Second Quarter Financial Results August 13, 2018 Forward-Looking - - PowerPoint PPT Presentation

Second Quarter Financial Results August 13, 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 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

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

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Forward-Looking Statements

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

• utstanding 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

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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

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Q2 2018 CEO Highlights

Second Quarter 2018 Financial Results

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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

Q2 2018 Financial Performance Highlights

• 1. Weighted average current LTV is defined in the Q2 2018 Management’s Discussion and Analysis.

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Q2 2018 Financial Results

($ millions) Q2 2018 Q1 2018 Q2 2017 QoQ QoQ % Chg YoY YoY % Chg Net Income / (Loss) $29.6 $34.6 ($111.1) ($5.0)

• 14.4%

$140.7 NM Diluted Earnings Per Share (EPS) $0.37 $0.43 ($1.73) ($0.06)

• 14.0%

$2.10 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 $22.5B $22.5B $25.9B Flat Flat ($3.4B)

• 13.1%

Provision as a % of Gross Uninsured Loans (annualized) 0.22% 0.20% 0.07% 2 bps 15 bps 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 Project 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

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Sequentially Increased Mortgage Advances

100 200 300 400 500 600 700 800 900 Traditional Single-family Residential Mortgages ACE Plus Mortgages Accelerator Single-family Residential Mortgages Residential Commercial Mortgages Non-Residential Commercial Mortgages Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

(in millions) Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 QoQ % Chg YoY % Chg Total Mortgage Advances $1,118.1 $385.1 $872.1 $1,159.2 $1,230.2 6.1% 10.0% Traditional Single-family $699.9 $201.1 $515.7 $749.4 $836.5 11.6% 19.5% ACE Plus Single-family $56.1 $1.5 $21.7 $61.3 $39.4

• 35.7%
• 29.8%

Accelerator Single-family $84.2 $21.3 $28.6 $59.0 $73.5 24.6%

• 12.7%

Residential Commercial $89.8 $99.1 $194.8 $104.9 $129.4 23.4% 44.1% Non-Residential Commercial $188.1 $62.0 $111.2 $184.7 $151.4

• 18.0%
• 19.5%

▪ Q2 2018 total single-family mortgage advances of $949.3 million, compared $869.7 million in Q1 2018

Strong Credit Performance in Q2 2018

▪ Total provision for credit losses (PCL) of $6.5 million in Q2 2018 (vs. $6.0 million in Q1 2018 and $2.4 million Q2 2017) – PCL calculated under IFRS 9 for Q2 and Q1 2018 and under IAS 39 for 2017. As provisions for credit losses for 2017 were not restated, comparability is reduced to some extent. – Q2 2018 PCL resulted primarily from one specific non-performing commercial loan included in Stage 3 under IFRS 9. ▪ Provision as a percentage of gross uninsured loans (annualized) remained low at 0.22% vs. 0.20% in Q1 2018 and 0.07% in Q2 2017 ▪ Net write-offs were $1.8 million and represented 0.05% of gross loans vs. 0.03% in Q1 2018 and 0.05% in Q2 2017 ▪ Net non-performing loans (represented by Stage 3 loans under IFRS 9) as a percentage of gross loans remained low at 0.34% at end of Q2 2018 vs. 0.29% at end of Q1 2018 and 0.23% at end of Q2 2017 – The Company continues to observe strong credit profiles and stable loan-to-value ratios across its portfolio, which continues to support low delinquency and non-performing rates and ultimately low net write-offs.

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Credit Performance

▪ 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

0.34% 0.05%

0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 Net Non-Performing Loans as a Percentage of Gross Loans Net Writeoff's as a Percentage of Gross Loans

Liquid Assets ▪ $1.82 billion at Q2 2018 ▪ $1.45 billion at Q1 2018 ▪ $1.74 billion at Q2 2017 Aggregate available liquidity ▪ $2.32 billion including $500 million undrawn credit facility at Q2 2018 Deposits ▪ $12.50 billion at Q2 2018 ▪ $12.08 billion at Q1 2018 ▪ $13.10 billion at Q2 2017

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Liquidity and Deposits

11.3 11.1 11.0 11.2 11.8

Total Broker and Oaken Deposits Payable on a Fixed Date – Excludes Demand Deposits and Institutional Deposit Notes

In ($) Billions, end of the month

9.4 9.2 9.3 9.3 9.3 9.6 9.6 1.8 1.8 1.8 2 2.1 2.2 2.2

2 4 6 8 10 12 14 Dec Jan Feb Mar Apr May Jun Oaken Broker

11.4 11.8

• 1. Excludes institutional deposit notes of $300 million and

Deposits payable on demand of $411 million as at Q2 2018. Total demand deposits at Q4 2017 were $539 million and deposit notes were $476 million.

Capital provides safety and flexibility ▪ Q2 2018 Capital ratios: ― CET 1 Ratio 23.21% ― Tier 1 Ratio 23.21% ― Total Capital Ratio 23.67% ▪ Capital ratios decreased from Q1 2018 primarily due to an increase in risk-weighted assets

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Capital and Leverage Ratios

17.06% 21.25% 23.17% 23.64% 23.21%

Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

17.54% 21.74% 23.68% 24.12% 23.67%

Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

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

7.19% 7.89% 8.70% 9.02% 8.96%

Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Questions

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Q2 2018 Financial Results Presentation

APPENDIX

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Total on-balance sheet mortgage portfolio balance of $14.7B, of which 91.4% is residential mortgages ▪ 23.7% of mortgage portfolio is insured ▪ Weighted average current loan-to-value (LTV) of the uninsured residential mortgage portfolio was 59.3% ▪ Highrise condominiums represent 7.7% of the total residential mortgage portfolio, and 26.5%

• f those loans are insured

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Mortgage Lending Q2 2018 Highlights

Single-Family Residential Loans by Province Insured Uninsured Equity Line Visa Total % British Columbia $260.0M $616.0M $3.9M $879.9M 6.7% Alberta $474.4M $241.1M $8.7M $724.2M 5.5% Ontario $1,796.7M $8,544.8M $306.5M $10,648.0M 81.4% Quebec $125.9M $223.7M $1.0M $350.6M 2.7% Other $305.5M $173.2M $2.0M $480.7M 3.7% Total $2,962.5M $9,798.8M $322.1M $13,083.4M 100.0%

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Prudently Managed Mortgage Book

LTV Ratio (Q2 2015 – Present) Weighted-Average LTV Ratios by Geography (Q2 2018)

Uninsured Residential Mortgages as at Q2 2018(2) British Columbia 52.9% Alberta 64.2% Ontario 59.5% Quebec 61.0% Other 63.6% Total 59.3% Uninsured Residential Mortgages Originated Q2 2018(1) British Columbia 62.5% Alberta 70.8% Ontario 69.3% Quebec 72.6% Other 69.7% Total 68.5%

50.0% 55.0% 60.0% 65.0% 70.0% 75.0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2015 2016 2017 2018 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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Net Interest Margin

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

1) NIM in Q2 2017 was negative due primarily to elevated interest expense incurred during the quarter comprised primarily of the $100 million commitment fee incurred on $2 billion emergency credit facility. NIM turned positive in Q3 2017 despite higher interest expense for the Berkshire Hathaway (BH) credit facility, elevated deposit balances and higher rates on new deposits maintained downward pressure. 2) In Q4 2017 NIM increased to 2.02% from 1.85% in the previous quarter 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 credit facility. 3) In Q1 2018 NIM was flat at 2.02% over last quarter, while net interest income decreased. The decrease in net interest income is primarily due to a decrease in interest income from the traditional single-family residential mortgage portfolio, as well as an increase in the average rate of interest expense on deposits and credit facilities. Offsetting this was a decrease in the relative proportion of average lower-yielding cash resources and securities. 4) In Q2 2018 NIM was 1.91%, a decrease of 11 bps 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 and an increase in the average rate of interest expense on those deposits. Additionally, interest income on the consumer retail portfolio was higher last quarter as a result of the recognition of $3.0 million in prepayment penalty interest income resulting from the early payout on certain portfolios of consumer retail loans during the previous quarter.

• 0.07%

1.85% 2.02% 2.02% 1.91% Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

• 0.19%

2.21% 2.46% 2.45% 2.29% Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

• 0.41%

2.62% 2.84% 2.60% 2.36% Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 0.50% 0.43% 0.30% 0.32% 0.34% 1.63% 1.17% 0.99% 1.10% 1.62% Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

CMHC-Sponsored Securitization Bank-Sponsored Securitization

▪ 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 ▪ $411 million of demand deposits at June 30, 2018

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Long Funded Balance Sheet

Maturity Profile as at June 30, 2018 ($ billions)

1. Total contractual fixed term deposits include $300 million in institutional deposit notes and exclude deposits payable on demand of $411 million as at June 30, 2018. Total demand deposits at December 31, 2017 were $539 million. 2.2 7.1 2.5 0.6 12.4 1.7 4.1 4.4 1.9 12.1 2 4 6 8 10 12 14 0-3 months 3-12 months 1-3 years Over 3 Years Total Non-Securitized Contractual Mortgage Maturities Contractual Fixed Term Deposit Maturities

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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