Mr. Yousry Bissada reports

HOME CAPITAL ANNOUNCES THIRD QUARTER RESULTS ALONG WITH BOARD APPROVAL FOR A SUBSTANTIAL ISSUER BID OF UP TO $300 MILLION IN THE FOURTH QUARTER AND INTENTION TO APPLY TO THE TSX FOR A NORMAL COURSE ISSUER BID EFFECTIVE 2019

Home Capital Group Inc. has released its financial results for the three and nine months ended Sept. 30, 2018. This press release should be read in conjunction with the company's 2018 third quarter report including financial statements and management's discussion and analysis which are available on Home Capital's website and on SEDAR.

"Our third quarter results demonstrate continued progress in all lines of business," said Yousry Bissada, chief executive officer. "Our commitment to servicing the customer in partnership with the broker community, and the development of our Oaken product line, have proven to be the right strategy for long-term success in our business. We are excited to take the next steps in our digital journey. Our plans for a substantial issuer bid and a normal course issue bid demonstrate our confidence in our business and outlook."

Income statement

Income

Net interest margin was 2.03 per cent compared with 1.91 per cent in the second quarter of 2018 and 1.85 per cent in the third quarter of 2017. Net interest margin in the quarter increased due to the reduced cost associated with the standby credit facility that was replaced at the end of the second quarter of 2018. An improved asset mix also contributed to the increase.

Expenses

Non-interest expenses increased by $176,000 or 0.3 per cent from the second quarter of 2018 resulting from an increase in salaries and benefits offset largely by lower operating expenses. The result from the second quarter of included a reversal of $1.8-million of estimated severance expenses in the second quarter of 2018 related to the Project EXPO expense savings initiative completed in 2017.

Non-interest expenses declined $4.3-million or 7.2 per cent from the third quarter of 2017 mainly due to a decrease in both salaries and benefits, and other operating expenses related to the liquidity event in the second quarter of 2017.

Net income

Net income for the third quarter was $32.6-million or 41 cents per share, an increase of 10.1 per cent over the second quarter of net income of $29.6-million or 37 cents per share and an 8.7-per cent increase over net income of $30.0-million or 37 cents per share reported in the third quarter of 2017.

Balance sheet

Asset growth

Mortgage originations were $1.44-billion in the third quarter of 2018, up 16.7 per cent over the second quarter of originations of $1.23-billion and up 272.9 per cent over originations of $385.1-million in the third quarter of 2017. Single-family residential mortgage originations were $1.02-billion in the third quarter of 2018, an increase of $66.7-million or 7.0 per cent from the second quarter of 2018 and $792.0-million from the third quarter of 2017.

Total loans at the end of the quarter were $16.04-billion, an increase of $594.8-million or 3.9 per cent from the second quarter of 2018 and an increase of $973.1-million or 6.5 per cent from the fourth quarter of 2017.

Loans under administration were $22.82-billion, up 1.4 per cent from the second quarter of 2018 and up 1.3 per cent from the end of 2017.

Financing

Total deposits were $12.36-billion compared with $12.50-billion at the end of the second quarter of 2018 and $12.17-billion at the end of the fourth quarter of 2017.

Brokered GICs (guaranteed investment certificate) totalled $9.27-billion compared with $9.55-billion at the end of the second quarter of 2018 and $9.35-billion at the end of the fourth quarter of 2017. Oaken GICs totalled $2.37-billion compared with $2.23-billion at the end of the second quarter of 2018 and $1.81-billion at the end of the fourth quarter of 2017.

Credit quality

Total provision for credit losses was $4.0-million in the third quarter of 2018 compared with $6.5-million in the second quarter of 2018, and recovery of $4.3-million in the third quarter of 2017. Provision expense as a percentage of gross uninsured loans was 0.13 per cent compared with 0.22 per cent in the second quarter of 2018. Provisions in the third quarter of were driven mainly by activity in both the residential and commercial mortgage portfolios. Provisions for credit losses were calculated under IFRS 9 (international financial reporting standards) for 2018 and under IAS 39 for 2017. As provisions for credit losses for 2017 were not restated, comparability of the provision is reduced to some extent.

Net non-performing loans (represented by stage 3 loans under IFRS 9) as a percentage of gross loans remained low at 0.34 per cent at the end of the third quarter of 2018, unchanged from the second quarter of 2018 and up from 0.30 per cent at the end of the fourth quarter of 2017.

Leadership appointments

Dr. Hossein Rahnama, previously an adviser to the board of directors, has now joined the board of directors effective Nov. 6, 2018. The company had previously announced that Sue Hutchison joined the board of directors effective Sept. 27, 2018. In preparation for the next steps in the advancement of the company's vision for company-wide digital capability, Benjy Katchen, executive vice-president, deposits and consumer lending, has been appointed to the new role of chief digital and strategy officer.

Substantial issuer bid and normal course issuer bid

The board has authorized the initiation of a substantial issuer bid (SIB) pursuant to which the company will offer to purchase for cancellation up to $300-million of its common shares. The company expects that the terms of the bid will be announced on or about Monday, Nov. 12, 2018, and that the bid will be completed by the end of the fourth quarter. Upon completing the SIB, the company intends to apply to the Toronto Stock Exchange for a normal course issuer bid to be effective in its next fiscal year.

Outlook

The company expects that market conditions experienced in the third quarter will continue for the balance of 2018. The growth in originations suggests the company's lending market has begun to absorb the impact of the new mortgage rules and is adjusting to a higher interest rate environment. "We are confident that our focus on service excellence, underpinned by a robust internal risk culture, will continue to drive growth and profitability in our core business," said Mr. Bissada. "We are excited to embark on the next phase of transforming our business, including executing our substantial issuer bid and investing in digital enablement."

The company's 2018 third quarter report, including management's discussion and analysis, for the three and nine months ended Sept. 30, 2018, is available at the company's website and on the Canadian Securities Administrators' website at SEDAR.

Third quarter 2018 results conference call and slide presentation webcast

The conference call will take place on Wednesday, Nov. 7, 2018, at 8 a.m. Eastern Time. Participants are asked to call approximately 10 minutes in advance at toll-free 1-844-899-4831 throughout North America. Participants calling from outside of North America may dial 1-647-689-5401. The call will also be accessible in listen-only mode on Home Capital's website in the investor relations section of the website.

Conference call archive

A telephone replay of the call will be available between 11 a.m. ET on Wednesday, Nov. 7, 2018, and midnight ET on Wednesday, Nov. 14, 2018, by calling 416-621-4642 or 1-800-585-8367 (enter pass code 6382499). The archived audio webcast will be available for 90 days on Home Capital's website.

                                       FINANCIAL HIGHLIGHTS
                         (thousands except percentage and per-share amounts)

                                                                        For the three months ended
                                                              Sept. 30       June 30      Sept. 30
                                                                  2018          2018          2017
Income statement highlights 
Net interest income                                            $89,847       $84,129       $88,762
Net interest margin (TEB)                                         2.03          1.91          1.85 
Efficiency ratio (TEB)                                            52.9          54.5          62.7 
Provision for credit losses                                      3,990         6,487        (4,257)
Provision as a percentage of gross loans (annualized)             0.10          0.17         (0.11) 
Net income                                                      32,600        29,606        29,983
Diluted earnings per share                                        0.41          0.37          0.37
Return on shareholder equity (annualized)                          6.9           6.4           6.8 
Originations
Total mortgage originations                                  1,435,793     1,230,208       385,065
Single-family residential mortgage originations              1,015,998       949,339       223,964

About Home Capital Group Inc.

Home Capital Group 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 through brokers and financial planners, and through a direct-to-consumer deposit brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, Home Bank.

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