The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

First National comments on third quarter 2011 results

Monday, October 03, 2011

First National comments on third quarter 2011 results16:30 EDT Monday, October 03, 2011/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S./TORONTO, Oct. 3, 2011 /CNW/ - First National FinancialCorporation (TSX: FN) (the "Company" or "FNFC") today announced its revenue and income before income taxes for the quarter ended September 30, 2011 will both be decreased by approximately $18 million due to realized and unrealized losses on financial instruments. 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 the five- and 10-year terms of the mortgages.The Company's hedging program is designed to mitigate the interest rate risk of holding mortgages from commitment date to the date of securitization. The program recognizes that as the value of a financial instrument used for hedging changes over time, the value of the hedged mortgage will change inversely. From an accounting perspective, however, the Company's interest rate hedges do not qualify as hedges such that any gain or loss associated with these instruments must be recorded in the current period. The offsetting gain or loss on the hedged mortgages is recognized over the five- and 10-year terms of the mortgages as interest rate spread is earned. The mismatch between the timing of the upfront recognition of hedge gains or losses and the subsequent recognition of interest rate spread over time is typically insignificant. In the third quarter of 2011, however, there was significant economic turmoil, including the ratings downgrade of debt in the United States. Interest rates declined significantly during the quarter and hedge losses incurred by the Company were extraordinarily large. Hedge losses incurred in 2010 and prior years were neutral in the determination of the Company's income, as under Canadian GAAP, the increased value of the mortgages would have been recorded in the same quarter as a gain on securitization.In the quarter, First National will also record gains on some if its financial assets such as deferred placement fees receivable, and mortgages pledged under securitization funded with ABCP. While these gains will be larger than in a typical quarter, they are not nearly as significant as the losses described above. The Company's full results for the period ended September 30, 2011 will be released after market close on November 1, 2011.  Management will host a conference call to discuss the results on the morning of November 2, 2011.About First National Financial CorporationFirst 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 $56 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 InformationCertain 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.For further information: Rob Inglis Chief Financial Officer First National Financial Corporation Tel:  416-593-1100 Email:                 Steve Wallace Vice President Barnes Communications Inc. Tel:  416-367-5000 Email: