First National Reports Second Quarter 2012 Results and Announces 4% Increase to Dividend Rate on Common Shares

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Record Growth in Origination Levels

TORONTO, July 30, 2012 /CNW/ - First National Financial Corporation (TSX: FN) (the "Company" or "FNFC") today announced its financial results for the second quarter ended June 30, 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 Q2 2012 Results Compared to Q2 2011:

• Mortgages under administration up 14% year-over-year to $63.7 billion
• Mortgage originations increased by 48% to $4.4 billion from $3.0 billion
• Revenue increased by 29% year-over-year from $121.6 million to $157.0 million
• Net income decreased 10.4% to $18.1 million from $20.2 million
• Income before income taxes decreased 8% to $25.5 million from $27.8 million
• Pre-FMV EBITDA⁽¹⁾ increased 23% to $39.6 million from $32.2 million

"During the second quarter of 2012, the Company was extremely pleased with its results.  With a strong presence in the mortgage channel and the exit of one of our biggest competitors there, First National produced record origination levels," said Stephen Smith, Chairman and President. "With a strong start to the year and some visibility into the third quarter, the Board has approved a 4% increase to the dividend rate on the common shares from $1.25 per share to $1.30 per share effective with the dividend to be made payable on September 17, 2012."

"In the quarter, First National also celebrated its six year anniversary as a public entity listed on the TSX.  During those six years, the Company paid out $497.0 million in distributions and dividends to unitholders and shareholders.  This represents a pre-tax return of 83% on the IPO price of $10 per unit. With the appreciation of the value of the Company since the IPO, original unitholders have earned a total return of over 137% (at June month end share prices) on their investment for the six-year period."

"Looking ahead to the third quarter, Management sees its growing market share in the mortgage broker channel remaining strong. Despite the negative impact of the government's measures to mitigate a potential housing bubble implemented in early July, the Company believes overall origination volumes will exceed the levels recorded in 2011," said Moray Tawse, Vice President, Mortgage Investments. "We expect to see the low interest rate environment continuing which should ensure healthy mortgage spreads remain for the rest of 2012. With the increase in origination volume and the portfolio of mortgages under securitization at the end of June, First National expects to continue to increase cash flow and profitability for the rest of 2012."

		Quarter ended				Six months ended
		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
For the Period		($ 000's)
Revenue		156,983		121,579		290,948		230,377
Income before income taxes		25,499		27,805		61,687		54,997
Pre-FMV EBITDA ^(1)		39,610		32,241		70,837		59,820
At Period end
Total assets		13,682,980		9,948,118		13,682,980		9,948,118
Mortgages under administration		63,676,028		56,023,078		63,676,028		56,023,078

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.

Q2 2012 Results

First National's mortgages under administration totalled $63.7 billion at June 30, 2012, up from $56.0 billion at June 30, 2011, an increase of 14%; growth from March 31, 2012, when mortgages under administration were $60.9 billion, was 4.6%, an annualized increase of 18%.

Total single-family originations increased by 58% in the second quarter of 2012 compared to 2011. The multi-unit residential and commercial segment grew steadily as this market remained strong and volumes increased by 11% to $631 million from $569 million in 2011.  Overall, origination was up almost 50% comparing the second quarter of 2012 to 2011.

For the second quarter of 2012, revenue increased to $157.0 million from $121.6 million in 2011. Net income decreased to $18.4 million from $20.2 million in the second quarter of 2011. Income before income taxes decreased 8% to $25.5 million from $27.8 million. The decrease in earnings was due to large unfavourable mark to market adjustments on the Company's financial instruments brought on by falling bond yields. Despite an otherwise successful quarter, these net losses of $12.0 million reduced the Company's operating income.  Pre-FMV EBITDA, which eliminates the impact of gains and losses on financial instruments to normalize income, increased 23% to $39.6 million from $32.2 million. The increase was largely due to the combination of higher net interest margin on securitized mortgages together with increased placement fees net of broker fees. The former showed an increase of $4.0 million and the latter provided the Company with $3.7 million of additional profit margin.

Determination of Adjusted Cash Flow and Payout Ratio

The Company paid dividends in the second quarter of 2012 based on an annual rate of $1.25 per share. Compared to cash generated by operations, the payout ratio for the second quarter of 2012 was 50% as determined below:

		Quarter ended				Six months ended
			June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
For the Period		($ 000's)
Cash provided by (used in) operating activities			101,965		40,192		229,593		(206,281)
Add (deduct):
	Cash provided (used) related to pre - amalgamation shareholders of FNFC		-		-		-		(17,635)
	Change in mortgages accumulated for sale or securitization between periods		(63,692)		(18,189)		(172,153)		256,662
Adjusted Cash Flow ^(1)			38,273		22,003		57,440		32,746
Less: cash dividends on preference shares			(1,162)		(828)		(2,325)		(828)
Adjusted Cash Flow available for common shareholders			37,111		21,175		55,115		31,918
Adjusted Cash Flow per Common Share ($/share) ^(1)			0.62		0.35		0.92		0.53
Dividends declared on common shares			18,740		18,740		37,480		37,480
Dividends declared per common share ($/share)			0.31		0.31		0.62		0.62
Payout Ratio			50%		89%		67%		117%

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. 2011 ratio restated to reflect current presentation in the consolidated statement of cash flows.

In the second quarter of 2012, the Company placed a higher percentage of its origination with institutional investors. Accordingly, the Company's cash investment in broker fees to originate for securitization was lower in the period which increased cash flow from operations. In addition, while the Company recorded $12.0 million of losses on financial instruments in the current quarter, $8.9 million of the losses were unrealized and had no impact on the Company's cash flow. Even by including the impact of these unrealized losses, the payout ratio would have been relatively low, 66% for the 2012 quarter. This strong cash flow is the driving force behind the Board's decision to increase the annual dividend rate on the common shares.

Conference Call and Webcast

Conference Call and Webcast	July 31, 2012 10:00 a.m. ET
Participant Numbers	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 August 7, 2012. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and enter passcode 4544434#.

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 $63 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

Rob Inglis
Chief Financial Officer
First National Financial Corporation
Tel: [phone]
Email: [email protected] 

Steve Wallace
Vice President
Barnes Communications Inc.
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Email: [email protected]