q2 2020 earnings presentation€¦ · origination growth in accelerator and commercial offsets...
TRANSCRIPT
1
Q2 2020 earnings
presentation
August 6, 2020
2
From time to time Home Capital Group Inc. 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 2020 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 2020 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, the impacts of the novel coronavirus disease (COVID-19) pandemic and government responses to it, 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,
climate change, 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.
Forward-looking statements
3
Overview
Yousry Bissada, CEO
4
Highlights of Q2 2020
Worked with
borrowers to
find optimal
solutions
beyond initial
deferral period
Launched new
projects in digital
banking and loan
origination
Growth in residential and
commercial loan
originations from Q2 2019
All Ignite teams
transitioned to working remotely –
projects moving forward
Industry
activity shows
evidence of
healthy and
resilient real
estate market
5
Supporting our borrowers beyond payment deferrals
First request• Up to two months’ payment deferral to borrowers
in good standing (Stage 1 or Stage 2)
Later requests• Full review of financial situation with borrower
• Understanding the impact of different solutions
Additional payment
deferral
Return to scheduled
payments
Other forms of
accommodation
6
Financial
resultsBrad Kotush, CFO
7
Q2 highlights
$27.80
$30.11
$20.00
$22.00
$24.00
$26.00
$28.00
$30.00
$32.00
Q2 2019 Q2 2020
Book value per share
1 See definition of Adjusted Net Income, Adjusted Diluted Earnings per Share and
Adjusted Return on Shareholders’ Equity in the Company’s 2020 Second Quarter
Report.
$31.9$34.7 $34.1
$36.6
$20.0
$24.0
$28.0
$32.0
$36.0
$40.0
Q2 2019 Q2 2019Adjusted¹
Q2 2020 Q2 2020Adjusted¹
Net income - millions
7.7%8.4% 8.9%
9.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Q2 2019 Q2 2019Adjusted¹
Q2 2020 Q2 2020Adjusted¹
Return on equity
$0.53 $0.58
$0.65 $0.70
$-
$0.20
$0.40
$0.60
$0.80
Q2 2019 Q2 2019Adjusted¹
Q2 2020 Q2 2020Adjusted¹
Earnings per share
8
Impact of higher revenue offset by higher provisions expense
9
$106.9
$257.2
$119.3
$110.1
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
Q2 2019 Q2 2020
Mill
ions
Residential commercial Non-residential commercial
Origination growth in Accelerator and Commercial offsets
slowdown in Classic
$1,012.7$854.9
$37.7$272.9
$0.0
$200.0
$400.0
$600.0
$800.0
$1,000.0
$1,200.0
Q2 2019 Q2 2020
Mill
ions
Classic single-family Accelerator single-family
+7.4%
+62.3%
10
On-balance sheet loan portfolio
$16.7
$17.0 $17.2 $17.1
$17.2
$14.0
$14.5
$15.0
$15.5
$16.0
$16.5
$17.0
$17.5
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Total loan portfolio (billions)+3.3% y/y
11
Upward trend in credit quality during Q2 in line with sustainable risk culture
Loans are of high quality and secured by assets at a low LTV
682 711 705 710
0
100
200
300
400
500
600
700
800
Classic originationsduring Q1
Classic originationsduring Q2
Total Classicportfolio at end of
Q1
Total Classicportfolio at end of
Q2
Weighted-average FICO score
69.6%
60.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
New uninsured single-familyresidential mortgages originated
in Q2 2020
All uninsured single-familyresidential mortgages at end of
Q2
Weighted-average loan to value
12
Net interest margin 31 bps higher compared with Q2 2019
2.03%
1.99%2.01%
2.09%
2.22%
2.31%
2.38%2.40%
1.85%
1.95%
2.05%
2.15%
2.25%
2.35%
2.45%
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Net interest margin (TEB1)
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.
Higher average yields on non-securitized
products
Lower rates on deposit liabilities
Higher balance of low-yielding liquid assets
Increased due to:
Partially offset by:
13
Growing deposits through our Oaken channel
Oaken now accounts for 26.2% of deposits with majority in the form of term deposits
$3.1
$0.6
$3.7
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
Q2 2020
Oaken deposits by product in $billions
GICs Savings accounts Total
16.4%
83.6%
$10.4 $10.2 $10.2 $10.4 $10.3
$3.1 $3.3 $3.4 $3.5 $3.7
$13.5 $13.5 $13.6 $13.9 $14.0
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Broker and Oaken deposits in $billions
Broker Oaken Total
14
Substantial decline in loans in payment deferral program
Accelerator Classic Commercial Other Total
deferrals
Loans: April 30 1,879 6,859 358 807 9,903
Loans: July 31 684 1,987 23 4 2,698
Change in number
of loans
(64%) (71%) (94%) (100%) (73%)
Principal: April 30
(millions)
$526.5 $3,154.5 $185.1 $67.5 $3,933.6
Principal: July 31
(millions)
$205.1 $1,078.4 $15.0 $0.5 $1,299.0
Change in principal
balance
(61%) (66%) (92%) (99%) (67%)
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• Provisions for credit losses of 0.43% of gross loans on an annualized basis
• Net write-offs of 0.02% of gross loans on an annualized basis
• Net write-offs of single-family residential mortgages were less than one basis point
Provisions and write-offs as a percentage of gross loans
Results in 2018, 2019 and 2020 are reported under IFRS 9 and results in 2016 and 2017 are
reported under IAS 39 which may limit comparability to prior periods.
0.43%
0.02%
-0.20%
-0.10%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
Q42018
Q12019
Q22019
Q32019
Q42019
Q12020
Q22020
Provisions (annualized) as a % of gross loans
Net write-offs (annualized) as a % of gross loans
16
Net non-performing loans and credit allowance
Results in 2018, 2019 and 2020 are reported under IFRS 9 and results in
2016 and 2017 are reported under IAS 39 which may limit comparability
to prior periods.
24.3% 23.6%25.2% 34.3%
31.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Mill
ion
s
Total Stage 3 Loans (Gross) NPL Allowance as % of Gross NPL
0.42%
0.37%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
Net Non-Performing Loans as % of Gross Loans
Net Non-Performing Single-Family Residential Loans as % ofGross Single-Family Residential Loans
17
Allowance for credit losses in Q2 2020
$29.5 $35.4
$24.0
$32.1$3.9
$3.8$33.8
$37.6
$91.3
$108.9
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
Q1 2020 Q2 2020
Mill
ions
Other consumer retail Credit cards and lines of credit
Commercial mortgages Single family residential mortgages
Total
$59.5
$76.1
$31.8
$32.8
$91.3
$108.9
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
Q1 2020 Q2 2020
Mill
ions
Stage 3 Stages 1 and 2 Total
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Change in components of allowance for credit losses
Sequential change in components of allowance
(in 000s) Stages 1 and 2 Stage 3 Total
Single-family residential mortgages$ 3,337 $ 2,506 $ 5,843
Commercial mortgages$ 10,391 $ (2,275) $ 8,116
Credit card loans and lines of credit$ (41) $ (68) $ (109)
Other consumer retail loans$ 2,914 $ 886 $ 3,800
Total$ 16,601 $ 1,049 $ 17,650
94% of increase attributable to Stages 1 and 2 loans
19
High volume of liquid assets and near-term asset maturities
Aggregate available liquidity of $1.81 billion at the end of Q2 including $500 million undrawn credit
facility79% of loans mature within 12 months
$1,323 $1,341 $1,366 $1,429
$1,309
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Mill
ions
Liquid assets at carrying value
As % of Total assets
$3.0
$8.3
$2.2
$0.8
$14.3
$1.8
$5.1$4.5
$1.7
$13.1
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
0-3 months 3-12months
1-3 years Over 3years
Total
Bill
ions
Non-Securitized Contractual Loan Maturities
Contractual Fixed Term Deposit Maturities
20
Additional sources of funding and liquidity
➢ $500 million committed secured standby facility renewed in Q2
➢ $300 million committed secured warehouse facility with a syndicate of Canadian banks
➢ $100 million uncommitted repo facility with a Canadian institutional investor
➢ Q3 2019 RMBS transaction continues to perform in line with initial estimates
➢ Will return to RMBS issuance when market conditions are favourable
➢ Access to the Bank of Canada’s Standing Term Liquidity Facility
21
Capital and leverage metrics1
Generous capital buffer to support borrowers and protect depositors
Leverage is within internal risk limits and well above regulatory requirements
7.00%
18.48%
REGULATORY MINIMUM
ACTUAL
1 Ratios are based on Home Trust Company’s consolidated financial
position.
Basel III Common Equity Tier 1 at Q2 2020 Leverage ratio at Q2 2020
3.00%
7.38%
REGULATORYMINIMUM
ACTUAL
22
Questions?
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Q2 Financial highlights
Q2 2020 Q1 2020 Q2 2019 Sequential changeYear-over-year
change
Originations (millions) $1,495.2 $1,617.2 $1,276.7 (7.5%) 17.1%
Revenue (millions) $132.3 $127.2 $111.3 4.1% 18.9%
Net interest margin (TEB) 2.40% 2.38% 2.09% 2 bps 31 bps
Provisions as % of Gross Loans
(annualized)0.43% 0.70% 0.15% (27) bps 28 bps
Efficiency ratio (TEB) – reported 50.5% 46.7% 55.4% 380 bps (490) bps
Efficiency ratio (TEB) – adjusted1 47.9% 44.4% 51.9% 350 bps (400) bps
Net income (millions) – reported $34.1 $27.7 $31.9 23.1% 7.0%
Net income (millions) – adjusted1 $36.6 $29.9 $34.7 22.7% 5.5%
Earnings per share – reported $0.65 $0.52 $0.53 25.0% 22.6%
Earnings per share – adjusted1 $0.70 $0.56 $0.58 25.0% 20.7%
Return on equity (annualized) – reported 8.9% 6.9% 7.7% 200 bps 120 bps
Return on equity (annualized) – adjusted1 9.5% 7.5% 8.4% 200 bps 110 bps
1 See definition of Adjusted Efficiency Ratio, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Return on Shareholders’ Equity under
Non-GAAP Measures in the Company’s 2020 Second Quarter Report.
24
Q2 Financial highlights
Q2 2020 Q1 2020 Q2 2019Sequential
change
Year-over-year
change
Total loan portfolio (billions) $17.21 $17.12 $16.67 0.5% 3.3%
Loans under administration
(billions)$22.88 $23.04 $22.90 (0.7%) (0.1%)
Assets under administration
(billions)$24.67 $25.07 $24.58 (1.6%) 0.3%
Net non-performing loans as %
of gross loans0.42% 0.36% 0.47% 6 bps (5) bps
CET1 ratio1 18.48% 17.73% 19.49% 75 bps (101) bps
Book value per share $30.11 $29.44 $27.80 2.3% 8.3%
Shares outstanding (millions) 51.8 51.8 59.3 - (7.5)
1CET1 ratio relates to the Company’s operating subsidiary, Home Trust Company
25
Summary of adjustments related to Home Trust’s Ignite Program
Resulting from changes in estimated useful life of legacy IT investment and implementation 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 2020 Second Quarter Report.
Q2 2020 Q1 2020
ReportedAdjustment for
Ignite ProgramAdjusted1 Reported
Adjustment for
Ignite ProgramAdjusted1
Net income (millions) $34.13 $2.52 $36.65 $27.72 $2.16 $29.88
ReportedAdjustment for
Ignite ProgramAdjusted1 Reported
Adjustment for
Ignite ProgramAdjusted1
Earnings per share $0.65 $0.05 $0.70 $0.52 $0.04 $0.56
Efficiency ratio (TEB) 50.5% (2.6%) 47.9% 46.7% (2.3%) 44.4%
Return on equity
(annualized)8.9% 0.6% 9.5% 6.9% 0.6% 7.5%