TORONTO, May 1, 2018 /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 months ended March 31, 2018.
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 3% to $102.2 billion compared to $99.1 billion at March 31,
2017
- New mortgage originations up 17% to $3.4
billion from $2.9 billion in
Q1 2017
- Revenue up 11% to $256.7 million
compared to $232.2 million in Q1
2017
- Net income $35.9 million
($0.59 per common share) compared to
$36.1 million ($0.58 per common share) in Q1 2017
- Pre-FMV EBITDA(1) down 5% to $50.4 million compared to $53.1 million in 2017
Management Commentary
"The results of the first
quarter were broadly positive and reflected steady growth in MUA
from increases in new single family and commercial mortgage
originations and good customer retention rates," said Stephen Smith, Chairman and Chief Executive
Officer. "While earnings, adjusted for fair value considerations
were lower by 5%, a large part of this reduction reflected our
choice to shift mortgages to securitization programs which delays
the earnings process. Despite this factor and tighter spreads, EPS
was slightly higher than a year ago, and net income attributable to
shareholders provided strong support for the common share dividend.
Given the legislative interventions in the housing market over the
past 17 months, including new B-20 Guidelines on January 1st of this year, First
National found success by staying resolutely focused on customer
service while adopting the latest underwriting standards. We're
pleased to mark our 30th business anniversary with this
performance."
In the first quarter, total originations together with renewals
amounted to $4.5 billion, up 5% from
$4.3 billion in Q1 2017 on a 12%
increase in new single-family originations and a 27% increase in
commercial originations. Single family renewals were unchanged from
a year ago while commercial renewals were 54% below Q1 2017 (which
benefitted from one particularly large renewal.)
"In evaluating first quarter originations, it appears there was
some acceleration of home-buying activity late in 2017, prior to
the advent of new B-20 underwriting guidelines," said Moray Tawse,
Executive Vice President. "A portion of those transactions closed
in the first quarter, providing a boost to single family
originations to open the year. First National's strong market share
in the broker channel was also a contributing factor. In our
commercial business, First National's continued emphasis on both
CMHC and conventional lending added to the momentum that we
initiated some five years ago."
|
|
|
Quarter
ended
|
|
March 31,
2018
|
March 31,
2017
|
For the
Period
|
($
000's)
|
Revenue
|
256,701
|
232,238
|
Income before income
taxes
|
49,272
|
49,157
|
Pre-FMV EBITDA
(1)
|
50,368
|
53,084
|
At Period
end
|
|
|
Total
assets
|
33,846,283
|
29,901,289
|
Mortgages under
administration
|
102,172,763
|
99,061,532
|
|
|
(1)
|
This non-IFRS measure
adjusts income before income taxes by adding back expenses for
depreciation of
capital assets 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 2018 Summary
First National's MUA increased 3% to $102.2 billion from $99.1
billion at March 31, 2017 on
higher new mortgage originations and good execution of available
renewal opportunities. At March 31,
2018, single-family MUA was $77.5
billion while commercial MUA was $24.7 billion, compared to $76.9 billion and $22.2
billion, respectively, a year ago. Between December 31, 2017 and March 31, 2018, MUA increased at an annualized
rate of 2%.
For the first quarter of 2018, new single-family mortgage
originations increased 12% to $2.2
billion from $1.9 billion a
year ago, as activity levels across Canada (except Alberta) were strong. Single family mortgage
renewals were $1.0 billion in the
first quarter of 2018, unchanged from a year ago. New commercial
segment originations increased 27% to $1.2
billion from $0.9 billion in
the first quarter of 2017, while commercial mortgage renewals
amounted to $152 million compared to
$332 million a year ago. The Company
originated and renewed for securitization purposes $2.4 billion of mortgages in the first quarter of
2018 compared to $1.7 billion a year
ago.
First quarter 2018 revenue increased 11% to $256.7 million compared to $232.2 million in the first quarter of 2017
primarily as a result of: a 14% increase in interest revenue earned
on securitized mortgages ($183.5
million compared to $160.6
million in 2017) due to higher mortgage rates and a larger
portfolio of securitized mortgages; a 2% increase in mortgage
servicing income ($30.9 million
compared to $30.2 million) from
growth in MUA; and, a 36% increase in mortgage investment income
($18.9 million compared to
$13.9 million) primarily due to an
increase in interest rates and growth in the Company's commercial
bridge loan program. These increases were partially offset by: a
26% decline in placement fees ($19.7
million compared to $26.6
million in 2017) due to lower residential origination volume
placed with institutional customers; and, a 5% decrease in gains on
deferred placement fees ($3.5 million
compared to $3.7 million in 2017)
reflecting tighter spreads on these mortgages.
On January 1, 2018, the Company
adopted IFRS 9, which, among other items, provided a different
approach to hedge accounting. As a result, gains and losses from
the Company's interest rate hedging program, if effective, are now
recorded in Other Comprehensive Income or deferred on the balance
sheet, as opposed to being recognized immediately in earnings as
gains or losses on financial instruments. By adopting hedge
accounting under IFRS 9, management hopes that most of the
volatility from the hedging program will not affect the income
statement. Accordingly, in the first quarter of 2018, the Company
recorded gains on short bonds used for the economic hedging program
of $0.8 million (2017 – losses of
$3.5 million). On its commercial
segment hedges, the value of the Company's hedges increased by
$5.2 million; however, because of the
designation of an effective hedge relationship, virtually the
entire amount was recorded in Other Comprehensive Income. This
amount will be amortized into the Company's regular income over the
terms of the related securitization and placement transactions. For
its residential segment, the Company designated hedge relationships
to protect the fair value of funded mortgages prior to
securitization or placement. The $0.8
million gain in the first quarter reflected the increase in
the value of short bonds used to hedge the Company's single-family
commitments for which the Company does not attempt to document a
hedge relationship. The change in value of the mortgages that were
hedged effectively in the first quarter was deferred on the
Company's balance sheet through an increase in mortgages
accumulated for securitization.
For more information on the adoption of new IFRS Accounting
Standards, including IFRS 9 and IFRS 15, please see the Company's
financial statements and Management's Discussion and Analysis for
the first quarter of 2018.
First quarter 2018 income before income taxes was $49.3 million compared to $49.2 million in the first quarter of 2017. While
much of the volatility from changing capital markets conditions was
removed from the income statement, the Company's earnings were
still affected by gains and losses on financial instruments.
Pre-FMV EBITDA(1), which removes some of this
volatility, was $50.4 million in the
first quarter of 2018 compared to $53.1
million a year ago. The 5% decline reflected tighter
mortgage spreads and increased securitization which delays the
earnings process in comparison to placement transactions in which
fees are earned in the same period as origination.
Dividends
The Board declared common share dividends in the first quarter
of 2018 of $27.7 million compared to
$26.2 million a year ago reflecting
an increase in the dividend (to $1.85
per share per annum) announced in April
2017.
The dividend payout ratio as a percentage of net income
attributable to common shareholders was 79% in Q1 2018 compared to
75% in Q1 2017. The Board also declared $0.7
million of dividends on its preferred shares in the first
quarter of 2018, unchanged from the comparable period in 2017.
Shares Outstanding
At March 31, 2018 and May 1, 2018, 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
Management is pleased with the results of the first quarter of
2018. Going into the second quarter 2018, the Company is optimistic
that the trend established in the first quarter will continue. The
12% year-over-year increase in new single-family origination
represents a return to more normalized markets after the disruption
in the first half of 2017 resulting from the increase in qualifying
rates for insured mortgages. Despite the impact of new qualifying
mortgage rules under B-20 and higher interest rates, the Company is
confident that its strong relationships with mortgage brokers and
diverse funding sources will continue to set First National apart
from its competition. While the Company expects growth in
origination in the second quarter of 2018, it also expects a tight
interest spread environment, similar to what existed in the first
quarter of 2018.
The Company will continue to generate income and cash flow from
its $28 billion portfolio of
mortgages pledged under securitization and $74 billion servicing portfolio and focus on the
value inherent in its significant single-family renewal book.
Conference Call and Webcast
May 2, 2018 10 am
ET
|
Participant
Numbers
647-484-0477 or 866-548-4713
|
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
until 1pm ET on May 9, 2018. To access the rebroadcast, please
dial 647-436-0148 and enter passcode 9431190 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 $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