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Record Origination Volumes Drive Revenue Growth
TORONTO, Feb. 26, 2013 /CNW/ - First National Financial Corporation (TSX: FN) (the "Company" or "FNFC") today announced its
financial results for the fourth quarter and year ended December 31,
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 2012 Summary:
-
Mortgages under administration up 13% year-over-year to $67.3 billion
-
Mortgage originations increased by 19% to $14.0 billion from $11.8
billion
-
Revenue increased by 35% year-over-year from $464.0 million to $628.6
million
-
Net income increased to $110.3 million from $70.5 million
-
Income before income taxes increased 56% to $150.8 million from
$96.8 million
-
Pre-FMV EBITDA* increased 22% to $153.2 million from $125.1 million
-
Effective with the dividend payable on April 15, 2013, the annual
dividend rate will be increased from $1.30 per share to $1.40 per
share, an increase of 8%.
"First National was very pleased with its results in 2012 and, in
particular, the amount of cash flow generated by the business. The
Canadian real estate market remained strong throughout the year and we
grew our market share in the mortgage broker distribution channel,"
said Stephen Smith, Chairman and President. "As a result, the Company
achieved record origination levels which surpassed the previous annual
record set four years ago. These mortgages will add future value to the
Company through higher mortgage servicing revenue, increased net
interest from securitized mortgages, and greater renewal
opportunities. With these strong metrics going into 2013, the Board of
Directors approved an 8% increase in the dividend rate on the common
shares."
"In the fourth quarter of 2012, the Company experienced a slowdown in
mortgage origination from the levels enjoyed earlier in the year as the
measures introduced by the federal government in June to strengthen
Canada's housing system came into force. Looking ahead, Management
foresees reduced residential origination in 2013, but similar
commercial segment origination to 2012 as the low rate environment
encourages real estate transactions," said Moray Tawse, Vice President,
Mortgage Investments. "We are also looking to profit from increased
renewal opportunities as the five-year mortgages originated in 2008
mature and come up for renewal. For 2013, the low interest rate
environment is expected to continue yielding moderate but healthy
mortgage spreads. Despite lower origination targets, First National
expects continued profitability and cash flow as it earns the returns
from the investment it made in its business in 2012."
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|
|
Quarter ended
|
Year ended
|
|
December 31,
2012
|
December 31,
2011
|
December 31,
2012
|
December 31,
2011
|
For the Period
|
($ 000's)
|
Revenue
|
156,092
|
118,121
|
628,613
|
464,020
|
Income before income taxes
|
45,091
|
24,287
|
150,825
|
96,783
|
Pre-FMV EBITDA (1)
|
41,765
|
30,849
|
153,199
|
125,092
|
At Period end
|
|
Total assets
|
15,008,552
|
11,927,270
|
15,008,552
|
11,927,270
|
Mortgages under administration
|
67,260,086
|
59,598,596
|
67,260,086
|
59,598,596
|
|
|
|
|
|
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.
|
2012 Annual and Fourth Quarter Results
First National's mortgages under administration totalled $67.3 billion
at December 31, 2012, up from $59.6 billion at December 31, 2011, an
increase of 13%; growth from September 30, 2012, when mortgages under
administration were $65.9 billion, was 2.1%, an annualized increase of
more than 8%.
Total single-family originations increased by 24% compared to last year.
The multi-unit residential and commercial segment remained relatively
unchanged at $2.7 million for both 2012 and 2011. Overall, origination
was up almost 19% compared to last year.
Revenue for the year ended December 31, 2012 increased by 35%
year-over-year to $628.6 million from $464.0 million. The increase
reflects the rise in placement fees which increased by $42.0 million
year-over-year and interest revenue on securitized mortgages that grew
by almost $83.0 million. While the Company continued to securitize a
portion of its origination, the additional volume originated in 2012
was largely placed with institutional investors.
Despite lower origination in the fourth quarter of 2012 compared to
2011, the Company recorded growth in its financial measures
year-over-year: revenue increased to $156.1 million from $118.1 million
and income before income taxes increased 86% to $45.1 million from
$24.3 million. These increases continue to reflect the result of a
steadily growing business and a turnaround of revenues on account of
the fair value of financial instruments, which increased pre-tax income
by $9.9 million between the fourth quarters. Pre-FMV EBITDA, which
eliminates the impact of gains and losses on financial instruments to
normalize income, increased 36% to $41.8 million from $30.8 million.
This increase is due primarily to the growth of the Company's earnings
from net interest margin on securitized mortgages.
Determination of Adjusted Cash Flow and Payout Ratio
The Company paid dividends in 2012 based on an average annual dividend
rate of $1.27 per common share. Compared to cash generated by
operations, the payout ratio for 2012 was 64% as determined below:
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|
|
Quarter ended
|
Year ended
|
|
Dectember 31,
2012
|
December 31,
2011
|
December 31,
2012
|
December 31,
2011
|
For the Period
|
($ 000's)
|
Cash provided by (used in) operating
activities
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85,617
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(124,025)
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166,007
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(456,358)
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Add (deduct):
|
|
|
|
|
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Change in mortgages accumulated for
sale or securitization between periods
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(53,378)
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129,256
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(42,416)
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532,802
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Adjusted Cash Flow (1)
|
32,239
|
5,231
|
123,591
|
76,444
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Less: cash dividends on preference shares
|
(1,162)
|
(1,163)
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(4,365)
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(3,154)
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Adjusted Cash Flow available for common shareholders
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31,077
|
4,068
|
119,226
|
73,290
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Adjusted Cash Flow per Common Share ($/share) (1)
|
0.52
|
0.07
|
1.99
|
1.22
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Dividends declared on Common Shares
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19,489
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18,740
|
76,208
|
74,960
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Dividends declared per Common Share ($/share)
|
0.33
|
0.31
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1.27
|
1.25
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Payout Ratio
|
63%
|
443%
|
64%
|
102%
|
|
|
|
|
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Note:
(1)
|
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.
|
For the year ended December 31, 2012, the payout ratio was 64%, compared
to 102% for 2011. Overall, the Company recorded superior results
compared to 2011 and its net income was consistent with its cash flow
from operations. The lower payout ratio was evident even though the
common share dividend was increased during the year. In 2011, First
National realized losses on financial instruments of $22.3 million
which reduced cash flow. For 2012, the Company had just $10.6 million
of realized losses which detracted from cash flow. The consistently low
payout ratio in 2012 was an important factor in the Board's decision to
raise the annual rate of dividends in 2013. For the fourth quarter of
2012, the 63% payout ratio was consistent with the first three quarters
of 2012.
Resignation of Board Member
The Company is also announcing that the Board of Directors has
reluctantly accepted Mr. Stanley Beck's resignation from the Board. "We
thank Stan for his contributions to First National over the past seven
years and wish him well with his future endeavours," said Stephen
Smith. With Mr. Beck's resignation, four independent board members
remain, which satisfies corporate governance requirements. The Company
will consider replacing Mr. Beck in the future.
Conference Call and Webcast
Conference Call and Webcast
|
February 27, 2013 9:00 a.m. ET
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Participant Numbers
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1-416-644-3414 or 1-800-814-4859
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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
March 6, 2013. To access the rebroadcast, please dial 416-640-1917 or
1-877-289-8525 and enter passcode 4589617#.
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 over $67 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 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