TORONTO, Feb. 28, 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
three and 12 months ended December 31,
2016. The Company derives virtually all of its earnings from
its wholly-owned subsidiary, First National Financial LP ("FNFLP"
or "First National").
2016 Summary
- Mortgages under administration ("MUA") up 6% to a record
$99.4 billion from $93.8 billion at December
31, 2015 New mortgage originations $17.2 billion compared to $17.3 billion in 2015
- Revenue up 15% to $1.0 billion
from $915.3 million in 2015
- Net income $201.8 million
($3.28 per common share) up 84% from
$109.4 million ($1.71 per common share) in 2015
- Pre-FMV EBITDA(1) up 21% to $253.5 million from $209.9
million in 2015
Fourth Quarter Summary
- MUA increased at annualized rate of 3% during the fourth
quarter of 2016
- New mortgage originations $4.1
billion compared to $4.2
billion in the fourth quarter a year ago
- Revenue up 16% to $290.7 million
from $250.0 million a year ago
- Net income $71.8 million
($1.18 per common share) up 75% from
$41.1 million ($0.66 per common share) a year ago
- Pre-FMV EBITDA(1) up 11% to $61.1 million compared to $58.5 million a year ago
Common Share Dividend Increase
First National's Board
of Directors today increased the common share dividend to the
annual equivalent of $1.85 per share,
a 9% increase over the current annualized rate of $1.70 per share, effective with the dividend to
be paid on April 17, 2017.
Management Commentary
"This was a very successful year
for First National as strong contributions made by the Company's
residential and commercial business lines and our third-party
servicing and fulfillment operation delivered record revenue and
earnings," said Stephen Smith,
Chairman and Chief Executive Officer. "These results demonstrate
the value of the Company's structural advantages as a market
diversified, non-bank lender as well as the strength of our
employees who dedicate themselves every day to meeting the needs of
borrowers, our mortgage broker partners and our investors."
For 2016 as a whole and in the fourth quarter in particular,
results benefited from gains on financial instruments as opposed to
losses on these items in 2015. The impact of these gains and losses
is removed in calculating Pre-FMV EBITDA(1), which is a
key measure used by the Company's management in assessing
performance and reviewing the common share payout ratio. The
substantial growth in annual Pre-FMV EBITDA(1) was
due to higher earnings in net placement fees and growth in
servicing and securitization.
Mr. Smith noted that today's decision to increase the common
share dividend marks "the 10th time that First National has boosted
cash payouts to shareholders over the decade since the Company
first listed on the TSX. This latest increase is based on
performance to date and management's outlook for future years."
Total originations in 2016 were in line with the strong
performance delivered in 2015 in spite of obvious regional
disparities in market activity.
"Throughout 2016, First National faced the challenge of a
substantial reduction in demand in oil-producing regions of
Canada and an increase in
competition across the country," said Moray Tawse, Executive Vice
President. "Even though volumes for our Calgary regional office were much lower, new
single family originations of $12.4
billion came within 4% of last year, which we consider a
very positive outcome. The growth leader this year was our
Commercial business, where new originations were 9% higher than in
2015 at $4.8 billion. Combined with
healthy renewal volumes in both business segments, First National's
total 2016 production of $22.7
billion was very strong."
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|
|
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Quarter
ended
|
Year
ended
|
|
December
31,
2016
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December
31,
2015
|
December31,
2016
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December 31,
2015
|
For the
Period
|
($
000's)
|
|
Revenue
|
290,754
|
250,008
|
1,049,818
|
915,315
|
|
Income before income
taxes
|
97,697
|
56,384
|
274,129
|
148,676
|
|
Pre-FMV EBITDA
(1)
|
61,064
|
58,527
|
253,539
|
209,933
|
At Period
end
|
|
|
Total
assets
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30,394,465
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27,926,732
|
30,394,465
|
27,926,732
|
|
Mortgages under
administration
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99,391,490
|
93,829,629
|
99,391,490
|
93,829,629
|
|
|
|
|
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(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.
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Q4 and Annual 2016 Results Review
First National's MUA increased 6% to $99.4 billion at December
31, 2016 from $93.8 billion at
December 31, 2015. Between
September 30, 2016, and December 31, 2016, MUA grew at an annualized rate
of 3%.
In 2016, the Company's new single-family mortgage originations
decreased 4% to $12.4 billion from
$12.9 billion in 2015. Fourth quarter
2016 single family originations of $2.7
billion were 7% or $221
million lower than in the fourth quarter of 2015. In both
reporting periods, activity levels from the Company's regional
office in Calgary were much lower
than in 2015 due to lower demand for mortgages in Alberta and Saskatchewan brought about by the downturn in
the oil and gas industry.
Single family mortgage renewals amounted to $4.6 billion in 2016, up 7% from $4.3 billion in 2015. For the fourth quarter,
single family mortgage renewals were $1.1
billion compared to $1.2
billion in the same period of 2015.
In 2016, commercial segment new originations of $4.8 billion were 9% higher than in 2015 and, at
$1.4 billion, were 8% higher in the
fourth quarter of 2016 compared to the same period in 2015.
Commercial renewals amounted to $974
million for all of 2016, 6% higher than in 2015 and were
$349 million in the fourth quarter or
9% higher than in the final quarter of 2015.
For 2016, revenue increased 15% to a record $1.0 billion from $915.3
million in 2015. Excluding the impact of gains on financial
instruments in 2016 versus losses on financial instruments in 2015,
revenue increased 6% year over year primarily due to 9% growth in
interest revenue – securitized mortgages, 7% growth in placement
fees and 12% growth in mortgage servicing on higher MUA. Fourth
quarter 2016 revenue increased 16% to $290.7
million from $250.0 million a
year ago. Excluding the impact of gains and losses on financial
instruments, fourth quarter revenue was 1% higher in 2016 on growth
in interest revenue – securitized mortgages.
Securitized mortgages amounted to $26.1
billion at December 31, 2016,
up 7% from $24.3 billion at year-end
2015.
For 2016, income before income taxes increased 84% to
$274.1 million from $148.7 million in 2015, primarily due to the
significant effect of changes in the capital markets on the
Company's interest rate hedges between 2016 and 2015. For the
fourth quarter of 2016, income before income taxes increased 73% to
$97.7 million from $56.4 million for similar reasons.
For 2016, Pre-FMV EBITDA(1), which excludes the
impact of gain and losses on financial instruments, increased 21%
to $253.5 million from $209.9 million in 2015 due primarily to higher
earnings in net placement fees and continued growth in servicing
and securitization activities. For the fourth quarter of 2016,
Pre-FMV EBITDA(1) was $61.1
million, 4% higher than in 2015 due to growth that was in
line with the increase in MUA.
Dividends
The Board declared common share dividends in 2016 of
$98.9 million, 9% higher than in
2015. On an after-tax Pre-FMV(1) basis, the dividend
payout ratio was 50% in 2016 compared to 64% in 2015. The fourth
quarter 2016 payout ratio on the same basis was 58%. As announced
today, the Company has increased the common share dividend to the
annualized equivalent of $1.85 per
share, effective with the payment made on April 17, 2017, from the previous annualized rate
of $1.70 per common share.
The Company also paid $2.53
million of dividends on its preferred shares in 2016
compared to $4.65 million in 2015.
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 December
31, 2016. As previously announced, the dividend rate for the
Class A Series 2 preference shares for the period until reset due
March 2021 will be the 90-day
Canadian Treasury Bill plus 2.07% on an actual/365 day count basis
per quarter.
At December 31, 2016 and
February 28, 2017, 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
In 2017, the Company looks to build on the success of 2016,
although with the announcement of new rules on mortgage insurance,
rising interest rates and other housing-related legislation, there
will be new challenges to manage.
As described in the third quarter MD&A, new mortgage
insurance rules increased the "stress test" for borrowers of
five-year fixed rate high ratio mortgages, requiring them to
qualify based on an interest rate standard determined by the Bank
of Canada. Management feels that
while not overly significant, this will slow the high ratio insured
market activity by some 5–10%, all other factors being equal.
The new mortgage rules also eliminate the insurability on
refinance transactions of conventional mortgages. Management
believes such transactions were significant across Canada and this rule change will reduce
mortgages available for securitization for the Company's NHA-MBS
and CMB programs. Although these mortgages can be underwritten on a
conventional basis for the Company's institutional investors,
placement is generally not as profitable as securitization for
First National. As well, the introduction of these rules may reduce
the overall availability of insured mortgages across the country
and may result in tighter mortgage spreads and higher origination
costs as lenders in the securitization industry compete for the
remaining insured mortgage volume. Such an outcome would decrease
net securitization margins.
New capital rules for mortgage portfolio default insurance were
introduced in 2017. One of the results of these rules is that
insurers increased premiums associated with portfolio insurance by
over 200%, effective in the first quarter of 2017. The higher cost
of such insurance will have a direct impact on net interest margin
on any conventional mortgage that the Company elects to insure and
securitize.
Regional issues, particularly in oil-dependent areas of the
country, had a negative effect on 2016 origination volumes.
Recently, real estate companies have reported slowing sales in
British Columbia, perhaps
associated with the foreign ownership tax. The Company originates
about 20% of its single-family mortgages from its Vancouver office. Accordingly, slowing sales
there or other regional issues could have a negative impact on
origination volumes in 2017.
In the face of these potential 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 cash flow from its $26
billion portfolio of mortgages pledged under securitization
and $74 billion servicing
portfolio.
Conference Call and Webcast
March 1, 2017 10 am
ET
|
Participant
Numbers
647-794-1827
800-263-0877
|
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
March 8, 2017. To access the
rebroadcast, please dial 647-436-0148 or 888-203-1112 and enter
passcode 9858978 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 approximately $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