Want some insight into how mortgage-hungry Canadians still are? Just take a quick look at the new numbers from First National Financial Services.
In the second quarter of 2012, the lender’s mortgage originations were up about 50 per cent to $4.4-billion, and mortgages under administration were 14 per cent higher over the year prior, coming in at $64-billion. That’s some pretty strong growth, especially in the single-family housing division, which was the bulk of the spike last quarter.
It’s too early to tell if this growth will continue because the federal government’s tightening of mortgage rules wasn’t instituted until July, which means it didn’t effect the quarter’s numbers. But even though shorter amortization periods are now affecting monthly mortgage payments, the bond market is working against the government as yields keep falling, making it easier for mortgage originators to offer low yields again.
As for First National’s own investors, they aren’t really seeing big bottom line growth. Although revenue keeps expanding, net income has actually fallen because of the company’s hedging portfolio. First National gets a lot of its funding from securitization programs, and it puts interest rate hedges on the fixed rate mortgages it intends to finance. These are unwound when the the securitization related debt is raised, so falling yields has caused the firm to incur losses.
To get a sense of just how out of sync revenue can be from net income because of this, in the first quarter of 2010, First National had revenues of $83-million and $90-million, respectively, while net income for each quarter was $23-million and $20-million. Last quarter, revenues totaled $157-million, but net income was only $18-million.
To show investors just how much the company is growing without these hedges, First National has instituted a new measure, dubbed ’pre-FMV EBITDA,’ that is a more accurate representation of cash flows. Last quarter this metric jumped 23 per cent to $40-million.