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Press release from CNW Group

Home Capital Reports Strong 4th Quarter and Annual Results

Tuesday, February 14, 2012

Home Capital Reports Strong 4th Quarter and Annual Results17:00 EST Tuesday, February 14, 2012Adjusted basic earnings per share were $1.45 for the quarter and $5.55 for 2011, up 46.5% and 30.6%, respectively, from the comparative periods.Adjusted net income for 2011 was $192.5 million, an increase of 30.4% over 2010.Return on equity for the year was 27.4% on an adjusted basis, surpassing 20% for the 14th consecutive year.TORONTO, Feb. 14, 2012 /CNW/ - Home Capital Group Inc. (TSX: HCG) today reported strong results for the fourth quarter and for the year, exceeding the Company's targets for growth in adjusted net income, diluted earnings per share and total assets, and recording annual return on equity in excess of 25% for nine consecutive years and surpassing 20% for 14 consecutive years."All of our business units produced positive results and the Company is well positioned to continue to deliver solid earnings," commented CEO Gerald Soloway. "We have a proven business model and continue to execute well on our strategy."The Company's Annual and Fourth Quarter Consolidated Financial Report, including Management's Discussion and Analysis, for each of the three- and twelve-month periods ended December 31, 2011 is available at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.FINANCIAL HIGHLIGHTS                 (000s, except Per Share and Percentage Amounts) For the three months ended For the year endedFor the period ended December 31 2011  2010 1  2011  2010 1 OPERATING RESULTS        Net Income$50,280 $30,109 $190,080 $154,752 Adjusted Net Income2  50,280  34,233  192,505  147,610 Total Revenue 207,122  176,044  790,591  687,249 Earnings per Share Basic/Diluted$1.45/1.45$0.87/0.87$5.48/5.46$4.46/4.45Adjusted Earnings per Share Basic/Diluted2  1.45/1.45 0.99/0.98 5.55/5.53 4.25/4.24Adjusted Return on Shareholders' Equity 26.7% 22.2% 27.4% 26.1%Return on Average Assets3  1.2% 0.9% 1.2% 1.1%Net Interest Margin (TEB)4  2.06% 1.99% 2.06% 2.07%Net Interest Margin Non-Securitized Assets (TEB)4  3.03% 2.80% 3.05% 2.82%Net Interest Margin Securitized Assets 1.16% 1.26% 1.23% 1.23%Provision as a Percentage of Gross Loans (annualized) 0.07% 0.17% 0.05% 0.07%Efficiency Ratio (TEB)4  27.1% 35.0% 27.9% 29.3%         As at December 31    2011  2010 1 BALANCE SHEET HIGHLIGHTS        Total Assets    $17,696,471 $15,518,818 Total Loans     16,089,648  14,091,755 Securitized Loans     8,243,350  8,116,636 Liquid Assets     763,279  951,271 Deposits     7,922,124  6,595,979 Shareholders' Equity     774,785  628,585 FINANCIAL STRENGTH        Capital Measures5         Risk-Weighted Assets    $4,549,696 $3,777,267 Tier 1 Capital Ratio     17.3% 18.1%Total Capital Ratio     20.5% 19.4%Credit Quality1         Non-Performing Loans as a Percentage of Gross Loans     0.25% 0.24%Allowance as a Percentage of Gross Non-Performing Loans     74.9% 88.1%Share Information        Book Value per Common Share1     $22.38 $18.14 Common Share Price - Close    $49.10 $51.79 Market Capitalization    $1,700,088 $1,794,316 Number of Common Shares Outstanding     34,625  34,646 1 2010 figures have been restated to an International Financial Reporting Standards (IFRS) basis.2 Adjusted net income represents net income plus an adjustment for unmatched derivative positions. See definition of Adjusted Net Income under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report for further details. The adjustments from net income to adjusted net income for these unmatched derivative positions were $nil for the fourth quarter of 2011 ($4.1 million increase in net income in Q4 2010) and a $2.4 million increase in net income for the year ($7.1 million decrease in net income for 2010).3 This key performance indicator has not been recalculated on an adjusted net income basis.4 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report.5 These figures relate to the Company's operating subsidiary, Home Trust Company. 2010 has not been recalculated on an IFRS basis.2011 Targets and Performance                 For the year ended December 31, 2011 2011 Targets1 Actual Results1  AmountIncrease over 2010Growth in adjusted net income2 15%-20%30.4%$192,505 $44,895 Growth in adjusted diluted earnings per share2 15%-20%30.4% 5.53  1.29 Growth in total assets3 13%-18%14.0% 17,696,471  2,177,653 Growth in total loans3 13%-18%14.2% 16,089,648  1,997,893 Adjusted return on shareholders' equity20.0%27.4%    Efficiency ratio (TEB)4 28.0% - 34.0%27.9%    Capital ratios5        Tier 1Minimum of 13%17.3%     TotalMinimum of 14%20.5%    Provision as a percentage of gross loans0.05% - 0.15%0.05%    1 Targets and results for adjusted net income and diluted earnings per share are for the current year.2 Targets are based on adjusted 2010 net income. See definition of Adjusted Net Income under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. Change represents change over 2010.3 Change represents growth over December 31, 2010.4 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report. 5 Based on the Company's wholly owned subsidiary, Home Trust Company.FOURTH QUARTER AND 2011 HIGHLIGHTSThe Company continued its strong performance in the fourth quarter of 2011 and for the year. Key results for the fourth quarter of 2011 and the year are as follows:Net income was $50.3 million in the fourth quarter and $190.1 million for the year, while adjusted net income for 2011 was $192.5 million. Quarterly earnings increased by 47.1% over the $34.2 million adjusted net income recorded in the fourth quarter of 2010, and 2011 adjusted net income was 30.4% higher than 2010 adjusted net income. Sequentially in 2011, fourth quarter net income increased by 3.9% over third quarter net income. The annual results exceeded the Company's 2011 objective of 15% to 20% growth in adjusted net income over 2010, reflecting strong loan growth in the traditional portfolio, stable total net interest margin, low provisions for credit losses and a continued low efficiency ratio.Core earnings of $96.7 million (net interest income after provision plus fee and other income) was up by 1.8% over third quarter core earnings of $95.0 million and up 28.4% over 2010 fourth quarter core earnings of $75.3 million.Adjusted basic and diluted earnings per share were $1.45 for the fourth quarter and $5.55 and $5.53 for the year. This represents an increase of 46.5% and 48.0%, respectively, from $0.99 and $0.98 adjusted basic and diluted earnings per share in the fourth quarter of 2010 and an increase of 30.6% and 30.4%, respectively, over the $4.25 and $4.24 adjusted basic and diluted earnings per share earned in 2010. These results exceeded the Company's 2011 annual objective of 15% to 20% growth in diluted earnings per share.Adjusted return on equity was 26.7% in the quarter and 27.4% in 2011, well in excess of the Company's minimum performance objective of 20% for the fourteenth consecutive year and exceeding 25% for the ninth consecutive year.Net interest income rose to $88.4 million in the fourth quarter and to $334.0 million for the year. This represents an increase of 21.9% over the $72.5 million recorded in the fourth quarter of 2010 and 26.5% over the $264.0 million recorded for the 2010 year.Net interest margin was 2.06% in the fourth quarter and for the year 2011 compared to 1.99% in the fourth quarter of 2010 and 2.07% for the year 2010. Net interest margin was 2.14% in the third quarter of 2011. Total net interest margin is influenced by the mix of the loan portfolio between securitized and non-securitized mortgages and the net interest margin on each of these portfolios. Over 2011 the weighting of securitized mortgages has declined when compared to the weighting at the end of 2010. The net interest margin on the non-securitized portfolio has generally improved compared to 2010 and declined from the prior quarter, as the Company was holding higher liquidity earning a lower rate. The securitized portfolio net interest margin declined in the fourth quarter, compared to the prior quarter reflecting the maturity of higher-rate assets during the quarter.The credit quality of the loans portfolio remained solid in the fourth quarter and for the year. Net non-performing loans ended 2011 at 0.25% of the total loans portfolio compared to 0.24% at the end of 2010 and 0.32% at the end of the third quarter of 2011. The provision for credit losses for the fourth quarter was 0.07% of gross loans on an annualized basis and 0.05% for the year compared to 0.17% in the comparable quarter of 2010 and 0.07% in 2010 and 0.06% in the third quarter of 2011. 2011 results are within the Company's objective of 0.05% to 0.15% of gross loans.Home Trust's Tier 1 and Total Capital ratios were robust at 17.3% and 20.5%, respectively, at December 31, 2011 and well above the Company's minimum targets. Home Trust's asset to capital multiple was 14.4 at December 31, 2011 compared to 14.0 at September 30, 2011. Early in 2012 the Company provided Home Trust with an additional $45 million in subordinated debt, putting Home Trust and the Company in a position to continue growing assets, revenue and net income. These funds were from the Company's $150 million senior debt issue, of which $100 million was provided to Home Trust in 2011.Total assets grew to $17.70 billion at the end of 2011, an increase of $2.18 billion or 14.0% over the $15.52 billion at the end of 2010 and $624.3 million or 3.7% over the $17.07 billion at the end of the third quarter of 2011. Total loans increased by $2.00 billion in 2011 to $16.09 billion, representing growth of 14.2% over the $14.09 billion at the end of 2010. Total loans increased $307.0 million or 1.9% from the $15.78 billion at the end of the third quarter of 2011. Total assets and loan growth were within the Company's 2011 growth objective of 13% to 18%.The total value of mortgages originated in the fourth quarter of 2011 was $1.25 billion and $5.12 billion for the year, compared to $1.85 billion in the fourth quarter of 2010 and $6.87 billion in 2010. The year-over-year decrease in originations reflects the Company's strategy to shift origination focus from Accelerator (insured) mortgage products, which are generally securitized, to originations of higher yielding traditional mortgages. The regulatory and accounting treatment of Accelerator (insured) securitized mortgages upon adoption of International Financial Reporting Standards (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 originations of the Accelerator mortgage product.The Company originated $948.8 million of traditional mortgages in the fourth quarter and $3.51 billion for the year, compared to $683.5 million and $2.85 billion in the comparative periods of 2010 and $941.1 million in the third quarter of 2011.Accelerator (insured) mortgage originations were $188.5 million in the fourth quarter of 2011 and $1.10 billion for the year, compared to $755.6 million and $2.84 billion in the comparable periods of 2010 and $293.5 million in the third quarter of 2011.Multi-unit residential originations were $6.5 million for the fourth quarter of 2011 and $137.0 million year-to-date compared to $285.0 million and $766.5 million in the same periods of 2010 and $7.0 million in the third 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 $41.5 million in the fourth quarter of 2011 and $182.2 million for the year, compared to $72.9 million and $219.8 million in the comparable periods of 2010 and $32.4 million in the third quarter of 2011. The Company maintains a cautious approach to increases in this portfolio.Store and apartment advances were $35.5 million for the quarter and $123.0 million for the year, compared to $33.6 million and $108.8 million in the same periods of 2010 and $26.8 million in the third quarter of 2011.As a source of funding and replacement assets for the Canada Mortgage Bond (CMB) program, the Company securitized and sold $272.9 million in insured residential mortgages in the fourth quarter and $1.87 billion for the year compared to $1.86 billion in the fourth quarter of 2010 and $5.17 billion in 2010 and $396.8 million in the third quarter of 2011.The mortgage lending segment recorded net income of $42.7 million in the fourth quarter and $155.3 million for 2011, increasing from $25.6 million and $114.5 million in the comparable periods of 2010. This reflects strong originations in the traditional portfolio coupled with strong net interest margins in that portfolio. The securitized portfolio, while experiencing modest growth, continues to contribute to the net income of the segment.The consumer lending segment recorded net income of $7.6 million in the fourth quarter and $30.1 million for the year compared to $3.8 million and $24.7 million in the comparable periods of 2010. The segment's Equityline Visa product continued its strong performance, opening 1,814 new Equityline Visa accounts in the fourth quarter and 7,697 for the year compared to 1,864 accounts and 6,263 accounts opened in the comparable periods of 2010. The consumer lending segment also added $14.5 million in receivables in the retail credit portfolio in the fourth quarter and $57.1 million for the year, compared to $10.1 million and $77.4 million in the comparable periods of 2010. The 2010 retail credit receivables increased dramatically on the initiation of the water heater program.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 March 1, 2012 to shareholders of record at the close of business on February 23, 2012.2012 Overall OutlookThrough 2011, the Company successfully repositioned the business to take advantage of the attractive returns available in the alternative mortgage space, the Company's traditional business. This business provides superior returns to the allocated capital and the Company will continue to prudently expand this business while continuing to strengthen operating controls and risk management processes. The Company will continue to offer insured mortgages through the Accelerator program, supporting the "one-stop" and "flexible lending solutions" lender strategy. The Company will also continue to increase its geographic footprint across Canada, taking advantage of opportunities within its risk profile in Quebec, and eastern and western Canada. Growth of the consumer portfolio at the current rate is expected for 2012.In view of the global financial environment, the Company will maintain relatively high levels of liquidity and low overall leverage, as measured by the asset to capital multiple (ACM), to ensure safety and soundness for its depositors. This conservative approach to liquidity and leverage will drive a new complementary strategy that will focus on fee revenue from loan origination and administration for other mortgage funders.The Company expects that the rate of growth in the Company's funded loan portfolio in 2012 will be consistent with the moderate pace of growth experienced in 2011. The traditional mortgage business is expected to maintain strong net interest margin and net interest income levels, while net interest margins on securitized assets are anticipated to decline modestly from the levels experienced in 2011. The decline primarily reflects a combination of two factors; spreads on new securitization transactions are generally lower than the spreads earned on the maturing pools and are lower than the spreads earned on the 2008 and 2009 securitization transactions; and, the assets provided as replacement assets in the CMB program are generally lower yielding when compared to the maturing or discharging assets. While the Company actively hedges the CMB reinvestment risk, the hedges cannot absorb 100% of this risk. This dynamic will tend to put pressure on the overall net interest margin. The increased weighting of the Company's traditional uninsured mortgages tends to offset this downward pressure, as the margins on these products are more favourable.The Company will record amortization expenses related to its new core banking system for the full year 2012. These charges, along with related support costs, will tend to increase the cost structure and efficiency ratio. Reductions in other areas and increases in net interest income will tend to mitigate the increases in amortization and other costs. The Company expects its efficiency ratio for 2012 to fall within the target range of 28.0% to 34.0%.Conference Call and WebcastFourth Quarter Results Conference CallThe conference call will take place on Wednesday, February 15, 2012, 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. Wednesday, February 15, 2012 and midnight Wednesday, February 22, 2012 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 43320361). 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.Annual and Special Meeting NoticeThe Annual and Special Meeting of Shareholders of Home Capital Group Inc. will be held at the Design Exchange, Trading Floor, Second Floor, 234 Bay Street, Toronto, Ontario, on Wednesday, May 16, 2012 at 11:00 a.m. local time. Shareholders and guests are invited to join Directors and Management for lunch and refreshments following the Annual Meeting. All shareholders are encouraged to attend.Net Interest Income and Margin           For the three months endedFor the year ended(000s, except %)December 31, 2011December 31, 2010December 31, 2011December 31, 2010 Income/AverageIncome/AverageIncome/AverageIncome/Average ExpenseRate1 ExpenseRate1 ExpenseRate1 ExpenseRate1 Assets            Cash and cash resources$986 0.67%$1,944 1.11%$3,386 0.70%$5,337 0.83%Securities 4,664 4.69% 5,430 3.09% 20,161 4.74% 22,673 3.54%Non-securitized loans 109,938 5.81% 90,195 5.84% 401,671 5.90% 353,779 5.84%Taxable equivalent adjustment 1,785 - 1,779 - 7,212 - 7,900 -Total on non-securitized interest earning assets 117,373 5.48% 99,348 5.42% 432,430 5.60% 389,689 5.45%Securitized loans 81,876 3.76% 76,584 4.22% 330,491 3.86% 251,292 4.39%Other assets - - - - - - - -Total Assets$199,249 4.55%$175,932 4.72%$762,921 4.61%$640,981 4.88%Liabilities and Shareholders' Equity            Deposits$50,371 2.63%$47,988 2.90%$191,745 2.79%$188,370 2.90%Securitization liabilities 56,667 2.60% 53,706 2.96% 224,719 2.63% 180,681 3.16%Other liabilities and shareholders' equity 2,014 5.25% - - 5,293 6.22% - -Total Liabilities and Shareholders' Equity$109,052 2.49%$101,694 2.73%$421,757 2.55%$369,051 2.81%Net Interest Income (TEB)$90,197  $74,238  $341,164  $271,930  Tax Equivalent Adjustment (1,785)  (1,779)  (7,212)  (7,900) Net Interest Income per Financial            Statements$88,412  $72,459  $333,952  $264,030  Net Interest Margin Non-Securitized            Interest Earning Assets 2   3.03%  2.80%  3.05%  2.82%Net Interest Margin Securitized Assets   1.16%  1.26%  1.23%  1.23%Total Net Interest Margin2   2.06%  1.99%  2.06%  2.07%Spread of Non-securitized Loans over            Deposits Only   3.18%  2.94%  3.11%  2.94%1 The average rate is an average calculated with reference to opening and closing monthly asset and liability balances.2 Net interest margin is calculated on a TEB.Mortgage Production          For the three months ended For the year ended(000s)December 31December 31December 31December 31 2011 2010 2011 2010 Traditional single family residential mortgages$948,848 $683,511 $3,514,430 $2,853,385 Accelerator single family residential mortgages 188,484  755,632  1,103,555  2,839,394 Multi-unit residential mortgages 6,522  285,042  137,005  766,483 Non-residential mortgages 41,508  72,855  182,163  219,760 Store and apartments 35,544  33,623  122,957  108,769 Warehouse commercial mortgages 27,000  20,750  56,750  80,800 Total mortgage advances$1,247,906 $1,851,413 $5,116,860 $6,868,591 Consolidated Balance Sheets           December 31 December 31 January 1  2011  2010  2010 thousands of Canadian dollars   (restated to IFRS) (restated to IFRS)ASSETS       Cash Resources$665,806 $846,824 $930,134 Securities      Held for trading -  -  99,938 Available for sale 391,754  424,168  494,602 Pledged securities 341,588  2,954  -    733,342  427,122  594,540 Loans      Residential mortgages 6,339,883  4,683,527  4,473,255 Securitized residential mortgages 8,243,350  8,116,636  4,126,707 Non-residential mortgages 946,222  838,253  708,425 Personal and credit card loans 560,193  453,339  342,918    16,089,648  14,091,755  9,651,305 Collective allowance for credit losses (29,440) (29,153) (27,793)   16,060,208  14,062,602  9,623,512 Other      Income taxes receivable -  9,451  6,466 Derivative assets 72,424  24,157  13,186 Other assets 79,650  80,099  75,322 Capital assets 5,372  4,894  4,863 Intangible assets 63,917  47,917  26,811 Goodwill 15,752  15,752  15,752    237,115  182,270  142,400   $17,696,471 $15,518,818 $11,290,586 LIABILITIES AND SHAREHOLDERS' EQUITY      Liabilities      Deposits       Deposits payable on demand$62,746 $50,359 $38,223  Deposits payable on a fixed date 7,859,378  6,545,620  6,433,533    7,922,124  6,595,979  6,471,756 Senior Debt 153,336  -  - Securitization Liabilities       Mortgage-backed security liabilities 2,417,801  2,826,105  1,191,552  Canada Mortgage Bond liabilities 6,231,274  5,278,473  2,964,904    8,649,075  8,104,578  4,156,456 Other      Derivative liabilities 3,458  9,009  11,099 Income taxes payable 17,628  -  - Other liabilities 136,025  140,554  130,823 Deferred tax liabilities 40,040  40,113  16,829    197,151  189,676  158,751    16,921,686  14,890,233  10,786,963 Shareholders' Equity      Capital stock 55,104  50,427  45,396 Contributed surplus 5,873  4,571  3,606 Retained earnings 722,999  567,681  444,416 Accumulated other comprehensive (loss) income (9,191) 5,906  10,205    774,785  628,585  503,623   $17,696,471 $15,518,818 $11,290,586 Consolidated Statements of Income         For the three months ended For the year ended   December 31 December 31 December 31 December 31   2011  2010  2011  2010 thousands of Canadian dollars, except per share amounts   (restated to IFRS)   (restated to IFRS)Net Interest Income Non-Securitized Assets        Interest from loans$109,938 $90,195 $401,671 $353,779 Dividends from securities 4,559  4,098  18,417  18,204 Other interest 1,091  3,276  5,130  9,806    115,588  97,569  425,218  381,789 Interest on deposits 50,371  47,988  191,745  188,370 Interest on senior debt 2,014  -  5,293  - Net interest income non-securitized assets 63,203  49,581  228,180  193,419           Net Interest Income Securitized Loans and Assets        Interest income from securitized loans and assets 81,876  76,584  330,491  251,292 Interest expense on securitization liabilities 56,667  53,706  224,719  180,681 Net interest income securitized loans and assets 25,209  22,878  105,772  70,611           Total Net Interest Income 88,412  72,459  333,952  264,030 Provision for credit losses 2,979  5,816  7,519  9,431    85,433  66,643  326,433  254,599 Non-Interest Income        Fees and other income 11,294  8,621  37,997  30,690 Gain on sale of loan portfolio -  -  -  3,917 Realized net gains and unrealized losses on securities (1,306) (985) 4,088  9,740 Net realized and unrealized (loss) gain on derivatives (330) (5,745) (7,203) 9,821    9,658  1,891  34,882  54,168    95,091  68,534  361,315  308,767 Non-Interest Expenses         Salaries and benefits 13,184  12,405  52,523  46,739 Premises 2,007  1,820  7,776  6,894 Other operating expenses 11,916  12,384  44,703  41,843    27,107  26,609  105,002  95,476           Income Before Income Taxes  67,984  41,925  256,313  213,291 Income taxes         Current 15,909  9,947  66,270  35,231  Deferred 1,795  1,869  (37) 23,308    17,704  11,816  66,233  58,539 NET INCOME$50,280 $30,109 $190,080 $154,752           NET INCOME PER COMMON SHARE        Basic$1.45 $0.87 $5.48 $4.46 Diluted$1.45 $0.87 $5.46 $4.45 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING         Basic 34,668  34,685  34,677  34,697 Diluted 34,782  34,778  34,787  34,776           Total number of outstanding common shares 34,625  34,646  34,625  34,646 Book value per common share$22.38 $18.14 $22.38 $18.14 Consolidated Statements of Comprehensive Income       For the three months ended For the year ended  December 31 December 31 December 31 December 31  2011  2010  2011  2010 thousands of Canadian dollars   (restated to IFRS)   (restated to IFRS)         NET INCOME$50,280 $30,109 $190,080 $154,752          OTHER COMPREHENSIVE INCOME (LOSS)                 Available for Sale Securities        Net unrealized gains (losses) on securities available for sale 700  744  (8,602) 3,224 Net losses (gains) reclassified to net income 1,174  759  (4,815) (8,509)  1,874  1,503  (13,417) (5,285)Income tax expense (recovery) 505  (327) (3,370) (986)  1,369  1,830  (10,047) (4,299)         Cash Flow Hedges        Net unrealized losses on cash flow hedges (639) -  (7,386) - Net losses reclassified to net income 338  -  618  -   (301) -  (6,768) - Income tax recovery (36) -  (1,718) -   (265) -  (5,050) -          Total other comprehensive income (loss) 1,104  1,830  (15,097) (4,299)         COMPREHENSIVE INCOME$51,384 $31,939 $174,983 $150,453 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 amountsStockSurplusEarningsSale, after Taxafter TaxIncome (Loss)EquityBalance at December 31, 2010              (restated to IFRS)$50,427 $4,571 $567,681 $5,906 $- $5,906 $628,585 Comprehensive income -  -  190,080  (10,047) (5,050) (15,097) 174,983 Stock options settled 4,921  (1,098) -  -  -  -  3,823 Amortization of fair value of              employee stock options -  2,400  -  -  -  -  2,400 Repurchase of shares (244) -  (7,702) -  -  -  (7,946)Dividends paid              ($0.76 per share) -  -  (27,060) -  -  -  (27,060)Balance at December 31, 2011$55,104 $5,873 $722,999 $(4,141)$(5,050)$(9,191)$774,785                Balance at January 1, 2010$45,396 $3,606 $444,416 $10,205 $- $10,205 $503,623 Comprehensive income -  -  154,752  (4,299) -  (4,299) 150,453 Exercise of stock appreciation rights -  (280) -  -  -  -  (280)Stock options settled 5,309  (880) -  -  -  -  4,429 Amortization of fair value of              employee stock options -  2,125  -  -  -  -  2,125 Repurchase of shares (278) -  (8,246) -  -  -  (8,524)Dividends paid              ($0.66 per share) -  -  (23,241) -  -  -  (23,241)Balance at December 31, 2010              (restated to IFRS)$50,427 $4,571 $567,681 $5,906 $- $5,906 $628,585 Consolidated Statements of Cash Flows   For the year ended    December 31 December 31    2011  2010 thousands of Canadian dollars   (restated to IFRS)CASH FLOWS FROM OPERATING ACTIVITIES    Net income for the year$190,080 $154,752 Adjustments to determine cash flows relating to operating activities:     Deferred income taxes (37) 23,308  Amortization of capital assets 3,052  2,881  Amortization of intangible assets 679  334  Amortization of (premium) discount on securities (49) 2,423  Amortization of securitization and senior debt transaction costs 14,153  9,705  Provision for credit losses 7,519  9,431  Change in accrued interest payable 4,993  4,958  Change in accrued interest receivable (6,686) (6,651) Realized net gains and unrealized losses on securities (4,088) (9,740) Settlement of derivatives (7,385) -  Loss (gain) on derivatives 7,203  (20,890) Net increase in mortgages (1,897,308) (4,334,003) Net increase in personal and credit card loans (107,817) (110,581) Net increase in deposits 1,326,145  124,223  Activity in securitization liabilities      Proceeds from securitization of mortgage-backed security liabilities 1,233,754  4,572,264   Settlement and repayment of securitization liabilities (753,085) (629,934) Amortization of fair value of employee stock options 2,400  2,125  Changes in taxes payable and other 23,293  4,352 Cash flows provided by (used in) operating activities 36,816  (201,043)CASH FLOWS FROM FINANCING ACTIVITIES    Repurchase of shares (7,946) (8,524)Exercise of employee stock options and stock appreciation rights 3,823  4,149 Issuance of senior debt 149,052  - Dividends paid (26,371) (22,906)Cash flows provided by (used in) financing activities 118,558  (27,281)CASH FLOWS FROM INVESTING ACTIVITIES    Activity in available for sale and held for trading securities     Purchases (1,641,985) (203,172) Proceeds from sales 389,978  214,126  Proceeds from maturities 935,824  158,412 Purchases of capital assets (3,530) (2,912)Purchases of intangible assets (16,679) (21,440)Cash flows (used in) provided by investing activities (336,392) 145,014 Net decrease in cash and cash equivalents during the year (181,018) (83,310)Cash and cash equivalents at beginning of the year 846,824  930,134 Cash and Cash Equivalents at End of the Year$665,806 $846,824 Supplementary Disclosure of Cash Flow Information    Dividends received$17,318 $16,840 Interest received 725,476  598,419 Interest paid 416,764  364,093 Income taxes paid 36,636  42,114 Earnings by Business Segment                              For the three months ended(000s)Mortgage LendingConsumer LendingOtherTotal   December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31   2011  2010  2011  2010  2011  2010  2011  2010 Net interest income$74,164 $57,053 $10,639 $8,990 $3,609 $6,416 $88,412 $72,459 Provision for credit                 losses (1,975) (2,377) (1,004) (3,439) -  -  (2,979) (5,816)Fees and other income 6,829  4,624  4,343  3,928  122  69  11,294  8,621 Net (loss) gain on                 securities and others (1,095) (5,697) -  -  (541) (1,033) (1,636) (6,730)Non-interest expenses (18,824) (16,948) (3,417) (3,853) (4,866) (5,808) (27,107) (26,609)Income before income                 taxes 59,099  36,655  10,561  5,626  (1,676) (356) 67,984  41,925 Income taxes (16,370) (11,102) (2,987) (1,780) 1,653  1,066  (17,704) (11,816)Net income$42,729 $25,553 $7,574 $3,846 $(23)$710 $50,280 $30,109 Goodwill$2,324 $2,324 $13,428 $13,428 $- $- $15,752 $15,752 Total assets$15,997,106 $13,797,202 $614,626 $514,872 $1,084,739 $1,206,744 $17,696,471 $15,518,818                               For the year ended(000s)Mortgage LendingConsumer LendingOtherTotal   December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31   2011  2010  2011  2010  2011  2010  2011  2010 Net interest income$273,738 $202,745 $41,782 $35,761 $18,432 $25,524 $333,952 $264,030 Provision for credit                 losses (5,916) (5,304) (1,603) (4,127) -  -  (7,519) (9,431)Fees and other income 19,457  15,243  18,051  15,229  489  218  37,997  30,690 Net (loss) gain on                 securities and others (4,821) 10,608  -  3,917  1,706  8,953  (3,115) 23,478 Non-interest expenses (67,851) (61,114) (16,255) (14,945) (20,896) (19,417) (105,002) (95,476)Income before income                 taxes 214,607  162,178  41,975  35,835  (269) 15,278  256,313  213,291 Income taxes (59,331) (47,676) (11,872) (11,129) 4,970  266  (66,233) (58,539)Net income$155,276 $114,502 $30,103 $24,706 $4,701 $15,544 $190,080 $154,752 Goodwill$2,324 $2,324 $13,428 $13,428 $- $- $15,752 $15,752 Total assets$15,997,106 $13,797,202 $614,626 $514,872 $1,084,739 $1,206,744 $17,696,471 $15,518,818 Management's Responsibility for Financial Information The Company's Audit Committee reviewed this document along with the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report.  The Company's Board of Directors approved both documents prior to their release. A full description of management's responsibility for financial information is included in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report.Caution Regarding Forward-looking Statements From time to time Home Capital Group Inc. (the "Company" or "Home Capital") makes written and verbal forward-looking statements. These are included in the Annual Report, periodic reports to shareholders, regulatory filings, press releases, Company presentations and other Company communications. Forward-looking statements are made in connection with business objectives and targets, Company strategies, operations, anticipated financial results and the outlook for the Company, its industry, and the Canadian economy. These statements regarding expected future performance are "financial outlooks" within the meaning of National Instrument 51-102. Please see the risk factors, which are set forth in detail in the Risk Management section of this report, as well as its other publicly filed information, which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, for the material factors that could cause the Company's actual results to differ materially from these statements. These risk factors are material risk factors a reader should consider, and include credit risk, liquidity and funding risk, structural interest rate risk, operational risk, investment risk, strategic and business risk, reputational risk and regulatory and legal risk along with additional risk factors that may affect future results. Forward-looking statements can be found in the Report to the Shareholders and the Outlook Section in the Annual 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 2012 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 and forecasted economic data provided by the Canadian government and its agencies.  In setting and reviewing the outlook and objectives for 2012, management's expectations assume:The Canadian economy will produce modest growth in 2012, but will be heavily influenced by the economic conditions in the United States 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 2012 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 through most of Canada will continue with the market stabilizing from previous activity levels.Unemployment will remain stable or improve slightly as the economy grows, while a larger labour force will tend to offset 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 as returns on the increased traditional portfolio offset declining returns on the securitized portfolio throughout 2012.Credit quality will remain sound with actual losses within Home Capital's historical range of acceptable levels.Current Canada Mortgage Housing Corporation (CMHC) policies remain substantially unchanged.Non-GAAP Measures The Company has adopted IFRS as its accounting framework. IFRS are the generally accepted accounting principles (GAAP) for Canadian publicly 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. Definitions of non-GAAP measures used in this report can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's 2011 Annual and Fourth Quarter Consolidated Financial Report.Regulatory Filings The Company's continuous disclosure materials, including interim filings, annual Management's Discussion and Analysis and audited consolidated financial statements, Annual Information Form, Notice of Annual Meeting of Shareholders, and Proxy Circular are available on the Company's website at www.homecapital.com and on the Canadian Securities Administrators' website at www.sedar.com.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