Home Capital Reports Solid Results and 10% Dividend Increase

  • Reported Net income up 22.1% for the year
  • Adjusted Net income1 up 11.9% for the year
  • Dividend increased 10% to $0.22 quarterly, for a total dividend increase of 37.5% year over year
  • Adjusted Return on Equity1 of 22.0% for 2014, the 17th consecutive year over 20%

TORONTO, Feb. 11, 2015 /CNW/ - Home Capital Group Inc. (TSX: HCG) today reported positive results for the fourth quarter and for the year. 

"Management and the Board are very pleased with our results for the fourth quarter and the year," commented CEO Gerald Soloway. "Total revenue exceeded $1 billion in 2014, reaching a significant milestone, reflecting solid fundamentals, the commitment of the Home Capital team, and continued success in growing our market share."

The Company's Annual and Fourth Quarter Consolidated Financial Report, including Management's Discussion and Analysis, for each of the three- and twelve-month periods ended December 31, 2014 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

Financial Highlights















For the three months ended



For the year ended

(000s, except %, multiples, and per share amounts)


December 31


September 30


December 31


December 31


December 31



2014


2014


2013


2014


2013

OPERATING RESULTS











Net Income

$

95,936

$

73,755

$

68,827

$

313,172

$

256,542

Adjusted Net Income1


73,195


71,435


68,207


288,384


257,733

Net Interest Income


116,416


117,583


110,967


459,529


421,979

Total Adjusted Revenue1


253,656


255,190


247,522


1,014,566


957,537

Diluted Earnings per Share2

$

1.36

$

1.05

$

0.98

$

4.45

$

3.66

Adjusted Diluted Earnings per Share1,2

$

1.04

$

1.01

$

0.98

$

4.09

$

3.68

Return on Shareholders' Equity


27.2%


22.0%


23.9%


23.8%


23.9%

Adjusted Return on Shareholder's Equity1


20.8%


21.3%


23.7%


22.0%


24.0%

Return on Average Assets


1.9%


1.4%


1.4%


1.6%


1.3%

Net Interest Margin (TEB)3


2.27%


2.29%


2.22%


2.25%


2.17%

Provision as a Percentage of Gross Uninsured Loans (annualized)


0.09%


0.11%


0.14%


0.10%


0.14%

Provision as a Percentage of Gross Loans (annualized)


0.07%


0.08%


0.09%


0.07%


0.09%

Efficiency Ratio (TEB)3


22.9%


29.9%


28.3%


27.2%


28.7%

Adjusted Efficiency Ratio (TEB)1,3


27.9%


29.8%


28.1%


28.5%


28.2%


















As at







December 31


September 30


December 31







2014


2014


2013





BALANCE SHEET HIGHLIGHTS











Total Assets

$

20,082,744

$

20,561,608

$

20,075,850





Total Assets Under Administration4


24,281,366


24,226,114


21,997,781





Total Loans5


18,364,910


18,488,902


18,019,901





Total Loans Under Administration4,5


22,563,532


22,153,408


19,941,832





Liquid Assets


1,058,297


1,298,938


1,497,680





Deposits


13,939,971


14,022,132


12,765,954





Shareholders' Equity


1,448,633


1,371,985


1,177,697





FINANCIAL STRENGTH











Capital Measures6











Risk-Weighted Assets

$

7,186,132

$

7,115,046

$

6,495,767





Common Equity Tier 1 Capital Ratio


18.30%


17.58%


16.80%





Tier 1 Capital Ratio


18.30%


17.58%


16.80%





Total Capital Ratio


20.94%


20.24%


19.69%





Assets to Regulatory Capital Multiple


12.47


12.88


13.19





Credit Quality











Net Non-Performing Loans as a Percentage of Gross Loans


0.30%


0.27%


0.35%





Allowance as a Percentage of Gross Non-Performing Loans


64.4%


69.9%


52.4%





Share Information











Book Value per Common Share2

$

20.67

$

19.57

$

16.95





Common Share Price – Close2

$

47.99

$

50.39

$

40.47





Dividend paid during the period ended2

$

0.20

$

0.18

$

0.14





Market Capitalization

$

3,363,907

$

3,532,591

$

2,811,832





Number of Common Shares Outstanding2


70,096


70,105


69,488





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 Company's 2014 Annual and Fourth Quarter Consolidated Financial Report and the reconciliation of net income to Adjusted Net Income in the following table.

2

During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share.  Accordingly, diluted earnings per share and Adjusted Diluted Earnings per Share are reduced to half and the number of shares disclosed is doubled for all periods prior to the dividend presented for comparative purposes.

3

See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2014 Annual and Fourth Quarter Consolidated Financial Report.

4

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

5

Total loans include loans held for sale.

6

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

%





%




2014


2014

Change


2013

Change


2014


2013

Change

Net income under GAAP

$

95,936

$

73,755

30.1%

$

68,827

39.4%

$

313,172

$

256,542

22.1%

Adjustment for derivative restructuring - IFRS conversion (net of tax)


1,278


106

1,105.7%


850

50.4%


3,128


5,873

(46.7)%

Adjustment for disputed loans to condominium corporations (net of tax)


-


-

-


-

-


-


1,508

(100.0)%

Adjustment for investment tax credit benefits (net of tax)


-


(2,426)

(100.0)%


(1,470)

(100.0)%


(3,897)


(6,190)

(37.0)%

Adjustment for prepayment income on portfolio sale (net of tax)


(24,019)


-

-


-

-


(24,019)


-

-

Adjusted Net Income1

$

73,195

$

71,435

2.5%

$

68,207

7.3%

$

288,384

$

257,733

11.9%

Adjusted Basic Earnings per Share1,2

$

1.04

$

1.02

2.0%

$

0.98

6.1%

$

4.13

$

3.72

11.0%

Adjusted Diluted Earnings per Share1,2

$

1.04

$

1.01

3.0%

$

0.98

6.1%

$

4.09

$

3.68

11.1%



1 Adjusted Net Income and Adjusted Earnings per share are defined in the Non-GAAP section of the Company's 2014 Annual and Fourth Quarter Consolidated Financial Report.


2The Company's basic and diluted earnings per share for periods ending in 2013, have been reduced to half for all periods reflecting the impact of the stock dividend


paid in Q1 2014.


 

The Company's results were affected by the following items of note that aggregated to a positive impact of $22.7 million and $0.32 diluted earnings per share in Q4 2014 and $24.8 million and $0.36 diluted earnings per share in 2014:

  • $32.7 million prepayment income in Q4 2014 ($24.0 million after tax and $0.34 diluted earnings per share) related to the prepayment of $234.9 million of water heater loans. The prepayment income compensates the Company in excess of the future net interest margin that will be lost as a result of the sale.

  • $5.3 million tax benefit recognized in the first nine months of 2014 ($3.9 million after tax and $0.06 diluted earnings per share) related to Scientific Research and Experimental Development Tax Credits for the development of the core banking system functionality and other technology.

  • $1.7 million charge in Q4 2014, $4.3 million in 2014 ($1.3 million after tax and $0.02 diluted earnings per share in Q4 2014; $3.1 million after tax and $0.04 diluted earnings per share in 2014) for restructuring of certain derivative positions upon adoption of IFRS in 2011.

The Company's results were affected by the following items of note in Q4 2013 and 2013:

  • $2.0 million tax benefit recognized in Q4 2013 and $8.4 million for 2013 ($1.5 million after tax and $0.02 diluted earnings per share in Q4 2013; $6.2 million after tax and $0.09 diluted earnings per share in 2013) related to Scientific Research and Development Tax Credits for the development of the core banking system functionality and other technology.

  • $1.2 million charge in Q4 2013, $8.0 million in 2013 ($0.9 million after tax and $0.01 diluted earnings per share in Q4 2013; and $5.9 million after tax and $0.08 diluted earnings per share in 2013) for restructuring of certain derivative positions upon adoption of IFRS in 2011.

  • $2.0 million of provision in 2013 ($1.5 million after tax and $0.02 diluted earnings per share) associated with the settlement of disputed loans to condominium corporations. 

The recent rapid decline in oil prices has increased uncertainty regarding Canadian economic performance into 2015. The Bank of Canada has warned of potentially negative effects on the broader Canadian economy in the near term and longer term negative effects for the energy producing regions. The Bank of Canada expects that the negative effects will be gradually mitigated by stronger US growth, the weaker Canadian dollar, the adjustment of the Bank's overnight rate and the beneficial impact of lower oil prices on global economic growth, however, substantial uncertainty exists. The Company's exposure to energy producing regions remains very limited with 3.8% or $440.7 million of outstanding uninsured single-family mortgage loans in those regions (regions included are Alberta, Saskatchewan, and Newfoundland and Labrador). The average LTV for uninsured single family mortgage loans in these regions is 64.8%.  In the commercial portfolio, the Company's exposure is 6.7% or $91.0 million, with an average LTV of 46.3%. Given the limited exposure, the Company does not expect a significant increase in its credit losses stemming from difficulties in these regions. The Company expects that its portfolios in Ontario and the rest of Canada, which represent 95.9% of the uninsured portfolios, will continue to experience relatively low credit losses, even with near term moderately negative economic conditions, given the current low interest rate environment and the expectation that housing prices will remain relatively stable or experience only modest declines.

Given the headwinds and uncertainty in the economy, the Company expects to remain very cautious, but diligent in pursuit of its strategies and will be prepared to react quickly to market and economic events in the short term and long term.

2014 Targets and Performance







000s, except % and per share amounts

2014 Targets

Actual Results


Amount

Increase over 2013

Growth in adjusted net income1

13% - 18%

11.9%

$

288,384

$

30,651

Growth in adjusted diluted earnings per share1,2

13% - 18%

11.1%


4.09


0.41

Growth in total loans under administration3

15% - 20%

13.1%


22,563,532


2,621,700

Adjusted return on shareholders' equity1

20.0%

22.0%





Adjusted efficiency ratio (TEB)1,4

28.0% - 32.0%

28.5%





Provision as a percentage of gross uninsured loans

0.15% - 0.25%

0.10%







1

See definition of Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Return on Equity, and Adjusted Efficiency Ratio under Non-GAAP Measures in the Company's 2014 Annual and Fourth Quarter Consolidated Financial Report and the reconciliation of net income to adjusted net income in the previous table.

2

The Company's diluted earnings per share have been presented as if the stock dividend was retrospectively applied to all comparative periods presented.

3

Includes loans held for sale.

4

See definition of TEB under Non-GAAP Measures in Company's 2014 Annual and Fourth Quarter Consolidated Financial Report.

 

The Company met or exceeded its annual targets with respect to return on shareholder's equity, efficiency ratio and credit performance.

The Company's 2014 earnings were below its target range by $2.9 million or 1.1% of 2013 adjusted net income. Results were affected by a number of factors, but primarily the Company experienced lower than planned insured mortgage originations at lower spreads resulting in lower gains on sale.  This experience reflects the very competitive market for prime insured mortgages.  Additionally, the Company also had lower net interest income in Q4 due to the prepayment of the water heater loans.  As a result, the Company was also below target for growth in loans under administration. The sale of the water heater loans also affected the growth in the loans under administration and, without the sale, growth would have been 14.3% in 2014. 

Growth and earnings in the traditional mortgage portfolio were positive and within the Company's expectations, reflective of its strong market position and high level of service.  Credit performance in 2014 exceeded the Company's target range based on strong credit profiles of mortgages combined with stable Canadian economic conditions. The Company's efficiency ratio remained in the lower end of its target range (the lower the better), demonstrating continued prudent cost management and a high level of efficiency.

The Company's Board of Directors has approved an increase in the Company's dividend payout ratio to 19% to 26% from 14% to 21%. The increased dividend payout target range is based on Home Capital's strong financial performance and liquidity position, and the anticipated formation of capital through future profitability. The Company's dividend payout target range is subject to review by the Company's Board of Directors on a quarterly basis and modified in accordance with the performance of the Company and then current market conditions.

FOURTH QUARTER AND 2014 HIGHLIGHTS

The Company recorded solid performance in the fourth quarter of 2014 and for the year. Key results and accomplishments for the fourth quarter of 2014 and the year are as follows:

  • Reported net income was $95.9 million in the fourth quarter and $313.2 million for the year, increasing 39.4% over the comparable quarter of 2013 and 22.1% over 2013. Net income benefited in the current quarter as the Company recognized prepayment income of $24.0 million, net of tax, in relation to the prepayment of $234.9 million of water heater loans, as a result of the sale of a customer's business. 
  • Adjusted net income, as defined in the Non-GAAP Measures section of the Company's 2014 Annual and Fourth Quarter Consolidated Financial Report, was $73.2 million in the fourth quarter and $288.4 million for the year, representing increases of 7.3% and 11.9% over the comparable periods of 2013 and 2.5% over Q3 2014.
  • Adjusted diluted earnings per share were $1.04 for the fourth quarter and $4.09 for the year, an increase over the comparable periods of last year of 6.1% and 11.1%, respectively and 3.0% over Q3 2014.
  • Adjusted return on equity was 20.8% for the quarter and 22.0% for the year.  Both measures are in excess of the Company's minimum performance objective of 20% for the 17th consecutive year.
  • Net interest income on non-securitized assets was $109.6 million in the fourth quarter and $425.3 million in 2014, increasing 9.9% and 13.7% over the comparable periods of 2014, and 1.6% over the $107.9 million in Q3 2014. Net interest margin on this portfolio was 2.79% in Q4 2014 and 2.83% for 2014. This is down from 2.94% and 3.01% in the comparable periods of 2013, and consistent with Q3 2014, reflecting both lower asset yields and relatively higher cost of funds compared to benchmark rates. Asset yields are down due to a combination of factors, including origination of higher credit quality borrowers over the last year and the current low rate environment.
  • Total income earned from securitized assets, which includes net interest income from the on-balance sheet portfolio and securitization income from off-balance sheet sales was $11.8 million in Q4 2014 and $61.1 million for the year compared to $17.0 million and $60.8 million in the comparable periods of 2013 and $15.4 million in Q3 2014. Securitization income was $5.0 million in the quarter and $26.8 in 2014, compared to securitization income of $5.8 million and $12.6 million in the comparable periods of 2013 and $5.7 million in Q3 2014. Relative gains have declined year over year on lower spreads, reflective of a highly competitive market for prime insured mortgages. Net interest income on the on-balance sheet securitized portfolio declined to $6.8 million in the quarter and $34.3 million for the year, from $11.2 million and $48.1 million in the same periods of 2013 and from $9.7 million in Q3 2014. The decline reflects a decrease in net interest margin on the maturity of higher yielding portfolios along with a net run-off of the portfolio as the Company has sold the residual interests of most originated insured mortgages.
  • The credit performance of the loans portfolio remained strong in the quarter and for the year and outperformed the Company's objectives. The annualized credit provision as percentage of gross uninsured loans was 0.09% in the quarter and 0.10% for the year, down from 0.14% in the comparable periods of 2013 and down from 0.11% in Q3 2014. The Company's objective was a provision as a percentage of gross uninsured loans ratio of between 0.15% and 0.25% for 2014. 
  • Net non-performing loans ended 2014 at 0.30% of the total loans portfolio compared to 0.35% at the end of 2013 and 0.27% at the end Q3 2014.  The decrease is partially represented by a specific large commercial loan that was included in 2013, and subsequently collected.  Excluding this commercial loan would result in net non-performing loans ending 2013 at 0.31% of the total loans portfolio.  The ratio has remained stable despite the relatively higher proportion of uninsured mortgages in the total portfolio.
  • Home Trust's Common Equity Tier 1 (CET 1) and Total capital ratios remained very strong at 18.30% and 20.94%, respectively, at December 31, 2014, and well above Company and regulatory minimum targets.  Home Trust's ACM was 12.47 at December 31, 2014 compared to 13.19 at December 31, 2013 and 12.88 at September 30, 2014.
  • Total loans under administration, including off-balance sheet mortgages, increased by $2.62 billion in 2014 to $22.56 billion, an increase of 13.1% from $19.94 billion one year ago and up $410.1 million from Q3 2014.  Annual growth was below the Company's 2014 target range of 15-20% on less than planned growth in insured mortgage originations and the prepayment of the water heater portfolio.
  • Total Q4 2014 mortgage originations were $2.29 billion and $8.85 billion for the year, compared to $1.91 billion and $6.92 billion in the same periods of 2013.  Total originations were $2.55 billion in the third quarter of 2014. The year-over-year increase in originations reflects increased focus on, and the increased demand for, the Company's traditional mortgage products and an increase in Accelerator originations. 
  • Traditional (uninsured single-family) mortgage originations were $1.48 billion in Q4 2014 and $5.86 billion for the year, compared to $1.23 billion and $4.77 billion in the comparative periods of 2013 and $1.78 billion in Q3 2014. Compared to the third quarter, a decline in originations reflects normal and expected seasonal factors.   
  • Accelerator (insured single-family) originations were $1.79 billion for the year, up 76.4% from $1.01 billion in 2013 reflecting the increased focus on this business in 2014. Originations were $353.0 million in Q4 2014, down slightly from $357.1 million originated in Q4 2013 and down from $522.9 million originated last quarter.  The market for insured prime mortgages has been highly competitive in 2014, resulting in relatively narrow spreads. Compared to the third quarter, the decline in originations reflects both expected seasonal factors and the competitive market.
  • Multi-unit residential originations were $299.5 million in Q4 2014 and $718.4 million for the year, compared to $239.9 million and $823.2 million in the same periods of 2013 and up from $140.7 million in the third quarter of 2014. Multi-unit residential mortgage originations are mostly insured and subsequently securitized through programs that qualify for off-balance sheet accounting, resulting in a portion of the securitization gains discussed above.
  • Commercial mortgage originations were $115.0 million in Q4 2014 and $319.5 million for the year, compared to $56.1 million and $180.1 million in the same periods of 2013, and $71.8 million in the third quarter of 2014.  Store and apartment advances were $24.1 million for the quarter and $118.3 million for the year, compared to $24.5 million and $100.0 million in the same periods in 2013, and $28.8 million in the third quarter of 2014.
  • Consumer retail advances, including durable household goods, such as water heaters and larger ticket home improvement items, were $45.7 million in Q4 2014, up 27.4% from $35.9 million one year ago and down 10.9% from $51.3 million last quarter. 
  • In Q4 2014, the Company finalized its agreement with a major customer for the prepayment of $234.9 million of water heater loans, due to the sale of a customer's business, resulting in receiving prepayment income of $32.7 million.  This prepayment income will compensate the Company for future interest margin lost as a result of the prepayment. 
  • Total deposits reached $13.94 billion, up 9.2% over last year, and down 0.6% over Q3 2014.  Total deposits raised through the Company's deposit diversification initiatives, Oaken Financial, high-interest savings accounts and institutional deposit notes, now total $2.42 billion, an increase of $1.50 billion or 163.6% over last year, and $0.35 billion or 16.9% over last quarter. 
  • Non-interest expenses were $39.9 million in the fourth quarter and $162.3 million in 2014, up from $37.9 million and $143.7 million in the same periods of 2013 and down from $42.9 million last quarter. Lower fourth quarter expenses reflect prudent expense management. In addition in Q4 2014, amortization expense decreased as a result of an increase in the estimated useful life of the Company's core banking system. The adjusted efficiency ratio was 28.5% for 2014, up slightly from 28.2% in 2013 and well within the 28% to 32% 2014 target.
  • Subsequent to the end of the quarter, and in light of the Company's solid performance, profitability and strong financial position, the Board of Directors declared an increase in the quarterly dividend by $0.02 to $0.22 per Common share, payable on March 1, 2015 to shareholders of record at the close of business on February 23, 2015, representing an increase of 10% for a year over year increase of 37.5%. 

Conference Call and Webcast

Fourth Quarter Results Conference Call

The conference call will take place on Thursday, February 12, 2015, at 10:30 a.m. Participants are asked to call 5 to 15 minutes in advance, 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at www.homecapital.com.

Conference Call Archive

A telephone replay of the call will be available between 1:30 p.m. Thursday, February 12, 2015 and midnight Thursday, February 19, 2015 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 66550042). The archived audio web cast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com.

Annual and Special Meeting Notice

The Annual and Special Meeting of Shareholders of Home Capital Group Inc. will be held at One King West, Grand Banking Hall, Toronto, Ontario, M5H 1A1, on Wednesday, May 13, 2015 at 11:00 a.m. local time. Shareholders and guests are invited to join Directors and Management for lunch and refreshments following the Annual and Special Meeting. All shareholders are encouraged to attend.

 

Consolidated Balance Sheets











As at



 December 31


September 30


December 31

thousands of Canadian dollars


2014


2014


2013

ASSETS







Cash and Cash Equivalents

$

360,746

$

488,101

$

733,172

Available for Sale Securities


582,819


597,990


424,272

Loans Held for Sale


102,094


56,561


137,975

Loans







Securitized mortgages


3,945,654


4,093,553


5,210,021

Non-securitized mortgages and loans


14,317,162


14,338,788


12,671,905



18,262,816


18,432,341


17,881,926

Collective allowance for credit losses


(34,100)


(33,500)


(31,500)



18,228,716


18,398,841


17,850,426

Other







Restricted assets


421,083


666,640


648,283

Derivative assets


38,534


32,459


29,886

Other assets


235,616


219,407


162,679

Goodwill and intangible assets


113,136


101,609


89,157



808,369


1,020,115


930,005


$

20,082,744

$

20,561,608

$

20,075,850

LIABILITIES AND SHAREHOLDERS' EQUITY







Liabilities







Deposits







Deposits payable on demand

$

1,064,152

$

828,982

$

429,269

Deposits payable on a fixed date


12,875,819


13,193,150


12,336,685



13,939,971


14,022,132


12,765,954

Senior Debt


152,026


154,640


153,474

Securitization Liabilities







Mortgage-backed security liabilities


471,551


548,640


660,964

Canada Mortgage Bond liabilities


3,831,912


4,177,521


5,112,100



4,303,463


4,726,161


5,773,064

Other







Derivative liabilities


2,266


1,223


3,809

Other liabilities


199,831


250,216


167,427

Deferred tax liabilities


36,554


35,251


34,425



238,651


286,690


205,661



18,634,111


19,189,623


18,898,153

Shareholders' Equity







Capital stock


84,687


84,565


70,233

Contributed surplus


3,989


3,650


5,984

Retained earnings


1,378,562


1,298,648


1,119,959

Accumulated other comprehensive loss


(18,605)


(14,878)


(18,479)



1,448,633


1,371,985


1,177,697


$

20,082,744

$

20,561,608

$

20,075,850

 

 

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


2014


2014


2013


2014


2013

Net Interest Income Non-Securitized Assets











Interest from loans

$

187,272

$

183,101

$

168,045

$

717,798

$

629,247

Dividends from securities


2,842


2,955


2,556


11,426


11,165

Other interest


2,482


3,855


2,663


13,912


8,283




192,596


189,911


173,264


743,136


648,695

Interest on deposits and other


81,326


80,428


71,744


311,494


268,233

Interest on senior debt


1,660


1,610


1,793


6,392


6,612

Net interest income non-securitized assets


109,610


107,873


99,727


425,250


373,850













Net Interest Income Securitized Loans and Assets











Interest income from securitized loans and assets


35,559


40,163


51,274


166,491


225,793

Interest expense on securitization liabilities


28,753


30,453


40,034


132,212


177,664

Net interest income securitized loans and assets


6,806


9,710


11,240


34,279


48,129













Total Net Interest Income


116,416


117,583


110,967


459,529


421,979

Provision for credit losses


3,186


3,511


4,004


13,134


15,868




113,230


114,072


106,963


446,395


406,111

Non-Interest Income











Fees and other income


18,272


17,736


15,402


71,241


61,252

Securitization income


4,956


5,665


5,770


26,845


12,648

Prepayment income on portfolio sale


32,675


-


-


32,675


-

Net realized and unrealized gains on securities


965


521


148


3,425


2,589

Net realized and unrealized (loss) gain on derivatives


(431)


1,050


507


(827)


(1,430)



56,437


24,972


21,827


133,359


75,059



169,667


139,044


128,790


579,754


481,170












Non-Interest Expenses











Salaries and benefits


20,156


20,533


19,563


80,769


70,954

Premises


3,213


2,884


2,610


11,866


9,901

Other operating expenses


16,520


19,484


15,689


69,617


62,883



39,889


42,901


37,862


162,252


143,738












Income Before Income Taxes


129,778


96,143


90,928


417,502


337,432

Income taxes












Current


32,539


20,144


22,337


102,201


82,128


Deferred


1,303


2,244


(236)


2,129


(1,238)



33,842


22,388


22,101


104,330


80,890

NET INCOME

$

95,936

$

73,755

$

68,827

$

313,172

$

256,542












NET INCOME PER COMMON SHARE











Basic

$

1.37

$

1.05

$

0.99

$

4.48

$

3.70

Diluted

$

1.36

$

1.05

$

0.98

$

4.45

$

3.66

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING











Basic


70,101


70,089


69,490


69,857


69,340

Diluted


70,462


70,480


69,939


70,432


70,046













Total number of outstanding common shares


70,096


70,105


69,488


70,096


69,488

Book value per common share

$

20.67

$

19.57

$

16.95

$

20.67

$

16.95

During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share.

Accordingly, both basic and diluted net income per common share is reduced to half and the number of shares disclosed is doubled

for all periods ending before Q1 2014 presented for comparative purposes.

 

 

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

2014

2014

2013

2014

2013












NET INCOME

$

95,936

$

73,755

$

68,827

$

313,172

$

256,542












OTHER COMPREHENSIVE LOSS






















Available for Sale Securities and Retained Interests











Net unrealized (losses) gains


(3,862)


(2,552)


(5,320)


2,854


(19,530)

Net gains reclassified to net income


(965)


(521)


(147)


(3,425)


(2,584)



(4,827)


(3,073)


(5,467)


(571)


(22,114)

Income tax recovery


(1,279)


(813)


(1,449)


(152)


(5,859)



(3,548)


(2,260)


(4,018)


(419)


(16,255)












Cash Flow Hedges











Net unrealized (losses) gains


(608)


217


897


(1,061)


702

Net losses reclassified to net income


365


370


247


1,461


1,362



(243)


587


1,144


400


2,064

Income tax (recovery) expense


(64)


156


303


107


543



(179)


431


841


293


1,521












Total other comprehensive loss


(3,727)


(1,829)


(3,177)


(126)


(14,734)












COMPREHENSIVE INCOME

$

92,209

$

71,926

$

65,650

$

313,046

$

241,808

 

Consolidated Statements of Changes in Shareholders' Equity




















Net Unrealized








(Losses) Gains

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, 2013

$

70,233

$

5,984

$

1,119,959

$

(15,823)

$

(2,656)

$

(18,479)

$

1,177,697

Comprehensive income


-


-


313,172


(419)


293


(126)


313,046

Stock options settled


14,488


(3,895)


-


-


-


-


10,593

Amortization of fair value of















employee stock options


-


1,900


-


-


-


-


1,900

Repurchase of shares


(34)


-


(1,356)


-


-


-


(1,390)

Dividends















($0.70 per share)


-


-


(53,213)


-


-


-


(53,213)

Balance at December 31, 2014

$

84,687

$

3,989

$

1,378,562

$

(16,242)

$

(2,363)

$

(18,605)

$

1,448,633































Balance at December 31, 2012

$

61,903

$

6,224

$

903,831

$

432

$

(4,177)

$

(3,745)

$

968,213

Comprehensive income


-


-


256,542


(16,255)


1,521


(14,734)


241,808

Stock options settled


8,400


(2,202)


-


-


-


-


6,198

Amortization of fair value of















employee stock options


-


1,962


-


-


-


-


1,962

Repurchase of shares


(70)


-


(2,232)


-


-


-


(2,302)

Dividends















($0.54 per share)


-


-


(38,182)


-


-


-


(38,182)

Balance at December 31, 2013

$

70,233

$

5,984

$

1,119,959

$

(15,823)

$

(2,656)

$

(18,479)

$

1,177,697

During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share.

Accordingly, dividends per share, presented for comparative purposes are reduced by half for all periods prior to the stock dividend.


 

 

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


2014


2013


2014


2013

CASH FLOWS FROM OPERATING ACTIVITIES









Net income for the year

$

95,936

$

68,827

$

313,172

$

256,542

Adjustments to determine cash flows relating to operating activities:









Amortization of net premium on securities


(514)


685


1,001


2,562


Provision for credit losses


3,186


4,004


13,134


15,868


Prepayment income on portfolio sale


(32,675)


-


(32,675)


-


Gain on sale of mortgages or residual interest


(4,362)


(4,598)


(23,712)


(11,010)


Net realized and unrealized gains on securities


(965)


(148)


(3,425)


(2,589)


Amortization of capital and intangible assets


868


3,006


10,387


11,368


Amortization of fair value of employee stock options


376


572


1,900


1,962


Deferred income taxes


1,303


(236)


2,129


(1,238)

Changes in operating assets and liabilities










Loans, net of securitization and sales


158,268


65,643


(299,376)


(863,438)


Restricted assets


245,557


(351,516)


227,200


70,227


Derivative assets and liabilities


(5,275)


5,420


(9,791)


18,989


Accrued interest receivable


(505)


(426)


(1,951)


(1,388)


Accrued interest payable


(23,535)


(12,372)


60


13,624


Deposits


(82,161)


829,307


1,174,017


2,629,355


Securitization liabilities


(422,698)


(635,183)


(1,469,601)


(1,562,831)


Taxes receivable or payable and other


(43,069)


(17,136)


(41,867)


(65,500)

Cash flows (used in) provided by operating activities


(110,265)


(44,151)


(139,398)


512,503

CASH FLOWS FROM FINANCING ACTIVITIES









Repurchase of shares


(618)


(159)


(1,390)


(2,302)

Exercise of employee stock options


101


-


10,593


6,198

Dividends paid to shareholders


(14,020)


(9,729)


(48,922)


(37,458)

Cash flows used in financing activities


(14,537)


(9,888)


(39,719)


(33,562)

CASH FLOWS FROM INVESTING ACTIVITIES









Activity in securities










Purchases


(42,482)


-


(542,558)


(182,382)


Proceeds from sales


32,617


1,931


206,020


38,400


Proceeds from maturities


20,135


10,347


178,772


112,094

Purchases of capital assets


(1,063)


(1,533)


(3,080)


(7,801)

Capitalized intangible development costs


(11,760)


(4,768)


(32,463)


(14,926)

Cash flows (used in) provided by investing activities


(2,553)


5,977


(193,309)


(54,615)

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


(127,355)


(48,062)


(372,426)


424,326

Cash and cash equivalents at beginning of the period


488,101


781,234


733,172


308,846

Cash and Cash Equivalents at End of the Period

$

360,746

$

733,172

$

360,746

$

733,172

Supplementary Disclosure of Cash Flow Information









Dividends received on investments

$

2,607

$

1,833

$

9,750

$

9,022

Interest received


224,528


221,562


895,851


861,424

Interest paid


137,208


127,877


450,038


438,885

Income taxes paid


20,821


19,550


81,320


108,243

 

Net Interest Margin


For the three months ended

For the year ended


December 31

September 30

December 31

December 31

December 31


2014

2014

2013

2014

2013

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

2.77%

2.76%

2.92%

2.80%

2.98%

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

2.79%

2.79%

2.94%

2.83%

3.01%

Net interest margin securitized assets

0.60%

0.80%

0.74%

0.67%

0.73%

Total net interest margin (non-TEB)

2.25%

2.27%

2.20%

2.23%

2.15%

Total net interest margin (TEB)

2.27%

2.29%

2.22%

2.25%

2.17%

Spread of non-securitized loans over deposits and other

2.83%

2.88%

3.11%

2.93%

3.14%

 

Net Interest Income












For the three months ended


December 31, 2014

September 30, 2014

December 31, 2013

(000s, except %)


Income/

Average


Income/

Average


Income/

Average



Expense

Rate 1


Expense

Rate 1


Expense

Rate 1

Interest-bearing assets










Cash resources and securities

$

5,324

1.80%

$

6,810

1.86%

$

5,219

1.62%

Traditional single-family residential mortgages


144,496

4.98%


140,670

5.08%


128,659

5.24%

Accelerator single-family residential mortgages


7,518

2.90%


7,107

2.61%


5,282

3.42%

Residential commercial mortgages 2


3,959

4.79%


3,287

4.93%


4,043

4.93%

Non-residential commercial mortgages


16,566

6.16%


16,280

6.26%


15,749

6.38%

Credit card loans


7,552

9.21%


7,273

9.24%


6,934

9.39%

Other consumer retail loans


7,181

10.07%


8,484

9.08%


7,378

8.85%

Total non-securitized loans


187,272

5.11%


183,101

5.17%


168,045

5.43%

Taxable equivalent adjustment


1,024

-


1,065

-


921

-

Total on non-securitized interest earning assets


193,620

4.89%


190,976

4.89%


174,185

5.10%

Securitized single-family residential mortgages


22,875

3.12%


25,650

3.33%


33,112

3.19%

Securitized multi-unit residential mortgages


10,969

4.09%


13,054

4.29%


16,429

4.01%

Assets pledged as collateral for securitization


1,715

1.22%


1,459

1.06%


1,733

1.57%

Total securitized residential mortgages


35,559

3.11%


40,163

3.31%


51,274

3.29%

Total interest-bearing assets

$

229,179

4.42%

$

231,139

4.45%

$

225,459

4.47%

Interest-bearing liabilities










Deposits and other

$

81,326

2.28%

$

80,428

2.29%

$

71,744

2.32%

Senior debt


1,660

4.55%


1,610

4.40%


1,793

4.82%

Securitization liabilities


28,753

2.48%


30,453

2.47%


40,034

2.55%

Total interest-bearing liabilities

$

111,739

2.15%

$

112,491

2.16%

$

113,571

2.25%

Net Interest Income (TEB)

$

117,440


$

118,648


$

111,888


Tax Equivalent Adjustment


(1,024)



(1,065)



(921)


Net Interest Income per Financial Statements

$

116,416


$

117,583


$

110,967





2014



2013

(000s, except %)


Income/

Average


Income/

Average



Expense

Rate 1


Expense

Rate 1

Interest-bearing assets







Cash resources and securities


$

25,338

1.81%

$

19,448

1.69%

Traditional single-family residential mortgages


552,112

5.10%


482,491

5.29%

Accelerator single-family residential mortgages


26,746

2.80%


15,044

3.37%

Residential commercial mortgages 2


14,355

4.68%


12,954

4.92%

Non-residential commercial mortgages


64,852

6.27%


62,681

6.43%

Credit card loans


28,529

9.18%


28,966

9.43%

Other consumer retail loans


31,204

9.21%


27,111

8.80%

Total non-securitized loans


717,798

5.21%


629,247

5.51%

Taxable equivalent adjustment


4,117

-


4,016

-

Total on non-securitized interest earning assets


747,253

4.93%


652,711

5.19%

Securitized single-family residential mortgages


105,393

3.21%


144,702

3.17%

Securitized multi-unit residential mortgages


54,634

4.23%


73,712

4.14%

Assets pledged as collateral for securitization


6,464

1.18%


7,379

1.58%

Total securitized residential mortgages


166,491

3.25%


225,793

3.32%

Total interest-bearing assets


$

913,744

4.43%

$

878,504

4.47%

Interest-bearing liabilities







Deposits and other


$

311,494

2.28%

$

268,233

2.37%

Senior debt


6,392

4.35%


6,612

4.41%

Securitization liabilities


132,212

2.55%


177,664

2.59%

Total interest-bearing liabilities


$

450,098

2.18%

$

452,509

2.30%

Net Interest Income (TEB)


$

463,646


$

425,995


Tax Equivalent Adjustment


(4,117)



(4,016)


Net Interest Income per Financial Statements


$

459,529


$

421,979


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)


2014


2014


2013


2014


2013

Single-family residential mortgages












Traditional

$

1,484,475

$

1,775,993

$

1,227,462

$

5,864,562

$

4,770,773


Accelerator


353,002


522,935


357,125


1,785,032


1,011,650

Residential commercial mortgages












Multi-unit uninsured residential mortgages


38,519


34,649


62,276


93,476


129,738


Multi-unit insured residential mortgages


261,016


106,087


177,632


624,879


693,461


Other1


14,296


13,455


4,411


45,615


31,479

Non-residential commercial mortgages












Stores and apartments


24,144


28,840


24,514


118,272


99,951


Commercial


114,999


71,793


56,134


319,459


180,131

Total mortgage advances

$

2,290,451

$

2,553,752

$

1,909,554

$

8,851,295

$

6,917,183

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, 2014

 September 30, 2014

 December 31, 2013



% of Gross



% of Gross



% of Gross


Amount

Loans 1

Amount

Loans1

Amount

Loans1

Provision2










Single-family residential mortgages

$

2,263

0.07%

$

2,646

0.09%

$

2,841

0.10%

Residential commercial mortgages


24

0.04%


-

-


168

0.34%

Non-residential commercial mortgages


81

0.03%


92

0.03%


99

0.04%

Credit card loans


128

0.15%


164

0.20%


183

0.25%

Other consumer retail loans


90

0.19%


9

0.01%


113

0.13%

Securitized single-family residential mortgages


-

-


-

-


-

-

Securitized multi-unit residential mortgages


-

-


-

-


-

-

Total individual provision


2,586

0.06%


2,911

0.06%


3,404

0.08%

Total collective provision


600

0.01%


600

0.01%


600

0.01%

Total provision

$

3,186

0.07%

$

3,511

0.08%

$

4,004

0.09%

Net Write-offs2










Single-family residential mortgages

$

3,054

0.10%

$

1,638

0.05%

$

3,135

0.12%

Residential commercial mortgages


24

0.04%


-

-


168

0.34%

Non-residential commercial mortgages


56

0.02%


107

0.04%


79

0.03%

Credit card loans


114

0.14%


179

0.22%


293

0.40%

Other consumer retail loans


48

0.10%


71

0.07%


94

0.11%

Securitized single-family residential mortgages


-

-


-

-


-

-

Securitized multi-unit residential mortgages


-

-


-

-


-

-

Net write-offs

$

3,296

0.07%

$

1,995

0.04%

$

3,769

0.08%











(000s, except %)


2014

2013







% of Gross



% of Gross





Amount

Loans1

Amount

Loans1

Provision2










Single-family residential mortgages




$

9,507

0.08%

$

10,257

0.09%

Residential commercial mortgages





(1)

(0.00)%


2,792

1.42%

Non-residential commercial mortgages





270

0.02%


274

0.03%

Credit card loans





571

0.17%


679

0.23%

Other consumer retail loans





187

0.10%


366

0.11%

Securitized single-family residential mortgages





-

-


-

-

Securitized multi-unit residential mortgages





-

-


-

-

Total individual provision





10,534

0.06%


14,368

0.08%

Total collective provision





2,600

0.01%


1,500

0.01%

Total provision




$

13,134

0.07%

$

15,868

0.09%

Net Write-offs2










Single-family residential mortgages




$

9,099

0.07%

$

11,165

0.10%

Residential commercial mortgages





24

0.01%


3,199

1.62%

Non-residential commercial mortgages





202

0.02%


230

0.02%

Credit card loans





692

0.21%


589

0.20%

Other consumer retail loans





272

0.15%


345

0.10%

Securitized single-family residential mortgages





-

-


-

-

Securitized multi-unit residential mortgages





-

-


-

-

Net write-offs




$

10,289

0.06%

$

15,528

0.09%

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

2 There were no specific 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, 2014


British








Columbia

Alberta

Ontario

Quebec


Other


Total

Securitized single-family residential mortgages

$

218,927

$

182,797

$

2,376,966

$

127,999

$

83,430

$

2,990,119

Securitized multi-unit residential mortgages


133,838


72,615


480,693


79,128


189,261


955,535

Total securitized mortgages


352,765


255,412


2,857,659


207,127


272,691


3,945,654

Single-family residential mortgages


661,661


445,390


10,737,812


392,998


212,667


12,450,528

Residential commercial mortgages1


7,972


36,869


147,697


22,645


28,135


243,318

Non-residential commercial mortgages


9,956


45,263


1,001,141


10,422


40,096


1,106,878

Credit card loans


5,829


16,505


302,699


1,477


3,817


330,327

Other consumer retail loans


826


2,204


182,576


-


505


186,111

Total non-securitized mortgages and loans2


686,244


546,231


12,371,925


427,542


285,220


14,317,162


$

1,039,009

$

801,643

$

15,229,584

$

634,669

$

557,911

$

18,262,816

As a % of portfolio


5.7%


4.4%


83.4%


3.5%


3.0%


100.0%














(000s, except %)










As at September 30, 2014



British













Columbia


Alberta


Ontario


Quebec


Other


Total

Securitized single-family residential mortgages

$

238,772

$

195,894

$

2,342,519

$

134,528

$

78,878

$

2,990,591

Securitized multi-unit residential mortgages


153,538


97,920


563,520


95,313


192,671


1,102,962

Total securitized mortgages


392,310


293,814


2,906,039


229,841


271,549


4,093,553

Single-family residential mortgages


621,258


430,674


10,702,940


376,443


212,402


12,343,717

Residential commercial mortgages1


3,904


48,652


140,836


16,712


19,755


229,859

Non-residential commercial mortgages


9,979


33,506


963,558


12,321


39,252


1,058,616

Credit card loans


6,050


17,616


292,918


1,373


3,823


321,780

Other consumer retail loans


867


1,929


377,413


4,396


211


384,816

Total non-securitized mortgages and loans2


642,058


532,377


12,477,665


411,245


275,443


14,338,788


$

1,034,368

$

826,191

$

15,383,704

$

641,086

$

546,992

$

18,432,341

As a % of portfolio


5.5%


4.5%


83.5%


3.5%


3.0%


100.0%














(000s, except %)










As at December 31, 2013



British













Columbia


Alberta


Ontario


Quebec


Other


Total

Securitized single-family residential mortgages

$

334,511

$

256,770

$

2,835,878

$

192,751

$

100,187

$

3,720,097

Securitized multi-unit residential mortgages


201,181


191,910


706,883


186,521


203,429


1,489,924

Total securitized mortgages


535,692


448,680


3,542,761


379,272


303,616


5,210,021

Single-family residential mortgages


536,212


367,211


9,391,757


360,657


191,530


10,847,367

Residential commercial mortgages1


8,897


16,192


135,133


28,689


7,969


196,880

Non-residential commercial mortgages


7,753


38,660


881,702


16,234


49,861


994,210

Credit card loans


7,230


19,324


262,016


1,260


3,655


293,485

Other consumer retail loans


899


1,256


334,652


2,900


256


339,963

Total non-securitized mortgages and loans2


560,991


442,643


11,005,260


409,740


253,271


12,671,905


$

1,096,683

$

891,323

$

14,548,021

$

789,012

$

556,887

$

17,881,926

As a % of portfolio


6.1%


5.0%


81.4%


4.4%


3.1%


100.0%

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

2 Loans exclude mortgages held for sale.

 

 

Impaired Loans and Individual Allowances for Credit Losses




















(000s, except %)









As at December 31, 2014



Single-family


Residential


Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


 Mortgages


 Mortgages


Loans


Retail Loans


Total

Gross amount of impaired loans

$

52,551

$

54

$

2,516

$

1,938

$

160

$

57,219

Individual allowances on principal


(1,808)


-


(55)


(80)


(160)


(2,103)

Net amount of impaired loans

$

50,743

$

54

$

2,461

$

1,858

$

-

$

55,116

Net impaired loans as a % of gross loans


0.41%


0.02%


0.22%


0.56%


-


0.30%














(000s, except %)









As at September 30, 2014



Single-family


Residential


Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


 Mortgages


 Mortgages


Loans


Retail Loans


Total

Gross amount of impaired loans

$

48,898

$

-

$

1,441

$

2,361

$

118

$

52,818

Individual allowances on principal


(2,399)


-


(55)


(66)


(118)


(2,638)

Net amount of impaired loans

$

46,499

$

-

$

1,386

$

2,295

$

-

$

50,180

Net impaired loans as a % of gross loans


0.38%


-


0.13%


0.71%


-


0.27%














(000s, except %)









As at December 31, 2013



Single-family


Residential


Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


 Mortgages


 Mortgages


Loans


Retail Loans


Total

Gross amount of impaired loans

$

52,837

$

1,836

$

7,189

$

2,785

$

236

$

64,883

Individual allowances on principal


(1,201)


-


-


(201)


(236)


(1,638)

Net amount of impaired loans

$

51,636

$

1,836

$

7,189

$

2,584

$

-

$

63,245

Net impaired loans as a % of gross loans


0.48%


0.93%


0.72%


0.88%


-


0.35%

 

 

Allowance for Credit Losses

















(000s)






For the three months ended December 31, 2014



Single-family


Residential


Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


 Mortgages


Mortgages


Loans


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the period

$

2,399

$

-

$

55

$

66

$

118

$

2,638

Provision for credit losses


2,463


24


56


128


90


2,761

Write-offs


(3,125)


(24)


(56)


(134)


(123)


(3,462)

Recoveries


71


-


-


20


75


166



1,808


-


55


80


160


2,103

Allowance on accrued interest receivable













Balance at the beginning of the period


760


-


32


-


3


795

Provision for credit losses


(200)


-


25


-


-


(175)



560


-


57


-


3


620

Total individual allowance


2,368


-


112


80


163


2,723

Collective allowance













Balance at the beginning of the period


20,032


327


9,300


3,541


300


33,500

Provision for credit losses


600


-


-


-


-


600



20,632


327


9,300


3,541


300


34,100

Total allowance

$

23,000

$

327

$

9,412

$

3,621

$

463

$

36,823

Total provision

$

2,863

$

24

$

81

$

128

$

90

$

3,186




















(000s)





For the three months ended September 30, 2014



Single-family


Residential


Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


 Mortgages


Mortgages


Loans


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the period

$

1,418

$

-

$

68

$

81

$

177

$

1,744

Provision for credit losses


2,619


-


94


164


12


2,889

Write-offs


(1,843)


-


(108)


(185)


(118)


(2,254)

Recoveries


205


-


1


6


47


259



2,399


-


55


66


118


2,638

Allowance on accrued interest receivable













Balance at the beginning of the period


733


-


34


-


6


773

Provision for credit losses


27


-


(2)


-


(3)


22



760


-


32


-


3


795

Total individual allowance


3,159


-


87


66


121


3,433

Collective allowance













Balance at the beginning of the period


19,432


327


9,300


3,541


300


32,900

Provision for credit losses


600


-


-


-


-


600



20,032


327


9,300


3,541


300


33,500

Total allowance

$

23,191

$

327

$

9,387

$

3,607

$

421

$

36,933

Total provision

$

3,246

$

-

$

92

$

164

$

9

$

3,511



























(000s)






For the three months ended December, 2013


Single-family


Residential

Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


 Mortgages

Mortgages


Loans


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the period

$

1,441

$

-

$

-

$

311

$

219

$

1,971

Provision for credit losses


2,895


168


79


183


111


3,436

Write-offs


(3,259)


(376)


(87)


(314)


(118)


(4,154)

Recoveries


124


208


8


21


24


385



1,201


-


-


201


236


1,638

Allowance on accrued interest receivable













Balance at the beginning of the period


813


25


24


-


10


872

Provision for credit losses


(54)


-


20


-


2


(32)



759


25


44


-


12


840

Total individual allowance


1,960


25


44


201


248


2,478

Collective allowance













Balance at the beginning of the period


17,313


446


9,300


3,541


300


30,900

Provision for credit losses


719


(119)


-


-


-


600



18,032


327


9,300


3,541


300


31,500

Total allowance

$

19,992

$

352

$

9,344

$

3,742

$

548

$

33,978

Total provision

$

3,560

$

49

$

99

$

183

$

113

$

4,004





















(000s)






For the year ended December 31, 2014



Single-family


Residential


Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


Mortgages


Mortgages


Loans


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the year

$

1,201

$

-

$

-

$

201

$

236

$

1,638

Provision for credit losses


9,706


24


257


571


196


10,754

Write-offs


(9,645)


(24)


(294)


(752)


(488)


(11,203)

Recoveries


546


-


92


60


216


914



1,808


-


55


80


160


2,103

Allowance on accrued interest receivable













Balance at the beginning of the year


759


25


44


-


12


840

Provision for credit losses


(199)


(25)


13


-


(9)


(220)



560


-


57


-


3


620

Total individual allowance


2,368


-


112


80


163


2,723

Collective allowance













Balance at the beginning of the year


18,032


327


9,300


3,541


300


31,500

Provision for credit losses


2,600


-


-


-


-


2,600



20,632


327


9,300


3,541


300


34,100

Total allowance

$

23,000

$

327

$

9,412

$

3,621

$

463

$

36,823

Total provision

$

12,107

$

(1)

$

270

$

571

$

187

$

13,134























(000s)








For the year ended December 31, 2013



Single-family


Residential


Non-residential




Other





Residential


Commercial


Commercial


Credit Card


Consumer





 Mortgages


 Mortgages


Mortgages


Loans


Retail Loans


Total

Individual allowances













Allowance on loan principal













Balance at the beginning of the year

$

2,381

$

-

$

-

$

111

$

214

$

2,706

Provision for credit losses


9,985


3,199


230


679


367


14,460

Write-offs


(12,048)


(3,407)


(241)


(1,129)


(436)


(17,261)

Recoveries


883


208


11


540


91


1,733



1,201


-


-


201


236


1,638

Allowance on accrued interest receivable













Balance at the beginning of the year


487


432


-


-


13


932

Provision for credit losses


272


(407)


44


-


(1)


(92)



759


25


44


-


12


840

Total individual allowance


1,960


25


44


201


248


2,478

Collective allowance













Balance at the beginning of the year


16,523


336


9,300


3,541


300


30,000

Provision for credit losses


1,509


(9)


-


-


-


1,500



18,032


327


9,300


3,541


300


31,500

Total allowance

$

19,992

$

352

$

9,344

$

3,742

$

548

$

33,978

Total provision

$

11,766

$

2,783

$

274

$

679

$

366

$

15,868

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

 

Securitization Income








(000s)



For the three months ended


December 31, 2014

September 30, 2014

December 31, 2013

Net gain on sale of mortgages or residual interest

$

4,362

$

4,448

$

4,598

Net change in unrealized gain or loss on hedging activities


(591)


311


602

Servicing income


1,185


906


570

Total securitization income

$

4,956

$

5,665

$

5,770

 







(000s)



2014


2013

Net gain on sale of mortgages or residual interest


$

23,712

$

11,010

Net change in unrealized gain or loss on hedging activities



(177)


140

Servicing income



3,310


1,498

Total securitization income


$

26,845

$

12,648

 

Securitization Activity


























(000s)










For the three months ended





December 31



September 30







2014






2014


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

$

371,782

$

241,023

$

612,805

$

419,679

$

112,207

$

531,886

Gains on sale of mortgages or residual interest 1


2,549


1,813


4,362


3,799


649


4,448

Retained interests recorded


-


9,289


9,289


-


5,043


5,043

Servicing liability recorded


-


2,257


2,257


-


1,034


1,034














(000s)








For the three months ended








December 31













2013






Single-family

Multi-unit








Residential MBS

Residential MBS

Total MBS

Carrying value of underlying mortgages derecognized







$

327,500

$

177,700

$

505,200

Gains on sale of mortgages or residual interest 1








3,460


1,138


4,598

Retained interests recorded








-


7,983


7,983

Servicing liability recorded








-


1,186


1,186














(000s)


2014


2013


Single-family

Multi-unit



Single-family

Multi-unit




Residential MBS

Residential MBS

Total MBS

Residential MBS

Residential MBS

Total MBS

Carrying value of underlying mortgages derecognized

$

1,745,454

$

783,972

$

2,529,426

$

519,261

$

617,244

$

1,136,505

Gains on sale of mortgages or residual interest 1


18,685


5,027


23,712


5,354


5,656


11,010

Retained interests recorded


-


32,090


32,090


-


26,131


26,131

Servicing liability recorded


-


6,781


6,781


-


4,563


4,563

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










Management's Responsibility for Financial Information

The Company's Audit Committee reviewed this document along with the Company's 2014 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 2014 Annual and Fourth Quarter Consolidated Financial Report.

Caution Regarding Forward-looking Statements

From time to time Home Capital makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are "financial outlooks" within the meaning of National Instrument 51-102.  Please see the risk factors, which are set forth in detail in the Risk Management and Other Risks sections of the Company's 2014 Annual and Fourth Quarter Consolidated Financial Report, as well as its other publicly filed information, which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company's actual results to differ materially from these statements.  These risk factors are material risk factors a reader should consider, and include credit risk, funding and liquidity risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk and regulatory and legal risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook sections in the Company's 2014 Annual and Fourth Quarter Consolidated Financial Report.   Forward-looking statements are typically identified by words such as "will,"  "believe," "expect," "anticipate," "estimate," "plan," "forecast," "may," and "could" or other similar expressions. 

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

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

Assumptions about the performance of the Canadian economy in 2015 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 2015, management's expectations assume:

  • While the Canadian economy is expected to produce modest growth in 2015, there is some uncertainty on the effect lower oil prices will have on the broader Canadian economy and specific energy producing regions in Canada. While the Company has limited exposure in energy producing regions it has plans for geographic expansion in Canada. There is some uncertainty as to the timing and extent of expansion given the economic conditions. 
  • Generally the Company expects stable employment conditions in most regions, except potentially for the energy producing regions, and also 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 see an increase, but given the Company's limited exposure, this is not expected to be significant to the Company's credit losses.
  • The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets and the continued volatility in oil prices; as such, the Company is prepared for the variability to plan that may result.
  • The Company is assuming that over-night interest rates will remain at its current very low rate for 2015. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.
  • In the Company's established regions the expectation is the housing market will remain stable with balanced supply supported by continued low interest rates, relatively stable employment, and immigration.  There will be modest declines in housing starts and resale activity with stable to modestly declining prices throughout most of Canada. This supports continued stable credit losses and stable demand for the Company's lending products in its established regions.
  • Consumer debt levels 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 used in this report can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2014 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.  Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.

SOURCE Home Capital Group Inc.

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

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