First National Financial Corporation

Q1 pre-fair market value income was $52.6 million, down 16% year over year or $10.1 million. Revenue increased 2% year over year, while MUA increased 7% year over year, or $10.3 billion, with annualized Q1 MUA growth of 4%. Securitization NIM compressed about 7 basis points year over year; mortgage servicing income was down about 3%; mortgage investment income increased 15%; salaries and benefits rose 7% or $3.9 million; interest expense rose 20% or $6.5 million; other operating expenses increased 7% or $1.4 million. The dividend payout ratio was about 98%, and the annualized dividend rate was $2.5 per share. Management expects year-over-year growth in single-family originations to continue into Q2, and said the commercial multi-unit market should remain resilient, though CMHC underwriting is becoming more cautious.

Jason Ellis said the quarter reflected strong growth in new and renewed mortgage production, with single-family volume benefiting from better broker engagement, competitive third-party investor pricing, and CMHC rule changes like the $1.5 million purchase cap and 30-year amortizations. He emphasized that First National is not easing pricing or credit standards to drive volume, and said the company is seeing a disconnect between media reports on housing and what it is experiencing in originations. On commercial, he described multi-unit residential as resilient but noted that CMHC’s more cautious stance could affect new originations, while the company’s large insured construction book provides a built-in pipeline into future term mortgages.

Rob Inglis highlighted that MUA rose 7% year over year to $10.3 billion and that revenue still grew 2% despite a 2% decline in net interest revenue earned on securitized mortgages. He attributed the roughly 7 bps of NIM compression to runoff of higher-margin pandemic-era mortgages, higher ABCP funding costs that had not yet reset, and lower net rate differential indemnities, while also noting that direct securitization volume remained large at about $3.2 billion. On expenses, he cited 7% headcount growth, a 20% increase in interest expense due to short-term funding for securitization balances, and elevated IT spending from re-platforming work; he also said the dividend payout ratio was about 98% and the annualized dividend rate was $2.5 per share.

Analysts focused on why First National’s single-family volumes outperformed a still-weak housing market, and management pointed to better engagement with third-party investors, more competitive rate offerings, and a larger average insured mortgage size tied to CMHC rule changes. Questions also centered on securitization NIM compression, where Jason Ellis said most of the pressure was non-recurring or temporary, including ABCP spread normalization and one-quarter net rate differential indemnities, while legacy higher-spread pools roll off slowly. On placement fees and servicing, management said the mix is shifting toward more renewals, which lowers broker fees but improves the net placement economics, and added that core servicing fees were up 7% even though third-party underwriting revenue was softer in Q1.