Fourth Quarter Results Propel Home Capital to Record Performance in 2008: Earnings per Share Rise by 20% for the Year; Return on Equity was 27.8%



    TORONTO, Feb. 17 /CNW/ - Home Capital Group Inc. (TSX: HCG) today
announced solid financial performance for the three months and year ended
December 31, 2008. Despite a weakening Canadian market, the Company's core
business activities, including residential and commercial mortgage lending,
CMHC-insured mortgage securitization and Visa operations, all delivered strong
earnings growth and returns on equity. We were pleased to have met our goal of
maintaining strong financial results in 2008.

    
    Key results from the fourth quarter included:

    -  Net income for the fourth quarter of 2008 was $29.0 million, an
       increase of 19.9% over the $24.2 million recorded in the same period
       last year. Earnings for the year reached $108.7 million, up 20.4% over
       2007.

    -  Basic earnings per share for the fourth quarter of 2008 were $0.84, up
       20.0% from $0.70 reported in the fourth quarter of 2007. Diluted
       earnings per share were $0.84 in the fourth quarter of 2008, an
       increase of 20.0% from the $0.70 recorded in the fourth quarter of
       2007. For the year ended December 31, 2008, basic earnings per share
       were $3.15, 20.2% higher than the $2.62 recorded last year. Diluted
       earnings per share in 2008 were $3.13, 20.9% above 2007.

    -  Return on equity was 27.4% for the fourth quarter of 2008 compared to
       28.9% for the quarter ended December 31, 2007, and 27.8% for 2008,
       compared to 28.9% in the prior year.

    -  Total assets at December 31, 2008 reached $5.81 billion, 16.8% higher
       than the $4.98 billion reported one year earlier. Total assets,
       together with Mortgage-Backed Securities (MBS) originated and
       administered by the Company, grew to $8.42 billion, a rise of 30.9%
       from $6.43 billion at December 31, 2007.

    -  Total mortgage originations were $999.1 million during the fourth
       quarter of 2008, an increase of 11.0% over the $899.8 million advanced
       during the same quarter in 2007. During the fourth quarter of 2008 the
       Company advanced $894.0 million in residential mortgages,
       $48.9 million in non-residential and construction mortgages,
       $21.2 million in store and apartment properties and $35.0 million
       warehouse commercial mortgages. For the year ended December 31, 2008,
       total mortgage originations were $3.86 billion, an increase of 35.0%
       over the $2.86 billion advanced during 2007.

    -  The Company experienced strong growth in mortgage securitization as
       the Company securitized $557.7 million in CMHC-insured mortgages
       during the fourth quarter of 2008 compared to $198.9 million for the
       same period last year.

    -  Outstanding balances on the Equityline Visa portfolio reached
       $342.9 million at December 31, 2008, up 13.3% from the $302.7 million
       recorded last year. Net income from consumer lending reached
       $4.8 million for the fourth quarter, 17.4% over the $4.1 million
       recorded in the same quarter last year.

    -  The efficiency ratio (TEB) was 27.0% in the fourth quarter compared to
       28.5% during the same period one year earlier.

    -  Net impaired loans represented 0.86% of the total loans portfolio at
       December 31, 2008, an increase from 0.72% in net impaired loans at the
       end of 2007. Non-performing mortgages continue to be professionally
       managed on a loan-by-loan basis by the Company, and losses and
       specific reserves continue to be modest.
    

    In addition to meeting our financial targets, the Company strengthened
its risk management practices with the addition of key personnel dedicated to
enhanced risk measurement and analysis. The Company has also invested
significant time and resources in risk reporting, stress testing and internal
credit scoring and risk rating systems. Risk management is an essential
component of the Company's strategic focus and contributes directly to its
profitability and consistently strong returns.
    During the year we enhanced the quality and strength of our capital,
thereby reducing the risk profile of the Company. Home Trust continues to
remain well capitalized with Tier 1 and total capital ratios of 12.9% and
14.2% respectively at the end of 2008 compared with ratios of 11.1% and 12.5%
respectively in the prior year, with both ratios steadily increasing through
2008. The increase in capital ratios was achieved without incurring any equity
dilution, external debt, or preferred share issuance. With a capital base
comprised almost entirely of common equity, increased liquidity and no
external debt, the Company remains well positioned to weather the current
economic downturn.
    During the fourth quarter, Standard & Poor's (S&P) affirmed its long-term
and short-term counterparty ratings issued to Home Trust (BBB/A-2) and Home
Capital (BBB-/A-3), with a stable outlook for both companies. The ratings and
outlook have remained the same since S&P's initial rating assignments in 2005.
Subsequent to the end of the year, Fitch Ratings (Fitch) affirmed its Positive
Rating Outlook (BBB-/F-3) for both Home Capital and Home Trust. The ratings
and outlook remain unchanged from the initial ratings issued by Fitch in 2004.
These ratings reflect the Company's consistently robust earnings, strong
capital and liquidity positions, and ability to generate positive results
while maintaining a tradition of prudent risk management. Home Trust is the
only trust company in Canada, not a subsidiary of a major bank, which has
maintained investment grade ratings from S&P and Fitch at December 31, 2008.
    Through the year the Company successfully focused on increasing the
number of mortgages in its insured mortgage programs and subsequently selling
these mortgages through CMHC-insured MBS or the Canada Mortgage Bond program.
During the fourth quarter we advanced $894.0 million in residential mortgages,
compared to $722.4 million in the same quarter last year. However, we
securitized and sold approximately $557.7 million of CMHC-insured mortgages in
the quarter, up significantly from $198.9 million in the same quarter last
year. These efforts resulted in the removal of any associated credit risk on
the securitized mortgages from the Company's balance sheet. The insured
mortgage program will continue to be a significant factor in the Company's
profitability over the near term.
    Through the first month of the new year we have experienced a more stable
housing market in certain regions across Canada, and we are more confident
lending on current house valuations that are 10% to 15% lower than their
recent historic highs. As a result, we are cautiously returning to lending at
our traditional lending criteria and over time a larger portion of our
mortgage originations will remain on our balance sheet.
    The Company continued to strengthen its Board of Directors with the
appointment of Ms. Bonita Then as a director in December 2008. Ms. Then has an
MBA in finance and is an accomplished executive with extensive strategic,
financial and operational expertise, having served as the CFO at Altamira
Investment Services Inc., National Trustco Inc., Central Guaranty Trustco Inc.
and other private and public companies. She is currently the President and CEO
of Specialty Foods Group, a US food company. We are confident that, with her
broad experience and keen insight, she will make a valuable contribution to
the Board and to the Company.
    Subsequent to the end of the year, and in light of the Company's capital
strength and positive financial performance in 2008, the Board of Directors
declared a quarterly cash dividend of $0.13 per common share payable on March
1, 2009 to shareholders of record at the close of business on February 20,
2009.
    Looking ahead, we believe we will generate another year of solid growth
in 2009, and the Board of Directors and Management have established the
following objectives for 2009: 10 to 15% growth in each of total earnings,
diluted earnings per share, and total assets (including assets under
administration), as well as a 20% return on equity.
    Home Capital delivered positive financial results in 2008, exceeding all
of its stated targets for the year. The Company continued to focus on
sustainability and accountability, while maintaining its profitable business
strategy. The Board of Directors and Management are confident that the Company
is not only able to withstand the current challenging economy but will
continue to thrive and emerge strong and well positioned to generate
additional growth as the economy recovers.

    
    (signed)                           (signed)

    GERALD M. SOLOWAY                  NORMAN F. ANGUS
    Chief Executive Officer            Chairman of the Board
    February 17, 2009
    

    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 2008.

    Fourth Quarter Results Conference Call

    The conference call will take place on Tuesday, February 17, 2009 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 17, 2009 and midnight Tuesday, February 24, 2009 by calling
416-640-1917 or 1-877-289-8525 (enter passcode 21295395 followed by the number
sign). The archive 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)    Three Months Ended                Year Ended
    -------------------------------------------------------------------------
    In Thousands of Dollars
     (Except Per Share and
     Percentage Amounts)         2008         2007         2008         2007
    -------------------------------------------------------------------------
    OPERATING RESULTS

    Net Income            $    29,039  $    24,228  $   108,687  $    90,241
    Total Revenue             117,996      105,082      454,695      368,881
    Earnings per Share
     -  Basic             $      0.84  $      0.70  $      3.15  $      2.62
    Earnings per Share
     -  Diluted                  0.84         0.70         3.13         2.59
    Return on
     Shareholders' Equity       27.4%        28.9%        27.8%        28.9%
    Return on Average
     Assets                      2.0%         2.0%         2.0%         2.0%
    Efficiency Ratio            27.5%        29.8%        28.5%        27.9%
    Efficiency Ratio
     (TEB(2))                   27.0%        28.5%        28.0%        27.1%
    (Non-interest Expense/
     Net Interest Income
     Plus Fee Income)
    -------------------------------------------------------------------------
    BALANCE SHEET HIGHLIGHTS

    Total Assets                                    $ 5,809,713  $ 4,975,093
    Loans                                             4,506,392    4,022,171
    Deposits                                          5,102,781    4,413,984
    Shareholders' Equity                                432,753      348,040
    Mortgage-Backed Security
     Assets Under
     Administration                                   2,614,258    1,459,455
    -------------------------------------------------------------------------
    FINANCIAL STRENGTH

    Capital Measures(1),(3)

    Risk Weighted Assets(1),(3)                     $ 2,985,750  $ 2,802,394
    Tier 1 Capital Ratio(1),(3)                           12.9%        11.1%
    Total Capital Ratio(1),(3)                            14.2%        12.5%

    Credit Quality

    Net Impaired Loans as a
     Percentage of Gross Loans                             0.9%         0.7%
    Allowance as a Percentage
     of Gross Impaired Loans                              66.7%        81.3%
    Annualized Provision as a
     Percentage of Gross Loans                             0.2%         0.2%

    Share Information

    Book Value per Common Share                     $     12.57  $     10.08
    Common Share Price - Close                      $     19.80  $     41.90
    Market Capitalization                               681,793    1,446,891
    Number of Common Shares
     Outstanding                                         34,434       34,532
    -------------------------------------------------------------------------
    (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) Risk Weighted Assets, Tier 1 and Total Capital at December 31, 2008
        are calculated under Basel II while the comparative periods are
        calculated under Basel I.

    See Capital Management section for further details.


    -------------------------------------------------------------------------
    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 are made in connection with
business objectives and targets, Company strategies, operations, anticipated
financial results and the outlook for the Company, its industry, and the
Canadian economy. These statements regarding expected future performance are
"financial outlooks" within the meaning of National Instrument 51-102. Please
see the risk factors, which are set forth in detail on pages 24 through 30 of
the Company's 2007 Annual Report, as well as its other publicly filed
information, which may be located at www.sedar.com, for the material factors
that could cause the Company's actual results to differ materially from these
statements. Forward-looking statements can be found in the Message to the
Shareholders and the Outlook Section in this quarterly report. Forward-looking
statements are typically identified by words such as "will," "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 $1.2 million for the fourth quarter, and $4.3
million for the year ($2.3 million - Q4 2007 and $5.5 million - twelve months
2007) 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, 2008
included herein, and the audited consolidated financial statements and MD & A
for the year ended December 31, 2007. These are available on the Canadian
Securities Administrators' website at www.sedar.com and on pages 8 through 58
of the Company's 2007 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 2007 remain substantially
unchanged. These unaudited interim consolidated financial statements and MD &
A have been prepared based on information available as at February 13, 2009.
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.


    
    2008 Objectives and Performance

    Home Capital published its financial objectives for 2008 on page 10 of the
Company's 2007 Annual Report. The following table compares actual performance
to date against each of these objectives.

    -------------------------------------------------------------------------
                                                                  Year Ended
                                                           December 31, 2008
                                2008 Objectives               Actual Results
    -------------------------------------------------------------------------
    Net Income                   $108.2 million     $108.7 million, or 20.4%
                                                      increase over the same
                                                            period last year

    Diluted Earnings per Share            $3.11    $3.13 per share, or 20.9%
                                                      increase over the same
                                                            period last year

    Total Assets and Assets       $7.72 billion      $8.42 billion, or 31.0%
     Under Administration                             increase over the same
                                                            period last year

    Return on Shareholders'               25.0%                        27.8%
     Equity

    Efficiency Ratio (TEB)       27.0% to 33.0%                        28.0%

    Capital Ratios(1)
      Tier 1                     Minimum of 10%                        12.9%
      Total                      Minimum of 12%                        14.2%

    Provision for Loan Losses    0.15% to 0.25%                        0.15%
     as a Percentage of
     Total Loans
    -------------------------------------------------------------------------
    (1) Based on the Company's wholly owned subsidiary, Home Trust Company.
        Capital Ratios have been calculated under Basel II requirements.

    See Capital Management section for additional details.


    -------------------------------------------------------------------------
    FINANCIAL HIGHLIGHTS
    -------------------------------------------------------------------------
    

    Income Statement Highlights

    The Company finished the year with positive results and achieved all of
its financial objectives for 2008. The Company continues to maintain a strong
capital base and liquidity, providing the necessary financial resources and
flexibility to navigate the current volatility in the global capital markets.
The Company's key financial highlights for the fourth quarter of 2008 are
summarized below.

    
    -  Net income rose 19.9% over the comparable quarter of 2007.

    -  Non-interest income was up 78.7% over the fourth quarter of 2007,
       driven by robust growth in securitization gains of $20.3 million and
       increases in fees for the administration and servicing of the mortgage
       and Visa portfolios, offset by losses on the securities portfolio and
       losses on derivative mark-to-market values.

    -  The efficiency ratio (TEB) (the lower the better) remained low, and in
       line with the Company's objective, at 27.0%, compared to 28.5% in the
       same quarter of 2007.

    -  Diluted earnings per share for the quarter increased 20.0% to $0.84,
       compared to $0.70 in the fourth quarter of 2007.

    -  Return on average shareholders' equity for the quarter was 27.4%,
       compared to 28.9% for the same period last year.

    -  Net interest income declined from $38.0 million to $35.2 million,
       quarter-over-quarter. Successive declines in the prime interest rate
       have had a negative impact on net interest margin as interest rates on
       the Company's mortgage loans portfolio reset faster than the
       corresponding rates on the Company's GIC products.

    Balance Sheet Highlights

    -   Total assets at December 31, 2008 rose 16.8% year-over-year, to reach
        $5.81 billion from $4.98 billion reported at December 31, 2007. This
        asset growth was experienced across the Company's core asset base
        including the Company's loans and securities portfolio and cash
        resources. Although global markets continue to experience significant
        difficulties, the Company believes it is well positioned by remaining
        well capitalized with access to liquidity through the offering of
        term deposits. The Company has remained debt free since September
        2006.

    -   The Equityline Visa portfolio reached $342.9 million in receivables,
        representing growth of 13.3%, or $40.2 million in the fourth quarter
        of 2008 compared to the fourth quarter of 2007.

    -   The Company continues to have access to funds to accommodate the
        growth of the Company's loans portfolio. Liquid assets at December
        31, 2008 were $882.4 million, up from $627.1 million at December 31,
        2007.

    -   The Company continues to strengthen its capital position with Tier 1
        capital climbing to 12.9% at the end of the quarter from 11.1% at
        December 31, 2007.

    -   Deposit liabilities as at December 31, 2008 grew 15.6% to reach $5.10
        billion, as compared to $4.41 billion at December 31, 2007. These
        proceeds were used to fund the growth in the Company's loans
        portfolio, with excess funds prudently deployed in the Company's
        liquidity portfolio as the Company acts to hold greater liquidity
        during uncertain economic times.

    -------------------------------------------------------------------------
    EARNINGS REVIEW
    -------------------------------------------------------------------------
    

    Net Interest Income

    Net interest income was $35.2 million in the fourth quarter, and $150.6
million for the year, compared to $38.1 million for the comparable quarter in
2007 and $146.3 million for the year ended December 31, 2007. The
year-over-year increase reflects strong growth in interest-bearing assets,
exceeding the growth in interest-bearing liabilities offset by contracted net
interest margins. Net interest income in the fourth quarter of 2008 declined
from the comparable quarter in 2007. The decrease was mainly due to increased
deposit costs relating to ongoing disruptions in capital markets and
successive reductions in the prime lending rate. Reductions in the prime
interest rate negatively impact net interest margins as the Company's deposits
do not re-price as quickly as the Company's mortgage loans portfolio. The net
interest margin (TEB) between all of the Company's assets and liabilities for
the fourth quarter was 2.6% and 2.9% for the year, down from 3.4% achieved in
each of the comparable periods in 2007.
    The interest spread between the loans portfolio and deposits at the end
of the fourth quarter of 2008 was 2.8%, compared to 3.3% for the comparable
quarter in 2007, and 3.3% for the year, compared to 3.4% for the comparable
twelve-month period in 2007. The decrease in interest spread over the prior
year periods was primarily the result of an increase in funding costs
resulting from a tightening in availability of liquidity combined with the
effects of cuts to the prime lending rate on the repricing mismatch on
prime-based loans. In addition, the Company continues to hold higher levels of
liquidity in the form of low rate deposits with other chartered banks which
has the additional affect of reducing the overall spreads. Despite the decline
in overall interest spread, the Company's core residential mortgage portfolio
continued to maintain historic spreads. At December 31, 2008 the spread on the
residential mortgage portfolio was 3.0%, compared to 3.1% in 2007. With
challenging credit market conditions persisting, the Company expects to
continue to maintain somewhat lower spreads into 2009.

    Non-Interest Income

    Total non-interest income was $26.0 million for the quarter, a 78.7%
increase over the comparable quarter in 2007 and $80.7 million for the
twelve-month period of 2008, or a 67.9% increase over the same twelve-month
period in 2007. Both the quarter-over-quarter and year-over-year increases
were driven largely by the strong growth in securitization gains through the
Company's participation in the Canada Mortgage Bond (CMB) program and
additional short-term Mortgage-Backed Securities (MBS) securitizations.
Offsetting the strong securitization gains were the losses incurred on the
forward bond contracts which the Company entered into to economically hedge
the commitment risk on these securitization transactions. The increases in
fees generated from the administration of the loans portfolio were offset by
losses incurred on the securities portfolio.
    The fees and other income components of non-interest income ended the
quarter at $7.1 million and $28.5 million for the twelve-month period of 2008,
an increase of 10.2% over the comparable quarter of 2007 and 32.1% for the
year. The increases over the comparable periods were due to growth in the
Company's loans portfolio and the associated fee income generated from the
administration and servicing of these portfolios as well as fee income
generated through Payment Services Interactive Gateway Inc. (PSiGate) which
was acquired in October 2007.
    The following table summarizes the securitization activities during the
fourth quarter of 2008 compared to the same period in 2007:

    
    -------------------------------------------------------------------------
                                      Three months ended  Three months ended
                                       December 31, 2008   December 31, 2007

                       Single Family                           Single Family
                     Residential MBS                         Residential MBS
                                        Multi-
                   Under 1      Over Residential
                      year    1 year     MBS       Total       Over 1 year(1)
    -------------------------------------------------------------------------
    Book value
     of mortgages
     securitized $ 105,631 $ 182,308 $ 269,781 $ 557,720           $ 198,925
    Gain on
     sale of
     mortgages   $   2,912 $  11,512 $  11,275 $  25,699           $   8,107
    Prepayment
     rate             4.2%     12.8%      0.0%      5.0%               13.5%
    Excess spread     4.3%      3.1%      1.7%      2.7%                2.9%
    Discount rate     2.6%      2.7%      3.0%      2.8%                 N/A
    -------------------------------------------------------------------------
    (1) In the prior period the Company only sold Residential MBS over 1
        year.
    

    The Company issued eleven MBS pools during the fourth quarter of 2008,
consisting of $557.7 million of Canada Mortgage and Housing Corporation (CMHC)
insured residential mortgages for a total issuance of $1.50 billion for the
year. This represents an increase of $358.8 million from the $198.9 million in
MBS pools issued in the comparable quarter of 2007 and an increase of $806.5
million over the $692.3 million in MBS pools that were issued during the
twelve-month period of 2007. The securitization gains were $25.7 million
during the quarter and $61.3 million for the twelve-month period of 2008,
compared to $8.1 million for the fourth quarter of 2007 and $22.8 million for
the comparable twelve-month period of 2007 (refer to Note 5 of these unaudited
interim consolidated financial statements). The Company continues to enter
into bond forward contracts to hedge commitment risk on the loans securitized
into the CMB program. The unwinding of the bond forward contracts during the
fourth quarter of 2008 resulted in a $9.3 million realized loss recorded in
the consolidated statement of income under gain (loss) on derivatives. In
2008, the Company began diversifying the MBS pools issued to include MBS pools
with a maturity under one year and multi-residential pools. The one year and
multi-residential pool assumptions are outlined in the table.
    The increase in securitization gains during the quarter and twelve-month
period ended December 31, 2008 compared to the prior periods was due to
significant volume increases in securitization activity. The spread earned on
the pools averaged 2.7% in the fourth quarter of 2008 and 2.6% for the year
compared to 2.9% for the comparable quarter and 2.7% for the twelve-month
period in 2007. The unscheduled prepayment rate was lower during the quarter
and year-to-date as the Company issued several short-term MBS pools where the
mortgages in the MBS pool were late in their term, and where the Company
therefore expects less prepayment. Further, the Company issued two
multi-residential MBS pools during the quarter where unscheduled prepayments
are not permitted under the program. Of the $557.7 million MBS pools issued
during the quarter, $375.4 million, or 67.3% were pools containing lower or
prohibited unscheduled prepayments and the remaining pools had unscheduled
prepayment rates in line with historic levels.
    During the quarter, the Company participated in CMHC's CMB program,
administered through Canada Housing Trust. This program provides the Company
with an alternative distribution channel to diversify its funding stream for
MBS pools. Of the eleven MBS pools issued during the quarter, three MBS pools
with a book value of $452.1 million were securitized through the CMB program
resulting in gains of $22.8 million. For the year, the Company has securitized
$1.09 billion through the CMB program and recognized gains of $48.9 million.

    Non-Interest Expenses

    Total non-interest expenses for the quarter were $16.9 million and $66.0
million for the year. This compares to $15.7 million for the fourth quarter of
2007 and $54.2 million for the twelve-month period ended December 30, 2007.
The increases over the comparable periods of 2007 were due to higher salary
and benefit expenses, and the inclusion of the operating expenditures of
PSiGate which was acquired in October 2007. Salaries and staff benefits for
the quarter increased by $0.4 million, or 4.9% over the fourth quarter of 2007
and up $6.0 million, or 19.8% over the comparable twelve-month period of 2007.
The Company ended the quarter with 395 employees, up from 377 employees at
December 31, 2007. Premises expenses increased from the prior year period as
the Company entered into a new lease arrangement effective June 2008,
expanding the head office space with 50% more square footage to enable
continued future growth, including the accommodation of additional staff from
the relocation of the St. Catharines branch to the Toronto head office.
    General and administration expenses increased by $0.6 million, or 8.7%
compared to the fourth quarter of 2007 and up $5.2 million, or 25.9% from the
same twelve-month period in 2007. The increase from the comparable periods of
2007 was primarily the result of the inclusion of operating expenditures of
PSiGate and rising general operating costs as the Company continues to grow
across all business lines.
    The efficiency ratio (TEB) ended the quarter at 27.0% and 28.0% for the
year, compared to 28.5% in the previous comparable quarter and 27.1% for the
twelve months of 2007. As the Company continues to navigate through the
economic challenges, management remains focused on containing discretionary
spending. This effort once again has enabled the Company to meet its stated
objective for 2008 of maintaining an efficiency ratio between 27% and 33%.

    Provision for Credit Losses

    The Company expensed $2.0 million during the quarter and $6.6 million for
the year ended December 31, 2008, compared to $2.4 million in the fourth
quarter of 2007 and $6.0 million in the comparable twelve-month period of 2007
through the provision for credit losses. This expense represented 0.2% (0.2% -
2007 annualized) of total gross loans, on an annualized basis. The Company
continues to add to the general allowance for credit losses as a prudent
measure in line with overall asset growth. The total general allowance
amounted to $25.2 million at the end of 2008, an increase of $1.8 million over
the $23.4 million recorded at December 31, 2007.
    At December 31, 2008 net impaired loans amounted to $39.2 million (0.86%
of gross loans), compared to $29.0 million (0.72% of gross loans) at December
31, 2007 (refer to Note 4 of these unaudited interim consolidated financial
statements). Total net loans written-off during the quarter were $1.3 million,
compared to $0.8 million in the fourth quarter of 2007. For the year, net
loans written-off were $2.9 million, compared to $1.9 million for the
comparable twelve-month period of 2007. 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 and in the 2007
Annual Report under the heading Risk Management.

    Income Taxes

    The income tax expense amounted to $13.4 million (effective tax rate of
31.5%) for the fourth quarter of 2008 and $49.9 million (effective tax rate of
31.5%) for the year ended December 31, 2008, compared to $10.3 million
(effective tax rate of 29.8%) for the comparable fourth quarter of 2007 and
$43.8 million (effective tax rate of 32.7%) for the twelve-month period of
2007. 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 33.4% for the fourth quarter and 33.3% for the
twelve-month period of 2008, compared to 34.1% for the fourth quarter of 2007
and 35.3% for the comparable twelve-month period in 2007.

    Comprehensive Income

    Comprehensive income is comprised of net income and other comprehensive
income (OCI) and totaled $21.4 million for the fourth quarter and $103.9
million for the year, a decrease of $7.2 million, or 25.3% over the $28.6
million recorded in the same quarter last year while year-over-year OCI
increased $19.4 million, or 22.9% over 2007. As previously noted net income
for the fourth quarter of 2008 increased 19.9%, or $4.8 million over the same
quarter last year and increased 20.4%, or $18.4 million for the year-ended
December 31, 2008 compared to the same twelve-month period in 2007. The
Company's OCI includes unrealized losses on available for sale securities, and
securitization receivables from market revaluations at the end of the quarter.
OCI for the period ended December 31, 2008 was in a loss position of $7.7
million, compared to a gain of $4.4 million in the comparable quarter in 2007.
The change in OCI compared to prior quarters for available for sale securities
and securitization receivables primarily reflects market fluctuations related
to changes in interest rates, and the broader global economic slowdown
affecting the sectors in which the Company holds equity positions. During the
quarter, the Company determined that certain equity holdings were permanently
impaired and recognized a writedown of $1.8 million in losses from accumulated
other comprehensive income in the consolidated statements of income. The
writedowns were offset by realized gains on the sale of certain debt holdings.
The Company believes the remaining unrealized losses represent temporary
declines in value due to the current securities market conditions.

    
    -------------------------------------------------------------------------
    BALANCE SHEET REVIEW
    -------------------------------------------------------------------------
    

    Assets

    Total assets as at December 31, 2008 were $5.81 billion, an increase of
$834.6 million, or 16.8% over the $4.98 billion reported at December 31, 2007
and up by $187.9 million, or 3.3% over the September 30, 2008 asset balance of
$5.62 billion.
    The growth in total assets over December 31, 2007 was primarily generated
from growth in the loans portfolio of $484.2 million. Residential mortgages
contributed $92.3 million to the total loans portfolio growth, other
non-residential mortgages contributed growth of $359.9 million, consumer
lending contributed $43.6 million, offset by a reduction of $9.8 million in
secured loans, while the general allowance for credit losses increased by $1.8
million. The residential mortgage portfolio growth excludes $1.50 billion of
loans securitized during the year. The Company's cash resources increased by
$200.1 million from December 31, 2007 while the securities portfolio increased
by $48.6 million. Securitization receivables increased significantly from
December 2007, growing by $74.1 million due to robust securitization activity
over the twelve-month period of 2008. Other assets increased by $27.1 million
from December 31, 2007, primarily driven by corporate income tax changes
within the Company's tax balances, increased accrued interest earned on the
Company's loans portfolio and payments from securitization activities.
    The growth in total assets over the quarter was primarily generated from
growth in cash resources and the Company's securities portfolio. The Company's
cash resources increased by $123.1 million while the securities portfolio rose
by $31.5 million over September 30, 2008. The loans portfolio declined
slightly quarter-over-quarter as the Company capitalized on the strong spreads
in the securitization market and securitized $557.7 million in residential
mortgages during the quarter. As a result of the strong securitization
activity in combination with changes in discount rates and fair value
movements, securitization receivables increased by $32.9 million, or 30.8%
over September 2008. Other assets increased by $9.4 million, primarily
resulting from corporate income tax changes within the Company's tax balances,
accrued interest earned on the loans portfolio and payments to be received
from the Company's securitization activities.

    Liabilities

    Liabilities at December 31, 2008 rose to $5.38 billion, an increase of
$749.9 million, or 16.2% over the $4.63 billion reported at December 31, 2007
and up by $171.4 million, or 3.3% over the $5.21 billion recorded at September
30, 2008.
    Most of the growth from December 2007 resulted from the increase in
deposits of $688.8 million. The growth in the deposit liabilities funded the
loans portfolio growth, with excess funds invested in the Company's cash
resources and securities portfolio. With the current economic downturn, the
Company has acted prudently to raise additional deposits to build the
Company's liquidity position. Other liabilities (refer to Note 7 of these
unaudited interim consolidated financial statements) increased by $60.7
million, or 29.1% over the $208.7 million reported at December 31, 2007. This
growth was principally the result of increases in accrued interest of $24.0
million related to higher deposits, a net increase of $14.6 million in the
Company's current and deferred corporate tax liabilities, an increase of $8.5
million in the servicing liability relating to the Company's ongoing
administration of the off-balance sheet residential mortgage loans portfolio
and an increase of $11.3 million in other liabilities resulting from the
timing of payments due to MBS investors.
    The rise in liabilities from September 30, 2008 resulted primarily from
increased deposits of $158.7 million. Excess deposit liabilities were invested
in the Company's cash resources and securities portfolio. Other liabilities
increased by $11.3 million, or 5.4% over September 30, 2008 primarily due to
increases of $6.6 million in the Company's corporate future tax liabilities,
and increases of $6.0 million in the servicing liability relating to Company's
ongoing administration of the off-balance sheet residential mortgage loans
portfolio.

    Shareholders' Equity

    Total shareholders' equity at December 31, 2008 increased by $84.7
million, or 24.3% over the $348.0 million reported at December 31, 2007. The
increase since December 2007 was internally generated from net income of
$108.7 million in the twelve-month period, less $17.9 million for dividends
paid and payable to shareholders. The remaining changes were principally
driven from the fair value amortization of employee stock options of $1.5
million offset by a $3.1 million buy-back of the Company's common shares
through the Normal Course Issuer Bid and downward movements in accumulated
other comprehensive income of $4.8 million, arising from the Company's
available for sale financial assets.
    Total shareholders' equity at December 31, 2008 rose by $16.5 million, or
4.0% over the $416.3 million reported at September 30, 2008. This growth was
internally generated from earnings in the quarter of $29.0 million, less $4.5
million for shareholder dividends. Offsetting the net growth in earnings in
the quarter was a reduction in accumulated other comprehensive income of $7.7
million. Additional movements resulted from amortization of the fair value of
stock options, and the Company's buy-back of capital stock through its Normal
Course Issuer Bid. At December 31, 2008 the book value per common share was
$12.57, compared to $12.07 at September 30, 2008 and $10.08 at December 31,
2007.

    Derivatives and 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.
For example, the Company can utilize interest rate swaps or forward contracts
to purchase Government of Canada bonds to hedge the economic exposure to
movements in interest rates between the time that mortgages are committed to
being funded under asset securitization, and the time those mortgages are
actually sold. The intent of the swap or forward bond contracts is to have the
fair value movements of these instruments be effective in offsetting the fair
value movements within a pool of mortgages over the period in which the fixed
rate pool may be exposed to movements in interest rates, generally 60 to 150
days. During the fourth quarter of 2008, the Company entered into $419.0
million forward bond contracts to hedge the commitment risk on the Company
securitization activities for the CMB program. The gains on securitizations
through the CMB program were $22.8 million offset by a $9.3 million loss
realized on the bond forward contracts hedging the commitment risk. At
December 31, 2008 the Company continued to hold notional forward bond
contracts of $34.0 million in anticipation of the CMB issuance in the first
quarter of 2009. The bond forward contracts were marked-to-market at December
31, 2008 for an unrealized loss of $0.6 million. No such arrangements were
entered into during the comparable prior periods.
    The Company participates in the CMB program sponsored by CMHC, and
administered by Canada Housing Trust. Through this program, the Company must
manage the mismatch and reinvestment risk between the amortizing MBS pool and
the CMB. As part of this arrangement, the Company enters into a seller swap
which has the effect of paying the fixed interest payments on the CMB 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 CMB. These transactions do not qualify
for hedge accounting under Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3865, Hedges and therefore the Company must mark-to-market
the swaps through the consolidated statements of income. The notional values
of the seller swaps and hedge swaps at December 31, 2008 were $1.21 billion
($118.5 million - Q4 2007) and $49.6 million ($2.2 million - Q4 2007),
respectively. These swaps were marked-to-market at December 31, 2008 for an
unrealized gain of $0.4 million (unrealized gain of $1.0 million - Q4 2007),
recorded in the consolidated statements of income. For additional information
refer to Note 12 of these unaudited interim consolidated financial statements.
    The Company originates and securitizes insured residential mortgage loans
into special purpose entities for liquidity funding. 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 that the Company originates after the sale and, upon
maturity of the mortgage, will renew or refinance these mortgage loans
whenever possible. As at December 31, 2008 outstanding securitized mortgage
loans under administration amounted to $2.61 billion ($2.12 billion - Q3 2008
and $1.46 billion - Q4 2007) with retained interest of $139.9 million ($107.0
million - Q3 2008 and $65.8 million - Q4 2007). The off-balance sheet
portfolio continues to perform well, with 97.3% of the portfolio current and
0.7% greater than 60 days in arrears. For additional information, refer to
Note 6 in the consolidated financial statements of the 2007 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 $242.4 million at December 31,
2008 compared to $424.9 million at September 30, 2008 and $447.3 million at
December 31, 2007. Included within the outstanding commitments are unutilized
commercial advances of $89.6 million at December 31, 2008 compared to $151.3
million at September 30, 2008 and $238.0 million at December 31, 2007.
Commitments for the loans remain open for various dates through January 2010.
As at December 31, 2008 unutilized credit card balances amounted to $62.9
million, compared to $69.0 million at September 30, 2008 and $77.9 million at
December 31, 2007. Outstanding commitments for future advances for the
Equityline Visa portfolio were $2.4 million at December 31, 2008 compared to
$3.0 million at September 30, 2008 and $5.9 million at December 31, 2007.

    Contractual Arrangements

    On March 25, 2008 Home Trust announced that it had entered into an
agreement with Fidelity National Information Services, Inc. (FIS) relating to
its merchant credit card services activities. FIS, a global leader in the
payment processing industry, provides Home Trust with comprehensive
back-office merchant processing services, including settlement, charge-back
processing, retrieval services and customer support.
    On November 24, 2008 Home Trust announced that it had entered into an
agreement with SAP Canada Inc. to implement SAP solutions to transform its
core banking processes and increase agility to deliver enhanced products and
services on an integrated platform to support Home Trust's growth.

    
    -------------------------------------------------------------------------
    CAPITAL MANAGEMENT
    -------------------------------------------------------------------------
    

    Effective January 1, 2008 a new regulatory capital management framework
was implemented in Canada. The International Convergence of Capital
Measurement and Capital Standards: a Revised Framework, commonly known as
Basel II, replaced Basel I, the framework utilized in the past. Basel II
introduced several significant changes to the risk-weighting of assets and the
calculation of regulatory capital. Home Trust subsequently implemented the
standardized approach to calculating risk-weighted assets for credit risk and
the basic indicator approach for operational risk. Changes for Home Trust
under Basel II include a shift into lower risk-weighted categories for
residential mortgages, and a new capital requirement related to operational
risk.
    Basel II had a modest, positive impact on the overall level of regulatory
capital for Home Trust. New procedures and system enhancements were developed
to conform to the new framework, including enhancements to Home Trust's
internal capital adequacy assessment process. The Risk and Capital Committee
and the Board of Directors annually review Home Trust's capital adequacy.
    The capital base of Home Trust continues to be strong. The Tier 1 capital
ratio ended the quarter at 12.9%, up from the prior quarters reported in 2008
and up from the 11.1% reported at December 31, 2007. The total capital ratio
was 14.2% at December 31, 2008, similarly up from the prior quarters reported
in 2008 and up from the 12.5% reported at December 31, 2007.
    The Company continues to build its capital base during a period of
uncertainty in global capital markets. These ratios both continue to exceed
OSFI's 'well capitalized' targets of 7.0% for Tier 1 and 10.0% for total
capital as well as Home Trust's internal capital targets.
    Further information on Basel II can be found in the Company's 2007 Annual
Report on page 22, and in Note 8 to these unaudited interim consolidated
financial statements.
    The Company is exposed to various types of risks owing to the nature of
the business activities it conducts. The types of risk to which the Company is
subject include credit, liquidity and interest rate risks. The Company has
adopted enterprise risk management (ERM) as a discipline for managing risks.
The Company's ERM structure is supported by a governance framework which
includes Board of Director and Senior Management oversight, policies,
management standards, guidelines and procedures appropriate to each business
activity. The policies are reviewed and approved annually by the Board of
Directors. The Company's key risk management practices remain in place and
continue to be reviewed and enhanced from those outlined on pages 24 through
30 in the MD & A section of the Company's 2007 Annual Report.

    Credit Risk

    Credit risk management is the oversight of credit risk associated with
the total loans portfolio. This is the risk of the loss of principal and/or
interest from the failure of debtors, for any reason, to honour their
financial or contractual obligations to the Company. The Company's exposure to
credit risk is mitigated by senior management, the Audit Committee and the
Risk and Capital Committee of the Board of Directors who undertake reviews of
credit policies and lending practices. The Company's policy is that credit is
approved by different levels of senior management, based upon the amount of
the loan. The Risk and Capital Committee and the Board of Directors review
compliance with credit risk requirements on a quarterly basis.
    At December 31, 2008 the composition of the total mortgage portfolio was
79.8% residential and 20.2% nonresidential, compared to a composition of 80.7%
residential and 19.3% non-residential at September 30, 2008 and a composition
of 87.2% residential and 12.8% non-residential one year ago. The composition
is well within the internal policy limits the Company's Risk and Capital
Committee have approved. Within the Company's residential mortgage portfolio,
14.6% of the loans were insured by CMHC at the end of the quarter, compared to
9.0% at September 30, 2008 and 5.4% one year ago. First mortgages represented
99.7% of the total mortgage portfolio at December 31, 2008, consistent with
the comparable periods. Further, with the launch of the Accelerator Program in
June 2008, the Company continues a trend of originating higher volumes of
government-insured mortgages. Of all residential mortgage originations and
renewals over the twelve months of 2008, 50.9% were insured. This is up from
the comparable period of 2007 where 32.3% of all residential mortgage
originations and renewals were insured. At December 31, 2008 the average loan
to value on origination of the Company's residential mortgage loans portfolio
was 66.6%, compared to 66.4% at September 30, 2008 and 65.7% one year ago.
Refer to Note 4 of these unaudited interim consolidated financial statements
for a further breakdown by geographic region. The mortgage loans portfolio
continued to perform well despite uncertain economic conditions with 94.5% of
the portfolio current and only 1.6% of the portfolio over 60 days in arrears
at the end of December 2008. This is consistent with both September 30, 2008
and December 31, 2007 at which point 1.5% and 1.6% of loans were over 60 days
in arrears, respectively. When the off-balance sheet mortgage portfolio of
$2.61 billion is also factored in, the combined mortgage loans portfolio
continues to show positive performance with 95.6% of the combined portfolio
current, and only 1.3% over 60 days in arrears.
    As at December 31, 2008 the gross credit card receivable balance totaled
$352.0 million, of which $351.5 million, or 99.8% of the portfolio was secured
either by cash deposits or residential mortgage collateral, and $0.5 million,
or 0.2% was unsecured. The total credit approved included $414.2 million in
secured and $0.7 million in unsecured credit, compared to $417.0 million in
secured, and $0.8 million in unsecured credit at September 30, 2008 and $391.0
million in secured, and $1.2 million of unsecured credit at December 31, 2007.
Within the secured credit card portfolio Equityline Visa credit cards
represent the principal driver of receivable balances. Equityline Visa credit
cards are secured by collateral residential mortgages, and this portfolio
segment amounted to $342.9 million of the total credit card receivable balance
as at December 31, 2008 compared to $339.3 million at September 30, 2008 and
$302.7 million at December 31, 2007. Cash deposits securing credit card
accounts amounted to $14.5 million, and are included in the Company's
deposits. Further, the Equityline Visa portfolio has a loan to value of 69.%
at December 31, 2008 down from a loan to value of 69.8% and 69.7% at September
30, 2008 and December 31, 2007, respectively. At December 31, 2008 $10.6
million, or 3.0% of the credit card portfolio was over 60 days in arrears
compared to $6.8 million, or 1.9% at September 30, 2008 and $3.8 million, or
1.2% at December 31, 2007.

    
    -------------------------------------------------------------------------
    RISK MANAGEMENT
    -------------------------------------------------------------------------
    

    The secured loan portfolio of $72.5 million decreased by $6.5 million
from the September 30, 2008 balance of $79.0 million, and decreased $9.8
million from the December 31, 2007 balance of $82.3 million. These loans are
secured by second mortgages on residential properties. At December 31, 2008,
97.3% of the secured loan portfolio was current while $1.0 million, or 1.3%
was over 60 days in arrears. This compares to 97.6% of the secured loan
portfolio being current while $0.8 million, or 1.0% was over 60 days in
arrears at September 30, 2008. As 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.
    The Company experienced a rise in net impaired loans, to $39.2 million at
December 31, 2008 compared to $32.8 million at September 30, 2008 and $29.0
million at December 31, 2007 driven by the deterioration in the overall
economy. Although the Company continues to experience a rise in impaired
loans, at 1% of the total loans portfolio the rates are within historic
Company ranges. The Company tightened its underwriting criteria, taking into
account local market conditions in order to minimize potential loss exposure.
Experienced employees of the Company undertake 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 going forward. This
analytical approach and attention to emerging trends has resulted in continued
low write-offs relative to the gross loans 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, 2008
totaled $2.9 million, up from the comparable period in 2007. The Company
continues to monitor this area, and is dealing prudently and effectively with
impaired loans.
    The Company continues to be well positioned to absorb all probable losses
in its loans portfolio recording general allowances of $25.2 million at
December 31, 2008 as compared to general allowances of $25.1 million at
September 30, 2008 and $23.4 million at December 31, 2007. The Company
routinely monitors 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 totaling 99.9% 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 84.0 basis points of the Company's
risk-weighted assets at December 31, 2008 compared to 84.4 basis points at
September 30, 2008 and 83.5 basis points at December 31, 2007. It should be
noted that the measurement of risk-weighted assets computed for December and
September of 2008 were based on the new Basel II computations. Refer to the
Capital Management section and Note 8 of these unaudited interim consolidated
financial statements for further details.

    Liquidity Risk

    The objective of liquidity management is to ensure the Company has the
ability to generate or obtain cash or equivalents in a timely manner and at a
reasonable cost to meet its commitments (both on- and off-balance sheet) as
they become due.
    The Company's liquidity management framework includes a policy relating
to several key elements, such as the minimum levels of liquid assets to be
held at all times, the composition of types of liquid assets to be maintained,
the daily monitoring of the liquidity position by senior management, and
quarterly reporting to the Risk and Capital Committee of the Board of
Directors. The Company manages liquidity using a model which considers two
stress scenarios. In the "immediate" scenario, the Company experiences a
decline in new deposits over a one-month period. In the "ongoing" scenario,
the situation is similarly stressed but is spread out over the course of one
year. In each scenario, the Company must hold sufficient liquid assets to meet
the potential and certain obligations for a period of one year beyond the time
frame of the scenario. These scenarios require the Company to make assumptions
regarding the probable behaviour and timing of cash flows for each type of
asset and liability. The Company's liquidity ratio is the total of liquid
assets, adjusted by the estimates in each scenario, divided by the adjusted
liabilities. At December 31, 2008 liquid assets amounted to 147% under the
immediate scenario, and 134% under the ongoing scenario, in excess of industry
recommended levels of 120%. The Company continues to monitor these scenarios
and will take appropriate actions should the need arise.
    The Company holds liquid assets in the form of cash and bank deposits,
treasury bills, banker's acceptances, government bonds and debentures to
comply with its liquidity policy. Due to the continuing liquidity crisis in
Canadian and global credit markets, the Company has maintained more than
sufficient liquidity to meet its obligations. At December 31, 2008 liquid
assets amounted to $880.7 million, compared to $716.9 million recorded at
September 30, 2008 and $627.1 million at December 31, 2007. The Company's
policy is to maintain a minimum 20% of 100-day obligations in liquid assets.
For the twelve months ended December 31, 2008 the Company maintained a monthly
average of $598.2 million, or 46.3% of 100-day obligations in liquid assets
compared to $571.3 million, or 46.9% for the twelve months ended September 30,
2008 and $463.7 million, or 48.9% for the twelve months ended December 31,
2007.

    Structural Interest Rate Risk

    Interest rate risk is the sensitivity of earnings to sudden changes in
interest rates. 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 an approach to the management of its asset and liability positions to
prevent interest rate fluctuations from materially impacting future earnings,
and to the best of its abilities matches liabilities to assets through its
actions in the deposit market in priority to accessing off-balance sheet
solutions. The Company's Asset Liability Management Committee manages exposure
arising from interest rate and liquidity risk, and reports quarterly to the
Board of Directors.
    The interest rate sensitivity position as at December 31, 2008 is
presented under Note 13 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 13 summarizes both on- and off-balance sheet
assets and liabilities, in terms of their contractual amounts. Over 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 may be extended but not materialize. In measuring
its interest rate 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. The following table
provides the potential after tax impact of an immediate and sustained 100
basis point, and 200 basis point increases and decreases in interest rates on
net interest income and on the economic value of shareholders' equity.

    
    -------------------------------------------------------------------------
                             December 31 December 31 December 31 December 31
    In Thousands of Dollars         2008        2007        2008        2007
    -------------------------------------------------------------------------
                                     Increase in             Decrease in
                                   interest rates          interest rates
    -------------------------------------------------------------------------
    100 basis point shift
      Impact on net interest
       income, after tax (for
       the next 12 months)       $ 3,917     $ 5,282    $ (3,917)   $ (5,282)
      Impact on net present
       value of shareholders'
       equity                     (7,157)      8,909       7,589      (9,750)

    200 basis point shift
      Impact on net interest
       income, after tax (for
       the next 12 months)       $ 7,835   $ (10,564)   $ (7,835)   $ 10,564
      Impact on net present
       value of shareholders'
       equity                    (13,909)     17,052      15,637     (20,424)
    -------------------------------------------------------------------------
    

    The Company may enter into derivative transactions for the purpose of
hedging commitment risk. The purpose is to manage interest rate exposures
during the period between when a mortgage commitment is made and when this
mortgage loan is securitized into an MBS pool. The Company held notional $34.3
million in bond forward contracts for the sale of Government of Canada bond
positions specific to hedging commitment risk at December 31, 2008 with no
such positions in the comparative period. Through the Company's participation
in CMHC's CMB program, the Company was required to enter into specific swap
agreements to hedge interest rate risk and the reinvestment risk between the
amortizing MBS pool and the CMB. Refer to Note 12 of these unaudited interim
consolidated financial statements for additional information.

    
    -------------------------------------------------------------------------
    RESULTS BY BUSINESS SEGMENT
    -------------------------------------------------------------------------
    

    The following section discusses the mortgage lending, consumer lending
and other lines of business for the fourth quarter and the twelve-month period
ended December 31, 2008 (refer to Note 14 of these unaudited interim
consolidated financial statements). The mortgage lending line of business
continues to be the primary driver of the Company's overall growth while the
consumer lending segment continues to provide a diversified income source,
with net income up 26.3% for the twelve months of 2008.

    Mortgage Lending

    The Company's principal line of business contributed $21.6 million to net
income during the fourth quarter and $79.7 million for the year, compared to
$16.8 million and $62.0 million for the comparable periods in 2007. The
increase over the prior periods was primarily driven through loan originations
which increased fee income and significant increases in gains realized on
securitization activities. These increases were offset by a decline in net
interest income as the market uncertainty over the past several quarters has
tightened spreads across core residential lending, combined with growth in
both the Accelerator Program and commercial mortgage lending which attracts
lower spreads. Net interest income ended the quarter at $18.9 million and
$89.5 million for the year, down from $21.1 million and $93.5 million for the
comparable periods in 2007.
    The table below provides a breakdown of specific residential and
non-residential advances made during the year compared to the previous year.

    
    -------------------------------------------------------------------------
                            Three-month period ended              Year ended
    -------------------------------------------------------------------------
                             December 31 December 31 December 31 December 31
    In Thousands of Dollars         2008        2007        2008        2007
    -------------------------------------------------------------------------
    Residential Mortgages      $ 893,960   $ 722,353 $ 2,550,105 $ 2,347,943
    Commercial Mortgages          48,861     126,907     442,356     313,617
    Store and Apartments          21,252      22,087      78,837     109,835
    Warehouse Commercial
     Mortgages                    35,000      28,450      93,273      88,450
    -------------------------------------------------------------------------
    Total Mortgage Advances    $ 999,073   $ 899,797 $ 3,858,923 $ 2,859,845
    -------------------------------------------------------------------------
    

    The total value of new mortgages advanced in the quarter and year-to-date
was $999.1 million and $3.86 billion, respectively, increases of 11.0% and
34.9% over the $899.8 million and $2.86 billion advanced for the comparative
periods in 2007. Residential Mortgages include the advances from loans
originated under the Accelerator Program and Multi-Residential loans. All of
the loans advanced under the Accelerator Program and those classified as
Multi-Residential Mortgages are insured products and were subsequently
securitized through the Company's MBS and CMB program.
    The Company securitized $557.7 million of government-guaranteed CMHC
residential mortgage loans through the creation of MBS securities during the
quarter and $1.50 billion for the twelve-month period of 2008, realizing total
gains from securitization of $25.7 million for the quarter and $61.3 million
for the year. This compares to $198.9 million securitized for the fourth
quarter of 2007 and $692.3 million for the twelve months of 2007, resulting in
gains of $8.1 million and $22.8 million, respectively. During the quarter, the
Company participated in CMHC's CMB program. Of the $557.7 million securitized
during the quarter and $1.50 billion securitized for the year, $452.1 million
and $1.1 billion, respectively, 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 $22.8 million in gains during the quarter and $48.9 million
for the year. The rise in utilizing the securitization stream to funding loan
originations in 2008 was primarily due to the increase in core funding costs
experienced through the Company's regular term deposit channel leaving the
spreads on securitization activities attractive. When funding costs begin to
ease as more liquidity and capital continue to be injected into the global
economies, the Company will re-examine its funding mix to optimize overall
returns. Securitization will continue to contribute to the Company's income;
however, core mortgage lending utilizing funding from deposits 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.
    During the fourth quarter, the Company entered into an amended agreement
with a Trustee for the Company's second mortgage program (recorded as Secured
Loans) 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 $72.5 million in Secured
Loans as Notes Receivable issued by Regency, compared to $79.0 million at
September 30, 2008 and $82.3 million at December 31, 2007. These Notes yield
6.5% with an average duration of 2.1 years. The Company also receives fee
income for servicing and administering these mortgages for Regency. This
income amounted to 0.3% of the portfolio value, on an annualized basis. The
underlying credit quality of the mortgage loans securing the Notes Receivable
remains high, with 1.3% of the portfolio in arrears over 60 days. This program
has experienced minimal losses since inception. The Company has decided to
discontinue advancing funds under this program and will redirect clients into
the Company's Accelerator Program, on a go-forward basis.

    Consumer Lending - Credit Cards and Retail Services

    Consumer lending continued to generate positive results in the fourth
quarter and for the year. Net income for the quarter and year were $4.8
million and $19.1 million, up 17.4% over the fourth quarter of 2007 and up
26.3% over the comparable twelve-month period in 2007. The increases over the
prior periods were driven by increases in net interest income from continued
growth in Equityline Visa receivable balances, and fees from the
administration and servicing of the Visa portfolio. Included in the operating
results of the consumer lending segment are the operations of PSiGate. PSiGate
contributed $0.4 million in net income during the quarter and $1.3 million for
the year.
    The Equityline Visa loans portfolio amounted to $342.9 million at
December 31, 2008 ($339.3 million - Q3 2008, and $302.7 million - Q4 2007)
comprising 97.4% (97.3% - Q3 2008, and 96.3% - Q4 2007) of the total gross
credit card receivable balance of $352.0 million, and bearing an average
interest rate of 10.3% (10.5% - Q3 2008, and 10.9% - Q4 2007) on outstanding
balances. During the fourth quarter of 2008, 790 Equityline Visa accounts with
$32.8 million in authorized credit limits were issued, down from 868
Equityline Visa accounts with $37.7 million in authorized credit limits issued
in the third quarter of 2008 and down from 1,079 Equityline Visa accounts with
$54.1 million in authorized credit limits issued for the three months ended
December 31, 2007. The decrease in new accounts from the comparable periods is
due to ongoing efforts by the Company to tighten credit in certain
geographical locations in response to the current economic environment.

    Other

    The Other segment is comprised of the operating results from the
Company's securities portfolio and corporate activities. Net income for the
quarter and the year were $2.6 million and $9.9 million, down from $3.4
million and $13.1 million for the comparative periods in 2007. The decrease
from the prior periods was driven by losses incurred on the sale of securities
and writedowns on securities that management determined were permanently
impaired and general increase in corporate costs. Offsetting these losses were
an overall growth in net interest income derived from the Company's cash
resources and securities portfolio.

    
    -------------------------------------------------------------------------
    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 pages 32 and 33 of the 2007 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 MBS, financial instruments
measured at fair value, other than temporary impairment of available for sale
securities, future income tax liabilities and contingencies for litigation.
Further information can be found under Notes 3, 4, 5, 11, and 12 of these
unaudited interim consolidated financial statements. There have been no
subsequent changes to the critical accounting estimates disclosed on pages 32
and 33 of the 2007 Annual Report.

    Change in Accounting Policy

    The significant accounting policies the Company follows are detailed in
Note 1 to the Company's December 31, 2007 consolidated financial statements.
Effective January 1, 2008 the Company adopted new accounting standards issued
by the CICA, Financial Instruments - Disclosure and Presentation and Capital
Disclosures. As a result of adopting these standards, new or enhanced
disclosure has been provided. For further details, see Note 2 to these
unaudited interim consolidated financial statements.

    International Financial Reporting Standards

    In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP with International Financial Reporting Standards (IFRS) over an
expected five-year transition period. In February 2008, the AcSB announced
that 2011 is the changeover date for publicly accountable companies to use
IFRS, replacing Canadian GAAP. IFRS uses a conceptual framework similar to
Canadian GAAP, but there are significant differences in recognition,
measurement and disclosures. In the period leading up to the changeover, the
AcSB will continue to issue accounting standards that converge with IFRS, thus
mitigating the impact of adopting IFRS on the changeover date.
    The Company will change over to IFRS starting with interim and annual
financial statements relating to fiscal periods beginning on or after January
1, 2011. The transition date will require the restatement for comparative
purposes of amounts reported by the Company for the interim periods and
year-ended December 31, 2010. The Company has finalized a changeover plan
which includes key elements around accounting policy changes, information and
data systems, education and training, internal controls over financial
reporting, financial reporting implication and other operational business
activities and has begun the transition.

    Controls over Financial Reporting

    No changes were made in the Company's internal controls over financial
reporting during the interim period ended December 31, 2008 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.

    
    -------------------------------------------------------------------------
    UPDATED SHARE INFORMATION
    -------------------------------------------------------------------------
    

    As at December 31, 2008 the Company had issued 34,433,590 Common Shares.
In addition, outstanding director and employee stock options amounted to
1,406,750 (1,226,750 - Q3 2008, and 1,293,750 - Q4 2007) of which 661,125 were
exercisable as of the quarter-end (540,500 - Q3 2008, and 526,250 - Q4 2007)
for proceeds to the Company upon exercise of $12.4 million ($8.4 million - Q3
2008, and $7.9 million - Q4 2007).
    Subsequent to the end of the fourth quarter, the Board of Directors
declared a quarterly cash dividend of $0.13 per common share payable on March
1, 2009 to shareholders of record at the close of business on February 20,
2009.

    
    -------------------------------------------------------------------------
    QUARTERLY FINANCIAL HIGHLIGHTS
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    In Thousands of Dollars                                             2008
    -------------------------------------------------------------------------
    (Except Per Share and
     Percentage Amounts)                    Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Net interest income (TEB)(1)      $ 36,399  $ 39,478  $ 40,418  $ 38,590
    Less TEB adjustment                  1,162     1,130     1,056       962
    -------------------------------------------------------------------------
    Net interest income per financial
     statements                         35,237    38,348    39,362    37,628
    Non-interest income                 26,023    23,013    17,318    14,338
    Non-interest expense                16,852    16,953    17,443    14,763
    Total revenues                     117,996   116,950   112,953   106,796
    Net income                          29,039    27,939    26,550    25,159
    Return on common shareholders'
     equity                              27.4%     27.6%     27.7%     27.9%
    Return on average total assets        2.0%      2.0%      2.0%      1.9%
    Earnings per common share
      Basic                           $   0.84  $   0.81  $   0.77  $   0.73
      Diluted                         $   0.84  $   0.81  $   0.76  $   0.72
    Book value per common share       $  12.57  $  12.08  $  11.44  $  10.79
    Efficiency ratio (TEB)(1)            27.0%     27.1%     30.2%     27.9%
    Efficiency ratio                     27.5%     27.6%     30.8%     28.4%
    Tier 1 capital ratio(2),(3)          12.9%     12.7%     12.5%     12.0%
    Total capital ratio(2),(3)           14.2%     14.0%     13.8%     13.4%
    Net impaired loans as a % of
     gross loans                          0.9%      0.7%      0.7%      0.7%
    Annualized provision as a % of
     gross loans                          0.2%      0.3%      0.1%      0.1%
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    In Thousands of Dollars                                             2007
    -------------------------------------------------------------------------
    (Except Per Share and
     Percentage Amounts)                    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                         38,083    38,312    36,529    33,334
    Non-interest income                 14,561    11,964    11,467    10,075
    Non-interest expense                15,687    13,289    13,382    11,840
    Total revenues                     105,081    94,346    87,708    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)            28.5%     25.9%     27.3%     26.7%
    Efficiency ratio                     29.8%     26.4%     27.9%     27.3%
    Tier 1 capital ratio(2),(3)          11.1%     11.7%     12.9%     12.7%
    Total capital ratio(2),(3)           12.5%     13.1%     14.4%     14.3%
    Net impaired loans as a % of
     gross loans                          0.7%      0.6%      0.7%      0.7%
    Annualized provision as a % of
     gross loans                          0.2%      0.2%      0.1%      0.1%
    -------------------------------------------------------------------------
    (1) TEB - Taxable Equivalent Basis, see definition on page 5
    (2) These figures relate to the Company's operating subsidiary, Home
        Trust Company
    (3) The Tier 1 and Total capital ratios for 2008 are calculated under
        Basel II requirements. See Capital Management section for additional
        details.
    

    The Company's key financial measures for each of the last eight quarters
are summarized in the table above. These highlights illustrate the Company's
profitability, return on equity, as well as efficiency measures and capital
ratios. The quarterly results are modestly affected by seasonal factors, with
first quarter mortgage advances typically impacted by winter weather
conditions, and the fourth quarter normally experiencing increased credit card
activity over the holiday period. The Company continues to achieve positive
financial results driven by revenue growth in all business segments, and
continued low efficiency ratios (where the lower the ratio the better). The
increase in Tier 1 and total capital ratios throughout 2008 reflect the
Company's continuing efforts to preserve its capital base during uncertain
capital markets as well as changes required to calculate capital requirements
under Basel II which came into effect January 1, 2008, resulting in modest
positive results due to a shift into lower risk-weighted categories for
residential mortgages offset by new capital requirements related to
operational risk. The increase in net impaired loans as a percentage of gross
loans during the last quarter of 2008 relate to a general increase in impaired
loans across all of the Company's lending categories.

    Outlook

    This Outlook section contains forward-looking statements. (Please see the
Caution Regarding Forward-Looking Statements on page 6 of these unaudited
interim consolidated financial statements).
    Home Capital remains committed to serving selected segments of the
Canadian financial services marketplace that are not the focus of the major
financial institutions. The Company continues to manage from a strong capital
and liquidity position with no external debt, and is well positioned to
capitalize on market opportunities in the current economic environment.
    The Canadian and global financial markets and economies have experienced
unprecedented volatility over the past year pushing all major economies into a
global recession. The Company expects these challenging market conditions to
persist into 2009 with the Canadian economy experiencing retraction over the
first half of 2009 before beginning a slow recovery towards the end of 2009 as
the influence of global economic stimulus packages begins to be felt in the
Canadian economy. The Canadian housing market is expected to moderate in 2009
as most of the pent-up demand that built up during the 1990's has been
substantially filled and will move back to more traditional volumes in line
with Canadian demographic fundamentals. Despite these challenges, the Company
continues to manage its business with prudence and a strong commitment to
measured growth, continued profitability and creating long-term shareholder
value. The Company has a proven corporate strategy and proprietary risk
management framework to manage the business through uncertain economic
conditions while positioning the Company for future opportunities.

    
    Consolidated Statements of Income

                          For the three months ended      For the year ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,
     Except per Share        December 31 December 31 December 31 December 31
     Amounts (Unaudited)            2008        2007        2008        2007
    -------------------------------------------------------------------------

    Income
    Interest from loans        $  82,672   $  79,101   $ 339,242   $ 288,924
    Dividends from equity
     securities                    2,491       4,608       9,237      10,877
    Other interest                 6,810       6,812      25,524      21,013
    -------------------------------------------------------------------------
                                  91,973      90,521     374,003     320,814

    Interest Expense
    Interest on deposits          56,736      52,438     223,428     174,556
    -------------------------------------------------------------------------
    Net interest income           35,237      38,083     150,575     146,258
    Provision for credit
     losses (note 4(d))            1,988       2,449       6,638       6,042
    -------------------------------------------------------------------------
                                  33,249      35,634     143,937     140,216
    -------------------------------------------------------------------------

    Non-interest Income
    Fees and other income          7,104       6,444      28,452      21,533
    Securitization income on
     mortgage-backed securities   30,251      10,004      71,103      27,367
    Net loss realized and
     unrealized on securities       (795)     (2,559)     (5,365)     (1,614)
    Net gain on disposition of
     subsidiary (note 16)              -           -          69           -
    Gain (loss) on derivatives   (10,537)        672     (13,567)        781
    -------------------------------------------------------------------------
                                  26,023      14,561      80,692      48,067
    -------------------------------------------------------------------------
                                  59,272      50,195     224,629     188,283
    -------------------------------------------------------------------------

    Non-interest Expenses
    Salaries and staff benefits    8,564       8,163      36,182      30,195
    Premises                       1,192         996       4,439       3,837
    General and administration     7,096       6,528      25,390      20,166
    -------------------------------------------------------------------------
                                  16,852      15,687      66,011      54,198
    -------------------------------------------------------------------------

    Income Before Income Taxes    42,420      34,508     158,618     134,085
    Provision for income taxes
     (note 11(a))                 13,381      10,280      49,931      43,844
    -------------------------------------------------------------------------
    NET INCOME                 $  29,039   $  24,228   $ 108,687   $  90,241
    -------------------------------------------------------------------------

    NET INCOME PER COMMON SHARE
    Basic                      $    0.84   $    0.70   $    3.15   $    2.62
    Diluted                    $    0.84   $    0.70   $    3.13   $    2.59
    -------------------------------------------------------------------------

    AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING
     (thousands)
    Basic                         34,501      34,482      34,512      34,447
    Diluted                       34,724      34,851      34,669      34,857
    -------------------------------------------------------------------------
    Total number of outstanding
     common shares (thousands)    34,434      34,532      34,434      34,532
    Book value per common
     share                     $   12.57   $   10.08   $   12.57   $   10.08
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Comprehensive Income

                          For the three months ended      For the year ended
    -------------------------------------------------------------------------
    In Thousands of          December 31 December 31 December 31 December 31
     Dollars (Unaudited)            2008        2007        2008        2007
    -------------------------------------------------------------------------
    NET INCOME                  $ 29,039    $ 24,228   $ 108,687    $ 90,241
    -------------------------------------------------------------------------

    OTHER COMPREHENSIVE INCOME
     (LOSS), NET OF TAX
    Unrealized income on
     available for sale securities
      Net unrealized income on
       securities available for
       sale, net of ($4,395)
       tax ($3,304 - three months
       ended December 31, 2007;
       ($4,049) - year ended
       December 31, 2008; ($2,458)
       - year ended December 31,
       2007)                     (10,271)      4,083     (10,463)     (4,899)
      Reclassification of
       earnings (losses) in respect
       of available for sale
       securities, net of $312 tax
       ($174 - three months ended
       December 31, 2007; $1,796 -
       year ended December 31, 2008;
       ($434) - year ended December
       31, 2007)                   2,613         308       5,707        (768)
    -------------------------------------------------------------------------
    Total other comprehensive
     income (loss)                (7,658)      4,391      (4,756)     (5,667)
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME        $ 21,381    $ 28,619   $ 103,931    $ 84,574
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Balance Sheets
    -------------------------------------------------------------------------
                                      December 31  September 30  December 31
    In Thousands of Dollars (Unaudited)      2008          2008         2007
    -------------------------------------------------------------------------
    ASSETS
    Cash Resources
    Deposits with regulated financial
     institutions                     $   554,422   $   431,288  $   344,464
    Treasury bills guaranteed by Canada         -             -        9,872
    -------------------------------------------------------------------------
                                          554,422       431,288      354,336
    -------------------------------------------------------------------------
    Securities (note 3)
    Held for trading                            -           301      114,423
    Available for sale                    519,477       487,654      356,458
    -------------------------------------------------------------------------
                                          519,477       487,955      470,881
    -------------------------------------------------------------------------
    Loans (note 4)
    Residential mortgages               3,263,206     3,307,197    3,169,953
    Personal and credit card loans        368,962       364,261      325,393
    Other mortgages                       826,882       789,611      467,921
    Secured loans                          72,518        79,025       82,304
    General allowance for credit losses   (25,177)      (25,077)     (23,400)
    -------------------------------------------------------------------------
                                        4,506,391     4,515,017    4,022,171
    -------------------------------------------------------------------------
    Other
    Securitization receivable (note 5)    139,870       106,969       65,768
    Capital assets                          5,325         5,725        4,837
    Other assets (note 6)                  84,228        74,855       57,100
    -------------------------------------------------------------------------
                                          229,423       187,549      127,705
    -------------------------------------------------------------------------
                                      $ 5,809,713   $ 5,621,809  $ 4,975,093
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Liabilities
    Deposits
      Payable on demand               $    34,808   $    16,457  $    30,793
      Payable on a fixed date           5,067,973     4,927,582    4,383,191
    -------------------------------------------------------------------------
                                        5,102,781     4,944,039    4,413,984
    -------------------------------------------------------------------------
    Other
    Cheques and other items in transit      4,811         3,396        4,393
    Other liabilities (note 7)            269,368       258,079      208,676
    -------------------------------------------------------------------------
                                          274,179       261,475      213,069
    -------------------------------------------------------------------------
                                        5,376,960     5,205,514    4,627,053
    -------------------------------------------------------------------------
    Shareholders' Equity
    Capital stock (note 8)                 39,094        39,142       38,899
    Contributed surplus                     3,283         2,910        1,818
    Retained earnings                     401,429       377,638      313,620
    Accumulated other comprehensive
     loss (note 10)                       (11,053)       (3,395)      (6,297)
    -------------------------------------------------------------------------
                                          432,753       416,295      348,040
    -------------------------------------------------------------------------
                                      $ 5,809,713   $ 5,621,809  $ 4,975,093
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Changes in Shareholders' Equity

                          For the three months ended      For the year ended
    -------------------------------------------------------------------------
    In Thousands of          December 31 December 31 December 31 December 31
     Dollars (Unaudited)            2008        2007        2008        2007
    -------------------------------------------------------------------------
    CAPITAL STOCK (note 8)
    Balance at beginning
     of the period             $  39,142   $  38,047   $  38,899   $  35,436
    Proceeds of options
     exercised                         -         890         318       3,585
    Normal course issuer bid         (48)        (38)       (123)       (122)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                    $  39,094   $  38,899   $  39,094   $  38,899
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance at beginning
     of the period             $   2,910   $   1,523   $   1,818   $     783
    Amortization of fair
     value of employee stock
     options (note 9)                373         321       1,516       1,129
    Employee stock options
     exercised                         -         (26)        (51)        (94)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                    $   3,283   $   1,818   $   3,283   $   1,818
    -------------------------------------------------------------------------

    RETAINED EARNINGS
    Balance at beginning of
     the period (note 8)       $ 377,638   $ 294,423   $ 313,620   $ 240,647
    Transitional adjustment
     on adoption of new
     accounting policies               -           -           -       1,391
    Normal course issuer bid        (773)     (1,222)     (2,940)     (3,817)
    Net income for the period     29,039      24,228     108,687      90,241
    Dividends paid during the
     period                            2         (10)    (13,461)     (7,253)
    Dividends declared, unpaid
     during the period            (4,477)     (3,799)     (4,477)     (7,589)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                    $ 401,429   $ 313,620   $ 401,429   $ 313,620
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE LOSS
    Balance at beginning of
     the period                $  (3,395)  $ (10,688)  $  (6,297)  $       -
    Transitional adjustment
     on adoption of new
     accounting policies               -           -           -        (630)
    Other comprehensive
     income (loss), net of
     ($4,084) tax; (($3,478)
     - three months ended
     December 31, 2007;
     ($2,079) - year ended
     December 31, 2008;
     ($2,892) - year ended
     December 31, 2007)           (7,658)      4,391      (4,756)     (5,667)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                    $ (11,053)  $  (6,297)  $ (11,053)  $  (6,297)
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Cash Flows

                          For the three months ended      For the year ended
    -------------------------------------------------------------------------
    In Thousands of          December 31 December 31 December 31 December 31
     Dollars (Unaudited)            2008        2007        2008        2007
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net income for the period  $  29,039   $  24,228   $ 108,687   $  90,241
    Adjustments to determine
     cash flows relating to
     operating activities:
      Future income taxes          5,170        (996)     14,397       3,312
      Amortization                19,042       3,398      29,392      11,691
      Provision for credit
       losses (note 4(d))          1,988       2,449       6,638       6,042
      Change in accrued
       interest payable              431      10,671      23,965      23,730
      Change in accrued
       interest receivable          (958)     (2,186)     (2,553)     (6,262)
      Net loss realized and
       unrealized on investment
       securities                    795       2,559       5,365       1,614
      Loss (gain) on derivatives  10,537        (672)     13,567        (781)
      Securitization income on
       mortgage-backed
       securities                (30,251)    (10,004)    (71,103)    (27,367)
      Amortization of fair
       value of employee stock
       options (note 9)              373         321       1,516       1,129
      Other                      (10,143)     15,530     (14,960)     16,184
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                   26,023      45,298     114,911     119,533
    -------------------------------------------------------------------------
    CASH FLOWS FROM FINANCING
     ACTIVITIES
    Net increase in deposits     158,742     253,488     688,797     972,192
    Issuance of capital stock          -         890         318       3,585
    Normal course issuer bid        (821)     (1,260)     (3,063)     (3,939)
    Exercise of stock options          -         (26)        (51)        (94)
    Dividends paid                (4,481)     (3,800)    (17,260)    (14,119)
    -------------------------------------------------------------------------
    Cash flows from financing
     activities                  153,440     249,292     668,741     957,625
    -------------------------------------------------------------------------
    CASH FLOWS FROM INVESTING
     ACTIVITIES
    Activity in available for
     sale and held for trading
     securities
      Purchases                 (227,538)   (127,302)   (555,804)   (271,256)
      Proceeds from sales        151,570      20,138     385,792      48,854
      Proceeds from maturities    14,146      16,210      73,313      79,457
    Activity in mortgages
      Net increase              (551,833)   (469,229) (1,954,052) (1,309,808)
      Proceeds from
       securitization of
       mortgage-backed
       securities                548,807     193,879   1,478,138     673,920
      Change in mortgage-backed
       securities receivable       8,382       7,875      28,031      32,372
    Net increase in personal
     and credit card loans        (5,139)    (13,343)    (44,506)    (89,084)
    Net increase in secured
     loans                         5,889        (705)      8,833     (12,372)
    Business acquisition, net          -     (16,563)          -     (16,563)
    Purchases of capital assets     (613)       (610)     (3,311)     (1,873)
    -------------------------------------------------------------------------
    Cash flows used in investing
     activities                  (56,329)   (389,650)   (583,566)   (866,353)
    -------------------------------------------------------------------------
    Net increase (decrease) in
     cash and cash equivalents
     during the period           123,134     (95,060)    200,086     210,805
    Cash and cash equivalents
     at beginning of the period  431,288     449,396     354,336     143,531
    -------------------------------------------------------------------------
    Cash and cash equivalents
     at end of the period      $ 554,422   $ 354,336   $ 554,422   $ 354,336
    -------------------------------------------------------------------------
    Supplementary Disclosure
     of Cash Flow Information
    Interest paid              $  56,281   $  41,765   $ 199,440   $ 150,824
    Income taxes paid              4,345      11,262      43,055      46,723
    -------------------------------------------------------------------------
    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, 2007 as set out in the 2007 Annual Report, on
    pages 36 through 58. 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.

    2.  CHANGES IN ACCOUNTING POLICIES

    Capital Disclosures

    Effective January 1, 2008 the Company adopted the new accounting standard
    issued by the Canadian Institute of Chartered Accountants (CICA) Handbook
    Section 1535, Capital Disclosures. The new standard requires disclosure
    of information about; (i) the Company's objectives, policies and
    processes for managing capital (ii) quantitative data about what the
    Company regards as capital; and (iii) whether the Company has complied
    with any capital requirements and consequences of non-compliance. Note 8
    includes information related to this new standard.

    Financial Instruments

    Effective January 1, 2008 the Company adopted the new accounting
    standards issued by the CICA Handbook Section 3862, Financial Instruments
    - Disclosures and Section 3863, Financial Instruments - Presentation.
    These new standards place increased emphasis on disclosure about the
    nature and extent of risks arising from financial instruments and how the
    Company manages those risks. As a result of adopting these new standards,
    enhanced disclosure is provided in Notes 3, 4, 10, 13 and 15. The new
    standards did not affect the financial position of the Company.

    3.  SECURITIES

    Available for Sale Securities - Net Unrealized Gains and Losses

    Net unrealized gains and losses are included in accumulated other
    comprehensive income except unrealized losses which are other than
    temporary in nature which are transferred to net income. Accumulated
    other comprehensive loss is disclosed in Note 10.

    -------------------------------------------------------------------------
                                      December 31  September 30  December 31
    In Thousands of Dollars                  2008          2008         2007
    -------------------------------------------------------------------------
    Securities issued or guaranteed by:
      Canada                            $   1,546      $    599     $   (111)
      Corporations                          2,345        (2,507)           -
    Equity securities
      Common                               (2,106)       (1,584)        (494)
      Fixed rate preferred                (29,918)       (9,446)      (4,753)
      Floating rate preferred              (2,370)         (301)        (270)
    Income trusts                          (2,745)       (2,714)      (2,891)
    Mutual funds                             (367)          (80)          (5)
    -------------------------------------------------------------------------
                                        $ (33,615)    $ (16,033)    $ (8,524)
    -------------------------------------------------------------------------

    The above unrealized losses represent differences between the carrying
    value of a security and its current fair value. The Company does not
    consider these losses to be other than temporary based on market
    conditions at the reporting date, and continues to regularly monitor
    these investments and market conditions.

    As at December 31, 2008, the Company had $1.8 million of unrealized
    losses on available for sale securities which are other than temporary in
    nature, and have been transferred into net income. These unrealized
    losses are not included in the table above.

    Effective January 1, 2008, all new bond acquisitions were designated as
    available for sale securities consistent with the Company's intentions to
    hold them.

    4.  LOANS

    (A) Loans by Geographic Region and Type

                                                     As at December 31, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    British Columbia  $  333,668 $   31,118 $    8,998 $        9 $  373,793
    Alberta              398,939     78,157    115,336      8,319    600,751
    Ontario            2,267,199    250,611    630,953     61,929  3,210,692
    Quebec               105,236      1,477     48,701          -    155,414
    Maritimes             90,167      6,002     12,408      2,261    110,838
    Manitoba and
     Saskatchewan         67,997      1,597     10,486          -     80,080
    -------------------------------------------------------------------------
                      $3,263,206 $  368,962 $  826,882 $   72,518 $4,531,568
    -------------------------------------------------------------------------

                                                    As at September 30, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    British Columbia  $  337,498 $   30,909 $    9,604 $        8 $  378,019
    Alberta              413,988     80,052    114,952      8,981    617,973
    Ontario            2,301,325    244,170    585,772     67,488  3,198,755
    Quebec                93,198      1,073     58,313          -    152,584
    Maritimes             94,203      6,423     11,974      2,548    115,148
    Manitoba and
     Saskatchewan         66,985      1,634      8,996          -     77,615
    -------------------------------------------------------------------------
                      $3,307,197 $  364,261 $  789,611 $   79,025 $4,540,094
    -------------------------------------------------------------------------


                                                     As at December 31, 2007
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    British Columbia  $  303,150 $   22,828 $    6,555 $      213 $  332,746
    Alberta              387,168     70,781     50,210      7,957    516,116
    Ontario            2,265,487    222,230    390,661     70,692  2,949,070
    Quebec                59,952         24     12,066          -     72,042
    Maritimes            118,297      7,661      8,429      3,442    137,829
    Manitoba and
     Saskatchewan         35,899      1,869          -          -     37,768
    -------------------------------------------------------------------------
                      $3,169,953 $  325,393 $  467,921 $   82,304 $4,045,571
    -------------------------------------------------------------------------

    (B) Past Due Loans that are not Impaired

                                        For the year ended December 31, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    1 - 30 days       $  142,287 $    3,365 $    4,406 $      973 $  151,031
    31 - 60 days           9,249      1,896      2,407         98     13,650
    61 - 90 days          31,828      2,527        647          -     35,002
    91 - 120 days              -      1,887          -          -      1,887
    -------------------------------------------------------------------------
                      $  183,364 $    9,675 $    7,460 $    1,071 $  201,570
    -------------------------------------------------------------------------

                                                    As at September 30, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    1 - 30 days       $  119,685 $    2,391 $    3,185 $      989 $  126,250
    31 - 60 days           8,433      2,015        332        258     11,038
    61 - 90 days          28,163      2,038          -        122     30,323
    91 - 120 days              -      1,369          -          -      1,369
    -------------------------------------------------------------------------
                      $  156,281 $    7,813 $    3,517 $    1,369 $  168,980
    -------------------------------------------------------------------------

                                                     As at December 31, 2007
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    1 - 30 days       $  114,316 $    3,181 $    2,918 $    1,314 $  121,729
    31 - 60 days           7,691      1,497        343         63      9,594
    61 - 90 days          28,143      1,508        657        241     30,549
    91 - 120 days              -        785          -          -        785
    -------------------------------------------------------------------------
                      $  150,150 $    6,971 $    3,918 $    1,618 $  162,657
    -------------------------------------------------------------------------

    (C) Impaired Loans and Specific Allowances for Credit Losses

                                                     As at December 31, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Gross amount of
     impaired loans   $   34,643 $    6,309 $      164 $    1,007 $   42,123
    Specific allowances   (1,680)      (547)         -       (699)    (2,926)
    -------------------------------------------------------------------------
                      $   32,963 $    5,762 $      164 $      308 $   39,197
    -------------------------------------------------------------------------

                                                    As at September 30, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Gross amount of
     impaired loans   $   30,887 $    3,361 $      284 $      662 $   35,194
    Specific allowances   (1,950)      (349)        (5)       (67)    (2,371)
    -------------------------------------------------------------------------
                      $   28,937 $    3,012 $      279 $      595 $   32,823
    -------------------------------------------------------------------------

                                                     As at December 31, 2007
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Gross amount of
     impaired loans   $   27,849 $    1,521 $      242 $      400 $   30,012
    Specific allowances     (634)      (128)         -       (231)      (993)
    -------------------------------------------------------------------------
                      $   27,215 $    1,393 $      242 $      169 $   29,019
    -------------------------------------------------------------------------

    (D) Allowance for Credit Losses

                                For the three months ended December 31, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Specific allowances
      Balance at the
       beginning of the
       period         $    1,950 $      349 $        5 $       67 $    2,371
      Provisions for
       credit losses         838        438         (5)       617      1,888
      Write-offs          (1,135)      (277)         -         (3)    (1,415)
      Recoveries              27         37          -         18         82
    -------------------------------------------------------------------------
                           1,680        547          -        699      2,926
    -------------------------------------------------------------------------

    General allowance
      Balance at the
       beginning of the
       period             16,694      3,651      3,907        825     25,077
      Provisions for
       credit losses        (558)        49        673        (64)       100
    -------------------------------------------------------------------------
                          16,136      3,700      4,580        761     25,177
    -------------------------------------------------------------------------
    Total allowance   $   17,816 $    4,247 $    4,580 $    1,460 $   28,103
    -------------------------------------------------------------------------

                                For the three months ended September 30, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Specific allowances
      Balance at the
       beginning of the
       period         $      242 $      108 $        5 $      172 $      527
      Provisions for
       credit losses       1,878        306          -         85      2,269
      Write-offs            (219)      (106)         -       (196)      (521)
      Recoveries              49         41          -          6         96
    -------------------------------------------------------------------------
                           1,950        349          5         67      2,371
    -------------------------------------------------------------------------

    General allowance
      Balance at the
       beginning of the
       period             15,972      3,628      3,433        893     23,926
      Provisions for
       credit losses         722         23        474        (68)     1,151
    -------------------------------------------------------------------------
                          16,694      3,651      3,907        825     25,077
    -------------------------------------------------------------------------
    Total allowance   $   18,644 $    4,000 $    3,912 $      892 $   27,448
    -------------------------------------------------------------------------

                                For the three months ended December 31, 2007
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Specific allowances
      Balance at the
       beginning of the
       period         $      230 $      208 $        - $      241 $      679
      Provisions for
       credit losses         727        211          -        198      1,136
      Write-offs            (327)      (309)         -       (208)      (844)
      Recoveries               4         18          -          -         22
    -------------------------------------------------------------------------
                             634        128          -        231        993
    -------------------------------------------------------------------------

    General allowance
      Balance at the
       beginning of the
       period             16,403      3,127      1,718        839     22,087
      Provisions for
       credit losses         724         74        498         17      1,313
    -------------------------------------------------------------------------
                          17,127      3,201      2,216        856     23,400
    -------------------------------------------------------------------------
    Total allowance   $   17,761 $   3,329 $     2,216 $    1,088 $   24,393
    -------------------------------------------------------------------------

                                        For the year ended December 31, 2008
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Specific allowances
      Balance at the
       beginning of the
       period         $      634 $      128 $        - $      231 $      993
      Provisions for
       credit losses       2,972        937          -        952      4,861
      Write-offs          (2,177)      (644)         -       (540)    (3,361)
      Recoveries             251        126          -         56        433
    -------------------------------------------------------------------------
                           1,680        547          -        699      2,926
    -------------------------------------------------------------------------

    General allowance
      Balance at the
       beginning of the
       period             17,127      3,201      2,216        856     23,400
      Provisions for
       credit losses        (991)       499      2,364        (95)     1,777
    -------------------------------------------------------------------------
                          16,136      3,700      4,580        761     25,177
    -------------------------------------------------------------------------
    Total allowance   $   17,816 $    4,247 $    4,580 $    1,460 $   28,103
    -------------------------------------------------------------------------

                                        For the year ended December 31, 2007
    -------------------------------------------------------------------------
                                   Personal
    In Thousands     Residential and Credit      Other    Secured
     of Dollars        Mortgages Card Loans  Mortgages      Loans      Total
    -------------------------------------------------------------------------
    Specific allowances
      Balance at the
       beginning of the
       period         $      386 $      148 $        - $      108 $      642
      Provisions for
       credit losses       1,183        728          -        375      2,286
      Write-offs          (1,001)      (918)         -       (262)    (2,181)
      Recoveries              66        170          -         10        246
    -------------------------------------------------------------------------
                             634        128          -        231        993
    -------------------------------------------------------------------------

    General allowance
      Balance at the
       beginning of the
       period             15,886      2,378        659        721     19,644
      Provisions for
       credit losses       1,241        823      1,557        135      3,756
    -------------------------------------------------------------------------
                          17,127      3,201      2,216        856     23,400
    -------------------------------------------------------------------------
    Total allowance   $   17,761 $    3,329 $    2,216 $    1,087 $   24,393
    -------------------------------------------------------------------------

    (E) Collateral

    The fair value of collateral held against mortgages is based on
    appraisals at the time a loan is originated. Appraisals are only updated
    should circumstances warrant it or if a mortgage becomes impaired. At
    December 31, 2008, the total appraised value of the collateral for
    mortgages past due that are not impaired, as determined when the
    mortgages were originated, is $302.8 million. For impaired mortgages, the
    total appraised value of collateral at December 31, 2008 is
    $48.4 million.

    5.  LOAN SECURITIZATION

    The following table summarizes the Company's new securitization
    activities.

                          For the three months ended      For the year ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,
     Except Percentages and  December 31 December 31 December 31 December 31
     Number of Years                2008        2007        2008        2007
    -------------------------------------------------------------------------
    Book value of mortgages
     securitized             $   557,720 $   198,925 $ 1,498,866 $   692,338
    Securitization
     receivable              $    43,573 $    14,104 $    96,193 $    43,907
    Servicing liability      $     6,254 $       350 $     8,934 $     1,144
    Net proceeds received on
     securitized mortgages   $   548,807 $   193,879 $ 1,478,138 $   673,920
    Gain on sale of
     mortgages               $    25,699 $     8,107 $    61,314 $    22,763
    Prepayment rate                 5.0%       13.5%        7.6%       13.2%
    Excess spread                   2.7%        2.9%        2.6%        2.7%
    Weighted average life
     in years                        4.8         4.2         4.0         4.0
    Discount rate                   2.8%        4.3%        3.4%        4.3%
    -------------------------------------------------------------------------

    During the fourth quarter of 2008, the Company securitized insured
    residential mortgages through CMHC's Canada Mortgage Bond Program with a
    book value of $452.1 million for a total of $1.09 billion in 2008
    ($91.5 million in Q4 2007 and $119.5 million for the year ended
    December 31, 2007). The gain on sale was $22.8 million during the fourth
    quarter and $48.9 million for the year ended December 31, 2008
    ($4.2 million in Q4 2007 and $5.5 million for the year ended December 31,
    2007). These figures are included in the table above.

    6.  OTHER ASSETS

    -------------------------------------------------------------------------
                                      December 31  September 30  December 31
    In Thousands of Dollars                  2008          2008         2007
    -------------------------------------------------------------------------
    Accrued interest receivable       $    27,861  $     26,903  $    25,308
    Income taxes receivable                10,472        12,555            -
    Goodwill                               15,752        15,028       15,028
    Intangible assets                         558           708        1,158
    Other prepaid assets and
     deferred items                        29,585        19,661       15,606
    -------------------------------------------------------------------------
                                      $    84,228  $     74,855  $    57,100
    -------------------------------------------------------------------------

    The increase in goodwill reflects adjustments to the purchase price
    allocation related to the finalization of the Payment Services
    Interactive Gateway Corp. balance sheet as at October 16, 2007, the date
    of acquisition.

    7.  OTHER LIABILITIES

    -------------------------------------------------------------------------
                                      December 31  September 30  December 31
    In Thousands of Dollars                  2008          2008         2007
    -------------------------------------------------------------------------
    Accrued interest payable          $   159,615  $    159,184  $   135,650
    Income taxes payable                        -             -        5,795
    Dividends payable                       4,476         4,482        3,799
    Future income tax liability
     (Note 11)                             36,974        30,391       16,586
    Securitization servicing liability     10,288         4,262        1,786
    Other, including accounts payable
     and accrued liabilities               58,015        59,760       45,060
    -------------------------------------------------------------------------
                                       $  269,368  $    258,079  $   208,676
    -------------------------------------------------------------------------

    8.  CAPITAL

    (A) Common Shares Issued and Outstanding

                                                  For the three months ended
    -------------------------------------------------------------------------
                                   December 31, 2008       December 31, 2007
    -------------------------------------------------------------------------
                               Number of               Number of
    In Thousands                  Shares      Amount      Shares      Amount
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                    34,476   $  39,142      34,455   $  38,047
    Options exercised                  -           -         111         890
    Normal course issuer bid         (42)        (48)        (34)        (38)
    -------------------------------------------------------------------------
    Outstanding at end of
     period                       34,434   $  39,094      34,532   $  38,899
    -------------------------------------------------------------------------

                                                          For the year ended
    -------------------------------------------------------------------------
                                   December 31, 2008       December 31, 2007
    -------------------------------------------------------------------------
                               Number of               Number of
    In Thousands                  Shares      Amount      Shares      Amount
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                    34,532   $  38,899      34,166   $  35,436
    Options exercised                 10         318         477       3,585
    Normal course issuer bid        (108)       (123)       (111)       (122)
    -------------------------------------------------------------------------
    Outstanding at end of
     period                       34,434   $  39,094      34,532   $  38,899
    -------------------------------------------------------------------------

    The purchase price of shares acquired through the Normal Course Issuer
    Bid is allocated between capital stock and retained earnings. Comparative
    figures have been reclassified to conform to this presentation.

    (B) Share Purchase Options

                                                  For the three months ended
    -------------------------------------------------------------------------
                                   December 31, 2008       December 31, 2007
    -------------------------------------------------------------------------
                                            Weighted-               Weighted-
                                             average                 average
    In Thousands               Number of    Exercise   Number of    Exercise
     Except Per Share Amounts     Shares       Price      Shares       Price
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                     1,227   $   26.73       1,170   $   22.47
      Granted                        205       16.27         235       41.29
      Exercised                        -           -        (111)       7.77
      Forfeited                      (25)      33.95           -           -
    -------------------------------------------------------------------------
    Outstanding at end of
     period                        1,407   $   25.08       1,294   $   27.15
    -------------------------------------------------------------------------
    Exercisable, end of period       661   $   18.73         526   $   15.04
    -------------------------------------------------------------------------

                                                          For the year ended
    -------------------------------------------------------------------------
                                   December 31, 2008       December 31, 2007
    -------------------------------------------------------------------------
                                            Weighted-               Weighted-
                                             average                 average
    In Thousands               Number of    Exercise   Number of    Exercise
     Except Per Share Amounts     Shares       Price      Shares       Price
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                     1,294   $   27.15       1,266   $   15.43
      Granted                        205       16.27         505       37.78
      Exercised                      (10)      28.12        (477)       7.31
      Forfeited                      (82)      35.32           -           -
    -------------------------------------------------------------------------
    Outstanding at end of
     period                        1,407   $   25.08       1,294   $   27.15
    -------------------------------------------------------------------------
    Exercisable, end of period       661   $   18.73         526   $   15.04
    -------------------------------------------------------------------------

    (C) Capital Management

    The Company has a Capital Management Policy which governs the quantity
    and quality of capital held. The objective of the policy is to ensure
    that regulatory capital requirements are met, while also providing a
    sufficient return to investors. The Risk and Capital Committee and the
    Board of Directors annually review the policy and monitor compliance with
    the policy on a quarterly basis.

    The Company's subsidiary Home Trust Company is subject to the regulatory
    capital requirements governed by the Office of the Superintendent of
    Financial Institutions (OSFI). These requirements are consistent with
    international standards set by the Bank for International Settlements
    (BIS). Effective January 1, 2008, Home Trust Company adopted the new
    capital framework (Basel II) as required by OSFI. Under Basel II, the
    computation of risk weighted assets was revised and a new measure for
    operational risk was introduced. Home Trust Company follows the Standard
    Approach for calculating credit risk and the Basic Indicator Approach for
    operational risk.

    The regulatory capital position of Home Trust Company was as follows:

    -------------------------------------------------------------------------
                                          December    September     December
    In Thousands of Dollars,                    31           30         31(1)
     Except Ratios and Multiple               2008         2008         2007
    -------------------------------------------------------------------------
    Regulatory capital
      Tier 1                             $ 384,025    $ 375,688    $ 311,760
      Total                                424,202      415,765      350,160
    Regulatory ratios
      Tier 1                                 12.9%        12.7%        11.1%
      Total                                  14.2%        14.0%        12.5%
      Assets to capital multiple              13.7         13.5         14.2
    -------------------------------------------------------------------------
    (1) Comparative figures were calculated in accordance with the Basel I
        capital rules in effect at the time.

    Under Basel II, OSFI considers a financial institution to be well-
    capitalized if it maintains a Tier 1 capital ratio of 7% and a total
    capital ratio of 10%. Home Trust Company is in compliance with the OSFI
    capital guidelines.

    9.  STOCK BASED COMPENSATION

    During the fourth quarter of 2008, $373,000 was recorded as an expense
    for a total of $1,516,000 for 2008 ($321,000 - Q4 2007 and $1,100,000 -
    twelve months of 2007) for stock option awards in the consolidated
    statements of income, with an off-setting credit to contributed surplus.
    During the fourth quarter of 2008, 205,000 options were granted for a
    total of 205,000 for 2008 (235,000 - Q4 2007 and 505,000 - twelve months
    of 2007).

    10. ACCUMULATED OTHER COMPREHENSIVE LOSS

    -------------------------------------------------------------------------
                                       December 31 September 30  December 31
    In Thousands of Dollars                   2008         2008         2007
    -------------------------------------------------------------------------
    Unrealized gains and (losses) on
      Available for sale securities      $ (33,615)   $ (16,033)   $  (8,524)
      Income taxes recovery (expenses)      10,473        4,454        2,226
    -------------------------------------------------------------------------
                                           (23,142)     (11,579)      (6,298)
    -------------------------------------------------------------------------

    Unrealized gains and (losses) on
      Securitization receivables            18,080       12,239            2
      Income taxes recovery (expenses)      (5,991)      (4,055)          (1)
    -------------------------------------------------------------------------
                                             5,885        8,184            1
    -------------------------------------------------------------------------
    Accumulated other comprehensive loss $ (11,053)   $  (3,395)   $  (6,297)
    -------------------------------------------------------------------------

    11. INCOME TAXES

    (A) Reconciliation of income taxes

                          For the three months ended      For the year ended
    -------------------------------------------------------------------------
                             December 31 December 31 December 31 December 31
    In Thousands of Dollars         2008        2007        2008        2007
    -------------------------------------------------------------------------
    Income before income
     taxes                     $  42,420   $  34,508   $ 158,618   $ 134,085
    -------------------------------------------------------------------------
    Income taxes at statutory
     combined federal and
     provincial income tax
     rates                        14,060      12,408      52,565      48,377
    Increase (decrease) in
     income taxes at statutory
     income tax rates resulting
     from
      Tax-exempt income             (765)     (1,476)     (2,835)     (3,484)
      Non-deductible expenses        707         245       1,491         723
      Future tax rate changes       (502)     (1,286)     (1,378)     (1,503)
      Other                         (119)        389          88        (269)
    -------------------------------------------------------------------------
    Income tax                 $  13,381   $  10,280   $  49,931   $  43,844
    -------------------------------------------------------------------------

    (B) Sources of future income tax balances

    -------------------------------------------------------------------------
                                       December 31 September 30  December 31
    In Thousands of Dollars                   2008         2008         2007
    -------------------------------------------------------------------------
    Future income tax liabilities
      Deferred agent commissions and
       other charges                     $   7,761    $   7,864    $   7,907
      Mortgage-backed securities
       receivable                           40,828       34,654       21,282
    -------------------------------------------------------------------------
                                            48,589       42,518       29,189
    -------------------------------------------------------------------------
    Future income tax assets
      Allowance for credit losses            7,776        7,593        6,767
      Future tax recoverable acquired            -          530        1,370
      Deferred commitment fees and other
       charges                               3,839        4,004        4,466
    -------------------------------------------------------------------------
                                            11,615       12,127       12,603
    -------------------------------------------------------------------------
                                         $  36,974    $  30,391     $ 16,586
    -------------------------------------------------------------------------

    12. DERIVATIVE FINANCIAL INSTRUMENTS

    The Company utilized off-balance sheet financial instruments during
    2008. In this period the Company entered into economic hedge swap
    transactions with major financial institutions. The Company may 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).

    The Company participates in the Canada Mortgage Bond program sponsored by
    CMHC. Under this program, the Company sells MBS pools to Canada Housing
    Trust which finances the purchase by issuing a bullet Canada Mortgage
    Bond. Under this program, the Company must manage the mismatch and
    reinvestment risk between the amortizing MBS pool and the Canada Mortgage
    Bond. As part of this arrangement, the Company entered into seller swaps
    which have the effect of paying the fixed interest payments on the
    Canada Mortgage Bond, and receiving the total return on the MBS pool. As
    well, the Company entered into hedge swaps to manage the reinvestment
    risk between the amortizing MBS pool and the 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.

    With respect to the Canada Mortgage Bond program, at December 31, 2008
    the Company notionally held $1.21 billion of seller swaps, and $49.6
    million of accreting hedge swaps. These outstanding swap arrangements
    were marked-to-market at December 31, 2008 for an unrealized gain of $0.4
    million.

    The Company enters into off-balance sheet financial transactions to
    hedge commitment risk. As at December 31, 2008, the Company held bond
    forward contracts for the sale of $34.3 million of Government of Canada
    Bonds. The contracts were marked-to-market at December 31, 2008 for an
    unrealized loss of $0.6 million. There were no outstanding interest rate
    swaps to hedge commitment risk at December 31, 2008 or December 31, 2007.

    13. 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, 2008, September 30, 2008
    and December 31, 2007 for selected period intervals. Figures in brackets
    represent an excess of liabilities over assets or a negative gap
    position.

                                                     As at December 31, 2008
    -------------------------------------------------------------------------
    In Thousands of
     Dollars, Except         Floating       0 to 3     3 Months       1 to 3
     Percentages                 Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------
    Total assets          $    29,006  $ 1,442,867  $ 1,506,606  $ 1,601,438
    Total liabilities and
     equity                         6      923,590    2,359,833    1,318,924
    Off-balance sheet
     items                          -     (145,838)      64,955       80,837
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $    29,000  $   373,439  $  (788,272) $   363,351
    -------------------------------------------------------------------------
    Cumulative gap        $    29,000  $   402,439  $  (385,833) $   (22,482)
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                      0.5%         6.9%        (6.6%)       (0.4%)
    -------------------------------------------------------------------------


                                        As at December 31, 2008
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $   965,500  $   264,296  $ 5,809,713
    Total liabilities and
     equity                   451,102      756,258    5,809,713
    Off-balance sheet
     items                         46            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   514,444  $  (491,962) $         -
    ------------------------------------------------------------
    Cumulative gap        $   491,962  $         -  $         -
    ------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                      8.5%            -            -
    ------------------------------------------------------------



                                                    As at September 30, 2008
    -------------------------------------------------------------------------
    In Thousands of
     Dollars, Except         Floating       0 to 3     3 Months       1 to 3
     Percentages                 Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------
    Total assets          $     8,687  $ 1,295,361  $ 1,569,166  $ 1,622,285
    Total liabilities and
     equity                         6      869,835    2,290,982    1,312,811
    Off-balance sheet
     items                          -     (253,617)      81,392      172,200
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $     8,681  $   171,909  $  (640,424) $   481,674
    -------------------------------------------------------------------------
    Cumulative gap        $     8,681  $   180,590  $  (459,834) $    21,840
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                      0.2%         3.2%        (8.2%)        0.4%
    -------------------------------------------------------------------------


                                       As at September 30, 2008
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $   906,671  $   219,639  $ 5,621,809
    Total liabilities and
     equity                   438,620      709,555    5,621,809
    Off-balance sheet
     items                         25            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   468,076  $  (489,916) $         -
    ------------------------------------------------------------
    Cumulative gap        $   489,916  $         -  $         -
    ------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                      8.7%            -            -
    ------------------------------------------------------------



                                                     As at December 31, 2007
    -------------------------------------------------------------------------
    In Thousands of
     Dollars, Except         Floating       0 to 3     3 Months       1 to 3
     Percentages                 Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------
    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                          -     (437,032)     193,693      110,534
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $    59,161  $    18,052  $  (289,445) $   387,168
    -------------------------------------------------------------------------
    Cumulative gap        $    59,161  $    77,213  $  (212,232) $   174,936
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                      1.2%         1.6%        (4.3%)        3.5%
    -------------------------------------------------------------------------


                                        As at December 31, 2007
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $   596,124  $   157,572  $ 4,975,093
    Total liabilities and
     equity                   452,096      609,341    4,975,093
    Off-balance sheet
     items                    132,805            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   276,833  $  (451,769) $         -
    ------------------------------------------------------------
    Cumulative gap        $   451,769  $         -  $         -
    ------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                      9.1%            -            -
    ------------------------------------------------------------

    Based on the current interest rate gap position at December 31, 2008, the
    Company estimates that a 100 basis point decrease in interest rates would
    decrease net interest income after tax over the next twelve months by
    $3.9 million. A 100 basis point increase in interest rates would increase
    net income after tax over the next twelve months by a similar amount.

    14. EARNINGS BY BUSINESS SEGMENT

    The Company operates principally through two business segments - mortgage
    lending and consumer lending. The mortgage lending operation consists of
    residential mortgage lending, securitization of government-insured
    mortgage loans, commercial mortgage lending 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 businesses and PSiGate
    operations as of October 17, 2007.

                                                  For the three months ended
    -------------------------------------------------------------------------
                                  Mortgage Lending          Consumer Lending
    -------------------------------------------------------------------------
    In Thousands of       December 31  December 31  December 31  December 31
     Dollars                     2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $    18,933  $    21,083  $     7,011  $     5,657
    Provision for credit
     losses                    (1,501)      (2,164)        (487)        (285)
    Fees and other income       3,899        3,351        3,123        3,017
    Net gain on
     securities, mortgage-
     backed securities and
     disposition of
     subsidiary                19,714       10,676            -            -
    Non-interest expenses      (9,145)      (8,744)      (2,406)      (2,078)
    -------------------------------------------------------------------------
    Income before income
     taxes                     31,900       24,202        7,241        6,311
    Income taxes              (10,297)      (7,422)      (2,448)      (2,228)
    -------------------------------------------------------------------------
    Net income            $    21,603  $    16,780  $     4,793  $     4,083
    -------------------------------------------------------------------------
    Goodwill              $     2,324  $     2,324  $    13,428  $    12,704
    -------------------------------------------------------------------------
    Total assets          $ 4,709,331  $ 3,867,949  $   392,458  $   337,783
    -------------------------------------------------------------------------


                                                  For the three months ended
    -------------------------------------------------------------------------
                                             Other                     Total
    -------------------------------------------------------------------------
    In Thousands of       December 31  December 31  December 31  December 31
     Dollars                     2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $     9,293  $    11,343  $    35,237  $    38,083
    Provision for credit
     losses                         -            -       (1,988)      (2,449)
    Fees and other income          82           76        7,104        6,444
    Net gain on
     securities, mortgage-
     backed securities and
     disposition of
     subsidiary                  (795)      (2,559)      18,919        8,117
    Non-interest expenses      (5,301)      (4,865)     (16,852)     (15,687)
    -------------------------------------------------------------------------
    Income before income
     taxes                      3,279        3,995       42,420       34,508
    Income taxes                 (636)        (630)     (13,381)     (10,280)
    -------------------------------------------------------------------------
    Net income            $     2,643  $     3,365  $    29,039  $    24,228
    -------------------------------------------------------------------------
    Goodwill              $         -  $         -  $    15,752  $    15,028
    -------------------------------------------------------------------------
    Total assets          $   707,924  $   769,361  $ 5,809,713  $ 4,975,093
    -------------------------------------------------------------------------


                                                          For the year ended
    -------------------------------------------------------------------------
                                  Mortgage Lending          Consumer Lending
    -------------------------------------------------------------------------
    In Thousands of       December 31  December 31  December 31  December 31
     Dollars                     2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $    89,505  $    93,466  $    26,459  $    21,005
    Provision for credit
     losses                    (5,202)      (4,491)      (1,436)      (1,551)
    Fees and other income      15,163       12,050       12,888        9,155
    Net gain on
     securities, mortgage-
     backed securities and
     disposition of
     subsidiary                57,536       28,148            -            -
    Non-interest expenses     (39,528)     (35,050)      (9,000)      (5,068)
    -------------------------------------------------------------------------
    Income before income
     taxes                    117,474       94,123       28,911       23,541
    Income taxes              (37,749)     (32,093)      (9,849)      (8,451)
    -------------------------------------------------------------------------
    Net income            $    79,725  $    62,030  $    19,062  $    15,090
    -------------------------------------------------------------------------
    Goodwill              $     2,324  $     2,324  $    13,428  $         -
    -------------------------------------------------------------------------
    Total assets          $ 4,709,331  $ 3,867,949  $   392,458  $   337,783
    -------------------------------------------------------------------------


                                                          For the year ended
    -------------------------------------------------------------------------
                                             Other                     Total
    -------------------------------------------------------------------------
    In Thousands of       December 31  December 31  December 31  December 31
     Dollars                     2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $    34,611  $    31,787  $   150,575  $   146,258
    Provision for credit
     losses                         -            -       (6,638)      (6,042)
    Fees and other income         401          328       28,452       21,533
    Net gain on
     securities, mortgage-
     backed securities and
     disposition of
     subsidiary                (5,296)      (1,614)      52,240       26,534
    Non-interest expenses     (17,483)     (14,080)     (66,011) $   (54,198)
    -------------------------------------------------------------------------
    Income before income
     taxes                     12,233       16,421      158,618      134,085
    Income taxes               (2,333)      (3,300)     (49,931)     (43,844)
    -------------------------------------------------------------------------
    Net income            $     9,900  $    13,121  $   108,687  $    90,241
    -------------------------------------------------------------------------
    Goodwill              $         -  $         -  $    15,752  $    15,028
    -------------------------------------------------------------------------
    Total assets          $   707,924  $   769,361  $ 5,809,713  $ 4,975,093
    -------------------------------------------------------------------------

    15. RISK MANAGEMENT

    The Company is exposed to various types of risks owing to the nature of
    the business activities it carries on. Types of risk to which the Company
    is subject include credit, liquidity and interest rate risks. The Company
    has adopted enterprise risk management (ERM) as a discipline for managing
    risk. The Company's ERM structure is supported by a comprehensive
    governance framework which includes policies, management standards,
    guidelines and procedures appropriate to each business activity. The
    policies are reviewed and approved annually by the Board of Directors.

    A description of the Company's risk management policies and procedures is
    included in the MD & A on pages 14 to 16 and in the 2007 Annual Report on
    pages 24 to 30. Significant exposures to credit, liquidity and interest
    rate risks are described in notes 3, 4 and 13.

    16. DISPOSITION OF SUBSIDIARY

    On January 1, 2008, Home Trust sold all outstanding shares of its wholly
    owned subsidiary, Home Trust Asset Management Inc., for proceeds of
    $150,000 resulting in a gain on disposition of $69,000.

    17. FUTURE ACCOUNTING CHANGES

    International Financial Reporting Standards

    The CICA will transition financial reporting for Canadian public
    entities to International Financial Reporting Standards (IFRS) effective
    for fiscal years beginning on or after January 1, 2011. The impact of
    the transition to IFRS on the Company's consolidated financial
    statements is not yet determinable.

    18. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

    The comparative interim unaudited consolidated financial statements have
    been reclassified from statements previously presented to conform to the
    presentation of the 2008 unaudited interim consolidated financial
    statements.

    Home Capital Group Inc. is a public company, 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, CEO, or Nick Kyprianou,
President, (416) 360-4663, www.homecapital.com


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