TORONTO, April 25, 2017 /CNW/ - First National Financial
Corporation (TSX: FN, TSX: FN.PR.A, TSX: FN.PR.B) (the
"Company" or "FNFC") today announced its financial results for the
first quarter ended March 31, 2017.
The Company derives virtually all of its earnings from its
wholly-owned subsidiary, First National Financial LP ("FNFLP" or
"First National").
First Quarter Summary
- Mortgages under administration ("MUA") up 5% to $99.1 billion from $94.3
billion at March 31, 2016
- Total new mortgage originations unchanged at $2.9 billion
- Revenue up 1% to $232.2 million
from $231.4 million in the 2016 first
quarter
- Net income $36.1 million
($0.58 per common share) compared to
$37.3 million ($0.59 per common share) in the 2016 first
quarter
- Pre-FMV EBITDA(1) down 7% to $53.1 million from $56.8
million in the 2016 first quarter
Management Commentary
"The resilience of First National's business model and the
advantage of its broad Canadian presence were evident in the first
quarter of 2017," said Stephen
Smith, Chairman and CEO. "Despite lower residential housing
market activity in Western Canada,
and intensified competition fueled by changes to mortgage rules,
the Company came very close to equaling last year's first quarter
performance as it captured new opportunities in residential and
commercial markets and realized the economic advantages of scale.
The results were satisfying given the changing market
environment."
"While the first quarter is never a bellwether for residential
lenders due to seasonality, it does hint at what may follow this
year as tighter mortgage insurance rules, the tax regime in
British Columbia and economic
weakness in Alberta play out,"
said Moray Tawse, Executive Vice President. "We experienced a taste
of all three in the first quarter and performed well. Total single
family production including renewals increased 8% to $4.3 billion despite a 12% drop in single family
originations in our Calgary and
Vancouver operations and a 6%
decline in Quebec. Offsetting
these declines was a 9% increase in originations out of our
Toronto office. Our commercial
business got off to a great start with higher new originations and
renewals which led to total commercial production growth of 22%.
Once again, this demonstrates the advantage that accrues from
having strong residential and commercial lending businesses."
|
|
|
Quarter
ended
|
|
March 31,
2017
|
March 31,
2016
|
For the
Period
|
($
000's)
|
Revenue
|
232,238
|
231,395
|
Income before
income taxes
|
49,157
|
50,691
|
Pre-FMV EBITDA
(1)
|
53,084
|
56,819
|
At Period
end
|
|
|
Total
assets
|
29,901,289
|
28,194,301
|
Mortgages under
administration
|
99,061,532
|
94,275,930
|
(1)
|
This non-IFRS measure
adjusts income before income taxes by adding back expenses for
amortization of intangible and capital assets (generally described
as EBITDA) but it also eliminates the impact of changes in fair
value by adding back losses on the valuation of financial
instruments and deducting gains on the valuation of financial
instruments. See also the section "Non-GAAP Measures" in this news
release for additional detail.
|
Q1 2017 Summary
First National's MUA increased 5% to $99.1 billion at March 31,
2017 from $94.3 billion at
March 31, 2016. Comparing
December 31, 2016 and March 31, 2017, MUA was lower by 1% reflecting
typical housing and mortgage market seasonality, the impact of
tighter mortgage rules on certain segments of the single family
residential market and about $500
million of scheduled CMBS maturities.
New single-family mortgage originations were $1.9 billion, down slightly from $2.0 billion in the first quarter of 2016,
largely due to a 12% decline in volumes originated by First
National's Calgary and
Vancouver operations. These
operations were affected by the ongoing slowdown in Alberta's oil industry and its effect on
housing activity and by a tax on foreign ownership in British Columbia. All Canadian markets were
generally affected by tighter mortgage rules introduced in early
October, 2016, although First National's new single family
originations in Ontario and the
Maritimes climbed 9%, offsetting declines in the West and in
Quebec. Single family mortgage
renewals amounted to $1.1 billion, up
from $929 million a year ago on more
renewal opportunities.
Commercial segment originations increased 7% to $945 million from $886
million in the same period of 2016, while commercial
mortgage renewals amounted to $332
million, up 50% from $162
million a year ago. The Company originated and renewed
for securitization purposes $1.7
billion of mortgages in the first quarter in order to take
advantage of the Company's capital resources.
Revenue increased 1% to $232.2
million from $231.4 million in
the first quarter of 2016 primarily due to a 2% increase in
interest on securitized mortgages ($37.2
million compared to $36.6
million a year ago), a 6% increase in mortgage servicing
income ($30.2 million compared to
$28.5 million) and a 3% increase in
gains on deferred placement fees ($3.7
million compared to $3.6
million). These increases were partially offset by a 24%
decrease in placement fees ($26.6
million compared to $36.6
million a year ago) as a result of the Company's decision to
allocate more of its originations to its securitization business.
The securitized mortgage portfolio amounted to $26 billion compared to $25 billion at March 31,
2016.
Income before income taxes was $49.2
million, down from $50.7
million in the first quarter of 2016 largely due to lower
placement fees earned because of lower volumes allocated to
institutional funding partners. Also, the Company recorded a
$2.7 million loss on financial
instruments in the first quarter of 2017 compared to a loss of
$3.7 million on financial instruments
in the first quarter a year ago. While these losses reduced net
income in both quarters, the gross spread on the related portfolio
of securitized mortgages will be proportionately wider going
forward.
The Company's Pre-FMV EBITDA(1) decreased 7% to
$53.1 million from $56.8 million in the first quarter a year ago due
to lower placement fees.
Dividends
The Board declared common share dividends in the first two
months of 2017 based on an annualized rate of $1.70 per share. At its meeting in February, the
Board increased the common share dividend by 9% to an annualized
rate of $1.85 per share, commensurate
with the dividend for the period March 1 to
March 31, 2017 (paid April
17th, 2017). On an after-tax Pre-FMV basis, the
dividend payout ratio was 71% compared to 61% in the first quarter
of 2016.
The Company also paid $0.68
million of dividends on its preferred shares in the first
quarter of 2017 compared to $1.16
million a year ago. The decrease reflected the April 1, 2016 rate reset of its Class A Series 1
preference shares (fixed rate of 2.79%) and the creation of
floating rate Class A Series 2 preference shares. The floating rate
preferred shares paid 2.58%, for the three months ended
March 31, 2017. For the period
January 1, 2017 to March 31, 2017, the Series 1 dividend was
$0.174375 per share while the Series
2 Share dividend was $0.158979.
Outlook
For the remainder of 2017, the Company anticipates lower
seasonal origination in the residential segment as the full impact
of new mortgage insurance rules announced in October 2016 and the higher cost of portfolio
insurance are realized. The rules, which increase the qualifying
rate for 5 year term fixed rate borrowers and reduce the scope of
portfolio insurance, combined with regional slowing housing markets
will likely reduce First National's origination volumes. Although
the Company sees growth in the commercial segment and in
single-family renewals, it expects that new single-family
origination could be significantly reduced from the volumes
recorded in 2016. Competitive pressures from other mortgage lenders
originating insured mortgages may also negatively impact
origination volumes and the cost of broker fees as lenders compete
for market share in a shrinking market. Recent Ontario Government
announcements of a foreign buyer's tax and rent controls may also
affect origination but at this early stage, management is unable to
assess the impact on First National.
In the face of these challenges in the residential market for
new mortgage originations, the Company will endeavor to grow its
commercial segment business, focus on the significant value of
single family renewal opportunities and continue to generate income
and cash flow from its $26 billion
portfolio of mortgages pledged under securitization and
$73 billion servicing portfolio.
Complete consolidated financial statements for the Company as
well as management's discussion and analysis are available at
www.sedar.com and at www.firstnational.ca.
Conference Call and Webcast
April 26, 2017 10 am
ET
|
Participant
Numbers
416-642-5209
or
866-564-7439
|
The audio of the conference call will be webcast live and
archived on First National's website at www.firstnational.ca. A
question and answer session for analysts and institutional
investors will be held following management's presentation.
A taped rebroadcast of the conference call will be available to
listeners until 1pm ET on
May 3, 2017. To access the
rebroadcast, please dial 1 647-436-0148 or 888-203-1112 and enter
passcode 9267734 followed by the number sign. The webcast is also
archived at www.firstnational.ca for three months.
About First National Financial Corporation
First National Financial Corporation (TSX: FN, TSX:FN.PR.A,
TSX:FN.PR.B) is the parent company of First National Financial LP,
a Canadian-based originator, underwriter and servicer of
predominantly prime residential (single-family and multi-unit) and
commercial mortgages. With almost $100
billion in mortgages under administration, First National is
Canada's largest non-bank
originator and underwriter of mortgages and is among the top three
in market share in the mortgage broker distribution channel.
For more information, please visit www.firstnational.ca.
1 Non-GAAP Measures
The Company uses
IFRS as its accounting framework. IFRS are generally accepted
accounting principles (GAAP) for Canadian publicly accountable
enterprises for years beginning on or after January 1, 2011. The Company also refers to
certain measures to assist in assessing financial performance.
These "non-GAAP measures" such as "Pre-FMV EBITDA" and "After tax
Pre-FMV Dividend Payout Ratio" should not be construed as
alternatives to net income or loss or other comparable measures
determined in accordance with GAAP as an indicator of performance
or as a measure of liquidity and cash flow. Non-GAAP measures do
not have standard meanings prescribed by GAAP and therefore may not
be comparable to similar measures presented by other issuers.
Forward-Looking Information
Certain information
included in this news release may constitute forward-looking
information within the meaning of securities laws. In some cases,
forward-looking information can be identified by the use of terms
such as "may", "will, "should", "expect", "plan", "anticipate",
"believe", "intend", "estimate", "predict", "potential", "continue"
or other similar expressions concerning matters that are not
historical facts. Forward-looking information may relate to
management's future outlook and anticipated events or results, and
may include statements or information regarding the future
financial position, business strategy and strategic goals, product
development activities, projected costs and capital expenditures,
financial results, risk management strategies, hedging activities,
geographic expansion, licensing plans, taxes and other plans and
objectives of or involving the Company. Particularly, information
regarding growth objectives, any future increase in mortgages under
administration, future use of securitization vehicles, industry
trends and future revenues is forward-looking information.
Forward-looking information is based on certain factors and
assumptions regarding, among other things, interest rate changes
and responses to such changes, the demand for institutionally
placed and securitized mortgages, the status of the applicable
regulatory regime and the use of mortgage brokers for single family
residential mortgages. This forward-looking information should not
be read as providing guarantees of future performance or results,
and will not necessarily be an accurate indication of whether or
not, or the times by which, those results will be achieved. While
management considers these assumptions to be reasonable based on
information currently available, they may prove to be incorrect.
Forward looking-information is subject to certain factors,
including risks and uncertainties listed under ''Risk and
Uncertainties Affecting the Business'' in the MD&A, that could
cause actual results to differ materially from what management
currently expects. These factors include reliance on sources of
funding, concentration of institutional investors, reliance on
relationships with independent mortgage brokers and changes in the
interest rate environment. This forward-looking information is as
of the date of this release, and is subject to change after such
date. However, management and First National disclaim any intention
or obligation to update or revise any forward-looking information,
whether as a result of new information, future events or otherwise,
except as required under applicable securities regulations.
SOURCE First National Financial Corporation