Fourth Quarter Results Propel Home Capital to Record Performance in 2007: Earnings per Share Rise by 31.7% for the Year; Return on Equity Stands at 28.9%



    TORONTO, Feb. 12 /CNW/ - Home Capital Group Inc. (TSX: HCG) today
announced outstanding financial results for the fourth quarter, and the
twelve months of 2007. Notwithstanding challenging conditions throughout the
North American financial services sector, especially in the United States, the
Company's core business activities, including residential and commercial
mortgage lending, CMHC-insured Mortgage-Backed Securities, and VISA all
generated exceptional results. Strong growth and performance during the
fourth quarter built upon the Company's track-record throughout 2007, so that
all performance objectives for the year were achieved and exceeded.

    
    Key results from the fourth quarter and year as a whole included:

    -   Net income for the quarter was $24.2 million, an increase of 18.1%
        over $20.5 million for the same period last year. Earnings for the
        year were $90.2 million, a rise of 33.1% over the $67.8 million
        recorded at December 31, 2006.

    -   Basic earnings per share were $0.70, 16.7% above $0.60 for the
        fourth quarter of 2006, and $2.62 for the twelve months, or a 31.7%
        rise over the $1.99 recorded last year. Diluted earnings per share
        were $0.70, an increase of 18.6% from the $0.59 recorded for the
        fourth quarter of 2006; the result for the year as a whole was $2.59,
        32.8% higher than last year.

    -   Return on equity was 28.9% for both the fourth quarter and
        twelve month period, compared to 30.5% for the same quarter ending
        December 2006, and 27.4% during the prior year.

    -   Total assets at December 31, 2007 reached $4.97 billion, 27.4% higher
        than the $3.90 billion reported one year earlier. Total assets,
        together with Mortgage-Backed Securities (MBS) originated and
        administered by the Company, grew to $6.43 billion, a rise of 28.4%
        from $5.01 billion at December 2006.

    -   Total mortgage originations were $899.8 million during the fourth
        quarter, an increase of 73.1% over the $519.8 million advanced during
        the same period in 2006. The Company advanced $722.4 million in
        residential mortgages, and $177.4 million in commercial mortgages.
        This accelerated mortgage activity was due both to the continued
        successful rollout of our commercial mortgage lending operation,
        which had only just commenced in the fourth quarter of last year, and
        the withdrawal of some of our competitors from the residential
        mortgage marketplace.

    -   Mortgage securitization activity remained robust as the Company
        securitized and sold $198.9 million in CMHC-insured securities during
        the fourth quarter, compared to $130.7 million for the same period
        last year, and $692.3 million throughout 2007, compared to
        $546.3 million for the same twelve months of 2006. Government-backed
        instruments, such as CMHC-insured MBS and the Canada Mortgage Bond
        program, have been only modestly affected by current credit market
        conditions.

    -   Outstanding balances on the Equityline VISA portfolio reached
        $302.7 million, a rise of 40.2% from the $215.9 million recorded at
        December 2006. Net income from consumer lending reached $4.1 million
        for the fourth quarter, 28.6% over the $3.2 million recorded last
        year, and $15.1 million for the twelve months, or 48.8% over 2006.

    -   The efficiency ratio (TEB; the lower the better) was 28.5% in the
        fourth quarter, compared to 26.8% during the same period one year
        earlier. The ratio was 27.1% for 2007, versus 29.9% over the year
        ended 2006.

    -   Net impaired loans represented 0.72% of the total loans portfolio, up
        slightly from 0.68% at the end of 2006. Non-performing mortgages
        continue to be professionally managed on a loan-by-loan basis by the
        Company, and actual loan losses remained negligible.

    -   The Company's regulated operating subsidiary, Home Trust Company had
        a liquidity position as at December 31, 2007 of $627.1 million,
        substantially higher than the liquidity held one year earlier at
        $339.0 million. The Company has taken the decision to increase its
        liquidity levels, in view of broader market conditions.
    

    During the quarter it was announced that Nick Kyprianou was appointed
President, and Brian Mosko promoted to Chief Operating Officer, of
Home Capital Group and Home Trust Company effective immediately subsequent to
the quarter-end. Both Mr. Kyprianou and Mr. Mosko are long-serving executives
of the Company, and their new roles are expected to further strengthen the
management infrastructure that will continue to drive business growth and
financial performance, going forward. Gerald Soloway will continue to serve as
Chief Executive Officer, and as a Director of both Home Capital and
Home Trust. It is anticipated that by delegating certain operational
responsibilities, Mr. Soloway will remain well positioned to focus on
strategic initiatives and on potential acquisitions and growth opportunities.
    During the quarter, Home Capital completed the acquisition of Payment
Services Interactive Gateway Corp. (PSiGate) and commenced the process of
integrating PSiGate's operations into the Company's VISA card services line of
business. As a result of this acquisition, Home Trust now offers payment
processing services to internet-based merchants. Over time, this offering is
expected to further enhance earnings from credit card services.
    Subsequent to the end of the fourth quarter, and in light of the
Company's consistent, strong growth and financial performance, the Board of
Directors declared a quarterly cash dividend of $0.12 per Common Share, up 9%
from the previous quarter and an increase of 33% over the same quarter last
year, payable on March 1 to shareholders of record at the close of business on
February 21, 2008. This dividend increase represents the eighth dividend
increase in the past five years.
    The Company's practice for many years has been to set targets for the
coming year. These statements regarding expected future performance reflect
the Company's internal goals or targets. The Board of Directors and Management
believe the Company can meet or exceed each of the following targets for 2008:
20% growth in each of total earnings, earnings per share, and total assets
(including MBS); and provide at least 25% return on shareholders' equity.
    We are confident that Home Capital will continue to deliver strong,
profitable growth in 2008.

    
    (signed)                                (signed)

    GERALD M. SOLOWAY                       WILLIAM A. DIMMA
    Chief Executive Officer                 Chairman of the Board
    February 11, 2008
    

    Additional information concerning the Company's targets and related
expectations for 2008, including the risks and assumptions underlying these
expectations, may be found in Management's Discussion and Analysis for the
Fourth Quarter 2007.

    FOURTH QUARTER RESULTS CONFERENCE CALL
    The conference call will take place on Tuesday, February 12, 2008 at
10:30 a.m. Participants are asked to call 5 to 15 minutes in advance,
416-644-3414 in Toronto or toll-free 1-800-733-7571 throughout North America.
The call will also be accessible in listen-only mode via the Internet at
www.homecapital.com.

    CONFERENCE CALL ARCHIVE
    A telephone replay of the call will be available between 12:30 p.m.,
Tuesday, February 12, 2008 and midnight Tuesday, February 19, 2008 by calling
416-640-1917 or 1-877-289-8525 (enter passcode 21259554 followed by the number
sign). The archived audio web cast will be available for 90 days on
CNW Group's website at www.newswire.ca and Home Capital's website at
www.homecapital.com.


    
    Financial Highlights

    For the Period Ended
     December 31 (Unaudited)

    In Thousands of Dollars
     (Except Per Share and      Three Months Ended                Year Ended
     Percentage Amounts)         2007         2006         2007         2006
    -------------------------------------------------------------------------
    OPERATING RESULTS

    Net Income            $    24,228  $    20,518  $    90,241  $    67,815
    Total Revenue(3)          105,081       81,053      368,881      282,549
    Earnings per Share
     - Basic              $      0.70  $      0.60  $      2.62  $      1.99
    Earnings per Share
     - Diluted                   0.70         0.59         2.59         1.95
    Return on Average
     Shareholders' Equity      28.87%       30.54%       28.88%       27.36%
    Return on Average Assets    2.01%        2.15%        2.03%        1.89%
    Efficiency Ratio(3)        29.80%       27.31%       27.89%       30.47%
    Efficiency Ratio
     (TEB)(2,3)                28.54%       26.81%       27.13%       29.89%

    (Non-interest Expense/Net Interest Income Plus Fee Income)

    -------------------------------------------------------------------------
    BALANCE SHEET HIGHLIGHTS

    Total Assets                                    $ 4,973,307  $ 3,902,316

    Loans                                             4,022,171    3,309,214

    Deposits                                          4,413,984    3,443,640

    Shareholders' Equity                                348,040      276,866

    Mortgage-Backed Security Assets Under
     Administration                                   1,459,455    1,107,562

    -------------------------------------------------------------------------
    FINANCIAL STRENGTH

    Capital Measures

    Risk Adjusted Assets(1)                         $ 2,748,570  $ 2,066,447

    Tier 1 Capital Ratio(1)                              11.34%       12.65%

    Total Capital Ratio                                  12.74%       14.24%

    Credit Quality

    Net Impaired Loans as a % of Gross Loans              0.72%        0.68%

    Allowance as a % of Gross Impaired Loans             81.28%       86.53%

    Annualized Provision as a % of Gross Loans            0.15%        0.13%

    Share Information

    Book Value per Common Share                     $    10.08   $      8.10

    Common Share Price - Close                           41.90         34.05

    Market Capitalization                            1,446,911     1,163,340

    Number of Common Shares Outstanding                 34,532        34,166
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) These figures relate to the Company's operating subsidiary,
        Home Trust Company.

    (2) See definition of Taxable Equivalent Basis (TEB) in this unaudited
        interim consolidated financial report.

    (3) Reclassification - refer to Note 2 of these unaudited interim
        consolidated financial statements.
    

    Management's Discussion and Analysis

    Caution Regarding Forward-Looking Statements

    From time to time Home Capital Group Inc. (the "Company" or "Home
Capital") 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 include, but are not limited to,
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 52-102. Please
see the risk factors, which are set forth in detail on pages 7 and 8,
respectively, of our 2006 Annual Information Form, for the material factors
that could cause our actual results to differ materially from these
statements. Forward-looking statements are typically identified by words such
as "believe," "expect," "anticipate," "estimate," "plan," "may," and "could"
or other similar expressions. By their very nature, these statements require
us to make assumptions and are subject to inherent risks and uncertainties,
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 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.

    Taxable Equivalent Basis (TEB)

    Most banks and trust companies analyze and report their financial results
on a TEB to provide uniform measurement and comparison of net interest income.
Net interest income (as presented in the consolidated statements of income)
includes tax-exempt income from certain securities. The adjustment to TEB
increases income and the provision for income taxes to what they would have
been had the income from tax-exempt securities been taxed at the statutory tax
rate. The TEB adjustments of $2.3 million for the quarter and $5.5 million for
the twelve months of 2007 ($0.8 million - Q4 2006 and $3.0 million - twelve
months 2006) increased reported interest income. TEB does not have a standard
meaning prescribed by Canadian generally accepted accounting principles (GAAP)
and therefore may not be comparable to similar measures used by other
companies. Net interest income and income taxes are discussed on a TEB basis
throughout this Management's Discussion and Analysis (MD & A).

    Regulatory Filings

    The Company's continuous disclosure materials, including interim filings,
annual management's discussion and analysis and audited consolidated financial
statements, Annual Information Form, Notice of Annual Meeting of Shareholders
and Proxy Circular are available on the Company's web site at
www.homecapital.com, and on the Canadian Securities Administrators' website at
www.sedar.com.

    Management's Discussion and Analysis of Operating Performance

    This MD & A should be read in conjunction with the unaudited interim
consolidated financial statements for the period ended December 31, 2007
included herein, and the audited consolidated financial statements and MD & A
for the year ended December 31, 2006. These are available on the Canadian
Securities Administrators' website at www.sedar.com and on pages 8 through 52
of the Company's 2006 Annual Report. Except as described in these unaudited
interim consolidated financial statements and MD & A, all other factors
discussed and referred to in the MD & A for fiscal 2006 remain substantially
unchanged. These unaudited interim consolidated financial statements and MD &
A have been prepared based on information available as at February 11, 2008.
As in prior quarters, the Company's Audit Committee reviewed this document,
and prior to its release the Company's Board of Directors approved it on the
Audit Committee's recommendation.

    2007 Performance and 2007 Objectives

    Home Capital published its financial objectives for 2007 on page 10 of
the Company's 2006 Annual Report. The following table compares actual
performance against each of these objectives.


    
    -------------------------------------------------------------------------
                                                Year Ended December 31, 2007

                               2007 Objectives                Actual Results
    -------------------------------------------------------------------------

                                                     $90.2 million, or 33.1%
                                                   increase over same period
    Net Income                   $81.4 million                     last year


                                                   $2.59 per share, or 32.8%
    Diluted Earnings                               increase over same period
     per Share                  $2.34 per share                    last year

    Combined Total Assets
     and Assets Under                                $6.43 billion, or 28.4%
     Administration              $6.01 billion       increase over last year

    Return on Equity                       25%                         28.9%

    Efficiency Ratio (TEB)(1)   35.0% to 39.0%                         27.1%

    Capital Ratio - Tier 1     Minimum of 9.5%                         11.3%

    Capital Ratio - Total     Minimum of 12.5%                         12.7%

    Provision for Loan
     Losses as a Percentage
     of Total Loans               0.1% to 0.2%                          0.2%
    -------------------------------------------------------------------------
    (1) This ratio has been reclassified; refer to Note 2 of these unaudited
        interim consolidated financial statements.

    FINANCIAL HIGHLIGHTS

    Income Statement Highlights

    The Company achieved strong results during the quarter, further building
on the momentum throughout 2007. The Company experienced positive growth
across all of its operating segments.

    -   Net income rose 18.1% over the comparable quarter of 2006.

    -   Net interest income was up 18.3% over the same period in 2006, as the
        Company's income-producing assets grew by 27.7% and was partly offset
        by a contraction in spreads in the latter half of 2007.

    -   Non-interest income was up 14.3% over the fourth quarter of 2006,
        driven by growth in securitization gains, fees for the administration
        and servicing of the mortgage and VISA portfolios offset by realized
        losses on the securities portfolio.

    -   The efficiency ratio (TEB) (the lower the better) remained low at
        28.5% compared to 26.8% in the same quarter of 2006. Increased
        regulatory and financial reporting required additional services in
        2007.

    -   Diluted earnings per share for the quarter increased 18.6% to $0.70
        compared to $0.59 for the fourth quarter of 2006.

    -   Return on average shareholders' equity for the quarter was 28.9%
        compared to 30.5% for the same period of 2006.

    Balance Sheet Highlights

    -   Against a backdrop of capital market uncertainty, the Company further
        increased its liquidity and continues to experience benefits from a
        "flight to quality" by investors, ending the quarter with
        $627.1 million in liquid assets, up 85.0% from the liquidity position
        as at December 31, 2006.

    -   Total assets rose 27.4% year-over-year to reach $4.97 billion,
        compared to the $3.90 billion reported at December 31, 2006. This
        asset growth was driven by the growth in the Company's residential
        mortgage portfolio which increased by $345.8 million, other mortgages
        (primarily commercial mortgages) which grew by $270.6 million, cash
        resources which rose by $210.8 million, and securities which
        increased by $126.7 million.

    -   The Company accelerated originations in commercial mortgage lending
        throughout 2007 advancing $543.2 million, while the residential
        program advanced $2.32 billion.

    -   The Equityline VISA portfolio sustained its strong momentum, reaching
        $302.7 million in receivables, a growth of 40.2%, or $86.8 million
        over the fourth quarter of 2006.

    -   Deposit liabilities as at December 31, 2007 grew 28.2% to reach
        $4.41 billion, as compared to $3.44 billion at December 31, 2006.
        These proceeds were deployed to fund the growth of the Company's
        loans portfolio with excess funds invested in the Company's cash
        resources and securities portfolio.
    

    Earnings Review

    Net Interest Income

    Net interest income was $38.1 million in the quarter and $146.3 million
for the twelve months, representing increases of $5.9 million, or 18.3% over
the $32.2 million reported in the same quarter of 2006, and $29.0 million, or
24.8% over the $117.2 million recorded during the twelve-month period of 2006.
These increases were driven by the overall growth of interest-bearing assets,
exceeding the growth in interest-bearing liabilities. The growth in
interest-earning assets was $1.05 billion over December 2006, compared to an
increase in interest-bearing liabilities of $970.3 million for the same
period. The net interest margin (TEB) for both the three- and twelve-month
periods ended December 31, 2007 was 3.4%, representing an improvement over the
comparable quarter in 2006 of 3.3% and consistent with the twelve-month period
of 2006. The interest spread between loans and deposits was 3.3% for the
quarter and 3.4% for the twelve-month period ended December 31, 2007, compared
to 3.3% and 3.5% for the comparable periods of 2006.
    The mortgage lending line of business continues to be the primary driver
of the Company's net interest income. It contributed $21.1 million in the
quarter and $93.5 million for the twelve-month period ended December 31, 2007
compared to $22.5 million during the fourth quarter of 2006, and $85.3 million
for the twelve months of 2006.
    The consumer lending line of business contributed fourth quarter net
interest income of $5.7 million and $21.0 million for the twelve-month period,
compared to $4.6 million and $15.1 million for the quarter and twelve months
ended December 31, 2006, respectively. The Equityline VISA product continues
to drive income growth in the consumer lending line of business.

    Non-Interest Income

    Total non-interest income was $14.6 million for the quarter and
$48.1 million for the twelve months of 2007, an increase of $1.9 million and
$12.4 million from the $12.7 million and $35.7 million reported for the three-
and twelve-month periods ended December 31, 2006, respectively. The increases
over the prior periods were driven by growth in securitization gains and fee
income generated from the administration and servicing of the mortgage and
VISA portfolios, partly offset by realized losses in the securities portfolio.
    The fees and other income components of non-interest income were
$6.4 million at the end of the quarter and $21.5 million for the twelve months
of 2007, compared to $6.0 million and $13.5 million for the comparable periods
of 2006. The mortgage lending line of business contributed $3.4 million of
this income in the fourth quarter and $12.1 million for the twelve months,
compared to $3.9 million and $5.6 million for the quarter and twelve months of
2006, respectively. The consumer lending line of business contributed
$3.0 million of fee income during the quarter and $9.2 million for the twelve
months of 2007, compared to $2.0 million and $7.7 million for the comparable
quarter and twelve-month period of 2006. With the implementation of new
financial instrument standards, the Company reclassified the amortization of
deferred commitment fees in 2006 from fees and other income to interest from
loans. Please refer to Note 2 of these unaudited interim consolidated
financial statements.
    The Company issued five MBS pools in the fourth quarter of 2007,
consisting of $198.9 million of Canada Mortgage and Housing Corporation (CMHC)
insured residential mortgages, for total issuance of MBS pools in 2007 of
$692.3 million. This represents an increase of $68.2 million over the
$130.7 million in MBS pools that were issued in the fourth quarter of 2006,
and a $146.0 million increase over the $546.3 million issued in 2006.
Securitization gains were $8.1 million during the quarter and $22.8 million
for the twelve-month period ended December 31, 2007, up from $5.7 million
realized in the fourth quarter and $17.9 million over the twelve-month period
of 2006 (refer to Note 5 of these unaudited interim consolidated financial
statements). The increase in securitization gains during the quarter and
year-to-date relative to the comparable periods of 2006 was primarily due to
increases in the volume of securitized mortgages, as an increase in
unscheduled prepayment rates had a diminishing effect on gains. During the
quarter, the Company participated in CMHC's Canada Mortgage Bond program,
administered through Canada Housing Trust. This program provides the Company
with an alternative distribution channel to diversify its funding stream for
the five-year MBS pools. Of the five MBS pools issued during the quarter, one
MBS pool with a book value of $91.5 million was securitized through the Canada
Mortgage Bond program resulting in a gain of $4.2 million.

    Non-Interest Expenses

    Total non-interest expenses for the quarter and twelve-month period were
$15.7 million and $54.2 million respectively, up 27.8%, or $3.4 million, from
the $12.3 million recorded for the fourth quarter of 2006 and 16.3%, or
$7.6 million, higher than the $46.6 million reported for the twelve months of
2006. The primary driver of the increase in non-interest expenses over the
previous year's period was increased staffing levels and professional fees
incurred as the result of the Company's initiatives to continuously improve
business and risk management processes for the Company. Salaries and staff
benefits expenses for the quarter increased by $1.6 million, or 25.3%, over
the same quarter of 2006 and by $4.3 million, or 16.7%, over the twelve months
of 2006. The Company ended the quarter with 377 employees, up from the
previous quarters of 2007, and above the 350 employed at the end of
December 2006. Increased staffing levels were required to effectively manage
growth in all of the Company's business segments, and to integrate the
employees of PSiGate. Premises expenses increased from the prior year periods
as the Company entered into a new lease in May 2007 for the opening of a
branch office in Montreal.
    General and administration expenses increased by $1.7 million over the
comparable quarter of 2006, and $3.0 million over the twelve-month period of
2006. The increase in general and administration expenses from the comparable
periods was primarily due to higher professional fees specific to various
initiatives for improving business and risk management processes for the
Company.
    The efficiency ratio (TEB) was 28.5% at the end of the quarter and 27.1%
for the twelve months of 2007, compared to 26.8% and 29.9% for the comparable
periods in 2006. Management's focus on cost containment continues to be
reflected in favourable efficiency ratios (TEB) which ended the year ahead of
the Company's objectives. On January 1, 2007 the Company implemented new
accounting standards on financial instruments. Following the implementation,
the Company reclassified the amortization of deferred finders fees and
deferred agent commission from general and administration to interest from
loans and interest on deposits. This change had the effect of improving the
efficiency ratio from prior levels, and from the Company's target range of
between 35% and 39%. Please refer to Note 2 of these unaudited interim
consolidated financial statements.

    Provision for Credit Losses

    The Company expensed $2.4 million during the quarter and $6.0 million for
the twelve-month period ended December 31, 2007 through the provision for
credit losses, compared to $1.3 million and $4.4 million respectively for the
comparable periods in 2006. This expense represented 0.2% of total loans on an
annualized basis. The Company continues to add to the general allowance for
credit losses, primarily in response to the growth of the loans portfolio and
relative shifts in the proportion of risk-weighted assets. The total general
allowance amounted to $23.4 million at the end of the quarter, an increase of
$1.3 million over the $22.1 million recorded at September 30, 2007 and a
$3.8 million increase over the $19.6 million allowance recorded at December
31, 2006.
    At December 31, 2007, net impaired loans amounted to $29.0 million (0.72%
of gross loans), compared to $23.6 million (0.63% of gross loans) at September
30, 2007 and $22.8 million (0.68% of gross loans) at December 31, 2006. The
Company has experienced an increase in loan write-offs (refer to Note 4 of
these unaudited interim consolidated financial statements). Total net loans
written-off during the year were $1.9 million, up from $0.9 million in 2006.
Despite the increase in dollar value of loan write-offs, this represents just
0.05% of the gross loans portfolio, up slightly over 2006 (0.03% for the year
ended December 31, 2006). The Company continues to closely monitor
non-performing loans and takes proactive measures to minimize losses, as
described under the Credit Risk section of this MD & A.

    Income Taxes

    The income tax expense amounted to $10.3 million (effective tax rate of
29.8%) for the quarter, and $43.8 million (effective tax rate of 32.7%) for
the twelve months of 2007, compared to $10.9 million (effective tax rate of
34.6%) for the fourth quarter of 2006 and $34.1 million (effective tax rate of
33.5%) for the twelve months of 2006. Canadian dividend income is non-taxable
to financial institutions, which resulted in a lower income tax rate. In the
absence of tax-free dividends, the tax rates would have been 34.1% for the
quarter and 35.3% for the twelve months of 2007, compared to 36.3% for the
fourth quarter of 2006 and 35.3% for the twelve months of 2006.
    In the fourth quarter of 2007, the federal government enacted legislation
to reduce corporate tax rates for taxation years commencing in 2008. Future
tax assets and liabilities have been revalued and the net effect was to
decrease income taxes during the fourth quarter in the amount of $1.3 million,
and to decrease income taxes for the twelve months of 2007 by $1.5 million.

    Balance Sheet Review

    Assets

    Total assets as at December 31, 2007 were $4.97 billion, an increase of
$300.5 million, or 6.4%, over the $4.67 billion reported at September 30, 2007
and up by $1.07 billion, or 27.4%, over the December 31, 2006 asset balance of
$3.90 billion.
    Growth in the loans portfolio of $281.9 million, or 7.5%, generated most
of the asset growth over the quarter. Residential mortgages contributed
$192.1 million to the total loan portfolio growth, other mortgages (primarily
commercial mortgages) contributed particularly strong growth of $77.5 million,
consumer lending contributed $13.1 million, secured loans added $0.5 million,
and the general allowance for credit losses increased by $1.3 million. The
residential mortgage portfolio growth of $192.1 million excludes
$198.9 million of loans securitized during the quarter. The Company's cash
resources decreased from the prior quarter as the Company shifted holdings
from cash resources into securities. Other assets increased by $16.1 million
from the comparable quarter, primarily driven by additional goodwill and
intangible assets acquired on the acquisition of PSiGate, and an increase in
accrued interest earned on the loan portfolio. This increase was offset by a
reduction in deferred expenditures due to the implementation of new financial
instrument standards that came into effect January 1, 2007 (refer to Note 2 of
these unaudited interim consolidated financial statements). Deferred finders
fees and deferred agent commissions were reclassified and included in the cost
base of the respective loans and deposits (refer to Note 6 of these unaudited
interim consolidated financial statements). Securitization receivables
increased quarter-over-quarter due to additional sales of MBS pools during the
quarter.
    Growth in the loans portfolio of $713.0 million, or 21.5%, was the
principal contributor to asset growth over December 31, 2006. The loan
portfolio growth was driven by a $345.7 million increase in residential
mortgages, strong growth of $270.6 million in other mortgages (primarily
commercial mortgages), an $88.4 million growth in consumer lending, a
$12.1 million increase in secured loans, and the general allowance for credit
losses increased by $3.8 million. The Company's cash resources increased by
$210.8 million and the securities portfolio rose by $126.7 million over
December 31, 2006, primarily due to excess deposits raised in the latter half
of the year as investors moved funds into low-risk investments. The Company
accelerated commercial mortgage lending in early 2007 by entering into lending
arrangements secured by commercial mortgages. For the year ended December 31,
2007, the Company advanced loans for $543.2 million relating to this business.
Other assets increased by $7.3 million primarily due to the addition of
goodwill and intangible assets acquired through the acquisition of PSiGate and
accrued interest earned on the loan portfolio. This increase was offset by a
reclassification of deferred finders fees and deferred agent commissions due
to the implementation of new financial instrument accounting standards that
came into effect January 1, 2007 (refer to Note 2 of these unaudited interim
consolidated financial statements). Securitization receivables increased by
$13.0 million over December 31, 2006 due to higher securitization volumes
during the year.

    Liabilities

    Liabilities for the quarter ended December 31, 2007 rose to
$4.63 billion, an increase of $275.8 million, or 6.3%, over the $4.35 billion
reported at September 30, 2007 and up by $999.8 million, or 27.6%, over the
$3.63 billion recorded at December 31, 2006.
    Most of the quarterly growth resulted from increased deposits of
$253.5 million. Higher deposit liabilities funded a large portion of the loan
portfolio growth. The remaining loan portfolio growth was funded through
retained earnings and other liabilities. Other liabilities (refer to Note 7 of
these unaudited interim consolidated financial statements) increased by
$21.9 million, or 11.8%, over the $189.0 million reported at September 30,
2007. This quarter growth was principally the result of increases in accrued
interest payable of $10.7 million related to higher deposits, $5.8 million in
income taxes payable and a $4.0 million increase in other liabilities
resulting from the timing of payments for the administration of the
off-balance sheet MBS portfolio. This growth was offset by a decline in
deferred commitment fees which are now classified with the associated mortgage
loan. This change was required as a result of the new financial instrument
standards that came into effect on January 1, 2007 (refer to Note 2 to these
unaudited interim consolidated financial statements).
    The rise in liabilities over December 31, 2006 resulted primarily from
increased deposits of $970.4 million. Higher deposit liabilities were the
primary funding source for the loan portfolio growth in 2007, as well as
adding to the Company's investment securities and cash resources. The increase
in other liabilities (refer to Note 7 of these unaudited interim consolidated
financial statements) compared to the fourth quarter of 2006 was driven by the
same factors as discussed above, and was offset by the reclassification of
deferred commitment fees as described in Note 2 to these unaudited interim
consolidated financial statements.

    Shareholders' Equity

    The increase in shareholders' equity of $24.7 million, or 7.7%, over the
$323.3 million reported at September 30, 2007 was internally generated from
net income over the three months of $24.2 million, less $3.8 million for
dividends paid and payable to shareholders. The remaining increase was
principally driven from unrealized gains in accumulated other comprehensive
income of $4.1 million from the Company's available for sale financial assets.
    Shareholders' equity rose to $348.0 million, an increase of
$71.1 million, or 25.7%, over the $276.9 million reported at December 31,
2006. This growth of $71.1 million was internally generated from net income
for the year of $90.2 million, less adjustments from the adoption of new
financial instrument accounting standards of $4.9 million, and less
$14.8 million for shareholder dividends. The remaining changes resulted from
proceeds received on the exercise of Company share options and the recording
of the fair market adjustment on stock options, offset by the Company's
repurchase of capital stock through the Normal Course Issuer Bid. The
adjustment resulting from the adoption of financial instrument accounting
standards was comprised of an opening adjustment of $1.4 million related to
unrealized gains on the Company's available for sale securities portfolio and
securitization receivable offset by $6.3 million in unrealized losses for the
twelve-month period. The unrealized losses were principally driven from the
available for sale securities portfolio as the unrealized loss on the
securitization receivable recovered through improved spreads and lower
discount rates towards the end of 2007. Within the available for sale
securities portfolio, the Company holds 127,100 preferred shares in Quebecor
World Inc. Prior to December 31, 2007, the Company exercised its option to
convert the preferred shares into common shares under the terms of the
prospectus. Subsequent to year-end, Quebecor World Inc. filed for bankruptcy
protection and the Company expects to realize a loss of $2.1 million (net of
tax) in the first quarter of 2008 on these holdings. At December 31, 2007 the
book value per common share was $10.08, compared to $9.38 at September 30,
2007 and $8.10 at December 31, 2006.

    Off-Balance Sheet Arrangements

    From time to time, the Company may enter into hedging transactions to
mitigate the interest exposure on outstanding loan and deposit commitments.
During the quarter, the Company entered into a $30.0 million notional interest
rate swap contract relating to hedging interest exposure on outstanding loan
commitments. The contract was unwound during the quarter resulting in a
realized loss of $0.3 million. With respect to the fourth quarter of 2006, the
Company unwound a $30.0 million notional interest rate swap contract realizing
a negligible loss. During the fourth quarter of 2007, the Company participated
in the Canada Mortgage Bond program sponsored by CMHC. Through this
participation the Company entered into both a seller swap arrangement and a
hedge swap arrangement to manage the mismatch and reinvestment risk associated
with this program. The notional values of the seller swaps and hedge swaps at
December 31, 2007 were $118.5 million and $2.2 million, respectively. These
swaps were marked-to-market at December 31, 2007 for an unrealized gain of
$1.0 million recorded in the consolidated statements of income. For additional
information refer to Note 11 of these unaudited interim consolidated financial
statements.
    The Company securitizes insured residential mortgage loans into special
purpose entities for liquidity funding and capital management purposes.
Transactions consist of the transfer of these loans to a Canadian trust
company as security, in exchange for cash. When these assets are sold, the
Company retains rights to certain excess interest spreads less servicing
liabilities, which constitute retained interests. The Company periodically
reviews the value of retained interests, and any permanent impairment in value
is charged to income. The Company continues to administer all securitized
assets after the sales. As at December 31, 2007, outstanding securitized
mortgage loans under administration amounted to $1.46 billion ($1.35 billion -
Q3 2007 and $1.11 billion - Q4 2006) with retained interest of $64.0 million
($50.1 million - Q3 2007 and $51.0 million - Q4 2006). For additional
information, refer to Note 4 in the consolidated financial statements of the
2006 Annual Report, and Note 5 of these unaudited interim consolidated
financial statements.
    In the normal course of its business, the Company offers credit products
to meet the financial needs of its customers. Outstanding commitments for
future advances on mortgage loans amounted to $447.3 million at December 31,
2007 compared to $288.0 million at September 30, 2007 and $201.8 million at
December 31, 2006. Included within the outstanding commitments are unutilized
mortgage advances of $238.0 million at December 31, 2007 compared to
$149.9 million at September 30, 2007 and $21.7 million at December 31, 2006.
Commitments for the loans remain open for various dates through April 2008. As
at December 31, 2007, unutilized credit card balances amounted to
$77.9 million, compared to $69.2 million at September 30, 2007 and $66.8
million at December 31, 2006. Outstanding commitments for the Equityline VISA
portfolio were $5.9 million at December 31, 2007, compared to $10.0 million at
September 30, 2007 and $7.7 million at December 31, 2006.

    Contractual Arrangements

    On August 16, 2007, the Company announced that it had entered into a
definitive support agreement with Payment Services Interactive Gateway Corp.
(PSiGate) pursuant to which the Company offered to acquire all of the issued
and outstanding common shares of PSiGate for cash consideration of $1.60 per
common share. On October 16, 2007, 11,013,629 (95.9%) PSiGate common shares
had been tendered to the Company's offer. As of October 29, 2007, the balance
of the remaining outstanding common shares were acquired by the Company.
    In the fourth quarter, the Company's operating subsidiary, Home Trust
Company ("Home Trust") and Unity Life of Canada ("Unity Life") entered into an
Agreement whereby Unity Life will offer to provide creditor life insurance to
customers of Home Trust.

    Capital Management

    The capital base of Home Trust continues to be strongly positioned. The
Tier 1 capital ratio ended the quarter at 11.3%, down marginally from the
third quarter of 2007 and the fourth quarter of 2006. The total capital ratio
was 12.7% at December 31, 2007 compared to 12.9% and 14.2% reported at
September 30, 2007 and December 31, 2006, respectively. The decline in the
Tier 1 capital ratio and total capital ratio versus the comparative quarters
was due to an intercompany dividend paid during the third quarter of 2007 to
fund the acquisition of PSiGate. These ratios continue to substantially exceed
the minimum regulatory requirements of 7.0% for Tier 1 capital and 10.0% for
total capital.
    As at December 31, 2007, Home Trust was utilizing 81.2% of its approved
Assets to Regulatory Capital Multiple of 17.5 times (81.9% - Q3 2007 and 76.1%
- Q4 2006), providing sufficient capital for continued lending growth going
forward.

    Risk Management

    The Company's key risk management practices remain in place and unchanged
from those outlined on pages 22 through 27 in the MD & A section of the
Company's 2006 Annual Report.

    Credit Risk

    Credit risk management is the management of all aspects of borrower risk
associated with the total loan portfolio, including the risk of loss of
principal and/or interest from the failure of debtors to honour their
contractual obligations to the Company.
    As at December 31, 2007, the composition of the total mortgage portfolio
was 88.8% residential, 3.8% store and apartments, 3.5% commercial and 3.9%
other non-residential loans. Within the Company's residential mortgage
portfolio, 5.4% of the loans were insured by CMHC. First mortgages represented
99.6% of the total mortgage portfolio.
    As at December 31, 2007, the gross credit card receivable balance totaled
$314.3 million, of which $313.4 million, or 99.7%, of the portfolio was
secured either by cash deposits or residential mortgage collateral, and
$0.9 million, or 0.3%, was unsecured. The total credit approved included
$391.0 million in secured and $1.2 million in unsecured credit, compared to
$371.3 million in secured and $1.4 million of unsecured credit at September
30, 2007, and $294.2 million in secured and $2.4 million of unsecured credit
at December 31, 2006. Within the secured credit card portfolio the Equityline
VISA credit cards represent the principal driver of receivable balance growth.
Equityline VISA credit cards are secured by collateral residential mortgages,
and this portfolio segment amounted to $302.7 million of the total credit card
receivable balance as at December 31, 2007, compared to $291.8 million at
September 30, 2007 and $215.9 million at December 31, 2006. Cash deposits
securing credit card accounts amounted to $17.7 million, and are included in
the Company's deposits. The Company has experienced minimal losses on the
credit card portfolio. At December 31, 2007, $3.8 million, or 1.2%, of the
credit card portfolio was over 60 days in arrears compared to $4.1 million, or
1.4%, at September 30, 2007 and $2.2 million, or 1.0%, at December 31, 2006.
    The secured loan portfolio of $82.3 million increased by $0.5 million
over the September 30, 2007 balance of $81.8 million and $12.0 million higher
than the December 31, 2006 balance of $70.3 million. These loans are secured
by second mortgages on residential property. Since commencing this program,
the Company has experienced minimal losses on these loans. At December 31,
2007, 97.7% of the secured loan portfolio was current while $0.6 million, or
0.8%, was over 60 days in arrears. These loans are subject to the same credit
and lending criteria as the Company's residential mortgage portfolio.
    The Company experienced a slight rise in net impaired loans to
$29.0 million at December 31, 2007 compared with $23.6 million at September
30, 2007 and $22.8 million at December 31, 2006, and in net loan write-offs.
The loan portfolio continues to perform very well and net impaired loans at
December 31, 2007 represent less than 1% of the gross loan portfolio. The
Company continually improves its underwriting practices, taking account of
local market conditions in order to minimize the Company's potential loss
exposure. Experienced senior employees of the Company undertake thorough
reviews of all non-performing loans greater than 60 days to analyze patterns
and drivers, and then reflect emerging drivers in the Company's lending
criteria. This analytical approach and constant attention to emerging trends
has resulted in continued low writeoffs in relation to the gross loan
portfolio. Write-offs net of recoveries applied against the accumulated
allowance for credit losses realized on loans during the twelve-month period
ended December 31, 2007 totaled $1.9 million, which is up from the
$0.9 realized for the same period in 2006. The Company continues to monitor
this area closely, and is dealing prudently and effectively with impaired
loans.
    The Company has ensured that it is well positioned to absorb all probable
losses in its loan portfolio by increasing general allowances to $23.4 million
at December 31, 2007, as compared to the general allowances of $22.1 million
at September 30, 2007 and $19.6 million at December 31, 2006. The Company
continues to monitor the adequacy of the general allowance. The Company's
actual loss experience on mortgages has amounted to 0.03% per annum over the
past 15 years, 0.01% for the past 10 years, and 0.001% for the past 5 years.
The Company has security in the form of real property or cash deposits against
loans consisting of 99.8% of the total loans portfolio. A methodology has been
implemented by the Company to test the adequacy of the general allowance that
takes into account asset quality, borrowers' creditworthiness, property
location and past loss experience. The Company periodically reviews this
general allowance methodology giving due consideration to changes in economic
conditions, interest rates and local housing market conditions.
    The total general allowance was 85.1 basis points of the Company's
risk-weighted assets as at December 31, 2007 compared to 87.5 basis points at
September 30, 2007 and 95.1 basis points at December 31, 2006.

    Liquidity Risk

    The Company maintains sufficient liquidity to fund its obligations as
they come due under normal operating conditions, as well as under various
stress scenarios, with a framework for minimum levels of liquid assets to be
held at all times. The Company holds liquid assets in the form of cash, bank
deposits and senior bank notes, treasury bills, bankers acceptances, and
government or government-guaranteed bonds and debentures to meet the Company's
liquidity requirements. Despite the liquidity crisis that occurred during the
past few months in the Canadian and global credit markets, the Company has
maintained more than sufficient liquidity to meet its obligations. On December
31, 2007 liquid assets amounted to $627.1 million, up slightly from the
September 30, 2007 balance of $626.8 million and up 85.0% from the
$339.0 million as at December 31, 2006.
    The Company's policy is to maintain a minimum 20% of 100-day obligations
in liquid assets. For the twelve months ended December 31, 2007 the Company
maintained an average of $463.7 million, or 48.9%, of 100-day obligations in
liquid assets compared to $401.9 million, or 45.7%, for the twelve months
ended September 30, 2007 and $288.0 million, or 41.3%, for the twelve months
ended December 31, 2006.

    Interest Rate Risk

    The objective of interest rate risk management is to ensure that the
Company is able to realize stable and predictable earnings over specific time
periods despite interest rate fluctuations. The Company has adopted a balanced
approach to the management of its asset and liability positions to prevent
interest rate fluctuations from materially impacting future earnings but will
attempt to match liabilities to assets through its actions in the deposit
market in priority to accessing off-balance sheet solutions.
    The interest rate sensitivity position as at December 31, 2007 is
presented under Note 12 in these unaudited interim consolidated financial
statements. The table provided there represents these positions at a point in
time, and the gap represents the difference between assets and liabilities in
each maturity category. Note 12 summarizes both on- and off-balance sheet
assets and liabilities in terms of their contractual amounts. Over the course
of the lifetime of certain assets, some contractual obligations such as
residential mortgages will be terminated prior to their stated maturity at the
election of the borrower by way of prepayments. Similarly, some contractual
off-balance sheet mortgage commitments will be extended but not materialize.
In measuring its interest risk exposure, the Company will make assumptions
about these factors, taking into account aspects such as past borrower
history.
    To assist in matching assets and liabilities, the Company utilizes two
interest rate risk sensitivity models which measure the relationship between
changes in interest rates and the resulting impact on both future net interest
income and the economic value of shareholders' equity. As at December 31,
2007, a 1% decrease in interest rates would decrease net interest income after
tax over the next twelve months by approximately $3.2 million, and a 2% rate
decrease would also decrease net interest income after tax by approximately
$6.7 million. A 1% or 2% decrease in interest rates would also result in an
economic decrease in the present value of balance sheet net equity by
$2.9 million, or $5.7 million over the full term of the assets less
liabilities at December 31, 2007.
    The Company has the ability to enter into off-balance sheet arrangements
for the purpose of hedging commitment risk. The purpose is to manage interest
rate exposures during the time frame between when a mortgage commitment is
made and when this mortgage loan is securitized into an MBS pool. The Company
had no open interest rate swap arrangements specific to hedging commitment
risk as at December 31, 2007. Through the Company's participation in CMHC's
Canada Mortgage Bond program, the Company was required to enter into specific
swap agreements to hedge the reinvestment risk on the amortizing MBS pool and
the Canada Mortgage Bonds. Refer to Note 11 of these unaudited interim
consolidated financial statements for additional information.

    Results by Business Segment

    The following section discusses the mortgage and consumer lending lines
of business for the quarter and twelve months of 2007, compared to both
periods of 2006 (refer to Note 13 of these unaudited interim consolidated
financial statements).

    Mortgage Lending

    The Company's principal line of business contributed $16.8 million to net
income during the quarter, and $62.0 million for the twelve months of 2007, as
compared to $15.2 million and $50.4 million for the same periods ended
December 31, 2006. The increase for the quarter from the prior year was
primarily driven by increased loan originations and an increase in gains
realized on securitization activities. The total value of new mortgages
advanced in the quarter and twelve months of 2007 amounted to $899.8 million
and $2.86 billion, up 73.1% and 44.1% over the $519.8 million advanced in the
fourth quarter and $1.98 billion advanced during the twelve-month period ended
December 31, 2006, respectively.
    The Company securitized $198.9 million of government-guaranteed (CMHC)
residential mortgage loans through the creation of MBS securities during the
quarter, and a total of $692.3 million for the twelve months of 2007,
realizing total gains from securitization of $8.1 million for the quarter and
$22.8 million for the year ended December 31, 2007. This compares to
$130.7 million for the comparable quarter of 2006 and $546.3 million for the
twelve months of 2006, resulting in gains of $5.7 million and $17.9 million,
respectively. During the quarter, the Company participated in CMHC's Canada
Mortgage Bond program. Of the $198.9 million securitized during the quarter,
$91.5 million relates to the securitization of government-guaranteed
residential mortgage loans through the creation of MBS securities sold through
Canada Housing Trust. The sale of these residential mortgages realized
$4.2 million in gains. Securitization will continue to contribute to the
Company's income; however, core mortgage lending is expected to remain the
main driver of the Company's financial results going forward. For additional
information refer to Note 5 of these unaudited interim consolidated financial
statements.
    The Company's second mortgage program (recorded as secured loans) is
conducted by way of an agreement with QSPE-HCC Trust operating as Regency
Finance Corp. (Regency), whereby the Company acts as Regency's agent in
offering residential second mortgage loans. These mortgage loans are
securitized and the investments are purchased by the Company. At the end of
the quarter the Company held $82.3 million in Secured Loans as Notes
Receivable issued by Regency, compared to $81.8 million at September 30, 2007
and $70.3 million at December 31, 2006. These Notes yield 6.9% with an average
duration of 2.7 years. The Company also receives fee income for servicing and
administering these mortgages for Regency. This income amounted to 0.6% of the
portfolio value, on an annualized basis. The underlying credit quality of the
mortgage loans securing the Notes Receivable remains high, with 0.8% of the
portfolio in arrears over 60 days. This program has experienced only minor
losses since inception and continues to provide the Company with ancillary
marketing opportunities in the residential first mortgage marketplace.

    Consumer Lending - Credit Cards and Retail Services

    Consumer lending continued to generate strong results through the fourth
quarter of 2007. Net income for the quarter was $4.1 million, and
$15.1 million for the twelve months of 2007, compared to $3.2 million and
$10.1 million for the comparable periods in 2006. The Equityline VISA loans
portfolio amounted to $302.7 million at December 31, 2007 ($291.8 million -
Q3 2007 and $215.9 million - Q4 2006) comprising 96.3% (96.1% - Q3 2007 and
94.0% - Q4 2006) of the total gross credit card receivable balance of
$314.3 million and bearing an average interest rate of 10.9% (10.4% - Q3 2007
and 10.2% - Q4 2006) on outstanding balances. During the twelve months,
4,679 Equityline VISA accounts with $218.9 million in authorized credit limits
were issued, compared to 4,882 Equityline VISA accounts with $210.2 million in
authorized credit limits for the twelve months ended December 31, 2006.
    During the quarter, the Company finalized the acquisition of Payment
Services Interactive Gateway Corp. (PSiGate) (refer to Note 3 of these
unaudited interim consolidated financial statements for further details) and
consolidated its operating results in the consumer lending segment. Net income
resulting from the acquisition for the stub-period from October 17, 2007 to
December 31, 2007 was $0.2 million.

    Accounting Standards and Policies

    Critical Accounting Estimates

    Critical accounting estimates which require management to make
significant judgements, some of which are inherently uncertain, are outlined
on page 29 of the 2006 Annual Report. These estimates are critical since they
involve material amounts and require management to make estimates that, by
their very nature, include uncertainties. The preparation of unaudited interim
consolidated financial statements in accordance with GAAP requires management
to make estimates and assumptions, mainly concerning the valuation of items,
which affect the amounts reported. Actual results could differ from those
estimates.
    Accounting policies requiring critical accounting estimates include the
allowance for credit losses, securitization of Mortgage-Backed Securities,
future income tax liabilities and contingencies for litigation. Further
information can be found under Notes 4, 5, and 10 of the unaudited interim
consolidated financial statements. There have been no subsequent changes to
the critical accounting estimates disclosed on page 29 of the 2006 Annual
Report.

    Change in Accounting Policy

    On January 1, 2007 the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Sections 3855, Financial Instruments -
Recognition and Measurement; 3865, Hedges; and 1530, Comprehensive Income.
    The standards require that all financial assets and liabilities be
classified as held for trading, available for sale, held to maturity, or loans
and receivables. In addition, the standard requires that all financial assets
be measured at fair value with the exception of loans and receivables and
other liabilities which are recorded at amortized cost using the effective
interest method. As required, these standards have been applied as an
adjustment to opening retained earnings and accumulated other comprehensive
income (AOCI). As a result, retained earnings increased by $1.4 million and
AOCI decreased by $0.6 million. Prior period balances have not been restated.
    For further details, see Note 2 to these unaudited interim consolidated
financial statements.

    Controls over Financial Reporting

    No changes were made in the Company's internal controls over financial
reporting during the interim period ended December 31, 2007 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.

    Updated Share Information

    As at February 11, 2008, the Company had issued 34,532,490 Common Shares.
In addition, outstanding director and employee stock options amounted to
1,293,750 (1,170,000 - Q3 2007 and 1,266,000 - Q4 2006) of which 526,250 are
exercisable as of the quarter-end (596,250 - Q3 2007 and 910,375 - Q4 2006)
for proceeds to the Company upon exercise of $7.9 million ($7.3 million -
Q3 2007 and $8.4 million - Q4 2006).
    Subsequent to the end of the fourth quarter, the Board of Directors
declared a quarterly cash dividend of $0.12 per common share payable on
March 1, 2008 to shareholders of record at the close of business on
February 21, 2008.
    Effective January 1, 2006, the federal government implemented a new
dividend tax regime for dividends paid by Canadian corporations to their
shareholders. The result of these changes is that the top federal personal
income tax rate on eligible dividends received by investors decreased by 5% in
2006. For the year ended December 31, 2006, all dividends paid by the Company
were eligible dividends and all dividends to be paid subsequently will be
considered eligible unless indicated otherwise.


    
    Quarterly Financial Highlights

    In Thousands of Dollars, Except per Share Amounts and Percentages

                                                                        2007
    -------------------------------------------------------------------------
                                            Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Net Interest Income (TEB)(1)      $ 40,394  $ 39,396  $ 37,647  $ 34,276

    Less TEB Adjustment                  2,311     1,084     1,118       942
    -------------------------------------------------------------------------
    Net Interest Income per Financial
     Statements(3)                      38,083    38,312    36,529    33,334

    Non-Interest Income(3)              14,561    11,964    11,467    10,075

    Total Revenues(3)                  105,081    94,345    87,710    81,745

    Net Income                          24,228    22,837    22,018    21,158

    Return on Common Shareholders'
     Equity                              28.9%     28.9%     28.9%     29.3%

    Return on Average Total Assets        2.0%      2.0%      2.1%      2.1%

    Earnings per Common Share

      Basic                           $   0.70  $   0.66  $   0.64  $   0.62

      Diluted                         $   0.70  $   0.65  $   0.63  $   0.61

    Book Value per Common Share       $  10.08  $   9.38  $   8.98  $   8.70

    Efficiency Ratio (TEB)(1,3)          28.5%     25.9%     27.3%     26.7%

    Efficiency Ratio(3)                  29.8%     26.4%     27.9%     27.3%

    Tier 1 Capital Ratio(2)              11.3%     11.5%     12.7%     12.8%

    Total Capital Ratio(2)               12.7%     12.9%     14.2%     14.3%

    Net Impaired Loans as % of Gross
     Loans                               0.72%     0.63%     0.68%     0.74%

    Annualized Provision as % of Gross
     Loans                                0.2%      0.2%      0.1%      0.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                        2006
    -------------------------------------------------------------------------
                                            Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Net Interest Income (TEB)(1)      $ 33,040  $ 30,727  $ 29,073  $ 27,396

    Less TEB Adjustment                    841       764       740       651
    -------------------------------------------------------------------------
    Net Interest Income per Financial
     Statements(3)                      32,199    29,963    28,333    26,745

    Non-Interest Income(3)              12,744     6,880     9,412     6,623

    Total Revenues(3)                   81,053    70,621    68,495    62,380

    Net Income                          20,518    16,618    16,496    14,183

    Return on Common Shareholders'
     Equity                              30.5%     26.2%     27.6%     25.2%

    Return on Average Total Assets        2.2%      1.8%      1.9%      1.7%

    Earnings per Common Share

      Basic                           $   0.60  $   0.49  $   0.48  $   0.42

      Diluted                         $   0.59  $   0.48  $   0.47  $   0.41

    Book Value per Common Share       $   8.10  $   7.62  $   7.22  $   6.79

    Efficiency Ratio (TEB)(1,3)          26.8%     32.0%     29.5%     32.2%

    Efficiency Ratio(3)                  27.3%     31.2%     30.1%     32.8%

    Tier 1 Capital Ratio(2)              12.7%     12.5%     12.7%     12.9%

    Total Capital Ratio(2)               14.2%     14.1%     14.4%     14.6%

    Net Impaired Loans as % of Gross
     Loans                               0.68%     0.56%     0.54%     0.51%

    Annualized Provision as % of Gross
     Loans                                0.1%      0.1%      0.1%      0.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) TEB - taxable equivalent basis: see definition in these unaudited
        interim consolidated financial statements.

    (2) These figures relate to the Company's operating subsidiary, Home
        Trust Company.

    (3) Reclassification - refer to Note 2 of these unaudited interim
        consolidated financial statements.
    

    The Company's key financial measures for each of the last eight quarters
are summarized in the preceding table. These highlights illustrate the
Company's profitability, return on equity, as well as efficiency measures and
capital ratios, quarter-over-quarter. The Company continues to achieve strong
financial results driven by revenue growth in all business segments and
continued low efficiency ratios (where the lower the ratio the better). The
slight drop in the Tier 1 Capital Ratio and Total Capital Ratio in the third
and fourth quarters of 2007 compared to past quarters was due to an
intercompany dividend paid from Home Trust Company to the parent company,
Home Capital Group Inc., to facilitate the acquisition of PSiGate.

    Outlook

    Home Capital remains committed to serving selected segments of the
Canadian financial services marketplace that are not being served by the major
financial institutions. The Company continues to manage from a strong capital
and liquidity position and is well positioned to capitalize on market
opportunities in this uncertain economic environment.
    Having maintained strong growth and profitability throughout 2007, the
Company was able to meet and substantially exceed the targets set for 2007 and
is confident of continued success in 2008. As a result, the Company believes
that it is well positioned to meet each of the following targets: 20% growth
in earnings, 20% growth in diluted earnings per share, minimum 20% growth in
total assets including assets under administration and 25% return on
shareholders' equity. The key to achieving those targets, as it has been in
the past, will be a continued focus on growth together with prudent lending
practices, efficiency in operations, committed management and employees, and a
strong risk management and liquidity position.


    
    Consolidated Statements of Income

                                    Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,       December   December   December   December
     Except Per Share Amounts            31         31         31         31
     (Unaudited)                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Income
    Interest from Loans           $  79,101  $  63,454  $ 288,924  $ 230,844
    Dividends from Securities         4,608      1,569     10,877      5,589
    Other Interest                    6,812      3,287     21,013     10,458
    -------------------------------------------------------------------------
                                     90,521     68,310    320,814    246,891
    -------------------------------------------------------------------------
    Interest Expense
    Interest on Deposits             52,438     36,111    174,556    129,651
    -------------------------------------------------------------------------
    Net Interest Income              38,083     32,199    146,258    117,240
    Provision for Credit Losses
     (Note 4)                         2,449      1,281      6,042      4,398
    -------------------------------------------------------------------------
                                     35,634     30,918    140,216    112,842
    -------------------------------------------------------------------------
    Non-interest Income
    Fees and Other Income             6,444      5,969     21,533     13,483
    Securitization Income on
     Mortgage-Backed Securities      10,004      6,815     27,367     21,038
    Net Gain (Loss) Realized and
     Unrealized on Investment
     Securities                      (2,559)       (34)    (1,614)     2,210
    Gain (Loss) on Derivatives          672         (6)       781     (1,073)
    -------------------------------------------------------------------------
                                     14,561     12,744     48,067     35,658
    -------------------------------------------------------------------------
                                     50,195     43,662    188,283    148,500
    -------------------------------------------------------------------------
    Non-interest Expenses
    Salaries and Staff Benefits       8,163      6,516     30,195     25,883
    Premises                            996        928      3,837      3,518
    General and Administration        6,528      4,832     20,166     17,189
    -------------------------------------------------------------------------
                                     15,687     12,276     54,198     46,590
    -------------------------------------------------------------------------
    INCOME BEFORE INCOME TAXES       34,508     31,386    134,085    101,910
    Provision for Income Taxes
     (Note 10)                       10,280     10,868     43,844     34,095
    -------------------------------------------------------------------------
    NET INCOME FOR THE PERIOD     $  24,228  $  20,518  $  90,241  $  67,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET INCOME PER COMMON SHARE
    Basic                         $    0.70  $    0.60  $    2.62  $    1.99
    -------------------------------------------------------------------------
    Diluted                       $    0.70  $    0.59  $    2.59  $    1.95
    -------------------------------------------------------------------------
    AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING
    (Thousands)
    Basic                            34,482     34,141     34,447     34,131
    -------------------------------------------------------------------------
    Diluted                          34,851     34,796     34,857     34,801
    -------------------------------------------------------------------------
    Total Number of Outstanding
     Common Shares (Note 8)          34,532     34,166     34,532     34,166
    Book Value Per Common Share   $   10.08  $    8.10  $   10.08  $    8.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Comprehensive Income

                                    Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
    In Thousands of Dollars              31         31         31         31
     (Unaudited)                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    NET INCOME FOR THE PERIOD     $  24,228  $  20,518  $  90,241  $  67,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    OTHER COMPREHENSIVE INCOME
     (LOSS), NET OF TAX
    Unrealized Income (Losses) on
     Available for Sale Securities
      Net Unrealized Income
       (Losses) on Securities
       Available for Sale             4,083          -     (4,899)         -
      Reclassification of Earnings
       in Respect of Available for
       Sale Securities                  308          -       (768)         -
    -------------------------------------------------------------------------
    Total Other Comprehensive
     Income (Loss)                    4,391          -     (5,667)         -
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME          $  28,619  $  20,518  $  84,574  $  67,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Balance Sheets

    -------------------------------------------------------------------------
    In Thousands of Dollars          December 31  September 30   December 31
     (Unaudited)                            2007          2007          2006
    -------------------------------------------------------------------------
    ASSETS
    Cash Resources
    Deposits with Regulated Financial
     Institutions                    $   344,464   $   449,396   $    43,701
    Treasury Bills Guaranteed by
     Canada                                9,872             -        99,830
    -------------------------------------------------------------------------
                                         354,336       449,396       143,531
    -------------------------------------------------------------------------
    Securities
    Issued or Guaranteed by Canada             -             -       208,980
    Issued or Guaranteed by Provinces          -             -           299
    Other Securities                           -             -       134,855
    Held for Trading                     114,423        19,965             -
    Available for Sale                   356,458       367,411             -
    -------------------------------------------------------------------------
                                         470,881       387,376       344,134
    -------------------------------------------------------------------------
    Loans
    Residential Mortgages              3,231,555     3,039,459     2,885,806
    Personal and Credit Card Loans       325,393       312,261       237,037
    Other Mortgages                      406,319       328,838       135,765
    Secured Loans                         82,304        81,797        70,250
    General Allowance for Credit
     Losses (Note 4)                     (23,400)      (22,087)      (19,644)
    -------------------------------------------------------------------------
                                       4,022,171     3,740,268     3,309,214
    -------------------------------------------------------------------------
    Other
    Securitization Receivable (Note 5)    63,982        50,124        50,963
    Capital Assets                         4,837         4,664         4,691
    Other Assets (Note 6)                 57,100        40,992        49,783
    -------------------------------------------------------------------------
                                         125,919        95,780       105,437
    -------------------------------------------------------------------------
                                     $ 4,973,307   $ 4,672,820   $ 3,902,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS'
     EQUITY
    LIABILITIES
    Deposits
      Payable on Demand              $    30,793   $    13,608   $    27,871
      Payable on a Fixed Date          4,383,191     4,146,888     3,415,769
    -------------------------------------------------------------------------
                                       4,413,984     4,160,496     3,443,640
    -------------------------------------------------------------------------
    Other
    Cheques and Other Items in Transit     4,393         3,989         2,655
    Other Liabilities (Note 7)           206,890       185,030       179,155
    -------------------------------------------------------------------------
                                         211,283       189,019       181,810
    -------------------------------------------------------------------------
                                       4,625,267     4,349,515     3,625,450
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY
    Capital Stock (Note 8)                34,197        34,567        34,551
    Contributed Surplus                    1,818         1,523           783
    Retained Earnings                    318,322       297,903       241,532
    Accumulated Other Comprehensive
     Loss                                 (6,297)      (10,688)            -
    -------------------------------------------------------------------------
                                         348,040       323,305       276,866
    -------------------------------------------------------------------------
                                     $ 4,973,307   $ 4,672,820   $ 3,902,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Changes in Shareholders' Equity


                                    Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
    In Thousands of Dollars              31         31         31         31
     (Unaudited)                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    CAPITAL STOCK
    Common Shares
    Balance at Beginning of the
     Period                       $  34,567  $  35,261  $  34,551  $  34,272
    Proceeds of Options Exercised       890         58      3,585      1,197
    Normal Course Issuer Bid         (1,260)      (768)    (3,939)      (918)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD  $  34,197  $  34,551  $  34,197  $  34,551
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CONTRIBUTED SURPLUS
    Balance at Beginning of the
     Period                       $   1,523  $     622  $     783  $     306
    Amortization of Fair Value of
     Employee Stock Options (Note 9)    321        161      1,129        495
    Employee Stock Options
     Exercised                          (26)         -        (94)       (18)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD  $   1,818  $     783  $   1,818  $     783
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    RETAINED EARNINGS
    Balance at Beginning of the
     Period                       $ 297,903  $ 224,770  $ 241,532  $ 184,307
    Transitional Adjustment on
     Adoption of Financial
     Instruments, Net of Tax of
     $786 (Note 2)                        -          -      1,391          -
    Net Income for the Period        24,228     20,518     90,241     67,815
    Dividends Paid During the
     Period                             (10)      (680)   (11,043)    (7,514)
    Dividends Declared, Unpaid
     During the Period               (3,799)    (3,076)    (3,799)    (3,076)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD  $ 318,322  $ 241,532  $ 318,322  $ 241,532
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    ACCUMULATED OTHER
     COMPREHENSIVE LOSS
    Balance at Beginning of the
     Period                       $ (10,688) $       -  $       -  $       -
    Transitional Adjustment on
     Adoption of Financial
     Instruments, Net of Tax of
     $664 (Note 2)                        -          -       (630)         -

    Other Comprehensive Income
     (Loss)                           4,391          -     (5,667)         -
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD  $  (6,297) $       -  $  (6,297) $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Cash Flows

                                    Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
    In Thousands of Dollars              31         31         31         31
     (Unaudited)                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net Income for the Period     $  24,228  $  20,518  $  90,241  $  67,815
    Adjustments to Determine Cash
     Flows Relating to Operating
     Activities:
      Future Income Taxes             2,782     (1,049)     3,708        718
      Amortization                    3,398        304     11,691        896
      Provision for Credit Losses     2,449      1,281      6,042      4,398
      Change in Accrued Interest
       Payable                       10,671      3,067     23,730     14,529
      Change in Accrued Interest
       Receivable                    (2,186)      (925)    (6,262)    (3,812)
      Net Loss (Gain) Realized and
       Unrealized on Investment
       Securities                     2,559         34      1,614     (2,210)
      Loss (Gain) on Derivatives       (672)         6       (781)     1,073
      Net Unrealized Loss (Gain)
       on Securities Available for
       Sale                             612          -     (6,063)         -
      Securitization Income on
       Mortgage-Backed Securities   (10,004)    (6,815)   (27,367)   (21,038)
      Amortization of Fair Value
       of Employee Stock Options
       (Note 9)                         321        161      1,129        495
      Other                          15,505      5,874     16,092      6,034
    -------------------------------------------------------------------------
    Cash Flows From Operating
     Activities                      49,663     22,456    113,774     68,898
    -------------------------------------------------------------------------
    CASH FLOWS FROM FINANCING
     ACTIVITIES
    Repayment of Term Loan                -          -          -    (10,000)
    Net Increase in Deposits        253,488    124,746    972,192    542,125
    Issuance of Capital Stock           890         58      3,585      1,197
    Normal Course Issuer Bid         (1,260)      (768)    (3,939)      (918)
    Dividends Paid                   (3,800)    (3,076)   (14,119)    (9,215)
    -------------------------------------------------------------------------
    Cash Flows From Financing
     Activities                     249,318    120,960    957,719    523,189
    -------------------------------------------------------------------------
    CASH FLOWS FROM INVESTING
     ACTIVITIES
    Activity in Available for
     Sale and Held for Trading
     Securities
      Purchases                    (125,320)         -   (266,275)         -
      Proceeds from Sales            20,447          -     50,239          -
      Proceeds from Maturities       16,210          -     79,457          -
    Activity in Securities
      Purchases                           -    (56,119)         -   (220,089)
      Proceeds from Sales                 -        929          -     32,862
      Proceeds from Maturities            -     37,412          -     74,641
    Activity in Mortgages
      Net Increase                 (469,229)  (203,721) (1,309,808) (915,093)
      Proceeds from
       Securitization of
       Mortgage-Backed Securities   193,879    127,856     673,920   532,730
      Change in Mortgage-Backed
       Securities Receivable          1,193      9,229      31,671    24,920
    Net Increase in Personal and
     Credit Card Loans              (13,343)   (37,196)   (89,084)  (121,041)
    Net Increase in Secured Loans      (705)    (4,492)   (12,372)   (26,871)
    Proceeds from Leasehold
     Inducements                          -          -          -      1,009
    Business Acquisition, Net       (16,563)         -    (16,563)         -
    Purchases of Capital Assets        (610)      (649)    (1,873)    (2,767)
    -------------------------------------------------------------------------
    Cash Flows Used in Investing
     Activities                    (394,041)   (126,751) (860,688)  (619,699)
    -------------------------------------------------------------------------
    Net Increase (Decrease) in
     Cash and Cash Equivalents
     During the Period              (95,060)    16,665    210,805    (27,612)
    Cash and Cash Equivalents at
     the Beginning of the Period    449,396    126,866    143,531    171,143
    -------------------------------------------------------------------------
    Cash and Cash Equivalents at
     the End of the Period        $ 354,336  $ 143,531  $ 354,336  $ 143,531
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary Disclosure of
     Cash Flow Information
    Interest Paid                 $  41,765  $  31,117  $ 150,824  $ 108,020
    Income Taxes Paid                11,262      8,502     46,723     37,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Notes to the Unaudited Interim Consolidated Financial Statements

    1.  ACCOUNTING POLICIES USED TO PREPARE THE UNAUDITED INTERIM
        CONSOLIDATED FINANCIAL STATEMENTS

    These unaudited interim consolidated financial statements should be read
    in conjunction with the audited consolidated financial statements for the
    year ended December 31, 2006 as set out in the 2006 Annual Report, on
    pages 32 through 52. These unaudited interim consolidated financial
    statements have been prepared in accordance with Canadian generally
    accepted accounting principles. Except as disclosed in Note 2, the
    accounting policies and methods of application used in the preparation of
    these unaudited interim consolidated financial statements are consistent
    with the accounting policies used in Home Capital Group Inc.'s (the
    "Company") most recent annual audited financial statements. These
    unaudited interim consolidated financial statements reflect amounts
    which must, of necessity, be based on the best estimates and judgement of
    management with appropriate consideration as to materiality. Actual
    results may differ from these estimates.

    Certain comparative figures have been reclassified to conform to the
    current period's presentation.

    2.  CHANGE IN ACCOUNTING POLICIES

    Financial Instruments

    Effective January 1, 2007 the Company adopted new accounting standards
    issued by the Canadian Institute of Chartered Accountants (CICA) Handbook
    Section 3855, Financial Instruments - Recognition and Measurement;
    Section 3865, Hedges; and Section 1530, Comprehensive Income. As a result
    of adopting these standards, all financial assets were classified as held
    for trading, available for sale, or loans and receivables. Financial
    liabilities were classified as held for trading or other liabilities.
    Further, the new standards require that all financial assets and
    liabilities be measured at fair value with the exception of loans and
    receivables, financial assets and liabilities held to maturity, and other
    liabilities which are measured at amortized cost using the effective
    interest method. The comparative unaudited interim consolidated financial
    statements have not been restated as a result of the adoption of these
    standards.

    Determination of Fair Value

    The fair value of a financial instrument on initial recognition is
    normally the transaction price, i.e. the fair value of the consideration
    given or received. In certain circumstances, however, the initial fair
    value may be based on other observable current market transactions of the
    same instrument, without modification or repackaging, or on a valuation
    technique whose variables include only data from observable markets.
    Subsequent to initial recognition, the fair values of financial
    instruments measured at fair value that are quoted in active markets are
    based on bid prices for financial assets held and offer prices for
    financial liabilities. When independent prices are not available, fair
    values are determined by using valuation techniques which refer to
    observable market data. These include comparisons with similar
    instruments where observable market prices exist, and discounted cash
    flow analysis.

    Transaction Costs

    Transaction costs related to held for trading securities are expensed as
    incurred. Transaction costs related to available for sale securities and
    loans and receivables are generally capitalized and are then amortized
    over the expected life of the instrument using the effective yield
    method.

    Classification of Financial Instruments

    Held for trading financial assets are securities purchased for resale,
    generally within a short period of time and primarily held for liquidity
    purposes. These financial assets are measured at fair value as at the
    consolidated balance sheet date. Gains and losses realized on disposal
    and unrealized gains and losses from market fluctuations are reported in
    income. Interest earned is included in interest income. Cash resources
    and securities issued or guaranteed by provinces previously disclosed as
    such in the audited consolidated financial statements for the year ended
    December 31, 2006 were designated as held for trading on January 1, 2007.
    The Company did not elect under the fair value option to designate any
    financial asset or liability as held for trading.

    Available for sale financial assets are those financial assets that the
    Company designates as available for sale, or that are not classified as
    loans and receivables. Securities included in this category comprise both
    debt and equity securities. Available for sale securities are carried at
    fair value whereby the unrealized gains and losses, net of related taxes,
    are included in accumulated other comprehensive income (loss) until sold
    or an other-than-temporary impairment is recognized, at which time the
    cumulative gain or loss is transferred to the consolidated statements of
    income. Write-downs to reflect other-than-temporary impairments in value
    are included under non-interest income. Dividends and interest income
    from these securities are included in dividends from securities or other
    interest. Securities issued or guaranteed by Canada, other securities,
    and securitzation receivable previously disclosed as such in the audited
    consolidated financial statements for the year ended December 31, 2006
    were designated as available for sale on January 1, 2007.

    Loans and receivables are accounted for at amortized cost using the
    effective interest method. Prior to January 1, 2007, loan origination
    costs were classified as other assets and other liabilities and
    recognized in income and expense over the life of the respective loan.
    The new accounting standards require the Company to use the effective
    interest method to recognize loan origination costs whereby the amount
    recognized varies over the life of the loan based on the principal
    outstanding. On January 1, 2007, the Company adjusted deferred loan
    origination costs to what the balance would have been had the Company
    always used the effective interest method to recognize loan origination
    costs. The impact was an increase in loans of $73,000, an increase to
    future income tax liability of $27,000 and an increase in retained
    earnings of $46,000. In addition, the Company reclassified the deferred
    origination revenue and costs from other assets and other liabilities to
    net against the respective loans on the consolidated balance sheet and
    reclassified the amortization of the deferred origination revenue and
    costs previously recorded in fees and other income (non-interest income)
    and general and administrative non-interest expense to interest from
    loans and interest on deposits on the consolidated statements of income.

    Financial liabilities classified as other than held for trading are
    recorded at amortized cost and include all liabilities. Prior to January
    1, 2007, deposit origination costs were classified as other assets and
    expensed over the life of the resulting deposit. The new accounting
    standards require the Company to use the effective interest method to
    recognize deposit origination costs whereby the amount recognized varies
    over the life of the deposit. The impact of adopting this new standard
    was a decrease in deposits of $1.9 million, an increase in future income
    tax liability of $0.7 million and an increase in retained earnings of
    $1.2 million. On January 1, 2007, the Company reclassified deferred
    origination costs previously classified in other assets to net against
    deposits on the consolidated balance sheets and reclassified the
    amortization of deferred origination costs previously classified as
    general and administration expense to interest on deposits on the
    consolidated statements of income.

    For those financial assets that have been designated by definition as
    held for trading, the Company is not required to identify any embedded
    derivatives that might exist within these instruments. The Company
    conducted a search for embedded derivatives in all other contractual
    arrangements and found that certain of the Company's equity securities
    contained embedded derivatives which are required to be bifurcated from
    the underlying investment and valued separately. These bifurcated
    derivatives do not currently have significant value, and therefore are
    not reported separately.

    Transitional Adjustments

    As required, these standards have been applied as an adjustment to
    opening retained earnings and accumulated other comprehensive income
    (AOCI) as of January 1, 2007. Prior period balances have not been
    restated following the adoption of these new standards. The impact of
    adopting these standards at January 1, 2007 on a net of tax basis was as
    follows:

    -------------------------------------------------------------------------
                                       December 31,    Retained
    In Thousands of Dollars                   2006     Earnings         AOCI
    -------------------------------------------------------------------------
    ASSETS
    Cash Resources                     $   143,531  $        (1) $         -
    Securities                             344,134          164           70
    Loans                                3,309,214           47            -
    Other                                  105,437            -         (700)
    -------------------------------------------------------------------------
                                       $ 3,902,316  $       210  $      (630)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS'
     EQUITY LIABILITIES
    Deposits                           $ 3,443,640  $    (1,181) $         -
    Other                                  181,810            -            -
    -------------------------------------------------------------------------
                                         3,625,450       (1,181)           -
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY
    Capital Stock                           34,551            -            -
    Contributed Surplus                        783            -            -
    Retained Earnings                      241,532        1,391            -
    Accumulated Other Comprehensive Loss         -            -         (630)
    -------------------------------------------------------------------------
                                           276,866        1,391         (630)
    -------------------------------------------------------------------------
                                       $ 3,902,316  $       210  $      (630)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The impact of the reclassification of the deferred expenses and
    commitment fees on the consolidated statements of income for the three-
    and twelve-month periods ended December 31, 2007 and 2006 is as follows:

                                    Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                    Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31,
    In Thousands of Dollars            2007       2006       2007       2006
    -------------------------------------------------------------------------
    Consolidated Statements of
     Income
    Interest from Loans           $   3,287  $   1,729  $   9,585  $   5,743
    Fees and Other Income            (5,456)    (3,921)   (18,288)   (14,482)
    -------------------------------------------------------------------------
    Decrease to Income            $  (2,169) $  (2,192) $  (8,703) $  (8,739)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest on Deposits          $   4,530  $   1,927  $   9,046  $   7,102
    General and Administration       (6,699)    (4,119)   (17,749)   (15,841)
    -------------------------------------------------------------------------
    Decrease to Expenses          $  (2,169) $  (2,192) $  (8,703) $  (8,739)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    3.  ACQUISITION

    On October 16, 2007, the Company acquired 100% of the outstanding common
    shares of Payment Services Interactive Gateway Corp. ("PSiGate") for cash
    consideration of $18.4 million. The estimated fair value of total assets
    and liabilities assumed at the date of acquisition was $20.4 million and
    $2.0 million respectively, including goodwill of $12.7 million and
    intangible assets of $1.2 million. Income and expenses from PSiGate are
    included in the consumer lending segment in Note 13 and consolidated in
    the accounts of the Company from October 16, 2007.

    4.  LOANS

    (A) Impaired Loans and Related Allowance for Specific Credit Losses

                                                     As at December 31, 2007
    -------------------------------------------------------------------------
                               Gross Amount of       Specific       Carrying
    In Thousands of Dollars     Impaired Loans     Allowances          Value
    -------------------------------------------------------------------------
    Personal, Credit Card and
     Secured Loans                   $   1,921      $     359      $   1,562
    Residential Mortgages               27,849            634         27,215
    Other Mortgages                        242              -            242
    -------------------------------------------------------------------------
                                     $  30,012      $     993      $  29,019
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                    As at September 30, 2007
    -------------------------------------------------------------------------
    Personal, Credit Card and
     Secured Loans                   $   2,378      $     450      $   1,928
    Residential Mortgages               21,260            229         21,031
    Other Mortgages                        610              -            610
    -------------------------------------------------------------------------
                                     $  24,248      $     679      $  23,569
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     As at December 31, 2006
    -------------------------------------------------------------------------
    Personal, Credit Card and Secured
     Loans                           $   1,376      $     256      $   1,120
    Residential Mortgages               21,521            386         21,135
    Other Mortgages                        548              -            548
    -------------------------------------------------------------------------
                                     $  23,445      $     642      $  22,803
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (B) Allowance for Credit Losses

                                        For the Year Ended December 31, 2007
    -------------------------------------------------------------------------
                                                      General
                                                   Allowances
                                      Specific            for
    In Thousands of Dollars          Allowance    Credit Risk          Total
    -------------------------------------------------------------------------
    Balance at the Beginning of the
     Period                          $     642      $  19,644      $  20,286
    Provisions for Credit Losses for
     the Current Period                  2,286          3,756          6,042
    Write-offs                          (2,181)             -         (2,181)
    Recoveries                             246              -            246
    -------------------------------------------------------------------------
    Balance at the End of the Period $     993      $  23,400      $  24,393
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                        For the Year Ended December 31, 2006
    -------------------------------------------------------------------------
    Balance at the Beginning of the
     Period                          $     162      $  16,586      $  16,748
    Provisions for Credit Losses for
     the Current Period                  1,340          3,058          4,398
    Write-offs                          (1,154)             -         (1,154)
    Recoveries                             294              -            294
    -------------------------------------------------------------------------
    Balance at the End of the Period $     642      $  19,644      $  20,286
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  LOAN SECURITIZATIONS

    The following tables summarize the Company's new securitization
    activities for the three- and twelve-month periods ended December 31,
    2007 and 2006.


    In Thousands of Dollars,
     Except Percentages     For the Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
                                         31         31         31         31
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Book Value of Mortgages
     Securitized                  $ 198,925  $ 130,733  $ 692,338  $ 546,266
    Securitization Receivable     $  14,104  $   9,231  $  43,907  $  33,534
    Servicing Liability           $     350  $     202  $   1,144  $     870
    Net Proceeds Received on
     Securitized Mortgages        $ 193,879  $ 127,856  $ 673,920  $ 532,730
    Gain on Sale of Mortgages     $   8,107  $   5,726  $  22,763  $  17,914
    Prepayment Rate                   13.5%      12.9%      13.2%      12.7%
    Excess Spread                      2.9%       3.1%       2.7%       2.6%
    Weighted Average Life in Years      4.2        3.6        4.0        3.9
    Discount Rate                      4.3%       4.0%       4.3%       4.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the fourth quarter of 2007, the Company securitized insured
    residential mortgages with a book value of $91.5 million through CHMC's
    Canada Mortgage Bond Program. The gain on sale for this pool was
    $4.2 million and is included in the figures above.

    6. OTHER ASSETS

                                     December 31  September 30   December 31
    In Thousands of Dollars                 2007          2007          2006
    -------------------------------------------------------------------------
    Accrued Interest Receivable      $    25,308   $    23,122   $    19,046
    Income Taxes Receivable                    -         1,432             -
    Deferred Agent Commission (Note 2)         -             -         9,198
    Deferred Finders Fees (Note 2)             -             -         8,356
    Goodwill (Note 3)                     15,028         2,324         2,324
    Intangible Assets (Note 3)             1,158             -             -
    Other Prepaid Assets and Deferred
     Items                                15,606        14,114        10,859
    -------------------------------------------------------------------------
                                     $    57,100   $    40,992   $    49,783
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7. OTHER LIABILITIES

                                     December 31  September 30   December 31
    In Thousands of Dollars                 2007          2007          2006
    -------------------------------------------------------------------------
    Accrued Interest Payable         $   135,650   $   124,979   $   111,920
    Income Taxes Payable                   5,795             -         3,788
    Dividends Payable                      3,799         3,790         3,076
    Deferred Commitment Fees (Note 2)          -             -        12,213
    Future Income Tax Liability
     (Note 10)                            16,586        15,174        12,733
    Other, Including Accounts Payable
     and Accrued Liabilities              45,060        41,087        35,425
    -------------------------------------------------------------------------
                                     $   206,890   $   185,030   $   179,155
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8. CAPITAL STOCK

    Issued and Outstanding

    In Thousands of Dollars,
    -------------------------------------------------------------------------
    Except Per           December 31,       September 30,        December 31,
     Share Amounts              2007                2007                2006
    -------------------------------------------------------------------------
                    Number              Number              Number
                        of                  of                  of
    Common Shares   Shares    Amount    Shares    Amount    Shares    Amount
    -------------------------------------------------------------------------

    Outstanding at
     Beginning of
     Period         34,166  $ 34,551    34,166  $ 34,551    34,012  $ 34,272
    Options
     Exercised         477     3,585       366     2,695       186     1,197
    Normal Course
     Issuer Bid       (111)   (3,939)      (77)   (2,679)      (32)     (918)
    -------------------------------------------------------------------------
    Outstanding at
     End of Period  34,532  $ 34,197    34,455  $ 34,567    34,166  $ 34,551
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                            Weighted-           Weighted-           Weighted-
                    Number   Average    Number   Average    Number   Average
    Share Purchase      of  Exercise        of  Exercise        of  Exercise
     Options        Shares     Price    Shares     Price    Shares     Price
    -------------------------------------------------------------------------
    Outstanding at
     Beginning of
     Period          1,266  $  15.43     1,266  $  15.43     1,272  $  12.32
      Granted          505     37.78       270     34.73       210     28.99
      Exercised       (477)     7.31      (366)     7.18      (186)     6.34
      Forfeited          -         -         -         -       (30)    34.78
    -------------------------------------------------------------------------
    Outstanding at
     End of Period   1,294  $  27.15     1,170  $  22.47     1,266  $  15.43
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Exercisable,
     End of Period     526  $  15.04       596  $  12.31       910  $   9.25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  STOCK BASED COMPENSATION

    For all options issued after January 1, 2003 the Company has recognized a
    compensation expense. During the quarter, $321,000 was recorded as an
    expense for a total of $1.1 million for the year ($161,000 - Q4 2006 and
    $495,000 - twelve months 2006) for stock option awards in the
    consolidated statements of income, with an off-setting credit to
    contributed surplus. The fair value of options granted in 2007 is
    estimated at the date of granting using the Black-Scholes valuation model
    with the following assumptions: risk-free interest rate of 4.0%,
    anticipated option life of 6.2 years, anticipated volatility of 28.0%,
    and anticipated dividend yield of 1.1%. During the quarter ended December
    31, 2007, 235,000 options were granted. For the twelve-month period ended
    December 31, 2007, stock options granted totalled 505,000 and these
    granted options will vest subject to performance targets over a four-year
    period at a rate of 25% per year, expiring over a period of seven years.

    For those options issued prior to January 1, 2003, no compensation
    expense has been recognized. Had these options been subject to the same
    accounting policy, they would have no effect on the fourth quarter of
    2007 as they would have been fully expensed. However, the impact on prior
    comparable quarters would have reduced net income ($33,000 - Q4 2006 and
    $205,000 - twelve months 2006) and net income and earnings per share
    would have been reported as follows:

                            For the Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
                                         31         31         31         31
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Pro-forma Net Income (in
     Thousands of Dollars)        $  24,228  $  20,485  $  90,241  $  67,610
    Pro-forma Earnings per Share
     - Basic                      $    0.70  $    0.60  $    2.62  $    1.98
    Pro-forma Earnings per Share
     - Diluted                    $    0.70  $    0.59  $    2.59  $    1.94
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. INCOME TAXES

    Reconciliation of income taxes for the three- and twelve-month periods
    ended:

                            For the Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
                                         31         31         31         31
    In Thousands of Dollars            2007       2006       2007       2006
    -------------------------------------------------------------------------
    Income Before Income Taxes    $  34,508  $  31,386  $ 134,085  $ 101,910
    -------------------------------------------------------------------------
    Income Taxes at Statutory
     Combined Federal and
     Provincial Income Tax Rates     12,408     11,330     48,377     36,790
    Increase (Decrease) in Income
     Taxes at Statutory Income Tax
     Rates Resulting From:
      Tax-exempt Income              (1,476)      (537)    (3,484)    (1,913)
      Non-deductible Expenses           245         66        723        292
      Future Tax Rate Changes        (1,286)         -     (1,503)         -
      Other                             389          9       (269)    (1,074)
    -------------------------------------------------------------------------
    Income Tax                    $  10,280  $  10,868  $  43,844  $  34,095
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sources of Future Income Tax Balances:

                                   December  September   December
                                         31         30         31
    In Thousands of Dollars            2007       2007       2006
    --------------------------------------------------------------
    Future Income Tax Liabilities
      Deferred Agent Commissions
       and Other Charges          $   7,907  $   8,657  $   6,251
      Mortgage-Backed Securities
       Receivable                    21,282     17,638     17,995
    --------------------------------------------------------------
                                     29,189     26,295     24,246
    --------------------------------------------------------------
    Future Income Tax Assets
      Allowance for Credit Losses     6,767      6,757      6,028
      Mark-to-market Adjustments
       to Securities (Note 2)             -          -      1,216
      Future Tax Recoverable
       Acquired (Note 3)              1,370          -          -
      Deferred Commitment Fees
       and Other Charges              4,466      4,364      4,269
    --------------------------------------------------------------
                                     12,603     11,121     11,513
    --------------------------------------------------------------
    Net Future Income Tax
     Liability                    $  16,586  $  15,174  $  12,733
    --------------------------------------------------------------
    --------------------------------------------------------------

    11. DERIVATIVE FINANCIAL INSTRUMENTS

    The Company utilized off-balance sheet financial instruments during 2007.
    In this period the Company entered into economic hedge swap transactions
    with a major financial institution. The Company can utilize interest rate
    swaps to hedge the economic value exposure of movements in interest rates
    between the time that the mortgages are committed to be funded under
    asset securitization, and the time the mortgages are actually sold.
    (These mortgages qualify for government insurance.) The intent of the
    swap is to have fair value movements in the swap offset the fair value
    movements in the pool of mortgages over the period in which the fixed
    rate pool may be exposed to movements in the variable interest rate,
    generally 60 to 150 days. The interest rate swaps referred to as "pay-
    fixed interest rate swaps" are structured such that the Company agrees to
    pay a fixed rate (as designated in the swap) and receives the floating
    rate (as designated in the swap). Further, the Company participates in
    the Canada Mortgage Bond program sponsored by CMHC. In this program, the
    Company sells five-year MBS pools to Canada Housing Trust that finances
    the purchase by issuing a five-year bullet Canada mortgage bond. Under
    this program, the Company must manage the mismatch and reinvestment risk
    between the amortizing five-year MBS pool and the five-year bullet Canada
    Mortgage Bond. As part of this arrangement, the Company entered into a
    seller swap which has the effect of paying the fixed interest payments on
    the Canada Mortgage Bond and receiving the total return on the MBS pool
    and the reinvestment assets. As well, the Company entered into a hedge
    swap to manage the reinvestment risk between the amortizing MBS pool and
    the five-year Canada Mortgage Bond. These transactions do not qualify for
    hedge accounting under CICA Handbook Section 3865, Hedges and therefore
    the Company must mark-to-market the swaps, with changes in the fair value
    of the swaps being recognized in the consolidated statements of income.

    There were no outstanding interest rate swaps to hedge commitment risk at
    December 31, 2007 or December 31, 2006. With respect to the Canada
    Mortgage Bond program, at December 31, 2007 the Company notionally held
    $118.5 million of seller swaps, and $2.2 million of accreting hedge
    swaps. These outstanding swap arrangements at December 31, 2007 were
    marked-to-market for unrealized gains of $1.0 million.

    12. INTEREST RATE SENSITIVITY

    The Company's exposure to interest rate risk results from the difference,
    or gap, between the maturity or repricing dates of interest sensitive
    assets and liabilities, including off-balance sheet items. The following
    table shows the gap positions at December 31, 2007, September 30, 2007
    and December 31, 2006 for selected period intervals. Figures in brackets
    represent an excess of liabilities over assets or a negative gap
    position.

    -------------------------------------------------------------------------
    In Thousands of          Floating       0 to 3     3 Months       1 to 3
     Dollars                     Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------

    December 31, 2007

    Total Assets          $    59,161  $   901,191  $ 1,653,853  $ 1,607,192
    Total Liabilities and
     Equity                         -      446,107    2,136,991    1,330,558
    Off-balance Sheet
     Items                          -     (434,863)     193,693      110,534
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $    59,161  $    20,221  $  (289,445) $   387,168
    -------------------------------------------------------------------------
    Cumulative Gap        $    59,161  $    79,382  $  (210,063) $   177,105
    -------------------------------------------------------------------------
    Cumulative Gap as a %
     of Total Assets             1.2%         1.6%        (4.2%)        3.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    September 30, 2007

    Total Assets          $    38,578  $ 1,034,994  $ 1,412,867  $ 1,485,449
    Total Liabilities and
     Equity                       227      596,127    1,746,833    1,355,491
    Off-balance Sheet
     Items                          -      276,216     (144,477)     (45,461)
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $    38,351  $   162,651  $  (189,489) $   175,419
    -------------------------------------------------------------------------
    Cumulative Gap        $    38,351  $   201,002  $    11,513  $   186,932
    -------------------------------------------------------------------------
    Cumulative Gap as a %
     of Total Assets             0.8%         4.3%         0.2%         4.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    December 31, 2006

    Total Assets          $    30,401  $   561,180  $ 1,204,365  $ 1,553,657
    Total Liabilities and
     Equity                         -      311,280    1,748,542    1,153,619
    Off-balance Sheet
     Items                          -      190,356      (12,808)     (62,081)
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $    30,401  $    59,544  $  (531,369) $   462,119
    -------------------------------------------------------------------------
    Cumulative Gap        $    30,401  $    89,945  $  (441,424) $    20,695
    -------------------------------------------------------------------------
    Cumulative Gap as a %
     of Total Assets             0.8%         2.3%       (11.3%)        0.5%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ------------------------------------------------------------
    In Thousands of              Over Non-interest
     Dollars                  3 Years    Sensitive        Total
    ------------------------------------------------------------
    December 31, 2007
    Total Assets          $   596,124  $   155,786  $ 4,973,307
    Total Liabilities and
     Equity                   452,096      607,555    4,973,307
    Off-balance Sheet
     Items                    130,636            -            -
    ------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $   274,664  $  (451,769) $         -
    ------------------------------------------------------------
    Cumulative Gap        $   451,769  $         -  $         -
    ------------------------------------------------------------
    Cumulative Gap as a %
     of Total Assets             9.1%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

    September 30, 2007

    Total Assets          $   581,302  $   119,630  $ 4,672,820
    Total Liabilities and
     Equity                   430,309      543,833    4,672,820
    Off-balance Sheet
     Items                    (86,278)           -            -
    ------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $   237,271  $  (424,203) $         -
    ------------------------------------------------------------
    Cumulative Gap        $   424,203  $         -  $         -
    ------------------------------------------------------------
    Cumulative Gap as a %
     of Total Assets             9.1%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

    December 31, 2006

    Total Assets          $   425,531  $   127,182  $ 3,902,316
    Total Liabilities and
     Equity                   202,328      486,547    3,902,316
    Off-balance Sheet
     Items                   (115,467)           -            -
    ------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $   338,670  $  (359,365) $         -
    ------------------------------------------------------------
    Cumulative Gap        $   359,365  $         -  $         -
    ------------------------------------------------------------
    Cumulative Gap as a %
     of Total Assets             9.2%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

    13. EARNINGS BY BUSINESS SEGMENT

    The Company operates principally through two business segments - mortgage
    lending and consumer lending. The mortgage lending operation consists of
    core residential mortgage lending, securitization of government insured
    mortgage loans, commercial real estate lending, and the administration of
    Regency Finance Corp. second mortgage loans (secured loans). The consumer
    lending operation consists of credit card services, installment lending
    to customers of retail business and PSiGate operations as of October 17,
    2007. The other category includes the Company's treasury and securities
    investment activities.

    The following tables detail the earnings and assets of the Company, by
    business segment:


    Thousands of Dollars                                  Three Months Ended
    -------------------------------------------------------------------------
                                  Mortgage Lending          Consumer Lending
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income   $    21,083  $    22,452  $     5,657  $     4,622
    Provisions for Credit
     Losses                    (2,164)        (735)        (285)        (546)
    Fees and Other Income       3,351        3,913        3,017        1,977
    Net Gain on
     Securities,
     Derivatives &
     Mortgage-Backed
     Securities                10,676        6,809            -            -
    Non-interest Expense       (8,744)      (8,782)      (2,078)      (1,082)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     24,202       23,657        6,311        4,971
    Income Taxes               (7,422)      (8,434)      (2,228)      (1,796)
    -------------------------------------------------------------------------
    Net Income            $    16,780  $    15,223  $     4,083  $     3,175
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $ 3,866,163  $ 3,191,427  $   337,783  $   247,459
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Thousands of Dollars                                  Three Months Ended
    -------------------------------------------------------------------------
                                             Other                     Total
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income   $    11,343  $     5,125  $    38,083  $    32,199
    Provisions for Credit
     Losses                         -            -       (2,449)      (1,281)
    Fees and Other Income          76           79        6,444        5,969
    Net Gain on
     Securities,
     Derivatives &
     Mortgage-Backed
     Securities                (2,559)         (34)       8,117        6,775
    Non-interest Expense       (4,865)      (2,412)     (15,687)     (12,276)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                      3,995        2,758       34,508       31,386
    Income Taxes                 (630)        (638)     (10,280)     (10,868)
    -------------------------------------------------------------------------
    Net Income            $     3,365  $     2,120  $    24,228  $    20,518
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $   769,361  $   463,430  $ 4,973,307  $ 3,902,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Thousands of Dollars                                 Twelve Months Ended
    -------------------------------------------------------------------------
                                  Mortgage Lending          Consumer Lending
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income   $    93,466  $    85,307  $    21,005  $    15,066
    Provisions for Credit
     Losses                    (4,491)      (2,561)      (1,551)      (1,837)
    Fees and Other Income      12,050        5,618        9,155        7,661
    Net Gain on
     Securities,
     Derivatives &
     Mortgage-Backed
     Securities                28,148       19,965            -            -
    Non-interest Expense      (35,050)     (31,940)      (5,068)      (5,011)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     94,123       76,389       23,541       15,879
    Income Taxes              (32,093)     (25,940)      (8,451)      (5,736)
    -------------------------------------------------------------------------
    Net Income            $    62,030  $    50,449  $    15,090  $    10,143
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $ 3,866,163  $ 3,191,427  $   337,783  $   247,459
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Thousands of Dollars                                 Twelve Months Ended
    -------------------------------------------------------------------------
                                             Other                     Total
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income   $    31,787  $    16,867  $   146,258  $   117,240
    Provisions for Credit
     Losses                         -            -       (6,042)      (4,398)
    Fees and Other Income         328          204       21,533       13,483
    Net Gain on
     Securities,
     Derivatives &
     Mortgage-Backed
     Securities                (1,614)       2,210       26,534       22,175
    Non-interest Expense      (14,080)      (9,639)     (54,198)     (46,590)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     16,421        9,642      134,085      101,910
    Income Taxes               (3,300)      (2,419)     (43,844)     (34,095)
    -------------------------------------------------------------------------
    Net Income            $    13,121  $     7,223  $    90,241  $    67,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $   769,361  $   463,430  $ 4,973,307  $ 3,902,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. SUBSEQUENT EVENT

    On January 1, 2008, Home Trust sold all outstanding shares of its
    subsidiary Home Trust Asset Management Inc. ("HTAM") for proceeds of
    $0.2 million resulting in a gain on disposition of $0.1 million.

    15. FUTURE ACCOUNTING CHANGES

    The CICA has issued a new accounting standard, Section 1535, Capital
    Disclosures, which requires the disclosure of both qualitative and
    quantitative information that enables users of financial statements to
    evaluate the entity's objectives, policies and processes for managing
    capital. This new standard became effective for the Company beginning
    January 1, 2008.

    The CICA issued two new accounting standards, Section 3862, Financial
    Instruments - Disclosure, and Section 3863, Financial Instrument
    Presentation, which apply to interim and annual financial statements
    relating to fiscal years beginning on or after October 1, 2007. This new
    standard became effective for the Company beginning January 1, 2008.

    Home Capital Group Inc. is a holding company, publicly traded on the
    Toronto Stock Exchange (HCG), operating through its principal subsidiary,
    Home Trust Company. Home Trust is a federally regulated trust company
    offering deposit, mortgage lending, retail credit and payment card
    services. Licensed to conduct business across Canada, Home Trust has
    branch offices in Ontario, Alberta, British Columbia, Nova Scotia and
    Quebec.
    





For further information:

For further information: Gerald M. Soloway, Chief Executive Officer, or
Nick Kyprianou, President, (416) 360-4663


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