For Immediate Release
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
Toronto, Ontario, April 30, 2013 – First National Financial Corporation (TSX: FN) (the “Company” or “FNFC”) today announced its financial results for the first quarter ended March 31, 2013. The Company derived 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 12% year over year to $68.5 billion
- Mortgage originations lower by 4% to $2.4 billion from $2.5 billion
- Revenue up 8% to $145.2 million from $134.0 million
- Net income $23.0 million ($0.36 per common share) down from $26.7 million ($0.43 per common share)
- Income before income taxes down 14% to $31.2 million from $36.2 million
- Pre-FMV EBITDA* up 18% to $36.9 million from $31.2 million
“First National remained solidly profitable in the first quarter, despite substantially weaker activity levels in Canada’s single-family real estate market,” said Stephen Smith, Chairman and President. “While single family mortgage originations were down 20% compared to the first quarter of 2012, the Company offset most of this impact by growing our commercial originations by 71% year over year to $809 million. First National’s agility in responding to changing market dynamics combined with our large and growing mortgage portfolio and ongoing success with mortgage renewals position us well for this phase of the business cycle.”
“Government measures introduced last year to moderate single family real estate activity seem to have had their intended impact,” said Moray Tawse, Vice President, Mortgage Investments. “Even so, we are pleased to note that our single family MUA surpassed the $50 billion milestone within the quarter, which reflects well on First National’s standing in the marketplace and our strategic alignment with Canada’s mortgage broker channel. Given lower activity levels, we consider this a successful quarter and a good way to usher in our 25th anniversary in business.”
||March 31, 2013
||March 31, 2012
|For the period
|| ($ 000's)
|Income before income taxes
|Pre-FMV EBITDA (1)
|At Period end
|Mortgages under administration
(I)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 and deducting gains on the valuation of financial instruments.
Q1 2013 Results
First National’s MUA grew to $68.5 billion at March 31, 2013 from $60.9 billion at March 31, 2012, an increase of 12%. For the quarter, MUA grew approximately 2% from $67.3 billion at December 31, 2012, for an annualized increase of 7%.
Total single-family mortgage originations decreased by 20% to $1.6 billion from $2.0 billion in the 2012 quarter. Commercial segment originations increased by 71% to $809 million from $472 million in the same period of 2012. Overall origination was down 3% year over year.
First quarter revenue increased 8% to $145.2 million from $134.0 million in the first quarter of 2012 primarily as a result of a $17.2 million increase in interest revenue from securitized mortgages. This growth was partially offset by negative changes in gains and losses on financial instruments with reduced revenue growth by $10.5 million between the comparative quarters.
Income before income taxes in the quarter decreased 14% to $31.2 million from $36.2 million in the first quarter of 2012 as a result of falling interest rate yields in the bond market which negatively affected the fair value of Company’s interest rate hedges. In total, losses on financial instruments accounted for a decrease in net income before taxes in the first quarter of 2013 of $3.4 million compared to a gain of $7.1 million in the first quarter of 2012.
Without the impact of gains and losses on financial instruments, which have been volatile, the Company’s Pre-FMV EBITDA increased by 18% to $36.9 million from $31.2 million a year ago. This increase is due to the steady growth of the Company’s core business, in particular increased net margin on securitized mortgages.
Determination of Adjusted Cash Flow and Payout Ratio
The Company declared dividends in the first quarter of 2013 based on an average annual rate of $1.33 per share. Consistent with the decision announced by the Board in February 2013, First National began to pay dividends on its common shares at the new higher annualized rate of $1.40 beginning on April 15, 2013. For the quarter ended March 31, 2013, the payout ratio was 132% compared to 103% for the first quarter of 2012 as determined below.
||March 31, 2013
||March 31, 2012
|For the Period
|Cash provided by (used in) operating activities
Change in mortgages accumulated for sale or securitization between periods
|Adjusted Cash Flow (1)
|Less: cash dividends on preference shares
|Adjusted Cash Flow available for common shareholders
|Adjusted Cash Flow per Common Share ($/share) (1)
|Dividends declared on Common Shares
|Dividends declared per Common Share ($/share)
(1) These non-IFRS measures adjust cash provided by (used in) operating activities by accounting for changes between periods in mortgages accumulated for sale or securitization and mortgage securitization activity.
Typically the first quarter of the Company’s fiscal year has shown payout ratios in excess of 100% due to the payment of certain accrued expenses from the previous year end including payments related to the single-family broker volume bonus program, and the payout of employee commissions and bonuses. In the first quarter of 2013, in addition to these costs, the Company increased its securitization activities, particularly using NHAMBS, which required net additional cash investments of $6.3 million for MBS issue costs and $3.4 million for mortgage portfolio insurance. These costs decreased operating cash flow, although economically, they represent an investment in securitized mortgages which will produce future cash flow over the five and 10 year terms of the transactions. Without these two amounts, the payout ratio would have been approximately 80%.
In the second quarter of 2013, management foresees reduced residential origination in 2013, but similar commercial segment origination to 2012 as the low-rate environment encourages real estate transactions. It intends to make up for lower single family originations through its mortgage renewal activities. These opportunities are a result of the success First National had in 2008 originating 5-year mortgages. With a history of high retention rates, the Company expects to generate significant volumes from these opportunities.
In the recently announced budget, the federal government indicated it was going to take steps to limit the securitization of government insured mortgages to CMHC sponsored programs. While the details envisioned in the budget in this regard are yet to be determined, it appears that mortgage funding for insured mortgages through ABCP may be prohibited by the proposed legislation. The Company has been using ABCP as an efficient source of funding primarily for short term insured mortgages. If the government’s budget does restrict ABCP for insured mortgages, the Company believes it can find alternate sources of funding including institutional placements, repurchase facilities and NHA-MBS. These alternatives may not be as economical to the Company as ABCP.
Despite lower origination targets, the Company expects continued profitability and cash flow as it earns the returns from the investment it made in its business in 2012.
Conference call and webcast
|May 1, 2013 10 a.m. ET
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 will be available to listeners until 12 a.m. on May 8, 2013. To access the rebroadcast, please dial 416-640-1917 or 877-289-8525 and enter passcode 4614779 followed by the number sign.
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) 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 almost $68 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 publically 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 “PreFMV EBITDA”, “Adjusted Cash Flow,” and “Adjusted Cash Flow per Share” 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.
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 6 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.
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