TORONTO, Feb. 24, 2020 /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 twelve months ended December
31, 2019. The Company derives virtually all of its earnings
from its wholly owned subsidiary, First National Financial LP
("FNFLP" or "First National").
2019 Annual Summary
- Mortgages under administration ("MUA") increased 5% to a record
$111.4 billion compared to
$106.2 billion at December 31, 2018
- Revenue increased 12% to $1.3
billion from $1.2 billion in
2018
- Net income grew to $177.2 million
($2.90 per share) compared to
$166.4 million ($2.73 per common share) in 2018
- Pre-FMV EBITDA(1) increased 12% to $251.3 million from $225.2
million in 2018
Fourth Quarter Summary
- MUA increased at an annualized rate of 3% during the
quarter
- Revenue increased 10% to $342.1
million from $312.0 million a
year ago
- Net income grew to $49.0 million
($0.80 per share) compared to
$32.2 million ($0.53 per common share) a year ago
- Pre-FMV EBITDA(1) up 11% to $61.8 million from $55.8
million a year ago
Management Commentary
"First National's growth
reflected the effectiveness of our business model, record single
family and commercial originations and dedicated efforts by our
team across Canada to deliver a
good customer experience," said Stephen
Smith, Chairman and Chief Executive Officer. "Profitability
measures were likewise very positive with record earnings achieved
as a result of a 13% increase in overall new originations, wider
mortgage spreads and a shift in our funding mix favouring
institutional placement over securitization. These results provided
good support for our Board's previously announced decision in the
fourth quarter to increase the Company's regular monthly dividend.
Our focus for 2020 is to build on this performance by working
together to give our more than 300,000 customers and our many
valued business partners the very best service."
In 2019, the Company's after-tax Pre-Fair Market Value return on
shareholders' equity was 40%. Since its listing on the TSX 13 years
ago, it has paid $1.4 billion in
total dividends and distributions, or $23.32 per share. Combined with share price
appreciation, total return to IPO investors stood at 514% at
December 31, 2019.
For all of 2019, new mortgage originations increased 13% to
$20.9 billion from $18.5 billion in 2018 reflecting: new
single-family originations of $13.5
billion (2018 - $12.2 billion)
and record new commercial originations of $7.4 billion (2018- $6.2
billion). Total mortgage renewals were $7.5 billion compared to $7.4 billion in 2018 reflecting: single-family
mortgage renewals of $5.5 billion
(2018- $6.1 billion) and commercial
mortgage renewals of $2.0 billion
(2018 - $1.3 billion).
"We're very pleased with the results of 2019 which included
record origination in both segments of our business," said Moray
Tawse, Executive Vice President. "It's safe to say that the 11%
increase achieved in single-family origination year over year and
the 19% growth in commercial origination exceeded our expectations.
Unquestionably, lower mortgage rates made it comparatively easier
for borrowers and stable economic conditions played their part, but
we also benefitted from First National's strong market share
position on the residential side, the expansion of our Excalibur
program and our status as Canada's
largest commercial mortgage lender in capturing more business. All
told, this was a very positive year, with growth in every one of
our regional offices. We look forward to continued progress in
2020."
|
Quarter
ended
|
Year
ended
|
|
December
31,
2019
|
December
31,
2018
|
December
31,
2019
|
December
31,
2018
|
For the
Period
|
($
000's)
|
Revenue
|
342,138
|
312,039
|
1,326,523
|
1,181,510
|
Income before
income taxes
|
66,593
|
44,050
|
241,713
|
227,417
|
Pre-FMV EBITDA
(1)
|
61,766
|
55,780
|
251,285
|
225,186
|
At Period
end
|
|
Total
assets
|
37,685,593
|
36,038,527
|
37,685,593
|
36,038,527
|
Mortgages
under administration
|
111,378,891
|
106,151,363
|
111,378,891
|
106,151,363
|
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
|
Annual Review
First National's MUA increased 5% to a record $111.4 billion, from $106.2 billion at December
31, 2018 on higher new mortgage originations and renewals.
At year-end 2019, single-family MUA was $80.7 billion, up 2% from $79.2 billion at December
31, 2018, while commercial MUA was $30.7 billion, up 14% from $27.0 billion a year ago.
For the 12 months ended December 31,
2019, new single-family mortgage originations increased 11%
to $13.5 billion from $12.2 billion a year ago, due to a strong economy
coupled with low mortgage rates and the Company's strong position
in the mortgage broker distribution channel. All of the Company's
regional offices experienced growth, led by Ontario and the Maritimes where comparative
volumes were 17% higher than in 2018. The Company's Excalibur
program was a strong contributor to originations with a growth rate
similar to that experienced by the rest of the Company's single
family segment. Single family renewals for 2019 were 10% lower at
$5.5 billion compared to $6.1 billion in 2018 on fewer opportunities.
The commercial segment had its strongest year in its history
with new mortgage origination up 19% as volumes increased to
$7.4 billion from $6.2 billion in 2018. The Company attributes this
growth to the continued development of its expertise in real estate
across the country, which increased the value proposition of its
financial products to borrowers and investors alike. Commercial
mortgage renewals increased 54% to $2.0
billion from $1.3 billion in
2018.
The Company took advantage of demand for its mortgages and
increased mortgages placed with institutional investors to
$18.6 billion in 2019 from
$14.9 billion in 2018. By placing
mortgages, the Company accelerates the recognition of earnings.
Despite this growth, the Company still originated and renewed for
securitization purposes $8.9 billion
of mortgages in 2019. This figure compares to $10.1 billion in 2018.
2019 annual revenue increased 12% to $1.3
billion from $1.2 billion in
2018, reflecting growth in mortgage originations in the year and
the funding mix change that favoured more placement with
institutional investors than mortgage securitization. Looking at
the contributors to revenue:
- 2019 placement fees increased 44% to $205.5 million from $142.1
million in 2018 due to a number of factors including the 25%
increase in placement volume and the benefit of the interest rate
environment on both newly originated and renewed single family
mortgages
- 2019 mortgage servicing income increased 7% to $156.7 million from $146.2
million in 2018 largely due to the benefits of higher MUA
and the funding shift to institutional placements from
securitization which moves revenues from net securitization margin
to servicing income
- 2019 net interest revenue earned on securitized mortgages
decreased by 4% to $138.6 million
from $144.1 million in 2018 largely
due to accounting for financial instruments, which the Company
estimates had about an $8.3 million
year-over-year impact (excluding this impact, this revenue
increased by 2%)
- 2019 mortgage investment income decreased 4% to $84.7 million from $88.3
million in 2018 primarily due to lower mortgage interest
rates
For 2019, Pre-FMV EBITDA(1) was $251.3 million, up 12% from $225.3 million in 2018 due to increased
origination and the Company's decision to shift its funding from
securitization to institutional placement. By placing mortgages
with institutions, most of the economics of the transaction are
recognized in the current period. Using securitization funding, the
value inherent in the mortgages is realized over the term of the
mortgages – typically five years. By increasing funding through
institutional placement by approximately $1.3 billion as opposed to securitization, First
National accelerated the recognition of earnings into the current
period. The Company has also benefited from comparatively wider
mortgage spreads which prevailed for most of 2019.
In aggregate, the impact from financial instruments decreased
pre-tax income by $12.5 million
comparing 2019 to 2018. In 2019, economic concerns had a
significant impact on the bond market as bond prices rose in the
first eight months of the year until receding toward year end.
Overall, the Company experienced losses of $36.5 million on its total short bond book during
2019; however about $28.2 million of
these losses pertained to mortgages to which the Company was able
to apply hedge accounting. This left losses related to unhedged
interest rate mitigation programs of $8.3
million within gains and losses on account of financial
instruments in earnings. These losses largely reflect the decrease
in the value of short bonds used to mitigate interest rate risk
related to the Company's single-family mortgage commitments. The
Company does not attempt to document a hedge relationship on such
commitments.
Outstanding Securities
At December 31, 2019 and
February 24, 2020, 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 and 200,000 November 24, 2024
senior unsecured notes outstanding. The Company issued the
November 24, 2024 senior unsecured
notes in November 2019 pursuant to a
private placement. The notes bear interest at 3.582% payable in
equal semi-annual payments commencing May
25, 2020. The net proceeds were used to repay a portion of
the Company's outstanding indebtedness on its bank credit facility.
On April 9, 2020, the LP plans
to draw on the bank credit facility to repay the maturing 4.01%
$175,000,000 unsecured notes.
Dividends
The Board declared common share dividends in the fourth quarter
of 2019 of $59.0 million. This
included a special common share dividend of $0.50 per share ($30.0
million aggregate) paid on December
16, 2019.
For all of 2019, the Company declared common share dividends of
$144.4 million or $2.41 per common share, reflecting both the
special dividend and a dividend increase in December that brought
the annualized rate to $1.95 per
share from $1.90 per share.
Excluding the special dividend, the payout ratio was 66% in 2019
and 68% in 2018. Excluding gains and losses on financial
instruments (which management does not consider as revenue
available for dividend payment) in 2019 and 2018, the dividend
payout ratio for 2019 would have been 64% compared to 70% in
2018.
The Company also paid $3.1 million
of dividends on its preferred shares in 2019 compared to
$2.9 million in 2018.
Outlook
Management remains optimistic about 2020 as single-family
mortgage commitments have continued to outpace commitments at the
same time in 2019. The commercial segment also anticipates a
strong start to 2020 as borrower appetite continues to be strong
following the record fourth quarter of 2019. Despite these
favorable indications, the Company will continue to be faced with
uncertain securitization margins as mortgage spreads tightened
toward the end of 2019 and have not widened in early 2020. The
effect of pre-2018 fair value accounting conventions will continue
to have a negative impact on income in 2020, albeit for a slightly
lower amount than in 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
February 25, 2020
10:30 am ET
|
(647) 427-7450 or
(888) 231-8191
www.firstnational.ca
|
A taped rebroadcast of the conference call will be available
until March 3, 2020 at midnight ET. To access the rebroadcast, please
dial (416) 849-0833 or (855) 859-2056 and enter passcode 6858798
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 $111
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