CEO credits the company's mortgage servicing and securitization strategy
First National Financial Corporation (First National), a financial services company that is the parent company of First National Financial LP, announced robust financial results for the first quarter ending March 31, 2024, demonstrating significant growth in revenue and profitability.
The company’s total mortgages under administration (MUA) reached a record $145.1 billion, reflecting a 9% increase from the previous year. According to a press release, this growth is primarily driven by an increase in both single-family and commercial mortgage portfolios. Revenue surged by 20% to $518 million, up from $432.1 million in Q1 2023, while net income rose to $49.9 million ($0.82 cents per share), compared to $35.7 million ($0.58 cents per share) a year ago.
Jason Ellis, president and CEO of First National, highlighted the company’s ability to leverage its business model into positive results for shareholders. He credited the company’s mortgage servicing and securitization strategy for the solid profitability, despite intense competition in the residential mortgage market.
“Residential originations, including renewals, were 20% below last year as two large lenders in the mortgage broker channel discounted rates as part of their market share strategies,” said Ellis.
“This decline was offset by a 39% increase in multi-unit originations including renewals largely on growth in insured mortgages. While the lower single-family volumes affected operational leverage, First National continued to benefit from historically slow prepayment speeds and the impact of higher interest rates on revenue.”
First quarter performance
Mortgage servicing income increased by 11% to $56.6 million, thanks to growth in MUA and higher interest earned on escrow deposits. Net interest – securitized mortgages (NIM) rose by 10% to $54.1 million, driven by an 8% increase in the portfolio of securitized mortgages and the reduced impact of short-term interest rate volatility.
Placement fees decreased by 12% to $45.2 million due to a shift in activity favouring the commercial segment, which generally attracts lower fees than the residential segment.
Income before income taxes climbed by 40% to $67.9 million, largely driven by changing capital market conditions and gains on financial instruments used to hedge residential mortgage commitments. Pre-FMV Income increased by 5% to $62.7 million from $59.7 million, reflecting First National’s consistent growth in MUA.
Outlook for 2024
The company anticipates continued strong demand in the commercial segment, bolstered by government initiatives supporting multi-unit housing. However, the lower single-family origination may persist into the second quarter due to competition from larger competitors offering low mortgage rates and elevated broker incentives.
First National plans to capitalize on its diverse funding sources and long-standing relationships with mortgage brokers to maintain its leadership in the market. The company’s management is confident that its focus on service and technology will enable it to navigate the challenging mortgage landscape and continue to generate strong cash flow from its substantial securitized mortgage portfolio.
Further details can be found in the company’s Management Information Circular filed on SEDAR.
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