Mr. Gerald Soloway reports
HOME CAPITAL REPORTS STRONG EARNINGS AND DIVIDEND INCREASE
Home Capital Group Inc. has had 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 and the Canadian securities administrators' website.
FINANCIAL HIGHLIGHTS
(in thousands of dollars, except per-share and percentage amounts)
For the three months ended For the six months ended
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 share(1) $ 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%
(1) During the first quarter of 2014, the company paid a stock dividend of one common share
per 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.
(2) See definition of taxable-equivalent basis (TEB) under non-generally accepted accounting
principles measures of the unaudited interim consolidated financial report.
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 per cent and 18.3 per cent
from the comparable periods of 2013 and 5.7 per cent over the first quarter of 2014.
-
Diluted earnings per share were $1.05 for the quarter and $2.04 year to
date, representing increases of 19.3 per cent and 17.2 per cent over the 88 cents and
$1.74 earned in the comparable periods of 2013 and 5 per cent over the $1
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 per cent 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 per cent
and 16 per cent from the comparable periods of 2013 and up 2 per cent 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.
-
Net interest margin (taxable-equivalent basis) was 2.26 per cent in the quarter and 2.23 per cent year to
date, up from 2.14 per cent and 2.15 per cent in the comparable periods of 2013 and up
from 2.19 per cent last quarter. Net interest margin (taxable-equivalent basis) continues to be
favourably influenced by the relative shift to higher-yielding
mortgages on the 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 multiunit 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 with $500,000 and $2-million in the comparable periods of 2013 and $8.7-million last quarter.
-
Return on equity was strong at 23.1 per cent for the quarter and 23 per cent for the
first six months of 2014 and continues to be in excess of the company's
minimum performance objective of 20 per cent.
-
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 per cent
compared with 0.33 per cent at the end of last quarter, 0.35 per cent at the end of 2013
and 0.31 per cent one year ago. Included in the non-performing loans is an
insured multiunit residential property with an outstanding amount of
$9.7-million, where the company expects no losses. In the absence of
this fully insured CMHC (Canada Mortgage and Housing Corporation) loan, the NPL ratio would have been 0.26 per cent. The
annualized credit provision as a percentage of gross uninsured loans of
0.10 per cent has decreased from 0.11 per cent in the first quarter of 2014 and 0.17 per cent in Q2 2013,
reflecting lower individual provisions and remains below the target
range of 0.15 per cent to 0.25 per cent.
-
Capital ratios remain high with Home Trust's common equity Tier 1 ratio
(CET 1 ratio), ending the quarter at 17.45 per cent, while Tier 1 and total
capital ratios were 17.45 per cent and 20.2 per cent, respectively. Home Trust's
assets-to-capital multiple (ACM) was 13.04 at the end of the quarter
compared with 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 $2.4-billion or 12.7 per cent and an increase of $1.29-billion or 6.5 per cent from $19.94-billion at the end of 2013 (13 per cent on an annualized basis).
-
Total mortgage originations reflected very strong activity in the
quarter, reaching $2.33-billion and increasing by 39 per cent from $1.68-billion last quarter and 42.7 per cent from $1.63-billion in the same quarter
last year. Year-to-date mortgage originations of $4.01-billion
increased 33 per cent 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 per cent to
$1.53-billion from $1.24-billion in the same quarter of 2013 and also
increased 42.5 per cent from $1.07-billion in a seasonally slower the first quarter of 2014.
Year-to-date traditional mortgage originations increased 16.7 per cent to $2.6-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 the second quarter of 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 per cent. The favourable regulatory
ruling regarding the sale of residual interests in the third quarter of 2013 led the
company to increase its activity in insured lending during the second
half of 2013 and into 2014.
-
Multiunit residential mortgage originations were $64.5-million in the
quarter and $278.1-million year to date compared with $54.3-million and
$257-million in the comparable periods of 2013 and $213.6-million
last quarter. Multiunit 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 with $54.2-million and
$92.7-million in the comparable periods of 2013 and $72-million last
quarter. Store and apartment mortgage advances were $37.7-million in
the quarter and $65.3-million year to date compared with $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-million at the end of the second quarter of 2014, up
3.5 per cent from $346.9-million at the end of last quarter, up 5.6 per cent from
$340-million at the end of 2013 and up 15.5 per cent 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-million 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 per cent from last quarter, 7.7 per cent
from the end of 2013 and 23.1 per cent 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, the Oaken
Financial direct-to-consumer deposit brand and an institutional deposit
program. During the quarter, Oaken on-line 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 continuing 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 financing.
-
Oaken deposits at the end of the quarter increased by 22.6 per cent over the
balance last quarter, 55 per cent 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 on-line
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 per cent over $450.9-million
last quarter, an increase of 71.1 per cent 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 per cent to 18 cents per common share, payable on Sept. 1, 2014, to
shareholders of record at the close of business on Aug. 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.
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 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 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 at the company's website.
Conference call archive
A telephone replay of the call will be available between 1:30 p.m. on Thursday, July 31, 2014, and midnight on Thursday, Aug. 7, 2014, by
calling 416-849-0833 or 1-855-859-2056 (enter passcode 26905840). The
archived audio webcast will be available for 90 days on Home Capital's website.
Supplemental financial information
Home Capital has introduced 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 second quarter unaudited interim
consolidated financial report, as well as the company's 2013 annual
report.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per-share amounts)
For the three months ended For the six months ended
June 30, March 31, June 30, June 30, June 30,
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
Note: During the first quarter of 2014, the company paid a stock dividend of one common share per
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 the first quarter of 2014 presented for comparative purposes.
We seek Safe Harbor.
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