TORONTO, July 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 and
six months ended June 30, 2021. The
Company derives virtually all of its earnings from its wholly owned
subsidiary, First National Financial LP ("FNFLP" or "First
National").
Q2 Summary
- Mortgages under administration ("MUA") increased 6% to a record
$121.5 billion compared to
$114.9 billion at June 30, 2020
- Revenue increased 6% to $365.1
million from $344.6 million in
Q2 2020
- Pre-FMV Income(1) decreased 6% to $71.2 million from $75.5
million in Q2 2020 due to the allocation of more origination
volume to securitization
- Net income increased 3% to $52.4
million ($0.86 per common
share) compared to $50.8 million
($0.84 per common share) in Q2
2020
Management Commentary
"Second quarter performance
demonstrates the strength of our business model, exceptional market
demand for mortgages in a robust real estate market and the
extraordinary efforts of the First National team," said
Stephen Smith, Chairman and Chief
Executive Officer. "These results, including a 56% year-over-year
increase in total mortgage production, were delivered even as our
people remained in work-from-home mode because of the pandemic. We
appreciate their sacrifices and commitment to the mortgage broker
community, our investing partners and First National's growing
customer base. On a healthy increase in revenues, and despite a
decision to allocate more origination volume to securitization with
a commensurate impact on short-term profitability, earnings were
strong and supported the recent increase in our common share
dividend during Q2. With investments in higher MUA and our
securitized portfolio, we are well positioned for the future."
In the second quarter of 2021, new mortgage originations
increased 56% to $10.3 billion from
$6.6 billion a year ago, while total
mortgage renewals increased 8% to $2.7
billion from $2.5 billion a
year ago.
"In all parts of the business, production was well ahead of Q2
last year," said Moray Tawse, Executive Vice President.
"Single-family mortgage originations were 71% higher, a reflection
of a strong market, First National's market share in the mortgage
broker channel built on long-term relationships and efficient,
effective execution. Commercial mortgage originations were 25%
above last year as we benefitted from institutional appetite for
conventional term loans, which augmented the core insured mortgage
products we provide as a CMHC-approved lender. We are very pleased
with these results and grateful to the team for rising to the
challenge for our customers."
|
Quarter
ended
|
Six months
Ended
|
|
June
30,
2021
|
June
30,
2020
|
June 30,
2021
|
June 30,
2020
|
For the
Period
|
($000s)
|
Revenue
|
365,118
|
344,581
|
701,610
|
619,231
|
Income before
income taxes
|
70,101
|
68,944
|
141,576
|
65,689
|
Pre-FMV Income
(1)
|
71,218
|
75,506
|
135,364
|
128,427
|
At Period
End
|
|
Total
assets
|
41,727,249
|
39,040,298
|
41,727,249
|
39,040,298
|
Mortgages
under administration
|
121,537,940
|
114,864,139
|
121,537,940
|
114,864,139
|
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 (except
those on mortgage investments)
|
Second Quarter Review
Second quarter single-family
mortgage originations of $7.6 billion
were 71% or $3.2 billion higher than
a year ago. Management believes that growth in single-family
originations reflected several factors including First National's
strong mortgage broker and investor relationships, its MERLIN
technology and operating systems that are purpose-built for
physical distancing and enabled efficient underwriting during the
pandemic and low mortgage rates that have encouraged home
purchasing activity across the country. Single family mortgage
renewals of $1.8 billion were 6% or
$0.1 billion lower than a year ago,
reflecting available renewal opportunities.
Second quarter commercial segment originations of $2.7 billion were 25% or $0.5 billion higher than a year ago as demand for
conventional lending picked up to augment insured mortgage volumes.
Commercial segment mortgage renewals of $869
million were 70% or $359
million higher than a year ago.
The Company originated and renewed for securitization purposes
approximately $3.2 billion of
single-family mortgages and $1.1
billion of multi-unit residential mortgages compared to
$2.3 billion and $0.5 billion, respectively in 2020.
Revenue within the business is derived from the following
activities:
- Q2 2021 placement fees increased 1% to $89.2 million from $88.7
million a year ago due to increased origination volumes sold
to third parties, lower revenue per unit compared to 2020 and a
shift in allocation to the Company's own securitization
programs.
- Q2 2021 mortgage servicing income increased 35% to
$55.3 million from $41.0 million a year ago due to growth in revenue
from underwriting and fulfillment processing services.
- Q2 2021 net interest revenue earned on securitized
mortgages increased 82% to $38.3
million from $21.0 million a
year ago on growth in the Company's portfolio pledged under
securitization and the pandemic's impact on securitization margin
and single-family mortgage prepayments a year ago.
- Q2 2021 mortgage investment income decreased 6% to
$16.0 million from $17.0 million a year ago due to the lower
interest rate environment which resulted in lower amounts of
interest earned while mortgages were accumulated for securitization
on First National's balance sheet.
- Q2 2021 gains on deferred placement fee
revenue decreased 20% to $5.2
million from $6.5 million as a
result of the Company's decision to securitize more of these
mortgages directly.
Overall second quarter revenue increased 6% to $365.1 million from $344.6
million in the second quarter of 2020. The increase
reflected changes in the fair market value of financial instruments
related to interest-rate movements in the quarters. Excluding these
amounts, revenue grew 4% to $366.3
million from $352.1 million in
Q2 2020. This positive change was the result of growing revenues
from third-party mortgage underwriting and fulfillment
processing.
Pre-FMV Income(1) was $71.2
million, down 6% from $75.5
million in Q2 2020 largely due to a shift in funding
strategy to allocate more origination volume to securitization
rather than institutional placement. The Company believes this
shift is economically more favourable even though securitization
delays the earning process to future periods under accounting
rules. Additionally, tighter mortgage spreads in 2021 compared to
2020 had a negative impact on earnings.
Outstanding Securities
At June
30, 2021, and July 27, 2021,
the Company 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.
Dividends
The Board declared common share dividends in
the second quarter of 2021 of $34.0
million ($29.2 million in Q2
2020) reflecting an increase in the regular monthly dividend paid
in December 2020 and another
increase, effective with the payment on June
15, 2021, that brought the annualized common share dividend
rate to $2.35 per share.
For the quarter ended June 30,
2021, the common share payout ratio was 66% compared to 58%
in the 2020 second 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 65% compared to 53% in Q2 2020.
Outlook
With the strong results of the second quarter
of 2021, management remains positive about the remainder of 2021.
In the short term, the expectation for the next quarter includes:
residential origination that is comparable to the 2020 third
quarter, commercial segment success in growing origination, and
employee productivity from the Company's work-from-home strategy.
The second quarter of 2020 was the start of the economic recovery
following the pandemic-related economic turmoil experienced in the
first quarter of 2020. Accordingly, growth rates in the first six
months of 2021 reflected a 2020 comparative period highlighted by
significant economic uncertainty and financial disruption. In the
remaining six months of 2021, comparisons will be made to the last
two quarters of 2020 that featured exceptionally strong real estate
markets.
During the pandemic, the value of First National's business
model has been demonstrated. By designing systems that do not rely
on face-to-face interactions, the Company's business practices have
resonated with mortgage brokers and borrowers alike during this
period. In 2021, the Company has adhered to this model and will
continue to 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 and its variants 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 $33 billion portfolio of mortgages pledged under
securitization and $86 billion
servicing portfolio and focus on the value inherent in its
significant single-family renewal book.
Conference Call and Webcast
July 28, 2021 10:00
am ET
|
(416) 764-8609
or (888) 390-0605
www.firstnational.ca
|
A taped rebroadcast of the conference call will be available
until August 4, 2021 at midnight ET. To access the rebroadcast, please
dial (416) 764-8677 or (888) 390-0541 and enter passcode 983705
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 $121
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