TORONTO, Oct. 27, 2020 /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 nine months ended September 30,
2020. The Company derives virtually all of its earnings from
its wholly owned subsidiary, First National Financial LP ("FNFLP"
or "First National").
Q3 Summary
- Mortgages under administration ("MUA") increased 6% to a record
$117.1 billion compared to
$110.6 billion at September 30, 2019 and increased 8% annualized
during the quarter
- Revenue increased 3% to $373.8
million from $362.8 million in
Q3 2019
- Pre-FMV Income(1) increased 25% to $99.6 million from $79.8
million in Q3 2019
- Net income was $72.5 million
($1.20 per common share) compared to
net income of $60.6 million
($1.00 per common share) in Q3
2019
Common Share Dividend Increase and Special Dividend
Declaration
Today, the Board of Directors also announced an
increase to the Company's regular monthly dividend and the payment
of a special dividend.
Effective with the payment on December
15, 2020, the common share dividend will increase to
$2.10 per share on an annualized
basis from its current annualized rate of $1.95 per share. Additionally, a special common
share dividend in the amount of $0.50
per share will be paid on December 15,
2020 to shareholders of record on November 30, 2020. This special payment reflects
the Board's determination that over the past year, First National
has generated excess capital and can continue to fund its near-term
growth opportunities from operations.
Management Commentary
"In a year marked by the
pandemic, First National has delivered strong results for
customers, partners and shareholders through the committed efforts
of our 1,131 employees from coast to coast," said Stephen Smith, Chairman and Chief Executive
Officer. "For customers and partners, we originated a record volume
of mortgages. For single family borrowers, we helped those who
needed it with payment deferrals. For shareholders, we leveraged
our non-bank business model and advantages in technology to grow
our market share in all segments but not at the expense of return
on equity. We are very pleased that our performance has enabled the
Company to pay a special dividend for the fourth consecutive year
and increase the regular common share dividend rate for the sixth
time in six years."
In the third quarter of 2020, new mortgage originations
increased 36% to $7.6 billion from
$5.6 billion in the same period a
year ago, while total mortgage renewals increased 14% to
$2.4 billion compared to $2.1 billion a year ago.
"Heading into Q3, management's outlook improved and results for
the period followed suit, and in some cases, exceeded our
expectations," said Moray Tawse, Executive Vice President. "Within
single family, each of First National's regional offices
experienced double-digit growth in mortgage originations driven in
part by consumer preference for the mortgage broker distribution
channel and the Company's growing share in that channel. In
commercial, First National continued to benefit from demand for
insured financing particularly in the multi-family apartment sector
where we enjoy a leadership position. For both business segments,
full credit goes to employees for remaining productive and
efficient while working from home."
|
|
|
|
Quarter
ended
|
Nine months
ended
|
|
September 30,
2020
|
September 30,
2019
|
September 30,
2020
|
September 30,
2019
|
For the
period
|
($
000's)
|
Revenue
|
373,760
|
362,833
|
992,991
|
984,385
|
Income before
income taxes
|
98,767
|
82,778
|
164,456
|
175,120
|
Pre-FMV Income
(1)
|
99,644
|
79,816
|
228,071
|
186,650
|
At Period
end
|
|
Total
assets
|
38,314,904
|
37,249,143
|
38,314,904
|
37,249,143
|
Mortgages
under administration
|
117,116,971
|
110,601,875
|
117,116,971
|
110,601,875
|
|
Note:
|
(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 2019
comparative figure has been revised to conform to the 2020
presentation.
|
Third Quarter Review
Third quarter single family
residential segment mortgage originations of $5.9 billion were 42% or $1.7 billion higher than a year ago. Regionally,
double digit growth was achieved in all markets. Québec and
British Columbia, with new
origination volume increases up 69% and 61%, respectively were the
regional growth leaders. Management believes that single-family
origination volumes reflected First National's strong broker and
investor relationships and its MERLIN technology and operating
systems which enable physical distancing and efficient underwriting
during the pandemic. Lower risk-free interest rates also encouraged
home purchasing across the country. When combined with renewals of
$1.9 billion, total single-family
production was 34% or $2.0 billion
higher compared to Q3 2019.
Third quarter 2020 commercial segment originations of
$1.7 billion were 18% or $256 million higher than a year ago. This growth
rate reflects the Company's emphasis on insured multi-unit product,
but the quarter also featured 15% growth in production of uninsured
mortgages. Commercial segment mortgage renewals of
$406 million were 18% higher than a
year ago, bringing total commercial production in the quarter to
$2.1 billion compared to $1.8 billion a year ago, a 17% increase.
The Company originated and renewed for securitization purposes
$2.5 billion of single-family
mortgages and $0.3 billion of
multi-unit residential mortgages – compared to $1.4 billion and $0.2
billion respectively, a year ago.
Revenue is derived from the following activities:
- Q3 2020 placement fees increased 41% to
$98.4 million from $69.8 million a year ago reflecting higher
mortgage volume with institutional investors and wider mortgage
spreads, partially offset by a decrease in placements related to
renewed mortgages as the Company elected to securitize more of
these.
- Q3 2020 mortgage servicing income increased 5% to
$46.0 million from $43.9 million a year ago due to growth in revenue
earned on the Company's underwriting and fulfillment processing
services business.
- Q3 2020 net interest revenue earned on securitized
mortgages decreased 3% to $34.9
million from $35.9 million a
year ago largely due the indirect consequences of the pandemic on
securitization spreads and the cost of indemnities payable to NHA
MBS debtholders when mortgages prepaid prior to their scheduled
maturity dates.
- Q3 2020 mortgage investment income decreased 31% to
$15.5 million from $22.5 million a year ago due to the lower
interest rate environment and lower balances of mortgages and loan
investments related to the Company's commercial bridge loan
program.
- Q3 2020 gains on deferred placement fee
revenue increased 258% to $12.9
million from $3.6 million as a
result of a wider-spread environment as well as higher volumes
produced for these programs.
As a result of the above-noted growth, third quarter revenue
increased 3% to $373.8 million from
$362.8 million in the third quarter
of 2019. The increase included changes in fair market value gains
and losses related to interest-rate movements in the quarters.
Excluding these amounts, revenue grew 4% to $375.2 million from $360.9
million in Q3 2019. This growth was largely a function of
higher mortgage origination and wider mortgage spreads which fueled
an increase in placement fee revenue.
Pre-FMV Income(1) increased 25% to $99.6 million from $79.8
million in Q3 2019 as increased revenue flowed through to
the bottom line.
Outstanding Securities
At September 30, 2020, and October 27, 2020, the Corporation had 59,967,429
common shares; 2,887,147 Class A preference shares, Series 1;
1,112,853 Class A preference shares; and 200,000 November 2024 senior unsecured notes
outstanding.
Dividends and Dividend Payout Ratio
The Board declared
common share dividends in the third quarter of 2020 of $29.2 million ($28.5
million in Q3 2019) reflecting a dividend increase in
December 2019 that brought the
annualized rate to $1.95 per share
from $1.90 per share.
For the third quarter of 2020, the common share payout ratio was
41% compared to 48% in the 2019 third quarter. Excluding gains and
losses on financial instruments (which management does not consider
appropriate as a determinant of its dividend policy), the after tax
Pre-FMV Dividend Payout Ratio(1) was 40% in Q3 2020
compared to 49% in Q3 2019.
The Company also paid $0.7 million
of dividends on its preferred shares in the third quarter of 2020
compared to $0.8 million in 2019
third quarter.
Mortgage Payment Deferrals
When First National
reported for the second quarter, management described the nature of
deferred mortgage payments and the need for cash resources to fund
these assets. As of 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. At October 23, 2020 this
number had fallen significantly to stand at approximately 0.7% of
the relevant MUA.
Outlook
With COVID-19 uncertainties still prevalent,
it is difficult to look too far ahead. However, management is very
positive about the fourth quarter and the start of 2021.
Expectations for the fourth quarter include: substantially higher
seasonal residential origination; Commercial segment success in
growing origination at higher spreads; and employee productivity
from the Company's work-from-home strategy. During the third
quarter, the value of First National's business model was further
demonstrated. By designing systems that do not rely on face-to-face
interactions during the pandemic, the Company's business practices
resonated with mortgage brokers and borrowers alike.
In the third quarter, the commercial segment benefited from
reduced competition and First National increased its market share
while experiencing wider spreads. Although more and more of the
Company's competitors are returning to the market, wider mortgage
spreads are persisting. The single family segment experienced
substantial growth in originations in part due to the disruption
that COVID-19 created for traditional bank origination channels. 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. Much like its experience in 2009 coming out of the credit
crisis, the Company is now benefiting from wider mortgage coupons
relative to funding costs on new originations. If wider
spreads persist, the Company will continue to benefit.
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.
While it is not early in the crisis, there is still significant
uncertainty about its duration and the extent of repercussions.
Accordingly, it is not possible to reliably estimate the length and
severity of COVID-19-related 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 $81 billion
servicing portfolio and focus on the value inherent in its
significant single-family renewal book.
Conference Call and Webcast
October 28, 2020
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 November 4, 2020 at
midnight ET. To access the
rebroadcast, please dial (416) 849-0833 or (855) 859-2056 and enter
passcode 4969329 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 more than $117
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 Income" 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 ''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.
SOURCE First National Financial Corporation