HCG Home Capital Group Inc

Full year earnings per share growth of 38%, adjusted earnings per share growth of 50%

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, 2019. This press release should be read in conjunction with the Company’s 2019 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.

“Home Capital delivered a strong finish in the fourth quarter,” said Yousry Bissada, Chief Executive Officer. “2019 was a productive year across all our core businesses. Our continued commitment to providing excellent service to our partners and our customers, while investing in our Home Trust Ignite Program, has made Home Capital a stronger and more responsive company. We look forward to continuing our progress in 2020.”

Net Income: $2.29 per share in 2019 up 38.0% from $1.66 in 2018

• Net income of $136.0 million or $2.29 per share in 2019, compared with $132.6 million or $1.66 per share in 2018. Fourth quarter net income of $37.2 million or 65 cents per share, compared with $39.0 million or 67 cents per share for Q3 2019 and $35.8 million or 46 cents per share for Q4 2018.

• Adjusted net income of $148.0 million or $2.49 per share in 2019, up 50.0% from $1.66 per share in 2018. Fourth quarter adjusted net income of $41.2 million or 72 cents per share, consistent with 72 cents per share in Q3 2019 and up 56.5% from 46 cents per share in Q4 2018. Results are adjusted for items of note related to implementing our Ignite Program.

• Net interest margin of 2.16% in 2019 compared with 1.99% in 2018. Net interest margin of 2.31% in Q4 2019 compared with 2.22% in Q3 2019 and 1.99% in Q4 2018.

• Non-interest expenses of $250.5 million in 2019 compared with $218.1 million in 2018. Fourth quarter non-interest expenses of $68.9 million, compared with $59.9 million in Q3 2019 and $55.7 million in Q4 2018.

Asset Growth: Positive year-over-year growth in 2019 mortgage originations of 4.0% and total loan portfolio of 5.5%

• Mortgage originations of $5.66 billion in 2019 compared with $5.44 billion in 2018. Mortgage originations of $1.62 billion in Q4 2019, compared with $1.55 billion in Q3 2019 and $1.61 billion in Q4 2018.

• Single-family mortgage originations of $4.38 billion in 2019 compared with $4.00 billion in 2018. Single-family mortgage originations of $1.21 billion in Q4 2019, compared with $1.19 billion in Q3 2019 and $1.16 billion in Q4 2018.

• Total loan portfolio of $17.15 billion at the end of 2019, an increase of 5.5% from the end of 2018 and 0.9% from the end of Q3 2019.

• Loans under administration of $22.96 billion at the end of 2019, up 0.1% from the end of 2018 and down 0.1% from the end of Q3 2019.

Funding: Deposits through our Oaken channel of $3.37 billion

• Total deposits of $13.72 billion at the end of 2019, compared with $12.98 billion at the end of 2018 and $13.52 billion at the end of Q3 2019.

• Total Oaken deposits of $3.37 billion at the end of 2019, an increase of 25.7% from the end of 2018 and 3.1% from the end of Q3 2019.

• Oaken’s share of total deposits was 24.6% at the end of 2019 compared with 20.7% at the end of 2018 and 24.2% at the end of Q3 2019.

Credit Quality: Credit provisions of 0.12% of gross loans in 2019 compared with 0.13% in 2018

• Total provision for credit losses ("PCL") of $19.8 million in 2019 compared to $20.4 million in 2018. PCL of $3.9 million in Q4 2019, compared with $3.7 million in Q3 2019 and $3.9 million in Q4 2018.

• Provisions expense of 0.12% of gross loans in 2019 compared to 0.13% in 2018. Provisions expense of 0.09% of gross loans in Q4 2019, compared to 0.09% in Q3 2019 and 0.10% in Q4 2018.

• Net write-offs as a percentage of gross loans of 0.05% in 2019 compared to 0.06% in 2018. Net write-offs as a percentage of gross loans of 0.04% in Q4 2019, compared to 0.06% in Q3 2019 and 0.13% in Q4 2018.

• Net non-performing loans (represented by Stage 3 loans under IFRS 9) as a percentage of gross loans at 0.44% at the end of 2019, compared with 0.47% at the end of 2018 and 0.49% at the end of Q3 2019.

Return of Capital to Shareholders

On January 17, 2020, The Toronto Stock Exchange approved the renewal of our Normal Course Issuer Bid (“NCIB”). Under the terms of the NCIB, Home Capital may purchase for cancellation up to 5,266,187 of its common shares, commencing on January 22, 2020. Purchases under the NCIB will terminate on January 21, 2021 or once the full purchase allotment has been completed.

The Company continues to be well capitalized and believes there are still significant opportunities to repurchase shares below their intrinsic value and will focus on returning capital to shareholders through our NCIB or another Substantial Issuer Bid.

Outlook

Home Capital expects that the stable conditions that characterized the Canadian housing market for 2019 will persist through the beginning of 2020. “We made a lot of progress in 2019 through the consistent execution of our strategy,” said Mr. Bissada. “In 2020 we believe we have an opportunity to build on that progress by continuing to invest in service and innovation with the goal of creating long-term sustainable value.”

Fourth Quarter 2019 Results Conference Call and Slide Presentation Webcast

The conference call will take place on Friday, February 21, 2020, at 8:00 a.m. ET. Participants are asked to call approximately 10 minutes in advance at toll-free 1-844-899-4831 throughout North America. Participants calling from outside of North America may dial 1-647-689-5401 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 11:00 a.m. ET Friday, February 21, 2020 and midnight ET Friday, February 28, 2020 by calling 1-800-585-8367 (enter passcode 5606508). 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

 

For the year ended

(000s, except Percentage and Per Share Amounts)

December 31

 

September 30

December 31

December 31

December 31

 

2019

2019

2018

2019

2018

INCOME STATEMENT HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

$

 

109,887

 

$

 

103,048

 

$

 

90,324

 

$

 

402,247

 

$

 

352,400

 

Net Interest Margin (TEB1)

 

2.31

%

 

2.22

%

 

1.99

%

 

2.16

%

 

1.99

%

Efficiency Ratio (TEB1)

 

55.6

%

 

51.3

%

 

51.3

%

 

54.9

%

 

52.0

%

Adjusted Efficiency Ratio (TEB1)2

 

51.3

%

 

47.8

%

 

51.3

%

 

51.3

%

 

52.0

%

 

 

 

 

 

 

 

 

 

 

 

Provision as a Percentage of Gross Loans (annualized)

 

0.09

%

 

0.09

%

 

0.10

%

 

0.12

%

 

0.13

%

Net Write-Offs as a Percentage of Gross Loans (annualized)

 

0.04

%

 

0.06

%

 

0.13

%

 

0.05

%

 

0.06

%

 

 

 

 

 

 

 

 

 

 

 

Net Income

$

 

37,236

 

$

 

39,020

 

$

 

35,811

 

$

 

135,986

 

$

 

132,603

 

Adjusted Net Income2

 

41,153

 

 

41,953

 

 

35,811

 

 

147,979

 

 

132,603

 

Diluted Earnings per Share

$

 

0.65

 

$

 

0.67

 

$

 

0.46

 

$

 

2.29

 

$

 

1.66

 

Adjusted Diluted Earnings per Share2

 

0.72

 

 

0.72

 

 

0.46

 

 

2.49

 

 

1.66

 

Return on Shareholders' Equity (annualized)

 

9.0

%

 

9.5

%

 

8.1

%

 

8.2

%

 

7.7

%

Adjusted Return on Shareholders' Equity (annualized)2

 

9.9

%

 

10.2

%

 

8.1

%

 

8.9

%

 

7.7

%

ORIGINATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Mortgage Originations

$

 

1,619,890

 

$

 

1,545,364

 

$

 

1,614,164

 

$

 

5,657,975

 

$

 

5,439,393

 

Single-Family Residential Mortgage Originations

 

1,206,791

 

 

1,186,968

 

 

1,160,051

 

 

4,377,349

 

 

3,995,078

 

 

 

 

 

 

 

 

As at

 

 

 

 

 

December 31

 

September 30

December 31

 

 

 

 

 

2019

2019

2018

 

 

 

 

BALANCE SHEET HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

$

 

19,157,597

 

$

 

18,934,256

 

$

 

18,141,689

 

 

 

 

 

Total Assets Under Administration3

 

24,792,643

 

 

24,776,872

 

 

24,680,225

 

 

 

 

 

Total Loan Portfolio4

 

17,153,810

 

 

16,994,631

 

 

16,264,387

 

 

 

 

 

Total Loans Under Administration3

 

22,955,512

 

 

22,968,969

 

 

22,933,274

 

 

 

 

 

Deposits

 

13,716,306

 

 

13,520,776

 

 

12,977,090

 

 

 

 

 

FINANCIAL STRENGTH

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Measures5

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital Ratio

 

17.64

%

 

19.67

%

 

18.94

%

 

 

 

 

Leverage Ratio

 

7.07

%

 

7.80

%

 

7.54

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality

 

 

 

 

 

 

 

 

 

 

Net Non-Performing Loans as a Percentage of Gross Loans

 

0.44

%

 

0.49

%

 

0.47

%

 

 

 

 

NPL Allowance as a Percentage of Gross NPL6

 

25.2

%

 

23.6

%

 

19.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Information

 

 

 

 

 

 

 

 

 

 

Book Value per Common Share

$

 

29.33

 

$

 

28.64

 

$

 

26.43

 

 

 

 

 

Number of Common Shares Outstanding

 

57,346

 

 

57,331

 

 

62,065

 

 

 

 

 

1

See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company’s 2019 Annual and Fourth Quarter Consolidated Financial Report.

2

See definition of Adjusted Efficiency Ratio, Adjusted Net Income, Adjusted Diluted Earnings per Share, and Adjusted Return on Shareholders’ Equity under Non-GAAP Measures in the Company’s 2019 Annual and Fourth Quarter Consolidated Financial Report and the Reconciliation of Net Income to Adjusted Net Income in Tables 2 and 24 of the Company’s 2019 Annual and Fourth Quarter Consolidated Financial Report.

3

Total assets and loans under administration include both on- and off-balance sheet amounts. Total on-balance sheet loans include loans held for sale and are presented gross of allowance for credit losses.

4

Total loan portfolio is presented gross of allowance for credit losses and excludes loans held for sale.

5

These figures relate to the Company’s operating subsidiary, Home Trust Company.

6

NPL indicates non-performing loans, defined as Stage 3 loans under IFRS 9 Financial Instruments. See definition of impaired or non-performing loans under Glossary of Terms in the Company’s 2019 Annual and Fourth Quarter Consolidated Financial Report.

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 2019 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 2019 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 2020 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 2020, management continues to assume:

• The Canadian economy is expected to be relatively stable in 2020. However, it will continue to be influenced by economic conditions in the United States and global markets, including the impact from trade relations; the Company is prepared for 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 overnight interest rate will remain stable in 2020.
• 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 2020 Outlook in the Company’s 2019 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 2020; however, high levels of consumer debt make the economy more vulnerable in the event of an increase in 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 2019 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 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.

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