. We are focused on increasing operating leverage by improving revenue growth from potential opportunities that the evolving housing environment presents and by taking a harder look at expenses. However, looking ahead, it's likely that the Company will reduce its mid-term targets when we provide our updated targets with our fourth quarter results."

Mr. Reid continued: "We support measures taken by the Government of Canada to ensure the stability of our financial system and the housing market. We anticipate the recent mortgage rule changes will significantly reduce the Company's ability to profitably originate and fund our Accelerator product, a relatively small portion of our overall mortgage business. Our core Traditional single-family mortgage business line remains solid and we believe the strength in our business will enable us to seize opportunities that may result."


FINANCIAL HIGHLIGHTS






















(Unaudited)

For the three months ended

For the nine months ended

(000s, except Percentage, Multiples and Per Share Amounts)

September 30

June 30

September 30

September 30

September 30



2016


2016


2015


2016


2015

OPERATING RESULTS











Net Income

$

66,190

$

66,252

$

72,443

$

196,690

$

217,046

Adjusted Net Income1


66,190


66,252


72,443


199,939


217,046

Net Interest Income


119,924


122,103


121,698


364,544


354,432

Total Adjusted Revenue1

$

243,928

$

242,526

$

247,194

$

727,651

$

747,305

Diluted Earnings per Share


1.01


0.99


1.03


2.92


3.09

Adjusted Diluted Earnings per Share1


1.01


0.99


1.03


2.97


3.09

Return on Shareholders' Equity


16.9%


16.5%


18.7%


16.4%


19.2%

Adjusted Return on Shareholders' Equity1


16.9%


16.5%


18.7%


16.7%


19.2%

Return on Average Assets


1.3%


1.3%


1.4%


1.3%


1.4%

Net Interest Margin (TEB)2


2.34%


2.38%


2.38%


2.37%


2.32%

Provision as a Percentage of Gross Uninsured Loans (annualized)


0.04%


0.08%


0.08%


0.05%


0.07%

Provision as a Percentage of Gross Loans (annualized)


0.03%


0.06%


0.06%


0.04%


0.06%

Efficiency Ratio (TEB)2


37.7%


37.2%


30.8%


38.2%


31.1%

Adjusted Efficiency Ratio (TEB)1,2


37.7%


37.2%


30.8%


37.1%


31.1%




















As at




September 30


June 30


December 31


September 30





2016


2016


2015


2015



BALANCE SHEET HIGHLIGHTS











Total Assets

$

20,317,030

$

20,763,147

$

20,527,062

$

20,314,220



Total Assets Under Administration3


28,327,676


28,430,730


27,316,476


25,404,219



Total Loans4


18,002,238


18,065,074


18,268,708


18,336,736



Total Loans Under Administration3,4


26,012,884


25,732,657


25,058,122


23,426,735



Liquid Assets


1,878,082


2,391,225


2,095,145


1,477,493



Deposits


15,694,102


16,022,219


15,665,958


14,949,842



Shareholders' Equity


1,579,478


1,555,893


1,621,106


1,569,230



FINANCIAL STRENGTH











Capital Measures5











Risk-Weighted Assets

$

8,414,960

$

8,310,406

$

7,985,498

$

7,797,987



Common Equity Tier 1 Capital Ratio


16.54%


16.38%


18.31%


18.06%



Tier 1 Capital Ratio


16.53%


16.38%


18.30%


18.06%



Total Capital Ratio


16.97%


16.82%


20.70%


20.51%



Leverage Ratio


7.08%


6.77%


7.36%


7.17%



Credit Quality











Net Non-Performing Loans as a Percentage of Gross Loans


0.31%


0.33%


0.28%


0.30%



Allowance as a Percentage of Gross Non-Performing Loans


69.3%


66.0%


74.0%


69.4%



Share Information











Book Value per Common Share

$

24.47

$

23.67

$

23.17

$

22.37



Common Share Price – Close

$

27.00

$

32.02

$

26.92

$

32.03



Dividend paid during the period ended

$

0.24

$

0.24

$

0.22

$

0.22



Market Capitalization

$

1,743,093

$

2,105,027

$

1,883,808

$

2,247,225



Number of Common Shares Outstanding


64,559


65,741


69,978


70,160



1 See definition of Adjusted Net Income, Total Adjusted Revenue, Adjusted Diluted Earnings per Share, Adjusted Return on Shareholders' Equity and Adjusted Efficiency Ratio under Non-GAAP Measures in the 2016 third quarter 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 2016 third quarter 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 to date

(000s, except % and per share amounts)

Q3


Q2



Q3










2016


2016

Change


2015

Change


2016


2015

Change

Net income under GAAP

$

66,190

$

66,252

(0.1)%

$

72,443

(8.6)%

$

196,690

$

217,046

(9.4)%

Adjustment for gain recognized on acquisition of CFF Bank (net of tax)


-


-

-


-

-


(478)


-

-

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


-


-

-


-

-


3,727


-

-

Adjusted Net Income1

$

66,190

$

66,252

(0.1)%

$

72,443

(8.6)%

$

199,939

$

217,046

(7.9)%

Adjusted Basic Earnings per Share1

$

1.01

$

0.99

2.0%

$

1.03

(1.9)%

$

2.97

$

3.09

(3.9)%

Adjusted Diluted Earnings per Share1

$

1.01

$

0.99

2.0%

$

1.03

(1.9)%

$

2.97

$

3.09

(3.9)%

1 Adjusted Net Income and Adjusted Earnings per share are defined in the Non-GAAP section and discussed in the Income Statement Review section of the MD&A included

in the 2016 Third Quarter Report.

 

THIRD QUARTER 2016 HIGHLIGHTS

Core Business

Home Capital's third quarter 2016 (Q3 2016) results reflect the Company's continued profitability as measured by its net interest margin (TEB) of 2.34%, a healthy loan portfolio as evidenced by continued low non-performing loans and credit losses, and a strong capital position.

The Company continues to focus on growing origination volumes, specifically for traditional mortgages across Home Capital's established regions. Total mortgage originations were $2.54 billion in Q3 2016 and $6.80 billion for the first nine months of 2016, increases of 1.7% and 15.1% respectively compared to the same periods from 2015. 

Combined traditional and ACE Plus residential mortgage originations grew to $1.53 billion in Q3 2016 and $3.97 billion for the first nine months of 2016, up 1.3% and 5.2% respectively compared to $1.51 billion and $3.77 billion for the comparable periods of 2015. Sales of ACE Plus, an uninsured single-family lower-rate mortgage product, commenced in second half of 2015 and originations have risen 4.1% year over year to a total $116.7 million for the third quarter 2016.

Accelerator originations increased 7.3% to $446.7 million in Q3 2016 and 45.6% to $1.28 billion for the first nine months of 2016 from the comparable periods in 2015.  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 previously reported (see the Company's press release dated October 20, 2016) that it anticipates these limitations to potentially significantly reduce the Company's ability to profitably originate and fund these mortgages.  Specifically, low-ratio lending for the purpose of refinancing and to rental properties will be primarily impacted within the Company's Accelerator program.

The Company also previously reported that since the Accelerator program has traditionally been a low margin product offering, as a result, it anticipates the negative impact on net income before tax to be relatively limited, 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.

Originations from all other sources decreased 1.2% to $560.5 million in Q3 2016 and increased 23.6% to $1.56 billion in the first nine months of 2016 from the same periods in 2015. 

Looking ahead at originations for the balance of 2016, the Company does not expect any significant impact from the Government mortgage rules changes, with the exception of a reduction in Accelerator originations in the final month of the year, which is also a seasonally slow month. 

The Company has reviewed all of the customer files and the income documentation submitted in relation to the mortgages referred by the 45 individual mortgage brokers previously suspended. There have been no unusual credit issues on these mortgages.

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 4.1% of the total on-balance sheet loan portfolio, these assets generated 7.8% of the interest income from loans for the quarter.

Deposits

At the end of the third quarter, total deposits were $15.69 billion. Approximately 29% of deposits were from diversified sources.  In addition to sourcing deposits through investment dealers and deposit brokers, the Company will continue to focus on diversification, which includes growing deposits from its direct-to-consumer business, Oaken Financial and through Home Bank. In Q3 2016, the ending balance of Oaken deposits was $1.72 billion, up 58.2% from the end of 2015, demonstrating significant progress in the Company's efforts towards deposit diversification. Also during the third quarter, the Company completed the integration of Home Bank's deposit business into the Company's infrastructure. Home Bank is now seamlessly available through both the intermediary and the Oaken channels. Deposit funding generated through Home Bank will further facilitate the Company's deposit diversification.

Operational Capabilities

Home Capital continues to experience healthy credit performance, with net non-performing loans as a percentage of gross loans at 0.31%. The results reflect the credit quality of the Company's loan portfolio, supported by the Company's continued investments in its risk management and control infrastructure.

The Company has been focusing on refining and investing in processes to improve service and retention performance levels. The Company continues to work towards reducing response times for commitments within its risk management framework.  This includes enhancing processes and improving relationships and discussions with brokers to ensure the documentation process is completed quickly and accurately. Additionally, the Company continues to focus on improving retention levels of existing customers, especially those seeking early discharge. Management continues to investigate opportunities to further enhance retention as part of its strategic plans. 

The Company has also invested in improving service and retention performance levels through two initiatives: Spire, a broker partnership and incentive program rolled out earlier this year, and Loft, a broker portal technology that was created to enhance the broker experience as well as improve service levels.  The launch of Spire has been successful with excellent participation from all of its broker partners. The Company will continue to roll out its broker portal technology, Loft through 2017.

Shareholder Returns and Financial Position

Home Capital continued to focus on maintaining a strong and conservative financial position while delivering value to shareholders, including a return on average shareholders' equity of 16.9% for Q3 2016.

The Company has continued to return capital to shareholders through its dividends and share buybacks. For the nine months ended September 30, 2016, the Company has returned a total of $48.4 million in dividends to shareholders. 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 increase of $0.02 to $0.26 per common share payable on December 1, 2016 to shareholders of record at the close of business on November 15, 2016.

Outlook

The magnitude of the impact of recent regulatory changes on our business and the mortgage lending market as a whole is uncertain. Management will monitor the effect on the business as more information becomes available, and will explore any opportunities that may result.

Management does not expect the current challenges in the business environment to diminish as new regulatory restrictions take effect, housing markets adjust and competition responds.

In this environment, management and the Board are reviewing the Company's strategies with a view to more stringently managing costs, reviewing product offerings and related operations, and strengthening revenue growth. This would be in addition to several initiatives that have taken place in the past nine months, including hiring new personnel at the executive levels in underwriting, operations and risk management, as well as the introduction of new programs and tools for mortgage brokers.  Moreover, management and the Board continue to sharpen the focus on business and financial performance improvement and will provide updated targets with fourth quarter results.

On behalf of the Board,

(signed)                                          

(signed)

Martin Reid    

KEVIN P.D. SMITH

President & Chief Executive Officer             

Chair of the Board

November 2, 2016                          


 

Additional information concerning the Company's targets and related expectations for 2016, including the risks and assumptions underlying these expectations, may be found in the MD&A of the 2016 third quarter report.

Third Quarter Results Conference Call
The conference call will take place on Thursday, November 3, 2016 at 8:00 a.m. ET. 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 11:00 a.m. ET. Thursday, November 3, 2016 and midnight Thursday, November 10, 2016 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 96768072). The archived audio web cast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com.

Supplemental Financial Information
Home Capital has provided a Supplementary Financial Information package available at the Company's website at www.homecapital.com to improve readers' understanding of the financial position and performance of the Company.  This information should be used in conjunction with the Company's 2016 Third Quarter Report, as well as the Company's 2015 Annual Report.

Consolidated Statements of Income


For the three months ended

For the nine months ended

thousands of Canadian dollars, except per share amounts

September 30

June 30

September 30

September 30

September 30

(Unaudited)


2016


2016


2015


2016


2015

Net Interest Income Non-Securitized Assets











Interest from loans

$

192,395

$

191,704

$

195,051

$

577,645

$

572,510

Dividends from securities


2,359


2,447


2,597


7,498


8,012

Other interest


3,046


2,985


1,846


8,559


6,257



197,800


197,136


199,494


593,702


586,779

Interest on deposits and other


81,519


77,847


80,771


237,051


240,835

Interest on senior debt


-


465


1,512


2,243


4,572

Net interest income non-securitized assets


116,281


118,824


117,211


354,408


341,372












Net Interest Income Securitized Loans and Assets











Interest income from securitized loans and assets


20,957


20,732


24,315


61,782


80,988

Interest expense on securitization liabilities


17,314


17,453


19,828


51,646


67,928

Net interest income securitized loans and assets


3,643


3,279


4,487


10,136


13,060












Total Net Interest Income


119,924


122,103


121,698


364,544


354,432

Provision for credit losses


1,336


2,760


2,849


5,490


7,518



118,588


119,343


118,849


359,054


346,914

Non-Interest Income











Fees and other income


17,223


17,328


20,096


53,716


62,705

Securitization income


7,599


9,452


5,788


24,733


20,448

Gain on acquisition of CFF Bank


-


-


-


651


-

Net realized and unrealized (losses) gains on securities


-


-


(542)


(175)


902

Net realized and unrealized gains (losses) on derivatives


349


(2,122)


(1,957)


(6,107)


(4,517)



25,171


24,658


23,385


72,818


79,538



143,759


144,001


142,234


431,872


426,452

Non-Interest Expenses











Salaries and benefits


24,350


24,685


19,382


77,746


62,999

Premises


3,472


3,575


3,149


10,898


9,543

Other operating expenses


27,160


26,652


22,424


79,267


63,450



54,982


54,912


44,955


167,911


135,992












Income Before Income Taxes


88,777


89,089


97,279


263,961


290,460

Income taxes












Current


22,957


24,911


23,189


67,954


72,933


Deferred


(370)


(2,074)


1,647


(683)


481



22,587


22,837


24,836


67,271


73,414

NET INCOME

$

66,190

$

66,252

$

72,443

$

196,690

$

217,046












NET INCOME PER COMMON SHARE











Basic

$

1.01

$

0.99

$

1.03

$

2.92

$

3.09

Diluted

$

1.01

$

0.99

$

1.03

$

2.92

$

3.09

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING











Basic


65,386


66,663


70,218


67,326


70,195

Diluted


65,435


66,798


70,380


67,413


70,337












Total number of outstanding common shares


64,559


65,741


70,160


64,559


70,160

Book value per common share

$

24.47

$

23.67

$

22.37

$

24.47

$

22.37

 

Consolidated Statements of Comprehensive Income






For the three months ended

For the nine months ended


September 30

June 30

September 30

September 30

September 30

thousands of Canadian dollars (Unaudited)


2016


2016


2015


2016


2015












NET INCOME

$

66,190

$

66,252

$

72,443

$

196,690

$

217,046












OTHER COMPREHENSIVE INCOME (LOSS)






















Available for Sale Securities and Retained Interests











Net unrealized gains (losses)


7,820


4,272


(29,730)


(922)


(68,162)

Net losses (gains) reclassified to net income


-


-


460


204


(983)



7,820


4,272


(29,270)


(718)


(69,145)

Income tax expense (recovery)


2,075


1,134


(7,760)


(212)


(18,338)



5,745


3,138


(21,510)


(506)


(50,807)












Cash Flow Hedges











Net unrealized gains (losses)


803


(1,312)


130


2,712


(339)

Net losses reclassified to net income


268


341


369


973


1,105



1,071


(971)


499


3,685


766

Income tax expense (recovery)


284


(257)


133


978


202



787


(714)


366


2,707


564












Total other comprehensive income (loss)


6,532


2,424


(21,144)


2,201


(50,243)












COMPREHENSIVE INCOME

$

72,722

$

68,676

$

51,299

$

198,891

$

166,803

 

Consolidated Balance Sheets












As at



September 30

June 30

December 31

thousands of Canadian dollars (Unaudited)


2016


2016


2015

ASSETS







Cash and Cash Equivalents

$

1,058,940

$

1,448,548

$

1,149,849

Available for Sale Securities


523,482


519,067


453,230

Loans Held for Sale


74,207


117,691


135,043

Loans







Securitized mortgages


2,549,205


2,704,230


2,674,475

Non-securitized mortgages and loans


15,378,826


15,243,153


15,459,190




17,928,031


17,947,383


18,133,665

Collective allowance for credit losses


(37,063)


(37,063)


(36,249)




17,890,968


17,910,320


18,097,416

Other







Restricted assets


231,235


232,000


195,921

Derivative assets


52,178


58,086


64,796

Other assets


336,077


329,009


287,417

Deferred tax assets


16,362


15,798


15,043

Goodwill and intangible assets


133,581


132,628


128,347




769,433


767,521


691,524



$

20,317,030

$

20,763,147

$

20,527,062

LIABILITIES AND SHAREHOLDERS' EQUITY







Liabilities







Deposits







Deposits payable on demand

$

2,432,283

$

2,274,577

$

1,986,136

Deposits payable on a fixed date


13,261,819


13,747,642


13,679,822




15,694,102


16,022,219


15,665,958

Senior Debt


-


-


151,480

Securitization Liabilities







CMHC-sponsored mortgage-backed security liabilities


930,614


928,312


531,326

CMHC-sponsored Canada Mortgage Bond liabilities


1,610,482


1,766,143


2,249,230

Bank-sponsored securitization conduit liabilities


139,115


143,024


-




2,680,211


2,837,479


2,780,556

Other







Derivative liabilities


959


3,145


5,447

Other liabilities


324,070


306,395


264,941

Deferred tax liabilities


38,210


38,016


37,574




363,239


347,556


307,962




18,737,552


19,207,254


18,905,956

Shareholders' Equity







Capital stock


83,975


85,513


90,247

Contributed surplus


4,588


4,255


3,965

Retained earnings


1,554,258


1,536,000


1,592,438

Accumulated other comprehensive loss


(63,343)


(69,875)


(65,544)




1,579,478


1,555,893


1,621,106



$

20,317,030

$

20,763,147

$

20,527,062

 



Consolidated Statements of Changes in Shareholders' Equity




















Net Unrealized








Losses

Net Unrealized

Total






on Securities and

Losses on

Accumulated









Retained Interests

Cash Flow

Other

Total

thousands of Canadian dollars,

Capital

Contributed

Retained

Available

Hedges,

Comprehensive

Shareholders'

except per share amounts (Unaudited)

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


-


-


196,690


(506)


2,707


2,201


198,891

Stock options settled


780


(182)


-


-


-


-


598

Amortization of fair value of
















employee stock options


-


805


-


-


-


-


805

Repurchase of shares


(7,052)


-


(186,466)


-


-


-


(193,518)

Dividends















($0.72 per share)


-


-


(48,404)


-


-


-


(48,404)

Balance at September 30, 2016

$

83,975

$

4,588

$

1,554,258

$

(62,972)

$

(371)

$

(63,343)

$

1,579,478
















Balance at December 31, 2014

$

84,687

$

3,989

$

1,378,562

$

(16,242)

$

(2,363)

$

(18,605)

$

1,448,633

Comprehensive income


-


-


217,046


(50,807)


564


(50,243)


166,803

Stock options settled


5,136


(1,377)


-


-


-


-


3,759

Amortization of fair value of
















employee stock options


-


1,163


-


-


-


-


1,163

Repurchase of shares


(140)


-


(3,238)


-


-


-


(3,378)

Dividends















($0.66 per share)


-


-


(47,750)


-


-


-


(47,750)

Balance at September 30, 2015

$

89,683

$

3,775

$

1,544,620

$

(67,049)

$

(1,799)

$

(68,848)

$

1,569,230



Consolidated Statements of Cash Flows




For the three months ended

For the nine months ended


September 30

September 30

September 30

September 30

thousands of Canadian dollars (Unaudited)


2016


2015


2016


2015

CASH FLOWS FROM OPERATING ACTIVITIES









Net income for the period

$

66,190

$

72,443

$

196,690

$

217,046

Adjustments to determine cash flows relating to operating activities:










Amortization of net (discount) premium on securities


(62)


29


(379)


52


Provision for credit losses


1,336


2,849


5,490


7,518


Gain on sale of mortgages or residual interest


(6,055)


(4,453)


(19,966)


(16,684)


Net realized and unrealized losses (gains) on securities


-


542


175


(902)


Amortization of capital and intangible assets


4,109


3,657


11,582


10,004


Amortization of fair value of employee stock options


333


355


805


1,163


Deferred income taxes


(370)


1,647


(683)


481

Changes in operating assets and liabilities










Loans, net of securitization and sales


67,496


(351,858)


282,021


39,651


Restricted assets


765


239,052


(35,314)


(73,050)


Derivative assets and liabilities


4,793


(14,390)


11,815


(37,919)


Accrued interest receivable


456


(496)


3,174


824


Accrued interest payable


(5,117)


(6,235)


543


14,545


Deposits


(328,117)


(16,702)


28,144


1,009,871


Securitization liabilities


(157,268)


(192,726)


(100,345)


(985,345)


Taxes receivable or payable and other


12,087


(15,737)


4,246


31,430

Cash flows (used in) provided by operating activities


(339,424)


(282,023)


387,998


218,685

CASH FLOWS FROM FINANCING ACTIVITIES









Repurchase of shares


(33,695)


(3,250)


(193,518)


(3,378)

Exercise of employee stock options


-


162


598


3,759

Repayment of senior debt


-


-


(150,000)


-

Dividends paid to shareholders


(15,775)


(15,454)


(48,404)


(46,334)

Cash flows used in financing activities


(49,470)


(18,542)


(391,324)


(45,953)

CASH FLOWS FROM INVESTING ACTIVITIES









Activity in securities










Purchases


(11,335)


-


(200,696)


-


Proceeds from sales


-


-


-


76,924


Proceeds from maturities


14,836


4,139


128,940


23,732

Purchases of capital assets


(771)


(981)


(2,090)


(3,674)

Capitalized intangible development costs


(3,444)


(6,048)


(13,737)


(18,241)

Cash flows (used in) provided by investing activities


(714)


(2,890)


(87,583)


78,741

Net (decrease) increase in cash and cash equivalents during the period


(389,608)


(303,455)


(90,909)


251,473

Cash and cash equivalents at beginning of the period


1,448,548


915,674


1,149,849


360,746

Cash and Cash Equivalents at End of the Period (note 4(A))

$

1,058,940

$

612,219

$

1,058,940

$

612,219

Supplementary Disclosure of Cash Flow Information









Dividends received on investments

$

2,588

$

2,366

$

8,139

$

7,314

Interest received


216,504


220,343


650,401


660,962

Interest paid


103,950


106,381


291,765


296,857

Income taxes paid


24,119


26,883


68,245


102,389

 

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 2016 Third Quarter Report, as well as its other publicly filed information, which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company's actual results to differ materially from these statements.  These risk factors are material risk factors a reader should consider, and include credit risk, funding and liquidity risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk, 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 2016 Third Quarter 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 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 2016 and its effect on Home Capital's business are material factors the Company considers when setting its objectives, targets and outlook.  In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies. In setting and reviewing its targets, objectives and outlook for the remainder of 2016, management's expectations continue to assume:

  • The Canadian economy is expected to be relatively stable in 2016, 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 continue to increase in 2016. 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 overnight interest rates will remain at the current very low rate for 2016. 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 2016 Outlook 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 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 Third Quarter Report. 

Regulatory Filings

The Company's continuous disclosure materials, including interim filings, annual Management's Discussion and Analysis and audited consolidated financial statements, Annual Information Form, Notice of Annual Meeting of Shareholders and Proxy Circular are available on the Company's website at www.homecapital.com, and on the Canadian Securities Administrators' website at www.sedar.com.

About Home Capital

Home Capital Group Inc. is a public company, traded on the Toronto Stock Exchange (HCG), operating through its principal subsidiary, Home Trust Company. Home Trust is a federally regulated trust company offering deposits, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through its direct to consumer deposit brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, Home Bank. Licensed to conduct business across Canada, Home Trust has branch offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.

SOURCE Home Capital Group Inc.

For further information: Laura Lepore, Investor Relations, 416-933-5652, www.homecapital.com

RELATED LINKS
http://www.homecapital.com

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