2016
ANNUAL AND FOURTH QUARTER
CONSOLIDATED FINANCIAL REPORT
Financial Highlights
(000s, except Percentage and Per Share Amounts)
December 31
September 30
December 31
December 31
December 31
2016
2016
2015
2016
2015
For the three months ended
For the year ended
OPERATING RESULTS
Net Income
Adjusted Net Income1
Net Interest Income
Total Revenue
Diluted Earnings per Share
Adjusted Diluted Earnings per Share1
Return on Shareholders’ Equity
Adjusted Return on Shareholders' Equity1
Return on Average Assets
Net Interest Margin (TEB)2
Provision as a Percentage of Gross Uninsured Loans (annualized)
Provision as a Percentage of Gross Loans (annualized)
Efficiency Ratio (TEB)2
Adjusted Efficiency Ratio (TEB)1,2
$
$
$
50,706 $
66,190 $
63,475
120,620
239,417
66,190
119,924
243,928
70,239 $
71,811
126,658
248,462
247,396 $
263,414
485,164
967,719
287,285
288,857
481,090
995,767
0.79 $
0.98 $
12.7%
15.9%
1.0%
2.38%
0.07%
0.05%
48.8%
39.1%
1.01 $
1.01 $
16.9%
16.9%
1.3%
2.34%
0.04%
0.03%
37.7%
37.7%
1.00 $
1.02 $
17.6%
18.0%
1.4%
2.46%
0.04%
0.03%
36.0%
33.7%
As at
3.71 $
3.95 $
15.3%
16.3%
1.2%
2.37%
0.05%
0.04%
40.8%
37.6%
4.09
4.11
18.7%
18.8%
1.4%
2.36%
0.06%
0.05%
32.4%
31.8%
BALANCE SHEET HIGHLIGHTS
Total Assets
Total Assets Under Administration3
Total Loans4
Total Loans Under Administration3,4
Liquid Assets
Deposits
Shareholders’ Equity
FINANCIAL STRENGTH
Capital Measures5
Risk-Weighted Assets
Common Equity Tier 1 Capital Ratio
Tier 1 Capital Ratio
Total Capital Ratio
Leverage Ratio
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans
Allowance as a Percentage of Gross Non-Performing Loans
Share Information
Book Value per Common Share
Common Share Price – Close
Dividend paid during the period ended
Market Capitalization
$
$
$
$
December 31
September 30
December 31
2016
2016
2015
$
20,528,777 $
20,317,030 $
20,527,062
28,917,534
18,035,317
26,424,074
2,067,981
28,327,676
18,002,238
26,012,884
1,878,082
27,316,476
18,268,708
25,058,122
2,095,145
15,886,030
15,694,102
15,665,958
1,617,192
1,579,478
1,621,106
$
8,643,267 $
8,414,960 $
7,985,498
16.55%
16.54%
16.97%
7.20%
0.30%
73.4%
25.12 $
31.34 $
0.26 $
16.54%
16.53%
16.97%
7.08%
0.31%
69.3%
24.47 $
27.00 $
0.24 $
18.31%
18.30%
20.70%
7.36%
0.28%
74.0%
23.17
26.92
0.22
2,017,920 $
1,743,093 $
1,883,808
Number of Common Shares Outstanding
1 See definition of Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Return on Shareholders’ Equity and Adjusted Efficiency Ratio under Non-GAAP Measures
in this report and the Reconciliation of Net Income to Adjusted Net Income in Table 2 of this report.
2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in this report.
3 Total assets and loans under administration include both on- and off-balance sheet amounts.
4 Total loans include loans held for sale.
5 These figures relate to the Company’s operating subsidiary, Home Trust Company.
64,388
64,559
69,978
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 its direct to
consumer deposit 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.
Home Trust Company www.hometrust.ca
Home Capital Group Inc. www.homecapital.com
Table of Contents
Management's Discussion and Analysis
p. 3
Quarterly Financial Highlights
Caution Regarding Forward-looking Statements
p. 3
Fourth Quarter 2016
Business Profile
p. 4
Fourth Quarter Financial Information
Vision, Mission and Values & Risk and Compliance Culture
p. 6
Capital Management
2016 Strategies and Achievements
p. 7
Risk Management
Performance Goals
Strategic Priorities
2017 Overall Outlook
Financial Highlights
p. 8
Accounting Standards and Policies
p. 8
Controls over Financial Reporting
p. 9
Non-GAAP Measures and Glossary
p. 11
Consolidated Financial Statements and Notes
p. 30
p. 31
p. 33
p. 41
p. 45
p. 64
p. 65
p. 66
p. 71
Financial Performance Review
p. 14
Corporate Directory & Shareholder Information
p. 112
Financial Position Review
p. 22
2
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (MD&A) is provided to enable readers to assess the financial condition and
results of operations of Home Capital Group Inc. (the “Company” or “Home Capital”) for the year ended December 31,
2016. The discussion and analysis relates principally to the Company’s subsidiary Home Trust Company (Home Trust),
which provides residential mortgage lending, non-residential commercial mortgage lending, consumer and credit card
lending and deposit-taking services. Home Trust includes its wholly owned subsidiary, Home Bank. This MD&A should be
read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended
December 31, 2016 included in this report. This MD&A has been prepared with reference to the audited consolidated
financial statements, which are prepared in accordance with International Financial Reporting Standards (IFRS or GAAP)
and all amounts are presented in Canadian dollars. This MD&A is current as of February 8, 2017. As in prior years, the
Company’s Audit Committee reviewed this document, and prior to its release the Company’s Board of Directors (Board)
approved it, on the Audit Committee’s recommendation. The Non-GAAP Measures used in this MD&A and a glossary of
terms used in this MD&A and the financial statements are presented in the last section of this MD&A.
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.
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
this 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
Annual 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
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 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 2017 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 performance
goals, strategic priorities and outlook for 2017, management’s expectations continue to assume:
The Canadian economy is expected to be relatively stable in 2017, supported by expanded Federal
Government spending; however, it will continue to be impacted by adverse effects related to fluctuations in oil
prices and other commodities. The Company has limited exposure in energy-producing regions.
Generally the Company expects stable employment conditions in its established regions; however,
unemployment rates in energy-producing regions are expected to remain elevated in 2017. 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 consistent demand for the Company’s lending products in its established regions. Credit losses and
delinquencies in the energy-producing regions may increase, but given the Company’s limited exposure, this is
not expected to be significant.
3
The Canadian economy will continue to be influenced by the economic conditions in the United States and
global markets and further adjustments in commodity prices; as such, the Company is prepared for the
variability to plan that may result.
The Company is assuming that interest rates will remain at the current very low rate for 2017. This is expected
to continue to support relatively low mortgage interest rates for the foreseeable future.
The Company believes that the current and expected levels of housing activity indicate a stable real estate
market overall. Please see Market Conditions under the 2017 Overall Outlook for more discussion on the
Company’s expectations for the housing market and the impact of the recent changes unveiled by the
government to the mortgage market.
The Company expects that consumer debt levels, while elevated, will remain serviceable by Canadian
households.
The Company will have access to the mortgage and deposit markets through broker networks.
BUSINESS PROFILE
Home Capital is a holding company that operates primarily through its principal, federally regulated subsidiary, Home Trust,
which offers deposits, residential and non-residential commercial mortgage lending and consumer lending. Home Trust also
conducts business through its wholly owned subsidiary, Home Bank. The Company’s other subsidiary, Payment Services
Interactive Gateway Inc. (PSiGate), provides payment services. Licensed to conduct business across Canada, Home Trust
has offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba. Business is primarily conducted in
Canadian dollars.
Business Portfolios
The Company’s management views the business as a single business with separately identified lending portfolios, deposits
and other activities, as described below.
Mortgage Lending
Traditional Single-family and ACE Plus Lending
The traditional single-family residential portfolio is the Company’s “Classic” mortgage portfolio which consists of primarily
uninsured mortgages with loan-to-value ratios of 80% or less, serving selected segments of the Canadian financial services
marketplace that are not the focus of the major financial institutions. The ACE Plus product is a lower-rate mortgage product
directed toward lower-risk borrowers. These mortgages are funded by the Company’s deposit products. The Company
participates in a bank-sponsored securitization conduit program and will periodically assign select ACE Plus mortgages into
this program to provide for more cost-effective funding.
Insured Residential Lending
Insured residential lending includes the Company’s insured single-family Accelerator mortgages and insured securitized
multi-unit residential mortgages. These mortgages are generally funded through Canada Mortgage and Housing Corporation
(CMHC) sponsored mortgage-backed security (MBS) and Canada Mortgage Bond (CMB) securitization programs. In some
cases these mortgage portfolios may be sold off-balance sheet, resulting in recognition of gains on sale. The Company
remains responsible for the administration of these mortgages and includes them in loans under administration.
Residential Commercial Lending (including loans held for sale)
This portfolio comprises insured and uninsured residential commercial lending, which includes commercial mortgages that are
secured by residential property such as non-securitized multi-unit residential mortgages and builders’ inventory. Insured
multi-unit residential mortgages are included in this portfolio until they are securitized. These loans are funded by deposits.
Non-residential Commercial Lending
Non-residential commercial lending includes store and apartment mortgages and commercial mortgages. These loans are
funded by deposits.
4
Consumer Lending
Credit Card and Line of Credit Lending
The Company’s Equityline Visa product, which is a home equity line of credit (HELOC) secured by residential property,
currently represents in excess of 80% of the credit card portfolio. The Company also offers cash-secured Visa products and
unsecured Visa cards. Credit card loans and lines of credit are funded by deposits.
Other Consumer Retail Lending
This portfolio primarily includes consumer retail lending for durable household goods, such as water heaters and larger-ticket
home improvement items. Consumer loans are supported by holdbacks or guarantees from the distributors of such items
and/or collateral charges on real property. Consumer loans are funded with deposits.
Deposits
The Company’s uninsured assets are largely funded by its deposit activities. Deposits are generally taken for fixed terms,
varying from 30 days to five years and carry fixed rates of interest over the full term of the deposit. The Company also has
certain deposit diversification strategies, including a high-interest savings account demand product, Oaken Financial direct-
to-consumer deposit brand and an institutional deposit note program. Home Trust and Home Bank are both members of the
Canada Deposit Insurance Corporation (CDIC) and their retail deposit products are eligible for CDIC coverage, up to the
applicable limits.
Other Activities
In addition to its lending portfolios, the Company manages a treasury portfolio to support liquidity requirements and invest
excess capital. The Company’s operations also include PSiGate, the Company’s subsidiary involved in payment processing.
In addition, Home Trust’s subsidiary Home Bank, a Canadian retail bank, offers deposit and mortgage products.
As management views its business as a single segment with a variety of product and service activities, the financial
statements and the MD&A are prepared on that basis.
5
Vision, Mission and Values & Risk and Compliance Culture
In late 2016, the Company updated its Vision, Mission and Values in concert with its evolving service delivery commitments
to its stakeholders.
Our Vision
The Company’s vision is to be a leader in providing financial services to underserved Canadians.
Our Mission
We listen, and deliver exceptional services to empower our customers and partners.
Our Corporate Values
Customer Centricity, Diversity, Efficiency, Integrity, Passion, Respect.
Risk and Compliance Culture
The Company has adopted a risk and compliance culture that has been designed to support its sales and entrepreneurial
culture. It includes the following guiding principles:
Risk Governance
Alignment and commitment to an effective three lines of defence model, including respective roles, responsibilities,
accountabilities and effective challenge, that is supported by strong Board oversight.
An effective system of controls commensurate with the size and complexity of the organization and consistent with
regulatory expectations.
Decision making is facilitated by engaging all relevant parties in the process to arrive at the best decision for the
organization.
Risk Appetite
The Company’s risk appetite is forward-looking, and it reflects the Company’s strategic and financial objectives and
informs enterprise and line of business decision making.
Risk-reward balance is consistent with the Company’s risk appetite.
Accountability
Risk management structures and capabilities are embraced and add value to the business.
Business leaders are empowered to manage all aspects of their business and held accountable for financial and risk
results.
Capability
The lines of business (first line) have the capability (people, information, tools, processes and models) to effectively
measure and manage performance, risk and compliance.
Human capital decisions reflect risk and compliance competencies and behaviours.
Tone from the Top
Board and senior management lead by example and promote adherence to the Company’s risk appetite and
compliance requirements, as well as a continuous improvement and learning culture.
Proportionate disciplinary actions are taken when necessary in response to compliance and internal policy breaches
and Code of Conduct & Ethics violations.
Communication
Risk and compliance culture is actively promoted (formally and informally) through multiple modes of communication
and training to internal and external stakeholders.
Compensation and Incentives
Employees are rewarded in a manner that encourages behaviour that is consistent with the Company’s long-term
strategic objectives, risk appetite, and adherence to compliance requirements.
6
2016 Strategies and Achievements
Strategic Priority
2016 Strategies and Achievements
Build and maintain Canada’s
leading alternative financial
institution
Serving an established and growing market niche
Grew total assets under administration to $28.9 billion
Maintain a strong, conservative
financial position
Build on our operational
excellence
Continued to build Oaken Financial, increasing deposits by 62.6% over
2015, to over $1.77 billion
Completed the integration of Home Bank’s deposit business into the
Company’s infrastructure
Generating strong shareholder returns in good times and bad
Maintained a strong capital position, with a Common Equity Tier 1
capital ratio of 16.55% and Total capital ratio of 16.97% at the end of
2016
Increased dividends paid to shareholders by 3.2% over 2015
Returned $264.4 million to shareholders through a Substantial Issuer
Bid repurchasing $150.0 million in common shares, $49.2 million of
common shares through the Normal Course Issuer Bid and $65.2
million through dividends
Generated an adjusted ROE of 16.3%
Maintained a prudent credit risk profile of the loan portfolio, with net
non-performing loans as a percentage of gross loans ratio (NPL ratio)
of 0.30% and low net write-offs at 0.03% of gross loans
Maintained and managed strong liquidity positions, ending the year
with $2.07 billion in liquid assets
Investing to ensure our growth is managed and prudent
Continued to invest in customer experience, including Oaken Financial
and the loans origination platform, as well as IT security
commensurate with operating in an increasingly digital marketplace
Continued to enhance the risk and compliance framework, including
enhancing income verification procedures to ensure new lending
continues to reflect the Company’s risk appetite
7
Performance Goals
Following completion of the Company’s annual planning process and review of the prior mid-term targets, Home Capital
Group is introducing new performance goals moving forward. These goals are consistent with the Company’s strategic plans
and long-term objectives. The Company expects to achieve these goals over the long term, and management will report on
progress regularly.
Measure1
Revenue Growth
Previous2
2016 Performance2
New
-
-
5% or greater
Diluted Earnings Per Share Growth
8% to 13%
Declined 3.9% year over year
7% or greater
Return on Shareholders’ Equity (ROE)
Annual ROE >16% ROE of 16.3%
15% or greater
Dividend Payout Ratio
19% to 26%
Dividend Payout Ratio of 25%
-
1 Measures are calculated on an adjusted basis.
2 2016 Mid-term targets and performance were calculated on an adjusted basis. Previous targets included a measure to maintain a strong capital ratio that exceeds regulatory
minimums by a safe margin commensurate with our risk profile. The Company maintained a strong CET 1 Ratio of 16.55% at the end of 2016.
Management expects that 2017 will be a transition period in which cost reductions and revenue generation initiatives
continue to unfold. Successful delivery of these items is expected to translate into improved results consistent with the above
goals later in 2017 and beyond.
2017 Strategic Priorities
The Company has updated its vision, mission, values, and strategic priorities, which inform and are reflected in new
performance goals. Home Capital’s foundation and culture support achievement of the Company’s strategic priorities and
vision of being a leader in providing financial services to underserved Canadians. The Company’s foundation comprises the
key strengths of Talent, Service, Technology, Agility, and Risk Management.
Beginning in 2017 and moving forward, Home Capital is focused on the following strategic priorities to position the Company
for long-term success:
Prudent Growth in the Core Residential Mortgage Business
Provide Innovative Products and Solutions
Positive Operating Leverage
Efficient Balance Sheet and Capital Utilization
8
2017 Overall Outlook
Looking ahead, the Board of Directors and management expect that Home Capital will continue generating solid shareholder
returns in 2017 and beyond.
Government Changes to Insured Mortgage Rules
The Company continues to watch and anticipate the impact of the recently implemented measures taken to tighten mortgage
rules, which came into effect mid-October and the end of November 2016. These rules had minimal impact on the Company’s
2016 results but it is expected that the impacts on the housing market and on consumers and competitors will become
clearer further into 2017, especially as the seasonally active spring market arrives. Further policy changes, particularly as
they pertain to risk sharing, are expected to become more defined further into 2017.
Policymakers are focused on controlling household debt and cooling particular housing markets in Canada. It is expected that
if recently implemented and known policies are not effective, the Company will potentially need to be prepared to adapt to
further changes.
Market Conditions
In the Company’s established regions, the Company expects that the housing market will remain active with tight supply
supported by continued low interest rates and relatively stable employment, depending on location and level of immigration.
There will be moderate easing of housing starts and resale activity and relatively stable prices throughout most of Canada,
with continued regional disparities such as the relatively high prices and increased concern over affordability seen in Toronto
and Vancouver. Canada Mortgage and Housing Corporation (CMHC) issued a “red alert” for the country's real estate market
in October 2016 and is maintaining its “red warning” early in 2017 for the country’s real estate market as a whole, with high
prices in and around Vancouver and Toronto among its top concerns. Pressure and affordability issues have also spread
among the suburbs of Toronto and Vancouver, with CMHC expressing concerns related to surrounding areas such as
Hamilton, Ontario and Victoria, British Columbia. These conditions support continued low credit losses and stable demand for
the Company’s lending products in its established regions. The Company believes that the current and expected levels of
housing activity indicate a stable real estate market overall.
The Company expects to see the impact of certain positive economic forces on its established markets through 2017,
including a generally positive outlook for the US economy although some uncertainty exists with the change in
administration, the Canadian dollar remaining low compared to the US dollar, the continued low domestic interest rate
environment, stimulative impact from increased Federal Government spending, and the continued benefits of relatively lower
oil prices on economic growth in Central Canada. In addition, adverse effects related to lower oil prices and other commodity
prices continue to impact the economies of energy-producing regions.
Traditional Single-family Mortgage Lending
The Company expects to see continuing demand supporting its origination volumes through 2017, building its market share
through the Company’s proven business model and continued focus on improving service levels. The Company expects that
the launch of certain initiatives, including its broker portal technology, Loft, as well as renewed focus on service, retention
and product development in 2017 will allow the Company to continue to build its origination volumes, leveraging the demand
for its traditional mortgages within its established regions. The Company will continue to build its uninsured ACE Plus
product, which is a lower-rate mortgage product directed towards lower-risk borrowers, through 2017. The product may
lower the overall uninsured single-family residential mortgage net interest margin.
Net interest margins in the traditional portfolio reflected both improved credit quality of borrowers and more competitive
pricing. The Company expects the 2017 net interest margin to remain relatively stable, but is prepared for modest volatility
as the net interest margin will be impacted by the continued improving credit quality of the overall portfolio resulting from
regulatory changes to mortgage rules over the past few years, among other variables.
Uninsured Securitized Mortgage Lending
To partially offset the impact of the ACE Plus product on overall net interest margin, the Company commenced participation
in a bank-sponsored securitization conduit program during the second quarter of 2016. The sponsor of the program is a
Schedule 1 Canadian bank with which the Company has entered into an agreement to assign to the conduit all of the
Company’s interests in qualifying uninsured single-family residential mortgages. The participation in this program provides
for cost-effective funding of its ACE Plus product, and the Company will continue to participate in this program.
Insured Securitized Mortgage Lending
The Company will continue to originate and securitize prime insured single-family and insured multi-unit residential
mortgages and will generally sell these off-balance sheet, generating gains on sale. The market for both of these products
remains very competitive and the Company expects that new origination levels, seasonality, spreads and gains on sale will
be similar to levels experienced since the second half of 2016 but this is dependent on market conditions and competition.
9
The Company has previously disclosed that it anticipates that limitations placed by the new mortgage rules on the eligibility
criteria for low-ratio government-backed insured mortgages could significantly reduce the Company's ability to profitably
originate and fund these mortgages. Specifically, low-ratio lending for the purpose of refinancing and rental properties will
be primarily impacted within the Company's Accelerator program. The Company remains committed to offering a range of
mortgage products through its distribution channel and is actively pursuing new products and initiatives, where possible, to
fill market demand and capacity as needed.
Commercial Mortgage Lending
Commercial mortgage lending will remain an important portfolio for the Company, with high yields and providing asset
diversification. The Company has been a prudent and conservative lender in this segment, experiencing very low levels of
losses and delinquencies. The Company plans to continue to grow the non-residential commercial portfolio in 2017 at a rate
similar to 2016 if market conditions remain favourable.
Consumer Lending
Credit cards and other consumer retail loans will continue to be important complementary high-margin product offerings
supporting both the “one-stop” lending strategy with mortgage brokers and diversification via other parties.
Deposits
The Company will continue to source deposits from the public through investment dealers and deposit brokers and will
continue to emphasize growth of its direct-to-consumer business, Oaken Financial. The Company will continue to strengthen
its funding capability through agreements with additional deposit brokers and the enhancement of its direct-to-consumer
sales and service capabilities.
In Q3 2016, the Company completed the integration of Home Bank’s deposit business into the Company’s infrastructure.
Home Bank is now seamlessly available through both the intermediary and the Oaken Financial channels. Deposit funding
generated through Home Bank will further facilitate the Company’s deposit diversification.
The Company will continue to issue institutional deposits when appropriate, given market conditions.
Credit Performance and Losses
The Company’s prudent underwriting and collection practices are reflected in low levels of credit losses and delinquencies.
Credit losses and delinquencies are expected to remain low in 2017; however, the Company is prepared for volatility in this
performance that may result from uncertainty in the macroeconomic environment. Credit performance in the energy-
producing regions is expected to deteriorate, but given the Company’s limited exposure in these geographic areas, the effect
on credit losses is not expected to be material for the Company.
Non-interest Expenses
The Company is committed to a heightened focus on expenses to improve efficiency. As part of that focus, the Company
announced an expense savings initiative for 2017, Project EXPO, that targets, at minimum, an annualized $15.0 million of
cost savings based on an annualized run rate of Q4 2016 expenses (excluding items of note) over the course of 2017. This
project will encompass most expense categories, including employees, premises and other operating expenses, and will
result in restructuring provisions to be taken in 2017.
Moving ahead, Home Capital will continue to make the investments required to enable the Company to meet its strategic
goals, but will do so in a manner that results in expenses rising at a more measured rate.
Liquidity and Capital
The Company continues to hold high levels of capital as measured by regulatory risk-based capital ratios and leverage ratios.
Further, the Company has accumulated capital more rapidly through retained earnings than would be required to support the
business activities. The Company will continue to employ robust capital adequacy stress-testing techniques to ensure that its
conservative capital position is maintained and to provide for the flexibility to take advantage of appropriate market
opportunities as they arise, and to pay its shareholders an appropriate return.
The Company expects to participate opportunistically in its normal course issuer bid activity, which it accelerated in 2016
relative to previous years. The Company expects capital ratios to exceed both regulatory and internal capital targets. The
Company will continue to evaluate opportunities to further optimize capital levels during 2017.
The Company will continue to diversify its funding sources and maintain a strong liquidity position by holding a sufficient
stock of unencumbered high-quality liquid assets.
Strong levels of capital and liquidity provide additional safety and soundness to depositors.
This Outlook section contains forward-looking statements. Please see the Caution Regarding Forward-looking
Statements in this report.
10
FINANCIAL HIGHLIGHTS
Table 1: Key Performance Indicators
For the years ended December 31
(000s, except %, multiples and per share amounts)
2016
2015
2014
2013
2012
FINANCIAL PERFORMANCE MEASURES
Total revenue
Total adjusted revenue1
Net income
Adjusted net income1
Net interest income
Earnings per share - basic2
Adjusted earnings per share - basic1,2
Earnings per share - diluted2
Adjusted earnings per share - diluted1,2
Dividends per share2
Return on shareholders' equity
Adjusted return on shareholders' equity1
Return on average assets
Net interest margin (TEB)3
Net interest margin non-securitized assets (TEB)3
Net interest margin CMHC-sponsored securitized assets
Efficiency ratio (TEB) 3
Adjusted efficiency ratio (TEB) 1,3
FINANCIAL CONDITION MEASURES
Total assets
Total assets under administration4
Cash and securities-to-total assets
Total loans5
Total loans under administration4,5
Common Equity Tier 1 capital ratio6
Tier 1 capital ratio6
Total capital ratio6
Assets to regulatory capital multiple6,7,8
Leverage ratio6,8
Credit quality
Provision for credit losses as a % of gross loans
Net non-performing loans as a % of gross loans
Allowance as a % of gross non-performing loans
$
967,719 $
995,767 $
1,042,986 $
949,547 $
887,685
967,068
247,396
263,414
485,164
993,711
1,010,311
287,285
288,857
481,090
313,172
289,153
459,529
949,547
256,542
256,542
421,979
887,685
221,983
221,983
381,472
3.71
3.96
3.71
3.95
0.98
15.3%
16.3%
1.2%
2.37%
2.73%
0.47%
40.8%
37.6%
4.09
4.12
4.09
4.11
0.88
18.7%
18.8%
1.4%
2.36%
2.83%
0.49%
32.4%
31.8%
4.48
4.14
4.45
4.11
0.70
23.8%
22.0%
1.6%
2.25%
2.83%
0.67%
27.2%
28.8%
3.70
3.70
3.66
3.66
0.54
23.9%
23.9%
1.3%
2.17%
3.01%
0.73%
28.7%
28.7%
3.20
3.20
3.19
3.19
0.45
25.5%
25.5%
1.2%
2.09%
3.10%
0.93%
27.7%
27.7%
$
20,528,777 $
20,527,062 $
20,082,744 $
20,075,850 $
18,800,079
28,917,534
27,316,476
24,281,366
21,997,781
19,681,750
8.5%
7.8%
4.7%
5.8%
3.8%
$
18,035,317 $
18,268,708 $
18,364,910 $
18,019,901 $
17,159,913
26,424,074
25,058,122
22,563,532
19,941,832
18,041,584
16.55%
16.54%
16.97%
N/A
7.20%
0.04%
0.30%
73.4%
18.31%
18.30%
20.70%
N/A
7.36%
0.05%
0.28%
74.0%
18.30%
18.30%
20.94%
12.47
N/A
0.07%
0.30%
64.4%
16.80%
16.80%
19.69%
13.19
N/A
0.09%
0.35%
52.4%
N/A
17.01%
20.68%
13.39
N/A
0.09%
0.33%
57.0%
1 See definition of total adjusted revenue, adjusted net income, adjusted basic and diluted earnings per share, adjusted return on shareholders' equity and adjusted
efficiency ratio under Non-GAAP Measures in this report and the reconciliation of net income to adjusted net income in Table 2.
2 During Q1 2014, the Company paid a stock dividend of one common share per each issued and outstanding common share. Accordingly, diluted earnings per share is reduced
to half and the number of shares disclosed is doubled for all periods prior to the dividend presented for comparative purposes.
3 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in this report.
4 Total assets and loans under administration include both on- and off-balance sheet amounts.
5 Total loans include loans held for sale.
6 These figures relate to the Company's operating subsidiary, Home Trust Company. Figures are calculated under Basel III with the exception of 2012 figures which were
calculated under Basel II.
7 Commencing in Q3 2013, the Company excluded from its assets, for the purpose of calculating the assets to regulatory capital multiple, mortgages that are off-balance sheet
as a result of sales of residual interests in light of regulatory communications confirming this treatment. The comparative multiple for 2012 was restated to reflect this
treatment.
8 Effective Q1 2015, the Assets to Regulatory Capital Multiple has been replaced with the Basel III leverage ratio. See definition of the leverage ratio under
Non-GAAP Measures in this report.
11
Items of Note
Items of note are removed from reported results in determining adjusted results. Adjusted results are designed to provide a
better understanding of how management assesses underlying business performance and to facilitate a more informed
analysis of trends. Adjusted results are determined after removing items of notes from reported results.
The Company’s results were affected by the following items of note that aggregated to a negative impact of $16.0 million,
net of tax, or $0.24 diluted earnings per share in 2016:
$9.0 million of goodwill impairment loss related the Company’s PSiGate business ($9.0 million net of tax and $0.13
diluted earnings per share). Please see the Non-Interest Expenses section of this report for more information.
$5.1 million of intangible asset impairment loss related to internally developed software costs ($3.8 million net of tax
and $0.06 diluted earnings per share). Please see the Non-Interest Expenses section of this report for more
information.
Expenses including severance and other related costs in the amount of $5.1 million ($3.7 million net of tax and
$0.06 diluted earnings per share), that were recognized in the first quarter of 2016. Please see the Non-Interest
Expenses section of this report for more information.
Positive adjustment to gain recognized on the acquisition of CFF Bank in the amount of $651 thousand ($478
thousand net of tax and $0.01 diluted earnings per share).
The Company’s results were also affected by the following items of note in 2015:
$0.7 million in acquisition costs and $3.5 million in integration costs, less $2.1 million in relation to a bargain
purchase gain for a net negative impact of $2.1 million related to the acquisition of CFF Bank in 2015 ($1.6 million
after tax and $0.02 diluted earnings per share).
Income Statement Highlights for 2016
Reported net income of $247.4 million in 2016, a decrease of $39.9 million or 13.9% from net income of $287.3
million in 2015.
Adjusted net income of $263.4 million in 2016, as defined in Table 2, decreased $25.4 million or 8.8% from adjusted
net income of $288.9 million in 2015.
Reported diluted earnings per share of $3.71 decreased from the reported diluted earnings per share of $4.09 in
2015
Adjusted diluted earnings per share of $3.95 decreased from the adjusted diluted earnings per share of $4.11 in
2015.
Return on average shareholders’ equity was 15.3% for 2016, compared to 18.7% for 2015. Adjusted return on
average shareholders’ equity was 16.3% for 2016, compared to 18.8% for 2015.
Total net interest income increased to $485.2 million, up $4.1 million or 0.8% over the $481.1 million earned in
2015, reflecting higher total net interest margin (TEB) of 2.37% compared to 2.36% in 2015.
Net interest income on non-securitized assets was $471.1 million in 2016, increasing 1.7% over 2015 on higher
average asset balances of $17.37 billion, compared to $16.53 billion in 2015. Net interest margin (TEB) on this
portfolio was 2.73% for 2016, down from 2.83% in 2015 as a result of higher average lower-yielding liquid assets.
Total income earned from securitization includes both net interest income on securitized assets and securitization
income arising from sales of securitized assets. Combined net interest income on securitized assets and
securitization income was $47.9 million for the year, compared to $44.2 million in 2015. The increase over last year
resulted from an increase in securitization gains on sales.
Fees and other income decreased $11.3 million or 13.7% as a result of changes in the portfolio mix and in the fee
structure year over year as the Company adjusted certain fees in the first half of the year to be responsive to its
markets.
The credit quality of the loan portfolio remains strong with continued low non-performing loans and credit losses.
Provisions for credit losses were $7.9 million for the year, a decrease from the $8.9 million recorded last year.
Provisions were 0.05% of gross uninsured loans, down from 0.06% in 2015. Net non-performing loans as a
percentage of gross loans ended the year at 0.30% compared to 0.28% at the end of last year.
12
Non-interest expenses, which include salaries, premises and other operating expenses, were $238.9 million in 2016,
up 25.3% over the $190.7 million recorded in 2015. The Company’s adjusted efficiency ratio (TEB) increased to
37.6% in 2016 from 31.8% in 2015 as a result of the higher expenses combined with lower growth in net interest
income. The increase in expenses includes higher salaries and benefits resulting from an increase in the number of
employees combined with higher operating expenses reflecting continued investment in technology, ongoing
investment in the Company’s IT security platform, and costs associated with strengthening risk management and
compliance infrastructure. In addition, non-interest expenses in 2016 include $5.1 million in severance and other
related costs, a $9.0 million goodwill impairment loss and a $5.1 million intangible asset impairment loss, each of
which has been removed for the purposes of calculating the Company’s adjusted metrics.
Balance Sheet Highlights for 2016
Total assets under administration, which includes $8.39 billion of mortgages accounted for off-balance sheet,
reached $28.92 billion, an increase of 5.9% over $27.32 billion in 2015.
The Company sold residual interests in securitization transactions of $1.49 billion, compared with $1.18 billion last
year, which, combined with amortization of MBS liabilities and maturity of CMB liabilities, reduced both the
securitized mortgage loans and securitization liabilities.
Mortgage originations were $9.23 billion in 2016, compared to the $8.06 billion originated in 2015, an increase of
14.5%. The increase in originations reflects increases in all mortgage products. Single-family residential mortgage
originations continue to represent the Company’s primary focus with combined traditional and ACE Plus mortgage
originations accounting for 58.5% of originations and Accelerator (insured) residential mortgage originations
accounting for 17.6% of originations. Residential commercial and non-residential commercial mortgage originations
make up the remaining 23.9% of the originations.
Traditional mortgage originations were $4.99 billion, up 3.5% over originations of $4.82 billion in 2015. Accelerator
(insured) residential mortgage originations were $1.62 billion, up 16.5% compared to 2015 originations of $1.39
billion. ACE Plus mortgage originations were $407.8 million compared to originations of $253.1 million in 2015.
The credit quality of the loan portfolio remains strong with continued low non-performing loans. Net non-performing
loans as a percentage of the gross loan portfolio ended the year at 0.30%, slightly up from 0.28% one year ago.
Liquid assets at December 31, 2016 were $2.07 billion, compared to $2.10 billion at December 31, 2015. The
Company maintains a prudent level of liquidity, given the current level of operations and the Company’s obligations.
Home Trust’s capital levels were strong throughout 2016, as indicated by the Common Equity Tier 1 ratio of 16.55%
and the Tier 1 and Total capital ratios of 16.54% and 16.97%, respectively, at December 31, 2016. Home Trust’s
Leverage ratio ended 2016 at 7.20%. The capital ratios decreased from the end of 2015 primarily as a result of the
dividends paid by Home Trust to Home Capital to fund the repurchase of shares under the Company’s substantial
issuer bid and normal course issuer bid activity combined with the repayment and retiring of the subordinated debt
from Home Trust to Home Capital.
Deposits reached $15.89 billion, up from $15.67 billion at December 31, 2015. Total deposits raised through the
Company’s deposit diversification efforts, Oaken Financial, high-interest savings accounts and institutional deposits
now total $4.59 billion, an increase of $943.6 million or 25.9% over last year.
Securitization liabilities were $2.65 billion at the end of 2016, down from $2.78 billion last year. Originations in the
Accelerator portfolio, which is typically funded by way of securitization, were exceeded by the amortization of MBS
liabilities and maturities of CMB liabilities combined with loans removed from the balance sheet on the sale of
residual securitization interests, resulting in the overall decline in the securitization liabilities.
During the year, the Company repurchased $150.0 million of common shares under its substantial issuer bid in the
second quarter of 2016 and repurchased an additional $49.2 million of common shares under its normal course
issuer bid activity, resulting in a total repurchase of $199.2 million of common shares. The Company also repaid and
retired its senior debt in the principal amount of $150.0 million.
13
2016
2015
Change
$
471,057 $
463,140
1.7%
14,107
17,950
(21.4)%
485,164
481,090
0.8%
7,890
8,933
(11.7)%
477,274
472,157
96,795
103,793
238,939
190,673
1.1%
(6.7)%
25.3%
335,130
385,277
(13.0)%
87,734
97,992
(10.5)%
247,396 $
287,285
(13.9)%
3.71 $
3.71 $
4.09
4.09
(9.3)%
(9.3)%
$
$
$
$
247,396 $
287,285
(13.9)%
1,572
(130.4)%
(478)
3,727
9,000
3,769
$
$
$
263,414 $
288,857
3.96 $
3.95 $
4.12
4.11
-
-
-
-
-
-
(8.8)%
(3.9)%
(3.9)%
FINANCIAL PERFORMANCE REVIEW
Table 2: Income Statement Highlights
(000s, except % and per share amounts)
Net interest income non-securitized assets
Net interest income securitized loans and assets
Total net interest income
Provision for credit losses
Non-interest income
Non-interest expenses
Income before income taxes
Income taxes
Net income
Basic earnings per share
Diluted earnings per share
Reconciliation of Net Income to Adjusted Net Income
Net income per above
Adjustment for acquisition and integration costs, net of gain recognized on acquisition of CFF Bank (net of tax)1
Adjustment for severance and other related costs (net of tax)1
Adjustment for goodwill impairment loss (net of tax)1
Adjustment for intangible assets impairment loss (net of tax)1
Adjusted net income2
Adjusted basic earnings per share2
Adjusted diluted earnings per share2
1 Please see Items of Note under the Financial Highlights section of this MD&A for further information on adjustments.
2 Adjusted net income and adjusted earnings per share are defined in the Non-GAAP Measures section of this MD&A.
14
Net Interest Income and Margin
Presented in Tables 3 and 4 are analyses of average rates, net interest income and net interest margin. Net interest income
is the difference between interest and dividends earned on loans and investments and the interest paid on deposits and
borrowings to fund those assets. The net interest margin is net interest income divided by the Company’s average total
assets. Dividend income has been converted to TEB (refer to the Non-GAAP Measures and Glossary section of this report for
a definition of TEB) for comparison purposes.
Table 3: Net Interest Margin
Net interest margin non-securitized interest-earning assets (non-TEB)
Net interest margin non-securitized interest-earning assets (TEB)
Net interest margin CMHC-sponsored securitized assets
Net interest margin bank-sponsored securitization conduit assets
Total net interest margin (non-TEB)
Total net interest margin (TEB)
Spread of non-securitized loans over deposits and other
2016
2.71%
2.73%
0.47%
1.90%
2.35%
2.37%
2.91%
2015
2.80%
2.83%
0.49%
-
2.34%
2.36%
2.91%
Total net interest margin (TEB), including the securitized portfolio, was 2.37% for 2016 compared to 2.36% in 2015,
reflecting a greater proportion of higher-yielding, non-securitized assets in the on-balance sheet portfolio. Average non-
securitized assets of $17.37 billion for the year represent 84.2% of average total assets compared to 80.2% last year, while
average securitized assets of $2.77 billion for the year represent 13.4% of average total assets compared to 17.6% last
year. The continued decline in average on-balance sheet securitized assets reflects maturities in the on-balance sheet
portfolio and the sales of residual interests in securitized single-family residential mortgages.
15
Table 4: Net Interest Income by Product and Average Rate
(000s, except %)
Interest-bearing assets
Cash resources and securities
Traditional single-family residential mortgages
ACE Plus single-family residential mortgages
Accelerator single-family residential mortgages
Residential commercial mortgages 2
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total non-securitized loans
Taxable equivalent adjustment
Average
Balance1
Income/
Expense
2016
Average
Rate 1
Average
Balance 1
$
1,699,889 $
21,185
1.25% $
1,291,955 $
11,178,997
347,234
1,301,346
427,924
540,522
11,490
30,935
17,614
1,703,572
102,465
372,841
341,315
33,536
31,472
4.84%
3.31%
2.38%
4.12%
6.01%
8.99%
9.22%
11,752,874
55,903
1,113,847
409,718
1,319,640
346,965
237,024
15,673,229
768,034
4.90%
15,235,971
-
3,654
-
-
Total non-securitized interest earning assets
17,373,118
792,873
4.56%
16,527,926
CMHC-sponsored securitized single-family residential mortgages
CMHC-sponsored securitized multi-unit residential mortgages
Assets pledged as collateral for CMHC-sponsored securitization
Total CMHC-sponsored securitized residential mortgages
Bank-sponsored securitization conduit assets
Other assets
1,794,437
651,513
234,968
2,680,918
85,983
498,643
46,642
29,866
2,246
78,754
2,951
-
2.60%
4.58%
0.96%
2.94%
3.43%
-
2,252,930
865,228
517,273
3,635,431
-
435,311
Income/
Expense
18,571
587,005
1,849
28,777
17,053
80,032
31,427
23,419
769,562
3,830
791,963
62,891
36,625
4,325
103,841
-
-
2015
Average
Rate 1
1.44%
4.99%
3.31%
2.58%
4.16%
6.06%
9.06%
9.88%
5.05%
-
4.79%
2.79%
4.23%
0.84%
2.86%
-
-
Total assets
Interest-bearing liabilities
Deposits and other
Senior debt
CMHC-sponsored securitization liabilities
Bank-sponsored securitization conduit liabilities
Other liabilities and shareholders’ equity
Total liabilities
Net Interest Income (TEB)
Taxable Equivalent Adjustment
$
20,638,662 $
874,578
4.24% $
20,598,668 $
895,804
4.35%
$
15,844,985 $
315,919
1.99% $
14,901,524 $
318,597
57,347
2,719,469
83,357
1,933,504
2,243
66,278
1,320
-
3.91%
2.44%
1.58%
153,089
3,698,669
-
-
1,845,386
$
20,638,662 $
385,760
1.87% $
20,598,668 $
$
488,818
(3,654)
$
6,396
85,891
-
-
410,884
484,920
(3,830)
2.14%
4.18%
2.32%
-
-
1.99%
Net Interest Income per Financial Statements
1 The average is calculated with reference to opening and closing monthly asset and liability balances.
2 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.
485,164
$
$
481,090
Total net interest income of $485.2 million increased 0.8% from last year, reflecting increases in the non-securitized portfolio
offset partially by declines in the securitized portfolio.
Net interest income on the non-securitized portfolio of $471.1 million in 2016 increased by $7.9 million or 1.7% over 2015,
reflecting an increase of $845.2 million or 5.1% in average asset balances, while net interest margin (TEB) declined 10 basis
points to 2.73% from 2.83% last year. Despite a consistent spread of non-securitized loans over deposits and other of
2.91% in both 2016 and 2015, non-securitized net interest margin declined as a result of higher average lower-yielding liquid
assets held during the year, combined with a decrease in the average rate earned on those assets. Average cash resources
and securities represented 9.8% of average non-securitized assets in 2016 compared to 7.8% in 2015. The Company held
significantly higher liquid assets during the first half of 2016 to fund the repurchase of shares under the substantial issuer bid
completed in the second quarter along with the maturity of the Company’s senior debt and institutional deposit notes also in
the second quarter of 2016. The consistent spread of non-securitized loans over deposits and other with 2015 includes a
decline in the average rate earned on non-securitized loans offset by a decrease in the average rate on deposits. The
decrease in the average rate earned on non-securitized loans reflects a combination of the improved credit quality of the
portfolio and more competitive pricing. The decrease in the average rate on deposits reflects the higher proportion of lower-
cost demand deposits relative to higher-cost fixed-term deposits. Deposits payable on demand represented 15.9% of total
deposits at the end of 2016 compared to 12.7% at the end of 2015.
During the second quarter of 2016, the Company commenced participation in a bank-sponsored securitization conduit
program and began assigning ACE Plus single-family residential mortgages into the program. The ACE Plus product is a
lower rate mortgage product directed toward lower-risk borrowers. The bank-sponsored securitization conduit program
provides for a cost-effective funding source for the ACE Plus product. At the end 2016, the balance of securitized ACE Plus
mortgages assigned into this program was $114.3 million. The net interest margin on these assets was 1.90%.
The net interest income and net interest margin on CMHC-sponsored securitized assets in 2016 declined from 2015,
reflecting net run-off and the maturity of higher-yielding MBS and CMB pools and the use of lower-yielding assets as
replacement assets in the CMB program.
16
Non-Interest Income
Table 5: Non-interest Income
(000s, except %)
Fees and other income
Securitization income
Gain on acquisition of CFF Bank
Net realized and unrealized (losses) gains on securities
Net realized and unrealized losses on derivatives
Table 6: Securitization Income
(000s, except %)
Net gain on sale of mortgages and residual interest1
Net change in unrealized gain or loss on hedging activities
Servicing income
Total securitization income
1 Gain on sale of mortgages and residual interest are net of hedging impact.
2016
$
71,329 $
33,797
651
(175)
(8,807)
2015
82,632
26,208
2,056
836
(7,939)
$
96,795 $
103,793
2016
2015
26,972 $
21,412
399
6,426
(313)
5,109
33,797 $
26,208
$
$
Change
(13.7)%
29.0%
(68.3)%
(120.9)%
(10.9)%
(6.7)%
Change
26.0%
227.5%
25.8%
29.0%
Fees and other income decreased 13.7% from last year, reflecting changes in the portfolio mix and in the fee structure as
the Company adjusted certain fees in the first half of the year to be responsive to its markets. The Company expects fee
income for 2017 to remain at levels consistent with the second half of 2016, but management will continue to periodically
review its fee structure.
Securitization income during the year resulted primarily from gains recognized on the sale of residual interests in single-
family residential mortgage securitizations and the sale of insured multi-unit residential mortgages. Securitization income
primarily includes sales of underlying mortgages either newly originated or renewed during the period along with insured
mortgages held in inventory from prior periods. In the case of single-family residential mortgage sales, the Company will
service the loans and record related fee revenue over the remaining term of the underlying mortgages. In the case of multi-
unit residential mortgages, the Company outsources the servicing activity and no further servicing revenue or fees are
recorded. Servicing income increases as the size of the single-family residential mortgage portfolio under administration
increases.
The increase in securitization income over last year reflects increased net gains on the sale of both residual interests in
insured single-family residential mortgage securitizations and insured multi-unit residential mortgages combined with an
increase in servicing income. Sales of residual interests during the year led to gains of $17.4 million on the derecognition of
$1.49 billion of underlying insured single-family residential mortgages compared to gains of $15.5 million on the
derecognition of $1.18 billion of underlying mortgages last year. During the year, the Company recognized gains of $9.6
million on sales of $1.05 billion of insured multi-unit residential mortgages compared to gains of $5.9 million recognized last
year on sales of $713.6 million of insured multi-unit residential mortgages. The Company expects gains on sales in 2017 to
be impacted by the effect that the new mortgage rules introduced by the government in late 2016 will have on the
Company’s origination of insured single-family residential mortgages.
During the year, the Company recognized $0.2 million of additional impairment losses on certain available for sale securities
previously identified as impaired. The Company did not sell any securities during the year. In 2015, the Company
recognized a gain of $1.7 million on the sale of certain available for sale securities and recognized $0.9 million of impairment
losses.
Please see the discussion below on Derivatives and Hedging related to net realized and unrealized loss on derivatives.
17
Derivatives and Hedging
The Company enters into derivative transactions primarily to hedge interest rate exposure resulting from outstanding loans
held for sale and to hedge interest rate risk on fixed-rate securitization liabilities and deposits. Where appropriate, the
Company will apply hedge accounting to minimize volatility in reported earnings from interest rate changes. All derivative
contracts are over-the-counter contracts with highly rated Canadian financial institutions. Please see Note 19, Derivative
Financial Instruments, to the consolidated financial statements included in this report for further information. Table 7 below
summarizes the impact of derivatives and hedge accounting on the Company’s financial results.
Table 7: Derivatives Gains and Losses
(000s)
Fair value hedging ineffectiveness1
Derivative instruments marked-to-market gains (losses)2
Net realized and unrealized loss on derivatives
1 Included in fair value hedging ineffectiveness are derivative losses related to senior debt.
2 Included in derivative instruments marked to market are swaps.
Cash Flow Hedging
2016
(9,335) $
528
(8,807) $
$
$
2015
(7,797)
(142)
(7,939)
The Company uses Government of Canada bond forwards to hedge the impact of movements in interest rates between the
time that mortgage commitments are made and the time that those mortgages are funded and/or securitized. Hedges are
structured such that the fair value movements of the hedge instruments offset, within a reasonable range, the changes in the
fair value of the pool of fixed-rate mortgages due to interest rate fluctuations between commitment and funding. The term of
these hedges is generally 60 to 150 days. These hedge instruments are settled or unwound at the time of funding or
securitization of the underlying mortgages. The Company applies cash flow hedge accounting to the Government of Canada
bond forwards. The intent of hedge accounting is to recognize the effective matching of the gain or loss on the Government
of Canada bond forwards with the recognition of the related interest expense on the resulting funding. Cash flow hedge
accounting is also applied to total return swaps to hedge the variability in cash flows associated with forecasted future
compensation obligations attributable to changes in the Company’s stock price.
Fair Value Hedging
The Company is exposed to interest rate risk through fixed-rate financial assets and liabilities and its participation in the CMB
program due to reinvestment risk between the amortizing fixed-rate MBS and the bullet maturity fixed-rate CMB. To hedge
these risks, the Company enters into interest rate swaps and applies fair value hedge accounting. The intent of fair value
hedge accounting is to have the fair value changes in the interest rate swap offset, within a reasonable range, the changes in
the fair value of the fixed-rate borrowing and assets resulting from changes in the interest rate environment. Any unmatched
fair value change is recorded in non-interest income as hedge ineffectiveness through net realized and unrealized gain or loss
on derivatives.
Economic Hedge of Loans Held for Securitization and Sale
The Company enters into bond forwards to hedge interest rate risk on loans held for securitization and sale through National
Housing Act NHA Mortgage-Backed Securities (MBS) securitization programs. The underlying loans are classified as held for
sale for accounting purposes and held at fair value on the balance sheet. The loans are insured mortgages on multi-unit
residential properties. The derivatives used to hedge these loans are not designated in hedge accounting relationships. The
fair value changes of these derivatives are mostly offset by the fair value changes related to loans held for sale. The fair
value changes reflect changes in interest rates. The net unrealized gain as at December 31, 2016 for fair value changes in
both the outstanding derivatives and the loans held for sale was $399 thousand (2015 – unrealized loss of $313 thousand),
which was recorded in securitization income.
Other Interest Rate Swaps
The Company had certain interest rate swaps that were not designated in hedge accounting relationships and, therefore,
were adjusted to fair value without an offsetting hedged amount. These swaps were economic hedges of the Company’s
general interest rate risk and matured in 2016.
Please see Note 19 of the consolidated financial statements for further information.
18
Table 8: Provision for Credit Losses and Net Write-offs as a Percentage of Gross Loans
(000s, except %)
Provision2
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
Total individual provision
Total collective provision
Total provision
Net Write-offs2
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
2016
% of Gross
Amount
Loans 1
Amount
2015
% of Gross
Loans1
$
3,917
0.03% $
5,415
2
246
2,379
532
-
-
7,076
814
7,890
0.00%
0.01%
0.64%
0.14%
-
-
0.04%
0.00%
0.04% $
4
720
798
171
-
-
7,108
1,825
8,933
3,087
0.02% $
5,292
2
515
1,928
275
-
-
0.00%
0.03%
0.52%
0.07%
-
-
4
435
969
168
-
-
$
$
0.04%
0.00%
0.05%
0.22%
0.06%
-
-
0.04%
0.01%
0.05%
0.04%
0.00%
0.03%
0.26%
0.06%
-
-
Net write-offs
1 Gross loans used in the calculation of total Company ratio include securitized on-balance sheet loans.
2 There were no individual provisions, allowances or net write-offs on securitized mortgages.
$
5,807
0.03% $
6,868
0.04%
The provision for credit losses is charged to the consolidated statements of income by an amount that brings the individual
and collective allowances for credit losses to the level determined by management to be adequate to cover incurred losses
and identified credit events in the portfolio, including losses that are not yet individually identifiable. Factors which influence
the provisions for credit losses include the formation of new non-performing loans, the level of individual write-offs and
management’s assessment of the level of collective and individual allowances required based on available data, including the
collateral supporting specific non-performing loans. In addition, management considers current and historical credit
performance of the portfolio, external economic factors, the composition of the portfolio, and the overall growth in the loans
portfolio.
Strong credit performance continued through 2016. The provision for credit losses was $7.9 million, as compared with $8.9
million in 2015. Provisions as a percentage of gross uninsured loans of 0.05% for 2016 decreased from 0.06% in 2015.
The Company continues to observe strong credit profiles and stable loan-to-value ratios across its portfolio, which continues
to support low delinquency and non-performing rates and ultimately low net write-offs. Net write-offs were low at $5.8
million and represented 0.03% of gross loans compared to 0.04% in 2015.
Net non-performing loans as a percentage of gross loans were 0.30% at the end of 2016 compared to 0.28% at the end of
2015. The Company remains satisfied with the credit performance of the portfolio, but is prepared for moderate volatility in
the trend.
The collective allowance balance at December 31, 2016 increased by $0.8 million in 2016 to $37.1 million. The current
collective allowance exceeds the cumulative net write-offs experienced over the last 36 months. Please see the Credit Risk
section of this MD&A for further discussion.
The level of individual allowances at the end of 2016 increased by $1.3 million over 2015, while gross non-performing loans
increased by $3.3 million to $56.9 million. The amount set aside for individual allowances can be influenced by specific local
real estate markets and the amount of time needed to sell when required.
Individual allowances will continue to be determined and reviewed monthly on an account-by-account basis. The collective
allowance for credit losses reflects an ongoing assessment of the strength of the portfolio at any given time, and will continue
to be reviewed at least on a quarterly basis, giving consideration to current economic conditions.
19
Non-Interest Expenses
Table 9: Non-Interest Expenses
(000s, except % and number of employees)
Salaries and benefits
Premises
Other operating expenses
Efficiency ratio (TEB)
Adjusted efficiency ratio (TEB)
Active employees at end of period
2016
$
101,880 $
14,505
122,554
2015
88,873
12,274
89,526
$
238,939 $
190,673
40.8%
37.6%
916
32.4%
31.8%
877
Change
14.6%
18.2%
36.9%
25.3%
8.4%
5.8%
4.4%
The increase in non-interest expenses over last year resulted primarily from increases in both salaries and benefits and other
operating expenses. The increased expenses combined with lower growth in net interest income drove an increase in the
efficiency ratio (TEB) on both an adjusted and unadjusted basis.
The increase in salaries and benefits reflects an increase in the number of active employees over last year combined with
$5.1 million of severance and other related costs incurred in the first quarter of 2016 which have been removed in the
calculation of the Company’s adjusted metrics.
The increase in other operating expenses reflects continued investment in technology, ongoing investment in the Company’s
IT security platform, and costs associated with strengthening risk management and compliance infrastructure. In addition,
other operating expenses include a goodwill impairment loss of $9.0 million in relation to the Company’s PSiGate business
and an intangible asset impairment loss of $5.1 million in relation to software development costs for a component of the
Company’s core banking system for which it was determined that future benefits may not be realized. Please see Notes 9
and 10 to the consolidated financial statements included in this report for further information on these impairment losses.
Both impairment losses have been removed from the Company’s results for the purpose of calculating adjusted metrics.
The Company is currently conducting an expense savings initiative for 2017 as part of its Project EXPO, which was previously
discussed in the 2017 Overall Outlook section of this MD&A. Project EXPO will encompass most expense categories, including
employees, premises and other operating expenses, and will result in restructuring provisions to be taken in 2017. Please see
the 2017 Overall Outlook for more information.
Taxes
Table 10: Income Taxes
(000s, except %)
Current
Deferred
Total income taxes
Effective income tax rate
2016
2015
$
90,895 $
98,481
(3,161)
$
87,734 $
26.18%
(489)
97,992
25.43%
Change
(7.7)%
546.4%
(10.5)%
The provision for income taxes for the year ended December 31, 2016 amounted to $87.7 million, reflecting an effective tax
rate of 26.18% ($98.0 million and 25.43% in 2015). The effective tax rate of the Company is lower than the statutory rate
primarily due to the tax-exempt dividend income from securities and the benefits recorded in the accounts attributed to
scientific research and experimental development (SR&ED) tax credits recognized throughout the year. The Company
claimed $2.0 million in SR&ED tax credits in 2016 ($2.5 million in 2015). Expenses that are non-deductible for tax purposes
include the goodwill impairment loss of $9.0 million, which had an upward impact on the effective tax rate.
Note 17 to the consolidated financial statements included in this report provides more information about the Company’s
current income taxes, deferred income taxes and provision for income taxes.
The Company expects that the effective income tax rate in 2017 will remain within the range of 26.2% to 26.8%, excluding
the impact of any SR&ED credits that may be realized and the receipt of dividends from taxable Canadian corporations. The
Company expects to submit claims for SR&ED in 2017 that may result in a reduction to the effective tax rate of the
Company. In the event that claims are submitted, the effective tax rate will decrease accordingly.
20
Comprehensive Income
Table 11: Comprehensive Income
(000s, except %)
Net income
Net unrealized gains (losses) on securities and retained interests available for sale,
net of reclassifications to net income and taxes
Net unrealized gains (losses) on cash flow hedges,
net of reclassifications to net income and taxes
Total other comprehensive income (loss)
Comprehensive income
2016
2015
$
247,396 $
287,285
Change
(13.9)%
8,877
(46,224)
119.2%
1,602
10,479
(715)
(46,939)
$
257,875 $
240,346
324.1%
122.3%
7.3%
Comprehensive income is the aggregate of net income and other comprehensive income (OCI). Comprehensive income for
the year was $257.9 million compared to $240.3 million in 2015.
OCI for the year was a gain of $10.5 million compared to a loss of $46.9 million in 2015. The gain in OCI reflects the
improvement during the year in the fair value of the Company’s preferred share holdings included in available for sale
securities. Despite this improvement, the preferred share holdings remain in an unrealized loss position, which is due
primarily to the current interest rate environment and prevailing market sentiment relating to preferred shares. The
Company has not identified any new negative credit events in relation to its preferred share holdings in 2016.
21
Change
(8.0)%
(14.6)%
-
(3.8)%
72.5%
(23.8)%
(5.1)%
31.1%
(0.3)%
27.6%
(1.0)%
14.0%
43.2%
23.6%
5.5%
7.7%
3.2%
5.3%
(4.4)%
5.8%
30.6%
13.3%
FINANCIAL POSITION REVIEW
Assets
Table 12: Loans Portfolio
(000s, except % and number of loans)
2016 % of Total
2015 % of Total
CMHC-sponsored securitized single-family residential mortgages
$
1,792,301
6.8% $
1,948,110
CMHC-sponsored securitized multi-unit residential mortgages
Bank-sponsored securitization conduit single-family residential mortgages
620,193
114,310
2.4%
0.4%
726,365
-
7.8%
2.9%
-
Traditional single-family residential mortgages
11,024,960
41.7%
11,463,299
45.8%
ACE Plus single-family residential mortgages
Accelerator single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total loan portfolio
Loans held for sale
Total on-balance sheet loans
Off-balance sheet loans
Single-family residential mortgages
Multi-unit residential mortgages
Total off-balance sheet loans
Total loans under administration
433,800
1.6%
251,411
963,248
3.7%
1,264,708
305,188
1.2%
321,442
1,954,820
7.4%
1,490,648
369,678
378,901
1.4%
1.4%
370,825
296,857
1.0%
5.0%
1.3%
5.9%
1.5%
1.2%
17,957,399
68.0%
18,133,665
72.4%
77,918
0.3%
135,043
0.5%
(42.3)%
$ 18,035,317
68.3% $
18,268,708
72.9%
(1.3)%
$
5,207,351
19.7% $
4,567,155
3,181,406
12.0%
2,222,259
8,388,757
31.7%
6,789,414
18.2%
8.9%
27.1%
$ 26,424,074
100.0% $
25,058,122
100.0%
Total insured mortgages under administration
$ 11,913,490
46.4% $
11,059,569
Total uninsured mortgages under administration
13,762,005
53.6%
13,330,871
45.3%
54.7%
Total mortgages under administration
$ 25,675,495
100.0% $
24,390,440
100.0%
Number of loans outstanding under administration
Mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total number of loans outstanding
65,665
42,707
115,244
223,616
68,710
40,355
88,226
197,291
22
Table 13: Mortgage Continuity
The following table presents the activity during the year in relation to the Company’s on-balance sheet mortgage portfolio.
Single-family residential mortgages and residential commercial mortgages include both non-securitized mortgages and
securitized mortgages. Residential commercial mortgages include loans held for sale.
(000s)
Single-family
Residential
Non-Residential
Residential
Mortgages
Commercial
Commercial
Mortgages
Mortgages
Total
2016
Balance at the beginning of the year
$ 14,927,528 $
1,182,850 $
1,490,648 $ 17,601,026
Advances
Scheduled payments and prepayments1
Discharges
7,020,821
1,149,204
1,055,752
9,225,777
(346,995)
(21,976)
(25,694)
(394,665)
(5,875,503)
(271,425)
(567,195)
(6,714,123)
Capitalization and amortization of fees and other
93,618
11,103
1,309
106,030
Sales of mortgages and residual interests
(1,490,850)
(1,046,457)
-
(2,537,307)
Balance at the end of the year
$ 14,328,619 $
1,003,299 $
1,954,820 $ 17,286,738
(000s)
Single-family
Residential
Non-Residential
Residential
Mortgages
Commercial
Commercial
Mortgages
Mortgages
Total
2015
Balance at the beginning of the year
$
15,440,647 $
1,300,947 $
1,106,878 $
17,848,472
Advances
Scheduled payments and prepayments1
Discharges
Capitalization and amortization of fees and other2
Sales of mortgages and residual interests
6,466,463
(350,931)
(5,645,100)
200,702
(1,184,253)
837,798
(35,377)
(234,175)
27,292
(713,635)
755,148
(24,559)
(336,507)
(10,312)
8,059,409
(410,867)
(6,215,782)
217,682
-
(1,897,888)
Balance at the end of the year
1 Includes regularly scheduled principal payments and unscheduled partial payments.
2 Included in other for single-family residential mortgages in 2015 is $124.0 million of mortgages assumed on the acquisition of CFF Bank.
14,927,528 $
1,182,850 $
$
1,490,648 $
17,601,026
Table 14: Mortgage Advances by Type and Province
2016 % of Total
2015
% of Total
Change
(000s, except %)
Single-family residential mortgages
Traditional
ACE Plus
Accelerator
Residential commercial mortgages
Multi-unit uninsured residential mortgages
Multi-unit insured residential mortgages
Other1
Non-residential commercial mortgages
Stores and apartments
Commercial
$
4,991,051
54.1% $
4,821,659
407,767
1,622,003
142,026
956,406
50,772
80,888
974,864
4.4%
17.6%
1.5%
10.4%
0.5%
0.9%
10.6%
253,064
1,391,740
105,098
688,743
43,957
109,115
646,033
59.9%
3.1%
17.3%
1.3%
8.5%
0.5%
1.4%
8.0%
Total mortgage advances
$
9,225,777
100.0% $
8,059,409
100.0%
(000s, except %)
British Columbia
Alberta
Ontario
Quebec
Other
2016 % of Total
2015
% of Total
$
721,718
7.8% $
263,843
7,347,408
498,393
394,415
2.9%
79.6%
5.4%
4.3%
580,832
321,925
6,541,893
328,485
286,274
7.2%
4.0%
81.1%
4.1%
3.6%
Total mortgage advances
$
9,225,777
100.0% $
8,059,409
100.0%
1 Other residential commercial mortgages include mortgages such as builders' inventory.
3.5%
61.1%
16.5%
35.1%
38.9%
15.5%
(25.9)%
50.9%
14.5%
Change
24.3%
(18.0)%
12.3%
51.7%
37.8%
14.5%
23
Total loans under administration were $26.42 billion at the end of 2016, an increase of $1.37 billion or 5.5% from the end of
2015. On-balance sheet loans were down 1.3% from the end of 2015, while off-balance sheet loans were up 23.6% from the
end of 2015, driving the growth in total loans under administration. Off-balance sheet growth arose from the sale of residual
interests in single-family residential mortgages (resulting in removal of securitized mortgages from the balance sheet) and
securitization of multi-unit residential mortgages qualifying for off-balance sheet accounting. The increase in total loans
under administration was supported by mortgage advances, as well as production of consumer retail loans and credit card
loans and line of credit.
Mortgage Lending
Uninsured Residential Mortgages – Traditional Mortgages and ACE Plus Mortgages
The Company’s uninsured residential mortgage portfolio includes both its traditional mortgage portfolio and its ACE Plus
mortgage portfolio. The ACE Plus product is a lower rate mortgage product directed toward lower risk borrowers which the
Company began originating in the second half of 2015. Commencing in the second quarter of 2016, the Company began
participating in a bank-sponsored securitization conduit program and has assigned select ACE Plus mortgages into this
program. At the end of 2016, ACE Plus mortgages with a balance of $114.3 million have been assigned to this program
and reclassified to securitized mortgages on the consolidated balance sheet. Combined traditional and non-securitized ACE
Plus mortgages of $11.46 billion represent the largest portfolio at 43.4% of loans under administration and 63.5% of on-
balance sheet loans. The combined portfolio decreased by 2.2% from the end of 2015. Combined originations of traditional
and ACE Plus mortgages of $5.40 billion for the year were up 6.4% over last year. Despite this origination growth, the
overall loan portfolio has not increased by a commensurate amount. The Company is continuing its efforts on improving its
retention process and saw signs of improvement towards the end of 2016. Improved results are forecasted to have a larger
impact in 2017.
Insured Residential Mortgages
Insured residential loans under administration, which include both insured single-family and multi-unit residential mortgages,
were $11.91 billion at the end of 2016, reflecting an increase of 7.7% over the balance of $11.06 billion at the end of 2015.
Of this total, $8.39 billion were accounted for off-balance sheet, up $1.60 billion or 23.6% from the end of 2015.
The Company originated $1.62 billion in single-family Accelerator mortgages in 2016, up 16.5% from 2015. The Company
continues to take a conservative approach to growing its residential mortgage business and its participation in the highly
competitive market for prime insured mortgages. The Company views its Accelerator product offering as complementary to
its traditional portfolio. The Company sold residual interests in insured fixed-rate single-family NHA MBS totalling $1.49
billion in underlying outstanding principal amounts in 2016, generating gains of $17.4 million. The NHA MBS market spread
remained wide in 2016, maintaining the increased funding cost on NHA MBS sold in the market. The underlying mortgages
included mortgages newly originated or renewed during the year along with insured mortgages held in inventory from the
prior year.
In 2016, the Company originated $956.4 million of insured multi-unit residential mortgages and sold $1.05 billion that
qualified for off-balance sheet treatment. The sales included mortgages that were renewed from the on-balance sheet
portfolio and resulted in $9.6 million in gains on sale in 2016. The multi-unit residential mortgage market is relatively limited
and the Company participates in appropriate transactions as they become available through various origination channels. As
a result, origination volumes, sales and resultant securitization gains can vary significantly through the year. Most of the
Company’s newly insured multi-unit residential originations qualify for off-balance sheet treatment, and the on-balance sheet
securitized multi-unit residential portfolio is declining through amortization and maturities.
From time to time, the Company pools mortgages and may hold the related MBS as liquid assets or inventory for
replacement assets for the CMB program. These MBS are carried on the balance sheet at amortized cost as part of
residential mortgage loans (see Table 45: Liquidity Resources).
Residential Commercial Mortgages
Residential commercial mortgages include commercial mortgages that are secured by residential property such as non-
securitized multi-unit residential mortgages and builders’ inventory. Insured multi-unit residential mortgages are included in
this portfolio until they are securitized. The Company will continue to increase these portfolios selectively, when appropriate
assets are available.
Non-residential Commercial Mortgages
Non-residential commercial mortgage originations were $1.06 billion in 2016, an increase of 39.8% over 2015. Non-
residential commercial mortgages, which include store and apartment mortgages and commercial mortgages, are an
important complementary source of loan assets and revenue. Non-residential mortgage advances are affected by the
availability of appropriate assets and trends are variable. Through 2017, the Company will continue to participate in
appropriate opportunities as they arise. The portfolio will continue to be managed conservatively by the Company.
24
Geographic Concentration
Mortgage advances continued to favour Ontario, and in particular, the Greater Toronto Area (GTA), through 2016. The
Company will continue to cautiously increase business within other markets in Ontario and the rest of Canada to the extent
that market conditions remain stable. The concentration of new originations is influenced, in part, by the Company’s credit
experience. Please see Note 5(A) of the consolidated financial statements for the geographic distribution of the portfolio.
Table 15: Credit Card, Lines of Credit and Other Consumer Retail Loan Production
(000s, except number of accounts)
2016
2015
Number of
Number of
New Accounts
Amount1 New Accounts
Number of
Amount1 New Accounts
Change
Amount1
Credit card loans and lines of credit
Equityline Visa credit cards
2,522 $
145,277
3,282 $
139,963
Other credit cards and lines of credit
8,939
22,810
10,728
16,858
(23.2)%
(16.7)%
3.8%
35.3%
Other consumer retail loans
Water heaters
34,808
118,847
32,927
137,204
5.7%
(13.4)%
Other consumer retail lending
32.1%
1 For credit cards and lines of credit, the amount represents the authorized credit limits. For water heaters and other retail lending, the amount represents the advanced amount.
9,676
64,846
7,641
49,082
26.6%
Other Consumer Lending
Other lending, comprising credit cards, lines of credit and other consumer retail loans, continues to be an important source of
loan assets with attractive returns. While representing 4.2% of the total on-balance sheet loan portfolio, these assets
generated 7.7% of the interest income from loans for the year.
Credit card and lines of credit balances decreased slightly to $369.7 million at the end of 2016 from $370.8 million at the end
of 2015. Equityline Visa accounts (Home Equity Line of Credit) represent 86.8% of the total credit card and lines of credit
balance. Equityline Visa originations of $145.3 million increased 3.8% in 2016 as compared to 2015 originations of $140.0
million. In general, Equityline Visa account originations trend with single-family residential mortgage origination volumes.
The balance of other consumer retail loans increased 27.6% to $378.9 from $296.9 million at the end of 2015.
25
Cash Resources and Securities
Combined cash resources and securities as at December 31, 2016 increased by $137.2 million from December 31, 2015,
reflecting an increase in cash $55.5 million and an increase in securities of $81.7 million. The Company maintains sufficient
liquidity to meet its future commitments and expected business volumes.
The Company has an uncommitted credit facility and a committed and uncommitted insured mortgage purchase facility with
a Canadian chartered bank. The details of these facilities are disclosed in Note 4 to the consolidated financial statements
included in this report.
In addition to holding cash and securities, the Company maintains prudent liquidity by investing a portion of the liquid assets
in Company-originated MBS. Although these securities are available for liquidity purposes, they are classified as residential
mortgages on the balance sheet, as required by GAAP.
The securities portfolio consists of bonds, residual interests of underlying securitized insured fixed-rate residential mortgages,
and preferred shares. At December 31, 2016, the preferred share portfolio was $193.3 million or 36.2% of the Company’s
securities compared to $190.7 million or 42.0% in 2015. Investment-grade preferred shares represent 83.9% of the
preferred share portfolio (77.2% in 2015). Government bonds represent 63.0% of the securities portfolio compared to 55.9%
in 2015. The entire bond portfolio of $337.2 million ($253.2 million in 2015) is investment grade. Residual interests
represent 0.8% (2015 – 2.1%) of the securities portfolio.
Additional details related to the Company’s securities portfolio can be found in Note 4 to the consolidated financial
statements included in this report.
Table 16: Other Assets
(000s, except %)
Restricted assets
Restricted cash
Non-Home Trust MBS and treasury bills assigned as replacement assets
Derivative assets
Other assets
Accrued interest receivable
Prepaid CMB coupon
Securitization receivable and retained interest
Capital assets
Income taxes recoverable
Other prepaid assets and deferred items
Deferred tax assets
Goodwill and intangible assets
Goodwill
Intangible assets
2016
2015
Change
$
143,296 $
139,046
122,078
37,524
60,314
3,289
213,312
13,013
25,619
33,091
16,914
6,752
115,003
56,875
64,796
63,532
3,544
142,243
14,468
35,953
27,677
15,043
15,752
112,595
$
790,205 $
691,524
3.1%
114.6%
(42.1)%
(5.1)%
(7.2)%
50.0%
(10.1)%
(28.7)%
19.6%
12.4%
(57.1)%
2.1%
14.3%
The increase in other assets over 2015 resulted primarily from an increase of $65.2 million in non-Home Trust MBS and
treasury bills assigned as replacement assets in the CMB program and an increase of $71.5 million in securitization
receivable and retained interest. In general, as CMB maturities approach, the Company replaces maturing securitized
mortgages with non-Home Trust MBS and treasury bills. The increase in securitization receivable and retained interests
reflects the Company’s securitization and sale of insured multi-unit residential mortgages and sales of residual interests in
insured single-family residential mortgages. Further information on the Company’s securitization activity can be found in
Note 6 to the consolidated financial statements included in this report.
The increase in other assets was offset partially by a decrease in derivative assets. Derivative assets and liabilities are
discussed in the Derivatives and Hedging section of this MD&A. In addition, goodwill decreased as a result of a $9.0 million
impairment loss recognized during the year. Please see Note 10 to the consolidated financial statements included in this
report for more information.
26
Liabilities
Deposits, Senior Debt and Securitization Liabilities
Table 17: Deposits, Senior Debt and Securitization Liabilities
(000s, except % and number of accounts)
2016 % of Totals
2015 % of Totals
Change
Deposits payable on demand
High-interest savings accounts
Oaken savings accounts
Other deposits payable on demand
Deposits payable on fixed dates
Brokered GICs
Oaken GICs
Institutional deposit notes
Total deposits
Senior debt
Securitization liabilities
$
2,016,881
12.7% $
1,576,536
10.1%
340,809
174,113
2.1%
1.1%
242,124
167,476
1.5%
1.1%
2,531,803
15.9%
1,986,136
12.7%
11,120,107
70.0%
11,850,238
75.6%
1,429,153
804,967
9.0%
5.1%
846,085
983,499
5.4%
6.3%
13,354,227
84.1%
13,679,822
87.3%
15,886,030
100.0%
15,665,958
100.0%
27.9%
40.8%
4.0%
27.5%
(6.2)%
68.9%
(18.2)%
(2.4)%
1.4%
-
-
151,480
100.0% (100.0)%
CMHC-sponsored mortgage-backed security liabilities
898,386
33.9%
531,326
CMHC-sponsored Canada Mortgage Bond liabilities
1,637,117
61.8%
2,249,230
Bank-sponsored securitization conduit liabilities
114,146
4.3%
-
19.1%
80.9%
-
Total securitization liabilities
Total number of deposit accounts
$
2,649,649
100.0% $
2,780,556
100.0%
441,782
433,373
69.1%
(27.2)%
-
(4.7)%
1.9%
The Company’s deposit portfolio primarily provides funding for the non-securitized loan portfolio. The Company’s deposit
portfolio principally comprises fixed-term deposits, which represent 84.1% of all deposits, thereby reducing the risk of
untimely withdrawal of funds by retail clients. The Company generally matches the terms of its deposits with its assets.
Please see the Structural Interest Rate Risk and the Liquidity and Funding Risk sections of this MD&A for more information.
The Company continued to source deposits primarily through deposit brokers and investment dealers. Other deposits payable
on demand include amounts collected for real estate tax accounts which are generally paid out in accordance with each
municipality’s payment frequency requirements. Please see Note 11 to the consolidated financial statements included in this
report for a breakdown of the Company’s deposit portfolio by remaining contractual term to maturity and yield.
Total deposits of $15.89 billion increased 1.4% over 2015. The Company continues its efforts to diversify its sources of
funding. The balance of Oaken deposits at the end of the year was $1.77 billion, reflecting an increase in the balance over
last year of 62.6%. Home Trust high-interest savings accounts, distributed through investment brokers and financial
planners, continued to grow, reaching a balance of $2.02 billion at the end of the year, an increase of 27.9% over the
balance of $1.58 billion in 2015. In addition, the Company has institutional deposit notes of $805.0 million at the end of
2016, compared to $983.5 million at the end of 2015. The decrease in institutional deposit notes over the end of 2015
reflects the maturity of deposit notes with a principal amount of $175 million in Q2 2016.
Securitization liabilities, including both CMHC- and bank-sponsored liabilities decreased $130.9 million from the end of 2015
primarily due to the maturity of CMB liabilities. CMB liabilities are bullet bonds and only decline when the underlying bonds
mature. MBS liabilities have increased from the end of 2015, reflecting the issuance of new MBS which remained on-balance
sheet. New CMHC-sponsored securitization transactions related to insured fixed-rate single-family residential mortgages are
primarily sold off-balance sheet subsequent to securitization. The bank-sponsored securitization conduit program was
introduced during 2016. Please see Note 6 to the consolidated financial statements for more information on the Company’s
securitization programs.
27
Table 18: Other Liabilities
(000s, except %)
Derivative liabilities
Other liabilities
Accrued interest payable
Securitization servicing liability
Other, including accounts payable and accrued liabilities
Deferred tax liabilities
2016
$
3,490 $
2015
5,447
130,222
20,573
185,337
36,284
131,534
15,234
118,173
37,574
$
375,906 $
307,962
Change
(35.9)%
(1.0)%
35.0%
56.8%
(3.4)%
22.1%
The increase in other liabilities resulted primarily from an increase in accounts payable and accrued liabilities, which fluctuate
based on timing of the payment of associated liabilities. The increase in accounts payable and accrued liabilities also reflects
increased amounts to be remitted for principal and interest payments received on single-family residential mortgages that
the Company has previously derecognized but continues to service. The increase in these amounts are in line with the growth
in the off-balance sheet portfolio. The increase in securitization servicing liability also reflects the growth in the off-balance
sheet single-family residential mortgage portfolio.
Shareholders' Equity
Table 19: Shareholders' Equity
(000s, except %)
Shareholders' equity at the beginning of the year
Net income
Other comprehensive income (loss)
Amounts related to stock-based compensation
Repurchase of shares
Dividends
2016
2015
$
1,621,106 $
1,448,633
247,396
10,479
2,581
(199,196)
(65,174)
287,285
(46,939)
5,978
(10,712)
(63,139)
Shareholders' equity at the end of the year
$
1,617,192 $
1,621,106
Change
11.9%
(13.9)%
122.3%
(56.8)%
(1,759.6)%
(3.2)%
(0.2)%
The decrease of $3.9 million in total shareholders’ equity since December 31, 2015 resulted from the $199.2 million
reduction on repurchase of shares combined with $65.2 million of dividends to shareholders, which was mostly offset by the
internal generation of net income and other comprehensive income. The significant increase in repurchase of shares is
primarily attributable to the substantial issuer bid completed in Q2 2016 for $150.0 million, but also includes increased
normal course issuer bid activity. Please see Notes 14 and 15 to the consolidated financial statements included in this report
for more information.
At December 31, 2016, the book value per common share was $25.12, compared to $23.17 at December 31, 2015. The
Company has consistently increased the net book value per share through a combination of earnings and share repurchase.
Contingencies and Contractual Obligations
In the normal course of its activities, the Company enters into various types of contractual agreements. The Company
ensures that sufficient cash resources are available to meet these contractual obligations when they become due.
The following table presents a summary of the Company’s contractual obligations comprising minimum lease payments on
premises, property, computer hardware and software as at December 31, 2016.
Table 20: Contractual Obligations
(000s)
2017
2018
2019
2020
2021
Thereafter
Total
Minimum lease payments
$
16,923 $
10,970 $
8,420 $
4,358 $
4,121 $
6,471 $
51,263
The Company also has outstanding commitments for future advances on mortgages and unutilized and available credit on its
credit card and lines of credit products. Refer to the Off-balance Sheet Arrangements section of this report and Note 18 to
the consolidated financial statements for a description of those commitments.
28
Off-balance Sheet Arrangements
The Company offers credit products to meet the financial needs of its customers and has outstanding amounts for future
advances on mortgages which were $1.34 billion at December 31, 2016 ($1.14 billion – December 31, 2015). These amounts
include offers made but not yet accepted by the customer as of the reporting date. Also, included within the outstanding
amounts are unutilized non-residential commercial loan advances of $486.6 million at December 31, 2016 ($303.9 million –
December 31, 2015). Offers for the loans remain open for various periods. As at December 31, 2016, unutilized credit card
balances amounted to $146.3 million ($118.8 million – December 31, 2015). Included in the outstanding amounts for future
advances of mortgage loans are outstanding future advances for the Equityline Visa portfolio of $28.8 million at December
31, 2016 ($11.6 million – December 31, 2015). The unutilized credit and offers to extend credit are in the normal course of
business and are considered through the Company’s liquidity and capital management processes.
The Company has $8.39 billion (2014 - $6.79 billion) of loans under administration that are accounted for off-balance sheet
(see Table 12). Please refer to Note 2 and Note 6 of the consolidated financial statements for details of the Company’s
securitization activities.
Related Party Transactions
IFRS considers key management personnel to be related parties. Compensation of key management personnel is disclosed in
Note 22 of the consolidated financial statements.
In the normal course of the business, the Company refers borrowers who require loans at a higher loan-to-value ratio than
the Company will provide to second mortgage lenders. All referrals are conducted at arm’s length and at market terms.
Second mortgage lenders independently underwrite all second mortgages with the borrowers. One of the second mortgage
lenders is related to the Company through a close family relationship with a member of the Company’s key management
personnel. The amount of second mortgages referred to this lender during the years ended December 31, 2016 and 2015 is
not significant.
29
QUARTERLY FINANCIAL HIGHLIGHTS
Table 21: Summary of Quarterly Results
(000s, except per share and %)
Q4
Q3
Q2
2016
Q1
Q4
Q3
Q2
2015
Q1
Net interest income (TEB1)
Less: TEB adjustment
$
121,564 $
120,777 $
122,987 $
123,490 $
127,599 $
122,635 $
118,175 $
116,511
944
853
884
973
941
937
965
987
Net interest income per financial statements
120,620
119,924
122,103
122,517
126,658
121,698
117,210
115,524
Non-interest income
Non-interest expense
Total revenue
Total adjusted revenue2
Net income
Adjusted net income2
23,977
25,171
24,658
22,989
24,255
23,385
29,061
27,092
71,028
54,982
54,912
58,017
54,681
44,955
47,374
43,633
239,417
243,928
242,526
241,848
248,462
247,194
250,879
249,232
239,417
243,928
242,526
241,197
246,406
247,194
250,879
249,232
50,706
66,190
66,252
64,248
70,239
72,443
72,317
72,286
63,475
66,190
66,252
67,497
71,811
72,443
72,317
72,286
Return on shareholders’ equity
12.7%
16.9%
16.5%
15.7%
17.6%
18.7%
19.1%
19.7%
Adjusted return on shareholders' equity2
15.9%
16.9%
16.5%
16.4%
18.0%
18.7%
19.1%
19.7%
Return on average total assets
1.0%
1.3%
1.3%
1.2%
1.4%
1.4%
1.4%
1.4%
Total assets under administration
28,917,534 28,327,676 28,430,730 27,960,592 27,316,476 25,404,219 25,456,212 25,066,234
Total loans under administration
26,424,074 26,012,884 25,732,657 25,222,523 25,058,122 23,426,735 22,922,440 22,742,462
Earnings per common share
Basic
Diluted
Adjusted earnings per common share2
Basic
Diluted
Book value per common share
Efficiency ratio (TEB1)
Adjusted efficiency ratio (TEB1,2)
Common equity tier 1 ratio3
Tier 1 capital ratio3
Total capital ratio3
$
$
$
$
$
0.79 $
0.79 $
1.01 $
1.01 $
0.99 $
0.99 $
0.92 $
0.92 $
1.00 $
1.00 $
1.03 $
1.03 $
1.03 $
1.03 $
1.03
1.03
0.98 $
1.01 $
0.99 $
0.96 $
1.02 $
1.03 $
1.03 $
1.03
0.98 $
1.01 $
0.99 $
0.96 $
1.02 $
1.03 $
1.03 $
1.03
25.12 $
24.47 $
23.67 $
23.75 $
23.17 $
22.37 $
21.87 $
21.18
48.8%
37.7%
37.2%
39.6%
36.0%
30.8%
32.2%
30.4%
39.1%
37.7%
37.2%
36.3%
33.7%
30.8%
32.2%
30.4%
16.55%
16.54%
16.38%
18.28%
18.31%
18.06%
18.03%
17.95%
16.54%
16.53%
16.38%
18.28%
18.30%
18.06%
18.03%
17.94%
16.97%
16.97%
16.82%
20.63%
20.70%
20.51%
20.53%
20.50%
Net non-performing loans as a % of gross loans
0.30%
0.31%
0.33%
0.34%
0.28%
0.30%
0.33%
Annualized provision as a % of gross uninsured loans
0.07%
0.04%
0.08%
0.04%
0.04%
0.08%
0.07%
Annualized provision as a % of gross loans
0.05%
0.03%
0.06%
0.03%
0.03%
0.06%
0.05%
1 TEB – Taxable Equivalent Basis: see definition under Non-GAAP Measures in this report.
2 See definition of total adjusted revenue, adjusted net income, adjusted return on shareholders’ equity, adjusted earnings per common share, and adjusted efficiency ratio,
under Non-GAAP Measures in this report and the reconciliation of net income to adjusted net income in Table 2 in this report.
3 These figures relate to the Company’s operating subsidiary, Home Trust Company.
0.25%
0.07%
0.05%
The Company’s key financial measures for each of the last eight quarters are summarized in the table above. These
highlights illustrate the Company’s profitability, return on equity, efficiency measures and capital ratios. The quarterly results
are modestly affected by seasonal factors, with first quarter mortgage advances typically impacted by winter weather
conditions, while the second and third quarters have traditionally experienced higher levels of advances. First-quarter credit
statistics may experience a decline reflecting post-holiday arrears increases. Non-interest expenses and the efficiency ratio
generally tend to increase in the third quarter, reflecting increased lending activity through the summer period. (Please see
the Non-Interest Expenses section of this MD&A for discussion on the increase in non-interest expenses in Q4 2016).
The Company continues to achieve positive financial results driven by strong net interest margins and favourable non-
interest income, tempered by increased expenses as discussed in this report. Capital ratios over the last eight quarters
reflect the Company’s capital management strategies and the proactive approach to managing a strong capital base.
30
FOURTH QUARTER 2016
Items of Note
Items of note are removed from reported results in determining adjusted results. Adjusted results are designed to provide a
better understanding of how management assesses underlying business performance and to facilitate a more informed
analysis of trends. Adjusted results are determined after removing items of notes from reported results.
The Company’s results were affected by the following items of note that aggregated to a negative impact of $12.8 million or
$0.19 diluted earnings per share in Q4 2016:
$9.0 million of goodwill impairment loss related the Company’s PSiGate business ($9.0 million net of tax and $0.13
diluted earnings per share).
$5.1 million of intangible asset impairment loss related to internally developed software costs ($3.8 million net of tax
and $0.06 diluted earnings per share).
The Company’s results were also affected by the following items of note in Q4 2015:
$0.7 million in acquisition costs and $3.5 million in integration costs, less $2.1 million in relation to a bargain
purchase gain for a net negative impact of $2.1 million related to the acquisition of CFF Bank in 2015 ($1.6 million
after tax and $0.02 diluted earnings per share).
There were no items of note for Q3 2016.
Income Statement Highlights
Reported net income of $50.7 million was 27.8% lower than the $70.2 million net income recorded in Q4 2015 and
23.4% lower compared to $66.2 million in Q3 2016.
Adjusted net income, as defined in the Non-GAAP Measures and Glossary section, was $63.5 million in Q4 2016,
11.6% lower than the $71.8 million adjusted net income in Q4 2015 and 4.1% lower than the $66.2 million adjusted
net income in Q3 2016.
Reported diluted earnings per share for the fourth quarter were $0.79, compared to $1.00 in Q4 2015 and $1.01 in
Q3 2016. Adjusted diluted earnings per share for the fourth quarter were $0.98 compared to $1.02 in Q4 2015 and
$1.01 in Q3 2016.
Return on shareholders’ equity was 12.7% in Q4 2016, compared to 17.6% in Q4 2015 and 16.9% in Q3 2016.
Adjusted return on shareholders’ equity was 15.9% in Q4 2016, compared to 18.0% in Q4 2015 and 16.9% in Q3
2016.
Total net interest income of $120.6 million for the quarter declined by 4.8% from Q4 2015, reflecting the decrease in
total net interest margin (TEB) to 2.38% from 2.46% last year. Total net interest income for the quarter increased
by 0.6% from Q3 2016, reflecting the increase in net interest margin (TEB) from 2.34% last quarter.
Net interest income on non-securitized assets was $116.6 million for the quarter, down 4.2% from Q4 2015,
reflecting the decrease in net interest margin (TEB) to 2.73% for the quarter from 2.89% last year. The decline over
last year reflects a combination of the improved credit quality of the portfolio and more competitive pricing. Net
interest income on the non-securitized portfolio was relatively flat when compared to the $116.3 million reported last
quarter, while net interest margin (TEB) improved by 3 basis points from 2.70% last quarter. The improvement over
last quarter resulted primarily from a decrease in the average rate on deposits, reflecting an increase in the
proportion of lower-cost demand deposits.
Total income earned from securitization includes both net interest income on securitized assets and securitization
income arising from sales of securitized assets. Combined net interest income on securitized assets and
securitization income was $13.0 million in Q4 2016, up from $10.7 million in Q4 2015 and from $11.2 million in Q3
2016, primarily resulting from an increase in securitization gains on sales over both 2015 and last quarter.
Fees and other income of $17.6 million in Q4 2016 were down 11.6% from the $19.9 million recorded in Q4 2015 as
a result of changes in the portfolio mix and in the fee structure year over year as the Company adjusted certain fees
in the first half of 2016 to be responsive to its markets. Fees and other income were up 2.3% from the $17.2 million
recorded in Q3 2016.
The Company did not recognize any impairment losses on securities during Q3 or Q4 of 2016. The Company
recognized impairment losses on securities of $66 thousand in Q4 2015.
31
The credit quality of the loan portfolio remained strong in the quarter. Despite an increase in the provision for credit
losses over 2015 and last quarter, the level of credit losses and non-performing loans remains low. Provision for
credit losses for the quarter was $2.4 million, compared to $1.4 million in Q4 2015 and $1.3 million in Q3 2016. The
annualized credit provision as a percentage of gross uninsured loans for the quarter was 0.07%, compared to 0.04%
in both Q4 2015 and Q3 2016. Net non-performing loans as a percentage of gross loans ended 2016 at 0.30%,
compared to 0.28% at the end of 2015 and 0.31% at the end of Q3 2016.
Non-interest expenses were $71.0 million in the fourth quarter, up from $54.7 million in Q4 2015 and from $55.0
million last quarter. The adjusted efficiency ratio was 39.1% in the fourth quarter, up from 33.7% in Q4 2015 and
37.7% in Q3 2016. The increase in non-interest expenses resulted from increases in other operating expenses,
which includes continued investment in technology, ongoing investment in the Company’s IT security platform, and
costs associated with strengthening risk management and compliance infrastructure. In addition, non-interest
expenses in the quarter include a $9.0 million goodwill impairment loss and a $5.1 million intangible asset
impairment loss, both of which have been removed for the purposes of calculating the Company’s adjusted metrics.
Financial Position Highlights
Home Trust’s Common Equity Tier 1 (CET 1) and Total capital ratios remained very strong at 16.55% and 16.97%,
respectively, at December 31, 2016, and well above Company and regulatory minimum targets. Home Trust’s
Leverage ratio was 7.20% at December 31, 2016, also well above regulatory minimums.
Total loans under administration, which includes securitized mortgages that qualify for off-balance sheet accounting,
increased by $1.37 billion in 2016 to $26.42 billion, representing growth of 5.5% over the $25.06 billion at the end
of 2015 and 1.6% or $411.2 million from the $26.01 billion at the end of Q3 2016.
Total loans were $18.04 billion at Q4 2016, a decrease of 1.3% from $18.27 billion at the end of 2015 and an
increase of 0.2% from the $18.00 billion at the end of Q3 2016.
The total value of mortgages originated in Q4 2016 was $2.43 billion, compared to $2.15 billion in Q4 2015 and
$2.54 billion in Q3 2016. The year-over-year increase was primarily driven by increases in originations of traditional
single-family residential mortgages, insured multi-unit residential mortgages and commercial mortgages. Compared
to the third quarter, the decline in originations was primarily on single-family residential mortgages, reflecting
normal and expected seasonal factors.
The Company originated $1.43 billion of combined traditional and ACE Plus single-family residential mortgages in Q4
2016, compared to $1.30 billion in Q4 2015 and $1.53 billion in Q3 2016.
Accelerator (insured) single-family residential mortgage originations were $346.7 million in Q4 2016, compared to
$515.9 million in Q4 2015 and $446.7 million in Q3 2016. The decrease in originations is partially attributable to the
impact of the new insured mortgages rules introduced by the government, which took effect during the fourth
quarter of 2016. The decrease over last quarter also reflects expected seasonality.
Multi-unit residential originations were $371.5 million in the quarter, compared to $133.7 million in Q4 2015 and
$212.8 million in Q3 2016. Multi-unit residential mortgage originations are mostly insured and subsequently
securitized through programs that qualify for off-balance sheet accounting, resulting in a portion of the securitization
gains discussed above.
Non-residential commercial mortgage originations, which include store and apartment mortgages, were $277.3
million in Q4 2016, compared to $200.3 million in Q4 2015 and $347.6 million in Q3 2016.
Total deposits reached $15.89 billion at the end of Q4 2016, increasing 1.4% year over year, and 1.2% from the end
of last quarter. Total deposits raised through the Company’s efforts to diversify its sources of funds, Oaken
Financial, high-interest savings accounts and institutional deposits, total $4.59 billion, an increase of $943.6 million
or 25.9% over the end of Q4 2015, and $26.8 million or 0.1% over the end of last quarter.
32
FOURTH QUARTER FINANCIAL INFORMATION
Table 22: Fourth Quarter Review of Financial Performance
(000s, except per share amounts and %)
2016
2016
2015
- September 30, 2016 - December 31, 2015
December 31 September 30
December 31
December 31, 2016
December 31, 2016
For the three months ended
Change
Net Interest Income Non-Securitized Assets
Interest from loans
Dividends from securities
Other interest
Interest on deposits and other
Interest on senior debt
$
190,389 $
192,395 $
197,052
2,614
2,359
2,514
3,046
2,608
1,694
195,517
197,800
201,354
78,868
81,519
77,762
-
-
1,824
Net interest income non-securitized assets
116,649
116,281
121,768
Net Interest Income Securitized Loans and Assets
Interest income from securitized loans and assets
19,923
20,957
22,853
Interest expense on securitization liabilities
15,952
17,314
17,963
Net interest income securitized loans and assets
3,971
3,643
4,890
Total Net Interest Income
Provision for credit losses
Non-Interest Income
Fees and other income
Securitization income
Gain on acquisition of CFF Bank
Net realized and unrealized losses on securities
120,620
119,924
126,658
2,400
1,336
1,415
118,220
118,588
125,243
17,613
17,223
19,927
9,064
7,599
-
-
-
-
5,760
2,056
(66)
(1.0)%
10.8%
(17.5)%
(1.2)%
(3.3)%
-
0.3%
(4.9)%
(7.9)%
9.0%
0.6%
79.6%
(0.3)%
2.3%
19.3%
-
-
Net realized and unrealized losses (gains) on derivatives
(2,700)
349
(3,422)
(873.6)%
Non-Interest Expenses
Salaries and benefits
Premises
Other operating expenses
23,977
25,171
24,255
142,197
143,759
149,498
24,134
24,350
25,874
3,607
3,472
2,731
43,287
27,160
26,076
71,028
54,982
54,681
(4.7)%
(1.1)%
(0.9)%
3.9%
59.4%
29.2%
(3.4)%
0.2%
48.4%
(2.9)%
1.4%
(100.0)%
(4.2)%
(12.8)%
(11.2)%
(18.8)%
(4.8)%
69.6%
(5.6)%
(11.6)%
57.4%
(100.0)%
(100.0)%
(21.1)%
(1.1)%
(4.9)%
(6.7)%
32.1%
66.0%
29.9%
Income Before Income Taxes
71,169
88,777
94,817
(19.8)%
(24.9)%
Income taxes
Current
Deferred
NET INCOME
NET INCOME PER COMMON SHARE
Basic
Diluted
22,941
22,957
25,548
(2,478)
(370)
(970)
20,463
22,587
24,578
$
50,706 $
66,190 $
70,239
$
$
0.79 $
0.79 $
1.01 $
1.01 $
1.00
1.00
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic
Diluted
64,479
65,386
70,157
64,519
65,435
70,237
Total number of outstanding common shares
64,388
64,559
69,978
Book value per common share
$
25.12 $
24.47 $
23.17
(0.1)%
569.7%
(9.4)%
(23.4)%
(21.8)%
(21.8)%
(1.4)%
(1.4)%
(0.3)%
2.7%
(10.2)%
155.5%
(16.7)%
(27.8)%
(21.0)%
(21.0)%
(8.1)%
(8.1)%
(8.0)%
8.4%
33
Table 23: Fourth Quarter Review of Comprehensive Income
(000s, except %)
2016
2016
2015 - September 30, 2016
- December 31, 2015
December 31 September 30
December 31
December 31, 2016
December 31, 2016
For the three months ended
Change
NET INCOME
$
50,706 $
66,190 $
70,239
(23.4)%
(27.8)%
OTHER COMPREHENSIVE INCOME (LOSS)
Available for Sale Securities and Retained Interests
Net unrealized losses
Net losses reclassified to net income
Income tax expense
Cash Flow Hedges
Net unrealized gains (losses)
Net losses reclassified to net income
Income tax (recovery) expense
12,774
7,820
6,171
-
12,774
3,391
9,383
-
7,820
2,075
5,745
66
6,237
1,654
4,583
(1,677)
174
803
268
(2,110)
369
(1,503)
1,071
(1,741)
(398)
(1,105)
284
787
(462)
(1,279)
63.4%
-
63.4%
63.4%
63.3%
(308.8)%
(35.1)%
(240.3)%
(240.1)%
(240.4)%
107.0%
(100.0)%
104.8%
105.0%
104.7%
(20.5)%
(52.8)%
(13.7)%
(13.9)%
(13.6)%
Total other comprehensive income
8,278
6,532
3,304
26.7%
150.5%
COMPREHENSIVE INCOME
$
58,984 $
72,722 $
73,543
(18.9)%
(19.8)%
34
Table 24: Fourth Quarter Review of Financial Position
(000s, except %)
ASSETS
Cash and Cash Equivalents
Available for Sale Securities
Loans Held for Sale
Loans
Securitized mortgages
Non-securitized mortgages and loans
Collective allowance for credit losses
Other
Restricted assets
Derivative assets
Other assets
Deferred tax assets
Goodwill and intangible assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Deposits payable on demand
Deposits payable on a fixed date
Securitization Liabilities
CMHC-sponsored mortgage-backed security liabilities
CMHC-sponsored Canada Mortgage Bond liabilities
Bank-sponsored securitization conduit liabilities
Other
Derivative liabilities
Other liabilities
Deferred tax liabilities
Shareholders’ Equity
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
December 31
September 30
As at
2016
2016
Change
$
1,205,394 $
1,058,940
534,924
77,918
523,482
74,207
2,526,804
15,430,595
17,957,399
(37,063)
2,549,205
15,378,826
17,928,031
(37,063)
17,920,336
17,890,968
265,374
37,524
348,638
16,914
121,755
790,205
231,235
52,178
336,077
16,362
133,581
769,433
$
20,528,777 $
20,317,030
$
2,531,803 $
2,432,283
13,354,227
15,886,030
13,261,819
15,694,102
898,386
1,637,117
114,146
2,649,649
3,490
336,132
36,284
375,906
930,614
1,610,482
139,115
2,680,211
959
324,070
38,210
363,239
18,911,585
18,737,552
84,910
4,562
1,582,785
(55,065)
1,617,192
83,975
4,588
1,554,258
(63,343)
1,579,478
$
20,528,777 $
20,317,030
13.8%
2.2%
5.0%
(0.9)%
0.3%
0.2%
-
0.2%
14.8%
(28.1)%
3.7%
3.4%
(8.9)%
2.7%
1.0%
4.1%
0.7%
1.2%
(3.5)%
1.7%
(17.9)%
(1.1)%
263.9%
3.7%
(5.0)%
3.5%
0.9%
1.1%
(0.6)%
1.8%
(13.1)%
2.4%
1.0%
35
Table 25: Fourth Quarter Net Interest Margin
Net interest margin non-securitized interest-earning assets (non-TEB)
Net interest margin non-securitized interest-earning assets (TEB)
Net interest margin CMHC-sponsored securitized assets
Net interest margin bank-sponsored securitization conduit assets
Total net interest margin (non-TEB)
Total net interest margin (TEB)
Spread of non-securitized loans over deposits and other
Table 26: Fourth Quarter Net Interest Income
December 31
September 30
December 31
For the three months ended
2016
2.71%
2.73%
0.53%
1.90%
2.36%
2.38%
2.86%
2016
2.68%
2.70%
0.45%
1.85%
2.33%
2.34%
2.89%
2015
2.87%
2.89%
0.60%
-
2.45%
2.46%
2.97%
(000s, except %)
Interest-bearing assets
Cash resources and securities
Traditional single-family residential mortgages
ACE Plus single-family residential mortgages
Accelerator single-family residential mortgages
Residential commercial mortgages2
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total non-securitized loans
Taxable equivalent adjustment
Total non-securitized interest earning assets
CMHC-sponsored securitized single-family residential mortgages
CMHC-sponsored securitized multi-unit residential mortgages
Assets pledged as collateral for CMHC-sponsored securitization
Total CMHC-sponsored securitized residential mortgages
Bank-sponsored securitization conduit assets
Total assets
Interest-bearing liabilities
Deposits and other
Senior debt
CMHC-sponsored securitization liabilities
Bank-sponsored securitization conduit liabilities
Total liabilities
Net Interest Income (TEB)
Taxable Equivalent Adjustment
December 31 2016
September 30, 2016
December 31 , 2015
Income/
Expense
Average
Rate 1
Income/
Expense
Average
Rate 1
Income/
Expense
Average
Rate 1
For the three months ended
$
$
$
$
$
5,128
131,029
3,344
6,505
4,291
28,233
8,389
8,598
190,389
944
196,461
11,115
7,197
495
18,807
1,116
1.31% $
4.75%
3.38%
2.24%
3.99%
5.93%
9.02%
9.32%
4.86%
-
4.56%
2.50%
4.63%
1.35%
2.96%
3.53%
5,405
133,997
3,104
7,342
4,483
26,741
8,432
8,296
192,395
853
198,653
11,921
7,238
489
19,648
1,309
1.21% $
4.84%
3.36%
2.40%
4.26%
6.08%
9.03%
9.40%
4.94%
-
4.58%
2.57%
4.61%
1.27%
2.98%
3.52%
4,302
144,335
1,532
8,651
5,036
22,205
8,388
6,905
197,052
941
202,295
13,549
8,580
724
22,853
-
216,384
4.24% $
219,610
4.25% $
225,148
78,868
2.00% $
81,519
2.05% $
-
15,438
514
94,820
121,564
(944)
-
2.41%
1.61%
1.86% $
$
-
16,693
621
98,833
120,777
(853)
-
2.49%
1.76%
1.91% $
$
77,762
1,824
17,963
-
97,549
127,599
(941)
1.39%
4.98%
3.37%
2.63%
3.97%
5.95%
9.05%
9.81%
5.00%
-
4.76%
2.74%
4.28%
0.63%
2.82%
-
4.35%
2.03%
4.78%
2.20%
-
1.89%
Net Interest Income per Financial Statements
1 The average is calculated with reference to opening and closing monthly asset and liability balances.
2 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.
120,620
119,924
126,658
$
$
$
36
Table 27: Fourth Quarter Mortgage Advances
(000s)
Single-family residential mortgages
Traditional
ACE Plus
Accelerator
Residential commercial mortgages
Multi-unit uninsured residential mortgages
Multi-unit insured residential mortgages
Other1
Non-residential commercial mortgages
Stores and apartments
Commercial
Total mortgage advances
For the three months ended
December 31
September 30
December 31
2016
2016
2015
$
1,325,896 $
1,416,842 $
1,163,285
106,477
346,690
53,999
293,306
24,179
14,878
262,423
116,666
446,734
17,947
194,875
-
35,018
312,618
140,983
515,891
23,503
101,683
8,535
26,462
173,825
$
2,427,848 $
2,540,700 $
2,154,167
1 Other residential commercial mortgages include mortgages such as builders’ inventory.
Table 28: Provision for Credit Losses and Net Write-offs as a Percentage of Gross Loans on an Annualized Basis
(000s, except %)
December 31, 2016
September 30, 2016
December 31, 2015
For the three months ended
% of Gross
% of Gross
% of Gross
Amount
Loans 1
Amount
Loans1
Amount
Loans1
Provision2
Single-family residential mortgages
$
1,029
0.03% $
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
Total individual provision
Total collective provision
Total provision
Net Write-offs2
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
$
$
2
45
1,164
160
-
-
0.00%
0.01%
1.26%
0.17%
-
-
1,006
(128)
(37)
280
215
-
-
0.03% $
(0.19)%
(0.01)%
0.30%
0.24%
-
-
2,400
0.05%
1,336
0.03%
-
-
-
-
2,400
0.05% $
1,336
0.03% $
1,415
986
-
(40)
343
101
-
-
1,390
25
0.03%
-
(0.01)%
0.37%
0.14%
-
-
0.03%
0.00%
0.03%
440
0.01% $
2
(5)
469
48
-
-
0.00%
(0.00)%
0.51%
0.05%
-
-
664
-
100
397
77
-
-
0.02% $
1,415
0.04%
-
0.02%
0.42%
0.09%
-
-
-
127
502
94
-
-
-
0.03%
0.54%
0.13%
-
-
Net write-offs
1 Gross loans used in the calculation of total Company ratio include securitized on-balance sheet loans.
2 There were no individual provisions, allowances or net write-offs on securitized mortgages.
0.02% $
954
$
1,238
0.03% $
2,138
0.05%
37
Table 29: Fourth Quarter Allowance for Credit Losses
(000s)
For the three months ended December 31, 2016
Single-family
Residential Non-residential
Credit Card
Other
Residential
Commercial
Commercial
Loans and
Consumer
Mortgages
Mortgages
Mortgages Lines of Credit
Retail Loans
Total
Individual allowances
Allowance on loan principal
Balance at the beginning of the period
$
1,637 $
Provision for credit losses
Write-offs
Recoveries
Allowance on accrued interest receivable
Balance at the beginning of the period
Provision for credit losses
Total individual allowance
Collective allowance
783
(619)
179
1,980
1,095
246
1,341
3,321
- $
2
(2)
-
-
-
-
-
-
20 $
5
(5)
10
30
58
40
98
85 $
302 $
2,044
1,164
(493)
24
780
157
2,111
(126)
(1,245)
78
291
411
3,201
-
-
-
9
3
1,162
289
12
1,451
128
780
423
4,652
Balance at the beginning of the period
23,032
327
9,500
3,904
300
37,063
Provision for credit losses
Total allowance
Total provision
(000s)
-
23,032
26,353 $
1,029 $
$
$
-
327
327 $
2 $
-
-
-
-
9,500
3,904
300
37,063
9,628 $
4,684 $
723 $
41,715
45 $
1,164 $
160 $
2,400
Single-family Residential Non-residential
Credit Card
Other
Residential
Commercial
Commercial
Loans and
Consumer
Mortgages
Mortgages
Mortgages Lines of Credit Retail Loans
Total
For the three months ended September 30, 2016
Individual allowances
Allowance on loan principal
Balance at the beginning of the period
$
1,358 $
943
(745)
81
1,637
1,032
63
1,095
2,732
23,032
-
23,032
25,764 $
- $
-
-
-
-
128
(128)
-
-
327
-
327
327 $
160 $
(40)
202 $
280
167 $
212
1,887
1,395
(104)
(420)
(127)
(1,396)
4
20
55
3
58
78
23
85
-
-
-
50
158
302
2,044
6
3
9
1,221
(59)
1,162
3,206
85
311
9,500
3,904
300
37,063
-
-
-
-
9,500
3,904
300
37,063
9,578 $
3,989 $
611 $
40,269
1,006 $
(128) $
(37) $
280 $
215 $
1,336
Provision for credit losses
Write-offs
Recoveries
Allowance on accrued interest receivable
Balance at the beginning of the period
Provision for credit losses
Total individual allowance
Collective allowance
Balance at the beginning of the period
Provision for credit losses
Total allowance
Total provision
$
$
38
Table 29: Fourth Quarter Allowance for Credit Losses (continued)
(000s)
For the three months ended December 31, 2015
Single-family
Residential Non-residential
Credit Card
Other
Residential
Commercial
Commercial
Loans and
Consumer
Mortgages
Mortgages
Mortgages
Lines of Credit
Retail Loans
Total
Individual allowances
Allowance on loan principal
Balance at the beginning of the period
$
1,952 $
- $
405 $
68 $
155 $
2,580
Allowance assumed on purchase of CFF Bank
Provision for credit losses
Write-offs
Recoveries
Allowance on accrued interest receivable
Balance at the beginning of the period
Provision for credit losses
Total individual allowance
Collective allowance
-
1,115
(1,531)
116
1,652
968
(129)
839
2,491
-
-
-
-
-
-
-
-
-
-
62
(167)
40
340
159
(102)
57
397
420
343
(519)
17
329
-
-
-
-
100
(123)
29
161
4
1
5
420
1,620
(2,340)
202
2,482
1,131
(230)
901
329
166
3,383
Balance at the beginning of the period
22,232
327
9,500
3,541
300
35,900
Allowance assumed on purchase of CFF Bank
Provision for credit losses
-
-
-
-
-
-
324
25
-
-
324
25
Total allowance
Total provision
22,232
327
9,500
3,890
300
36,249
24,723 $
327 $
9,897 $
4,219 $
466 $
39,632
986 $
- $
(40) $
368 $
101 $
1,415
$
$
There were no individual provisions, allowances, or net write-offs on securitized residential mortgages.
Table 30: Securitization Income
(000s)
Net gain on sale of mortgages and residual interest1
Net change in unrealized gain or loss on hedging activities
Servicing income
Total securitization income
1 Gains on sale of mortgages and residual interest are net of hedging impact.
For the three months ended
December 31, 2016
September 30, 2016
December 31, 2015
$
$
7,006 $
276
1,782
9,064 $
6,055 $
(121)
1,665
7,599 $
4,728
(232)
1,264
5,760
39
Table 31: Securitization Activity
(000s)
December 31
2016
For the three months ended
September 30
2016
Single-family
Multi-unit
Single-family
Multi-unit
Residential MBS Residential MBS
Total MBS
Residential MBS Residential MBS
Total MBS
Carrying value of underlying mortgages derecognized $
Net gains on sale of mortgages or residual interest1
Retained interests recorded
Servicing liability recorded
392,298 $
4,284
314,985 $
2,722
707,283 $
7,006
400,764 $
3,904
242,894 $
2,151
643,658
6,055
-
-
10,004
2,408
10,004
2,408
-
-
10,077
2,313
10,077
2,313
(000s)
Carrying value of underlying mortgages derecognized
Net gains on sale of mortgages or residual interest1
Retained interests recorded
Servicing liability recorded
1 Gains on sale of mortgages and residual interest are net of hedging impact.
For the three months ended
December 31
2015
Single-family
Multi-unit
Residential MBS Residential MBS
Total MBS
$
371,473 $
3,362
161,757 $
1,366
533,230
4,728
-
-
5,933
1,278
5,933
1,278
40
CAPITAL MANAGEMENT
Capital is a key factor in the safety and soundness of a financial institution. A strong capital position assists the Company in
promoting confidence among depositors, creditors, regulators and shareholders. The Company’s capital management policy
governs the quantity and quality of capital held. The objective of the capital management policy is to ensure that adequate
capital is available to the Company to support its strategic and business objectives, absorb potential unexpected losses, meet
minimum regulatory capital requirements as stipulated by the Office of the Superintendent of Financial Institutions Canada
(OSFI), and to enable the allocation of capital for maximum economic benefit. The Capital Management Committee reviews
compliance with the policy at minimum on a monthly basis while the Risk and Capital Committee and the Board of Directors
review compliance with the policy on a quarterly basis.
Capital requirements are addressed in the Company’s policy, including the Leverage ratio and the risk-based capital ratios.
The Capital Management Committee reviews these ratios on a regular basis, while the Board of Directors reviews them
quarterly.
The Company’s principal consolidated subsidiary, Home Trust, which includes its subsidiary Home Bank, calculates capital
ratios and regulatory capital based on the capital adequacy requirements issued by OSFI, which are based on International
Convergence of Capital Measurement and Capital Standards – A Revised Framework (Basel II) and Basel III: A global
regulatory framework for more resilient banks and banking systems – A Revised Framework (Basel III). As Home Trust, a
wholly owned subsidiary of the Company, is regulated under the Trust and Loan Companies Act (Canada) and Home Bank, a
wholly owned subsidiary of Home Trust, is regulated under the Bank Act (Canada), Home Trust’s ability to accept deposits is
limited primarily by its permitted Leverage ratio. This is defined as the Capital Measure divided by the Exposure Measure,
with the ratio expressed as a percentage. The Capital Measure is the all-in Tier 1 capital of Home Trust. The Exposure
Measure consists of on-balance sheet, derivatives, securities financing transactions and off-balance sheet exposures. In
addition, dividends paid by Home Trust to Home Capital may be subject to restrictions by OSFI.
41
Under Basel II and Basel III, Home Trust calculates risk-weighted assets for credit risk using the Standardized Approach and for
operational risk using the Basic Indicator Approach. Home Trust’s capital structure and risk-weighted assets were as follows:
Table 32: Basel III Regulatory Capital (Based only on the consolidated subsidiary, Home Trust Company)
(000s, except ratios)
Common Equity Tier 1 capital (CET 1)
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Cash flow hedge reserves
Regulatory deductions from CET 1 1
Total CET 1 capital
Additional Tier 1 capital
Total Tier 1 capital
Tier 2 capital
Collective allowance for credit losses 2
Subordinated debentures
Total Tier 2 capital
Total regulatory capital
Risk-weighted assets for
Credit risk
Operational risk
Total risk-weighted assets, before CVA 3
CVA adjustment for CET 1 capital
Total CET 1 capital risk-weighted assets
CVA adjustment for Tier 1 capital
Total Tier 1 capital risk-weighted assets
CVA adjustment for total capital
Total risk-weighted assets
Regulated capital to risk-weighted assets
CET 1 ratio
Tier 1 capital ratio
Total regulatory capital ratio
Leverage ratio
National regulatory minimum
CET 1 ratio
Tier 1 capital ratio
Total regulatory capital ratio
Leverage ratio
December 31
December 31
2016
2015
All-In Basis
All-In Basis
$
38,497 $
951
38,497
951
1,604,758
1,614,491
(55,040)
1,476
(160,917)
1,429,725
-
(65,851)
3,078
(130,163)
1,461,003
-
1,429,725
1,461,003
37,063
-
37,063
36,249
156,000
192,249
1,466,788
1,653,252
7,578,490
1,050,888
8,629,378
11,544
8,640,922
12,806
8,642,184
13,889
6,962,984
996,488
7,959,472
21,632
7,981,104
23,998
7,983,470
26,026
$
8,643,267 $
7,985,498
16.55%
16.54%
16.97%
7.20%
7.00%
8.50%
10.50%
3.00%
18.31%
18.30%
20.70%
7.36%
7.00%
8.50%
10.50%
3.00%
1 Regulatory deductions on the all-in basis include intangible assets, net of deferred taxes, unrealized mortgage securitization gains, net of deferred taxes and deferred tax assets
related to loss carryforwards from Home Bank.
2 The Company is allowed to include its collective allowance for credit losses up to a prescribed percentage of 1.25% of total credit risk-weighted assets, inclusive of total CVA
before transitional phase-in adjustments, in Tier 2 capital. At December 31, 2016, the Company’s collective allowance represented 0.49% of total credit risk-weighted assets,
inclusive of total CVA.
3 CVA - Credit Valuation Adjustment.
Home Trust’s regulatory “all-in” Total Capital ratio has decreased from the end of 2015 as a result of the decrease in both
Tier 1 and Tier 2 regulatory capital combined with an increase in risk-weighted assets. Tier 1 capital decreased as a result of
the Home Trust dividends that were used to fund Home Capital’s repurchase of 5,660,961 common shares under the
Company’s substantial issuer bid and normal course issuer bid activity during the year, which reduced capital by $198.0
million. Tier 2 capital decreased as a result of Home Trust repaying and retiring the subordinated debentures, with the funds
used by Home Capital to retire $150.0 million of senior debt. Risk-weighted assets increased in line with increases in the
Company’s uninsured loan portfolio.
42
The leverage ratio is a non-risk-adjusted view of a company’s leverage. The Leverage ratio only includes Tier 1 capital. The
Leverage ratio also includes some off-balance sheet exposures, including potential future exposure amounts on derivatives,
credit equivalent amounts of certain commitments and securities financing transactions. The Company’s Leverage ratio of
7.20% (December 31, 2015 – 7.36%) is in excess of OSFI’s established minimum target of 3%, as well as the minimum ratio
assigned to the Company by OSFI and the Company’s internal targets. The Company has disclosed the leverage ratio and its
components under “Regulatory Disclosures” on the Home Trust website.
Home Trust’s Common Equity Tier 1, Total Tier 1 and Total capital ratios continue to exceed internal capital targets.
Home Trust adopted certain Basel III capital requirements beginning January 1, 2013, as required by OSFI. The transitional
basis allows for the transition of certain capital deductions over a period ending January 1, 2018, whereas the all-in basis
includes all applicable deductions immediately. For Home Trust, the transitional basis is applied to the deduction from capital
of intangible assets related to development costs. Deductions for transitional calculations commenced in 2014. For purposes
of meeting minimum regulatory capital ratios prescribed by OSFI, the all-in basis is required.
Table 33: Risk-Weighted Assets (RWA) (Based only on the consolidated subsidiary, Home Trust Company)
(000s, except %)
Balance Sheet
Effective
Risk-weighted
Balance Sheet
Effective
Risk-weighted
Amounts Risk Weight 1
Amount
Amounts
Risk Weight1
Amount
2016
2015
Cash and cash equivalents
$
1,145,116
20.0% $
229,023 $
1,118,630
20.0% $
223,726
Restricted assets
Available for sale securities
Insured residential mortgages
265,374
530,594
3,524,733
10.8%
36.4%
0.9%
28,659
193,350
195,921
443,831
30,449
4,270,243
14.2%
43.0%
0.7%
27,809
190,647
31,438
Uninsured single-family residential mortgages
11,501,997
35.3%
4,057,571
11,571,872
35.3%
4,082,400
Uninsured residential commercial mortgages
305,188
100.0%
306,123
268,263
100.0%
268,263
Non-residential commercial mortgages
1,954,820
100.1%
1,957,094
1,490,648
100.1%
1,491,757
Credit card loans and lines of credit
Other consumer retail loans
Other assets
369,678
378,901
383,435
43.3%
75.0%
62.4%
160,040
284,176
239,198
370,825
296,857
351,006
Total assets subject to risk rating
20,359,836
36.8%
7,485,683
20,378,096
Deferred tax assets for loss carryforwards
Intangible assets
Collective allowance for credit losses
15,920
115,003
(37,063)
-
-
-
-
-
-
-
112,595
(36,249)
44.3%
75.0%
56.0%
33.9%
-
-
-
164,346
222,643
196,648
6,899,677
-
-
-
Total assets
Off-balance sheet items
Loan commitments
Total credit risk
Operational risk
20,453,696
36.6%
7,485,683
20,454,442
33.7%
6,899,677
1,172,628
7.9%
92,807
918,343
6.9%
63,307
21,610,404
7,578,490
21,372,785
-
1,050,888
-
6,962,984
996,488
Total risk-weighted assets, before CVA
1 The effective risk weight represents the weighted average of the risk weights for each asset category prescribed by OSFI weighted based on the Company’s balance sheet
classification.
$ 21,610,404
8,629,378 $
21,372,785
$
$
7,959,472
Risk-weighted assets are determined by applying the OSFI-prescribed rules to on-balance sheet and off-balance sheet
exposures. The Company’s securitization activities are not subject to the Basel II securitization framework as they are all
within the NHA MBS program and do not involve tranching of credit risk.
Capital Management Activity
During the fourth quarter of 2016, the Company filed a Normal Course Issuer Bid through the Toronto Stock Exchange, which
allows it to purchase up to 5,336,040 of the Company’s common shares. Please refer to the press release issued by the
Company on December 23, 2016 for more information. The Company believes that, from time to time, the market price of its
common shares does not fully reflect the value of its business and the repurchase of shares may represent an appropriate
and desirable business decision.
During 2016, the Company repurchased 5,660,961 common shares (2015 – 344,700 common shares) for $199.2 million,
under the substantial issuer bid and normal course issuer bid activity, thereby reducing retained earnings by $191.9 million
and share capital by $7.3 million (2015 - $10.3 million and $442 thousand, respectively). Included in the amount allocated to
retained earnings is $0.4 million (net of tax) for transaction costs associated with the substantial issuer bid.
43
Internal Capital Adequacy Assessment Process (ICAAP)
Under the Company’s capital and risk management policies, and OSFI’s guidelines, the Company is required to assess the
adequacy of current and projected capital resources under expected and stressed conditions. This involves evaluating the
Company’s strategy, financial plan and risk appetite; assessing the effectiveness of its risk and capital management practices
(including Board and senior management oversight); subjecting the Company’s plans to a range of stress tests; and drawing
conclusions about its capital adequacy (including a rigorous review and challenge). Based on the Company’s ICAAP,
management has concluded that Home Trust is adequately capitalized.
Credit Ratings
The following table presents the credit ratings for the Company and its subsidiary Home Trust. These investment-grade credit
ratings would allow the Company to obtain institutional debt financing should the need arise for additional capital.
DBRS
BBB
R2 (middle)
Negative
Home Capital Group Inc.
Standard & Poor's
Home Trust Company
DBRS
Standard & Poor's
BBB-
A-3
Negative
BBB (high)
R2 (high)
Negative
BBB
A-2
Negative
Table 34: Credit Ratings
Long-term rating
Short-term rating
Outlook
Share Information
Table 35: Share Information
(000s)
2016
Number of
Amount
Shares
84,910
69,978 $
N/A
18,107
1,208
511
2015
Amount
90,247
N/A
14,866
Common shares issued and outstanding1
Employee stock options outstanding2
Employee stock options exercisable2,3
1 No shares were issued, other than through employee stock options exercised.
2 Please see Note 15(C). Amount for employee stock options is not applicable.
3 For employee stock options exercisable, the amount refers to proceeds payable to the Company upon exercise.
64,388 $
1,074
587
Number of
Shares
44
RISK MANAGEMENT
The shaded areas of this section of the MD&A represent a discussion of risk management policies and procedures relating to
certain risks that are required under IFRS 7 Financial Instruments: Disclosures, which permits these specific disclosures to be
included in the MD&A. Therefore, the shaded areas presented in this Risk Management section form an integral part of the
audited consolidated financial statements for the year ended December 31, 2016.
Risk management is an essential component of the Company’s strategy, contributing directly to the Company’s profitability
and consistently high return on equity. The Company continues to invest significantly in risk management practices and
resources.
The Company’s core strategy focuses on serving segments of the Canadian financial services market that traditionally have
not been adequately served by larger financial institutions. The Company’s strategy provides the opportunity for higher
returns but carries an inherently different risk profile than one serving the broader market and requires an integrated risk
management strategy. The Company recognizes this risk and proactively seeks to reduce overall risk exposure to an
acceptable level through:
Identification of the principal risks to the Company’s strategy and adoption of policies, guidelines and mitigation
strategies to address such risks;
Adoption of a risk appetite framework that includes risk capacity, a risk appetite statement, risk limits and other key
risk indicators;
Adoption of a risk governance structure that includes promotion of a sound risk and compliance culture, a three lines
of defence model for the management of risk, and active oversight by the Board of Directors and senior
management;
Extensive risk identification, assessment, measurement and monitoring practices and controls executed by
experienced personnel and supported by appropriate processes and technology;
Monitoring of the Company’s internal and external environments to identify and respond on a timely basis to
emerging risk exposures, and to ensure that risks are considered in all change initiatives; and
Robust reporting on risk exposures including establishment of key risk indicators that provide early warning
indicators of changes in risk profile.
Principal Risks
The Company’s business strategies expose the Company to a wide range of risks that could adversely affect its operations,
financial condition, or financial performance, and which may influence an investor to buy, hold, or sell the Company’s shares.
The Company has identified eight principal risks that are material to the business: capital adequacy, credit, market, liquidity
and funding, operational, compliance, strategic and reputational risk. In addition to these principal risks, the Company
employs a risk register to describe risk categories and related subcategories to facilitate consistent risk identification and
provide a common starting point in developing risk management strategies and processes. These risks are identified,
measured, assessed, and monitored on an ongoing basis, with regular reporting to risk committees of both senior
management and the Board of Directors. Risks are mitigated through various actions to reduce the inherent risk to
acceptable residual levels, as defined by the Company’s risk appetite. Strategic and reputational risks are considered
overarching risks, as substantial outcomes from other principal risks could pose significant second order impacts to the
Company’s reputation or ability to execute strategic objectives.
Risk Appetite
The Company’s risk appetite framework sets out the aggregate level and types of risk that the Company is willing to accept
in order to achieve its business objectives. It considers the maximum level of risk that the Company can assume before
breaching constraints determined by regulatory capital and liquidity needs, as well as the Company’s conduct with respect to
depositors, customers, investors and other stakeholders. The risk appetite framework guides the risk-taking activities of the
Company by establishing qualitative and quantitative benchmarks, parameters and limits related to the amount of risk the
Company is willing to accept, taking into account financial, operational and macroeconomic factors. The Company’s risk
appetite statement articulates the following major enterprise principles:
45
The Company will:
Maintain adequate capital and liquidity at all times.
Only take risks that are transparent and manageable, and that fit the Company’s business strategy.
Not expose itself to any significant single loss event on any individual transaction or acquisition.
Not take risks that are expected to result in significant volatility in earnings or shareholder returns.
Conduct business with honesty, integrity, respect and high ethical standards.
Strive to protect the Company’s reputation at all times, with all key stakeholders.
Adopt a risk-based approach for identifying, assessing, managing, mitigating and monitoring risk that meets
regulatory requirements and expectations.
Not tolerate business activities that are not supported by appropriate processes and internal controls that are
designed to detect, deter and prevent activity associated with financial crime, or maintain relationships with persons
or entities believed to be engaged in illegal or illicit activities.
Incorporate risk and compliance measures into performance and reward measurement programs.
The risk appetite framework includes key risk appetite measures supported by management and management risk
committee-level limit structures that provide forewarning capabilities intended to trigger management actions and mitigation
plans before risk appetite limits are breached.
Risk Governance
The Company’s strategies and management of risk are supported by an overall enterprise risk management framework
including policies, guidelines, and procedures for each major category of risk to which it is exposed. The Company defines
risk management as an ongoing process involving its Board of Directors, management and other personnel in the
identification, assessment, measurement, management and monitoring of risks that may positively or negatively impact the
organization as a whole. Risk management is applied in strategy-setting across the enterprise and is designed to provide
reasonable assurance that the Company’s objectives can be realized given its stated risk appetite. The goal of the risk
management framework is to support superior and sustainable business performance, including informed decision making,
improved deployment of capital, reduced volume and severity of surprises and losses, improved long-term business
performance and increased stakeholder confidence.
Supporting the Company’s risk management structure is a risk and compliance culture and a governance framework,
including Board and senior management oversight and an increasingly robust set of risk policies and guidelines reflective of
the Company’s risk appetite that sets boundaries for acceptable business strategies, exposures and activities.
The Company’s risk governance is based on a three lines of defence model:
1st Line of Defence – consists of the business units and corporate functions. As risk owners, management is
accountable for identifying, assessing, measuring, managing, monitoring, and reporting on the risks generated
within their respective areas of responsibility. Business risk management teams are embedded within the first line
of defence to assist management in carrying out their risk and compliance responsibilities.
2nd Line of Defence – consists of the Enterprise Risk Management and Corporate Compliance groups who are
responsible for the establishment of the Company’s risk management frameworks and the independent oversight of
their implementation. Together with Finance, they are also responsible for the independent assessment, monitoring
and reporting of risk-taking activities.
3rd Line of Defence – Internal Audit is responsible for providing independent, objective assurance to the Board of
Directors and Executive Management by assessing the effectiveness of governance, risk management and control
processes.
46
The risk governance structure depicted below ensures that there is a framework in place for risk oversight and accountability
across the organization. Risk owners are responsible for developing and executing strategies for controlling risk.
The Board of Directors (the “Board”) is accountable for establishing the overall vision, mission, values, objectives and
strategies of the Company and setting the Company’s overall risk-bearing capacity and risk appetite. The Board challenges
management’s proposals and plans to ensure that the forecasted results and risk assessments are reasonable and in line
with the Company’s capabilities, objectives and risk appetite. These risk management responsibilities are primarily carried
out through the Risk and Capital Committee (RCC) of the Board. In this oversight role the RCC is mandated to ensure that
all significant risks to the Company, regardless of source, are proactively identified and effectively managed. This is
accomplished by reviewing and approving, on at least an annual basis, all key risk policies; monitoring, on at least a
quarterly basis, the Company’s actual risk profile against Board-approved risk appetite and limits; and providing direction to
management when necessary. The RCC also provides oversight of the independence and effectiveness of the Company’s
Enterprise Risk Management (ERM) function.
The Executive Committee (EC), chaired by the Chief Executive Officer, is responsible for recommending corporate strategy to
the Board and for overseeing its execution. A critical component of this mandate is the implementation of the risk appetite
and risk management frameworks. The EC is also accountable for implementation of an appropriate risk and compliance
culture and monitoring the Company’s business activities.
The most significant risks to the Company are subject to more specific review, monitoring and assessment under the
mandates of supporting management risk committees. These committees (Credit Risk, Asset/Liability, Capital Management,
Operational Risk, Disclosure, and Executive Project Review) recommend policies for approval as proposed by the lines of
business, with review by ERM and/or Corporate Compliance, proactively monitor and challenge management of specific risks
under their mandates, and provide reporting to a Board Committee on risk profile compared to the Board-approved risk
appetite and risk limits.
47
The ERM group is mandated to work with management and the Board to support sustainable business performance
through the independent identification, measurement, monitoring and reporting of all significant risks to the
Company, regardless of source. Working closely with management and the Risk and Capital Committee of the Board,
the ERM group recommends the Company’s overall risk appetite and limits, develops and maintains an enterprise
risk management framework and related risk governance structure to enable effective management of risk. It
provides monitoring and oversight of the implementation of the risk appetite and risk management frameworks,
including providing independent challenge and a current view of the Company’s risk profile by monitoring actual
exposures against approved risk appetite, limits, policies and guidelines.
The Chief Compliance Officer (CCO), the Chief Anti-Money Laundering Officer (CAMLO) and the Corporate
Compliance group are mandated to establish and maintain an enterprise-wide compliance framework (a set of
controls and oversight processes) designed to mitigate the Company’s compliance risk. The Corporate Compliance
group is an independent function that promotes a sound risk and compliance culture. The CCO and CAMLO are
responsible for expressing an independent opinion to the Audit Committee on the status, adequacy and effectiveness
of the Company’s state of compliance on a periodic basis.
Internal Audit is mandated to independently assess and report to the Audit Committee, the Board and Executive
Management on the effectiveness of governance, risk management and internal control processes.
The Finance group compiles the Company’s financial statements and financial and capital plans for recommendation
to the Executive Committee and Board, and reports to management and the Board, shareholders and regulators on
the performance of the Company. The Finance group also updates the Company’s financial and capital plans with
periodic forecasts, advises the Board of anticipated outcomes, and recommends revisions to capital plans and
structures as appropriate.
48
Risk Management Tools
The Company’s risk management framework is supported by a number of tools, as discussed below, that are used in
conjunction with the Company’s risk appetite framework. These are regularly reviewed and updated to ensure consistency
with risk-taking activities and ongoing relevance to the Company’s strategies, and financial and capital plans.
Risk Identification and Assessment
The Company uses a risk and control self-assessment program to proactively identify its exposure to key risks and assesses
the effectiveness of related mitigation strategies. Risk assessments are also performed on regulatory compliance
management and significant new initiatives (e.g., products, services, technologies, or potential acquisitions) by business and
support groups, and other internal subject matter experts.
Risk Policies and Limits
The Company maintains policies, guidelines, delegated lending authorities, risk limits and an internal control framework
designed to ensure that business activities are conducted within the Company’s risk appetite. Risk policies and guidelines are
reviewed regularly and challenged by management risk committees, and key policies and frameworks are reviewed,
challenged and approved by the Board.
Risk Measurement
The ability to measure risks is a key component of the Company’s risk management framework. The Company’s risk
measurement processes align with regulatory requirements such as liquidity measures, leverage ratios, capital adequacy and
stress testing. While quantitative risk measurement is important, reliance is also placed on qualitative factors for those risk
types that are difficult to quantify. The Company uses various risk measurement methodologies including scenario and
sensitivity analysis, stress testing, risk limits, provision for credit losses, and internal and external operational risk event
monitoring.
Stress Testing
Management conducts regular stress testing, including stress testing through the Company’s ICAAP, liquidity and funding
planning and ad hoc stress testing to evaluate a range of extreme but plausible scenarios. Stress tests are conducted to
determine the potential impact of these events, the effectiveness of management’s contingency plans to deal with these
unlikely but possible events, and management’s ability to mitigate the potential risk. A common set of enterprise scenarios
is developed to assess the impact on the Company’s financial results, capital position, operational capabilities and the
Company’s ability to respond to the event. Management analyzes the outcomes from stress testing and, where applicable,
takes proactive measures to mitigate potential risks to the business.
Risk Monitoring and Reporting
Enterprise and business level risk monitoring and reporting processes are designed to ensure that risks and issues are
identified, escalated and managed on a timely basis. The Company monitors external developments, key risk indicators and
early warning indicators to identify and provide timely responses to emerging risk issues and other changes in risk profile
before risk appetite limits are reached. ERM, management risk committees and the Board regularly monitor the Company’s
risk profile in relation to risk appetite and related limits, with timely escalation of issues requiring broader attention and/or
approval.
In addition to the above, risk-specific presentations are provided to and discussed with management risk committees and the
Board periodically.
The following sections describe the principal risk types and how they are managed.
Strategic Risk
Strategic risk is the risk to earnings, capital or corporate value arising from making inappropriate strategic choices, lack of
responsiveness to changes in the financial services and operating environment, or the inability to successfully implement
selected strategies, related plans and decisions. Strategic risk is managed by the EC. On a regular basis, the EC reviews the
current business environment, including regulatory developments and the actions of the Company’s competitors, and adjusts
business plans accordingly. The Board approves the Company’s strategies at least annually and reviews results against those
strategies at least quarterly.
49
Credit Risk
Credit risk is the risk of the loss of principal and/or interest from the failure of debtors and/or counterparties to honour their
financial or contractual obligations to the Company, for any reason. The Company’s overall exposure to credit risk is
governed by a defined credit-specific risk appetite, risk limits, a Board-approved Credit Risk Policy, delegated lending
authorities, and regular independent monitoring and reporting. The Credit Risk Committee establishes, implements and
monitors credit risk-related policies and guidelines enterprise-wide, taking into account business objectives, risk appetite,
planned financial performance and risk profile. Credit risk limits are established for all types of credit exposures, with
geographic, product, property and security type limits established to cover all material classes of exposure. The Company’s
Credit Risk Policy limits the total aggregate exposure to any entity or connection. The lines of business are responsible for
managing the Company’s credit risks in accordance with approved policies and guidelines, and assessing overall credit
conditions and exposures on an ongoing basis. The Credit Risk Committee, Capital Management Committee, the ERM group,
and the Risk and Capital Committee of the Board provide oversight of the credit portfolio through ongoing reviews of credit
risk management policies, lending practices, portfolio composition and risk profile, the adequacy of credit loss allowances and
the allocation of credit risk-based capital.
At a transactional level, loans are independently approved by credit and/or underwriting staff, commensurate with their
experience and expertise to extend credit within the bounds of the Company’s credit risk policies. A foundation of the
Company’s approach to credit is a high level of due diligence on each individual transaction, with oversight from a
management team with strong industry experience. All transactions are subject to detailed reviews of the underlying
security, an assessment of the applicant’s ability to service the loan, and the application of a standard risk rating or credit
score. Enhanced due diligence is conducted on transactions deemed to carry higher credit risks based on pre-defined
parameters. Transactions in excess of individual authority are approved by the Credit Risk Transactional Sub-Committee of
the Credit Risk Committee and ultimately by the Risk and Capital Committee of the Board as required.
Table 36: Credit Risk Portfolio Metrics
(000s, except % and number of credit cards and lines of credit issued )
2016
2015
2014
Total loans balance (net of individual allowances)
Mortgage Portfolio1
Total mortgage portfolio balance (net of individual allowance)
Residential mortgages as a percentage of total mortgages
Non-residential mortgages as a percentage of total mortgages
Percentage of insured residential mortgages2
Percentage of mortgages current
Percentage of mortgages over 90 days past due
Percentage of insured residential mortgage originations
Loan-to-value ratio of residential mortgages (current uninsured)3
Credit Card and Lines of Credit Portfolio
$ 17,957,399 $
18,133,665 $
18,262,816
$ 17,208,820 $
17,465,983 $
17,746,378
88.6%
11.4%
20.0%
98.3%
0.3%
27.7%
65.0%
91.5%
8.5%
23.7%
98.2%
0.3%
22.1%
66.4%
93.8%
6.2%
27.7%
97.9%
0.3%
23.7%
66.7%
Total credit card and lines of credit portfolio balance
$
369,678 $
370,825 $
330,327
Percentage of Equityline Visa credit cards
Percentage of secured credit cards
Percentage of credit cards and lines of credit current
Percentage of credit cards and lines of credit over 90 days past due
Loan-to-value ratio of Equityline Visa (current)3
Visa card security deposits
Total authorized limits of credit cards and lines of credit
Total number of credit cards and lines of credit issued
86.8%
4.0%
98.2%
0.4%
63.2%
86.6%
3.9%
98.5%
0.4%
62.9%
95.3%
3.8%
97.8%
0.6%
62.4%
$
$
21,253 $
20,646 $
18,787
515,947 $
511,283 $
430,906
42,707
40,355
33,853
Average balance authorized
1 Residential mortgages include multi-unit residential and other residential commercial mortgages.
2 Insured loans are loans insured against default by CMHC or another approved insurer, either individually at origination or by portfolio.
3 Loan-to-value ratio is calculated as the current balance outstanding to the appraised value at origination without any price adjustment. For Equityline Visa, loan-to-value
includes both the first mortgage and the secured Equityline Visa balance.
12 $
13 $
$
13
50
Mortgage Lending
Credit risk mitigation is a key component of the Company’s approach to credit risk management. The composition of the
mortgage portfolio is well within the Company’s risk appetite. Senior management and the ERM group closely monitor credit
metrics and the performance of the mortgage loan portfolio. The portfolio continues to perform well, with arrears and net
write-offs that are well within expected levels.
The Company mitigates credit risk by ensuring borrowers have the capacity and willingness to pay as well as through
collateral in the form of real property. Loan-to-value (LTV) is a key credit risk indicator. Please see Tables 41 and 42 for
further information. In certain situations the Company may make referrals to private lenders where the loan terms and
conditions requested by the client are not able to be satisfied by the Company.
Due to the level of activity and price appreciation in the high-rise condominium market in certain cities, the Company
continues to closely monitor market conditions and the performance of this portfolio. High-rise condominiums represent
9.0% of the residential mortgage portfolio and, of these, 23.1% are insured. The average current LTV of the condominium
portfolio was 60.9% at the end of December 2016. The credit performance of the condominium portfolio is strong and within
the Company’s expectations, with 98.3% of the portfolio current and 0.3% over 90 days past due.
The Company continues to monitor its exposure and the credit performance of mortgages in energy-producing regions,
including Alberta, Saskatchewan, and Newfoundland and Labrador. At December 31, 2016, 2.6% of the uninsured mortgage
portfolio was in these regions, with an average LTV of 60.6% and with 96.9% of the mortgages current.
The level of non-residential mortgages increased over the last 12 months and the Company anticipates that the non-
residential portfolio will continue to grow. The proportion is well within the policy limits.
Consumer Lending
Credit card and Equityline Visa balances were $369.7 million at the end of the year, most of which are secured by either cash
deposits or residential property. Within the credit card and lines of credit portfolio, Equityline Visa accounts, which are
secured by residential property, represent the principal driver of receivable balances. The Equityline Visa portfolio had a
weighted-average LTV at origination of 63.2% at the end of the year compared to 62.9% at the end of 2015. The LTV
includes both the first mortgage and the secured Equityline Visa balance.
Senior management and the ERM group closely monitor the credit performance of the credit card and lines of credit portfolio.
The portfolio continues to perform well, with arrears well within expected levels. As of December 31, 2016, $2.4 million or
0.4% of the credit card and lines of credit portfolio was over 90 days in arrears, compared to $1.6 million or 0.4% at
December 31, 2015.
Other consumer retail loans are primarily secured by charges on financed assets, primarily improvements to residential
property or fixtures.
Refer to Note 5(A) in the consolidated financial statements included in this report for a breakdown of the overall loan
portfolio by geographic region.
51
Gross
1.1%
-
Change
Net1
0.5%
-
Table 37: Non-performing Loans and Allowances
(000s, except %)
Gross
2016
Net1
Gross
2015
Net1
Single-family residential mortgages
$
49,834 $
47,854 $
49,285 $
47,633
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Non-performing loans
Total gross loans
-
-
4,577
4,547
2,049
1,269
411
-
-
2,558
1,518
161
-
2,218
78.9% 105.0%
1,189
35.0%
6.7%
-
155.3%
-
56,871
53,670
53,522
51,040
6.3%
5.2%
$ 17,960,600
$
18,136,147
(1.0)%
Net non-performing loans as a % of gross loans
0.30%
0.28%
Total allowance for credit losses
Total allowance as a % of gross loans
Total allowance as a % of gross non-performing loans
Net write-offs as a % of gross loans
$
41,715
$
39,632
0.23%
73.35%
0.03%
0.22%
74.05%
0.04%
1 Non-performing loans are net of individual allowances as shown in Table 38, Allocation of Allowance for Credit Losses.
Net non-performing loans remain within expected and acceptable ranges. As part of the Company’s ongoing business
operations, experienced employees undertake reviews of delinquent and non-performing loans to analyze patterns and
drivers and then modify, where appropriate, the Company’s lending guidelines. This analytical approach and attention to
emerging trends have resulted in continued low write-off rates relative to the gross loans portfolio. Write-offs, net of
recoveries, totalled $5.8 million or 0.03% of gross loans in 2016, compared to $6.9 million or 0.04% of gross loans in 2015.
The Company continually monitors arrears and write-offs and deals quickly with non-performing loans.
52
Table 38: Allocation of Allowance for Credit Losses
(000s)
Individual allowances
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total individual allowance
Collective allowance
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total collective allowance
Total allowances
(000s)
Individual allowances
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total individual allowance
Collective allowance
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total collective allowance
2016
Write-offs
Opening
Balance
Net of
Provision for
Recoveries
Credit Losses
2016
Ending
Balance
$
2,491 $
(3,087) $
3,917 $
3,321
-
397
329
166
3,383
22,232
327
9,500
3,890
300
36,249
(2)
(515)
(1,928)
(275)
(5,807)
-
-
-
-
-
-
2
246
2,379
532
7,076
-
128
780
423
4,652
800
23,032
-
-
14
-
814
327
9,500
3,904
300
37,063
41,715
2015
Ending
Balance
$
39,632 $
(5,807) $
7,890 $
2015
Opening
Balance
Write-offs
Net of
Provision for
Recoveries
Credit Losses
$
2,368 $
(5,292)
$
5,415 $
2,491
-
112
500 1
163
(4)
(435)
(969)
(168)
4
720
798
171
-
397
329
166
3,143
(6,868)
7,108
3,383
20,632
327
9,300
3,865 1
300
34,424
-
-
-
-
-
-
1,600
22,232
-
200
25
-
327
9,500
3,890
300
1,825
36,249
Total allowances
$
1 The opening balance of credit card loans and lines of credit includes the individual and collective allowances assumed on the purchase of CFF Bank on October 1, 2015.
37,567 $
8,933 $
(6,868)
$
39,632
The Company has security in the form of real property or cash deposits for virtually the entire loan portfolio. The Company
maintains an allowance for credit losses in accordance with IFRS which represents management’s best estimate of
impairment incurred in the loan portfolio. The allowance is reviewed quarterly at a minimum. The Company records
individual allowances for credit losses for loans that are specifically identified as impaired based on factors such as borrower
performance. In addition, the Company records a collective allowance to estimate incurred credit losses inherent in the
portfolio but not yet individually identified. Key factors in determining these estimates are credit scores, past loss
experience, delinquency trends, loan-to-value ratios and general economic conditions. At December 31, 2016, the collective
allowance was $37.1 million, ($36.2 million - December 31, 2015), representing more than the cumulative total net write-
offs over the past 36 months.
Current accounting standards do not permit the Company to carry allowances for possible or future losses. This risk is
considered in the determination of the appropriate level of capital supporting the Company’s operations. The Company holds
capital for possible further credit losses. This includes capital required by regulation (see Table 32) and additional capital
amounts as recommended by management and approved by the Board. The Company uses stress testing and scenario
analysis to challenge the adequacy of the capital appropriated for credit risk. As at December 31, 2016, the Company held
total regulatory capital at 162% of the regulatory minimum. A substantial portion of this is appropriated for credit risk.
53
On the adoption of IFRS 9 in 2018, the accounting standards relating to credit losses will change such that forward-looking
information regarding the possibility of future losses will be considered in the determination of allowances for credit losses.
Please refer to Note 3 in the consolidated financial statements included in this report for further information on the adoption
of IFRS 9.
Additional Information: Residential Loans and Equityline Visa Home Equity Line of Credit (HELOC)
The tables below provide additional information on the composition of the Company’s single-family residential mortgage
portfolio by province and insured status, as well as by remaining effective amortization periods and loan-to-value ratios by
province.
Table 39: Single-family Residential Loans by Province
(000s, except %)
Insured Percentage
Uninsured Percentage
Percentage
Residential
of Total
Mortgages1 for Province
Residential
of Total
Mortgages for Province
Equityline
of Total
Visa2 for Province
2016
Total
British Columbia
$
286,444
32.1% $
603,377
67.6% $
2,585
0.3% $
892,406
298,432
47.9%
314,519
1,950,188
15.7% 10,145,301
99,465
192,093
25.1%
56.8%
295,017
143,783
50.5%
81.8%
74.6%
42.5%
10,347
1.6%
623,298
304,468
2.5% 12,399,957
1,217
2,268
0.3%
0.7%
395,699
338,144
$ 2,826,622
19.3% $ 11,501,997
78.5% $
320,885
2.2% $ 14,649,504
Alberta
Ontario
Quebec
Other
(000s, except %)
Insured
Percentage
Uninsured
Percentage
Residential
Mortgages1
of Total
Residential
of Total
for Province
Mortgages for Province
British Columbia
$
294,117
35.2% $
537,677
64.4% $
Alberta
Ontario
Quebec
Other
270,146
41.4%
370,645
2,467,766
19.1%
10,152,664
149,504
174,123
29.8%
51.7%
350,833
160,053
56.8%
78.6%
69.9%
47.6%
Percentage
of Total
for Province
2015
Total
0.4% $
835,202
1.8%
2.3%
0.3%
0.7%
652,615
12,922,299
501,806
336,556
Equityline
Visa2
3,408
11,824
301,869
1,469
2,380
$
1 See definition of insured loans under the Glossary of Terms in this report.
2 Equityline Visa is an uninsured product.
3,355,656
22.0% $ 11,571,872
75.9% $
320,950
2.1% $ 15,248,478
Table 40: Insured and Uninsured Single-Family Residential Mortgages by Effective Remaining Amortization Period
(000s, except %)
2016
Balance outstanding
$
Years
696,937 $
Years
Years
2,329,016 $ 11,227,579 $
Years
72,348 $
Years
Total
2,739 $ 14,328,619
Percentage of total
4.9%
16.3%
78.3%
0.5%
0.0%
100.0%
≤20
> 20 and ≤ 25
> 25 and ≤ 30
> 30 and ≤ 35
> 35
(000s, except %)
Balance outstanding
$
≤ 20
>20 and ≤ 25
> 25 and ≤ 30
> 30 and ≤ 35
Years
704,369 $
Years
Years
2,312,993 $
11,379,663 $
Years
525,518 $
Percentage of total
4.7%
15.5%
76.3%
3.5%
> 35
Years
4,985 $
0.0%
2015
Total
14,927,528
100.0%
54
Table 41: Weighted-Average Loan-to-Value (LTV) Ratios for Uninsured Single-family Residential Mortgages
Originated During the Year
British Columbia
Alberta
Ontario
Quebec
Other
Uninsured Residential
Mortgages1
63.6%
69.4%
72.9%
69.3%
72.4%
2016
Equityline
Visa1
52.4%
44.1%
63.9%
65.3%
58.9%
Uninsured Residential
Mortgages1
67.6%
71.5%
73.9%
70.0%
70.7%
73.3%
2015
EquityLine
Visa1
56.0%
48.0%
63.4%
58.2%
58.2%
63.3%
Total
1Weighted-average LTV is calculated by dividing the sum of the products of LTVs and loan balances by the sum of the loan balances.
63.8%
72.2%
The Company actively manages the mortgage portfolio and performs regular and ad-hoc stress testing. Stress testing
includes scenarios that are based on a combination of increasing unemployment, rising interest rates, and a decline in real
estate values, as well as specific operational, market and single-factor stress tests. The probability of default in the
residential mortgage portfolio is most closely correlated with changes in employment rates. Consequently, during an
economic downturn, either regionally or nationally, the Company would expect an increased rate of default and also an
increase in credit losses arising from lower real estate values. The Company’s stress tests related to either regional or
national economic downturns, which include declining housing prices and increased unemployment, indicate that the
Company has sufficient capital to absorb such events, albeit with increases to credit losses. The total single-family residential
mortgage portfolio including HELOC was $14.65 billion as of December 31, 2016, of which $2.83 billion was insured against
credit losses. The Company would expect to recover any lost principal, interest and direct collection costs associated with
this insured portion of the portfolio.
The Company’s key mitigant against credit losses in the event of default in the uninsured portfolio is the excess of the value
of the collateral over the outstanding loan amount (expressed as LTV ratio). As at December 31, 2016, the weighted-
average LTV of the uninsured portfolio against the estimated current market value was 60.9% compared to 63.7% at the end
of 2015. These average current LTVs were estimated with appraised property values adjusted for price changes by using the
Teranet-National Bank home price index. This index provides changes in prices for all of Canada by region using the first
three digits of the postal code in which the property is located. The Company began using this index for reporting LTVs as at
December 31, 2016. For previous periods, the Company had used Teranet’s publicly available 11-city composite index for
property price adjustment. The new index provides more granular adjustments in property prices and where those property
price adjustments have resulted in increased prices, the reported LTVs have decreased with use of the new index
accordingly. For comparability, the LTVs presented in the table below for December 31, 2015 have been restated from
previous disclosures using the new index. If an economic downturn involved reduced real estate values, the margin of value
over loan amounts would be eroded and the extent of loan losses could increase. The weighted-average LTV for each
significant market is indicated below.
Table 42: Weighted-Average Loan-to-Value Ratios for Uninsured Residential Mortgages
Percentage of Total Value
2016
2015
Percentage of Total Value
Weighted-average
of Outstanding Mortgages with Weighted-average
of Outstanding Mortgages with
Current LTV1 Current LTV Less than or Equal to
British Columbia
Alberta
Ontario
Quebec
Other
Current LTV1 Current LTV Less than or Equal to
52.0%
65.0%
61.2%
62.8%
62.1%
75%
98.4%
81.1%
85.7%
92.1%
86.4%
65%
89.1%
46.8%
59.0%
53.4%
54.5%
57.3%
65.4%
63.9%
64.6%
62.9%
Total
63.7%
1Weighted-average LTV is calculated by dividing the sum of the products of LTVs and loan balances by the sum of the loan balances.
60.1%
86.4%
60.9%
75%
95.6%
81.3%
84.5%
88.2%
85.2%
85.1%
65%
75.3%
45.1%
48.3%
46.1%
53.6%
49.4%
55
Market Risk
Market Risk is the potential for adverse changes in the value of assets, liabilities or earnings resulting from changes in
market variables such as interest rates, equity prices and counterparty credit spreads. For the Company, Market Risk
consists primarily of Investment Risk and Structural Interest Rate Risk. A summary of these risks is as follows:
Investment Risk
Investment risk is the risk of loss of earnings and capital from changes in security prices and dividends in the investment
portfolio, whether they arise from macroeconomic factors, the economic prospects of the issuer, or the availability of liquid
markets among other factors. The Company’s investment portfolio consists primarily of preferred shares at 36.2% of the
portfolio and government bonds at 63.0% of the portfolio. The total balance was $534.9 million at December 31, 2016
compared to $453.2 million at the end of 2015.
The Company’s investment risk management framework includes investment policies that are approved by the Asset/Liability
Committee (ALCO) and the Risk and Capital Committee of the Board. The ALCO is responsible for defining and monitoring the
Company’s investment portfolio and identifying investments that may be at risk of impairment. The ERM group conducts
analysis of counterparties to assess if credit deterioration has resulted in an impairment of the investments. The Treasury
group is responsible for managing the Company’s investment portfolio in accordance with approved policies and assesses the
impact of market events on potential implications to its total value. The ERM group recommends prudential policies, reviews
procedures and guidelines, and provides enterprise-wide oversight and challenge of investment risk, including valuations.
As of December 31, 2016, the Company assessed its securities portfolio for evidence of impairment and has not identified
any negative credit events during the year in relation to its preferred share or debt holdings.
Structural Interest Rate Risk
Structural interest rate risk is the risk of lost earnings or capital due to changes in interest rates. The objective of interest
rate risk management is to ensure that the Company is able to realize stable and predictable earnings over specific time
periods despite interest rate fluctuations. The Company has adopted an approach to the management of its asset and liability
positions to prevent interest rate fluctuations from materially impacting future earnings, and seeks to organically match
liabilities to assets in terms of maturity and interest rate repricing through its actions in the deposit market in priority to
accessing off-balance sheet solutions. The proportion of overall funding from high-interest savings demand deposits
continues to increase and, while this benefits the Company in funding diversification and lowering funding costs, the risk of
funding mismatch also increases given the term profiles of the Company’s assets.
The Company’s market risk management framework includes interest rate risk policies that are approved by the ALCO and
the Risk and Capital Committee of the Board. The ALCO is responsible for defining and monitoring the Company’s structural
interest rate risk and reviewing significant maturity and/or duration mismatches, as well as developing strategies that allow
the Company to operate within its overall risk appetite. In addition, the ALCO oversees stress testing of structural interest
rate risk using a number of interest rate scenarios. The Treasury group is responsible for managing the Company’s interest
rate gaps in accordance with approved policies and assesses the impact of market events on the Company’s net interest
income and economic value of shareholders’ equity. The ERM group recommends prudent policies and guidelines, and
provides independent enterprise-wide oversight of all interest rate risk.
From time to time, the Company enters into derivative transactions in order to hedge interest rate exposure resulting from
outstanding loan commitments and requirements to replace assets in the CMB program, as well as interest rate risk on fixed-
rate mortgages, deposits, and CMB liabilities. Where appropriate, the Company will apply hedge accounting to minimize
volatility in reported earnings from interest rate changes. All derivative contracts are over-the-counter contracts with highly
rated Canadian financial institutions. The use of derivative products has been approved by the Board; however, permitted
usage is governed by specific policies. Derivatives are only permitted in circumstances in which the Company is hedging
asset-liability mismatches, or loan commitments, or as a result of hedging requirements under the terms of its participation
in the CMB program. Moreover, the policy expressly articulates that the use of derivatives is not permitted for transactions
that are undertaken to potentially create trading profits through speculation on interest rate movements.
The Company is exposed to interest rate risk as a result of a difference, or gap, between the maturity or repricing date of
interest-sensitive assets and liabilities. The following table shows the gap positions at December 31, 2016 and December 31,
2015 for selected period intervals. Figures in parentheses represent an excess of liabilities over assets or a negative gap
position.
This schedule reflects the contractual maturities of both assets and liabilities, adjusted for assumptions regarding the
effective change in the maturity date as a result of a mortgage becoming impaired and for credit commitments and
derivatives. Over the lifetime of certain assets, some contractual obligations, such as residential mortgages, will be
terminated prior to their stated maturity at the election of the borrower, by way of prepayments. Similarly, some contractual
off-balance sheet mortgage commitments may be made but may not materialize. In measuring its interest rate risk
exposure, the Company makes assumptions about these factors and monitors these against actual experience. Variable-rate
assets and liabilities are allocated to a maturity category based on their interest repricing date.
56
Table 43: Interest Rate Sensitivity
thousands of Canadian dollars, except %
As at December 31, 2016
Floating
Rate
0 to 3
Months1
3 to 6
Months
6 to 12
Months
1 to 5
Years
Over
Non-interest
5 Years
Sensitive
Total
Assets
Cash and cash equivalents
$
505,649 $
699,745 $
Weighted-average interest rate
0.9%
0.7%
- $
-
- $
-
- $
-
- $
-
- $
1,205,394
-
0.8%
Available for sale securities
Weighted-average interest rate
Loans held for sale
Weighted-average interest rate
Securitized mortgages
Weighted-average interest rate
-
-
-
-
-
-
71,694
16,461
11,050
429,921
5,798
-
534,924
4.4%
4.0%
4.1%
1.5%
3.6%
-
-
-
-
-
12,879
65,039
-
1.9%
2.6%
834,641
38,517
47,447
1,606,199
2.2%
3.6%
3.0%
3.5%
-
-
-
-
-
2.1%
77,918
2.5%
-
2,526,804
-
3.1%
Non-securitized mortgages and loans
-
3,536,255
2,015,900
5,625,534
4,175,070
50,838
(10,065)
15,393,532
Weighted-average interest rate
Other assets
Weighted-average interest rate
-
-
-
5.0%
4.8%
4.7%
4.8%
5.5%
-
4.8%
205,095
5,333
4,975
87,495
-
487,307
790,205
0.7%
1.9%
2.0%
0.8%
-
-
0.3%
Total
$
505,649 $ 5,347,430 $
2,076,211 $
5,689,006 $
6,311,564 $
121,675 $
477,242 $
20,528,777
Weighted-average interest rate
0.9%
3.8%
4.8%
4.7%
4.2%
3.8%
-
4.1%
Liabilities and shareholders' equity
Deposits payable on demand
$
2,358,084 $
Weighted-average interest rate
1.4%
- $
-
- $
-
- $
-
- $
-
Deposits payable at a fixed rate
Weighted-average interest rate
Securitization liabilities
Weighted-average interest rate
Other liabilities
Weighted-average interest rate
Shareholders' equity
Weighted-average interest rate
-
-
-
-
-
-
-
-
1,626,102
2,034,495
3,274,977
6,418,653
1.8%
2.0%
1.8%
2.3%
1,041,593
1.1%
3,490
-
-
-
-
-
-
-
-
-
81,416
1,526,640
1.5%
2.7%
-
-
-
-
-
-
-
-
- $
173,719 $
2,531,803
-
-
-
-
-
-
-
-
1.3%
-
13,354,227
-
2.1%
-
2,649,649
-
2.0%
372,416
375,906
-
-
-
1,617,192
1,617,192
-
-
-
Total
$
2,358,084 $ 2,671,185 $
2,034,495 $
3,356,393 $
7,945,293 $
- $
2,163,327 $
20,528,777
Weighted-average interest rate
1.4%
1.5%
2.0%
1.8%
2.4%
-
-
1.8%
$ (1,852,435) $ 2,676,245 $
41,716 $
2,332,613 $ (1,633,729) $
121,675 $ (1,686,085) $
Credit commitments
Weighted-average interest rate
-
-
(1,282,939
)
27,107
63,538
1,179,369
12,925
4.4%
5.5%
5.6%
4.3%
2.5%
-
-
Interest rate sensitivity gap
$ (1,852,435) $ 1,393,306 $
68,823 $
2,396,151 $
(454,360) $
134,600 $ (1,686,085) $
Cumulative gap
$ (1,852,435) $
(459,129) $
(390,306) $
2,005,845 $
1,551,485 $
1,686,085 $
- $
Cumulative gap as a
percentage of total assets
(9.0)%
(2.2)%
(1.9)%
9.8%
7.6%
8.2%
-
-
-
-
-
-
-
57
thousands of Canadian dollars, except %
As at December 31, 2015
Floating
Rate
0 to 3
Months1
3 to 6
Months
6 to 12
Months
1 to 5
Years
Over
Non-interest
5 Years
Sensitive
Total
Assets
Cash and cash equivalents
$
252,122 $
897,727 $
Weighted-average interest rate
1.0%
0.7%
- $
-
- $
-
- $
-
- $
-
- $
1,149,849
-
0.8%
Available for sale securities
Weighted-average interest rate
Loans held for sale
Weighted-average interest rate
-
-
-
-
4.1%
4.7%
4.4%
2.1%
2.4%
-
-
-
-
-
-
-
-
135,043
2.7%
59,469
12,136
8,468
337,791
35,307
59
453,230
Securitized mortgages
-
1,243,393
137,772
147,377
1,124,894
21,039
Weighted-average interest rate
-
2.4%
3.8%
3.8%
4.1%
2.7%
-
-
-
-
-
2.5%
135,043
2.7%
2,674,475
3.3%
Non-securitized mortgages and loans
-
3,356,721
2,196,396
6,038,115
3,715,771
123,731
(7,793)
15,422,941
Weighted-average interest rate
-
5.1%
5.0%
4.9%
4.7%
6.9%
-
4.9%
Other assets
14,645
237,883
4,719
3,470
Weighted-average interest rate
0.5%
0.5%
1.9%
2.0%
-
-
-
430,807
691,524
-
-
0.2%
Total
$
266,767 $
5,795,193 $
2,351,023 $
6,197,430 $
5,178,456 $
315,120 $
423,073 $
20,527,062
Weighted-average interest rate
0.9%
3.6%
4.9%
4.9%
4.4%
4.3%
-
4.3%
Liabilities and shareholders' equity
Deposits payable on demand
$
1,819,881 $
Weighted-average interest rate
1.4%
- $
-
- $
-
- $
-
- $
-
Deposits payable at a fixed rate
-
1,170,250
1,992,516
4,074,166
6,442,890
Weighted-average interest rate
Senior debt
Weighted-average interest rate
-
-
-
1.8%
1.9%
1.9%
2.3%
-
151,480
-
5.2%
-
-
-
-
Securitization liabilities
-
1,209,382
331,025
97,598
1,142,551
Weighted-average interest rate
Other liabilities
Weighted-average interest rate
Shareholders' equity
Weighted-average interest rate
-
-
-
-
-
1.1%
2.8%
1.9%
3.2%
5,447
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
166,255 $
1,986,136
-
-
-
-
-
-
-
-
1.3%
-
13,679,822
-
-
-
2.1%
151,480
5.2%
-
2,780,556
-
2.2%
-
302,515
307,962
-
-
-
-
1,621,106
1,621,106
-
-
-
Total
$
1,819,881 $
2,385,079 $
2,475,021 $
4,171,764 $
7,585,441 $
- $
2,089,876 $
20,527,062
Weighted-average interest rate
1.4%
1.4%
2.2%
1.9%
2.4%
-
-
1.8%
$
(1,553,114) $
3,410,114 $
(123,998) $
2,025,666 $
(2,406,985) $
315,120 $
(1,666,803) $
Credit commitments
-
(1,121,096)
20,549
46,307
1,054,070
Weighted-average interest rate
-
4.2%
6.0%
5.7%
4.2%
170
2.7%
-
-
Interest rate sensitivity gap
$
(1,553,114) $
2,289,018 $
(103,449) $
2,071,973 $
(1,352,915) $
315,290 $
(1,666,803) $
Cumulative gap
$
(1,553,114) $
735,904 $
632,455 $
2,704,428 $
1,351,513 $
1,666,803 $
- $
Cumulative gap as a
percentage of total assets
(7.6)%
3.6%
3.1%
13.2%
6.6%
8.1%
-
1 Total assets in the 0-3 month category above include $2.00 billion in variable rate mortgages (2015 - $2.01 billion)
To assist in matching assets and liabilities, the Company utilizes a variety of metrics, including two interest rate risk
sensitivity metrics that measure the relationship between changes in interest rates and the resulting estimated impact on
both the Company’s future net interest income and the economic value of shareholders’ equity. The Company measures
these metrics over a number of different yield curve scenarios.
-
-
-
-
-
-
The following table provides measurements of interest rate sensitivity and the potential after-tax impact of an immediate and
sustained 100 basis-point increase or decrease in interest rates on net interest income and on the economic value of
shareholders’ equity and OCI, corresponding to an interest rate environment that is floored at 0%.
58
Table 44: Impact of Interest Rate Shifts
(000s)
December 31
December 31
December 31
December 31
2016
2015
Increase in interest rates
2016
2015
Decrease in interest rates
100 basis point shift
Impact on net interest income, after tax
(for the next 12 months)
Impact on net present value of shareholders’ equity
Impact on other comprehensive income
$
4,024 $
11,052 $
(5,696)
$
4,438
3,265
25,913
2,571
(6,415)
(2,677)
(9,525)
(29,092)
(2,007)
As illustrated in the above table, an increase in interest rates will have a positive impact on net interest income after tax and
the economic value of shareholders’ equity in the event of a 100 basis-point movement in rates without management action.
A positive gap exists when interest-sensitive assets exceed interest-sensitive liabilities on specific maturity or repricing
periods. As these gaps widen, the fluctuation in the sensitivity becomes more pronounced and, for this reason, the
Company’s ALCO manages this to within authorized limits.
Liquidity and Funding Risk
This is the risk that the Company is unable to generate or obtain sufficient cash or equivalents in a timely manner and at a
reasonable cost to meet its financial obligations (both on- and off-balance sheet) as they fall due. This risk will arise from
fluctuations in the Company’s cash flows associated with lending, securitization, deposit-taking, investing and other business
activities. The high-interest savings demand deposit product adds to liquidity risk as depositors are allowed to withdraw
deposits on notice in the absence of fixed contractual terms.
The Company’s liquidity risk management framework includes a three-year enterprise funding plan, liquidity and funding risk
policies, and a Contingency Funding Plan that are approved by the ALCO and the Risk and Capital Committee of the Board.
The mandate of the ALCO includes establishing and recommending to the Board an enterprise-wide liquidity risk appetite. In
addition, the ALCO reviews the composition and term structure of assets and liabilities, reviews liquidity and funding risk
policies and strategies and regularly monitors compliance with those policies. The ALCO also oversees the stress testing of
liquidity and funding risk and the testing of the Company’s Contingency Funding Plan. The Treasury group is responsible for
managing the Company’s liquidity and funding risk positions in accordance with approved policies and assesses the impact of
market events on liquidity requirements on an ongoing basis. The ERM group recommends liquidity policies and guidelines,
and provides independent oversight of all liquidity and funding risk.
The Company’s annual three-year funding plan assesses future funding needs and how the Company intends to fulfill these
requirements as measured against the Company’s risk appetite. Securing sustainable diversified funding at a reasonable
cost and acceptable level of liquidity risk is fundamental to the Company realizing its future growth potential.
The Company’s liquidity and funding risk policies are designed to ensure that cash balances and the inventory of other liquid
assets are sufficient to meet all cash outflows both in ordinary market conditions and during periods of extreme market
stress. The Company’s policies address several key elements, such as the minimum levels of liquid assets to be held at all
times; the composition of types of liquid assets to be maintained; daily monitoring of the liquidity position by Treasury,
senior management, and the ERM group; monthly reporting to the ALCO; and quarterly reporting to the Risk and Capital
Committee of the Board.
The Company uses a liquidity horizon as its main liquidity metric. Using maturity gap analysis, the Company projects a time
horizon when its net cumulative cash flow turns negative, after taking into account the market value of its stock of liquid
assets. The Company’s liquidity horizon is calculated daily and is based upon contractual and behavioural cash flows.
Forecasts are made using normal market conditions and a number of stressed liquidity scenarios, including ability to fund,
term deposit runoff, demand deposit runoff, loan growth, liquidity portfolio valuation, loan arrears and write-downs. In
addition, the Company regularly monitors a number of other structural liquidity and funding ratios in its overall liquidity and
funding risk management framework.
59
The Company holds liquid assets in the form of cash, bank deposits, securities issued or guaranteed by the Government of
Canada, securities issued by provincial governments, and highly rated short-term money market securities, corporate bonds
and debentures. The Company’s liquid assets are presented in the table below:
Table 45: Liquidity Resources
(000s, except %)
Cash and cash equivalents per balance sheet
Available for sale securities per balance sheet
Add: MBS included in residential mortgages
Less: securities held for investments
Liquid assets at carrying value
Liquid assets at fair value
Liquid assets at carrying value as a % of total assets
2016
2015
$
1,205,394 $
1,149,849
534,924
521,013
453,230
682,772
2,261,331
2,285,851
(193,350)
(190,706)
2,067,981 $
2,095,145
2,142,289 $
2,092,390
10.1%
10.2%
$
$
Change
4.8%
18.0%
(23.7)%
(1.1)%
1.4%
(1.3)%
2.4%
(0.1)%
Certain Company-originated MBS are held as liquid assets, but are classified in residential mortgages on the balance sheet,
as required by IFRS. The underlying mortgages are insured and the securities are stamped by CMHC. On an overall basis,
liquidity resources fluctuate as the Company’s future cash requirements change.
The Company’s main sources of funding come from retail deposits and securitization. Retail deposits are primarily sourced
through the deposit broker network and the Company relies heavily on this channel. The majority of these deposits are
received through channels that are controlled by several of the major Canadian banks. The broker network provides the
Company with access to a very large volume of potential deposits, which are sourced almost entirely from individual
investors. The bulk of deposits raised are CDIC-insured fixed-term GICs that are not subject to early redemption. The
Company has contractual agreements with most major national investment dealers and a large number of independent
brokers. The Company continues to add new investment dealers and independent brokers in order to diversify its sources of
funds.
The Company continues its longer-term strategy to diversify its sources of funding through its direct-to-consumer brand,
Oaken Financial, Home Trust and Home Bank high-interest savings account offerings which are demand deposits, bank-
sponsored conduit funding, and the issuance of institutional fixed-term deposit notes. The portion of overall funding from
demand deposits continues to increase and attracts lower funding costs. The Company expects further opportunities for
future deposit funding diversification through its bank subsidiary, Home Bank.
The Company is an Approved NHA MBS Issuer and an Approved Seller into the CMB program, which are securitization
initiatives sponsored by CMHC. Securitization funding provides the Company with long-term matched funding at attractive
interest rates. Traditionally, the Company has used securitization markets to fund its Accelerator mortgages and insured
multi-unit residential mortgages and, to a lesser extent, its traditional mortgages that qualified for bulk portfolio insurance.
On-balance sheet Accelerator mortgages and multi-unit residential mortgages classified as held for sale are generally held for
securitization and are funded with deposits or lines of credit until securitized. When mortgages are securitized, the Company
receives principal and interest payments on its underlying mortgage loans before the required payments are passed-through
to MBS investors. However, as a part of its servicing obligations, the Company must pass-through on a timely basis any
payments that are not collected due to arrears. In the case of defaults, the Company would make required payments to
investors and place the mortgage/property through the insurance claims process to recoup any losses. This could result in
cash flow timing mismatches that could marginally increase liquidity and funding risk.
OSFI Liquidity Requirements
As required by OSFI’s Liquidity Adequacy Requirements (LAR), the Company reports its Liquidity Coverage Ratio (LCR) to
OSFI, which is a minimum regulatory liquidity standard adopted by OSFI. The LCR requires net cumulative cash flow
requirements in a stressed environment. As well, the Company reports the OSFI-designed Net Cumulative Cash Flow
(NCCF), which measures detailed cash flows to capture the risk posed by funding mismatches over and up to a 12-month
time horizon. The Company complies with these requirements.
60
Operational Risk
Operational risk, which is inherent in all business activities, is the risk of loss resulting from inadequate or failed internal
processes, people and systems or from external events. The impact of operational risk may include financial loss,
reputational harm, or regulatory enforcement actions, among others. Operational risk is inherent in every business and
support activity, including the practices for managing other risks such as credit, compliance and liquidity and funding risk.
The Company has taken proactive steps to mitigate this risk in order to create and sustain shareholder value, execute on
business strategies and operate effectively. Strategies to manage operational risk include mitigation by controls as well as
risk avoidance, transfer, and acceptance. Oversight of the operational risk framework is provided by the ERM group, the
Operational Risk Committee, and the Audit and Risk and Capital Committees of the Board.
The Company continues to strengthen its operational risk framework which includes the following components:
Risk and control self-assessments are applied at the line of business and business unit levels as well as for significant
processes in the Company. Business process mapping supports the analysis of risks and controls at the process level.
The new initiative risk assessment process requires risks to be identified and assessed for new initiatives including new
or changed products, processes and systems, joint ventures and other corporate development activities.
Subject-matter experts with expertise in privacy, security, data governance, legal, and other areas have been designated
to assist in risk assessments.
Risks are monitored on an ongoing basis through the use of key risk indicators which have established limits and
thresholds aligned with the Company’s risk appetite.
Internal and external operational risk events are regularly reported along with root cause analysis and action plans as
required.
Risk mitigation action plans established for identified risks are regularly tracked and reported.
Stress testing and scenario analysis have included scenarios such as earthquakes, pandemics, cyber-attacks, active
shooters, and fraud scenarios.
Information/Cyber Security, Business Continuity Management and Data Recovery programs have been established and
are subject to regular testing.
Through the model risk management program, key models are independently vetted and validated before use, and
model performance is monitored on an ongoing basis.
The Data Governance program is focused on providing accurate, complete and timely information to support decision-
making.
Third-party risk management programs require that appropriate risk assessment and due diligence be performed before
engaging in business with third-party service providers and on a periodic basis going forward.
The Company manages a portfolio of insurance and other risk mitigating arrangements. The insurance terms and
provisions, including types and amounts of coverage in the portfolio, are continually assessed to ensure that both the
Company’s tolerance for risk and, where applicable, statutory requirements are satisfied.
Compliance Risk
Compliance risk refers to the risk of non-compliance with laws, regulations, guidelines, an undertaking to a regulatory
authority or provision, section, subsection, order, term or condition, including related internal policies and procedures. This
includes requirements that have been identified by the EC and senior management that require the Company to do certain
things, including conducting its affairs in a particular manner, and where non-compliance could have an impact on the
Company’s reputation and/or safety and soundness.
While all business units and corporate functions of the Company (as the first line of defence) are responsible for ensuring
that compliance risk is mitigated, the independent oversight of compliance risk is principally managed by the CCO, CAMLO
and the Corporate Compliance group as part of the Company’s Regulatory Compliance Framework.
Capital Adequacy Risk
Capital adequacy is a key requirement in the safety and soundness of any financial institution. Capital is the difference
between the Company’s assets and liabilities, and acts as a financial cushion to absorb unexpected losses. Capital adequacy
risk is the risk that the Company does not hold sufficient capital required to manage enterprise-wide risks as a going
concern, even in periods of severe but plausible stress. Not maintaining sufficient capital adequacy may lead to insolvency
and creditor (depositor) losses. Please refer to the Capital Management section of this MD&A for further information.
Oversight of the management of capital adequacy risk is provided by the ERM group, Finance, the Capital Management
Committee and the Risk and Capital Committee of the Board.
61
Reputational Risk
Reputational risk is the risk that stakeholder impressions, whether true or not, regarding the Company’s business practices,
actions or inactions, will adversely affect the Company’s earnings, economic value, capital, or ability to maintain existing or
establish new business relationships and continued access to sources of funding.
The objective of reputational risk management is to protect and enhance the Company’s reputation by building and
maintaining stakeholder confidence and trust that the Company can deliver on its promises. The Company has adopted a
reputational risk management framework which provides an overview of its approach for this type of risk, focusing on risk
management principles, stakeholder management, and organizational accountabilities for the prevention and detection of
reputational risk vulnerabilities. The Company’s approach to the management of this risk combines the experience and
knowledge applied in the management of other risk types with a corporate understanding of potential consequences to the
Company.
Risk Factors That May Affect Future Results
The Company is exposed to a variety of continually changing risks that have the potential to cause the Company’s results to
differ significantly from the Company’s plans, objectives and estimates. All forward-looking statements, including those in
this MD&A are subject to inherent risks and uncertainties, general and specific, which may cause the Company’s actual
results to differ materially from the expectations expressed in the forward-looking statements. Some of these external
factors are discussed below.
Top and Emerging Risks
Greater Toronto Area (GTA) Housing Market and Canadian Consumer Debt
There have been substantial increases in real estate prices in the GTA over a sustained period of time. In addition, Canadian
household indebtedness continues to outpace growth in household incomes fueled by persistently low interest rates and
stable employment levels. While interest rates are expected to remain relatively low in the foreseeable future, concerns
remain that higher interest rates or unemployment levels could trigger a correction in the housing market, putting pressure
on the ability of households to repay their debts, including mortgages, with a corresponding increase in the Company’s credit
losses. In addition, the Canadian government recently introduced regulatory changes to tighten origination criteria on
insured mortgages, and announced a public consultation on risk sharing for insured mortgages. While these measures are
expected to reduce pricing pressure, it is too early to estimate the nature and extent of the impact. The Company believes
the risk of a severe housing correction in the GTA to be unlikely, and stress testing results suggest that even a severe real
estate decline in the GTA would lead to manageable losses.
Legal and Regulatory Risk
The Company is subject to a variety of regulations and related oversight. Although the Company maintains a framework and
controls to address compliance with existing laws and regulations, and monitors and assesses the potential impact of
regulatory developments and implements any necessary changes, regulators and/or private parties may challenge the
interpretation or implementation of such compliance. Failure to comply with legal and regulatory requirements could result
in fines, penalties, litigation, regulatory sanctions and limitations, all of which could have a negative impact on the
Company’s financial performance, reputation and ability to operate as a regulated entity.
Third Party Service Providers
The Company recognizes the value of using third parties to support its business activities, as they provide access to
customers, applications, processing, products and services, specialized expertise, economies of scale and operational
efficiencies. However, they also create reliance on the continuity, reliability, integrity and security of these relationships, and
their associated people, processes and technology. While the Company has implemented a framework and controls to
manage key supplier and other vendor risks (including maintenance of a list of prohibited third-party service providers),
third-party service provider failures or disruptions could result in adverse effects including customer service disruptions,
financial loss and damage to the Company’s reputation. The Company has developed and implemented business continuity
management plans and related testing that include areas of significant vendor reliance.
Other Factors That May Affect Future Results
Cyber Security and Fraud
As a financial institution, the Company is exposed to a variety of types of fraud and other financial crime, including cyber-
crime. The scale, scope, complexity and velocity of these crimes is increasing. In deciding to extend credit or enter into
other transactions with customers or counterparties, the Company may rely on information provided by or on behalf of such
other parties including financial statements and other financial information, or on representations made by customers as to
the completeness and accuracy of such information. Despite the Company’s commitment to information security and cyber-
security, as well as fraud prevention and detection, the Company may not be able to fully mitigate all risks associated with
the increased sophistication and high rate of change in the threat landscape. In addition to the risk of service disruptions
and financial loss that could result from a financial crime, stakeholder and market confidence in the Company could
potentially be impacted.
62
Level of Competition
The Company’s performance is impacted by the level of competition in the markets in which it operates. The Company
currently operates in a highly competitive industry. Customer retention can be influenced by many factors, such as the
pricing of products or services, changes in customer service levels, changes in products or services offered, and general
trends in consumer demand.
Ability to Attract and Retain Employees and Executives
The Company’s future performance depends to a large extent on its ability to attract and retain key personnel. There is
strong competition for the best people in the financial services sector. While there is no assurance that the Company will be
able to continue to attract and retain key personnel, this remains a fundamental corporate priority.
Accounting Policies and Estimates Used by the Company
The accounting policies and estimates the Company utilizes determine how the Company reports its financial condition and
results of operations, and they may require management to make estimates or rely on assumptions about matters that are
inherently uncertain. Such estimates and assumptions may require revisions, and changes to them may materially adversely
affect the Company’s results of operations and financial condition. More discussion is included in the Accounting Standards
and Policies section of this MD&A and within the notes to the consolidated financial statements.
63
ACCOUNTING STANDARDS AND POLICIES
The significant accounting policies are outlined in Note 2 to the consolidated financial statements included in this report.
These policies are critical as they refer to material amounts and require management to make estimates.
Critical accounting estimates that require management to make significant judgements, some of which are inherently
uncertain, are outlined in Note 2 to the consolidated financial statements included in this report. These estimates are critical
as they involve material amounts and require management to make determinations that, by their very nature, include
uncertainties. The preparation of consolidated financial statements in accordance with GAAP requires management to make
estimates and assumptions, mainly concerning the valuation of items, which affect the amounts reported. Actual results
could differ from those estimates. Key areas where management has made estimates and applied judgement include
allowance for credit losses, fair values and impairment of financial instruments, goodwill and intangible assets, income taxes,
fair value of stock options and useful lives of capital assets and intangible assets. In addition, the Company’s management
has applied judgement in the application of its accounting policy with respect to derecognition of the loans and other assets
used in current securitization programs. Most loans and other assets are not derecognized, based on management’s
judgement that the Company has not transferred substantially all of the risks and rewards of ownership of the loans and
other assets. Certain loans are recognized only to the extent of the Company’s continuing involvement, based on
management’s judgement that it cannot be determined whether substantially all the risks and rewards of ownership have
been transferred while control has been retained as defined by IAS 39 Financial Instruments: Recognition and Measurement
(IAS 39). Certain loans, where residual interests in securitized transactions are sold, are derecognized based on
management’s judgement that substantially all the risks and rewards of ownership have been transferred. Further
information can be found under Notes 4, 5, 6, 9, 10, 14, 17, 19 and 21 to the consolidated financial statements.
Future Changes in Accounting Standards
The new IFRS pronouncements that have been issued but are not yet effective and may have a future impact on the
Company are discussed in Note 3 of the consolidated financial statements.
64
CONTROLS OVER FINANCIAL REPORTING
Disclosure Controls and Internal Control over Financial Reporting
Management is responsible for establishing the integrity and fairness of financial information presented in the consolidated
financial statements prepared in accordance with Canadian generally accepted accounting principles. As such, management
has established disclosure controls and procedures and internal controls over financial reporting to ensure that the
Company’s consolidated financial statements and Management’s Discussion and Analysis present fairly, in all material
respects, the financial position of the Company and the results of its operations.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered
and reported to senior management, including the Chief Executive Officer and Chief Financial Officer, on a timely basis so
that appropriate decisions can be made regarding public disclosure.
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was
conducted as of December 31, 2016. Based on that evaluation, the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures, as defined by National
Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, were effective as of December 31,
2016.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. The Company’s internal control over financial reporting includes policies and procedures
that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and receipts and expenditures are being made in accordance with the
authorizations of management and the Board; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial statements.
Due to inherent limitations, internal controls over financial reporting can provide only reasonable assurance and may not
prevent or detect misstatements. As a result, the Company’s management acknowledges that its internal control over
financial reporting will not prevent or detect all misstatements due to error or fraud. Furthermore, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of a
change in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
The Company has used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 1992 framework
and COBIT, an IT governance framework, to evaluate the design of the Company’s internal controls over financial reporting.
An evaluation of the design and operating effectiveness of internal controls over financial reporting was conducted as of
December 31, 2016. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief
Financial Officer, concluded that the Company’s internal controls over financial reporting were operating effectively as of
December 31, 2016.
Changes in Internal Control over Financial Reporting
There were no significant changes in 2016 that have affected or could reasonably be expected to materially affect internal
control over financial reporting.
Comparative Consolidated Financial Statements
The comparative audited consolidated financial statements have been reclassified from statements previously presented to
conform to the presentation of the 2016 audited consolidated financial statements. Please see Note 2 to the consolidated
financial statements included in this report for further information.
65
NON-GAAP MEASURES AND GLOSSARY
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. The non-GAAP measures used in this MD&A are defined as follows:
Adjusted Net Income and Adjusted Earnings per Share
Items of note are removed from reported results in determining adjusted results. Adjusted results are designed to provide a
better understanding of how management assesses underlying business performance and to facilitate a more informed
analysis of trends. Adjusted results are determined after removing items of notes from reported results.
The Company presents adjusted net income and adjusted earnings per share. The adjusted results remove items of note, net
of income taxes, from reported results for items which management does not believe are indicative of future results. The
items of note for 2016 included an additional gain recognized on acquisition of CFF Bank, certain severance and other related
costs, an adjustment for a goodwill impairment loss and an adjustment for an intangible assets impairment loss. The item of
note for 2015 is the after-tax acquisition and integration costs, net of gain recognized on CFF Bank acquisition. Please see
Items of Note in the Financial Highlights section of this MD&A for more information. Total revenue, return on shareholders’
equity and efficiency ratios are also presented on an adjusted basis (see definitions below).
Reconciliation of Net Income to Adjusted Net Income
(000s, except per share amounts)
Q4
2016
Q3
2016
Q4
2015
2016
2015
Net income
$
50,706 $
66,190 $
70,239 $
247,396 $
287,285
Adjustment for acquisition and integration costs, net of gain recognized on
acquisition of CFF Bank (net of tax)
Adjustment for severance and other related costs (net of tax)
Adjustment for goodwill impairment loss (net of tax)
Adjustment for intangible assets impairment loss (net of tax)
Adjusted net income
Adjusted basic earnings per share
Adjusted diluted earnings per share
Allowance as a Percentage of Gross Loans
-
-
9,000
3,769
-
-
-
-
1,572
(478)
1,572
-
-
-
3,727
9,000
3,769
-
-
-
$
$
$
63,475 $
66,190 $
71,811 $
263,414 $
288,857
0.98 $
0.98 $
1.01 $
1.01 $
1.02 $
1.02 $
3.96 $
3.95 $
4.12
4.11
Allowance as a percentage of gross loans is calculated as the total allowance divided by the gross on-balance sheet loans
outstanding, which includes all on-balance sheet loans except for loans held for sale.
Assets to Capital Multiple (ACM)
The ACM provided in this MD&A is that of the Company’s wholly owned subsidiary Home Trust Company. The calculations
were in accordance with guidelines issued by OSFI. The multiple reflects total regulatory assets, including specified off-
balance sheet items net of other specified deductions, divided by Total regulatory capital. For periods beginning on or after
January 1, 2015, the ACM has been replaced by the leverage ratio (see definition below).
Common Equity Tier 1, Tier 1, and Total Capital Ratios
The capital ratios provided in this MD&A are those of the Company’s wholly owned subsidiary Home Trust. The calculations
are in accordance with guidelines issued by OSFI. Refer to the Capital Management section of this MD&A and Note 14(E) to
the consolidated financial statements included in this report.
Efficiency or Productivity Ratio and Adjusted Efficiency or Productivity Ratio
Management uses the efficiency ratio as a measure of the Company’s efficiency in generating revenue. This ratio represents
non-interest expenses as a percentage of total revenue, net of interest expense. The Company also looks at the same ratio
on a taxable equivalent basis and will include this adjustment in arriving at the efficiency ratio, on a taxable equivalent basis.
In addition, the Company uses the adjusted efficiency ratio calculated using adjusted revenue and adjusted expenses. A
lower ratio indicates better efficiency.
66
Leverage Ratio
The leverage ratio provided in this MD&A is that of the Company’s wholly owned subsidiary Home Trust Company. The
calculations are in accordance with guidelines issued by OSFI. The leverage ratio is defined as the Capital Measure divided by
the Exposure Measure, with the ratio expressed as a percentage. The Capital Measure is the all-in Tier 1 capital of Home
Trust. The Exposure Measure consists of on-balance sheet, derivative, securities financing transactions and off-balance sheet
exposures. The leverage ratio has replaced the ACM (defined above) and is effective for Home Trust as of January 1, 2015.
Liquid Assets
Liquid assets are unencumbered high-quality assets for which there is a broad and active secondary market available to the
Company to sell these assets without incurring a substantial discount. Liquid assets are a dependable source of cash used by
the Company when it experiences short-term funding shortfalls.
Market Capitalization
Market capitalization is calculated as the closing price of the Company’s common shares multiplied by the number of common
shares of the Company outstanding.
Net Interest Margin (Non-TEB)
Net interest margin is a measure of profitability of assets. Net interest margin is calculated by taking net interest income
divided by the average total assets generating the interest income.
Net Interest Margin (TEB)
Net interest margin is a measure of profitability of assets. Net interest margin (TEB) is calculated by taking net interest
income, on a taxable equivalent basis, divided by the average total assets generating the interest income.
Net Non-performing Loans as a Percentage of Gross Loans (NPL Ratio)
The NPL ratio is calculated as the total net non-performing loans divided by the gross on-balance sheet loans, which includes
all on-balance sheet loans except for loans held for sale.
Provision as a Percentage of Gross Loans (PCL Ratio)
The PCL ratio is calculated as the total individual and collective provision expense divided by the gross on-balance sheet
loans outstanding, which includes all on-balance sheet loans except for loans held for sale.
Provision as a Percentage of Gross Uninsured Loans
The provision as a percentage of gross uninsured loans ratio is calculated as the total individual and collective provision
expense divided by the gross on-balance sheet uninsured loans outstanding.
Return on Assets (ROA)
Return on assets is a profitability measure that presents the annualized net income as a percentage of the average total
assets for the period deployed to earn the income.
Return on Shareholders’ Equity (ROE) and Adjusted Return on Shareholders’ Equity
Return on equity is a profitability measure that presents the net income available to common shareholders as a percentage
of the capital deployed to earn the income. The Company calculates its return on shareholders’ equity using average
common shareholders’ equity, including all components of shareholders’ equity. To calculate adjusted return on
shareholders’ equity, the Company uses adjusted net income.
Risk-weighted Assets (RWA)
The risk-weighted assets reported in this MD&A are those of the Company’s wholly owned subsidiary Home Trust. The
calculations are in accordance with guidelines issued by OSFI. Refer to the Capital Management section in this MD&A and
Note 14(E) to the consolidated financial statements included in this report.
Taxable Equivalent Basis (TEB)
Most banks and trust companies analyze and discuss their financial results on a taxable equivalent basis (TEB) to provide
uniform measurement and comparison of net interest income. Net interest income (as presented in the consolidated
statements of income) includes tax-exempt income principally from preferred and common equity securities. The adjustment
to TEB used in this MD&A increases income and the provision for income taxes to what they would have been had the income
from tax-exempt securities been taxed at the statutory tax rate. TEB adjustments of $3.7 million for 2016 ($3.8 million –
2015) increased interest income as used in the calculation of net interest margin. Net interest margin is discussed on a TEB
throughout this MD&A. See Table 4 for the calculation of net interest income on a taxable equivalent basis.
67
Total Assets under Administration (AUA)
Total assets under administration refers to all on-balance sheet assets, plus all off-balance sheet loans that qualify for
derecognition under IFRS.
Total Loans under Administration (LUA)
Total loans under administration refers to all on-balance sheet loans, plus all off-balance sheet loans that qualify for
derecognition under IFRS.
Total Revenue and Adjusted Total Revenue
Total revenue is a measure of the gross revenues earned by the Company before interest and non-interest expenses,
provision for credit losses and income taxes. Total revenue is the sum of gross interest and dividend income and non-interest
income. Total adjusted revenue is the total revenue adjusted for the items of note referred to above on a pre-tax basis.
68
Glossary of Terms
Assets or Loans under Administration refer to assets or loans administered by a financial institution that are beneficially
owned by clients and therefore not reported on the balance sheet of the administering financial institution, plus all assets or
loans beneficially owned by the Company and carried on the balance sheets.
Average Earning Assets represent the monthly average balance of deposits with other banks and loans and securities over
a relevant period.
Basis Point is one-hundredth of a percentage point.
Canada Deposit Insurance Corporation (CDIC) is a Canadian federal Crown corporation created to protect qualifying
deposits made with member financial institutions in case of their failure.
Collective Allowance (previously referred to as the General Allowance) is established for incurred losses inherent in the
portfolio that are not presently identifiable on a loan-by-loan basis and reflects the relative risk of the various loan portfolios
that the Company manages.
Derivatives are a contract between two parties, which requires little or no initial investment and where payments between
the parties are dependent upon the movements in price of an underlying instrument, index or financial rate. Examples of
derivatives include swaps, options, forward rate agreements and futures. The notional amount of the derivative is the
contract amount used as a reference point to calculate the payments to be exchanged between the two parties, and the
notional amount itself is generally not exchanged by the parties.
Forwards used by the Company are contractual agreements to either buy or sell a specified amount of an interest-rate-
sensitive financial instrument or security at a specific price and date in the future. Forwards are customized contracts
transacted in the over-the-counter market.
Hedging is a risk management technique used by the Company to neutralize, manage or offset interest rate, equity, or
credit exposures arising from normal banking activities.
Impaired or Non-performing Loans are loans for which there is no longer reasonable assurance of the timely collection of
principal or interest.
Individual Allowances (previously referred to as Specific Allowances) reduce the carrying value of individual credit assets
to the amount expected to be recovered if there is evidence of deterioration in credit quality.
Insured Loans are loans insured against default by CMHC or another approved insurer, either individually at origination or
by portfolio. The Company’s insured lending includes single-family homes and multi-unit residential properties.
Net Interest Income is comprised of earnings on assets, such as loans and securities, including interest and dividend
income, less interest expense paid on liabilities, such as deposits.
Notional Amount refers to the principal used to calculate interest and other payments under derivative contracts. The
principal does not change hands under the terms of a derivative contract.
Office of the Superintendent of Financial Institutions Canada (OSFI) is the government agency responsible for
regulation and supervision of banks, insurance companies, trust companies, loan companies and pension plans in Canada.
Provision for Credit Losses is a charge to income that represents an amount deemed adequate by management to fully
provide for impairment in a portfolio of loans and other credit instruments, given the composition of the portfolio, the
probability that default has occurred, the economic environment and the allowance for credit losses already established.
Securitization is the practice of selling pools of contractual debts, such as residential or commercial mortgages, to third
parties.
Swaps are contractual agreements between two parties to exchange a series of cash flows. The Company uses interest rate
swaps and total return swaps. An interest rate swap is an agreement where counterparties generally exchange fixed-rate and
floating-rate interest payments based on a notional value in a single currency. A total return swap is an agreement in which
one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the
return of an underlying asset, which includes both the income it generates and any capital gains.
69
Acronyms
ALCO – Asset/Liability Committee
AOCI – Accumulated Other Comprehensive Income
CDIC – Canada Deposit Insurance Corporation
CMB – Canada Mortgage Bond
CMHC – Canada Mortgage and Housing Corporation
COSO – Committee of Sponsoring Organizations of the Treadway Commission
CVA – Credit Valuation Adjustment
ERM – Enterprise Risk Management
GAAP – Generally Accepted Accounting Principles
GIC – Guaranteed Investment Certificate
HELOC – Home Equity Line of Credit
IASB – International Accounting Standards Board
IFRS – International Financial Reporting Standards
LTV – Loan to Value (ratio expressed as a percentage)
MBS – Mortgage-Backed Security
MD&A – Management’s Discussion and Analysis
NCCF – Net Cumulative Cash Flow
NHA – National Housing Act
OCI – Other Comprehensive Income
OSFI – Office of the Superintendent of Financial Institutions Canada
TEB – Taxable Equivalent Basis
70
Consolidated Financial Statements
Home Capital Group Inc.
December 31, 2016
Table of Contents
Management's Responsibility for Financial Information
Independent Auditors' Report
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
1. Corporate Information
2. Summary of Significant Accounting Policies
3. Future Changes in Accounting Policies
4. Cash Resources and Securities
5. Loans
6. Securitization Activity
7. Restricted Assets
8. Other Assets
9. Intangible Assets
10. Goodwill
11. Deposits by Remaining Contractual Term to Maturity
12. Senior Debt
13. Other Liabilities
14. Capital
15. Employee Benefits
16. Accumulated Other Comprehensive Income
17. Income Taxes
18. Commitments and Contingencies
19. Derivative Financial Instruments
20. Current and Non-Current Assets and Liabilities
21. Fair Value of Financial Instruments
22. Related Party Transactions
23. Business Acquisition
24. Risk Management
p. 72
p. 73
p. 74
p. 75
p. 76
p. 77
p. 78
p. 79
p. 79
p. 86
p. 87
p. 89
p. 94
p. 96
p. 96
p. 97
p. 97
p. 98
p. 98
p. 98
p. 98
p. 100
p. 103
p. 103
p. 104
p. 106
p. 108
p. 109
p. 111
p. 111
p. 111
71
Management’s Responsibility for Financial Information
The consolidated financial statements and Management’s Discussion and Analysis (MD&A) of Home Capital Group Inc. were
prepared by management, which is responsible for the integrity and fairness of the financial information presented. The
consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles for
publicly accountable enterprises, which are International Financial Reporting Standards as issued by the International
Accounting Standards Board, including the accounting requirements specified by the Office of the Superintendent of Financial
Institutions Canada that apply to its subsidiaries, Home Trust Company and Home Bank. The consolidated financial
statements reflect amounts which must, of necessity, be based on the best estimates and judgement of management with
appropriate consideration as to materiality. The financial information presented elsewhere in this report is consistent with
that in the consolidated financial statements. The MD&A has been prepared according to the requirements of securities
regulators.
Management is responsible for ensuring the fairness and integrity of the financial information. It is also responsible for the
implementation of the supporting accounting systems. In discharging its responsibilities, management maintains the
necessary internal control systems designed to provide assurance that the transactions are properly authorized, assets are
safeguarded and proper accounting records are held. The controls include quality standards in hiring and training of
employees, written policies, authorized limits for managers, procedure manuals, a corporate code of conduct and ethics and
appropriate management information systems. Management has formed a disclosure committee, chaired by the Chief
Financial Officer, which reviews all of the Company’s financial disclosures for fairness before release to the Board of Directors
or shareholders.
The internal control systems are further supported by a compliance framework, which ensures that the Company and its
employees comply with all regulatory requirements, as well as by an enterprise risk management function that monitors
proper risk control, related documentation and the measurement of the financial impact of risks. In addition, the internal
audit function periodically assesses various aspects of the Company’s operations and makes recommendations to
management for, among other things, improvements to the control systems. As at December 31, 2016, the Company’s
Chief Executive Officer and Chief Financial Officer have determined that the Company’s internal control over financial
reporting is effective.
Every year, the Office of the Superintendent of Financial Institutions Canada makes such examinations and inquiries as
deemed necessary to satisfy itself that Home Trust Company is in a sound financial position and that it complies with the
provisions of the Trust and Loan Companies Act (Canada) and Bank Act (Canada).
Ernst & Young LLP, independent auditors, appointed by the shareholders, perform an annual audit of the Company’s
consolidated financial statements and their report follows.
The internal auditors, the Chief Compliance Officer, the external auditors and the Office of the Superintendent of Financial
Institutions Canada meet periodically with the Audit Committee and/or the Board of Directors, with management either
present or absent, to discuss all aspects of their duties and matters arising therefrom.
The Board of Directors is responsible for reviewing and approving the consolidated financial statements and Management’s
Discussion and Analysis of results of operations and financial condition appearing in the Annual Report. It oversees the
manner in which management discharges its responsibilities for the presentation and preparation of financial statements,
maintenance of appropriate internal controls, and risk management as well as assessment of significant transactions and
related party transactions through its Audit Committee, and in the case of risk management, through the Risk and Capital
Committee. The Audit Committee is composed solely of independent Directors. The Audit Committee is responsible for
selecting the shareholders’ auditors.
Martin Reid
President and Chief Executive Officer
Toronto, Canada
February 8, 2017
Robert Morton, CPA, CMA, C. Dir
Chief Financial Officer
72
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Home Capital Group Inc.
We have audited the accompanying consolidated financial statements of Home Capital Group Inc., which comprise the
consolidated balance sheets as at December 31, 2016 and 2015, and the consolidated statements of income, comprehensive
income, changes in shareholders’ equity and cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Home
Capital Group Inc. as at December 31, 2016 and 2015, and its financial performance and its cash flows for the years ended
then ended in accordance with International Financial Reporting Standards.
Toronto, Canada
February 8, 2017
73
Consolidated Balance Sheets
thousands of Canadian dollars
ASSETS
Cash and Cash Equivalents (note 4(A))
Available for Sale Securities (notes 4(B) and (C))
Loans Held for Sale
Loans (note 5)
Securitized mortgages (note 6(A))
Non-securitized mortgages and loans
Collective allowance for credit losses (note 5(E))
Other
Restricted assets (note 7)
Derivative assets (note 19)
Other assets (note 8)
Deferred tax assets (note 17(C))
Goodwill and intangible assets (notes 9 and 10)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits (note 11)
Deposits payable on demand
Deposits payable on a fixed date
Senior Debt (note 12)
Securitization Liabilities (note 6(B))
CMHC-sponsored mortgage-backed security liabilities
CMHC-sponsored Canada Mortgage Bond liabilities
Bank-sponsored securitization conduit liabilities
Other
Derivative liabilities (note 19)
Other liabilities (note 13)
Deferred tax liabilities (note 17(C))
Shareholders’ Equity
Capital stock (note 14)
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (note 16)
December 31
December 31
2016
2015
As at
$
1,205,394 $
1,149,849
534,924
77,918
453,230
135,043
2,526,804
15,430,595
17,957,399
(37,063)
2,674,475
15,459,190
18,133,665
(36,249)
17,920,336
18,097,416
265,374
37,524
348,638
16,914
121,755
790,205
195,921
64,796
287,417
15,043
128,347
691,524
$
20,528,777 $
20,527,062
$
2,531,803 $
13,354,227
15,886,030
-
898,386
1,637,117
114,146
2,649,649
3,490
336,132
36,284
375,906
1,986,136
13,679,822
15,665,958
151,480
531,326
2,249,230
-
2,780,556
5,447
264,941
37,574
307,962
18,911,585
18,905,956
84,910
4,562
1,582,785
(55,065)
1,617,192
90,247
3,965
1,592,438
(65,544)
1,621,106
$
20,528,777 $
20,527,062
Commitments and Contingencies (note 18)
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
Martin Reid
President and Chief Executive Officer
Robert A. Mitchell
Chair of Audit Committee
74
Consolidated Statements of Income
thousands of Canadian dollars, except per share amounts
Net Interest Income Non-Securitized Assets
Interest from loans (note 5(F))
Dividends from securities
Other interest
Interest on deposits and other
Interest on senior debt
Net interest income non-securitized assets
Net Interest Income Securitized Loans and Assets
Interest income from securitized loans and assets (note 5(F))
Interest expense on securitization liabilities
Net interest income securitized loans and assets
Total Net Interest Income
Provision for credit losses (note 5(E))
Non-Interest Income
Fees and other income
Securitization income (note 6(C))
Gain on acquisition of CFF Bank (note 23)
Net realized and unrealized (losses) gains on securities
Net realized and unrealized losses on derivatives (note 19)
Non-Interest Expenses
Salaries and benefits
Premises
Other operating expenses
Income Before Income Taxes
Income taxes (note 17(A))
Current
Deferred
NET INCOME
NET INCOME PER COMMON SHARE (note 14(D))
Basic
Diluted
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (note 14(D))
Basic
Diluted
Total number of outstanding common shares (note 14(B))
Book value per common share
The accompanying notes are an integral part of these consolidated financial statements.
For the year ended
December 31
December 31
2016
2015
$
768,034
$
769,562
10,112
11,073
789,219
315,919
2,243
471,057
81,705
67,598
14,107
485,164
7,890
477,274
71,329
33,797
651
(175)
(8,807)
96,795
574,069
101,880
14,505
122,554
238,939
10,620
7,951
788,133
318,597
6,396
463,140
103,841
85,891
17,950
481,090
8,933
472,157
82,632
26,208
2,056
836
(7,939)
103,793
575,950
88,873
12,274
89,526
190,673
335,130
385,277
90,895
(3,161)
87,734
98,481
(489)
97,992
247,396
$
287,285
$
$
$
3.71
3.71
$
$
66,601
66,668
64,388
$
25.12
$
4.09
4.09
70,170
70,323
69,978
23.17
75
Consolidated Statements of Comprehensive Income
thousands of Canadian dollars
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Available for Sale Securities and Retained Interests
Net unrealized gains (losses)
Net losses (gains) reclassified to net income
Income tax expense (recovery)
Cash Flow Hedges (note 19)
Net unrealized gains (losses)
Net losses reclassified to net income
Income tax expense (recovery)
For the year ended
December 31
December 31
2016
2015
$
247,396
$
287,285
11,852
204
12,056
3,179
8,877
1,035
1,147
2,182
580
1,602
(61,991)
(917)
(62,908)
(16,684)
(46,224)
(2,449)
1,474
(975)
(260)
(715)
Total other comprehensive income (loss)
10,479
(46,939)
COMPREHENSIVE INCOME
$
257,875
$
240,346
The accompanying notes are an integral part of these consolidated financial statements.
76
Consolidated Statements of Changes in Shareholders' Equity
Net Unrealized
Losses Net Unrealized
Total
on Securities and
Losses on
Accumulated
Retained
Cash Flow
Other
Total
thousands of Canadian dollars,
Capital
Contributed
Retained Interests Available
Hedges, Comprehensive
Shareholders'
except per share amounts
Stock
Surplus
Earnings for Sale, After Tax
After Tax
Loss
Equity
Balance at December 31, 2015
$ 90,247 $
3,965 $ 1,592,438 $
(62,466)
$
(3,078)
$ (65,544) $ 1,621,106
Comprehensive income
-
-
247,396
8,877
1,602
10,479
257,875
Stock options settled (notes 14(B), 15(C))
1,984
(530)
Amortization of fair value of
employee stock options
-
1,127
-
-
Repurchase of shares (note 14(C))
(7,321)
-
(191,875)
Dividends
($0.98 per share)
-
-
(65,174)
-
-
-
-
-
-
-
-
-
-
-
1,454
1,127
(199,196)
-
(65,174)
Balance at December 31, 2016
$ 84,910 $
4,562 $ 1,582,785 $
(53,589)
$
(1,476)
$ (55,065) $ 1,617,192
Balance at December 31, 2014
$
84,687 $
3,989 $ 1,378,562
$
(16,242)
$
(2,363)
$
(18,605) $ 1,448,633
Comprehensive income
-
-
287,285
(46,224)
(715)
(46,939)
240,346
Stock options settled (notes 14(B), 15(C))
6,002
(1,605)
Amortization of fair value of
employee stock options
-
1,581
-
-
Repurchase of shares (note 14(C))
(442)
-
(10,270)
Dividends
($0.88 per share)
-
-
(63,139)
-
-
-
-
Balance at December 31, 2015
$
90,247 $
3,965 $ 1,592,438
$
(62,466)
$
-
-
-
-
-
-
4,397
1,581
(10,712)
-
(3,078)
-
(63,139)
$
(65,544) $ 1,621,106
The accompanying notes are an integral part of these consolidated financial statements.
77
Consolidated Statements of Cash Flows
thousands of Canadian dollars
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year
Adjustments to determine cash flows relating to operating activities:
Amortization of net discount on securities
Provision for credit losses
Gain on acquisition of CFF Bank
Gain on sale of mortgages or residual interest
Net realized and unrealized losses (gains) on securities
Amortization and impairment losses 1
Amortization of fair value of employee stock options
Deferred income taxes
Changes in operating assets and liabilities
Loans, net of securitization and sales
Restricted assets
Derivative assets and liabilities
Accrued interest receivable
Accrued interest payable
Deposits
Securitization liabilities
Taxes receivable or payable and other
Cash flows provided by operating activities
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of shares
Exercise of employee stock options
Repayment of senior debt
Dividends paid to shareholders
Cash flows used in financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in securities
Purchases
Proceeds from sales
Proceeds from maturities
Acquisition of CFF Bank, net of cash acquired
Purchases of capital assets
Capitalized intangible development costs
Cash flows (used in) provided by investing activities
Net increase in cash and cash equivalents during the year
Cash and cash equivalents at beginning of the year
Cash and Cash Equivalents at End of the Year (note 4(A))
Supplementary Disclosure of Cash Flow Information
Dividends received on investments
Interest received
Interest paid
Income taxes paid
For the year ended
December 31
December 31
2016
2015
$
247,396 $
287,285
(458)
7,890
-
(26,972)
175
29,686
1,127
(3,161)
253,837
(69,453)
27,497
2,668
(1,312)
(169)
8,933
(2,056)
(21,412)
(836)
12,922
1,581
(489)
205,412
229,833
(24,075)
1,319
4,399
220,072
1,524,232
(130,907)
(1,542,653)
2,757
560,842
(199,196)
1,454
(150,000)
(65,174)
(412,916)
(203,674)
-
132,932
-
(2,550)
(19,089)
(92,381)
55,545
1,149,849
20,358
704,584
(10,712)
4,397
-
(61,763)
(68,078)
(35,020)
76,924
25,350
115,892
(5,302)
(25,247)
152,597
789,103
360,746
$
$
1,205,394 $
1,149,849
10,037 $
863,321
388,440
84,559
11,656
881,749
406,485
128,763
¹Amortization and impairment losses include amortization on capital and intangible assets and impairment losses on intangible assets and goodwill.
The accompanying notes are an integral part of these consolidated financial statements.
78
Notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)
1. CORPORATE INFORMATION
Home Capital Group Inc. (the Company) is a public corporation traded on the Toronto Stock Exchange. The Company is
incorporated and domiciled in Canada with its registered and principal business offices located at 145 King Street West, Suite
2300, Toronto, Ontario. The Company operates primarily through its federally regulated subsidiary, Home Trust Company
(Home Trust), which offers residential and non-residential mortgage lending, securitization of insured residential mortgage
products and consumer lending. Home Trust also offers deposits via brokers and financial planners, and through its direct-to-
consumer deposit brand, Oaken Financial. In addition, on October 1, 2015, Home Trust acquired CFF Bank, which is a
federally regulated retail bank offering mortgage, deposit and personal banking products, as a wholly owned subsidiary. On
August 22, 2016, CFF Bank changed its name to Home Bank. The Company’s subsidiary, Payment Services Interactive
Gateway Inc. (PSiGate), provides payment services. Licensed to conduct business across Canada, Home Trust has branch
offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba. The Company is the ultimate parent of the
group.
These consolidated financial statements for the year ended December 31, 2016 were authorized for issuance by the Board of
Directors (the Board) of the Company on February 8, 2017. The Board has the power to amend the consolidated financial
statements after their issuance only in the case of discovery of an error.
Subsequent to the end of the year and before the date these consolidated financial statements were authorized for issuance,
the Board of Directors declared a quarterly cash dividend of $16.7 million or $0.26 per common share payable on March 1,
2017 to shareholders of record at the close of business on February 17, 2017.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted
accounting principles (GAAP) for publicly accountable enterprises, which are International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
The accounting policies were consistently applied to all periods presented unless otherwise noted. The significant accounting
policies used in the preparation of these consolidated financial statements are summarized below.
Comparative Consolidated Financial Statements
The comparative consolidated financial statements have been reclassified from statements previously presented to conform
to the presentation of the 2016 consolidated financial statements.
Use of Judgement and Estimates
Management has exercised judgement in the process of applying the Company’s accounting policies. In particular, the
Company’s management has applied judgement in the application of its accounting policy with respect to derecognition of the
loans and other assets used in current securitization programs. Certain securitized loans are recognized only to the extent of
the Company’s continuing involvement, based on management’s judgement that it cannot be determined whether
substantially all the risks and rewards of ownership have been transferred while control has been retained as defined by IAS
39 Financial Instruments: Recognition and Measurement (IAS 39). In other cases, when residual interests in securitized
transactions are sold, the underlying securitized loans are derecognized based on management’s judgement that
substantially all the risks and rewards of ownership have been transferred through the two transactions. The remaining
loans and other assets that have been securitized are not derecognized, based on management’s judgement that the
Company has not transferred substantially all of the risks and rewards of ownership of the loans and other assets.
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
consolidated balance sheet dates and the reported amounts of revenue and expenses during the reporting periods. Key
areas where management has made estimates include allowance for credit losses, fair values and impairment of financial
instruments, goodwill and intangible assets, income taxes, fair value of stock options and useful lives of capital assets and
intangible assets. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the assets, liabilities and results of operations of the Company and all of its
subsidiaries, after the elimination of intercompany transactions and balances.
The Company consolidates those entities, including structured entities, which the Company controls. The Company has
control when it has power over the entity, has exposure or rights to variable returns from its involvement and has the ability
to use its power over the entity to affect returns. The subsidiaries included in the consolidated financial statements are Home
Trust, Home Bank and PSiGate. Home Trust and PSiGate are wholly owned subsidiaries of Home Capital Group. Home Bank is
a wholly owned subsidiary of Home Trust.
79
Cash and Cash Equivalents
For the purposes of the consolidated financial statements, cash and cash equivalents comprise balances with less than 90
days to maturity, including cash and deposits with regulated financial institutions, treasury bills and other eligible deposits.
Cash and deposits are carried at amortized cost, which approximates fair value due to the short-term nature of the
instruments. Interest income is recognized using the effective interest rate method and, to the extent not received at year-
end, is recorded as a receivable in other assets on the consolidated balance sheets.
Securities
Securities are classified as either held for trading or available for sale, based on management’s intentions. All securities are
recognized on the trade date at their fair value, which is normally the transaction price.
Held for trading securities are financial assets purchased for resale, generally within a short period of time and primarily held
for liquidity purposes. Interest earned is included in other interest income. Held for trading securities are measured at fair
value, using published bid prices, as at the consolidated balance sheet date. All realized and unrealized gains and losses are
reported in income under non-interest income. Transaction costs are expensed as incurred. The Company has not elected
under the fair value option to designate any financial asset or liability as held for trading, nor does the Company have any
securities classified as held for trading.
Available for sale securities are financial assets purchased for longer-term investment that may be sold in response to or in
anticipation of changes in market conditions. Dividends and interest earned are included in dividends from securities or other
interest income. Available for sale securities are measured at their fair value, using published bid prices where market value
is readily available, as at the consolidated balance sheet date. Unrealized gains and losses, net of related taxes, are included
in accumulated other comprehensive income (AOCI) until the security is sold or an impairment loss is recognized, at which
time the cumulative gain or loss is transferred to net income. Transaction costs are capitalized.
At the end of each reporting period, the Company conducts a review to assess whether there is any objective evidence that
an available for sale security is impaired. Objective evidence of impairment results from one or more events that occur after
the initial recognition of the security and which event (or events) has an impact that can be reliably estimated on the
estimated future cash flows of the security. A deterioration in credit quality is considered objective evidence of impairment
for available for sale debt securities. Such objective evidence includes observable data that comes to the attention of the
Company such as significant financial difficulty of the issuer of the security, indication that the issuer will enter bankruptcy or
the lack of an active market for a security. A significant or prolonged decline in the fair value of the security below its cost is
considered objective evidence of impairment for available for sale equity securities. Management will perform a detailed
assessment if there has been a significant decline of 20% or more or a prolonged decline of 12 months or more. Since the
business model of the Company is to purchase preferred shares for the purpose of earning dividend income, with the intent
of holding them for the long-term, all preferred shares are assessed for impairment using a debt impairment model.
When there is objective evidence of an impairment of an available for sale security, any cumulative loss that has been
recognized in other comprehensive income (OCI) is reclassified from AOCI to net income. The amount of the cumulative loss
reclassified is the difference between the acquisition cost (net of any principal repayment, amortization and cumulative losses
recognized in net income) and current fair value. In the case of debt securities, subsequent increases in fair value that can
be objectively related to an event occurring after the impairment loss was recognized result in a reversal of the impairment
loss through net income. Impairment losses on equity securities are not subsequently reversed through net income.
Obligations Related to Securities Sold under Repurchase Agreements
The purchase and sale of securities under sale and repurchase agreements are accounted for as collateralized lending and
borrowing transactions and are recorded at cost. The related interest income and interest expense are recorded on an accrual
basis in the consolidated statements of income.
Loans Held for Securitization and Sale
When identifiable, loans for which the Company has the intention of securitizing and derecognizing from the consolidated
balance sheets in the near term are classified as held for sale for accounting purposes and are carried at fair value.
Unrealized gains and losses resulting from the change in fair value of these loans are reported as securitization income in
non-interest income on the consolidated statements of income. Interest income earned on these loans is included in interest
from loans. The fair value of loans held for sale is determined by discounting the expected future cash flows of the loans at
market rates for financial instruments with similar terms and credit risk.
Loans
Loans are non-derivative financial assets with fixed or determinable payments that the Company does not intend to sell
immediately or in the near term and that are not quoted in an active market. Loans are initially recognized at fair value and
subsequently measured at amortized cost net of the individual allowance for credit losses and any unearned income.
Interest income is recognized using the effective interest rate method and is allocated over the expected term of the loan by
applying the effective interest rate to the carrying amount of the loan. The effective interest rate is the rate that exactly
discounts estimated future cash receipts over the expected life of the loan. Origination revenues and costs are applied to the
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carrying amount of the loan. Interest income is accrued as earned with the passage of time and continues to accrue when a
loan is considered impaired (with an appropriate allowance for credit loss as discussed below).
A loan is recognized as being impaired (non-performing) when there is objective evidence of deterioration in credit quality to
the extent the Company is no longer reasonably assured of the timely collection of the full amount of principal and interest.
As a matter of practice, an uninsured mortgage, consumer retail loan, Equityline Visa loan or line of credit is deemed to be
impaired at the earlier of the date it has been individually provided for or when it has been in arrears for 90 days. Single-
family and multi-unit residential mortgages (including securitized mortgages) guaranteed by the Government of Canada are
not considered impaired until payment is contractually 365 days past due. Material credit losses are generally not
anticipated on insured mortgages. Secured and unsecured credit card balances that have a payment that is contractually
120 days in arrears are individually provided for, and those that have a payment that is 180 days in arrears are written off.
Line of credit balances that have a payment that is contractually 90 days in arrears are individually provided for, and those
that have a payment that is 180 days in arrears are written off.
When loans are classified as impaired, the book value of such loans is adjusted to their estimated realizable value based on
the fair value of any security underlying the loan, net of any costs of realization, by totally or partially writing off the loan
and/or establishing an allowance for loan losses as described below.
An impaired loan is not returned to an unimpaired status unless all principal and interest payments are up to date and
management is reasonably assured of the recoverability of the loan.
Allowance for Credit Losses
An allowance for credit losses is maintained at an amount that, in management's opinion, is considered adequate to absorb
all credit-related losses that have occurred in the portfolio whether or not detected at the period end, including accrued
interest on impaired loans. Allowances are mainly related to loans but may also apply to other assets. The allowance
consists of accumulated individual and collective allowances, each of which is reviewed at least quarterly. The collective
allowance is deducted from total loans on the consolidated balance sheets. The allowance is increased by the provision for
credit losses and decreased by write-offs net of recoveries.
Individual Allowances
Individual allowances are determined on an item-by-item basis and reflect the associated estimate of credit loss. The
individual allowances are the amounts required to reduce the carrying value of an impaired asset, including accrued interest,
to its estimated realizable amount. The fair value of any underlying security is used to estimate the realizable amount of the
receivable. The allowance is the difference between the receivable's carrying value, including accrued interest, and its
estimated realizable amount.
Collective Allowances
Collective allowances are established to absorb credit losses on the aggregate exposures in each of the Company's loan
portfolios for which losses have been incurred but not yet individually identified. The collective allowance takes into account
asset quality, borrower creditworthiness, property location, past loss experience, probability of default and exposure at
default based on product, risk ratings, credit scores, current economic conditions, and management’s judgement. The
collective allowance, based on the historical loss experience adjusted to reflect changes in the portfolios and credit policies, is
applied to each pool of loans with common risk characteristics. This estimate includes consideration of economic and business
conditions.
Derecognition of Financial Assets
The Company derecognizes a financial asset when the contractual rights to that asset have expired. If substantially all the
risks and rewards of ownership of the financial asset have been retained, the Company continues to recognize the financial
asset and also recognizes a financial liability for the consideration received. If substantially all the risks and rewards of
ownership of the financial asset have been transferred, the Company will derecognize the financial asset and recognize
separately as assets or liabilities any rights or obligations created or retained in the transfer.
The Company periodically pools and securitizes insured mortgages under Canada Mortgage and Housing Corporation’s
(CMHC) National Housing Act (NHA) Mortgage-Backed Securities (MBS) program and sells the securities to investors or uses
the securities as collateral for participation in CMHC’s Canada Mortgage Bond (CMB) program. Mortgage loan securitization
activities are a part of the Company’s funding and liquidity strategies.
Most transfers of pools of mortgages under the MBS and CMB programs do not result in derecognition of the mortgages from
the Company’s consolidated balance sheets because the Company continues to hold a residual interest. As such, these
transactions result in the recognition of securitization liabilities when cash is received and the mortgages are reclassified to
securitized residential mortgages on the consolidated balance sheets and continue to be accounted for as loans.
Securitization liabilities are recorded at amortized cost using the effective interest rate method. Interest expense is allocated
over the expected term of the borrowing by applying the effective interest rate to the carrying amount of the liability. The
effective interest rate is the rate that exactly discounts estimated future cash outflows over the expected life of the liability.
Transaction costs and premiums or discounts are applied to the carrying amount of the liability. Also included in
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securitization liabilities on the consolidated balance sheets are amounts related to fair value hedge accounting that increase
or decrease the carrying amount of the securitization liability. Please see Note 19 for more information.
In certain cases, the Company’s remaining involvement is quite limited, although it has not transferred substantially all of the
risks and rewards in the underlying loans and it has retained control, as defined by IAS 39. Such mortgages are securitized
and sold and the Company has a retained interest and servicing responsibilities for the assets sold, with very little exposure
to variable cash flows. The Company accounts for its continuing involvement as retained interests and servicing liabilities on
the consolidated balance sheets. Gains or losses on these transactions are recognized as securitization income in non-
interest income on the consolidated statements of income and are dependent in part on the previous carrying amount of the
financial assets involved in the transfer, allocated between the assets sold and the retained interests, based on their relative
fair value at the date of transfer and net of transaction costs. Retained interests are classified as available for sale assets.
The fair value of the retained interests is estimated using discounted cash flow methodology. Retained interests are revalued
quarterly to assess for impairment.
In certain circumstances, the Company sells its residual interest arising from securitization transactions, resulting in the
transfer of substantially all of the risks and rewards of ownership associated with the underlying mortgages. The mortgages
are derecognized and a resulting gain or loss is recognized as securitization income in non-interest income on the
consolidated statements of income.
The Company transfers cash flows from residential mortgages as part of a bank-sponsored securitization conduit program to
receive access to cost-effective funding. Mortgages continue to be recognized on the consolidated balance sheets, along with
a securitization liability as the risks and rewards of ownership of mortgages have not been transferred.
Restricted Assets
Restricted assets include cash or cash equivalents and securities that are contractually restricted, such as collateral
associated with derivative transactions and participation in securitization programs. Restricted assets also include cash, non-
Home Trust MBS or treasury bills pledged as CMB replacement assets. The accounting treatment for cash and securities is
described above.
Derivatives Held for Risk Management Purposes
The Company utilizes derivatives to manage interest rate risk. Derivatives are carried at fair value and are reported as assets
if they have a positive fair value and as liabilities if they have a negative fair value. The Company uses bond forwards to
economically hedge interest rate risk on loans held for sale that are not designated in hedge accounting relationships. The
Company applies hedge accounting to derivatives that meet the criteria for hedge accounting in accordance with IAS 39. The
Company utilizes two types of hedge relationships for accounting purposes, fair value hedges and cash flow hedges. If
derivative instruments do not meet all of the criteria for hedge accounting, the changes in fair value of such derivatives are
recognized in non-interest income.
In order to qualify for hedge accounting, a hedge relationship must be designated and formally documented in accordance
with IAS 39. The Company’s documentation, in accordance with the requirements, includes the specific risk management
objective and strategy being applied, the specific financial asset or liability or cash flow being hedged and how hedge
effectiveness is assessed. To qualify for hedge accounting, the Company has decided that there must be a correlation of
between 80% and 125% in the changes in fair values or cash flows between the hedged and hedging items.
Hedge effectiveness is assessed at the inception of the hedge and on an ongoing basis, at least quarterly. Hedge
ineffectiveness occurs when the changes in the fair value of the hedging item (derivative) differ from the fair value changes
in the hedged risk in the hedged item. Hedge ineffectiveness is recognized immediately in non-interest income.
Fair Value Hedges
Fair value hedges generally use interest rate swaps to hedge changes in the fair value of fixed-rate assets or liabilities (the
hedged items) attributable to interest rate risk. Changes in the fair value of the hedged items are recorded as part of the
carrying value of the hedged items and are recognized in net realized and unrealized gain or loss on derivatives. Changes in
the fair value of the hedging item (interest rate swap) are also recognized in net realized and unrealized gain or loss on
derivatives.
If the hedging instrument expires, or is settled or sold, or if the hedge no longer meets the criteria for hedge accounting
under IAS 39, the hedge relationship is terminated and the fair value adjustment on the hedged item is then amortized over
the remaining term of the hedged item. If the hedged item is settled, the unamortized fair value adjustment is recognized in
non-interest income immediately.
Cash Flow Hedges
Cash flow hedges use bond forwards or interest rate swaps to hedge changes in future cash flows attributable to interest rate
fluctuations arising on highly probable forecasted issuances of fixed-rate liabilities. Total return swaps are used to hedge the
variability in cash flows associated with forecasted future compensation obligations attributable to changes in the Company’s
stock price.
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The effective portion of the change in fair value of the derivative instrument is recognized in OCI until the forecasted cash
flows being hedged are recognized in income in future accounting periods. When the forecasted cash flows are recognized in
income, an appropriate amount of the fair value changes of the derivative instrument is reclassified from AOCI into income.
Any hedge ineffectiveness is immediately recognized in non-interest income. If the forecasted transaction is no longer
expected to occur, the related cumulative gain or loss in AOCI is immediately recognized in non-interest income.
Capital Assets
Capital assets, which comprise office furniture and equipment, computer equipment and purchased software, and leasehold
improvements, are recorded at cost and amortized over their estimated useful lives on a straight-line basis. The ranges of
useful lives for each asset type are as follows:
Office furniture and equipment
3 to 10 years
Computer equipment and purchased software
3 to 7 years
Leasehold improvements are amortized on a straight-line basis over the remaining term of the lease.
The Company assesses, at each reporting period date, whether there is an indication that a capital asset may be impaired. If
any indication of impairment exists, the Company performs an impairment test to determine whether an impairment loss is
required to be recognized. The impairment tests are performed in accordance with the steps discussed in the accounting
policy note below entitled Impairment of Capital Assets and Intangible Assets.
Intangible Assets
The Company’s intangible assets comprise internally developed software costs and acquired intangible assets. An intangible
asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits
that are attributable to the asset will flow to the Company. In addition, the Company capitalizes borrowing costs directly
attributable to the intangible assets flowing to the Company by applying a capitalization rate to the expenditures on the
intangible assets. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and
any accumulated impairment losses.
All of the Company’s intangible assets are considered to have finite useful lives and are amortized on a straight-line basis
over their useful lives, generally not exceeding 10 years, with the exception of the core banking system which has a useful
life of 15 years. The amortization period and the amortization method are reviewed at least at each financial year end.
Changes in the expected useful lives are accounted for by changing the amortization period, as appropriate, and are treated
as changes in accounting estimates. Amortization expense is included in other operating expenses in the consolidated
statements of income.
The Company capitalizes eligible development costs related to software projects. Eligible costs include external direct costs
for materials and services, as well as payroll and payroll-related costs for employees directly associated with development.
The Company commences amortization of these costs over the appropriate useful life when development of the asset is
substantially complete and the asset becomes available for use in the manner intended by management. Overhead costs,
costs incurred during the research phase, costs to train staff to operate the asset and costs incurred after the software was
substantially completed and available for use are expensed as incurred.
The Company assesses, at each reporting period date, whether there is an indication that an intangible asset may be
impaired. If any indication of impairment exists, the Company performs an impairment test to determine whether an
impairment loss is required to be recognized. In relation to development costs for software that is not yet available for use,
the Company performs an impairment test on an annual basis as well as when indications of impairment exist. Such annual
impairment tests will continue until the software is available for use. The impairment tests are performed in accordance with
the steps discussed in the accounting policy note below entitled Impairment of Capital Assets and Intangible Assets.
Goodwill
Goodwill is initially measured as the excess of the price paid for the acquisition of a consolidated entity over the fair value of
the net identifiable tangible and intangible assets acquired. Goodwill is allocated to the cash-generating units (CGUs) or
groups of CGUs that are expected to benefit from the synergies of the combination, irrespective of whether other assets or
liabilities of the acquiree are assigned to those units. A CGU is the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or groups of assets. Each unit to which the goodwill
has been allocated represents the lowest level within the Company at which the goodwill is monitored for internal
management purposes.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is evaluated for
impairment annually or more often if events or circumstances indicate there may be impairment. Impairment is determined
for goodwill by assessing whether the carrying amount of a CGU, including the allocated goodwill, exceeds its recoverable
amount. The recoverable amount is determined as the greater of the estimated fair value less the costs of disposal or the
value in use. Impairment losses recognized in respect of a CGU are first allocated to the carrying amount of goodwill and any
excess is allocated pro rata to the carrying amount of other assets in the CGU, on the basis of the carrying amount of each
asset in the unit. Goodwill impairment is recorded as non-interest expense in the period in which the impairment is identified.
Impairment losses on goodwill are not subsequently reversed.
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Impairment of Capital Assets and Intangible Assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable
amount. If it is not possible to determine the recoverable amount of the individual asset, the Company determines the
recoverable amount of the CGU to which the asset belongs. The recoverable amount of an asset or a CGU is the higher of its
fair value, less costs of disposal, and its value in use, where value in use is the present value of the future cash flows
expected to be derived from the asset or the CGU. Where the carrying amount of the asset or the CGU exceeds its
recoverable amount, the asset is considered impaired and written down to its recoverable amount. The Company evaluates
impairment losses for potential reversals when events or changes in circumstances warrant such consideration.
Deposits
Deposits are financial liabilities that are measured at amortized cost using the effective interest rate method. Deposit
origination costs are included in deposits on the consolidated balance sheets as incurred and amortized to interest expense
over the term of the deposit. Also included in deposits on the consolidated balance sheets are amounts related to fair value
hedge accounting that increase or decrease the carrying amount of deposits. Please see Note 19 for more information.
Senior Debt
Senior debt is carried at amortized cost, including the principal amount received on issue, plus accrued interest and costs
incurred on issue, less repayments of principal and interest, amortization of issue costs and any premium or discount to the
face amount of the debt. Issue costs and premiums or discounts are amortized to income using the effective interest rate
method. Also included in senior debt on the consolidated balance sheets are amounts related to fair value hedge accounting
that increase or decrease the carrying amount of the senior debt. Please see Note 19 for more information.
Income Taxes
Income tax comprises current and deferred tax and is recognized in net income, except to the extent that it relates to items
recognized directly in shareholders’ equity, in which case the related taxes are also recognized directly in shareholders’
equity. The Company follows the asset and liability method of accounting for income taxes, whereby deferred tax assets and
liabilities are recognized for the expected future tax consequences attributable to temporary differences between the
consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted or substantively enacted tax rates applicable to taxable income in the
period in which those temporary differences are expected to be recovered or settled. Deferred tax assets are only
recognized for deductible temporary differences, carry forward of unused tax credits and losses to the extent that it is
probable that taxable profit will be available and the carry forward of unused tax credits and losses can be utilized.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is determined using the principal market or most
advantageous market that is accessible to the Company for the asset or liability.
Valuation techniques used to determine fair value maximize the use of relevant observable inputs and minimize the use of
unobservable inputs. If the asset or liability measured at fair value has a bid price and an ask price, the price within the bid-
ask spread that is most representative of fair value in the circumstances is used to measure the fair value. Please see Note
21 for more information on the specific valuation techniques used to determine fair value and the related inputs for each
class of assets or liabilities where fair value is disclosed.
Inputs for valuation techniques used to measure fair value are categorized into three levels. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 inputs
are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Please see Note 21 for more information. When
inputs used to measure the fair value of an asset or liability are categorized within different levels of the fair value hierarchy,
the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input
that is significant to the entire measurement.
Fees and Other Income
Fee income primarily relates to payment services and loan servicing and administration, net of related expenses to service
the loans, with the net revenue recognized as the associated services are rendered.
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Stock-based Compensation Plans
The Company has stock-based compensation plans, which are described in Note 15.
The Company’s Employee Stock Option Plan provides for the granting of stock options to certain employees of the Company.
In some cases, stock appreciation rights are also granted in tandem with the stock option, providing the Company with, at its
sole discretion, the alternative of settling the award in cash at an amount equal to the excess of the market price of the
shares to which the option relates over the exercise price of the option. The Company accounts for stock options, including
those with tandem stock appreciation rights, as equity-settled transactions where the fair value of options granted is
recognized as salary expense over the option vesting period, with the offsetting amount recognized in contributed surplus.
For awards with graded vesting, the fair value of each tranche is recognized separately over its respective vesting period.
For each reporting period, the Company reassesses its estimates of the number of awards that are expected to vest and
recognizes the impact of any revision in the consolidated statements of income, with a corresponding adjustment to equity.
The fair value of the options granted is determined using a Black-Scholes option pricing model.
The Company offers a deferred share unit (DSU) plan that is only open to non-employee Directors of the Company who
annually elect to accept remuneration in the form of cash, cash and DSUs or DSUs. The Company accounts for the DSUs as
cash-settled transactions. Under the plan, the obligations for the DSUs are accrued quarterly based on the Directors’
remuneration for the quarter. Each reporting period, the obligations are adjusted for fluctuations in the market price of the
Company’s common shares and allow for dividend equivalents. Changes in obligations under the plan are recorded as
salaries and benefits expense in the consolidated statements of income, with a corresponding increase in other liabilities on
the consolidated balance sheets.
The Company grants restricted share units (RSUs) and performance share units (PSUs) to certain key members of
management, which are settled in cash equivalents of common shares and earn dividend equivalents at the same rate as
dividends on common shares. Salaries and benefits expense is recognized based on the fair value of the share units at the
grant date adjusted for changes in fair value between the grant date and the vesting date, net of the effects of hedges, over
the service period required for employees to become fully entitled to the awards. Changes in the PSU obligation resulting
from changes in the market price of common shares are multiplied by a performance factor ranging from 0% to 200% and
are recognized in the consolidated statements of income as salaries and benefits expense.
Employee Benefit Plans
Under both the Employee Share Purchase Plan and the Employee Retirement Savings Plan, the Company's contribution is
expensed when paid. Please see Note 15 for more information.
Earnings per Share
Both basic and diluted earnings per share (EPS) are presented for the Company’s common shares. Basic income per
common share is determined as net income for the year divided by the average number of common shares outstanding for
the year.
Diluted income per common share is determined as net income for the year divided by the average number of common
shares outstanding plus the stock options potentially exercisable for the year, as determined under the treasury stock
method. The treasury stock method determines the net number of incremental common shares that could be purchased with
the assumption that all in-the-money stock options are exercised and the proceeds are used to purchase common shares at
the average market price during the year.
Acquisitions
The consideration transferred related to an acquisition is measured at the fair value of the consideration transferred, which
would include the fair value of any contingent consideration. Direct transaction costs of acquisition are recognized as an
expense in the period in which they are incurred. Identifiable assets and liabilities acquired are measured at their fair value
and recognized on the Company’s consolidated balance sheets. Goodwill is measured as the excess of the consideration
transferred over the net of the fair value amounts of identifiable assets acquired and liabilities assumed. To the extent the
net fair value of the purchased assets and assumed liabilities exceeds the consideration transferred, the excess is recognized
as a gain on acquisition in the consolidated statements of income. The results of operations of acquired businesses are
included in the Company’s consolidated financial statements beginning on the date of acquisition.
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3. FUTURE CHANGES IN ACCOUNTING POLICIES
The following accounting pronouncements issued by the IASB were not effective as at December 31, 2016 and therefore
have not been applied in preparing these consolidated financial statements.
IFRS 9 Financial Instruments
In July 2014, the IASB issued IFRS 9, Financial Instruments (IFRS 9), which replaces IAS 39. IFRS 9 includes requirements
for classification and measurement of financial assets and liabilities, impairment of financial assets and general hedge
accounting. The Company will be required to adopt IFRS 9 on January 1, 2018 and, as permitted, will not restate
comparative period financial information. An adjustment to opening retained earnings will be made upon adoption of IFRS 9
on January 1, 2018.
Consequential amendments were made to IFRS 7, Financial Instruments: Disclosures (IFRS 7) related to IFRS 9, which are
required to be adopted on January 1, 2018 when the Company adopts IFRS 9. In June 2016, the Office of the Superintendent
of Financial Institutions Canada (OSFI) issued its final guideline, IFRS 9 Financial Instruments and Disclosures. The guideline
sets out OSFI’s expectations on the application of IFRS 9 and includes supervisory guidance on sound credit risk practices
associated with the implementation and ongoing application of expected credit loss accounting frameworks.
Classification and Measurement
Financial assets will be classified and measured based on the Company’s business models and the nature of its contractual
cash flows. These factors will determine whether financial assets are measured at amortized cost, fair value through other
comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). These categories replace the existing IAS 39
classifications of available for sale, loans and receivables, and held to maturity. Equity securities are measured at FVTPL
unless an election is made for certain equity securities to be measured at FVOCI with no subsequent reclassification to profit
or loss. The classification of financial liabilities is largely unchanged. The Company is in the process of defining its business
models and assessing the cash flow characteristics for in-scope financial assets.
Impairment
IFRS 9 introduces a forward-looking three-stage expected credit loss (ECL) model that represents an unbiased and
probability-weighted amount reflecting a range of possible outcomes. Upon initial recognition of financial assets, entities are
required to recognize a 12-month ECL allowance resulting from default events that are possible within the next 12 months
(Stage 1). If there has been a significant increase in credit risk, an entity is required to recognize a lifetime ECL allowance
resulting from possible default events over the expected life of the financial instrument (Stage 2). This assessment must
consider all reasonable and supportable information including forward-looking information. ECL will be measured based on
multiple scenarios that will be probability-weighted with an expected life based on the maximum contractual period over
which the Company is exposed to credit risk. The expected life of certain revolving credit facilities is based on the period over
which the Company is exposed to credit risk and where the credit losses would not be mitigated by management actions.
Financial assets with objective evidence of impairment are considered to be impaired requiring the recognition of a lifetime
ECL allowance with interest revenue recognized based on the carrying amount of the asset, net of the allowance, rather than
its gross carrying amount (Stage 3). This new impairment model will apply to all loans and debt securities measured at
amortized cost and FVOCI, as well as loan commitments and guarantees that are not measured at FVTPL.
In October 2016, the Basel Committee on Banking Supervision issued a consultative document and a discussion paper on the
regulatory treatment of accounting provisions. The consultative document proposes to retain the current regulatory
treatment of provisions for an interim period under the standardized and internal ratings-based approaches and also
considers various transitional approaches to phase in the impact of the new ECL accounting standards on regulatory capital.
The discussion paper considers policy options related to the long-term regulatory treatment of accounting provisions.
General Hedge Accounting
IFRS 9 introduces a new general hedge accounting model that aims to better align accounting with risk management
activities. The Company is currently evaluating an accounting policy choice to adopt the hedging requirements under IFRS 9
or continue to apply the hedging requirements under IAS 39. New hedge accounting disclosure requirements were introduced
under IFRS 7 and will be effective on January 1, 2018 regardless of whether the Company adopts the new general hedge
accounting model.
Transition
To manage the transition to IFRS 9, the Company established an enterprise-wide program sponsored by the Chief Financial
Officer including establishing a formal governance structure supported by a Project Steering Committee comprising senior
management representatives from Finance, Enterprise Risk Management, Information Technology, Operations and Treasury.
The Company has also retained the services of external consultants with proven IFRS 9 expertise. During 2016, the project
team focused on making initial accounting policy decisions, developing risk impairment models, determining business and
technology requirements, and providing education sessions and updates to key stakeholders including the Audit Committee.
The planning phase of the project has been completed and the project is currently in the implementation phase. Management
is currently evaluating the potential quantitative impact that the adoption of IFRS 9 will have on the Company’s consolidated
financial statements.
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IFRS 15 Revenue from Contracts with Customers
The Company will be required to adopt IFRS 15, Revenue from Contracts with Customers (IFRS 15) on January 1, 2018. IFRS
15 provides a principles-based five-step framework that applies to contracts with customers, except for revenue arising from
financial instruments, insurance contracts and leases. In April 2016, amendments were made to IFRS 15 to clarify the
principles related to identification of performance obligations, determining whether a company is a principal or agent and
license revenue. Management is currently evaluating the potential impact that the adoption of IFRS 15 will have on the
Company’s consolidated financial statements.
IFRS 16 Leases
The Company will be required to adopt IFRS 16, Leases (IFRS 16) on January 1, 2019. IFRS 16 requires lessees to recognize
right-of-use assets with corresponding lease liabilities for most leases. The accounting for lessors remains substantially
unchanged from IAS 17. Management is currently evaluating the potential impact that the adoption of IFRS 16 will have on
the Company’s consolidated financial statements.
Amendments to IFRS 2 Share-based Payment
The Company will be required to adopt narrow scope amendments to IFRS 2, Share-based Payment (IFRS 2) on January 1,
2018, related to the classification and measurement of share-based payment transactions. The amendments to IFRS 2 are
not expected to have a material impact.
Amendments to IAS 7 Statement of Cash Flows
The Company will be required to adopt narrow scope amendments related to IAS 7, Statement of Cash Flows (IAS 7) on
January 1, 2017 related to disclosing changes in liabilities arising from financing activities. Management has determined that
the amendments will not have an impact on the Company’s consolidated statements of cash flows.
4. CASH RESOURCES AND SECURITIES
(A) Cash Resources
thousands of Canadian dollars
Cash and cash equivalents
December 31
December 31
2016
2015
$
1,205,394 $
1,149,849
The Company has an uncommitted credit facility with a Canadian chartered bank in the amount of $20 million, which is
undrawn.
The Company also has two insured mortgage purchase facilities, one committed and one uncommitted, with a Canadian
chartered bank in the amounts of $300 million and $200 million, respectively, at December 31, 2016 ($300 million and $200
million, respectively, at December 31, 2015). Both facilities are used by the Company to fund insured mortgage loans until
such time as they can be securitized. Proceeds from securitized loans are used to pay down the facility. As at December 31,
2016, these facilities are undrawn.
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(B) Available for Sale Securities at Fair Value by Type and Remaining Term to Maturity and Rate Reset Date
thousands of Canadian dollars
Debt securities
Preferred shares
December 31 December 31
2016
Total
2015
Total
Within 1 Year
1 to 3 Years
3 to 5 Years Over 5 Years
Fair Value
Fair Value
$
1,271 $ 232,232 $ 108,071 $
- $
341,574 $
262,524
97,934
40,899
48,719
5,798
193,350
190,706
$
99,205 $ 273,131 $ 156,790 $
5,798 $
534,924 $
453,230
(C) Available for Sale Securities - Net Unrealized Gains and Losses
thousands of Canadian dollars, except %
As at December 31, 2016
Debt securities
Preferred shares
thousands of Canadian dollars, except %
Debt securities
Preferred shares
Gross
Gross
Unrealized
Unrealized
Total
Cost
Gains
Losses
Fair Value
341,050 $
721 $
(197) $
341,574
269,586
1,707
(77,943)
193,350
610,636 $
2,428 $
(78,140) $
534,924
Weighted-
Average
Yield
1.0%
3.6%
Gross
Gross
Unrealized
Unrealized
Cost
Gains
Losses
263,156 $
565 $
(1,197)
$
276,457
481
(86,232)
As at December 31, 2015
Total
Fair Value
262,524
190,706
Weighted-
Average
Yield
1.3%
4.1%
539,613 $
1,046 $
(87,429)
$
453,230
$
$
$
$
Net unrealized gains and losses (excluding impairment losses, which are transferred to net income) are included in AOCI and
presented in the table above. These unrealized gains and losses are not included in net income. Please see Note 16 for
more information.
The unrealized gains or losses included above represent the differences between the cost of a security and its current fair
value. The Company regularly monitors its investments and market conditions for indications of impairment. As of December
31, 2016, the Company assessed its securities portfolio for evidence of impairment and has not identified any negative credit
events during the year in relation to its preferred share or debt holdings.
During the year, the Company recognized $204 thousand (2015 - $920 thousand) of additional impairment losses on
available for sale securities previously identified as impaired.
88
5. LOANS
(A) Loans by Geographic Region and Type (net of individual allowances for credit losses)
thousands of Canadian dollars, except %
As at December 31, 2016
British
Columbia
Alberta
Ontario
Quebec
Other
Total
Securitized single-family residential mortgages1
$
200,882 $
211,131 $
1,298,919 $
68,229 $
127,450 $
1,906,611
Securitized multi-unit residential mortgages
86,479
45,819
281,923
47,638
158,334
620,193
Total securitized mortgages
287,361
256,950
1,580,842
115,867
285,784
2,526,804
Single-family residential mortgages
Residential commercial mortgages2
688,939
401,820 10,796,570
326,253
208,426 12,422,008
15,387
21,271
232,819
24,058
11,653
305,188
Non-residential commercial mortgages
48,335
58,688
1,795,461
35,820
16,516
1,954,820
Credit card loans and lines of credit
7,548
20,265
333,903
1,253
6,709
369,678
Other consumer retail loans
950
20,492
354,356
-
3,103
378,901
Total non-securitized mortgages and loans3
761,159
522,536 13,513,109
387,384
246,407 15,430,595
$ 1,048,520 $
779,486 $ 15,093,951 $
503,251 $
532,191 $ 17,957,399
As a % of portfolio
5.8%
4.3%
84.1%
2.8%
3.0%
100.0%
thousands of Canadian dollars, except %
As at December 31, 2015
British
Columbia
Alberta
Ontario
Quebec
Other
Total
Securitized single-family residential mortgages
$
125,239 $
114,807 $
1,559,536 $
81,262 $
67,266 $
1,948,110
Securitized multi-unit residential mortgages
94,676
46,848
372,141
51,309
161,391
726,365
Total securitized mortgages
219,915
161,655
1,931,677
132,571
228,657
2,674,475
Single-family residential mortgages
Residential commercial mortgages2
706,555
525,984
11,060,894
419,075
266,910
12,979,418
21,128
14,215
216,407
27,265
42,427
321,442
Non-residential commercial mortgages
25,157
59,861
1,358,295
14,505
32,830
1,490,648
Credit card loans and lines of credit
9,598
22,709
330,188
1,489
6,841
370,825
Other consumer retail loans
783
11,090
284,231
-
753
296,857
Total non-securitized mortgages and loans3
763,221
633,859
13,250,015
462,334
349,761
15,459,190
$
983,136 $
795,514 $
15,181,692 $
594,905 $
578,418 $
18,133,665
As a % of portfolio
1 Securitized single-family residential mortgages include both CMHC-sponsored securitized insured mortgages and bank-sponsored securitization conduit uninsured mortgages.
2 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.
3 Loans exclude mortgages held for sale.
83.7%
3.3%
5.4%
3.2%
4.4%
100.0%
89
(B) Past Due Loans That Are Not Impaired
A loan is recognized as being impaired (non-performing) when the Company is no longer reasonably assured of the timely
collection of the full amount of principal and interest. An uninsured residential or commercial mortgage, retail loan, or
Equityline Visa loan (included in credit card loans) is deemed to be impaired at the earlier of the date it has been individually
provided for or when it has been in arrears for 90 days. Single-family and multi-unit residential mortgages (including
securitized mortgages) guaranteed by the Government of Canada are not considered impaired until payment is contractually
365 days past due. Cash secured and unsecured credit card balances that have a payment that is contractually 120 days in
arrears are individually provided for, and those that have a payment that is contractually 180 days in arrears are written off.
Lines of credit that have a payment that is contractually 90 days in arrears are individually provided for, and those that have
a payment that is contractually 180 days in arrears are written off.
thousands of Canadian dollars
As at December 31, 2016
Securitized single-family residential mortgages 1
$
21,253 $
1,348 $
252 $
182 2 $
23,035
1 to 30 Days 31 to 60 Days
61 to 90 Days
Over 90 Days
Total
Securitized multi-unit residential mortgages
-
-
-
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
167,408
27,944
3,644
424
3,126
2,882
221
-
6,890
611
106
-
-
823
103
-
5,620 2
-
-
316
-
-
204,616
424
10,016
4,632
430
$
195,314 $
36,899 $
4,822 $
6,118 $
243,153
thousands of Canadian dollars
As at December 31, 2015
Securitized single-family residential mortgages
$
5,779 $
672 $
Securitized multi-unit residential mortgages
-
-
336 $
-
346 2 $
-
1 to 30 Days 31 to 60 Days
61 to 90 Days
Over 90 Days
Total
7,133
-
Single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
182,997
43,350
3,969
5,646 2
235,962
-
12,780
2,246
104
4,000
5,379
889
42
-
286
814
65
-
-
49
-
4,000
18,445
3,998
211
1 Securitized single-family residential mortgages include CMHC-sponsored securitized insured mortgages and bank-sponsored securitization conduit uninsured mortgages.
2 Insured residential mortgages are considered impaired when they are 365 days past due.
$
203,906 $
54,332 $
5,470 $
6,041 $
269,749
90
(C) Impaired Loans and Individual Allowances for Credit Losses
Residential mortgages guaranteed by the Government of Canada are not considered impaired until payment is contractually
365 days past due. As CMHC-sponsored securitized residential mortgages are insured, credit losses are generally not
anticipated. There were no impaired uninsured securitized mortgages or any individual allowances on such mortgages at
December 31, 2016 and December 31, 2015.
thousands of Canadian dollars
As at December 31, 2016
Single-family
Residential
Non-residential
Credit Card
Other
Residential
Commercial
Commercial
Loans and
Consumer
Mortgages
Mortgages
Mortgages
Lines of Credit
Retail Loans
Total
Gross amount of impaired loans
Individual allowances on principal
Net amount of impaired loans
$
$
49,834 $
(1,980)
47,854 $
- $
-
- $
4,577 $
2,049 $
411 $
56,871
(30)
(780)
(411)
(3,201)
4,547 $
1,269 $
- $
53,670
thousands of Canadian dollars
As at December 31, 2015
Single-family
Residential
Non-residential
Credit Card
Other
Residential
Commercial
Commercial
Loans and
Consumer
Mortgages
Mortgages
Mortgages
Lines of Credit
Retail Loans
Gross amount of impaired loans
Individual allowances on principal
Net amount of impaired loans
$
$
49,285 $
(1,652)
47,633 $
- $
-
- $
2,558 $
(340)
2,218 $
1,518 $
(329)
1,189 $
161 $
(161)
- $
Total
53,522
(2,482)
51,040
Included in the gross amount of impaired loans are foreclosed loans with an estimated realizable value of $0.6 million (2015
- $2.4 million).
(D) Collateral
The fair value of collateral held against mortgages is based on appraisals at the time a loan is originated. Appraisals are only
updated should circumstances warrant. At December 31, 2016, the total appraised value of the collateral held for mortgages
past due that are not impaired, as determined when the mortgages were originated, was $367.0 million (2015 - $458.3
million). For impaired mortgages, the total appraised value of collateral at December 31, 2016 was $81.3 million (2015 -
$74.5 million).
91
(E) Allowance for Credit Losses
thousands of Canadian dollars
Single-family
Residential Non-residential
Credit Card
Other
Residential
Commercial
Commercial
Loans and
Consumer
Mortgages
Mortgages
Mortgages Lines of Credit Retail Loans
Total
2016
Individual allowances
Allowance on loan principal
Balance at the beginning of the year
$
1,652 $
Provision for credit losses
Write-offs
Recoveries
Allowance on accrued interest receivable
Balance at the beginning of the year
Provision for credit losses
Total individual allowance
Collective allowance
3,415
(3,608)
521
1,980
839
502
1,341
3,321
- $
2
(2)
-
-
-
-
-
-
340 $
329 $
161 $
2,482
205
2,379
525
6,526
(537)
(2,117)
(519)
(6,783)
22
30
57
41
98
189
780
244
976
411
3,201
-
-
-
5
7
901
550
12
1,451
128
780
423
4,652
Balance at the beginning of the year
22,232
327
9,500
3,890
300
36,249
Provision for credit losses
Total allowance
Total provision
thousands of Canadian dollars
800
23,032
26,353 $
-
327
327 $
-
14
-
814
9,500
3,904
300
37,063
9,628 $
4,684 $
723 $
41,715
4,717 $
2 $
246 $
2,393 $
532 $
7,890
$
$
Single-family
Residential Non-residential
Credit Card
Other
Residential
Commercial
Commercial
Loans and
Consumer
Mortgages
Mortgages
Mortgages Lines of Credit Retail Loans
Total
2015
Individual allowances
Allowance on loan principal
Balance at the beginning of the year
$
1,808 $
Allowance assumed on purchase of CFF Bank
Provision for credit losses
Write-offs
Recoveries
Allowance on accrued interest receivable
Balance at the beginning of the year
Provision for credit losses
Total individual allowance
Collective allowance
-
5,136
(6,357)
1,065
1,652
560
279
839
2,491
- $
-
4
(9)
5
-
-
-
-
-
55 $
-
720
80 $
420
798
160 $
2,103
-
420
169
6,827
(486)
(1,005)
(442)
(8,299)
51
340
57
-
57
36
329
274
161
1,431
2,482
-
-
-
3
2
5
620
281
901
397
329
166
3,383
Balance at the beginning of the year
20,632
327
9,300
3,541
300
34,100
Allowance assumed on purchase of CFF Bank
Provision for credit losses
Total allowance
Total provision
-
1,600
22,232
24,723 $
7,015 $
$
$
-
-
327
327 $
4 $
-
200
324
25
-
-
324
1,825
9,500
3,890
300
36,249
9,897 $
4,219 $
466 $
39,632
920 $
823 $
171 $
8,933
There were no individual provisions, allowances or net write-offs on securitized residential mortgages.
92
(F) Interest Income by Product
thousands of Canadian dollars
Traditional single-family residential mortgages
ACE Plus single-family residential mortgages
Accelerator single-family residential mortgages
Residential commercial mortgages
Non-residential commercial mortgages
Credit card loans and lines of credit
Other consumer retail loans
Total interest income on non-securitized loans
CMHC-sponsored securitized single-family residential mortgages
CMHC-sponsored securitized multi-unit residential mortgages
Assets pledged as collateral for CMHC-sponsored securitization
Bank-sponsored securitization conduit assets
Total interest income on securitized loans
(G) Loans by Remaining Contractual Term to Maturity
thousands of Canadian dollars
2016
2015
$
540,522 $
587,005
11,490
30,935
17,614
102,465
33,536
31,472
768,034
46,642
29,866
2,246
2,951
81,705
$
849,739 $
1,849
28,777
17,053
80,032
31,427
23,419
769,562
62,891
36,625
4,325
-
103,841
873,403
December 31
December 31
2016
Total
2015
Total
Within 1 Year
1 to 3 Years
3 to 5 Years Over 5 Years
Book Value
Book Value
Securitized single-family residential mortgages 1
$
122,182 $
579,489 $ 1,204,940 $
- $
1,906,611 $
1,948,110
Securitized multi-unit residential mortgages
7,585
266,830
345,778
-
620,193
726,365
Single-family residential mortgages
8,786,065 2,890,550
708,668
36,725 12,422,008
12,979,418
Residential commercial mortgages
100,739
198,552
5,897
-
305,188
321,442
Non-residential commercial mortgages
1,006,779
894,037
54,004
-
1,954,820
1,490,648
Credit card loans and lines of credit
369,678
-
-
-
369,678
370,825
Other consumer retail loans
28,480
91,370
238,269
20,782
378,901
296,857
$ 10,421,508 $ 4,920,828 $ 2,557,556 $
57,507 $ 17,957,399 $
18,133,665
Collective allowance for credit losses
(37,063)
(36,249)
$ 17,920,336 $
18,097,416
¹ Securitized single-family residential mortgages include both CMHC-sponsored securitized insured mortgages and bank-sponsored securitization conduit uninsured mortgages.
93
6. SECURITIZATION ACTIVITY
(A) Assets Pledged as Collateral
As a requirement of the NHA MBS and CMB programs, the Company assigns to CMHC all of its interest in CMHC-sponsored
securitized mortgage pools. If the Company fails to make timely payment under an NHA MBS or CMB security, CMHC may
enforce the assignment of the mortgages included in all the mortgage pools as well as other assets backing the MBS issued.
During the second quarter of 2016, the Company commenced participation in a bank-sponsored securitization conduit
program to provide for cost-effective funding of the Company’s ACE Plus product. The sponsor of the program is a Schedule
1 Canadian bank with which the Company has entered into an agreement to assign to the conduit all of the Company’s
interests in certain uninsured single-family residential mortgages. Under the agreement, the assigned mortgages remain in
the program until maturity and the sponsoring bank retains all of the refinancing risks related to the program, with the
Company bearing no risk for funding the program.
The following table presents the activity associated with the principal value of the Company’s on-balance sheet mortgage
loans and other assets assigned as collateral for both the CMHC- and bank-sponsored securitization programs. The
mortgages are recorded as securitized single-family or multi-unit residential mortgages and assets assigned as CMB
replacement assets are recorded as restricted assets.
thousands of Canadian dollars
Beginning balance of on-balance sheet assets assigned as collateral for securitization 1
Mortgages pledged in securitization acquired on purchase of CFF Bank
Mortgages assigned in new securitizations
Net change in non-Home Trust MBS and treasury bills
Mortgages derecognized 2
2016
2015
$
2,731,350 $
4,247,644
-
19,805
3,805,816
2,386,624
65,203
(245,115)
(2,537,307)
(1,897,888)
Maturity, amortization and changes in mortgages assigned as CMB replacement assets
Ending balance of on-balance sheet assets assigned as collateral for securitization 1
1 Included in the on-balance sheet assets assigned as collateral, at December 31, 2016 is $122.1 million ($56.9 million – December 31, 2015) in non-Home Trust MBS and
treasury bills and $2.53 billion ($2.67 billion – December 31, 2015) of securitized mortgages.
2 Mortgages are derecognized upon the sale of residual interest in insured single-family residential mortgages and the securitization and sale of multi-unit residential mortgages.
2,648,882 $
(1,416,180)
(1,779,720)
2,731,350
$
Non-Home Trust MBS and treasury bills assigned as collateral are accounted for as available for sale assets and included in
restricted assets on the consolidated balance sheets. Please see Note 7 for more information. Additionally, off-balance sheet
mortgage loans of $8.38 billion ($6.78 billion - December 31, 2015) are assigned as collateral related to CMHC for sponsored
securitization programs. Included in this amount is $1.23 billion ($1.44 billion – December 31, 2015) of mortgages that were
sold under the whole loan sales program of CFF Bank prior to the acquisition of CFF Bank by Home Trust. These mortgages
were securitized subsequent to the whole loan sales by the purchaser.
(B) Securitization Liabilities
The following table presents the securitization liabilities, including liabilities added during the year that are secured by
insured mortgages for CMHC-sponsored securitizations, uninsured mortgages for the bank-sponsored securitization conduit
and other restricted assets. This table includes only on-balance sheet originations and discharges.
thousands of Canadian dollars
Balance at the beginning of the year
Securitization liabilities assumed on purchase of CFF Bank
Addition to securitization liabilities as a result of on-balance sheet activity
Net reduction in securitization liabilities due to maturities, amortization and sales
Other 1
Securitization liability
Proceeds received for mortgages assigned in new securitizations
1 Other includes premiums, discounts, transaction costs and changes in the mark to market of hedged items.
2016
2015
$
2,780,556 $
4,303,463
-
2,654,106
19,746
484,112
(2,744,123)
(2,033,078)
(40,890)
6,313
2,649,649 $
2,780,556
3,744,735 $
2,374,209
$
$
94
The following table provides the remaining contractual term to maturity of securitization liabilities.
thousands of Canadian dollars, except %
December 31
December 31
2016
Total
2015
Total
Within 1 Year
1 to 3 Years
3 to 5 Years Over 5 Years
Book Value
Book Value
CMHC-sponsored mortgage-backed security liabilities
$
81,416 $
300,620 $
516,350 $
- $
898,386 $
531,326
Contractual yield
1.5%
1.8%
1.4%
-
1.5%
1.7%
CMHC-sponsored Canada Mortgage Bond liabilities
162,677
233,666 1,107,904
132,870
1,637,117
2,249,230
Contractual yield
1.2%
4.2%
2.3%
1.2%
2.3%
2.3%
Bank-sponsored securitization conduit liabilities
Contractual yield
-
114,146
-
1.6%
-
-
-
-
114,146
1.6%
-
-
$
244,093 $
648,432 $ 1,624,254 $
132,870 $
2,649,649 $
2,780,556
(C) Securitization Income
The following table presents the total securitization income for the year.
thousands of Canadian dollars
Net gain on sale of mortgages and residual interest 1
Net change in unrealized gain or loss on hedging activities
Servicing income
Total securitization income
1 Gain on sale of mortgages and residual interest are net of hedging impact.
2016
2015
$
26,972 $
21,412
399
6,426
(313)
5,109
$
33,797 $
26,208
The hedging activities included in the previous table hedge interest rate risk on loans held for sale. The derivatives, which
are typically bond forwards, are not designated in hedge accounting relationships. The gains or losses on the derivatives are
mostly offset by the fair value changes related to the loans held for sale.
During the year, the Company securitized and sold through the NHA MBS program certain insured multi-unit residential
mortgages with no prepayment privileges. These mortgages are recognized on the Company’s consolidated balance sheets
only to the extent of the Company’s continuing involvement in the mortgages (continuing involvement accounting). The
Company’s continuing involvement is limited to its retained interest and its obligations for mortgage servicing. There is no
prepayment or credit risk associated with the retained interest or the cost of servicing. The mortgages are effectively
derecognized as a result of this transaction. The retained interest and servicing liability are recorded on the consolidated
balance sheets in other assets and other liabilities, respectively.
The Company also sold residual interests in certain pools of insured single-family mortgages securitized through the NHA
MBS program. The sales resulted in the Company transferring substantially all of the risks and rewards of ownership
associated with the underlying mortgages. As a result, the mortgages are derecognized and a gain on sale is recognized.
The gains on both of the above transaction types are included in non-interest income under securitization income in the
consolidated statements of income.
The following table provides additional quantitative information about these securitization and sales activities during the year.
thousands of Canadian dollars
2016
2015
Single-family
Multi-unit
Single-family
Multi-unit
Residential MBS Residential MBS
Total MBS
Residential MBS Residential MBS
Total MBS
Carrying value of underlying mortgages derecognized $
Net gains on sale of mortgages or residual interest 1
Retained interests recorded
Servicing liability recorded
1 Gains on sale of mortgages or residual interest are net of hedging impact.
(D) Purchased Residual Interests
1,490,850 $
17,368
1,046,457 $ 2,537,307 $
26,972
9,604
1,184,253 $
15,499
713,635 $ 1,897,888
21,412
5,913
-
-
41,900
8,955
41,900
8,955
-
-
33,228
33,228
6,229
6,229
In 2014, the Company purchased from certain counterparties residual interests of underlying insured fixed-rate residential
mortgages that have been securitized. The purchase resulted in the Company acquiring only the residual interests without
acquiring either the underlying mortgages or the corresponding liabilities. At December 31, 2016, the notional amount of
these instruments was $427.0 million, with $4.3 million recorded in available for sale securities (December 31, 2015 –
notional amount of $520.6 million, with $9.3 million recorded in available for sale securities). No residual interests were
purchased subsequent to 2014. Interest earned on these investments is recorded in other interest income on the
consolidated statements of income.
95
7. RESTRICTED ASSETS
thousands of Canadian dollars
Restricted cash
December 31
December 31
2016
2015
Restricted cash – CMHC- and bank-sponsored securitization programs
$
106,616 $
Restricted cash – derivatives
Restricted cash – other programs
Total restricted cash
Non-Home Trust MBS and treasury bills assigned as replacement assets
19,262
17,418
143,296
122,078
Total restricted assets
$
265,374 $
110,448
14,172
14,426
139,046
56,875
195,921
Restricted cash – CMHC- and bank-sponsored securitization programs represent deposits held as collateral by the sponsors in
connection with the Company’s securitization activities.
Restricted cash – derivatives are deposits held by counterparties as collateral for the Company’s swap and bond forward
transactions. The terms and conditions for the collateral are governed by International Swaps and Derivatives Association
(ISDA) agreements.
Restricted cash – other programs include reserve accounts held in trust for the water heater financing program. These
amounts are held as cash collateral against potential credit losses. In addition, other programs include account balances held
in trust for the whole loan sales program.
The following table provides the remaining contractual term to maturity of restricted cash, non-Home Trust MBS and treasury
bills assigned as CMB replacement assets. Please see Note 6(A) for more information.
thousands of Canadian dollars
Within 1 Year
1 to 3 Years
3 to 5 Years
Over 5 Years
Fair Value
Fair Value
December 31
December 31
2016
Total
2015
Total
Restricted cash
$
143,296 $
- $
Non-Home Trust MBS and treasury bills assigned as replacement assets
34,583
87,495
$
177,879 $
87,495 $
- $
-
- $
- $
143,296 $
139,046
-
122,078
56,875
- $
265,374 $
195,921
8. OTHER ASSETS
thousands of Canadian dollars
Accrued interest receivable
Prepaid CMB coupon
Securitization receivable and retained interest
Capital assets
Income taxes recoverable
Other prepaid assets and deferred items
96
December 31
December 31
2016
$
60,314 $
3,289
213,312
13,013
25,619
33,091
2015
63,532
3,544
142,243
14,468
35,953
27,677
$
348,638 $
287,417
9. INTANGIBLE ASSETS
The following table presents the net carrying amount of internally developed software costs and acquired intangible assets as
at December 31, 2016 and 2015, along with the changes in net carrying amount for the years ended December 31, 2016 and
2015.
thousands of Canadian dollars
2016
2015
Core
Other
Acquired
Core
Other
Acquired
Banking
System 1
Software
Costs2
Intangible
Assets
Total
Banking
System 1
Software
Costs2
Intangible
Assets
Total
Cost
Balance at the beginning of the year
$ 110,397 $
37,067 $
- $ 147,464 $
95,660 $
26,557 $
- $
122,217
Additions from internal development
8,452
8,377
-
16,829
14,737
10,510
Acquisition of intangible assets
Impairment loss
-
(5,127)
-
-
2,260
2,260
-
(5,127)
-
-
-
-
-
-
-
25,247
-
-
Balance at the end of the year
113,722
45,444
2,260 161,426
110,397
37,067
-
147,464
Accumulated amortization
Balance at the beginning of the year
31,889
2,980
-
34,869
24,287
546
Amortization expense
8,264
3,252
38
11,554
7,602
2,434
Balance at the end of the year
40,153
6,232
38
46,423
31,889
2,980
-
-
-
24,833
10,036
34,869
Carrying amount at the end of the year $
1 As at December 31, 2016, there was $12.1 million ($14.6 million – December 31, 2015) in work in progress related to the core banking system that was not being amortized.
2 As at December 31, 2016, there was $13.0 million ($8.4 million – December 31, 2015) in work in progress related to other software costs that was not being amortized.
2,222 $ 115,003 $
39,212 $
73,569 $
34,087 $
78,508 $
- $
112,595
During 2016, the Company recognized an impairment loss of $5.1 million on a component for its core banking system that
was in the process of being developed. The development of this component has been deferred indefinitely leading to the
determination that the benefits from this software development may not be realized and the capitalized amount is not
recoverable. The deferral of development on this component does not impact the functionality of the core banking system
currently in use. The $5.1 million impairment loss is included in other operating expenses on the consolidated statements of
income.
10. GOODWILL
The following table presents the carrying amount of goodwill.
thousands of Canadian dollars
Home Trust
PSiGate
December 31
December 31
2016
2,324 $
4,428
6,752 $
2015
2,324
13,428
15,752
$
$
During the fourth quarter of 2016, goodwill in the PSiGate business was determined to be impaired. An impairment loss of
$9.0 million was recorded as part of other operating expenses, under non-interest expense in the consolidated statements of
income. This impairment reflected revised expectations of revenues due to a reduction in business development activities, as
well as increased operating expenses. There were no additions, disposals or other impairments of goodwill for the year ended
December 31, 2016.
The recoverable amount of the PSiGate business was determined as fair value, less costs of disposal. A discounted cash flow
assessment was performed, valuing the estimated future cash flows based on the Company’s internal forecast as well as
assumptions about purchaser considerations in an open market transaction. A discount rate of 15.15% was used (2015 –
15.15%), which management believes to be a risk-adjusted rate reflecting current market assessments of the risks specific
to the business. A terminal growth rate of 3.0% (2015 – 3.0%) was applied to the years after the three-year forecast,
reflecting management’s expectations of growth and inflation rates. This fair value measurement of the PSiGate business is
categorized as level 3 in the fair value hierarchy as certain significant inputs are not observable.
The calculation of recoverable amount is an area of significant management judgement, and changes in assumptions and
estimates could influence the determination of the existence of impairment and the valuation of goodwill. Management
believes that the assumptions and estimates used are reasonable and supportable, and where possible inputs are compared
to relevant market information.
97
11. DEPOSITS BY REMAINING CONTRACTUAL TERM TO MATURITY
thousands of Canadian dollars, except %
December 31
December 31
Payable
on Demand Within 1 Year
1 to 3 Years
3 to 5 Years
Total
2016
2015
Total
Individuals
Businesses
$
1,920,063 $
6,238,856 $
4,055,233 $
1,552,580 $ 13,766,732 $
13,493,695
611,740
371,860
200,097
130,634
1,314,331
1,188,764
Institutional deposits
-
324,858
480,109
-
804,967
983,499
$
2,531,803 $
6,935,574 $
4,735,439 $
1,683,214 $ 15,886,030 $
15,665,958
Average contractual yield
1.3%
1.9%
2.3%
2.3%
1.9%
2.0%
12. SENIOR DEBT
The Company issued $150.0 million principal amount of 5.20% debentures on May 4, 2011. The debentures paid interest
semi-annually on May 4 and November 4 of each year. The debentures matured on May 4, 2016. The carrying amount
included unamortized issue costs and fair value adjustments related to interest rate hedging. The Company repaid and
retired the senior debt in the principal amount of $150.0 million on the maturity date.
13. OTHER LIABILITIES
thousands of Canadian dollars
Accrued interest payable on deposits
Accrued interest payable on securitization liabilities
Securitization servicing liability
Other, including accounts payable and accrued liabilities
14. CAPITAL
(A) Authorized
December 31
December 31
2016
2015
$
122,905 $
124,068
7,317
20,573
185,337
7,466
15,234
118,173
$
336,132 $
264,941
An unlimited number of common shares with no par value
An unlimited number of preferred shares, issuable in series, to be designated as senior preferred shares
An unlimited number of preferred shares, issuable in series, to be designated as junior preferred shares
(B) Common Shares Issued and Outstanding
thousands
Number of
Shares
2016
2015
Number of
Amount
Shares
Amount
Outstanding at the beginning of the year
69,978
$
90,247
70,096
$
84,687
Options exercised
Repurchase of shares
Outstanding at the end of the year
71
(5,661)
1,984
(7,321)
227
(345)
6,002
(442)
64,388
$
84,910
69,978
$
90,247
The Company has no preferred shares outstanding.
98
(C) Repurchase of Shares
On April 18, 2016, the Company repurchased for cancellation 3,989,361 common shares at a price of $37.60 per share
totaling $150.0 million under the Company’s previously announced substantial issuer bid. In addition, the Company
continued to repurchase shares under its normal course issuer bid.
During the year, 5,660,961 (2015 – 344,700) common shares were purchased under the substantial issuer bid and normal
course issuer bid for $199.2 million (2015 - $10.7 million). The purchase price of shares acquired through the substantial
issuer bid and the normal course issuer bid is allocated between share capital and retained earnings. The reduction to share
capital for the year ended December 31, 2016 was $7.3 million (2015 - $442 thousand). The balance of the purchase price of
$191.9 million (2015 - $10.3 million) was charged to retained earnings. Included in the amount allocated to retained
earnings is $0.4 million (net of tax) for transaction costs associated with the substantial issuer bid.
(D) Earnings per Common Share (EPS)
Basic earnings per common share of $3.71 (2015 - $4.09) is determined as net income for the year divided by the average
number of common shares outstanding of 66,601,374 (2015 - 70,169,686).
Diluted earnings per common share of $3.71 (2015 - $4.09) is determined as net income for the year divided by the average
number of common shares outstanding of 66,601,374 (2015 - 70,169,686) plus the stock options potentially exercisable, as
determined under the treasury stock method, of 66,264 (2015 - 153,763) for a total of 66,667,638 (2015 - 70,323,449)
diluted common shares.
Diluted income per common share excludes contingently assumable average options outstanding of 487,634 with a
weighted-average exercise price of $34.97 for December 31, 2016 and contingently assumable average options outstanding
of 696,847 with a weighted-average exercise price of $36.15 for December 31, 2015, as not all vesting and performance
criteria had been met.
(E) Capital Management
The Company has a Capital Management Policy that governs the quantity and quality of capital held. The objectives of the
policy are to ensure that capital levels are adequate and that Home Trust meets all regulatory capital requirements, while
also providing a sufficient return to investors. The Risk and Capital Committee and the Board review the policy annually and
monitor compliance with the policy on a quarterly basis.
The Company’s subsidiary, Home Trust, is subject to the regulatory capital requirements stipulated by the Office of the
Superintendent of Financial Institutions Canada (OSFI). These requirements are consistent with international standards
(Basel II and Basel III) set by the Bank for International Settlements. Home Trust follows the Basel II Standardized
Approach for calculating credit risk and the Basic Indicator Approach for operational risk. In addition, dividends paid by
Home Trust to Home Capital may be subject to restrictions by OSFI.
The regulatory capital position of Home Trust was as follows:
Regulated capital to risk-weighted assets
Common equity tier 1 ratio
Tier 1 capital ratio
Total regulatory capital ratio
December 31
December 31 National Regulatory
2016
2015
All-In Basis
All-In Basis
Minimum
All-In Basis
16.55%
16.54%
16.97%
18.31%
18.30%
20.70%
7.00%
8.50%
10.50%
Home Trust adopted certain Basel III capital requirements, as required by OSFI, beginning January 1, 2013. The transitional
basis allows for the transition of certain capital deductions over a period ending January 1, 2018, whereas the all-in basis
includes all applicable deductions immediately. For purposes of meeting minimum regulatory capital ratios prescribed by
OSFI, the all-in basis is required. Home Trust is required to meet a minimum Leverage ratio determined by OSFI. As at
December 31, 2016, the Leverage ratio was 7.20% (December 31, 2015 – 7.36%), which exceeds OSFI’s minimum
requirements.
Subordinated debt advanced by Home Capital to Home Trust was included in Total capital as Tier 2 capital. Under Basel III,
this subordinated debt would be subject to straight-line amortization out of capital in the final five years prior to maturity.
The principal amounts of the subordinated debt were scheduled to mature in 2021 and 2022 in the amounts of $100 million
and $56 million, respectively. Home Trust repaid and retired the subordinated debt in the amount of $156.0 million on May
4, 2016.
99
In addition, on April 18, 2016 the Company repurchased common shares as part of its previously announced substantial
issuer bid. Please refer to Note 14(C) for further information. The funding for this repurchase was provided by a dividend
paid by Home Trust, which reduced its regulatory capital and capital ratios.
Currently, Home Trust’s Common Equity Tier 1, Total Tier 1, and Total capital ratios significantly exceed OSFI’s regulatory
targets, as well as Home Trust’s internal capital targets. No new capital was raised in 2016.
15. EMPLOYEE BENEFITS
(A) Employee Share Purchase Plan
Under the Employee Share Purchase Plan, every year eligible employees can elect to purchase common shares of the
Company up to 10% of their annual earnings. The Company matches 50% of the employees’ contribution amount. During
each pay period, all contributions are used by the plan's trustee to purchase the common shares in the open market. The
Company's contributions are fully vested immediately. The Company's contributions are expensed as paid and totalled $1.7
million for 2016 (2015 - $1.5 million).
(B) Employee Retirement Savings Plan
During the year, Home Trust contributed $1.3 million (2015 - $1.3 million) to the employee group registered retirement
savings plan.
(C) Stock Options
The details and changes in the issued and outstanding options are as follows:
thousands, except per share amounts and years
Outstanding at the beginning of the year
Granted
Exercised
Forfeited
Outstanding at the end of the year
Exercisable at the end of the year
Weighted-average market price per share at date of exercise
Weighted-average remaining contractual life in years
Number of
Shares
1,208
$
25
(71)
(88)
1,074
587
$
$
$
2016
Weighted-
average
Exercise
Price
32.45
31.95
20.62
38.41
32.73
30.86
31.44
2.9
Number of
Shares
1,235
$
257
(227)
(57)
1,208
511
$
$
$
2015
Weighted-
average
Exercise
Price
31.00
30.61
19.42
44.49
32.45
27.39
39.69
3.7
The Company's stock option plan was approved by the shareholders of the Company on December 31, 1986. The plan was
amended in 2002 to conform to the Toronto Stock Exchange's Revised Policy on Listed Company Share Incentive
Arrangements. During 2010, the Company approved an amendment to the Employee Stock Option Plan to provide stock
appreciation rights that allow cash settlement of vested stock options, at the Company’s discretion. No options were settled
in cash in 2016 or 2015.
As at December 31, 2016, the maximum number of options on common shares that could be issued was 10,670,396,
representing approximately 15.25% of the aggregate number of common shares. The exercise price of the options is fixed by
the Board at the time of issuance at the market price of such shares, subject to all applicable regulatory requirements. The
exercise period of any option is limited to a period of five and seven years from the date of grant of the option. The period
within which an option or portion thereof may be exercised by a participant is determined in each case by the Board. Stock
options that are currently issued and outstanding vest at a rate of 25% per year over four years on the condition that set
earnings per share targets are achieved for each year as established by the Board at the time of the grant.
100
As at December 31, 2016, the weighted-average exercise prices for stock options outstanding to acquire common shares
ranged from $23.84 to $46.95. The weighted-average range of exercise prices for stock options outstanding and exercisable
are presented below along with the number of options outstanding and exercisable and the weighted-average contractual life
remaining.
Stock options outstanding
As at December 31, 2016
Stock options exercisable
Weighted-average
Number
Contractual Life
Weighted-
average
Number
Weighted-
average
Outstanding
Remaining in Years
Exercise Price
Exercisable
Exercise Price
Range of exercise prices
$20.01 - $25.00
$25.01 - $30.00
$30.01 - $35.00
$35.01 - $40.00
$40.01 - $45.01
Over $45.01
280,250
343,136
88,500
155,000
27,000
180,534
1.2
$
3.4
3.9
3.9
3.2
3.0
1,074,420
2.9
$
23.84
28.76
31.91
39.65
43.07
46.95
32.73
264,750
$
115,500
26,250
115,750
7,250
57,286
586,786
$
23.88
29.06
32.01
39.65
43.05
46.92
30.86
The Company determines the fair value of options granted using a Black-Scholes option pricing model. The weighted-
average fair value of the options granted during the year was $5.76 (2015 - $4.82).
The following assumptions were used to determine the fair value of each of the following option grants on the date of grant:
Canadian dollars, except % and years
Fair value of options granted
Share price
Exercise price
Expected share price volatility
Expected period until exercise in years 1
Forfeiture rate
Expected dividend yield
Risk-free rate of return
1Exercisable upon vesting.
May
December
September
2016
2015
2015
August
2015
5.76 $
4.55 $
5.26 $
3.94 $
February
2015
6.38
31.95 $
26.83 $
32.30 $
27.50 $
43.08
31.95 $
28.84 $
31.76 $
25.98 $
43.09
$
$
$
30.8%
28.4%
27.9%
27.3%
3.8
5.0%
2.95%
0.64%
3.8
5.0%
3.28%
0.60%
3.8
5.0%
2.72%
0.68%
3.8
5.0%
3.20%
0.59%
23.5%
3.8
5.0%
0.80%
0.54%
The above assumptions for expected volatility were determined on the basis of historical volatility.
During Q2 2014, the Company amended its Employee Stock Option Plan to allow options to be exercised, as they vest, at a
rate of 25% each year. Previously, stock options could not be exercised until the end of the four-year vesting period.
The Company determines the fair value of stock options on the grant date and records this amount as compensation expense
over the period that the stock options vest, with a corresponding increase to contributed surplus (2016 - $1.1 million; 2015 -
$1.6 million). When these stock options are exercised, the Company records the amount of proceeds, together with the
amount recorded in contributed surplus, in capital stock (2016 - $1.5 million; 2015 - $4.4 million).
101
(D) Deferred Share Units (DSUs)
The Company grants DSUs to Directors of the Company. Under the plan, the Directors may elect annually to accept
remuneration in the form of cash, cash and DSUs or DSUs prior to the beginning of the year. DSUs earn dividend equivalents
in the form of additional DSUs at the same rate as dividends on common shares. The participant is not allowed to settle the
DSUs until retirement or termination of directorship. The cash value of the DSUs is equivalent to the market value of
common shares when settlement takes place. The fair value of the DSU liability as at December 31, 2016 was $3.5 million
(2015 – $2.1 million). As of December 31, 2016, there were 103,368 DSUs outstanding (2015 – 72,691).
(E) Restricted Share Units (RSUs)
The Company grants RSUs to certain key members of management. The RSUs generally vest over three years and the
vested amount is settled on the vesting date. RSUs earn dividend equivalents in the form of additional RSUs at the same
rate as dividends on common shares. The cash value of the RSUs is equivalent to the market value of common shares on
the vesting date. The fair value of the RSU liability as at December 31, 2016 was $443 thousand (2015 – $389 thousand).
As of December 31, 2016, there were 34,794 RSUs outstanding (2015 – 69,105 RSUs outstanding).
(F) Performance Share Units (PSUs)
The Company grants PSUs to certain key members of management. The PSUs vest after three years on the condition that
certain performance criteria are met. The vested amount is settled on the vesting date. PSUs earn dividend equivalents in
the form of additional PSUs at the same rate as dividends on common shares. The cash value of the PSUs is equivalent to
the market value of common shares on the vesting date multiplied by a performance factor ranging from 0% to 200%. The
fair value of the PSU liability as at December 31, 2016 was $2.0 million and there were 87,787 PSUs outstanding (2015 -
$1.3 million and 131,799 PSUs outstanding).
(G) Share-based Compensation Expense
The expense recognized in the consolidated statements of income in relation to share-based compensation was as follows:
thousands of Canadian dollars
Expense arising from equity-settled share-based payment transactions
DSUs, RSUs and PSUs (representing all expenses arising from cash-settled share-based payment transactions)
2016
2015
$
$
1,127 $
1,581
2,328
3,455 $
(738)
843
102
16. ACCUMULATED OTHER COMPREHENSIVE INCOME
thousands of Canadian dollars
Unrealized losses on
Available for sale securities and retained interests
Income tax recovery
Unrealized losses on
Cash flow hedges
Income tax recovery
Accumulated other comprehensive loss
17. INCOME TAXES
(A) Reconciliation of Income Taxes
December 31
December 31
2016
2015
$
(72,953)
$
(19,364)
(53,589)
(85,009)
(22,543)
(62,466)
(2,005)
(529)
(1,476)
(4,187)
(1,109)
(3,078)
$
(55,065)
$
(65,544)
The combined federal and provincial income tax rate varies each year depending on changes in the statutory tax rate
imposed by the federal and provincial governments. The effective rate of income tax in the consolidated statements of
income is different from the combined federal and provincial income tax rate of 26.50% (2015 – 26.51%) due to various
permanent differences.
thousands of Canadian dollars
Income before income taxes
Income taxes at statutory combined federal and provincial income tax rates
Increase (decrease) in income taxes at statutory income tax rates resulting from
Tax-exempt income
Non-deductible expenses
Scientific research and experimental development investment tax credits
Other
Income tax
(B) Reconciliation of Income Tax Rates
Statutory income tax rate
Increase (reduction) in income tax rate resulting from
Tax-exempt income
Non-deductible expenses
Scientific research and experimental development investment tax credits
Other
Effective income tax rate
2016
2015
$
$
335,130
88,810
$
$
385,277
102,148
(2,683)
2,867
(1,516)
256
(2,816)
465
(1,837)
32
$
87,734
$
97,992
2016
26.50%
(0.80)%
0.86%
(0.45)%
0.07%
26.18%
2015
26.51%
(0.73)%
0.12%
(0.48)%
0.01%
25.43%
103
(C) Sources of Deferred Tax Balances
thousands of Canadian dollars
Deferred tax liabilities
Commissions
Finders' fees, net of commitment fees
Securitization transaction costs
Swaps
Development costs
Other
Deferred tax assets
Allowance for credit losses
Loss carryforwards
Other
Net deferred tax liability
December 31
December 31
2016
2015
$
8,517 $
2,557
3,160
1,123
29,916
633
45,906
9,046
15,920
1,570
26,536
$
19,370 $
9,110
3,281
1,820
2,851
29,880
344
47,286
8,464
15,043
1,248
24,755
22,531
Certain deferred tax assets presented in the table above are netted against the deferred tax liability presented on the
consolidated balance sheets based on the right to offset taxes owing to the tax authorities.
Capital losses totalling $2.7 million are available to reduce capital gains in future years. The future tax benefits arising from
application of these losses have not been reflected in the consolidated statements of income and changes in shareholders’
equity.
As of December 31, 2016, Home Bank had $59.7 million in non-capital losses, which may be used to reduce future taxable
income. These losses begin to expire after 2029. The Company plans to be able to generate sufficient income to utilize the
losses recognized as a deferred tax asset.
During the year, the Company recognized Scientific Research and Experimental Development investment tax credits related
to the development of its internally generated software. The investment tax credits are recorded as a reduction of tax
provisions, net of any tax that would be eligible on such benefit.
18. COMMITMENTS AND CONTINGENCIES
(A) Lease Commitments
The Company has entered into commercial leases on premises and property, as well as certain computer hardware and
software leases. There are no restrictions imposed by lease arrangements. Future minimum lease payments under non-
cancellable operating leases are as follows:
thousands of Canadian dollars
Within one year
After one year but not more than five years
More than five years
December 31
December 31
2016
$
16,923
$
27,869
6,471
2015
18,846
36,488
11,220
$
51,263
$
66,554
Lease payments recognized as an expense in the consolidated statements of income amounted to $25.6 million in 2016
(2015 - $26.4 million).
104
(B) Credit Commitments
Outstanding amounts for future advances on mortgage loans amounted to $1.34 billion as at December 31, 2016 (2015 -
$1.14 billion). These amounts include offers made but not yet accepted by the customers as of the reporting date. Also,
included within the outstanding amounts are unutilized non-residential commercial loan advances of $486.6 million at
December 31, 2016 (2015 - $303.9 million). Offers for loans remain open for various periods. The average rate on mortgage
offers is 4.48% (2015 – 4.26%).
The Company also has contractual amounts to extend credit to its clients for its credit card products. The contractual
amounts for these products represent the maximum potential credit risk, assuming that all the contractual amounts are fully
utilized, the clients default and collection efforts are unsuccessful. At December 31, 2016, these contractual amounts in
aggregate were $515.9 million (2015 - $461.3 million), of which $146.3 million (2015 - $118.8 million) had not been drawn
by customers. Outstanding amounts for future advances for the Equityline Visa portfolio were $28.8 million at December 31,
2016 (2015 - $11.6 million).
These amounts in aggregate are not indicative of total future cash requirements. Management does not expect any material
adverse consequence to the Company's financial position to result from these amounts. Secured credit cards have spending
limits restricted by collateral held by the Company.
(C) Directors’ and Officers’ Indemnification
The Company indemnifies Directors and officers, to the extent permitted by law, against certain claims that may be made
against them as a result of their being, or having been, Directors and officers at the request of the Company. The nature of
this indemnification prevents the Company from making a reasonable estimate of the maximum potential amount the
Company could be required to pay to third parties. Management believes that the likelihood that the Company would incur a
significant liability under these indemnifications is remote. The Company has purchased Directors' and officers' liability
insurance.
(D) Contingencies
There were no material contingencies identified by the Company in 2016.
105
19. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swaps and bond forward contracts to hedge exposures related to interest rate risk to
minimize volatility in earnings. Total return swaps are used to hedge the Company’s exposure to changes in its share price
related to its RSU liability. When a hedging derivative functions effectively, gains, losses, revenues or expenses of the
hedging derivative will offset the gains, losses, revenues or expenses of the hedged item. To qualify for hedge accounting
treatment, the hedging relationship is formally designated and documented at its inception. The documentation describes the
particular risk management objective and strategy for the hedge and the specific asset, liability or cash flow being hedged
and how the effectiveness of the hedge is assessed and the ineffectiveness is measured. Changes in the fair value of the
derivative instruments must be highly effective at offsetting either the changes in the fair value of the on-balance sheet asset
or liability being hedged or the changes in the amount of future cash flows.
Fair value represents point-in-time estimates that may change in subsequent reporting periods due to market conditions or
other factors. The fair value of derivatives is determined from swap curves adjusted for credit risks. Swap curves are
obtained directly from market sources or calculated from market prices.
Hedge effectiveness is assessed at the inception of the hedge and on an ongoing basis, retrospectively and prospectively,
over the life of the hedge. Any ineffectiveness in the hedging relationship is recognized immediately through non-interest
income in net realized and unrealized gain or loss on derivatives.
Cash Flow Hedging Relationships
The Company uses bond forward contracts to hedge the exposure to movements in interest rates between the time that the
Company determines that it will likely incur liabilities pursuant to asset securitization and the time the securitization
transaction is complete and the liabilities are incurred. The intent is to use the bond forwards to manage the change in cash
flows of the future interest payments on the anticipated secured borrowings through asset securitization. Changes in the fair
value of the derivative instrument that occur before the liability is incurred are recorded in AOCI. The fair value changes
recorded in AOCI are reclassified into net interest income over the term of the hedged liability.
The Company uses total return swaps to hedge the variability in cash flows associated with forecasted future obligations to
eligible employees on vesting of RSUs attributable to changes in the Company’s stock price.
The following table presents gains or losses related to cash flow hedges included in the Company’s financial results:
thousands of Canadian dollars
Fair value gains (losses) recorded in OCI
Reclassification from OCI to net interest income and securitization income
2016
$
1,035
$
(1,147)
2015
(2,449)
(1,474)
Fair Value Hedging Relationships
The Company uses interest rate swaps to hedge changes in the fair value of fixed-rate assets and liabilities, which are
associated with changes in market interest rates. Fair value hedges include hedges of fixed-rate mortgages and fixed-rate
liabilities, which include deposits, deposit notes, senior debt and securitization liabilities.
The following table presents gains or losses related to fair value hedges included in the Company’s financial results:
thousands of Canadian dollars
Fair value changes recorded on interest rate swaps 1
Fair value changes of hedged items for interest rate risk 2
Hedge ineffectiveness losses recognized in non-interest income 3
1 Unrealized gains and losses on hedging derivatives (interest rate swaps) are recorded as derivative assets or liabilities, as appropriate, on the consolidated balance sheets.
2 Unrealized gains and losses on fixed-rate hedged items for the risk being hedged are recorded as part of the associated fixed-rate asset or liability on the consolidated balance
sheets.
3 Included in fair value hedging ineffectiveness are derivative losses related to senior debt.
(30,794)
21,459
(9,335)
2016
$
$
$
$
(32,534)
(7,797)
2015
24,737
Other Derivative Gains and Losses
From time to time, the Company enters into derivative positions to hedge interest rate risk, and such derivatives are not
designated as hedges for accounting purposes. The changes in fair value of such derivatives flow directly to the consolidated
statements of income. Net realized gains of $528 thousand (2015 - net realized and unrealized losses of $142 thousand)
were recorded in income through net realized and unrealized gain or loss on derivatives.
The Company enters into bond forwards to economically hedge interest rate risk on loans held for securitization. Realized and
unrealized gains or losses on these derivatives are included in securitization income on the consolidated statements of
income. Please see Note 6 for more information.
106
As at December 31, 2016 and 2015, the outstanding swaps and bond forward contract positions were as follows:
thousands of Canadian dollars
As at December 31, 2016
Term (years)
Swaps designated as accounting hedges
< 1 year
1 to 5 years
Current
Credit
Risk-
Net
Notional Replacement
Cost1
Amount
Equivalent
Amount1
weighted
Balance1
Derivative
Derivative
Fair Market
Asset
Liability
Value
$
298,680 $
1,816 $
1,816 $
363 $
1,816 $
- $
1,816
2,263,045
34,622
45,938
9,187
34,622
(3,366)
31,256
2,561,725
36,438
47,754
9,550
36,438
(3,366)
33,072
Bond forwards designated as accounting hedges 2
1 to 5 years
Bond forwards not designated as accounting hedges 2
1 to 5 years
> 5 years
85,000
677
1,102
85,000
677
1,102
220
220
677
677
(50)
(50)
627
627
72,100
392
9,400
17
81,500
409
752
158
910
506
158
664
392
17
409
(19)
(55)
(74)
373
(38)
335
Total
$ 2,728,225 $
37,524 $
49,766 $
10,434 $
37,524 $
(3,490) $
34,034
thousands of Canadian dollars
As at December 31, 2015
Term (years)
Swaps designated as accounting hedges
< 1 year
1 to 5 years
Swaps not designated as accounting hedges
< 1 year
Current
Credit
Risk-
Net
Notional Replacement
Cost1
Amount
Equivalent
Amount1
weighted
Balance1
Derivative
Derivative
Fair Market
Asset
Liability
Value
$
317,100 $
2,370 $
2,370 $
474 $
2,370 $
- $
2,370
1,889,700
62,332
71,775
14,355
62,332
2,206,800
64,702
74,145
14,829
64,702
-
-
62,332
64,702
50,000
50,000
-
-
-
-
-
-
-
-
(407)
(407)
(407)
(407)
Bond forwards designated as accounting hedges 2
1 to 5 years
Bond forwards not designated as accounting hedges 2
< 1 year
> 5 years
475,000
475,000
91
91
2,466
2,466
493
493
91
(3,226)
(3,135)
91
(3,226)
(3,135)
47,000
122,950
169,950
-
3
3
-
1,848
1,848
-
585
585
-
3
3
(321)
(321)
(1,493)
(1,490)
(1,814)
(1,811)
Total
1 The values are calculated based on the capital adequacy requirements required by OSFI.
2 The term of the bond forward contracts is based on the term of the underlying bonds.
$ 2,901,750 $
64,796 $
78,459 $
15,907 $
64,796 $
(5,447) $
59,349
The notional amount is not recorded as an asset or liability as it represents the face amount of the contract to which the rate
or price is applied in order to calculate the amount of cash exchanged. Notional amounts do not represent the potential gain
or loss associated with market risk and are not indicative of the credit risk associated with the derivatives.
107
20. CURRENT AND NON-CURRENT ASSETS AND LIABILITIES
The following table presents an analysis of each asset and liability line item by amounts, including prepayment assumptions,
expected to be recovered or settled within one year or after one year as at December 31, 2016 and 2015.
thousands of Canadian dollars
As at December 31, 2016
As at December 31, 2015
Within 1 Year
After 1 Year
Total
Within 1 Year
After 1 Year
Total
Assets
Cash and cash equivalents
Available for sale securities
Loans held for sale
Securitized mortgages
$
1,205,394 $
- $
1,205,394 $
1,149,849 $
- $
1,149,849
99,205
435,719
534,924
80,132
373,098
453,230
77,918
-
77,918
135,043
-
135,043
378,962
2,147,842
2,526,804
962,649
1,711,826
2,674,475
Non-securitized mortgages and loans
10,780,371
4,650,224
15,430,595
11,389,911
4,069,279
15,459,190
Collective allowance for credit losses
(24,708)
(12,355)
(37,063)
(24,166)
(12,083)
(36,249)
Restricted assets
Derivative assets
Other assets
Deferred tax assets
Goodwill and intangible assets
Total assets
Liabilities
177,879
87,495
265,374
195,921
-
195,921
1,816
35,708
37,524
2,370
62,426
64,796
227,672
120,966
348,638
191,862
95,555
287,417
-
-
16,914
16,914
121,755
121,755
-
-
15,043
15,043
128,347
128,347
$ 12,924,509 $
7,604,268 $ 20,528,777 $
14,083,571 $
6,443,491 $
20,527,062
Deposits payable on demand
$
2,531,803 $
- $
2,531,803 $
1,986,136 $
- $
1,986,136
Deposits payable on a fixed date
6,935,574
6,418,653
13,354,227
7,236,932
6,442,890
13,679,822
Senior debt
-
-
-
151,480
-
151,480
CMHC-sponsored mortgage-backed security liabilities
156,979
741,407
898,386
58,829
472,497
531,326
CMHC-sponsored Canada Mortgage Bond liabilities
162,677
1,474,440
1,637,117
1,104,177
1,145,053
2,249,230
Bank-sponsored securitization conduit liabilities
12,556
101,590
114,146
-
-
-
Derivative liabilities
Other liabilities
Deferred tax liabilities
Total liabilities
-
3,490
3,490
728
4,719
5,447
315,559
20,573
336,132
249,707
15,234
264,941
-
36,284
36,284
-
37,574
37,574
$ 10,115,148 $
8,796,437 $ 18,911,585 $
10,787,989 $
8,117,967 $
18,905,956
Net
$
2,809,361 $ (1,192,169) $
1,617,192 $
3,295,582 $
(1,674,476) $
1,621,106
108
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts set out in the following tables represent the fair values of the Company's financial instruments. The valuation
methods and assumptions are described below.
The estimated fair value amounts approximate the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants that are under no compulsion to act at the consolidated balance sheet
date in the principal or most advantageous market that is accessible to the Company. For financial instruments carried at
fair value that lack an active market, the Company applies present value and valuation techniques that use, to the greatest
extent possible, observable market inputs. Because of the estimation process and the need to use judgement, the aggregate
fair value amounts should not be interpreted as being necessarily realizable in an immediate settlement of the instruments.
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
Level 1: Significant inputs are quoted (unadjusted) prices in active markets for identical assets or liabilities. This level
includes cash and cash equivalents, equity securities traded on the Toronto Stock Exchange and quoted corporate and
government-backed debt instruments.
Level 2: Significant inputs are observable for the asset or liability, either directly or indirectly and are not quoted prices
included within Level 1. This level includes loans held for sale, interest rate swaps, total return swaps, bond forwards, certain
corporate debt instruments and senior debt.
Level 3: Significant inputs are unobservable for the asset or liability. This level includes retained interest, certain corporate
debt instruments, securitized and non-securitized mortgages and loans, securitization receivables and liabilities, other assets
and liabilities, and deposits.
The following table presents the fair value of financial instruments across the levels of the fair value hierarchy.
thousands of Canadian dollars
As at December 31, 2016
Level 1
Level 2
Level 3
Fair Value
Carrying Value
Financial assets held for trading
Cash and cash equivalents
Loans held for sale
Derivative assets
Restricted assets
Total financial assets held for trading
Financial assets available for sale
Debt securities
Equity securities
Restricted assets
Retained interest owned
$ 1,205,394 $
- $
- $
1,205,394 $
1,205,394
-
-
143,296
77,918
37,524
-
1,348,690
115,442
337,244
193,350
-
-
81,530
40,548
-
-
-
-
-
-
77,918
37,524
77,918
37,524
143,296
143,296
1,464,132
1,464,132
4,330
-
-
107,953
112,283
341,574
193,350
122,078
107,953
764,955
341,574
193,350
122,078
107,953
764,955
Total financial assets available for sale
612,124
40,548
Loans and receivables
Securitized mortgages
Non-securitized mortgages and loans
Securitization receivables
Other
Total loans and receivables
Total
Financial liabilities at amortized cost
Deposits
Securitization liabilities
Other
Total financial liabilities carried at amortized cost
Financial liabilities at fair value
Derivative liabilities
Total
-
-
-
-
-
-
-
-
-
-
2,545,281
2,545,281
2,526,804
15,490,078
15,490,078
15,393,532
105,359
105,359
105,359
89,222
89,222
89,222
18,229,940
18,229,940
18,114,917
$ 1,960,814 $
155,990 $ 18,342,223 $ 20,459,027 $ 20,344,004
$
- $
- $ 16,096,097 $ 16,096,097 $ 15,886,030
-
-
-
-
-
-
-
2,697,463
2,697,463
2,649,649
336,132
336,132
336,132
19,129,692
19,129,692
18,871,811
3,490
-
3,490
3,490
$
- $
3,490 $ 19,129,692 $ 19,133,182 $ 18,875,301
109
thousands of Canadian dollars
Financial assets held for trading
Level 1
Level 2
Level 3
Fair Value
Carrying Value
As at December 31, 2015
Cash and cash equivalents
$
1,149,849 $
- $
- $
1,149,849 $
1,149,849
Loans held for sale
Derivative assets
Restricted assets
-
-
139,046
135,043
64,796
-
Total financial assets held for trading
1,288,895
199,839
Financial assets available for sale
Debt securities
Equity securities
Restricted assets
Retained interest owned
Total financial assets available for sale
Loans and receivables
Securitized mortgages
Non-securitized mortgages and loans
Securitization receivables
Other
Total loans and receivables
Total
Financial liabilities at amortized cost
Deposits
Senior debt
Securitization liabilities
Other
Total financial liabilities at amortized cost
Financial liabilities at fair value
Derivative liabilities
Total
-
-
-
-
135,043
64,796
139,046
135,043
64,796
139,046
1,488,734
1,488,734
9,339
-
-
81,087
90,426
262,524
190,706
56,875
81,087
262,524
190,706
56,875
81,087
591,192
591,192
2,734,862
2,734,862
2,674,475
15,485,471
15,485,471
15,422,941
61,156
103,029
61,156
103,029
61,156
103,029
18,384,518
18,384,518
18,261,601
253,185
190,706
56,875
-
500,766
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
1,789,661 $
199,839 $
18,474,944 $
20,464,444 $
20,341,527
$
$
- $
-
-
-
-
-
- $
- $
15,807,316 $
15,807,316 $
15,665,958
151,402
-
151,402
151,480
-
-
2,868,419
2,868,419
2,780,556
264,941
264,941
264,941
151,402
18,940,676
19,092,078
18,862,935
5,447
156,849 $
-
18,940,676 $
5,447
5,447
19,097,525 $
18,868,382
The Company did not transfer any financial instrument from Level 1 or Level 2 to Level 3 of the fair value hierarchy during
the years ended December 31, 2016 or December 31, 2015.
The following methods and assumptions were used to estimate the fair values of financial instruments:
The fair value of cash and cash equivalents, restricted cash (included in restricted assets), other assets and other
liabilities approximate their carrying values due to their short-term nature.
Available for sale securities are valued based on the quoted bid price. Third-party MBS are fair valued using average
dealer quoted prices. The fair value of the acquired residual interests of underlying securitized insured fixed-rate
residential mortgages is calculated by modelling the future net cash flows. The cash flows are calculated as the
difference between the expected cash flow from the underlying mortgages and payment to NHA MBS holders,
discounted at the appropriate rate of return.
Fair value of loans held for sale, all of which are insured, is determined by discounting the expected future cash flows of
the loans at current market rates imputed by the realized sale of loans with similar terms.
The fair value of the retained interest is determined by discounting the expected future cash flows using the current
MBS spread over Government of Canada Bonds imputed from recent sale transactions.
The fair value of securitization receivables is determined by discounting the expected future cash flows using current
interest rate swap rates.
Restricted assets include both securities valued based on quoted bid prices and securities where fair value is determined
using average dealer quoted prices.
Securitized and non-securitized mortgages and loans are carried at amortized cost in the financial statements. For fair
value disclosures, the fair value is estimated by discounting the expected future cash flows of the loans, adjusting for
credit risk and prepayment assumptions at current market rates for offered loans with similar terms.
Fair value of derivative financial instruments is calculated as described in Note 19.
110
Retail deposits are not transferable by the deposit holders. In the absence of such transfer transactions, fair value of
deposits is determined by discounting the expected future cash flows of the deposits at offered rates for deposits with
similar terms. The fair value of the institutional deposit notes is determined using current rates of Government of
Canada Bonds, plus a spread. The rates reflect the credit risks of similar instruments.
Fair value of securitization liabilities is determined using their correspondent current market rates including market rates
for MBS, CMB and interest rate swap curve.
Fair value of the senior debt was determined using current market rates of Government of Canada Bonds, plus a spread.
The rates reflected the credit risks of similar instruments.
22. RELATED PARTY TRANSACTIONS
IFRS considers key management personnel to be related parties. Key management personnel are those persons having
authority and responsibility for planning, directing, and controlling the activities of the Company, directly or indirectly. The
Company considers certain of its officers and Directors to be key management personnel. Compensation of key management
personnel of the Company is as follows:
thousands of Canadian dollars
Short-term employee benefits 1
Share-based payment 2
Other long-term benefits 3
$
$
2016
8,580 $
216
324
2015
8,930
2,987
350
9,120 $
12,267
1 Short-term employee benefits include salary, benefits and accrued cash bonuses for officers and fees for non-executive Directors including fees elected to be received in the
form of DSUs.
2 Share-based payment includes fair value of stock options, RSUs and PSUs granted during the year to officers.
3 Other long-term benefits include the Company’s contribution to officers’ Employee Share Purchase Plan and Employee Retirement Savings Plan and other long-term benefits.
In the normal course of business, the Company refers borrowers who require loans at a higher loan-to-value ratio than the
Company will provide to second mortgage lenders. All referrals are conducted at arm’s length and at market terms. Second
mortgage lenders independently underwrite all second mortgages with the borrowers. One of the second mortgage lenders is
related to the Company through a close family relationship with a member of the Company’s key management personnel.
The amount of second mortgages referred to this lender during the years ended December 31, 2016 and 2015 is not
significant.
23. BUSINESS ACQUISITION
On October 1, 2015, the Company completed the acquisition of 100% of the issued and outstanding common shares of CFF
Bank through its wholly owned subsidiary, Home Trust, for cash consideration of $23.2 million. Upon acquisition, the
Company acquired assets of $251.8 million and $1.49 billion of loans that are accounted for off-balance sheet, and assumed
liabilities of $228.2 million. On August 22, 2016, CFF Bank changed its name to Home Bank. Home Bank is a Schedule 1
Bank under the Bank Act (Canada).
The excess fair value of net assets acquired over the purchase consideration resulted in a gain on acquisition recognized in
the consolidated statements of income. The gain primarily represented the fair value of deferred tax assets in the amount of
$13.5 million. A gain of $2.1 million was recognized in 2015 and an additional gain of $651 thousand was recognized in
2016, reflecting final adjustments.
24. RISK MANAGEMENT
The Company is exposed to various types of risk owing to the nature of the business activities it carries on. Types of risk to
which the Company is subject include strategic, credit, market, funding and liquidity, operational, compliance, capital
adequacy and reputational risk. The Company has adopted enterprise risk management (ERM) as a discipline for managing
risk. The Company’s ERM structure is supported by a governance framework that includes policies, management standards,
guidelines, procedures and limits appropriate to each business activity. The policies are reviewed and approved annually by
the Board of Directors.
A description of the Company’s risk management policies and procedures is included in the shaded text of the Risk
Management section of the Management’s Discussion and Analysis included in this report. Significant exposures to credit and
liquidity risks are described in Notes 4, 5 and 19.
111
CORPORATE DIRECTORY & SHAREHOLDER INFORMATION
HOME CAPITAL GROUP INC.
145 King Street West,
Suite 2300
Toronto, Ontario M5H 1J8
Officers
Martin Reid
President and Chief Executive Officer
Greg Parker
Chief Risk Officer
and Executive Vice President
Auditors
Ernst & Young LLP
Chartered Accountants
Toronto, Ontario
Robert Morton, CPA, CMA
Chief Financial Officer
and Executive Vice President
Chris Whyte
Chief Operating Officer and
Executive Vice President
Pino Decina
Executive Vice President,
Residential Mortgage
Lending
John R. K. Harry
Executive Vice President,
Commercial Mortgage Lending
Chris Ahlvik, LL.B.
Executive Vice President,
Corporate Counsel
Directors
Kevin P.D. Smith
Chairman of the Board
Jacqueline E. Beaurivage
Robert J. Blowes
Brenda J. Eprile
William Falk
Halifax
1949 Upper Water Street,
Suite 101
Halifax, Nova Scotia B3J 3N3
Tel: (902) 422-4387
1-888-306-2421
Fax: (902) 422-8891
1-888-306-2435
Montreal
2020 Boulevard Robert-Bourassa
Suite 2420
Montreal, Quebec H3A 2A5
Tel: (514) 843-0129
1-866-542-0129
Fax: (514) 843-7620
1-866-620-7620
Winnipeg
201 Portage Avenue
Suite 830
Winnipeg, Manitoba R3B 3K6
Tel: (204) 220-3400
Fax: (204) 942-1638
Dinah Henderson
Executive Vice President,
Operations
Principal Bankers
Bank of Montreal
Bank of Nova Scotia
Transfer Agent
Computershare Investor
Services Inc.
100 University Avenue
Toronto, Ontario M5J 2Y1
Tel: 1-800-564-6253
Capital Stock
As at December 31, 2016 there
were 64,387,519 Common
Shares outstanding.
Stock Listing
Toronto Stock Exchange,
Ticker Symbol: HCG
Options Listing
Montreal Stock Exchange,
Ticker Symbol: HCG
Hon. William G. Davis
P.C., C.C., Q.C.
Chairman Emeritus
Investor Information Service
Home Capital Group Inc. has
established an e-mail investor
information service. Sign up at
www.homecapital.com to receive
quarterly reports, press releases,
the annual report, the
management information
circular, and other information
pertaining to the Company.
Benjy Katchen
Executive Vice President,
Deposits and Consumer Lending
John Hong
Senior Vice President,
Chief Compliance Officer
and Chief Anti-Money Laundering
Officer
Anthony Stilo, FCPA, FCGA
Senior Vice President,
Internal Audit
James E. Keohane
John M.E. Marsh
Robert A. Mitchell, CPA, CA
Martin Reid
Gerald M. Soloway
Bonita Then
William J. Walker
For Shareholder
Information,
Please Contact:
Chris Ahlvik
Executive Vice President,
Corporate Counsel
Home Capital Group Inc.
145 King Street West,
Suite 2300
Toronto, Ontario M5H 1J8
Tel: (416) 360-4663
Fax: (416) 363-7611
Websites
Home Capital Group Inc.
www.homecapital.com
Home Trust Company
www.hometrust.ca
Quarterly Conference Call
and Webcast
Our quarterly conference call and live
audio webcast with management took
place on Thursday, February 9, 2016
at 8:00 AM ET. The webcast will be
archived at www.homecapital.com for
90 days.
Directors
Kevin P.D. Smith
Chairman of the Board
Jacqueline E. Beaurivage
Robert J. Blowes
Brenda J. Eprile
William Falk
James E. Keohane
John M.E. Marsh
Robert A. Mitchell, CPA, CA
Martin Reid
Gerald M. Soloway
Bonita Then
William J. Walker
William A. Dimma
Chairman Emeritus
HOME TRUST COMPANY
145 King Street West,
Suite 2300
Toronto, Ontario M5H 1J8
BRANCHES
Toronto
145 King Street West,
Suite 2300
Toronto, Ontario M5H IJ8
Tel: (416) 360-4663
1-800-990-7881
Fax: (416) 363-7611
1-888-470-2092
Calgary
517-10th Avenue SW
Calgary, Alberta T2R 0A8
Tel: (403) 244-2432
1-866-235-3081
Fax: (403) 244-6542
1-866-544-3081
Vancouver
200 Granville Street,
Suite 1288
Vancouver, B.C. V6C 1S4
Tel: (604) 484-4663
1-866-235-3080
Fax: (604) 484-4664
1-866-564-3524
112