Mr. Gerald Soloway reports
HOME CAPITAL REPORTS CONTINUED STRONG EARNINGS
Home Capital Group Inc. had another quarter of strong earnings. This press release should be read in conjunction with the company's first-quarter report, including financial statements and management's discussion and analysis, which are available on Home Capital's website and the Canadian Securities Administrators' website on SEDAR.
FINANCIAL HIGHLIGHTS
(000s, except percentage, multiples and per-share amounts)
For the three months ended
March 31, Dec. 31, March 31,
2015 2014 2014
Operating results
Net income $ 72,286 $ 95,936 $ 69,736
Adjusted net income (1) 72,286 71,917 69,736
Net interest income 115,524 116,416 110,387
Total adjusted revenue (1) 249,232 251,917 247,900
Diluted earnings per share $ 1.03 $ 1.36 $ 1.00
Adjusted diluted earnings per share (1) $ 1.03 $ 1.02 $ 1.00
Return on shareholders' equity 19.7% 27.2% 23.1%
Adjusted return on shareholders' equity (1) 19.7% 20.4% 23.1%
Return on average assets 1.4% 1.9% 1.4%
Net interest margin (TEB) (2) 2.28% 2.27% 2.19%
Provision as a percentage of gross uninsured loans (annualized) 0.07% 0.09% 0.11%
Provision as a percentage of gross loans (annualized) 0.05% 0.07% 0.07%
Efficiency ratio (TEB) (2) 30.4% 22.9% 28.5%
Adjusted efficiency ratio (TEB)(1)(2) 30.4% 28.2% 28.5%
(1) The company has redefined its definition of adjusted net income, total adjusted revenue, adjusted
diluted earnings per share, adjusted return on shareholders' equity and adjusted efficiency ratio.
See the definitions under non-generally accepted accounting principles measures in the unaudited
interim consolidated financial report.
(2) See definition of taxable equivalent basis (TEB) under non-GAAP measures in the unaudited interim
consolidated financial report.
First-quarter 2015 highlights
Key results for the first quarter of 2015 included:
- Net income of $72.3-million increased 0.5 per cent from adjusted net income of $71.9-million in fourth quarter 2014 (as defined in the non-GAAP measures section of the unaudited interim consolidated financial report) and 3.7 per cent over first-quarter 2014 net income of $69.7-million.
- Diluted earnings per share were $1.03 for the quarter, representing an increase of 1.0 per cent over the adjusted diluted earnings per share of $1.02 last quarter and an increase of 3.0 per cent over the $1 earned in the comparable period of 2014.
- Return on average shareholders' equity of 19.7 per cent remained solid for the quarter.
- Total net interest income increased to $115.5-million, up $5.1-million or 4.7 per cent over the $110.4-million earned in the comparable period of 2014 and down $900,000 or 0.8 per cent over last quarter, reflecting increases in non-securitized net interest income combined with expected decreases in securitized net interest income in line with the decreasing on-balance-sheet securitized portfolio. Net interest margin (TEB) of 2.28 per cent was up compared with 2.19 per cent in first quarter 2014 and 2.27 per cent in fourth quarter 2014, reflecting lower average deposit rates resulting from declining interest rates.
- Net interest income on non-securitized assets was $110.8-million in first quarter 2015, increasing from $102.8-million in the comparable quarter of 2014 and $109.6-million last quarter on higher average balances. Net interest margin (TEB) on this portfolio was 2.81 per cent for first quarter 2015, down from 2.91 per cent in first quarter 2014 and up from 2.79 per cent in fourth quarter 2014. The decrease in net interest margin over the comparable period of 2014 reflects higher average credit quality on new originations over the past year-end. The improvement from last quarter was driven by the decrease in average deposit rates.
- Total income earned from securitization, which includes net interest income on the on-balance-sheet portfolio and securitization income from off-balance-sheet sales, was $10.1-million for first quarter 2015 compared with $16.3-million in first quarter 2014 and $11.8-million in fourth quarter 2014. Securitization income includes gains of $4.4-million in first quarter 2015 on $429.7-million in notional sales, compared with gains of $7.9-million on $697.7-million of notional sales in first quarter 2014 and gains of $4.4-million on $612.8-million of notional sales in fourth quarter 2014. Net interest income on the on-balance-sheet securitized portfolio declined to $4.7-million for the quarter from $7.5-million in first quarter 2014 and $6.8-million in fourth quarter 2014. The decline reflects the continued net runoff and the maturity of higher-yielding MBS (motrgage-backed security) and CMB (Canada mortgage bond) pools, and the use of lower-yielding assets as replacement assets in the CMB program.
- The credit quality of the loan portfolio remains very strong with low non-performing loans and credit losses. Provisions for credit losses were $2.4-million for the quarter, a decrease from the $3.2-million recorded both last quarter and in the comparable period of 2014. The provision as a percentage of gross uninsured loans was 0.07 per cent in the quarter on an annualized basis, down from 0.09 per cent last quarter and 0.11 per cent in first quarter 2014. Net non-performing loans as a percentage of gross loans (NPL ratio) ended the quarter at 0.25 per cent, compared with 0.30 per cent at the end of last quarter and 0.33 per cent one year ago.
- Home Trust's capital levels remained strong, as indicated by the common equity Tier 1 ratio of 17.95 per cent, and the Tier 1 and total capital ratios of 17.94 per cent and 20.50 per cent, respectively, at March 31, 2015. Effective Jan. 1, 2015, the assets to regulatory capital multiple was replaced by the Basel III leverage ratio prescribed by the Office of the Superintendent of Financial Institutions. The leverage ratio at March 31, 2015, was 6.75.
- Total assets under administration surpassed $25-billion in the quarter. Total loans under administration, including off-balance-sheet mortgages, increased by $178.9-million in first quarter 2015 to $22.74-billion from $22.56-billion in fourth quarter 2014 and increased 11.1 per cent from $20.48-billion one year ago.
- Total first-quarter 2015 mortgage originations were $1.38-billion for first quarter 2015, compared with $2.29-billion for fourth quarter 2014 and $1.68-billion for first quarter 2014. The first quarter was characterized by a traditionally slow real estate market, exacerbated by very harsh winter conditions. The company has remained cautious in light of continued macroeconomic conditions and continues to perform continuing reviews of its business partners, ensuring that quality is within the company's risk appetite. During first quarter 2015, the company launched the first phase of a new originations technology platform, which will allow the company to increase its capacity and operational efficiency to support future growth of its loans portfolio.
- Traditional (uninsured single-family) residential mortgage originations were a seasonally lower $960-million in first quarter 2015, compared with $1.48-billion in fourth quarter 2014 and $1.07-billion in the comparable period of 2014. The company remains focused on growing its traditional residential mortgage lending portfolio. Traditional originations remain healthy, as the company continues to originate new mortgages with sustainable credit profiles.
- Accelerator (insured single-family) residential mortgage originations were $180.0-million for the quarter, down from $353.0-million in fourth quarter 2014 and $289.5-million in first quarter 2014. The company views the market for insured prime mortgages as continuing to be highly competitive especially in the traditional home buying seasons, and therefore applies a conservative approach to growing the Accelerator business.
- Multiunit residential mortgage originations were $103.0-million in first quarter 2015, compared with $299.5-million last quarter and $213.6-million in the comparable period of 2014. Multiunit residential mortgage originations are mostly insured and subsequently securitized through programs that qualify for off-balance-sheet accounting, resulting in a portion of the securitization gains discussed above.
- Commercial mortgage and other loan advances, which include store and apartments, were $139.6-million in first quarter 2015, compared with $153.4-million last quarter and $99.6-million in the comparable period of 2014.
- Consumer retail advances, including durable household goods, such as water heaters and larger-ticket home improvement items, were $35.5-million in first quarter 2015, down from $45.7-million at the end of last quarter and up from $27.2-million one year ago. First-quarter 2015 advances have decreased, as periods prior to first quarter 2015 include loans originated as part of the water heater portfolio sold in fourth quarter 2014. The company continues to focus on building this business following the sale of the portfolio.
- Total deposits reached $14.74-billion, up 5.8 per cent from the end of 2014 and 12.7 per cent from one year ago. Total deposits raised through the company's deposit diversification initiatives, Oaken Financial, high-interest savings accounts and institutional deposits now total $2.83-billion, an increase of $409.3-million or 16.9 per cent over fourth quarter 2014 and $1.72-billion or 255.6 per cent over one year ago.
Subsequent to the end of the quarter, the board of directors approved a quarterly dividend of 22 cents per common share, payable on June 1, 2015, to shareholders of record at the close of business on May 15, 2015.
The continued depressed oil prices increased the uncertainty with respect to Canada's economic performance during the first quarter of 2015. Recently the economic outlook for Canada has brightened somewhat with a stronger view for the economy based upon the recent rally in oil prices, and the Bank of Canada providing an opinion that the impact of the oil shock may have been felt early and things may improve from here on out. The company's exposure to the energy-producing regions of Canada (Alberta, Saskatchewan, and Newfoundland and Labrador) continues to remain low at 4.2 per cent of its uninsured loans with an average loan to value (LTV) of 55.7 per cent. Given its limited exposure, current performance and continuing lending practices, the company does not expect a significant increase in its credit losses from these regions. The company expects that its portfolios in Ontario and the rest of Canada, which represent 95.8 per cent of the uninsured portfolios, will continue to experience relatively low credit losses, even with the near-term moderately negative economic conditions, given the current low-interest-rate environment and the expectation that housing prices will remain relatively stable or experience only modest declines.
The company is focusing on its medium-term objectives introduced in the 2014 annual report in order to continue to provide shareholder value by generating sustainable earnings growth, maintaining a strong capital base commensurate with its risk profile and generating solid returns for its shareholders. These objectives will be achieved through continued focus and prudent lending in the company's traditional mortgage portfolio. Despite a challenging and uncertain economic environment to start the year, the company has achieved solid performance, while building a high-quality loan portfolio. The company anticipates continued and sustainable demand for its lending products as the year progresses, and it expects that it will continue to increase its market share through its broker network and business development programs.
The company continues to deliver solid results in terms of growth, returns and dividends. Despite the challenges facing the Canadian economic climate, the company's performance continues to reflect the strength and the successful execution of its core strategy.
Additional information concerning the company's targets and related expectations for 2015, 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 7, 2015, at 10:30 a.m. Participants are asked to call five 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.
Conference call archive
A telephone replay of the call will be available between 1:30 p.m., Thursday, May 7, 2015, and midnight, Thursday, May 14, 2015, by calling 416-849-0833 or 1-855-859-2056 (enter passcode 21685791). The archived audio webcast will be available for 90 days on Home Capital's website.
Supplemental financial information
Home Capital has provided a supplemental financial information package available at the company's website to improve readers' understanding of the financial position and performance of the company. This information should be used in conjunction with the company's first-quarter unaudited interim consolidated financial report, as well as the company's 2014 annual report.
Annual and special meeting notice
The annual and special meeting of shareholders of Home Capital Group will be held at One King West, Grand Banking Hall, Toronto, Ont., on Wednesday, May 13, 2015, at 11 a.m. local time. Shareholders and guests are invited to join directors and management for lunch and refreshments following the annual and special meeting. All shareholders are encouraged to attend.
CONSOLIDATED STATEMENTS OF INCOME
(thousands of dollars, except per-share amounts)
For the three months ended
March 31, Dec. 31, March 31,
2015 2014 2014
Net interest income non-securitized assets
Interest from loans $ 186,900 $187,272 $171,243
Dividends from securities 2,738 2,842 2,731
Other interest 2,108 2,482 3,466
191,746 192,596 177,440
Interest on deposits and other 79,395 81,326 73,022
Interest on senior debt 1,544 1,660 1,580
Net interest income non-securitized assets 110,807 109,610 102,838
Net interest income securitized loans and assets
Interest income from securitized loans and assets 30,394 35,559 45,275
Interest expense on securitization liabilities 25,677 28,753 37,726
Net interest income securitized loans and assets 4,717 6,806 7,549
Total net interest income 115,524 116,416 110,387
Provision for credit losses 2,403 3,186 3,205
113,121 113,230 107,182
Non-interest income
Fees and other income 21,219 18,272 16,794
Securitization income 5,409 4,956 8,730
Prepayment income on portfolio sale - 32,675 -
Net realized and unrealized gains on securities 1,444 965 752
Net realized and unrealized losses on derivatives (980) (431) (1,091)
27,092 56,437 25,185
140,213 169,667 132,367
Non-interest expenses
Salaries and benefits 22,014 20,156 20,208
Premises 3,134 3,213 2,755
Other operating expenses 18,515 16,520 15,977
43,663 39,889 38,940
Income before income taxes 96,550 129,778 93,427
Income taxes
Current 24,551 32,539 25,113
Deferred (287) 1,303 (1,422)
24,264 33,842 23,691
Net income $ 72,286 $ 95,936 $ 69,736
Net income per common share
Basic $ 1.03 $ 1.37 $ 1.00
Diluted $ 1.03 $ 1.36 $ 1.00
Book value per common share $ 21.18 $ 20.67 $ 17.82
We seek Safe Harbor.
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