Home Capital Reports Strong Performance for the Second Quarter

  • Basic Earnings per Share of $1.54, or $1.60 excluding second quarter tax adjustments
  • Return on Equity of 25.1%
  • Second Quarter Net Income Increases 10.4%, or 14.5% excluding second quarter tax adjustments, over 2011 Net Income

TORONTO, Aug. 1, 2012 /CNW/ - Home Capital Group (TSX: HCG) today reported another quarter of strong results for the three months ended June 30, 2012.

The Company's Second Quarter Report, including Management's Discussion and Analysis, is available on www.homecapital.com and on 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
2012

March 31
2012

June 30
2011

June 30
2012

June 30
2011

OPERATING RESULTS


 

 

 

 

 

 

 

 

 

Net Income

$

 53,230

$

 52,534

$

 48,206

$

 105,764

$

 91,384

Adjusted Net Income

 

 53,230

 

 52,534

 

 48,206

 

 105,764

 

 93,809

Total Revenue


 218,751

 

 214,682

 

 198,568

 

 433,433

 

 383,181

Earnings per Share - Basic/Diluted

$

1.54/1.54

$

1.52/1.52

$

1.39/1.38

$

3.07/3.07

$

2.63/2.62

Adjusted Earnings per Share - Basic/Diluted


1.54/1.54

 

1.52/1.52

 

1.39/1.38

 

3.07/3.07

 

2.70/2.69

Return on Shareholders' Equity

 

25.1%

 

26.2%

 

28.2%

 

25.7%

 

27.5%

Return on Average Assets


1.2%

 

1.2%

 

1.2%

 

1.2%

 

1.1%

Net Interest Margin (TEB)


2.09%

 

2.02%

 

2.06%

 

2.05%

 

2.03%

Net Interest Margin Non-Securitized Assets (TEB)


3.05%

 

3.06%

 

3.04%

 

3.06%

 

3.00%

Net Interest Margin Securitized Assets


1.05%

 

0.97%

 

1.28%

 

1.00%

 

1.24%

Provision as a Percentage of Gross Loans (annualized)


0.05%

 

0.11%

 

0.03%

 

0.08%

 

0.03%

Efficiency Ratio (TEB)

 

27.8%

 

27.7%

 

27.9%

 

27.8%

 

28.6%

As at

June 30
2012

March 31
2012

December 31
2011

June 30
2011

 

 

BALANCE SHEET HIGHLIGHTS


 

 

 

 

 

 

 

 

 

Total Assets

$

 18,526,458

$

 17,995,256

$

 17,696,471

$

 16,434,599

 

 

Total Loans


 16,966,961

 

 16,403,745

 

 16,089,648

 

 15,319,145

 

 

Securitized Loans On-Balance Sheet


 7,582,154

 

 7,953,414

 

 8,243,350

 

 8,623,284

 

 

Loans Under Administration

 

 17,039,727

 

 16,403,745

 

 16,089,648

 

 15,319,145

 

 

Liquid Assets

 

 677,908

 

 691,416

 

 814,918

 

 864,142

 

 

Deposits

 

 9,007,464

 

 8,297,126

 

 7,922,124

 

 6,734,129

 

 

Shareholders' Equity


 869,439 

 

 828,036 

 

 774,785 

 

 701,935 

 

 

FINANCIAL STRENGTH


 

 

 

 

 

 

 

 

 

Capital Measures

 

 

 

 

 

 

 

 

 

 

Risk-Weighted Assets

$

 5,003,579

$

 4,704,529

$

 4,549,696

$

 3,981,958

 

 

Tier 1 Capital Ratio

 

17.1%

 

17.5%

 

17.3%

 

18.4%

 

 

Total Capital Ratio


21.1%

 

21.6%

 

20.5%

 

22.1%

 

 

Credit Quality


 

 

 

 

 

 

 

 

 

Non-Performing Loans as a Percentage of Gross Loans


0.31%

 

0.28%

 

0.25%

 

0.23%

 

 

Allowance as a Percentage of Gross Non-Performing Loans


58.7%

 

67.6%

 

74.9%

 

86.1%

 

 

Share Information


 

 

 

 

 

 

 

 

 

Book Value per Common Share

$

 25.05

$

 23.83

$

 22.38

$

 20.24

 

 

Common Share Price - Close

$

 45.18

$

 50.34

$

 49.10

$

 51.75

 

 

Market Capitalization

$

 1,568,243

$

 1,749,365

$

 1,700,088

$

 1,794,897

 

 

Number of Common Shares Outstanding
 
 34,711

 

 34,751

 

 34,625

 

 34,684

 

 

1 See definition of Adjusted Net Income under Non-GAAP Measures of the unaudited interim consolidated financial report and reconciliation to net income in Table 2 of the Management's Discussion and Analysis.
2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures of the unaudited interim consolidated financial report. The net interest margin non-securitized assets for March 31, 2012 was amended from the previously disclosed amount of 3.00%.
3 Total loans include loans held for sale.
4 These figures relate to the Company's operating subsidiary, Home Trust Company.


SECOND QUARTER 2012 HIGHLIGHTS

Key results for the second quarter of 2012 included:

  • Net income increased to $53.2 million in the second quarter and to $105.8 million for the six months ended June 30, 2012. Second quarter results included an unfavourable adjustment to taxes of $2.0 million due to Ontario tax rate changes announced earlier this year and substantively enacted during the quarter. Excluding this tax adjustment, net income for the quarter was $55.2 million representing an increase of 14.5% over 2011 second quarter net income of $48.2 million, and 5.1% (or 20.4% annualized) over first quarter of 2012 net income of $52.5 million. Net income of $107.8 million, excluding the tax adjustment, for the six months ending June 30, 2012 increased 17.9% over the $91.4 million recorded in the same period last year. Including the tax adjustment net income is up 15.7% year over year.  These results put the Company solidly within the 13%-18% net income growth target for 2012.

  • Diluted earnings per share were $1.54 for the quarter and $3.07 for the first six months of 2012 representing increases of 11.6% and 17.2% from $1.38 and $2.62 of the respective periods of 2011. Excluding the tax adjustment, diluted earnings per share were $1.60 for the quarter and $3.13 for the first six months of 2012 representing increases of 15.9% and 19.5% over the respective periods of 2011. Diluted earnings per share for the second quarter, excluding the tax adjustment, also increased by 5.3% from $1.52 diluted earnings per share in the first quarter of 2012.

  • Net interest income reached record levels of $93.9 million in the second quarter, increasing 15.4% over the $81.3 million recorded in the second quarter of 2011 and 6.4% over the $88.2 million earned last quarter, reflecting solid loan growth and strong demand for the Company's products.

  • Net interest margin (TEB) rose to 2.09% in the second quarter from 2.06% in the second quarter of 2011 and 2.02% in the first quarter of 2012, primarily due to the benefit of the rebalancing of the portfolio towards the higher yielding traditional mortgage portfolio.  On a year to date basis, net interest margin (TEB) increased to 2.05% compared to 2.03% in the same period last year.  Net interest margin (TEB) on non-securitized assets was 3.05% compared to 3.04% in the second quarter of 2011 and 3.06% in the first quarter of 2012.

  • Net interest margin on securitized assets was 1.05%, representing a decline from 1.28% one year ago and an increase from 0.97% last quarter. During the second quarter the Company benefited from higher than expected prepayment penalties in the securitized portfolio resulting in an increase in the net interest margin. Compared to a year ago, the utilization of lower yielding assets as replacement assets in the CMB program is the primary contributor to lower margins.

  • Return on equity at 25.1% for the quarter and 25.7% year to date remains solid and continues well in excess of the Company's minimum performance objective of 20%.

  • During the quarter the Company securitized and sold $72.8 million in insured multi-unit residential mortgages that qualified for off-balance sheet and gain on sale accounting under current accounting standards. This resulted in a securitization gain of $1.3 million in the quarter.

  • The credit quality of the loans portfolio remains solid. Net non-performing loans ended the quarter at 0.31% of the total loans portfolio and, while up from 0.25% at December 31, 2011 and 0.28% at the end of the first quarter of 2012, the ratio remains well within the Company's expectations and reflects the strategic shift towards a higher proportion of traditional mortgages. The provision for credit losses continues at a low level and was 0.05% of gross loans on an annualized basis in the quarter, compared to 0.03% in the second quarter of 2011 and 0.11% in the first quarter of 2012. The provision for credit losses ratio is within the Company's objective of 0.05% to 0.15% of gross loans.

  • Tier 1 and Total capital ratios of 17.1% and 21.1%, respectively, at June 30, 2012 remain very conservative and well above the Company's minimum targets. Home Trust's asset to capital multiple was 13.8 at the end of the quarter compared to 14.4 at December 31, 2011 and 13.6 at the end of the first quarter. The Company is well positioned to continue growing its assets, revenue and net income while meeting or exceeding the Company's 2012 targets and maintaining prudent levels of capital.

  • Total assets were $18.53 billion at the end of the second quarter, an increase of $2.09 billion or 12.7% from $16.43 billion one year ago, $0.83 billion or 4.7% from $17.70 billion at the end of 2011 and $0.53 billion or 3.0% over $18.0 billion at the end of the first quarter of 2012.

  • Total loans grew to $16.97 billion, an increase of $1.65 billion or 10.8% from $15.32 billion one year ago, $0.88 billion or 5.5% from $16.09 billion at the end of 2011 (10.9% on an annualized basis) and $0.56 billion or 3.4% over $16.40 billion at the end of last quarter. While annualized loan growth year to date has been below the Company's growth target due to net reduction of insured loans, demand is strong and the Company continues to expect year-over-year loan growth to be within the target range of 13%-18% for 2012.

  • The total value of mortgages originated in the second quarter rose to $1.67 billion from $1.20 billion originated in the second quarter of 2011 and $1.19 billion in originations in the first quarter of 2012. Originations were $2.85 billion for the first six months of the year compared to $2.57 billion in the same period last year. Origination volumes and weightings continue to reflect the Company's strategy to increase focus on originations of higher yielding traditional mortgages.

  • Originations of traditional mortgages increased to $1.21 billion in the second quarter from $870.8 million in the second quarter of 2011 and $921.1 million originated in the first quarter of 2012. The Company is experiencing strong demand for its traditional product offerings combined with high credit quality. This continues to enhance profitability.

  • Accelerator (insured) mortgage originations increased to $221.1 million in the second quarter from $172.4 million in the second quarter of 2011 and from $172.7 million in the first quarter of 2012. The Company continues to pursue opportunities that may lead to future growth in this product segment in 2012.

  • Multi-unit residential originations were $87.8 million in the quarter compared to $34.5 million in the second quarter of 2011 and $27.5 million in the first quarter of 2012. The Company anticipates continued funding of multi-unit residential mortgages through the second half of 2012 and plans to securitize these mortgages through programs that qualify for off-balance sheet accounting.

  • Non-residential mortgage advances were $86.0 million in the quarter compared to $59.5 million in the second quarter of 2011 and $25.2 million in the first quarter of 2012. The Company continues to be very selective and focuses on opportunities that present strong margins and risk profiles that are within the Company's risk tolerance.

  • Store and apartment advances were $37.8 million for the quarter compared to $35.5 million in the second quarter of 2011 and $37.9 million last quarter.

  • The Company opened 1,793 new Visa accounts in the second quarter compared to 2,389 accounts opened in the second quarter of 2011 and 1,383 accounts last quarter. The decline through the current year reflects the Company's increased conservatism in approvals and advances and the anticipated adoption of OSFI's B-20 draft guideline provisions limiting home equity lines of credit (HELOC). The final guideline is less restrictive than the Company's expectation and the Company is exploring strategies, within its risk tolerance and OSFI's guidelines, to enhance growth in this portfolio.

Consistent with the first quarter of 2012, the Company is delivering solid performance despite the persistent international economic instability and muted economic improvement in Canada. The Company's performance reflects the strength, and the successful execution, of the Company's core strategy.

As discussed in the first quarter of 2012, the Company continues to see resilient and relatively stable real estate markets across most of Canada, with a few areas of continuing concern, where the Company has already scaled back. The Company expects real estate demand to remain relatively stable in 2012 with potentially modest declines in some of the larger markets. This is expected to result in relatively balanced real estate market conditions and lead to continued healthy demand for the Company's products, consistent with the first half of the year. The Company has not seen evidence of a "real-estate bubble" in Canada. Low interest rates and stable employment have maintained housing affordability. The Company expects interest rates to remain at current levels or experience very modest increases into 2013 and that Canadian employment levels will remain relatively stable in 2012. The Company maintains a solid capital position and prudent liquidity and expects that it is well positioned to deal with the impact of uncertainty that may affect the Canadian economy.

Favourable market opportunities have supported the Company's strategy of renewed focus on the traditional mortgage portfolio with record levels of originations in this product category. While the Company has increased lending in this product category it has been able to do so with improving credit quality. The average credit score for traditional mortgage originations for the first half of 2012 is up from the same period of 2011 while loan to value ratios are down. The Company remains proactive and prudent in its lending practices, taking into account local economic and market conditions. The credit quality of the loan portfolio remains strong, reflecting the Company's focus on diligent underwriting combined with strong collection standards and loan resolution strategies.

During the second quarter, OSFI released Final Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures requiring full implementation by the end of 2012. Additionally, the Canadian government announced rule changes associated with mortgages insured through CMHC that became effective in early July 2012. The Company supports the changes announced and expects that these measures will serve to enhance the safety and soundness of the Canadian real estate market, mortgage insurers and the economy, while potentially tempering real estate demand in the short term. The Company has already made changes, where required, to comply with a significant number of the B-20 guidelines and will be fully compliant before the end of 2012. The changes required for B-20 are not expected to materially affect the Company's growth or progress. There may be a small segment of the Company's borrowers who will be impacted by the B-20 changes and may need to seek alternative funding. The Company was fully compliant with the required changes to the insured mortgage rules before the early July 2012 deadline.

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 $0.22 per Common share, payable on September 1, 2012 to shareholders of record at the close of business on August 15, 2012. 

With solid performance in all aspects of Home Capital's business, management expects that the Company will continue to generate above average earnings and shareholder performance for 2012, and will meet or exceed all of its stated objectives for 2012. 

(signed)
GERALD M. SOLOWAY 
Chief Executive Officer 
August 1, 2012    
(signed)
KEVIN P.D. SMITH
Chairman of the Board
   

Additional information concerning the Company's targets and related expectations for 2012, including the risks and assumptions underlying these expectations, may be found in Management's Discussion and Analysis (MD&A) of this quarterly report.

Conference Call and Webcast

Second Quarter Results Conference Call
The conference call will take place on Thursday, August 2, 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. Thursday, August 2, 2012 and midnight Thursday, August 9, 2012 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 99419730). 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.


2012 OBJECTIVES AND PERFORMANCE

Home Capital published its financial objectives for 2012 on page 15 of the Company's 2011 Annual Report. The following table compares actual performance to date against each of these objectives.


Table 1: 2012 Targets and Performance

               

 

  

  

For the six months ended June 30, 2012

 

2012 Targets1
Actual
Results1

 
Amount
Increase
over 2011

Growth in net income

13%-18%

15.7%

$

 105,764 

$

 14,380 

Growth in diluted earnings per share

13%-18%

17.2%

 

 3.07 

 

 0.45 

Growth in total loans

13%-18%

10.9%


 16,966,961 

 

 877,313 

Return on shareholders' equity

20.0%

25.7%

 

 

 

 

Efficiency ratio (TEB)

28.0% - 34.0%

27.8%


 

 

 

Capital ratios

  

  


 

 

 

   Tier 1


Minimum of 13%

17.1%

 

 

 

 

   Total


Minimum of 14%

21.1%

 

 

 

 

Provision as a percentage of gross loans (annualized)

0.05% - 0.15%

0.08%

 

 

 

 

1 Objectives and results for net income and diluted earnings per share are for the current year.
2 Change represents growth over December 31, 2011 on an annualized basis and includes loans held for sale.
3 See definition of TEB under Non-GAAP Measures in the unaudited interim consolidated financial report.
4 Based on the Company's wholly owned subsidiary, Home Trust Company.


Consolidated Statements of Income

 

 

 

 

 

 

For the
three months ended

For the
six months ended

thousands of Canadian dollars, except per share amounts
(Unaudited)

June 30
2012

March 31
2012

June 30
2011

June 30
2012

June 30
2011

Net Interest Income Non-Securitized Assets

 

 

 

 

 

 

 

 

 

 

Interest from loans

$

 125,576 

$

 117,565 

$

 96,262 

$

 243,141 

$

 187,315 

Dividends from securities

 

 3,533 

 

 3,964 

 

 4,713 

 

 7,497 

 

 8,971 

Other interest

 

 930 

 

 1,047 

 

 1,219 

 

 1,977 

 

 2,912 

 

 

 

 130,039 

 

 122,576 

 

 102,194 

 

 252,615 

 

 199,198 

Interest on deposits

 

 56,043 

 

 53,128 

 

 47,242 

 

 109,171 

 

 92,208 

Interest on senior debt

 

 1,705 

 

 1,653 

 

 1,047 

 

 3,358 

 

 1,047 

Net interest income non-securitized assets

 

 72,291 

 

 67,795 

 

 53,905 

 

 140,086 

 

 105,943 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income Securitized Loans and Assets

 

 

 

 

 

 

 

 

 

 

Interest income from securitized loans and assets

 

 76,286 

 

 76,616 

 

 83,920 

 

 152,902 

 

 164,420 

Interest expense on securitization liabilities

 

 54,723 

 

 56,192 

 

 56,503 

 

 110,915 

 

 112,435 

Net interest income securitized loans and assets

 

 21,563 

 

 20,424 

 

 27,417 

 

 41,987 

 

 51,985 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Interest Income

 

 93,854 

 

 88,219 

 

 81,322 

 

 182,073 

 

 157,928 

Provision for credit losses (note 5(E))

 

 2,298 

 

 4,498 

 

 1,217 

 

 6,796 

 

 2,191 

 

 

 

 91,556 

 

 83,721 

 

 80,105 

 

 175,277 

 

 155,737 

Non-Interest Income

 

 

 

 

 

 

 

 

 

 

Fees and other income

 

 12,025 

 

 10,897 

 

 8,646 

 

 22,922 

 

 17,006 

Realized net gains and unrealized losses on securities and mortgages

 

 1,676 

 

 308 

 

 2,141 

 

 1,984 

 

 4,170 

Net realized and unrealized (loss) gain on derivatives (note 14)

 

 (1,275)

 

 4,285 

 

 1,667 

 

 3,010 

 

 (1,613)

 

 

 

 12,426 

 

 15,490 

 

 12,454 

 

 27,916 

 

 19,563 

 

 

 

 103,982 

 

 99,211 

 

 92,559 

 

 203,193 

 

 175,300 

Non-Interest Expenses 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 14,501 

 

 13,999 

 

 13,253 

 

 28,500 

 

 25,830 

Premises

 

 1,977 

 

 1,998 

 

 1,900 

 

 3,975 

 

 3,772 

Other operating expenses

 

 13,404 

 

 13,171 

 

 11,490 

 

 26,575 

 

 22,257 

 

 

 

 29,882 

 

 29,168 

 

 26,643 

 

 59,050 

 

 51,859 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes 

 

 74,100 

 

 70,043 

 

 65,916 

 

 144,143 

 

 123,441 

Income taxes (note 12(A))

 

 

 

 

 

 

 

 

 

 

  Current


 

 20,568 

 

 19,055 

 

 18,036 

 

 39,623 

 

 32,111 

  Deferred


 

 302 

 

 (1,546)

 

 (326)

 

 (1,244)

 

 (54)

 

 

 

 20,870 

 

 17,509 

 

 17,710 

 

 38,379 

 

 32,057 

NET INCOME

$

 53,230 

$

 52,534 

$

 48,206 

$

 105,764 

$

 91,384 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER COMMON SHARE

 

 

 

 

 

 

 

 

 

 

Basic

$

 1.54 

$

 1.52 

$

 1.39 

$

 3.07 

$

 2.63 

Diluted

$

 1.54 

$

 1.52 

$

 1.38 

$

 3.07 

$

 2.62 

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 

 

 

 

 

 

 

 

 

 

 

Basic

 

 34,476 

 

 34,550 

 

 34,695 

 

 34,486 

 

 34,699 

Diluted

 

 34,509 

 

 34,593 

 

 34,843 

 

 34,491 

 

 34,843 

 

 

 

 

 

 

 

 

 

 

 

 

Total number of outstanding common shares (note 9(A))

 

 34,711 

 

 34,751 

 

 34,684 

 

 34,711 

 

 34,684 

Book value per common share

$

 25.05 

$

 23.83 

$

 20.24 

$

 25.05 

$

 20.24 


The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Consolidated Statements of Comprehensive Income


 

For the
three months ended

For the
six months ended

thousands of Canadian dollars (Unaudited)

 
June 30
2012 

 
March 31
2012 

 
June 30
2011 

 
June 30
2012 

 
June 30
2011 

NET INCOME

$

 53,230 

$

 52,534 

$

 48,206 

$

 105,764 

$

 91,384 

OTHER COMPREHENSIVE INCOME (LOSS) 

 

 

 

 

 

 

 

 

 

Available for Sale Securities

 

 

 

 

 

 

 

 

 

 

Net unrealized (losses) gains on securities available for sale

 

 (1,069)

 

 4,393 

 

 420 

 

 3,324 

 

 (81)

Net gains reclassified to net income

 

 (1,348)

 

 (364)

 

 (2,662)

 

 (1,712)

 

 (4,490)

 

 

 (2,417)

 

 4,029 

 

 (2,242)

 

 1,612 

 

 (4,571)

Income tax (recovery) expense

 

 (643)

 

 1,167 

 

 (919)

 

 524 

 

 (1,168)

 

 

 (1,774)

 

 2,862 

 

 (1,323)

 

 1,088 

 

 (3,403)

Cash Flow Hedges (note 14)

 

 

 

 

 

 

 

 

 

 

Net unrealized (losses) gains on cash flow hedges

 

 (396)

 

 26 

 

 (2,643)

 

 (370)

 

 (3,317)

Net losses reclassified to net income

 

 357 

 

 353 

 

 91 

 

 710 

 

 91 

 

 

 (39)

 

 379 

 

 (2,552)

 

 340 

 

 (3,226)

Income tax (recovery) expense

 

 (89)

 

 110 

 

 (664)

 

 21 

 

 (839)

 

 

 50 

 

 269 

 

 (1,888)

 

 319 

 

 (2,387)

Total other comprehensive (loss) income

 

 (1,724)

 

 3,131 

 

 (3,211)

 

 1,407 

 

 (5,790)

COMPREHENSIVE INCOME

$

 51,506 

$

 55,665 

$

 44,995 

$

 107,171 

$

 85,594 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Consolidated Balance Sheets

               

thousands of Canadian dollars (Unaudited)

 
June 30
2012 

 
March 31
2012 

 
December 31
2011 

ASSETS 

 

 

 

 

 

 

Cash Resources (note 4(A))

$

 301,330 

$

 421,397 

$

 665,806 

Securities (note 4(B))

 

 

 

 

 

 

Available for sale

 

 425,834 

 

 471,951 

 

 391,754 

Pledged securities (notes 4(C) and 6(B))

 

 628,836 

 

 493,889 

 

 341,588 

 

 

 

 1,054,670 

 

 965,840 

 

 733,342 

Loans held for sale

 

 29,811 

 

 - 

 

 - 

Loans (note 5)

 

 

 

 

 

 

Residential mortgages

 

 7,749,484 

 

 6,946,012 

 

 6,339,883 

Securitized residential mortgages (note 6)

 

 7,582,154 

 

 7,953,414 

 

 8,243,350 

Non-residential mortgages

 

 1,037,385 

 

 940,055 

 

 946,222 

Personal and credit card loans

 

 568,127 

 

 564,264 

 

 560,193 

 

 

 

 16,937,150 

 

 16,403,745 

 

 16,089,648 

Collective allowance for credit losses (note 5(E))

 

 (29,500)

 

 (29,500)

 

 (29,440)

 

 

 

 16,907,650 

 

 16,374,245 

 

 16,060,208 

Other

 

 

 

 

 

 

Derivative assets (note 14)

 

 59,284 

 

 55,611 

 

 72,424 

Other assets (note 7)

 

 84,534 

 

 90,899 

 

 79,650 

Capital assets

 

 7,278 

 

 6,296 

 

 5,372 

Intangible assets

 

 66,149 

 

 65,216 

 

 63,917 

Goodwill

 

 15,752 

 

 15,752 

 

 15,752 

 

 

 

 232,997 

 

 233,774 

 

 237,115 

 

 

$

 18,526,458 

$

 17,995,256 

$

 17,696,471 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

  Deposits payable on demand


$

 42,098 

$

 36,220 

$

 62,746 

  Deposits payable on a fixed date 


 

 8,965,366 

 

 8,260,906 

 

 7,859,378 

 

 

 

 9,007,464 

 

 8,297,126 

 

 7,922,124 

Senior Debt (note 13)

 

 152,524 

 

 154,129 

 

 153,336 

Securitization Liabilities (note 6(C))

 

 

 

 

 

 

  Mortgage-backed security liabilities


 

 2,078,300 

 

 2,238,138 

 

 2,417,801 

  Canada Mortgage Bond liabilities 


 

 6,160,259 

 

 6,210,408 

 

 6,231,274 

 

 

 

 8,238,559 

 

 8,448,546 

 

 8,649,075 

Other

 

 

 

 

 

 

Obligations related to securities sold under repurchase agreement (notes 4(C) and 5(F))

 

 43,418 

 

 49,720 

 

 - 

Derivative liabilities (note 14)

 

 4,043 

 

 2,990 

 

 3,458 

Income taxes payable

 

 15,893 

 

 6,672 

 

 17,628 

Other liabilities (note 8)

 

 156,320 

 

 169,560 

 

 136,025 

Deferred tax liabilities (note 12(C))

 

 38,798 

 

 38,477 

 

 40,040 

 

 

 

 258,472 

 

 267,419 

 

 197,151 

 

 

 

 17,657,019 

 

 17,167,220 

 

 16,921,686 

Shareholders' Equity

 

 

 

 

 

 

Capital stock (note 9)

 

 61,662 

 

 61,494 

 

 55,104 

Contributed surplus

 

 5,543 

 

 5,207 

 

 5,873 

Retained earnings

 

 810,018 

 

 767,395 

 

 722,999 

Accumulated other comprehensive loss (note 11)

 

 (7,784)

 

 (6,060)

 

 (9,191)

 

 

 

 869,439 

 

 828,036 

 

 774,785 

 

 

$

 18,526,458 

$

 17,995,256 

$

 17,696,471 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Consolidated Statements of Changes in Shareholders' Equity

                             
thousands of Canadian dollars,
except per share amounts (Unaudited)
Capital
Stock
Contributed
Surplus
Retained
Earnings
Net
Unrealized
(Losses) Gains
on Securities
Available for
Sale, after Tax
Net
Unrealized
Losses on
Cash Flow
Hedges,
after Tax
Total
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shareholders'
Equity

Balance at December 31, 2011

$

 55,104

$

 5,873

$

 722,999

$

 (4,141)

$

 (5,050)

$

 (9,191)

$

 774,785

Comprehensive income

 

 - 

 

 - 

 

 105,764

 

 1,088

 

 319

 

 1,407

 

 107,171

Stock options settled (note 9(A))

 

 6,692 

 

 (1,302)

 

 - 

 

 - 

 

 - 

 

 -

 

 5,390

Amortization of fair value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

employee stock options (note 10(A))

 

 - 

 

 972

 

 - 

 

 - 

 

 - 

 

 -

 

 972

Repurchase of shares (note 9(A))

 

 (134)

 

 - 

 

 (3,436)

 

 - 

 

 - 

 

 -

 

 (3,570)

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($0.42 per share)

 

 - 

 

 - 

 

 (15,309)

 

 - 

 

 - 

 

 -

 

 (15,309)

Balance at June 30, 2012

$

 61,662

$

 5,543

$

 810,018

$

 (3,053)

$

 (4,731)

$

 (7,784)

$

 869,439


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010

$

 50,427

$

 4,571 

$

 567,681

$

 5,906

$

 - 

$

 5,906

$

 628,585

Comprehensive income

 

 -

 

 - 

 

 91,384

 

 (3,403)

 

 (2,387)

 

 (5,790)

 

 85,594

Stock options settled (note 9(A))

 

 4,237

 

 (933)

 

 -

 

 - 

 

 - 

 

 -

 

 3,304

Amortization of fair value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

employee stock options (note 10(A))

 

 -

 

 1,231

 

 -

 

 - 

 

 - 

 

 -

 

 1,231

Repurchase of shares (note 9(A))

 

 (121)

 

 -

 

 (4,147)

 

 - 

 

 - 

 

 -

 

 (4,268)

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($0.36 per share)

 

 - 

 

 - 

 

 (12,511)

 

 - 

 

 - 

 

 -

 

 (12,511)

Balance at June 30, 2011

$

 54,543

$

 4,869

$

 642,407

$

 2,503

$

 (2,387)

$

 116

$

 701,935

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Consolidated Statements of Cash Flows


 

 

 

For the six months ended
             

thousands of Canadian dollars (Unaudited)

 
June 30
2012 

 
June 30
2011 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income for the period

$

 105,764

$

 91,384

Adjustments to determine cash flows relating to operating activities:

 

 

 

 

 

Deferred income taxes

 

 (1,244)

 

 (54)

 

Amortization of capital assets

 

 1,569

 

 1,430

 

Amortization of intangible assets 

 

 3,218

 

 30

 

Amortization of net premium on securities

 

 1,461

 

 295

 

Amortization of securitization and senior debt transaction costs

 

 6,604

 

 5,711 

 

Provision for credit losses

 

 6,796

 

 2,191 

 

Change in accrued interest payable

 

 20,108 

 

 17,721

 

Change in accrued interest receivable

 

 (3,104)

 

 (2,198)

 

Realized net gains and unrealized losses on securities and mortgages

 

 (1,984)

 

 (4,170)

 

Settlement of derivatives

 

 (370)

 

 (3,828)

 

(Gain) loss on derivatives

 

 (3,010)

 

 1,613 

 

Net increase in mortgages

 

 (875,750)

 

 (1,161,993)

 

Net increase in personal and credit card loans

 

 (7,904)

 

 (67,351)

 

Net increase in deposits

 

 1,085,340

 

 133,979

 

Proceeds from obligations under repurchase agreement

 

 43,418

 

 -

 

Activity in securitization liabilities

 

 

 

 

 

 

Proceeds from securitization of mortgage-backed security liabilities

 

 53,153

 

 811,189

 

 

Settlement and repayment of securitization liabilities

 

 (454,516)

 

 (271,097)

 

Amortization of fair value of employee stock options

 

 972

 

 1,231

 

Changes in taxes payable and other

 

 (4,031)

 

 10,398 

Cash flows used in operating activities

 

 (23,510)

 

 (433,519)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Repurchase of shares

 

 (3,570)

 

 (4,268)

Exercise of employee stock options

 

 5,390

 

 3,304

Issuance of senior debt

 

 -

 

 149,043

Dividends paid to shareholders

 

 (14,598)

 

 (12,504)

Cash flows used in financing activities

 

 (12,778)

 

 135,575 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Activity in securities

 

 

 

 

 

Purchases

 

 (531,589)

 

 (224,431)

 

Proceeds from sales

 

 185,453

 

 174,235

 

Proceeds from maturities

 

 26,873

 

 54,268

Purchases of capital assets

 

 (3,475)

 

 (1,381)

Purchases of intangible assets

 

 (5,450)

 

 (8,509)

Cash flows used in investing activities

 

 (328,188)

 

 (5,818)

Net decrease in cash and cash equivalents during the period

 

 (364,476)

 

 (303,762)

Cash and cash equivalents at beginning of the period

 

 665,806 

 

 846,824

Cash and Cash Equivalents at End of the Period (note 4(A))

$

 301,330

$

 543,062

Supplementary Disclosure of Cash Flow Information

 

 

 

 

Dividends received on investments

$

 6,227

$

 7,575

Interest received

 

 240,433

 

 349,357

Interest paid

 

 333,836

 

 187,969

Income taxes paid

 

 43,874

 

 19,851

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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 on pages 48 through 58 of the Company's 2011 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, 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 quarterly 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 economic data provided by the Canadian government and its agencies. In setting and reviewing the outlook and objectives for 2012, management's expectations continue to assume:

  • The Canadian economy will produce modest growth in 2012, but will be heavily influenced by the economic conditions in the United States and global markets. Inflation will generally be within the Bank of Canada's target of 1%-3%.
  • Interest rates will remain at current rates or increase marginally in 2012 as the Bank of Canada leaves its target for the overnight rate at its current level or modestly increases the rate later in 2012. 
  • The housing market will remain resilient to global uncertainty with balanced supply and demand conditions in most regions. Declining housing starts and flat resale activity on stable prices through most of Canada will continue with the market activity moderating from previous activity levels.
  • Unemployment will remain stable or improve slightly as the economy grows, while a larger labour force will tend to offset job growth.
  • Consumer debt levels will remain serviceable by Canadian households.
  • Net interest margins overall are expected to remain in the current range. Margins are expected to remain stable as returns on the increased traditional portfolio offset declining returns on the securitized portfolio throughout 2012.
  • Credit quality will remain sound with actual losses within the low end of Home Capital's historical range.
  • The recent changes to Canada Mortgage and Housing Corporation (CMHC) policies will help to temper the real estate market.

Non-GAAP Measures

The Company applies IFRS which are the generally accepted accounting principles (GAAP) for Canadian publically accountable enterprises. 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 2012 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 deposits, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending, Visa products and payment card services. 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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