Home Capital Reports Q2 2016 Financial Results
TORONTO, July 27, 2016 /CNW/ - Home Capital Group Inc. (TSX:HCG) ("Home Capital" or the "Company") today reported financial results for the second quarter ended June 30, 2016. The Company delivered solid results across its business, including strong net interest margins, a healthy loan portfolio evidenced by low non-performing loans and credit losses, year-over-year single-family mortgage originations growth, and a continued strong capital position.
This press release should be read in conjunction with the Company's Second 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.
SECOND QUARTER 2016 HIGHLIGHTS
"Our second quarter operating results marked another step forward for Home Capital, building on the momentum we saw in the first quarter and showing yet again that we are on track to achieve our goal of driving origination growth," said Martin Reid, Home Capital's President and Chief Executive Officer. "In the second quarter, total originations increased 22.3% year over year to $2.47 billion. Also, we made further progress on our deposit diversification strategy, with deposits exceeding $16 billion for the first time with more than 26% of our deposits from diversified sources."
"Operating expenses reflect the significant strides we are making as we position the Company for long-term success through continued investments to improve our processes and controls, further strengthen originations and increase customer retention. In addition, over the last year we have made excellent progress on improving our risk management processes while also enhancing the safety and soundness of our portfolio as highlighted by continued low credit losses."
"In the first half of 2016 we demonstrated our commitment to creating shareholder value by maintaining excellent credit performance, maintaining the strength of our balance sheet and returning capital to shareholders through our dividend and share buybacks," Mr. Reid added. "As we enter the next stage of our evolution, we are focused on creating sustainable growth and delivering fully on the value we can create."
Martin Reid assumed his new role as President and Chief Executive Officer on May 11, 2016 following the Company's Annual General Meeting and the retirement of Gerald (Jerry) M. Soloway.
- Second Quarter 2016, compared with the Second Quarter 2015:
- Reported net income was $66.3 million, compared with $72.3 million.
- Reported diluted earnings per share were $0.99, compared with $1.03.
- There were no adjustments to net income during Q2 2016 and Q2 2015.
- First Six Months ended June 30, 2016, compared with First Six Months ended June 30, 2015:
- Reported net income was $130.5 million, compared with $144.6 million.
- Reported diluted earnings per share were $1.91, compared with $2.05.
- Adjusted net income was $133.7 million, compared with $144.6 million.
- Adjusted diluted earnings per share were $1.95, compared with $2.05.
- Included in Q2 2016 reported net income of $66.3 million and reported diluted earnings per share of $0.99 is $1.4 million of losses ($1.1 million, after tax and $0.02 diluted earnings per share) from continuing operations of CFF Bank, $0.8 million ($0.6 million, after tax and $0.01 diluted earnings per share) of derivative losses related to the senior debt, which was retired early in Q2 2016 and a reduction in fee revenue of $2.0 million ($1.5 million, after tax and $0.02 diluted earnings per share) resulting from changes in the Company's fee structure. The total negative impact to reported diluted earnings per share of the above amounts is $0.05. Reported diluted earnings per share were also positively impacted by the reduction in shares resulting from the repurchase of shares following the substantial issuer bid which was completed in early Q2 2016. The impact of the share repurchase on diluted earnings per share is $0.05.
- Provision for credit losses as a percentage of gross uninsured loans was 0.08% on an annualized basis for Q2 2016 compared to 0.04% in Q1 2016 and 0.07% in Q2 2015. Net non-performing loans as a percentage of gross loans were 0.33% at the end of Q2 2016 compared to 0.34% at the end of Q1 2016 and 0.28% at the end of Q2 2015.
- Total capital ratio of 16.82% declined following the repurchase of shares and the retirement of the subordinated debentures of Home Trust, which were retired in connection with the retirement of the Company's senior debt. However, capital ratios continue to be well in excess of regulatory minimums and internal Company targets.
| FINANCIAL HIGHLIGHTS |
||||||||||
| (Unaudited) |
For the three months ended |
For the six months ended |
||||||||
| (000s, except Percentage and Per Share Amounts) |
June 30 |
March 31 |
June 30 |
June 30 |
June 30 |
|||||
| 2016 |
2016 |
2015 |
2016 |
2015 |
||||||
| OPERATING RESULTS |
||||||||||
| Net Income |
$ |
66,252 |
$ |
64,248 |
$ |
72,317 |
$ |
130,500 |
$ |
144,603 |
| Adjusted Net Income1 |
66,252 |
67,497 |
72,317 |
133,749 |
144,603 |
|||||
| Net Interest Income |
122,103 |
122,517 |
117,210 |
244,620 |
232,734 |
|||||
| Total Adjusted Revenue1 |
$ |
242,526 |
$ |
241,197 |
$ |
250,879 |
$ |
483,723 |
$ |
500,111 |
| Diluted Earnings per Share |
0.99 |
0.92 |
1.03 |
1.91 |
2.05 |
|||||
| Adjusted Diluted Earnings per Share1 |
0.99 |
0.96 |
1.03 |
1.95 |
2.05 |
|||||
| Return on Shareholders' Equity |
16.5% |
15.7% |
19.1% |
16.4% |
19.4% |
|||||
| Adjusted Return on Shareholders' Equity1 |
16.5% |
16.4% |
19.1% |
16.8% |
19.4% |
|||||
| Return on Average Assets |
1.3% |
1.2% |
1.4% |
1.3% |
1.4% |
|||||
| Net Interest Margin (TEB)2 |
2.38% |
2.38% |
2.29% |
2.38% |
2.28% |
|||||
| Provision as a Percentage of Gross Uninsured Loans (annualized) |
0.08% |
0.04% |
0.07% |
0.06% |
0.07% |
|||||
| Provision as a Percentage of Gross Loans (annualized) |
0.06% |
0.03% |
0.05% |
0.05% |
0.05% |
|||||
| Efficiency Ratio (TEB)2 |
37.2% |
39.6% |
32.2% |
38.4% |
31.3% |
|||||
| Adjusted Efficiency Ratio (TEB)1,2 |
37.2% |
36.3% |
32.2% |
36.8% |
31.3% |
|||||
| As at |
||||||||||
| June 30 |
March 31 |
December 31 |
June 30 |
|||||||
| 2016 |
2016 |
2015 |
2015 |
|||||||
| BALANCE SHEET HIGHLIGHTS |
||||||||||
| Total Assets |
$ |
20,763,147 |
$ |
20,687,984 |
$ |
20,527,062 |
$ |
20,516,247 |
||
| Total Assets Under Administration3 |
28,430,730 |
27,960,592 |
27,316,476 |
25,456,212 |
||||||
| Total Loans4 |
18,065,074 |
17,949,915 |
18,268,708 |
17,982,475 |
||||||
| Total Loans Under Administration3,4 |
25,732,657 |
25,222,523 |
25,058,122 |
22,922,440 |
||||||
| Liquid Assets |
2,391,225 |
2,459,859 |
2,095,145 |
1,815,817 |
||||||
| Deposits |
16,022,219 |
15,824,899 |
15,665,958 |
14,966,544 |
||||||
| Shareholders' Equity |
1,555,893 |
1,661,759 |
1,621,106 |
1,536,099 |
||||||
| FINANCIAL STRENGTH |
||||||||||
| Capital Measures5 |
||||||||||
| Risk-Weighted Assets |
$ |
8,310,406 |
$ |
8,169,818 |
$ |
7,985,498 |
$ |
7,634,392 |
||
| Common Equity Tier 1 Capital Ratio |
16.38% |
18.28% |
18.31% |
18.03% |
||||||
| Tier 1 Capital Ratio |
16.38% |
18.28% |
18.30% |
18.03% |
||||||
| Total Capital Ratio |
16.82% |
20.63% |
20.70% |
20.53% |
||||||
| Leverage Ratio |
6.77% |
7.46% |
7.36% |
6.94% |
||||||
| Credit Quality |
||||||||||
| Net Non-Performing Loans as a Percentage of Gross Loans |
0.33% |
0.34% |
0.28% |
0.33% |
||||||
| Allowance as a Percentage of Gross Non-Performing Loans |
66.0% |
62.9% |
74.0% |
62.9% |
||||||
| Share Information |
||||||||||
| Book Value per Common Share |
$ |
23.67 |
$ |
23.75 |
$ |
23.17 |
$ |
21.87 |
||
| Common Share Price – Close |
$ |
32.02 |
$ |
35.06 |
$ |
26.92 |
$ |
43.28 |
||
| Dividend paid during the period ended |
$ |
0.24 |
$ |
0.24 |
$ |
0.22 |
$ |
0.22 |
||
| Market Capitalization |
$ |
2,105,027 |
$ |
2,453,008 |
$ |
1,883,808 |
$ |
3,040,290 |
||
| Number of Common Shares Outstanding |
65,741 |
69,966 |
69,978 |
70,247 |
||||||
| 1 See definition of Adjusted Net Income, Total Adjusted Revenue, Adjusted Diluted Earnings per Share, Adjusted Return on Shareholders' Equity and Adjusted Efficiency Ratio under Non-GAAP Measures in the 2016 Second Quarter Report and the Reconciliation of Net Income to Adjusted Net Income in the following table. |
| 2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the 2016 Second Quarter Report. |
| 3 Total assets and loans under administration include both on-and off-balance sheet amounts. |
| 4 Total loans include loans held for sale. |
| 5 These figures relate to the Company's operating subsidiary, Home Trust Company. |
| Reconciliation of Net Income to Adjusted Net Income |
||||||||||||||
| Quarter |
Year to date |
|||||||||||||
| (000s, except % and per share amounts) |
Q2 |
Q1 |
Q2 |
|||||||||||
| 2016 |
2016 |
Change |
2015 |
Change |
2016 |
2015 |
Change |
|||||||
| Net income under GAAP |
$ |
66,252 |
$ |
64,248 |
3.1% |
$ |
72,317 |
(8.4)% |
$ |
130,500 |
$ |
144,603 |
(9.8)% |
|
| Adjustment for gain recognized on acquisition of CFF Bank (net of tax) |
- |
(478) |
(100.0)% |
- |
- |
(478) |
- |
- |
||||||
| Adjustment for certain severance and other related costs (net of tax) |
- |
3,727 |
(100.0)% |
- |
- |
3,727 |
- |
- |
||||||
| Adjusted Net Income1 |
$ |
66,252 |
$ |
67,497 |
(1.8)% |
$ |
72,317 |
(8.4)% |
$ |
133,749 |
$ |
144,603 |
(7.5)% |
|
| Adjusted Basic Earnings per Share1 |
$ |
0.99 |
$ |
0.96 |
3.1% |
$ |
1.03 |
(3.9)% |
$ |
1.96 |
$ |
2.06 |
(4.9)% |
|
| Adjusted Diluted Earnings per Share1 |
$ |
0.99 |
$ |
0.96 |
3.1% |
$ |
1.03 |
(3.9)% |
$ |
1.95 |
$ |
2.05 |
(4.9)% |
|
| 1 Adjusted Net Income and Adjusted Earnings per share are defined in the Non-GAAP section of the 2016 Second Quarter Report. |
||||||||||||||
The Company's results were not affected by any items of note during the second quarter of 2016.
In Q1 2016, the Company's results were affected by the following items of note that aggregated to a negative impact on after-tax net income of $3.2 million or $0.04 diluted earnings per share. The items of note for Q1 2016 identified in the above table include the following:
- Adjustment to gain recognized on the acquisition of CFF Bank in the amount of $651 thousand ($478 thousand, after tax).
- Expenses including severance and other related costs in the amount of $5.1 million ($3.7 million, after tax), that are not expected to be indicative of future results (see the Non-Interest Expense section of the 2016 Second Quarter Report).
The Company's results were not affected by any items of note during the first six months of 2015.
Growing Our Core Business
Home Capital's second quarter results reflect the Company's continued profitability as measured by its strong 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.
Total originations were $2.47 billion in Q2 2016 and $4.26 billion for the first six months of 2016, increases of 22.3% and 24.9% compared to the same periods from 2015. The Company reported combined traditional and ACE Plus (uninsured single-family) residential mortgage originations of $1.37 billion in Q2 2016 and $2.43 billion for the first six months of 2016, compared to $1.29 billion and $2.26 billion for the comparable periods of 2015, increases of 5.7% and 7.8% respectively. Introduced in the second half of 2015, ACE Plus is a lower rate mortgage product directed toward lower risk borrowers. Accelerator originations increased 66.3% to $464.8 million in Q2 2016 and 80.3% to $828.6 million for the first six months of 2016, from the comparable periods in 2015. Originations from all other sources increased 42.9% to $641.7 million in Q2 2016 and 44.0% to $995.7 million in the first six months of 2016 from the same periods in 2015. The Company continues to take a prudent approach to growing its traditional residential mortgage business.
The Company is over 90% of the way through its review of the impacted portfolio related to the suspension of 45 individual mortgage brokers last year, which will be completed by the end of 2016. The Company has not experienced any unusual credit issues with respect to the identified mortgages.
Home Capital's top priority continues to be growing its origination volumes, specifically to take advantage of the solid demand for its traditional mortgages within its established regions. On April 1, 2016, the Company launched its new broker partnership program, Spire, with all broker partners now participating in the program. Through the rest of 2016, the Company will continue with its roll out of its broker portal technology, Loft, in an effort to enhance the broker experience. Additionally, the Company is also focusing on growing the loan portfolio by improving retention levels of existing customers. The Company has added to its retention team with a focus on retaining these customers, especially those seeking early discharge.
The Company's commercial lending products continue to demonstrate strength in origination volumes through the second quarter of the year.
Other 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 4.0% of the total on-balance sheet loan portfolio, these assets generated 7.5% of the interest income from loans for the quarter.
The Company has made excellent progress on its deposit diversification strategy, with deposits exceeding $16 billion for the first time with more than 26% of our deposits from diversified sources. At the end of the quarter, the balance of Oaken deposits was $1.46 billion, up 34.2% from the end of 2015, demonstrating continued progress in the Company's efforts towards deposit diversification.
Building on Operational Excellence
Home Capital continues to experience strong credit performance, with net non-performing loans as a percentage of gross loans at 0.33%. The results reflect the high credit quality of the Company's loan portfolio, supported by the Company's continued investments in its risk management and control infrastructure.
Home Capital continued to make disciplined and measured investments related to the long-term growth of the business, including ongoing investments in information technology to move the Company towards operating as a digital enterprise. In addition, the Company incurred expenses of approximately $0.6 million during the quarter related to its efforts to realign some of its business partnerships.
In 2015, the Company, through its subsidiary Home Trust Company, acquired all of the outstanding common shares of CFF Bank for a purchase price of $23.2 million. The integration of CFF Bank is proceeding to plan, as the Company decommissions redundant systems and facilities in order to realize cost savings and to facilitate growth. The operating losses of CFF Bank reduced diluted earnings per share by $0.02 in Q2 2016. Effective August 22, 2016, CFF Bank will be renamed Home Bank. The Company is excited to welcome the Home Bank name to the Home Capital family. Home Bank is a second deposit issuer in the Company's deposit broker channel and for Oaken Financial. Home Bank represents the Company's ongoing commitment to adding new products to its existing offering and also further advances Home Trust's deposit diversification initiatives.
Solid Shareholder Returns, Strong and Conservative Financial Position
Home Capital continued to focus on maintaining its strong and conservative financial position while delivering value to shareholders in Q2 2016. Home Capital delivered a return on average shareholders' equity of 16.5% for the second quarter.
On April 18, 2016, Home Capital repurchased for cancellation 3,989,361 common shares at a price of $37.60 per share totalling $150 million under the Company's previously announced substantial issuer bid. The Company also increased normal course issuer bid activity during the quarter. In addition, on May 4, 2016, the Company repaid and retired its senior debt in the principal amount of $150 million, resulting in future savings of the related interest expense.
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 $0.24 per common share, payable on September 1, 2016 to shareholders of record at the close of business on August 15, 2016.
In summary, the Company will continue to focus on delivering success over the long-term by providing the best service and support to its customers and valued partners, generating future growth that is sustainable and prudent, and making investments in the business to help achieve those goals.
Looking ahead, the Board of Directors and management expect that Home Capital will continue generating solid returns for shareholders for the remainder of 2016 and beyond.
| (signed) |
(signed) |
| MARTIN REID |
KEVIN P.D. SMITH |
| President & Chief Executive Officer |
Chair of the Board |
| July 27, 2016 |
Additional information concerning the Company's targets and related expectations for 2016, including the risks and assumptions underlying these expectations, may be found in the MD&A of the 2016 Second Quarter Report.
Second Quarter 2016 Financial Results Conference Call Details
The conference call will take place on Thursday, July 28, 2016 at 10:30 a.m. ET. Participants are asked to dial-in approximately 10 minutes in advance in Toronto at 647-427-7450 or toll-free at 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. ET Thursday, July 28, 2016 and 12:00 a.m. ET Thursday, August 4, 2016 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 47154323). The archived audio webcast will be available for 90 days on CNW Group's website at www.newswire.ca and on 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 second quarter unaudited interim consolidated financial report, as well as the Company's 2015 Annual Report.
| Consolidated Statements of Income |
|||||||||||
| For the three months ended |
For the six months ended |
||||||||||
| thousands of Canadian dollars, except per share amounts |
June 30 |
March 31 |
June 30 |
June 30 |
June 30 |
||||||
| (Unaudited) |
2016 |
2016 |
2015 |
2016 |
2015 |
||||||
| Net Interest Income Non-Securitized Assets |
|||||||||||
| Interest from loans |
$ |
191,704 |
$ |
193,546 |
$ |
190,559 |
$ |
385,250 |
$ |
377,459 |
|
| Dividends from securities |
2,447 |
2,692 |
2,677 |
5,139 |
5,415 |
||||||
| Other interest |
2,985 |
2,528 |
2,303 |
5,513 |
4,411 |
||||||
| 197,136 |
198,766 |
195,539 |
395,902 |
387,285 |
|||||||
| Interest on deposits and other |
77,847 |
77,685 |
80,669 |
155,532 |
160,064 |
||||||
| Interest on senior debt |
465 |
1,778 |
1,516 |
2,243 |
3,060 |
||||||
| Net interest income non-securitized assets |
118,824 |
119,303 |
113,354 |
238,127 |
224,161 |
||||||
| Net Interest Income Securitized Loans and Assets |
|||||||||||
| Interest income from securitized loans and assets |
20,732 |
20,093 |
26,279 |
40,825 |
56,673 |
||||||
| Interest expense on securitization liabilities |
17,453 |
16,879 |
22,423 |
34,332 |
48,100 |
||||||
| Net interest income securitized loans and assets |
3,279 |
3,214 |
3,856 |
6,493 |
8,573 |
||||||
| Total Net Interest Income |
122,103 |
122,517 |
117,210 |
244,620 |
232,734 |
||||||
| Provision for credit losses |
2,760 |
1,394 |
2,266 |
4,154 |
4,669 |
||||||
| 119,343 |
121,123 |
114,944 |
240,466 |
228,065 |
|||||||
| Non-Interest Income |
|||||||||||
| Fees and other income |
17,328 |
19,165 |
21,390 |
36,493 |
42,609 |
||||||
| Securitization income |
9,452 |
7,682 |
9,251 |
17,134 |
14,660 |
||||||
| Gain on acquisition of CFF Bank |
- |
651 |
- |
651 |
- |
||||||
| Net realized and unrealized (losses) gains on securities |
- |
(175) |
- |
(175) |
1,444 |
||||||
| Net realized and unrealized losses on derivatives |
(2,122) |
(4,334) |
(1,580) |
(6,456) |
(2,560) |
||||||
| 24,658 |
22,989 |
29,061 |
47,647 |
56,153 |
|||||||
| 144,001 |
144,112 |
144,005 |
288,113 |
284,218 |
|||||||
| Non-Interest Expenses |
|||||||||||
| Salaries and benefits |
24,685 |
28,711 |
21,603 |
53,396 |
43,617 |
||||||
| Premises |
3,575 |
3,851 |
3,260 |
7,426 |
6,394 |
||||||
| Other operating expenses |
26,652 |
25,455 |
22,511 |
52,107 |
41,026 |
||||||
| 54,912 |
58,017 |
47,374 |
112,929 |
91,037 |
|||||||
| Income Before Income Taxes |
89,089 |
86,095 |
96,631 |
175,184 |
193,181 |
||||||
| Income taxes |
|||||||||||
| Current |
24,911 |
20,086 |
25,193 |
44,997 |
49,744 |
||||||
| Deferred |
(2,074) |
1,761 |
(879) |
(313) |
(1,166) |
||||||
| 22,837 |
21,847 |
24,314 |
44,684 |
48,578 |
|||||||
| NET INCOME |
$ |
66,252 |
$ |
64,248 |
$ |
72,317 |
$ |
130,500 |
$ |
144,603 |
|
| NET INCOME PER COMMON SHARE |
|||||||||||
| Basic |
$ |
0.99 |
$ |
0.92 |
$ |
1.03 |
$ |
1.91 |
$ |
2.06 |
|
| Diluted |
$ |
0.99 |
$ |
0.92 |
$ |
1.03 |
$ |
1.91 |
$ |
2.05 |
|
| AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
|||||||||||
| Basic |
66,663 |
69,972 |
70,230 |
68,324 |
70,184 |
||||||
| Diluted |
66,798 |
70,047 |
70,488 |
68,420 |
70,488 |
||||||
| Total number of outstanding common shares |
65,741 |
69,966 |
70,247 |
65,741 |
70,247 |
||||||
| Book value per common share |
$ |
23.67 |
$ |
23.75 |
$ |
21.87 |
$ |
23.67 |
$ |
21.87 |
|
| Consolidated Statements of Comprehensive Income |
||||||||||
| For the three months ended |
For the six months ended |
|||||||||
| June 30 |
March 31 |
June 30 |
June 30 |
June 30 |
||||||
| thousands of Canadian dollars (Unaudited) |
2016 |
2016 |
2015 |
2016 |
2015 |
|||||
| NET INCOME |
$ |
66,252 |
$ |
64,248 |
$ |
72,317 |
$ |
130,500 |
$ |
144,603 |
| OTHER COMPREHENSIVE INCOME (LOSS) |
||||||||||
| Available for Sale Securities and Retained Interests |
||||||||||
| Net unrealized gains (losses) |
4,272 |
(13,014) |
(12,860) |
(8,742) |
(38,432) |
|||||
| Net losses (gains) reclassified to net income |
- |
204 |
- |
204 |
(1,443) |
|||||
| 4,272 |
(12,810) |
(12,860) |
(8,538) |
(39,875) |
||||||
| Income tax expense (recovery) |
1,134 |
(3,421) |
(3,422) |
(2,287) |
(10,578) |
|||||
| 3,138 |
(9,389) |
(9,438) |
(6,251) |
(29,297) |
||||||
| Cash Flow Hedges |
||||||||||
| Net unrealized (losses) gains |
(1,312) |
3,221 |
345 |
1,909 |
(469) |
|||||
| Net losses reclassified to net income |
341 |
364 |
370 |
705 |
736 |
|||||
| (971) |
3,585 |
715 |
2,614 |
267 |
||||||
| Income tax (recovery) expense |
(257) |
951 |
188 |
694 |
69 |
|||||
| (714) |
2,634 |
527 |
1,920 |
198 |
||||||
| Total other comprehensive income (loss) |
2,424 |
(6,755) |
(8,911) |
(4,331) |
(29,099) |
|||||
| COMPREHENSIVE INCOME |
$ |
68,676 |
$ |
57,493 |
$ |
63,406 |
$ |
126,169 |
$ |
115,504 |
| Consolidated Balance Sheets |
|||||||
| As at |
|||||||
| June 30 |
March 31 |
December 31 |
|||||
| thousands of Canadian dollars (Unaudited) |
2016 |
2016 |
2015 |
||||
| ASSETS |
|||||||
| Cash and Cash Equivalents |
$ |
1,448,548 |
$ |
1,454,752 |
$ |
1,149,849 |
|
| Available for Sale Securities |
519,067 |
488,211 |
453,230 |
||||
| Loans Held for Sale |
117,691 |
70,187 |
135,043 |
||||
| Loans |
|||||||
| Securitized mortgages |
2,704,230 |
2,516,944 |
2,674,475 |
||||
| Non-securitized mortgages and loans |
15,243,153 |
15,362,784 |
15,459,190 |
||||
| 17,947,383 |
17,879,728 |
18,133,665 |
|||||
| Collective allowance for credit losses |
(37,063) |
(36,463) |
(36,249) |
||||
| 17,910,320 |
17,843,265 |
18,097,416 |
|||||
| Other |
|||||||
| Restricted assets |
232,000 |
293,637 |
195,921 |
||||
| Derivative assets |
58,086 |
63,931 |
64,796 |
||||
| Other assets |
329,009 |
328,013 |
287,417 |
||||
| Deferred tax assets |
15,798 |
15,562 |
15,043 |
||||
| Goodwill and intangible assets |
132,628 |
130,426 |
128,347 |
||||
| 767,521 |
831,569 |
691,524 |
|||||
| $ |
20,763,147 |
$ |
20,687,984 |
$ |
20,527,062 |
||
| LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
| Liabilities |
|||||||
| Deposits |
|||||||
| Deposits payable on demand |
$ |
2,274,577 |
$ |
2,321,093 |
$ |
1,986,136 |
|
| Deposits payable on a fixed date |
13,747,642 |
13,503,806 |
13,679,822 |
||||
| 16,022,219 |
15,824,899 |
15,665,958 |
|||||
| Senior Debt |
- |
153,283 |
151,480 |
||||
| Securitization Liabilities |
|||||||
| CMHC-sponsored mortgage-backed security liabilities |
928,312 |
863,284 |
531,326 |
||||
| CMHC-sponsored Canada Mortgage Bond liabilities |
1,766,143 |
1,870,548 |
2,249,230 |
||||
| Bank-sponsored securitization conduit liabilities |
143,024 |
- |
- |
||||
| 2,837,479 |
2,733,832 |
2,780,556 |
|||||
| Other |
|||||||
| Derivative liabilities |
3,145 |
1,040 |
5,447 |
||||
| Other liabilities |
306,395 |
273,317 |
264,941 |
||||
| Deferred tax liabilities |
38,016 |
39,854 |
37,574 |
||||
| 347,556 |
314,211 |
307,962 |
|||||
| 19,207,254 |
19,026,225 |
18,905,956 |
|||||
| Shareholders' Equity |
|||||||
| Capital stock |
85,513 |
90,283 |
90,247 |
||||
| Contributed surplus |
4,255 |
4,230 |
3,965 |
||||
| Retained earnings |
1,536,000 |
1,639,545 |
1,592,438 |
||||
| Accumulated other comprehensive loss |
(69,875) |
(72,299) |
(65,544) |
||||
| 1,555,893 |
1,661,759 |
1,621,106 |
|||||
| $ |
20,763,147 |
$ |
20,687,984 |
$ |
20,527,062 |
||
| Consolidated Statements of Changes in Shareholders' Equity |
|||||||||||||||
| Net Unrealized |
|||||||||||||||
| Losses |
Net Unrealized |
Total |
|||||||||||||
| on Securities and |
Losses on |
Accumulated |
|||||||||||||
| Retained Interests |
Cash Flow |
Other |
Total |
||||||||||||
| thousands of Canadian dollars, |
Capital |
Contributed |
Retained |
Available |
Hedges, |
Comprehensive |
Shareholders' |
||||||||
| except per share amounts (Unaudited) |
Stock |
Surplus |
Earnings |
for Sale, after Tax |
after Tax |
Loss |
Equity |
||||||||
| Balance at December 31, 2015 |
$ |
90,247 |
$ |
3,965 |
$ |
1,592,438 |
$ |
(62,466) |
$ |
(3,078) |
$ |
(65,544) |
$ |
1,621,106 |
|
| Comprehensive income |
- |
- |
130,500 |
(6,251) |
1,920 |
(4,331) |
126,169 |
||||||||
| Stock options settled |
780 |
(182) |
- |
- |
- |
- |
598 |
||||||||
| Amortization of fair value of |
|||||||||||||||
| employee stock options |
- |
472 |
- |
- |
- |
- |
472 |
||||||||
| Repurchase of shares |
(5,514) |
- |
(154,309) |
- |
- |
- |
(159,823) |
||||||||
| Dividends |
|||||||||||||||
| ($0.48 per share) |
- |
- |
(32,629) |
- |
- |
- |
(32,629) |
||||||||
| Balance at June 30, 2016 |
$ |
85,513 |
$ |
4,255 |
$ |
1,536,000 |
$ |
(68,717) |
$ |
(1,158) |
$ |
(69,875) |
$ |
1,555,893 |
|
| Balance at December 31, 2014 |
$ |
84,687 |
$ |
3,989 |
$ |
1,378,562 |
$ |
(16,242) |
$ |
(2,363) |
$ |
(18,605) |
$ |
1,448,633 |
|
| Comprehensive income |
- |
- |
144,603 |
(29,297) |
198 |
(29,099) |
115,504 |
||||||||
| Stock options settled |
4,920 |
(1,323) |
- |
- |
- |
- |
3,597 |
||||||||
| Amortization of fair value of |
|||||||||||||||
| employee stock options |
- |
808 |
- |
- |
- |
- |
808 |
||||||||
| Repurchase of shares |
(4) |
- |
(124) |
- |
- |
- |
(128) |
||||||||
| Dividends |
|||||||||||||||
| ($0.44 per share) |
- |
- |
(32,315) |
- |
- |
- |
(32,315) |
||||||||
| Balance at June 30, 2015 |
$ |
89,603 |
$ |
3,474 |
$ |
1,490,726 |
$ |
(45,539) |
$ |
(2,165) |
$ |
(47,704) |
$ |
1,536,099 |
|
| Consolidated Statements of Cash Flows |
|||||||||
| For the three months ended |
For the six months ended |
||||||||
| June 30 |
June 30 |
June 30 |
June 30 |
||||||
| thousands of Canadian dollars (Unaudited) |
2016 |
2015 |
2016 |
2015 |
|||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
|||||||||
| Net income for the period |
$ |
66,252 |
$ |
72,317 |
$ |
130,500 |
$ |
144,603 |
|
| Adjustments to determine cash flows relating to operating activities: |
|||||||||
| Amortization of net (discount) premium on securities |
(182) |
29 |
(317) |
23 |
|||||
| Provision for credit losses |
2,760 |
2,266 |
4,154 |
4,669 |
|||||
| Gain on sale of mortgages or residual interest |
(7,976) |
(7,804) |
(13,911) |
(12,231) |
|||||
| Net realized and unrealized gains (losses) on securities |
- |
- |
175 |
(1,444) |
|||||
| Amortization of capital and intangible assets |
3,827 |
3,423 |
7,473 |
6,347 |
|||||
| Amortization of fair value of employee stock options |
195 |
389 |
472 |
808 |
|||||
| Deferred income taxes |
(2,074) |
(879) |
(313) |
(1,166) |
|||||
| Changes in operating assets and liabilities |
|||||||||
| Loans, net of securitization and sales |
(108,969) |
214,733 |
214,525 |
391,509 |
|||||
| Restricted assets |
61,637 |
(194,152) |
(36,079) |
(312,102) |
|||||
| Derivative assets and liabilities |
6,979 |
19,525 |
7,022 |
(23,529) |
|||||
| Accrued interest receivable |
1,225 |
1,274 |
2,718 |
1,320 |
|||||
| Accrued interest payable |
(12,119) |
(15,426) |
5,660 |
20,780 |
|||||
| Deposits |
197,320 |
224,642 |
356,261 |
1,026,573 |
|||||
| Securitization liabilities |
103,647 |
(313,346) |
56,923 |
(792,619) |
|||||
| Taxes receivable or payable and other |
39,384 |
46,108 |
(7,841) |
47,167 |
|||||
| Cash flows provided by operating activities |
351,906 |
53,099 |
727,422 |
500,708 |
|||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
|||||||||
| Repurchase of shares |
(159,460) |
(43) |
(159,823) |
(128) |
|||||
| Exercise of employee stock options |
557 |
543 |
598 |
3,597 |
|||||
| Repayment of senior debt |
(150,000) |
- |
(150,000) |
- |
|||||
| Dividends paid to shareholders |
(15,834) |
(15,450) |
(32,629) |
(30,880) |
|||||
| Cash flows used in financing activities |
(324,737) |
(14,950) |
(341,854) |
(27,411) |
|||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
|||||||||
| Activity in securities |
|||||||||
| Purchases |
(103,942) |
- |
(189,361) |
- |
|||||
| Proceeds from sales |
- |
- |
- |
76,924 |
|||||
| Proceeds from maturities |
76,933 |
2,932 |
114,104 |
19,593 |
|||||
| Purchases of capital assets |
(1,095) |
(870) |
(1,319) |
(2,693) |
|||||
| Capitalized intangible development costs |
(5,269) |
(6,789) |
(10,293) |
(12,193) |
|||||
| Cash flows (used in) provided by investing activities |
(33,373) |
(4,727) |
(86,869) |
81,631 |
|||||
| Net (decrease) increase in cash and cash equivalents during the period |
(6,204) |
33,422 |
298,699 |
554,928 |
|||||
| Cash and cash equivalents at beginning of the period |
1,454,752 |
882,252 |
1,149,849 |
360,746 |
|||||
| Cash and Cash Equivalents at End of the Period |
$ |
1,448,548 |
$ |
915,674 |
$ |
1,448,548 |
$ |
915,674 |
|
| Supplementary Disclosure of Cash Flow Information |
|||||||||
| Dividends received on investments |
$ |
2,772 |
$ |
2,463 |
$ |
5,551 |
$ |
4,948 |
|
| Interest received |
216,513 |
220,829 |
433,897 |
440,619 |
|||||
| Interest paid |
111,196 |
121,989 |
187,815 |
190,476 |
|||||
| Income taxes paid |
16,647 |
27,351 |
44,126 |
75,506 |
|||||
Caution Regarding Forward-Looking Statements
From time to time Home Capital Group Inc. makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are "financial outlooks" within the meaning of National Instrument 51-102. Please see the risk factors, which are set forth in detail in the Risk Management section of the 2016 Second Quarter Report, as well as its other publicly filed information, which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company's actual results to differ materially from these statements. These risk factors are material risk factors a reader should consider, and include credit risk, funding and liquidity risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk, compliance risk and capital adequacy risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook Section in the 2016 Second Quarter Report. Forward-looking statements are typically identified by words such as "will," "believe," "expect," "anticipate," "intend," "should," "estimate," "plan," "forecast," "may," and "could" or other similar expressions.
By their very nature, these statements require the Company to make assumptions and are subject to inherent risks and uncertainties, general and specific, which may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These risks and uncertainties include, but are not limited to, global capital market activity, changes in government monetary and economic policies, changes in interest rates, inflation levels and general economic conditions, legislative and regulatory developments, competition and technological change. The preceding list is not exhaustive of possible factors.
These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements. The Company does not undertake to update any forward-looking statements, whether written or verbal, that may be made from time to time by it or on its behalf, except as required by securities laws.
Assumptions about the performance of the Canadian economy in 2016 and its effect on Home Capital's business are material factors the Company considers when setting its objectives, targets and outlook. In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies. In setting and reviewing its targets, objectives and outlook for the remainder of 2016, management's expectations continue to assume:
- The Canadian economy is expected to be relatively stable in 2016, supported by expanded Federal Government spending; however, it will continue to be impacted by adverse effects related to fluctuations in oil prices and other commodities. The Company has limited exposure in energy producing regions.
- Generally the Company expects stable employment conditions, in its established regions; however, unemployment rates in energy producing regions are expected to continue to increase in 2016. Also, the Company expects inflation will generally be within the Bank of Canada's target of 1% to 3%, leading to stable credit losses and consistent demand for the Company's lending products in its established regions. Credit losses and delinquencies in the energy producing regions may increase, but given the Company's limited exposure, this is not expected to be significant.
- The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets and further adjustments in commodity prices; as such, the Company is prepared for the variability to plan that may result.
- The Company is assuming that overnight interest rates will remain at the current very low rate for 2016. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.
- The Company believes that the current and expected levels of housing activity indicate a healthy real estate market overall. Please see Market Conditions under the 2016 Outlook in the Management's Discussion and Analysis included in the Company's 2016 Second Quarter Report for more discussion on the Company's expectations for the housing market.
- The Company expects that consumer debt levels, while elevated, will remain serviceable by Canadian households.
- The Company will have access to the mortgage and deposit markets through broker networks.
Non-GAAP Measures
The Company uses a number of financial measures to assess its performance. Some of these measures are not calculated in accordance with GAAP, are not defined by GAAP, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures. Definitions of non-GAAP measures can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2016 Second Quarter Report.
Regulatory Filings
The Company's continuous disclosure materials, including interim filings, annual Management's Discussion and Analysis and audited consolidated financial statements, Annual Information Form, Notice of Annual Meeting of Shareholders and Proxy Circular are available on the Company's website at www.homecapital.com, and on the Canadian Securities Administrators' website at www.sedar.com.
About Home Capital
Home Capital Group Inc. is a public company, traded on the Toronto Stock Exchange (HCG), operating through its principal subsidiary, Home Trust Company. Home Trust is a federally regulated trust company offering residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through its direct to consumer deposit brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, CFF Bank. Licensed to conduct business across Canada, Home Trust has branch offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.
SOURCE Home Capital Group Inc.
Martin Reid, President and CEO, or Robert Morton, CFO, 416-360-4663; Laura Lepore, Assistant Vice President, Investor Relations, 416-933-5652, [email protected]
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