TORONTO, March 1, 2022 /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
12 months ended December 31, 2021.
The Company derives virtually all of its earnings from its wholly
owned subsidiary, First National Financial LP ("FNFLP" or "First
National").
2021 Annual Summary
- Mortgages under administration ("MUA") increased 4% to a record
$123.9 billion compared to
$118.7 billion at December 31, 2020
- Revenue increased 1% to $1.39
billion from $1.38 billion in
2020
- Pre-FMV Income(1) was $257.3
million compared to $323.0
million in 2020 due to the mortgage spread environment and
shifts in product mix and funding strategy
- Net income was $194.6 million
($3.20 per common share) compared to
$190.2 million ($3.12 per common share) in 2020
Q4 Summary
- MUA increased 5% on an annualized basis in Q4
- Revenue decreased 12% to $339.3
million from $387.3 million in
Q4 2020
- Pre-FMV Income(1) was $57.0
million compared to $94.9
million in Q4 2020 due to the mortgage spread environment
and shifts in product mix and funding strategy
- Net income was $41.9 million
($0.69 per common share) compared to
$69.1 million ($1.13 per common share) in Q4 2020
Management Commentary
"First National recorded another year of strong mortgage
origination growth as our teams responded well to the needs of
single family residential and commercial borrowers across
Canada," said Stephen Smith, Executive Chairman. "Growth of
17% in total originations combined with success in mortgage
renewals drove MUA to its highest level ever. In turn,
profitability was solid even as mortgage spreads returned to
pre-pandemic levels, and in the last half of 2021, were as narrow
as they were before the 2008 financial crisis. In this environment,
First National's efficient business model and diverse funding
strategies once again proved their worth for shareholders."
The Company's after-tax Pre-Fair Market Value return on
shareholders' equity in 2021 was 39%. During 2021, First National
declared $210.9 million in common
share dividends or $3.52 per share.
This includes a special common share dividend of $1.25 per share paid in December 2021. This compares favourably to
$148.4 million or $2.47 per share in 2020 inclusive of a
$0.50 per share special dividend paid
in December 2020. Since its IPO in
2006, First National has paid a cumulative total of $1.6 billion in total dividends and distributions
or $29.32 per share. Combined with
share price appreciation, the total cumulative return to IPO
investors was 609% at December 31,
2021.
"Both segments of the business performed well in a more
competitive environment," said Jason
Ellis, Chief Executive Officer. "Entering 2021, we
expected single-family originations to be flat to 2020 – itself a
record year. Instead, originations grew 22% to $23.4 billion, a new record. Despite a slow start
to 2021, commercial volumes also eclipsed the prior-year record,
growing 7% to $9.7 billion. While
mortgage demand was created by the market, it was the 1,560 people
of First National who converted opportunity into results. I thank
them for their dedication and mortgage brokers for their business.
While mortgage spreads represented a headwind for profitability in
2021, we will benefit from the growth in MUA, the growth in our
securitized mortgage portfolio and increased renewal opportunities
in future periods."
|
Quarter
ended
|
Year
ended
|
|
December 31,
2021
|
December 31,
2020
|
December 31,
2021
|
December 31,
2020
|
Revenue
|
339,292
|
387,303
|
1,394,606
|
1,380,294
|
Income before
income taxes
|
57,111
|
94,273
|
263,821
|
258,729
|
Pre-FMV Income
(1)
|
57,045
|
94,937
|
257,276
|
323,008
|
At Period
End
|
|
Total
assets
|
42,274,158
|
39,488,527
|
42,274,158
|
39,488,527
|
Mortgages under
administration
|
123,907,627
|
118,723,990
|
123,907,627
|
118,723,990
|
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).
|
Financial Review
For all of 2021, single-family mortgage originations were
$23.4 billion, $4.2 billion or 22% above 2020, while renewals
were $6.3 billion or 5% lower than
the prior year on available renewal opportunities. Management
believes some borrowers chose to refinance rather than renew to
take advantage of low mortgage rates, which reduced renewal
opportunities. Fourth quarter single-family mortgage originations
of $5.2 billion were 12% lower than a
year ago. Management had anticipated up to a 25% year-over-year
decrease in Q4 originations in anticipation of lower market
activity compared to exceptional market strength (and record
originations) in the fourth quarter of 2020. Single family mortgage
renewals of $1.5 billion in Q4 were
10% lower than a year ago, reflecting lower available renewal
opportunities.
For all of 2021, commercial mortgage originations were
$9.7 billion, up 7% or $635 million from 2020, while renewals were
$2.7 billion, up 42% from
$1.9 billion in 2020. Fourth quarter
commercial segment originations of $3.0
billion were 12% higher than a year ago as demand for
conventional lending picked up to augment insured mortgage volumes.
Fourth quarter commercial segment mortgage renewals of $902 million were 62% higher than a year ago.
Securitization remained a large part of the Company's strategy.
For all of 2021, the Company originated and renewed for
securitization purposes approximately $8.9
billion of single-family mortgages and $4.0 billion of multi-unit residential mortgages.
In the fourth quarter, the Company originated and renewed for
securitization purposes approximately $2.0
billion of single-family mortgages and $1.5 billion of multi-unit residential
mortgages.
2021 revenue was 1% higher at $1.39
billion from $1.38 billion in
2020 due to changes in the fair market value of financial
instruments which produced large losses in 2020 which reduced
revenue. Fourth quarter revenue decreased 12% or $48 million to $339.3
million from $387.3 million in
the fourth quarter of 2020 largely due to the shift of commercial
segment product from institutional placement to securitization
which creates revenue in future periods. The underlying drivers of
revenue performance in both periods are described below.
- 2021 placement fees decreased 9% to $303.7 million from $333.7
million in 2020 – despite an 11% increase in origination
volumes sold to institutional investors – as mortgage spreads
returned to pre-pandemic levels. Accordingly, mortgage volumes sold
on a funded basis attracted lower per-unit placement fees. For the
residential segment, average per-unit fees were approximately 13%
lower year over year. In the commercial segment, revenues were
lower by $40.1 million year over year
due to a shift in funding strategy from placement to securitization
of 10-year insured mortgages. In 2021, the Company securitized
$2.7 billion and placed about
$2.6 billion of its five- and
ten-year insured commercial segment origination. In 2020, the
Company securitized $1.3 billion and
placed about $4.6 billion of its
five- and ten-year insured origination. The shift of more than
$1.0 billion was a reflection of CMHC
programs that increased CMB access for issuers who lend on
affordability-linked real estate. This subject of this program is
10-year insured mortgages, such that the Company elected to
securitize a larger percentage of its insured 10-year commercial
mortgage origination leaving less product available to place with
institutional investors. By shifting these mortgages to its
own securitization, the Company sacrificed placement fees for
future net securitization margin. Q4 placement fees decreased 32%
to $68.1 million from $100.4 million in Q4 2020 reflecting the same
reasons described for annual performance.
- 2021 mortgage servicing income increased 21% to $211.6 million from $175.0
million due to growing administration revenue from growth in
MUA and growth in the Company's third-party underwriting business.
Q4 mortgage servicing income increased 7% as volumes in third-party
underwriting grew at a slower pace than in Q4 2020 when the low
interest rate environment created historically high growth in this
business.
- 2021 mortgage investment income decreased 7% to $63.9 million from $69.0
million in 2020 primarily due to the change in the
interest-rate environment between Q1 2020 and Q1 2021. After the
2020 first quarter, the Company decreased its offered mortgage
rates. The result was lower amounts of interest earned on mortgages
while they accumulated for securitization on the balance sheet. Q4
mortgage investment income was up 14% from Q4 2020 as the Company
held more mortgages on its balance sheet prior to securitization
and earned more interest revenue.
- 2021 gains on deferred placement fee revenue decreased 50% to
$16.1 million from $32.4 million in 2020 as the Company elected to
directly securitize more of its multi-unit mortgage origination
rather than sell originated mortgages to institutional investors.
Spreads also narrowed on these mortgages in 2021 compared to 2020.
Q4 gains on deferred placement fee revenue for similar
reasons.
2021 Pre-FMV Income(1) decreased 20% to $257.3 million from $323.0
million in 2020 largely due to a return to a pre-pandemic
mortgage spread environment and shifts in the commercial segment's
product mix and funding strategy to allocate more origination
volume to securitization rather than institutional placement. Q4
Pre-FMV Income(1) decreased 40% to $57.0 million from $94.9
million in Q4 2020 reflecting the same performance drivers
present for much of the full year.
Outstanding Securities
At December 31, 2021, and March 1, 2022, 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.
Dividends
The Board declared common share dividends of
$210.9 million or $3.52 per share in 2021 compared to $148.4 million or $2.47 per share in 2020. This growth reflected an
increase in the regular monthly dividend paid in June 2021 that brought the current annualized
common share dividend rate to $2.35
per share and a special dividend of $1.25 per share in December 2021 (compared to a special dividend of
$0.50 in December 2020). The payment of special dividends
in both years reflected the Board's determination that the Company
has generated excess capital in during each period and that the
capital needed for near-term growth could be generated from current
operations.
For 2021, the common share payout ratio was 110% compared to
79%. Excluding special dividends in both years, as well as recorded
gains and losses on account of changes in fair value of financial
instruments, the dividend payout ratio for 2021 was 73% compared to
50% in 2020. Management does not consider such gains and losses to
affect its dividend payment policy in the short term.
The Company also paid $2.7 million
of dividends on its preferred shares in 2021 ($2.8 million in 2020).
Outlook
2021 saw a return to a fully competitive
marketplace and mortgage spreads tightened to pre-pandemic levels.
In some periods, spreads tightened to levels not seen since before
the 2008 financial crisis. The Company successfully grew MUA
despite the competitive environment and built a larger portfolio of
mortgages pledged under securitization. First National will benefit
from this growth in the future: earning income from mortgage
administration, net securitization margin and increased renewal
opportunities. In the short term, the expectation for the start of
2022 is lower origination. There are indications of slowing
origination as housing inventories fall and as mortgage rates rise
driven by an expected change in the Bank of Canada's monetary policy in 2022. Generally,
higher interest rates will decrease affordability and dampen
activity. Management estimates that residential origination will be
lower than the $4.4 billion recorded
in 2021's first quarter. Management recognizes that home purchasing
in the past two years has been at levels that are likely
unsustainable and that while drivers such as higher immigration are
strong, a market slowdown seems inevitable. However, it is
confident that First National will remain competitive and a leader
in the marketplace. Management anticipates commercial origination
to remain strong in 2022 based on the current
pipeline.
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
resonated with mortgage brokers and borrowers alike during this
period. The economic effects of COVID-19 are expected to slowly
diminish although the duration and impact of the pandemic is
unknown at this time, as is the long-term efficacy of 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.
First National is well prepared to execute its business plan. In
2022, the Company expects to enjoy the value of its goodwill with
broker partners earned over the last 30+ years and reinforced
during the pandemic. Demand for the Company's mortgages from
institutional investors is strong due to the substantial amount of
liquidity in the financial system. Securitization markets are
robust and provide consistent and reliable source of funding.
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 $88 billion
servicing portfolio and focus on the value inherent in its
significant single-family renewal book.
Effective January 12, 2022, the
Company announced the appointments of Stephen Smith as Executive Chairman of the Board
and Jason Ellis as President, Chief
Executive Officer and Director. Mr. Smith co-founded First National
in 1988 with Moray Tawse. Since taking First National public in
2006, Mr. Smith served as the Company's founding Chairman and Chief
Executive Officer and now will continue to provide strategic
guidance to the management team in the newly created role of
Executive Chairman. Mr. Ellis joined First National in 2004 with
responsibility for First National's treasury and capital markets
activities, was appointed Chief Operating Officer in 2018 and added
the title of President in 2019. Mr. Ellis will be responsible
for day-to-day operations and the design and maintenance of
strategy in the pursuit of business excellence. Although just
recently appointed as CEO, Mr. Ellis has played increasingly
important strategic roles within the business for over 15 years and
is dedicated to leading the organization through the next stage of
growth.
Conference Call and Webcast
March 2, 2022 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 March 9, 2022 at midnight ET. To access the rebroadcast, please
dial (416) 764-8677 or (888) 390-0541 and enter passcode 160711
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 almost $124
billion in mortgages under administration, First National is
one of Canada's largest non-bank
originators and underwriters 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