Laura Lepore - AVP, Investor Relations Martin Reid - President & CEO Robert Morton - Executive Vice President & Chief Financial Officer Pino Decina - Executive Vice President, Residential Mortgage Lending

Dylan Steuart - Industrial Alliance Securities Graham Ryding - TD Securities Geoff Kwan - RBC Capital Markets Stephen Boland - GMP Securities Jaeme Gloyn - National Bank Financial Phil Hardie - Scotiabank

Thank you, operator, and good morning, everyone. Thank you for joining us to hear about our third quarter financial results.

With me on the call today are Martin Reid, President and Chief Executive Officer; Robert Morton, Chief Financial Officer; Chris Whyte, Chief Operating Officer; and Pino Decina, our Executive Vice President of Residential Mortgages. Before we begin, I would like to caution listeners that this conference call provides management with the opportunity to discuss the financial performance and condition of Home Capital Group and as such comments may contain forward-looking information about strategies and expected financial results.

Various factors, many difficult to project and control could cause actual results to differ materially from results projected in forward-looking statements. Accordingly, the audience is cautioned against undue reliance on these remarks.

With that, I’ll now turn over the call to Martin Reid, President and Chief Executive Officer of Home Capital.

Good morning, everyone, and thank you for joining us to discuss our 2016 third quarter results. This morning, we will talk about our results, some of the more recent mortgage rule changes, activities in some of our business lines.

Rob Morton, our CFO, will get into more detail on the financials and then we’ll wrap it up with a Q&A. First, let’s discuss our quarterly results and our view on the company’s performance.

The highlights of the quarter compared to the same period the prior year include net income per share was a $1.01 for the quarter, compared to $1.03 in Q3 2015. This reflects the impact of the reduced share count due to share buybacks.

Reported net income was $66.2 million for the quarter, down from $72.4 million in Q3 2015. Our strong capital position and confidence in our business supported an increase to our quarterly dividends by $0.02 to $0.26 per share.

This is the 9th dividend increase in the last five years and an 18% increase over a year ago. We had total originations of $2.54 billion in the quarter, compared with $2.5 billion, which takes total year-to-date originations to $6.8 billion from $5.9 billion in the first nine months of 2016, up 15% on a year-to-date basis.

Our traditional and ACE Plus originations were up 1.3% in the quarter, compared to the same period in 2015, and up 5.2% year-to-date. Accelerator originations were down 3.9% sequentially in Q3 versus Q2, but were up year-over-year in the quarter by 7.3%.

Keep in mind going into 2017, this is the product most affected negatively by the recent mortgage rule changes. Non-residential commercial originations were up 58.5% for the quarter and up 40.3% year-to-date.

And originations in our credit card business were up 10.4% to $48 million in the quarter, while our retail credit originations were down 23% to $43.8 million. We have performed well on a number of measures, but it is clear that management is disappointed in the growth of revenue, net income and loan balances, which have come in lower than expected.

Operationally, we have made changes in our business that have resulted in expenses increasing at a much faster rate than the growth in revenues. This combined with a more challenging and uncertain business environment, given the regulatory changes, adds greater uncertainty to the growth in revenues going forward.

As a result, we will be revising our mid-term targets. Going forward, our focus will be to position the company to achieve positive operating leverage.

Along with the management team, we will be taking a hard look at expenses company-wide and importantly, we will also look at opportunities and new initiatives to improve revenue growth to help deliver that positive operating leverage. We will announce more details of these initiatives, as well as revised mid-term targets no later than the release of our Q4 results in February.

Also note that our future plans to reduce expenses will be over and above our other initiatives focused on revenues that are already in motion, such as improving service levels to mortgage brokers by reducing turnaround times on commitments and approvals, while maintaining strong risk management standards; getting more benefits from our broker loyalty program, Spire, and our broker portal, Loft, and driving initiatives to improve customer retention through improvements in renewal efforts as well as slowing down early redemptions. In our October 20 press release, we spoke about the impact to our current portfolio with the announced Department of Finance changes.

As we announced, the bottom line impact of these changes was not significant, particularly in light of the fact that insured mortgage lending is a smaller part of our business, as well as being a low-margin business. To reiterate what we said in October, we see the potential impact of these changes to be as much as 60% drop in originations of our accelerator product.

This would reduce after-tax net income by about $4.8 million, or $0.07 per share. This analysis also did not take into effect any opportunities that may arise because of these changes in our uninsured business.

The first area of impact is on the high ratio insured mortgages, where customers will need to qualify using the five-year Bank of Canada rate. This higher rate will mean that a number of borrowers, especially first-time buyers would either not qualify or would qualify for a smaller amount than they did previously.

The second area of impact is on the low ratio insurance program. And the two areas most affected are refinances and rental properties.

This business will likely still qualify for a mortgage, but just not for an insured mortgage. They will likely shift from lenders insured portfolio to their uninsured portfolio.

The potential opportunity for Home will be a function of pricing for that product. Although, in theory, pricing should increase, it is still unclear whether competitive pressures will keep pricing low or whether will it rise providing Home with an opportunity under one of our uninsured products, time will tell.

We believe we are in a good spot to navigate these changes and any future changes that may arise. I would also reiterate our support of mortgage rule changes that work toward a safe and sustainable housing market.

Additionally, during the quarter, we changed the name of CFF Bank to Home Bank and the integration is now largely complete. This will facilitate our efforts to continue diversifying our funding.

As at the end of Q3, 29% of our deposits were from diversified sources. So that’s the big picture.

And now, I’ll turn it over to Rob Morton, our CFO to discuss some of the financial metrics in more detail.

Thank you, Martin. Our portfolio measured by assets under administration stood at $28.3 billion at quarter end compared to $28.4 billion at the end of Q2 and $25.4 billion at the end of Q3, 2015.

Reported net income of $66.2 million for the quarter, down from $72.4 million in Q3 2015. Revenue on an adjusted basis declined to $243.9 million from $247.2 million quarter-over-quarter for comparable years.

Year-to-date reported net income was $196.7 million for the first nine months, down from $217.0 million for the same period in 2015, and revenue on an adjusted basis declined to $727.7 million from $747.3 million. We continue to have strong capital ratios, including a total capital ratio of 16.97% and a common equity Tier 1 or CET1 ratio of 16.54%.

Turning to look at non-interest expenses, in third quarter these expenses were approximately $55 million, essentially flat from the second quarter of 2016. However, the efficiency ratio trended higher to 37.7% from 37.2% last quarter.

As Martin previously spoke to, we are focusing on increasing our operating leverage by improving revenue growth and taking a harder look at expenses, which will have an impact on the efficiency ratios going forward. Now, in terms of our credit quality, net non-performing loans as a percentage of gross loans remained low at 0.31% compared to 0.33% in the second quarter.

Provisions for credit losses in the quarter was 0.03% of gross loans and net write-offs were 0.03% of gross loans. As a reminder, our pCL performance is better than our historical experience, which has been more in the range of 5 basis points to 15 basis points.

And as we’ve said for sometime, we would not be surprised to see that number move higher. Finally, I would like to point out that the company has reviewed all of the customer files and the income documentation submitted in respect to the mortgages referred by the 45 brokers who were suspended and there have not been any unusual credit issues on these mortgages.

The value of outstanding mortgages originated by these brokers in the loans portfolio at quarter end was $1.14 billion, as compared to $1.3 billion at the end of the second quarter and $1.55 billion at the end of 2015. With that, I’ll turn it back to Martin.

Thank you, Rob. So to sum up, we are making progress on building back our originations in our core uninsured mortgage product.

However, the environment looking forward is uncertain and we can’t just rely on growing out of our expenses. To achieve positive operating leverage, we need to revisit our expense run rate and right-size them.

This is a top priority for the Board and management and I look forward to speaking more about this over the next quarter. We continue to generate healthy earnings, supporting a strong capital position and with very strong credit performance.

We also see that we are well-positioned for any other regulatory changes or changes in the housing environment that may occur. We need to continue focusing on growing originations, improving renewals and retention and addressing our growing cost structure.

I look forward to updating you on these initiatives, as well as an update to our mid-term targets with our Q4 earnings release. And with that, I’ll turn it over to Blair, our operator to start the Q&A.

Hi, Dylan.

Just a quick question, if you can give me an update on the progress of the retention of the traditional portfolio. I know it was a focus last quarter and continues to be a focus, but still going to be an update on that?

Sure, I will touch it on first and then I’ll pass it over to Pino to give a little more detail. So I would say, we’ve largely stemmed the outflow.

We still need to make some improvements, so that we are getting a lot more portfolio growth and that’s really what we need to get the earnings back on track. We are making progress on the origination side.

We’ve done a number of things internally, both in terms of resources, as well as leveraging better reporting and information to stem that. But the progress on that business is not showing in the balances at this point.

Yes, Dylan, it’s Pino here. The other thing we’re looking at is, as we develop strategies to improve our retention of all of our customers, including our classic book or traditional mortgages, we are looking at the reasons why they are leaving across all fronts.

So not just that a maturity, where the largest focus obviously is always placed, but mid-term. So we’ve pretty much segmented the strategies into two groups for clients that are within 90 days of maturity and obviously those are renewal strategies, and then outside 90 days more of retention strategies, try to keep them on our books, graduating them on to a program if they are in that position, looking for other products to meet their needs and retain them with Home.

Okay, that’s great. And just a question, I’m not sure if I heard it correctly, but did you say the review of the portfolio tied to the suspended brokers is complete.

And if so, are you guys still planning to, I guess, break that out and separate disclosures going forward?

Yes, we have finished the initial review of all of that. There are a number of those customers who still need to be renewed and we’ll address them in the normal course of business.

But from a disclosures standpoint, yes, we are competing – there’s no credit events with the portfolio.

Okay. So, sorry, but I guess, will it be broken out in the disclosures going forward or no?

No. It will just be part of our regular portfolio.

Right, okay. And just I guess on the dividend, we saw the increase this quarter and just wondering, as part of your target review, any -- with growth being slow, do you think maybe an increase in the payout ratios going forward or how are you looking at that?

We will revisit that, but the focus is really on getting expenses down and returning to positive operating leverage. But we will review the payout ratio and where we are with that.

Okay, perfect. I’ll reach you.

Thanks, guys.

Good morning.

Hey, good morning.

How do we think about the expense sort of guidance you given us? On the one hand, you’ve been ramping up your expenses this year around a bunch of new initiatives and now you are talking about taking a hard look and reducing your expenses.

So should we sort of think about your expense base in two different buckets? You’ve got new initiatives that are causing expenses to increase and you’ve got your sort of general operating expenses and that’s where you are going to be taking a look at?

Yes, I would say that’s pretty fair. We don’t want to curtail expenses where it make sense either from an improving efficiency or driving revenue perspective.

But we want to make sure that we are driving efficiencies throughout the organization. So, to your point, the focus is probably a lot more on OpEx, than it will be sort of in one-time, but we will be looking at the one-time sort of project-related expenses as well.

And is that something that you will give us further clarity on in Q4?

Correct, yes.

And then on the, excuse me, on the net interest margin, we saw some compression again this quarter on your sort of core portfolio. Is that largely related – or the big driver there just higher competition and some rate pressure, as opposed to the growth of your ACE Plus product ?

Yes, I’ll let Rob answer that.

Hi, Graham. So with respect to NIM quarter-over-quarter, you are right, we saw some compression and it’s really primarily due to the increase in the average cost of deposits, as a result of our deposit diversification strategy.

Oaken has a higher cost versus the fixed term deposit with brokers and we saw that business what we’re seeing with respect to this right now.

Okay. And how should we think then about the outlook for your net interest margin for that core portfolio going into 2017?

Well, we are continuing to approach our deposit diversification, so we’re going to have to take that into account. But the other thing that’s playing with this is, of course, the rate of mortgages.

So it’s also the top line growth and we haven’t seen any there. So I think it’s part of us coming back with our guidance, we are going to have a little more clarity around what we’re seeing there.

There’s a lot of uncertainty right now, what’s going to happen to rates just with the government announcement. So we’re kind of watching that ourselves right now too.

Has there been any change in – historically, you guys have had a decent amount of pricing power in that traditional product. Has there been any change on that front?

No real material changes. It’s a little bit more competitive maybe.

But there’s no new competitors coming into that space or anything like that at this stage of the game. There’s a better quality customer that falls into that space, that is priced more competitively and there are more lenders available for that customer versus what I would say with our traditional customer five years ago.

And Graham, it’s Rob again. You see that in our tables, when you look at the rate on our traditional product year-over-year and it really is, I think, the higher credit quality borrowers.

Okay. And maybe one last one if I could.

Just where are you at with your focus on reducing broker turnaround time and also the rollout of your broker portal?

Yes, I’ll let Pino touch on that.

Yes, we’re making actually very good progress on that front. We’ve essentially pieced up our delivery into three sections, turn time on our approved applications as far as commitments to our brokers, mortgage commitments.

The second piece is the review of documentation and the third piece is our documentation with the closing solicitor. So on all three fronts, those are being looked at very closely.

Right now, we’re getting very close and have actually seen our successes in the past quarter, where our commitments are issued within six hours on approved applications. So we’re very pleased with that documentation review.

We want to commit to within eight business hours, so one day, and then likewise with our solicitor partners. So across all three fronts, we are seeing very good movement.

We are monitoring these each and every day and enhancing our processes accordingly to ensure we meet those timelines.

Great. And the broker portal rollout?

So broker portal rollout, we’ve actually just completed a full enhanced training for our staff here in Toronto. We are going to do the same for our branches and then start a more robust rollout in Q1 of next year to our broker partners.

We have made some enhancements to the portal, based on our pilot partners that were put on it. So we want to make sure our staff were up-to-date on those changes and again, full rollout starting in Q1 next year.

Okay. That’s it from me.

Thank you.

Okay. Thank you, Graham.

Hi, good morning.

Good morning, Geoff.

In your MD&A, yes, you mentioned talking about upgrading processes, changing business relationships, increasing regulatory compliance and introducing additional risk management procedures. Just wondering if maybe you could give some examples of some of those things that you’re doing when you made reference to that in the MD&A?

Sure. So, let me just – yes, in terms of the processes, a lot of that is around the residential business and that turnaround time, automating that, moving toward a digital file, digital process.

In terms of the business relationships, there is a lot more work being done on our broker partners and who we onboard, also working with some referral arrangements. So we have – as we’ve mentioned before, we’ve got a couple of bank referral arrangements in place today.

We are looking at broadening that and are currently in talks with a couple of people as far as that goes. In terms of the increased regulatory and compliance activities, I think, RC made that very clear in the summer time.

There is heightened regulatory oversight in the mortgage business and they expect for all business to be operating at a much higher level than what was previously done and to make sure that we are covering off all the 5Cs of credit and not just focused on collateral or anything along those lines. And then as far as risk management, we’ve been doing a lot of beefing up the risk management within the business, so we have a net price risk management group.

But separate from that within the business, there is a lot more focus on beefing up the risk management within the business line. So really sort of taking it to that first line of defense and strengthening the first line of defense.

Okay, thanks for that. And then my second question was, when you are thinking about trying to get to the EPS growth that you would like to have, is that going to be coming more from being able to drive more originations and loan growth?

Is it a matter of spending less? I’m just trying to get a sense of where you are going to see more of that bang to the buck in terms of growth to the bottom line.

Yes, it’s difficult to tell. I mean, the obvious thing is that, this is going to be more challenging, given lot of the regulatory changes, some of the concern in Vancouver housing market, Toronto housing market that growing the originations and revenue side of it may be lot more challenging than we thought.

Our expenses for the last two years have grown at a much faster rate than revenue side has and we need to get that back under control. And then I think, once that is back under control and sort of right-sized for our business, then I think you will see that two sort of growing hand in hand.

So you will probably see a little bit more work over the next while on the expense side versus the revenue side. I think it is possible the revenue side does much better than we anticipate, but we can’t count on that.

Okay. And just the last question I had.

Pino, I know you made reference earlier when talking about the question on the traditional side in terms of client saving. I apologize if you might have talked about even on the last conference call.

But what have you been able to find in terms of your analysis of why you are having that turnover within the traditional side of your business? And then as an add-on to that, like when did you guys kind of notice that this sort of activity was a lot higher than what it was historically?

Really the difference in the past, let’s say, one to two years versus what we normally saw from customer behavior in our traditional book is that, these customers will more have to graduate mid-term. So this is why I mentioned here, we are really segmenting them into maturity, retention strategies, and then unscheduled sort of prepayments.

And typically these customers you’ve heard us tell the story over the years, traditional or classic mortgage customers usually take about 20 to 22 months to graduate. And when we say graduate, that’s going from an alternative A mortgage to an A-mortgage.

What we found, though, and you heard Rob and Martin talk about this, over the past couple of years, the traditional customer just come to us with a lot higher credit quality and the Beacon scores. The reasons why they are not being approved by the bank.

These are real near-prime customers and so that lifecycle has really shortened. They are graduating at a much, much faster pace.

And from our standpoint, we have to develop more strategies around impacting these customers early, being there in that sort of one-year mark to make sure that if they have enhanced their credit to the point where they can get a prime mortgage that we are there for it. So we’re leveraging both our retention team that we talked about earlier in the last quarter.

We are utilizing our call center. We are utilizing all resources that we can at different touch points, so that we can keep these customers on the books.

Okay, great. Thank you.

Sorry, thanks. I just want to touch on with change in the regulatory policies there, and you talked about your insured portfolio.

One of the things you guys always talked about was being a one-stop shop for brokers. And if you are not able to offer that insured product to certain brokers, does that infect your ability to get traditional business as well?

So what we’ll be able to do in insured business, the question is going to be how much and to what extent is it worth doing. So there’s always going to be a certain amount that’s worth doing for the reasons you outlined, in terms of being that one-stop shop.

But it’s going to get harder even for the broker. The broker is going to have a lot more customers falling into that uninsured space.

So, the broker is going to have a little bit less emphasis on that insurance base that what they have had historically. So it’s – for us, the insured business has always been secondary and that will continue to be the case.

Maybe you could just touch on your guidance for – that you put in your MD&A that you are going to probably reduce your mid-term targets, which, I think is 8% to 13% EPS growth and an ROE of 16%, and you are going to update that in Q4. Before the changes in the government policies, would that comment still be done like, I mean, it’s not just because of the changes in the regulatory front, right?

That’s correct, yes. It’s not just because whether regulatory piece does, or just add some uncertainty in terms of what that maybe.

So but we would have been looking to guide lower anyway, but the regulatory price just add some uncertainty looking forward.

Okay. And in Q4, I think, sorry if you’ve already said this.

You will start updating the Street in terms of where you think your efficiency ratio and your – some of these expense initiatives will start taking place in 2017. Is that a fair comment?

Yes. So we want to come to the Street with updated guidance and some more information in terms of our initiatives around the expenses, and ideally some targets around what that translates into.

Okay. And just a question for Pino on the broker turnaround.

You gave some timeframes there, six hours, one day, one day. Is that put you back in your minds like back to you competitors, where with some of – I would say, your main competitors out there in terms of their turnaround times, or is there still a lag that you have to narrow?

No, absolutely that puts us back to where we want to be and where we’ve always been, the six-hour turn time on commitments. That was a mark that we set internally, because that’s excellence in the marketplace and that’s where we wanted to be.

So this is perfect, because we are rolling into the Annual Mortgage Broker Conference the end of November, and we want to be communicating these SLAs, as we speak to our partners. Indications over the past three months, as we’ve been rolling these enhancements out has been tremendous.

We are getting positive feedback from our brokers. And so we are very excited to be able to roll this across the country.

Okay, I’m sorry, Martin, I’m going to hog the puck a little bit here. Just can you – I know you did comment on some of the stuff on the W5 story.

Have you seen – has that kind of blown over? Have you seen any reputation risk there from that story you guys have been commenting specifically on in there?

Yes. No, we finance cash flows.

We are not involved in sort of the front ends of that piece. I know there is a lot of concern out there in terms of a particular sort of the door to door type approach to selling those products.

But we are just behind the scenes buyer of cash flows.

Okay. Okay, thanks, guys.

Okay. Thanks, Steve.

Yes, good morning. My first question is related to non-securitized residential mortgage, so the traditional product.

Obviously, origination growth has slowed a little bit so too has the average balance of the traditional mortgages, actually the decline has accelerated over the last four quarters, and run-off in the portfolio has also picked up. I’m just wondering you give any color or guidance going forward on the run-off in that portfolio?

Yes, so that’s really the initiatives on the retention side. So it’s a combination of the origination and our good retention through both the renewal and the early redemption piece.

So the renewal and the early redemption piece has accelerated and Pino talked to that earlier. So trying to stem that while we build up the origination should get the growth in the – in the loan balances back on track.

And that’s really what we are trying to do.

Okay. So just on that, the comments about retention seem to be more directed towards retaining "graduates".

What percentage would you say is retained at the traditional level as opposed to graduating to a higher credit quality product? And what – I guess, what successes or what strategies are you employing to retain that traditional near-prime Alt-A client?

Yes, Jaeme, it’s Pino. That’s definitely one of the things we are assessing right now, because, as I mentioned, the look and feel of the traditional customer has certainly changed over the past 12 months, 24 months.

The timeframe in which they are graduating is certainly much shorter. We know where they are going.

We know why they are going. And so, we’re really trying to pick up more data on that behavior and sort of what period of time that’s happening over, so we can have better effect in our touch points with our clients during their life cycle.

Okay. And so, just follow-up one more time on this.

You just said, why and where. Could you just dive into that a little bit more?

Yes. So we know they are graduating.

We know they’ve gone from near prime to a prime customer. We know they’re going typically back to their bank of choice, which typically is what happens with our traditional customers.

What we are finding though is that, timeframe is shorter in a certain group and that speaks to, again, the credit quality of these traditional customers, as they’ve been onboarded in the past 12, 24 months.

Okay. So, I guess, a fair characterization would be then the slower originations haven’t been able to replace what is a faster speed of graduation?

Yes, exactly.

Okay. Next question on the deposit front.

Obviously, I guess, a pretty sizable decline in the net interest margins, driven by those deposit costs. And you talked about maintaining the strategy to, I guess, it was Rob talking about the maintaining the strategy to focus on the Oaken Financial channel.

Can you just talk about your rate outlook there? Looking at your website right now, the rates are still well above competitors’ rates.

Maybe you can just sort of give some color around where you see GIC rates moving.

Yes. So we see that remaining firm.

The cost of acquisition of the Oaken customers is a little bit higher than through the broker channel. But usually over the life of the customer that does come down a bit, as you get the renewals on those customers.

So it’s still a fairly new business. So we would look for that to moderate over a period of time.

And that direct business is typically higher than it is through the broker channels. And our focus has been much more on the term GIC versus overnight savings account, which is where a lot of people tend to be focused.

So it will remain elevated, but probably moderate a little bit.

Okay. And is it usually the two-year GIC, or the one – like one-year GIC, what’s the breakdown between, I guess, the selection of your customers…?

Yes, it tends to be sort of in that one to two-year, given where rates are, a lot of depositors don’t want to extend term very much. So it tends to be sort of in the one to two-year, which for us works out well in terms of matching against the asset value.

Yes, okay. And then last, I just want to touch on the dividend increase again, obviously, brings you up towards the upper end of the 26% or 19% to 26% range.

Correct.

I guess, why increase the dividend now when you’re undergoing a strategic planning process, when there’s still some uncertainty with medium-term targets and potential impact of regulatory changes? I just want to get some more clarity on why this quarter and not maybe wait until after you set those targets?

Yes, it was part of our plan and we also see that even with a lot of the changes that are coming, we still got a lot of capital. So it’s not a big dent to capital, so we do see that we’ve got sufficient capital for that uncertainty, for those potential regulatory changes, or the downturn in the market even with the dividend increase.

Okay. And so just a follow-up on that.

Does that signal then potentially share buybacks may decrease, or is that still a component that will run at a similar rate as Q3?

So we are in the process of going through our strategic planning for 2017 to 2019 and we will revisit that. But I would say in terms of the use of capital, given where the share price is now, NCIB would be – would probably be the preferred choice in terms of using capital.

Okay. And lastly, just on capital at 16.5% right now, capital levels in 2014 and 2015 were north of 18%.

Do you – obviously, you’re still reviewing this. But is 16% a comfortable level, or do you see maybe the potential to migrate that capital level a little bit higher, just given the – where we are in the cycle of the Canadian housing market and just more uncertainty overall?

Yes, I would say, we’re pretty prudent at the levels that we’re at now in light of a lot of uncertainty on the horizon. But I’m not sure that it needs to migrate up in answer to your question.

Great. Okay.

I’ll turn it back.

Okay. Thank you.

Hey, good morning.

Good morning, Phil.

Just one of the areas I think had seen some, I’ll call, surprisingly strong loan growth over the last 12 to 18 months has probably been non-residential commercial. So I think in light of that, I mean, can you do a bit of a deep dive in terms of kind of those loans?

And then secondly, maybe talk about from a Board perspective, your risk budget and what that means in terms of what I’ll call business mix to the commercial loans you are going to play into in terms of the overall portfolio?

Yes. So the commercial business, we sort of grew, call it, 2006 through to about 2008-ish, and then sort of leveled off a bit.

As part of what we are going through with the residential mortgage transformation, we are also looking at on the commercial side beefing up a lot of the infrastructure around there and a lot of the support around that to grow that business. And there are really sort of two areas of opportunity.

One is in your traditional larger commercial business and there’s a fair bit of opportunity in that space, in particular, as it relates to the GTA market. And then the other area where we’ve always done quite well and we’ve added resources, and there is good opportunity there is in the small commercial.

And that would be your store and apartments and a lot of your infill-type construction. So we see good opportunity in both of those.

In terms of risk appetites, we do have appetite for more of that business. It’s not going to be a dominant part of the business.

The residential will be the dominant part of the business for sure, but there is definitely room to grow that.

Okay. And given some of the higher capital requirements, would that likely to kind of weigh on the mid-term ROE if that mix grows from where it was?

Well, we would look at the return on that business in light of the higher capital. So looking at it on a risk adjusted basis.

Okay, fair enough. Okay, then changing gears just quickly, you have – more recently had a fee reduction, do you think kind of the current quarter reflects, I’ll call it as a sustainable run rate for fees at this point?

I would say, yes.

Okay, excellent. Great.

Thank you.

Okay. Thank you.

Thank you, Blair. I would like to thank everyone for calling in today.

We continue to generate strong profits and strong capital base, good credit performance and growing dividends. I look forward to updating you over the next quarter on our initiatives to reduce expenses and grow revenues to continue making the company stronger.

Thank you.