Second Quarter Summary
Mortgages Under Administration ("MUA") increased 8% to a record$137.8 billion compared to$127.3 billion atJune 30, 2022 - Revenue increased 26% to
$525.9 million from$416.8 million a year ago - Pre-FMV Income(1) increased 61% to
$89.9 million from$55.9 million a year ago - Net income was
$89.2 million ($1.47 cents per share) compared to$61.3 million ($1.01 per share) a year ago
Management Commentary
"Second-quarter results exceeded our expectations which continue to be tempered by the ongoing impact of higher interest rates on real estate activity across
1 This non-IFRS measure adjusts income before income taxes by eliminating the impact of changes in fair value by adding back losses on the valuation of financial instruments (except those on mortgage investments) and deducting gains on the valuation of financial instruments. See Non-GAAP measures. |
Second Quarter Review
Quarter Ended | Six months ended | |||
2023 | 2022 |
| 2022 | |
For the Period | ($000s) | |||
Revenue | 525,897 | 416,774 | 957,983 | 767,095 |
Income before income taxes | 121,544 | 83,081 | 170,182 | 156,168 |
Pre-FMV Income (1) | 89,854 | 55,864 | 149,602 | 101,051 |
At Period End | ||||
Total assets | 46,417,841 | 42,927,449 | 46,417,841 | 42,927,449 |
Mortgages under administration | 137,846,825 | 127,334,843 | 137,846,825 | 127,334,843 |
1This non-IFRS measure adjusts income before income taxes by eliminating the impact of changes in fair value by adding back losses on the valuation of financial instruments (except those on mortgage investments) and deducting gains on the valuation of financial instruments. |
First National's MUA increased 8% to
Single-family mortgage origination (including renewals) was
Commercial segment originations (including renewals) were
Second quarter revenue increased 26% to
$66.5 million of placement fees, 32% below fees of$98.4 million a year ago primarily due to a 39% decrease in new residential origination volumes sold to institutional investors reflecting a reduction in opportunities and as borrowers opted for shorter renewal terms (per-unit fees were generally unchanged)$70.0 million of mortgage servicing income, 13% above income of$61.8 million a year ago primarily due to growth in MUA augmented by higher interest earned on escrow deposits$51.5 million of net interest revenue earned on securitized mortgages (NIM) compared to$40.4 million a year ago, a 27% increase on portfolio growth, slower rates of mortgage repayment and the success of the Company's Excalibur securitization programs$30.3 million of mortgage investment income compared to$21.5 million a year ago, a 41% increase due primarily to the higher interest rate environment which resulted in more interest income earned on First National's mortgage and loan investment portfolio and mortgages accumulated for securitization$6.6 million of gains on deferred placement fees compared to$2.6 million a year ago, a 154% increase reflecting growth in multi-unit residential mortgages originated and sold to institutional investors
Second quarter income before income taxes was
Earnings before income taxes and gains and losses on financial instruments ("Pre-FMV Income1"), which excludes the impact of these changes, increased 61% to
At
Dividends
Common share dividends paid or declared in the second quarter amounted to
First National paid
First National, for the purposes of the Income Tax Act (
Outlook
The second quarter of 2023 featured a competitive marketplace and reduced origination activity compared to the same quarter last year. This was largely the result of the
In the short term, the expectation for the third quarter of 2023 is for lower single-family origination than in the 2022 comparative quarter as higher mortgage rates continue to dampen activity across the country. Although indicators have shown decreasing rates of inflation, the BoC has yet to announce the end of its rate hiking cycle. This uncertainty may affect prospective buyers such that the second half of the year may show reduced buying activity than originally expected by the Company. Accordingly, the Company foresees solid third-quarter origination volumes based on commitments made to borrowers in the second quarter but a slowdown in the fourth quarter. Higher immigration levels are expected to support the housing market. Management is confident that First National will remain a competitive leader in the marketplace. Management anticipates commercial origination will also slow as the market digests changing property valuations given the new underlying financial environment. However, the Company remains a leader in insured origination for both existing multi-unit buildings and construction projects.
First National is well prepared to execute its business plan. The Company expects to enjoy the value of its continued goodwill with broker partners earned over the last 35+ years and reinforced during the pandemic. With diverse relationships over an array of institutional investors and solid securitization markets, the Company has access to consistent and reliable sources of funding.
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. The Company will continue to generate income and cash flow from its
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A taped rebroadcast of the conference call will be available until
Complete consolidated financial statements for the Company as well as management's discussion and analysis are available at www.sedar.com and at www.firstnational.ca.
About
1 Non-GAAP Measures
The Company uses IFRS as its accounting framework. IFRS are generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises for years beginning on or after
Forward-Looking Information
Certain information included in this news release may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will, "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding the future financial position, business strategy and strategic goals, product development activities, projected costs and capital expenditures, financial results, risk management strategies, hedging activities, geographic expansion, licensing plans, taxes and other plans and objectives of or involving the Company. Particularly, information regarding growth objectives, any future increase in mortgages under administration, future use of securitization vehicles, industry trends and future revenues is forward-looking information. Forward-looking information is based on certain factors and assumptions regarding, among other things, interest rate changes and responses to such changes, the demand for institutionally placed and securitized mortgages, the status of the applicable regulatory regime and the use of mortgage brokers for single family residential mortgages. This forward-looking information should not be read as providing guarantees of future performance or results, and will not necessarily be an accurate indication of whether or not, or the times by which, those results will be achieved. While management considers these assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward looking-information is subject to certain factors, including risks and uncertainties listed under ''Risks and Uncertainties Affecting the Business'' in the MD&A, that could cause actual results to differ materially from what management currently expects. These factors include reliance on sources of funding, concentration of institutional investors, reliance on relationships with independent mortgage brokers and changes in the interest rate environment. This forward-looking information is as of the date of this release, and is subject to change after such date. However, management and First National disclaim any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
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