Investor FAQ

We serve residential and commercial markets across Canada through offices in Halifax, Montreal, Toronto, Calgary and Vancouver. Commercial includes multi-unit residential (apartments and condos) as well as residential care facilities, industrial, office and retail properties.

First National is one of Canada’s largest non-bank originators and underwriters of mortgages and is among the top three in market share in the mortgage broker distribution channel. Our principal competitors are the chartered banks and other entities originating mortgages from mortgage brokers including insurance and trust companies and other non-bank lenders.

About 60-70% of the mortgages we underwrite are insured. In the residential mortgage market, we also provide “Excalibur” branded mortgage products that are originated using broader underwriting criteria than those applied in originating prime mortgages and generally have higher interest rates than prime mortgages. In the commercial mortgage market, our largest financings are CMHC-insured but we also offer our Core Conventional program which offers competitive interest rates.

We consider our major advantages to be: our extensive and established relationships with mortgage brokers who serve as our source of single family residential mortgages; the skills, commitment and entrepreneurial nature of our workforce; our servicing expertise; our proprietary software that enhances our operations during the mortgage origination process and then later during servicing and administration; our diverse and established sources of funding; our scale which creates efficiency; and the experience and expertise of our Board and senior leadership group.

We are broadly recognized in the industry for hiring the best people and helping them to grow professionally through job-specific training, job shadowing, ongoing coaching, mentoring and our online Learning Network. Our workplaces are collaborative and empowering. Every voice is heard and respected. Our comprehensive salary and benefits package includes our wellness and educational reimbursement programs, as well as extended health, dental and insurance coverage. But when it comes right down to it, what makes our culture special – and Great Places to Work® certified – is that we share a higher purpose and are passionate about helping each other deliver it. That purpose is to help Canadians achieve home and property ownership. As we often say, a great culture is in our nature.

Investment analysts focus on a number of measures in assessing corporate performance including: Mortgages Under Administration (MUA); mortgage originations; Pre-FMV Income, which is a non-IFRS term; net income, net income attributable to common shareholders and dividend payout ratio.

MUA includes our mortgage servicing portfolio and our securitized mortgage portfolio. The mortgage servicing portfolio provides a significant source of stable and recurring income. The mortgage securitization portfolio provides ongoing net interest margin. If we retain mortgages upon renewal, servicing revenue or securitization margin continues over the new term. By growing MUA, we create opportunities to grow revenue, lower our per unit servicing costs and secure mortgage renewals in the future.

First National’s revenues and earnings are driven by a combination of the value of its mortgage origination, the number of mortgages pledged under securitization, and its mortgages under administration. While originations and renewals are important for growing and maintaining MUA, the source of most of our earnings is servicing and net securitization margin which will continue to generate earnings even with a drop in originations.  

First National’s net income is influenced by conditions in the capital markets. More specifically, there is a potential for large gains and losses on financial instruments arising from our interest rate hedging program. These gains and losses are usually not an indication of performance but the outcome of the accounting required to record them in the income statement. Accordingly, the movement of net income between quarters can be  related to factors external to our core business. As a supplemental to net income before tax, we also report Pre-FMV Income. This non-IFRS measure adjusts income before income taxes by eliminating the impact of changes in fair value by adding back losses on the valuation of financial instruments (except those on mortgage investments) and deducting gains on the valuation of financial instruments.

Our Board does not prescribe a specific payout ratio but does seek to return a large share of profits to shareholders – measured as a percentage of common shareholder income – while ensuring that the company has adequate funds available to support ongoing growth and performance.

We have five sources of revenue: net interest – securitized mortgages, mortgage servicing income, placement fees, gains on deferred placement fees and mortgage investment income. We segment our revenue accordingly in our financial reports where we also describe the current drivers of each. We also provide information on the residential business and the commercial business separately as these have been determined to be distinct segments.

Beyond undertaking securitization transactions that may require significant amounts of First National’s own capital – provided in the form of cash collateral, credit enhancements, and the upfront funding of broker fees and other origination costs – our business invests in technology, leasehold improvements, and office equipment. In the long term, we expect capital expenditures on fixed assets will be approximately $10 million annually.

First National employs various techniques. To manage mortgage risk, we invest in the most creditworthy mortgages, approximately 60-70% of which are insured. As a structural advantage of our business model, about 96% of our MUA is funded through sources that result in no residual credit risk to First National. That said, our underwriting process is detailed, thorough and compliant with the highest standards in the country. At the front end, our underwriters are responsible for reviewing every loan application to ensure it meets acceptable risk.  This involves reviewing all submitted documents and independently verifying the data and claims made in those documents. Our quality assurance operations and our internal auditors add two more layers to our defences. Our risk management process allows us to attract and retain relationships with sophisticated institutional mortgage investors.

We sell mortgages to third-party institutional investors who audit us on a regular basis, while third-party mortgage insurers review our loans against their standards. We are examined and receive periodic reports from CMHC and Canada’s two other mortgage default insurers (Canada Guaranty Mortgage Insurance and Sagen MI Canada) that show how our delinquency and early default rates compare to the industry. First National consistently matches or outperforms industry comparables.

In addition to the origination of high quality, low risk mortgages, we are committed to the minimization of credit and interest rate risk. Approximately 96% at the end of 2021 of First National’s mortgages under administration are funded through sources that result in no residual credit risk to First National. First National also engages in an extensive interest rate management program for all mortgages we originate with the objective of eliminating the economic impact of any changes in interest rates to which we may be exposed.

Canada’s chartered banks are regulated by OSFI and as a non-bank, we are not. However, as a mortgage lender, we are subject to significant oversight because many of our policies and procedures are guided by our regulated investor partners which include banks, trust companies, credit unions, insurance companies, and pension funds. We are also subject to Anti-Money Laundering regulations administered by FINTRAC. As a publicly listed company, we follow laws and guidelines set down by Canadian securities regulators. We are legally registered in every province and territory where we do business. This includes registration with the Financial Services Regulatory Authority of Ontario, the Autoritédes des marchés financiers, BC Financial Services Authority, and the Real Estate Council of Alberta. In addition to these regulatory bodies, the Company is subject to oversight by CMHC and Canada’s other mortgage default insurers for all aspects of our insured mortgage programs including routine examinations of our underwriting systems.

As a mortgage servicer for large financial institutions and securitization transactions, First National is rated by DBRSMorningstar, Standard & Poor’s, and Fitch. In all cases, First National consistently achieves above-average ratings. For many of these same institutions, we provide a report on our internal controls (CSAE 3416 Report). This externally audited report provides comfort to mortgage investors that our control environment is functioning properly. DBRSMorningstar also rates First National as an issuer of investment-grade securities including publicly traded debt and preference shares. The rating was initiated in February 2010 and has been confirmed each year as BBB (mid). 

As a non-bank, non-branch financial services company with proprietary digital technologies used to serve customers, First National has a small environmental footprint across five offices. However, we aim to do our part to conserve resources within our operations by: operating as much as possible with a paperless office environment, and in 2022, moving to a new, purpose-built, energy efficient headquarters in Toronto designed to exceed LEED platinum and Well Building Institution Guidelines. We have also created Digital by Design, a hybrid model that enables our team to work from home and in office, which reduces travel-related carbon emissions.

First National is a leading participant in MLI Select, a CMHC program which provides borrower incentives to create and preserve affordable, energy efficient and accessible apartment units across Canada.

• BMO Capital Markets
• CIBC Capital Markets
• National Bank Financial
• RBC Capital Markets
• Scotiabank GBM
• TD Securities

Biographies of our senior management team are available under the Leadership section of our website.

First National was incorporated in 1988 by our co-founders Stephen Smith and Moray Tawse. Over the decades, we have become one of Canada’s largest non-bank mortgage originators and since our listing on the TSX in 2006, have invested $150+ billion in housing loans, including to first-time buyers to help them realize their dreams of home ownership.

December 31.

Quarterly financial results are typically announced in April, July, October and February. We issue dividend announcements on or about the 15^th of each month.

You can download an electronic copy of these documents by visiting the financial reports section of this website. For a printed copy of the Annual Report, please contact First National investor relations.

Ernst & Young LLP, Toronto, Ontario.

33564P.

Our transfer agent maintains records of investors and account balances and transactions, cancels and issues share certificates, delivers investor mailings and assist with items such as lost or stolen certificates. First National’s transfer agent is Computershare Investor Services, 1.800.564.6253.

Please contact Computershare Investor Services, 1.800.564.6253.

Yes, unless otherwise noted. Please consult your tax advisors for specific advice.

No, currently we do not have a DRIP as we do not require additional capital.