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INVESTOR UPDATE Third Quarter 2016 November 2, 2016
Forward-Looking Statements
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INVESTOR UPDATE Third Quarter 2016 November 2, 2016 - - PowerPoint PPT Presentation
INVESTOR UPDATE Third Quarter 2016 November 2, 2016 - - PowerPoint PPT Presentation
INVESTOR UPDATE Third Quarter 2016 November 2, 2016 Forward-Looking Statements This presentation provides management with the opportunity to discuss the financial performance and condition of Home Capital Group Inc. and Home Trust Company
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Third Quarter 2016
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- Financial Performance
- Performance Targets
- Capital Management
- Risk Management
- 2016 Outlook
Agenda
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Performance Against Mid-Term Targets
Third Quarter 2016
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Mid-term Objectives (3-5 Years)
- Average pay out 19% - 26% of
earnings as dividends
- Average annual growth in diluted
earnings per share (adjusted) of 8% - 13%
- Maintain strong capital ratios
- Average annualized return on
equity (adjusted) in excess of 16%
- In response to a more challenging business environment, HCG has upgraded processes, changed
business relationships, increased regulatory compliance activities and introduced additional risk management procedures. This is essential for the future health of HCG.
- These changes resulted in increased costs and has strained the ability to grow assets and net
- revenue. The focus is on increasing operating leverage by improving revenue growth from potential
- pportunities that the evolving housing environment presents and by taking a harder look at
expenses.
- However, looking ahead, it’s likely that HCG will reduce its mid-term targets when it reports Q4
2016.
Mid-Term Objectives
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Q3 2016 Results
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Q3 2016 Results Increase (Decrease)
- vs. Q3 2015
Reported Net Income $66.2M (8.6%) Reported Diluted EPS $1.01 (1.9%) Return on Shareholders’ Equity 16.9% Total Loans Under Administration $26.0B 11.0% Payout Ratio 23.8% Total Capital Ratio 16.97% CET 1 Ratio 16.54%
* The Company’s results were not impacted by any items of note in Q3 2016 and Q3 2015.
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Financial Performance
Third Quarter 2016
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Q3 2016 Financial Results
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Q3 2016 Q2 2016 Q3 2015 Net Income $66.2M $66.3M $72.4M Revenue* $243.9M $242.5M $247.2M NIM (TEB) 2.34% 2.38% 2.38% Loans Under Administration $26.0B $25.7B $23.4B Efficiency Ratio* 37.7% 37.2% 30.8% Provision as a % of Gross Uninsured Loans 0.04% 0.08% 0.08% NPL Ratio 0.31% 0.33% 0.30% CET1 Ratio 16.54% 16.38% 18.06%
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Mortgage Originations
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- 200.0
400.0 600.0 800.0 1,000.0 1,200.0 1,400.0 1,600.0 Traditional Single- family Residential Mortgages ACE Plus Mortgages Accelerator Single- family Residential Mortgages Residential Commercial Mortgages Non-Residential Commercial Mortgages Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Traditional Single-family Residential Mortgages $1,402.3M $1,163.3M $995.4M $1,253.0M $1,416.8M ACE Plus Mortgages $112.1M $141.0M $69.2M $115.4M $116.7M Accelerator Single-family Residential Mortgages $416.3M $515.9M $363.8M $464.8M $446.7M Residential Commercial Mortgages $347.9M $133.7M $182.9M $382.0M $212.8M Non-Residential Commercial Mortgages $219.3M $200.3M $171.1M $259.7M $347.6M Total Mortgage Originations $2,498.0M $2,154.2M $1,782.4M $2,474.9M $2,540.7M
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Net Interest Margin
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NIM (TEB) NIM Non Securitized Assets (TEB) NIM Securitized Assets (TEB) Spread of Non-Securitized Loans over Deposits (TEB)
2.38% 2.46% 2.38% 2.38% 2.34% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 2.83% 2.89% 2.74% 2.76% 2.70% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 2.93% 2.97% 2.91% 2.97% 2.89% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 0.52% 0.60% 0.47% 0.42% 0.45% 1.99% 1.85% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 CMHC-Sponsored Securitization Bank-Sponsored Securitization
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Historical Share Price Performance
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Q3 2016 dividend of $0.24 per share or 23.8% of net income
Share price and dividend yield has been adjusted for the stock dividend of one common share for each issued and outstanding common share that was paid on March 10, 2014.
$27.00 $0.24 $- $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Share Price Dividend
HCG Share Price
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Capital Management
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Capital & Liquidity
13 18.06% 18.31% 18.28% 16.38% 16.54% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 20.51% 20.70% 20.63% 16.82% 16.97% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Basel III Common Equity Tier 1 Basel III Total Capital Leverage Ratio
- Continued to maintain strong CET 1, Tier 1
capital and total capital ratios of 16.54%, 16.53% and 16.97%, respectively
- Conservative leverage ratio at 7.08%
- The Company paid a quarterly dividend of $0.24
per common share.
- Payout ratio of 23.8% in Q3 2016
7.17% 7.36% 7.46% 6.77% 7.08% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
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Risk Management
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Mortgage Lending
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- Total on-balance sheet mortgage portfolio balance of $17.2B, of which 89.2% of the portfolio is
residential mortgages
- 21.1% of the residential mortgage portfolio is insured
- Weighted average current loan-to-value (LTV) of the uninsured residential mortgage portfolio was 63.6%
- 98.5% of the mortgage portfolio is current, with 0.32% over 90 days past due
- Condominiums represent 8.7% of the residential mortgage portfolio, with 22.6% insured
- 2.6% of the uninsured mortgage portfolio was in energy producing regions
Single-Family Residential Loans by Province Insured Uninsured Equity Line Visa Total % British Columbia $288.5M $601.4M $2.8M $892.7M 6.0% Alberta $297.7M $323.5M $11.0M $632.1M 4.3% Ontario $2,101.9M $10,072.9M $306.1M $12,480.9M 84.5% Quebec $108.5M $307.3M $1.3M $417.1M 2.8% Other $204.0M $144.1M $2.2M $350.3M 2.4% Total $3,000.6M $11,449.2M $323.4M $14,773.2M 100.0%
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Non-Performing vs. Net Write Offs as a % of Gross Loans
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- Prudent strategies to maintain a high credit quality
- Close monitoring of non performing loans and proactive measures to minimize losses
0.31% 0.03% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Non Performing Loans as a Percentage of Gross Loans Net Writeoff's as a Percentage of Gross Loans
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2016 Outlook
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Outlook for 2016
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Assumptions about the performance of the Canadian economy in 2016 and its effect on Home Capital’s business are material factors the Company considers when setting its objectives, targets 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. In setting and reviewing its targets, objectives and outlook for the remainder of 2016, management’s expectations continue to assume:
- The Canadian economy is expected to be relatively stable in 2016, supported by expanded Federal Government spending;
however, it will continue to be impacted by adverse effects related to fluctuations in oil prices and other commodities. The Company has limited exposure in energy producing regions.
- Generally the Company expects stable employment conditions, in its established regions; however, unemployment rates in
energy producing regions are expected to continue to increase in 2016. Also, the Company expects inflation will generally be within the Bank of Canada’s target of 1% to 3%, leading to stable credit losses and consistent demand for the Company’s lending products in its established regions. Credit losses and delinquencies in the energy producing regions may increase, but given the Company’s limited exposure, this is not expected to be significant.
- The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets and
further adjustments in commodity prices; as such, the Company is prepared for the variability to plan that may result.
- The Company is assuming that overnight interest rates will remain at the current very low rate for 2016. This is expected to
continue to support relatively low mortgage interest rates for the foreseeable future.
- The Company believes that the current and expected levels of housing activity indicate a stable real estate market overall.
Please see Market Conditions under the 2016 Outlook for more discussion on the Company’s expectations for the housing market and the impact of the recent changes unveiled by the government to the mortgage market.
- The Company expects that consumer debt levels, while elevated, will remain serviceable by Canadian households.
- The Company will have access to the mortgage and deposit markets through broker networks.
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Appendices
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Home Capital Group Inc.
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- Home Trust Company - Federally regulated deposit taking institution;
includes, its subsidiary, Home Bank, a federally regulated bank
- Member of Canada Deposit Insurance Corporation offering:
- Term deposit products
- High Interest Savings Account (HISA)
- Direct to consumer savings via Oaken Financial
- Canada’s one-stop mortgage lender offering
- “Classic” non-prime mortgages
- “ACE Plus” non-prime mortgages
- “Accelerator” Prime insured mortgages
- “Equityline” Visa
- Secured Visa
- Preferred Visa
- Merchant acquirer solutions (via PSiGate)
- Retail Credit
- Commercial lending
- Investment grade ratings:
- HCG – BBB-/A3 (Standard & Poor’s), BBB/R-2 (middle) (DBRS)
- HTC – BBB/A2 (Standard & Poor’s), BBB(high)/R-2 (high) (DBRS)
- Listed on the Toronto Stock Exchange (Symbol: HCG)
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Business Profile
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Home Capital Group Inc., together with its operating subsidiary Home Trust Company, has developed a track record of success as Canada's leading alternative lender. Building on the demonstrated strength of its core residential mortgage lending business, the Company also offers complementary lending services, as well as highly competitive deposit investment products.
MORTGAGE LENDING Home Trust is one of Canada's leading mortgage lenders, focusing on homeowners who typically do not meet all the lending criteria of traditional financial institutions. In addition, Home Trust offers a full range of insured mortgage products through the Accelerator program to individuals customarily served by larger financial
- institutions. With a proprietary lending
approach, comprehensive borrower profiling and flexible alternative solutions, Home Trust is a one-stop shop for borrowers and mortgage brokers. Home Trust is also a provider of commercial first mortgages to high-quality borrowers in selected markets across Canada. CONSUMER LENDING Home Trust offers deposit-secured credit cards for individuals who wish to build or re-establish a positive credit history as well as unsecured cards under Home Trust’s brand name, as well as Union Plus, Optimax and Giant Tiger co-branded programs. The Company also offers Equityline Visa program brings the advantages to cardholders of accessing the equity they have built in their homes together with the features and convenience of a Gold Visa card. PSiGate, a wholly
- wned subsidiary, offers electronic
card-based payment services to merchants who conduct business primarily on the Internet. Home Trust's Retail Credit Services provides installment financing for customers making purchases from established businesses. DEPOSIT INVESTMENTS Home Trust provides a broad range of Guaranteed Investment Certificates and a high interest savings account. These are offered via Registered Retirement Savings Plans, Registered Retirement Income Funds, Tax-free Savings Accounts and on a non- registered basis. The Company has developed an extensive network nationally of intermediaries, including investment dealers, mutual fund dealers, deposit brokers and other wealth management professionals through which these are offered. DIRECT TO CONSUMER SAVINGS Oaken Financial offers a suite of consumer deposit products, including Guaranteed Investment Certificates (GICs) and the Oaken Savings Account. Oaken provides consumers with a secure alternative to managing their savings independently.
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Home Trust Branches and Stores
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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 deposits, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through its direct to consumer deposit brand, Oaken Financial. Home Trust also conducts business through its wholly
- wned subsidiary, Home Bank. Licensed
to conduct business across Canada, Home Trust has branch offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.
www.hometrust.ca www.oaken.com www.homecapital.com
Across Canada:
- 6 branches
- 2 stores
- 896 employees (as of September 30, 2016)
HALIFAX VANCOUVER MONTREAL TORONTO CALGARY WINNIPEG
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Media/Investor Relations Contacts
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