Home Capital Reports Strong Fourth Quarter Results Earnings Rise by 21.6%, Return on Equity at 30.5%



    TORONTO, Feb. 15 /CNW/ - Home Capital Group Inc. (TSX: HCG) today
announced positive financial results for the fourth quarter of 2006, across
all areas of its business. Particularly strong growth was experienced in net
income and earnings per share, driven by enhanced yields from the mortgage
portfolio and growth in the Equityline VISA operation. Towards the end of the
quarter, the Company achieved another growth milestone as total assets,
including Mortgage-Backed Securities ("MBS") administered by Home Trust,
reached $5.01 billion.
    As was anticipated by the end of the third quarter, the continuing
positive lending climate across Canada, and a stable interest rate environment
resulted in solid growth and returns for the Company. Key results from the
fourth quarter and twelve months of 2006 included:

    
    -   Net income during the fourth quarter was $20.5 million, an increase
        of 21.6% over the $16.9 million recorded during the same period last
        year. Earnings for the full twelve months of 2006 rose by 11.4% to
        $67.8 million, from the $60.9 million reported for 2005.

    -   Basic earnings per share were $0.60, 20.0% above the $0.50 in the
        fourth quarter of 2005. Diluted earnings per share were $0.59, a rise
        of 25.5% from the $0.47 recorded for the fourth quarter last year.
        Basic income per share for the twelve months rose from $1.80 to
        $1.99, and on a diluted basis from $1.72 to $1.95.

    -   Return on equity was 30.5% for the fourth quarter, and 27.4% for the
        twelve months of 2006, compared to 31.9% for both the fourth quarter
        and full twelve months of 2005.

    -   Total assets at December 31, 2006 reached $3.90 billion, 18.8% higher
        than the $3.28 billion reported one year earlier, and 4.1% higher
        than the $3.75 billion at September, 2006. Total assets, including
        MBS originated and administered by the Company, grew 22.6% to
        $5.01 billion, compared to $4.09 billion at December 2005.

    -   Total mortgage originations were $519.8 million during the fourth
        quarter, an increase of 14.8% from the $452.8 million advanced in the
        same period last year. Originations for the twelve months amounted to
        $1.98 billion, an increase of 14.6% from the $1.73 billion advanced
        during 2005.

    -   The efficiency ratio (TEB) was 32.8% for the fourth quarter, an
        improvement from the 33.8 % recorded during the same period of 2005.
        The ratio was 36.4% for the twelve months of 2006, above 34.9% for
        the prior year.

    -   Outstanding balances on the Equityline VISA portfolio were
        $215.9 million, a substantial rise of 20.8% from the $178.8 million
        recorded at September 2006 and an increase of 130.8% over the
        $93.5 million for December 2005. During the twelve months,
        4,882 credit card accounts with $210.2 million in authorized credit
        limits were issued, compared to 2,528 cards and $90.1 million in
        authorized credit limits for the twelve months ending December 2005,
        representing increases of 93.1% and 133.2%, respectively.

    -   Net impaired loans represented 0.68% of the total loans portfolio, up
        from 0.49% at the end of 2005, and from 0.56% at September 2006.
        Mortgage write-offs in the fourth quarter were negligible. The
        Company does not anticipate any material increase in write-offs in
        the foreseeable future.
    

    After considerable analysis and evaluation, Home Trust commenced a new
area of business activity during the fourth quarter, namely high quality
commercial mortgage lending. The first loan advanced under this program was
$28.3 million secured by a pool of commercial first mortgages. Home Trust's
loan was less than 25% of the face value of the pool of mortgages, each of
which was reviewed by Home Trust and determined to be of good quality,
performing and under 75% loan to value.
    Home Trust is entering this business in order to utilize its excess
borrowing capacity in a low risk manner and has determined that there is a
niche in the marketplace for a lender with Home Trust's skills to effectively
compete in commercial mortgage lending.
    As is consistent with our previous approach when pursuing new
opportunities, we intend to gradually develop this business over the upcoming
quarters. The loan that closed late in the fourth quarter had no material
earnings impact on the period, however, we are optimistic that this area of
lending will become a meaningful contributor to income and asset growth going
forward.
    The Company closed the office in Hamilton subsequent to the end of the
quarter, and consolidated operations into the Toronto office in order to
increase efficiency and improve service to the broker community. All the
lending staff are now working from our Toronto location and early feedback
indicates the move is producing positive results.
    Subsequent to the end of the quarter, Home Capital's Board of Directors
declared a quarterly dividend of $0.09 per share, payable on March 1, 2007 to
shareholders of record at the close of business on February 15, 2007.
    Home Capital anticipates that the restored levels of business growth and
profitability which the Company experienced in the fourth quarter will
continue into the first quarter of 2007, and throughout the year ahead. As a
result the Company has set the following targets for 2007: 20% growth in total
earnings, 20% growth in diluted earnings per share, 20% total asset growth
(including MBS), and 25% return on shareholders' equity.

    We look forward to a very good year in 2007.

    
    GERALD M. SOLOWAY                          WILLIAM A. DIMMA
    President and Chief Executive Officer      Chairman of the Board
    February 14, 2007
    

    FOURTH QUARTER RESULTS CONFERENCE CALL
    The conference call will take place on Thursday, February 15, 2007 at
10:30 a.m. Participants are asked to call 5 to 15 minutes in advance,
416-644-3416 in Toronto or toll-fee 1-800-732-9303 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.
Thursday, February 15, 2007 and midnight Thursday, February 22, 2007 by
calling 416-640-1917 or 1-877-289-8525 (enter passcode 21216000 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.

    
    Financial Highlights
                                 Three Months Ended          Year Ended
    For the Period Ended
     December 31 (Unaudited)
    In Thousands of Dollars
     (Except Per Share and
     Percentage Amounts)            2006        2005        2006        2005
    -------------------------------------------------------------------------
    OPERATING RESULTS
    Net Income                $   20,518  $   16,881  $   67,815  $   60,861
    Total Revenue                 83,246      64,803     291,288     243,106
    Earnings per Share
      - Basic                 $     0.60  $     0.50  $     1.99  $     1.80
      - Diluted                     0.59        0.47        1.95        1.72
    Return on Shareholders'
     Equity                       30.54%      31.94%      27.36%      31.94%
    Return on Average Assets       2.15%       2.14%       1.89%       2.08%
    Efficiency Ratio              33.42%      34.42%      37.00%      35.52%
    Efficiency Ratio (TEB)(xx)    32.85%      33.80%      36.35%      34.86%
    (Non-interest Expense/Net
     Interest Income Plus Fee
     Income)
    -------------------------------------------------------------------------
    BALANCE SHEET HIGHLIGHTS
    Total Assets                                      $3,902,316  $3,284,829
    Loans                                              3,309,214   2,796,873
    Deposits                                           3,443,640   2,901,515
    Common Shareholders' Equity                          276,866     218,885
    Mortgage-Backed Security
     Assets Under Administration                       1,107,562     800,184
    -------------------------------------------------------------------------
    FINANCIAL STRENGTH
    Capital Measures
    Risk Adjusted Assets(*)                           $2,066,447  $1,650,590
    Tier 1 Capital Ratio(*)                               12.65%      12.68%
    Total Capital Ratio(*)                                14.24%      14.46%
    Credit Quality
    Net Impaired Loans % of
     Gross Loans                                           0.68%       0.49%
    Allowance % of Gross
     Impaired Loans                                       86.53%     120.59%
    Annualized Provision % of
     Gross Loans                                           0.13%       0.11%
    Share Information
    Book Value per Common Share                       $     8.10  $     6.44
    Common Share Price - Close                             34.05       34.75
    Market Capitalization                              1,163,340   1,181,904
    Common Shares Outstanding
     - Number                                             34,166      34,012
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)  These figures relate to the Company's operating subsidiary, Home
         Trust Company.
    (xx) See definition of Taxable Equivalent Basis ("TEB") in this interim
         consolidated financial report.
    

    Management's Discussion and Analysis

    Caution Regarding Forward-Looking Statements
    From time to time Home Capital Group (the "Company" or "Home Capital")
makes written and verbal forward-looking statements. These statements include,
but are not limited to, business objectives and targets, Company strategies,
operations, anticipated financial results and the outlook for the Company, its
industry, and the Canadian economy. These are included in the Annual Report,
periodic reports to shareholders, regulatory filings, press releases, Company
presentations and other Company communications. Actual results may differ
materially from results contemplated by the forward-looking statements. These
forward-looking statements are subject to a number of risks and uncertainties.
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 revenue on a TEB to provide
uniform measurement and comparisons of net interest income. Net interest
income (as presented in the consolidated statements of income) includes
tax-exempt income on certain securities. The adjustment to TEB increases
income and the provision for income taxes to what they would have been had the
tax-exempt securities been taxed at the statutory tax rate. The TEB adjustment
of $0.8 million for the quarter and $3.0 million for the twelve-month period
ended December 31, 2006 ($0.7 million and $2.8 million for the comparable
quarter and twelve-month period in 2005, respectively) increases 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 presented on a TEB basis throughout this Management's Discussion and
Analysis (refer to financial highlights).

    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' web site 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 December 31, 2006 included herein and the audited
consolidated financial statements and MD & A for the year ended December 31,
2005. These are available on SEDAR at www.sedar.com and on pages 8 through 50
of the Company's 2005 Annual Report. Except as discussed in the unaudited
interim consolidated financial statements and MD & A, all other factors
discussed and referred to in the MD & A for fiscal 2005 remain substantially
unchanged. These interim consolidated financial statements and MD & A have
been prepared based on information available as at February 13, 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 this document, on the Audit and Risk Management Committee's
recommendation.

    2006 Performance and 2006 Objectives
    Home Capital published its financial objectives for 2006 in the Company's
2005 Annual Report, found on page 10. The following table compares actual
performance against these objectives.

    
    -------------------------------------------------------------------------
                                                Year Ended December 31, 2006
                               2006 Objectives                Actual Results
    -------------------------------------------------------------------------
                                                    11.4% increase over last
    Net Income                     $73 million         year or $67.8 million


    Diluted Earnings                                13.4% increase over last
     per Share                 $2.06 per share       year or $1.95 per share

    Combined Total Assets
     and Assets Under                               22.6% increase over last
     Administration              $4.90 billion         year or $5.01 billion

    Return on Equity                       20%                         27.4%

    Efficiency Ratio (TEB)(*)   38.0% to 43.0%                         36.4%

    Capital Ratio - Tier 1     Minimum of 9.5%                         12.7%

    Capital Ratio - Total     Minimum of 12.5%                         14.2%

    Provision for Loan
     Losses as a Percentage
     of Total Loans               0.1% to 0.2%                          0.1%
    -------------------------------------------------------------------------
    (*) TEB - The taxable equivalent basis does not have a standardized
        meaning prescribed by Canadian generally accepted accounting
        principals ("GAAP") and therefore, may not be comparable to similar
        measures presented by other banks. Refer to the definition of TEB
        above.

    FINANCIAL HIGHLIGHTS

    Income Statement Highlights for the Quarter
    -   The Company achieved record earnings during the quarter. Net income
        rose 21.6% over the comparable quarter in 2005. The Company saw
        improved operating results in all lines of business, driving growth
        in both net interest income and non-interest income.
    -   Net interest income was up 18.5% over the comparable quarter in 2005
        as the Company's income-producing assets grew by 18.8%.
    -   Non-interest income was up 49.4% over the comparable quarter in 2005,
        driven by growth in fee income from increased mortgage and credit
        card originations and changes to fees on the Company's mortgage
        products.
    -   The efficiency ratio (TEB) improved with a decrease to 32.9% during
        the quarter as management continued their efforts to manage expenses.
    -   Diluted earnings per share for the quarter increased 25.5% to $0.59
        compared to $0.47 for the fourth quarter of 2005.
    -   Return on average shareholders' equity was 30.5% for the quarter
        compared to 31.9% for the quarter ended December 31, 2005.

    Balance Sheet Highlights for the Quarter
    -   Total assets at December 31, 2006 grew 18.8% to reach $3.90 billion
        compared to the $3.28 billion reported at December 31, 2005. This
        asset growth was driven by our residential mortgage portfolio which
        increased 11.7% and significant growth in our personal and credit
        card loan portfolio led by Equityline VISA, which grew 130.8% from
        December 31, 2005.

    -   Deposit liabilities as at December 31, 2006 grew 18.7% to reach
        $3.44 billion as compared to the $2.90 billion reported at
        December 31, 2005. This growth was required to fund our loan
        portfolio expansion.
    

    EARNINGS REVIEW

    Net Interest Income
    Net interest income was $32.4 million in the quarter, an increase of
$5.1 million, or 18.5%, over the $27.3 million reported during the same
quarter of 2005. Net interest income for the year was $118.6 million, up $15.3
million, or 14.8%, over the $103.3 million reported in the same twelve-month
period of 2005. This increase was the result of the growth in interest earning
assets of $600.1 million over December 31, 2005, compared to an increase of
$532.1 million in interest bearing liabilities. The net interest margin (on a
TEB basis) for the quarter and twelve-month periods ended December 31, 2006
were 3.5% and 3.4% respectively. Both the quarter and twelve-month periods net
interest margins (on a TEB basis) declined by 0.1% from the comparable quarter
and twelve-month periods ended December 31, 2005, at 3.6% and 3.5%,
respectively. The interest spread between loans and borrowings ended the
quarter and twelve-month periods at 3.5%, down from 3.6% during the comparable
quarter of 2005 and from 3.7% in the comparable twelve-month period ended
December 31, 2005. Although the spread between lending and borrowing was
somewhat compressed in comparison to the spread achieved in 2005, the Company
did experience an increase in spread during the fourth quarter when compared
to the previous quarters in 2006.
    The mortgage lending line of business continues to be the primary driver
of increased net interest income. Net interest income earned through the
mortgage lending business contributed $22.7 million during the quarter and
$86.7 million for the twelve-month period ended December 31, 2006, up from
$21.1 million during the comparable quarter and $78.2 million for the
twelve-month period ended December 31, 2005.
    The consumer lending line of business had a strong year as it saw
significant growth of 104.4% in income producing assets. Net interest income
earned through the consumer lending line of business contributed $4.6 million
during the quarter and $15.1 million for the twelve-month period ended
December 31, 2006, up from $2.8 million during the comparable quarter and
$10.3 million for the twelve-month period ended December 31, 2005.
    Note 10 of the accompanying unaudited interim consolidated financial
statements summarizes the Company's interest rate risk position as at December
31, 2006. This table illustrates that up to one year the Company has a
deficient cumulative dollar gap of $441.4 million (liabilities and off-balance
sheet items exceed total assets) compared to deficiencies of $280.6 million at
December 31, 2005 and $495.1 million at September 30, 2006. The deficiency in
the cumulative gap reverts to a surplus in the one to three year timeframe for
the current period comparable to the other periods presented in the table.
This reduced gap balance in the one to three year timeframe is due to
shorter-term deposit rates being high, which resulted in very little
difference between the one-year and five-year rates. Depositors are choosing
shorter-term investments, reducing the duration of the Company's liabilities
while borrowers are looking to longer term funding.

    Non-Interest Income
    Total non-interest income was $16.7 million for the quarter and
$50.1 million for the twelve-month period ended December 31, 2006, an increase
of $5.5 million and $6.8 million from the comparable quarter and twelve-month
periods ended December 31, 2005.
    The fees and other income component of non-interest income increased to
$9.9 million for the quarter and $28.0 million for the twelve-month period
ended December 31, 2006, compared to $5.4 million and $21.4 million for the
comparable quarter and twelvemonth periods ended December 31, 2005. The
mortgage line of business contributed $7.8 million of this income in the
quarter and $20.1 million for the twelve-month period ended December 31, 2006,
compared to $3.5 million and $14.6 million for the comparable quarter and
twelve-month periods ended December 31, 2005. The Company revisited its
mortgage fee structures and changes have been instituted in the current
quarter to more appropriately align fee arrangements with the Company's level
of service. The consumer lending line of business contributed $2.0 million in
fee income during the quarter and $7.7 million for the twelve-month period
ended December 31, 2006, compared to $1.8 million and $6.7 million for the
comparable quarter and twelve-month periods ended December 31, 2005.
    The Company issued six MBS pools during the quarter, consisting of
$130.7 million of Canada Mortgage and Housing Corporation ("CMHC") insured
residential mortgages, for a total issuance of MBS pools in 2006 of
$546.3 million. This represents a decrease of $9.2 million over the $139.9
million in MBS pools that were issued in the comparable quarter of 2005 and an
increase of $115.5 million over the $430.8 million issued during the
twelve-month period ended December 31, 2005. Gains of $5.7 million from
securitizations were realized in the quarter, and $17.9 million for the
twelve-month period ended December 31, 2006, up from $4.9 million in the
comparable quarter of 2005 and down from the $19.2 million realized in the
comparable twelve-month period ended December 31, 2005. (Refer to Note 3 of
the unaudited interim consolidated financial statements.)
    The decrease in securitization gains for the twelve-month period ended
December 31, 2006 was due to the Company taking a higher estimate for
unscheduled prepayments on the underlying mortgages and slightly reduced
spreads over the year. The estimated annual prepayment rate rose to 12.7% for
the twelve-month period ended December 31, 2006 compared to 9.2% for the
twelve-month period ended December 31, 2005. The spreads earned on the MBS
pools declined a modest 0.1% from those experienced during the twelvemonth
period ended December 31, 2005. In contrast, gains during the quarter
increased by $0.8 million in comparison to the same quarter of 2005. Although
the prepayment rate during the quarter rose to 12.9% from 10.2% in the same
quarter of 2005, the excess spread achieved on the current quarter's pools, at
3.1%, significantly exceeded the spreads on the pools in the same quarter of
2005 at 2.7%.

    Non-Interest Expenses
    Total non-interest expenses for the quarter were $16.4 million, an
increase of $3.1 million, or 23.7%, over the comparable quarter of 2005 and up
$10.3 million, or 19.8%, over the twelve-month period ended December 31, 2005.
The primary driver of the increase in noninterest expense over the previous
year's quarter and twelve-month period was increased staffing levels year over
year. The Company ended this quarter with 350 employees, up slightly from
347 employees at September 30, 2006 and well above the 274 employees at
December 31, 2005. Salary expenses were down from the third quarter by 4.3% as
a result of an adjustment to the average bonus pay-out per employee under the
Company's bonus program being lower than the amount projected earlier in the
year. It is anticipated that there will only be modest increases in staffing
levels over the next few quarters.
    Premises expenses for the quarter and the twelve-month period ended
December 31, 2006 increased $0.3 million and $1.1 million respectively, due to
a relocation in early 2006 to larger offices in Toronto and the acquisition of
additional space in the Company's St. Catharines, Ontario office to
accommodate staffing growth and to provide capacity for enhanced back-up
systems.
    General and administrative expenses increased by $0.7 million over the
fourth quarter of 2005, and $3.3 million over the twelve-month period ended
December 31, 2005. This increase was related primarily to variable expenses
that are volume driven. Lending growth has expanded the Company's requirement
for deposits and ancillary services, which in turn increased deposit
commissions, referral expenses and other operating expenses. In addition,
moving expenses were incurred during the first quarter for the Toronto office
move and additional equipment purchases increased the depreciation expense for
both the quarter and twelve-month periods ended December 31, 2006.
    The efficiency ratio (TEB) ended the quarter at 32.9% and 36.4% for the
twelve-month period ended December 31, 2006. This was an improvement from the
33.8% achieved for the comparable quarter of 2005, and down from the
efficiency ratio (TEB) of 34.9% achieved for the twelve-month period ended
December 31, 2005. The improvement in the efficiency ratio (TEB) for the
fourth quarter reflects ongoing efforts by management to reduce all
controllable expense areas. The target efficiency ratio (TEB) for 2006 of
between 38% and 43% was achieved.

    Provision for Credit Losses
    The Company expensed $1.3 million during the quarter and $4.4 million for
the twelve-month period ended December 31, 2006 through the provision for
credit losses, compared to $0.1 million for the comparable quarter and
$3.1 million for the twelve-month period ended December 31, 2005. For the
twelve-month period ended December 31, 2006 this expense translates to 0.1% of
total loans on an annualized basis. The Company continues to add to its
general allowance for credit losses primarily in response to the growth of the
loan portfolio and total assets. The total general allowance amounted to
$19.6 million at December 31, 2006 representing an increase of $3.0 million
over the $16.6 million at December 31, 2005 and a $0.5 million rise over the
$19.1 million allowance at September 30, 2006. Growth in the general allowance
for the three- and twelve-month periods ended December 31, 2006 were 2.8% and
18.4% respectively, lower than total asset growth of 4.1% and 18.8%
respectively.
    At December 31, 2006 net impaired loans increased to $22.8 million (0.68%
of gross loans), compared to $13.7 million (0.49% of gross loans) at
December 31, 2005 and $18.1 million (0.56% of gross loans) at September 30,
2006. The rise in net impaired loans has not resulted in a material increase
in loan write-offs, as indicated in Note 2 to the unaudited interim
consolidated financial statements. Total net loans written-off during the
twelve-month period increased slightly to $0.9 million, compared to $0.6
million for the same period in 2005.

    Income Taxes
    Income tax expenses amounted to $10.9 million (effective tax rate of
34.6%) for the quarter and $34.1 million (effective tax rate of 33.5%) for the
twelve-month period ended December 31, 2006, compared to $8.3 million
(effective tax rate of 32.9%) for the comparable quarter and $30.6 million
(effective tax rate of 33.5%) for the twelve-month period ended December 31,
2005. In the absence of tax-free dividends, the effective tax rates would have
been 36.3% for the quarter and 35.3% for the twelve-month period ended
December 31, 2006.
    In June 2006, the federal government enacted legislation to reduce
corporate tax rates for taxation years commencing 2008. Future tax assets and
liabilities have been revalued and the net effect was to increase income taxes
in the amount of $0.5 million in the fourth quarter, compared to a reduction
in the third quarter of $0.8 million. This resulted in a net reduction for the
year of $0.3 million.

    BALANCE SHEET REVIEW

    Assets
    Total assets as at December 31, 2006 reached $3.90 billion, an increase
of $617.5 million, or 18.8%, over the $3.28 billion reported at December 31,
2005 and up $153.1 million, or 4.1%, over the September 30, 2006 asset balance
of $3.75 billion.
    Growth in the loans portfolio of $512.3 million, or 18.3%, contributed to
most of the year-over-year asset increase. Residential mortgages contributed
$302.1 million to the total loan portfolio growth, personal and credit card
loans contributed $120.4 million, other mortgages (non-residential)
contributed $66.2 million and secured loans contributed $26.7 million.
Mortgage-Backed Securities receivables contributed $9.7 million to total asset
growth. The Company's securities portfolio increased by $115.4 million over
December 31, 2005 while cash resources decreased by $27.6 million
year-over-year as the Company shifted funds into higher yielding government
instruments. Other assets consisting of accrued interest receivable, deferred
agent commissions, deferred finders fees and other prepaid and deferred assets
(refer to Note 4 in the unaudited interim consolidated financial statements)
increased by $7.3 million from December 31, 2005. Despite the growth in the
loans portfolio and deposits, both deferred finders fees and deferred agent
commissions declined. Commission fees are amortized over the terms of deposits
and shortening average deposit terms resulted in the decreased deferred asset.
    Growth in the loans portfolio of $113.4 million, or 3.6%, was the
principal contributor to asset growth over the September 30, 2006 total asset
balance. Within the loans portfolio growth arose from other mortgages
(non-residential) of $38.5 million, personal and credit card loans of
$37.0 million, residential mortgages of $34.1 million and secured loans of
$4.4 million. Cash resources increased by $16.7 million and securities
increased by $17.9 million, resulting from excess funds raised through
deposits and internally generated earnings. All remaining other assets
increased by $5.2 million, consisting of Mortgage-Backed Securities
receivable, accrued interest receivable, deferred assets and capital assets.

    Liabilities
    Liabilities for the year ended December 31, 2006 rose to $3.63 billion,
an increase of $559.5 million, or 18.3%, over the $3.07 billion reported at
December 31, 2005 and up by $136.9 million, or 3.9%, over the $3.49 billion
reported at September 30, 2006.
    The deposits raised by the Company are primarily used to fund the lending
activity. As such, the year-over-year growth in deposits of $542.1 million
funded the increases in the loans portfolio. Increased retained earnings and
other liabilities, along with deposits growth funded the Company's increase in
investment securities and other assets. Other liabilities (refer to Note 5 of
the unaudited interim consolidated financial statements) increased by
$31.7 million, or 21.5%, over the $147.4 million reported at December 31,
2005. This growth was principally the result of increases in accrued interest
payable of $14.5 million, which related to the rise in deposits. Accounts
payable and accrued liabilities added $14.1 million and the increase in
deferred commitment fees that resulted from the expansion of the mortgage loan
portfolio, increased other liabilities by $2.4 million.
    The term loan outstanding at December 31, 2005 in the amount of
$10.0 million had been fully repaid as at December 31, 2006.
    The rise in liabilities of $136.9 million, or 3.9%, since September 30,
2006 resulted primarily from increased deposits of $130.8 million. Increased
deposit liabilities funded all of the loan portfolio growth for the quarter
ended December 31, 2006. All remaining other liabilities increased by
$6.1 million, or 3.5%, since September 30, 2006 driven by higher accrued
interest payable on deposits, income taxes payable and accounts payable and
accrued liabilities.

    Shareholders' Equity
    The increase in shareholders' equity of $58.0 million, or 26.5%, over the
$218.9 million reported at December 31, 2005 was internally generated from net
income for the year of $67.8 million, less $10.6 million for dividends paid
and payable to shareholders. The remaining $0.8 million was from share option
transactions, including proceeds of $1.2 million received on the exercise of
Company share options and the amortization of the fair value of share options
of $0.5 million, which was offset by $0.9 million paid by the Company to
repurchase capital stock through the Normal Course Issuer Bid.
    As at December 31, 2006 shareholders' equity rose to $276.9 million, an
increase of $16.2 million, or 6.2%, over the $260.7 million reported at
September 30, 2006. This growth was internally generated from net income for
the three months of $20.5 million, less $3.7 million for dividends paid or
payable to shareholders. The remaining $0.6 million was from proceeds received
on the exercise of Company share options and the recording of fair value
adjustments on stock options, reduced by the repurchase of capital stock
through the Normal Course Issuer Bid.
    At December 31, 2006 the book value per common share reached $8.10
compared to $7.62 at September 30, 2006 and $6.44 at December 31, 2005.

    Off-Balance Sheet Arrangements
    From time to time, the Company may enter into hedging transactions to
mitigate the interest exposure on outstanding loan commitments. Throughout the
quarter ended December 31, 2006, the Company did not enter into any new
interest rate swap contracts. As a result of prior quarter transactions, the
Company unwound the remaining $30.0 million of fixed forward interest rate
swaps and realized a negligible loss which was recorded in the Consolidated
Statements of Income. For additional information refer to Note 9 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. These
transactions consist of the transfer of these loans to a Canadian trust
company 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. On a quarterly basis, the Company reviews the
value of the retained interests and any impairment in value is charged to
income, if applicable. The Company continues to administer all securitized
assets after the sales. As of December 31, 2006 outstanding securitized
mortgage loans under administration amounted to $1.11 billion ($1.04 billion -
Q3 2006 and $800.2 million - Q4 2005) and retained interest of $51.0 million
($50.5 million - Q3 2006 and $41.3 million - Q4 2005). For additional
information refer to Note 5 in the consolidated financial statements of the
2005 Annual Report, and Note 3 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 $201.8 million at December 31,
2006 compared to $176.5 million at September 30, 2006 and $176.3 million at
December 31, 2005. These commitments remain open for various dates through
January 2008. As of December 31, 2006 unutilized available credit card
balances amounted to $66.8 million, compared to $66.2 million at September 30,
2006 and $49.5 million at December 31, 2005.

    BUSINESS AND FINANCIAL PRACTICES

    The Company's key business and financial policies and practices remain in
place and unchanged from those outlined on pages 22 through 26 of the MD & A
contained in the Company's 2005 Annual Report, with the exception of the new
hedging program to manage interest rate risk on mortgage commitments,
described above and in Note 9 of these accompanying unaudited interim
consolidated financial statements.

    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, within a framework of 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 and government or government
guaranteed bonds and debentures to meet the Company's liquidity requirements.
At December 31, 2006 liquid assets amounted to $339.0 million, up 18.2% from
$286.9 million at December 31, 2005 and 5.9% from $320.2 million at
September 30, 2006.
    The Company maintains a minimum of 20% of 100-day obligations in liquid
assets. For the twelve-month period ended December 31, 2006 the Company
maintained an average of $288.0 million, or 41.3%, of 100-day obligations
compared to $216.1 million, or 46.4%, for the twelve-month period ended
December 31, 2005.

    Interest Rate Risk
    The objective of interest rate risk management is to ensure that the
Company can realize stable and predictable earnings over specific time
periods. 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. The interest rate sensitivity position
as at December 31, 2006 is presented under Note 10 in these unaudited interim
consolidated financial statements. The table provided represents these
positions at a point in time, and the gap represents the difference between
assets and liabilities in each maturity category.
    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 the economic value of
shareholders' equity. As at December 31, 2006 an immediate and sustained
100 basis point (1%) increase in rates would have decreased the economic value
of shareholders' equity over the next twelve months by $0.5 million after tax,
and a 200 basis point (2%) rate increase would result in a similar decline in
shareholders' equity of $0.9 million after tax.
    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 timeframe between when a mortgage commitment is made
and when this mortgage loan is securitized into an MBS pool. The Company has
not entered into any interest rate swap arrangements during the quarter. Refer
to Note 9 of the unaudited interim consolidated financial statements for
additional information.

    Credit Risk
    Credit risk management is the management of all aspects of borrower risk
associated with the loan portfolios, including the risk of loss of principal
and/or interest from the failure of debtors to honour their contractual
obligations to the Company.
    As at December 31, 2006 the composition of the Company's mortgage
portfolio was 95.5% residential, 3.1% store and apartments, and 1.4%
non-residential loans. Within the residential mortgage portfolio, 4.8% are
insured by CMHC. First mortgages represent 99.7% of the total mortgage
portfolio. The increase in the non-residential loans was the result of $28.3
million of lending during the quarter in new commercial properties. This
commercial loan is secured by a bundle of commercial properties and the loan
only represents 25% of the total face value of these non-residential loans.
    The gross credit card receivable balance ended the year at $229.8 million
up $120.6 million, or 110.4%, from the $109.2 million reported at December 31,
2005. The balance at December 31, 2006 was comprised of $228.2 million, or
99.3%, in accounts secured either by cash deposits or residential mortgage
collateral, and $1.6 million, or 0.7%, that is unsecured. The total credit
approved includes $294.2 million in secured and $2.4 million in unsecured
credit, compared to $255.3 million in secured and $3.8 million unsecured at
September 30, 2006 and $153.7 million in secured and $5.0 million unsecured at
December 31, 2005. The Company no longer offers new unsecured accounts.
Equityline VISA credit cards are secured by a collateral residential mortgage,
and this product amounted to $215.9 million of the credit card receivable
balance at December 31, 2006 compared to $178.8 million on September 30, 2006
and $93.5 million at December 31, 2005. Cash deposits for securing credit card
accounts amounted to $19.8 million, which is included in the Company's
deposits and borrowings.
    Secured loans of $70.3 million increased by $4.4 million over the
September 30, 2006 balance of $65.9 million and $26.7 million over the
December 31, 2005 balance of $43.6 million. These loans are secured by second
mortgages on residential property. The Company has experienced insignificant
losses on these loans. At December 31, 2006 $0.4 million were over 30 days in
arrears, or 0.5% of the secured loans portfolio. These loans are subject to
credit and lending criteria similar to the Company's core residential mortgage
portfolio.
    Net impaired loans rose to $22.8 million at December 31, 2006 compared
with $18.1 million at September 30, 2006 and $13.7 million at December 31,
2005; however the Company has not experienced a significant increase in net
loan write-offs. Write-offs, net of recoveries applied against the accumulated
allowance for credit losses, realized on loans during the twelve-month period
ended December 31, 2006 were $0.9 million as compared to $0.6 million for the
twelve-month period ended December 31, 2005. The Company continues to monitor
this area closely and manages impaired loan situations effectively and
prudently.
    The Company has ensured that it is well positioned for any unforeseen
future losses by establishing general allowances totalling $19.6 million at
December 31, 2006 as compared to the general allowances of $19.1 million at
September 30, 2006 and $16.6 million at December 31, 2005.
    Following a review of prior years' loss experiences and the lending
criteria in place, 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. In addition, the Company has
security in the form of real property or cash deposits on loans making up
99.8% of the total loan portfolio. The Company has developed a methodology 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 95.1 basis points of the Company's
risk-weighted assets at December 31, 2006, compared to 97.7 basis points at
September 30, 2006 and 100.5 basis points at December 31, 2005.

    Capital Management
    The capital base of the Company's operating subsidiary, Home Trust
Company ("Home Trust"), continues to be strongly positioned. The Tier 1
capital ratio ended the year at 12.7%, the same level as at December 31, 2005
and up from the 12.5% reported at September 30, 2006. The total capital ratio
was 14.2% at December 31, 2006 up slightly from the 14.1% reported at
September 30, 2006 but down slightly from the 14.5% reported at December 31,
2005. Risk-weighted assets increased by 5.7% over September 30, 2006 and 25.5%
over December 31, 2005, compared to growth in the capital base of 6.7% and
23.3% over September 30, 2006 and December 31, 2005 respectively. Both ratios
continue to substantially exceed the minimum regulatory requirements of 7.0%
for Tier 1 capital and 10.0% for total capital.
    As at December 31, 2006 Home Trust was utilizing 76.1% of its approved
Assets to Regulatory Capital Multiple of 17.5 times (77.6% - September 30,
2006 and 78.5% - December 31, 2005) providing sufficient capital for continued
lending growth.

    Contractual Obligations
    On March 31, 2006 the Company signed an International Swap Dealers
Association Master Agreement with a regulated financial institution
("Dealer"). This agreement was entered into for the purpose of allowing the
Company to conduct interest rate swap transactions for hedging purposes. The
agreement stipulates criteria that the Company must meet in order to enter
into or close a swap transaction, including available credit and reporting
requirements. This agreement also identifies the Dealer's responsibilities for
the documentation and processing of transactions.
    On June 1, 2006 the Company signed a Master Service Agreement with
Deloitte & Touche LLP ("Deloitte") to provide additional services supporting
the design and testing of the Company's internal controls over financial
reporting. Pursuant to a Staff Notice issued by the Canadian Securities
Administrators ("CSA"), the CSA proposes to amend Multilateral Instruments
52-109 to require the CEO and CFO to report on the design and operating
effectiveness of internal controls over financial reporting. The Agreement
specifies the Company's and Deloitte's respective responsibilities with regard
to this engagement.

    Critical Accounting Estimates
    Critical accounting estimates which require management to make
significant judgements, some of which are inherently uncertain, are included
on pages 27 and 28 of the 2005 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 the
unaudited interim consolidated financial statements in accordance with
Canadian generally accepted accounting principles 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 2, 3, and 8 of the unaudited interim
consolidated financial statements.

    Updated Share Information
    As at February 13, 2007, the Company had 34,165,640 Common Shares
outstanding. In addition, director and employee stock options outstanding
amounted to 1,266,000 (1,104,500 - Q3 2006 and 1,272,000 - Q4 2005) of which
910,375 are exercisable as of the quarterend (841,375 - Q3 2006 and 1,003,250
- Q4 2005) for proceeds to the Company on exercise of $8.4 million ($6.7
million - Q3 2006 and $7.3 million - Q4 2005).
    Subsequent to quarter-end, the Company declared a cash dividend of
$0.09 per Common Share, payable March 1, 2007 to shareholders of record at the
close of business on February 15, 2007.

    OPERATING SEGMENT REVIEW

    The following compares the mortgage and consumer lending line of business
for the three- and twelve-month periods ended December 31, 2006 to the
comparable quarter and twelve months ended December 31, 2005 (refer to Note 11
of the accompanying unaudited interim consolidated financial statements).

    Mortgage Lending
    The Company's principal line of business contributed $15.2 million to net
income during the quarter and $50.4 million for the twelvemonth period ended
December 31, 2006, as compared to $13.3 million and $47.7 million for the
comparable periods in 2005 respectively. The total value of new mortgages
advanced during the quarter and twelve-month periods ended December 31, 2006
amounted to $519.8 million and $1.98 billion, as compared to $452.8 million
and $1.73 billion for the comparable periods in 2005 respectively.
    The Company securitized $130.7 million of government guaranteed (CMHC)
residential mortgage loans through the creation of MBS securities during the
quarter and a total of $546.3 million for the twelve months ended December 31,
2006, realizing total income on securitization of $5.7 million for the quarter
and $17.9 million for the twelve months. This compares to the quarter and
twelve months ended December 31, 2005 where $139.9 million and $430.8 million
were securitized, realizing income of $4.9 million and $19.2 million.
Securitization will continue to contribute to the Company's income, however
core mortgage lending is expected to remain the major driver of the Company's
financial returns.
    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"). The Company acts as Regency's agent in offering
second mortgage loans, which are securitized and the investments are purchased
by the Company. This program provides the Company with ancillary marketing
opportunities in the residential first mortgage marketplace and complements
the Company's other product offerings. As of December 31, 2006 the Company
held $70.3 million in Secured Loans as Notes Receivable issued by Regency,
compared to $65.9 million at September 30, 2006 and $43.6 million at December
31, 2005. These Notes yield 6.7% with an average duration of 3.3 years. The
Company also receives fee income for servicing and administering these
mortgages for Regency. This income amounted to 0.8% of the portfolio value, on
an annualized basis. The underlying credit quality of the mortgages securing
the Notes Receivable remains high, with 2.1% in arrears up to 60 days and 0.4%
of the portfolio in arrears over 60 days. This program has experienced nominal
losses this year.

    Consumer Lending - Credit Cards and Retail Services
    The consumer lending line of business had strong operating results for
both the quarter and twelve months ended December 31, 2006. Net income was
$3.2 million for the quarter and $10.1 million for the twelve-month period as
compared to $1.7 million and $6.1 million for the comparable periods of 2005.
The Equityline VISA loans portfolio amounted to $215.9 million at December 31,
2006 ($178.8 million - Q3 2006 and $93.5 million - Q4 2005) comprising 94.0%
(92.7% - Q3 2006 and 85.6% - Q4 2005) of the total gross credit card
receivable balance of $229.8 million, bearing an average interest rate of
10.2% (9.9% - Q3 2006 and 11.3% - Q4 2005) on outstanding balances.

    
    Quarterly Financial Highlights

    In Thousands of Dollars, Except per Share Amounts and Percentages

                                                                        2006
    -------------------------------------------------------------------------
                                            Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Net Interest Income (TEB)(*)      $ 33,238  $ 30,922    29,410  $ 28,025
    Less TEB Adjustment                    841       764       740       651
    -------------------------------------------------------------------------
    Net Interest Income per
     Financial Statements               32,397    30,158    28,670    27,374
    Non-interest Income                 16,665    10,718    13,011     9,746
    Total Revenues                      83,246    72,928    70,707    64,407
    Net Income                          20,518    16,618    16,496    14,183
    Return on Common
     Shareholders' Equity                30.5%     26.2%     27.6%     25.2%
    Return on Average Total Assets        2.2%      1.8%      1.9%      1.7%
    Earnings per Common Share
      Basic                           $   0.60  $   0.49      0.48  $   0.42
      Diluted                         $   0.59  $   0.48      0.47  $   0.41
    Book Value per Common Share       $   8.10  $   7.62      7.22  $   6.79
    Efficiency Ratio (TEB)(*)            32.9%     38.6%     36.0%     38.9%
    Efficiency Ratio                     33.4%     39.3%     36.7%     39.6%
    Tier 1 Capital Ratio(xx)             12.7%     12.5%     12.7%     12.9%
    Total Capital Ratio(xx)              14.2%     14.1%     14.4%     14.6%
    Net Impaired Loans as %
     of Gross Loans                      0.68%     0.56%     0.54%     0.51%
    Annualized Provision as %
     of Gross Loans                       0.1%      0.1%      0.1%      0.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                                        2005
    -------------------------------------------------------------------------
                                            Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Net Interest Income (TEB)(*)      $ 28,050  $ 27,018  $ 27,038  $ 23,976
    Less TEB Adjustment                    708       682       675       714
    -------------------------------------------------------------------------
    Net Interest Income per
     Financial Statements               27,342    26,336    26,363    23,262
    Non-interest Income                 11,153    11,840     9,906    10,484
    Total Revenues                      64,803    62,763    59,630    55,910
    Net Income                          16,881    15,766    14,638    13,576
    Return on Common
     Shareholders' Equity                31.9%     32.1%     32.2%     32.2%
    Return on Average Total Assets        2.1%      2.1%      2.1%      2.1%
    Earnings per Common Share
      Basic                             $ 0.50    $ 0.47    $ 0.43    $ 0.40
      Diluted                           $ 0.47    $ 0.45    $ 0.41    $ 0.39
    Book Value per Common Share         $ 6.44    $ 6.00    $ 5.57    $ 5.17
    Efficiency Ratio (TEB)(*)            33.8%     35.2%     35.2%     35.3%
    Efficiency Ratio                     34.4%     35.9%     35.9%     36.0%
    Tier 1 Capital Ratio(xx)             12.7%     12.6%     12.3%     12.2%
    Total Capital Ratio(xx)              14.5%     14.5%     14.2%     14.2%
    Net Impaired Loans as %
     of Gross Loans                      0.49%     0.50%     0.52%     0.44%
    Annualized Provision as %
     of Gross Loans                       0.0%      0.2%      0.2%      0.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)  TEB - taxable equivalent basis: see definition on page 5 of these
         unaudited interim consolidated financial statements.
    (xx) These figures are related to Home Trust Company.
    

    The Company's financial results for each of the last eight quarters are
summarized in the preceding table. After a slow start to the year due to
interest spread contractions in the fourth quarter of 2005 and early 2006 that
resulted in reduced revenue growth, the Company realized improved operating
results over the remainder of 2006. The effect of improved yields on income
producing assets which grew by 18.8% during the year, culminated in record
earnings in the fourth quarter. The Company anticipates that the levels of
business growth and financial performance achieved in the fourth quarter will
continue into the first quarter of 2007 and through the remainder of the year.

    Outlook
    Home Capital remains committed to serving selected segments of the
Canadian financial services marketplace that are either not being served, or
are underserved by the major financial institutions. As Home Capital enters
2007 we foresee modest economic growth across Canada with no imminent signs
from the Bank of Canada of significant increases in the key lending rate,
which has remained unchanged since May 2006. The existing stable, low interest
rate environment will continue to support both new housing starts and the
resale markets. Home Capital remains strongly positioned to benefit from these
conditions, particularly in the residential lending business.
    Having restored strong performance across all areas of its business
during the second half of 2006, the Company is confident of continued success
in 2007. As a result, the Company believes that it is well positioned to meet
each of the following targets: 20% growth in total earnings, 20% growth in
diluted earnings per share, minimum 20% growth in total asset including assets
under administration and 25% return on shareholders' equity. The key to
achieving these targets, as it has been in the past, will be a continued focus
on growth together with prudent lending, efficiency in operations, committed
management and employees, and a strong capital position.

    Certification of Interim Consolidated Financial Statements
    The 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 Consolidated
Balance Sheet as at December 31, 2006 and the Interim Consolidated Statements
of Income, Changes in Shareholders' Equity and Cash Flows of Home Capital
Group Inc. for the twelve month period ended December 31, 2006. 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 December 31, 2006 in accordance with
Canadian generally accepted account principles.
    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 Vice President, Finance of Home Capital Group
Inc. to assure that Home Capital's Interim Consolidated Financial Statements
are fairly presented.

    
    Gerald M. Soloway                            Cathy A. Sutherland, C.A.
    President and Chief Executive Officer        Vice President, Finance
    February 14, 2007


    Consolidated Statements of Income

                                    Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,       December   December   December   December
     Except per Share Amounts            31         31         31         31
     (Unaudited)                       2006       2005       2006       2005
    -------------------------------------------------------------------------
    Income
    Interest from Loans           $  61,725  $  50,359  $ 225,101  $ 186,673
    Dividends from Securities         1,569      1,252      5,589      4,916
    Other Interest                    3,287      2,039     10,458      8,134
    -------------------------------------------------------------------------
                                     66,581     53,650    241,148    199,723
    -------------------------------------------------------------------------
    Interest Expense
    Interest on Deposits and
     Borrowings                      34,184     26,308    122,549     96,420
    -------------------------------------------------------------------------
    Net Interest Income              32,397     27,342    118,599    103,303
    Provision for Credit Losses
     (Note 2)                         1,281         89      4,398      3,128
    -------------------------------------------------------------------------
                                     31,116     27,253    114,201    100,175
    -------------------------------------------------------------------------
    Non-interest Income
    Fees and Other Income             9,890      5,383     27,965     21,367
    Securitization Income on
     Mortgage-Backed Securities       6,815      5,258     21,038     20,935
    Net Realized and Unrealized
     Gain on Investment
     Securities                         (34)       399      2,210      1,706
    Net Realized and Unrealized
     (Loss) Gain on Derivatives
     and Short Sales (Note 9)            (6)       113     (1,073)      (625)
    -------------------------------------------------------------------------
                                     16,665     11,153     50,140     43,383
    -------------------------------------------------------------------------
                                     47,781     38,406    164,341    143,558
    -------------------------------------------------------------------------
    Non-interest Expenses
    Salaries and Staff Benefits       6,516      4,335     25,883     19,974
    Premises                            928        626      3,518      2,370
    General and Administration        8,951      8,289     33,030     29,757
    -------------------------------------------------------------------------
                                     16,395     13,250     62,431     52,101
    -------------------------------------------------------------------------
    INCOME BEFORE PROVISION
     FOR INCOME TAXES                31,386     25,156    101,910     91,457
    Provision for Income Taxes
     (Note 8)                        10,868      8,275     34,095     30,596
    -------------------------------------------------------------------------
    NET INCOME                    $  20,518  $  16,881  $  67,815  $  60,861
    -------------------------------------------------------------------------

    NET INCOME PER COMMON SHARE
    Basic                         $    0.60  $    0.50  $    1.99  $    1.80
    -------------------------------------------------------------------------
    Diluted                       $    0.59  $    0.47  $    1.95  $    1.72
    -------------------------------------------------------------------------
    AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING
     (Thousands)
    Basic                            34,141     33,828     34,131     33,860
    -------------------------------------------------------------------------
    Diluted                          34,796     35,590     34,801     35,450
    -------------------------------------------------------------------------

    Total Number of Outstanding
     Common Shares (Note 6)          34,166     34,012     34,166     34,012
    Book Value Per Share          $    8.10  $    6.44  $    8.10  $    6.44
    -------------------------------------------------------------------------


    Consolidated Balance Sheets
    In Thousands of Dollars
    (Unaudited) as at                December 31  September 31   December 31
    -------------------------------------------------------------------------
    ASSETS

    Cash Resources
    Deposits with Regulated Financial
     Institutions                    $    43,701   $    52,119   $    60,337
    Treasury Bills Guaranteed by
     Canada                               99,830        74,747       110,806
    -------------------------------------------------------------------------
                                         143,531       126,866       171,143
    -------------------------------------------------------------------------
    Securities
    Issued or Guaranteed by Canada       208,980       203,245       126,832
    Issued or Guaranteed by Provinces        299           299           299
    Other Securities                     134,855       122,670       101,611
    -------------------------------------------------------------------------
                                         344,134       326,214       228,742
    -------------------------------------------------------------------------
    Loans
    Personal and Credit Card Loans       237,037       200,016       116,628
    Secured Loans                         70,250        65,888        43,565
    Residential Mortgages              2,885,806     2,851,760     2,583,694
    Other Mortgages                      135,765        97,264        69,572
    General Allowance for Credit
     Losses (Note 2)                     (19,644)      (19,108)      (16,586)
    -------------------------------------------------------------------------
                                       3,309,214     3,195,820     2,796,873
    -------------------------------------------------------------------------
    Other
    Mortgage-Backed Securities
     Receivable                           50,963        50,499        41,309
    Capital Assets                         4,691         4,522         4,362
    Other Assets (Note 4)                 49,783        45,268        42,400
    -------------------------------------------------------------------------
                                         105,437       100,289        88,071
    -------------------------------------------------------------------------
                                     $ 3,902,316   $ 3,749,189  $  3,284,829
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES
    Term Loan                        $         -   $         -  $     10,000
    Deposits
      Payable on Demand                   27,871        14,412        26,245
      Payable on a Fixed Date          3,415,769     3,298,428     2,875,270
    -------------------------------------------------------------------------
                                       3,443,640     3,312,840     2,911,515
    -------------------------------------------------------------------------
    Other
    Cheques and Other Items in Transit     2,655         8,864         6,989
    Other Liabilities (Note 5)           179,155       166,832       147,440
    -------------------------------------------------------------------------
                                         181,810       175,696       154,429
    -------------------------------------------------------------------------
                                       3,625,450     3,488,536     3,065,944
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY
    Capital Stock (Note 6)                34,551        35,261        34,272
    Contributed Surplus                      783           622           306
    Retained Earnings                    241,532       224,770       184,307
    -------------------------------------------------------------------------
                                         276,866       260,653       218,885
    -------------------------------------------------------------------------
                                     $ 3,902,316   $ 3,749,189  $  3,284,829
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consolidated Statements of Changes in Shareholders' Equity

                            For the Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
    In Thousands of Dollars              31         31         31         31
    (Unaudited)                        2006       2005       2006       2005
    -------------------------------------------------------------------------
    CAPITAL STOCK
    Common Shares
    Balance at Beginning of the
     Period                       $  35,261  $  34,190  $  34,272  $  32,468
    Proceeds of Options Exercised
     (Note 6)                            58         82      1,197      1,804
    Repurchase of Shares               (768)         -       (918)         -
    -------------------------------------------------------------------------

    BALANCE AT END OF THE PERIOD  $  34,551  $  34,272  $  34,551  $  34,272
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance at Beginning of the
     Period                       $     622  $     246  $     306  $     178
    Amortization of Fair Value
     of Employee Stock Options
     (Note 7)                           161         69        495        237
    Employee Stock Options
     Exercised                            -         (9)       (18)      (109)
    -------------------------------------------------------------------------

    BALANCE AT END OF THE PERIOD  $     783  $     306  $     783  $     306
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS
    Balance at Beginning of the
     Period                       $ 224,770  $ 169,467  $ 184,307  $ 129,561
    Net Income for the Period        20,518     16,881     67,815     60,861
    Dividends Paid During the
     Period                            (680)      (340)    (7,514)    (4,414)
    Dividends Declared,
     Unpaid During the Period        (3,076)    (1,701)    (3,076)    (1,701)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    BALANCE AT END OF THE PERIOD  $ 241,532  $ 184,307  $ 241,532  $ 184,307
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Cash Flows


                                   Three Months Ended     For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
    In Thousands of Dollars              31         31         31         31
    (Unaudited)                        2006       2005       2006       2005
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net Income for the Period     $  20,518  $  16,881  $  67,815  $  60,861
    Adjustments to Determine Net
     Cash Flows Relating to
     Operating Activities:
      Future Income Taxes            (1,049)       340        718      2,616
      Amortization of Capital
       Assets                           480        696      1,429      1,350
      Amortization of Securities       (176)       (87)      (596)    (1,965)
      Amortization of Deferred
       Financing Costs                    -         31         63         75
      Amortization of Deferred
       Development Costs                  -        513          -      1,447
      Provision for Credit Losses     1,281         89      4,398      3,128
      Change in Accrued Interest
       Receivable                      (925)      (855)    (3,812)    (2,430)
      Change in Accrued Interest
       Payable                        3,067      3,644     14,529     17,436
      Net (Gain) Loss Realized and
       Unrealized on Investment
       Securities                        34       (399)    (2,210)    (1,706)
      Gain on Sale of Mortgage-
       Backed Securities             (6,815)    (5,258)   (21,038)   (20,935)
      Loss (Gain) Realized and
       Unrealized on Derivatives
       and Short Sales                    6       (113)     1,073        625
      Change in Other Assets         (3,596)      (210)    (4,707)    (1,065)
      Change in Cheques and Other
       Items in Transit              (6,209)      (704)    (4,334)       454
      Change in Other Liabilities     9,625     (3,853)    15,093      4,826
      Exercise of Employee Stock
       Options                            -         (9)       (18)      (109)
      Change of Fair Value of
       Employee Stock Options
       (Note 7)                         161         69        495        237
    -------------------------------------------------------------------------
    Cash Provided by Operating
     Activities                      16,402     10,775     68,898     64,845
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
      Repayment of Term Loan              -          -    (10,000)         -
      Repayment of Subordinated
       Term Loan                          -     (2,000)         -     (3,000)
      Net Increase in Deposits      130,800    246,617    542,125    636,331
      Issuance of Capital Stock
       (Note 6)                          58         82      1,197      1,804
      Repurchase of Capital Stock      (768)         -       (918)         -
      Dividends Paid                 (3,076)    (1,700)    (9,215)    (5,765)
    -------------------------------------------------------------------------
    Cash Provided by Financing
     Activities                     127,014    242,999    523,189    629,370
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Activity in Securities
      Purchases                     (56,119)   (47,076)  (220,089)  (148,742)
      Proceeds on Sales                 929      5,080     32,862     97,823
      Proceeds on Maturities         37,412      6,382     74,641     28,914
    Activity in Mortgages
      Net Increase                 (203,721)  (234,390)  (915,093)  (924,987)
      Proceeds from Securitization
       of Mortgage-Backed
       Securities (Note 3)          127,856    135,956    532,730    420,643
      Change in Mortgage-Backed
       Securities Receivable          9,229      6,640     24,920     17,463
    Net Increase in Personal and
     Credit Card Loans              (37,196)   (12,761)  (121,041)   (37,792)
    Net Increase in Secured Loans    (4,492)    (5,924)   (26,871)   (23,847)
    Proceeds from Leasehold
     Inducements                          -          -      1,009          -
    Purchases of Capital Assets        (649)    (2,630)    (2,767)    (3,046)
    -------------------------------------------------------------------------
    Cash Used in Investing
     Activities                    (126,751)  (148,723)  (619,699)  (573,571)
    -------------------------------------------------------------------------
    Net (Decrease) Increase in
     Cash and Cash Equivalents       16,665    105,051    (27,612)   120,644
    Cash and Cash Equivalents
     at the Beginning of the
     Period                         126,866     66,092    171,143     50,499
    -------------------------------------------------------------------------
    Cash and Cash Equivalents
     at the End of the Period     $ 143,531  $ 171,143  $ 143,531  $ 171,143
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary Disclosure
     of Cash Flow Information
    Amount of Interest Paid
     During the Period            $  31,117  $  22,790  $ 108,020  $  78,985
    Amount of Income Taxes Paid
     During the Period                8,502      7,793     37,324     30,955


    Notes to the Unaudited Interim Consolidated Financial Statements

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

    These unaudited interim consolidated financial statements should be read
    in conjunction with the audited consolidated financial statements for the
    year ended December 31, 2005 as set out in the 2005 Annual Report, on
    pages 34 through 50. These unaudited interim consolidated financial
    statements have been prepared in accordance with Canadian generally
    accepted accounting principles. 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 the Company's most recent annual audited financial
    statements. These unaudited interim consolidated financial statements
    reflect amounts which must, of necessity, be based on the best estimates
    and judgement of management with appropriate consideration as to
    materiality. Actual results may differ from these estimates.

    2.  LOANS

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


                                                     As at December 31, 2006
    -------------------------------------------------------------------------
                               Gross Amount of       Specific       Carrying
    In Thousands of Dollars     Impaired Loans     Allowances          Value
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     As at December 31, 2005
    -------------------------------------------------------------------------
    Personal, Credit Card and
     Secured Loans                   $     403            162      $     241
    Residential Mortgages               13,486              -         13,486
    -------------------------------------------------------------------------
                                     $  13,889            162      $  13,727
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


                                        For the Year Ended December 31, 2005
    -------------------------------------------------------------------------
    Balance at the Beginning of
     the Period                      $     604      $  13,611      $  14,215
    Provisions for Credit Losses
     for the Current Period                153          2,975          3,128
    Write-offs                            (991)             -           (991)
    Recoveries                             396              -            396
    -------------------------------------------------------------------------
    Balance at the End of the Period $     162      $  16,586      $  16,748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    3.  LOAN SECURITIZATIONS

    The following tables summarize the Company's new securitization activity
    for the three and twelve months ended.


    In Thousands of
    Dollars, except
    Percentages             For the Three Months Ended    For the Year Ended
    -------------------------------------------------------------------------
                                   December   December   December   December
                                       2006       2005       2006       2005
    -------------------------------------------------------------------------
    Book Value of Mortgages
     Securitized                  $ 130,733  $ 139,856  $ 546,266  $ 430,755
    Retained Interests            $   9,231  $   9,394  $  33,534  $  31,600
    Servicing Liability           $     202  $     232  $     870  $     783
    Net Proceeds Received on
     Securitized Mortgages        $ 127,856  $ 135,956  $ 532,730  $ 420,643
    Gain on Sales                 $   5,726  $   4,910  $  17,914  $  19,189
    Prepayment Rate                   12.9%      10.2%      12.7%       9.2%
    Excess Spread                      3.1%       2.7%       2.6%       2.7%
    Discount Rate                      4.0%       3.3%       4.1%       3.5%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    4.  OTHER ASSETS
                                     December 31  September 30   December 31
    In Thousands of Dollars                 2006          2006          2005
    -------------------------------------------------------------------------
    Accrued Interest Receivable      $    19,046   $    18,121   $    15,234
    Income Taxes Receivable                    -           287             -
    Deferred Agent Commission              9,198         8,804         9,320
    Deferred Finders Fees                  8,356         8,360         8,644
    Goodwill                               2,324         2,324         2,324
    Other Prepaid Assets and
     Deferred Items                       10,859         7,372         6,878
    -------------------------------------------------------------------------
                                     $    49,783   $    45,268   $    42,400
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  OTHER LIABILITIES
                                     December 31  September 30   December 31
    In Thousands of Dollars                 2006          2006          2005
    -------------------------------------------------------------------------
    Accrued Interest Payable         $   111,920   $   108,853   $    97,391
    Income Taxes Payable                   3,788             -         5,157
    Dividends Payable                      3,076         2,396         1,701
    Deferred Commitment Fees              12,213        11,676         9,847
    Future Income Taxes (Note 8)          12,733        13,782        12,015
    Other, Including Accounts
     Payable and Accrued Liabilities      35,425        30,125        21,329
    -------------------------------------------------------------------------
                                     $   179,155   $   166,832   $   147,440
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  CAPITAL STOCK

    Issued and Outstanding
    In Thousands of Dollars,
    Except per Share Amounts
    -------------------------------------------------------------------------
                         December 31        September 30         December 31
                                2006                2006                2005
    -------------------------------------------------------------------------
                    Number              Number              Number
                        Of                  Of                  Of
    Common Shares   Shares    Amount    Shares    Amount    Shares    Amount
    -------------------------------------------------------------------------
    Outstanding at
     Beginning of
     Period         34,012  $ 34,272    34,012  $ 34,272    33,777  $ 32,468
    Options
     Exercised         186     1,197       177     1,139       235     1,804
    Normal Course
     Issuer Bid        (32)     (918)       (5)     (150)        -         -
    -------------------------------------------------------------------------
    Outstanding at
     End of Period  34,166  $ 34,551    34,184  $ 35,261    34,012    34,272
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                            Weighted-           Weighted-           Weighted-
                             average             average             average
    Share Purchase          Exercise            Exercise            Exercise
     Options                   Price               Price               Price
    -------------------------------------------------------------------------
    Outstanding at
     Beginning of
     Period          1,272  $  12.32     1,272  $  12.32     1,373  $   8.62
      Granted          210     28.99        40     33.91       218     35.03
      Exercised       (186)     6.34      (177)     6.32      (235)     7.23
      Forfeited        (30)    34.78       (30)    34.78       (84)    25.00
    -------------------------------------------------------------------------
    Outstanding at
     End of Period   1,266  $  15.43     1,105  $  13.45     1,272  $  12.32
    -------------------------------------------------------------------------
    Exercisable,
     End of Period     910  $   9.25       841  $   7.98     1,003  $   7.31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  STOCK BASED COMPENSATION

    For all options issued on or after January 1, 2003 the Company has
    recognized a compensation expense. During the fourth quarter of 2006,
    $161,000 was recorded as an expense, for a total of $495,000 for the
    twelve months ended December 31, 2006 ($69,000 Q4 2005 and $237,000 -
    twelve months 2005) for stock option awards in the Consolidated Interim
    Statement of Income, with an off-setting credit to Contributed Surplus.

    The fair value of options granted in the twelve months ended December 31,
    2006 is estimated at the date of granting us- ing the Black-Scholes
    valuation model, with the following average assumptions: risk-free
    interest rate of 4.0% (3.7% - 2005), an- ticipated option life of
    4.1 years (4.1 years - 2005), anticipated share price volatility of 26.5%
    (27.7% - 2005) and anticipated divi- dend yield of 0.8% (0.5% - 2005).
    Stock options granted amounted to a total of 210,000 for the twelve-month
    period and these granted options will vest, subject to performance
    targets, over a four-year period at a rate of 25% per year, expiring in
    five 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 reduced net income for the fourth
    quarter of 2006 by $33,000 and $205,000 for the twelve months ($89,000 -
    Q4 2005 and $357,000 - twelve months 2005) and net income and earnings
    per share would have been reported as follows:


                                          For the               For the
                                   Three Months Ended         Year Ended
                                   December   December   December   December
                                       2006       2005       2006       2005
    -------------------------------------------------------------------------
    Pro-forma Net Income
     (in Thousands of Dollars)    $  20,485  $  16,792  $  67,610  $  60,504
    Pro-forma Earnings per Share
     - Basic                      $    0.60  $    0.50  $    1.98  $    1.79
    Pro-forma Earnings per Share
     - Diluted                    $    0.59  $    0.47  $    1.94  $    1.71
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  INCOME TAXES

    Reconciliation of
     Income Taxes:          For the Three Months Ended    For the Year Ended

                                   December   December   December   December
    In Thousands of Dollars            2006       2005       2006       2005
    -------------------------------------------------------------------------
    Income Before Income Taxes    $  31,386  $  25,156  $ 101,910  $  91,457
    -------------------------------------------------------------------------
    Income Taxes at Combined
     Statutory Federal and
     Provincial Income Tax Rates     11,330      9,069     36,790     33,012
    Increase (Decrease) in Income
     Taxes at Statutory
     Income Tax Rates Resulting
     From:
      Tax-exempt Income                (537)      (452)    (1,913)    (1,775)
      Non-deductible Expenses            66         61        292        156
      Future Tax Rate Changes and
       Other                              9       (403)    (1,074)      (797)
    -------------------------------------------------------------------------
    Income Tax                    $  10,868  $   8,275  $  34,095  $  30,596
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Sources of Future Income
     Tax Balances:

                                              December  September   December
    In Thousands of Dollars                       2006       2006       2005
    -------------------------------------------------------------------------
    Future Income Tax Liabilities
      Deferred Agent Commissions
       and Other Charges                     $   6,251  $   6,233  $   6,621
      Mortgage-Backed Securities
       Receivable                               17,995     17,913     15,508
    -------------------------------------------------------------------------
                                                24,246     24,146     22,129
    -------------------------------------------------------------------------
    Future Income Tax  Assets
      Allowance for Credit Losses                6,028      5,728      5,081
      Mark-to-market Adjustments
       to Securities                             1,216        480      1,462
      Deferred Commitment Fees                   4,269      4,156      3,571
    -------------------------------------------------------------------------
                                                11,513     10,364     10,114
    -------------------------------------------------------------------------
    Net Future Income Tax Liability          $  12,733  $  13,782  $  12,015
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  FINANCIAL INSTRUMENTS

    The Company utilized off-balance sheet financial instruments during 2006.
    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 fair value exposure of
    movements in interest rates between the time that the mortgages are
    committed to be sold 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 (designated
    in the swap) and receives the floating rate (as designated in the swap).
    These transactions do not qualify for hedge accounting under the Canadian
    Institute of Chartered Accountants ("CICA") Accounting Guideline AcG-13
    Hedging Relationships and therefore the Company must mark-to-market the
    swap, with changes in the fair value of the swap being recognized at the
    applicable financial reporting dates.

    The notional amount of the interest rate swaps purchased during the first
    nine months of 2006 amount to $230.0 million which were all unwound by
    the fourth quarter of 2006. The Company unwound $200.0 million prior to
    September 30, 2006 to better match the mortgage pools and realized a gain
    of $1.0 million in the first quarter and losses for the second and third
    quarter totalling $2.1 million. The remaining $30.0 million was unwound
    in the fourth quarter to match the issuance of securitized government
    insured mortgages. There are no outstanding interest rate swaps at
    December 31, 2006. The total of the realized losses of $1.1 million were
    reported on the income statement under Derivatives and Short Sales.

    During the fourth quarter of 2004, the Company entered into an off-
    balance sheet financial transaction for risk management purposes. The
    Company sold short $40.0 million of Government of Canada Bonds, with a
    coupon rate of 4.25% and a maturity of September 1, 2009. The Company
    intended to close this transaction upon receipt of the funds from the
    next sale of securitized residential insured mortgages. The short sale of
    the $40.0 million of Government Canada Bonds does not qualify for hedge
    accounting under the CICA guideline, and therefore an unrealized gain of
    $0.2 million was recorded in the fourth quarter of 2004.

    During the first quarter of 2005, the Company closed $10.0 million of
    this short sale and realized a loss of $0.03 million. The remaining short
    sale of $30.0 million was closed in the fourth quarter of 2005 for a
    realized loss of $0.6 million. The total realized loss for the year ended
    December 31, 2005 amounted to $0.6 million.

    10. INTEREST RATE SENSITIVITY

    The Company's exposure to interest rate risk results from the difference,
    or gap, between the maturity or repricing dates of interest sensitive
    assets and liabilities, including off-balance sheet items. The following
    table shows the gap positions at December 31, 2006, September 30, 2006
    and December 31, 2005 for selected period intervals. Figures in brackets
    represent an excess of liabilities over assets.

    In Thousands             Floating       0 to 3     3 Months       1 to 3
     of Dollars                  Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------
    December 31, 2006
    -------------------------------------------------------------------------
    Total Assets          $    30,401  $   561,180  $ 1,204,365  $ 1,553,657
    Total Liabilities
     and Equity                     -      311,281    1,748,542    1,153,619
    Off-balance Sheet
     Items                          -      190,356      (12,808)     (62,081)
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $    30,401  $    59,543  $  (531,369) $   462,119
    -------------------------------------------------------------------------
    Cumulative Gap        $    30,401  $    89,944  $  (441,425) $    20,694
    -------------------------------------------------------------------------
    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%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    December 31, 2005
    -------------------------------------------------------------------------
    Total Assets          $    51,337      360,894      930,530    1,450,647
    Total Liabilities
     and Equity                10,000      228,475    1,217,337    1,063,773
    Off-balance Sheet
     Items                          -      150,935       16,634      (73,205)
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $    41,337  $   (18,516) $  (303,441) $   460,079
    -------------------------------------------------------------------------
    Cumulative Gap        $    41,337  $    22,821  $  (280,620) $   179,459
    -------------------------------------------------------------------------
    Cumulative Gap as
     a % of Total Assets         1.3%         0.7%        (8.5%)        5.5%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In Thousands                              Over  Non-interest
     of Dollars                            3 Years     Sensitive       Total
    -------------------------------------------------------------------------
    December 31, 2006
    -------------------------------------------------------------------------
    Total Assets                       $   425,531  $   127,182  $ 3,902,316
    Total Liabilities
     and Equity                            202,328      486,546    3,902,316
    Off-balance Sheet
     Items                                (115,467)           -            -
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap                     $   338,670  $  (359,364) $         -
    -------------------------------------------------------------------------
    Cumulative Gap                     $   359,364  $         -  $         -
    -------------------------------------------------------------------------
    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%            -            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    December 31, 2005
    -------------------------------------------------------------------------
    Total Assets                           393,268       98,153    3,284,829
    Total Liabilities
     and Equity                            365,685      399,559    3,284,829
    Off-balance Sheet
     Items                                 (94,364)           -            -
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap                     $   121,947  $  (301,406) $         -
    -------------------------------------------------------------------------
    Cumulative Gap                     $   301,406  $         -  $         -
    -------------------------------------------------------------------------
    Cumulative Gap as
     a % of Total Assets                      9.2%            -            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. EARNINGS BY BUSINESS SEGMENT

    The Company operates principally through two business segments - mortgage
    lending and consumer lending. The mortgage lending operation consists of
    core mortgage lending, securitization of government insured mortgage
    loans, and the administration of Regency Financial Corp. second mortgage
    loans (secured loans). The consumer lending operation consists of credit
    card services and installment lending to customers of retail businesses.
    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 (Unaudited) For the Three Months Ended
    -------------------------------------------------------------------------
                                                            Consumer Lending
                                 Mortgage Business    Retail  & Credit Cards
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2006         2005         2006         2005
    -------------------------------------------------------------------------
    Net Interest Income   $    22,650  $    21,103  $     4,622  $     2,849
    (Provisions)
     Recoveries for
     Credit Losses               (735)         139         (546)        (228)
    Fees and Other Income       7,834        3,528        1,977        1,810
    Net Gain on
     Securities,
     Derivatives
     & Mortgage-Backed
     Securities                 6,809        5,371            -            -
    Non-interest Expense      (12,901)     (10,056)      (1,082)      (1,691)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     23,657       20,085        4,971        2,740
    Income Taxes               (8,434)      (6,830)      (1,796)        (990)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Income            $    15,223  $    13,255  $     3,175  $     1,750
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $ 3,191,427  $ 2,821,874  $   247,459  $   121,074
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Other                     Total
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2006         2005         2006         2005
    -------------------------------------------------------------------------
    Net Interest Income   $     5,125  $     3,390  $    32,397  $    27,342
    (Provisions)
     Recoveries for
     Credit Losses                  -            -       (1,281)         (89)
    Fees and Other Income          79           45        9,890        5,383
    Net Gain on
     Securities,
     Derivatives
     & Mortgage-Backed
     Securities                   (34)         399        6,775        5,770
    Non-interest Expense       (2,412)      (1,503)     (16,395)     (13,250)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                      2,758        2,331       31,386       25,156
    Income Taxes                 (638)        (455)     (10,868)      (8,275)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Income            $     2,120  $     1,876  $    20,518  $    16,881
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $   463,430  $   341,881  $ 3,902,316  $ 3,284,829
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Thousands of Dollars (Unaudited) For the Twelve Months Ended
    -------------------------------------------------------------------------
                                                            Consumer Lending
                                 Mortgage Business    Retail  & Credit Cards
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2006         2005         2006         2005
    -------------------------------------------------------------------------
    Net Interest Income   $    86,666  $    78,248  $    15,066  $    10,319
    Provisions for Credit
     Losses                    (2,561)      (2,191)      (1,837)        (937)
    Fees and Other Income      20,100       14,586        7,661        6,669
    Net Gain on
     Securities,
     Derivatives &
     Mortgage-Backed
     Securities                19,965       20,310            -            -
    Non-interest Expense      (47,781)     (38,321)      (5,011)      (6,461)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                     76,389       72,632       15,879        9,590
    Income Taxes              (25,940)     (24,980)      (5,736)      (3,464)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Income            $    50,449  $    47,652  $    10,143  $     6,126
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $ 3,191,427  $ 2,821,874  $   247,459  $   121,074
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Other                     Total
    -------------------------------------------------------------------------
                              Dec. 31      Dec. 31      Dec. 31      Dec. 31
                                 2006         2005         2006         2005
    -------------------------------------------------------------------------
    Net Interest Income   $    16,867  $    14,736  $   118,599  $   103,303
    Provisions for Credit
     Losses                         -            -       (4,398)      (3,128)
    Fees and Other Income         204          112       27,965       21,367
    Net Gain on
     Securities,
     Derivatives &
     Mortgage-Backed
     Securities                 2,210        1,706       22,175       22,016
    Non-interest Expense       (9,639)      (7,319)     (62,431)     (52,101)
    -------------------------------------------------------------------------
    Income Before Income
     Taxes                      9,642        9,235      101,910       91,457
    Income Taxes               (2,419)      (2,152)     (34,095)     (30,596)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Income            $     7,223  $     7,083  $    67,815  $    60,861
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Assets          $   463,430  $   341,881  $ 3,902,316  $ 3,284,829
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. FUTURE ACCOUNTING CHANGES

    The CICA has issued three new accounting standards: CICA Handbook Section
    3855, Financial Instruments - Recognition and Measurement; Section 3865,
    Hedges; and Section 1530, Comprehensive Income, which are effective for
    the Company as of January 1, 2007.

    As a result of adopting these standards, effective January 1, 2007
    financial assets will be classified as held for trading, available for
    sale, loans and receivables, or held to maturity. Financial liabilities
    will be classified as held for trading or other. Initially, all financial
    assets and financial liabilities will be recorded on the balance sheet at
    fair value, except those assets classified as loans and receivables or
    held to maturity and other liabilities which will be measured at
    amortized cost. Subsequent measurement will be determined based on their
    classification with fair value changes on held for trading assets and
    liabilities reported through income, changes in fair value of available
    for sale securities recorded through other comprehensive income while
    loans and receivables, held to maturity and other liabilities will
    continue to be measured at amortized cost using the effective interest
    method. Section 3855 also permits an entity to voluntarily designate a
    financial instrument as held for trading. Instruments that are classified
    as held for trading by way of this "fair value option" are subject to
    certain conditions and additional requirements set out by the Office of
    the Superintendent of Financial Institutions ("OSFI").

    Other comprehensive income will be a new component of shareholders'
    equity and a new statement entitled Statement of Comprehensive Income
    will be added to the Company's financial statements. Comprehensive income
    will be composed of the Company's net income and other comprehensive
    income. Other comprehensive income will include, on a net of tax basis,
    unrealized gains and losses on available for sale securities. Prior
    period financial statements will not be restated for these new accounting
    standards.

    Based on the analysis completed to date, the significant components of
    the Company's implementation of the standard is to designate cash
    resources as held for trading, certain securities as available for sale
    and loans and deposits will continue to be recorded at amortized cost
    using the effective interest method. The full impact of these new
    standards will depend on the Company's outstanding positions and the fair
    values of those financial assets and liabilities at the time of
    implementation.

    13. COMPARATIVE FIGURES

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

    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 and Nova Scotia.




For further information:

For further information: Gerald M. Soloway, President & CEO, or Nick
Kyprianou, Sr. Vice President & COO, Tel: (416) 360-4663; www.homecapital.com


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