First National Financial Q3 2023 Earnings Call Transcript

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November 1, 2023

There are 7 speakers on the call.

Operator

Good morning, and welcome to First National's Third Quarter Analyst Call. This call is being recorded on Wednesday, November 1, 2023. At this time, all callers are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be provided at that time on how to queue up.

Operator

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.

Speaker 1

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. 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 management discussion and analysis.

Speaker 1

3rd quarter results exceeded our expectations. Pre fair market value income of $95,500,000 was 98% higher than the same quarter last year. This outperformance was driven by several factors, including an acceleration in housing market activity prior to the resumption of Bank of Canada rate increases in June July. This temporary reignition of the market created a large pipeline of new mortgage commitments and pre approvals. In the quarter, pre approvals originated in earlier periods converted into funded deals as more borrowers realized on the Value of those pre approvals as prevailing rates continued to move higher.

Speaker 1

Growth was also supported by more renewal opportunities As borrowers chose not to refinance mid term into higher interest rate environments, allowing more mortgages to reach maturity, Including renewals, residential origination of $8,300,000,000 was 26% higher year over year. Commercial origination, also including renewals, was $3,300,000,000 up 30% year over year on demand for CMHC insured multifamily mortgages. With this performance, mortgages under administration reached $141,900,000,000 with residential and commercial mortgages under administration up 8% and 14% respectively from last year. MUA growth was assisted by slower prepayment speeds. As noted in recent quarters, these have returned to more traditional levels.

Speaker 1

The combination of MUA growth and the effects of higher interest rates drove all revenue and profit metrics higher on a year over year basis. Results compared sequentially to the 2nd quarter tell much the same story. Rob will speak to that in his comments. After a weaker first half, when total originations were down in the order of 14% year over year, We are pleased with 3rd quarter performance and the resilience of our business model through this volatile period in the market. That resilience reflected in consistent profitability provided the basis for our Board's decision to increase our common share by $0.05 to $2.45 annually effective with the payment in December.

Speaker 1

In addition, the Board approved a special dividend. The Q3 was instrumental in that decision as strong results allowed us to build extra retained earnings. When that capital is not needed for near term growth, First National discipline dictates that we distribute it as dividends. We followed this approach for many years and believe it has served our shareholders and First National well. This is the benefit of having a capital efficient business.

Speaker 1

I'll transition now to our near term outlook. Although not evident in 3rd quarter results, residential mortgage and applications began to decelerate after the Bank of Canada reentered the market with its July rate hike. In September, new application levels were well below the same month last year and fundings in the month decelerated relative to the quarter overall. This deceleration continued through the early weeks of October. These monthly readings of new commitment activity translate into funded mortgages in the future And the leading indicators point to a reduction in residential origination in the Q4 compared to Q4 last year.

Speaker 1

What we see in the housing market generally would suggest First National is not alone. Depending on future Bank of Canada policy, Q1 may also show some weakness in origination. For commercial origination, the outlook for 4th quarter is similar as buyers and sellers grapple with valuations in this higher interest rate environment, resulting in relatively fewer transactions. On the positive side, policymakers have recently made 2 key moves to address the critical shortage of affordable rental housing in Canada, a market in which First National is a leading participant. On September 14, the federal government announced it would eliminate the GST On the assessed value of completed rental units, which then triggered several provincial governments to convey their plans to reduce or eliminate the application of their sales taxes.

Speaker 1

Then on September 26, the Department of Finance announced A $20,000,000,000 increase in the annual Canada mortgage bond issuance limit. As you know, the majority of multifamily mortgages in Canada Our CMHC insured and the majority of those are funded through the Canada Mortgage Bond. Those additional funds create confidence for developers That there will be long term funding available at the end of construction. For First National, an active issuer of NHANBS And seller into the CMB program, this means additional liquidity. Moving to the credit side, First National borrowers are generally holding up very well against the stress of higher interest rates.

Speaker 1

We did see a modest uptick in the 30 day arrears rate in the quarter, Perhaps a sign that borrowers most at risk are starting to feel the effects of the most recent Bank of Canada rate increases. Nonetheless, residential arrears remain well below pre pandemic levels. Fixed Rates represented 82% of new commitments issued in the quarter compared to 48% last year. For mortgages under administration as a whole, about a quarter of mortgages are adjustable rate, where payments change with every change in the prime rate, Such that borrowers remain on their original amortization schedules. Once again, the arrears rate on that adjustable rate portfolio Continue to track that of the broader portfolio.

Speaker 1

To sum up, while the Q3 exceeded our expectations, We anticipate some headwinds in the 4th quarter as originations are trending toward a year over year decline. Despite the reduced housing activity, population growth and ongoing lack of supply in the housing market should provide support for prices. With inflation moving in the right direction, there is also renewed hope for a return to less restrictive monetary policy in 2024. Rob, over to you. Thanks, Jason, and good morning, everyone.

Speaker 1

MUA increased 12% on an annualized basis during the Q3, which is the fastest rate of annualized growth we've seen in about 8 years. Notwithstanding slow origination in Q4 for both business segments, We still expect MUA to finish the year at a record level supported by renewal retention and historically low prepayment speeds. Turning now to financial results with a focus on sequential Q2 to Q3 comparisons. Growth in the portfolio included Alt A And the commercial segment combined with higher rates, which led to a 12% increase in absolute net interest income on mortgages pledged under Debt interest margin benefited from slower prepayment speeds and a relatively stable interest rate environment. Low rates of prepayment mean lower amortization of capitalized origination expenses and other securitization related fees.

Speaker 1

Looking now to the Q4, we expect securitization NIM to remain comparatively strong relative to Q3 and to last year. With higher residential origination volumes sold to institutions and stability in per unit fees, Q2 and Q3 placement fee revenues increased sequentially by 14%. Gains on deferred placement fees, which we earn in originating and selling commercial mortgages to institutional investors increased 7% between Q2 and Q3, reflecting strong volumes of origination for this program. Investment income showed the largest sequential increase up almost 40%, a direct result of higher interest Earned on our mortgage and loan investment portfolios and the mortgages held for securitization. Reflecting growing MUA, Mortgage servicing income was higher by 2% sequentially.

Speaker 1

This reflected the continued benefit of higher interest on escrow deposits and comparatively solid success in the marketplace by our 3rd party customers for whom we provide underwriting services. Excluding the impact of higher interest costs incurred to fund the securitization portfolio, net revenue was 272,500,000 a 6% sequential increase. The 3rd quarter featured gains on financial instruments as bond yields increased And the value of the company's short bond position held against single family commitments increased. However, excluding these fair value based revenues, Net revenue was $254,000,000 a 21% increase from Q2 2023. Turning to the other side of the ledger, Broker fee expense in the quarter reflected higher single family origination placed with institutional customers.

Speaker 1

Per unit broker fees were about 8% lower than last When the company offered additional incentives in a more competitive market, on a sequential basis, pre unit fees were comparable to those paid in Q2. While flat to Q2, salaries and benefit costs increased 7% year over year in Q3. At the same time, FTE was 7% lower year over year due to its attrition, which did not need to be addressed. This divergence reflects Higher incentive driven variable compensation for commercial underwriting as well as inflationary pressure on annual merit increases. Looking ahead, a weaker job market in Financial Services appears to be on the horizon and with it less competition for talent And a return to a more normal wage inflation levels.

Speaker 1

As a general policy, First National employs great talent, invests in the training of its people And seeks to operate with a stable headcount. Jason mentioned Q3 pre fair market value income increased by 98% year over year. Our core measure of profitability was also up 6% between the 2 quarters. Dividend payments in the Q3 were made at an annualized rate of $2.40 with a payout ratio against net income attributable to common shareholders About 44% or 52% if you exclude the gains and losses on financial instruments. The pre form market value payout ratio was 61% through the 1st 9 months of 2023.

Speaker 1

Clearly First National Track record of ongoing profitability provided ample support for the Board's decision to increase the dividend to an annualized rate of $2.45 Commencement with the December payment. This is the 17th such increase in distribution since our IPO 17 years ago. In closing, we do expect to see lower originations in Q4 with the impact on our efficiency levels from lower operating leverage. However, a lot of the good things that contributed to outperformance in Q3 should persist, including wire securitization NIMs, Higher interest on cash held in escrow, increased renewal opportunities and retention rates. And of course, The record value of our mortgages under administration will continue to drive mortgage servicing revenues in support of ongoing profitability.

Speaker 1

Now we'll be pleased to answer your questions. Operator, please open the lines. Thank you.

Operator

Thank you, sir.

Speaker 2

And

Operator

And your first question will be from Nik Priebe at CIBC Capital Markets. Please go ahead.

Speaker 2

Okay. Thanks for the question. I was just wondering if you could help expand on or clarify some of the changes that have been announced or are being contemplated for the CMB program. So the annual issuance limit was increased. That's constructive.

Speaker 2

But then on the other hand, there's an unrelated review of the program Ongoing, the outcome of which is unknown. Can you just help us tie all this together and better understand what it might mean from First National standpoint And your ability to grow origination volumes?

Speaker 1

Sure, Nick. It's Jason. So First of all, the ongoing contemplation of moving the Canada mortgage bond out of public markets And over to be funded directly by the Bank of Canada through the subsequent issuance of regular government bonds It's completely separate and distinct from the recent announcement to increase the size of the program. So I'll break them down into 2 pieces. I think we're looking ahead to a fall update from the Department of Finance In November, we're hoping for some clarity in that as it relates to their decisions around the future of the Canada mortgage bond.

Speaker 1

So we wait on that. Separately, the increase of the annual CMB program from $40,000,000,000 to $60,000,000,000 Is exclusive for the securitization of multifamily mortgages and The intention as it's been described is to increase the 10 year CMB issuance in November From the usual $4,000,000,000 to as much as $8,000,000,000 and then to increase the 5 year CMB issuance from a typical 5,000,000,000 to 6,000,000,000 or more if they aren't able to issue the full 8,000,000,000 of tenure in November. In support of this additional CMB capacity, CMHC also provided an additional $5,000,000,000 of underlying NHA MBS guarantee fees, again, exclusively for the use In the creation of multifamily pools. So, what does this mean for First National? This is one of the few Times where I think changes have been made to the program that may have a disproportionately positive impact on the company As the largest originator of multifamily mortgages in the country, these changes will create liquidity that will directly support one of our Key

Speaker 2

products. Okay. And you would typically maximize your allocation to that program on an annual basis. Is that correct?

Speaker 1

Yes. We make maximum utility of CMHC securitization programs and the underlying guarantees.

Speaker 2

Okay. That's helpful. And then just one other question for me. I was hoping you could refresh us just on the decision making process around the special dividend. I believe in the past there's been a discussion around a minimum level of equity that you kind of target holding in the entity.

Speaker 2

Is that still the case today or how should we think about capacity to pay a special dividend going forward?

Speaker 1

Yes. So it's not that there's an absolute dollar amount, which represents minimum equity. It's more about A minimum amount of, call it, surplus equity that puts us in a position to either grow or respond to contingencies that require additional cash. So it's not that we're targeting a certain amount of equity, But we're always making sure that we have sufficient amount of unrestricted liquidity available to us. So Rob and I work With the Board to think about the right amount of liquidity to move into the next year with.

Speaker 1

And then if we have equity beyond that, As we typically do, we will distribute it back to the shareholders.

Speaker 2

Understood. Okay, I'll requeue. Thank you.

Speaker 1

Thanks.

Operator

Next question will be from Etienne Ricard at BMO. Please go ahead.

Speaker 3

Thank you and good morning. Given the strong origination numbers in Q3, would you have a sense as to how your market share is Trending in the broker channel. And do you believe the environment today is less competitive as the banks Base higher capital requirements.

Speaker 1

So we used to have a fairly Clear view of our share in the broker channel as Finastra, which is the Form that most brokers used to use to deliver their applications would publish market share based on the data they had. They stopped doing that I think in June of last year. And so we've lost that very clear line of sight in terms of our Market share anecdotally, it would seem that year to date we have increased our share within the mortgage broker channel Based on our year over year change in funding compared to what we hear some of our large broker partners Describing is their own year over year changes. So I think that we generally feel as though we've gained some share this year. In terms of competitiveness, it's always a fiercely competitive market and I don't think it's any less competitive.

Speaker 1

If we think about the banks as competitors both directly in the broker channel and or indirectly as competitors through the branches Mobile Mortgage Specialists. I think that additional capital, additional reserves against potential losses and the like May force them to move rates up relative to their cost of funds, which would then perhaps allow Mortgage finance companies like First National, a little bit more latitude in terms of exploring alternative securitization funding strategies like Term RMBS, so we'll see how that trend continues. But ultimately, it is a competitive market and remains so.

Speaker 3

Okay. And just to circle back on changes to the CMB. So if we look at the total securitizations today, it's about I think you're reaching about $13,000,000,000 on an annual basis. As a result of the changes brought forward, where do you expect this capacity to move to?

Speaker 1

Sorry, repeat the question one more time. I'm not sure I fully understood it.

Speaker 3

Yes. So if I look at for the past 12 months, the total number of securitizations you've done, It's approximately $13,000,000,000

Speaker 1

Of NHANBS Of everything, including ABCP. Okay. Correct.

Speaker 3

Yes. So I'm just trying to get a sense as to how much where this will move to as a result of the Increase in the capacity. Right.

Speaker 1

In an idealized situation, assuming we do continue to have the scale To originate mortgages to maximize our utility into the CMHC securitization programs, I imagine that the typical Allocation received on a 10 year CMB for an individual participant has tended to be around, Say $200,000,000 to $300,000,000 To the extent that the amount of CMB capacity is increasing by what 50%. Perhaps that translates into 50% more capacity in 5 10 year CMBS. So Let me reset the question or reset the answer here. I think that it's possible That we could see in terms of our access to quarterly CMB allocations, approximately 50% more than we had been seeing in previous years. So in absolute dollar terms, I don't know, maybe $200,000,000 to $400,000,000 a quarter of extra CMB funding.

Speaker 1

I'm just this is back of the envelope.

Speaker 3

Great. Thank you very much.

Operator

Thank you. Next question will be from James Lloyn at National Bank Financial. Please go ahead.

Speaker 3

Yes, thanks.

Speaker 4

First question, just wanted to dig in on the origination volumes, which were, of course, really, really strong. And obviously, outperforming what it seems like the housing market activity would suggest and maybe your peers, Given your market share comments, but I guess are you seeing maybe looking and digging into a breakdown here, are you seeing more people refinancing with larger mortgages? Or could you offer maybe some color in terms Same with larger mortgages or could you offer maybe some color in terms of how much of that origination number is Renewal clients versus new customers coming to First National, just trying to dig into that outperformance relative Two others. So,

Speaker 1

the new origination relative to renewed mortgages, that ratio has been Relatively steady for a number of years now and this quarter didn't change from that traditional ratio. So Our relative outperformance such that it was wasn't driven by new origination or renewals Specifically, in terms of the split of new origination between purchases and refis, I don't know. I don't have that in front of me, but I have no reason to believe that we originated more purchases Or refis relative to each other than we normally would. The one thing we have seen, as Rob mentioned, is that our Prepayment speed on the existing portfolio has decelerated significantly since the pandemic. And the obvious reason for that is borrowers now with relatively low mortgage coupons are not incented To break early and refinance away in what is now a much higher rate environment.

Speaker 1

So if I were to draw some sort of Potential conclusion from that, maybe overall refinancing activity in the market has slowed down. But I don't know off the top whether or not our numbers show that.

Speaker 4

Okay. Following on that last comment around prepayment speeds, and I think it was Rob mentioning So that wider NIMs or I guess NIMs at these levels would persist. Is it does it really just come down to the prepayment speeds at this point That would sustain these securitization NIMs at around 59, 60 basis points. And I guess I just want to understand the commentary in the MD and A suggests that we've approached more traditional levels, but are we running below More traditional levels or is it kind of right at normal?

Speaker 1

No, I guess to be fair, traditional understates it. I did Take a peek the other day at our fixed rate NHA MBS Portfolio, CMHC has a great set of statistics on NHANBS prepayment speeds, Both industry wide and by issuer, looking at our own outstanding pools, I think our annualized liquidation rate In the quarter on our fixed rate MBS was below 6%. During the pandemic, we saw that in the Mid to high teens. And I think the long term average I would characterize in the 10% to 12%, maybe 8% to 12% depending. But So I would say we're actually running slower than even the long term at this moment.

Speaker 1

The small offset to that for what it's worth is on the adjustable rate MBS portfolio. Those liquidation rates are actually a little bit above long term And that's a function of borrowers that aren't actually prepaying and leaving, but are rather exercising their privilege to convert From an adjustable rate to a fixed rate and over the course of the year, we saw a little bit more of that than you would typically. And when a mortgage converts, it's forced to liquidate But fortunately, it doesn't leave First National. So one of the things that's been driving NIM is 1, compared to the really, really fast prepayment speeds during the pandemic where Rob was For us to accelerate the amortization of capitalized costs faster than scheduled, we're seeing a little bit of the opposite of that now. So it's really had a significant impact.

Speaker 1

And I'll add too, it's interesting before when this prepaid in the pandemic, the cash from those prepayments goes into trust for 30 days, wherever it is between receipts and with the day we pay off the bondholders on the MBS side. That was earning sort of less than 2% on the overnight rate 2 years ago. Now it's earning 5% because SEDAR rates are so high. So When all prepayments happening before it was like a loser, you're getting 2% on your cash, your asset and you're paying 3% on the MBS side. Now it's the opposite.

Speaker 1

You're paying 3% on the MBS and you're getting 5% as that cash sits in trust. A lower amount of cash, but you're carrying it positively.

Speaker 4

Right. And so just Getting back to the first part of the question of like the wider names and sustainability, is it really around prepayment speeds that we should be I think for how that should progress. And at these, like, let's say, at 6%, if that holds, like there shouldn't be Much more expansion in NIM from here? Is that a fair comment or are there other factors?

Speaker 1

That's probably a reasonable outlook. Yes, it's hard to imagine Getting much more of a lift from that phenomenon from this point on. So, but like Rob said, the higher interest rates help. Sorry?

Speaker 4

Are there other factors beyond prepayment that would Drive the NIM much higher than we are today?

Speaker 1

I mean, there's a lot of variables that go in To influencing NAM, but I would say that the most important one that we should talk about, of course, is the spread on the new mortgage originated against the underlying Cost of funds of either the ABCP or the NHMBS into which is being funded. But because we are dealing with such a mature portfolio of $39,000,000,000 of mortgages under admin, even a period of relatively tight or relatively wide spreads at origination We'll only just nudge NIM slightly. It's really as we move through cycles as periods extended periods of tight Spreads run off the book and or the opposite wider spreads run off. So it should be a generally gradual movement. It's tough to see things really move it As swiftly as it's moved, other than this really whipsaw in prepayments fees that we've experienced from the lows of the pandemic in terms of rates to today.

Speaker 4

Great, great. That's very helpful. One last one and I'll re queue. Yes. Part of what was driving the securitization upside is the success in the Excalibur program.

Speaker 4

And one of the comments around Excalibur is that from the MD and A is that there's almost no loan losses. And That's pretty easy to understand why there's almost no loan losses there at this point. What I'm curious is if you have Any data on delinquencies in that portfolio and how those borrowers that are on typically shorter term mortgages Are performing from a delinquency standpoint or arrears standpoint given the higher mortgage payments they'd be facing Today versus a year or 2 years ago.

Speaker 1

Yes. So as you suggest, it's easy to understand the fact that there There's little to no losses in that. There's a great deal of equity in the underlying mortgages. And other than the very small blip we saw from the peak of the market in, say, March or April of 2, most of the borrowers enjoyed an increase in that equity while they held their mortgage. They do tend to have shorter terms and you're right, more of them will have experienced renewal into new and higher rates than on the prime book In relative terms, fortunately, just as the adjustable rate borrowers have adapted well relative to the new rates, So have our Alt A borrowers.

Speaker 1

We've noticed that our retention rate has been good And that the borrowers are managing their new payments well. That said, there is a slight separation between the 30 day arrears rate The all day book and the comparable rate in the prime book as one would expect given the nature of some of the borrowers. That said, it is well below what we've provisioned against and much lower than anything we would have cautiously predicted. So, So far, the Altay portfolio is holding up extremely well, and we're not seeing any canary in the coal mine warnings on it.

Speaker 4

Great. Thank you very much. Over queue.

Operator

Thank you. And your next question will be from Graham Ryding at TD. Please go ahead.

Speaker 5

Hi, good morning. Maybe just on a similar theme, I think you made some comments at the beginning of the call, which I didn't quite catch around if our rears trend is deteriorating slightly, is there anything you can quantify it on what you're seeing, maybe both in your residential and Commercial books?

Speaker 1

Yes, I mean deteriorating is a strong word. Nothing to speak of really in commercial. Our 90 day oh no, sorry, the 30 day arrears rate. So if you really want to make it as Tough as you can make it, the 30 day arrears rate on the residential book at the end of the second quarter was 12 basis points. At the end of the 3rd quarter, it was 14 basis points.

Speaker 1

So That's about as explicit as I can be on that. It's higher deterioration maybe was the wrong word.

Speaker 5

Right. Okay.

Speaker 1

And the 90 day rate is Yes. The 90 day rate is like unchanged and it's less than 6 basis points.

Speaker 5

So lower than what we're seeing in the mortgage market overall in Canada in your portfolio?

Speaker 1

We've traditionally enjoyed an arrears rate that as far as we could tell compared favorably to that, that you could see from, say, The banks? I don't know where the banks are at. The CBA data? The CBA data, yes.

Speaker 5

Yes. Okay. Okay. That's helpful. Last quarter, there was An offset within your interest expense.

Speaker 5

So I guess the question is probably for Rob, but you were getting some carry benefit that was sort of offsetting your overall Net interest expense, was that a factor in the quarter? And if so, was there anything that you would flag?

Speaker 1

Yes, that's still the case. I mean, Canada's for 5 years now, it's a 4% yield kind of thing, I think that case every day. But on the short end, when we're boring the bonds to fulfill the repo agreement, Our exceed our rates in the 5%. So we're basically picking up a 1% Margin on the short candidates. And those are the short candidates, right, that are against single family commitments, The ones that are against multifamily commitments that funded mortgages go through OCI.

Speaker 1

So only The bid that well, actually, the bid that funds mortgages just kind of converts the mortgages to float, which matches Apply our funding from the bank syndicate. Yes, but it's fair to say structurally just The shape of the curve from overnight repo to 5 year government bond yields, obviously, during the pandemic that was Positively sloped and resulted in negative carry on our book of $2,000,000,000 plus of short bonds. That carry is reversed now. So that is just structurally a nice tailwind that we've enjoyed.

Speaker 5

Okay. So is that the math that we should roughly do, dollars 2,000,000,000 of sort of Hedging short bonds and whatever that carry is, is that how we should think about it on a quarterly basis?

Speaker 1

It could change. It could change. We've all on the balance sheet, we described The total amount of short bonds and it could be as high as $3,000,000,000 in some seasons. So if you want to think about that though in totality, you need to remember that if we're short $2,000,000,000 or $3,000,000,000 bonds as the case may be, Some of those shorts are against mortgage commitments where the only math is the overnight repo versus the yield we're short. Some of those hedges are against funded mortgages.

Speaker 1

So you also have to think about the cost to carry those mortgages on our balance sheet while we wait for Compared to the coupon on those mortgages we earn prior to securitization. So you've got mortgage carry and then you've got hedge carry.

Speaker 5

Okay. And does that all fall into your interest expense line?

Speaker 1

Yes.

Speaker 5

I guess, where I'm trying to get out with this is just next year, if We start to see the yield curve flatten out and you don't have this carry benefit. Is it Going to be material to your interest expense?

Speaker 1

Yes, it adds up just as it's been materially constructive this year.

Speaker 5

Okay. On the 3rd party, You signed up a 3rd bank for 3rd party fulfillment, and I can't remember when that started. So I guess my first question is, was that In your servicing income in the quarter? And if so, like is that partnership or that client arrangement sort of fully ramped up?

Speaker 1

Yes. So we're pleased that Bank of Montreal selected First National provided underwriting services For its reentry to the broker channel, BMO has announced that BMO Broker Edge is scheduled to launch in the beginning of 2024. So no, there is no revenue yet from that. However, all the heavy lifting in support of that launch and providing the services is behind us now. So At this stage, we look forward to starting that business with them and we've begun hiring in support of it.

Speaker 5

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

Operator

Thank you. Next question will be from Geoff Kwan at RBC. Please go ahead. Hi,

Speaker 6

Just wanted to follow-up on Graham's last question. Just now you've got 2 of the big banks, you've got a smaller bank that are outsourcing their Broker underwriting to you. Is are you able to

Speaker 2

say like is the fee rate that you're charging Them,

Speaker 6

are they identical? Or are they like how different or not are they? And then also too is now that you would have 2 of the big banks and a smaller bank like those volumes should be quite significant when you get to kind of a run rate. Is that something you'd be able to report in terms of the originations you're doing through the 3rd party outsourcing at some point down the road?

Speaker 1

I think at this stage, It doesn't meet, I think, technical materiality thresholds that would Compel us to disclose it separately and I think for the time being it will continue to be part of our overall servicing revenue line. So there are plans to strip it out and report it separately, partly for the benefit of our Counterparty's own proprietary information. With respect to the terms of the contracts, I'll put that under the category of proprietary as well And not comment, but I will say that the services we're providing for both are virtually identical. And in a competitive market, you can imagine that the terms would be quite competitive as well.

Speaker 2

Okay. Thank you.

Operator

Thank you. And at this time, I would like to turn the call back over to Mr. Ellis for closing comments.

Speaker 1

Okay. Thank you, operator. We look forward to reporting our Q4 results on March 5. Thank you for participating and have a great day.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.

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