Home Capital Reports Record Third Quarter Performance: Net earnings rise 37.4% year-over-year, as new mortgage originations grow by 48.3%; Return on equity at 28.9% for the quarter



    TORONTO, Oct. 29 /CNW/ - Home Capital Group Inc. (TSX: HCG) reported
outstanding financial results for the third quarter ended September 30, 2007
and for the first nine months of this year. The Company generated strong
residential and commercial mortgage lending growth, increased sales of
Mortgage-Backed Securities (MBS), and accelerated returns from our VISA
products.
    Home Capital delivered a strong performance during the third quarter
despite the recent turmoil in the financial marketplace. Favourable economic
conditions across Canada continued to create attractive lending and growth
opportunities for the Company during the quarter. Key results for the period
included:

    
    -   Net income for the quarter was $22.8 million, an increase of 37.4%
        over the $16.6 million recorded for the same period last year.
        Earnings for the first nine months of 2007 reached $66.0 million, a
        rise of 39.6% over the comparable period of 2006.

    -   Basic earnings per share were $0.66, 34.7% above $0.49 for the third
        quarter of 2006, and $1.92 for the nine-month period, or 38.1% higher
        than the $1.39 recorded last year. Diluted earnings per share were
        $0.65, a rise of 35.4% from the $0.48 recorded for the third quarter
        of 2006; results for the nine months were $1.89, 39.0% above the same
        period last year.

    -   Return on equity was 28.9% for the third quarter, compared to 26.2%
        for the quarter ended September 2006, and 29.3% for the first
        nine months of 2007 versus 26.3% for the same period last year.

    -   Total assets at September 30, 2007 reached $4.67 billion, 24.6%
        higher than the $3.75 billion reported one year earlier. Total
        assets, together with MBS originated and administered by the Company,
        grew to $6.02 billion, a rise of 25.6% from $4.79 billion at
        September 2006.

     -  Total mortgage originations were $791.0 million during the third
        quarter, an increase of 48.3% from the $533.2 million advanced during
        the comparable period of 2006. The Company advanced $613.4 million in
        residential mortgages, including a $28.0 million portfolio purchased
        during the quarter, and $177.6 million in commercial mortgages.

    -   Mortgage securitization activity remained robust as the Company
        securitized and sold $208.4 million of CMHC-backed MBS securities
        during the third quarter compared to $153.1 million for the same
        period last year, and $493.4 million in the first nine months of the
        year compared to $415.5 million for the first nine months of 2006.

    -   Receivable balances on the Equityline VISA portfolio reached
        $291.8 million, 63.2% higher than the $178.8 million recorded at the
        same point in 2006. Net income from consumer lending reached
        $3.7 million for the third quarter, 36.8% over the $2.7 million
        recorded last year, and $11.0 million for the first nine months, or
        58.0% over the comparable period of 2006.

    -   The efficiency ratio (TEB) (the lower the better) continued to
        improve as the Company achieved additional productivity gains. The
        ratio was 25.9% for the third quarter, compared to 32.0% during the
        same quarter in 2006; it was 26.6% for the first nine months of
        2007, versus 31.2% for the comparable period last year.

    -   Net impaired loans represented 0.63% of the total loans portfolio,
        down from 0.74% at March 31, 2007, 0.68% at June 30, 2007 and up from
        0.56% at September 30, 2006. Loan losses resulting from mortgage
        write-offs during the period remained negligible. Non-performing
        mortgages continue to be diligently managed by the Company with the
        objective of timely resolution, on a loan-by-loan basis.

    -   The Company's operating subsidiary, Home Trust Company, held a
        liquidity position at September 30, 2007 of $626.8 million, nearly
        double the liquidity held one year prior of $320.2 million.
        Management believes that recent market instability resulted in a
        "flight to quality", and Home Trust's offering of term deposits
        proved very attractive to consumers.
    

    Subsequent to quarter-end, Home Capital completed the successful
acquisition of Payment Services Interactive Gateway Corp. (PSiGate). This
acquisition represents an important step in the continuing evolution of the
Home Trust VISA card services line of business. PSiGate's services enhance the
Company's current credit card activities by enabling Home Trust to offer
payment-processing services to internet-based merchants. The acquisition also
adds a strong contingent of managerial and technical talent to our existing
credit card services team.
    During the third quarter, Home Trust Asset Management Inc. (HTAM) was
established by Home Trust Company. Subsequent to quarter-end, HTAM was granted
regulatory approval by the Ontario Securities Commission as an Investment
Counsellor/Portfolio Manager and as a Limited Market Dealer. Consistent with
previous new initiatives, the Company is taking a careful, step-by-step
approach to start-up, and is utilizing the expertise of seasoned management,
led by Jason Donville, the Company's Chief Investment Officer and Harold Kent,
who was formerly with All Canadian Asset Management. We anticipate launching
the initial fund, a Limited Partnership fund focusing on small-cap financial
services opportunities, during the fourth quarter.
    Subsequent to the end of the third quarter, the Company's Board of
Directors declared a quarterly cash dividend of $0.11 per Common Share,
payable on December 1, 2007 to shareholders of record at the close of business
on November 15, 2007.
    Home Capital has been able to utilize its core strengths to deliver
sustained growth and increased profitability, quarter over quarter, to the
benefit of all shareholders. The Board of Directors and Management remains
highly confident about the Company's ability to meet, or exceed, each of the
business objectives established at the beginning of the year, during the
fourth quarter, and to continue its strong momentum through 2008.

    
    (signed)                                   (signed)

    GERALD M. SOLOWAY                          WILLIAM A. DIMMA
    President and Chief Executive Officer      Chairman of the Board
    October 29, 2007
    

    THIRD QUARTER RESULTS CONFERENCE CALL

    The conference call will take place on Monday, October 29, 2007 at
10:30 a.m. Participants are asked to call 5 to 15 minutes in advance, 416-644-
3415 in Toronto or toll-free 1-866-249-2165 throughout North America. The call
will also be accessible in listen-only mode via the Internet at
www.homecapital.com.

    CONFERENCE CALL ARCHIVE

    A telephone replay of the call will be available between 12:30 p.m.,
Monday, October 29, 2007 and midnight Monday, November 5, 2007 by calling 416-
640-1917 or 1-877-289-8525 (enter passcode 21249360 followed by the number
sign). The archived audio web cast will be available for 90 days on CNW
Group's website at www.newswire.ca and Home Capital's website at
www.homecapital.com.


    
    Financial Highlights

    For the Period Ended
     September 30
     (Unaudited)

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

    Net Income            $    22,837  $    16,618  $    66,013  $    47,297
    Total Revenue(3)           94,345       70,621      263,799      201,495
    Earnings per Share
     - Basic              $      0.66  $      0.49  $      1.92  $      1.39
    Earnings per Share
     - Diluted                   0.65         0.48         1.89         1.36
    Return on
     Shareholders' Equity      28.85%       26.21%       29.33%       26.30%
    Return on Average
     Assets                     2.04%        1.82%        2.05%        1.79%
    Efficiency Ratio(3)        26.43%       32.65%       27.18%       31.79%
    Efficiency Ratio
     (TEB)(2),(3)              25.87%       31.98%       26.59%       31.16%
    (Non-interest Expense/
     Net Interest Income
     Plus Fee Income)
    -------------------------------------------------------------------------
    BALANCE SHEET HIGHLIGHTS

    Total Assets                                    $ 4,672,820  $ 3,749,189
    Loans                                             3,740,268    3,195,820
    Deposits                                          4,160,496    3,312,840
    Shareholders' Equity                                323,305      260,653
    Mortgage-Backed Security
     Assets Under
     Administration                                   1,347,029    1,044,046
    -------------------------------------------------------------------------
    FINANCIAL STRENGTH

    Capital Measures
    Risk Adjusted
     Assets(1)                                      $ 2,525,351  $ 1,955,551
    Tier 1 Capital
     Ratio(1)                                            11.45%       12.46%
    Total Capital Ratio                                  12.91%       14.10%
    Credit Quality
    Net Impaired Loans
     % of Gross Loans                                     0.63%        0.56%
    Allowance % of Gross
     Impaired Loans                                      93.89%      105.60%
    Annualized Provision
     % of Gross Loans                                     0.13%        0.13%
    Share Information
    Book Value per Common
     Share                                          $      9.38  $      7.62
    Common Share Price
     - Close                                              34.50        30.70
    Market Capitalization                             1,188,685    1,049,453
    Number of Common
     Shares Outstanding                                  34,455       34,184
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) These figures relate to the Company's operating subsidiary,
        Home Trust Company.
    (2) See definition of Taxable Equivalent Basis (TEB) in this unaudited
        interim consolidated financial report.
    (3) Reclassification - refer to Note 2 of these unaudited interim
        consolidated financial statements.
    

    Management's Discussion and Analysis

    Caution Regarding Forward-Looking Statements

    From time to time Home Capital Group Inc. (the "Company" or "Home
Capital") makes written and verbal forward-looking statements. These are
included in the Annual Report, periodic reports to shareholders, regulatory
filings, press releases, Company presentations and other Company
communications. Forward-looking statements include, but are not limited to,
business objectives and targets, Company strategies, operations, anticipated
financial results and the outlook for the Company, its industry, and the
Canadian economy. Forward-looking statements are typically identified by words
such as "believe," "expect," "anticipate," "estimate," "plan," "may," and
"could" or other similar expressions. By their very nature, these statements
require us to make assumptions and are subject to inherent risks and
uncertainties, general and specific, which may cause actual results to differ
materially from the expectations expressed in the forward-looking statements.
These risks and uncertainties include, but are not limited to, global capital
market activity, changes in government monetary and economic policies, changes
in interest rates, inflation levels and general economic conditions,
legislative and regulatory developments, competition and technological change.
The preceding list is not exhaustive of possible factors. These and other
factors should be considered carefully and readers are cautioned not to place
undue reliance on these forward-looking statements. The Company does not
undertake to update any forward-looking statements, whether written or verbal,
that may be made from time to time by it or on its behalf.

    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 $1.1 million for the third quarter and
$3.1 million for the nine months of 2007 ($0.7 million - Q3 2006 and
$2.2 million - nine months 2006) increased reported interest income. TEB does
not have a standard meaning prescribed by Canadian generally accepted
accounting principles (GAAP) and therefore may not be comparable to similar
measures used by other companies. Net interest income and income taxes are
discussed on a TEB basis throughout this Management's Discussion and Analysis.

    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 Management's Discussion and Analysis (MD & A) should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended September 30, 2007 included herein, and the audited
consolidated financial statements and MD & A for the year ended December 31,
2006. These are available on the Canadian Securities Administrators' website
at www.sedar.com and on pages 8 through 52 of the Company's 2006 Annual
Report. Except as discussed in these unaudited interim consolidated financial
statements and MD & A, all other factors discussed and referred to in the MD &
A for fiscal 2006 remain substantially unchanged. These unaudited interim
consolidated financial statements and MD & A have been prepared based on
information available as at October 25, 2007. As in prior quarters, the
Company's Audit and Risk Management Committee reviewed this document, and
prior to its release the Company's Board of Directors approved it on the Audit
and Risk Management Committee's recommendation.

    2007 Performance and 2007 Objectives

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


    
    -------------------------------------------------------------------------
                                                           Nine-Month Period
                                                    Ended September 30, 2007
                                2007 Objectives             Actual Results(1)
    -------------------------------------------------------------------------
    Net Income                 20% over 2006 or            $66.0 million, or
                                  $56.8 million          39.6% increase over
                                                       same period last year

    Diluted Earnings           20% over 2006 or          $1.89 per share, or
     per Share                  $1.63 per share          39.0% increase over
                                                       same period last year

    Combined Total             20% over 2006 or            $6.02 billion, or
     Assets and Assets            $5.75 billion          25.6% increase over
     Under Administration                                          last year

    Return on Equity                        25%                        29.3%

    Efficiency Ratio             35.0% to 39.0%                        26.6%
     (TEB)(2)

    Capital Ratio - Tier 1      Minimum of 9.5%                        11.5%

    Capital Ratio - Total      Minimum of 12.0%                        12.9%

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


    FINANCIAL HIGHLIGHTS

    Income Statement Highlights

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

    -   Net income rose 37.4% over the comparable quarter of 2006.

    -   Net interest income was up 27.9% over the same period in 2006, as the
        Company's income-producing assets grew by 25.4% combined with the
        positive effect of improved interest spreads.

    -   Non-interest income was up 73.9% over the third quarter of 2006,
        driven by growth in fee income from increased fees for the
        administration of the mortgage portfolio, servicing fees and the
        absence of any derivative losses in 2007.

    -   The efficiency ratio (TEB) improved to 25.9% from 32.0% in the third
        quarter of 2006 as a result of management's continuing efforts to
        control costs.

    -   Diluted earnings per share for the quarter increased 35.4% to $0.65
        compared to $0.48 for the third quarter of 2006.

    -   Return on average shareholders' equity for the quarter was 28.9%, an
        improvement over the 26.2% reported in the third quarter of 2006.

    Balance Sheet Highlights

    -   Throughout the third quarter, the Company has remained soundly liquid
        and unaffected by the securitization market disruption, ending the
        quarter with $626.8 million in liquid assets, up 84.9% and 95.8% from
        both December 31, 2006 and September 30, 2006, respectively.

    -   Total assets at September 30, 2007 grew by 19.7% over the nine-month
        period to reach $4.67 billion, compared to the $3.90 billion reported
        at December 31, 2006. This asset growth was driven by the growth in
        the Company's residential mortgage portfolio, which grew by
        $153.7 million; other mortgages grew by $193.1 million and cash
        resources rose by $305.9 million. Recent market events have had an
        insignificant impact as the Company has 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
        $291.8 million, a growth of 35.2%, or $75.9 million over the fourth
        quarter of 2006 and 63.2%, or $113.0 million over the third quarter
        of 2006.

    -   Deposit liabilities as at September 30, 2007 grew 20.8% to reach
        $4.16 billion, as compared to $3.44 billion as at December 31, 2006.
        These proceeds were deployed to fund the growth of the Company's loan
        portfolio with excess funds invested in the Company's cash resources
        and securities portfolio.
    

    Earnings Review

    Net Interest Income

    Net interest income was $38.3 million in the third quarter and
$108.2 million for the nine months of 2007, representing increases of
$8.3 million, or 27.9%, over the $30.0 million reported in the third quarter
of 2006, and $23.2 million, or 27.2%, over the $85.0 million recorded during
the same nine-month period of 2006. These increases were the result of
improved net interest margins and the growth in interest-bearing assets
exceeded the growth in interest-bearing liabilities. The growth in interest
earning assets was $928.1 million over September 2006, compared to an increase
in interest bearing liabilities of $847.7 million. The net interest margin
(TEB) for both the third quarter and nine-month period ended September 30,
2007 was 3.5%, representing improvements over the comparable periods of 2006
of 3.4% and 3.3%, respectively. The interest spread between loans and deposits
was 3.6% for the quarter and 3.7% for the nine-month period ended
September 30, 2007, compared to 3.4% and 3.5% for the comparable periods of
2006.
    The mortgage lending line of business continues to be the primary driver
of the Company's net interest income. It contributed $24.5 million in the
third quarter of 2007 and $72.4 million for the nine-month period ended
September 30, 2007, compared to $21.5 million during the third quarter of
2006, and $62.9 million for the nine months of 2006.
    The consumer lending line of business contributed third quarter net
interest income of $5.4 million and $15.3 million for the nine-month period,
compared to $4.0 million and $10.4 million for the quarter and nine months
ended September 30, 2006, respectively. The Equityline VISA product continues
to drive income growth in the consumer lending line of business.

    Non-Interest Income

    Total non-interest income was $12.0 million for the third quarter and
$33.5 million for the nine months of 2007, an increase of $5.1 million and
$10.6 million from the $6.9 million and $22.9 million reported for the three-
and nine-month periods ended September 30, 2006, respectively. The increases
over the prior periods were driven by fee income generated from the
administration of the mortgage portfolio, servicing fees and the absence of
losses on derivatives in 2007.
    The fees and other income components of non-interest income were
$5.4 million at the end of the quarter and $15.1 million for the nine months
of 2007, compared to $2.7 million and $7.5 million for the comparable periods
in 2006. The mortgage lending line of business contributed $3.3 million of
this income in the quarter and $8.7 million for the nine months, compared to
$0.6 million and $1.7 million for the third quarter and nine months of 2006,
respectively. The consumer lending line of business contributed $2.0 million
of fee income during the quarter and $6.1 million for the nine months of 2007,
compared to $2.0 million and $5.7 million for the comparable quarter and nine-
month period of 2006. With the implementation of new financial instrument
standards, the Company reclassified the amortization of deferred commitment
fees in 2006 from fees and other income to interest from loans. Please refer
to Note 2 of these unaudited interim consolidated financial statements.
    The Company issued six MBS pools, consisting of $208.4 million of Canada
Mortgage and Housing Corporation (CMHC) insured residential mortgages for
total issuance of MBS pools in 2007 to date of $493.4 million. This represents
an increase of $55.3 million over the $153.1 million in MBS pools that were
issued in the third quarter of 2006 and a $77.9 million increase over the
$415.5 million issued during the nine months of 2006. Securitization gains
were $6.0 million during the quarter and $14.7 million for the nine-month
period ended September 30, 2007, up from $5.3 million realized in the third
quarter and $12.2 million over the nine month period of 2006 (refer to Note 4
of these unaudited interim consolidated financial statements). The marginal
increase in securitization gains during the quarter in relation to the
comparable quarter of 2006 was primarily due to increases in the volume
securitized as both increases in unscheduled prepayment rates and a reduction
in excess spread had a diminishing effect on gains. For the nine-month period,
the gains were higher in 2007 in comparison to 2006, as the excess spread
achieved in the nine-month period ended September 30, 2007 over September 30,
2006 offset the increased unscheduled prepayment rate utilized during the
nine-month period ended September 30, 2007. During the third quarter of 2007,
the Company participated in CMHC's Canada Mortgage Bond program administered
through Canada Housing Trust. This program will allow the Company to diversify
its funding stream by accessing an additional distribution channel for these
five-year MBS pools. In September, the Company issued one MBS pool through
this program with a book value of $28.0 million resulting in a gain of
$1.3 million.

    Non-Interest Expenses

    Total non-interest expenses for the quarter and nine-month period were
$13.3 million and $38.5 million, up 10.5%, or $1.3 million from the
$12.0 million recorded for the third quarter of 2006 and up by 12.2%, or
$4.2 million over the $34.3 million reported for the nine months of 2006. The
primary driver of the increase in non-interest expenses over the previous
year's period was increased staffing levels and professional fees incurred as
the result of the Company's initiatives to improve business processes for the
Company, and to meet changing regulatory requirements. Salaries and staff
benefit expenses for the third quarter increased by $1.0 million, or 14.8%,
over the third quarter of 2006 and by $2.7 million, or 13.8%, over the nine
months of 2006. The Company ended the quarter with 360 employees, up from the
first and second quarters of 2007 and up from 347 employed at the end of
September 2006. Increase in staffing levels are required to effectively manage
growth in all of the Company's business segments. Premises expenses increased
from the prior year's period as the Company entered into a new lease in May
2007 for the opening of the branch office in Montreal.
    General and administration expenses increased by $0.2 million over the
third quarter of 2006 and $1.3 million over the nine-month period of 2006. The
increase in general and administration expenses from the third quarter and
nine-month period ended September 30, 2006 is primarily due to increased
professional fees related to a number of initiatives to improve business
processes for the Company, and to meet changing regulatory requirements.
    The efficiency ratio (TEB) was 25.9% at the end of the third quarter and
26.6% for the nine months of 2007, compared to 32.0% and 31.2% for the
comparable periods in 2006. Management's focus on cost containment has been
reflected in the favourable efficiency ratios (TEB) achieved in the current
and nine-month periods of 2007 and represents a significant improvement over
the third quarter and nine months of 2006. On January 1, 2007, the Company
implemented new accounting standards on financial instruments. With the
implementation of the new standards, the Company reclassified the amortization
of deferred finders fees and deferred agent commission from general and
administration to interest from loans and interest on deposits. This had the
effect of improving the efficiency ratio from past historic levels, and from
the Company's target range of between 35% to 39%. Please refer to Note 2 of
these unaudited interim consolidated financial statements.

    Provision for Credit Losses

    The Company expensed $2.1 million in the third quarter and $3.6 million
for the nine months ended September 30, 2007 through the provision for credit
losses, compared to $1.0 million and $3.1 million last year. This expense
represents 0.1% of total loans on an annualized basis. The Company continues
to add to the general allowance for credit losses, primarily in response to
the growth in risk-weighted assets and in particular the growth in the loans
portfolio. The total general allowance amounted to $22.1 million at the end of
the quarter, an increase of $2.5 million over the $19.6 million recorded at
December 31, 2006, and a $3.0 million rise over the $19.1 million allowance
recorded at September 30, 2006.
    At September 30, 2007 net impaired loans amounted to $23.6 million (0.63%
of gross loans), compared to $22.8 million (0.68% of gross loans) at
December 31, 2006 and $18.1 million (0.56% of gross loans) at September 30,
2006. The rise in net impaired loans relative to the same period last year has
not resulted in material increases in loan write-offs (refer to Note 3 of
these unaudited interim consolidated financial statements). Total net loans
written-off during the nine months ended September 30, 2007 were $1.1 million,
up from $0.7 million and $0.6 million for the nine month periods ended
December 31, 2006 and September 30, 2006, respectively. Despite the increase
in dollar value of loan write-offs, this represents just 0.03% of the gross
loans portfolio up only slightly over prior periods (0.02% for nine-month
periods ended September 30, 2006 and December 31, 2006). The Company continues
to closely monitor non-performing loans and has taken proactive steps to
minimize losses, as described under the Credit Risk section of this MD & A.

    Income Taxes

    The income tax expense amounted to $12.1 million (effective tax rate of
34.5%) for the third quarter of 2007, and $33.6 million (effective tax rate of
33.7%) for the nine months of 2007, compared to $7.2 million (effective tax
rate of 30.3%) for the third quarter of 2006 and $23.2 million (effective tax
rate of 32.9%) for the nine months of 2006. Canadian dividend income is non-
taxable to financial institutions, which results in a lower income tax rate.
In the absence of tax-free dividends, the tax rates would have been 36.5% for
the third quarter and 35.7% for the nine months of 2007, compared to 32.4% for
the third quarter of 2006 and 34.9% for the nine months of 2006.

    Balance Sheet Review

    Assets

    Total assets as at September 30, 2007 were $4.67 billion, an increase of
$923.6 million, or 24.6%, over the $3.75 billion reported one year ago, and up
by $770.5 million, or 19.7%, over the December 31, 2006 asset balance of
$3.90 billion.
    Growth in the loans portfolio of $544.5 million, or 17.0%, generated most
of this year-over-year asset increase. Residential mortgages contributed
$187.7 million to the total loan portfolio growth, other mortgages (primarily
commercial mortgages) contributed particularly strong growth of
$231.6 million, consumer lending contributed $112.3 million, secured loans
added $15.9 million, and the general allowance for credit losses increased by
$3.0 million. The residential portfolio growth of $187.7 million recorded
above does not factor in $208.4 million of loans securitized during the
quarter. The Company's cash resources increased significantly year-over-year
by $322.5 million as did the securities portfolio which increased by
$61.2 million, which resulted from funds raised through deposits and
internally-generated earnings. Other assets declined by $4.3 million from the
comparable quarter in the prior year due to the implementation of new
financial instrument standards that came into effect January 1, 2007 (refer to
Note 2 of these unaudited interim consolidated financial statements). Deferred
finders fees and deferred agent commissions were reclassified and included in
the cost base of the respective loans and deposits. The effects of the
reclassification were offset by an increase in accrued interest receivable
generated from the growth in the Company's loan portfolio. Remaining balances
in other assets, consisting of goodwill, other prepaid and deferred assets
(refer to Note 5 of these unaudited interim consolidated financial statements)
were relatively consistent, year-over-year.
    Growth in the loans portfolio of $431.1 million, or 13.0%, was the
principal contributor to asset growth over December 31, 2006. The loan
portfolio growth was driven by a $153.7 million increase in residential
mortgages, a $193.1 million rise in other mortgages (primarily commercial
mortgages), a $75.2 million growth in consumer lending, an $11.5 million
increase in secured loans, and the general allowance for credit losses
increased by $2.4 million. The Company's cash resources increased by
$305.9 million and the securities portfolio rose by $43.2 million over
December 31, 2006, primarily due to deposits raised in the latter half of the
quarter as investors moved funds into low-risk investments. The Company
recommenced commercial real estate lending in early 2007 by entering into
lending arrangements secured by commercial mortgages. During the nine months
of 2007, the Company's commercial mortgage group advanced loans for
$406.7 million. Total other assets decreased by $9.7 million primarily due to
a reclassification of deferred finders fees and deferred agent commissions
into the respective mortgage and deposit cost base. This was implemented
effective January 1, 2007 as required under new financial instrument
accounting standards (refer to Note 2 of these unaudited interim consolidated
financial statements). The declines in other assets due to the
reclassification was offset by an increase in accrued interest receivable
generated from the growth in the Company's loan portfolio.

    Liabilities

    Liabilities for the third quarter ended September 30, 2007 rose to
$4.35 billion, an increase of $861.0 million, or 24.7%, over the $3.49 billion
reported at September 30, 2006 and up by $724.1 million, or 20.0%, over the
$3.63 billion recorded at December 31, 2006.
    Most of the year-over-year growth resulted from increased deposits of
$847.7 million. Higher deposit liabilities funded all of the loan portfolio
growth along with adding to the Company's investment securities and cash
resources. Growth in retained earnings and other liabilities contributed to
the Company's securities portfolio and other assets. Other liabilities (refer
to Note 6 of these unaudited interim consolidated financial statements)
increased by $18.2 million, or 10.9%, over the $166.8 million reported at
September 30, 2006. This year-over-year growth was principally the result of
increases in accrued interest payable of $16.1 million related to higher
deposits and a $11.0 million increase in other liabilities resulting from the
timing of payments for the administration of the off-balance sheet MBS
portfolio. The growth was offset by a decline in deferred commitment fees
which are now classified with the associated mortgage loan. This was required
as a result of the new financial instrument standards that came into effect on
January 1, 2007 (refer to Note 2 to these unaudited interim consolidated
financial statements).
    The rise in liabilities over December 31, 2006 resulted primarily from
increased deposits of $716.9 million. Higher deposit liabilities were the
primary funding source for the loan portfolio growth for the nine months of
2007 as well as adding to the Company's investment securities and cash
resources. The increase in other liabilities (refer to Note 6 of these
unaudited interim consolidated financial statements) compared to the fourth
quarter of 2006 was driven by the same factors as discussed above, and offset
by the reclassification of the deferred commitment fees as discussed in Note 2
of these unaudited interim consolidated financial statements.

    Shareholders' Equity

    The increase in shareholders' equity of $62.7 million, or 24.0%, over the
$260.7 million reported at September 30, 2006 was internally generated from
net income of $86.5 million for the twelve-month period ended September 30,
2007, less adjustments from the adoption of new financial instrument
accounting standards of $9.3 million, and less $14.8 million for dividends
paid and payable to shareholders. The remaining increases were principally
from proceeds of $2.8 million received on the exercise of Company share
options and the amortization of the fair value of share options of
$0.9 million, offset by $3.4 million paid by the Company to repurchase capital
stock through the Normal Course Issuer Bid. The adjustments from the adoption
of the new financial instrument standards of $9.3 million is comprised of an
opening retained earning adjustment upon adoption of the standards of
$1.4 million offset by unrealized losses of $6.0 million and 3.4 million from
mortgage backed securities receivable and available for sale securities,
respectively. The unrealized losses on the mortgage backed securities
receivable are based on models that estimate the fair value of the expected
cash flows discounted at current market rates which have been indirectly
affected by unfavourable market conditions in the asset backed commercial
paper market that have caused a widening of credit spreads and an expectation
that a higher discount rate would be required to purchase these mortgage
backed securities receivable. The Company believes that existing abnormal
market conditions are temporary and that no sustained permanent impairment
exists.
    Shareholders' equity rose to $323.3 million, an increase of
$46.4 million, or 16.8%, over $276.9 million reported at December 31, 2006.
This growth of $46.4 million was internally generated from net income for the
nine months of $66.0 million, less adjustments from the adoption of new
financial instrument accounting standards of $9.3 million, less $11.0 million
for shareholder dividends. The remaining changes resulted from proceeds
received on the exercise of Company share options and the recording of the
fair market adjustment on stock options, offset by the Company's repurchase of
capital stock through the Normal Course Issuer Bid.
    At September 30, 2007 the book value per common share was $9.38, compared
to $8.10 at December 31, 2006, and $7.62 one year ago.

    Off-Balance Sheet Arrangements

    From time to time, the Company may enter into hedging transactions to
mitigate the interest exposure on outstanding loan and deposit commitments.
During the quarter ended September 30, 2007, the Company did not enter into
new interest rate swap contracts relating to hedging interest exposure on
outstanding loan commitments. During the quarter ended September 30, 2006 the
Company unwound $95.0 million of fixed forward interest rate swaps for a
realized gain of $2.1 million, leaving $30.0 million of fixed forward
contracts in place. The $30.0 million outstanding positions were marked-to-
market, recording an unrealized loss of $0.1 million in the consolidated
Statements of Income. During the third quarter of 2007, the Company
participated in the Canada Mortgage Bond program sponsored by CMHC. With this
participation the Company entered into both a seller swap arrangement and a
hedge swap arrangement to manage the mismatch and reinvestment risk associated
with this program. The notional value of the seller swap and hedge swap at
September 30, 2007 was $28.0 million and $0.3 million, respectively. These
swaps were marked-to-market at September 30, 2007 for an unrealized gain of
$0.1 million recorded in the consolidated Statements of Income. For additional
information refer to Note 10 of these accompanying unaudited interim
consolidated financial statements.
    The Company securitizes insured residential mortgage loans into special
purpose entities for liquidity funding and capital management purposes.
Transactions consist of the transfer of these loans to a Canadian trust
company as security, in exchange for cash. When these assets are sold, the
Company retains rights to certain excess interest spreads and servicing
liabilities, which constitute retained interests. The Company periodically
reviews the value of the retained interests, and any permanent impairment in
value is charged to income. The Company continues to administer all
securitized assets after the sales. As of September 30, 2007 outstanding
securitized mortgage loans under administration amounted to $1.35 billion
($1.11 billion - Q4 2006 and $1.04 billion - Q3 2006) and retained interest of
$50.1 million ($51.0 million - Q4 2006 and $50.5 million - Q3 2006). For
additional information, refer to Note 4 in the consolidated financial
statements of the 2006 Annual Report, and Note 4 of these accompanying
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 $288.0 million at September 30,
2007 compared to $201.8 million at December 31, 2006 and $176.5 million at
September 30, 2006. These commitments remain open for various dates through
October 2008. As of September 30, 2007 unutilized credit card balances
amounted to $69.2 million, compared to $66.8 million at December 31, 2006 and
$66.2 million at September 30, 2006.

    Contractual Arrangements

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

    Capital Management

    The capital base of Home Trust continues to be strongly positioned. The
Tier 1 capital ratio ended the quarter at 11.5%, down from the third and
fourth quarters of 2006. The total capital ratio was 12.9% at September 30,
2007 compared to 14.2% and 14.1% reported at December 31 and September 30,
2006. The decline in the Tier 1 capital ratios and total capital ratio when
compared to the comparative quarters was due to an intercompany dividend paid
during the third quarter of 2007 to fund the proposed acquisition of PSiGate.
These ratios continue to substantially exceed the minimum regulatory
requirements of 7.0% for Tier 1 capital and 10.0% for total capital.
    As at September 30, 2007, Home Trust was utilizing 81.9% of its approved
Assets to Regulatory Capital Multiple of 17.5 times (76.1% Q4 - 2006 and 77.6%
Q3 - 2006), providing sufficient capital for continued lending growth going
forward.

    Risk Management

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

    Credit Risk

    Credit risk management is the management of all aspects of borrower risk
associated with the total loan portfolio, including the risk of loss of
principal and/or interest from the failure of debtors to honour their
contractual obligations to the Company.
    As at September 30, 2007, the composition of the total mortgage portfolio
was 90.3% residential, 3.9% store and apartments, 3.3% commercial and 2.5%
other non-residential loans. Within the Company's residential mortgage
portfolio, 5.9% of the loans are insured by CMHC. First mortgages represent
99.5% of the total mortgage portfolio.
    As at September 30, 2007, the gross credit card receivable balance
totaled $303.5 million, comprised of $302.5 million, or 99.7% of the portfolio
secured either by cash deposits or residential mortgage collateral, and
$1.0 million, or 0.3% which is unsecured. The total credit approved includes
$371.3 million in secured and $1.4 million in unsecured credit, compared to
$294.2 million in secured and $2.4 million of unsecured credit at December 31,
2006 and $255.3 million in secured and $3.8 million of unsecured credit at
September 30, 2006. Within the secured credit card portfolio the Equityline
VISA credit cards represent the principal driver of receivable balance growth.
Equityline VISA credit cards are secured by a collateral residential mortgage,
and this portfolio segment amounted to $291.8 million of the total credit card
receivable balance as at September 30, 2007, compared to $215.9 million at
December 31, 2006 and $178.8 million at September 30, 2006. Cash deposits
securing credit card accounts amounted to $18.8 million, and are included in
the Company's deposits. The Company has experienced minimal losses on the
credit card portfolio. At September 30, 2007, $4.1 million, or 1.4%, of the
credit card portfolio was over 60 days in arrears.
    The secured loan portfolio of $81.8 million increased by $11.5 million
over the December 31, 2006 balance of $70.3 million, and $15.9 million over
the September 30, 2006 balance of $65.9 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 September 30, 2007,
$0.7 million, or 0.8%, was over 60 days in arrears. These loans are subject to
the same credit and lending criteria as the Company's residential mortgage
portfolio.
    Although the Company has experienced a rise in net impaired loans to
$23.6 million at September 30, 2007 compared with $22.8 million at
December 31, 2006 and $18.1 million at September 30, 2006, the Company has not
experienced any material rise in net loan write-offs. Additionally, net
impaired loans as a percentage of gross loans has improved from the second
quarter of 2007 ending the third quarter at 0.63%, down from 0.68% for the
second quarter. The Company continuously improves its underwriting efforts,
taking account of local market conditions in order to minimize the Company's
potential loss exposure. Experienced senior employees of the Company undertake
thorough reviews of all non-performing loans greater than 60 days to analyze
potential drivers and then reflect those drivers in the Company's lending
criteria. This analytical approach and constant attention to emerging trends
has resulted in continued low write-offs. Write-offs net of recoveries applied
against the accumulated allowance for credit losses realized on loans during
the nine-month period ended September 30, 2007 totaled $1.1 million, which is
up from both the comparable nine-month periods ended December 31, 2006 and
September 30, 2006. The Company continues to monitor this area closely and is
dealing prudently and effectively with impaired loans.
    The Company has ensured that it is well positioned for future losses by
increasing general allowances to $22.1 million at September 30, 2007, as
compared with the general allowances of $19.6 million at December 31, 2006,
and $19.1 million at September 30, 2006. The Company continues to monitor the
adequacy of the general allowance. The Company's actual loss experience on
mortgages has amounted to 0.03% per annum over the past 15 years, 0.01% for
the past 10 years, and 0.001% for the past 5 years. The Company has security
in the form of real property or cash deposits against loans consisting of
99.7% of the total loan 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 87.5 basis points of the Company's risk-
weighted assets as at September 30, 2007 compared to 95.1 basis points at
December 31, 2006 and 97.7 basis points at September 30, 2006.

    Liquidity Risk

    The Company maintains sufficient liquidity to fund its obligations as
they come due under normal operating conditions, as well as under various
stress scenarios, with a framework for minimum levels of liquid assets to be
held at all times. The Company holds liquid assets in the form of cash, bank
deposits, treasury bills, bankers acceptances, a small holding of bank-
sponsored asset backed commercial paper with term to maturity of 60 days or
less, and government or government guaranteed bonds and debentures to meet the
Company's liquidity requirements. Despite the liquidity crisis that occurred
during the past few months in the Canadian and global credit markets, the
Company has maintained more than sufficient liquidity to meet its obligations.
On September 30, 2007 liquid assets amounted to $626.8 million, up 84.9% from
$339.0 million at December 31, 2006 and 95.8% higher than the $320.2 million
at September 30, 2006.
    The Company's policy is to maintain a minimum 20% of 100-day obligations
in liquid assets. For the twelve months ended September 30, 2007 the Company
maintained an average of $401.9 million, or 45.7%, of 100-day obligations in
liquid assets compared to $288.0 million, or 41.3%, for the twelve months
ended December 31, 2006 and $266.8 million, or 41.3%, for the twelve-month
period ended September 30, 2006.

    Interest Rate Risk

    The objective of interest rate risk management is to ensure that the
Company is able to realize stable and predictable earnings over specific time
periods despite interest rate fluctuations. The Company has adopted a balanced
approach to the management of its asset and liability positions to prevent
interest rate fluctuations from materially impacting future earnings but will
attempt to match liabilities to assets through its actions in the deposit
market in priority to accessing off-balance sheet solutions.
    The interest rate sensitivity position as at September 30, 2007 is
presented under Note 11 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 11 summarizes both on- and off-balance sheet
assets and liabilities in terms of their contractual amounts. Over the course
of the lifetime of certain assets, some contractual obligations such as
residential mortgages will be terminated prior to their stated maturity at the
election of the borrower by way of prepayments. Similarly, some contractual
off-balance sheet mortgage commitments will be extended but not materialize.
In measuring its interest risk exposure, the Company will make assumptions
about these factors, taking into account aspects such as past borrower
history.
    In addition to matching assets and liabilities, the Company utilizes an
interest rate risk sensitivity model that measures the relationship between
changes in interest rates and the resulting impact on both future net interest
income and the economic value of shareholders' equity. As at September 30,
2007 a 1% decrease in interest rates would decrease net interest income over
the next twelve months after tax by approximately $3.7 million, and a 2% rate
decrease would also decrease net interest income after tax by approximately
$7.4 million. A 1% or 2% decrease in interest rates would also result in an
economic decrease in the present value of balance sheet net equity by
$6.8 million or $14.0 million, respectively.
    The Company has the ability to enter into interest rate swap arrangements
for the purpose of hedging commitment risk. The purpose is to manage interest
rate exposures during the time frame between when a mortgage commitment is
made and when this mortgage loan is securitized into an MBS pool. The Company
had no open interest rate swap arrangements specific to hedging commitment
risk as at September 30, 2007. Through the Company's participation in CMHC's
Canada Mortgage Bond program, the Company was required to enter into specific
swap agreements to hedge the reinvestment risk on the amortizing MBS pool and
the Canada Mortgage Bond. Refer to Note 10 of these unaudited interim
consolidated financial statements for additional information.

    Results by Business Segment

    The following section discusses the mortgage and consumer lending lines
of business for the third quarter and nine months of 2007, compared to both
periods of 2006 (refer to Note 12 of the accompanying unaudited interim
consolidated financial statements).

    Mortgage Lending

    The Company's principal line of business contributed $15.1 million to net
income during the third quarter of 2007, and $45.3 million for the nine months
of 2007, as compared to $12.0 million and $35.2 million for the same periods
ended September 30, 2006. The increase from the quarter one year prior was
primarily driven by increased loan originations and fee increases instituted
in late 2006 that were not reflected in the 2006 amounts. The total value of
new mortgages advanced in the third quarter and nine months of 2007 amounted
to $791.0 million and $1.96 billion, up 48.3% and 33.8% over the
$533.2 million advanced in the third quarter and $1.46 billion advanced during
the nine-month period ended September 30, 2006, respectively.
    The Company securitized $208.4 million of government guaranteed (CMHC)
residential mortgage loans through the creation of MBS securities during the
third quarter, and a total of $493.4 million for the nine months of 2007,
realizing total gains on securitization of $6.0 million during the quarter and
$14.7 million year-to-date. This compares to $153.1 million for the third
quarter of 2006 and $415.5 million for the nine months of 2006, resulting in
gains of $5.3 million and $12.2 million, respectively. During the quarter, the
Company participated in CMHC's Canada Mortgage Bond program. The Company
securitized $28.0 million of government guaranteed residential mortgage loans
through the creation of MBS securities which were sold through Canada Housing
Trust, realizing $1.3 million in gains. Securitization will continue to
contribute to the Company's income; however, core mortgage lending is expected
to remain the main driver of the Company's financial results going forward.
For additional information refer to Note 4 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 $81.8 million in Secured Loans as Notes
Receivable issued by Regency, compared to $70.3 million at December 31, 2006
and $65.9 million at September 30, 2006. These Notes yield 6.8% with an
average duration of 2.8 years. The Company also receives fee income for
servicing and administering these mortgages for Regency. This income amounted
to 0.6% of the portfolio value, on an annualized basis. The underlying credit
quality of the mortgage loans securing the Notes Receivable remains high, with
0.8% of the portfolio in arrears over 60 days. This program has experienced
only minor losses since inception and continues to provide the Company with
ancillary marketing opportunities in the residential first mortgage
marketplace.

    Consumer Lending - Credit Cards and Retail Services

    Consumer lending continued to generate strong results through the third
quarter of 2007. Net income for the quarter was $3.7 million, and
$11.0 million for the nine months of 2007, compared to $2.7 million and
$7.0 million for the comparable periods in 2006. The Equityline VISA loans
portfolio amounted to $291.8 million at September 30, 2007 ($215.9 million -
Q4 2006 and $178.8 million - Q3 2006) comprising 96.1% (94.0% - Q4 2006 and
92.7% - Q3 2006) of the total gross credit card receivable balance of
$303.5 million and bearing an average interest rate of 10.4% (10.2% - Q4 2006
and 9.9% - Q3 2006) on outstanding balances.

    Accounting Standards and Policies

    Critical Accounting Estimates

    Critical accounting estimates which require management to make
significant judgments, some of which are inherently uncertain, are outlined on
page 29 of the 2006 Annual Report. These estimates are critical since they
involve material amounts and require management to make estimates that, by
their very nature, include uncertainties. The preparation of unaudited interim
consolidated financial statements in accordance with GAAP requires management
to make estimates and assumptions, mainly concerning the valuation of items,
which affect the amounts reported. Actual results could differ from those
estimates.
    Accounting policies requiring critical accounting estimates include the
allowance for credit losses, securitization of Mortgage-Backed Securities,
future income tax liabilities and contingencies for litigation. Further
information can be found under Notes 3, 4, and 9 of the unaudited interim
consolidated financial statements. There have been no subsequent changes to
the critical accounting estimates disclosed on page 29 of the 2006 Annual
Report.

    Change in Accounting Policy

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

    Controls over Financial Reporting

    No changes were made in the Company's internal controls over financial
reporting during the interim period ended September 30, 2007 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.

    Updated Share Information

    As at October 25, 2007, the Company had issued 34,454,640 Common Shares.
In addition, outstanding director and employee stock options amounted to
1,170,000 (1,266,000 - Q4 2006 and 1,104,500 - Q3 2006) of which 596,250 are
exercisable as of the quarter-end (910,375 - Q4 2006 and 841,375 - Q3 2006)
for proceeds to the Company upon exercise of $7.3 million ($8.4 million - Q4
2006 and $6.7 million - Q3 2006).
    Subsequent to the end of the quarter, the Board of Directors declared a
quarterly cash dividend of $0.11 per Common Share payable on December 1, 2007
to shareholders of record at the close of business on November 15, 2007.
    Effective January 1, 2006, the Federal Government implemented a new
dividend tax regime for dividends paid by Canadian corporations to their
shareholders. The result of these changes is that the top federal personal
income tax rate on eligible dividends received by investors decreased by 5% in
2006. For the year ended December 31, 2006, all dividends paid by the Company
were eligible dividends and all dividends to be paid subsequently will be
considered eligible unless indicated otherwise.


    
    Quarterly Financial Highlights

    In thousands of dollars, except per share amounts and percentages

                                                                        2007
    -------------------------------------------------------------------------
                                                      Q3        Q2        Q1
    -------------------------------------------------------------------------
    Net Interest Income
     (TEB)(1)                                   $ 39,396  $ 37,647  $ 34,276
    Less TEB Adjustment                            1,084     1,118       942
    -------------------------------------------------------------------------
    Net Interest Income per
     Financial Statements(3)                      38,312    36,529    33,334
    Non-Interest Income(3)                        11,964    11,467    10,075
    Total Revenues(3)                             94,345    87,708    81,745
    Net Income                                    22,837    22,018    21,158
    Return on Common
     Shareholders' Equity                          28.9%     28.9%     29.3%
    Return on Average
     Total Assets                                   2.0%      2.1%      2.1%
    Earnings per Common Share
      Basic                                     $   0.66  $   0.64  $   0.62
      Diluted                                   $   0.65  $   0.63  $   0.61
    Book Value per Common Share                 $   9.38  $   8.98  $   8.70
    Efficiency Ratio
     (TEB)(1),(3)                                  25.9%     27.3%     26.7%
    Efficiency Ratio(3)                            26.4%     27.9%     27.3%
    Tier 1 Capital Ratio(2)                        11.5%     12.7%     12.8%
    Total Capital Ratio(2)                         12.9%     14.2%     14.3%
    Net Impaired Loans as
     % of Gross Loans                              0.63%     0.68%     0.74%
    Annualized Provision as
     % of Gross Loans                               0.2%      0.1%      0.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                              2006      2005
    -------------------------------------------------------------------------
                                  Q4        Q3        Q2        Q1        Q4
    -------------------------------------------------------------------------
    Net Interest Income
     (TEB)(1)               $ 33,040  $ 30,727  $ 29,072  $ 27,396  $ 27,745
    Less TEB Adjustment          841       764       740       651       708
    -------------------------------------------------------------------------
    Net Interest Income per
     Financial Statements(3)  32,199    29,963    28,332    26,745    27,037
    Non-Interest Income(3)    12,743     6,880     9,412     6,623     8,028
    Total Revenues(3)         81,053    70,621    68,495    62,380    62,787
    Net Income                20,518    16,618    16,496    14,183    16,881
    Return on Common
     Shareholders' Equity      30.5%     26.2%     27.6%     25.2%     31.9%
    Return on Average
     Total Assets               2.2%      1.8%      1.9%      1.7%      2.1%
    Earnings per Common
     Share
      Basic                 $   0.60  $   0.49  $   0.48  $   0.42  $   0.50
      Diluted               $   0.59  $   0.48  $   0.47  $   0.41  $   0.47
    Book Value per Common
     Share                  $   8.10  $   7.62  $   7.22  $   6.79  $   6.44
    Efficiency Ratio
     (TEB)(1),(3)              26.8%     32.0%     29.5%     32.2%     27.5%
    Efficiency Ratio(3)        27.3%     31.2%     30.1%     32.8%     28.0%
    Tier 1 Capital Ratio(2)    12.7%     12.5%     12.7%     12.9%     12.7%
    Total Capital Ratio(2)     14.2%     14.1%     14.4%     14.6%     14.5%
    Net Impaired Loans as
     % of Gross Loans          0.68%     0.56%     0.54%     0.51%     0.49%
    Annualized Provision as
     % of Gross Loans           0.1%      0.1%      0.1%      0.1%      0.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) TEB - taxable equivalent basis: see definition in these unaudited
        interim consolidated financial statements.
    (2) These figures relate to the Company's operating subsidiary, Home
        Trust Company
    (3) Reclassification - refer to Note 2 of these unaudited interim
        consolidated financial statements.
    

    The Company's key financial measures for each of the last eight quarters
are summarized in the preceding table. These highlights illustrate the
Company's profitability, return on equity, as well as efficiency measures and
capital ratios, quarter-over-quarter. The Company continues to achieve strong
financial results driven by improved net interest margins, strong revenue
growth in all business segments and continued low efficiency ratios (where the
lower the ratio the better). The Company has not experienced any material
mortgage loan write-offs and the quarter saw an improvement in the net
impaired loans as a percentage of gross loans which declined to 0.63% from
0.68% in the second quarter of 2007. The slight drop in the Tier 1 Capital
Ratio and Total Capital Ratio in the third quarter of 2007 compared to past
quarters was due to an intercompany dividend paid from Home Trust Company to
the parent company, Home Capital Group Inc., to provide financing for the
acquisition of PSiGate.

    Outlook

    Home Capital remains committed to serving selected segments of the
Canadian financial services marketplace that are not being served by the major
financial institutions. The Company is very well positioned to benefit from
favourable market and economic conditions across its business activities.
Despite the broad liquidity crisis that occurred during the quarter the
Company remains well capitalized with ample liquidity to meet the Company's
growth projections. As we move into the fourth quarter of 2007, the Canadian
economy continues to grow with historically low unemployment despite the
liquidity crisis and uncertainty in the U.S. marketplace. Interest rates are
expected to remain relatively stable into the first quarter of 2008 and the
Company continues to have strong growth in the mortgage pipeline. The Company
has a proven corporate strategy and proprietary risk management procedures to
manage the Company's further growth prospects.

    Certificate of Interim Consolidated Financial Statements

    The Interim Consolidated Financial Statements of Home Capital Group Inc.
were prepared by management, which is responsible for the integrity and
fairness of the financial information presented. Management has reviewed the
Interim Consolidated Financial Statements of Home Capital Group Inc. for the
period ended September 30, 2007. Based on our knowledge, the Interim
Consolidated Financial Statements do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or that
is necessary to make a statement not misleading in light of the circumstances
under which it was made, with respect to the period covered by the Interim
Consolidated Financial Statements. Based on this knowledge, the Interim
Consolidated Financial Statements together with the other financial
information included in the interim filings fairly present in all material
respects the financial condition, results of operations and cash flows of Home
Capital Group Inc. as of September 30, 2007.
    The Board of Directors and Audit and Risk Management Committee of Home
Capital Group Inc. reviewed this quarterly report. The disclosure controls and
procedures of Home Capital Group Inc. support the ability of the President and
Chief Executive Officer and the Chief Financial Officer of Home Capital Group
Inc. to assure that Home Capital's Interim Consolidated Financial Statements
are fairly presented.

    
    (signed)                                   (signed)

    Gerald M. Soloway                          Phil Braginetz, CFA
    President and Chief Executive Officer      Chief Financial Officer
    October 26, 2007



    Consolidated Statements of Income

                              Three Months Ended           Nine Months Ended
    -------------------------------------------------------------------------
    In Thousands of
     Dollars, Except
     Per Share
     Amounts          September 30  September 30  September 30  September 30
     (Unaudited)              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Income

    Interest from
     Loans             $    73,372   $    59,519   $   209,823   $   167,390
    Dividends from
     Securities              2,162         1,424         6,269         4,020
    Other Interest           6,848         2,797        14,201         7,171
    -------------------------------------------------------------------------
                            82,382        63,740       230,293       178,581
    -------------------------------------------------------------------------
    Interest Expense

    Interest on
     Deposits               44,070        33,777       122,118        93,540
    -------------------------------------------------------------------------
    Net Interest Income     38,312        29,963       108,175        85,041
    Provision for Credit
     Losses (Note 3)         2,103           974         3,593         3,117
    -------------------------------------------------------------------------
                            36,209        28,989       104,582        81,924
    -------------------------------------------------------------------------
    Non-interest Income

    Fees and Other
     Income                  5,415         2,722        15,089         7,514
    Securitization
     Income on Mortgage-
     Backed Securities       6,572         5,534        17,363        14,223
    Net Gain (Loss)
     Realized and
     Unrealized on
     Investment
     Securities               (159)          819           945         2,244
    Gain (Loss) on
     Derivatives               136        (2,196)          109        (1,067)
    -------------------------------------------------------------------------
                            11,964         6,879        33,506        22,914
    -------------------------------------------------------------------------
                            48,173        35,868       138,088       104,838
    -------------------------------------------------------------------------
    Non-interest Expenses

    Salaries and Staff
     Benefits                7,813         6,808        22,032        19,367
    Premises                   968           951         2,841         2,590
    General and
     Administration          4,508         4,268        13,638        12,357
    -------------------------------------------------------------------------
                            13,289        12,027        38,511        34,314
    -------------------------------------------------------------------------
    INCOME BEFORE
     INCOME TAXES           34,884        23,841        99,577        70,524
    Provision for
     Income Taxes
     (Note 9)               12,047         7,223        33,564        23,227
    -------------------------------------------------------------------------
    NET INCOME         $    22,837   $    16,618   $    66,013   $    47,297
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET INCOME PER
     COMMON SHARE

    Basic              $      0.66   $      0.49   $      1.92   $      1.39
    -------------------------------------------------------------------------
    Diluted            $      0.65   $      0.48   $      1.89   $      1.36
    -------------------------------------------------------------------------
    AVERAGE NUMBER OF
     COMMON SHARES
     OUTSTANDING
     (Thousands)

    Basic                   34,413        34,041        34,429        34,135
    -------------------------------------------------------------------------
    Diluted                 34,873        34,814        34,845        34,810
    -------------------------------------------------------------------------
    Total Number of
     Outstanding Common

     Shares (Note 7)        34,455        34,184        34,455        34,184
    Book Value Per
     Common Share      $      9.38   $      7.62   $      9.38   $      7.62
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Comprehensive Income

                              Three Months Ended           Nine Months Ended
    -------------------------------------------------------------------------
    In Thousands of
     Dollars          September 30  September 30  September 30  September 30
     (Unaudited)              2007          2006          2007          2006
    -------------------------------------------------------------------------
    NET INCOME FOR
     THE PERIOD        $    22,837   $    16,618   $    66,013   $    47,297
    -------------------------------------------------------------------------
    OTHER COMPREHENSIVE
     LOSS, NET OF TAX

    Unrealized Losses
     on Available for
     Sale Securities

      Net Unrealized
       Losses on
       Securities
       Available
       for Sale             (3,957)            -        (8,982)            -
      Transfers to
       Net Income              288             -        (1,076)            -
    -------------------------------------------------------------------------
    Total Other
     Comprehensive Loss     (3,669)            -       (10,058)            -
    -------------------------------------------------------------------------
    COMPREHENSIVE
     INCOME            $    19,168   $    16,618   $    55,955   $    47,297
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Balance Sheets

    In Thousands of Dollars         September 30   December 31  September 30
     (Unaudited)                            2007          2006          2006
    -------------------------------------------------------------------------
    ASSETS

    Cash Resources

    Deposits with Regulated
     Financial Institutions          $   449,396   $    43,701   $    52,119
    Treasury Bills Guaranteed
     by Canada                                 -        99,830        74,747
    -------------------------------------------------------------------------
                                         449,396       143,531       126,866
    -------------------------------------------------------------------------
    Securities

    Issued or Guaranteed by Canada             -       208,980       203,245
    Issued or Guaranteed by Provinces          -           299           299
    Other Securities                           -       134,855       122,670
    Held for Trading                      19,965             -             -
    Available for Sale                   367,411             -             -
    -------------------------------------------------------------------------
                                         387,376       344,134       326,214
    -------------------------------------------------------------------------
    Loans

    Personal and Credit Card Loans       312,261       237,037       200,016
    Secured Loans                         81,797        70,250        65,888
    Residential Mortgages              3,039,459     2,885,806     2,851,760
    Other Mortgages                      328,838       135,765        97,264
    General Allowance for Credit
     Losses (Note 3)                     (22,087)      (19,644)      (19,108)
    -------------------------------------------------------------------------
                                       3,740,268     3,309,214     3,195,820
    -------------------------------------------------------------------------
    Other

    Mortgage-Backed Securities
     Receivable (Note 4)                  50,124        50,963        50,499
    Capital Assets                         4,664         4,691         4,522
    Other Assets (Note 5)                 40,992        49,783        45,268
    -------------------------------------------------------------------------
                                          95,780       105,437       100,289
    -------------------------------------------------------------------------
                                     $ 4,672,820   $ 3,902,316   $ 3,749,189
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS'
     EQUITY

    LIABILITIES

    Deposits
     Payable on Demand               $    13,608   $    27,871   $    14,412
     Payable on a Fixed Date           4,146,888     3,415,769     3,298,428
    -------------------------------------------------------------------------
                                       4,160,496     3,443,640     3,312,840
    -------------------------------------------------------------------------
    Other

    Cheques and Other Items
     in Transit                            3,989         2,655         8,864
    Other Liabilities (Note 6)           185,030       179,155       166,832
    -------------------------------------------------------------------------
                                         189,019       181,810       175,696
    -------------------------------------------------------------------------
                                       4,349,515     3,625,450     3,488,536
    Commitment (note 13)                       -             -             -
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY

    Capital Stock (Note 7)                34,567        34,551        35,261
    Contributed Surplus                    1,523           783           622
    Retained Earnings                    297,903       241,532       224,770
    Accumulated Other
     Comprehensive Loss                  (10,688)            -             -
    -------------------------------------------------------------------------
                                         323,305       276,866       260,653
    -------------------------------------------------------------------------
                                     $ 4,672,820   $ 3,902,316   $ 3,749,189
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Changes in Shareholders' Equity

                              Three Months Ended           Nine Months Ended
    -------------------------------------------------------------------------
    In Thousands of
     Dollars          September 30  September 30  September 30  September 30
     (Unaudited)              2007          2006          2007          2006
    -------------------------------------------------------------------------
    CAPITAL STOCK

    Common Shares

    Balance at
     Beginning of
     the Period        $    36,403   $    35,192   $    34,551   $    34,272
    Proceeds of
     Options Exercised         124           219         2,695         1,139
    Normal Course
     Issuer Bid             (1,960)         (150)       (2,679)         (150)
    -------------------------------------------------------------------------
    BALANCE AT END
     OF THE PERIOD     $    34,567   $    35,261   $    34,567   $    35,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS

    Balance at
     Beginning of
     the Period        $     1,256   $       510   $       783   $       306
    Amortization of
     Fair Value of
     Employee Stock
     Options (Note 8)          285           112           808           334
    Employee Stock
     Options Exercised         (18)            -           (68)          (18)
    -------------------------------------------------------------------------
    BALANCE AT END OF
     THE PERIOD        $     1,523   $       622   $     1,523   $       622
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS

    Balance at
     Beginning of
     the Period        $   279,201   $   210,887   $   241,532   $   184,307
    Transitional
     Adjustment on
     Adoption of
     Financial
     Instruments,
     Net of Tax of
     $786 (Note 2)               -             -         1,391             -
    Net Income for
     the Period             22,837        16,618        66,013        47,297
    Dividends Paid
     During the Period        (345)         (339)       (7,243)       (4,438)
    Dividends Declared,
     Unpaid During
     the Period             (3,790)       (2,396)       (3,790)       (2,396)
    -------------------------------------------------------------------------
    BALANCE AT END
     OF THE PERIOD     $   297,903   $   224,770   $   297,903   $   224,770
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE LOSS

    Balance at
     Beginning of
     the Period        $    (7,019)                $         -
    Transitional
     Adjustment on
     Adoption of
     Financial
     Instruments,
     Net of Tax of
     $664 (Note 2)               -                        (630)
    Other
     Comprehensive
     Loss                   (3,669)                    (10,058)
    -------------------------------------------------------------------------
    BALANCE AT END
     OF THE PERIOD     $   (10,688)                $   (10,688)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Cash Flows

                              Three Months Ended           Nine Months Ended
    -------------------------------------------------------------------------
    In Thousands of
     Dollars          September 30  September 30  September 30  September 30
     (Unaudited)              2007          2006          2007          2006
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     OPERATING
     ACTIVITIES

    Net Income for
     the Period        $    22,837   $    16,618   $    66,013   $    47,297

    Adjustments to
     Determine Cash
     Flows Relating
     to Operating
     Activities:

      Future Income
       Taxes                   914          (492)          926         1,767
      Amortization           2,089           181         8,293           592
      Provision for
       Credit Losses         2,103           974         3,593         3,117
      Change in Accrued
       Interest Payable      6,069         3,815        13,059        11,462
      Change in Accrued
       Interest
       Receivable           (1,975)       (1,501)       (4,076)       (2,887)
      Net Loss (Gain)
       Realized and
       Unrealized on
       Investment
       Securities              159          (819)         (945)       (2,244)
      Loss (Gain) on
       Derivatives            (136)        2,196          (109)        1,067
      Net Unrealized
       Gain on
       Securities
       Available
       for Sale             (2,491)            -        (6,675)            -
      Securitization
       Income on
       Mortgage-Backed
       Securities           (6,572)       (5,534)      (17,363)      (14,223)
      Amortization of
       Fair Value of
       Employee Stock
       Options (Note 8)        285           112           808           334
      Other                  1,851         6,021           587           160
    -------------------------------------------------------------------------
    Cash Provided by
     Operating
     Activities             25,133        21,571        64,111        46,442
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     FINANCING
     ACTIVITIES

    Repayment of Term
     Loan                        -        (5,000)            -       (10,000)
    Net Increase in
     Deposits              352,337       185,761       718,704       417,379
    Issuance of
     Capital Stock             124           219         2,695         1,139
    Normal Course
     Issuer Bid             (1,960)         (150)       (2,679)         (150)
    Dividends Paid          (3,795)       (2,391)      (10,319)       (6,139)
    -------------------------------------------------------------------------
    Cash Provided by
     Financing
     Activities            346,706       178,439       708,401       402,229
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     INVESTING
     ACTIVITIES

    Activity in
     Available for
     Sale and Held for
     Trading Securities

      Purchases            (26,008)            -      (140,955)            -
      Proceeds from
       Sales                 3,888             -        29,792             -
      Proceeds from
       Maturities           23,127             -        63,247             -
    Activity in
     Securities
      Purchases                  -       (65,550)            -      (163,970)
      Proceeds from
       Sales                     -         7,618             -        31,933
      Proceeds from
       Maturities                -        18,534             -        37,229
    Activity in Mortgages
      Net Increase        (355,703)     (242,051)     (840,579)     (711,372)
      Proceeds from
       Securitization of
       Mortgage-Backed
       Securities          202,536       149,028       480,041       404,874
      Change in Mortgage-
       Backed Securities
       Receivable           11,581         6,419        30,478        15,691
    Net Increase in
     Personal and
     Credit Card Loans     (20,875)      (32,096)      (75,741)      (83,845)
    Net Increase in
     Secured Loans          (3,748)       (9,767)      (11,667)      (22,379)
    Proceeds from
     Leasehold
     Inducements                 -             -             -         1,009
    Purchases of
     Capital Assets           (286)         (569)       (1,263)       (2,118)
    -------------------------------------------------------------------------
    Cash Used in
     Investing
     Activities           (165,488)     (168,434)     (466,647)     (492,948)
    -------------------------------------------------------------------------
    Net Increase
     (Decrease) in
     Cash and Cash
     Equivalents           206,351        31,576       305,865       (44,277)
    Cash and Cash
     Equivalents at
     the Beginning of
     the Period            243,045        95,290       143,531       171,143
    -------------------------------------------------------------------------
    Cash and Cash
     Equivalents at
     the End of
     the Period        $   449,396   $   126,866   $   449,396   $   126,866
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary
     Disclosure of
     Cash Flow
     Information

    Amount of Interest
     Paid During
     the Period        $    42,234   $    28,238   $   109,059   $    76,903
    Amount of Income
     Taxes Paid During
     the Period             10,774         7,841        35,461        28,822
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 FINAN-CIAL STATEMENTS

    These unaudited interim consolidated financial statements should be read
    in conjunction with the audited consolidated financial statements for
    the year ended December 31, 2006 as set out in the 2006 Annual Report, on
    pages 32 through 52. These unaudited interim consolidated financial
    statements have been prepared in accordance with Canadian generally
    accepted accounting principles. Except as disclosed in Note 2 and
    Note 14, the accounting policies and methods of application used in the
    preparation of these unaudited interim consolidated financial statements
    are consistent with the accounting policies used in Home Capital Group
    Inc.'s (the "Company") most recent annual audited financial statements.
    These unaudited interim consolidated financial statements reflect
    amounts which must, of necessity, be based on the best estimates and
    judgement of management with appropriate consideration as to materiality.
    Actual results may differ from these estimates.

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

    2.  CHANGE IN ACCOUNTING POLICY

    Financial Instruments

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

    Determination of Fair Value

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

    Transaction Costs

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

    Classification of Financial Instruments

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

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

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

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

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

    Transitional Adjustments

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

    -------------------------------------------------------------------------
                                     December 31,     Retained
    In Thousands of Dollars                 2006      Earnings          AOCI
    -------------------------------------------------------------------------
    ASSETS

    Cash Resources                   $   143,531   $        (1)  $         -
    Securities                           344,134           164            70
    Loans                              3,309,214            47             -
    Other                                105,437             -          (700)
    -------------------------------------------------------------------------
                                     $ 3,902,316   $       210   $      (630)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS'
     EQUITY

    LIABILITIES

    Deposits                         $ 3,443,640   $     1,181   $         -
    Other Liabilities                    181,810             -             -
    -------------------------------------------------------------------------
                                       3,625,450         1,181             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY

    Capital Stock                         34,551             -             -
    Retained Earnings                    241,532         1,391             -
    Contributed Surplus                      783             -             -
    Accumulated Other
     Comprehensive Loss                        -             -          (630)
    -------------------------------------------------------------------------
                                         276,866             -             -
    -------------------------------------------------------------------------
                                     $ 3,902,316   $     1,391   $      (630)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The impact of the reclassification of the deferred expenses and
    commitment fees on the consolidated statements of income for the three-
    and nine-month periods ended September 30, 2007 is as follows:

                                                  Three Months   Nine Months
                                                         Ended         Ended
    -------------------------------------------------------------------------
                                                  September 30, September 30,
    In Thousands of Dollars                               2007          2007
    -------------------------------------------------------------------------
    Consolidated Statement of Income

    Interest from Loans                            $     2,292   $     6,298
    Fees and Other Income                               (4,528)      (12,832)
    -------------------------------------------------------------------------
    Decrease to Income                             $    (2,236)  $    (6,534)
    -------------------------------------------------------------------------

    Interest on Deposits                           $       283   $     4,516
    General and Administration                          (2,519)      (11,050)
    -------------------------------------------------------------------------
    Decrease to Expenses                           $    (2,236)  $    (6,534)
    -------------------------------------------------------------------------

    3. LOANS

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

                                                    As at September 30, 2007
    -------------------------------------------------------------------------
                                 Gross Amount of      Specific      Carrying
    In Thousands of Dollars       Impaired Loans    Allowances         Value
    -------------------------------------------------------------------------
    Personal, Credit Card and
     Secured Loans                   $     2,378   $       450   $     1,928
    Residential Mortgages                 21,260           229        21,031
    Other Mortgages                          610             -           610
    -------------------------------------------------------------------------
                                     $    24,248   $       679   $    23,569
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


                                                    As at September 30, 2006
    -------------------------------------------------------------------------
    Personal, Credit Card and
     Secured Loans                   $       868   $       142   $       726
    Residential Mortgages                 17,314            50        17,264
    Other Mortgages                           95             -            95
    -------------------------------------------------------------------------
                                     $    18,277   $       192   $    18,085
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    3. LOANS (B) Allowance for Credit Losses

                                For the Nine Months Ended September 30, 2007
    -------------------------------------------------------------------------
                                                       General
                                       Specific  Allowance for
    In Thousands of Dollars          Allowances    Credit Risk         Total
    -------------------------------------------------------------------------
    Balance at the Beginning
     of the Period                   $       642   $    19,644   $    20,286
    Provisions for Credit Losses
     for the Current Period                1,150         2,443         3,593
    Write-offs                            (1,337)            -        (1,337)
    Recoveries                               224             -           224
    -------------------------------------------------------------------------
    Balance at the End of the Period $       679   $    22,087   $    22,766
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                 For the Nine Months Ended December 31, 2006
    -------------------------------------------------------------------------
    Balance at the Beginning
     of the Period                   $       198   $    17,267   $    17,465
    Provisions for Credit Losses
     for the Current Period                1,166         2,377         3,543
    Write-offs                              (934)            -          (934)
    Recoveries                               212             -           212
    -------------------------------------------------------------------------
    Balance at the End of the Period $       642   $    19,644   $    20,286
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                For the Nine Months Ended September 30, 2006
    -------------------------------------------------------------------------
    Balance at the Beginning
     of the Period                   $       162   $    16,586   $    16,748
    Provisions for Credit Losses
     for the Current Period                  595         2,522         3,117
    Write-offs                              (781)            -          (781)
    Recoveries                               216             -           216
    -------------------------------------------------------------------------
    Balance at the End of the Period $       192   $    19,108   $    19,300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    4. LOAN SECURITIZATIONS

    The following tables summarize the Company's new securitization
    activities for the three- and nine-month periods.

    In Thousands
     of Dollars,
     Except
     Percentages       For the Three Months Ended  For the Nine Months Ended
    -------------------------------------------------------------------------
                      September 30  September 30  September 30  September 30
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Book Value of
     Mortgages
     Securitized       $   208,370   $   153,130   $   493,413   $   415,533
    Retained Interests $    12,593   $    10,031   $    29,803   $    24,303
    Servicing
     Liability         $       343   $       236   $       794   $       668
    Net Proceeds
     Received on
     Securitized
     Mortgages         $   202,536   $   149,028   $   480,041   $   404,874
    Gain on Sales      $     6,005   $     5,313   $    14,656   $    12,188
    Prepayment Rate          13.0%         12.7%         13.1%         12.7%
    Excess Spread             2.6%          2.8%          2.6%          2.5%
    Discount Rate             4.5%          4.2%          4.3%          4.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the third quarter of 2007, the Company securitized residential
    mortgages with a book value of $28.0 million through CHMC's Canada
    Mortgage Bond Program. The gain on sale through this program was
    $1.3 million for the quarter.

    5. OTHER ASSETS
                                    September 30   December 31  September 30
    In Thousands of Dollars                 2007          2006          2006
    -------------------------------------------------------------------------
    Accrued Interest Receivable      $    23,122   $    19,046   $    18,121
    Income Taxes Receivable                1,432             -           287
    Deferred Agent Commission
     (Note 2)                                  -         9,198         8,804
    Deferred Finders Fees
     (Note 2)                                  -         8,356         8,360
    Goodwill                               2,324         2,324         2,324
    Other Prepaid Assets and
     Deferred Items                       14,114        10,859         7,372
    -------------------------------------------------------------------------
                                     $    40,992   $    49,783   $    45,268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    6. OTHER LIABILITIES
                                    September 30   December 31  September 30
    In Thousands of Dollars                 2007          2006          2006
    -------------------------------------------------------------------------
    Accrued Interest Payable         $   124,979   $   111,920   $   108,853
    Income Taxes Payable                       -         3,788             -
    Dividends Payable                      3,790         3,076         2,396
    Deferred Commitment Fees
     (Note 2)                                  -        12,213        11,676
    Future Income Taxes (Note 9)          15,174        12,733        13,782
    Other, Including Accounts
     Payable and Accrued
     Liabilities                          41,087        35,425        30,125
    -------------------------------------------------------------------------
                                     $   185,030   $   179,155   $   166,832
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    7. CAPITAL STOCK

    Issued and Outstanding

    In Thousands of Dollars,                      For the Three Months Ended
    -------------------------------------------------------------------------
    Except Per Share
     Amounts                  September 30, 2007          September 30, 2006
    -------------------------------------------------------------------------
                         Number of                   Number of
    Common Shares           Shares        Amount        Shares        Amount
    -------------------------------------------------------------------------
    Outstanding at
     Beginning of
     Period                 34,502   $    36,403        34,157   $    35,192
    Options Exercised           10           124            32           219
    Normal Course
     Issuer Bid                (57)       (1,960)           (5)         (150)
    -------------------------------------------------------------------------
    Outstanding at
     End of Period          34,455   $    34,567        34,184   $    35,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    In Thousands of Dollars,                       For the Nine Months Ended
    -------------------------------------------------------------------------
    Except Per Share
     Amounts                  September 30, 2007          September 30, 2006
    -------------------------------------------------------------------------
                         Number of                   Number of
    Common Shares           Shares        Amount        Shares        Amount
    -------------------------------------------------------------------------
    Outstanding at          34,166   $    34,551        34,012   $    34,272
     Beginning of
     Period                    366         2,695           177         1,139
    Options Exercised
    Normal Course
     Issuer Bid                (77)       (2,679)           (5)         (150)
    -------------------------------------------------------------------------
    Outstanding at
     End of Period          34,455   $    34,567        34,184   $    35,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    In Thousands of Dollars,                      For the Three Months Ended
    -------------------------------------------------------------------------
                                        Weighted-                   Weighted-
                                         average                     average
    Share Purchase       Number of      Exercise     Number of      Exercise
     Options                Shares         Price        Shares         Price
    -------------------------------------------------------------------------
    Outstanding at
     Beginning of
     Period                  1,130   $     21.76         1,132   $     13.26
      Granted                   50         36.02            30         31.20
      Exercised                (10)        10.56           (32)         6.76
      Forfeited                  -             -           (25)        34.69
    -------------------------------------------------------------------------
    Outstanding at
     End of Period           1,170   $     22.47         1,105   $     13.45
    -------------------------------------------------------------------------
    Exercisable, End
     of Period                 596   $     12.31           841   $      7.98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    In Thousands of Dollars,                       For the Nine Months Ended
    -------------------------------------------------------------------------
                                        Weighted-                   Weighted-
                                         average                     average
    Share Purchase       Number of      Exercise     Number of      Exercise
     Options                Shares         Price        Shares         Price
    -------------------------------------------------------------------------
    Outstanding at
     Beginning of
     Period                  1,266   $     15.43         1,272   $     12.32
      Granted                  270         34.73            40         33.91
      Exercised               (366)         7.18          (177)         6.32
      Forfeited                  -             -           (30)        34.78
    -------------------------------------------------------------------------
    Outstanding at
     End of Period           1,170   $     22.47         1,105   $     13.45
    -------------------------------------------------------------------------
    Exercisable, End
     of Period                 596   $     12.31           841   $      7.98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    8. STOCK BASED COMPENSATION

    For all options issued after January 1, 2003 the Company has recognized a
    compensation expense. During the third quarter of 2007, $285,000 was
    recorded as an expense for a total of $808,000 for the first nine months
    of 2007 ($112,000 - Q3 2006 and $334,000 - nine months 2006) for stock
    option awards in the consolidated statements of income, with an off-
    setting credit to contributed surplus. The fair value of options granted
    in the first nine months of 2007 is estimated at the date of granting
    using the Black-Scholes valuation model with the following assumptions:
    risk-free interest rate of 4.1%, anticipated option life of 5.5 years,
    anticipated volatility of 27.3%, and anticipated dividend yield of 1.0%.
    During the quarter ended September 30, 2007, 50,000 options were granted.
    For the nine-month period ended September 30, 2007, stock options granted
    totalled 270,000 and these granted options will vest subject to
    performance targets over a four-year period at a rate of 25% per year,
    expiring over a period of seven years.

    For those options issued prior to January 1, 2003, no compensation
    expense has been recognized. Had these options been subject to the same
    accounting policy they would have no effect on the third quarter of 2007
    as they would have been fully expensed. However, the impact on previous
    comparable quarters would have reduced net income ($46,000 - Q3 2006 and
    $172,000 - nine months 2006) and net income and earnings per share would
    have been reported as follows:


                      For the Three Months Ended   For the Nine Months Ended
    -------------------------------------------------------------------------
                      September 30  September 30  September 30  September 30
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Pro-forma Net
     Income (in
     Thousands of
     Dollars)          $    22,837   $    16,572   $    66,013   $    47,125
    Pro-forma
     Earnings per
     Share - Basic     $      0.66   $      0.49   $      1.92   $      1.38
    Pro-forma
     Earnings per
     Share - Diluted   $      0.65   $      0.48   $      1.89   $      1.35
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9. INCOME TAXES

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

                      For the Three Months Ended   For the Nine Months Ended
    -------------------------------------------------------------------------
    In Thousands      September 30  September 30  September 30  September 30
     of Dollars               2007          2006          2007          2006
    -------------------------------------------------------------------------
    Income Before
     Income Taxes      $    34,884   $    23,841   $    99,577   $    70,524
    -------------------------------------------------------------------------
    Income Taxes at
     Statutory
     Combined
     Federal and
     Provincial
     Income Tax
     Rates                  12,602         8,681        35,969        25,460
    Increase
     (Decrease) in
     Income Taxes at
     Statutory Income
     Tax Rates
     Resulting From:
     Tax-exempt
     Income                   (693)         (488)       (2,008)      (1,376)
    Non-deductible
     Expenses                  270            79           478          226
    Other                     (132)       (1,049)         (875)      (1,083)
    -------------------------------------------------------------------------
    Income Tax         $    12,047   $     7,223   $    33,564   $   23,227
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sources of Future Income Tax Balances:

    In Thousands      September 30   December 31  September 30
     of Dollars               2007          2006          2006
    -----------------------------------------------------------
    Future Income
     Tax Liabilities

    Deferred Agent
     Commissions and
     Other Charges     $     8,657   $     6,251   $     6,233
    Mortgage-Backed
     Securities
     Receivable             17,638        17,995        17,913
    -----------------------------------------------------------
                            26,295        24,246        24,146
    -----------------------------------------------------------
    Future Income
     Tax Assets

    Allowance for
     Credit Losses           6,757         6,028         5,728
    Mark-to-market
     Adjustments to
     Securities
     (Note 2)                    -         1,216           480
    Deferred Commitment
     Fees and Other
     Charges                 4,364         4,269         4,156
    -----------------------------------------------------------
                            11,121        11,513        10,364
    -----------------------------------------------------------
    Net Future Income
     Tax Liability     $    15,174   $    12,733   $    13,782
    -----------------------------------------------------------
    -----------------------------------------------------------

    10. DERIVATIVE FINANCIAL INSTRUMENTS

    The Company utilized off-balance sheet financial instruments during the
    first nine months of 2007. During this period the Company entered into
    economic hedge swap transactions with a major financial institution. The
    Company can utilize interest rate swaps to hedge the economic value
    exposure of movements in interest rates between the time that the
    mortgages are committed to be funded under asset securitization, and the
    time the mortgages are actually sold. (These mortgages qualify for
    government insurance.) The intent of the swap is to have fair value
    movements in the swap be effective in offsetting the fair value movements
    in the pool of mortgages over the period in which the fixed rate pool may
    be exposed to movements in the variable interest rate, generally 60 to
    150 days. The interest rate swaps referred to as "pay-fixed interest rate
    swaps" are structured such that the Company agrees to pay a fixed rate
    (as designated in the swap) and receives the floating rate (as designated
    in the swap). Further, the Company participates in the Canada Mortgage
    Bond program sponsored by CMHC. In this program, the Company sells five-
    year MBS pools to Canada Housing Trust who finance 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 swap, with changes in the fair value
    of the swap being recognized in the consolidated statements of income.

    There were no outstanding interest rate swaps to hedge commitment risk at
    September 30, 2007. During the first quarter of 2007, the Company entered
    into $20.0 million of interest rate swap contracts. These contracts were
    unwound in the first quarter of 2007 for a negligible loss. The notional
    amount of interest rate swaps purchased duing the nine months of 2006
    amounted to $230.0 million, with $30.0 million remaining at September 30,
    2006, consisting of $20.0 million of three-year and $10.0 million of
    five-year swaps maturing in January 2007. The outstanding interest rate
    swaps at September 30, 2006 were marked-to-market for unrealized losses
    of $0.1 million. The total of the realized and unrealized losses of
    $1.1 million was reported in the consolidated statements of income under
    derivatives. With respect to the Canada Mortgage Bond program, at
    September 30, 2007 the Company notionally held $28.0 million of seller
    swaps, and $0.3 million of accreting hedge swaps. These outstanding swap
    arrangements at September 30, 2007 were marked-to- market for unrealized
    gains of $0.1 million.

    11. 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 September 30, 2007, December 31, 2006
    and September 30, 2006 for selected period intervals. Figures in brackets
    represent an excess of liabilities over assets or a negative gap
    position.


    -------------------------------------------------------------------------
    In Thousands             Floating       0 to 3     3 Months
     of Dollars                  Rate       Months    to 1 Year  1 to 3 Years
    -------------------------------------------------------------------------
    September 30, 2007

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

    December 31, 2006

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

    September 30, 2006
    Total Assets          $    43,120 $    556,575  $ 1,069,382  $ 1,542,561
    Total Liabilities
     and Equity                     -      531,829    1,489,931    1,067,162
    Off-balance Sheet Items         -      133,211        9,176      (45,622)
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $    43,120 $   (108,465) $  (429,725) $   521,021
    -------------------------------------------------------------------------
    Cumulative Gap        $    43,120 $    (65,345) $  (495,070) $    25,951
    -------------------------------------------------------------------------
    Cumulative Gap as a
     % of Total Assets           1.2%        (1.7%)      (13.2%)        0.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ------------------------------------------------------------
    In Thousands                 Over  Non-interest
     of Dollars               3 Years    Sensitive        Total
    ------------------------------------------------------------
    September 30, 2007

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

    December 31, 2006

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

    September 30, 2006

    Total Assets           $  422,184 $    115,367  $ 3,749,189
    Total Liabilities
     and Equity               223,918      436,349    3,749,189
    Off-balance Sheet Items   (96,765)           -            -
    ------------------------------------------------------------
    Interest Rate
     Sensitive Gap         $  295,031 $   (320,982) $         -
    ------------------------------------------------------------
    Cumulative Gap         $  320,982 $          -  $         -
    ------------------------------------------------------------
    Cumulative Gap as a
     % of Total Assets           8.6%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

    12. 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 and installment
    lending to customers of retail business. The other category includes the
    Company's treasury and securities investment activities.

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

    -------------------------------------------------------------------------
    Thousands of Dollars                                  Three Months Ended
    -------------------------------------------------------------------------
                                  Mortgage Lending          Consumer Lending
    -------------------------------------------------------------------------
                             Sept. 30     Sept. 30     Sept. 30     Sept. 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income   $    24,507  $    21,456  $     5,349  $     4,037
    Provisions for Credit
     Losses                    (1,715)        (536)        (388)        (438)
    Fees and Other Income       3,329          635        2,010        2,038
    Net Gain on Securities,
     Derivatives &
     Mortgage-Backed
     Securities                 6,708        3,338            -            -
    Non-interest Expense       (8,958)      (7,953)      (1,127)      (1,364)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     23,871       16,940        5,844        4,273
    Income Taxes               (8,801)      (4,907)      (2,110)      (1,543)
    -------------------------------------------------------------------------
    Net Income            $    15,070  $    12,033  $     3,734  $     2,730
    -------------------------------------------------------------------------
    Total Assets          $ 3,538,193  $ 3,133,553  $   320,867  $   209,389
    -------------------------------------------------------------------------


                                             Other                     Total
    -------------------------------------------------------------------------
                             Sept. 30     Sept. 30     Sept. 30     Sept. 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income         8,456  $     4,470  $    38,312  $    29,963
    Provisions for Credit
     Losses                         -            -       (2,103)        (974)
    Fees and Other Income          76           49        5,415        2,722
    Net Gain on Securities,
     Derivatives &
     Mortgage-Backed
     Securities                  (159)         819        6,549        4,157
    Non-interest Expense       (3,204)      (2,710)     (13,289)     (12,027)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                      5,169        2,628       34,884       23,841
    Income Taxes               (1,136)        (773)     (12,047)      (7,223)
    -------------------------------------------------------------------------
    Net Income            $     4,033  $     1,855  $    22,837  $    16,618
    -------------------------------------------------------------------------
    Total Assets          $   813,760  $   406,247  $ 4,672,820  $ 3,749,189
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Thousands of Dollars                                   Nine Months Ended
    -------------------------------------------------------------------------
                                  Mortgage Lending          Consumer Lending
    -------------------------------------------------------------------------
                             Sept. 30     Sept. 30     Sept. 30     Sept. 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income   $    72,383  $    62,855  $    15,348  $    10,444
    Provisions for Credit
     Losses                    (2,327)      (1,826)      (1,266)      (1,291)
    Fees and Other Income       8,699        1,705        6,138        5,684
    Net Gain on Securities,
     Derivatives &
     Mortgage-Backed
     Securities                17,472       13,156            -            -
    Non-interest Expense      (26,306)     (23,158)      (2,990)      (3,929)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     69,921       52,732       17,230       10,908
    Income Taxes              (24,671)     (17,506)      (6,223)      (3,940)
    -------------------------------------------------------------------------
    Net Income            $    45,250  $    35,226  $    11,007  $     6,968
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $ 3,538,193  $ 3,133,553  $   320,867  $   209,389
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                            Other                     Total
    -------------------------------------------------------------------------
                             Sept. 30     Sept. 30     Sept. 30     Sept. 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net Interest Income   $    20,444  $    11,742  $   108,175  $    85,041
    Provisions for Credit
     Losses                         -            -       (3,593)      (3,117)
    Fees and Other Income         252          125       15,089        7,514
    Net Gain on
     Securities,
     Derivatives &
     Mortgage-Backed
     Securities                   945        2,244       18,417       15,400
    Non-interest Expense       (9,215)      (7,227)     (38,511)     (34,314)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     12,426        6,884       99,577       70,524
    Income Taxes               (2,670)      (1,781)     (33,564)     (23,227)
    -------------------------------------------------------------------------
    Net Income            $     9,756  $     5,103  $    66,013  $    47,297
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $   813,760  $   406,247  $ 4,672,820  $ 3,749,189
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. COMMITMENT

    On August 16, 2007 the Company announced that it had entered into a
    definitive support agreement with Payment Services Interactive Gateway
    Corp. (PSiGate) pursuant to which the Company had offered to purchase all
    of the issued and outstanding common shares of PSiGate for cash
    consideration of $1.60 per common share. On October 16, 2007, 11,013,629
    (95.9%) PSiGate common shares were tendered to the Company's offer.

    14. SUBSEQUENT EVENT

    Subsequent to the quarter, Home Trust Asset Management Inc. ("HTAM")
    obtained regulatory approval to operate as an Investment Counsellor /
    Portfolio Manager and as a Limited Market Dealer. HTAM is 100% owned by
    Home Trust and included in these consolidated financial statements.

    15. FUTURE ACCOUNTING CHANGES

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

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

    Home Capital Group Inc. is a holding company, publicly traded on the
Toronto Stock Exchange (HCG), operating through its principal subsidiary,
Home Trust Company. Home Trust is a federally regulated trust company offering
deposit, mortgage lending, retail credit and credit card issuing 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, President & CEO, or Nick
Kyprianou, Sr. Vice President & COO, (416) 360-4663, www.homecapital.com


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