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INVESTOR_PressReleases_FNMortgage-Fund

First National reports third quarter 2012 results

Oct 30, 2012

For Immediate Release

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

Toronto, Ontario, October 30, 2012 – First National Financial Corporation (TSX: FN) (the “Company” or “FNFC”) today announced its financial results for the third quarter ended September 30, 2012. The Company derived all of its earnings from its wholly-owned subsidiary, First National Financial LP (“FNFLP” or “First National”).

  • First National Financial’s Q3 2012 Results Compared to Q3 2011:
  • Mortgages under administration up 14% year-over-year to $65.9 billion
  • Mortgage originations increased by 25% to $4.3 billion from $3.5 billion 
  • Revenue increased by 57% year-over-year from $115.5 million to $181.6 million 
  • Net income increased to $32.1 million from $12.1 million 
  • Income before income taxes increased 151% to $44.0 million from $17.5 million 
  • Pre-FMV EBITDA(1) increased 18% to $40.6 million from $34.4 million

“The Company is extremely pleased with its results for the third quarter of 2012. With strong demand for housing in Canada, historically low mortgage rates, and the exit of one of our leading competitors in the mortgage distribution channel, First National achieved near record origination levels, second only to those set last quarter,” said Stephen Smith, Chairman and President. “Following a strong performance and high origination volumes in the first three quarters of 2012, the Company continues to grow its portfolio of mortgages pledged under securitization and steadily increase the amount of its mortgages under administration.”

“While interest rates are expected to remain low, legislative changes introduced at the end of June by the federal government to reduce the amount home purchasers can borrow under the government-backed mortgage insurance program will effectively reduce housing affordability and related mortgage credit by approximately 5% to 10%,” said Moray Tawse, Vice President, Mortgage Investments. “These changes will negatively affect First National’s single-family mortgage origination volumes in the fourth quarter; however, commercial mortgage origination volumes look to remain strong. Going forward, Management expects low interest rates and healthy mortgage spreads to continue for the balance of the year. Although overall mortgage origination will decrease, First National’s portfolio of mortgages under securitization will continue to grow as the Company leverages on its renewal opportunities.” 

   Quarter ended   Nine months ended 
September 30, 2012 
September 30, 2011 
September 30, 2012 
September 30, 2011 
For the Period   ($ 000’s)   
Revenue 181,573   115,522   472,521  345,899 
Income before income taxes 
 44,047  17,499 105,734  72,496
Pre-FMV EBITDA1
 40,597  34,423 111,434 
94,243 
 At Period end        
 Total assets
 14,311,584   10,754,813  14,311,584 10,754,813 
Mortgages under administration  65,900,106   57,963,215  65,900,106  57,963,215 

Note:

(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. 

Q3 2012 Results
First National’s mortgages under administration totalled $65.9 billion at September 30, 2012, up from $58.0 billion at September 30, 2011, an increase of 14%; growth from June 30, 2012, when mortgages under administration were $63.7 billion, was 3.5%, an annualized increase of 14%.

Total single-family originations increased by 29% in the third quarter of 2012 compared to 2011. The multi-unit residential and commercial segment grew steadily as this market remained strong and volumes increased by 11% to $774.0 million from $699.0 million in 2011. Overall, origination was up almost 25% comparing the third quarter of 2012 to 2011.

For the third quarter of 2012, revenue increased to $181.6 million from $115.5 million in 2011; net income increased to $32.1 million from $12.1 million in the third quarter of 2011; and income before income taxes increased 151% to $44.0 million from $17.5 million. The increases were the result of a steadily growing business and a turnaround of revenues on account of the fair value of financial instruments, which increased pretax income by $20.4 million. Pre-FMV EBITDA, which eliminates the impact of gains and losses on financial instruments to normalize income, increased 18% to $40.6 million from $34.4 million. This increase is due to the growth of the Company’s servicing portfolio and the net margin on securitized mortgages.

Determination of Adjusted Cash Flow and Payout Ratio
The Company paid dividends in the third quarter of 2012 based on an annual rate of $1.30 per share. Compared to cash generated by operations, the payout ratio for the third quarter of 2012 was 58% as determined below: 

  Quarter ended
Nine months ended 
  September 30, 2012 September 30, 2011   September 30, 2012  September 30, 2011
For the Period  ($ 000’s)
Cash provided by (used in) operating activities  (149,203)   (126,052)  80,390  (332,333) 
 Add (deduct):   
Cash provided (used) related to pre - amalgamation shareholders of FNFC  __  __  __  (17,635)
Change in mortgages accumulated for sale or securitization between periods  183,115  146,884   10,962  403,54
Adjusted Cash Flow1
 33,912  20,832   91,352  53,578
Less: cash dividends on preference shares  (1,163)  (1,163)  (3,488)  (1,991)
Adjusted Cash Flow available for common shareholders  32,749   19,669  87,864   51,587
Adjusted Cash Flow per Common Share ($/share)1
 0.55   0.33  1.46   0.86 
Dividends declared on Common Shares
 19,239  18,740  56,719  37,480
Dividends declared per Common Share ($/share) 
 0.32  0.31  0.95   0.94
Payout Ratio
 58%  94%  65%  109% 

Note:

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. 2011 ratio restated to reflect current presentation in the consolidated statement of cash flows. 

In the third quarter of 2012, the Company placed a higher percentage of its origination with institutional investors. Accordingly, the Company’s cash investment in broker fees to originate mortgages for securitization was lower in the period, which increased cash flow from operations. 4 In addition, while the Company recorded $5.6 million of gains on financial instruments in the current quarter, these were unrealized gains such that Adjusted Cash Flow reflects cash flow from its core mortgage operations and is not the result of favourable capital market activity.

Conference Call and Webcast

 Conference Call and Webcast  October 31, 2012 10:00 a.m. ET 
 Participant Numbers  416-644-3415 or 1-877-974-0445 

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 November 7, 2012. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and enter passcode 4567828#.

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 $66 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.

*Non-GAAP Measures
The Company has adopted 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 5 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 6 information, whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

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For further information: 

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

Steve Wallace
Vice President Barnes Communications Inc.
Tel: 416-367-5000
Email: swallace@barnesir.com