First National Financial Corporation (OTCPK:FNLIF) Q3 2022 Earnings Conference Call October 26, 2022 10:00 AM ET
Company Participants
Jason Ellis – President and CEO
Rob Inglis – Chief Financial Officer
Conference Call Participants
Etienne Ricard – BMO Capital Markets
Geoff Kwan – RBC Capital Markets
Jaeme Gloyn – National Bank Financial
Nik Priebe – CIBC
Graham Ryding – TD Securities
Operator
Good morning. And welcome to First National’s Third Quarter Analysts Call. This call is being recorded on Wednesday, October 26, 2022. 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.
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.
Jason Ellis
Thank you, Operator. Good morning. Welcome to our call and thank you for participating. Rob Inglis, 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 risks and uncertainties, and should be considered in conjunction with the risk factors detailed in our MD&A.
For the purposes of our remarks, I will take it as a given that you have reviewed our MD&A so we will focus on some key topics that are often top of mind during question periods for these calls.
The first is our outlook on mortgage volumes. The rapid movement in the Bank of Canada’s policy interest rate has directly affected mortgage rates. These rates are not high in a broader historical context, but a 3 percentage point increase in the space of six months is difficult for the market to absorb.
As I speak, the overnight rate has gone up another 50 basis points just a moment ago. Accordingly, our expectation is for further moderation in volumes in the near-term as homebuyers and sellers adjust to new financial realities.
Market forecasts are widely available from authoritative sources. So we won’t put precision around our expected volumes. But I will say First National is well positioned to hold its own even in a falling market. I make that observation not only based on our history, but also recent market share reports.
When last measured and reported First National’s market share within the mortgage broker channel increased from Q1 to Q2. A third quarter reading is not yet available, but we think our monthly application volume metrics remained positive in the quarter relative to the market. So while originations will reduce our share should remain strong due to our differentiated broker service and advice-based approach to helping customers get the mortgage they can afford.
On product lines, Prime and Excalibur volumes were both down year-over-year in the third quarter, with the rate of decline being more pronounced in the Excalibur program, where we are comparing to a period of extreme growth a year ago, as the program was still ramping up.
We have also chosen to maintain our conservative approach to underwriting Excalibur mortgages. We will continue adjudicating in our established credit box going forward. So bear that in mind when thinking about volumes in the near-term.
On the commercial side originations were also strong by historical standards, but down 4% from last year. All things considered, we expect originations to be solid in the fourth quarter, but for commitments to be weaker heading into the New Year, rising financing costs are now getting in the way of new developments, particularly when accompanied by the inflation of labor and building material costs.
Our current thinking is that while volumes will be off, the multi-unit market will continue to favor CMHC insured financing. That works in our advantage, because First National is a leader in the provision of insured financing for apartments. It’s no secret that Canada needs more multi-unit housing and that need grows with immigration. Notwithstanding today’s headwinds, we are bullish on the sector in the long-term.
Since securitization net interest margin has been a focus area on previous calls, I will offer a few observations. Sequentially, net interest income was $2.8 million higher this quarter than last, mortgages pledged under securitization have grown modestly and net interest margin has increased from 45.6 basis points in Q2 to 47.9 basis points in Q3.
This increase is especially encouraging as the basis between First National’s Prime rate and CDOR has been compressed as CDOR rates rise in anticipation of Bank of Canada policy, while the Prime rate does not adjust until after the actual policy change. The result has been a compression between Prime-based adjustable rate mortgage coupons and CDOR-based adjustable rate MBS coupons.
As the Bank of Canada finishes its work on this current rate tightening cycle, we expect to see a more normalized spread on that portion of the portfolio. In the third quarter of 2022, the opportunity cost of this compression was roughly $1 million a month. So when the Bank of Canada reaches its terminal rate, we look forward to a positive impact on them.
A more immediate tailwind for NIM comes from normalized prepayment speeds, something we did experience somewhat in Q3. This will help the portfolio grow, but will also mean a slowdown of the amortization of capitalized upfront costs, which have negatively affected NIM in prior quarters with elevated liquidation rates. It also means more renewal opportunities unscheduled maturities. We saw some evidence of this in Q3, as single-family renewals were up 12%.
Also structurally relevant to our outlook is the operational expense associated with our hedging program. Over the course of the last quarter, we estimate that the cost of carry related to managing our book of short bond hedges was approximately $6.9 million.
As the short-term repo rate rises and the spread between it and the yield on the five-year and 10-year bonds we use to hedge our origination falls, this cost will moderate. While on the topic of go forward costs, a significant line item is salary and benefits.
As you think about this, you should know that the full-time employee count peaked in Q2 and as reduced marginally by the end of Q3. In context, it has been an extraordinarily difficult time to anticipate labor force needs over the past couple of years. In the early months of the pandemic, we were cut short and the team put in a huge amount of overtime to address unanticipated volumes.
We adjusted to the point of full employment to support those new volumes. Now, while mortgage volumes are still ahead of pre-pandemic levels, they are perhaps 25% lower than those we underwrote in the third quarter of 2021. This poses a challenge, but one, we will work through by recognizing two realities.
Talent is critically important in all facets of the business and we must be efficient operators. Accordingly, we will manage costs carefully in relation to available opportunities, while continuing to push ahead on IT activities that will assist efficiency and effectiveness.
Turning to our dividend, you will note that our Board increased it effective for our shareholders of record at the end of November. This is First National’s 15th increase since our IPO. We have long been efficient users of capital and we return to our shareholders the equity that we don’t need or can’t use to generate high returns on equity in the form of distributions.
In some years, excess capital also enables special distributions. This is not one of those years. As always, our Board takes a disciplined view on capital deployment, including dividend payout ratios. This has allowed us to retain our strength of equity and perpetuate First National’s reputation as a high yielding dividend paying company.
Speaking of the Board, and as a final topic, I would like to acknowledge some changes in its composition. As announced earlier this month, John Brough retired after 16 years on the Board. During his tenure which began with our IPO, John served as Lead Independent Director and Head of the Audit Committee. He deserves and receives our utmost gratitude for his direction and counsel over those years.
We also welcome two new directors to the Board. Both Martine Irman and Diane Sinhuber bring tremendous experience and skills to complement those of our existing directors. Martine previously served as Vice Chair of TD Securities, and Diane worked for many years as a partner at Ernst & Young, and more recently with TD Bank and Deputy Chief Auditor. We look forward to their contributions.
Now over to Rob.
Rob Inglis
Thanks, Jason, and good morning, everyone. Starting with MUA, it increased 6% year-over-year to a record $129.3 billion reflecting new originations over the period combined with renewals. As a result, First National now has a $90 billion servicing portfolio and about $36 billion pledged under securitization from which we can continue to generate income and cash flow. In other words, a strong platform in these uncertain times.
Like last quarter Q3 revenue was higher than a year ago reflecting a rapidly rising interest rate environment and its impact on interest earned on securitized mortgages, interest earned on mortgages acumen for securitization and interest earned on mortgage investments.
These increases were partially offset by the impact of lower residential origination volumes on placement fees, which were down about 31% year-over-year. Rising interest rates also led to gains and holding financial instruments of about $5.6 million compared to smaller gains in Q3 last year. Gains and losses on financial instruments relate to the portion of interest rate hedging programs, which are included in total revenue.
Securitization NIM grew by about $3 million from Q3 2021. This is a result of investment in these programs, particularly in multi-unit CMB pools over the past two years. We hope for better growth, but for reasons that Jason touched on, i.e., narrow Prime, CDOR spreads and prepayment, this growth was muted.
Moving now to profitability measures, income before income tax was only marginally affected by fair value weighted gains between the comparative quarters. Looking now at pre-fair market value income, which removes the effects of fair market value accounting, it decreased by 26%, reflecting a 23% reduction in new residential origination, our response to competitive market pressures to temporarily increase broker incentives, as well as the factors Jason mentioned, higher mortgage carry, cost prior to sterilization, along with a 12% year-over-year increase in salaries and benefits on a higher headcount than a year before. As Jason noted, FTE peaked in Q2 and was down slightly at September 30th.
Compared to a year ago, commercial underwriting compensation was also lower by about $4 million due to lower per unit value of origination, generally for five-year product in 2022, compared to a great proportion of 10-year product in the 2021 quarter.
On the topic of broker fees, these decrease by about 26% year-over-year on lower volume, but increased about 10% on a per unit basis. Hence the impact on pre-fair market value income. Lower profitability in residential was somewhat offset by the results of our commercial business.
In commercial, our decision over the past two years to securitize a larger percentage of origination, particularly tenure insured mortgages produced increases in revenue, and more importantly, increased securitization NIM.
Commercial segment profitability measured by income before income taxes increased by over 60% year-over-year for a couple of reasons. One, in the quarter itself, we place more volume with institutional investors, leading to higher placement fees and deferred placement fees. We also continue to increase profitability from our investment for mortgages securitized in prior periods. And lastly, we generated higher interest revenue on mortgage investments and escrow deposits because of the higher short-term interest rates.
During the quarter, First National paid monthly dividends at the annualized equivalent of $2.35 per share for Q3 payout ratio of 89% or about 100%, excluding gains and losses on financial instruments.
Now, in closing, the housing market is a point — is at a point of inflection and it’s likely that challenging conditions will persist for several quarters before Canadian’s become used to the higher interest rates, and buying and selling activities stabilizes around long-term averages. First National is prepared for the challenges ahead.
That includes — that concludes our prepared remarks. Operator, please open the lines for questions. Thanks.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] And your first question will be from Etienne Ricard at BMO Capital Markets. Please go ahead.
Etienne Ricard
Thank you and good morning. New single-family originations have held up better and housing market activity. We have seen in large urban centers recently. Back to your earlier comments, Jason, how significant has the market share improvements than within the broker channel for First National?
Jason Ellis
It hasn’t been overly significant. I think one of the things that I also know when you read the headline numbers at Jan about sales activity being down, we are not nearly down as much as those numbers. But remember that our total originations also include refinancing activities. So that may explain some of the delta between reports you hear from entities like Crya [ph] and when you compare our total origination quarter-over-quarter.
I would say that our position within the broker channel improved modestly between Q1 and Q2. And I expect the third quarter results when released in the next couple of weeks to be comparable, if not slightly better than the same period the prior year. So it’s not a big delta, but it is definitely positive. Is that fair?
Etienne Ricard
Understood. And from a regional perspective, have you seen better performance and better market share from outside Ontario?
Jason Ellis
No. I think the market share tends to be relatively comparable across regions. I think if there’s one area where we are relatively strong, particularly on the prime single-family side, it might be in Quebec. But in terms of overall performance, regionally, I would say that, we have seen the most significant declines period-over-period in Ontario and BC, largely attributable to the activity in the GVA and GTA markets. But our Montreal and Calgary origination offices have actually outperformed Ontario and BC from a volume perspective, relatively speaking period-over-period.
Etienne Ricard
Now in the commercial segment, you are guiding for strong Q4, followed by weaker commitments in 2023. First, could you remind us the mix of originations across insured multi-units and conventional commercial mortgages? And second part of the question, more broadly, how efficient has the market been in adjusting to higher funding costs across those two markets?
Jason Ellis
So I will take that in parts. So, yeah, we do anticipate to see activity in the CMHC insured multifamily space moderate into next year. But not nearly to the degree we have seen single-family activity fall. I guess, suggesting perhaps a greater resilience in that space to respond to the higher rate environment. But of course, those rates combined with some of the costs associated with developing new properties are definitely going to form a bit of a headwind.
We have seen a transition over the course of this year in our mix on the commercial business between insured and conventional. We have seen conventional commercial originations moderate relative to insured. I’d say that there’s probably been a more cautious tone with some of our conventional commercial investors. Rob, I don’t know if you off the top have a sense of the mix of insured versus conventional on the commercial side or how that’s changed. But it’s…
Rob Inglis
Yeah.
Jason Ellis
… definitely changed in favor of insured.
Rob Inglis
Yeah. I’d say, 2020, the pandemic years, it was 100% uninsured, because that was what I really wanted. And then, suddenly, it kind of went back to conventional as people had very low rates and people want the product, and now I think it’s about 75% insured and the rest is conventional, which is sort of no higher ratio in terms of the last 10 years, let’s say.
Etienne Ricard
Just to confirm you said 75% multi-unit insurance?
Rob Inglis
Yes.
Etienne Ricard
Great. Thank you for your comments.
Operator
Thank you. Next question will be from Geoff Kwan at RBC Capital Markets. Please go ahead.
Geoff Kwan
Hi. Good morning. Just wanted to ask your comments in the report on the higher broker compensation from last quarter, has that ended in Q4 and just wanted to get a sense from you in terms of how you take a look at that trade-off of managing origination volumes versus broker comps, is the goal to maximize earnings, even if it results in a slightly lower ROE, just like, I said, want to understand the dynamic how you are thinking about things?
Jason Ellis
Yeah. So there’s always going to be a bit of a balance between presenting a competitive offering to the mortgage broker both in terms of rate and incentive, because as a mono line, we definitely need to participate meaningfully quarter-over-quarter.
That said, it has to be done in a disciplined way. I would argue that this — you could say that, as origination volumes fall in this market, there may be enhanced competition to originate from a smaller set of opportunities. But the ability to do that, in terms of special broker comp, probably, hinges around where margins are.
So last week high ratio insured mortgage coupons increased to 5.44%, Geoff, coming off a couple of sharp sell-offs in the bond market. With the bank’s announcement this morning, while we have been chatting, I think, the five-year bond has actually rally to the point where it’s down 20 — 25 basis points on the day.
So as I sit here in the moment, the spread between our insured mortgage coupon and the five-year Government of Canada bond is as much as 200 basis points. If that were the — a persistent spread, we could quite happily continue offering additional compensation to the brokers.
Ultimately, though, we look to our competitors, all of the mortgage finance companies in our space continue to offer a range of compensation incentives and so I expect we will look to the competitive landscape, as well as our own management of margins to make that decision.
The short answer if it’s not too late for that is that we do continue to offer an additional broker incentive on a subset of our mortgages focused around the high ratio and insurable mortgages that form our NHA-MBS program. We will probably see how spreads evolved during the fourth quarter and what are — what the competitive landscape looks like to make that decision.
But tying that question back to, I guess, the previous one from Etienne, our market share within the channel has improved albeit modestly. I wouldn’t suggest that our incentive program for brokers has driven that and we are just sort of — we are moving with the market as far as those programs go.
Operator
Any further questions, Mr. Kwan?
Geoff Kwan
Can you hear me all right, sir.
Jason Ellis
Okay. We lost it for a second, Geoff?
Geoff Kwan
Oh! Can you hear me now?
Jason Ellis
Yeah. We got you.
Geoff Kwan
Okay. Perfect. Sorry. On your Excalibur Alt-A side of the business, how are you finding it says so far with people coming up for renewal their ability to kind of manage the higher rates and how do you see that playing out over the coming quarters?
Jason Ellis
Yeah. So there’s two things we are keeping an eye on certainly, not just our Alt-A borrowers, but generally, the response of our borrowers as they reach renewal and are faced with higher rates. The other part of the portfolio we are looking at to sort of add on to your question is our adjustable rate mortgages. Obviously, the swift increase in the Prime rate will have had a material impact on the monthly payments of our adjustable rate borrowers.
And I will say on both fronts, both renewal of Prime and Excalibur have not presented any measurable issues to this point. Our renewal rates continue to be comparable to previous quarters and we have not encountered any increases in our arrears rate in either program, either on the run or at maturity.
In fact, our 90-plus-day arrears rate in both the Prime and the Excalibur program are at all time lows and are lower in the third quarter or lower for the third quarter than they were even in the second quarter. So, so far there’s no early indicators.
And as it relates to the adjustable rate portfolio, when I look at the mortgages that are 90 days in arrears, the percentage of those that are adjustable rate is actually smaller than the percentage of mortgages in the overall portfolio that are adjustable rate. So it’s early days yet, but to this point, there’s no indication that the adjustable rate portfolio was having any difficulty adjusting.
Geoff Kwan
And maybe just one last question, you mentioned, just kind of remaining prudent on underwriting for Excalibur. But just wondering, has there been any changes you are seeing at any level from your institutional funding partners in terms of level of demand or the underwriting requirements that they want from you versus what we might have seen a number of quarters ago?
Jason Ellis
No. No changes in eligibility criteria or capacity to fund. I’d say that when I comment about sort of staying in our lane on our adjudication practices. I — we definitely see other lenders in the space with perhaps more aggressive positions on where they are willing to go with that service ratios. I’d say we have toed the line on that and that that may partially inform the reduction in our origination volumes in the Excalibur space. I don’t think we have the most aggressive product on the street. So, it hasn’t changed and we expect to sort of keep things where they are.
Geoff Kwan
Okay. Great. Thank you.
Operator
Thank you. Next question will be from Jaeme Gloyn at National Bank Financial. Please go ahead.
Jaeme Gloyn
Yeah. Thanks. Good morning. My first question is more on the, I guess, just the underwriting the single-family mortgages, given the rapid increase in the mortgage rates that borrowers are facing on renewal, specifically. And I understand correctly, like, previously, as long as the mortgages — the mortgage borrowers current on their payments, the underwriting isn’t as stiff as, let’s say, a new origination or a new mortgage. I am wondering, if the rapid increase in rates has caused you to revisit how you go about renewing mortgages decisions on renewing, can you look at perhaps stress testing those borrowers again and then does that inform your decision to offer renewal or not offer renewal. Maybe a little bit more — just how you guys are thinking about risk of renewal borrowers in this environment?
Jason Ellis
Yeah. So you are quite right, traditionally, especially on the single-family Prime side of the business, the renewal happens with very little additional underwriting of the file. Obviously, the renewal decision is informed directly by the payment history. Beyond that, there is not a great deal of re-adjudication that happens and that would be consistent with the entire industry, including OSFI regulated SCAD 1 [ph] banks.
I think that we are not doing anything especially different now, nor do we intend to. Fortunately, the tail end of the increased equity on the majority of the properties that are renewing is quite substantial, notwithstanding the most recent decline in housing prices, say, since the peak in…
Jaeme Gloyn
Yeah.
Jason Ellis
… April or May, the majority of the portfolio coming up for renewal has enjoyed a significant increase in housing prices since they put the mortgage on. So we are actually quite comfortable with the ability of any borrower that does run into any difficulty managing their new payments, to manage that through the sale of the home.
So the answer to the question is, no, we are not changing the way we get renewals. But also we are not especially concerned yet as we haven’t seen any indications that borrowers are having difficulty.
Jaeme Gloyn
And with those thoughts apply as well to your Excalibur program or is that specifically just don’t apply?
Jason Ellis
Yeah. Generally the same observations, however, we do revisit the borrower’s credit score, specifically in the Excalibur program. So a combination of payment history and evolution of credit will inform the Excalibur renewal.
Jaeme Gloyn
Okay. Got it. Thank you. In terms of the securitization margin and there’s a few moving parts going on here. But if I was — if I am correct in sort of distilling it down, it sounds like the balance of those moving parts would be favorable for the securitization and did I sort of catch that…
Jason Ellis
Yeah.
Jaeme Gloyn
… going forward?
Jason Ellis
Yeah. I — I am — if I am quite optimistic about anything in particular, at least this sort of big line items go, it is the net interest income line. So as we mentioned, I think, the most significant factor is liquidation rates.
If you go back to 2018 or 2019, the typical liquidation rate on our securitized portfolio is specifically looking at, say, the NHA-MBS pools was in the context of 7% to 8%. Through 2020 and 2021, that more than doubled into the context of 14% and 15% with peaks around 18%. Year-to-date so far in 2022, that’s moderated back down to about 9%. And most recently, the September month LQR on the portfolio was closer to 8%.
And what that does is a couple of things. One, obviously, it makes the principal and our securitize portfolio stickier. So it gives us the opportunity to grow in absolute terms, which will be constructive.
Secondly, through those elevated liquidation rate periods, we were forced to accelerate the amortization of the capitalized origination costs, as well as any of the discounted prices at which the MBS was issued. So, that was definitely a headwind which is going to moderate.
And then, yeah, as I mentioned, just that acute compression between CDOR and the Prime rate is really quite meaningful on the adjustable rate portion of the portfolio and that’s definitely going to level out as the bank’s activities slow down. So I’d say, generally speaking, yeah, a lot of positives coming through.
Jaeme Gloyn
Thanks. Great. Thank you.
Jason Ellis
And depending on where we go, this — in the moment, the spread on the new mortgages were originating relative to traditional benchmarks like government yields is looking quite robust. So that’s good.
Jaeme Gloyn
Got it. Thank you. That’s it for me.
Operator
Thank you. Next question will be from Nik Priebe at CIBC. Please go ahead.
Nik Priebe
Hey. Hi. Good morning. I think you alluded to this in your prepared remarks. But I did want to circle back on the discussion, just around the decision not to declare a special dividend this time around. I seem to recall and correct me if I am wrong, in the past, one factor influencing the decision around a special was the desire to maintain a minimum shareholders equity of about $500 million. I think you are pretty comfortably above that today. So are you able to elaborate on, I guess, what underpinned the decision not to declare special was that just made out of an abundance of caution given the macro backdrop here?
Jason Ellis
No. It’s actually about an abundance of opportunity. So I think there were two key things that factored into it. The additional shareholders equity that has been accumulated through retained earnings to this point, beyond regular dividends is largely attributable to the changes in fair market value on our hedges. So, on the one hand we might look at that as non-core.
The other thing is I mentioned the current spread on mortgages. The opportunity right now given generally wider funding costs at the SCAD 1 banks, as a — I guess, as a reference point, seeing your bail in debt at the banks last year was probably in the context of 70 basis points over Canada’s. I think most recently, that’s in the context of 185 basis points.
We have seen that translate into generally higher conventional single-family coupons. And with that, actually, for the first time in several years creates a terrific opportunity for us to leverage our asset-backed commercial paper programs.
One of the things you need to grow your ABCP conduits, however, is the equity to support the credit enhancement. And so I look at the growth in our shareholders equity from the gains on fair market value as a terrific source of funding our use or capitalization on this sort of opportunity of wider spreads. So I think I have a — we have a good idea what we want to do with that next year and that’s one of the reasons we decided to hold off.
Nik Priebe
Understood. Okay. That’s good color. And then just with housing prices now retracing some of their gains from last year and the economy potential heading towards a recession or slowdown, What’s your general read on how the institutional appetite for your mortgage product is evolving? Has there been any discernible change at all or any of your partner’s tempering volume targets or is there anything at all to speak up on that front?
Jason Ellis
No. I would say, generally, the feedback from all of our sort of balance sheet third-party investors is the same as always, a tremendous appetite for mortgage assets. I think that, as we move into next year and the market generally contracts, those that buy mortgages from us will also be faced with contraction in their own channels, whether it’s bank branches or mobile mortgage specialists. I expect that that may, if nothing else, add to their desire to supplement their own originations with acquisitions from us.
If there’s any challenge at all, it would be to the extent that those investors are experiencing an increase in their own cost of funds. Their allocation of cost of funds towards financing the acquisition of third-party originated mortgages may put pressure on our ability to post especially low mortgage coupons, but we will see how that evolves.
Nik Priebe
Got it. Okay. That’s good color. Thanks very much. That’s it for me.
Operator
Thank you. [Operator Instructions] And your next question will be from Graham Ryding at TD Securities. Please go ahead.
Graham Ryding
Hi. Good morning. I just wanted to go back to this sort of renewal dynamic and when you are looking at a rule, do you actually look at the TDS or the debt service ratios upon renewal, and if so, are you seeing any or can you give us any color on what that difference is on renewals relative to maybe what your average portfolio would be or what you would typically have seen at origination before?
Jason Ellis
So, no, again, we are — we actually are not at this point re-adjudicating or recalculating debt service ratios. Intuitively, I would say, from — with respect to the loan-to-value on the mortgages, beyond those borrowers who close their new mortgages within the last six months, the entire portfolio has fought like their loan-to-value has improved during that period.
And in terms of their debt service ratios, obviously, the new rate environment will put pressure on that debt service ratio relative to what it was at origination. Recall, of course, that the stress test should technically have moderated the pressure that their feeling as they were qualified, everyone now within the last five years certainly qualified under the stress test.
And while I don’t have the numbers, I do believe average Canadian household income has improved quite significantly over the last five years. So I don’t know the numbers. But at this point, I — we are not especially focused on that. Obviously, we will continue to monitor the trends on the renewal book. Any early defaults upon renewal will certainly trigger our revisiting of how we think about it. But right now, we are not seeing any signs of pressure from our renewed mortgage portfolio.
Graham Ryding
Okay. Understood. And then what about on new originations, are you seeing any noticeable change in sort of the average debt service ratios and new mortgages that you are putting into your portfolio relative to perhaps what you were seeing six months or 12 months ago?
Jason Ellis
I can’t say definitively, because I actually haven’t compared the sort of sequential evolution of debt service ratios. Anecdotally, I haven’t heard of any measurable change in our sort of average set of statistics, from one quarter to the next. But that might be a worthwhile thing to take a peek at.
Graham Ryding
Okay. That’s fair. And then you typically have put some commercial loans on your balance sheet within your mortgage investment portfolio, any color there on — it sounds like you are probably seeing less new business on that front. But are you seeing less turnover or perhaps some of those commercial margins extending or being renewed? Any color on that front?
Jason Ellis
I will let Rob address that one.
Rob Inglis
Yeah. So we are still like, those deals are deals we do for three months or four months that become CMHC insured loans after they mature. Typically, it gives the property owner three months or four months to sort of buy a property and then get the deal to CMHC for approval, et cetera.
That takes up some of our equity in the balance sheet and as we need it somewhere else, we might, say, what, we have these deals, instead of put them on the balance sheet, we will do it with an investor.
So I think, typically, in the last six months was sort of slowed it down a bit in terms of what’s on our balance sheet and sold that same product to our investors who liked that product. And so, it’s not really indicative this number of our future origination. Does that help, Graham?
Graham Ryding
Yeah. Yeah. Okay. That’s it for me. Thank you.
Operator
Thank you. There are no further questions. Back to Mr. Ellis the closing remarks.
Jason Ellis
Thank you, Operator. We look forward to reporting our fourth quarter results. Until then, thank you very much for taking part in our call and have a good 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 do ask that you please disconnect your lines.
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