Home Capital Reports Continued Strong Earnings and Dividend Increase
- Diluted Earnings per Share up 10.5% Year over Year to $1.05; Consistent Quarter to Quarter
- Dividend Increase of 11.1% or 2 Cents per Share to $0.20 Quarterly
- Quarterly Mortgage Originations Increase 28.1% Year over Year and 9.6% Quarter over Quarter
TORONTO, Nov. 5, 2014 /CNW/ - Home Capital today reported another quarter of strong earnings and originations.
This press release should be read in conjunction with the Company's Third Quarter Report, including Financial Statements and Management's Discussion and Analysis, which are available on Home Capital's website at www.homecapital.com and the Canadian Securities Administrators' website at www.sedar.com.
FINANCIAL HIGHLIGHTS
(Unaudited) |
For the three months ended |
For the nine months ended |
||||||||
(000s, except Per Share and Percentage Amounts) |
September 30 2014 |
June 30 2014 |
September 30 2013 |
September 30 2014 |
September 30 2013 |
|||||
OPERATING RESULTS |
||||||||||
Net Income |
$ |
73,755 |
$ |
73,745 |
$ |
66,417 |
$ |
217,236 |
$ |
187,715 |
Net Interest Income |
117,583 |
115,143 |
106,594 |
343,113 |
311,012 |
|||||
Total Revenue |
255,046 |
255,448 |
239,433 |
758,394 |
703,182 |
|||||
Diluted Earnings per Share1 |
$ |
1.05 |
$ |
1.05 |
$ |
0.95 |
$ |
3.09 |
$ |
2.68 |
Return on Shareholders' Equity |
22.0% |
23.1% |
24.3% |
22.7% |
24.0% |
|||||
Return on Average Assets |
1.4% |
1.4% |
1.3% |
1.4% |
1.3% |
|||||
Net Interest Margin (TEB)2 |
2.29% |
2.26% |
2.16% |
2.25% |
2.16% |
|||||
Provision as a Percentage of Gross Uninsured Loans (annualized) |
0.11% |
0.10% |
0.10% |
0.10% |
0.14% |
|||||
Provision as a Percentage of Gross Loans (annualized) |
0.08% |
0.07% |
0.06% |
0.07% |
0.09% |
|||||
Efficiency Ratio (TEB)2 |
29.9% |
28.3% |
29.6% |
28.9% |
28.8% |
|||||
As at |
||||||||||
September 30 2014 |
June 30 2014 |
December 31 2013 |
September 30 2013 |
|||||||
BALANCE SHEET HIGHLIGHTS |
||||||||||
Total Assets |
$ |
20,561,608 |
$ |
20,503,526 |
$ |
20,075,850 |
$ |
19,840,797 |
||
Total Assets Under Administration3 |
24,226,114 |
23,716,585 |
21,997,781 |
21,287,095 |
||||||
Total Loans4 |
18,488,902 |
18,022,175 |
18,019,901 |
18,084,382 |
||||||
Total Loans Under Administration3,4 |
22,153,408 |
21,235,234 |
19,941,832 |
19,530,680 |
||||||
Liquid Assets |
1,298,938 |
1,766,314 |
1,497,680 |
1,104,072 |
||||||
Deposits |
14,022,132 |
13,747,625 |
12,765,954 |
11,936,647 |
||||||
Shareholders' Equity |
1,371,985 |
1,313,159 |
1,177,697 |
1,121,362 |
||||||
FINANCIAL STRENGTH |
||||||||||
Capital Measures5 |
||||||||||
Risk-Weighted Assets |
$ |
7,115,046 |
$ |
6,874,353 |
$ |
6,495,767 |
$ |
6,240,690 |
||
Common Equity Tier 1 Capital Ratio |
17.58% |
17.45% |
16.80% |
16.72% |
||||||
Tier 1 Capital Ratio |
17.58% |
17.45% |
16.80% |
16.72% |
||||||
Total Capital Ratio |
20.24% |
20.20% |
19.69% |
19.72% |
||||||
Assets to Regulatory Capital Multiple |
12.88 |
13.04 |
13.19 |
13.34 |
||||||
Credit Quality |
||||||||||
Net Non-Performing Loans as a Percentage of Gross Loans |
0.27% |
0.32% |
0.35% |
0.32% |
||||||
Allowance as a Percentage of Gross Non-Performing Loans |
69.9% |
60.4% |
52.4% |
57.0% |
||||||
Share Information |
||||||||||
Book Value per Common Share1 |
$ |
19.57 |
$ |
18.74 |
$ |
16.95 |
$ |
16.14 |
||
Common Share Price – Close1 |
$ |
50.39 |
$ |
47.83 |
$ |
40.47 |
$ |
36.02 |
||
Dividend paid during the period ended1 |
$ |
0.18 |
$ |
0.16 |
$ |
0.14 |
$ |
0.14 |
||
Market Capitalization |
$ |
3,532,591 |
$ |
3,350,922 |
$ |
2,811,832 |
$ |
2,502,754 |
||
Number of Common Shares Outstanding1 |
70,105 |
70,059 |
69,488 |
69,492 |
1During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share. Accordingly, diluted earnings per share is reduced to half and the number of shares disclosed is doubled for all periods prior to the dividend presented for comparative purposes. |
2See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures of the unaudited interim consolidated financial report. |
3Total assets and loans under administration include both on and off-balance sheet amounts. |
4Total loans include loans held for sale. |
5These figures relate to the Company's operating subsidiary, Home Trust Company. |
THIRD QUARTER 2014 HIGHLIGHTS
Key results for the third quarter and the first nine months of 2014 included:
- Net income increased to $73.8 million for the third quarter and to $217.2 million for the first nine months of 2014, up 11.0% and 15.7% from the comparable periods of 2013 and consistent with Q2 2014.
- Diluted earnings per share were $1.05 for the quarter and $3.09 year to date, representing increases of 10.5% and 15.3% over the $0.95 and $2.68 earned in the comparable periods of 2013 and consistent with the $1.05 last quarter.
- Total net interest income, before provisions, increased to $117.6 million for the quarter and $343.1 million year to date up 10.3% from the $106.6 million and $311.0 million in the comparable periods of 2013 and up 2.1% from the $115.1 million last quarter. Net interest income on the non-securitized portfolio continued its increasing trend reaching $107.9 million in the quarter and $315.6 million year to date, up 13.5% and 15.1% from the comparable periods of 2013 and up 2.8% from last quarter, reflecting strong and consistent growth in the traditional portfolio. Securitized net interest income declined to $9.7 million in the quarter and $27.5 million year to date, from $11.6 million and $36.9 million in the comparable periods of 2013 and $10.2 million last quarter consistent with the Company's business strategy to replace net interest income with gains on sale of insured mortgages (please see below).
- Net interest margin (TEB) was 2.29% in the quarter and 2.25% year to date, up from 2.16% in the comparable periods of 2013 and up from 2.26% last quarter. Net interest margin (TEB) continues to be favourably influenced by the overall shift to higher yielding mortgages on balance sheet, partially offset by lower spreads on traditional uninsured single family mortgages, which is reflective of higher average credit quality on new originations over the past year.
- Securitization income, primarily gains on sale, was $5.7 million for the quarter and $21.9 million year to date compared to $4.9 million and $6.9 million in the comparable periods of 2013 and $7.5 million last quarter. The variability in this income is due to fluctuations in the timing and rate of Accelerator loan originations and renewals, and changes in spreads earned on these assets in an extremely competitive market.
- Return on equity was strong at 22.0% for the quarter and 22.7% for the first nine months of 2014 and continues to be in excess of the Company's minimum performance objective of 20%.
- The credit quality of the loan portfolio remains strong with continued low non-performing loans and credit losses. Net non-performing loans as a percentage of gross loans (NPL ratio) ended the quarter at 0.27% compared to 0.32% at the end of last quarter, 0.35% at the end of 2013 and 0.32% one year ago. The decrease over last quarter reflects the payout during the third quarter of an insured multi-unit residential property in the amount of $9.7 million. The annualized credit provision as a percentage of gross uninsured loans for the quarter of 0.11% has increased from 0.10% in both Q2 2014 and Q3 2013, but remains well below the target range of 0.15%-0.25%.
- Capital ratios remain high with Home Trust's Common Equity Tier 1 ratio (CET 1 ratio) ending the quarter at 17.58%, while Tier 1 and Total Capital ratios were 17.58% and 20.24%, respectively. Home Trust's Assets to Capital multiple (ACM) was 12.88 at the end of the quarter compared to 13.04 last quarter, 13.19 at the end of 2013 and 13.34 one year ago, also well within the Company's targets.
- Total loans under administration, which includes securitized mortgages that qualify for off-balance sheet accounting, reached $22.15 billion from $19.53 billion one year ago, an increase of $2.62 billion or 13.4% and an increase of $2.21 billion or 11.1% from $19.94 billion at the end of 2013 (14.8% on an annualized basis).
- Total mortgage originations in the quarter reached $2.55 billion and increased by 9.6% from $2.33 billion last quarter and 28.1% from $1.99 billion in the same quarter last year. Year-to-date mortgage originations of $6.56 billion increased 31.0% from $5.01 billion last year. The increase in mortgage originations over 2013 reflects the continued strong demand for the Company's residential lending product offerings and increased activity in Accelerator originations.
- Traditional residential mortgage originations increased by 35.3% to $1.78 billion from $1.31 billion in the same quarter of 2013 and also increased 16.1% from $1.53 billion in Q2 2014. Year-to-date traditional mortgage originations increased 23.6% to $4.38 billion from $3.54 billion last year.
- Accelerator (insured) residential mortgage originations experienced significant growth year over year, increasing 91.8% to $522.9 million from $272.6 million in Q3 2013. Originations were down 15.6% from $619.6 million last quarter. Year-to-date originations more than doubled to $1.43 billion from $654.5 million last year as the Company focuses on the active rebuilding of this line of business.
- Multi-unit residential mortgage originations were $140.7 million in the quarter and $418.8 million year to date compared to $326.3 million and $583.3 million in the comparable periods of 2013 and $64.5 million last quarter. 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 and other loan advances were $85.2 million for the quarter and $235.8 million year to date compared to $58.3 million and $151.1 million in the comparable periods of 2013 and $78.5 million last quarter. Store and apartment mortgage advances were $28.8 million in the quarter and $94.1 million year to date compared to $24.3 million and $75.4 million in the comparable periods of 2013 and $37.7 million in last quarter.
- The consumer retail credit portfolio, which includes loans to purchase durable household goods, such as water heaters and larger-ticket home improvement items, reached $384.8 million at the end of Q3 2014, up 7.2% from $359.0 million at the end of last quarter, up 13.2% from $340.0 million at the end of 2013 and up 17.3% from $328.0 million one year ago.
- In Q2 2014, the Company reached an agreement with a major customer for the prepayment of approximately $240 million of water heater loans and leases and other loans, pending sale of the customer's business. As part of this proposed transaction, the Company will receive a prepayment penalty, expected to be in the range of $32 to $38 million. This penalty will more than compensate the Company for future interest margin that will be lost as a result of the prepayment. The transaction is pending regulatory approval of the customer's business sale and will be recorded when such approval is received. On completion of the transaction, the Company will reinvest the funds in lending assets and earn additional interest margin.
- Total deposits reached $14.02 billion, up 2.0% from last quarter, 9.8% from the end of 2013 and 17.5% from one year ago. Total deposits raised through the Company's deposit diversification initiatives, Oaken Financial, high interest savings accounts and institutional deposits now total $2.07 billion, an increase of $263.0 million or 14.5% over Q2 2014, and $1.15 billion or 124.9% over the end of 2013 and $1.63 billion and 374.1% from one year ago.
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 approved an increase in the quarterly dividend of 2 cents to $0.20 per common share, an increase of 42.9% year over year, payable on December 1, 2014 to shareholders of record at the close of business on November 14, 2014.
The Company continues to deliver solid results in terms of growth, high returns and increased dividends. Despite the modest economic improvement in Canada, the Company's performance continues to reflect the strength and the successful execution of its core strategy.
GERALD M. SOLOWAY |
KEVIN P.D. SMITH |
Chief Executive Officer |
Chair of the Board |
November 5, 2014 |
Additional information concerning the Company's targets and related expectations for 2014, including the risks and assumptions underlying these expectations, may be found in the Management Discussion and Analysis (MD&A) of the quarterly report.
Third Quarter Results Conference Call
The conference call will take place on Thursday, November 6, 2014 at 10:30 a.m. Participants are asked to call 5 to 15 minutes in advance, 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at www.homecapital.com.
Conference Call Archive
A telephone replay of the call will be available between 1:30 p.m. Thursday, November 6, 2014 and midnight Thursday, November 13, 2014 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 18372385). 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 Supplemental 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 third quarter unaudited interim consolidated financial report, as well as the Company's 2013 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 2014 |
June 30 2014 |
September 30 2013 |
September 30 2014 |
September 30 2013 |
|||||||||||||||||||
(Unaudited) |
||||||||||||||||||||||||
Net Interest Income Non-Securitized Assets |
||||||||||||||||||||||||
Interest from loans |
$ |
183,101 |
$ |
176,182 |
$ |
159,573 |
$ |
530,526 |
$ |
461,202 |
||||||||||||||
Dividends from securities |
2,955 |
2,898 |
2,621 |
8,584 |
8,609 |
|||||||||||||||||||
Other interest |
3,855 |
4,109 |
2,386 |
11,430 |
5,620 |
|||||||||||||||||||
189,911 |
183,189 |
164,580 |
550,540 |
475,431 |
||||||||||||||||||||
Interest on deposits and other |
80,428 |
76,718 |
67,911 |
230,168 |
196,489 |
|||||||||||||||||||
Interest on senior debt |
1,610 |
1,542 |
1,635 |
4,732 |
4,819 |
|||||||||||||||||||
Net interest income non-securitized assets |
107,873 |
104,929 |
95,034 |
315,640 |
274,123 |
|||||||||||||||||||
Net Interest Income Securitized Loans and Assets |
||||||||||||||||||||||||
Interest income from securitized loans and assets |
40,163 |
45,494 |
55,229 |
130,932 |
174,519 |
|||||||||||||||||||
Interest expense on securitization liabilities |
30,453 |
35,280 |
43,669 |
103,459 |
137,630 |
|||||||||||||||||||
Net interest income securitized loans and assets |
9,710 |
10,214 |
11,560 |
27,473 |
36,889 |
|||||||||||||||||||
Total Net Interest Income |
117,583 |
115,143 |
106,594 |
343,113 |
311,012 |
|||||||||||||||||||
Provision for credit losses |
3,511 |
3,232 |
2,768 |
9,948 |
11,864 |
|||||||||||||||||||
114,072 |
111,911 |
103,826 |
333,165 |
299,148 |
||||||||||||||||||||
Non-Interest Income |
||||||||||||||||||||||||
Fees and other income |
17,736 |
18,439 |
15,472 |
52,969 |
45,850 |
|||||||||||||||||||
Securitization income |
5,665 |
7,494 |
4,864 |
21,889 |
6,878 |
|||||||||||||||||||
Net realized and unrealized gains (losses) on securities |
521 |
1,187 |
(668) |
2,460 |
2,441 |
|||||||||||||||||||
Net realized and unrealized gains (losses) on derivatives |
1,050 |
(355) |
(44) |
(396) |
(1,937) |
|||||||||||||||||||
24,972 |
26,765 |
19,624 |
76,922 |
53,232 |
||||||||||||||||||||
139,044 |
138,676 |
123,450 |
410,087 |
352,380 |
||||||||||||||||||||
Non-Interest Expenses |
||||||||||||||||||||||||
Salaries and benefits |
20,533 |
19,872 |
17,768 |
60,613 |
51,391 |
|||||||||||||||||||
Premises |
2,884 |
3,014 |
2,407 |
8,653 |
7,291 |
|||||||||||||||||||
Other operating expenses |
19,484 |
17,636 |
17,460 |
53,097 |
47,194 |
|||||||||||||||||||
42,901 |
40,522 |
37,635 |
122,363 |
105,876 |
||||||||||||||||||||
Income Before Income Taxes |
96,143 |
98,154 |
85,815 |
287,724 |
246,504 |
|||||||||||||||||||
Income taxes |
||||||||||||||||||||||||
Current |
20,144 |
24,405 |
20,258 |
69,662 |
59,791 |
|||||||||||||||||||
Deferred |
2,244 |
4 |
(860) |
826 |
(1,002) |
|||||||||||||||||||
22,388 |
24,409 |
19,398 |
70,488 |
58,789 |
||||||||||||||||||||
NET INCOME |
$ |
73,755 |
$ |
73,745 |
$ |
66,417 |
$ |
217,236 |
$ |
187,715 |
||||||||||||||
NET INCOME PER COMMON SHARE |
||||||||||||||||||||||||
Basic |
$ |
1.05 |
$ |
1.06 |
$ |
0.96 |
$ |
3.11 |
$ |
2.71 |
||||||||||||||
Diluted |
$ |
1.05 |
$ |
1.05 |
$ |
0.95 |
$ |
3.09 |
$ |
2.68 |
||||||||||||||
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
||||||||||||||||||||||||
Basic |
70,089 |
69,743 |
69,405 |
69,776 |
69,289 |
|||||||||||||||||||
Diluted |
70,480 |
70,496 |
69,906 |
70,355 |
69,924 |
|||||||||||||||||||
Total number of outstanding common shares |
70,105 |
70,059 |
69,492 |
70,105 |
69,492 |
|||||||||||||||||||
Book value per common share |
$ |
19.57 |
$ |
18.74 |
$ |
16.14 |
$ |
19.57 |
$ |
16.14 |
||||||||||||||
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 nine months ended |
|||||||||
September 30 2014 |
June 30 2014 |
September 30 2013 |
September 30 2014 |
September 30 2013 |
||||||
thousands of Canadian dollars (Unaudited) |
||||||||||
NET INCOME |
$ |
73,755 |
$ |
73,745 |
$ |
66,417 |
$ |
217,236 |
$ |
187,715 |
OTHER COMPREHENSIVE (LOSS) INCOME |
||||||||||
Available for Sale Securities and Retained Interest |
||||||||||
Net unrealized (losses) gains |
$ |
(2,552) |
$ |
5,265 |
$ |
(10,638) |
$ |
6,716 |
$ |
(14,210) |
Net (gains) losses reclassified to net income |
(521) |
(1,187) |
671 |
(2,460) |
(2,437) |
|||||
(3,073) |
4,078 |
(9,967) |
4,256 |
(16,647) |
||||||
Income tax (recovery) expense |
(813) |
1,080 |
(2,640) |
1,127 |
(4,410) |
|||||
(2,260) |
2,998 |
(7,327) |
3,129 |
(12,237) |
||||||
Cash Flow Hedges |
||||||||||
Net unrealized gains (losses) |
217 |
(295) |
(195) |
(453) |
(195) |
|||||
Net losses reclassified to net income |
370 |
362 |
376 |
1,096 |
1,115 |
|||||
587 |
67 |
181 |
643 |
920 |
||||||
Income tax expense |
156 |
18 |
48 |
171 |
240 |
|||||
431 |
49 |
133 |
472 |
680 |
||||||
Total other comprehensive (loss) income |
$ |
(1,829) |
$ |
3,047 |
$ |
(7,194) |
$ |
3,601 |
$ |
(11,557) |
COMPREHENSIVE INCOME |
$ |
71,926 |
$ |
76,792 |
$ |
59,223 |
$ |
220,837 |
$ |
176,158 |
Consolidated Balance Sheets |
|||||||
As at |
|||||||
September 30 2014 |
June 30 2014 |
December 31 2013 |
|||||
thousands of Canadian dollars (Unaudited) |
|||||||
ASSETS |
|||||||
Cash and Cash Equivalents |
$ |
488,101 |
$ |
964,388 |
$ |
733,172 |
|
Available for Sale Securities |
597,990 |
615,700 |
424,272 |
||||
Loans Held for Sale |
56,561 |
47,847 |
137,975 |
||||
Loans |
|||||||
Securitized mortgages |
4,093,553 |
4,419,600 |
5,210,021 |
||||
Non-securitized mortgages and loans |
14,338,788 |
13,554,728 |
12,671,905 |
||||
18,432,341 |
17,974,328 |
17,881,926 |
|||||
Collective allowance for credit losses |
(33,500) |
(32,900) |
(31,500) |
||||
18,398,841 |
17,941,428 |
17,850,426 |
|||||
Other |
|||||||
Restricted assets |
666,640 |
609,810 |
648,283 |
||||
Derivative assets |
32,459 |
30,241 |
29,886 |
||||
Other assets |
219,407 |
197,781 |
162,679 |
||||
Goodwill and intangible assets |
101,609 |
96,331 |
89,157 |
||||
1,020,115 |
934,163 |
930,005 |
|||||
$ |
20,561,608 |
$ |
20,503,526 |
$ |
20,075,850 |
||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Liabilities |
|||||||
Deposits |
|||||||
Deposits payable on demand |
$ |
828,982 |
$ |
637,632 |
$ |
429,269 |
|
Deposits payable on a fixed date |
13,193,150 |
13,109,993 |
12,336,685 |
||||
14,022,132 |
13,747,625 |
12,765,954 |
|||||
Senior Debt |
146,784 |
145,746 |
147,343 |
||||
Securitization Liabilities |
|||||||
Mortgage-backed security liabilities |
548,640 |
577,245 |
660,964 |
||||
Canada Mortgage Bond liabilities |
4,177,521 |
4,413,359 |
5,112,100 |
||||
4,726,161 |
4,990,604 |
5,773,064 |
|||||
Other |
|||||||
Derivative liabilities |
1,223 |
1,553 |
3,809 |
||||
Other liabilities |
258,072 |
271,832 |
173,558 |
||||
Deferred tax liabilities |
35,251 |
33,007 |
34,425 |
||||
294,546 |
306,392 |
211,792 |
|||||
19,189,623 |
19,190,367 |
18,898,153 |
|||||
Shareholders' Equity |
|||||||
Capital stock |
84,565 |
82,848 |
70,233 |
||||
Contributed surplus |
3,650 |
3,684 |
5,984 |
||||
Retained earnings |
1,298,648 |
1,239,676 |
1,119,959 |
||||
Accumulated other comprehensive loss |
(14,878) |
(13,049) |
(18,479) |
||||
1,371,985 |
1,313,159 |
1,177,697 |
|||||
$ |
20,561,608 |
$ |
20,503,526 |
$ |
20,075,850 |
Consolidated Statements of Changes in Shareholders' Equity |
||||||||||||||
Net Unrealized |
||||||||||||||
(Losses) Gains |
Net Unrealized |
Total |
||||||||||||
on Securities and |
Losses on |
Accumulated |
||||||||||||
Retained Interest |
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, 2013 |
$ |
70,233 |
$ |
5,984 |
$ |
1,119,959 |
$ |
(15,823) |
$ |
(2,656) |
$ |
(18,479) |
$ |
1,177,697 |
Comprehensive income |
- |
- |
217,236 |
3,129 |
472 |
3,601 |
220,837 |
|||||||
Stock options exercised |
14,350 |
(3,858) |
- |
- |
- |
- |
10,492 |
|||||||
Amortization of fair value of |
||||||||||||||
employee stock options |
- |
1,524 |
- |
- |
- |
- |
1,524 |
|||||||
Repurchase of shares |
(18) |
- |
(754) |
- |
- |
- |
(772) |
|||||||
Dividends |
||||||||||||||
($0.50 per share) |
- |
- |
(37,793) |
- |
- |
- |
(37,793) |
|||||||
Balance at September 30, 2014 |
$ |
84,565 |
$ |
3,650 |
$ |
1,298,648 |
$ |
(12,694) |
$ |
(2,184) |
$ |
(14,878) |
$ |
1,371,985 |
Balance at December 31, 2012 |
$ |
61,903 |
$ |
6,224 |
$ |
903,831 |
$ |
432 |
$ |
(4,177) |
$ |
(3,745) |
$ |
968,213 |
Comprehensive income |
- |
- |
187,715 |
(12,237) |
680 |
(11,557) |
176,158 |
|||||||
Stock options exercised |
8,400 |
(2,202) |
- |
- |
- |
- |
6,198 |
|||||||
Amortization of fair value of |
||||||||||||||
employee stock options |
- |
1,390 |
- |
- |
- |
- |
1,390 |
|||||||
Repurchase of shares |
(66) |
- |
(2,077) |
- |
- |
- |
(2,143) |
|||||||
Dividends |
||||||||||||||
($0.40 per share) |
- |
- |
(28,454) |
- |
- |
- |
(28,454) |
|||||||
Balance at September 30, 2013 |
$ |
70,237 |
$ |
5,412 |
$ |
1,061,015 |
$ |
(11,805) |
$ |
(3,497) |
$ |
(15,302) |
$ |
1,121,362 |
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 nine months ended |
|||||||||||||||||||
September 30 2014 |
September 30 2013 |
September 30 2014 |
September 30 2013 |
|||||||||||||||||
thousands of Canadian dollars (Unaudited) |
||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||||||||||
Net income for the period |
$ |
73,755 |
$ |
66,417 |
$ |
217,236 |
$ |
187,715 |
||||||||||||
Adjustments to determine cash flows relating to operating activities: |
||||||||||||||||||||
Amortization of net premium on securities |
321 |
667 |
1,515 |
1,877 |
||||||||||||||||
Provision for credit losses |
3,511 |
2,768 |
9,948 |
11,864 |
||||||||||||||||
Gain on sale of mortgages or residual interest |
(4,322) |
(4,541) |
(19,593) |
(6,392) |
||||||||||||||||
Net realized and unrealized (gains) losses on securities |
(521) |
668 |
(2,460) |
(2,441) |
||||||||||||||||
Amortization of capital and intangible assets |
3,323 |
3,043 |
9,519 |
8,362 |
||||||||||||||||
Amortization of fair value of employee stock options |
436 |
449 |
1,524 |
1,390 |
||||||||||||||||
Deferred income taxes |
2,244 |
(860) |
826 |
(1,002) |
||||||||||||||||
Changes in operating assets and liabilities |
||||||||||||||||||||
Loans, net of securitization and sales |
(465,294) |
(287,604) |
(457,401) |
(929,101) |
||||||||||||||||
Restricted assets |
(56,830) |
135,408 |
(18,357) |
421,743 |
||||||||||||||||
Derivative assets and liabilities |
(1,961) |
(3,137) |
(4,516) |
13,569 |
||||||||||||||||
Accrued interest receivable |
(2,071) |
222 |
(1,446) |
(962) |
||||||||||||||||
Accrued interest payable |
(1,634) |
2,388 |
23,595 |
25,996 |
||||||||||||||||
Deposits |
274,507 |
768,008 |
1,256,178 |
1,800,048 |
||||||||||||||||
Securitization liabilities |
(264,443) |
(515,413) |
(1,046,903) |
(927,648) |
||||||||||||||||
Taxes receivable or payable and other |
(31,348) |
(34,732) |
1,202 |
(48,364) |
||||||||||||||||
Cash flows (used in) provided by operating activities |
(470,327) |
133,751 |
(29,133) |
556,654 |
||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||||||||||
Repurchase of shares |
(772) |
- |
(772) |
(2,143) |
||||||||||||||||
Exercise of employee stock options |
1,265 |
4,119 |
10,492 |
6,198 |
||||||||||||||||
Dividends paid to shareholders |
(12,619) |
(9,725) |
(34,902) |
(27,729) |
||||||||||||||||
Cash flows used in financing activities |
(12,126) |
(5,606) |
(25,182) |
(23,674) |
||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||||||||||
Activity in securities |
||||||||||||||||||||
Purchases |
(76,166) |
(65,136) |
(500,076) |
(182,382) |
||||||||||||||||
Proceeds from sales |
91,630 |
8,993 |
332,040 |
138,216 |
||||||||||||||||
Purchases of capital assets |
(1,164) |
(2,999) |
(2,017) |
(6,268) |
||||||||||||||||
Capitalized intangible development costs |
(8,134) |
(3,268) |
(20,703) |
(10,158) |
||||||||||||||||
Cash flows provided by (used in) investing activities |
6,166 |
(62,410) |
(190,756) |
(60,592) |
||||||||||||||||
Net (decrease) increase in cash and cash equivalents during the period |
(476,287) |
65,735 |
(245,071) |
472,388 |
||||||||||||||||
Cash and cash equivalents at beginning of the period |
964,388 |
715,499 |
733,172 |
308,846 |
||||||||||||||||
Cash and Cash Equivalents at End of the Period |
$ |
488,101 |
$ |
781,234 |
$ |
488,101 |
$ |
781,234 |
||||||||||||
Supplementary Disclosure of Cash Flow Information |
||||||||||||||||||||
Dividends received on investments |
$ |
2,630 |
$ |
3,204 |
$ |
7,143 |
$ |
7,189 |
||||||||||||
Interest received |
225,074 |
216,345 |
671,323 |
639,862 |
||||||||||||||||
Interest paid |
112,159 |
108,861 |
312,830 |
311,008 |
||||||||||||||||
Income taxes paid |
21,770 |
33,728 |
60,499 |
88,693 |
Home Capital published its annual financial objectives for 2014 on page 17 of the Company's 2013 Annual Report. The following table compares actual performance to date against each of these objectives.
Table 1: 2014 Targets and Performance |
|||||||
For the nine months ended September 30, 2014 |
|||||||
(000s, except Per Share and Percentage Amounts) |
2014 Targets |
Actual Results |
Amount |
Increase over 2013 |
|||
Growth in net income |
13%-18% |
15.7% |
$ |
217,236 |
$ |
29,521 |
|
Growth in diluted earnings per share1 |
13%-18% |
15.3% |
3.09 |
0.41 |
|||
Growth in total loans under administration2 |
15%-20% |
14.8% |
22,153,408 |
2,211,576 |
|||
Return on shareholders' equity |
20.0% |
22.7% |
|||||
Efficiency ratio (TEB)3 |
28.0% - 32.0% |
28.9% |
|||||
Provision as a percentage of gross uninsured loans (annualized) |
0.15% - 0.25% |
0.10% |
1The Company's diluted earnings per share has been presented as if the stock dividend was retrospectively applied to all comparative periods presented. |
2 Change represents growth over December 31, 2013 on an annualized basis and includes loans held for sale. |
3 See definition of TEB under Non-GAAP Measures of the unaudited interim consolidated financial report. |
Table 2: Reconciliation of Net Income to Adjusted Net Income |
||||||||||||||
Quarter |
Year to date |
|||||||||||||
(000s, except % and per share amounts) |
Q3 2014 |
Q2 2014 |
% Change |
Q3 2013 |
% Change |
2014 |
2013 |
% Change |
||||||
Reconciliation of Net Income to Adjusted Net Income |
||||||||||||||
Net income |
$ |
73,755 |
$ |
73,745 |
0.0% |
$ |
66,417 |
11.0% |
$ |
217,236 |
$ |
187,715 |
15.7% |
|
Adjustment for derivative restructuring - IFRS conversion (net of tax) |
106 |
827 |
(87.2)% |
931 |
(88.6)% |
1,850 |
$ |
5,023 |
(63.2)% |
|||||
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) |
(956) |
153.8% |
(2,735) |
(11.3)% |
(3,897) |
(4,720) |
(17.4)% |
||||||
Adjusted Net Income2 |
$ |
71,435 |
$ |
73,616 |
(3.0)% |
$ |
64,613 |
10.6% |
$ |
215,189 |
$ |
189,526 |
13.5% |
|
Adjusted Basic Earnings per Share1,2 |
$ |
1.02 |
$ |
1.06 |
(3.8)% |
$ |
0.93 |
9.7% |
$ |
3.08 |
$ |
2.74 |
12.4% |
|
Adjusted Diluted Earnings per Share1,2 |
$ |
1.01 |
$ |
1.04 |
(2.9)% |
$ |
0.92 |
9.8% |
$ |
3.06 |
$ |
2.71 |
12.9% |
|
1The 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 declared in Q1 2014. |
||||||||||||||
2Adjusted net income and adjusted earnings per share are defined in the Non-GAAP section of the unaudited interim consolidated financial report |
Caution Regarding Forward-Looking Statements
From time to time Home Capital Group Inc. makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are "financial outlooks" within the meaning of National Instrument 51-102. Please see the risk factors, which are set forth in detail on pages 54 through 67 of the Company's 2013 Annual 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 Section in the quarterly 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 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 2014, management's expectations continue to assume:
- The Canadian economy will continue to produce modest growth in 2014 with stable to modestly improving employment conditions in most regions, and inflation will generally be within the Bank of Canada's target of 1% to 3% leading to stable credit losses and strong demand for the Company's lending products.
- The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets; as such, the Company is prepared for the variability to plan that may result.
- The Bank of Canada continues to indicate that increases to its target overnight interest rate are not imminent and, as such, the Company is assuming the rate will remain at its current rate, for the remainder of 2014. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.
- The housing market will likely remain stable with balanced supply and demand conditions in most regions supported by continued low interest rates, relatively stable to improving employment, and immigration. There will be modest declines in housing starts and resale activity with stable prices throughout most of Canada. This supports continued stable credit losses and strong demand for the Company's lending products.
- 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 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 Third Quarter 2014 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 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. 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: Gerald M. Soloway, CEO, or Martin Reid, President, 416-360-4663, www.homecapital.com
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