TORONTO, Oct. 29, 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 nine months ended September
30, 2019. 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") increased 5% to
$110.6 billion from $105.0 billion a year ago
- Revenue increased 13% to $362.8
million from $321.8 million a
year ago
- Net income was $60.6 million
($1.00 per share) compared to
$52.0 million ($0.85 per common share) a year ago
- Pre-FMV EBITDA(1) was $80.8
million compared to $63.0
million a year ago
Dividend Increase and Special Dividend
Declaration
Today, the Company's Board of Directors also
announced an increase to the regular monthly dividend and the
payment of a special dividend.
Effective with the dividend payable on December 16, 2019, the common share dividend will
increase to $1.95 per common share on
an annualized basis from its current annualized rate of
$1.90. Additionally, a special common
share dividend in the amount of $0.50
per share will be paid on December 16,
2019 to shareholders of record on November 29, 2019. This special payment reflects
the Board's determination that over the past year, First National
has generated excess capital and can continue to fund its near-term
growth opportunities from operations. This marks the third
consecutive year the Company has paid a special dividend and the
5th time in the past five years that it has increased its regular
dividend payment.
Management Commentary
"Third quarter growth exceeded
our expectations as the strong economy and lower mortgage rates
combined to provide a solid foundation for residential market
activity," said Stephen Smith,
Chairman and Chief Executive Officer. "As a result of higher
originations, wider mortgage spreads through most of the quarter
and a shift in our funding mix to institutional placements, these
fundamentals translated into record profitability. We are very
pleased with this progress and the support it provides for the most
recent increase in dividend payments. We are determined to maintain
our focus on building strong relationships in all of our markets to
ensure First National's long-term performance."
For the third quarter, new mortgage originations were
$5.6 billion compared to $5.4 billion a year ago, reflecting: $4.2 billion of new single-family originations
(compared to $3.9 billion a year ago)
and $1.4 billion of commercial
originations (compared to $1.5
billion a year ago). Total mortgage renewals were
$2.0 billion compared to $2.1 billion a year ago reflecting: $1.7 billion of single-family renewals
($1.8 billion a year ago) and
$343 million of commercial renewals
($295 million a year ago).
"The third quarter was punctuated by solid growth in
single-family mortgage originations across the country," said Moray
Tawse, Executive Vice President. "Every one of our offices reported
growth, which is a change from recent quarters when we experienced
some market weakness in Western
Canada. Originations in Ontario were once again assisted by our
Excalibur program, which continues to address a well-defined need
in the mortgage market. Our commercial business also delivered a
solid quarter; remaining on pace for a year of record production.
The net result was sizeable growth in MUA, which is a key driver of
First National's earnings."
|
|
Quarter
ended
|
Nine months
ended
|
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|
2019
|
2018
|
2019
|
2018
|
For the
Period
|
($
000's)
|
Revenue
|
362,833
|
321,835
|
984,385
|
869,471
|
Income before income
taxes
|
82,778
|
71,078
|
175,120
|
183,367
|
Pre-FMV EBITDA
(1)
|
80,772
|
62,990
|
189,519
|
169,406
|
At Period
end
|
|
Total assets
|
37,249,143
|
35,597,827
|
37,249,143
|
35,597,827
|
Mortgages under
administration
|
110,601,875
|
105,032,062
|
110,601,875
|
105,032,062
|
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
|
Q3 2019 Summary
Between June 30, 2019 and
September 30, 2019, MUA increased at
an annualized rate of 4%. For the third quarter of 2019,
single-family mortgage originations were 8% or $0.3 billion higher than a year ago. The Company
attributes this growth to a strong economy, a lower interest-rate
environment and First National's performance in the mortgage broker
market. Regionally, all of the Company's branches experienced
growth, led by Ontario and the
Maritimes where originations were 10% above last year. Third
quarter 2019 commercial segment originations of $1.4 billion were 6% or $0.1 billion lower than a year ago due to the
timing of mortgage closings. Third quarter 2019 single family
mortgage renewals of $1.7 billion
were 6% or $0.1 billion lower than a
year ago, while commercial mortgage renewals of $343 million were up 16% from $295 million a year ago.
The Company took advantage of demand for its mortgages and
increased mortgages placed with institutional investors to
$5.9 billion in 2019 from
$4.3 billion in 2018. By placing
mortgages, the Company accelerates the recognition of earnings.
Despite this growth the Company still originated and renewed
$1.6 billion of mortgages for its own
securitization programs.
Third quarter 2019 revenue was $362.8
million compared to $321.8
million in the third quarter of 2018, a 13% increase
reflecting:
- 66% year-over-year growth in placement fees, which stood at
$69.8 million, reflecting a change in
funding mix between the quarters (principally higher placement
volume with institutional investors)
- 3% year-over-year growth in mortgage servicing income, which
stood at $43.9 million, due to higher
MUA
- 5% year-over-year growth in net interest revenue earned on
securitized mortgages, which stood at $35.9
million, due to the impact of wider securitization spreads
coupled with a shift in the securitized portfolio to NHA-MBS funded
mortgages from ABCP-funded assets
- 20% year-over-year growth in gains on deferred placement fees,
which stood at $3.6 million, due to
both higher volumes of mortgages originated and wider spreads
Third quarter revenue growth was partially offset by a 3%
year-over-year decrease in mortgage investment income, which stood
at $22.5 million, due primarily to
lower commercial segment mortgage and loan investments held in the
period.
Q3 2019 Pre-FMV EBITDA(1) was $80.8 million, 28% higher than in Q3 2018. Growth
reflected increased origination and the Company's decision to shift
its funding from securitization to institutional placement.
By increasing funding through institutional placement by
approximately $1.3 billion, First
National accelerated the recognition of earnings into the current
period. (The value of securitization is recognized in earnings over
the term of the mortgages – typically five years.) The Company also
benefited from wider mortgage spreads which have prevailed for most
of 2019.
Q3 2019 net income was $60.6
million ($1.00 per share)
compared to $52.0 million
($0.85 per common share) in Q3
2018.
Dividends
The Company declared common share dividends
in the third quarter of 2019 of $28.5
million compared to $27.7
million in the third 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 third quarter was
48% compared to 54% a year ago. If gains and losses on financial
instruments in the comparative quarters are excluded, the dividend
payout ratio for Q3 2019 would have been 49% compared to 63% in Q3
2018.
The Company also paid $0.8 million
of dividends on its preferred shares in the third quarter of 2019
compared to $0.7 million in the 2018
third quarter.
Shares Outstanding
At September
30, 2019 and October 29, 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
Management remains optimistic about the
remainder of the year. Single-family mortgage commitments have
continued to outpace commitments at the same time in 2018.
The commercial segment anticipates a strong fourth quarter based on
its current pipeline and forecasts growth year over year in fourth
quarter originations. Despite these favorable indications, the
Company will continue to be faced with uncertain securitization
margins as mortgage spreads have been volatile in the past 12
months and tightened toward quarter end. The effect of pre 2018
fair value accounting conventions will continue to have a negative
impact on income for the remainder 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 $32 billion portfolio of mortgages pledged under
securitization and $77 billion
servicing portfolio and focus on the value inherent in its
significant single-family renewal book.
Conference Call and Webcast
October 30, 2019
10:00 am ET
|
(647) 427-7450 or
(888) 231-8191
www.firstnational.ca
|
A taped rebroadcast of the conference call will be available
until November 6, 2019 at
midnight ET. To access the
rebroadcast, please dial (416) 849-0833 or (855) 859-2056 and enter
passcode 3481438 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 $110
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