Home Capital Reports Strong Earnings with Net Income up 16.8% Year over Year -- Diluted Earnings per Share up 16.3% Year over Year to $1.00 -- Return on Equity Solid at 23.1% for the Quarter TORONTO, May 7, 2014 /CNW/ - Home Capital today reported another quarter of growth and increased earnings. The Company's First Quarter Report, including Management's Discussion and Analysis, is available on Home Capital's website at www.homecapital.com and the Canadian Securities Administrators' website at www.sedar.com. FINANCIAL HIGHLIGHTS Error occurred while generating ASCII Content for table Index was outside the bounds of the array. at PrimaryContent.GenerateASCIIContent() FIRST QUARTER 2014 HIGHLIGHTS Key results for the first quarter of 2014 included: -- Net income increased to $69.7 million for the first quarter, up 1.3% from Q4 2013 and 16.8% over Q1 2013. -- Diluted earnings per share(1) were $1.00 for the quarter, representing increases of 2.0% and 16.3% over the $0.98 and $0.86 earned in Q4 2013 and Q1 2013, respectively. -- Total net interest income, before provisions, of $110.4 million was down slightly from the $111.0 million in Q4 2013 and up 8.3% from the $101.9 million in Q1 2013. The slight decrease from last quarter reflects $3.7 million in lower net interest income on securitized loans which, consistent with the Company's business strategy, has been replaced with gains on sale of $8.1 million in the quarter compared to $4.6 million in Q4 2013 and $1.4 million in Q1 2013 (please see below). Net interest income on the non-securitized portfolio exceeded $100 million for the first time, reaching $102.8 million in the quarter, up 3.1% from last quarter and 16.7% from one year ago, reflecting strong and consistent growth in the traditional portfolio. -- Net interest margin (TEB) was 2.19% in the quarter, down from 2.22% last quarter and up from 2.17% one year ago. Higher liquidity balances and lower net interest margins on securitized mortgages contributed to the decline from last quarter while spreads on traditional mortgages remained consistent -- Securitization income, including gains on sale mentioned above, was $8.7 million compared to $5.8 million in Q4 2013 and $1.5 million in Q1 2013. The gains consisted of $6.7 million on the sale of residual interests related to $486.2 million of underlying single-family mortgages and gains of $1.4 million on the sale of $211.5 million of multi-unit residential mortgages. -- Return on equity was strong at 23.1% for the quarter 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 0.33% compared to 0.35% at the end of last quarter and 0.32% 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 0.27%. The annualized credit provision as a percentage of gross uninsured loans of 0.11% has decreased from the 0.14% in Q4 2013 and the 0.18% in Q1 2014, reflecting lower individual provisions. -- Capital ratios remain high with Home Trust's Common Equity Tier 1 ratio (CET 1 ratio) ending the quarter at 17.22%, while Tier 1 and Total Capital ratios were 17.22% and 20.06%, respectively. Home Trust's Assets to Capital multiple (ACM) was 13.02 at the end of the quarter compared to 13.19 at December 31, 2013 and 13.45 one year ago. The sale of residual interests and resulting off-balance sheet treatment of mortgages lowered the ACM in the quarter. -- Total loans under administration, which includes securitized mortgages that qualify for off-balance sheet accounting, reached $20.48 billion, reflecting increases of $2.03 billion or 11.0% from $18.45 billion one year ago, and $0.53 billion or 2.7% from $19.94 billion at the end of 2013 (10.7% on an annualized basis). -- Total mortgage originations in the quarter decreased seasonally to $1.68 billion from $1.91 billion last quarter and increased from $1.38 billion from the same quarter last year. First quarter originations, while seasonally lower as expected, remained strong despite the slow start to real estate markets which was reflective of the harsh winter conditions that kept many Canadians out of the market for much of the first quarter. -- Traditional residential mortgage originations of $1.07 billion in the quarter also decreased seasonally from $1.23 billion in Q4 2013 and increased from $0.99 billion in Q1 2013. 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 of $289.5 million in the quarter decreased seasonally from $357.1 million in Q4 2013 and increased 138.1% from $121.6 million in Q1 2013. 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 $213.6 million in the quarter compared to $239.9 million last quarter and $202.6 million in the same period last year. 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 $72.0 million for the quarter compared to $60.5 million in Q4 2013 and $38.6 million in Q1 2013. Store and apartment mortgage advances were $27.6 million in the quarter compared to $24.5 million in Q4 2013 and $23.6 million in Q1 2013. -- The consumer retail credit portfolio, which includes durable household goods, such as water heaters and larger-ticket home improvement items, reached $346.9 million at the end of Q1 2014, up 2.0% from $340.0 million at the end of last quarter and up 21.7% from $285.1 million at the end of Q1 2013. 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. -- Total deposits reached $13.08 billion, up 2.5% from last quarter and 23.0% from one year ago. -- The Company initiated two new programs over the last year in to further diversify its deposits from a predominately large broker funded model, a high-interest savings account and Oaken Financial, a direct-to-consumer deposit brand. Oaken deposits at the end of the quarter increased by 25.9% over the balance at Q4 2013 and to over three times the balance one year ago. The high-interest saving accounts also grew significantly reaching a balance at the end of the quarter of $450.9 million, representing an increase of 33.7% over the $337.2 million at the end of 2013 and over ten times the balance of $42.3 million one year ago. 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 a quarterly dividend of $0.16 per common share, payable on June 1, 2014 to shareholders of record at the close of business on May 16, 2014. While winter and early spring real estate activity was reduced by poor weather and a limited supply of homes for sale, recent transaction levels suggest a recovery in the late spring and summer. The slow market conditions in the early part of 2014 will have an impact on the timing and level of securitization and gains on sale of mortgages during the balance of the year. On an overall basis, the Company anticipates growing demand for all its lending products as the year progresses and expects that it will also be able to further increase its market share through its network of brokers and its business development programs, leading to achievement of the annual goals set out in Table 1 of this press release. 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. Index was outside the bounds of the array. at PrimaryContent.GenerateASCIIContent() (1) For comparative presentation purposes, the prior period diluted earnings per share amounts were restated to half of the previously reported amounts to reflect the stock dividend of one common share per outstanding share declared during the first quarter of 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. First Quarter Results Conference Call The conference call will take place on Thursday, May 8, 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, May 8, 2014 and midnight Thursday, May 15, 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. Annual Meeting Notice The Annual Meeting of Shareholders of Home Capital Group Inc. will be held at One King West, Grand Banking Hall, Toronto, Ontario, M5H 1A1, on Wednesday, May 14, 2014 at 11:00 a.m. local time. Shareholders and guests are invited to join Directors and Management for lunch and refreshments following the Annual Meeting. All shareholders are encouraged to attend. Index was outside the bounds of the array. at PrimaryContent.GenerateASCIIContent() 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 Index was outside the bounds of the array. at PrimaryContent.GenerateASCIIContent() Index was outside the bounds of the array. at PrimaryContent.GenerateASCIIContent() Table 2: Reconciliation of Net Income to Adjusted Net Income Index was outside the bounds of the array. at PrimaryContent.GenerateASCIIContent() 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, with the potential for modest increases later in the year. 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 First 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. 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. Gerald M. Soloway, CEO, or Martin Reid, President, 416-360-4663, www.homecapital.com To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/May2014/07/c3296.html CO: Home Capital Group Inc. ST: Ontario NI: FIN ERN CONF -0- May/07/2014 21:00 GMT
Home Capital Reports Strong Earnings with Net Income up 16.8% Year over Year
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