Q4 2017 Financial Results February 14, 2018 Forward-Looking - - PowerPoint PPT Presentation

Q4 2017 Financial Results

February 14, 2018

From time to time Home Capital Group Inc. (the Company) 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,
• perations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. 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 2017 Annual 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 Outlook section in the 2017 Annual and Fourth 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, 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

• n its behalf, except as required by securities laws.

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Forward-Looking Statements

• Positioned to be the leader in Alt-A lending with

good momentum in business

• Strong Capital Position
• Investing in our business to be a service leader with

innovative solutions

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CEO Q4 2017 Overview

Renewed Management Team

• New team members combined with the existing team creating a strong bench, deeply

experienced across key functions including risk management and compliance, underwriting, IT, finance and treasury and sales.

New management team members include: – President and CEO, Yousry Bissada – EVP and Chief Financial Officer, Brad Kotush – EVP of Sales, Ed Karthaus – SVP of HR, Amy Bruyea – Chief Information Officer, Victor DiRisio – SVP, Underwriting, Mike Forshee

Good growth and momentum in business

• Total originations of $872 million increased 126% quarter over quarter
• Turn down rate on applications has improved to approximately 60% compared with over 70%

in Q3 2017

• Focused on growing residential and commercial business to more sustainable levels

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Q4 2017 CEO Highlights

Strong Capital Position

• CET 1 Capital 23.17% - Capital position is a key strength providing safety and flexibility – a

competitive advantage

• Focused on opportunities to build and deploy our capital in a manner that emphasizes creating

long-term value and avoiding excessive risk

Investing in our business to be a service leader with innovative solutions

• Investing in technology for a better broker and customer experience
• Evolving with our environment and investing in innovative solutions to attract and retain

brokers and customers

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Q4 2017 CEO Highlights

OSFI Guideline B-20 became effective January 1, 2018. The key changes included:

• A qualifying stress test requirement for uninsured borrowers
• Guidance regarding the use of co-lending arrangements

The stress testing requirement is expected to have the most material impact on the Company’s addressable market as some borrowers may now only qualify for smaller mortgages due to the stress test. The impact on the Company’s addressable market and originations volume moving forward in 2018 is difficult to quantify given various forces affecting the market including:

• Changes in borrower behaviour, such as smaller loan sizes or increasing down payments
• Borrowers who may migrate from the prime market to the alternative space largely due to the stress test

requirement

• Strong growth expected to continue in the self-employed and new immigrant segments of the alternative

market

• Overall residential market activity in our focus areas

While the net impact to mortgage originations attributable to B-20 could be negative, renewal levels are expected to increase in the Company’s portfolio as existing borrowers may choose to renew rather than try and re-qualify under the new rules. The company is focused on providing competitive offerings to meet customer demands as well as improving service levels to help capture a larger share of the addressable market post B-20.

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OSFI Guideline B-20

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Guideline B-20 Sensitivity Analysis

$ (in billions, except %) Actual 12 months ended December 31, 2017 Next 12 months with 10% reduction in Advances Next 12 months with 20% reduction in Advances Opening Balance 14.3 12.5 12.5 Advances 3.3 3.0 2.7 Discharges (4.8) (4.2) (4.2) Other (0.3) 0.3 0.3 Ending Balance 12.5 11.6 11.3 Growth Rate (13)% (7)% (10)% The below sensitivity analysis on the Company’s portfolio reflects the net result of the impact from these shifts in the market under different scenarios and with no mitigating actions by the Company. The below table provides a comparison of the single-family residential mortgage continuity over the trailing 12 months (TTM) ended December 31, 2017 against two illustrative scenarios for the next 12 months. Both scenarios assume a consistent rate of discharge and repayments and exclude sales of mortgages. 1. Scenario 1 assumes a 10% reduction in single-family residential mortgage advances 2. Scenario 2 assumes a 20% reduction in single-family residential mortgage advances

Fourth Quarter 2017 Financial Results

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Continued Profitability and Improving Originations

• Net income of $30.6 million in Q4 2017, an increase of 2.1%, from $30.0 million in Q3 2017
• Non-interest expense of $65.5 million in Q4 2017 increased 9.3% or $5.6 million from $59.9 million in Q3 2017, but decreased

$5.5 million from $71.0 million in Q4 2016, a 7.8% improvement

• Increasing originations – total originations $872.1 million in Q4 2017 vs. $385.1 million in Q3 2017
• Non-securitized single-family residential mortgages $10.04 billion, a decrease of 3.8% or $0.36 billion from $10.40 billion
• A number of factors stemming from the liquidity event in Q2 2017, including lower residential and commercial loan balances and
• riginations, and elevated non-interest expenses continue to impact financial results when compared to 2016 performance

Mortgage portfolio performing well with low losses

• Weighted average current loan-to-value (LTV)(1) of the uninsured residential mortgage portfolio was 55.3% vs. 60.9% at Q4 2016
• High credit quality with low provisions for credit losses
• Provision for credit losses (PCL) as a percentage of gross uninsured loans of 0.12%, compared to (0.14)% where Q3 2017 included a

reduction of $6.5 million in the collective allowance (0.07% in the absence of this reduction)

• 98.4% of the mortgage portfolio is current, with 0.2% over 90 days past due

Deposit funding stable and ample liquidity available

• Aggregate available liquidity and credit facility of approximately $3.65 billion including the undrawn amount of $2 billion under the

Berkshire Hathaway credit facility as at Q4 2017

• Able to raise or lower broker and Oaken deposit rates to match net deposit flows to mortgage origination volumes – ability to flex

in line with loan volumes 9

Q4 2017 Financial Performance Highlights

• 1. Weighted average current LTV is defined in the 2017 Annual Management Discussion and Analysis.

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Q4 2017 Financial Results

Q4 2017 Q3 2017 Q4 2016 YoY 2017 2016 YoY Net Income $30.6M $30.0M $50.7M ($20.1M) $7.5M $247.4M (97.0%) Diluted EPS $0.38 $0.37 $0.79 ($0.41) $0.10 $3.71 (97.3%) Revenue $109.5M $95.4M $144.6 ($35.1M) $291.3M $582.0M (49.9%) NIM (TEB) 2.02% 1.85% 2.38% (36 bps) 1.55% 2.37% (82 bps) Non-Interest Expenses $65.5M $59.9M $71.0M ($5.5M) $274.9M $238.9M 15.1% Loans Under Administration $22.5B $23.2B $26.4B ($3.9B) $22.5B $26.4B (14.8%) Provision as a % of Gross Uninsured Loans 0.12% (0.14%) 0.07% 5 bps 0.07% 0.05% 2 bps Net Non-Performing Loans Ratio 0.30% 0.28% 0.30% Flat 0.3% 0.3% Flat Total Capital Ratio 23.68% 21.74% 16.97% 671 bps 23.68% 16.97% 671 bps CET1 Ratio 23.17% 21.25% 16.55% 662 bps 23.17% 16.55% 662 bps Commons Shares Outstanding (000’s) 80,246 80,246 64,388 80,246 64,388

• Net income for FY 2017 and Q4 2017 continues to reflect impact of lower than historical levels of residential and commercial loan balances and
• riginations and elevated expenses however, net income increased to $30.6 million in Q4 2017 from $30 .0 million in Q3 2017
• NIM increased in Q4 2017 vs Q3 2017 primarily from prepayment penalty interest income earned in Q4 2017, higher interest earned on government

bonds, and lower interest and fees on the credit facility

• Non-interest expenses in Q4 2017 included $11.4 million in expenses comprising a $6.3 million impairment loss on intangible assets and costs related

to the exit of the PSiGate and prepaid businesses, as well as litigation expenses

• PCL as a percentage of gross uninsured loans was 0.12% compared to (0.14%) in Q3 2017 or 0.07% if the impact of the reduction in the collective

allowance was excluded for ease of comparison and 0.07% in Q4 2016. PCL increased in Q4 2017 due to a $6.5 million reduction in the collective allowance in Q3 2017 related to asset sales of the commercial portfolio during that quarter.

• CET 1 ratio improved to 23.17% due primarily to lower risk weighted assets year-over-year
• Common shares outstanding remained consistent with Q3 2017 and increased year-over-year due to the equity investment by a subsidiary of

Berkshire Hathaway of approximately $153.2 million to acquire a 19.99% equity stake in HCG.

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Mortgage Advances

200 400 600 800 1,000 1,200 1,400 1,600 Traditional Single-family Residential Mortgages ACE Plus Mortgages Accelerator Single-family Residential Mortgages Residential Commercial Mortgages Non-Residential Commercial Mortgages Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

(in millions) Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 2017 2016 Total Mortgage Advances $2,427.8 $2,345.6 $1,118.1 $385.1 $872.1 4,720.8 $9,225.8 Traditional Single-family $1,325.9 $1,458.8 $699.9 $201.1 $515.7 $2,875.5 $4,991.0 ACE Plus Single-family $106.5 $106.0 $56.1 $1.5 $21.7 $185.3 $407.8 Accelerator Single-family $346.7 $147.6 $84.2 $21.3 $28.6 $281.8 $1,622.0 Residential Commercial $371.5 $294.8 $89.8 $99.1 $194.8 $678.5 $1,149.2 Non-Residential Commercial $277.3 $338.4 $188.1 $62.0 $111.2 $699.7 $1,055.8

• 2017 total single-family mortgage advances of $3.34 billion (vs. $7.02 billion in 2016)
• Q4 2017 total single-family mortgage advances of $566 million (vs. $224 million in Q3 2017)

• Maintained strong credit quality, non-performing loans remained at low levels
• Close monitoring of non-performing loans and proactive measures to minimize losses

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Non-Performing vs. Net Write Offs as a % of Gross Loans

0.30% 0.06%

0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Net Non-Performing Loans as a Percentage of Gross Loans Net Writeoff's as a Percentage of Gross Loans Q4 2017

Liquid Assets

• $1.65 billion at Q4 2017 vs. $2.07 billion at Q4

2016 and $2.66 billion at Q3 2017

• Aggregate available liquidity and credit facility

totaled approximately $3.65 billion including $2.0 billion undrawn credit facility at Q4 2017 Deposits

• $12.17 billion at Q4 2017 vs. $15.89 billion at

Q4 2016 and $13.36 billion at Q3 2017

• Total deposits include institutional deposit

notes of $475 million and demand deposits of $539 million at Q4 2017

• Lowered deposit broker and Oaken rates in Q4

2017 to match net deposit flows to loan

• rigination volumes

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Liquidity and Deposits

10.6 10.7 10.8 10.5 10.0 9.6 9.4 1.7 1.8 1.9 2.0 2.0 1.9 1.8

2 4 6 8 10 12 14 Jun Jul Aug Sept Oct Nov Dec Oaken Broker

11.2 12.0 12.5 12.7 12.5 12.3 11.5

Total Broker and Oaken Deposits Payable on a Fixed Date

In ($) Billions, end of the month 2017

• 1. Excludes institutional deposits notes of $475 million and

Deposits payable on demand of $539 million as at Q4 2017. Total demand deposits at Q4 2016 were $2.5 billion.

• Strong Capital provides safety and

flexibility – a competitive advantage

• Q4 2017 Capital ratios:

― CET 1 Ratio 23.17% ― Tier 1 Ratio 23.17% ― Total Capital Ratio 23.68%

• Capital ratios increased mainly due to

the decline in risk weighted assets as a result of the decline in the loan portfolio

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Capital and Leverage Ratios

16.55% 16.34% 17.06% 21.25% 23.17%

Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

16.97% 16.77% 17.54% 21.74% 23.68%

Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

Basel III Common Equity Tier 1 Basel III Total Capital Leverage Ratio

7.20% 7.29% 7.19% 7.89% 8.70%

Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

Questions

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Q4 2017 Financial Results

February 14, 2018

APPENDIX

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• Asset Liability model based on

long funding principle

• Near term non-securitized

mortgage book run off exceeds repayment schedule of contractual GIC maturities

• Securitization funding provides

the Company with low cost long-term matched funding

• $539 million of demand

deposits at December 31, 2017

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Long Funded Balance Sheet

Maturity Profile as at December 31, 2017 ($ billion)

1. Total contractual fixed term deposits include $476 million in institutional deposit notes and exclude deposits payable on demand of $539 million as at December 31, 2017. Total demand deposits at December 31, 2016 were $2.5 billion. 2.4 6.4 2.6 0.5 11.9 1.6 4.1 4.2 1.8 11.7 2 4 6 8 10 12 14 0-3 months 3-12 months 1-3 years 3-5 years Total Non-Securitized Contractual Mortgage Maturities Contractual Fixed Term Deposit Maturities

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Net Interest Margin

NIM (TEB)(1) NIM Non Securitized Assets (TEB) NIM Securitized Assets Spread of Non-Securitized Loans over Deposits (TEB)

1) NIM declined in Q2 2017 from Q1 2017 due primarily to elevated interest expense incurred during the quarter comprising primarily of the $100 million commitment fee incurred on the initial $2 billion emergency credit facility. 2) While returning to positive levels in Q3 2017, NIM continues to be negatively impacted by interest expense on the Berkshire Hathaway credit facility. Additionally, elevated deposit balances and higher rates on new deposits maintained downward pressure on net interest margins while building volumes kept mortgage rates low. 3) In Q4 2017 NIM increased to 2.02% from 1.85% in the previous quarter. The improvement over last quarter resulted primarily from prepayment penalty interest income earned in Q4 2017 on the early payment of a consumer retail loan portfolio and higher interest earned on government bonds combined with lower interest and fees on line of credit facility reflecting a full quarter with no drawn balances on the Berkshire Hathaway credit facility.

2.38% 2.44%

• 0.07%

1.85% 2.02% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 2.73% 2.76%

• 0.19%

2.21% 2.46% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 2.86% 2.93%

• 0.41%

2.62% 2.84% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 0.53% 0.75% 0.50% 0.43% 0.30% 1.90% 1.58% 1.63% 1.17% 0.99% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

CMHC-Sponsored Securitization Bank-Sponsored Securitization

Total on-balance sheet mortgage portfolio balance of $14.2B, of which 92.6% is residential mortgages

• 24.0% of the residential mortgage portfolio is insured
• Weighted average current loan-to-value (LTV) of the uninsured residential mortgage portfolio

was 55.3%

• Condominiums represent 8.0% of the residential mortgage portfolio, with 25.9% insured

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Mortgage Lending Q4 2017 Highlights

Single-Family Residential Loans by Province Insured Uninsured Equity Line Visa Total % British Columbia $255.5M $498.6M $2.4M $756.4M 6.0% Alberta $387.4M $257.2M $9.0M $653.7M 5.1% Ontario $1,834.0M $8,519.6M $294.6M $10,648.2M 83.3% Quebec $113.8M $222.4M $1.1M $337.3M 2.6% Other $242.2M $140.1M $1.8M $384.0M 3.0% Total $2,832.9M $9,637.9M $308.9M $12,779.6M 100.0%

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Prudently Managed Mortgage Book

LTV Ratio (Q1 2014 – Present) Weighted-Average LTV Ratios by Geography (Q4 2017)

Uninsured Residential Mortgages (2) 2017 British Columbia 49.6% Alberta 63.9% Ontario 55.2% Quebec 61.4% Other 61.7% Total 55.3% Uninsured Residential Mortgages Originated Q4 2017(1) British Columbia 63.2% Alberta 65.7% Ontario 69.7% Quebec 69.4% Other 69.3% Total 69.2%

50.0% 55.0% 60.0% 65.0% 70.0% 75.0% 80.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 Weighted-average LTV Ratios for Uninsured Residential Mortgages Weighted-average LTV Ratios for Uninsured Residential Mortgages Originated During the Period

1. Weighted-average LTV is calculated by dividing the sum of the products of LTVs and loan balances by the sum of the loan balances. LTVs are calculated using appraised property values at the time of origination. 2. Weighted-average LTV is calculated by dividing the sum of the products of LTVs and loan balances by the sum of the loan balances.

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Investor Relations/ Media Contact

Home Capital Group Inc. Attention: Investor Relations 145 King St. West, Suite 2300 Toronto, ON, M5H 1J8 Canada Phone: (416) 933-5652 Toll Free Phone: (800) 990-7881 Inquiries: inquiry.homecapitalgroup@hometrust.ca Laura Lepore, AVP Investor Relations To arrange a meeting: Laura Lepore Phone: (416) 933-5652 Email: laura.lepore@hometrust.ca