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Press release from CNW Group

Home Capital Reports Strong Performance for the Second Quarter

Wednesday, August 01, 2012

Home Capital Reports Strong Performance for the Second Quarter17:00 EDT Wednesday, August 01, 2012Basic Earnings per Share of $1.54, or $1.60 excluding second quarter tax adjustmentsReturn on Equity of 25.1%Second Quarter Net Income Increases 10.4%, or 14.5% excluding second quarter tax adjustments, over 2011 Net IncomeTORONTO, Aug. 1, 2012 /CNW/ - Home Capital Group (TSX: HCG) today reported another quarter of strong results for the three months ended June 30, 2012.The Company's Second Quarter Report, including Management's Discussion and Analysis, is available on and on the Canadian Securities Administrators' website at FINANCIAL HIGHLIGHTS           (Unaudited)For the three months endedFor the six months ended(000s, except Per Share and Percentage Amounts)June 302012March 312012June 302011June 302012June 302011OPERATING RESULTS         Net Income$ 53,230$ 52,534$ 48,206$ 105,764$ 91,384Adjusted Net Income1   53,230  52,534  48,206  105,764  93,809Total Revenue 218,751  214,682  198,568  433,433  383,181Earnings per Share - Basic/Diluted$1.54/1.54$1.52/1.52$1.39/1.38$3.07/3.07$2.63/2.62Adjusted Earnings per Share - Basic/Diluted1 1.54/1.54 1.52/1.52 1.39/1.38 3.07/3.07 2.70/2.69Return on Shareholders' Equity 25.1% 26.2% 28.2% 25.7% 27.5%Return on Average Assets1.2% 1.2% 1.2% 1.2% 1.1%Net Interest Margin (TEB)2 2.09% 2.02% 2.06% 2.05% 2.03%Net Interest Margin Non-Securitized Assets (TEB)2 3.05% 3.06% 3.04% 3.06% 3.00%Net Interest Margin Securitized Assets1.05% 0.97% 1.28% 1.00% 1.24%Provision as a Percentage of Gross Loans (annualized)0.05% 0.11% 0.03% 0.08% 0.03%Efficiency Ratio (TEB)2  27.8% 27.7% 27.9% 27.8% 28.6%As atJune 302012March 312012December 312011June 302011  BALANCE SHEET HIGHLIGHTS         Total Assets$ 18,526,458$ 17,995,256$ 17,696,471$ 16,434,599  Total Loans3  16,966,961  16,403,745  16,089,648  15,319,145  Securitized Loans On-Balance Sheet 7,582,154  7,953,414  8,243,350  8,623,284  Loans Under Administration  17,039,727  16,403,745  16,089,648  15,319,145  Liquid Assets  677,908  691,416  814,918  864,142  Deposits  9,007,464  8,297,126  7,922,124  6,734,129  Shareholders' Equity 869,439   828,036   774,785   701,935   FINANCIAL STRENGTH         Capital Measures4           Risk-Weighted Assets$ 5,003,579$ 4,704,529$ 4,549,696$ 3,981,958  Tier 1 Capital Ratio 17.1% 17.5% 17.3% 18.4%  Total Capital Ratio21.1% 21.6% 20.5% 22.1%  Credit Quality         Non-Performing Loans as a Percentage of Gross Loans0.31% 0.28% 0.25% 0.23%  Allowance as a Percentage of Gross Non-Performing Loans58.7% 67.6% 74.9% 86.1%  Share Information         Book Value per Common Share$ 25.05$ 23.83$ 22.38$ 20.24  Common Share Price - Close$ 45.18$ 50.34$ 49.10$ 51.75  Market Capitalization$ 1,568,243$ 1,749,365$ 1,700,088$ 1,794,897  Number of Common Shares Outstanding  34,711  34,751  34,625  34,684  1 See definition of Adjusted Net Income under Non-GAAP Measures of the unaudited interim consolidated financial report and reconciliation to net income in Table 2 of the Management's Discussion and Analysis.2 See definition of Taxable Equivalent Basis (TEB) under Non-GAAP Measures of the unaudited interim consolidated financial report. The net interest margin non-securitized assets for March 31, 2012 was amended from the previously disclosed amount of 3.00%.3 Total loans include loans held for sale.4 These figures relate to the Company's operating subsidiary, Home Trust Company.SECOND QUARTER 2012 HIGHLIGHTSKey results for the second quarter of 2012 included:Net income increased to $53.2 million in the second quarter and to $105.8 million for the six months ended June 30, 2012. Second quarter results included an unfavourable adjustment to taxes of $2.0 million due to Ontario tax rate changes announced earlier this year and substantively enacted during the quarter. Excluding this tax adjustment, net income for the quarter was $55.2 million representing an increase of 14.5% over 2011 second quarter net income of $48.2 million, and 5.1% (or 20.4% annualized) over first quarter of 2012 net income of $52.5 million. Net income of $107.8 million, excluding the tax adjustment, for the six months ending June 30, 2012 increased 17.9% over the $91.4 million recorded in the same period last year. Including the tax adjustment net income is up 15.7% year over year.  These results put the Company solidly within the 13%-18% net income growth target for 2012.Diluted earnings per share were $1.54 for the quarter and $3.07 for the first six months of 2012 representing increases of 11.6% and 17.2% from $1.38 and $2.62 of the respective periods of 2011. Excluding the tax adjustment, diluted earnings per share were $1.60 for the quarter and $3.13 for the first six months of 2012 representing increases of 15.9% and 19.5% over the respective periods of 2011. Diluted earnings per share for the second quarter, excluding the tax adjustment, also increased by 5.3% from $1.52 diluted earnings per share in the first quarter of 2012.Net interest income reached record levels of $93.9 million in the second quarter, increasing 15.4% over the $81.3 million recorded in the second quarter of 2011 and 6.4% over the $88.2 million earned last quarter, reflecting solid loan growth and strong demand for the Company's products.Net interest margin (TEB) rose to 2.09% in the second quarter from 2.06% in the second quarter of 2011 and 2.02% in the first quarter of 2012, primarily due to the benefit of the rebalancing of the portfolio towards the higher yielding traditional mortgage portfolio.  On a year to date basis, net interest margin (TEB) increased to 2.05% compared to 2.03% in the same period last year.  Net interest margin (TEB) on non-securitized assets was 3.05% compared to 3.04% in the second quarter of 2011 and 3.06% in the first quarter of 2012.Net interest margin on securitized assets was 1.05%, representing a decline from 1.28% one year ago and an increase from 0.97% last quarter. During the second quarter the Company benefited from higher than expected prepayment penalties in the securitized portfolio resulting in an increase in the net interest margin. Compared to a year ago, the utilization of lower yielding assets as replacement assets in the CMB program is the primary contributor to lower margins.Return on equity at 25.1% for the quarter and 25.7% year to date remains solid and continues well in excess of the Company's minimum performance objective of 20%.During the quarter the Company securitized and sold $72.8 million in insured multi-unit residential mortgages that qualified for off-balance sheet and gain on sale accounting under current accounting standards. This resulted in a securitization gain of $1.3 million in the quarter.The credit quality of the loans portfolio remains solid. Net non-performing loans ended the quarter at 0.31% of the total loans portfolio and, while up from 0.25% at December 31, 2011 and 0.28% at the end of the first quarter of 2012, the ratio remains well within the Company's expectations and reflects the strategic shift towards a higher proportion of traditional mortgages. The provision for credit losses continues at a low level and was 0.05% of gross loans on an annualized basis in the quarter, compared to 0.03% in the second quarter of 2011 and 0.11% in the first quarter of 2012. The provision for credit losses ratio is within the Company's objective of 0.05% to 0.15% of gross loans.Tier 1 and Total capital ratios of 17.1% and 21.1%, respectively, at June 30, 2012 remain very conservative and well above the Company's minimum targets. Home Trust's asset to capital multiple was 13.8 at the end of the quarter compared to 14.4 at December 31, 2011 and 13.6 at the end of the first quarter. The Company is well positioned to continue growing its assets, revenue and net income while meeting or exceeding the Company's 2012 targets and maintaining prudent levels of capital.Total assets were $18.53 billion at the end of the second quarter, an increase of $2.09 billion or 12.7% from $16.43 billion one year ago, $0.83 billion or 4.7% from $17.70 billion at the end of 2011 and $0.53 billion or 3.0% over $18.0 billion at the end of the first quarter of 2012.Total loans grew to $16.97 billion, an increase of $1.65 billion or 10.8% from $15.32 billion one year ago, $0.88 billion or 5.5% from $16.09 billion at the end of 2011 (10.9% on an annualized basis) and $0.56 billion or 3.4% over $16.40 billion at the end of last quarter. While annualized loan growth year to date has been below the Company's growth target due to net reduction of insured loans, demand is strong and the Company continues to expect year-over-year loan growth to be within the target range of 13%-18% for 2012.The total value of mortgages originated in the second quarter rose to $1.67 billion from $1.20 billion originated in the second quarter of 2011 and $1.19 billion in originations in the first quarter of 2012. Originations were $2.85 billion for the first six months of the year compared to $2.57 billion in the same period last year. Origination volumes and weightings continue to reflect the Company's strategy to increase focus on originations of higher yielding traditional mortgages.Originations of traditional mortgages increased to $1.21 billion in the second quarter from $870.8 million in the second quarter of 2011 and $921.1 million originated in the first quarter of 2012. The Company is experiencing strong demand for its traditional product offerings combined with high credit quality. This continues to enhance profitability.Accelerator (insured) mortgage originations increased to $221.1 million in the second quarter from $172.4 million in the second quarter of 2011 and from $172.7 million in the first quarter of 2012. The Company continues to pursue opportunities that may lead to future growth in this product segment in 2012.Multi-unit residential originations were $87.8 million in the quarter compared to $34.5 million in the second quarter of 2011 and $27.5 million in the first quarter of 2012. The Company anticipates continued funding of multi-unit residential mortgages through the second half of 2012 and plans to securitize these mortgages through programs that qualify for off-balance sheet accounting.Non-residential mortgage advances were $86.0 million in the quarter compared to $59.5 million in the second quarter of 2011 and $25.2 million in the first quarter of 2012. The Company continues to be very selective and focuses on opportunities that present strong margins and risk profiles that are within the Company's risk tolerance.Store and apartment advances were $37.8 million for the quarter compared to $35.5 million in the second quarter of 2011 and $37.9 million last quarter.The Company opened 1,793 new Visa accounts in the second quarter compared to 2,389 accounts opened in the second quarter of 2011 and 1,383 accounts last quarter. The decline through the current year reflects the Company's increased conservatism in approvals and advances and the anticipated adoption of OSFI's B-20 draft guideline provisions limiting home equity lines of credit (HELOC). The final guideline is less restrictive than the Company's expectation and the Company is exploring strategies, within its risk tolerance and OSFI's guidelines, to enhance growth in this portfolio.Consistent with the first quarter of 2012, the Company is delivering solid performance despite the persistent international economic instability and muted economic improvement in Canada. The Company's performance reflects the strength, and the successful execution, of the Company's core strategy.As discussed in the first quarter of 2012, the Company continues to see resilient and relatively stable real estate markets across most of Canada, with a few areas of continuing concern, where the Company has already scaled back. The Company expects real estate demand to remain relatively stable in 2012 with potentially modest declines in some of the larger markets. This is expected to result in relatively balanced real estate market conditions and lead to continued healthy demand for the Company's products, consistent with the first half of the year. The Company has not seen evidence of a "real-estate bubble" in Canada. Low interest rates and stable employment have maintained housing affordability. The Company expects interest rates to remain at current levels or experience very modest increases into 2013 and that Canadian employment levels will remain relatively stable in 2012. The Company maintains a solid capital position and prudent liquidity and expects that it is well positioned to deal with the impact of uncertainty that may affect the Canadian economy.Favourable market opportunities have supported the Company's strategy of renewed focus on the traditional mortgage portfolio with record levels of originations in this product category. While the Company has increased lending in this product category it has been able to do so with improving credit quality. The average credit score for traditional mortgage originations for the first half of 2012 is up from the same period of 2011 while loan to value ratios are down. The Company remains proactive and prudent in its lending practices, taking into account local economic and market conditions. The credit quality of the loan portfolio remains strong, reflecting the Company's focus on diligent underwriting combined with strong collection standards and loan resolution strategies.During the second quarter, OSFI released Final Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures requiring full implementation by the end of 2012. Additionally, the Canadian government announced rule changes associated with mortgages insured through CMHC that became effective in early July 2012. The Company supports the changes announced and expects that these measures will serve to enhance the safety and soundness of the Canadian real estate market, mortgage insurers and the economy, while potentially tempering real estate demand in the short term. The Company has already made changes, where required, to comply with a significant number of the B-20 guidelines and will be fully compliant before the end of 2012. The changes required for B-20 are not expected to materially affect the Company's growth or progress. There may be a small segment of the Company's borrowers who will be impacted by the B-20 changes and may need to seek alternative funding. The Company was fully compliant with the required changes to the insured mortgage rules before the early July 2012 deadline.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 $0.22 per Common share, payable on September 1, 2012 to shareholders of record at the close of business on August 15, 2012. With solid performance in all aspects of Home Capital's business, management expects that the Company will continue to generate above average earnings and shareholder performance for 2012, and will meet or exceed all of its stated objectives for 2012. (signed)GERALD M. SOLOWAY  Chief Executive Officer August 1, 2012    (signed)KEVIN P.D. SMITHChairman of the Board  Additional information concerning the Company's targets and related expectations for 2012, including the risks and assumptions underlying these expectations, may be found in Management's Discussion and Analysis (MD&A) of this quarterly report.Conference Call and WebcastSecond Quarter Results Conference CallThe conference call will take place on Thursday, August 2, 2012, at 10:30 a.m. Participants are asked to call 5 to 15 minutes in advance, 647-427-7450 in Toronto or toll-free 1-888-231-8191 throughout North America. The call will also be accessible in listen-only mode via the Internet at Call ArchiveA telephone replay of the call will be available between 1:30 p.m. Thursday, August 2, 2012 and midnight Thursday, August 9, 2012 by calling 416-849-0833 or 1-855-859-2056 (enter passcode 99419730). The archived audio web cast will be available for 90 days on CNW Group's website at and Home Capital's website at OBJECTIVES AND PERFORMANCEHome Capital published its financial objectives for 2012 on page 15 of the Company's 2011 Annual Report. The following table compares actual performance to date against each of these objectives.Table 1: 2012 Targets and Performance             For the six months ended June 30, 2012 2012 Targets1ActualResults1 AmountIncreaseover 2011Growth in net income13%-18%15.7%$ 105,764 $ 14,380 Growth in diluted earnings per share13%-18%17.2%  3.07   0.45 Growth in total loans2 13%-18%10.9% 16,966,961   877,313 Return on shareholders' equity20.0%25.7%    Efficiency ratio (TEB)3 28.0% - 34.0%27.8%   Capital ratios4           Tier 1Minimum of 13%17.1%       TotalMinimum of 14%21.1%    Provision as a percentage of gross loans (annualized)0.05% - 0.15%0.08%    1 Objectives and results for net income and diluted earnings per share are for the current year.2 Change represents growth over December 31, 2011 on an annualized basis and includes loans held for sale.3 See definition of TEB under Non-GAAP Measures in the unaudited interim consolidated financial report.4 Based on the Company's wholly owned subsidiary, Home Trust Company.Consolidated Statements of Income      For thethree months endedFor thesix months endedthousands of Canadian dollars, except per share amounts (Unaudited) June 302012March 312012June 302011June 302012June 302011Net Interest Income Non-Securitized Assets           Interest from loans$ 125,576 $ 117,565 $ 96,262 $ 243,141 $ 187,315 Dividends from securities  3,533   3,964   4,713   7,497   8,971 Other interest  930   1,047   1,219   1,977   2,912     130,039   122,576   102,194   252,615   199,198 Interest on deposits  56,043   53,128   47,242   109,171   92,208 Interest on senior debt  1,705   1,653   1,047   3,358   1,047 Net interest income non-securitized assets  72,291   67,795   53,905   140,086   105,943             Net Interest Income Securitized Loans and Assets          Interest income from securitized loans and assets  76,286   76,616   83,920   152,902   164,420 Interest expense on securitization liabilities  54,723   56,192   56,503   110,915   112,435 Net interest income securitized loans and assets  21,563   20,424   27,417   41,987   51,985             Total Net Interest Income   93,854   88,219   81,322   182,073   157,928 Provision for credit losses (note 5(E))  2,298   4,498   1,217   6,796   2,191     91,556   83,721   80,105   175,277   155,737 Non-Interest Income           Fees and other income  12,025   10,897   8,646   22,922   17,006 Realized net gains and unrealized losses on securities and mortgages  1,676   308   2,141   1,984   4,170 Net realized and unrealized (loss) gain on derivatives (note 14)  (1,275)  4,285   1,667   3,010   (1,613)    12,426   15,490   12,454   27,916   19,563     103,982   99,211   92,559   203,193   175,300 Non-Interest Expenses            Salaries and benefits  14,501   13,999   13,253   28,500   25,830 Premises  1,977   1,998   1,900   3,975   3,772 Other operating expenses  13,404   13,171   11,490   26,575   22,257     29,882   29,168   26,643   59,050   51,859             Income Before Income Taxes    74,100   70,043   65,916   144,143   123,441 Income taxes (note 12(A))            Current  20,568   19,055   18,036   39,623   32,111   Deferred  302   (1,546)  (326)  (1,244)  (54)    20,870   17,509   17,710   38,379   32,057 NET INCOME $ 53,230 $ 52,534 $ 48,206 $ 105,764 $ 91,384             NET INCOME PER COMMON SHARE           Basic$ 1.54 $ 1.52 $ 1.39 $ 3.07 $ 2.63 Diluted$ 1.54 $ 1.52 $ 1.38 $ 3.07 $ 2.62 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING            Basic  34,476   34,550   34,695   34,486   34,699 Diluted  34,509   34,593   34,843   34,491   34,843             Total number of outstanding common shares (note 9(A))  34,711   34,751   34,684   34,711   34,684 Book value per common share$ 25.05 $ 23.83 $ 20.24 $ 25.05 $ 20.24 The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Statements of Comprehensive Income For thethree months endedFor thesix months endedthousands of Canadian dollars (Unaudited)  June 302012  March 312012  June 302011  June 302012  June 302011 NET INCOME $ 53,230 $ 52,534 $ 48,206 $ 105,764 $ 91,384 OTHER COMPREHENSIVE INCOME (LOSS)          Available for Sale Securities           Net unrealized (losses) gains on securities available for sale  (1,069)  4,393   420   3,324   (81)Net gains reclassified to net income  (1,348)  (364)  (2,662)  (1,712)  (4,490)   (2,417)  4,029   (2,242)  1,612   (4,571)Income tax (recovery) expense  (643)  1,167   (919)  524   (1,168)   (1,774)  2,862   (1,323)  1,088   (3,403)Cash Flow Hedges (note 14)          Net unrealized (losses) gains on cash flow hedges  (396)  26   (2,643)  (370)  (3,317)Net losses reclassified to net income  357   353   91   710   91    (39)  379   (2,552)  340   (3,226)Income tax (recovery) expense  (89)  110   (664)  21   (839)   50   269   (1,888)  319   (2,387)Total other comprehensive (loss) income  (1,724)  3,131   (3,211)  1,407   (5,790)COMPREHENSIVE INCOME $ 51,506 $ 55,665 $ 44,995 $ 107,171 $ 85,594 The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Balance Sheets        thousands of Canadian dollars (Unaudited) June 302012  March 312012  December 312011 ASSETS        Cash Resources (note 4(A))$ 301,330 $ 421,397 $ 665,806 Securities (note 4(B))      Available for sale  425,834   471,951   391,754 Pledged securities (notes 4(C) and 6(B))  628,836   493,889   341,588     1,054,670   965,840   733,342 Loans held for sale  29,811   -   - Loans (note 5)      Residential mortgages  7,749,484   6,946,012   6,339,883 Securitized residential mortgages (note 6)  7,582,154   7,953,414   8,243,350 Non-residential mortgages  1,037,385   940,055   946,222 Personal and credit card loans  568,127   564,264   560,193     16,937,150   16,403,745   16,089,648 Collective allowance for credit losses (note 5(E))  (29,500)  (29,500)  (29,440)    16,907,650   16,374,245   16,060,208 Other       Derivative assets (note 14)  59,284   55,611   72,424 Other assets (note 7)  84,534   90,899   79,650 Capital assets  7,278   6,296   5,372 Intangible assets  66,149   65,216   63,917 Goodwill  15,752   15,752   15,752     232,997   233,774   237,115   $ 18,526,458 $ 17,995,256 $ 17,696,471 LIABILITIES AND SHAREHOLDERS' EQUITY       Liabilities       Deposits         Deposits payable on demand$ 42,098 $ 36,220 $ 62,746   Deposits payable on a fixed date   8,965,366   8,260,906   7,859,378     9,007,464   8,297,126   7,922,124 Senior Debt (note 13)  152,524   154,129   153,336 Securitization Liabilities (note 6(C))        Mortgage-backed security liabilities  2,078,300   2,238,138   2,417,801   Canada Mortgage Bond liabilities   6,160,259   6,210,408   6,231,274      8,238,559   8,448,546   8,649,075 Other       Obligations related to securities sold under repurchase agreement (notes 4(C) and 5(F))  43,418   49,720   - Derivative liabilities (note 14)  4,043   2,990   3,458 Income taxes payable  15,893   6,672   17,628 Other liabilities (note 8)  156,320   169,560   136,025 Deferred tax liabilities (note 12(C))  38,798   38,477   40,040     258,472   267,419   197,151     17,657,019   17,167,220   16,921,686 Shareholders' Equity       Capital stock (note 9)  61,662   61,494   55,104 Contributed surplus  5,543   5,207   5,873 Retained earnings  810,018   767,395   722,999 Accumulated other comprehensive loss (note 11)  (7,784)  (6,060)  (9,191)    869,439   828,036   774,785   $ 18,526,458 $ 17,995,256 $ 17,696,471 The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Statements of Changes in Shareholders' Equity               thousands of Canadian dollars,except per share amounts (Unaudited)CapitalStockContributedSurplusRetainedEarningsNetUnrealized(Losses) Gainson SecuritiesAvailable forSale, after TaxNetUnrealizedLosses onCash FlowHedges,after TaxTotalAccumulatedOtherComprehensive(Loss) IncomeTotalShareholders'EquityBalance at December 31, 2011$ 55,104$ 5,873$ 722,999$ (4,141)$ (5,050)$ (9,191)$ 774,785Comprehensive income  -   -   105,764  1,088  319  1,407  107,171Stock options settled (note 9(A))  6,692   (1,302)  -   -   -   -  5,390Amortization of fair value of              employee stock options (note 10(A))  -   972  -   -   -   -  972Repurchase of shares (note 9(A))  (134)  -   (3,436)  -   -   -  (3,570)Dividends paid              ($0.42 per share)  -   -   (15,309)  -   -   -  (15,309)Balance at June 30, 2012$ 61,662$ 5,543$ 810,018$ (3,053)$ (4,731)$ (7,784)$ 869,439              Balance at December 31, 2010$ 50,427$ 4,571 $ 567,681$ 5,906$ - $ 5,906$ 628,585Comprehensive income  -  -   91,384  (3,403)  (2,387)  (5,790)  85,594Stock options settled (note 9(A))  4,237  (933)  -  -   -   -  3,304Amortization of fair value of              employee stock options (note 10(A))  -  1,231  -  -   -   -  1,231Repurchase of shares (note 9(A))  (121)  -  (4,147)  -   -   -  (4,268)Dividends paid              ($0.36 per share)  -   -   (12,511)  -   -   -  (12,511)Balance at June 30, 2011$ 54,543$ 4,869$ 642,407$ 2,503$ (2,387)$ 116$ 701,935The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Consolidated Statements of Cash Flows   For the six months ended       thousands of Canadian dollars (Unaudited)  June 302012  June 302011 CASH FLOWS FROM OPERATING ACTIVITIES     Net income for the period$ 105,764$ 91,384Adjustments to determine cash flows relating to operating activities:     Deferred income taxes  (1,244)  (54) Amortization of capital assets  1,569  1,430 Amortization of intangible assets   3,218  30 Amortization of net premium on securities  1,461  295 Amortization of securitization and senior debt transaction costs  6,604  5,711  Provision for credit losses  6,796  2,191  Change in accrued interest payable  20,108   17,721 Change in accrued interest receivable  (3,104)  (2,198) Realized net gains and unrealized losses on securities and mortgages  (1,984)  (4,170) Settlement of derivatives  (370)  (3,828) (Gain) loss on derivatives  (3,010)  1,613  Net increase in mortgages  (875,750)  (1,161,993) Net increase in personal and credit card loans  (7,904)  (67,351) Net increase in deposits  1,085,340  133,979 Proceeds from obligations under repurchase agreement  43,418  - Activity in securitization liabilities      Proceeds from securitization of mortgage-backed security liabilities  53,153  811,189  Settlement and repayment of securitization liabilities  (454,516)  (271,097) Amortization of fair value of employee stock options  972  1,231 Changes in taxes payable and other  (4,031)  10,398 Cash flows used in operating activities  (23,510)  (433,519)CASH FLOWS FROM FINANCING ACTIVITIES     Repurchase of shares  (3,570)  (4,268)Exercise of employee stock options  5,390  3,304Issuance of senior debt  -  149,043Dividends paid to shareholders  (14,598)  (12,504)Cash flows used in financing activities  (12,778)  135,575 CASH FLOWS FROM INVESTING ACTIVITIES     Activity in securities     Purchases  (531,589)  (224,431) Proceeds from sales  185,453  174,235 Proceeds from maturities  26,873  54,268Purchases of capital assets  (3,475)  (1,381)Purchases of intangible assets  (5,450)  (8,509)Cash flows used in investing activities  (328,188)  (5,818)Net decrease in cash and cash equivalents during the period  (364,476)  (303,762)Cash and cash equivalents at beginning of the period  665,806   846,824Cash and Cash Equivalents at End of the Period (note 4(A))$ 301,330$ 543,062Supplementary Disclosure of Cash Flow Information     Dividends received on investments$ 6,227$ 7,575Interest received  240,433  349,357Interest paid  333,836  187,969Income taxes paid  43,874  19,851The accompanying notes are an integral part of these unaudited interim consolidated financial statements.Caution 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 48 through 58 of the Company's 2011 Annual Report, as well as its other publicly filed information, which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at, 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 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 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 economic data provided by the Canadian government and its agencies. In setting and reviewing the outlook and objectives for 2012, management's expectations continue to assume:The Canadian economy will produce modest growth in 2012, but will be heavily influenced by the economic conditions in the United States and global markets. Inflation will generally be within the Bank of Canada's target of 1%-3%.Interest rates will remain at current rates or increase marginally in 2012 as the Bank of Canada leaves its target for the overnight rate at its current level or modestly increases the rate later in 2012. 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 activity moderating 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 the low end of Home Capital's historical range.The recent changes to Canada Mortgage and Housing Corporation (CMHC) policies will help to temper the real estate market.Non-GAAP MeasuresThe Company applies IFRS which are the generally accepted accounting principles (GAAP) for Canadian publically accountable enterprises. 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 can be found under Non-GAAP Measures in the Management's Discussion and Analysis included in the Company's Second Quarter 2012 Report.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 website at, and on the Canadian Securities Administrators' website at 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 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, Quebec and Manitoba.SOURCE: Home Capital Group Inc.For further information: Gerald M. Soloway, CEO, or Martin Reid, President 416-360-4663