Home Capital Reports First Quarter 2021 Results

Home Capital reports 138% growth in net income per share

TORONTO--(BUSINESS WIRE)--Home Capital Group Inc. (“Home Capital” or “the Company”) (TSX: HCG) today reported financial results for the three months ended March 31, 2021. This press release should be read in conjunction with the Company’s 2021 First Quarter Report including Financial Statements and Management’s Discussion and Analysis which are available on Home Capital’s website at www.homecapital.com and on SEDAR at www.sedar.com.

“Today, Home Capital is reporting substantial growth in our net income, book value and return on equity,” said Yousry Bissada, President and Chief Executive Officer. “Looking ahead, we believe the conditions are in place for strong execution for the balance of 2021 and we see a lot of opportunity for growth as the outlook for public health and the economy continues to improve.”

Net Income: $1.24 per share in Q1 2021 compared with $0.52 in Q1 2020

• Net income of $64.5 million or $1.24 per share in Q1 2021, an increase of 18.9% from $1.06 per share in Q4 2020 and an increase of 138.5% from $0.52 per share in Q1 2020.

• Adjusted net income of $65.7 million or $1.26 per share in Q1 2021, an increase of 13.5% from $1.11 per share in Q4 2020 and 125.0% from $0.56 per share in Q1 2020. Results are adjusted for items of note related to implementing our Ignite Program.

• Net interest margin of 2.61% in Q1 2021, compared with 2.55% in Q4 2020 and 2.38% in Q1 2020.

• Non-interest expenses of $64.1 million, compared with $71.8 million in Q4 2020 and $59.5 million in Q1 2020.

Asset Growth: Mortgage originations in line with Q1 2020

• Mortgage originations of $1.60 billion in Q1 2021, compared with $1.88 billion in Q4 2020 and $1.62 billion in Q1 2020.

• Single-family mortgage originations of $1.33 billion in Q1 2021, compared with $1.50 billion in Q4 2020 and $1.05 billion in Q1 2020.

• Total loan portfolio of $17.28 billion at the end of Q1 2021, a decrease of 1.1% from the end of Q4 2020 and an increase of 0.9% from the end of Q1 2020.

• Loans under administration of $22.77 billion at the end of Q1 2021, down 0.8% from the end of Q4 2020 and down 1.1% from the end of Q1 2020.

Funding: Deposits through our Oaken channel of $4.06 billion make up 29.5% of total deposits

• Total deposits of $13.77 billion at the end of Q1 2021, compared with $13.93 billion at the end of Q4 2020 and $13.95 billion at the end of Q1 2020.

• Total Oaken deposits of $4.06 billion at the end of Q1 2021, an increase of 2.4% from the end of Q4 2020 and 16.9% from the end of Q1 2020.

• Oaken’s share of total deposits was 29.5% at the end of Q1 2021, compared with 28.5% at the end of Q4 2020 and 24.9% at the end of Q1 2020.

Credit Quality: Release of credit provisions of 0.28% of gross loans compared with 0.18% in Q4 2020

• Release of provision for credit losses (“PCL”) of $12.1 million in Q1 2021 compared with a release of $7.7 million in Q4 2020 and a provision expense for credit losses of $30.2 million in Q1 2020.

• Allowance for credit losses of 0.34% of gross loans, compared with 0.41% at the end of Q4 2020 and 0.53% at the end of Q1 2020.

• Net write-offs as a percentage of gross loans of 0.01% in Q1 2021, compared to net recoveries as a percentage of gross loans of 0.01% in Q4 2020 and net write-offs as a percentage of gross loans of 0.03% in Q1 2020.

• Net non-performing loans (represented by Stage 3 loans under IFRS 9) were 0.38% of gross loans at the end of Q1 2021, compared with 0.57% at the end of Q4 2020 and 0.36% at the end of Q1 2020.

Outlook

Home Capital believes that the impact of COVID-19 on its operations will depend on the duration of COVID-19 related restrictions on economic activity, the effectiveness of relief programs at mitigating the economic effects on our customers and the resulting impact on the markets for real estate and consumer credit. The allowance for expected credit losses (“ECL”) is sensitive to the inputs used in models, including macroeconomic variables in the forward-looking scenarios and their respective probability weightings as at the reporting date, among other factors. The Company’s ECL was determined as of March 31, 2021 based on forecasts and other information available at that date, as IFRS 9 does not permit the use of hindsight in measuring ECL. Since that date, forecasts around the impact of COVID-19 on the economy and the timing of recovery have continued to evolve. Any changes in forward-looking information subsequent to March 31, 2021 will be reflected in the measurement of ECL in future quarters as appropriate. This may add significant volatility to ECL.

“In March of 2020, OSFI announced its expectation that all federally regulated financial institutions halt dividend increases and share buybacks. The Company continues to be focused on its capital base, and for so long as OSFI’s expectations remain unchanged, we expect our capital levels to remain higher than we would otherwise target,” said Mr. Bissada. “Once OSFI modifies or removes its expectations with respect to dividends and share buybacks, the Company intends to consider appropriate mechanisms to optimize its capital levels, including share repurchases and dividends. Balancing business opportunities against returns of capital and subject to prevailing market conditions, we intend to sustainably manage towards a target CET1 range of 14%-15%.”

First Quarter 2021 Results Conference Call and Slide Presentation Webcast

The conference call will take place by webcast on Thursday, May 13, 2021, at 8:00 a.m. EDT. Participants may register in advance for the webcast by visiting this link. The call will also be accessible in listen-only mode on Home Capital’s website at www.homecapital.com in the Investor Relations section of the website. The archived audio webcast will be available for 90 days on Home Capital’s website at www.homecapital.com.

Financial Highlights
	For the three months ended
(000s, except Percentage and Per Share Amounts)	March 31		December 31		March 31
		2021		2020		2020
INCOME STATEMENT HIGHLIGHTS
Net Interest Income	$	125,936	$	123,483	$	114,452
Net Interest Margin (TEB^1)		2.61%		2.55%		2.38%
Efficiency Ratio (TEB^1)		45.9%		51.2%		46.7%
Adjusted Efficiency Ratio (TEB^1)^2		44.7%		48.2%		44.4%
Provision as a Percentage of Gross Loans (annualized)		(0.28)%		(0.18)%		0.70%
Net Write-Offs (Recoveries) as a Percentage of Gross Loans (annualized)		0.01%		(0.01)%		0.03%
Net Income	$	64,503	$	55,343	$	27,716
Adjusted Net Income^2		65,701		58,476		29,876
Diluted Earnings per Share	$	1.24	$	1.06	$	0.52
Adjusted Diluted Earnings per Share^2		1.26		1.11		0.56
Return on Shareholders' Equity (annualized)		15.2%		13.4%		6.9%
Adjusted Return on Shareholders’ Equity (annualized)^2		15.5%		14.2%		7.5%
ORIGINATIONS
Total Mortgage Originations	$	1,600,418	$	1,882,094	$	1,617,212
Single-Family Residential Mortgage Originations		1,327,988		1,495,006		1,049,755
						As at
	March 31			December 31		March 31
		2021		2020		2020
BALANCE SHEET HIGHLIGHTS
Total Assets	$	18,952,048	$	19,356,227	$	19,419,266
Total Assets Under Administration^3		24,447,737		24,834,794		25,066,754
Total Loan Portfolio^4		17,275,610		17,467,453		17,124,597
Total Loans Under Administration^3		22,772,565		22,951,192		23,036,283
Deposits		13,769,162		13,932,812		13,952,347
FINANCIAL STRENGTH
Capital Measures^5
Common Equity Tier 1 Capital Ratio		21.01%		19.82%		17.73%
Leverage Ratio		8.28%		7.79%		7.03%
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans		0.38%		0.57%		0.36%
NPL Allowance as a Percentage of Gross NPL^6		16.5%		15.0%		34.3%
Share Information
Book Value per Common Share	$	33.85	$	32.42	$	29.44
Number of Common Shares Outstanding		50,842		51,841		51,805

¹ See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company’s 2021 First Quarter Report.
² See definition of Adjusted Efficiency Ratio, Adjusted Net Income, Adjusted Diluted Earnings per Share, and Adjusted Return on Shareholders’ Equity under Non-GAAP Measures in the Company’s 2021 First Quarter Report and the Reconciliation of Net Income to Adjusted Net Income in Table 1 of the Company’s 2021 First Quarter Report.
³ Total assets and loans under administration include both on- and off-balance sheet amounts. Total on-balance sheet loans include loans held for sale and are presented gross of allowance for credit losses.
⁴ Total loan portfolio is presented gross of allowance for credit losses and excludes loans held for sale.
⁵ These figures relate to the Company’s operating subsidiary, Home Trust Company.
⁶ NPL indicates non-performing loans, defined as Stage 3 loans under IFRS 9 Financial Instruments. See definition of impaired or non-performing loans under Glossary of Terms in the Company’s 2021 First Quarter Report.

Caution Regarding Forward-Looking Statements

From time to time Home Capital Group Inc. makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are “financial outlooks” within the meaning of National Instrument 51-102. Please see the risk factors, which are set forth in detail in the Risk Management section of the 2021 First Quarter Report, as well as the Company’s other publicly filed information, which is available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company’s actual results to differ materially from these statements. These risk factors are material risk factors a reader should consider, and include credit risk, liquidity and funding risk, structural interest rate risk, operational risk, investment risk, strategic risk, reputational risk, compliance risk and capital adequacy risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook section in the 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 uncertainty, general and specific, which may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These risks and uncertainties include, but are not limited to, the impacts of the novel coronavirus disease (COVID-19) pandemic and government responses to it, global capital market activity, changes in government monetary and economic policies, changes in interest rates, inflation levels and general economic conditions, legislative and regulatory developments, climate change, competition and technological change. The preceding list is not exhaustive of possible factors.

These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements. The Company presents forward-looking statements to assist shareholders in understanding the Company’s assumptions and expectations about the future that are relevant in management’s setting of performance goals, strategic priorities and outlook. The Company presents its outlook to assist shareholders in understanding management’s expectations on how the future will impact the financial performance of the Company. These forward-looking statements may not be appropriate for other purposes. The Company does not undertake to update any forward-looking statements, whether written or verbal, that may be made from time to time by it or on its behalf, except as required by securities laws.

Assumptions about the performance of the Canadian economy in 2021 and its effect on Home Capital’s business are material factors the Company considers when setting strategic priorities and outlook. In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies and other third-party providers. In setting and reviewing its strategic priorities and outlook for 2021, management makes certain assumptions about the Canadian economy, employment conditions, interest rates, levels of housing activity, household debt service levels and the Company’s continued access to broker mortgage and deposit markets.

The global pandemic related to the outbreak of COVID-19 significantly impacts these assumptions. Updated forward-looking macroeconomic assumptions have been incorporated into the models used in the Company’s expected credit loss estimation process. Please see Note 5(C) to the unaudited interim consolidated financial statements included in the Company’s 2021 First Quarter Report for more information on these assumptions. The full extent of the impact that COVID-19, including government and/or regulatory responses to the outbreak, will have on the Canadian economy and the Company’s business remains uncertain and difficult to predict. Please see the Impact of COVID-19, the Outlook and the Risk Management sections in the Management’s Discussion and Analysis included in the 2021 First Quarter Report for more information.

Non-GAAP Measures

The Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises. The Company uses a number of financial measures to assess its performance. Some of these measures are not calculated in accordance with GAAP, are not defined by GAAP, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures. Definitions of non-GAAP measures can be found under Non-GAAP Measures in the Management’s Discussion and Analysis included in the Company’s 2021 First Quarter Report.

Regulatory Filings

The Company’s continuous disclosure materials, including interim filings, annual Management’s Discussion and Analysis and audited consolidated financial statements, Annual Information Form, Notice of Annual Meeting of Shareholders, and Proxy Circular are available on the Company’s website at www.homecapital.com and on the Canadian Securities Administrators’ website at www.sedar.com.

About Home Capital

Home Capital Group Inc. is a public company, traded on the Toronto Stock Exchange (HCG), operating through its principal subsidiary, Home Trust Company. Home Trust is a federally regulated trust company offering residential and non-residential mortgage lending, securitization of residential mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through a direct-to-consumer brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, Home Bank. Licensed to conduct business across Canada, we have offices in Ontario, Alberta, British Columbia, Nova Scotia, and Quebec.