Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First National Financial Corp (FNLIF, Financial) maintained its relative standing in the broker channel, ranking second in both funding and new commitment activity in the third quarter.
- The company issued new residential commitments that were 50% higher compared to the same period in 2023, indicating potential growth in Q4.
- First National surpassed $150 billion in mortgages under administration, marking a significant milestone.
- The Board approved a special dividend of $0.50 per common share, reflecting strong retained earnings.
- Mortgage under administration grew by 6% year-over-year, providing a solid foundation for future profitability.
Negative Points
- Pre-fair market value income of $75.3 million was 21% below the previous year, primarily due to lower residential origination.
- Single-family residential originations were down 20% year-over-year in Q3.
- Commercial mortgage originations were 18% lower than last year, affected by fewer renewal opportunities.
- Third quarter revenue was down 1% from last year due to changing interest rates impacting the residential commitment hedging program.
- Broker fee expense declined 35% due to a 38% decrease in single-family origination placed with institutional customers.
Q & A Highlights
Q: Can you elaborate on the impact of recent mortgage reforms on First National, particularly regarding longer amortization periods and higher caps on mortgage insurance?
A: Jason Ellis, President and CEO, explained that longer amortization periods will be marginally beneficial, while a higher cap on mortgage insurance is a net positive due to First National's activity in the insured mortgage broker channel. The company traditionally originates a higher percentage of high-ratio mortgages, leveraging mortgage default insurance and CMHC-sponsored securitization programs.
Q: With the competitive dynamics in the broker channel changing, is the growth in single-family commitments due to improving market conditions or easing competitive pressure?
A: Jason Ellis noted it's a combination of both. The significant increase in commitments is partly due to monetary policy and a slight easing in aggressive discounting by competitors. The year-over-year comparison is also affected by a major lender re-entering the market last year.
Q: How do you expect renewal metrics to trend in a 4% to 5% mortgage rate environment?
A: Jason Ellis stated that renewal and retention rates have remained consistent with long-term averages, with no significant stress observed among borrowers renewing at higher rates. The company anticipates stable retention levels moving forward.
Q: What impact do you expect from the no-stress test on mortgage switches?
A: Jason Ellis believes the policy change will not significantly affect market dynamics, as there has been little barrier to borrowers moving lenders at maturity due to increased household incomes and qualifying rates. The change is more about optics, allowing borrowers to access the entire market.
Q: How do you view the recent announcement of lower immigration targets on mortgage or housing sales activity?
A: Jason Ellis suggested that the impact would be more immediate on the rental market rather than housing sales. First National does not focus significantly on new-to-Canada products, so the policy shift is not expected to have a measurable effect on their results.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
