First National Financial Corporation

Good morning and welcome to First National's fourth quarter earnings call. This call is being recorded on Wednesday, March 5th, 2025. At this time, all callers are in the listen-only mode. Later, we will conduct a question and answer session. Instructions will be provided at that time on how to queue up. Now, it's my pleasure to turn the call over to Jason Ellis, President and Chief Executive Officer of First National. Please go ahead, sir.

Thank you and good morning. Welcome to our call and thank you for participating. Rob Ingalls, our Chief Financial Officer, joins me and will provide his commentary shortly. In addition, joining us today is Jeremy Wedgbury, our Executive Vice President of Commercial Mortgages. So, if you ever had something you wanted to know about the Canadian commercial mortgage market but were afraid to ask, today is your lucky day. Jeremy will be sticking around for the Q&A session. I 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 management's discussion and analysis. For the fourth quarter, pre-fair market value income was $74.8 million or 3% below last year despite higher origination volume. In fact, we had forecast total single-family residential mortgage fundings to increase in the fourth quarter, and that is what happened with funded residential mortgages up 43% on a year-over-year basis. Total origination in the quarter, including commercial mortgages, was $2.1 billion or 26.5% higher than Q4 last year. However, nearly all the additional $2.1 billion was funded by securitization as opposed to placing it with investors, which has the effect of deferring related revenue to future periods. The year-over-year growth in residential funding in the fourth quarter is notable, especially when compared to the year-over-year declines in the first three quarters. As mentioned previously, the first three quarters in 2023 were characterized by the absence of the traditionally largest lender in the broker channel and higher than typical market share for the company as a result. In Q4 of 2023, that lender reasserted itself in the market and the company's relative share of funding in that quarter fell in sympathy with this change. Accordingly, Q4 was the first quarter of 2024 with a favorable year-over-year comparison. In our commercial mortgage business, where our focus is insured multi-unit residential housing, fourth quarter originations were up 8%, reflecting both new funding and renewals. First National is the leader in the insured multi-unit space, and the quarter's results reflect activity driven by CMHC incentives to build rental stock and create affordable housing. Given the broad success of its affordable loan programs, and growing exposure to concentrated risk in the multifamily space, CMHC has recently taken a more cautious view in its underwriting. This is understandable, good for market stability. Nonetheless, lower rates will provide incentive for continued activity, and in the short run, we expect new commercial origination volumes to be steady. For the record, and given recent media commentary on the space, First National is not a conventional lender in the new condominium construction market. Turning to our single family outlook, we expect year-over-year increases in single family fundings in the next two quarters. This expectation is supported by higher commitment levels entering 2025 than we had entering 2024. CMHC is also forecasting growth in the housing market in 2025 on a combination of lower interest rates and changes to mortgage rules introduced in 2024. Tariffs, to the degree they impact the economy, employment and the housing market, present a potential challenge to that outlook. In the near term, however, lower rates and reduced housing activity may actually create a level of affordability that, when paired with the persistent demand for housing in Canada, could serve to moderate any headwinds. Beyond new origination, a priority every year is renewing mortgages. This is especially true this year as higher volumes from 2020 vintages are maturing and will be the subject of our focused retention efforts. As a marketplace risk, much has been said about a renewal cliff as those maturing mortgages carried historically low mortgage coupons. To provide some context, approximately 75% of those first national five-year mortgages advanced in 2020 were adjustable rate. At one point, those borrowers were making payments based on a prime rate of 7.2%. Of course, the prime rate is now down to 5.2%, and the Bank of Canada is widely expected to cut rates further on March 12th. This is noteworthy because First National did not experience a significant increase in arrears on those adjustable rate mortgages when prime was 720. So it is entirely reasonable to assume we will not see any change in arrears as these borrowers renew. Lower rates should also be supportive of activity within our third party underwriting business, where we successfully ramped up capabilities for our newest bank client in 2024. In advance, of higher expected volumes. We see our third party business as a sound way to leverage our platform, including Merlin technology, and to add value and earning stability through diversification of revenue. All else being equal, we expect improved economies of scale as we fund higher mortgage volumes in all parts of our business. Higher investment in securitization will also continue to pay off with higher future net interest income. Now over to you, Rob. Thanks, Jason. And good morning, everyone. Mortgage tender administration, the foundation for future profitability, increased 7% year-over-year and 8% on an annualized basis in the fourth quarter to $153.7 billion at year-end, a new record. On a consolidated basis, annual originations, including renewals of $37.5 billion, were unchanged from 2023 as strong fourth quarter growth, which Jason described, offset relatively weaker volumes in our single-family residential segment earlier in 2024. Now turning to revenue, it was up 10% on the year and 19% in the fourth quarter. Annual growth largely reflected the decision to securitize more of our mortgage origination directly. Due to their significant size, our portfolios of mortgages pledged under securitization currently deliver about 70% the company's revenue. These portfolios grew 11% between 2023 and 2024. Looking now at fourth quarter revenue drivers, net interest on securitized mortgages was up marginally, again reflecting securitized mortgage portfolio growth. NIM, however, was lower in the portfolio, 53 basis points compared to 59 in the fourth quarter last year. This is due to several factors, including higher asset-backed commercial paper costs. These bank-sponsored conduits generally sell longer-term paper in a declining rate market, 6 and 12 months, such that our cost of funds is temporarily higher than the current market. This has been accentuated with recent Bank of Canada rate cuts. Second, wider margin mortgages in the company's MBS program are maturing, and being replaced with more normal mortgage spread assets. In general, the company invested in securitization in Q4 with origination activity up by 75% compared to Q4 2023. Although per unit placement fees were similar year over year, fourth quarter placement fees were up 10% in the fourth quarter on a 9% increase in placement activity. Growth in MUA pushed mortgage servicing income up by 9% year-over-year in the fourth quarter. Quarter mortgage investment income increased 1% year-over-year, reflecting higher balances of mortgages accumulated for securitization. The outlier was deferred placement fees as gains declined 57% or $2.8 million compared to Q4 last year, reflecting tighter spreads on the mortgages underlying these fees related to funding sources. Moving now to costs, Q4 broker fee expense increased 16% year-over-year to $31 million on the increase in single family placement activity. For the year, this expense was down 31% on lower single family volumes placed with institutional investors, partially offset by a 5% increase in per unit broker fees. Salaries and benefits expense increased 17% or $8.5 million year-over-year in the fourth quarter and were higher by 7% year-over-year. The primary reason for the annual increase was 9% FTE growth, in part due to staffing up of our new third-party underwriting mandate. The company's annual merit increase also led to increased employee costs. There was also a higher incentive-driven commercial underwriting compensation on higher production volume. Turning now to profitability, as Jason said, Q4 pre-fair market value income decreased 3% to $74.8 million. This reflected lower deferred placement fees and a larger investment in commercial securitization, which delays the recognition of revenue. This is partially offset by greater operational leverage in residential origination as growing volumes for placement created higher revenue within our fixed cost underwriting platform. For the year, food for market income decreased 10% to $290.3 million, through the combination of factors. Higher investment in direct securitization programs, which delays the recognition of revenue to future periods in contrast to 2023. Lower single-family origination and its effect on placement fees, mortgage servicing revenue, and operating leverage. And lastly, higher operating costs, particularly for investments in technology, which reduced earnings by about $13.5 million. As you know, the board increased the regular monthly common share dividend in December to an annualized rate of $2.50 and declared a special dividend of $0.50 per share. Excluding the special dividend, the common share payout ratio was 61%. If gains and losses on financial instruments are excluded, the payout ratio would have been about 70% in the quarter, again excluding the special. For the year, excluding the special dividends declared in December, the normalized payout ratio was 71%. To sum up, First National remained solidly profitable in all the quarters of the year, delivered a 33% after-tax, pre-fair market value return on shareholders' equity in the year, and sustained its track record as a high-dividend paying company. By steadily building mortgages, pledged undersecretization, and our servicing portfolio, as we did again in 2024, we can look forward to the benefits that will accrue to the company from the resulting income and cash flow in future years. Now we'll be pleased to answer your questions. Operator, please open the lines. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press the star too. One moment, please, for your first question. And your next first question comes from the line of Nick Preeb with CIBC. Please go ahead.

Okay, thanks. I think there was a comment that the momentum in the single family mortgage commitment pipeline remains strong, but it kind of moderated a little bit towards the end of the year. Can you just give us a sense of how that pipeline is building subsequent to quarter end into early March here? Should we still think about single family commitments being higher year over year, but maybe by a lower magnitude than it was at the end of Q3. Is that kind of a fair characterization?

Yeah, Nick, that's fair. We're definitely seeing stronger pipeline this year in the January and February months than we did in 2024. But, you know, the sort of 40% to 50% magnitude that we saw heading into the fourth quarter is not what we're seeing now. It's definitely moderated from that, but still, I'd call it definitely double digits.

Okay. And then we're coming up on the five-year anniversary of a pretty tumultuous period in the residential mortgage markets with the onset of COVID, the associated lockdowns, and then the subsequent... resurgence of housing market activity. And just considering that the most popular mortgage term in the single-family channel is the five-year contract, can you remind me, when you place a mortgage with an institutional investor and that mortgage is successfully renewed at the end of the term, do you earn another placement fee at renewal? I'm just wondering in that context if the volatile housing market activity five years ago might influence the pattern of earnings throughout 2025 and 2026.

So, yes, we do. If the mortgage at origination was placed with an institutional investor, typically we hope to renew that mortgage and for the benefit of that investor, renew that mortgage with that same investor, at which point we do earn an additional placement fee upon renewal and we continue to earn our servicing strip. Of course, there's no broker fee to be paid on the renewal. So even though the renewal fee paid by the investor is lower than the initial fee, without a broker fee to net against it, I would say, I don't know, Rob, would the net renewal fee from a placement perspective end up being comparable to or even slightly better than the initial net placement fee? I think it would be definitely higher. I mean, with no broker fee, broker fee is pretty expensive if you ask me. So this is a real gravy for our business if we can retain the customer. Yeah, so I think it's definitely a tailwind into the second half. You'll recall, of course, there was quite a pause in housing activity for the first couple of months, Nick, in 2020. So as we move into the second half of this year and into next year, we'll definitely see a much higher renewal opportunity set. And that could have quite a positive impact on our placement fee line.

Yeah, that's interesting. And maybe just on that same theme, Canadian bond yields are traveling downward. Can you just remind us what impact that could have on placement fees, like per unit placement fees as well? Would you earn higher per unit placement fees in future quarters on fixed rate mortgages that might have been originated with higher contract rates? in the current period? Like, is that also going to be a tailwind to per unit placement fees in 25?

No, actually, one of the things that we like about the placement part of the business is that we allocate the mortgage to the investor on new origination at the moment the commitment is allocated to the broker and borrower. And at that moment, the investor takes on all of the related interest rate risk. Similarly, at about 120 days prior to renewal, we will send out the renewal offer to the borrower. And again, at that moment, that renewal risk, both the funding and interest rate risk portions of it are with the investor. So we earn a fixed fee in both cases, regardless of where spreads are. So you won't see any volatility in that respect. Well, maybe a little bit like there are some other small pockets where, yeah, we may sell a funded portfolio of loans, but that represents a very, very small percentage of our placement activity. The overwhelming majority of placement activity for single family mortgages is on a fixed fee basis.

Right. OK. All right. That makes sense. That's it for me. I'll pass the line. Thank you.

Your next question comes from the line of Etienne Ricard with BMO Capital Markets. Please go ahead.

Thank you and good morning. Given the elevated macro and political uncertainty, how do you expect consumers to react to the ongoing trade war? Is there a case to be made that lower bond yields could actually support activity levels or would you expect great tensions to weigh a consumer sentiment for real estate transactions.

Yeah, as I mentioned in the earlier comments, I'd probably say that obviously early days with the initiation of the tariffs just yesterday, difficult to say for certain one how long they will actually last and what the impact will be. That said, assuming they do persist, it's reasonable to assume that there will be pockets of the economy, manufacturing in Ontario and Quebec in particular, that may suffer disproportionately. I think after some lag of time, that could result in employment and some arrears activity in the portfolio, but that's definitely down the line. Nearer term, I think that the consumer may be cautious and decisions to buy that next house may be put off until there's some clarity. But to your point, I think that both the monetary and fiscal responses from the Bank of Canada and the federal government, so lower rates and support, could result in actually an element of affordability that could encourage some housing activity. I think it's important to remember that we have a persistent lack of supply of and a persistent demand for housing in Canada. So I think this may actually create an affordability bubble, which may encourage activity. So we'll have to wait and see how that plays out. But just a reminder for everyone, of course, First National is largely an asset manager. The mortgages we retain for securitization are insured for the most part, and conventional mortgages are generally sold to third-party balance sheets. So from a credit perspective, not much exposure to think about.

And have you seen changes in risk appetite from competitors?

No, I'd say the market as much as it's ever been. I think maybe as I've said in previous quarters, mortgages, especially residential mortgages and to a lesser degree, but even CMHC insured multifamily mortgages are close to commodities. And so I'd say the market is always competitive. It's always characterized by one or more participants sort of, you know, leaning into it a little bit. But I don't see any difference in the way people are lending right now. I'm certainly not seeing people shrink their credit box. Someone may ask the question yet, but one thing we haven't talked about is the new loan to income portfolio metric that Aussie regulated lenders will be measuring against. As rates continue to fall, the possibility of loan to income being the limiting factor on loan amounts becomes more realistic. So that too may be a little bit of a headwind as rates go lower. We'll have to wait and see.

Okay. And with the stress test removed for uninsured mortgage renewals, what impact has this had on renewal rates?

It hasn't been measurable. Our experience was even before that change, what we were doing is we were actually testing them against the prevailing qualifying rate at renewal, and we were finding the overwhelming majority of our conventional borrowers were qualifying regardless of whether or not they needed to be requalified. You know, wage inflation between 2020 and today has been significant. So most household incomes are higher. So we actually weren't finding that that was a material barrier to borrowers making a decision to move lenders if they wanted to anyway. So it hasn't been a significant factor.

Great. Thank you very much.

And your next question comes from the line of Graham Riding with TD Securities. Please go ahead.

Hi, good morning. Could you maybe, you made some comments just about the impact on NIM from your cost of funds being temporarily higher. Can you quantify what that was? And then maybe Rob, just give us a bit of an outlook for what you're expecting for NIM in 2025?

I will try to address that. It's hard to say. I mean, we get a cost of funds from the bank-sponsored conduits, and it's like, it is what it is. But we've noticed that it's not dropping as fast as the Bank of Canada overnight would drop. And we talked to them. They said, oh, yeah, you know, we sold six-month notes. In, you know, five months, those will be redone. You'll get the better rate. So it's definitely... You know, a significant, that's not overly significant, but it's a number that's a real number. I can't really say what it is worth, but, you know, maybe two basis points. It's only on our ABCP book and different conduits have different durations, that kind of thing. So definitely it's going to last. And I think if the Bank of Canada cuts rates because of the tariffs, et cetera, in the next six months, it'll be an ongoing thing until we reach the bottom, whatever that is. Yeah, I mean, the average duration of the outstanding commercial paper in the conduits tends to be around six months. So there's a stickiness to the cost of funds as that older paper flows through, as Rob said. It is a symmetrical phenomenon, of course. When rates next start going up, we'll enjoy a comparable inflation of NIMH. as paper issued in lower rate environments sticks around while the bank of Canada increases rates. But yeah, I don't, I don't see the effect getting worse. I mean, it is what it is. And as Rob says, our ABCD conduits represent a relatively small percentage of the securitized portfolio. So, you know, maybe three basis points for the next little while.

Okay. Understood. And then just in terms of your funding mix, so in 2024, it was a notable shift towards, you know, more waiting towards securitization. I think you did about 41% of your funded volume was securitized. Um, whereas the last five years, I think it was closer to 30%. So, um, how are you thinking about, you know, the outlook, um, going forward, uh, is this the right mix? Um, and you know, around 15 billion, I think it's what you did last year. Are you at your capacity there, or is there more room to securitize further than that?

I would say we are mature users of CMHC securitization programs. We tend to use almost all of the available allocation of NHA MBS guarantee fees, and certainly our entire allocation into the Canada Mortgage Bond. That obviously we used to its capacity. There's still room to grow the ABCP conduits. Next year, I would expect that the mix between securitization and placement will be similar. However, we are seeing, you know, a good level of engagement from our balance sheet investors, which suggests we may shift a little bit closer to that long-term average of placement. Um, so I also know that Jeremy on the commercial side did increase, um, our, we did increase our securitization activity on the multi book year over year. Um, that may persist, uh, but you're not going to see a violent shift, I guess, is the bottom line. It's going to migrate a little bit between the longer term average and where it was this year. Um, but a little bit of mean reversion, I guess, is the best guidance I can give.

Okay, that's helpful. I'll re-queue.

Thank you. And once again, if you would like to ask a question, simply press the star 1 on your telephone keypad. Your next question comes from the line of James Gloin with National Bank Financial. Please go ahead.

Yeah, thanks. Good morning. The commercial mortgage originations, maybe for 2024 and Q4, can you give us a sense of the breakdown of the CMHC insured product versus conventional mortgages in this year compared to previous years? Are we running almost entirely CMHC insured or maybe just a little sense of how that's been flowing?

Yeah, for sure. Good morning. So it's Jeremy speaking. Yeah, I mean, I would say the bulk of the activity for us in the fourth quarter was CMHC insured. There's been tremendous demand for that product, you know, both on the term side and on the construction side. Whereas on the conventional side, it's been a more challenging business for us. And the use of third party funds has proven to be more challenging than it may have been in the past for us. We've really focused our activity in the CMHC space, and it's probably accounted for something like 90% of our overall activity. I would expect to see that continue in 2025 at that level.

Okay, and following on that, how do the commissions on CMHC activity compare to conventional activity paid to your originators?

I mean, that's a different approach than it is on the single family side. They're in-house originators that we have that we compensate to generate the product. So it's totally different than it is on the single family side. And it's an internal cost structure.

No, of course. And that's, I mean, this is obviously the commercial mortgage originations have been strong for the past couple of years. And we're seeing that flow through salaries and benefits. And I'm just curious, like, is is the commission paid to your internal staff? Is it similar for a CMHC product as it is for a conventional or is there a different commission structure? And just trying to get a sense of like, is that like, as if conventional comes back, it doesn't sound like it's coming back in 25 anytime soon, but if it comes back, is there, is there, you know, something that would accelerate that salaries and benefits line as commissions pick up or Just trying to get a sense into like, is there less commissions paid to CMHC originations versus conventional? That's kind of what I'm trying to get to.

Yeah, I would say it's pretty consistent between conventional and insured. I think really what you're seeing, if there's a growth in that line item, it's really commensurate with the growth in the overall volume. So we were up 15% year over year. So you would tend to see that cost go up. But yeah, between conventional and insured, it would be fairly similar.

There's a variability to it too, which is probably fair to say that the sales team is motivated to originate mortgages at spreads over, call it the minimum required to generate excess. And so they do have the ability to do better if they're able to originate at a wider spread. So there's a little bit of optionality there but big picture is it's the same approach insured or conventional i would say we're doing probably more 10 year 10 year cmhc right so they're you know 10 year they get paid more than they would on a five year and conventional i think is typically shorter term shorter term yeah that's a good point actually so it is you know the the comp is basis points And so the longer the duration, the product, the more dollars that is. And of course we tend to show those in the quarter originated from a, you know, origination expense and earn it back over the life of the loan.

Okay. Okay.

That's good. Appreciate that color. Shifting to the, I guess, to the balances and mortgages under administration. If I'm, if I'm focusing on single family first, You know, kind of backing into what I'll call an amortization rate or maybe a runoff rate, if you will. It seems it's been more elevated the past three quarters than perhaps what we've seen, you know, historically post-COVID. Yeah. you know, and sorry, even pre COVID, I should say, you know, how should we kind of think about that, that runoff rate? Is there, is there an increase in prepayment activity going on? Is it just like there's, there were shorter, shorter maturity dates, like three and four year mortgages that are kind of flowing through at this point? Like what's, what's driving that a little bit higher? And, and is that something that we should expect to continue in 25 and 26 where that sort of runoff rate is a little bit more elevated in single family?

I think two things maybe. I think prepayment speeds are generally the same this year as they were last. They're probably even still a little bit lower than the long-term averages. However, I would say our retention rate on renewals in 2024 was lower than the long-term average by a number of percentage points. We found, as I think most lenders did this year, there was enhanced activity around competition for renewed mortgages. A lot of the banks, through their traditional distribution channels, were enticing borrowers to switch from their existing lenders with extraordinarily low rates combined with cashback offers. So I think that put a little bit of pressure on what would maybe look like prepayments. It's probably more like lower retention rates. We're working on that this year. And then there's one other thing which isn't transparent to you guys in the numbers, but there's a legacy portfolio of residential mortgages that we administer for a third party. Due to a transaction in the market about five or so years ago, that contract was repatriated by the lender. As a result, that legacy portfolio has been running off as mortgages matured over the last five years. We're into sort of the last $4 or $5 billion of that portfolio, and I think it might be maturing now at sort of a faster pace as we get to the end of it. So that has been a little bit of a headwind to MUA growth on the residential side. That will be pretty much done in the next couple of quarters. So you'll probably see residential MUA all else being equal start to accelerate as that sort of headwind is exhausted.

Yeah, that's interesting. For sure. Just wanted to follow up on the competition for renewals. That would be similar to what you were seeing on the direct origination side where the banks were competitive on originations. And now the commentary is that that has normalized. And so is the view that competition for renewal book has normalized as well? Or do you still see the banks maybe more actively competing for a renewal product versus a new mortgage origination product.

Yeah, I think it will definitely persist. When I say normalized, what I was trying to get at, and it's convoluted, I was just trying to say that in the fourth quarter of this year, we were finally now comparing it year over year against a quarter that was quite fairly comparable in the sense that it was a quarter in which the largest traditional lender in the broker channel was fully active in the fourth quarter a year ago. And so going forward, our year over year comparisons will be, you know, to a market where all of the biggest players in the broker channel were participating as normal. Normal means though, highly competitively. But there's no question that the largest lender, when they returned to the broker channel, returned very, very aggressively. And I think that there has been some moderation in the level of how much they're discounting rates relative to the rest of the market. So we'll see. But I mean, the pendulum at the large lenders tends to swing between asset accumulation and and margin discipline on a frequent basis. So honestly, it can change from quarter to quarter. It's very difficult to predict. Our job here at First National as so-called monoline is to make sure they're always at or around the leading edge of rates because it's what we do and we need to be there for the brokers and we will continue to be there.

That's very helpful. Last one. Just wanted to clarify. I believe, Rob, you mentioned there was like $13 million in IT and infrastructure spend throughout 2024. Is that something we should think of as being completed and done and sort of one-timey where that comes off the books in 25? Or was that just like rebasing a new run rate for what's required on a sustaining basis for IT and infrastructure?

I wouldn't call it a long-term run rate, but I would say... Some of the major replatforming infrastructure work we're investing in right now is not yet complete. So I would say that OpEx will be elevated again in 2025, not necessarily significantly higher than it was last year, but we continue to do some significant work in support of the future growth of the business. So you can look for something like that again this year, certainly.

Okay, thank you.

We have a follow-up question coming from the line of Graham Riding with TD Securities.

Please go ahead. There was a comment by Jason just about CMHC tightening up somewhat its underwriting for the insured construction lending. So I guess this question is either for Jeremy or Jason, but just to be clear, the loans that they are underwriting insured construction, those are for purpose-built rental. Is that correct? And then secondly, are they just being more cautious here given the softness in the condo market and just their concern over there being some sort of indirect correlation there?

Yeah, for sure. That's a really good question. In November of 2024, I would characterize it as CMHC going into a risk-off mode Their construction program could be deemed as somewhat aggressive over the last several years with the intention of spurring supply, and they were very successful at that. All the way through that period, we had been seeing rents rise all the way through. Of course, now we've seen a total moderation and even a decline in rents in some markets, in particular on new products. Yes, I would say in November they went risk off and they started to limit the loan to costs that they would provide. And that's been a pretty substantial change to the way that they're underwriting that.

And do you expect that to have an impact then on the volumes of CMHC construction lending that you think will be originated next year?

I definitely think it will impact to a certain extent. We'll still continue to do CMHC construction deals. They'll be more modest on the loan to cost. We will also be making efforts to pivot to provide our best developer clients, the ones with the deepest balance sheets and the experience with the ability to get to a leverage point that makes sense for them to continue to construct. And I can tell you that there's still a fairly good proportion of our customers that do intend to build through this period. The tariffs will be interesting to see how that impacts that going forward. But I think that actually what we'll start to see, and we're actually somewhat pleased with it also, is a bit of a diversification of our funding model. So we'll probably start to see more conventional construction take place in addition to the CMHC. So I think that volumes will probably stay the same, but the makeup will be a little different and it will be split more regularly between CMHC and conventional, which is an end goal of CMHCs.

Okay, that's helpful. Jason, just can you give us an update on the arrears in your residential portfolio? How are they tracking both for the prime and the Excalibur Saudi businesses?

Yeah, so prime as of the end of the fourth quarter remains unchanged from previous quarters. I think the 90-day plus is at eight or nine basis points, and it's been there pretty much all year. That continues to be a couple of basis points lower than it was in 2019 before the pandemic. So there are no signs of stress in the portfolio, including, as I mentioned during my prepared comments on the adjustable rate portfolio, that would have felt the full brunt. of the higher rates partway through their term when prime was highest. On the Excalibur side, we did see rising arrears rates throughout 2024. I would attribute that largely to the fact that the Excalibur borrowers tended to be in that one, two, and three-year terms, and they were renewing their mortgages much more quickly into a much higher rate. So I don't think that they had that time to adjust with higher household incomes the way I was describing our prime borrowers had over the five-year term. In January and February, we have seen the 90-day plus bucket level off. and the 30 to 60 day bucket actually fall. So that looks like the beginning of the end of elevated arrears in the Excalibur program. Losses continue to be rounding errors as notwithstanding the slightly higher arrears rates. You know, there's a lot of equity in those properties and we lend in primary communities, bedroom communities of the GTA and the GBA. So there's lots of liquidity for the properties. And we tend to be, we continue to be well over provisioned for any sort of potential losses. So no issues there. And it looks like the Excalibur program is leveling off, which is great.

Okay, great. And one more, if I can be greedy, just the fulfillment program that you do for third parties, it drives some fees within your mortgage servicing income line. How many institutions are you doing that for now, and do you see much room to increase that or bring on new mandates?

Yeah, so we have three Sched 1 banks currently actively being serviced, and much to my sometimes surprise, only because it is always remarkable to me that a bank would outsource a core competency like mortgage underwriting, we continue to receive reverse inquiries and work with potential counterparties to grow that business. I love that third party business. It is a terrific way for us to sort of leverage what we're really good at and use our proprietary underwriting technology and diversify our revenues away from our own origination fortunes. So that is definitely an area for growth. And similarly, on the third party mortgage servicing side, We are launching with a new mortgage finance company in the spring, so we'll look forward to growing that third-party portfolio as well.

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

Thank you. And I'm showing no further questions at this time. Mr. Ellis, back to you for closing comments.

All right. Thank you, operator. We look forward to reporting our first quarter results this spring. and hosting our virtual annual meeting of shareholders on May 13th. Thank you for participating and have a good day.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.