Home Capital Reports Third Quarter 2022 Results

Double-digit loan growth and consistently high credit quality

TORONTO--(BUSINESS WIRE)--Home Capital Group Inc. (“Home Capital” or “the Company”) (TSX: HCG) today reported financial results for the three and nine months ended September 30, 2022. This press release should be read in conjunction with the Company’s 2022 Third 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.

“The housing market is currently in a period of transition as buyers and sellers adjust to a higher interest rate environment,” said Yousry Bissada, President and Chief Executive Officer. “Our emphasis on prudent underwriting has kept the quality of our mortgage loan book consistently high. We have a strong balance sheet and a proven emphasis on risk management that will help us ensure that we remain resilient.”

Net Income: Diluted earnings per share of $0.77 in Q3 2022 compared with $1.08 in Q3 2021

• Net income of $31.0 million or $0.77 diluted earnings per share in Q3 2022, a decrease of 20.6% from $0.97 per share in Q2 2022 and a decrease of 28.7% from $1.08 per share in Q3 2021.
• Adjusted net income of $38.0 million or $0.95 diluted earnings per share in Q3 2022, a decrease of 3.1% from $0.98 per share in Q2 2022 and a decrease of 13.6% from $1.10 per share in Q3 2021. Results are adjusted for items of note related to implementing our Ignite Program. Adjusted results, measures and ratios are non-GAAP financial measures. Please see the Adjusted Results section below.
• Net interest margin of 1.92% in Q3 2022, compared with 1.97% in Q2 2022 and 2.58% in Q3 2021.
• Non-interest expenses of $72.1 million in Q3 2022, compared with $60.9 million in Q2 2022 and $64.6 million in Q3 2021.

Asset Growth: Mortgage originations decreased 23.4% over Q3 2021

• Mortgage originations of $1.85 billion in Q3 2022, compared with $3.04 billion in Q2 2022 and $2.41 billion in Q3 2021.
• Single-family mortgage originations of $1.44 billion in Q3 2022, compared with $2.27 billion in Q2 2022 and $2.01 billion in Q3 2021.
• Total loan portfolio of $20.59 billion at the end of Q3 2022, a decrease of 0.03% from the end of Q2 2022 and an increase of 17.3% from the end of Q3 2021.
• Loans under administration of $26.80 billion at the end of Q3 2022, up 0.4% from the end of Q2 2022 and 14.8% from the end of Q3 2021.

Funding: Deposits through our Oaken channel of $4.80 billion make up 30.9% of total deposits

• Total deposits of $15.52 billion at the end of Q3 2022, compared with $15.02 billion at the end of Q2 2022 and $13.71 billion at the end of Q3 2021.
• Total Oaken deposits of $4.80 billion at the end of Q3 2022, an increase of 3.4% from the end of Q2 2022 and 12.8% from the end of Q3 2021.
• Oaken’s share of total deposits was 30.9% at the end of Q3 2022, compared with 30.9% at the end of Q2 2022 and 31.0% at the end of Q3 2021.

Credit Quality: Provision for credit losses of $4.4 million compared to a provision reversal of $3.8 million in Q3 2021

• Total provision for credit losses (“PCL”) of $4.4 million in Q3 2022, compared with $4.7 million in Q2 2022 and a reversal of provision for credit losses of $3.8 million in Q3 2021.
• Allowance for credit losses of 0.21% of gross loans at the end of Q3 2022, compared with 0.19% at the end of Q2 2022 and 0.20% at the end of Q3 2021.
• Net write-offs as a percentage of gross loans on an annualized basis were 0.01% in Q3 2022, unchanged from Q2 2022 and Q3 2021.
• Net non-performing loans (represented by Stage 3 loans under IFRS 9) as a percentage of gross loans at 0.16% at the end of Q3 2022, compared with 0.14% at the end of Q2 2022 and 0.15% at the end of Q3 2021.

Outlook

“We expect softer market conditions to persist in the near term,” said Mr. Bissada. “We continue to believe we are in a great business and that the demand for home ownership is an enduring driver of the Canadian economy. By maintaining our focus on providing great service to our customers and partners through all market conditions, we will continue to manage our company with the objective of delivering value over the long term.”

Third Quarter 2022 Results Conference Call and Webcast

The conference call and webcast will take place on Tuesday, November 8, 2022, at 8:00 a.m. ET. Participants may register in advance 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						For the nine months ended
(000s, except Percentage and Per Share Amounts)	September 30		June 30		September 30		September 30		September 30
		2022		2022		2021		2022		2021
INCOME STATEMENT HIGHLIGHTS^1
Net Interest Income	$	106,967	$	107,311	$	123,078	$	327,252	$	372,756
Net Interest Margin		1.92%		1.97%		2.58%		2.02%		2.60%
Efficiency Ratio		60.8%		50.3%		47.3%		54.2%		45.1%
Adjusted Efficiency Ratio^2		52.7%		49.7%		46.1%		51.2%		43.9%
Provision as a Percentage of Gross Loans (annualized)		0.08%		0.09%		(0.09)%		0.06%		(0.26)%
Net Write-Offs as a Percentage of Gross Loans (annualized)		0.01%		0.01%		0.01%		0.01%		0.00%
Net Income	$	30,970	$	41,251	$	54,811	$	116,939	$	192,070
Adjusted Net Income^2	$	38,012	$	41,848	$	56,002	$	124,885	$	195,582
Diluted Earnings per Share	$	0.77	$	0.97	$	1.08	$	2.77	$	3.74
Adjusted Diluted Earnings per Share^2	$	0.95	$	0.98	$	1.10	$	2.96	$	3.80
Return on Shareholders' Equity (annualized)		8.0%		10.4%		12.2%		10.1%		14.7%
Adjusted Return on Shareholders' Equity (annualized)^2		9.8%		10.6%		12.5%		10.7%		14.9%
ORIGINATIONS^1
Total Mortgage Originations	$	1,845,608	$	3,041,115	$	2,407,892	$	7,647,542	$	6,138,416
Single-Family Residential Mortgage Originations		1,443,748		2,271,044		2,011,408		6,012,687		5,179,993
						As at
	September 30			June 30		September 30
		2022		2022		2021
BALANCE SHEET HIGHLIGHTS^1
Total Assets	$	22,297,404	$	22,186,555	$	18,899,321
Total Assets Under Administration^3		28,432,547		28,193,427		24,695,395
Total Loan Portfolio^4		20,592,596		20,598,202		17,548,678
Total Loans Under Administration^3		26,795,576		26,687,669		23,350,913
Deposits		15,519,519		15,017,125		13,713,894
FINANCIAL STRENGTH^1
Capital Measures^5
Common Equity Tier 1 Capital Ratio		15.41%		16.27%		22.57%
Leverage Ratio		6.01%		6.45%		8.97%
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans		0.16%		0.14%		0.15%
NPL Allowance as a Percentage of Gross NPL^6		12.4%		12.5%		22.1%
Share Information
Book Value per Common Share	$	40.32	$	38.72	$	36.40
Dividend paid during the period ended	$	0.15	$	0.15	$	-
Number of Common Shares Outstanding		37,871		40,683		49,862

^1Please see the Glossary in the 2022 Third Quarter Report for additional information on various measures presented in this table.

^2Adjusted results, measures and ratios are non-GAAP financial measures. Please see Adjusted Results in the Financial Performance Review section of the 2022 Third Quarter Report for further information.

^3Total 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.

^4Total loan portfolio is presented gross of allowance for credit losses and excludes loans held for sale.

^5These 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 in the 2022 Third Quarter Report.

Adjusted Results

The Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises. In addition to reported results, management also uses adjusted results to assess its underlying business performance. Adjusted results, measures, and ratios are non-GAAP financial measures. They are not calculated in accordance with GAAP, are not defined by GAAP, and do not have standardized meanings and as a result may not be comparable to similar financial measures disclosed by other companies.

To arrive at adjusted results, items of note are removed from reported results. The items of note for Q3 2022, Q2 2022 and Q3 2021 are adjustments in connection with the Company’s Ignite Program for items which management does not believe are indicative of underlying business performance. Management believes that adjusted measures provide investors with a better understanding of how management assesses underlying business performance and facilitates a more informed analysis of trends.

Please see Adjusted Results in the Financial Performance Review section on page 9 of the Company’s 2022 Third Quarter Report for further information.

Adjusted Net Income

Adjusted net income is a non-GAAP financial measure. Items of note are removed from reported net income in determining adjusted net income. The following table provides a reconciliation of net income calculated in accordance with GAAP to adjusted net income.

	For the three months ended						For the nine months ended
(000s)	September 30		June 30		September 30		September 30		September 30
		2022		2022		2021		2022		2021
Net income	$	30,970	$	41,251	$	54,811	$	116,939	$	192,070
Adjustments for items of note in connection with the Company's
Ignite Program, net of tax
Amortization of intangible assets^1		-		-		820		-		2,460
Impairment charges^2		6,884		-		-		6,884		-
Operating expenses^3		158		597		371		1,062		1,052
Total adjustments for items of note in connection with the
Company's Ignite Program, net of tax		7,042		597		1,191		7,946		3,512
Adjusted net income	$	38,012	$	41,848	$	56,002	$	124,885	$	195,582

^1Amortization of intangible assets relates to incremental amortization resulting from previous changes to useful lives, recognized in other operating expenses in the consolidated statements of income.

^2Impairment charges relate to software development costs that have been written off pertaining to one of the remaining projects under the Ignite Program. Please see the Non-Interest Expense section included in the 2022 Third Quarter Report for more information.

^3Operating expenses relates to elevated operating expenses for the reimplementation of the Company’s core banking system, recognized primarily in other operating expenses in the consolidated statements of income.

Adjusted Efficiency Ratio

Adjusted efficiency ratio is a non-GAAP ratio and is calculated in the same manner as the efficiency ratio, using adjusted pre-tax non-interest expenses instead of pre-tax non-interest expenses calculated in accordance with GAAP. The following table provides a reconciliation of non-interest expenses calculated in accordance with GAAP to adjusted non-interest expenses.

	For the three months ended						For the nine months ended
(000s)	September 30		June 30		September 30		September 30		September 30
		2022		2022		2021		2022		2021
Non-interest expenses	$	72,123	$	60,928	$	64,556	$	198,087	$	187,131
Adjustments for items of note in connection with the Company's
Ignite Program, pre-tax
Amortization of intangible assets^1		-		-		1,114		-		3,342
Impairment charges^2		9,356		-		-		9,356		-
Operating expenses^3		215		811		504		1,444		1,430
Total adjustments for items of note in connection with the
Company's Ignite Program, pre-tax		9,571		811		1,618		10,800		4,772
Adjusted non-interest expenses	$	62,552	$	60,117	$	62,938	$	187,287	$	182,359

^1Amortization of intangible assets relates to incremental amortization resulting from previous changes to useful lives, recognized in other operating expenses in the consolidated statements of income.

^2Impairment charges relate to software development costs that have been written off pertaining to one of the remaining projects under the Ignite Program. Please see the Non-Interest Expense section included in the 2022 Third Quarter Report for more information.

^3Operating expenses relates to elevated operating expenses for the reimplementation of the Company’s core banking system, recognized primarily in other operating expenses in the consolidated statements of income.

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 2022 Third 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 of the 2022 Third Quarter Report. Forward-looking statements are typically identified by words such as “will,” “believe,” “expect,” “anticipate,” “intend,” “should,” “estimate,” “plan,” “forecast,” “may,” and “could” or other similar expressions.

By their very nature, these statements require the Company to make assumptions and are subject to inherent risks and uncertainty, general and specific, which may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These risks and uncertainties include, but are not limited to, the impacts of the 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 2022 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 2022, 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. These assumptions are discussed in greater detail in the 2022 Third Quarter Report.

The current economic uncertainties pertaining to rising interest rates, declining house prices, inflationary pressure and continued economic impacts from the COVID-19 pandemic, such as supply chain challenges from China, significantly impact the assumptions made by management in setting and reviewing the Company’s strategic priorities and outlook. 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 2022 Third Quarter Report for more information on these assumptions. The full extent of the impact that the heightened economic challenges mentioned above will have on the Canadian economy and the Company’s business remains uncertain and difficult to predict. Please see the Outlook and the Risk Management sections in the Management’s Discussion and Analysis included in the 2022 Third Quarter Report for more information.

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 and its wholly owned subsidiary, Home Bank, offer deposits via brokers and financial planners, and through a direct-to-consumer brand, Oaken Financial. Licensed to conduct business across Canada, we have offices in Ontario, Alberta, British Columbia, Nova Scotia, and Quebec.