First National Financial (FN) Q3 2024 earnings summary

Executive summary

• Mortgages under administration reached a record CAD 150.6 billion, up 6% year-over-year, despite a 19% decline in total mortgage originations and renewals.

• Pre-fair market value income for Q3 was CAD 75.3 million, down 21% year-over-year, mainly due to lower residential origination, increased direct securitization, and higher operating costs.

• Net income dropped 56% year-over-year to CAD 36.4 million ($0.59/share), with revenue down 1% to CAD 560.4 million.

• Single-family and commercial originations declined 20% and 17% year-over-year, respectively, due to increased competition and timing of multi-unit funding.

• The Board increased the regular dividend to an annualized CAD 2.50 per share and declared a special CAD 0.50 per share dividend, citing excess capital.

Financial highlights

• Q3 revenue decreased 1% year-over-year to CAD 560.4 million; net income fell to CAD 36.4 million; EPS was CAD 0.59.

• Pre-fair market value income dropped 21% to CAD 75.3 million.

• Net interest income on securitized mortgages rose 4% to CAD 60.2 million, driven by a 14% increase in the securitized portfolio.

• Placement fee revenue fell 25% to CAD 57.1 million, reflecting a 29% reduction in placement activity.

• Dividend payout ratio was 104% (after-tax pre-fair market value income); 68% excluding gains/losses on financial instruments.

Outlook and guidance

• Management expects increased single-family origination in the next two quarters, supported by a 50% rise in Q3 mortgage commitments and recent Bank of Canada rate cuts.

• Commercial origination volumes are anticipated to remain steady, aided by government incentives and expanded Canada Mortgage Bonds program.

• Lower interest rates and a growing commitment pipeline are expected to drive higher originations in Q4 and a strong start to 2025.

• Net interest margin is expected to remain stable, with minor headwinds from indemnity penalties and some offset from wider margins on securitized pools.