Home Capital Reports Strong Earnings and Dividend Increase:

  • Diluted Earnings per Share up 19.3% Year over Year to $1.05
  • Dividend Increase of 12.5% or 2 Cents per Share to $0.18 Quarterly
  • Quarterly Net Income Increases 19.8% Year over Year

TORONTO, July 30, 2014 /CNW/ - Home Capital today reported another quarter of increased earnings and strong originations.

This press release should be read in conjunction with the Company's Second Quarter Report, including Financial Statements and Management's Discussion and Analysis, which are available on Home Capital's website at www.homecapital.com and the Canadian Securities Administrators' website at www.sedar.com.

FINANCIAL HIGHLIGHTS

                     
(Unaudited) For the three months ended For the six months ended
(000s, except Per Share and Percentage Amounts) June 30 March 31 June 30 June 30 June 30
    2014   2014   2013   2014   2013
OPERATING RESULTS                    
Net Income $ 73,745 $ 69,736 $ 61,573 $ 143,481 $ 121,298
Total Revenue   255,448   247,900   232,555   503,348   463,749
Diluted Earnings per Share1 $ 1.05 $ 1.00 $ 0.88 $ 2.04 $ 1.74
Return on Shareholders' Equity   23.1%   23.1%   23.6%   23.0%   23.8%
Return on Average Assets   1.4%   1.4%   1.3%   1.4%   1.3%
Net Interest Margin (TEB)2   2.26%   2.19%   2.14%   2.23%   2.15%
Provision as a Percentage of Gross Uninsured Loans (annualized)   0.10%   0.11%   0.17%   0.10%   0.17%
Provision as a Percentage of Gross Loans (annualized)   0.07%   0.07%   0.10%   0.07%   0.10%
Efficiency Ratio (TEB)2   28.3%   28.5%   28.6%   28.4%   28.4%
                     
                As at    
    June 30   March 31   December 31   June 30    
    2014   2014   2013   2013    
BALANCE SHEET HIGHLIGHTS                    
Total Assets $ 20,503,526 $ 20,284,570 $ 20,075,850 $ 19,532,958    
Total Assets Under Administration3   23,716,585   22,871,407   21,997,781   20,577,505    
Total Loans4   18,022,175   17,888,306   18,019,901   17,794,420    
Total Loans Under Administration3,4   21,235,234   20,475,143   19,941,832   18,838,967    
Liquid Assets   1,766,314   1,606,155   1,497,680   893,167    
Deposits   13,747,625   13,084,937   12,765,954   11,168,639    
Shareholders' Equity   1,313,159   1,238,015   1,177,697   1,068,017    
FINANCIAL STRENGTH                    
Capital Measures5                    
Risk-Weighted Assets $ 6,874,353 $ 6,635,105 $ 6,495,767 $ 5,984,644    
Common Equity Tier 1 Capital Ratio   17.45%   17.22%   16.80%   16.63%    
Tier 1 Capital Ratio   17.45%   17.22%   16.80%   16.63%    
Total Capital Ratio   20.20%   20.06%   19.69%   19.74%    
Assets to Regulatory Capital Multiple6   13.04   13.02   13.19   13.36    
Credit Quality                    
Net Non-Performing Loans as a Percentage of Gross Loans   0.32%   0.33%   0.35%   0.31%    
Allowance as a Percentage of Gross Non-Performing Loans   60.4%   57.7%   52.4%   58.3%    
Share Information                    
Book Value per Common Share1 $ 18.74 $ 17.82 $ 16.95 $ 15.41    
Common Share Price - Close1 $ 47.83 $ 44.65 $ 40.47 $ 27.77    
Dividend paid during the period ended1 $ 0.16 $ 0.16 $ 0.14 $ 0.13    
Market Capitalization $ 3,350,922 $ 3,102,773 $ 2,811,832 $ 1,923,948    
Number of Common Shares Outstanding1   70,059   69,491   69,488   69,294    

1During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share.  Accordingly, diluted earnings per share is reduced to half and the number of shares disclosed is doubled for all periods prior to the dividend presented for comparative purposes.
2See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures of the unaudited interim consolidated financial report.
3Total assets and loans under administration include both on and off-balance sheet amounts.
4Total loans include loans held for sale.
5These figures relate to the Company's operating subsidiary, Home Trust Company.
6Commencing in Q3 2013, the Company excluded from its assets, for purposes of calculating the Assets to Regulatory Capital Multiple, mortgages that are off-balance sheet as a result of sales of residual interest in light of regulatory communications confirming this treatment.  The comparative multiple for Q2 2013 have been restated to reflect this treatment.


SECOND QUARTER 2014 HIGHLIGHTS

Key results for the second quarter and the first six months of 2014 included:

  • Net income increased to $73.7 million for the second quarter and to $143.5 million for the first six months of 2014, up 19.8% and 18.3% from the comparable periods of 2013 and 5.7% over Q1 2014.

  • Diluted earnings per share were $1.05 for the quarter and $2.04 year to date, representing increases of 19.3% and 17.2% over the $0.88 and $1.74 earned in the comparable periods of 2013 and 5.0% over the $1.00 last quarter.

  • Total net interest income, before provisions, increased to $115.1 million for the quarter and $225.5 million year to date from the $102.5 million and $204.4 million in the comparable periods of 2013 and up 4.3% from the $110.4 million last quarter. Net interest income on the non-securitized portfolio continued its increasing trend reaching $104.9 million in the quarter and $207.8 million year to date, up 15.4% and 16.0% from the comparable periods of 2013 and up 2.0% from last quarter, reflecting strong and consistent growth in the traditional portfolio.  Securitized net interest income declined to $10.2 million in the quarter and $17.8 million year to date, from $11.6 million and $25.3 million in the comparable periods of 2013, consistent with the Company's business strategy to replace net interest income with gains on sale of insured mortgages (please see below).

  • Net interest margin (TEB) was 2.26% in the quarter and 2.23% year to date, up from 2.14% and 2.15% in the comparable periods of 2013 and up from 2.19% last quarter.  Net interest margin (TEB) continues to be favourably influenced by the relative shift to higher yielding mortgages on balance sheet, partially offset by lower spreads on traditional uninsured single family mortgages.  This is reflective of higher average credit quality on new originations over the past year and higher overall average levels of liquidity. Additionally, prepayment penalties on insured multi-unit residential mortgages during the quarter contributed to the increase in overall net interest margin.

  • Securitization income, including gains on sale mentioned above, was $7.5 million for the quarter and $16.2 million year to date compared to $0.5 million and $2.0 million in the comparable periods of 2013 and $8.7 million last quarter.

  • Return on equity was strong at 23.1% for the quarter and 23.0% for the first six months of 2014 and continues to be in excess of the Company's minimum performance objective of 20%.

  • The credit quality of the loan portfolio remains strong with continued low non-performing loans and credit losses. Net non-performing loans as a percentage of gross loans (NPL ratio) ended the quarter at 0.32% compared to 0.33% at the end of last quarter, 0.35% at the end of 2013 and 0.31% one year ago. Included in the non-performing loans is an insured multi-unit residential property with an outstanding amount of $9.7 million, where the Company expects no losses. In the absence of this fully insured CMHC loan the NPL ratio would have been 0.26%.  The annualized credit provision as a percentage of gross uninsured loans of 0.10% has decreased from 0.11% in Q1 2014 and 0.17% in Q2 2013, reflecting lower individual provisions and remains below the target range of 0.15%-0.25%.

  • Capital ratios remain high with Home Trust's Common Equity Tier 1 ratio (CET 1 ratio) ending the quarter at 17.45%, while Tier 1 and Total Capital ratios were 17.45% and 20.20%, respectively.  Home Trust's Assets to Capital multiple (ACM) was 13.04 at the end of the quarter compared to 13.02 last quarter, 13.19 at the end of 2013 and 13.36 one year ago.

  • Total loans under administration, which includes securitized mortgages that qualify for off-balance sheet accounting, reached $21.24 billion from $18.84 billion one year ago, reflecting an increase of $2.40 billion or 12.7% and an increase of $1.29 billion or 6.5% from $19.94 billion at the end of 2013 (13.0% on an annualized basis).

  • Total mortgage originations reflected very strong activity in the quarter reaching $2.33 billion and increasing by 39.0% from $1.68 billion last quarter and 42.7% from $1.63 billion in the same quarter last year. Year-to-date mortgage originations of $4.01 billion increased 33.0% from $3.01 billion last year.  The increase in mortgage originations over 2013 reflect the continued strong demand for the Company's residential lending product offerings and increased activity in Accelerator originations.

  • Traditional residential mortgage originations increased by 23.7% to $1.53 billion from $1.24 billion in the same quarter of 2013 and also increased 42.5% from $1.07 billion in a seasonally slower Q1 2014. Year-to-date traditional mortgage originations increased 16.7% to $2.60 billion from $2.23 billion last year.  The Company continues to experience strong demand for its traditional product offerings, which continue to be of high credit quality. This continues to enhance profitability and asset quality.

  • Accelerator (insured) residential mortgage originations experienced significant growth in the quarter, more than doubling to $619.6 million from $260.3 million in Q2 2013 and $289.5 million last quarter.  Year-to-date originations increased to $909.1 million from $381.9 million last year, an increase of 138.0%.  The favourable regulatory ruling regarding the sale of residual interests in Q3 2013 led the Company to increase its activity in insured lending during the second half of 2013 and into 2014.

  • Multi-unit residential mortgage originations were $64.5 million in the quarter and $278.1 million year to date compared to $54.3 million and $257.0 million in the comparable periods of 2013 and $213.6 million last quarter.  Multi-unit residential mortgage originations are mostly insured and subsequently securitized through programs that qualify for off-balance sheet accounting resulting in the securitization gains discussed above.

  • Commercial mortgage and other loan advances were $78.5 million for the quarter and $150.5 million year to date compared to $54.2 million and $92.7 million in the comparable periods of 2013 and $72.0 million last quarter. Store and apartment mortgage advances were $37.7 million in the quarter and $65.3 million year to date compared to $27.5 million and $51.1 million in the comparable periods of 2013 and $27.6 million in last quarter.

  • The consumer retail credit portfolio, which includes loans to purchase durable household goods, such as water heaters and larger-ticket home improvement items, reached $359.0 million at the end of Q2 2014, up 3.5% from $346.9 million at the end of last quarter, up 5.6% from $340.0 million at the end of 2013 and up 15.5% from $310.9 million one year ago. The Company continues to be successful at expanding relationships with its business partners to increase this portfolio which offers attractive returns for the risk profile.

  • During the quarter the Company reached an agreement with a major customer for the prepayment of approximately $240 million of water heater loans and leases and other loans, pending sale of the customer's business.  As part of this proposed transaction, the Company will receive a prepayment penalty, expected to be in the range of $32 to $38 million.  This penalty will more than compensate the Company for future interest margin that will be lost as a result of the prepayment.  The transaction is pending regulatory approval of the customer's business sale and will be recorded when such approval is received.  On completion of the transaction, the Company will reinvest the funds in lending assets and earn additional interest margin.

  • Total deposits reached $13.75 billion, up 5.1% from last quarter, 7.7% from the end of 2013 and 23.1% from one year ago.

  • The Company initiated three new programs over the last year to diversify its deposit-taking model, a high-interest savings account, Oaken Financial direct-to-consumer deposit brand and an institutional deposit program.  During the quarter, Oaken Online Banking was launched, providing Oaken customers with greater banking convenience, including security features to safeguard client personal and financial information.  This initiative represents Oaken's ongoing aim of becoming the leading alternative for Canadians to securely save and invest their money and the Company's commitment to diversify its sources of funding.

  • Oaken deposits at the end of the quarter increased by 22.6% over the balance last quarter, 55.0% over the balance at the end of 2013 and to over two times the balance one year ago, and the Oaken offerings were further strengthened by the successful launch of the Oaken Online Banking during the quarter.  The high-interest saving accounts also grew significantly reaching a balance at the end of the quarter of $577.1 million, representing an increase of 28.0% over $450.9 million last quarter, an increase of 71.1% over $337.2 million at the end of 2013 and over four times the balance of $108.1 million one year ago.  During the quarter, the Company issued $500 million of institutional deposits, for a total of $800 million since the program was initiated in December 2013.  These deposits are for fixed terms and have overall costs that are comparable with yields on individual deposits received through the deposit broker channel.

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 approved an increase in the quarterly dividend of 12.5% to $0.18 per common share, payable on September 1, 2014 to shareholders of record at the close of business on August 11, 2014.

The Company continues to deliver solid results in terms of growth, high returns and increased dividends. Despite the modest economic improvement in Canada, the Company's performance continues to reflect the strength and the successful execution of its core strategy.

(signed) (signed)
   
GERALD M. SOLOWAY      KEVIN P.D. SMITH
Chief Executive Officer      Chair of the Board
July 30, 2014                         

Additional information concerning the Company's targets and related expectations for 2014, including the risks and assumptions underlying these expectations, may be found in the Management's Discussion and Analysis (MD&A) of the quarterly report.

Second Quarter Results Conference Call
The conference call will take place on Thursday, July 31, 2014 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. Thursday, July 31, 2014 and midnight Thursday, August 7, 2014 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 26905840). 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 introduced a Supplemental Financial Information package available at the Company's website at www.homecapital.com to improve readers' understanding of the financial position and performance of the Company.  This information should be used in conjunction with the Company's second quarter unaudited interim consolidated financial report, as well as the Company's 2013 Annual Report.

Consolidated Statements of Income        
    For the three months ended For the six months ended
thousands of Canadian dollars, except per share amounts June 30 March 31 June 30 June 30 June 30
(Unaudited)   2014   2014   2013   2014   2013
Net Interest Income Non-Securitized Assets                    
Interest from loans $ 176,182 $ 171,243 $ 153,598 $ 347,425 $ 301,629
Dividends from securities   2,898   2,731   2,795   5,629   5,988
Other interest   4,109   3,466   1,778   7,575   3,234
      183,189   177,440   158,171   360,629   310,851
Interest on deposits   76,718   73,022   65,640   149,740   128,578
Interest on senior debt   1,542   1,580   1,601   3,122   3,184
Net interest income non-securitized assets   104,929   102,838   90,930   207,767   179,089
                       
Net Interest Income Securitized Loans and Assets                    
Interest income from securitized loans and assets   45,494   45,275   57,953   90,769   119,290
Interest expense on securitization liabilities   35,280   37,726   46,351   73,006   93,961
Net interest income securitized loans and assets   10,214   7,549   11,602   17,763   25,329
                       
Total Net Interest Income   115,143   110,387   102,532   225,530   204,418
Provision for credit losses   3,232   3,205   4,429   6,437   9,096
      111,911   107,182   98,103   219,093   195,322
Non-Interest Income                    
Fees and other income   18,439   16,794   15,406   35,233   30,378
Securitization income   7,494   8,730   508   16,224   2,014
Net realized and unrealized gains on securities   1,187   752   1,163   1,939   3,109
Net realized and unrealized loss on derivatives   (355)   (1,091)   (646)   (1,446)   (1,893)
      26,765   25,185   16,431   51,950   33,608
      138,676   132,367   114,534   271,043   228,930
Non-Interest Expenses                    
Salaries and benefits   19,872   20,208   16,673   40,080   33,623
Premises   3,014   2,755   2,439   5,769   4,884
Other operating expenses   17,636   15,977   15,160   33,613   29,734
      40,522   38,940   34,272   79,462   68,241
                       
Income Before Income Taxes   98,154   93,427   80,262   191,581   160,689
Income taxes                    
  Current   24,405   25,113   16,077   49,518   39,533
  Deferred   4   (1,422)   2,612   (1,418)   (142)
      24,409   23,691   18,689   48,100   39,391
NET INCOME $ 73,745 $ 69,736 $ 61,573 $ 143,481 $ 121,298
                       
NET INCOME PER COMMON SHARE                    
Basic $ 1.06 $ 1.00 $ 0.89 $ 2.06 $ 1.75
Diluted $ 1.05 $ 1.00 $ 0.88 $ 2.04 $ 1.74
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                    
Basic   69,743   69,489   69,225   69,617   69,230
Diluted   70,496   70,072   69,700   70,352   69,656
                       
Total number of outstanding common shares   70,059   69,491   69,294   70,059   69,294
Book value per common share $ 18.74 $ 17.82 $ 15.41 $ 18.74 $ 15.41
During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share.   
Accordingly, both basic and diluted net income per common share is reduced to half and the number of shares disclosed is doubled
for all periods ending before Q1 2014 presented for comparative purposes.

         
Consolidated Statements of Comprehensive Income          
  For the three months ended   For the six months ended
  June 30 March 31 June 30   June 30 June 30
thousands of Canadian dollars (Unaudited)   2014   2014   2013     2014   2013
                       
NET INCOME $ 73,745 $ 69,736 $ 61,573   $ 143,481 $ 121,298
                       
OTHER COMPREHENSIVE INCOME (LOSS)                      
                       
Available for Sale Securities and Retained Interest                      
Net unrealized gains (losses) $ 5,265 $ 4,003 $ (10,736)   $ 9,268 $ (3,571)
Net gains reclassified to net income   (1,187)   (752)   (1,163)     (1,939)   (3,109)
    4,078   3,251   (11,899)     7,329   (6,680)
Income tax expense (recovery)   1,080   860   (3,151)     1,940   (1,770)
    2,998   2,391   (8,748)     5,389   (4,910)
                       
Cash Flow Hedges                      
Net unrealized losses   (295)   (375)   -     (670)   -
Net losses reclassified to net income   362   364   372     726   739
    67   (11)   372     56   739
Income tax expense (recovery)   18   (3)   97     15   192
    49   (8)   275     41   547
                       
Total other comprehensive income (loss) $ 3,047 $ 2,383 $ (8,473)   $ 5,430 $ (4,363)
                       
COMPREHENSIVE INCOME $ 76,792 $ 72,119 $ 53,100   $ 148,911 $ 116,935

         
Consolidated Balance Sheets        
              As at
    June 30 March 31 December 31
thousands of Canadian dollars (Unaudited)   2014   2014   2013
ASSETS            
Cash and Cash Equivalents $ 964,388 $ 1,029,440 $ 733,172
Available for Sale Securities   615,700   453,082   424,272
Loans Held for Sale   47,847   121,252   137,975
Loans            
Securitized mortgages   4,419,600   4,977,211   5,210,021
Non-securitized mortgages and loans   13,554,728   12,789,843   12,671,905
      17,974,328   17,767,054   17,881,926
Collective allowance for credit losses   (32,900)   (32,100)   (31,500)
      17,941,428   17,734,954   17,850,426
Other            
Restricted assets   609,810   643,444   648,283
Derivative assets   30,241   33,837   29,886
Other assets   197,781   176,527   162,679
Goodwill and intangible assets   96,331   92,034   89,157
      934,163   945,842   930,005
    $ 20,503,526 $ 20,284,570 $ 20,075,850
LIABILITIES AND SHAREHOLDERS' EQUITY            
Liabilities            
Deposits            
Deposits payable on demand $ 637,632 $ 504,308 $ 429,269
Deposits payable on a fixed date   13,109,993   12,580,629   12,336,685
      13,747,625   13,084,937   12,765,954
Senior Debt   145,746   148,644   147,343
Securitization Liabilities            
Mortgage-backed security liabilities   577,245   613,495   660,964
Canada Mortgage Bond liabilities   4,413,359   4,944,605   5,112,100
      4,990,604   5,558,100   5,773,064
Other            
Derivative liabilities   1,553   1,280   3,809
Other liabilities   271,832   220,591   173,558
Deferred tax liabilities   33,007   33,003   34,425
      306,392   254,874   211,792
      19,190,367   19,046,555   18,898,153
Shareholders' Equity            
Capital stock   82,848   70,324   70,233
Contributed surplus   3,684   6,600   5,984
Retained earnings   1,239,676   1,177,187   1,119,959
Accumulated other comprehensive loss   (13,049)   (16,096)   (18,479)
      1,313,159   1,238,015   1,177,697
    $ 20,503,526 $ 20,284,570 $ 20,075,850
               
 
Consolidated Statements of Changes in Shareholders' Equity
                             
        Net Unrealized      
        (Losses) Gains Net Unrealized Total  
        on Securities and Losses Accumulated  
              Retained Interest on 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, 2013 $ 70,233 $ 5,984 $ 1,119,959 $ (15,823) $ (2,656) $ (18,479) $ 1,177,697
Comprehensive income   -   -   143,481   5,389   41   5,430   148,911
Stock options exercised   12,615   (3,388)   -   -   -   -   9,227
Amortization of fair value of                            
   employee stock options   -   1,088   -   -   -   -   1,088
Repurchase of shares   -   -   -   -   -   -   -
Dividends                            
($0.32 per share)   -   -   (23,764)   -   -   -   (23,764)
Balance at June 30, 2014 $ 82,848 $ 3,684 $ 1,239,676 $ (10,434) $ (2,615) $ (13,049) $ 1,313,159
                             
Balance at December 31, 2012 $ 61,903 $ 6,224 $ 903,831 $ 432 $ (4,177) $ (3,745) $ 968,213
Comprehensive income   -   -   121,298   (4,910)   547   (4,363)   116,935
Stock options exercised   2,825   (746)   -   -   -   -   2,079
Amortization of fair value of                            
   employee stock options   -   941   -   -   -   -   941
Repurchase of shares   (66)   -   (2,077)   -   -   -   (2,143)
Dividends                            
($0.26 per share)   -   -   (18,008)   -   -   -   (18,008)
Balance at June 30, 2013 $ 64,662 $ 6,419 $ 1,005,044 $ (4,478) $ (3,630) $ (8,108) $ 1,068,017
During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share.
Accordingly, dividends per share are reduced by half for all periods prior to the dividend presented for comparative purposes.

 
Consolidated Statements of Cash Flows        
      For the three months ended   For the six months ended
      June 30 June 30   June 30 June 30
thousands of Canadian dollars (Unaudited)   2014   2013     2014   2013
CASH FLOWS FROM OPERATING ACTIVITIES                  
Net income for the period $ 73,745 $ 61,573   $ 143,481 $ 121,298
Adjustments to determine cash flows relating to operating activities:                  
  Amortization of net premium on securities   517   733     1,194   1,210
  Provision for credit losses   3,232   4,429     6,437   9,096
  Gain on sale of mortgages or residual interest   (7,177)   (443)     (15,271)   (1,851)
  Net realized and unrealized gains on securities   (1,187)   (1,163)     (1,939)   (3,109)
  Amortization of capital and intangible assets   3,219   2,706     6,196   5,319
  Amortization of fair value of employee stock options   449   436     1,088   941
  Deferred income taxes   4   2,612     (1,418)   (142)
Changes in operating assets and liabilities                  
  Loans, net of securitization and sales   (129,132)   (368,612)     7,893   (641,497)
  Restricted assets   33,634   240,626     38,473   286,335
  Derivative assets and liabilities   3,936   15,039     (2,555)   16,706
  Accrued interest receivable   2,021   921     625   (1,184)
  Accrued interest payable   (14,623)   (17,301)     25,229   23,608
  Deposits   662,688   526,359     981,671   1,032,040
  Securitization liabilities   (567,496)   (384,694)     (782,460)   (412,235)
  Taxes receivable or payable and other   38,151   10,771     32,550   (13,632)
Cash flows provided by operating activities   101,981   93,992     441,194   422,903
CASH FLOWS FROM FINANCING ACTIVITIES                  
Repurchase of shares   -   (397)     -   (2,143)
Exercise of employee stock options   9,159   2,079     9,227   2,079
Dividends paid to shareholders   (11,165)   (9,001)     (22,283)   (18,004)
Cash flows used in financing activities   (2,006)   (7,319)     (13,056)   (18,068)
CASH FLOWS FROM INVESTING ACTIVITIES                  
Activity in securities                  
  Purchases   (371,493)   (73,003)     (423,910)   (117,246)
  Proceeds from sales   213,609   68,202     240,410   129,223
Purchases of capital assets   367   (1,970)     (853)   (3,269)
Capitalized intangible development costs   (7,510)   (3,773)     (12,569)   (6,890)
Cash flows (used in) provided by investing activities   (165,027)   (10,544)     (196,922)   1,818
Net (decrease) increase in cash and cash equivalents during the period   (65,052)   76,129     231,216   406,653
Cash and cash equivalents at beginning of the period   1,029,440   639,370     733,172   308,846
Cash and Cash Equivalents at End of the Period $ 964,388 $ 715,499   $ 964,388 $ 715,499
Supplementary Disclosure of Cash Flow Information                  
Dividends received on investments $ 2,448 $ 2,217   $ 4,513 $ 3,985
Interest received   231,197   215,152     446,249   423,517
Interest paid   130,118   144,411     200,671   202,147
Income taxes paid   20,421   16,221     38,729   54,965

Home Capital published its annual financial objectives for 2014 on page 17 of the Company's 2013 Annual Report. The following table compares actual performance to date against each of these objectives.

Table 1: 2014 Targets and Performance                  
                     
          For the six months ended June 30, 2014
      2014 Targets   Actual Results     Amount   Increase over 2013
Growth in net income   13%-18%   18.3%   $ 143,481   $ 22,183
Growth in diluted earnings per share1   13%-18%   17.2%     2.04     0.30
Growth in total loans under administration2   15%-20%   13.0%     21,235,234     1,293,402
Return on shareholders' equity   20.0%   23.0%            
Efficiency ratio (TEB)3   28.0% - 32.0%   28.4%            
Provision as a percentage of gross uninsured loans (annualized)   0.15% - 0.25%   0.10%            

1The Company's diluted earnings per share has been presented as if the stock dividend was retrospectively applied to all comparative periods presented.
2Change represents growth over December 31, 2013 on an annualized basis and includes loans held for sale.
3See definition of TEB under Non-GAAP Measures of the unaudited interim consolidated financial report.

                             
Table 2: Reconciliation of Net Income to Adjusted Net Income
    Quarter Year to date
(000s, except % and per share amounts) Q2   Q1   %   Q2   %           %
      2014     2014   Change     2013   Change     2014     2013   Change
Reconciliation of Net Income to Adjusted Net Income                                        
Net income $ 73,745   $ 69,736   5.7%   $ 61,573   19.8%   $ 143,481   $ 121,298   18.3%
Adjustment for derivative restructuring - IFRS conversion (net of tax)   827     917   (9.8)%     2,309   (64.2)%     1,744   $ 4,092   (57.4)%
Adjustment for disputed loans to condominium corporations (net of tax)   -     -   -     -   -     -     1,508   (100.0)%
Adjustment for investment tax credit benefits (net of tax)   (956)     (515)   85.6%     (1,985)   (51.8)%     (1,471)     (1,985)   (25.9)%
Adjusted Net Income2 $ 73,616   $ 70,138   5.0%   $ 61,897   18.9%   $ 143,754   $ 124,913   15.1%
Adjusted Basic Earnings per Share1,2 $ 1.06   $ 1.01   5.0%   $ 0.89   19.1%   $ 2.06   $ 1.80   14.4%
Adjusted Diluted Earnings per Share1,2 $ 1.04   $ 1.00   4.0%   $ 0.89   16.9%   $ 2.04   $ 1.79   14.0%

1The Company's basic and diluted earnings per share  for periods ending in 2013, have been reduced to half for all periods reflecting the impact of the stock dividend
declared in Q1 2014.
2 Adjusted net income and Adjusted earnings per share are defined in the Non-GAAP section of the unaudited interim consolidated financial report

 

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 on pages 54 through 67 of the Company's 2013 Annual 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 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 quarterly report.   Forward-looking statements are typically identified by words such as "will,"  "believe," "expect," "anticipate," "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 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 2014, management's expectations continue to assume:

  • The Canadian economy will continue to produce modest growth in 2014 with stable to modestly improving employment conditions in most regions, and inflation will generally be within the Bank of Canada's target of 1% to 3% leading to stable credit losses and strong demand for the Company's lending products.

  • The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets; as such, the Company is prepared for the variability to plan that may result.

  • The Bank of Canada continues to indicate that increases to its target overnight interest rate are not imminent and, as such, the Company is assuming the rate will remain at its current rate, for the remainder of 2014. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.

  • The housing market will likely remain stable with balanced supply and demand conditions in most regions supported by continued low interest rates, relatively stable to improving employment, and immigration.  There will be modest declines in housing starts and resale activity with stable prices throughout most of Canada. This supports continued stable credit losses and strong demand for the Company's lending products.

  • Consumer debt levels 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 Second Quarter 2014 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. 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.



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