Earnings call transcript: First National Financial Corp Q1 2025 misses EPS forecast

First National Financial Corp (FN) reported its first-quarter 2025 earnings, revealing a miss on both earnings per share (EPS) and revenue compared to forecasts. The company’s EPS came in at $0.7009, falling short of the expected $0.8049. Revenue was reported at $528.86 million, significantly above the forecast of $192.29 million, suggesting data discrepancies. Following the announcement, FN’s stock dropped by 7.41%, closing at $37.61, moving closer to its 52-week low. According to InvestingPro data, the company maintains a GREAT financial health score of 3.71 out of 5, with particularly strong profitability metrics.

Key Takeaways

• EPS missed forecast by approximately 12.9%.
• Revenue increased 2% year-over-year but faced data discrepancies in forecasts.
• Stock price fell by 7.41% after earnings announcement.
• Single family fundings rose 34% year-over-year.
• Net interest margin compressed by 7 basis points.

Company Performance

First National Financial Corp experienced a challenging first quarter in 2025. While revenue grew by 2% year-over-year, net interest revenue declined by 2%, and the net interest margin compressed by 7 basis points. Despite these challenges, the company saw a notable increase in single family fundings and commercial multiunit residential originations, which rose by 34% and 18% respectively.

Financial Highlights

• Revenue: $528.86 million, up 2% year-over-year.
• Earnings per share: $0.7009, down from the forecasted $0.8049.
• Net interest revenue: Declined by 2%.
• Net interest margin: Compressed by 7 basis points.
• Dividend payout ratio: 98% of after-tax pre-fair market value income.

Earnings vs. Forecast

First National Financial Corp’s actual EPS of $0.7009 was below the forecast of $0.8049, representing a miss of approximately 12.9%. This underperformance is significant compared to previous quarters and indicates potential operational or market challenges.

Market Reaction

The market reacted negatively to the earnings report, with FN’s stock price declining by 7.41% to $37.61. This sharp drop suggests investor concerns about the company’s ability to meet expectations and improve its financial metrics. The stock’s movement towards its 52-week low further underscores these concerns.

Outlook & Guidance

Looking forward, First National Financial Corp expects year-over-year growth in Q2 originations and anticipates continued growth in mortgage servicing revenue. The company also foresees potential net interest margin improvement in the coming quarters and plans to maintain ongoing dividend payments at $2.50 per share annually.

Executive Commentary

CEO Jason Ellis highlighted the company’s growth in new and renewed mortgage production, stating, "The quarter featured strong growth in new and renewed mortgage production in line with our expectations." He also expressed optimism for Q2, noting, "We expect to see year-over-year growth in originations continue into Q2."

Risks and Challenges

• Continued compression of net interest margins could impact profitability.
• Decline in net interest revenue poses a challenge to revenue growth.
• Mortgage servicing income decrease may affect overall financial performance.
• Cross-border tariffs could impact the housing market forecast.
• Economic uncertainties and changes in interest rates could affect future performance.

Q&A

During the earnings call, analysts inquired about the factors contributing to net interest margin compression and the outlook for multiunit residential lending. The company clarified its placement fee dynamics and addressed variations in servicing income, providing insights into its strategic focus and market positioning.

Full transcript - First National Financial Corp (FN) Q1 2025:

Conference Operator: Good morning, and welcome to First National’s First Quarter Earnings Call. This call is being recorded on Wednesday, 04/30/2025. At this time, all callers are in listen only mode. Later, will conduct a question and answer session. Instructions will be provided at that time on how to queue up.

Now it is my pleasure to turn the call over to Jason Ellis, President and Chief Executive Officer of First National.

Rob Engels, Chief Financial Officer, First National Financial Corporation: Please go ahead, sir.

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Thank you, and good morning. Welcome to our call, and thank you for participating. Rob Engels, our Chief Financial Officer, joins me and will provide his commentary shortly. Also with us today is Jeremy Wedgebury, our Executive Vice President of Commercial Mortgages, who will be on hand during the Q and A portion of the call. I remind you that our remarks and answers may contain forward looking information about future events or the company’s future performance.

This information is subject to risks and uncertainties and should be considered in conjunction with the risk factors detailed in our management’s discussion and analysis. Pre fair market value income was $52,600,000 or 16% below last year’s first quarter, despite substantial growth in our long term drivers of profitability, originations and MUA. Consistent with our forecast and indicative of a strong commitment pipeline heading into 2025, total single family fundings increased 34% on a year over year basis. In our commercial business, our focus and expertise in the insured multiunit residential housing market drove first quarter originations up 18%, reflecting both new funding growth as well as renewals. Activity in both markets was supported by seven Bank of Canada rate reductions between June of last year and March of this year, as well as a variety of government incentives.

These include the recent purchase price cap increase and the reintroduction of a thirty year amortization for qualifying insured residential mortgages. Both changes are proving to be popular, particularly in high cost cities like Toronto and Vancouver. Similarly, multi unit property developers and owners continue to take advantage of CMHC’s affordable loan programs alongside time bound GST rebates for construction. Moving to our outlook, we’ve recently seen a downgrade in the housing market forecast from Korea, a result of uncertainty caused by the imposition of cross border tariffs and heightened risk of recession and job loss. While this backdrop can’t be ignored, First National’s near term reality is different.

Based on single family mortgage commitments issued and outstanding at the end of the first quarter, up significantly from last year, we expect to see year over year growth in originations continue into Q2. To be clear, we have not made any adjustments in our approach to pricing or credit quality to generate higher commitment levels. We are simply continuing to focus on providing good products and responsive service to our broker partners and borrowers. In terms of credit performance, the arrears profile in our prime mortgage portfolio is relatively unchanged and remains below levels observed prior to the pandemic. Alt A arrears, however, remain elevated relative to the prime portfolio and are higher than the same time last year, but have fallen month over month in each of February and March.

Alt A mortgages are characterized by shorter terms, and as a result, borrowers renewed more quickly into the higher rate environment of 2022 and 2023 without the benefit of five years of household income and home equity growth enjoyed by the typical prime borrower. Virtually all of the Alt A mortgages originated during the period of lowest mortgage rates between 2020 and 2022 have already renewed and have been servicing their mortgages at higher rates for several quarters now and are looking ahead to their next renewal, which will come at lower rates. For commercial mortgages, we expect multi unit residential to be a resilient market, given the need for rental apartments, particularly affordable units. For context, however, originations and renewals amounted to a record $5,000,000,000 in Q2 last year, which sets a high bar for comparison. Also factoring into our outlook is the fact that CMHC has also taken a more cautious view to underwriting.

And so while there is still good fundamental support for the market, the environment for new CMHC originations is evolving. To summarize, the quarter featured strong growth in new and renewed mortgage production in line with our expectations. And with that growth, First National added to its foundation of recurring revenue that will benefit shareholders in future periods. Now over to you, Rob.

Rob Engels, Chief Financial Officer, First National Financial Corporation: Thanks, Jason, and good morning, everyone. Starting at the top line, MUA increased 7% year over year or by $10,300,000,000 a very positive outcome considering the broader market dynamics and in the first quarter housing market seasonality. Annualized MUA growth in the first quarter itself was a healthy 4%. While higher production and strong retention are the ingredients that drive MUA, It’s worth noting that new originations do not immediately contribute to earnings, which is one reason why measures of profitability did not rise with higher volumes. I’ll discuss the other factors beginning with revenue.

Revenue increased 2% year over year despite a 2% decline in net interest revenue earned on securitized mortgages. This reflected a NIM compression of about seven basis points year over year as high margin pandemic era mortgages amortized down and asset backed mortgage paper funding costs did not immediately fall with the overnight rate cuts. As a reminder, these bank sponsored conduits generally sell longer term paper in a declining rate market, such that our cost of funds is temporarily higher. This has been accentuated with the recent Bank of Canada rate cuts. Origination for direct securitization into NHMBS, CMB and ABCP programs remained a large part of our strategy with about $3,200,000,000 of volume in the first quarter.

Funding with securitization rather than placing mortgages with investors has the effect of deferring related revenue to future periods. As a result of lower third party underwriting revenues and lower interest earned on escrow deposits in a declining interest rate environment, mortgage servicing income was lower by about 3% from the last year. Gains in deferred placement fees were also lower as volumes related primarily to multiunit residential mortgages originated and sold to institutional investors for this program decreased by 6%. Associated margins were also much tighter in 2025 compared to 2024. On the plus side, placement fees were up 2% on a 20% increase in placement activity.

The delta reflected a shift in mix favoring renewed mortgages where per unit placement fees are lower than a new residential origination. As a reminder, on renewal with an investor client, we earn an additional placement fee and continue to earn servicing revenue over the term of the renewed mortgage. Even though the renewal fees paid by investors are lower than the initial fee, without a broker fee to net against it, it is still accretive to First National’s earnings. Mortgage investment income increased 15%, primarily reflecting a larger balance of mortgages accumulated for securitization, even though rates were lower year over year due to the interest rate environment. This increase was somewhat offset by a reduction in our commercial bridge loan program as we placed more of this product with institutional customers.

This decision reduced the mortgage loan investment portfolio for commercial by about $50,000,000 Turning to expenses now. Year over year headcount growth of 7% was the primary reason for a 7% or $3,900,000 increase in salaries and benefits expense. Some of this is related to staffing in our third party underwriting business in advance of anticipated volumes, which acted as a drag on operating leverage in the quarter. Brokerage fee expense declined by 12% or $2,400,000 compared to last year, despite an increase in new volumes placed with institutional investors. On a per unit basis, fees are about 9% lower, a function of prevailing market conditions in 2024 when higher incentives were required to match some of our competitors.

Interest expense increased 20% or 6,500,000.0 because of higher use of short term funding sources to fund the larger balances of mortgages accumulated for securitization. Interest expense also includes the cost of carry for the company’s economic hedging program. Other operating expenses increased by 7% or $1,400,000 This relates to significant technology replatform activities discussed on our previous calls. We expect IT expenses to remain elevated in the next few quarters as we upgrade our systems and migrate to the cloud from on-site servers. We do expect to generate efficiency advantages from this higher spending in future years.

Turning now to profitability, as Jason said, Q1 prefore market value income was 16% or $10,100,000 lower than last year. The decline was due to lower revenues in various segments of the business against the backdrop of higher costs of operating the business. Lower revenues were recorded in mortgage servicing, particularly third party underwriting, and residential securitization income with some NIM compression. The higher costs include about $1,400,000 of other operating costs, largely IT related, and growing headcount in place to fund the larger residential segment volumes expected in Q2 and Q3. Looking at the bottom line for shareholders, ongoing profitability supported ongoing dividend payments and annualized rate of $2.5 per share.

As is often the case in the first quarter, our dividend payout ratio against after tax pre fair market value income was elevated, this time at about 98%. To sum up, the first quarter unfolded as we expected with strong funding volumes, which allowed us to add to our portfolio of mortgages pledged under securitization and our servicing portfolio. This will benefit First National and our shareholders in the form of income and cash flow in future years. Based on our single family commitment pipeline at the end of the quarter, we can also look forward to year over year growth and originations in the second quarter. Now, we’ll be pleased to answer your questions.

Operator, please open the lines. Thank you.

Conference Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on

Conference Operator: your telephone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. Your first question comes from the line of Etienne Richards from BMO Capital Markets. Your line is now open.

Etienne Richards, Analyst, BMO Capital Markets: Hey. Thank you and good morning. It’s interesting to see the origination numbers in single family, part of which seems driven by better renewal volumes. Yet when we look at resale activity in large urban markets, it has not meaningfully picked up this year. So why is First National seeing higher volumes and is still relatively slow housing market?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: It’s a good question. I think that there are two factors leading to our perhaps relative outperformance of the broader market. One is a higher level of engagement with some of our third party investors who have empowered us with compelling rate offerings, which has made us perhaps relatively more competitive in the conventional origination space than we were relative to the previous year. And as a business that perhaps has a disproportionate share of the new purchase and specifically high ratio business, We benefited perhaps disproportionately from the changes in CMHC’s rules around the $1,500,000 purchase price cap and the reintroduction of thirty year amortizations for first time homebuyers. So part of the growth in year over year originations in dollar terms is a larger average insured mortgage size.

Mortgage units are up year over year as well, however, much of the single family increase is a function of higher average mortgage size. And for what it’s worth, when I speak to the mortgage default insurance providers, Their experience has also been very constructive this quarter relative to the same quarter last year. So I think that there is something of a disconnect between what we see the media reporting in terms of housing activity and what we’re actually seeing on the ground from an originations perspective.

Etienne Richards, Analyst, BMO Capital Markets: Okay, interesting. On servicing income, you raised in the financials that the third party underwriting volumes were down in the quarter. So maybe to tie it back to your comments, Jason, how do you reconcile this with the increase in single family volumes that we’re seeing at First National? Is it driven by the same drivers that you just mentioned?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Well, can speak to First National’s performance, and again, I think that we may have outperformed the market marginally just with our focus on high ratio insured mortgages and the increase in the average size of those. Our third party underwriting clients are Schedule one banks who have I think a more particular strength on the conventional side, so I don’t think they’ve seen the same growth in average mortgage size, so that tailwind I don’t think was in play as much for them as it was for us. I would say that as we look ahead on our third party underwriting platform, it has a lot of operational leverage and the first quarter is traditionally from a seasonal perspective fairly small. So, in combination of seasonality and what we’ve seen recently in their own origination activity as a lot of, I would say, good traction. Their pipeline heading into second quarter is relatively strong compared to the first, so we’re actually looking forward to seeing that third party underwriting revenue line restore itself as we move into the second and third quarter.

Etienne Richards, Analyst, BMO Capital Markets: Okay, great. Thank you very much.

Conference Operator: Your next question comes from the line of Graham Ryding from TD Securities. Please go ahead.

Graham Ryding, Analyst, TD Securities: Hi, good morning. Just on the I guess, Rob, this question for you, just on the securitization NIM in the quarter, it sounds like there was a few pieces that weighed on it was a pretty material drop sort of quarter over quarter year over year. Can you just elaborate on what you think is going to be a recurring theme in terms of NIM compression and what was maybe not expected to recur? It sounds like maybe the mortgage prepayment charges and the asset backed commercial paper funding cost that may alleviate, but the first component may be an ongoing sort of headwind. Is that the right way to think about it?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Hey, it’s Jason Graham, I’ll take that one. So, would say there were three specific components that contributed to the compression that we saw in the first quarter. ’1 was, as Rob mentioned and you highlight, some of the pools that were originated in the beginning of twenty twenty were originated at wider average gross margins than were typical of say the entire portfolio, and those are beginning to run off. So we may see that as a theme, though you’ve got to remember that the maturities during any given quarter are relatively small in comparison to the $45,000,000,000 portfolio at large. So NIM will change relatively slowly as a function of that.

I took the opportunity to do a bit of a roll forward of the NHA MBS portfolio for several quarters. Absent any new originations, the average NIM on the single family MBS portfolio only ticks along a couple of basis points over the next few quarters. So, I don’t think that’s going to be a major story. I think more significant is the transient impact of the compression in the ABCP program. I’d say year over year, I think NIM or net interest income, I should say, was about a million dollars compared to a million dollars lower compared to the same quarter last year.

The ABCP cost of funds compression probably was at least $3,000,000 in the quarter, and this is not going to be recurring. As the old ABCB paper reaches maturity and is replaced with new, we will see the margins in that conduit restore themselves, so I don’t think that that’s going to be a recurring issue. And the other, I think, idiosyncratic event during the quarter was the net rate differential indemnities that we did pay on the nine seventy five type single family pools was negative in the quarter for the first time in a number of quarters. And I don’t think that is actually going to be a persistent phenomenon. I think that probably reverses itself again in the second quarter based on where we see rates now.

So, I think generally speaking, NIM should not be a concern going forward the way it was in the first quarter. Sorry, that was a lot. Did that answer the question?

Graham Ryding, Analyst, TD Securities: That did help. Maybe I could just follow on. So my math suggests you had 48 bps in NIM for your securitized portfolio this quarter, which is down from 52 quarter over quarter and 54 year over year. So, what would you sort of roughly guide to for 2025? Is 48 the run rate or it sounds like is there a couple of pieces that could maybe bring that 48 up a little bit higher?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Yeah, I would say, obviously I can’t predict the future, but I do believe there is a chance to repatriate a couple of basis points largely on the normalization of the spreads in our ABCP conduits, and I would say normalization of those net indemnity payments on the single family MBS pools. So, I think there’s a couple of beeps that we could catch up on.

Graham Ryding, Analyst, TD Securities: Okay. That makes

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: lot of sense. And then the only contrary to that would be, again, over the next couple of quarters, we do have some legacy pools rolling off that had sort of early pandemic era wider spreads. So, we’ll see how well we can replace those with new issues.

Graham Ryding, Analyst, TD Securities: Right. Okay. And then my next question would be on the placement fee side. I realized that there was a mix impact this quarter, you had higher sort of, volumes of renewals relative to sort of new residential volumes. But when you look at sort of your per unit fees on those renewals and your per unit fees on your new originations, were those lower year over year?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: I think what you guys don’t get the benefit of is, I guess, some of the separation of placement fees and the like. I think there’s a really good outcome this quarter that gets lost in the mix, and it kind of goes to your question. When I look at our single family residential placement fees relative to our broker, residential broker fees in the quarter, that net, the net of our residential placement, net of the residential broker fees, actually expanded by 30% in the quarter versus the same quarter last year, or was about a couple of million dollars wider, and that’s a function of a couple of things. One, our per unit broker fee on new originations was lower in the quarter compared to the same quarter last year, and that was specifically attributable to the fact that we were not paying as much bonus compensation to mortgage brokers for high ratio insured mortgages. And it’s a function of the fact that on the placement side, a slightly higher percentage of the mortgages placed relative to the same quarter last year were renewed mortgages, where the placement fee, the per unit placement fee is in fact lower, but the broker fee is zero.

So, a combination of things. Better year over year per unit broker costs and a slightly higher percentage of the residential mortgages placed were renewed mortgages. So, the per unit placement was lower, but the net between those two things was wider and structurally that’s the thing that we’re going to enjoy going forward for the rest of the year.

Graham Ryding, Analyst, TD Securities: Okay, that’s great. If I could sneak in one more, just I feel like I’m getting a little bit of a mixed message from you on the multiunit side. So on the one hand, the CMHC has increased funding from 40,000,000,000 to 60,000,000,000, but then on the other hand, they sound like they’re tightening up their underwriting a little bit. So pulling those two pieces together, what is your outlook for sort of steady volumes at this level or does one outweigh the other?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Yeah, I’ll turn it over to Jeremy to answer that one, but just before I do that, do want to highlight the fact that, again, as we deconstruct placement fees and deferred placement fees, In the first quarter, a couple of large ten year deals that were slated to be part of our ten year securitization in Q1 did move into the second quarter. So, I think a little bit of again, an anomaly there in terms of period over period deferred placement fees. But as far as CMHC’s stance on credit, I’ll turn it over to Jeremy.

Jeremy Wedgebury, Executive Vice President of Commercial Mortgages, First National Financial Corporation: Yeah, thank you. Good morning. In November of last year, CMHC made some changes to their program. They’d had a very strong performance, I guess you could say over the last couple of years with their select product that they created to add to supply in Canada, they pulled back. They went essentially more risk off, I would say.

And so that is likely the comment that you kind of heard us talk about and talk about with our customers. It’s had more of an impact on the construction side of the business where they’ve limited some of their loan to cost, and they’ve added a few other sort of guardrails to it, like the bonding of sub trades. So we would say that certainly on the term side, we don’t really see CMHC’s changes as having too much impact on our term business and our outlook for 2025. We do think it will have an impact on our construction book, which has been really strong, but we think that there was still continue to be an appetite. There is still a lot of supply that is being considered in Canada, and we’re going to have to just work really hard to make sure we’re in front of the right borrowers that will continue to go forward.

So as much as yes, has gone a little bit risk off, we don’t think it’s gonna have a huge impact on us.

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Probably worth also just tying into the tail end of that, the fact that we have such a large CMHC insured construction book that even if new term transactions were to moderate, we have a natural pipeline of construction deals that as they come online will transition into new term mortgages for sale into the CMB. So, a nice built in pipeline there.

Graham Ryding, Analyst, TD Securities: What would your mix be between construction lending and term multi?

Jeremy Wedgebury, Executive Vice President of Commercial Mortgages, First National Financial Corporation: So in the quarter, we did $2,700,000,000 of new business and new business, the construction component of it would represent advances in the quarter of about a half a billion dollars. So that’s, you know, we’re on average, I think we’re putting out new advances in the range of $2,000,000,000 but overall, so obviously more business going towards the term. I think that I would say term would typically be about 75% overall versus the construction side of it. That would be the way I think about our advances, but I don’t always sort of put it in that in those terms.

Graham Ryding, Analyst, TD Securities: That is helpful. Thank you. That’s it for me.

Conference Operator: Please go ahead.

James, Analyst: Yes, thanks. Good morning. Just wanted to follow-up on the net placement fee discussion and it’s something, yeah, I like to track and just sort of benchmark the performance because it’s obviously difficult to guess the mix of funding. What I’ve noticed is that Q1 tends to have a higher net placement fee margin if I’m taking the revenue versus the expense. Is that something that you would expect to be consistent this year since we’re digging into those details a little bit more?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Sorry, I’m not aware of a sort of a correlation between the quarter and net placement fees. If there is, I think it’s coincidental. Definitely be a mix of renewal versus new, I guess. The new is typically, I

Rob Engels, Chief Financial Officer, First National Financial Corporation: guess, lower in Q1.

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Yeah, but if originations are lower, kind of follows, renewals should be, you know. Yeah, I’m not so what is it you’re seeing in particular or over how many Q1s have you seen this, James?

James, Analyst: Let’s say going back to ’21 at least.

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: If there’s anything that jumps to mind, Rob, have you in Q1, do you ever perhaps do we benefit from the over allocation or accretion of any kind of expected broker expenses that you then release back in Q1 if they didn’t materialize, like annual volume bonuses that we may have accrued for that maybe we didn’t pay out? Do those? Yeah, typically we like to over accrue,

Rob Engels, Chief Financial Officer, First National Financial Corporation: I guess, or be conservative in the year. And then Q1 we take back any positives where volume bonuses aren’t as high as we budgeted in the previous year. So there’s a little bit of that, but I mean, it’s not like a big, big number, I don’t think, we know we know what we’re doing.

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Yeah, I would say though, if there were to be a theme as we roll through the rest of this year and the cohort of 2020 originations, especially as we move into the second part of the second quarter and beyond, that cohort of originations was so strong in 2020 that all else being equal, the mix of mortgages being placed with our institutional investors will be relative to history, perhaps a higher concentration of renewed mortgages, which means there won’t be broker fees. So that net of placement against broker fees should have a fairly strong trend to it as we move through the year because of that change of mix.

James, Analyst: Yeah, I agree with that point and yeah, it’s a fair assumption. We’ll see how it plays out.

Rob Engels, Chief Financial Officer, First National Financial Corporation: Maybe I’ll take a little bit

James, Analyst: of that offline then and just sort of like dig in a little bit to make sure we’re on the same page. The other question I just wanted to clarify as well was just going back to the securitization discussion around the mix shift. So the twenty twenty mortgages coming off and then some narrower spread mortgages from, let’s say, like, 02/23 where rates are moving higher. That’s your your commentary was that’s gonna be a couple of beeps of drag on the on the NIM. Is that like for the year or for sort of each quarter going forward for the next few?

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: I look into this. So what I did was I took all the outstanding $9.75 type NHA MBS, and I looked at the gross margins at origination for each of our pools standing, so the weighted average mortgage coupon less the MBS coupon, and I just rolled that whole portfolio forward. And what I found was that the sort of average gross margin is around 100 basis points, and it didn’t move significantly over the next couple of quarters. And again, I think it’s just because it’s a part of a much larger portfolio. Now, of course, a big question is what kind of gross margin will we be replacing those maturing pools with in the coming quarters?

I noticed that you used some colorful language, Jaeme, in your quick take to describe our mortgage spreads as off the leash this quarter. I think that you were probably referring to What’s that? Don’t know if that’s my language. Oh, okay. Well, least it was in the National Bank Quicktake.

But anyway, I think it might have been referring to the table that Rob produces in the MD and A, which simply captures on the last day of the quarter, the insured mortgage coupon versus the prevailing five year government of Canada bond. And certainly that was lower when it was measured than it was at the same time in the last quarter. But for what it’s worth, over the entire quarter, the day to day to day average mortgage coupon versus the prevailing exit strategy of a fully priced NHA MBS yield was actually right on target. So the last five years, that spread of insured mortgage coupon to MBS yield has been 98 basis points, and in Q1 all of our insured mortgage originations day over day over day compared to the daily MBS yields was 97 basis points. So I don’t think the new origination spreads are quite as dire as they were perhaps thought to be.

James, Analyst: Understood on that point. Guess there’s still also a factor from the hedging and when the mortgages are actually placed, so is that still

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: a factor or That is absolutely right. Yeah, so it makes it difficult to know with great precision because there’s the accretion of new issue discounts on the MBS pool price when they were issued, there’s the outstanding gains and losses that have been amortizing, There’s the idea that yes, there were hedging losses incurred at the time of origination five years ago that were encouraged during the commitment period that were expensed at the time and did not form part of the capitalized amounts being amortized into NIM. So it is difficult to predict with perfect precision what’s going to happen as those old pools run off, but from what I can see with full transparency and clarity in terms of that gross margin, I’m not expecting anything significant.

James, Analyst: Okay. I’ll leave it there. Thanks, guys. Appreciate it.

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: Take an opportunity maybe just to address I’m just going to address one other thing, and, James, I’m not dumping it on you, but you did comment on how servicing missed big in the quarter. I would say this about servicing, because again, I don’t think you guys get the benefit of the details in our reporting, but when I think about our servicing, not just residential but commercial, there’s really two parts to it, three parts. There’s core servicing, which is core business activities, the fees we receive from both the borrowers and from our investors who purchase mortgages from us, and those core servicing activities were up 7% in the quarter compared to the same quarter last year. As Rob mentioned, we do include our third party underwriting fees as part of that servicing line. Those were the most significant piece of the year over year change, combined with the fact that prevailing interest rates are so much lower that the passive float interest we earn on those collections in the servicing book were lower as well.

So, I mean, again, that will persist for a couple of quarters while rates are lower, but the core business of servicing has certainly grown as expected with MUA. And while we’re overall, we would have liked to have seen better bottom line numbers this quarter, this business continues to be a function of growth in originations, renewals, and growth of MUA, which will drive a persistent growth in servicing revenue and net interest income going forward. So generally speaking, I think we feel much more positive about the quarter than may have otherwise been perceived out there.

Graham Ryding, Analyst, TD Securities: And that’s it.

Conference Operator: There are no further questions at this time. I’d like to turn the call over to Mr. Jason Ellis for closing comments. Sir, please go ahead.

Jason Ellis, President and Chief Executive Officer, First National Financial Corporation: All right. Thank you, operator. We look forward to hosting our virtual annual meeting of shareholders on May 13 and reporting our second quarter results in July. Thank you for participating and have a good day.

Conference Operator: This concludes today’s conference call. Thank you very much for your participation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.