Nonbank lender reports lower net income but remains confident in long-term outlook
First National Financial Corporation, one of Canada's largest non-bank mortgage originators, has released its financial results for the second quarter of 2024, revealing a mixed performance amid a slowdown in single-family mortgages and tighter spreads.
The company reported an 8% increase in Mortgages Under Administration (MUA) to a record $148.2 billion, up from $137.8 billion in the same period last year. Revenue saw a modest 2% growth to $538.4 million. However, net income decreased to $54.1 million ($0.93 per share) from $89.2 million ($1.47 per share) in Q2 2023.
The company also reported a decline in revenue from placement fees due to a shift towards renewed mortgages and commercial segment mortgages, which carry lower fees.
First National chief Jason Ellis commented on the results: "Second quarter performance was consistent with our expectations. With the benefit of diversification and disciplined execution of our longstanding strategies, First National achieved solid profitability in the face of elevated competition among bank lenders in the mortgage broker channel, slightly muted demand for single-family mortgages in markets across Canada and tighter spreads."
Key highlights from First National’s Q2 2024 financial report include:
- Single-family mortgage origination (including renewals) decreased by 17% to $6.1 billion, down from $7.4 billion in Q2 2023.
- Commercial segment origination (including renewals) increased by 35% to $5.0 billion, up from $3.7 billion a year ago.
- Income before income taxes was $73.5 million, compared to $121.5 million in the previous year.
- Pre-FMV Income decreased by 14% to $77.5 million from $89.9 million in Q2 2023.
First National anticipates continued pressure in the single-family mortgage market due to intense competition and relatively low mortgage rates offered by bank lenders.
“In the short term, the company expects lower single-family origination to continue into the third quarter of 2024 as bank competitors continue to build market share with offers of relatively low mortgage rates along with elevated broker incentives,” it wrote in the report. “Although the company does not see weakness in the housing market, the acceleration of activity anticipated from Bank of Canada rate cuts has yet to materialize, leaving some prospective buyers on the sidelines.”
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For its commercial segment, the lender expects steady origination volumes, supported by government initiatives and a stable source of funds for CMHC-insured multi-unit mortgages.
“These initiatives, including the increase of the CMB program from $40 to $60 billion, have not only increased the amount of financing available for multi-unit mortgages but have also removed uncertainties about such programs in the future,” First National said. “These developments have created a reliable and stable source of funds for the company to originate CMHC insured multi-unit mortgages.
“However, given the increased certainty of these programs, other lenders have become more aggressive and mortgage spreads are narrowing from the levels originated in 2023 and those to start 2024 as the Company competes for qualifying mortgages.”
Ellis added that the company continued to build its MUA and portfolio of mortgages pledged under securitization, which they expect to generate income and cash flow and create the opportunity to capture higher mortgage renewal volumes.
“First National is well prepared to execute its business plan,” First Financial explained. “The company is confident that its strong relationships with mortgage brokers and diverse funding sources will continue to set First National apart from its competition.”
First National Financial was awarded as the Best Mortgage Lenders in Canada. Read the full winners here.
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