Home Capital Reports Strong Earnings and Dividend Increase:

• Diluted Earnings per Share up 19.3% Year over Year to $1.05
• Dividend Increase of 12.5% or 2 Cents per Share to $0.18 Quarterly
• Quarterly Net Income Increases 19.8% Year over Year

TORONTO, July 30, 2014 /CNW/ - Home Capital today reported 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 at www.homecapital.com and the Canadian Securities Administrators' website at www.sedar.com.

FINANCIAL HIGHLIGHTS

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% and 18.3% from the comparable periods of 2013 and 5.7% over Q1 2014.
  
  
• Diluted earnings per share were $1.05 for the quarter and $2.04 year to date, representing increases of 19.3% and 17.2% over the $0.88 and $1.74 earned in the comparable periods of 2013 and 5.0% over the $1.00 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% 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% and 16.0% from the comparable periods of 2013 and up 2.0% 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 (please see below).
  
  
• Net interest margin (TEB) was 2.26% in the quarter and 2.23% year to date, up from 2.14% and 2.15% in the comparable periods of 2013 and up from 2.19% last quarter.  Net interest margin (TEB) continues to be favourably influenced by the relative shift to higher yielding mortgages on 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 multi-unit 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 to $0.5 million and $2.0 million in the comparable periods of 2013 and $8.7 million last quarter.
  
  
• Return on equity was strong at 23.1% for the quarter and 23.0% for the first six months of 2014 and continues to be in excess of the Company's minimum performance objective of 20%.
  
  
• 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% compared to 0.33% at the end of last quarter, 0.35% at the end of 2013 and 0.31% one year ago. Included in the non-performing loans is an insured multi-unit residential property with an outstanding amount of $9.7 million, where the Company expects no losses. In the absence of this fully insured CMHC loan the NPL ratio would have been 0.26%.  The annualized credit provision as a percentage of gross uninsured loans of 0.10% has decreased from 0.11% in Q1 2014 and 0.17% in Q2 2013, reflecting lower individual provisions and remains below the target range of 0.15%-0.25%.
  
  
• Capital ratios remain high with Home Trust's Common Equity Tier 1 ratio (CET 1 ratio) ending the quarter at 17.45%, while Tier 1 and Total Capital ratios were 17.45% and 20.20%, respectively.  Home Trust's Assets to Capital multiple (ACM) was 13.04 at the end of the quarter compared to 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 $2.40 billion or 12.7% and an increase of $1.29 billion or 6.5% from $19.94 billion at the end of 2013 (13.0% on an annualized basis).
  
  
• Total mortgage originations reflected very strong activity in the quarter reaching $2.33 billion and increasing by 39.0% from $1.68 billion last quarter and 42.7% from $1.63 billion in the same quarter last year. Year-to-date mortgage originations of $4.01 billion increased 33.0% 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% to $1.53 billion from $1.24 billion in the same quarter of 2013 and also increased 42.5% from $1.07 billion in a seasonally slower Q1 2014. Year-to-date traditional mortgage originations increased 16.7% to $2.60 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 Q2 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 138.0%.  The favourable regulatory ruling regarding the sale of residual interests in Q3 2013 led the Company to increase its activity in insured lending during the second half of 2013 and into 2014.
  
  
• Multi-unit residential mortgage originations were $64.5 million in the quarter and $278.1 million year to date compared to $54.3 million and $257.0 million in the comparable periods of 2013 and $213.6 million last quarter.  Multi-unit 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 to $54.2 million and $92.7 million in the comparable periods of 2013 and $72.0 million last quarter. Store and apartment mortgage advances were $37.7 million in the quarter and $65.3 million year to date compared to $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 $359.0 million at the end of Q2 2014, up 3.5% from $346.9 million at the end of last quarter, up 5.6% from $340.0 million at the end of 2013 and up 15.5% 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 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% from last quarter, 7.7% from the end of 2013 and 23.1% 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, Oaken Financial direct-to-consumer deposit brand and an institutional deposit program.  During the quarter, Oaken Online 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 ongoing 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 funding.
  
  
• Oaken deposits at the end of the quarter increased by 22.6% over the balance last quarter, 55.0% 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 Online 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 28.0% over $450.9 million last quarter, an increase of 71.1% 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% to $0.18 per common share, payable on September 1, 2014 to shareholders of record at the close of business on August 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 (MD&A) 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 5 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 www.homecapital.com.

Conference Call Archive
A telephone replay of the call will be available between 1:30 p.m. Thursday, July 31, 2014 and midnight Thursday, August 7, 2014 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 26905840). The archived audio web cast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com.

Supplemental Financial Information
Home Capital has introduced a Supplemental Financial Information package available at the Company's website at www.homecapital.com 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.

Home Capital published its annual financial objectives for 2014 on page 17 of the Company's 2013 Annual Report. The following table compares actual performance to date against each of these objectives.

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 on pages 54 through 67 of the Company's 2013 Annual Report, as well as its other publicly filed information, which are 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, funding and liquidity risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk and regulatory and legal 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 quarterly report.   Forward-looking statements are typically identified by words such as "will,"  "believe," "expect," "anticipate," "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 uncertainties, 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 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 and its effect on Home Capital's business are material factors the Company considers when setting its objectives, targets 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.  In setting and reviewing its targets, objectives and outlook for the remainder of 2014, management's expectations continue to assume:

• The Canadian economy will continue to produce modest growth in 2014 with stable to modestly improving employment conditions in most regions, and inflation will generally be within the Bank of Canada's target of 1% to 3% leading to stable credit losses and strong demand for the Company's lending products.
  
  
• The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets; as such, the Company is prepared for the variability to plan that may result.
  
  
• The Bank of Canada continues to indicate that increases to its target overnight interest rate are not imminent and, as such, the Company is assuming the rate will remain at its current rate, for the remainder of 2014. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.
  
  
• The housing market will likely remain stable with balanced supply and demand conditions in most regions supported by continued low interest rates, relatively stable to improving employment, and immigration.  There will be modest declines in housing starts and resale activity with stable prices throughout most of Canada. This supports continued stable credit losses and strong demand for the Company's lending products.
  
  
• Consumer debt levels will remain serviceable by Canadian households.
  
  
• The Company will have access to the mortgage and deposit markets through broker networks.

Non-GAAP Measures

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 Second Quarter 2014 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 deposits, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through its direct to consumer deposit brand, Oaken Financial. Licensed to conduct business across Canada, Home Trust has branch offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.

SOURCE: Home Capital Group Inc.