Home Capital Reports Q3 2016 Results
TORONTO, Nov. 2, 2016 /CNW/ - Home Capital Group ("Home Capital" or "the Company") (TSX:HCG) today reported results for the third quarter and nine months ended September 30, 2016. This press release should be read in conjunction with the Company's 2016 Third Quarter 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 the Canadian Securities Administrators' website at www.sedar.com.
Third Quarter 2016 Highlights
Third Quarter 2016, compared with the Third Quarter 2015:
- Increased quarterly dividend by $0.02 to $0.26.
- Reported net income was $66.2 million, compared with $72.4 million.
- Reported diluted earnings per share were $1.01, compared with $1.03.
- Provision for credit losses as a percentage of gross uninsured loans was 0.04% on an annualized basis, compared to 0.08%.
- Net non-performing loans as a percentage of gross loans were 0.31%, compared with 0.30%.
- Total capital ratio of 16.97%. Capital ratios continue to be well in excess of regulatory minimums and internal targets.
- Total mortgage originations of $2.54 billion, compared with $2.50 billion.
First Nine Months ended September 30, 2016, compared with First Nine Months ended September 30, 2015:
- Reported net income was $196.7 million, compared with $217.0 million.
- Reported diluted earnings per share were $2.92, compared with $3.09.
- Adjusted net income was $199.9 million, compared with $217.0 million.
- Adjusted diluted earnings per share were $2.97, compared with $3.09.
- Total mortgage originations of $6.80 billion, compared with $5.91 billion.
- Repurchased a total of $43.5 million of common shares through the Normal Course Issuer Bid ("NCIB") and $150 million of common shares through the Substantial Issuer Bid. NCIB renewed through September 2017, providing option to repurchase up to 5% of outstanding shares.
Management Comments
"Our Company continues to deliver solid returns on shareholders' equity, excellent credit performance and a strong balance sheet that enables us to return capital to our investors though share buybacks and increased dividends," said Martin Reid, President and Chief Executive Officer, Home Capital Group Inc. "However, the operating results from a revenue generation and net income perspective have been disappointing to management and the Board. In response to a more challenging business environment, the Company has upgraded processes, changed business relationships, increased regulatory compliance activities and introduced additional risk management procedures. This is essential for the future health of our Company.
These changes have resulted in increased costs and strained the Company's ability to grow assets and net revenue. We are committed to addressing this concern. We are focused on increasing operating leverage by improving revenue growth from potential opportunities that the evolving housing environment presents and by taking a harder look at expenses. However, looking ahead, it's likely that the Company will reduce its mid-term targets when we provide our updated targets with our fourth quarter results."
Mr. Reid continued: "We support measures taken by the Government of Canada to ensure the stability of our financial system and the housing market. We anticipate the recent mortgage rule changes will significantly reduce the Company's ability to profitably originate and fund our Accelerator product, a relatively small portion of our overall mortgage business. Our core Traditional single-family mortgage business line remains solid and we believe the strength in our business will enable us to seize opportunities that may result."
| FINANCIAL HIGHLIGHTS |
||||||||||
| (Unaudited) |
For the three months ended |
For the nine months ended |
||||||||
| (000s, except Percentage, Multiples and Per Share Amounts) |
September 30 |
June 30 |
September 30 |
September 30 |
September 30 |
|||||
| 2016 |
2016 |
2015 |
2016 |
2015 |
||||||
| OPERATING RESULTS |
||||||||||
| Net Income |
$ |
66,190 |
$ |
66,252 |
$ |
72,443 |
$ |
196,690 |
$ |
217,046 |
| Adjusted Net Income1 |
66,190 |
66,252 |
72,443 |
199,939 |
217,046 |
|||||
| Net Interest Income |
119,924 |
122,103 |
121,698 |
364,544 |
354,432 |
|||||
| Total Adjusted Revenue1 |
$ |
243,928 |
$ |
242,526 |
$ |
247,194 |
$ |
727,651 |
$ |
747,305 |
| Diluted Earnings per Share |
1.01 |
0.99 |
1.03 |
2.92 |
3.09 |
|||||
| Adjusted Diluted Earnings per Share1 |
1.01 |
0.99 |
1.03 |
2.97 |
3.09 |
|||||
| Return on Shareholders' Equity |
16.9% |
16.5% |
18.7% |
16.4% |
19.2% |
|||||
| Adjusted Return on Shareholders' Equity1 |
16.9% |
16.5% |
18.7% |
16.7% |
19.2% |
|||||
| Return on Average Assets |
1.3% |
1.3% |
1.4% |
1.3% |
1.4% |
|||||
| Net Interest Margin (TEB)2 |
2.34% |
2.38% |
2.38% |
2.37% |
2.32% |
|||||
| Provision as a Percentage of Gross Uninsured Loans (annualized) |
0.04% |
0.08% |
0.08% |
0.05% |
0.07% |
|||||
| Provision as a Percentage of Gross Loans (annualized) |
0.03% |
0.06% |
0.06% |
0.04% |
0.06% |
|||||
| Efficiency Ratio (TEB)2 |
37.7% |
37.2% |
30.8% |
38.2% |
31.1% |
|||||
| Adjusted Efficiency Ratio (TEB)1,2 |
37.7% |
37.2% |
30.8% |
37.1% |
31.1% |
|||||
| As at |
||||||||||
| September 30 |
June 30 |
December 31 |
September 30 |
|||||||
| 2016 |
2016 |
2015 |
2015 |
|||||||
| BALANCE SHEET HIGHLIGHTS |
||||||||||
| Total Assets |
$ |
20,317,030 |
$ |
20,763,147 |
$ |
20,527,062 |
$ |
20,314,220 |
||
| Total Assets Under Administration3 |
28,327,676 |
28,430,730 |
27,316,476 |
25,404,219 |
||||||
| Total Loans4 |
18,002,238 |
18,065,074 |
18,268,708 |
18,336,736 |
||||||
| Total Loans Under Administration3,4 |
26,012,884 |
25,732,657 |
25,058,122 |
23,426,735 |
||||||
| Liquid Assets |
1,878,082 |
2,391,225 |
2,095,145 |
1,477,493 |
||||||
| Deposits |
15,694,102 |
16,022,219 |
15,665,958 |
14,949,842 |
||||||
| Shareholders' Equity |
1,579,478 |
1,555,893 |
1,621,106 |
1,569,230 |
||||||
| FINANCIAL STRENGTH |
||||||||||
| Capital Measures5 |
||||||||||
| Risk-Weighted Assets |
$ |
8,414,960 |
$ |
8,310,406 |
$ |
7,985,498 |
$ |
7,797,987 |
||
| Common Equity Tier 1 Capital Ratio |
16.54% |
16.38% |
18.31% |
18.06% |
||||||
| Tier 1 Capital Ratio |
16.53% |
16.38% |
18.30% |
18.06% |
||||||
| Total Capital Ratio |
16.97% |
16.82% |
20.70% |
20.51% |
||||||
| Leverage Ratio |
7.08% |
6.77% |
7.36% |
7.17% |
||||||
| Credit Quality |
||||||||||
| Net Non-Performing Loans as a Percentage of Gross Loans |
0.31% |
0.33% |
0.28% |
0.30% |
||||||
| Allowance as a Percentage of Gross Non-Performing Loans |
69.3% |
66.0% |
74.0% |
69.4% |
||||||
| Share Information |
||||||||||
| Book Value per Common Share |
$ |
24.47 |
$ |
23.67 |
$ |
23.17 |
$ |
22.37 |
||
| Common Share Price – Close |
$ |
27.00 |
$ |
32.02 |
$ |
26.92 |
$ |
32.03 |
||
| Dividend paid during the period ended |
$ |
0.24 |
$ |
0.24 |
$ |
0.22 |
$ |
0.22 |
||
| Market Capitalization |
$ |
1,743,093 |
$ |
2,105,027 |
$ |
1,883,808 |
$ |
2,247,225 |
||
| Number of Common Shares Outstanding |
64,559 |
65,741 |
69,978 |
70,160 |
||||||
| 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 third 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 third 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) |
Q3 |
Q2 |
Q3 |
|||||||||||
| 2016 |
2016 |
Change |
2015 |
Change |
2016 |
2015 |
Change |
|||||||
| Net income under GAAP |
$ |
66,190 |
$ |
66,252 |
(0.1)% |
$ |
72,443 |
(8.6)% |
$ |
196,690 |
$ |
217,046 |
(9.4)% |
|
| Adjustment for gain recognized on acquisition of CFF Bank (net of tax) |
- |
- |
- |
- |
- |
(478) |
- |
- |
||||||
| Adjustment for certain severance and other related costs (net of tax) |
- |
- |
- |
- |
- |
3,727 |
- |
- |
||||||
| Adjusted Net Income1 |
$ |
66,190 |
$ |
66,252 |
(0.1)% |
$ |
72,443 |
(8.6)% |
$ |
199,939 |
$ |
217,046 |
(7.9)% |
|
| Adjusted Basic Earnings per Share1 |
$ |
1.01 |
$ |
0.99 |
2.0% |
$ |
1.03 |
(1.9)% |
$ |
2.97 |
$ |
3.09 |
(3.9)% |
|
| Adjusted Diluted Earnings per Share1 |
$ |
1.01 |
$ |
0.99 |
2.0% |
$ |
1.03 |
(1.9)% |
$ |
2.97 |
$ |
3.09 |
(3.9)% |
|
| 1 Adjusted Net Income and Adjusted Earnings per share are defined in the Non-GAAP section and discussed in the Income Statement Review section of the MD&A included in the 2016 Third Quarter Report. |
||||||||||||||
THIRD QUARTER 2016 HIGHLIGHTS
Core Business
Home Capital's third quarter 2016 (Q3 2016) results reflect the Company's continued profitability as measured by its net interest margin (TEB) of 2.34%, a healthy loan portfolio as evidenced by continued low non-performing loans and credit losses, and a strong capital position.
The Company continues to focus on growing origination volumes, specifically for traditional mortgages across Home Capital's established regions. Total mortgage originations were $2.54 billion in Q3 2016 and $6.80 billion for the first nine months of 2016, increases of 1.7% and 15.1% respectively compared to the same periods from 2015.
Combined traditional and ACE Plus residential mortgage originations grew to $1.53 billion in Q3 2016 and $3.97 billion for the first nine months of 2016, up 1.3% and 5.2% respectively compared to $1.51 billion and $3.77 billion for the comparable periods of 2015. Sales of ACE Plus, an uninsured single-family lower-rate mortgage product, commenced in second half of 2015 and originations have risen 4.1% year over year to a total $116.7 million for the third quarter 2016.
Accelerator originations increased 7.3% to $446.7 million in Q3 2016 and 45.6% to $1.28 billion for the first nine months of 2016 from the comparable periods in 2015. 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 previously reported (see the Company's press release dated October 20, 2016) that it anticipates these limitations to potentially significantly reduce the Company's ability to profitably originate and fund these mortgages. Specifically, low-ratio lending for the purpose of refinancing and to rental properties will be primarily impacted within the Company's Accelerator program.
The Company also previously reported that since the Accelerator program has traditionally been a low margin product offering, as a result, it anticipates the negative impact on net income before tax to be relatively limited, 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.
Originations from all other sources decreased 1.2% to $560.5 million in Q3 2016 and increased 23.6% to $1.56 billion in the first nine months of 2016 from the same periods in 2015.
Looking ahead at originations for the balance of 2016, the Company does not expect any significant impact from the Government mortgage rules changes, with the exception of a reduction in Accelerator originations in the final month of the year, which is also a seasonally slow month.
The Company has reviewed all of the customer files and the income documentation submitted in relation to the mortgages referred by the 45 individual mortgage brokers previously suspended. There have been no unusual credit issues on these mortgages.
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 4.1% of the total on-balance sheet loan portfolio, these assets generated 7.8% of the interest income from loans for the quarter.
Deposits
At the end of the third quarter, total deposits were $15.69 billion. Approximately 29% of deposits were from diversified sources. In addition to sourcing deposits through investment dealers and deposit brokers, the Company will continue to focus on diversification, which includes growing deposits from its direct-to-consumer business, Oaken Financial and through Home Bank. In Q3 2016, the ending balance of Oaken deposits was $1.72 billion, up 58.2% from the end of 2015, demonstrating significant progress in the Company's efforts towards deposit diversification. Also during the third quarter, the Company completed the integration of Home Bank's deposit business into the Company's infrastructure. Home Bank is now seamlessly available through both the intermediary and the Oaken channels. Deposit funding generated through Home Bank will further facilitate the Company's deposit diversification.
Operational Capabilities
Home Capital continues to experience healthy credit performance, with net non-performing loans as a percentage of gross loans at 0.31%. The results reflect the credit quality of the Company's loan portfolio, supported by the Company's continued investments in its risk management and control infrastructure.
The Company has been focusing on refining and investing in processes to improve service and retention performance levels. The Company continues to work towards reducing response times for commitments within its risk management framework. This includes enhancing processes and improving relationships and discussions with brokers to ensure the documentation process is completed quickly and accurately. Additionally, the Company continues to focus on improving retention levels of existing customers, especially those seeking early discharge. Management continues to investigate opportunities to further enhance retention as part of its strategic plans.
The Company has also invested in improving service and retention performance levels through two initiatives: Spire, a broker partnership and incentive program rolled out earlier this year, and Loft, a broker portal technology that was created to enhance the broker experience as well as improve service levels. The launch of Spire has been successful with excellent participation from all of its broker partners. The Company will continue to roll out its broker portal technology, Loft through 2017.
Shareholder Returns and Financial Position
Home Capital continued to focus on maintaining a strong and conservative financial position while delivering value to shareholders, including a return on average shareholders' equity of 16.9% for Q3 2016.
The Company has continued to return capital to shareholders through its dividends and share buybacks. For the nine months ended September 30, 2016, the Company has returned a total of $48.4 million in dividends to shareholders. 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 increase of $0.02 to $0.26 per common share payable on December 1, 2016 to shareholders of record at the close of business on November 15, 2016.
Outlook
The magnitude of the impact of recent regulatory changes on our business and the mortgage lending market as a whole is uncertain. Management will monitor the effect on the business as more information becomes available, and will explore any opportunities that may result.
Management does not expect the current challenges in the business environment to diminish as new regulatory restrictions take effect, housing markets adjust and competition responds.
In this environment, management and the Board are reviewing the Company's strategies with a view to more stringently managing costs, reviewing product offerings and related operations, and strengthening revenue growth. This would be in addition to several initiatives that have taken place in the past nine months, including hiring new personnel at the executive levels in underwriting, operations and risk management, as well as the introduction of new programs and tools for mortgage brokers. Moreover, management and the Board continue to sharpen the focus on business and financial performance improvement and will provide updated targets with fourth quarter results.
On behalf of the Board,
| (signed) |
(signed) |
| Martin Reid |
KEVIN P.D. SMITH |
| President & Chief Executive Officer |
Chair of the Board |
| November 2, 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 third quarter report.
Third Quarter Results Conference Call
The conference call will take place on Thursday, November 3, 2016 at 8:00 a.m. ET. Participants are asked to call 5 to 15 minutes in advance, 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at www.homecapital.com.
Conference Call Archive
A telephone replay of the call will be available between 11:00 a.m. ET. Thursday, November 3, 2016 and midnight Thursday, November 10, 2016 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 96768072). The archived audio web cast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com.
Supplemental Financial Information
Home Capital has provided a Supplementary 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 2016 Third Quarter Report, as well as the Company's 2015 Annual Report.
| Consolidated Statements of Income |
|||||||||||
| For the three months ended |
For the nine months ended |
||||||||||
| thousands of Canadian dollars, except per share amounts |
September 30 |
June 30 |
September 30 |
September 30 |
September 30 |
||||||
| (Unaudited) |
2016 |
2016 |
2015 |
2016 |
2015 |
||||||
| Net Interest Income Non-Securitized Assets |
|||||||||||
| Interest from loans |
$ |
192,395 |
$ |
191,704 |
$ |
195,051 |
$ |
577,645 |
$ |
572,510 |
|
| Dividends from securities |
2,359 |
2,447 |
2,597 |
7,498 |
8,012 |
||||||
| Other interest |
3,046 |
2,985 |
1,846 |
8,559 |
6,257 |
||||||
| 197,800 |
197,136 |
199,494 |
593,702 |
586,779 |
|||||||
| Interest on deposits and other |
81,519 |
77,847 |
80,771 |
237,051 |
240,835 |
||||||
| Interest on senior debt |
- |
465 |
1,512 |
2,243 |
4,572 |
||||||
| Net interest income non-securitized assets |
116,281 |
118,824 |
117,211 |
354,408 |
341,372 |
||||||
| Net Interest Income Securitized Loans and Assets |
|||||||||||
| Interest income from securitized loans and assets |
20,957 |
20,732 |
24,315 |
61,782 |
80,988 |
||||||
| Interest expense on securitization liabilities |
17,314 |
17,453 |
19,828 |
51,646 |
67,928 |
||||||
| Net interest income securitized loans and assets |
3,643 |
3,279 |
4,487 |
10,136 |
13,060 |
||||||
| Total Net Interest Income |
119,924 |
122,103 |
121,698 |
364,544 |
354,432 |
||||||
| Provision for credit losses |
1,336 |
2,760 |
2,849 |
5,490 |
7,518 |
||||||
| 118,588 |
119,343 |
118,849 |
359,054 |
346,914 |
|||||||
| Non-Interest Income |
|||||||||||
| Fees and other income |
17,223 |
17,328 |
20,096 |
53,716 |
62,705 |
||||||
| Securitization income |
7,599 |
9,452 |
5,788 |
24,733 |
20,448 |
||||||
| Gain on acquisition of CFF Bank |
- |
- |
- |
651 |
- |
||||||
| Net realized and unrealized (losses) gains on securities |
- |
- |
(542) |
(175) |
902 |
||||||
| Net realized and unrealized gains (losses) on derivatives |
349 |
(2,122) |
(1,957) |
(6,107) |
(4,517) |
||||||
| 25,171 |
24,658 |
23,385 |
72,818 |
79,538 |
|||||||
| 143,759 |
144,001 |
142,234 |
431,872 |
426,452 |
|||||||
| Non-Interest Expenses |
|||||||||||
| Salaries and benefits |
24,350 |
24,685 |
19,382 |
77,746 |
62,999 |
||||||
| Premises |
3,472 |
3,575 |
3,149 |
10,898 |
9,543 |
||||||
| Other operating expenses |
27,160 |
26,652 |
22,424 |
79,267 |
63,450 |
||||||
| 54,982 |
54,912 |
44,955 |
167,911 |
135,992 |
|||||||
| Income Before Income Taxes |
88,777 |
89,089 |
97,279 |
263,961 |
290,460 |
||||||
| Income taxes |
|||||||||||
| Current |
22,957 |
24,911 |
23,189 |
67,954 |
72,933 |
||||||
| Deferred |
(370) |
(2,074) |
1,647 |
(683) |
481 |
||||||
| 22,587 |
22,837 |
24,836 |
67,271 |
73,414 |
|||||||
| NET INCOME |
$ |
66,190 |
$ |
66,252 |
$ |
72,443 |
$ |
196,690 |
$ |
217,046 |
|
| NET INCOME PER COMMON SHARE |
|||||||||||
| Basic |
$ |
1.01 |
$ |
0.99 |
$ |
1.03 |
$ |
2.92 |
$ |
3.09 |
|
| Diluted |
$ |
1.01 |
$ |
0.99 |
$ |
1.03 |
$ |
2.92 |
$ |
3.09 |
|
| AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
|||||||||||
| Basic |
65,386 |
66,663 |
70,218 |
67,326 |
70,195 |
||||||
| Diluted |
65,435 |
66,798 |
70,380 |
67,413 |
70,337 |
||||||
| Total number of outstanding common shares |
64,559 |
65,741 |
70,160 |
64,559 |
70,160 |
||||||
| Book value per common share |
$ |
24.47 |
$ |
23.67 |
$ |
22.37 |
$ |
24.47 |
$ |
22.37 |
|
| Consolidated Statements of Comprehensive Income |
||||||||||
| For the three months ended |
For the nine months ended |
|||||||||
| September 30 |
June 30 |
September 30 |
September 30 |
September 30 |
||||||
| thousands of Canadian dollars (Unaudited) |
2016 |
2016 |
2015 |
2016 |
2015 |
|||||
| NET INCOME |
$ |
66,190 |
$ |
66,252 |
$ |
72,443 |
$ |
196,690 |
$ |
217,046 |
| OTHER COMPREHENSIVE INCOME (LOSS) |
||||||||||
| Available for Sale Securities and Retained Interests |
||||||||||
| Net unrealized gains (losses) |
7,820 |
4,272 |
(29,730) |
(922) |
(68,162) |
|||||
| Net losses (gains) reclassified to net income |
- |
- |
460 |
204 |
(983) |
|||||
| 7,820 |
4,272 |
(29,270) |
(718) |
(69,145) |
||||||
| Income tax expense (recovery) |
2,075 |
1,134 |
(7,760) |
(212) |
(18,338) |
|||||
| 5,745 |
3,138 |
(21,510) |
(506) |
(50,807) |
||||||
| Cash Flow Hedges |
||||||||||
| Net unrealized gains (losses) |
803 |
(1,312) |
130 |
2,712 |
(339) |
|||||
| Net losses reclassified to net income |
268 |
341 |
369 |
973 |
1,105 |
|||||
| 1,071 |
(971) |
499 |
3,685 |
766 |
||||||
| Income tax expense (recovery) |
284 |
(257) |
133 |
978 |
202 |
|||||
| 787 |
(714) |
366 |
2,707 |
564 |
||||||
| Total other comprehensive income (loss) |
6,532 |
2,424 |
(21,144) |
2,201 |
(50,243) |
|||||
| COMPREHENSIVE INCOME |
$ |
72,722 |
$ |
68,676 |
$ |
51,299 |
$ |
198,891 |
$ |
166,803 |
| Consolidated Balance Sheets |
|||||||
| As at |
|||||||
| September 30 |
June 30 |
December 31 |
|||||
| thousands of Canadian dollars (Unaudited) |
2016 |
2016 |
2015 |
||||
| ASSETS |
|||||||
| Cash and Cash Equivalents |
$ |
1,058,940 |
$ |
1,448,548 |
$ |
1,149,849 |
|
| Available for Sale Securities |
523,482 |
519,067 |
453,230 |
||||
| Loans Held for Sale |
74,207 |
117,691 |
135,043 |
||||
| Loans |
|||||||
| Securitized mortgages |
2,549,205 |
2,704,230 |
2,674,475 |
||||
| Non-securitized mortgages and loans |
15,378,826 |
15,243,153 |
15,459,190 |
||||
| 17,928,031 |
17,947,383 |
18,133,665 |
|||||
| Collective allowance for credit losses |
(37,063) |
(37,063) |
(36,249) |
||||
| 17,890,968 |
17,910,320 |
18,097,416 |
|||||
| Other |
|||||||
| Restricted assets |
231,235 |
232,000 |
195,921 |
||||
| Derivative assets |
52,178 |
58,086 |
64,796 |
||||
| Other assets |
336,077 |
329,009 |
287,417 |
||||
| Deferred tax assets |
16,362 |
15,798 |
15,043 |
||||
| Goodwill and intangible assets |
133,581 |
132,628 |
128,347 |
||||
| 769,433 |
767,521 |
691,524 |
|||||
| $ |
20,317,030 |
$ |
20,763,147 |
$ |
20,527,062 |
||
| LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
| Liabilities |
|||||||
| Deposits |
|||||||
| Deposits payable on demand |
$ |
2,432,283 |
$ |
2,274,577 |
$ |
1,986,136 |
|
| Deposits payable on a fixed date |
13,261,819 |
13,747,642 |
13,679,822 |
||||
| 15,694,102 |
16,022,219 |
15,665,958 |
|||||
| Senior Debt |
- |
- |
151,480 |
||||
| Securitization Liabilities |
|||||||
| CMHC-sponsored mortgage-backed security liabilities |
930,614 |
928,312 |
531,326 |
||||
| CMHC-sponsored Canada Mortgage Bond liabilities |
1,610,482 |
1,766,143 |
2,249,230 |
||||
| Bank-sponsored securitization conduit liabilities |
139,115 |
143,024 |
- |
||||
| 2,680,211 |
2,837,479 |
2,780,556 |
|||||
| Other |
|||||||
| Derivative liabilities |
959 |
3,145 |
5,447 |
||||
| Other liabilities |
324,070 |
306,395 |
264,941 |
||||
| Deferred tax liabilities |
38,210 |
38,016 |
37,574 |
||||
| 363,239 |
347,556 |
307,962 |
|||||
| 18,737,552 |
19,207,254 |
18,905,956 |
|||||
| Shareholders' Equity |
|||||||
| Capital stock |
83,975 |
85,513 |
90,247 |
||||
| Contributed surplus |
4,588 |
4,255 |
3,965 |
||||
| Retained earnings |
1,554,258 |
1,536,000 |
1,592,438 |
||||
| Accumulated other comprehensive loss |
(63,343) |
(69,875) |
(65,544) |
||||
| 1,579,478 |
1,555,893 |
1,621,106 |
|||||
| $ |
20,317,030 |
$ |
20,763,147 |
$ |
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 |
- |
- |
196,690 |
(506) |
2,707 |
2,201 |
198,891 |
||||||||
| Stock options settled |
780 |
(182) |
- |
- |
- |
- |
598 |
||||||||
| Amortization of fair value of |
|||||||||||||||
| employee stock options |
- |
805 |
- |
- |
- |
- |
805 |
||||||||
| Repurchase of shares |
(7,052) |
- |
(186,466) |
- |
- |
- |
(193,518) |
||||||||
| Dividends |
|||||||||||||||
| ($0.72 per share) |
- |
- |
(48,404) |
- |
- |
- |
(48,404) |
||||||||
| Balance at September 30, 2016 |
$ |
83,975 |
$ |
4,588 |
$ |
1,554,258 |
$ |
(62,972) |
$ |
(371) |
$ |
(63,343) |
$ |
1,579,478 |
|
| Balance at December 31, 2014 |
$ |
84,687 |
$ |
3,989 |
$ |
1,378,562 |
$ |
(16,242) |
$ |
(2,363) |
$ |
(18,605) |
$ |
1,448,633 |
|
| Comprehensive income |
- |
- |
217,046 |
(50,807) |
564 |
(50,243) |
166,803 |
||||||||
| Stock options settled |
5,136 |
(1,377) |
- |
- |
- |
- |
3,759 |
||||||||
| Amortization of fair value of |
|||||||||||||||
| employee stock options |
- |
1,163 |
- |
- |
- |
- |
1,163 |
||||||||
| Repurchase of shares |
(140) |
- |
(3,238) |
- |
- |
- |
(3,378) |
||||||||
| Dividends |
|||||||||||||||
| ($0.66 per share) |
- |
- |
(47,750) |
- |
- |
- |
(47,750) |
||||||||
| Balance at September 30, 2015 |
$ |
89,683 |
$ |
3,775 |
$ |
1,544,620 |
$ |
(67,049) |
$ |
(1,799) |
$ |
(68,848) |
$ |
1,569,230 |
|
| Consolidated Statements of Cash Flows |
|||||||||
| For the three months ended |
For the nine months ended |
||||||||
| September 30 |
September 30 |
September 30 |
September 30 |
||||||
| thousands of Canadian dollars (Unaudited) |
2016 |
2015 |
2016 |
2015 |
|||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
|||||||||
| Net income for the period |
$ |
66,190 |
$ |
72,443 |
$ |
196,690 |
$ |
217,046 |
|
| Adjustments to determine cash flows relating to operating activities: |
|||||||||
| Amortization of net (discount) premium on securities |
(62) |
29 |
(379) |
52 |
|||||
| Provision for credit losses |
1,336 |
2,849 |
5,490 |
7,518 |
|||||
| Gain on sale of mortgages or residual interest |
(6,055) |
(4,453) |
(19,966) |
(16,684) |
|||||
| Net realized and unrealized losses (gains) on securities |
- |
542 |
175 |
(902) |
|||||
| Amortization of capital and intangible assets |
4,109 |
3,657 |
11,582 |
10,004 |
|||||
| Amortization of fair value of employee stock options |
333 |
355 |
805 |
1,163 |
|||||
| Deferred income taxes |
(370) |
1,647 |
(683) |
481 |
|||||
| Changes in operating assets and liabilities |
|||||||||
| Loans, net of securitization and sales |
67,496 |
(351,858) |
282,021 |
39,651 |
|||||
| Restricted assets |
765 |
239,052 |
(35,314) |
(73,050) |
|||||
| Derivative assets and liabilities |
4,793 |
(14,390) |
11,815 |
(37,919) |
|||||
| Accrued interest receivable |
456 |
(496) |
3,174 |
824 |
|||||
| Accrued interest payable |
(5,117) |
(6,235) |
543 |
14,545 |
|||||
| Deposits |
(328,117) |
(16,702) |
28,144 |
1,009,871 |
|||||
| Securitization liabilities |
(157,268) |
(192,726) |
(100,345) |
(985,345) |
|||||
| Taxes receivable or payable and other |
12,087 |
(15,737) |
4,246 |
31,430 |
|||||
| Cash flows (used in) provided by operating activities |
(339,424) |
(282,023) |
387,998 |
218,685 |
|||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
|||||||||
| Repurchase of shares |
(33,695) |
(3,250) |
(193,518) |
(3,378) |
|||||
| Exercise of employee stock options |
- |
162 |
598 |
3,759 |
|||||
| Repayment of senior debt |
- |
- |
(150,000) |
- |
|||||
| Dividends paid to shareholders |
(15,775) |
(15,454) |
(48,404) |
(46,334) |
|||||
| Cash flows used in financing activities |
(49,470) |
(18,542) |
(391,324) |
(45,953) |
|||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
|||||||||
| Activity in securities |
|||||||||
| Purchases |
(11,335) |
- |
(200,696) |
- |
|||||
| Proceeds from sales |
- |
- |
- |
76,924 |
|||||
| Proceeds from maturities |
14,836 |
4,139 |
128,940 |
23,732 |
|||||
| Purchases of capital assets |
(771) |
(981) |
(2,090) |
(3,674) |
|||||
| Capitalized intangible development costs |
(3,444) |
(6,048) |
(13,737) |
(18,241) |
|||||
| Cash flows (used in) provided by investing activities |
(714) |
(2,890) |
(87,583) |
78,741 |
|||||
| Net (decrease) increase in cash and cash equivalents during the period |
(389,608) |
(303,455) |
(90,909) |
251,473 |
|||||
| Cash and cash equivalents at beginning of the period |
1,448,548 |
915,674 |
1,149,849 |
360,746 |
|||||
| Cash and Cash Equivalents at End of the Period (note 4(A)) |
$ |
1,058,940 |
$ |
612,219 |
$ |
1,058,940 |
$ |
612,219 |
|
| Supplementary Disclosure of Cash Flow Information |
|||||||||
| Dividends received on investments |
$ |
2,588 |
$ |
2,366 |
$ |
8,139 |
$ |
7,314 |
|
| Interest received |
216,504 |
220,343 |
650,401 |
660,962 |
|||||
| Interest paid |
103,950 |
106,381 |
291,765 |
296,857 |
|||||
| Income taxes paid |
24,119 |
26,883 |
68,245 |
102,389 |
|||||
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 Third 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 Third 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 stable real estate market overall. Please see Market Conditions under the 2016 Outlook 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 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 Third 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 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 deposit brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, Home 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.
Laura Lepore, Investor Relations, 416-933-5652, www.homecapital.com
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