TORONTO, April 27, 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
months ended March 31, 2021. 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.
First Quarter Summary
- Mortgages under administration ("MUA") increased 5% to a record
$119.6 billion compared to
$113.5 billion at March 31, 2020
- Revenue increased 23% to $336.5
million from $274.6 million a
year ago
- Net income increased to $52.6
million ($0.87 per share) from
a loss of $2.3 million (loss of
$0.05 per common share) a year
ago
- Pre-FMV Income(1) increased 21% to $64.1 million from $52.9
million a year ago
Common Share Dividend Increase
Today, the Board of
Directors also announced an increase in the Company's regular
monthly dividend. Effective with the payment on June 15, 2021, to shareholders of record on
May 31, 2021, the common share
dividend will increase to $2.35 per
share on an annualized basis from its current annualized rate of
$2.10 per share.
Management Commentary
"First National's first quarter
results were ahead of our expectations reflecting market demand,
our market share in the mortgage broker channel and excellent
follow-through by our team in delivering responsive,
technology-enabled service," said Stephen
Smith, Chairman and Chief Executive Officer. "Earnings
improved as a result of growth in originations and higher mortgage
spreads and, coupled with our positive outlook, provided support
for the Board's decision to increase the dividend for the
15th straight year since our 2006 IPO. We are very
pleased with First National's performance and proud of the hard
work and commitment of our employees who continue to do great work
for borrowers and mortgage brokers while working from home."
Total new mortgage origination increased 16% to $6.2 billion due to growth in new single family
mortgage origination.
"The first quarter typically features seasonally lower housing
market activity but not this year as Canadians continued to arrange
mortgage financings at a record pace," said Moray Tawse, Executive
Vice President. "First National was the beneficiary as our
single-family mortgage originations reached $4.4 billion, 58% above last year. After coming
off a record year last year, commercial originations and renewals
were lower – at $1.8 billion and
$283 million – but still represented
a solid performance in a more competitive environment."
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|
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Quarter
Ended
|
|
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March 31,
2021
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March 31,
2020
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For the
Period
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($000s)
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Revenue
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336,492
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274,650
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Income (loss)
before income taxes
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71,475
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(3,255)
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Pre-FMV Income
(1)
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64,146
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52,921
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At Period
End
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|
|
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Total
assets
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40,586,601
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39,203,792
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Mortgages
under administration
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119,617,496
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113,493,605
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|
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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 (except
those on mortgage investments).
|
First Quarter Review
First quarter results generally reflected growth in mortgage
originations which drove higher MUA – the source of most of the
Company's earnings – and increases in mortgage placement fees and
mortgage servicing.
First National's MUA increased 5% to $119.6 billion from $113.5
billion at March 31, 2020 on
new mortgage originations and renewal retention. MUA increased at
an annualized rate of 3% during the first quarter. At March 31, 2021, single-family MUA was
$83.6 billion, up 3% from
$81.2 billion at March 31, 2020, while commercial MUA was
$36.0 billion, up 11% from
$32.3 billion a year ago.
New single-family mortgage originations increased 58% to
$4.4 billion from $2.8 billion a year ago. Management believes the
increase was due to the Company's strong mortgage broker and
investor relationships and its MERLIN technology which supports
efficient origination and underwriting – without the need for
physical contact. Additionally, low mortgage rates have encouraged
home purchasing across the country. Single-family mortgage renewals
were $1.2 billion compared to
$1.1 billion last year.
New commercial segment originations were $1.8 billion compared to $2.6 billion a year ago, 31% lower, reflecting
more competitive market conditions. Commercial mortgage renewals
totalled $283 million compared to
$488 million a year ago. The Company
believes many commercial borrowers have opted to refinance their
mortgages mid-term to take advantage of low mortgage rates and
increased property valuations. This reduced the amount of maturing
loans and therefore renewal opportunities.
Of the $7.7 billion of new
originations and renewals, $4.9
billion was placed with institutional investors and
$2.5 billion was originated for First
National's own securitization programs.
2021 first quarter revenue increased 23% to $336.5 million from $274.6
million a year ago. Revenue performance included:
- $61.5 million of placement fees,
33% or $15.3 million higher than a
year ago reflecting a 26% increase in residential mortgage volume
originated for institutional investors augmented by the impact on
per-unit placement fees of a more favourable mix between
residential and commercial volume
- $50.0 million of mortgage
servicing income, 37% or $13.4
million higher than a year ago primarily because of growth
in the Company's third-party underwriting business
- $39.9 million of net interest
revenue earned on securitized mortgages, 13% or $4.6 million higher than a year ago due to 6%
growth in the portfolio of mortgages pledged under securitization,
growth in wider spread prime mortgages and an increase in the
Excalibur program which continues to have lower credit loss ratios
than expected
- $13.8 million of mortgage
investment income, 34% or $7.0
million lower than a year ago due primarily to the lower
interest rate environment which reduced the company's offered
mortgage rates and resulted in lower interest earned while
mortgages were accumulated for securitization and sale on the
balance sheet
- $4.4 million of gains on deferred
placement fees, 5% or $0.2 million
higher than a year ago reflecting wider mortgage spreads on
multi-unit residential mortgages originated and sold to
institutional investors and despite lower transaction volumes
The 23% 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 comparative quarters.
Excluding these changes, revenue was 1% lower year over year at
$329.0 million compared to
$330.8 million in
2020.
Income before income taxes increased to $71.5 million from a loss of $3.3 million a year ago, reflecting changing
capital market conditions. Excluding gains and losses related to
financial instruments, earnings before income taxes and gains and
losses on financial instruments ("Pre-FMV Income") for the first
quarter of 2021 increased 21% to $64.1
million from $52.9 million in
2020. The increase was largely the result of steady growth in the
securitization portfolio and higher origination in third-party
underwriting which had a favourable impact on mortgage servicing
fee revenue.
Net income increased to $52.6
million ($0.87 per share) from
a loss of $2.3 million (loss of
$0.05 per common share) a year
ago.
Dividends
Total common share dividends paid or
declared in the first quarter amounted to $31.5 million compared to $29.2 million a year ago reflecting an increase
in the regular monthly dividend to an annualized rate of
$2.10 per common share from
$1.95 per common effective with the
dividend paid in December 2020.
The common share payout ratio in the first quarter was 61%. If
gains and losses on financial instruments are excluded, the
dividend payout ratio would have been 68% compared to 76% in the
first quarter a year ago.
The Company also paid $0.7 million
of dividends on its preferred shares in the first quarter compared
to $0.8 million a year ago.
Subsequent to quarter end, (effective April 1, 2021) and in accordance with the terms
of the original prospectus, the Company reset the annual dividend
rate on its outstanding Class A Series 1 preference shares to
2.895% for a five-year term to March 31,
2026.
Outstanding Securities
At March
31, 2021, and April 27, 2021,
the Corporation had 59,967,429 common shares; 2,984,835 Class A
preference shares, Series 1; 1,015,165 Class A preference shares,
Series 2; 200,000 November 2024
senior unsecured notes; and 200,000 November
2025 senior unsecured notes outstanding.
Outlook
With the results of the first quarter of 2021, management
remains positive about the remainder of 2021. In the short term,
the expectation for the next quarter includes: continued strong
residential origination comparable to 2020, commercial segment
success in growing origination, and employee productivity from the
Company's work-from-home strategy. During 2020, the value of First
National's business model was demonstrated. By designing systems
that do not rely on face-to-face interactions, the Company's
business practices resonated with mortgage brokers and borrowers
alike during the pandemic period. In 2021, the Company will adhere
to this model and benefit from the record MUA generated in 2020.
With the steady distribution of vaccines across the nation, the
economic effects of COVID-19 should slowly diminish. Despite the
length of this transition, First National is set up to execute its
business plan. In 2021, the Company expects to enjoy the value of
the goodwill with its broker partners that it has built over the
last 30+ years and reinforced over the last 12 months. On the
funding side, there continues to be strong demand from
institutional investors as a result of the substantial amount of
liquidity in the financial system. Securitization markets are
robust and continue to provide consistent and reliable funding for
the Company.
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
still 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
April 28, 2021 10:00
am ET
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(647) 427-7450 or
(888) 231-8191
www.firstnational.ca
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A taped rebroadcast of the conference call will be available
until May 5, 2021 at midnight ET. To access the rebroadcast, please
dial (416) 849-0833 or (855) 859-2056 and enter passcode 4498034
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 $119
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