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Home Capital Group Inc.

TSX Exchange | Aug 22, 2019, 11:16 PM EDT | Real-time price

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Home Capital Announces Fourth Quarter and Full Year 2018 Results

TORONTO

Home Capital Group Inc. (“Home Capital” or “the Company”) (TSX:HCG) today reported financial results for the three months and twelve months ended December 31, 2018. This press release should be read in conjunction with the Company’s 2018 Annual and Fourth Quarter Consolidated Financial Report including Financial Statements and Management’s Discussion and Analysis which are available on Home Capital’s website at www.homecapital.com and on SEDAR at www.sedar.com.

“Our 2018 results are solid evidence that we are successfully implementing our strategy for long-term sustainable growth,” said Yousry Bissada, Chief Executive Officer. “We grew our originations by 15% in a year when industry volumes faced headwinds from stricter underwriting criteria, a reduced volume of home sales and higher interest rates. Our focus on customer service, supported by our sustainable risk culture, has made us a partner of choice for qualified Canadians who want to own a home.”

Fourth Quarter 2018 Financial Highlights compared with the Fourth Quarter 2017

  • Mortgage originations were $1.61 billion, an increase of $742.1 million or 85.1% over originations of $872.1 million in 2017
  • Net interest margin was 1.99% compared with 2.02% in 2017
  • Net income was $35.8 million or 46 cents per share, an increase of 17.0% over net income of $30.6 million or 38 cents per share in 2017
  • Return on equity for the quarter (annualized) was 8.1% compared with 6.8% in 2017

Full year 2018 Financial Highlights compared with 2017

  • Mortgage originations were $5.44 billion, an increase of 15.2% compared with $4.72 billion in 2017
  • Net interest margin was 1.99% for the year compared with 1.55% in 2017
  • Net income for the year was $132.6 million or $1.66 per share compared with $7.5 million or 10 cents per share in 2017
  • Return on equity for the year was 7.7% compared with 0.4% in 2017

December 31, 2018 Balance Sheet Highlights compared with December 31, 2017

  • Total loans were $16.39 billion an increase of 8.8% compared with $15.07 billion at December 31, 2017
  • Total deposits were $12.98 billion an increase of 6.6% compared with $12.17 billion at the end of 2017
  • Total Oaken deposits represented 20.7% of deposits at the end of 2018, up from 16.7% at the end of 2017
  • Book value per share was $26.43 an increase of 16.9% compared with $22.60 at December 31, 2017

Credit Quality

  • For the fourth quarter of 2018, provisions for credit losses were $3.9 million or 0.10% of gross loans, compared to $3.4 million or 0.09% for the same period in 2017. Net write-offs were $5.2 million or 0.13% of gross loans for the quarter, compared to $3.9 million or 0.11% in 2017.
  • For the full year of 2018, provisions for credit losses were $20.4 million or 0.13% of gross loans compared to $7.5 million or 0.05% for 2017. Net write-offs were $9.0 million or 0.06% of gross loans for the year 2018, compared to $9.0 million or 0.06% for 2017.
  • Net non-performing loans as a percentage of gross loans were 0.47% at the end of 2018, compared with 0.30% at the end of 2017.
  • Provisions for credit losses were calculated under IFRS 9 for 2018 and under IAS 39 for 2017. Comparability period over period is reduced to some extent.

IT Roadmap

Following a successful year of growth and rebuilding, Home Capital is ready to take the next step in upgrading its information technology infrastructure. We are embarking on a multi-year investment initiative that will include an upgrade of our core banking system, as well as new initiatives in digital technologies, customer relationship management and mobile banking. These investments will enable us to improve productivity, accelerate new product introductions and improve the customer experience.

Capital Structure

Effective January 2, 2019, Home Capital commenced a normal course issuer bid (“NCIB”) to permit the purchase of common shares of Home Capital (“Common Shares”) through the facilities of the Toronto Stock Exchange (the “TSX”). Effective February 27, 2019, Home Capital’s NCIB will be amended to permit the purchase of Common Shares through the facilities of designated exchanges and alternative trading systems in addition to the facilities of the TSX. The price that Home Capital will pay for any Common Shares will be the market price of such Common Shares at the time of acquisition or such other price as may be permitted.

Home Capital believes that, from time to time, the market price of its Common Shares does not fully reflect the value of its business and its future business prospects. As a result, Home Capital believes that the purchase of its outstanding Common Shares may represent an appropriate and desirable use of its available funds. Under the NCIB, Home Capital may purchase for cancellation up to 4,753,517 of its Common Shares, representing approximately 10% of its public float as of December 21, 2018, calculated in accordance with TSX rules. As at February 21, 2019, Home Capital had purchased 735,050 Common Shares under the NCIB through the facilities of the TSX at a volume weighted average price of approximately C$16.33 per Common Share. Purchases under the NCIB will terminate on January 1, 2020, or on such earlier date as Home Capital may complete its purchases pursuant to the Notice of Intention submitted to the TSX.

With the completion of the substantial issuer bid in 2018 and the implementation of the NCIB in the current year, Home Capital remains committed to returning capital to shareholders. The Board continues to review various options for deployment of capital.

Outlook

Home Capital expects that the early signs of stabilization in the Canadian real estate market will persist for much of 2019 with healthy levels of competition and a benign credit environment. “We are pleased to see that our focus on building relationships and driving improved service levels is yielding results,” said Mr. Bissada. “We look forward to building on those efforts in 2019 and moving forward with our strategy of creating long-term, sustainable shareholder value.”

YOUSRY BISSADA
President and Chief Executive Officer

PAUL DERKSEN
Chair of the Board

The Company’s 2018 Annual and Fourth Quarter Consolidated Financial Report, including Management’s Discussion and Analysis, for the three months and twelve months ended December 31, 2018 is available at www.homecapital.com and on the Canadian Securities Administrators’ website at www.sedar.com.

Fourth Quarter 2018 Results Conference Call and Slide Presentation Webcast

The conference call will take place on Friday, February 22, 2019, at 8:00 a.m. ET. Participants are asked to call approximately 10 minutes in advance at toll-free 1-866-393-4306 throughout North America. Participants calling from outside of North America may dial 1-734-385-2616. The call will also be accessible in listen-only mode on Home Capital’s website at www.homecapital.com in the Investor Relations section of the website.

Conference Call Archive

A telephone replay of the call will be available between 1:00 p.m. ET Friday, February 22, 2019 and midnight ET Friday, March 1, 2019 by calling 1-800-585-8367 (enter passcode 8183346). The archived audio webcast will be available for 90 days on Home Capital’s website at www.homecapital.com.

     

FINANCIAL HIGHLIGHTS

         
        For the three months ended
(000s, except Percentage and Per Share Amounts) December 31     September 30     December 31     Sequential
          2018       2018       2017       Change
INCOME STATEMENT HIGHLIGHTS1  
 
Net Interest Income $ 90,324 $ 89,847 $ 91,718

 

0.5%
Net Interest Margin (TEB)2 1.99% 2.03% 2.02% (4) bps
Efficiency Ratio (TEB)2 51.3% 52.9% 59.8% (160) bps
 
Provision for Credit Losses $ 3,932 $ 3,990 $ 3,434 (1.5)%
Provision as a Percentage of Gross Loans (annualized) 0.10% 0.10% 0.09% -
 
Net Income $ 35,811 $ 32,600 $ 30,619 9.8%
Diluted Earnings per Share $ 0.46 $ 0.41 $ 0.38 12.2%
Return on Shareholders’ Equity (annualized)         8.1%       6.9%       6.8%       120 bps
ORIGINATIONS
 
Total Mortgage Originations $ 1,614,164 $ 1,435,793 $ 872,052 12.4%
Single-Family Residential Mortgage Originations         1,160,051       1,015,998       566,047       14.2%
 
                                  As at
December 31 September 30 December 31 YTD Growth/
          2018       2018       2017       (Decline)
BALANCE SHEET HIGHLIGHTS1
 
Total Assets $ 18,141,689 $ 17,882,017 $ 17,591,143 3.13%
Total Assets Under Administration3 24,680,225 24,657,402 25,040,182 (1.44)%
Total Loans4 16,394,738 16,042,702 15,069,636 8.79%
Total Loans Under Administration3,4 22,933,274 22,818,087 22,518,675 1.84%
 
Total Deposits 12,977,090 12,361,030 12,170,454 6.63%
Demand Deposits         437,046       419,664       539,364       (18.97)%
FINANCIAL STRENGTH1
 
Capital Measures5
Common Equity Tier 1 Capital Ratio 18.94% 23.27% 23.17%
Leverage Ratio 7.54% 9.20% 8.70%
 
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans 0.47% 0.34% 0.30%
Allowance as a Percentage of Gross Non-Performing Loans 54.0% 71.0% 79.5%
 
Share Information
Book Value per Common Share $ 26.43 $ 23.82 $ 22.60
Number of Common Shares Outstanding         62,065       80,246       80,246        

1 The amounts pertaining to 2018 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9); prior period amounts have not been restated and have been prepared in accordance with IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). Please see Note 2 in the audited consolidated financial statements included in the 2018 Annual and Fourth Quarter Consolidated Financial Report.
2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures included in the 2018 Annual and Fourth Quarter Consolidated Financial Report.
3 Total assets and loans under administration include both on- and off-balance sheet amounts.
4 Total loans include loans held for sale and are presented gross of allowance for credit losses for all periods presented.
5 These figures relate to the Company’s operating subsidiary, Home Trust Company.

Caution Regarding Forward-looking Statements

From time to time Home Capital Group Inc. makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are “financial outlooks” within the meaning of National Instrument 51-102. Please see the risk factors, which are set forth in detail in the Risk Management section of the 2018 Annual and Fourth Quarter Consolidated Financial Report, as well as the Company’s other publicly filed information, which is available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company’s actual results to differ materially from these statements. These risk factors are material risk factors a reader should consider, and include credit risk, liquidity and funding risk, structural interest rate risk, operational risk, investment risk, strategic risk, reputational risk, compliance risk and capital adequacy risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook section in the 2018 Annual and Fourth Quarter Consolidated Financial Report. Forward-looking statements are typically identified by words such as “will,” “believe,” “expect,” “anticipate,” “intend,” “should,” “estimate,” “plan,” “forecast,” “may,” and “could” or other similar expressions.

By their very nature, these statements require the Company to make assumptions and are subject to inherent risks and uncertainty, general and specific, which may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These risks and uncertainties include, but are not limited to, global capital market activity, changes in government monetary and economic policies, changes in interest rates, inflation levels and general economic conditions, legislative and regulatory developments, competition and technological change. The preceding list is not exhaustive of possible factors.

These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements. The Company presents forward-looking statements to assist shareholders in understanding the Company’s assumptions and expectations about the future that are relevant in management’s setting of performance goals, strategic priorities and outlook. The Company presents its outlook to assist shareholders in understanding management’s expectations on how the future will impact the financial performance of the Company. These forward-looking statements may not be appropriate for other purposes. The Company does not undertake to update any forward-looking statements, whether written or verbal, that may be made from time to time by it or on its behalf, except as required by securities laws.

Assumptions about the performance of the Canadian economy in 2019 and its effect on Home Capital’s business are material factors the Company considers when setting strategic priorities and outlook. In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies and other third-party providers. In setting and reviewing its strategic priorities and outlook for 2019, management continues to assume:

  • The Canadian economy is expected to be relatively stable in 2019. However, it will continue to be influenced by economic conditions in the United States and global markets, including the impact from the renegotiated trade agreement with the United States and Mexico and from other global trade relations; the Company is prepared potential volatility.
  • Stable employment conditions in the Company’s established regions. Also, the Company expects inflation will generally be within the Bank of Canada’s target of 1% to 3%, leading to stable credit losses and demand for the Company’s lending products in its established regions.
  • The Bank of Canada may continue to raise its overnight interest rate in 2019 dependent on economic circumstances.
  • Current and expected levels of housing activity indicate a relatively stable real estate market overall and in particular for the Company’s key Greater Toronto Area (GTA) market. Please see Market Conditions under the 2019 Outlook in the Company’s 2018 Annual and Fourth Quarter Consolidated Financial Report for more discussion on the Company’s expectations for the housing market.
  • Debt service levels of Canadian households will remain manageable in 2019; however, high levels of consumer debt make the economy more vulnerable to higher interest rates and any economic weakness.
  • Access to the mortgage and deposit markets through broker networks will be maintained.

Non-GAAP Measures

The Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises for years beginning on or after January 1, 2011. The Company uses a number of financial measures to assess its performance. Some of these measures are not calculated in accordance with GAAP, are not defined by GAAP, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures. Definitions of non-GAAP measures can be found under Non-GAAP Measures in the Management’s Discussion and Analysis included in the Company’s 2018 Annual and Fourth Quarter Consolidated Financial Report.

Regulatory Filings

The Company’s continuous disclosure materials, including interim filings, annual Management’s Discussion and Analysis and audited consolidated financial statements, Annual Information Form, Notice of Annual Meeting of Shareholders, and Proxy Circular are available on the Company’s website at www.homecapital.com and on the Canadian Securities Administrators’ website at www.sedar.com.

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 residential and non-residential mortgage lending, securitization of insured residential mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through a direct to consumer brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, Home Bank. Licensed to conduct business across Canada, we have offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.

Jill MacRae
Director, Investor Relations
(416) 933-4991
Jill.MacRae@hometrust.ca

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