First National Financial Corporation Reports First Quarter 2016 Results, Increases Common Share Dividend

TORONTO, April 26, 2016 /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 first quarter ended March 31, 2016. The Company derives virtually all of its earnings from its wholly-owned subsidiary, First National Financial LP ("FNFLP" or "First National").

First Quarter Summary

• Mortgages under administration ("MUA")  up year over year by 8% to a record $94.3 billion from $87.0 billion at March 31, 2015
• Mortgage originations ahead 8% to $2.9 billion from $2.7 billion in the 2015 first quarter
• Revenue up 38% to $231.4 million from $167.5 million in the 2015 first quarter
• Net income $37.3 million ($0.59 per common share) compared to net loss of $3.5 million (loss of $0.09 per common share) in the 2015 first quarter
• Pre-FMV EBITDA⁽¹⁾up 48% to $56.8 million compared to $38.4 million in the 2015 first quarter

Common Share Dividend
Based on the Company's consistently strong performance and outlook, the Board of Directors today increased the common share dividend to the annual equivalent of $1.70 per share, an almost 10% increase over the current annualized rate of $1.55 per share, effective with the dividend to be paid on June 15, 2016.

Management Commentary
"First National continued to perform at a high level in the first quarter and responded well to the opportunities available in both residential and commercial mortgage markets," said Stephen Smith, Chairman and CEO. "Consistently positive results allowed our Board to increase the common share dividend rate for the 9^th time in the 10 years we've been a publicly traded company. We are proud of this track record and the way it was earned – through attentive, technology-enabled service and a capital-efficient business model."

"We're very pleased with the pace of mortgage originations in the first quarter," said Moray Tawse, Executive Vice President. "Single family originations increased $100 million or 3% year over year as First National effectively offset a 10% reduction in volumes out of our Calgary office, proving once again the value of our broad geographic footprint. Commercial originations increased $156 million, or 21% year over year, further solidifying First National's position as Canada's largest commercial mortgage lender. Clearly, this was a great start to 2016."

				Quarter ended
					March 31,	March 31,
					2016	2015
For the Period				($ 000's)
Revenue					231,395	167,460
Income (loss) before income taxes					50,691	(4,899)
Pre-FMV EBITDA ^(1)					56,819	38,439
At Period end
Total assets					28,194,301	26,638,048
Mortgages under administration					94,275,930	86,998,747

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

Q1 2016 Summary

First National's MUA increased 8% to $94.3 billion at quarter end 2016 from $87.0 billion at March 31, 2015.  Between December 31, 2015 and March 31, 2016, MUA grew at an annualized rate of 2%, a decent showing given housing market seasonality.

Single-family mortgage originations increased 3% to $2.0 billion from $1.9 billion in the first quarter of 2015, despite 10% lower originations from the Company's Calgary office on account of an oil-related downturn in Alberta and Saskatchewan's housing markets. Single family mortgage renewals amounted to $929 million, up from $724 million a year ago on more renewal opportunities. Commercial segment originations increased 21% to $886 million from $730 million in the same period of 2015, while commercial mortgage renewals amounted to $162 million compared to $246 million.  The Company originated and renewed for securitization purposes $1.4 billion of mortgages in the first quarter in order to take advantage of profitable funding spreads.

Revenue increased 38% to $231.4 million from $167.5 million in the first quarter of 2015 due to lower losses on financial instruments which increased revenue by $37.4 million over last year. Placement fee revenue was also $18.6 million higher than a year ago as the Company increased the volume of mortgages placed with institutions in the first quarter by 138% compared to the same 2015 period. Securitized mortgages amounted to $25 billion at March 31, 2016, up 9% from $23 billion a year ago.

Income before income taxes was $50.7 million compared to a loss before income taxes of $4.9 million in the first quarter of 2015. The year-over-year change primarily reflected a $41.1 million loss on financial instruments used for hedging purposes in 2015 compared to a loss of $3.7 million on financial instruments in the first quarter this year. The net change in losses between 2016 and 2015 was a $37.4 million improvement. The balance of the increase, or $18.2 million, was due to positive operating performance.

Without the impact of these losses on financial instruments in the comparative periods, the Company's Pre-FMV EBITDA⁽¹⁾ increased 48% to $56.8 million from $38.4 million a year ago. The change reflected increased earnings from the Company's securitization program and higher net placement fees on residential origination.

Dividends

The Board declared common share dividends in the first quarter of 2016 based on an annualized rate of $1.55 per share. On an after-tax Pre-FMV basis, the dividend payout ratio was 61% compared to 94% in the first quarter of 2015. At its meeting today, the Board of Directors increased the common share dividend, effective with the June 15, 2016 payment, to an annualized equivalent of $1.70 per share.

The Board also declared regular quarterly dividends on the 4.65% Class A Preference shares for the period January 1 to March 31, 2016. The dividend of $0.290625 per share was paid on April 15, 2016 to holders of record at the close of business on March 31, 2016.

Preference Shares

On February 24, 2016, the Company announced that it would not exercise its right to redeem the 4,000,000 Class A Series 1 preference shares issued in 2011. It also advised shareholders of their rights under the shares for a one-for-one conversion from Series 1 shares, which have a fixed rate dividend, into Series 2 shares which have a floating rate dividend. Pursuant to these rights, a portion of Series 1 shareholders elected to convert 1,112,853 of the Series 1 shares into Series 2 shares on the conversion date.

Accordingly, effective April 1, 2016, 1,112,853 Series 1 shares converted to Series 2 shares leaving 2,887,147 Series 1 shares outstanding. The Series 1 shares will continue to trade as FN.PR.A on the TSX, while the Series 2 shares began trading as FN.PR.B on April 1, 2016.

The annual dividend on the Series 1 shares was reset to a rate of 2.79% effective April 1, 2016 for the five years to March 31, 2021. Both the Series 1 and Series 2 shares pay quarterly dividends, subject to Board of Director approval and are redeemable at the discretion of the Company such that after the second five-year term ending on March 31, 2021, the Company can choose to extend the shares for another five-year term at a fixed spread (2.07%) over the relevant index (5-year Government of Canada bond yield for any Series 1 shares or the 90 day T-Bill rate for any Series 2 shares).

Effective April 1, 2016, the Corporation 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 notes outstanding.

Outlook

The Company expects Canada's low interest rate environment to continue in 2016. Low rates will keep mortgage affordability at favourable levels and mitigate refinancing risk.

First National will focus on the significant value of renewal opportunities and its partnerships with institutional customers. Management expects the Company to continue to generate cash flow from its $25 billion portfolio of mortgages pledged under securitization and $69 billion servicing portfolio that will maximize financial performance. First National also expects its underwriting and fulfillment processing services business to continue to add to earnings as mortgages processed increase in response to the Company's superior service levels to the mortgage broker distribution channel.

Conference Call and Webcast

April 27, 2016 8:30 am ET

Participant Numbers 416-204-9269 800-499-4035

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 of the conference call will be available to listeners until 11 am ET on May 4, 2016. To access the rebroadcast, please dial 647-436-0148 or 888-203-1112 and enter passcode 1126457 followed by the number sign. The webcast is also archived at www.firstnational.ca for three months.

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, 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 more than $94 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.

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

Robert Inglis, Chief Financial Officer, First National Financial Corporation, Tel: [phone], Email: [email protected]; Ernie Stapleton, President, Fundamental, Tel: [phone], Email: [email protected]