Atrium Mortgage Investment Corporation (OTCPK:AMIVF) Q2 2022 Earnings Conference Call August 17, 2022 4:00 PM ET
Company Participants
Rob Goodall – President, CEO and Founder
Jennifer Scoffield – CFO
Conference Call Participants
Graham Ryding – TD Securities
Sid Rajeev – Fundamental Research Corp
Operator
Welcome to the Atrium Mortgage Investment Corporation’s Second Quarter Conference Call.
At this time, all lines are in a listen-only mode. Later, we’ll conduct a question-and-answer session [Operator instructions] As a reminder, this conference is being recorded, Wednesday, August 17, 2022, and that encore dates have changed from August 11 through the 24 to August 17 through the August 30.
Certain statements will be made during this phone call that may be forward-looking statements. Although Atrium believes that such statements are based upon reasonable assumptions, actual results may differ materially. Forward-looking statements are based on the beliefs, estimates and opinions of Atrium’s management on the date the statements are made. Atrium undertakes no obligation to update these forward-looking statements in event that management’s beliefs, estimates or opinions or other factors change.
I would now like to turn the conference over to your host, Mr. Goodall, President. Please go ahead, sir.
Rob Goodall
Thank you, and thank you for calling in today. Our CFO, Jennifer Scofield, will start by talking about our financial results, and then I will then speak about our performance from an operational and portfolio perspective. Jennifer?
Jennifer Scoffield
Atrium had a strong second quarter with record quarterly revenues of $18.2 million, an increase of 12.7% over Q2 of 2021. Mortgage interest and fees increased as a result of a larger mortgage portfolio and an increase in the weighted average interest rate in the current quarter. Our net income for the quarter was $10.7 million, up from $10.6 million in the comparable quarter. Our earnings per share were $0.25, consistent with the $0.25 earned in the second quarter last year.
During the quarter, we declared $9.6 million in dividends or $0.225 per share. Our earnings per share of $0.25 exceeded dividends declared by $0.025 per share this quarter. Our year-to-date earnings per share totaled $0.50 compared to dividends declared year-to-date of $0.45 per share.
Operating expenses for Q2 2022, excluding the provision for mortgage losses, remained consistent with prior quarters at approximately 1.1% of assets on an annualized basis. We booked a provision for mortgage losses this quarter of $583,000, resulting in an allowance for mortgage losses at June 30, 2022, of $8.4 million or 1.02% of our gross portfolio.
The entire allowance of $8.4 million is an unallocated allowance against performing loans. We do not have any loans classified as Stage 3 or impaired as at June 30, 2022. We had one impaired loan at the end of last quarter, and the property securing this loan was sold and closed in April. Although we incurred a loss on this loan, it was considerably less than the loss previously anticipated.
During the 6 months ended June 30, we successfully negotiated settlements with the guarantors on 2 loans and collected $800,000 in the period and an additional $200,000 was collected in July. During the first quarter of 2022, we made the decision to stop actively marketing for sale the 90-unit property in Regina due to higher-than-usual vacancy rate at the beginning of the quarter and to allow for the completion of maintenance work on the property. The maintenance work has now been completed and the vacancy rate improved significantly during the current quarter.
Our interest expense for Q2 was $4.5 million, an increase of 26% over Q1 2022 and up 33% from Q2 of 2021. This increase is due to additional convertible debentures outstanding during the current quarter and due to a higher balance being drawn on our credit facility during the current period, along with a higher weighted average cost of borrowing resulting from the 3 interest rate increases from March to June for a total of 125 basis points. The annualized weighted interest — annualized weighted average interest rate on our credit facility was 3.65% this quarter compared to 2.83% in the second quarter of 2021.
Our mortgages receivable balance at June 30, 2022, was $812 million, an increase of 6.9% from year-end and the highest in Atrium’s history. During the quarter, we funded mortgages totaling $224 million and had repayments of $200 million, both records for Atrium. At June 30, the portfolio had a weighted average loan-to-value of 62.3%. The weighted average interest rate of 8.9% at June 30 on the portfolio was an increase of 58 basis points over the Q1 rate and an increase of 64 basis points from year-end.
We believe the rising interest rate environment should have a positive impact on our earnings, since at June 30, approximately 66% of our portfolio was priced at floating rates. The majority was rate floors, while only 23% of our source of funds were priced at floating rates.
During the second quarter of 2022, we entered into 2 amendments to our credit facility. In May, we extended the maturity date out until March 2024. We reduced the applicable margin rates on the facility and amended our option to increase the aggregate credit limit to $300 million.
In June, we exercised this accordion option, increasing the available credit facility by $50 million, such as the total maximum availability on our credit facility is now $290 million. We also entered into a second amendment in June to increase the credit — the aggregate credit limit to $350 million at our option. We closed the quarter with a conservative debt to total assets ratio of 42.6% and total assets of $830 million, again the highest in Atrium’s history.
I will now pass you over to Rob Goodall, our CEO.
Rob Goodall
Thanks, Jennifer. Atrium again generated strong basic earnings per share in Q2 of $0.25, for a total of $0.50 per share year-to-date. Well, last year, we averaged $0.245 per share per quarter, so we’re off to a very good start. We had record loan advances of almost $224 million in Q2 versus $138 million in Q1.
To provide some context, any amount over $100 million is considered an active quarter for Atrium. This was the highest volume of loans advanced ever in a single quarter for Atrium. The mortgage portfolio increased from $791 million last quarter to $817 million this quarter. And year-to-date, the mortgage portfolio was up more than 6.5%.
This growth occurred despite another quarter of high loan turnover. Loan repayments were at a record high of $200 million versus $117 million last quarter. In the first 6 months, our annual loan repayments are almost 50% higher than last year when we experienced a 58% portfolio loan turnover.
Repayments have come proportionally from each province. Recently, however, we have begun to see a significant slowdown in repayments, which is a normal feature of softer market conditions. The loan quality of the portfolio remained very high in Q2. We have only 1 $6 million commercial loan and 1 $665,000 single-family loan in default, representing less than 1% of the total mortgage portfolio, and we continue to have ample loan loss provisions, which now total $8.4 million, equal to 102 basis points. As Jennifer mentioned, this entire provision is a general provision because there’s not a single impaired loan in the portfolio. The average loan-to-value of the portfolio remained steady in Q2 at 62.3% and continues to be below our target of 65%.
Turning to operations. For the quarter, 85.5% of new funded loans were from Ontario and 14.5% from B.C. Year-to-date, Ontario has funded 85.8% of new loans, while Western Canada funded the other 14.2%. The geographic composition of the portfolio is now 71.1% in Ontario, 27.9% in B.C. and 1% in Alberta. We’re comfortable with this geographic allocation.
By sector, 85% of the new loans funded in Q2 were residential or multi-residential loans with the balance being commercial loans. The single-family mortgage division, again had a very strong quarter with $25 million of funded loans, close to the previous record of $29 million last quarter. While single-family mortgages have a lower-than-average mortgage rate, they also have a low risk profile.
The single-family mortgage portfolio is entirely located in or near major urban centers and all have loan to values less than or equal to 75% loan to value. In Q2, our average mortgage rate jumped to 8.9% from 8.32% last quarter. This rate increase was due to our high level of loan origination in Q2 and also to a 1% rise in the prime rate of interest during the quarter.
As Jennifer mentioned, approximately 66% of our loans are floating and directly benefit from the increase in the prime rate of interest. Offsetting the prime rate increase was the larger volume of single-family loans, which have a 12-month fixed interest rate. Please note that subsequent to quarter end, prime increased by another 1% in early July. So we should see another significant increase in the average mortgage rate of the portfolio in Q3.
Atrium’s percentage of first mortgages continues to be very high at 91.9%. Ontario and B.C. each had more than 90% of their respective loan portfolios in first mortgages. It’s worth noting that the percentage of construction loans represent only 9% of the total portfolio. Given the level of inflation occurring in construction costs, we feel a conservative level of exposure to construction loans is appropriate at this time.
Perhaps the risk metric, which best exemplifies our conservative lending philosophy, is that 99.1% of the portfolio is less than or equal to 75% loan-to-value. This is a percentage that is significantly higher than our peers and reflects a very defensively positioned portfolio. The one and only high-ratio loan in the entire portfolio was actually funded recently in Q1 2022, and is a second mortgage to a major developer in Toronto. The loan to value on this loan is 78.9%. So there’s not a single loan above 80% loan-to-value in Atrium’s portfolio.
Turning to defaults. There’s only one commercial or multi-residential loan default as at the end of Q2. This loan has been in and out of default for the last couple of years due to an excessive amount of subordinate debt to Atrium and an uncooperative and unscrupulous borrower who has been removed from operations in favor of another builder. Atrium is funding the senior tranche of the first mortgage and has an estimated loan-to-value of 64%, so we do not foresee a loss. Atrium’s remaining collateral consists of 4 phases, which a draft plan approved for 138 building lots as well as a 6-acre school site and a small commercial block.
A private receiver was engaged in Q4 2021 in order to prevent the borrower from stalling the development process. The receiver has hired a contractor to complete site servicing by the end of the fall, and we expect to be repaid in full by the end of the year. Defaults in the single-family mortgage portfolio, which represents 10.5% of the total mortgage portfolio, consists of a single loan totaling $665,000. Overall, we feel exceptionally comfortable with the quality of the portfolio. Please note that we analyze and risk rate each loan every quarter to make sure we keep on top of any new issues.
Turning to foreclosures. We continue to have 2 foreclosed properties, a 4-flex in Leduc, Alberta, and the second is a 90-unit rental project in Regina. The Leduc 4-flex has a $1.1 million carrying cost, which is appropriate given that the complex is consistently 100% leased.
The Regina apartments carrying cost is $13.2 million, which again, we believe is representative of a current value. Regina has had one of the softest rental markets in all of Canada for many years. However, we’ve noticed a material improvement in the leasing market in the last 3 months and the occupancy rate of our project increased from 80% at the beginning of the year to 92.3% at the end of June and even higher in July. We’ve also stopped offering rental incentives and 1 month free rent on renewals. These properties have no debt on them, and they continue to generate significant distribution to Atrium each quarter.
My economic commentary is as follows: It’s one of the more difficult times in my career to assess the conflicting economic information in the market. The unemployment rate remains extremely low at 4.9%, but most other economic indicators are negative. It appears that we’re — we are most likely headed for a material slowdown in the economy and in the real estate market.
Both the Bank of Canada and the Federal Reserve have made it abundantly clear that getting inflation under control is more important than economic growth, even if it leads to a mild recession. With inflation rising and reaching 8.1% last month, the Bank of Canada raised its policy rate to 2.5% from a pandemic low of 0.25%.
To date, each increase in the policy rate has been matched immediately by a corresponding increase in the prime rate of interest, which is 4.7% today. And the Bank of Canada is expected to deliver another outsized rate hike at its next meeting on September 7. By year-end, most economists are assuming another 75 basis point increase in the policy rate and in prime.
Real GDP growth was strong at 1.1% in Q2, but have weakened each month within the quarter. The Bank of Montreal is forecasting growth for the balance of the year to be 1% on an annualized basis, and Royal Bank is forecasting a slowdown for the balance of 2022 and a recession in the first half of 2023. The one positive outcome from a significant slowdown in the economy could be less pressure on demand and supply chain issues, which could reduce inflation and prevent additional interest rate increases.
In the United States, the situation is similar. The U.S. Federal Reserve increased its benchmark rate by 75 basis points on July 27, following a jump in inflation to 9.1%. The U.S. economy has experienced negative real GDP growth in Q1 and Q2, normally a technical indication of a recession. Yet during that time, employers added 2.7 million jobs and the unemployment rate of 3.5% is close to a 50-year low. The Fed is expected to increase rates by another 3/4 of 1% by year-end, resulting in a benchmark rate of 3.25% to 3.5%.
Turning to the real estate markets. In the commercial market, according to CBRE, cap rates are generally up 25 basis points across all sectors. This is entirely due to the rise in mortgage rates caused by higher inflation. Transactions slowed down considerably in Q2, and there was generally a flight to quality.
To date, the most resilient sectors have been the multifamily and retail sectors, the latter due to the fact that cap rates were already higher for retail projects than other sectors. CBRE forecast the cap rates will increase over the second half of 2022 as the Bank of Canada continues to increase its policy rate. Certainly, the public markets think so as most REITs are trading below their reported net asset values.
In the residential and multiresidential sectors, there was a dramatic slowdown in resales and new home sales in Q2. Resales were down 41% year-over-year in the GTA and down 35% year-over-year in Metro Vancouver. Fortunately, new listings in both cities were little changed over the same period last year. Market conditions are expected to remain slow over the summer and fall months.
Royal Bank is forecasting a 12% drop in Canadian resale prices. In the GTA’s new home market, sales were down 56% from last year. Sales of condos, the most affordable sector, were down 44%, while single-family home sales were down a staggering 85%. However, I’ve heard that many of the low-rise developers chose not to launch their projects in Q2, due in part to uncertain and rising construction costs. Nevertheless, the results were very poor. Fortunately, inventory remained relatively tight at 3.5 months for condominiums and 2.7 months for single-family lots.
New home sale results for Vancouver have not yet been published, but we suspect they will show a significant slowdown as well. I think that until inflation moderates and the Bank of Canada stops raising its policy rate, the real estate markets will be very soft. Toronto and Vancouver will experience material price declines, but will remain among the most liquid markets in Canada for 3 reasons.
First, structural housing shortage in both cities will only grow worse as new project launches are inevitably canceled over the next few quarters; number two, Canada had a record level of immigration of more than 113,000 people in the last quarter, surpassing its annualized goal of 400,000 people per year.
Historically, the highest level of immigration have been to the 3 largest cities: Toronto, Vancouver and Montreal; and number three, the apartment and condominium rental market has been exceptionally strong in the GTA and the Greater Vancouver area, generating 20% and 24% rent increases, respectively, over the last year.
Although this rate of rental growth will inevitably slow, especially if Canada enters a recession, I believe that it will provide a floor on the level of price reduction.
To summarize, Q2 at Atrium was another very good quarter, and our year-to-date earnings per share are above last year’s record pace. The loan portfolio grew again in Q2, notwithstanding another quarter of high repayments. In addition, we significantly reduced the vacancy rate at our Regina apartment to 7.8% by the end of Q2 and even less in July.
As I stated last quarter, we will not have to chase yield in 2022 to show strong earnings. Prime has already increased by 1% in July, so our average mortgage rate is almost certain to be higher next quarter. Any increase in prime will produce a net benefit to Atrium’s earnings.
From a portfolio perspective, with less than 1% in default and an average loan-to-value of 62.3%, we are defensively positioned to endure a slowdown of the Canadian real estate markets. I do think that the next 9 to 12 months could present some challenges for the real estate community as a whole, and our attention for the balance of the year will be less focused on new loan business and much more on monitoring and stressing the loan portfolio.
We have an experienced underwriting group led by managing directors who are actively lending in past economic downturns. In this quarter, replacing our retiring CFO, Jennifer Scoffield, was our biggest priority. Jennifer is retiring on September 12 after approximately 7 years with CMCC and Atrium. I would like to thank Jennifer so much for her contributions to Atrium and CMCC.
She’s been instrumental in building the finance and mortgage administration departments as Atrium grew its assets from $600 million to over $800 million today. Jennifer was involved with me in all aspects of running the business, including successfully completing numerous common share and convertible debenture issues with Atrium. The Atrium Board and particularly the Audit Committee was always a big supporter of Jennifer and never worried about the accuracy or quality of the financial statements each quarter. We shall all miss Jennifer’s presence at the company.
Over the last few months, we were actively recruiting a successor to Jennifer. We’re very pleased to have sourced a very strong candidate in John Ahmad. John is a CPA, who brings experience across financial reporting, planning and analysis, mergers and acquisitions and operational efficiency.
He started his career in the assurance practice with a big four accounting firm in Toronto. Since then, he has worked in transaction advisory services, private equity and banking industries across Canada and the U.S. Since 2011, John has led finance teams and 2 Canadian financial institutions and most recently, as CFO, led to build out and launch of a Schedule 1 digital bank.
That’s it for our comments. We’d be pleased to take any questions from the listeners.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Graham Ryding of TD Securities. Please go ahead.
Graham Ryding
Good afternoon. Maybe we could just start with the weighted average mortgage rate. Just any — anything you could quantify in terms of how much further upside you see potentially like Q3, Q4 this year given the expectation for the increase in the prime rate?
Rob Goodall
What do you think, Jennifer? There’s a certain point at which to get quality business, you’re not going to be able to just keep increasing the rates. I’m sure our rate will increase. Would you guess between 1.5 quarters?
Jennifer Scoffield
Yes, it’s not going to go up by any — close to the full percent at all.
Rob Goodall
Yes. Graham, don’t get me wrong. There’s lots of business out there. you think that there isn’t because the activity is down, but there’s a lot of business out there. We’re just trying to be as careful as we can. So you can get the yield if you want it, but it comes with risk. So I would guess — I think we both get the quarter to a [indiscernible].
Jennifer Scoffield
Yes.
Rob Goodall
I think the quarter would be really conservative. It’s probably closer to half but…
Jennifer Scoffield
Yes, it’s not going to be as big as the jump from Q1 to Q2.
Rob Goodall
Yes.
Graham Ryding
Okay. All right. That’s helpful. And then maybe just — you gave some good commentary there just about the activity and the sort of sentiment from developers as people have pulled back. So can you just give us some sort of color on what you’re expecting here for the portfolio? Because it sounds like you’re going to be more focused on managing the portfolio as opposed to deploying capital. But what does that mean for the portfolio growth?
Rob Goodall
I think, in Q3, the loan portfolio will actually grow. And it won’t be because we did $237 million of new business like we did in this last quarter. It will be because — first of all, there were some good opportunities out there. But second of all, the repayments will slow. And they may slow to 1/3 of what they were.
Like $200 million is completely unprecedented for us. That was our repayments last quarter. But they might be $75 million next quarter. It’s very hard, as you know, for us to tell because most of our loans are open with 30 to 60 days’ notice. So sometimes what you believe 1 month changes the following months. But there’s no way that the repayment will be anywhere or near what they were last quarter.
You can feel the market tightening. You can see that institutional lenders are tighter than they were, for instance, at the beginning of the pandemic, which, in my 35-year career, I’ve never seen the banks so accommodating as they were at the beginning of the pandemic. That’s not the case today. They’re more like they normally are in a softer market. They tightened up, and there’s a flight to quality.
So we’ll be monitoring carefully, but that doesn’t mean the portfolio is going to shrink. The portfolio will grow in Q3 almost certainly, just based on the pipeline of deals we have and based on anticipated repayments. It’s hard to tell beyond Q3, but I don’t think that deploying the money is going to be hard.
Graham Ryding
So just to elaborate on that a little bit, where are you comfortable lending given sort of the uncertain backdrop right now? And where is your sort of risk appetite may be pulled back?
Rob Goodall
Well, what’s interesting is you hear all the Ontario and B.C. are the most expensive markets. But then when you drill down a bit, the more centrally located you are in Toronto, the less the expectation is, and I agree with that. I’ve always found there is a flight to quality in downturn. So you best be in major urban centers. And ideally in the best areas of the major urban centers, and that’s what we’ve always done.
So I think we’re well positioned. I can tell you what we’re doing now is when we’re lending to — I think, as you know, a lot of our business is repeat business. But when we’re lending to a new party and leading to existing parties, we’re now assessing very carefully if it’s economic, if this softness lasts for a year, which we think it could. For sure, it’s going to last 6 months. I think 9 to 12 months is not unreasonable.
You got to figure out who’s going to survive that. Who’s got the financial strength. Who’s got the expertise. Who’s got the connections with financial institutions, which is important because we’re not the only lender to our clients. Most of our clients are pretty large. So who’s got good banking relationships?
So you consider all that and say, “Okay, who’s our survivor? Who are we safe lending to?” And so the sponsor is as important as the real estate, but if a good sponsor came to us with a piece of real estate that was geographically outside of our comfort zone, we would turn it down today.
Graham Ryding
Okay. And just to confirm, you said construction is only 9% of your portfolio. So — but I think the rest of your residential portfolio, outside of sort of individual single-family mortgages, those would be sort of land type mortgages that are sort of in a permitting phase and not in a construction phase but in the permitting phase. Is that correct?
Rob Goodall
Yes. A lot of times, there’s holding income on those parcels of land because they’re — you could almost categorize some of our peers as 9-0-5 lenders. You can almost categorize us as 4-1-6 lender. So almost always, there’s something on that property generating income, but we wouldn’t categorize it as an income-producing property because it’s highest and best use is for more of a mid-rise or high-rise improvement.
Graham Ryding
Okay. Understood. My last one, if I could. Just mortgage servicing fees, they seem to be tick up a bit this quarter. Is there any one-off item in there? Or is this a new run rate for that line item?
Jennifer Scoffield
No, it’s still 85 basis points. There is a onetime catch-up adjustment that’s in there from a prior — from some prior periods. It was an accumulated entry that was made. So it’s a onetime uptick of Q3, you’ll see it normalize back down.
Operator
Your next question comes from Sid Rajeev of Fundamental Research Corp. Please go ahead.
Sid Rajeev
First of all, Jennifer, congratulations, and wish you all the best for your future initiatives. Second, again, that’s a strong quarter. Just to extend on Graham’s question there. I’m trying to — it’s difficult to understand, like activities have declined significantly across the board. How is it that originations of U.S. are still strong? What kind of new loans are you seeing out there? Are there new loans or are you just expanding on existing loans when you say originations increased?
Rob Goodall
No, they’re new loans, and a lot of them are 2 existing clients, but most of our existing clients have banking relationships. And a lot of the loans that were repaid last quarter and, quite frankly, in the last 2 years, have been repaid earlier than we would have expected by the Big 5.
Most of our repayments come from the Big 5, and the Big 5 have tightened up. And so there’s more new lending opportunities for us. Some of the private lenders, obviously, are not able to raise money today. So they too may be tapped out, and maybe they’ve even faced some redemptions. I haven’t heard too much about that, but that could be something that comes. But certainly, raising money in today’s market is difficult.
So we’re one of three publicly traded mix who have permanent capital. So we’re in a pretty good position. And we were sort of shocked when we accessed, as Jennifer mentioned, another $50 million on our line of credit. And literally within a month or 2 it was spoken for with really high-quality deals, really top-notch borrowers.
Sid Rajeev
So these are…
Rob Goodall
It’s not that the overall activity is up, it’s that the competition is down. And that some of our existing clients and clients we’ve wanted to deal with, these are not second-rate clients. These are good borrowers are coming to us because the banks are tight. And some of the other — maybe some of the other private lenders don’t have capacity right now.
Sid Rajeev
Yes. I was saying so not necessarily new projects, it’s just borrowers coming from other lenders who got maybe denied. Another thing it may be more accounting, I see no Stage 3 loans, but you still have some defaults. How does it work? You have defaults, but you don’t really have Stage 3 assets?
Jennifer Scoffield
Right. So if a loan goes into default, it’s considered it’s — or not just in default, there’s risk moving from stage 1 to a stage 2. Stage 3 loans mean they’re impaired So you only move a loan it’s in default and it’s impaired is when it should Stage 3. So we don’t have any — we have two loans that are in default.
One is in technical default because there’s a receiver appointed, the $6 million loan that Rob spoke about. It’s actually the payments are current, but we have a receiver in place to help manage the servicing of the project. And there’s one single-family loan that’s in default. But neither of those are impaired. So the only way somebody would have a loan in Stage 3 is if it’s impaired and you feel you’re going to lose money on that.
Rob Goodall
Yes. And quite frankly, a lot of lenders would view that first loan, the $6 million one, is not in default because it’s totally a technical default. As Jennifer mentioned, payments are up to date. There’s probably four mortgages behind this. And the only reason — and everybody is making sure the work that we remain up to date, but it’s a technical default because, in our view, we called it a technical default because we appointed a receiver.
So the borrower couldn’t stall the development process, which he’s been, quite frankly, pretty good at doing up till now. So we just want to make sure it’s actually finished off this fall and we’re repaid by the end of the year.
Jennifer Scoffield
IFRS has specific definitions for Stages 1, 2 and 3. And Stage 2 is there’s been a significant increase in risk — so from the time you put the loan in place. So to that point — to Rob’s point, a receiver is in place that typically — that’s an increase in risk from when we put that — the loan in place a few years ago. So that’s the only reason that’s been moved to Stage 2.
Sid Rajeev
Okay. I appreciate the insights. And then for repayments, obviously, should renewal rates have increased significantly in the second half, especially considering all these traditional lenders tightening policies. So my question, and what I’m trying to guesstimate is year-end portfolio size, it looks like it might be even higher than current levels because of lower renewal, lower repayments and steady originations?
Rob Goodall
Yes, that’s what we would bet that it’s higher than where it is today.
Sid Rajeev
Okay.
Rob Goodall
Q3 for sure and probably Q4, but it’s harder. It’s — there’s less visibility, obviously, in Q4, but Q3 will be higher than Q4, unless we’re inundated with repayments that I don’t — that we can’t see right now that we haven’t heard about right now.
Sid Rajeev
Got it. The final question, historically, lenders across the board have increased their provisions, not specific but general provisions for loan losses just because of market conditions, during the sessions of slowdown. Do you foresee doing that, increasing your existing provisions, even though there are no specific mortgages under the — in trouble?
Jennifer Scoffield
Yes. I think especially as we watch — every week, we’re watching economic news, forecast, et cetera, and all of that goes into our model. Not only we look at — a part of our model, we look at the loans in our portfolio. And definitely, if anything — any more go into a stage 2 or if any we feel are impaired, that will cause an increase to the provision. Portfolio size, if it increases, it will increase the provision.
And then there’s a number of macroeconomic factors that we look at as well, inflation, unemployment, real estate prices. So if inflation is still high and real estate prices continue to fall, then that’s a sign that you should definitely be increasing your provision on a general — call it a general provision.
Rob Goodall
So we’re generally pretty conservative on the provisions. Since we’ve been public for 10 years and even 11 years, we were private, we’ve never blown through a provision on any loss. And that’s the way we like it. We like to have a nice, ample provision and one that’s primarily or ideally, as it is today, entirely unallocated to any impaired loan.
Sid Rajeev
Okay. Thank you so much for your insights.
Operator
[Operator Instructions] Your next question comes from [indiscernible]. Please go ahead.
Unidentified Analyst
Hi. Just one quick question for today. I’m just wondering when you quote the loan-to-value, how often is the valuation reassessed? And also maybe just a little color on what that process looks like.
Rob Goodall
Yes. So I think the way we do it is the way every lender in Canada does it, which is you bake loan-to-value, not on your best estimate, but on the last appraisal you have. And if it’s a simple renewal, then often — and I’m not just talking about that. I’ve worked at financial institutions as well. So this is a basic policy for everybody. Is if it’s just a simple renewal, you often don’t get a new appraisal. If there’s an increase requested, you almost always do.
Unidentified Analyst
Okay. And that essentially — is it assessed by a third party then?
Rob Goodall
Yes. And the issue is when you — as you can imagine, what you have, as we do, 200-and-something mortgages, if we’re trying to guess, okay, the market’s gone up or the market has gone down, you get very objective, very subjective estimates of value. So any auditing firm and any bank will use absolutely objective third-party appraisals on hand. That’s the way it works.
So we might have an appraisal that just as any institution would, financial institution would that might be three years old where values have gone up clearly 25% to 30%, but you’re using that objective loan-to-value that was in place at inception.
Unidentified Analyst
Okay. That’s it for me. Thank you.
Operator
There are no further questions from the phone line. I’ll turn the call back to your host, Mr. Goodall, for closing remarks.
Rob Goodall
Okay. Thank you very much for attending this conference call. Sorry for the power outage and our problem last week. And for those of you who are shareholders, hopefully, you’re happy with our earnings, we certainly are, and we thank you for your continuing interest in the company. Have a great day.
Operator
Ladies and gentlemen, this concludes your conference call for this afternoon. We would like to thank you all for participating and ask you to please disconnect your lines.
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