TORONTO, March 2, 2021 /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,
2020. The Company derives virtually all of its earnings from
its wholly owned subsidiary, First National Financial LP ("FNFLP"
or "First National"), Canada's
largest non-bank mortgage originator and underwriter.
2020 Annual Summary
- Mortgages under administration ("MUA") increased 7% to a record
$118.7 billion compared to
$111.4 billion at December 31, 2019
- Revenue increased 4% to $1.38
billion from $1.33 billion in
2019
- Net income grew 7% to $190.2
million ($3.12 per share) from
$177.2 million ($2.90 per common share) in 2019
- Pre-FMV Income(1) increased 31% to $323.0 million from $247.1
million in 2019
Fourth Quarter Summary
- Revenue increased 13% to $387.3
million from $342.1 million a
year ago
- Net income grew 41% to $69.1
million ($1.13 per share) from
$49.0 million ($0.80 per common share) a year ago
- Pre-FMV Income(1) increased 57% to $94.9 million from $60.4
million a year ago
Management Commentary
"First National's record-setting
performance in 2020 reflected the value of our long-standing
business model and the extraordinary efforts of our employees who
worked from home to serve our residential and commercial
borrowers," said Stephen Smith,
Chairman and Chief Executive Officer. "We designed our business
model and developed our MERLIN underwriting technology so that we
do not require face-to-face interactions to be an effective lender.
The advantages from these innovations have become even more
significant during the pandemic when physical distancing is
required. The year's results also show that our non-bank funding
sources are as reliable as that of any financial institution. Our
objective is to maintain this momentum to continue to deliver
results for all stakeholders."
In 2020, the Company's after-tax Pre-Fair Market Value return on
shareholders' equity was 50%. Since its listing on the TSX 14 years
ago, it has paid over $1.4 billion in
total dividends and distributions, or $25.80 per share. Combined with share price
appreciation, total return to IPO investors stood at 573% at
December 31, 2020.
"Despite the widespread economic and social disruption caused by
the pandemic, our business and our markets performed exceptionally
well," said Moray Tawse, Executive Vice President. "Both single
family and commercial operations set new records for originations.
In single-family, originations reached just over $19 billion, a 42% year-over-year increase with
double-digit growth recorded by every First National operation
across the country. In commercial, originations were 23% ahead of
last year at just over $9 billion. In
both cases, we believe First National gained market share as our
solutions resonated with our customers and partners and in the case
of commercial, because we continued to lend when competitors pulled
back. Consistency of lending is a hallmark of our business."
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|
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|
|
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Quarter
ended
|
Year
ended
|
|
December 31,
2020
|
December 31,
2019
|
December 31,
2020
|
December 31,
2019
|
For the
Period
|
($
000's)
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Revenue
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387,303
|
342,138
|
1,380,294
|
1,326,523
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Income before income
taxes
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94,273
|
66,593
|
258,729
|
241,713
|
Pre-FMV Income
(1)
|
94,937
|
60,418
|
323,008
|
247,068,
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At Period
end
|
|
Total
assets
|
39,488,527
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37,685,593
|
39,488,527
|
37,685,593
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Mortgages under
administration
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118,723,990
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111,378,891
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118,723,990
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111,378,891
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Note:
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(1)
|
This non-IFRS measure
adjusts income before income taxes by eliminating the impact of
changes in fair value by adding back losses on the valuation of
financial instruments (except those on mortgage investments) and
deducting gains on the valuation of financial instruments. The
figures presented for 2019 have been restated to conform to 2020's
presentation.
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Annual Review
Record results in 2020 generally reflected growth in mortgage
originations and renewals which drove higher MUA, the source of
most of the Company's earnings, as well as wider mortgage spreads.
In the fourth quarter, the same drivers for success were
present.
First National's MUA increased 7% to a record $118.7 billion from $111.4
billion at December 31, 2019
on higher new mortgage originations and renewal retention. MUA
increased at an annualized rate of 5% during the fourth quarter. At
year-end 2020, single-family MUA was $83.6
billion, up 4% from $80.7
billion at December 31, 2019,
while commercial MUA was $35.1
billion, up 14% from $30.7
billion a year ago.
New single-family mortgage originations increased 42% to
$19.2 billion in 2020 from
$13.5 billion a year ago. Management
believes the increase was due to several factors including the
Company's strong mortgage broker and investor relationships and its
MERLIN technology and operating systems which support efficient
origination and underwriting – without the need for physical
contact. These advantages appear to have led to market share growth
for the Company in the mortgage broker channel. Of equal
importance, home purchasing activity across the country was strong
due to lower mortgage rates. Single-family mortgage renewals for
2020 were 22% higher at $6.7 billion
compared to $5.5 billion in 2019.
New commercial segment originations increased 23% to
$9.1 billion from $7.4 billion in 2019, with growth driven by
origination of insured mortgages. The Company attributes segment
growth to the continued development of its expertise in real estate
across the country, and its ability to provide customers with a
range of insured and conventional financial products. Commercial
mortgage renewals remained steady at approximately $2.0 billion in both years.
Of the Company's $36.9 billion of
new originations and renewals in 2020, $25.0
billion was placed with institutional investors, for which
it earns placement fees.
Origination for direct securitization into NHA-MBS, CMB and ABCP
programs remained a large part of the Company's strategy in 2020
with volume of $11.0 billion
including $8.2 billion of
single-family mortgages and $2.8
billion of multi-unit residential mortgages.
2020 revenue increased 4% to $1.38
billion from $1.33 billion in
2019. Revenue performance included a:
- 62% or $128.2 million
year-over-year increase in placement fee revenue which stood at
$333.7 million reflecting increased
residential mortgage volume and per unit placement fees
- 179% or $20.8 million increase in
gains on deferred placement fees which stood at $32.4 million reflecting growth in multi-unit
residential mortgages originated and sold to institutions
- 12% or $18.3 million
year-over-year increase in mortgage servicing income which stood at
$175.0 million primarily because of
growth in the Company's third-party underwriting business
- 7% or $9.2 million year-over-year
decrease in net interest revenue earned on securitized mortgages
which stood at $129.4 million due to
pressure on securitization margins in the first two quarters of
2020 when the Bank of Canada cut
overnight interest rates as well as the impact of lower interest
rates on the cost of indemnities payable to MBS debtholders when
mortgages prepaid prior to the scheduled maturity date
- 18% or $15.7 million
year-over-year decrease in mortgage investment income which stood
at $69.0 million due primarily to a
reduction in the Bank of Canada's
overnight rate that led to a reduction in the Company's offered
mortgage rates and lower amounts of interest earned while mortgages
were accumulated for securitization and sale on the balance
sheet
The 4% year-over-year increase in total revenue was affected by
changes in the fair market value of financial instruments related
to interest rate movements in both years. Excluding these changes,
revenue increased 8% year over year to $1.45
billion from $1.34 billion in
2019.
Income before income taxes increased 7% to $258.7 million in 2020 from $241.7 million in 2019. The increase was affected
by changing capital market conditions. Excluding the gains and
losses related to financial instruments, the Company's earnings
before income taxes and gains and losses on financial instruments
("Pre-FMV Income1") for 2020 increased by 31% to
$323.0 million from $247.1 million in 2019. The increase was largely
the result of higher origination and wider mortgage spreads which
had a favorable impact on placement fee revenue.
Net income for 2020 increased 7% year over year to $190.2 million from $177.2
million in 2019, while net income per share increased 8% to
$3.12 from $2.90 in 2019.
Dividends
The Company's Board of Directors increased the regular monthly
dividend to an annualized rate of $2.10 per common share from $1.95 per common share annualized effective with
the dividend payable on December 15,
2020; and declared a special common share dividend in the
amount of $0.50 per share, payable on
December 15, 2020 to shareholders of
record on November 30, 2020. This
special dividend reflected the Board's determination that the
Company has generated excess capital in the past year and that the
capital needed for near-term growth can be generated from current
operations.
Total dividends per common share paid in 2020 amounted to
$2.47, up 3% from $2.41 in 2019. The common share payout ratio in
2020 was 79% compared to 83% in 2019.
If the special dividends and gains and losses on financial
instruments in the two years are excluded from these calculations,
the dividend payout ratio for 2020 would have been 50% compared to
64% in 2019.
The Company also paid $2.8 million
of dividends on its preferred shares in 2020 compared to
$3.1 million in 2019.
Outstanding Securities
At December 31, 2020, and
March 2, 2021, the Corporation had
59,967,429 common shares; 2,887,147 Class A preference shares,
Series 1; 1,112,853 Class A preference shares; 200,000 November 2024 senior unsecured notes; and 200,000
November 2025 senior unsecured notes
outstanding.
Mortgage Deferrals
When management reported for the
second quarter, the nature of deferred mortgage payments and the
need for cash resources to fund these assets was described. At
May 11, 2020, the Company had
approved mortgage payment deferrals for approximately 13.9% of the
Company's single-family MUA eligible for such an approval. On
September 30, 2020, the Company ended
its deferral program, such that by the end of 2020, there were
virtually no mortgages on deferral.
Outlook
With COVID-19 related uncertainties still
widespread, it is difficult to look too far ahead. However, with
the results of the last three quarters of 2020 and a window on the
first quarter of 2021, management is very positive about the 2021
fiscal year.
The expectation for the next year includes: residential
origination comparable to 2020, commercial segment success in
growing origination, and continued employee productivity from the
Company's work from home strategy.
With the expected distribution of vaccines across the nation,
the economic effects of COVID-19 will hopefully diminish. However,
the return to normalcy is certainly some months away. Management
believes First National will continue to have an advantage over
traditional bank origination channels which have been faced with
disruption during the pandemic. First National expects that
goodwill with its broker partners and customers created during the
past nine months will persist through 2021. On the funding side,
there continues be strong demand from institutional investors as a
result of the substantial amount of liquidity in the financial
system. Securitization markets have normalized after a period of
disruption at the beginning of the crisis.
While it is not early in the crisis, there is still significant
uncertainty about its duration and the extent of repercussions. The
outbreak of COVID-19 has resulted in governments worldwide enacting
emergency measures to combat the spread of the virus. These
measures, which include the implementation of travel bans,
self-imposed quarantine periods and physical distancing, have
caused material disruption to businesses globally resulting in an
economic recession. Global equity markets have experienced
significant volatility. Governments and central banks have reacted
with significant monetary and fiscal interventions designed to
stabilize economic conditions. The duration and impact of the
COVID-19 outbreak is unknown at this time, as is the long-term
efficacy of the government and central bank interventions. It is
not possible to reliably estimate the length and severity of these
developments and the impact on the financial results and condition
of the Company and its operating subsidiaries in future
periods.
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 $34 billion portfolio of mortgages pledged under
securitization and $83 billion
servicing portfolio and focus on the value inherent in its
significant single-family renewal book.
Conference Call and Webcast
March 3, 2021 10:00
am ET
|
(647) 427-7450 or
(888) 231-8191
www.firstnational.ca
|
A taped rebroadcast of the conference call will be available
until March 10, 2021 at midnight ET. To access the rebroadcast, please
dial (416) 849-0833 or (855) 859-2056 and enter passcode 5155447
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 $118
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 ''Risks 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