Fourth Quarter and Full Year 2016 Financial Results · Fourth Quarter and Full Year 2016 Financial Results February 8, 2017 . ... Q4 2016 Q3 2016 Q4 2015 FY 2016 FY 2015 Chg Reported

INVESTOR UPDATE

Fourth Quarter and Full Year 2016 Financial Results

February 8, 2017

Forward-Looking Statements

2

This presentation provides management with the opportunity to discuss

the financial performance and condition of Home Capital Group Inc. and

Home Trust Company and, as such may contain forward-looking

information about strategies and expected financial results. Various

factors, many difficult to predict and to control, could cause actual results

to differ materially from results projected in forward-looking statements.

Accordingly, the audience is cautioned against undue reliance on these

remarks.

3

• CEO 2016 Highlights • Strategic Priorities and Performance Goals • Q4 2016 Financial Performance • Capital Management • Risk Management • 2017 Outlook

Agenda

CEO 2016 Highlights

4

• Total Loans under administration increased to $26.4 billion at the end of 2016, up 5.5% compared to end of

2015.

• Returned more than $264 million to shareholders, while maintaining strong capital levels – CET 1 ratio of

16.55% and Total Capital Ratio of 16.97%.

• Achieved top end of Dividend Payout Ratio goal. Increased the dividend for the 9th time over the last five years,

twice during 2016.

• Adjusted ROE of 16.3% and book value increased 8.4% to $25.12 by the end of 2016.

• Reported earnings of $3.71 per share, compared to $4.09 in 2015.

• Adjusted earnings per share on a diluted basis were $3.95, compared with $4.11 for 2015, excluding:

― $9.0 million after tax or $0.13 diluted earnings per share, related to goodwill impairment for PSiGate

Business

― $5.1 million pre-tax, or $3.8 million after tax and $0.06 diluted earnings per share, related to

intangible asset impairment

― $5.1 million pre-tax, or $3.7 million after tax and $0.06 diluted earnings per share, related to

severance and other related costs recorded in Q1 2016

― $651,000 pre-tax, or $478,000 after tax and $0.01 diluted earnings per share related to positive

adjustment to gain recognized on the acquisition of CFF Bank

• Launched an expense-saving initiative, Project EXPO, which targets at minimum, an annualized $15.0 million of

cost over the course of 2017. Restructuring charges are expected in 2017.

Culture

Performance Goals on an operating basis

Revenue Growth 5% or greater

Diluted Earnings Per Share Growth 7% or greater

ROE 15% or greater

Strategic Priorities and Performance Goals

5

• Strategic priorities and performance goals will guide the business for 2017 and beyond. These priorities will leverage the

company’s foundation and key strengths – a talented team and a commitment to service, leveraging technology,

agility and strong risk management.

• Beginning in 2017 and moving forward, the following strategic priorities position the Company for long-term success:

Vision: Leading Provider of Financial Services to Underserved Canadians

HCG STRATEGY

Strategic Priorities

Prudent Growth in Core Residential Mortgage Business

Provide Innovative Products and Solutions

Positive Operating Leverage

Efficient Balance Sheet and Capital Utilization

Foundation Talent Service Technology

Agility Risk Management

Mission: We listen, and deliver exceptional services to empower our customers and partners

Values: Customer Centricity / Diversity / Efficiency / Integrity / Passion / Respect

2016 Performance vs. Previous Mid-Term Targets

Measure(1) Previous(2) 2016 Performance(2) New

Revenue Growth - - 5% or greater

Diluted Earnings Per Share Growth

8% to 13% Declined 3.9% year-over-year

7% or greater

Return on Shareholders’ Equity (ROE)

Annual ROE >16% ROE of 16.3% 15% or greater

Dividend Payout Ratio 19% to 26% Dividend Payout Ratio of 25%

1) Measures are calculated on an adjusted basis. 2) 2016 Mid-term targets and performance are calculated on an adjusted basis. Previous targets included a measure to maintain a strong capital ratio that exceeds

regulatory minimums by a safe margin commensurate with the Company’s risk profile. The Company maintained a strong CET 1 Ratio of 16.55% at the end of 2016.

• Home Capital Group is introducing new performance goals moving forward

• Goals are consistent with strategic plans and long-term objectives and are expected to be achieved over the long-term

• 2017 will be a transition period where cost reductions and revenue generation initiatives continue to

unfold. Successful delivery of these items is expected to translate into improved results consistent with the above goals later in 2017 and beyond

Financial Performance

Fourth Quarter 2016

7

Q4 2016 Financial Results

8

1. Q4 2016 Adjusted Diluted EPS excludes impact of items of note including $9.0 million or $0.13 diluted earnings per share, after tax, goodwill impairment for PSiGate Business, and a $5.1 million pre-tax, or $3.8 million and $0.06 diluted earnings per share, after tax, write-down of an intangible asset related to software development costs . FY 2016 Adjusted Diluted EPS also excludes Q4 2016 items of note and $5.1 million pre-tax, or $3.7 million and $0.06 diluted earnings per share, after tax, impact of severance and other related costs. Q4 2016 and FY 2016 adjusted efficiency ratio excludes impact of goodwill impairment and write down of intangible asset.

2. For the year ended December 31, 2016, the Company repurchased a total of 1.46 million common shares for $43.5 million through its Normal Course Issuer Bid (NCIB) and 3.99 million shares for $150 million of common shares through the Substantial Issuer Bid (SIB) in Q2 2016. NCIB renewed through to December 2017 providing ability to repurchase up to 10% of public float. In addition, the Company repaid and retired its senior debt in the principal amount of $150.0 million. These transactions resulted in a reduction in capital and related regulatory capital ratios.

Q4 2016 Q3 2016 Q4 2015 FY 2016 FY 2015 Chg

Reported Net Income $50.7M $66.2M $70.2M $247.4M $287.3M (13.9%)

Reported Diluted EPS $0.79 $1.01 $1.00 $3.71 $4.09 (9.3%)

Adjusted Net Income $63.5M $66.2M $71.8M $263.4M $288.9M (8.8%)

Adjusted Diluted EPS(1) $0.98 $1.01 $1.02 $3.95 $4.11 (9.3%)

Total Revenue $239.4M $243.9M $248.5M $967.7M $995.8M (2.8%)

NIM (TEB) 2.38% 2.34% 2.46% 2.37% 2.36% 1 bp

Loans Under Administration $26.4B $26.0B $25.1B $26.4B $25.1B 5.5%

Adjusted Efficiency Ratio (TEB)(1) 39.1% 37.7% 33.7% 37.6% 31.8% 580 bps

Provision as a % of Gross Uninsured Loans 0.07% 0.04% 0.04% 0.05% 0.06% (1 bp)

NPL Ratio 0.30% 0.31% 0.28%

Total Capital Ratio(2) 16.97% 16.97% 20.7%

CET1 Ratio(2) 16.55% 16.54% 18.31%

Diluted Average Commons Shares O/S (000s) 64,519 65,435 70,237

Mortgage Originations

9

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

Traditional Single-family Residential

Mortgages

ACE Plus Mortgages Accelerator Single-family Residential

Mortgages

ResidentialCommercialMortgages

Non-ResidentialCommercialMortgages

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

(in millions) Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

Traditional Single-family Residential Mortgages $1,163.3 $995.4 $1,253.0 $1,416.8 $1,325.9

ACE Plus Mortgages $141.0 $69.2 $115.4 $116.7 $106.5

Accelerator Single-family Residential Mortgages $515.9 $363.8 $464.8 $446.7 $346.7

Residential Commercial Mortgages $133.7 $182.9 $382.0 $212.8 $371.5

Non-Residential Commercial Mortgages $200.3 $171.1 $259.7 $347.6 $277.3

Total Mortgage Originations $2,154.2 $1,782.4 $2,474.9 $2,540.7 $2,427.8

Net Interest Margin

10

NIM (TEB)

NIM Non Securitized Assets (TEB) NIM Securitized Assets (TEB)

Spread of Non-Securitized Loans over Deposits (TEB)

2.46%

2.38% 2.38%

2.34%

2.38%

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

2.89%

2.74%

2.76%

2.70%

2.73%

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

2.97% 2.91%

2.97%

2.89%

2.86%

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

0.60% 0.47% 0.42% 0.45% 0.53%

1.85% 1.90%

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

CMHC-Sponsored Securitization

Bank-Sponsored Securitization

Historical Share Price Performance

11

Q4 2016 dividend of $0.26 per share

$31.34

$0.26

$-

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

Q4

20

06

Q1

20

07

Q2

20

07

Q3

20

07

Q4

20

07

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

08

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

09

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

10

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

14

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

15

Q1

20

16

Q2

20

16

Q3

20

16

Q4

20

16

Share Price Dividend

HCG Share Price

Share price and dividend yield has been adjusted for the stock dividend of one common share for each issued and outstanding common share that was

paid on March 10, 2014.

Capital Management

12

Capital

13

18.31% 18.28%

16.38% 16.54% 16.55%

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

20.70% 20.63% 16.82% 16.97% 16.97%

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

Basel III Common Equity Tier 1

Basel III Total Capital

Leverage Ratio

• Maintained strong capital ratios:

― CET 1 Ratio 16.55%

― Tier 1 Ratio 16.54%

― Total Capital Ratio 16.97%

• In Q2 2016 the Company completed a

SIB repurchasing 3.99 million common

shares for $150 million and repaid and

retired its senior debt in the principal

amount of $150.0 million.

• The Company also repurchased a total

of 1.46 million common shares for $43.5

million through its NCIB

• These transactions resulted in in a

reduction in capital and related

regulatory capital ratios

• Conservative leverage ratio at 7.20%

• Increased quarterly dividend to $0.26 per

common share in Q3 2016.

7.36% 7.46%

6.77%

7.08% 7.20%

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

Risk Management

14

Mortgage Lending

15

Total on-balance sheet mortgage portfolio balance of $17.2B, of which 88.6% of the portfolio is residential

mortgages

• 20.0% of the residential mortgage portfolio is insured

• Weighted-average current loan-to-value (LTV)(1) of the uninsured residential mortgage portfolio was 60.9%

• 98.3% of the mortgage portfolio is current, with 0.3% over 90 days past due

• Condominiums represent 9.0% of the residential mortgage portfolio, with 23.1% insured

• 2.6% of the uninsured mortgage portfolio was in energy producing regions

Single-Family Residential

Loans by Province Insured Uninsured Equityline Visa Total %

British Columbia $286.4M $603.4M $2.6M $892.4M 6.1%

Alberta $298.4M $314.5M $10.3M $623.3M 4.3%

Ontario $1,950.2M $10,145.3M $304.5M $12,400.0M 84.6%

Quebec $99.5M $295.0M $1.2M $395.7M 2.7%

Other $192.1M $143.8M $2.3M $338.1M 2.3%

Total $2,826.6M $11,502.0M $320.9M $14,649.5M 100.0%

1. Weighted average current LTV is defined in the 2016 Management Discussion and Analysis.

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

Loans

16

• Prudent strategies to maintain strong credit quality

• Close monitoring of non-performing loans and proactive measures to minimize losses

2017 Outlook

17

Market Outlook for 2017

18

Assumptions about the performance of the Canadian economy in 2017 and its effect on Home Capital’s business are material factors the Company considers when setting its objectives, goals and outlook. In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical and forecasted economic data provided by the Canadian government and its agencies. In setting and reviewing its targets, objectives and outlook for 2017, management’s expectations continue to assume: • The Canadian economy is expected to be relatively stable in 2017, supported by expanded Federal Government

spending; however, it will continue to be impacted by adverse effects related to fluctuations in oil prices and other commodities. The Company has limited exposure in energy-producing regions.

• Generally the Company expects stable employment conditions in its established regions; however, unemployment rates in energy-producing regions are expected to remain elevated in 2017. Also, the Company expects inflation will generally be within the Bank of Canada’s target of 1% to 3%, leading to stable credit losses and consistent demand for the Company’s lending products in its established regions. Credit losses and delinquencies in the energy-producing regions may increase, but given the Company’s limited exposure, this is not expected to be significant.

• The Canadian economy will continue to be influenced by the economic conditions in the United States and global markets and further adjustments in commodity prices; as such, the Company is prepared for the variability to plan that may result.

• The Company is assuming that interest rates will remain at the current very low rate for 2017. This is expected to continue to support relatively low mortgage interest rates for the foreseeable future.

*Additional information on management’s outlook for 2017 can be found in the fourth quarter 2016 management’s discussion and analysis report available on Home Capital’s website www.homecapital.com

Appendices

19

Home Capital Snapshot

20

Home Trust Company and Home Bank, Federally Regulated – Mortgage Lending, Deposit taking institutions

• Member of Canada Deposit Insurance Corporation (CDIC). Home Bank, a subsidiary of Home Trust, is also a separate member of CDIC

• Funding from retail deposits and securitizations

• Focused on homeowners that are not adequately served by traditional financial institutions

• Primarily originates mortgages through mortgage brokers and referrals from Schedule I banks and other partners

• National platform services through 6 regional branches, 2 stores and 916 employees at Q4/16

• Offices in Vancouver, Calgary, Winnipeg, Toronto, Montreal, Halifax

Investment grade ratings:

• HCG – BBB-/A3 (Standard & Poor’s), BBB/R-2 (middle) (DBRS)

• HTC – BBB/A2 (Standard & Poor’s), BBB(high)/R-2 (high) (DBRS

Key Statistics (February 6, 2017)

TSX Listing TSX:HCG

Market Capitalization ~$1.9 Billion

Shares O/S At December 31, 2016

64.4 Million

FY 2016

Total Loans Under Administration

$26.4 Billion

2016 Annual Revenue $967.7 Million

2016 Annual Mortgage Originations

$9.2 Billion

CET 1 Capital Ratio At December 31, 2016

16.55%

Deposit and Lending Products

21

All Products available through Home Trust and Home Bank, both members of CDIC

DEPOSITS

Canada Deposit Insurance Corporation (CDIC) Member offering:

• Term deposit products

• High Interest Savings Account (HISA)

• Direct to consumer savings via Oaken Financial

LENDING PRODUCTS

Mortgage Lending

• Classic non-prime uninsured mortgages

• ACE Plus near-prime mortgages

• Accelerator prime insured mortgages

Other Lending and Products

• Equityline Visa

• Secured Visa

• Preferred Visa

• Merchant acquirer solutions (via PSiGate)

• Retail Credit

• Commercial lending

• Prepaid Cards Issuer

Business Profile

22

• Home Capital Group Inc., together with its operating subsidiary Home Trust Company, has developed a track record of success as Canada's leading alternative lender.

• Building on the demonstrated strength of its core residential mortgage lending business, the Company also offers complementary lending services, as well as highly competitive deposit investment products.

MORTGAGE LENDING

• Home Trust, a leading Canadian mortgage lender, focused on homeowners who typically do not meet all the lending criteria of traditional financial institutions.

• Offers insured mortgage products through the Accelerator program to individuals customarily served by larger financial institutions.

• Proprietary lending approach, comprehensive borrower profiling and flexible alternative solutions

• Commercial mortgages to high-quality borrowers in selected markets

CONSUMER LENDING

• Equityline Visa program

• Deposit-secured credit cards for individuals who wish to build or re-establish a positive credit history

• Unsecured cards under Home Trust’s brand name, co-branded programs.

• PSiGate, a wholly owned subsidiary, offers electronic card-based payment services to merchants who conduct business primarily on the Internet.

• Home Trust's Retail Credit Services provides installment financing for customers making purchases from established businesses.

DEPOSIT INVESTMENTS

• Home Bank is a subsidiary of Home Trust and a second deposit issuer in the deposit broker channel.

• Guaranteed Investment Certificates (GIC’s)

• High interest savings account (HISA)

• Offers via Registered Retirement Savings Plans, Registered Retirement Income Funds, Tax-free Savings Accounts and non-registered basis.

• Extensive national network of intermediaries, including investment dealers, mutual fund dealers, deposit brokers and other wealth management professionals through which these are offered.

DIRECT TO CONSUMER SAVINGS • Oaken Financial offers a suite

of consumer deposit products

• Guaranteed Investment Certificates (GICs) and the Oaken Savings Account.

• Oaken provides consumers with a secure alternative to managing their savings independently.

• Home Bank is a second deposit issuer in the deposit broker channel and for Oaken Financial

Investor Relations/ Media Contacts

23

Investor Relations Media Relations

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: [email protected]

Martin Reid, President & Chief Executive Officer Robert Morton, Chief Financial Officer Laura Lepore, AVP, Investor Relations To arrange an interview: Laura Lepore Phone: (416) 933-5652 Email: [email protected]

Upcoming Events February 8, 2017 Q4 2016 Earnings Release February 9, 2017 8:00 am EST Q4 2016 Conference Call

May 3, 2017 Q1 2017 Earnings Release