TORONTO, Oct. 30, 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 and nine months ended September 30,
2018. The Company derives virtually all of its earnings from
its wholly-owned subsidiary, First National Financial LP ("FNFLP"
or "First National").
Third Quarter Summary
- Mortgages under administration ("MUA") up 5% to a record
$105.0 billion from $100.2 billion at September 30, 2017
- New mortgage originations up 10% to $5.4
billion from $4.9 billion a
year ago
- Revenue up 13% to $321.8 million
compared to $284.3 million in Q3
2017
- Net income $51.9 million
($0.85 per common share) compared to
$58.8 million ($0.96 per common share) in Q3 2017
- Pre-FMV EBITDA(1) $63.0
million compared to $51.8
million in Q3 2017
Dividend Increase and Special Dividend Payment
At its
meeting today, the Board of Directors increased the Company's
regular monthly common share dividend to an annualized rate of
$1.90 from $1.85 per share, commencing with the dividend
payable on December 17, 2018. The
Board also announced the payment of a special common share dividend
in the amount of $1.00 per common
share, payable on December 17, 2018
to common shareholders of record November
30, 2018.
Management Commentary
"Performance on a year-to-date
basis and in the third quarter was strong," said Stephen Smith, Chairman and Chief Executive
Officer. "First National has not only adapted to new B-20 mortgage
rules, but it has benefitted from the re-introduction of our
alternative lending product, Excalibur, and opportunities presented
in the commercial market to set another new record for MUA. Despite
tighter mortgage spreads, the Company's business model efficiently
converted MUA growth into solid earnings. These results, taken
together with the excess capital generated over several years and
our belief that near-term growth can be funded from operations,
support the Board's decision to raise the dividend and authorize a
special payment to common shareholders. We are pleased with these
determinations and confident that First National can continue to
serve our customers, partners and shareholders well in the quarters
ahead."
In the third quarter, new single-family originations were
$3.9 billion, up 23% year over year,
while single-family renewals were $1.8
billion, up 6% year over year. New commercial originations
of $1.5 billion were 14% lower than a
year ago, while commercial renewals of $295
million were 6% lower than the third quarter of 2017. Total
originations together with renewals amounted to $7.5 billion, up 9% from $6.9 billion in Q3 2017.
"We're pleased with the quantity and quality of mortgage growth
this year," said Moray Tawse, Executive Vice President. "In single
family, third quarter origination growth was most pronounced in the
Montreal and Toronto regions. In Montreal, a return to more rational pricing
behaviour by competitors encouraged us to increase our activity
levels and we did with a 54% overall volume increase. In
commercial, production was lower but we're comparing to a very
strong period a year ago. Consequently, we believe this is timing
related and does not represent a change in market fundamentals.
Based on year-to-date performance, both multi-unit commercial and
single-family residential segments will finish 2018 with record
MUA, which is a strong positive for future earnings."
|
|
|
|
Quarter
ended
|
Nine months
ended
|
|
Sept. 30,
2018
|
Sept. 30,
2017
|
Sept. 30,
2018
|
Sept. 30,
2017
|
For the
Period
|
($000's)
|
Revenue
|
321,835
|
284,315
|
869,471
|
808,753
|
Income before
income taxes
|
71,078
|
80,009
|
183,367
|
222,244
|
Pre-FMV EBITDA
(1)
|
62,990
|
51,826
|
169,406
|
173,185
|
At Period
end
|
|
Total
assets
|
35,597,827
|
31,548,130
|
35,597,827
|
31,548,130
|
Mortgages
under administration
|
105,032,062
|
100,176,720
|
105,032,062
|
100,176,720
|
(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 (except those on mortgage investments) and deducting
gains on the valuation of financial instruments. See also the
section "Non-GAAP Measures" in this news release for additional
detail.
|
Q3 2018 Summary
First National's MUA increased 5% to $105.0 billion at September 30, 2018 from $100.2 billion at September 30, 2017. Between June 30, 2018 and September 30, 2018, MUA also grew at an
annualized rate of 5% as a result of traditionally strong seasonal
market activity.
New single-family mortgage originations increased 23% to
$3.9 billion from $3.2 billion in the third quarter of 2017,
reflecting steady growth in Toronto and Montreal regions. New originations in the
Calgary and Vancouver regions were flat to last year. In
addition, the Company benefitted from originations under its
Excalibur program that was relaunched in 2018 (and did not
contribute to 2017 results). Single family mortgage renewals
amounted to $1.8 billion in the third
quarter of 2018, up 6% from the prior year on higher renewal
opportunities and good execution. New commercial segment
originations decreased 14% to $1.5
billion from $1.7 billion a
year ago, while commercial mortgage renewals amounted to
$295 million, down 6% from
$313 million a year ago. Based on
performance through the first three quarters, MUA in both business
segments reached record levels at September
30, 2018: Single family MUA was $78.8
billion ($77.1 billion a year
ago); while Multi-Unit and Commercial MUA was $26.2 billion ($23.1
billion a year ago). The Company originated and renewed for
securitization purposes $3.0 billion
of mortgages in the third quarter of 2018 compared to $2.2 billion a year ago.
Third quarter 2018 revenue was $321.8
million, up 13% compared to $284.3
million a year ago. This increase was related to the rising
interest rate environment, partially offset by lower revenue from
gains on financial instruments. Interest revenue on securitized
mortgages increased by $38.3 million
as the portfolio composition moved to mortgages with higher
interest rate coupons. Because of changing interest rates and the
adoption of hedge accounting in 2018, gains on financial
instruments were lower by $20.0
million year over year. Without this component of revenue,
revenue increased by 20%. Placement fee revenues were higher in the
2018 third quarter as the comparative 2017 fees were affected by
fair value accounting. Effectively, $14.4
million of revenue was recognized in the second quarter of
2017 within gains on financial instruments detracting from
placement fees subsequently earned on the related mortgages in the
third quarter of 2017.
The Company has several revenue sources. Placement fees were
$42.0 million, up 35% from
$31.2 million in Q3 2017 for reasons
noted above. Mortgage servicing income increased 10% to
$42.7 million in the third quarter of
2018 from $38.7 million in Q3 2017
largely due to growth in the Company's third-party underwriting
business. Mortgage investment income increased 24% to
$23.1 million from $18.6 million in Q3 2017 due primarily to an
increase in market interest rates. Net interest – securitized
mortgages decreased 7% to $34.1
million from $36.5 million in
Q3 2017 as the benefit of a larger portfolio was offset by tighter
weighted-average spreads. Revenue from gains on deferred placement
fees was $3.0 million, up 36% from
$2.2 million a year ago on account of
higher volumes of multi-unit residential mortgages originated and
sold to institutional NHA-MBS issuers and consistent spreads.
Securitized mortgages amounted to $30.2 billion at September
30, 2018, up 15% from $26.2
billion a year ago.
Income before income taxes was $71.1
million compared to $80.0
million in Q3 2017, an 11% decline due to changing capital
markets conditions and the manner in which the Company accounts for
gains and losses on financial instruments. In aggregate, the impact
from financial instruments decreased this measure by $5.6 million compared to the 2017 quarter.
Pre-FMV EBITDA(1), which excludes the impact of gains
and losses on financial instruments, increased by 22% to
$63.0 million from $51.8 million in Q3 2017. This measure was higher
due to lower placement fee revenues recorded in Q3 2017 when
accounting conventions related to interest rate hedging were
different. Normalizing for this change, Pre-FMV
EBITDA(1) would have decreased by 5% in Q3 2018 from Q3
2017 due to tighter mortgage spreads and increased securitization,
which delays the earning's process.
Chief Operating Officer
The Board is pleased to announce the appointment of Mr.
Jason Ellis as Chief Operating
Officer effective October 30, 2018.
Since 2004, Mr. Ellis has been responsible for leading the Treasury
and Capital Markets activities at First National and has
successfully managed the majority of the Company's relationships
with its investor clients. In his expanded role, he will continue
to report to the CEO. Stephen Smith
added "As we continue to grow, it is important to ensure we
maintain focus on our operational excellence and the creation of
this role and promotion of Jason positions us well in the market
place and with our competitors."
Dividends
The Board declared common share dividends in the third quarter
of 2018 of $27.7 million or the
annualized equivalent of $1.85 per
common share. The dividend payout ratio as a percentage of net
income attributable to common shareholders was 54% in Q3 2018. If
gains on financial instruments are excluded, the dividend payout
ratio for the third quarter was 63%. The Board also declared
$0.7 million of dividends on its
preferred shares in the third quarter of 2018, unchanged from the
comparable period in 2017.
Outlook
Going into the fourth quarter of 2018, the Company is optimistic
that the trend established in the first three quarters will
continue. The 13% year-to-date increase experienced in new
single-family origination represents a return to more normalized
markets after the disruption in 2017 resulting from the change to
mortgage insurance rules announced in October 2016. Despite the impact of these 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. It also expects a tight
interest spread environment similar to what has existed for most of
2018.
The Company will continue to generate income and cash flow from
its $30 billion portfolio of
mortgages pledged under securitization and $72 billion servicing portfolio, and focus on the
value inherent in its significant single-family renewal book.
Conference Call and Webcast
October 31, 2018 10
am ET
|
Participant
Numbers
647 794 1827 or
800-347-6311
|
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
November 7, 2018. To access the
rebroadcast, please dial 647-436-0148 or 888-203-1112 and enter
passcode 8529188 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 $105
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" 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 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