Home Capital reports fourth quarter and full year 2016 results

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

Fourth Quarter and Full Year 2016 Highlights

Fourth Quarter 2016, compared with the Fourth Quarter 2015:

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

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

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

^(1)	See "Items of Note" under Reconciliation of Net Income to Adjusted Net Income in this press release for full details impacting reported and adjusted net income and diluted earnings per share results for 2016 and 2015 and in Table 2 of the Q4 2016 Management Discussion and Analysis.

Management Comments

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

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

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

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

Performance Goals

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

Measure^(1)	Previous^(2)	2016 Performance^(2)	New
Revenue Growth	-	-	5% or greater
Diluted Earnings Per Share Growth	8% to 13%	Declined 3.9% year over year	7% or greater
Return on Shareholders' Equity (ROE)	Annual ROE >16%	ROE of 16.3%	15% or greater
Dividend Payout Ratio	19% to 26%	Dividend Payout Ratio of 25%	-

^(1)	Measures are calculated on an adjusted basis.
^(2)	2016 Mid-term targets and performance were calculated on an adjusted basis. Previous targets included a measure to maintain a strong capital ratio that exceeds regulatory minimums by a safe margin commensurate with our risk profile. The Company maintained a strong CET 1 Ratio of 16.55% at the end of 2016.

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

2017 Strategic Priorities

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

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

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

Fourth Quarter Ended December 31, 2016 Summary

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

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

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

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

Core Business

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

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

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

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

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

Consumer Lending

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

Deposits

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

Operational Highlights

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

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

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

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

Strong and Conservative Financial Position

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

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

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

Outlook

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

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

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

(signed)	(signed)
MARTIN REID                                                                                      President & Chief Executive Officer                                                          February 8, 2017	KEVIN P.D. SMITH  Chair of the Board

The Company's 2016 Annual and Fourth Quarter Consolidated Financial Report, including Management's Discussion and Analysis, for each of the three- and twelve-month periods ended December 31, 2016 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

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

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

Conference Call Archive

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

Annual Meeting Notice

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

Financial Highlights
	For the three months ended						For the year ended
(000s, except Percentage and Per Share Amounts)		December 31	September 30		December 31		December 31		December 31
		2016		2016		2015		2016		2015
OPERATING RESULTS
Net Income	$	50,706	$	66,190	$	70,239	$	247,396	$	287,285
Adjusted Net Income^1		63,475		66,190		71,811		263,414		288,857
Net Interest Income		120,620		119,924		126,658		485,164		481,090
Total Revenue		239,417		243,928		248,462		967,719		995,767
Diluted Earnings per Share	$	0.79	$	1.01	$	1.00	$	3.71	$	4.09
Adjusted Diluted Earnings per Share^1	$	0.98	$	1.01	$	1.02	$	3.95	$	4.11
Return on Shareholders' Equity		12.7%		16.9%		17.6%		15.3%		18.7%
Adjusted Return on Shareholders' Equity^1		15.9%		16.9%		18.0%		16.3%		18.8%
Return on Average Assets		1.0%		1.3%		1.4%		1.2%		1.4%
Net Interest Margin (TEB)^2		2.38%		2.34%		2.46%		2.37%		2.36%
Provision as a Percentage of Gross Uninsured Loans (annualized)		0.07%		0.04%		0.04%		0.05%		0.06%
Provision as a Percentage of Gross Loans (annualized)		0.05%		0.03%		0.03%		0.04%		0.05%
Efficiency Ratio (TEB)^2		48.8%		37.7%		36.0%		40.8%		32.4%
Adjusted Efficiency Ratio (TEB)^1,2		39.1%		37.7%		33.7%		37.6%		31.8%
						As at
	December 31		September 30		December 31
		2016		2016		2015
BALANCE SHEET HIGHLIGHTS
Total Assets	$	20,528,777	$	20,317,030	$	20,527,062
Total Assets Under Administration^3		28,917,534		28,327,676		27,316,476
Total Loans^4		18,035,317		18,002,238		18,268,708
Total Loans Under Administration^3,4		26,424,074		26,012,884		25,058,122
Liquid Assets		2,067,981		1,878,082		2,095,145
Deposits		15,886,030		15,694,102		15,665,958
Shareholders' Equity		1,617,192		1,579,478		1,621,106
FINANCIAL STRENGTH
Capital Measures^5
Risk-Weighted Assets	$	8,643,267	$	8,414,960	$	7,985,498
Common Equity Tier 1 Capital Ratio		16.55%		16.54%		18.31%
Tier 1 Capital Ratio		16.54%		16.53%		18.30%
Total Capital Ratio		16.97%		16.97%		20.70%
Leverage Ratio		7.20%		7.08%		7.36%
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans		0.30%		0.31%		0.28%
Allowance as a Percentage of Gross Non-Performing Loans		73.4%		69.3%		74.0%
Share Information
Book Value per Common Share	$	25.12	$	24.47	$	23.17
Common Share Price – Close	$	31.34	$	27.00	$	26.92
Dividend paid during the period ended	$	0.26	$	0.24	$	0.22
Market Capitalization	$	2,017,920	$	1,743,093	$	1,883,808
Number of Common Shares Outstanding		64,388		64,559		69,978

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

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

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

⁴ Total loans include loans held for sale.

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

Reconciliation of Net Income to Adjusted Net Income
				Quarter						Year
(000s, except % and per share amounts)		Q4		Q3			Q4
		2016		2016		Change	2015		Change	2016		2015		Change
Net income under GAAP		$	50,706	$	66,190	(23.4)%	$	70,239	(27.8)%	$	247,396	$	287,285	(13.9)%
Adjustment for acquisition and integration costs, net of gain
recognized on acquisition of CFF Bank (net of tax)			-		-	-		1,572	(100.0)%		(478)		1,572	(130.4)%
Adjustment for severance and other related costs (net of tax)			-		-	-		-	-		3,727		-	-
Adjustment for goodwill impairment loss (net of tax)			9,000		-	-		-	-		9,000		-	-
Adjustment for intangible assets impairment loss (net of tax)			3,769		-	-		-	-		3,769		-	-
Adjusted Net Income^1		$	63,475	$	66,190	(4.1)%	$	71,811	(11.6)%	$	263,414	$	288,857	(8.8)%
Adjusted Basic Earnings per Share^1		$	0.98	$	1.01	(3.0)%	$	1.02	(3.9)%	$	3.96	$	4.12	(3.9)%
Adjusted Diluted Earnings per Share^1		$	0.98	$	1.01	(3.0)%	$	1.02	(3.9)%	$	3.95	$	4.11	(3.9)%
^1 Adjusted Net Income and Adjusted Earnings per share are defined in the Non-GAAP section of the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report.

Items of Note

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

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

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

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

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

Consolidated Balance Sheets
							As at
			December 31		September 30		December 31
thousands of Canadian dollars			2016		2016		2015
ASSETS
Cash and Cash Equivalents		$	1,205,394	$	1,058,940	$	1,149,849
Available for Sale Securities			534,924		523,482		453,230
Loans Held for Sale			77,918		74,207		135,043
Loans
Securitized mortgages			2,526,804		2,549,205		2,674,475
Non-securitized mortgages and loans			15,430,595		15,378,826		15,459,190
			17,957,399		17,928,031		18,133,665
Collective allowance for credit losses			(37,063)		(37,063)		(36,249)
			17,920,336		17,890,968		18,097,416
Other
Restricted assets			265,374		231,235		195,921
Derivative assets			37,524		52,178		64,796
Other assets			348,638		336,077		287,417
Deferred tax assets			16,914		16,362		15,043
Goodwill and intangible assets			121,755		133,581		128,347
			790,205		769,433		691,524
		$	20,528,777	$	20,317,030	$	20,527,062
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Deposits payable on demand		$	2,531,803	$	2,432,283	$	1,986,136
Deposits payable on a fixed date			13,354,227		13,261,819		13,679,822
			15,886,030		15,694,102		15,665,958
Senior Debt			-		-		151,480
Securitization Liabilities
CMHC-sponsored mortgage-backed security liabilities			898,386		930,614		531,326
CMHC-sponsored Canada Mortgage Bond liabilities			1,637,117		1,610,482		2,249,230
Bank-sponsored securitization conduit liabilities			114,146		139,115		-
			2,649,649		2,680,211		2,780,556
Other
Derivative liabilities			3,490		959		5,447
Other liabilities			336,132		324,070		264,941
Deferred tax liabilities			36,284		38,210		37,574
			375,906		363,239		307,962
			18,911,585		18,737,552		18,905,956
Shareholders' Equity
Capital stock			84,910		83,975		90,247
Contributed surplus			4,562		4,588		3,965
Retained earnings			1,582,785		1,554,258		1,592,438
Accumulated other comprehensive loss			(55,065)		(63,343)		(65,544)
			1,617,192		1,579,478		1,621,106
		$	20,528,777	$	20,317,030	$	20,527,062

Consolidated Statements of Income
					For the three months ended				For the year ended
			December 31		September 30		December 31		December 31		December 31
thousands of Canadian dollars, except per share amounts			2016		2016		2015		2016		2015
Net Interest Income Non-Securitized Assets
Interest from loans		$	190,389	$	192,395	$	197,052	$	768,034	$	769,562
Dividends from securities			2,614		2,359		2,608		10,112		10,620
Other interest			2,514		3,046		1,694		11,073		7,951
			195,517		197,800		201,354		789,219		788,133
Interest on deposits and other			78,868		81,519		77,762		315,919		318,597
Interest on senior debt			-		-		1,824		2,243		6,396
Net interest income non-securitized assets			116,649		116,281		121,768		471,057		463,140
Net Interest Income Securitized Loans and Assets
Interest income from securitized loans and assets			19,923		20,957		22,853		81,705		103,841
Interest expense on securitization liabilities			15,952		17,314		17,963		67,598		85,891
Net interest income securitized loans and assets			3,971		3,643		4,890		14,107		17,950
Total Net Interest Income			120,620		119,924		126,658		485,164		481,090
Provision for credit losses			2,400		1,336		1,415		7,890		8,933
			118,220		118,588		125,243		477,274		472,157
Non-Interest Income
Fees and other income			17,613		17,223		19,927		71,329		82,632
Securitization income			9,064		7,599		5,760		33,797		26,208
Gain on acquisition of CFF Bank			-		-		2,056		651		2,056
Net realized and unrealized (losses) gains on securities			-		-		(66)		(175)		836
Net realized and unrealized losses (gains) on derivatives			(2,700)		349		(3,422)		(8,807)		(7,939)
			23,977		25,171		24,255		96,795		103,793
			142,197		143,759		149,498		574,069		575,950
Non-Interest Expenses
Salaries and benefits			24,134		24,350		25,874		101,880		88,873
Premises			3,607		3,472		2,731		14,505		12,274
Other operating expenses			43,287		27,160		26,076		122,554		89,526
			71,028		54,982		54,681		238,939		190,673
Income Before Income Taxes			71,169		88,777		94,817		335,130		385,277
Income taxes
	Current		22,941		22,957		25,548		90,895		98,481
	Deferred		(2,478)		(370)		(970)		(3,161)		(489)
			20,463		22,587		24,578		87,734	-	97,992
NET INCOME		$	50,706	$	66,190	$	70,239	$	247,396	$	287,285
NET INCOME PER COMMON SHARE
Basic		$	0.79	$	1.01	$	1.00	$	3.71	$	4.09
Diluted		$	0.79	$	1.01	$	1.00	$	3.71	$	4.09
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic			64,479		65,386		70,157		66,601		70,170
Diluted			64,519		65,435		70,237		66,668		70,323
Total number of outstanding common shares			64,388		64,559		69,978		64,388		69,978
Book value per common share		$	25.12	$	24.47	$	23.17	$	25.12	$	23.17

Consolidated Statements of Comprehensive Income
				For the three months ended				For the year ended
	December 31		September 30		December 31		December 31		December 31
thousands of Canadian dollars	2016		2016		2015		2016		2015
NET INCOME	$	50,706	$	66,190	$	70,239	$	247,396	$	287,285
OTHER COMPREHENSIVE INCOME (LOSS)
Available for Sale Securities and Retained Interests
Net unrealized gains (losses)		12,774		7,820		6,171		11,852		(61,991)
Net losses (gains) reclassified to net income		-		-		66		204		(917)
		12,774		7,820		6,237		12,056		(62,908)
Income tax expense (recovery)		3,391		2,075		1,654		3,179		(16,684)
		9,383		5,745		4,583		8,877		(46,224)
Cash Flow Hedges
Net unrealized (losses) gains		(1,677)		803		(2,110)		1,035		(2,449)
Net losses reclassified to net income		174		268		369		1,147		1,474
		(1,503)		1,071		(1,741)		2,182		(975)
Income tax (recovery) expense		(398)		284		(462)		580		(260)
		(1,105)		787		(1,279)		1,602		(715)
Total other comprehensive income (loss)		8,278		6,532		3,304		10,479		(46,939)
COMPREHENSIVE INCOME	$	58,984	$	72,722	$	73,543	$	257,875	$	240,346

Consolidated Statements of Changes in Shareholders' Equity
								Net Unrealized
								Losses		Net Unrealized		Total
								on Securities and		Losses on		Accumulated
								Retained		Cash Flow		Other		Total
thousands of Canadian dollars,		Capital		Contributed		Retained		Interests Available		Hedges,		Comprehensive		Shareholders'
except per share amounts		Stock		Surplus		Earnings		for Sale, After Tax		After Tax		Loss		Equity
Balance at December 31, 2015		$	90,247	$	3,965	$	1,592,438	$	(62,466)	$	(3,078)	$	(65,544)	$	1,621,106
Comprehensive income			-		-		247,396		8,877		1,602		10,479		257,875
Stock options settled			1,984		(530)		-		-		-		-		1,454
Amortization of fair value of
	employee stock options		-		1,127		-		-		-		-		1,127
Repurchase of shares			(7,321)		-		(191,875)		-		-		-		(199,196)
Dividends
($0.98 per share)			-		-		(65,174)		-		-		-		(65,174)
Balance at December 31, 2016		$	84,910	$	4,562	$	1,582,785	$	(53,589)	$	(1,476)	$	(55,065)	$	1,617,192
Balance at December 31, 2014		$	84,687	$	3,989	$	1,378,562	$	(16,242)	$	(2,363)	$	(18,605)	$	1,448,633
Comprehensive income			-		-		287,285		(46,224)		(715)		(46,939)		240,346
Stock options settled			6,002		(1,605)		-		-		-		-		4,397
Amortization of fair value of
	employee stock options		-		1,581		-		-		-		-		1,581
Repurchase of shares			(442)		-		(10,270)		-		-		-		(10,712)
Dividends
($0.88 per share)			-		-		(63,139)		-		-		-		(63,139)
Balance at December 31, 2015		$	90,247	$	3,965	$	1,592,438	$	(62,466)	$	(3,078)	$	(65,544)	$	1,621,106

Consolidated Statements of Cash Flows
			For the three months ended				For the year ended
				December 31		December 31		December 31		December 31
thousands of Canadian dollars				2016		2015		2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period			$	50,706	$	70,239	$	247,396	$	287,285
Adjustments to determine cash flows relating to operating activities:
	Amortization of net discount on securities			(79)		(221)		(458)		(169)
	Provision for credit losses			2,400		1,415		7,890		8,933
	Gain on acquisition of CFF Bank			-		(2,056)		-		(2,056)
	Gain on sale of mortgages or residual interest			(7,006)		(4,728)		(26,972)		(21,412)
	Net realized and unrealized losses (gains) on securities			-		66		175		(836)
	Amortization and impairment losses^1			18,104		2,918		29,686		12,922
	Amortization of fair value of employee stock options			322		418		1,127		1,581
	Deferred income taxes			(2,478)		(970)		(3,161)		(489)
Changes in operating assets and liabilities
	Loans, net of securitization and sales			(28,184)		165,761		253,837		205,412
	Restricted assets			(34,139)		302,883		(69,453)		229,833
	Derivative assets and liabilities			15,682		13,844		27,497		(24,075)
	Accrued interest receivable			(506)		495		2,668		1,319
	Accrued interest payable			(1,855)		(10,146)		(1,312)		4,399
	Deposits			191,928		514,361		220,072		1,524,232
	Securitization liabilities			(30,562)		(557,308)		(130,907)		(1,542,653)
	Taxes receivable or payable and other			(1,489)		(11,072)		2,757		20,358
Cash flows provided by operating activities				172,844		485,899		560,842		704,584
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of shares				(5,678)		(7,334)		(199,196)		(10,712)
Exercise of employee stock options				856		638		1,454		4,397
Repayment of senior debt				-		-		(150,000)		-
Dividends paid to shareholders				(16,770)		(15,429)		(65,174)		(61,763)
Cash flows used in financing activities				(21,592)		(22,125)		(412,916)		(68,078)
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in securities
	Purchases			(2,978)		(35,020)		(203,674)		(35,020)
	Proceeds from sales			-		-		-		76,924
	Proceeds from maturities			3,992		1,618		132,932		25,350
Acquisition of CFF Bank, net of cash acquired				-		115,892		-		115,892
Purchases of capital assets				(460)		(1,628)		(2,550)		(5,302)
Capitalized intangible development costs				(5,352)		(7,006)		(19,089)		(25,247)
Cash flows (used in) provided by investing activities				(4,798)		73,856		(92,381)		152,597
Net increase in cash and cash equivalents during the period				146,454		537,630		55,545		789,103
Cash and cash equivalents at beginning of the period				1,058,940		612,218		1,149,849		360,746
Cash and Cash Equivalents at End of the Period			$	1,205,394	$	1,149,848	$	1,205,394	$	1,149,849
Supplementary Disclosure of Cash Flow Information
Dividends received on investments			$	1,898	$	4,513	$	10,037	$	11,656
Interest received				212,920		220,787		863,321		881,749
Interest paid				96,675		109,628		388,440		406,485
Income taxes paid				16,314		26,374		84,559		128,763
¹Amortization and impairment losses include amortization on capital and intangible assets and impairment losses on intangible assets and goodwill.

Net Interest Margin
	For the three months ended			For the year ended
	December 31	September 30	December 31	December 31	December 31
	2016	2016	2015	2016	2015
Net interest margin non-securitized interest-earning assets (non-TEB)	2.71%	2.68%	2.87%	2.71%	2.80%
Net interest margin non-securitized interest-earning assets (TEB)	2.73%	2.70%	2.89%	2.73%	2.83%
Net interest margin CMHC-sponsored securitized assets	0.53%	0.45%	0.60%	0.47%	0.49%
Net interest margin bank-sponsored securitization conduit assets	1.90%	1.85%	-	1.90%	-
Total net interest margin (non-TEB)	2.36%	2.33%	2.45%	2.35%	2.34%
Total net interest margin (TEB)	2.38%	2.34%	2.46%	2.37%	2.36%
Spread of non-securitized loans over deposits and other	2.86%	2.89%	2.97%	2.91%	2.91%

Net Interest Income
							For the three months ended
	December 31, 2016			September 30, 2016			December 31, 2015
(000s, except %)		Income/	Average		Income/	Average		Income/	Average
		Expense	Rate^1		Expense	Rate^1		Expense	Rate^1
Interest-bearing assets
Cash resources and securities	$	5,128	1.31%	$	5,405	1.21%	$	4,302	1.39%
Traditional single-family residential mortgages		131,029	4.75%		133,997	4.84%		144,335	4.98%
ACE Plus single-family residential mortgages		3,344	3.38%		3,104	3.36%		1,532	3.37%
Accelerator single-family residential mortgages		6,505	2.24%		7,342	2.40%		8,651	2.63%
Residential commercial mortgages^2		4,291	3.99%		4,483	4.26%		5,036	3.97%
Non-residential commercial mortgages		28,233	5.93%		26,741	6.08%		22,205	5.95%
Credit card loans and lines of credit		8,389	9.02%		8,432	9.03%		8,388	9.05%
Other consumer retail loans		8,598	9.32%		8,296	9.40%		6,905	9.81%
Total non-securitized loans		190,389	4.86%		192,395	4.94%		197,052	5.00%
Taxable equivalent adjustment		944	-		853	-		941	-
Total non-securitized interest earning assets		196,461	4.56%		198,653	4.58%		202,295	4.76%
CMHC-sponsored securitized single-family residential mortgages		11,115	2.50%		11,921	2.57%		13,549	2.74%
CMHC-sponsored securitized multi-unit residential mortgages		7,197	4.63%		7,238	4.61%		8,580	4.28%
Assets pledged as collateral for CMHC-sponsored securitization		495	1.35%		489	1.27%		724	0.63%
Total CMHC-sponsored securitized residential mortgages		18,807	2.96%		19,648	2.98%		22,853	2.82%
Bank-sponsored securitization conduit assets		1,116	3.53%	$	1,309	3.52%	$	-	-
Total assets	$	216,384	4.24%		219,610	4.25%		225,148	4.35%
Interest-bearing liabilities
Deposits and other	$	78,868	2.00%	$	81,519	2.05%	$	77,762	2.03%
Senior debt		-	-		-	-		1,824	4.78%
CMHC-sponsored securitization liabilities		15,438	2.41%		16,693	2.49%		17,963	2.20%
Bank-sponsored securitization conduit liabilities		514	1.61%		621	1.76%		-	-
Total liabilities	$	94,820	1.86%	$	98,833	1.91%	$	97,549	1.89%
Net Interest Income (TEB)	$	121,564		$	120,777		$	127,599
Taxable Equivalent Adjustment		(944)			(853)			(941)
Net Interest Income per Financial Statements	$	120,620		$	119,924		$	126,658

 

			2016			2015
(000s, except %)		Income/	Average		Income/	Average
		Expense	Rate^1		Expense	Rate^1
Interest-bearing assets
Cash resources and securities	$	21,185	1.25%	$	18,571	1.44%
Traditional single-family residential mortgages		540,522	4.84%		587,005	4.99%
ACE Plus single-family residential mortgages		11,490	3.31%		1,849	3.31%
Accelerator single-family residential mortgages		30,935	2.38%		28,777	2.58%
Residential commercial mortgages^2		17,614	4.12%		17,053	4.16%
Non-residential commercial mortgages		102,465	6.01%		80,032	6.06%
Credit card loans and lines of credit		33,536	8.99%		31,427	9.06%
Other consumer retail loans		31,472	9.22%		23,419	9.88%
Total non-securitized loans		768,034	4.90%		769,562	5.05%
Taxable equivalent adjustment		3,654	-		3,830	-
Total non-securitized interest earning assets		792,873	4.56%		791,963	4.79%
CMHC-sponsored securitized single-family residential mortgages		46,642	2.60%		62,891	2.79%
CMHC-sponsored securitized multi-unit residential mortgages		29,866	4.58%		36,625	4.23%
Assets pledged as collateral for CMHC-sponsored securitization		2,246	0.96%		4,325	0.84%
Total CMHC-sponsored securitized residential mortgages		78,754	2.94%		103,841	2.86%
Bank-sponsored securitization conduit assets		2,951	3.43%		-	-
Total assets	$	874,578	4.24%	$	895,804	4.35%
Interest-bearing liabilities
Deposits and other	$	315,919	1.99%	$	318,597	2.14%
Senior debt		2,243	3.91%		6,396	4.18%
CMHC-sponsored securitization liabilities		66,278	2.44%		85,891	2.32%
Bank-sponsored securitization conduit liabilities		1,320	1.58%		-	0.00%
Total liabilities	$	385,760	1.87%	$	410,884	1.99%
Net Interest Income (TEB)	$	488,818		$	484,920
Taxable Equivalent Adjustment		(3,654)			(3,830)
Net Interest Income per Financial Statements	$	485,164		$	481,090

¹ The average is calculated with reference to opening and closing monthly asset and liability balances.

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

Mortgage Advances
					For the three months ended				For the year ended
			December 31		September 30		December 31		December 31		December 31
(000s)			2016		2016		2015		2016		2015
Single-family residential mortgages
	Traditional	$	1,325,896	$	1,416,842	$	1,163,285	$	4,991,051	$	4,821,659
	ACE Plus		106,477		116,666		140,983		407,767		253,064
	Accelerator		346,690		446,734		515,891		1,622,003		1,391,740
Residential commercial mortgages
	Multi-unit uninsured residential mortgages		53,999		17,947		23,503		142,026		105,098
	Multi-unit insured residential mortgages		293,306		194,875		101,683		956,406		688,743
	Other^1		24,179		-		8,535		50,772		43,957
Non-residential commercial mortgages
	Stores and apartments		14,878		35,018		26,462		80,888		109,115
	Commercial		262,423		312,618		173,825		974,864		646,033
Total mortgage advances		$	2,427,848	$	2,540,700	$	2,154,167	$	9,225,777	$	8,059,409

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

Provision for Credit Losses  and Net Write-offs as a Percentage of Gross Loans on an Annualized Basis
				For the three months ended
(000s, except %)	December 31, 2016			September 30, 2016			December 31, 2015
		% of Gross			% of Gross			% of Gross
	Amount		Loans^1	Amount		Loans^1	Amount		Loans^1
Provision^2
Single-family residential mortgages	$	1,029	0.03%	$	1,006	0.03%	$	986	0.03%
Residential commercial mortgages		2	0.00%		(128)	(0.19)%		-	-
Non-residential commercial mortgages		45	0.01%		(37)	(0.01)%		(40)	(0.01)%
Credit card loans and lines of credit		1,164	1.26%		280	0.30%		343	0.37%
Other consumer retail loans		160	0.17%		215	0.23%		101	0.14%
Securitized single-family residential mortgages		-	-		-	-		-	-
Securitized multi-unit residential mortgages		-	-		-	-		-	-
Total individual provision		2,400	0.05%		1,336	0.03%		1,390	0.03%
Total collective provision		-	-		-	-		25	0.00%
Total provision	$	2,400	0.05%	$	1,336	0.03%	$	1,415	0.03%
Net Write-offs^2
Single-family residential mortgages	$	440	0.01%	$	664	0.02%	$	1,415	0.04%
Residential commercial mortgages		2	0.00%		-	-		-	-
Non-residential commercial mortgages		(5)	(0.00)%		100	0.02%		127	0.03%
Credit card loans and lines of credit		469	0.51%		397	0.42%		502	0.54%
Other consumer retail loans		48	0.05%		77	0.09%		94	0.13%
Securitized single-family residential mortgages		-	-		-	-		-	-
Securitized multi-unit residential mortgages		-	-		-	-		-	-
Net write-offs	$	954	0.02%	$	1,238	0.03%	$	2,138	0.05%
(000s, except %)				2016			2015
					% of Gross			% of Gross
				Amount		Loans^1	Amount		Loans^1
Provision^2
Single-family residential mortgages				$	3,917	0.03%	$	5,415	0.04%
Residential commercial mortgages					2	0.00%		4	0.00%
Non-residential commercial mortgages					246	0.01%		720	0.05%
Credit card loans and lines of credit					2,379	0.64%		798	0.22%
Other consumer retail loans					532	0.14%		171	0.06%
Securitized single-family residential mortgages					-	-		-	-
Securitized multi-unit residential mortgages					-	-		-	-
Total individual provision					7,076	0.04%		7,108	0.04%
Total collective provision					814	0.00%		1,825	0.01%
Total provision				$	7,890	0.04%	$	8,933	0.05%
Net Write-offs^2
Single-family residential mortgages				$	3,087	0.02%	$	5,292	0.04%
Residential commercial mortgages					2	0.00%		4	0.00%
Non-residential commercial mortgages					515	0.03%		435	0.03%
Credit card loans and lines of credit					1,928	0.52%		969	0.26%
Other consumer retail loans					275	0.07%		168	0.06%
Securitized single-family residential mortgages					-	-		-	-
Securitized multi-unit residential mortgages					-	-		-	-
Net write-offs				$	5,807	0.03%	$	6,868	0.04%

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

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

Loans by Geographic Region and Type (net of individual allowances for credit losses)
(000s, except %)								As at December 31, 2016
	British
	Columbia		Alberta		Ontario		Quebec			Other		Total
Securitized single-family residential mortgages^1	$	200,882	$	211,131	$	1,298,919	$	68,229	$	127,450	$	1,906,611
Securitized multi-unit residential mortgages		86,479		45,819		281,923		47,638		158,334		620,193
Total securitized mortgages		287,361		256,950		1,580,842		115,867		285,784		2,526,804
Single-family residential mortgages		688,939		401,820		10,796,570		326,253		208,426		12,422,008
Residential commercial mortgages^2		15,387		21,271		232,819		24,058		11,653		305,188
Non-residential commercial mortgages		48,335		58,688		1,795,461		35,820		16,516		1,954,820
Credit card loans and lines of credit		7,548		20,265		333,903		1,253		6,709		369,678
Other consumer retail loans		950		20,492		354,356		-		3,103		378,901
Total non-securitized mortgages and loans^3		761,159		522,536		13,513,109		387,384		246,407		15,430,595
	$	1,048,520	$	779,486	$	15,093,951	$	503,251	$	532,191	$	17,957,399
As a % of portfolio		5.8%		4.3%		84.1%		2.8%		3.0%		100.0%
thousands of Canadian dollars, except %										As at September 30, 2016
		British
		Columbia		Alberta		Ontario		Quebec		Other		Total
Securitized single-family residential mortgages^1	$	196,176	$	211,470	$	1,323,658	$	69,580	$	123,947	$	1,924,831
Securitized multi-unit residential mortgages		86,877		46,086		284,161		48,122		159,128		624,374
Total securitized mortgages		283,053		257,556		1,607,819		117,702		283,075		2,549,205
Single-family residential mortgages		693,783		409,703		10,851,113		346,199		224,167		12,524,965
Residential commercial mortgages^2		13,737		7,026		208,049		25,440		9,963		264,215
Non-residential commercial mortgages		28,572		56,701		1,705,435		47,354		16,053		1,854,115
Credit card loans and lines of credit		8,392		21,431		336,348		1,326		6,851		374,348
Other consumer retail loans		954		18,299		340,307		-		1,623		361,183
Total non-securitized mortgages and loans^3		745,438		513,160		13,441,252		420,319		258,657		15,378,826
	$	1,028,491	$	770,716	$	15,049,071	$	538,021	$	541,732	$	17,928,031
As a % of portfolio		5.7%		4.3%		84.0%		3.0%		3.0%		100.0%
thousands of Canadian dollars, except %										As at December 31, 2015
		British
		Columbia		Alberta		Ontario		Quebec		Other		Total
Securitized single-family residential mortgages	$	125,239	$	114,807	$	1,559,536	$	81,262	$	67,266	$	1,948,110
Securitized multi-unit residential mortgages		94,676		46,848		372,141		51,309		161,391		726,365
Total securitized mortgages		219,915		161,655		1,931,677		132,571		228,657		2,674,475
Single-family residential mortgages		706,555		525,984		11,060,894		419,075		266,910		12,979,418
Residential commercial mortgages^2		21,128		14,215		216,407		27,265		42,427		321,442
Non-residential commercial mortgages		25,157		59,861		1,358,295		14,505		32,830		1,490,648
Credit card loans and lines of credit		9,598		22,709		330,188		1,489		6,841		370,825
Other consumer retail loans		783		11,090		284,231		-		753		296,857
Total non-securitized mortgages and loans^3		763,221		633,859		13,250,015		462,334		349,761		15,459,190
	$	983,136	$	795,514	$	15,181,692	$	594,905	$	578,418	$	18,133,665
As a % of portfolio		5.4%		4.4%		83.7%		3.3%		3.2%		100.0%

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

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

³ Loans exclude mortgages held for sale.

Impaired Loans and Individual Allowances for Credit Losses
(000s, except %)						As at December 31, 2016
	Single-family			Residential	Non-residential			Credit Card		Other
		Residential		Commercial		Commercial		Loans and		Consumer
		Mortgages		Mortgages		Mortgages	Lines of Credit		Retail Loans			Total
Gross amount of impaired loans	$	49,834	$	-	$	4,577	$	2,049	$	411	$	56,871
Individual allowances on principal		(1,980)		-		(30)		(780)		(411)		(3,201)
Net amount of impaired loans	$	47,854	$	-	$	4,547	$	1,269	$	-	$	53,670
Net impaired loans as a % of gross loans		0.39%		-		0.23%		0.34%		-		0.30%
(000s, except %)									As at September 30, 2016
		Single-family		Residential	Non-residential			Credit Card		Other
		Residential		Commercial		Commercial		Loans and		Consumer
		Mortgages		Mortgages		Mortgages	Lines of Credit		Retail Loans			Total
Gross amount of impaired loans	$	52,349	$	-	$	3,388	$	2,091	$	302	$	58,130
Individual allowances on principal		(1,637)		-		(20)		(85)		(302)		(2,044)
Net amount of impaired loans	$	50,712	$	-	$	3,368	$	2,006	$	-	$	56,086
Net impaired loans as a % of gross loans		0.40%		-		0.18%		0.54%		-		0.31%
(000s, except %)									As at December 31, 2015
		Single-Family		Residential	Non-Residential			Credit Card		Other
		Residential		Commercial		Commercial		Loans and		Consumer
		Mortgages		Mortgages		Mortgages	Lines of Credit		Retail Loans			Total
Gross amount of impaired loans	$	49,285	$	-	$	2,558	$	1,518	$	161	$	53,522
Individual allowances on principal		(1,652)		-		(340)		(329)		(161)		(2,482)
Net amount of impaired loans	$	47,633	$	-	$	2,218	$	1,189	$	-	$	51,040
Net impaired loans as a % of gross loans		0.37%		-		0.15%		0.32%		-		0.28%

Allowance for Credit Losses
(000s)						For the three months ended December 31, 2016
	Single-family			Residential	Non-residential			Credit Card		Other
		Residential		Commercial		Commercial		Loans and		Consumer
		Mortgages		Mortgages		Mortgages	Lines of Credit			Retail Loans		Total
Individual allowances
Allowance on loan principal
Balance at the beginning of the period	$	1,637	$	-	$	20	$	85	$	302	$	2,044
Provision for credit losses		783		2		5		1,164		157		2,111
Write-offs		(619)		(2)		(5)		(493)		(126)		(1,245)
Recoveries		179		-		10		24		78		291
		1,980		-		30		780		411		3,201
Allowance on accrued interest receivable
Balance at the beginning of the period		1,095		-		58		-		9		1,162
Provision for credit losses		246		-		40		-		3		289
		1,341		-		98		-		12		1,451
Total individual allowance		3,321		-		128		780		423		4,652
Collective allowance
Balance at the beginning of the period		23,032		327		9,500		3,904		300		37,063
Provision for credit losses		-		-		-		-		-		-
		23,032		327		9,500		3,904		300		37,063
Total allowance	$	26,353	$	327	$	9,628	$	4,684	$	723	$	41,715
Total provision	$	1,029	$	2	$	45	$	1,164	$	160	$	2,400
(000s)					For the three months ended September 30, 2015
	Single-family			Residential	Non-residential			Credit Card		Other
		Residential		Commercial		Commercial		Loans and		Consumer
		Mortgages		Mortgages		Mortgages	Lines of Credit			Retail Loans		Total
Individual allowances
Allowance on loan principal
Balance at the beginning of the period	$	1,358	$	-	$	160	$	202	$	167	$	1,887
Provision for credit losses		943		-		(40)		280		212		1,395
Write-offs		(745)		-		(104)		(420)		(127)		(1,396)
Recoveries		81		-		4		23		50		158
		1,637		-		20		85		302		2,044
Allowance on accrued interest receivable
Balance at the beginning of the period		1,032		128		55		-		6		1,221
Provision for credit losses		63		(128)		3		-		3		(59)
		1,095		-		58		-		9		1,162
Total individual allowance		2,732		-		78		85		311		3,206
Collective allowance
Balance at the beginning of the period		23,032		327		9,500		3,904		300		37,063
Provision for credit losses		-		-		-		-		-		-
		23,032		327		9,500		3,904		300		37,063
Total allowance	$	25,764	$	327	$	9,578	$	3,989	$	611	$	40,269
Total provision	$	1,006	$	(128)	$	(37)	$	280	$	215	$	1,336

Allowance for Credit Losses (continued)
(000s)						For the three months ended December 31, 2015
	Single-family			Residential	Non-residential			Credit Card		Other
		Residential		Commercial		Commercial		Loans and		Consumer
		Mortgages		Mortgages		Mortgages	Lines of Credit		Retail Loans			Total
Individual allowances
Allowance on loan principal
Balance at the beginning of the period	$	1,952	$	-	$	405	$	68	$	155	$	2,580
Allowance assumed on purchase of CFF Bank		-		-		-		420		-		420
Provision for credit losses		1,115		-		62		343		100		1,620
Write-offs		(1,531)		-		(167)		(519)		(123)		(2,340)
Recoveries		116		-		40		17		29		202
		1,652		-		340		329		161		2,482
Allowance on accrued interest receivable
Balance at the beginning of the period		968		-		159		-		4		1,131
Provision for credit losses		(129)		-		(102)		-		1		(230)
		839		-		57		-		5		901
Total individual allowance		2,491		-		397		329		166		3,383
Collective allowance
Balance at the beginning of the period		22,232		327		9,500		3,541		300		35,900
Allowance assumed on purchase of CFF Bank		-		-		-		324		-		324
Provision for credit losses		-		-		-		25		-		25
		22,232		327		9,500		3,890		300		36,249
Total allowance	$	24,723	$	327	$	9,897	$	4,219	$	466	$	39,632
Total provision	$	986	$	-	$	(40)	$	368	$	101	$	1,415

Allowance for Credit Losses (continued)
(000s)						For the year ended December 31, 2016
	Single-family		Residential		Non-residential			Credit Card		Other
		Residential	Commercial		Commercial			Loans and		Consumer
		Mortgages	Mortgages		Mortgages		Lines of Credit			Retail Loans		Total
Individual allowances
Allowance on loan principal
Balance at the beginning of the year	$	1,652	$	-	$	340	$	329	$	161	$	2,482
Provision for credit losses		3,415		2		205		2,379		525		6,526
Write-offs		(3,608)		(2)		(537)		(2,117)		(519)		(6,783)
Recoveries		521		-		22		189		244		976
		1,980		-		30		780		411		3,201
Allowance on accrued interest receivable
Balance at the beginning of the year		839		-		57		-		5		901
Provision for credit losses		502		-		41		-		7		550
		1,341		-		98		-		12		1,451
Total individual allowance		3,321		-		128		780		423		4,652
Collective allowance
Balance at the beginning of the year		22,232		327		9,500		3,890		300		36,249
Provision for credit losses		800		-		-		14		-		814
		23,032		327		9,500		3,904		300		37,063
Total allowance	$	26,353	$	327	$	9,628	$	4,684	$	723	$	41,715
Total provision	$	4,717	$	2	$	246	$	2,393	$	532	$	7,890
(000s)								For the year ended December 31, 2015
	Single-family		Residential		Non-residential			Credit Card		Other
		Residential	Commercial		Commercial			Loans and		Consumer
		Mortgages		Mortgages		Mortgages	Lines of Credit			Retail Loans		Total
Individual allowances
Allowance on loan principal
Balance at the beginning of the year	$	1,808	$	-	$	55	$	80	$	160	$	2,103
Allowance assumed on purchase of CFF Bank		-		-		-		420		-		420
Provision for credit losses		5,136		4		720		798		169		6,827
Write-offs		(6,357)		(9)		(486)		(1,005)		(442)		(8,299)
Recoveries		1,065		5		51		36		274		1,431
		1,652		-		340		329		161		2,482
Allowance on accrued interest receivable
Balance at the beginning of the year		560		-		57		-		3		620
Provision for credit losses		279		-		-		-		2		281
		839		-		57		-		5		901
Total individual allowance		2,491		-		397		329		166		3,383
Collective allowance
Balance at the beginning of the year		20,632		327		9,300		3,541		300		34,100
Allowance assumed on purchase of CFF Bank		-		-		-		324		-		324
Provision for credit losses		1,600		-		200		25		-		1,825
		22,232		327		9,500		3,890		300		36,249
Total allowance	$	24,723	$	327	$	9,897	$	4,219	$	466	$	39,632
Total provision	$	7,015	$	4	$	920	$	823	$	171	$	8,933
There were no individual provisions, allowances, or net write-offs on securitized residential mortgages.

Securitization Activities
(000s)										For the three months ended
				December 31					September 30
						2016						2016
	Single-family		Multi-unit				Single-family		Multi-unit
	Residential MBS		Residential MBS		Total MBS		Residential MBS		Residential MBS		Total MBS
Carrying value of underlying mortgages derecognized	$	392,298	$	314,985	$	707,283	$	400,764	$	242,894	$	643,658
Net gains on sale of mortgages or residual interest^1		4,284		2,722		7,006		3,904		2,151		6,055
Retained interests recorded		-		10,004		10,004		-		10,077		10,077
Servicing liability recorded		-		2,408		2,408		-		2,313		2,313
(000s)								For the three months ended
									December 31
												2015
							Single-family		Multi-unit
							Residential MBS		Residential MBS		Total MBS
Carrying value of underlying mortgages derecognized							$	371,473	$	161,757	$	533,230
Net gains on sale of mortgages or residual interest^1								3,362		1,366		4,728
Retained interests recorded								-		5,933		5,933
Servicing liability recorded								-		1,278		1,278
(000s)		2016						2015
	Single-family		Multi-unit				Single-family		Multi-unit
	Residential MBS		Residential MBS		Total MBS		Residential MBS		Residential MBS		Total MBS
Carrying value of underlying mortgages derecognized	$	1,490,850	$	1,046,457	$	2,537,307	$	1,184,253	$	713,635	$	1,897,888
Net gains on sale of mortgages or residual interest^1		17,368		9,604		26,972		15,499		5,913		21,412
Retained interests recorded		-		41,900		41,900		-		33,228		33,228
Servicing liability recorded		-		8,955		8,955		-		6,229		6,229
¹Gains on sale of mortgages and residual interest are net of hedging impact.

(000s)			For the three months ended
	December 31, 2016		September 30, 2016		December 31, 2015
Net gain on sale of mortgages and residual interest^1	$	7,006	$	6,055	$	4,728
Net change in unrealized gain or loss on hedging activities		276		(121)		(232)
Servicing income		1,782		1,665		1,264
Total securitization income	$	9,064	$	7,599	$	5,760

(000s)		2016		2015
Net gain on sale of mortgages and residual interest^1	$	26,972	$	21,412
Net change in unrealized gain or loss on hedging activities		399		(313)
Servicing income		6,426		5,109
Total securitization income	$	33,797	$	26,208
¹Gains on sale of mortgages and residual interest are net of hedging impact.

Management's Responsibility for Financial Information

The Company's Audit Committee reviewed this document along with the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report.  The Company's Board of Directors approved both documents prior to their release.   A full description of management's responsibility for financial information is included in the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report.

Caution Regarding Forward-looking Statements

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

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

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

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

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

Non-GAAP Measures

The Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises for years beginning on or after January 1, 2011. The Company uses a number of financial measures to assess its performance.  Some of these measures are not calculated in accordance with GAAP, are not defined by GAAP, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures.  Definitions of non-GAAP measures can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2016 Annual and Fourth Quarter Consolidated Financial Report.

 Regulatory Filings

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

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

SOURCE Home Capital Group Inc.

Laura Lepore, AVP, Investor Relations, 416-933-5652, [email protected], www.homecapital.com

Related Links

http://www.homecapital.com