Q2 2019 earnings presentation August 7, 2019 1
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 2019 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 2019 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
Overview Yousry Bissada, CEO 3
Executing our strategy of sustainable, profitable growth Single- Creation of Oaken Meaningful Continued family shareholder exceeds $3 progress on expansion mortgage value billion in IT roadmap in margins originations through customer and grew 10.6% initiative profit deposits year-over- profitability growth and year buybacks 4
Continuing progress on our IGNITE IT Roadmap SAP MIGRATION ON ROBOTIC PROCESS TRACK AUTOMATION Second phase of four- Completed first phase program implementation for underway process improvement PAPERLESS CONTINUING UNDERWRITING AND MIGRATION TO THE FUNDING CLOUD Fully deployed in IBM and Microsoft Azure residential lending 5
Financial results Brad Kotush, CFO 6
Earnings per share growth from higher margin and lower share count 7
Q2 Financial highlights Year-over-year Q2 2019 Q1 2019 Q2 2018 Sequential change change $1,276.7 $1,216.1 $1,230.2 5.0% 3.8% Originations (millions) $111.3 $103.8 $101.6 7.2% 9.5% Revenue (millions) 2.09% 2.01% 1.91% 8 bps 18 bps Net interest margin (TEB) Provisions as % of Gross Loans 0.15% 0.15% 0.17% 0 bps (2) bps (annualized) Efficiency ratio (TEB) – reported 55.4% 57.7% 54.5% (230) bps 90 bps Efficiency ratio (TEB) – adjusted 1 51.9% 54.7% 54.5% (280) bps (260) bps Net income (millions) – reported $31.9 $27.8 $29.6 14.7% 7.8% Net income (millions) – adjusted 1 $34.7 $30.2 $29.6 15.2% 17.3% Earnings per share – reported $0.53 $0.45 $0.37 17.8% 43.2% Earnings per share – adjusted 1 $0.58 $0.49 $0.37 18.4% 56.8% Return on equity (annualized) – reported 7.7% 6.8% 6.4% 90 bps 130 bps Return on equity (annualized) – adjusted 1 8.4% 7.3% 6.4% 110 bps 200 bps 1 See definition of Adjusted Efficiency Ratio, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Return on Sharehold ers’ Equity under 8 Non- GAAP Measures in the Company’s 2019 Second Quarter Report.
Q2 Financial highlights Sequential Year-over-year Q2 2019 Q1 2019 Q2 2018 change change Total loans (billions) $16.84 $16.68 $15.45 1.0% 9.0% Loans under administration $22.90 $23.11 $22.51 (0.9%) 1.7% (billions) Assets under administration $24.58 $24.94 $25.00 (1.4%) (1.7%) (billions) Net non-performing loans as % 0.47% 0.49% 0.34% (2) bps 13 bps of gross loans CET1 ratio 1 19.49% 18.99% 23.21% 50 bps (372) bps Book value per share $27.80 $27.00 $23.40 3.0% 18.8% Shares outstanding (millions) 59.3 61.0 80.2 (1.7) (20.9) 1 CET1 ratio relates to the Company’s operating subsidiary, Home Trust Company 9
Summary of adjustments in connection with IT roadmap Q2 2019 Q1 2019 Adjustment for IT Adjustment for Adjusted 1 Adjusted 1 Reported Reported Roadmap IT Roadmap Net income (millions) $31.91 $2.81 $34.72 $27.82 $2.33 $30.15 Adjustment for IT Adjustment for Reported Adjusted 1 Reported Adjusted 1 Roadmap IT Roadmap Earnings per share $0.53 $0.05 $0.58 $0.45 $0.04 $0.49 Efficiency ratio (TEB) 55.4% (3.5%) 51.9% 57.7% (3.0%) 54.7% Return on equity 7.7% 0.7% 8.4% 6.8% 0.5% 7.3% (annualized) Adjustment resulting from change in estimated useful life of legacy IT investment and elevated operating expenses 1 See definition of Adjusted Net Income, Adjusted Earnings per Share, Adjusted Efficiency Ratio and Adjusted Return on Shareholders’ Equity under Non - GAAP Measures in the Company’s 2019 Second Quarter Report. 10
Single-family residential originations $1,050.4 $1,100.0 $1,050.0 $37.7 $949.3 $1,000.0 +15.6% Millions $950.0 $73.4 $900.0 $1,012.7 $850.0 $875.9 $800.0 $750.0 Q2 2018 Q2 2019 Traditional single-family Accelerator single-family 11
Loan growth Total loans (billions) $16.84 $17.00 +9% y/y $16.50 $16.68 $16.39 $16.00 $16.04 $15.50 $15.45 $15.22 $15.00 $14.50 $14.00 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 12
Net interest margin (TEB) improvement over Q2 2018 Net interest margin (TEB 1 ) 2.09% 2.10% Disciplined, risk-based loan 2.05% pricing 2.03% 2.01% 2.02% 2.00% Higher overall 1.99% asset yields 1.95% Reduced costs of standby 1.90% 1.91% facility 1.85% Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 1 Net interest margin is a measure of profitability of assets. Net interest margin (TEB) is calculated by taking net interest income, on a taxable equivalent basis, divided by the average total assets. 13
High credit quality of our residential loan portfolio 703 720 700 699 Higher Beacon scores 680 660 since implementation of 640 B20 rules 620 600 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 Customers with higher average credit scores Wt. Avg. Original Beacon Wt. Avg. Current Beacon coming to Home Capital Weighted-Average LTV on new Uninsured Single-Family Residential Mortgages Originated in the period 80.0% Weighted-Average LTV on all Uninsured Single-Family Residential Mortgages Conservative loan-to- 71.3% value on the total 70.0% portfolio consistent with 59.0% Q1 level 60.0% 50.0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2017 2018 2019 14
Net non-performing loans as % of gross loans 0.60% 0.47% Decline from Q1 0.50% attributable to lower non- 0.40% performing commercial loans 0.30% 0.20% Loans are well- provisioned and 0.10% within internal risk tolerance 0.00% Results in 2018 and 2019 are reported under IFRS9 and results in 2017 are reported under IAS39 which may limit comparability to prior periods 15
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