Good morning, ladies and gentlemen, and welcome to First National's Q4 analyst call. This call is being recorded today, Wednesday, March 1st, 2023. At this time, all callers are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be provided at that time on how to queue up. Now it's my pleasure to turn the call over to Jason Ellis, President and Chief Executive Officer of First National. Please go ahead, sir. Thank you, operator. Good morning, everyone. Welcome to our call, and thank you for participating. Robert Inglis, our Chief Financial Officer, joins me and will provide his commentary shortly. Before we begin, I will remind you that our remarks and answers may contain forward-looking information about future events or 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 MD&A. I'll start today with our expectations, and we expect mortgages under administration to grow in 2023, despite lower demand for credit to start the year. That expectation is based on three main assumptions. First, although we will experience a reduction in new originations in the H1 of 2023 in comparison to the same period last year, we believe there will be a return to a more constructive market in the H2 of the year. Of course, this is somewhat dependent on the Bank of Canada's policy decisions. Second, with higher mortgage rates, prepayment speeds have moderated, and renewal opportunities will increase as more mortgages reach maturity. Finally, we anticipate continued strength in commercial originations attributable to First National's market-leading position in the insured multi-family mortgage market. As you know, we consider mortgages under administration a key metric. It's an important driver of earnings. Growing MUA in a challenging environment, as we did in 2022, is a sign of resilience that speaks to First National's strong market presence across the country, diversity of product offerings, and the hard work of our team. We saw the value of this diversification in 2022 as our commercial MUA increased 9% or CAD 3.4 billion year-over-year, while residential was up 4%. Within the multi-unit residential market, we expect demand for insured product to remain strong due to the need for more rental housing stock. As the leader in that important space, First National stands to be a beneficiary. Last year, insured multifamily mortgages represented about 75% of our total commercial originations. That ratio may edge higher this year until we see a deeper market develop for conventional mortgage assets as lenders of conventional money gain certainty on changing property values. On the residential side, First National continues to profit from its national presence. In particular, market conditions, and by extension, origination volumes in Quebec and Alberta significantly outperformed Ontario and British Columbia on a year-over-year basis. From a product perspective, our plan for 2023 includes continued expansion of our Excalibur program with focus on Western markets. There is a need for Excalibur and other so-called alternative mortgage products, which are not fully addressed by the big banks. We feel very comfortable in providing credit in the alternative space, due in part to our proven underwriting skill sets. At First National, we have always had a rigorous underwriting process. There are no plans to make changes to our risk management approach to accommodate today's market environment. This is borne out by arrears rates, which remained near all-time lows throughout 2022. Notably, our portfolio of adjustable-rate mortgages continues to perform in line with the broader portfolio, with no signs of stress related to higher mortgage payments. Analysts on our call often ask about broker compensation. On this topic, I would say our planning for 2023 includes the assumption that extra incentives will remain fairly common across the industry. We will continue to monitor the market in this respect. I can tell you our objective is unchanged. We will offer industry-best service and ensure we're competitive with rates and incentives using a disciplined approach to both. Turning to securitization net interest margin, our assumption is that we will see some favorable tailwinds in 2023. This relates to the normalization of the spread between CDOR and our prime lending rate on the adjustable rate portion of our securitized portfolio. With the Bank of Canada's aggressive rate hikes, our cost of funds, which relies on CDOR settings, increased. Revenue from prime-based mortgages also increased at a delayed pace. As described in our MD&A, this reduced net interest margin by about CAD 6 million in 2022. We are currently anticipating a normalized spread between prime and CDOR for much of 2023. A second tailwind relates to slower prepayment, which will moderate average liquidation rates on the portfolio and slow the amortization of capitalized upfront origination costs. Recall that in 2020, 2021, and the start of 2022, those liquidation rates were elevated to as high as 18% per annum. With moderation in this rate, the opportunity to grow the portfolio improves. A brief comment on operating leverage. In the face of a still strong market to start 2022, we continue to grow our underwriting teams, only to see demand pull back significantly in the last half of the year. Through natural attrition and deliberate action, we did reduce our residential underwriting capacity in the Q4. First National takes a long-term view of talent. We make a substantial investment in our employees and are prepared to continue to do so in keeping with our outlook and objectives to serve our customers, partners, and shareholders. Now over to Rob. Thanks, Jason. 2022 marked First National's 16th consecutive year of profitable operations since its 2006 IPO. Saw the company raise distributions to shareholders for the 15th time. Consistent long-term performance, including a 28% after-tax pre-fair market value return on shareholders' equity in 2022, is validating our strategy and value creation method. For purposes of my remarks, I will assume you have read our MD&A, so I will focus on a couple of key topics, beginning with MUA. It increased 6% in 2022 and 5% annualized in the Q4. As you just heard Jason say, we expect MUA to grow again in 2023, and that's important because our servicing and securitization portfolios generate ongoing income and cash flow. Although the last half of 2022 was particularly challenging, First National posted year-over-year revenue increases in every quarter of the year, including Q4. A lot of the increase was due to higher mortgage coupons on our securitized portfolio. This was largely offset by higher interest costs of funding for this portfolio. More important is the net revenue, which was up 9% for 2022. There were increases in each quarter except the fourth. Q4 net revenue was down 2% from a year ago, despite an increase of 5% of securitization NIM, as lower origination led to a 23% drop in placement fees. Q4 mortgage investment income was higher by 92% as we earned more interest income on the portfolio and on mortgages secured accumulated for securitization. Although mortgage administration revenue was consistent with MUA growth, overall mortgage servicing revenue was lower than Q4 2021 by 11% due to low volumes processed in our third-party underwriting division, whose customers faced similar reductions in volumes with the overall industry slowdown. Gains and losses on financial instruments are included in total revenue. Both Q4s showed only small losses as five- and ten-year bond yields were relatively flat during these periods. Moving now to profitability measures. Q4 income before taxes was up 2% as the company benefited from placement of insured commercial segment mortgages with its institutional customers. Q4 pre-fair market value income, which we consider core profitability, increased 4% year-over-year as the impact of adding back the losses on account of financial instruments was insignificant. Thinking about First National's performance overall in 2022, we achieved a level of operating profitability that was generally consistent with our own internal forecasting at the beginning of the year. We don't publish our internal forecast, given how the year unfolded and the challenges of the past six months in particular, the results were encouraging. Certainly, the market diversification Jason spoke of across regions, products, and asset classes helped considerably. In particular, I would point to commercial mortgage activity as a positive counterbalance to the challenges faced in residential. In Q4, residential segment profitability was lower than a year ago due to lower volumes underwritten for third-party customers. These volumes increased significantly in 2021, full-time employees were hired to handle the increase in mortgage applications. When this volume fell precipitously in the latter half of 2022, the company suddenly had a headcount that was too large for this business. Earnings were also affected by lower revenues on reduced placement activity against the backdrop of a comparatively more expensive operating environment that included higher per-unit broker fees as incentives were needed to match our competitors. That said, by year-end, with actions during the Q4, we modestly reduced FTE. This will have a small favorable impact on operating leverage in 2023. Meantime, broker fees are set by the market. As Jason mentioned, we continue to take a disciplined approach to rates and incentives in the context of a competitive market. By comparison, our commercial segment was accretive to 2022 results. Not only did we benefit from securitization NIM generated from large pools sold through the CMB in the previous years, but by placing more of its origination with our institutional clients in 2022, the company increased placement fees and deferred placement fees. This strategy creates immediate earnings but also creates cash flow to support operations. Higher interest revenue earned on mortgage investments and escrow deposits were also very favorable to both revenue and income in our commercial division. Certainly, First National expertise in commercial lending is well recognized by the largest real estate players in the industry who continue to count on us for financing. All things considered, our commercial pipeline starts 2023 in relatively good shape. We expect the portfolio will grow even with the expectations of marginally lower originations. In closing, 2022 was a uniquely challenging year, but First National more than held its own. On solid performance, we increased our monthly dividend to the annualized equivalent of CAD 2.40 per share, effective with the December payment. Payout ratio for the year was about 73% or 94%, excluding the impact of gains and losses on financial instruments. Going forward, our plan is to remain true to our values, including always striving for better and consistency in our risk managed approach to underwriting. This has served First National well for the past 35 years and will continue to do so for the foreseeable future. That concludes our pre-prepared remarks. Operator, please open the lines for questions. Thank you. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered and you would like to withdraw from the queue, please press star followed by two. If you are using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question will come from Étienne Ricard at BMO Capital Markets. Please go ahead. Good morning. First on the 2023 outlook for single-family originations, you are guiding for a soft H1, followed by improving activity in the H2. In your comments, you mentioned pre-pandemic 2019 levels as a likely outcome. When I look at your origination activity in 2022, it was still 40%+ above 2019 levels. I understand the dynamic with a soft Q1, but my first reaction is returning to 2019 levels seems quite a step down. Any thoughts on how originations should evolve over the next few quarters? I think, Étienne, when we mentioned 2019 levels, it's sort of as a broad reference point as opposed to, say, the frenetic activity we saw during the middle of the pandemic. I wouldn't take 2019 literally. When we talk about our expectations for next year, it really is a tale of two different years within one. The H1 of 2022 featured a strong pipeline of mortgage commitments and pre-approvals that had been issued at the prevailing low interest rates predating the Bank of Canada's rate hiking activity. As a result, we saw significant pull-through and actually relatively good activity in funded mortgages through the H1. As we look at the H2 of 2022, that's where we saw the more significant decline in residential activity as the impact of the bank's activities in policy really started to take hold. To that end, when I look ahead to 2023, I see two things. One, I see a H1 of originations that will have a very challenging comparison relative to the H1 of 2022, and then a H2 of 2023 where two things are happening. One, a less challenging comparison. Year-over-year, I would say it will look stronger, but in absolute terms, I do expect to see improved activity in absolute terms in the H2 relative to the first. Most importantly, I would suggest that we talk about 2019 in general terms, not specifically in terms of volumes. Okay? Right. from an industry perspective as opposed to company specific. From an industry perspective and then even from a company perspective, but not suggesting all the way back. More of a that was maybe a general sense of activity as opposed to what the, you know, the extremes we saw during the pandemic. Understood. With OSFI launching a consultation on potential volume limits, first, have you seen a rise in the average debt-to-income or TDS ratios for originations in recent years at First National? Second, do you see greater consumer leverage risk today relative to a few years ago? Our key metrics as it relates to our residential mortgage underwriting have not changed in any material way throughout the pandemic and into 2023. Debt service ratios, loan to values and credit scores are all very comparable. I would say that if there is any sense of increased leverage, it may have been the function of extremely low rates during the pandemic, facilitating loans to income that maybe were higher on average. I think OSFI references 4:1 as sort of a benchmark it likes to think about in terms of loan to income. With its new paper, that is out in the market for discussion, I think the idea of a 4:1 loan-to-income or some other kind of loan-to-income metric won't have a significant impact on new originations going forward, because at the new higher rates. Debt service ratios, gross debt and total debt service ratios actually end up being the constraining factor. I think a loan-to-income metric introduced by OSFI at this point future-proofs the industry against borrowers in another low rate environment, possibly running away with perhaps unmanageable debt. Does that answer the question? Yes. Thank you very much. Your next question comes from Geoff Kwan at RBC Capital Markets. Please go ahead. Hi. Good morning. My first question was just given for the mortgages that you originate, you have essentially, you know, very little residual credit risk overall. Given you still service those mortgages, have you seen any noticeable impact so far from borrowers that have been, you know, either renewing or other types of activity, just managing the increase that we've seen in mortgage rates over the past year? No, Jeff, actually very, very encouraging. Whether we look at the portion of the portfolio that is securitized or the portion of the portfolio that has been originated and sold to third parties, in the aggregate, our 90+ day arrears rate continues to be at all-time lows. That's true both of our Prime and our Excalibur program. It's true of our high ratio and our conventional program. Right now we're not seeing any signs of stress anywhere in the portfolio. Most notably on the adjustable rate portion of the portfolio of mortgages under admin, we are not seeing any difference in performance from an arrears perspective. One other thing that's encouraging is not only is the 90-day arrears number still low, but as a leading indicator, the 30-day arrears rate quarter-over-quarter is actually lower. I would say at this point, all of our adjustable rate borrowers have absorbed their new higher payments with a great deal of resilience. As it relates to the fixed income borrowers who have been renewing into this environment, they're renewing out of mortgages that are anywhere from 200-300 basis points lower than today's market. We're seeing renewal rates consistent with our historical renewal rates, and we're not seeing any stress at the time of renewal from borrowers who are choosing to perhaps not renew or renew away. So far, it would seem the Canadian borrower has adjusted well to the new environment. Okay, thanks. Just my other question was on your Alt-A Excalibur business. Has your appetite to originate changed much over the past several quarters? Also too from the funding side, has there been any changes from your funding partners in terms of the terms that you do it or the demand to provide funding for these mortgages given the weaker housing market environment? As I mentioned in my comments, we actually haven't made any changes to our underwriting or risk management practices. That's true both of our proprietary mortgage underwriting guidelines, and that's also true of the eligibility criteria or underwriting guidelines that some of our third-party investors ask us to follow. We haven't seen any changes and as it relates to our own appetite, as it relates to the Excalibur program, it continues to be constructive. As I mentioned, we're looking to continue growing that line of business as a diversification to our Prime program, we're not changing the way we approach it, no. Okay. Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one at this time. Your next question will come from Graham Ryding at TD Securities. Please go ahead. Hi, good morning. Can you hear me okay? Yeah, we got you. Okay, great. Great. Maybe just operating leverage. It was obviously an overhang in 2022. It sounds like you've made some adjustments to headcount reductions. Can you just give us, you know, your outlook there if we do see a more muted or, you know, a continued sort of muted revenue outlook for 2023. Can you keep operating leverage flat, or would it still be an overhang in 2023? I think that, our decisions in terms of taking affirmative action on full-time headcounts is going to be very dependent on the market at this point. Cautious about overreaching. What I said in our prepared comments is very, very true. We make a great deal of, time, and investment in our employees, and I like to make sure that we have enough flexibility to adapt to any unexpected changes in the market and continue delivering the kind of service levels the brokers and our other stakeholders expect. Based on my outlook for this year, if it came to pass, I think any changes to headcount from here on will be subtle, and I expect normal course attrition would take care of most of it. If however, we see continued softness in the market, if the Bank of Canada is forced to carry on beyond expectations, and that has a material negative effect on origination and by extension revenues, we will have to revisit the headcount. It's unfortunate. The volume of origination that occurred during the pandemic was constructive, to be sure, but it also came at a time when there was a significant amount of migration within the labor market, especially in the mortgage industry. We were hiring not only to support the growth but to replace employees that were leaving. It was really quite the whipsaw as things turned the way they did in 2022. It'll take a little bit of time, I think, to adapt to maybe our longer term operational leverage targets. It really is right now very market dependent. Okay. That's helpful. I appreciate the commentary you gave on the credit side. How about on the residential side in particular, how about on the commercial side? Is there anything you're seeing there, either positive or negative in terms of arrears trends? Is there anything that you're perhaps more cautious towards on the conventional side, looking into 2023? Yeah. I mean, there's certainly some anecdotal evidence in the media of some commercial defaults in Canada, not with us, fortunately to date. They tend to be focused around new construction. I would say dating back to at least a year ago, the one thing that we did make a material change on was our approach to construction lending. We have really focused on the largest borrowers, with the most significant resources to see them through challenges, especially as construction costs were going up. That change took place some time ago. Beyond that, no. Like residential, we haven't made any significant changes to the way we underwrite. Remembering, of course, that, like I said, 75% of originations last year were CMHC multifamily, we really are following CMHC guidelines with respect to underwriting on those deals. As it relates to our conventional lending, those loans are, of course, being funded by our third-party investor partners, and in that case, we are working with them in developing the eligibility criteria and the various underwriting guidelines. No sudden movements on our part, but if there was a focus, it is definitely on new construction, where we're being very cautious around our partners. Okay, great. Maybe one last one, if I could. There was a couple of comments just about changes that the CMHC is making around, you know, allocations around, you know, on the definitions of aggregators and then also CMB capacity in 2024. Maybe just on the first piece, is there anything there that could be material to your institutional funding? On the CMB piece, could that be material at all to your overall securitization funding capacity? Right. CMHC issued Advice No. 18, which is revisiting how it thinks about the distinction between lenders and aggregators. I do understand that there is a clarification pending from CMHC on that advice. We look forward to seeing that to get a better picture. However, I can tell you that even in its current state, we do not anticipate the Advice No. 18 as it relates to NHA MBS guarantee fees and the distinction between lenders and aggregators having a material effect on our mortgage funding strategies. We've always worked with counterparties who fell well within the spirit and intent of CMHC's guidelines, we don't see a negative outcome from that. As it relates to CMB allocation for multifamily, there is no actual communication in the marketplace right now. CMHC has spoken, I think, to some participants in the market about the preferred allocation for affordability-linked 10-year MBS pools into the CMB. At present, there is, I believe, a 4:1 ratio. You could have, I think for every $1 of affordable mortgage, you can add $4 of regular multifamily mortgage and still qualify for an affordability-linked pool. I think there is some discussion around that gearing ratio being reduced. We still haven't seen an actual advice from CMHC on that. Should that come to pass, our ability to directly access the 10-year CMB may be moderated, but we continue to have a large group of interested investors in that very high-quality product. Again, it may change the way we think about securitization versus placement, but I don't see it having a material impact at this point. Okay. Sounds fluid. That's it for me. Thank you. Your next question comes from Jaeme Gloyn at National Bank Financial. Please go ahead. Thanks. First question, just on the mortgage servicing income, looking at that year-over-year decline, would you, would you attribute the bulk of that to, the origination volumes flowing through the third-party underwriting relationship? That is an accurate assessment. Yeah. I would say our traditional mortgage administration revenues grew in sympathy with assets under admin and the change in the total mortgage servicing line would be attributable to lower origination volumes by our third-party underwriting clients. Yeah. Got it. going back to your comment around broker expenses, and remaining elevated, let say, last year and then through, maybe not elevated, but, you know, competitive, I guess, through 2023. Just looking at the Q4 number, the broker fee looks a little lighter than the previous three quarters. Is there any sort of like clawback components of that where volumes were just so light that there was some clawback that would reduce that broker expense in the Q4? Or is there anything else going on? Yeah, James, it's Rob here. Yeah, a few things like that. We set aside money during the course of the year for volume bonus, for delivery fees, that kind of thing. Because it was a lighter year than we thought, we took back a little bit of the broker fees at the end of the year. That helps a bit. As well, we adjusted our absorption on capitalized mortgages. We're selling mortgages to the MBS, et cetera. Typically, we capitalize the fee of the broker fee on there during the course of the year. We use kind of a standard fee of, you know, 1.23%, something like that. By the end of the year, we say, "Well, it's higher. Let's change our capitalization absorption." I think in Q4, we made the adjustment, and accordingly, we capitalize more to the balance sheet, which is appropriate, which means that less flowed through the expense line. Those two things, I think, helped the number in Q4. Okay. Understood. Going back to the OSFI draft, I guess, or public consultation, just wanted to get a little bit more color on your thoughts around potentially prescribed limits on GDS, TDS, and some other options to maybe perhaps, you know, explicitly target that debt service coverage restriction as a component of uninsured underwriting. Just wanted to get your thoughts around, you know, what that could mean. Do you think it's good policy? You know, things along those lines. I guess I'm not entirely surprised to see this. One of the interesting aspects of B-20 when it was first introduced was that it was not entirely prescriptive other than a few, I guess, specific metrics. I think most notable amongst those things that were not prescribed were GDS, TDS. They were the long understood guidelines, I think we have seen continued significant exceptions being made both at the D-SIBs as well as at the sort of dedicated alternative lenders. I think that one of the things that OSFI wanted to get out of B-20 was comfort and clarity that the stated mortgage underwriting policies were really reflective of what lenders were doing. I think that the tendency to make exceptions on debt service ratios has probably gotten a little out of hand relative to what they're comfortable with. I think it is good policy. I think they're going to be fairly generous, though, with non-conforming buckets. I think there would still be an allowance to make quality exceptions where loan-to-value, borrower credit, assets, or other things help justify the underwriting. I think a potential outcome here may be similar to what we saw following some of the earlier changes to underwriting. I think a lot of what used to be prime conventional mortgages migrated into the Alt-A space, and traditional Alt-A lenders like Home and Equitable perhaps saw a very, very nice increase to their average credit quality. I think this is going to be the next leg of that, and I think a lot of what Alt-A lenders are doing today may very well migrate into the Mortgage Investment Corporation or private lender space, and those entities will enjoy an upgrade to credit. I don't think it's going to be a material migration in terms of the overall market. I think there are some commentators that suggest that an unintended outcome is OSFI is going to lose control of a large piece of the market into unregulated hands. I think that's probably overstated. I think, the biggest outcome is probably just an upgrade in credit for mix and private lenders. Got it. Thank you for the color. There are no further questions on the phone line. At this time, I'll turn the call back to Mr. Ellis for any closing remarks. Thank you, operator. We look forward to reporting our first quarter results in April and hosting our first in-person annual meeting in three years on May 16th in Toronto. Details will follow in our management circular. Thanks for taking part in our call, and have a good day. Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.