First National Reports Third Quarter 2011 Results


Solid growth in core financial measures

TORONTO, Nov. 1, 2011 /CNW/ - First National Financial Corporation (TSX: FN) (the "Company" or "FNFC") today announced its financial results for the quarter ended September 30, 2011. The Company derived all of its earnings from its wholly-owned subsidiary, First National Financial LP ("FNFLP" or "First National"). Despite a continued challenging business environment, the Company continued to build its portfolio of mortgages under administration and produce steady cash flow in the quarter.

First National Financial's Q3 2011 Results Compared to Q3 2010 Results:

  • Mortgages under administration up 11.5% year-over-year to $58.0 billion
  • Mortgage originations increased by 28% to $3.5 billion from $2.7 billion
  • Revenue increased by 10% year-over-year from $105.2 million to $115.5 million
  • Income before income taxes decreased 41% to $17.5 million from $29.7 million
  • EBITDA* decreased 40% to $19.6 million from $32.5 million
  • Dividends declared to shareholders increased 16% compared to tax equivalent distributions declared by the Company's predecessor, First National Income Fund ("the Fund") in the third quarter of 2010

"In the third quarter of 2011, First National's core financial results exceeded those from the IFRS restated 2010 financial results as the Company continued to build its portfolio of mortgages under securitization. The Company recorded higher origination volumes from a resilient real estate market, growing net interest margin and mortgage servicing," said Stephen Smith, Chairman and President. "Without the unfavourable fair value losses on our hedging program, the Company would have had its strongest quarter of 2011.  Even with the significant hedge losses, the Company was able to generate enough cash flow to pay its dividend and still retain a portion for its equity."

"In the third quarter of 2011, despite the economic environment turning more negative, First National increased origination by 28% year over year," said Moray Tawse, Vice President, Mortgage Investments. "With mortgage spreads getting wider, the Company is well positioned to increase profitability while continuing to grow our mortgage portfolio."

  Quarter ended Nine months ended
  September 30,
September 30,
September 30,
September 30,
For the Period ($000s)
Revenue 115,522 105,238 345,899 278,248
Income before income taxes 17,499 29,672 72,496 86,928
EBITDA (1) 19,587 32,457 80,260 95,283
At Period end  
Total assets 10,754,813 8,330,026 10,754,813 8,330,026
Mortgages under administration 57,963,215 51,999,850 57,963,215 51,999,850

(1)     This non-GAAP measure adjusts income before income taxes by adding back expenses for amortization of intangible and capital assets.
(2)     September 2010 figures have been restated for the Conversion and transition to IFRS.

Q3 2011 Results
First National's mortgages under administration grew to $58.0 billion at September 30, 2011, up from $52.0 billion at September 30, 2010, an increase of 11.5% on an annualized basis; growth from June 30, 2011, when mortgages under administration were $56.0 billion was 3.6%, an annualized increase of 14.3%.

Total single-family originations increased by 24% in the third quarter of 2011 compared to the same period last year. The multi-unit residential and commercial segment experienced an even higher rate of growth as volumes increased by 47% to $699.0 million from $474.0 million for the period ended September 30, 2010. The Company securitized a significant portion of its mortgage origination in two issuances of the Canada Mortgage Bonds program in the quarter.

Revenue for the quarter ended September 30, 2011 increased by 10% year-over-year to $115.5 million from $105.2 million. The increase reflects the increased interest revenue on securitized mortgages, particularly floating rate mortgages indexed to the prime rate, which increased by 9%.  Higher mortgage servicing revenue, placement fees and mortgage investment income offset the large negative change in gains and losses on financial instruments.

The Company's hedging program, while appropriate, accounted for $17.4 million of the net losses on financial instruments of $14.8 million. The losses pertain to instruments used for interest rate hedging purposes on mortgages pending securitization. From an economic perspective, to the extent the value of these hedges was unfavourable at September 30, 2011, the value of the hedged mortgages has increased; however, unlike the hedge losses that have been accounted for fully in the third quarter of 2011, the increased value of the mortgages will be recognized as earned over their five- and 10-year terms. As a result, income before income taxes for the quarter decreased by 41% from $29.7 million in 2010 to $17.5 million in 2011.  The decrease is due to volatile debt markets in the quarter which negatively affected the Company's interest rate hedges.  Despite the change, the quarter produced steady and growing income from the Company's securitized mortgage and servicing portfolios. EBITDA for the quarter was $19.6 million, a decrease of 40% from $32.5 million in the same period in 2010.  The decrease was due to the same factors cited for income before income taxes.

Determination of Adjusted Cash Flow and Payout Ratio
The Company paid dividends in the third quarter of 2011 based on an annual rate of $1.25 per share. This rate is after provision for corporate income taxes and can only be compared to the distributions of the Fund if the distributions are adjusted on the same tax basis. The $1.50 distribution annual rate employed in the third quarter of 2010 by the Fund represents approximately $1.08 on an after tax basis. Accordingly, the current dividend rate of $1.25 per share represents an increase of 16% from the prior year. Together with payments on account of income tax, the Company distributed $25.2 million in the third quarter of 2011 or $2.7 million more than in 2010's third quarter, on a tax equivalent basis.

For the quarter ended September 30, 2011, the payout ratio was 94%. For the quarter ended September 30, 2010, the payout ratio was 79%. The increase in the payout ratio is a result of the higher dividend declared in 2011 compared to the tax adjusted distributions made in 2010. If the Company had chosen to distribute the same after tax equivalent as in 2010, the payout ratio in the third quarter of 2011 would have been approximately 82%. The additional increase of 3% between the quarters relates primarily to approximately $8.4 million of realized losses on financial instruments related to the Company's hedging activities.

  Quarter ended Nine months ended
  September 30,
September 30,
September 30,
September 30,  
For the Period ($000s)
Cash provided by (used in) operating        
       activities (126,052) 118,936 (332,333) 87,489
Add (deduct):        
  Cash provided (used) related to pre -          
     amalgamation shareholders of FNFC 7,277 29,334
   Change in mortgages accumulated for        
      sale or securitization between periods 146,884 (97,958) 403,546 (28,430)
Adjusted cash flow (1)        
Less: cash paid on preference shares  (1,163) (1,991)
Adjusted cash flow available for common shareholders 19,669 28,255 69,222 88,393
Adjusted Cash Flow per Common Share ($/Share) (1) 0.33 0.47 1.15 1.47
Dividends / Distributions declared on common shares / units 18,740 22,488 56,220 67,464
Dividends / Distributions declared per common share / unit ($/Share) / ($/unit) 0.31 0.37 0.94 1.12
Payout Ratio 94% 79% 82% 76%

Conference Call and Webcast

Conference Call and Webcast November 2, 2011, 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 A question and answer session for analysts and institutional investors will be held following management's presentation.

A taped rebroadcast will be available following the call until 12 a.m. (ET) on November 9, 2011. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and enter passcode 4478099#.

Complete consolidated financial statements for the Company as well as management's discussion and analysis are available at and at

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 $58 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

*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 "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:

Rob Inglis
Chief Financial Office
First National Financial Corporation
Tel:  416-593-1100
          Steve Wallace
Vice President
Barnes Communications Inc.
Tel:  416-367-5000

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