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

Q4 2017 Financial Results February 14, 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 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 on its behalf, except as required by securities laws. 2

CEO Q4 2017 Overview  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 3

Q4 2017 CEO Highlights 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 4

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 5

OSFI Guideline B-20 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. 6

Guideline B-20 Sensitivity Analysis 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 $ (in billions, except %) Actual 12 months ended Next 12 months with Next 12 months with December 31, 2017 10% reduction in 20% reduction in Advances Advances 14.3 12.5 12.5 Opening Balance 3.3 3.0 2.7 Advances (4.8) (4.2) (4.2) Discharges (0.3) 0.3 0.3 Other 12.5 11.6 11.3 Ending Balance (13)% (7)% (10)% Growth Rate 7

Fourth Quarter 2017 Financial Results 8

Q4 2017 Financial Performance Highlights 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 originations, 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 1. Weighted average current LTV is defined in the 2017 Annual Management Discussion and Analysis.