First National comments on third quarter 2007 results



    /NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN
    THE U.S./

    TORONTO, Oct. 15 /CNW/ - First National Financial Income Fund (TSX:
FN.UN) (the "Fund") today announced that its net income for the period ended
September 30, 2007 will be decreased by a $4 million to $5 million adjustment
to its equity income from its 19.97 per cent investment in First National
Financial LP (the "LP") or ("First National"). This adjustment represents the
Fund's share of a $20 million to $25 million non-cash fair value adjustment to
the LP's securitization receivable as a result of unfavourable capital market
conditions associated with the asset-backed commercial paper ("ABCP") market.
Excluding this fair value adjustment, the LP's Adjusted EBITDA(*) for the third
quarter is expected to range from $25 million to $30 million, a new quarterly
record.
    Since mid-August 2007, Canadian capital markets have experienced
unfavourable conditions and, in particular, bank-sponsored ABCP credit spreads
have increased by approximately 50 basis points. These changes were more
sudden and severe than experienced in recent history and resulted in reduced
liquidity. This led to significant valuation losses, including losses in
securities with high credit ratings. Management at First National has taken
action to ensure that certain of its financial assets are appropriately valued
and that it is properly managing its risk exposure. Consequently, a downward
fair value adjustment of $20 million to $25 million to its retained interests
will be recorded in the quarter. The fair value of these retained interests is
based on models that estimate the fair value of the expected cash flows
discounted at current market rates. The fair value adjustment to be recorded
is based on current market conditions, which indicate that the net cash flows
inherent in these models have decreased and, based on how ABCP has been
trading recently, marketplace participants would be expected to require a
higher discount rate on the purchase of any such retained interest. However,
this estimate of fair value is subject to uncertainty as there is no active
market for transactions in retained interests. In addition, management
believes that a portion of these losses are temporary due to the current
abnormal market conditions.
    Further, as of June 30, 2007, less than 10 per cent (approximately
$2.6 billion) of First National's $28.5 billion of mortgages under
administration were funded by ABCP through bank-sponsored conduits and the
First National-sponsored conduit, First National Mortgage Trust. During the
third quarter, the LP's exposure to ABCP decreased due to sales of mortgage
assets from its ABCP conduits to institutional investors. Approximately $700
million of mortgages have been sold to date and management continues to
identify further risk management opportunities to reduce exposure.
    At this time, the Fund does not contemplate making any reductions to its
current level of cash distributions.
    "Even though it deflates an otherwise outstanding quarter, we believe
this adjustment is appropriate based on our cautious estimate of the possible
impact of the recently widened ABCP credit spreads," said Stephen Smith,
Chairman and President, First National Financial LP. "However, it is important
to note that this adjustment will be reversed in the future if market
conditions improve and ABCP spreads narrow. I will also point out that First
National's diverse funding sources and success with reducing ABCP exposure has
helped to mitigate the effects of the widened spreads. These factors, along
with First National's focus on high quality mortgages, cause us to remain
confident in the Fund's ability to grow in future."
    First National's full results for the period ended September 30, 2007
will be released before market open on October 31, 2007. Management will host
a conference call to discuss the results the morning of October 31, 2007.

    About First National Financial Income Fund

    First National Financial Income Fund (TSX: FN.UN) owns a 19.97 per cent
interest in 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 $28 billion in mortgages
under administration, First National is Canada's largest non-bank originator
and underwriter of residential mortgages and is among the top three in market
share in the growing mortgage broker distribution channel. For more
information, please visit www.firstnational.ca.

    (*)Non-GAAP Measures
    --------------------
    The selected financial information and discussion below also refers to
certain measures to assist in assessing financial performance. These "non-GAAP
measures" such as "EBITDA", "Adjusted EBITDA", "Adjusted Net Income",
"Distributable Cash", and "Distributable Cash per Unit" 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 Statements
    --------------------------
    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. These forward-looking statements should
not be read as guarantees of future performance or results, and will not
necessarily be accurate indications 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 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
interest rates under "Risk and Uncertainties Affecting the Business" in the
MD&A. In evaluating these statements, investors should specifically consider
various factors, including the risks outlined under "Risk and Uncertainties
Affecting the Business" in the MD&A, which may cause actual events or results
to differ materially from any forward looking statement. These forward-looking
statements are made as of the date of this release, and are subject to change
after such date. However, management and the Fund disclaim any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required
under applicable securities regulations.





For further information:

For further information: Rob Inglis, Vice President, Finance, First
National Financial LP, Tel: (416) 593-1100, Email:
rob.inglis@firstnational.ca; Danna Broadworth, Account Executive,
BarnesMcInerney Inc., Tel: (416) 367-5000, Email:
dbroadworth@barnesmcinerney.com


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