Home Capital Reports Record Growth in Originations in Second Quarter



    Income Increases 20.6%, Return on Equity Reaches 27.7%

    TORONTO, Aug. 5 /CNW/ - Home Capital Group Inc. (TSX: HCG) today
announced solid financial results for the second quarter and first six months
of 2008. Despite challenging market conditions affecting many financial
services firms, the Company's core business activities including residential
and commercial mortgage lending, CMHC-insured Mortgage-Backed Securities, and
Visa lending all generated strong earnings growth and returns.

    
    Key results from the second quarter included:

    -  Net income for the quarter was $26.6 million, an increase of 20.6%
       over $22.0 million recorded in the same period last year. Earnings for
       the first six months of 2008 reached $51.7 million, a rise of 19.8%
       over the comparable period in 2007.

    -  Basic earnings per share were $0.77, 20.3% above $0.64 for the second
       quarter of 2007, and $1.50 for the six-month period, 19.1% higher than
       the $1.26 recorded last year. Diluted earnings per share were $0.76,
       an increase of 20.6% from the $0.63 recorded in the second quarter of
       2007; results for the six months were $1.48, 19.4% above the same
       period last year.

    -  Return on equity was 27.7% for the second quarter, compared to 28.9%
       for the quarter ended June 30, 2007 and 27.8% for the first six months
       of 2008, versus 29.4% for the first half of last year.

    -  Total assets at June 30, 2008 reached $5.36 billion, 24.5% higher than
       the $4.31 billion reported one year earlier. Total assets, together
       with Mortgage-Backed Securities (MBS) originated and administered by
       the Company, grew to $7.04 billion, a rise of 27.0% from $5.54 billion
       at June 2007.

    -  Total mortgage originations were $886.9 million during the second
       quarter, an increase of 42.5% over the $622.6 million advanced during
       the same period in 2007. The Company advanced $768.6 million in
       residential mortgages, $85.2 million in commercial mortgages,
       $19.6 million in mortgages on store and apartment properties and
       $13.5 warehouse commercial mortgages. Year-to-date, total mortgage
       originations were $1.75 billion, an increase of 50.0% over the
       $1.17 billion advanced during the same six-month period in 2007.

    -  Mortgage securitization activity continued to produce good results as
       the Company securitized and sold $250.6 million in CMHC-insured
       securities during the second quarter, compared to $150.7 million for
       the same period last year. The increased level of securitization
       activity was due to favourable market conditions that allowed Home to
       raise funds by selling MBS pools at more cost effective rates than if
       Home raised the funds through term deposits.

    -  Outstanding balances on the Equityline Visa portfolio reached
       $339.1 million, a rise of 24.7% from the $272.0 million recorded in
       the same period last year. Net income from consumer lending reached
       $4.8 million for the second quarter, 29.6% over the $3.7 million
       recorded last year.

    -  The Company's efficiency ratio (TEB) was 30.2% in the second quarter,
       compared to 27.3% during the same period one year earlier.

    -  Net impaired loans represented 0.71% of the total loans portfolio,
       down slightly from 0.72% at the end of 2007. Non-performing mortgages
       continue to be diligently managed on a loan-by-loan basis by the
       Company.
    

    Following extensive analysis and evaluation, the Company launched a new
mortgage initiative during the second quarter. Home Trust's Accelerator
Program offers a full range of insured mortgage products to a broad customer
base, including individuals who have traditionally been served by niche "A"
lending companies. Management believes that a lender with Home Trust's skills
and expertise can effectively compete in this marketplace, and that this suite
of products will position Home Trust as a "one stop shop" for mortgage
brokers, expanding the Company's penetration into the broker network. As with
all new opportunities, the Company is taking a prudent approach to developing
this business. Although the spread for this product is less than our regular
mortgage business, we anticipate being able to issue and sell through
securitization all of the mortgages originated under this program.
    During the quarter, the Company expanded its premises in Toronto to
include an additional floor of office space, increasing its square footage by
50%. The Company is well positioned to accommodate continued growth and
further product development.
    The Board of Directors has approved a Normal Course Issuer Bid,
commencing on August 1, 2008. The Company believes that, from time to time,
the market price of Home Capital's Common Shares does not fully reflect the
value of its business. In these situations, the purchase of outstanding shares
may represent an appropriate use of the Company's available funds.
    Subsequent to the end of the second quarter, and in light of the
Company's increasing profitability, consistent, strong growth and financial
performance, the Board of Directors declared an increased quarterly cash
dividend of $0.13 per Common Share payable on September 1, 2008 to
shareholders of record at the close of business on August 15, 2008. This
increase reflects the Company's commitment to providing increasing long-term
value to all our shareholders.
    Home Capital reported solid second quarter results in a period that
continued to be affected by turbulent financial markets. Notwithstanding these
circumstances, the Company continues to manage its core lending business with
an appropriate balance of prudence and opportunity and is well positioned for
the future. Home Capital's Board of Directors and management remain confident
that the Company will continue to deliver strong growth and profitability
through the remainder of 2008.


    
    "signed"                              "signed"

    GERALD M. SOLOWAY                     NORMAN F. ANGUS
    Chief Executive Officer               Chairman of the Board
    

    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
Second Quarter 2008.

    Second Quarter Results Conference Call

    The conference call will take place on Tuesday, August 5, 2008 at
10:30 a.m. Participants are asked to call 5 to 15 minutes in advance,
416-644-3417 in Toronto or toll-free 1-800-732-9307 throughout North America.
The call will also be accessible in listen-only mode via the Intranet at
www.homecapital.com

    Conference Call Archive

    A telephone replay of the call will be available between 12:30 p.m.
Tuesday, August 5, 2008 and midnight Tuesday, August 12, 2008 by calling
416-640-1917 or 1-877-289-8525 (enter passcode 21277632 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 June 30
    (Unaudited)                 Three Months Ended          Six Months Ended
    -------------------------------------------------------------------------
    In Thousands of Dollars
     (Except Per Share and
     Percentage Amounts)         2008         2007         2008         2007
    -------------------------------------------------------------------------
    OPERATING RESULTS
    Net Income            $    26,550  $    22,018  $    51,709  $    43,176
    Total Revenue             112,953       87,708      219,749      169,453
    Earnings per Share
     - Basic              $      0.77  $      0.64  $      1.50  $      1.26
    Earnings per Share
     - Diluted                   0.76         0.63         1.48         1.24
    Return on Shareholders'
     Equity                    27.68%       28.88%       27.84%       29.44%
    Return on Average
     Assets                     1.97%        2.08%        2.00%        2.10%
    Efficiency Ratio           30.78%       27.88%       29.64%       27.59%
    Efficiency Ratio
     (TEB(2))                  30.21%       27.25%       29.10%       26.99%
    (Non-interest Expense
     /Net Interest Income
     Plus Fee Income)
    -------------------------------------------------------------------------
    BALANCE SHEET
     HIGHLIGHTS
    Total Assets                                    $ 5,361,771  $ 4,305,799
    Loans                                             4,526,761    3,570,416
    Deposits                                          4,716,571    3,808,159
    Shareholders' Equity                                394,999      309,841
    Mortgage-Backed
     Security Assets Under
     Administration                                   1,679,822    1,237,239
    -------------------------------------------------------------------------
    FINANCIAL STRENGTH
    Capital Measures(1),(3)
    Risk Weighted Assets(1),(3)                     $ 2,847,655  $ 2,306,464
    Tier 1 Capital Ratio(1),(3)                          12.45%       12.88%
    Total Capital Ratio(1),(3)                           13.82%       14.39%
    Credit Quality
    Net Impaired Loans as a
     Percentage of Gross Loans                            0.71%        0.68%
    Allowance as a Percentage
     of Gross Impaired Loans                             74.21%       85.62%
    Annualized Provision as a
     Percentage of Gross Loans                            0.05%        0.08%
    Share Information
    Book Value per Common Share                     $     11.44  $      8.98
    Common Share Price - Close                      $     39.50  $     36.90
    Market Capitalization                             1,364,409    1,273,111
    Number of Common Shares
     Outstanding                                         34,542       34,502
    -------------------------------------------------------------------------
    (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 June 30, 2008 are
        calculated under Basel II while the comparative periods are
        calculated under Basel I. See Capital Managment section for further
        details.


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                    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 $1.0 million for the second quarter and
$2.0 million for the first six months of 2008 ($1.1 million - Q2 2007 and
$2.1 million - six 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 June 30, 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 July 31, 2008. As in prior
quarters, the Company's Audit Committee reviewed this document, and prior to
its release the Company's Board of Directors approved it on the Audit
Committee's recommendation.

    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.

    
    -------------------------------------------------------------------------
                                                      Six-Month Period Ended
                                                               June 30, 2008
                           2008 Objectives(1)               Actual Results(1)
    -------------------------------------------------------------------------
    Net Income                 $51.8 million         $51.7 million, or 19.8%
                                               increase over the same period
                                                                   last year

    Diluted Earnings per Share         $1.49       $1.48 per share, or 19.4%
                                               increase over the same period
                                                                   last year

    Total Assets and Assets
     Under Administration      $6.65 billion         $7.04 billion, or 27.0%
                                               increase over the same period
                                                                   last year

    Return on Shareholders'
     Equity                            25.0%                           27.8%
    Efficiency Ratio (TEB)    27.0% to 33.0%                           29.1%
    Capital Ratios(2)
      Tier 1                  Minimum of 10%                           12.5%
      Total                   Minimum of 12%                           13.8%
    Provision for Loan
     Losses as a Percentage
     of Total Loans           0.15% to 0.25%                           0.05%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Objectives and results for net income and diluted earnings per share
        are for the current period relative to the same period in the prior
        year; asset growth is the change from twelve months prior; and ratios
        are based on the current period, annualized.

    (2) 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.


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

    Income Statement Highlights

    The Company continued to achieve positive results in light of continued
uncertainty in Canadian capital markets and the broader economy. The Company
experienced growth across all of its operating segments, with key financial
results summarized below.

    -  Net income rose 20.6% over the comparable quarter of 2007.

    -  Diluted earnings per share for the quarter increased 20.6% to $0.76,
       compared to $0.63 in the second quarter of 2007.

    -  Return on average shareholders' equity for the quarter was 27.7%,
       compared to 28.9% for the same period last year.

    -  Non-interest income was up 51.0% over the second quarter of 2007,
       driven by growth in securitization gains and fees for the
       administration and servicing of the mortgage and Visa portfolios,
       offset by small losses on the securities portfolio and unrealized
       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 30.2%, compared to 27.3% in
       the same quarter of 2007. The increase year-over-year was due to
       increased salary and benefit expenses and higher general and
       administration costs associated with the growth of the Company's
       operations.

    -  Net interest income was up 7.8% over the same period in 2007 as the
       Company's income-producing assets grew by 23.7%, partly offset by a
       contraction in overall spreads resulting from the continuing credit
       market issues and growth of the commercial mortgage portfolio, which
       achieves lower spreads.

    Balance Sheet Highlights

    -  Total assets rose 24.5% year-over-year to reach $5.36 billion,
       compared to the $4.31 billion reported at June 30, 2007. This asset
       growth was primarily driven by expansion in the Company's residential
       mortgage portfolio which increased by $376.6 million, other mortgages
       (primarily commercial mortgages) which grew by $503.8 million,
       securities which were $98.5 million higher, offset by a drop in cash
       resources of $58.4 million. Although global markets have experienced
       significant difficulties recently, the Company continues to have no
       direct exposure to any non-bank sponsored asset backed commercial
       paper, or American subprime lending.

    -  The Equityline Visa portfolio sustained its strong momentum, reaching
       $339.1 million in receivables, representing growth of 24.7%, or
       $67.1 million, over the second quarter of 2007.

    -  The Company continues to be able to access funding when required, and
       has brought its liquidity levels back in line with historical levels,
       accordingly. Liquid assets at June 30, 2008 were $480.5 million, down
       from the liquidity position at December 31, 2007 of $627.1 million and
       up from June 30, 2007 of $438.6 million.

    -  Deposit liabilities as at June 30, 2008 grew 23.9% to reach
       $4.72 billion, as compared to $3.81 billion at June 30, 2007. These
       proceeds were deployed to fund most of the growth in the Company's
       loans portfolio.

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

    Net Interest Income

    Net interest income was $39.4 million in the second quarter, and
$77.0 million year-to-date representing increases of $2.8 million and
$7.1 million over the comparable periods in 2007. The increase over the
comparable quarter reflects strong growth of interest-bearing assets,
exceeding the growth in interest-bearing liabilities. The growth in interest-
earning assets was $996.5 million over June 2007, compared to an increase in
interest-bearing liabilities of $908.6 million for the same period. The net
interest margin (TEB) for the second quarter was 3.0% and 3.1% for the first
six months of 2008, down from 3.6% achieved in the comparable quarter of 2007
and down from 3.5% obtained for the first six months of 2007. The decrease in
net interest margin over the comparable periods was due to a tightening of
spreads that began in the latter half of 2007 as the global liquidity crisis
unfolded putting a premium on the cost of funding.
    The interest spread between the loans portfolio and deposits ended the
quarter at 3.2%, compared to 3.7% for the comparable quarter in 2007, and 3.1%
for the first six months of 2008, compared to 3.7% for the same six month
period in 2007. The decrease in interest spread over the prior periods was
primarily the result of an increase in funding costs resulting from the global
liquidity crisis. The Company's average cost of funds increased 60 basis
points year-over-year while the yield on the Company's loans portfolio
remained consistent as the growth in the commercial lending portfolio, which
attracts lower spreads, had a moderating impact on yields. During the second
quarter of 2008 the Company drew down its liquidity reserves in line with
historic levels and expects to maintain these levels for the remainder of
2008. Further, as funding costs begin to stabalize the Company expects this
will have a positive impact on maintaining or slightly improving the Company's
interest spread on the loans portfolio in the second half of 2008.
    While the net interest spread on both the commercial mortgage lending and
Accelerator Program are lower than the core residential mortgage portfolio due
to reduced credit risk, both product offerings provide further diversification
to the core residential lending business and provide incremental net interest
income and loan origination growth that would otherwise not exist.

    Non-Interest Income

    Total non-interest income was $17.3 million for the second quarter, a
51.0% increase over the comparable quarter in 2007 and $31.7 million for the
first six months of 2008, or a 47.0% increase over the same six month period
in 2007. Both the quarter-over-quarter and six-month period increases were
driven by strong growth in securitization gains through the Company's
participation in the Canada Mortgage Bond (CMB) program and additional
short-term MBS securitizations, increases in fees generated from the
administration of the loans portfolio, which were offset by losses incurred on
the securities portfolio and mark-to-market losses on the seller swaps and
hedge swaps entered into through the Canada Mortgage Bond program.
    The fees and other income components of non-interest income ended the
quarter at $7.1 million and $14.3 million for the first six months of 2008, an
increase of 38.0% over the comparable quarter of 2007 and 48.0% over the first
six months of 2007. 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 Company issued seven MBS pools during the second quarter of 2008,
consisting of $250.6 million of Canada Mortgage and Housing Corporation (CMHC)
insured residential mortgages for a year-to-date total issuance of
$396.4 million. This represents an increase of $99.9 million from the
$150.7 million in MBS pools issued in the comparable quarter of 2007 and an
increase of $111.4 million over the $285.0 million in MBS pools that were
issued during the first six months of 2007. Securitization gains were
$8.5 million during the quarter and $17.4 million for the first six-months of
2008, compared to $3.9 million for the second quarter of 2007 and $8.7 million
for the comparable six-month period of 2007 (refer to Note 5 of these
unaudited interim consolidated financial statements). The increase in
securitization gains during the quarter and six months compared to the prior
periods was primarily due to a significant increase in the spread earned on
the pools, which averaged 2.9% in the second quarter of 2008 and 3.2% for the
pools issued in the first six months of 2008 compared to 2.4% for the
comparable quarter in 2007 and 2.6% for the first six months of 2007. The
higher yield is indicative of current credit market conditions. During the
quarter, the Company participated in CMHC's Canada Mortgage Bond program,
administered through Canada Housing Trust. This program provides the Company
with an alternative distribution channel to diversify its funding stream for
five-year MBS pools. Of the seven MBS pools issued during the quarter, one MBS
pool with a book value of $122.6 million was securitized through the Canada
Mortgage Bond program resulting in a gain of $4.6 million. Year-to-date, the
Company has securitized $206.9 million through the Canada Mortgage Bond
program and realized gains of $10.1 million.

    Non-Interest Expenses

    Total non-interest expenses for the quarter were $17.4 million and
$32.2 million for the first six months of 2008. This compares to $13.4 million
for the second quarter of 2007 and $25.2 million for the six-month period
ended June 30, 2007. The increases over the comparable periods of 2007 were
due to increased salary and benefit expenses, and the inclusion of the
operating expenditures of PSiGate which was acquired in October 2007. Salaries
and staff benefits expenses for the quarter increased by $2.5 million, or
36.2% over the second quarter of 2007 and up $4.0 million, or 27.9% over the
comparable six-month period of 2007. The Company ended the quarter with 429
employees, up from 377 employees at December 31, 2007 and 359 employees one
year ago. The increased staffing levels reflect the hiring of 27 summer
students to assist the Company during higher employee vacation periods and
additional personnel to manage the Company's growth initiatives. 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.
    General and administration expenses increased by $1.4 million, or 25.9%
compared to the second quarter of 2007 and up $2.8 million, or 30.9% from the
same six-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 30.2% and 29.1% for the
first six months of 2008, compared to 27.3% in the previous comparable quarter
and 26.9% for the first six months of 2007. As the Company continues to grow,
management remains focused on containing discretionary spending as part of its
continuing efforts to achieve the efficiency ratio objectives set out for
2008.

    Provision for Credit Losses

    The Company expensed $0.6 million during the quarter and $1.2 million for
the first six month of 2008, compared to $1.0 million in the second quarter of
2007 and $1.5 million in the first six months of 2007, through the provision
for credit losses. This expense represented 0.1% (0.1% - Q2 2007) of total
gross loans, on an annualized basis. The Company continues to add to the
general allowance for credit losses due to relative shifts in the proportion
of risk-weighted assets. The total general allowance amounted to $23.9 million
at the end of the quarter, an increase of $0.5 million over the $23.4 million
recorded at December 31, 2007 and a $3.2 million increase over the
$20.7 million allowance recorded at June 30, 2007.
    At June 30, 2008 net impaired loans amounted to $32.4 million (0.71% of
gross loans), compared to $29.0 million (0.72% of gross loans) at December 31,
2007 and $24.3 million (0.68% of gross loans) at June 30, 2007 (refer to Note
4 of these unaudited interim consolidated financial statements). Total net
loans written-off during the quarter were $0.6 million, compared to
$0.8 million in the fourth quarter of 2007 and $0.3 million in the second
quarter 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 starting on page 24 in the 2007 Annual Report
under the heading Risk Management.

    Income Taxes

    The income tax expense amounted to $12.1 million (effective tax rate of
31.2%) for the second quarter and $23.5 million (effective tax rate of 31.3%)
year-to-date, compared to $11.6 million (effective tax rate of 34.5%) for the
comparable quarter of 2007 and $21.5 million (effective tax rate of 33.3%) for
the first six months 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 33.0% for both
the second quarter and first six months of 2008, compared to 36.6% for the
second quarter of 2007 and 35.3% for the comparable six-month period in 2007.

    Comprehensive Income

    Comprehensive income is comprised of net income and other comprehensive
income (OCI) and totaled $26.1 million for the second quarter and
$54.6 million year-to-date, an increase of $12.8 million, or 95.3% over the
$13.3 million recorded in the same quarter last year and a $17.8 million, or
48.3% increase over the same six-month period in 2007. As previously noted net
income increased 20.6%, or $4.5 million over the same quarter last year and
increased 19.8%, or $8.5 million over the same six-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 June 30, 2008 was a loss of $0.5 million, compared to
a loss of $8.7 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 general market conditions affecting certain
market 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 $0.2 million, net of tax, in losses
from accumulated other comprehensive income in the consolidated statement of
income. The Company believes the remaining unrealized losses represent
temporary declines in value due to current market

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    BALANCE SHEET REVIEW
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    Assets

    Total assets as at June 30, 2008 were $5.36 billion, an increase of
$386.7 million, or 7.8% over the $4.98 billion reported at December 31, 2007
and up by $1.06 billion, or 24.5% over the June 30, 2007 asset balance of
$4.31 billion.
    Growth in the loans portfolio of $504.6 million, or 12.5% generated most
of the asset growth over December 31, 2007. Residential mortgages contributed
$184.1 million to the total loans portfolio growth, other mortgages (primarily
commercial mortgages) contributed growth of $279.6 million, consumer lending
contributed $37.5 million, secured loans added $3.9 million, while the general
allowance for credit losses increased by $0.5 million. The residential
mortgage portfolio growth excludes $250.6 million of loans securitized during
the quarter. The Company's cash resources decreased by $169.6 million from
December 31, 2007 while the securities portfolio increased by $17.7 million.
The Company utilized its excess liquidity accumulated over the past few
quarters to provide funding in support of the growth in the Company's loans
portfolio. Other assets increased by $11.1 million from the fourth quarter,
primarily driven by corporate income tax changes within the Company's tax
balances and increased accrued interest earned on the Company's loans
portfolio. Securitization receivables increased significantly from the fourth
quarter of 2007, growing by $22.1 million due to robust securitization
activity in the first six months of 2008.
    Growth in the loans portfolio of $956.3 million, or 26.8% was the
principal contributor to asset growth over June 30, 2007. The loans portfolio
growth was driven by a $376.6 million increase in residential mortgages,
growth of $503.8 million in other mortgages (primarily commercial mortgages),
a $71.3 million rise in consumer loans, a $7.9 million increase in secured
loans, while the general allowance for credit losses rose by $3.2 million. The
Company's cash resources decreased by $58.4 million while the securities
portfolio rose by $98.5 million over June 30, 2007. The decrease in cash
resources was due to a shift in funds from cash resources to the securities
portfolio and to support the loans portfolio growth. Other assets increased by
$21.7 million, primarily resulting from the addition of goodwill and
intangible assets acquired through the acquisition of PSiGate, and accrued
interest earned on the loans portfolio. Securitization receivables increased
by $37.1 million over June 2007 resulting from higher securitization volumes
year-over-year.

    Liabilities

    Liabilities at June 30, 2008 rose to $4.97 billion, an increase of
$339.7 million, or 7.3% over the $4.63 billion reported at December 31, 2007
and up by $970.8 million, or 24.3% over the $4.00 billion recorded at June 30,
2007.
    Most of the growth from December 2007 resulted from increased deposits of
$302.6 million. The growth in the deposit liabilities funded a significant
portion of the loans portfolio growth, with additional funds drawn from excess
liquidity reserves for the remaining loans portfolio growth. Other liabilities
(refer to Note 7 of these unaudited interim consolidated financial statements)
increased by $35.2 million, or 16.9% over the $208.7 million reported at
December 31, 2007. This growth was principally the result of increases in
accrued interest of $26.6 million related to higher deposits, a net increase
of $1.6 million in the Company's current and deferred corporate tax
liabilities, and an increase of $6.4 million in other liabilities resulting
from the timing of payments for administration of the off-balance sheet MBS
portfolio.
    The rise in liabilities from June 30, 2007 resulted primarily from
increased deposits of $908.4 million. Higher deposit liabilities were the
primary funding source for the loans portfolio growth, year-over-year. Other
liabilities increased by $62.1 million, or 34.1% over June 30, 2007 primarily
due to increases in accrued interest of $43.3 million, increases of
$9.7 million in the Company's corporate future tax liabilities, and
$7.8 million in other liabilities resulting from the timing of payments for
administration of the off-balance sheet MBS portfolio.

    Shareholders' Equity

    The increase in shareholders' equity of $47.0 million, or 13.5% over the
$348.0 million reported at December 31, 2007 was internally generated from net
income $51.7 million over the six month period, less $8.6 million for
dividends paid and payable to shareholders. The remaining increase was
principally driven from movements in other comprehensive income of
$2.9 million, arising from the Company's available for sale financial assets
and securitization receivables and on the fair value amortization of employee
stock options.
    Shareholders' equity rose to $395.0 million, an increase of
$85.2 million, or 27.5% over the $309.8 million reported at June 30, 2007.
This growth was internally generated from earnings for the twelve-month period
ended June 30, 2008 of $98.8 million, less $16.6 million for shareholder
dividends. The remaining changes resulted from proceeds received on the
exercise of Company stock options, amortization of the fair value of stock
options, and movements in the accumulated other comprehensive income (loss),
offset by the Company's repurchase of capital stock through the Normal Course
Issuer Bid. At June 30, 2008 the book value per common share was $11.44,
compared to $10.08 at December 31, 2007 and $8.98 at June 30, 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 short sales of
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 short sales of Government of Canada bonds is to have
the fair value movements of these instruments be effective in offsetting the
fair value movements in a 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 counterparties with which the Company enters into such
arrangements are Canadian chartered banks. During the second quarter of 2008,
the Company entered into a $50 million short sale of Government of Canada
bonds which was unwound during the quarter, resulting in a gain of
$0.3 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 five-year MBS
pool and the five-year 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 five-year CMB. These
transactions do not qualify for hedge accounting under Canadian Insitute of
Chartered Accountants (CICA) Handbook Section 3865, Hedges and therefore the
Company must mark-to-market the swaps through the consolidated statement of
income. The notional values of the seller swaps and hedge swaps at June 30,
2008 were $325.8 million and $12.8 million, respectively. These swaps were
marked-to-market at June 30, 2008 for an unrealized loss of $0.2 million,
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, and capital management
purposes. When these assets are sold, the Company retains rights to certain
excess interest spreads less servicing liabilities, which constitute retained
interests. The Company periodically reviews the value of retained interests,
and any permanent impairment in value is charged to income. The Company
continues to administer all securitized assets after the sale and, upon
maturity of the mortgage, will renew or refinance these mortgage loans
whenever possible. As at June 30, 2008 outstanding securitized mortgage loans
under administration amounted to $1.68 billion ($1.46 billion - Q4 2007 and
$1.24 billion - Q2 2007) with retained interest of $87.9 million
($65.8 million - Q4 2007 and $50.8 million - Q2 2007). The off-balance sheet
portfolio continues to perform well with 97.3% of the portfolio current and
only 0.8% 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 $516.2 million at June 30, 2008
compared to $447.3 million at December 31, 2007 and $234.2 million at June 30,
2007. Included within the outstanding commitments are unutilized commercial
mortgage advances of $202.6 million at June 30, 2008 compared to
$238.0 million at December 31, 2007 and $42.5 million at June 30, 2007.
Commitments for the loans remain open for various dates through July 2009. As
at June 30, 2008 unutilized credit card balances amounted to $72.4 million,
compared to $78.0 million at December 31, 2007 and $72.4 million at June 30,
2007. Outstanding commitments for the Equityline Visa portfolio were
$5.4 million at June 30, 2008 compared to $5.9 million at December 31, 2007
and $8.0 million at June 30, 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, will provide Home Trust with comprehensive
back-office merchant processing services, including settlement, charge-back
processing, retrieval services and customer support.

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    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, replaces 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 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 formalization of Home Trust's
internal capital adequacy assessment process. The Risk and Capital Committee
and the Board of Directors annually review the capital management policy, and
monitor compliance with the policy on a quarterly basis.
    The capital base of Home Trust continues to be strongly positioned. The
Tier 1 capital ratio ended the quarter at 12.5%, up from the first quarter of
2008 of 12.0% and the fourth quarter of 2007 at 11.1%, and down from the
second quarter of 2007 at 12.9%. The total capital ratio was 13.8% at June 30,
2008 compared to 13.4% at March 31, 2008, 12.5% at December 31, 2007 and 14.4%
reported for June 30, 2007. The modest increase in total capital compared to
the first quarter of 2008 and the fourth quarter of 2007 was the result of the
shift into lower risk-weighting categories for residential mortgages,
partially offset by new capital required for operational risks as reported
under Basel II. The decline in the Tier 1 and total capital ratios versus the
comparative quarter in 2007 was due to an intercompany dividend paid during
the third quarter of 2007 to fund the acquisition of PSiGate. These ratios
both continue to exceed the minimum regulatory requirements of 7.0% for Tier 1
and 10.0% for total capital as well as Home Trust's internal capital targets.
    As at June 30, 2008, Home Trust was utilizing 77.7% of its approved
Assets to Regulatory Capital Multiple of 17.5 times (80.6% - Q4 2007 and 74.3%
- Q2 2007), providing sufficient capital for continued lending growth going
forward.
    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.

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

    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 risk. 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 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 unchanged 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.
    As at June 30, 2008 the composition of the total mortgage portfolio was
83.0% residential and 17.0% non-residential, compared to a composition of
88.5% residential and 11.5% non-residential at December 31, 2007 and a
composition of 93.5% residential and 6.5% non-residential one year ago. Within
the Company's residential mortgage portfolio, 6.8% of the loans were insured
by CMHC at the end of the quarter, compared to 5.4% at December 31, 2007 and
5.1% one year ago. First mortgages represented 99.6% of the total mortgage
portfolio at June 30, 2008, consistent with the comparable periods. At
June 30, 2008 the average loan to value of the Company's mortgage loans
portfolio was 68.9%, compared to 65.7% at December 31, 2007. Refer to Note 4
to these unaudited interim consolidated financial statements for a further
breakdown by geographic region. The mortgage loans portfolio continues to
perform well despite uncertain economic conditions with 95.6% of the portfolio
current and only 1.4% of the porfolio over 60 days in arrears at the end of
June 2008. This is an improvement from both December 31, 2007 and June 30,
2007 which had 1.6% and 1.7% over 60 days in arrears, respectively. When the
off-balance sheet mortgage portfolio of $1.68 billion is also factored in, the
combined mortgage loans portfolio has shown no signs of performance
deterioration with 96.1% of the combined portfolio being current and only 1.2%
over 60 days in arrears.
    As at June 30, 2008 the gross credit card receivable balance totaled
$349.1 million, of which $348.4 million, or 99.8% of the portfolio was secured
either by cash deposits or residential mortgage collateral, and $0.7 million,
or 0.2% was unsecured. The total credit approved included $420.5 million in
secured and $1.0 million in unsecured credit, compared to $391.0 million in
secured, and $1.2 million of unsecured credit at December 31, 2007 and
$354.9 million in secured, and $1.6 million of unsecured credit at June 30,
2007. Within the secured credit card portfolio Equityline Visa credit cards
represent the principal driver of receivable balance growth. Equityline Visa
credit cards are secured by collateral residential mortgages, and this
portfolio segment amounted to $339.1 million of the total credit card
receivable balance as at June 30, 2008 compared to $302.7 million at
December 31, 2007 and $272.0 million at June 30, 2007. Cash deposits securing
credit card accounts amounted to $16.1 million, and are included in the
Company's deposits. Further, the Equityline Visa portfolio has a loan to value
of 69.6% at June 30, 2008 down slightly from December 31, 2007 when the loan
to value was 69.7%. The Company has experienced minimal losses on the credit
card portfolio. At June 30, 2008 $6.6 million, or 1.9% of the credit card
portfolio was over 60 days in arrears compared to $3.8 million, or 1.2% at
December 31, 2007 and $2.3 million, or 0.8% at June 30, 2007.
    The secured loan portfolio of $86.2 million increased by $3.9 million
over the December 31, 2007 balance of $82.3 million, and increased
$7.9 million over the June 30, 2007 balance of $78.3 million. These loans are
secured by second mortgages on residential property. Since commencing this
program, the Company has experienced minimal losses on these loans. At
June 30, 2008, 97.8% of the secured loan portfolio was current while
$1.0 million, or 1.1% was over 60 days in arrears. This compares to 97.7% of
the secured loan portfolio being current while $0.6 million, or 0.8% was over
60 days in arrears at December 31, 2007. As at June 30, 2007, 97.9% of the
secured loan portfolio was current while $0.6 million, or 0.7% was over
60 days in arrears.
    The Company experienced a slight rise in net impaired loans, to
$32.4 million at June 30, 2008 compared to $29.0 million at December 31, 2007
and $24.3 million at June 30, 2007. The loans portfolio continues to perform
well, as net impaired loans at June 30, 2008 represented less than 1% of the
gross loans portfolio. The Company improves its underwriting practices, taking
into account local market conditions in order to minimize the Company's
potential loss exposure. Experienced senior 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 three-month period
ended June 30, 2008 totaled $0.6 million, up from the $0.3 million realized in
the second quarter of 2007, however down from the $0.8 million realized in the
fourth quarter of 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 potential
losses in its loans portfolio by increasing general allowances to
$23.9 million at June 30, 2008 as compared to general allowances of
$23.4 million at December 31, 2007 and $20.7 million at June 30, 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 99.8% of the total loans portfolio. A
methodology has been implemented by the Company to test the adequacy of the
general allowance that takes into account asset quality, borrowers'
creditworthiness, property location and past loss experience. The Company
periodically reviews this general allowance methodology giving due
consideration to changes in economic conditions, interest rates and local
housing market conditions.
    The total general allowance was 84.0 basis points of the Company's
risk-weighted assets as at June 30, 2008 compared to 83.5 basis points at
December 31, 2007 and 90.1 basis points at June 30, 2007. It should be noted
that the risk-weighted assets for June 30, 2008 were based on the new Basel II
computations. Refer to the Capital Management section and Note 8 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 June 30, 2008 liquid assets amounted to 152% (165% as at
December 31, 2007 and 174% as at June 30, 2007) under the immediate scenario,
and 140% (146% at December 31, 2007 and 145% as at June 30, 2007) under the
ongoing scenario. 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. Despite the continuing liquidity crisis in
Canadian and global credit markets, the Company has maintained more than
sufficient liquidity to meet its obligations. At June 30, 2008 liquid assets
amounted to $480.5 million, down from the $627.1 million recorded at
December 31, 2007 and up from the $438.6 million recorded at June 30, 2007.
The drop in liquidity levels from December 2007 was due to the Company
leveraging excess liquidity to support the loans portfolio growth. Liquidity
levels at the end of the second quarter of 2008 are back in line with
historical levels. The Company's policy is to maintain a minimum 20% of
100-day obligations in liquid assets. For the twelve months ended June 30,
2008 the Company maintained an average of $567.1 million, or 50.5% of 100-day
obligations in liquid assets compared to $463.7 million, or 48.9% for the
twelve months ended December 31, 2007 and $340.0 million, or 40.9% for the
twelve months ended June 30, 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,
but will attempt to match 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 June 30, 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 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 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.

    
    -------------------------------------------------------------------------
                              June 30      June 30      June 30      June 30
    In Thousands of Dollars      2008         2007         2008         2007
    -------------------------------------------------------------------------
                                          Increase                  Decrease
                                  in interest rate         in interest rates
    -------------------------------------------------------------------------
    100 basis point shift
      Impact on net
       interest income,
       after tax (for the
       next 12 months)    $     1,857  $    (2,338) $    (1,857) $     2,338
      Impact on net
       present value of
       shareholders' equity    (7,601)      (3,228)       7,912        3,286
    200 basis point shift
      Impact on net
       interest income,
       after tax (for the
       next 12 months)    $     3,713  $    (4,676) $    (3,713) $     4,676
      Impact on net
       present value of
       shareholders' equity   (14,907)      (6,401)      16,153        6,633
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    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 had no open
interest rate swap arrangements or short sale Government of Canada bond
positions specific to hedging commitment risk at June 30, 2008 or the
comparative periods. Through the Company's participation in CMHC's Canada
Mortgage Bond 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 Canada Mortgage Bonds. Refer to Note 12 of these
unaudited interim consolidated financial statements for additional
information.

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

    The following section discusses the mortgage lending, consumer lending
and other lines of business for the second quarter and first six months of
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 25.5% for
the first six months of 2008.

    Mortgage Lending

    The Company's principal line of business contributed $18.2 million to net
income during the second quarter and $36.1 million year-to-date, compared to
$15.3 million and $30.2 million for the comparable periods in 2007. The
increase over the prior periods was primarily driven through loan originations
which increased fee income and increases in gains realized on securitization
activities. These increases were offset by a slight decline in net interest
income as the market uncertainty over the last several quarters has tightened
spreads across core residential lending, combined with growth in commercial
mortgage lending which attracts lower spreads. Net interest income ended the
quarter at $24.1 million and $46.6 million for the first six months of 2008,
down from $25.0 million and $47.9 million for the comparable periods in 2007.
The total value of new mortgages advanced in the quarter and for the first
six months of 2008 was $886.9 million and $1.75 billion, respectively,
increases of 42.5% and 50.0% over the $622.6 million and $1.17 billion
advanced for the comparative periods in 2007.
    The Company securitized $250.6 million of government-guaranteed (CMHC)
residential mortgage loans through the creation of MBS securities during the
quarter and $396.4 million for the first six months of 2008, realizing total
gains from securitization of $8.5 million for the quarter and $17.4 million
year-to-date. This compares to $150.7 million for the second quarter of 2007
and $285.0 million for the first six months of 2007, resulting in gains of
$3.9 million and $8.7 million, respectively. During the quarter, the Company
participated in CMHC's Canada Mortgage Bond program. Of the $250.6 million
securitized during the quarter and $396.4 million securitized year to date,
$122.6 million and $206.9 million, 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 $4.6 million in gains during the quarter and
$10.1 million for the first six months of 2008. 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.
    The Company's second mortgage program (recorded as Secured Loans) is
conducted by way of an agreement with QSPE-HCC Trust operating as Regency
Finance Corp. (Regency), whereby the Company acts as Regency's agent in
offering residential second mortgage loans. These mortgage loans are
securitized and the investments are purchased by the Company. At the end of
the quarter the Company held $86.2 million in Secured Loans as Notes
Receivable issued by Regency, compared to $82.3 million at December 31, 2007
and $78.3 million at June 30, 2007. These Notes yield 6.9% with an average
duration of 2.3 years. The Company also receives fee income for servicing and
administering these mortgages for Regency. This income amounted to 0.5% of the
portfolio value, on an annualized basis. The underlying credit quality of the
mortgage loans securing the Notes Receivable remains high, with 1.1% of the
portfolio in arrears over 60 days. This program has experienced minimal losses
since inception and continues to provide the Company with ancillary marketing
opportunities in the residential mortgage marketplace.

    Consumer Lending - Credit Cards and Retail Services

    Consumer lending continued to generate positive results in the second
quarter and first six months of 2008. Net income for the quarter and first
six months of 2008 was $4.8 million and $9.1 million, up 29.6% over the second
quarter of 2007 and up 25.5% over the comparable six-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 $0.2 million in net income during the quarter and
$0.6 million year-to-date.
    The Equityline Visa loans portfolio amounted to $339.1 million at
June 30, 2008 ($302.7 million - Q4 2007, and $272.0 million - Q2 2007)
comprising 97.1% (96.3% - Q4 2007, and 95.7% - Q2 2007) of the total gross
credit card receivable balance of $349.1 million, and bearing an average
interest rate of 10.6% (10.9% - Q4 2007, and 10.8% - Q2 2007) on outstanding
balances. During the second quarter of 2008, 1,148 Equityline Visa accounts
with $51.8 million in authorized credit limits were issued, compared to 1,077
Equityline Visa accounts with $54.0 million in authorized credit limits issued
for the three months ended December 31, 2007 and 1,202 Visa accounts with
$55.5 million in authorized credit limits issued for the three-month period
ended June 30, 2007.

    Other

    The other segment, comprised of the Company's securities portfolio and
corporate activities, generated positive results in the second quarter and
first six months of 2008. Net income for the quarter and six-month period were
$3.5 million and $6.5 million, compared to $3.0 million and $5.7 million for
the comparative periods in 2007. The increases over the prior periods were
driven by growth in net interest income derived from the Company's cash
resources and securities portfolio, offset by losses incurred on the sale of
securities and writedowns on securities that management determined were
permanently impaired.

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    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, and 11 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 Canadian Institute of Chartered Accountants, 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.

    Controls over Financial Reporting

    No changes were made in the Company's internal controls over financial
reporting during the interim period ended June 30, 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 July 31, 2008 the Company had issued 34,541,990 Common Shares. In
addition, outstanding director and employee stock options amounted to
1,226,750 (1,293,750 - Q4 2007, and 1,130,000 - Q2 2007) of which 540,500 are
exercisable as of the quarter-end (526,250 - Q4 2007, and 570,000 - Q2 2007)
for proceeds to the Company upon exercise of $8.4 million ($7.9 million - Q4
2007, and $6.4 million - Q2 2007).
    Subsequent to the end of the second quarter, the Board of Directors
declared a quarterly cash dividend of $0.13 per common share payable on
September 1, 2008 to shareholders of record at the close of business on
August 15, 2008.

    
    -------------------------------------------------------------------------
    QUARTERLY FINANCIAL HIGHLIGHTS
    -------------------------------------------------------------------------
    In Thousands of Dollars         2008                                2007
    -------------------------------------------------------------------------
    (Except Per Share and
     Percentage Amounts)     Q2       Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
    Net interest income
     (TEB)(1)           $40,418  $38,590  $40,394  $39,396  $37,647  $34,276
    Less TEB adjustment   1,056      962    2,311    1,084    1,118      942
    -------------------------------------------------------------------------
    Net interest income
     per financial
     statements          39,362   37,628   38,083   38,312   36,529   33,334
    Non-interest income  17,318   14,338   14,561   11,964   11,467   10,075
    Non-interest
     expense             17,443   14,763   15,687   13,289   13,382   11,840
    Total revenues      112,953  106,796  105,081   94,345   87,708   81,745
    Net income           26,550   25,159   24,228   22,837   22,018   21,158
    Return on common
     shareholders'
     equity               27.7%    27.9%    28.9%    28.9%    28.9%    29.3%
    Return on average
     total assets          2.0%     1.9%     2.0%     2.0%     2.1%     2.1%
    Earnings per
     common share
      Basic             $  0.77  $  0.73  $  0.70  $  0.66  $  0.64  $  0.62
      Diluted           $  0.76  $  0.72  $  0.70  $  0.65  $  0.63  $  0.61
    Book value per
     common share       $ 11.44  $ 10.79  $ 10.08  $  9.38  $  8.98  $  8.70
    Efficency ratio
     (TEB)(1)             30.2%    27.9%    28.5%    25.9%    27.3%    26.7%
    Efficency ratio       30.8%    28.4%    29.8%    26.4%    27.9%    27.3%
    Tier 1 capital
     ratio(2),(3)         12.5%    12.0%    11.1%    11.7%    12.9%    12.7%
    Total capital
     ratio(2),(3)         13.8%    13.4%    12.5%    13.1%    14.4%    14.3%
    Net impaired loans
     as a % of gross
     loans                0.71%    0.71%    0.72%    0.63%    0.68%    0.74%
    Annualized provision
     as a % of gross
     loans                 0.1%     0.1%     0.2%     0.2%     0.1%     0.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------
    In Thousands of Dollars         2006
    -------------------------------------
    (Except Per Share and
     Percentage Amounts)     Q4       Q3
    -------------------------------------
    Net interest income
     (TEB)(1)           $33,040  $30,727
    Less TEB adjustment     841      764
    -------------------------------------
    Net interest income
     per financial
     statements          32,199   29,963
    Non-interest income  12,744    6,880
    Non-interest
     expense             12,276   12,027
    Total revenues       81,053   70,621
    Net income           20,518   16,618
    Return on common
     shareholders'
     equity               30.5%    26.2%
    Return on average
     total assets          2.2%     1.8%
    Earnings per
     common share
      Basic             $  0.60  $  0.49
      Diluted           $  0.59  $  0.48
    Book value per
     common share       $  8.10  $  7.62
    Efficency ratio
     (TEB)(1)             26.8%    32.0%
    Efficency ratio       27.3%    31.2%
    Tier 1 capital
     ratio(2),(3)         12.7%    12.5%
    Total capital
     ratio(2),(3)         14.2%    14.1%
    Net impaired loans
     as a % of gross
     loans                0.68%    0.56%
    Annualized provision
     as a % of gross
     loans                 0.1%     0.1%
    -------------------------------------
    -------------------------------------

    (1) TEB - Taxable Equivalent Basis, see definition in this unaudited
        interim consolidated financial report.

    (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 preceding table. These highlights illustrate the
Company's profitability, return on equity, as well as efficiency measures and
capital ratios, quarter-over-quarter. 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 in the first half of 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.

    Outlook

    This Outlook section contains forward-looking statements. (Please see the
Caution Regarding Forward-Looking Statements in 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, and is well positioned to capitalize on market
opportunities in the current economic environment.
    Having maintained positive growth and profitability through the first
half of the year, despite challenging market and credit conditions, the
Company remains confident that profitability and growth will continue for the
remainder of 2008 enabling the Company to meet its business objectives. The
Company anticipates that the Canadian economy will grow more slowly in the
second half of 2008, and will continue to experience an uncertain interest
rate environment as inflationary pressures arising from rising oil and food
prices hamper the likelihood that the Bank of Canada will lower benchmark
interest rates to stimulate the Canadian economy. Despite these uncertainties,
the Company continues to see a fundamentally sound Canadian housing market
underpinned by high employment levels and other positive economic
fundamentals. The Company's view is further supported by the recent proactive
moves by the Federal government to eliminate the option of 40-year
amortization periods and zero downpayment mortgages to protect the housing
industry from experiencing similar challenges as in the United States. The
Company has a proven corporate strategy and proprietary risk management
framework to manage through uncertain economic conditions while positioning
the Company for future growth.


    
    Consolidated Statements of Income


                                Three Months Ended          Six Months Ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,
     Except per Share         June 30      June 30      June 30      June 30
     Amounts (Unaudited)         2008         2007         2008         2007
    -------------------------------------------------------------------------

    Income
    Interest from loans   $    87,075  $    70,183  $   170,046  $   136,451
    Dividends from equity
     securities                 2,262        2,229        4,415        4,107
    Other interest              6,298        3,829       13,632        7,353
    -------------------------------------------------------------------------
                               95,635       76,241      188,093      147,911
    Interest Expense
    Interest on deposits       56,273       39,712      111,103       78,048
    -------------------------------------------------------------------------
    Net interest income        39,362       36,529       76,990       69,863
    Provision for credit
     losses (note 4(d))           630        1,002        1,230        1,490
    -------------------------------------------------------------------------
                               38,732       35,527       75,760       68,373
    -------------------------------------------------------------------------

    Non-interest Income
    Fees and other income       7,092        5,139       14,315        9,674
    Securitization income
     on mortgage-backed
     securities                11,038        5,568       21,135       10,791
    Net gain (loss)
     realized and
     unrealized on
     securities                  (421)         760       (2,046)       1,104
    Net gain on
     disposition of
     subsidiary (note 16)           -            -           69            -
    Loss on derivatives          (391)           -       (1,817)         (27)
    -------------------------------------------------------------------------
                               17,318       11,467       31,656       21,542
    -------------------------------------------------------------------------
                               56,050       46,994      107,416       89,915
    -------------------------------------------------------------------------

    Non-interest Expenses
    Salaries and staff
     benefits                   9,574        7,029       18,192       14,219
    Premises                    1,072          956        2,063        1,873
    General and
     administration             6,797        5,397       11,951        9,130
    -------------------------------------------------------------------------
                               17,443       13,382       32,206       25,222
    -------------------------------------------------------------------------

    Income Before
     Income Taxes              38,607       33,612       75,210       64,693
    Provision for income
     taxes (note 11(a))        12,057       11,594       23,501       21,517
    -------------------------------------------------------------------------
    NET INCOME            $    26,550  $    22,018  $    51,709  $    43,176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NET INCOME PER
     COMMON SHARE
    Basic                 $      0.77  $      0.64  $      1.50  $      1.26
    Diluted               $      0.76  $      0.63  $      1.48  $      1.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    AVERAGE NUMBER OF
     COMMON SHARES
     OUTSTANDING
     (thousands)
    Basic                      34,535       34,408       34,534       34,403
    Diluted                    34,855       34,904       34,859       34,902
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total number of
     outstanding common
     shares (thousands)        34,542       34,502       34,542       34,502
    Book value per
     common share         $     11.44  $      8.98  $     11.44  $      8.98
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Comprehensive Income

                                           For the                   For the
                                three months ended          six months ended
    -------------------------------------------------------------------------

    In Thousands of Dollars   June 30      June 30      June 30      June 30
     (Unaudited)                 2008         2007         2008         2007
    -------------------------------------------------------------------------

    NET INCOME            $    26,550  $    22,018  $    51,709  $    43,176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    OTHER COMPREHENSIVE
     INCOME (LOSS), NET OF
     TAX
    Unrealized income on
     available for sale
     securities
      Net unrealized income
       on securities
       available for sale,
       net of ($443) tax
       (($5,123) - three
       months ended
       June 30, 2007;
       $1,230 - six months
       ended June 30, 2008;
       ($4,375) - six
       months ended
       June 30, 2007)            (727)      (7,764)       1,040       (5,025)
      Reclassification of
       earnings (losses)
       in respect of
       available for sale
       securities, net of
       $120 tax; (($514)
       - three months ended
       June 30, 2007; $849 -
       six months ended
       June 30, 2008;
       ($771) - six months
       ended June 30, 2007)       242         (910)       1,815       (1,364)
    -------------------------------------------------------------------------
    Total other
     comprehensive income
     (loss)                      (485)      (8,674)       2,855       (6,389)
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME  $    26,065  $    13,344  $    54,564  $    36,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Balance Sheets

    -------------------------------------------------------------------------
                                           June 30  December 31      June 30
    In Thousands of Dollars (Unaudited)       2008         2007         2007
    -------------------------------------------------------------------------
    ASSETS
    Cash Resources
    Deposits with regulated
     financial institutions            $   184,688  $   344,464  $    68,854
    Treasury bills guaranteed by Canada          -        9,872      174,191
    -------------------------------------------------------------------------
                                           184,688      354,336      243,045
    -------------------------------------------------------------------------
    Securities (note 3)
    Held for trading                           301      114,423       19,668
    Available for sale                     488,323      356,458      370,460
    -------------------------------------------------------------------------
                                           488,624      470,881      390,128
    -------------------------------------------------------------------------
    Loans (note 4)
    Residential mortgages                3,402,556    3,218,474    3,025,969
    Personal and credit card loans         362,861      325,393      291,569
    Other mortgages                        699,043      419,400      195,286
    Secured loans                           86,227       82,304       78,282
    General allowance for credit losses    (23,926)     (23,400)     (20,690)
    -------------------------------------------------------------------------
                                         4,526,761    4,022,171    3,570,416
    -------------------------------------------------------------------------
    Other
    Securitization receivable (note 5)      87,888       65,768       50,827
    Capital assets                           5,583        4,837        4,882
    Other assets (note 6)                   68,227       57,100       46,501
    -------------------------------------------------------------------------
                                           161,698      127,705      102,210
    -------------------------------------------------------------------------
                                       $ 5,361,771  $ 4,975,093  $ 4,305,799
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS'
     EQUITY
    Liabilities
    Deposits
      Payable on demand                $    20,217  $    30,793  $    18,467
      Payable on a fixed date            4,696,354    4,383,191    3,789,692
    -------------------------------------------------------------------------
                                         4,716,571    4,413,984    3,808,159
    -------------------------------------------------------------------------
    Other
    Cheques and other items in transit       6,338        4,393        6,007
    Other liabilities (note 7)             243,863      208,676      181,792
    -------------------------------------------------------------------------
                                           250,201      213,069      187,799
    -------------------------------------------------------------------------
                                         4,966,772    4,627,053    3,995,958
    -------------------------------------------------------------------------
    Shareholders' Equity
    Capital stock (note 8)                  39,217       38,899       37,985
    Contributed surplus                      2,531        1,818        1,256
    Retained earnings                      356,693      313,620      277,619
    Accumulated other comprehensive
     loss (note 10)                         (3,442)      (6,297)      (7,019)
    -------------------------------------------------------------------------
                                           394,999      348,040      309,841
    -------------------------------------------------------------------------
                                       $ 5,361,771  $ 4,975,093  $ 4,305,799
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Changes in Shareholders' Equity

                                           For the                   For the
                                three months ended          six months ended
    -------------------------------------------------------------------------

    In Thousands of Dollars   June 30      June 30      June 30      June 30
     (Unaudited)                 2008         2007         2008         2007

    CAPITAL STOCK (note 8)
    Balance at beginning
     of the period        $    38,899  $    37,654  $    38,899  $    35,436
    Proceeds of options
     exercised                    318          341          318        2,571
    Normal course issuer
     bid                            -          (10)           -          (22)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD               $    39,217  $    37,985  $    39,217  $    37,985
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CONTRIBUTED SURPLUS
    Balance at beginning
     of the period        $     2,225  $     1,021  $     1,818  $       783
    Amortization of fair
     value of employee
     stock options (note 9)       357          285          764          523
    Employee stock options
     exercised                    (51)         (50)         (51)         (50)
    -------------------------------------------------------------------------
    BALANCE AT END OF
     THE PERIOD           $     2,531  $     1,256  $     2,531  $     1,256
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    RETAINED EARNINGS
    Balance at beginning
     of the period
     (note 8)             $   334,289  $   259,687  $   313,619  $   240,647
    Transitional
     adjustment on
     adoption of new
     accounting policies            -            -            -        1,391
    Normal course issuer
     bid                            -         (291)           -         (697)
    Net income for the
     period                    26,550       22,018       51,709       43,176
    Dividends paid during
     the period                     -         (345)      (4,489)      (3,448)
    Dividends declared,
     unpaid during the
     period                    (4,146)      (3,450)      (4,146)      (3,450)
    -------------------------------------------------------------------------
    BALANCE AT END OF
     THE PERIOD           $   356,693  $   277,619  $   356,693  $   277,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
     (LOSS)
    Balance at beginning
     of the period        $    (2,957) $     1,655  $    (6,297) $         -
    Transitional adjustment
     on adoption of new
     accounting policies            -            -            -         (630)
    Other comprehensive
     income (loss), net of
     ($323) tax; (($5,637)
     - three months ended
     June 30, 2007; $2,079
     - six months ended
     June 30, 2008;
     ($5,146) - six months
     ended June 30, 2007)        (485)      (8,674)       2,855       (6,389)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD               $    (3,442) $    (7,019) $    (3,442) $    (7,019)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Cash Flows

                                           For the                   For the
                                three months ended          six months ended
    -------------------------------------------------------------------------

    In Thousands of Dollars   June 30      June 30      June 30      June 30
     (Unaudited)                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     OPERATING ACTIVITIES
    Net income for the
     period               $    26,550  $    22,018  $    51,709  $    43,176
    Adjustments to
     determine cash flows
     relating to operating
     activities:
      Future income taxes       2,187        1,703        4,214        2,217
      Amortization              4,534        6,428        5,772        6,204
      Provision for credit
       losses (note 4(d))         630        1,002        1,230        1,490
      Change in accrued
       interest payable         5,495       (8,627)      26,569        6,990
      Change in accrued
       interest receivable     (1,001)        (722)      (1,999)      (2,101)
      Net loss (gain)
       realized and
       unrealized on
       investment
       securities                 421         (760)       2,046       (1,104)
      Loss on derivatives         391            -        1,817           27
      Securitization income
       on mortgage-backed
       securities             (11,038)      (5,568)     (21,135)     (10,791)
      Amortization of fair
       value of employee
       stock options (note 9)     357          285          764          523
      Other                    12,277       (1,660)      (5,421)        (982)
    -------------------------------------------------------------------------
    Cash flows from
     operating activities      40,803       14,099       65,566       45,649
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     FINANCING ACTIVITIES
    Net increase in deposits (110,633)     124,057      302,587      366,367
    Issuance of
     capital stock                318          341          318        2,571
    Normal course issuer
     bid                            -         (301)           -         (719)
    Exercise of stock options     (51)         (50)         (51)         (50)
    Dividends paid             (4,143)      (3,448)      (8,288)      (6,524)
    -------------------------------------------------------------------------
    Cash flows from (used in)
     financing activities    (114,509)     120,599      294,566      361,645
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     INVESTING ACTIVITIES
    Activity in available
     for sale and held for
     trading securities
      Purchases               (46,088)     (66,429)    (263,555)    (116,071)
      Proceeds from sales      35,133        6,695      203,587       24,540
      Proceeds from
       maturities              18,913       21,581       32,952       40,120
    Activity in mortgages
      Net increase           (417,929)    (218,832)    (860,388)    (484,876)
      Proceeds from
       securitization of
       mortgage-backed
       securities             246,285      146,639      388,984      277,505
      Change in mortgage-
       backed securities
       receivable               8,302       10,608       12,318       14,764
    Net increase in
     personal and credit
     card loans               (15,737)     (22,817)     (37,661)     (54,866)
    Net increase in
     secured loans             (1,426)      (3,816)      (4,172)      (7,919)
    Purchases of capital
     assets                    (1,236)        (761)      (1,845)        (977)
    -------------------------------------------------------------------------
    Cash flows used in
     investing activities    (173,783)    (127,052)    (529,780)    (307,780)
    -------------------------------------------------------------------------
    Net increase (decrease)
     in cash and cash
     equivalents during
     the period              (247,489)       7,646     (169,648)      99,514
    Cash and cash
     equivalents at
     beginning of
     the period               432,177      235,399      354,336      143,531
    -------------------------------------------------------------------------
    Cash and cash
     equivalents at end
     of the period        $   184,688  $   243,045  $   184,688  $   243,045
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary
     Disclosure of Cash
     Flow Information
    Interest paid         $    50,778  $    46,596  $    84,535  $    66,825
    Income taxes paid          13,595        9,928       27,417       24,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 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 income is disclosed in Note 10.

    -------------------------------------------------------------------------
                                           June 30  December 31      June 30
    In Thousands of Dollars                   2008         2007         2007
    -------------------------------------------------------------------------
    Securites issued or guaranteed by:
      Canada                           $       282  $      (111) $    (2,424)
      Corporations                          (1,746)           -            -
    Equity securities
      Common                                (1,322)        (494)        (175)
      Fixed rate preferred                  (5,372)      (4,753)      (2,149)
      Floating rate preferred                 (668)        (270)         112
    Income trusts                           (3,590)      (2,891)         304
    Mutual funds                                19           (5)          32
    -------------------------------------------------------------------------
                                       $   (12,397) $    (8,524) $    (4,300)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The above unrealized losses represent differences between the carrying
    value of the security and the 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 June 30, 2008, the Company had $0.2 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 above table.

    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 June 30, 2008
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    British
     Columbia     $  338,534  $   28,792  $    8,149  $      150  $  375,625
    Alberta          431,362      81,979     112,538       9,607     635,486
    Ontario        2,387,750     242,307     503,417      73,466   3,206,940
    Quebec            81,658         746      48,768           -     131,172
    Maritimes        109,241       7,360      18,863       3,004     138,468
    Manitoba and
     Saskatchewan     54,011       1,677       7,308           -      62,996
    -------------------------------------------------------------------------
                  $3,402,556  $  362,861  $  699,043  $   86,227  $4,550,687
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     As at December 31, 2007
    -------------------------------------------------------------------------
    In                          Personal
     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        2,314,008     222,230     342,140      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
    -------------------------------------------------------------------------
                  $3,218,474  $  325,393  $  419,400  $   82,304  $4,045,571
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                         As at June 30, 2007
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    British
     Columbia     $  306,864  $   20,454  $        -  $        -  $  327,318
    Alberta          301,352      52,670           -       7,943     361,965
    Ontario        2,220,920     208,506     191,732      66,733   2,687,891
    Quebec            51,263           -           -           -      51,263
    Maritimes        139,525       7,988       3,554       3,606     154,673
    Manitoba and
     Saskatchewan      6,045       1,951           -           -       7,996
    -------------------------------------------------------------------------
                  $3,025,969  $  291,569  $  195,286  $   78,282  $3,591,106
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (B) Past Due Loans that are not Impaired

                                                         As at June 30, 2008
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    1 - 30 days   $  117,293  $    2,209  $    1,866  $      910  $  122,278
    31 - 60 days       3,847       1,357         971         142       6,317
    61 - 90 days      27,545         723         461           -      28,729
    -------------------------------------------------------------------------
                  $  148,685  $    4,289  $    3,298  $    1,052  $  157,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     As at December 31, 2007
    -------------------------------------------------------------------------
    In                          Personal
     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
    -------------------------------------------------------------------------
                  $  150,150  $    6,186  $    3,918  $    1,618  $  161,872
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                         As at June 30, 2007
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    1 - 30 days   $  106,922  $    2,456  $        -  $      927  $  110,305
    31 - 60 days       9,820       1,627           -         219      11,666
    61 - 90 days      32,517         362           -           -      32,879
    -------------------------------------------------------------------------
                  $  149,259  $    4,445  $        -  $    1,146  $  154,850
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (C) Impaired Loans and Specific Allowances for Credit Losses

                                                         As at June 30, 2008
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    Gross amount
     of impaired
     loans        $   26,913  $    4,186  $      873  $      979  $   32,951
    Specific
     allowances         (242)       (108)         (5)       (172)       (527)
    -------------------------------------------------------------------------
                  $   26,671  $    4,078  $      868  $      807  $   32,424
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     As at December 31, 2007
    -------------------------------------------------------------------------
    In                          Personal
     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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                         As at June 30, 2007
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    Gross amount
     of impaired
     loans        $   22,021  $    1,407  $      755  $      581  $   24,764
    Specific
     allowances         (316)       (158)          -         (39)       (513)
    -------------------------------------------------------------------------
                  $   21,705  $    1,249  $      755  $      542  $   24,251
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (D) Allowance for Credit Losses

                                    For the three months ended June 30, 2008
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    Specific allowances
      Balance at
       the
       beginning
       of the
       period     $      457  $       72  $        -  $      187  $      716
      Provisions
       for credit
       losses            130         122           5         123         380
      Write-offs        (420)       (102)          -        (141)       (663)
      Recoveries          75          16           -           3          94
    -------------------------------------------------------------------------
                         242         108           5         172         527
    -------------------------------------------------------------------------

    General
     allowance
      Balance at
       the
       beginning
       of the
       period         16,181       3,477       3,142         876      23,676
      Provisions
       for credit
       losses           (209)        151         291          17         250
    -------------------------------------------------------------------------
                      15,972       3,628       3,433         893      23,926
    -------------------------------------------------------------------------
    Total
     allowance    $   16,214  $    3,736  $    3,438  $    1,065  $   24,453
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                For the three months ended December 31, 2007
    -------------------------------------------------------------------------
    In                          Personal
     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  $   1,087  $   24,393
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                    For the three months ended June 30, 2007
    -------------------------------------------------------------------------
    In                          Personal
     Thousands   Residential  and Credit       Other     Secured
     of Dollars    Mortgages  Card Loans   Mortgages       Loans       Total
    -------------------------------------------------------------------------
    Specific allowances
      Balance at
       the
       beginning
       of the
       period     $      121  $      193  $        -  $        -  $      314
      Provisions
       for credit
       losses            293         149           -          39         481
      Write-offs        (112)       (250)          -           -        (362)
      Recoveries          14          66           -           -          80
    -------------------------------------------------------------------------
                         316         158           -          39         513
    -------------------------------------------------------------------------

    General
     allowance
      Balance at
       the
       beginning
       of the
       period         15,742       2,695         965         767      20,169
      Provisions
       for credit
       losses            216         227          41          37         521
    -------------------------------------------------------------------------
                      15,958       2,922       1,006         804      20,690
    -------------------------------------------------------------------------
    Total
     allowance    $   16,274  $    3,080  $    1,006  $      843  $   21,203
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                      For the six months ended June 30, 2008
    -------------------------------------------------------------------------
    In                          Personal
     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            256         193           5         250         704
      Write-offs        (823)       (261)          -        (341)     (1,425)
      Recoveries         175          48           -          32         255
    -------------------------------------------------------------------------
                         242         108           5         172         527
    -------------------------------------------------------------------------

    General
     allowance
      Balance at
       the
       beginning
       of the
       period         17,127       3,201       2,216         856      23,400
      Provisions
       for credit
       losses         (1,155)        427       1,217          37         526
    -------------------------------------------------------------------------
                      15,972       3,628       3,433         893      23,926
    -------------------------------------------------------------------------
    Total
     allowance    $   16,214  $    3,736  $    3,438  $    1,065  $   24,453
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                      For the six months ended June 30, 2007
    -------------------------------------------------------------------------
    In                          Personal
     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            166         334           -         (56)        444
      Write-offs        (261)       (424)          -          13        (698)
      Recoveries          25         100           -           -         125
    -------------------------------------------------------------------------
                         316         158           -          39         513
    -------------------------------------------------------------------------

    General
     allowance
      Balance at
       the
       beginning
       of the
       period         15,886       2,378         659         721      19,644
      Provisions
       for credit
       losses             72         544         347          83       1,046
    -------------------------------------------------------------------------
                      15,958       2,922       1,006         804      20,690
    -------------------------------------------------------------------------
    Total
     allowance    $   16,274  $    3,080  $    1,006  $      843  $   21,203
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 and when a mortgage becomes impaired. At
    June 30, 2008, the total appraised value of the collateral for mortgages
    past due that are not impaired, as determined when the mortgages were
    originated, is $245.1 million. For impaired mortgages, the total
    appraised value of collateral at June 30, 2008 is $38.2 million.

    5.  LOAN SECURITIZATION

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

                        For the three months ended  For the six months ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,
     Except Percentages and   June 30      June 30      June 30      June 30
     Number of Years             2008         2007         2008         2007
    -------------------------------------------------------------------------
    Book value of
     mortgages
     securitized          $   250,630  $   150,688  $   396,401  $   285,043
    Securitization
     receivable           $    13,755  $     8,437  $    26,809  $    17,210
    Servicing liability   $       377  $       239  $       642  $       451
    Net proceeds received
     on securitized
     mortgages            $   246,285  $   146,639  $   388,984  $   277,505
    Gain on sale of
     mortgages            $     8,506  $     3,910  $    17,389  $     8,651
    Prepayment rate             10.7%        13.3%        11.7%        13.1%
    Excess spread                2.9%         2.4%         3.2%         2.6%
    Weighted average
     life in years                3.4          3.9          3.7          3.8
    Discount rate                3.9%         4.3%         3.8%         4.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the second quarter of 2008, the Company securitized insured
    residential mortgages through CMHC's Canada Mortgage Bond Program with a
    book value of $122.6 million for a total of $206.9 million in 2008 (nil
    in Q2 2007 and for the six months ended June 30, 2007). The gain on sale
    was $4.6 million during the second quarter and $10.1 million for the
    six months ended June 30, 2008 (nil in Q2 2007 and for the six months
    ended June 30, 2007). These figures are included in the above table.

    6. OTHER ASSETS

    -------------------------------------------------------------------------
                                           June 30  December 31      June 30
    In Thousands of Dollars                   2008         2007         2007
    -------------------------------------------------------------------------
    Accrued interest receivable        $    27,307  $    25,308  $    21,147
    Income taxes receivable                  8,474            -        3,434
    Goodwill                                15,028       15,028        2,324
    Intangible assets                          585        1,158            -
    Other prepaid assets and
     deferred items                         16,560       15,606       19,596
    -------------------------------------------------------------------------
                                       $    68,227  $    57,100  $    46,501
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  OTHER LIABILITIES

    -------------------------------------------------------------------------
                                           June 30  December 31      June 30
    In Thousands of Dollars                   2008         2007         2007
    -------------------------------------------------------------------------
    Accrued interest payable           $   162,219  $   135,650  $   118,910
    Income taxes payable                         -        5,795            -
    Dividends payable                        4,146        3,799        3,450
    Future income tax liability
     (Note 11)                              23,956       16,586       14,260
    Securitization servicing liability       2,127        1,786        1,528
    Other, including accounts payable
     and accrued liabilities                51,415       45,060       43,644
    -------------------------------------------------------------------------
                                       $   243,863  $   208,676  $   181,792
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  CAPITAL

    (A) Common Shares Issued and Outstanding

                                                  For the three months ended
    -------------------------------------------------------------------------
                                     June 30, 2008             June 30, 2007
    -------------------------------------------------------------------------
                            Number of                 Number of
    In Thousands               Shares       Amount       Shares       Amount
    -------------------------------------------------------------------------
    Outstanding at
     beginning of period       34,532  $    38,899       34,482  $    37,684
    Options exercised              10          318           28          341
    Normal course issuer bid        -            -           (8)         (10)
    -------------------------------------------------------------------------
    Outstanding at end
     of period                 34,542  $    39,217       34,502  $    37,985
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                    For the six months ended
    -------------------------------------------------------------------------
                                     June 30, 2008             June 30, 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          356        2,571
    Normal course issuer bid        -            -          (20)         (22)
    -------------------------------------------------------------------------
    Outstanding at end
     of period                 34,542  $    39,217       34,502  $    37,985
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
                                     June 30, 2008             June 30, 2007
    -------------------------------------------------------------------------
                                          Weighted-                 Weighted-
    In Thousands                           average                   average
    Except Per Share        Number of     Exercise    Number of     Exercise
     Amounts                   Shares        Price       Shares        Price
    -------------------------------------------------------------------------
    Outstanding at
     beginning of period        1,289  $     27.12        1,157  $     21.49
      Granted                       -            -            -            -
      Exercised                   (10)       28.12          (27)       10.56
      Forfeited                   (52)       35.98            -            -
    -------------------------------------------------------------------------
    Outstanding at end
     of period                  1,227  $     26.73        1,130  $     21.76
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Exercisable, end of
     period                       541  $     15.60          570  $     11.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                    For the six months ended
    -------------------------------------------------------------------------
                                     June 30, 2008             June 30, 2007
    -------------------------------------------------------------------------
                                          Weighted-                 Weighted-
    In Thousands                           average                   average
    Except Per Share        Number of     Exercise    Number of     Exercise
     Amounts                   Shares        Price       Shares        Price
    -------------------------------------------------------------------------
    Outstanding at
     beginning of period        1,294  $     27.15        1,266  $     15.43
      Granted                       -            -          220        34.44
      Exercised                   (10)       28.12         (356)        7.08
      Forfeited                   (57)       35.92            -            -
    -------------------------------------------------------------------------
    Outstanding at end
     of period                  1,227  $     26.73        1,130  $     21.76
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Exercisable, end of
     period                       541  $     15.60          570  $     11.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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:

    -------------------------------------------------------------------------
    In Thousands of Dollars,               June 30     December    June 30(1)
     Except Ratios and Multiple               2008   31(1) 2007         2007
    -------------------------------------------------------------------------
    Regulatory capital
      Tier 1                           $   354,653  $   311,760  $   296,996
      Total                                393,579      350,160      332,003
    Regulatory ratios
      Tier 1                                 12.5%        11.1%        12.9%
      Total                                  13.8%        12.5%        14.4%
      Assets to capital multiple              13.6         14.2         13.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 second quarter of 2008, $357,000 was recorded as an expense
    for a total of $764,000 for the first six months of 2008 ($285,000 -
    Q2 2007 and $523,000 - six months of 2007) for stock option awards in the
    consolidated statements of income, with an off-setting credit to
    contributed surplus. No new options were granted during 2008 (nil -
    Q2 2007 and 220,000 - six months of 2007).

    10. ACCUMULATED OTHER COMPREHENSIVE LOSS

    -------------------------------------------------------------------------
                                           June 30  December 31      June 30
    In Thousands of Dollars                   2008         2007         2007
    -------------------------------------------------------------------------
    Unrealized gains and (losses) on
      Available for sale securities    $   (12,397) $    (8,524) $    (4,300)
      Income taxes recovery (expenses)       3,070        2,226        1,881
    -------------------------------------------------------------------------
                                            (9,327)      (6,298)      (2,419)
    -------------------------------------------------------------------------

    Unrealized gains and (losses) on
      Securitization receivables             8,806            2       (7,202)
      Income taxes recovery (expenses)      (2,921)          (1)       2,602
    -------------------------------------------------------------------------
                                             5,885            1       (4,600)
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     loss                              $    (3,442) $    (6,297) $    (7,019)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. INCOME TAXES

    (A) Reconciliation of income taxes

    -------------------------------------------------------------------------
                        For the three months ended  For the six months ended
    In Thousands of           June 30      June 30      June 30      June 30
     Dollars                     2008         2007         2008         2007
    -------------------------------------------------------------------------
    Income before income
     taxes                $    38,607  $    33,612  $    75,210  $    64,693
    -------------------------------------------------------------------------
    Income taxes at
     statutory combined
     federal and provincial
     income tax rates          12,628       12,141       24,944       23,367
    Increase (decrease) in
     income taxes at
     statutory income tax
     rates resulting from
      Tax-exempt income          (716)        (673)      (1,356)      (1,316)
      Non-deductible expenses     124          113          632          207
      Future tax rate changes    (177)         (46)        (397)         (78)
      Other                       198           59         (322)        (663)
    -------------------------------------------------------------------------
    Income tax            $    12,057  $    11,594  $    23,501  $    21,517
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (B) Sources of future income tax balances

    -------------------------------------------------------------------------
                                           June 30  December 31      June 30
    In Thousands of Dollars                   2008         2007         2007
    -------------------------------------------------------------------------
    Future income tax liabilities
      Deferred agent commissions and
       other charges                   $     7,661  $     7,907  $     7,608
      Mortgage-backed securities
       receivable                           28,667       21,282       17,349
    -------------------------------------------------------------------------
                                            36,328       29,189       24,957
    -------------------------------------------------------------------------
    Future income tax assets
      Allowance for credit losses            6,771        6,767        6,302
      Future tax recoverable acquired          860        1,370            -
      Deferred commitment fees and
       other charges                         4,741        4,466        4,395
    -------------------------------------------------------------------------
                                            12,372       12,603       10,697
    -------------------------------------------------------------------------
                                       $    23,956  $    16,586  $    14,260
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. DERIVATIVE FINANCIAL INSTRUMENTS

    The Company utilized off-balance sheet financial instruments during the
    first six months of 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 five-year MBS pools to Canada
    Housing Trust which finances the purchase by issuing a five-year bullet
    Canada Mortgage Bond. Under this program, the Company must manage the
    mismatch and reinvestment risk between the amortizing five-year MBS pool
    and the five-year bullet Canada Mortgage Bond. As part of this
    arrangement, the Company entered into a seller swap which has the effect
    of paying the fixed interest payments on the Canada Mortgage Bond, and
    receiving the total return on the MBS pool and the reinvestment assets.
    As well, the Company entered into a hedge swap to manage the reinvestment
    risk between the amortizing MBS pool and the five-year Canada Mortgage
    Bond. These transactions do not qualify for hedge accounting under CICA
    Handbook Section 3865, Hedges and therefore the Company must mark-to-
    market the swaps, with changes in the fair value of the swaps being
    recognized in the consolidated statements of income.

    There were no outstanding interest rate swaps to hedge commitment risk at
    June 30, 2008 or June 30, 2007. With respect to the Canada Mortgage Bond
    program, at June 30, 2008 the Company notionally held $325.8 million of
    seller swaps, and $12.8 million of accreting hedge swaps. These
    outstanding swap arrangements were marked-to-market at June 30, 2008 for
    unrealized loss of $0.2 million.

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

                                                         As at June 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          $    35,129  $ 1,198,334  $ 1,549,664  $ 1,645,896
    Total liabilities
     and equity                     -      778,744    2,210,891    1,246,131
    Off-balance sheet items         -     (372,279)      43,618      101,918
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $    35,129  $    47,311  $  (617,609) $   501,683
    -------------------------------------------------------------------------
    Cumulative gap        $    35,129  $    82,440  $  (535,169) $   (33,486)
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of
     total assets                0.7%         1.5%       (10.0%)       (0.6%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                            As at June 30, 2008
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over  Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $   738,087  $   194,661  $ 5,361,771
    Total liabilities
     and equity               444,549      681,454    5,361,771
    Off-balance sheet items   226,743            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   520,281  $  (486,795) $         -
    ------------------------------------------------------------
    Cumulative gap        $   486,795  $         -  $         -
    ------------------------------------------------------------
    Cumulative gap as a
     percentage of
     total assets                9.1%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

                                                     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%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

                                                         As at June 30, 2007
    -------------------------------------------------------------------------
    In Thousands of
     Dollars, Except         Floating       0 to 3     3 Months       1 to 3
     Percentages                 Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------
    Total assets          $    55,554  $   776,334  $ 1,228,411  $ 1,545,268
    Total liabilities
     and equity                     -      566,403    1,578,801    1,297,455
    Off-balance sheet items         -     (226,071)       6,266       75,530
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $    55,554  $   (16,140) $  (344,124) $   323,343
    -------------------------------------------------------------------------
    Cumulative gap        $    55,554  $    39,414  $  (304,710) $    18,633
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of
     total assets                1.3%         0.9%        (7.1%)        0.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                            As at June 30, 2007
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over  Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $   570,832  $   129,400  $ 4,305,799
    Total liabilities
     and equity               328,281      534,859    4,305,799
    Off-balance sheet items   144,275            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   386,826  $  (405,459) $         -
    ------------------------------------------------------------
    Cumulative gap        $   405,459  $         -  $         -
    ------------------------------------------------------------
    Cumulative gap as a
     percentage of
     total assets                9.4%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

    Based on the current interest rate gap position at June 30, 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
    $1.9 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 core residential mortgage lending, securitization of
    government-insured mortgage loans, commercial real estate lending, and
    the administration of Regency Finance Corp. second mortgage loans
    (secured loans). The consumer lending operation consists of credit card
    services, installment lending to customers of retail business and PSiGate
    operations as of October 17, 2007. The other category includes the
    Company's treasury and securities investment activities.

                                                  For the three months ended
    -------------------------------------------------------------------------
                               Mortgage Lending         Consumer Lending
    -------------------------------------------------------------------------
                              June 30      June 30      June 30      June 30
    In Thousands of Dollars      2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $    24,127  $    24,951  $     6,505  $     5,253
    Provision for credit
     losses                      (357)        (626)        (273)        (376)
    Fees and other income       3,707        2,989        3,288        2,076
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                10,647        5,568            -            -
    Non-interest expenses     (11,168)      (9,033)      (2,198)      (1,153)
    -------------------------------------------------------------------------
    Income before income
     taxes                     26,956       23,849        7,322        5,800
    Income taxes               (8,752)      (8,579)      (2,522)      (2,095)
    -------------------------------------------------------------------------
    Net income            $    18,204  $    15,270  $     4,800  $     3,705
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill              $     2,324  $     2,324  $    12,704  $         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets          $ 4,400,471  $ 3,416,438  $   392,083  $   304,148
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                  For the three months ended
    -------------------------------------------------------------------------
                                     Other                    Total
    -------------------------------------------------------------------------
                              June 30      June 30      June 30      June 30
    In Thousands of Dollars      2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $     8,730  $     6,325  $    39,362  $    36,529
    Provision for credit
     losses                         -            -         (630)      (1,002)
    Fees and other income          97           74        7,092        5,139
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                  (421)         760       10,226        6,328
    Non-interest expenses      (4,077)      (3,196)     (17,443)     (13,382)
    -------------------------------------------------------------------------
    Income before income
     taxes                      4,329        3,963       38,607       33,612
    Income taxes                 (783)        (920)     (12,057)     (11,594)
    -------------------------------------------------------------------------
    Net income            $     3,546  $     3,043  $    26,550  $    22,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill              $         -  $         -  $    15,028  $     2,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets          $   569,217  $   585,213  $ 5,361,771  $ 4,305,799
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                    For the six months ended
    -------------------------------------------------------------------------
                               Mortgage Lending         Consumer Lending
    -------------------------------------------------------------------------
                              June 30      June 30      June 30      June 30
    In Thousands of Dollars      2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $    46,584  $    47,876  $    12,228  $     9,999
    Provision for credit
     losses                      (610)        (612)        (620)        (878)
    Fees and other income       7,414        5,370        6,680        4,128
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                19,318       10,764            -            -
    Non-interest expenses     (19,317)     (17,348)      (4,443)      (1,863)
    -------------------------------------------------------------------------
    Income before income
     taxes                     53,389       46,050       13,845       11,386
    Income taxes              (17,304)     (15,870)      (4,721)      (4,113)
    -------------------------------------------------------------------------
    Net income            $    36,085  $    30,180  $     9,124  $     7,273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill              $     2,324  $     2,324  $    12,704  $         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets          $ 4,400,471  $ 3,416,438  $   392,083  $   304,148
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                    For the six months ended
    -------------------------------------------------------------------------
                                     Other                    Total
    -------------------------------------------------------------------------
                              June 30      June 30      June 30      June 30
    In Thousands of Dollars      2008         2007         2008         2007
    -------------------------------------------------------------------------
    Net interest income   $    18,178  $    11,988  $    76,990  $    69,863
    Provision for credit
     losses                         -            -       (1,230)      (1,490)
    Fees and other income         221          176       14,315        9,674
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                (1,977)       1,104       17,341       11,868
    Non-interest expenses      (8,446)      (6,011)     (32,206) $   (25,222)
    -------------------------------------------------------------------------
    Income before income
     taxes                      7,976        7,257       75,210       64,693
    Income taxes               (1,476)      (1,534)     (23,501)     (21,517)
    -------------------------------------------------------------------------
    Net income            $     6,500  $     5,723  $    51,709  $    43,176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill              $         -  $         -  $    15,028  $     2,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets          $   569,217  $   585,213  $ 5,361,771  $ 4,305,799
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 of this unaudited interim consolidated financial
    report 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 interim unaudited 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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