TD NOTE ON EARNINGS Event Q4/21 Conference Call Impact: MIXED As expected, Home Capital announced a dividend reinstatement, which is wellreceived. Loan growth and originations were better than expected. Offsetting was lower-than-expected NIM. The guidance for 2022 implies flat NII, which has brought our 2022 EPS forecast down. Management expects NIM compression to be offset by materially higher loan growth; the company's target of 20% in 2022 is a significant lift from 5% in 2021. Capital returns are expected to be healthy again in 2022, but ultimately will be dependent on loan growth (impacts RWA). Our target price is unchanged. We reiterate our BUY rating, given what we view as attractive valuation relative to the ROE outlook. Adjusted EPS $1.06 was ahead of us at $1.00, but below consensus of $1.09. ROE was 12.7%. NIM compression was notable at 2.46%, down from 2.58% q/ q and 2.55% y/y. Loan growth was stronger than expected, up 5% y/y and 3% q/q. Originations of $2.7bln were also above our forecast of $2.2bln and compare with $2.4bln q/ q and $1.9bln y/y. Guidance for 2022 was weaker than expected. Management is expecting flat NII y/y, which reflects lower NIM offset by higher loan growth. While we are now forecasting modest NII growth (+2%), our loan growth forecast of 12% is below management's 20% target (but up notably from our previous forecast of 5%). Management expects PCLs to normalize in 2022. Excess capital remains, given the CET 1 target of 14-15% by Q4/22. 18.4% as of Q4/21 is down from 22.6% in Q3/21 (reflects the $300mm SIB in Q4/21). Management is committed to utilizing the NCIB (3.7mm shares; 10% of the float). Further capital returns (perhaps another SIB) will be assessed in late-2022 based on how loan growth/RWA evolves. TD Investment Conclusion Despite material capital returns in 2021, Home Capital remains over-capitalized. We expect healthy levels of share buybacks to persist, and support EPS growth and ROE expansion. Valuation remains attractive, in our view, relative to a mid-teens ROE trajectory. 50 50 45 45 40 40 35 35 30 30 25 25 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 HCG-T: Price Company Profile Home Capital is one of Canada's largest nonbank lenders. It lends to Alt-A borrowers with conventional mortgages and prime borrowers with insured mortgages. With an emphasis on singlefamily mortgage lending, it also offers commercial mortgages and consumer-lending products. Financial Services - Diversified Financials H