First National Financial Corporation Reports Fourth Quarter, 2021 Annual Results

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First National Financial Corporation Reports Fourth Quarter, 2021 Annual Results

Canada NewsWire

TORONTO, March 1, 2022 /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, 2021. The Company derives virtually all of its earnings from its wholly owned subsidiary, First National Financial LP ("FNFLP" or "First National").

2021 Annual Summary

  • Mortgages under administration ("MUA") increased 4% to a record $123.9 billion compared to $118.7 billion at December 31, 2020
  • Revenue increased 1% to $1.39 billion from $1.38 billion in 2020
  • Pre-FMV Income(1) was $257.3 million compared to $323.0 million in 2020 due to the mortgage spread environment and shifts in product mix and funding strategy
  • Net income was $194.6 million ($3.20 per common share) compared to $190.2 million ($3.12 per common share) in 2020

Q4 Summary

  • MUA increased 5% on an annualized basis in Q4
  • Revenue decreased 12% to $339.3 million from $387.3 million in Q4 2020
  • Pre-FMV Income(1) was $57.0 million compared to $94.9 million in Q4 2020 due to the mortgage spread environment and shifts in product mix and funding strategy
  • Net income was $41.9 million ($0.69 per common share) compared to $69.1 million ($1.13 per common share) in Q4 2020

Management Commentary

"First National recorded another year of strong mortgage origination growth as our teams responded well to the needs of single family residential and commercial borrowers across Canada," said Stephen Smith, Executive Chairman. "Growth of 17% in total originations combined with success in mortgage renewals drove MUA to its highest level ever. In turn, profitability was solid even as mortgage spreads returned to pre-pandemic levels, and in the last half of 2021, were as narrow as they were before the 2008 financial crisis. In this environment, First National's efficient business model and diverse funding strategies once again proved their worth for shareholders."

The Company's after-tax Pre-Fair Market Value return on shareholders' equity in 2021 was 39%. During 2021, First National declared $210.9 million in common share dividends or $3.52 per share. This includes a special common share dividend of $1.25 per share paid in December 2021. This compares favourably to $148.4 million or $2.47 per share in 2020 inclusive of a $0.50 per share special dividend paid in December 2020. Since its IPO in 2006, First National has paid a cumulative total of $1.6 billion in total dividends and distributions or $29.32 per share. Combined with share price appreciation, the total cumulative return to IPO investors was 609% at December 31, 2021.

"Both segments of the business performed well in a more competitive environment," said Jason Ellis, Chief Executive Officer.  "Entering 2021, we expected single-family originations to be flat to 2020 – itself a record year. Instead, originations grew 22% to $23.4 billion, a new record. Despite a slow start to 2021, commercial volumes also eclipsed the prior-year record, growing 7% to $9.7 billion. While mortgage demand was created by the market, it was the 1,560 people of First National who converted opportunity into results. I thank them for their dedication and mortgage brokers for their business. While mortgage spreads represented a headwind for profitability in 2021, we will benefit from the growth in MUA, the growth in our securitized mortgage portfolio and increased renewal opportunities in future periods."

Quarter ended

Year ended

December 31,

December 31,

December 31,

December 31,






  Income before income taxes





  Pre-FMV Income (1)





At Period End

  Total assets





  Mortgages under administration







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 (except those on mortgage investments).

Financial Review

For all of 2021, single-family mortgage originations were $23.4 billion, $4.2 billion or 22% above 2020, while renewals were $6.3 billion or 5% lower than the prior year on available renewal opportunities. Management believes some borrowers chose to refinance rather than renew to take advantage of low mortgage rates, which reduced renewal opportunities. Fourth quarter single-family mortgage originations of $5.2 billion were 12% lower than a year ago. Management had anticipated up to a 25% year-over-year decrease in Q4 originations in anticipation of lower market activity compared to exceptional market strength (and record originations) in the fourth quarter of 2020. Single family mortgage renewals of $1.5 billion in Q4 were 10% lower than a year ago, reflecting lower available renewal opportunities.

For all of 2021, commercial mortgage originations were $9.7 billion, up 7% or $635 million from 2020, while renewals were $2.7 billion, up 42% from $1.9 billion in 2020. Fourth quarter commercial segment originations of $3.0 billion were 12% higher than a year ago as demand for conventional lending picked up to augment insured mortgage volumes. Fourth quarter commercial segment mortgage renewals of $902 million were 62% higher than a year ago.  

Securitization remained a large part of the Company's strategy. For all of 2021, the Company originated and renewed for securitization purposes approximately $8.9 billion of single-family mortgages and $4.0 billion of multi-unit residential mortgages. In the fourth quarter, the Company originated and renewed for securitization purposes approximately $2.0 billion of single-family mortgages and $1.5 billion of multi-unit residential mortgages.

2021 revenue was 1% higher at $1.39 billion from $1.38 billion in 2020 due to changes in the fair market value of financial instruments which produced large losses in 2020 which reduced revenue.  Fourth quarter revenue decreased 12% or $48 million to $339.3 million from $387.3 million in the fourth quarter of 2020 largely due to the shift of commercial segment product from institutional placement to securitization which creates revenue in future periods. The underlying drivers of revenue performance in both periods are described below.

  • 2021 placement fees decreased 9% to $303.7 million from $333.7 million in 2020 – despite an 11% increase in origination volumes sold to institutional investors – as mortgage spreads returned to pre-pandemic levels. Accordingly, mortgage volumes sold on a funded basis attracted lower per-unit placement fees. For the residential segment, average per-unit fees were approximately 13% lower year over year. In the commercial segment, revenues were lower by $40.1 million year over year due to a shift in funding strategy from placement to securitization of 10-year insured mortgages. In 2021, the Company securitized $2.7 billion and placed about $2.6 billion of its five- and ten-year insured commercial segment origination. In 2020, the Company securitized $1.3 billion and placed about $4.6 billion of its five- and ten-year insured origination. The shift of more than $1.0 billion was a reflection of CMHC programs that increased CMB access for issuers who lend on affordability-linked real estate. This subject of this program is 10-year insured mortgages, such that the Company elected to securitize a larger percentage of its insured 10-year commercial mortgage origination leaving less product available to place with institutional investors.  By shifting these mortgages to its own securitization, the Company sacrificed placement fees for future net securitization margin. Q4 placement fees decreased 32% to $68.1 million from $100.4 million in Q4 2020 reflecting the same reasons described for annual performance.
  • 2021 mortgage servicing income increased 21% to $211.6 million from $175.0 million due to growing administration revenue from growth in MUA and growth in the Company's third-party underwriting business. Q4 mortgage servicing income increased 7% as volumes in third-party underwriting grew at a slower pace than in Q4 2020 when the low interest rate environment created historically high growth in this business.
  • 2021 mortgage investment income decreased 7% to $63.9 million from $69.0 million in 2020 primarily due to the change in the interest-rate environment between Q1 2020 and Q1 2021. After the 2020 first quarter, the Company decreased its offered mortgage rates. The result was lower amounts of interest earned on mortgages while they accumulated for securitization on the balance sheet. Q4 mortgage investment income was up 14% from Q4 2020 as the Company held more mortgages on its balance sheet prior to securitization and earned more interest revenue.
  • 2021 gains on deferred placement fee revenue decreased 50% to $16.1 million from $32.4 million in 2020 as the Company elected to directly securitize more of its multi-unit mortgage origination rather than sell originated mortgages to institutional investors. Spreads also narrowed on these mortgages in 2021 compared to 2020. Q4 gains on deferred placement fee revenue for similar reasons.

2021 Pre-FMV Income(1) decreased 20% to $257.3 million from $323.0 million in 2020 largely due to a return to a pre-pandemic mortgage spread environment and shifts in the commercial segment's product mix and funding strategy to allocate more origination volume to securitization rather than institutional placement. Q4 Pre-FMV Income(1) decreased 40% to $57.0 million from $94.9 million in Q4 2020 reflecting the same performance drivers present for much of the full year.

Outstanding Securities
At December 31, 2021, and March 1, 2022, the Corporation had: 59,967,429 common shares; 2,984,835 Class A preference shares, Series 1; 1,015,165 Class A preference shares, Series 2; 200,000 November 2024 senior unsecured notes; and 200,000 November 2025 senior unsecured notes outstanding.

The Board declared common share dividends of $210.9 million or $3.52 per share in 2021 compared to $148.4 million or $2.47 per share in 2020. This growth reflected an increase in the regular monthly dividend paid in June 2021 that brought the current annualized common share dividend rate to $2.35 per share and a special dividend of $1.25 per share in December 2021 (compared to a special dividend of $0.50 in December 2020). The payment of special dividends in both years reflected the Board's determination that the Company has generated excess capital in during each period and that the capital needed for near-term growth could be generated from current operations.

For 2021, the common share payout ratio was 110% compared to 79%. Excluding special dividends in both years, as well as recorded gains and losses on account of changes in fair value of financial instruments, the dividend payout ratio for 2021 was 73% compared to 50% in 2020. Management does not consider such gains and losses to affect its dividend payment policy in the short term.

The Company also paid $2.7 million of dividends on its preferred shares in 2021 ($2.8 million in 2020).

2021 saw a return to a fully competitive marketplace and mortgage spreads tightened to pre-pandemic levels. In some periods, spreads tightened to levels not seen since before the 2008 financial crisis. The Company successfully grew MUA despite the competitive environment and built a larger portfolio of mortgages pledged under securitization. First National will benefit from this growth in the future: earning income from mortgage administration, net securitization margin and increased renewal opportunities. In the short term, the expectation for the start of 2022 is lower origination. There are indications of slowing origination as housing inventories fall and as mortgage rates rise driven by an expected change in the Bank of Canada's monetary policy in 2022. Generally, higher interest rates will decrease affordability and dampen activity. Management estimates that residential origination will be lower than the $4.4 billion recorded in 2021's first quarter. Management recognizes that home purchasing in the past two years has been at levels that are likely unsustainable and that while drivers such as higher immigration are strong, a market slowdown seems inevitable. However, it is confident that First National will remain competitive and a leader in the marketplace. Management anticipates commercial origination to remain strong in 2022 based on the current pipeline.      

During the pandemic, the value of First National's business model has been demonstrated. By designing systems that do not rely on face-to-face interactions, the Company's business practices resonated with mortgage brokers and borrowers alike during this period. The economic effects of COVID-19 are expected to slowly diminish although the duration and impact of the pandemic is unknown at this time, as is the long-term efficacy of government and central bank interventions. It is still not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods.

First National is well prepared to execute its business plan. In 2022, the Company expects to enjoy the value of its goodwill with broker partners earned over the last 30+ years and reinforced during the pandemic. Demand for the Company's mortgages from institutional investors is strong due to the substantial amount of liquidity in the financial system. Securitization markets are robust and provide consistent and reliable source of funding.

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 $33 billion portfolio of mortgages pledged under securitization and $88 billion servicing portfolio and focus on the value inherent in its significant single-family renewal book.

Effective January 12, 2022, the Company announced the appointments of Stephen Smith as Executive Chairman of the Board and Jason Ellis as President, Chief Executive Officer and Director. Mr. Smith co-founded First National in 1988 with Moray Tawse. Since taking First National public in 2006, Mr. Smith served as the Company's founding Chairman and Chief Executive Officer and now will continue to provide strategic guidance to the management team in the newly created role of Executive Chairman. Mr. Ellis joined First National in 2004 with responsibility for First National's treasury and capital markets activities, was appointed Chief Operating Officer in 2018 and added the title of President in 2019.  Mr. Ellis will be responsible for day-to-day operations and the design and maintenance of strategy in the pursuit of business excellence. Although just recently appointed as CEO, Mr. Ellis has played increasingly important strategic roles within the business for over 15 years and is dedicated to leading the organization through the next stage of growth. 

Conference Call and Webcast

March 2, 2022 10:00 am ET   

(416) 764-8609 or (888) 390-0605

A taped rebroadcast of the conference call will be available until March 9, 2022 at midnight ET. To access the rebroadcast, please dial (416) 764-8677 or (888) 390-0541 and enter passcode 160711 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 almost $124 billion in mortgages under administration, 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.  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 Income" 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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