TORONTO, July 26, 2016 /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 three and six months ended June 30,
2016. The Company derives virtually all of its earnings from
its wholly-owned subsidiary, First National Financial LP ("FNFLP"
or "First National").
Second Quarter Summary
- Mortgages under administration ("MUA") up year over year
by 7% to a record $96.6 billion from
$90.1 billion at June 30, 2015
- Mortgage originations ahead 8% to $5.5
billion from $5.1 billion in
the 2015 second quarter
- Revenue up 1% to $253.9 million
from $251.2 million in the 2015
second quarter
- Net income $41.2 million
($0.67 per common share) compared to
net income of $42.5 million
($0.68 per common share) in the 2015
second quarter
- Pre-FMV EBITDA(1) up 31% to $68.2 million compared to $52.0 million in the 2015 second quarter
Management Commentary
"First National's second quarter
performance attests to the strength of demand in residential and
commercial mortgage markets and the Company's ability to
effectively serve that demand with products and services that
appeal to borrowers and their mortgage broker advisors," said
Stephen Smith, Chairman and Chief
Executive Officer. "Once again, growth was profitable and reflected
the benefit of increases in interest revenue on securitized
mortgages, placement fees and mortgage servicing, partially offset
by losses on short bonds used for our economic hedging. These
losses will result in wider gross spreads on the related portfolio
of securitized mortgages in future periods. Overall, we are pleased
with the Company's performance in a very active period for Canadian
real estate."
"Total second quarter production showed that First National
continued to advance its position as Canada's non-bank leader in mortgage lending,"
said Moray Tawse, Executive Vice President. "Including both new
originations and renewals, we funded $7.1
billion mortgages in the quarter, 11% higher than a year
ago. On the new business side, single family originations increased
by $161 million or 4% year over year,
while commercial originations climbed 22% or $248 million. This performance was achieved in
spite of a 10% decline in activity levels for our Calgary office which serves Alberta and Saskatchewan communities affected by the oil
industry's downturn. In addition, First National was successful in
converting renewal opportunities into ongoing business, with
residential renewals up 8% to $1.3
billion and commercial renewals higher by 80% to
$296 million. With higher
originations and renewals, the Company was able to increase the
volume it retained for securitization while maintaining volume
originated for our institutional customers – a positive
outcome."
|
|
|
|
Quarter
ended
|
Six months
ended
|
|
June 30,
2016
|
June 30,
2015
|
June 30,
2016
|
June 30,
2015
|
For the
Period
|
($000's)
|
|
Revenue
|
253,915
|
251,206
|
485,310
|
418,666
|
|
Income before income
taxes
|
55,901
|
57,538
|
106,592
|
52,639
|
|
Pre-FMV EBITDA
(1)
|
68,187
|
52,012
|
125,006
|
90,451
|
At Period
end
|
|
|
Total
assets
|
31,011,683
|
27,585,945
|
31,011,683
|
27,585,945
|
|
Mortgages under
administration
|
96,591,558
|
90,111,441
|
96,591,558
|
90,111,441
|
(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.
|
Q2 2016 Summary
First National's MUA increased 7% to $96.6 billion at June 30,
2016 from $90.1 billion at
June 30, 2015. Between
March 31, 2016 and June 30, 2016, MUA grew at an annualized rate of
10%, primarily reflecting housing market seasonality.
Single-family mortgage originations increased 4% to $4.1 billion from $4.0
billion in the second quarter of 2015, despite 10% lower
originations from the Company's Calgary office reflecting the ongoing downturn
in Alberta and Saskatchewan's housing markets as a result of
the oil industry's slowdown. Single family mortgage renewals
amounted to $1.3 billion in the
second quarter of 2016, compared to $1.2
billion a year ago on more renewal opportunities. Commercial
segment originations increased 22% to $1.4
billion from $1.1 billion in
the same period of 2015, while commercial mortgage renewals
amounted to $296 million compared to
$164 million a year ago as First
National grew its presence within the commercial market across
Canada. The Company
originated and renewed for securitization purposes $2.8 billion of mortgages in the second quarter
in order to take advantage of profitable funding spreads, compared
to $2.7 billion a year ago.
Revenue increased 1% to $253.9
million from $251.2 million in
the second quarter of 2015 despite losses on financial instruments
which reduced revenue year over year by $17.6 million. Excluding these losses on
financial instruments, revenue increased 8% year over year in the
second quarter primarily as a result of growth in interest revenue
– securitized mortgages (up 15% year over year to $36.3 million), placement fees (up 20% to
$53.0 million) and mortgage servicing
income (up 23% to $33.6 million).
These revenue categories were positively impacted by higher
origination and MUA. Securitized mortgages amounted to $24.9 billion at June 30,
2016, up 4% from $23.9 billion
a year ago.
Income before income taxes was $55.9
million compared to $57.5
million in the second quarter of 2015. The year-over-year
reduction primarily reflected a $9.9
million loss on financial instruments in 2016 compared to a
gain on financial instruments of $7.7
million in the second quarter a year ago. The net change in
gains and losses between 2016 and 2015 decreased income before
income taxes by $17.6 million.
Pre-FMV EBITDA(1), which excludes the impact of gain
and losses on financial instruments in both periods, increased 31%
to $68.2 million from $52.0 million a year ago. The change reflected
increased earnings from the Company's securitization program and
higher net placement fees on residential origination.
Dividends
The Board declared common share dividends in the second quarter
of 2016 of $24.7 million. On an
after-tax Pre-FMV(1) basis, the dividend payout ratio
was 52% compared to 64% in the second quarter of 2015. As
previously announced, the Company increased the common share
dividend to the annualized equivalent of $1.70 per share, effective with the payment made
on June 15, 2016, from the previous
annualized rate of $1.55 per common
share.
The Board also paid $0.68 million
of dividends on its preferred shares in the second quarter of 2016
compared to $1.16 million in the same
period 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 which paid 2.532%
for the three months ended June 30,
2016.
At June 30, 2016 and July 26, 2016, the Corporation had: 59,967,429
common shares, 2,887,147 Class A preference shares, Series 1;
1,112,853 Class A preference shares, Series 2; and, 175,000
April 2020 notes outstanding.
Outlook
Looking forward, the Company expects the low interest rate
environment to continue in 2016. Low rates will keep mortgage
affordability at favourable levels and mitigate refinancing risk
for borrowers. The Company will focus on the significant value of
renewal opportunities and its partnerships with institutional
customers in order to maximize profitability. Management expects
the Company to continue to generate cash flow from its $25 billion portfolio of mortgages pledged under
securitization and $71 billion
servicing portfolio that will maximize financial performance. First
National also expects the underwriting and fulfillment processing
services business to continue to add to earnings as mortgages
processed increase in response to the Company's superior service
levels to the mortgage broker distribution channel.
Conference Call and Webcast
July 27, 2016 10 am
ET
|
Participant
Numbers
416-204-9269
800-499-4035
|
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 1 pm ET on
August 3, 2016. To access the
rebroadcast, please dial 647-436-0148 or 888-203-1112 and enter
passcode 7414466 followed by the number sign. The webcast is also
archived at www.firstnational.ca for three months.
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.
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 more than $96
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