First National Reports Fourth Quarter and Year-End 2012 Results

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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."

 
 
  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:

 
 
  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
85,617 (124,025) 166,007 (456,358)
Add (deduct):        
  Change in mortgages accumulated for
   sale or securitization between periods
(53,378) 129,256 (42,416) 532,802
Adjusted Cash Flow (1) 32,239 5,231 123,591 76,444
Less: cash dividends on preference shares  (1,162) (1,163) (4,365) (3,154)
Adjusted Cash Flow available for common shareholders 31,077 4,068 119,226 73,290
Adjusted Cash Flow per Common Share ($/share) (1) 0.52 0.07 1.99 1.22
Dividends declared on Common Shares 19,489 18,740 76,208 74,960
Dividends declared per Common Share ($/share) 0.33 0.31 1.27 1.25
Payout Ratio 63% 443% 64% 102%
         

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
Participant Numbers 1-416-644-3414 or 1-800-814-4859

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

For further information:

Robert Inglis
Chief Financial Officer
First National Financial Corporation
Tel: 416-593-1100
Email: rob.inglis@firstnational.ca 

Steve Wallace
Vice President
Barnes Communications Inc.
Tel:  416-367-5000 ext. 2229
Email: swallace@barnesir.com


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