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Home Capital Reports fourth quarter and full year 2017 Results English


News provided by

Home Capital Group Inc.

Feb 14, 2018, 19:49 ET

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TORONTO, Feb. 14, 2018 /CNW/ - Home Capital Group ("Home Capital" or "the Company") (TSX: HCG) today reported financial results for the three and twelve months ended December 31, 2017. This press release should be read in conjunction with the Company's 2017 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.

"Our improved fourth quarter performance capped an important year for Home Capital employees, customers, brokers and shareholders," said Yousry Bissada, President and Chief Executive Officer, Home Capital Group. "We have demonstrated progress towards growing our residential and commercial business lines to more normal and sustainable levels and our employees delivered improved service. The steps we have taken to ensure we provide efficient and effective service to brokers and customers will help us to drive profitable growth going forward."

"We are entering 2018 with positive momentum in our business. We have turned the corner and expect to grow from here, responsibly, with sustainable risk management practices embedded in our culture," Mr. Bissada continued. "We have a strong capital position and balance sheet. We will use our position of strength to seize opportunities to invest in, and grow, our business to create value."

Fourth Quarter 2017, compared with the Third Quarter 2017:

  • Net income of $30.6 million, an increase of 2.1% or $0.6 million from $30.0 million.
  • Diluted earnings per share of $0.38, an increase of 2.7% from $0.37.
  • Non-interest expense of $65.5 million, an increase of 9.3% or $5.6 million from $59.9 million.
  • Non-securitized single-family residential mortgages of $10.04 billion, a decrease of 3.5% or $0.36 billion from $10.40 billion. 
  • Total mortgage originations of $872.1 million, an increase of 126% or $487.0 million from $385.1 million.
  • Provision for credit losses as a percentage of gross uninsured loans of 0.12%, compared to (0.14)% where Q3 2017 included a reduction of $6.5 million in the collective allowance (0.07% in the absence of this reduction).

Fourth Quarter 2017, compared with the Fourth Quarter 2016:

  • Net income of $30.6 million, a decrease of 39.6% or $20.1 million from $50.7 million.
  • Net income in Q4 2017 includes the impact of reduced loan balances and lower securitization income, partially offset by lower non-interest expenses.
  • Diluted earnings per share of $0.38, a decrease of 51.9% from $0.79.
  • Non-interest expenses were $65.5 million, a $5.5 million decline and 7.8% improvement from $71.0 million.
  • Total mortgage originations of $872.1 million, a decrease of 64.1% or $1.56 billion from $2.43 billion. 
  • Provision for credit losses as a percentage of gross uninsured loans was 0.12% compared to 0.07%.

Year Ended December 31, 2017, compared with the Year Ended December 31, 2016:

  • Net income of $7.5 million, compared with $247.4 million.
  • Net income includes $223.6 million of expenses directly associated with the Q2 2017 liquidity event.
  • Diluted earnings per share of $0.10 compared to diluted earnings per share of $3.71.
  • Total loans under administration of $22.51 billion, a decrease of 14.8% or $3.91 billion from $26.42 billion.
  • Provision for credit losses as a percentage of gross uninsured loans was 0.07%, compared to 0.05%.

Corporate Update

Home Capital ended 2017 with a strong capital position, poised for sustainable growth and with a clear goal of regaining its leading market share position in Canada's Alt-A mortgage market.

Management and the Board of Directors are focused on completing a strategy that will take advantage of the Company's capital position and balance sheet to invest in the business, drive profitable growth and create long-term shareholder value. 

In the near term, management's key areas of focus are:

1.

Profitably growing residential and commercial business lines to more sustainable levels and increasing market share.

2.

Improving service levels through training initiatives that will empower employees to deliver best-in-class service.

3.

Increasing renewal and retention rates.

4.

Increasing broker outreach to advance higher-quality applications.

5.

Maintaining competitive product offerings.

6.

Innovating and applying technology in the mortgage business to enhance customer and broker experiences.               

In addition, the Company is operating in the context of an evolving regulatory landscape that will affect its primary residential mortgage market, although the extent of any impact is not yet clear. Management and the Board of Directors will continue to assess opportunities for the business as it relates to the current environment during the first and second quarters of 2018.

Fourth Quarter 2017 Financial Position

  • Total loans under administration of $22.51 billion, which includes securitized mortgages that qualify for off-balance sheet accounting, decreased by 14.8% or $3.91 billion from $26.42 billion at the end of 2016, and 3.1% or $719.2 million from $23.23 billion at the end of Q3 2017.
  • Total loans of $15.06 billion declined 16.5% from $18.04 billion at the end of 2016, and 2.4% from $15.43 billion at the end of Q3 2017. 
    • Total mortgages originated of $872.1 million, compared to $2.43 billion in Q4 2016 and $385.1 million in Q3 2017. 
    • Single-family residential mortgage originations of $566.0 million in Q4 2017, compared with $1.78 billion in Q4 2016 and $224.0 million in Q3 2017.
    • Multi-unit residential mortgage originations of $194.8 million, compared to $371.5 million in Q4 2016 and $99.1 million in Q3 2017. Multi-unit residential mortgage originations are mostly insured and subsequently securitized through programs that qualify for off-balance sheet accounting.
    • Non-residential commercial mortgage originations, which include store and apartment mortgages, of $111.2 million, compared to $277.3 million in Q4 2016 and $62.0 million in Q3 2017.
  • Liquid assets were $1.65 billion, compared to $2.07 billion at the end of 2016 and $2.66 billion at September 30, 2017.  The Company maintains a prudent level of liquidity, given the current level of operations, loan balances and the Company's obligations.
  • Total deposits were $12.17 billion, compared to $15.89 billion at the end of 2016 and $13.36 billion at the end of Q3 2017.
    • The decrease in deposits from the end of last year reflects the elevated level of redemptions of the Company's High-Interest Savings Accounts during the Q2 2017 liquidity event and lower funding requirements due to lower loan balances. 
    • The decrease in deposits from the end of last quarter reflects the Company's intentional actions to slow the inflow of deposits to match expected mortgage originations.  During the third quarter, the Company decided to offer premium rates on deposits to increase inflows following the Q2 2017 liquidity event.  The growth of deposits outpaced loan growth and created a drag on earnings. Consequently, by the end of the third quarter, the Company reduced interest rates on new deposits to intentionally lower deposits until mortgage balances began to grow.
    • The Company created net deposits inflows mid-way through the fourth quarter by increasing interest rates paid on new and renewed deposits to meet expected mortgage funding requirements.  It is expected that the Company may be required to offer higher interest rates on new deposits in future periods.  It is assumed that any such increases could be offset by increased interest rates charged on mortgages originated or renewed in future periods. Any inability to pass on any increased funding costs would negatively impact net interest margins.

Credit Quality

The loan portfolio remained strong with the level of credit losses and non-performing loans remaining low. Provision for credit losses (PCL) for the quarter was $3.4 million, compared to $2.4 million in Q4 2016 and a $4.3 million release in Q3 2017.

  • The annualized credit provision as a percentage of gross uninsured loans was 0.12%, compared to 0.07% in Q4 2016 and (0.14)% in Q3 2017. 
    • The increase in the PCL ratio over last year resulted from a specific provision of $2.2 million against one non-residential commercial mortgage.  The negative PCL ratio in the third quarter resulted from the reduction of $6.5 million in the collective allowance for the non-residential commercial portfolio related to asset sales (see Note 5(H) of the consolidated financial statements for more information).  In the absence of this reduction, the PCL ratio in Q3 2017 would have been 0.07%.
  • Net non-performing loans as a percentage of gross loans ended 2017 at 0.30%, compared to 0.28% at the end of Q3 2017 and unchanged from the end of 2016. 
    • Although the percentage of net non-performing loans over gross loans was consistent year over year and sequentially, there was a significant change in the mix of net non-performing residential and commercial mortgages. 
    • The net amount of non-performing non-residential commercial mortgages increased to $13.7 million at Q4 2017 from $4.5 million at Q4 2016 and $6.2 million at Q3 2017, and the net amount of non-performing single-family residential mortgages decreased to $30.1 million from $47.9 million at Q4 2016 and $36.1 million at Q3 2017.
    • Total net non-performing loan balances decreased to $45.4 million at Q4 2017 from $53.7 million at Q4 2016 and increased from $43.6 million at Q3 2017.
  • The Company adopted IFRS 9 beginning January 1, 2018. The impact of the adoption of IFRS 9 is not expected to be significant. Additional information on the impacts of IFRS 9 will be made available in the Company's Report to Shareholders for the first quarter of 2018.

Capital Position

The Company maintained strong capital ratios well above Company targets and regulatory minimums at the end of 2017. Management continues to review opportunities to deploy capital in the most efficient manner to maximize shareholder value.

  • Home Trust's Common Equity Tier 1 and Total capital ratios remained very strong at 23.17% and 23.68%, respectively, at December 31, 2017. The comparative balances were 16.55% and 16.97%, respectively, at December 31, 2016.
  • Home Trust's Leverage ratio was 8.70% at December 31, 2017 and 7.20% at December 31, 2016.

Looking Forward

Looking to 2018, the Company's strong capital position and balance sheet, stable deposit funding base and ample liquidity provide a solid foundation for future investment in the business and to be competitive in the Canadian market.

Management is confident it is well-positioned to deliver sustainable loan growth as well as improved execution and service levels to increase market share. As the business grows, management and the Board are committed to the ongoing enhancement of risk management and corporate governance practices to grow the business responsibly. Creating long-term shareholder value and resuming Home Capital's nearly 30-year track record of profitable growth are priorities for the Company.

(signed)

(signed)

YOUSRY BISSADA   

BRENDA EPRILE                                             

President & Chief Executive Officer

Chair of the Board

February 14, 2018


The Company's 2017 Annual and Fourth Quarter Consolidated Financial Report, including Management's Discussion and Analysis, for the three and twelve months ended December 31, 2017 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.

Fourth Quarter and Year-End 2017 Results Conference Call and Webcast

The conference call will take place on Thursday, February 15, 2018, 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. A webcast slide presentation 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 15, 2018 and 12:00 a.m. ET Thursday, February 22, 2018 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 8574149). 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.

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



2017


2017


2016


2017


2016

OPERATING RESULTS











Net Income

$

30,619

$

29,983

$

50,706

$

7,527

$

247,396

Net Interest Income


91,718


88,762


120,620


302,930


485,164

Total Revenue1


109,455


95,407


144,597


291,311


581,959

Diluted Earnings per Share

$

0.38

$

0.37

$

0.79

$

0.10

$

3.71

Return on Shareholders' Equity


6.8%


6.8%


12.6%


0.4%


15.1%

Return on Average Assets


0.7%


0.6%


1.0%


0.0%


1.2%

Net Interest Margin (TEB)2


2.02%


1.85%


2.38%


1.55%


2.37%

Provision as a Percentage of Gross Uninsured Loans (annualized)3


0.12%


(0.14)%


0.07%


0.07%


0.05%

Provision as a Percentage of Gross Loans (annualized)3


0.09%


(0.11)%


0.05%


0.05%


0.04%

Efficiency Ratio (TEB)2


59.8%


62.7%


48.8%


94.0%


40.8%







As at






December 31

September 30

December 31







2017


2017


2016





BALANCE SHEET HIGHLIGHTS











Total Assets

$

17,591,143

$

18,856,294

$

20,528,777





Total Assets Under Administration4


25,040,182


26,659,330


28,917,534





Total Loans5


15,064,424


15,429,650


18,035,317





Total Loans Under Administration4,5


22,513,463


23,232,686


26,424,074





Liquid Assets


1,654,718


2,657,055


2,067,981





Deposits


12,170,454


13,358,618


15,886,030





Shareholders' Equity


1,813,505


1,781,741


1,632,587





FINANCIAL STRENGTH











Capital Measures6











Risk-Weighted Assets

$

6,532,130

$

6,890,938

$

8,643,267





Common Equity Tier 1 Capital Ratio


23.17%


21.25%


16.55%





Tier 1 Capital Ratio


23.17%


21.25%


16.54%





Total Capital Ratio


23.68%


21.74%


16.97%





Leverage Ratio


8.70%


7.89%


7.20%





Credit Quality











Net Non-Performing Loans as a Percentage of Gross Loans


0.30%


0.28%


0.30%





Allowance as a Percentage of Gross Non-Performing Loans


79.5%


82.6%


73.4%





Share Information











Book Value per Common Share

$

22.60

$

22.20

$

25.36





Common Share Price – Close

$

17.31

$

13.89

$

31.34





Dividend paid during the period ended

$

-

$

-

$

0.26





Dividend Payout Ratio


-


-


32.9%





Market Capitalization

$

1,389,058

$

1,114,617

$

2,017,920





Number of Common Shares Outstanding


80,246


80,246


64,388






1The Company has revised its definition of Total Revenue and restated amounts in prior periods accordingly. Please see the definition under Non-GAAP Measures in the Company's 2017 Annual and Fourth Quarter Consolidated Financial Report.

2See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2017 Annual and Fourth Quarter Consolidated Financial Report.

3Provision as a percentage of both gross uninsured loans and gross loans for the three months ended September 30, 2017 include a release of $6.5 million in the collective allowance (please see Note 5(H) to the audited consolidated financial statements included in the Company's 2017 Annual and Fourth Quarter Consolidated Financial Report). In the absence of this release, annualized provision for credit losses was 0.07% of gross uninsured loans and 0.06% of gross loans for the three months ended September 30, 2017.

4Total assets and loans under administration include both on- and off-balance sheet amounts.

5Total loans include loans held for sale.

6These figures relate to the Company's operating subsidiary, Home Trust Company.

Consolidated Balance Sheets












As at




December 31


September 30


December 31

thousands of Canadian dollars


2017


2017


2016

ASSETS







Cash and Cash Equivalents

$

1,336,138

$

1,058,940

$

1,205,394

Available for Sale Securities


332,468


523,482


534,924

Loans Held for Sale


165,947


74,207


77,918

Loans







Securitized mortgages


2,993,250


2,549,205


2,526,804

Non-securitized mortgages and loans


11,905,227


15,378,826


15,430,595



14,898,477


17,928,031


17,957,399

Collective allowance for credit losses


(33,563)


(37,063)


(37,063)



14,864,914


17,890,968


17,920,336

Other







Restricted assets


437,011


231,235


265,374

Derivative assets


7,325


52,178


37,524

Other assets


336,770


336,077


348,638

Deferred tax assets


9,577


16,362


16,914

Goodwill and intangible assets


100,993


133,581


121,755



891,676


769,433


790,205


$

17,591,143

$

20,317,030

$

20,528,777

LIABILITIES AND SHAREHOLDERS' EQUITY







Liabilities







Deposits







Deposits payable on demand

$

539,364

$

2,432,283

$

2,531,803

Deposits payable on a fixed date


11,631,090


13,261,819


13,354,227



12,170,454


15,694,102


15,886,030

Securitization Liabilities







CMHC-sponsored mortgage-backed security liabilities


1,562,152


930,614


898,386

CMHC-sponsored Canada Mortgage Bond liabilities


1,473,318


1,610,482


1,637,117

Bank-sponsored securitization conduit liabilities


142,279


139,115


114,146



3,177,749


2,680,211


2,649,649

Other







Derivative liabilities


38,728


959


3,490

Other liabilities


360,477


324,070


320,737

Deferred tax liabilities


30,230


38,210


36,284



429,435


363,239


360,511



15,777,638


18,737,552


18,896,190

Shareholders' Equity







Capital stock


231,156


83,975


84,910

Contributed surplus


4,978


4,588


4,562

Retained earnings


1,583,265


1,554,258


1,598,180

Accumulated other comprehensive loss


(5,894)


(63,343)


(55,065)



1,813,505


1,579,478


1,632,587


$

17,591,143

$

20,317,030

$

20,528,777

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


2017


2017


2016


2017


2016

Net Interest Income Non-Securitized Assets











Interest from loans

$

158,938

$

167,159

$

190,389

$

710,926

$

768,034

Dividends from securities


278


253


2,614


3,117


10,112

Other interest


6,417


4,303


2,514


15,267


11,073




165,633


171,715


195,517


729,310


789,219

Interest on deposits and other


70,330


75,430


78,868


294,685


318,162

Interest and fees on line of credit facility


6,215


11,368


-


148,213


-

Net interest income non-securitized assets


89,088


84,917


116,649


286,412


471,057













Net Interest Income Securitized Loans and Assets











Interest income from securitized loans and assets


22,563


23,130


19,923


89,929


81,705

Interest expense on securitization liabilities


19,933


19,285


15,952


73,411


67,598

Net interest income securitized loans and assets


2,630


3,845


3,971


16,518


14,107













Total Net Interest Income


91,718


88,762


120,620


302,930


485,164

Provision for credit losses


3,434


(4,257)


2,400


7,516


7,890




88,284


93,019


118,220


295,414


477,274

Non-Interest Income (Loss)











Fees and other income


16,346


18,087


17,613


67,932


71,329

Securitization income


1,695


2,525


9,064


12,529


33,797

Gain on acquisition of CFF Bank


-


-


-


-


651

Net realized and unrealized losses on securities


-


(13,155)


-


(90,070)


(175)

Net realized and unrealized losses on derivatives


(304)


(812)


(2,700)


(2,010)


(8,807)



17,737


6,645


23,977


(11,619)


96,795



106,021


99,664


142,197


283,795


574,069












Non-Interest Expenses











Salaries and benefits


17,063


22,610


24,134


98,595


101,880

Premises


3,478


3,283


3,607


13,878


14,505

Other operating expenses


44,949


34,031


43,287


162,407


122,554



65,490


59,924


71,028


274,880


238,939












Income Before Income Taxes


40,531


39,740


71,169


8,915


335,130

Income taxes












Current


8,160


5,839


22,941


(2,475)


90,895


Deferred


1,752


3,918


(2,478)


3,863


(3,161)



9,912


9,757


20,463


1,388

-

87,734

NET INCOME

$

30,619

$

29,983

$

50,706

$

7,527

$

247,396












NET INCOME PER COMMON SHARE











Basic

$

0.38

$

0.37

$

0.79

$

0.10

$

3.71

Diluted

$

0.38

$

0.37

$

0.79

$

0.10

$

3.71

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING











Basic


80,246


80,246


64,479


72,349


66,601

Diluted


80,286


80,246


64,519


72,358


66,668












Total number of outstanding common shares


80,246


80,246


64,388


80,246


64,388

Book value per common share

$

22.60

$

22.20

$

25.36

$

22.60

$

25.36

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

2017

2017

2016

2017

2016












NET INCOME

$

30,619

$

29,983

$

50,706

$

7,527

$

247,396












OTHER COMPREHENSIVE INCOME






















Available for Sale Securities and Retained Interests











Net unrealized gains


1,431


1,483


12,774


19,878


11,852

Net losses reclassified to net income


-


-


-


46,650


204



1,431


1,483


12,774


66,528


12,056

Income tax expense


378


394


3,391


17,644


3,179



1,053


1,089


9,383


48,884


8,877












Cash Flow Hedges











Net unrealized gains (losses) 


356


(467)


(1,677)


(721)


1,035

Net (gains) losses reclassified to net income


(68)


287


174


1,120


1,147



288


(180)


(1,503)


399


2,182

Income tax expense (recovery)


78


(50)


(398)


112


580



210


(130)


(1,105)


287


1,602












Total other comprehensive income


1,263


959


8,278


49,171


10,479












COMPREHENSIVE INCOME

$

31,882

$

30,942

$

58,984

$

56,698

$

257,875

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, 2016

$

84,910

$

4,562

$

1,598,180

$

(53,589)

$

(1,476)

$

(55,065)

$

1,632,587

Comprehensive income


-


-


7,527


48,884


287


49,171


56,698

Stock options settled


548


(141)


-


-


-


-


407

Amortization of fair value of
















employee stock options


-


557


-


-


-


-


557

Repurchase of shares


(267)


-


(5,732)


-


-


-


(5,999)

Issuance of shares


145,965


-


-


-


-


-


145,965

Dividends















($0.26 per share)


-


-


(16,710)


-


-


-


(16,710)

Balance at December 31, 2017

$

231,156

$

4,978

$

1,583,265

$

(4,705)

$

(1,189)

$

(5,894)

$

1,813,505
















Balance at December 31, 2015

$

90,247

$

3,965

$

1,607,833

$

(62,466)

$

(3,078)

$

(65,544)

$

1,636,501

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

$

1,598,180

$

(53,589)

$

(1,476)

$

(55,065)

$

1,632,587

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


2017


2016


2017


2016

CASH FLOWS FROM OPERATING ACTIVITIES









Net income for the year

$

30,619

$

50,706

$

7,527

$

247,396

Adjustments to determine cash flows relating to operating activities:










Amortization of net discount on securities


-


(79)


(330)


(458)


Provision for credit losses


3,434


2,400


7,516


7,890


Loss on sale of loan portfolio


-


-


18,160


-


Gain on sale of mortgages or residual interest


(163)


(7,006)


(5,695)


(26,972)


Net realized and unrealized losses on securities


-


-


71,910


175


Amortization and impairment losses¹


12,035


18,104


34,345


29,686