Home Capital Reports Second Quarter 2018 Results

TORONTO--(BUSINESS WIRE)--Home Capital Group Inc. (“Home Capital” or “the Company”) (TSX:HCG) today reported financial results for the three and six months ended June 30, 2018. This press release should be read in conjunction with the Company’s 2018 Second Quarter Report including Financial Statements and Management’s Discussion and Analysis (MD&A), which are available on Home Capital’s website at www.homecapital.com and on SEDAR at www.sedar.com.

“Our second quarter results were markedly improved with solid year-over-year earnings growth, taking into account last year’s liquidity event, and with a third straight quarter of mortgage origination volume growth,” said Yousry Bissada, President and Chief Executive Officer, Home Capital. “We are pleased with the progress our team has made on our journey to sustainably grow our business. Our core residential and commercial lending business continued to demonstrate resilience in the face of a challenging and competitive operating environment influenced by regulatory changes, rising interest rates and a softer Canadian housing market.”

“In this environment, we believe the right long-term path is to maintain pricing discipline across all our product offerings, keep a sharp focus on productivity and originate the best quality loans possible. We are confident that by providing improved customer service and innovative solutions, together with investing in emerging digital technology, we will enhance broker relationships, attract new customers and retain existing clients.”

Second Quarter 2018, compared with the Second Quarter 2017:

• Net income of $29.6 million, compared to a net loss of $111.1 million.
• Net loss in Q2 2017 includes the impact of $130.6 million of interest and fees on a line of credit facility, losses of $76.9 million on the sales of securities and loans and increased professional and legal fees.
• Diluted earnings per share of $0.37, compared to a diluted loss per share of $1.73.
• Total mortgage originations of $1.23 billion, an increase of 10.0% or $112.1 million from $1.12 billion.
• Non-interest expense of $55.4 million, a $29.6 million decline and a 34.8% improvement from $85.0 million.
• Provision for credit losses as a percentage of gross uninsured loans was 0.22% compared to 0.07%.
• The $2 billion credit facility provided by a wholly owned subsidiary of Berkshire Hathaway Inc. matured on June 29, 2018 and was replaced with a $500 million credit facility provided by a syndicate of Canadian chartered banks. This will have a favourable impact on the Company’s 2018 net interest margin in future periods compared with the cost of the matured facility.

Second Quarter 2018, compared with the First Quarter 2018:

• Net income of $29.6 million, a decrease of 14.4% or $5.0 million, from $34.6 million.
• Diluted earnings per share of $0.37, a decrease of 14.0% from $0.43.
• Total mortgage originations of $1.23 billion, an increase of 6.1% or $71.0 million from $1.16 billion.
• Non-interest expense of $55.4 million, an increase of $4.0 million from $51.4 million.
• Non-securitized single-family residential mortgages of $10.21 billion, a 0.5% decrease or $56.1 million from $10.26 billion.
• Provision for credit losses as a percentage of gross uninsured loans of 0.22%, compared to 0.20%.

First Six Months of 2018, compared with the First Six Months of 2017:

• Net income of $64.2 million, compared with a net loss of $53.1 million.
• Diluted earnings per share of $0.80, compared with a diluted loss per share of $0.83.
• Total mortgage originations of $2.39 billion, a decrease of 31.0% or $1.07 billion, from $3.46 billion.
• Non-interest expense of $106.8 million, a decrease of $42.7 million or 28.5%, from $149.5 million.
• Provision for credit losses as a percentage of gross uninsured loans of 0.21% compared to 0.12%.

Second Quarter 2018 Financial Position

• Total loans under administration of $22.51 billion, which includes securitized mortgages that qualify for off-balance sheet accounting, remained essentially unchanged from $22.54 billion at the end of Q1 2018, and $22.52 billion at the end of Q4 2017.
• Total loans of $15.45 billion increased 1.5% from $15.22 billion at the end of Q1 2018 and increased 2.5% from $15.07 billion at the end of Q4 2017.
  • Single-family residential mortgage originations of $949.3 million compared with $869.7 million in Q1 2018, and $840.2 million in Q2 2017.
  • Residential commercial mortgage originations of $129.4 million compared to $104.9 million in Q1 2018, and $89.8 million in Q2 2017.
  • Non-residential commercial mortgage originations, which include store and apartment mortgages, of $151.4 million compared to $184.7 million in Q1 2018, and $188.1 million in Q2 2017.
• Liquid assets were $1.82 billion, compared to $1.45 billion at the end of Q1 2018 and $1.65 billion at the end of Q4 2017. The Company maintains a prudent level of liquidity, given the current level of operations, loan balances and the Company’s obligations.
• Total deposits were $12.50 billion compared to $12.08 billion at the end of Q1 2018 and $12.17 billion at the end of Q4 2017.
  • Brokered GICs totaled $9.55 billion compared with $9.34 billion at the end of Q1 2018 and $9.35 billion at the end of Q4 2017.
  • Oaken GICs totaled $2.23 billion compared with $1.97 billion at the end of Q1 2018 and $1.81 billion at the end of Q4 2017.

Credit Quality

Credit losses and delinquencies are expected to remain low in the second half of 2018; however, the Company is prepared for volatility in this performance that may result from uncertainty in the macroeconomic environment.

• Total provision for credit losses of $6.5 million in Q2 2018 compared with $6.0 million in Q1 2018, and $2.4 million in Q2 2017⁽¹⁾.
• Provision as a percentage of gross uninsured loans remained low at 0.22% compared to 0.20% in Q1 2018 and 0.07% in Q2 2017⁽¹⁾. Provision for credit losses in Q2 2018 resulted primarily from one specific non-performing commercial loan included in Stage 3 under IFRS 9.
• Net write-offs were $1.8 million and represented 0.05% of gross loans compared to 0.03% in Q1 2018 and 0.05% in Q2 2017.
• Net non-performing loans (represented by Stage 3 loans under IFRS 9) as a percentage of gross loans remained low at 0.34% at the end of Q2 2018 up from 0.29% at the end of Q1 2018 and 0.30% at the end of Q4 2017.

^{(1) Provisions for credit losses were calculated under IFRS 9 for 2018 and under IAS 39 for 2017. As provisions for credit losses for 2017 were not restated, comparability is reduced to some extent.}

Non-Interest Expenses

Non-interest expenses increased by $4.0 million or 7.9% from Q1 2018, primarily due to increased salaries and benefits expenses as the Company increased the number of active employees. That increase was partially offset by a reversal of $1.8 million of estimated severance expenses related to the Project EXPO expense savings initiative completed at the end of 2017.

Non-interest expenses declined $29.6 million or 34.8% from Q2 2017 mainly due to a decrease in both salaries and benefits, and other operating expenses related to a liquidity event in Q2 2017, including asset impairment charges, and resolving OSC and class action matters in Q2 2017.

Capital Position

The Company maintained capital ratios well above Company targets and regulatory minimums at the end of Q2 2018. Management continues to review opportunities to deploy capital to maximize long-term shareholder value.

• Common Equity Tier 1 and Total capital ratios were 23.21% and 23.67%, respectively, at June 30, 2018. The comparative balances were 23.64% and 24.12%, respectively, at March 31, 2018 and 23.17% and 23.68%, respectively, at December 31, 2017.
• Leverage ratio was 8.96% at June 30, 2018, 9.02% at March 31, 2018 and 8.70% at December 31, 2017.

Corporate Update

“Over the past several months, Home’s senior executive team, with the support of our Board, has undertaken a detailed review of our strategy. Together, we have determined that the best path forward is to remain focused on our core business in the markets we serve to drive future growth. Looking towards the future, we believe we have the right strategic objectives in place to grow sustainably and attain the leading market share position in Canada’s Alt-A mortgage market,” concluded Yousry Bissada, President and Chief Executive Officer, Home Capital.

In the near term, management’s key areas of focus are:

1. Leveraging the Company's strong and sustainable risk culture as a strategic advantage.
2. Being the leader in the Alt-A marketplace, in service, technology and solutions.
3. Developing robust and diverse liquidity sources and maintaining a strong balance sheet.
4. Profitably growing residential and commercial business lines and increasing market share, relative to market conditions.
5. Maintaining strong renewal and retention rates.
6. Deepening broker relationships and increasing outreach to advance higher-quality applications.
7. Assessing opportunities for the business in an evolving regulatory environment.

YOUSRY BISSADA
President and Chief Executive Officer

PAUL DERKSEN
Chair of the Board

August 13, 2018

The Company’s 2018 Second Quarter Financial Report, including Management’s Discussion and Analysis, for the six months ended June 30, 2018 is available at www.homecapital.com and on the Canadian Securities Administrators’ website at www.sedar.com.

Second Quarter 2018 Results Conference Call and Slide Presentation Webcast

The conference call will take place on Tuesday, August 14, 2018, at 8:00 a.m. ET. Participants are asked to call approximately 10 minutes in advance at toll-free 1-866-393-4306 throughout North America. Participants calling from outside of North America may dial 1-734-385-2616. 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 Tuesday, August 14, 2018 and midnight ET Tuesday, August 21, 2018 by calling 1-855-859-2056 or 1-404-537-3406 (enter passcode 6684137). The archived audio webcast will be available for 90 days on Home Capital’s website at www.homecapital.com.

FINANCIAL HIGHLIGHTS

(Unaudited)	For the three months ended						For the six months ended
(000s, except Percentage and Per Share Amounts)	June 30		March 31		June 30		June 30		June 30
		2018		2018		2017		2018		2017
OPERATING RESULTS^1
Net Income (Loss)	$	29,606	$	34,586	$	(111,116)	$	64,192	$	(53,075)
Net Interest Income (Loss)		84,129		88,100		(3,407)		172,229		122,450
Total Revenue		101,625		103,765		(61,293)		205,390		86,449
Diluted Earnings (Loss) per Share	$	0.37	$	0.43	$	(1.73)	$	0.80	$	(0.83)
Return on Shareholders’ Equity (annualized)		6.4%		7.6%		(25.9)%		7.0%		(6.3)%
Return on Average Assets (annualized)		0.7%		0.8%		(2.2)%		0.7%		(0.5)%
Net Interest Margin (TEB)^2		1.91%		2.02%		(0.07)%		1.97%		1.20%
Provision as a Percentage of Gross Uninsured Loans (annualized)		0.22%		0.20%		0.07%		0.21%		0.12%
Provision as a Percentage of Gross Loans (annualized)		0.17%		0.16%		0.05%		0.16%		0.09%
Efficiency Ratio (TEB)^2		54.5%		49.5%		(138.9)%		52.0%		171.0%
								As at
	June 30			March 31		December 31		June 30
		2018		2018		2017		2017
BALANCE SHEET HIGHLIGHTS^1
Total Assets	$	17,935,799	$	17,458,034	$	17,591,143	$	20,077,150
Total Assets Under Administration^3		25,001,732		24,776,803		25,040,182		28,292,436
Total Loans^4		15,447,928		15,222,310		15,069,636		17,652,962
Total Loans Under Administration^3,4		22,513,861		22,541,079		22,518,675		25,868,248
Liquid Assets		1,816,720		1,454,313		1,654,718		1,737,417
Deposits		12,496,704		12,084,408		12,170,454		13,104,606
Line of Credit Facility		-		-		-		1,396,959
Shareholders’ Equity		1,877,731		1,849,067		1,813,505		1,751,087
FINANCIAL STRENGTH^1
Capital Measures^5
Risk-Weighted Assets	$	6,879,863	$	6,604,744	$	6,532,130	$	8,328,024
Common Equity Tier 1 Capital Ratio		23.21%		23.64%		23.17%		17.06%
Tier 1 Capital Ratio		23.21%		23.64%		23.17%		17.06%
Total Capital Ratio		23.67%		24.12%		23.68%		17.54%
Leverage Ratio		8.96%		9.02%		8.70%		7.19%
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans		0.34%		0.29%		0.30%		0.23%
Allowance as a Percentage of Gross Non-Performing Loans		71.0%		78.1%		79.5%		100.5%
Share Information
Book Value per Common Share	$	23.40	$	23.04	$	22.60	$	21.82
Common Share Price – Close	$	15.01	$	13.56	$	17.31	$	16.99
Market Capitalization	$	1,204,492	$	1,088,136	$	1,389,058	$	1,363,380
Number of Common Shares Outstanding		80,246		80,246		80,246		80,246

¹ The amounts as at and for the periods ended June 30, 2018 and March 31, 2018 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9); prior period amounts have not been restated and have been prepared in accordance with IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). Please see Note 2 in the unaudited interim consolidated financial statements included in the 2018 Second Quarter Report for further information.
² See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the 2018 Second Quarter Report.
³ Total assets and loans under administration include both on- and off-balance sheet amounts.
⁴ Total loans include loans held for sale and are presented gross of allowance for credit losses, for all periods presented.
⁵ These figures relate to the Company’s operating subsidiary, Home Trust Company.

Consolidated Statements of Income (Loss)

	For the three months ended						For the six months ended
thousands of Canadian dollars, except per share amounts	June 30		March 31		June 30		June 30		June 30
(Unaudited)		2018		2018		2017		2018		2017
Net Interest Income (Loss) Non-Securitized Assets
Interest from loans¹	$	156,543	$	154,934	$	192,394	$	311,477	$	384,829
Dividends from securities		307		286		300		593		2,586
Other interest		6,933		4,480		1,627		11,413		4,547
		163,783		159,700		194,321		323,483		391,962
Interest on deposits and other		76,520		68,367		71,673		144,887		148,925
Interest and fees on line of credit facility		6,045		6,007		130,630		12,052		130,630
Net interest income (loss) non-securitized assets		81,218		85,326		(7,982)		166,544		112,407
Net Interest Income Securitized Loans and Assets
Interest income from securitized loans and assets¹		23,365		22,059		22,678		45,424		44,236
Interest expense on securitization liabilities		20,454		19,285		18,103		39,739		34,193
Net interest income securitized loans and assets		2,911		2,774		4,575		5,685		10,043
Total Net Interest Income (Loss)		84,129		88,100		(3,407)		172,229		122,450
Provision for credit losses¹		6,487		5,968		2,420		12,455		8,339
		77,642		82,132		(5,827)		159,774		114,111
Non-Interest Income (Loss)
Fees and other income		11,468		12,041		17,168		23,509		33,499
Securitization income		2,063		2,691		1,877		4,754		8,309
Gain on sale of PSiGate		-		950		-		950		-
Net realized and unrealized gains (losses) on securities and loans		1,998		1,000		(76,912)		2,998		(76,915)
Net realized and unrealized gains (losses) on derivatives		1,967		(1,017)		(19)		950		(894)
		17,496		15,665		(57,886)		33,161		(36,001)
		95,138		97,797		(63,713)		192,935		78,110
Non-Interest Expenses
Salaries and benefits		19,225		16,229		29,303		35,454		58,922
Premises		2,560		2,402		3,365		4,962		7,117
Other operating expenses		33,641		32,756		52,333		66,397		83,427
		55,426		51,387		85,001		106,813		149,466
Income (Loss) Before Income Taxes		39,712		46,410		(148,714)		86,122		(71,356)
Income taxes
Current		9,113		7,423		(39,616)		16,536		(16,474)
Deferred		993		4,401		2,018		5,394		(1,807)
		10,106		11,824		(37,598)		21,930		(18,281)
NET INCOME (LOSS)	$	29,606	$	34,586	$	(111,116)	$	64,192	$	(53,075)
NET INCOME (LOSS) PER COMMON SHARE
Basic	$	0.37	$	0.43	$	(1.73)	$	0.80	$	(0.83)
Diluted	$	0.37	$	0.43	$	(1.73)	$	0.80	$	(0.83)
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		80,246		80,246		64,378		80,246		64,321
Diluted		80,246		80,246		64,378		80,246		64,321
Total number of outstanding common shares		80,246		80,246		80,246		80,246		80,246
Book value per common share	$	23.40	$	23.04	$	21.82	$	23.40	$	21.82

¹ The amounts for the periods ended June 30, 2018 and March 31, 2018 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9); prior period amounts have not been restated and have been prepared in accordance with IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). Please see Note 2 in the unaudited interim consolidated financial statements included in the 2018 Second Quarter Report for further information.

Consolidated Statements of Comprehensive Income (Loss)

	For the three months ended						For the six months ended
	June 30		March 31		June 30		June 30		June 30
thousands of Canadian dollars (Unaudited)		2018		2018		2017		2018		2017
NET INCOME (LOSS)	$	29,606	$	34,586	$	(111,116)	$	64,192	$	(53,075)
OTHER COMPREHENSIVE INCOME (LOSS)
ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIFIED TO NET INCOME
Equity Securities Designated at FVOCI^1
Change in net unrealized gains or losses		(108)		931		N/A		823		N/A
Income tax (recovery) expense		(29)		248		N/A		219		N/A
		(79)		683		N/A		604		N/A
ITEMS THAT WILL BE SUBSEQUENTLY RECLASSIFIED TO NET INCOME
Available for Sale Securities and Retained Interests^1
Net change in unrealized gains or losses		N/A		N/A		550		N/A		16,964
Net losses reclassified to net income		N/A		N/A		46,647		N/A		46,650
		N/A		N/A		47,197		N/A		63,614
Income tax expense		N/A		N/A		12,514		N/A		16,872
		N/A		N/A		34,683		N/A		46,742
Debt Instruments at FVOCI^1
Net change in unrealized gains or losses		(791)		1,018		N/A		227		N/A
Net gains or losses reclassified to net income		-		-		N/A		-		N/A
		(791)		1,018		N/A		227		N/A
Income tax (recovery) expense		(211)		280		N/A		69		N/A
		(580)		738		N/A		158		N/A
Cash Flow Hedges
Net change in unrealized gains or losses		(872)		(348)		(525)		(1,220)		(610)
Net losses reclassified to net income		298		287		572		585		901
		(574)		(61)		47		(635)		291
Income tax (recovery) expense		(152)		(26)		12		(178)		84
		(422)		(35)		35		(457)		207
Total other comprehensive (loss) income		(1,081)		1,386		34,718		305		46,949
COMPREHENSIVE INCOME (LOSS)	$	28,525	$	35,972	$	(76,398)	$	64,497	$	(6,126)

¹ The amounts for the periods ended June 30, 2018 and March 31, 2018 have been prepared in accordance with IFRS 9; prior period amounts have not been restated and have been prepared in accordance with IAS 39. N/A indicates not applicable under the accounting policy for the respective period. FVOCI indicates fair value through other comprehensive income. Please see Note 2 in the unaudited interim consolidated financial statements included in the 2018 Second Quarter Report for further information.

Consolidated Balance Sheets

						As at
	June 30		March 31		December 31
thousands of Canadian dollars (Unaudited)		2018		2018		2017
ASSETS
Cash and Cash Equivalents	$	1,375,850	$	1,013,945	$	1,336,138
Securities		392,632		332,899		332,468
Loans Held for Sale		6,788		75,748		165,947
Loans
Securitized mortgages		3,075,283		2,873,343		2,993,250
Non-securitized mortgages and loans		12,365,857		12,273,219		11,910,439
		15,441,140		15,146,562		14,903,689
Allowance for credit losses¹		(49,806)		(45,140)		(38,775)
		15,391,334		15,101,422		14,864,914
Other
Restricted assets		300,757		504,113		437,011
Derivative assets		2,836		4,069		7,325
Other assets		368,433		325,040		336,770
Deferred tax assets		2,860		3,107		9,577
Goodwill and intangible assets		94,309		97,691		100,993
		769,195		934,020		891,676
	$	17,935,799	$	17,458,034	$	17,591,143
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Deposits payable on demand	$	411,056	$	476,038	$	539,364
Deposits payable on a fixed date		12,085,648		11,608,370		11,631,090
		12,496,704		12,084,408		12,170,454
Securitization Liabilities
CMHC-sponsored mortgage-backed security liabilities		1,556,312		1,550,183		1,562,152
CMHC-sponsored Canada Mortgage Bond liabilities		1,471,172		1,473,472		1,473,318
Bank-sponsored securitization conduit liabilities		85,984		106,192		142,279
		3,113,468		3,129,847		3,177,749
Other
Derivative liabilities		44,672		43,759		38,728
Other liabilities		374,317		322,792		360,477
Deferred tax liabilities		28,907		28,161		30,230
		447,896		394,712		429,435
		16,058,068		15,608,967		15,777,638
Shareholders’ Equity
Capital stock		231,156		231,156		231,156
Contributed surplus		4,707		4,568		4,978
Retained earnings		1,647,457		1,617,851		1,583,265
Accumulated other comprehensive loss		(5,589)		(4,508)		(5,894)
		1,877,731		1,849,067		1,813,505
	$	17,935,799	$	17,458,034	$	17,591,143

¹ The allowance for credit losses as at June 30, 2018 and March 31, 2018 represents expected credit losses and have been prepared in accordance with IFRS 9. The allowance for credit losses as at December 31, 2017 represents the total of individual and collective allowances on loan principal as prepared in accordance with the incurred loss model under IAS 39. Please see Note 2 in the unaudited interim consolidated financial statements included in 2018 Second Quarter Report for further information including information on reclassification of comparative balances.

Consolidated Statements of Changes in Shareholders' Equity¹

							Net Unrealized Gains (Losses), After Tax, on:						Total		Total
thousands of Canadian dollars	Capital		Contributed		Retained		Equity Securities		Debt Instruments		Cash Flow		Accumulated Other		Shareholders'
(Unaudited)	Stock		Surplus		Earnings		Designated at FVOCI		at FVOCI		Hedges		Comprehensive Loss		Equity
Balance at January 1, 2018^2	$	231,156	$	4,978	$	1,583,265	$	(6,902)	$	2,197	$	(1,189)	$	(5,894)	$	1,813,505
Comprehensive income		-		-		64,192		604		158		(457)		305		64,497
Amortization of fair value of
employee stock options		-		(271)		-		-		-		-		-		(271)
Balance at June 30, 2018	$	231,156	$	4,707	$	1,647,457	$	(6,298)	$	2,355	$	(1,646)	$	(5,589)	$	1,877,731
									Net Unrealized
									Losses		Net Unrealized		Total
									on Securities and		Losses on		Accumulated
									Retained Interests		Cash Flow		Other		Total
thousands of Canadian dollars,	Capital		Contributed		Retained				Available for Sale,		Hedges,		Comprehensive		Shareholders'
except per share amounts (Unaudited)	Stock		Surplus		Earnings				After Tax		after Tax		Loss		Equity
Balance at December 31, 2016	$	84,910	$	4,562	$	1,598,180			$	(53,589)	$	(1,476)	$	(55,065)	$	1,632,587
Comprehensive loss		-		-		(53,075)				46,742		207		46,949		(6,126)
Stock options settled		548		(141)		-				-		-		-		407
Amortization of fair value of
employee stock options		-		501		-				-		-		-		501
Repurchase of shares		(267)		-		(5,732)				-		-		-		(5,999)
Issuance of shares		146,427		-		-				-		-		-		146,427
Dividends ($0.26 per share)		-		-		(16,710)				-		-		-		(16,710)
Balance at June 30, 2017	$	231,618	$	4,922	$	1,522,663			$	(6,847)	$	(1,269)	$	(8,116)	$	1,751,087

¹ The amounts for the period ended June 30, 2018 have been prepared in accordance with IFRS 9; prior period amounts have not been restated and have been prepared in accordance with IAS 39.
² Please see Note 2 in the unaudited interim consolidated financial statements included in the 2018 Second Quarter Report for information on transition of balances as at December 31, 2017 to balances as at January 1, 2018 upon adoption of IFRS 9.

Consolidated Statements of Cash Flows

	For the three months ended				For the six months ended
	June 30		June 30		June 30		June 30
thousands of Canadian dollars (Unaudited)		2018		2017		2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period	$	29,606	$	(111,116)	$	64,192	$	(53,075)
Adjustments to determine cash flows relating to operating activities:
Amortization of net premium (discount) on securities		274		(137)		385		(223)
Provision for credit losses		6,487		2,420		12,455		8,339
(Recovery) loss on sale of loan portfolios		(1,900)		5,005		(2,900)		5,005
Gain on sale of PSiGate		-		-		(950)		-
Gain on sale of mortgages or residual interest		(1,075)		(360)		(2,397)		(5,098)
Net realized and unrealized (gains) losses on securities		(98)		71,907		(98)		71,910
Amortization and impairment losses¹		5,362		10,526		10,695		16,745
Amortization of fair value of employee stock options		139		197		(271)		501
Deferred income taxes		993		2,018		5,394		(1,807)
Changes in operating assets and liabilities
Loans, net of gains or losses on securitization and sales		(226,364)		919,162		(377,319)		381,893
Restricted assets		203,356		(76,271)		136,254		48,778
Derivative assets and liabilities		1,572		20,174		9,798		23,843
Accrued interest receivable		(418)		2,263		(2,328)		1,751
Accrued interest payable		(14,762)		(28,204)		(3,527)		(8,556)
Deposits		412,296		(3,145,005)		326,250		(2,781,424)
Line of credit facility		-		1,396,959		-		1,396,959
Securitization liabilities		(16,379)		680,584		(64,281)		677,980
Taxes receivable or payable and other		24,191		45,256		(9,681)		79,063
Cash flows provided by (used in) operating activities		423,280		(204,622)		101,671		(137,416)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares		-		146,427		-		146,427
Repurchase of shares		-		(37)		-		(5,999)
Exercise of employee stock options		-		-		-		407
Dividends paid to shareholders		-		-		-		(16,710)
Cash flows provided by financing activities		-		146,390		-		124,125
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in securities
Purchases		(70,247)		-		(70,247)		(5,803)
Proceeds from sales		10,151		491,883		10,151		491,883
Proceeds from maturities		300		1,220		599		10,271
Net proceeds from sale of PSiGate		-		-		310		-
Purchases of capital assets		(437)		(530)		(459)		(586)
Capitalized intangible development costs		(1,142)		(2,549)		(2,313)		(4,886)
Cash flows (used in) provided by investing activities		(61,375)		490,024		(61,959)		490,879
Net increase in cash and cash equivalents during the period		361,905		431,792		39,712		477,588
Cash and cash equivalents at beginning of the period		1,013,945		1,251,190		1,336,138		1,205,394
Cash and Cash Equivalents at End of the Period	$	1,375,850	$	1,682,982	$	1,375,850	$	1,682,982
Supplementary Disclosure of Cash Flow Information
Dividends received on investments	$	316	$	1,008	$	589	$	4,036
Interest received		186,688		216,122		366,375		431,766
Interest paid		117,781		248,610		200,205		322,304
Income taxes paid		12,732		6,646		25,813		26,868

¹ Amortization and impairment losses include amortization on capital and intangible assets and impairment losses on intangible assets and goodwill.

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 2018 Second 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 2018 Second 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, 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 2018 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 the remainder of 2018, management’s expectations continue to assume:

• The Canadian economy is expected to be relatively stable for the remainder of 2018 but is vulnerable to trade related uncertainties.
• Stable employment conditions in its 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 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 that may result.
• While the Company is assuming that interest rates will experience increases in 2018, the impact of such increases is not expected to be material. The level of interest rates is expected to continue to support relatively low mortgage interest rates for the remainder of 2018.
• Current and expected levels of housing activity indicate a relatively stable real estate market overall. Please see Market Conditions under the 2018 Outlook in the Company’s 2018 Second Quarter Report for more discussion on the Company’s expectations for the housing market.
• Debt service levels will remain manageable by Canadian households in 2018, however high levels of consumer debt make the economy more vulnerable to rising interest rates and any economic weaknesses resulting from trade disputes.
• 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 2018 Second 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 insured 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, Home Trust has branch offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.