Home Capital Reports Record Third Quarter Results: Net Income Rises 36.9%;
Return on Equity Strengthens to 28.7%; Basic Earnings per Share Increase to
$1.11

TORONTO, Nov. 4 /CNW/ - Home Capital Group Inc. (TSX: HCG) today announced another quarter of exceptional results for the three months ended September 30, 2009. The Company's prudent strategies during the current global economic volatility has generated robust returns for our shareholders and positioned Home for further growth as economic conditions normalize.

    
    Financial and Operating Highlights:

    -   Net income for the quarter was $38.2 million, a 36.9% increase over
        the $27.9 million reported for the third quarter of 2008. Earnings
        for the first nine months of 2009 were $104.0 million, a 30.6% rise
        over the comparable period in 2008.

    -   Basic earnings per share were $1.11 for the quarter, a 37.0% increase
        over the $0.81 for the third quarter of 2008. For the first nine
        months, basic earnings per share were $3.02, 30.7% higher than the
        $2.31 recorded last year. Diluted earnings per share were $1.10, an
        increase of 35.8% from the $0.81 recorded in the third quarter of
        2008. Diluted earnings per share for the nine months ended September
        30, 2009 were $3.00, 31.0% higher than the $2.29 reported last year.

    -   Return on equity was 28.7% for the third quarter and 28.2% for the
        first nine months of 2009 compared to 27.6% and 27.8% respectively
        for the comparable periods in 2008.

    -   Total assets at September 30, 2009 reached $6.28 billion, 11.8%
        higher than the $5.62 billion reported one year earlier. Total
        assets, together with the outstanding balance for Mortgage-Backed
        Securities (MBS) and Canada Mortgage Bonds (CMB), originated and
        administered by the Company, grew to $9.89 billion, a 27.8% increase
        over the $7.74 billion at September 2008, and 17.4% from the $8.42
        billion at December 31, 2008.

    -   Residential mortgages that are retained on the Company's balance
        sheet and not securitized and sold increased by 12.4% to $4.09
        billion at September 30, 2009 from $3.64 billion at June 30, 2009.
        Net interest income from mortgage lending increased 8.8% during the
        quarter from $24.7 million at June 30, 2009 to $26.8 million. The net
        interest margin between the Company's assets and liabilities for the
        third quarter of 2009 remained stable at 2.9% unchanged from the
        second quarter and improved from 2.6% in the first quarter.

    -   Total mortgage originations were $1.40 billion during the third
        quarter, an increase of 26.4% over the $1.11 billion advanced during
        the same period in 2008. Total originations for the first nine
        months were $3.40 billion a 19.0% increase over the $2.86 billion
        originated during the comparable period in 2008. The increase in
        mortgage originations is due primarily to growth in residential
        mortgages.

    -   Residential mortgage advances were $1.34 billion during the third
        quarter, up 36.3% from the $984.0 million advanced in the third
        quarter of 2008. During the third quarter of 2009, the Company
        advanced $948.9 million for single family mortgages, a 49.1% increase
        over the $636.3 million in the third quarter of 2008 attributed
        largely to the Accelerator program. Residential advances during the
        quarter included $392.1 million for multi-unit residential mortgages,
        a 101.3% increase over the $194.8 million during the third quarter of
        2008.

    -   Non-residential mortgage advances during the third quarter of 2009
        were $56.5 million, a 53.6% decrease from the $121.7 million advanced
        in the same period in 2008. The decline in the non-residential
        mortgage originations is pursuant to the Company's stated strategy to
        lower the Company's exposure to non-residential mortgages in light of
        current economic conditions.

    -   Mortgage securitization volumes remained strong as the Company sold
        $620.6 million in CMHC-insured securities during the third quarter,
        compared to $655.1 million sold during the second quarter of 2009 and
        up from the $544.7 million securitized and sold during the same
        period last year. The net gains on securitization during the third
        quarter were $12.1 million, compared to $15.7 million for the same
        period last year. Lower net gains are the result of narrowing
        interest rate spreads.

    -   Outstanding balances on the Equityline Visa portfolio were $305.4
        million, a decline of 10.0% from the $339.3 million reported at the
        end of September 2008. Although the Company is maintaining a prudent
        credit policy on the Equityline Visa product during the current
        economic climate, new marketing initiatives were launched to grow the
        portfolio in anticipation of an improving economy. Growth from the
        retail loan portfolio remained positive in the third quarter,
        building on momentum from the first half of 2009. Total net income
        from the consumer lending segment contributed $6.2 million during the
        third quarter, a 19.8% increase over the $5.1 million recorded in the
        third quarter of 2008.

    -   Capital ratios for Home Trust strengthened again during the third
        quarter of 2009 as Tier 1 and Total Capital ratios rose to 16.6% and
        18.2% respectively from 15.2% and 16.7% at June 30, 2009, and 12.7%
        and 14.0% one year ago. The Company will continue to maintain a
        prudent approach to capital management while positioning Home Capital
        for future growth opportunties.

    -   Net impaired loans as a percentage of the total loans portfolio
        declined to 1.2% at September 30, 2009 from 1.3% at the end of the
        second quarter of 2009. The decline in net impaired loans is the
        first in six quarters. At the end of September 2008, the percentage
        was was 0.7%.

    -   Looking ahead, the Company continues to plan for a higher than
        historic average level of impaired loans due to the weakened economy
        and the high level of unemployment. As a result, staffing in the
        mortgage servicing department has been increased and a dedicated team
        is focusing on early arrears and assisting homeowners in managing
        their payments. This strategy has translated into a manageable level
        of write-offs and the Company believes that, for the next one or two
        quarters, arrears will be stable or decrease modestly.
    

Home Capital continued to generate strong operating and financial performance through the third quarter of 2009, building on its proven strategy of long-term sustainability and increasing profitability. With the Company's continued growth, additional investments have been made in staffing in key business areas to manage further anticipated increases in business. The Company's management team has also been strengthened with the addition of senior personnel in the finance and risk management departments.

Subsequent to the end of the quarter, and in light of the Company's continued profitability and solid financial performance, the Board of Directors declared an increased quarterly cash dividend of $0.16 per Common share payable on December 1, 2009 to shareholders of record at the close of business on November 16, 2009. The revised quarterly dividend is reflective of an annual dividend of $0.64. This is the third increase in the Company's quarterly dividend this year and the eleventh increase in the past five years, reflecting Home Capital's ongoing commitment to enhancing long-term value for all shareholders.

Looking ahead, the Board of Directors and management are confident that Home Capital is well positioned to continue generating robust earnings and growth through the balance of 2009 and into 2010.

    
    (signed)                       (signed)
    GERALD M. SOLOWAY              NORMAN F. ANGUS
    Chief Executive Officer        Chairman of the Board
    November 4, 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 Third Quarter 2009.

Third Quarter Results Conference Call

The conference call will take place on Wednesday, November 4, 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 1-800-587-1893 throughout North America. The call will 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, November 4, 2009 and midnight Wednesday, November 11, 2009 by calling 416-640-1917 or 1-877-289-8525 (enter passcode 4170512 followed by the number sign). The archive audio web cast will be available for 90 days on CNW Group's website at www.newswire.ca and Home Capital's website at www.homecapital.com

    
    FINANCIAL HIGHLIGHTS

    For the Period Ended
    September 30 (Unaudited)      Three Months Ended       Nine Months Ended
    -------------------------------------------------------------------------
    In Thousands of Dollars
     (Except Per Share and
     Percentage Amounts)            2009        2008        2009        2008
    -------------------------------------------------------------------------
    OPERATING RESULTS

    Net Income                $   38,243  $   27,939  $  104,012  $   79,648
    Total Revenue                125,299     116,950     367,798     336,699
    Earnings per Share -
     Basic                    $     1.11  $     0.81  $     3.02  $     2.31
    Earnings per Share -
     Diluted                        1.10        0.81        3.00        2.29
    Return on Shareholders'
     Equity                        28.7%       27.6%       28.2%       27.8%
    Return on Average Assets        2.5%        2.0%        2.3%        2.0%
    Efficiency Ratio               28.3%       27.6%       27.2%       28.9%
    Efficiency Ratio (TEB(2))      27.5%       27.1%       26.6%       28.4%
    (Non-interest Expense/Net
     Interest Income Plus Fee Income)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    BALANCE SHEET HIGHLIGHTS

    Total Assets                                      $6,284,592  $5,621,809
    Loans                                              5,181,826   4,515,017
    Deposits                                           5,373,462   4,944,039
    Shareholders' Equity                                 550,823     416,295
    Mortgage-Backed Security Assets Under
     Administration                                    3,606,015   2,117,231
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    FINANCIAL STRENGTH

    Capital Measures(1)
    Risk Weighted Assets                              $2,988,427  $2,941,647
    Tier 1 Capital Ratio                                   16.6%       12.7%
    Total Capital Ratio                                    18.2%       14.0%

    Credit Quality
    Net Impaired Loans as a Percentage of Gross Loans       1.2%        0.7%
    Allowance as a Percentage of Gross Impaired Loans      46.0%       78.0%
    Annualized Provision as a Percentage of Gross Loans     0.2%        0.1%

    Share Information
    Book Value per Common Share                       $    15.99  $    12.07
    Common Share Price - Close                        $    38.25  $    31.50
    Market Capitalization                             $1,317,713  $1,085,984
    Number of Common Shares Outstanding                   34,450      34,476
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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.


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

Caution Regarding Forward-Looking Statements

From time to time Home Capital Group Inc. (the "Company" or "Home Capital") makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are "financial outlooks" within the meaning of National Instrument 51-102. Please see the risk factors, which are set forth in detail on pages 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 would contract in 2009, with fragmented growth
        prospects across the country, and interest rates and inflation will
        remain low;

    -   Canadian capital markets would improve somewhat in the last quarter
        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's Discussion and 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 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, less interest expense. The Company also looks at the same ratio on a taxable equivalent basis and will include the adjustment for non-taxable dividends 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 $2.3 million for the third quarter and $5.1 million first nine months ($1.1 million - Q3 2008 and $3.1 million - nine months 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 September 30, 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 November 3, 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.

    
    Table 1: 2009 Objectives and Performance
    -------------------------------------------------------------------------
                                                     Nine-Month Period Ended
                                                          September 30, 2009
                              2009 Objectives(1)            Actual Results(1)
    -------------------------------------------------------------------------
    Net Income                          10%-15%           $104.0 million, or
                               ($87.6 million -      30.6% increase over the
                                  $91.6 million)       same period last year

    Diluted Earnings per                10%-15%          $3.00 per share, or
     Share                   ($2.52 per share -      31.0% increase over the
                                $2.63 per share)       same period last year

    Total Assets and Assets             10%-15%            $9.89 billion, or
     Under Administration      ($8.51 billion -      27.8% increase over the
                                  $8.90 billion)       same period last year

    Return on Shareholders'               20.0%                        28.2%
     Equity
    Efficiency Ratio (TEB)       28.0% to 34.0%                        26.6%
    Capital Ratios(2)
      Tier 1                     Minimum of 10%                        16.6%
      Total                      Minimum of 12%                        18.2%
    Provision for Loan Losses
     as a Percentage of
     Total Loans                   0.2% to 0.5%                         0.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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.


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    FINANCIAL HIGHLIGHTS
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Income Statement Highlights

The Company achieved solid performance across all lines of business during the third quarter and first nine months 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 economy and capital markets. The Company's key financial highlights for the third quarter and year-to-date are summarized below.

    
    -   Net income in the third quarter of 2009 was 36.9% higher than the
        third quarter of 2008 while earnings for the first nine months of
        2009 were 30.6% higher than the comparable period of 2008.

    -   Net interest income for the third quarter of 2009 was $43.0 million,
        compared to $40.5 million for the second quarter of 2009, $36.2
        million for the first quarter of 2009 and $38.3 million for the
        third quarter in 2008. The improvement in net interest income is
        attributed to growth in the lending portfolio and the Company's
        ongoing strategy to improve margins over the past several quarters.

    -   Non-interest income in the quarter was 46.0% higher than the third
        quarter of 2008 while non-interest income for the nine months was
        75.7% higher than the first nine months of 2008. The growth is
        driven by robust securitization income, gains on securities portfolio
        and mark-to-market adjustments on derivative positions under the CMB
        program.

    -   The efficiency ratio (TEB) (the lower the better) reflects the
        Company's cost management leadership within the banking industry. The
        ratio was 27.5% for the third quarter and 26.6% for the first nine
        months, compared to 27.1% for the third quarter of 2008 and 28.4% for
        the first nine months of 2008.

    -   Diluted earnings per share for the quarter increased 35.8% to $1.10
        compared to $0.81 in the third quarter of 2008. For the first nine
        months of 2009, diluted earnings per share increased 31.0% to $3.00
        from the $2.29 earned during the first nine months of 2008.

    -   Return on average shareholders' equity for the three and nine months
        ended September 30, 2009 was 28.7% and 28.2%, respectively, compared
        to 27.6% and 27.8% for the same periods in 2008.
    

Balance Sheet Highlights

    
    -   Total assets at September 30, 2009 rose 2.1% from the second quarter
        of 2009 and 11.8% year-over-year, to reach $6.28 billion from $5.62
        billion reported at September 30, 2008. Asset growth was achieved
        across the Company's core asset base including the Company's loans
        and securities portfolio. The Company has also grown through insured
        off-balance sheet lending during the current period of economic
        uncertainty.

    -   Total residential mortgages increased $452.5 million, or 12.4% over
        the second quarter of 2009, up $829.3 million, or 25.4% over December
        31, 2008 and up $785.3 million, or 23.7% from one year ago. The
        growth reflects the Company's strategy to prudently grow its on-
        balance sheet loans portfolio until interest spreads and credit risk
        return to more historic norms.

    -   Liquid assets at September 30, 2009 declined to $469.0 million,
        compared to $777.7 million at June 30, 2009, $880.7 million at
        December 31, 2008 and $716.9 million at September 30, 2008. The
        decline in liquid assets during the third quarter reflects the
        Company's gradual return to more normalized liquidity levels as
        economic circumstances improve. The Company's access to funds through
        insured deposits remains strong which will accommodate growth of the
        Company's loans portfolio.

    -   The Company's capital position strengthened further with Tier 1 and
        Total Capital ratios climbing to 16.6% and 18.2%, respectively at
        September 30, 2009 up from 12.7% and 14.0% one year earlier.

    -   Deposit liabilities as at September 30, 2009 were $5.37 billion, an
        increase of $132.1 million from June 30, 2009 and an increase of
        $429.4 million from $4.94 billion recorded at September 30, 2008.
        Deposit liabilities are the Company's core source of capital to fund
        lending activity. The Company has grown debt free since September
        2006.


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

Net Interest Income

    
    Table 2: Net Interest Income

                                                  For the three months ended
    -------------------------------------------------------------------------
                                  September 30, 2009      September 30, 2008
    In Thousands of Dollars      Income/     Average     Income/     Average
    (Except Percentage Amounts)  Expense      Rate(1)    Expense      Rate(1)
    -------------------------------------------------------------------------
    Assets

    Cash and cash resources   $      996        1.4%  $    1,501        1.9%
    Securities                     6,491        4.0%       5,912        4.8%
    Loans                         84,223        6.7%      86,524        7.7%
    Taxable equilvalent
     adjustment                    2,300           -       1,130           -
    -------------------------------------------------------------------------
    Total interest earning
     assets                       94,010        6.3%      95,067        7.1%
    Other assets                       -           -           -           -
    -------------------------------------------------------------------------
    Total Assets              $   94,010        6.0%  $   95,067        6.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and
     Shareholders' Equity

    Deposits                  $   48,756        3.7%  $   55,589        4.6%
    Other liabilities                  -           -           -           -
    Shareholders' equity               -           -           -           -
    -------------------------------------------------------------------------
    Total Liabililities and
     Shareholders' Equity     $   48,756        3.1%  $   55,589        4.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net Interest Income       $   45,254              $   39,478
    Tax Equivalent Adjustment     (2,300)                 (1,130)
    -------------------------------------------------------------------------
    Net Interest Income per
     Financial Statements     $   42,954              $   38,348
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Interest Margin(2)                      2.9%                    2.9%
    Spread of Loans over
     Deposits Only                              3.1%                    3.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                   For the nine months ended
    -------------------------------------------------------------------------
                                  September 30, 2009      Semptember 30,2008
    In Thousands of Dollars      Income/     Average     Income/     Average
    (Except Percentage Amounts)  Expense      Rate(1)    Expense      Rate(1)
    -------------------------------------------------------------------------
    Assets

    Cash and cash resources   $    2,627        1.0%  $    8,326        5.1%
    Securities                    19,275        4.4%      17,134        4.7%
    Loans                        249,836        6.9%     256,570        8.0%
    Taxable equilvalent
     adjustment                    5,108           -       3,148           -
    -------------------------------------------------------------------------
    Total interest earning
     assets                      276,846        6.4%     285,178        7.6%
    Other assets                       -           -           -           -
    -------------------------------------------------------------------------
    Total Assets              $  276,846        6.1%  $  285,178        7.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and
     Shareholders' Equity

    Deposits                  $  152,063        3.9%  $  166,692        4.9%
    Other liabilities                  -           -           -           -
    Shareholders' equity               -           -           -           -
    -------------------------------------------------------------------------
    Total Liabililities and
     Shareholders' Equity     $  152,063        3.4%  $  166,692        4.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net Interest Income       $  124,783              $  118,486
    Tax Equivalent Adjustment     (5,108)                 (3,148)
    -------------------------------------------------------------------------
    Net Interest Income per
     Financial Statements     $  119,675              $  115,338
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Interest Margin(2)                      2.8%                    3.0%
    Spread of Loans over
     Deposits Only                              3.0%                    3.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The average rate is a simple average calculated with reference to
        opening and closing period balances and as such may not be as precise
        if daily balances were used.
    (2) Net interest margin is calculated on a tax equivalent basis.
    

As noted in Table 2, net interest income of $43.0 million was reported for the third quarter and $119.7 million year-to-date compared to $38.3 million for the third quarter of 2008 and $115.3 million for the first nine months of 2008. Net interest income continues its favourable trend quarter over quarter as third quarter net interest income surpassed the second quarter and first quarter figures of $40.5 million and $36.2 million respectively. The improvement is the result of portfolio growth as well as lower overall funding costs and higher fixed rates, particularly in the non-residential portfolio. The decline in the average cost of funding is attributed to new deposit rates since the second half of 2008 which reflect the significant reduction in interest rates. In the Company's non-residential mortgage portfolio, higher fixed rate terms have been implemented as floating rate loans based off of prime rate began to reset. During the third quarter of 2009, approximately $145.0 million of non-residential loans reset at higher fixed rate terms or were paid-out resulting in a higher portfolio spread. The decline in the average rate for the loans portfolio to 6.7% from 7.2% at the end of June 2009 reflects the current low interest rate environment where lower rates on new and renewed loans replace higher rates on loans that mature.

The net interest margin (TEB) for the Company's assets and liabilities for the third quarter of 2009 was 2.9%, which is consistent with the 2.9% reported in the second quarter of 2009 and the third quarter of 2008. As of September 30, 2009 the net interest margin (TEB) improved from 2.7% reported at the end of the second quarter to 2.8%. The improvement is attributed to a lower average cost of funds and the ongoing shift in the non-residential mortgage portfolio from floating rate to higher fixed rates as described in the preceding paragraph.

The interest spread between the loans portfolio and deposits at the end of the third quarter of 2009 was 3.1%, compared with 3.2% for the second quarter of 2009 and 3.1% in the third quarter in 2008. Year-to-date the spread between the loans portfolio and deposits was 3.0% compared to 3.3% for the same nine-month period in 2008.

The Company continues to benefit from the lower rates on new deposits, repricing of non-residential mortgages at higher fixed rates and robust residential mortgage rates as the Company began growing its core product again.

Non-Interest Income

Total non-interest income was $33.6 million for the third quarter and $96.1 million for the first nine months of 2009, a $10.6 million or 46.0% increase over the third quarter of 2008 and a $41.4 million or 75.7% increase over the comparable nine-month period in 2008. Year to date growth over 2008 was driven by the Company's securitization activity from sales of Mortgage-Backed Securities (MBS) which includes participation in the Canada Mortgage Bond (CMB) program net gains on securities and favourable mark-to-market valuation adjustments on the Company's derivatives portfolio as noted below.

The fees and other income components of non-interest income for the quarter were $7.4 million and $22.1 million for the first nine months of 2009, an increase of $0.3 million or 4.6% over the comparable quarter of 2008 and $0.8 million or 3.7% over the first nine months of 2008. The increase over the comparable periods is attributed to loan portfolio growth.

Table 3: Securitization Activity

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

    
                                                          Three months ended
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                                                          September 30, 2009
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                                  Single      Single
                                  Family      Family
                             Residential Residential  Multi-Unit
    In Thousands of Dollars,   MBS Under    MBS Over Residential
     except %                     1 year      1 year         MBS       Total
    -------------------------------------------------------------------------
    Highlights of
     Securitization Activity

    Book value of mortgages
     securitized              $   20,705  $  390,391  $  209,490  $  620,586
    Net gain on sale of
     mortgages                $      479  $    8,231  $    3,421  $   12,131
    Prepayment rate                 4.1%       12.8%        0.0%        8.2%
    Excess spread                   3.7%        1.3%        1.4%        1.4%
    Discount rate                   1.0%        3.3%        2.6%        3.0%
    -------------------------------------------------------------------------


                                              Three months ended
    -------------------------------------------------------------
                                              September 30, 2008
    -------------------------------------------------------------
                                  Single      Single
                                  Family      Family
                             Residential Residential
    In Thousands of Dollars, MBS Under 1    MBS Over
     except %                       year      1 year       Total
    -------------------------------------------------------------
    Highlights of
     Securitization Activity

    Book value of mortgages
     securitized              $  111,699  $  433,046  $  544,745
    Net gain on sale of
     mortgages                $    2,220  $   13,490  $   15,710
    Prepayment rate                 4.2%        8.1%        7.3%
    Excess spread                   3.5%        1.9%        2.2%
    Discount rate                   3.6%        3.7%        3.7%
    -------------------------------------------------------------
    (1) The gain on sales of mortgages is net of gains and losses realized
        on hedging activities.
    

The Company sold MBS pools during the third quarter of 2009, consisting of $620.6 million of Canada Mortgage and Housing Corporation (CMHC) insured residential mortgages for a year-to-date total of $1.74 billion. This represents an increase of $75.8 million from the $544.7 million in MBS pools issued in the third quarter of 2008 and an increase of $795.2 million over the $941.1 million for the nine months ended September 30, 2008. 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 Table 3.

Table 4: Reconciliation of Securitization Activity

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            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars     30, 2009    30, 2008    30, 2009    30, 2008
    -------------------------------------------------------------------------
    Securitization gains      $   16,021  $   18,226  $   50,957  $   35,615
    Securitization hedging
     activity                     (3,890)     (2,516)      8,283      (3,220)
    -------------------------------------------------------------------------
    Securitization gains, net
     of hedge costs               12,131      15,710      59,240      32,395
    Recurring securitization
     income                        1,585       1,491       8,874       5,237
    -------------------------------------------------------------------------
    Net securitization income $   13,716  $   17,201  $   68,114  $   37,632
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The securitization gains, net of hedging, were $12.1 million during the quarter and $59.2 million for the first nine months of 2009, compared to $15.7 million for the third quarter of 2008 and $32.4 million for the first nine months of 2008 (for additional information refer to Note 5 of these unaudited interim consolidated financial statements). The Company continues to enter into forward bond contracts to hedge commitment risk on the loans securitized. The unwinding of the forward bond contracts during the third quarter of 2009 resulted in a $3.9 million hedging loss recorded in the consolidated statement of income through securitization income producing a net hedging gain of $8.3 million for the first nine months of 2009. In the third quarter of 2008, a $2.5 million hedging loss was recorded resulting in a net hedging loss of $3.2 million for the first nine months of 2008.

As described in the Derivatives and Off-Balance Sheet Arrangements section of this MD & A, the Company utilizes swaps and/or forward contracts to manage exposure to movements in interest rates prior to the sale of securitized mortgage pools. The realized loss of $3.9 million on the unwinding of forward bond contracts as securitized mortgage pools were sold is attributed to the downward movement in bond yields which resulted in a larger securitization gain offset by the hedging losses to give a lower net securitization gain.

During the third quarter, despite growth in securitization volumes over the third quarter of 2008, net securitization gains declined by $3.6 million from the third quarter of 2008. The decline in securitization income is attributed to lower excess spread in 2009 as bond yields increased and mortgage yields decreased causing spreads to narrow further. For the quarter ended September 30, 2009 the excess spread on securitization gains was 1.4% and 1.9% for the first nine months of 2009, compared to 2.2% for the comparable quarter of 2008 and 2.6% for the fi rst nine months of 2008.

During the quarter, the Company's securitization activities included participation in CMHC's CMB program, administered through the Canada Housing Trust. This program provides the Company with an additional channel to diversify its funding stream for MBS pools. Of the total MBS pools issued during the third quarter and first nine months of 2009, pools with a book value of $288.3 million for a year-to-date total of $1.23 billion were securitized through the CMB program resulting in gains of $7.3 million and $45.2 million, respectively. This compares to 2008 when pools with a book value of $433.0 million for a total of $639.9 million were sold into the CMB program resulting in gains of $13.5 million and $22.9 million, respectively.

Recurring securitization income earned from excess spreads, net of servicing fees, was $1.6 million for the third quarter of 2009, an increase of $0.1 million or 6.3% over the $1.5 million earned in the third quarter of 2008. For the first nine months of 2009, $8.9 million in recurring securitization income was earned, up $3.6 million or 69.5% over the $5.2 million earned in the same nine month period of 2008. The growth of this income reflects growth in the outstanding principal for pools previously securitized.

The Company also holds longer term derivative contracts to hedge its obligations for pools previously sold to Canada Housing Trust under the CMB program. These derivative contracts do not qualify for hedge accounting treatment under current generally accepted accounting principles and must therefore be marked to market through net income. During the quarter, the Company recognized $11.4 million of gains from these mark-to-market adjustments for a year to date gain of $3.3 million. The mark-to-market adjustment is comprised of changes in market inputs, modifications to assumptions for changing circumstances and refi nements in the valuation model.

Non-Interest Expenses

Total non-interest expenses for the quarter were $21.7 million and $58.7 million for the first nine months of 2009 compared to $17.0 million for the third quarter of 2008 and $49.2 million for the first nine months of 2008. Third quarter expenses grew 27.9% over the comparable period in 2008, and increased 19.5% through the first nine months of 2009 compared to the same period in 2008. The total increase over 2008 is consistent with the overall growth of the Company which led to the addition of staff, space and general and administration expenses to support business operations.

During the third quarter, salaries and staff benefits were $11.3 million for a total of $31.5 million for the first nine months of 2009. The staff expenses increased by $1.9 million, or 20.2% over the third quarter of 2008 and $3.9 million, or 14.1% over the same nine month period in 2008 as the Company added employees to facilitate growth. In August, M.E. (Peggy) Gilmour, C.A., joined the Company as Senior Vice President, Finance. Ms. Gilmour previously held executive positions in finance and risk management in both the banking and insurance industries. As a result, the the Finance team was reorganized and new senior personnel added to better position the Company to meet its future objectives and regulatory changes. At the same time, Kerry Reinke, C.A., was appointed the Company's Chief Risk Officer. The Company ended the quarter with 475 employees, up from 395 employees at the end of 2008 and up from 407 employees one year ago.

General and administration expenses were $8.8 million during the quarter for a total of $22.9 million for the first nine months of 2009. The expenses increased by $2.4 million or 38.3% over the third quarter of 2008 and $4.6 million or 25.0% over the same nine month period in 2008. The growth in this area of expenses is attributed to growth in computing costs and professional fees to support the growth of the Company and the transition to a new core banking system.

Premises expenses were $1.6 million during the quarter for a total of $4.4 million for the first nine months of 2009. Premises expenses increased by $0.4 million over the third quarter of 2008 and $1.1 million over the same nine month period in 2008. Growth is attributed to rent increases and additional new equipment leases. The Company did not take on any additional premises.

The efficiency ratio (TEB) for the quarter was 27.5% and 26.6% for the first nine months of 2009, compared to 27.1% in the comparable quarter and 28.4% for the first nine months of 2008. The year to date ratio is slightly better than the Company's stated objective for the year reflecting the Company's cost management leadership within the industry.

Provision for Credit Losses

The provision for credit losses was $2.9 million during the quarter and $9.2 million for the first nine months of 2009, compared to $3.4 million in the comparable quarter of 2008 and $4.7 million for the first nine months of 2008. This expense represented 0.2% (0.1% - 2008) of total gross loans, on an annualized basis compared with the 0.2% average for the previous five years. The third quarter 2009 provision for credit losses declined $0.6 million compared to the third quarter of 2008 while the provision increased $4.6 million for the first nine months as compared to the same period in 2008. The increase in the nine month provision expensed is due to the economic downturn which took hold in the third quarter of 2008. The decline in the provision expense from the third quarter of 2008 is an encouraging sign that credit losses have stabilized and should begin to return to more normal levels.

The general allowance balance at September 30, 2009 is $26.5 million, an increase of less than $0.1 million since the end of June 2009 for a year to date total increase of $1.3 million since December 2008 and a $1.4 million increase since September 30, 2008. The general allowance reflects the overall growth in the Company's loans portfolios, the reduction of non-residential loans as well as additional prudence during the economic uncertainty. The general allowance was 88.8 basis points of the Company's risk-weighted assets at September 30, 2009 compared to 84.0 basis points at December 31, 2008 and 84.4 basis points at September 30, 2008.

The balance in specific provisions at September 30, 2009 is $5.0 million, an increase of $0.6 million during the third quarter of 2009 for a year to date total increase of $2.0 million and a $2.6 million increase since September 30, 2008. The increase in specific provisions reflects the growth in impaired loans during the economic challenges.

At September 30, 2009 net impaired loans amounted to $63.5 million (1.2% of gross loans), compared to $61.1 million (1.3% of gross loans) at June 30, 2009 and $32.8 million (0.7% of gross loans) at September 30, 2008 (refer to Note 4 of these unaudited interim consolidated financial statements). Total loans written-off during the quarter were $2.2 million and $5.9 million for the first nine months of 2009, compared to $0.4 million in the third quarter of 2008 and $1.6 million during the first nine months of 2008. Write-offs were experienced across the majority of the Company's loan product offerings and reflect the ongoing economic slowdown in Canada. The Company continues to monitor non-performing loans closely and takes 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 $13.8 million (effective tax rate of 26.5%) for the third quarter and $43.7 million (effective tax rate of 29.6%) for the first nine months of 2009, compared to $13.0 million (effective tax rate of 31.8%) for the third quarter and $36.6 million (effective tax rate of 31.5%) for the first nine months of 2008. The lower than usual effective tax rate during the third quarter is mainly attributed to increased tax exempt income and the effect of future tax rate changes.

In addition, Canadian dividend income is non-taxable to financial institutions, which results in a lower effective income tax rate. In the absence of tax-free dividends, the tax rates would have been 29.5% for the third quarter and 32.0% for the first nine months of 2009, compared to 33.6% for the third quarter and 33.3% for the comparable nine-month period in 2008.

Comprehensive Income

Comprehensive income is the aggregate of net income and other comprehensive income (OCI). Total comprehensive income was $39.4 million for the third quarter of 2009 and $132.6 million year-to-date, reflecting increases of $11.4 million over the third quarter of 2008 and $50.1 million over the same nine-month period in 2008. The $11.4 million increase in the third quarter is composed of $10.3 million of additional net income and $1.1 million of additional OCI. The nine month increase of $50.1 million is composed of $24.4 million of additional net income and $25.7 million of additional OCI. The increase in comprehensive income that is attributed to net income is discussed under the previous headings of this Earnings Review section. The additional OCI is primarily attributed to mark-to-market and valuation adjustments based on favourable changes in capital markets and interest rates as described below.

The Company's OCI includes changes in unrealized income on available for sale securities, valuation changes on the securitization receivables and transfers of previously unrealized net gains and losses to net income once they have been realized. During the third quarter of 2009, OCI of $1.2 million was reported for a total of $28.6 for the nine-month period compared with less than $0.1 million for the third quarter of 2008 and $2.9 million for the nine-month period ended September 30, 2008. During the third quarter, net unrealized income of $0.9 million on securities available for sale was recognized for a total of $15.3 million for the nine months. In addition, $0.3 of net realized losses were transferred from other comprehensive income to net income for a total of $13.4 million for the nine months.

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

Assets

Total assets at September 30, 2009 were $6.28 billion, an increase of $474.9 million, or 8.2% over the $5.81 billion reported at December 31, 2008 and up by $662.8 million, or 11.8% over the September 30, 2008 asset balance of $5.62 billion.

The increase in total assets over December 31, 2008 is being driven by on-balance sheet growth in the Company's core residential mortgage portfolio which increased $829.3 million or 25.4% over the nine-month period. This growth does not factor in the $1.74 billion the Company securitized in the first nine months of 2009. The robust securitization activity has resulted in an increase in securitization receivables of $56.1 million or 40.1% compared to December 31, 2008. The non-residential mortgage portfolio decreased by $107.0 million, or 12.9% as the Company continues to focus on core residential mortgage lending. As well, the consumer lending portfolio, which includes the Equityline Visa portfolio, has declined to $342.5 million from $369.0 million at December 2008 due to the Company's tightened lending standards in response to the existing economic climate.

The growth in total assets over September 30, 2008 has been generated from growth in the loans portfolio and securitization receivables offset by a reduction in the Company's securities portfolio and cash resources utilized for the growth in the loan portfolio. The loans portfolio increased by $666.8 million with positive growth experienced in residential mortgages offset by declines in non-residential mortgages, personal and credit card loans and secured loans. Other assets increased by $115.9 million, primarily due to robust growth in the Company's securitization activities resulting in an increase of $89.0 million in securitization receivables and a $19.6 million increase in intangible assets for the development of the Company's new core banking system.

Liabilities

Liabilities at September 30, 2009 were $5.73 billion, an increase of $356.8 million, or 6.6% over the $5.38 billion reported at December 31, 2008 and up by $528.3 million, or 10.1% over the $5.21 billion recorded at September 30, 2008.

Much of the increase from December 31, 2008 resulted from an increase in deposit liabilities of $270.7 million. The growth in the deposit liabilities funded a significant portion of the loans portfolio growth, with additional funds drawn from excess liquidity reserves for the remaining loans portfolio growth. Other liabilities (refer to Note 7 of these unaudited interim consolidated financial statements) increased by $86.3 million, or 32.0% over the $269.4 million reported at December 31, 2008. This growth was principally the result of an increase of $54.9 million from the timing of payments due to MBS investors, an increase of $13.2 million in the servicing liability related to the Company's ongoing administration of the off-balance sheet residential mortgage loans, and a net increase of $20.4 million in the Company's deferred corporate tax liabilities.

The increase in liabilities from September 30, 2008 was primarily due to an increase in deposit liabilities of $429.4 million, or 8.7%, as deposit liabilities funded the on-balance sheet growth in the Company's residential loans portfolios, with excess funds being drawn from the Company's liquidity portfolio. As well, other liabilities increased by $97.6 million, or 37.8% over September 30, 2008 primarily due to increases of $53.0 million in liabilities resulting from the timing of payments due to MBS investors, an increase of $19.3 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 deferred corporate tax liabilities.

Shareholders' Equity

Total shareholders' equity at September 30, 2009 increased by $118.0 million, or 27.3% to $550.8 million over the $432.8 million reported at December 31, 2008. The increase since December 2008 was internally generated from net income through the first nine months of 2009 of $104.0 million, less $15.5 million for dividends payable to shareholders and a significant positive movement in accumulated other comprehensive income of $28.6 million from the Company's available-for-sale financial assets. The remaining changes were due to the amortization of stock based compensation and proceeds of options exercised offset by net changes in the Company's common shares through the Normal Course Issuer Bid.

Total shareholders' equity at September 30, 2009 rose by $134.5 million, or 32.3% to $550.8 million from the $416.3 million reported at September 30, 2008. This growth was driven by internally generated earnings and positive movements in accumulated other comprehensive income offset by dividends and reduction of capital stock through the Company's Normal Course Issuer Bid. At September 30, 2009 the book value per common share was $15.99, compared to $12.57 at December 31, 2008 and $12.07 at September 30, 2008.

Derivatives and Off-Balance Sheet Arrangements

From time to time, the Company enters into hedging transactions to mitigate the interest exposure on outstanding loan commitments. For example, the Company utilizes interest rate swaps or forward contracts to sell Government of Canada bonds to hedge the economic exposure to movements in interest rates between the time that mortgages are committed to being funded by asset securitization, and the time those mortgages are actually sold. The intent of the swap or forward bond contracts is to have the fair value movements of these instruments be effective in offsetting the fair value movements within a pool of mortgages during the period in which the fixed rate pool may be exposed to movements in interest rates, generally 60 to 150 days. During the third quarter of 2009, the Company entered into $698.7 million in notional forward bond contracts to hedge the commitment risk on the Company's securitization activities. Forward bond contracts are unwound at the time of securitization. The realized loss of $3.9 million was included in the income statement in securitization income on mortgage backed securities.

At September 30, 2009 the Company continued to hold notional forward bond contracts of $519.4 million in anticipation of future securitization. The forward bond contracts were marked-to-market at September 30, 2009 for a year to date unrealized loss of $1.7 million. At September 30, 2008 the Company held $40.0 million in notional forward bond contracts and marked those to market for an unrealized gain of $0.1 million. These unrealized gains and losses are included in the income statement in gain on derivatives.

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 September 30, 2009, were $2.53 billion ($1.2 billion - Q4 2008; $760.9 million - Q3 2008). These swaps were marked-to-market at September 30, 2009 for a year-to-date unrealized gain of $2.8 million (unrealized gain of $0.4 million - Q4 2008; unrealized gain of $1.0 million - Q3 2008), recorded in the consolidated statements of income. For additional information refer to Note 12 of these unaudited interim consolidated fi nancial 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 September 30, 2009 outstanding securitized mortgage loans under administration amounted to $3.61 billion ($2.61 billion - Q4 2008; $2.12 billion - Q3 2008) with a retained interest of $196.0 million ($139.9 million - Q4 2008; $107.0 million - Q3 2008). The off-balance sheet portfolio continues to perform well, with 97.7% of the portfolio current and 1.1% 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 $382.1 million at September 30, 2009 compared to $242.4 million at December 31, 2008 and $424.9 million at September 30, 2008. Included within the outstanding commitments are unutilized non-residential advances of $39.9 million at September 30, 2009 compared to $89.6 million at December 31, 2008 and $151.3 million at September 30, 2008. Commitments for the loans remain open for various dates through September 2010. As at September 30, 2009 unutilized credit card balances amounted to $52.0 million, compared to $62.9 million at December 31, 2008 and $69.0 million at September 30, 2008. Outstanding commitments for future advances for the Equityline Visa portfolio were $3.9 million at September 30, 2009 compared to $2.4 million at December 31, 2008 and $3.0 million at September 30, 2008.

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

Home Trust's capital ratios are calculated using the guidance of the Office of the Superintendent of Financial Institutions (OSFI). Effective January 1, 2008, Home Trust began calculating its regulatory capital under the new capital adequacy rules issued by OSFI, which are based under 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:

    
    Table 5: Risk-weighted Assets

                                               As at       As at       As at
                                           September    December   September
    In Thousands of Dollars                 30, 2009    31, 2008    30, 2008
    -------------------------------------------------------------------------
    Risk-weighted assets for:
    Credit risk                           $2,688,064  $2,711,583   2,659,965
    Operational risk                         300,363     274,167     281,682
    -------------------------------------------------------------------------
    Total Risk-weighted Assets(1)         $2,988,427  $2,985,750   2,941,647
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 at the end of the third quarter of 2009 was 16.6%, up from 15.2% recorded in the second quarter of 2009 and up from the 12.8% reported at September 30, 2008. The Total Capital ratio was 18.2% at September 30, 2009, up from the 16.7% reported in the second quarter of 2009 and up from the 14.1% reported at September 30, 2008.

The Company continues to build its capital base through retained earnings during this period of economic uncertainty. The Company's strong capital position affords additional flexibility to maintain and grow operations, both organically and, if the opportunity arose, through strategic acquisitions. These ratios both continue to substantially 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.

For further information on the Company's regulatory capital see Note 8 to these unaudited interim consolidated fi nancial 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 all sources of risk. The Company's ERM structure is supported by a governance framework which includes Board of Directors' and Senior Management oversight, policies, management standards, guidelines and procedures appropriate to each business activity and source of risk. 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 and counter-party exposures. This is the risk of the loss of principal and/or interest from the failure of debtors and counter-parties, for any reason, to honour their financial or contractual obligations to the Company. The Company's exposure to credit risk is monitored by senior management, the Audit Committee and the Risk and Capital Committee of the Board of Directors who undertake reviews of credit policies, lending practices, the adequacy of loan loss reserves, credit risk and capital. The Company's policy is that credit is approved by different levels of senior management, based upon the level of risk and 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 September 30, 2009 the composition of the total mortgage portfolio was 85.0% residential and 15.0% non-residential, compared to a composition of 79.8% residential and 20.2% non-residential at December 31, 2008 and a composition of 80.7% residential and 19.3% non-residential one year ago. The composition is well within the internal policy limits the Company's Risk and Capital Committee and the Board of Directors have approved. Within the Company's residential mortgage portfolio, 28.8% of the loans were insured by either CMHC or other OSFI-approved insurers at the end of the quarter, compared to 14.6% at December 31, 2008 and 9.0% one year ago reflecting the Company's strategic shift to reduce credit exposure. First mortgages represented 99.6% of the total mortgage portfolio at September 30, 2009, consistent with 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 third quarter of 2009, 68.3% were government-insured for a year-to-date total of 69.6%. This is up from the comparable three-month period of 2008 where 52.7% of all residential mortgage originations and renewals were insured and up from 43.6% for the first nine months of 2008. At September 30, 2009 the average loan to value on origination of the Company's non-insured residential mortgage loans portfolio was 68.1% compared to 67.8% at December 31, 2008 and 66.4% 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 95.3% of the portfolio current and 1.8% of the portfolio over 60 days in arrears at the end of September 2009. The current portion of the portfolio has improved slightly from December 31, 2008 at which point 94.5% of the portfolio was current and is consistent with the 95.3% reported at September 31, 2008. The over 60 days arrears is up slightly from the 1.6% and 1.5% of the portfolio that was over 60 days arrears at December 31, 2008 and September 30, 2008, respectively, and is consistent with 1.8% reported at June 30, 2009 and an improvement from the 2.4% at March 31, 2009.

As at September 30, 2009 the gross credit card receivable balance totaled $312.9 million, of which $312.5 million, or 99.9% of the portfolio was secured either by cash deposits or residential property, and $0.4 million, or 0.1% was unsecured. The total credit approved included $364.4 million in secured and $0.5 million in unsecured credit, compared to $414.3 million in secured, and $0.7 million in unsecured credit at December 31, 2008 and $417.0 million in secured, and $0.8 million of unsecured credit at September 30, 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 $305.4 million of the total credit card receivable balance as at September 30, 2009 compared to $342.9 million at December 31, 2008 and $339.3 million at September 30, 2008. Cash deposits securing credit card accounts amounted to $12.5 million, and are included in the Company's deposits. Further, the Equityline Visa portfolio has a loan to value of 69.4% at September 30, 2009, down from the loan to value of 69.5% and 69.8% at December 31, 2008 and September 30, 2008, respectively. At September 30, 2009, $8.4 million, or 2.7% of the credit card portfolio was over 60 days in arrears improving from the $10.6 million, or 3.0% at December 31, 2008 and up from the $6.8 million, or 1.9% at September 30, 2008.

The secured loan portfolio of $53.5 million decreased by $19.0 million from the December 31, 2008 balance of $72.5 million, and decreased $25.5 million from the September 30, 2008 balance of $79.0 million. These loans are secured by second mortgages on residential properties. At September 30, 2009, 96.2% of the secured loan portfolio was current while $1.1 million or 2.1% was over 60 days in arrears. This compares to 97.1% of the secured loan portfolio being current while $1.0 million or 1.4% was over 60 days in arrears at December 31, 2008. As at September 30, 2008, 97.4% of the secured loan portfolio was current while $0.8 million or 1.0% was over 60 days in arrears.

The Company experienced a rise in net impaired loans, to $63.5 million at September 30, 2009 compared to $39.2 million at December 31, 2008 and $32.8 million at September 30, 2008 driven by the deterioration in the overall economy. Although impaired loans have increased over September 2008, the percentage of gross loans declined from 1.3% at June 30, 2009 to 1.2% at September 30, 2009. The results are within the Company's historic range. Further, due to strong underwriting and credit standards, the Company is not experiencing a correlated increase in write-offs. 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. Net write-offs applied against the accumulated allowance for credit losses realized on loans during the three-month period ended September 30, 2009 totaled $2.2 million for a year-to-date total of $5.9 million, up from the write-offs incurred in the third quarter of 2008 of $0.4 million and $1.6 million for the first nine months of 2008. The Company continues to monitor this area, and is dealing prudently and effectively with impaired loans. Additional experienced personnel have been hired during 2009 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 probable losses in its loans portfolio, holding general allowances of $26.5 million at September 30, 2009 as compared to $25.2 million at December 31, 2008 and $25.1 million at September 30, 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 99.5% of the total loans portfolio. The Company's evaluation of the adequacy of the general allowance takes into account asset quality, borrowers' creditworthiness, property location and past loss experience. The Company periodically reviews the methods utilized in reviewing the general allowance, giving due consideration to changes in economic conditions, interest rates and local housing market conditions.

The total general allowance was 88.8 basis points of the Company's risk-weighted assets at September 30, 2009 compared to 84.0 basis points at December 31, 2008 and 84.4 basis points at September 30, 2008. The increase in the ratio reflects the Company's commitment to adequately provide for future losses during the current economic downturn.

Liquidity Risk

The objective of liquidity risk 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. As one of the tools used in managing liquidity, the Company runs 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 September 30, 2009 liquid assets amounted to 163% under the immediate scenario and 141% under the ongoing scenario. The Company continues to monitor these scenarios and will take appropriate actions should the need arise.

The Company holds liquid assets in the form of cash and bank deposits, treasury bills, bankers' acceptances, government bonds and debentures to comply with its liquidity policy. At September 30, 2009 liquid assets amounted to $469.0 million, or 29.6% of 100-day obligations, compared to $880.7 million and 66.0% recorded at December 31, 2008 and $716.9 million and 50.1% at September 30, 2008. The lower liquidity levels year-over-year reflect the on-balance sheet growth of the core mortgage loans portfolio and the timing of certain securitization activities. The Company's policy is to maintain a minimum 20% of 100-day obligations in liquid assets.

For the twelve months ended September 30, 2009 the Company maintained a monthly average of $620.2 million, or 43.97% of 100-day obligations in liquid assets compared to $598.2 million, or 46.2% for the twelve months ended December 31, 2008 and $571.3 million, or 46.9% for the twelve months ended September 30, 2008.

Structural Interest Rate Risk

Structural interest rate risk is the sensitivity of earnings and capital 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 September 30, 2009 is presented under Note 13 in these unaudited interim consolidated financial statements. The table provided there represents the Company's position 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 an interest rate risk sensitivity model that measures the relationship between changes in interest rates and the resulting impact on both future net interest income and the economic value of shareholders' equity. The following table provides the potential after tax impact of immediate and sustained 100 basis point, and 200 basis point increases and decreases in interest rates on net interest income and on the economic value of shareholders' equity.

    
    Table 6: Impact of Interest Rate Shifts


                               September   September   September   September
                                      30          30          30          30
    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)    $    5,465  $    3,096  $   (5,465) $   (3,096)
      Impact on net present
       value of shareholders'
       equity                     (1,450)     (6,591)      1,712       6,910

    200 basis point shift
      Impact on net interest
       income, after tax (for
       the next 12 months)    $   10,930  $    6,191  $  (10,930) $   (6,191)
      Impact on net present
       value of shareholders'
       equity                     (2,673)    (12,879)      3,724      14,158
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 $519.4 million in forward bond contracts specifically to hedge commitment risk at September 30, 2009 in anticipation of future securitization activities compared to $40.0 million as September 30, 2008 and $34.3 million at December 31, 2008. 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 business segments for the three- and nine-month periods ended September 30, 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 diversifi ed income source.

Mortgage Lending

The Company's principal line of business contributed $29.4 million of net income during the third quarter of 2009 and $79.4 million for the first nine months of 2009, as compared to $22.0 million and $58.1 million, respectively, for the comparable periods in 2008. Growth over the prior periods was driven primarily by loan originations which drive higher interest and fee income plus a significant contribution to income through securitization activities. During the third quarter of 2009, net interest income benefited from a lower cost of funding and fixed rate conversions on the variable rate non-residential mortgage loans. Net interest income for the quarter was $26.8 million, compared with $24.0 million for the three-month period ended September 30, 2008.

The table below provides a breakdown of specific residential and non-residential advances made during the quarter and year to date with prior year comparables.

    
    Table 7: Mortgage Production

                                       For the three            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
                               September   September   September   September
                                      30          30          30          30
    In Thousands of Dollars         2009        2008        2009        2008
    -------------------------------------------------------------------------
    Single family residential
     mortgages(1)             $  948,853  $  636,288  $2,296,122  $1,838,356
    Multi-unit residential
     mortages(1)                 392,134     194,819     942,518     250,874
    Warehouse residential
     mortgages(1)                      -     152,938      49,951     261,267
    Non-residential mortgages     36,609      78,714      75,224     393,495
    Store and apartments           9,662      18,502      24,051      57,586
    Warehouse commercial
     mortgages                    10,250      24,500      16,250      58,273
    -------------------------------------------------------------------------
    Total Mortgage Advances   $1,397,508  $1,105,761  $3,404,116  $2,859,851
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) As defined by the Office of the Superintendent of Financial
        Institutions
    

The total value of new mortgages advanced in the quarter was $1.40 billion, an increase of 26.4% over the $1.11 billion advanced for the same quarter in 2008. Total value of new mortgages advanced for the first nine months of 2009 was $3.40 billion, an increase of 19.0% over the $2.86 billion advanced for the first nine months of 2008. During the third quarter of 2009, residential advances increased by 36.3% or $356.9 million over the comparable quarter in 2008. Year to date residential advances increased $938.1 million or 39.9% over the first nine months of 2008. Residential Mortgages include the advances from loans originated under the Accelerator Program and Multi-unit Residential loans which are all insured products and included in the Company's MBS and CMB securitization program.

During the third quarter, advances for non-residential mortgages declined $65.2 million or 53.6% while year to date advances declined by $393.8 million or 77.3%. This decline is consistent with the Company's strategy of reducing its exposure to non-residential mortgages during the economic volatility.

During the quarter, the Company sold $620.6 million of mortgage-backed securities created through CMHC's insured residential mortgage securitization program while year-to-date, a total of $1.74 billion was sold. Total gains realized from securitization were $12.1 million for the quarter and $59.2 million for the first nine months of 2009. This compares to $544.7 million securitized for the third quarter of 2008 and $941.1 million for the first nine months of 2008, resulting in gains of $15.7 million and $32.4 million, respectively.

During the third quarter, the Company's securitization activities included participation in CMHC's CMB program. Of the $620.6 million sold during the quarter, $288.3 million relates to this program compared with $433.0 million in the comparable period of 2008. Year to date, sales into the CMB program were $1.23 billion compared to $639.9 million for the first nine months of 2008. The sales realized $7.3 million in gains during the quarter and $45.2 million year to date compared to $13.5 million during the third quarter of 2008 and $22.9 million. The growth in securitization activity reflects current economic circumstances which cause origination funding through securitization to be less costly than traditional deposits. The Company anticipates shifting its funding back to a traditional deposit on-balance sheet approach as securitization spreads normalize. As this occurs, 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 future financial results. For additional information refer to Note 5 of these unaudited interim consolidated financial statements.

The Company's second mortgage program, (recorded as Secured Loans), is conducted through an agreement with a Trustee 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 third quarter of 2009 the Company held $53.5 million in Secured Loans as Notes Receivable issued by Regency, compared to $72.5 million at December 31, 2008 and $79.0 million at September 30, 2008. These Notes yield 6.6% 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 0.4% of the portfolio value, on an annualized basis. The underlying credit quality of the mortgage loans securing the Notes Receivable remains high, with 2.1% of the portfolio in arrears over 60 days. This program has experienced minimal losses since inception. The Company had decided to discontinue advancing funds under this program during the economic downturn and recently resumed marketing of this product in anticipation of the improved housing markets.

Consumer Lending - Credit Cards and Retail Services

Consumer lending again generated positive results during the first nine months of 2009. Net income for the quarter was $6.2 million for a year-to-date total of $16.8 million, compared to $5.1 million for the third quarter of 2008 and $14.3 million for the nine months of 2008. Growth in the Company's retail loan portfolio has contributed favourably to the overall results of this segment. The Equityline Visa portfolio has declined during the economic downturn as the Company has tightened lending standards over the past year to manage credit risk. This has lowered net interest income and Visa fee income. The Company has commenced new marketing initiatives, in anticipation of economic recovery, to resume long term plans to grow this part of the business. Also included in the operating results of the consumer lending segment are the operations of PSiGate which contributed $0.3 million of net income during the quarter and $1.1 million for the first nine months of 2009.

The Equityline Visa loans portfolio amounted to $305.4 million at September 30, 2009 ($342.9 million - Q4 2008; $339.3 million - Q3 2008) comprising 97.6% (97.4% - Q4 2008; 97.3% - Q3 2008) of the total gross credit card receivable balance of $312.9 million, and bearing an average interest rate of 10.8% (10.3% - Q4 2008; 10.5% - Q3 2008) on outstanding balances. During the third quarter of 2009, 744 Equityline Visa accounts with $26.7 million in authorized credit limits were issued for a year-to-date total of 1,741 Equityline Visa accounts with $66.1 million in authorized credit limits. Both the current and year-to-date totals in 2009 are down from 868 Equityline Visa accounts with $37.7 million in authorized credit limits issued in the third quarter of 2008 and down from 3,074 Equityline Visa accounts with $139.2 million in authorized credit limits issued for the nine months ended September 30, 2008. The decrease in new accounts from the comparable prior year periods is due to ongoing careful management of credit in certain geographical locations during 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 $2.7 million for a year-to-date total of $7.8 million compared with $0.8 million for the three months ended September 30, 2008 and $7.3 million for the first nine months of 2008. Growth in this segment is attributed to gains on sale from the securities investments 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 new guidance did not have a material effect on the financial position or earnings of the Company.

Future Accounting Changes

In June 2009, the CICA issued amendments to Section 3862, Financial Instruments - Disclosures that provides improved disclosures for liquidity risk and fair value measurement. The Company will adopt the amendments for its December 31, 2009 annual financial statements.

In August 2009, the CICA issued various amendments to Section 3855, Financial Instruments - Recognition & Measurement that will reduce differences with International Financial Reporting Standards (IFRS). The amendments include changes to the classification of certain debt securities where there is no active market for those securities and how impairment is measured for those debt securities. Impairment on debt securities will be reversed if the conditions for reversal are met. The changes also permit the reclassification from the held for trading and available for sale classifications in certain limited circumstances. Additionally, the amendments remove exemption for loans and receievables to be categorized as held for trading. The Company will adopt the amendments, which are retroactive, in its December 31, 2009 annual financial statements. The Company does not expect these amendments to have a material impact on the financial position or earnings of the Company.

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 research, diagnostic and planning 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
        financial 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 scheduled for completion in the fourth quarter of 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 and dependant upon proposed changes to IFRS.

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 has completed preliminary conclusions on these choices but this is subject to ongoing assessment as circumstances may change as IFRS proposals are fi nalized.

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. The Company notes 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 September 30, 2009. At this stage, the Company is not able to quantify the impact expected on the consolidated fi nancial 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
    

In October 2009 OSFI released a Draft Advisory on the conversion to IFRS by Federally Regulated Entities that among other items provided guidance on the capital treatment under IFRS of securtization activities under the CMB and NHA MBS programs. These activities, as off-balance sheet items, were previously excluded from the calulation of the assets to capital multiple (ACM) prescibed by OSFI. The Draft Advisory proposes that these activities be included in the calculation of ACM when these activities are accounted for on-balance sheet under IFRS. Securitizations entered into on or before December 31, 2009 would be grandfathered for purposes of the ACM calculation. The Company believes that the proposed ACM rules for securitization will not materially impact our participation in the CMB and MBS NHA programs, nor effect the Company's ability to continue offering these competitive mortgage products which utilize these programs to provide additional funding sources.

In April 2009 the International Accounting Standards Board (IASB) issued an exposure draft on amendments to the derecognition principals within International Accounting Standard 39 - Financial Instruments: Recognition and Measurement. The proposals are aimed at improving the current requirement for the derecognition of financial assets and financial liabilities. The current approach is based on both risk and rewards and control. The amendments in the exposure draft focus the assessment on whether a financial asset or financial liability are derecognized from the balance sheet based on control. Further, the IASB has put forth a proposed approach and an alternative approach to derecognition which could potentially have significantly different conclusions on whether the Company's securitization program remains off- or on-balance sheet. Lastly, the transition rules currently proposed in the exposure draft provide for a grandfathering provision such that the new standard will only apply to transactions entered into on or after January 1, 2010. Management is currently assessing the impact on the Company's IFRS consolidated financial position and earnings.

In July 2009 the IASB issued an exposure draft on amendments to the classification and measurement principles in IAS 39. The exposure draft is part of a three phase project to replace IAS 39 that includes the derecognition exposure draft discussed above and improvements to the impairment model for financial assets carried at amortized cost. The classification and measurement proposals are aimed at simplifying the accounting for and providing better information about financial instruments. Currently, IAS 39 classification and measurement principles are substantially consistent with Canadian GAAP. The amendments in the exposure draft propose two measurement categories, fair value and amortized cost. Amortized cost measurement would be limited to financial instruments that are managed on a contractual yield basis and have basic loan features. All other financial instruments would be measured at fair value. Fair value changes would be recorded in profit and loss with the exception of elected equity securities where fair value changes and dividend income would be recorded in OCI, however, the amount recorded in OCI would never be recycled to profit and loss on disposal or impairment. Management is currently assessing the potential impact on the Company's IFRS consolidated financial statements and, at this stage, it is too early to determine the significance of the proposals.

Controls over Financial Reporting

No changes were made in the Company's internal controls over financial reporting during the interim period ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over fi nancial reporting.

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

As at September 30, 2009 the Company had issued 34,449,790 Common Shares. In addition, outstanding director and employee stock options amounted to 1,271,750 (1,406,750 - Q4 2008, and 1,226,750 - Q3 2008) of which 755,500 were exercisable as of the quarter-end (661,125 - Q4 2008, and 540,500 - Q3 2008) for proceeds to the Company upon exercise of $18.3 million ($12.4 million - Q4 2008, and $8.4 million - Q3 2008).

Subsequent to the end of the third quarter, the Board of Directors declared an increased quarterly cash dividend of $0.16 per common share payable on December 1, 2009 to shareholders of record at the close of business on November 16, 2009. This is the third increase in the Company's quarterly dividend in 2009 and the eleventh increase in the past five years.

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

    Table 8: Summary of Quarterly Results

    -------------------------------------------------------------------------
    In Thousands of Dollars                                 2009        2008
    -------------------------------------------------------------------------
    (Except Per Share and
     Percentage Amounts)              Q3          Q2          Q1          Q4

    Net interest income
     (TEB)(1)                 $   45,254  $   42,024  $   37,505  $   36,399
    Less TEB adjustment            2,300       1,535       1,273       1,162
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net interest income per
     financial statements         42,954      40,489      36,232      35,237
    Non-interest income           33,589      30,437      32,034      26,023
    Non-interest expense          21,674      18,222      18,849      16,852
    Total revenues               125,299     121,778     120,721     117,996
    Net income                    38,243      34,351      31,418      29,039
    Return on common
     shareholders' equity          28.7%       27.9%       27.9%       27.4%
    Return on average total
     assets                         2.5%        2.3%        2.2%        2.0%
    Earnings per common share
      Basic                   $     1.11  $     1.00  $     0.91  $     0.84
      Diluted                 $     1.10  $     0.99  $     0.91  $     0.84
    Book value per common
     share                    $    15.99  $    14.99  $    13.61  $    12.57
    Efficency ratio (TEB)(1)       27.5%       25.1%       27.1%       27.0%
    Efficency ratio                28.3%       25.7%       27.6%       27.5%
    Tier 1 capital ratio(2)        16.6%       15.2%       13.8%       12.9%
    Total capital ratio(2)         18.2%       16.7%       15.2%       14.2%
    Net impaired loans as a %
     of gross loans                 1.2%        1.3%        1.2%        0.9%
    Annualized provision as a
     % of gross loans               0.2%        0.3%        0.3%        0.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    In Thousands of Dollars                                 2008        2007
    -------------------------------------------------------------------------
    (Except Per Share and
     Percentage Amounts)              Q3          Q2          Q1          Q4

    Net interest income
     (TEB)(1)                 $   39,478  $   40,418  $   38,590  $   40,394
    Less TEB adjustment            1,130       1,056         962       2,311
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net interest income per
     financial statements         38,348      39,362      37,628      38,083
    Non-interest income           23,013      17,318      14,338      14,561
    Non-interest expense          16,953      17,443      14,763      15,687
    Total revenues               116,950     112,953     106,796     105,081
    Net income                    27,939      26,550      25,159      24,228
    Return on common
     shareholders' equity          27.6%       27.7%       27.9%       28.9%
    Return on average total
     assets                         2.0%        2.0%        1.9%        2.0%
    Earnings per common share
      Basic                   $     0.81  $     0.77  $     0.73  $     0.70
      Diluted                 $     0.81  $     0.76  $     0.72  $     0.70
    Book value per common
     share                    $    12.08  $    11.44  $    10.79  $    10.08
    Efficency ratio (TEB)(1)       27.1%       30.2%       27.9%       28.5%
    Efficency ratio                27.6%       30.8%       28.4%       29.8%
    Tier 1 capital ratio(2)        12.7%       12.5%       12.0%       11.1%
    Total capital ratio(2)         14.0%       13.8%       13.4%       12.5%
    Net impaired loans as a %
     of gross loans                 0.7%        0.7%        0.7%        0.7%
    Annualized provision as a
     % of gross loans               0.3%        0.1%        0.1%        0.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) TEB - Taxable Equivalent Basis, see definition on page 5
    (2) These figures relate to the Company's operating subsidiary, Home
        Trust Company
    

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 economic and 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 net impaired loans as a percentage of gross loans have trended upwards over the last half of 2008 and into 2009. The increase is due to the effects of the economic slowdown in Canada driving higher unemployment levels. Net impaired as a percentage of gross loans decreased during the third quarter, however, the Company continues to take proactive steps to manage the higher than average level of impaired loans, including maintaining a strong mortgage servicing department to support 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 country's major financial institutions. The Company's financial strength is grounded in a solid capital base, robust liquidity reserves and no external debt which position Home Capital to capitalize on market opportunities as Canada emerges from the current economic downturn.

While some indications point to the beginning of a recovery for the Canadian economy, a number of factors lead the Company to remain cautious about where and to whom it provides mortgage advances. Canadian unemployment continues to rise as key sectors of our economy, such as manufacturing, are forced to reduce their payrolls. This sector will continue to struggle so long as the outlook for the United States economy remains uncertain, which puts a damper on Canadian exports. This lack of job security and significant negative economic news in the media will continue to put a damper on consumer confidence. Until these issues are resolved, a prudent approach to growth and capital preservation are warranted. Within these boundaries, the Company is optimistic that it will achieve its stated objectives for 2009.

The Company continues to manage its business prudently with a strong commitment to measured growth, profitability and creating long-term shareholder value. The Company has a proven track record for achieving the objectives of its corporate strategy while remaining committed to its proprietary risk management framework. This has approach has served management well to lead the Company through the current economic uncertainty and position 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            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,   September   September   September   September
     except for per Share             30          30          30          30
     Amounts (Unaudited)            2009        2008        2009        2008
    -------------------------------------------------------------------------

    Income

    Interest from loans       $   84,223  $   86,524  $  249,836  $  256,570
    Dividends from equity
     securities                    5,132       2,331      11,399       6,746
    Other interest                 2,355       5,082      10,503      18,714
    -------------------------------------------------------------------------
                                  91,710      93,937     271,738     282,030

    Interest Expense

    Interest on deposits          48,756      55,589     152,063     166,692
    -------------------------------------------------------------------------
    Net interest income           42,954      38,348     119,675     115,338
    Provision for credit
     losses (note 4(d))            2,862       3,420       9,244       4,650
    -------------------------------------------------------------------------
                                  40,092      34,928     110,431     110,688
    -------------------------------------------------------------------------

    Non-interest Income

    Fees and other income          7,360       7,033      22,144      21,348
    Securitization income on
     mortgage-backed securities   13,716      17,201      68,114      37,632
    Net gain (loss) realized and
     unrealized on securities      1,146      (2,524)      2,528      (4,570)
    Gain on derivatives           11,367       1,303       3,274         190
    Net gain on sale of
     subsidiary                        -           -           -          69
    -------------------------------------------------------------------------
                                  33,589      23,013      96,060      54,669
    -------------------------------------------------------------------------
                                  73,681      57,941     206,491     165,357
    -------------------------------------------------------------------------

    Non-interest Expenses

    Salaries and staff benefits   11,334       9,426      31,514      27,618
    Premises                       1,565       1,184       4,370       3,247
    General and administration     8,775       6,343      22,861      18,294
    -------------------------------------------------------------------------
                                  21,674      16,953      58,745      49,159
    -------------------------------------------------------------------------

    Income Before Income Taxes    52,007      40,988     147,746     116,198
    Provision for income taxes
     (note 11(a))                 13,764      13,049      43,734      36,550
    -------------------------------------------------------------------------
    NET INCOME                $   38,243  $   27,939     104,012  $   79,648
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NET INCOME PER COMMON SHARE

    Basic                     $     1.11  $     0.81  $     3.02  $     2.31
    Diluted                   $     1.10  $     0.81  $     3.00  $     2.29
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING
     (thousands)

    Basic                         34,412      34,522      34,397      34,530
    Diluted                       34,684      34,822      34,711      34,783
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total number of outstanding
     common shares (thousands)    34,450      34,476      34,450      34,476
    Book value per common
     share                    $    15.99  $    12.07  $    15.99  $    12.07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Comprehensive Income

                                       For the three            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars           30          30          30          30
     (Unaudited)                    2009        2008        2009        2008
    -------------------------------------------------------------------------

    NET INCOME                $   38,243  $   27,939  $  104,012  $   79,648
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    OTHER COMPREHENSIVE INCOME,
     NET OF TAX

    Unrealized income on
     available for sale securities
      Net unrealized income on
       securities available for
       sale, net of $1,916 tax
       (($884) - three months
       ended September 30, 2008;
       $9,101 - nine months
       ended September 30, 2009;
       $346 - nine months ended
       September 30, 2008)           925      (1,232)     15,280        (192)
      Reclassification of
       earnings in respect of
       available for sale
       securities, net of $140
       tax ($635 - three months
       ended September 30, 2008;
       $1,856 - nine months
       ended September 30, 2009;
       $1,484 - nine months
       ended September 30, 2008)     253       1,279      13,368       3,094
    -------------------------------------------------------------------------
    Total other comprehensive
     income                        1,178          47      28,648       2,902
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME      $   39,421  $   27,986  $  132,660  $   82,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Balance Sheets

    -------------------------------------------------------------------------
                                           September    December   September
    In Thousands of Dollars                       30          31          30
     (Unaudited)                                2009        2008        2008
    -------------------------------------------------------------------------

    ASSETS
    Cash Resources
    Deposits with regulated
     financial institutions               $  145,959  $  554,422  $  431,288
    -------------------------------------------------------------------------

    Securities (note 3)
    Held for trading                         199,908           -         301
    Available for sale                       453,470     519,477     487,654
    -------------------------------------------------------------------------
                                             653,378     519,477     487,955
    -------------------------------------------------------------------------
    Loans (note 4)
    Residential mortgages                  4,092,476   3,263,206   3,307,197
    Non-residential mortgages                719,838     826,882     789,611
    Personal and credit card loans           342,539     368,962     364,261
    Secured loans                             53,493      72,518      79,025
    General allowance for credit losses      (26,520)    (25,177)    (25,077)
    -------------------------------------------------------------------------
                                           5,181,826   4,506,391   4,515,017
    -------------------------------------------------------------------------
    Other
    Securitization receivable (note 5)       196,013     139,870     106,969
    Capital assets                             5,201       5,325       5,725
    Other assets (note 6)                    102,215      84,228      74,855
    -------------------------------------------------------------------------
                                             303,429     229,423     187,549
    -------------------------------------------------------------------------
                                          $6,284,592  $5,809,713  $5,621,809
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Liabilities
    Deposits
      Payable on demand                   $   15,867  $   34,808  $   16,457
      Payable on a fixed date              5,357,595   5,067,973   4,927,582
    -------------------------------------------------------------------------
                                           5,373,462   5,102,781   4,944,039
    -------------------------------------------------------------------------
    Other
    Cheques and other items in transit         4,671       4,811       3,396
    Other liabilities (note 7)               355,636     269,368     258,079
    -------------------------------------------------------------------------
                                             360,307     274,179     261,475
    -------------------------------------------------------------------------
                                           5,733,769   5,376,960   5,205,514
    -------------------------------------------------------------------------
    Shareholders' Equity
    Capital stock (note 8)                    41,888      39,094      39,142
    Contributed surplus                        3,948       3,283       2,910
    Retained earnings                        487,393     401,429     377,638
    Accumulated other comprehensive
     income (loss) (note 10)                  17,594     (11,053)     (3,395)
    -------------------------------------------------------------------------
                                             550,823     432,753     416,295
    -------------------------------------------------------------------------
                                          $6,284,592  $5,809,713  $5,621,809
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Changes in Shareholders' Equity

                                       For the three            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars           30          30          30          30
    (Unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------

    CAPITAL STOCK (note 8)
    Balance at beginning of
     the period               $   39,757  $   39,217  $   39,094  $   38,899
    Proceeds of options
     exercised                     2,152           -       2,926         318
    Normal course issuer bid         (21)        (75)       (132)        (75)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                   $   41,888  $   39,142  $   41,888  $   39,142
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance at beginning of
     the period               $    3,941  $    2,531  $    3,283  $    1,818
    Amortization of fair value
     of employee stock options
     (note 9)                        422         379       1,194       1,143
    Employee stock options
     exercised                      (415)          -        (529)        (51)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                   $    3,948  $    2,910       3,948  $    2,910
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS
    Balance at beginning of
     the period (note 8)      $  455,625  $  356,693  $  401,429  $  313,620
    Normal course issuer bid        (616)     (2,167)     (2,557)     (2,167)
    Net income for the period     38,243      27,939     104,012      79,648
    Dividends paid or declared
     during the period            (5,859)     (4,827)    (15,491)    (13,463)
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                   $  487,393  $  377,638  $  487,393  $  377,638
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE INCOME (LOSS)

    Balance at beginning of
     the period               $   16,417  $   (3,442) $  (11,053) $   (6,297)

    Other comprehensive income
     (loss), net of $2,056 tax;
     ($249 - three months ended
     September 30, 2008; $10,957
      - nine months ended
     September 30, 2009; $1,830
     - nine months ended
     September 30, 2008)           1,177          47      28,647       2,902
    -------------------------------------------------------------------------
    BALANCE AT END OF THE
     PERIOD                   $   17,594  $   (3,395) $   17,594  $   (3,395)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.



    Consolidated Statements of Cash Flows

                                       For the three            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars           30          30          30          30
     (Unaudited)                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net income for the period $   38,243  $   27,939  $  104,012  $   79,648
    Adjustments to determine
     cash flows relating to
     operating activities:
      Future income taxes          8,215       5,013      21,183       9,227
      Amortization                (8,049)      4,578     (40,360)     10,350
      Provision for credit losses
       (note 4(d))                 2,862       3,420       9,244       4,650
      Change in accrued interest
       payable                   (13,409)     (3,035)    (11,498)     23,534
      Change in accrued interest
       receivable                    735         404       2,315      (1,595)
      Net loss (gain) realized and
       unrealized on investment
       securities                 (1,146)      2,524      (2,528)      4,570
      (Gain) on derivatives      (11,367)     (1,303)     (3,274)       (190)
      Securitization income on
       mortgage-backed
       securities                (13,716)    (17,201)    (68,114)    (37,632)
      Amortization of fair value
       of employee stock options
       (note 9)                      422         379       1,194       1,143
      Change in payments received
       for securitized pools     (24,400)      3,590      54,899       8,058
      Other                        1,240      (2,986)     22,272     (12,875)
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                  (20,370)     23,322      89,345      88,888
    -------------------------------------------------------------------------
    CASH FLOWS FROM FINANCING
     ACTIVITIES
    Net increase (decrease) in
     deposits                    132,085     227,468     270,681     530,055
    Issuance of capital stock      2,152           -       2,926         318
    Normal course issuer bid        (637)     (2,242)     (2,689)     (2,242)
    Exercise of stock options       (415)          -        (529)        (51)
    Dividends paid                (5,163)     (4,491)    (14,455)    (12,779)
    -------------------------------------------------------------------------
    Cash flows from financing
     activities                  128,022     220,735     255,934     515,301
    -------------------------------------------------------------------------
    CASH FLOWS FROM INVESTING
     ACTIVITIES
    Activity in available for
     sale and held for trading
     securities
      Purchases                 (130,684)    (64,711)   (666,817)   (328,266)
      Proceeds from sales        130,910      30,635     583,194     234,222
      Proceeds from maturities    11,914      26,215      25,175      59,167
    Activity in mortgages
      Net increase            (1,021,033)   (541,831) (2,463,867) (1,402,219)
      Proceeds from
       securitization of
       mortgage-backed
       securities                614,324     540,347   1,706,297     929,331
      Change in mortgage-backed
       securities receivable      10,842       7,331      40,522      19,649
    Net (increase) decrease in
     personal and credit card
     loans                         7,605      (1,706)     24,313     (39,367)
    Net decrease in secured loans  9,475       7,116      18,572       2,944
    Purchases of capital assets     (485)       (853)     (1,601)     (2,698)
    Purchases of intangible
     assets                       (6,747)          -     (19,530)          -
    Cash flows used in
     investing activities       (373,879)      2,543    (753,742)   (527,237)
    -------------------------------------------------------------------------
    Net increase (decrease) in
     cash and cash equivalents
     during the period          (266,227)    246,600    (408,463)     76,952
    Cash and cash equivalents at
     beginning of the period     412,186     184,688     554,422     354,336
    -------------------------------------------------------------------------
    Cash and cash equivalents
     at end of the period     $  145,959  $  431,288  $  145,959  $  431,288
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary Disclosure
     of Cash Flow Information
    Interest paid             $   62,165  $   58,624  $  163,561  $  143,159
    Income taxes paid             10,550      11,293      30,943      38,710
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 and 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 new guidance did
    not have a material effect on the Company's financial position or
    earnings.

    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.

    -------------------------------------------------------------------------
                                           September    December   September
                                                  30          31          30
    In Thousands of Dollars                     2009        2008        2008
    -------------------------------------------------------------------------
    Securities issued or guaranteed by:
      Canada                              $       (2) $    1,546  $      599
      Corporations                               109       2,345      (2,507)
    Equity securities
      Common                                     440      (2,106)     (1,584)
      Fixed rate preferred                     6,319     (29,918)     (9,446)
      Floating rate preferred                      -      (2,370)       (301)
    Income trusts                              1,536      (2,745)     (2,714)
    Mutual funds                                (129)       (367)        (80)
    -------------------------------------------------------------------------
                                          $    8,273  $  (33,615) $  (16,033)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The above unrealized gains and (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 September 30, 2009, the Company had $6.2 million of unrealized
    losses on available for sale securities which are other than temporary in
    nature, and have been transferred into net income. These unrealized
    losses are not included in the table above. The Company did not recognize
    any other than temporary unrealized losses in net income on available for
    sale securties during the third quarter of 2009.

    4.  LOANS

    (A) Loans by Geographic Region and Type

                                                    As at September 30, 2009
    -------------------------------------------------------------------------
                                                            Non-    Personal
                                         Residential residential  and Credit
    In Thousands of Dollars                Mortgages   Mortgages  Card Loans
    -------------------------------------------------------------------------
    British Columbia                      $  366,503  $    9,786  $   25,069
    Alberta                                  356,646      89,369      60,537
    Ontario                                3,026,518     571,304     249,516
    Quebec                                   149,198      28,967       1,686
    Maritimes                                 87,626      11,805       4,315
    Manitoba and Saskatchewan                105,985       8,607       1,416
    -------------------------------------------------------------------------
                                          $4,092,476  $  719,838  $  342,539
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                    As at September 30, 2009
    -------------------------------------------------------------------------
                                                                  Percentage
                                             Secured                      of
    In Thousands of Dollars                    Loans       Total   Portfolio
    -------------------------------------------------------------------------
    British Columbia                      $        7  $  401,365        7.7%
    Alberta                                    5,738     512,290        9.8%
    Ontario                                   45,971   3,893,309       74.8%
    Quebec                                         -     179,851        3.5%
    Maritimes                                  1,777     105,523        2.0%
    Manitoba and Saskatchewan                      -     116,008        2.2%
    -------------------------------------------------------------------------
                                          $   53,493  $5,208,346      100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                     As at December 31, 2008
    -------------------------------------------------------------------------
                                                            Non-    Personal
                                         Residential residential  and Credit
    In Thousands of Dollars                Mortgages   Mortgages  Card Loans
    -------------------------------------------------------------------------
    British Columbia                      $  333,668  $    8,998  $   31,118
    Alberta                                  398,939     115,336      78,157
    Ontario                                2,267,199     630,953     250,611
    Quebec                                   105,236      48,701       1,477
    Maritimes                                 90,167      12,408       6,002
    Manitoba and Saskatchewan                 67,997      10,486       1,597
    -------------------------------------------------------------------------
                                          $3,263,206  $  826,882  $  368,962
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                     As at December 31, 2008
    -------------------------------------------------------------------------
                                                                  Percentage
                                             Secured                      of
    In Thousands of Dollars                    Loans       Total   Portfolio
    -------------------------------------------------------------------------
    British Columbia                      $        9  $  373,793        8.2%
    Alberta                                    8,319     600,751       13.3%
    Ontario                                   61,929   3,210,692       70.9%
    Quebec                                         -     155,414        3.4%
    Maritimes                                  2,261     110,838        2.4%
    Manitoba and Saskatchewan                      -      80,080        1.8%
    -------------------------------------------------------------------------
                                          $   72,518  $4,531,568      100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                    As at September 30, 2008
    -------------------------------------------------------------------------
                                                            Non-    Personal
                                         Residential residential  and Credit
    In Thousands of Dollars                Mortgages   Mortgages  Card Loans
    -------------------------------------------------------------------------
    British Columbia                      $  337,498  $    9,604  $   30,909
    Alberta                                  413,988     114,952      80,052
    Ontario                                2,301,325     585,772     244,170
    Quebec                                    93,198      58,313       1,073
    Maritimes                                 94,203      11,974       6,423
    Manitoba and Saskatchewan                 66,985       8,996       1,634
    -------------------------------------------------------------------------
                                          $3,307,197  $  789,611  $  364,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                    As at September 30, 2008
    -------------------------------------------------------------------------
                                                                  Percentage
                                             Secured                      of
    In Thousands of Dollars                    Loans       Total   Portfolio
    -------------------------------------------------------------------------
    British Columbia                      $        8  $  378,019        8.3%
    Alberta                                    8,981     617,973       13.6%
    Ontario                                   67,488   3,198,755       70.5%
    Quebec                                         -     152,584        3.4%
    Maritimes                                  2,548     115,148        2.5%
    Manitoba and Saskatchewan                      -      77,615        1.7%
    -------------------------------------------------------------------------
                                          $   79,025  $4,540,094      100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 specifi cally 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 September 30, 2009
    -------------------------------------------------------------------------
                                    Non-    Personal
    In Thousands Residential residential  and Credit     Secured
     of Dollars    Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    1 - 30 days   $  104,254  $    3,977  $    3,689  $      662  $  112,582
    31 - 60 days      28,931         897       1,500         254      31,582
    61 - 90 days       7,985           -       2,062          58      10,105
    91 - 120 days     17,104           -         877           -      17,981
    -------------------------------------------------------------------------
                  $  158,274  $    4,874  $    8,128  $      974  $  172,250
    -------------------------------------------------------------------------


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

    (C) Impaired Loans and Specific Allowances for Credit Losses


                                                    As at September 30, 2009
    -------------------------------------------------------------------------
                                    Non-    Personal
    In Thousands Residential residential  and Credit     Secured
     of Dollars    Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    Gross amount
     of impaired
     loans        $   57,140  $    4,670  $    5,613  $    1,053  $   68,476
    Specific
     allowances       (2,783)       (418)     (1,332)       (437)     (4,970)
    -------------------------------------------------------------------------
                  $   54,357  $    4,252  $    4,281  $      616  $   63,506
    -------------------------------------------------------------------------


                                                     As at December 31, 2008
    -------------------------------------------------------------------------
                                    Non-    Personal
    In 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 September 30, 2008
    -------------------------------------------------------------------------
                                    Non-    Personal
    In Thousands Residential residential  and Credit     Secured
     of Dollars    Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    Gross amount
     of impaired
     loans        $   30,887  $      284  $    3,361  $      662  $   35,194
    Specific
     allowances       (1,950)         (5)       (349)        (67)     (2,371)
    -------------------------------------------------------------------------
                  $   28,937  $      279  $    3,012  $      595  $   32,823
    -------------------------------------------------------------------------

    (D) Allowance for Credit Losses


                              For the three months ended September 30, 2009
    -------------------------------------------------------------------------
                                    Non-    Personal
    In Thousands Residential residential  and Credit     Secured
     of Dollars    Mortgages   Mortgages  Card Loans       Loans       Total
    -------------------------------------------------------------------------
    Specific
     allowances
      Balance at the
       beginning
       of the
       period     $    2,139  $      475  $    1,328  $      397  $    4,339
      Provisions for
       credit losses   2,253         (57)        406         223       2,825
      Write-offs      (1,917)          -        (438)       (250)     (2,605)
      Recoveries         308           -          36          67         411
    -------------------------------------------------------------------------
                       2,783         418       1,332         437       4,970
    -------------------------------------------------------------------------

    General allowance
      Balance at the
       beginning of
       the period     17,817       4,516       3,526         624      26,483
      Provisions for
       credit losses     560        (360)        (80)        (83)         37
    -------------------------------------------------------------------------
                      18,377       4,156       3,446         541      26,520
    -------------------------------------------------------------------------
    Total
     allowance    $   21,160  $    4,574  $    4,778  $      978  $   31,490
    -------------------------------------------------------------------------


                               For the three months ended December 31, 2008
    -------------------------------------------------------------------------
                                    Non-    Personal
    In 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
    -------------------------------------------------------------------------


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

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


                                For the nine months ended September 30, 2009
    -------------------------------------------------------------------------
                                    Non-    Personal
    In 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   4,920         418       2,110         453       7,901
      Write-offs      (4,215)          -      (1,446)       (817)     (6,478)
      Recoveries         398           -         121         102         621
    -------------------------------------------------------------------------
                       2,783         418       1,332         437       4,970
    -------------------------------------------------------------------------

    General
     allowance
      Balance at the
       beginning of
       the period     16,136       4,580       3,700         761      25,177
      Provisions for
       credit losses   2,241        (424)       (254)       (220)      1,343
    -------------------------------------------------------------------------
                      18,377       4,156       3,446         541      26,520
    -------------------------------------------------------------------------
    Total
     allowance    $   21,160  $    4,574  $    4,778  $      978  $   31,490
    -------------------------------------------------------------------------


                                For the nine months ended September 30, 2008
    -------------------------------------------------------------------------
                                    Non-    Personal
    In 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          2,134           5         499         335       2,973
      Write-offs      (1,042)          -        (367)       (537)     (1,946)
      Recoveries         224           -          89          38         351
    -------------------------------------------------------------------------
                       1,950           5         349          67       2,371
    -------------------------------------------------------------------------

    General
     allowance
      Balance at the
       beginning of
       the period     17,127       2,216       3,201         856      23,400
      Provisions for
       credit losses    (433)      1,691         450         (31)      1,677
    -------------------------------------------------------------------------
                      16,694       3,907       3,651         825      25,077
    -------------------------------------------------------------------------
    Total
     allowance    $   18,644  $    3,912  $    4,000  $      892  $   27,448
    -------------------------------------------------------------------------

    (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
    September 30, 2009, the total appraised value of the collateral for
    mortgages past due that are not impaired, as determined when the
    mortgages were originated, was $346.2 million. For impaired mortgages,
    the total appraised value of collateral at September 30, 2009 was $103.5
    million.

    5.  LOAN SECURITIZATION

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

                                       For the three            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
    In Thousands of Dollars,
     Except Percentages and    September   September    September  September
     and Number of Years         30 2009     30 2008      30 2009    30 2008
    -------------------------------------------------------------------------
    Book value of mortgages
     securitized              $  620,586  $  544,745  $1,736,304  $  941,146
    Securitization receivable $   27,482  $   25,811  $  101,632  $   52,620
    Servicing liability       $    3,774  $    2,039  $   15,096  $    2,681
    Net proceeds received on
     securitized mortgages    $  614,324  $  540,347  $1,706,297  $  929,331
    Net gain on sale of
     mortgages(1)             $   12,131  $   15,710  $   59,240  $   32,395
    Prepayment rate                 8.2%        7.3%        7.6%        9.2%
    Excess spread                   1.4%        2.2%        1.9%        2.6%
    Weighted average life
     in years                        4.7         3.6         4.7         3.6
    Discount rate                   3.0%        3.7%        2.7%        3.7%
    -------------------------------------------------------------------------
    (1) The gain on sale of mortgages is net of hedging activities, see Table
        4 in the MD&A

    During the third quarter of 2009, the Company securitized insured
    residential mortgages through CMHC's Canada Mortgage Bond Program with a
    book value of $288.3 million for a total of $1.23 billion in 2009 ($433.0
    million in Q3 2008 and $639.9 million for the nine months ended September
    30, 2008). The gain on sale was $7.3 million during the third quarter and
    $45.2 million for the nine months ended September 30, 2009 ($13.5 million
    in Q3 2008 and $22.9 million for the nine months ended September 30,
    2008). These figures are included in the table above.

    6.  OTHER ASSETS

    -------------------------------------------------------------------------
                                      September 30  December 31 September 30
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Accrued interest receivable        $    25,546  $    27,861  $    26,903
    Income taxes receivable                  2,712       10,472       12,555
    Goodwill                                15,752       15,752       15,028
    Intangible assets(1)                    20,340        1,449          708
    Other prepaid assets and
     deferred items                         37,865       28,694       19,661
    -------------------------------------------------------------------------
                                       $   102,215  $    84,228  $    74,855
    -------------------------------------------------------------------------
    (1) Intangible assets are primarily comprised of deferred costs
        capitalized for the development of the Company's new core banking
        system. These costs will commence amortization in the first quarter
        of 2010.

    7.  OTHER LIABILITIES

    -------------------------------------------------------------------------
                                      September 30  December 31 September 30
    In Thousands of Dollars                   2009         2008         2008
    -------------------------------------------------------------------------
    Accrued interest payable            $  148,117   $  159,615   $  159,184
    Dividends payable                        5,512        4,476        4,482
    Future income tax liability
     (note 11)                              57,329       36,974       30,391
    Securitization servicing liability      23,512       10,288        4,262
    Payable to MBS and CMB holders          96,912       42,013       43,872
    Other, including accounts payable
     and accrued liabilities                24,254       16,002       15,888
    -------------------------------------------------------------------------
                                        $  355,636    $  269,368  $  258,079
    -------------------------------------------------------------------------

    8.  CAPITAL

    (A) Common Shares Issued and Outstanding

                                                  For the three months ended
    -------------------------------------------------------------------------
                                  September 30, 2009      September 30, 2008
    -------------------------------------------------------------------------
                               Number of      Amount   Number of      Amount
    In Thousands                  Shares                  Shares
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                    34,398  $   39,757      34,542  $   39,217
    Options exercised                 70       2,152           -           -
    Normal course issuer bid         (18)        (21)        (66)        (75)
    -------------------------------------------------------------------------
    Outstanding at end of
     period                       34,450  $   41,888      34,476  $   39,142
    -------------------------------------------------------------------------


                                                   For the nine months ended
    -------------------------------------------------------------------------
                                  September 30, 2009      September 30, 2008
    -------------------------------------------------------------------------
                               Number of      Amount   Number of      Amount
    In Thousands                  Shares                  Shares
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                    34,434  $   39,094      34,532  $   38,899
    Options exercised                133       2,926          10         318
    Normal course issuer bid        (117)       (132)        (66)        (75)
    -------------------------------------------------------------------------
    Outstanding at end of
     period                       34,450  $   41,888      34,476  $   39,142
    -------------------------------------------------------------------------

    The purchase price of shares acquired through the Normal Course Issuer
    Bid is allocated between capital stock and retained earnings.

    (B) Share Purchase Options

                                                  For the three months ended
    -------------------------------------------------------------------------
                                  September 30, 2009      September 30, 2008
    -------------------------------------------------------------------------
                               Number of   Weighted-   Number of   Weighted-
                                  Shares     average      Shares     average
    In Thousands                            Exercise                Exercise
    Except Per Share Amounts                   Price                   Price
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                     1,374  $    25.47       1,227  $    26.73
      Granted                         10       35.56           -           -
      Exercised                      (70)      24.82           -           -
      Forfeited                      (42)      29.28           -           -
    -------------------------------------------------------------------------
    Outstanding at end of
     period                        1,272  $    25.49       1,227  $    26.73
    -------------------------------------------------------------------------
    Exercisable, end of period       756  $    24.19         541  $    15.60
    -------------------------------------------------------------------------


                                                   For the nine months ended
    -------------------------------------------------------------------------
                                  September 30, 2009      September 30, 2008
    -------------------------------------------------------------------------
                               Number of   Weighted-   Number of   Weighted-
                                  Shares     average      Shares     average
    In Thousands                            Exercise                Exercise
    Except Per Share Amounts                   Price                   Price
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                    1,407   $    25.08       1,294  $    27.15
      Granted                       110        24.52           -           -
      Exercised                    (133)       18.09         (10)      28.12
      Forfeited                    (112)       28.04         (57)      35.92
    -------------------------------------------------------------------------
    Outstanding at end of
     period                       1,272   $    25.49       1,227  $    26.73
    -------------------------------------------------------------------------
    Exercisable, end of period      756   $    24.19         541  $    15.60
    -------------------------------------------------------------------------

    (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).

    -------------------------------------------------------------------------
    In Thousands of
    Dollars, Except                        September    December   September
    Ratios and Multiple                      30 2009     31 2008     30 2008
    -------------------------------------------------------------------------
    Regulatory capital
      Tier 1                              $  496,388  $  384,025  $  375,688
      Total                               $  544,801     424,202     415,765
    Regulatory ratios
      Tier 1                                   16.6%       12.9%       12.7%
      Total                                    18.2%       14.2%       14.0%
      Assets to capital multiple                11.5        13.7        13.5
    -------------------------------------------------------------------------

    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

    (A) Common Shares Issued and Outstanding

    During the third quarter of 2009, $422,000 was recorded as an expense for
    a year-to-date total of $1,194,000 ($379,000 - Q3 2008 and $1,143,000 -
    nine months of 2008) for stock option awards in the consolidated
    statements of income, with an offsetting credit to contributed surplus.
    During the third quarter of 2009, 10,000 options were granted for a year-
    to-date total of 110,000. There were no new options granted for the third
    quarter or first nine months of 2008.

    (B) Deferred Share Unit Plan

    Effective January 1, 2009 the Board of Directors approved a deferred
    share unit plan (DSU). The plan is open to Directors of the Company who
    elect to accept renumeration in the form of cash, cash and DSUs or DSUs.
    At September 30, 2009 there were 5,128 deferred share units issued with
    the associated liability of $0.17 million recorded in other liabilities
    on the consolidated balance sheet.

    10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

    -------------------------------------------------------------------------
                                           September    December   September
    In Thousands of Dollars                  30 2009     31 2008     30 2008
    -------------------------------------------------------------------------
    Unrealized gains and (losses) on
      Available for sale securities       $    8,273  $  (33,615) $  (16,033)
      Income taxes recovery (expenses)        (1,312)     10,473       4,454
    -------------------------------------------------------------------------
                                               6,961     (23,142)    (11,579)
    -------------------------------------------------------------------------

    Unrealized gains and (losses) on
      Securitization receivables              15,796      18,080      12,239
      Income taxes recovery (expenses)        (5,163)     (5,991)     (4,055)
    -------------------------------------------------------------------------
                                              10,633      12,089       8,184
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     income (loss)                        $   17,594  $  (11,053) $   (3,395)
    -------------------------------------------------------------------------

    11. INCOME TAXES

    (A) Reconciliation of income taxes

                                       For the three            For the nine
                                        months ended            months ended
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars      30 2009     30 2008     30 2009     30 2008
    -------------------------------------------------------------------------
    Income before income
     taxes                    $   52,007  $   40,988  $  147,746  $  116,198
    -------------------------------------------------------------------------
    Income taxes at statutory
     combined federal and
     provincial income tax
     rates                        17,112      13,561      48,307      38,505
    Increase (decrease) in
     income taxes at
     statutory income tax
     rates resulting from
      Tax-exempt income           (1,560)       (714)     (3,451)     (2,070)
      Non-deductible expenses       (781)        152       1,811         784
      Future tax rate changes     (1,832)       (479)     (3,964)       (876)
      Other                          825         529       1,031         207
    -------------------------------------------------------------------------
    Income tax                $   13,764  $   13,049  $   43,734  $   36,550
    -------------------------------------------------------------------------

    (B) Sources of Future Income Tax Balances

    -------------------------------------------------------------------------
                                           September    December   September
    In Thousands of Dollars                  30 2009     31 2008     30 2008
    -------------------------------------------------------------------------
    Future income tax
     liabilities
      Deferred agent commissions and
       other charges                      $   15,398  $    7,761  $    7,864
      Mortgage-backed securities
       receivable                             53,166      40,828      34,654
    -------------------------------------------------------------------------
                                              68,564      48,589      42,518
    -------------------------------------------------------------------------
    Future income tax assets
      Allowance for credit losses              2,668       7,776       7,593
      Future tax recoverable acquired              -           -         530
      Deferred commitment fees and other
       charges                                 8,567       3,839       4,004
    -------------------------------------------------------------------------
                                              11,235      11,615      12,127
    -------------------------------------------------------------------------
                                          $   57,329  $   36,974  $   30,391
    -------------------------------------------------------------------------

    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 bond 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 bond 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). During
    the quarter, the Company unwound $489.7 million in bond forward contracts
    realizing a loss of $3.9 million. This is included in securitization
    income.

    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.

    As at September 30, 2009 and 2008, the outstanding seller and hedge swap
    contract (swaps) and bond forward contract (bonds) positions were as
    follows:

    -------------------------------------------------------------------------
    In Thousands of Dollars       September 30, 2009       December 31, 2008
    -------------------------------------------------------------------------
                                Notional                Notional
    Term (years)                  Amount  Fair Value      Amount  Fair Value
    -------------------------------------------------------------------------
    Swaps
    1 to 5                    $2,299,270  $   (1,375) $  360,654  $    1,380
    6 to 10                      234,082       4,151      68,814        (947)
    -------------------------------------------------------------------------
                              $2,533,352  $    2,776  $  429,468  $      433
    -------------------------------------------------------------------------

    Bonds
    1 to 5                    $  192,700  $     (310) $   34,300  $     (636)
    6 to 10                      326,700      (1,360)          -           -
    -------------------------------------------------------------------------
                              $  519,400  $   (1,670) $   34,300  $     (636)
    -------------------------------------------------------------------------


    -------------------------------------------------
                                  September 30, 2008
    -------------------------------------------------
                                Notional
     Term (years)                 Amount  Fair Value
    -------------------------------------------------
     Swaps
     1 to 5                   $  785,248  $    1,058
     6 to 10                           -           -
    -------------------------------------------------
                              $  785,248  $    1,058
    -------------------------------------------------

     Bonds
     1 to 5                   $   40,000  $      115
     6 to 10                           -           -
    -------------------------------------------------
                              $   40,000  $      115
    -------------------------------------------------

    The fair value of the swap and bond contracts are included in other
    assets or other liabilities with changes in fair value included in gain
    or loss on derivatives in the consolidated statement of income.

    13. INTEREST RATE SENSITIVITY

    The Company's exposure to interest rate risk results from the difference,
    or gap between the maturity or repricing dates of interest sensitive
    assets and liabilities, including off-balance sheet items. The following
    table shows the gap positions at September 30, 2009, December 31, 2008
    and September 30, 2008 for selected period intervals. Figures in brackets
    represent an excess of liabilities over assets or a negative gap
    position.

                                                    As at September 30, 2009
    -------------------------------------------------------------------------
    In Thousands of Dollars,    Floating      0 to 3    3 Months      1 to 3
    Except Percentages              Rate      Months   to 1 Year       Years
    -------------------------------------------------------------------------
    Total assets              $   47,364  $  929,196  $1,540,687  $1,717,352
    Total liabilities and
     equity                            6     945,948   1,982,433   1,854,920
    Off-balance sheet items            -    (276,587)     77,508     198,934
    -------------------------------------------------------------------------
    Interest rate sensitive
     gap                      $  47,358   $ (293,339) $ (364,238) $   61,366
    -------------------------------------------------------------------------
    Cumulative gap            $  47,358   $ (245,981) $ (610,219) $ (548,853)
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                        0.8%        (3.9%)      (9.7%)      (8.7%)
    -------------------------------------------------------------------------


                                        As at September 30, 2009
    -------------------------------------------------------------
                                                Non-
    In Thousands of Dollars,        Over    interest
    Except Percentages           3 Years   Sensitive       Total
    -------------------------------------------------------------
    Total assets              $1,671,016  $  378,977  $6,284,592
    Total liabilities and
     equity                      561,835     939,450   6,284,592
    Off-balance sheet items          145           -           -
    -------------------------------------------------------------
    Interest rate sensitive
     gap                      $1,109,326  $ (560,473) $        -
    -------------------------------------------------------------
    Cumulative gap               560,473  $        -  $        -
    -------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                         8.9%           -           -
    -------------------------------------------------------------



                                                     As at December 31, 2008
    -------------------------------------------------------------------------
    In Thousands of Dollars,    Floating      0 to 3    3 Months      1 to 3
    Except 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
    -------------------------------------------------------------
                                                Non-
    In Thousands of Dollars,        Over    interest
    Except Percentages           3 Years   Sensitive       Total
    -------------------------------------------------------------
    Total assets              $  965,500  $  264,296  $5,809,713
    Total liabilities and
     equity                      451,102     756,258   5,809,713
    Off-balance sheet items           46           -           -
    -------------------------------------------------------------
    Interest rate sensitive
     gap                      $  514,444  $ (491,962) $        -
    -------------------------------------------------------------
    Cumulative gap            $  491,962  $        -  $        -
    -------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                         8.5%           -           -
    -------------------------------------------------------------



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


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

    Based on the current interest rate gap position at September 30, 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 $5.5 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
    -------------------------------------------------------------------------
                                 Mortgage Lending        Consumer Lending
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars      30 2009     30 2008     30 2009     30 2008
    -------------------------------------------------------------------------
    Net interest income       $   26,839  $   23,988  $    9,599  $    7,220
    Provision for credit
     losses                       (2,536)     (3,091)       (326)       (329)
    Fees and other income          4,970       3,850       2,813       3,085
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                   25,083      18,504           -           -
    Non-interest expenses        (13,394)    (11,066)     (2,823)     (2,151)
    -------------------------------------------------------------------------
    Income before income
     taxes                        40,962      32,185       9,263       7,825
    Income taxes                 (11,560)    (10,148)     (3,100)     (2,680)
    -------------------------------------------------------------------------
    Net income                $   29,402  $   22,037  $    6,163  $    5,145
    -------------------------------------------------------------------------
    Goodwill                  $    2,324  $    2,324  $   13,428  $   12,704
    -------------------------------------------------------------------------
    Total assets              $5,252,272  $4,520,667  $  384,805  $  401,599
    -------------------------------------------------------------------------


                                                  For the three months ended
    -------------------------------------------------------------------------
                                       Other                   Total
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars         2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net interest income       $    6,516  $    7,140  $   42,954  $   38,348
    Provision for credit
     losses                            -           -      (2,862)     (3,420)
    Fees and other income           (423)         98       7,360       7,033
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                    1,146      (2,524)     26,229`     15,980
    Non-interest expenses         (5,457)     (3,736)    (21,674)    (16,953)
    -------------------------------------------------------------------------
    Income before income
     taxes                         1,782         978      52,007      40,988
    Income taxes                     896        (221)    (13,764)    (13,049)
    -------------------------------------------------------------------------
    Net income                $    2,678  $      757  $   38,243  $   27,939
    -------------------------------------------------------------------------
    Goodwill                  $        -  $        -  $   15,752  $   15,028
    -------------------------------------------------------------------------
    Total assets              $  647,515  $  699,543  $6,284,592  $5,621,809
    -------------------------------------------------------------------------



                                                   For the nine months ended
    -------------------------------------------------------------------------
                                 Mortgage Lending        Consumer Lending
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars      30 2009     30 2008     30 2009     30 2008
    -------------------------------------------------------------------------
    Net interest income       $   71,965  $   70,572  $   27,665  $   19,448
    Provision for credit
     losses                       (7,388)     (3,701)     (1,856)       (949)
    Fees and other income         14,172      11,264       7,967       9,765
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                   71,388      37,822           -           -
    Non-interest expenses        (36,571)    (30,383)     (8,534)     (6,594)
    -------------------------------------------------------------------------
    Income before income
     taxes                       113,566      85,574      25,242      21,670
    Income taxes                 (34,129)    (27,452)     (8,465)     (7,401)
    -------------------------------------------------------------------------
    Net income                $   79,437  $   58,122  $   16,777  $   14,269
    -------------------------------------------------------------------------
    Goodwill                  $    2,324  $    2,324  $   13,428  $   12,704
    -------------------------------------------------------------------------
    Total assets              $5,252,272  $4,520,667  $  384,805  $  401,599
    -------------------------------------------------------------------------


                                                   For the nine months ended
    -------------------------------------------------------------------------
                                       Other                   Total
    -------------------------------------------------------------------------
                               September   September   September   September
    In Thousands of Dollars         2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net interest income       $   20,045  $   25,318  $  119,675  $  115,338
    Provision for credit
     losses                            -           -      (9,244)     (4,650)
    Fees and other income              5         319      22,144      21,348
    Net gain on securities,
     mortgage-backed
     securities and
     disposition of
     subsidiary                    2,528      (4,501)     73,916      33,321
    Non-interest expenses        (13,640)    (12,182)    (58,745)    (49,159)
    -------------------------------------------------------------------------
    Income before income
     taxes                         8,938       8,954     147,746     116,198
    Income taxes                  (1,140)     (1,697)    (43,734)    (36,550)
    -------------------------------------------------------------------------
    Net income                $    7,798  $    7,257  $  104,012  $   79,648
    -------------------------------------------------------------------------
    Goodwill                  $        -  $        -  $   15,752  $   15,028
    -------------------------------------------------------------------------
    Total assets              $  647,515  $  699,543  $6,284,592  $5,621,809
    -------------------------------------------------------------------------

    15. FUTURE ACCOUNTING CHANGES

    Financial Instruments

    In August 2009, the CICA issued various amendments to Section 3855,
    Finanical Instruments - Recognition and Measurement. The Company will
    adopt the amendments, which are retroactive in its December 31, 2008
    annual financial statements. The Company does not expect the changes to
    have a material impact on the financial position or earnings of the
    Company. Please see page 21 of the MDA for more information on the
    amendments.

    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 Company is
    currently in phase two of the project which includes a detailed analysis
    and evaluation of the impact of the relevant standards expected to impact
    the Company's consolidated financial statements. The Company expects to
    be able to quantify the preliminary impact on the January 1, 2010 opening
    retained earnings in its 2010 first quarter report to shareholders.

    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.

    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.
    

SOURCE Home Capital Group Inc.

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


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