The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

Home Capital Reports Solid Results for the Third Quarter: Basic Earnings per Share of $1.40; Return on Equity of 27.0%; Third Quarter Adjusted Net Income Increases 23.7% over 2010 Adjusted Net Income

Wednesday, November 02, 2011

Home Capital Reports Solid Results for the Third Quarter: Basic Earnings per Share of $1.40; Return on Equity of 27.0%; Third Quarter Adjusted Net Income Increases 23.7% over 2010 Adjusted Net Income17:00 EDT Wednesday, November 02, 2011TORONTO, Nov. 2, 2011 /CNW/ - Home Capital today reported another quarter of strong performance for the three months ended September 30, 2011. The Company implemented International Financial Reporting Standards (IFRS) as of January 1, 2011 and prior period results have been restated to an IFRS basis. Key results for the third quarter of 2011 included:Net income was $48.4 million in the third quarter and $139.7 million for the nine months ended September 30, 2011.  On an adjusted basis, net income was $48.4 million for the quarter and $142.2 million year to date, representing increases of 23.7% for the quarter and 25.4% year to date over adjusted net income of $39.1 million and $113.4 million in the comparable periods 2010.  These results continue to exceed the Company's 2011 objective of 15-20% growth in adjusted net income. Net income increased by $0.2 million compared to the second quarter of 2011. Results for the third quarter were negatively impacted by $4.1 million in unrealized losses on derivatives due to the volatile interest rate environment in the quarter. Core pretax earnings of $95.0 million (net interest income after provision plus fee and other income) was up 7.0% over the second quarter core earnings of $88.8 million.Adjusted basic and diluted earnings per share were $1.40 and $1.39 for the third quarter and $4.10 and $4.09 year to date.  This represents an increase of 23.9% and 23.0%, respectively, from $1.13 adjusted basic and diluted earnings per share in the third quarter of 2010 and an increase of 25.4% and 25.5%, respectively, over the $3.27 and $3.26 adjusted basic and diluted earnings per share for nine months ended September 30, 2010.Net interest income rose to $87.6 million in the third quarter and to $245.5 million year to date. This represents an increase of 28.6% over the $68.1 million recorded in the third quarter of 2010 and 28.2% over the $191.6 million recorded for the nine months ended September 30, 2010. The growth reflects strong loan growth year over year. Net interest income increased 7.7%, from $81.3 million in the second quarter of 2011 on higher average loan balances and improved net interest margin.Net interest margin was 2.14% in the third quarter up from 2.00% in the third quarter of 2010 and 2.06% recorded in the second quarter of 2011. Net interest margin on non-securitized assets improved to 3.11% compared to 2.67% the third quarter of 2010 and 3.04% in the second quarter of 2011. Net interest margin on securitized assets of 1.33% also increased from 1.27% recorded in the third quarter of 2010 and 1.27% in the second quarter of 2011.Return on equity at 27.0% remained robust in the quarter and continues well in excess of the Company's minimum performance objective of 20%.The credit quality of the loans portfolio remained solid in the quarter. Net non-performing loans ended the quarter at 0.32% of the total loans portfolio at September 30, 2011 compared to 0.26% at September 30, 2010 and 0.23% at June 30, 2011. While this measure is up over comparable periods it is still within the Company's expected and acceptable ranges. The provision for credit losses in the quarter was 0.06% of gross loans on an annualized basis compared to 0.07% in the third quarter of 2010 and 0.03% in the second quarter of 2011 and within the Company's objective of 0.05% to 0.15% of gross loans.Home Trust's Tier 1 and Total capital ratios remains very strong at 17.7% and 21.0%, respectively, at September 30, 2011 and well above the Company's minimum targets.  Home Trust's asset to capital multiple was 14.0 at September 30, 2011 compared to 13.5 at June 30, 2011, putting the Company in a comfortable position to continue growing its assets, revenue and net income.Total assets, which include securitized mortgages, were $17.07 billion at September 30, 2011, an increase of $1.55 billion or 10.0% from the $15.52 billion at December 31, 2010 and $637.5 million or 3.9% over the $16.43 billion at the end of the second quarter. This represents an annualized growth rate in total assets of 13.3%. Total loans grew to $15.78 billion from $14.09 billion at December 31, 2010, and from $15.32 billion at the end of the second quarter representing an annualized growth rate of 16.0%. Total assets and loan growth remain within the Company's 2011 growth objective of 13-18% for 2011.The total value of mortgages originated in the third quarter of 2011 was $1.30 billion, for a year to date total of $3.87 billion. This is up 8.6% over the $1.20 billion originated in the second quarter of 2011 and a decline from the $1.68 billion and $5.02 billion in originations in the comparable periods of 2010. This reflects the Company's strategy to reduce originations of insured mortgage products, which are generally securitized, and increase focus on originations of higher yielding traditional mortgages.The Company originated $941.1 million of traditional mortgages in the third quarter and $2.57 billion year to date compared to $728.6 million and $2.17 billion in the comparative periods of 2010 and $870.8 million in the second quarter of 2011.Accelerator (insured) mortgage originations were $293.5 million in the third quarter of 2011 and $915.1 million year to date compared to $716.9 million and $2.08 billion in the comparable periods of 2010 and $172.4 million in the second quarter of 2011.  The regulatory and accounting treatment of insured securitized mortgages upon adoption of IFRS has introduced new capital constraints and effectively increased the cost of capital allocated to Accelerator mortgages. Consequently, the Company scaled back lending in this segment in favour of higher margin products within the Company's risk appetite. The Company continues to explore opportunities that may ultimately lead to future growth in this product segment.Multi-unit residential originations were $7.0 million for the third quarter of 2011 and $130.5 million year to date compared to $133.9 million and $481.4 million in the same periods of 2010 and $34.5 million in the second quarter of 2011. A significant portion of multi-unit residential mortgages originated in 2010 were insured and securitized and the reduction in origination volume is a result of narrowing margins and the cost of increased capital required to support this product.Non-residential mortgage advances were $32.4 million in the third quarter of 2011 and $140.7 million year to date compared to $40.6 million and $146.9 million in the comparable periods of 2010 and $59.6 million in the second quarter of 2011. Store and apartment advances were $26.8 million for the quarter and $87.4 million for the year to date, compared to $23.5 million and $75.1 million in the same periods of 2010 and $35.5 million in the second quarter of 2011.As a source of funding, the Company securitized and sold $396.8 million in insured residential mortgages compared to $1.13 billion in the third quarter of 2010 and $335.8 million in the second quarter of 2011.The Company opened 1,758 new Equityline Visa accounts in the third quarter compared to 1,796 accounts opened in the third quarter of 2010.As discussed in the second quarter report, in early July 2011 Home Trust successfully went live with a new software platform from the SAP® for Banking solution portfolio. The Company is pleased with the additional functionality, expanded capacity and improved efficiencies the new platform provides. Along with the implementation of the new platform, the Company launched a centralized operations group and an organizational effectiveness initiative with the mandate to drive improved operational discipline and cost management. Management is confident that with the new energy and focus on operational and transactional excellence, the Company will reduce or maintain costs through the next growth phase.During the quarter, the Company continued to strengthen its control functions to support future growth and strategic priorities. Additional resources, expanded expertise, enhanced training and innovative tools have been introduced in risk management, internal audit and compliance. The Company intends to continue the process of sharpening and enhancing the Company's control environment, control functions and corporate governance while maintaining the Company's prudent risk appetite and disciplined risk management. These enhancements are important components in supporting the Company's strategic priorities and are key contributors to continued above average shareholder returns, strong financial position and growth.As discussed in previous quarterly reports, the Company successfully implemented the new Canadian GAAP accounting framework, IFRS, on January 1, 2011, with a transition date of January 1, 2010.  Transition as at January 1, 2010 required restatement of the Company's 2010 financial information from its original Canadian GAAP basis to the IFRS basis.  This allows for inclusion of comparative information in the 2011 financial statements and management discussion and analysis. The primary impact of IFRS for the Company was a change in the accounting for securitization transactions. The Company now records securitized mortgages as on-balance sheet mortgages along with secured borrowing, representing the funding received from the transaction. Interest income on the mortgages and interest expense on the liabilities is recognized over the passage of time. On January 1, 2010, the IFRS adjustment reduced the Company's shareholders' equity by $86.7 million, representing the difference between prior periods' net income under the previous Canadian GAAP compared to IFRS. Net income for 2010 on an IFRS basis was $154.8 million compared to $180.9 million under the previous Canadian GAAP. These adjustments are more fully explained on pages 26 to 29 of this MD&A.Despite the global economic uncertainty, the Company continues to observe resilient and stable real estate markets across the country and expects demand to remain steady for the rest of 2011 and into 2012. The credit quality of the loan portfolio remains strong, reflecting the Company's continued focus on diligent underwriting and collection standards. The Company maintains a solid capital position and prudent liquidity and is confident that it is well positioned to deal with the impact of global economic uncertainty that may affect the Canadian economy. While the stabilization of Canadian housing markets allowed for renewed focus on the Company's traditional mortgage portfolio, Equityline Visa and geographic growth strategies, the Company remains proactive and prudent in its lending practices, taking into account local economic and market conditions.Subsequent to the end of the quarter, and in light of the Company's solid performance, profitability and strong financial position, the Board of Directors declared a quarterly dividend of $0.20 per Common share, payable on December 1, 2011 to shareholders of record at the close of business on November 15, 2011.With solid performance in all aspects of Home Capital's business, management is confident that the Company will generate above average earnings and shareholder performance for the remainder of 2011 and into 2012, and will meet or exceed all of its stated objectives for 2011.(signed)      (signed)GERALD M. SOLOWAY Chief Executive Officer   November 2, 2011  KEVIN P.D. SMITH Chairman of the Board                                                                                        Additional information concerning the Company's targets and related expectations for 2011, including the risks and assumptions underlying these expectations, may be found in Management's Discussion and Analysis (MD&A) of this quarterly report.Third Quarter Results Conference CallThe conference call will take place on Thursday, November 3, 2011, at 10:30 a.m. Participants are asked to call 5 to 15 minutes in advance, 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at www.homecapital.com.Conference Call ArchiveA telephone replay of the call will be available between 1:30 p.m. Thursday, November 3, 2011 and midnight Thursday, November 10, 2011 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 16331367). The archived audio webcast 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(Unaudited)        (000s, except Per Share and Percentage Amounts) For the three months ended For the nine months endedFor the period ended September 30 2011  2010 1  2011  2010 1 OPERATING RESULTS        Net Income$48,417 $47,621 $139,747 $124,643 Adjusted Net Income2  48,417  39,138  142,172  113,377 Total Revenue 200,288  187,195  583,469  511,205 Earnings per Share Basic/Diluted$1.40/1.39$1.37/1.37$4.03/4.02$3.59/3.58Adjusted Earnings per Share Basic/Diluted2  1.40/1.39 1.13/1.13 4.10/4.09 3.27/3.26Return on Shareholders' Equity3  27.0% 32.8% 27.4% 30.0%Return on Average Assets3  1.2% 1.4% 1.1% 1.3%Net Interest Margin 2.14% 2.00% 2.06% 2.04%Net Interest Margin Non-Securitized Assets (TEB)4  3.11% 2.67% 3.04% 2.71%Net Interest Margin Securitized Assets 1.33% 1.27% 1.26% 1.22%Provision as a Percentage of Gross Loans (annualized) 0.06% 0.07% 0.04% 0.04%Efficiency Ratio (TEB)4  27.4% 26.3% 28.2% 27.6%As atSeptember 30December 31September 30   2011 20102010   BALANCE SHEET HIGHLIGHTS        Total Assets$17,072,125$15,518,818$14,194,460  Total Loans 15,782,646 14,091,755 12,815,997  Securitized Loans 8,502,466 8,116,636 6,574,568  Liquid Assets 577,834 951,271 1,152,812  Deposits 7,220,517 6,595,979 6,787,530  Shareholders' Equity 731,216 628,585 604,749  FINANCIAL STRENGTH        Capital Measures5         Risk-Weighted Assets$4,269,175$3,777,267$3,793,878  Tier 1 Capital Ratio 17.7% 18.1% 16.9%  Total Capital Ratio 21.0% 19.4% 18.1%  Credit Quality        Non-Performing Loans as a Percentage of Gross Loans 0.32% 0.24% 0.26%  Allowance as a Percentage of Gross Non-Performing Loans 62.6% 88.1% 87.6%  Share Information        Book Value per Common Share$21.10$18.14$17.44  Common Share Price - Close$43.60$51.79$44.49  Market Capitalization$1,510,696$1,794,316$1,542,869  Number of Common Shares Outstanding 34,649 34,646 34,679  1 2010 figures have been restated to an IFRS basis; please see information under IFRS section of this unaudited interimconsolidated financial report.2 See definition of Adjusted Net Income under Non-GAAP Measures on page 6 and reconciliation on page 10 of this unauditedinterim consolidated financial report.3 These key performance indicators have not been recalculated on an adjusted net income basis.4 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures of this unaudited interim consolidatedfinancial report.5 These figures relate to the Company's operating subsidiary, Home Trust Company. 2010 has not been recalculated on an IFRS basis.MANAGEMENT'S DISCUSSION AND ANALYSISCaution Regarding Forward-Looking StatementsFrom 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 37 through 48 of the Company's 2010 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 Report 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 the Company 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 2011 and its effect on Home Capital's business are material factors the Company considers when setting its objectives and outlook.  In determining expectations for economic growth, both broadly and in the financial services sector, the Company primarily considers historical economic data provided by the Canadian government and its agencies.  In setting and reviewing the outlook and objectives for 2011, management's expectations assume:The Canadian economy will produce modest growth in 2011, but will be heavily influenced by the economic conditions in the US and international markets.  Inflation will generally be within the Bank of Canada's target of 1-3%.Interest rates will remain at current rates for the remainder of 2011 as the Bank of Canada leaves its target for the overnight rate at its current level.The housing market will remain resilient to global uncertainty with balanced supply and demand conditions in most regions.  Declining housing starts and flat resale activity on stable prices will continue with the market stabilizing from previous activity levels.Unemployment will improve slightly or remain stable as the economy grows, while a larger labour force marginally offsets job growth. Consumer debt levels will remain serviceable by Canadian households.Net interest margins overall are expected to remain in the current range.  Margins are expected to remain stable or modestly improve on the traditional portfolio and securitized portfolio throughout 2011 and yields on the securities portfolio may improve.Credit quality will remain sound with actual losses within Home Capital's historical range of acceptable levels.Non-GAAP MeasuresThe Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publically accountable enterprises for years beginning on or after January 1, 2011. The Company uses a number of financial measures to assess its performance.  Some of these measures are not calculated in accordance with 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:Adjusted Net Income and Adjusted Earnings Per ShareGains (losses), net of tax, that are associated with unmatched derivative volatility in 2010 and the loss recorded early in the first quarter of 2011 as the Company realigned its hedging strategy, are adjusted against net income to present adjusted net income.Pre-tax Core EarningsPre-tax core earnings is a profitability measure that presents core earnings from lending operations. The Company calculates this measure as net interest income after provision for credit losses plus fees and other income.Return on Shareholders' EquityReturn on equity is a profitability measure that presents the annualized 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 AssetsReturn on assets is a profitability measure that presents the annualized net income as a percentage of the average total assets for the period deployed to earn the income.Efficiency or Productivity RatioManagement uses the efficiency ratio as a measure of the Company's efficiency.  This ratio represents non-interest expenses as a percentage of total revenue, net of interest expense. The Company also looks at the same ratio on a taxable equivalent basis and will include this adjustment in arriving at the efficiency ratio, on a taxable equivalent basis.  A lower ratio indicates better efficiency.Net Interest MarginNet interest margin is calculated by taking net interest income, on a taxable equivalent basis, divided by average total assets.Tier 1 and Total Capital RatiosThe 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 9(C) of the Unaudited Interim Consolidated Financial Statements.Taxable Equivalent Basis (TEB)Most banks and trust companies analyze and discuss 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 used in this MD&A increases income and the provision for income taxes to what they would have been had the income from tax-exempt securities been taxed at the statutory tax rate. The TEB adjustments of $1.9 million for the third quarter of 2011 ($2.0 million in the third quarter of 2010) increased interest income as used in the calculation of net interest margin. TEB does not have a standard meaning prescribed by 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 FilingsThe 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 PerformanceThis MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended September 30, 2011 included herein, and the audited consolidated financial statements and MD&A for the year ended December 31, 2010. These are available on the Canadian Securities Administrators' website at www.sedar.com and on pages 61 through 88 of the Company's 2010 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 2010 remain substantially unchanged. These unaudited interim consolidated financial statements and MD&A have been prepared based on information available as at November 2, 2011. 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.BUSINESS PROFILEBusiness Segments and PortfoliosThe Company divides its business into three segments. These segments and the related activities and portfolios are described below.Mortgage Lending This segment comprises single family residential lending and multi-unit residential lending as well as non-residential lending. The single-family residential portfolio includes the Company's traditional or "Classic" mortgage loans and Accelerator mortgages.  The Company's traditional mortgage portfolio consists of mortgages with loan to value ratios of 80% or less, where the focus is on serving selected segments of the Canadian financial services marketplace that are not the focus of the major financial institutions. Accelerator mortgages are insured, with loan to value ratios generally exceeding 80%, at the time of origination, and are generally securitized and sold through Canada Mortgage Housing Corporation (CMHC) sponsored mortgage-backed securities (MBS) and Canada Mortgage Bond (CMB) programs.Multi-unit residential lending includes both insured and uninsured mortgage loans. Non-residential lending includes store and apartment mortgages, commercial mortgages and warehouse commercial mortgages.Consumer LendingConsumer lending includes Visa lending and other consumer retail lending for durable household goods, such as water heaters and larger ticket home improvement items. Consumer retail lending loans are supported by holdbacks or guarantees from the distributors of such items and/or collateral charges on real property. The Company's Equityline Visa product, secured by real property, represents 97.4% of the Visa portfolio. The Company also offers cash secured Visa products. The consumer lending segment also includes the operations of PSiGate which offers payment card services.Other The Company's other segment includes management of the Company's treasury portfolio and general corporate activities.Mission, Vision and ValuesThe Company's mission is to focus on well-defined niches in the Canadian financial marketplace that generate above average returns, have below average risk profiles, and are not adequately served by traditional financial institutions.Home Capital's vision is to be a "Best in Class" financial services company, delivering first class products and services to Canadians with a strong emphasis on customer service.The Company has a set of values that are integral to its day-to-day business. These values are the cornerstone of Home Capital's vision and play a key role in the Company achieving both its strategic and financial performance goals:Consistently enhance shareholder value by adhering to our strategies and principles with a focus on customer serviceAct with respect, trust and integrity in all interactions with our customers, employees and business partnersPersonal responsibility to deliver the highest level of customer service to our clients, supported by our enthusiasm, teamwork and desire for continuous improvementMake a positive difference to our community and environment through fundraising, community involvement and sustainable environmental initiativesThe Company's key long-term objective is to deliver superior shareholder value. Over the past decade, the Company has sought to achieve a return on common equity of at least 20%, and has exceeded this benchmark in each of the past 13 years without exception. Management also seeks to align its capital with the risk profile of the business through an understanding of the nature and level of risk being taken and how these risks attract regulatory and risk based capital.2011 OBJECTIVES AND PERFORMANCEHome Capital published its financial objectives for 2011 on page 14 of the Company's 2010 Annual Report. The following table compares actual performance to date against each of these objectives.                   Table 1: 2011 Targets and Performance                                                 For the nine months ended September 30, 2011     2011 Targets1   Actual Results1   Amount   Increaseover 2010Growth in adjusted net income2     15%-20%   25.4%  $142,172   $28,795Growth in adjusted diluted earnings per share2     15%-20%   25.5%   4.09    0.83Growth in total assets3     13%-18%   13.3%   17,072,125    1,553,307Growth in total loans3     13%-18%   16.0%   15,782,646    1,690,891Return on shareholders' equity    20.0%   27.4%         Efficiency ratio (TEB)    28.0% - 34.0%   28.2%         Capital ratios4                     Tier 1    Minimum of 13%   17.7%             Total    Minimum of 14%   21.0%           Provision as a percentage of gross loans (annualized)    0.05% - 0.15%   0.06%         1 Objectives and results for adjusted net income and diluted earnings per share are for the current year.2 Targets are based on adjusted 2010 IFRS net income.  See definition of Adjusted Net Income under Non-GAAP Measures on page 6 and reconciliation on page 10 of this third quarter report.  Change represents change over same period last year3 Change represents growth over December 31, 2010 on an annualized basis.4 Based on the Company's wholly owned subsidiary, Home Trust Company.The Company implemented the new Canadian GAAP financial reporting framework, International Financial Reporting Standards (IFRS) on January 1, 2011, with a transition date of January 1, 2010.  Transition as at January 1, 2010 required restatement of the Company's 2010 financial information from its original Canadian GAAP basis to the IFRS basis. This allows for inclusion of comparative information in the 2011 financial statements.  On transition, IFRS required the application of certain mandatory and optional transition exemptions.  The details of the restatement and the mandatory and selected optional exemptions, which the Company applied on transition, are set out in Note 18 to the accompanying unaudited interim consolidated financial statements.As IFRS represents a new Canadian GAAP accounting framework, it is generally not appropriate to directly compare the Company's financial position and results of operations as stated under IFRS to the financial position and results of operations as stated under original Canadian GAAP.  Comparative information in this MD&A has been restated to the IFRS basis. Please see the International Financial Reporting Standards section of this MD&A for further information.INCOME STATEMENT REVIEW                       Table 2: Income Statement Highlights              For the three months ended  For the nine months ended      (000s, except %) September 30 September 30  September 30 September 30     2011 2010 % Change 2011  2010 % ChangeNet Interest Income          Non-securitized Assets            Non-securitized loans interest$104,418$89,872 16.2%$291,733 $263,584 10.7%  Dividends and other interest 6,014 7,064 (14.9)% 17,897  20,636 (13.3)%  Interest on deposits 49,387 47,846 3.2% 141,374  140,382 0.7%  Interest on senior debt 2,011 - -  3,279  - -     59,034  49,090 20.3% 164,977  143,838 14.7%Net Interest Income          Securitized Loans and Assets            Interest from securitized loans and assets 84,195 66,255 27.1% 248,615  174,708 42.3%  Interest on securitization liabilities 55,617 47,234 17.7% 168,052  126,975 32.4%    28,578 19,021 50.2% 80,563  47,733 68.8%Net interest income 87,612 68,111 28.6% 245,540  191,571 28.2%Provision for credit losses 2,349 2,167 8.4% 4,540  3,615 25.6%      85,263 65,944 29.3% 241,000  187,956 28.2%Non-Interest Income              Fees and other income 9,697 7,127 36.1% 26,703  22,069 21.0%  Gain on sale of loan portfolio - 3,917 (100.0)% -  3,917 (100.0)%  Realized net gains and unrealized losses            on securities 1,224 1,347 (9.1)% 5,394  10,725 (49.7)%  Net realized and unrealized gain (loss)            on derivatives (5,260) 11,613 (145.3)% (6,873) 15,566 (144.2)%    5,661 24,004 (76.4)% 25,224  52,277 (51.7)%Non-InterestExpenses  26,036 24,756 5.2% 77,895  68,867 13.1%Income before income taxes 64,888 65,192 (0.5)% 188,329  171,366 9.9%Income taxes 16,471 17,571 (6.3)% 48,582  46,723 4.0%NET INCOME$48,417$47,621 1.7%$139,747 $124,643 12.1%Basic Earnings per Share$1.40$1.37 2.2%$4.03 $3.59 12.3%Diluted Earnings per Share$1.39$1.37 1.5%$4.02 $3.58 12.3%             Adjusted Net Income          Adjustment for unmatched derivative positions          (net of tax) - (8,483)(100.0)% 2,425  (11,266)(121.5)%ADJUSTED NET INCOME1 $48,417$39,138 23.7%$142,172 $113,377 25.4%Adjusted Basic Earnings per Share$1.40$1.13 23.9%$4.10 $3.27 25.4%Adjusted Diluted Earnings per Share$1.39$1.13 23.0%$4.09 $3.26 25.5%1 Adjusted net income is defined in the Non-GAAP measures section of this MD&A and 2010 amounts are reconciled to net income on page 29 of this quarterly report.Net Interest Income                         Table 3: Net Interest Income and Margin           For the three months endedFor the nine months ended(000s, except %)September 30, 2011September 30, 2010September 30, 2011September 30, 2010 Income/AverageIncome/AverageIncome/AverageIncome/Average ExpenseRate1 ExpenseRate1 ExpenseRate1 ExpenseRate1 Assets            Cash and cash resources$733 0.63%$1,028 1.19%$2,400 0.72%$3,393 1.05%Securities 5,281 4.79% 6,036 3.65% 15,497 4.54% 17,243 3.58%Non-securitized loans 104,418 6.03% 89,872 5.67% 291,733 5.94% 263,584 5.84%Taxable equivalent adjustment 1,866 - 1,993 - 5,291 - 6,121 -Total on non-securitized interest earning assets 112,298 5.63% 98,929 5.27% 314,921 5.54% 290,341 5.35%Securitized loans 84,195 3.91% 66,255 4.41% 248,615 3.89% 174,708 4.45%Other assets - - - - - - - -Total Assets$196,493 4.70%$165,184 4.84%$563,536 4.63%$465,049 4.94%Liabilities and Shareholders' Equity            Deposits$49,387 2.88%$47,846 2.87%$141,374 2.85%$140,382 2.91%Securitization liabilities 55,617 2.58% 47,234 3.14% 168,052 2.63% 126,975 3.24%Other liabilities and shareholders' equity 2,011 5.30% - - 3,279 4.68% - -Total Liabilities and Shareholders' Equity$107,015 2.56%$95,080 2.79%$312,705 2.57%$267,357 2.84%Net Interest Income$89,478 -$70,104 -$250,831 -$197,692 -Tax Equivalent Adjustment (1,866)- (1,993)- (5,291)- (6,121)-Net Interest Income per Financial            Statements$87,612  $68,111  $245,540  $191,571  Net Interest Margin Non-securitized            Interest Earning Assets 2   3.11%  2.67%  3.04%  2.71%Net Interest Margin Securitized Assets   1.33%  1.27%  1.26%  1.22%Total Net Interest Margin2   2.14%  2.00%  2.06%  2.04%Spread of Non-securitized Loans over            Deposits Only   3.15%  2.80%  3.09%  2.94%             1 The average rate is an average calculated with reference to opening and closing monthly balances and as such may not be as precise if daily balances were used.2 Net interest margin is calculated on a TEBTable 4: Interest Income and Average Rate by Loan Portfolio For the three months endedFor the nine months ended(000s, except %)   September 30, 2011   September 30, 2011 AverageInterest AverageAverageInterest Average Assets1 IncomeRate1 Assets1 IncomeRate1 Traditional single-family residential mortgages$5,094,713 $72,479 5.69%$4,649,769 $195,631 5.61%Accelerator single-family residential mortgages 219,082  1,636 2.99% 273,207  5,766 2.81%Multi-unit residential mortgages 126,338  1,795 5.68% 199,442  9,228 6.17%Securitized residential mortgages 8,613,299  84,195 3.91% 8,521,508  248,615 3.89%Non-residential mortgages 953,959  15,660 6.57% 923,021  44,338 6.40%Personal and credit card loans 532,475  12,848 9.65% 502,995  36,770 9.75%Total average loans$15,539,866 $188,613 4.85%$15,069,942 $540,348 4.78%                                  For the three months ended For the nine months ended(000s, except %)   September 30, 2010   September 30, 2010 AverageInterestAverageAverageInterestAverage Assets1 IncomeRate1 Assets1 IncomeRate1 Traditional single-family residential mortgages$4,027,066 $59,195 5.88%$3,885,137 $172,877 5.93%Accelerator single-family residential mortgages 899,776  5,881 2.61% 757,310  16,956 2.99%Multi-unit residential mortgages 262,714  3,317 5.05% 236,700  8,462 4.77%Securitized residential mortgages 6,009,524  66,255 4.41% 5,234,697  174,708 4.45%Non-residential mortgages 731,144  10,822 5.92% 716,941  33,818 6.29%Personal and credit card loans 423,079  10,657 10.08% 411,525  31,471 10.20%Total average loans$12,353,303 $156,127 5.06%$11,242,310 $438,292 5.20%1 The average is an average calculated with reference to opening and closing monthly balances.Net Interest IncomeNet interest income increased 28.6% and 28.2% for the three and nine months ended September 30, 2011, respectively, over the amounts recorded in the comparable periods of 2010. Total net interest income increased 7.7% over the $81.3 million earned in the second quarter of 2011.Net interest income rose over comparable 2010 amounts primarily due to increases in the average loan portfolio balances of $3.19 billion and $3.83 billion, over the three and nine months ended September 30, 2010, respectively. The increase over the second quarter of 2011 is due to increases in the average loan balances of $430.3 million and improved net interest margin.Total net interest margin, including the securitized portfolio, was 2.14% for the third quarter and 2.06% year to date compared to 2.00% and 2.04% in the same periods of 2010. Net interest margin was affected by the increases in the relative weighting of securitized mortgages in the loan portfolio and by changes in the net interest margin on non-securitized assets. During 2010 the relative weighting of securitized mortgages in the portfolio increased from 42.8% at January 1, 2010 to 51.3% at September 30, 2010, and then to 57.6% at December 31, 2010. Since December 31, 2010 it has declined to 53.9% at September 30, 2011. The increase in the higher margin non-securitized assets over the period increased the net interest margin and was partially offset by the increased weighting of lower margin securitized mortgages in the portfolio.The net interest margin on non-securitized assets has improved over the comparable periods of 2010 as the average yield on the non-securitized loan portfolio increased over 2010 reflecting the improved average rates and higher balances in the non-residential portfolio and increased average rate in the multi-unit residential portfolios, while the Company's average deposit rates have remained relatively flat over the same period. Average rates on the securities portfolio have also improved as the Company rebalanced the liquid assets and focused on improving margins.The net interest margin on securitized assets has remained relatively consistent quarter over quarter as the portfolio begins to slowly decline, impacted primarily by fluctuations in prepayment penalties which are recorded in securitized net interest income. The Company expects the net interest margin for this portfolio to remain relatively flat or to modestly decrease over the next 12 months. The average yield on the securitized loan portfolio was down 50 basis points to 3.91% in the quarter, compared to 4.41% in the same quarter of 2010, as the securitized loan portfolio includes a significant proportion of variable rate mortgages which lower the overall yield. Offsetting this is a decrease in the average rate on securitization liabilities of 56 basis points to 2.58%, compared to 3.14% in the third quarter of 2010. This reduction is due to lower securitization funding rates over the latter half of 2010, including variable rate funding, and the accounting classifications that result from the application of hedge accounting to interest rate swaps in 2011, which lowered funding costs.In the third quarter of 2011 the average rate earned on the total loan portfolio declined 21 basis points from the third quarter of 2010. With the exception of multi-unit residential mortgages and non-residential mortgages, average mortgage rates have declined in response to lower market rates. The continued low Government of Canada bond yields have contributed to lower rates in the fixed-rate mortgage market. Accelerator mortgages include fewer variable rate mortgages compared to comparative periods thus increasing the average rate for this portfolio. The Company generally holds these mortgages for securitization or replacement assets for the CMB.The average rate earned on the personal and credit card portfolio is 43 basis points lower than 2010, as the Company expanded its offering of Equityline Visa to include a lower rate product to customers with higher credit scores. Increases in fully secured water heater receivables at lower average rates also lowered the overall rate on the portfolio. At the same time, average assets increased over the period leading to higher interest income from these products.Non-Interest Income For the three and nine months ended September 30, 2011 fees and other income increased 36.1% and 21.0%, respectively, to $9.7 million and $26.7 million, respectively, from $7.1 million and $22.1 million in the three and nine months ended September 30, 2010. These amounts include net mortgage and Visa account administration fees and increase as the size of the loan portfolio increases and are also influenced by the overall mix of the portfolio. Fees have grown at a slightly higher pace than the overall loan portfolio growth due to the focus on the Company's traditional mortgage portfolio. Fees and other income also increased 12.2% from the $8.7 million recorded in second quarter of 2011.The Company recognized a net gain of $2.0 million and $7.3 million on the sale of certain available for sale securities during the three and nine months ended September 30, 2011, compared to a net gain of $1.3 million and $10.7 million in the comparable periods of 2010 and a net gain of $3.2 million in the second quarter of 2011. The Company takes advantage of improvements in securities markets and will rebalance the investment portfolio as market conditions warrant. The Company recognized $0.8 million in impairments through profit and loss on available for sale equity securities in the third quarter of 2011 compared to $nil in 2010 and $1.1 million in the second quarter of 2011.Gains (losses) on derivatives include net losses due to hedge ineffectiveness of $1.1 million in the third quarter and net gains of $0.2 million year to date on the Company's fair value and cash flow interest rate hedges. Gains (losses) on derivatives also include $4.1 million in unrealized losses for the third quarter and $3.5 million in unrealized losses year to date for fair value changes in interest rate swaps that are not designated in hedge accounting relationships. On an economic basis these losses are offset by gains in the fair value of other net assets but such gains are not recorded through profit and loss. The Company expects that the amount and direction of fair value adjustments will vary from quarter to quarter. Management closely monitors the fair value changes. The Company did not apply hedge accounting in 2010 and therefore the 2010 derivatives gains (losses) amounts reflect the fair value changes of the derivative positions.In January 2011 the Company restructured certain derivative positions to achieve hedge accounting under IFRS. While the Company designated the restructured interest rate swaps and bond forwards in hedge accounting relationships from the restructure date forward, in the period prior to designation the Company recognized a net unrealized loss of $3.3 million in the first quarter of 2011. This amount is adjusted from income for performance measurement purposes.  In 2010 the Company was not applying hedge accounting to its hedges of interest rate risk and, as such, all of the unrealized fair value gains and losses on derivatives were recorded through income as they occurred. Please see the Derivatives and Hedging section of this MD&A and Note 14 of the unaudited consolidated financial statements.Non-Interest Expenses Total non-interest expenses of $26.0 million in the quarter and $77.9 million year to date increased 5.2% and 13.1%, respectively, over the comparable periods of 2010, primarily due to increased staffing and costs associated with the implementation of the new core banking system. Non-interest expenses decreased $0.6 million compared to $26.6 million recorded in the second quarter of 2011. The efficiency ratio (TEB) remains low at 27.4% and compares to 26.3% in the third quarter of 2010 and 27.9% in the second quarter of 2011. These levels reflect continued low costs compared to revenues net of interest expense. The Company continues to manage expenses in a disciplined and measured manner and aligns its expense management strategy with its growth targets and objectives. In conjunction with the implementation of the new core banking system and to take advantage of the new functionality and efficiencies of the new system, the Company launched a centralized operations group and an organizational effectiveness initiative. The new group and initiative will continue to foster business growth and superior customer service while driving improved operational discipline and cost management, which is expected to reduce or maintain costs through the Company's next growth phase.Salaries and staff benefits were $13.5 million and $39.3 million for the three and nine months ended September 30, 2011 compared to $11.8 million and $34.3 million in the comparable periods of 2010 reflecting staffing mix changes, merit increases and increased overtime related to the implementation of the new core banking platform. Staff salaries increased marginally from the $13.3 million recorded in the second quarter of 2011. At the end of the quarter, the Company employed 552 staff consistent with 552 staff one year ago.Other operating expenses were $10.5 million during the quarter and $32.8 million year to date, down from $11.2 million in the third quarter of 2010 and up from the $29.5 million for the nine months ended September 30, 2010. Other operating expenses declined by $1.0 million from the $11.5 million recorded in the second quarter of 2011. Late in 2010 and early 2011 expenses generally increased to support business growth and the implementation of the new core banking system. In particular, the Company has experienced increased information technology costs including additional advisory support and additional costs associated with the implementation of a new core banking system that are not eligible for capitalization.  These moderated in the third quarter compared to the first and second quarter of 2011 as the core banking system implementation currently requires less support.Provision for Credit Losses                 Table 5: Provision for Credit Losses                  For the three months endedFor the nine months ended(000s, except %)September 30September 30September 30September 30  2011  2010  2011  2010 Collective provision$- $202 $237 $1,353 Individual provision 2,349  1,965  4,303  2,262 Total provision$2,349 $2,167 $ 4,540 $3,615 Provision as % of gross loans (annualized) 0.06% 0.07% 0.04% 0.04%Net write-offs$2,170 $1,766 $ 5,830 $3,164 Net write-offs as % of gross loans (annualized) 0.05% 0.06% 0.05% 0.03%Table 6: Net Non-Performing Loans & Allowances               As at(000s, except %)September 30December 31September 30  2011  2010  2010 Net non-performing loans$49,795 $34,225 $33,914 Gross loans 15,785,845  14,096,652  12,817,711 Net non-performing loans as % of gross loans 0.32% 0.24% 0.26%Collective allowance$29,390 $29,153 $29,146 Individual allowance 3,773  5,300  2,062 Total allowance$33,163 $34,453 $31,208 The provision for credit losses is charged to the income statement by an amount that brings the individual and collective allowances for credit losses to the level determined by management to be adequate to cover incurred losses, including losses that are not yet specifically identified. Factors which influence the provisions for credit losses include the formation of new impaired loans, the level of write-offs, management's assessment of the level of collective and individual allowances required based on available data, including current credit performance of the portfolio, external economic factors, the composition of the portfolio, and the overall growth in the loans portfolio.Individual provisions remain at relatively low levels being $2.3 million for the quarter and $4.3 million year to date, compared to $2.0 million and $2.3 million in the comparable periods of 2010. The provisions in the comparable nine months of  2010 were particularly low as a result of higher than usual loan loss recoveries in the first half of 2010, which lowered provisions and net write-offs. Provisions as a percentage of gross loans at 0.06% on an annualized basis remain well within the target range of 0.05% to 0.15%, reflecting prudent and conservative credit and portfolio management.During the quarter the Company became aware of alleged irregularities regarding three of its loans with a total principal amount of $4.6 million. These loans were advanced to the same borrower, a Toronto residential condominium corporation.  The registered security documents associated with these loans provide the Company with a secured priority claim against the condominium corporation, the condominium structure and the underlying residential units.  Provided that the security is valid, the Company would expect to recover any losses on such loans. The borrower is disputing the validity of the Company's security in the Ontario Court. It is not currently possible to reasonably determine the outcome of this matter or to estimate the amount of loss, if any. A specific provision has not been recorded for these loans but these loans have been classified as non-performing residential loans.While net non-performing loans has increased over the comparable periods of 2010 and over the $35.2 million recorded in the second quarter of 2011 the level remains within the expected and acceptable levels. The increase in net non-performing loans is primarily attributed to the $4.6 million in irregularities noted above, as well as, a general slowdown in the sales of properties in possession and the timing of sales of these properties. Net write-offs are expected to remain within the Company's targets while provisions as a percentage of gross loans remain with the 0.05%-0.15% target range.The collective allowance balance at September 30, 2011 increased marginally over December 31, 2010 and is flat over the second quarter of 2011. The Company continues to observe strong credit performance in the loans portfolio as reflected in the following factors:A relatively low rate of non-performing loans. Non-performing loans as a percentage of gross loans remains within historical averages, ending the quarter at 0.32% compared to 0.26% at the end of September 30, 2010 and 0.23% at June 30, 2011. Credit losses and non-performing loans are within the range of the Company's historical averages. The Company continues to employ prudent strategies to maintain the credit quality of the loans portfolio.Stable real estate markets, overall net write-offs within expected lower ranges and a continued and focused effort at working out non-performing loans. Gross write-offs in the residential mortgage portfolio are consistent with the Company's expectations and experience over the long term.  Personal and credit card loan portfolio write-offs are within expected levels. The Company's ongoing risk management philosophy includes close monitoring of non-performing loans and the employment of proactive measures to minimize losses, as described in the Credit Risk section of the 2010 Annual Report under the heading Risk Management.Stable risk profile of the loans portfolio and general Canadian economic factors that influence management's assessment of the level of collective allowance (please see the Credit Risk section of this MD&A for more information).Income Taxes The income tax expense amounted to $16.5 million (effective tax rate of 25.4%) for the third quarter of 2011. The effective tax rate was 27.0% for same period in 2010. The lower effective tax rate during the quarter is attributed to adjustments to the tax provision to effectively report the current assessed tax liability. Due to the nature of the Company's revenue and expense streams, an effective tax rate of approximately 26.5% to 28.0% should be sustainable.Comprehensive Income Comprehensive income is the aggregate of net income and other comprehensive income (OCI). Comprehensive income was $38.0 million and $123.5 million for the three and nine months ended September 30, 2011, compared to $52.7 million and $118.5 million for the same periods in 2010. Charges of $10.4 million and $16.2 million were recorded through OCI for the three and nine months ended September 30, 2011, compared to gains of $5.0 million for the comparable quarter of 2010 and charges of $6.1 million for the nine months ended September 30, 2010.OCI includes changes in unrealized gains or losses on available for sale securities, transfers of previously unrealized net gains and losses to net income, once they have been realized, and the impact of cash flow hedges and transfers to income of unrealized losses on investments considered impaired.The Company recognized transfers to net income of $1.5 million in net gains for the quarter and $6.0 million in net gains for the nine months ended September 30, 2011 related to the sale of certain available for sale securities and impairment charges on available sale securities. This compares to a net transfer of $1.7 million and $9.3 million of gains to net income in the comparable periods in 2010 and $2.7 million of gains in the second quarter of 2011. OCI decreased by $9.2 million in the third quarter and decreased by $9.3 million year to date due to unrealized changes in the fair value of available for sale securities, compared to net increases of $8.8 million and $2.5 million for the comparable periods of 2010. Included in the net gains transferred to net income for the quarter was $0.8 million and $1.9 million year to date on impairment losses on available for sale securitiesThere was a net loss recorded in OCI of $3.4 million and $6.7 million for the quarter and year to date, respectively, related to cash flow hedging. The Company did not apply cash flow hedging in the second quarter of 2010.BALANCE SHEET REVIEW Table 7: Balance Sheet Highlights  The table below presents the balance sheet position of the Company at September 30, 2011, June 30, 2011and December 31 2010, along with percentage changes.       As at % Change(000s, except %)September 30June 30December 31September 30, 2011September 30, 2011   2011  2011  2010 - June 30, 2011- December 31, 2010Cash resources$417,701 $543,062 $846,824 (23.1)%(50.7)%Securities 648,641  419,056  427,122 54.8%51.9% Residential mortgages 5,782,855  5,221,290  4,683,527 10.8%23.5% Securitized residential mortgages 8,502,466  8,623,284  8,116,636 (1.4)%4.8% Non-residential mortgages 951,203  953,420  838,253 (0.2)%13.5% Personal and credit card loans 546,122  521,151  453,339 4.8%20.5%Total Loans 15,782,646  15,319,145  14,091,755 3.0%12.0% Collective allowance for credit losses (29,390) (29,390) (29,153)- 0.8%   15,753,256  15,289,755  14,062,602 3.0%12.0%Other assets 252,527  182,726  182,270 38.2%38.5%Total assets$17,072,125 $16,434,599 $15,518,818 3.9%10.0%          Deposits$7,220,517 $6,734,129 $6,595,979 7.2%9.5%Senior debt 153,998  149,670  - 2.9%- Securitization liabilities 8,753,126  8,653,247  8,104,578 1.2%8.0%   16,127,641  15,537,046  14,700,557 3.8%9.7%Other liabilities 213,268  195,618  189,676 9.0%12.4%Total liabilities 16,340,909  15,732,664  14,890,233 3.9%9.7%Shareholders' equity 731,216  701,935  628,585 4.2%16.3%Total liabilities and shareholders' equity$17,072,125 $16,434,599 $15,518,818 3.9%10.0%Cash Resources and SecuritiesAlthough combined cash resources and securities as at September 30, 2011 decreased by $207.6 million compared to December 31, 2010, the Company maintains prudent liquidity by investing a portion of the liquidity assets in the Company's originated MBS. These securities are classified as residential mortgages on the balance sheet, as required by IFRS.  Home Trust's total liquidity and securities portfolio for liquidity management purposes is summarized as follows:Table 8: Liquidity Resources (Home Trust)       (000s)September 30June 30December 31 2011 2011 2010 Cash resources$342,262 $475,055 $894,543 Securities 440,489  392,074  356,755 MBS included in residential mortgages 268,056  368,245  114,732 Total cash and investments 1,050,807  1,235,374  1,366,030 Less: securities held for investments (375,957) (357,825) (322,504)Less: restricted cash (97,016) (88,762) (92,255)Total assets held for liquidity purposes$577,834 $788,787 $951,271 The securities portfolio has increased by $221.5 million since December 31, 2010.  This includes assets amounting to $208.2 million pledged under the CMB program as replacement assets compared to $3.0 million at December 31, 2010. These assets include treasury bills and third party CMHC-insured MBS. The Company continues to invest in conservative assets while seeking appropriate returns. During the three and nine months ending September 30, 2011, the Company took advantage of market opportunities and sold certain securities, realizing a net pre-tax gain of $2.0 million and $7.3 million, respectively, compared to $1.3 million and $10.7 million during the same periods in 2010. The disposals and acquisitions over the first nine months of 2011 allowed the Company to diversify its single name counterparty risk and industry concentration risk.Loans PortfolioChart 1: Portfolio Composition by Product Type To see Chart 1, please click here: http://files.newswire.ca/984/Chart1LoansPortfolio.pdf Table 9: Mortgage Production          For the three months ended For the nine months ended(000s)September 30September 30September 30September 30 2011 2010 2011 2010 Traditional single family residential mortgages$941,093 $728,563 $2,565,582 $2,169,874 Accelerator single family residential mortgages 293,526  716,879  915,071  2,083,762 Multi-unit residential mortgages 6,960  133,855  130,483  481,441 Non-residential mortgages 32,380  40,617  140,655  146,905 Store and apartments 26,833  23,495  87,413  75,146 Warehouse commercial mortgages -  39,300  29,750  60,050 Total mortgage advances$1,300,792 $1,682,709 $3,868,954 $5,017,178 Mortgage production in the third quarter declined $381.9 million from the same period in 2010 and increased $103.3 million over the second quarter of 2011. The increase over the second quarter was focused in the Company's traditional portfolio driven by strong demand from that market segment. There was also an increase in Accelerator volumes to support CMB replacement asset requirements. Beginning late last year, the Company scaled back lending in Accelerator and multi-unit residential securitized mortgages.  This was in response to the cost of allocating capital to support insured securitized mortgages, which resulted from the implementation of IFRS and the regulatory framework. The accounting change effectively caused an additional cost of capital (which is an opportunity cost) and reduced the relative profitability of the Company's Accelerator and insured multi-unit residential mortgage products. As such, new mortgage production was more heavily weighted to the Company's traditional single-family loans reflecting the focus on higher margin products within the Company's risk appetite. The Company expects the trend towards a higher weighting of traditional product to continue, unless new off-balance sheet products become available or there are changes to the regulatory treatment of these insured securitized mortgages. The current regulatory treatment of insured mortgages tends to constrain the growth that would otherwise be available.Other AssetsOther assets, primarily consisting of accrued interest receivable, other prepaid assets and capital assets, generally increases in proportion to the increase in total loans and general business growth.Liabilities The Company issued $150.0 million principal amount of 5.2% debentures on May 4, 2011. The debentures pay interest semi-annually on November 4 and May 4 in each year, commencing on November 4, 2011.  The debentures mature on May 4, 2016 and are redeemable at the option of the Company at a redemption price equal to the greater of the Canada Yield Price and par, together with accrued and unpaid interest.Securitization liabilities, including MBS and CMB liabilities, increased from December 31, 2010, by $648.5 million and by $99.9 million from June 30, 2011. The Company securitized $396.8 million and $1.60 billion of assets for the three and nine months ended September 30, 2011, respectively, compared to $1.13 billion and $3.31 billion for the three and nine months ended September 30, 2010. The securitization amounts include mortgages that are used as replacement assets in the CMB program, which amounts do not result in a net increase in the securitization liability. The average coupon on new securitization liabilities was 1.87% and 2.20% for the three and nine months ended September 30, 2011, compared to 2.16% and 2.15% for the same periods in 2010.  The average yield on the mortgages securitized was 4.26% and 4.22% for the three and nine months ended September 30, 2011, compared to 4.19% and 4.52% for the same periods in 2010.From time to time, the Company securitizes mortgages and holds some of the related MBS. These MBS are carried on the balance sheet at amortized cost as part of residential mortgage loans. In these cases the securities are held as future replacement assets for the CMB program or as part of the liquidity pool (see Table 8: Liquidity Resources).Other liabilities increased $17.7 million over June 30, 2011 and $23.6 million over December 31, 2010 due to general expansion of the business and the timing of payments.Shareholders' EquityThe increase in total shareholders' equity since December 31, 2010 was internally generated from net income during the nine months ended September 30, 2011 of $139.7 million, plus $5.1 million in amounts related to stock based compensation, less $20.1 million for dividends to shareholders, $5.9 million related to the repurchase of shares and a decrease of $16.2 million in accumulated other comprehensive income.At September 30, 2011, the book value per common share was $21.10, compared to $18.14 at December 31, 2010 and $17.44 at September 30, 2010.Derivatives and Hedging From time to time, as part of its financing and liquidity management activities, the Company enters into transactions under CMHC-sponsored MBS programs, in which it transfers financial assets to CMHC sponsored securitization entities.  These transfers do not qualify for derecognition under GAAP. As such, the transaction is treated as a secured financing transaction and results in the recognition of a secured borrowing which may have a fixed coupon rate. The fixed interest rate in the secured borrowing above will be determined based on market rates at the time of issuance, plus an applicable credit spread.  The Company is exposed to cash flow variability on the future interest payments resulting from variability in market interest rates between the dates on which the Company originates the underlying mortgages and the actual date the secured borrowing (securitization transaction) is settled.  The Company uses forward contracts to sell Government of Canada bonds and interest rate swaps to hedge the variability in these future interest cash flows. The forward bond contracts and interest rate swap contracts will be settled at the time of the securitization transaction.Beginning in December of 2010, the Company started applying cash flow hedge accounting to the bond forward hedges and certain interest rate swaps in 2011. The intent of hedge accounting is to recognize the effective matching of the gain or loss on the bond forwards and interest rate swaps with the interest cash flows of the secured borrowing as the Company records the expense. In the three and nine months ended September 30, 2011, the Company settled $75.0 million and $375.0 million in bond forwards respectively, recording net losses of $3.1 million and $6.9 million in other comprehensive income. These losses reflect a decline in bond yields over the period of the hedge and have been deferred through accumulated other comprehensive income. These losses will be recognized in income over the term of the related MBS, as part of the interest expense on the hedged secured borrowing. During the three and nine months ended September 30, 2011, the Company transferred $0.2 million and $0.3 million to interest expense from accumulated other comprehensive income related to cash flow hedges on the secured borrowing. The Company also recognized $nil and $0.6 million for the three and nine months ended September 30, 2011 in losses into income through net realized and unrealized gain (loss) on derivatives on these bond forwards, due to hedge ineffectiveness. At September 30, 2011, the Company held interest rate swaps of $25.0 million in anticipation of future securitizations.  These contracts had a positive fair value of $0.2 million at September 30, 2011. The unrealized gain was recorded in other comprehensive income. Prior to December 2010, the Company recognized unrealized and realized gains and losses on the bond forwards through income as they occurred, as hedge accounting was not in place.The Company is exposed to fluctuations in the fair value of fixed rate liabilities due to changes in market interest rates. To hedge this risk, the Company enters into interest rate swaps. Beginning in January 2011 the Company started applying hedge accounting to the majority of these hedges. The intent of hedge accounting is to have the fair value changes in the interest rate swap offset, within a reasonable range, the changes in the fair value of the fixed rate borrowing resulting from changes in the interest rate environment. Any unmatched fair value change is recorded in income as hedge ineffectiveness through net realized and unrealized gain (loss) on derivatives. The total notional value of the interest rate swaps at September 30, 2011 was $1.69 billion. For the three and nine months ended September 30 of 2011, unrealized gains of $54.2 million and $59.2 million were recorded on the interest swaps and were offset by an unrealized gain on the hedged risk of the fixed rate liability of $55.3 million and $58.8 million, respectively. Net hedge ineffectiveness losses of $1.1 million and gains of $0.4 million for the three and nine months ended September 30, 2011, respectively, were recorded in the income statement through net realized and unrealized gain (loss) on derivatives.The Company also has certain interest rate swaps that are not designated or do not qualify for hedge accounting relationships and therefore are adjusted to fair value without an offsetting hedged amount. These swaps had notional amounts of $118.1 million at September 30, 2011.  Unrealized losses of $4.1 million and $3.6 million for the three and nine months ended September 30, 2011, respectively, were recorded in income through net realized and unrealized gain (loss) on derivatives.Prior to January 2011, interest rate swaps were not designated in hedge accounting relationships and the fair value change was recorded in income without a recorded offsetting fair value change in the hedged risk. This resulted in income volatility in 2010 as measured using IFRS. In January 2011, the interest rate swaps were restructured to rebalance the interest rate hedges and to meet hedge accounting requirements. During the period between December 31, 2010 and the restructuring and hedge designation date, there was an unrealized loss on fair value changes of $3.7 million that was recorded in income through net realized and unrealized gain (loss) on derivatives.  For performance measurement purposes, this loss, net of tax, has been removed from the calculation of adjusted net income and adjusted earnings per share.Please see Note 14 of the unaudited interim consolidated financial statements for further information.Off-Balance Sheet ArrangementsIn 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 $508.2 million at September 30, 2011 ($450.8 million - Q2 2011; $459.0 million - Q4 2010). Included within the outstanding commitments are unutilized non-residential loan advances of $75.1 million at September 30, 2011 ($80.5 million - Q2 2011; $45.4 million - Q4 2010).  Commitments for the loans remain open for various dates through December 2011.  As at September 30, 2011, unutilized credit card balances amounted to $86.2 million ($84.4 million - Q2 2011; $76.5 million - Q4 2010). Outstanding commitments for future advances for the Equityline Visa portfolio were $2.1 million at September 30, 2011 ($4.7 million - Q2 2011; $5.1 million - Q4 2010).CAPITAL MANAGEMENTHome Trust calculates capital ratios and regulatory capital based on capital adequacy rules issued by OSFI, which are based on the "International Convergence on Capital Management and Capital Standard - A Revised Framework" (Basel II).Under Basel II, Home Trust calculates risk-weighted assets for each of credit and operational risk.  Home Trust's capital structure and risk-weighted assets were as follows:Table 10: Regulatory Capital     As at(000s, except % and multiples)September 30December 31September 30  2011 2010 2 2010 2Capital stock$23,497$23,497$23,497Retained earnings 674,314 658,530 615,786Adjustment for transition to measurement under IFRS 61,486 - -Contributed surplus 951 951 951Accumulated (net after tax) unrealized losses on available for sale equity securities (6,039) - -Net tier 1 capital 754,209 682,978 640,234Subordinated debt 115,000 15,000 15,000Accumulated (net after tax) unrealized gains on available for sale equity securities - 4,545 2,646Eligible general allowance for credit losses 29,390 29,153 29,146Total capital$898,599$731,676$687,026Risk-weighted assets for      Credit risk$3,831,000$3,423,017$3,453,515Operational risk 438,175 354,250 340,363Total risk-weighted assets1 $4,269,175$3,777,267$3,793,878Tier 1 capital ratio 17.7% 18.1% 16.9%Total capital ratio 21.0% 19.4% 18.1%Asset to capital multiple 14.0  10.5  11.5 1 Based on the Company's wholly owned subsidiary, Home Trust Company.2 Regulatory Capital was calculated in accordance with previous Canadian GAAP in 2010Home Trust's Tier 1 and Total capital ratios continue to significantly 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.Home Trust elected to apply OSFI's IFRS transitional relief to the IFRS opening retained earnings adjustment. Home Trust is permitted to amortize the effect of the transition adjustment on regulatory capital over the eight quarters ending December 31, 2012. The amount added to regulatory capital will reduce to zero over this time.Late in 2010, additional clarification was provided on the proposed Basel III requirements.  As anticipated, Basel III will affect capital and liquidity requirements in Canada with a phased-in approach beginning in 2013.  The Company has completed an analysis of the proposed Basel III requirements and has identified the following components as applicable:Liquidity Coverage Ratio (LCR). LCR establishes a common measure of liquidity risk and requires institutions to maintain sufficient liquid assets to cover a minimum 30 days of cash flow requirements in a stress situation.  As at September 30, 2011 Home had sufficient liquid assets to meet the minimum LCR.Revised definition of common equity Tier 1 capital.  Basel III proposes a number of deductions that begin in 2014 with a 20% reduction climbing to a 100% deduction in 2018. In particular unconsolidated investments in financial institutions will result in a deduction from capital.  After fully accounting for all deductions, Home Trust's capital ratios would continue to exceed both internal and regulatory minimum and 'well capitalized' levels.Introduction of a 'conservation buffer' and 'pro-cyclical buffer'.  A capital conservation buffer of common equity equal to 2.5% of risk-weighted assets (RWA) will be phased-in between 2016 and 2019 and will ultimately require a minimum tangible common equity ratio of 7.0% and a Total capital ratio of 10.5%.  As at September 30, 2011 Home Trust had sufficient capital resources to adopt the conservation buffer.  A further 'countercyclical buffer' with a range of 0% to 2.5% of RWA in common equity will be required based on national circumstances with the intent of preventing 'overheating' or 'asset bubbles'.  As at September 30, 2011 Home Trust had sufficient capital resources to adopt the 'countercyclical buffer' at the top of the range.RISK MANAGEMENTThe Company is exposed to various types of risks inherent to the nature of the business activities it conducts. The types of risk to which the Company is subject include, among others, credit, liquidity, interest rate and operational risks. The Company has adopted enterprise risk management (ERM) as a methodology for managing all sources of risks. Supporting the Company's ERM structure is a governance framework that includes Board of Director and senior management oversight, independent monitoring and measurement by the ERM function, policies, management standards, guidelines and procedures appropriate to each business activity and source of risk. The processes and controls are subject to periodic testing by the Company's internal audit group. The Board of Directors reviews and approves the policies at least annually. The Company's key risk management practices remain in place and are continually reviewed and enhanced from those outlined on pages 37 through 48 in the MD&A section of the Company's 2010 Annual Report.Credit RiskThis is the risk of the loss of principal and/or interest from the failure of debtors and/or counterparties, for any reason, to honour their financial or contractual obligations to the Company. Senior management, the Chief Credit Officer, the ERM function, the Audit Committee and the Risk and Capital Committee of the Board of Directors, monitor the Company's exposure to credit risk. These parties undertake reviews of credit policies, lending practices, the adequacy of loan loss reserves and credit risk based capital. It is the Company's policy that different levels of senior management approve credit, 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.As part of credit risk management of the mortgage portfolio, senior management and the ERM function monitor various portfolio characteristics, including the characteristics in the following table.Table 11: Mortgage Portfolio             (000s, except %)September 30December 31September 30  2011  2010  2010 Total mortgage portfolio balance (net of individual allowance)$15,236,524 $13,638,416 $12,387,790 Percentage of residential mortgages 93.8% 93.9% 93.7%Percentage of non-residential mortgages 6.2% 6.1% 6.3%Percentage of insured residential mortgages 64.7% 72.8% 67.6%Percentage of first mortgages 99.4% 99.2% 99.2%Percentage of mortgages current 97.9% 98.2% 98.2%Percentage of mortgages over 60 days past due 0.8% 0.4% 0.8%The composition of the mortgage portfolio is well within the internal policy limits approved by the Company's Risk and Capital Committee. The relative proportion of non-residential mortgages was relatively stable over the last twelve months. As a proportion of the total portfolio, the Company anticipates that the non-residential portfolio will remain relatively stable or exhibit modest growth in the foreseeable future.Refer to Note 5 of the unaudited interim consolidated financial statements for a further breakdown of the loan portfolio by geographic region.Insured mortgages reduce the credit risk to the Company. The insured portion of the mortgage portfolio has declined from December 31, 2010 due to a higher proportion of originations in the Company's traditional mortgage products, which are generally not insured.  Mortgages in the traditional program have lower loan to value ratios than the insured Accelerator product. For the three months ended September 30, 2011, the average loan to value on origination of the traditional mortgage product was 69.3%, compared to 70.9% last quarter and 69.4% in the third quarter of 2010.The Company reduces credit risk on residential mortgages through collateral in the form of real property. In that regard, first mortgages continue to represent almost the entire portfolio. At September 30, 2011, the average loan to value of the total portfolio, which includes both insured and uninsured mortgages, was 70.1% compared to 67.6% last quarter and 68.6% at September 30, 2010.Senior management and ERM closely monitor the credit performance of the mortgage loans portfolio. The portfolio continues to perform well with arrears that are well within expected levels. At the quarter end 97.9% of the portfolio was current and 0.8% was over 60 days in arrears, which is within historical norms.At September 30, 2011 the gross credit card receivable balance totaled $388.3 million, of which virtually all is secured either by cash deposits or residential property. 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 $379.9 million or 97.8% of the total credit card receivable balance as at September 30, 2011 compared to 97.5% at December 31, 2010. Cash deposits for secured credit card accounts amounted to $12.9 million at September 30, 2011 and are included in the Company's deposits. Additionally, the Equityline Visa portfolio has a loan to value of 72.0% at September 30, 2011 compared to a loan to value of 72.3% at December 31, 2010. At September 30, 2011, $3.8 million or 1.0% of the credit card portfolio was over 60 days in arrears, compared to $8.1 million or 2.4% at December 31, 2010.Net non-performing loans remain within expected and acceptable ranges.  As part of the Company's ongoing business strategy, experienced employees 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. This analytical approach and attention to emerging trends has resulted in continued low write-offs relative to the gross loans portfolio. Write-offs, net of recoveries, during the quarter totaled $2.2 million or 0.05% of gross loans compared to $1.8 million or 0.06%, respectively, in the comparable quarter of 2010 and $2.2 million or 0.06% in the second quarter of 2011. The Company continually monitors arrears and write-offs carefully and deals prudently and effectively with non-performing loans.The Company maintains a collective allowance that, in management's judgement, is sufficient to absorb probable incurred losses in its loans portfolio. At September 30, 2011, the Company held a collective allowance of $29.4 million, consistent with the second quarter of 2011 and marginally higher than the $29.2 million held at December 31, 2010. The Company monitors the adequacy of the collective allowance on a monthly basis. The Company has security in the form of real property or cash deposits against loans representing virtually all of the total loans portfolio. The Company's evaluation of the adequacy of the collective allowance takes into account asset quality, borrowers' creditworthiness, property location, past loss experience and current economic conditions. The Company periodically reviews the methods utilized in assessing the collective allowance, giving due consideration to changes in economic conditions, interest rates and local housing market conditions.Liquidity RiskLiquidity risk is the risk that the Company would be unable 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. These include the minimum levels of liquid assets to be held at all times, the composition of the liquid assets to be maintained, the daily monitoring of the liquidity position by senior management and the ERM function, monthly monitoring by the Asset, Liability Management Committee (ALCO) and quarterly reporting to the Risk and Capital Committee of the Board of Directors.The Company holds liquid assets in the form of cash and bank deposits, treasury bills, bankers' acceptances, government bonds, debentures, mortgage backed securities and Canadian bank bonds to comply with its liquidity policy. At September 30, 2011, liquid assets amounted to $577.8 million, compared to $788.8 million at the end of the second quarter and $951.3 million recorded at December 31, 2010.The Company's policy is to maintain a minimum 20% of 100-day obligations in liquid assets and at September 30, 2011, the Company had 31.8% of 100-day liabilities in liquid assets.Another tool used in managing liquidity is a model that considers two stress scenarios. In the "immediate" scenario, the Company experiences a significant 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, 2011 liquid assets amounted to 186% under the immediate scenario and 145% under the ongoing scenario compared to 174% and 137%, respectively, at December 31, 2010. The Company continues to monitor these scenarios and will take appropriate actions should the need arise.Structural Interest Rate Risk Structural interest rate risk is the risk of lost earnings or capital due to sudden changes in interest rates. The objective of structural 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 that is designed to provide reasonable assurance that interest rate fluctuations will not materially impact 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 ALCO 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, 2011 is presented in Note 15 in the accompanying 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 15 summarizes 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. Similarly, some contractual off-balance sheet mortgage commitments may be made 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 behaviorTo assist in matching assets and liabilities, the Company utilizes, among others, two interest rate risk sensitivity models which measure the relationship between changes in interest rates and the resulting impact on both future net interest income and the economic value of shareholders' equity. The following table provides the potential after tax impact of immediate and sustained 100 basis point and 200 basis point increases and decreases in interest rates on net interest income and on the economic value of shareholders' equity.Table 12: Impact of Interest Rate Shifts                 (000s)September 30September 30September 30September 30  2011 2010 2011 2010   Increase in interest ratesDecrease in interest rates100 basis point shift         Impact on net interest income, after tax         (for the next 12 months)$8,686 $5,998 $(8,686)$(5,998) Impact on net present value of shareholders' equity 2,100  14,500  (4,231) (17,273)          200 basis point shift         Impact on net interest income, after tax         (for the next 12 months)$17,372 $11,996 $(17,372)$(11,996) Impact on net present value of shareholders' equity 2,178  26,380  (13,129) (43,824)As described in the Derivatives and Hedging section of this MD&A, the Company may enter into derivative contracts to economically hedge the interest rate risk on future funding under securitization. The purpose is to manage interest rate exposures during the period between the date a mortgage commitment is made and the date the mortgage loan is securitized. At September 30, 2011, the Company held notional $25.0 million ($252.2 million - December 31, 2010) in derivative positions to hedge this risk. Additionally, through the Company's participation in CMHC's CMB program, the Company is required to enter into specific interest rate swap contracts to hedge interest rate risk.  Refer to Derivatives and Hedging section of this MD&A and Note 14 of these unaudited interim consolidated financial statements for additional information.RESULTS BY BUSINESS SEGMENTThe following section discusses the mortgage lending, consumer lending and other segments for the three and nine month periods ended September 30, 2011 (refer to Note 16 of these unaudited interim consolidated financial statements).  The mortgage lending segment continues to be the primary driver of the Company's overall growth while the consumer lending segment continues to provide a diversified income source.Mortgage Lending           Table 13: Summary of Mortgage Lending Results          For the three months ended  For the nine months ended(000s, except %)September 30September 30% ChangeSeptember 30September 30% Change  2011  2010   2011  2010  Net interest income$72,203 $51,971 38.9%$199,574 $145,692 37.0%Net income 42,117  35,044 20.2% 112,494  88,949 26.5%Total assets$15,613,159 $12,463,168 25.3%$15,613,159 $12,463,168 25.3%The mortgage lending segment continues its strong performance in the second quarter, recording increases in net income of 20.2% over the comparable quarter of 2010 and 26.5% on a year to date basis. Net income also increased 10.2% over the $38.2 million recorded in the second quarter of 2011. Net interest income continues to grow on higher loan balances and net interest margin reflecting continued strong demand for the Company's products through enhanced broker relationships, superior customer service and stable real estate markets across most of the country.Expenses increased $0.5 million and $4.9 million, respectively, for the three and nine months ended September 30, 2011, compared to the same periods of 2010. The increases relate to higher costs associated with a significant growth in mortgage loans under administration and additional costs associated with the implementation of the Company's new core banking system. There were accompanying increases in income tax associated with higher income. Provisions for credit losses for the mortgage lending segment remain within expected and acceptable ranges and were $1.9 million and $3.9 million respectively, for the three and nine month periods compared to $1.7 million and $2.9 million for the same periods of 2010. Please see the Provision for Credit Losses section of this MD&A for further discussion.Consumer Lending - Credit Cards and Retail Services           Table 14: Summary of Consumer Lending Results     For the three months ended   For the nine months ended(000s, except %)September 30September 30% ChangeSeptember 30September 30% Change  2011  2010   2011  2010  Net interest income$10,974 $8,692 26.3%$31,143 $26,771 16.3%Net income 7,585  8,598 (11.8)% 22,529  20,860 8.0%Total assets$580,999 $487,704 19.1%$580,999 $487,704 19.1%Consumer lending, which includes Visa, retail lending and payment card services, continues to generate positive returns for the Company. Net interest income for the third quarter of 2011 increased by 26.3% compared to the same period in 2010, primarily due to an increase in outstanding receivables.  The Company anticipates net interest income in this portfolio to continue to grow through 2011, as loan balances in this portfolio grow. The average net interest margin earned on the Visa portfolio was 8.4% during the third quarter in 2011, compared to 8.5% in the third quarter of 2010 and 8.8% in the second quarter of 2011.  The average net interest margin earned in the consumer lending portfolio was 7.6% during the quarter ended September 30, 2011, compared to 8.2% in the comparable period of 2010 and 7.7% in the second quarter of 2011.  The decrease in interest margin is primarily due to higher cost of funds.Net income was positively impacted by the sale of a loan portfolio in the third quarter of 2010 that did not reoccur.  As such, net income in the second quarter decreased by 11.8% over the comparable quarter of 2010. Fees and other income increased over the prior period on a higher number of accounts compared to 2010. Expenses have increased to support the business growth and the Company continues to effectively manage its expenditures while at the same time increasing the size of both its Visa and retail lending portfolios.During the third quarter of 2011, 1,758 Equityline Visa accounts with $47.3 million in authorized credit limits were issued, compared to 1,796 accounts with $49.0 million in authorized credit limits issued in the third quarter of 2010 and 2,108 accounts with $57.1 in authorized limits in the second quarter of 2011. The Equityline Visa accounts are fully secured by residential real estate. The Company anticipates the strength in this product line to continue through both the "one stop" bundled mortgage with Equityline Visa, and strategic business and marketing initiatives within the Company's risk appetite.The Company's consumer lending portfolio also includes the results from its retail lending operations.  The largest component of retail lending, representing 84.1% of the portfolio, is water heater loans.  There were 13,434 new water heater accounts added during the third quarter of 2011, an increase of 60.1% over the second quarter of 2011.  Water heater receivables increased by $16.5 million during the quarter to $138.4 million. The Company anticipates continued measured growth in the water heater line of business and is currently exploring this channel for other opportunities.Consumer lending also includes the results of PSiGate which contributed $0.4 million to net income for the quarter and $1.4 million year to date, compared to $0.4 million and $1.1 million in the comparable periods of 2010 and $0.5 million in the second quarter of 2011.Other           Table 15: Summary of Other Results     For the three months ended   For the nine months ended(000s, except %)September 30September 30% ChangeSeptember 30September 30% Change  2011  2010   2011  2010  Net interest income$4,435 $7,448 (40.5)%$14,823 $19,108 (22.4)%Net income (1,285) 3,979 (132.3)% 4,724  14,834 (68.2)%Total assets$877,967 $1,243,588 (29.4)%$877,967 $1,243,588 (29.4)%The other segment is comprised of the operating result from the Company's treasury portfolio and corporate activities.The decline in net interest income is attributable to lower average balance of non-mortgage investments held by the Company compared to comparative periods. Net income was impacted in the quarter by an unrealized losses on derivatives of $4.1 million offset by realized gains on securities sales of $2.2 million and unrealized losses on impairment of available for sale securities of $0.8 million.INTERNATIONAL FINANCIAL REPORTING STANDARDSImpact of Adoption of International Financial Standards (IFRS)GeneralThe Company implemented revised Canadian GAAP, which uses IFRS as its financial reporting framework, on January 1, 2011, with a transition date of January 1, 2010.  Transition as at January 1, 2010 required restatement of the Company's 2010 financial information from its original Canadian GAAP basis to the IFRS basis. This allows for inclusion of comparative information in the 2011 financial statements.  On transition, IFRS requires the application of certain mandatory and optional transition exemptions.  The details of the restatement and the mandatory and selected optional exemptions, which the Company applied on transition, are set out in Note 18 to the accompanying unaudited interim consolidated financial statements.As IFRS represents a new accounting framework, it is generally not appropriate to directly compare the Company's financial position and results of operations as stated under IFRS to the financial position and results of operations as stated under previous Canadian GAAP.While many of the accounting principles and standards comprising IFRS are similar to previous Canadian GAAP, certain standards and rules are fundamentally different, resulting in significant changes to previously reported financial results and financial position.  The most significant differences relate to the accounting treatment of securitization transactions, including the timing of income and expense recognition, and the treatment of assets and liabilities arising from securitization activities.  Under previous Canadian GAAP, the assets securitized by the Company were removed from the balance sheet and a gain was calculated by comparing the fair value of consideration received and receivable to the carrying value of the assets at the time of securitization.  The securitization transaction triggered income and expense recognition. Under IFRS, the proceeds received on the securitization are considered a secured loan. Interest income associated with the securitized assets is recognized on an effective interest rate method, amortizing origination costs over the term of the mortgage. Interest expense is recognized on the secured loan over the term of the securitization, amortizing transaction costs and the discount or premium over that term.  Under IFRS, income and expenses are recognized with the passage of time.As the Company has previously discussed, the restatement of the Company's financial results from previous Canadian GAAP to IFRS results in a significant adjustment related to certain derivatives which the Company uses to hedge interest rate risk associated with its securitization programs.  The Company has generally used bond forwards and interest rate swaps to hedge interest rate risk associated the commitments and accumulation of mortgages held for securitization and interest rate risk associated with the obligations assumed through the securitizations.  Under previous Canadian GAAP, the hedging instruments and the hedged items were all carried at fair value and changes in fair value tended to offset each other.  Under IFRS, the hedging instruments used in 2010 must be accounted for at fair value, whereas the hedged items are accounted for at amortized cost.  This results in an accounting mismatch.  This mismatch has an impact on the measurement of income from quarter to quarter, with gains recognized in some quarters and losses in others.  These gains and losses are not a reflection of an economic relationship, but rather an accounting mismatch.  The Company has taken steps to eliminate or significantly reduce this mismatch in 2011.  The Company will analyze its performance through 2011 by comparison to 2010 IFRS results, after adjustment, for this mismatch (adjusted net income and adjusted earnings per share).Retained Earnings and Accumulated Other Comprehensive Income as at January 1, 2010On restatement of the Company's 2010 financial statements to the IFRS basis, the cumulative gains recognized on securitizations before January 1, 2010 have been deducted from retained earnings and the net interest income attributed to the securitized assets and related debt accumulated to December 31, 2009 was added to retained earnings. This resulted in a net reduction of retained earnings as at January 1, 2010 of $75.6 million.  Consequently, this amount will be recognized in future periods, including a portion in 2011. Accumulated other comprehensive income was reduced by $11.1 million to remove the fair value adjustments for the securitization receivables which are not part of the IFRS balance sheet.Net Income and Earnings per ShareAs a result of the implementation of IFRS, net income recognized in the third quarter of 2010 was restated from $45.5 million to $47.6 million.  This restatement included an unmatched pre-tax gain on derivatives of $8.5 million.  On a basis that adjusts for the unmatched gain on derivatives, the net income for the third quarter of 2010 was $39.1 million. The Company's IFRS earnings per share for the third quarter of 2010 were $1.37 for both basic and diluted, compared to $1.31 for both basic and diluted under previous Canadian GAAP.  On an adjusted net income basis, the IFRS basic and diluted earnings per share were $1.13.  The Company uses adjusted net income and adjusted earnings per share for performance evaluation to eliminate the gains and losses on derivatives which arise from the adoption of the IFRS framework.  For the most part, such gains and losses will not occur in 2011 or in future periods as a result of revised interest rate risk management procedures and the application of hedge accounting.Net Interest Income and Net Interest MarginUnder IFRS, all mortgages currently administered by the Company are included on the balance sheet, including securitized insured mortgages, along with a liability representing the funding of these mortgages through securitization.  A significant portion of securitized mortgages are Accelerator mortgages which generally carry lower interest rates than the Company's traditional mortgages and earn lower interest spreads against the funding.  Consequently, while total interest income and net interest income increased on conversion to IFRS, the total net interest margin declined.  The Company's net interest margin for the third quarter of 2010 was 2.00% on the IFRS basis compared to 2.63% on the Canadian GAAP basis.Return on EquityOn restatement to the IFRS basis, the Company includes in liabilities the value of funds received on securitization of mortgage pools.  The Company also reduced net income and the stated value of retained earnings and accumulated other comprehensive income as at January 1, 2010, as described above.  On the IFRS basis, return on equity for the three months ended September 30, 2010 was 32.8% compared to 27.0% reported under Canadian GAAP. Return on equity under IFRS has not been recalculated on an adjusted net income basis.Capital MeasuresThe Company's Board of Directors, senior management and its prudential regulator, OSFI, set certain limits on the Company's activities based on measures of capital adequacy and leverage of Home Trust.  The primary measures are Home Trust's Tier 1 and Total capital ratios and ACM.  The conversion to IFRS does not significantly affect the Tier 1 and Total capital ratios.  The regulatory requirement to include all assets under administration, except those securitized prior to March 31, 2010 under CMHC's CMB and MBS programs, has the impact of increasing the ACM at January 1, 2011 from 10.5 under Canadian GAAP to 15.1 times under IFRS.  In this regard, to maintain growth objectives, Home Trust increased its regulatory capital base in early May 2011 through the issue of $100.0 million in subordinated debt to Home Capital which issued $150.0 million in external senior debt.Other Assets and Liabilities and Other Performance IndicatorsThe restatement of the Company's accounts and financial statements to the IFRS basis has an impact on other asset and liability categories and other performance indicators, such as credit ratios, credit provision ratios, efficiency ratio and return on assets. Readers are cautioned to take care when making comparisons to previous period reports.Impact on Operating Results and Key Performance Indicators The following table compares previous Canadian GAAP and IFRS operating results and key performance indicators for the periods ended September 30, 2010  For the three months endedFor the nine months ended(000s, except %)September 30September 30September 30September 30 2010 2010 2010 2010  IFRSCanadian GAAPIFRSCanadian GAAPNet Interest Income        Non-securitized assets$49,090 $49,099 $143,838 $144,029 Securitized assets 19,021  - 47,733  -   68,111  49,099  191,571  144,029 Provision for credit losses 2,167  2,113  3,615  3,652     65,944  46,986  187,956  140,377 Securitization Income -  21,320  -  70,309 Other Non-interest Income 24,004  15,488  52,277  34,474   89,948  83,794  240,233  245,160          Non-interest Expenses24,756 23,535  68,867  67,071          Income before taxes 65,192  60,259  171,366  178,089 Income taxes 17,571  14,809  46,723  47,527 NET INCOME$47,621 $45,450 $124,643 $130,562 Basic Earnings per Share$1.37 $1.31 $3.59 $3.76 Diluted Earnings per Share$1.37 $1.31 $3.58 $3.75          Adjusted Net Income        Adjustment for unmatched derivative positions (net of tax) (8,483) -  (11,266) - ADJUSTED NET INCOME$39,138 $45,450 $113,377 $130,562 Adjusted Basic Earnings per Share$1.13 $1.31 $3.27 $3.76 Adjusted Diluted Earnings per Share$1.13 $1.31 $3.26 $3.75          Net interest margin 2.00% 2.63% 2.04% 2.68%Return on shareholders' equity 32.8% 27.0% 30.0% 27.1%Return on average assets 1.4% 2.4% 1.3% 2.3%Efficiency ratio (TEB) 26.3% 26.8% 27.6% 26.3%Non-performing loans as a percentage of gross loans 0.26% 0.57% 0.26% 0.57%Allowance as a percentage of gross non-performing loans 87.6% 86.6% 87.6% 86.6%Annualized provision as a percentage of gross loans 0.07% 0.14% 0.04% 0.08%Quarterly IFRS Operating Results and Key Performance Indicators The following table provides the quarterly IFRS operating results and key performance indicators for 2010.            (000s, except per share and %)          2010    Q4 Q3 Q2 Q1 TotalNet Interest Income Non-Securitized Assets           Non-securitized loans interest$90,195 $89,872 $88,235 $85,477 $353,779  Dividends and other interest1  7,375  7,064  6,482  7,090  28,011  Interest on deposits 47,988  47,846  47,184  45,352  188,370    49,582  49,090  47,533  47,215  193,420 Net Interest Income Securitized Assets           Securitized loans interest1  76,583  66,255  55,469  52,984  251,291  Interest on securitization liabilities 53,706  47,234  40,800  38,941  180,681    22,877  19,021  14,669  14,043  70,610 Total Net Interest Income 72,459  68,111  62,202  61,258  264,030  Provision for credit losses 5,816  2,167  537  911  9,431      66,643  65,944  61,665  60,347  254,599 Non-interest Income           Fees and other income 8,621  7,127  7,126  7,816  30,690  Net gain (loss) on securities (985) 1,347  5,488  3,890  9,740  Net gain on sale of loan portfolio -  3,917  -  -  3,917  Net gain (loss) on derivatives 2  (5,745) 11,613  7,607  (3,654) 9,821    1,891  24,004  20,221  8,052  54,168 Non-interest Expenses 26,610  24,756  24,358  19,753  95,477 Income before taxes 41,924  65,192  57,528  48,646  213,290 Income taxes 11,816  17,571  16,213  12,939  58,539 NET INCOME$30,108 $47,621 $41,315 $35,707 $154,751 Basic Earnings per Share$0.87 $1.37 $1.19 $1.03 $4.46 Diluted Earnings per Share$0.87 $1.37 $1.19 $1.03 $4.45             Adjusted Net Income          Adjustment for unmatched derivative positions          (net of tax)2 $4,124 $(8,483)$(5,463)$2,680 $(7,142)ADJUSTED NET INCOME$34,232 $39,138 $35,852 $38,387 $147,609 Adjusted Basic Earnings per Share$0.99 $1.13 $1.03 $1.11 $4.25 Adjusted Diluted Earnings per Share$0.98 $1.13 $1.03 $1.10 $4.24             Return on shareholders' equity3  19.5% 32.8% 30.4% 27.6% 27.3%Return on average assets3  0.8% 1.4% 1.3% 1.2% 1.2%Efficiency ratio (TEB)4  35.0% 26.3% 28.8% 27.7% 28.7%Non-performing loans as a percentage of gross loans 0.24% 0.26% 0.34% 0.47% 0.24%Net interest margin non-securitized interest earning assets5  2.71% 2.67% 2.72% 2.73% 2.71%Net interest margin securitized assets5  1.26% 1.27% 1.19% 1.27% 1.23%Total net interest margin5  1.95% 2.00% 2.06% 2.12% 2.01%Annualized provision as a percentage of gross loans 0.17% 0.07% 0.02% 0.04% 0.07%1 Reclassification adjustments were made between dividends and other interest and securitized loans interest in Q2 and Q3 from what was presented in the 2011 First Quarter Report.2 The net gain (loss) on derivatives in 2010 results from the accounting mismatch discussed on page 26 under General Impacts of Adoption of IFRS. This amount is eliminated from net income on an after tax basis to arrive at adjusted net income.3 These key performance indicators have not been recalculated based on adjusted net income.4 The efficiency ratio is calculated as non-interest expenses as a percentage of total revenue, net of interest expense.5 Numbers have been restated to reflect improvements in average balance calculations.ACCOUNTING STANDARDS AND POLICIESCritical accounting estimates that require management to make significant judgements, some of which are inherently uncertain, are outlined on page 39 of the unaudited consolidated financial statements included in this quarterly report. These estimates are critical as they involve material amounts and require management to make determinations 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, financial instruments measured at fair value, impairment of available for sale securities, stock based compensation, goodwill, amortization of capital assets and intangibles and deferred income tax amounts. Further information can be found under Notes 4, 5, 6, 12, and 14 of these unaudited interim consolidated financial statements.Future Changes in Accounting StandardsAll accounting standards effective for periods beginning on or after January 1, 2011 have been adopted as part of the transition to IFRS. The following new IFRS pronouncements have been issued but are not effective and may have a future impact on the Company:IFRS 7 Financial Instruments: DisclosuresBeginning with the 2012 annual financial statements the Company will adopt amendments to IFRS 7 regarding Disclosures - Transfers of Financial Assets (IFRS 7), which requires additional disclosures on transfer transactions of financial assets (e.g. securitization transactions). There will be no impact to the operating results or financial position of the Company as this standard affects disclosures only.IFRS 9 Financial InstrumentsAs of January 1, 2013 the Company will be required to adopt IFRS 9, Financial Instruments (IFRS 9), which is the first phase of the International Accounting Standards Board's (IASB) project to replace IAS 39, Financial Instruments; Recognition and Measurement. The IASB has proposed to change the effective date from January 1, 2013 to January 1, 2015.  However, a final decision as to this proposed change to the effective date has yet to be made.  IFRS 9 provides new requirements for how an entity should classify and measure financial assets and liabilities that are in the scope of IAS 39.  Management is currently evaluating the potential impact that the adoption of IFRS 9 will have on the Company's consolidated financial statements.IFRS 10 Consolidated Financial StatementsAs of January 1, 2013 the Company will be required to adopt IFRS 10 Consolidated Financial Statements (IFRS 10).  Under IFRS 10, consolidated financial statements will include all controlled entities under a single control model.  Management is currently evaluating the potential impact that the adoption of IFRS 10 will have on the Company's consolidated financial statements.IFRS 12 Disclosure of Interests in Other EntitiesAs of January 1, 2013 the Company will be required to adopt IFRS 12 Disclosure of Interests in Other Entities (IFRS 12).  IFRS 12 provides disclosure requirements about subsidiaries, joint ventures and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements.  The requirements of IFRS 12 will not have an impact on the results of operations or financial position of the Company as they are disclosure requirements only.IFRS 13 Fair Value MeasurementAs of January 1, 2013 the Company will be required to adopt IFRS 13 Fair Value Measurement (IFRS 13).  IFRS 13 establishes a single source of guidance for fair value measurements when fair value is required or permitted by IFRS and provides for enhanced disclosures when fair value is applied.  Management is currently evaluating the potential impact that the adoption of IFRS 13 will have on the Company's consolidated financial statements.IAS 27 Separate Financial StatementsAs of January 1, 2013 the Company will be required to adopt the reissued IAS 27 Separate Financial Statements (IAS 27).  As the consolidation guidance will now be included in IFRS 10, IAS 27 will only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the entity prepares separate financial statements.  Management is currently evaluating the potential impact that the adoption of the reissued IAS 27 will have on the financial statements of the Company's subsidiariesControls over Financial ReportingManagement is responsible for the design and effectiveness of internal controls over financial reporting in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements that are free of material errors.  During the Company's transition period to IFRS, management identified and subsequently implemented certain changes to accounting processes and procedures in order to comply with IFRS.  The material changes in processes and procedures relate to the following;Accounting for securitized mortgages on the Company's balance sheet.Accounting for the secured borrowing liability.Accounting for securitized mortgages interest income and secured borrowing interest expense.Application of hedge accounting for hedges of interest rate risk.Conversion of historical Canadian GAAP financial information to IFRS for comparative purposes.As a result of these changes to accounting process and procedures, management revised existing internal controls and designed and implemented new internal controls over financial reporting to provide reasonable assurance that the risk of material misstatements in the Company's financial reporting has been mitigated.During the third quarter, the Company began capturing, summarizing and reporting mortgage, deposit and expense transactions using a new financial system.  The new system involved revisions to accounting processes.  The Company's internal controls over financial reporting were modified as a result of the changes to these processes.  Development of this system will continue into the fourth quarter and additional control modifications will be made as required.There were no other changes that have or could be reasonably expected to materially affect internal control over financial reporting.Comparative Consolidated Financial StatementsThe comparative interim unaudited consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 2011 unaudited interim consolidated financial statements.UPDATED SHARE INFORMATIONAs at September 30, 2011, the Company had issued 34,649,240 Common Shares. In addition, outstanding employee stock options amounted to 942,250 (Note 9(B)) (748,750 - Q3 2010) of which 475,625 were exercisable as of the quarter-end (434,100 - Q3 2010) for proceeds to the Company upon exercise of $15.8 million ($14.4 million - Q3 2010).Subsequent to the end of the third quarter, the Board of Directors declared a quarterly cash dividend of $0.20 per common share payable on December 1, 2011 to shareholders of record at the close of business on November 15, 2011.QUARTERLY FINANCIAL HIGHLIGHTS Table 16: Summary of Quarterly Results                   (000s, except per share and %)     IFRS       IFRS CGAAP       2011        2010  2009    Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4Net interest income (TEB1 )$89,478 $83,121 $78,232 $74,238 $70,104 $64,234 $63,354 $48,178 Less TEB adjustment 1,866  1,799  1,626  1,779  1,993  2,032  2,096  2,842 Net interest income per financial statements 87,612  81,322  76,606  72,459  68,111  62,202  61,258  45,336 Non-interest income 5,661  12,454  7,109  1,891  24,004  20,221  8,052  28,015 Non-interest expense 26,036  26,643  25,216  26,610  24,756  24,357  19,753  19,856 Total revenues 200,288  198,568  184,613  176,044  187,195  170,407  153,603  121,381 Net income 48,417  48,206  43,178  30,108  47,621  41,316  35,707  40,481 Return on common shareholders' equity 27.0% 28.2% 26.7% 19.5% 32.7% 30.4% 27.6% 28.4%Return on average total assets 1.2% 1.2% 1.1% 0.8% 1.4% 1.3% 1.2% 2.4%Earnings per common share                 Basic$1.40 $1.39 $1.24 $0.87 $1.37 $1.19 $1.03 $1.17  Diluted$1.39 $1.38 $1.24 $0.87 $1.37 $1.19 $1.03 $1.16 Book value per common share$21.10 $20.24 $19.14 $18.14 $17.44 $16.06 $15.26 $17.00 Efficiency ratio (TEB1 ) 27.4% 27.9% 29.6% 35.0% 24.6% 28.8% 27.7% 26.1%Efficiency ratio 27.9% 28.4% 30.1% 35.8% 25.1% 29.6% 28.5% 27.1%Tier 1 capital ratio2  17.7% 18.4% 19.0% 18.1% 16.9% 16.7% 16.5% 16.4%Total capital ratio2  21.0% 22.1% 20.3% 19.4% 18.1% 17.9% 17.9% 18.0%Non-performing loans as a % of gross loans 0.32% 0.23% 0.29% 0.24% 0.26% 0.34% 0.47% 0.85%Annualized provision as a % of gross loans 0.06% 0.03% 0.03% 0.17% 0.07% 0.02% 0.04% 0.17%1 TEB - Taxable Equivalent Basis, see definition on page 72 These figures relate to the Company's operating subsidiary, Home Trust CompanyThe Company's key financial measures for each of the last eight quarters are summarized in the table above.  Figures prior to Q1 2010 are presented on the previous Canadian GAAP basis. Readers are cautioned to consider the differences between IFRS and previous Canadian GAAP when making comparisons between IFRS and previous Canadian GAAP operating results and financial position.  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 mortgage lending, and continued low efficiency ratios.  Tier 1 and Total capital ratios through 2010 and into 2011 reflect the Company's prudent capital management strategies and the proactive approach to maintain a strong capital base.OUTLOOKThe Company will continue to focus on its core mortgage lending business, including its traditional mortgage lending programs which have successfully operated for nearly 25 years, as well as developing new products in this suite of offerings. These products serve selected segments of the Canadian financial services marketplace which are generally not the focus of the major financial institutions. Additionally, the Company will continue to offer insured mortgage products which are competitive and well-serviced and will continue to participate in the CMB and National Housing Authority MBS securitization programs when market conditions are favourable.  Growth of the overall loans portfolio will continue through cautious and strategic geographic penetration combined with ongoing measured growth of the consumer portfolio, while maintaining the Company's prudent credit policies. The Company will continue to explore solutions that will allow the Company to profitably grow its originations in the insured mortgage market segment.The Company is committed to maintaining its financial strength through a strong capital base and conservative liquidity and believes it is in a strong position to deal with any economic uncertainty that may spill over into the Canadian economy and positions it to continue generating above-average returns and capitalize on market opportunities where they arise, at controlled, acceptable levels of risk.  The Company is well positioned to continue to grow its assets, revenue and net income within its current objectives for 2011 and into 2012.Consistent with the first nine months of 2011 the Company expects that the rate of growth in the total mortgage loans portfolio will be moderate unless solutions that encourage growth of insured mortgage lending become available. Net income and net interest income will continue to grow as the portfolio shifts to higher yielding loans while maintaining credit quality. Securitization volumes will continue to reflect declines in Accelerator originations as the Company focuses its origination processes on its traditional mortgage products which are more profitable. Spreads earned on Accelerator and traditional mortgages are anticipated to remain relatively stable for the rest of 2011 and into 2012.The Company continues to observe healthy and stable real estate conditions throughout most of the country, with stable to modest increases in new and resale home sale volumes and stable to moderate price appreciation in most markets. The Company believes that the Canadian housing market will be stable throughout the remainder of 2011 and into 2012.Despite a reduction in Accelerator and multi-unit residential mortgage originations, the Company has maintained growth in its profitability by adapting its strategies to deal with changing capital allocation requirements and market changes. Stable housing markets allow for increased focus on the Company's traditional mortgage portfolio, Equityline Visa and modest geographic diversification. The Company continues focusing on superior customer and broker service, expansion of broker networks and increased market penetration. Home Capital expects origination volume increases in the traditional mortgage portfolio, modest increases in originations outside Ontario and continued growth in consumer lending, which includes Equityline Visa, for the remainder of 2011 and into 2012.The credit performance of the loan portfolio remains strong, with arrears, non-performing loans and write-offs within expected levels. The Company expects the level of write-offs and non-performing loans to remain consistent on a relative basis for the remainder of 2011 and into 2012.The investment in and implementation of SAP Solutions for Banking provides the foundation for the Company's future growth, and product development leading to increased future revenue, and profits. The new platform expands current capacity, improves customer service and will lead to future operational efficiencies, resulting in improved cost efficiency and growth.  The Company will commence the amortization of the capitalized SAP costs, beginning in the fourth quarter, over a 10 year period. It is expected that savings on the pre-implementation costs, which will not reoccur, combined with savings from increased operational efficiencies will mitigate the amortization expenses over time.Looking ahead, the Board of Directors and management are confident that Home Capital will continue generating strong earnings and growth throughout 2011 and into 2012. This Outlook section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements on page 6 of this quarterly report. Consolidated Statements of Income     For the three months ended For the nine months ended     September 30 September 30 September 30 September 30     2011  2010  2011  2010 thousands of Canadian dollars, except per share amounts (Unaudited)   (restated to IFRS)   (restated to IFRS)Net Interest Income Non-Securitized Assets         Interest from loans$104,418 $89,872 $291,733 $263,584 Dividends from securities 4,887  4,592  13,858  14,106 Other interest 1,127  2,472  4,039  6,530      110,432  96,936  309,630  284,220 Interest on deposits 49,387  47,846  141,374  140,382 Interest on senior debt 2,011  -  3,279  - Net interest income non-securitized assets 59,034  49,090  164,977  143,838             Net Interest Income Securitized Loans and Assets (note 6)        Interest from securitized loans and assets 84,195  66,255  248,615  174,708 Interest on securitization liabilities 55,617  47,234  168,052  126,975 Net interest income securitized loans and assets 28,578  19,021  80,563  47,733             Total Net Interest Income  87,612  68,111  245,540  191,571 Provision for credit losses (note 5(D)) 2,349  2,167  4,540  3,615      85,263  65,944  241,000  187,956 Non-Interest Income         Fees and other income 9,697  7,127  26,703  22,069 Gain on sale of loan portfolio -  3,917  -  3,917 Realized net gains and unrealized losses on securities 1,224  1,347  5,394  10,725 Net realized and unrealized gain (loss) on derivatives (note 14) (5,260) 11,613  (6,873) 15,566      5,661  24,004  25,224  52,277      90,924  89,948  266,224  240,233 Non-Interest Expenses          Salaries and benefits 13,509  11,847  39,339  34,334 Premises 1,997  1,732  5,769  5,074 Other operating expenses 10,530  11,177  32,787  29,459      26,036  24,756  77,895  68,867             Income Before Income Taxes   64,888  65,192  188,329  171,366 Income taxes (note 12(A))         Current 18,249  10,548  50,414  25,284  Deferred (1,778) 7,023  (1,832) 21,439      16,471  17,571  48,582  46,723 NET INCOME $48,417 $47,621 $139,747 $124,643             NET INCOME PER COMMON SHARE         Basic$1.40 $1.37 $4.03 $3.59 Diluted$1.39 $1.37 $4.02 $3.58 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING          Basic 34,682  34,717  34,691  34,708 Diluted 34,804  34,781  34,804  34,814             Total number of outstanding common shares (note 9(A)) 34,649  34,679  34,649  34,679 Book value per common share$21.10 $17.44 $21.10 $17.44 The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Statements of Comprehensive Income   For the three months ended For the nine months ended    September 30 September 30 September 30 September 30    2011  2010  2011  2010 thousands of Canadian dollars (Unaudited)    (restated to IFRS)   (restated to IFRS)           NET INCOME $48,417 $47,621 $139,747 $124,643            OTHER COMPREHENSIVE LOSS                    Available for Sale Securities         Net unrealized (losses) gains on securities available for sale (9,221) 8,760  (9,302) 2,480 Net gains reclassified to net income (1,499) (1,651) (5,989) (9,268)    (10,720) 7,109  (15,291) (6,788)Income tax (recovery) expense (2,707) 2,070  (3,875) (659)    (8,013) 5,039  (11,416) (6,129)           Cash Flow Hedges         Net unrealized losses on cash flow hedges (note 14) (3,430) -  (6,747) - Net losses reclassified to net income 189  -  280  -     (3,241) -  (6,467) - Income tax recovery (843) -  (1,682) -     (2,398) -  (4,785) -            Total other comprehensive (loss) income (10,411) 5,039  (16,201) (6,129)           COMPREHENSIVE INCOME $38,006 $52,660 $123,546 $118,514 The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Balance Sheets               September 30 December 31 January 1    2011  2010  2010 thousands of Canadian dollars (Unaudited)    (restated to IFRS) (restated to IFRS)ASSETS        Cash Resources (note 4(A))$417,701 $846,824 $930,134 Securities (note 4(B))      Held for trading -  -  99,938 Available for sale 440,458  424,168  494,602 Pledged securities (note 6(B)) 208,183  2,954  -      648,641  427,122  594,540 Loans (note 5)      Residential mortgages 5,782,855  4,683,527  4,473,255 Securitized residential mortgages (notes 5 and 6) 8,502,466  8,116,636  4,126,707 Non-residential mortgages 951,203  838,253  708,425 Personal and credit card loans 546,122  453,339  342,918      15,782,646  14,091,755  9,651,305 Collective allowance for credit losses (note 5(D)) (29,390) (29,153) (27,793)     15,753,256  14,062,602  9,623,512 Other       Income taxes receivable -  9,451  6,466 Derivative assets (note 14) 71,656  24,157  13,186 Other assets (note 7) 99,581  80,099  75,322 Capital assets 4,487  4,894  4,863 Intangible assets 61,051  47,917  26,811 Goodwill 15,752  15,752  15,752      252,527  182,270  142,400     $17,072,125 $15,518,818 $11,290,586 LIABILITIES AND SHAREHOLDERS' EQUITY       Liabilities       Deposits and Senior Debt        Deposits payable on demand$27,000 $50,359 $38,223  Deposits payable on a fixed date 7,193,517  6,545,620  6,433,533  Senior debt(note 13) 153,998  -  -      7,374,515  6,595,979  6,471,756 Securitization Liabilities (note 6(C))       Mortgage-backed security liabilities 2,604,521  2,826,105  1,191,552  Canada Mortgage Bond liabilities 6,148,605  5,278,473  2,964,904      8,753,126  8,104,578  4,156,456 Other       Derivative liabilities (note 14) 3,800  9,009  11,099 Income taxes payable 10,413  -  - Other liabilities (note 8) 160,774  140,554  130,823 Deferred tax liabilities (note 12(C)) 38,281  40,113  16,829      213,268  189,676  158,751      16,340,909  14,890,233  10,786,963 Shareholders' Equity       Capital stock (note 9) 54,489  50,427  45,396 Contributed surplus 5,453  4,571  3,606 Retained earnings 681,569  567,681  444,416 Accumulated other comprehensive (loss) income (note 11) (10,295) 5,906  10,205      731,216  628,585  503,623     $17,072,125 $15,518,818 $11,290,586 The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Statements of Changes in Shareholders' Equity     Net UnrealizedNet UnrealizedTotal     Gains (Losses)Losses onAccumulated     on SecuritiesCash FlowOtherTotalthousands of Canadian dollars,CapitalContributedRetainedAvailable forHedges,ComprehensiveShareholders'except per share amounts (Unaudited)StockSurplusEarningsSale, after Taxafter TaxIncomeEquityBalance at December 31, 2010              (restated to IFRS)$50,427 $4,571 $567,681 $5,906 $- $5,906 $628,585 Comprehensive income -  -  139,747  (11,416) (4,785) (16,201) 123,546 Stock options settled (note 9(A)) 4,237  (933) -  -  -  -  3,304 Amortization of fair value of employee stock options (note 10(A)) -  1,815  -  -  -  -  1,815 Repurchase of shares (note 9(A)) (175) -  (5,724) -  -  -  (5,899)Dividends paid or declared              ($0.56 per share) -  -  (20,135) -  -  -  (20,135)Balance at September 30, 2011$54,489 $5,453 $681,569 $(5,510)$(4,785)$(10,295)$731,216                Balance at January 1, 2010$45,396 $3,606 $444,416 $10,205 $- $10,205 $503,623 Comprehensive income -  -  124,643  (6,129) -  (6,129) 118,514 Exercise of stock appreciation rights -  (186) -  -  -  -  (186)Stock options settled (note 9(A)) 5,309  (880) -  -  -  -  4,429 Amortization of fair value ofemployee stock options (note 10(A)) -  1,655  -  -  -  -  1,655 Repurchase of shares (note 9(A)) (230) -  (6,745) -  -  -  (6,975)Dividends paid or declared              ($0.48 per share) -  -  (16,311) -  -  -  (16,311)Balance at September 30, 2010              (restated to IFRS)$50,475 $4,195 $546,003 $4,076 $- $4,076 $604,749 The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Statements of Cash Flows     For the nine months ended      September 30 September 30      2011  2010 thousands of Canadian dollars (Unaudited)    (restated to IFRS)CASH FLOWS FROM OPERATING ACTIVITIES     Net income for the period$139,747 $124,643 Adjustments to determine cash flows relating to operating activities:     Deferred income taxes (1,832) 21,439  Amortization of capital assets 2,181  1,829  Amortization of intangible assets  65  192  Amortization of premium/discount on securities 33  2,113  Amortization of securitization and senior debt transaction costs 6,736  6,731  Provision for credit losses (note 5(D)) 4,540  3,615  Change in accrued interest payable 21,581  18,384  Change in accrued interest receivable (3,647) (4,181) Realized net gains and unrealized losses on securities (5,394) (10,725) Loss (gain) on derivatives 6,265  (32,083) Net increase in mortgages (1,602,452) (3,081,068) Net increase in personal and credit card loans (92,742) (82,008) Net increase in deposits 624,538  315,774  Activity in securitization liabilities      Proceeds from securitization of mortgage-backed security liabilities 1,044,863  2,941,789   Settlement and repayment of securitization liabilities (456,891) (509,483) Amortization of fair value of employee stock options (note 10) 1,815  1,655  Other 1,973  1,183 Cash flows used in operating activities (308,621) (280,201)CASH FLOWS FROM FINANCING ACTIVITIES     Repurchase of shares (5,899) (6,975)Exercise of employee stock options and stock appreciation rights 3,304  4,243 Issuance of senior debt 149,072  - Dividends paid (19,440) (16,664)Cash flows from (used in) financing activities 127,037  (19,396)CASH FLOWS FROM INVESTING ACTIVITIES     Activity in available for sale and held for trading securities     Purchases (592,802) (317,312) Proceeds from sales 273,078  272,194  Proceeds from maturities 87,158  146,989 Purchases of capital assets (1,774) (2,216)Purchases of intangible assets (13,199) (17,605)Cash flows (used in) from investing activities (247,539) 82,050 Net decrease in cash and cash equivalents during the period (429,123) (217,547)Cash and cash equivalents at beginning of the period 846,824  930,134 Cash and Cash Equivalents at End of the Period (note 4(A))$417,701 $712,587 Supplementary Disclosure of Cash Flow Information     Dividends received$13,034 $11,863 Interest received 536,701  452,277 Interest paid 291,124  262,399 Income taxes paid 27,952  31,793 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. Notes to the Interim Consolidated Financial Statements (unless otherwise stated, all amounts are in Canadian dollars, Unaudited)1. CORPORATE INFORMATIONHome Capital Group Inc. (the "Company") is a public limited liability holding company traded on the Toronto Stock Exchange.  The Company is incorporated and domiciled in Canada with its registered and principal business offices located at 145 King Street West, Suite 2300, Toronto, Ontario.  The Company operates primarily through its federally regulated subsidiary, Home Trust Company (Home Trust), which offers deposits, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending, Visa products and payment card services.  Licensed to conduct business across Canada, Home Trust has branch offices in Ontario, Alberta, British Columbia, Nova Scotia and Quebec.  The Company is the ultimate parent of the group.These unaudited interim consolidated financial statements for the period ended September 30, 2011 were authorized for issuance by the Board of Directors of the Company on November 2, 2011.  The Board of Directors have the power to amend the financial statements after their issuance only in the case of discovery of an error.Subsequent to the end of the third quarter and before the date these financial statements were authorized for issuance, the Board of Directors declared a quarterly cash dividend of $6.9 million or $0.20 per common share payable December 1, 2011 to shareholders of record at the close of business on November 15, 2011.2. ACCOUNTING POLICIES USED TO PREPARE THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTSThese unaudited interim consolidated financial statements of the Company have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34) as issued by the International Accounting Standards Board (IASB) and using the accounting policies and methods of application that the Company expects to adopt in its consolidated financial statements as at and for the year ending December 31, 2011.  Those accounting policies and methods of application are based on the International Financial Reporting Standards (IFRS) that the Company expects to be applicable as at December 31, 2011.  The accounting policies were consistently applied to all periods presented unless otherwise noted.These unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as at and for the year ended December 31, 2010 as set out in the 2010 Annual Report, on pages 59 through 88 and the Company's unaudited interim consolidated financial statements as at and for the three months ended March 31, 2011 as set out in the 2011 First Quarter Report, on pages 33 through 74.  The effect of transitioning from the previous Canadian GAAP is explained in Note 17 to the first quarter financial statements included in the 2011 First Quarter Report and Note 18 to these unaudited interim consolidated financial statements.The significant accounting policies used in the preparation of these unaudited interim consolidated financial statements are summarized on pages 38 through 43 of the 2011 First Quarter Report.  During the second quarter of 2011, the Company issued $150 million in 5 year fixed senior debentures to the market as discussed in Note 13.  The accounting policy applied in respect of these debentures is described below under senior debt.Use of judgement and estimatesManagement has exercised judgement in the process of applying the Company's accounting policies.  In particular, the Company's accounting policy regarding loans and liabilities under current securitization programs, where such loans are not derecognized and securitization liabilities are recognized is based on management's judgement that substantially all of the risks and rewards of ownership of the securitized loans are retained.The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the consolidated balance sheet date and the reported amounts of revenue and expenses during the reporting period.  Key areas where management has made estimates include allowance for credit losses, fair values and impairment of financial instruments, goodwill and intangible assets, income taxes, fair value of stock options and useful lives of capital assets and intangible assets. Actual results could differ from those estimates.Senior debtSenior debt is carried at amortized cost, including the principal amount received on issue, plus accrued interest and costs incurred on issue, less repayments of principal and interest and amortization of issue costs and any premium or discount to the face amount of the debt.  Issue costs and premium or discount are amortized to income using the effective interest rate method.3. FUTURE CHANGES IN ACCOUNTING POLICIESThe following accounting pronouncements issued by the IASB were not effective as at September 30, 2011 and therefore have not been applied in preparing these consolidated financial statements.IFRS 7 Financial Instruments: DisclosuresIn October 2010, the IASB issued amendments to IFRS 7 regarding Disclosures - Transfers of Financial Assets, which are effective for annual periods beginning on or after July 1, 2011 with earlier application permitted.  The amendments comprise additional disclosures on financial asset transfer transactions. These amendments will not have an impact on the results of operations or financial position of the Company as they are disclosure requirements only.IFRS 9 Financial InstrumentsIn November 2009, the IASB issued, and subsequently revised in October 2010, IFRS 9 Financial Instruments (IFRS 9) as a first phase in its ongoing project to replace IAS 39.  IFRS 9, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.  In August 2011, the IASB issued an exposure draft proposing to change this effective date to January 1, 2015 (a final decision is still pending).  IFRS 9 provides new requirements as to how an entity should classify and measure financial assets and liabilities that are in the scope of IAS 39.  The standard requires all financial assets to be classified on the basis of the entity's business model for managing such financial assets and the contractual cash flow characteristics of the financial assets.A financial asset is measured at amortized cost if the objective of the business model is to hold the financial asset for the collection of the contractual cash flows and the contractual cash flows under the instrument solely represent payments of principal and interest.  A financial asset that meets the criteria to be measured at amortized cost can be designated at fair value through profit or loss under the fair value option, if doing so would significantly reduce or eliminate an accounting mismatch.  If a financial asset does not meet the criteria to be measured at amortized cost, it is measured at fair value.IFRS 9 requires all equity investments to be measured at fair value with an option to present unrealized and realized fair value gains and losses in other comprehensive income for equity investments not held for trading.  This irrevocable designation to present in other comprehensive income must be made on initial recognition on an instrument-by-instrument basis.  There is no subsequent transfer of fair value gains and losses to profit or loss.  Dividends from such investments will continue to be recognized in profit or loss. Management is currently evaluating the potential impact that the adoption of IFRS 9 will have on the Company's consolidated financial statements.IFRS 10 Consolidated Financial StatementsIn May 2011, the IASB issued IFRS 10 Consolidated Financial Statements (IFRS 10) which is effective for annual periods beginning on or after January 1, 2013 with earlier adoption permitted.  IFRS 10 will replace portions of IAS 27 Consolidated and Separate Financial Statements and interpretation SIC-12 Consolidation - Special Purpose Entities.  Under IFRS 10, consolidated financial statements will include all controlled entities under a single control model.  Management is currently evaluating the potential impact that the adoption of IFRS 10 will have on the Company's consolidated financial statements.IFRS 12 Disclosure of Interests in Other EntitiesIn May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities (IFRS 12) which is effective for annual periods beginning on or after January 1, 2013 with earlier adoption permitted.  IFRS 12 provides disclosure requirements about subsidiaries, joint ventures and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements.  The requirements of IFRS 12 will not have an impact on the results of operations or financial position of the Company as they are disclosure requirements only.IFRS 13 Fair Value MeasurementIn May 2011, the IASB issued IFRS 13 Fair Value Measurement (IFRS 13) which is effective for annual periods beginning on or after January 1, 2013 with earlier adoption permitted.  IFRS 13 establishes a single source of guidance for fair value measurements when fair value is required or permitted by IFRS and provides for enhanced disclosures when fair value is applied.  Management is currently evaluating the potential impact that the adoption of IFRS 13 will have on the Company's consolidated financial statements.IAS 27 Separate Financial StatementsIn May 2011, the IASB reissued IAS 27 Separate Financial Statements (IAS 27) which is effective for annual periods beginning on or after January 1, 2013 with earlier adoption permitted.  As the consolidation guidance will now be included in IFRS 10, IAS 27 will only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the entity prepares separate financial statements.  Management is currently evaluating the potential impact that the adoption of the reissued IAS 27 will have on the financial statements of the Company's subsidiaries.4. CASH RESOURCES AND SECURITIES(A) Cash Resources             thousands of Canadian dollars (Unaudited)September 30December 31January 1  2011  2010  2010 Deposits with regulated financial institutions$320,507 $347,631 $866,069 Treasury bills guaranteed by government 178  406,938  - Cash and cash equivalents 320,685  754,569  866,069 Restricted cash - Canada Mortgage Bond program 70,600  70,000  46,100 Restricted cash - interest rate swaps 26,416  22,255  17,965  $417,701 $846,824 $930,134 Restricted cash - Canada Mortgage Bond program represents deposits held as collateral by CMHC in connection with the Company's securitization activities. To participate in the National Housing Authority mortgage-backed security programs, the Company is required to maintain an amount of cash in a trust account to cover deposits of unscheduled principal prepayments (UPP). The amount represents a percentage of UPP, which is based on the Company's average monthly UPP rate for the last year and calculated on the basis of the end of year principal balance. The Company is allowed to invest the above amount in eligible securities. The funds must be invested on behalf of the Principal & Interest Custodial/Trust Account.  Currently, these funds are deposits held by a Canadian Schedule A Bank.Restricted cash - interest rate swaps are deposits held by swap counterparties as collateral for the Company's interest rate swap transactions.  The Company is required to provide collateral against its interest rate swap transactions as part of the agreements with the counterparties. The terms and conditions for these collaterals are governed by International Swaps Dealers Associations (ISDA) agreements.(B) Available for Sale Securities - Net Unrealized Gains and Losses         thousands of Canadian dollars (Unaudited)September 30December 31January 1Gains (losses) 2011  2010  2010 Securities issued or guaranteed by:       Canada$- $- $237  Corporations 49  130  (35)Equity securities       Common 786  1,584  2,369  Fixed rate preferred (7,925) 6,282  8,105 Income trusts (835) (458) 2,317 Mutual funds 287  115  (55)   $(7,638)$7,653 $12,938 Net unrealized gains and losses are included in accumulated other comprehensive income except for impairment losses which are transferred to net income. Accumulated other comprehensive income is disclosed in Note 11.The unrealized losses included above represent differences between the cost of a security and its current fair value. The Company regularly monitors its investments and market conditions for indications of permanent impairment.For the three months ended September 30, 2011, the Company recognized $0.8 million with a year-to-date total of $1.9 million ($nil - Q3 2010 and $nil - nine months of 2010) of impairment losses on available for sale securities.  These losses were transferred into net income. These unrealized losses are not included in the above table.5. LOANS(A) Loans by Geographic Region and Type (net of individual allowances for credit losses)            thousands of Canadian dollars, except % (Unaudited)    As at September 30, 2011  Securitized     ResidentialResidentialNon-residentialPersonal and Percentage MortgagesMortgagesMortgagesCredit Card LoansTotalof PortfolioBritish Columbia$320,801 $905,244 $5,156 $13,514 $1,244,715 7.9%Alberta 329,193  714,534  33,640  33,679  1,111,046 7.1%Ontario 4,830,157  5,753,245  840,218  491,638  11,915,258 75.5%Quebec 201,827  715,059  47,114  1,705  965,705 6.1%Atlantic provinces 90,752  216,848  25,075  4,414  337,089 2.1%Other 10,125  197,536  -  1,172  208,833 1.3% $5,782,855 $8,502,466 $951,203 $546,122 $15,782,646 100.0%As a % of portfolio 36.6% 53.9% 6.0% 3.5% 100.0%             thousands of Canadian dollars, except % (Unaudited)    As at December 31, 2010  Securitized     ResidentialResidentialNon-residentialPersonal and Percentage MortgagesMortgagesMortgagesCredit Card LoansTotalof PortfolioBritish Columbia$313,225 $897,890 $9,580 $15,921 $1,236,616 8.8%Alberta 302,113  719,726  31,813  39,090  1,092,742 7.8%Ontario 3,686,264  5,411,314  736,310  391,976  10,225,864 72.5%Quebec 157,098  665,942  34,710  1,482  859,232 6.1%Atlantic provinces 128,328  224,695  25,840  3,661  382,524 2.7%Other 96,499  197,069  -  1,209  294,777 2.1% $4,683,527 $8,116,636 $838,253 $453,339 $14,091,755 100.0%As a % of portfolio 33.3% 57.6% 5.9% 3.2% 100.0%             thousands of Canadian dollars, except % (Unaudited)     As at January 1, 2010  Securitized     ResidentialResidentialNon-residentialPersonal and Percentage MortgagesMortgagesMortgagesCredit Card LoansTotalof PortfolioBritish Columbia$480,004 $494,867 $9,270 $22,617 $1,006,758 10.4%Alberta 368,201  494,736  76,424  54,209  993,570 10.3%Ontario 3,326,976  2,414,112  570,339  258,952  6,570,379 68.1%Quebec 133,798  453,652  31,660  1,594  620,704 6.4%Atlantic provinces 93,139  122,826  11,399  4,095  231,459 2.4%Other 71,137  146,514  9,333  1,451  228,435 2.4% $4,473,255 $4,126,707 $708,425 $342,918 $9,651,305 100.0%As a % of portfolio 46.3% 42.8% 7.3% 3.6% 100.0% (B) Past Due Loans that are not Impaired A loan is recognized as being impaired (non-performing) 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 individually provided for or when it has been in arrears for 90 days.  Residential mortgages (including securitized residential mortgages) guaranteed by the Government of Canada are not considered impaired until payment is contractually 365 days past due.  As securitized residential mortgages are insured, credit losses are not anticipated on this portfolio. Secured and unsecured credit card balances that have a payment that is contractually 120 days in arrears are individually provided for and those 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.       thousands of Canadian dollars (Unaudited)   As at September 30, 2011   Securitized     Residential Residential Non-residentialPersonal and  Mortgages Mortgages MortgagesCredit Card LoansTotal1 - 30 days$134,967  $54,491  $3,828 $4,313 $197,599 31 - 60 days 35,920   11,921   126  1,628  49,595 61 - 90 days 6,715   2,376   414  2,269  11,774 Over 90 days 9,282 1  17,955 1  -  1,256  28,493  $186,884  $86,743  $4,368 $9,466 $287,461              thousands of Canadian dollars (Unaudited)   As at December 31, 2010   Securitized     Residential Residential Non-residentialPersonal and  Mortgages Mortgages MortgagesCredit Card LoansTotal1 - 30 days$108,842  $39,981  $4,671 $4,706 $158,200 31 - 60 days 26,027   5,836   1,022  1,922  34,807 61 - 90 days 6,038   3,055   -  1,857  10,950 Over 90 days 7,080 1  10,909 1  -  1,384  19,373  $147,987  $59,781  $5,693 $9,869 $223,330              thousands of Canadian dollars (Unaudited)      As at January 1, 2010   Securitized     Residential Residential Non-residentialPersonal and  Mortgages Mortgages MortgagesCredit Card LoansTotal1 - 30 days$134,925  $50,396  $4,058 $5,204 $194,583 31 - 60 days 36,149   10,450   1,910  1,428  49,937 61 - 90 days 3,080   3,386   -  2,162  8,628 Over 90 days 8,911 1  24,005 1  -  749  33,665  $183,065  $88,237  $5,968 $9,543 $286,813 1Insured residential mortgages are considered impaired when they are 365 days past due.(C) Impaired LoansResidential mortgages guaranteed by the Government of Canada are not considered impaired until payment is contractually 365 days past due.  As securitized residential mortgages are all fully insured, credit losses are not anticipated.        thousands of Canadian dollars (Unaudited)      As at September 30, 2011  Securitized    ResidentialResidentialNon-residentialPersonal and  MortgagesMortgagesMortgagesCredit Card LoansTotalGross amount of impaired loans$43,819 $- $2,732 $6,443 $52,994 Individual allowances on principal (1,312) -  (33) (1,854) (3,199)Net$42,507 $- $2,699 $4,589 $49,795            thousands of Canadian dollars (Unaudited)      As at December 31, 2010  Securitized    ResidentialResidentialNon-residentialPersonal and  MortgagesMortgagesMortgagesCredit Card LoansTotalGross amount of impaired loans$29,586 $- $2,295 $7,241 $39,122 Individual allowances on principal (1,757) -  -  (3,140) (4,897)Net$27,829 $- $2,295 $4,101 $34,225            thousands of Canadian dollars (Unaudited)       As at January 1, 2010  Securitized    ResidentialResidentialNon-residentialPersonal and  MortgagesMortgagesMortgagesCredit Card LoansTotalGross amount of impaired loans$41,621 $- $2,417 $4,847 $48,885 Individual allowances on principal (1,483) -  (135) (961) (2,579)Net$40,138 $- $2,282 $3,886 $46,306 (D) Allowance for Credit Losses  thousands of Canadian dollars (Unaudited) For the three months ended September 30, 2011  ResidentialNon-residentialPersonal and   MortgagesMortgagesCredit Card LoansTotalIndividual allowances        Allowance on loan principal         Balance at the beginning of the period$1,168 $- $1,983 $3,151  Provision for credit losses 1,765  33  420  2,218  Write-offs (1,701) -  (582) (2,283) Recoveries 80  -  33  113    1,312  33  1,854  3,199 Allowance on accrued interest receivable         Balance at the beginning of the period 443  -  -  443  Provision for credit losses 131  -  -  131    574  -  -  574 Total individual allowance 1,886  33  1,854  3,773 Collective allowance         Balance at the beginning of the period 16,919  8,334  4,137  29,390  Provision for credit losses -  -  -  -    16,919  8,334  4,137  29,390 Total allowance$18,805 $8,367 $5,991 $33,163 Total provision$1,896 $33 $420 $2,349           thousands of Canadian dollars (Unaudited) For the three months ended September 30, 2010  ResidentialNon-residentialPersonal and   MortgagesMortgagesCredit Card LoansTotalIndividual allowances        Allowance on loan principal         Balance at the beginning of the period$725 $145 $699 $1,569  Provision for credit losses 1,636  (85) 360  1,911  Write-offs (1,359) -  (649) (2,008) Recoveries 181  -  61  242    1,183  60  471  1,714 Allowance on accrued interest receivable         Balance at the beginning of the period 294  -  -  294  Provision for credit losses 54  -  -  54    348  -  -  348 Total individual allowance 1,531  60  471  2,062 Collective allowance         Balance at the beginning of the period 21,464  4,100  3,380  28,944  Provision for credit losses (2) 84  120  202    21,462  4,184  3,500  29,146 Total allowance$22,993 $4,244 $3,971 $31,208 Total provision$1,688 $(1)$480 $2,167           thousands of Canadian dollars (Unaudited)For the nine months ended September 30, 2011  ResidentialNon-residentialPersonal and   MortgagesMortgagesCredit Card LoansTotalIndividual allowances        Allowance on loan principal         Balance at the beginning of the period$1,757 $- $3,140 $4,897  Provision for credit losses 4,140  33  (41) 4,132  Write-offs (4,880) -  (1,351) (6,231) Recoveries 295  -  106  401    1,312  33  1,854  3,199 Allowance on accrued interest receivable         Balance at the beginning of the period 403  -  -  403  Provision for credit losses 171  -  -  171    574  -  -  574 Total individual allowance 1,886  33  1,854  3,773 Collective allowance         Balance at the beginning of the period 16,299  9,357  3,497  29,153  Provision for credit losses 620  (1,023) 640  237    16,919  8,334  4,137  29,390 Total allowance$18,805 $8,367 $5,991 $33,163 Total provision$4,931 $(990)$599 $4,540           thousands of Canadian dollars (Unaudited)For the nine months ended September 30, 2010  ResidentialNon-residentialPersonal and   MortgagesMortgagesCredit Card LoansTotalIndividual allowances        Allowance on loan principal         Balance at the beginning of the period$1,483 $135 $961 $2,579  Provision for credit losses 1,739  (75) 635  2,299  Write-offs (4,376) -  (1,315) (5,691) Recoveries 2,337  -  190  2,527    1,183  60  471  1,714 Allowance on accrued interest receivable         Balance at the beginning of the period 385  -  -  385  Provision for credit losses (37) -  -  (37)   348  -  -  348 Total individual allowance 1,531  60  471  2,062 Collective allowance         Balance at the beginning of the period 19,948  4,398  3,447  27,793  Provision for credit losses 1,514  (214) 53  1,353    21,462  4,184  3,500  29,146 Total allowance$22,993 $4,244 $3,971 $31,208 Total provision$3,216 $(289)$688 $3,615 There were no provisions, allowances or net write-offs on securitized residential mortgages, which are insured.6. SECURITIZATION ACTIVITY (A) Securitized AssetsThe Company's wholly owned subsidiary, Home Trust, securitizes insured residential mortgage loans by participating in the National Housing Authority (NHA) mortgage-backed securities (MBS) program. Through the program the Company issues securities backed by residential mortgage loans that are insured against borrowers' default. Once the mortgage loans are securitized, the Company assigns underlying mortgages and/or related securities to CMHC.  As an issuer of the MBS, Home Trust is responsible for advancing all scheduled principal and interest payments to CMHC, irrespective of whether or not the amounts have been collected on the underlying transferred mortgages.  The securitization activity includes the Company's participation in the Canada Mortgage Bond (CMB) program. Under the CMB program, CMHC guarantees the bonds of a special purpose trust, Canada Housing Trust (CHT). CHT uses the proceeds of its bond issuance to finance the purchase of NHA MBS.In these securitizations, the Company retains certain prepayment risk and interest rate risk related to the transferred mortgages. Due to retention of these risks, transferred mortgages are not derecognized and the securitization proceeds are accounted for as secured borrowing transactions. There are no expected credit losses on the securitized mortgage assets as the mortgages are insured against default. Further, the investors and CMHC have no recourse to other assets of either the Company or Home Trust in the event of failure of debtors to pay when due.The carrying amounts of the mortgages transferred during the quarter amounted to $396.8 million, including replacement assets of $161.6 million, for a total of $1.60 billion, including replacement assets of $548.1 million for the nine months ended September 30, 2011 ($1.13 billion including replacement assets of $211.8 million - Q3 2010 and $3.31 billion including replacement assets of $477.1 million for the nine months ended September 30, 2010).  The transferred mortgages are recorded on the consolidated balance sheets as securitized residential mortgages.  Associated new securitization liabilities of $235.4 million were added during the quarter for a total of $1.05 billion for the nine months ended September 30, 2011 ($964.8 million - Q3 2010 and a total of $2.89 billion for the nine months ended September 30, 2010) and are secured by the mortgages and other pledged assets.(B) Assets Pledged as CollateralMortgage loans and other assets used in securitization activities are pledged against the associated secured borrowings (securitization liabilities). As a requirement of the NHA MBS program, the Company assigns, transfers, and sets over to CMHC, all of its rights, title, and interest in existing mortgage pools. If the Company fails to make timely payment under an NHA MBS security, CMHC may enforce the assignment to CMHC of the mortgages included in all the mortgage pools backing the securities issued. If CMHC enforces the assignments, all authority and power of the Company under the terms of NHA MBS guide, whether with respect to securities issued or mortgages pooled in the contract, shall pass to and be vested in CMHC.As at September 30, 2011 the principal value of the Company's mortgage loans securitized and pledged as collateral for associated liabilities was $8.45 billion ($8.06 billion - December 31, 2010; $4.10 billion - January 1, 2010). These mortgages are recorded as securitized residential mortgages on the consolidated balance sheets. The Company has also pledged $208.2 million as at September 30, 2011 ($3.0 million - December 31, 2010; $nil - January 1, 2010) in non-Home Trust MBS and treasury bills as collateral in the CMB program, which are recorded as pledged securities on the consolidated balance sheets.(C) Securitization LiabilitiesSecuritization liabilities represent the funding secured by insured mortgages assigned under NHA MBS programs, which include both MBS securities directly sold to third party investors and participation in the CMB program.  As the securitization of mortgages does not lead to derecognition of the mortgages under accounting standards, proceeds received through securitization of these mortgages are recorded as CMB and MBS liabilities on the consolidated balance sheets of the Company.  The total amount of MBS and CMB liabilities outstanding as at September 30, 2011 amounted to $8.75 billion ($8.10 billion - December 31, 2010; $4.16 billion - January 1, 2010).  Accrued interest on these liabilities is classified in other liabilities as accrued interest payable on securitized liabilities.MBS securitization liabilities are reduced on a monthly basis based on principal payments collected from securitized assets during the month. CMB liabilities are bullet bond liabilities with fixed maturities. Any principal collected against securitized assets underlying CMB liabilities is transferred to CMHC under the program on a monthly basis. The funds are received back from CMHC once the Company provides replacement assets monthly.Interest accrued on MBS liabilities is based on MBS coupon and is paid monthly to MBS investors. Interest accrued on CMB liabilities is based on the CMB coupon related to the series in which the Company participated. Accrued interest on underlying MBS and replacement assets provided over the course of CMB liabilities is passed to counterparties on a monthly basis and is shown as MBS interest receivable in other assets. At the coupon settlement date, the Company pays/receives the difference between the amount already paid to counterparties and accrued interest based on the CMB coupon through an interest rate swap. Because the underlying cash flows associated with this interest rate swap are captured through the on-balance sheet recognition of the underlying mortgages and the associated CMB secured borrowing, these interest rate swaps are not recognized at fair value on the consolidated balance sheets and fair value changes are not recognized in the consolidated statements of income. The underlying cash flows of the interest rate swap are recognized on an accrual basis as described above. As at September 30, 2011, the notional amount of these swaps, which represents the CMB secured borrowing, was $6.12 billion compared to $5.31 billion at December 31, 2010 and $4.58 billion at September 30, 2010.7. OTHER ASSETS       thousands of Canadian dollars (Unaudited)September 30December 31January 1  2011  2010  2010 Accrued interest receivable$53,567 $49,920 $43,269 MBS interest receivable 19,840  9,449  5,521 Other prepaid assets and deferred items 26,174  20,730  26,532  $99,581 $80,099 $75,322 8. OTHER LIABILITIES       thousands of Canadian dollars (Unaudited)September 30December 31January 1  2011  2010  2010 Accrued interest payable on deposits$80,014 $72,630 $76,564 Accrued interest payable on securitization liabilities 36,506  22,309  13,417 Dividends payable 6,931  6,236  5,901 Other, including accounts payable and accrued liabilities 37,323  39,379  34,941  $160,774 $140,554 $130,823 9. CAPITAL (A) Common Shares Issued and Outstanding thousands (Unaudited)For the three months ended For the nine months ended September 30, 2011September 30, 2010September 30, 2011September 30, 2010 Number of  Number of  Number of  Number of   Shares AmountShares AmountShares AmountShares AmountOutstanding at beginning of period34,684 $54,543 34,670 $48,771 34,646 $50,427 34,713 $45,396 Options exercised-  - 43  1,751 116  4,237 131  5,309 Repurchase of shares(35) (54)(34) (47)(113) (175)(165) (230)Outstanding at end of period34,649 $54,489 34,679 $50,475 34,649 $54,489 34,679 $50,475 The purchase cost of shares acquired through the repurchase of shares is allocated between capital stock and retained earnings.(B) Share Purchase Options             thousands, except per share amounts           (Unaudited)For the three months ended For the nine months ended September 30, 2011September 30, 2010September 30, 2011September 30, 2010   Weighted-  Weighted-  Weighted-  Weighted-   Average  Average  Average  Average Number of ExerciseNumber of ExerciseNumber of ExerciseNumber of Exercise Shares PriceShares PriceShares PriceShares PriceOutstanding at beginning of period949 $36.99 797 $30.81 1,066 $36.07 925 $31.32 Granted-  - 10  44.63 -  - 10  44.63 Exercised-  - (43) 34.96 (116) 28.43 (131) 33.94 Forfeited(6) 47.92 (15) 29.06 (7) 47.92 (55) 34.66 Outstanding at end of period943 $36.92 749 $30.80 943 $36.92 749 $30.80 Exercisable, end of period476 $33.19 434 $33.26 476 $33.19 434 $33.26 (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 meet regulatory capital requirements, 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, is subject to the regulatory capital requirements governed by the Office of the Superintendent of Financial Institutions Canada (OSFI).  These requirements are consistent with international standards (Basel II) set by the Bank for International Settlements.  Home Trust follows the Standardized Approach for calculating credit risk and the Basic Indicator Approach for operational risk.The regulatory capital position of Home Trust was as follows:   thousands of Canadian dollars, except ratios and multiple (Unaudited)September 30December 31   2011  2010     (Canadian GAAP 4 )Tier 1 capital     Capital stock$23,497 $23,497  Contributed surplus 951  951  Retained earnings 674,314  658,530  Accumulated other comprehensive loss 1  (6,039) - IFRS transition adjustment 61,486  - Total 754,209  682,978 Tier 2 capital     Collective allowance for credit losses 2  29,390  29,153  Accumulated other comprehensive income 3  -  4,545  Subordinated debentures 115,000  15,000  Total 144,390  48,698 Total regulatory capital$898,599 $731,676 Risk-weighted assets for     Credit risk$3,831,000 $3,423,017  Operational risk 438,175  354,250 Total risk-weighted assets$4,269,175 $3,777,267 Regulated capital to risk-weighted assets     Tier 1 capital 17.7% 18.1% Tier 2 capital 3.4% 1.3%Total regulatory capital ratio 21.0% 19.4%Assets to regulatory capital multiple 14.0  10.5 1 Accumulated other comprehensive loss relates to unrealized losses on certain available for sale equity securities, net of tax, which decrease Tier 1 capital.2 The Company is allowed to include its collective allowance for credit losses up to a prescribed percentage of risk-weighted assets in Tier 2 capital.  At September 30, 2011, the Company's collective allowance represented 0.69% of risk-weighted assets.3 Accumulated other comprehensive income relates to unrealized gains on certain available for sale equity securities, net of tax, which increase Tier 2 capital.4 Regulatory capital and calculations as at December 31, 2010 are based on previous Canadian GAAP balances.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.Under IFRS transition relief permitted by OSFI, the Company has elected to amortize the December 31, 2010 IFRS retained earnings transition adjustment over eight quarters beginning March 31, 2011. The IFRS retained earnings transition adjustment for regulatory capital calculation purposes is the difference between retained earnings under Canadian GAAP and IFRS at December 31, 2010. In the absence of this election, the Company's Tier 1 and Total capital would be $692.7 million and $837.1 million, respectively, at September 30, 2011.10. STOCK-BASED COMPENSATION (A) Common Shares Issued and Outstanding During the third quarter of 2011, $584 thousand was recorded as an expense for a year-to-date total of $1,815 thousand ($475  thousand - Q3 2010 and $1,655 thousand - nine months of 2010) for stock option awards in the consolidated statements of income, with an offsetting credit to contributed surplus. During the third quarter of 2011, no options were granted for a year-to-date total of nil (10 thousand - Q3 2010 and 10 thousand - nine months of 2010).(B) Deferred Share Unit Plan Effective January 1, 2009 the Board of Directors approved a deferred share unit (DSU) plan. The plan is only available to non-employee Directors of the Company who elect to accept remuneration in the form of cash, cash and DSUs or DSUs.  At September 30, 2011, 10,889 DSUs remain issued with an associated liability of $445 thousand recorded in other liabilities on the consolidated balance sheet.11. ACCUMULATED OTHER COMPREHENSIVE INCOME        thousands of Canadian dollars (Unaudited)September 30December 31January 1   2011  2010  2010 Unrealized (losses) gains on       Available for sale securities$(7,638)$7,653 $12,938  Income tax (recovery) expense (2,128) 1,747  2,733    (5,510) 5,906  10,205         Unrealized losses on       Cash flow hedges (6,467) -  -  Income tax expense (1,682) -  -    (4,785) -  - Accumulated other comprehensive (loss) income$(10,295)$5,906 $10,205 12. INCOME TAXES (A) Reconciliation of Income Taxes  thousands of Canadian dollars (Unaudited)For the three months endedFor the nine months ended  September 30September 30September 30September 30   2011  2010  2011  2010 Income before income taxes$64,888 $65,192 $188,329 $171,366 Income taxes at statutory combined federal and provincial income tax rates$18,373 $20,403 $53,122 $53,162 Increase (decrease) in income taxes at statutory income tax rates resulting from         Tax-exempt income (1,341) (1,408) (3,802) (4,262) Non-deductible expenses 189  (138) 568  69  Future tax rate changes (82) (154) (197) (214) Other (668) (1,132) (1,109) (2,032)Income tax$16,471 $17,571 $48,582 $46,723 (B) Reconciliation of Income Tax Rates  (Unaudited)For the three months endedFor the nine months ended  September 30September 30September 30September 30  2011 2010 2011 2010 Statutory income tax rate 28.31% 31.30% 28.21% 31.02%Increase (reduction) in income tax rate resulting from         Tax-exempt income (2.06)% (2.16)% (2.02)% (2.49)% Non-deductible expenses 0.29% (0.21)% 0.30% 0.04% Future tax rate changes (0.13)% (0.24)% (0.10)% (0.12)% Other (1.03)% (1.74)% (0.59)% (1.18)%Effective income tax 25.38% 26.95% 25.80% 27.27%(C) Sources of Deferred Tax Balances  thousands of Canadian dollars (Unaudited)September 30December 31January 1   2011  2010  2010 Deferred tax liabilities       Commissions$5,675 $5,904 $6,754  Finders fees, net of commitment fees 12,712  14,750  9,962  Securitization transaction costs 9,210  10,652  4,064  Swaps 3,683  5,183  567  Development costs 14,220  11,060  7,232  Other 429  344  -    45,929  47,893  28,579         Deferred tax assets       Allowance for credit losses 7,545  7,780  7,549  Other 103  -  4,201    7,648  7,780  11,750   $38,281 $40,113 $16,829 Capital losses totalling $2.8 million are available to reduce capital gains in future years.  The future tax benefits arising from application of these losses have not been reflected in the consolidated statements of income and changes in shareholders' equity.13. SENIOR DEBT The company issued $150.0 million principal amount of 5.20% debentures on May 4, 2011 in denominations of $1,000 and authorized multiples of thereof.  The debenture pays interest semi-annually on November 4 and May 4 in each year commencing on November 4, 2011.  The debentures mature on May 4, 2016 and are redeemable at the option of the company upon 30 days written notice to the registered holder at a redemption price equal to the greater of the Canada Yield Price and par, together in each case with accrued and unpaid interest up to but excluding the date fixed for redemption.14. DERIVATIVE FINANCIAL INSTRUMENTSThe Company utilizes interest rate swaps and forward contracts to hedge exposures to interest rate risk. The Company generally uses its derivative instruments in hedge accounting relationships to minimize volatility in earnings caused by changes in interest rates. When a hedging derivative functions effectively, gains, losses, revenues or expenses of the hedging derivative will offset the gains, losses, revenues or expenses of the hedged item. To qualify for hedge accounting treatment, the hedging relationship is formally designated and documented at its inception. The documentation describes the particular risk management objective and strategy for the hedge and the specific asset, liability or cash flow being hedged and how effectiveness of the hedge is assessed. Changes in the fair value of the derivative instruments must be highly effective at offsetting either the changes in the fair value of the risk on the on-balance sheet asset or liability being hedged or the changes in the amount of future cash flows.Hedge effectiveness is assessed at the inception of the hedge and on an ongoing basis, retrospectively and prospectively, over the life of the hedge. Any ineffectiveness in the hedging relationship is recognized immediately through non-interest expense.Cash Flow Hedging RelationshipsThe Company uses bond forward contracts to hedge the economic value exposure of movements in interest rates between the time that the Company is committed to its liabilities pursuant to asset securitization, and the time the mortgages are legally sold and the liabilities are incurred. The intent of the bond forward is to manage the change in cash flows of the future interest payments on the anticipated secured borrowings through asset securitization.The following table presents gains or (losses) related to cash flow hedges on the Company's financial results:   thousands of Canadian dollars (Unaudited)For the three months endedFor the nine months ended September 30September 30September 30September 30  2011  2010  2011  2010 Fair value changes recorded in other comprehensive income$(3,430)$- $(6,747)$- Fair value changes recorded in non-interest income -  -  (545) - Amounts reclassified from other comprehensive incometo net interest income (189) -  (280) - Fair Value Hedging RelationshipsThe Company uses interest rate swaps to hedge changes in the fair value of long term fixed rate liabilities associated with changes in market interest rates.The following table presents gains or (losses) related to fair value hedges on the Company's financial results:   thousands of Canadian dollars (Unaudited)For the three months endedFor the nine months ended September 30September 30September 30September 30  2011  2010  2011  2010 Fair value changes recorded on interest rate swaps 1 $54,218 $3,895 $59,204 $3,895 Fair value changes of hedged CMB liabilities for interest rate risk 2  (55,333) (3,951) (58,826) (3,951)Hedge ineffectiveness recognized in non-interest income$(1,115)$(56)$378 $(56)1 Unrealized gains and losses on hedging derivatives (interest rate swaps) are recorded as derivative assets or liabilities, as appropriate, on the consolidated balance sheets.2 Unrealized gains and losses on hedged items (fixed rate liabilities) for the risk being hedged are recorded as part of the associated fixed rate liability on the consolidated balance sheets.Other Derivative Gains and LossesFrom time to time, the Company enters into derivative positions which are not designated as hedges for accounting purposes.  The changes in fair value of such hedges flow directly to the income statement.  The Company recorded losses of $4.1 million in the quarter.As at September 30, 2011, December 31, 2010 and January 1, 2010, the outstanding interest rate and bond forward contracts (bonds) positions were as follows:            thousands of Canadian dollars (Unaudited)    As at September 30, 2011Term (years)Notional AmountDerivative AssetDerivative LiabilityNet Fair Value         Hedging swaps        1 to 5$1,612,214 $64,875 $- $64,875 6 to 10 109,600  6,769  (171) 6,598  $1,721,814 $71,644 $(171)$71,473          Non-hedging swaps 1         1 to 5$118,100 $12 $(3,629)$(3,617)         Hedging bond forwards 2         1 to 5$- $- $- $-          Total$1,839,914 $71,656 $(3,800)$67,856          thousands of Canadian dollars (Unaudited)    As at December 31, 2010Term (years)Notional AmountDerivative AssetDerivative LiabilityNet Fair Value         Hedging swaps        1 to 5$705,964 $1,292 $(4,408)$(3,116)         Non-hedging swaps 1         1 to 5$507,796 $21,111 $(2,883)$18,228 6 to 10 13,108  1,421  (656) 765  $520,904 $22,532 $(3,539)$18,993          Non-hedging bond forwards 2         1 to 5$36,300 $44 $(92)$(48)6 to 10 215,900  289  (970) (681) $252,200 $333 $(1,062)$(729)         Total$1,479,068 $24,157 $(9,009)$15,148       thousands of Canadian dollars (Unaudited)    As at January 1, 2010Term (years)Notional AmountDerivative AssetDerivative LiabilityNet Fair Value         Non-hedging swaps 1         1 to 5$226,988 $10,734 $(7,345)$3,389 6 to 10 3,042  -  (3,739) (3,739) $230,030 $10,734 $(11,084)$(350)         Non-hedging bond forwards 2         1 to 5$17,200 $307 $- $307 6 to 10 166,600  2,145  (15) 2,130  $183,800 $2,452 $(15)$2,437          Total$413,830 $13,186 $(11,099)$2,087 1Non-hedging swaps include swaps that were not in hedging relationships in 2010 or do not meet hedging criteria in 2011.2The term of the bond forward contracts is based on the term of the underlying bonds.The notional amount represents the amount to which the rate or price is applied in order to calculate the amount of cash exchanged under the contract.  Notional amounts do not represent an asset or liability recorded on the consolidated balance sheets.15. INTEREST RATE SENSITIVITY The Company's exposure to interest rate risk results from the difference, or gap between earliest of the maturity or re-pricing dates of interest sensitive assets and liabilities, including off-balance sheet items. The following table shows the gap positions at September 30, 2011, December 31, 2010 and January 1, 2010 for selected period intervals. Figures in brackets represent an excess of liabilities over assets or a negative gap position.               thousands of Canadian dollars, except % (Unaudited)      As at September 30, 2011  Floating 0 to 3 3 Months   Over Non-interest    Rate Months to 1 Year 1 to 3 Years 3 Years Sensitive TotalTotal assets$128,931 $4,724,886 $2,890,270 $5,706,488 $3,440,663 $180,887 $17,072,125 Total liabilities and equity (6) (3,638,203) (3,103,205) (5,881,552) (3,314,586) (1,134,573) (17,072,125)Off-balance sheet items -  (416,954) -  -  416,954  -  - Interest rate sensitive gap$128,925 $669,729 $(212,935)$(175,064)$543,031 $(953,686)$- Cumulative gap$128,925 $798,654 $585,719 $410,655 $953,686 $- $- Cumulative gap as a percentage of total assets 0.8% 4.7% 3.4% 2.4% 5.6% -  -                thousands of Canadian dollars, except % (Unaudited)      As at December 31, 2010  Floating 0 to 3 3 Months   Over Non-interest    Rate Months to 1 Year 1 to 3 Years 3 Years Sensitive TotalTotal assets$82,211 $3,850,355 $2,434,387 $4,470,999 $4,492,797 $188,069 $15,518,818 Total liabilities and equity (6) (2,529,328) (3,224,469) (4,716,434) (4,103,708) (944,873) (15,518,818)Off-balance sheet items -  (411,111) 16,408  179,836  214,867  -  - Interest rate sensitive gap$82,205 $909,916 $(773,674)$(65,599)$603,956 $(756,804)$- Cumulative gap$82,205 $992,121 $218,447 $152,848 $756,804 $- $- Cumulative gap as a percentage of total assets 0.5% 6.4% 1.4% 1.0% 4.9% -  -                thousands of Canadian dollars, except % (Unaudited)  As at January 1, 2010  Floating 0 to 3 3 Months   Over Non-interest    Rate Months to 1 Year 1 to 3 Years 3 Years Sensitive TotalTotal assets$68,941 $2,443,513 $1,590,908 $2,864,679 $4,142,369 $180,176 $11,290,586 Total liabilities and equity (6) (663,651) (3,001,431) (3,060,937) (3,801,226) (763,335) (11,290,586)Off-balance sheet items -  (307,364) 100,114  207,266  (16) -  - Interest rate sensitive gap$68,935 $1,472,498 $(1,310,409)$11,008 $341,127 $(583,159)$- Cumulative gap$68,935 $1,541,433 $231,024 $242,032 $583,159 $- $- Cumulative gap as a percentage of total assets 0.6% 13.7% 2.0% 2.1% 5.2% -  - Based on the current interest rate gap position at September 30, 2011, 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 $8.7 million and $2.0 million, respectively. A 100 basis point increase in interest rates would increase net interest income and other comprehensive income after tax over the next twelve months by $8.7 million and $2.0 million, respectively.16. EARNINGS BY BUSINESS SEGMENT The Company operates principally through two segments - mortgage lending and consumer lending. The mortgage lending operation consists of mortgage lending, securitization of insured mortgage loans and secured loans. The consumer lending operation consists of credit cards, PSiGate and individual loans to customers of retail businesses. These operating segments are supported by other activities including treasury and security investments and general corporate activities.               For the three months endedthousands of Canadian dollars            (Unaudited)Mortgage LendingConsumer LendingOtherTotal  September 30September 30September 30September 30September 30September 30September 30September 30   2011  2010  2011  2010  2011  2010  2011  2010 Net interest income$72,203 $51,971 $10,974 $8,692 $4,435 $7,448 $87,612 $68,111 Provision for credit losses (1,929) (1,687) (420) (480) -  -  (2,349) (2,167)Fees and other income 5,283  3,283  4,292  3,815  122  29  9,697  7,127 Net (loss) gain on securities and others (1,288) 11,457  -  3,917  (2,748) 1,503  (4,036) 16,877 Non-interest expenses (16,690) (16,180) (4,270) (3,498) (5,076) (5,078) (26,036) (24,756)Income before income taxes 57,579  48,844  10,576  12,446  (3,267) 3,902  64,888  65,192 Income taxes (15,462) (13,800) (2,991) (3,848) 1,982  77  (16,471) (17,571)Net income$42,117 $35,044 $7,585 $8,598 $(1,285)$3,979 $48,417 $47,621 Goodwill$2,324 $2,324 $13,428 $13,428 $- $- $15,752 $15,752 Total assets$15,613,159 $12,463,168 $580,999 $487,704 $877,967 $1,243,588 $17,072,125 $14,194,460                            For the nine months endedthousands of Canadian dollars            (Unaudited)Mortgage LendingConsumer LendingOtherTotal  September 30September 30September 30September 30September 30September 30September 30September 30   2011  2010  2011  2010  2011  2010  2011  2010 Net interest income$199,574 $145,692 $31,143 $26,771 $14,823 $19,108 $245,540 $191,571 Provision for credit losses (3,941) (2,927) (599) (688) -  -  (4,540) (3,615)Fees and other income 12,628  10,619  13,708  11,301  367  149  26,703  22,069 Net (loss) gain on securities and others (3,726) 16,305  -  3,917  2,247  9,986  (1,479) 30,208 Non-interest expenses (49,027) (44,166) (12,838) (11,092) (16,030) (13,609) (77,895) (68,867)Income before income taxes 155,508  125,523  31,414  30,209  1,407  15,634  188,329  171,366 Income taxes (43,014) (36,574) (8,885) (9,349) 3,317  (800) (48,582) (46,723)Net income$112,494 $88,949 $22,529 $20,860 $4,724 $14,834 $139,747 $124,643 Goodwill$2,324 $2,324 $13,428 $13,428 $- $- $15,752 $15,752 Total assets$15,613,159 $12,463,168 $580,999 $487,704 $877,967 $1,243,588 $17,072,125 $14,194,460 17. 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 2011 unaudited interim consolidated financial statements.18. TRANSITION TO IFRSThe Company has adopted IFRS effective January 1, 2011.  Prior to the adoption of IFRS, the Company prepared its consolidated financial statements in accordance with previous Canadian GAAP.  The Company's consolidated financial statements for the year ended December 31, 2011 will be the first annual financial statements that comply with IFRS.  Accordingly, the Company will make an explicit and unreserved statement of compliance with IFRS beginning with its 2011 annual consolidated financial statements.  The Company's transition date is January 1, 2010 (the "transition date") and the Company has prepared its opening consolidated balance sheet at that date.  These consolidated financial statements have been prepared in accordance with the accounting policies described or referred to in Note 2.  The Company will ultimately prepare its opening consolidated balance sheet and consolidated financial statements for 2010 and 2011 by applying existing IFRS with an effective date of December 31, 2011 or prior.  Accordingly, the opening consolidated balance sheet and consolidated financial statements for 2010 and 2011 may differ from these financial statements.In preparing these consolidated financial statements, the Company has applied the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards (IFRS 1).  IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS as of the first annual reporting date which, for the Company, will be December 31, 2011.  However, IFRS 1 provides for certain optional exemptions and certain mandatory exemptions from full retrospective application of IFRS.  The optional exemptions and mandatory exemptions applied by the Company are described below.(A) Elected Exemptions from Full Retrospective Application(i) Business combinationsThe Company elected to apply the business combinations exemption in IFRS 1 and did not apply IFRS 3 Business Combinations retrospectively to past business combinations.  Accordingly, the Company has not restated business combinations that took place prior to the transition date to IFRS and the carrying amount of goodwill under IFRS at transition date is equal to the carrying amount under Canadian GAAP at that date.(ii)Share-based payment transactionsThe Company elected to apply IFRS 2 Share-based Payment (IFRS 2) to equity instruments granted after November 7, 2002, that have not vested by the transition date.  Accordingly, the Company has only applied IFRS 2 to grants of employee stock options that were granted after November 7, 2002 that remain unvested as at January 1, 2010.(iii) Borrowing costsThe Company elected to apply IAS 23 Borrowing Costs to borrowing costs relating to qualifying assets for which the commencement date for capitalization is on or after the transition date to IFRS.(iv) LeasesThe Company elected to determine whether an arrangement existing at the date of transition contains a lease on the basis of facts and circumstances existing at the transition date.(B) Mandatory Exemptions from Full Retrospective Application(i) Derecognition of financial assets and financial liabilitiesAlthough recent amendments to IFRS 1 permit the Company to apply the derecognition requirements of IAS 39 Financial Instruments: Recognition and Measurement prospectively from January 1, 2010, the Company chose to apply the standards retroactively as directed by OSFI.(ii) Hedge accountingHedge accounting cannot be reflected in the opening IFRS balance sheet if it does not qualify for hedge accounting under IFRS nor be applied retrospectively to transactions entered into prior to the transition to IFRS.  Accordingly, the Company only applied hedge accounting to transactions that qualified for hedge accounting after the date of transition to IFRS.  The Company did not apply hedge accounting under Canadian GAAP.(iii) EstimatesHindsight cannot be used to create or revise estimates and accordingly the estimates previously made by the Company under Canadian GAAP were not revised for application of IFRS except where necessary to reflect any difference in accounting policies.(C) Reconciliations of Canadian GAAP to IFRSThe Company is required under IFRS 1 to provide the following reconciliations from previous Canadian GAAP to IFRS for its shareholders' equity and comprehensive income.  Reconciliation of Shareholders' Equitythousands of Canadian dollars (Unaudited)Note As at September 30, 2010       Shareholders' equity reported under previous Canadian GAAP   $695,848 Differences increasing (decreasing) reported shareholders' equity:      Securitization of mortgages(i)   (138,894) Hedge ineffectiveness(ii)   56  Interest on non-performing loans(iv)   1,455  Provision for accrued interest on non-performing loans(v)   (348) Deferred income taxes(vii)   46,632 Shareholders' equity reported under IFRS   $604,749        Reconciliation of Net Income Three Months EndedNine Months Endedthousands of Canadian dollars (Unaudited)NoteSeptember 30, 2010September 30, 2010       Net income reported under previous Canadian GAAP $45,450 $130,562 Differences increasing (decreasing) reported net income:      Securitization of mortgages(i) 5,121  (6,621) Hedge ineffectiveness(ii) 56  56  Impairment of AFS securities(iii) (5) 739  Interest on non-performing loans(iv) (9) (191) Provision for accrued interest on non-performing loans(v) (54) 37  Share-based compensation expense(vi) (176) (743) Deferred income taxes(vii) (2,762) 804 Net income reported under IFRS $47,621 $124,643        Reconciliation of Comprehensive Income Three Months EndedNine Months Endedthousands of Canadian dollars (Unaudited)NoteSeptember 30, 2010September 30, 2010       Comprehensive income reported under previous Canadian GAAP $49,699 $123,691 Differences increasing (decreasing) reported comprehensive income:      Differences in net income  2,171  (5,919) Securitization of mortgages(i) 1,167  2,829  Impairment of AFS securities(iii) 5  (739) Deferred income taxes(vii) (382) (1,348)Comprehensive income reported under IFRS $52,660 $118,514 Notes to Above Reconciliations(i) Securitization of mortgagesThe Company periodically transfers pools of mortgages to CMHC-sponsored special purpose entities or trusts which, in turn, issue securities to investors.Under previous Canadian GAAP, these transfers were accounted for as sales when the Company surrendered control of the transferred assets and received consideration other than the beneficial interest in the transferred assets.  When such sales occur, the Company retained interest-only strips and servicing responsibilities for the assets sold.  Gains or losses on these transactions were recognized as income. The gains or losses recorded were dependent in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer, net of transaction costs.  Retained interests were classified as available for sale assets and were stated at their fair value at the date of transfer with unrealized gains and losses reported in accumulated other comprehensive income.  The servicing liabilities were included with other liabilities and stated originally at their fair value and amortized into income over the period of the mortgage pool.  As part of the securitization program, the Company entered into certain interest rate swaps.  These transactions did not qualify for hedge accounting and therefore were accounted for on a mark-to-market basis, with changes in the fair value of the swap being recognized in income.Under IFRS, the above securitization transactions do not qualify for treatment as sales of mortgages and instead are treated as secured borrowing transactions.  Consequently, the securitized mortgages are accounted for in the same manner as non-securitized mortgages, remaining on the consolidated balance sheets with interest income recognized in the consolidated statements of income.  In addition, an obligation to repay the funding received in the securitization transaction is recognized on the consolidated balance sheets as secured borrowing (securitization liabilities) and related interest expense is recognized in the consolidated statements of income.The difference in accounting treatment between previous Canadian GAAP and IFRS for these securitization transactions has resulted in the following adjustments to the Company's consolidated financial statements:Securitized mortgages that were off-balance sheet under previous Canadian GAAP have been recognized in the consolidated balance sheets under IFRSSecuritization liabilities not previously recognized under previous Canadian GAAP have been recognized in the consolidated balance sheets under IFRSSecuritization receivables related to retained interests recognized on the consolidated balance sheets under previous Canadian GAAP have been removed from the consolidated balance sheets under IFRSSecuritization servicing liability included in other liabilities on the consolidated balance sheets under previous Canadian GAAP has been removed from the consolidated balance sheets under IFRSHome Trust MBS held by the Company but not yet sold to third parties or used as replacement assets in the CMB program were reclassified to securitized mortgages from available for sale securities. Unrealized fair value gains or losses recognized in accumulated other comprehensive income were reversed under IFRSGains and losses on securitization previously recognized in net income under previous Canadian GAAP have been reversed under IFRSInterest income earned on the securitized mortgages not previously recognized under previous Canadian GAAP has been recognized in net income under IFRSInterest expense on the securitization liabilities not previously recognized under previous Canadian GAAP has been recognized in net income under IFRSUnrealized gains and losses on retained interests recognized in other comprehensive income under previous Canadian GAAP has been reversed under IFRSAmortization of servicing liability recognized in net income under previous Canadian GAAP has been reversed under IFRSCertain transaction costs that formed part of the gain or loss on securitization under previous Canadian GAAP have been capitalized and recognized in interest income and expense under IFRS through the use of the effective interest rate methodGains and losses on the interest rate swaps (seller swaps) that were recognized in net income under previous Canadian GAAP were reversed under IFRS as the cash flows associated with these swaps are captured in the interest income recognized on the securitized mortgages and the interest expense recognized on the secured debt under IFRSThe above adjustments related to securitization transactions occurring before the date of transition have been adjusted through retained earnings or accumulated other comprehensive income in the consolidated balance sheet as at January 1, 2010.  The adjustments related to securitization transactions occurring on or after the date of transition and up to September 30, 2010 have been reflected in the consolidated statements of comprehensive income for the periods ending September 30, 2010 and through retained earnings and accumulated other comprehensive income on the consolidated balance sheet as at September 30, 2010 and December 31, 2010.The overall impact of the difference in accounting treatment between previous Canadian GAAP and IFRS for these securitization transactions results in differences as to the timing of the recognition of the cash flows in total comprehensive income.  Ultimately, at the end of the life of each securitization pool, the same cumulative total amount of income will have been recognized in shareholders' equity under both previous Canadian GAAP and IFRS.(ii) HedgingIn the latter part of 2010, the Company designated certain derivative instruments used to hedge interest rate risk in hedge accounting relationships under IFRS that did not qualify for hedge accounting under previous Canadian GAAP.   Accordingly, certain gains and losses recognized in net income under previous Canadian GAAP have been accounted for as fair value hedges under IFRS, where only the ineffective portion of the hedges are recorded in net income.(iii) Impairment of equity investmentsUnder IFRS, a significant or prolonged decline in the fair value of an investment in an equity investment below its cost is considered objective evidence of impairment resulting in the recognition of an impairment loss.  Under previous Canadian GAAP, such significant or prolonged declines were considered as an indicator of impairment, but not a definitive factor.  The Company has recognized impairment losses as at January 1, 2010 and during 2010 under IFRS on certain equity investments with significant or prolonged declines in fair value below cost that were not considered impaired under previous Canadian GAAP.  Additionally, impairment losses on certain equity investments were recognized under previous Canadian GAAP during 2010 that would have been recognized prior to 2010 under IFRS and consequently recognized as at January 1, 2010 under IFRS.  Accordingly, adjustments from previous Canadian GAAP to IFRS were made between retained earnings and accumulated other comprehensive income as at January 1, 2010 and between net income and other comprehensive income during 2010.  These adjustments did not affect total shareholders' equity.(iv) Accrued interest on non-performing loansUnder previous Canadian GAAP, when a loan becomes non-performing the accrual of interest ceases. Interest that is subsequently recovered is recognized at the time of recovery. Under IFRS, interest on non-performing loans continues to be accrued.  Accordingly, an adjustment from previous Canadian GAAP to IFRS has been made to retained earnings as at January 1, 2010 to reflect accrued interest on non-performing loans up to the date of transition.  Interest on non-performing loans subsequent to the date of transition has been recognized in net income in the relevant period.(v) Allowance for accrued interest on non-performing loansAs a result of recognizing accrued interest on non-performing loans under IFRS as describe above, the carrying amount of accrued interest receivable related to these non-performing loans recognized in the consolidated balance sheets has increased.  Consequently, an allowance against the accrued interest receivable on these non-performing loans has been established where the Company does not expect to recover all of the accrued interest.  Changes to this allowance are recognized in the provision for credit losses in the consolidated statements of income.(vi) Share-based compensationUnder previous Canadian GAAP, the Company accounted for stock option grants with graded vesting as one award, recognizing as expense the total fair value on a straight-line basis over the vesting period.  Under IFRS, the Company is required to account for each tranche in an award with graded vesting as a separate grant with a different vesting period and fair value.  As a result, the Company adjusted its expense for these share-based awards to reflect this difference in recognition.Under previous Canadian GAAP, the Company had the option of recognizing forfeitures as they occur or making an estimate of forfeitures.  The Company utilized both options under previous Canadian GAAP based on when the award was granted.  Under IFRS, the Company makes an estimate of forfeitures for all awards.  As a result, the Company adjusted its expense for these share-based awards to reflect this difference in recognition.The above adjustments resulted in differences between previous Canadian GAAP and IFRS for the amount of expense recognized in net income.  However, as these differences only result in a reclassification between retained earnings and contributed surplus on the consolidated balance sheets, there was no resulting difference in total shareholders' equity.(vii) Income taxesThe adjustments for income taxes reflect the impact of the other IFRS adjustments described above.  The portion of the adjustments to income taxes payable or recoverable that is related to items recorded through other comprehensive income does not affect net income.Financial Statement ReconciliationsThe following reconciliations demonstrate the impact of the above noted IFRS transition adjustments to the consolidated balance sheet and the consolidated statements of income, comprehensive income and cash flows.  Reconciliation of Consolidated Balance Sheet thousands of Canadian dollars (Unaudited)  As at September 30, 2010 Canadian GAAPIFRSIFRSIFRS  Previous Canadian GAAP Line ItemsBalanceAdjustmentsReclassificationBalance IFRS Line ItemsASSETS         ASSETSCash Resources$712,587 $- $- $712,587  Cash ResourcesSecurities         SecuritiesHeld for trading 49,651  -  -  49,651  Held for tradingAvailable for sale 776,065  (330,255) -  445,810  Available for sale  -  1,039  -  1,039  Pledged securities  825,716  (330,255) -  496,500   Loans         LoansResidential mortgages 4,709,360  329,282  -  5,038,642  Residential mortgages  -  6,574,568  -  6,574,568  Securitized residential mortgagesNon-residential mortgages 774,580  -  -  774,580  Non-residential mortgagesPersonal and credit card loans 428,207  -  -  428,207  Personal and credit card loans  5,912,147  6,903,850  -  12,815,997   General allowance for credit losses (29,146) -  -  (29,146) Collective allowance for credit losses  5,883,001  6,903,850  -  12,786,851   Other         OtherSecuritization receivable 315,203  (315,203) -  -     -  -  10,002  10,002  Income taxes receivable  -  38,290  -  38,290  Derivative assetsOther assets 129,662  25,320  (69,978) 85,004  Other assetsCapital assets 5,250  -  -  5,250  Capital assets  -  -  44,224  44,224  Intangible assets  -  -  15,752  15,752  Goodwill  450,115  (251,593) -  198,522    $7,871,419 $6,322,002 $- $14,194,460   LIABILITIES AND SHAREHOLDERS' EQUITY         LIABILITIES AND SHAREHOLDERS' EQUITYLiabilities         LiabilitiesDeposits         DepositsPayable on demand$20,827 $- $- $20,827  Payable on demandPayable on a fixed date 6,766,703  -  -  6,766,703  Payable on a fixed date  6,787,530  -  -  6,787,530             Securitization Liabilities  -  2,031,320  -  2,031,320  Mortgage-backed security liabilities  -  4,564,365  -  4,564,365  Canada Mortgage Bond liability  -  6,595,685  -  6,595,685   Other         Other  -  5,418  -  5,418  Derivative liabilitiesOther liabilities 1  388,041  (140,813) (84,393) 162,835  Other liabilities  -  (46,150) 84,393  38,243  Deferred tax liabilities  388,041  (181,545) -  206,496     7,175,571  6,414,140  -  13,589,711   Shareholders' Equity         Shareholders' EquityCapital stock 50,475  -  -  50,475  Capital stockContributed surplus 3,452  743  -  4,195  Contributed surplusRetained earnings 627,524  (81,521) -  546,003  Retained earningsAccumulated other comprehensive income 14,397  (10,321) -  4,076  Accumulated other comprehensive loss  695,848  (91,099) -  604,749    $7,871,419 $6,323,041 $- $14,194,460   1 Other liabilities under the previous Canadian GAAP balance includes cheques and other items in transit of $9,908 which was disclosed separately on the face of the consolidated balance sheet as presented in the 2010 third quarter report.  This change in presentation is not part of the transition to IFRS.  Reconciliation of Consolidated Statement of Income thousands of Canadian dollars, except per share amounts (Unaudited) For the Three Months Ended September 30, 2010 Canadian GAAPIFRSIFRS  Previous Canadian GAAP Line ItemsBalanceAdjustmentsBalance IFRS Line ItemsIncome       Net Interest Income Non-Securitized AssetsInterest from loans$89,881 $(9)$89,872  Interest from loansDividends from securities 4,592  -  4,592  Dividends from securitiesOther interest 2,472  -  2,472  Other interest  96,945  (9) 96,936   Interest on deposits 47,846  -  47,846  Interest on depositsNet interest income 49,099  (9) 49,090  Net interest income non-securitized assets        Net Interest Income Securitized Loans and Assets  -  66,255  66,255  Interest from securitized loans and assets  -  47,234  47,234  Interest on securitization liabilities  -  19,021  19,021  Net interest income securitized loans and assets           49,099  19,012  68,111  Total Net Interest IncomeProvision for credit losses 2,113  54  2,167  Provision for credit losses  46,986  18,958  65,944   Non-Interest Income       Non-Interest IncomeFees and other income 7,127  -  7,127  Fees and other incomeSecuritization income 21,320  (21,320) -   Gain on sale of loan portfolio 3,917  -  3,917  Gain on sale of loan portfolioRealized net gains and unrealized losses on securities 1,503  (156) 1,347  Realized net gains and unrealized losses on securitiesNet realized and unrealized gain on derivatives 2,941  8,672  11,613  Net realized and unrealized gain on derivatives  36,808  (12,804) 24,004     83,794  6,154  89,948   Non-Interest Expenses       Non-Interest ExpenseSalaries and benefits 11,847  -  11,847  Salaries and benefitsPremises 1,732  -  1,732  PremisesGeneral and administrative 9,956  1,221  11,177  Other operating expenses  23,535  1,221  24,756            Income Before Income Taxes 60,259  4,933  65,192  Income Before Income Taxes         Income Taxes       Income TaxesCurrent 10,548  -  10,548  CurrentFuture 4,261  2,762  7,023  Deferred  14,809  2,762  17,571   NET INCOME$45,450 $2,171 $47,621  NET INCOME         NET INCOME PER COMMON SHARE       NET INCOME PER COMMON SHAREBasic$1.31 $0.06 $1.37  BasicDiluted$1.31 $0.06 $1.37  DilutedAVERGAGE NUMBER OF COMMON SHARES OUTSTANDING    AVERGAGE NUMBER OF COMMON SHARES OUTSTANDINGBasic 34,717  -  34,717  BasicDiluted 34,781  -  34,781  Diluted         Total number of outstanding common shares 34,679  -  34,679  Total number of outstanding common sharesBook value per common share$20.07 $(2.63)$17.44  Book value per common share Reconciliation of Consolidated Statement of Comprehensive Income thousands of Canadian dollars (Unaudited) For the Three Months Ended September 30, 2010 Canadian GAAPIFRSIFRS  Previous Canadian GAAP Line ItemsBalanceAdjustmentsBalance IFRS Line Items         NET INCOME$45,450 $2,171 $47,621  NET INCOME         OTHER COMPREHENSIVE LOSS       OTHER COMPREHENSIVE LOSS         Available for sale securities       Available for sale securitiesNet unrealized losses on securities available for sale 7,308  1,452  8,760  Net unrealized losses on securities available for saleNet gains reclassified to net income (1,371) (280) (1,651) Net gains reclassified to net income  5,937  1,172  7,109   Income tax expense 1,688  382  2,070  Income tax recoveryTotal other comprehensive loss 4,249  790  5,039  Total other comprehensive loss         COMPREHENSIVE INCOME$49,699 $2,961 $52,660  COMPREHENSIVE INCOME Reconciliation of Consolidated Statement of Income thousands of Canadian dollars, except per share amounts (Unaudited) For the Nine Months Ended September 30, 2010 Canadian GAAPIFRSIFRS  Previous Canadian GAAP Line ItemsBalanceAdjustmentsBalance IFRS Line ItemsIncome       Net Interest Income Non-Securitized AssetsInterest from loans$263,775 $(191)$263,584  Interest from loansDividends from securities 14,106  -  14,106  Dividends from securitiesOther interest 6,530  -  6,530  Other interest  284,411  (191) 284,220   Interest on deposits 140,382  -  140,382  Interest on depositsNet interest income 144,029  (191) 143,838  Net interest income non-securitized assets        Net Interest Income Securitized Loans and Assets  -  174,708  174,708  Interest from securitized loans and assets  -  126,975  126,975  Interest on securitization liabilities  -  47,733  47,733  Net interest income securitized loans and assets           144,029  47,542  191,571  Total Net Interest IncomeProvision for credit losses 3,652  (37) 3,615  Provision for credit losses  140,377  47,579  187,956   Non-Interest Income       Non-Interest IncomeFees and other income 22,069  -  22,069  Fees and other incomeSecuritization income 70,309  (70,309) -   Gain on sale of loan portfolio 3,917  -  3,917  Gain on sale of loan portfolioRealized net gains and unrealized losses on securities 9,986  739  10,725  Realized net gains and unrealized losses on securitiesNet realized and unrealized loss on derivatives (1,498) 17,064  15,566  Net realized and unrealized gain on derivatives  104,783  (52,506) 52,277     245,160  (4,927) 240,233   Non-Interest Expenses       Non-Interest ExpenseSalaries and benefits 34,334  -  34,334  Salaries and benefitsPremises 5,074  -  5,074  PremisesGeneral and administrative 27,663  1,796  29,459  Other operating expenses  67,071  1,796  68,867            Income Before Income Taxes 178,089  (6,723) 171,366  Income Before Income Taxes         Income Taxes       Income TaxesCurrent 25,284  -  25,284  CurrentFuture 22,243  (804) 21,439  Deferred  47,527  (804) 46,723   NET INCOME$130,562 $(5,919)$124,643  NET INCOME         NET INCOME PER COMMON SHARE       NET INCOME PER COMMON SHAREBasic$3.76 $(0.17)$3.59  BasicDiluted$3.75 $(0.17)$3.58  DilutedAVERGAGE NUMBER OF COMMON SHARES OUTSTANDING    AVERGAGE NUMBER OF COMMON SHARES OUTSTANDINGBasic 34,708  -  34,708  BasicDiluted 34,814  -  34,814  Diluted         Total number of outstanding common shares 34,679  -  34,679  Total number of outstanding common sharesBook value per common share$20.07 $(2.63)$17.44  Book value per common share Reconciliation of Consolidated Statement of Comprehensive Income thousands of Canadian dollars (Unaudited) For the Nine Months Ended September 30, 2010 Canadian GAAPIFRSIFRS  Previous Canadian GAAP Line ItemsBalanceAdjustmentsBalance IFRS Line Items         NET INCOME$130,562 $(5,919)$124,643  NET INCOME         OTHER COMPREHENSIVE LOSS       OTHER COMPREHENSIVE LOSS         Available for sale securities       Available for sale securitiesNet unrealized losses on securities available for sale (382) 2,862  2,480  Net unrealized losses on securities available for saleNet gains  reclassified to net income (8,496) (772) (9,268) Net gains reclassified to net income  (8,878) 2,090  (6,788)  Income tax recovery (2,007) 1,348  (659) Income tax recoveryTotal other comprehensive loss (6,871) 742  (6,129) Total other comprehensive loss         COMPREHENSIVE INCOME$123,691 $(5,177)$118,514  COMPREHENSIVE INCOMEAdjustments to the Consolidated Statement of Cash FlowsThe transition from previous Canadian GAAP to IFRS resulted in certain cash flows included in financing and investing activities under previous Canadian GAAP to be reclassified to operating activities under IFRS.  Specifically, net changes in deposits were reclassified from financing activities to operating activities and net changes in mortgages and personal and credit card loans were reclassified from investing activities to operating activities.  In addition, certain cash flows related to the Company's securitization activities that were included in investing activities under previous Canadian GAAP are reflected in operating activities under IFRS.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, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending, Visa and payment card services. Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia and Quebec.   For further information: Gerald M. Soloway, CEO, or Martin Reid, President 416-360-4663 www.homecapital.com