Generally In-line Q1 Results Our Conclusion
First National reported earnings that were generally in line with our estimate.
Originations were slightly better than forecast, driven by strength in multi-unit
and commercial volumes. However, securitization NIM declined sequentially
and MUA growth was a bit slower in Q1. Overall, we felt that there were
some mixed takeaways from Q1 reporting, but nothing particularly thesis-
changing.
Key Points
Pre-FMV income was generally in line. First National reported pre-FMV
income of $63 million. Considering the natural variability of this core measure
of earnings, we interpret this to be generally in line with our estimate of $65
million. However, we note that our EPS estimate was slightly below
consensus which may imply a modest miss versus the consensus average.
The regular monthly common share dividend was unchanged, reflecting a
yield of 6.4%.
Originations a bit better than expected on strong commercial volumes.
Total originations and renewals came in at $6.6 billion, above our estimate of
$6.1 billion. Multi-unit and commercial mortgage originations were up 39%
Y/Y versus our forecast for +25%. Single-family originations, on the other
hand, were more in line with our forecast (down 20%).
MUA growth moderates slightly. Mortgages under administration
increased 9.1% Y/Y, slightly lower than the prior quarter at 9.6%. On an
annualized basis in the first quarter, MUA growth was a bit more modest at
4%. However, the first quarter tends to be a slower period from a seasonality
standpoint.
Securitization NIM declines sequentially. Net interest income earned on
securitized mortgages as a percentage of average securitized mortgage
principal amounted to 54 bps (based on our calculation) versus 59 bps in the
prior quarter.
Funding mix shifts towards securitization. Approximately 36% of
mortgages were funded via securitization in Q1 versus 28% in the prior
quarter and 32% in the prior year. Generally speaking, a higher proportion of
mortgages funded by securitization can delay the recognition of earnings, but
we wouldn’t characterize the variance as material.
Outlook suggests a continuation of recent origination trends. First
National indicated that it expects “lower” single-family originations in Q2 as
competitors continue to build market share with lower mortgage rates and
elevated broker incentives. In the commercial segment, origination volumes
are expected to be “steady.”
Conference call at 10:00 a.m. ET: 888-390-0605 or 416-764-8609.