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First National Financial Corporation reports fourth quarter and annual 2013 results

25 févr. 2014

For Immediate Release

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

Toronto, Ontario, February 25, 2014 – First National Financial Corporation (TSX: FN, TSX:FN.PR.A) (the “Company” or “FNFC”) today announced its financial results for the three months ended March 31, 2014. The Company derives virtually all of its earnings from its wholly-owned subsidiary, First National Financial LP (“FNFLP” or “First National.”)

Fourth Quarter Summary
  • Mortgages under administration (“MUA”) up 9% from Q3 2013 to $75.6 billion
  • Mortgage originations higher by 21% to $3.4 billion from $2.8 billion
  • Revenue up 29% to $200.9 million from $156.1 million
  • Net income up 25% to $41.8 million ($0.66 per common share) from $33.5 million ($0.54 per common share)
  • Income before income taxes up 28% to $57.5 million from $45.1 million
  • Pre-FMV EBITDA(1) up 28% to $53.4 million from $41.7 million
2013 Summary
  • MUA up 12% year over year to $75.6 billion
  • Mortgage originations increased 1% to $14.1 billion from $14.0 billion in 2012
  • Revenue higher by 24% to $776.5 million from $628.6 million
  • Net income up 56% to $172.1 million ($2.75 per common share) from $110.3 million ($1.76 per common share)
  • Income before income taxes up 55% to $233.5 million from $150.8 million
  • Pre-FMV EBITDA(1) up 29% to $197.6 million from $153.2 million

Common Share Dividend Increase
First National’s Board of Directors also announced today that the annual common share dividend will increase to $1.50 per common share ($0.125 per month) from $1.40 ($0.1166 per month) effective with the dividend payable on April 15, 2014.

“First National achieved strong growth in all key performance metrics in 2013,” said Stephen Smith, Chairman, President and Chief Executive Officer. “Positive momentum throughout the final quarter of the year allowed the Company to establish new annual records for total mortgages under administration and for total originations. Solid growth in MUA validated First National’s standing as Canada’s leading non-bank mortgage lender and in turn supported record financial results for shareholders in 2013 and growing common share dividends.  Most important, MUA growth adds future value as we deliver mortgage service, earn net interest spread on what is now an $18 billion portfolio of securitizations and realize sizeable renewal opportunities.”  

“Government controls designed to moderate consumer buying activity in residential housing acted as a governor on growth, particularly at the outset of 2013,” said Moray Tawse, Executive Vice President. “Consequently, we are very pleased to note that after declining 20% year over year in the first quarter, originations in our single family segment staged a steady, quarter-by-quarter recovery such that in the fourth quarter, single family originations were ahead of the final quarter of 2012 by 32%. This brought total annual single family segment originations to within 3% of the record set in 2012 and pushed total single family residential MUA to almost $58 billion at year end. The commercial segment also made a very positive contribution with origination growth of 16% or $424 million in 2013 as we capitalized on commercial real estate market activity and First National’s expertise in underwriting CMHC insured mortgages.”


 

Quarter ended

Year ended

 

December 31, 2013

December 31, 2012

December 31, 2013

December 31, 2012

For the Period

($000’s)

Revenue

200,928

156,092

776,508

628,613

Income before income taxes

57,531

45,091

233,511

150,825

Pre-FMV EBITDA (1)

53,401

41,765

197,582

153,199

At Period end

 

Total assets

20,569,217

15,022,236

20,569,217

15,022,236

Mortgages under administration

75,619,003

67,260,086

75,619,003

67,260,086

 

(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 and deducting gains on the valuation of financial instruments.

Q4 and Annual 2013 Summary

First National’s MUA grew to $75.6 billion at December 31, 2013 from $67.3 billion at year-end 2012, an increase of 12%.  Between September 30, 2013 and year-end 2013 MUA grew approximately 2% from $74.0 billion, an annualized increase of 9%.

Fourth quarter single-family mortgage originations grew 32% to $2.5 billion from $1.9 billion in the fourth quarter of 2012, bringing total single-family mortgage originations to $10.9 billion in 2013 compared to $11.3 billion in 2012. Fourth quarter commercial segment originations increased 7% to $887 million from $832 million in the same period of 2012, resulting in total commercial segment originations of $3.1 billion in 2013 compared to $2.7 billion in 2012. Of the $3.4 billion of originations in the fourth quarter of 2013, $0.9 billion were originated for securitization purposes. Mortgage origination for securitization purposes amounted to $4.1 billion in 2013.

Fourth quarter revenue increased 29% to $200.9 million from $156.1 million in the same period of 2012 primarily reflecting higher interest revenue from securitized mortgages that increased revenue by $31.5 million or 20%. Revenue for 2013 increased 24% to $776.5 million from $628.6 million in 2012 due to growth in the business and gains on financial instruments, which accounted for 6% of the year-over-year increase.
Fourth quarter income before income taxes increased 28% to $57.5 million from $45.1 million in the fourth quarter of 2012 as revenue growth flowed through to earnings. Income before income taxes for 2013 increased 55% to $233.5 million from $150.8 million in 2012 due in part to rising interest rate yields in the bond market which produced $37.7 million of gains on financial instruments.

There was little impact from gains and losses on financial instruments comparing the fourth quarters of 2013 and 2012, such that the Company’s Pre-FMV EBITDA increased in step with net income before taxes, or about 28% to $53.4 million from $41.8 million a year ago. This increase was due to the steady growth of the Company’s core business, including increased net margin on securitized mortgages and higher placement fees.  On the whole, gains and losses on financial instruments were volatile in 2013, particularly in the spring when bond yields rose rapidly. Excluding the impact of gains and losses on financial instruments, Pre-FMV EBITDA for 2013 increased 29% to $197.6 million from $153.2 million in 2012. The increase is due to steady growth in the business, increased net margin on securitized mortgages and higher net placement fees.

Determination of Adjusted Cash Flow and Payout Ratio

The Board declared $0.35 per common share in dividends in the fourth quarter of 2013, based on an average annual rate of $1.40 per share, compared to $0.33 in the fourth quarter of 2012. The Company’s fourth quarter payout ratio as a percentage of adjusted cash flow available for common shareholders was 109% compared to 63% in 2012, reflecting  realized losses on financial instruments and cash resources used to close the Alt-A program, which together, reduced cash flow per share in the fourth quarter of 2013 by approximately $0.23. Excluding these two non-normal course items, the payout ratio in the fourth quarter would have been approximately 63%.

The Company’s payout ratio for all of 2013 was 77%, which management considers solid given the fact that it made new securitization investments in the year of $65 million which will benefit cash flow in future periods. Since its IPO in 2006, the Company’s strong cash flow has enabled First National to increase its common share dividend seven times, while at the same time retaining enough capital to support its growth initiatives. 


 

Quarter ended

Year ended

 

December31, 2013

December 31, 2012

December 31, 2013

December 31, 2012

For the Period

($000’s)

Cash provided by (used in) operating

 

 

 

 

activities

299,833

86,207

(150,672)

166,597

Add (deduct):

 

 

 

 

Change in mortgages accumulated for

 

 

 

 

sale or securitization between periods
Additions to property, plant and equipment

(278,470)
(1,085)

(53,378)
(612)

266,303
(3,428)

(42,416)
(2,955)

Adjusted Cash Flow (1)

20,278

32,217

112,203

121,226

Less: cash dividends on preference shares

(1,162)

(1,162)

(4,650)

(4,650)

Adjusted Cash Flow available for common shareholders

19,116

31,055

107,553

116,576

Adjusted Cash Flow per Common Share ($/share) (1)

0.32

0.52

1.79

1.94

Dividends declared on Common Shares

20,987

19,490

82,955

76,209

Dividends declared per Common Share ($/share)

0.35

0.33

1.38

1.27

Payout Ratio

109%

63%

77%

65%

Note: (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.
Outlook

For 2014, the Company anticipates the low interest rate environment will continue with moderated, but still healthy, mortgage spreads. The Company expects to fund almost $20 billion of mortgages in 2014 by realizing on significant renewal opportunities and focusing on partnerships with institutional customers. Although origination volumes are expected to be similar to 2013, management intends to capitalize on expected higher volumes of mortgage renewals and to generate cash flow from its now almost $18 billion portfolio of mortgages pledged under securitization in order to maximize the Company’s financial performance. 

Conference call and webcast
February 26, 2014 10 a.m. ET

ParticipantNumbers

416-644-3416

800-814-4859

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 March 5, 2014. To access the rebroadcast, please dial 416-640-1917 or 877-289-8525  and enter passcode 4651215 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 more than $75 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 visitwww.firstnational.ca.

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 “Pre-FMV 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.

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.

- 30 -

For further information:
Robert Inglis
Chief Financial Officer
First National Financial Corporation
Tel: 416-593-1100
Email:rob.inglis@firstnational.ca

Ernie Stapleton
President
Fundamental
Tel: 905-648-9354
Email:ernie@fundamental.ca