Home Capital Reports Fourth Quarter and Full Year 2022 Results

Solid growth in assets and originations and continued strong credit quality

TORONTO--(BUSINESS WIRE)--Home Capital Group Inc. (“Home Capital” or “the Company”) (TSX: HCG) today reported financial results for the three and twelve months ended December 31, 2022. This press release should be read in conjunction with the Company’s 2022 Annual and Fourth Quarter Consolidated Financial 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.

“Home Capital executed well in a volatile year for the mortgage industry,” stated Yousry Bissada, President and Chief Executive Officer. “In spite of the challenges of rapidly rising interest rates, we delivered 7% growth in originations and 13% growth in total assets. We also substantially completed our Ignite program, issued our first deposit notes since 2015 and returned significant capital to shareholders through share repurchases. I thank the people at Home for their efforts throughout the year and for their dedication to our shared purpose.”

Net Income: Diluted earnings per share of $3.64 in 2022 compared with $4.78 in 2021

• Net income of $150.2 million or $3.64 diluted earnings per share in 2022, compared with $244.7 million or $4.78 per share in 2021. Fourth quarter net income of $33.3 million or $0.86 per share compared with $31.0 million or $0.77 per share in Q3 2022 and $52.7 million or $1.04 per share in Q4 2021.

• Adjusted net income of $161.5 million or $3.91 diluted earnings per share in 2022, compared with $4.87 per share in 2021. Fourth quarter adjusted net income of $36.6 million or $0.95 per share compared with $0.95 per share in Q3 2022 and $1.06 per share in Q4 2021. Results are adjusted for items of note related to implementing our Ignite Program and the SFC Transaction (see Arrangement with Smith Financial Corporation section below). Adjusted results, measures and ratios are non-GAAP financial measures. Please see the Adjusted Results section below.

• Net interest margin of 2.01% in 2022, compared with 2.56% in 2021. Net interest margin of 1.99% in Q4 2022 compared with 1.92% in Q3 2022 and 2.46% in Q4 2021.

• Non-interest expenses of $265.1 million in 2022, compared with $248.8 million in 2021. Fourth quarter non-interest expenses of $67.0 million, compared with $72.1 million in Q3 2022 and $61.7 million in Q4 2021.

Asset Growth: Mortgage originations increased 6.8% over 2021

• Mortgage originations of $9.46 billion in 2022, compared with $8.86 billion in 2021. Mortgage originations of $1.81 billion in Q4 2022, compared with $1.85 billion in Q3 2022 and $2.72 billion in Q4 2021.

• Single-family mortgage originations of $7.35 billion in 2022, compared with $7.45 billion in 2021. Single-family mortgage originations of $1.34 billion in Q4 2022, compared with $1.44 billion in Q3 2022 and compared with $2.27 billion in Q4 2021.

• Total loan portfolio of $21.02 billion at the end of 2022, an increase of 14.0% from the end of 2021 and 2.1% from the end of Q3 2022.

• Loans under administration of $27.25 billion at the end of 2022, up 12.8% from the end of 2021 and up 1.7% from the end of Q3 2022.

Funding: Deposits through our Oaken channel of $4.92 billion make up 30.9% of total deposits

• Total deposits of $15.92 billion at the end of 2022, compared with $14.01 billion at the end of 2021 and $15.52 billion at the end of Q3 2022.

• Total Oaken deposits of $4.92 billion at the end of 2022, an increase of 12.0% from the end of 2021 and 2.5% from the end of Q3 2022.

• Oaken’s share of total deposits was 30.9% at the end of 2022, compared with 31.3% at the end of 2021 and 30.9% at the end of Q3 2022.

Credit Quality: Provisions of 0.09% of gross loans in 2022 compared with a reversal of provision of 0.18% in 2021

• Total provision for credit losses (“PCL”) of $19.4 million in 2022, compared with a reversal of provision of $33.7 million in 2021. Provision expense of $10.4 million in Q4 2022, compared with a provision of $4.4 million in Q3 2022 and a provision of $1.0 million in Q4 2021.

• Allowance for credit losses of 0.26% of gross loans at the end of 2022, compared to 0.20% at the end of 2021 and 0.21% at the end of Q3 2022.

• Net write-offs as a percentage of gross loans were 0.01% in 2022, compared to less than one basis point in 2021. Net write-offs as a percentage of gross loans were 0.01% in Q4 2022, consistent with Q3 2022 and less than one basis point in Q4 2021.

• Net non-performing loans (represented by Stage 3 loans under IFRS 9) as a percentage of gross loans at 0.22% at the end of 2022, compared with 0.13% at the end of 2021 and 0.16% at the end of Q3 2022.

Dividend Declaration

The Board has declared a dividend of $0.15 per common share, payable on March 15, 2023, to shareholders of record at the close of business on February 28, 2023. The dividend is designated as an “eligible” dividend for the purposes of the Income Tax Act (Canada) and any similar provincial legislation.

Outlook

“Last week shareholders voted overwhelmingly in favour of the proposed plan of arrangement between Home Capital Group and Smith Financial Corporation,” said Mr. Bissada. “We thank our shareholders for their support for more than 36 years. The team at Home is looking forward, subject to regulatory approval, to closing our plan of arrangement with Smith Financial Corporation and continuing to build our business and serve our customers.”

Financial Highlights
	For the three months ended						For the year ended
(000s, except Percentage and Per Share Amounts)	December 31		September 30		December 31		December 31		December 31
		2022		2022		2021		2022		2021
INCOME STATEMENT HIGHLIGHTS^1
Net Interest Income	$	112,410	$	106,967	$	120,996	$	439,662	$	493,752
Net Interest Margin		1.99%		1.92%		2.46%		2.01%		2.56%
Efficiency Ratio		53.2%		60.8%		45.9%		53.9%		45.3%
Adjusted Efficiency Ratio^2		49.6%		52.7%		44.8%		50.8%		44.2%
Provision as a Percentage of Gross Loans (annualized)		0.20%		0.08%		0.02%		0.09%		(0.18)%
Net Write-Offs as a Percentage of Gross Loans (annualized)		0.01%		0.01%		0.00%		0.01%		0.00%
Net Income	$	33,289	$	30,970	$	52,664	$	150,228	$	244,734
Adjusted Net Income^2		36,568		38,012		53,748		161,453		249,330
Diluted Earnings per Share	$	0.86	$	0.77	$	1.04	$	3.64	$	4.78
Adjusted Diluted Earnings per Share^2		0.95		0.95		1.06		3.91		4.87
Return on Shareholders’ Equity (annualized)		8.6%		8.0%		12.4%		9.6%		15.1%
Adjusted Return on Shareholders’ Equity (annualized)^2		9.5%		9.8%		12.7%		10.3%		15.3%
ORIGINATIONS^1
Total Mortgage Originations	$	1,811,426	$	1,845,608	$	2,722,079	$	9,458,968	$	8,860,495
Single-Family Residential Mortgage Originations		1,335,758		1,443,748		2,273,322		7,348,445		7,453,315
						As at
	December 31		September 30		December 31
		2022		2022		2021
BALANCE SHEET HIGHLIGHTS^1
Total Assets	$	22,727,106	$	22,297,404	$	20,146,954
Total Assets Under Administration^3		28,958,266		28,432,547		25,802,433
Total Loan Portfolio^4		21,016,174		20,592,596		18,428,802
Total Loans Under Administration^3		27,251,488		26,795,576		24,154,206
Deposits		15,922,468		15,519,519		14,013,372
FINANCIAL STRENGTH^1
Capital Measures^5
Common Equity Tier 1 Capital Ratio		15.31%		15.41%		18.43%
Leverage Ratio		6.05%		6.01%		7.19%
Credit Quality
Net Non-Performing Loans as a Percentage of Gross Loans		0.22%		0.16%		0.13%
NPL Allowance as a Percentage of Gross NPL^6		12.1%		12.4%		22.8%
Share Information
Book Value per Common Share	$	41.05	$	40.32	$	36.55
Number of Common Shares Outstanding		37,883		37,871		42,986
^1Please see the Glossary in the Company’s 2022 Annual and Fourth Quarter Consolidated Financial Report for additional information on various measures presented in this table. ^2Adjusted results, measures and ratios are non-GAAP financial measures. Please see the Adjusted Results section below. ^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. ^6NPL 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 Company’s 2022 Annual and Fourth Quarter Consolidated Financial Report.

Arrangement with Smith Financial Corporation

As previously announced, the Company entered into a definitive agreement on November 20, 2022 (the “Arrangement Agreement”) for its outstanding shares to be acquired by a wholly owned subsidiary of Smith Financial Corporation (“SFC”), a company controlled by Stephen Smith, by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) (the “SFC Transaction”). Please see Business Profile section in the Company’s 2022 Annual and Fourth Quarter Consolidated Financial Report for more information.

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 (IFRS), 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 2022 and 2021 include adjustments in connection with the Company’s Ignite Program for items which management does not believe are indicative of underlying business performance. Items of note for 2022 also include certain costs pertaining to the SFC Transaction which management also believes are not 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 Highlights section on page 8 in the Company's 2022 Annual and Fourth Quarter Consolidated Financial 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 year ended
(000s)	December 31		September 30		December 31		December 31		December 31
		2022		2022		2021		2022		2021
Net income	$	33,289	$	30,970	$	52,664	$	150,228	$	244,734
Adjustments for items of note in connection with the Company's Ignite Program, net of tax
Amortization of intangible assets^1		-		-		819		-		3,279
Impairment charges^2		-		6,884		-		6,884		-
Operating expenes^3		164		158		265		1,226		1,317
Adjustments for items of note in connection with SFC Transaction^4		3,115		-		-		3,115		-
Total adjustments for items of note, net of tax		3,279		7,042		1,084		11,225		4,596
Adjusted net income	$	36,568	$	38,012	$	53,748	$	161,453	$	249,330
^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. ^2 Impairment charges relate to software development costs that have been written off pertaining to one of the remaining projects under the Ignite Program. Please see Non-Interest Expenses section in the Company’s 2022 Annual and Fourth Quarter Consolidated Financial Report for more information. ^3 Operating 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. ^4 Items of note in connection with the SFC Transaction comprise transaction costs payable to financial advisors, legal firms and other professional service providers.

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 year ended
(000s)	December 31		September 30		December 31		December 31		December 31
		2022		2022		2021		2022		2021
Non-interest expenses	$	67,035	$	72,123	$	61,701	$	265,122	$	248,832
Adjustments for items of note in connection with the Company's Ignite Program, pre-tax
Amortization of intangible assets^1		-		-		1,114		-		4,457
Impairment charges^2		-		9,356		-		9,356		-
Operating expenes^3		222		215		361		1,666		1,791
Adjustments for items of note in connection with the SFC Transaction^4		4,234		-		-		4,234		-
Total adjustments for items of note, pre-tax		4,456		9,571		1,475		15,256		6,248
Adjusted non-interest expenses	$	62,579	$	62,552	$	60,226	$	249,866	$	242,584
^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. ^2 Impairment charges relate to software development costs that have been written off pertaining to one of the remaining projects under the Ignite Program. Please see Non-Interest Expenses section in the Company’s 2022 Annual and Fourth Quarter Consolidated Financial Report for more information. ^3 Operating 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. ^4Items of note in connection with the SFC Transaction comprise transaction costs payable to financial advisors, legal firms and other professional service providers.

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 and the SFC Transaction. 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 Annual and Fourth Quarter Consolidated Financial 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 Annual and Fourth Quarter Consolidated Financial Report and under the heading Arrangement with Smith Financial Corporation in the Business Profile section of the 2022 Annual and Fourth Quarter Consolidated Financial Report. Forward-looking statements are typically identified by words such as “will,” “believe,” “expect,” “anticipate,” “intend,” “should,” “estimate,” “plan,” “forecast,” “may,” and “could” or other similar expressions.

By their very nature, these statements require the Company to make assumptions and are subject to inherent risks and uncertainty, general and specific, which may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These risks and uncertainties include, but are not limited to, global capital market activity, changes in government monetary and economic policies, changes in interest rates, inflation levels and general economic conditions, legislative and regulatory developments, the impacts of the COVID-19 pandemic and government responses to it, 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 2023 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 2023, 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 Annual and Fourth Quarter Consolidated Financial Report.

The current economic uncertainties pertaining to rising interest rates, declining house prices and inflationary pressure 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 consolidated financial statements included in the Company’s 2022 Annual and Fourth Quarter Consolidated Financial 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 Annual and Fourth Quarter Consolidated Financial 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.