First National Financial Corporation

Good morning, everyone. Welcome to First National's Q2 Analyst Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a Q&A session and instructions will be provided at that time on how to queue up. I will now turn the call over to Jason Ellis, President and Chief Executive Officer. Please go ahead, Mr. Ellis.

Thank you, operator. Good morning, everyone. Welcome to our call and thank you for participating. Before we begin, I will remind you that our remarks and answers may contain forward-looking information about future events or the company's future performance. This information is subject to risk and uncertainties and should be considered in conjunction with the risk factors detailed in our MD&A. Joining me is Rob Ingalls, Chief Financial Officer. Before Rob speaks to quarterly results, I'll offer some thoughts on the market environment and our outlook. With four Bank of Canada interest rate increases since March, the economy and housing market are entering a new cycle. Perhaps not since the 1970s has Canada seen inflationary pressures such as those experienced in the past seven months. Recent quantitative tightening has made it more expensive to borrow with the outcome that housing activity and mortgage lending have slowed. First National has not been immune to these changes and our single family origination was down 10% year over year in Q2, following a 3% decline in Q1. Regionally, our Calgary and Montreal offices outperformed, reporting 10% increases in volumes. Our expectation is that the market will continue to adjust to this rising rate cycle with our single family origination continuing to moderate year over year in the third quarter of 2022 in line with housing activity. There's always a high degree of imprecision in forecasting, but there is sufficient market evidence that housing activity will continue to soften. For interest rate hikes, further interest rate hikes from the central bank as early as September will add to the downward pressure. In light of the cautious forecast, some context is warranted. While second-half originations are likely to fall below 2021, volumes last year were record-setting for First National and the industry. Even with continued moderation, originations are likely to remain near pre-pandemic levels. By comparison, Commercial mortgage market activity continues to be strong and our Q2 commercial production was 19% higher than last year. Demand in the second quarter continued to shift toward insured multifamily mortgages against reduced activity in the office and industrial market. It bears noting that First National's commercial mortgages under administration passed the $40 billion milestone during the quarter, a great accomplishment for the team and one that speaks to our strength as a full-service lender with a range of solutions for commercial borrowers, including short- and long-term products. In looking ahead, we anticipate continued strength in commercial mortgage production based on the pipeline of commitments. However, it seems likely that higher interest rates will also create headwinds for commercial mortgage demand, perhaps beginning in the fourth quarter of this year. Rising rates also have a bearing on refinancing, prepayment, and renewal activity. As the advantages of refinancing to borrowers lessen, we anticipate a correspondingly favorable impact to First National in reduced prepayment speed on our portfolio. In the second quarter, prepayment speeds remained elevated, and the accelerated amortization of capitalized origination and issuance costs continued to have a net adverse effect on the securitized portfolio. As inflation has accelerated, volatility in rates and credit spreads has increased as well. As a result, the spread on some residential mortgage products have widened recently, which, combined with reduced prepayment speeds going forward, may be constructive for securitized net interest margins. The markets are changing and will likely continue to adjust in the near term until inflation returns to the Bank of Canada's target level. This process will require an adjustment by Canadians, but restoring price stability is crucial to reestablishing a sustainable and predictable housing market for future years. For our part, we are entering this part of the cycle in good shape. Our MUA is at a record level, and that creates future earning opportunities for a mortgage administration. As prepayment activity returns to a more normal level, it will also create a tailwind for net interest margin and ultimately lead to more renewal opportunities on scheduled maturities. In looking at market drivers and risks, in the very near term, we can take some comfort in the strength of the job market in Canada. May saw the lowest rate of unemployment on record since comparable data became available in 1976. Assuming the Bank of Canada's policy actions don't tilt the economy into a recession, employment should provide support for mortgage demands in upcoming quarters. The same can be said for the government's plan for immigration over the next two years as newcomers secure housing. From a risk perspective, one of the advantages of our business model is that about $90 billion of our period-end MUA was administered for institutional investors with no residual credit risk to First National. Our credit risk is generally limited to conventional mortgages with loan-to-value less than 80% securitized in our ABCP conduits. Recent growth in our residential underwriting teams, while costly in terms of near-term operating leverage, are of strategic importance. While the market is changing and First National is responding, our cornerstone strategy of providing a full range of mortgage solutions, employing technology to enhance processes and service, and maintaining a conservative risk profile is as relevant today as it was a year, a decade, and 30 years ago. Accordingly, we will maintain focus on these fundamentals, which are critically important to us, to our partners, and to our customers. Now, over to Rob for his report. Thanks, Jason. From a strategic perspective, we consider growth in MUA to be a key element of performance. And on this basis, we are satisfied with the results in Q2. I will repeat the information found in our disclosure documents, but I will single out a few key performance metrics. MUA increased 5% year-over-year and at an annualized rate of 9% Q2, despite a 2% decline in total new originations, credit to the corresponding period of 2021. Looking at the impact of MUA upon Q2 results, revenue was higher by 14%. However, this was largely the result of rising interest rates, which led to gains on whole For market value income, we find a clearer picture of the operational impact of mortgage funding spreads and operating expense levels. The market value income was down 21% from last year. The change can be attributed to several factors. Gains on deferred placement fees related to commercial mortgages sold to investors Were lower as multifamily residential spreads narrowed in Q2 2021. these spreads were abnormally wide. Due to the financial impact of the pandemic period. In Q2 2022 spreads returned to more traditional levels for these kinds of mortgages. Placement fees, placement fee pricing. did not suffer as much. However, mortgages placed on a funded basis also reflected the tighter spread environment when compared to the abnormal market that existed in 2021. Margins earned on mortgages held in our balance sheet prior to securitization were also lower as short-term warehouse funding costs increased in line with Bank of Canada actions. We estimate that these net cost increases, including interest expense, reduce pre-tax income by as much as $10 million between the comparative periods.

On expenses, I would note that...

Full-time employee growth of 18% along with wage inflation and commercial underwriting compensation paid on the record levels of origination resulted in a 28% increase in total salaries and benefits year over year. We are mindful of the effect of the full-time employee increase on near-term operating leverage as new employees take time to achieve full productivity. We provide them with extensive training to shorten this cycle. And as always, we have a variety of IT automation projects on the go to enhance efficiency. As a footnote, during the quarter, we extended our $1.5 billion revolving line of credit by one year to now mature in March, 2027. This committed facility provides flexibility and certainty while the cost of borrowing reflects our BBB issuer rating. This summary would not be complete without mentioning that our monthly dividends were paid the annualized equivalent of $2.35 per share and our Q2 payout ratio was 58% or 87% excluding gains and losses on financial instruments. We think this remains a very attractive feature of owning First National shares. In closing, given the environment, we're satisfied with the performance to date this year. Our securitization portfolio of $35 billion and our servicing portfolio of $90 billion have never been as high. As a result, we can look forward to generating income and cash flow going forward while working to unlock the value of our significant single-family renewal book. These sizable portfolios provide opportunity and some stability in a rapidly changing market environment. That concludes our prepared remarks. Operator, please open the lines for questions. Thanks.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. One moment, please, for your first question. Your first question comes from Etienne Ricard of BMO Capital Markets. Please go ahead.

Thank you and good morning.

Good morning.

Single-family spreads improved meaningfully at the end of Q2. How responsive has the industry been in adjusting mortgage rates higher to reflect funding costs? And what pricing action are you seeing from the banks in particular?

The response in mortgage rates is always a little bit slower, I think, than you would hope. There's a stickiness, I think, to mortgage rates relative to some of the underlying benchmarks But we have seen, as Rob has noted, and certainly as you could see by that data point in the MD&A on mortgage spreads that Rob includes, that we've seen a widening relative to where we have been recently when you simply measure an insured mortgage coupon against the five-year risk-free Government of Canada bond. I think we have been able to realize that because I think there's been a great deal of pressure on the cost of funds at the as we've seen a significant widening in where they can issue senior debt. On the flip side, we have been fortunate in that the spread on NHA MBS pools has been relatively unchanged in comparison. So my hope is that we will be able to realize on some of these more recently originated commitments as they flow through to funded and securitized mortgages in the next quarters. The only headwind against that is I can already see some of the pressure mounting from some of our mortgage finance company competitors. As they start reducing mortgage coupons, as we see underlying risk free rates adjusting, for instance, the 5 year Canada bond is down from what? 3 and a half 6 months ago to about or 6 weeks ago to about 280 today. So, I think that we're going to see some pressure from competitors, both in terms of mortgage coupon. But also, in terms of some of the special compensation incentives that they offer to mortgage brokers. So, like always, I think it will be a relatively short-lived period in terms of these wider spreads.

That's great. In the MDMA, you also mentioned that prepayment activity still remained elevated in Q2 despite the higher rates. Could you please expand on this dynamic?

Yeah, I think that as we made our way through the second quarter, there were still – a great number of mortgage commitments specifically for refinancing that were being done in the industry before we saw the significant move in rates. As a result, I think this is the last gasp of borrowers taking advantage of the opportunity to refinance into what are now historically low rates. I had hoped to see the prepayment speeds already showing a significant decline by the time we got to this point. They are lower to be sure, but still elevated relative to historic levels. I'm quite confident that as we move forward now, as I see the average rates in the commitment pipeline higher, that the propensity to refinance among borrowers will definitely moderate as we move through the rest of this year. And that will be beneficial to us in any number of ways. As I mentioned, the prepayment penalties we collect are not quite enough to offset the accelerated amortization of all the capitalized costs that went along with securitizing those mortgages. But even more importantly, as the prepayment speed slows, we'll be able to start enjoying a growth in the actual size of the securitized portfolio as we can realize on the net interest margins for the full term. So definitely a very positive trend that I'm looking forward to realizing on.

Understood. And lastly, the outlook has turned a bit more cautious in commercial. So in a rising rate environment, how long do you expect it will take for buyers and sellers to agree on higher cap rates to the extent bond yields remain unchanged?

Yeah, I think that is actually the very good question. Speaking with Jeremy Wedgebury, I think that he still, who is our SVP of commercial mortgages, he is still seeing a great deal of debate amongst buyers and sellers in terms of where cap rates ought to be. We're seeing transactions in the marketplace That are not yet settled into a consistent level, but I think that's going to be a major influence on activity going forward. And I do believe, as I mentioned that as we move through the rest of this year, the impact on higher of higher rates on cap rates is inevitable. And it seems likely that there should be some pressure on transactions in the commercial space. We've already seen that start to evolve in some of the non-multifamily space. There's definitely been a slowdown in terms of other commercial products. I expect we'll see that follow through a little bit on the multifamily side.

Thank you very much.

Your next question comes from Nick Preeb of CIBC Capital Markets. Please go ahead.

Yeah, thanks. Good morning. Just to follow on to one of the earlier questions, you spoke about the benefit of an anticipated slowing of prepayment speeds on securitization margins. Are you able to help us quantify that either in terms of basis points or impact on net interest income?

Probably not in those terms, but I can give you a sense of, you know, the annualized prepayment speed on our portfolio of securitized mortgages has been as high as the low 20% range as we've moved through this period of extremely low rates. And I would say a more normalized prepayment speed would be either side of 10%. What does that mean immediately in terms of net interest margin and basis points? Difficult to say. I think the most significant impact is going to be an absolute size of the securitized portfolio as prepayment slows and new securitizations are able now to really add to the overall size. And the absolute dollar value of the NIM each period will grow. The other advantage, of course, is, as I mentioned, the prepayment penalties that we collect from borrowers upon prepayment have not quite covered the cost of accelerated unwinding of the capitalized origination expenses. And so that, too, will add, you know, perhaps basis points to the NIM. I'm sorry, I can give you more. I'll just add, there's so many variables in the calculation. Like there's, is the mortgage 12 months into its term? Is it four years into its term? You know, have we amortized most of those capitalized costs already? Is it a renewal? Renewal, we securitize, there'd be no broker fee associated with that, right? And... as well as debt discounts on the MBS that we raise to support that funding, there could be a debt discount, which we have to advertise quickly, or a premium in some cases if rates change during that period. So there's so many things that it's hard to answer your question in terms of this means this, right?

Yeah, no, fair enough. I suppose it's a complex answer to a simple question. But thanks for that. Another question I had, I'm just trying to better understand the sensitivity of the salaries and benefits expense line item to origination activity. And I think in your prepared remarks, you had called out higher commercial originations as a driver of higher salaries expense in the quarter. Can you tell us approximately what proportion of that line item would relate to commissions paid on commercial origination volumes?

I'm not sure I have the information handy, but certainly, I mean, I think the headcount went up by 18% and normalized wages taking away the commissions paid to those guys or accrued to those guys or people was 18%, so that makes sense. But yeah, that's all I can say about that, I think, just from here. Yeah, I mean, I think the... The simple answer is that there's other than the variable portion of the compensation paid to the commercial originators on the team, there would be relatively little correlation between origination volumes and salaries and benefits other than, you know, significant steps, you know, during periods of prolonged growth in, you know, periodic origination volumes, like we saw during the pandemic, where we really had to step on the gas and add bodies to meet the demand. But generally speaking, we should enjoy a degree of operational leverage as volumes grow. There shouldn't be an immediate demand to add bodies.

Okay. And then last one for me. You had mentioned that you made some modest changes to broker incentives in the quarter, which had increased per unit brokerage fees very modestly. Can you just expand a bit on that decision and what prompted it? Is that in response to higher incentives being offered by competitors or has market share in the broker channel moderated somewhat? I'm just interested in a little bit more color on that one.

Yeah, it's the specific incentive was a cashback program, a cash incentive program for the borrower's benefit as opposed to the broker's benefit. But it becomes part of that sort of origination cost. And it was very much in response to what we were seeing all of our competitors in the broker channel doing. So the channel can be very fickle and it can be quite binary at times. And so it's important to remain at that sort of competitive leading edge. Obviously, discipline will play a part in it, but we were definitely motivated by responding or responding to what we're seeing in the marketplace. As usual, these things come and go. Yeah. Yeah.

Okay. Fair enough. All right. That's it for me. Thanks very much.

Your next question comes from James Glowing of National Bank Financial. Please go ahead.

Yeah, thanks. Good morning. Just wanted to follow up on that last question. Are the broker cashback incentives, are those still in place through Q3 or was that, did that end June 30th, let's say?

I think it is still in play.

Yeah, I think it is, too. Yeah, I think it was supposed to be temporary to sort of, you know, fend off our competitors and offer a similar product. But as, you know, historically, these things become a permanent thing almost, you know, it becomes until it was like a pandemic again, I guess. Right.

Well, for us.

ladies and gentlemen please stand by we are experiencing technical difficulties please do not disconnect your lines

Can you hear us? I can hear you. Oh, yes, sir. Your line is back.

Apologies, guys. I don't know what happened there. What I was saying was that definitely these incentives, in whatever form they take, whether they're cash back to the borrower, a modest increase to the commission paid to the broker, or even a special discount on the mortgage rate, they come and go regularly. They're sort of a A phenomenon that are difficult to avoid, but the cash back program that we were specifically responding to from another lender. Just 2 or 3 days ago, they announced that while it was meant to end at the end of July, it has been now extended until the end of August that may inform our own decisions around the program that we're offering to.

Okay, I understood. Still on the expense side, thinking about the headcount, I guess maybe a little bit surprised to see it go up by more than 100 employees quarter over quarter as maybe we enter a bit more of a slower patch here. How should we be thinking about headcount? It's up, like you said, 18% year-over-year, but even going pre-pandemic, it's up like 70%. Should we expect a leveling off, maybe even a bit of a pullback in number of staff or any of these sort of seasonal hires? Maybe you can walk us through a little bit how to think about headcount expenses over the next several quarters.

Yeah, I think that it's a focus over here. It's fair to say that I wouldn't have expected the headcount to grow as it did quarter over quarter. There are still, I think, acute areas of the business that did require some bodies as we continue to deal with the activity related to all of the production. I mean, for context, while we're down 10% in the quarter in single family compared to last year, it's still the second biggest quarter of origination in the history of First National. So we're definitely still adjusting to a new level of activity. That said, we're very focused on our operating leverage and its deterioration. We're very focused on head counts and overall salaries. I think that the pressures that we observed in the labor market over the last 18 months are starting to moderate. And I think that there's going to be an opportunity to instill perhaps a higher measure of caution, I think, in hiring and salaries as we move forward. So I want to look at that salary and benefit line as really more of an opportunity for us as we move forward.

Okay. Okay, understood. As I'm thinking about hedge costs, I think the conversations we've had in the past is that hedge costs and that $12 million increase driven perhaps more by the steepness of the curve rather than simply higher interest rates. Curve is flattening now with more rapid Bank of Canada increases. So Should we think about that $12 million increase or even the level of interest expenses this quarter? You know, at the $30 million, is this kind of like the high water mark for interest expenses? And we should expect to see this tick down to a, let's say, a 2020-2021 level, or maybe talk about some of the puts and takes there.

So I think, yeah, definitely I see that as a high watermark. As the changes by the Bank of Canada flow through the rest of the money market, the repo rates we're earning on covering our short bond positions have definitely come up significantly. While the mortgage coupons or the yields on the fixed rate bonds that were short have actually come in a little bit. So, yeah, I think that another just operating tailwind that we can look forward to, I think that expense line should definitely moderate throughout the rest of the year.

Okay, good to confirm. Last one for me shifting to the revenue side and specifically on servicing fee income. Nice step up in the absolute dollar value. Also a nice step up in the, let's say, the ratio as a percent of MUA. You did call out third-party underwriting as perhaps a driver of some of that. Are you able to separate, to some extent, the contribution of that third-party underwriting or maybe the volume contribution to this performance in the Q2 period? And what I'm trying to get at is, let's say, how much of the result is recurring versus how much might have been a little bit volume driven in a seasonally strong quarter?

You know, that's a question that we've gotten now, I guess, for a few quarters in a row. And I think I'll have to take that away with Rob and think about a way to give perhaps the group a sense of perhaps the per unit, strictly speaking, mortgage administration. contribution and perhaps a sense of a per unit third party underwriting services contribution. But in the moment, I can't really strip those two numbers apart for you. But let me take that away and see if we can provide you with something going forward that will provide the kind of clarity you're looking for. I understand the nature of the question.

Okay, good. Thanks. I'll read you.

Your next question comes from Graham Riding of TD Securities. Please go ahead.

Hi, good morning. I think you made a comment around originations likely to move back towards pre-pandemic levels. Can you just maybe expand on that? You know, if I look at your origination single family back in 2019, that would sort of imply a 30% to 40% decline year over year. you know, for the remainder of the year. Is that a fair assessment or are you talking more about just sort of the number of mortgage originations and not necessarily factoring in the increase in value that we've seen in the last couple of years?

Yeah, I think that I probably should have characterized it. It was really more of a contextual thing. I think, you know, perhaps I overshot the mark. I don't expect to go all the way back to sort of dollar values from that period. I just certainly Just trying to highlight the fact that even with continued moderation in the originations, we do expect to be perhaps not below or at, but still above pre-pandemic levels. It's just the idea that last year was such an unbelievably large year for the industry. Even with reduction from here, we still expect to be in good shape. But no, I think that characterizing a 30% or 40% decline is definitely overshooting our expectations.

Okay. Yep, that makes sense. My next question would just be on the, you mentioned in the MD&A that the CMHC had announced some new rules for aggregators in its securitization programs. Maybe just some context how material you think this could be for some of your institutional buyers and any numbers or anything you could share in terms of what would be sort of your current institutional placement volume that might be impacted by this change?

Yeah, I would say a non-material amount of our institutional placement would be impacted by this. The specific details and subtleties around how this new advice will be applied are still unclear, but I would say that the change by CMHC was made to address a specific type of activity that, while within the strict interpretation of the allocation rules was allowable, was definitely outside the spirit. That's not a type of transaction that we were engaging in. And I don't see any of our significant investor relationships affected by this going forward. There may be some small relationships that are impacted, but they're not critical to our operations.

Okay, so bottom line, your institutional funding capacity is not going to be impacted. No, it is. Yeah, it's not materially changed. Okay, understood. And then my last question, if I could just, the gains that you've booked on these financial instruments, I understand it's hedging related, but it's pretty material. It's been $55 million year to date. And my understanding is this is ultimately economically neutral for you. So where is the offset here? Is it going to come through your securitization over time? And if so, is there anything you could quantify or help us sort of think about over the impact, I guess, over the near term?

Yeah, I mean, ultimately, so. A lot of the hedge gain or loss that we may make in a period, we are able to give hedge accounting treatment too. And that is the portion of the short bond position we hold against funded mortgages on the balance sheet pending securitization. And so any hedge gains or losses from the moment the mortgage funds to the moment it's securitized, we're able to capitalize into the securitized mortgage line and flow it through net interest margin over time. So that should be neutral to them. The portion that we see on the income statement is the gain and loss that we recognize during the commitment period where no actual funded mortgage exists yet. And it is outsized this quarter and so far this year. We're unable to capitalize those. And so you're right. A very large hedge gain will ultimately be reflected in a moderated net interest margin, all else being equal going forward. But remembering that the portfolio of securitized mortgages is, you know, between $35 and $40 billion. It's built up over, you know, a period of five years and more. So, you know, a period or two of large hedge gains blended in against that should not have a huge effect in terms of the NIM. Rob, is that a fair way to characterize that? Yeah, so, you know, just to be more detailed, these are all residential hedges, not on our multifamily. So it'll be, you know, four and a half year duration once they're securitized. And I guess it depends on whether they do fund. I mean, some of these commitments might disappear because they go somewhere else. The borrowers, to the extent that they do fund with us, it will affect them over five years.

Okay. That's helpful.

So we're talking about small basis points here potentially, I think.

Yeah, like we're not – I wouldn't expect to see a major change in the NIM as a result of that in the following quarters.

Okay. That's it for me. Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 now. Your next question comes from Jeff Kwan of RBC. Please go ahead.

Hi, good morning. Just had a couple of questions. One was on the other expense line. I know you had the reclassification around the other hedging expenses, but just in the context, looking forward, if we start to see more significant slowdown in the market, how should we think about how this expense line grows? Is it going to change in tandem with overall activity, or are there other factors that will dictate how this line grows in the coming year?

I think it's mostly fixed Big stuff now, Jeff. It's, you know, the rent, the depreciation of leaseholds in this building particularly, equipment across the country, that kind of thing. One thing that was, you know, a small increase, I think, in a quarter was more travel. You know, with the pandemic, no one was going anywhere. But now we've had a couple of sales conventions and things like that where, you know, people are traveling again. So that's a bit up. But I think, generally speaking, this is like fixed costs. It's costs that you have to incur as a corporation to service mortgages, computer expenses, that kind of thing.

Okay. And just my second question is, on the bridge loan segment, can you talk about, I guess, the appetite if that's changed in terms of the amount of loans you want to extend there? But also, too, is on the overall interest rate on say weighted average basis or whatnot that you're realizing on that. Is that rate kind of coming up in tandem with what we're seeing in terms of the overnight rate or is the pricing mechanism there a little bit different?

So starting with the second question first, those loans tend to have, I'd say, stickier coupons. I mean, you get above a certain interest rate level and you're not exactly responding one-to-one with administered rates like the bank. First of all, what are we talking about? We're talking about the commercial-based loans. I think they're all floaters for one thing. Are they all floaters? Well, not all of them floaters. I would say 90% are floaters, so prime-based. So as prime goes up, we'll make more money. There you go. There you go. So it's a three- or four-month loan, and then CMHC comes in for the takeout typically. That's the reason we're doing these things. Yeah, so to answer the first question in terms of appetite, no. These are loans we do with a very clear takeout. And it's a critical part of our origination strategy. And so, no, there isn't a change to that appetite.

Okay, great. Thank you.

We have a follow-up question from Jane Groin of National Bike Financial. Please go ahead.

Yeah, thanks. Just wanted to follow up on the – hello?

Can you hear me okay?

We can, yeah.

I just wanted to, the follow-up on the funding mix in the quarter, tilted more to institutional investors than maybe, not that it's a crazy high number, but more than, let's say, like an average level. And that's a little bit surprising, I guess, given where mortgage spreads went. Is it just that mortgage spreads were not at the wides that were reported in V&A for most of that quarter, and so it made institutional investor funding more attractive. Just want to get a little bit more, I guess, color on that since we look at like 3 billion in Q1, 3 billion in Q2. Maybe we're going to come in a little bit low on the securitization side at this pace relative to maybe what your capacity is around. I think 12 billion was what we sort of discussed in previous quarters.

Right, so you're quite right through the majority of this year to date. Spreads on mortgages, especially once you factor in the underlying costs of credit spreads and where you could actually fund them has been quite competitive. And more recent developments haven't yet been realized. I mean, most of the mortgages at these wider spreads are currently in our commitment pipeline. And we'll hopefully see the benefit of those as they flow through to the funded book in the third quarter. And then in terms of our expectations, no, we will be full utilizers of our capacity in CMHC securitization programs. So, some of the activity you're seeing might be also a function of the fact that we're just ultimately managing towards, you know, our own securitization activity within those limitations.

Okay. So, reading between the lines, maybe we'll see a step up year over year in Q3 utilization of the securitization facilities or step up even from Q1, Q2, if you're able to realize on some of these commitments.

Right, yeah. I mean, the bottom line is we expect to fully utilize our CMHC securitization capacity.

Good stuff. Thanks, guys. There are no other questions.

I'd like to turn the conference back to Mr. Ellis for closing remarks.

Thank you, operator. We look forward to reporting our third quarter results this fall. Thank you for taking part in our call and have a good day.

Ladies and gentlemen, this concludes your conference call for this morning. We would like to thank everyone for participating and ask you all to please disconnect your lines.