TORONTO, July 30, 2019 /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,
2019. 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") increased 6% to
$109.6 billion from $103.6 billion a year ago
- Revenue increased 15% to $335.2
million from $290.9 million a
year ago
- Net income was $44.2 million
($0.72 per share) compared to
$46.3 million ($0.76 per common share) a year ago
- Pre-FMV EBITDA(1) was $68.5
million compared to $56.0
million a year ago
Management Commentary
"First National delivered strong
performance in the second quarter, assisted by a positive economic
environment, a recent reduction in interest rates that contributed
to consumer demand and normal market seasonality," said
Stephen Smith, Chairman and Chief
Executive Officer. "While we had anticipated growth, mortgage
originations surpassed our expectations in both single family and
commercial segments. We believe this reflected good execution by
our team and First National's market share positions. These higher
volumes had a favourable impact on all financial metrics including
net and operating earnings. After a slow start to the year, we're
very pleased with these results."
For the second quarter, new mortgage originations were
$6.4 billion compared to $5.1 billion a year ago, reflecting: $3.9 billion of new single-family originations
(compared to $3.4 billion a year ago)
and $2.5 billion of commercial
originations (compared to $1.7
billion a year ago). Total mortgage renewals were
$2.1 billion compared to $2.2 billion a year ago reflecting: $1.5 billion of single-family renewals
($1.9 billion a year ago) and
$664 million of commercial renewals
($299 million a year ago).
"First National's mortgage book grew at an annualized rate of
10% in the second quarter, a very strong result given the size of
our MUA," said Moray Tawse, Executive Vice President. "This growth
was relatively broad-based such that total single family MUA and
commercial MUA each reached all-time record levels. In single
family, Ontario and the Maritimes
origination led with growth of about 25%. After Q1, when total
single-family originations were $400
million lower than in 2018, we were very pleased at this
significant turnaround. Our national underwriting teams generated
$500 million in origination growth
year over year by providing excellent service to mortgage brokers
and borrowers alike. In commercial, we set a quarterly record for
originations – 50% above last year – as the business capitalized on
its market leadership and unique capabilities to develop innovative
conventional and insured financing solutions for property owners
and developers from coast to coast."
|
Quarter
ended
|
Six months
ended
|
|
|
June 30,
2019
|
June 30,
2018
|
June 30,
2019
|
June 30,
2018
|
|
For the
Period
|
($
000's)
|
|
Revenue
|
335,241
|
290,935
|
621,552
|
547,636
|
|
Income before
income taxes
|
60,264
|
63,017
|
92,342
|
112,289
|
|
Pre-FMV EBITDA
(1)
|
68,522
|
56,048
|
108,747
|
106,416
|
|
At Period
end
|
|
|
Total
assets
|
37,229,876
|
35,794,066
|
37,229,876
|
35,794,066
|
|
Mortgages
under administration
|
109,588,468
|
103,574,915
|
109,588,468
|
103,574,915
|
|
|
Note:
|
(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 (except those on mortgage investments) used
in and deducting gains on the valuation of financial
instruments.
|
Q2 2019 Summary
Between March 31, 2019 and
June 30, 2019, MUA increased at an
annualized rate of 10%. For the second quarter of 2019,
single-family mortgage originations were 13% or $0.5 billion higher than a year ago. The Company
attributes this growth to the strength of its business model
together with a lower interest-rate environment and First
National's share of the mortgage broker market. Regionally, the
Company experienced the fastest mortgage origination growth
(approximately 25%) in Ontario and
the Maritimes. Growth in Ontario
partly reflected the positive impact of the Excalibur program.
Regionally, the only outlier was single-family origination volume
in B.C., which was down 2% year over year. Second quarter 2019
single family mortgage renewals of $1.5
billion were 23% or $0.4
billion lower than a year ago, reflecting a smaller renewal
pool and lower retention rates in a very competitive environment.
Second quarter 2019 commercial segment originations of $2.6 billion were 50% or $0.9 billion higher than a year ago reflecting
strong demand and the Company's leading market position. Commercial
mortgage renewals of $664 million
were up significantly from $299
million a year ago on the same fundamentals.
The Company originated and renewed for securitization purposes
$1.9 billion of single-family
mortgages and $0.5 billion of
multi-unit residential mortgages.
Second quarter 2019 revenue was $335.2
million compared to $290.9
million in the second quarter of 2018, a 15% increase.
Looking at the contributors to revenue:
- Q2 2019 placement fees were $60.4
million, up 95% from Q2 2018 as a result of a changing
funding mix between the quarters and wider spreads
- Q2 2019 mortgage servicing income was $39.0 million, up 5% from Q2 2018 due to higher
MUA
- Q2 2019 net interest revenue earned on securitized mortgages
was $34.6 million, down 3% from Q2
2018 due to the impact of accounting for financial instruments
prior to the adoption of IFRS 9 and tighter weighted-average
mortgage spreads
- Q2 2019 mortgage investment income was $21.8 million, down 2% from Q2 2018 due primarily
to lower commercial segment mortgage and loan investments held in
the period
- Q2 2019 gains on deferred placement fees were $2.9 million, up 21% from Q2 2018 due to higher
volumes of mortgages originated and sold to institutional
investors
Q2 2019 Pre-FMV EBITDA(1) was $68.5 million, 22% higher than in Q2 2018 largely
due to increased placement fee revenue. Q2 2019 net income was
$44.2 million ($0.72 per share) compared to $46.3 million ($0.76 per common share) in Q2 2018.
Dividends
The Company declared common share dividends in the second
quarter of 2019 of $28.5 million
compared to $27.7 million in the
second quarter of 2018, reflecting a dividend increase in
December 2018 that brought the
annualized rate to $1.90 per share
(paid monthly) from $1.85 per share.
The common share payout ratio in the second quarter was 66%
compared to 61% a year ago. If gains and losses on financial
instruments in the comparative quarters are excluded, the dividend
payout ratio for Q2 2019 would have been 58% compared to 70% in Q2
2018.
The Company also paid $0.8 million
of dividends on its preferred shares in the second quarter of 2019
compared to $0.7 million in 2018
second quarter.
Shares Outstanding
At June 30, 2019 and July 30, 2019, 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 senior unsecured notes
outstanding.
Outlook
The seasonally strong second quarter exceeded management's
expectations as single-family origination increased by 13% from the
comparative quarter in 2018 and commercial segment origination
increased by 50%. Management remains optimistic for the remainder
of the year. Single-family mortgage commitments continue to outpace
those at the same time in 2018, although not by the same degree as
evidenced at the end of the first quarter of 2019. Similarly, the
commercial segment continues to meet its growth initiatives and
increase its presence across the country. While it is unlikely the
growth rate of 50% recorded in the second quarter will be repeated,
the Company continues to forecast double digit rates of growth.
Despite these favorable indications, the Company will continue to
be faced with tight securitization margins as mortgage rates have
tightened toward quarter end and the effect of pre 2018 fair value
accounting conventions will continue to have a negative impact on
its income for most of 2019.
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. The Company will
continue to generate income and cash flow from its $31 billion portfolio of mortgages pledged under
securitization and $76 billion
servicing portfolio and focus on the value inherent in its
significant single-family renewal book.
Conference Call and Webcast
July 31, 2019 11:30
am ET
|
Participant
Numbers
(647) 427-7450 or
(888) 231-8191
|
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 August 7, 2019 at midnight ET. To access the rebroadcast, please
dial (416) 849-0833 or (855) 859-2056 and enter passcode 1289335
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 over $109
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