First National Financial Corporation Reports Fourth Quarter and Annual 2018 Results

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First National Financial Corporation Reports Fourth Quarter and Annual 2018 Results

Canada NewsWire

TORONTO, Feb. 25, 2019 /CNW/ - First National Financial Corporation (TSX: FN, TSX: FN.PR.A, TSX: FN.PR.B) (the "Company" or "FNFC") today announced its financial results for the three and 12 months ended December 31, 2018. The Company derives virtually all of its earnings from its wholly-owned subsidiary, First National Financial LP ("FNFLP" or "First National").

First National Financial Corporation (CNW Group/First National Financial Corporation)

2018 Summary

  • Mortgages under administration ("MUA") increased 5% to a record $106.2 billion compared to $101.6 billion at December 31, 2017
  • Revenue increased 10% to $1.2 billion from $1.1 billion in 2017
  • Net income $166.4 million ($2.73 per share) compared to $209.7 million ($3.42 per common share) in 2017
  • Pre-FMV EBITDA(1) down 4% to $225.2 million from $234.3 million in 2017

Fourth Quarter Summary

  • MUA increased at an annualized rate of 5% during the quarter
  • Revenue increased 15% to $312.0 million from $270.0 million a year ago
  • Net income $32.2 million ($0.53 per share) compared to $45.9 million ($0.75 per common share) a year ago
  • Pre-FMV EBITDA(1) down 9% to $55.8 million from $61.1 million a year ago

Management Commentary
"First National marked its 30th consecutive year of profitable operations in 2018 with strong growth in MUA reflecting a diligent focus on service and expanded market coverage," said Stephen Smith, Chairman and Chief Executive Officer. "Despite tighter mortgage spreads and our decision to increase securitization activity, which delays the earnings process, EPS performance was solid and we were pleased to reward fellow shareholders with an increase in the common share dividend in December along with the payment of a special dividend. Since MUA is the source of most of the Company's earnings, the stage is set for continued progress."

In 2018, new mortgage originations increased 9% to $18.5 billion from $16.9 billion in 2017 reflecting: 10% growth in new single-family originations and 8% growth in commercial originations. Total mortgage renewals increased 17% to $7.4 billion from $6.3 billion reflecting: 17% growth in single-family mortgage renewals and 19% growth in commercial mortgage renewals.

"The single-family team responded exceptionally well to the new realities of the marketplace by winning over new customers and renewing more mortgage business than ever," said Moray Tawse, Executive Vice President. "We are particularly pleased with the contribution made by our alternative lending product, Excalibur, which allowed us to address a significant group of credit-worthy borrowers, including the self-employed, many who fall just outside traditional lending guidelines. The commercial team also did an outstanding job of addressing demand across Canada and across multiple asset classes by combining responsive service and market knowledge to find solutions for borrowers, and then matching those solutions with funding from government-sponsored programs and institutional investors."

Quarter ended

12 months ended

 Dec. 31, 

Dec.  31, 

Dec. 31, 

Dec. 31, 

For the Period







Income before income taxes










At Period end

Total assets





Mortgages under administration






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. See also the section "Non-GAAP Measures" in this news release for additional detail.


Q4 2018 Summary

Between October 1, 2018 and December 31, 2018 (the fourth quarter), MUA increased at an annualized rate of 5%. For the fourth quarter of 2018, single-family mortgage originations of $2.8 billion were unchanged from the fourth quarter of 2017. Fourth quarter 2018 single family mortgage renewals of $1.3 billion, were 18% or $198 million higher than a year ago, reflecting more renewal opportunities and good execution.  Fourth quarter 2018 commercial segment originations increased 12% to $1.8 billion from $1.6 billion in the same period of 2017, while commercial mortgage renewals more than doubled to $592 million compared to $257 million a year ago.

The Company originated and renewed for securitization purposes $1.4 billion of mortgages in the fourth quarter of 2018 compared to $2.4 billion a year ago.

Fourth quarter 2018 revenue was $312.0 million compared to $270.0 million in the fourth quarter of 2017, a 15% increase reflecting the higher interest rate environment. Looking at the contributors to revenue:

  • Q4 2018 net interest revenue earned on securitized mortgages $36.2 million, down 7% from Q4 2017
  • Q4 2018 placement fees $49.2 million, up 45% from Q4 2017
  • Q4 2018 mortgage servicing $35.5 million, down 2% from Q4 2017
  • Q4 2018 mortgage investment income $23.1 million, up 17% from Q4 2017

Securitized mortgages amounted to $30.6 billion compared to $27.6 billion at December 31, 2017, an 11% increase.

Q4 2018 Pre-FMV EBITDA(1) was $55.8 million, down 9% from $61.1 million in Q4 2017, largely due to the increasing interest rate environment together with tighter mortgage funding spreads. In combination, these factors negatively affected securitization margins, increased the cost of funding mortgages in the period prior to securitization and, in some cases, reduced per unit placement fee revenue. Q4 2018 net income was $32.2 million ($0.53 per share) compared to $45.9 million ($0.75 per common share) in Q4 2017.

Annual 2018 Review

First National's MUA increased 5% to a record $106.2 billion, from $101.6 billion at December 31, 2017 on higher new mortgage originations and renewals. At year-end 2018, single-family MUA was $79.2 billion, up 2% from $77.4 billion at December 31, 2017, while commercial MUA was $27.0 billion, up 12% from $24.2 billion a year ago.

For the 12 months ended December 31, 2018, new single-family mortgage originations increased 10% to $12.2 billion from $11.1 billion a year ago, despite regulatory changes that likely reduced the size of the Prime residential market. The Company attributes this growth to the relaunch of its Excalibur program, which serves the alternative market and strong growth in the Toronto and Montreal regions. Single family renewals for 2018 increased 17% to $6.1 billion from $5.2 billion in 2017 on more opportunities and solid retention rates.

The commercial segment had a strong year with new mortgage origination up 8% as volumes increased to $6.2 billion in 2018 from $5.8 billion in 2017. The Company attributes this growth to the continued development of its expertise in real estate across the country, which increased the value proposition of its financial products to borrowers and investors alike. Commercial mortgage renewals increased 18% to $1.3 billion from $1.1 billion in 2017.

The Company originated and renewed for securitization purposes $10.1 billion of mortgages in 2018 compared to $8.2 billion in 2017.

2018 annual revenue increased 10% to $1.2 billion from $1.1 billion in 2017, reflecting rising interest rates, partially offset by lower revenue from gains on financial instruments. Looking at the contributors to revenue:

  • 2018 interest revenue earned on securitized mortgages increased 20% to $790.2 million from $658.8 million in 2017 due to higher mortgage rates in the portfolio
  • 2018 placement fees decreased 2% to $141.9 million from $144.6 million in 2017 as a result of several factors including a change in product mix with the re-introduction of the Excalibur program, which has lower per unit placement fees than Prime mortgages, higher securitization levels and tighter mortgage spreads
  • 2018 mortgage servicing income increased 4% to $146.2 million from $140.8 million in 2017 largely due to the Company's third-party underwriting business as well as the benefits of higher MUA
  • 2018 mortgage investment income increased 23% to $84.3 million from $68.3 million in 2017 primarily due to an increase in market interest rates
  • 2018 gains on financial instruments amounted to $3.2 million, down from $56.3 million in 2017, which was due to the slowdown in interest rate growth in 2018 and the result of the adoption of hedge accounting in 2018 which reduced the impact of changing interest rates on gains and losses on financial instruments recorded in earnings

For 2018, Pre-FMV EBITDA(1) was $225.2 million, down 4% from $234.3 million in 2017, largely due to tighter mortgage spreads which affect both securitization margins,  placement fee revenue and increase the costs of warehousing mortgages prior to securitization. Although the Company set a new record for overall origination in 2018, including renewal volume, most of the additional origination was securitized.  Securitization, while perhaps economically superior, delays the recognition of earnings when compared to a placement transaction.

2018 net income was $166.4 million ($2.73 per share) compared to $209.7 million ($3.42 per common share) in 2017.


The Board declared common share dividends in the fourth quarter of 2018 of $88.2 million. This included a special common share dividend of $1.00 per share ($60.0 million in total), paid on December 17, 2018.  

For all of 2018, the Company declared common share dividends of $171.4 million or $2.86 per common share, reflecting both the special dividend and a dividend increase in December that brought the annualized rate to $1.90 per share from $1.85 per share.

Excluding the special dividend, the payout ratio was 68% in 2018 and 53% in 2017. Excluding gains on financial instruments (which management does not consider as revenue available for dividend payment) in 2018 and 2017, the dividend payout ratio for 2018 would have been 70% compared to 67% in 2017.

Shares Outstanding

At December 31, 2018 and February 25, 2019, the Company had 59,967,429 common shares; 2,887,147 Class A preference shares, Series 1; 1,112,853 Class A preference shares, Series 2; and, 175,000 April 2020 senior unsecured notes outstanding.


Going into 2019, the Company is cautiously optimistic. Economic concerns arose in November 2018 and continued through to year end. Equity markets sold off and credit spreads widened. While perhaps too early to determine if these events are a harbinger for a recession, in the short term, the consequences may be lessened at First National. Because the Company uses government-sponsored funding programs such as NHA MBS and CMB, it expects these sources of funding to remain liquid and to outperform other debt instruments during a spread widening cycle. In addition, while the yields on underlying government bond benchmarks have fallen, mortgage lenders have been disciplined in the face of an uncertain economy and mortgage coupons have not fallen to the same extent. The consequence is a wider spread between the interest rates on Prime mortgages and the costs of CMHC-sponsored funding sources, despite increased credit spreads. Generally, if persistent, these circumstances will provide the Company with greater securitization margins in 2019. It is unclear, however, how long this environment will last and whether competitive pressures will reduce these margins back to the levels experienced in 2018.

The Company is confident that its strong relationships with mortgage brokers and diverse funding sources will continue to set First National apart from its competition. The Company will continue to generate income and cash flow from its $30 billion portfolio of mortgages pledged under securitization and $73 billion servicing portfolio and focus on the value inherent in its significant single-family renewal book.

Conference Call and Webcast

February 26, 2019 10 am ET   

Participant Numbers

(647) 490-5367 or (800) 667-5617


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 of the conference call will be available until March 5, 2019 at 1:00 pm ET. To access the rebroadcast, please dial (647) 436-0148 or (888) 203-1112 and enter passcode 9871928 followed by the number sign. The webcast is also archived at for three months.

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, TSX:FN.PR.A, TSX:FN.PR.B) 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 $106 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

1 Non-GAAP Measures

The Company uses IFRS as its accounting framework. IFRS are generally accepted accounting principles (GAAP) for Canadian publicly 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" and "After tax Pre-FMV Dividend Payout Ratio" 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

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