TORONTO, Nov. 14, 2017 /CNW/ - Home Capital Group ("Home
Capital" or "the Company") (TSX: HCG) today reported financial
results for the three and nine months ended September 30, 2017. This press release should be
read in conjunction with the Company's 2017 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 on SEDAR at www.sedar.com.
Yousry Bissada, President and
Chief Executive Officer, Home Capital said, "We achieved a number
of key milestones during the third quarter to set the Company on
the right course for future growth. We strengthened our
liquidity position and maintained access to deposit funding which
we can quickly flex up or dial back in line with seasonal demand.
We made initial progress growing originations from a low base to
more profitably utilize our deposits. We successfully completed
Project EXPO reducing our ongoing expenses and we added experienced
and capable members to our senior management team. Importantly,
Home Capital returned to profitability."
"Looking ahead, our top priority is to grow our residential and
commercial business lines to more normal and sustainable levels. We
are enhancing our sales and underwriting processes to improve
service levels and win business. With our strong capital and
liquidity base, we are well positioned to take advantage of
opportunities to build our business. We will do this in the context
of an evolving regulatory landscape which we are assessing to
quickly adapt. All the while we will continue to prudently manage
credit risk and maintain an enhanced risk management and governance
framework."
Third Quarter 2017 Financial Statement Highlights
Third Quarter 2017, compared with the Third Quarter
2016:
- Returned to profitability and reported net income of
$30.0 million and $0.37 per share fully diluted, compared with net
income of $66.2 million and
$1.01 diluted earnings per
share.
- Net income for third quarter 2017 includes the impact of
reduced loan balances, increased interest expenses, elevated
non-interest expenses and loss on sale of mortgage assets.
- Total loans under administration were $23.2 billion compared to $26.0 billion as a result of the sale of loans
and lower originations.
- Total mortgage originations of $385
million, compared with $2.54
billion.
- Provisions for credit losses (PCL) decreased reflecting the
impact of a $6.5 million release of
the collective allowance due to the sale of $963 million of commercial portfolio assets. PCL
as a percentage of gross uninsured loans was (0.14)%, or 0.07% if
the impact of the reduction in the collective allowance was
excluded for ease of comparison, compared to 0.04%.
- Robust capital position to enable future growth with CET 1
ratio at 21.25% compared to 16.54%.
First Nine Months ended September 30,
2017, compared with First Nine Months ended September 30, 2016:
- Reported net loss was $23.1
million, compared with net income of $196.7 million.
- Reported diluted loss per share was $0.33, compared with diluted earnings per share
of $2.92.
- Total mortgage originations of $3.8
billion, compared with $6.8
billion.
- PCL as a percentage of gross uninsured loans was 0.05%,
compared to 0.05%.
Recent Events
- Yousry Bissada named President
and Chief Executive Officer, Brad
Kotush named Executive Vice President and Chief Financial
Officer and Edward Karthaus named
Executive Vice President, Sales.
- Liquidity position of $4.66
billion including $2 billion
undrawn balance of Berkshire Hathaway (BH) credit facility at end
of Q3 2017.
- Announced agreement with a third party to sell the Company's
payment processing and prepaid card business including its Payment
Services Interactive Gateway (PSiGate) subsidiaries.
- Project EXPO successfully completed; expected to result in
future annualized cost savings of $15
million when compared to the annualized run rate of Q4 2016
expenses (excluding items of note).
- Closed final tranche of a previously announced sale of certain
commercial mortgage assets, for aggregate proceeds of approximately
$1.0 billion.
- Received final approval of two agreements comprising a global
settlement with the Ontario Securities Commission and a class
action lawsuit from Ontario Superior Court of Justice.
Strategic Update
The Company's new Chief Executive Officer and Chief Financial
Officer, along with the Board of Directors, are focused on setting
a long-term strategy to grow the business and create shareholder
value.
In the near term, the Company's priorities are to grow
residential and commercial business lines and take back market
share. To achieve this, management is focused on improving service
levels, introducing competitive product offerings and increasing
outreach in the broker community.
The Company has successfully restored ample liquidity and
stabilized its deposit funding; however, third quarter performance
continued to reflect a number of negative factors stemming from the
liquidity event including lower residential and commercial loan
assets, higher deposit interest costs and elevated non-interest
costs. New loan originations were well below historical levels and
are not adequate to replace loan assets reduced through sales.
Although the Company successfully stabilized its liquidity position
and quickly restored deposit funding, the process of restoring loan
growth has been slower than planned and is management's top
priority.
In addition, the Company is operating in the context of an
evolving regulatory landscape that will affect its primary
residential mortgage market, though the extent of any impact is not
yet clear.
Against this backdrop, Management and the Board of Directors are
reassessing opportunities for the business and actively updating
and executing its corporate strategy during the fourth quarter 2017
and first quarter of 2018.
Third Quarter Expenses
During the third quarter, the Company's expenses were in line
with management expectations. Costs were elevated following the
significant liquidity event that occurred during the second quarter
2017, which required the Company to liquidate securities and sell
mortgage assets and establish a $2
billion credit facility (later replaced by the $2 billion credit facility on better terms from a
wholly owned subsidiary of Berkshire Hathaway).
Some expenses associated with the liquidity event declined
during the third quarter, such as the interest expense on the
credit facilities which were repaid by the end of July. However,
other operating expenses remained elevated, as expected, compared
to historical levels due to increased professional fees, and legal
fees and other expenses related to the liquidity event. In
addition, the Company recognized a loss of $13.2 million on the completion of the previously
announced asset sales required to repay the outstanding balance on
the credit facility. Project EXPO, the Company's expense
savings initiative announced early in 2017, has been successfully
completed and no additional severance or other expense related to
Project EXPO was recognized during the third quarter.
Moving forward into Q4 2017 and the first half of 2018, the
Company expects to experience some continued elevated costs
associated with the liquidity event that should be partially offset
by Project EXPO savings.
Fourth Quarter 2017 Outlook
During the third quarter, the Company focused on carefully
increasing lending activity and growing mortgage originations in
step with deposit funding growth. Origination growth was lower than
anticipated and the process of growing the lending book is an
ongoing priority. Based on the current rate of funding new
mortgages, the Company now estimates that the balance of
non-securitized single-family residential mortgages will be
approximately $10 billion at the end
of 2017, compared to $10.4 billion at
the end of the third quarter.
Improved depositor confidence, combined with premium interest
rates offered on new fixed-term deposits, increased net deposit
inflows and stabilized the Company's deposit funding. This
positioned the Company with excess liquidity and increased funding
capacity to significantly increase originations and achieve higher
levels of new business going forward.
A focus on deploying excess liquidity and growing the loan book
is expected to have a positive effect on net interest margins going
forward. During the third quarter, the growth of deposits outpaced
loan growth which resulted in a substantial increase in lower
yielding liquid assets and contributed to lower net interest
margins. The Company was required to offer premium rates on
deposits, to increase inflows, which reduced the interest spread
earned. The interest spread earned was also reduced by the
significant decline in lower cost demand deposits relative to
higher cost fixed-term deposits. By the end of the third
quarter, the Company reduced deposit interest rates on new deposits
to market levels, intentionally lowering deposit growth, as efforts
turned to growing mortgage balances.
In addition, because of the overhang of the liquidity event,
internal management and process changes, and timing of the shift in
focus to growing mortgage balances, new loan originations are
expected to be well below historical levels. Furthermore, the sale
of commercial and residential mortgage assets and early
payouts of consumer lending assets also contributed to reduced
interest earning assets.
Net interest income is also expected to improve due to the full
repayment of the outstanding debt under the BH credit facility;
however, interest income is expected to remain at reduced levels
until the Company can grow its loan portfolios to desired
levels.
Strong capital levels are expected to be maintained as
management continues to review opportunities to deploy capital in
the most efficient manner to maximize shareholder value. The
Company anticipates that return on shareholders' equity will
continue to be dampened compared to prior periods by a combination
of lower earnings and the increased share capital.
Management Comments on Revisions to Guideline B-20
In October 2017, OSFI announced
revisions to Guideline B-20 Residential Mortgage Underwriting
Practices and Procedures (B20), effective January 1, 2018. Management is interpreting the
revisions to determine what potential operational adjustments will
be required to be implemented prior to the effective date. The
revisions include the following new standards:
- a qualifying stress test for uninsured mortgages;
- guidance on co-lending and bundling arrangements and;
- additional guidance on income verification and expectations to
account for property price inflation when determining appropriate
loan to value.
The stress test requirement is expected to have the most
material impact on the mortgage market and would result in a
material portion of the Company's existing portfolio qualifying for
smaller loan size, if re-qualified under the new rules. The
net impact to future originations volume will be affected by
borrower behaviour with respect to loan size requested and
down-payments, and the potential for the Company to take on a part
of the market that may no longer qualify at other federally
regulated institutions. The Company also expects these revisions
will increase the rate of renewals of mortgage loans with the
existing lenders.
The Company has identified a number of strategies to mitigate
the impact of stress testing and co-lending changes while
maintaining overall credit quality. However, management will
require a period of time to fully assess the market impact from the
changes and what the net impact will be on the Company's
addressable market and product suite offering. The Company will
attend OSFI information sessions before the end of the year to
receive further clarity on certain revisions such as income
verification and
co-lending standards.
It is unclear what impact the revisions to B-20 will have on the
real estate and mortgage markets as a whole, particularly when
combined with changes under the Ontario Fair Housing Plan announced
by the Ontario Ministry of Finance in April
2017.
Management and Board of Directors will continue to reassess the
corporate strategy and opportunities for the business during the
fourth quarter 2017 and first quarter of 2018.
Governance and Risk Management
Over the past few years, the Company has worked to continuously
strengthen its governance and risk management processes (Risk
Framework) and has significantly invested in enhancing systems and
controls throughout the organization to support responsible growth.
Today the Company has a more robust Risk Framework and is well
positioned to sustainably grow its business with a renewed Board of
Directors. Earlier this year, five new independent Directors were
appointed to the Board, adding deep governance, risk and
regulatory, finance, banking and investment experience. In
addition, the Company has new Board and Board Committee Chairs, a
new President and Chief Executive Officer and a new Chief Financial
Officer. All are focused on driving governance, risk management and
strategy to enhance long-term Company performance.
Brenda Eprile, Chair, Board of
Directors of Home Capital commented, "Our renewed Board of
Directors and strengthened corporate governance practices are the
foundation to how we will grow and win future business and will
also guide our strategies in the markets we serve. I look
forward to working with our management team and Board on a longer
term strategy to increase our revenues, manage risk and expenses,
expand our geographic footprint and build long-term shareholder
value."
(signed)
|
(signed)
|
YOUSRY
BISSADA
|
BRENDA
EPRILE
|
President &
Chief Executive Officer
|
Chair of the
Board
|
November 14,
2017
|
|
The Company's 2017 Third Quarter Financial Report, including
Management's Discussion and Analysis, for the three and nine months
ended September 30, 2017 is available
at www.homecapital.com and on the Canadian Securities
Administrators' website at www.sedar.com.
Third Quarter 2017 Results Conference Call and
Webcast
The conference call will take place on Wednesday, November 15, 2017, at 8:00 a.m. ET. Participants are asked to call
approximately 10 minutes in advance at 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout
North America. The call will also
be accessible in listen-only mode on Home Capital's website at
www.homecapital.com in the Investor Relations section of the
website.
Conference Call Archive
A telephone replay of the call will be available between
11:00 a.m. ET Wednesday, November 15,
2017 and 12:00 a.m. ET Wednesday,
November 22, 2017 by calling 416-849-0833 or 1-855-859-2056
(enter passcode 96245439). The archived audio webcast will be
available for 90 days on CNW Group's website at www.newswire.ca and
Home Capital's website at www.homecapital.com.
Financial Highlights
|
|
|
(Unaudited)
|
For the three months
ended
|
For the nine months
ended
|
(000s, except
Percentage and Per Share Amounts)
|
September
30
|
June 30
|
September
30
|
September
30
|
September
30
|
|
|
2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
OPERATING
RESULTS
|
|
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
$
|
29,983
|
$
|
(111,116)
|
$
|
66,190
|
$
|
(23,092)
|
$
|
196,690
|
Net Interest Income
(Loss)
|
|
88,762
|
|
(3,407)
|
|
119,924
|
|
211,212
|
|
364,544
|
Total
Revenue1
|
|
95,407
|
|
(61,293)
|
|
145,095
|
|
181,856
|
|
437,362
|
Diluted Earnings
(Loss) per Share
|
$
|
0.37
|
$
|
(1.73)
|
$
|
1.01
|
$
|
(0.33)
|
$
|
2.92
|
Return on
Shareholders' Equity
|
|
6.8%
|
|
(25.9)%
|
|
16.7%
|
|
(1.8)%
|
|
16.2%
|
Return on Average
Assets
|
|
0.6%
|
|
(2.2)%
|
|
1.3%
|
|
(0.2)%
|
|
1.3%
|
Net Interest Margin
(TEB)2
|
|
1.85%
|
|
(0.07)%
|
|
2.34%
|
|
1.41%
|
|
2.37%
|
Provision as a
Percentage of Gross Uninsured Loans
(annualized)3
|
|
(0.14)%
|
|
0.07%
|
|
0.04%
|
|
0.05%
|
|
0.05%
|
Provision as a
Percentage of Gross Loans (annualized)3
|
|
(0.11)%
|
|
0.05%
|
|
0.03%
|
|
0.04%
|
|
0.04%
|
Efficiency Ratio
(TEB)2
|
|
62.7%
|
|
(138.9)%
|
|
37.7%
|
|
114.5%
|
|
38.2%
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
September
30
|
|
June 30
|
|
December
31
|
|
September
30
|
|
|
|
|
2017
|
|
2017
|
|
2016
|
|
2016
|
|
|
BALANCE SHEET
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
18,856,294
|
$
|
20,077,150
|
$
|
20,528,777
|
$
|
20,317,030
|
|
|
Total Assets Under
Administration4
|
|
26,659,330
|
|
28,292,436
|
|
28,917,534
|
|
28,327,676
|
|
|
Total
Loans5
|
|
15,429,650
|
|
17,648,114
|
|
18,035,317
|
|
18,002,238
|
|
|
Total Loans Under
Administration4,5
|
|
23,232,686
|
|
25,863,400
|
|
26,424,074
|
|
26,012,884
|
|
|
Liquid
Assets
|
|
2,657,055
|
|
1,737,417
|
|
2,067,981
|
|
1,878,082
|
|
|
Deposits
|
|
13,358,618
|
|
13,104,606
|
|
15,886,030
|
|
15,694,102
|
|
|
Line of Credit
Facility
|
|
-
|
|
1,396,959
|
|
-
|
|
-
|
|
|
Shareholders'
Equity
|
|
1,781,741
|
|
1,751,087
|
|
1,632,587
|
|
1,594,873
|
|
|
FINANCIAL
STRENGTH
|
|
|
|
|
|
|
|
|
|
|
Capital
Measures6
|
|
|
|
|
|
|
|
|
|
|
Risk-Weighted
Assets
|
$
|
6,890,938
|
$
|
8,328,024
|
$
|
8,643,267
|
$
|
8,414,960
|
|
|
Common Equity Tier 1
Capital Ratio
|
|
21.25%
|
|
17.06%
|
|
16.55%
|
|
16.54%
|
|
|
Tier 1 Capital
Ratio
|
|
21.25%
|
|
17.06%
|
|
16.54%
|
|
16.53%
|
|
|
Total Capital
Ratio
|
|
21.74%
|
|
17.54%
|
|
16.97%
|
|
16.97%
|
|
|
Leverage
Ratio
|
|
7.89%
|
|
7.19%
|
|
7.20%
|
|
7.08%
|
|
|
Credit
Quality
|
|
|
|
|
|
|
|
|
|
|
Net Non-Performing
Loans as a Percentage of Gross Loans
|
|
0.28%
|
|
0.23%
|
|
0.30%
|
|
0.31%
|
|
|
Allowance as a
Percentage of Gross Non-Performing Loans
|
|
82.6%
|
|
100.5%
|
|
73.4%
|
|
69.3%
|
|
|
Share
Information
|
|
|
|
|
|
|
|
|
|
|
Book Value per Common
Share
|
$
|
22.20
|
$
|
21.82
|
$
|
25.36
|
$
|
24.70
|
|
|
Common Share Price –
Close
|
$
|
13.89
|
$
|
16.99
|
$
|
31.34
|
$
|
27.00
|
|
|
Dividend paid during
the period ended
|
$
|
-
|
$
|
-
|
$
|
0.26
|
$
|
0.24
|
|
|
Dividend Payout
Ratio
|
|
-
|
|
-
|
|
32.9%
|
|
23.8%
|
|
|
Market
Capitalization
|
$
|
1,114,617
|
$
|
1,363,380
|
$
|
2,017,920
|
$
|
1,743,093
|
|
|
Number of Common
Shares Outstanding
|
|
80,246
|
|
80,246
|
|
64,388
|
|
64,559
|
|
|
1
|
The Company has
revised its definition of Total Revenue and restated amounts in
prior periods accordingly. Please see the revised definition under
Non-GAAP Measures in the Company's 2017 Third Quarter
Report.
|
2
|
See definition of
Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the
Company's 2017 Third Quarter Report.
|
3
|
Provision as a
percentage of both gross uninsured loans and gross loans for the
three months ended September 30, 2017 include a release of $6.5
million in the collective allowance (please see Note 5(G) to the
unaudited interim consolidated financial statements included in the
Company's 2017 Third Quarter Report for more information). In the
absence of this release, annualized provision for credit losses was
0.07% of gross uninsured loans and 0.06% of gross loans for the
three months ended September 30, 2017.
|
4
|
Total assets and
loans under administration include both on- and off-balance sheet
amounts.
|
5
|
Total loans include
loans held for sale.
|
6
|
These figures relate
to the Company's operating subsidiary, Home Trust
Company.
|
Consolidated
Statements of Income (Loss)
|
|
|
|
|
|
|
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)
|
|
2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Interest
Income (Loss) Non-Securitized Assets
|
|
|
|
|
|
|
|
|
|
|
Interest from
loans
|
$
|
167,159
|
$
|
192,394
|
$
|
192,395
|
$
|
551,988
|
$
|
577,645
|
Dividends from
securities
|
|
253
|
|
300
|
|
2,359
|
|
2,839
|
|
7,498
|
Other
interest
|
|
4,303
|
|
1,627
|
|
3,046
|
|
8,850
|
|
8,559
|
|
|
171,715
|
|
194,321
|
|
197,800
|
|
563,677
|
|
593,702
|
Interest on deposits
and other
|
|
75,430
|
|
71,673
|
|
81,519
|
|
224,355
|
|
239,294
|
Interest and fees on
line of credit facility
|
|
11,368
|
|
130,630
|
|
-
|
|
141,998
|
|
-
|
Net interest income
(loss) non-securitized assets
|
|
84,917
|
|
(7,982)
|
|
116,281
|
|
197,324
|
|
354,408
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest
Income Securitized Loans and Assets
|
|
|
|
|
|
|
|
|
|
|
Interest income from
securitized loans and assets
|
|
23,130
|
|
22,678
|
|
20,957
|
|
67,366
|
|
61,782
|
Interest expense on
securitization liabilities
|
|
19,285
|
|
18,103
|
|
17,314
|
|
53,478
|
|
51,646
|
Net interest income
securitized loans and assets
|
|
3,845
|
|
4,575
|
|
3,643
|
|
13,888
|
|
10,136
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Interest
Income (Loss)
|
|
88,762
|
|
(3,407)
|
|
119,924
|
|
211,212
|
|
364,544
|
Provision for credit
losses
|
|
(4,257)
|
|
2,420
|
|
1,336
|
|
4,082
|
|
5,490
|
|
|
93,019
|
|
(5,827)
|
|
118,588
|
|
207,130
|
|
359,054
|
Non-Interest
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Fees and other
income
|
|
18,087
|
|
17,168
|
|
17,223
|
|
51,586
|
|
53,716
|
Securitization
income
|
|
2,525
|
|
1,877
|
|
7,599
|
|
10,834
|
|
24,733
|
Gain on acquisition
of CFF Bank
|
|
-
|
|
-
|
|
-
|
|
-
|
|
651
|
Net realized and
unrealized losses on securities and loans
|
|
(13,155)
|
|
(76,912)
|
|
-
|
|
(90,070)
|
|
(175)
|
Net realized and
unrealized gains (losses) on derivatives
|
|
(812)
|
|
(19)
|
|
349
|
|
(1,706)
|
|
(6,107)
|
|
|
6,645
|
|
(57,886)
|
|
25,171
|
|
(29,356)
|
|
72,818
|
|
|
99,664
|
|
(63,713)
|
|
143,759
|
|
177,774
|
|
431,872
|
Non-Interest
Expenses
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
22,610
|
|
29,303
|
|
24,350
|
|
81,532
|
|
77,746
|
Premises
|
|
3,283
|
|
3,365
|
|
3,472
|
|
10,400
|
|
10,898
|
Other operating
expenses
|
|
34,031
|
|
52,333
|
|
27,160
|
|
117,458
|
|
79,267
|
|
|
59,924
|
|
85,001
|
|
54,982
|
|
209,390
|
|
167,911
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss)
Before Income Taxes
|
|
39,740
|
|
(148,714)
|
|
88,777
|
|
(31,616)
|
|
263,961
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
5,839
|
|
(39,616)
|
|
22,957
|
|
(10,635)
|
|
67,954
|
|
Deferred
|
|
3,918
|
|
2,018
|
|
(370)
|
|
2,111
|
|
(683)
|
|
|
|
9,757
|
|
(37,598)
|
|
22,587
|
|
(8,524)
|
|
67,271
|
NET INCOME
(LOSS)
|
$
|
29,983
|
$
|
(111,116)
|
$
|
66,190
|
$
|
(23,092)
|
$
|
196,690
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.37
|
$
|
(1.73)
|
$
|
1.01
|
$
|
(0.33)
|
$
|
2.92
|
Diluted
|
$
|
0.37
|
$
|
(1.73)
|
$
|
1.01
|
$
|
(0.33)
|
$
|
2.92
|
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
80,246
|
|
64,378
|
|
65,386
|
|
69,621
|
|
67,326
|
Diluted
|
|
80,246
|
|
64,378
|
|
65,435
|
|
69,621
|
|
67,413
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of
outstanding common shares
|
|
80,246
|
|
80,246
|
|
64,559
|
|
80,246
|
|
64,559
|
Book value per common
share
|
$
|
22.20
|
$
|
21.82
|
$
|
24.70
|
$
|
22.20
|
$
|
24.70
|
Consolidated
Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
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)
|
|
2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
(LOSS)
|
$
|
29,983
|
$
|
(111,116)
|
$
|
66,190
|
$
|
(23,092)
|
$
|
196,690
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
Securities and Retained Interests
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses)
|
|
1,483
|
|
550
|
|
7,820
|
|
18,447
|
|
(922)
|
Net losses
reclassified to net income
|
|
-
|
|
46,647
|
|
-
|
|
46,650
|
|
204
|
|
|
1,483
|
|
47,197
|
|
7,820
|
|
65,097
|
|
(718)
|
Income tax expense
(recovery)
|
|
394
|
|
12,514
|
|
2,075
|
|
17,266
|
|
(212)
|
|
|
1,089
|
|
34,683
|
|
5,745
|
|
47,831
|
|
(506)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses)
|
|
(467)
|
|
(525)
|
|
803
|
|
(1,077)
|
|
2,712
|
Net losses
reclassified to net income
|
|
287
|
|
572
|
|
268
|
|
1,188
|
|
973
|
|
|
(180)
|
|
47
|
|
1,071
|
|
111
|
|
3,685
|
Income tax expense
(recovery)
|
|
(50)
|
|
12
|
|
284
|
|
34
|
|
978
|
|
|
(130)
|
|
35
|
|
787
|
|
77
|
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
Total other
comprehensive income
|
|
959
|
|
34,718
|
|
6,532
|
|
47,908
|
|
2,201
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
$
|
30,942
|
$
|
(76,398)
|
$
|
72,722
|
$
|
24,816
|
$
|
198,891
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
September
30
|
June 30
|
December
31
|
thousands of
Canadian dollars (Unaudited)
|
|
2017
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
Cash and Cash
Equivalents
|
$
|
2,337,760
|
$
|
1,682,982
|
$
|
1,205,394
|
Available for Sale
Securities
|
|
331,544
|
|
31,495
|
|
534,924
|
Loans Held for
Sale
|
|
40,320
|
|
-
|
|
77,918
|
Loans
|
|
|
|
|
|
|
Securitized
mortgages
|
|
3,133,906
|
|
3,257,104
|
|
2,526,804
|
Non-securitized
mortgages and loans
|
|
12,255,424
|
|
14,391,010
|
|
15,430,595
|
|
|
15,389,330
|
|
17,648,114
|
|
17,957,399
|
Collective allowance
for credit losses
|
|
(33,563)
|
|
(40,063)
|
|
(37,063)
|
|
|
15,355,767
|
|
17,608,051
|
|
17,920,336
|
Other
|
|
|
|
|
|
|
Restricted
assets
|
|
289,870
|
|
216,596
|
|
265,374
|
Derivative
assets
|
|
10,177
|
|
21,804
|
|
37,524
|
Other
assets
|
|
365,685
|
|
384,676
|
|
348,638
|
Deferred tax
assets
|
|
15,873
|
|
19,510
|
|
16,914
|
Goodwill and
intangible assets
|
|
109,298
|
|
112,036
|
|
121,755
|
|
|
790,903
|
|
754,622
|
|
790,205
|
|
$
|
18,856,294
|
$
|
20,077,150
|
$
|
20,528,777
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
Deposits payable on
demand
|
$
|
441,008
|
$
|
372,912
|
$
|
2,531,803
|
Deposits payable on a
fixed date
|
|
12,917,610
|
|
12,731,694
|
|
13,354,227
|
|
|
13,358,618
|
|
13,104,606
|
|
15,886,030
|
Line of Credit
Facility
|
|
-
|
|
1,396,959
|
|
-
|
Securitization
Liabilities
|
|
|
|
|
|
|
CMHC-sponsored
mortgage-backed security liabilities
|
|
1,606,818
|
|
1,649,637
|
|
898,386
|
CMHC-sponsored Canada
Mortgage Bond liabilities
|
|
1,473,350
|
|
1,474,001
|
|
1,637,117
|
Bank-sponsored
securitization conduit liabilities
|
|
174,511
|
|
203,991
|
|
114,146
|
|
|
3,254,679
|
|
3,327,629
|
|
2,649,649
|
Other
|
|
|
|
|
|
|
Derivative
liabilities
|
|
31,192
|
|
11,322
|
|
3,490
|
Other
liabilities1
|
|
395,291
|
|
450,925
|
|
320,737
|
Deferred tax
liabilities
|
|
34,773
|
|
34,622
|
|
36,284
|
|
|
461,256
|
|
496,869
|
|
360,511
|
|
|
17,074,553
|
|
18,326,063
|
|
18,896,190
|
Shareholders'
Equity
|
|
|
|
|
|
|
Capital
stock
|
|
231,156
|
|
231,618
|
|
84,910
|
Contributed
surplus
|
|
5,096
|
|
4,922
|
|
4,562
|
Retained
earnings1
|
|
1,552,646
|
|
1,522,663
|
|
1,598,180
|
Accumulated other
comprehensive loss
|
|
(7,157)
|
|
(8,116)
|
|
(55,065)
|
|
|
1,781,741
|
|
1,751,087
|
|
1,632,587
|
|
$
|
18,856,294
|
$
|
20,077,150
|
$
|
20,528,777
|
1 During
the quarter, the Company made an adjustment to retained earnings
and other liabilities as it was determined that a dividend
recognized in a prior
period was accrued prior to being declared by the Company. This
adjustment is not significant to the consolidated financial
statements of the Company.
As a result of the adjustment, retained earnings increased by $15.4
million and other liabilities decreased by a corresponding amount
as at December 31, 2015.
|
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, 20161
|
$
|
84,910
|
$
|
4,562
|
$
|
1,598,180
|
$
|
(53,589)
|
$
|
(1,476)
|
$
|
(55,065)
|
$
|
1,632,587
|
Comprehensive
income (loss)
|
|
-
|
|
-
|
|
(23,092)
|
|
47,831
|
|
77
|
|
47,908
|
|
24,816
|
Stock options
settled
|
|
548
|
|
(141)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
407
|
Amortization of
fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee stock options
|
|
-
|
|
675
|
|
-
|
|
-
|
|
-
|
|
-
|
|
675
|
Repurchase of
shares
|
|
(267)
|
|
-
|
|
(5,732)
|
|
-
|
|
-
|
|
-
|
|
(5,999)
|
Issuance of
shares
|
|
145,965
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
145,965
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($0.26 per
share)
|
|
-
|
|
-
|
|
(16,710)
|
|
-
|
|
-
|
|
-
|
|
(16,710)
|
Balance at
September 30, 2017
|
$
|
231,156
|
$
|
5,096
|
$
|
1,552,646
|
$
|
(5,758)
|
$
|
(1,399)
|
$
|
(7,157)
|
$
|
1,781,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 20151
|
$
|
90,247
|
$
|
3,965
|
$
|
1,607,833
|
$
|
(62,466)
|
$
|
(3,078)
|
$
|
(65,544)
|
$
|
1,636,501
|
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, 20161
|
$
|
83,975
|
$
|
4,588
|
$
|
1,569,653
|
$
|
(62,972)
|
$
|
(371)
|
$
|
(63,343)
|
$
|
1,594,873
|
1 During
the quarter, the Company made an adjustment to retained earnings
and other liabilities as it was determined that a dividend
recognized in a prior period was accrued prior to being declared by
the Company. This adjustment is not significant to the consolidated
financial statements of the Company. As a result of the adjustment,
retained earnings increased by $15.4 million and other liabilities
decreased by a corresponding amount as at December 31,
2015.
|
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)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income (loss) for
the period
|
$
|
29,983
|
$
|
66,190
|
$
|
(23,092)
|
$
|
196,690
|
Adjustments to
determine cash flows relating to operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of net
discount on securities
|
|
(107)
|
|
(62)
|
|
(330)
|
|
(379)
|
|
Provision for credit
losses
|
|
(4,257)
|
|
1,336
|
|
4,082
|
|
5,490
|
|
Loss on sale of loan
portfolios
|
|
13,155
|
|
-
|
|
18,160
|
|
-
|
|
Gain on sale of
mortgages or residual interest
|
|
(434)
|
|
(6,055)
|
|
(5,532)
|
|
(19,966)
|
|
Net realized and
unrealized losses on securities
|
|
-
|
|
-
|
|
71,910
|
|
175
|
|
Amortization and
impairment losses¹
|
|
5,565
|
|
4,109
|
|
22,310
|
|
11,582
|
|
Amortization of fair
value of employee stock options
|
|
174
|
|
333
|
|
675
|
|
805
|
|
Deferred income
taxes
|
|
3,918
|
|
(370)
|
|
2,111
|
|
(683)
|
Changes in operating
assets and liabilities
|
|
|
|
|
|
|
|
|
|
Loans, net of gains
or losses on securitization and sales
|
|
2,203,614
|
|
67,496
|
|
2,585,507
|
|
282,021
|
|
Restricted
assets
|
|
(73,274)
|
|
765
|
|
(24,496)
|
|
(35,314)
|
|
Derivative assets and
liabilities
|
|
31,317
|
|
4,793
|
|
55,160
|
|
11,815
|
|
Accrued interest
receivable
|
|
7,477
|
|
456
|
|
9,228
|
|
3,174
|
|
Accrued interest
payable
|
|
6,787
|
|
(5,117)
|
|
(1,769)
|
|
543
|
|
Deposits
|
|
254,012
|
|
(328,117)
|
|
(2,527,412)
|
|
28,144
|
|
Line of credit
facility
|
|
(1,396,959)
|
|
-
|
|
-
|
|
-
|
|
Securitization
liabilities
|
|
(72,950)
|
|
(157,268)
|
|
605,030
|
|
(100,345)
|
|
Taxes receivable or
payable and other
|
|
(52,054)
|
|
12,087
|
|
27,009
|
|
4,246
|
Cash flows provided
by (used in) operating activities
|
|
955,967
|
|
(339,424)
|
|
818,551
|
|
387,998
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of
shares
|
|
(462)
|
|
-
|
|
145,965
|
|
-
|
Repurchase of
shares
|
|
-
|
|
(33,695)
|
|
(5,999)
|
|
(193,518)
|
Exercise of employee
stock options
|
|
-
|
|
-
|
|
407
|
|
598
|
Repayment of senior
debt
|
|
-
|
|
-
|
|
-
|
|
(150,000)
|
Dividends paid to
shareholders
|
|
-
|
|
(15,775)
|
|
(16,710)
|
|
(48,404)
|
Cash flows (used in)
provided by financing activities
|
|
(462)
|
|
(49,470)
|
|
123,663
|
|
(391,324)
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Activity in
securities
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
(299,152)
|
|
(11,335)
|
|
(304,955)
|
|
(200,696)
|
|
Proceeds from
sales
|
|
-
|
|
-
|
|
491,883
|
|
-
|
|
Proceeds from
maturities
|
|
947
|
|
14,836
|
|
11,218
|
|
128,940
|
Purchases of capital
assets
|
|
(815)
|
|
(771)
|
|
(1,401)
|
|
(2,090)
|
Capitalized
intangible development costs
|
|
(1,707)
|
|
(3,444)
|
|
(6,593)
|
|
(13,737)
|
Cash flows (used in)
provided by investing activities
|
|
(300,727)
|
|
(714)
|
|
190,152
|
|
(87,583)
|
Net increase
(decrease) in cash and cash equivalents during the
period
|
|
654,778
|
|
(389,608)
|
|
1,132,366
|
|
(90,909)
|
Cash and cash
equivalents at beginning of the period
|
|
1,682,982
|
|
1,448,548
|
|
1,205,394
|
|
1,149,849
|
Cash and Cash
Equivalents at End of the Period
|
$
|
2,337,760
|
$
|
1,058,940
|
$
|
2,337,760
|
$
|
1,058,940
|
Supplementary
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Dividends received on
investments
|
$
|
232
|
$
|
2,588
|
$
|
4,268
|
$
|
8,139
|
Interest
received
|
|
203,957
|
|
216,504
|
|
635,723
|
|
650,401
|
Interest
paid
|
|
94,926
|
|
103,950
|
|
417,230
|
|
291,765
|
Income taxes
(refunded) paid
|
|
(30,854)
|
|
24,119
|
|
(3,986)
|
|
68,245
|
¹Amortization and
impairment losses include amortization on capital and intangible
assets and impairment losses on intangible assets and
goodwill.
|
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 2017
Third Quarter Report, as well as the Company's other publicly filed
information, which is available on the System for Electronic
Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the
material factors that could cause the Company's actual results to
differ materially from these statements. These risk factors
are material risk factors a reader should consider, and include
credit risk, liquidity and funding risk, structural interest rate
risk, operational risk, investment risk, strategic risk,
reputational risk, compliance risk and capital adequacy risk along
with additional risk factors that may affect future results.
Forward-looking statements can be found in the Report to the
Shareholders and the Performance Overview and Outlook section in
the 2017 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 uncertainty,
general and specific, which may cause actual results to differ
materially from the expectations expressed in the forward-looking
statements. These risks and uncertainties include, but are
not limited to, global capital market activity, changes in
government monetary and economic policies, changes in interest
rates, inflation levels and general economic conditions,
legislative and regulatory developments, competition and
technological change. The preceding list is not exhaustive of
possible factors.
These and other factors should be considered carefully and
readers are cautioned not to place undue reliance on these
forward-looking statements. The Company presents forward-looking
statements to assist shareholders in understanding the Company's
assumptions and expectations about the future that are relevant in
management's setting of performance goals, strategic priorities and
outlook. The Company presents its outlook to assist shareholders in
understanding management's expectations on how the future will
impact the financial performance of the Company. These
forward-looking statements may not be appropriate for other
purposes. The Company does not undertake to update any
forward-looking statements, whether written or verbal, that may be
made from time to time by it or on its behalf, except as required
by securities laws.
Assumptions about the performance of the Canadian economy in
2017 and its effect on Home Capital's business are material factors
the Company considers when setting its performance goals, strategic
priorities and outlook. In determining expectations for economic
growth, both broadly and in the financial services sector, the
Company primarily considers historical and forecasted economic data
provided by the Canadian government and its agencies. In
determining the outlook for the remainder of 2017, management's
expectations continue to assume:
- The Canadian economy is expected to be relatively stable in
2017, supported by expanded Federal Government spending.
- Generally the Company expects stable employment conditions in
its established regions. 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 demand for the Company's lending products in its
established regions.
- 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 that may result.
- The Company is assuming that interest rates will generally
remain at the current rates for 2017. This is expected to continue
to support relatively low mortgage interest rates for the
foreseeable future.
- The Company believes that the current and expected levels of
housing activity indicate a relatively stable real estate market
overall. Please see Market Conditions under the Performance
Overview and Outlook section of the 2017 Third 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 has adopted IFRS as its accounting framework. IFRS
are the generally accepted accounting principles (GAAP) for
Canadian publicly accountable enterprises for years beginning on or
after January 1, 2011. The Company
uses a number of financial measures to assess its
performance. Some of these measures are not calculated in
accordance with GAAP, are not defined by GAAP, and do not have
standardized meanings that would ensure consistency and
comparability between companies using these measures.
Definitions of non-GAAP measures can be found under Non-GAAP
Measures in the Management's Discussion and Analysis included in
the Company's 2017 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 brand, Oaken
Financial. Home Trust also conducts business through its
wholly owned subsidiary, Home Bank. Licensed to conduct business
across Canada, Home Trust has
offices in Ontario, Alberta, British
Columbia, Nova Scotia,
Quebec and Manitoba.
SOURCE Home Capital Group Inc.