Home Capital Group Annual Report 2013

FY2013 Annual Report · Home Capital Group

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Home Capital Group Inc.
Suite 2300
145 King Street West
Toronto, Ontario M5H 1J8
Tel: 416-360-4663
Toll Free: 1-800-990-7881

CANADA’S ONE-STOP MORTGAGE LENDER

A
CANADA’S ONE-STOP MORTGAGE LENDER

ANNUAL REPORT 2013

The Right Strategy
Record Results

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Business Profile

Home Capital Group Inc., together with its operating subsidiary Home Trust Company, has developed a
track record of success as Canada’s leading alternative lender. Building on the demonstrated strength of
its core residential mortgage lending business, the Company also offers complementary lending services,
as well as highly competitive deposit investment products.

MISSION STATEMENT

Home Capital’s mission is to deliver superior shareholder value by focusing on well-deﬁ ned niches in the Canadian lending and deposit-
taking market place that generate above average returns, have acceptable residual risk proﬁ les and are not adequately served by traditional
ﬁ nancial institutions, while protecting the depositors and operating within regulatory guidelines and the Company’s risk appetite.

Home Trust Branches

MORTGAGE LENDING

Home Trust is one of Canada’s leading mortgage lenders, focusing on homeowners who typically do not meet all the lending criteria of
traditional ﬁ nancial institutions. By offering a range of mortgage products, Home Trust is uniquely positioned to provide ﬁ nancial
solutions to meet the needs of thousands of Canadians. With a proprietary lending approach, comprehensive borrower proﬁ ling and
ﬂ exible alternative options, Home Trust is a one-stop shop for borrowers and mortgage brokers. Home Trust is also a provider of
commercial ﬁ rst mortgages to high-quality borrowers in selected markets across Canada.

CONSUMER LENDING

Home Trust’s Equityline Visa program brings the advantages to cardholders of accessing the equity they have built in their homes
together with the features and convenience of a Gold Visa card. The Company also offers deposit-secured credit cards for individuals
who wish to build or re-establish a positive credit history. Home Trust’s Retail Credit Services provides installment ﬁ nancing for
customers making purchases from established businesses. PSiGate, a wholly owned subsidiary, offers electronic card-based payment
services to merchants who conduct business primarily on the Internet.

DEPOSIT INVESTMENTS

Home Trust provides a broad range of deposit investment services through its extensive deposit broker network. In addition, Home Trust
recently launched its direct-to-consumer brand, Oaken Financial, which offers a competitive suite of deposit products, including a daily
interest savings account, to provide customers with a secure alternative to manage their savings independently. With efﬁ cient, personal
service and competitive rates, Home Trust offers a number of solutions to meet the long -term and short -term needs of investors looking
to diversify their portfolios.

CONTENTS 1 Report to Shareholders 6 Proven Results 7 Performance vs. Target 8 Corporate Governance at Home Capital
11 Corporate Social Responsibility 12 Management’s Discussion and Analysis 73 Consolidated Financial Statements
80 Notes to the Consolidated Financial Statements

HOMECap 2736 ENG_2013AR_cover_v2.indd 1

14-03-21 12:37 PMFri, Mar 21, 2014

Home Capital Group Inc.
Suite 2300
145 King Street West
Toronto, Ontario M5H 1J8
Tel: 416-360-4663
Toll Free: 1-800-990-7881

CANADA’S ONE-STOP MORTGAGE LENDER

A
CANADA’S ONE-STOP MORTGAGE LENDER

ANNUAL REPORT 2013

The Right Strategy
Record Results

H
O
M
E

C
A
P
I

T
A
L

G
R
O
U
P

N
C

A
N
N
U
A
L

R
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P
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R
T

2
0
1
3

Business Profile

MISSION STATEMENT

Home Trust Branches

MORTGAGE LENDING

CONSUMER LENDING

DEPOSIT INVESTMENTS

HOMECap 2736 ENG_2013AR_cover_v2.indd 1

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Financial Highlights
Summary of Data for 10 Year Review

For the years ended December 31
(000s, except per share amounts)

Total assets

Total assets under administration

Total loans

Total loans under administration

Securitized residential mortgages
on-balance sheet

Deposits

Shareholders’ equity

Revenue

Net income

Book value of common shares

Earnings per share – basic

Earnings per share – fully diluted

2013

2012

2011

2010 IFRS

2010 GAAP

2009

2008

2007

2006

2005

2004

20,075,850

21,997,781

18,019,901

19,941,832

5,210,021

12,765,954

1,177,697

949,547

256,542

33.90

7.40

7.32

18,800,079

17,696,471

15,518,818

7,712,239

7,360,874

5,809,713

4,975,093

3,902,316

19,681,750

17,696,471

15,518,818

15,878,772

11,508,585

8,423,971

6,434,548

5,009,878

17,159,913

16,089,648

14,091,755

5,861,722

5,468,540

4,531,568

4,045,571

3,328,858

18,041,584

16,089,648

14,091,755

14,028,255

9,616,251

7,145,826

4,505,026

4,436,420

3,284,829

4,085,013

2,813,459

3,613,643

2,568,513

3,069,253

2,257,740

2,758,480

6,706,160

10,136,599

968,213

887,685

221,983

27.96

6.40

6.38

8,243,350

7,922,124

774,785

790,274

190,080

22.38

5.48

5.46

8,116,636

6,595,979

628,585

687,249

154,752

18.14

4.46

4.45

–

6,522,850

6,409,822

5,102,781

4,413,984

3,443,640

2,901,515

2,269,157

742,280

533,937

180,944

21.42

5.21

5.20

590,288

489,179

144,493

17.00

4.19

4.15

432,753

454,695

108,687

12.57

3.15

3.13

348,040

368,881

90,241

10.08

2.62

2.59

276,866

282,549

67,815

8.10

1.99

1.95

218,885

234,704

60,861

6.44

1.80

1.72

162,207

181,839

44,551

4.80

1.33

1.27

In 2011, Home Capital Group Inc. implemented International Financial Reporting Standards (IFRS) with a transition date of January 1, 2010. Figures for 2010
have been restated on an IFRS basis. Figures for 2009 and prior years are on a former Canadian Generally Accepted Accounting Principles (GAAP) basis.

23.9%

Return on equity was
23.9%, exceeding 20% for
the 16th consecutive year

$256.5million

Net income for 2013 was
$256.5 million, an increase
of 15.6% over 2012

$19.94billion

Total loans under
administration grew by
10.5% over 2012 to reach
$19.94 billion at the end
of 2013

Net Income
($ millions)

Earnings per Share
(basic in dollars)

Return on Equity
(percentage)

257

222

181

190

155

144

7.40

6.40

5.48

5.21

4.46

4.19

28.2

27.2

27.3 27.1

25.5

23.9

15.6%

250

200

150

Home Capital reported a 15.6% increase
in net income over the $222.0 million
attained in 2012, reaching $256.5 million
for the year ended 2013.

100

Former Canadian GAAP Basis

IFRS Basis

15.6%

5
Basic earnings per share rose to
$7. 40 for the year ended December 31,
4
2013, a 1 5. 6% increase over the
3
$6. 40 reported for 2012.

1
IFRS Basis
0

23.9%

Home Capital surpassed 20%
return on equity for the 16th
consecutive year, reaching 23.9%
at December 31, 2013.

"09"
"10"
"10"
"11"
"12"
"13"

144
181
155
190
222
257

"09"
"10"
"10"
"11"
"12"
"13"

4.19
5.21
4.46
5.48
6.4
7.4

"09"
"10"
"10"
"11"
"12"
"12"

28.2
27.2
27.3
27.1
25.5
23.9

HOMECap 2736 ENG_2013AR_cover_v2.indd 2

Ten-year Cumulative Total Return on $100 Investment

Comparison between S&P/TSX Composite Index (S&P/TSX) and Home Capital Group Inc. (HCG)
December 31, 2003–December 31, 2013

Compounded
Annual Growth

Over 10 Years 19%

$7.32

Diluted earnings per share
were $7.32 for the year,
an increase of 14.7%
over 2012

HCG
19%

S&P/TSX
8%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

$31.25

$34.75

$34.05

$41.90

$19.80

$41.85

$51.79

$49.10

$59.07

$80.93

1,000

800

600

400

200

HCG Stock
Price
Performance

Closing Price as of December 31
Share prices have been restated to reflect two-for-one stock split on January 29, 2004.

1000

800

600

400

200

“2003”

“2004”

“2005”

“2006”

“2007”

“2008”

“2009”

“2010”

“2011”

“2012”

“2013”

“2003” . . . . . . . 100 . . . . . . . . . 100
“2004” . . . . . . . 114.48 . . . . . . . 188.91
“2005” . . . . . . . 142.1 . . . . . . . . 211.06
“2006” . . . . . . . 166.63 . . . . . . . 208.59
“2007” . . . . . . . 183.01 . . . . . . . 259.49
“2008” . . . . . . . 122.61 . . . . . . . 124.71
“2009” . . . . . . . 165.59 . . . . . . . 268.84
“2010” . . . . . . . 194.75 . . . . . . . 337.72
“2011” . . . . . . . 177.78 . . . . . . . 324.87
“2012” . . . . . . . 190.56 . . . . . . . 398.06
“2013” . . . . . . . 215.32 . . . . . . . 554.78

Corporate Directory

HOME TRUST COMPANY

Pino Decina
Executive Vice President,
Residential Mortgage
Lending

John R. K. Harry
Senior Vice President,
Commercial Mortgage
Lending

Chris Ahlvik, LL.B
Senior Vice President,
Corporate Counsel and
Corporate Secretary

David J. Novak
Senior Vice President,
Chief Risk Ofﬁ cer

Marie Holland, CPA, CA
Senior Vice President,
Internal Audit

John Hong
Senior Vice President,
Chief Compliance Ofﬁ cer
and Chief Anti-Money
Laundering Ofﬁ cer

Stephen Copperthwaite,
CMA, ORMP
Senior Vice President,
Relationship Manager

Greg Parker
Senior Vice President,
Treasurer

Options Listing:
Montreal Stock Exchange
Ticker Symbol: HCG

Capital Stock:
As at December 31, 2013,
there were 34,744,090
Common Shares outstanding

Memberships:
Canada Deposit Insurance
Corporation
Trust Companies Association
of Canada

Directors:

Kevin P. D. Smith
Chairman of the Board

Hon. William G. Davis
P.C., C.C., Q.C.
Vice Chair of the Board

James C. Baillie

William Falk

Diana L. Graham

John M. E. Marsh

Robert A. Mitchell, CPA, CA

Martin Reid

Gerald M. Soloway

Bonita Then

Leslie Thompson

Ofﬁ cers:

Gerald M. Soloway
Chief Executive Ofﬁ cer

Martin Reid
President

Brian R. Mosko
Chief Operating Ofﬁ cer and
Executive Vice President

Robert Blowes, FCPA, FCA
Chief Financial Ofﬁ cer and
Executive Vice President

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Auditors:
Ernst & Young LLP
Chartered Accountants
Toronto, Ontario

Principal Bankers:
Bank of Montreal
Bank of Nova Scotia

Transfer Agent:
Computershare Investor
Services Inc.
100 University Avenue
Toronto, Ontario M5J 2Y1
Tel: 1-800-564-6253

Stock Listing:
Toronto Stock Exchange
Ticker Symbol: HCG

FSC LOGO TO
GO HERE.

Halifax:
5251 Duke Street
Suite 1205, Duke Tower
Halifax, Nova Scotia B3J 1P3
Tel: 902-422-4387

1-888-306-2421

Fax: 902-422-8891

1-888-306-2435

Montreal:
2020 Rue University
Suite 2420
Montreal, Quebec
H3A 2A5
Tel: 514-843-0129

1-866-542-0129

Fax: 514-843-7620

1-866-620-7620

Winnipeg:
201 Portage Avenue
18th Floor
Winnipeg, Manitoba
R3B 3K6
Tel: 204-942-1619
Fax: 204-942-1638

Fariba Rawhani
Senior Vice President,
Chief Information Ofﬁ cer

Branches:

Toronto:
145 King Street West
Suite 2300
Toronto, Ontario M5H 1J8
Tel: 416-360-4663

1-800-990-7881

Fax: 416-363-7611

1-888-470-2092

Calgary:
10655 Southport Road SW
Suite 920
Calgary, Alberta T2W 4Y1
Tel: 403-244-2432

1-866-235-3081

Fax: 403-244-6542

1-866-544-3081

2500

2000

Vancouver:
200 Granville Street
Suite 1288
Vancouver, British Columbia
V6C 1S4
Tel: 604-484-4663

1500

1-866-235-3080

Fax: 604-484-4664

1-866-564-3524

1000

500

2000

For Shareholder
Information, Please
Contact:
1999
Chris Ahlvik
Senior Vice President,
Corporate Counsel
Home Capital Group Inc.
145 King Street West
Suite 2300
Toronto, Ontario M5H 1J8
Tel: 416-360-4663

2001

2002

2003

2004

2005

2006

2007

2008

2009

an eleventh hour change before we printed the report with 2008 on the cover resulted in
the styled graph losing one year and being stretched to accommodate, the rough graph below was not edited at the time
due to short scheduling, this year’s graph will be created the same way (again… short scheduling)

1-800-990-7881

Fax: 416-363-7611

1-888-470-2092
www.homecapital.com
www.hometrust.ca

14-03-21 12:37 PMFri, Mar 21, 2014

Financial Highlights
Summary of Data for 10 Year Review

For the years ended December 31
(000s, except per share amounts)

Total assets

Total assets under administration

Total loans

Total loans under administration

Securitized residential mortgages
on-balance sheet

Deposits

Shareholders’ equity

Revenue

Net income

Book value of common shares

Earnings per share – basic

Earnings per share – fully diluted

2013

2012

2011

2010 IFRS

2010 GAAP

2009

2008

2007

2006

2005

2004

20,075,850

21,997,781

18,019,901

19,941,832

5,210,021

12,765,954

1,177,697

949,547

256,542

33.90

7.40

7.32

18,800,079

17,696,471

15,518,818

7,712,239

7,360,874

5,809,713

4,975,093

3,902,316

19,681,750

17,696,471

15,518,818

15,878,772

11,508,585

8,423,971

6,434,548

5,009,878

17,159,913

16,089,648

14,091,755

5,861,722

5,468,540

4,531,568

4,045,571

3,328,858

18,041,584

16,089,648

14,091,755

14,028,255

9,616,251

7,145,826

4,505,026

4,436,420

3,284,829

4,085,013

2,813,459

3,613,643

2,568,513

3,069,253

2,257,740

2,758,480

6,706,160

10,136,599

968,213

887,685

221,983

27.96

6.40

6.38

8,243,350

7,922,124

774,785

790,274

190,080

22.38

5.48

5.46

8,116,636

6,595,979

628,585

687,249

154,752

18.14

4.46

4.45

–

6,522,850

6,409,822

5,102,781

4,413,984

3,443,640

2,901,515

2,269,157

742,280

533,937

180,944

21.42

5.21

5.20

590,288

489,179

144,493

17.00

4.19

4.15

432,753

454,695

108,687

12.57

3.15

3.13

348,040

368,881

90,241

10.08

2.62

2.59

276,866

282,549

67,815

8.10

1.99

1.95

218,885

234,704

60,861

6.44

1.80

1.72

162,207

181,839

44,551

4.80

1.33

1.27

23.9%

Return on equity was
23.9%, exceeding 20% for
the 16th consecutive year

$256.5million

Net income for 2013 was
$256.5 million, an increase
of 15.6% over 2012

$19.94billion

Total loans under
administration grew by
10.5% over 2012 to reach
$19.94 billion at the end
of 2013

Net Income
($ millions)

Earnings per Share
(basic in dollars)

Return on Equity
(percentage)

257

222

181

190

155

144

7.40

6.40

5.48

5.21

4.46

4.19

28.2

27.2

27.3 27.1

25.5

23.9

15.6%

250

200

150

Home Capital reported a 15.6% increase
in net income over the $222.0 million
attained in 2012, reaching $256.5 million
for the year ended 2013.

100

Former Canadian GAAP Basis

IFRS Basis

15.6%

5
Basic earnings per share rose to
$7. 40 for the year ended December 31,
4
2013, a 1 5. 6% increase over the
3
$6. 40 reported for 2012.

1
IFRS Basis
0

23.9%

Home Capital surpassed 20%
return on equity for the 16th
consecutive year, reaching 23.9%
at December 31, 2013.

"09"
"10"
"10"
"11"
"12"
"13"

144
181
155
190
222
257

"09"
"10"
"10"
"11"
"12"
"13"

4.19
5.21
4.46
5.48
6.4
7.4

"09"
"10"
"10"
"11"
"12"
"12"

28.2
27.2
27.3
27.1
25.5
23.9

HOMECap 2736 ENG_2013AR_cover_v2.indd 2

Ten-year Cumulative Total Return on $100 Investment

Comparison between S&P/TSX Composite Index (S&P/TSX) and Home Capital Group Inc. (HCG)
December 31, 2003–December 31, 2013

Compounded
Annual Growth

Over 10 Years 19%

$7.32

Diluted earnings per share
were $7.32 for the year,
an increase of 14.7%
over 2012

HCG
19%

S&P/TSX
8%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

$31.25

$34.75

$34.05

$41.90

$19.80

$41.85

$51.79

$49.10

$59.07

$80.93

1,000

800

600

400

200

HCG Stock
Price
Performance

Closing Price as of December 31
Share prices have been restated to reflect two-for-one stock split on January 29, 2004.

1000

800

600

400

200

“2003”

“2004”

“2005”

“2006”

“2007”

“2008”

“2009”

“2010”

“2011”

“2012”

“2013”

Corporate Directory

HOME TRUST COMPANY

Pino Decina
Executive Vice President,
Residential Mortgage
Lending

John R. K. Harry
Senior Vice President,
Commercial Mortgage
Lending

Chris Ahlvik, LL.B
Senior Vice President,
Corporate Counsel and
Corporate Secretary

David J. Novak
Senior Vice President,
Chief Risk Ofﬁ cer

Marie Holland, CPA, CA
Senior Vice President,
Internal Audit

John Hong
Senior Vice President,
Chief Compliance Ofﬁ cer
and Chief Anti-Money
Laundering Ofﬁ cer

Stephen Copperthwaite,
CMA, ORMP
Senior Vice President,
Relationship Manager

Greg Parker
Senior Vice President,
Treasurer

Options Listing:
Montreal Stock Exchange
Ticker Symbol: HCG

Capital Stock:
As at December 31, 2013,
there were 34,744,090
Common Shares outstanding

Memberships:
Canada Deposit Insurance
Corporation
Trust Companies Association
of Canada

Directors:

Kevin P. D. Smith
Chairman of the Board

Hon. William G. Davis
P.C., C.C., Q.C.
Vice Chair of the Board

James C. Baillie

William Falk

Diana L. Graham

John M. E. Marsh

Robert A. Mitchell, CPA, CA

Martin Reid

Gerald M. Soloway

Bonita Then

Leslie Thompson

Ofﬁ cers:

Gerald M. Soloway
Chief Executive Ofﬁ cer

Martin Reid
President

Brian R. Mosko
Chief Operating Ofﬁ cer and
Executive Vice President

Robert Blowes, FCPA, FCA
Chief Financial Ofﬁ cer and
Executive Vice President

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Auditors:
Ernst & Young LLP
Chartered Accountants
Toronto, Ontario

Principal Bankers:
Bank of Montreal
Bank of Nova Scotia

Transfer Agent:
Computershare Investor
Services Inc.
100 University Avenue
Toronto, Ontario M5J 2Y1
Tel: 1-800-564-6253

Stock Listing:
Toronto Stock Exchange
Ticker Symbol: HCG

FSC LOGO TO
GO HERE.

Halifax:
5251 Duke Street
Suite 1205, Duke Tower
Halifax, Nova Scotia B3J 1P3
Tel: 902-422-4387

1-888-306-2421

Fax: 902-422-8891

1-888-306-2435

Montreal:
2020 Rue University
Suite 2420
Montreal, Quebec
H3A 2A5
Tel: 514-843-0129

1-866-542-0129

Fax: 514-843-7620

1-866-620-7620

Winnipeg:
201 Portage Avenue
18th Floor
Winnipeg, Manitoba
R3B 3K6
Tel: 204-942-1619
Fax: 204-942-1638

Fariba Rawhani
Senior Vice President,
Chief Information Ofﬁ cer

Branches:

Toronto:
145 King Street West
Suite 2300
Toronto, Ontario M5H 1J8
Tel: 416-360-4663

1-800-990-7881

Fax: 416-363-7611

1-888-470-2092

Calgary:
10655 Southport Road SW
Suite 920
Calgary, Alberta T2W 4Y1
Tel: 403-244-2432

1-866-235-3081

Fax: 403-244-6542

1-866-544-3081

2500

2000

Vancouver:
200 Granville Street
Suite 1288
Vancouver, British Columbia
V6C 1S4
Tel: 604-484-4663

1500

1-866-235-3080

Fax: 604-484-4664

1-866-564-3524

1000

500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

1-800-990-7881

Fax: 416-363-7611

1-888-470-2092
www.homecapital.com
www.hometrust.ca

14-03-21 12:37 PMFri, Mar 21, 2014

Report to Shareholders

In 2013 we celebrated another year of record performance and
another year in which we met or exceeded all of our annual financial
and operating objectives. Looking ahead, with a strong and stable
Canadian economy and real estate market, and continuing solid
demand for our products, we are confident 2014 will be yet another
record year as we enhance our position as Canada’s leading
alternative financial institution.

Another Year of Record Performances

Our results in 2013 are yet another example of how our value-enhancing strategies are effective through all phases of the
economic cycle. Since the Company’s founding over a quarter of a century ago, our focus has been on generating steady and
sustainable growth in earnings while at the same time maintaining a stable risk profile with a strong financial position and
industry-leading capital ratios.

3 Well-Defined Strategic Priorities

Report to Shareholders (continued)

As a result of this proven business model, once again in 2013 we generated a year with record earnings, strong growth
across all of our business lines, and an exceptional return on equity. We met or exceeded all of our annual financial goals
and objectives for the year:

> Net income rose 15.6% for the year;

> Diluted earnings per share were up 14.7%;

> Total loans under administration increased 10.5%; and

> Our 23.9% return on shareholders’ equity once again beat our 20% goal, the 16th consecutive year that our annual return

on equity has exceeded 20%.

Overall, total loans under administration rose to over $19.94 billion, up 10.5% from $18.04 billion in 2012. Strong
demand for all our mortgage lending products resulted in total mortgage originations increasing by 15.2% for the year
from $6.01 billion to $6.92 billion. Supported by a stable Canadian economy and real estate market, originations in our
traditional mortgage products, which continue to be of exceptional credit quality, rose a significant 6.3% to $4.77 billion
in 2013 as we continue to experience growing demand for this segment of our business. In 2012, we refocused our
attention on these higher-margin, more profitable non-securitized loans, and our efforts produced solid results in 2013.
We continue to experience strong demand for these traditional product offerings, and as we have increased this segment
of our business we have also improved the credit profile with average credit scores up from last year and lower loan-to-
value ratios. We look for this segment of our business to continue to grow and generate increased profitability in the years
ahead.

strategic priority
Building and maintaining Canada’s leading Alternative Financial Institution
Serving an established and growing market niche

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

2 strategic priority

maintaining a Strong, Conservative Financial Position
Generating strong shareholder returns through good times and bad

Our Accelerator, or insured residential mortgage originations, also increased in 2013, up a very strong 25.7% to $1.01 billion
from 2012. this segment of our business remains one of our key products and helps to fulfill our mandate to provide a
true full-service, one-stop shop for the Canadian mortgage business. We look for the securitized segment of our mortgage
originations to continue growing.

Rounding out our product offerings, our consumer retail credit portfolio, which includes durable household goods such as
water heaters and large-ticket home improvement items, also rose by 25% in 2013 to $340.0 million, the result of our
success at building and expanding relationships with our business partners. Looking ahead, our intention is to continue
increasing this aspect of our business as it offers attractive returns with an excellent risk profile.

In 2013, as in prior years, we enhanced the quality and strength of our capital base while reducing our risk profile. While a key
goal at Home Capital is to expand our businesses, it is critical that we also ensure we are well positioned to prosper through
both good times and bad. to this end, capital ratios under the new Basel III guidelines remained robust at year-end, with solid
Common equity tier 1 and total capital ratios of 16.8% and 19.7%, respectively, well above our minimum annual targets.
the credit quality of our loan portfolio also remained strong with non-performing loans representing only 0.35% of the total
portfolio as at December 31, 2013, well within our expected and acceptable range. provisions for credit losses at 0.09% of
gross loans represent a nominal percentage of our net interest margin, leaving a significant spread for overhead and profit.

With our consistent growth and positive outlook on the future, we were pleased to announce, after the end of the second
quarter, an 8% increase in our common share dividends to $1.12 on an annual basis. On February 12, 2014, a further $0.04
increase in our quarterly common share dividends was announced, raising our annualized dividend to $1.28 per share, a
further reflection of our commitment to enhancing shareholder value. these increases represent total dividend growth of 23%
year over year.

In addition, on February 12, 2014 we declared a stock dividend of one common share for every issued and outstanding
share, resulting in an effective two-for-one stock split of our common shares. With this initiative, we expect to provide greater
liquidity for our shareholders, increase and broaden the Company’s shareholder base, and improve accessibility to Home
Capital common shares.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

strategic priority
Building on our operational excellence
Investing to ensure our growth is managed and prudent

We implemented a similar stock dividend in January 2004, when our common shares were trading at a price of
$33.90, resulting in an after-split price of $16.95. Over the ten years since that stock dividend was declared, the total
value of our shares has increased by more than four and a half times. Over this same ten-year period, our common
share dividends have been increased nineteen times, resulting in an 967% overall increase in cash dividends paid
to shareholders. Our average annual return on equity over the same period was in excess of 25%. these significant
increases in shareholder returns and shareholder value have been achieved in spite of the financial crisis that occurred
in 2007 and 2008, again a clear indication of how our strategies and our adherence to our operating priorities are
creating real and tangible benefits for shareholders through all phases of the economic cycle.

Strategies that Succeed

Our first strategic priority is to build and maintain our presence as Canada’s leading alternative financial institution. By
serving those segments of the financial services market that we believe are underserved, we have built an established
and growing market niche, and we continue to offer a full line of products that meet the needs of borrowers and
brokers while targeting our high-value alternative mortgage segment.

to further enhance our presence and diversify our product offerings, in December 2013 we launched a new direct-to-
consumer brand, Oaken Financial, offering consumer deposit products that include GICs and the new Oaken Savings
Account. With Oaken, we offer our customers a secure and competitive way to independently manage their savings with
some of the highest deposit rates available in Canada.

Our second strategic priority is to maintain a strong and conservative financial position, as reported by our balance
sheet, so that we can continue to generate enviable returns for our shareholders through good times and bad. Our
conservative capital ratios, strong liquidity position and prudent risk profile all position Home Capital to prosper going
forward.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Our third strategic priority is to enhance operational excellence by continuing to invest in industry-leading corporate
governance, risk management and customer service processes and systems. At Home Capital, we recognize that quality
and value require that effective and efficient processes and controls be in place ahead of growth in our businesses. the
Company has continued to invest in oversight functions staffed by experienced professionals which has resulted in an
enhanced risk culture. Implementation of advanced technology solutions to monitor and detect activities associated with
financial crime, a risk-sensitive capital allocation approach, and forward-looking analysis of our strategic opportunities
create value for shareholders and increase protection of depositors. We will continue to invest in these important oversight
and control functions, and will carefully manage the continued growth we see in the years ahead.

A Positive outlook

Looking ahead, we are confident that our growth will continue. the Canadian economy and real estate market remain
strong, supported by continuing low interest rates, stable and improving employment, and increasing immigration. With our
proprietary and proven approach to underwriting, we are in a stronger position than ever before to serve our niche market —
homeowners who we know are good, reliable and stable customers.

With this positive outlook, we have established the following objectives for 2014:

> 13% to 18% growth in total net earnings;

> 13% to 18% growth in diluted earnings per share;

> 15% to 20% growth in total loans under administration; and

> 20% return on shareholders’ equity.

the Board of Directors would like to acknowledge Leslie thompson, who will not be standing for re-election at this year’s
Annual Meeting of Shareholders. We thank her for her contribution and wish her all the best for the future.

the Board and management welcome Ms. Jacqueline Beaurivage who will stand as a nominee for election to the Board
at the upcoming Annual Meeting of Shareholders. Ms. Beaurivage brings over 30 years of experience as a senior executive
in various leadership roles at large Canadian chartered banks, and most recently with Ontario teachers’ pension plan,
and is well versed in strategic planning, corporate governance, risk management and banking. We are confident that her
significant expertise and depth of knowledge will be assets to the Board and the Company.

In closing, we thank everyone at Home Capital for their contribution to our record performance in 2013. By adhering to our
core competencies, and focusing on our well-defined strategic priorities, we are growing our business and delivering superior
returns to our shareholders. With your help, we expect this progress to continue for years to come.

Dr. Kevin P.D. Smith
Chairman of the Board

Gerald m. Soloway
Chief Executive Officer

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Proven Results

GRoWtH

Home Capital sustained
its strength in key financial
measurements. the Company’s
core business activities
generated strong results,
contributing to asset growth of
6.8% and an increase in total
revenue of 7.0%.

RetuRnS

the Company recorded pre-tax
return on assets of 1.7% and
after-tax return on assets of
1.3%, while shareholders’ equity
increased to $1.18 billion,
a 21.6% rise from the
previous year.

RISK

Home Capital continued
to surpass all applicable
regulatory and related
standards. the level of impaired
loans is comparable to that
of large, traditional financial
institutions. Home Capital’s
robust risk management
framework is a key component
of the Company’s philosophy.

20,076

18,800

17,696

21,998

19,682

17,696

15,519

15,879 15,519

950

888

790

687

11,509

534

489

7,361 7,712

"09"

"10"

"11"

"12"

"13"

7361

7712

15519

17696

18800

20076

11509

15879

15519

17696

19682

21998

"09"

"10"

"11"

"12"

"13"

3.2

3.0

2.4

2.2

1.6

1.5

1.7

1.6

1.2

1.1

1.3

1.2

1,178

968

742

775

590

629

"09"

"10"

"11"

"12"

"13"

3.2

1.6

1.5

1.6

1.7

"09"

"10"

"11"

"12"

"13"

2.2

2.4

1.2

1.1

1.2

1.3

"09"

"10"

"11"

"12"

"13"

18.08

17.29 17.01

16.80

16.43

20.46 20.68

19.69

19.37

18.00

0.85

0.58

0.33 0.35

0.24

0.25

21000

16800

12600

8400

4200

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

22000

16500

11000

5500

"09"

"10"

"11"

"12"

"13"

2.5

2.0

1.5

1.0

0.5

0.0

22.0

16.5

11.0

5.5

0.0

489

534

687

790

888

950

590

742

629

775

968

1178

1000

800

600

400

200

1200

1000

800

600

400

200

0.9

0.6

0.3

0.0

Former Canadian GAAp Basis

IFRS Basis

* these figures are calculated under Basel III for 2013 and Basel II for 2012 and earlier.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

"09"

"10"

"11"

"12"

"13"

16.43

18.08

17.29

17.01

16.8

"09"

"10"

"11"

"12"

"13"

19.57

19.37

20.46

20.68

19.69

"09"

"10"

"11"

"12"

"13"

0.85

0.58

0.24

0.25

0.33

0.35

Performance vs. target

RetuRn on eQuItY (Roe)
Home Capital again exceeded 20% in
return on equity, reaching 23.9% for
the year ended December 31, 2013,
representing the 16th consecutive year
in which the Company surpassed
20% ROe.

tARGet:
20% return on equity

eARnInGS
the Company reported net earnings
of $256.5 million for the year
ended December 31, 2013,
representing a 15.6% increase over
the $222.0 million achieved
in 2012.

tARGet:
13% to 18% increase in
total earnings

Return on equity at

Increase in earnings of

23.9%

for the year ended
December 31, 2013

15.6%

over 2012

eARnInGS PeR SHARe
Diluted earnings per share rose to
$7.32 at December 31, 2013, a
14.7% increase over $6.38 recorded
for 2012.

tARGet:
13% to 18% increase in diluted earnings
per share

totAl loAnS unDeR
ADmInIStRAtIon
total loans under administration
grew to $19.94 billion by
December 31, 2013, an increase
of 10.5% over the $18.04 billion
recorded on December 31, 2012.

tARGet:
10% to 15% increase in total loans
under administration

Diluted earnings per share grew

total loans increased

14.7%

over 2012

10.5%

over year-end 2012

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Corporate Governance at Home Capital

Home Capital recognizes the importance of strong and effective corporate
governance. As a reporting issuer and publicly accountable entity, Home Capital has
governance standards that are consistent with the corporate governance guidelines
set out by the toronto Stock exchange and are compliant with applicable rules
adopted by the Canadian Securities Administrators.

the Board of Directors of Home Capital is responsible for the stewardship of Home Capital and for supervising the
management of the business affairs of the Company. this includes creating a culture of integrity throughout the Company.
All employees, officers and directors are subject to Home Capital’s Code of Business Conduct and ethics, which requires the
highest standards of ethical behaviour in all dealings on behalf of the Company.

the Board ensures that appropriate structures and procedures are in place so that it can independently and effectively oversee
the Company’s strategy, risk profile and operations. A straightforward, proven business model and comparatively simple
products afford a thorough understanding of risk and opportunity. new product initiatives are subjected to a formal, rigorous
evaluation process to ensure they are both well understood and consistent with the Company’s risk appetite. Home Capital
uses a Board-driven, strategic planning process that links strategic analysis and insight with financial forecasting, stress testing
and capital adequacy. the Company aligns employee incentives with long-term value creation through a regulatory-compliant
compensation process that includes the engagement of expert third-party compensation advice.

In addition to regularly scheduled meetings, the Board and its committees hold ad hoc meetings as the need arises and
directors attend education sessions for emerging trends, industry developments and best practices. the Company continually
looks for ways to improve its corporate governance policies and procedures, and the Governance, nominating and Conduct
Review Committee is responsible for reviewing Home Capital’s corporate governance practices at least annually. Home Capital
and its wholly owned subsidiary, Home trust, also adopted the Office of the Superintendent of Financial Institutions’ Corporate
Governance Guideline.

the Board reviews and approves Home Capital’s strategic and financial plans and risk appetite at least annually. the Board
receives strategic updates throughout the year from each of the principal business groups and receives regular risk updates
from the enterprise Risk Management and Compliance departments.

Effective
Oversight

Risk Appetite

Strategic Planning

l
a

t
e

g
i
c

n
i
n

Effective
Governance
Structure

Robust Policy
Frameworks

Timely and
Transparent
Reporting

s
i
g

Enterprise
Risk
Management

Compliance

Credit

Audit

Finance

Lines of
Business

Operations

Human
Resources

Information
Technology

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

s
i
n

Highlights of Home Capital’s corporate governance framework include:

> The Board and its committees function under charters that specify their roles, accountabilities and responsibilities.

> Nine of ten directors are independent, the Chairs and all members of each of the Board committees are independent, and the

roles of CEO and Chairman of the Board are separate.

> The Board is responsible for adopting and approving the Company’s risk appetite and strategic and financial plans annually.

> The Board reviews and approves all critical risk policies, delegations of authority, and Company-wide limits.

> The Board holds in-camera meetings of the independent directors at every Board meeting, and meets independently with the
Chief Financial Officer, Chief Risk Officer, Chief Credit Officer, Senior Vice President of Internal Audit, Chief Compliance Officer
and Chief Anti-Money Laundering Officer, and external auditors no less than quarterly.

> Home Capital provides an orientation program for new directors and conducts ongoing education sessions.

> The Company maintains a minimum share ownership requirement for directors, the Chief Executive Officer and other named

executive officers to ensure alignment with the interests of all shareholders.

> The Board has adopted a Shareholder Rights Plan to preserve the fair treatment of all shareholders in the event of a take-over bid.

> The Chair of the Governance, Nominating and Conduct Review Committee conducts an annual Board evaluation to assess

the effectiveness of the Board and its committees, as well as the effectiveness of each director through self-evaluation and
one-on-one meetings with the Chairman of the Board.

the Board of Directors is assisted in its oversight of the business by four committees of the Board and by independent oversight
functions within the business that report directly to the Board and its committees.

Audit Committee

the Audit Committee assists the Board in its oversight role with respect to:
> the quality and integrity of financial reporting to shareholders;

> the external auditor’s performance, qualifications and independence;

> complaints with respect to accounting, internal accounting control or auditing matters; and

> the effectiveness of the Company’s internal controls, including the effectiveness and independence of the Company’s finance,

internal audit and compliance functions.

the Chief Financial Officer, Chief Compliance Officer and Chief Anti-Money Laundering Officer, and the Senior Vice president of
Internal Audit each report to the Audit Committee independently and meet in camera at least quarterly. the Committee meets
with the external auditors at least quarterly.

Risk and Capital Committee

the Risk and Capital Committee assists the Board in its oversight role with respect to:
> reviewing and recommending Board approval of the Company’s overall risk appetite framework, including risk limits;

> identifying, assessing and managing the Company’s risk profile;

> reviewing and approving the Company’s risk and capital policies;

> reviewing the effectiveness of the Company’s risk and capital practices; and

> reviewing the Company’s adherence to internal risk and capital policies and procedures through timely management reporting.

the Chief Risk Officer and the Chief Credit Officer each report to the Risk and Capital Committee independently and meet in
camera at least quarterly.

Governance, nominating and Conduct Review Committee

the Governance, nominating and Conduct Review Committee assists the Board in its oversight role with respect to:

> identifying individuals qualified and suitable to become members of the Board of Directors and recommending nominees to

the Board for each annual meeting of shareholders;

> the development of the Company’s corporate governance policies, practices and processes;

> the effectiveness of the Board, its committees and the Chairs of those committees;

> evaluating the contributions of individual directors;

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Corporate Governance at Home Capital (continued)

> reviewing conflicts of interest, confidential information, transactions involving related parties of the Company, and disclosure of

information; and

> Director orientation, education and development policy and programs.

Human Resources and Compensation Committee

the Human Resources and Compensation Committee assists the Board in its oversight role with respect to:

> the Company’s human resources strategy, policies and programs;

> all matters relating to proper utilization of human resources within the Company, with special focus on management succession,

development and compensation;

> management of compensation-related risk; and

> the compliance of Directors, officers and employees with the Company’s Code of Conduct and Business Ethics Policy.

the Vice president, Human Resources meets in camera with the Human Resources and Compensation Committee at least quarterly.

Board of directors

Shareholders

Appoint

Shareholders’ Auditors

Elect

Report

Human Resources and
Compensation Committee

Governance, Nominating and
Conduct Review Committee

Appoint

Board of Directors

Appoint

Audit Committee

Risk and Capital Committee

Appoint

Report

Credit

Enterprise Risk
Management

CEO

Finance

Corporate
Compliance

Internal
Audit

Home Capital views robust corporate governance principles and practices not only as a critical matter of regulatory compliance, but also as a
competitive advantage in its core market. For more information about corporate governance at Home Capital, please refer to Home Capital’s
Management Information Circular. the Circular contains detailed information about directors and management, as well as the Company’s
Statement of Corporate Governance practices.

www.homecapital.com

the Company’s website contains information about corporate governance at Home Capital, including the Statement of Corporate Governance
practices, Charters of the Board of Directors and Board Committees, position Descriptions, Director Compensation and Independence
Standards, Code of Business Conduct and ethics policy, Disclosure policy, Whistleblower policy and Shareholder Rights plan.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Board of directors

Corporate Social Responsibility

A Commitment to Our Communities

Home Capital recognizes the importance of contributing to our communities through corporate commitment and employee

fundraising efforts. We invest in communities through a variety of charitable donations and sponsorships, and are proud

to partner with organizations whose focus aligns with our principles – fi nancial literacy, an entrepreneurial culture, serving

the underserved, and our belief in every Canadian’s right to shelter. Most recently, we partnered with Junior Achievement

of Canada, the largest youth business organization in Canada. In December 2013, volunteers participated in a Junior

Achievement economics for Success program for Grade 8 students in toronto, which helps prepare today’s young people to

succeed in an ever-changing global economy.

A Commitment to Our Employees

We strive to attract top talent and create a workplace where people feel engaged, inspired, challenged, proud and respected.

to that end, we focus on all aspects of the employee experience, including rewards and recognition, communication,

leadership, culture, professional and personal growth, accountability and performance, and corporate social responsibility.

A recent employee engagement Survey revealed that our employees are motivated by the Company’s senior leadership team

and organizational vision, and value the strength of teamwork and opportunity for innovation. At Home Capital, we have

an outstanding team that demonstrates integrity and commitment every day, with a focus on customer satisfaction and

business success.

A Commitment to Our Environment

Home Capital is committed to implementing environmentally sustainable business practices that reduce our impact on the

environment and encourage our employees to make green choices . the Company supports business practices that reduce

energy consumption and participates in initiatives that benefi t the environment in practical and meaningful ways. In 2013,

a number of employees took part in an initiative with nature Conservancy Canada, a non-profi t organization that focuses

on conservation and protection of natural areas that sustain Canada’s plants and wildlife. through this program, volunteers

collected seeds for replanting at the Rice Lake plains natural Area in Ontario, contributing to habitat restoration in this part

of the Oak Ridges Moraine.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis

Bu SI ne SS PRoFIle

Business portfolios

VISI on, mISSIon, oBjeCt IVeS A nD VAlu eS

Risk-taking philosophy

2013 P e RF oRm An Ce An D 2014 S t R Ate GI e S AnD tAR G et S

2013 performance
2013 Strategies and Achievements
2014 Strategic priorities
2014 performance targets
2014 Overall Outlook

FI nA nCIA l HIGH lIGH tS

Income Statement Highlights for 2013
Balance Sheet Highlights for 2013

FI nA nCIA l P eRF oR mA nC e R eVI e W

net Interest Income and Margin
non-interest Income
provision and Allowance for Credit Losses
non-interest expenses
taxes
Comprehensive Income

FI nA nCIA l P oSI tI on R eVI eW

Loans under Administration
Deposits, Senior Debt and Securitization Liabilities
Cash Resources and Securities
Other Assets and Liabilities
Shareholders’ equity
Contingencies and Contractual Obligations
Derivatives and Hedging
Off-balance Sheet Arrangements
Related party transactions

Summ ARY o F QuARteRlY ReS ultS

FouRtH QuARteR 2013

Income Statement Highlights
Financial position Highlights

16
17
17
17
18

20
21

22
24
26
27
28
29

30
34
35
36
37
37
37
38
39

40
41

Fou R tH QuARte R FInAnCI Al InFoRmAtIon

CA PItAl mAnAGem ent

Capital Management Activity
Internal Capital Adequacy Assessment process (ICAAp)
Credit Ratings
Share Information

RI SK m AnAG em ent

Risk Appetite
Risk Governance
Stress testing
principal Risks
Strategic Risk
Credit Risk
Market Risk
Liquidity and Funding Risk
upcoming OSFI Liquidity Requirements
Operational Risk
Legislative and Regulatory Risk
Reputational Risk
Risk Factors that May Affect Future Results

ACC ount I n G S tA nDA RDS AnD PolIC Ie S

ACCountInG DeVeloPme nt S

ContRolS oVeR FI nA nCI Al ReP oRtInG

Disclosure Controls and Internal Control over Financial Reporting
Disclosure Controls and procedures
Internal Control over Financial Reporting
Changes in Internal Control over Financial Reporting
Comparative Consolidated Financial Statements

non -GA AP me AS uRe S A n D G lo SSA RY

non-GAAp Measures
Glossary of terms
Acronyms

52
52
53
53

54
54
57
57
57
57
62
64
65
65
66
66
67

69
69
69
69
69

70
72
72

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

mA n AG emen t’ S DISC u SSI on An D An A lYS IS

This Management’s Discussion and Analysis (MD&A) is provided to enable readers to assess the financial condition and results of
operations of Home Capital Group Inc. (the “Company” or “Home Capital”) for the year ended December 31, 2013. The discussion and
analysis relates principally to the Company’s subsidiary Home Trust Company (Home Trust), which provides residential mortgage lending,
non-residential commercial mortgage lending, consumer and credit card lending and deposit-taking services. This MD&A should be read
in conjunction with the audited consolidated financial statements and notes. Unless otherwise indicated, this MD&A has been prepared
in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are presented in Canadian dollars. This
MD&A is current as of February 12, 2014. A glossary of Non-GAAP measures and terms used in this MD&A and financial statements is
presented in the last section of this report.

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.

Caution Regarding Forward-looking Statements

From time to time 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 and Other Risks sections 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, funding and liquidity 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 sections in the Annual Report. Forward-looking statements are typically identified by words
such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “forecast,” “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 2014 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 its target, objectives and outlook for 2014, management’s expectations assume:

> the Canadian economy will continue to produce modest growth in 2014 with stable to modestly improving employment conditions in
most regions, and inflation will generally be within the Bank of Canada’s target of 1% to 3%, leading to stable credit losses and strong
demand for the Company’s lending products.

> the Canadian economy will continue to be influenced by the economic conditions in the united States and global markets; as such,

the Company is prepared for the variability to plan that may result.

> the Bank of Canada continues to indicate that increases to its target overnight interest rate are not imminent and, as such, the Company
is assuming the rate will remain at its current rate into 2014, with the potential for modest increases later in 2014. this is expected to
continue to support relatively low mortgage interest rates for the foreseeable future.

> the housing market will likely remain stable with balanced supply and demand conditions in most regions supported by continued low
interest rates, stable to improving employment, and immigration. there will be modest declines in housing starts and resale activity with
stable prices throughout most of Canada. this supports stable credit losses and strong demand for the Company’s lending products.

> Consumer debt levels will remain serviceable by Canadian households.

> the Company will have access to the mortgage and deposit markets through broker networks.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

B uSI ne SS PRoFIle

Home Capital is a holding company that operates primarily through its principal, federally regulated subsidiary, Home trust, which offers
insured and uninsured deposits, residential and non-residential commercial mortgage lending and consumer lending. the Company’s
subsidiary payment Services Interactive Gateway Inc. (pSiGate) provides payment card services. Licensed to conduct business across
Canada, Home trust has offices in Ontario, Alberta, British Columbia, nova Scotia, Quebec and Manitoba.

Business Portfolios

the Company’s management views the business as a single business with separately identified lending portfolios, deposits and other
activities, as described below.

Mortgage Lending

this portfolio comprises single-family residential lending, residential commercial lending, including multi-unit residential properties, as
well as non-residential commercial 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, serving selected segments of the Canadian financial services marketplace that are not the focus of the major financial institutions.
these mortgages are funded by the Company’s deposit products. Accelerator mortgages are insured, with loan to value ratios generally
exceeding 80% at the time of origination, and are generally funded through Canada Mortgage and Housing Corporation (CMHC) sponsored
mortgage-backed security (MBS) and Canada Mortgage Bond (CMB) securitization programs.

Residential commercial lending comprises insured and uninsured multi-unit residential mortgage loans and other residential commercial
loans that are secured by residential property. non-residential commercial lending includes store and apartment mortgages and
commercial mortgages. Insured multi-unit residential mortgages are generally funded by the CMHC-sponsored securitization programs and
other loans are funded by deposits.

Consumer and Credit Card Lending

this portfolio includes credit card lending and other consumer retail lending for durable household goods, such as water heaters and
larger-ticket home improvement items. Consumer 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 residential property, represents almost all
of the credit card portfolio. the Company also offers cash-secured Visa products and preferred unsecured Visa cards to current mortgage
customers with good credit history. Consumer and credit card loans are funded by deposits.

Deposits

the Company’s uninsured assets are largely funded by its deposit activities. Deposits are generally taken for fixed terms, varying from
90 days to five years and carry fixed rates of interest over the full term of the deposit. the Company also offers high interest savings
accounts. the Company is a member of the Canada Deposit Insurance Corporation (CDIC) and its retail deposit products are eligible for
CDIC coverage, up to the applicable limits.

Other Activities

In addition to its lending portfolios, the Company manages a treasury portfolio to support liquidity requirements and invest excess capital.
the Company’s operations also include pSiGate, the Company’s subsidiary involved in payment processing.

As management views its business as a single segment with a variety of product and service activities, the financial statements and the
MD&A are prepared on that basis.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

V ISI on, mISSIon, oBjeCtIVeS AnD VAlu eS

It is the vision of the Company to be recognized as the leading alternative lender in the Canadian financial market place.

the Company’s mission is to deliver superior shareholder value by focusing on well-defined niches in the Canadian lending and deposit-
taking market place that generate above-average returns, have acceptable residual risk profiles and are not adequately served by
traditional financial institutions, while protecting the depositors and operating within regulatory guidelines and the Company’s risk appetite.

the Company’s progress toward its objectives will be measured by:

> A return on common equity of at least 20%

> Capital aligned with the risk profile of the business and the needs of the Company’s depositor base

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:

> Respect, trust and integrity

> the highest level of customer service to our clients and business partners

> A nimble, entrepreneurial culture with our enthusiasm, teamwork and desire for continuous improvement

> Community and environmental improvement through fundraising, community involvement and sustainable environmental initiatives

the Company’s key long-term objective is to deliver superior shareholder value.

the Company seeks to achieve a return on common equity of at least 20%, and has exceeded this benchmark in each of the past 16 years.
Management also seeks to align its capital with the risk profile of the business through an understanding of the nature and level of risks
being taken and how these risks attract regulatory and risk-based capital. the Company consistently maintains high levels of regulatory
capital as compared to other financial institutions.

Risk-taking Philosophy

the Company’s core strategy focuses on serving segments of the Canadian financial services market that traditionally have not been
adequately served by larger financial institutions. the Company’s strategy provides the opportunity for higher returns but carries an
inherently different risk profile than one serving the broader market and requires an integrated risk management strategy. the Company
recognizes this risk and proactively seeks to reduce overall risk exposure to an acceptable level through:

> Active Board and senior management oversight, monitoring and timely revision of corporate strategies, risk appetite and risk mitigation

activities;

> promotion of a sound risk management culture and awareness throughout the entire organization;

> Adoption of a conservative financial risk profile, comprising prudent levels of liquidity, capital levels in excess of regulatory and risk-

based minimums, and reserves that account for all incurred losses;

> extensive, customized risk evaluation practices and controls at the transactional level executed by experienced personnel and supported

by effective and efficient processes and technology;

> proactive, independent and timely monitoring and assessment of all risk exposures, regardless of the source, by the business units,
with enterprise risk management, credit, corporate compliance and finance functions acting as second lines of defence and the internal
audit function acting as the third line of defence; and

> Ongoing efforts to diversify funding sources.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

the Company’s acceptable business and risk-taking activities can be substantially characterized by the following:

> the Company conducts business with individuals, other businesses and borrowers that are well understood, including, but not limited

to, confirmation of identity, credit profile, employment and willingness and ability to repay debts;

> new products and initiatives are subject to a new initiative review process and undertaken only after complete risk identification and
control infrastructure has been established. All acquisitions will be subject to a due diligence process that ensures alignment with the
Company’s risk appetite;

> For any material lending, the Company requires strong collateral against the loan, specifically where legal and equity rights can be held
against the collateral asset. unsecured credit exposures must fit within the Company’s risk appetite framework and have appropriate
risk management processes in place to mitigate the associated risk;

> the Company conducts business in geographies that are well known and understood, particularly when lending against properties;

> the Company employs various risk mitigation techniques and actions to reduce inherent business risks to acceptable residual levels,

including trusted asset appraisals and valuations, limited loan to value lending, and risk-based pricing;

> the Company will not pursue profits through trading activities and will limit the use of derivatives to hedging purposes only; and

> the Company will manage interest rate gaps within its risk appetite.

201 3 PeRFoRmAnCe AnD 20 14 S tRAteGIeS A nD tA RG etS

2013 Performance

the table below summarizes the Company’s 2013 targets and performance.

table 1: 2013 targets and Performance

Growth in net income
Growth in diluted earnings per share
Growth in total loans under administration1
Return on shareholders’ equity
efficiency ratio (teB)2
provision as a percentage of gross loans

1 Includes loans held for sale.

2 See definition of teB under non-GAAp Measures in this report.

For the year ended December 31, 2013

2013 targets

13%–18%
13%–18%
10%–15%
20.0%
28.0%–34.0%
0.10%–0.18%

Actual Results

Amount
15.6% $
256,542 $
7.32
14.7%
10.5% 19,941,832
23.9%
28.7%
0.09%

Increase
over 2012
34,559
0.94
1,900,248

the Company applies IFRS, which are the GAAp for Canadian publicly accountable enterprises.

non-GAAp measures are discussed in the non-GAAp Measures and Glossary section located at the end of this MD&A.

the Company was successful in meeting or exceeding all of its performance targets in 2013.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

2013 Strategies and Achievements

the Company consistently employs three strategic priorities to achieve its long-term objectives:

Strategic Priority

2013 Strategies and Achievements

Focused marketplace Growth

Build and maintain Canada’s leading alternative financial institution

> Sustained focus on underserved niches and market-leading position

> Continued to offer “one-stop” convenience to borrowers and brokers, while

focusing on the high-value alternative mortgage segment

> Maintained industry-leading service levels to clients and mortgage brokers

Prudent Balance Sheet
management

Improve the financial strength of the Company so that it is capable of absorbing
market events and position the Company for strong shareholder returns

> Maintained a strong capital position, with Common equity tier 1 capital ratio
of 16.80% at the end of 2013 and the increase in total capital of Home trust,
through retained earnings of $216 million

> Maintained the prudent credit risk profile of the loan portfolio, with improving

credit scores and continued low loan to value

> Maintained and managed strong liquidity positions, ending the year with more

than $1.4 billion in liquid assets

> Maintained a flexible supply of funding through the deposit broker network;
continued to utilize funding through securitization markets and high interest
savings; initiated an institutional deposit note program, raising $300 million on
the initial offering; and launched a direct-to-consumer brand, Oaken Financial

operational and Governance
excellence

Invest in robust corporate governance, risk management and efficient customer-
focused processes and systems

> Continued to achieve industry-leading returns on shareholders’ equity

> Further enhanced risk measurement, monitoring and reporting capabilities

> Maintained a low level of credit losses through strong underwriting, active

portfolio monitoring and collections activities

> Maintained leading cost efficiencies through tight cost controls

> Strengthened the capabilities of the risk management, compliance and internal
audit functions with additional experienced staff and more robust processes

2014 Strategic Priorities

Strategic priorities for 2014 will continue to include the three priorities previously noted, along with strategies that comprise increased
presence in the insured prime single-family mortgage market, launching of an e-banking platform for direct-to-consumer deposit business
and continued enhancements to the information technology infrastructure.

2014 Performance targets

the following table summarizes the Company’s 2014 performance targets.

table 2: Performance targets for 2014

Growth in net income
Growth in diluted earnings per share
Growth in total loans under administration
Return on shareholders’ equity
efficiency ratio (teB)1
provision as a percentage of gross uninsured loans

1 Refer to the definition of teB under the non-GAAp Measures section of this report.

2014 targets

13%–18%
13%–18%
15%–20%
20.0%
28.0%–32.0%
0.15%–0.25%

Amount
$289.9 million–$302.7 million
$8.27 per share–$8.64 per share
$22.93 billion–$23.93 billion

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

the Company’s loan growth target is based on loans under administration, which includes off-balance sheet loans, reflecting the increased
use of off-balance sheet transactions.

Key assumptions underlying the Company’s targets are related to interest rates, unemployment levels, inflation, economic growth, and
consumer debt levels. these assumptions are set out in the Caution Regarding Forward-Looking Statements in this report. Developments
within the general Canadian economy and the real estate market have been, and are expected to be, consistent with these assumptions.

2014 overall outlook

Supported by the stable Canadian economy and healthy real estate market in 2013, the Company continued to grow its traditional
mortgage loan portfolio and market share, taking advantage of the attractive returns available in the alternative mortgage space. this
business, which is the Company’s historical core business, provides superior returns on the allocated capital. the continued expansion
of the traditional business was accompanied by commensurate strengthening of governance, risk management and control processes
through further investment in tools, technology and people. the Company maintained very low loss ratios, even with a continued shift
to the traditional portfolio which carries inherently higher credit risk than the insured Accelerator products. the Company expects
continued growth of the traditional mortgage loan portfolio and will continue to strengthen risk management and control processes
to manage the business within its risk appetite.

In the third quarter of 2013, the Company received a favourable ruling from the Office of the Superintendent of Financial Institutions
Canada (OSFI) with respect to the Company’s initiative to structure its Accelerator lending and securitization activity in a manner
that allows off-balance sheet treatment of securitized loans and effectively expands the Company’s capacity and appetite for prime
insured single-family mortgage lending. In this connection, the Company will increase its efforts and focus on Accelerator lending and
anticipates renewed growth of this portfolio, which will be included in assets under administration and will reinforce the Company’s
“one–stop” and “flexible lending solutions” strategies. the Company will also continue to increase its presence in suitable urban
and suburban markets across Canada. Additional focus will be placed on growth of the Company’s high-margin non-residential and
consumer lending portfolios within the Company’s risk tolerance.

the Company expects supply and demand in the real estate market to remain balanced in 2014, with moderating conditions in most
markets when compared to the activity levels of recent years. the tightening of mortgage underwriting requirements and changes in
mortgage insurance qualification that have occurred over the past few years can be expected to continue to dampen the level of new
and resale residential transaction activity in 2014, reducing the risk of a major disruption of the real estate market. the Company
believes that slowing housing activity will lead to healthier real estate markets overall that are supported by continued low interest
rates, stable to improving employment and stable net immigration. Should interest rates increase modestly over the next year, there
will be no disruption to the Company’s business plans. the Company expects continued strong demand for its traditional mortgage
and other retail products, reflecting the balanced real estate markets and an increasing market share.

the Company will continue to maintain relatively high levels of liquidity and low overall leverage, as measured by the assets to capital
multiple (ACM), to provide safety and soundness for depositors. the Company expects that the rate of growth in the Company’s non-
securitized loan portfolio in 2014 will be relatively consistent with the growth rate experienced in 2013.

the Company expects that loans under administration will grow in the range of 15% to 20% in 2014. the relative growth of the
traditional mortgage portfolio will moderate compared to 2013 as the Company achieves the balance in the portfolios to support
sustained growth in earnings and returns on equity. the Company will expand offerings of insured mortgages through the Accelerator
insured mortgage program, supporting the “one–stop” and “flexible lending solutions” lender strategies.

the traditional mortgage business is expected to maintain strong net interest margin and net interest income levels, while net interest
margins on securitized assets continue to decline as older securitization programs reach maturity. the securitized portfolio carried
on-balance sheet will decline as older portfolios mature and are replaced by portfolios that qualify for off-balance sheet accounting
treatment. Consequently, the contribution to net interest income from these portfolios will become less significant and the Company
will record more gains as securitized portfolios are sold. the Company will also record increased revenue from the servicing of such
portfolios. the Company will increase its marketing and sales activities related to the development of more diversified sources of
deposits, including its Oaken Financial business which will include an e-banking platform for direct-to-consumer business and
additional costs will be incurred in connection to this. Increases in net interest income and gains on sales of securitized portfolios
will tend to mitigate these increases in costs, and the Company expects that its efficiency ratio for 2014 will be in the target range
of 28% to 32%.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

FI n An CIA l HIGH lIGH tS

table 3: Key Performance Indicators

For the years ended December 31
(000s, except % and per share amounts)

FInAnCIAl PeRFoRmAnCe meASuReS

total revenue

net income

earnings per Share – Basic

earnings per Share – Diluted

Dividends per share

Return on shareholders’ equity

Return on average total assets

net interest margin (teB)2

net interest margin non-securitized assets (teB)2

net interest margin securitized assets

efficiency ratio (non-interest expense
as a % of net revenue)
efficiency ratio (teB) (non-interest expense
as a % of net revenue)2

FInAnCIAl ConDItIon meASuReS

2013
IFRS

2012
IFRS

2011
IFRS

2010
IFRS

2009
Cdn GAAp1

949,547 $

887,685 $

790,274 $

687,249 $

489,179

256,542

221,983

190,080

154,752

144,493

7.40

7.32

1.08

23.9%

1.3%

2.17%

3.01%

0.73%

6.40

6.38

0.90

25.5%

1.2%

2.09%

3.10%

0.93%

5.48

5.46

0.76

27.1%

1.1%

2.06%

3.04%

1.24%

4.46

4.45

0.66

27.3%

1.2%

2.07%

2.82%

1.23%

4.19

4.15

0.58

28.2%

2.2%

2.80%

–

28.9%

28.1%

28.5%

30.0%

27.2%

28.7%

27.7%

27.9%

29.3%

26.5%

total assets

$ 20,075,850 $ 18,800,079 $ 17,696,471 $ 15,518,818 $ 7,360,874

total assets under administration3

21,997,781

19,681,750

17,696,471

15,518,818

11,508,585

Cash and securities-to-total assets

5.7%

3.8%

5.2%

7.6%

20.6%

total loans4, 5

$ 18,019,901 $ 17,159,913 $ 16,089,648 $ 14,091,755 $ 5,468,540

Securitized loans on-balance sheet5

5,210,021

6,706,160

8,243,350

8,116,636

–

total loans under administration4,5,6

19,941,832

18,041,584

16,089,648

14,091,755

9,616,251

Common equity tier 1 capital ratio7

tier 1 capital ratio7

total capital ratio7

Assets to regulatory capital multiple7,8

Credit quality

provision for credit losses as a % of gross loans

net non-performing loans as a % of gross loans

Allowance as a % of gross non-performing loans

16.80%

19.69%

13.19

0.09%

0.35%

52.4%

n/A

17.01%

20.68%

13.39

0.09%

0.33%

57.0%

n/A

17.29%

20.46%

14.44

0.05%

0.25%

74.9%

n/A

18.08%

19.37%

10.50

0.07%

0.24%

88.1%

n/A

16.43%

18.00%

12.70

0.21%

0.85%

62.1%

1 Figures prior to 2010 represent previous Canadian GAAp balances and have not been restated to IFRS. prior to 2010, all securitizations were off-balance sheet.

2 See definition of taxable equivalent Basis (teB) under non-GAAp Measures in this report.

3 total assets under administration include total on-balance sheet assets and off-balance sheet loans.

4 total loans include loans held for sale.

5 In 2013, the Company classified Home trust mortgages used as CMB replacement assets as securitized mortgages. previously, these were classified as pledged securities.

prior periods have been restated to reflect the current classification.

6 Loans under administration include total loans and off-balance sheet loans.

7 these figures relate to the Company’s operating subsidiary, Home trust Company. the figures prior to 2011 have not been restated to IFRS. For 2013, figures are calculated

under Basel III, and for 2012 and earlier, under Basel II.

8 Commencing in Q3 2013, the Company excluded from its assets, for the purpose of calculating the assets to regulatory capital multiple, mortgages that are off-balance sheet
as a result of sales of residual interests in light of regulatory communications confirming this treatment. the comparative multiple for 2012 has been restated to reflect this
treatment. the Company did not enter into these transactions prior to 2012.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

the Company reported another year of increased net income at $256.5 million or $7.32 diluted earnings per share for 2013. Return on
shareholders’ equity was solid at 23.9% for the year. Subsequent to the end of the year, the Board approved a stock dividend of one common
share per each outstanding common share effecting a two-for-one split. the efficiency ratio, on a taxable equivalent basis (teB), remained
favourable at 28.7%. Loan originations in the traditional portfolio increased year over year, while Accelerator (insured) mortgage originations
increased later in 2013 and ancillary products continued to generate positive returns. the Company’s total customer accounts, including all
loan and deposit accounts, reached 711,346 at the end of 2013 compared to 587,356 last year. the Company maintained its prudent credit
profile in the loan portfolio and its strong capital base. the Company’s key financial highlights for 2013 are summarized below.

Income Statement Highlights for 2013

> net income of $256.5 million in 2013 increased by $34.6 million or 15.6% from net income of $222.0 million in 2012, reflecting higher
loan balances in the traditional mortgage portfolio, improved net interest margin, continued low credit provisions and a consistently low
efficiency ratio. Adjusted net income, as defined in table 4, was $257.7 million in 2013, representing an increase of 14.8% over 2012.

> Diluted earnings per share increased to $7.32, up $0.94 or 14.7% from the diluted earnings per share of $6.38 earned in 2012.

> Return on average shareholders’ equity of 23.9% for 2013 exceeded 20% for the sixteenth consecutive year.

> net interest income increased to $422.0 million, up $40.5 million or 10.6% over the $381.5 million earned in 2012, reflecting
higher average loan balances of $18.22 billion compared to $17.39 billion in 2012 and improved net interest margin (teB) of 2.17%
compared to 2.09% in 2012.

> Gains on the sale of residual interests were $5.4 million compared to $4.8 million last year. In Q3 2013, the Company received a
favourable regulatory ruling confirming that the underlying mortgages in these residual interest transactions can be excluded from the
calculation of the Company’s ACM. this provides the Company with significant flexibility with respect to growth of the portfolio of insured
prime residential mortgages, which are now being actively originated and renewed by the Company. the Company began to increase
insured Accelerator originations later in 2013 and expects that gains on sales of residual interests will increase in 2014.

> Gains on securitization of multi-unit residential mortgages were $5.7 million compared to $3.3 million last year.

> Fees and other income increased $17.4 million or 39.6% as more accounts were affected by fees in 2013, combined with an increase

in the number of accounts under administration.

> net realized and unrealized loss on derivatives of $1.4 million in 2013 compared to a net gain of $3.8 million in 2012. the loss in 2013
included charges of $8.0 million related to the maturity of certain derivative positions that were restructured at the time of adoption of
IFRS, compared to a charge of $3.5 million in 2012.

> provisions for credit losses were $15.9 million for the year, a marginal increase over the $14.7 million recorded last year. this represents
0.09% of gross loans, consistent with 2012 despite the increased weighting of uninsured lending. net write-offs were $15.5 million
for 2013, representing 0.09% of gross loans compared to $12.4 million and 0.07% of gross loans in 2012. the increase in net write-
offs over 2012 resulted from a net principal loss of $3.0 million associated with the settlement of the disputed loans to commercial
condominium corporations discussed last year. In the absence of this unusual write-off, the net write-offs as a percentage of gross loans
would have been consistent with 2012 at 0.07%.

> non-interest expenses, which include salaries, premises and other operating expenses, were $143.7 million in 2013, up 17.1% over
the $122.7 million recorded in 2012 and in line with business growth and strategic investments. the Company continues to invest in
people, business development, infrastructure and technology to support future asset and revenue growth. the Company’s efficiency ratio
(teB) remains low at 28.7% compared to 27.7% in 2012, an indication of a high level of operating efficiency.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Balance Sheet Highlights for 2013

> the Company’s total on-balance sheet assets surpassed $20 billion, reaching $20.08 billion, an increase of 6.8% compared to
$18.80 billion at the end of 2012. total assets under administration, which includes $1.92 billion of mortgages accounted for off-
balance sheet, reached $22.00 billion, an increase of 11.8% over 2012. Loans under administration increased to $19.94 billion, an
increase of 10.5% over $18.04 billion last year.

> the Company sold residual interests in securitization transactions of $519.3 million which, combined with amortization of MBS liabilities
and maturity of CMB liabilities, reduced both the securitized mortgage loans and securitization liabilities. As discussed above, the
underlying mortgages associated with the sold residual interests are removed from the balance sheet and excluded from assets used
in the calculation of the Company’s ACM based on the favourable regulatory ruling received during the year.

> Mortgage originations were $6.92 billion in 2013 compared to the $6.01 billion originated in 2012. the Company’s originations reflect
continued focus on the traditional mortgage portfolio, which accounted for 69.0% of originations and a significant portion of the overall
increase in originations. Insured multi-unit residential mortgage originations of $693.5 million increased by $437.2 million from 2012
as the Company ramped up its origination and securitization activity late in the year.

> While the Company increased the traditional portfolio, it maintained credit quality. net non-performing loans as a percentage of the
gross loan portfolio ended the year at 0.35%, up slightly from 0.33% one year ago. At the end of 2013, 97.6% of the loan portfolio
was current, consistent with the end of 2012.

> Liquid assets at December 31, 2013 were $1.49 billion, compared to $771.8 million at December 31, 2012. part of the increase was
due to proceeds received from the issuance of a $300 million institutional deposit note late in 2013. these funds will be deployed
in the first half of 2014. the Company maintains a prudent level of liquidity, given the current level of operations and the Company’s
obligations.

> Home trust’s capital levels were strong throughout 2013, as indicated by the Common equity tier 1 ratio of 16.80% and the tier 1 and
total capital ratios of 16.80% and 19.69%, respectively, at December 31, 2013. Home trust’s ACM ended 2013 at 13.19 compared
to 13.39 at the end of 2012.

> Deposits reached $12.77 billion, up from $10.14 billion at December 31, 2012. the increase in deposit liabilities has funded the
increase in the non-securitized portfolio and liquidity. the Company initiated new deposit diversification strategies in late 2012 and
2013, including the new Oaken brand and related direct-to-consumer products, a high interest savings account and an institutional
deposit note program. these programs reflect $634.8 million of the total deposits at the end of 2013.

> Securitization liabilities were $5.77 billion at the end of 2013, down from $7.34 billion last year. While originations increased in the
Accelerator portfolio, which is typically funded by way of securitization, amortization of MBS liabilities and maturities of CMB combined
with loans removed from the balance sheet on the sale of residual securitization interests exceeded the Accelerator originations,
resulting in the overall decline in the securitization liabilities.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

FI n An CIA l P e RF oR m A nC e R eVI e W

table 4: Income Statement Highlights

(000s, except % and per share amounts)

total net interest income
provision for credit losses

non-interest income
non-interest expenses
Income before income taxes
Income taxes
net income
Basic earnings per share
Diluted earnings per share

Reconciliation of net Income to Adjusted net Income
net income per above
Adjustment for derivative restructuring – IFRS conversion (net of tax)
Adjustment for disputed loans to condominium corporations (net of tax)
Adjustment for investment tax credit benefits (net of tax)
Adjusted net Income1
Adjusted basic earnings per share1
Adjusted diluted earnings per share1

2013
421,979 $
15,868
406,111
75,059
143,738
337,432
80,890
256,542 $
7.40 $
7.32 $

2012
381,472
14,720
366,752
55,902
122,735
299,919
77,936
221,983
6.40
6.38

256,542 $
5,873
1,508
(6,190)
257,733 $
7.43 $
7.36 $

221,983
2,602
–
–
224,585
6.47
6.45

$
$
$

Change

10.6%
7.8%
10.7%
34.3%
17.1%
12.5%
3.8%
15.6%
15.6%
14.7%

15.6%
125.7%
–
–
14.8%
14.8%
14.1%

1 Adjusted net income and adjusted earnings per share are defined in the non-GAAp Measures section of this MD&A.

net Interest Income and margin

presented in tables 5 and 6 are analyses of average rates, net interest income and net interest margin. net interest income is the difference
between interest and dividends earned on loans and investments and the interest paid on deposits and borrowings to fund those assets.
the net interest margin is net interest income divided by the Company’s average total assets. Dividend income has been converted to teB
(refer to the non-GAAp Measures and Glossary section of this report for a definition of teB) for comparison purposes.

table 5: net Interest margin

net interest margin non-securitized interest-earning assets (non-teB)
net interest margin non-securitized interest-earning assets (teB)
net interest margin securitized assets
total net interest margin (non-teB)

total net interest margin (teB)

Spread of non-securitized loans over deposits only

2013
2.98%
3.01%
0.73%
2.15%

2.17%

3.14%

2012
3.05%
3.10%
0.93%
2.07%

2.09%

3.13%

total net interest margin (teB), including the securitized portfolio, was 2.17% for 2013 compared to 2.09% in 2012, reflecting a greater
proportion of higher-yielding, non-securitized assets in the on-balance sheet portfolio as the Company continued its focus on traditional
products relative to insured mortgages. As such, over the period the portfolio weighting of securitized mortgages and assigned assets, which
earn a lower net interest margin, decreased to 28.6% at December 31, 2013 from 38.8% at December 31, 2012. Despite relatively stable
interest spreads of non-securitized loans over deposits, net interest margin on non-securitized assets (teB) declined to 3.01% from 3.10%
on a higher proportion of liquid assets held during the year and declining rates on the liquidity portfolio. net interest margin on securitized
assets declined as expected on the structured maturity of high-yielding mortgage pools.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

table 6: net Interest Income by Product and Average Rate

(000s, except %)

Assets
Cash resources and securities
traditional single-family residential
mortgages
Accelerator single-family
residential mortgages
Residential commercial mortgages2
non-residential commercial
mortgages
Credit card loans
Other consumer retail loans
total non-securitized loans
taxable equivalent adjustment
total on non-securitized
interest-earning assets
Securitized single-family
residential mortgages
Securitized multi-unit
residential mortgages
Assets pledged as collateral
for securitization
total securitized residential mortgages
Other assets
total Assets

liabilities and
Shareholders’ equity
Deposits
Senior debt
Securitization liabilities
Other liabilities and
shareholders’ equity

total liabilities and
Shareholders’ equity

net Interest Income (teB)
tax equivalent Adjustment
net Interest Income per
Financial Statements

Average
Balance1

Income/
expense

2013

Average
Rate1

Average
Balance1

Income/
expense

2012

Average
Rate1

$ 1,149,994 $

19,448

1.69% $

807,022 $

18,190

2.25%

9,116,538

482,491

5.29%

6,961,740

381,971

5.49%

446,636
263,447

15,044
12,954

975,217
307,310
308,155
11,417,303
–

62,681
28,966
27,111
629,247
4,016

3.37%
4.92%

6.43%
9.43%
8.80%
5.51%
–

540,610
202,027

17,440
11,000

985,089
361,808
206,978
9,258,252
–

61,229
34,722
19,360
525,722
5,031

3.23%
5.44%

6.22%
9.60%
9.35%
5.68%
–

12,567,297

652,711

5.19%

10,065,274

548,943

5.45%

4,559,463

144,702

3.17%

5,651,599

200,679

3.55%

1,780,245

73,712

4.14%

1,985,035

80,757

4.07%

467,481
6,807,189
257,386
$ 19,631,872 $

7,379
225,793
–
878,504

1.58%
3.32%
–

497,312
8,133,946
260,470

4.47% $ 18,459,690 $

6,435
287,871
–
836,814

$ 11,327,983 $
149,899
6,849,261

268,233
6,612
177,664

2.37% $ 9,004,518 $
4.41%
2.59%

153,285
8,170,337

230,006
6,831
213,474

1.29%
3.54%
–
4.53%

2.55%
4.46%
2.61%

1,304,729

–

1,131,550

–

$ 19,631,872 $

452,509

2.30% $ 18,459,690 $

450,311

2.44%

425,995
(4,016)

421,979

386,503
(5,031)

381,472

1 the average is calculated with reference to opening and closing monthly asset and liability balances.

2 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.

net interest income increased 10.6% over 2012, reflecting an increase of $1.17 billion or 6.3% in average asset balances and an increase
in total net interest margin (teB) of 8 basis points year over year.

the average yield on non-securitized loans declined to 5.51% from 5.68% in 2012 as mortgage rates declined, but this was offset by a
decline in average deposit rates to 2.37% from 2.55% in 2012. the declines in average rates primarily reflect lower average Government of
Canada bond yields in 2013, upon which deposit and traditional mortgage rates are set. Strong demand for the Company’s loans products
helped maintain the average spread of the deposit-funded loans portfolio at 3.14%, up from 3.13% last year. the impact of lower average
rates on cash and securities was larger this year, given the increased proportion of these assets in the portfolio.

the average rate for residential commercial mortgage loans declined, reflecting the maturity of higher-yielding loans and originations and
renewals at current lower rates.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

the net interest margin on securitized assets also declined year over year, reflecting the maturity of higher yielding MBS and CMB pools and
the use of lower-yielding assets as replacement assets in the CMB program. the average assets in this portfolio declined by $1.33 billion
in 2013, reflecting the sale of residual interests and maturities. As such, this portfolio has had a reduced impact on the total Company net
interest margin and the relative impact can be expected to continue to decline through 2014.

2014 outlook for net Interest Income

the Company expects net interest income on the non-securitized portfolio to grow relative to loan portfolio growth in 2014. the
Company will continue to carefully employ its growth strategy for the traditional mortgage portfolio, which should continue to
favourably influence net interest income in 2014. tempering this influence on net interest income will be lower net interest margin
on insured securitized mortgages, which have lower interest margins. As the Company sells residual interests, net interest income
from this portfolio is replaced with gains on sale.

the Company expects the net interest margin on non-securitized assets to remain relatively stable at 2013 levels but is prepared
for modest declines and slight variations quarter over quarter. the Company’s strategy is to manage the average spread between
deposits and traditional mortgages at approximately 3.0%.

the Company anticipates continued declines in the net interest margin on the securitized portfolio in 2014 as higher-yielding
mortgage pools mature. this will have relatively less of an impact on total Company net interest margin as the on-balance sheet
portfolio is expected to decline. the Company is prepared for moderate volatility in the net interest margin trend depending on the
replacement assets available and the level of interest rates.

Overall net interest margin is expected to remain stable as the relative proportion of non-securitized assets continues to increase.

the Company continually reviews pricing, funding costs and product structures to maximize spread returns, including diversification
and growth of the consumer lending segment. the Company will continue to balance prudent liquidity with investment return options
to optimize the risk/return relationship while considering economic and credit conditions. Increased levels of liquidity tend to reduce
net interest spread of the overall asset portfolio.

non-interest Income

table 7: non-interest Income

(000s, except %)

Fees and other income
Securitization income
net realized and unrealized gains (losses) on securities
net realized and unrealized (loss) gain on derivatives

table 8: Securitization Income

(000s, except %)

Gain on sale of
Insured multi-unit residential mortgages
Residual interests in securitized single-family residential mortgages
total gain on sale
net hedging impact
Servicing income
total securitization income

2013
61,252 $
12,648
2,589
(1,430)
75,059 $

2012
43,863
8,306
(55)
3,788
55,902

Change

39.6%
52.3%
4,807.3%
(137.8%)
34.3%

2013

2012

Change

5,687 $
5,354
11,041
109
1,498
12,648 $

3,300
4,845
8,145
44
117
8,306

72.3%
10.5%
35.6%
147.7%
1,180.3%
52.3%

Fees and other income, which include mortgage and Visa account administration fees, net of direct servicing expenses, generally increase
as the size of the loan portfolio increases and, in 2013, also included an increase related to fee adjustments. Fee income is also
influenced by the overall mix of the portfolio and has grown at a slightly faster pace than the overall loan portfolio growth due to the focus
on the Company’s traditional mortgage portfolio.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Securitization income increases reflect the increased activity in the multi-unit residential mortgage securitizations through the MBS
program. Gains on sales of retained interests were relatively flat year over year as the Company awaited a regulatory ruling on the asset to
capital treatment of the underlying assets. In both of these programs, mortgages have been removed from the calculation of the Company’s
ACM. In the case of single-family residential mortgage sales, the Company will service the loans and record related fee revenue over the
remaining term of the underlying mortgages. In the case of multi-unit residential mortgages, the Company outsources the servicing activity
and no further servicing revenue or fees will be recorded. Servicing income increases as the size of the single-family residential mortgage
portfolio under administration increases.

the Company recognized a net gain of $2.8 million on the sale of certain available for sale securities in 2013, compared to gains of
$1.8 million in 2012. the Company takes advantage of improvements in securities markets and will rebalance the investment portfolio as
market conditions warrant. the Company also recognized $0.2 million in impairments through profit and loss on certain available for sale
equity securities in 2013 compared to $1.8 million in 2012.

net realized and unrealized gains on derivatives include several components:

> On an ongoing basis, the Company calculates and records the financial amount of ineffectiveness in its hedging programs that are
designated for hedge accounting. the 2013 amount included $6.4 million in unrealized hedge ineffectiveness gains associated with its
accounting program. this compares to $7.0 million in unrealized gains in 2012. Ineffectiveness can vary from gains to losses, depending
on the underlying conditions.

> Additionally, there was $8.0 million ($5.9 million, after tax) in charges against income related to the maturity of certain derivative
positions that were restructured at the time of adoption of IFRS, compared to $3.5 million ($2.6 million, after tax) in 2012. these
amounts are charged to income as the related CMB liabilities mature. the amounts involved in future periods will generally be less
significant and are not expected to exceed the charge recognized in 2013.

> Derivative positions outside hedge accounting relationships were marked to market for realized and unrealized gains of $0.2 million
compared to $0.3 million in 2012. these positions are also subject to gains and losses depending on underlying economic conditions.

please see the Derivative Financial Instruments note in the consolidated financial statements included in this report and the Derivatives
and Hedging section of this MD&A for further information.

2014 outlook for non-interest Income

the Company anticipates that fees and other income will increase over 2013 levels in line with loan portfolio growth.

the Company expects to continue to securitize and sell off-balance sheet insured multi-unit residential mortgages on an ongoing
basis and expects that these transactions will continue to add to profitability at levels relatively consistent with 2013. the Company
also anticipates selling an increased volume of residual interests in insured, single-family residential mortgages in 2014, leading
to higher gains on sale. Higher gains on sale will be offset partly by lower net interest income but, on a combined basis, will exceed
2013 as the Company increases originations of insured mortgages.

through 2014, the Company will continue to record smaller charges to income through derivative gains and losses related to
the implementation of IFRS, as discussed above. Charges of approximately $1.4 million will be recorded in the first quarter and
$1.1 million in the second quarter of 2014. the amounts in future periods will not be significant.

the Company will continue to hedge its interest rate risk associated with the loan commitments and fixed-rate assets and liabilities
through the use of bond forward contracts and interest rate swaps. the Company expects to continue to apply hedge accounting
to most of such instruments, thus reducing earnings volatility from derivatives gains and losses. the impact of hedge accounting
ineffectiveness and fair value changes on derivatives held outside of hedge accounting relationships can be expected to continue
to create some moderate volatility quarter over quarter.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

Provision and Allowance for Credit losses

table 9: Provision for Credit losses

(000s, except %)

As at December 31, 2013
net non-performing loans

For the year ended December 31, 2013
net Write-offs

Provision1

Single-family residential mortgages
Residential commercial mortgages
non-residential commercial
mortgages
Credit card loans
Other consumer retail loans
Securitized single-family
residential mortgages
Securitized multi-unit
residential mortgages
total

(000s, except %)

Amount
51,636
1,8362

7,1893
2,584
–

% of Gross
loans

0.48% $
0.93%

0.72%
0.88%
–

Amount
11,766
2,783

274
679
366

% of Gross
loans

0.11% $
1.41%

0.03%
0.23%
0.11%

–

230
589
345

–

Amount
11,165
3,199

% of Gross
loans
0.10%
1.62%

–
63,245

–
0.35% $

–
15,868

–
0.09% $

–
15,528

0.02%
0.20%
0.10%

–

–
0.09%

As at December 31, 2012
net non-performing Loans

For the year ended December 31, 2012
net Write-offs

provision1

Amount
47,788
4,527

501
3,505
–

% of Gross
Loans

0.55% $
2.93%

0.05%
1.07%
–

Amount
12,581
340

241
1,291
267

% of Gross
Loans

0.14% $
0.22%

0.02%
0.39%
0.10%

Amount
10,148
–

319
1,572
342

% of Gross
Loans
0.12%
–

0.03%
0.48%
0.13%

–

–
56,321

–
0.33% $

–
14,720

–
0.09% $

–
12,381

–
0.07%

1 provisions include both individual and collective provisions.

2 the non-performing residential commercial amount comprises one loan.

3 the non-performing non-residential commercial amount includes $6.4 million related to one loan.

the provision for credit losses is charged to the statement of income 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 and identified credit events in the portfolio,
including losses that are not yet individually identifiable. Factors which influence the provisions for credit losses include the formation
of new non-performing loans, the level of individual write-offs and management’s assessment of the level of collective and individual
allowances required based on available data, including the collateral supporting specific non-performing loans. In addition, management
considers current and historical credit performance of the portfolio, external economic factors, the composition of the portfolio, and the
overall growth in the loans portfolio.

provisions as a percentage of gross loans of 0.09% for 2013 are consistent with 2012 and are better than the target range of 0.10%
to 0.18%. provisions as a percentage of gross uninsured loans were 0.14% (2012 – 0.15%). net write-offs were up $3.1 million and
represented 0.09% of gross loans compared to 0.07% in 2012. this increase reflects a net principal loss of $3.0 million associated with
the settlement of the disputed loans to commercial condominium corporations discussed last year. In the absence of this disputed loans
write-off, the net write-offs as a percentage of gross loans would have been consistent with 2012 at 0.07%.

net non-performing loans as a percentage of gross loans increased to 0.35% at the end of 2013 from 0.33% at the end of 2012. the
increase reflects a larger proportion of uninsured mortgages in the portfolio compared to prior years and the inclusion of one commercial
loan for $6.4 million on which the Company expects no losses. net non-performing loans as a percentage of gross uninsured mortgages
was 0.55% compared to 0.58% at 2012. the levels of non-performing loans are within the Company’s expectations and, considering the
increase in the proportion of traditional mortgages in the loans portfolio, have remained quite low. the increase in non-performing loans
from 2012 did not translate into higher write-offs, other than the write-offs associated with the disputed loans.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

the level of individual allowances at the end of 2013 decreased by $1.2 million over 2012, while gross non-performing loans increased
by $5.9 million to $64.9 million from $59.0 million. As discussed above, the non-performing loans include one commercial loan for
$6.4 million on which no losses are expected. the amount set aside for individual allowances can be influenced by specific local real
estate markets and the amount of time to sell when required.

the collective allowance balance at December 31, 2013 increased $1.5 million over December 31, 2012, reflecting the increase in the
traditional mortgage portfolio and representing close to two times the current year write-offs. the Company remains satisfied with the credit
performance in the loans portfolio. please see the Credit Risk section of this MD&A for further discussion.

2014 outlook for Provision and Allowance for Credit losses

the Company’s provision for credit losses in 2014 will be influenced by the strength of the Canadian economy and the resulting
impact on employment and housing markets. there remains uncertainty related to the growth prospects for certain sectors of the
economy, reflecting continued uncertainty in international markets; however, the Company continues to expect housing markets in
most of the country to remain balanced in 2014. the Company also expects that Canadian consumers will continue to service and
manage debt levels. While the Company is cautiously optimistic that credit losses will remain stable, it is prepared for moderate
volatility in this trend.

the Company’s 2014 objective for the provision for credit losses is 0.15% to 0.25% of gross uninsured loans. the previous target
for 2013 was 0.10% to 0.18% of gross loans. the Company believes provisions as a percentage of gross uninsured loans better
reflect the credit performance of uninsured loans. Individual allowances will continue to be determined and reviewed monthly on an
account-by-account basis. the collective allowance for credit losses reflects an ongoing assessment of the strength of the portfolio
at any given time, and will continue to be reviewed at least on a quarterly basis.

non-interest expenses

table 10: non-interest expenses

(000s, except % and number of employees)

Salaries and employee benefits
Premises and equipment
Rent – premises
equipment rental and repairs

other operating expenses
Consulting and professional services
Outsourced services
Computer services
Advertising and business development
General and administration
Amortization and depreciation

total non-interest expenses
Average total assets under administration
As a % of assets under administration
efficiency ratio calculation
net interest income
Other income
total revenue, net of interest expense
teB adjustment
total revenue teB, net of interest expense
As a % of total revenue, net of interest expense
As a % of total revenue teB, net of interest expense
target efficiency ratio teB

number of active employees

2013
70,954 $

2012
58,956

Change

20.4%

6,994
2,907
9,901

5,961
2,872
8,833

12,740
10,004
5,179
8,857
14,735
11,368
62,883
143,738 $

12,717
9,591
5,202
6,637
10,965
9,834
54,946
122,735
$
$ 20,839,766 $ 18,689,111
0.66%

0.69%

421,979 $
75,059
497,038
4,016
501,054 $
28.9%
28.7%

381,472
55,902
437,374
5,031
442,405
28.1%
27.7%
28.0%–34.0% 28.0%–34.0%

17.3%
1.2%
12.1%

0.2%
4.3%
(0.4%)
33.4%
34.4%
15.6%
14.4%
17.1%

10.6%
34.3%
13.6%

13.3%

692

611

13.3%

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

In 2013, the Company continued to operate at a low efficiency ratio that was at the low end of the 2013 target range, reflecting
continued low costs compared to revenues, net of interest expense. non-interest expense as a percentage of average total assets under
administration increased marginally year over year. the Company continues to manage expenses in a disciplined and measured manner
and aligns its expense management strategy with its growth targets and strategic objectives. enhancing the Company’s operational
effectiveness and efficiency, combined with cost management, remains a strategic priority for the Company and this focus is expected to
contribute to a continued low and relatively stable efficiency ratio.

Salaries and employee benefits increased over last year due to a combination of the increase in active employees and an increase in
average salaries. Active employees have increased to support business growth and the enhancement of risk management, governance
and compliance functions. Included in the increase in active employees are former consultants and contractors who have joined the
Company as permanent employees, resulting in the level of consulting and professional services remaining consistent with last year
despite the business growth. Higher average salaries reflect merit increases combined with some realignment in staffing structures and the
enhancement of the functions mentioned above.

premises expense increased due to the expansion of the toronto head office. Advertising and business development expenses have
increased to support business growth and include increases in volume bonuses paid to the Company’s mortgage broker channel. General
and administrative expenses have increased with business growth and also include an increase in the deposit insurance premium paid
to CDIC. there was a one-time premium rebate in 2012 for an early system implementation. the increased amortization and depreciation
expenses resulted primarily from the amortization of the Company’s software development costs, which have increased as the development
of certain projects was completed during the year. the Company continues to invest in developing enhanced technology to support the
Company’s strategic initiatives and control enhancements.

2014 outlook for non-interest expenses

the Company expects continued low efficiency ratios within a target range of 28.0% to 32.0% in 2014.

Investment in technology is expected to continue in 2014 along with some increase in headcount in business functions and continued
strengthening of governance, risk and control functions in line with business growth.

the Company will increase its marketing and sales activities related to the development of more diversified sources of deposits,
including its Oaken Financial business which will include an e-banking platform for direct-to-consumer business and additional costs
will be incurred in connection to this.

taxes

table 11: Income taxes

(000s, except %)

Current
Deferred
total income taxes

effective income tax rate

2013
82,128 $
(1,238)
80,890 $

2012
82,176
(4,240)
77,936

23.97%

25.99%

Change

(0.1%)
70.8%
3.8%

the provision for income taxes for the year ended December 31, 2013 amounted to $80.9 million, resulting in an effective tax rate of
23.97% ($77.9 million and 25.99% in 2012). the effective tax rate of the Company is lower than the statutory rate primarily due to the
benefits recorded in the accounts attributed to Scientific Research and experimental Development (SR&eD) credits recognized throughout
the year. the Company has claimed $8.4 million in SR&eD credits for the years 2009 to 2012.

the Company has capital losses of $2.8 million ($2.8 million in 2012), which are available to reduce capital gains in future years and have
no expiry date. the Company has not recognized the tax benefit of these capital losses.

note 16 to the consolidated financial statements included in this report provides more information about the Company’s current income
taxes, deferred income taxes and provisions for income taxes.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

2014 outlook for taxes

the Company expects that the effective income tax rate in 2014 will increase to within the range of 25.7% to 26.2%, excluding the
impact of any SR&eD credits that may be realized. the Company is currently assessing the likelihood of future credits. In the event
that claims are submitted, the effective tax rate will decrease accordingly. Management believes that its current unrecognized credits
may result in an after-tax adjustment to its current income tax expense in the range of $0.9 million to $1.4 million. the expected
effective tax rate is lower than statutory rates due to the impact of various permanent differences.

Comprehensive Income

table 12: Comprehensive Income

(000s, except %)

net income
net unrealized (losses) gains on securities and retained interests available for sale,
net of reclassifications to net income and taxes
net unrealized gains on cash flow hedges,
net of reclassifications to net income and taxes
total other comprehensive (loss) income
Comprehensive income

2013
256,542 $

2012
221,983

Change

15.6%

(16,255)

4,573

(455.5%)

1,521
(14,734)
241,808 $

873
5,446
227,429

74.2%
(370.5%)
6.3%

Comprehensive income is the aggregate of net income and other comprehensive income (OCI). OCI includes changes in unrealized
gains or losses on available for sale securities and retained interests, transfers of previously unrealized net gains and losses to net
income, once they have been realized, plus the impact of cash flow hedges and transfers to income of unrealized losses on investments
considered impaired.

OCI included pre-tax net unrealized losses on available for sale securities and retained interests before reclassifications to net income and
taxes of $19.5 million, compared to net unrealized gains of $6.5 million in 2012. the unrealized losses in 2013 principally reflect changes
in the fair value of rate-reset preferred shares in the available for sale securities category. In the Company’s judgement, the decline in
fair value is due primarily to changes in interest rates and is expected to be recovered when the dividend rates on the underlying shares
are reset.

Included in the transfer to net income for the year was $0.2 million in impairment losses on available for sale securities, compared to
$1.8 million in 2012.

FInAnCIA l PoSItIon ReVI eW

table 13: Balance Sheet Highlights

(000s, except %)

Cash resources and available for sale securities
total loans
Collective allowance for credit losses

Other assets
total assets

Deposits
Senior debt
Securitization liabilities
Other liabilities
total liabilities
Shareholders’ equity
total liabilities and shareholders’ equity

Loans as a % of total assets

2013

2012
716,207
17,159,913
(30,000)
17,129,913
953,959
$ 20,075,850 $ 18,800,079

$ 1,152,741 $
18,019,901
(31,500)
17,988,401
934,708

$ 12,765,954 $ 10,136,599
150,684
7,335,895
208,688
17,831,866
968,213
$ 20,075,850 $ 18,800,079

147,343
5,773,064
211,792
18,898,153
1,177,697

89.6%

91.1%

Change

61.0%
5.0%
5.0%
5.0%
(2.0%)
6.8%

25.9%
(2.2%)
(21.3%)
1.5%
6.0%
21.6%
6.8%

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

loans under Administration

Figure 1: Portfolio Composition by Product type

54.3%

48.2%

30.0%

24.1%

12.0%

11.7%

Securitized
Single-Family
Residential
Mortgages

Securitized
Multi-Unit
Residential
Mortgages

Single-Family
Residential
Mortgages

1.0%

1.7%

Residential
Commercial
Mortgages

5.5%

5.0%

Non-residential
Commercial
Mortgages

1.8%

1.5%

Credit Card
Loans

1.5%

1.7%

Other
Consumer
Retail Loans

Figure 2: Insured versus uninsured mortgages under Administration
Figure 2: Insured versus Uninsured Mortgages

2013

Insured 43.5%

2012

Uninsured 52.2%

Uninsured 56.5%

Insured 47.8%

Figure 3: loans under Administration Composition by Province

Figure 3: Portfolio Composition by Province

78.2%

78.4%

2012
2013

30.0%
24.1%

2012
2013

12.0%
11.7%

Insured

2012
2013

48.2%
54.3%

2012
2013

1.0%
1.7%

2012
2013

5.5%
5.0%

2012
2013

1.8%
1.5%

Insured

2012
2013

1.5%
1.7%

7.0%

6.8%

5.7%

Uninsured

5.2%

5.9%

6.3%

3.2%

Uninsured

3.3%

British Columbia

Alberta

Ontario

Quebec

Other

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

1467 pg lending x prod 2010.eps

2012

2013

7.0%

6.8%

2012

2013

5.7%

5.2%

2012

2013

78.2%

78.4%

2012

2013

5.9%

6.3%

2012

2013

3.2%

3.3%

table 14: loans Portfolio

(000s, except % and number of loans)

Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
Single-family residential mortgages
Residential commercial mortgages
non-residential commercial mortgages
Credit card loans
Other consumer retail loans
total loan portfolio
Loans held for sale
total on-balance sheet loans
Off-balance sheet loans
Single-family residential mortgages
Multi-unit residential mortgages
total off-balance sheet loans
total loans under administration

number of loans outstanding
Mortgages
Credit card loans
Other consumer retail loans
total number of loans outstanding

2013

2012
$ 3,720,097 $ 4,763,757
1,942,403
8,689,446
154,477
988,416
327,516
271,977
17,137,992
21,921
17,159,913

1,489,924
10,847,367
196,880
994,210
293,485
339,963
17,881,926
137,975
18,019,901

1,088,066
833,865
1,921,931

650,508
231,163
881,671
$ 19,941,832 $ 18,041,584

59,031
28,892
266,515
354,438

55,686
26,840
207,867
290,393

Change

(21.9%)
(23.3%)
24.8%
27.4%
0.6%
(10.4%)
25.0%
4.3%
529.4%
5.0%

67.3%
260.7%
118.0%
10.5%

6.0%
7.6%
28.2%
22.1%

the total on-balance sheet loans portfolio amounted to $18.02 billion at the end of 2013, up $0.86 billion or 5.0% over the
$17.16 billion at the end of 2012. the off-balance sheet insured mortgages under administration were $1.92 billion at the end of 2013,
up $1.04 billion or 118.0% over the $0.88 billion at the end of 2012. Much of the on-balance sheet loans portfolio growth was in the
traditional mortgage portfolio, which is consistent with the Company’s strategy to increase focus on this more profitable residential portfolio
for on-balance sheet lending. Growth in the off-balance sheet mortgage portfolio reflects an increase of $602.7 million in insured multi-unit
residential mortgages and $437.6 million in insured single-family mortgages.

As illustrated in Figure 1, the Company’s single-family residential lending represents the most significant component of the Company’s
loans portfolio, at 54.3% of the total loans under administration, an increase from 48.2% in 2012, reflecting an increase in the traditional
mortgage portfolio. Securitized mortgages continued to be a significant component of the Company’s loan portfolio in 2013 at 35.8%,
although the proportion declined from 42.0% in 2012. the Company expects the securitized proportion to increase in 2014 as Accelerator
originations increase.

the on-balance sheet securitized mortgage portfolio declined by $1.50 billion in 2013, reflecting net maturities in the securitized portfolio
and the sale of residual interests related to $519.3 million in securitized single-family mortgages. total securitized mortgages, including the
off-balance sheet portfolio, also decreased $455.9 million in 2013 as maturities exceeded new originations in the insured single-family
mortgages. All new multi-unit residential securitizations in 2013 were off-balance sheet. the favourable regulatory ruling on the sale of
residual interests in Q3 2013 reduced the previous capital constraints that were associated with carrying insured, securitized single-family
mortgages on-balance sheet. Consequently, the Company has recently increased its activity in insured lending and expects growth in this
portfolio in 2014, with a significant volume carried off-balance sheet. total insured, securitized multi-unit residential mortgages were up
$150.2 million on increased originations.

the single-family residential mortgage portfolio increased by $2.16 billion or 24.8% to $10.85 billion from $8.69 billion at the end of
2012, supported by the Company’s strategy to increase its focus on the traditional mortgage portfolio, which has been the Company’s
core business. Credit losses experienced in 2013 on the traditional portfolio are consistent with the Company’s historical experience and
are well supported by the profitability of this portfolio. the Company focused the portfolio’s growth in its traditional target markets and
employed additional caution in certain geographic areas where the housing markets and employment levels were relatively weaker.

the non-residential commercial mortgage portfolio increased $5.8 million to $994.2 million from $988.4 million at the end of 2012. the
Company continues to carefully increase the loan balances in this segment while maintaining its relative proportion of the total on-balance
sheet loan portfolio at about 6%. the Company will continue to manage this portfolio in a conservative manner and grow the portfolio when
assets of appropriate quality within the Company’s risk appetite are available. Included in the non-residential commercial category are
store and apartment structures, office buildings, residential and non-residential construction, retail stores, hotels and industrial properties.

Residential commercial mortgages primarily include uninsured multi-unit residential mortgages. the Company manages this portfolio
conservatively.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

the credit card loan portfolio declined by $34.0 million to $293.5 million from $327.5 million at the end of 2012. new originations in
this portfolio began to decline in 2012 when new underwriting guidelines were contemplated and the outstanding balances continued to
decline through 2013. Recently, the origination volumes have increased with additional marketing focus by the Company.

the Company’s retail credit portfolio continues to be an integral part of the loans portfolio generating above average returns for the
Company. the portfolio increased by 25.0% to $340.0 million from $272.0 million at the end of 2012. Water heater loans, a financing
product introduced into the Company’s portfolio in 2010, are the largest component of the retail lending portfolio, amounting to
$209.1 million or 61.5% of the retail loans outstanding at the end of 2013.

the Company’s lending activities remained concentrated in the Ontario market in 2013 but included expansion into new Ontario markets
through the mortgage broker channel as well as cautious expansion into other provinces. the increase in the total loan proportion in Ontario
reflected strong mortgage origination volumes in 2013 that grew 10.3% year over year. At the same time new origination growth in other
provinces increased by 46.5% to $1.18 billion in 2013 from $0.81 billion last year and was 17.1% of total originations compared to
13.4% last year. please see table 15 below. the Company continues to employ strategies to increase its geographic diversification while
remaining responsive to local economic conditions.

table 15: mortgage Production by type and Province

(000s, except %)

Single-family residential mortgages
traditional
Accelerator
Residential commercial mortgages
Multi-unit uninsured residential mortgages
Multi-unit insured residential mortgages
Other1
non-residential commercial mortgages
Stores and apartments
Commercial
total mortgage advances

(000s, except %)

British Columbia
Alberta
Ontario
Quebec
Other
total mortgage advances

2013 % of total

2012

% of total

Change

$ 4,770,773
1,011,650

69.0%
14.6%

$ 4,487,473
804,692

129,738
693,461
31,479

1.9%
10.0%
0.5%

30,605
256,274
68,906

99,951
180,131
$ 6,917,183

1.4%
2.6%
100.0%

118,689
238,728
$ 6,005,367

74.7%
13.4%

0.5%
4.3%
1.1%

2.0%
4.0%
100.0%

6.3%
25.7%

323.9%
170.6%
(54.3%)

(15.8%)
(24.5%)
15.2%

2013 % of total

395,879
180,998
5,735,648
454,064
150,594
$ 6,917,183

5.7%
2.6%
82.9%
6.6%
2.2%
100.0%

2012
$ 269,946
144,587
5,198,703
289,970
102,161
$ 6,005,367

% of total

Change

4.5%
2.4%
86.6%
4.8%
1.7%
100.0%

46.7%
25.2%
10.3%
56.6%
47.4%
15.2%

1 Other residential commercial mortgages include mortgages such as builders’ inventory.

new mortgage production continued its weighting to the Company’s traditional single-family loans. Origination volumes reflect the
continued solid and increased demand for the Company’s traditional product in the marketplace and strong broker relationships.
Consistent with 2012, the Company’s strategic shift increased its focus on the traditional portfolio for most of 2013. the Company
observed strong credit profiles and lower than average credit risk across the traditional portfolio in 2013, as evidenced by higher average
beacon scores (credit scores) compared with 2012 combined with lower debt service ratios, as well as consistent average loan to value
ratios on new originations.

In the latter part of 2013 the Company renewed focus on the Accelerator product, leading to a 25.7% increase year over year in new
mortgage production and an increase in the relative proportion.

Insured multi-unit residential mortgages are up, reflecting increased availability of product with favourable off-balance sheet treatment,
which reduces the cost of capital for this product class. the multi-unit residential mortgage market is relatively limited and the Company
participates in appropriate transactions as they come available through various origination channels. As a result, origination volumes, sales
and resultant securitization gains can vary quarter to quarter.

non-residential and store and apartment originations, while a smaller proportion of overall mortgage production, remained an important
complementary source of loan assets, with attractive returns in 2013.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

table 16: Credit Card and other Consumer Retail loan Production

(Amount in 000s, except %)

2013

2012

Credit card loans
equityline Visa credit cards
Other credit cards
Other consumer retail loans
Water heaters
Other retail lending

number of
new Accounts

Amount1

number of
new Accounts

Amount1

number of
new Accounts

3,484 $
3,915

80,088
4,130

3,390 $
5,467

86,934
6,657

59,239
5,177

113,249
27,315

116,297
4,758

164,669
26,375

2.8%
(28.4%)

(49.1%)
8.8%

Change

Amount1

(7.9%)
(38.0%)

(31.2%)
3.6%

1 For credit cards, the amount represents the authorized credit limits. For water heaters and other retail lending, the amount represents the advanced amount.

Credit cards and other consumer retail loans continue to be an important source of loan assets, with attractive returns. While representing
3.5% of the total on-balance sheet loan portfolio, these assets generate 6.6% of the interest income.

Other consumer retail loans continue to experience growth supported by strong volumes in water heater and HVAC loans. Loan production
was down year over year as 2012 included the purchase of a portfolio. the Company has been successful in expanding relationships with
business partners and diversifying its geographic footprint in this category of lending.

While credit card loan production was down year over year, production volumes began to increase in the latter half of 2013. the number
of new accounts increased, while the average credit limits declined. the Company has observed higher credit card repayments in 2013 as
consumers remain cautious and conservative with their debt levels. the Company continues to expect modest growth in this portfolio to
return as it launches new marketing efforts to attract new customers.

2014 outlook for loan Portfolios

the Company sells mortgages only through CMHC-sponsored securitization programs. CMHC has recently announced limitations on
those programs and the availability of insurance for certain types of mortgages and securitization. Based on the announcements
made to date and the Company’s plans for insured lending and securitization, these limits are not expected to curtail the Company’s
origination or sales activities and the Company expects that it will be active in mortgage securitization and sales in 2014. this was
a significant portion of the Company’s business during the period from 2008 to 2010 and the Company expects to return to this
level over the next two years.

the Company will also continue to increase its geographic expansion, taking advantage of opportunities within its risk profile outside
of Ontario.

Multi-unit residential mortgages are expected to continue to offer opportunities for securitization and off-balance sheet sales at
about the same pace as 2013.

non-residential mortgages are expected to grow at a pace consistent or modestly higher than 2013 to maintain a consistent
proportion in the total portfolio, if appropriate assets with attractive returns within the Company’s risk appetite are available in the
market.

Growth of the consumer loan portfolio at the current rate is expected for 2014. the equityline Visa credit card portfolio will continue
to be the primary contributor to the credit card loan portfolio supported by the “one-stop” bundled mortgage program and other
marketing efforts. the Visa portfolio is expected to grow at a pace consistent with the overall loan portfolio. the Company anticipates
continued growth in the water heater line of business and growth rates in the consumer lending portfolio should be consistent or
moderately higher when compared to 2013.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

Deposits, Senior Debt and Securitization liabilities

table 17: Deposits, Senior Debt and Securitization liabilities

(000s, except % and number of accounts)

Deposits payable on demand
High interest savings accounts
Other deposits payable on demand

Deposits payable on fixed dates
Guaranteed investment certificates
Short-term certificates and savings
Registered Retirement Savings plans
Registered Retirement Income Funds
tax-free Savings Accounts
Institutional deposit notes

Senior debt
Securitization liabilities
Mortgage-backed security liabilities
Canada Mortgage Bond liabilities

total

total number of deposit accounts

2013

2012

Change

337,239 $
92,030
429,269

19,819
86,104
105,923

1,601.6%
6.9%
305.3%

10,576,166
1,023,983
216,317
145,862
77,981
296,376
12,336,685
147,343

8,399,655
1,259,739
186,515
130,404
54,363
–
10,030,676
150,684

660,964
5,112,100
5,773,064

1,301,693
6,034,202
7,335,895
$ 18,686,361 $ 17,623,178

356,908

296,963

25.9%
(18.7%)
16.0%
11.9%
43.4%
–
23.0%
(2.2%)

(49.2%)
(15.3%)
(21.3%)
6.0%

20.2%

the Company’s deposit portfolio increased primarily to provide funding for the non-securitized loan portfolio. the Company’s deposit
portfolio primarily comprises fixed-term deposits, which represent 96.6% of all deposits, thereby reducing the risk of untimely withdrawal
of funds by retail clients. the Company continued to source deposits primarily through deposit brokers and investment dealers. Other
deposits payable on demand include amounts collected for real estate tax accounts which are generally paid out in accordance with each
municipality’s payment frequency requirements. please see note 11 to the consolidated financial statements included in this report for a
breakdown of the Company’s deposit portfolio by remaining contractual term to maturity and yield.

In 2012 the Company launched a high interest savings account as part of its longer-term strategy to diversify its sources of funding and
expand its deposit broker network. the balance of $337.2 million at the end of 2013 has risen significantly from the $19.8 million balance
at the end of 2012 reflecting the success of the Company’s efforts in developing this program. the Company initiated other programs
and projects in late 2012, including new supporting information technology platforms that are aimed at further increasing its direct
deposit channel. During Q4 2013, Home trust launched a new direct-to-consumer brand, Oaken Financial, offering a line of consumer
deposit products, including Guaranteed Investment Certificates (GICs) and a new Oaken Savings Account as part of its strategy to provide
customers with a secure alternative to managing their savings independently and to continue to diversify funding sources. Additionally,
further funding diversification was accomplished in Q4 2013 with the successful close of Home trust’s initial issue of institutional five-year
deposit notes in the principal amount of $300 million. the Company expects that Home trust will be a regular issuer of deposit notes, likely
on a semi-annual basis. Strong investor demand was evident with an oversubscription in excess of 70%.

Securitization liabilities, including MBS and CMB liabilities, declined $1.56 billion from the end of 2012 due to the settlement of MBS
liabilities and the maturity of CMB liabilities of $919.6 million in the year. CMB liabilities are bullet bonds and only decline when the
underlying bonds mature. In addition, the Company sold residual interests in certain pools of single-family mortgages securitized through
the national Housing Authority Mortgage-Backed Security (nHA MBS) program that resulted in the derecognition of mortgages and the
associated securitization liability of $518.5 million. the Company also securitized and sold into the market $644.4 million of MBS in the
year that did not qualify for off-balance sheet accounting and which increased the MBS liabilities.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

2014 outlook for Deposits and Securitization liabilities

the Company will continue to source deposits from the public through investment dealers and deposit brokers and will place further
emphasis on growing its direct-to-consumer business and the Oaken Financial brand. the Company will seek to strengthen its
funding capability through agreements with additional deposit brokers, growth of its high-interest savings account, and by enhancing
its direct channel sales and service capabilities. Following the launch of the Company’s first ever wholesale institutional deposit note
in the fourth quarter, the Company expects it will continue to access this market on a semi-annual basis.

the rate of growth of the deposit portfolio is expected to mirror the growth of the Company’s non-securitized loan portfolio, while
securitization will continue to support the current stock of insured mortgages. new originations and renewals of insured mortgages
will continue to be funded by securitization. the Company will continue developing multiple sources of deposits to fund operations
and liquidity reserves and this will remain a key objective for the Company.

table 18: liquidity Resources

(000s, except %)

Cash and cash equivalents per balance sheet
Available for sale securities per balance sheet
Add: MBS included in residential mortgages

Less: securities held for investments
Liquid assets at carrying value
Liquid assets at fair value
Liquid assets at carrying value as a % of total assets

Cash Resources and Securities

2013
728,469 $
424,272
614,903
1,767,644
(274,667)
$ 1,492,977 $
$ 1,495,191 $

7.4%

2012
301,863
414,344
365,078
1,081,285
(309,513)
771,772
771,993
4.1%

Change
141.3%
2.4%
68.4%
63.5%
(11.3%)
93.4%
93.7%
81.2%

Combined cash resources and securities as at December 31, 2013 increased by $436.5 million compared to December 31, 2012
comprising mostly an increase in cash as the securities portfolio was relatively flat compared to last year. Liquidity was relatively higher
at the end of December 2013 due to the receipt of funds in December from the institutional deposit note issuance of $300 million and
securitization proceeds from participation in a CMB issuance. In addition to cash and securities, the Company maintains prudent liquidity
by investing a portion of the liquid assets in Company-originated MBS. Although these securities are available for liquidity purposes, they
are classified as residential mortgages on the balance sheet, as required by GAAp.

the securities portfolio consists of bonds, common and preferred shares and mutual funds. At December 31, 2013, the preferred share
portfolio was $273.0 million or 64.3% of the Company’s securities compared to $299.6 million or 72.3% in 2012. the Company divested
most of its preferred shares of financial institutions in 2012 ahead of Basel III changes that require deductions of these investments from
capital over a threshold. Investment-grade preferred shares represent 55.7% of the preferred share portfolio (56.3% in 2012). Bonds
represent 35.3% of the securities portfolio compared to 25.3% in 2012. the entire bond portfolio of $149.6 million ($104.8 million in
2012) is investment grade. Common shares and mutual funds combined represent 0.4% of the securities compared to 2.4% in 2012.

the Company continues to invest in conservative assets while seeking appropriate returns. During the year, the Company took advantage
of market opportunities and sold certain securities, realizing a net pre-tax gain of $2.8 million compared to $1.8 million during 2012. the
Company recognized $0.2 million in impairment losses on securities in 2013 compared to $1.8 million in 2012.

Additional details related to the Company’s securities portfolio can be found in note 4 to the consolidated financial statements included
in this report.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

2014 outlook for Cash Resources and Securities

the Company will continue to target a conservative level of liquid assets while maintaining financial flexibility. the securities portfolio
should increase in line with growth in total assets. A significant proportion of excess funds arising through the Company’s retail
deposit channel and securitization activities will be deployed into short-term, highly liquid investments while management continues
to invest the balance in securities that provide attractive returns.

other Assets and liabilities

table 19: other Assets and liabilities

(000s, except %)

Other assets
Restricted cash
non-Home trust MBS and treasury bills assigned as replacement assets
Derivative assets
Accrued interest receivable
prepaid CMB coupon
Securitization receivable and retained interest
Capital assets
Income taxes recoverable
Other prepaid assets and deferred items
Goodwill
Intangibles

Other liabilities
Derivative liabilities
Accrued interest payable
Income taxes payable
Other liabilities
Deferred tax liabilities

2013

2012

Change

122,836 $
530,150
29,886
62,961
7,168
54,556
10,875
9,519
17,600
15,752
73,405
934,708 $

137,424
588,069
45,388
61,481
12,486
10,714
6,578
–
9,724
15,752
66,343
953,959

3,809 $

127,075
–
46,483
34,425
211,792 $

2,386
113,451
21,912
35,139
35,800
208,688

(10.6%)
(9.8%)
(34.2%)
2.4%
(42.6%)
409.2%
65.3%
–
81.0%
–
10.6%
(2.0%)

59.6%
12.0%
(100.0%)
32.3%
(3.8%)
1.5%

the decline in other assets reflects a decline of $57.9 million in non-Home trust MBS and treasury bills assigned as replacement assets
in the CMB program, as $919.6 million of CMB liabilities matured during the year. Restricted cash and prepaid CMB coupon also declined
with the CMB maturities. the decline in derivative assets also contributed to the overall decline in other assets. Derivative assets and
liabilities are discussed in the Derivatives and Hedging section of this MD&A.

the decline in these other assets was partially offset by increases in securitization receivables and retained interest on securitization as
the Company increased its sales of insured multi-unit residential mortgages and sold residual interests in insured residential mortgages.
Other assets include income taxes recoverable of $9.5 million at the end of 2013 compared to income taxes payable of $21.9 million
at the end of 2012. the income tax recoverable reflects SR&eD investment tax credits related to the development of the core banking
system. Continued development of the core banking system along with other software development resulted in growth of intangible assets.
Further information on the Company’s securitization activity, intangible assets and income taxes can be found in notes 6, 9 and 16 to the
consolidated financial statements included in this report.

the increase in other liabilities resulted primarily from an increase in accrued deposit interest payable on higher deposit balances, an
increase in the servicing liability related to the increased sales of insured multi-unit residential mortgages and an increase in accounts
payable and accrued liabilities, which have increased in line with business growth. the increase in other liabilities was partially offset by
the decrease in accrued interest payable on securitization liabilities, reflecting the lower balance of securitization liabilities at the end of
2013, combined with income taxes payable becoming a recoverable balance at the end of 2013.

2014 outlook for other Assets and liabilities

Other assets and liabilities are expected to grow in line with growth in total loans and general business growth.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Shareholders’ equity

table 20: Shareholders’ equity

(000s, except %)

Shareholders’ equity at the beginning of the year
net income
Other comprehensive income (loss)
Amounts related to stock-based compensation
Repurchase of shares
Dividends
Shareholders’ equity at the end of the year

2013
968,213 $
256,542
(14,734)
8,160
(2,302)
(38,182)
$ 1,177,697 $

2012
774,785
221,983
5,446
7,439
(8,117)
(33,323)
968,213

Change

25.0%
15.6%
(370.5%)
9.7%
(71.6%)
14.6%
21.6%

the increase in total shareholders’ equity was primarily internally generated from net income during the year. Also contributing to the
increase were amounts related to stock-based compensation. these increases were partially offset by the increase in accumulated other
comprehensive loss, amounts related to the repurchase of the Company’s common shares and dividends. the increase in accumulated
other comprehensive loss reflects decreases in the fair value of available for sale securities. Details related to the repurchase of shares and
stock-based compensation are provided in notes 14 and 17 to the consolidated financial statements included in this report.

At December 31, 2013, the book value per common share was $33.90, compared to $27.96 at December 31, 2012.

Strong earnings contributed to continuing robust returns on shareholders’ equity. Return on equity when combined with dividends of
$1.08 per common share in fiscal 2013 ($0.90 per common share in 2012) confirms the Company’s continued commitment to total
shareholder return.

Contingencies and Contractual obligations

In the normal course of its activities, the Company enters into various types of contractual agreements. the main obligations result from the
acceptance of deposits from retail investors to finance lending activities. the Company ensures that sufficient cash resources are available
to meet these contractual obligations when they become due.

In addition to the obligations related to deposits, securitization liabilities and senior debt previously discussed, the following table presents
a summary of the Company’s other contractual obligations as at December 31, 2013.

table 21: Contractual obligations

(000s)

premises and
equipment

2014

2015

2016

2017

2018

thereafter

total

8,806 $

7,287 $

6,724 $

6,581 $

6,524 $

21,770 $

57,692

the Company had no material contingencies in 2013.

the Company also has outstanding commitments for future advances on mortgages and unutilized and available credit on its credit card
products. Refer to the Off-balance Sheet Arrangements section of this report and note 18 to the consolidated financial statements for a
description of those commitments.

Derivatives and Hedging

From time to time, the Company enters into derivative transactions primarily to hedge interest rate exposure resulting from outstanding
loan commitments and requirements to replace assets in the CMB program, as well as interest rate risk on fixed-rate mortgages, debt and
deposits, such as CMB liabilities and senior debt. Where appropriate, the Company will apply hedge accounting to minimize volatility in
reported earnings from interest rate changes. All derivative contracts are over-the-counter contracts with highly rated Canadian financial
institutions. please see the non-interest Income section of this MD&A and the Derivative Financial Instruments note to the consolidated
financial statements included in this report for further information. table 22 summarizes the impact of derivatives and hedge accounting
on the Company’s financial results.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

table 22: Derivatives Gains and losses

(000s)

Cash flow hedging ineffectiveness
Fair value hedging ineffectiveness
Swaps marked to market
Derivative restructuring: IFRS conversion
net realized and unrealized (loss) gain on derivatives

cash flow Hedging

2013

13 $

6,387
160
(7,990)
(1,430) $

2012
-
7,006
318
(3,536)
3,788

the Company uses Government of Canada bond forwards and interest rate swaps to hedge the impact of movements in interest rates
between the time that mortgage commitments are made and the time that those mortgages are funded and/or securitized. Hedges are
structured such that the fair value movements of the hedge instruments offset, within a reasonable range, the changes in the fair value of
the pool of fixed-rate mortgages due to interest rate fluctuations between commitment and funding. the term of these hedges is generally
60 to 150 days. these hedge instruments are settled or unwound at the time of funding or securitization of the underlying mortgages. the
Company applies cash flow hedge accounting to the Government of Canada bond forwards and certain interest rate swaps. the intent of
hedge accounting is to recognize the effective matching of the gain or loss on the Government of Canada bond forwards and interest rate
swaps with the recognition of the related interest expense on the resulting funding.

fair Value Hedging

the Company is exposed to interest rate risk through fixed-rate financial assets and liabilities and its participation in the CMB program
due to reinvestment risk between the amortizing fixed-rate MBS and the bullet maturity fixed-rate CMB. to hedge these risks, the Company
enters into interest rate swaps and applies fair value hedge accounting. the intent of fair value 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 or loss on derivatives.

economic Hedge of Loans Held for securitization and sale

the Company may enter into bond forwards to hedge interest rate risk on loans held for securitization and sale through nHA MBS
securitization programs. the underlying loans are classified as held for trading for accounting purposes and held at fair value on the
balance sheet. the loans are insured mortgages on multi-unit residential properties. the derivatives used to hedge these loans are not
designated in hedge accounting relationships. the fair value changes of these derivatives are mostly offset by the fair value changes related
to loans held for trading. the fair value changes reflect changes in interest rates. the net unrealized gain as at December 31, 2013 for
fair value changes in both the outstanding derivatives and the loans held for trading was $109 thousand (2012 – $44 thousand) and is
recorded in securitization income.

other interest rate swaps

the Company also has certain interest rate swaps that are not designated in hedge accounting relationships and, therefore, are adjusted
to fair value without an offsetting hedged amount. these swaps are economic hedges of the Company’s general interest rate risk.

please see note 19 of the consolidated financial statements for further information.

off-balance Sheet Arrangements

the Company offers credit products to meet the financial needs of its customers and has outstanding commitments for future advances
on mortgage loans that amounted to $754.6 million at December 31, 2013 ($571.8 million – December 31, 2012). Included within
the outstanding commitments are unutilized non-residential loan advances of $157.2 million at December 31, 2013 ($46.0 million –
December 31, 2012). Commitments for the loans remain open for various periods. As at December 31, 2013, unutilized credit card
balances amounted to $80.8 million ($75.7 million – December 31, 2012). Outstanding commitments for future advances for the
equityline Visa portfolio were $5.8 million at December 31, 2013 ($4.8 million – December 31, 2012). these commitments are in the
normal course of business and are considered through the Company’s liquidity and capital management processes.

the Company has $1.92 billion (2012 – $0.88 billion) of loans under administration that are accounted for off-balance sheet (see
table 14).

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Related Party transactions

the Company has no related party transactions in the years ended December 31, 2013 and December 31, 2012, other than key
management personnel, as disclosed in note 23 of the consolidated financial statements.

Summ ARY o F QuARteRlY ReSultS

table 23: Summary of Quarterly Results

(000s, except per share and %)

2013

2012

net interest income (teB1)
Less: teB adjustment
net interest income per
financial statements
non-interest income
non-interest expense
total revenues
net income
Return on common shareholders’
equity
Return on average total assets
earnings per common share
Basic
Diluted
Book value per common share
efficiency ratio (teB1)
efficiency ratio
Common equity tier 1 ratio2
tier 1 capital ratio2
total capital ratio2
net non-performing loans as a
% of gross loans

Annualized provision as
a % of gross loans

$ 111,888 $ 107,536 $ 103,537 $ 103,034 $ 101,151 $ 100,617 $ 95,109 $ 89,626
1,407

1,243

1,126

1,255

1,005

1,148

921

942

110,967
21,827
37,862
246,365
68,827

106,594
19,624
37,635
239,433
66,417

102,532
16,431
34,272
232,555
61,573

101,886
17,177
33,969
231,194
59,725

99,908
14,537
31,620
227,649
58,965

99,491
13,449
32,065
226,603
57,254

93,854
12,426
29,882
218,751
53,230

88,219
15,490
29,168
214,682
52,534

23.9%
1.4%

24.3%
1.3%

23.6%
1.3%

24.0%
1.3%

25.0%
1.2%

25.6%
1.2%

25.1%
1.2%

26.2%
1.2%

$
$
$

1.98 $
1.97 $
33.90 $
28.3%
28.5%
16.80%
16.80%
19.69%

1.91 $
1.90 $
32.27 $
29.6%
29.8%
16.72%
16.72%
19.72%

1.78 $
1.77 $
30.83 $
28.6%
28.8%
16.63%
16.63%
19.74%

1.72 $
1.72 $
29.53 $
28.3%
28.5%
16.57%
16.57%
19.82%

1.70 $
1.70 $
27.96 $
27.3%
27.6%
n/A
17.01%
20.68%

1.65 $
1.65 $

1.54 $
1.54 $
26.53 $ 25.05 $
28.1%
28.4%
n/A
16.97%
20.78%

27.8%
28.1%
n/A
17.09%
21.09%

1.52
1.52
23.83
27.7%
28.1%
n/A
17.49%
21.62%

0.35%

0.32%

0.31%

0.32%

0.33%

0.28%

0.31%

0.28%

0.09%

0.06%

0.10%

0.11%

0.09%

0.10%

0.05%

0.11%

1 teB – taxable equivalent Basis: see definition under non-GAAp Measures in this report.

2 these figures relate to the Company’s operating subsidiary, Home trust Company, and are calculated under Basel III for 2013 and Basel II for 2012.

the Company’s key financial measures for each of the last eight quarters are summarized in the table above. these highlights illustrate the
Company’s profitability, return on equity, as well as efficiency measures and capital ratios. the quarterly results are modestly affected by
seasonal factors, with first quarter mortgage advances typically impacted by winter weather conditions, while the second and third quarters
have traditionally experienced higher levels of advances. First quarter credit statistics may experience a decline reflecting post-holiday
arrears increases.

the Company continues to achieve positive financial results driven by strong net interest margins, continued low efficiency ratios and
favourable non-interest income. Capital ratios over the last eight quarters reflect the Company’s prudent capital management strategies
and the proactive approach to maintaining a strong capital base.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

F ou Rt H QuARteR 20 13

the Company continued its strong performance in the fourth quarter of 2013. Key results for the fourth quarter of 2013 are as follows:

Income Statement Highlights

> net income of $68.8 million was 16.7% higher than the $59.0 million net income recorded in the Q4 2012 and 3.6% over the
$66.4 million in Q3 2013. Adjusted net income, as defined in the non-GAAp Measures and Glossary section under Adjusted net
Income, was $68.2 million in Q4 2013, representing an increase of 10.8% over Q4 2012 and 5.6% over Q3 2013.

> Basic and diluted earnings per share for the fourth quarter were $1.98 and $1.97, respectively. these represent increases of 16.5%
and 15.9% over the $1.70 basic and diluted earnings per share in Q4 2012 and an increase of 3.7% over both the $1.91 basic and
$1.90 diluted earnings per share recorded in Q3 2013.

> Return on equity was 23.9% in the quarter compared to 25.0% in the comparable quarter of 2012 and 24.3% in Q3 2013.

> the Company recorded $3.5 million in gains on the sale of residual interests in Q4 2013 compared to $4.8 million in gains in
Q4 2012 and $1.9 million in Q3 2013. In Q3 2013, the Company received a favourable regulatory ruling confirming that the underlying
mortgages in these transactions can be excluded from the regulatory assets to capital multiple, allowing the Company to continue
generating stable income from this source going forward. the Company also recorded gains on the securitization of multi-unit residential
mortgages of $1.2 million in the quarter, compared to $0.9 million in Q4 2012 and $2.9 million in Q3 2013. the Company expects
these transactions to provide ongoing income.

> net interest income rose to $111.0 million in Q4 2013, up 11.1% over Q4 2012 and 4.1% over Q3 2013. these increases in net interest
income reflect the higher average asset balance during the quarter of $20.19 billion compared to $19.01 billion for Q4 2012 and
$19.89 billion for Q3 2013, combined with higher net interest margin (teB) of 2.22% for the quarter compared to 2.13% for Q4 2012
and 2.16% for Q3 2013. net interest income growth is lower than net income growth as the gain on sale of residual interest replaces
net interest income on certain securitized assets.

> net interest margin (teB) remained strong at 2.22% in the quarter, up from 2.13% Q4 2012 and 2.16% in Q3 2013. total net interest
margin has been positively influenced by the mix of the loan portfolio between non-securitized and securitized mortgages and the
net interest margin on each of these portfolios. Beginning in 2011 and continuing through 2013, the weighting of lower-yielding
securitized mortgages in the total portfolio declined, generally leading to higher total net interest margins. the net interest margin on
the non-securitized portfolio also generally remained strong over that period, with some fluctuations quarter to quarter with relatively
stable interest rate spreads. net interest margin for non-securitized assets in Q4 2013 was 2.94%, a decline from 2.99% in the third
quarter, primarily reflecting a larger proportion of lower-yielding insured mortgages awaiting securitization as the Company began to
increase originations of insured mortgages, while spreads of the traditional portfolio over deposit rates improved marginally in Q4 2013
compared to Q3 2013.

> Fees and other income of $15.4 million in Q4 2013 were up 40.9% from the $10.9 million recorded in Q4 2012 as more accounts
were affected by fees in 2013 and there was an increase in the number of accounts under administration. Fees and other income were
down marginally from the $15.5 million recorded in Q3 2013.

> net derivative gains of $0.5 million were reported in Q4 2013 compared to net losses of $1.7 million in Q4 2012 and a marginal
amount in Q3 2013. the change over Q4 2012 reflects a decrease in the charge related to the maturity of certain derivative positions
that were restructured at the time of adoption of IFRS from $3.5 million in Q4 2012 to $1.2 million in Q4 2013.

> During the quarter, the Company sold certain available for sale securities realizing a gain of $190 thousand and recognized additional
impairment losses of $42 thousand resulting in a net gain on securities of $148 thousand compared to net losses of $457 thousand
in Q4 2012 and $668 thousand in Q3 2013.

> the credit performance of the loans portfolio remained strong in the quarter and for the year and was better than the Company’s
objectives. the annualized credit provision as a percentage of gross loans (pCL ratio) was 0.09% in the quarter and for the year,
consistent with the comparable periods of 2012 and up from 0.06% in Q3 2013. the Company’s objective was a pCL ratio of between
0.10% and 0.18% for 2013. net non-performing loans ended 2013 at 0.35% of the total loans portfolio compared to 0.33% at the end
of 2012 and 0.32% at the end Q3 2013, with the marginal increase primarily reflecting a specific commercial loan that fell into default,
but no losses are expected. excluding this commercial loan would result in net non-performing loans ending 2013 at 0.31% of the
total loans portfolio. the ratio has remained stable despite the relatively higher proportion of uninsured mortgages in the total portfolio.

> the efficiency ratio declined to 28.5% in Q4 2013, as expenses were relatively flat quarter over quarter. the Company has been reducing

consulting costs while increasing permanent employees, leading to increased efficiencies.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Financial Position Highlights

> Home trust’s Common equity tier 1 (Cet 1) and total capital ratios remained very strong at 16.80% and 19.69%, respectively, at
December 31, 2013, and well above Company and regulatory minimum targets. Home trust’s ACM was 13.19 at December 31, 2013
compared to 13.39 at December 31, 2012 and 13.34 at September 30, 2013. ACM declined from one year ago as the Company
completed sales of residual interests and removed underlying mortgage loans from the calculation of the ACM.

> total loans increased by $860.0 million in 2013 to $18.02 billion, representing growth of 5.0% over the $17.16 billion at the end
of 2012 and decreased by 0.4% or $64.5 million from the $18.08 billion at the end of Q3 2013. the decline from Q3 2013 reflects
the sale of residual interest in $327.5 million in insured single-family mortgages. total loans under administration (which includes all
loans carried on the balance sheet plus off-balance sheet securitized loans) increased by $1.90 billion in 2013 to $19.94 billion,
representing growth of 10.5% over the $18.04 billion at the end of 2012 and 2.1% or $411.2 million from the $19.53 billion at the
end of Q3 2012. Loan growth over 2012 was within the Company’s 2013 objective of 10% to 15%.

> the total value of mortgages originated in Q4 2013 was $1.91 billion, compared to $1.47 billion in Q4 2012 and $1.99 billion in
Q3 2013. the year-over-year increase in originations reflects continued demand for the Company’s traditional mortgage products,
combined with increased originations for the Company’s Accelerator product and insured multi-unit residential mortgages, most of which
are securitized and sold in transactions that qualify for off-balance sheet accounting. the increase in Accelerator mortgage originations
reflects the favourable regulatory ruling received in Q3 2013 that permits the removal of underlying mortgages in qualifying residual
interest transactions from assets used in the ACM calculation. Compared to the third quarter, the decline in originations reflects normal
and expected seasonal factors.

> the Company originated $1.23 billion of traditional mortgages in Q4 2013, compared to $1.16 billion in Q4 2012 and $1.31 billion

in Q3 2013.

> Accelerator (insured) mortgage originations were $357.1 million in Q4 2013, compared to $174.2 million in Q4 2012 and

$272.6 million in Q3 2013.

> Multi-unit residential originations were $239.9 million in the quarter, compared to $57.2 million in the same period of 2012 and
$326.3 million last quarter. As indicated above, a significant portion of the multi-unit residential mortgage originations are insured and
securitized through programs that qualify for off-balance sheet accounting. the Company sold $177.7 million through these programs
in the fourth quarter and recognized $1.2 million in gains compared to $64.6 million of mortgages for $0.9 million in gains during
Q4 2012 and $235.5 million of mortgages and $2.6 million in gains during Q3 2013.

> Commercial mortgage advances were $56.1 million in Q4 2013, compared to $52.4 million in the comparable period of 2012 and

$49.3 million in Q3 2013. the Company continues to maintain a cautious approach to increases in this portfolio.

> Store and apartment advances were $24.5 million for the fourth quarter, compared to $24.8 million in the same period of 2012 and

$24.3 million in the third quarter of 2013.

> the consumer retail portfolio, which includes durable household goods, such as water heaters and larger-ticket home improvement
items, reached $340.0 million in Q4 2013, up 25.0% from $272.0 million one year ago and 3.7% from $328.0 million in Q3 2013.

> In Q4 2013, Home trust launched a new direct-to-consumer brand, Oaken Financial, offering a line of consumer deposit products,
including Guaranteed Investment Certificates (GICs) and a new Oaken Savings Account as part of its strategy to continue to diversify
funding sources and provide customers with a secure alternative to managing their savings independently.

> Additionally, further funding diversification was accomplished in Q4 2013 with the successful close of Home trust’s initial issue of
institutional five-year deposit notes in the principal amount of $300 million. the Company expects that Home trust will be a regular
issuer of institutional deposit notes, likely on a semi-annual basis. Strong investor demand was evident with an oversubscription in
excess of 70%.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

F ou Rt H QuARteR FIn An CIAl InFoRm AtIon

table 24: Fourth Quarter Review of Financial Performance

For the three months ended

Change

December 31
2013

September 30
2013

December 31
2012

168,045 $
2,556
2,663
173,264
71,744
1,793
99,727

159,573 $
2,621
2,386
164,580
67,911
1,635
95,034

144,310
3,502
949
148,761
61,873
1,825
85,063

51,274
40,034

55,229
43,669

11,240
110,967
4,004
106,963

11,560
106,594
2,768
103,826

15,402
5,770

15,472
4,864

64,351
49,506

14,845
99,908
3,685
96,223

10,928
5,761

December 31,
2013–
September 30,
2013

December 31,
2013–
December 31,
2012

5.3%
(2.5%)
11.6%
5.3%
5.6%
9.7%
4.9%

(7.2%)
(8.3%)

(2.8%)
4.1%
44.7%
3.0%

(0.5%)
18.6%

16.4%
(27.0%)
180.6%
16.5%
16.0%
(1.8%)
17.2%

(20.3%)
(19.1%)

(24.3%)
11.1%
8.7%
11.2%

40.9%
0.2%

148

(668)

(457)

(122.2%)

(132.4%)

507
21,827
128,790

(44)
19,624
123,450

(1,695)
14,537
110,760

(1,252.3%)
11.2%
4.3%

(129.9%)
50.1%
16.3%

19,563
2,610
15,689
37,862
90,928

17,768
2,407
17,460
37,635
85,815

22,337
(236)
22,101
68,827 $

20,258
(860)
19,398
66,417 $

14,991
2,562
14,067
31,620
79,140

22,649
(2,474)
20,175
58,965

1.98 $
1.97 $

1.91 $
1.90 $

1.70
1.70

$
$

34,745
34,969
34,744

34,703
34,953
34,746

33.90 $

32.27 $

34,655
34,779
34,630
27.96

10.1%
8.4%
(10.1%)
0.6%
6.0%

10.3%
(72.6%)
13.9%
3.6%

3.7%
3.7%

0.1%
–
–
5.1%

30.5%
1.9%
11.5%
19.7%
14.9%

(1.4%)
(90.5%)
9.5%
16.7%

16.5%
15.9%

0.3%
0.5%
0.3%
21.2%

(000s, except per share amounts and %)

net Interest Income non-securitized Assets
Interest from loans
Dividends from securities
Other interest

Interest on deposits
Interest on senior debt
net interest income non-securitized assets
net Interest Income Securitized
loans and Assets
Interest income from securitized
loans and assets
Interest expense on securitization liabilities
net interest income securitized
loans and assets
total net Interest Income
provision for credit losses

non-interest Income
Fees and other income
Securitization income
net realized and unrealized gains
(losses) on securities
net realized and unrealized gain (loss)
on derivatives

non-interest expenses
Salaries and benefits
premises
Other operating expenses

Income Before Income taxes
Income taxes
Current
Deferred

net InCome
net InCome PeR Common SHARe
Basic
Diluted

AVeRAGe numBeR oF Common
SHAReS outStAnDInG
Basic
Diluted
total number of outstanding common shares
Book value per common share

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

table 25: Fourth Quarter Review of Comprehensive Income

(000s, except %)

net InCome

otHeR ComPReHenSIVe (loSS) InCome

Available for Sale Securities and
Retained Interest

net unrealized (losses) gains
net (gains) losses reclassified to net income

Income tax (recovery) expense

Cash Flow Hedges
net unrealized gains (losses) on cash flow hedges
net losses reclassified to net income

Income tax expense

total other comprehensive (loss) income
ComPReHenSIVe InCome

$
$

For the three months ended

Change

December 31
2013

September 30
2013

December 31
2012

December 31,
2013–
September 30,
2013

December 31,
2013–
December 31,
2012

68,827 $

66,417 $

58,965

3.6%

16.7%

(5,320)
(147)
(5,467)
(1,449)
(4,018)

(10,638)
671
(9,967)
(2,640)
(7,327)

897
247
1,144
303
841
(3,177) $
65,650 $

(195)
376
181
48
133
(7,194) $
59,223 $

1,471
457
1,928
509
1,419

–
376
376
99
277
1,696
60,661

(50.0%)
(121.9%)
(45.1%)
(45.1%)
(45.2%)

(560.0%)
(34.3%)
532.0%
531.3%
532.3%
(55.8%)
10.9%

(461.7%)
(132.2%)
(383.6%)
(384.7%)
(383.2%)

–
(34.3%)
204.3%
206.1%
203.6%
(287.3%)
8.2%

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

table 26: Fourth Quarter Review of Financial Position

(000s, except for %)

ASSetS
Cash and Cash equivalents
Available for Sale Securities
loans Held for Sale
loans
Securitized mortgages
non-securitized mortgages and loans

Collective allowance for credit losses

other
Restricted assets
Derivative assets
Other assets
Goodwill and intangible assets

lIABIlItIeS AnD SHAReHolDeRS’ eQuItY
liabilities
Deposits
Deposits payable on demand
Deposits payable on a fixed date

Senior Debt
Securitization liabilities
Mortgage-backed security liabilities
Canada Mortgage Bond liabilities

other
Derivative liabilities
Other liabilities
Deferred tax liabilities

Shareholders’ equity
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive loss

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

As at

December 31
2013

September 30
2013

Change

728,469 $
424,272
137,975

774,591
441,689
77,655

5,210,021
12,671,905
17,881,926
(31,500)
17,850,426

6,164,544
11,842,183
18,006,727
(30,900)
17,975,827

652,986
29,886
162,679
89,157
934,708

303,410
32,731
148,548
86,346
571,035
$ 20,075,850 $ 19,840,797

429,269 $

12,336,685
12,765,954
147,343

281,348
11,655,299
11,936,647
149,822

660,964
5,112,100
5,773,064

913,103
5,495,144
6,408,247

3,809
173,558
34,425
211,792
18,898,153

2,378
187,301
35,040
224,719
18,719,435

70,233
5,984
1,119,959
(18,479)
1,177,697

70,237
5,412
1,061,015
(15,302)
1,121,362
$ 20,075,850 $ 19,840,797

(6.0%)
(3.9%)
77.7%

(15.5%)
7.0%
(0.7%)
1.9%
(0.7%)

115.2%
(8.7%)
9.5%
3.3%
63.7%
1.2%

52.6%
5.8%
6.9%
(1.7%)

(27.6%)
(7.0%)
(9.9%)

60.2%
(7.3%)
(1.8%)
(5.8%)
1.0%

(0.0%)
10.6%
5.6%
20.8%
5.0%
1.2%

table 27: Fourth Quarter net Interest margin

table 28: Fourth Quarter net Interest Income by Product and Average Rate

For the three months ended

December 31
2013
2.92%
2.94%
0.74%
2.20%
2.22%
3.11%

September 30
2013
2.96%
2.99%
0.69%
2.14%
2.16%
3.16%

December 31
2012
3.07%
3.11%
0.79%
2.11%
2.13%
3.13%

(000s, except %)

Assets
Cash resources and securities
traditional single-family
residential mortgages
Accelerator single-family
residential mortgages
Residential commercial mortgages2
non-residential commercial
mortgages
Credit card loans
Other consumer retail loans
total non-securitized loans
taxable equivalent adjustment
total on non-securitized
interest-earning assets
Securitized single-family
residential mortgages
Securitized multi-unit
residential mortgages
Assets pledged as collateral
for securitization
total securitized residential mortgages
Other assets
total Assets

liabilities and
Shareholders’ equity
Deposits
Senior debt
Securitization liabilities
Other liabilities and
shareholders’ equity
total liabilities and
Shareholders’ equity

net Interest Income (teB)
tax equivalent Adjustment
net Interest Income per
Financial Statements

For the three months ended
December 31, 2013

For the three months ended
September 30, 2013

Average
Balance1

Income/
expense

Average
Rate1

Average
Balance1

Income/
expense

Average
Rate1

$ 1,292,322 $

5,219

1.62% $ 1,248,482 $

5,007

1.60%

9,819,720

128,659

5.24%

9,331,924

122,329

5.24%

617,356
327,988

5,282
4,043

3.42%
4.93%

407,046
280,565

3,604
3,393

987,049
295,315
333,521
12,380,949
–

15,749
6,934
7,378
168,045
921

965,285
6.38%
300,776
9.39%
8.85%
318,300
5.43% 11,603,896
–

–

15,932
7,147
7,168
159,573
942

3.54%
4.84%

6.60%
9.50%
9.01%
5.50%
–

13,673,271

174,185

5.10% 12,852,378

165,522

5.15%

4,151,111

33,112

3.19%

4,605,786

35,943

3.12%

1,639,678

16,429

4.01%

1,795,004

17,715

3.95%

440,539
6,231,328
282,816
$ 20,187,415 $

1,733
51,274
–
225,459

1.57%
3.29%
–

379,419
6,780,209
254,310

4.47% $ 19,886,897 $

1,571
55,229
–
220,751

$ 12,383,947 $
148,725
6,271,332

71,744
1,793
40,034

2.32% $ 11,629,822 $
4.82%
2.55%

149,025
6,785,334

67,911
1,635
43,669

1.66%
3.26%
–
4.44%

2.34%
4.39%
2.57%

1,383,411

–

1,322,716

–

$ 20,187,415 $

113,571

2.25% $ 19,886,897 $

113,215

2.28%

111,888
(921)

110,967

107,536
(942)

106,594

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

table 28: Fourth Quarter net Interest Income by Product and Average Rate (continued)

(000s, except %)

Assets
Cash resources and securities
traditional single-family residential mortgages
Accelerator single-family residential mortgages
Residential commercial mortgages2
non-residential commercial mortgages
Credit card loans
Other consumer retail loans
total non-securitized loans
taxable equivalent adjustment
total on non-securitized interest-earning assets
Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
Assets pledged as collateral for securitization
total securitized residential mortgages
Other assets
total Assets

liabilities and Shareholders’ equity
Deposits
Senior debt
Securitization liabilities
Other liabilities and shareholders’ equity
total liabilities and Shareholders’ equity
net Interest Income (teB)
tax equivalent Adjustment
net Interest Income per Financial Statements

For the three months ended December 31, 2012

Average
Balance1

Income/
expense

Average
Rate1

817,669 $

7,919,965
582,728
205,425
981,483
334,778
243,338
10,267,717
–
11,085,386
5,136,096
1,949,071
541,946
7,627,113
294,020
$ 19,006,519 $

9,944,774
152,283
7,661,311
1,248,151
$ 19,006,519 $
$

4,451
107,692
4,470
2,790
15,789
7,998
5,571
144,310
1,243
150,004
43,081
19,704
1,566
64,351
–
214,355

61,873
1,825
49,506
–
113,204
101,151
(1,243)
99,908

2.18%
5.44%
3.07%
5.43%
6.43%
9.56%
9.16%
5.62%
–
5.41%
3.36%
4.04%
1.16%
3.37%
–
4.51%

2.49%
4.79%
2.58%
–
2.38%

1 the average is calculated with reference to opening and closing monthly asset and liability balances.

2 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.

table 29: Fourth Quarter mortgage Production

For the three months ended

December 31
2013

September 30
2013

December 31
2012

$ 1,227,462 $ 1,312,648 $ 1,159,387
174,214

357,125

272,576

62,276
177,632
4,411

19,475
306,863
9,000

7,786
49,459
4,650

24,514
56,134

24,835
52,417
$ 1,909,554 $ 1,994,229 $ 1,472,748

24,347
49,320

(000s)

1 Other residential commercial mortgages include mortgages such as builders’ inventory.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

table 30: Fourth Quarter Provision for Credit losses

(000s, except %)

As at December 31, 2013
net non-performing loans

For the three months ended
December 31, 2013
net Write-offs
Annualized
% of Gross
loans
0.12%
0.34%

Amount
3,135
168

Provision1
Annualized
% of Gross
loans

0.13% $
0.10%

% of Gross
loans
0.48% $
0.93%

Amount
3,560
49

Amount
51,636
1,8362

7,1893
2,584
–

0.72%
0.88%
–

99
183
113

–

0.04%
0.25%
0.13%

–

79
293
94

–

–
63,245

–
0.35% $

–
4,004

–
0.09% $

–
3,769

(000s, except %)

As at September 30, 2013
net non-performing Loans

For the three months ended
September 30, 2013
net Write-offs
Annualized
% of Gross
Loans
0.07%
–

Amount
1,734
–

provision1
Annualized
% of Gross
Loans
0.11% $
0.24%

% of Gross
Loans
0.50% $
0.71%

Amount
2,704
152

Amount
50,224
1,8362

1,576
3,603
–

0.16%
1.21%
–

–

(38)
(99)
49

–

(0.02%)
(0.13%)
0.06%

–

153
96
96

–

–
57,239

–
0.32% $

–
2,768

–
0.06% $

–
2,079

(000s, except %)

As at December 31, 2012
net non-performing Loans

For the three months ended
December 31, 2012
net Write-offs
Annualized
% of Gross
Loans
0.12%
–

Amount
2,546
–

provision1
Annualized
% of Gross
Loans
0.16% $
0.12%

% of Gross
Loans
0.55% $
2.93%

Amount
3,470
48

Amount
47,788
4,527

501
3,505
–

0.05%
1.07%
–

146
(5)
26

–

0.06%
(0.01%)
0.04%

–

146
512
90

–

–
56,321

–
0.33% $

–
3,685

–
0.09% $

–
3,294

1 provisions include both individual and collective provisions.

2 the non-performing residential commercial amount comprises one loan.

3 the non-performing non-residential commercial amount includes $6.4 million related to one loan.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

0.03%
0.40%
0.11%

–

–
0.08%

0.06%
0.13%
0.12%

–

–
0.05%

0.06%
0.63%
0.13%

–

–
0.08%

management’s Discussion and Analysis
management’s Discussion and Analysis

table 31: Fourth Quarter Allowance for Credit losses

(000s)

For the three months ended December 31, 2013

Single-family
Residential
mortgages

Residential
Commercial
mortgages

non-residential
Commercial
mortgages

Credit Card
loans

other
Consumer
Retail loans

total

Individual allowances
Allowance on loan principal
Balance at the beginning of
the period
provision for credit losses
Write-offs
Recoveries

Allowance on accrued
interest receivable
Balance at the beginning
of the period
provision for credit losses

total individual allowance
Collective allowance
Balance at the beginning
of the period
provision for credit losses

total allowance

total provision

(000s)

Individual allowances
Allowance on loan principal
Balance at the beginning of
the period
provision for credit losses
Write-offs
Recoveries

Allowance on accrued
interest receivable
Balance at the beginning
of the period
provision for credit losses

total individual allowance
Collective allowance
Balance at the beginning
of the period
provision for credit losses

1,441 $
2,895
(3,259)
124
1,201

813
(54)
759
1,960

17,313
719
18,032

– $

168
(376)
208
–

25
–
25
25

79
(87)
8
–

24
20
44
44

–
–
–
201

446
(119)
327

9,300
–
9,300

3,541
–
3,541

311 $
183
(314)
21
201

219 $
111
(118)
24
236

1,971
3,436
(4,154)
385
1,638

10
2
12
248

300
–
300

872
(32)
840
2,478

30,900
600
31,500

33,978
4,004

$
$

19,992 $
3,560 $

352 $
49 $

9,344 $
99 $

3,742 $
183 $

548 $
113 $

Single-family
Residential
Mortgages

Residential
Commercial
Mortgages

non-residential
Commercial
Mortgages

Credit Card
Loans

Other
Consumer
Retail Loans

total

For the three months ended September 30, 2013

929 $

2,246
(2,123)
389
1,441

628
185
813
2,254

17,040
273
17,313

– $
–
–
–
–

170 $
(17)
(154)
1
–

506 $
(99)
(106)
10
311

262 $
53
(111)
15
219

1,867
2,183
(2,494)
415
1,971

–
25
25
25

319
127
446

45
(21)
24
24

–
–
–
311

9,300
–
9,300

3,541
–
3,541

14
(4)
10
229

300
–
300

687
185
872
2,843

30,500
400
30,900

33,743
2,768

total allowance

total provision

$
$

19,567 $
2,704 $

471 $
152 $

9,324 $
(38) $

3,852 $
(99) $

529 $
49 $

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

table 31: Fourth Quarter Allowance for Credit losses

(000s)

For the three months ended December 31, 2012

Single-family
Residential
Mortgages

Residential
Commercial
Mortgages

non-residential
Commercial
Mortgages

Credit Card
Loans

Other
Consumer
Retail Loans

total

Individual allowances
Allowance on loan principal
Balance at the beginning of
the period
provision for credit losses
Write-offs
Recoveries

Allowance on accrued
interest receivable
Balance at the beginning
of the period
provision for credit losses

total individual allowance
Collective allowance
Balance at the beginning
of the period
provision for credit losses

1,660 $
3,267
(2,699)
153
2,381

– $
–
–
–
–

– $

146
(149)
3
–

628 $
(5)
(685)
173
111

291 $
13
(109)
19
214

2,579
3,421
(3,642)
348
2,706

503
(16)
487
2,868

16,304
219
16,523

365
67
432
432

355
(19)
336

–
–
–
–

–
–
–
111

9,300
–
9,300

3,541
–
3,541

–
13
13
227

300
–
300

868
64
932
3,638

29,800
200
30,000

33,638
3,685

total allowance

total provision

$
$

19,391 $
3,470 $

768 $
$
48

9,300 $
146 $

3,652 $
(5) $

527 $
26 $

table 32: Securitization Activity

(000s)

December 31, 2013

For the three months ended
September 30, 2013

Single-family
Residential
mBS

multi-unit
Residential
mBS

Single-family
Residential
MBS

Multi-unit
Residential
MBS

total mBS

total MBS

327,500 $

177,700 $

505,200 $

191,761 $

235,483 $

427,244

3,460
–
–

1,189
7,983
1,186

4,649
7,983
1,186

1,894
–
–

2,647
11,146
1,809

4,541
11,146
1,809

Carrying value of underlying
mortgages derecognized
Gains on sale of mortgages
or residual interest1
Retained interests recorded
Servicing liability recorded

(000s)

Carrying value of underlying
mortgages derecognized
Gains on sale of mortgages
or residual interest1
Retained interests recorded
Servicing liability recorded

1 Gains on sale of mortgages are net of hedging impact.

For the three months ended
December 31, 2012

Single-family
Residential
MBS

Multi-unit
Residential
MBS

total MBS

662,153 $

64,634 $

726,787

4,845
–
–

891
2,447
487

5,736
2,447
487

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

CA PI tAl mAnAGement

Capital is a key factor in the safety and soundness of a financial institution. A strong capital position assists the Company in promoting
confidence among depositors, creditors, regulators and shareholders. the Company’s Capital Management policy governs the quantity and
quality of capital held. the objective of the Capital Management policy is to ensure that adequate capital is available to the Company
to support its strategic and business objectives, absorb potential unexpected losses, meet minimum regulatory capital requirements as
stipulated by the Office of the Superintendent of Financial Institutions Canada (OSFI), and enable the allocation of capital for maximum
economic benefit. the Capital Management Committee reviews compliance with the policy at minimum on a monthly basis while the Risk
and Capital Committee and the Board of Directors review compliance with the policy on a quarterly basis.

two regulatory capital requirements are addressed in the Company’s policy: the Assets to Regulatory Capital Multiple (ACM) and the
risk-based capital ratios. the Capital Management Committee reviews these ratios on a regular basis while the Board of Directors reviews
them quarterly.

the Company’s principal subsidiary, Home trust, calculates capital ratios and regulatory capital based on the capital adequacy
requirements issued by OSFI, which are based on International Convergence of Capital Measurement and Capital Standards – A Revised
Framework (Basel II) and Basel III: A global regulatory framework for more resilient banks and banking systems – A Revised Framework
(Basel III). As Home trust, a wholly owned subsidiary of the Company, is regulated under the trust and Loan Companies Act (Canada), its
ability to accept deposits is limited primarily by its permitted ACM. this is defined as the ratio of total regulatory assets to total regulatory
capital of Home trust.

under Basel II and Basel III, Home trust calculates risk-weighted assets for credit risk using the Standardized Approach and for operational
risk using the Basic Indicator Approach. Home trust’s capital structure and risk-weighted assets were as follows:

table 33: Basel III Regulatory Capital (Based only on the subsidiary, Home trust Company)

(000s, except ratios and multiples)

Common equity tier 1 capital (Cet 1)
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Cash flow hedge reserves
Regulatory deductions from Cet 11
total Cet 1 capital
Additional tier 1 capital
total tier 1 capital
tier 2 capital
Collective allowance for credit losses2
Subordinated debentures
total tier 2 capital
total regulatory capital
Risk-weighted assets for
Credit risk
Operational risk
total risk-weighted assets
Regulated capital to risk-weighted assets
Cet 1 ratio
tier 1 capital ratio
total regulatory capital ratio
Assets to regulatory capital multiple
national regulatory minimum
Cet 1 ratio (required January 1, 2013)
tier 1 capital ratio (required January 1, 2014)
total regulatory capital ratio (required January 1, 2014)

December 31, 2013

All-in Basis

transitional
Basis

38,497 $
951
1,130,517
(18,490)
2,656
(62,927)
1,091,204
–
1,091,204

38,497
951
1,130,517
(18,166)
2,656
(8,964)
1,145,491
–
1,145,491

31,500
156,000
187,500

31,500
156,000
187,500
$ 1,278,704 $ 1,332,991

$ 5,702,192 $ 5,756,155
793,575
$ 6,495,767 $ 6,549,730

793,575

17.49%
17.49%
20.35%
13.19

16.80%
16.80%
19.69%
n/A

7.00%
8.50%
10.50%

1 Regulatory deductions on the all-in basis include intangible assets related to software development and unrealized multi-unit residential mortgage securitization gains, net of

deferred taxes.

2 the Company is allowed to include its collective allowance for credit losses up to a prescribed percentage of 1.25% of credit risk-weighted assets in tier 2 capital. At

December 31, 2013, the Company’s collective allowance represented 0.55% of risk-weighted assets.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Home trust adopted certain Basel III capital requirements beginning January 1, 2013, as required by OSFI. the primary impact at adoption
was the deduction from Common equity tier 1 capital on an all-in basis of $51.1 million of intangible assets, net of deferred taxes, related
to It development costs as well as the inclusion of all its accumulated other comprehensive income, net of cash flow hedge reserves. the
transitional basis allows for the transition of certain capital deductions over a period ending January 1, 2018, whereas the all-in basis
includes all applicable deductions immediately. For Home trust, the transitional basis is applied to the deduction from capital of intangible
assets related to development costs. Deductions for transitional calculations will commence in 2014. For the purposes of meeting
minimum regulatory capital ratios prescribed by OSFI, the all-in basis is required. ACM is calculated and evaluated on a transitional basis.

the tier 1 and total capital ratios as at December 31, 2012, calculated prior to the adoption of Basel III changes, were 17.01% and
20.68%. In the third quarter of 2013, the Company received confirmation that, in certain circumstances, off-balance sheet, insured
single-family residential mortgages could be excluded from the ACM. the ACM of 13.98 as at December 31, 2012, calculated prior to the
adoption of Basel III changes, would have been 13.39 had this treatment been applied.

In the first quarter of 2013 the terms of all subordinated debt were restructured, all of which is intercompany between parent and
subsidiary, to comply with the non-viability contingent capital requirements in Basel III. this allowed for the inclusion of the subordinated
debt in tier 2 capital. under Basel III this subordinated debt will be subject to straight-line amortization out of capital in the final five years
prior to maturity. the principal amounts of the subordinated debt currently mature in 2021 and 2022 in the amounts of $100 million and
$56 million, respectively.

under Basel III, Home trust’s Common equity tier 1, total tier 1 and total capital ratios significantly exceed OSFI’s “All-in” regulatory targets
of 7.0% for Common equity tier 1, 8.5% for total tier 1 and 10.5% for total capital, as well as Home trust’s internal capital targets.

table 34: Risk-Weighted Assets (RWA) (Based only on the subsidiary, Home trust Company)

2013

(000s, except %)

Cash and cash equivalents
Restricted assets
Available for sale securities
Insured residential mortgages
uninsured single-family residential mortgages
uninsured residential commercial mortgages
non-residential commercial mortgages
Credit card loans
Other consumer retail loans
Other assets
total assets subject to risk rating
Intangible assets
Collective allowance for credit losses
total assets
Off-balance sheet items
Loan commitments
total credit risk
Operational risk
total

Balance
Sheet
Amounts
715,342
648,283
424,226
6,484,974
9,728,804
178,465
994,210
293,485
339,963
191,634
19,999,386
73,405
(31,500)
20,041,291

835,368
20,876,659
–
$ 20,876,659

effective
Risk
Weight1

20.0% $
3.6%
71.8%
0.6%

Risk-
weighted
Amount
143,068
23,627
304,579
40,459
35.4% 3,441,510
179,383
100.5%
997,805
100.4%
130,781
44.6%
254,973
75.0%
59.0%
113,159
28.1% 5,629,344
–
–
28.1% 5,629,344

–
–

8.7%

72,848
5,702,192
793,575
$ 6,495,767

1 the effective risk weight represents the weighted average of the risk weights for each asset category prescribed by OSFI weighted based on the Company’s balance sheet

classification.

Risk-weighted assets are determined by applying the OSFI-prescribed rules to on-balance sheet and off-balance sheet exposures. the
Company’s securitization activities are not subject to the Basel II securitization framework as they are all within the nHA MBS program and
do not involve tranching of credit risk.

Risk-weighted assets as at December 31, 2012, which were calculated prior to the adoption of Basel III requirements, were $5.49 billion
comprising $4.87 billion for credit risk and $0.62 billion for operational risk. Over the year, risk-weighted assets increased by $1.01 billion
primarily due to growth in the Company’s traditional uninsured single-family residential mortgages. the operational risk factor in the
calculation also increased as the Company’s gross income, on which the calculation is based, increased.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

capital and Lending capacity

the Company has continuously maintained high levels of regulatory capital, as compared to its peers and larger institutions. this has
provided additional protection to depositors and shareholders against losses that might be caused by severely unfavourable business
developments, economic trends or other shocks. this is in addition to the collective allowance for credit losses, which currently exceeds
the total write-offs recorded over the past two years. Currently, the Company exceeds its minimum regulatory capital requirement for the
Common equity tier 1 capital ratio by a factor of more than two.

In addition to its high levels of regulatory capital, Home trust has maintained a relatively low level of leverage as measured by its ACM. the
ACM is the most constraining regulatory factor on the Company’s capacity to lend. this factor is calculated based on total balance sheet
assets without regard to any risk weighting and includes adjustments (permitted by OSFI) such as grandfathered mortgages that were
securitized through CMHC-sponsored programs prior to March 31, 2010. under IFRS, certain assets which had previously been securitized,
sold and removed from the Company’s balance sheet were returned to the balance sheet. these items were returned to the balance sheet
primarily because the Company remained exposed to the risk of unscheduled repayments, or prepayments by borrowers. this reduces the
Company’s total lending capacity and potentially its capacity to renew the underlying insured mortgages with a reasonable return on the
capital required to support such mortgages on the Company’s balance sheet.

In 2012 and 2013 the Company completed transactions that transferred the risk of prepayments to third-party investors and the underlying
mortgages were removed from the Company’s balance sheet. In 2013, the treatment of these mortgages for the purpose of calculating the
ACM was clarified, allowing the Company to make a similar adjustment to its calculation of ACM. Consequently, the Company’s borrowing
capacity increased without requiring any additional regulatory capital. this provides capacity for Home trust to renew its significant portfolio
of insured mortgages that will reach the end of their contractual terms but have a number of years until fully amortized to repayment. this
represents a significant opportunity for future loan servicing revenue and gains on sales of securitized pools. the table below provides a
summary of the maturity profile of the Company’s securitized insured mortgages:

table 35: maturity Profile of Securitized mortgages

(000s)
Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
total securitized mortgages

2014

2015

919,119 $ 1,418,344 $
482,849

278,145

$ 1,401,968 $ 1,696,489 $

As at December 31, 2013
thereafter
total
2016
569,388 $ 3,720,097
813,246 $
71,281
1,489,924
657,649
884,527 $ 1,227,037 $ 5,210,021

In addition to the renewal opportunities, this also presents an opportunity for the Company to increase its level of lending to prime
borrowers on insured loans, without the need to allocate substantial amounts of capital. this will further enable the Company to pursue its
“one-stop-shop” mortgage lender strategy, which was embraced by mortgage brokers in earlier years and provided considerable advantages
in the market.

During the year, the Company recorded $11.1 million of gains on mortgage sales. these gains include gains of $5.7 million on sales of
$617.2 million of insured multi-unit residential mortgages and gains of $5.4 million on sales of $519.3 million of single-family residential
mortgages. the principal values of mortgages being administered by the Company and excluded from the balance sheet are summarized
in table 14.

Capital management Activity

During the third quarter of 2013, the Company filed a new normal Course Issuer Bid through the toronto Stock exchange, which allows it to
purchase over a 12-month period up to 10% of the public float outstanding on September 12, 2013. the Company believes that, from time
to time, the market price of its common shares does not fully reflect the value of its business and the repurchase of shares may represent
an appropriate and desirable business decision.

During 2013, the Company repurchased 39,100 common shares (2012 – 163,500 common shares) for $2.3 million, thereby reducing
retained earnings by $2.2 million and share capital by $0.1 million (2012 – $7.8 million and $0.3 million, respectively).

Internal Capital Adequacy Assessment Process (ICAAP)

under the Company’s capital and risk management policies, and OSFI’s guidelines, the Company is required to assess the adequacy of
current and projected capital resources under expected and stressed conditions. this involves evaluating the Company’s strategy, financial
plan and risk appetite; assessing the effectiveness of its risk and capital management practices (including Board and senior management
oversight); subjecting the Company’s plans to a range of stress tests; and drawing conclusions about its capital adequacy (including a
rigorous review and challenge). Based on the Company’s ICAAp, management has concluded that Home trust is adequately capitalized.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

table 36: Credit Ratings

Long-term rating
Short-term rating
Outlook

Share Information

table 37: Share Information

(000s)

Common shares issued and outstanding1
employee stock options outstanding2
employee stock options exercisable3

Credit Ratings

the following table presents the credit ratings for the Company and its subsidiary Home trust. these investment-grade credit ratings would
allow the Company to obtain institutional debt financing should the need arise for additional capital.

Home Capital Group Inc.

Home trust Company

DBRS
BBB
R2 (middle)
Stable

Standard & poor’s
BBB-
A-3
Stable

Fitch Rating
BBB
F2
negative

DBRS
BBB (high)
R2 (high)
Stable

Standard & poor’s
BBB
A-2
Stable

Fitch Rating
BBB
F2
negative

number of
Shares
34,744 $
825
524

2013

Amount
70,233
n/A
19,287

number of
Shares

34,630 $
783
557

2012

Amount
61,903
n/A
19,647

1 no shares were issued, other than through employee stock options exercised.

2 please see note 17(C). Amount for employee stock options is not applicable.

3 For employee stock options exercisable, the amount refers to proceeds payable to the Company upon exercise.

2014 outlook for Capital management

the Company remains committed to maintaining its financial strength, strong regulatory capital ratios and growing its capital
base through earnings in 2014 and beyond. the inclusion of mortgages securitized after March 31, 2010 in the ACM makes this
measure the Company’s primary capital constraint; however, the favourable ruling on the sale of residual interest makes this less of
a constraint going forward. the Company will continue to proactively monitor and assess its ACM on an ongoing basis.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

RIS K mA nAG ement

the shaded areas of this section of the MD&A represent a discussion of risk management policies and procedures relating to credit,
market and liquidity risks that are required under IFRS 7 Financial Instruments: Disclosures, which permits these specific disclosures to
be included in the MD&A. therefore, the shaded areas presented in this Risk Management section form an integral part of the audited
consolidated financial statements for the year ended December 31, 2013.

Risk management is an essential component of the Company’s strategy, contributing directly to the Company’s profitability and consistently
high return on equity. the Company continues to invest significantly in risk management practices and resources.

the Company’s business strategies and operations expose the Company to a wide range of risks that could adversely affect its operations,
financial condition, or financial performance, and which may influence an investor to buy, hold, or sell the Company’s shares. When
evaluating risks, the Company makes decisions about which risks it accepts, which risks it mitigates, offsets or hedges, and which risks it
will avoid. these decisions are guided by the Company’s risk appetite framework. the types of risk to which the Company is subject include,
among others, credit, funding and liquidity, market, and operational risks.

Risk Appetite

the Company has adopted a risk appetite framework that sets out the amount and types of risk the Company will accept in pursuit of its
business objectives and strategies. the Company’s risk appetite framework provides the structure to link the objectives of the Company’s
key stakeholders with the level of risk the Company can, and is willing to, take. the risk appetite framework comprises five major
components.

1. Clear articulation of the Company’s overall mission and objectives, given key stakeholder concerns. the level of risk inherent in these

objectives drives the level of risk the Company may accept.

2. Identification of the Company’s risk capacity by identifying the supply of capital capable of supporting risk and absorbing loss. Risk

capacity is limited by other factors including regulatory constraints.

3. Identification of the risks inherent in the corporate strategy supporting the mission and the governing objectives of the Company and
establishment of a risk-taking philosophy that sets out the key principles that guide how the Company may take and mitigate risk.

4. Documentation of the amount and types of risk the Company may accept given its mission, risk capacity, strategy and risk-taking
philosophy. the Company explicitly articulates its Balance Sheet risk appetite (how much of the Company’s capital it will put at
risk), earnings Volatility risk appetite, portfolio Composition risk appetite (the types of risk the Company will take) and non-financial
risk appetite (expressions of risk appetite that are difficult to quantify). Among others, the Company has established risk appetite
statements addressing:

> maximum capital at risk and minimum capital ratios;

> maximum leverage or asset to capital multiple;

> maximum amount of top-level individual risk types; and

> reputational risk.

5. establishment of risk limits as an expression of the Company’s risk appetite for individual risks or factors that contribute to risk levels.

Risk Governance

the Company’s strategies and management of risk are supported by an overall enterprise risk management (eRM) framework including
policies, guidelines, and procedures for each major category of risk to which it is exposed (strategic, credit, market, funding and liquidity,
operational, legislative and regulatory, and reputational). the Company defines eRM as an ongoing process involving its Board of Directors
(the “Board”), management and other personnel in the identification, measurement, assessment and management of risks that may
positively or negatively impact the organization as a whole. eRM is applied in strategy setting across the enterprise and is designed to
provide reasonable assurance that the Company’s objectives can be realized given its stated risk appetite. the goal of eRM is to help
maximize, within the Company’s risk appetite, the benefit to the enterprise, shareholders and other stakeholders from a portfolio of risks
that the Company is willing to accept.

Supporting the Company’s eRM structure is a risk culture and a governance framework, including Board and senior management oversight
and an increasingly robust set of risk policies and guidelines reflective of the Company’s risk appetite, that set boundaries for acceptable
business strategies, exposures and activities. the Company’s governance structure is supported by the industry standard three lines of
defence model. Authority is delegated by the Board through the Chief executive Officer to business units that are responsible for managing
the risks they take in the pursuit of their business objectives. the eRM group, along with the Credit, Finance and Corporate Compliance
groups, represents the second line of defence, and provides policy guidance to business units and helps ensure that all risks are identified,
monitored, measured, assessed and reported to senior management and the Board. Internal Audit, the third line of defence, provides
objective and independent reviews of the risk management process, its controls, and the effectiveness of governance, risk management
and controls.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

the governance structure as depicted in the following figure ensures that there is a framework in place for risk oversight and accountability
across the organization. Risk owners are responsible for developing and executing strategies for controlling risk.

Board of Directors

Board of
Directors

Audit
Committee

Governance,
Nominating and
Conduct Review
Committee

Human Resources
and Compensation
Committee

Risk and Capital
Committee

Management

CEO and Executive
Committee

Credit Risk
Committee

Asset/Liability
Committee

Operational
Risk
Committee

Governance, Risk
and Compliance
Committee

Executive
Project Review
Committee

Senior
Leadership
Committee

Capital
Management
Committee

3rd Line

2nd Line

Internal Audit

Finance

Corporate
Compliance

Credit

Enterprise Risk
Management

1st Line
(Line of Business)

Deposits

Residential
Mortgage Lending

Commercial
Mortgage Lending

Consumer Lending
and Retail Credit

Treasury

S
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E
T
T
I
M
M
O
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E
C
N
E
F
E
D
F
O
S
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Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

the Board is accountable for establishing the overall vision, mission, objectives and strategies of the Company and setting the
Company’s risk appetite and risk-bearing capacity. It challenges management’s proposals and plans to ensure that the forecasted
results and risk assessments are reasonable and in line with the Company’s capabilities, objectives and risk appetite. these risk
management responsibilities are primarily carried out through the Risk and Capital Committee of the Board. In this oversight role
the Committee is designed to ensure that all significant risks to the Company, regardless of source, are proactively identified and
effectively managed. this is accomplished by reviewing and approving, on at least an annual basis, all key risk policies; monitoring,
on at least a quarterly basis, the Company’s actual exposures versus Board-approved risk appetite and limits; and providing
direction to management where deemed necessary. It further monitors to ensure that the eRM function is independent of the
business activities it oversees and that an appropriate, independent monitoring and reporting framework is in place and operating
effectively, so as to deliver accurate, timely and meaningful risk information for its review and evaluation.

the executive Committee (eC), chaired by the Chief executive Officer, is responsible for recommending corporate strategy to the
Board and for overseeing its execution. A critical component of this mandate is recommending to the Risk and Capital Committee
of the Board a risk appetite that aligns with the objectives and strategy of the Company. the eC is accountable for establishing an
appropriate “risk aware” culture and proactively monitoring actual exposures and business activities in comparison to risk appetite.
the eC reviews and validates the Company’s portfolio of key risk exposures through comprehensive risk reporting as well as by an
ongoing risk identification and assessment process. through this process, significant risks are identified in light of current business,
market, and economic conditions, ensuring that the risks the Company manages and monitors are not static but evolving in context
with the greatest likelihood of impact on the Company at any given point in time.

the most significant risks to the Company, described as principal risks and as reflected in the following diagram, are subject to
more specific review, monitoring and assessment under the mandates of supporting risk committees. these committees (Credit
Risk, Asset/Liability, Capital Management, Operational Risk, Governance, Risk and Compliance, executive project Review, and Senior
Leadership) recommend policies and guidelines for approval as proposed by the lines of business, with review by the eRM group,
and proactively monitor and assess the specific risks under their mandates compared to the approved risk appetite. In addition to
the executive Committee and the supporting risk committees, the Company’s risk governance is supported by:

> the Chief Risk Officer and the eRM group. the eRM group is mandated to work with the executive team and the Board of Directors
of the Company to support sustainable business performance through the independent identification, measurement, assessment
and monitoring of all significant risks to the Company, regardless of source. Working closely with the Risk and Capital Committee
of the Board, the eRM group recommends the Company’s overall risk appetite and limits. It develops policies to address
significant risks and recommends Board and/or management approval. eRM independently maintains a current view of the
Company’s risk profile by monitoring actual exposure and practice against approved risk appetite, limits, policies and guidelines.

> the Chief Compliance Officer (CCO) and Chief Anti-Money Laundering Officer (CAMLO) and the Corporate Compliance group.
the CCO/Corporate Compliance group is mandated to establish and maintain an independent enterprise-wide Compliance
Framework (a set of controls and oversight processes) designed to mitigate the Company’s Legislative and Regulatory Risk.
the CCO/Corporate Compliance group is mandated to promote a sound compliance culture; report to the Company’s senior
management and the Board about compliance with the Company’s legislative and regulatory requirements; follow up with
Senior Management on breaches; and make recommendations related to the Compliance Framework activities. the CCO and
CAMLO are responsible for expressing an independent opinion to the Audit Committee on the status, adequacy and effectiveness
of the Company’s state of compliance on a periodic basis.

> the Senior Vice president, Internal Audit, and the Internal Audit department. Internal Audit is mandated to independently assess
and report to the Audit Committee, the Board and management on the effectiveness of governance, risk management and
internal control processes.

> the Chief Financial Officer and the Finance group. the Finance group compiles the Company’s financial and capital plan
for recommendation to the executive Committee and Board, and reports to the Board, shareholders and regulators on the
performance of the Company against these plans. the Finance group also updates the plan with periodic forecasts, advises the
Board of anticipated outcomes, and recommends revisions to capital plans and structures as appropriate.

In order to align the Company’s risk and control processes, management has formed the Governance, Risk and Compliance Committee
to review and align the management structure, resources, processes and controls to match the size, complexity, scope, and risk profile
of the organization. this committee makes recommendations to the executive Committee to improve, operate and sustain all aspects of
governance, risk and compliance.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Stress testing

In addition to the day-to-day risk management practices, a key component of the eRM framework is stress testing and scenario analysis.
Management conducts regular stress testing, including stress testing through its internal capital adequacy assessment process and ad hoc
stress testing to evaluate a range of extreme but plausible scenarios. Stress tests are conducted to determine the potential impact of these
events, the effectiveness of management’s contingency plans to deal with these unlikely but possible events, and management’s ability to
mitigate the potential risk. A common set of scenarios is developed to assess the impact on the Company’s financial results, capital and
liquidity position, operational capabilities and the Company’s ability to respond to the event. In particular, management has evaluated a
range of economic scenarios, including a real estate-driven recession. Management analyzes the outcomes from stress testing and, where
applicable, takes proactive measures to mitigate potential risks to the business.

Principal Risks

the Company has identified seven principal risks that are material to the business: strategic, credit, market, funding and liquidity,
operational, legislative and regulatory, and reputational risk. In addition to these principal risks, the Company employs a risk register to
outline risk sub-categories and provide more detailed linkages to the specific risks inherent to, or taken by, the business. these risks are
identified, measured, assessed, and monitored on an ongoing basis, with regular reporting to both management and the Board of Directors.
Where appropriate, principal and sub-category risks are mitigated through various actions to reduce the inherent risk to acceptable residual
levels, as defined by the Company’s risk appetite. Strategic and reputational risks are considered overarching risks, as substantial outcomes
from other principal risks could pose significant second order impact to the Company’s reputation or ability to execute strategic objectives.

Strategic Risk

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i
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Reputational Risk

Strategic Risk

Strategic and business risk is the risk of loss due to changes in the external business environment, the failure of management to adjust
its strategies and business activities for external events or business results, or the inability of the business to change its cost levels in
response to those changes. Strategic and business risk is managed by the eC. On a regular basis, the eC reviews the current environment,
the business results and the actions of the Company’s competitors and adjusts business plans accordingly. the Board approves the
Company’s strategies at least annually and reviews results against those strategies at least quarterly.

Credit Risk

Credit risk is the risk of the loss of principal and/or interest from the failure of debtors and/or counterparties to honour their financial
or contractual obligations to the Company, for any reason. the Company’s overall exposure to credit risk is governed by a defined
credit-specific risk appetite, limits and a Board-approved Credit Risk policy. the Credit Risk Committee establishes, implements and
monitors credit risk related policies and guidelines enterprise-wide, taking into account business objectives, risk appetite, planned
financial performance and risk profile. Credit risk limits are established for all types of credit exposures, with geographic, product,
property and security type limits established to cover all material classes of exposure. the Company’s risk management policy limits
the total aggregate exposure to any entity or connection. the lines of business are responsible for managing the Company’s credit
risks in accordance with approved policies and guidelines, and assessing overall credit conditions and exposures on an ongoing
basis. the Credit Risk Committee, the eRM group, and the Risk and Capital Committee of the Board oversee the credit portfolio
through ongoing reviews of credit-risk management policies, lending practices, portfolio composition and risk profile, the adequacy
of the loan loss allowances and the allocation of credit risk-based capital.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

At a transactional level, loans are independently approved by credit staff commensurate with their experience and expertise to extend credit
within the bounds of the Company’s credit risk policies. A foundation of the Company’s approach to credit is a high level of due diligence
on each individual transaction with oversight from a management team with strong industry experience. All transactions are subject to
detailed reviews of the underlying security, an assessment of the applicant’s ability to service the loan, and the application of a standard
risk rating or credit score. enhanced due diligence is conducted on transactions deemed to be higher credit risks based on pre-defined
parameters. transactions in excess of individual authority are approved by the Credit Risk transactional Sub-Committee of the Credit Risk
Committee and ultimately by the Risk and Capital Committee of the Board as required.

table 38: Credit Risk Portfolio monitors

(000s, except % and number of credit cards issued)

total loans balance (net of individual allowances)
mortgage Portfolio1
total mortgage portfolio balance (net of individual allowance)
Residential mortgages as a percentage of total mortgages
non-residential mortgages as a percentage of total mortgages
percentage of insured residential mortgages2
percentage of mortgages current
percentage of mortgages over 90 days past due
percentage of insured residential mortgage originations
Loan to value ratio of residential mortgages (current uninsured)3
Credit Card Portfolio
total credit card portfolio balance
percentage of equityline Visa credit cards
percentage of secured credit cards
percentage of credit cards current
percentage of credit cards over 90 days past due
Loan to value ratio of equityline Visa (current)3
Visa card security deposits
total authorized limits of credit cards
total number of credit cards issued
Average balance authorized

2013

2012

$ 17,881,926 $ 17,137,992

$ 17,248,478 $ 16,538,499
94.0%
6.0%
44.8%
97.6%
0.4%
19.3%
65.5%

94.2%
5.8%
37.6%
97.6%
0.5%
25.1%
65.9%

$
$

293,485 $
95.7%
3.8%
97.8%
0.9%
66.1%
15,997 $
373,702 $
28,892

13 $

327,516
96.9%
3.0%
96.6%
1.1%
69.9%
14,345
403,110
26,840
15

1 Residential mortgages include multi-unit residential and other residential commercial mortgages.

2 Insured loans are loans insured against default by CMHC or another approved insurer either individually at origination or by portfolio.

3 Loan to value ratio is calculated as the current balance outstanding to the appraised value at origination.

Mortgage Lending

As part of credit risk management of the loan portfolio, senior management and the eRM group monitor various characteristics including
the characteristics in the above table.

Credit risk mitigation is a key component of the Company’s approach to credit risk management. the composition of the mortgage portfolio
is well within the policy limits. Senior management and the eRM group closely monitor the credit performance of the mortgage loan
portfolio. the portfolio continues to perform well, with arrears that are well within expected levels.

the Company mitigates credit risk on residential mortgages through collateral in the form of real property and, as such, loan to value (LtV)
is a key credit metric. please see tables 43 and 44 for further information.

Due to the level of activity and price appreciation in the high-rise condominium market in certain cities, the Company continues to closely
monitor market conditions and the performance of this portfolio. High-rise condominiums represent less than 8% of the residential
mortgage portfolio and, of these, 36.4% are insured. the average current LtV of the condominium portfolio was 69.6% at the end of 2013.
the credit performance of the condominium portfolio is strong and within the Company’s expectations, with 98.1% of the portfolio current
and 0.4% over 90 days.

the level of non-residential mortgages was relatively stable over the last 12 months and the Company anticipates that the non-residential
portfolio will remain relatively stable. the Company slowly began increasing its exposure to non-residential lending in 2010 through 2012
in proportion with growth in the overall asset portfolio. the proportion is well within the policy limits.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

other Lending

Credit card balances were $293.5 million at the end of the year, virtually all of which are secured by either cash deposits or residential
property. Within the credit card portfolio, equityline Visa accounts, which are secured by residential property, represent the principal driver
of receivable balances. the equityline Visa portfolio had a weighted-average LtV at origination of 66.1% at the end of the year compared
to 69.2% at the end of 2012. the LtV includes both the first mortgage and the secured equityline Visa balance.

Senior management and the eRM group closely monitor the credit performance of the credit card portfolio. the portfolio continues to
perform well, with arrears well within expected levels. As of December 31, 2013, $2.6 million or 0.9% of the credit card portfolio was
over 90 days in arrears, compared to $3.6 million or 1.1% at December 31, 2012. In late 2012 the Company launched its preferred Visa
card program, which offers unsecured Visa cards with relatively low authorized limits to the Company’s mortgage clients with good credit
performance. the preferred Visa portfolio represents 0.4% of the outstanding credit card balances at the end of the year.

Retail credit is secured by charges on financed assets, primarily improvements to residential property or fixtures, such as water heaters.
Water heater loans are also guaranteed by the gas supplier.

Refer to the Loans note in the consolidated financial statements included in this report for a breakdown of the overall loan portfolio by
geographic region. While the Company’s strategy is to increase the geographic diversification of the loan portfolio, this has been tempered
by credit conditions in local markets.

table 39: non-Performing loans and Allowances

(000s, except %)

Single-family residential mortgages
Residential commercial mortgages
non-residential commercial
mortgages
Credit card loans
Other consumer retail loans
non-performing loans
total gross loans

net non-performing loans as a %
of gross loans
total allowance for credit losses
total allowance as a % of gross loans
total allowance as a % of gross
non-performing loans
Write-offs, as a % of gross loans

Gross

52,837 $
1,836

2013
net1
51,636 $
1,836

Gross
50,169 $
4,527

7,189
2,785
236
64,883
$ 17,883,564

7,189
2,584
–
63,245

501
3,616
214
59,027
$ 17,140,698

2012
net1
47,788
4,527

501
3,505
–
56,321

Gross

5.3%
(59.4%)

1,334.9%
(23.0%)
10.3%
9.9%
4.3%

Change
net1
8.1%
(59.4%)

1,334.9%
(26.3%)
–
12.3%
–

0.35%
33,978
0.19%

52.37%
0.09%

0.33%
33,638
0.20%

56.99%
0.07%

1 non-performing loans are net of individual allowances as shown in table 40, Allocation of Allowance for Credit Losses.

net non-performing loans remain within expected and acceptable ranges. As part of the Company’s ongoing business strategy, experienced
employees undertake reviews of delinquent and non-performing loans to analyze patterns and drivers and then modify, where appropriate,
the Company’s lending guidelines. this analytical approach and attention to emerging trends have resulted in continued low write-offs
relative to the gross loans portfolio. Write-offs, net of recoveries, totalled $15.5 million or 0.09% of gross loans in 2013, compared to
$12.4 million or 0.07% of gross loans in 2012. the Company continually monitors arrears and write-offs and deals effectively with non-
performing loans.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis
management’s Discussion and Analysis

table 40: Allocation of Allowance for Credit losses

(000s)

Individual allowances
Single-family residential mortgages
Residential commercial mortgages
non-residential commercial mortgages
Credit card loans
Other consumer retail loans

Collective allowance
Single-family residential mortgages
Residential commercial mortgages
non-residential commercial mortgages
Credit card loans
Other consumer retail loans

total allowance for credit losses

(000s)

Individual allowances
Single-family residential mortgages
Residential commercial mortgages
non-residential commercial mortgages
Credit card loans
Other consumer retail loans

Collective allowance
Single-family residential mortgages
Residential commercial mortgages
non-residential commercial mortgages
Credit card loans
Other consumer retail loans

total allowance for credit losses

2013
opening
Balance

Write-offs
net of
Recoveries

Provision for
Credit losses

2013
ending
Balance

2,868 $
432
–
111
227
3,638

(11,165) $
(3,199)
(230)
(589)
(345)
(15,528)

10,257 $
2,792
274
679
366
14,368

16,523
336
9,300
3,541
300
30,000
33,638 $

–
–
–
–
–
–

(15,528) $

1,509
(9)
–
–
–
1,500
15,868 $

2012
Opening
Balance

Write-offs
net of
Recoveries

provision for
Credit Losses

1,087 $
–
78
392
302
1,859

(10,148) $

–
(319)
(1,572)
(342)
(12,381)

15,871
428
9,300
3,541
300
29,440
31,299 $

–
–
–
–
–
–

(12,381) $

11,929 $
432
241
1,291
267
14,160

652
(92)
–
–
–
560
14,720 $

1,960
25
44
201
248
2,478

18,032
327
9,300
3,541
300
31,500
33,978

2012
ending
Balance

2,868
432
–
111
227
3,638

16,523
336
9,300
3,541
300
30,000
33,638

the Company maintains credit allowances that, in management’s judgement, are sufficient to cover incurred losses and identified credit
events in the loans portfolio.

Individual allowances represent the amount on identified non-performing loans required to reduce the carrying value of those loans to
their estimated realizable amount. the balance will fluctuate from time to time and is driven by the performance of individual loans and
the realizable value of the underlying security.

the collective allowance for credit losses is established for incurred losses inherent in the portfolio that are not presently identifiable
on a loan-by-loan basis and reflects the relative risk of the various loan portfolios that the Company manages. At December 31, 2013,
the Company held a collective allowance of $31.5 million, compared to $30.0 million held at December 31, 2012. the Company has
security in the form of real property or cash deposits for virtually the entire loans portfolio. the Company’s evaluation of the adequacy of
the collective allowance takes into account asset quality, borrower creditworthiness, property location, past loss experience, current and
forecasted probability of default and exposure at default based on product, risk ratings and credit scores, and current economic conditions.
the Company periodically reviews the methods utilized in assessing the collective allowance, giving consideration to changes in economic
conditions, interest rates and local housing market conditions. the principal factors impacting the assessment of the adequacy of the
collective allowance are the stable economic environment in the Company’s markets, the increased weighting of uninsured mortgages and
the low loan to value of the uninsured mortgage portfolio. For the most part, these factors tend to offset each other and, accordingly, the
collective allowance has been increased marginally and continues to exceed two years of current year write-offs.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

2014 outlook for Credit Risk

please refer to the 2014 Outlook for provision and Allowance for Credit Losses section included in the Financial performance Review
section of this MD&A.

additional information: residential Loans and equityline Visa Home equity Line of credit (HeLoc)

the tables below provide additional information on the composition of the Company’s single-family residential mortgage portfolio by
province and insured status, as well as contractual remaining amortization periods and loan to value by province.

table 41: Single-Family Residential loans by Province

(000s, except %)

British Columbia
Alberta
Ontario
Quebec
Other

(000s, except %)

British Columbia
Alberta
Ontario
Quebec
Other

Insured
Residential
mortgages
399,055
339,525
3,707,836
245,272
146,971
$ 4,838,659

Percentage
of total
for Province

uninsured
Residential
mortgages
471,668
45.5% $
52.9%
284,456
29.7% 8,519,799
308,136
44.2%
50.0%
144,746
32.6% $ 9,728,805

Percentage
of total
for Province

53.8% $
44.3%
68.3%
55.6%
49.2%
65.5% $

Insured
Residential
Mortgages
484,925
415,596
4,136,699
308,007
139,793
$ 5,485,020

percentage
of total
for province

uninsured
Residential
Mortgages
369,557
56.2% $
58.6%
270,563
36.3% 6,979,420
227,617
57.3%
53.0%
121,026
39.8% $ 7,968,183

percentage
of total
for province

42.9% $
38.1%
61.2%
42.4%
45.9%
57.9% $

2013

Percentage
of total
for Province

total
876,586
0.7% $
2.8%
641,683
2.0% 12,481,366
554,668
0.2%
0.8%
294,026
1.9% $ 14,848,329

2012

percentage
of total
for province

total
862,303
0.9% $
3.3%
709,698
2.5% 11,397,664
537,155
0.3%
1.1%
263,619
2.3% $ 13,770,439

equityline
Visa1
5,863
17,702
253,731
1,260
2,309
280,865

equityline
Visa1
7,821
23,539
281,545
1,531
2,800
317,236

1 equityline Visa is an uninsured product.

table 42: Insured and uninsured Single-Family Residential mortgages by Contractual Remaining Amortization Period

(000s, except %)

Balance outstanding
percentage of total

(000s, except %)

≤ 20 Years

> 20 and
≤ 25 Years

> 25 and
≤ 30 Years

> 30 and
≤ 35 Years

520,436 $ 1,579,125 $ 7,944,270 $ 4,471,217 $

3.6%

10.8%

54.5%

30.7%

≤ 20 Years

> 20 and
≤ 25 Years

> 25 and
≤ 30 Years

> 30 and
≤ 35 Years

Balance outstanding
percentage of total

585,304 $ 1,566,157 $ 6,713,556 $ 4,412,537 $

4.4%

11.6%

49.9%

32.8%

2013

> 35 Years

total
52,416 $ 14,567,464
100.0%

0.4%

2012

> 35 Years

total
175,649 $ 13,453,203
100.0%

1.3%

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis

table 43: Weighted-average loan to Value (ltV) Ratios for uninsured Single-family Residential mortgages originated
During the Year

British Columbia
Alberta
Ontario
Quebec
Other
total

uninsured Residential
mortgages1
67.4%
69.1%
73.7%
67.7%
67.2%
73.0%

2013

equityline
Visa1
55.7%
49.0%
57.3%
52.9%
53.2%
57.2%

1 Weighted-average LtV is calculated by dividing the sum of the products of LtVs and loan balances by the sum of the loan balances.

An economic downturn is generally characterized by reduced growth or declines in gross domestic product, often combined with reduced
rates of employment and declines in real estate values. the probability of delinquency in the residential mortgage portfolio is most closely
correlated with changes in employment. Consequently, during an economic downturn, the Company would expect an increased rate of
delinquency and also an increase in credit losses. the total single-family residential mortgage portfolio including HeLOC was $14.85 billion
as of December 31, 2013, of which $4.84 billion was insured against credit losses. the Company would expect to recover lost principal,
interest and direct collection costs associated with this insured portion of the portfolio. Management monitors these risks carefully on an
ongoing basis, including stress testing of the portfolio.

the Company’s key mitigant against credit losses in the uninsured portfolio is the excess of the value of the collateral over the outstanding
loan amount (expressed as loan to value ratio or LtV). As at December 31, 2013, the weighted-average LtV of the uninsured portfolio
against the estimated current market value was 67.9% compared to 64.2% at the end of 2012. these LtVs were estimated using the
teranet-national Bank House price Index and the most recent appraisals. If an economic downturn involved reduced real estate values, the
margin of value over loan amounts would be eroded and the extent of loan losses could increase. the distribution of LtV around the mean
for each significant market is indicated below.

table 44: Weighted-Average loan to Value Ratios for uninsured Residential mortgages

British Columbia
Alberta
Ontario
Quebec
Other
total

Weighted-
average
Current ltV1

65.4%
63.8%
68.4%
64.3%
62.5%
67.9%

2013

Percentage of total Value
of outstanding mortgages
with Current ltV less
than or equal to

75%
86.9%
91.0%
70.8%
93.2%
92.1%
73.2%

65%
40.2%
47.3%
29.8%
45.3%
55.9%
31.7%

1 Weighted-average LtV is calculated by dividing the sum of the products of LtVs and loan balances by the sum of the loan balances.

market Risk

For the Company, market risk consists primarily of investment risk and structural interest rate risk. A summary of these risks is as follows:

investment risk

Investment risk is the risk of loss due to impairment in the fair value of investments.

the Company’s investment risk management framework includes investment policies that are approved by the Asset/Liability
Committee (ALCO) and the Risk and Capital Committee of the Board. the ALCO is responsible for defining and monitoring the
Company’s investment portfolio and identifying investments that may be at risk of impairment. the treasury group is responsible
for managing the Company’s investment portfolio in accordance with approved policies and assesses the impact of market events
on potential implications to its total value. eRM recommends prudential policies, reviews procedures and guidelines, and provides
enterprise-wide oversight of investment risk, including valuations.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

structural interest rate risk

Structural interest rate risk is the risk of lost earnings or capital due to changes in interest rates. the objective of interest rate risk
management is to ensure that the Company is able to realize stable and predictable earnings over specific time periods despite
interest rate fluctuations. the Company has adopted an approach to the management of its asset and liability positions to prevent
interest rate fluctuations from materially impacting future earnings, and seeks to organically match liabilities to assets in terms of
maturity and interest rate repricing through its actions in the deposit market in priority to accessing off-balance sheet solutions.

the Company’s market risk management framework includes interest rate risk policies that are approved by the ALCO and the Risk
and Capital Committee of the Board. the ALCO is responsible for defining and monitoring the Company’s structural interest rate risk
and reviewing significant maturity and/or duration mismatches, as well as developing strategies that allow the Company to operate
within its overall risk appetite. In addition, the ALCO oversees stress testing of structural interest rate risk using a number of interest
rate scenarios. the treasury group is responsible for managing the Company’s interest rate gaps in accordance with approved policies
and assesses the impact of market events on the Company’s net interest income and economic value of shareholders’ equity. the eRM
group recommends prudential policies and guidelines, and provides independent enterprise-wide oversight of all interest rate risk.

From time to time, the Company enters into interest rate derivative transactions in order to hedge its structural interest rate risk. the
use of derivative products has been approved by the Board; however, permitted usage is governed by specific policies. Derivatives
are only permitted in circumstances in which the Company is hedging asset-liability mismatches, or loan commitments, or as a result
of hedging requirements under the terms of its participation in the CMB program. Moreover, the policy expressly articulates that the
use of derivatives is not permitted for transactions that are undertaken to potentially create trading profits through speculation on
interest rate movements.

the interest rate sensitivity position as at December 31, 2013 is presented under note 21 in the consolidated financial statements.
the table in note 21 represents positions at a point in time, and the gap represents the difference between assets and liabilities in
each maturity category. this note 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, by way of prepayments. Similarly, some contractual off-balance sheet mortgage commitments may be made but may
not materialize. In measuring its interest rate risk exposure, the Company makes assumptions about these factors and monitors these
against actual experience.

to assist in matching assets and liabilities, the Company utilizes a variety of metrics including two interest rate risk sensitivity metrics
that measure the relationship between changes in interest rates and the resulting estimated impact on both the Company’s future
net interest income and economic value of shareholders’ equity. the Company measures these metrics over a number of different
yield curve scenarios.

the following table provides measurements of interest rate sensitivity and the potential after-tax impact of an immediate and sustained
100 basis point increase and decrease in interest rates on net interest income and on the economic value of shareholders’ equity.

table 45: Impact of Interest Rate Shifts

(000s)

100 basis point shift
Impact on net interest income, after tax
(for the next 12 months)
Impact on net present value of shareholders’ equity

Increase in interest rates

Decrease in interest rates

December 31
2013

December 31
2012

December 31
2013

December 31
2012

12,601 $
16,555

12,614 $
9,746

(12,601) $
(18,003)

(12,614)
(11,447)

As illustrated in the above table, an increase in interest rates will have a positive impact on net interest income after tax and the economic
value of shareholder’s equity in the event of a 100 basis point movement in rates without management action. A positive gap exists when
interest-sensitive assets exceed interest-sensitive liabilities on specific maturity or repricing periods. As these gaps widen, the fluctuation
in the sensitivity becomes more pronounced and, for this reason, the Company’s ALCO manages this to within authorized limits.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis

liquidity and Funding Risk

this is the risk that the Company is 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. this risk will arise from fluctuations in the Company’s
cash flows associated with lending, securitization, deposit-taking, investing and other business activities.

the Company’s liquidity risk management framework includes liquidity and funding risk policies, and a Contingency Funding plan
that are approved by the ALCO and the Risk and Capital Committee of the Board. the mandate of the ALCO includes establishing
and recommending to the Board an enterprise-wide liquidity risk appetite. In addition, the ALCO reviews the composition and term
structure of assets and liabilities, reviews liquidity and funding risk policies and strategies and regularly monitors compliance with
those policies. the ALCO also oversees the stress testing of liquidity and funding risk and the testing of the Company’s Contingency
Funding plan. the treasury group is responsible for managing the Company’s liquidity and funding risk positions in accordance
with approved policies and assesses the impact of market events on liquidity requirements on an ongoing basis. the eRM group
recommends liquidity policies and guidelines, and provides independent oversight of all liquidity and funding risk.

the Company’s liquidity and funding risk policies are designed to ensure that cash balances and the inventory of other liquid
assets are sufficient to meet all cash outflows both in ordinary market conditions and during periods of extreme market stress.
the Company’s policies address several key elements, such as the minimum levels of liquid assets to be held at all times; the
composition of types of liquid assets to be maintained; daily monitoring of the liquidity position by treasury, senior management,
and the eRM group; monthly reporting to the ALCO; and quarterly reporting to the Risk and Capital Committee of the Board.

the Company uses a liquidity horizon as its main liquidity metric. using maturity gap analysis, the Company projects a time
horizon when its net cumulative cash flow turns negative, after taking into account the market value of its stock of liquid assets.
the Company’s liquidity horizon is calculated daily and is based upon contractual and behavioural cash flows. Forecasts are made
using normal market conditions and a number of stressed liquidity scenarios, including ability to fund, deposit runoff, loan growth,
liquidity portfolio valuation, loan arrears and write-downs. In addition, the Company regularly monitors a number of other structural
funding and liquidity ratios in its overall funding and liquidity risk management framework.

the Company holds liquid assets in the form of cash, bank deposits, securities issued or guaranteed by the Government of Canada,
securities issued by provincial governments, and highly rated short-term money market securities, corporate bonds and debentures. At
December 31, 2013, eligible liquid assets amounted to $1.49 billion, compared to $771.8 million at December 31, 2012.

the Company’s main sources of funding come from retail deposits and securitization. Retail deposits are primarily sourced through the
deposit broker network and the Company relies heavily on this channel. the majority of these deposits are received through channels that
are controlled by several of the major Canadian banks. the broker network provides the Company with access to a very large volume of
potential deposits, which are sourced almost entirely from individual investors or small businesses. the bulk of deposits raised are CDIC-
insured fixed-term Guaranteed Investment Certificates (GICs) that are not subject to early redemption. the Company has contractual
agreements with most major national investment dealers and a large number of independent brokers. the Company continues to add new
investment dealers and independent brokers in order to diversify its sources of funds.

In 2012, Home trust launched a high interest savings account (HISA) offered only through financial advisors and investment and
mutual fund dealers. In 2013, the Company was successful in building national distribution of the HISA, with the balance growing to
$337.2 million (2012 – $19.8 million).

In 2012, Home trust commenced a multi-year project aimed at further diversifying its funding sources by building a direct-to-consumer deposit
business. In november 2013, this business was re-branded Oaken Financial. All existing direct deposit customers were migrated to the Oaken
brand. In conjunction with the launch of Oaken, Home trust launched the Oaken Savings Account to complement Oaken’s suite of GICs.

In addition, in December 2013, the Company initiated an institutional deposits program, attracting $300 million of deposits in the
initial offering. this is intended to be an ongoing program with deposit offerings twice annually. the offering was well received, with an
oversubscription rate of 70% and an interest yield that is attractive to the Company.

the Company is an approved nHA MBS issuer and an approved seller into the CMB program, which are securitization initiatives sponsored
by CMHC. Securitization funding provides the Company with long-term matched funding at attractive interest rates. traditionally, the
Company has used securitization markets to fund its Accelerator mortgages and insured multi-unit residential mortgages and, to a
lesser extent, its traditional mortgages that qualified for bulk portfolio insurance. On-balance sheet Accelerator mortgages and multi-unit
residential mortgages classified as held for sale are generally held for securitization and are funded with deposits until securitized. When
mortgages are securitized, the Company receives principal and interest payments on its underlying mortgage loans before the required
payments are passed through to MBS investors. However, as a part of its servicing obligations, the Company must pass-through any
payments that are not collected due to arrears on a timely basis. In the case of defaults, the Company would make required payments to
investors and place the mortgage/property through the insurance claims process to recoup any losses. this could result in cash flow timing
mismatches that could marginally increase funding and liquidity risk.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

upcoming oSFI liquidity Requirements

In november 2013, OSFI issued for comment a draft of the Liquidity Adequacy Requirements (LAR) Guideline that is applicable to banks
and federal trust and loan companies. the draft LAR Guideline is part of the ongoing rollout of Basel III in Canada and sets out the new
standards OSFI will use to assess the adequacy of the Company’s liquidity. new standards include:

Liquidity Coverage Ratio (LCR) – effective January 1, 2015. the LCR establishes a common measure of liquidity risk and requires
institutions to maintain sufficient liquid assets to cover a minimum of 30 days of cash flow requirements in a stress situation.

Net Stable Funding Ratio (NSFR) – effective January 1, 2018. the nSFR establishes a minimum acceptable amount of stable funding
based on the liquidity characteristics of an institution’s assets and activities over a one-year time horizon. Although OSFI is still in the
process of finalizing the LAR Guideline, Home trust believes it is well positioned to comply with the new liquidity requirements.

2014 outlook for liquidity and Funding Risk

the Company will continue to diversify its funding sources in 2014. While retail deposits sourced from the deposit broker channel
will continue to provide the majority of the Company’s core funding, more reliance will be placed on the Company’s HISA, Oaken
Financial, and the issuance of wholesale deposit notes in the institutional capital markets.

It is anticipated that issuer competition for broker-sourced deposits may increase, possibly resulting in increased funding costs,
whereby the Company would look to adjust its lending rates. It is also likely that the Company’s funding diversification strategy will
result in higher funding costs as the Company looks to deepen its penetration directly with customers and establish a presence in
wholesale funding markets.

the rate of growth in the deposit portfolio is expected to mirror the growth of the Company’s non-insured loan portfolio, while
securitization will continue to support insured mortgages. ensuring a reliable and sufficient source of deposits to fund operations
and liquidity reserves will remain a key objective for the Company.

operational Risk

Operational risk, which is inherent in all business activities, is the risk of loss resulting from inadequate or failed internal processes,
people and systems or from external events. Operational risk includes legal risk, but excludes strategic and reputational risk. the
impact of operational risk may include financial loss, loss of competitive position, or regulatory enforcement actions, among others.
It is an integral and unavoidable part of the Company’s business as it is inherent in every business and support activity, product and
service. While operational risk cannot be eliminated, the Company has taken proactive steps to mitigate this risk. Strategies to manage
operational risk include avoidance, transfer, acceptance and mitigation by controls. the Company continues to strengthen its operational
risk framework with the addition of staff, introduction of enhanced risk tools and methodologies including key risk indicators, and
improvement in its risk analytics.

the Company’s investment in its business continuity program was integral to a nimble and effective response to the 2013 Alberta and
toronto floods. Geo-spatial tools, using inputs from StatsCan census data, are being used to better inform the Company’s understanding
of exposure to natural disasters and have the potential to be used for customer analytics, portfolio performance analysis, and to inform
underwriting decisions in areas at high risk of natural disasters.

the financial services sector, including the Company, remains exposed to cyber-crime risk. threats are increasing in scale, scope and
complexity. the Company is enhancing its information security program. Despite the Company’s commitment to information and cyber
security, the Company and its third-party service providers may not be able to fully mitigate all risks associated with the increased
complexity and high rate of change in the threat landscape.

Key elements of the Company’s operational risk framework include:

Governance

the Company maintains a system of comprehensive policies and an internal control framework designed to provide a sound and well-
controlled operational environment. Operational risk policies are approved by the Operational Risk Committee and the Risk and Capital
Committee of the Board. A three lines of defence model is used to manage operational risk, as described under Risk Governance. Oversight
over the Company’s operational risk exposures is also provided by the Operational Risk Committee.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis

risk identification and assessment

A risk and control self-assessment program proactively identifies the Company’s exposure to key operational risks and assesses the
effectiveness of mitigating controls. Risk assessments are also performed on significant new initiatives (e.g., products, services and
systems) by business and support areas and other internal subject matter experts to ensure that associated risks are identified, assessed
and approved, and that the Company’s control infrastructure can support the initiative prior to implementation.

risk Measurement

the Company has adopted the Basic Indicator Approach for operational risk under Basel II. In addition, scenario analysis and stress testing
are used to assess the possible impact of extreme but plausible operational risk loss events. Scenario analysis and stressing testing
provide a forward-looking basis for managing exposures within and potentially beyond the Company’s risk appetite.

risk Monitoring and reporting

the Company monitors key risk indicators to gain assurance that it remains within its stated risk appetite and to identify early warning
signals of changes in the risk environment, control effectiveness and potential risk issues before they crystallize and result in financial loss
or other negative impact.

Operational losses, including near misses, are collected, analyzed and reported in order to reduce the likelihood of future recurrences
and to strengthen risk management practices. the Company also proactively analyzes operational events in the industry and external
environment to understand its exposure, if any, to similar events and takes steps to prevent such occurrences.

Operational risk issues and action plans across the Company are centrally captured, classified, monitored and reported upon.

Reporting and monitoring forms an integral part of the Company’s operational risk management processes, which are designed to ensure
that risks and issues are identified, escalated and managed on a timely basis. Regular reporting is in place with respect to the Company’s
current and emerging operational risks, key risk indicators, operational loss events, external event analyses, issues management, new
initiative risk assessment, crisis management preparedness and third-party risk management.

Business continuity and crisis Management

the Company has implemented an all hazards based business continuity and crisis management strategy to minimize the impact on the
Company’s clients and operations in the event of a disruption or other adverse event.

corporate insurance

the Company maintains insurance coverage through a financial institution bond policy, which is reviewed at least annually for changes to
coverage and the Company’s operations.

legislative and Regulatory Risk

Legislative and regulatory risk refers to the risk of non-compliance with an applicable legislative or regulatory requirement (law, regulation,
guideline, an undertaking to a regulatory authority or provision, section, subsection, order, term or condition). this includes requirements
that have been identified by the Governance, Risk and Compliance Committee and senior management that require the Company to do
certain things, including conducting its affairs in a particular manner, and where non-compliance could have an impact on the Company’s
reputation and/or safety and soundness.

While all business units of the Company (as the first line of defence) are responsible for ensuring that legislative and regulatory risk
is mitigated, the independent oversight of legislative and regulatory risk is principally managed by the CCO, CAMLO and the Corporate
Compliance group as part of the Company’s Compliance Framework.

Reputational Risk

Reputational risk is the risk that shareholders or the public will, with or without basis, judge the Company’s operations or practices
negatively, potentially resulting in a decline in its value, brand, liquidity, or customer base.

the Company views reputational risk as an exposure to earnings and/or capital from the consequence or failure to adequately manage
any risk, regardless of the source, rather than a specific risk. Failure to effectively manage these risks can result in reduced market
capitalization, loss of client loyalty, and the inability to achieve the Company’s strategic objectives.

the Company aims to safeguard its public reputation through its governance, compliance and risk management processes.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Risk Factors that may Affect Future Results

In addition to the risks described in this Risk Management section, there are numerous other risk factors: in particular macroeconomic and
industry factors beyond the Company’s control, which could cause the Company’s results to differ significantly from the Company’s plans,
objectives and estimates. All forward-looking statements, including those in this MD&A, are subject to inherent risks and uncertainties,
general and specific, which may cause the Company’s actual results to differ materially from the expectations expressed in the forward-
looking statements. Some of these external factors are discussed below.

Monetary and fiscal Policy

the Company’s earnings are affected by the monetary policy of the Bank of Canada and the fiscal policy of the federal government of
Canada and other governments in Canada and abroad. Changes in the supply of money, government spending and the general level
of interest rates can affect the Company’s profitability. A change in the level of interest rates affects the interest spread between the
Company’s deposits and loans and, as a result, impacts the Company’s net interest income. Changes in monetary and fiscal policy and in
the financial markets are beyond the Company’s control and are difficult to predict or anticipate.

Level of competition

the Company’s performance is impacted by the level of competition in the markets in which it operates. the Company currently operates in
a highly competitive industry. Customer retention can be influenced by many factors, such as the pricing of products or services, changes
in customer service levels, changes in products or services offered, and general trends in consumer demand.

changes in Legislation and regulations

Changes in legislation and regulation, including interpretation or implementation, could affect the Company by limiting the scale and
scope of its products and services. Also, the Company’s failure to comply with its legislative and regulatory requirements could result in
sanctions and financial penalties that could adversely impact the Company’s earnings and damage its reputation and ability to operate
as a regulated entity.

information systems and technology

the Company is highly dependent upon its information technology systems. the Company uses third-party software and software that
it has developed or modified for its main operations and relies on third parties for credit card processing, Internet connections and
access to external networks. Should the Company experience any major disruptions in operations or connections of software, Internet or
telecommunications for voice or data, this would impair its ability to provide service to clients. the longer and more severe the disruption,
the more the Company’s ability to conduct business would be impaired.

accounting Policies and estimates Used by the company

the accounting policies and estimates the Company utilizes determine how the Company reports its financial condition and results of
operations, and they may require management to make estimates or rely on assumptions about matters that are inherently uncertain.
Such estimates and assumptions may require revisions, and changes to them may materially adversely affect the Company’s results of
operations and financial condition. More discussion is included in the Accounting Standards and policies section and within the notes to
the consolidated financial statements.

ability to attract and retain employees and executives

the Company’s future performance depends to a large extent on its ability to attract and retain key personnel. there is strong competition
for the best people in the financial services sector. there is no assurance that the Company will be able to continue to attract and retain
key personnel, although this remains a fundamental corporate priority.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis

ACC ount In G S tAnDARDS An D PolICIeS

the significant accounting policies are outlined in note 2 to the consolidated financial statements included in this report. these policies
are critical as they refer to material amounts and require management to make estimates.

Critical accounting estimates that require management to make significant judgements, some of which are inherently uncertain, are
outlined in note 2 to the consolidated financial statements included in this 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 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. Key areas where management has made
estimates and applied judgement 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. In addition, the
Company’s management has applied judgement in the application of its accounting policy with respect to derecognition of the loans
and other assets used in current securitization programs. Most loans and other assets are not derecognized, based on management’s
judgement that the Company has not transferred substantially all of the risks and rewards of ownership of the loans and other assets.
Certain loans are recognized only to the extent of the Company’s continuing involvement, based on management’s judgement that it
cannot be determined whether substantially all the risks and rewards of ownership have been transferred while control has been retained
as defined by IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). Certain loans where residual interests in securitized
transactions are sold are derecognized based on management’s judgement that substantially all the risks and rewards of ownership have
been transferred. Further information can be found under notes 4, 5, 6, 9, 10, 14, 16, 19 and 22 to the consolidated financial statements.

ACC ount In G D eV elo P ment S

the following new IFRS pronouncements have been issued but are not yet effective and may have a future impact on the Company:

ifrs 9 Financial Instruments

the Company will be required to adopt IFRS 9, Financial Instruments (IFRS 9), which is the first phase of the IASB’s project to replace
IAS 39. On november 19, 2013, the IASB decided that the previously set mandatory effective date of January 1, 2015 would not allow
sufficient time for entities to prepare to apply IFRS 9, and that a new date should be determined when IFRS 9 is closer to completion.
IFRS 9 will provide new requirements for the way in which an entity should classify and measure financial assets and liabilities that are in
the scope of IAS 39, with a final standard targeted in the first half of 2014. 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. On november 19, 2013, the IASB introduced a new hedge accounting model. the general hedge accounting standard is intended
to provide better links between an entity’s risk management activities, the rationale for hedging and the impact of hedging on the financial
statements. the standard will potentially simplify the Company’s hedge accounting strategies. the impairment phase of the IASB’s financial
instruments project is currently under development, with a review draft of the standard issued in March 2013 and a final standard targeted
in the first half of 2014. Management is currently evaluating the potential impact that the adoption of IFRS 9 will have on the Company’s
consolidated financial statements.

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C ont RolS oVeR FInAnCIAl RePoRtI nG

Disclosure Controls and Internal Control over Financial Reporting

Management is responsible for establishing the integrity and fairness of financial information presented in the consolidated financial
statements prepared in accordance with Canadian generally accepted accounting principles. As such, management has established
disclosure controls and procedures and internal controls over financial reporting to ensure that the Company’s consolidated financial
statements and Management’s Discussion and Analysis present fairly, in all material respects, the financial position of the Company and
the results of its operations.

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported
to senior management, including the Chief executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions
can be made regarding public disclosure.

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was conducted as
of December 31, 2013. Based on that evaluation, the Company’s management, including the Chief executive Officer and Chief Financial
Officer, concluded that the Company’s disclosure controls and procedures, as defined by national Instrument 52-109 Certification of
Disclosure in Issuers’ Annual and Interim Filings, were effective as of December 31, 2013.

Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with GAAp. the Company’s internal control over financial reporting includes policies and procedures that:

> pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the

assets of the Company;

> provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAp, and receipts and expenditures are being made in accordance with authorizations of management and the Board of Directors
of the Company; and

> provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s

assets that could have a material effect on the financial statements.

Due to inherent limitations, internal controls over financial reporting can provide only reasonable assurance and may not prevent or detect
misstatements. As a result, the Company’s management acknowledges that its internal control over financial reporting will not prevent or
detect all misstatements due to error or fraud. Furthermore, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of a change in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.

the Company has used the Committee of Sponsoring Organizations of the treadway Commission (COSO) framework and COBIt, an It
governance framework, to evaluate the design of the Company’s internal controls over financial reporting.

An evaluation of the design and operating effectiveness of internal controls over financial reporting was conducted as of December 31,
2013. Based on that evaluation, the Company’s management, including the Chief executive Officer and Chief Financial Officer, concluded
that the Company’s internal controls over financial reporting were operating effectively as of December 31, 2013.

Changes in Internal Control over Financial Reporting

there were no significant changes in 2013 that have affected or could reasonably be expected to materially affect internal control over
financial reporting.

Comparative Consolidated Financial Statements

the comparative audited consolidated financial statements have been reclassified from statements previously presented to conform to the
presentation of the 2013 audited consolidated financial statements. please see note 2 for further information.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis

no n -GAAP me AS u Re S A n D G lo SSA RY

non-GAAP measures

the Company uses a number of financial measures to assess its performance. Some of these measures are not calculated in accordance
with 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 MD&A are defined as follows:

adjusted Net income and adjusted earnings per share

After-tax changes that are associated with derivative restructuring related to IFRS conversion, after-tax charges related to the resolution of
disputed loans to commercial condominium corporations and after-tax investment tax credit benefits are adjusted against net income to
present adjusted net income. the reconciliation of net income to adjusted net income and the resulting adjusted earnings per share are
presented in table 4 to this MD&A.

Reconciliation of Net Income to Adjusted Net Income

(000s, except % and
per share amounts)

Q4
2013

Q3
2013
$ 68,827 $ 66,417

850

net income
Adjustment
for derivative
restructuring –
IFRS conversion
(net of tax)
Adjustment for
disputed loans
to condominium
corporations
(net of tax)
Adjustment for
investment tax credit
benefits (net of tax)
(2,735)
Adjusted net Income $ 68,207 $ 64,613

(1,470)

931

–

%
Change

Q4
2012
3.6% $ 58,965

Quarter
%
Change

2012
2013
16.7% $ 256,542 $ 221,983

Year to date
%
Change

15.6%

(8.7%)

2,602

(67.3%)

5,873

2,602

125.7%

–

1,508

–

(46.3%)

–
5.6% $ 61,567

–

–
(6,190)
10.8% $ 257,733 $ 224,585

–
14.8%

Adjusted Basic
earnings per Share $
Adjusted Diluted
earnings per Share $

1.96 $

1.86

5.4% $

1.78

10.1% $

7.43 $

6.47

14.8%

1.95 $

1.85

5.4% $

1.77

10.2% $

7.36 $

6.45

14.1%

allowance as a Percentage of Gross Loans

Allowance as a percentage of gross loans is calculated as the total allowance divided by the gross on-balance sheet loans outstanding,
which includes all on-balance sheet loans except for loans held for sale.

assets to capital Multiple (acM)

the ACM provided in this MD&A is that of the Company’s wholly owned subsidiary Home trust Company. the calculations are in accordance
with guidelines issued by OSFI. the multiple reflects total regulatory assets, including specified off-balance sheet items net of other
specified deductions, divided by total regulatory capital.

common equity tier 1, tier 1, and total capital ratios

the capital ratios provided in this MD&A are those of the Company’s wholly owned subsidiary Home trust Company. the calculations are in
accordance with guidelines issued by OSFI. Refer to note 14(e) to the consolidated financial statements included in this report.

efficiency or Productivity ratio

Management uses the efficiency ratio as a measure of the Company’s efficiency in generating revenue. 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.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Liquid assets

Liquid assets are unencumbered high-quality assets for which there is a broad and active secondary market available to the Company to
sell these assets without incurring a substantial discount. Liquid assets are a dependable source of cash used by the Company when it
experiences short-term funding shortfalls.

Market capitalization

Market capitalization is calculated as the closing price of the Company’s common shares multiplied by the number of common shares of
the Company outstanding.

Net interest Margin (teB)

net interest margin is a measure of profitability of assets. net interest margin (teB) is calculated by taking net interest income, on a taxable
equivalent basis, divided by the average total assets generating the interest income.

Net interest Margin (Non-teB)

net interest margin is calculated by taking net interest income divided by the average total assets generating the interest income.

Net Non-Performing Loans as a Percentage of Gross Loans (NPL ratio)

the npL ratio is calculated as the total net non-performing loans divided by the gross on-balance sheet loans, which includes all
on-balance sheet loans except for loans held for sale.

Provision as a Percentage of Gross Loans (PcL ratio)

the pCL ratio is calculated as the total individual and collective provision expense divided by the gross on-balance sheet loans
outstanding, which includes all on-balance sheet loans except for loans held for sale.

return on assets (roa)

Return 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.

return on shareholders’ equity (roe)

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

risk-Weighted assets (rWa)

the risk-weighted assets reported 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 OSFI. Refer to note 14(e) to the consolidated financial statements included in this report.

taxable equivalent Basis (teB)

Most banks and trust companies analyze and discuss their financial results on a taxable equivalent basis (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 principally from preferred and common equity 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. teB adjustments of $4.0 million for 2013 ($5.0 million – 2012) increased interest income as used in the calculation of
net interest margin. net interest margin is discussed on a teB throughout this MD&A. See table 6 for the calculation of net interest income
on a tax equivalent basis.

total assets under administration (aUa)

total assets under administration refers to all on-balance sheet assets plus all off-balance sheet loans that qualify for derecognition under IFRS.

total Loans under administration (LUa)

total loans under administration refers to all on-balance sheet loans plus all off-balance sheet loans that qualify for derecognition under IFRS.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Discussion and Analysis

Glossary of terms

Assets or loans under Administration refer to assets or loans administered by a financial institution that are beneficially owned by clients
and therefore not reported on the balance sheet of the administering financial institution, plus all assets or loans beneficially owned by
the Company and carried on the balance sheets.

Average earning Assets represent the monthly average balance of deposits with other banks and loans and securities over a relevant period.

Basis Point is one-hundredth of a percentage point.

Canada Deposit Insurance Corporation (CDIC) is a Canadian federal Crown corporation created to protect qualifying deposits made with
member financial institutions in case of their failure.

Collective Allowance (previously referred to as the General Allowance) is established for incurred losses inherent in the portfolio that are
not presently identifiable on a loan-by-loan basis and reflects the relative risk of the various loan portfolios that the Company manages.

Derivatives used by the Company are contracts whose value is “derived” from movements in interest rates. Derivatives allow for the transfer,
modification or reduction of current or expected risks from changes in rates.

Forwards used by the Company are contractual agreements to either buy or sell a specified amount of an interest-rate-sensitive financial
instrument or security at a specific price and date in the future. Forwards are customized contracts transacted in the over-the-counter market.

Hedging is a risk management technique used by the Company to neutralize, manage or offset interest rate, equity, or credit exposures
arising from normal banking activities.

Impaired or non-performing loans are loans for which there is no longer reasonable assurance of the timely collection of principal or interest.

Individual Allowances (previously referred to as Specific Allowances) reduce the carrying value of individual credit assets to the amount
expected to be recovered if there is evidence of deterioration in credit quality.

Insured loans are loans insured against default by CMHC or another approved insurer either individually at origination or by portfolio. the
Company’s insured lending includes single-family homes and multi-unit residential properties.

net Interest Income includes earnings on assets, such as loans and securities, including interest and dividend income, less interest
expense paid on liabilities, such as deposits.

notional Amount refers to the principal used to calculate interest and other payments under derivative contracts. the principal does not
change hands under the terms of a derivative contract.

office of the Superintendent of Financial Institutions Canada (oSFI) is the government agency responsible for regulation and
supervision of banks, insurance companies, trust companies, loan companies and pension plans in Canada.

Provision for Credit losses is a charge to income that represents an amount deemed adequate by management to fully provide for
impairment in a portfolio of loans and other credit instruments, given the composition of the portfolio, the probability that default has
occurred, the economic environment and the allowance for credit losses already established.

Securitization is the practice of selling pools of contractual debts, such as residential or commercial mortgages, to third parties.

Swaps are contractual agreements between two parties to exchange a series of cash flows. the only type of swap agreements used by
the Company are interest rate swaps in which counterparties generally exchange fixed-rate and floating-rate interest payments based on
a notional value in a single currency.

Acronyms

AlCo – Asset/Liability Committee

IASB – International Accounting Standards Board

AoCI – Accumulated Other Comprehensive Income

IFRS – International Financial Reporting Standards

CDIC – Canada Deposit Insurance Corporation

ltV – Loan to Value (ratio expressed as a percentage)

CmB – Canada Mortgage Bond

mBS – Mortgage-Backed Security

CmHC – Canada Mortgage and Housing Corporation

mD&A – Management’s Discussion and Analysis

CoSo – Committee of Sponsoring Organizations of the

nCCF – net Cumulative Cash Flow

treadway Commission

eRm – enterprise Risk Management

GAAP – Generally Accepted Accounting principles

GIC – Guaranteed Investment Certificate

nHA – national Housing Authority

oCI – Other Comprehensive Income

oSFI – Office of the Superintendent of Financial Institutions Canada

teB – taxable equivalent Basis

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Consolidated Financial Statements

Con S ol IDAte D FI n AnCI A l StAte m en tS

Management’s Responsibility for Financial Information
Independent Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ equity
Consolidated Statements of Cash Flows

note S to t H e C on Sol I DAte D FIn An CI Al StAte mentS

1. Corporate Information
2. Summary of Significant Accounting policies
3. Future Changes in Accounting policies
4. Cash Resources and Securities
5. Loans
6. Securitization Activity
7. Restricted Assets
8. Other Assets
9. Intangible Assets
10. Goodwill
11. Deposits by Remaining Contractual term to Maturity
12. Senior Debt
13. Other Liabilities
14. Capital
15. Accumulated Other Comprehensive Income
16. Income taxes
17. employee Benefits
18. Commitments and Contingencies
19. Derivative Financial Instruments
20. Current and non-current Assets and Liabilities
21. Interest Rate Sensitivity
22. Fair Value of Financial Instruments
23. Related party transactions
24. Risk Management

p. 74
p. 75
p. 76
p. 77
p. 78
p. 78
p. 79

p. 80
p. 80
p. 87
p. 87
p. 89
p. 93
p. 95
p. 95
p. 96
p. 96
p. 97
p. 97
p. 97
p. 97
p. 99
p. 99
p. 100
p. 102
p. 103
p. 105
p. 106
p. 108
p. 111
p. 111

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

management’s Responsibility for Financial Information

the consolidated financial statements of Home Capital Group Inc. were prepared by management, which is responsible for the integrity and
fairness of the financial information presented. the consolidated financial statements are prepared in accordance with Canadian generally
accepted accounting principles for publicly accountable enterprises, which are International Financial Reporting Standards as issued by the
International Accounting Standards Board, including the accounting requirements specified by the Office of the Superintendent of Financial
Institutions Canada that apply to its subsidiary Home trust Company. the consolidated financial statements reflect amounts which must,
of necessity, be based on the best estimates and judgement of management with appropriate consideration as to materiality. the financial
information presented elsewhere in this report is consistent with that in the consolidated financial statements.

Management is responsible for ensuring the fairness and integrity of the financial information. It is also responsible for the implementation
of the supporting accounting systems. In discharging its responsibilities, management maintains the necessary internal control systems
designed to provide assurance that the transactions are properly authorized, assets are safeguarded and proper accounting records are
held. the controls include quality standards in hiring and training of employees, written policies, authorized limits for managers, procedure
manuals, a corporate code of business conduct and ethics and appropriate management information systems. Management has formed
a disclosure committee, chaired by the CFO, which reviews all of the Company’s financial disclosures for fairness before release to the
Board or shareholders.

the internal control systems are further supported by a compliance function, which ensures that the Company and its employees comply with
all regulatory requirements, as well as by an enterprise risk management function that ensures proper risk control, related documentation
and the measurement of the financial impact of risks. In addition, the internal audit function periodically assesses various aspects of the
Company’s operations and makes recommendations to management for, among other things, improvements to the control systems.

every year, the Office of the Superintendent of Financial Institutions Canada makes such examinations and inquiries as deemed necessary
to satisfy itself that Home trust Company is in a sound financial position and that it complies with the provisions of the trust and Loan
Companies Act (Canada).

ernst & Young LLp, independent auditors, appointed by the shareholders, perform an annual audit of the Company’s consolidated financial
statements and their report follows.

the internal auditors, the chief compliance officer, the external auditors and the Office of the Superintendent of Financial Institutions
Canada meet periodically with the Audit Committee, with management either present or absent, to discuss all aspects of their duties and
matters arising therefrom.

the Board of Directors is responsible for reviewing and approving the consolidated financial statements and Management’s Discussion
and Analysis of results of operations and financial condition appearing in the Annual Report. It oversees the manner in which management
discharges its responsibilities for the presentation and preparation of financial statements, maintenance of appropriate internal controls,
risk management as well as assessment of significant transactions and related party transactions through its Audit Committee. the Audit
Committee is composed solely of Directors who are not Officers or employees of the Company.

Gerald m. Soloway

Chief Executive Officer
toronto, Canada
February 12, 2014

Robert j. Blowes, FCPA, FCA

Chief Financial Officer

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Independent Auditors’ Report

to the Shareholders of Home Capital Group Inc.

We have audited the accompanying consolidated financial statements of Home Capital Group Inc., which comprise the consolidated
balance sheets as at December 31, 2013 and 2012, and the consolidated statements of income, comprehensive income, changes in
shareholders’ equity and cash flows for the years ended December 31, 2013 and 2012, and a summary of significant accounting policies
and other explanatory information.

management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. the procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal
control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Home Capital Group
Inc. as at December 31, 2013 and 2012, and its financial performance and its cash flows for the years ended December 31, 2013 and
2012 in accordance with International Financial Reporting Standards.

toronto, Canada

February 12, 2014

Chartered Accountants

Licensed public Accountants

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

December 31
2013

728,469
424,272
137,975

5,210,021
12,671,905
17,881,926
(31,500)
17,850,426

652,986
29,886
162,679
89,157
934,708
$ 20,075,850

$
429,269
12,336,685
12,765,954
147,343

660,964
5,112,100
5,773,064

3,809
173,558
34,425
211,792
18,898,153

70,233
5,984
1,119,959
(18,479)
1,177,697
$ 20,075,850

As at

December 31
2012

301,863
414,344
21,921

6,706,160
10,431,832
17,137,992
(30,000)
17,107,992

725,493
45,388
100,983
82,095
953,959
$ 18,800,079

$
105,923
10,030,676
10,136,599
150,684

1,301,693
6,034,202
7,335,895

2,386
170,502
35,800
208,688
17,831,866

61,903
6,224
903,831
(3,745)
968,213
$ 18,800,079

Consolidated Balance Sheets

thousands of Canadian dollars

ASSetS
Cash and Cash equivalents (note 4(A))
Available for Sale Securities (notes 4(B) and (C))
loans Held for Sale
loans (note 5)
Securitized mortgages (note 6)
non-securitized mortgages and loans

Collective allowance for credit losses (note 5(e))

other
Restricted assets (note 7)
Derivative assets (note 19)
Other assets (note 8)
Goodwill and intangible assets (notes 9 and 10)

lIABIlItIeS AnD SHAReHolDeRS’ eQuItY
liabilities
Deposits (note 11)
Deposits payable on demand
Deposits payable on a fixed date

Senior Debt (note 12)
Securitization liabilities (note 6)
Mortgage-backed security liabilities
Canada Mortgage Bond liabilities

other
Derivative liabilities (note 19)
Other liabilities (note 13)
Deferred tax liabilities (note 16(C))

Shareholders’ equity
Capital stock (note 14)
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (note 15)

Commitments and Contingencies (note 18)
the accompanying notes are an integral part of these consolidated financial statements.

On behalf of the Board:

Gerald m. Soloway

Chief Executive Officer

Robert A. mitchell

Chair of Audit Committee

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Consolidated Statements of Income

thousands of Canadian dollars, except per share amounts

net Interest Income non-Securitized Assets
Interest from loans (note 5(F))
Dividends from securities
Other interest

Interest on deposits
Interest on senior debt
net interest income non-securitized assets
net Interest Income Securitized loans and Assets
Interest income from securitized loans and assets (note 5(F))
Interest expense on securitization liabilities
net interest income securitized loans and assets
total net Interest Income
provision for credit losses (note 5(e))

non-interest Income
Fees and other income
Securitization income (note 6(C))
net realized and unrealized gains (losses) on securities
net realized and unrealized (loss) gain on derivatives (note 19)

non-interest expenses
Salaries and benefits
premises
Other operating expenses

Income Before Income taxes
Income taxes (note 16(A))
Current
Deferred

net InCome
net InCome PeR Common SHARe (note 14(D))
Basic
Diluted

AVeRAGe numBeR oF Common SHAReS outStAnDInG (note 14(D))
Basic
Diluted

total number of outstanding common shares (note 14(B))
Book value per common share

the accompanying notes are an integral part of these consolidated financial statements.

December 31
2013

For the year ended

December 31
2012

$
$

629,247
11,165
8,283
648,695
268,233
6,612
373,850

225,793
177,664
48,129
421,979
15,868
406,111

61,252
12,648
2,589
(1,430)
75,059
481,170

70,954
9,901
62,883
143,738
337,432

82,128
(1,238)
80,890
256,542

7.40
7.32

34,670
35,023

34,744
33.90

$
$

525,722
14,171
4,019
543,912
230,006
6,831
307,075

287,871
213,474
74,397
381,472
14,720
366,752

43,863
8,306
(55)
3,788
55,902
422,654

58,956
8,833
54,946
122,735
299,919

82,176
(4,240)
77,936
221,983

6.40
6.38

34,692
34,820

34,630
27.96

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Consolidated Statements of Comprehensive Income

thousands of Canadian dollars

net InCome
otHeR ComPReHenSIVe (loSS) InCome
Available for Sale Securities and Retained Interests
net unrealized (losses) gains
net gains reclassified to net income

Income tax (recovery) expense

Cash Flow Hedges (note 19)
net unrealized gains (losses)
net losses reclassified to net income

Income tax expense

total other comprehensive (loss) income
ComPReHenSIVe InCome

the accompanying notes are an integral part of these consolidated financial statements.

December 31
2013
$ 256,542

For the year ended

December 31
2012
$ 221,983

(19,530)
(2,584)
(22,114)
(5,859)
(16,255)

702
1,362
2,064
543
1,521
(14,734)
$ 241,808

6,462
(114)
6,348
1,775
4,573

(370)
1,462
1,092
219
873
5,446
$ 227,429

Consolidated Statements of Changes in Shareholders’ equity

thousands of Canadian dollars,
except per share amounts

Capital
Stock

Contributed
Surplus

Retained
earnings

net unrealized
Gains (losses)
on Securities
and Retained
Interests
Available for
Sale, After tax

net unrealized
losses on
Cash Flow
Hedges,
After tax

total
Accumulated
other
Comprehensive
loss

total
Shareholders’
equity

–

(70)

8,400

$ 61,903 $

Balance at December 31, 2012
Comprehensive income
Stock options settled
(notes 14(B), 17(C))
Amortization of fair value of
employee stock options
Repurchase of shares
(note 14(C))
Dividends
($1.08 per share)
Balance at December 31, 2013 $ 70,233 $
Balance at December 31, 2011
$ 55,104 $
Comprehensive income
Stock options settled
(notes 14(B), 17(C))
Amortization of fair value of
employee stock options
Repurchase of shares
(note 14(C))
Dividends
($0.90 per share)
Balance at December 31, 2012

–
61,903 $

7,088

(289)

–

6,224 $ 903,831 $

432 $

–

256,542

(16,255)

(4,177) $
1,521

(3,745) $ 968,213
241,808

(14,734)

(2,202)

1,962

–

(2,232)

(38,182)

–

5,984 $1,119,959 $ (15,823) $
(4,141) $
5,873 $ 722,999 $
4,573

221,983

–

6,198

1,962

(2,302)

–

(38,182)
(2,656) $ (18,479) $ 1,177,697
(9,191) $ 774,785
(5,050) $
227,429
5,446
873

(1,408)

1,759

–

(7,828)

(33,323)

6,224 $ 903,831 $

–

5,680

1,759

(8,117)

–
432 $

–
(4,177) $

–

(33,323)
(3,745) $ 968,213

the accompanying notes are an integral part of these consolidated financial statements.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Consolidated Statements of Cash Flows

thousands of Canadian dollars

CASH FloWS FRom oPeRAtInG ACtIVItIeS
net income for the year
Adjustments to determine cash flows relating to operating activities:
Deferred income taxes
Amortization of capital assets
Amortization of intangible assets
Amortization of net premium on securities
Amortization of securitization and senior debt transaction costs
provision for credit losses
Change in accrued interest payable
Change in accrued interest receivable
net realized and unrealized (gains) losses on securities
Realized gain on securitization
Settlement of derivatives
Loss (gain) on derivatives
net increase in mortgages
net decrease (increase) in restricted assets
net increase in credit card loans and other consumer retail loans
net increase in deposits
Activity in securitization liabilities
proceeds from sale of mortgage-backed securities derecognized
proceeds from sale of mortgage-backed securities
Settlement and repayment of securitization liabilities
Amortization of fair value of employee stock options
Changes in taxes payable and other
Cash flows provided by (used in) operating activities
CASH FloWS FRom FInAnCInG ACtIVItIeS
Repurchase of shares
exercise of employee stock options
Dividends paid to shareholders
Cash flows used in financing activities
CASH FloWS FRom InVeStInG ACtIVItIeS
Activity in securities
purchases
proceeds from sales
purchases of capital assets
Capitalized intangible development costs
Cash flows used in investing activities
net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents at beginning of the year
Cash and Cash equivalents at end of the Year (note 4(A))

Supplementary Disclosure of Cash Flow Information
Dividends received on investments
Interest received
Interest paid
Income taxes paid

the accompanying notes are an integral part of these consolidated financial statements.

December 31
2013

For the year ended

December 31
2012

$ 256,542

221,983

(1,238)
3,504
7,864
2,562
18,729
15,868
13,624
(1,388)
(2,589)
(12,648)
3,816
1,643
(1,980,163)
72,507
(35,002)
2,629,355

602,948
635,101
(1,686,739)
1,962
(31,475)
514,783

(2,302)
6,198
(37,458)
(33,562)

(182,382)
150,494
(7,801)
(14,926)
(54,615)
426,606
301,863
$ 728,469

9,022
853,125
443,646
98,724

(4,240)
3,118
6,715
2,460
13,396
14,720
13,519
(5,434)
55
(8,306)
(370)
(3,788)
(1,943,195)
(252,493)
(40,845)
2,214,475

242,576
407,848
(1,044,674)
1,759
(7,194)
(167,915)

(8,117)
5,680
(31,244)
(33,681)

(335,218)
317,748
(4,324)
(9,141)
(30,935)
(232,531)
534,394
301,863

12,626
807,870
438,026
79,887

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

note 1

CoRPoRAte InF oRmAtIon

Home Capital Group Inc. (the Company) is a public corporation 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 and credit card
products. the Company’s subsidiary, payment Services Interactive Gateway Inc. (pSiGate), provides payment card services. Licensed to
conduct business across Canada, Home trust has branch offices in Ontario, Alberta, British Columbia, nova Scotia, Quebec and Manitoba.
the Company is the ultimate parent of the group.

these consolidated financial statements for the year ended December 31, 2013 were authorized for issuance by the Board of Directors
(the Board) of the Company on February 12, 2014. the Board has the power to amend the consolidated financial statements after their
issuance only in the case of discovery of an error.

Subsequent to the end of the year and before the date these consolidated financial statements were authorized for issuance, the Board
of Directors declared a quarterly cash dividend of $11.1 million or $0.32 per common share payable on March 1, 2014 to shareholders
of record at the close of business on February 24, 2014. In addition, on February 12, 2014 the Board approved a stock dividend of one
common share per outstanding common share.

note 2

SummARY oF SIGnIFICAnt ACCoun tInG P o lI C Ie S

the consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting
principles (GAAp) for publicly accountable enterprises, which are International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).

the accounting policies were consistently applied to all periods presented unless otherwise noted. the significant accounting policies used
in the preparation of these consolidated financial statements are summarized below.

Comparative Consolidated Financial Statements

the comparative consolidated financial statements have been reclassified from statements previously presented to conform to the
presentation of the 2013 consolidated financial statements. the primary change was the reclassification of Home trust mortgage-backed
securities used as Canada Mortgage Bond replacement assets as securitized mortgages. In prior periods, these mortgage-backed securities
were classified as pledged securities. Restricted cash and pledged securities have been reclassified to restricted assets on the consolidated
balance sheets. previously, they were included with cash resources and securities, respectively. Fair value changes in loans held for sale and
the derivative gains or losses on bond forwards entered into to hedge interest rate risk on these loans have been reclassified to securitization
income on the consolidated statements of income. In addition, the Company’s disclosure of earnings by business segment has been
replaced by disclosure of interest income by product group, as this was determined to be a better reflection of how the business is managed.

use of judgement and estimates

Management has exercised judgement in the process of applying the Company’s accounting policies. In particular, the Company’s
management has applied judgement in the application of its accounting policy with respect to derecognition of the loans and other
assets used in current securitization programs. Most loans and other assets that have been securitized are not derecognized, based on
management’s judgement that the Company has not transferred substantially all of the risks and rewards of ownership of the loans and
other assets. Certain securitized loans are recognized only to the extent of the Company’s continuing involvement, based on management’s
judgement that it cannot be determined whether substantially all the risks and rewards of ownership have been transferred while control
has been retained as defined by IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). When residual interests in
securitized transactions are sold, the underlying securitized loans are derecognized based on management’s judgement that substantially
all the risks and rewards of ownership have been transferred through the two transactions.

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 dates and the reported amounts of revenue and expenses during the reporting periods. 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.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Principles of Consolidation

the consolidated financial statements include the assets, liabilities and results of operations of the Company and all of its subsidiaries,
after the elimination of intercompany transactions and balances.

Subsidiaries are entities the Company controls. the Company has control when it has power over the entity, has exposure or rights to
variable returns from its involvement and has the ability to use its power over the entity to affect returns. the subsidiaries included in the
consolidated financial statements are Home trust and pSiGate, both of which are wholly owned.

Cash and Cash equivalents

For the purposes of the consolidated financial statements, cash and cash equivalents comprise balances with less than 90 days to
maturity from the date of acquisition, including cash and deposits with regulated financial institutions, treasury bills and other eligible
deposits. Cash and deposits are carried at amortized cost, which approximates fair value due to the short-term nature of the instruments.
Interest income is recognized using the effective interest rate method and, to the extent not received at year end, recorded as a receivable
in other assets on the consolidated balance sheets.

Securities

Securities are classified as either held for trading or available for sale, based on management’s intentions. On the trade date, all securities
are recognized at their fair value, which is normally the transaction price.

Held for trading securities are financial assets purchased for resale, generally within a short period of time and primarily held for liquidity
purposes. Interest earned is included in other interest income. Held for trading securities are measured at fair value, using published bid
prices, as at the consolidated balance sheet dates. All realized and unrealized gains and losses are reported in income under non-interest
income. transaction costs are expensed as incurred. the Company has not elected under the fair value option to designate any financial
asset or liability as held for trading, nor does the Company have any securities classified as held for trading.

Available for sale securities are financial assets purchased for longer-term investment that may be sold in response to or in anticipation of
changes in market conditions. Dividends and interest earned are included in dividends from securities or other interest income. Available
for sale securities are measured at their fair value, using published bid prices, as at the consolidated balance sheet dates. unrealized
gains and losses, net of related taxes, are included in accumulated other comprehensive income (AOCI) until the security is sold or an
impairment loss is recognized, at which time the cumulative gain or loss is transferred to net income. transaction costs are capitalized.

At the end of each reporting period, the Company conducts a review to assess whether there is any objective evidence that an available
for sale security is impaired. Objective evidence of impairment results from one or more events that occur after the initial recognition of
the security and which event (or events) has an impact that can be reliably estimated on the estimated future cash flows of the security.
Such objective evidence includes observable data that comes to the attention of the Company such as significant financial difficulty of
the issuer of the security. In the case of equity securities, objective evidence of impairment includes a significant or prolonged decline in
the fair value of the security below its cost. the determination of what is significant or prolonged is based on management’s judgement.
Generally, management considers a significant decline to be 20% or more and a prolonged decline to be 12 months or more.

When there is objective evidence of an impairment of an available for sale security, any cumulative loss that has been recognized in other
comprehensive income (OCI) is reclassified from AOCI to net income. the amount of the cumulative loss reclassified is the difference
between the acquisition cost (net of any principal repayment, amortization and cumulative losses recognized in net income) and current
fair value. In the case of debt securities, subsequent increases in fair value that can be objectively related to an event occurring after the
impairment loss was recognized result in a reversal of the impairment loss through net income. Impairment losses on equity securities are
not subsequently reversed through net income.

obligations Related to Securities Sold under Repurchase Agreements

the purchase and sale of securities under sale and repurchase agreements are accounted for as collateralized lending and borrowing
transactions and are recorded at cost. the related interest income and interest expense are recorded on an accrual basis in the
consolidated statements of income. the Company does not have any obligations related to securities sold under repurchase agreements
in 2013 or 2012.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

loans Held for Securitization and Sale

When identifiable, loans for which the Company has the intention of securitizing and derecognizing from the consolidated balance sheets in
the near term are classified as held for trading for accounting purposes and are carried at fair value. unrealized gains and losses resulting
from the change in fair value of these loans are reported as securitization income in non-interest income on the consolidated statements
of income. Interest income earned on these loans is included in interest from loans. the fair value of loans held for trading is determined
by discounting the expected future cash flows of the loans at market rates for financial instruments with similar terms and credit risk.

loans

Loans are recorded at amortized cost using the effective interest rate method. Interest income is allocated over the expected term of the
loan by applying the effective interest rate to the carrying amount of the loan. the effective interest rate is the rate that exactly discounts
estimated future cash receipts over the expected life of the loan. Origination revenues and costs are applied to the carrying amount of
the loan.

Loans are carried net of the individual allowance for credit losses and any unearned income.

Interest income is accrued as earned with the passage of time and continues to accrue when a loan is considered impaired (with an
appropriate allowance for credit loss as discussed below).

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, an uninsured residential or commercial mortgage, a retail loan, or equityline
Visa 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. Single-family and multi-unit residential mortgages (including securitized mortgages) guaranteed by the Government of Canada are
not considered impaired until payment is contractually 365 days past due. Credit losses are not anticipated on insured mortgages. 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 180 days in arrears are written off.

When loans are classified as impaired, the book value of such loans is adjusted to their estimated realizable value based on the fair
value of any security underlying the loan, net of any costs of realization, by totally or partially writing off the loan and/or establishing an
allowance for loan losses as described below.

An impaired loan is not returned to an unimpaired status unless all principal and interest payments are up to date, and management is
reasonably assured of the recoverability of the loan.

Allowance for Credit losses

An allowance for credit losses is maintained at an amount that, in management’s opinion, is considered adequate to absorb all credit-related
losses that have occurred in the portfolio whether or not detected at the period end, including accrued interest on impaired loans. Allowances
are mainly related to loans but may also apply to other assets. the allowance consists of accumulated individual and collective allowances,
each of which is reviewed at least quarterly. the collective allowance is deducted from total loans on the consolidated balance sheets.

individual allowances

Individual allowances are determined on an item-by-item basis and reflect the associated estimate of credit loss. In the case of loans and
equityline Visa credit cards, the individual allowances are the amounts required to reduce the carrying value of an impaired asset, including
accrued interest, to its estimated realizable amount. the fair value of the underlying security is used to estimate the realizable amount
of the receivable. the allowance is the difference between the receivable’s carrying value, including accrued interest, and its estimated
realizable amount. For secured and unsecured credit card receivables, individual allowances are provided for arrears over 120 days.

collective allowances

Collective allowances are established to absorb credit losses on the aggregate exposures in each of the Company’s loan portfolios
for which losses have been incurred but not yet individually identified. the collective allowance is based upon statistical analysis of
past performance, level of allowance already in place and management’s judgement. the collective allowance, based on the historical
loss experience adjusted to reflect changes in the portfolios and credit policies, is applied to each pool of loans with common risk
characteristics. this estimate includes consideration of economic and business conditions.

the provision for credit losses that is charged to the consolidated statements of income is the amount required to establish a balance in the
allowance for credit losses account that the Company’s management considers adequate to absorb all credit-related losses in its portfolio
of balance sheet items after charging amounts written off during the year, net of any recoveries, to the allowance for credit losses account.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Securitized loans and Securitization liabilities

the Company periodically securitizes mortgages and sells the securities to investors or Canada Mortgage and Housing Corporation (CMHC)
sponsored entities. Mortgage loan securitization is part of the Company’s liquidity and funding strategy. the Company securitizes through
to CMHC sponsored programs.

In the absence of sales of retained interests (see below), most transfers of pools of mortgages under the current programs do not result
in derecognition of the mortgages from the Company’s consolidated balance sheets. As such, these transactions result in the recognition
of securitization liabilities when cash is received from the securitization entities. Such mortgages are reclassified to securitized residential
mortgages on the consolidated balance sheets and continue to be accounted for as loans, as described above.

the securitization liabilities are recorded at amortized cost using the effective interest rate method. Interest expense is allocated over the
expected term of the borrowing by applying the effective interest rate to the carrying amount of the liability. the effective interest rate is
the rate that exactly discounts estimated future cash outflows over the expected life of the liability. transaction costs and premiums or
discounts are applied to the carrying amount of the liability. Also included in securitization liabilities on the consolidated balance sheets
are amounts related to fair value hedge accounting that increase or decrease the carrying amount of the securitization liability. please see
note 19 for more information.

In certain cases, the Company’s remaining involvement is quite limited, although it has not transferred substantially all of its risks and
rewards in the underlying loans and it has retained control, as defined by IAS 39. Such mortgages are securitized and sold and the Company
has residual interest and servicing responsibilities for the assets sold, with very little exposure to variable cash flows. the Company accounts
for its continuing involvement as retained interests and servicing liabilities on the consolidated balance sheets. Gains or losses on these
transactions are recognized as securitization income in non-interest income on the consolidated statements of income and are 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 and net of transaction costs. Retained interests are classified as available
for sale assets and are stated at their fair value with unrealized gains and losses reported in AOCI. the fair value of the retained interests is
estimated using discounted cash flow methodology. Retained interests are revalued quarterly to assess for impairment.

In certain circumstances, the Company sells its residual interest arising from securitization transactions. When this results in the
Company transferring substantially all of the risks and rewards of ownership associated with the underlying mortgages, the mortgages are
derecognized and a resulting gain or loss is recorded. these gains or losses are recognized as securitization income in non-interest income
on the consolidated statements of income and are dependent in part on the previous carrying amount of the financial assets involved in
the transfer.

Restricted Assets

Restricted assets include cash or cash equivalents and securities that are contractually restricted, such as collateral associated with
derivative transactions and participation in securitization programs. Restricted assets also include cash, non–Home trust MBS or treasury
bills pledged as Canada Mortgage Bond replacement assets. the accounting treatment for cash and securities is described above.

Derivatives Held for Risk management Purposes

the Company utilizes derivatives to manage interest rate risk. Derivatives are carried at fair value and are reported as assets if they have a
positive fair value and as liabilities if they have a negative fair value. the Company applies hedge accounting to derivatives that meet the
criteria for hedge accounting in accordance with IAS 39. the Company utilizes two types of hedge relationships for accounting purposes,
fair value hedges and cash flow hedges. If derivative instruments do not meet all of the criteria for hedge accounting, the changes in fair
value of such derivatives are recognized in net income.

In order to qualify for hedge accounting, a hedge relationship must be designated and formally documented in accordance with IAS 39.
the Company’s documentation, in accordance with the requirements, includes the specific risk management objective and strategy being
applied, the specific financial asset or liability or cash flow being hedged and how hedge effectiveness is assessed. to qualify for hedge
accounting, the Company has decided that there must be a correlation of between 80% and 125% in the changes in fair values or cash
flows between the hedged and hedging items.

Hedge effectiveness is assessed at the inception of the hedge and on an ongoing basis, at least quarterly. Hedge ineffectiveness occurs
when the changes in the fair value of the hedging item (derivative) differ significantly from the fair value changes in the hedged risk in the
hedged item. Hedge ineffectiveness is recognized immediately in income.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

Fair Value Hedges

Fair value hedges generally use interest rate swap derivatives to hedge changes in the fair value of fixed-rate assets or liabilities (“the
hedged items”) attributable to interest rate risk. Changes in fair value of the hedged items are recorded as part of the carrying value of
the hedged items and are recognized in “net realized and unrealized gain (loss) on derivatives”. Changes in fair value of the hedging item
(interest rate swap) are also recognized in “net realized and unrealized gain (loss) on derivatives”.

If the hedging instrument expires, or is settled or sold, or if the hedge no longer meets the criteria for hedge accounting under IAS 39, the
hedge relationship is terminated and the fair value adjustment on the hedged item is then amortized over the remaining term of the hedged
item. If the hedged item is settled, the unamortized fair value adjustment is recognized in income immediately.

Cash Flow Hedges

Cash flow hedges generally use bond forwards or interest rate swaps to hedge changes in future cash flows attributable to interest rate
fluctuations arising on highly probable forecasted issuances of fixed-rate liabilities.

the effective portion of the change in fair value of the derivative instrument is recognized in OCI until the forecasted cash flows being
hedged are recognized in income in future accounting periods. When the forecasted cash flows are recognized in income, an appropriate
amount of the fair value changes of the derivative instrument is reclassified from AOCI into income. Any hedge ineffectiveness is
immediately recognized in non-interest income. If the forecasted issuance of fixed-rate liabilities is no longer expected to occur, the related
cumulative gain or loss in AOCI is immediately recognized in income.

Capital Assets

Capital assets, which comprise office furniture and equipment, computer equipment and software, and leasehold improvements, are
recorded at cost and amortized over their estimated useful lives on a straight-line basis. the ranges of useful lives for each asset type
are as follows:

Office furniture and equipment

5 to 10 years

Computer equipment and software

3 to 7 years

Leasehold improvements are amortized on a straight-line basis over the remaining term of the lease.

the Company assesses, at each reporting period date, whether there is an indication that a capital asset may be impaired. If any indication
of impairment exists, the Company performs an impairment test to determine whether an impairment loss is required to be recognized.
the impairment tests are performed in accordance with the steps discussed in the accounting policy note below entitled Impairment of
Capital Assets and Intangible Assets.

Goodwill

Goodwill is initially measured as the excess of the price paid for the acquisition of a consolidated entity over the fair value of the net
identifiable tangible and intangible assets acquired. Goodwill is allocated to the cash-generating units (CGus) or groups of CGus that are
expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to
those units. A CGu is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. each unit to which the goodwill has been allocated represents the lowest level within the Company
at which the goodwill is monitored for internal management purposes.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is evaluated for impairment
annually or more often if events or circumstances indicate there may be impairment. Impairment is determined for goodwill by assessing
whether the carrying amount of a CGu, including the allocated goodwill, exceeds its recoverable amount. the recoverable amount is
determined as the greater of the estimated fair value less the costs of disposal or the value in use. Impairment losses recognized in respect
of a CGu are first allocated to the carrying amount of goodwill and any excess is allocated pro rata to the carrying amount of other assets
in the CGu, on the basis of the carrying amount of each asset in the unit. Any goodwill impairment is charged to income in the period in
which the impairment is identified. Impairment losses on goodwill are not subsequently reversed.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Intangible Assets

An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic
benefits that are attributable to the asset will flow to the Company. Following initial recognition, intangible assets are carried at cost less
any accumulated amortization and any accumulated impairment losses.

the Company’s intangible assets comprise software development costs. the Company’s software development costs are considered to
have finite useful lives and are amortized on a straight-line basis over their useful lives, generally not exceeding 10 years. the amortization
period and the amortization method are reviewed at least at each financial year end. Changes in the expected useful lives are accounted
for by changing the amortization period, as appropriate, and treated as changes in accounting estimates. Amortization expense is included
in other operating expenses in the consolidated statements of income.

the Company capitalizes eligible development costs related to software projects. eligible costs include external direct costs for materials
and services, as well as payroll and payroll-related costs for employees directly associated with development. the Company commences
amortization of these costs over the appropriate useful life when development of the asset is substantially complete and the asset becomes
available for use in the manner intended by management. Overhead costs, costs incurred during the research phase, costs to train staff to
operate the asset and costs incurred after the software was substantially completed and available for use are expensed as incurred.

the Company assesses, at each reporting period date, whether there is an indication that an intangible asset may be impaired. If any
indication of impairment exists, the Company performs an impairment test to determine whether an impairment loss is required to be
recognized. In relation to development costs for software that is not yet available for use, the Company performs an impairment test on an
annual basis as well as when indications of impairment exist. Such annual impairment tests will continue until the software is available for
use. the impairment tests are performed in accordance with the steps discussed in the accounting policy note below entitled Impairment
of Capital Assets and Intangible Assets.

Impairment of Capital Assets and Intangible Assets

the Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. If it is not possible to
determine the recoverable amount of the individual asset, the Company determines the recoverable amount of the CGu to which the asset
belongs. the recoverable amount of an asset or a CGu is the higher of its fair value less costs of disposal and its value in use, where
value in use is the present value of the future cash flows expected to be derived from the asset or the CGu. Where the carrying amount
of the asset or the CGu exceeds its recoverable amount, the asset is considered impaired and written down to its recoverable amount.
the Company evaluates impairment losses for potential reversals when events or changes in circumstances warrant such consideration.

Deposits

Deposits are financial liabilities that are measured at cost using the effective interest rate method. Deposit origination costs are included
in deposits on the consolidated balance sheets as incurred and amortized to interest expense over the term of the deposit.

Senior Debt

Senior 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, amortization of issue costs and any premium or discount to the face amount of the debt.
Issue costs and premiums or discounts are amortized to income using the effective interest rate method. Also included in senior debt on
the consolidated balance sheets are amounts related to fair value hedge accounting which increase or decrease the carrying amount of
the senior debt. please see note 19 for more information.

Income taxes

the Company follows the asset and liability method of accounting for income taxes, whereby deferred tax assets and liabilities are recognized
for the expected future tax consequences attributable to differences between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted or substantively
enacted tax rates applicable to taxable income in the period in which those temporary differences are expected to be recovered or settled.
Deferred tax assets are only recognized for deductible temporary differences, carry forward of unused tax credits and losses to the extent that
it is probable that taxable profit will be available and the carry forward of unused tax credits and losses can be utilized.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Fair value is measured using the principal market or most advantageous market that is
accessible to the Company for the asset or liability.

Valuation techniques used to determine fair value maximize the use of relevant observable inputs and minimize the use of unobservable
inputs. If the asset or liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most
representative of fair value in the circumstances is used to measure the fair value. please see note 22 for more information on the specific
valuation techniques used to determine fair value and the related inputs for each class of assets or liabilities where fair value is disclosed.

Inputs for valuation techniques used to measure fair value are categorized into three levels. Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 inputs are inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable
inputs for the asset or liability. please see note 22 for more information. When inputs used to measure the fair value of an asset or liability
are categorized within different levels of the fair value hierarchy, the fair value measurement is categorized in its entirety in the same level
of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

Fee Income

Fee income is accrued and recognized as income as the associated services are rendered.

Stock-based Compensation Plans

the Company has stock-based compensation plans, which are described in note 17.

the Company’s employee Stock Option plan provides for the granting of stock options to certain employees of the Company. In some
cases, stock appreciation rights are also granted in tandem with the stock option, providing the Company with, at its sole discretion, the
alternative of settling the award in cash at an amount equal to the excess of the market price of the shares to which the option relates over
the exercise price of the option. the Company accounts for stock options, including those with tandem stock appreciation rights, as equity-
settled transactions where the fair value of options granted is charged to salary expense over the option vesting period, with the offsetting
amount recognized in contributed surplus. For awards with graded vesting, the fair value of each tranche is recognized separately over its
respective vesting period. For each reporting period, the Company reassesses its estimates of the number of awards that are expected to
vest and recognizes the impact of any revision in the consolidated statements of income with a corresponding adjustment to equity. the
fair value of the options granted is determined using a Black-Scholes option pricing model.

the Company offers a deferred share unit (DSu) plan that is only open to non-employee Directors of the Company who annually elect
to accept remuneration in the form of cash, cash and DSus or DSus. the Company accounts for the DSus as cash-settled transactions.
under the plan, the obligations for the DSus are accrued quarterly based on the Directors’ remuneration for the quarter. the obligations are
periodically adjusted for fluctuations in the market price of the Company’s common shares and allow for dividend equivalents. Changes in
obligations under the plan are recorded as salaries and benefits in the consolidated statements of income, with a corresponding increase
in other liabilities on the consolidated balance sheets.

the Company grants restricted share units (RSus) to certain key members of management. RSus are settled in cash equivalents of
common shares. RSus earn dividend equivalents in the form of additional RSus at the same rate as dividends on common shares.
Changes in the obligation resulting from changes in the market price of common shares are recognized in the consolidated statements of
income as compensation expense, proportionally to the amount of the reward recognized.

the Company grants performance share units (pSus) to certain key members of management. pSus are settled in cash equivalents
of common shares. pSus earn dividend equivalents in the form of additional pSus at the same rate as dividends on common shares.
Changes in the obligation resulting from changes in the market price of common shares are multiplied by a performance factor ranging
from 0% to 200% and are recognized in the consolidated statements of income as compensation expense, proportionally to the amount
of the reward recognized.

employee Benefit Plans

under both the employee Share Ownership plan and the employee Retirement Savings plan, the Company’s contribution is expensed when
paid. please see note 17 for more information.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

earnings per Share

Both basic and diluted earnings per share (epS) are presented for the Company’s common shares. Basic income per common share is
determined as net income for the year divided by the average number of common shares outstanding for the year.

Diluted income per common share is determined as net income for the year divided by the average number of common shares outstanding
plus the stock options potentially exercisable for the year, as determined under the treasury stock method. the treasury stock method
determines the net number of incremental common shares that could be purchased with the assumption that all in-the-money stock
options are exercised and the proceeds are used to purchase common shares at the average market price during the year.

note 3

FutuRe CHA nGeS In ACC o untI nG Po lI C Ie S

the following accounting pronouncements issued by the IASB were not effective as at December 31, 2013 and therefore have not been
applied in preparing these consolidated financial statements.

IFRS 9 financial instruments

note 4

CASH ReS ouRCeS AnD S e CuR I tI eS

(A) Cash Resources

thousands of Canadian dollars

Cash and Cash equivalents
Deposits with regulated financial institutions
Cash resources unrestricted to Company use

December 31
2013

December 31
2012

$
$

728,469 $
728,469 $

301,863
301,863

the Company has a revolving term credit facility with a Canadian chartered bank in the amount of $50 million, which is available to the
Company subject to meeting certain financial ratio requirements. As at December 31, 2013, all ratio requirements have been met and no
amounts have been drawn against the borrowing facility.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

(B) Available for Sale Securities at Fair Value by type and Remaining term to maturity and Rate Reset Date

December 31
2013

December 31
2012

thousands of Canadian dollars
Debt securities
Common shares
preferred shares
Mutual funds

Within 1 Year
$

1 to 3 Years

3 to 5 Years

over 5 Years

134,573 $
60
65,128
1,655
201,416 $

14,986 $
–
114,669
–

129,655 $

– $
–
77,512
–
77,512 $

– $
–
15,689
–
15,689 $

total
Fair Value

total
Fair Value
149,559 $ 104,832
8,836
299,557
1,119
414,344

60
272,998
1,655
424,272 $

thousands of Canadian dollars, except %

Debt securities
Common shares
preferred shares
Mutual funds

thousands of Canadian dollars, except %

Debt securities
Common shares
preferred shares
Mutual funds

As at December 31, 2013

Gross
unrealized
Gains

Gross
unrealized
losses

58 $
25
–
654
737 $

– $
–
(21,715)
–

(21,715) $

total
Fair Value
149,559
60
272,998
1,655
424,272

Cost
149,501 $
35
294,713
1,001
445,250 $

Weighted-
Average
Yield

1.4%
2.5%
4.7%
–

As at December 31, 2012

Gross
unrealized
Gains

Gross
unrealized
Losses

120 $

2,100
4,163
118
6,501 $

– $

(1,271)
(4,646)
–
(5,917) $

total
Fair Value
104,832
8,836
299,557
1,119
414,344

Cost
104,712 $
8,007
300,040
1,001
413,760 $

Weighted-
Average
Yield
2.5%
4.6%
4.7%
–

net unrealized gains and losses (excluding impairment losses which are transferred to net income) are included in AOCI and presented in
the table above. these unrealized gains and losses are not included in net income. please see note 15 for more information.

the unrealized gains or losses included above represent the differences between the cost of a security and its current fair value. the
Company regularly monitors its investments and market conditions for indications of impairment.

For the year ended December 31, 2013, the Company recognized $0.2 million (2012 – $1.8 million) of impairment losses on available
for sale securities.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

note 5

loAn S

(A) loans by Geographic Region and type (net of individual allowances for credit losses)

thousands of Canadian dollars, except %

Securitized single-family
residential mortgages
Securitized multi-unit
residential mortgages
total securitized mortgages
Single-family residential mortgages
Residential commercial mortgages1
non-residential
commercial mortgages
Credit card loans
Other consumer retail loans
total non-securitized mortgages
and loans2

British
Columbia

Alberta

ontario

Quebec

other

total

As at December 31, 2013

334,511 $

256,770 $ 2,835,878 $

192,751 $

100,187 $ 3,720,097

201,181
535,692
536,212
8,897

191,910
448,680
367,211
16,192

706,883
3,542,761
9,391,757
135,133

7,753
7,230
899

38,660
19,324
1,256

881,702
262,016
334,652

186,521
379,272
360,657
28,689

16,234
1,260
2,900

560,991
$ 1,096,683 $

442,643
891,323 $ 14,548,021 $

11,005,260

409,740
789,012 $

203,429
303,616
191,530
7,969

1,489,924
5,210,021
10,847,367
196,880

49,861
3,655
256

994,210
293,485
339,963

253,271
12,671,905
556,887 $ 17,881,926
100.0%

3.1%

As at December 31, 2012

As a % of portfolio

6.1%

5.0%

81.4%

4.4%

thousands of Canadian dollars, except %

British
Columbia

Alberta

Ontario

Quebec

Other

total

433,529 $

343,318 $ 3,616,877 $

256,953 $

113,080 $ 4,763,757

258,757
692,286
420,953
5,642

3,521
9,104
975

203,081
546,399
342,841
19,380

908,513
4,525,390
7,499,242
102,674

25,953
25,062
787

860,703
287,877
269,594

339,477
596,430
278,671
25,201

61,691
1,532
–

440,195
$ 1,132,481 $

414,023
960,422 $ 13,545,480 $

9,020,090

367,095
963,525 $

232,575
345,655
147,739
1,580

1,942,403
6,706,160
8,689,446
154,477

36,548
3,941
621

988,416
327,516
271,977

190,429
10,431,832
536,084 $ 17,137,992
100.0%

3.1%

As a % of portfolio

6.6%

5.6%

79.1%

5.6%

1 Residential commercial mortgages include non-securitized multi-unit residential mortgages and commercial mortgages secured by residential property types.

2 Loans exclude mortgages held for sale.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

(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, an uninsured residential or commercial mortgage, or retail loan, or equityline
Visa 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. Single-family and multi-unit residential mortgages (including securitized mortgages) guaranteed by the Government of Canada
are not considered impaired until payment is contractually 365 days past due. Credit losses are not anticipated on insured mortgages.
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 180 days in arrears are written off.

thousands of Canadian dollars

As at December 31, 2013

61 to 90

Days over 90 Days
265 $
–
6,804
–
–
963
31
8,063 $

4,9821 $
9,9191
6,1591
–1
–
23
–
21,083 $

total
37,139
9,919
305,324
1,768
9,587
6,571
131
370,439

As at December 31, 2012

61 to 90
Days
453 $
–
6,100
–
–
1,965
21
8,539 $

Over 90 Days

4,6791 $
–1
8,4741
–1
–
8
–
13,161 $

total
49,956
–
278,178
544
9,247
7,550
181
345,656

31 to 60
Days
4,370 $
–
48,540
573
902
1,932
30
56,347 $

31 to 60
Days
6,581 $
–
49,935
544
–
1,731
48
58,839 $

1 to 30 Days
$

27,522 $
–
243,821
1,195
8,685
3,653
70
284,946 $

1 to 30 Days
$

38,243 $
–
213,669
–
9,247
3,846
112
265,117 $

1 Insured residential mortgages are considered impaired when they are 365 days past due.

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 all fully insured, credit losses are not anticipated.

As at December 31, 2013

thousands of Canadian dollars

Single-Family
Residential
mortgages

Residential
Commercial
mortgages

non-
Residential
Commercial
mortgages

Gross amount of impaired loans
Individual allowances on principal
net amount of impaired loans

52,837 $
(1,201)
51,636 $

1,836 $
–
1,836 $

7,189 $
–
7,189 $

Credit Card
loans
2,785 $
(201)
2,584 $

other
Consumer
Retail loans

236 $
(236)

– $

total
64,883
(1,638)
63,245

As at December 31, 2012

thousands of Canadian dollars

Single-Family
Residential
Mortgages

Residential
Commercial
Mortgages

non-
Residential
Commercial
Mortgages

Gross amount of impaired loans
Individual allowances on principal
net amount of impaired loans

50,169 $
(2,381)
47,788 $

4,527 $
–
4,527 $

501 $
–
501 $

Credit Card
Loans
3,616 $
(111)
3,505 $

Other
Consumer
Retail Loans

214 $

(214)

– $

total
59,027
(2,706)
56,321

Included in the gross amount of impaired loans are foreclosed loans with an estimated realizable value of $2.2 million (2012 – $1.7 million).

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

(D) Collateral

the fair value of collateral held against mortgages is based on appraisals at the time a loan is originated. Appraisals are only updated should
circumstances warrant it or if a mortgage becomes impaired. At December 31, 2013, the total appraised value of the collateral held for
mortgages past due that are not impaired, as determined when the mortgages were originated, was $539.7 million (2012 – $502.1 million).
For impaired mortgages, the total appraised value of collateral at December 31, 2013 was $86.0 million (2012 – $153.9 million).

(e) Allowance for Credit losses

thousands of Canadian dollars

Single-family
Residential
mortgages

Residential
Commercial
mortgages

non-
Residential
Commercial
mortgages

Credit Card
loans

other
Consumer
Retail loans

2013

total

Individual allowances
Allowance on loan principal
Balance at the beginning of the year $
provision for credit losses
Write-offs
Recoveries

Allowance on accrued
interest receivable
Balance at the beginning of the year
provision for credit losses

total individual allowance
Collective allowance
Balance at the beginning of the year
provision for credit losses

total allowance
total provision

111 $
679
(1,129)
540
201

214 $
367
(436)
91
236

2,706
14,460
(17,261)
1,733
1,638

2,381 $
9,985
(12,048)
883
1,201

487
272
759
1,960

– $

3,199
(3,407)
208
–

432
(407)
25
25

230
(241)
11
–

–
44
44
44

–
–
–
201

16,523
1,509
18,032
19,992 $
11,766 $

$
$

336
(9)
327
352 $
2,783 $

9,300
–
9,300
9,344 $
274 $

3,541
–
3,541
3,742 $
679 $

thousands of Canadian dollars

Single-family
Residential
Mortgages

Residential
Commercial
Mortgages

non-
Residential
Commercial
Mortgages

Credit Card
Loans

Other
Consumer
Retail Loans

Individual allowances
Allowance on loan principal
Balance at the beginning of the year $
provision for credit losses
Write-offs
Recoveries

Allowance on accrued
interest receivable
Balance at the beginning of the year
provision for credit losses

total individual allowance
Collective allowance
Balance at the beginning of the year
provision for credit losses

total allowance
total provision

760 $

11,769
(10,598)
450
2,381

– $
–
–
–
–

327
160
487
2,868

–
432
432
432

60 $

392 $

259
(322)
3
–

18
(18)
–
–

1,291
(1,914)
342
111

–
–
–
111

15,871
652
16,523
19,391 $
12,581 $

$
$

428
(92)
336
768 $
340 $

9,300
–
9,300
9,300 $
241 $

3,541
–
3,541
3,652 $
1,291 $

there were no provisions, allowances or net write-offs on securitized residential mortgages.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

13
(1)
12
248

300
–
300
548 $
366 $

932
(92)
840
2,478

30,000
1,500
31,500
33,978
15,868

2012

total

290 $
266
(419)
77
214

1,502
13,585
(13,253)
872
2,706

12
1
13
227

300
–
300
527 $
267 $

357
575
932
3,638

29,440
560
30,000
33,638
14,720

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

(F) Interest Income by Product

thousands of Canadian dollars

traditional single-family residential mortgages
Accelerator single-family residential mortgages
Residential commercial mortgages
non-residential commercial mortgages
Credit card loans
Other consumer retail loans
total interest income on non-securitized loans
Securitized single-family residential mortgages
Securitized multi-unit residential mortgages
Assets pledged as collateral for securitization
total interest income on securitized loans

(G) loans by Remaining Contractual term to maturity

thousands of Canadian dollars

Within 1 Year

1 to 3 Years

3 to 5 Years

over 5 Years

2013
482,491 $
15,044
12,954
62,681
28,966
27,111
629,247
144,702
73,712
7,379
225,793
855,040 $

2012
381,971
17,440
11,000
61,229
34,722
19,360
525,722
200,679
80,757
6,435
287,871
813,593

December 31
2013

December 31
2012

total
Book Value

Collective allowance for credit losses

919,119

$ 2,231,590

569,388

–

$ 3,720,097 $ 4,763,757

482,849
7,155,829
121,719

349,426
2,928,154
68,509

258,343
696,735
3,904

399,306
66,649
2,748

1,489,924
10,847,367
196,880

1,942,403
8,689,446
154,477

590,201
293,485
13,642
9,576,844
–

315,971
–
42,765
5,936,415
–

88,038
–
135,460
1,751,868
–

$ 9,576,844 $ 5,936,415 $ 1,751,868 $

–
–
148,096
616,799
–

994,210
988,416
293,485
327,516
339,963
271,977
17,881,926
17,137,992
(30,000)
(31,500)
616,799 $ 17,850,426 $ 17,107,992

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

note 6

SeCuRItIZAt Ion ACtIVItY

(A) Securitized Assets and liabilities

the Company’s wholly owned subsidiary, Home trust, securitizes insured single-family residential and multi-unit residential mortgage loans
by participating in the national Housing Authority mortgage-backed securities (nHA 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 MBS interest payments to CMHC, whether or not the amounts have been collected on the underlying
transferred mortgages. Amounts advanced but not recovered will ultimately be recovered from the insurer.

the securitized 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 issued by Home trust. As the CMB is a bullet bond, the Company must provide eligible replacement assets to
re-collateralize the CMB as the underlying mortgages amortize or are prepaid.

In many securitization activities, the Company retains certain prepayment and/or interest rate risks and rewards related to the transferred
mortgages. Due to retention of these risks and rewards, 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. In other securitization activities, derecognition or continuing involvement accounting is applied.
please see note 6(B) for further information.

the following table presents the gross carrying amounts of mortgages and other assets assigned during the year, which are recorded
on the consolidated balance sheets as securitized residential mortgages or restricted assets, or recorded off-balance sheet as loans
under administration.

thousands of Canadian dollars

Mortgages assigned in new securitizations
Mortgage assets assigned as replacements of repaid amounts to CHt
through repurchase agreement
Mortgage assets
total assets assigned as replacements of repaid amounts to CHt
net (reduction) addition of non–Home trust MBS and treasury bills
Gross carrying amount of mortgages and other assets assigned
Off-balance sheet portion of mortgages assigned

2013

$ 1,261,660 $

2012
646,785

336,113
592,811
928,924
(57,884)
2,132,700

617,244 $

255,478
224,584
480,062
246,446
1,373,293
233,892

MBS securitization liabilities are repaid on a monthly basis as the principal payments are collected from securitized loans. CMB liabilities
are bullet bond liabilities with fixed maturities. Any principal collected against securitized assets underlying CMB liabilities is used to
purchase replacement assets. Interest accrued on securitization liabilities is recorded in other liabilities on the consolidated balance sheets
and is based on the underlying MBS and CMB coupon.

Securitization liabilities recorded on the consolidated balance sheets represent the funding received on securitization of insured mortgages
and other assets assigned under the nHA MBS and the CMB programs when the transaction does not qualify for off-balance sheet
treatment for the assets. Accrued interest on these liabilities is classified in other liabilities as accrued interest payable on securitization
liabilities.

the following table presents the new securitization liabilities added during the year, which are secured by insured mortgages and other
pledged assets.

thousands of Canadian dollars

Addition to securitization liabilities as a result of on-balance sheet activity
Buyback, maturity and amortization of securitization liabilities
Residual interest sales
Other1
net on-balance sheet securitization activity
proceeds received for mortgages assigned in new securitizations

1 Other includes premiums, discounts and transaction costs.

2013
644,416 $

$
(1,686,791)
(518,488)
(1,968)
(1,562,831)
$ 1,242,991 $

2012
412,893
(1,048,123)
(662,402)
(15,548)
(1,313,180)
639,968

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

(B) Securitization liabilities by Remaining Contractual term to maturity

December 31
2013

December 31
2012

thousands of Canadian dollars, except %

Mortgage-backed security liabilities
Contractual yield
Canada Mortgage Bond liabilities
Contractual yield

1 to 3 Years

3 to 5 Years

over 5 Years

Within 1 Year
$

85,087 $
2.6%

225,860 $

350,017 $

1.7%

2.2%

$ 1,277,150 $ 2,944,031 $

398,763 $

2.9%

2.3%

3.1%

$ 1,362,237 $ 3,169,891 $

748,780 $

– $
–

total
Book Value

total
Book Value
660,964 $ 1,301,693
2.1%
492,156 $ 5,112,100 $ 6,034,202
2.7%
492,156 $ 5,773,064 $ 7,335,895

2.6%

2.1%

3.8%

the Company securitizes and sells through the nHA MBS program certain insured multi-unit residential mortgages with no pre-payment
privileges. these mortgages are recognized on the Company’s consolidated balance sheets only to the extent of the Company’s continuing
involvement in the mortgages (continuing involvement accounting). the Company’s continuing involvement is limited to its retained
interest and its obligations for mortgage servicing. there is no prepayment or credit risk associated with the retained interest or the cost of
servicing. the mortgages are effectively derecognized as a result of this transaction. the retained interest and servicing liability are recorded
on the consolidated balance sheets in other assets and other liabilities, respectively.

the Company sells residual interests in certain pools of insured single-family residential mortgages securitized through the nHA MBS
program. the sales result in the Company transferring substantially all of the risks and rewards of ownership associated with the underlying
mortgages and the mortgages are derecognized. the gain on these transactions is included in non-interest income under securitization
income in the consolidated statements of income.

the following tables provide quantitative information about these securitization and sales activities.

thousands of Canadian dollars

Carrying value of underlying
mortgages derecognized
Gains on sale of mortgages
or residual interest1
Retained interests recorded
Servicing liability recorded

2013

Single-Family
Residential
mBS

multi-unit
Residential
mBS

Single-Family
Residential
MBS

Multi-unit
Residential
MBS

total mBS

2012

total MBS

519,261 $

617,244 $ 1,136,505 $

662,153 $

233,892 $

896,045

5,354

–
–

5,687
26,131
4,563

11,041
26,131
4,563

4,845
–
–

3,300
9,691
1,786

8,145
9,691
1,786

1 Gains on sale of mortgages are net of hedging impact.

thousands of Canadian dollars

Gain on sale of mortgages or residual interest
Change in unrealized gain or loss on
Mortgages held for sale
Bond forwards marked to market
net change in unrealized gain or loss
Servicing income
total securitization income

2013
11,041 $

(815)
924
109
1,498
12,648 $

2012
8,145

(16)
60
44
117
8,306

the bond forwards included in the above table are entered into to hedge interest rate risk on loans held for sale. these derivatives are not
designated in hedge accounting relationships. As shown in the above table, the gains or losses on these derivatives are mostly offset by
the fair value changes related to the loans held for sale, which are classified as held for trading for accounting purposes.

(D) Assets Assigned as Collateral

As a requirement of the nHA MBS and CMB programs, the Company assigns to CMHC all of its interest in existing mortgage pools. If the
Company fails to make timely payment under an nHA MBS or CMB security, CMHC may enforce the assignment of the mortgages included
in all the mortgage pools as well as other assets backing the mortgage-backed securities issued.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

the following table presents the principal value of the Company’s on-balance sheet mortgage loans and other assets assigned as collateral.
the mortgages are recorded as securitized single-family or multi-unit residential mortgages, and assets assigned as CMB replacement
assets are recorded as restricted assets.

thousands of Canadian dollars

Carrying value of insured mortgages assigned as collateral, including replacement mortgages
non–Home trust MBS and treasury bills assigned as collateral
total securitized assets assigned as collateral

December 31
2013

December 31
2012
$ 5,210,021 $ 6,706,160
588,069
$ 5,740,171 $ 7,294,229

530,150

non–Home trust MBS and treasury bills assigned as collateral are accounted for as available for sale assets and included in restricted
assets on the consolidated balance sheets. please see note 7 for more information.

note 7

ReSt RICte D ASSetS

thousands of Canadian dollars

Restricted cash
Restricted cash – Canada Mortgage Bond program
Restricted cash – interest rate swaps
Restricted cash – other programs
total restricted cash
non–Home trust MBS and treasury bills assigned as replacement assets
total restricted assets

December 31
2013

December 31
2012

91,900 $
21,482
9,454
122,836
530,150
652,986 $

100,387
21,655
15,382
137,424
588,069
725,493

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 nHA MBS programs, the Company is required to maintain an amount of cash in a trust account
to cover deposits of unscheduled principal prepayments (upp) and property taxes collected on the securitized loans. the Company is
allowed to invest the above amount in eligible securities.

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 the collateral are governed by International Swaps and Derivatives Association (ISDA) agreements.

Restricted cash – other programs are reserve accounts held in trust for the water heater financing program and for pSiGate operations.

the following table provides the remaining contractual term to maturity of non-Home trust MBS and treasury bills assigned as CMB
replacement assets. please see note 6(D) for more information.

thousands of Canadian dollars

Within 1 Year

1 to 3 Years

3 to 5 Years

over 5 Years

December 31
2013

December 31
2012

total
Fair Value

non–Home trust MBS and treasury
bills assigned as replacement assets $

525,430 $

4,720 $

– $

530,150 $

588,069

note 8

ot HeR ASSetS

thousands of Canadian dollars

Accrued interest receivable
prepaid CMB coupon
Securitization receivable and retained interest
Capital assets
Income taxes recoverable
Other prepaid assets and deferred items

December 31
2013
62,961 $
7,168
54,556
10,875
9,519
17,600
162,679 $

December 31
2012
61,481
12,486
10,714
6,578
–
9,724
100,983

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

note 9

IntAnGIBle ASSetS

Intangible assets comprise internally developed software costs which are principally related to the Company’s core banking system. these
costs are amortized over 10 years, commencing December 2011. the following table presents the net carrying amount of software costs
for the core banking system and other software costs as at December 31, 2013, and 2012, along with the changes in net carrying amount
for the years ended December 31, 2013 and 2012.

thousands of Canadian dollars

Core Banking

System1

other
Software
Costs2

total

Core Banking
System1

Other
Software
Costs2

2013

2012

total

Cost
Balance at the beginning of the year $
Additions from internal development
Balance at the end of the year
Accumulated amortization
Balance at the beginning of the year
Amortization expense
Balance at the end of the year
Carrying amount at the end of the year $

67,672 $
8,285
75,957

7,156 $
6,641
13,797

74,828 $
14,926
89,754

62,193 $
5,479
67,672

3,494 $
3,662
7,156

65,687
9,141
74,828

6,498
7,586
14,084
61,873 $

1,987
278
2,265
11,532 $

8,485
7,864
16,349
73,405 $

330
6,168
6,498
61,174 $

1,440
547
1,987
5,169 $

1,770
6,715
8,485
66,343

1 As at December 31, 2013, there was $14.2 million ($5.2 million – December 31, 2012) in work in progress related to the core banking system that was not being amortized.

2 As at December 31, 2013, there was $3.5 million ($0.8 million – December 31, 2012) in work in progress related to other software costs that was not being amortized.

note 10 GooDWIll

the carrying amount of goodwill in relation to each of the Company’s subsidiaries is as follows:

thousands of Canadian dollars

Home trust
pSiGate

December 31
2013
2,324 $

13,428
15,752 $

December 31
2012
2,324
13,428
15,752

there have been no additions, disposals or impairment losses of goodwill during the year.

Goodwill is allocated to cash-generating units for the purpose of impairment testing, considering the business level at which goodwill is
monitored for internal management purposes. the pSiGate goodwill is allocated to the pSiGate legal entity (the unit). Management has
determined that the recoverable amount of the unit exceeds its carrying amount and that no impairment exists. the following information
relates to the annual impairment test of the unit that was conducted during the fourth quarter of 2013.

the recoverable amount of the unit was determined on the basis of its fair value less costs of disposal. the fair value of the unit was
determined using a discounted cash flow methodology where estimated cash flows were projected to December 31, 2017 and assuming
a terminal growth rate of 3.0% (2012 – 3.0%) thereafter. A revenue growth rate of 4.9% (2012 – 8.1%) was assumed over the period
of projections, with a stable gross margin percentage. Operating expenses considered necessary to support the expected growth were
included and increased over the period of projections at an expected inflationary rate. planned capital expenditures, also necessary to
support expected growth, were incorporated.

A discount rate of 15.5% (2012 – 15.5%) was used, which comprised a risk-free rate, equity risk premium, size premium and company-
specific risk premium. the risk-free rate, equity risk premium and size premium were based on data from external sources whereas the
company-specific risk premium was based on factors considered by management to be specific to pSiGate.

the discounted cash flow methodology used is most sensitive to the discount rate and revenue growth rate used. In consideration of this
sensitivity, management determined that either an increase in the discount rate from 15.5% to 18.1% or a decrease in annual revenue
growth from 4.9% to a growth rate of 0.1% for each year of the projection, assuming unchanged values for the other assumptions, would
have caused the recoverable amount to equal the carrying amount.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

note 11

DePo SItS BY RemAInInG C o ntR AC tuAl teR m to m AtuR I tY

Payable

December 31
2013

December 31
2012

thousands of Canadian dollars, except %

Individuals
Businesses

effective contractual yield

on Demand Within 1 Year

3 to 5 Years

1 to 3 Years

429,269 $ 7,007,706 $ 4,066,638 $

total
742,381 $ 12,245,994 $ 9,903,666
232,933
519,960
308,818
429,269 $ 7,141,008 $ 4,144,478 $ 1,051,199 $ 12,765,954 $ 10,136,599
2.2%

133,302

77,840

2.3%

2.0%

1.5%

2.1%

2.8%

total

–

Included in deposits are institutional deposit notes in the principal amount of $300 million, with an effective contractual yield of 3.41%
and mature in 2018.

note 12

SenIoR D eBt

the Company issued $150.0 million principal amount of 5.20% debentures on May 4, 2011. the debentures pay interest semi-annually
on May 4 and november 4 in each year. 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 par and the price that would provide a yield
to maturity equal to the Government of Canada bond rate plus 0.66%, plus accrued and unpaid interest to the date of redemption. the
carrying amount includes unamortized issue costs and fair value adjustments related to interest rate hedging.

note 13

otHeR lIABIlIt IeS

thousands of Canadian dollars

Accrued interest payable on deposits
Accrued interest payable on securitization liabilities
Income taxes payable
Other, including accounts payable and accrued liabilities

note 14

CAPItAl

(A) Authorized

December 31
2013
112,242 $
14,833
–
46,483
173,558 $

December 31
2012
93,856
19,595
21,912
35,139
170,502

An unlimited number of common shares with no par value
An unlimited number of preferred shares, issuable in series, to be designated as senior preferred shares
An unlimited number of preferred shares, issuable in series, to be designated as junior preferred shares

(B) Common Shares Issued and outstanding

thousands
Outstanding at the beginning of the year
Options exercised
Repurchase of shares
Outstanding at the end of the year

2013

number of
Shares
34,630 $
153
(39)
34,744 $

Amount
61,903 $
8,400
(70)
70,233 $

number of
Shares
34,625 $
169
(164)
34,630 $

2012

Amount
55,104
7,088
(289)
61,903

On February 12, 2014 the Board approved a stock dividend of one common share per each outstanding common share. the Company
has no preferred shares outstanding.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

During the year, 39,100 (2012 – 163,500) common shares were purchased for $2.3 million (2012 – $8.1 million). the purchase price of
shares acquired through the normal Course Issuer Bid is allocated between share capital and retained earnings. the reduction to share
capital for the year ended December 31, 2013 was $0.1 million (2012 – $0.3 million). the balance of the purchase price of $2.2 million
(2012 – $7.8 million) was charged to retained earnings.

(D) earnings per Common Share (ePS)

Basic earnings per common share of $7.40 (2012 – $6.40) is determined as net income for the year divided by the average number of
common shares outstanding of 34.7 million (2012 – 34.7 million).

Diluted earnings per common share of $7.32 (2012 – $6.38) is determined as net income for the year divided by the average number of
common shares outstanding of 34.7 million (2012 – 34.7 million) plus the stock options potentially exercisable, as determined under the
treasury stock method, of 353 thousand (2012 – 128 thousand) for a total of 35.0 million (2012 – 34.8 million) diluted common shares.

Diluted income per common share excludes contingently assumable average options outstanding of 300,875 with a weighted-average
exercise price of $62.07 for December 31, 2013 and contingently assumable average options outstanding of 225,750 with a weighted-
average exercise price of $47.17 for December 31, 2012, as not all vesting and performance criteria had been met.

(e) Capital management

the Company has a Capital Management policy that governs the quantity and quality of capital held. the objectives of the policy are to
ensure that capital levels are adequate and that Home trust meets all regulatory capital requirements, while also providing a sufficient
return to investors. the Risk and Capital Committee and the Board review the policy annually and monitor compliance with the policy on
a quarterly basis.

the Company’s subsidiary, Home trust, is subject to the regulatory capital requirements stipulated by the Office of the Superintendent of
Financial Institutions Canada (OSFI). these requirements are consistent with international standards (Basel II and Basel III) set by the
Bank for International Settlements. Home trust follows the Basel II Standardized Approach for calculating credit risk and Basic Indicatory
Approach for operational risk. In addition, Home trust pays dividends subject to any restrictions by OSFI.

the regulatory capital position of Home trust was as follows:

thousands of Canadian dollars, except ratios and multiples

Common equity tier 1 capital (Cet 1)1
Additional tier 1 capital
tier 1 capital
tier 2 capital2
total regulatory capital
Risk-weighted assets for
Credit risk
Operational risk
total risk-weighted assets
Regulated capital to risk-weighted assets
Cet 1 ratio
tier 1 capital ratio
total regulatory capital ratio
Assets to regulatory capital multiple
national regulatory minimum
Cet 1 ratio (required January 1, 2013)
tier 1 capital ratio (required January 1, 2014)
total regulatory capital ratio (required January 1, 2014)

December 31
2013

transitional
All-In Basis
Basis
$ 1,091,204 $ 1,145,491
–
1,145,491
187,500
$ 1,278,704 $ 1,332,991

–
1,091,204
187,500

$ 5,702,192 $ 5,756,155
793,575
$ 6,495,767 $ 6,549,730

793,575

17.49%
17.49%
20.35%
13.19

16.80%
16.80%
19.69%
n/A

7.00%
8.50%
10.50%

1 Regulatory deductions on the all-in basis include intangible assets related to software development and unrealized multi-unit residential mortgage securitization gains, net of

deferred taxes.

2 the Company is allowed to include its collective allowance for credit losses up to a prescribed percentage of 1.25% of credit risk-weighted assets in tier 2 capital.

At December 31, 2013, the Company’s collective allowance represented 0.55% of credit risk-weighted assets.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Home trust adopted certain Basel III capital requirements, as required by OSFI, beginning January 1, 2013. the primary impact at adoption
was the deduction from Common equity tier 1 capital on an all-in basis of $51.1 million of intangible assets, net of deferred taxes, related
to information technology development costs as well as the inclusion of all accumulated other comprehensive income, net of cash flow
hedges. the transitional basis allows for the transition of certain capital deductions over a period ending January 1, 2018, whereas the
all-in basis includes all applicable deductions immediately. For purposes of meeting minimum regulatory capital ratios prescribed by OSFI,
the all-in basis is required. the Assets to Regulatory Capital Multiple (ACM) is calculated and evaluated on a transitional basis.

In Q1 2013, Home trust amended the terms of all its subordinated debt, of which all debt is issued to the Company, to comply with the
non-viability contingent capital requirements. this allowed for the inclusion of the subordinated debt in tier 2 capital. under Basel III this
subordinated debt will be subject to straight-line amortization out of capital in the final five years prior to maturity. the principal amounts
of the subordinated debt currently mature in 2021 and 2022 in the amounts of $100 million and $56 million, respectively.

Currently, Home trust’s Common equity tier 1, total tier 1, and total capital ratios significantly exceed OSFI’s regulatory targets of 7.0% for
Common equity tier 1, 8.5% for total tier 1 and 10.5% for total capital ratios, as well as Home trust’s internal capital targets.

note 15

ACCum ulAteD otHeR Co mP R e Hen S IV e I nC o me

thousands of Canadian dollars

unrealized (losses) gains on
Available for sale securities and retained interests
Income tax (recovery) expense

unrealized losses on
Cash flow hedges
Income tax recovery

Accumulated other comprehensive loss

note 16

InCome tAXeS

(A) Reconciliation of Income taxes

December 31
2013

December 31
2012

(21,530) $
(5,707)
(15,823)

584
152
432

(3,612)
(956)
(2,656)
(18,479) $

(5,676)
(1,499)
(4,177)
(3,745)

the combined federal and provincial income tax rate varies each year depending on changes in the statutory tax rate imposed by the
federal and provincial governments. the effective rate of income tax in the consolidated statements of income is different from the
combined federal and provincial income tax rate of 26.49% (2012 – 26.43%).

thousands of Canadian dollars

Income before income taxes
Income taxes at statutory combined federal and provincial income tax rates
Increase (decrease) in income taxes at statutory income tax rates resulting from
tax-exempt income
non-deductible expenses
Future tax rate changes and other
Scientific research and experimental development investment tax credits
Income tax

(B) Reconciliation of Income tax Rates

Statutory income tax rate
Increase (reduction) in income tax rate resulting from
tax-exempt income
non-deductible expenses
Future tax rate changes and other
Scientific research and experimental development investment tax credits
effective income tax rate

2013

2012
$ 337,432 $ 299,919
79,254

89,377

(2,956)
568
91
(6,190)
80,890 $

(3,744)
495
1,931
–
77,936

2013
26.49%

(0.89)%
0.17%
0.03%
(1.83)%
23.97%

2012
26.43%

(1.26)%
0.17%
0.65%
–

25.99%

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

thousands of Canadian dollars

Deferred tax liabilities
Commissions
Finders’ fees, net of commitment fees
Securitization transaction costs
Swaps
Development costs
Other

Deferred tax assets
Allowance for credit losses
Other

net deferred tax liability

December 31
2013

December 31
2012

7,649 $
5,949
4,008
5,258
19,443
344
42,651

7,534
692
8,226
34,425 $

6,921
7,905
5,932
5,525
16,656
730
43,669

7,443
426
7,869
35,800

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.

During the year, the Company recognized Scientific Research and experimental Development investment tax credits related to the
development of its core banking system. the investment tax credits recognized related to work performed in 2009–2012. the Company
recorded the benefit for these years based on information providing assurance that these claims will be accepted. the investment tax
credits are recorded as a reduction of tax provisions, net of any tax that would be eligible on such benefit.

not e 17

emPloYee BeneFItS

(A) employee Share ownership Plan

under the employee Share Ownership plan, every year eligible employees can elect to purchase common shares of the Company up to 10%
of their annual earnings. the Company matches 50% of the employees’ contribution amount. During each pay period, all contributions are
used by the plan’s trustee to purchase the common shares in the open market. the Company’s contributions are fully vested immediately.
the Company’s contributions are expensed as paid and totalled $0.9 million for 2013 (2012 – $0.8 million).

(B) employee Retirement Savings Plan

During the year, Home trust contributed $0.9 million (2012 – $0.8 million) to the employee group registered retirement savings plan.

the details and changes in the issued and outstanding options are as follows:

2013

Weighted-
Average
exercise
Price
38.71
68.91
40.51
48.23
46.04
36.83
61.02
4.0

number of
Shares

783 $
216
(153)
(21)
825 $
524 $
$

2012

Weighted-
Average
exercise
price
37.16
47.20
33.56
33.74
38.71
35.29
48.48
3.7

number of
Shares

929 $
51
(169)
(28)
783 $
557 $
$

thousands, except per share amounts and years

Outstanding at the beginning of the year
Granted
exercised
Forfeited
Outstanding at the end of the year
exercisable at the end of the year
Weighted-average market price per share at date of exercise
Weighted-average remaining contractual life in years

100

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

the Company’s stock option plan was approved by the shareholders of the Company on December 31, 1986. the plan was amended in
2002 to conform to the toronto Stock exchange’s Revised policy on Listed Company Share Incentive Arrangements. As at December 31,
2013, the maximum number of options on common shares that may be issued was 5,335,198, representing approximately 15.4% of the
aggregate number of common shares. the exercise price of the options is fixed by the Board at the time of issuance at the market price
of such shares, subject to all applicable regulatory requirements. the exercise period of any option is limited to a period of seven years
from the date of grant of the option. the period within which an option or portion thereof may be exercised by a participant is determined
in each case by the Board. Stock options that are currently issued and outstanding vest at a rate of 25% per year over four years on the
condition that set earnings per share targets are achieved for each year as established by the Board at the time of the grant.

During 2010, the Company approved an amendment to the employee stock option plan to provide stock appreciation rights that allow cash
settlement of vested stock options, at the Company’s discretion. no options were settled in cash during 2013 or 2012.

As at December 31, 2013, the exercise prices for stock options outstanding to acquire common shares ranged from $16.27 to $79.75.
the weighted-average range of exercise prices for stock options outstanding and exercisable are presented below along with the number
of options outstanding and exercisable and the weighted-average contractual life remaining.

(D) Stock options outstanding

Stock options outstanding

As at
December 31
2013
Stock options exercisable

Weighted-Average
Contractual
life Remaining
in Years

Weighted-
Average
exercise
Price

number
exercisable

Weighted-
Average
exercise
Price

number
outstanding

164,750
15,000
420,750
94,000
32,000
98,000
824,500

1.9 $
2.4
3.6
6.0
6.6
6.9
4.0 $

16.27
31.87
46.43
57.94
64.01
79.32
46.04

164,750 $

15,000
320,375
23,500
–
–
523,625

16.27
31.87
46.09
57.94
–
–
36.83

Range of exercise prices
$15.01 – $30.00
$30.01 – $40.00
$40.01 – $50.00
$50.01 – $60.00
$60.01 – $70.00
$70.01 – $80.00

the Company determines the fair value of options granted using a Black-Scholes option pricing model. the weighted-average fair value of
the options granted during the year was $22.05 (2012 – $15.37).

the following assumptions were used to determine the fair value of each of the following option grants on the date of grant:

Canadian dollars, except
% and years

Fair value of
options granted
Share price
exercise price
expected share
price volatility
Option life
expected period until
exercise in years1
Forfeiture rate
expected dividend
yield
Risk-free rate
of return

1 exercisable upon vesting.

December
2013

november
2013

August
2013

February
2013

August
2012

March
2012

February
2012

$
$
$

26.56
79.29
79.30

$
$
$

26.55
79.49
79.74

$
$
$

19.96 $
62.60 $
64.01 $

17.70 $
57.08 $
58.86 $

14.70 $
45.32 $
46.39 $

17.10 $
49.73 $
49.55 $

17.87
51.00
50.23

34.5%
7.0

4.0
6.8%

34.6%
7.0

4.0
6.8%

34.6%
7.0

4.0
6.8%

35.6%
7.0

4.0
6.8%

35.9%
7.0

4.0
6.8%

36.0%
7.0

4.0
6.8%

36.1%
7.0

4.0
6.8%

1.41%

1.66%

1.82%

2.03%

1.77%

1.73%

2.19%

2.13%

2.18%

1.77%

1.40%

1.69%

1.73%

the above assumptions for expected volatility were determined on the basis of historical volatility.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013 101

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

the Company determines the fair value of stock options on the grant date and records this amount as compensation expense over the
period that the stock options vest, with a corresponding increase to contributed surplus (2013 – $2.0 million; 2012 – $1.8 million). When
these stock options are exercised, the Company records the amount of proceeds, together with the amount recorded in contributed surplus,
in capital stock (2013 – $6.2 million; 2012 – $5.7 million).

(e) Deferred Share units

the Company grants DSus to Directors of the Company. under the plan, the Directors may elect annually to accept remuneration in the
form of cash, cash and DSus or DSus prior to the beginning of the year. DSus earn dividend equivalents in the form of additional DSus
at the same rate as dividends on common shares. the participant is not allowed to settle the DSus until retirement or termination of
directorship. the cash value of the DSus is equivalent to the market value of common shares when settlement takes place. the fair value
of the DSu liability as at December 31, 2013 was $1.98 million (2012 – $1.02 million). As of December 31, 2013, there were 24,443
DSus outstanding (2012 – 17,275).

(F) Restricted Share units

the Company grants RSus to certain key members of management. the RSus vest at a rate of one-third each year over a three-year period.
the vested amount is settled on the vesting date. RSus earn dividend equivalents in the form of additional RSus at the same rate as
dividends on common shares. the cash value of the RSus is equivalent to the market value of common shares on the vesting date. the fair
value of the RSu liability as at December 31, 2013 was $206 thousand (2012 – $34 thousand). As of December 31, 2013, there were
20,940 RSus outstanding (2012 – 4,986 RSus outstanding).

(G) Performance Share units

the Company grants pSus to certain key members of management. the pSus vest after three years on the condition that certain
performance criteria are met. the vested amount is settled on the vesting date. pSus earn dividend equivalents in the form of additional
pSus at the same rate as dividends on common shares. the cash value of the pSus is equivalent to the market value of common shares
on the vesting date multiplied by a performance factor ranging from 0% to 200%. the fair value of the pSu liability as at December 31,
2013 was $541 thousand and there were 17,159 pSus outstanding. the Company did not grant pSus prior to 2013.

(H) Share-Based Compensation expense

the expense recognized in the consolidated statements of income in relation to share-based compensation was as follows:

thousands of Canadian dollars

expense arising from equity-settled share-based payment transactions
DSus, RSus and pSus (representing all expenses arising from
cash-settled share-based payment transactions)

note 18

CommItm entS A nD ContInGenCIeS

(A) lease Commitments

2013
1,962 $

1,348
3,310 $

2012
1,759

209
1,968

the Company has entered into commercial leases on premises and property, as well as certain computer hardware and software leases.
there are no restrictions imposed by lease arrangements. Future minimum lease payments under non-cancellable operating leases are
as follows:

thousands of Canadian dollars

Within one year
After one year but not more than five years
More than five years

December 31
2013
8,806 $

27,116
21,770
57,692 $

December 31
2012
4,562
15,285
15,811
35,658

Lease payments recognized as an expense in the consolidated statements of income amounted to $16.5 million in 2013 (2012 – $12.1 million).

102

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

(B) Credit Commitments

Outstanding commitments for funding on mortgages amounted to $754.6 million as at December 31, 2013 (2012 – $571.8 million).
Commitments for loans remain open for various periods. the average rate on mortgage commitments is 4.60% (2012 – 4.88%).

the Company also has contractual commitments to extend credit to its clients for its credit card products. the contractual commitments
for these products represent the maximum potential credit risk, assuming that all the contractual amounts are fully utilized, the clients
default and collection efforts are unsuccessful. At December 31, 2013, these contractual commitments in aggregate were $373.7 million
(2012 – $403.1 million), of which $80.8 million (2012 – $75.7 million) had not been drawn by customers. Outstanding commitments for
future advances for the equityline Visa portfolio were $5.8 million at December 31, 2013 (2012 – $4.8 million).

these amounts in aggregate are not indicative of total future cash requirements. Management does not expect any material adverse
consequence to the Company’s financial position to result from these commitments. Secured credit cards have spending limits restricted
by collateral held by the Company.

the Company indemnifies Directors and officers, to the extent permitted by law, against certain claims that may be made against them as
a result of their being, or having been, Directors and officers at the request of the Company. the nature of this indemnification prevents the
Company from making a reasonable estimate of the maximum potential amount the Company could be required to pay to third parties.
Management believes that the likelihood that the Company would incur a significant liability under these indemnifications is remote. the
Company has purchased Directors’ and officers’ liability insurance.

(D) Contingencies

there were no material contingencies identified by the Company in 2013.

note 19

DeRIVAt IVe FInA nCIAl InS tRum en tS

the 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 the 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 on-balance sheet asset or liability
being hedged or the changes in the amount of future cash flows.

Fair value represents point-in-time estimates that may change in subsequent reporting periods due to market conditions or other factors.
Fair value for derivatives is determined from swap curves adjusted for credit risks. Swap curves are obtained directly from market sources
or calculated from market prices.

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 in net realized and
unrealized gain or loss on derivatives.

cash flow Hedging relationships

the Company uses bond forward contracts or interest rate swaps to hedge the economic value exposure to movements in interest
rates between the time that the Company determines that it will likely incur liabilities pursuant to asset securitization, and the time the
securitization transaction is complete and the liabilities are incurred. the intent of the bond forward or interest rate swap is to manage the
change in cash flows of the future interest payments on the anticipated secured borrowings through asset securitization. Changes in the fair
value of the derivative instrument that occur before the liability is incurred are recorded in AOCI. the fair value changes recorded in AOCI
are reclassified into net interest income over the term of the hedged item.

the following table presents gains or losses related to cash flow hedges included in the Company’s financial results:

thousands of Canadian dollars

Fair value gain (loss) recorded in OCI
Fair value losses recorded in non-interest income (ineffectiveness)
Losses reclassified from OCI to net interest income and securitization gains

2013

702 $
13
(1,362)

2012
(370)
–
(1,462)

Home CAPItAl GRouP InC. AnnuAL RepORt 2013 103

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

fair Value Hedging relationships

the Company uses interest rate swaps to hedge changes in the fair value of fixed-rate assets and liabilities, which are associated with
changes in market interest rates. Fair value hedges include hedges of fixed-rate mortgages and fixed-rate liabilities, which include deposits,
deposit notes, senior debt and securitization liabilities.

the following table presents gains or losses related to fair value hedges included in the Company’s financial results:

thousands of Canadian dollars

Fair value changes recorded on interest rate swaps1
Fair value changes of hedged fixed-rate liabilities for interest rate risk2
Hedge ineffectiveness gain recognized in non-interest income

2013
(16,494) $
22,881

6,387 $

2012
(26,609)
33,615
7,006

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 fixed-rate hedged items for the risk being hedged are recorded as part of the associated fixed-rate asset or liability on the consolidated

balance sheets.

other derivative Gains and Losses

From time to time, the Company enters into derivative positions to hedge interest rate risk and such derivatives are not designated as
hedges for accounting purposes. the changes in fair value of such derivatives flow directly to the consolidated statements of income. net
realized and unrealized gains of $0.2 million (2012 – $0.3 million) were recorded in income through net realized and unrealized gain or
loss on derivatives.

the Company may also enter into bond forwards or interest rate swaps to hedge interest rate risk on loans held for securitization. Realized
and unrealized gains or losses on these derivatives are included in securitization income on the consolidated statements of income. please
see note 6 for more information.

net realized and unrealized gains or losses on derivatives include amounts related to the restructuring of certain derivative positions upon
adoption of IFRS. A charge of $8.0 million was recorded in 2013 (2012 – $3.5 million).

As at December 31, 2013 and 2012, the outstanding interest rate swap and bond forward contract positions were as follows:

thousands of Canadian dollars

As at December 31, 2013

notional
Amount

Current
Replacement
Cost

Credit
equivalent
Amount

Risk-
Weighted
Balance

Derivative
Asset

Derivative
liability

net
Fair market
Value

Year of Maturity

Swaps designated
as hedges
Maturing in 2014
Maturing in 2015
Maturing in 2016
Maturing in 2018
Maturing in 2020

undesignated swaps
Maturing in 2016

Bond forwards1
Maturing in 2018
Maturing in 2019
Maturing in 2023

total

3,204 $

641 $

3,204 $

586,000 $
833,914
207,100
549,200
59,000
2,235,214

50,000
50,000

16,154
4,335
1,616
3,186
28,495

–
–

20,324
5,370
4,362
4,071
37,331

250
250

4,065
1,074
872
814
7,466

50
50

16,154
4,335
1,616
3,186
28,495

(69) $
–
(251)
(2,849)
–
(3,169)

3,135
16,154
4,084
(1,233)
3,186
25,326

–
–

(595)
(595)

43,700
50,000
122,500
216,200
$ 2,501,414 $

212
256
923
1,391
29,886 $

431
1,006
2,760
4,197
41,778 $

236
201
2,401
2,838
10,354 $

212
256
923
1,391
29,886 $

–
–
(45)
(45)
(3,809) $

(595)
(595)

212
256
878
1,346
26,077

104

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

thousands of Canadian dollars

As at December 31, 2012

Year of Maturity

Swaps designated
as hedges
Maturing in 2013
Maturing in 2014
Maturing in 2015
Maturing in 2016
Maturing in 2018
Maturing in 2020

undesignated swaps
Maturing in 2016

Bond forwards1
Maturing in 2023

total

notional
Amount

Current
Replacement
Cost

Credit
equivalent
Amount

Risk-
Weighted
Balance

Derivative
Asset

Derivative
Liability

net
Fair Market
Value

265,200 $
230,500
798,914
192,200
25,700
59,000
1,571,514

4,305 $
5,851
21,522
5,954
1,671
6,015
45,318

4,305 $
7,004
25,484
6,797
2,057
6,900
52,547

100,000
100,000

–
–

861 $

1,401
5,097
1,359
411
1,380
10,509

–
–

4,305 $
5,851
21,522
5,954
1,671
6,015
45,318

– $
–
(20)
(200)
–
–
(220)

–
–

(2,156)
(2,156)

17,500
17,500
$ 1,689,014 $

70
70
45,388 $

202
202
52,749 $

40
40
10,549 $

70
70
45,388 $

(10)
(10)
(2,386) $

4,305
5,851
21,502
5,754
1,671
6,015
45,098

(2,156)
(2,156)

60
60
43,002

1 the 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.

note 20

CuRRent AnD non-CuRR en t A SS etS AnD lI AB I l ItI eS

the following table presents an analysis of each asset and liability line item by amounts, including prepayment assumptions, expected to
be recovered or settled within one year or after one year as at December 31, 2013 and 2012.

thousands of Canadian dollars

Within 1 Year

After 1 Year

total Within 1 Year

After 1 Year

total

As at December 31, 2013

As at December 31, 2012

Assets
Cash and cash equivalents
Available for sale securities
Loans held for sale
Securitized mortgages
non-securitized mortgages and loans
Collective allowance for credit losses
Restricted assets
Derivative assets
Other assets
Goodwill and intangible assets
total assets
liabilities
Deposits payable on demand
Deposits payable on a fixed date
Senior debt
Mortgage-backed security liabilities
Canada Mortgage Bond liabilities
Derivative liabilities
Other liabilities
Deferred tax liabilities
total liabilities
net

– $

728,469 $
201,416
137,975
1,741,367
9,005,240
(21,000)
648,266
3,204
151,804
–

301,863
414,344
21,921
6,706,160
10,431,832
(30,000)
725,493
45,388
100,983
82,095
$ 12,596,741 $ 7,479,109 $ 20,075,850 $ 9,831,077 $ 8,969,002 $ 18,800,079

728,469 $
424,272
137,975
5,210,021
12,671,905
(31,500)
652,986
29,886
162,679
89,157

301,863 $
162,368
21,921
1,684,143
7,037,009
(20,000)
545,063
4,305
94,405
–

222,856
–
3,468,654
3,666,665
(10,500)
4,720
26,682
10,875
89,157

251,976
–
5,022,017
3,394,823
(10,000)
180,430
41,083
6,578
82,095

– $

105,923 $

429,269 $

7,141,008
–
85,087
1,277,150
69
173,558
–

105,923
10,030,676
150,684
1,301,693
6,034,202
2,386
170,502
35,800
$ 9,106,141 $ 9,792,012 $ 18,898,153 $ 7,464,653 $ 10,367,213 $ 17,831,866
968,213
$ 3,490,600 $ (2,312,903) $ 1,177,697 $ 2,366,424 $ (1,398,211) $

12,336,685
147,343
660,964
5,112,100
3,809
173,558
34,425

5,195,677
147,343
575,877
3,834,950
3,740
–
34,425

4,224,657
150,684
831,903
5,121,783
2,386
–
35,800

5,806,019
–
469,790
912,419
–
170,502
–

Home CAPItAl GRouP InC. AnnuAL RepORt 2013 105

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

note 21

InteReSt RAte S enSItIVItY

the Company is exposed to interest rate risk as a result of a difference, or gap, between the maturity or repricing date of interest-sensitive
assets and liabilities. the following tables show the gap positions at December 31, 2013 and 2012 for selected period intervals. Figures
in parentheses represent an excess of liabilities over assets or a negative gap position.

this schedule reflects the contractual maturities of both assets and liabilities, adjusted for assumptions regarding the effective change
in the maturity date as a result of a mortgage becoming impaired and for credit commitments and derivatives. Variable rate assets and
liabilities are allocated to a maturity category based on their interest repricing date.

thousands of Canadian dollars, except %

Assets
Cash and cash equivalents
Weighted-average interest rate
Available for sale securities
Weighted-average interest rate
Loans held for sale
Weighted-average interest rate
Securitized mortgages
Weighted-average interest rate
non-securitized mortgages
and loans
Weighted-average interest rate
Other assets
Weighted-average interest rate
total
Weighted-average interest rate
Liabilities and shareholders’ equity
Deposits payable on demand
Weighted-average interest rate
Deposits payable at a fixed rate
Weighted-average interest rate
Senior debt
Weighted-average interest rate
Securitization liabilities
Weighted-average interest rate
Other liabilities
Weighted-average interest rate
Shareholders’ equity
Weighted-average interest rate
total
Weighted-average interest rate

Credit commitments
Weighted-average interest rate
Interest rate sensitivity gap

Cumulative gap

Cumulative gap as a
percentage of total assets

Floating
Rate

0 to 3
months

3 to 6
months

6 to 12
months

1 to 3
Years

over
3 Years

non-
interest
Sensitive

total

As at December 31, 2013

50,526 $ 677,943 $

1.0%

– $

–

– $

–

– $

–

– $

–

37,818

68,784

94,814

129,655

93,201

2.0%

2.5%

3.0%

4.2%

4.5%

–

137,975

3.7%

–

2,154,530

421,987

603,121

957,023

1,073,360

–

2.8%

3.9%

4.1%

3.6%

4.1%

– $ 728,469

–

1.0%

424,272

3.5%

137,975

3.7%

–

5,210,021

–

3.4%

–

2,057,497

1,722,058

4,501,134

3,301,711

1,067,311

(9,306)

12,640,405

–

5.3%

5.1%

122,836

447,079

138,123

1.2%

0.9%

1.5%

5.3%

–

5.1%

4,720

1.6%

5.5%

–

5.2%

221,950

934,708

–

0.8%

$ 173,362 $ 5,374,867 $ 2,350,952 $ 5,199,069 $ 4,393,109 $ 2,371,847 $ 212,644 $ 20,075,850

1.1%

3.4%

4.6%

5.1%

4.7%

–

4.3%

$ 338,381 $

1.5%

– $

–

– $

–

– $

–

– $

–

– $

90,888 $ 429,269

838,509

1,889,830

4,412,669

4,144,478

1,051,199

1.9%

2.0%

2.1%

2.3%

2.8%

–

147,343

5.2%

–

2,536,540

499,825

659,953

997,915

1,078,831

3.2%

2.8%

2.9%

3.3%

–

1.5%

12,336,685

2.2%

147,343

5.2%

5,773,064

2.6%

–

207,983

211,792

–

1,177,697

–

1.9%

3,809

–

$ 338,381 $ 3,378,858 $ 2,389,655 $ 5,072,622 $ 5,289,736 $ 2,130,030 $ 1,476,568 $ 20,075,850

1.5%

1.9%

2.2%

2.5%

3.1%

–

2.1%

$ (165,019) $ 1,996,009 $

(38,703) $ 126,447 $ (896,627) $ 241,817 $ (1,263,924) $

–

(748,741)

4.6%

305

6.3%

5.1%

26,758

721,659

5.0%

4.6%

–

$ (165,019) $ 1,247,268 $

(38,398) $ 126,466 $ (869,869) $ 963,476 $ (1,263,924) $

$ (165,019) $ 1,082,249 $ 1,043,851 $ 1,170,317 $ 300,448 $ 1,263,924 $

– $

(0.8)%

5.4%

5.2%

5.8%

1.5%

6.3%

–

106

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

thousands of Canadian dollars, except %

Credit commitments
Weighted-average interest rate
Interest rate sensitivity gap
Cumulative gap
Cumulative gap as a
percentage of total assets

Floating
Rate

0 to 3
Months

3 to 6
Months

6 to 12
Months

1 to 3
Years

Over
3 Years

non-
interest
Sensitive

total

As at December 31, 2012

11,858 $ 290,005 $

1.0%

– $

–

– $

–

– $

–

– $

–

86,902

52,803

22,663

87,213

164,763

2.6%

2.4%

3.0%

5.2%

4.5%

–

21,921

3.0%

2,488,249

248,657

743,190

1,855,921

1,370,143

2.8%

4.9%

4.0%

4.1%

– $ 301,863

–

1.0%

414,344

3.9%

21,921

3.0%

6,706,160

3.7%

1,779,351

1,382,405

3,539,715

2,893,053

820,039

(12,731)

10,401,832

6.1%

5.3%

5.5%

5.2%

5.5%

–

5.5%

122,042

430,446

30,789

7,174

180,430

1.0%

0.9%

1.3%

1.2%

1.5%

–

183,078

953,959

–

0.9%

$ 133,900 $ 5,074,953 $ 1,714,654 $ 4,312,742 $ 5,016,617 $ 2,376,866 $ 170,347 $ 18,800,079

1.0%

3.7%

5.1%

5.4%

4.6%

–

4.5%

19,825 $

1.7%

– $

–

– $

–

– $

–

– $

–

– $

86,098 $ 105,923

–

1.7%

706,686

1,729,232

3,370,101

3,581,002

643,655

–

10,030,676

2.0%

2.1%

2.0%

2.5%

2.7%

–

150,684

5.2%

2,531,345

387,283

944,636

2,151,375

1,321,256

3.2%

2.9%

3.2%

–

2.2%

150,684

5.2%

7,335,895

2.6%

1.9%

2,386

–

206,302

208,688

–

968,213

–

19,825 $ 3,240,417 $ 2,116,515 $ 4,314,737 $ 5,732,377 $ 2,115,595 $ 1,260,613 $ 18,800,079

1.7%

1.9%

2.3%

2.2%

2.6%

3.2%

–

2.2%

$ 114,075 $ 1,834,536 $ (401,861) $

(1,995) $ (715,760) $ 261,271 $(1,090,266) $

–

(567,041)

2,342

4.8%

5.5%

–

20,369

544,330

5.9%

4.8%

–

$ 114,075 $ 1,267,495 $ (399,519) $

(1,995) $ (695,391) $ 805,601 $ (1,090,266) $

$ 114,075 $ 1,381,570 $ 982,051 $ 980,056 $ 284,665 $ 1,090,266 $

– $

0.6%

7.3%

5.2%

1.5%

5.8%

–

Based on the current interest rate gap position at December 31, 2013, the Company estimates that a 100 basis point decrease in interest
rates would decrease net interest income after tax and other comprehensive income over the next 12 months by $12.6 million and
$0.7 million, respectively, and decrease net present value of shareholders’ equity by $18.0 million. A 100 basis point increase in interest
rates would increase net interest income after tax and other comprehensive income over the next 12 months by $12.6 million and
$0.7 million, respectively, and increase net present value of shareholders’ equity by $16.6 million.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013 107

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

note 22

FAIR VAlue oF FInAnCIA l InSt Rum en tS

the amounts set out in the following table represent the fair values of the Company’s financial instruments. the valuation methods and
assumptions are described below.

the estimated fair value amounts approximate the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants that are under no compulsion to act at the balance sheet date in the principal or most
advantageous market which is accessible to the Company. For financial instruments carried at fair value that lack an active market, the
Company applies present value and valuation techniques that use observable market inputs. Because of the estimation process and
the need to use judgement, the aggregate fair value amounts should not be interpreted as being necessarily realizable in an immediate
settlement of the instruments.

thousands of Canadian dollars

Financial
Assets Held
for trading

Financial
Assets
Available
for Sale

loans and
Receivables

Financial
liabilities at
Amortized
Cost

Carrying
Value

Fair
Value

Fair Value
over (under)
Carrying
Value

As at December 31, 2013

Assets
Cash and cash
equivalents
Available for
sale securities
Loans held for sale
Securitized mortgages
non-securitized
mortgages and loans
Restricted assets
Derivative assets
Securitization receivable
and retained interest
Other
total Assets
Liabilities
Deposits
Senior debt
Securitization liabilities
Derivative liabilities
Other
total Liabilities

728,469 $

– $

–

– $

728,469 $

728,469 $ –

–
137,975
–

–
122,836
29,886

424,272
–
–

–
–
5,210,021

–
530,150
–

12,640,405
–
–

–
–

31,935
–

22,621
79,648

$ 1,019,166 $

986,357 $ 17,952,695 $

–
–
–

424,272
137,975
5,210,021

424,272
137,975
5,256,782

–
–
46,761

12,640,405
652,986
29,886

13,100,882
652,986
29,886

460,477
–
–

54,556
79,648

170
–
–
–
– $ 19,958,218 $ 20,465,626 $ 507,408

54,726
79,648

– $
–
–
3,809
–
3,809 $

– $
–
–
–
–
– $

$ 12,765,954 $ 12,765,954 $ 12,904,296 $ 138,342
–
9,951
–
89,375
–
–
–
–
–
– $ 18,859,919 $ 18,863,728 $ 19,101,396 $ 237,668

157,294
5,862,439
3,809
173,558

147,343
5,773,064
–
173,558

147,343
5,773,064
3,809
173,558

108

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

thousands of Canadian dollars

Financial
Assets Held
for trading

Financial
Assets
Available
for Sale

Loans and
Receivables

Financial
Liabilities at
Amortized
Cost

Carrying
Value

As at December 31, 2012

Fair Value
Over (under)
Carrying
Value

Fair
Value

301,863 $

– $

301,863 $

301,863 $ –

–
21,921
–

414,344
–
–

–
–
6,706,160

–
137,424
45,388

–
588,069
–

10,401,832
–
–

–
–

9,172
–

1,542
73,967

506,596 $ 1,011,585 $ 17,183,501 $

–
–
–

414,344
21,921
6,706,160

414,344
21,921
6,936,657

–
–
230,497

10,401,832
725,493
45,388

10,896,860
725,493
45,388

495,028
–
–

10,714
73,967

–
–
–
–
– $ 18,701,682 $ 19,427,207 $ 725,525

10,714
73,967

– $
–
–
2,386
–
2,386 $

– $
–
–
–
–
– $

– $ 10,136,599 $ 10,136,599 $ 10,331,151 $ 194,552
9,660
–
(128,317)
–
–
–
–
–
– $ 17,793,680 $ 17,796,066 $ 17,871,961 $ 75,895

160,344
7,207,578
2,386
170,502

150,684
7,335,895
2,386
170,502

150,684
7,335,895
–
170,502

the following methods and assumptions were used to estimate the fair values of financial instruments:

> Cash and cash equivalents, restricted cash (included in restricted assets), other assets and other liabilities approximate their carrying

values due to their short-term nature.

> Available for sale securities are valued based on the quoted bid price. third-party MBS are fair valued using average dealer quoted prices.

> Fair value of loans held for sale, all of which are insured, is determined by discounting the expected future cash flows of the loans at

current market rates imputed by the realized sale of loans with similar terms.

> the fair value of the retained interest is determined by discounting the expected future cash flows using the current MBS spread over

Government of Canada Bonds imputed from recent sale transactions.

> the fair value of securitization receivables is determined by discounting the expected future cash flows using current interest rate

swap rates.

> Restricted assets include both securities valued based on quoted bid price and securities where fair value is determined using average

dealer quoted prices.

> Securitized and non-securitized mortgages and loans are carried at amortized cost in the financial statements. For fair value disclosures,
the fair value is estimated by discounting the expected future cash flows of the loans, adjusting for credit risk and prepayment
assumptions at current market rates for offered loans with similar terms.

> Fair value of derivative financial instruments is calculated as described in note 19.

> Retail deposits are not transferable by the deposit holders. In the absence of such transfer transactions, fair value of deposits is
determined by discounting the expected future cash flows of the deposits at offered rates for deposits with similar terms. the fair value
of the institutional deposit notes is determined using current rates of Government of Canada Bonds. the rates reflect the credit risks
of similar instruments.

> Fair value of securitization liabilities is determined using current market rates for MBS and CMB.

> Fair value of the senior debt is determined using current market rates of Government of Canada Bonds. the rates reflect the credit risks

of similar instruments.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013 109

notes to the Consolidated Financial Statements
(unless otherwise stated, all amounts are in Canadian dollars)

the Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: Significant inputs are quoted (unadjusted) prices in active markets for identical assets or liabilities. this level includes cash and
cash equivalents, equity securities traded on the toronto Stock exchange and quoted corporate and government-backed debt instruments.

Level 2: Significant inputs are observable for the asset or liability, either directly or indirectly and are not quoted prices included within
Level 1. this level includes loans held for sale, interest rate swaps, bond forwards, mutual funds, certain corporate debt instruments and
senior debt.

Level 3: Significant inputs are unobservable for the asset or liability. this level includes retained interest, securitized and non-securitized
mortgages and loans, securitization receivables and liabilities, other assets and liabilities, and deposits.

the following table presents the fair value of financial instruments across the levels of the fair value hierarchy.

level 1

level 2

level 3

total

As at December 31, 2013

728,469 $

– $

–
–
122,836

149,559
60
272,998
–
381,356
–

–
–
–
–

$ 1,655,278 $

– $
–
–
–

–
– $

137,975
29,886
–

–
–
–
1,655
148,794
–

– $
–
–
–

728,469
137,975
29,886
122,836

–
–
–
–
–
31,935

149,559
60
272,998
1,655
530,150
31,935

–
–
–
–

5,256,782
5,256,782
13,100,882
13,100,882
22,791
22,791
79,648
79,648
318,310 $ 18,492,038 $ 20,465,626

– $ 12,904,296 $ 12,904,296
157,294
–
5,862,439
5,862,439
173,558
173,558

157,294
–
–

3,809

3,809
161,103 $ 18,940,293 $ 19,101,396

–

thousands of Canadian dollars

Financial assets held for trading
Cash and cash equivalents
Loans held for sale
Derivative assets
Restricted assets
Financial instruments available for sale
Debt securities
Common shares
preferred shares
Mutual funds
Restricted assets
Retained interest
loans and receivables
Securitized mortgages
non-securitized mortgages and loans
Securitization receivables
Other
total
Financial liabilities carried at amortized cost
Deposits
Senior debt
Securitization liabilities
Other
Financial liabilities at fair value
Derivative liabilities
total

110

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

thousands of Canadian dollars

Financial assets held for trading
Cash and cash equivalents
Loans held for sale
Derivative assets
Restricted assets
Financial instruments available for sale
Debt securities
Common shares
preferred shares
Mutual funds
Restricted assets
Retained interest
Loans and receivables
Securitized mortgages
non-securitized mortgages and loans
Securitization receivables
Other
total
Financial liabilities carried at amortized cost
Deposits
Senior debt
Securitization liabilities
Other
Financial liabilities at fair value
Derivative liabilities
total

Level 1

Level 2

Level 3

total

As at December 31, 2012

301,863 $

– $

–
–
137,424

104,832
8,836
299,557
–
369,718
–

–
–
–
–

$ 1,222,230 $

– $
–
–
–

–
– $

21,921
45,388
–

–
–
–
1,119
218,351
–

– $
–
–
–

301,863
21,921
45,388
137,424

–
–
–
–
–
9,172

104,832
8,836
299,557
1,119
588,069
9,172

–
–
–
–

6,936,657
6,936,657
10,896,860
10,896,860
1,542
1,542
73,967
73,967
286,779 $ 17,918,198 $ 19,427,207

– $ 10,331,151 $ 10,331,151
160,344
–
7,207,578
7,207,578
170,502
170,502

160,344
–
–

2,386

2,386
162,730 $ 17,709,231 $ 17,871,961

–

During 2013 and 2012, the Company did not transfer any financial instrument from Level 1 or Level 2 to Level 3 of the fair value hierarchy.

note 23

RelAteD PARtY tRAnSACtI o nS

IFRS considers key management personnel to be related parties. Compensation of key management personnel of the Company is as
follows:

thousands of Canadian dollars

Short-term employee benefits
Share-based payment
Other long-term benefits

2013
7,626 $
1,719
241
9,586 $

2012
6,646
2,147
203
8,996

the Company had no related party transactions, other than with key management personnel, as described above, for the years ended
December 31, 2013 and 2012.

note 24

RISK m An AGemen t

the Company is exposed to various types of risk owing to the nature of the business activities it carries on. types of risk to which the
Company is subject include credit, liquidity and funding, interest rate investment, operational reputational and legislative and regulatory
risk. the Company has adopted enterprise risk management (eRM) as a discipline for managing risk. the Company’s eRM structure is
supported by a governance framework that includes policies, management standards, guidelines and procedures appropriate to each
business activity. the policies are reviewed and approved annually by the Board of Directors.

A description of the Company’s risk management policies and procedures is included in the shaded text of the Risk Management section
of the MD&A. Significant exposures to credit, liquidity and interest rate risks are described in notes 4, 5, 19 and 21.

Home CAPItAl GRouP InC. AnnuAL RepORt 2013 111

Corporate Directory

Ho me C API tAl GRouP InC.

Directors:

Kevin P. D. Smith 3, 4
Chairman of the Board
president and Chief executive
Officer
St. Joseph’s Health System

Hamilton, Ontario

Hon. William G. Davis
P.C., C.C., Q.C. 3, 4
Vice Chair of the Board
Counsel
Davis Webb LLp
Brampton, Ontario

james C. Baillie 2, 3
Counsel
torys LLp
toronto, Ontario

William Falk 2, 3
Managing partner
pricewaterhouseCoopers LLp
Grand Valley, Ontario

Diana l. Graham 1, 2
Corporate Director

toronto, Ontario

john m. e. marsh 1, 4
Corporate Director

port Colborne, Ontario

Robert A. mitchell,
CPA, CA 1, 2, 3
Corporate Director

Oakville, Ontario

Gerald m. Soloway
Chief executive Officer
Home Capital Group Inc.
toronto, Ontario

Bonita then 1, 2
Corporate Director

toronto, Ontario

leslie thompson 2, 4
president
LeSRISK, Debt and Risk
Management Inc.
toronto, Ontario

1 Member of the Audit Committee
2 Member of the Risk and Capital
Committee
3 Member of the Governance,
nominating and Conduct Review
Committee
4 Member of the Human Resources
and Compensation Committee

Committees:

Audit Committee
Robert A. Mitchell
Chair
Bonita then
Vice Chair

Risk and Capital Committee
Bonita then
Chair
Leslie thompson
Vice Chair

Governance, nominating and
Conduct Review Committee
Hon. William G. Davis
Chair
James C. Baillie
Vice Chair

Human Resources and
Compensation Committee
Kevin p.D. Smith
Chair
John M.e. Marsh
Vice Chair

officers:

Gerald m. Soloway
Chief Executive Officer

martin Reid
President

Brian R. mosko
Chief Operating Officer and
Executive Vice President

Robert Blowes, FCPA, FCA
Chief Financial Officer and
Executive Vice President

Pino Decina
Executive Vice President,
Residential Mortgage Lending

john R. K. Harry
Senior Vice President,
Commercial Mortgage Lending

Chris Ahlvik, ll.B.
Senior Vice President,
Corporate Counsel and
Corporate Secretary

David j. novak
Senior Vice President,
Chief Risk Officer

112

Home CAPItAl GRouP InC. AnnuAL RepORt 2013

Chair emeritus:

William A. Dimma

marie Holland, CPA, CA
Senior Vice President,
Internal Audit

john Hong
Senior Vice President,
Chief Compliance Officer
and Chief Anti-Money
Laundering Officer

Stephen Copperthwaite,
CmA, oRmP
Senior Vice President,
Relationship Manager

Greg Parker
Senior Vice President,
Treasurer
Fariba Rawhani
Senior Vice President,
Chief Information Officer

Annual meeting notice

the Annual Meeting of Shareholders of Home Capital Group Inc. will
be held at One King West, Grand Banking Hall, toronto, Ontario, on
Wednesday, May 14, 2014 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.

Financial Highlights
Summary of Data for 10 Year Review

For the years ended December 31
(000s, except per share amounts)

Total assets

Total assets under administration

Total loans

Total loans under administration

Securitized residential mortgages
on-balance sheet

Deposits

Shareholders’ equity

Revenue

Net income

Book value of common shares

Earnings per share – basic

Earnings per share – fully diluted

2013

2012

2011

2010 IFRS

2010 GAAP

2009

2008

2007

2006

2005

2004

20,075,850

21,997,781

18,019,901

19,941,832

5,210,021

12,765,954

1,177,697

949,547

256,542

33.90

7.40

7.32

18,800,079

17,696,471

15,518,818

7,712,239

7,360,874

5,809,713

4,975,093

3,902,316

19,681,750

17,696,471

15,518,818

15,878,772

11,508,585

8,423,971

6,434,548

5,009,878

17,159,913

16,089,648

14,091,755

5,861,722

5,468,540

4,531,568

4,045,571

3,328,858

18,041,584

16,089,648

14,091,755

14,028,255

9,616,251

7,145,826

4,505,026

4,436,420

3,284,829

4,085,013

2,813,459

3,613,643

2,568,513

3,069,253

2,257,740

2,758,480

6,706,160

10,136,599

968,213

887,685

221,983

27.96

6.40

6.38

8,243,350

7,922,124

774,785

790,274

190,080

22.38

5.48

5.46

8,116,636

6,595,979

628,585

687,249

154,752

18.14

4.46

4.45

–

6,522,850

6,409,822

5,102,781

4,413,984

3,443,640

2,901,515

2,269,157

742,280

533,937

180,944

21.42

5.21

5.20

590,288

489,179

144,493

17.00

4.19

4.15

432,753

454,695

108,687

12.57

3.15

3.13

348,040

368,881

90,241

10.08

2.62

2.59

276,866

282,549

67,815

8.10

1.99

1.95

218,885

234,704

60,861

6.44

1.80

1.72

162,207

181,839

44,551

4.80

1.33

1.27

23.9%

Return on equity was
23.9%, exceeding 20% for
the 16th consecutive year

$256.5million

Net income for 2013 was
$256.5 million, an increase
of 15.6% over 2012

$19.94billion

Total loans under
administration grew by
10.5% over 2012 to reach
$19.94 billion at the end
of 2013

Net Income
($ millions)

Earnings per Share
(basic in dollars)

Return on Equity
(percentage)

257

222

181

190

155

144

7.40

6.40

5.48

5.21

4.46

4.19

28.2

27.2

27.3 27.1

25.5

23.9

15.6%

250

200

150

Home Capital reported a 15.6% increase
in net income over the $222.0 million
attained in 2012, reaching $256.5 million
for the year ended 2013.

100

Former Canadian GAAP Basis

IFRS Basis

15.6%

5
Basic earnings per share rose to
$7. 40 for the year ended December 31,
4
2013, a 1 5. 6% increase over the
3
$6. 40 reported for 2012.

1
IFRS Basis
0

23.9%

Home Capital surpassed 20%
return on equity for the 16th
consecutive year, reaching 23.9%
at December 31, 2013.

"09"
"10"
"10"
"11"
"12"
"13"

144
181
155
190
222
257

"09"
"10"
"10"
"11"
"12"
"13"

4.19
5.21
4.46
5.48
6.4
7.4

"09"
"10"
"10"
"11"
"12"
"12"

28.2
27.2
27.3
27.1
25.5
23.9

HOMECap 2736 ENG_2013AR_cover_v2.indd 2

Ten-year Cumulative Total Return on $100 Investment

Comparison between S&P/TSX Composite Index (S&P/TSX) and Home Capital Group Inc. (HCG)
December 31, 2003–December 31, 2013

Compounded
Annual Growth

Over 10 Years 19%

$7.32

Diluted earnings per share
were $7.32 for the year,
an increase of 14.7%
over 2012

HCG
19%

S&P/TSX
8%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

$31.25

$34.75

$34.05

$41.90

$19.80

$41.85

$51.79

$49.10

$59.07

$80.93

1,000

800

600

400

200

HCG Stock
Price
Performance

Closing Price as of December 31
Share prices have been restated to reflect two-for-one stock split on January 29, 2004.

1000

800

600

400

200

“2003”

“2004”

“2005”

“2006”

“2007”

“2008”

“2009”

“2010”

“2011”

“2012”

“2013”

Corporate Directory

HOME TRUST COMPANY

Pino Decina
Executive Vice President,
Residential Mortgage
Lending

John R. K. Harry
Senior Vice President,
Commercial Mortgage
Lending

Chris Ahlvik, LL.B
Senior Vice President,
Corporate Counsel and
Corporate Secretary

David J. Novak
Senior Vice President,
Chief Risk Ofﬁ cer

Marie Holland, CPA, CA
Senior Vice President,
Internal Audit

John Hong
Senior Vice President,
Chief Compliance Ofﬁ cer
and Chief Anti-Money
Laundering Ofﬁ cer

Stephen Copperthwaite,
CMA, ORMP
Senior Vice President,
Relationship Manager

Greg Parker
Senior Vice President,
Treasurer

Options Listing:
Montreal Stock Exchange
Ticker Symbol: HCG

Capital Stock:
As at December 31, 2013,
there were 34,744,090
Common Shares outstanding

Memberships:
Canada Deposit Insurance
Corporation
Trust Companies Association
of Canada

Directors:

Kevin P. D. Smith
Chairman of the Board

Hon. William G. Davis
P.C., C.C., Q.C.
Vice Chair of the Board

James C. Baillie

William Falk

Diana L. Graham

John M. E. Marsh

Robert A. Mitchell, CPA, CA

Martin Reid

Gerald M. Soloway

Bonita Then

Leslie Thompson

Ofﬁ cers:

Gerald M. Soloway
Chief Executive Ofﬁ cer

Martin Reid
President

Brian R. Mosko
Chief Operating Ofﬁ cer and
Executive Vice President

Robert Blowes, FCPA, FCA
Chief Financial Ofﬁ cer and
Executive Vice President

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w
w

o
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a

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b

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s
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Auditors:
Ernst & Young LLP
Chartered Accountants
Toronto, Ontario

Principal Bankers:
Bank of Montreal
Bank of Nova Scotia

Transfer Agent:
Computershare Investor
Services Inc.
100 University Avenue
Toronto, Ontario M5J 2Y1
Tel: 1-800-564-6253

Stock Listing:
Toronto Stock Exchange
Ticker Symbol: HCG

FSC LOGO TO
GO HERE.

Halifax:
5251 Duke Street
Suite 1205, Duke Tower
Halifax, Nova Scotia B3J 1P3
Tel: 902-422-4387

1-888-306-2421

Fax: 902-422-8891

1-888-306-2435

Montreal:
2020 Rue University
Suite 2420
Montreal, Quebec
H3A 2A5
Tel: 514-843-0129

1-866-542-0129

Fax: 514-843-7620

1-866-620-7620

Winnipeg:
201 Portage Avenue
18th Floor
Winnipeg, Manitoba
R3B 3K6
Tel: 204-942-1619
Fax: 204-942-1638

Fariba Rawhani
Senior Vice President,
Chief Information Ofﬁ cer

Branches:

Toronto:
145 King Street West
Suite 2300
Toronto, Ontario M5H 1J8
Tel: 416-360-4663

1-800-990-7881

Fax: 416-363-7611

1-888-470-2092

Calgary:
10655 Southport Road SW
Suite 920
Calgary, Alberta T2W 4Y1
Tel: 403-244-2432

1-866-235-3081

Fax: 403-244-6542

1-866-544-3081

2500

2000

Vancouver:
200 Granville Street
Suite 1288
Vancouver, British Columbia
V6C 1S4
Tel: 604-484-4663

1500

1-866-235-3080

Fax: 604-484-4664

1-866-564-3524

1000

500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

1-800-990-7881

Fax: 416-363-7611

1-888-470-2092
www.homecapital.com
www.hometrust.ca

14-03-21 12:37 PMFri, Mar 21, 2014

Home Capital Group Inc.
Suite 2300
145 King Street West
Toronto, Ontario M5H 1J8
Tel: 416-360-4663
Toll Free: 1-800-990-7881

CANADA’S ONE-STOP MORTGAGE LENDER

A
CANADA’S ONE-STOP MORTGAGE LENDER

ANNUAL REPORT 2013

The Right Strategy
Record Results

H
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C
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P
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T
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G
R
O
U
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N
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A
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R
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2
0
1
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Business Profile

MISSION STATEMENT

Home Trust Branches

MORTGAGE LENDING

CONSUMER LENDING

DEPOSIT INVESTMENTS

HOMECap 2736 ENG_2013AR_cover_v2.indd 1

14-03-21 12:37 PMFri, Mar 21, 2014