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First National Financial Corporation reports first quarter 2015 results

Apr 28, 2015

For Immediate Release

Toronto, Ontario, April 28, 2015 – First National Financial Corporation (TSX: FN, TSX: FN.PR.A) (the “Company” or “FNFC”) today announced its financial results for the first quarter ended March 31, 2015. The Company derives 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 year over year by 13% to a record $87.0 billion from $77.0 billion at March 31, 2014
  • Mortgage originations ahead 6% to $2.7 billion from $2.5 billion in the 2014 first quarter
  • Revenue down 3% to $167.5 million from $172.7 million in the 2014 first quarter
  • Net loss $3.5 million ($0.09 loss per common share) compared to net income of $23.1 million ($0.35 per common share) in the 2014 first quarter
  • Loss before income taxes $4.9 million compared to income before income taxes of $31.3 million in the 2014 first quarter
  • Pre-FMV EBITDA(1) $38.4 million compared to $41.4 million in the 2014 first quarter

“First National continued to advance its position as Canada's largest non-bank originator and underwriter of mortgages during the first quarter with solid growth in originations," said Stephen Smith, Chairman and CEO. "This growth will have a favourable impact on future results but did not translate into immediate earnings as the Company securitized more than half of its origination in the quarter. Like many companies in Canada, First National was affected by the unexpected cut in the Bank of Canada’s overnight rate in January. This had a large negative impact on the financial instruments used to hedge interest rate risk because of the size of the interest rate correction and the large inventory of mortgages that the Company holds for securitization. The resulting loss on financial instruments reduced revenue by 20% and earnings per share by 49 cents. As explained in past quarters, the offset to this loss is larger spreads inherent in the mortgages hedged. This value will be unlocked as we securitize these mortgages in the 2 future and earn larger net interest margin. Excluding this adjustment, core performance was solid and the Company continued to make investments that will benefit future periods.”

“Despite headwinds in Alberta and Saskatchewan’s housing markets, First National increased single family mortgage originations by 7% over last year or $100 million,” said Moray Tawse, Executive Vice President. “At the same time, on the strength of more opportunities, single family mortgage renewals increased by 64% in the first quarter compared to last year. Although there were fewer commercial renewals, commercial segment origination increased 2%. On a combined basis, this led to continued growth in MUA, which will drive future earnings.”


  Quarter ended
  March 31, 2015 March 31, 2014
For the period  ($ 000's)
Revenue  $167,460  172,705
Income before income taxes  (4,899)  31,261
Pre-FMV EBITDA (1)  38,439  41,388
At Period end    
Total assets $26,638,048  $21,683,307
Mortgages under administration $86,998,747  $76,974,628

(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. See also the section “Non-GAAP Measures” in this news release for additional detail.

Q1 2015 Summary

First National’s MUA increased 13% to $87.0 billion at quarter end 2015 from $77.0 billion at March 31, 2014. Between December 31, 2014 and March 31, 2015, MUA grew at an annualized rate of 5%.

Single-family mortgage originations increased 7% to $1.9 billion from $1.8 billion in the first quarter of 2014 even though the real estate market, particularly in western Canada, experienced a slow start to the year as a result of the economic impact from the decline in oil prices. Single family mortgage renewals amounted to $724 million up from $441 million a year ago on more renewal opportunities. Commercial segment originations increased 2% to $730 million from $718 million in the same period of 2014, while commercial mortgage renewals amounted to $246 million compared to $274 million. The Company originated and renewed for securitization purposes $2.0 billion of mortgages in the first quarter in order to take advantage of profitable funding spreads.

Revenue declined 3% to $167.5 million from $172.7 million in the first quarter of 2014 due to higher losses on financial instruments which increased by $33.0 million over last year. Excluding these losses, revenue would have increased 15% year over year on more interest revenue from the Company’s growing securitized mortgage portfolio. Securitized mortgages amounted to $23 billion at March 31, 2015, up 23% from $19 billion a year ago.

The Company incurred a loss before income taxes of $4.9 million compared to income before income taxes of $31.3 million in the first quarter of 2014. About $33 million of the $36 million year-over-year change was due to losses on financial instruments used for hedging purposes in a volatile bond market.

Without the impact of the losses on financial instruments, the Company’s Pre-FMV EBITDA was $38.4 million, 7% or $3 million lower than in the first quarter of 2014. The change reflected the Company’s decision to securitize more of its originations. This strategy will create future income from net interest margin, at the expense of current net placement fees. The cost of underwriting the additional $0.5 million of mortgages for securitization in the first quarter of 2015 resulted in a direct increase in current operating expenses.


The Board declared common share dividends in the first quarter of 2015 based on the current annual rate of $1.50 per share. On an after-tax Pre-FMV basis, the dividend payout ratio was 89% in the first quarter of 2015 compared to 78% in the first quarter of 2014.

The Board also declared regular quarterly dividends on the 4.65% Class A Preference Shares for the period January 1 to March 31, 2015. The dividend of $0.290625 per share was paid on April 15, 2015 to holders of record at the close of business on March 31, 2015.


Looking forward, the Company expects the low interest rate environment, which was reinforced with the January Bank of Canada rate cut, to continue for the remainder of 2015. Low rates will continue to keep mortgage affordability at favourable levels and allay refinancing risk.

The Company also expects to earn greater net interest from its portfolio of securitized mortgages. The mortgages accumulated for securitization at the end of March 2015 have higher coupons relative to the current mortgage market and the Company expects to be able to securitize these mortgages at the lower interest rates now available in the marketplace.

By realizing the significant renewal opportunities in the upcoming year and managing its partnerships with institutional customers, the Company will continue to focus on sustainable profitability. Management expects the Company to continue to generate cash flow from its $23 billion portfolio of mortgages pledged under securitization and $64 billion servicing portfolio that will maximize financial performance.

First National also expects to begin to transition its new underwriting and fulfillment processing services business to profitability as operations commence in western Canada and Quebec in the second quarter and the Ontario branch prepares for the seasonally stronger spring real estate market.

Conference call and webcast
April 29, 2015 10 am ET

Participant Numbers



The audio of the conference call will be webcast live and archived on First National’s website at A question and answer session for analysts and institutional investors will be held following management’s presentation.

A taped rebroadcast of the conference call will be available to listeners until 1 p.m. on May 5, 2015. To access the rebroadcast, please dial 647-436-0148 or 888-203-1112 and enter passcode 8250337 followed by the number sign. The webcast is also archived at for three months.

Complete consolidated financial statements for the Company as well as management’s discussion and analysis are available at and at

About First National Financial Corporation
First National Financial Corporation (TSX: FN, TSX: FN.PR.A) 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 $87 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

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”, “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.

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For further information:
Robert Inglis
Chief Financial Officer
First National Financial Corporation
Tel: 416-593-1100

Ernie Stapleton
Tel: 905-648-9354