First National Financial (FN) Q2 2024 earnings summary

Executive summary

• Mortgages under administration (MUA) reached a record CAD 148.2 billion, up 8% year-over-year, driven by growth in both single-family and commercial portfolios.

• Pre-Fair Market Value Income for Q2 was CAD 77.5 million, down 14% year-over-year, mainly due to lower residential originations and increased investment in direct securitization, deferring revenue to future periods.

• Commercial mortgage originations, including renewals, rose 35% year-over-year to CAD 5 billion, driven by demand for insured multifamily financing.

• Single-family originations declined 17% year-over-year to CAD 6.1 billion, reflecting competitive pressures and market normalization after a competitor re-entered the broker channel.

• Net income declined to CAD 54.1 million ($0.93 per share) from CAD 89.2 million ($1.47 per share) a year ago, reflecting lower placement fees and changes in the value of financial instruments.

Financial highlights

• Mortgage servicing income was flat year-over-year at CAD 70.1 million, with higher administration revenue offset by lower third-party underwriting revenues.

• Net interest income on securitized mortgages increased 4% to CAD 53.7 million, with 10% growth in the multi-unit residential portfolio and 8% in single-family programs.

• Investment income rose 18% year-over-year to CAD 35.7 million due to increased securitization activities.

• Placement fee revenue fell 32% year-over-year to CAD 45.3 million, reflecting a 14% reduction in placement activity and a shift toward renewals and commercial mortgages.

• Income before income taxes was CAD 73.5 million, down from CAD 121.5 million a year ago, mainly due to losses on financial instruments used for hedging.

Outlook and guidance

• Single-family funding is expected to be lower in Q3 than last year's CAD 8.3 billion, based on the current pipeline.

• Commercial mortgage origination volumes are expected to surpass last year's Q3 production of CAD 3.3 billion, supported by constructive CMHC programs and increased funding from the Canada Mortgage Bond Program.

• Management expects lower single-family origination to persist into Q3 2024 due to aggressive competition from banks and subdued demand.

• Commercial origination is anticipated to remain steady, supported by government programs for multi-unit housing.

• July saw new single-family commitments higher than the same month last year, offering cautious optimism for the second half.