Home Capital's Strong First Quarter Sustains Momentum: Net Income up 24.9%; Return on Equity was 27.9%; Basic and Diluted Earnings per Share Reach $0.91



    TORONTO, May 6 /CNW/ - Home Capital Group Inc. (TSX: HCG) today announced
a record performance for the first three months of 2009. Despite the turmoil
in global financial markets, the Company's core business activities, including
residential mortgage lending, CMHC-insured mortgage lending and
securitization, and Visa operations, all delivered strong earnings.
    We were pleased to meet or substantially exceed all goals in the first
quarter of 2009. Key results from the first quarter included:

    
    -   Net income for the first quarter of 2009 was $31.4 million, an
        increase of 24.9% over the $25.2 million recorded in the same period
        last year.

    -   Basic and diluted earnings per share for the first quarter of 2009
        were both $0.91, up 24.7% and 26.4%, respectively, from the basic and
        diluted earnings per share of $0.73 and $0.72 reported in the first
        quarter of 2008.

    -   Return on equity was 27.9% for the first quarter of 2009, consistent
        with the return on equity recorded in the first quarter of 2008 and
        up from the 27.4% return on equity achieved for the fourth quarter
        last year.

    -   Total assets at March 31, 2009 reached $5.63 billion, 3.8% higher
        than the $5.42 billion reported one year earlier. Total assets,
        together with Mortgage-Backed Securities (MBS) originated and
        administered by the Company, grew to $8.58 billion, a rise of 23.2%
        from $6.96 billion at March 31, 2008.

    -   Total mortgage originations were $725.8 million during the first
        quarter of 2009, a decline of 16.3% over the $867.2 million advanced
        during the same quarter in 2008. However, originations of residential
        mortgages increased to $690.2 million from $601.9 million one year
        prior, an increase of 14.7%. Non-residential mortgage originations
        decreased from $265.3 million to $35.6 million. The decrease in non-
        residential mortgage originations is pursuant to the Company's stated
        strategy to mitigate risk in light of current economic conditions.

    -   The Company continues to experience positive growth in mortgage
        securitization as the Company securitized $460.6 million in CMHC-
        insured mortgages during the first quarter of 2009 compared to $145.8
        million for the same period last year.

    -   Outstanding balances on the Equityline Visa portfolio reached $334.5
        million at March 31, 2009, up 3.1% from the $324.3 million recorded
        last year. Net income from consumer lending reached $4.8 million for
        the first quarter, an increase of 11.4% over the $4.3 million
        recorded in the same quarter last year.

    -   The efficiency ratio (TEB) was 27.1% in the first quarter compared to
        27.9% during the same period one year earlier.

    -   Net impaired loans represented 1.2% of the total loans portfolio at
        March 31, 2009, an increase from 0.9% in net impaired loans at the
        end of 2008 and 0.7% at March 31, 2008. Due to the existing weakened
        economy and rising unemployment, the Company believes that impaired
        loans may increase over the next one or two quarters. The Company has
        been proactive in this area and has increased staffing in the
        mortgage servicing department including a team dedicated to focusing
        on early arrears and assisting homeowners in managing their payments
        through these difficult economic times. The Company has thoroughly
        reviewed the mortgage loans portfolio and believes that future
        potential loan losses will be in line with our stated objectives for
        2009.
    

    Management continues to see 2009 as a year of significant growth for Home
Capital, notwithstanding the negative outlook for the economy by the Bank of
Canada. We have taken advantage of our ability to attract very strong talent
in the finance and Visa operations departments, and continued to add to the
senior management team across all areas of the Company. Overall, we have
increased the number of employees to 420 at March 31, 2009 from 388 one year
prior and 395 at the end of 2008. Despite the growth in staffing levels and
the associated cost, the Company has maintained an efficiency ratio of 27.1%.
    The Company is positioning itself for future growth with the planned
implementation of a previously announced company-wide system conversion to SAP
at the end of 2009. We are pleased to report that the conversion is on target
and on budget and, despite the extensive and time-consuming amount of work for
staff and management necessitated by this project, we have accomplished this
while still delivering a record first quarter for our shareholders.
    Home Capital continued to enhance the quantity and quality of its capital
reserves, resulting in a reduced risk profile to the Company. Home Trust
remains well capitalized with Tier 1 and total capital ratios of 13.8% and
15.2%, respectively, compared to 12.0% and 13.4% one year prior. The Company
has not incurred any equity dilution, external debt or preferred share
issuance in achieving these increased ratios, and remains well positioned to
withstand the current economic challenges with a capital base comprised almost
entirely of common equity, with no external debt and strong liquidity.
    A key component of the reduced risk in the Company's business has been
the introduction of the Accelerator program, which was launched in the second
quarter of 2008. This program offers a range of insured mortgage products to a
broad customer base and has exceeded management's expectations since
inception. In light of the current economic downturn and with bond rates at
historic lows, the insured program has both reduced the Company's risk profile
and provided a profitable new business line. While Home Trust will continue to
build on its traditional lending model, the addition of the Accelerator
program has elevated Home Trust as a one-stop shop for mortgage brokers and
borrowers. This new business has enhanced and expanded existing broker
relationships and enabled Home Trust to further penetrate the broker market
with an attractive suite of products.
    During the quarter, we have noticed a stabilization of the housing market
in certain geographic areas at a level of approximately 10 - 15% lower on a
year-over-year basis. We have found that the lower prices, together with
record low mortgage rates, have attracted a whole new group of homeowners. For
people who have saved the down payment, it is often cheaper to buy than to
rent. That augurs well for the balance of the year as Canada starts to recover
from the recession.
    Subsequent to the end of the quarter, and on the strength of the
Company's positive financial results, the Board of Directors declared an
increased quarterly cash dividend of $0.14 per common share, up from $0.13 per
common share, payable on June 1, 2009 to shareholders of record on May 15,
2009. The dividend increase underlines the Company's long-term commitment to
enhance value for all shareholders and continuing strong financial
performance.
    Home Capital has delivered positive returns for the first quarter of
2009. Based on these results and the increasing activity in the second quarter
to date, we believe Home Capital will meet or exceed all financial targets for
2009 as set out in the Company's 2008 annual report. The Company continues to
focus on the key businesses that delivered those results. In addition, we have
made substantial investments in staffing at all levels of the Company and new
technology to accommodate future growth. The Board of Directors and management
are confident that the Company can weather the current economic downturn and
deliver another year of record results.

    
    (signed)                         (signed)

    GERALD M. SOLOWAY                NORMAN F. ANGUS
    Chief Executive Officer          Chairman of the Board
    May 6, 2009
    

    Additional information concerning the Company's targets and related
expectations for 2009, including the risks and assumptions underlying these
expectations, may be found in Management's Discussion and Analysis for the
First Quarter 2009.

    First Quarter Results Conference Call

    The conference call will take place on Wednesday, May 6, 2009 at 10:30
a.m. Participants are asked to call 5 to 15 minutes in advance, 416-644-3418
in Toronto or toll-free 1-800-731-5774 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.
Wednesday, May 6, 2009 and midnight Wednesday, May 13, 2009 by calling
416-640-1917 or 1-877-289-8525 (enter passcode 21303486 followed by the number
sign). The archived audio web cast will be available for 90 days on CNW
Group's website at www.newswire.ca and Home Capital's website at
www.homecapital.com.


    
    FINANCIAL HIGHLIGHTS
    -------------------------------------------------------------------------
    For the Three Months Ended (Unaudited)

    In Thousands of Dollars (Except       March 31  December 31     March 31
    Per Share and Percentage Amounts)         2009         2008         2008
    -------------------------------------------------------------------------
    OPERATING RESULTS

    Net Income                          $   31,418   $   29,039   $   25,159
    Total Revenue                          120,721      117,996      106,796
    Earnings per Share - Basic          $     0.91   $     0.84   $     0.73
    Earnings per Share - Diluted              0.91         0.84         0.72
    Return on Shareholders' Equity           27.9%        27.4%        27.9%
    Return on Average Assets                  2.2%         2.0%         1.9%
    Efficiency Ratio                         27.6%        27.5%        28.4%
    Efficiency Ratio (TEB(2))                27.1%        27.0%        27.9%
    (Non-interest Expense/Net
     Interest Income Plus Fee Income)
    -------------------------------------------------------------------------
    BALANCE SHEET HIGHLIGHTS

    Total Assets                        $5,630,593   $5,809,713   $5,423,173
    Loans                                4,506,677    4,506,392    4,342,929
    Deposits                             4,823,632    5,102,781    4,827,204
    Shareholders' Equity                   467,939      432,753      372,456
    Mortgage-Backed Security
     Assets Under Administration         2,948,492    2,614,238    1,540,063
    -------------------------------------------------------------------------
    FINANCIAL STRENGTH

    Capital Measures(1)
    Risk Weighted Assets(1)             $3,021,129   $2,985,750   $2,766,950
    Tier 1 Capital Ratio(1)                  13.8%        12.9%        12.0%
    Total Capital Ratio(1)                   15.2%        14.2%        13.4%

    Credit Quality
    Net Impaired Loans as a
     Percentage of Gross Loans                1.2%         0.9%         0.7%
    Allowance as a Percentage
     of Gross Impaired Loans                 52.5%        66.7%        76.9%
    Annualized Provision as a
     Percentage of Gross Loans                0.3%         0.2%         0.1%

    Share Information
    Book Value per Common Share         $    13.61   $    12.57   $    10.79
    Common Share Price - Close               24.99        19.80        35.65
    Market Capitalization                  858,541      681,793    1,231,083
    Number of Common Shares Outstanding     34,355       34,434       34,532
    -------------------------------------------------------------------------
    (1) These figures relate to the Company's operating subsidiary, Home
        Trust Company.

    (2) See definition of Taxable Equivalent Basis (TEB) under Non-GAAP
        Measures of this unaudited interim consolidated financial report.



    -------------------------------------------------------------------------
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    -------------------------------------------------------------------------

    Caution Regarding Forward-Looking Statements
    

    From time to time Home Capital Group Inc. (the "Company" or "Home
Capital") makes written and verbal forward-looking statements. These are
included in the Annual Report, periodic reports to shareholders, regulatory
filings, press releases, Company presentations and other Company
communications. Forward-looking statements are made in connection with
business objectives and targets, Company strategies, operations, anticipated
financial results and the outlook for the Company, its industry, and the
Canadian economy. These statements regarding expected future performance are
"financial outlooks" within the meaning of National Instrument 51-102. Please
see the risk factors, which are set forth in detail on pages 28 through 38 of
the Company's 2008 Annual Report, as well as its other publicly filed
information, which may be located at www.sedar.com, for the material factors
that could cause the Company's actual results to differ materially from these
statements. Forward-looking statements can be found in the Message to the
Shareholders and the Outlook Section in this quarterly report. Forward-looking
statements are typically identified by words such as "will," "believe,"
"expect," "anticipate," "estimate," "plan," "may," and "could" or other
similar expressions.
    By their very nature, these statements require us to make assumptions and
are subject to inherent risks and uncertainties, general and specific, which
may cause actual results to differ materially from the expectations expressed
in the forward-looking statements. These risks and uncertainties include, but
are not limited to, global capital market activity, changes in government
monetary and economic policies, changes in interest rates, inflation levels
and general economic conditions, legislative and regulatory developments,
competition and technological change. The preceding list is not exhaustive of
possible factors.
    These and other factors should be considered carefully and readers are
cautioned not to place undue reliance on these forward-looking statements. The
Company does not undertake to update any forward-looking statements, whether
written or verbal, that may be made from time to time by it or on its behalf,
except as required by securities laws.
    Assumptions about the performance of the Canadian economy in 2009 and how
it will affect Home Capital's business are material factors the Company
considers when setting its objectives. In determining our expectations for
economic growth, both broadly and in the financial services sector, we
primarily consider historical economic data provided by the Canadian
government and its agencies. In setting performance target ranges for 2009,
management's expectations assume:

    
    -   The Canadian economy will contract in 2009, with fragmented growth
        prospects across the country, and interest rates and inflation will
        remain low;

    -   Canadian capital markets will improve somewhat in the second half of
        2009;

    -   A declining interest rate environment supported by stable inflation,
        driven by lower demand for commodity and energy goods

    -   Sound credit quality with actual losses within Home Capital's
        historic range of acceptable levels; and

    -   A compressed net interest margin, reduced prime lending rates,
        comparatively lower investment returns, reflecting the Company's
        shift to high quality assets held in the security and liquidity
        portfolio, and prudent levels of liquidity in response to uncertainty
        in the capital markets.
    

    Non GAAP Measures

    The Company uses a number of financial measures to assess its
performance. Some of these measures are not calculated in accordance with
Generally Accepted Accounting Principles (GAAP), are not defined by GAAP and
do not have standardized meanings that would ensure consistency and
comparability between companies using these measures. The non-GAAP measures
used in this Management Discussion & Analysis (MD & A) are defined as follows:

    Return on Shareholders' Equity

    Return on equity is a profitability measure that presents the net income
available to common shareholders equity as a percentage of the capital
deployed to earn the income. The Company calculates its return on equity using
average common shareholders' equity, including all components of shareholders'
equity.

    Return on Assets

    Return on assets is a profitability measure that presents the net income
as a percentage of the average total assets deployed to earn the income.

    Efficiency or Productivity Ratio

    Management uses the Efficiency ratio as a measure of the Company's
Efficiency. This ratio represents non-interest expenses as a percentage of
total revenue. The Company also looks at the same ratio on a taxable
equivalent basis and will include this adjustment in arriving at the
Efficiency ratio, on a taxable equivalent basis.

    Net Interest Margin

    Net interest margin is calculated by taking net interest income, on a
taxable equivalent basis, divided by average total assets.

    Tier 1 and Total Capital Ratios

    The capital ratios provided in this MD & A are those of the Company's
wholly-owned subsidiary Home Trust Company. The calculations are in accordance
with guidelines issued by Office of the Superintendent of Financial
Institutions Canada (OSFI). Refer to Note 8 of the unaudited interim
consolidated financial statements.

    Taxable Equivalent Basis (TEB)

    Most banks and trust companies analyze and report their financial results
on a TEB to provide uniform measurement and comparison of net interest income.
Net interest income (as presented in the consolidated statements of income)
includes tax-exempt income from certain securities. The adjustment to TEB
increases income and the provision for income taxes to what they would have
been had the income from tax-exempt securities been taxed at the statutory tax
rate. The TEB adjustments of $1.3 million for the first quarter ($1.2 million
- Q4 2008 and $1.0 million - Q1 2008) increased reported interest income. TEB
does not have a standard meaning prescribed by Canadian GAAP and therefore may
not be comparable to similar measures used by other companies. Net interest
income and income taxes are discussed on a TEB basis throughout this MD & A.

    Regulatory Filings

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

    Management's Discussion and Analysis of Operating Performance

    This MD & A should be read in conjunction with the unaudited interim
consolidated financial statements for the period ended March 31, 2009 included
herein, and the audited consolidated financial statements and MD & A for the
year ended December 31, 2008. These are available on the Canadian Securities
Administrators' website at www.sedar.com and on pages 8 through 72 of the
Company's 2008 Annual Report. Except as described in these unaudited interim
consolidated financial statements and MD & A, all other factors discussed and
referred to in the MD & A for fiscal 2008 remain substantially unchanged.
These unaudited interim consolidated financial statements and MD & A have been
prepared based on information available as at May 4, 2009. As in prior
quarters, the Company's Audit Committee reviewed this document, and prior to
its release the Company's Board of Directors approved it on the Audit
Committee's recommendation.

    
    2009 Objectives and Performance

    Home Capital published its financial objectives for 2009 on page 11 of the
Company's 2008 Annual Report. The following table compares actual performance
to date against each of these objectives.

    -------------------------------------------------------------------------
                                                          Three-Month Period
                                                        Ended March 31, 2009

                                2009 Objectives(1)          Actual Results(1)
    -------------------------------------------------------------------------
    Net Income                            10%-15%          $31.4 million, or
                                 ($27.7 million -    24.9% increase over the
                                    $28.9 million)     same period last year

    Diluted Earnings                      10%-15%        $0.91 per share, or
     per Share                 ($0.79 per share -    26.4% increase over the
                                  $0.83 per share)     same period last year

    Total Assets and                      10%-15%          $8.58 billion, or
     Assets Under                ($7.66 billion -    23.2% increase over the
     Administration                 $8.01 billion)     same period last year

    Return on                               20.0%                      27.9%
     Shareholders' Equity

    Efficiency Ratio (TEB)         28.0% to 34.0%                      27.1%

    Capital Ratios(2)

      Tier 1                       Minimum of 10%                      13.8%
      Total                        Minimum of 12%                      15.2%

    Provision for Loan
     Losses as a Percentage
     of Total Loans                  0.2% to 0.5%                       0.3%
    -------------------------------------------------------------------------
    (1) Objectives and results for net income and diluted earnings per share
        are for the current period relative to the same period in the prior
        year; asset growth is the change from twelve months prior; and ratios
        are based on the current period, annualized.

    (2) Based on the Company's wholly owned subsidiary, Home Trust Company.


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

    Income Statement Highlights

    The Company achieved positive results across all lines of business during
the first quarter of 2009. The Company continues to operate from a strong
capital base and maintains prudent liquidity levels, providing the necessary
financial resources and flexibility to navigate the current volatility in the
global capital markets. The Company's key financial highlights for the first
quarter of 2009 are summarized below.

    -   Net income rose 24.9% over the comparable quarter of 2008.

    -   Non-interest income was up 123.4% over the first quarter of 2008,
        driven by robust growth in securitization income of $18.6 million.

    -   The Efficiency ratio (TEB) (the lower the better) remained low, and
        in line with the Company's objective, at 27.1%, compared to 27.9% in
        the same quarter of 2008.

    -   Diluted earnings per share for the quarter increased 26.4% to $0.91,
        compared to $0.72 in the first quarter of 2008.

    -   Return on average shareholders' equity for the quarter was 27.9%,
        consistent with the same period last year.

    -   Net interest income ended the quarter at $36.2 million, compared to
        $35.2 million for the fourth quarter of 2008 and $37.6 million for
        the comparable quarter in 2008.

    Balance Sheet Highlights

    -   Total assets at March 31, 2009 rose 3.8% year-over-year, to reach
        $5.63 billion from $5.42 billion reported at March 31, 2008. This
        asset growth was experienced across the Company's core asset base
        including the Company's loans and securities portfolio. Although
        global markets continue to experience significant difficulties, the
        Company believes it is well positioned by remaining well capitalized
        with access to liquidity through the offering of term deposits and
        the securitization market. The Company has remained debt free since
        September 2006.

    -   The Company continues to have access to funds to accommodate the
        growth of the Company's loans portfolio. Liquid assets at March 31,
        2009 were $610.7 million, down from $880.7 million at December 31,
        2008 and down from $734.9 million at March 31, 2008 as the Company
        brings liquidity level in line with historical levels.

    -   The Company continues to strengthen its capital position with Tier 1
        and total capital climbing to 13.8% and 15.2%, respectively, up from
        Tier 1 and total capital of 12.9% and 14.2% at December 31, 2008 and
        12.0% and 13.4% at March 31, 2008.

    -   Deposit liabilities as at March 31, 2009 were $4.82 billion, a
        decline of $279.2 million from December 31, 2008 and down marginally
        from $4.83 billion recorded at March 31, 2008.

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

    Net Interest Income
    

    Net interest income was $36.2 million in the first quarter of 2009,
compared to $35.2 million for the fourth quarter of 2008 and $37.6 million one
year ago. The improvement from the fourth quarter of 2008 was the result of
lower overall funding costs as the Company began to see an overall improvement
in the average cost of funds during the first quarter of 2009 as new deposit
pricing reflected the significant prime-rate cuts in the later half of 2008.
Further, the Company's non-residential mortgage portfolio which has been
substantially comprised of floating rate loans based off of prime began to
reset at higher fixed rate terms. During the first quarter of 2009,
approximately 11% of the non-residential portfolio reset at higher fixed rate
terms or were paid out improving overall spreads. In addition to these two
factors, the Company also began bringing liquidity levels back down to more
historical levels which reduced excess carrying costs. Net interest income was
lower year-over-year as the Company still experienced some negative impacts to
net interest margin from the successive reductions in the prime lending rate
in late 2008 and early 2009. Further, excess funds invested in the Company's
liquidity portfolio earned lower yields dropping, on average, to 1.1% in the
first quarter of 2009 from 4.8% in the first quarter of 2008.
    The net interest margin (TEB) between all of the Company's assets and
liabilities for the first quarter of 2009 was 2.6%, consistent with the fourth
quarter of 2008 and down from 3.0% achieved in the first quarter of 2008. The
interest spread between the loans portfolio and deposits at the end of the
first quarter of 2009 was 3.0%, compared to 2.8% for the fourth quarter in
2008, and 3.2% one year ago. The increase in spread over the fourth quarter of
2008 was primarily the result of reduced funding costs as the successive
prime-rate cuts in late 2008 and early 2009 began to be priced into new
deposits. The decrease in spread over the comparable quarter of 2008 was
primarily the result of the effects of cuts to the prime lending rate on the
re-pricing mismatch on prime-based loans. Although overall net interest
spreads remain below traditional levels, the Company's core residential
mortgage portfolio continued to maintain positive spreads. At March 31, 2009
the spread on the residential mortgage portfolio was 3.2%, an improvement from
the 3.0% spread achieved in the fourth quarter of 2008 and 3.1% spread
achieved in the first quarter of 2008.
    The Company continues to benefit from the lower re-pricing of new
deposits, re-pricing of non-residential mortgage loans at higher fixed rates
and positive measures taken to bring liquidity back in line with the Company's
historical levels.

    Non-Interest Income

    Total non-interest income was $32.0 million for the quarter, a $6.0
million, or 23.1% increase over the fourth quarter in 2008 and an increase of
$17.7 million, or 123.4% from one year ago. The substantial growth to the
comparative quarters in 2008 was largely driven by strong net growth in
securitization gains through the Company's participation in the Canada
Mortgage Bond (CMB) program and additional short-term Mortgage-Backed
Securities (MBS) securitizations. Offsetting the strong growth in
securitization income were higher unrealized losses on the seller and hedge
swaps. Realized losses of $3.6 million incurred on the Company's security
portfolio where management deemed there was an other than temporary loss which
were offset by realized gains on certain debt securities resulting in a net
loss of $0.9 million recorded in the consolidated statement of income.
    The fees and other income components of non-interest income ended the
quarter at $7.3 million, an increase of 3.1% over the fourth quarter of 2008
and up marginally from one year ago. The fees and other income remained
relatively unchanged from the prior periods.

    The following table summarizes the securitization activities during the
first quarter of 2009 compared to the same period in 2008:

    
                                                               For the three
                                                          month period ended

                                                       March 31,    March 31,
    In thousands of dollars except %                       2009         2008
    -------------------------------------------------------------------------
                  Single       Single                                 Single
                  Family       Family                                 Family
             Residential  Residential   Multi-Unit               Residential
                     MBS          MBS  Residential                  MBS over
            Under 1 year  Over 1 year          MBS        Total     1 year(1)
    -------------------------------------------------------------------------
    Book
     value
     of
     mort-
     gages
     securi-
     tized      $ 22,108     $291,564     $146,952     $460,624     $145,771
    Gain on
     sale of
     mortgages       827       18,676        6,119       25,622        8,883
    Prepayment
     rate           4.1%        12.5%         0.0%         8.1%        13.5%
    Excess
     spread         5.2%         3.6%         1.7%         3.1%         3.6%
    Discount
     rate           1.5%         2.2%         2.7%         2.3%         3.6%
    -------------------------------------------------------------------------
    (1) In the prior period the Company only sold Residential MBS over 1
        year.
    

    The Company issued MBS pools during the first quarter of 2009, consisting
of $460.6 million of Canada Mortgage and Housing Corporation (CMHC) insured
residential mortgages. This represents an increase of $314.8 million from the
$145.8 million in MBS pools issued in the first quarter of 2008. The
securitization gains were $25.6 million during the quarter, compared to $8.8
million for the first quarter of 2008 (for additional information refer to
Note 5 of these unaudited interim consolidated financial statements). The
Company continues to enter into bond forward contracts to hedge commitment
risk on the loans securitized into the CMB program. The unwinding of the bond
forward contracts during the first quarter of 2009 resulted in a $1.4 million
realized loss recorded in the consolidated statement of income through
securitization income. In 2008, the Company began diversifying the MBS pools
issued to include MBS pools with a maturity under one year and multi-unit
residential pools. The one year and multi-unit residential pool assumptions
are outlined in the table above.
    The increase in securitization gains during the quarter compared to the
three-month period ended March 31, 2008 was due to significant volume
increases in the underwriting of insured residential mortgages which resulted
in increased securitization activity as the Company continues to realize
strong returns from funding its residential loan portfolio through the
securitization market. The spread earned on the pools averaged 3.1% in the
first quarter of 2009 compared to 3.6% for the comparable quarter of 2008. The
unscheduled prepayment rate was lower during the quarter as the Company issued
short-term MBS pools where the mortgages in the MBS pool were late in their
term, and where the Company therefore expects less prepayment. Further, the
Company issued multi-unit residential MBS pools during the quarter where
unscheduled prepayments are not permitted under the program. Of the $460.6
million MBS pools issued during the quarter, $169.1 million, or 36.7% were
pools containing lower or prohibited unscheduled prepayments and the remaining
pools had unscheduled prepayment rates in line with traditional levels.
    During the quarter, the Company participated in CMHC's CMB program,
administered through Canada Housing Trust. This program provides the Company
with an alternative distribution channel to diversify its funding stream for
MBS pools. Of the total MBS pools issued during the quarter, MBS pools with a
book value of $330.6 million were securitized through the CMB program
resulting in gains of $18.3 million.
    The table below provides a summary reconciling the gains recorded during
the respective quarter and the excess spread earned from the Company's
continuing servicing of these portfolios.

    
                                                              For the three
                                                          month period ended

                                                       March 31,    March 31,
    In thousands of dollars                                2009         2008
    -------------------------------------------------------------------------
    Securitization gains                              $  25,622    $   8,883
    Securitization hedging activity                      (1,360)        (996)
    -------------------------------------------------------------------------
    Securitization gains, net of hedge costs             24,262        7,887
    Recurring securitization income                       3,393        1,214
    -------------------------------------------------------------------------
    Net securitization income                         $  27,655    $   9,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Recurring securitization income earned from excess spreads, net of
servicing fees was $3.4 million for the three month period ended March 31,
2009. This was an increase of $2.2 million, or 179.5% over the $1.2 million
earned for the three months ended March 31, 2008. This increase reflected
higher average principal securitization balances outstanding during the first
quarter of 2009 from the first quarter of 2008.

    Non-Interest Expenses

    Total non-interest expenses for the three months ended March 31, 2009
were $18.8 million, up $2.0 million, or 11.9% from the fourth quarter of 2008
and up by $4.1 million, or 27.7% from one year ago. The increases over the
comparable periods of 2008 were primarily due to higher salary and benefit
expenses as the Company has continued to hire additional staff to manage the
continued growth of the Company's core businesses as well as increased
computer operating expenditures for upgrading the Company's disaster recovery
site.
    Salaries and staff benefits for the quarter increased by $1.5 million, or
17.7% over the fourth quarter of 2008 and up $1.5 million, or 17.1% from one
year ago. The Company ended the quarter with 420 employees, up from 395
employees at the end of 2008 and up from 388 employees one year ago. The
Company continues to add depth to the senior management team and provide
additional resources as the Company continues to grow the overall business and
manage the transition to a new core banking system. Premises expenses
increased from the prior year period as the Company entered into a new lease
arrangement effective June 2008, expanding the head office space with 50% more
square footage to enable continued future growth, including the accommodation
of additional staff from the relocation of the St. Catharines branch to the
Toronto head office.
    General and administration expenses increased by $0.3 million, or 4.4%
compared to the fourth quarter of 2008 and up $2.3 million, or 43.7% from the
three month period ended March 31, 2008. The increase from the comparable
periods of 2008 was primarily the result of increased computer related costs
incurred in the first quarter of 2009 as the Company has begun the transition
to a new core banking system.
    The Efficiency ratio (TEB) ended the quarter at 27.1%, compared to 27.0%
and 27.9% for the three months ended December 31, 2008 and March 31, 2008. The
ratio remains in line with the Company's stated objectives for 2009 and
management remains focused on containing discretionary spending.

    Provision for Credit Losses

    The Company expensed $3.3 million during the quarter compared to $2.0
million in the fourth quarter of 2008 and $0.6 million for the first quarter
of 2008, through the provision for credit losses. This expense represented
0.3% of total gross loans, on an annualized basis. The general provision for
credit losses increased by $0.6 million over December 31, 2008 and $2.1
million over March 31, 2008 while specific provisions increased by $1.2
million over December 31, 2008 and increased $3.4 million over March 31, 2008.
The relative shift between the general provision and the specific provision
quarter over quarter reflects managements' assessment that certain loans
required specific provisioning which removes the credit risk of these loans
from the computation of the general provision.
    The total general allowance amounted to $25.8 million at March 31, 2009,
an increase of $0.6 million over the $25.2 million recorded at December 31,
2008 and an increase of $2.1 million over the $23.7 million recorded at March
31, 2008. The total general allowance was 85.4 basis points of the Company's
risk-weighted assets at March 31, 2009 compared to 84.0 basis points at
December 31, 2008 and 85.3 basis points at March 31, 2008. The increase over
the fourth quarter of 2008 reflects the overall increase in new impaired loans
during the first quarter of 2009.
    At March 31, 2009 net impaired loans amounted to $52.9 million (1.2% of
gross loans), compared to $39.2 million (0.9% of gross loans) at December 31,
2008 and $31.0 million (0.7% of gross loans) at March 31, 2008 (refer to Note
4 of these unaudited interim consolidated financial statements). Total net
loans written-off during the quarter were $1.5 million, compared to $1.3
million in the fourth quarter of 2008 and $0.6 million during the first
quarter of 2008. Write-offs were experienced across the majority of the
Company's loan product offerings and reflect the outcome of the continued
recession in Canada. The Company continues to closely monitor non-performing
loans and will take proactive measures to minimize losses, as described under
the Credit Risk section of this MD & A and in the 2008 Annual Report under the
heading Risk Management.

    Income Taxes

    The income tax expense amounted to $14.7 million (effective tax rate of
31.9%) for the first quarter of 2009, compared to $13.4 million (effective tax
rate of 31.5%) for the fourth quarter of 2008 and $11.4 million (effective tax
rate of 31.3%) for the first quarter of 2008. Canadian dividend income is
non-taxable to financial institutions, which resulted in a lower income tax
rate. In the absence of tax-free dividends, the tax rates would have been
33.8% for the first quarter of 2009 compared to 33.4% for the fourth quarter
of 2008 and 33.0% for the first quarter of 2008.

    Comprehensive Income

    Comprehensive income is comprised of net income and other comprehensive
income (OCI) and totaled $41.1 million for the first quarter of 2009 an
increase of $19.7 million over the $21.4 million recorded in the fourth
quarter of 2008 and an increase of $12.6 million from the $28.5 million
recorded in the same quarter in 2008. As previously noted net income for the
first quarter of 2009 increased $2.4 million, or 8.2% over the fourth quarter
of 2008 and increased $6.3 million, or 24.9% over the comparable quarter of
2008. The Company's OCI includes unrealized gains and losses on available for
sale securities, and securitization receivables from market revaluations at
the end of the quarter. OCI for the period ended March 31, 2009 was a gain of
$9.6 million compared to a loss position of $7.7 million at December 31, 2008
and a gain of $3.3 million in the comparable quarter in 2008. The change in
OCI compared to prior quarters for available for sale securities and
securitization receivables primarily reflects market fluctuations related to
changes in interest rates, and the broader global economic slowdown affecting
the sectors in which the Company holds equity positions. During the quarter,
the Company determined that certain equity holdings had impairment that was
other than temporary and recognized a writedown of $3.6 million in losses from
accumulated other comprehensive income in the consolidated statements of
income. The writedowns and realized losses were offset by realized gains on
the sale of certain debt holdings. The Company believes the remaining
unrealized losses represent temporary declines in value due to the current
securities market conditions.

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

    Assets

    Total assets as at March 31, 2009 were $5.63 billion, a decrease of
$179.1 million, or 3.1% from the $5.81 billion reported at December 31, 2008
and up by $207.4 million, or 3.8% over the March 31, 2008 asset balance of
$5.42 billion.
    The decline in total assets over December 31, 2008 was primarily driven
by a reduction in the Company's liquidity portfolio of $239.9 million as the
loans portfolio remained unchanged from December 31, 2008. Over the past
several quarters the Company has maintained liquidity levels significantly
higher than past levels. As markets begin to stabilize, the Company has
cautiously begun reducing overall liquidity levels back to historic levels.
These traditional levels are well within the Company's conservative internal
guidelines while providing the Company with sufficient liquidity to cover
outstanding obligations (refer to the Liquidity Risk section of Risk
Management of this MD & A for further details). Although the loans portfolio
remained unchanged from December 31, 2008, the residential mortgage portfolio
growth excludes $460.6 million of loans securitized during the quarter as the
Company took advantage of positive spreads and lower funding costs. As such,
securitization receivables increased significantly from December 2008, growing
by $35.9 million due to continued robust securitization activity over the
first quarter of 2009.
    The growth in total assets over March 31, 2008 was primarily generated
from growth in the loans portfolio and securitization receivables offset by a
reduction in the Company's liquidity portfolio. The loans portfolio increased
by $163.7 million with modest growth experienced in residential and
non-residential mortgages and personal and credit card loans offset by
declines in secured loans as the Company ceased offering this product in late
2008. Other assets increased by $124.5 million, primarily resulting from
robust growth in the Company's securitization activities resulting in an
increase of $96.6 million in securitization receivables.

    Liabilities

    Liabilities at March 31, 2009 were $5.16 billion, a decrease of $214.3
million, or 4.0% from the $5.38 billion reported at December 31, 2008 and up
by $111.9 million, or 2.2% over the $5.05 billion recorded at March 31, 2008.
    Most of the decline from December 2008 resulted from a decrease in
deposit liabilities as the Company utilized existing funds and the
securitization market to fund the operations as the Company began reducing
liquidity to more traditional levels. Deposit liabilities declined by $279.1
million from December 31, 2008. Other liabilities (refer to Note 7 of these
unaudited interim consolidated financial statements) increased by $64.8
million, or 23.7% over the $274.2 million reported at December 31, 2008. This
growth was principally the result of an increase of $46.9 million in other
liabilities resulting from the timing of payments due to MBS investors and a
net increase of $10.6 million in the Company's future corporate tax
liabilities.
    The rise in liabilities from March 31, 2008 resulted primarily from an
increase in other liabilities as deposits growth was relatively flat as the
Company continued to realize attractive spreads by substantially funding
residential mortgages through the securitization market. Other liabilities
increased by $108.3 million, or 49.1% over March 31, 2008 primarily due to
increases of $67.6 million in other liabilities resulting from the timing of
payments due to MBS investors, an increase of $12.6 million in the servicing
liability relating to Company's ongoing administration of the off-balance
sheet residential mortgage loans and a net increase of $26.9 million in the
Company's future corporate tax liabilities.

    Shareholders' Equity

    Total shareholders' equity at March 31, 2009 increased by $35.2 million,
or 8.1% over the $432.8 million reported at December 31, 2008. The increase
since December 31, 2008 was internally generated from net income over the
three months of $31.4 million, less $4.8 million for dividends payable to
shareholders. The remaining changes were principally driven from positive
movements of $9.6 million in accumulated other comprehensive income arising
from the Company's available for sale financial assets, offset by a $1.4
million buy-back of the Company's common shares through the Normal Course
Issuer Bid.
    Total shareholders' equity at March 31, 2009 rose by $95.5 million, or
25.6% over the $372.5 million reported at March 31, 2008. This growth was
internally generated from earnings for the twelve-month period ended March 31,
2009 of $114.9 million, less $18.3 million for shareholder dividends.
Additional movements resulted from amortization of the fair value of stock
options, reduction of capital stock through the Company's Normal Course Issuer
Bid and changes in accumulated other comprehensive income. At March 31, 2009
the book value per common share was $13.61, compared to $12.57 at December 31,
2008 and $10.79 at March 31, 2008.

    Derivatives and Off-Balance Sheet Arrangements

    From time to time, the Company may enter into hedging transactions to
mitigate the interest exposure on outstanding loan and deposit commitments.
For example, the Company can utilize interest rate swaps or forward contracts
to hedge the economic exposure to movements in interest rates between the time
that mortgages are committed to being funded under asset securitization, and
the time those mortgages are actually sold. The intent of the swap or forward
contracts is to have the fair value movements of these instruments be
effective in offsetting the fair value movements within a pool of mortgages
over the period in which the fixed rate pool may be exposed to movements in
interest rates, generally 60 to 150 days. During the first quarter of 2009,
the Company entered into $145.2 million of forward bond contracts to hedge the
commitment risk on the Company securitization activities for the CMB program.
The gains on securitizations through the CMB program were $18.3 million. This
amount is net of a $1.4 million loss realized on the bond forward contracts
hedging the commitment risk.
    At March 31, 2009 the Company continued to hold notional forward bond
contracts of $19.6 million in anticipation of the CMB issuance in the second
quarter of 2009. The bond forward contracts were marked-to-market at March 31,
2009 for an unrealized gain of $0.3 million. At March 31, 2009, the Company
also held $125.0 million in interest rate swap contracts to hedge commitment
risk. The interest rate swap contracts were marked-to-market at March 31, 2009
for an unrealized loss of $0.8 million. No such arrangements, either forward
bond contracts or interests rate swap contracts, were outstanding at March 31,
2008.
    The Company participates in the CMB program sponsored by CMHC, and
administered by Canada Housing Trust. Through this program, the Company must
manage the mismatch and reinvestment risk between the amortizing MBS pool and
the CMB. As part of this arrangement, the Company enters into a seller swap
which has the effect of paying the fixed interest payments on the CMB and
receiving the total return on the MBS pool. As well, the Company entered into
a hedge swap to manage the reinvestment risk between the amortizing MBS pool
and the CMB. The notional values of the swaps, including both seller and hedge
swaps at March 31, 2009 were $1.53 billion ($1.21 billion - Q4 2008; $203.0
million - Q1 2008). These swaps were marked-to-market at March 31, 2009 for an
unrealized loss of $2.1 million (unrealized gain of $0.4 million - Q4 2008;
unrealized gain of $0.5 million - Q1 2008), recorded in the consolidated
statements of income. For additional information refer to Note 12 of these
unaudited interim consolidated financial statements.
    The Company originates and securitizes insured residential mortgage loans
into special purpose entities for liquidity funding. When these assets are
sold, the Company retains rights to certain excess interest spreads less
servicing liabilities, which constitute retained interests. The Company
periodically reviews the value of retained interests, and any other than
temporary impairment in value is charged to income. The Company continues to
administer all securitized assets that the Company originates after the sale
and, upon maturity of the mortgage, will renew or refinance these mortgage
loans whenever possible. As at March 31, 2009 outstanding securitized mortgage
loans under administration amounted to $2.95 billion ($2.61 billion - Q4 2008
and $1.54 billion - Q1 2008) with retained interest of $175.7 million ($139.9
million - Q4 2008 and $79.1 million - Q1 2008). The off-balance sheet
portfolio continues to perform well, with 97.3% of the portfolio current and
1.0% greater than 60 days in arrears. For additional information, refer to
Note 6 in the consolidated financial statements of the 2008 Annual Report, and
Note 5 of these unaudited interim consolidated financial statements.
    In the normal course of its business, the Company offers credit products
to meet the financial needs of its customers. Outstanding commitments for
future advances on mortgage loans amounted to $428.7 million at March 31, 2009
compared to $242.4 million at December 31, 2008 and $512.9 million at March
31, 2008. Included within the outstanding commitments are unutilized
commercial advances of $90.4 million at March 31, 2009 compared to $89.6
million at December 31, 2008 and $268.5 million at March 31, 2008. Commitments
for the loans remain open for various dates through April 2010. As at March
31, 2009 unutilized credit card balances amounted to $54.4 million, compared
to $62.9 million at December 31, 2008 and $76.3 million at March 31, 2008.
Outstanding commitments for future advances for the Equityline Visa portfolio
were $2.7 million at December 31, 2008 compared to $2.4 million at December
31, 2008 and $4.5 million at March 31, 2008.

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

    Home Trust's capital ratios are calculated using the guidance of the
Office of the Superintendent of Financial Institutions Canada (OSFI).
Effective January 1, 2008, Home Trust began calculating its regulatory capital
under the new capital adequacy rules issued by OSFI, which are based the
"International Convergence on Capital Management and Capital Standard - A
Revised Framework" (Basel II).
    Under Basel II for Home Trust, risk-weighted assets are calculated for
each of credit and operational risk. Home Trust's risk-weighted assets were as
follows:

    
                                             As at        As at        As at
                                          March 31, December 31,    March 31,
    In thousands of dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Risk weighted assets for:
    Credit risk                         $2,741,077   $2,711,583   $2,502,212
    Operational risk                       280,052      274,167      264,738
    -------------------------------------------------------------------------
    Total Risk-weighted Assets(1)       $3,021,129   $2,985,750   $2,766,950
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Based on the Company's wholly owned subsidiary, Home Trust Company.
    

    The capital base of Home Trust continues to be strong. The Tier 1 capital
ratio ended the quarter at 13.8%, up from 12.9% recorded in the fourth quarter
of 2008 and up from the 12.0% reported at March 31, 2008. The total capital
ratio was 15.2% at March 31, 2009, up from the 14.2% reported in the fourth
quarter of 2008 and up from the 13.4% reported at March 31, 2008.
    The Company continues to build its capital base during a period of
uncertainty in global capital markets. The Company's strong capital position
affords it the flexibility to maintain and grow operations, both organically
and, if the opportunity arises, through strategic acquisitions. These ratios
both continue to exceed OSFI's well capitalized targets of 7.0% for Tier 1 and
10.0% for total capital as well as Home Trust's internal capital targets.
    Further information on the Company's regulatory capital, see Note 8 to
these unaudited interim consolidated financial statements.

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

    The Company is exposed to various types of risks owing to the nature of
the business activities it conducts. The types of risk to which the Company is
subject include credit, liquidity and interest rate risks. The Company has
adopted enterprise risk management (ERM) as a discipline for managing risks.
The Company's ERM structure is supported by a governance framework which
includes Board of Director and Senior Management oversight, policies,
management standards, guidelines and procedures appropriate to each business
activity. The policies are reviewed and approved annually by the Board of
Directors. The Company's key risk management practices remain in place and
continue to be reviewed and enhanced from those outlined on pages 28 through
38 in the MD & A section of the Company's 2008 Annual Report.

    Credit Risk

    Credit risk management is the oversight of credit risk associated with
the total loans portfolio. This is the risk of the loss of principal and/or
interest from the failure of debtors, for any reason, to honour their
financial or contractual obligations to the Company. The Company's exposure to
credit risk is mitigated by senior management, the Audit Committee and the
Risk and Capital Committee of the Board of Directors who undertake reviews of
credit policies and lending practices. The Company's policy is that credit is
approved by different levels of senior management, based upon the amount of
the loan. The Risk and Capital Committee and the Board of Directors review
compliance with credit risk requirements on a quarterly basis.
    At March 31, 2009 the composition of the total mortgage portfolio was
80.0% residential and 20.0% non-residential, compared to a composition of
79.8% residential and 20.2% non-residential at December 31, 2008 and a
composition of 82.6% residential and 17.4% non-residential one year ago. The
composition is well within the internal policy limits the Company's Risk and
Capital Committee have approved. Within the Company's residential mortgage
portfolio, 15.0% of the loans were insured by CMHC at the end of the quarter,
compared to 14.6% at December 31, 2008 and 6.4% one year ago. First mortgages
represented 99.2% of the total mortgage portfolio at March 31, 2009, down
slightly from the comparable periods. Further, with the launch of the
Accelerator Program in the second quarter of 2008, the Company continues a
trend of originating higher volumes of government-insured mortgages. Of all
residential mortgage originations and renewals in the first three months of
2009, 62.4% were insured. This is up from the comparable three month period of
2008 where 29.1% of all residential mortgage originations and renewals were
insured. At March 31, 2009 the average loan to value on origination of the
Company's residential mortgage loans portfolio was 69.9%, compared to 66.6% at
December 31, 2008 and 67.2 % one year ago. Refer to Note 4 of these unaudited
interim consolidated financial statements for a further breakdown by
geographic region. The mortgage loans portfolio continued to perform well with
94.2% of the portfolio current and 2.4% of the portfolio over 60 days in
arrears at the end of March 2009. This is down slightly from December 31, 2008
at which point 94.5% of the portfolio was current and 1.6% of the portfolio
was over 60 days in arrears and down from March 31, 2008 at which point 95.7%
of the portfolio was current while 1.5% of the portfolio was over 60 days in
arrears. When the off-balance sheet mortgage portfolio of $2.95 billion is
also factored in, the combined mortgage loans portfolio continues to perform
well with 96.8% of the combined portfolio current, while only 1.8% is over 60
days in arrears.
    As at March 31, 2009 the gross credit card receivable balance totaled
$342.9 million, of which $342.4 million, or 99.9% of the portfolio was secured
either by cash deposits or residential property, and $0.5 million, or 0.1% was
unsecured. The total credit approved included $396.7 million in secured and
$0.6 million in unsecured credit, compared to $414.3 million in secured, and
$0.7 million in unsecured credit at December 31, 2008 and $410.0 million in
secured, and $1.1 million of unsecured credit at March 31, 2008. Within the
secured credit card portfolio Equityline Visa credit cards represent the
principal driver of receivable balances. Equityline Visa credit cards are
secured by collateral residential mortgages, and this portfolio segment
amounted to $334.5 million of the total credit card receivable balance as at
March 31, 2009 compared to $342.9 million at December 31, 2008 and $324.3
million at March 31, 2008. Cash deposits securing credit card accounts
amounted to $13.7 million, and are included in the Company's deposits.
Further, the Equityline Visa portfolio has a loan to value of 69.4% at March
31, 2009 down from a loan to value of 69.5% and 69.6% at December 31, 2008 and
March 31, 2008, respectively. At March 31, 2009 $12.6 million, or 3.7% of the
credit card portfolio was over 60 days in arrears compared to $10.6 million,
or 3.0% at December 31, 2008 and $5.2 million, or 1.6% at March 31, 2008.
    The secured loan portfolio of $69.6 million decreased by $2.9 million
from the December 31, 2008 balance of $72.5 million, and decreased $15.3
million from the March 31, 2008 balance of $84.9 million. These loans are
secured by second mortgages on residential properties. At March 31, 2009,
96.8% of the secured loan portfolio was current while $0.9 million, or 1.2%
was over 60 days in arrears. This compares to 97.3% of the secured loan
portfolio being current while $1.0 million, or 1.3% was over 60 days in
arrears at December 31, 2008. As at March 31, 2008, 97.5% of the secured loan
portfolio was current while $1.3 million, or 1.5% was over 60 days in arrears.
    The Company experienced a rise in net impaired loans, to $52.9 million at
March 31, 2009 compared to $39.2 million at December 31, 2008 and $31.0
million at March 31, 2008 driven by the deterioration in the overall economy.
Although the Company continues to experience a rise in impaired loans, at 1.2%
of the total loans portfolio the rates are within historic Company ranges. The
Company tightened its underwriting criteria, taking into account local market
conditions in order to minimize potential loss exposure. Experienced employees
of the Company undertake reviews of all non-performing loans greater than 60
days to analyze patterns and drivers, and then reflect emerging drivers in the
Company's lending criteria going forward. This analytical approach and
attention to emerging trends has resulted in continued low write-offs relative
to the gross loans portfolio. Write-offs net of recoveries applied against the
accumulated allowance for credit losses realized on loans during the
three-month period ended March 31, 2009 totaled $1.5 million, up from $1.4
million for the three-month period ended December 31, 2008 and $0.6 million
for the three-month period ended March 31, 2008. The Company continues to
monitor this area, and is dealing prudently and effectively with impaired
loans. Additional experienced resources have been hired to manage the
increased workload and the Company is working with clients to manage their
payments through the challenging economic conditions.
    The Company continues to be well positioned to absorb all probable losses
in its loans portfolio holding a general allowance of $25.8 million at March
31, 2009 as compared to $25.2 million at December 31, 2008 and $23.7 million
at March 31, 2008. The Company routinely monitors the adequacy of the general
allowance. The Company has security in the form of real property or cash
deposits against loans totaling 99.9% of the total loans portfolio. A
methodology has been implemented by the Company to test the adequacy of the
general allowance that takes into account asset quality, borrowers'
creditworthiness, property location and past loss experience. The Company
periodically reviews this general allowance methodology giving due
consideration to changes in economic conditions, interest rates and local
housing market conditions.
    The total general allowance was 85.4 basis points of the Company's
risk-weighted assets at March 31, 2009 compared to 84.0 basis points at
December 31, 2008 and 85.3 basis points at March 31, 2008. The increase over
the fourth quarter of 2008 reflects the overall increase in new impaired loans
during the first quarter of 2009.

    Liquidity Risk

    The objective of liquidity management is to ensure the Company has the
ability to generate or obtain cash or equivalents in a timely manner and at a
reasonable cost to meet its commitments (both on- and off-balance sheet) as
they become due.
    The Company's liquidity management framework includes a policy relating
to several key elements, such as the minimum levels of liquid assets to be
held at all times, the composition of types of liquid assets to be maintained,
the daily monitoring of the liquidity position by senior management, and
quarterly reporting to the Risk and Capital Committee of the Board of
Directors. The Company manages liquidity using a model which considers two
stress scenarios. In the "immediate" scenario, the Company experiences a
decline in new deposits over a one-month period. In the "ongoing" scenario,
the situation is similarly stressed but is spread out over the course of one
year. In each scenario, the Company must hold sufficient liquid assets to meet
the potential and certain obligations for a period of one year beyond the time
frame of the scenario. These scenarios require the Company to make assumptions
regarding the probable behaviour and timing of cash flows for each type of
asset and liability. The Company's liquidity ratio is the total of liquid
assets, adjusted by the estimates in each scenario, divided by the adjusted
liabilities. At March 31, 2009 liquid assets amounted to 156% under the
immediate scenario and 138% under the ongoing scenario, well in excess of the
Company's internal policy limits. The Company continues to monitor these
scenarios and will take appropriate actions should the need arise.
    The Company holds liquid assets in the form of cash and bank deposits,
treasury bills, bankers' acceptances, government bonds and debentures to
comply with its liquidity policy. At March 31, 2009 liquid assets amounted to
$610.7 million, compared to $880.7 million recorded at December 31, 2008 and
$734.9 million at March 31, 2008. The decline in overall liquidity levels from
the prior periods is a conscious decision by the Company to bring liquidity
levels back in line with past historical levels. The Company's policy is to
maintain a minimum 20% of 100-day obligations in liquid assets. For the twelve
months ended March 31, 2009 the Company maintained a monthly average of $609.3
million, or 45.0% of 100-day obligations in liquid assets compared to $598.2
million, or 46.2% for the twelve months ended December 31, 2008 and $527.1
million, or 51.3% for the twelve months ended March 31, 2008.

    Structural Interest Rate Risk

    Interest rate risk is the sensitivity of earnings to sudden changes in
interest rates. The objective of interest rate risk management is to ensure
that the Company is able to realize stable and predictable earnings over
specific time periods despite interest rate fluctuations. The Company has
adopted an approach to the management of its asset and liability positions to
prevent interest rate fluctuations from materially impacting future earnings,
and to the best of its abilities matches liabilities to assets through its
actions in the deposit market in priority to accessing off-balance sheet
solutions. The Company's Asset Liability Management Committee manages exposure
arising from interest rate and liquidity risk, and reports quarterly to the
Board of Directors.
    The interest rate sensitivity position as at March 31, 2009 is presented
under Note 13 in these unaudited interim consolidated financial statements.
The table provided there represents the Company's positions at a point in
time, and the gap represents the difference between assets and liabilities in
each maturity category. Note 13 summarizes both on- and off-balance sheet
assets and liabilities, in terms of their contractual amounts. Over the
lifetime of certain assets, some contractual obligations such as residential
mortgages will be terminated prior to their stated maturity at the election of
the borrower, by way of prepayments. Similarly, some contractual off-balance
sheet mortgage commitments may be extended but not materialize. In measuring
its interest rate risk exposure, the Company will make assumptions about these
factors, taking into account aspects such as past borrower history.
    To assist in matching assets and liabilities, the Company utilizes two
interest rate risk sensitivity models which measure the relationship between
changes in interest rates and the resulting impact on both future net interest
income and the economic value of shareholders' equity. The following table
provides the potential after tax impact of an immediate and sustained 100
basis point, and 200 basis point increases and decreases in interest rates on
net interest income and on the economic value of shareholders' equity.

    
                             March 31     March 31     March 31     March 31
    In thousands of dollars      2009         2008         2009         2008
    -------------------------------------------------------------------------
                                   Increase in              Decrease in
                                 interest rates           interest rates
    -------------------------------------------------------------------------
    100-basis point shift
      Impact on net
       interest income,
       after tax (for the
       next 12 months)      $   2,942    $   2,588    $  (2,942)   $  (2,588)
      Impact on net present
       value of
       shareholders' equity   (13,932)      (3,420)       9,913        3,550

    200-basis point shift
      Impact on net
       interest income,
       after tax (for the
       next 12 months)      $   5,883    $   5,175    $  (5,883)   $  (5,175)
      Impact on net present
       value of
       shareholders' equity   (27,156)      (6,715)      20,192        7,239
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Company may enter into derivative transactions for the purpose of
hedging commitment risk. The purpose is to manage interest rate exposures
during the period between when a mortgage commitment is made and when this
mortgage loan is securitized into an MBS pool. The Company held notional $19.6
million in bond forward contracts for the sale of Government of Canada bond
positions and $125.0 million in interest rate swap contracts specifically to
hedge commitment risk at March 31, 2009 with no such positions in the
comparative period. Through the Company's participation in CMHC's CMB program,
the Company was required to enter into specific swap agreements to hedge
interest rate risk and the reinvestment risk between the amortizing MBS pool
and the CMB. Refer to Note 12 of these unaudited interim consolidated
financial statements for additional information.

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

    The following section discusses the mortgage lending, consumer lending
and other segments for the three-month period ended March 31, 2009 (refer to
Note 14 of these unaudited interim consolidated financial statements). The
mortgage lending segment continues to be the primary driver of the Company's
overall growth while the consumer lending segment continues to provide a
diversified income source.

    Mortgage Lending

    The Company's principal line of business contributed $24.7 million to net
income during the first quarter of 2009, as compared to $21.6 million and
$17.9 million for the same periods ended December 31, 2008 and March 31, 2008.
The increase over the prior periods was primarily driven through loan
originations which increased fee income and significant increases in income
realized on securitization activities. During the first quarter of 2009, the
Company experienced an improvement in net interest income as the Company
reduced excess liquidity levels. Net interest income ended the quarter at
$20.5 million an improvement from $18.9 million for the three-month period
ended December 31, 2008 and down from $22.5 million for the three-month period
ended March 31, 2008.
    The table below provides a breakdown of specific residential and
non-residential advances made during the quarter compared to the previous
quarter.

    
    -------------------------------------------------------------------------
    In thousands of dollars                               Three Months Ended
                                                       March 31     March 31
                                                           2009         2008
    -------------------------------------------------------------------------
    Residential Mortgages                             $ 690,177    $ 601,863
    Non-Residential Mortgages                            22,299      225,641
    Store and Apartments                                 10,375       19,458
    Warehouse Commercial Mortgages                        3,000       20,273
    -------------------------------------------------------------------------
    Total mortgage advances                           $ 725,851    $ 867,235
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The total value of new mortgages advanced in the quarter was $725.9
million a decrease of 16.3% over the $867.2 million advanced for the same
quarter in 2008. However, the residential mortgage advances were $690.2
million for the quarter, an increase of $88.3 million, or 14.7% year over year
compared to the $601.9 million advanced for the three month period ended March
31, 2008. The non-residential mortgage advances declined from $265.4 million
to $35.7 million due to the Company's planned policy of reducing its exposure
to non-residential mortgages. Residential Mortgages include the advances from
loans originated under the Accelerator Program and Multi-Residential loans.
All of the loans advanced under the Accelerator Program and those classified
as Multi-Residential Mortgages are insured products and were subsequently
securitized through the Company's MBS and CMB program.
    The Company securitized $460.6 million of government-guaranteed CMHC
residential mortgage loans through the creation of MBS securities during the
quarter, realizing total gains from securitization of $25.6 million for the
quarter. This compares to $557.7 million securitized for the fourth quarter of
2008 and $145.8 million for the first quarter of 2008, resulting in gains of
$25.7 million and $8.9 million, respectively. During the quarter, the Company
participated in CMHC's CMB program. Of the $460.6 million securitized during
the quarter, $330.6 million relates to the securitization of
government-guaranteed residential mortgage loans through the creation of MBS
securities sold through Canada Housing Trust. The Company realized $18.3
million in gains from the sale of these residential mortgages during the
quarter. The rise in utilizing the securitization stream to funding loan
originations in the latter half of 2008 and into the first quarter of 2009 was
primarily due to the increase in core funding costs experienced through the
Company's regular term deposit channel leaving the spreads on securitization
activities attractive. When funding costs begin to ease as more liquidity and
capital continue to be injected into the global economies, the Company will
re-examine its funding mix to optimize overall returns. Securitization will
continue to contribute to the Company's income; however, core mortgage lending
utilizing funding from deposits is expected to remain the main driver of the
Company's financial results going forward. For additional information refer to
Note 5 of these unaudited interim consolidated financial statements.
    During the fourth quarter of 2008, the Company entered into an amended
agreement with a Trustee for the Company's second mortgage program (recorded
as Secured Loans) operating as Regency Finance Corp. (Regency), whereby the
Company acts as Regency's agent in offering residential second mortgage loans.
These mortgage loans are securitized and the investments are purchased by the
Company. At the end of the first quarter of 2009 the Company held $69.6
million in Secured Loans as Notes Receivable issued by Regency, compared to
$72.5 million at December 31, 2008 and $84.9 million at March 31, 2008. These
Notes yield 4.8% with an average duration of 2.0 years. The Company also
receives fee income for servicing and administering these mortgages for
Regency. This income amounted to 0.1% of the portfolio value, on an annualized
basis. The underlying credit quality of the mortgage loans securing the Notes
Receivable remains high, with 1.2% of the portfolio in arrears over 60 days.
This program has experienced minimal losses since inception. The Company has
decided to discontinue advancing funds under this program and will redirect
clients into the Company's Accelerator Program, on a go-forward basis.

    Consumer Lending - Credit Cards and Retail Services

    Consumer lending continued to generate positive results in the first
quarter of 2009. Net income for the quarter was $4.8 million, compared to $4.8
million for the fourth quarter of 2008 and $4.3 million for the first quarter
of 2008. The Company has tightened lending standards over the past year and as
such the growth in the Equtyline Visa receivable balances has moderated
resulting in lower fees earned on this portfolio. Included in the operating
results of the consumer lending segment are the operations of PSiGate. PSiGate
contributed $0.4 million in net income during the quarter.
    The Equityline Visa loans portfolio amounted to $334.5 million at March
31, 2009 ($342.9 million - Q4 2008, and $324.3 million - Q1 2008) comprising
97.6% (97.4% - Q4 2008, and 96.9% - Q1 2008) of the total gross credit card
receivable balance of $342.9 million, and bearing an average interest rate of
10.8% (10.3% - Q4 2008, and 10.9% - Q1 2008) on outstanding balances. During
the first quarter of 2009, 380 Equityline Visa accounts with $16.2 million in
authorized credit limits were issued, down from 790 Equityline Visa accounts
with $32.8 million in authorized credit limits issued in the fourth quarter of
2008 and down from 1,058 Equityline Visa accounts with $49.7 million in
authorized credit limits issued for the three months ended March 31, 2008. The
decrease in new accounts in the first quarter of 2009 from the comparable
periods is due to ongoing efforts by the Company to tighten credit in certain
geographical locations in response to the current economic environment.

    Other

    The Other segment is comprised of the operating results from the
Company's securities portfolio and corporate activities. Net income for the
quarter was $1.9 million, down from $2.6 million for the three months ended
December 31, 2008 and $3.0 million for the three months ended March 31, 2008.
The decrease from the prior periods was driven by lower yields earned on the
Company's securities portfolio.

    
    -------------------------------------------------------------------------
    ACCOUNTING STANDARDS AND POLICIES
    -------------------------------------------------------------------------
    

    Critical Accounting Estimates

    Critical accounting estimates which require management to make
significant judgements, some of which are inherently uncertain, are outlined
on pages 40 through 42 of the 2008 Annual Report. These estimates are critical
since they involve material amounts and require management to make estimates
that, by their very nature, include uncertainties. The preparation of
unaudited interim consolidated financial statements in accordance with GAAP
requires management to make estimates and assumptions, mainly concerning the
valuation of items, which affect the amounts reported. Actual results could
differ from those estimates.
    Accounting policies requiring critical accounting estimates include the
allowance for credit losses, securitization of residential mortgages,
financial instruments measured at fair value, other than temporary impairment
of available for sale securities, goodwill and future income tax liabilities.
Further information can be found under Notes 3, 4, 5, 11, and 12 of these
unaudited interim consolidated financial statements. There have been no
subsequent changes to the critical accounting estimates disclosed on pages 40
through 42 of the 2008 Annual Report.

    Change in Accounting Policy

    The significant accounting policies the Company follows are detailed in
Note 1 to the Company's December 31, 2008 consolidated financial statements.
Effective January 1, 2009 the Company adopted the new accounting standard
issued by the Canadian Institute of Chartered Accountants (CICA), Section
3064, Goodwill and Intangible Assets. The implementation of this standard did
not have a material impact on the Company's consolidated financial position
and results of operations. For further details, see Note 2 to these unaudited
interim consolidated financial statements. Effective January 1, 2009, the
Company adopted CICA Emerging Issues Committee Abstract EIC-173, Credit Risk
and the Fair Value of Financial Assets and Financial Liabilities. The abstract
clarifies how the Company's own credit risk and the credit risk of the
counterparty should be taken into account in determining the fair value of
financial assets and financial liabilities, including derivatives. The Company
believes the new guidance will not have a material effect on the financial
position or earnings of the Company and as such has not recorded any
adjustments.

    International Financial Reporting Standards

    In 2006, the Canadian Accounting Standards Board (AcSB) published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP with International Financial Reporting Standards (IFRS) over an
expected five-year transition period. In February 2008, the AcSB announced
that 2011 is the changeover date for publicly accountable companies to use
IFRS, replacing Canadian GAAP. IFRS uses a conceptual framework similar to
Canadian GAAP, but there are significant differences in recognition,
measurement and disclosures. In the period leading up to the changeover, the
AcSB will continue to issue accounting standards that converge with IFRS, thus
mitigating the impact of adopting IFRS on the changeover date.
    The Company will change over to IFRS starting with interim and annual
financial statements relating to fiscal periods beginning on or after January
1, 2011. The transition date will require the restatement for comparative
purposes of amounts reported by the Company for the interim periods and the
year-ended December 31, 2010. The Company has commenced the process of
transition from current Canadian GAAP to IFRS. It has established a project
team and includes representatives from various areas of the organization as
necessary to plan for and achieve a smooth transition to IFRS. Regular
progress reporting to the Audit Committee of the Board of Directors on the
status of the IFRS implementation project has been instituted.
    The implementation project consists of three primary phases, which will
in many instances occur concurrently as the IFRS standards are applied to
specific areas from start to finish:

    
    -   Research, diagnostic and planning phase - This phase includes
        performing a high-level assessment to identify key implications of
        the transition to IFRS. As a result of these procedures the potential
        issues and implications are ranked as high, medium or low priority
        and assigned to the relevant teams. The core IFRS team has undergone
        training to effectively carry out the remaining phases of the
        project.

    -   Impact analysis, evaluation and design phase - In this phase, each
        area identified from the scoping and diagnostic phase will be
        addressed in order of priority with project team members assigned
        accordingly. This phase includes specification of changes required
        to existing accounting policies, information systems, internal
        controls over financial reporting and other operations business
        processes. Following an analysis of policy alternatives allowed under
        IFRS, preliminary IFRS financial statement content will be drafted.

    -   Implementation and review phase - This phase includes execution of
        changes to information systems and business process, completing
        formal authorization processes to approve recommended accounting
        policy choices and training programs across the Company's finance
        group and other staff, as necessary. The resulting efforts from the
        other phases of the project will culminate with the collection of fi
        nancial information necessary to compile IFRS-compliant financial
        statements, embedding IFRS standards in business process and related
        controls for certification of internal controls over financial
        reporting and Audit Committee approval of IFRS financial statements.
    

    The Company completed the research, diagnostic and planning phase and
started working on the impact analysis, evaluation and design phase during the
fourth quarter of 2008. The impact analysis, evaluation and design phase is
expected to be completed by the end of Q3 2009. The Company's analysis of IFRS
and comparison with currently applied accounting principles has identified a
number of differences. Many of the differences identified are not expected to
have a material impact on the reporting results and financial positions.
However, there may be significant changes following from the IFRS accounting
principles and provisions for first-time adoption of IFRS standards on certain
areas.
    Most adjustments required on transition to IFRS will be made
retrospectively, against opening retained earnings as of the date of the first
comparative balance sheet presentation based on standards applicable at that
time. Transitional adjustments relating to those standards where comparative
figures are not required to be restated will only be made as of the first day
of the year of adoption.
    IFRS 1 "First-Time Adoption of International Financial Reporting
Standards", provides entities adopting IFRS for the first time with a number
of optional exemptions and mandatory exceptions, in certain areas, to the
general requirement for full retrospective application of IFRS. The Company is
analyzing the various accounting policy choices available and will implement
those determined to be most appropriate for the Company's specific
circumstances. The Company expects to complete and make preliminary
conclusions on these choices by the end of the second quarter of 2009 but will
be subject to ongoing assessment should circumstances change.
    Set out below are the key areas where changes in accounting policies are
expected and may impact the Company's consolidated financial statements. The
list and comments should not be regarded as a complete list of changes that
will result from the transition to IFRS. The commentary is intended to
highlight those areas the Company believes to be the most significant; however
analysis of changes is still in progress and not all decisions have been made
where choices of accounting policy are available. We note that the
standard-setting bodies that shape Canadian GAAP and IFRS have significant
ongoing projects that could affect the ultimate differences between Canadian
GAAP and IFRS and their impact on the Company's consolidated financial
statements in future years. The future impact of IFRS will also depend on the
particular circumstances prevailing in those years. The differences described
below are those existing based on Canadian GAAP and IFRS standards at March
31, 2009. At this stage, the Company is not able to quantify the impact
expected on the consolidated financial statements.

    
    The initial impact assessment identified the following areas as having the
greatest potential impact to the Company:

    -   Financial Instruments - Classification & Recognition, Derecognition,
        Derivatives and Hedging
    -   Financial Instruments - Measurement and Impairment
    -   Financial Instruments - Disclosures
    

    Controls over Financial Reporting

    No changes were made in the Company's internal controls over financial
reporting during the interim period ended March 31, 2009 that have materially
affected, or are reasonably likely to materially affect, the Company's
internal controls over financial reporting.

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

    As at March 31, 2009 the Company had issued 34,355,590 Common Shares. In
addition, outstanding director and employee stock options amounted to
1,446,750 (1,406,750 - Q4 2008, and 1,288,750 - Q1 2008) of which 724,250 were
exercisable as of the quarter-end (661,125 - Q4 2008, and 543,125 - Q1 2008)
for proceeds to the Company upon exercise of $14.9 million ($8.4 million - Q3
2008, and $7.9 million - Q4 2007).
    Subsequent to the end of the first quarter, the Board of Directors
declared a quarterly cash dividend of $0.14 per common share payable on June
1, 2009 to shareholders of record at the close of business on May 15, 2009.

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


    In Thousands of Dollars            2009               2008
    -------------------------------------------------------------------------
    (Except Per Share and
     Percentage Amounts)                 Q1         Q4         Q3         Q2
    -------------------------------------------------------------------------
    Net interest income (TEB)(1)  $  37,528  $  36,399  $  39,478  $  40,418
    Less TEB adjustment               1,296      1,162      1,130      1,056
    -------------------------------------------------------------------------
    Net interest income
     per financial
     statements                      36,232     35,237     38,348     39,362
    Non-interest income              32,034     26,023     23,013     17,318
    -------------------------------------------------------------------------
    Non-interest expense             18,848     16,852     16,953     17,443
    Total revenues                  120,721    117,996    116,950    112,953
    Net income                       31,418     29,039     27,939     26,550
    Return on common
     shareholders' equity             27.9%      27.4%      27.6%      27.7%
    Return on average
     total assets                      2.2%       2.0%       2.0%       2.0%
    Earnings per common share
      Basic                       $    0.91  $    0.84  $    0.81  $    0.77
      Diluted                     $    0.91  $    0.84  $    0.81  $    0.76
    Book value per common share   $   13.61  $   12.57  $   12.08  $   11.44
    Efficency ratio (TEB)(1)          27.1%      27.0%      27.1%      30.2%
    Efficency ratio                   27.6%      27.5%      27.6%      30.8%
    Tier 1 capital ratio(2),(3)       13.8%      12.9%      12.7%      12.5%
    Total capital ratio(2),(3)        15.2%      14.2%      14.0%      13.8%
    Net impaired loans as a %
     of gross loans                    1.2%       0.9%       0.7%       0.7%
    Annualized provision as a %
     of gross loans                    0.3%       0.2%       0.3%       0.1%
    -------------------------------------------------------------------------

    In Thousands of Dollars            2008                             2007
    -------------------------------------------------------------------------
    (Except Per Share and
     Percentage Amounts)                 Q1         Q4         Q3         Q2
    -------------------------------------------------------------------------
                                  $  38,590  $  40,394  $  39,396  $  37,647
    Net interest income (TEB)(1)
    Less TEB adjustment                 962      2,311      1,084      1,118
    -------------------------------------------------------------------------
    Net interest income
     per financial                   37,628     38,083     38,312     36,529
     statements
    Non-interest income              14,338     14,561     11,964     11,467
    -------------------------------------------------------------------------
    Non-interest expense             14,763     15,687     13,289     13,382
    Total revenues                  106,796    105,081     94,346     87,708
    Net income                       25,159     24,228     22,837     22,018
    Return on common                  27.9%      28.9%      28.9%      28.9%
     shareholders' equity
    Return on average                  1.9%       2.0%       2.0%       2.1%
     total assets
    Earnings per common share     $    0.73  $    0.70  $    0.66  $    0.64
      Basic
                                  $    0.72  $    0.70  $    0.65  $    0.63
      Diluted                     $   10.79  $   10.08  $    9.38  $    8.98
    Book value per common share       27.9%      28.5%      25.9%      27.3%
    Efficency ratio (TEB)(1)          28.4%      29.8%      26.4%      27.9%
    Efficency ratio                   12.0%      11.1%      11.7%      12.9%
    Tier 1 capital ratio(2),(3)       13.4%      12.5%      13.1%      14.4%
    Total capital ratio(2),(3)
    Net impaired loans as a %         0.7%        0.7%       0.6%       0.7%
     of gross loans
    Annualized provision as a %
     of gross loans                   0.1%        0.2%       0.2%       0.1%
    -------------------------------------------------------------------------

    (1) TEB - Taxable Equivalent Basis, see definition under Non-GAAP
        Measures
    (2) These figures relate to the Company's operating subsidiary, Home
        Trust Company
    (3) The Tier 1 and total capital ratios for 2007 are calculated under
        Basel I requirements.
    

    The Company's key financial measures for each of the last eight quarters
are summarized in the table above. These highlights illustrate the Company's
profitability, return on equity, as well as efficiency measures and capital
ratios. The quarterly results are modestly affected by seasonal factors, with
first quarter mortgage advances typically impacted by winter weather
conditions, and the fourth quarter normally experiencing increased credit card
activity over the holiday period. The Company continues to achieve positive
financial results driven by revenue growth in all business segments, and
continued low efficiency ratios (where the lower the ratio the better). The
increase in Tier 1 and total capital ratios throughout 2008 and into 2009
reflect the Company's continuing efforts to preserve its capital base during
uncertain capital markets as well as changes required to calculate capital
requirements under Basel II which came into effect January 1, 2008, resulting
in modest positive results due to a shift into lower risk-weighted categories
for residential mortgages offset by new capital requirements related to
operational risk. The increase in net impaired loans as a percentage of gross
loans has trended upwards over the last half of 2008 and into 2009. The
increases are due to the effects of the sustained recession in Canada driving
higher unemployment levels. The Com- pany has taken proactive steps in
managing the increased impaired loans by strengthening our mortgage servicing
department to provide support to clients in payment management.

    Outlook

    Home Capital remains committed to serving selected segments of the
Canadian financial services marketplace that are not the focus of the major
financial institutions. The Company continues to manage from a strong capital
and liquidity position with no external debt, and is well positioned to
capitalize on market opportunities in the current economic recession.
    The Canadian economy continues to experience recessionary trends through
continued retraction during late 2008 into the first quarter of 2009 with
increasing unemployment and declining global demand for Canadian exports.
Housing market activity and residential mortgage growth are expected to
moderate further over the coming quarters though recent housing data is
showing positive signs with a moderating decline in sales activity and housing
prices reinforcing the Company's cautious return to historic lending
standards. Despite these challenges, the Company remains cautiously optimistic
for the remainder of 2009 and continues to manage its business with prudence
and a strong commitment to measured growth, continued profitability and
creating long-term shareholder value. The Company has a proven corporate
strategy and proprietary risk management framework to manage the business
through uncertain economic conditions while positioning the Company for future
opportunities.
    This Outlook section contains forward-looking statements. (Please see the
Caution Regarding Forward-Looking Statements on page 5 of these unaudited
interim consolidated financial statements).

    
    Consolidated Statements of Income


                                                  For the three months ended
    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars, Except
    per Share Amounts (Unaudited)             2009         2008         2008
    -------------------------------------------------------------------------

    Income                                $ 81,327     $ 82,672     $ 82,971
    Interest from loans                      2,840        2,491        2,153
    Dividends from equity securities
    Other interest                           4,520        6,810        7,334
    -------------------------------------------------------------------------
                                            88,687       91,973       92,458
    Interest Expense
    Interest on deposits                    52,455       56,736       54,830
    -------------------------------------------------------------------------
    Net interest income                     36,232       35,237       37,628
    Provision for credit losses (note 4(d))  3,283        1,988          600
    -------------------------------------------------------------------------
                                            32,949       33,249       37,028
    -------------------------------------------------------------------------

    Non-interest Income
    Fees and other income                    7,322        7,104        7,223
    Securitization income on
     mortgage-backed securities             27,655       20,950        9,101
    Net loss realized and unrealized
     on securities                            (943)        (795)      (1,625)
    Net gain on disposition of subsidiary        -            -           69
    Loss on derivatives                     (2,000)      (1,236)        (430)
    -------------------------------------------------------------------------
                                            32,034       26,023       14,338
    -------------------------------------------------------------------------
                                            64,983       59,272       51,366
    -------------------------------------------------------------------------

    Non-interest Expenses
    Salaries and staff benefits             10,084        8,564        8,618
    Premises                                 1,356        1,192          991
    General and administration               7,409        7,096        5,154
    -------------------------------------------------------------------------
                                            18,849       16,852       14,763
    -------------------------------------------------------------------------

    Income Before Income Taxes              46,134       42,420       36,603
    Provision for income taxes (note 11(a)) 14,716       13,381       11,444
    -------------------------------------------------------------------------
    NET INCOME                            $ 31,418     $ 29,039     $ 25,159
    -------------------------------------------------------------------------
    NET INCOME PER COMMON SHARE
    Basic                                 $   0.91     $   0.84     $   0.73
    Diluted                               $   0.91     $   0.84     $   0.72
    -------------------------------------------------------------------------

    AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING (thousands)
    Basic                                   34,410       34,501       34,532
    Diluted                                 34,625       34,724       34,850
    -------------------------------------------------------------------------

    Total number of outstanding
     common shares (thousands)              34,355       34,434       34,532
    Book value per common share           $  13.61     $  12.57     $  10.79
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Comprehensive Income

                                                  For the three months ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,              March 31  December 31     March 31
     (Unaudited)                              2009         2008         2008
    -------------------------------------------------------------------------

    NET INCOME                            $ 31,418     $ 29,039     $ 25,159
    -------------------------------------------------------------------------

    OTHER COMPREHENSIVE INCOME (LOSS),
     NET OF TAX
    Unrealized income on available
     for sale securities
      Net unrealized income (loss)
       on securities available for sale,
       net of ($2,422) tax ($4,395 -
       December 31, 2008;
       $1,673 - March 31, 2008)              3,630      (10,271)       1,767
      Reclassification of losses in
       respect of available
       for sale securities,
       net of $188 tax ($312 -
       December 31, 2008;
       $729 - March 31, 2008)                6,009        2,613        1,573
    -------------------------------------------------------------------------
    Total other comprehensive
     income (loss)                           9,639       (7,658)       3,340
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME                  $ 41,057     $ 21,381     $ 28,499
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Balance Sheets

    -------------------------------------------------------------------------
    In Thousands of Dollars,              March 31  December 31     March 31
    (Unaudited)                               2009         2008         2008
    -------------------------------------------------------------------------
    ASSETS
    Cash Resources
    Deposits with regulated
     financial institutions              $ 314,552    $ 554,422    $ 432,177
    -------------------------------------------------------------------------
    Securities (note 3)
    Held for trading                             -            -          303
    Available for sale                     539,904      519,477      502,794
    -------------------------------------------------------------------------
                                           539,904      519,477      503,097
    -------------------------------------------------------------------------
    Loans (note 4)
    Residential mortgages                3,286,025    3,263,206    3,248,615
    Non-residential mortgages              815,483      826,882      685,820
    Personal and credit card loans         361,348      368,962      347,246
    Secured loans                           69,623       72,518       84,924
    General allowance for credit losses    (25,802)     (25,177)     (23,676)
    -------------------------------------------------------------------------
                                         4,506,677    4,506,391    4,342,929
    -------------------------------------------------------------------------
    Other
    Securitization receivable (note 5)     175,734      139,870       79,131
    Capital assets                           5,160        5,325        4,922
    Other assets (note 6)                   88,566       84,228       60,917
    -------------------------------------------------------------------------
                                           269,460      229,423      144,970
    -------------------------------------------------------------------------
                                       $ 5,630,593  $ 5,809,713  $ 5,423,173
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Liabilities
    Deposits
      Payable on demand                   $ 22,934     $ 34,808     $ 21,194
      Payable on a fixed date            4,800,698    5,067,973    4,806,010
    -------------------------------------------------------------------------
                                         4,823,632    5,102,781    4,827,204
    -------------------------------------------------------------------------
    Other
    Cheques and other items in transit       9,944        4,811        2,746
    Other liabilities (note 7)             329,078      269,368      220,767
    -------------------------------------------------------------------------
                                           339,022      274,179      223,513
    -------------------------------------------------------------------------
                                         5,162,654    5,376,960    5,050,717
    -------------------------------------------------------------------------
    Shareholders' Equity
    Capital stock (note 8)                  39,006       39,094       38,899
    Contributed surplus                      3,670        3,283        2,225
    Retained earnings                      426,677      401,429      334,289
    Accumulated other comprehensive
     loss (note 10)                         (1,414)     (11,053)      (2,957)
    -------------------------------------------------------------------------
                                           467,939      432,753      372,456
    -------------------------------------------------------------------------
                                       $ 5,630,593  $ 5,809,713  $ 5,423,173
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Changes in Shareholders' Equity

                                                  For the three months ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,              March 31  December 31     March 31
     (Unaudited)                              2009         2008         2008
    -------------------------------------------------------------------------
    CAPITAL STOCK (note 8)
    Balance at beginning of the period   $  39,094    $  39,142    $  38,899
    Normal course issuer bid                   (88)         (48)           -
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD         $  39,006    $  39,094    $  38,899
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance at beginning of the period   $   3,283    $   2,910    $   1,818
    Amortization of fair value of
     employee stock options (note 9)           387          373          407
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD         $   3,670    $   3,283    $   2,225
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS
    Balance at beginning of the
     period (note 8)                     $ 401,429    $ 377,638    $ 313,620
    Normal course issuer bid                (1,361)        (773)           -
    Net income for the period               31,418       29,039       25,159
    Dividends paid or declared
     during the period                      (4,809)      (4,475)      (4,490)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD         $ 426,677    $ 401,429    $ 334,289
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ACCUMULATED OTHER COMPREHENSIVE LOSS
    Balance at beginning of the period   $ (11,053)   $  (3,395)   $  (6,297)
    Other comprehensive income (loss),
     net of ($2,610) tax;
      (($4,083) - December 31, 2008;
       ($2,402) - March 31, 2008)            9,639       (7,658)       3,340
    -------------------------------------------------------------------------
    BALANCE AT END OF THE PERIOD         $  (1,414)   $ (11,053)   $  (2,957)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Cash Flows

                                                  For the three months ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,              March 31  December 31     March 31
    (Unaudited)                               2009         2008         2008
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income for the period            $  31,418    $  29,039    $  25,159
    Adjustments to determine cash
     flows relating to
     operating activities:
      Future income taxes                    9,578        5,170        2,027
      Amortization                          (7,700)      19,042        1,238
      Provision for credit
       losses (note 4(d))                    3,283        1,988          600
      Change in accrued interest payable    (2,375)         431       21,074
      Change in accrued interest receivable  1,142         (958)        (998)
      Net loss realized and unrealized
       on investment securities                943          795        1,625
      Loss on derivatives                    2,000        1,236          430
      Securitization income on
       mortgage-backed securities          (27,655)     (20,950)      (9,101)
      Amortization of fair value of
       employee stock options (note 9)         387          373          407
      Other                                 58,562      (10,143)     (17,698)
    -------------------------------------------------------------------------
    Cash flows from operating activities    69,583       26,023       24,763
    -------------------------------------------------------------------------
    CASH FLOWS FROM FINANCING ACTIVITIES
    Net (decrease) increase in deposits   (279,149)     158,742      413,220
    Normal course issuer bid                (1,449)        (821)           -

    Dividends paid                          (4,476)      (4,481)      (4,145)
    -------------------------------------------------------------------------
    Cash flows (used in) from
     financing activities                 (285,074)     153,440      409,075
    -------------------------------------------------------------------------
    CASH FLOWS FROM INVESTING ACTIVITIES
    Activity in available for sale
     and held for trading securities
      Purchases                           (246,481)    (227,538)    (217,467)
      Proceeds from sales                  235,336      151,570      168,454
      Proceeds from maturities               5,344       14,146       14,039
    Activity in mortgages
      Net increase                        (474,077)    (551,833)    (442,459)
      Proceeds from securitization
       of mortgage-backed securities       450,833      548,807      142,699
      Change in mortgage-backed
       securities receivable                 4,034        8,382        4,016
    Net (increase) decrease in
     personal and credit card loans          7,071       (5,139)     (21,924)
    Net (increase) decrease
     in secured loans                        2,813        5,889       (2,746)
    Purchases of capital assets               (328)        (613)        (609)
    Purchases of intangible assets          (8,924)           -            -
    -------------------------------------------------------------------------
    Cash flows used in
     investing activities                  (24,379)     (56,329)    (355,997)
    -------------------------------------------------------------------------
    Net increase (decrease) in cash
     and cash equivalents
     during the period                    (239,870)     123,134       77,841
    Cash and cash equivalents
     at beginning of the period            554,422      431,288      354,336
    -------------------------------------------------------------------------
    Cash and cash equivalents
     at end of the period                $ 314,552    $ 554,422    $ 432,177
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary Disclosure
     of Cash Flow Information
    Interest paid                        $  54,829    $  56,281    $  33,756
    Income taxes paid                       11,242        4,345       13,822
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Notes to the Unaudited Interim Consolidated Financial Statements

    1.  ACCOUNTING POLICIES USED TO PREPARE THE UNAUDITED INTERIM
        CONSOLIDATED 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, 2008 as set out in the 2008 Annual Report, on
    pages 46 through 72. These unaudited interim consolidated financial
    statements have been prepared in accordance with Canadian generally
    accepted accounting principles. Except as disclosed in Note 2, the
    accounting policies and methods of application used in the preparation of
    these unaudited interim consolidated financial statements are
    consistent with the accounting policies used in Home Capital Group Inc.'s
    (the "Company") most recent annual audited financial statements. These
    unaudited interim consolidated financial statements reflect amounts which
    must, of necessity, be based on the best estimates and judgement of
    management with appropriate consideration as to materiality.
    Actual results may differ from these estimates.

    2.  CHANGES IN ACCOUNTING POLICIES

    Goodwill and Intangible Assets

    Effective January 1, 2009 the Company adopted Canadian Institute of
    Chartered Accountants (CICA) Handbook Section 3064, Goodwill and
    Intangibles Assets (Section 3064). Section 3064 replaces Section 3062,
    Goodwill and Other Intangible Assets, and Section 3450, Research and
    Development Costs, provides clarifying guidance on the criteria that must
    be satisfied in order for an intangible asset to be recognized,
    including internally developed intangible assets. The new guidance did
    not have a material effect on the financial position or earnings of the
    Company.

    Credit Risk and the Fair Value of Financial Assets and Financial
    Liabilities

    Effective January 1, 2009, the Company adopted CICA Emerging Issues
    Committee Abstract EIC-173, Credit Risk and the Fair Value of Financial
    Assets and Financial Liabilities. The abstract clarifies how the
    Company's own credit risk and the credit risk of the counterparty should
    be taken into account in determining the fair value of financial assets
    and financial liabilities, including derivatives. The Company believes
    the new guidance will not have a material effect on the financial
    position or earnings of the Com- pany and as such has not recorded any
    adjustments.

    3. SECURITIES

    Available for Sale Securities - Net Unrealized Gains and Losses

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


    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Securities issued or guaranteed by:
      Canada                             $     474    $   1,546    $   1,725
      Corporations                           2,485        2,345          (34)
    Equity securities
      Common                                (1,730)      (2,106)        (897)
      Fixed rate preferred                 (24,383)     (29,918)      (5,276)
      Floating rate preferred               (1,169)      (2,370)        (833)
    Income trusts                              (88)      (2,745)      (3,527)
    Mutual funds                              (439)        (367)           -
    -------------------------------------------------------------------------
                                         $ (24,850)   $ (33,615)    $ (8,842)
    -------------------------------------------------------------------------

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

    As at March 31, 2009, the Company had $3.6 million of unrealized losses
    on available for sale securities which are other than temporary in
    nature, and have been transferred into net income. These unrealized
    losses are not included in the table above.

    4.  LOANS

    (A) Loans by Geographic Region and Type

                                                        As at March 31, 2009
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    British
     Columbia     $  338,624  $    9,509  $   30,543  $       10  $  378,686
    Alberta          388,189     112,241      73,531       8,220     582,181
    Ontario        2,297,198     624,132     248,763      59,254   3,229,347
    Quebec           112,132      44,414       1,660           -     158,206
    Maritimes         82,203      12,218       5,536       2,139     102,096
    Manitoba
     and
     Saskatchewan     67,679      12,969       1,315           -      81,963
    -------------------------------------------------------------------------
                  $3,286,025  $  815,483  $  361,348  $   69,623  $4,532,479
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                                        As at March 31, 2008
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    British
     Columbia     $  316,697  $    7,157  $   25,113  $      213  $  349,180
    Alberta          411,412     111,993      77,599       8,633     609,637
    Ontario        2,302,815     490,989     234,554      72,870   3,101,228
    Quebec            63,025      48,545         431           -     112,001
    Maritimes        113,094      18,529       7,703       3,208     142,534
    Manitoba
     and
     Saskatchewan     41,572       8,607       1,846           -      52,025
    -------------------------------------------------------------------------
                  $3,248,615  $  685,820  $  347,246  $   84,924  $4,366,605
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (B) Past Due Loans that are not Impaired

    A loan is recognized as being impaired when the Company is no longer
    reasonably assured of the timely collection of the full amount of
    principal and interest. As a matter of practice, a loan is deemed to be
    impaired at the earlier of the date it has been specifically provided for
    or when it has been in arrears for 90 days. Residential mortgages
    guaranteed by the government of Canada where payment is contractually
    past due 365 days are automatically placed on a non-accrual basis.
    Secured and unsecured credit card balances that have a payment that is
    contractually 180 days in arrears are written off. Equityline Visa credit
    card balances are measured on a basis consistent with mortgage loans.


                                                        As at March 31, 2009
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    1 - 30 days   $  126,068  $    5,055  $    3,484  $      854  $  135,461
    31 - 60 days       7,672         668       1,838         568      10,746
    61 - 90 days      42,151           -       3,158         160      45,469
    91 - 120 days      7,758           -       1,795           -       9,553
    -------------------------------------------------------------------------
                  $  183,649  $    5,723  $   10,275  $    1,582  $  201,229
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                                        As at March 31, 2008
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    1 - 30 days   $  102,705  $    2,350  $    3,111  $      881  $  109,047
    31 - 60 days       8,003         687       1,311           -      10,001
    61 - 90 days      28,480         269       1,389         321      30,459
    91 - 120 days          -           -       1,519           -       1,519
    -------------------------------------------------------------------------
                  $  139,188  $    3,306  $    7,330  $    1,202  $  151,026
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (C) Impaired Loans and Specific Allowances for Credit Losses

                                                        As at March 31, 2009
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    Gross amount
     of impaired
     loans        $   44,940  $    3,610  $    7,762  $      725  $   57,037
    Specific
     allowances       (2,439)       (430)       (776)       (487)     (4,132)
    -------------------------------------------------------------------------
                  $   42,501  $    3,180  $    6,986  $      238  $   52,905
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                                        As at March 31, 2008
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    Gross amount
     of impaired
     loans        $   28,223  $      194  $    2,285  $    1,006  $   31,708
    Specific
     allowances         (457)          -         (72)       (187)       (716)
    -------------------------------------------------------------------------
                  $   27,766  $      194  $    2,213  $      819  $   30,992
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (D) Allowance for Credit Losses

                                                        As at March 31, 2009
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    Specific
     allowances
      Balance at the
       beginning of
       the period $    1,680  $        -  $      547  $      699  $    2,926
      Provisions
       for credit
       losses          1,604         430         543          81       2,658
      Write-offs        (845)          -        (335)       (293)     (1,473)
      Recoveries           -           -          21           -          21
    -------------------------------------------------------------------------
                       2,439         430         776         487       4,132
    -------------------------------------------------------------------------

    General
     allowance
       Balance at the
        beginning of
        the period    16,136       4,580       3,700         761      25,177
       Provisions
        for credit
        losses           680          74         (75)        (54)        625
    -------------------------------------------------------------------------
                      16,816       4,654       3,625         707      25,802
    -------------------------------------------------------------------------
    Total
     allowance    $   19,255  $    5,084  $    4,401  $    1,194  $   29,934
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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

                                                        As at March 31, 2008
    -------------------------------------------------------------------------
    In                              Non-    Personal
    Thousands    Residential Residential  and Credit     Secured
    of Dollars     Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    Specific
     allowances
      Balance at the
       beginning of
       the period $      634  $        -  $      128  $      231  $      993
      Provisions
       for credit
       losses            126           -          71         127         324
      Write-offs        (403)          -        (159)       (200)       (762)
      Recoveries         100           -          32          29         161
    -------------------------------------------------------------------------
                         457           -          72         187         716
    -------------------------------------------------------------------------

    General
     allowance
      Balance at the
       beginning of
       the period     17,127       2,216       3,201         856      23,400
      Provisions
       for credit
       losses           (946)        926         276          20         276
    -------------------------------------------------------------------------
                      16,181       3,142       3,477         876      23,676
    -------------------------------------------------------------------------
    Total
     allowance    $   16,638  $    3,142  $    3,549  $    1,063  $   24,392
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (E) Collateral

    The fair value of collateral held against mortgages is based on
    appraisals at the time a loan is originated. Appraisals are only updated
    should circumstances warrant it or if a mortgage becomes impaired. At
    March 31, 2009, the total appraised value of the collateral for mortgages
    past due that are not impaired, as determined when the mortgages were
    originated, is $317.2 million. For impaired mortgages, the total
    appraised value of collateral at March 31, 2009 is $72.0 million.

    5.  LOAN SECURITIZATION

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

                                                  For the three months ended
    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars, Except
    Percentages and Number of Years           2009         2008         2008
    -------------------------------------------------------------------------
    Book value of mortgages
     securitized                         $ 460,624    $ 557,720    $ 145,771
    Securitization receivable               42,910       43,573       13,054
    Servicing liability                      4,567        6,254          265
    Net proceeds received
     on securitized mortgages              450,833      548,807      142,699
    Gain on sale of mortgages               25,622       25,699        8,883
    Prepayment rate                           8.1%         5.0%        13.5%
    Excess spread                             3.1%         2.7%         3.6%
    Weighted average life in years             5.0          4.8          4.2
    Discount rate                             2.3%         2.8%         3.6%
    -------------------------------------------------------------------------

    During the first quarter of 2009, the Company securitized insured
    residential mortgages through CMHC's Canada Mortgage Bond Program with a
    book value of $330.6 million ($84.3 million in Q1 2008). The gain on sale
    was $18.3 million during the first quarter ($5.5 million in Q1 2008).
    These figures are included in the table above.

    6.  OTHER ASSETS

    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Accrued interest receivable          $  26,719    $  27,861    $  26,306
    Income taxes receivable                 14,959       10,472        3,924
    Goodwill                                15,752       15,752       15,028
    Intangible assets                        9,332        1,449        1,008
    Other prepaid assets
     and deferred items                     21,804       28,694       14,651
    -------------------------------------------------------------------------
                                         $  88,566    $  84,228    $  60,917
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  OTHER LIABILITIES

    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Accrued interest payable             $ 157,240    $ 159,615    $ 156,724
    Dividends payable                        4,810        4,476        4,144
    Future income tax
     liability (note 11)                    47,585       36,974       20,643
    Securitization servicing liability      14,549       10,288        1,966
    Other, including accounts payable
     and accrued liabilities               104,894       58,015       37,290
    -------------------------------------------------------------------------
                                         $ 329,078    $ 269,368    $ 220,767
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  CAPITAL

    (A) Common Shares Issued and Outstanding

    -------------------------------------------------------------------------
                  March 31, 2009     December 31, 2008        March 31, 2008
    -------------------------------------------------------------------------
               Number                Number                Number
    In             of                    of                    of
    Thousands  Shares     Amount     Shares     Amount     Shares     Amount
    -------------------------------------------------------------------------
    Outstanding
     at begin-
     ning of
     period    34,434   $ 39,094     34,476   $ 39,142     34,532   $ 38,899
    Normal
     course
     issuer
     bid          (79)       (88)       (42)       (48)         -          -
    -------------------------------------------------------------------------
    Outstanding
     at end of
     period    34,355   $ 39,006     34,434   $ 39,094     34,532   $ 38,899
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    (B) Share Purchase Options

    -------------------------------------------------------------------------
                   March 31, 2009     December 31, 2008       March 31, 2008
    -------------------------------------------------------------------------
    In
    Thousands
    Except               Weighted-             Weighted-            Weighted-
    Per         Number    average     Number    average    Number    average
    Share           of   Exercise         of   Exercise        of   Exercise
    Amounts     Shares      Price     Shares      Price    Shares      Price
    -------------------------------------------------------------------------
    Outstanding
     at beginning
     of period   1,407    $ 25.08      1,227    $ 26.73     1,294    $ 27.15
      Granted       60      17.78        205      16.27         -          -
      Forfeited    (20)     37.91        (25)     33.95        (5)     35.25
    -------------------------------------------------------------------------
    Outstanding
     at end
     of period   1,447    $ 24.60      1,407    $ 25.08     1,289    $ 27.12
    -------------------------------------------------------------------------
    Exercisable,
     end of
     period        724    $ 20.57        661    $ 18.73       543    $ 15.59
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (C) Capital Management

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

    The Company's subsidiary Home Trust Company is subject to the regulatory
    capital requirements governed by the Office of the Superintendent of
    Financial Institutions (OSFI).

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

    -------------------------------------------------------------------------
    In Thousands of Dollars, Except       March 31  December 31     March 31
    Ratios and Multiple                       2009         2008         2008
    -------------------------------------------------------------------------
    Regulatory capital
      Tier 1                             $ 417,778    $ 384,025    $ 332,095
      Total                                458,580      424,202      370,771
    Regulatory ratios
      Tier 1                                 13.8%        12.9%        12.0%
      Total                                  15.2%        14.2%        13.4%
      Assets to capital multiple              12.3         13.7         14.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    9.  STOCK BASED COMPENSATION

    During the first quarter of 2009, $387,000 was recorded as an expense
    ($373,000 - Q4 2008 and $407,000 - Q1 2008) for stock option awards in
    the consolidated statements of income, with an off-setting credit to
    contributed surplus. During the first quarter of 2009, 60,000 options
    were granted (205,000 - Q4 2008 and nil - Q1 2008).

    10. ACCUMULATED OTHER COMPREHENSIVE LOSS

    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Unrealized losses on
      Available for sale securities      $ (24,850)   $ (33,615)    $ (8,842)
      Income taxes recovery                  8,894       10,473        1,856
    -------------------------------------------------------------------------
                                           (15,956)     (23,142)      (6,986)
    -------------------------------------------------------------------------

    Unrealized gains on
      Securitization receivables            21,565       18,080        6,060
      Income taxes recovery (expenses)      (7,023)      (5,991)      (2,031)
    -------------------------------------------------------------------------
                                            14,542       12,089        4,029
    -------------------------------------------------------------------------
     Accumulated other
      comprehensive loss                 $  (1,414)   $ (11,053)    $ (2,957)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. INCOME TAXES

    (A) Reconciliation of income taxes

    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Income before income taxes            $ 46,134     $ 42,420     $ 36,603
    -------------------------------------------------------------------------
    Income taxes at statutory
     combined federal and provincial
     income tax rates                       15,033       14,060       12,316
    Increase (decrease) in income
     taxes at statutory income tax
     rates resulting from
      Tax-exempt income                       (856)        (765)        (640)
      Non-deductible expenses                1,212          707          508
      Future tax rate changes               (1,484)        (502)        (220)
      Other                                    811         (119)        (520)
    -------------------------------------------------------------------------
    Income tax                            $ 14,716     $ 13,381     $ 11,444
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (B) Sources of future income tax balances

    -------------------------------------------------------------------------
                                          March 31  December 31     March 31
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Future income tax liabilities
      Deferred agent commissions
       and other charges                  $  9,774     $  7,761     $  7,837
      Mortgage-backed securities
       receivable                           49,895       40,828       25,410
    -------------------------------------------------------------------------
                                            59,669       48,589       33,247
    -------------------------------------------------------------------------
    Future income tax assets
      Allowance for credit losses            8,086        7,776        6,771
      Future tax recoverable acquired            -            -        1,094
      Deferred commitment fees
       and other charges                     3,998        3,839        4,739
    -------------------------------------------------------------------------
                                            12,084       11,615       12,604
    -------------------------------------------------------------------------
                                          $ 47,585     $ 36,974     $ 20,643
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. DERIVATIVE FINANCIAL INSTRUMENTS

    The Company utilized off-balance sheet financial instruments during 2009.
    In this period the Company entered into economic hedge swap transactions
    with major financial institutions. The Company may utilize interest rate
    swaps or forward contracts to hedge the economic value exposure of
    movements in interest rates between the time that the mortgages are
    committed to be funded under asset securitization, and the time the
    mortgages are actually sold (these mortgages qualify for government
    insurance). The intent of the swap or forward contract is to have fair
    value movements offset the fair value movements in the pool of mortgages
    over the period in which the fixed rate pool may be exposed to movements
    in interest rates, generally 60 to 150 days. The interest rate swaps
    referred to as "pay-fixed interest rate swaps" are structured such that
    the Company agrees to pay a fixed rate (as designated in the swap) and
    receives the floating rate (as designated in the swap).

    The Company enters into off-balance sheet financial transactions to hedge
    commitment risk. During the quarter, the Company unwound $145.2 million
    in bond forward contracts realizing a loss of $1.4 million. As at
    March 31, 2009, the Company held outstanding bond forward contracts for
    the sale of $19.6 million of Government of Canada Bonds. The contracts
    were marked-to market at March 31, 2009 for an unrealized gain of
    $0.3 million. At March 31, 2009, the Company also held $125.0 million in
    interest rate swap contracts to hedge commitment risk. The interest rate
    swap contracts were marked-to-market at March 31, 2009 for an unrealized
    loss of $0.8 million. No such arrangements, either forward bond contracts
    or interests rate swap contracts, that were outstanding at March 31,
    2008.

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

    With respect to the Canada Mortgage Bond program, at March 31, 2009 the
    Company notionally held $1.53 billion ($203.0 million - March 31, 2008)
    in swaps, comprised of both seller swaps and hedge swaps. These
    outstanding swap arrangements were marked- to-market at March 31, 2009
    for a net unrealized loss of $2.1 million (unrealized gain of
    $0.5 million - March 31, 2008).

    13. INTEREST RATE SENSITIVITY

    The Company's exposure to interest rate risk results from the difference,
    or gap between the maturity or re-pricing dates of interest sensitive
    assets and liabilities, including off-balance sheet items. The following
    table shows the gap positions at March 31, 2009, December 31, 2008 and
    March 31, 2008 for selected period intervals. Figures in brackets
    represent an excess of liabilities over assets or a negative gap
    position.

                                                        As at March 31, 2009
    -------------------------------------------------------------------------
    In Thousands of
     Dollars, Except         Floating       0 to 3     3 Months       1 to 3
     Percentages                 Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------
    Total assets          $    40,648  $ 1,217,760  $ 1,451,549  $ 1,364,780
    Total liabilities
     and equity                     6      606,855    2,320,439    1,419,129
    Off-balance sheet
     items                          -     (299,126)      22,177      260,316
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $    40,642  $   311,779  $  (846,713) $   205,967
    -------------------------------------------------------------------------
    Cumulative gap        $    40,642  $   352,421  $  (494,292) $  (288,325)
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets                0.7%         6.3%        (8.8%)       (5.1%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                           As at March 31, 2009
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over  Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $ 1,236,133  $   319,723  $ 5,630,593
    Total liabilities
     and equity               440,580      843,584    5,630,593
    Off-balance sheet
     items                     16,633            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   812,186  $  (523,861)           -
    ------------------------------------------------------------
    Cumulative gap        $   523,861            -            -
    ------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets                9.3%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------


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

                                        As at December 31, 2008
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over  Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $   965,500  $   264,296  $ 5,809,713
    Total liabilities
     and equity               451,102      756,258    5,809,713
    Off-balance
     sheet items                   46            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   514,444  $  (491,962)           -
    ------------------------------------------------------------
    Cumulative gap        $   491,692            -            -
    ------------------------------------------------------------
    Cumulative gap
     as a percentage
     of total assets             8.5%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------


                                                        As at March 31, 2008
    -------------------------------------------------------------------------
    In Thousands of
     Dollars, Except         Floating       0 to 3     3 Months       1 to 3
     Percentages                 Rate       Months    to 1 Year        Years
    -------------------------------------------------------------------------
    Total assets          $    45,682  $ 1,064,959  $ 1,782,191  $ 1,675,994
    Total liabilities
     and equity                     -      663,301    2,356,386    1,317,022
    Off-balance
     sheet items                    -     (497,553)     209,644      140,467
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $    45,682  $   (95,895) $  (364,551) $   499,439
    -------------------------------------------------------------------------
    Cumulative gap        $    45,682  $   (50,213) $  (414,764) $    84,675
    -------------------------------------------------------------------------
    Cumulative gap
     as a percentage
     of total assets             0.8%        (0.9%)       (7.7%)        1.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                           As at March 31, 2008
    ------------------------------------------------------------
    In Thousands of
     Dollars, Except             Over  Non-interest
     Percentages              3 Years    Sensitive        Total
    ------------------------------------------------------------
    Total assets          $   680,066  $   174,281  $ 5,423,173
    Total liabilities
     and equity               452,502      633,962    5,423,173
    Off-balance
     sheet items              147,442            -            -
    ------------------------------------------------------------
    Interest rate
     sensitive gap        $   375,006  $  (459,681)           -
    ------------------------------------------------------------
    Cumulative gap        $   459,681            -            -
    ------------------------------------------------------------
    Cumulative gap
     as a percentage
     of total assets             8.5%            -            -
    ------------------------------------------------------------
    ------------------------------------------------------------

    Based on the current interest rate gap position at March 31, 2009, the
    Company estimates that a 100 basis point decrease in interest rates would
    decrease net interest income and other comprehensive income after tax
    over the next twelve months by $2.9 million and $1.8 million,
    respectively. A 100 basis point increase in interest rates would increase
    net income and other comprehensive income after tax over the next twelve
    months by a similar amount.

    14. EARNINGS BY BUSINESS SEGMENT

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

                                   For the three months ended March 31, 2009
    -------------------------------------------------------------------------
    In Thousands of          Mortgage     Consumer
    Dollars                   Lending      Lending        Other        Total
    -------------------------------------------------------------------------
    Net interest income   $    20,457  $     8,424  $     7,351  $    36,232
    Provision for credit
     losses                    (2,816)        (467)           -       (3,283)
    Fees and other income       4,750        2,462          110        7,322
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                25,655            -         (943)      24,712
    Non-interest expenses     (11,675)      (3,157)      (4,017)     (18,849)
    -------------------------------------------------------------------------
    Income before
     income taxes              36,371        7,262        2,501       46,134
    Income taxes              (11,704)      (2,444)        (568)     (14,716)
    -------------------------------------------------------------------------
    Net income            $    24,667  $     4,818  $     1,933  $    31,418
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill              $     2,324  $    13,428  $         -  $    15,752
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets          $ 4,562,997  $   379,778  $   687,818  $ 5,630,593
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                For the three months ended December 31, 2008
    -------------------------------------------------------------------------
    In Thousands of          Mortgage     Consumer
    Dollars                   Lending      Lending        Other        Total
    -------------------------------------------------------------------------
    Net interest income   $    18,933  $     7,011  $     9,293  $    35,237
    Provision for
     credit losses             (1,501)        (487)           -       (1,988)
    Fees and other income       3,899        3,123           82        7,104
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                19,714            -         (795)      18,919
    Non-interest expenses      (9,145)      (2,406)      (5,301)     (16,852)
    -------------------------------------------------------------------------
    Income before
     income taxes              31,900        7,241        3,279       42,420
    Income taxes              (10,297)      (2,448)        (636)     (13,381)
    -------------------------------------------------------------------------
    Net income            $    21,603  $     4,793  $     2,643  $    29,039
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill              $     2,324  $    13,428  $         -  $    15,752
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets          $ 4,709,331  $   392,458  $   707,924  $ 5,809,713
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                   For the three months ended March 31, 2008
    -------------------------------------------------------------------------
    In Thousands of          Mortgage     Consumer
    Dollars                   Lending      Lending        Other        Total
    -------------------------------------------------------------------------
    Net interest income   $    22,457  $     5,723  $     9,448  $    37,628
    Provision for
     credit losses               (253)        (347)           -         (600)
    Fees and other income       3,707        3,392          124        7,223
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                 8,671            -       (1,556)       7,115
    Non-interest expenses      (8,149)      (2,245)      (4,369)     (14,763)
    -------------------------------------------------------------------------
    Income before
     income taxes              26,433        6,523        3,647       36,603
    Income taxes               (8,552)      (2,199)        (693)     (11,444)
    -------------------------------------------------------------------------
    Net income            $    17,881  $     4,324  $     2,954  $    25,159
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill              $     2,324  $    12,704  $         -  $    15,028
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets          $ 4,164,132  $   374,014  $   885,027  $ 5,423,173
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    15. FUTURE ACCOUNTING CHANGES

    International Financial Reporting Standards

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

    16. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

    The comparative interim unaudited consolidated financial statements have
    been reclassified from statements previously presented to conform to the
    presentation of the 2009 interim unaudited consolidated financial
    statements.
    

    Annual Meeting Notice

    The Annual and Special Meeting of Shareholders of Home Capital Group Inc.
will be held at the Design Exchange, Trading Floor, 234 Bay Street, Toronto,
Ontario, on Wednesday May 13, 2009 at 11:00 am local time. Shareholders and
guests are invited to join Directors and management for lunch and refreshments
following the Annual Meeting. All shareholders are encouraged to attend.

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





For further information:

For further information: Gerald M. Soloway, CEO, or Nick Kyprianou,
President, (416) 360-4663, www.homecapital.com


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