CEO.CA Chairman's Briefing

Home Capital Group Inc. (“Home Capital” or “the Company”) (TSX: HCG) today reported financial results for the three and six months ended June 30, 2023. This press release should be read in conjunction with the Company’s 2023 Second 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.sedarplus.ca.

“This quarter’s results showcased the growth in our net income and strong operational performance. While the growth in our loan portfolio slowed in line with market conditions, we were pleased with the strength of our retention this quarter,” said Yousry Bissada, President and Chief Executive Officer. “Our prudent underwriting and resourceful mortgage customers have kept net arrears at a low level. A significant majority of our Alt A mortgages have now been originated or renewed at rates reflecting the rapid interest rate increases over the last eighteen months. This quarter we also completed the final component of our multi-year Ignite Program. We are pleased to report that the team has now successfully transformed our core technology platforms and digital capabilities to enable future growth and operating efficiencies.”

Net Income: Diluted earnings per share of $1.49 in Q2 2023 compared with $0.97 in Q2 2022

• Net income of $58.1 million or $1.49 diluted earnings per share in Q2 2023, an increase of 11.2% from $1.34 per share in Q1 2023 and an increase of 53.6% from $0.97 per share in Q2 2022.
• Adjusted net income of $61.1 million or $1.57 diluted earnings per share in Q2 2023, an increase of 14.6% from $1.37 per share in Q1 2023 and an increase of 60.2% from $0.98 per share in Q2 2022. 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 2.35% in Q2 2023, compared with 2.15% in Q1 2023 and 1.97% in Q2 2022.
• Non-interest expenses of $68.0 million in Q2 2023, compared with $65.3 million in Q1 2023 and $60.9 million in Q2 2022.

Asset Growth: Mortgage originations decreased 49.8% over Q2 2022

• Mortgage originations of $1.53 billion in Q2 2023, compared with $1.45 billion in Q1 2023 and $3.04 billion in Q2 2022.
• Single-family mortgage originations of $1.14 billion in Q2 2023, compared with $921.2 million in Q1 2023 and $2.27 billion in Q2 2022.
• Total loan portfolio of $21.02 billion at the end of Q2 2023, an increase of 0.6% from the end of Q1 2023 and an increase of 2.0% from the end of Q2 2022.
• Loans under administration of $27.67 billion at the end of Q2 2023, up 0.4% from the end of Q1 2023 and 3.7% from the end of Q2 2022.

Funding: Deposits through our Oaken channel of $5.10 billion make up 31.6% of total deposits

• Total deposits of $16.12 billion at the end of Q2 2023, compared with $16.22 billion at the end of Q1 2023 and $15.02 billion at the end of Q2 2022.
• Total Oaken deposits of $5.10 billion at the end of Q2 2023, an increase of 0.9% from the end of Q1 2023 and 10.0% from the end of Q2 2022.
• Oaken’s share of total deposits was 31.6% at the end of Q2 2023, compared with 31.2% at the end of Q1 2023 and 30.9% at the end of Q2 2022.

Credit Quality: Provisions of $2.1 million compared to $4.7 million in Q2 2022

• Provision for credit losses (“PCL”) of $2.1 million in Q2 2023, compared with a provision expense of $0.7 million in Q1 2023 and $4.7 million in Q2 2022.
• Allowance for credit losses of 0.27% of gross loans at the end of Q2 2023, compared with 0.26% at the end of Q1 2023 and 0.19% at the end of Q2 2022.
• Net write-offs as a percentage of gross loans were 0.01% in Q2 2023, compared to less than one basis point in Q1 2023 and 0.01% in Q2 2022.
• Net non-performing loans (represented by Stage 3 loans under IFRS 9) as a percentage of gross loans were 0.41% at the end of Q2 2023, compared with 0.24% at the end of Q1 2023 and 0.14% at the end of Q2 2022.

Dividend Declaration

The Board has declared a dividend of $0.15 per common share, payable on September 15, 2023, to shareholders of record at the close of business on August 31, 2023. The dividend is designated as an “eligible” dividend for the purposes of the Income Tax Act (Canada) and any similar provincial legislation and will be paid only if the SFC Transaction has not closed on or before August 31, 2023.

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”). The SFC Transaction has received shareholder and court approval and the Competition Bureau has also indicated that it will take no action in respect of it. Please see the Business Profile section in the Company’s 2023 Second Quarter Report for more information.

Outlook

“We expect to receive approvals under the Bank Act and the Trust and Loan Companies Act for the acquisition of Home by Smith Financial Corporation and to close the transaction this summer. We believe this change will help Home further enhance our leadership in the markets in which we operate,” stated Mr. Bissada.

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 2023 include certain costs pertaining to the SFC Transaction which management believes are not indicative of underlying business performance. The items of note for 2022 include 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 facilitate a more informed analysis of trends.

Please see Adjusted Results in the Financial Performance Review section in the Company's 2023 Second 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.

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.

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 2022 Annual and Fourth Quarter Consolidated Financial 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, 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 2023 Second Quarter Report, as well as the Company’s other publicly filed information, which is available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedarplus.ca, 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 2023 Second Quarter Report. Forward-looking statements are typically identified by words such as “will,” “believe,” “expect,” “anticipate,” “intend,” “should,” “estimate,” “plan,” “forecast,” “may,” and “could” or other similar expressions.

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

The current economic uncertainties pertaining to increased interest rates, lower 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 unaudited interim consolidated financial statements included in the Company’s 2023 Second 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 2023 Second 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, and Annual Information Form, are available on the Company’s website at www.homecapital.com and on the Canadian Securities Administrators’ website at www.sedarplus.ca.

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.

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