Second Quarter Financial Results August 13, 2018
Forward-Looking Statements 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, operations, 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 2018 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.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 the Outlook section in the 2018 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, 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. 2
Q2 2018 CEO Highlights Continued progress and momentum in business in Q2 ▪ Third quarter of sequential increases in origination volume ▪ Profitable results against backdrop of rising rates, slower housing markets and an evolving regulatory operating environment ▪ Total originations of $1.23 billion increased $71 million or 6.1% quarter over quarter ▪ Total single family residential originations in the quarter grew sequentially 9.2% to $949 million ▪ Commercial loan portfolio increased 6.6% since Q1 2018 ▪ Origination volumes combined with healthy mortgage renewals, helped grow total loans outstanding and offset higher mortgage discharges during the quarter ▪ Achieved mortgage price increases, however, pricing improvements were more than offset by increased cost of deposit funding 3
Q2 2018 CEO Highlights Solid progress on funding diversification efforts and liquidity profile ▪ Oaken Financial, record deposits balances of $2.43 billion in Q2 2018 ▪ Liquidity remains strong, with significantly reduced reliance on demand deposits for funding ▪ New $500 million standby facility with a syndicate of Canadian Banks. This new, lower aggregate cost facility better aligns to the Company’s liquidity and funding profile Digital Strategy to drive future growth ▪ Initiated digital journey, moving forward with initiatives to enhance the experience for deposit customers, mortgage brokers and borrowers Capital Position Update ▪ CET 1 Capital 23.21% at the end of Q2 2018 ▪ Delivering a capital plan that makes the right long-term capital decisions and finds the right balance between maintaining prudent capital levels and generating acceptable returns on equity for shareholders 4
Second Quarter 2018 Financial Results 5
Q2 2018 Financial Performance Highlights Delivered profitable and strong progress on originations ▪ Net income of $29.6 million in Q2 2018, compared to a net loss of $111.1 million in Q2 2017. Net income decreased 14.4%, from $34.6 million in Q1 2018 ▪ Increasing originations – total originations $1.23 billion in Q2 2018 vs. $1.16 billion in Q1 2018 ▪ Non-securitized single-family residential mortgages $10.21 billion remain relatively unchanged from Q1 2018 ▪ Non-interest expense of $55.4 million in Q2 2018 increased 7.9% or $4.0 million from $51.4 million in Q1 2018 and decreased 34.8% or $29.6 million from $85.0 million in Q2 2017 ▪ A number of factors stemming from the liquidity event in Q2 2017 continue to impact financial results when compared to 2017 performance Mortgage portfolio performing well with low losses ▪ Weighted average current loan-to-value (LTV) (1) of the uninsured residential mortgage portfolio was 59.3% vs. 58.5% at Q1 2018 and 59.3% at the end of Q2 2017 ▪ High credit quality with low provisions for credit losses ▪ Provision for credit losses (PCL) as a percentage of gross uninsured loans of 0.22%, compared to 0.20% at Q1 2018 ▪ 98.6% of the mortgage portfolio is current, with 0.33% over 90 days past due, compared to 98.9% and 0.29% at Q1 2018 and 98.5% and 0.23% at Q2 2017 Deposit funding stable and ample liquidity available ▪ Aggregate available liquidity and credit facility of approximately $2.32 billion including the undrawn amount of $500 million under the standby credit facility at the end of Q2 2018 6 1. Weighted average current LTV is defined in the Q2 2018 Management’s Discussion and Analysis.
Q2 2018 Financial Results Q2 2018 Q1 2018 Q2 2017 QoQ QoQ YoY YoY ($ millions) % Chg % Chg Net Income / (Loss) ($5.0) $140.7 $29.6 $34.6 ($111.1) -14.4% NM Diluted Earnings Per Share (EPS) ($1.73) ($0.06) $2.10 $0.37 $0.43 -14.0% NM Revenue $101.6 $103.8 ($61.3) ($2.2) -2.1% $162.9 NM Net Interest Income (NII) (Loss) $84.1 $88.1 ($3.4) ($4.0) -4.5% $87.5 NM Net Interest Margin (TEB) (NIM) 1.91% 2.02% (0.07%) (11 bps) 198 bps Non-Interest Expenses $55.4 $51.4 $85.0 $4.0 7.9% ($29.6) -34.8% Loans Under Administration $25.9B Flat ($3.4B) $22.5B $22.5B Flat -13.1% Provision as a % of Gross Uninsured Loans 0.22% 0.20% 0.07% 2 bps 15 bps (annualized) Net Non-Performing Loans Ratio 0.34% 0.29% 0.23% 5 bps 11 bps Total Capital Ratio 23.67% 24.12% 17.54% (45 bps) 613 bps CET1 Ratio 23.21% 23.64% 17.06% (43 bps) 615 bps Common Shares Outstanding (000s) 80,246 80,246 80,246 Flat Flat ▪ Net income and EPS decreased from Q1 2018 primarily resulting from a decrease in net interest income combined with higher non-interest expenses. ▪ NIM decreased from Q1 2018, reflecting decreases in net interest income and margin in the non-securitized portfolio. The decrease in net interest income resulted from an increase in interest expense on deposits. The increase in interest expense on deposits reflects both an increase in deposit balances along with an increase in the average rate of interest expense on those deposits. ▪ Non-interest expenses increased, as expected, compared to Q1 2018, primarily due to higher salaries and benefits, partially reflecting the increase in number of employees. This was offset by a reversal of $1.8 million of estimated severance expenses in connection with the Company’s Pr oject EXPO initiative. ▪ Provision for credit losses for 2017 were calculated under IAS 39 and were not restated. Q2 2018 PCL resulted primarily from one specific non-performing commercial loan included in Stage 3 under IFRS 9. ▪ CET 1 ratio decreased to 23.21% primarily due to an increase in risk-weighted assets. NM= not meaningful 7
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