Caution re: Forward-looking Statements

Transcription

1 May 13, 2015

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4 Caution re: Forward-looking Statements 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. Forward-looking statements are made in connection with business objectives and targets, Company operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. Accordingly, the audience is cautioned against undue reliance on these remarks. 4

5 Rewarding Our Investors Ten-year Cumulative Total Return on $100 Investment $400 $320 Compounded Annual Growth Rate 10yr 13% HCG 13% $240 $160 S&P/TSX 8% $80 $0 HCG Stock Price Performance $17.38 $17.03 $20.95 $9.90 $20.93 $25.90 $24.55 $29.54 $40.47 $47.99 Closing price as of December 31 Share prices have been restated to reflect the stock dividend of one common share per each issued and outstanding share, paid in

6 Rewarding Our Investors Twenty-Five Year Cumulative Total Return on $10,000 Investment $1,200,000 $1,000,000 Value of Investment $10,000 $1,128,309 HCG 21% $800,000 $600,000 Compounded Annual Growth Rate 25yr 21% $400,000 $200,000 $ S&P/TSX 8% 6

7 Proven Business Model Focus on underserved market segments and work with mortgage brokers in those segments Conduct detailed, customized analysis of our borrowers and their creditworthiness No automated scoring models; individual application review Understand our markets and take conservative loan-to-value positions Leverage robust collection process Focus on efficiency Reliably producing outstanding results for our shareholders 7

8 The Right Positions in the Right Markets Canadian Housing Market Fundamentals that are unique to the Canadian housing market Increased our vigilance and strengthened our underwriting criteria GTA Housing Market Anticipated population surge in GTA in coming years Imbalance between demand and supply will increase Well positioned for future growth 8

9 Housing Market in Canada s Energy-producing Regions Home s exposure in these provinces is low 4.2% of uninsured mortgage portfolio Average loan to value of 55.7% Non-performing loans lower than rest of portfolio Strong portfolio performance and limited exposure in these areas 9

10 History of Success The idea that excellence at performing a complex task requires a critical minimum level of practice surfaces again and again in studies of expertise. In fact, researchers have settled on what they believe is the magic number for true expertise: ten thousand hours. Malcom Gladwell, Outliers: The Story of Success Our in-depth market knowledge ensures informed decision making 10

11 Investing in Growth Increase marketing and sales capabilities Investment in Oaken Financial and IT infrastructure Enhance risk management and control processes Empower our team for success Increasing shareholder value Roadmap for continued profitability 11

12 Outlook for 2015 Expect to expand business in line with mid-term guidance Seasonally slower first quarter Earnings increased 3.7% year over year Outlook for 2015 remains unchanged Sustainable demand for products expected through

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14 Another Year of Record Profitability Adjusted net revenue exceeded $1 billion for the first time Adjusted net income increased 12.7% in 2014 Adjusted diluted earnings per share increased 12.3% in 2014 Total loans under administration increased 13.1% to $22.6 billion Adjusted return on equity (ROE) 22% - 17 th year that annual ROE has exceeded 20% Sustainable increases to shareholder value 14

15 Continuing Strength in Q Q Q Net Income $72.3M $69.7M Diluted EPS* $1.03 $1.00 Return on Equity 19.7% 23.1% Total Loans Under Administration $22.74B $20.48B *Diluted EPS restated to reflect stock dividend declared in Exercising increased caution regarding lending guidelines 15

16 HIP+: Our Home Improvement Plan Focus on being number one service provider for mortgage brokers Remodeling and renovating the way we do business 3 pillars to drive improvements: people, process and technology HIP+ will set Home apart in the industry Business model evolving to match growth and complexity of business 16

17 Growing Other Product Lines Retail Credit Loans for durable household goods and large-ticket home improvement items Deposit Initiatives Oaken Financial, HISA and institutional deposits 13.5% increase $2.8 Billion $2.4 Billion 30.7% increase Q Q Q Q Broadening our offerings to better serve our customers 17

18 Healthy Capital Position Home Trust Big Bank Average OSFI Minimum Common Equity Tier 1 Ratio 18.30% 11.94% 7.00% Total Capital Ratio 20.94% 14.63% 10.50% Ratios well above targets and big bank average 18

19 Strong Credit Performance Net non-performing loans One of the lowest in our history at 0.3% of portfolio at YE 2014 Provisions for credit loss 0.07% of gross loans for YE % of gross loans for Q Percentage of loans portfolio current Remaining high at 97.9% Continued solid credit quality 19

20 Investing in the Future Commitment to corporate governance, risk management and customer service processes and systems Upgrading technology and back office support Proper safeguards in place Multiple disaster recovery sites in Ontario Data protection Increased cyber-security capabilities Investing in risk management and control infrastructure Investing today to ensure prudent, long-term growth tomorrow 20

21 Organic Growth Oaken Financial branches out Secure online banking First store now open in Toronto s PATH Educating, inspiring and engaging customers To better meet the changing demands of our client base 21

22 Commitment to Corporate Social Responsibility Support communities where we live and work Corporate involvement Employee fundraising efforts Invest in our people Our most important assets Foster engagement and job satisfaction Implement environmentally sustainable business practices Reduce our impact on the environment Encourage employees to make green choices Representing the interests of all stakeholders 22

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24 Solid Growth in Mortgage Business Growth across all of our residential product lines Traditional, uninsured Accelerator, insured Mortgage industry is evolving Changes favour our business model Well positioned to navigate change 24

25 Our Core Product Alt A or near-prime business Borrowers do not meet traditional bank lending criteria Over 25 years of experience in this market We know and understand our customers Leverage this experience to serve borrowers with the right credit profile Deep knowledge of our market segment We understand this business better than anybody 25

26 Self-employed Entrepreneur Automated decision-making process employed by traditional banks ignored: Income retained in the business Discretionary expenses made by the business The resilience of entrepreneurs Home Trust underwriting team assessed true financial situation and approved the loan Provided customer with $20,000 Equity Visa card, secured against the home, to help with his business Borrowers we know and understand 26

27 Bruised Credit Seeking to refinance mortgage following marital breakdown Employed in salaried job with sufficient income to qualify Spouse amassed credit card debt during separation Utilized proprietary underwriting approach and approved the loan Looked beyond atypical credit behavior to see entire story Good customer, motivated to improve credit status Borrowers we know and understand 27

28 New Immigrant Family Permanent resident status in Canada Engineer and architect in home country Limited credit history in Canada Have downpayment, but traditional institutions will not provide mortgage Household income was verified and mortgage was approved Have not missed a payment Borrowers we know and understand 28

29 Keeping up with Technology Consumers expect a rich digitized experience Oaken Financial Personal online banking platform Coming soon online commercial deposit platform SAM New mortgage origination platform Increased efficiency and enhanced effectiveness of underwriting process Supports our goal of continuous improvement in mortgage lending Home Capital is embracing the digital revolution 29

30 Growing Our Traditional Business Enhanced margins and increased profitability Tightened requirements have fortified our market position Traditional lenders turning away previously qualified borrowers Improve our position without increasing risk Focus on client needs; provide one-stop shop Cautiously expand geographic footprint Maintain industry leading customer service Canada s leading alternative financial institution 30

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32 Strategic Priority #1 Build and maintain presence as Canada s leading alternative financial institution Serve segments that are underserved by the big banks Offer a full line of products and new channels of distribution Maintain high service levels for all clients Focus on our proven product and service offering 32

33 Strategic Priority #2 Maintain a strong and conservative financial position Conservative capital ratios Prudent risk profile Strong liquidity position Maintain stable and flexible funding sources to fuel our growth Remaining financially disciplined 33

34 Strategic Priority #3 Build on our operational excellence Continued investment in: Risk management and control processes and people Technology and processes that enhance customer experience Ensuring growth is prudent and well-managed Improving efficiencies and contributing to strong risk management 34

35 Confidence in the Future Large percentage of residential market is underserved by the big banks Home serves entrepreneurs, new immigrants and people with bruised credit Good borrowers, solid and reliable customers Leveraging our proprietary underwriting approach and extensive experience Strongly positioned to serve a growing niche market 35

36 Mid-term Objectives Average annual growth in diluted earnings per share of 8% - 13% Average annual return on equity in excess of 20% Maintain strong capital ratios Average pay out 19% - 26% of profits as dividends Financial agility to generate high-quality, sustainable growth 36

37 Distributing Profits to Shareholders Quarterly dividends declared over last twelve quarters $0.11 $0.13 $0.13 $0.13 $0.14 $0.14 $0.16 $0.16 $0.18 $0.20 $0.22 $0.22 Q Q Q Q Q Q Q Q Q Q Q Q Generating strong shareholder returns 37

38 Thanks to the Home Capital Team Working together to deliver profitable growth 38

39 Question & Answer Period 39