Home Capital Reports Strong 4th Quarter and Annual Results
- Adjusted basic earnings per share were $1.45 for the quarter and $5.55 for 2011, up 46.5% and 30.6%, respectively, from the comparative periods.
- Adjusted net income for 2011 was $192.5 million, an increase of 30.4% over 2010.
- Return on equity for the year was 27.4% on an adjusted basis, surpassing 20% for the 14th consecutive year.
TORONTO, Feb. 14, 2012 /CNW/ - Home Capital Group Inc. (TSX: HCG) today reported strong results for the fourth quarter and for the year, exceeding the Company's targets for growth in adjusted net income, diluted earnings per share and total assets, and recording annual return on equity in excess of 25% for nine consecutive years and surpassing 20% for 14 consecutive years.
"All of our business units produced positive results and the Company is well positioned to continue to deliver solid earnings," commented CEO Gerald Soloway. "We have a proven business model and continue to execute well on our strategy."
The Company's Annual and Fourth Quarter Consolidated Financial Report, including Management's Discussion and Analysis, for each of the three- and twelve-month periods ended December 31, 2011 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.
FINANCIAL HIGHLIGHTS | ||||||||
(000s, except Per Share and Percentage Amounts) | For the three months ended | For the year ended | ||||||
For the period ended December 31 | 2011 | 2010 1 | 2011 | 2010 1 | ||||
OPERATING RESULTS | ||||||||
Net Income | $ | 50,280 | $ | 30,109 | $ | 190,080 | $ | 154,752 |
Adjusted Net Income2 | 50,280 | 34,233 | 192,505 | 147,610 | ||||
Total Revenue | 207,122 | 176,044 | 790,591 | 687,249 | ||||
Earnings per Share Basic/Diluted | $ | 1.45/1.45 | $ | 0.87/0.87 | $ | 5.48/5.46 | $ | 4.46/4.45 |
Adjusted Earnings per Share Basic/Diluted2 | 1.45/1.45 | 0.99/0.98 | 5.55/5.53 | 4.25/4.24 | ||||
Adjusted Return on Shareholders' Equity | 26.7% | 22.2% | 27.4% | 26.1% | ||||
Return on Average Assets3 | 1.2% | 0.9% | 1.2% | 1.1% | ||||
Net Interest Margin (TEB)4 | 2.06% | 1.99% | 2.06% | 2.07% | ||||
Net Interest Margin Non-Securitized Assets (TEB)4 | 3.03% | 2.80% | 3.05% | 2.82% | ||||
Net Interest Margin Securitized Assets | 1.16% | 1.26% | 1.23% | 1.23% | ||||
Provision as a Percentage of Gross Loans (annualized) | 0.07% | 0.17% | 0.05% | 0.07% | ||||
Efficiency Ratio (TEB)4 | 27.1% | 35.0% | 27.9% | 29.3% | ||||
As at December 31 | 2011 | 2010 1 | ||||||
BALANCE SHEET HIGHLIGHTS | ||||||||
Total Assets | $ | 17,696,471 | $ | 15,518,818 | ||||
Total Loans | 16,089,648 | 14,091,755 | ||||||
Securitized Loans | 8,243,350 | 8,116,636 | ||||||
Liquid Assets | 763,279 | 951,271 | ||||||
Deposits | 7,922,124 | 6,595,979 | ||||||
Shareholders' Equity | 774,785 | 628,585 | ||||||
FINANCIAL STRENGTH | ||||||||
Capital Measures5 | ||||||||
Risk-Weighted Assets | $ | 4,549,696 | $ | 3,777,267 | ||||
Tier 1 Capital Ratio | 17.3% | 18.1% | ||||||
Total Capital Ratio | 20.5% | 19.4% | ||||||
Credit Quality1 | ||||||||
Non-Performing Loans as a Percentage of Gross Loans | 0.25% | 0.24% | ||||||
Allowance as a Percentage of Gross Non-Performing Loans | 74.9% | 88.1% | ||||||
Share Information | ||||||||
Book Value per Common Share1 | $ | 22.38 | $ | 18.14 | ||||
Common Share Price - Close | $ | 49.10 | $ | 51.79 | ||||
Market Capitalization | $ | 1,700,088 | $ | 1,794,316 | ||||
Number of Common Shares Outstanding | 34,625 | 34,646 |
1 2010 figures have been restated to an International Financial Reporting Standards (IFRS) basis.
2 Adjusted net income represents net income plus an adjustment for unmatched derivative positions. See definition of Adjusted Net Income under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report for further details. The adjustments from net income to adjusted net income for these unmatched derivative positions were $nil for the fourth quarter of 2011 ($4.1 million increase in net income in Q4 2010) and a $2.4 million increase in net income for the year ($7.1 million decrease in net income for 2010).
3 This key performance indicator has not been recalculated on an adjusted net income basis.
4 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report.
5 These figures relate to the Company's operating subsidiary, Home Trust Company. 2010 has not been recalculated on an IFRS basis.
2011 Targets and Performance | |||||||
For the year ended December 31, 2011 | |||||||
2011 Targets1 | Actual Results1 | Amount | Increase over 2010 | ||||
Growth in adjusted net income2 | 15%-20% | 30.4% | $ | 192,505 | $ | 44,895 | |
Growth in adjusted diluted earnings per share2 | 15%-20% | 30.4% | 5.53 | 1.29 | |||
Growth in total assets3 | 13%-18% | 14.0% | 17,696,471 | 2,177,653 | |||
Growth in total loans3 | 13%-18% | 14.2% | 16,089,648 | 1,997,893 | |||
Adjusted return on shareholders' equity | 20.0% | 27.4% | |||||
Efficiency ratio (TEB)4 | 28.0% - 34.0% | 27.9% | |||||
Capital ratios5 | |||||||
Tier 1 | Minimum of 13% | 17.3% | |||||
Total | Minimum of 14% | 20.5% | |||||
Provision as a percentage of gross loans | 0.05% - 0.15% | 0.05% |
1 Targets and results for adjusted net income and diluted earnings per share are for the current year.
2 Targets are based on adjusted 2010 net income. See definition of Adjusted Net Income under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. Change represents change over 2010.
3 Change represents growth over December 31, 2010.
4 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report.
5 Based on the Company's wholly owned subsidiary, Home Trust Company.
FOURTH QUARTER AND 2011 HIGHLIGHTS
The Company continued its strong performance in the fourth quarter of 2011 and for the year. Key results for the fourth quarter of 2011 and the year are as follows:
- Net income was $50.3 million in the fourth quarter and $190.1 million for the year, while adjusted net income for 2011 was $192.5 million. Quarterly earnings increased by 47.1% over the $34.2 million adjusted net income recorded in the fourth quarter of 2010, and 2011 adjusted net income was 30.4% higher than 2010 adjusted net income. Sequentially in 2011, fourth quarter net income increased by 3.9% over third quarter net income. The annual results exceeded the Company's 2011 objective of 15% to 20% growth in adjusted net income over 2010, reflecting strong loan growth in the traditional portfolio, stable total net interest margin, low provisions for credit losses and a continued low efficiency ratio.
- Core earnings of $96.7 million (net interest income after provision plus fee and other income) was up by 1.8% over third quarter core earnings of $95.0 million and up 28.4% over 2010 fourth quarter core earnings of $75.3 million.
- Adjusted basic and diluted earnings per share were $1.45 for the fourth quarter and $5.55 and $5.53 for the year. This represents an increase of 46.5% and 48.0%, respectively, from $0.99 and $0.98 adjusted basic and diluted earnings per share in the fourth quarter of 2010 and an increase of 30.6% and 30.4%, respectively, over the $4.25 and $4.24 adjusted basic and diluted earnings per share earned in 2010. These results exceeded the Company's 2011 annual objective of 15% to 20% growth in diluted earnings per share.
- Adjusted return on equity was 26.7% in the quarter and 27.4% in 2011, well in excess of the Company's minimum performance objective of 20% for the fourteenth consecutive year and exceeding 25% for the ninth consecutive year.
- Net interest income rose to $88.4 million in the fourth quarter and to $334.0 million for the year. This represents an increase of 21.9% over the $72.5 million recorded in the fourth quarter of 2010 and 26.5% over the $264.0 million recorded for the 2010 year.
- Net interest margin was 2.06% in the fourth quarter and for the year 2011 compared to 1.99% in the fourth quarter of 2010 and 2.07% for the year 2010. Net interest margin was 2.14% in the third quarter of 2011. Total net interest margin is influenced by the mix of the loan portfolio between securitized and non-securitized mortgages and the net interest margin on each of these portfolios. Over 2011 the weighting of securitized mortgages has declined when compared to the weighting at the end of 2010. The net interest margin on the non-securitized portfolio has generally improved compared to 2010 and declined from the prior quarter, as the Company was holding higher liquidity earning a lower rate. The securitized portfolio net interest margin declined in the fourth quarter, compared to the prior quarter reflecting the maturity of higher-rate assets during the quarter.
- The credit quality of the loans portfolio remained solid in the fourth quarter and for the year. Net non-performing loans ended 2011 at 0.25% of the total loans portfolio compared to 0.24% at the end of 2010 and 0.32% at the end of the third quarter of 2011. The provision for credit losses for the fourth quarter was 0.07% of gross loans on an annualized basis and 0.05% for the year compared to 0.17% in the comparable quarter of 2010 and 0.07% in 2010 and 0.06% in the third quarter of 2011. 2011 results are within the Company's objective of 0.05% to 0.15% of gross loans.
- Home Trust's Tier 1 and Total Capital ratios were robust at 17.3% and 20.5%, respectively, at December 31, 2011 and well above the Company's minimum targets. Home Trust's asset to capital multiple was 14.4 at December 31, 2011 compared to 14.0 at September 30, 2011. Early in 2012 the Company provided Home Trust with an additional $45 million in subordinated debt, putting Home Trust and the Company in a position to continue growing assets, revenue and net income. These funds were from the Company's $150 million senior debt issue, of which $100 million was provided to Home Trust in 2011.
- Total assets grew to $17.70 billion at the end of 2011, an increase of $2.18 billion or 14.0% over the $15.52 billion at the end of 2010 and $624.3 million or 3.7% over the $17.07 billion at the end of the third quarter of 2011. Total loans increased by $2.00 billion in 2011 to $16.09 billion, representing growth of 14.2% over the $14.09 billion at the end of 2010. Total loans increased $307.0 million or 1.9% from the $15.78 billion at the end of the third quarter of 2011. Total assets and loan growth were within the Company's 2011 growth objective of 13% to 18%.
- The total value of mortgages originated in the fourth quarter of 2011 was $1.25 billion and $5.12 billion for the year, compared to $1.85 billion in the fourth quarter of 2010 and $6.87 billion in 2010. The year-over-year decrease in originations reflects the Company's strategy to shift origination focus from Accelerator (insured) mortgage products, which are generally securitized, to originations of higher yielding traditional mortgages. The regulatory and accounting treatment of Accelerator (insured) securitized mortgages upon adoption of International Financial Reporting Standards (IFRS) has introduced new capital constraints and effectively increased the cost of capital allocated to Accelerator mortgages. Consequently, the Company scaled back lending in this segment in favour of higher margin products within the Company's risk appetite. The Company continues to explore opportunities that may ultimately lead to future growth in originations of the Accelerator mortgage product.
- The Company originated $948.8 million of traditional mortgages in the fourth quarter and $3.51 billion for the year, compared to $683.5 million and $2.85 billion in the comparative periods of 2010 and $941.1 million in the third quarter of 2011.
- Accelerator (insured) mortgage originations were $188.5 million in the fourth quarter of 2011 and $1.10 billion for the year, compared to $755.6 million and $2.84 billion in the comparable periods of 2010 and $293.5 million in the third quarter of 2011.
- Multi-unit residential originations were $6.5 million for the fourth quarter of 2011 and $137.0 million year-to-date compared to $285.0 million and $766.5 million in the same periods of 2010 and $7.0 million in the third quarter of 2011. A significant portion of multi-unit residential mortgages originated in 2010 were insured and securitized, and the reduction in origination volume is a result of narrowing margins and the cost of increased capital required to support this product.
- Non-residential mortgage advances were $41.5 million in the fourth quarter of 2011 and $182.2 million for the year, compared to $72.9 million and $219.8 million in the comparable periods of 2010 and $32.4 million in the third quarter of 2011. The Company maintains a cautious approach to increases in this portfolio.
- Store and apartment advances were $35.5 million for the quarter and $123.0 million for the year, compared to $33.6 million and $108.8 million in the same periods of 2010 and $26.8 million in the third quarter of 2011.
- As a source of funding and replacement assets for the Canada Mortgage Bond (CMB) program, the Company securitized and sold $272.9 million in insured residential mortgages in the fourth quarter and $1.87 billion for the year compared to $1.86 billion in the fourth quarter of 2010 and $5.17 billion in 2010 and $396.8 million in the third quarter of 2011.
- The mortgage lending segment recorded net income of $42.7 million in the fourth quarter and $155.3 million for 2011, increasing from $25.6 million and $114.5 million in the comparable periods of 2010. This reflects strong originations in the traditional portfolio coupled with strong net interest margins in that portfolio. The securitized portfolio, while experiencing modest growth, continues to contribute to the net income of the segment.
- The consumer lending segment recorded net income of $7.6 million in the fourth quarter and $30.1 million for the year compared to $3.8 million and $24.7 million in the comparable periods of 2010. The segment's Equityline Visa product continued its strong performance, opening 1,814 new Equityline Visa accounts in the fourth quarter and 7,697 for the year compared to 1,864 accounts and 6,263 accounts opened in the comparable periods of 2010. The consumer lending segment also added $14.5 million in receivables in the retail credit portfolio in the fourth quarter and $57.1 million for the year, compared to $10.1 million and $77.4 million in the comparable periods of 2010. The 2010 retail credit receivables increased dramatically on the initiation of the water heater program.
Subsequent to the end of the quarter, and in light of the Company's solid performance, profitability and strong financial position, the Board of Directors declared a quarterly dividend of $0.20 per Common share, payable on March 1, 2012 to shareholders of record at the close of business on February 23, 2012.
2012 Overall Outlook
Through 2011, the Company successfully repositioned the business to take advantage of the attractive returns available in the alternative mortgage space, the Company's traditional business. This business provides superior returns to the allocated capital and the Company will continue to prudently expand this business while continuing to strengthen operating controls and risk management processes. The Company will continue to offer insured mortgages through the Accelerator program, supporting the "one-stop" and "flexible lending solutions" lender strategy. The Company will also continue to increase its geographic footprint across Canada, taking advantage of opportunities within its risk profile in Quebec, and eastern and western Canada. Growth of the consumer portfolio at the current rate is expected for 2012.
In view of the global financial environment, the Company will maintain relatively high levels of liquidity and low overall leverage, as measured by the asset to capital multiple (ACM), to ensure safety and soundness for its depositors. This conservative approach to liquidity and leverage will drive a new complementary strategy that will focus on fee revenue from loan origination and administration for other mortgage funders.
The Company expects that the rate of growth in the Company's funded loan portfolio in 2012 will be consistent with the moderate pace of growth experienced in 2011. The traditional mortgage business is expected to maintain strong net interest margin and net interest income levels, while net interest margins on securitized assets are anticipated to decline modestly from the levels experienced in 2011. The decline primarily reflects a combination of two factors; spreads on new securitization transactions are generally lower than the spreads earned on the maturing pools and are lower than the spreads earned on the 2008 and 2009 securitization transactions; and, the assets provided as replacement assets in the CMB program are generally lower yielding when compared to the maturing or discharging assets. While the Company actively hedges the CMB reinvestment risk, the hedges cannot absorb 100% of this risk. This dynamic will tend to put pressure on the overall net interest margin. The increased weighting of the Company's traditional uninsured mortgages tends to offset this downward pressure, as the margins on these products are more favourable.
The Company will record amortization expenses related to its new core banking system for the full year 2012. These charges, along with related support costs, will tend to increase the cost structure and efficiency ratio. Reductions in other areas and increases in net interest income will tend to mitigate the increases in amortization and other costs. The Company expects its efficiency ratio for 2012 to fall within the target range of 28.0% to 34.0%.
Conference Call and Webcast
Fourth Quarter Results Conference Call
The conference call will take place on Wednesday, February 15, 2012, at 10:30 a.m. Participants are asked to call 5 to 15 minutes in advance, 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at www.homecapital.com.
Conference Call Archive
A telephone replay of the call will be available between 1:30 p.m. Wednesday, February 15, 2012 and midnight Wednesday, February 22, 2012 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 43320361). The archived audio webcast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com.
Annual and Special Meeting Notice
The Annual and Special Meeting of Shareholders of Home Capital Group Inc. will be held at the Design Exchange, Trading Floor, Second Floor, 234 Bay Street, Toronto, Ontario, on Wednesday, May 16, 2012 at 11:00 a.m. local time. Shareholders and guests are invited to join Directors and Management for lunch and refreshments following the Annual Meeting. All shareholders are encouraged to attend.
Net Interest Income and Margin | ||||||||||||
For the three months ended | For the year ended | |||||||||||
(000s, except %) | December 31, 2011 | December 31, 2010 | December 31, 2011 | December 31, 2010 | ||||||||
Income/ | Average | Income/ | Average | Income/ | Average | Income/ | Average | |||||
Expense | Rate1 | Expense | Rate1 | Expense | Rate1 | Expense | Rate1 | |||||
Assets | ||||||||||||
Cash and cash resources | $ | 986 | 0.67% | $ | 1,944 | 1.11% | $ | 3,386 | 0.70% | $ | 5,337 | 0.83% |
Securities | 4,664 | 4.69% | 5,430 | 3.09% | 20,161 | 4.74% | 22,673 | 3.54% | ||||
Non-securitized loans | 109,938 | 5.81% | 90,195 | 5.84% | 401,671 | 5.90% | 353,779 | 5.84% | ||||
Taxable equivalent adjustment | 1,785 | - | 1,779 | - | 7,212 | - | 7,900 | - | ||||
Total on non-securitized interest earning assets | 117,373 | 5.48% | 99,348 | 5.42% | 432,430 | 5.60% | 389,689 | 5.45% | ||||
Securitized loans | 81,876 | 3.76% | 76,584 | 4.22% | 330,491 | 3.86% | 251,292 | 4.39% | ||||
Other assets | - | - | - | - | - | - | - | - | ||||
Total Assets | $ | 199,249 | 4.55% | $ | 175,932 | 4.72% | $ | 762,921 | 4.61% | $ | 640,981 | 4.88% |
Liabilities and Shareholders' Equity | ||||||||||||
Deposits | $ | 50,371 | 2.63% | $ | 47,988 | 2.90% | $ | 191,745 | 2.79% | $ | 188,370 | 2.90% |
Securitization liabilities | 56,667 | 2.60% | 53,706 | 2.96% | 224,719 | 2.63% | 180,681 | 3.16% | ||||
Other liabilities and shareholders' equity | 2,014 | 5.25% | - | - | 5,293 | 6.22% | - | - | ||||
Total Liabilities and Shareholders' Equity | $ | 109,052 | 2.49% | $ | 101,694 | 2.73% | $ | 421,757 | 2.55% | $ | 369,051 | 2.81% |
Net Interest Income (TEB) | $ | 90,197 | $ | 74,238 | $ | 341,164 | $ | 271,930 | ||||
Tax Equivalent Adjustment | (1,785) | (1,779) | (7,212) | (7,900) | ||||||||
Net Interest Income per Financial | ||||||||||||
Statements | $ | 88,412 | $ | 72,459 | $ | 333,952 | $ | 264,030 | ||||
Net Interest Margin Non-Securitized | ||||||||||||
Interest Earning Assets 2 | 3.03% | 2.80% | 3.05% | 2.82% | ||||||||
Net Interest Margin Securitized Assets | 1.16% | 1.26% | 1.23% | 1.23% | ||||||||
Total Net Interest Margin2 | 2.06% | 1.99% | 2.06% | 2.07% | ||||||||
Spread of Non-securitized Loans over | ||||||||||||
Deposits Only | 3.18% | 2.94% | 3.11% | 2.94% | ||||||||
1 The average rate is an average calculated with reference to opening and closing monthly asset and liability balances. | ||||||||||||
2 Net interest margin is calculated on a TEB. |
Mortgage Production | ||||||||
For the three months ended | For the year ended | |||||||
(000s) | December 31 | December 31 | December 31 | December 31 | ||||
2011 | 2010 | 2011 | 2010 | |||||
Traditional single family residential mortgages | $ | 948,848 | $ | 683,511 | $ | 3,514,430 | $ | 2,853,385 |
Accelerator single family residential mortgages | 188,484 | 755,632 | 1,103,555 | 2,839,394 | ||||
Multi-unit residential mortgages | 6,522 | 285,042 | 137,005 | 766,483 | ||||
Non-residential mortgages | 41,508 | 72,855 | 182,163 | 219,760 | ||||
Store and apartments | 35,544 | 33,623 | 122,957 | 108,769 | ||||
Warehouse commercial mortgages | 27,000 | 20,750 | 56,750 | 80,800 | ||||
Total mortgage advances | $ | 1,247,906 | $ | 1,851,413 | $ | 5,116,860 | $ | 6,868,591 |
Consolidated Balance Sheets | |||||||
December 31 | December 31 | January 1 | |||||
2011 | 2010 | 2010 | |||||
thousands of Canadian dollars | (restated to IFRS) | (restated to IFRS) | |||||
ASSETS | |||||||
Cash Resources | $ | 665,806 | $ | 846,824 | $ | 930,134 | |
Securities | |||||||
Held for trading | - | - | 99,938 | ||||
Available for sale | 391,754 | 424,168 | 494,602 | ||||
Pledged securities | 341,588 | 2,954 | - | ||||
733,342 | 427,122 | 594,540 | |||||
Loans | |||||||
Residential mortgages | 6,339,883 | 4,683,527 | 4,473,255 | ||||
Securitized residential mortgages | 8,243,350 | 8,116,636 | 4,126,707 | ||||
Non-residential mortgages | 946,222 | 838,253 | 708,425 | ||||
Personal and credit card loans | 560,193 | 453,339 | 342,918 | ||||
16,089,648 | 14,091,755 | 9,651,305 | |||||
Collective allowance for credit losses | (29,440) | (29,153) | (27,793) | ||||
16,060,208 | 14,062,602 | 9,623,512 | |||||
Other | |||||||
Income taxes receivable | - | 9,451 | 6,466 | ||||
Derivative assets | 72,424 | 24,157 | 13,186 | ||||
Other assets | 79,650 | 80,099 | 75,322 | ||||
Capital assets | 5,372 | 4,894 | 4,863 | ||||
Intangible assets | 63,917 | 47,917 | 26,811 | ||||
Goodwill | 15,752 | 15,752 | 15,752 | ||||
237,115 | 182,270 | 142,400 | |||||
$ | 17,696,471 | $ | 15,518,818 | $ | 11,290,586 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Liabilities | |||||||
Deposits | |||||||
Deposits payable on demand | $ | 62,746 | $ | 50,359 | $ | 38,223 | |
Deposits payable on a fixed date | 7,859,378 | 6,545,620 | 6,433,533 | ||||
7,922,124 | 6,595,979 | 6,471,756 | |||||
Senior Debt | 153,336 | - | - | ||||
Securitization Liabilities | |||||||
Mortgage-backed security liabilities | 2,417,801 | 2,826,105 | 1,191,552 | ||||
Canada Mortgage Bond liabilities | 6,231,274 | 5,278,473 | 2,964,904 | ||||
8,649,075 | 8,104,578 | 4,156,456 | |||||
Other | |||||||
Derivative liabilities | 3,458 | 9,009 | 11,099 | ||||
Income taxes payable | 17,628 | - | - | ||||
Other liabilities | 136,025 | 140,554 | 130,823 | ||||
Deferred tax liabilities | 40,040 | 40,113 | 16,829 | ||||
197,151 | 189,676 | 158,751 | |||||
16,921,686 | 14,890,233 | 10,786,963 | |||||
Shareholders' Equity | |||||||
Capital stock | 55,104 | 50,427 | 45,396 | ||||
Contributed surplus | 5,873 | 4,571 | 3,606 | ||||
Retained earnings | 722,999 | 567,681 | 444,416 | ||||
Accumulated other comprehensive (loss) income | (9,191) | 5,906 | 10,205 | ||||
774,785 | 628,585 | 503,623 | |||||
$ | 17,696,471 | $ | 15,518,818 | $ | 11,290,586 |
Consolidated Statements of Income | |||||||||
For the three months ended | For the year ended | ||||||||
December 31 | December 31 | December 31 | December 31 | ||||||
2011 | 2010 | 2011 | 2010 | ||||||
thousands of Canadian dollars, except per share amounts | (restated to IFRS) | (restated to IFRS) | |||||||
Net Interest Income Non-Securitized Assets | |||||||||
Interest from loans | $ | 109,938 | $ | 90,195 | $ | 401,671 | $ | 353,779 | |
Dividends from securities | 4,559 | 4,098 | 18,417 | 18,204 | |||||
Other interest | 1,091 | 3,276 | 5,130 | 9,806 | |||||
115,588 | 97,569 | 425,218 | 381,789 | ||||||
Interest on deposits | 50,371 | 47,988 | 191,745 | 188,370 | |||||
Interest on senior debt | 2,014 | - | 5,293 | - | |||||
Net interest income non-securitized assets | 63,203 | 49,581 | 228,180 | 193,419 | |||||
Net Interest Income Securitized Loans and Assets | |||||||||
Interest income from securitized loans and assets | 81,876 | 76,584 | 330,491 | 251,292 | |||||
Interest expense on securitization liabilities | 56,667 | 53,706 | 224,719 | 180,681 | |||||
Net interest income securitized loans and assets | 25,209 | 22,878 | 105,772 | 70,611 | |||||
Total Net Interest Income | 88,412 | 72,459 | 333,952 | 264,030 | |||||
Provision for credit losses | 2,979 | 5,816 | 7,519 | 9,431 | |||||
85,433 | 66,643 | 326,433 | 254,599 | ||||||
Non-Interest Income | |||||||||
Fees and other income | 11,294 | 8,621 | 37,997 | 30,690 | |||||
Gain on sale of loan portfolio | - | - | - | 3,917 | |||||
Realized net gains and unrealized losses on securities | (1,306) | (985) | 4,088 | 9,740 | |||||
Net realized and unrealized (loss) gain on derivatives | (330) | (5,745) | (7,203) | 9,821 | |||||
9,658 | 1,891 | 34,882 | 54,168 | ||||||
95,091 | 68,534 | 361,315 | 308,767 | ||||||
Non-Interest Expenses | |||||||||
Salaries and benefits | 13,184 | 12,405 | 52,523 | 46,739 | |||||
Premises | 2,007 | 1,820 | 7,776 | 6,894 | |||||
Other operating expenses | 11,916 | 12,384 | 44,703 | 41,843 | |||||
27,107 | 26,609 | 105,002 | 95,476 | ||||||
Income Before Income Taxes | 67,984 | 41,925 | 256,313 | 213,291 | |||||
Income taxes | |||||||||
Current | 15,909 | 9,947 | 66,270 | 35,231 | |||||
Deferred | 1,795 | 1,869 | (37) | 23,308 | |||||
17,704 | 11,816 | 66,233 | 58,539 | ||||||
NET INCOME | $ | 50,280 | $ | 30,109 | $ | 190,080 | $ | 154,752 | |
NET INCOME PER COMMON SHARE | |||||||||
Basic | $ | 1.45 | $ | 0.87 | $ | 5.48 | $ | 4.46 | |
Diluted | $ | 1.45 | $ | 0.87 | $ | 5.46 | $ | 4.45 | |
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||||||
Basic | 34,668 | 34,685 | 34,677 | 34,697 | |||||
Diluted | 34,782 | 34,778 | 34,787 | 34,776 | |||||
Total number of outstanding common shares | 34,625 | 34,646 | 34,625 | 34,646 | |||||
Book value per common share | $ | 22.38 | $ | 18.14 | $ | 22.38 | $ | 18.14 |
Consolidated Statements of Comprehensive Income | ||||||||
For the three months ended | For the year ended | |||||||
December 31 | December 31 | December 31 | December 31 | |||||
2011 | 2010 | 2011 | 2010 | |||||
thousands of Canadian dollars | (restated to IFRS) | (restated to IFRS) | ||||||
NET INCOME | $ | 50,280 | $ | 30,109 | $ | 190,080 | $ | 154,752 |
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
Available for Sale Securities | ||||||||
Net unrealized gains (losses) on securities available for sale | 700 | 744 | (8,602) | 3,224 | ||||
Net losses (gains) reclassified to net income | 1,174 | 759 | (4,815) | (8,509) | ||||
1,874 | 1,503 | (13,417) | (5,285) | |||||
Income tax expense (recovery) | 505 | (327) | (3,370) | (986) | ||||
1,369 | 1,830 | (10,047) | (4,299) | |||||
Cash Flow Hedges | ||||||||
Net unrealized losses on cash flow hedges | (639) | - | (7,386) | - | ||||
Net losses reclassified to net income | 338 | - | 618 | - | ||||
(301) | - | (6,768) | - | |||||
Income tax recovery | (36) | - | (1,718) | - | ||||
(265) | - | (5,050) | - | |||||
Total other comprehensive income (loss) | 1,104 | 1,830 | (15,097) | (4,299) | ||||
COMPREHENSIVE INCOME | $ | 51,384 | $ | 31,939 | $ | 174,983 | $ | 150,453 |
Consolidated Statements of Changes in Shareholders' Equity | ||||||||||||||
Net Unrealized | Net Unrealized | Total | ||||||||||||
Gains (Losses) | Losses on | Accumulated | ||||||||||||
on Securities | Cash Flow | Other | Total | |||||||||||
thousands of Canadian dollars, | Capital | Contributed | Retained | Available for | Hedges, | Comprehensive | Shareholders' | |||||||
except per share amounts | Stock | Surplus | Earnings | Sale, after Tax | after Tax | Income (Loss) | Equity | |||||||
Balance at December 31, 2010 | ||||||||||||||
(restated to IFRS) | $ | 50,427 | $ | 4,571 | $ | 567,681 | $ | 5,906 | $ | - | $ | 5,906 | $ | 628,585 |
Comprehensive income | - | - | 190,080 | (10,047) | (5,050) | (15,097) | 174,983 | |||||||
Stock options settled | 4,921 | (1,098) | - | - | - | - | 3,823 | |||||||
Amortization of fair value of | ||||||||||||||
employee stock options | - | 2,400 | - | - | - | - | 2,400 | |||||||
Repurchase of shares | (244) | - | (7,702) | - | - | - | (7,946) | |||||||
Dividends paid | ||||||||||||||
($0.76 per share) | - | - | (27,060) | - | - | - | (27,060) | |||||||
Balance at December 31, 2011 | $ | 55,104 | $ | 5,873 | $ | 722,999 | $ | (4,141) | $ | (5,050) | $ | (9,191) | $ | 774,785 |
Balance at January 1, 2010 | $ | 45,396 | $ | 3,606 | $ | 444,416 | $ | 10,205 | $ | - | $ | 10,205 | $ | 503,623 |
Comprehensive income | - | - | 154,752 | (4,299) | - | (4,299) | 150,453 | |||||||
Exercise of stock appreciation rights | - | (280) | - | - | - | - | (280) | |||||||
Stock options settled | 5,309 | (880) | - | - | - | - | 4,429 | |||||||
Amortization of fair value of | ||||||||||||||
employee stock options | - | 2,125 | - | - | - | - | 2,125 | |||||||
Repurchase of shares | (278) | - | (8,246) | - | - | - | (8,524) | |||||||
Dividends paid | ||||||||||||||
($0.66 per share) | - | - | (23,241) | - | - | - | (23,241) | |||||||
Balance at December 31, 2010 | ||||||||||||||
(restated to IFRS) | $ | 50,427 | $ | 4,571 | $ | 567,681 | $ | 5,906 | $ | - | $ | 5,906 | $ | 628,585 |
Consolidated Statements of Cash Flows | ||||||
For the year ended | ||||||
December 31 | December 31 | |||||
2011 | 2010 | |||||
thousands of Canadian dollars | (restated to IFRS) | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income for the year | $ | 190,080 | $ | 154,752 | ||
Adjustments to determine cash flows relating to operating activities: | ||||||
Deferred income taxes | (37) | 23,308 | ||||
Amortization of capital assets | 3,052 | 2,881 | ||||
Amortization of intangible assets | 679 | 334 | ||||
Amortization of (premium) discount on securities | (49) | 2,423 | ||||
Amortization of securitization and senior debt transaction costs | 14,153 | 9,705 | ||||
Provision for credit losses | 7,519 | 9,431 | ||||
Change in accrued interest payable | 4,993 | 4,958 | ||||
Change in accrued interest receivable | (6,686) | (6,651) | ||||
Realized net gains and unrealized losses on securities | (4,088) | (9,740) | ||||
Settlement of derivatives | (7,385) | - | ||||
Loss (gain) on derivatives | 7,203 | (20,890) | ||||
Net increase in mortgages | (1,897,308) | (4,334,003) | ||||
Net increase in personal and credit card loans | (107,817) | (110,581) | ||||
Net increase in deposits | 1,326,145 | 124,223 | ||||
Activity in securitization liabilities | ||||||
Proceeds from securitization of mortgage-backed security liabilities | 1,233,754 | 4,572,264 | ||||
Settlement and repayment of securitization liabilities | (753,085) | (629,934) | ||||
Amortization of fair value of employee stock options | 2,400 | 2,125 | ||||
Changes in taxes payable and other | 23,293 | 4,352 | ||||
Cash flows provided by (used in) operating activities | 36,816 | (201,043) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Repurchase of shares | (7,946) | (8,524) | ||||
Exercise of employee stock options and stock appreciation rights | 3,823 | 4,149 | ||||
Issuance of senior debt | 149,052 | - | ||||
Dividends paid | (26,371) | (22,906) | ||||
Cash flows provided by (used in) financing activities | 118,558 | (27,281) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Activity in available for sale and held for trading securities | ||||||
Purchases | (1,641,985) | (203,172) | ||||
Proceeds from sales | 389,978 | 214,126 | ||||
Proceeds from maturities | 935,824 | 158,412 | ||||
Purchases of capital assets | (3,530) | (2,912) | ||||
Purchases of intangible assets | (16,679) | (21,440) | ||||
Cash flows (used in) provided by investing activities | (336,392) | 145,014 | ||||
Net decrease in cash and cash equivalents during the year | (181,018) | (83,310) | ||||
Cash and cash equivalents at beginning of the year | 846,824 | 930,134 | ||||
Cash and Cash Equivalents at End of the Year | $ | 665,806 | $ | 846,824 | ||
Supplementary Disclosure of Cash Flow Information | ||||||
Dividends received | $ | 17,318 | $ | 16,840 | ||
Interest received | 725,476 | 598,419 | ||||
Interest paid | 416,764 | 364,093 | ||||
Income taxes paid | 36,636 | 42,114 |
Earnings by Business Segment | |||||||||||||||||
For the three months ended | |||||||||||||||||
(000s) | Mortgage Lending | Consumer Lending | Other | Total | |||||||||||||
December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | ||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||
Net interest income | $ | 74,164 | $ | 57,053 | $ | 10,639 | $ | 8,990 | $ | 3,609 | $ | 6,416 | $ | 88,412 | $ | 72,459 | |
Provision for credit | |||||||||||||||||
losses | (1,975) | (2,377) | (1,004) | (3,439) | - | - | (2,979) | (5,816) | |||||||||
Fees and other income | 6,829 | 4,624 | 4,343 | 3,928 | 122 | 69 | 11,294 | 8,621 | |||||||||
Net (loss) gain on | |||||||||||||||||
securities and others | (1,095) | (5,697) | - | - | (541) | (1,033) | (1,636) | (6,730) | |||||||||
Non-interest expenses | (18,824) | (16,948) | (3,417) | (3,853) | (4,866) | (5,808) | (27,107) | (26,609) | |||||||||
Income before income | |||||||||||||||||
taxes | 59,099 | 36,655 | 10,561 | 5,626 | (1,676) | (356) | 67,984 | 41,925 | |||||||||
Income taxes | (16,370) | (11,102) | (2,987) | (1,780) | 1,653 | 1,066 | (17,704) | (11,816) | |||||||||
Net income | $ | 42,729 | $ | 25,553 | $ | 7,574 | $ | 3,846 | $ | (23) | $ | 710 | $ | 50,280 | $ | 30,109 | |
Goodwill | $ | 2,324 | $ | 2,324 | $ | 13,428 | $ | 13,428 | $ | - | $ | - | $ | 15,752 | $ | 15,752 | |
Total assets | $ | 15,997,106 | $ | 13,797,202 | $ | 614,626 | $ | 514,872 | $ | 1,084,739 | $ | 1,206,744 | $ | 17,696,471 | $ | 15,518,818 | |
For the year ended | |||||||||||||||||
(000s) | Mortgage Lending | Consumer Lending | Other | Total | |||||||||||||
December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | ||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||
Net interest income | $ | 273,738 | $ | 202,745 | $ | 41,782 | $ | 35,761 | $ | 18,432 | $ | 25,524 | $ | 333,952 | $ | 264,030 | |
Provision for credit | |||||||||||||||||
losses | (5,916) | (5,304) | (1,603) | (4,127) | - | - | (7,519) | (9,431) | |||||||||
Fees and other income | 19,457 | 15,243 | 18,051 | 15,229 | 489 | 218 | 37,997 | 30,690 | |||||||||
Net (loss) gain on | |||||||||||||||||
securities and others | (4,821) | 10,608 | - | 3,917 | 1,706 | 8,953 | (3,115) | 23,478 | |||||||||
Non-interest expenses | (67,851) | (61,114) | (16,255) | (14,945) | (20,896) | (19,417) | (105,002) | (95,476) | |||||||||
Income before income | |||||||||||||||||
taxes | 214,607 | 162,178 | 41,975 | 35,835 | (269) | 15,278 | 256,313 | 213,291 | |||||||||
Income taxes | (59,331) | (47,676) | (11,872) | (11,129) | 4,970 | 266 | (66,233) | (58,539) | |||||||||
Net income | $ | 155,276 | $ | 114,502 | $ | 30,103 | $ | 24,706 | $ | 4,701 | $ | 15,544 | $ | 190,080 | $ | 154,752 | |
Goodwill | $ | 2,324 | $ | 2,324 | $ | 13,428 | $ | 13,428 | $ | - | $ | - | $ | 15,752 | $ | 15,752 | |
Total assets | $ | 15,997,106 | $ | 13,797,202 | $ | 614,626 | $ | 514,872 | $ | 1,084,739 | $ | 1,206,744 | $ | 17,696,471 | $ | 15,518,818 |
Management's Responsibility for Financial Information The Company's Audit Committee reviewed this document along with the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. The Company's Board of Directors approved both documents prior to their release. A full description of management's responsibility for financial information is included in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. Caution Regarding Forward-looking Statements From time to time Home Capital Group Inc. (the "Company" or "Home Capital") 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 this 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, liquidity and funding risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk and regulatory and legal risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook Section in the Annual Report. Forward-looking statements are typically identified by words such as "will," "believe," "expect," "anticipate," "estimate," "plan," "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 2012 and its effect on Home Capital's business are material factors the Company considers when setting its objectives 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 the outlook and objectives for 2012, management's expectations assume:
Non-GAAP Measures The Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises for years beginning on or after January 1, 2011. The Company uses a number of financial measures to assess its performance. Some of these measures are not calculated in accordance with GAAP, are not defined by GAAP, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures. Definitions of non-GAAP measures used in this report can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. Regulatory Filings The Company's continuous disclosure materials, including interim filings, annual Management's Discussion and Analysis and audited consolidated financial statements, Annual Information Form, Notice of Annual Meeting of Shareholders, and Proxy Circular are available on the Company's website at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com. |
Home Capital Group Inc. is a public company, traded on the Toronto Stock Exchange (HCG), operating through its principal subsidiary, Home Trust Company. Home Trust is a federally regulated trust company offering deposit, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending, Visa and payment card services. Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia and Quebec.
Gerald M. Soloway, CEO, or
Martin Reid, President
416-360-4663
www.homecapital.com
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