Gerald M. Soloway - Chief Executive Officer and Executive Director Robert J.

Blowes - Chief Financial Officer and Executive Vice President Martin K. Reid - President

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division Graham Ryding - TD Securities Equity Research Shubha Rahman Khan - National Bank Financial, Inc., Research Division

Thank you. Good morning, shareholders, ladies and gentlemen.

I am delighted to report to you on Home Capital Group's second quarter results for 2014. The quarterly net income increased to $73.7 million, up 19.8% year-over-year, and the $143.5 million for the first 6 months of 2014, up 18.3% year-over-year.

The earnings per share were $1.05 for the quarter, representing an increase of 19.3% year-over-year. And return on equity was a strong 23.1% for the quarter and 23% for the first 6 months of 2014.

Home is on target to exceed 20% return on equity for the 17th consecutive year. And we also announced a dividend increase of $0.02 per share to $0.18 per quarter, which is up 29% year-over-year.

Those are the headlines. Here is the rest of the story.

It was a great quarter for Home in all aspects of our business. The quality and volume of business that came in during the second quarter, which trend has continued throughout the month of July, indicates a very positive momentum for Home's business for the rest of the year and beyond.

As I mentioned, net income was up 19.8% year-over-year. And Home's income received increased contributions from all aspects of the business, including single-family lending, both insured and uninsured, commercial lending, these operations and retail credit.

A large contributor to Home's results was that total mortgage originations reached $2.33 billion, with a B, billion for the quarter, up 39% from $1.68 billion last year or last quarter, sorry, and 42% from $1.63 billion in the same quarter last year. What also is outstanding is for the first 6 months of 2014, total mortgage originations were $4.01 billion, an increase of 33% from the $3.01 billion last year.

We believe that Canada has overcome a cold snowy first quarter and is now on a solid economic growth curve, and we are receiving some of those benefits. We also like to point out -- would like to point out that the increase in mortgage originations in 2014 over 2013, reflects the continuing strong demand for the company's residential mortgage offerings in both insured and uninsured originations.

As a result, our securitization income, including gains on sale, was $7.5 million for the quarter and $16.2 million year-to-date, compared to $0.5 million and $2 million in the comparable periods of 2013. Home believes that the securitized income will continue to be a steady 6% to 12% of our net income on a consistent going forward basis.

We believe that although the specific amount of this income will vary from quarter-to-quarter, it is now a reliable and growing contributor to our bottom line. For those who have dismissed it, I again repeat, it's a reliable and growing contributor to our bottom line.

And we're delighted with the progress we've made to date on this securitization program. The volume of mortgages for securitization comes from 2 sources: one, the CMHC insured multiunit residential apartment buildings; and the insured single-family mortgages.

Both of which we are able to securitize and sell. Now during the quarter, the consumer retail loan group reached an agreement with a major customer for the prepayment of approximately $240 million of water heater loans and leases.

As part of the transaction, a prepayment penalty in the range of $32 million to $38 million will be recorded when the customer sells their business, which is expected to be late in the third quarter or early in the fourth quarter 2014. On completion of the transaction, the company will reinvest the proceeds, including the profits and earn additional interest income on those proceeds.

During 2013 and the first quarter of 2014, the company carefully planned for the increase in volume from which we benefited in this quarter. In our planning, we prudently strengthened all of our control groups, including credit, corporate compliance, enterprise risk management, internal audit, and they were given enhanced skill levels and increased staffing.

We are committed to proactively increasing these oversight functions with the necessary skills and people prior to volume increases in our business. Now as a result of this enhanced oversight and control, the credit quality of the loans portfolio remained strong with this growth, and with continued low nonperforming loans and credit losses.

Net nonperforming loans as a percentage of gross loans ended the quarter at 0.32% compared to 33% (sic) [0.33%] at the end of last quarter and 0.35% at the end of 2013. Now included in the nonperforming loans is an insured multiunit residential property, with an outstanding amount of $9.7 million, where the company expects no losses.

In the absence of this fully insured CMHC loan, the nonperforming loans would've been 0.26%. The company also noted that the Tier 1 capital ratio of 17.45% and the total capital ratio of 20.2% with the highest of other comparable size deposit taking institutions in Canada.

Now as a result of the financial results, just outlined to you, the Board of Directors increased the quarterly dividend from $0.16 to $0.18 per quarter. This is a year-over-year increase of approximately 29%, and it is the 20th dividend increase that has been granted by the board over the last 10 years, 20th dividend increase in 10 years.

The board has also decided to increase the company's dividend policy. Previously, the policy was 13% to 17.5% of profits, and that range has been increased to 15% to 21% of profits, subject to the policy being reviewed by the Board of Directors on a quarterly basis and modified in accordance with the performance of the company, and then current market conditions.

However, all things being equal, Home's Board of Directors foresee a modestly increased payout and increasing dividends in future quarters. Now before I conclude this conference call, I'd like to tell you a story of Home and the hedge fund shorts.

At a hedge fund conference in New York City in 2013, Steve Eisman, a money manager made famous in the book The Big Short -- he was made famous by betting against U.S. housing at the right time.

And he addressed his audience at this conference. His prime recommendation was to short Home Capital stock.

Mr. Eisman's comments at the conference received widespread publicly.

Prior to the conference, Home stock was trading around $55 and had total short sales outstanding of under 1 million shares. Within 2 weeks of the conference, Home short sales went to almost 6 million shares from 1 million and the share price dipped to $49.

Now there are many strategies on how to deal with the widely disseminated call for a short sale of a company -- from a robust reply which in some cases may include legal action to ignoring the short call -- short sale call and focusing on the business. Home took the latter course of action.

We kept our mouth shut, our heads down and continued to produce increasing profitable financial results quarter after quarter over the last -- since the time of the conference call. Fast forward to yesterday's close, and Home stock would split in February 2014, is now trading at a pre-split basis of $102.90.

So depending on when the short was taken, the share price has increased anywhere between 87% to over a 100% in the 14 months from the time that Mr. Eisman made his call to short Home stock.

On July 3, 2014, Steve Eisman's hedge fund was shut down. The main reason reported was that its performance lagged behind the market according to a Wall Street Journal online article.

However, Home continues to outperform the market and our market sector. So in conclusion, Home had a very strong quarter in earnings, earnings per share, return on equity, strong mortgage originations, which have continued to date.

The company has industry-leading capital ratios, strong control groups, low nonperforming ratios, and low credit losses. Home has a very positive outlook for the balance of 2014 and beyond, and looks forward to reporting to you again after the end of the first quarter -- the third quarter.

Thank you, and I now welcome your questions.

My first question was -- thanks, Gerry, for the color around the dividend payout ratio range. I guess, my question around that was does this -- from your perspective, I know the board obviously makes the call on the dividend, but does this potentially change the frequency in which you kind of been announcing dividend increases, you kind of been doing every 2 quarters?

And then with this new range of 15% to 21%, do you think that you would like to see that kind of get up to the 21% or you may stay kind of in the middle of the range?

I think what we're saying is if the business prospects continue to strong as they have, we have enough internally generated capital to do 2 things. We can generate good solid growth.

We have industry-leading capital levels. We don't have to raise money by preferred shares or debt.

And if we can continue to do that and increase the dividend, which we think we can, we think that the pipeline of business, the prospects, the profitability, we think we can do both. We can continue to grow at the present rate and have enough capital to sort of aim to try to get towards that 20% payout, which I think the shareholders will appreciate.

However, we don't know what's going on in the world, and we are sort of cautioning people that, if things get ugly, if we saw another 2007, we saw another Lehman Brothers going out of the business, we probably wouldn't do an increase. We'd sort of make sure that -- we had a good feel of what's going on.

But that's why I said, all things being equal, we had been kind of aiming at the 15% for some time. We now sort of are aiming for around 20%.

And we think we can accomplish it. So that sort of answer -- we are planning to go, we are not planning to somehow give a dividend, which aimed to give 30% or 35% payout, going to be a big dividend play.

We really would like to continue to generate our capital internally. That has been the biggest benefit for our shareholders.

The capital appreciation year in and year out, because we don't have to dilute the earnings by issuing more shares, has the biggest win for everybody. But if they can get the capital appreciation and an increased dividend, everybody's happy.

Okay. So it gives me a good sense of the direction on where the payout ratio you're looking at, but I guess also, you seem to be suggesting is where you historically kind of being increasing the dividend every couple of quarters -- that, that frequency probably is going to stay where it's been?

Yes. No, no.

That's an accurate statement.

Okay. You've talked about and we've seen with the data that the housing season got off to a late start with the cold winter in most parts of Canada.

How do you feel about kind of what you've seen with Q3 activity? In other words, do you think all else equal that Q3 might be a little bit stronger than a typical normal year if you can call it that?

Well, it started off and looks like it's going very strongly. Like traditionally, no matter how you slice it.

June is the strongest month of the year and it's almost like the peak month of the year's business. And then usually, it slows down a little bit quarter -- month by month towards the end of the year.

But we see that July has continued strong all across the country. The market is pretty stable.

People are able to sell their houses. They are able to move ahead.

We do think that there's going to be a leveling out sometime over the next short period of time. Well, the increases will probably slowdown.

And there will be a whiff of rate increase in the air. I can't tell you how quickly it will come, but it will come sooner or later.

The economy in Canada and in the States is moving along. And it could be early next year, it could be late next year, but it will be well telegraphed by, I think, all the central banks.

And that will cause a bit of a pause. But I think there is a lot of resiliency in the marketplace, even if prices slowdown or they went to flat for a while, I think I would be very healthy.

Okay. And my last...

I'm sorry, so we see a very good housing market -- may not be as robust as it's been, but it's still lots of room to be a good market.

Okay. My last question was, with the employment data in Canada has been kind of sluggish so far this year.

Are there any sort of pockets in perhaps some of the urban areas where overall everything in Canada seems to be going well, but where you may be -- a little monitoring a little bit more, may have a little bit more degree of concern?

Well, the -- I think the employment is actually doing better than the statistics. That's based on sort of our internal data.

The only area that seems to be a little slow to pick up is Québec. I think the Québec market suffered a little bit from the previous election.

It seems as though they're coming back strongly, but they did suffer a bit with market slowdown, a little bit of backup in pricing, a little bit of hesitancy when there was talk of a plebiscite to separate. It seemed to slow a lot of people down whether they wanted to buy a house or not.

I think that's lifted, but we haven't seen as robust a market in Québec. And we've adjusted our lending accordingly.

Like we still have a good office and the office is working hard, but other than the sort of the generalist saying, it's not a bad market, it's just not as robust as the rest of the Canada. But the rest of Canada, every province is doing well.

Like for Central Canadians, everybody kind of laughs a little bit when you're talk to Newfoundland. We find it a terrific market and Saint John's an area.

We find Nova Scotia a terrific market. There is good value in the houses.

People are able to afford them. Like, we really find that coast-to-coast that there is pretty good energy in the markets.

The only thing that we've never been a big lender for sort of small towns of -- that are not close to urban centers. We don't mind a small town that's within driving distance of an urban center.

But small towns, not close to urban centers, has never been our strength. And all the urban centers across the country seem to be doing pretty well.

Maybe just if you could touch on the non-securitized NIM. It seems to have been having a fairly steady trend downward.

I know you gave a little bit of color around the reasons why, but should we expect this trend to continue going forward or what's your outlook here?

No, I think you'll find it will stabilize. Thanks for the question, Graham.

I think you'll find it will stabilize around these levels. Let me tell you, I'm glad you asked the question, it gives me a chance to expand on a couple of the reasons.

What has happened is for sound housing policy, the government introduced B-20, which had a number of tightening of criteria, oh, about a year ago. As a result of it, there were loans that a regulated company might have done where the proof of income was a little soft.

Now we're limited to 65%. What that has done, which has really been a benefit to the company, is we've concentrated on a really near bank miss client, if I can put it that way.

They would have gotten done at the bank, if the bank had a policy of having the resources and the ability to delve into the guy's earnings and history in a more detailed way. But there's sometimes this stuff that requires a lot more explanation, more documentation.

Branches may not always be geared up for that level of inquiry. And so the person slips out of the bank system.

Now we've put a lot of effort into going after that person because the bank may not take the time, but we'll take the time and we'll be quite happy to do that client even though we don't have to limit him to 65%. However, being as clean a credit profile and being as clean a borrower, you often have to come down a bit on your rates.

You can't charge the same and you've got charged rates that are a little closer to the bank level. But what that has done is it's given us a very good market.

We've had an increased credit quality. We've got, as you see, even though the portfolio is growing, arrears is sort of creeping downward.

And they really can't go much less if you do lending. It's just human nature.

The fact that nonperforming if it's down 20 -- 0.27%, it's 1 out of 400 mortgages, you saw 400 people on the street and you get right 399, 1 out of 400, you have to take legal action against. That's pretty good in this marketplace.

So we like going after the cleaner profile. We have to give a rate adjustment on that.

They may not be the full 3-point spread we traditionally looked for, but we are delighted to do more a very clean credit, very clean profile. These are people that quite often if you give them a mortgage 1 to 3 years, usually within that period of time, a large percentage of them then qualify for insured product and may be able to either take out a CMHC loan or be able to move on to a bank.

So in the meantimes -- and some stay on because we can offer them other products. But that's why, I think, it's come down.

I think it's now been worked its way through the system. I think that the falling of the spread on the conventional stuff has probably come pretty much to an end.

But that's -- we may get a little less, but we get more of it and better quality. So we're very comfortable with the trade-offs.

Does that sort of answer it for you?

Yes. Yes, it does.

It sounds like it's certainly more, I guess, higher credit quality of the borrowers that you're lending to and not perhaps a reflection of a more competitive market out there.

No, not at all. It's more a matter I think of.

The policy of government had a shift. We've accommodated it.

They've decided. We say okay.

And how do we work with that best. So the strategy we came up with is work within the parameters of the new B-20 and let's do more of it at a slightly cheaper price, but more volume with better quality.

So those were the trade-offs. I think in the long run, it really does strengthen the credit quality of the whole portfolio.

And whenever the -- there is a downturn in the market, I think it really does strengthen our whole portfolio. We're very comfortable with the trade-off and giving up a little bit of spread for the credit quality improvement.

Okay, perfect. Maybe I can throw one more question in here.

Just how much capacity do you have to move your new and your renewed insured mortgages off balance sheet going forward, given I believe you've got a -- have to maintain at least 50% of your total on and off balance sheet mortgages and you need 50% on balance sheet, do you not?

First of all, I think that number, every time you do one, you increase the total denominator. And I think -- did we put a number in the quarterly?

I've got Bob Blowes here. We've got a lot of room left, but I'll let Bob answer it from a more technical point of view.

Well, I think that's probably the best way to answer, Gerry, is that, we don't see a practical limit in terms of our ability to originate. We have a good stock of already on balance sheet.

It includes the multi-res that we take on the balance sheet as we continue. So some multi-res qualifies for HOF [ph] and some doesn't.

And we're growing that portfolio all the time. So we have kind of 2- to 3-year planning horizon.

We don't see really any practical issue there for ourselves.

And your current last few quarters, basically, the math looks like whatever you originate in the insurance space, you securitize and move off balance sheet, is that what you expect going forward or at some point do you have to start keeping some of that new origination on balance sheet?

No, I think -- Graham, Gerry back again. I think from the next 2, 3 years, we won't have that issue.

But there are other -- there seems to be other sources whether it's whole loan sales of not straight securitization. We've not fully investigated it.

But there seems to be a pretty solid group of investors for CMHC insured product pension funds and others that we've had some demand. It's just from securitization in sale.

It's just so efficient and easy that we've not fully developed the other sources. But if we found we were getting anywhere close to capacity, we'd all put our thinking-brains on -- thinking caps on and go directly to some clients, who we know are buyers of the product and look to sell direct where we don't have to securitize.

It would be a whole loan sale. And that would also be attractive to various pension funds and groups, who are in the market because of the guaranteed nature.

So we think you may not be able to securitize. You may have to give up a little bit of margin.

There may be some other bumps in the road, there might be change in regulations. For the next 2, 3 years, we see no bumps.

But we thought ahead of what happens when we get to the -- a point where there may be a few bumps. And we think there's a lot of other outlets to sell the product.

It's Bob speaking again, Graham. I guess, the one thing to keep in mind is that, strategically, insured prime mortgages are important to us in terms of maintaining a balanced portfolio of products to offer to brokers, and that's really what's driving this.

As we see that as quite achievable as we look into the next couple of years.

I've noticed Home Capital's large and increasing focus on uninsured lending product in Ontario. What is your view on the deteriorating employment situation in Ontario?

I think you're going to see -- and this is not a political statement. I'm not running for office.

I don't ever want to run for office. Don't even want to run as an alderman or a mayor or anything.

But I'm telling you the economy in Ontario is really quietly picking up. I think you're going to find throughout the fall season that unemployment is going to increase.

There's been a pickup. We're seeing it all across the various companies that we've had conversations with.

And I know that it has not been -- the unemployment in Ontario has been quite sluggish, but the house buying portion of the marketplace has continued to be quite strong. The core, the white-collar workers, the people not working in factories, demand for skilled people continues to be strong in financial services.

All kinds of downtown office hours [ph] have a demand for people and their jobs, and they have capacity. They're being well paid.

And there is nobody suffering from having problems with lay off. So I think you'll find that there is some kind of -- there is a modest increase in employment, and that Ontario will start to look a bit better.

So I don't -- I do accept that they've been a little slow, although the people we've been lending to, as you can see by our nonperforming, even with the economy slow, they're paying their bills, they buy their house, they make their mortgage payments. We keep [ph] the money in [indiscernible].

We thank them very much, and they go on their way.

Don't you see a lot of this, like any employment growth there has been, it seems like there's been a very little. Don't you see that tied to the housing market in terms of construction jobs, in terms of, as you said, financial jobs?

Isn't the employment situation a very precarious because it depends entirely upon strong construction, strong real estate market, basically?

Well, I don't know where you live. But I talked to...

Vancouver.

Okay, well, anywhere you go in Toronto, there's no dearth of cranes. I haven't been out to Vancouver lately, so I can't comment.

But in the Ontario market, there's cranes everywhere. Downtown Toronto, in the residential area, the whole city of Toronto is being rebuilt.

There's been a real robust market of people tearing down bungalows or small houses that was built in the '40s and the '50s and putting up larger houses. There's quite a vigorous -- there's a lot of high-rise condos.

So I think the construction market is doing quite well. We do a little bit of single-family construction lending.

And all of the people that we've been lending to, they sell their houses on a very orderly basis, sometimes they can pre-sell them. But I don't agree with your premise that it's a weak market.

I -- again, you and I do not always agree on your premises, but I tell you that the market is good. We look forward to another strong quarter, and I think the employment situation in Ontario will pick up.

So as long as the construction stays strong, everything should be fine, is that kind of your...

No, no. It's not just construction.

It's all aspects of the economy. I think that I wouldn't want to say that we are going open up a bunch of new factories to start making textiles or stuff like that, that can clearly be done in other countries cheaper.

But I think that Canada is kind of settling into an economy of where the things we do, we do very well. And I think Ontario after going through a bit of a shaky period, I think employment is picking up.

I think all of Canada is picking up. Even the numbers that we're seeing out of the West Coast on the mortgage originations, we're delighted with the Vancouver market.

I should tell you that places like Alberta, where we're quite surprised that the demand for jobs, the demand for housing throughout Alberta -- the country is doing well. The country is doing very well, and we're getting the benefit of that.

And it's not just dependent on construction. So you and I do not agree that where we're sort of on a preface -- a precipice of any bad times.

Well, I guess, what I see in Ontario is -- I see an austerity budget, I see cutbacks in government hiring. It seems like the Ontario government is tightening their belt rather than increasing spending like they had been for many years.

So that I think that's a headwind. And I don't know if you want to address that point, but I don't see that being good for the Ontario economy.

I think the amount -- I don't to make a political statement too much. But the amount of tightening they're doing is all for show.

And I don't think you'll see any layoffs. The person who ran against the present Premier said that he was going to lay off 100,000 people.

That promptly defeated any popularity -- had [ph] people are not in favor of layoffs. They are in favor of some tightening.

So one of the big tightenings going on is the government's locked with the civil servants saying there's going to be no increase, which includes doctors, hospital workers, policeman and everything. So we're not talking about draconian times, we're talking about people getting the same salary as the year before.

But this is just my -- I believe sooner or later, for political expediency, there will be some deal worked out with all the unions. They'll get some kind of a modest increase, but they're not going to get 5% increase this year.

And that's just part of politics. I wouldn't worry too much about that.

That's campaigning and politics. The economy is doing well.

And eventually -- and they may not hire a lot of more people. They may not add a lot of jobs.

I think that would be good, they've got lots of people running around as it is.

Okay. One last question here.

I noticed in June, there were 7 Home Capital insiders selling a large amounts of stock. Why are so many insiders selling if everything is so great for the company, if everybody is so bullish?

Okay. Because people had options that were 7 years and they expired.

So people then had the majority -- I think all of the 7 were, their options were expiring. They had a choice: let them expire and get nothing or options that they'd worked hard and the company had done well.

So they sold and some kept some of the stock, but they have to both pay for the stock and they have to pay for the gain as of the date of the selling. So they needed a sizable portion.

If they had 1,000 shares between paying for the purchase price and paying for the tax, something over 50% of the proceeds would be needed -- of the value of the stock would be needed just to pay the expenditures. So they all went through our corporate secretary.

There were all vetted. They were all very proper.

So no one's abandoning ship. Everybody's -- we got all the people stayed on.

They're working hard. It's just because the option was falling due from many years ago and they had to pay for the price of the option.

They had to pay for the tax. It would be too much ask them to pay out of pocket.

But I guess, they could have sold the stock anytime during the year in order to pay for the tax, but they choose to sell it at the time of...

They were optimistic it would keep doing better and it was expiring. They had no choice.

Expired, if you wait until a day later, you get nothing.

I just wondered if you could give us some more color on the water heater business. That specifically, what share of Home's water heater will be lost to the sale of National Energy Corporation?

And what is the longer-term view on that market segment and where Home is in it?

It will be a little over half of their portfolio -- will go on the sale. But I should point out that there had been some slowing down of National's volume increase over the last period of time.

And a number of new companies have started up and which we've developed relationships. So far this year, the originations in new product have been -- well, I'd say 75%, 80% has come from other companies, not from National.

And we expect they will continue. We also are close to signing up a couple of new contracts and new -- couple of new people that have not been -- we've not been dealing with on other related similar products.

So the first couple of quarters we'll have a little less income, but in terms of the overall benefit, we felt the payout that they were offering us was very fair. It may be economics of their deal work better.

The buyer coming in had money, had the ability to derive, to obtain very, very cheap U.S. money and it benefited them to pay us out.

So it worked for everybody. And we're quite confident that the company will continue to get back on a growth program.

But maybe for a few quarters, they may not make quite as much money. But they'll come back very quickly.

Because they've been anticipating this and working towards it.

Okay. And how significant is the water heater business to the overall picture for Home's profit?

So Joe, it's Bob Blowes speaking, CFO. It would be about -- what is being sold would represent maybe 1% of our total loans under administration, but they do carry a margin that's proportionately larger.

So it might be something in the range of 1 3/4%. And I think the point that we'd like to make is, we're going to capture all of that -- all of that income that would have been received over the next 5 years will be captured essentially in 1 day.

We will then start to relend those funds into our various lines of business. Of course, the most active line of business is the single-family homes in our non-securitized portfolio, which carries something around half of the spread that was on those water heater loans.

So we'll get all of the profit and then we'll reinvest and get at least another 50% beyond that. So it was a very attractive arrangement for us.

Yes, when we can lend $2.3 billion in the quarter on our various programs and you get paid back, as Bob said, 1% of your portfolio, it's very attractive to take the penalty and forge ahead.

That sounds like you will be eventually replacing that business anyway. That sounds like pretty small percentage?

Absolutely.

From one National Bank employee to another, I suppose. First question I had was, I guess, a follow-up to Graham's question on the net interest margin and I appreciate the color you gave about why the spread on your traditional products had tightened more recently.

I'm just wondering whether the competitive environment played a part too. So in other words, have you noticed any pricing pressure on traditional mortgages of late?

Well, okay. Sure.

I'll explain why. There was a profile to try to -- that we felt because of our very enhanced appraisal process, where we double appraise every single property.

We have a formal appraisal announce [ph], then we send out a company employee, who is a property inspector, doesn't do an internal inspection, but -- unless something is concerning him, but looks at the house and looks at the neighborhood, looks at the original appraisal and then confirms value. So we get a lot of comfort that our double appraisal system gives us very good idea of value and how does the house look and the condition of marketability.

So prior to B-20, you could get one price at 65% loan-to-value. If you went to 70% or 75%, you could get a premium to that.

And it's just that we're not doing that 70% or 75%, where you get a premium, where the credit quality, there's something about the person, their background, their proof of income or their credit, doesn't meet the B-20 standards. So as a result, we only offer 65%.

But being he had an offer even before the recent legislation, he could have come within the comfort level of a lot of companies at 65% for a lower rate. It's just we're back competing with them, with the others.

And as I've mentioned earlier, we've turned special attention as opposed to, if I can try to give you in dramatic terms, before we would take someone who is a little lower in quality, that we can give a few more dollars to and we could get a premium. Now we're saying, okay, that's the legislation has changed, we accept that.

We're now concentrating on the people who have a better credit quality. People who are really missing the banks by an eyelash and the fact that we may be a little more of a more sensitive lender.

Sensitive to say, instead of saying no, we say, "What else can you get?" This is not quite enough to satisfy.

You look like you're pretty close, but you haven't proved enough income. What if you give us a -- you're in business for self, what if you give us a year's deposit notes, what else of the financial statements.

Like we're going, we'll ask questions and try to get the person -- find a way to accommodate them. At this point, we're going after the very clean end of the spectrum, and of course, with those, those are people that are -- you have to get -- the rates system is a little cheaper.

And you know, so there is not -- there is only a couple of companies that we bump into on a regular basis. So I would say to you that it's just a bit of a shift in the business that's resulted in a slightly lower spread and we probably would do more volume with better quality.

But I think it's the nature of the offering that we're only going to 65% in one case or the other case is we're offering -- we are going after a better quality borrower. And of course, we have to be a little more competitive and a bit cheaper.

They've got choices.

Okay. No, understood.

And just shifting gears to the accelerator program then. I guess, originations were up a fair bit there and I understand that you are ramping up that program quite aggressively, it just looks like you are almost at an annual run rate that's similar to 2010.

So that's pre-IFRS. So should we think of the Q2 accelerator origination number as a bit of a high water mark here?

Or can you actually ramp it up even further?

Oh no, we are just sort of getting started. No, no, we have been very, very careful to roll it out because each step of the way you've got to service it, you've got to be able to give the broker the service he wants and expects and deserves.

You can't start taking on more business than you got people to do the underwriting, to do the funding, to do the processing. And as an example, to expedite the matter, we're just in the process of moving that.

We didn't have this capacity before, but we can direct-deposit instantaneously the proceeds check into the lawyer's trust account. I know it's not new technology, but we just didn't have that.

So there was a delay in getting that -- getting the check, and they would have to get it to them or send it ahead. There was some mechanism.

But now, if the documents are here at 10:00, at 10:15, we're going to have the money in his account. Now that's rolled out.

It hasn't happened with all the banks yet, but we're in the process of it happening with one and using the method to do it with all the other. But each step is a step up.

As you increase the volume, you have to worry about how can you do it more efficiently and not disappoint anyone. So as we moved up from -- probably we were as low as $30 million, $40 million a month in CMHC insured product, we are now in the $200 million to $200 million plus a month range.

We think that we get some of these operational issues running smoothly, the direct deposit, more people on the processing. We've got room to grow the business.

Generally, we've always been a very broker-friendly company. And we will look to eliminate all their problems so that the thing is as smooth and as efficient as it possibly can be.

I think as we work through all the bugs in the $200 million a month system, we can move ahead and we could attract more business. So we don't see it capped.

Shubha, it's Martin here. I think if you look at 2010, sort of the peak in 2010, we were running about $300 million to $350 million a month in accelerator products.

So we're still well below sort of the peak run rate in the middle of 2010.

And that would be sort of run rate that you're aspiring to, is -- would that be fair to say?

We think, very comfortably, over time that we can get up to those levels.

Yes, just on that same topic. If you do get up to the $300 million to $350 million per month range, do you have the funding capacity in the securitization channels?

Do you absorb that?

Yes, we plan that out carefully.

And can you provide any color as to how much of that goes into the CMB and the remainder is NHA MBS, I presume?

Well, when we get there, we'll say more. But I don't want to tip off everybody as to all of the plans.

I gave you a pretty good outline. We think that with our ramped up, we have capacity before we have to make much of a change for 2, 3 years looking forward.

By that time, we'll have other channels and we'll chat more about it as we start opening them up, but it's not an issue for us over the next couple of years.

Okay. Well, thank you, everybody.

And thanks for the questions. It was very heartening to see how good everything turned out.

The whole team, we're over 750 employees at this point. Everybody worked very hard.

This is no one-man show. All the departments worked hard and all the executives stuck to what they know best and what they're hired for.

And we think we -- if there's demand in the marketplace, then we think we can produce another strong quarter in the third and fourth quarters. Okay, thank you very much.

See you again next quarter. Bye-bye.