First National Financial Corporation (FN) concluded 2023 with significant revenue and earnings growth, underpinned by a strong fourth quarter. The company's pre-fair market value income rose to $77.1 million in Q4, marking a 30% increase from the previous year.
Growth was driven by an expansion in both residential and commercial mortgages under administration (MUA), alongside increased income from securitization efforts. Despite a decline in single-family originations, First National saw a surge in commercial origination and investment income.
The company's net income reached $4.15 per share, prompting an increase in its common share dividend. As First National looks to 2024, it remains cautious about residential origination levels due to interest rate policies but is optimistic about its commercial business in the first half of the year, despite anticipating increased competition thereafter.
Key Takeaways
- First National achieved a 30% increase in Q4 pre-fair market value income, totaling $77.1 million.
- Residential and commercial MUAs grew by 10% and 16% respectively in 2023.
- Net interest income from mortgages and securitization saw an uptick.
- Investment income increased by 32% in 2023.
- The company reported a net income of $4.15 per share and raised its common share dividend.
- First National anticipates challenges in residential origination due to interest rate policies but expects a strong commercial business in the early part of 2024.
Company Outlook
- Residential origination expected to be below Q1 2023 levels.
- Commercial business anticipated to remain strong in the first half of 2024, with increased competition in the latter half.
- First National plans to enhance efficiency through technology, including AI and cognitive document readers.
Bearish Highlights
- Single-family origination down by 20% in Q4.
- Anticipated slower residential origination at the start of 2024 due to rate increases and competition.
- Staffing reduced by 4% in 2023, although no further cuts are expected in 2024.
Bullish Highlights
- Commercial origination up by 27%.
- Strong pipeline of commercial deals through Q2 and Q3.
- Successful partnership with BMO (TSX:BMO) in broker channel progressing as planned.
- Construction book well-managed and insured, with no defaults.
Misses
- Unable to take advantage of increased CMB issuance limit in December.
Q&A Highlights
- Company competes in brokerage fees by offering incentives.
- $11.8 billion in securitization funding achieved in 2023, with potential for more in 2024.
- Net interest margin expected to remain flat year-over-year in 2024.
- First National's Excalibur product has no losses and maintains a low arrears rate.
First National Financial Corporation is navigating a dynamic market landscape, balancing the headwinds of competitive pressures and interest rate fluctuations with strategic growth in their commercial lending and securitization sectors.
The company's prudent management of its construction book and the successful rollout of technology initiatives position it to capitalize on market opportunities while mitigating risks. Shareholders and market watchers will likely keep a close eye on First National's performance as it moves through 2024, particularly in light of the company's forthcoming Q1 results and Annual General Meeting of Shareholders on May 2.
Full transcript - First National Financial Corp (TSX:FN) Q4 2023:
Operator: Good morning and welcome to First National's Fourth Quarter Analyst Call. This call is being recorded on Wednesday, March 6, 2024. [Operator Instructions] Now, it's my pleasure to turn the call over to Rob Inglis, CFO of First National. Please go ahead, sir.
Rob Inglis: Hi, good morning. Welcome to our call and thank you for participating. Sadly, after a long illness, Jason's father passed away recently, and Jason is unable to attend today. But joining me on this call today is Jeremy Wedgbury, our Executive Vice President, Commercial Mortgages; who will be available to answer any of your questions relating to our commercial segment after the call. Before we begin, I will remind you that our remarks and answers may contain forward-looking information of our future events, the Company's future performance. This information is subject to risk and uncertainties, and should be considered in conjunction with the risk factors detailed in our management, discussion and analysis. 2023 was a very successful year for First National, marking our 35th business anniversary, 17 years of the TSX listed company, and the 17th year of increasing common share dividends. This year ended with a strong fourth quarter revenue and earnings. Q4 pre-fair market value income of $77.1 million was 30% higher than the same quarter of 2022. For the year, this key profit metric increased 54% over 2022; this performance reflected success in growing mortgages under administration in a volatile environment and earning more income from securitization. The higher interest rate environment while perhaps slowing new origination had a favorable impact on parts of our business; these include slower mortgage prepayment speeds that benefited portfolio growth, and higher interest rates that acted as a tailwind for mortgage servicing or we earned higher interest income on escrow deposits. We ended the year with MUA of $143.5 billion, the result of 10% growth in residential MUA, and a 16% growth in commercial MUA. Overall, MUA increased 10% for the year and 5% annualized during the fourth quarter to it’s highest level ever supported by renewal retention and historically low prepayment speeds, probably the lowest in my 27 years at First National. We are pleased with MUA performance, given the significant impact of higher interest rates and affordability which directly affects real estate market activity and our originations. Single-family origination, including renewals, was down 20% in the fourth quarter, and 7% for the full year. This is in keeping with the expectations we described in our last call although we saw a significant outperformance in Alberta and Quebec compared to that in BC and Ontario. This is perhaps a reflection of market conditions in those regions but definitely underscores the value of our geographic diversification. Of note, the mix between new originations and renewals stayed relatively consistent on a trailing 12-month basis in 2023 compared to 2022. Commercial origination, also including renewals, was up 27% year-over-year in the fourth quarter, and 11% for the year on strong demand for insured multi-unit mortgages. A higher rate of growth in the fourth quarter partially reflected a catch-up by CMHC and its underwriting centers. After announcing a premium rate increase for multi-unit insurance in mid-2023, CMHC received a rush of applications before the cut-off date, turnaround time pushed transactions into the last quarter of 2023. Looking a little deeper at our results, you will see net interest income on mortgages splits for [ph] securitization increased in 2023 and in the fourth quarter; both periods benefited from portfolio growth, slower than normal prepayment speeds, and a relatively stable interest rate environment that feature just two [ph] Bank of Canada rate increases [indiscernible] we experienced in 2022. Low rates of prepayment also meant lower amortization of capitalized origination expenses and other securitization related fees; the slower amortization was one reason why NIM on our securitization portfolio widened significantly quarter-over-quarter from December 2022 to December 2023. On an annualized basis, NIM grew from 47 basis points to 56 basis points by year-end. There were several drivers of this performance beyond portfolio growth and more favorable prepayment, including the success of both, our high margin insured construction and Excalibur securitization programs, and the beneficial impact from the lower frequency of short-term interest rate increases on our floating rate securitization program. We expect NIM to remain generally at this level in 2024. 2023 annual placement fee revenue declined 8%, it was up 4% in the fourth quarter over 2022. The fourth quarter change came from higher volumes placed with institutional investors in the commercial segment. As always, changes in placement activity between segments has impact on the revenue line. As a rule, per unit fees are generally higher on residential placements as compared to commercial. However, for the year per unit pricing for new residential volume was lower by 1% than in 2022 as more borrowers chose shorter term mortgages. Shorter terms may still be a popular board [ph] option in 2024 as many advisors expect mortgage rates will be lower in three years' time. Gains on deferred placement fees which we earned in originating and selling multi-unit residential mortgages to institutional investors increased 69% between 2022 and 2023 reflecting strong volumes of origination for this program. For the fourth quarter, this revenue was flat to same period of 2022 on similar volumes. Investment income was up 32% in 2023 and 12% year-over-year in the fourth quarter; another positive result of higher interest earned on our mortgage and loan investment portfolios and mortgages held for securitization. On the growth in MUA; mortgage servicing income was higher by 70% in 2023 and 24% in the fourth quarter compared to 2022. This also reflected the continued benefit of higher interest on escrow deposits and the success of our third-party underwriting customers. Excluding the impact of higher interest costs incurred to fund the securitization portfolio, net revenue for 2023 was a record $905 million; 8% higher than in 2022. On the expense side, broker fees decreased 20% year-over-year in 2023. This reflected lower origination volumes of single-family mortgages for our institutional investors, and a return to more traditional per unit broker fees which were historically high in 2022 as a result of competition. Salaries and benefits increased 4% in 2023, reflecting standard annual merit increases and incentive driven commercial underwriting compensation. FTE was slightly lower in 2023 compared to 2022 due to regular attrition that was not replaced. Other operating expenses increased 7% to $4.2 million in 2023 due to spending on technology and our growing securitization business. The bottom-line, pre-fair market value income increased 54% in 2023 and 30% year-over-year for the fourth quarter. CapEx was $6.2 million for the year, largely for computer equipment and the cost of technology. Overall, a very successful year for First National with record net income of $4.15 per share. For shareholders, corporate success translated to the fourth -- in the fourth quarter to another common share dividend increase to $2.45 per share annualized, and the payment of $0.75 special dividend. Excluding the special dividend in December, the dividend payout ratio was 58% compared to 73% in 2022. On the same basis, the fourth quarter payout was 84% compared to 86% a year earlier. As an illustration of our business model's efficiency, after-tax pre-fair market value return-on-shareholders' equity was 38% for the year. Now let's talk about our 2024 outlook. We expect residential origination to open the year below Q1 2023 volumes of $4.4 billion based on a lower commitment levels in the fourth quarter, and our assessment of the ongoing impact of Bank of Canada interest rate policy on housing activity. This outlook encompasses both our prime and Excalibur product lines. Excalibur originations were more affected by market pressures in 2023 than were prime mortgages as it was more difficult for these borrowers to qualify for credit offered at the higher mortgage coupon rates. Mortgage brokers are also still coming around the idea of First National as a lender of choice for this product. That said, we continue to view Excalibur as an important part of our long-term plan, and we've been successful in growing our available liquidity in asset-backed commercial paper programs to support our ambition. Of note, Excalibur mortgages continues to perform as expected with virtually no loan losses and a relatively small number of mortgages and defaults. Since the vast majority of Excalibur borrowers take one year terms, they have been given very little time to adapt to the new rate environment as opposed to the majority of prime borrowers who are generally locked into five year terms. As house prices continue to hold up well in our urban area, markets of focus, defaults can usually be resolved successfully through sale. Arrears for our prime fixed and adjustable rate single-family portfolios are also trending as expected, with just small upticks in arrears statistics. On prepayment speeds, we expect these to remain near current levels until such time as we see a significant reduction in interest rates. In this environment, borrowers hold mortgage coupon rates well below prevailing [ph] market rates, have very little incentive to refinance. Overtime, prepayments will likely see a reversion to the mean after the past couple of years of extremes. For our commercial business, we expect to see ongoing strength in the first half of 2024 as borrowers have responded to government incentives to build and provide financing for multi-unit properties; we have built a sizable, committed pipeline. In the second half, we expect competitive industry or competitive intensity to increase as more aggregators come to the market attracted by the recent $20 billion increase in the Canada Mortgage Bond Program. So, like we have an impact on our multi-unit originations and available spreads later in the year. For these reasons, it will be difficult to replicate 2023's record financial performance in 2024. Affordability will remain a challenge but the potential for somewhat less restrictive monetary policy later in 2024 may lead to a gradual market reset. Longer term, population growth and ongoing lack of housing supply should provide ongoing support for prices and stimulate much needed new construction of affordable rental units that First National will finance. We will address these challenges and opportunities as we always have with a focus on striving for better using our proven strategies. Among our agenda items, we look to continue to leverage our underwriting capabilities to serve our third-party customers. At January 31, we introduced services to our newest bank client on a soft launch basis. We’re now looking forward to ramp up over the course of the year. Additionally, we intend to apply our usual disciplines to enhance efficiently using technology. Recently, we launched a pilot program using cognitive document readers to process residential borrower insurance updates. Auto-adjudication of certain pre-approved task is our next frontier. Developments in AI that may reduce repetitive task for our team and make our business more scalable are of interest to us. In closing, 2023 was a successful year that once again illustrated the recurring cash flow and income derived from First National securitization portfolio and MUA servicing business, even as housing market activity moderated. Now, Jeremy and I would be pleased to answer any of your questions. Operator, please open the lines. Thank you.
A - Rob Inglis: Operator, I think I see some questions in the queue. Please, acknowledge the analysts. I am sorry, something has gone wrong with our communications [ph] here. We are waiting for the Operator to attend to the questions. We see some questions are lined up and we are just waiting until our Operator is back to us. I am sure if we can -- can we acknowledge the questions unless it has to be the Operator? Still waiting guys, sorry. Well, this is unfortunate. I don’t know what to do. I guess, we’ll give him a few more minutes to reconnect or whatever happened.
Operator: [Operator Instructions] Now, our first question comes from the line of Nik Priebe of CIBC (TSX:CM). Please go ahead, your line is open.
Nik Priebe: Okay, thanks. So headcount declined 4% last year, presumably the result of a bit of natural attrition in the business. When you look out into 2024, considering the outlook for softer single-family volumes, do you foresee further room to allow headcount to gradually moderate with the natural churn in the employee base or how in your mind the current staffing levels align with the current level of mortgage activity?
Rob Inglis: Yes, Nik, it's Rob. I think that's the -- I think we're okay with our current headcount No, I think in the pandemic we really ramped up; we had a lot of business internally and for our third-party customers and we ramped up. We had too much staff when the excesses of the pandemic slowed down. Now we have a new customer in our underwriting business for third-parties. We have about, I think, 15 to 80 people that are going to be full-time there. So, that for the most part moved over from our existing underwriting operations. So I would see -- if it’s going to be a little bit of increase in FTE just as the company grows; so nothing extravagant.
Nik Priebe: Okay, that makes sense. And just on that partnership, I think you had indicated last quarter that the re-entry of BMO [ph] to the broker channel via First National was expected to begin sometime early this year. Are there any updates you can provide there and the rollout, just how that's proceeding and tracking relative to what you would hope for in the early days?
Rob Inglis: Yes. It's proceeding as planned and it's going to be a slow start. I mean, I think there was a soft launch into January. In February, they're sort of grow -- the grew out to sort of a number of brokers. I think just in Ontario, as it’s -- they learn how that the flow information goes and how the reporting goes, they will expand to more brokers in Ontario. And so it'll be a slow growth for the course of the year; I think it's going as planned. I mean, they have their sales forces out there talking to brokers and telling them to send business to them.
Nik Priebe: Okay, that's good. And just one last one for me; just point of clarification. So the comment that placement fees are a lot lower on commercial mortgages than single-family residential; is that because the single-family channel -- the upfront placement fee needs to compensate you for the fee that you would pay to mortgage brokers to originate whereas commercial originations are sourced mostly by proprietary channels? Or like -- what's the reason for that higher per unit placement fee? And are you able to roughly quantify the magnitude of the difference there?
Rob Inglis: Yes. Well, it's almost what the market is, right. It's like people will pay that much for a single-family mortgage; maybe there is more spread in it. That’s just the nature of it. I think in general, 1.4% has been sort of a run rate for single-family placements; that's what the market pays for it. I think comparatively to the bank something will tell us, oh, that's where our costs internally are anyways to originate a mortgage, so if we buy from you or do internally, it's the same costs; so, you see the economics there. For multi-units, it's anywhere from like 50 basis points to 25 basis points which has been historically the rate. Now, why that is; I don't know why it’s that different. Maybe Jeremy, can put some light [ph] more on it but the market will bear what the market will bear. And in commercial as well as 10-year [ph] business done; so that can be a bit higher than that like five years which I think is typically at 50 basis points. And so again, it's a market.
Nik Priebe: Yes. Okay, fair enough. All right, that's good for me, I'll pass the line. Thanks.
Operator: Thank you. The next question comes from the line of Étienne Ricard with BMO. Please go ahead, your line is open.
Étienne Ricard: Okay. Thank you and good morning. With 2023 behind us, what is your assessment of First National's market share in the broker channel? And more broadly, do you think the broker channel took market share from the bank [ph]?
Rob Inglis: Well, that's a difficult question. I think you know, it's hard because we still get a report from Fenestra [ph] which is pretty indicative of what our market share was. They stopped reporting, I think mid of 2022 in terms of the full -- a number of companies reporting in because they have big share of the marketplace and then there was privacy issues, I think. We think our market share for the year has held up and it's -- you know, maybe the low-teens kind of thing. And as far as the channel versus the banks; I don't know. I really don’t know.
Étienne Ricard: Okay. And to circle back on placement fees to the extent borrowers favor once again, longer term mortgages; the five years as opposed to one to three years. How much of a tailwind will that be to per unit placement fees?
Rob Inglis: Well, probably not a lot. I think definitely longer than five year will get us more revenue. In the same side of things, we pay the broker a little bit less on a shorter term. And I would say origination for single-family is kind of like a breakeven business, right? It's really to get the MUA going, and the longer-term value of MUA. So, I think it's not a big deal in terms of that changes. And, you know, if we do about three years of this year it means we have renewal opportunities in three years' time; so there is a value there as well that we'll see earlier than the five year.
Étienne Ricard: Okay. And lastly, on the commercial segment; we've seen some construction delays and a rise in impaired loans across the industry. What credit metrics are you're seeing on your commercial book?
Jeremy Wedgbury: Morning, Étienne. So our construction book just hit $5 billion of committed capital and we've been very, very careful with our program. First and foremost, it is insured by CMHC; that's the predominant asset on our book would be CMHC-insured construction but we've been very, very careful with our client selection. So, we've been working -- a large portion of our portfolio would be with pension funds and very strong experienced developers. There's a segment of the market definitely that has gone downstream and we've avoided that very much. I would say that the challenges we're seeing right now and obviously higher interest rates are having a big impact on this, it's really impacting all aspects of construction. So yes, we're starting to see some defaults, we're seeing land defaults but we're not seeing them on our book to be clear. We're monitoring our book of about 100 construction loans very, very carefully but we're very confident of that. I think the program we set up seven or eight years ago is has served us very well. So yes, there's some challenges in the industry. We've focused on multi-family rental, insured predominantly, and we've been very, very selective with our developer clients. So, I hope that answers your question?
Étienne Ricard: It does. Thank you very much.
Operator: Our next question comes from the line of Graham Ryding at TD. Please go ahead, your line is open.
Graham Ryding: Hi, good morning. Maybe I'd just start with some just make sure I heard your message correctly. So on the commercial front, it sounds like you're expecting a strong first half of the year but then competition to pick up in the second half. Maybe you can dig into that a little bit why you expect your competition to pick up on that front?
Jeremy Wedgbury: Yes. Good morning, Graham. So as Rob touched on, in June of last year, CMHC increased the premiums on their select product which is the product that they developed about a year and a half ago to really push supply in Canada. It caused a surge of -- by about four times of what they would normally face from Q [ph] perspective. And so, we were -- in a normal timeframe you get an approval in six to eight weeks with CMHC; that was getting pushed out to four to six months. And so basically, all of the business we put in June into the pipeline with CMHC was being pushed back into approvals really in Q4 of 2023. And even then we're still getting them right now, Graham. So Q1, Q2 will continue to be driven by a combination of 2023 volumes. And then, of course, just the volumes that are going on in 2024. The other, I guess the tailwind for us which is creating more competition is the increase of $20 billion to the Canada Mortgage Bond is really empowering the aggregators in the business and it's allowing them to securitize more. And therefore, they tend to originate through smaller CMHC originators and they tend to compete on price; so that the greater supply is being passed on to clients with tighter pricing. So we've got a strong pipeline through to sort of Q2, Q3. And then, at that point where we think we're going to be in a much more competitive environment. Also, given the fact that with these higher interest rates which just seems to be there is less activity in commercial in general, multi-family included, far fewer trades than we would normally see as buyers and sellers start to get comfortable with where cap rates should be. So that's kind of the outlook for commercial for 2024.
Graham Ryding: Okay, that's helpful. And then on the on the single-family side, you said significantly lower originations are at the beginning of the year. Yet we're seeing some year-over-year increases in Canada and some more specific markets through sort of January and February in terms of housing sales. So why is that not flowing through into your origination expectations for the beginning of the year? Is that related to some of your commentary on Excalibur? Maybe if you could expand on those.
Rob Inglis: Yes, a little bit. I think a couple of things. So Q3 for us is very strong because every thought in Q2 at Bank of Canada was done and rates were sort of finished. But then in June and July, bank had us out; no, we're not finished and we increased a couple of times more. If you will -- in Q3 -- I'm slowing down. So that affected what happened in Q4, right? And that's still the case. I mean, people still on the sidelines, people are considering what's the value of my house. I bought this thing in 2021 in the pandemic, and it's worth this much -- it won't be -- it's not worth that much, so slowing down. But I think there's a swell of people waiting to get into the housing market and they will; so that's number one. And so I think Q1, we've seen the commitments from Q4 we're pretty slow. And as well, I think competition for us a little bit; the TD Bank (TSX:TD). Scotiabank (TSX:BNS) was out from a lot of 2023 for whatever reason. I think they're back with a vengeance now and competing; so that's going to take some market share away from us. And of course, our new friends, the BMO will be out there too competing against those two banks; I think with sharp pricing. The only way they can probably start to get goodwill and broker business is through sharp pricing, I think. So we have those two things to worry about as well or that the pricing as well to worry about. So it will be a slower start but I think the economy gets better -- I think it's going to get better. I think we're in for a soft landing, and if a Bank Canada cuts, I think we'll see some real activity.
Graham Ryding: Okay, understood. And then, any commentary on the Excalibur product; you're saying no loss experienced. How about the [indiscernible] with respect to arrears and workout situations?
Rob Inglis: Yes. So our product that we securitized is B20 compliant, 80% loan to value or less. So it's a lot of equity from the borrowers in those properties or arrears have ticked up a little bit on a smaller portfolio. We've had one loss in the last four years, our realized loss; I think we're well provisioned for, in case something does happen with compared to our peers in the industry, and we're at the right levels. I think we are over provisioned, to be honest but never know. So we're not we're not worried -- our worry is to be honest it to find more products. So I think last year we were -- it was down much like our overall single-family origination book. We really want to get the price to keep coming in and replace the sub it's going to payout at mature [ph]. It’s typically for us one year and two year product; so it tends to overrate [ph] quickly. And we have [indiscernible] was there that needed the product to keep the income flowing.
Graham Ryding: Okay, that's helpful. Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Jaeme Gloyn at National Bank. Please go ahead, your line is open.
Jaeme Gloyn: Yes, thanks. Good morning. Just wanted to go back to a couple of questions ago on the comment around that TD. I believe you said TD and Scotia, they had kind of paused a little bit during 2023 and are now out there competing more aggressively; and you would expect BMO to also ramp that up. Did I hear that correctly in terms of their positioning in the market? And then, I guess the follow-up to that is with a couple of these banks now in your mortgage servicing or fulfilment processing business; how do you balance that part of the part of the channel with your own flows? And do you take what they are doing to make adjustments yourselves or maybe talk a little bit more about -- I don't want to say there is channel conflict here but balancing those outcomes?
Rob Inglis: Okay. Well, I guess the one thing is I think TD Bank has never slowed down, it’s has been very strong for the last -- I don’t know, five years into channel, especially after we helped them with their underwriting fulfilment. Only Scotia sort of feel back for a while there for whatever reason, maybe it was economics that mature but they are back now. But yes, there's always a conflict between us doing that business and doing our own business, right? But we all find that having a customer with deep pockets like the banks is a great customer to have. And you know, we're going to be there for the long-term. I believe the key agreements that we signed in 2014; it's been now of 10 years on and we've made the money we thought were going to make, it's been a great addition to our business. So, our competency is underwriting and we are more on technology also with leading edge technology. Let's use that technology to make money and this is how we do it. But you're right, there was a conflict -- I mean, you ask Scott Mackenzie [ph], I am a big fan of his because it's going to hurt his sales force competing with these three banks.
Jaeme Gloyn: Okay, understood. Excuse me. Second question is just on the brokerage fees. And the way I'm looking at this is looking at brokerage fees as a percentage of volumes sold to institutional investors; and it's more than just normalized. It's quite a bit lower in as Q4 than we've seen it historically going back several years even. So is there is there something a little bit more happening in this quarter that would drive those brokerage fee expenses lower? And then, would I take that kind of rate and assume this is the “normal rate for the next couple of years” or should we kind of go back a few more quarters to look at more smooth level of brokerage fees as a percentage of volumes sold to institutional investors?
Rob Inglis: Yes. Well, I guess the difficulty is this that on a commercial mortgage being sold to institution; that probably has no brokerage fees, that's done internally and paid people salaries for that. So to the extent that the commercial volume has been up, I think it's up just in Q4 because of the greater origination. The fraction -- the calculation you're doing will be on balance there, right, because you’ll have a lot of commercial there at zero and you have the regular single-family there at the regular rate. I would say for overall rates are for brokers in 2022 may be lower by 10% than 2022. In 2022 we had to compete very strongly in the market by giving incentives or matching incentives to brokers that other people were posting. And I think next year, 2024; I think we're going to be maybe half-and-half [ph], a little bit like 2023 but maybe more -- incentive for brokers to compete with everybody in the channel looking for the same product. Does that help you?
Jaeme Gloyn: Yes, it does. It might be helpful, so I don’t know to be able to disclose like single-family versus commercial going institutional investors and kind of trying to narrow that way from a forecast perspective but the conversation for another day perhaps. But that's good for me. Thank you.
Rob Inglis: That’s your job. Thanks.
Operator: Thank you. Our next question comes from the line of Graham Ryding at TD. Please go ahead, your line is open.
Graham Ryding: Yes, just a couple of follow-ups. You did $11.8 billion in securitization funding this year, I think in total, both through CMB [ph] and also your -- I guess your bank sponsored conduits [ph]. Is that -- should we think of that as you're sort of close to your capacity there? Is that a reasonable sort of run rate or capacity for that funding channel?
Rob Inglis: I would say it is but subject to I guess the $20 billion of new CMB [ph] room that we have the announced, right? So I think the government or CMHC wants to allocate that $20 billion to some multi-family, mostly because that's what they think is going to help Canada in terms of rental slots, etcetera, to give incentives to people to do those kind of mortgages. So that might sort of -- they might to carve that out in terms of allocations and we'll be able to do more ourselves in that regard.
Graham Ryding: Okay. So there is no need to…
Rob Inglis: [Indiscernible].
Graham Ryding: Was there any of that increased CMB [ph] issuance limit in the Q4 numbers this year? Is that program renewal not yet?
Rob Inglis: It was rolled out -- I think it was rolled out and they increased some thing was almost like at December 15 sort of thing, and we couldn't really take advantage of it at that point.
Graham Ryding: Okay.
Rob Inglis: They always do that; they always increase things like in December when the banks can sort of fill in a whole bunch of stuff. But we plan ahead and we don't have the product to necessarily sell in.
Graham Ryding: Okay. And then, just my last one, if I could, just on the net interest margin. You expect -- you said you expect it to be flat year-over-year. What sort of implied there in terms of your outlook for either, you know, origination volumes or prepayment activity when you're expecting them to be flat?
Rob Inglis: Yes. So I think for prepayment, similar to this year, still low because we have a whole bunch of mortgages in our programs at 2%, 3% from the pandemic years which probably will not pay out or refinance because they can't without paying or if they can but they can get a much higher mortgage rate; why do that. I think NIM was lower in 2022 for a whole bunch of reasons like the Bank Canada changing rates seven times is not good for us because our prime rate kind of lags the cost of funds as they go up; so that we’d lost money there. Prepayments, lot of penalties in 975 [ph]; pools in 2022. So, I'm -- what I'm saying is that 2022 was abnormally low and now we're back to where it should be because I think that's why I'm saying 2024 be similar because we have a whole -- the $40 billion of securitized mortgages that will and keep producing at the same levels that we’re producing in 2023.
Graham Ryding: Okay, that's helpful. Thank you.
Operator: Thank you. And there are no further questions on the line. So, I hand the floor back to Mr. Inglis for the closing comments.
Rob Inglis: Thank you, Operator. First National reported Q1 results on April 30, and host it’s Annual General Meeting of Shareholders on May 2 at the TMX (TSX:X) Market Centre in Toronto; we look forward to both events. In closing, my thanks to the First National team, our business partners and customers for making 2023 a successful year. And thank you all for participating in our call today. Have a great day.
Operator: This now concludes the conference. Thank you all very much for your attendance. You may now disconnect your lines.
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