Gerald M. Soloway - CEO Martin K.

Reid - President Robert L. Morton - EVP and CFO Pino G.

Decina - EVP, Residential Mortgage Lending

Shubha Khan - National Bank Financial Dylan Stewart - Industrial Alliance Jeff Fenwick - Cormark Securities Geoff Kwan - RBC Capital Markets Jeff Hall - Investors Group Roland Keiper - Clearwater Capital Unidentified Analyst - Dundee Capital Markets Unidentified Analyst - Unidentified Analyst -

Okay, thank you. Good morning shareholders, ladies and gentleman.

I want to start to say that I am sorry for the flood of supplementary disclosure over the past few weeks. There has been a lot of information for everybody to process.

But I am pleased to report on Home Capital's second quarter 2015 results and I look forward to answering your questions, later in the call. Now before I get to the mortgage originations which I know everyone is keen to hear about, I want to give you the high level financials for the company this quarter, which inspite of originations continued to demonstrate the strong performance of our overall business.

Net income of $72.3 million was down 1.9% from the $73.7 million in the second quarter last year. However net income from the first six months of the year was $144.6 million up from $143.5 million in the first six months of 2014, that’s an increase of approximately 1%.

And diluted earnings per share were $1.03 compared to a $1.03 in the first quarter of 2015 and $1.05 in the second quarter of 2014. So the diluted earnings per share for the first six months of 2015 were also at $2.05 compared to $2.04 last year.

And for those of you who have followed Home Capital for some time, you may recall that in Q4 last year, we sold a portfolio of water heaters which resulted in a profit of $24 million which was added to the fourth quarter earnings. However had we kept this portfolio, it would have resulted in estimated increased diluted earnings per share by approximately 9% -- $0.09 not 9% sorry, $0.09 in the first quarter of 2015.

And finally our return on equity was strong at 19.1% per quarter for the quarter just ended, against 19.4% for the first six months of this year. And although prior to 2015, we had 17 consecutive years of return on equity over 20%, the 19.4% return on equity for the first half of the year is still an excellent number and is an indication of delivering being able to deliver future shareholder value.

Now although originations were down over the first six months of the year and we will have more to say about that shortly, overall profit was slightly ahead due to several factors and these include; stable net interest margin of 2.28% in the first six months of the year compared to 2.23% last year, strong originations in the commercial lending and other lending portfolios, strong credit performance with net non-performing loans as a percentage of gross loans at 0.33% in the second quarter compared to 0.32% in the comparative quarter last year, and total write-offs on our entire portfolio of over $25 billion in assets under administration were 1.1 million in the quarter and 3.1 million year-to-date that represents two basis points in the quarter and three basis points year-to-date on an annualized basis. That is an improvement from the results of last year and the second quarter of 2015 which was 6 basis points for the six months of the year of 2014 and five basis points in the quarter.

So credit quality is definitely on the uptick and the investments that we have made in strengthening our underwriting controls together with a healthy and stable and I repeat that, a healthy and stable real estate market have resulted in increased credit quality of the portfolio. We at Home continue to expect that Home will meet its three to five year midterm targets, reflecting the continued strength of the overall business.

It’s diverse source of growth and the company’s expectation of improving origination volumes, originating volumes for the remainder of the year and going forward. Now in light of this performance, the Board of Directors approved a quarterly dividend of $0.22 per common share payable on September 1, 2015.

And overall Home Capital continued in Q2 2015 to build on its presence as Canada's leading alternative financial institution, serving an established but underserved and growing market niche. And we are also proud to note that in the quarter we opened our new Oaken Financial stores in Toronto and Calgary as we continue to build out deposit diversification strategy.

Once a couple of years ago, we depended on brokers for almost all of our deposit funding and today over 20% of our deposits that we require for the business come from other sources including Oaken. Now on to mortgage originations, as previously disclosed Home Capital reported a drop in Q2 2015 traditional and accelerator, residential mortgage originations, a 15.4% and 54.9% respectively compared to the second quarter last year.

As we said in our previous disclosure, Q1 and Q2 mortgage originations were affected by handful of factors but let me take a second to walk you through the timeline of events that lead us to today. In late 2014, simultaneous with the company's own internal review of broker relationships and operations, an external source alerted Home Capital’s Board of Directors to possible discrepancies in income verification information submitted by certain mortgage brokers.

The company immediately commenced a thorough investigation of the allegations including the reliability of other information submitted with the loan applications. With the assistance of independent professional advisors and the independent directors of the Home board, we determined that the falsification of income verification documents that were submitted had occurred.

It’s important to note that although we found no evidence whatsoever of falsification of credit scores or property values. So let me emphasize, the Beacon scores on credit were accurate in our file and the property values were as we had appraised.

Now once we identified the brokers associated with this issue, we immediately took action to begin suspending our relationships and in total, we suspended 18 individual mortgage brokers and two brokerage houses as a result of this issue. In total, this was 45 brokers out of our nearly 4000 broker relationships, 45 out of 4000.

I want to stress also that the delisting of this small number of brokers in no way represents the majority of the brokers that we transact with and who worked very hard to ensure that the quality of business meets our very high standards. The next step of our investigation led us to conclude that it is unlikely that this matter will lead to credit losses.

We are still actively monitoring the subject mortgages and there have been no unusual credit issues. No credit issues with the portfolio that we have reviewed.

We are actively monitoring the subject mortgages and have determined that they continue to perform in line with our broader portfolio. And finally, we did a broader test to ensure that this was not a widespread issue in its portfolio and we are comfortable that it is not.

So as all of you know the result of this process combined with a few other factors led to the drop in originations in the origination volume in the first half of 2015. When we suspended the 45 brokers, we lost the volumes that they could have brought in and the 2014 originations associated with these brokers represented some 5.3% of the outstanding loans on homes booked at December 31, 2015 and 4.3% of the loans under administration.

The 2014 originations associated with these brokers totaled some $960.4 million of the 7.6 billion of single family residential mortgages originated from all sources in 2014. That number represents the value of all mortgages originated from these sources in the year and not the value of the mortgages associated with discrepancies in their occupation.

In fact these mortgages would contribute less than 2% of the company’s 2014 net income. So, in addition to the direct impact of the suspended brokers we believe a few other factors impacted the drop of volume -- the drop in volumes.

When we enhanced a number of our loan approval and documentation verification process to ensure new loans continue to reflect Home Capital’s risk appetite, we likely increased approval time for some applications and let some customers to turn to other funding sources in the short-term. These enhancements include such things as request for more detailed documentation and income verification from both brokers which slowed the approval process.

And originations were affected by seasonality, the current competitive market for prime insured mortgages, you may recall, we had a rough winter but the current competitive market for prime mortgages in Canada, and the company’s conservative approach to growing its residential mortgage business in the current Canadian economic environment. As a result of this, this all caused a lot of stress but we at Home are confident that these measures in spite of their short-term impact on origination volumes were prudent and essential steps to maintain the long-term health of our business.

And now you have heard me say this before, perhaps too many times, we want to apologize for being prudent and cautious in ensuring that we have a strong performing book of business. Now in addition to understanding just what happened to origination volumes, I want you to be aware of everything we are doing at Home Capital to improve volumes going forward because even though we believe this is a very manageable issue, we know we are not where we want to be and we have lots of work to do.

The company has taken several steps to improve origination volumes in the second half of 2015. We have implemented new sales measures to build on our already strong pipeline for residential mortgage originations.

We did this by restructuring our business development group to broaden the number of broker relationships as well as deepen existing relationships. This will help us deliver the solid demand for the company’s traditional mortgages within our established regions.

We are also working with our broker community to help them adjust to our enhanced approval processes and we can report that we are striving to receive positive feedback. We expect origination volumes to also improve as a result of our business partners increased familiarity with the new processes.

And we are looking forward to introducing towards year-end a broker loyalty program that will reward brokers for both volume and quality of business and we are introducing our new broker portal to better serve the broker community. We are making solid progress with these measures and we have already seen an increase in originations near the end of the reported period, when compared to the first half of 2015.

What we have seen in July so far is also promising and I expect this trend to continue. Now I am sure that there will be many questions on this topic and we will be happy to answer them to the best of our abilities during the call.

And to recap the Q2 results, profits have been relatively flat year-over-year for the first six months. The mortgage portfolio continues to perform exceptionally well with continued low write-offs and arrears.

Net interest margin remains stable for the first six months of the year compared to last year and although the second quarter was a little lumpy from an origination standpoint, the company is healthy, vibrant, and all businesses are running strongly. And again although we had slower originations in the residential portfolio, I think the good news is that our profit was stable and that was due to the increasing strength of our other businesses, such as our conventional mortgage had very good growth year-over-year, retail credit after the sale of the part of the portfolio is growing nicely and our Visa products are doing well.

And they have all contributed to our profitability. Looking ahead our focus remains on generating future growth that is sustainable and prudent and are making the investments in our business that will help us achieve that goal.

So to long suffering shareholders I say stick with us, because we are committed to delivering and over the next few quarters, we will demonstrate that. And on a final note, I would like to say thank you to Jim Baillie who has stepped down from our Board for his valuable service to Home Capital over the years and I would like to congratulate him on his forthcoming 77th birthday next week.

Now we are pleased to take any of your questions. Operator?

Thanks, good morning.

Good morning Shuba

Good morning. Couple of questions on the broker terminations or suspensions; first of all where either the CMHC or OCI involved in either alerting you to a potential underwriting problem or in directing you to suspend the broker relationships that you identified or how should I think about that.

The answer to both of your questions is no and then I will elaborate. We self identified as I said in my remarks, there has been a anonymous letter, not a whistleblower but anonymous letter sent to a member of the Board or the Board as a whole.

We sprung into action, we did our internal review, we had help from the outside. We reviewed all the mortgages that were in the process of doing a test on the mortgages that the people said, we did spot test, we were satisfied with the group of brokers we suspended.

They are a group that we didn’t want to do business with and I might add that this is an ongoing thing. There is always brokers coming off and coming on and I think in the first six months of the year we added some 300 brokers to our list and it is something that we continuously monitor the list, some people such as retirement, old age.

They leave the business and go into industry. Somebody is working for a competitor and they still have their mortgage broker’s license, we may put them on a temporarily suspended license.

So there is a variety of reasons why people come on and go off. And the fact that these group came off was generated by the quality that we saw internally.

And Shubha, it’s Martin. It’s Martin here.

I just want to add that, we did inform the insurers and OCI very early on and we kept them in the loop throughout the whole time.

Okay. And just following up on that point then, how if at all does the fact that there was falsified income information for specifically accelerator mortgage applications, so your insured product, how does that impact in insurance coverage I mean, do the mortgage issuers then put back the credit risk to Home Capital or do they?

No, we spoke to them excessively and we went and we chatted with them and we told them the whole story. They do, all the insurers do annual and semi-annual reviews of our portfolio and our arrears and compare us with all the other companies that they insure.

I might add, our performance has been at the top range of all the other companies that are doing insured product including the major banks, including others. They have internally, they expect a certain percentage across the country.

They expect a certain percentage will be offside. So far we have not had to make any claims and it’s the performance on the group of files surprisingly enough is better than average.

You might wonder about that but the two big important factors is that their Beacon score was exactly accurate because we pulled it ourselves and we control the appraisals and we know the value is good. So people may -– there may have been someone in the pipeline that adjusted the proof of income but often there are people when we will go into the files carefully, there often are other people living in the houses like another generation are living in the house and helping to support it and that’s why there has not been arrears.

But we can’t tolerate and will not tolerate any documentation that’s not fully accurate and we have just put additional monitoring processes. It’s our understanding that based on what we discovered, the insurers and the other regulators have taken that data and used it in advising and counseling other companies to be aware of the same risks because some of the same brokers are still in business and they may well reform their processes but the regulatory and insurers are aware of who we have had an issue with and I am sure they will be educating companies and I am sure others will over a period of time use various forms of our enhanced due diligence that we have not implemented.

Yeah, and Shubha it’s Martin here again. And as well as -– to determine there is no employees that were complicit in any of this, so there is no frauds from the company perspective and that’s really sort of key to the insurance.

Perhaps if I can sneak one last one in there before I re-queue. When you say, you stepped income verification procedures and that it had possibly impact of the length of the mortgage approval process, I mean how does that compare to what it was before.

I mean is it a day longer, two days longer, and how does that compare relative to your peers?

Okay, I am going to turn that over to Pino who is Head of the Mortgage Group.

Hi, Shubha. Yes, to answer the question it is very simply on a file by file basis.

It could take much longer than before. Obviously as you are performing the income verification, enhancement by a phone call to the employer, you may get a response immediately, you may not and it’s as simple as that.

But we took it a level further. We are confirming the employment with sort of a senior person at the shop.

We wanted to speak to someone independent so that would be obviously, someone in human resources department. So inevitably you may not get the answer immediately, you have to wait half a day, a day in some cases and we are prepared to do that.

I might add, we speeded up the process. We are bit, we fumbled the ball a little bit at the beginning but we got our processes down and I think now we can give service levels comparable with the other competitors in the market.

Yeah, and then they were additional changes in our process and we talked about this with new technology coming at the very end of Q1 and through Q2. And staff just sort of learning the new processes with the new technology as well, taking a little bit of time and that’s probably more relevant in the accelerator product where it really is a commodity product and the brokers are looking for that quicker turnaround time.

But we were pretty confident that we will get back to those service levels to the broker.

Probably add a thing to that maybe, you know, to Martin's point, we sort of improved the process over time as well as in the past six months. We actually had some dedicated individuals that are focused on this task alone and the reason being is because we can perform the functions simultaneous to the other underwritings.

So although it is an extra step, the step can be done at the same time and so again we are looking at finding ways to bring our turn time back to the levels they were at.

Okay, thank you. I will re-queue.

Good morning guys.

Good morning Dylan.

Quick question, just on the $960illion of originations you identified, just a question on, what percentage do you have an estimate of those loans that would be considered to have the suspect documentation, is it all of them or there is a certain amount there on the level?

Well the vast majority were on the level. Thank goodness, the ones I am going to turn this over to our Chief Financial Officer and Rob will answer that, he is closer to the numbers.

Yes, so we don’t actually have an exact number. What we did though, I will tell you what we did, we tested the mortgages of this group by taking a sample and that enabled us to get a sense of the scope.

And we are comfortable, if not widespread or material relative to the portfolio and I think just to add a little bit of color to that we flagged that entire population, which we disclosed and we continue to monitor the performance and we will continue to do so.

So just to be clear, it's a portion of the 960, a very small portion that you consider would have falsifying documentation?

It's a very small portion

But we didn't flag the entire population just to be prudent.

And I guess just on my next point, that's helpful, just if you can walked me through, I know you sort of talked about some of the guys you identified certainly having other sources of income in the house but maybe can you just walk me through the process, of you guys doing your due diligence on the sample sizes, but mostly but just to sort of clarify your comfort with the credit of that going forward on those loans?

Yeah so, we started doing the sampling when we identified the problem. We kept broadening out the sampling until effectively following the evidence until we could find no more evidence.

And in terms of -– and it was around income verification but it is well around the credit score and around the property values. And the only instances we found issues were with the income verification.

So, no issues with the credit scores, no issues with the property value. So we are comfortable that this is not a credit event and we do not anticipate any higher arrears or losses as a result of it.

This really is an income verification, these borrowers are making their payments as Jerry mentioned in his opening remarks. It is performing much better than the overall portfolio.

And the one thing I will add just as a little color to that is – during our due diligence it was concentrated among brokers and that’s why we made the decision to take the action that we did.

And just one final question, before I go back in the queue here just, I know you identified the 2014 originations, is there any previous originations from these brokers on the books from that prior years?

There would be some, we don’t have those numbers offhand.

Okay, maybe I'll follow-up afterwards on that but they did a portion or a small portion of that compared to the 960 million anywhere?

The bulk would be in 2014 in particular the classic mortgages which tend to be relatively shortened duration.

Right, okay, perfect. All right I will re-queue.

Thanks guys.

I just wanted to follow-up on that line of questioning there, in terms of the split between accelerator and traditional product that was in the mix there or that was an issue, was there a -– was it more prevalent in one or the other between those two, and I asked that question because obviously if there is some issue around income, the traditional tend to have a very high level of equity of the owner in the house?

Hi Jeff, Gerry. No, the nature of proof of income on the uninsured, a very small percentage are actually straight up wage earners are far more larger percentage of our traditional business.

Our people who are business for self and with that, we have always looked at very carefully and we didn’t find any unusual problems on the proof of income on the traditional mortgages with these brokers. The problem mainly were in the insured product and the 60% or so that was insured as you know we made very, very little I don’t know -– what was in the last, what did we make on the insured.

47 basis points.

Yeah, so even if you talk about big numbers you talk about, we were off $300 million to $400 million on insured product, we are not talking a lot of money. At 47 basis points it’s not which the way some people have interpreted like the whole company is shaken, it hasn’t affected our ability to move forward, to have to make to have a flat quarter, quarter-over-quarter profit wise.

And we see that business, we want to get it right, we want to be in that business, we want to be in the insured business. It’s a nice additional business.

We pick up other relationships and we will get it right. I am not at all worried about us being able to get it right, being able to get the relationships with the rest of the broker community has been good.

We have had a long history with them and maybe we were a bit too cautious and we discontinued relationships with a few more than we should. But we have an on boarding that we could look at some time in the future and if the brokers have a tightening review process of how they take the applications of how they check, they are not asking us to do underwriting but some of them do a little bit of work and just make sure what the source of their client referral and what they have.

When I look at the rest of our broker community, there is no problem. They comply, they are sending stuff to other institutions, they don’t want to send stuff that’s not accurate.

As I say, it was a very small group that on the insured product, where we are sending out stuff and in abundance caution, we probably cut off more than we should have. But our feeling was let’s get all this under control.

Let’s get all the evaluation of all of the stuff that they have got on their books and maybe a year or two, we will look at on boarding them. But I don’t want to talk about that now.

We want to make sure that the source of this problem we have got it covered, we have got a way of doing it properly, and we set up a system that we got complemented by one of the mortgage insurers was unique in its tough control. The small group that is doing nothing but confirming income on insured mortgages and we got quite a compliment from one of the insurers that they had hoped that all the other companies that do insured mortgage would copy it.

So we are there, we are ahead of the pack for the moment and maybe a few brokers don’t want to waste or have us take that extra day or two in some occasions. And some stuff we can do very quickly.

It is fine, you have been following us for a long time from time to time, originations on insured product can go down. When the first of the IFRS came out, I think Martin has a number on that, he will drill you in on that.

We were -– if you look at 2011, we were down 19% in total originations, down 61% in our accelerator product, and your profits continue to grow on an IFRS basis. We were up almost 23% year-over-year so and in years after that the business continued to grow.

So, the profitability is not just about originations, that is a key component but it’s not just about originations.

And maybe just one follow-up there is, what would be the loan-to-value typically on those accelerator mortgages then, because I think people are just worried about it, the guy can't pay the mortgage, he goes into default, you don't have a lot of cushion there if it's a high loan-to-value mortgage?

No, that’s why they are insured. Predominantly they are people who put 5% or 10% down, that’s 90% to 95% loan to value that’s why they are insured loans.

The practice is the majority would be 95%. I am sorry is there a number.

Hi Jeff, on and I believe this is on the portfolio. So not just these identified mortgages, the average loan to value is 84%.

On the whole insured.

Yeah, on all the insured.

Okay. And I think it is just one of those things that skeptics look at and they worry that maybe your insurance might not cover it.

They can deny the claim and then you're left with a lot of equity there to protect you in the event of default. So that's why I asked that question.

And then maybe just one other one that I had some questions on little while was around liquidity here on the other side of the business, and when these kind of issues happen there is some concerns like, there can be concerns on the liquidity providers as well. So have you seen any changes in terms of either CMHC's willingness to continue to take your product and then put it into the CMB, or other MBS programs or any issues in terms of the buyers of your residual interest of the single family?

Hi Jeff. No, we haven't seen any issues at all, and as I mentioned earlier, we have kept everybody informed so we've kept the insurers informed and I think they like the approach that we've taken in terms of dealing with it but no, we haven't seen any issues in terms of liquidity.

Alright, that’s great, I will re-queue. Thank you.

Thanks Jeff.

Hi, good morning.

Good morning Geoff

The first question I had was, so you guys mentioned that you had to notify OSFI and the insurers just specifically around on the OSFI, I'm just guessing they probably wanted to get a better understanding of what was going on there, and really my question surrounds, have they completed their kind of presumably some sort of review of your underwriting and everything is okay. In other words, do you have to call it a clean bill of health to calling do originations under your underwriting standards now or is there still…?

Yes, Geoff, Geoff, you've been following this business for a long time. If I was to say anything about OSFI and their procedures and what they say I'm under penalty of debt.

You don't talk, we as a company don't talk about OSFI, and what they've done. We advise you that we have notified them, we believe everything is okay, but I don’t want to -- they don’t do things like you say.

And I am sure they are listening on the call and I am not going to aggravate them and aggravate myself by making any comments on their conduct. I am sorry if I had to cut you off but I would like you, you are a Royal Bank ask your Chairman of the Royal Bank if he would like to comment on this OSFI relationship, the next time they have a quarterly call.

It is confidential Geoff.

And we are bound by statute to not reveal our communications with them.

Okay.

Sorry about that, but it's just a reality.

Thought I just ask the question anyways.

Yes no harm.

I just want to make sure, I understand it on the originations you talked about. So 2014 you identify the total number of which a small percentage you believe had these discrepancies, and then, if I understand it right pre-2014, there may be some issues that you haven't maybe had a chance to go back that far and it maybe more confined to the subprime side.

I just want to try and get a sense as to, if this maybe is just a 2014 issue or are there potentially some stuff before that?

Martin is going to answer this Geoff.

Hi Geoff, we are investigating those ones as well and we will do the enhanced due diligence on those ones. We just don't have the number offhand, but the bulk of them would be within 2014.

Okay. Okay, that’s great and the last question I had was, I can appreciate that there are brokers that may engage in these types of practices but I'm just wondering from Home side what's in particular like how did this happen, was it protocols that may not have been followed 100%, was it protocols that you may have needed to enhance this what you talked about, and maybe just if you can talk about maybe some specifics and talk a little bit about what's some of the specific changes you've made in terms of the enhancements on a going forward basis, that you obviously want to avoid having this happen in the future?

Yeah, sure and just to make one thing clear Jeff, we have -– there is no proof that the mortgage broker themselves are responsible for this. But the business does flow through them, so we hold them accountable and whether it is their referral sources or wherever the issues are coming from, we hold them accountable and that’s really why we cut them off.

So in terms of what we have done on our side and some of this was going to be happening anyway which is a separation of the, sort of the internal sales function and the underwriting function and that’s part of what's caused a little bit of friction, in terms of our service levels to the broker. But that sort of segregate the duties and in terms of making sure that the way the deals flow through and flow through the different teams, it’s a little bit more random than what it has been in the past.

Gerry mentioned the separate income verifications team and that is focused on that. So they will in effect become specialists in income verification because they will see all kinds of things and rather than having sort of a broader group doing it, the specialized group will see it and they will be able to deal with it a lot more effectively.

Yeah, let me just to specify. I think as a company goes through its various phases and you have been following us for some time, as we get bigger there is things that one has to do.

If you are a small company, you may be able to operate one way but we have reached a point in size and asset and generation of volume that really was prudent on a long-term basis to separate the sales group and the underwriting group. And that we have done and I think we've worked most of the bugs out and its starting to roll out throughout the whole company and to rollout over the balance of the year.

But we think that would be one of the things, where there is that complete separation which there is a big bank. And we never thought of ourselves as a big bank, but it’s one of the things as you get to be bigger and you get to be a big boy, you got to make stuffs.

You can’t wear shorts, you got to wear long pants and this is sort of the long pants of the underwriting process and we are putting it on. We are putting it on with the belt and suspenders and making sure they stay up and it works well.

We are on the right track and we are rolling and I don’t see this, I think we have got lots of controls in place to prevent it occurring again.

And Geoff just to add, we have touched on this before in terms of the new technology that will help in that. I will enhance the controls but also help in terms of the efficiency and the service factor of the brokers.

So that is a -– it’s going to take a little bit of time, in terms of getting those service levels back, but we think the technology that’s being put in place will make us much more efficient, help from a cost perspective but also help from a service perspective to the mortgage brokers and put the right controls in place.

Okay, if I can sneak one last question just, it sounds like you guys I mean aside from the income verification that share okay with the sets of borrowers, when these mortgages come up for renewal, I mean is it something that you guys are comfortable renewing them or just wanted…?

We will look at them on a file by file basis we now are doing and in some cases, we may require additional income verification. We will be looking at these files very carefully when they come up for renewal.

Essentially they will be re-underwritten essentially.

Hi Geoff, its Martin. So the -- we are proactively going back through those and updating the documentation and then as well on renewal where we haven’t gotten to those borrowers on renewal, we will be picking out that as well.

So we have got a fast track program to get to documentation for all of those borrowers updated.

Okay, thanks Geoff. We got a big line up and thanks for the call.

No, thank you.

Thanks next.

Good morning, it's Jeff Hall from Investors Group. Gerald, if I could first of all ask you just to clarify, the release yesterday said specifically that the investigation determined the falsification of income.

You've mentioned a couple of times this morning that it's income verification. Was it a case of that piece of the information supplied to you, it's just not verified or it was verified and knowingly verified as false?

No like we didn’t have a –- if we got an employment letter previously, our policy was not -– if the letter was on letter head and it looked -- it had all the characteristic that showed on the credit bureaus where the guy worked and seemed to be reasonable, we just accepted which is accordance with CMAC standard if we are not aware of any reason why it’s not an authentic letter, we just accepted the letter. And that is in accordance with the insurers standard and what they require.

So we had done that. What the deficiency was that some of these letters had been altered.

Some of them, where the income in order to qualify instead of making 64, suddenly the person made 84,000 and there are other issues about the form of the verification. We didn’t independently phone and verified that this was accurate.

We didn’t phone the Head of HR or somebody at the company with the senior position say that MR. AB or a Ms.

AB do they make this and what's their position etcetera, etcetera. We now have as Martin spelled out, we now have a team that we won’t do an insured loan which requires proof of income more at a different level while without getting into this, with a different level of proof of income than is required on the under 80.

But on the insured loans we will verify by multiple means and methods to confirm that the letter is accurate, the person does work there, that there is no question that everything in that employment letter is accurate. Does that answer.

That's helpful and it leads to my second question then on the insured mortgages. What is it – are these mortgages now flagged so that if anytime they go into some type of default arrears, they can be put back to you, what is the period in which you can say that all of these have met…?

Okay, Martin is going to answer that Jeff.

No, we have had those discussions with the insurers and so they are insured. So when they do go into default, unless there is some fraud on the part of the company then they would maybe put them back to us, but there is nothing to suggest that’s the case.

So they would still be insured.

Okay

And they are all performing, as Gerry mentioned in his opening remarks, they are all performing at or better than the overall portfolio.

Okay, so just in general, what is the period of look back time in case of fraud, is it six months or is it a year or is it for life of the mortgage?

In terms of the CMHC or insurers.

If the mortgage goes into arrears, there's a motivation from the insurer to look for a way to put it back, what is the period of that?

So anytime over the life, if it can be shown that the company was complicit in it then they could put it back otherwise its insured.

And is it the company as in Home Capital, or is it a broker, which went through Home Capital?

It’s Home, the operating entity Home Capital.

So as long as you have followed all of their underwriting requirements?

Right. And they come in and they audit and they do regular audit on that insured.

Okay, thank you.

And I should tell you to-date all of the insurers have conducted audits, they have looked at the files. There has not been the slightest suggestion that if there is a claim or there was a problem that they wouldn’t pay it, they have all indicated our arrears and our underwriting procedures are solid and we do not anticipate any problem if any of them did fall in arrears about getting the claim paid.

Thank you very much.

Hi, good morning, guys.

Mr. Roland.

Hey.

Hi good morning.

Hi, just two issues, I am wondering if you could go through the math that underlies the 2% net income estimate, just because average balance that these severage brokers had on your books in 2014, in term and what interest rate that would be and what type of NIM in millions of dollars that might have produced. You've gone through the math, clearly to have your findings of 2% estimate and I just want to better understand it?

And the next question is I see the loan-to-value has bumped around in Q1. It dropped and it appears that your appraisals went up materially in Q1 and that seems to have reversed itself in Q2 and I just want to understand the background behind what appears to be an adjustment in your appraisals in Q1 compared to Q4 and then what appears to be a reversal in Q2?

Roland, Martin our CFO will answer that.

Hi Roland I will take the, on the first one what we did was we took the origination volume that were identified with these delisted brokers and we applied the margin that we had for 2014 to come up with, what we thought the estimated revenue was when we compare that to our 2014 net income. So it’s in the approximation and that’s how we came up with the 2% because there was 6 million roughly on top of 330 million.

And as per your second question, we actually got the LTD wrong in the first quarter and we actually -- some of the data that was pulled was incorrect and a portion of the portfolio was double counted. We determined it wasn’t material and we chose to fix it this quarter, couple of people caught that in the first quarter.

So we restated Q1 to be correct.

Okay thanks Roland, next.

Hi, thank you. Home and I guess Canada in general when you look at our banks are under attack by American innuendo and home lending as gone the roots of Ninja loans in the States.

I was on the First National call a few days ago and they are the largest prime lending originator in Canada have said that, lending today is the tightest it’s been in 20 years with FICO scores, average FICO scores of 750, can you speak from a historical perspective, talked about I guess all your implementation data and everything else but from a historical perspective how is lending in the non-prime space today versus the last 10 years much like First National commented on their prime lending space?

Well as an old veteran of the wars I have been at this game for over 25 years. I think that comment is accurate and I think it’s been a long process that’s spilled over from financial problems first in the early 90s and then in the late 2007, and 2008 in the United States where the U.S.

government had to bailout certain financial institutions. I know that politically in Canada there is no appetite for government to bailout any independent bank or financial institution.

And legislation and this is not, this is just an accurate statement, there has been a long-term tightening of underwriting criteria and I think in all types of business and in all types of financial problems, the regulators in Canada they operate by legislation through the direction of the parliament of Canada and I think one of their mandates is not only the company should be safe and sound but also I don’t think any government in power, anyone of the three parties or some power wants to explain to the public why they had to use public money to bail out a financial institution. So, I think they have been the regulator has followed the directions they have been given and step by step on a fairly methodical basis tightening has increased over the years and I don’t think, it’s a bad thing.

I think it’s because politically that’s what Canadian have wanted and that all the institutions have to be very careful. It may have some short term effect but I think in the overall there has not been a the depositating company or bank failure in Canada I think in the well over 50 years.

Hi Steven it is Martin, I will just comment on sort of the how that customer base in our traditional mortgages has sort of evolved overtime. If you go back 20 years ago it was a much more blue collar trades people.

You look it today, it’s a much more white collar, it’s IT consultants, financial services consultants, doctors, dentist, lawyers who have got their own business. The quality of that client is as Gerry mentioned much stronger today and some of that is due to regulatory tightening, some of that is just due to the growth in the self employed that’s happened over the years, even what we see in the new immigrant portion of our business.

There were as many years ago was really just a straight quota system on the immigration. It’s much more a skill based so the new immigrants that we are seeing that form our portfolio are much higher credit quality than they would have been 20 years ago.

And you could see it in our portfolio and the credit scores how they migrated over time and continue to improve and I think that’s the same in the industry generally.

If you may allow me a second question, like I am just watching Tweeter feeds here I mean management collectively are being accused of being liars and thieves that they should resign and everything else okay.

Oh my God.

Well you should pay attention to what's going on in another world out there and that’s been driving your stock down. If that’s enough weak Canadian shareholders who sold in to the Tweeter feeds, okay, who are scared any thoughts I know that they, it would have to be instigated by the people who have taken the losses probably afraid to commit that they -- or to say that they have actually sold into the Tweeter feeds but any thoughts of lawsuits against these innuendo generators?

Well, no, there is – to answer that I don’t think there is any evidence that I have seen and I did practice law for 24 years. I don’t think at this point we have evidence to start commencing any lawsuits.

We clearly want to get on with our business and the best answer to all this is produce solid profits for the rest of the year, produce earnings per share, increase the origination, show you the numbers, show the great company that we have been, continue with this trend of high return on equity, we did deliver it for 17 consecutive years for this year and that’s really what we are focused on, lawsuits are for somebody else not for us. We don’t have a law suit mentality.

So thanks for your question, next. Next question operator.

Hi, good morning.

Are you Marco?

Yes, that’s right.

Oh, good morning.

I am just trying to understand the departure of the individuals and control function that kind of coincided with this mortgage thought namely your CRO and the Board member Mr. Baillie, would you say anybody related or how should we think about this.

No, I think Mr. Baillie is taking one at a time, clearly stated it was for personal reasons.

Mr. Baillie states is own mind, if there is other reasons, he would have said so.

I think that it’s unfortunate that sort of the people are linking the two but he was a very valuable member of the Board. We appreciated his input, there is nothing to do with that and I think the, I don’t know what Martin is going to answer.

Yeah, just on the others ones, on the risk side our Chief Risk Officer left for personal reasons at the end of the year. We promoted from within Greg Parker who is our Treasurer, very strong understanding of risk.

On the CFO side, Bob Blowes who was our CFO at the time, a while back had announced his intentions to retire. We brought on Rob Morton well in advance.

There is actually, I think it was of a three month or almost four month overlap where Rob Morton had joined us and is current CFO.

And let me just add that, when Bob Blowes resigned as a CFO last year, the rest of the board thought so highly of his ability and his wisdom and his over 30 years experience working with Ernst and Young that he got elected to the Board at the last Annual Meeting in May 2014. And he is a very valuable, he wasn’t -– we kept his skills and we have had the benefit of the new skills of Rob Morton.

So we captured both sets of skills in that matter, it wasn’t a loss at all. Okay, thanks Marco, next.

Good morning Mark.

Good morning. Regarding your comments about maintaining discipline in the current environment, are you seeing any evidence of undisciplined pricing from your competitors.

Well I don’t know. I don’t -– I think that everybody in business tries to do the best for their business but I don’t think there is anything crazy happening.

People are very cautious I think throughout the whole industry, they are cautious on risk and maybe it’s competitive on loans that were, they are really very attractive because of their high Beacon score, high proof of income, low loan to value, and properly so for that type of borrower everybody likes to put that on their books. But I would say, quite frankly that there isn’t anything unusual going on in pricing.

Yes Mark, it’s Martin I would just add, on the prime space it is definitely very competitive and few factors about the –- I think with TD forming their partnership with National Bank has definitely made them a much stronger competitor in the broker space. Just in general, the big banks with the Bank of Canada cutting rates, mortgages rates are drifting down.

Their margins are being squeezed on the prime business, it is a lot that gets funded with their branch deposits and you can’t get any lower than zero and the costs of funds on that. So their margins are being squeezed a little bit.

So they are trying to make up for some of that by just getting more market share at the lower margin. So definitely in the prime space it is more competitive but to Gerry’s point nothing unusual in terms of pricing.

Have you found any new large competitors competing for your traditional product?

No.

No.

Okay and lastly net interest income is up about 3% over the year but your costs are up about 17%. I understand there is compliance and regulatory costs that are unavoidable, is there any other costs that you can control?

Okay I am going to turn that over to Rob, because he is the numbers man.

I mean that’s a tough question on the ones that we can’t control. I mean, we continue to make investments and foundational IT enhancements as well as the control functions as you mentioned.

The problems are efficiency ratios as you have seen is higher and that really reflects increased expenses in the quarter set against flat revenue. So we are spending on budget and so we are really...

Actually below

May be below budget, so we are spending to support our ability to grow our business. So right now, well there are some frothy expenses, small ones that we could control or we are spending to grow our business.

Yeah we do see. This is Gerry again, we do see a bright future and we haven’t stopped spending on the technology and things that will increase and enhance our ability to keep growing.

We see this bump in the first half of the year where we are flat. Earnings year-over-year is a bit of bump and we do -– we do see the second half of the year being -– we will see better numbers and better performance, we believe the next time we are talking.

Okay thanks Mark and I think because of time, I think the next one will be last question operator. But we will be happy to – that was the last question.

Okay thank you everybody, thanks for joining us today and we will be conducting various investor group conferences around with the various brokers and we look forward to dealing with you and your questions, till next quarter. Thank you very much for joining us today.

Thanks bye, bye.