Q4 results outhttps://finance.yahoo.com/news/Home-Capital-Reports-Strong-cnw-616129918.html?x=0
FOURTH QUARTER AND 2011 HIGHLIGHTS
The Company continued its strong performance in the fourth quarter of 2011 and for the year. Key results for the fourth quarter of 2011 and the year are as follows:
- Net income was $50.3 million in the fourth quarter and $190.1 million for the year, while adjusted net income for 2011 was $192.5 million. Quarterly earnings increased by 47.1% over the $34.2 million adjusted net income recorded in the fourth quarter of 2010, and 2011 adjusted net income was 30.4% higher than 2010 adjusted net income. Sequentially in 2011, fourth quarter net income increased by 3.9% over third quarter net income. The annual results exceeded the Company's 2011 objective of 15% to 20% growth in adjusted net income over 2010, reflecting strong loan growth in the traditional portfolio, stable total net interest margin, low provisions for credit losses and a continued low efficiency ratio.
- Core earnings of $96.7 million (net interest income after provision plus fee and other income) was up by 1.8% over third quarter core earnings of $95.0 million and up 28.4% over 2010 fourth quarter core earnings of $75.3 million.
- Adjusted basic and diluted earnings per share were $1.45 for the fourth quarter and $5.55 and $5.53 for the year. This represents an increase of 46.5% and 48.0%, respectively, from
.99 and
.98 adjusted basic and diluted earnings per share in the fourth quarter of 2010 and an increase of 30.6% and 30.4%, respectively, over the $4.25 and $4.24 adjusted basic and diluted earnings per share earned in 2010. These results exceeded the Company's 2011 annual objective of 15% to 20% growth in diluted earnings per share.
- Adjusted return on equity was 26.7% in the quarter and 27.4% in 2011, well in excess of the Company's minimum performance objective of 20% for the fourteenth consecutive year and exceeding 25% for the ninth consecutive year.
- Net interest income rose to $88.4 million in the fourth quarter and to $334.0 million for the year. This represents an increase of 21.9% over the $72.5 million recorded in the fourth quarter of 2010 and 26.5% over the $264.0 million recorded for the 2010 year.
- Net interest margin was 2.06% in the fourth quarter and for the year 2011 compared to 1.99% in the fourth quarter of 2010 and 2.07% for the year 2010. Net interest margin was 2.14% in the third quarter of 2011. Total net interest margin is influenced by the mix of the loan portfolio between securitized and non-securitized mortgages and the net interest margin on each of these portfolios. Over 2011 the weighting of securitized mortgages has declined when compared to the weighting at the end of 2010. The net interest margin on the non-securitized portfolio has generally improved compared to 2010 and declined from the prior quarter, as the Company was holding higher liquidity earning a lower rate. The securitized portfolio net interest margin declined in the fourth quarter, compared to the prior quarter reflecting the maturity of higher-rate assets during the quarter.
- The credit quality of the loans portfolio remained solid in the fourth quarter and for the year. Net non-performing loans ended 2011 at 0.25% of the total loans portfolio compared to 0.24% at the end of 2010 and 0.32% at the end of the third quarter of 2011. The provision for credit losses for the fourth quarter was 0.07% of gross loans on an annualized basis and 0.05% for the year compared to 0.17% in the comparable quarter of 2010 and 0.07% in 2010 and 0.06% in the third quarter of 2011. 2011 results are within the Company's objective of 0.05% to 0.15% of gross loans.
- Home Trust's Tier 1 and Total Capital ratios were robust at 17.3% and 20.5%, respectively, at December 31, 2011 and well above the Company's minimum targets. Home Trust's asset to capital multiple was 14.4 at December 31, 2011 compared to 14.0 at September 30, 2011. Early in 2012 the Company provided Home Trust with an additional $45 million in subordinated debt, putting Home Trust and the Company in a position to continue growing assets, revenue and net income. These funds were from the Company's $150 million senior debt issue, of which $100 million was provided to Home Trust in 2011.
- Total assets grew to $17.70 billion at the end of 2011, an increase of $2.18 billion or 14.0% over the $15.52 billion at the end of 2010 and $624.3 million or 3.7% over the $17.07 billion at the end of the third quarter of 2011. Total loans increased by $2.00 billion in 2011 to $16.09 billion, representing growth of 14.2% over the $14.09 billion at the end of 2010. Total loans increased $307.0 million or 1.9% from the $15.78 billion at the end of the third quarter of 2011. Total assets and loan growth were within the Company's 2011 growth objective of 13% to 18%.
- The total value of mortgages originated in the fourth quarter of 2011 was $1.25 billion and $5.12 billion for the year, compared to $1.85 billion in the fourth quarter of 2010 and $6.87 billion in 2010. The year-over-year decrease in originations reflects the Company's strategy to shift origination focus from Accelerator (insured) mortgage products, which are generally securitized, to originations of higher yielding traditional mortgages. The regulatory and accounting treatment of Accelerator (insured) securitized mortgages upon adoption of International Financial Reporting Standards (IFRS) has introduced new capital constraints and effectively increased the cost of capital allocated to Accelerator mortgages. Consequently, the Company scaled back lending in this segment in favour of higher margin products within the Company's risk appetite. The Company continues to explore opportunities that may ultimately lead to future growth in originations of the Accelerator mortgage product.
- The Company originated $948.8 million of traditional mortgages in the fourth quarter and $3.51 billion for the year, compared to $683.5 million and $2.85 billion in the comparative periods of 2010 and $941.1 million in the third quarter of 2011.
- Accelerator (insured) mortgage originations were $188.5 million in the fourth quarter of 2011 and $1.10 billion for the year, compared to $755.6 million and $2.84 billion in the comparable periods of 2010 and $293.5 million in the third quarter of 2011.
- Multi-unit residential originations were $6.5 million for the fourth quarter of 2011 and $137.0 million year-to-date compared to $285.0 million and $766.5 million in the same periods of 2010 and $7.0 million in the third quarter of 2011. A significant portion of multi-unit residential mortgages originated in 2010 were insured and securitized, and the reduction in origination volume is a result of narrowing margins and the cost of increased capital required to support this product.
- Non-residential mortgage advances were $41.5 million in the fourth quarter of 2011 and $182.2 million for the year, compared to $72.9 million and $219.8 million in the comparable periods of 2010 and $32.4 million in the third quarter of 2011. The Company maintains a cautious approach to increases in this portfolio.
- Store and apartment advances were $35.5 million for the quarter and $123.0 million for the year, compared to $33.6 million and $108.8 million in the same periods of 2010 and $26.8 million in the third quarter of 2011.
- As a source of funding and replacement assets for the Canada Mortgage Bond (CMB) program, the Company securitized and sold $272.9 million in insured residential mortgages in the fourth quarter and $1.87 billion for the year compared to $1.86 billion in the fourth quarter of 2010 and $5.17 billion in 2010 and $396.8 million in the third quarter of 2011.
- The mortgage lending segment recorded net income of $42.7 million in the fourth quarter and $155.3 million for 2011, increasing from $25.6 million and $114.5 million in the comparable periods of 2010. This reflects strong originations in the traditional portfolio coupled with strong net interest margins in that portfolio. The securitized portfolio, while experiencing modest growth, continues to contribute to the net income of the segment.
- The consumer lending segment recorded net income of $7.6 million in the fourth quarter and $30.1 million for the year compared to $3.8 million and $24.7 million in the comparable periods of 2010. The segment's Equityline Visa product continued its strong performance, opening 1,814 new Equityline Visa accounts in the fourth quarter and 7,697 for the year compared to 1,864 accounts and 6,263 accounts opened in the comparable periods of 2010. The consumer lending segment also added $14.5 million in receivables in the retail credit portfolio in the fourth quarter and $57.1 million for the year, compared to $10.1 million and $77.4 million in the comparable periods of 2010. The 2010 retail credit receivables increased dramatically on the initiation of the water heater program.
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 declared a quarterly dividend of
.20 per Common share, payable on March 1, 2012 to shareholders of record at the close of business on February 23, 2012.
2012 Overall Outlook
Through 2011, the Company successfully repositioned the business to take advantage of the attractive returns available in the alternative mortgage space, the Company's traditional business. This business provides superior returns to the allocated capital and the Company will continue to prudently expand this business while continuing to strengthen operating controls and risk management processes. The Company will continue to offer insured mortgages through the Accelerator program, supporting the "one-stop" and "flexible lending solutions" lender strategy. The Company will also continue to increase its geographic footprint across Canada, taking advantage of opportunities within its risk profile in Quebec, and eastern and western Canada. Growth of the consumer portfolio at the current rate is expected for 2012.
In view of the global financial environment, the Company will maintain relatively high levels of liquidity and low overall leverage, as measured by the asset to capital multiple (ACM), to ensure safety and soundness for its depositors. This conservative approach to liquidity and leverage will drive a new complementary strategy that will focus on fee revenue from loan origination and administration for other mortgage funders.
The Company expects that the rate of growth in the Company's funded loan portfolio in 2012 will be consistent with the moderate pace of growth experienced in 2011. The traditional mortgage business is expected to maintain strong net interest margin and net interest income levels, while net interest margins on securitized assets are anticipated to decline modestly from the levels experienced in 2011. The decline primarily reflects a combination of two factors; spreads on new securitization transactions are generally lower than the spreads earned on the maturing pools and are lower than the spreads earned on the 2008 and 2009 securitization transactions; and, the assets provided as replacement assets in the CMB program are generally lower yielding when compared to the maturing or discharging assets. While the Company actively hedges the CMB reinvestment risk, the hedges cannot absorb 100% of this risk. This dynamic will tend to put pressure on the overall net interest margin. The increased weighting of the Company's traditional uninsured mortgages tends to offset this downward pressure, as the margins on these products are more favourable.
The Company will record amortization expenses related to its new core banking system for the full year 2012. These charges, along with related support costs, will tend to increase the cost structure and efficiency ratio. Reductions in other areas and increases in net interest income will tend to mitigate the increases in amortization and other costs. The Company expects its efficiency ratio for 2012 to fall within the target range of 28.0% to 34.0%.