Home Capital Reports Third Quarter 2020 Results

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Nov 11, 2020 06:00 am
TORONTO -- 

Home Capital Group Inc. (“Home Capital” or “the Company”) (TSX: HCG) today reported financial results for the three and nine months ended September 30, 2020. This press release should be read in conjunction with the Company’s 2020 Third Quarter 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.

“We are proud to support our customers and partners through these exceptional circumstances, while making progress on our Ignite Program and improving our operating performance,” said Yousry Bissada, Chief Executive Officer. “We have grown our mortgage originations, improved our net interest margin and prudently managed expenses.”

Net Income: $1.12 per share in Q3 2020 compared with $0.67 in Q3 2019

  • Net income of $58.5 million or $1.12 per share in Q3 2020, up 72.3% compared to $0.65 per share in Q2 2020 and up 67.2% from $0.67 per share in Q3 2019. Net income was $34.1 million in Q2 2020 and $39.0 million in Q3 2019.
  • Adjusted net income of $61.6 million or $1.18 per share in Q3 2020, up 68.6% from $0.70 per share in Q2 2020 and up 63.9% from $0.72 per share in Q3 2019. Results are adjusted for items of note related to implementing our Ignite Program.
  • Net interest margin of 2.51% in Q3 2020, compared with 2.40% in Q2 2020 and 2.22% in Q3 2019.
  • Non-interest expenses of $64.5 million, compared with $66.9 million in Q2 2020 and $59.9 million in Q3 2019.

Asset Growth: Mortgage originations grew by 26.6% over Q3 2019

  • Mortgage originations of $1.96 billion in Q3 2020, compared with $1.50 billion in Q2 2020 and $1.55 billion in Q3 2019.
  • Single-family mortgage originations of $1.50 billion in Q3 2020, compared with $1.13 billion in Q2 2020 and $1.19 billion in Q3 2019.
  • Total loan portfolio of $17.44 billion at the end of Q3 2020, an increase of 1.3% from the end of Q2 2020 and an increase of 2.6% from the end of Q3 2019.
  • Loans under administration of $23.06 billion at the end of Q3 2020, up 0.8% from the end of Q2 2020 and up 0.4% from the end of Q3 2019.

Funding: Deposits through our Oaken channel of $3.87 billion make up 27.7% of total deposits

  • Total deposits of $13.96 billion at the end of Q3 2020, compared with $14.01 billion at the end of Q2 2020 and $13.52 billion at the end of Q3 2019.
  • Total Oaken deposits of $3.87 billion at the end of Q3 2020, an increase of 5.3% from the end of Q2 2020 and an increase of 18.3% from the end of Q3 2019.
  • Oaken’s share of total deposits was 27.7% at the end of Q3 2020, compared with 26.2% at the end of Q2 2020 and 24.2% at the end of Q3 2019.

Credit Quality: Credit provisions of (0.16)% of gross loans compared with 0.43% in Q2 2020 and 0.09% in Q3 2019

  • Total provision for credit losses (“PCL”) was a release of $7.0 million, compared with provision for credit losses of $18.7 million in Q2 2020 and $3.7 million in Q3 2019.
  • Allowance for credit losses of 0.45% of gross loans, compared with 0.63% at the end of Q2 2020 and 0.36% at the end of Q3 2019.
  • Net write-offs as a percentage of gross loans of 0.55% in Q3 2020, compared to 0.02% in Q2 2020 and 0.06% in Q3 2019.
  • Net non-performing loans (represented by Stage 3 loans under IFRS 9) were 0.47% of gross loans at the end of Q3 2020, compared with 0.42% at the end of Q2 2020 and 0.49% at the end of Q3 2019.
  • Residential mortgage and other loan deferrals consist of 701 loans with a balance of $343.9 million as at the end of Q3 2020 and 335 loans with a balance of $146.1 million as at October 31, 2020. Loan deferrals consisted of 3,932 loans with a balance of $1,817.4 million at the end of Q2 and 2,698 loans with a balance of $1,299.0 million at the end of July 2020.

Outlook

Home Capital believes that the impact of COVID-19 on its operations will depend on the duration of COVID-19 related restrictions on economic activity, the effectiveness of relief programs at mitigating the economic effects on our customers and the resulting impact on the markets for real estate and consumer credit. The allowance for expected credit losses (“ECL”) is sensitive to the inputs used in models, including macroeconomic variables in the forward-looking scenarios and their respective probability weightings as at the reporting date, among other factors. The Company’s ECL was determined as of September 30, 2020 based on forecasts and other information available at that date, as IFRS 9 does not permit the use of hindsight in measuring ECL. Since that date, forecasts around the impact of COVID-19 on the economy and the timing of recovery have continued to evolve. Any changes in forward-looking information subsequent to September 30, 2020 will be reflected in the measurement of ECL in future quarters as appropriate. This may add significant volatility to ECL.

“Our people have worked effectively to manage through the effects of this pandemic and deliver on our strategic priorities. I thank our team for their hard work on behalf of all stakeholders,” said Mr. Bissada. “We have the capability, the financial strength, and the resolve to continue to fulfill our very important purpose of helping people own homes.”

Third Quarter 2020 Results Conference Call and Slide Presentation Webcast

The conference call will take place by webcast on Wednesday, November 11, 2020, at 8:00 a.m. EST. Participants may register in advance for the webcast by visiting: http://www.directeventreg.com/registration/event/5231238. 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. 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 nine months ended

(000s, except Percentage and Per Share Amounts)

 

September 30

 

June 30

 

September 30

 

September 30

 

September 30

 

 

2020

 

2020

 

2019

 

2020

 

2019

INCOME STATEMENT HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

$

121,085

 

$

115,815

 

$

103,048

 

$

351,352

 

$

292,360

Net Interest Margin (TEB1)

 

 

2.51%

 

 

2.40%

 

 

2.22%

 

 

2.43%

 

 

2.11%

Efficiency Ratio (TEB1)

 

 

47.2%

 

 

50.5%

 

 

51.3%

 

 

48.2%

 

 

54.7%

Adjusted Efficiency Ratio (TEB1)2

 

 

44.2%

 

 

47.9%

 

 

47.8%

 

 

45.5%

 

 

51.4%

 

 

 

 

 

 

 

 

 

 

 

Provision as a Percentage of Gross Loans (annualized)

 

 

(0.16)%

 

 

0.43%

 

 

0.09%

 

 

0.32%

 

 

0.12%

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

 

 

0.55%

 

 

0.02%

 

 

0.06%

 

 

0.20%

 

 

0.06%

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

58,499

 

$

34,132

 

$

39,020

 

$

120,347

 

$

98,750

Adjusted Net Income2

 

 

61,574

 

 

36,648

 

 

41,953

 

 

128,098

 

 

106,826

Diluted Earnings per Share

 

$

1.12

 

$

0.65

 

$

0.67

 

$

2.28

 

$

1.64

Adjusted Diluted Earnings per Share2

 

 

1.18

 

 

0.70

 

 

0.72

 

 

2.43

 

 

1.78

Return on Shareholders' Equity (annualized)

 

 

14.7%

 

 

8.9%

 

 

9.5%

 

 

9.7%

 

 

8.0%

Adjusted Return on Shareholders’ Equity (annualized)2

 

 

15.5%

 

 

9.5%

 

 

10.2%

 

 

10.3%

 

 

8.7%

ORIGINATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Mortgage Originations

 

$

1,956,122

 

$

1,495,173

 

$

1,545,364

 

$

5,068,507

 

$

4,038,085

Single-Family Residential Mortgage Originations

 

 

1,502,757

 

 

1,127,846

 

 

1,186,968

 

 

3,680,358

 

 

3,170,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

 

 

September 30

 

June 30

 

September 30

 

 

 

 

 

 

2020

 

2020

 

2019

 

 

 

 

BALANCE SHEET HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

19,235,828

 

$

19,153,701

 

$

18,934,256

 

 

 

 

Total Assets Under Administration3

 

 

24,805,110

 

 

24,665,030

 

 

24,776,872

 

 

 

 

Total Loan Portfolio4

 

 

17,436,899

 

 

17,207,847

 

 

16,994,631

 

 

 

 

Total Loans Under Administration3

 

 

23,063,012

 

 

22,875,730

 

 

22,968,969

 

 

 

 

Deposits

 

 

13,959,124

 

 

14,010,512

 

 

13,520,776

 

 

 

 

FINANCIAL STRENGTH

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Measures5

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital Ratio

 

 

19.35%

 

 

18.48%

 

 

19.67%

 

 

 

 

Leverage Ratio

 

 

7.59%

 

 

7.38%

 

 

7.80%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality

 

 

 

 

 

 

 

 

 

 

Net Non-Performing Loans as a Percentage of Gross Loans

 

 

0.47%

 

 

0.42%

 

 

0.49%

 

 

 

 

NPL Allowance as a Percentage of Gross NPL6

 

 

21.2%

 

 

31.0%

 

 

23.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Information

 

 

 

 

 

 

 

 

 

 

Book Value per Common Share

 

$

31.28

 

$

30.11

 

$

28.64

 

 

 

 

Number of Common Shares Outstanding

 

 

51,812

 

 

51,805

 

 

57,331

 

 

 

 

1 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company’s 2020 Third Quarter 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 2020 Third Quarter Report and the Reconciliation of Net Income to Adjusted Net Income in Table 1 of the Company’s 2020 Third Quarter 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 2020 Third Quarter 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 2020 Third Quarter 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 2020 Third Quarter 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, the impacts of the novel coronavirus disease (COVID-19) pandemic and government responses to it, 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, climate change, 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 made certain assumptions about the Canadian economy, employment conditions, interest rates, levels of housing activity, household debt service levels and the Company’s continued access to broker mortgage and deposit markets. These assumptions are discussed in greater detail in the Company’s 2019 Annual Report.

The global pandemic related to the outbreak of COVID-19 resulted in significant changes to these assumptions. Updated forward-looking macroeconomic assumptions have been incorporated into the models used in the Company’s expected credit loss estimation process. Please see note 5(C) to the unaudited interim consolidated financial statements included in the 2020 Third Quarter Report for more information on these assumptions. The full extent of the impact that COVID-19, including government and/or regulatory responses to the outbreak, will have on the Canadian economy and the Company’s business remains uncertain and difficult to predict. Please see the Impact of COVID-19, the Outlook and the Risk Management sections in the 2020 Third Quarter Report for more information.

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. 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 2020 Third Quarter 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.

FOR FURTHER INFORMATION:
Jill MacRae
Director, Investor Relations
(416) 933-4991
[email protected]

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