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First National Financial Corp
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Good morning, everyone. Welcome to First National's Q2 Analyst Call and Webcast. [Operator Instructions].
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 risks and uncertainties and should be considered in conjunction with the risk factors detailed in our MD&A.
Joining me is Rob Inglis, Chief Financial Officer. Before Rob speaks to quarterly results, I'll offer some thoughts on the market environment and our outlook. With 4 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 7 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 is 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 from the central -- 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 strengths as a full service lender with a range of solutions for commercial borrowers including short- and long-term products. And 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 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. And 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 demand in upcoming quarters. The same can be said for the government's plan for immigration over the next 2 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 or 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 won't repeat the information found in our disclosure documents, but I will single out a few key performance metrics. MUA increased 5% year-over-year at an annualized rate of 9% for Q2 despite a 2% decline in total new originations credit to the corresponding period of 2021. But you have the impact of MUA upon -- to Q2 results.
Revenue was higher by 14%. However, this was largely the result of rising interest rates which led to gains on (technical difficulty) market value income, we find a clearer picture of the operational impact of mortgage funding spreads and operating expense levels. Pre-fair market value income was down 21% from last year. The change can be attributed to several factors. Gains on deferred placement fees with the 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 spreads 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 and in line with Bank of Canada actions. We estimate that these net cost increases, including interest expense, reduced pretax income by as much as $10 million between the comparative periods.
On expenses, I would note that (technical difficulty) full-time employee growth of 18%, along with wage inflation and commercial underwriting compensation paid on the record levels 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 the 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 1 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 to the annualized equivalent of $2.35 per share, and our Q2 payout ratio was 58% or 87% excluding gains and losses of financial instruments. We think this remains a very attractive feature of owning First National shares.
In closing, given the environment, we are 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. The 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.
[Operator Instructions]. Your first question comes from Etienne Ricard of BMO Capital Markets.
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?
So 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 5-year risk-free government 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 D-SIBs 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, 3.5, 6 months ago to about -- or 6 weeks ago to about 2.80 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 MD&A, you also mentioned that prepayment activity still remain elevated in Q2 despite the higher rates. Could you please expand on this dynamic?
Yes. 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 and the commitment pipeline higher, that the propensity to refinance amongst 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 the 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?
Yes. I think that is actually the very good question. Speaking with Jeremy Wedgbury, I think that he's 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. And 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.
Your next question comes from Nik Priebe of CIBC Capital Markets.
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 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 in 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 perhaps basis points to the NIM. Yes, I can give you -- yes, Rob, you can add more.
I'll just add, there's so many variables in the calculation, like there's a -- is the mortgage 12 months into its term? Is it 4 years into its term? How we amortized most of those capitalized costs already? Is it a renewal? Renewal would be -- we would securitize, there'll be no broker fee associated with that, right? And as well there was debt discounts on the MBS that we raised to support that funding, there could be a debt discount, which we had to amortize quickly or a premium in some cases if rates changed during that period. There's so many things that it's hard to answer your question in terms of this means this, right?
Yes. No, fair enough. I suppose it's a complex answer to a simple question. 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 head count went up by 18% and the normalized wages taking away the commissions paid to those guys or accruing to those guys or people was 18%. So that makes sense. But, yes, that's all I can say about that, I think, just from here.
Yes, I mean I think 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 significant steps during periods of prolonged growth in 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 the decision and what prompted it -- like 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.
Yes. It's -- the specific incentive was a cash-back 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 be -- can be quite binary at times. And so it's important to remain at that sort of competitive leading edge, obviously, discipline would be a part in it. But we were definitely motivated by responding or we're responding to what we're seeing in the marketplace.
Okay. All right, that's helpful.
That's the usual -- these things come and go. Yes.
Your next question comes from Jaeme Gloyn of National Bank Financial.
Yes. Just want to follow up on that last question. Are the broker cash-back incentives, are those still in place through Q3? Or was that -- did that end June 30, let's say?
I think it is still in play.
Yes, I think it is, too. Yes, I think it was supposed to be temporary to sort of fend off our competitors and offer a similar product. But as -- historically, these things become a permanent thing almost, it becomes -- until there was like a pandemic again, I guess, right? Well [Technical Difficulty].
Hello?
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.
Yes, sir, Your line is back.
Okay. 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. There's sort of 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 too.
Okay. Understood. Still on the expense side, thinking about the head count, 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 head count up, like you said, 18% year-over-year, but even growing pre-pandemic, it's up like 70%.
So are we -- should we expect a leveling off, maybe even a bit of a pullback in the number of staff or any of these sort of seasonal hires? Maybe you can walk us through a little bit how to think about head count expenses over the next several quarters.
Yes, I think that it's a focus over here. It's fair to say that I wouldn't have expected the head count 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 on 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. 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 at the $30 million? Is this kind of like the high watermark 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, yes, 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 yes, 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, like the ratio as a percent of MUA. You did call out third-party underwriting that's 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? 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?
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 2 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.
Your next question comes from Graham Ryding of TD Securities.
I think you made a comment around originations likely to move back towards pre-pandemic levels. Can you just maybe expand on that? If I look at your origination single-family back in 2019, that would sort of imply a 30% to 40% decline year-over-year 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?
Yes, I think that I probably should have characterized. It was really more of a contextual thing. I think perhaps I overshot the mark. I don't expect to go all the way back to sort of dollar values from that period. I was simply 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. Yes. 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 materially 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.
Yes. I would say a nonmaterial 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, it 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 haven't -- 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 materially...
It is not. No, it is -- yes, 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 then my understanding is this is ultimately economically neutral for you. So where is the offset here? Is it going to come through your securitization NIM 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?
Yes. I mean, ultimately -- so a lot of the hedge gain or loss that we may make in the 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, at the moment it is 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 NIM. The portion that we see on the income statement is the gain and loss that we recognized 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 between $35 billion and $40 billion, it's built up over a period of 5 years and more. So a period or 2 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?
Yes. So just to be more detailed, these are all residential hedges, not on our multifamily, so it will be 4.5 year duration once they're securitized. And I guess it depends on whether they do fund. I mean some of these commitments might appear because they go somewhere else. These -- the borrowers would think that they do fund with us, it will affect the NIM over 5 years.
Okay. That's helpful. So we're talking about basically small basis points here potentially, I think.
Yes. Like we're not...
On an annual basis.
I wouldn't expect to see a major change in the NIM as a result of that in the following quarters.
[Operator Instructions]. Your next question comes from Geoff Kwan of RBC.
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 have seen more significant slowdown in the market, how should we think about how this expense line grows? Is it kind of going to change kind of in tandem with overall activity? Or are there other factors that will kind of dictate how this line grows in the coming year?
I think it's mostly fixed stuff now, Geoff. It's the rent, the depreciation of leaseholds in this building, particularly, the equipment across the country, that kind of thing. One thing that was a small increase, I think, in the quarter was travel. With the pandemic, no one was going anywhere. But now we've had a couple of sales conventions and things like that where people are travelling again, so that's a bit up. But I think generally speaking, this is like fixed cost, it's costs that you have to incur as a corporation to serve as 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 extended? But also, 2, 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 [Technical Difficulty]. Well, first of all, are we talking about -- we're talking about the commercial...
Commercial bridge loans.
I think they're all floaters for one thing, right? Are they floaters?
Not all of them. I would say 90% are floaters. So prime-based. So as prime goes up, we will make more money like it's...
There we go.
Yes, there we go. So it's a 3 or 4 months loan and then CMHC comes in after the takeout typically. That's the reason we're doing these things.
Yes. 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.
We have a follow-up question from Jaeme Gloyn of National Bank Financial.
Just wanted to follow up on the -- hello? Can you hear me okay?
We can, yes.
Just wanted to -- the follow-up on the funding mix in the quarter tilted more to institutional investors than maybe -- no, that it's a crazy high number, but more than, let's say, like an average level. So -- 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 MD&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 if 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 the -- what we sort of discussed in the 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 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. Yes, we -- I mean, the bottom line is we expect to fully utilize our CMHC securitization capacity.
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.