First National reports record profit for Q2 2008

    THE U.S./

    Strong results contribute to 8% increase in annualized distribution rate

    TORONTO, July 30 /CNW/ - First National Financial Income Fund
(TSX: FN.UN) (the "Fund") today announced its financial results for the period
ended June 30, 2008, reporting record profitability and continued strong
growth in key metrics for First National Financial LP (the "LP") or ("First

    First National's Q2 2008 Highlights:

    -   Mortgages under Administration up 28% year-over-year to $36.6 billion

    -   Mortgage originations up 14% year-over-year to $3.2 billion

    -   Revenue up 23% year-over-year to $76.9 million

    -   Net income up 28% year-over-year to $30.1 million, a quarterly record

    -   Adjusted EBITDA(*) up 28% year-over-year to $30.5 million

    "First National reached new heights of profitability in the second
quarter of 2008, driven by strong volume growth in mortgages under
administration and originations, the revitalization of our NHA-MBS program and
higher margins on our core mortgage solutions," said Stephen Smith, Chairman
and President, First National Financial LP. "Although credit markets continued
to show volatility, First National's performance has continued to thrive
because of our diversity in funding and revenue sources. Our strong results
have led to an 8% increase in distributions, our second increase in two
    "In addition to our continued momentum in single-family residential
originations, we also experienced a substantial increase in commercial
mortgage originations, driven by First National's strengthened competitive
position," said Moray Tawse, Vice President, Mortgage Investments, First
National Financial LP. "We intend to build on our track record of consistent
execution during the second half of the year to generate continued profitable
growth for our unitholders."

    Selected Financial Highlights for First National

                                  Three months ended        Six months ended
                                 June 30,    June 30,    June 30,    June 30,
                                   2008        2007        2008        2007
                                                  ($ 000's)
    For the Period
    Revenue                       76,893      62,631     143,205     116,181
    Net income                    30,098      23,524      56,629      43,684
    Adjusted EBITDA(1)            30,496      23,817      57,426      44,271
    At Period end
    Total assets               1,001,600     522,301   1,001,600     522,301
    Mortgages under
     administration           36,569,036  28,490,597  36,569,036  28,490,597

    (1) This non-GAAP measure adjusts income before income taxes by
        adding back expenses for amortization of capital assets.

    Q2 2008 Results
    Mortgages under administration were $36.6 billion at June 30, 2008, up 6%
from $34.6 billion at March 31, 2008 and up 28% from $28.5 billion at June 30,
2007. The growth was mainly attributable to growth in mortgage originations,
which totalled $3.2 billion for the quarter, up 14% from $2.8 billion in the
comparable quarter of 2007. This growth reflects First National's growing
market share in the single-family residential mortgage broker channel and a
strengthened competitive position in the commercial mortgage market. For the
six month period ended June 30, 2008, mortgage originations were $5.5 billion,
up 20% from the same period last year.
    Total revenue for the quarter was $76.9 million, up 23% from the
comparable quarter of 2007. This revenue growth was primarily due to higher
placement fees and gains on securitization resulting from higher origination
volumes, particularly gains on securitization related to First National's
NHA-MBS program. Higher mortgage servicing revenue from the increase in
mortgages under administration also contributed to the increase. For the six
month period ended June 30, 2008, revenue was $143.2 million, up 23% from the
same period last year.
    Net income for the quarter was $30.1 million, up 28% from the same
quarter of 2007. This growth corresponds to the growth in mortgages under
administration and mortgage origination volumes and was augmented by higher
margins on prime single-family and multi-unit residential originations. For
the six month period ended June 30, 2008, net income was $56.6 million, up 30%
from the same period last year.
    Adjusted earnings before income taxes, depreciation and amortization
("Adjusted EBITDA"(*)) for the quarter were $30.5 million, up 28% from the same
quarter of 2007. This increase was attributable to the factors described above
for the growth in net income. For the six month period ended June 30, 2008,
Adjusted EBITDA was $57.4 million, up 30% from the same period last year.

    Q2 2008 Distributable Cash and Distribution Increase
    The Fund's distributable cash(*) for the quarter was $5.3 million or $0.43
per unit and distributions declared totalled $3.8 million or $0.31 per unit.
The payout ratio of 72% was primarily a result of First National's higher
earnings and the securitization of mortgages through its NHA-MBS program. The
Fund's Board of Directors approved an 8% increase to monthly distributions to
unitholders. The new monthly cash distribution rate of $0.1125 per unit will
commence with the distribution payable on September 15, 2008 to unitholders of
record at the close of business on August 31, 2008. On an annualized basis,
this represents $1.35 per unit, up from $1.25 per unit.

    Statement of distributable cash

    (in $000s, except where noted)

                                                 For the             For the
                                           quarter ended    six months ended
                                           June 30, 2008       June 30, 2008
    First National Financial LP
    Distributable Cash from
     First National Financial LP(1)               25,641              37,894

    First National Financial Income Fund
    Weighted Average Share of
     Distributable Cash from
     First National Financial LP(1)                5,264               7,711
    Distributable Cash per Unit ($/Unit)(1)         0.43                0.64
    Distributions Declared                         3,817               7,505
    Distributions Declared per Unit ($/Unit)        0.31                0.62
    Payout ratio                                     72%                 97%

    (1) Distributable cash and distributable cash per unit are non-GAAP
        measures generally used by Canadian open-ended trusts as an indicator
        of financial performance. They are considered key measures as they
        demonstrate the cash available for distributions to unit holders. For
        FNFLP this measure adjusts cash provided by (used in) operating
        activities by accounting for changes between periods of mortgages
        accumulated for sale and deducting maintenance capital expenditures.

    Distribution Reinvestment Program (DRIP)
    The previously announced distribution reinvestment program ("DRIP") was
successful in raising capital of $10.5 million during the second quarter;
however, it became clear as the quarter progressed that additional capital was
not required due to two primary factors: (1) As announced in May 2008, the
portion of Alt-A origination requiring investment by First National will end
early in the third quarter; and (2) The revitalization of the NHA-MBS program
has resulted in a much lower upfront investment required from First National
for this type of securitization. The result of these changes is evident in the
significant increase in the distributable cash and related reduction of the
payout ratio in the second quarter. Accordingly, First National's board has
approved the suspension of the DRIP after the July 2008 distribution to be
paid on August 15, 2008.

    Conference Call and Webcast

    Conference Call and Webcast       July 30 2008, 10 a.m. ET
    Participant Numbers               416-644-3417 or 1-800-732-9307

    The audio of the conference call will be webcast live and archived on
First National's web site at Following management's
presentation, there will be a question and answer session for analysts and
institutional investors.
    A taped rebroadcast will be available to listeners following the call
until 12 a.m. (ET) on August 6, 2008. To access the rebroadcast, please dial
416-640-1917 or 1-877-289-8525 and input passcode 21276207 followed by the
number sign.
    Complete consolidated financial statements for the Fund and the LP as
well as management's discussion and analysis are available at
and at

    About First National Financial Income Fund

    First National Financial Income Fund (TSX: FN.UN) owns a 21% 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 $36 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
growing mortgage broker distribution channel. For more information, please

    (*)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 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 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 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 this information, 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
information. This forward-looking information is as of the date of this
release, and is subject to change after such date. However, management and the
Fund 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

For further information:

For further information: Rob Inglis, Vice President, Finance, First
National Financial LP, Tel: (416) 593-1100, Email:; Danna Broadworth, Consultant, BarnesMcInerney
Inc., Tel: (416) 367-5000, Email:

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