2022
A NN UAL REPORT
CORPORATE PROFILE
First National Financial
is Canada’s non-bank
mortgage lender.
2023 marks our company’s 35th anniversary
of providing mortgage loan solutions – both
insured and conventional – to Canadians to
purchase single-family, multi-unit and
commercial properties.
Our integrated services for customers and
mortgage brokers, purpose-built technology,
expertise in mortgage origination, underwriting
and loan administration and deep sources of
liquidity form our competitive strengths.
But our values – forged over decades and
embraced every day by our talented team –
fuel our market leadership and our drive to
constantly improve.
You can learn more about what’s In Our Nature in
this annual report, and in our Sustainability Report
found on our website at www.frstnational.ca.
STOCK EXCHANGE LISTING
Our common shares trade on the
S&P/TSX under the symbol FN, and
our preferred shares trade under the
symbols FN.PR.A and FN.PR.B. First
National is a member of the S&P/TSX
Canadian Dividend Aristocrats® Index.
1
First National Financial Corporation 2022 ANNUAL REPORT 2022 BY THE NUMBERS
2
First National Financial Corporation 2022 ANNUAL REPORT 315,700
5,770
1,686
Single family residential
customers served.
Commercial mortgage loans
Our sizeable workforce gives
made across multi-unit residential
us a boots-on-the-ground
and other commercial property
presence in all of Canada’s
asset classes.
major real estate markets.
$131B
$1.57B
$197.7M
Mortgages Under Administration
Revenue increased 13% over 2021.
Net income reached a new
record ($3.25 per share).
581%
Total shareholder return
from our IPO in 2006 to
December 31, 2022.
(MUA) – the source of most of our
earnings – reached this milestone,
a 6% increase over 2021.
$1.9B
The total value of dividends
and distributions paid to
First National shareholders
between 2006 and 2022
(or $31.67 per share).
28%
After-tax Pre-Fair Market Value1
return on shareholders’ equity
demonstrated the efciency of
the First National business model
(and has averaged 39% over the
past fve years).
(1) Non-IFRS measure. See MD&A for more details.
First National Financial Corporation | 2022 Annual Report
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First National Financial Corporation 2022 ANNUAL REPORT
OUR LEADERSHIP TEAM
STEPHEN SMITH
Co-founder, Executive Chairman of the Board
MORAY TAWSE
Co-founder and Executive Vice President
JASON ELLIS
President and Chief Executive Ofcer
ROBERT INGLIS
Chief Financial Ofcer
HILDA WONG
Senior Vice President and General Counsel
SCOTT MCKENZIE
Senior Vice President, Residential Mortgages
JEREMY WEDGBURY
Senior Vice President, Commercial Mortgages
THOMAS KIM
Senior Vice President and Managing Director,
Capital Markets
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First National Financial Corporation 2022 ANNUAL REPORT
MESSAGE TO FELLOW SHAREHOLDERS
2022 was a transitional year.
We began with leadership succession: Stephen Smith, our co-founder, took on the
role of Executive Chair and I was appointed CEO.
For all stakeholders, internal and external, this succession preserved First National’s
entrepreneurial roots. Stephen’s ongoing participation in the governance of the
company, his unique perspectives as a recognized leader in fnancial services’
innovation and his deep market insight and industry relationships are invaluable to the
business and to me in my new role. I am also grateful for the ongoing leadership of
Moray Tawse, our other co-founder. As Executive Vice President and a member of the
Board, Moray’s expertise in the commercial real estate market continues to beneft our
organization. As proven entrepreneurs, Moray and Stephen are leaders by example.
Our markets also transitioned as a rapid rise in infation brought with it higher interest
rates. This led to a slowdown in housing activity. This was in marked contrast to 2021
when housing activity was elevated on generationally low interest rates which were the
result of government-initiated, accommodative monetary policy designed to combat
the economic impacts of the Covid-19 pandemic.
The impact of this market transition on our fnancial performance is explained in detail
in our MD&A. At a high level, annual originations of $29.1 billion were 12% below 2021’s
record levels. In turn, operating proftability, measured by Pre-FMV Income, was lower
due to several factors including reduced originations and a resulting temporary decline
in operating leverage. However, net income, which includes the impact of gains and
losses on fnancial instruments grew 2% to $197.7 million ($3.25 per share).
Solid proftability enabled our Board – for the 15th time since our initial public ofering –
to increase the common share dividend in 2022. It now stands at an annualized rate of
$2.40 per share.
Mortgages Under Administration (“MUA”), also increased to a record $131.0 billion, 6%
above 2021. We consider MUA a key metric as it is an important driver of earnings and
is an indicator of our scale and standing in the marketplace as a leading mortgage
fnance company. Growing MUA in a challenging environment like the one we
experienced in 2022 is a sign of corporate strength that speaks well to First National’s
market share, diversifed positioning in residential and commercial markets, and the
hard work of our team.
5
First National Financial Corporation 2022 ANNUAL REPORT “The position First National
occupies in the marketplace as an
independent, customer-focused
fnancial services provider sets us
apart and makes us an ideal partner
for mortgage brokers and other
fnancial institutions.”
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First National Financial Corporation 2022 ANNUAL REPORT
CHANGING WITH THE TIMES BUT HOLDING FAST TO OUR BELIEFS
First National celebrates its 35th anniversary in 2023. Much has changed in that time.
The fnancial services industry has become increasingly complex and diversifed. In
particular, the mortgage landscape has evolved with signifcant reforms. These changes
contributed to the growth of mortgage brokers as a professional source of independent
advice for Canadian homebuyers.
Our company navigated these changes successfully as we established First National
as a trusted partner for brokers, an efcient user of securitization programs and a
leader in technology.
We also developed what we consider to be a unique performance culture, one with
a highly engaged workforce. As testament to that engagement, First National has
earned the title of Great Place to Work® in Canada in each of the past fve years based
on independently conducted workforce surveys. Understandably, we want to preserve
this advantage.
Since culture is a signifcant determinant of long-term success, one of my frst-year
priorities was to document the intangibles that make our culture and our organization
diferent. At a time when the world has become rightly concerned about the
sustainability practices of business, it is also important for us to lay down our cultural
markers for external stakeholders to assess before choosing to work with us.
These are the principles and characteristics we consider to be central to our approach.
We strive for better: Innovation and ambition drive us to strive for better in our
processes, technology, service and products. Productive growth comes from taking
initiative and consistently redefning what it means to embrace opportunities and adapt
to change.
We earn trust: Relationships and reputation mean everything to us. Through honesty,
transparency and consistency, we build credibility and deliver peace of mind. Our
clients know that we invest beyond the business. We invest in them and their dreams.
They come to us for trusted advice that allows us to evolve together.
We encourage autonomy: For us, growth and development start with owning each
and every decision we make. Encouraging diverse perspectives, ideas and voices is
the basis for how we do business. But it also extends to how we support each other
as a team and build community.
We emphasize accountability: We recognize the urgency of getting it right. Rigour,
process and setting realistic expectations underlie how we deliver service reliably and
consistently. We’re responsive without abandoning structure.
These principles – striving for better, trust, autonomy and accountability – form the
“it” in “It’s in our Nature,” a phrase we use internally to illustrate our cultural norms. In
every case, our statements purposely begin with the word “we” which underscores the
importance of teamwork, and of collectively holding deep-seated beliefs, displaying
clear intentions and exhibiting consistent behaviours.
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First National Financial Corporation 2022 ANNUAL REPORT
THE WAY FORWARD
Moving forward, we will follow these
Canadians fnancing homes and
precepts and ensure they remain intrinsic
commercial properties trust First
to the approach we use in managing
National based on our 35-year track
the business, driving performance and
record and the responsive, reliable way
assessing progress. 2023 will give us
we conduct ourselves as a lender. By
another chance to express our principles
preserving our cultural norms, we will
through action with an agenda purpose
strive to maintain our reputation and
built for the times but underpinned by
the trust of all stakeholders.
consistency of purpose and approach.
Our proven and ever evolving technology
As indicated a year ago when I became
and more recently our ability to come
CEO, there will be no sudden changes
together in our ofces free from the
to our strategy. The position First
physical distancing demands of recent
National occupies in the marketplace
years will allow us to recover the
as an independent, customer-focused
operational leverage that was missing
fnancial services provider sets us apart
in 2022. In short, we will continue to
and makes us an ideal partner for
strive for better in 2023.
mortgage brokers and other fnancial
institutions that wish to invest in
Canadian mortgages or beneft from
our expertise in third-party underwriting
and fulfllment.
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First National Financial Corporation 2022 ANNUAL REPORT
GOVERNANCE MATTERS
To stress test our plans, and ensure we move forward as intended, we will once
again beneft from strong, dedicated governance. In that regard, we were pleased to
welcome Martine Irman and Diane Sinhuber to our Board of Directors in October 2022.
These two accomplished leaders bring deep and relevant business and governance
experience to the Board and are independent of management. Their biographies
appear on page 85 and page 86. We are pleased to add new insight and experience
while creating a more diverse Board.
We are also marking the retirement of John Brough as a Director. John joined the
Board at the time of our IPO in 2006 and played a formative role in the advancement
of our company as a publicly-traded enterprise. John deserves and receives our thanks
for sharing his wisdom and experience for the betterment of our company and all
stakeholders for more than 15 years.
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First National Financial Corporation 2022 ANNUAL REPORT THANK YOU
Our organizational structure is purposely fat, which means the members of our senior
management team (pictured on page four) are deeply involved in operations. This
group is comprised of proven First National veterans who have the experience and
perspective that are invaluable in confronting challenges and seizing new opportunities.
I thank each of them for their contributions.
Finally, thanks to our customers, business partners, shareholders and the broader
members of the First National team for the sizeable contributions you make to the
company’s success.
Yours sincerely,
Jason Ellis
President and Chief Executive Ofcer
February 28, 2023
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First National Financial Corporation 2022 ANNUAL REPORT
MORTGAGES UNDER ADMINISTRATION
($ Billions)
118.7
123.9
131.0
106.2
111.4
2022 MUA BY ASSET TYPE
C
B
A
2018
2019
2020
2021
2022
A
B
C
68%
Insured
27%
Uninsured
single-family
residential
5%
Uninsured
multi-residential
and commercial
REVENUE ($ Millions)
2022 FUNDING SOURCES
1.33
1.38
1.39
1.18
1.57
C
B
A
2018
2019
2020
2021
2022
A
B
64%
Institutional
investors
33%
Securization
C
3%
Internal
A
PRE-FAIR MARKET VALUE INCOME1 ($ Millions)
2022 REVENUE SOURCES PRIOR
TO FAIR VALUE GAINS/LOSSES
323.0
257.3
247.1
220.3
D
208.8
C
A
B
A
B
C
D
2018
2019
2020
2021
2022
(1)Non-IFRS measure. See MD&A for more details.
37%
Institutional
placements
22%
Net interest-
securitized
mortgages
28%
B
Mortgage
servicing
13%
Investment
income
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First National Financial Corporation 2022 ANNUAL REPORT
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First National Financial Corporation 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION
AND ANALYSIS
The following management’s discussion and analysis
(“MD&A”) of fnancial condition and results of
operations is prepared as of February 28, 2023.
This discussion should be read in conjunction with
the audited consolidated fnancial statements and
accompanying notes of First National Financial
Corporation (the “Company” or “Corporation” or
“First National”) as at and for the year ended
December 31, 2022. The audited consolidated
fnancial statements of the Company have been
prepared in accordance with International Financial
Reporting Standards (“IFRS”).
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First National Financial Corporation 2022 ANNUAL REPORT
This MD&A contains forward-looking
information. Please see “Forward-Looking
GENERAL DESCRIPTION OF THE COMPANY
First National Financial Corporation is the parent company of First National Financial
Information” on page 41 for a discussion
LP (“FNFLP”), a Canadian-based originator, underwriter and servicer of predominantly
of the risks, uncertainties and assumptions
prime residential (single-family and multi-unit) and commercial mortgages. With more
relating to these statements. The selected
than $131 billion in mortgages under administration (“MUA”), First National is one of
Canada’s largest non-bank originators and underwriters of mortgages and is among
the top three lenders in market share in the mortgage broker distribution channel.
2022 RESULTS SUMMARY
First National’s performance in 2022 refected rapidly changing market conditions,
the result of abrupt increases in Bank of Canada (BoC) policy interest rate increases.
With slowing housing activity across Canada, the Company’s single-family origination
was 17% lower year over year but about 44% ahead of 2019 (the most recent pre-
pandemic period). Commercial segment originations decreased by 1% on continued
strength in its insured mortgage products. Total combined new origination was
lower by 12% year over year. Mortgages Under Administration (MUA), the source of
most of the Company’s earnings, continued to grow and reached another record
high. Operating proftability was lower as mortgage origination fell while headcount
growth and infationary pressures meant employee costs increased. The rapid pace
of increases in short-term interest rates created gains on fnancial instruments but
negatively afected the Company’s securitization margins.
The following summarizes the performance of the Company’s signifcant metrics:
• MUA grew to $131.0 billion at December 31, 2022 from $123.9 billion at December
31, 2021, an increase of 6%; the growth from September 30, 2022, when MUA was
$129.3 billion, was 5% on an annualized basis.
fnancial information and discussion
presented here also refer to certain
measures to assist in assessing fnancial
performance. These other 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 IFRS as an indicator of performance
or as a measure of liquidity and cash
fow. These measures do not have standard
meanings prescribed by IFRS and therefore
may not be comparable to similar
measures presented by other issuers.
Unless otherwise noted, tabular amounts
are in thousands of Canadian dollars.
Additional information relating to the
Company is available in First National
Financial Corporation’s profle on the
System for Electronic Data Analysis
and Retrieval (“SEDAR”) website at
www.sedar.com.
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First National Financial Corporation 2022 ANNUAL REPORT
• Total new single-family mortgage
featured a rapidly rising interest
income taxes and gains and losses
origination was $19.5 billion in 2022
rate environment with bond yields
compared to $23.4 billion in 2021,
and mortgage rates increasing
a decrease of 17%. The Company
as monetary policy tightened to
on fnancial instruments (“Pre-FMV
Income”(1)) for 2022 decreased by
19% to $208.8 million from $257.3
attributes this to a slowing real
counteract infation risks. These
million in 2021. This change was
estate market together with a
changes led to higher interest
largely the result of a 17% drop in
more competitive marketplace.
revenue earned on securitized
new residential origination and
Commercial segment origination of
mortgages, higher interest revenue
a competitive marketplace. As
$9.6 billion was 1% lower than the
earned on mortgages accumulated
mortgage rates rose over the past
$9.7 billion originated in 2021. Total
for securitization and higher interest
nine months, housing transactions
new origination decreased by 12%
earned on mortgage investments.
slowed across the country. With
in 2022 compared to 2021.
These increases in revenue were
the ensuing competition from
partially ofset by lower placement
other lenders in a smaller market,
fees as residential origination
the Company increased broker
• The Company took advantage of
available opportunities in the year
to renew $6.8 billion of single-
family mortgages, 8% higher than
volumes were lower by 17%
comparing the two years.
$6.3 billion a year ago. For the
• Income before income taxes was
commercial segment, renewals were
$269.1 million in 2022 compared to
lower by 19% ($2.2 billion compared
$263.8 million in 2021. The increase
to $2.7 billion a year ago).
• Revenue for 2022 increased by 13%
to $1.57 billion from $1.39 billion in
2021. This change was largely the
result of higher interest rates. 2022
included the efect of changing
capital market conditions in both
years. Excluding gains and losses
related to fnancial instruments,
the Company’s earnings before
incentives to boost the referral of
residential mortgage transactions.
Together with tight funding
spreads for securitized foating
rate mortgages and employee
head count at levels designed
to underwrite higher volumes,
proftability was lower.
(1) 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 fnancial instruments
(except those on mortgage investments) and deducting gains on the valuation of fnancial instruments. See Key Performance Indicators section in this MD&A.
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First National Financial Corporation 2022 ANNUAL REPORT
DIVIDEND INCREASE
In the fourth quarter of 2022, the Company’s Board of Directors
announced an increase to the regular monthly dividend to $2.40
per common share from $2.35 on an annualized basis, efective
with the dividend paid on December 15, 2022.
SELECTED QUARTERLY INFORMATION
Quarterly Results of First National Financial Corporation
($000s, except per share amounts)
Revenue
Net Income
for the Period
Pre-FMV
Income for
the Period(1)
Net Income
per Common Share
$414,785
$392,413
$416,774
$350,321
$339,292
$353,704
$365,118
$336,492
$42,669
$40,145
$61,281
$53,637
$41,971
$47,614
$52,401
$52,575
$59,492
$48,219
$55,864
$45,187
$57,045
$64,867
$71,218
$64,146
$0.70
$0.66
$1.01
$0.88
$0.69
$0.78
$0.86
$0.87
Total Assets
$43,763,672
$42,392,225
$42,927,449
$42,386,708
$42,274,158
$40,763,169
$41,727,249
$40,586,601
2022
Fourth quarter
Third quarter
Second quarter
First quarter
2021
Fourth quarter
Third quarter
Second quarter
First quarter
(1) 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 fnancial instruments
(except those on mortgage investments) and deducting gains on the valuation of fnancial instruments. See Key Performance Indicators section in this MD&A.
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First National Financial Corporation 2022 ANNUAL REPORT
Reconciliation of Quarterly Determination of Pre-FMV Income
($000s, except per share amounts)
2022
Fourth quarter
Third quarter
Second quarter
First quarter
2021
Fourth quarter
Third quarter
Second quarter
First quarter
Income before
income tax
for the Period
Add/deduct
realized and
unrealized
losses (gains)
Deduct (losses),
add gains related
to mortgage and
loan investments
Pre-FMV Income
for the Period(1)
$58,269
$54,645
$83,081
$73,087
$57,111
$65,134
$70,101
$71,475
$1,353
($5,846)
($27,217)
($27,900)
$71
$383
$1,217
($7,486)
($130)
($580)
$—
$—
($137)
($650)
($100)
$157
$59,492
$48,219
$55,864
$45,187
$57,045
$64,867
$71,218
$64,146
(1) 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 fnancial instruments
(except those on mortgage investments) and deducting gains on the valuation of fnancial instruments. See Key Performance Indicators section in this MD&A.
With First National’s large portfolio of
In the past eight quarters, the Company
quickly and continuously beginning on
mortgages pledged under securitization,
experienced a relatively volatile
March 2, 2022, in an attempt to stem
quarterly revenue is driven primarily by
economic environment. 2021 began
infation and short-term interest rates
the gross interest earned on mortgages
with strong origination and proft
rose by 400 basis points between March
pledged under securitization. The gross
metrics as the pandemic-based era of
and December 2022. While spreads on
interest on the mortgage portfolio
low interest rates and wide spreads
new mortgage originations widened
is dependent both on the size of the
continued. Competition accelerated
somewhat, the Company faced the
portfolio of mortgages pledged under
in mid 2021 on signs of an improving
headwinds of a slowing housing market,
securitization, as well as mortgage
economy and a risk-on environment,
and strong competition for employees
rates. Recently MUA has increased,
such that over the fnal six months
and customers such that it earned
and revenue followed. Net income is
of 2021, spreads returned to pre-
comparatively lower Pre-FMV income.
partially dependent on conditions in
pandemic levels. Spread tightening
bond markets, which afect the value of
reduced proftability for the Company
gains and losses on fnancial instruments
in the third and fourth quarters of 2021
arising from the Company’s interest
compared to the periods of exceptional
rate hedging program. Accordingly, the
proftability in most of 2020 and early
movement of this measurement between
2021. To start 2022, the economic
quarters is related to factors external
outlook was positive and there was a
to the Company’s core business. By
surplus of liquidity for investment in
removing this volatility and analyzing
fnancial assets. However, late in the frst
Pre-FMV Income, management believes
quarter, risks associated with infation
a more appropriate measurement of
became evident as wages and prices
the Company’s performance can be
increased and companies competed for
assessed.
employees. The Bank of Canada moved
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First National Financial Corporation 2022 ANNUAL REPORT
OUTSTANDING SECURITIES OF THE CORPORATION
At December 31, 2022, and February 28, 2023, 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.
SELECTED ANNUAL FINANCIAL INFORMATION AND RECONCILIATION TO PRE-FMV INCOME(1)
($000s, except per share amounts)
2022
2021
2020
For the year ended December 31,
Income Statement Highlights
Revenue
Interest expense – securitized mortgages
Brokerage fees
Salaries, interest and other operating expenses
Add (deduct): realized and unrealized losses (gains) on
fnancial instruments
Deduct: unrealized losses regarding mortgage investments
Pre-FMV Income(1)
Add (deduct): realized and unrealized gains (losses)
on fnancial instruments excluding those on
mortgage investments
Provision for income taxes
Net income
Common share dividends declared
Per Share Highlights
Net income per common share
Dividends per common share
At Year End
Balance Sheet Highlights
Total assets
1,574,293
(739,295)
(173,290)
(392,626)
(59,610)
(710)
208,762
60,320
(71,350)
197,732
141,423
3.25
2.36
1,394,606
(630,279)
(201,786)
(298,720)
(5,815)
(730)
257,276
6,545
(69,260)
194,561
210,885
3.20
3.52
1,380,294
(708,162)
(159,018)
(254,385)
67,355
(3,076)
323,008
(64,279)
(68,500)
190,229
148,419
3.12
2.47
43,763,672
42,274,158
39,488,527
Total long-term fnancial liabilities
399,222
398,888
398,554
Notes:
(1) Pre-FMV Income is not a recognized earnings measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, Pre-FMV Income may not be
comparable to similar measures presented by other issuers. Investors are cautioned that Pre-FMV Income should not be construed as an alternative to net income or loss
determined in accordance with IFRS as an indicator of the Company’s performance or as an alternative to cash fows from operating, investing and fnancing activities as a
measure of liquidity and cash fows.
18
First National Financial Corporation 2022 ANNUAL REPORT
VISION AND STRATEGY
The Company provides mortgage fnancing solutions to the residential and commercial
mortgage markets in Canada. By ofering a full range of mortgage products, with a
focus on customer service and superior technology, the Company believes that it is
a leading non-bank mortgage lender. The Company intends to continue leveraging
these strengths to lead the non-bank mortgage lending industry in Canada, while
appropriately managing risk. The Company’s strategy is built on four cornerstones:
providing a full range of mortgage solutions for Canadian single-family and commercial
customers; growing assets under administration; employing technology to enhance
business processes and service to mortgage brokers and borrowers; and maintaining a
conservative risk profle. An important element of the Company’s strategy is its direct
relationship with the mortgage borrower. The Company is considered by most of its
borrowers as the mortgage lender. This is a critical distinction. It allows the Company
to communicate with each borrower directly throughout the term of the related
mortgage. Through this relationship, the Company can negotiate new transactions and
pursue marketing initiatives. Management believes this strategy will provide long-term
proftability and sustainable brand recognition for the Company.
KEY PERFORMANCE DRIVERS
The Company’s success is driven by the following factors:
• Growth in the portfolio of mortgages under administration;
• Growth in the origination of mortgages;
• Raising capital for operations; and
• Employing innovative securitization transactions to minimize funding costs.
GROWTH IN PORTFOLIO OF MORTGAGES UNDER ADMINISTRATION
Management considers the growth in MUA to be a key element of the Company’s
performance. The portfolio grows in two ways: through mortgages originated by the
Company and through third-party mortgage servicing contracts. Mortgage originations
not only drive revenues from placement and interest from securitized mortgages, but
perhaps more importantly, create longer-term value from servicing rights, renewals and
growth in the customer base for marketing initiatives. As at December 31, 2022, MUA
totalled $131.0 billion, up from $123.9 billion at December 31, 2021, an increase of 6%.
The growth of MUA in the fourth quarter of 2022 was 5% on an annualized basis.
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First National Financial Corporation 2022 ANNUAL REPORT
GROWTH IN ORIGINATION OF MORTGAGES
Direct Origination by the Company
Excalibur Mortgage Products
The origination of mortgages not only drives the growth of MUA as described above,
The Company originates alternative
but leverages the Company’s origination platform, which has a large fxed-cost
single-family (“Excalibur”) mortgage
component. As more mortgages are originated, the marginal costs of underwriting
products. Alternative lending describes
decrease. Increased origination satisfes demand from its institutional customers
single-family residential mortgages
and produces volume for the Company’s own securitization programs. In 2022, the
that are originated using broader
Company’s single-family origination decreased by 17% compared to 2021. The Company
underwriting criteria than those applied
believes this is the result of slowing real estate markets following the unsustainable
in originating prime mortgages. These
growth experienced early in the pandemic when interest rates were at historical
mortgages generally have higher interest
lows. As mortgage interest rates rose beginning in the frst quarter of 2022, housing
rates than prime mortgages. First
afordability diminished, and housing activity declined signifcantly. The commercial
National’s relationships with mortgage
segment performed relatively well despite the changing market conditions. Total
brokers and its underwriting systems
commercial volumes were $9.6 billion compared to $9.7 billion in 2021, a decrease of
allow for cost efective origination of
1%. On a combined basis (residential and commercial), overall new origination in 2022
signifcant volumes. The product is
decreased 12% year over year.
Third-Party Mortgage Underwriting and Fulflment Processing Services
In 2015, the Company launched its third-party underwriting and fulflment processing
services business with a large Canadian schedule I bank (“Bank”). This business is
designed to adjudicate mortgages originated by the Bank through the single-family
residential mortgage broker channel. First National employs a customized software
solution based on its industry-leading MERLIN technology to accept mortgage
applications from the Bank in the mortgage broker channel and underwrite these
mortgages in accordance with the Bank’s underwriting guidelines. The Bank funds all
the mortgages underwritten under the agreement and retains full responsibility for
mortgage servicing and the client relationship. Management considers the agreement a
way to leverage the capabilities and strengths of First National in the mortgage broker
channel and add some diversity to the Company’s service oferings. In late 2019, the
Company entered into a similar agreement with another Canadian bank.
originated primarily for placement with
institutional investors, but beginning
in April 2019, the Company fnalized
an agreement with a bank-sponsored
securitization conduit to fund a portion
of Excalibur origination. In early 2020,
an agreement was reached with another
bank-sponsored conduit to provide
additional funding for this product.
Excalibur was rolled out gradually,
beginning in Ontario. Currently the
program originates the majority of its
mortgages in Ontario with small but
growing volumes in Western Canada.
20
First National Financial Corporation 2022 ANNUAL REPORT RAISING CAPITAL FOR OPERATIONS
Bank Credit Facility
Preferred Share Issuance
The Company has a $1.5 billion revolving
Efective April 1, 2021, pursuant to the
line of credit with a syndicate of banks.
original prospectus, the Company
This facility enables the Company to
reset the annual dividend rate on the
fund the large amounts of mortgages
outstanding Class A Series 1 preference
accumulated for securitization. In the
shares to 2.895% for a fve-year term
second quarter of 2022, the Company
to March 31, 2026. After the exercise of
extended the term of the facility by
shareholder conversion rights in March
another year to March 2027. The facility
2021, there were 2,984,835 Class A Series
bears interest at foating rates. The
1 shares outstanding and 1,015,165 Class A
Company has elected to undertake this
Series 2 outstanding. The Series 2 shares
debt for a number of reasons: (1) the
facility provides the amount of debt
bear a foating rate dividend calculated
quarterly based on the 90-day T-Bill rate.
required to fund mortgages originated
Both the Series 1 and Series 2 shares pay
for securitization purposes; (2) the debt
quarterly dividends, subject to Board of
is revolving and can be used and repaid
Directors approval, and are redeemable
as the Company requires, providing more
at the discretion of the Company such
fexibility than senior unsecured notes,
that after each fve-year term ending on
which are fully drawn during their term;
March 31, the Company can choose to
(3) the four-year remaining term gives
extend the shares for another fve-year
the Company a committed facility for
term at a fxed spread (2.07%) over the
the medium term; and (4) the cost of
relevant index (fve-year Government
borrowing refects the Company’s BBB
of Canada bond yield for any Series
1 shares or the 90-day T-Bill rate for
any Series 2 shares). While investors in
these shares have an option on each
fve-year anniversary to convert their
Series 1 preference shares into Series
2 preference shares (and vice versa),
there is no provision of redemption
rights to these shareholders. As such,
the Company considers these shares to
represent a permanent source of capital.
issuer rating.
Note Issuance
In November 2020, the Company
issued 200,000 2.961% Series 3 senior
unsecured notes for a fve-year term
pursuant to a private placement under
an ofering memorandum. These notes
added to the Company’s 2019 issuance
of 200,000 3.582% Series 2 senior
unsecured notes. The net proceeds of
both oferings, after broker commissions,
were invested in FNFLP. On settlement,
the proceeds were used to pay down
a portion of the indebtedness under
the bank credit facility. The Company’s
medium-term debt capital now stands at
approximately $400 million.
21
First National Financial Corporation 2022 ANNUAL REPORT EMPLOYING SECURITIZATION TRANSACTIONS TO MINIMIZE FUNDING COSTS
Approval as Both an Issuer of NHA-MBS and Seller to the Canada Mortgage Bonds Program
In December 2007, the Company was
Generally, when this spread is wider, the Company can earn higher returns from
approved by Canada Mortgage and
its securitization activities, although credit spreads and program fee observed in
Housing Corporation (“CMHC”) as an
securitization markets also afect proftability. In early 2020, fears of a global pandemic
issuer of NHA-MBS and as a seller into
led to a dramatic and sudden decrease in bond yields as central banks cut overnight
the Canada Mortgage Bonds (“CMB”)
rates signifcantly. Credit spreads, including those on mortgages, widened. Later in
program. Issuer status provides the
2020, as fnancial systems began to normalize, mortgage coupons remained elevated
Company with direct and independent
as other credit spreads, including those on NHA-MBS, narrowed. The resulting spreads
access to reliable and low-cost funding.
had positive impacts on 2020 results and increased the proftability inherent in the
Insured mortgage spreads can be
Company’s securitization portfolio. In 2021, mortgage spreads narrowed, to levels not
illustrated by comparing insured posted
fve-year fxed single-family mortgage
seen since before the 2008 fnancial crisis as competition increased. In 2022, spreads
widened in response to the Bank of Canada’s interest rate policy announcements. If
rates to a similar-term Government of
such spreads persist, it will be favorable to the Company in future quarters. In 2022,
Canada bond as listed in the table below.
the Company originated and renewed approximately $12.6 billion of single-family and
multi-unit residential mortgages for securitization purposes.
Average Five-Year
Mortgage Spread
for the Period
1.12%
1.50%
2.68%
1.77%
1.38%
The Company is subject to various regulations put in place by CMHC. These rules
include the amount of CMHC guarantees issued which are required to issue a pool.
Currently there is a tiered NHA-MBS guarantee fee pricing structure, such that any
guarantees issued to one issuer over $9.0 billion of issuance have a higher price. The
tiered limit of $9.0 billion remains unchanged for 2023. In July 2022, CMHC announced
new rules related to the allocation of NHA-MBS guarantee fees between Lenders
and Aggregators. These rules commence in 2023 and may have an impact on the
Company’s ability to place mortgages with some institutions.
1.76%
Canada Mortgage Bonds Program
1.17%
1.59%
The CMB program is an initiative where Canada Housing Trust (“CHT”) issues securities
to investors in the form of semi-annual interest-yielding fve- and 10-year bonds. As a
seller into the CMB, the Company is able to make direct sales into the program. The
ability to sell into the CMB has given the Company access to lower costs of funds
on both single-family and multi-family mortgage securitizations. Because of the
efectiveness of the CMB, many institutions have indicated their desire to participate.
As a result, CHT has created guidelines through CMHC that limit the amount that
can be sold by each seller into the CMB each quarter. The Company is subject to
these limitations. In recent years, the Company was able to increase capacity for its
participation in the 10-year CMB by including afordability-linked mortgages in the
program. CMHC has indicated there may be modifcations as early as 2024 which
may reduce the Company’s access to 10-year CMB capacity.
Period
2006
2007
2008
2009–2016
2017–2019
2020
2021
2022
22
First National Financial Corporation 2022 ANNUAL REPORT
KEY PERFORMANCE INDICATORS
The principal indicators used to measure
by excluding gains and losses related
provides investors with an indication of
the Company’s performance are:
to the fair value of fnancial instruments
income normalized for capital-market
• Earnings before income taxes
and losses and gains on fnancial
instruments, with the exception
of any losses related to mortgage
investments (“Pre-FMV Income”(1));
and
• Dividend payout ratio.
Beginning in 2012, the Company used
Pre-FMV EBITDA as a key performance
indicator. This non-IFRS measure was
used to adjust the Company’s earnings
and adding back depreciation and
fuctuations. Pre-FMV Income should
amortization. The addbacks of
not be construed as an alternative to net
amortization ended in 2016 when IPO-
income determined in accordance with
related intangible assets were fully
IFRS or to cash fows from operating,
amortized. Accordingly, efective January
investing and fnancing activities. The
1, 2020, the Company elected to simplify
Company’s method of calculating
the non-IFRS measure it presents to
Pre-FMV Income may difer from other
adjust only for fair value-related gains
issuers and, accordingly, Pre-FMV Income
and losses. This measure is reported as
may not be comparable to measures
“Pre-FMV Income.” Pre-FMV Income is
used by other issuers.
not recognized under IFRS. However,
management believes that Pre-FMV
Income is a useful measure that
($000s)
For the Period
Revenue
Income before income taxes
Pre-FMV Income(1)
At Period End
Total assets
Quarter Ended
Year Ended
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
414,785
58,269
59,492
339,292
57,111
57,045
1,574,293
1,394,606
269,082
208,762
263,821
257,276
43,763,672
42,274,158
43,763,672
42,274,158
Mortgages under administration
131,000,635
123,907,627
131,000,635
123,907,627
(1) 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 fnancial instruments
(except those on mortgage investments) and deducting gains on the valuation of fnancial instruments.
Since going public in 2006, First National has been considered a high-yielding,
dividend-paying company. With a large MUA that generates continuing income and
cash fow and a business model that is designed to make efcient use of capital,
the Company has been able to pay distributions to its shareholders that represent a
relatively large ratio of its earnings. The Company calculates the dividend payout ratio
as dividends declared on common shares over net income attributable to common
shareholders. This measure is useful to shareholders, as it indicates the percentage of
earnings paid out as dividends. Similar to the performance measurement for earnings,
the Company also calculates the dividend payout ratio on a basis using after-tax
Pre-FMV Income.
23
First National Financial Corporation 2022 ANNUAL REPORT
Determination of Common Share Dividend Payout Ratio
($000s)
For the Period
Net income attributable
to common shareholders
Total dividends paid or
declared on common shares
Dividends paid or declared
on common shares,
excluding special dividend
Total common share
dividend payout ratio
Regular common share
dividend payout ratio(1)
After-tax Pre-FMV dividend
payout ratio(2)
Quarter Ended
Year Ended
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
41,785
41,287
194,693
191,866
35,730
110,190
141,423
210,885
35,730
35,231
141,423
135,926
86%
86%
84%
267%
85%
85%
73%
73%
94%
110%
71%
73%
Note:
(1) This ratio is calculated by excluding the payment of the special dividends declared at the end of the periods presented.
(2) This non-IFRS measure adjusts the net income used in the calculation of the “Regular common share dividend payout ratio” to after tax Pre-FMV income so as to eliminate the
impact of changes in fair value by adding back losses on the valuation of fnancial instruments (except those on mortgage investments) and deducting gains on the valuation
of fnancial instruments. The Company uses its aggregate efective tax rate to tax afect the impact of the valuation of fnancial instruments on this ratio.
For the year ended December 31, 2022, the regular common share payout ratio
(excluding the special dividend declared in 2021) was 73% compared to 71% for the
year ended December 31, 2021. However, in 2022 and 2021, the Company recorded
gains and losses on account of the changes in fair value of fnancial instruments. Gains
and losses are recorded in the period in which the prices on Government of Canada
bonds change; however, the ofsetting economic impact is generally refected in
narrower or wider spreads in the future once the mortgages have been pledged for
securitization. Accordingly, management does not consider such gains and losses to
afect its dividend payment policy in the short term. If the gains and losses on fnancial
instruments in the two years are excluded from the above calculations, the dividend
payout ratio for 2022 would have been 94% compared to 73% in 2021.
The Company also paid $3.0 million of dividends on its preferred shares in 2022
compared to $2.7 million in 2021.
24
First National Financial Corporation 2022 ANNUAL REPORT
REVENUES AND FUNDING SOURCES
Mortgage Origination
Placement Fees and Gain on Deferred Placement Fees
The Company derives a signifcant
The Company recognizes revenue at the time that a mortgage is placed with
amount of its revenue from mortgage
an institutional investor. Cash amounts received in excess of the mortgage
origination activities. Most mortgages
principal at the time of placement are recognized in revenue as “placement
originated are funded either by
fees”. The present value of additional amounts expected to be received
placement with institutional investors or
over the remaining life of the mortgage sold (excluding normal market-
through securitization conduits, in each
based servicing fees) is recorded as a “deferred placement fee”. A deferred
case with retained servicing. In general,
placement fee arises when mortgages with spreads in excess of a base spread
originations are allocated from one
are placed. Normally the Company would earn an upfront cash placement fee,
funding source to another depending
but investors prefer paying the Company over time, as they earn net interest
on diferent criteria, including type of
margin on such transactions. Upon the recognition of a deferred placement
mortgage and securitization limits,
with an overall consideration related to
fee, the Company establishes a “deferred placement fee receivable” that is
amortized as the fees are received by the Company. Of the Company’s $38.1
maintaining diversifed funding sources.
billion of new originations and renewals in 2022, $24.4 billion was placed with
The Company retains servicing rights on
institutional investors.
For all institutional placements, the Company earns placement fees. Revenues
based on these originations are equal to either (1) the present value of the
excess spread, or (2) an origination fee based on the outstanding principal
amount of the mortgage. This revenue is received in cash at the time of
placement. In addition, under certain circumstances, additional revenue from
institutional placements may be recognized as “gain on deferred placement
fees” as described above.
virtually all the mortgages it originates.
This provides the Company with
servicing fees to complement revenue
earned through originations. For the
year ended December 31, 2022, new
origination volume decreased to $29.1
billion from $33.2 billion, or about 12%
compared to 2021.
Securitization
The Company securitizes a portion of
its origination through various vehicles,
including NHA-MBS, CMB and asset-
backed commercial paper (“ABCP”).
Although legally these transactions
represent sales of mortgages, for
accounting purposes they do not meet
the requirements for sale recognition
and instead are accounted for as
secured fnancings. These mortgages
remain as mortgage assets of the
Company for the full term and are
funded with securitization-related
debt. Of the Company’s $38.1 billion of
new originations and renewals in 2022,
$12.6 billion was originated for its own
securitization programs.
25
First National Financial Corporation 2022 ANNUAL REPORT Mortgage Servicing and Administration
The Company services virtually all
chartered banks that maintain the
mortgages generated through its
deposit accounts, which has resulted in
mortgage origination activities on
signifcant additional servicing revenue.
behalf of a wide range of institutional
investors. Mortgage servicing and
administration is a key component of
the Company’s overall business strategy
and a signifcant source of continuing
income and cash fow. In addition to
pure servicing revenues, fees related to
mortgage administration are earned by
the Company throughout the mortgage
term. Another aspect of servicing is
the administration of funds held in
trust, including borrowers’ property tax
escrows, reserve escrows and mortgage
payments. As acknowledged in the
Company’s agreements, any interest
earned on these funds accrues to the
Company as partial compensation for
administration services provided. The
Company has negotiated favourable
interest rates on these funds with the
In addition to the interest income earned
on securitized mortgages and deferred
placement fees receivable, the Company
also earns interest income on mortgage-
related assets, including mortgages
accumulated for sale or securitization,
mortgage and loan investments and
purchased mortgage servicing rights.
The Company provides underwriting
and fulflment processing services to
two mortgage originators using the
mortgage broker distribution channel.
The Company earns a fee based on
the dollar value of funded mortgages.
These fees are recognized at the time
a mortgage funds and are included
in “Mortgage servicing income” in the
consolidated statement of income.
26
First National Financial Corporation 2022 ANNUAL REPORT
RESULTS OF OPERATIONS
The following table shows the volume of mortgages originated by First National and
mortgages under administration for the periods indicated:
Quarter Ended
Year Ended
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
($ millions)
Mortgage Originations
By Segment
New single-family residential
New multi-unit and commercial
Sub-total
Single-family residential renewals
Multi-unit and commercial renewals
Total origination and renewals
Mortgage Originations
by Funding Source
Institutional investors
NHA-MBS/CMB/ABCP securitization
Internal Company resources
Total
Mortgages Under Administration
Single-family residential
Multi-unit residential and commercial
Total
3,594
2,277
5,871
1,908
689
8,468
5,028
3,231
209
8,468
88,590
42,411
131,001
5,218
3,045
8,263
1,491
902
10,656
6,863
3,475
318
10,656
84,896
39,012
123,908
19,479
9,634
29,113
6,840
2,163
38,116
24,343
12,570
1,203
38,116
88,590
42,411
131,001
Total new mortgage origination volumes decreased in 2022 compared to 2021 by
12%. This refected a 17% decrease in single-family volumes and a 1% decrease in
commercial segment volumes year over year. Management believes the decrease in
the single-family segment was due to a slowing housing market which was the result
of higher mortgage rates. The Company’s MERLIN technology continues to support its
mortgage origination platform allowing it to underwrite efciently across the country.
In the commercial segment, where the Company’s expertise in underwriting multi-unit
mortgages is a fundamental competency, 2022 volumes refected demand for insured
mortgages, ofset by lower conventional mortgage activity as higher interest rates
began to impact real estate valuations. When combined with renewals, total production
inclusive of both business segments decreased by 10% to $38.1 billion in 2022 from
$42.1 billion in 2021. Origination for direct securitization into NHA-MBS, CMB and ABCP
programs remained a large part of the Company’s strategy, with volume of almost
$12.6 billion in 2022.
23,414
9,747
33,161
6,306
2,658
42,125
27,813
12,923
1,389
42,125
84,896
39,012
123,908
27
First National Financial Corporation 2022 ANNUAL REPORT
Net Interest – Securitized Mortgages
Comparing the year ended December 31, 2022, to the year ended December 31, 2021,
“net interest – securitized mortgages” (NIM) increased by about 4% to $169.3 million
from $163.2 million. The portfolio of mortgages pledged under securitization grew 5%
from about $35.4 billion at December 31, 2021 to $37.2 billion at December 31, 2022.
This refected growth of 14% in the multi-residential program portfolio and an increase
of 1% in single-family programs. Accordingly, commercial segment earnings were up
by $8.6 million while residential segment NIM was lower by $2.5 million year over year.
The signifcant factors which contributed to this decrease were: (1) comparatively
tighter securitized margins on fxed rate mortgages; and (2) spread compression on
foating rate pools as short-term interest rates rose. These unfavorable variances were
ofset by slower rates of prepayment. Although nominal spreads were wider during
2022, the measurement of NIM was afected by the results of the Company’s economic
hedging program and resulting accounting treatment. In the frst and second quarters
of 2022, bond yields rose signifcantly, and the value of the Company’s short bond
interest rate hedges on its residential commitment pipeline increased in value. The
Company recorded gains on fnancial instruments of $66.7 million in its statement of
income. As the underlying mortgages closed and were securitized, the mortgages
had lower mortgage rates relative to the interest rate on the MBS debt arranged to
fund them. Efectively, some of the spread otherwise earned on such transactions was
recorded as a gain on fnancial instruments as opposed to future securitization NIM.
While difcult to calculate precisely, management believes this treatment reduced
comparative NIM in 2022 by about $10 million. Securitization NIM was also afected
negatively by the rapid rise of short-term interest rates. As rates rise, there is a
temporary compression between the Company’s prime lending rate and its short-term
CDOR-based funding costs. Because the Company adjusts its foating mortgage rates
for its borrowers in the month subsequent to changes in short-term interest rates,
interest spreads are generally tighter in months when CDOR increases in tandem with
BoC rate announcements. The Company estimates that residential segment NIM was
lower year over year by about $6.0 million because of such NIM compression on its
foating rate MBS pools. This negative variance was ofset somewhat by a tempering of
prepayment speeds. In 2021 prepayment speed was higher than expected as borrowers
took advantage of historically low mortgage rates to refnance mid term. With higher
mortgage rates in 2022, prepayment speeds returned to traditional levels. Although
the Company received prepayment fees on the prepaying mortgages in both years, in
2021 the fees received by the Company were ofset by indemnities paid to NHA MBS
bondholders. In 2022 with higher interest rates, there were virtually no indemnities to
pay as bondholders could reinvest proceeds from prepayment at more proftable risk-
free rates. Accordingly, in 2022 the Company retained $12.1 million of prepayment fees
compared to 2021 when there was a net payout of $1.8 million to fund indemnities.
28
First National Financial Corporation 2022 ANNUAL REPORT Placement Fees
Mortgage Investment Income
Placement fee revenue decreased by 12% to $268.6 million from $303.7 million in
Mortgage investment income increased
the comparative year. The decrease was the result of a 12% decrease in origination
65% to $105.7 million from $63.9 million.
volumes sold to institutional investors. Generally, per-unit fees were marginally lower
The increase was due primarily to the
for residential origination than in the comparable year as product mix changed
interest rate environment. Interest rates
between investors. In the commercial segment, placement fees increased by 37% as the
rose steadily through 2022 as the market
Company placed comparatively more insured mortgages with institutional investors as
reacted to a cycle of rate hikes by the
opposed to through its own securitization programs.
Gains on Deferred Placement Fees
Gains on deferred placement fees revenue decreased 7% to $15.0 million from $16.1
million. These gains related primarily to multi-unit residential mortgages originated and
sold to institutional investors. Volumes for these transactions increased by 33% from
2021 as the Company’s insured origination grew. However, spreads on these mortgages
were narrower in 2022 compared to 2021.
Mortgage Servicing Income
Mortgage servicing income increased 2% to $216.8 million from $211.6 million. This
increase was attributable to growing MUA and interest earned on funds held in escrow
as a result of higher overnight interest rates. The increase was ofset by lower third-
party underwriting fees which was the outcome of a decline in volumes processed.
Like the Company’s own origination experience in 2022, slower housing activity across
the country afected the Company’s customers in this business line.
Bank of Canada to address infation risks.
The impact was such that 5-year bond
yields increased by about 200 basis
points between December 31, 2021 and
December 31, 2022. This directly afected
mortgage rates ofered by the Company
such that it earned comparatively more
interest income on its mortgage and
loan investment portfolio and mortgages
accumulated for securitization.
29
First National Financial Corporation 2022 ANNUAL REPORT
Realized and Unrealized Gains (Losses) on Financial Instruments
This fnancial statement line item consists of three primary components: (1) gains and
losses related to the Company’s economic hedging of single-family commitments, (2)
gains and losses related to holding a portfolio of mortgage and loan investments at fair
value, and (3) gains and losses on interest rate swaps used to mitigate interest rate risk
on its CMB activity. With the adoption of IFRS 9, a signifcant portion of the Company’s
interest rate management program qualifes as “hedging” for accounting purposes.
The Company has elected to document hedging relationships for virtually all of the
multi-residential commitments and mortgages it originates for its own securitization
programs. It has also done the same for funded single-family mortgages and the
swaps used in its ABCP programs. This decision has reduced the volatility of gains and
losses on fnancial instruments otherwise recorded in the Company’s regular earnings,
as gains and losses on hedged items are generally deferred and amortized into
income over the term of the related mortgages. The Company has not documented a
hedging relationship for its interest mitigation program for its single-family mortgage
commitments. The Company believes, given the optional nature of these commitments,
it is difcult to establish a valid hedging relationship. For fnancial reporting purposes,
this means that there will still be gains and losses on fnancial instruments, but these
should be limited to those on the bonds sold short used to mitigate such risk. The
following table summarizes these gains and losses by category in the periods indicated:
SUMMARY OF REALIZED AND UNREALIZED GAINS (LOSSES) ON FINANCIAL INSTRUMENTS
($000s)
Gains (losses) on short bonds used
for the economic hedging program
Losses on mortgages held at fair value
Losses on interest rate swaps
Net gains (losses) on fnancial instruments
(1,353)
Quarter Ended
Year Ended
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
(844)
(130)
(379)
3,155
(137)
(3,089)
(71)
74,442
(710)
(14,122)
59,610
15,397
(730)
(8,852)
5,815
2022 featured an infationary environment in which bond yields rose signifcantly as
central banks tightened monetary policies. This resulted in increases in both short and
long-term interest rates. While interest rates rose in 2021, the scale of increase in 2021
was much smaller than in 2022 as the Bank of Canada raised its key overnight rate by
4.00% between March 2 and December 31, 2022. These changes and the tone of the
Bank’s announcements meant that 5- and 10-year term Government of Canada bond
yields increased by about 200 basis points between the end of 2021 and the end of
2022. Accordingly, the impact on the Company’s short-bond position used to mitigate
interest rate risk on single-family commitments was larger in 2022 ($74.4 million of
gains compared to $15.4 million of gains in 2021).
30
First National Financial Corporation 2022 ANNUAL REPORT
Brokerage Fees Expense
Brokerage fees expense decreased 14% to $173.3 million from $201.8 million. This
decrease refected an 18% year-over-year decrease in origination volumes of single-
family mortgages for institutional investors, which decreased by about 18% year over
year. The Company increased broker incentives during 2022 in order to grow volumes in
a slow and competitive market. These incentives increased average per-unit broker fees
by about 5%, otherwise total brokerage fee expenses would have been even lower in
2022 than in 2021. These increases where apparent particularly in the last six months of
the year. Brokerage fees expense was also negatively afected by the under absorption
of the higher per unit fees upon securitization. Efectively, higher fees related to the
referral of securitized mortgages were expensed in the year. Lower mortgage default
insurance fees also afected the change in this expense year over year.
Salaries and Benefts Expense
Interest Expense
Salaries and benefts expense increased
Interest expense increased 95% to $136.0
9% to $193.0 million from $177.0 million.
million from $69.7 million. As discussed
Salaries were higher as overall headcount
in the “Liquidity and Capital Resources”
increased by 7% (1,686 employees at
section of this analysis, the Company
December 31, 2022 compared to 1,579
warehouses a portion of the mortgages
at December 31, 2021). Headcount
it originates prior to settlement with the
growth was highest in the residential
investor or funding with a securitization
underwriting departments. Commercial
vehicle. The Company used its $1.5
underwriting compensation was lower
billion syndicated bank line together
in the year by about $5.2 million due to
with repurchase agreements to fund
the tighter origination spreads compared
mortgages during this period. The overall
to 2021 (primarily related to the frst two
interest expense increased from 2021 due
quarters of 2021). Management salaries
to higher prevailing interest rates on the
were paid to the two senior executives
Company’s foating rate debt as short-
(co-founders) who together control
term rates increased signifcantly with
about 71% of the Company’s common
monetary tightening from central banks
shares. The current period expense is a
to address infation. Interest expense also
result of the compensation arrangement
includes the cost of carry related to the
executed on the closing of the initial
Company’s economic hedging program
public ofering (“IPO”) in 2006.
where costs increased by $8.6 million
year over year.
31
First National Financial Corporation 2022 ANNUAL REPORT Other Operating Expenses
Income Tax Expense
Other operating expenses increased by 23% to $63.6 million from $51.9 million,
The provision for taxes increased by 3%
primarily due to occupancy related costs and depreciation of computer equipment.
to $71.4 million from $69.3 million. The
The costs to occupy the Company’s new Toronto headquarters, including the
provision increased proportionately with
amortization of new leaseholds are higher than incurred at the previous head ofce.
net income before income taxes.
Other expenses including business travel and discretionary spending also increased
as travel restrictions lifted as 2022 progressed.
Income before Income Taxes and Pre-FMV Income
Other Comprehensive Income
For the commercial segment, the
Company hedges the interest rate
Income before income taxes increased 2% to $269.1 million from $263.8 million
risk associated with insured multi-
in 2021. This increase was partially the result of changing capital markets. The
residential mortgages. This hedging
Company’s results include gains and losses on account of fnancial instruments used
begins on commitment and ends when
to economically hedge residential mortgage commitments. As described previously
the Company either securitizes the
in this MD&A, the Company recorded $60.3 million of gains on fnancial instruments
mortgages or places the mortgage with
(excluding losses related to mortgage and loan investments) in 2022. Comparatively, in
an institutional investor. As the Company
2021, the Company recorded $6.5 million of gains on fnancial instruments (excluding
determined that these cash fow hedges
the losses related to mortgage and loan investments). The change in these values
were efective, the Company recorded
accounted for a $53.8 million increase in comparative income before income taxes.
$123.3 million of pre-tax net gains on
Pre-FMV Income, which excludes these changes, decreased by 19% to $208.8 million
such hedges in OCI in 2022. In the year,
from $257.3 million. This change was largely the result of a 17% drop in new residential
the Company amortized a portion of the
origination and lower fees related to third-party underwriting. As mortgage rates rose
gains and losses in accumulated OCI into
over the past nine months, housing transactions slowed across the country. As lenders
regular earnings in the amount of $30.5
competed in a smaller market, the Company increased broker incentives to increase
million. The remaining OCI amount will
referrals. Together with tight funding spreads for securitized foating rate mortgages
be amortized into net income in future
and employee headcount designed to underwrite higher volumes, proftability was
periods.
lower. During the pandemic, the Company increased originations by a factor of about
30%. At the same time, the volumes that it processed in its third-party underwriting
department also increased signifcantly. In 2021, the Company increased headcount
to underwrite the large volumes originated particularly in the residential segment.
Together with a competitive environment for skilled underwriters in an infationary
environment, salary costs per employee increased. In 2022, head count remained
relatively constant while related revenues fell. These unfavorable changes were ofset
by favorable results in the commercial segment where originations increased, and the
Company earned higher securitization NIM from the increased securitization activity in
the past several years.
32
First National Financial Corporation 2022 ANNUAL REPORT
OPERATING SEGMENT REVIEW
The Company aggregates its business from two segments for fnancial reporting
purposes: (i) Residential (which includes single-family residential mortgages), and
(ii) Commercial (which includes multi-unit residential and commercial mortgages),
as summarized below:
Operating Business Segments
For The Year Ended
Residential
Commercial
($000s, except percent amounts)
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
Originations and renewals
26,319,422
29,719,176
11,796,939
12,404,946
Percentage change
Revenue
Percentage change
Income before income taxes
Percentage change
As at
Identifable assets
(11%)
1,115,222
8%
172,541
(13%)
1,030,550
199,366
(5%)
459,071
26%
96,541
50%
364,056
64,455
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
28,923,269
28,813,695
14,810,627
13,430,687
39,011,848
Mortgages under administration
88,589,805
84,895,778
42,410,830
RESIDENTIAL SEGMENT
COMMERCIAL SEGMENT
Overall residential origination volumes
2021, or by 42%. This is the outcome of
2022 commercial revenues were higher
including renewals decreased by 11%
lower revenues on placement activity,
compared to 2021 and segment income
between 2022 and 2021 while residential
higher per-unit broker fees combined
before income taxes increased by 50%
revenues increased by 8%. Revenue
with higher headcount which created
year over year. The increase in revenue
beneftted from the impact of fnancial
a comparatively more expensive
is largely attributable to higher interest
instruments. Excluding the impact
operating environment. Identifable
income generated by the securitized
of these revenues, adjusted revenue
assets increased from December 31, 2021,
portfolio. Income growth refected
increased by 3%. Revenue was afected
as the Company’s pledged mortgages
increased placement fees derived from
in 2022 by lower origination which
under securitization increased by about
funding a greater portion of mortgage
translated into lower placement fees.
$300 million. This was ofset with lower
origination through institutional
However, higher interest earned on the
amounts of mortgages accumulated for
investors in the year compared to
securitized portfolio and mortgages
securitization.
accumulated for securitization ofset
the decrease in placement fees. Net
income before tax was also afected
by fair value-related revenues. Without
the impact of these revenues, net
income before tax decreased to $112.2
million in 2022 from $192.8 million in
2021. Higher interest revenue earned
on mortgage investments and escrow
deposits were also favorable to both
revenue and income. Identifable assets
increased from those at December 31,
2021, as the Company increased its
portfolio of securitized mortgages by
about $1.5 billion.
33
First National Financial Corporation 2022 ANNUAL REPORT
LIQUIDITY AND CAPITAL RESOURCES
The Company’s fundamental liquidity strategy has been to originate and invest in
prime Canadian mortgages. Management’s belief has always been that these
mortgages are attractive to investors and should always be well bid and highly liquid.
This strategy proved efective during the turmoil experienced in 2007 through 2009,
and once again in the 2020 pandemic, when capital markets were disrupted and
the demand for high-quality assets increased. As the Company’s results in those
years demonstrated, First National was able to attract investors to purchase its
mortgage origination at proftable margins. Originating prime mortgages also allows
the Company to securitize in the capital markets; however, this activity requires
signifcant cash resources to purchase and hold mortgages prior to arranging for
term debt through the securitization markets. For this purpose, the Company uses
the combination of unsecured notes and the Company’s revolving bank credit facility.
This aggregate indebtedness is typically used to fund: (1) mortgages accumulated for
sale or securitization (2) the origination costs associated with securitization and, (3)
mortgage and loan investments. The Company has a credit facility with a syndicate
of fnancial institutions for total credit of $1.5 billion. This facility was extended in
April 2022 for a fve-year term maturing in March 2027. As at December 31, 2022, the
Company had entered into repurchase transactions with fnancial institutions to borrow
$1.4 billion related to $1.4 billion of mortgages held in “mortgages accumulated for sale
or securitization” on the balance sheet.
At December 31, 2022, outstanding bank indebtedness was $1,065.9 million (December
principal of the mortgage. The three
31, 2021 – $965.4 million). This debt was used to fund $833.2 million (December 31, 2021
mortgage default insurers approved
– $951.3 million) of mortgages accumulated for sale or securitization. At December 31,
these steps, permitting the deferrals to
2022, the Company’s other interest-yielding assets included: (1) deferred placement
occur without any impact on subsequent
fees receivable of $64.6 million (December 31, 2021 – $64.4 million) and (2) mortgage
claims under the mortgage insurance
and loan investments of $190.1 million (December 31, 2021 – $192.3 million). Company
policies. In turn, First National has been
considers the portion of bank indebtedness and the senior unsecured notes that fund
required to make “timely payments” on
assets other than mortgages accumulated for sale or securitization a proxy for true
the NHA-MBS securities. This means
leverage. This leverage has increased between December 31, 2021, and December
that despite not receiving payments
31, 2022, and now stands at $631.9 million (December 31, 2021 – $413.0 million). This
from borrowers on the mortgages that
represents a debt-to-equity ratio of approximately 0.90:1. This ratio is higher than
support the NHA-MBS, the Company
the ratio of 0.72:1 at December 31, 2021. In general, the increase was the result of the
has been required to pay the interest
investment of $143 million in cash collateral and subordinate notes for the Company’s
and amortizing principal on the debt.
Alt-A securitization program. The Company believes the ratio is appropriate given the
In efect, the Company de-leveraged its
nature of the assets which the debt is funding.
Since being approved as an issuer of NHA-MBS, the Company has funded the
diference between the mortgages it uses to create NHA-MBS and the debt obligations
it assumes upon issuance. In recent years, this requirement has generally been limited
to mortgages in arrears where First National does not receive payments from the
borrower but is obliged to pay the interest and amortizing principal on the NHA-MBS
debt. However, due to 2020 related national unemployment pursuant to the COVID-19
pandemic, this funding requirement increased as borrowers requested mortgage
payment deferrals. In such situations, the Company determined to grant mortgage
payment deferrals. Qualifying borrowers received three months of payment deferral.
balance sheet by paying of the debt
while the related mortgages did not
as amortize as quickly. At December
31, 2022, the Company estimates that
it had reduced its NHA MBS debt by
approximately $18 million (December 31,
2021 - $46 million) because of the impact
of deferred payments. This has been
funded by the Company’s available
cash resources.
In cases of extended hardship, the Company provided a second three-month deferral
The Company funds a portion of its
after the initial deferral period ended. During this deferral period, a portion of such
mortgage originations for institutional
mortgages ceased to amortize and interest otherwise payable was capitalized to the
placement on the same day as the
34
First National Financial Corporation 2022 ANNUAL REPORT
advance of the related mortgage. The
investments return cash, it will be used
For purposes of the enhanced dividend
remaining originations are funded by
to pay down this bank indebtedness.
tax credit rules contained in the Income
the Company on behalf of institutional
The syndicate has also provided credit
Tax Act (Canada) and any corresponding
investors or pending securitization by
to fnance a portion of the Company’s
provincial and territorial tax legislation, all
the Company. On specifed days, the
deferred placement fees receivable
dividends (and deemed dividends) paid
Company aggregates all mortgages
and the origination costs associated
by the Company to Canadian residents
warehoused to date for an institutional
with securitization, as well as other
on both common and preference shares
investor and transacts a settlement
miscellaneous longer-term fnancing
after June 30, 2010, are designated
as “eligible dividends”. Unless stated
otherwise, all dividends (and deemed
dividends) paid by the Company
hereafter are designated as “eligible
dividends” for the purposes of such rules.
with that institutional investor. A similar
needs.
process occurs prior to arranging
for funding through securitization.
The Company uses a portion of the
committed credit facility with the
banking syndicate to fund the mortgages
during this warehouse period. The credit
facility is designed to be able to fund
the highest balance of warehoused
mortgages in a month and is normally
only partially drawn.
A portion of the Company’s capital has
been employed to support its ABCP
and NHA-MBS programs, primarily
to provide credit enhancements as
required by rating agencies. The most
signifcant portion of cash collateral
is the investment made on behalf of
the Company’s ABCP programs. As
at December 31, 2022, the investment
in cash collateral was $160.7 million
The Company also invests in short-term
(December 31, 2021 – $105.1 million).
mortgages, usually for 6 to 18-month
terms, to bridge existing borrowers in
the interim period before long-term
fnancing. The banking syndicate has
provided credit facilities to partially
fund these investments. As these
The Company’s Board of Directors has
elected to pay dividends, when declared,
on a monthly basis on the outstanding
common shares and on a quarterly basis
on the outstanding preference shares.
35
First National Financial Corporation 2022 ANNUAL REPORT FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company records mortgages accumulated for sale and a portion of mortgage
and loan investments as fnancial assets measured at “fair value through proft or
loss” such that changes in market value are recorded in the consolidated statement
of income. The mortgages accumulated for sale are held for very short periods, and
any change in value due to changing interest rates is the obligation of the ultimate
institutional investor. Accordingly, the Company believes there will be little, if any, efect
on its income related to the change in fair value of these mortgages. The majority
of mortgages in mortgage and loan investments are uninsured commercial segment
bridge loans. These are primarily foating rate loans that have mortgage terms of 18
months or less. As the mortgages do not conform to conventional mortgage lending,
there are few active quoted markets available to determine the fair value of these
assets. The Company estimates fair value based upon: benchmark interest rates, credit
spreads for similar products, creditworthiness and status of the borrower, valuation
of the underlying real property, payment history, and other conditions specifc to the
rationale for the loan. Any favourable or unfavourable amounts will be recorded in the
statement of income each quarter.
The Company believes its hedging policies are suitably designed such that the interest
rate risk of holding mortgages prior to securitization is mitigated. The Company
designates hedging relationships such that the results of any efective hedging does
not afect the Company’s statement of income. See previous discussion in this MD&A
under “Realized and Unrealized Gains (Losses) on Financial Instruments”. As at
December 31, 2022, the Company had $1.5 billion of notional forward bond positions
related to its single-family programs. For multi-unit residential and commercial
mortgages, the Company assumes all mortgages committed will fund, and hedges
each mortgage individually. This includes mortgages committed for the CMB program
as well as mortgages to be sold to the Company’s other securitization vehicles. As
at December 31, 2022, the Company had entered into $0.6 billion of notional value
forward bond sales for this segment. The Company is also a party to three interest
rate swaps that economically hedge the interest rate exposure related to certain CMB
transactions in which the Company has replacement obligations. As at December 31,
2022, the aggregate value of these swaps, maturing between December 2023 and
September 2026, was a $13.4 million liability. During 2022, the fair value of these swaps
decreased by $14.1 million.
As described above, the Company employs various strategies to reduce interest
rate risk. In the normal course of business, the Company also takes on credit spread
risk. This is the risk that the credit spread at which a mortgage is originated changes
between the date of commitment of that mortgage and the ultimate date of placement
or securitization. If credit spreads widen during this holding period, this is unfavourable
for the Company. It means that the Company cannot fund the mortgages originated
with a funding source as efectively as originally intended. Despite entering into
efective interest rate hedges, the Company’s exposure to credit spreads will remain.
This risk is inherent in the Company’s business model and the Company believes it
cannot be economically hedged. As at December 31, 2022, the Company had various
exposures to changing credit spreads. In particular, in mortgages accumulated for
sale or securitization, there were approximately $2.3 billion of mortgages that were
susceptible to some degree of changing credit spreads.
36
First National Financial Corporation 2022 ANNUAL REPORT CAPITAL EXPENDITURES
SUMMARY OF CONTRACTUAL OBLIGATIONS
A signifcant portion of First National’s
The Company’s long-term obligations include leases of premises with terms up to
business model is the origination and
15 years for its ofces across Canada, and its obligations for the ongoing servicing
placement or securitization of fnancial
of mortgages sold to securitization conduits and mortgages related to purchased
assets. Generally, placement activities
servicing rights. The Company sells its mortgages to securitization conduits on a
do not require any capital investment.
fully serviced basis and is responsible for the collection of the principal and interest
Securitization transactions may require
payments on behalf of the conduits, including the management and collection of
the investment of signifcant amounts
mortgages in arrears.
of the Company’s own capital. This
capital is provided in the form of cash
collateral, credit enhancements, and
the upfront funding of broker fees
and other origination costs. These are
($000s)
Total
0–1
years
1–3
years
4–5
years
After
5 years
Payments Due By Period
described more fully in the “Liquidity and
Lease obligations
122,862
10,268
18,707
18,179
75,708
Capital Resources” section above. The
business requires capital expenditures
on technology (both software and
hardware), leasehold improvements,
and ofce furniture. During the year
ended December 31, 2022, the Company
purchased new computer equipment
and software and made leasehold
improvements. In the long term, the
Company expects capital expenditures
on fxed assets will be approximately $10
million annually. 2021 expenditures were
much higher as the Toronto head ofce
moved to new premises and invested in
new leasehold improvements.
37
First National Financial Corporation 2022 ANNUAL REPORT
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company prepares its fnancial
are prepayment rates and the discount
of the change in value of the hedged
statements in accordance with IFRS,
rate used to present value future
mortgages. The Company’s assets and
which requires management to make
expected cash fows. The annual rate
liabilities are such that the Company
estimates, judgments and assumptions
of unscheduled principal payments
must use valuation techniques based on
that management believes are
is determined by reviewing portfolio
assumptions that are not fully supported
reasonable based upon the information
prepayment experience on a monthly
by observable market prices or rates
available. These estimates, judgments
basis. The Company assumes there is
in most cases. Much like the valuation
and assumptions afect the reported
virtually no prepayment on multi-unit
of deferred placement fees receivable
amounts of assets and liabilities and
residential fxed-rate mortgages.
described above, the Company’s method
disclosure of contingent assets and
liabilities at the date of the fnancial
statements, and the reported amounts
of revenue and expenses during the
reporting period. Management bases its
estimates on historical experience and
other assumptions that it believes to be
reasonable under the circumstances.
Management also evaluates its estimates
on an ongoing basis. The signifcant
accounting policies of First National are
described in Note 2 to the Company’s
annual consolidated fnancial statements
as at December 31, 2022. The policies
that First National believes are the most
critical to aid in fully understanding and
evaluating its reported fnancial results
include the determination of the gains on
deferred placement fees and the impact
of fair value accounting on fnancial
instruments.
The Company uses estimates in
valuing its gain or loss on the sale of
its mortgages placed with institutions
earning a deferred placement fee.
Under IFRS, valuing a gain on deferred
placement fees requires the use of
estimates to determine the fair value of
the retained interest in the mortgages.
These retained interests are refected
on the Company’s balance sheet as
deferred placement fees receivable. The
key assumptions used in the valuation
of gains on deferred placement fees
On a quarterly basis, the Company
reviews the estimates used to ensure
their appropriateness and monitors the
performance statistics of the relevant
mortgage portfolios to adjust and
improve these estimates. The estimates
used refect the expected performance
of the mortgage portfolio over the
lives of the mortgages. The method of
determining the assumptions underlying
the estimates used for the year ended
December 31, 2022, are consistent with
of determining the fair value of the assets
listed above are subject to Company
estimates. The most signifcant would be
implicit in the valuation of mortgage and
loan investments. These are generally
non-homogeneous mortgages where it
is difcult to fnd independent valuation
comparatives. The Company uses
information in its underwriting fles,
regional real estate information and other
internal measures to determine the fair
value of these assets.
those used for the year ended December
As a mortgage lender, the Company
31, 2021 and quarters ended September
invests in uninsured mortgages. When
30, June 30 and March 31, 2022.
it funds these mortgages through
The Company elects to treat certain
of its fnancial assets and liabilities,
including mortgages accumulated for
sale, mortgage and loan investments and
bonds sold short, at fair value through
proft or loss. Essentially, this policy
requires the Company to record changes
in the fair value of these instruments in
the current period’s earnings. A portion
of the bonds sold short are designated
as an efective hedge, and accordingly, a
portion of the change in the short bonds’
fair value may be recorded in Other
Comprehensive Income or deferred
against hedge assets. This accounting
has reduced the volatility in earnings
as changes in the value on short bonds
have been matched to the recognition
securitization debt, it continues to be
liable for any credit losses. The key inputs
in the measurement of any expected
credit loss (“ECL”) include probability of
default, loss given default and forecast
of future economic conditions, which
involves signifcant judgment. Upon
application of IFRS 9 with respect to
impairment, there has been no impact on
the Company’s earnings. Because of the
high proportion of government-insured
mortgages in its securitized portfolio
and the low historical loss rates on the
uninsured mortgages on which the
Company lends, just $2.7 million of
credit losses were recorded in 2022.
38
First National Financial Corporation 2022 ANNUAL REPORT
DISCLOSURE CONTROLS AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
ESG
The Company’s disclosure controls and procedures are designed to provide reasonable
Accountability Statement in the fall
assurance that information required to be disclosed by the Company in reports fled
of 2021. In October 2022, it issued an
under Canadian securities laws is recorded, processed, summarized and reported within
updated report which explores First
the time periods specifed under those laws, and include controls and procedures
National’s approach to sustainability
that are designed to ensure that information is accumulated and communicated to
and provides environmental, social
management, including the Chief Executive Ofcer and Chief Financial Ofcer, to
and governance disclosure that has
The Company issued its initial Public
been reviewed and approved by the
Board of Directors. It complements
our Management Information Circular,
Annual Information Form, Management
Discussion and Analysis and Annual
Report, all of which ofer information
about the fnancial position, priorities,
responsibilities and commitments of the
consolidated operations of First National.
allow timely decisions regarding required disclosure.
As of December 31, 2022, management evaluated, under the supervision of and
with the participation of the Chief Executive Ofcer and Chief Financial Ofcer, the
efectiveness of the Company’s disclosure controls and procedures. Based on this
evaluation, management concluded that the Company’s disclosure controls and
procedures, as defned by National Instrument 52-109, Certifcation of Disclosure
in Issuers’ Annual and Interim Filings, were efective as of December 31, 2022.
Management is responsible for establishing and maintaining adequate internal control
over fnancial reporting. Internal control over fnancial reporting is designed to provide
reasonable assurance regarding the reliability of fnancial reporting and the preparation
of fnancial statements for external purposes in accordance with reporting standards;
however, because of its inherent limitations, internal control over fnancial reporting
may not prevent or detect misstatements on a timely basis.
Management evaluated, under the supervision of and with the participation by the
Chief Executive Ofcer and Chief Financial Ofcer, the efectiveness of the Company’s
internal control over fnancial reporting based on the criteria set forth in Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) and, based on that evaluation, concluded that
the Company’s internal control over fnancial reporting was efective as of December 31,
2022, and that no material weaknesses have been identifed in the Company’s internal
control over fnancial reporting as of December 31, 2022. No changes were made in the
Company’s internal control over fnancial reporting during the year ended December
31, 2022, that have materially afected, or are reasonably likely to materially afect, the
Company’s internal control over fnancial reporting.
39
First National Financial Corporation 2022 ANNUAL REPORT
RISKS AND UNCERTAINTIES AFFECTING THE BUSINESS
The business, fnancial condition and results of operations of the Company are
institution may decide not to renew the
subject to a number of risks and uncertainties and are afected by a number of
existing contract with First National or
factors outside the control of management of the Company. In addition to the risks
to exercise termination clauses within
addressed elsewhere in this discussion and the fnancial statements, these risks
the agreement. In the event of non-
include: ability to sustain performance and growth, reliance on sources of funding,
renewal or termination, the Company’s
concentration of institutional investors including third-party servicing customers,
MUA will decrease. For a more complete
reliance on independent mortgage brokers, changes in interest rates, repurchase
discussion of the risks afecting the
obligations and breach of representations and warranties on mortgage sales, risk
Company, reference should be made to
of servicer termination including the impact of trigger events on cash collateral and
the Company’s Annual Information Form.
retained interests, reliance on multi-unit residential and commercial mortgages, general
economic conditions, legislation and government regulation (including regulations
imposed by the Department of Finance and CMHC and the policies set by and for
mortgage default insurance companies), potential for losses on uninsured mortgages,
competition, reliance on mortgage insurers, reliance on key personnel and the
ability to attract and retain employees and executives, conduct and compensation
of independent mortgage brokers, failure or unavailability of computer and data
processing systems and software, insufcient insurance coverage, change in or loss
of ratings, impact of natural disasters and other events, unfavourable litigation, and
environmental liability. In addition, there are risks associated with the structure of
the Company, including: those related to the dependence on FNFLP, leverage and
restrictive covenants, dividends that are not guaranteed and could fuctuate with
the Company’s performance, restrictions on potential growth, the market price of
the Company’s shares, statutory remedies, control of the Company, and contractual
restrictions. The Company is subject to Canadian federal and provincial income
and commodity tax laws and pays such taxes as it determines are compliant with
such legislation. Among the risks of all potential tax matters, there is a risk that tax
legislation changes are detrimental to the Company or that Canadian tax authorities
interpret tax legislation diferently than the Company’s fling positions. Risk and risk
exposure are managed through a combination of insurance, a system of internal
controls and sound operating practices. The Company’s key business model is to
originate primarily prime mortgages and fnd funding through various channels to
earn ongoing servicing or spread income. For the single-family residential segment,
the Company relies on independent mortgage brokers for origination and several
large institutional investors for sources of funding. These relationships are critical
to the Company’s success. The total of one investor’s activities with the Company
account for approximately 13% of the Company’s total revenues. In October 2019, the
sale transaction involving an institution for which the Company administers a large
portfolio of third-party originated mortgages was completed. The new owners of the
The COVID-19 crisis was the cause of
unemployment across the country and
widespread economic hardship. During
the duration of this crisis, the probability
of the risks listed above having a
negative impact on the Company
increased. Although the virus has not
been entirely eradicated, the Company
no longer views this as a crisis. Recent
rate hikes by the Bank of Canada have
raised short-term interest rates by 425
basis points in the past ten months. In
that same period mortgage rates for
5-year term mortgages have increased
by approximately 300 basis points and
bank prime lending rates have risen
by 425 basis points with the latest
change occurring in late January 2023.
These are signifcant changes that have
taken place over a short period of time.
Higher borrowing rates will directly
afect consumers across the country.
Management believes these changes may
impact the Company negatively in future
periods. Related losses could be material.
40
First National Financial Corporation 2022 ANNUAL REPORT FORWARD-LOOKING INFORMATION
Forward-looking information is included in this MD&A. In some cases, forward-looking
information can be identifed 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 fnancial position, business strategy and strategic goals, product development
activities, projected costs and capital expenditures, fnancial 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 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 to it, they may prove to be incorrect. Forward-looking
information is subject to certain factors, including risks and uncertainties, which could
cause actual results to difer materially from what management currently expects.
These factors include reliance on sources of funding, concentration of institutional
investors, reliance on independent mortgage brokers, and changes in interest rates as
outlined in the “Risk and Uncertainties Afecting the Business” section. In evaluating
this information, the reader should specifcally consider various factors, including the
risks outlined in the “Risk and Uncertainties Afecting the Business” section, that may
cause actual events or results to difer materially from any forward-looking information.
The forward-looking information contained in this discussion represents management’s
expectations as of February 28, 2023, and is subject to change after such date.
However, management and the Company 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.
41
First National Financial Corporation 2022 ANNUAL REPORT OUTLOOK
2022 was a year that featured a competitive marketplace and reduced origination
term efcacy of the government and
activity which was largely the result of the Bank of Canada’s (“BoC”) policy decisions
central bank interventions. It is still not
to reduce infation by increasing overnight lending rates which, in turn, led to increased
possible to reliably estimate the length
mortgage rates. Between March 2, 2022 and January 25, 2023, the overnight rate
and severity of these developments
increased eight times from 0.25% at the beginning of March to 4.50% at the writing of
and the impact on the fnancial results
this MD&A. Throughout most of these increases (except the most recent), the BoC’s
and condition of the Company and its
statements indicated the likelihood of more interest rate hikes to follow. The Company
operating subsidiaries in future periods.
believes these increases contributed to signifcantly higher mortgage rates and
reduced the afordability of housing across the country. Despite this uncertain business
environment, the Company successfully grew MUA and continued to build its portfolio
of mortgages pledged under securitization. First National will beneft from this growth
in the future: earning income from mortgage administration, and net securitization
margin and improving its position to capture increased renewal opportunities.
In the short term, the expectation for the start of 2023 is for lower origination as
First National is well prepared to execute
its business plan. The Company expects
to enjoy the value of its continued
goodwill with broker partners earned
over the last 35+ years and reinforced
during the pandemic. With diverse
relationships over an array of institutional
higher mortgage rates continue to dampen activity across the country, particularly in
investors and solid securitization markets,
comparison to the frst quarter of 2022 which was seasonally very strong. However,
the Company has access to consistent
when it announced its latest interest rate increase in January 2023, the BoC indicated
and reliable sources of funding.
that it would now hold its policy rate at the current level while it assesses the
cumulative impact of recent increases. This may signal the end to its rate hiking cycle
designed to manage infationary risks. In turn, the Company hopes this will provide
confdence to prospective buyers that mortgage rates will not increase going forward
such that home buying activity will return to traditional levels. Accordingly, the
Company foresees improving origination volumes through the second half of 2023. This
positive change will not likely represent a return to the unsustainable volumes recorded
in most of 2020 and 2021, but instead a return to pre-pandemic activity exhibited
in 2019. Higher immigration will also support the housing market. Management is
confdent that First National will remain competitive and a leader in the marketplace.
Management anticipates commercial origination will also slow as the market digests
changing property valuations given the new underlying fnancial environment.
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 have resonated with mortgage brokers and borrowers
alike. The economic efects 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-
The Company is confdent 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 fow from
its $37 billion portfolio of mortgages
pledged under securitization and $91
billion servicing portfolio and focus on
the value inherent in its signifcant single-
family renewal book.
42
First National Financial Corporation 2022 ANNUAL REPORT
43
First National Financial Corporation 2022 ANNUAL REPORT MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of First National
cannot be fnalized with certainty
The Board of Directors oversees that
Financial Corporation (the “Company”) is
until future periods. Estimates and
management fulfls its responsibility for
responsible for the integrity, consistency
assumptions are based on historical
fnancial reporting and internal control.
and reliability of the consolidated
experience and current conditions, and
The fnancial statements have been
fnancial statements and Management’s
Discussion and Analysis (“MD&A”).
The consolidated fnancial statements
have been prepared by Management in
accordance with International Financial
Reporting Standards.
are believed to be reasonable.
We are responsible for establishing
and maintaining internal control over
fnancial reporting for the Company.
We have designed such internal control
over fnancial reporting, or caused it to
We certify that we have reviewed the
be designed under our supervision, to
fnancial statements and information
provide reasonable assurance regarding
contained in the MD&A, and, based on
the reliability of fnancial reporting and
our knowledge, they do not contain any
the preparation of fnancial statements
untrue statement of a material fact or
for external purposes. We evaluated,
omit to state a material fact required to
or caused to be evaluated under our
be stated or that is necessary to make a
supervision, the efectiveness of the
statement not misleading in light of the
Company’s internal control over fnancial
circumstances under which it was made,
reporting at the fnancial year end
reviewed by the Audit Committee and
approved by the Board of Directors.
Ernst & Young LLP, the independent
auditors appointed by the shareholders,
has performed an independent audit of
the Company’s consolidated fnancial
statements and provide their report
which follows. The auditors have full
and free access to, and meet at least
quarterly with, the Audit Committee to
discuss their audit and related matters.
with respect to the period covered by
and the Company has disclosed in its
the statements and the annual report.
annual MD&A our conclusion about the
Jason Ellis
President and Chief Executive Ofcer
Based on our knowledge, the fnancial
efectiveness of internal control over
statements together with MD&A and
fnancial reporting at the fnancial year-
other fnancial information included in
end based on that evaluation. We have
the annual report fairly present in all
also disclosed in the MD&A any change
material respects the fnancial condition,
in our internal control over fnancial
results of operations and cash fows of
reporting that occurred during the
the Company as of the dates and for the
year that has materially afected, or is
periods presented. The preparation of
reasonably likely to materially afect, our
fnancial statements involves transactions
internal control over fnancial reporting.
afecting the current period which
Robert Inglis
Chief Financial Ofcer
February 28, 2023
44
First National Financial Corporation 2022 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of First National Financial Corporation
Report on the audit of the consolidated fnancial statements
Opinion
Basis for opinion
Key audit matters
We have audited the consolidated
We conducted our audit in accordance
Key audit matters are those matters
fnancial statements of First National
with Canadian generally accepted
that, in our professional judgment, were
Financial Corporation and its subsidiaries
(collectively, the “Company”), which
auditing standards. Our responsibilities
under those standards are further
of most signifcance in the audit of
the fnancial statements of the current
comprise the consolidated statements
described in the Auditor’s responsibilities
period. These matters were addressed in
of fnancial position as at December 31,
for the audit of the consolidated fnancial
the context of the audit of the fnancial
2022 and December 31, 2021, and the
statements section of our report. We
statements as a whole, and in forming
consolidated statements of income,
are independent of the Company in
the auditor’s opinion thereon, and we do
comprehensive income, changes in
accordance with the ethical requirements
not provide a separate opinion on these
equity and cash fows for the years then
that are relevant to our audit of the
matters. For each matter below, our
ended, and notes to the consolidated
consolidated fnancial statements in
description of how our audit addressed
fnancial statements, including a
Canada, and we have fulflled our ethical
the matter is provided in that context.
summary of signifcant accounting
responsibilities in accordance with these
requirements. We believe that the audit
evidence we have obtained is sufcient
and appropriate to provide a basis for
our opinion.
policies.
In our opinion, the accompanying
consolidated fnancial statements
present fairly, in all material respects,
the consolidated fnancial position
of the Company as at December 31,
2022 and December 31, 2021, and its
consolidated fnancial performance
and its consolidated cash fows for
the years then ended in accordance
with International Financial Reporting
Standards (“IFRSs”).
We have fulflled the responsibilities
described in the Auditor’s
responsibilities for the audit of the
consolidated fnancial statements
section of our report, including in relation
to these matters. Accordingly, our audit
included the performance of procedures
designed to respond to our assessment
of the risks of material misstatement of
the consolidated fnancial statements.
The results of our audit procedures,
including the procedures performed
to address the matters below, provide
the basis for our audit opinion on the
accompanying consolidated fnancial
statements.
45
First National Financial Corporation 2022 ANNUAL REPORT MEASUREMENT OF ESTIMATED CREDIT LOSSES
OTHER INFORMATION
As more fully described in Note 2 and
We obtained an understanding of
Management is responsible for the
Note 3 to the fnancial statements, the
management’s controls over exposure
other information. The other information
Company is exposed to credit risk on its
to credit risk, including mortgage
comprises:
mortgage assets. In 2022 the Company
underwriting policies and processes
has recorded an allowance for credit
used to assess borrower capacity,
losses of $3,485 thousand. The Company
income verifcation, creditworthiness
manages credit risk by employing
and collateral. We tested the operating
underwriting policies and procedures
efectiveness of these controls by
designed to minimize exposure to credit
assessing for a sample of mortgages
losses, and by acquiring insurance
originated and funded, compliance with
against borrower default on substantially
management’s underwriting policy and
all its mortgages. The Company’s
processes and eligibility, when arranged,
expected credit loss (“ECL”) impairment
for insurance against borrower default
analysis considers a range of possible
outcomes supported by past loss events,
based on criteria of the mortgage
default insurer.
current conditions and an expectation
of future possible outcomes.
For the purpose of auditing the
allowance for credit losses, among
The allowance for credit losses was
other procedures,
• Management’s Discussion and
Analysis
• The information, other than the
consolidated fnancial statements
and our auditor’s report thereon,
in the Annual Report
Our opinion on the consolidated fnancial
statements does not cover the other
information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the
consolidated fnancial statements,
our responsibility is to read the other
information and, in doing so, consider
whether the other information is
materially inconsistent with the
consolidated fnancial statements or
our knowledge obtained in the audit
• We tested the accuracy of the
Company’s historic default and
write-of data and evaluated
management’s ECL impairment
analysis, by obtaining the Company’s
or otherwise appears to be materially
historical data.
misstated.
• We tested management’s data
and model by obtaining contrary
data from independent sources, to
develop a range for the estimated
ECL on the uninsured portfolio of
mortgages held at amortized cost.
• We compared our range to
We obtained Management’s Discussion
and Analysis prior to the date of this
auditor’s report. If, based on the work we
have performed, we conclude that there
is a material misstatement of this other
information, we are required to report
that fact in this auditor’s report. We have
management’s estimate of allowance
nothing to report in this regard.
for credit losses.
• We also assessed the adequacy of
the Company’s disclosures on the
management of credit risk.
The Annual Report is expected to be
made available to us after the date of the
auditor’s report. If, based on the work we
will perform on this other information,
we conclude that there is a material
misstatement of this other information,
we are required to report that fact to
those charged with governance.
identifed as a key audit matter due
to the number of key data inputs and
criteria being assessed as part of the
underwriting process. The availability
and observability of data inputs and
judgmental assumptions are key factors
in the susceptibility of the allowance for
credit losses being exposed to variances
in the probability of default and loss
given default. Management judgment
was involved in selecting appropriate
values for key assumptions, which in the
event of a credit loss includes estimates
of the amounts recoverable from
underlying collateral. In forming their
judgement, management had to both
assess the efectiveness of their credit
management strategies in minimizing
future credit losses as well as make a
forecast of possible future economic
conditions and consider the impact
of each on their critical assumptions.
Variations in the key assumptions and
key data inputs described can have a
material efect on the measurement of
ECL for each loan underwritten by the
Company.
46
First National Financial Corporation 2022 ANNUAL REPORT
RESPONSIBILITIES OF
MANAGEMENT AND THOSE
CHARGED WITH GOVERNANCE
FOR THE CONSOLIDATED
FINANCIAL STATEMENTS
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated
fnancial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
Management is responsible for the
assurance is a high level of assurance, but is not a guarantee that an audit conducted
preparation and fair presentation of
in accordance with Canadian generally accepted auditing standards will always detect
the consolidated fnancial statements
a material misstatement when it exists. Misstatements can arise from fraud or error
in accordance with IFRSs, and for
and are considered material if, individually or in the aggregate, they could reasonably
such internal control as management
be expected to infuence the economic decisions of users taken on the basis of these
determines is necessary to enable the
consolidated fnancial statements.
preparation of consolidated fnancial
statements that are free from material
misstatement, whether due to fraud
or error.
In preparing the consolidated fnancial
statements, management is responsible
for assessing the Company’s ability to
continue as a going concern, disclosing,
as applicable, matters related to going
concern and using the going concern
basis of accounting unless management
either intends to liquidate the Company
or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance
are responsible for overseeing the
Company’s fnancial reporting process.
As part of an audit in accordance with Canadian generally accepted auditing standards,
we exercise professional judgment and maintain professional skepticism throughout the
audit. We also:
• Identify and assess the risks of material misstatement of the consolidated fnancial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufcient and
appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the efectiveness of the Company’s internal
control.
• Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast signifcant doubt
on the Company’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated fnancial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease to continue as a going
concern.
47
First National Financial Corporation 2022 ANNUAL REPORT
• Evaluate the overall presentation, structure, and content of the consolidated
fnancial statements, including the disclosures, and whether the consolidated
fnancial statements represent the underlying transactions and events in a manner
that achieves fair presentation.
• Obtain sufcient appropriate audit evidence regarding the fnancial information of
the entities or business activities within the Company to express an opinion on the
consolidated fnancial statements. We are responsible for the direction, supervision
and performance of the Company’s audit. We remain solely responsible for our
audit opinion.
We communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and signifcant audit fndings, including any
signifcant defciencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most signifcance in the audit of the consolidated fnancial
statements of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public
interest benefts of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is
Humayun Jafrani.
Toronto, Canada
February 28, 2023
48
First National Financial Corporation 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31
(in thousands of Canadian dollars)
Notes
2022
2021
ASSETS
Restricted cash
Cash held as collateral for securitization
Accounts receivable and sundry
Mortgages accumulated for sale or securitization
Mortgages pledged under securitization
Deferred placement fees receivable
Mortgage and loan investments
Income taxes recoverable
Securities purchased under resale agreements
Other assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Bank indebtedness
Obligations related to securities and mortgages
sold under repurchase agreements
Accounts payable and accrued liabilities
Securities sold short
Debt related to securitized mortgages
Senior unsecured notes
Deferred income tax liabilities
Total liabilities
Common shares
Preferred shares
Retained earnings
Accumulated other comprehensive income loss
Total equity
Total liabilities and equity
See accompanying notes
On behalf of the Board:
ROBERT MITCHELL
Director
ROBERT PEARCE
Director
3
3
5
3
4
6
18
15
7
9
15
16
14
10
12
18
17
17
605,708
160,712
114,675
2,251,194
815,807
105,108
97,602
2,757,640
37,285,822
35,435,455
64,648
190,122
18,460
2,953,188
119,143
43,763,672
64,370
192,340
8,735
2,677,972
119,129
42,274,158
1,065,868
965,420
1,360,947
246,486
2,954,374
1,768,029
222,369
2,677,689
36,888,395
35,576,353
399,222
149,400
398,888
88,000
43,064,692
41,696,748
122,671
97,394
418,244
60,671
698,980
122,671
97,394
364,974
(7,629)
577,410
43,763,672
42,274,158
49
First National Financial Corporation 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
(in thousands of Canadian dollars, except earnings per share)
Notes
2022
2021
REVENUE
Interest revenue – securitized mortgages
Interest expense – securitized mortgages
Net interest – securitized mortgages
Placement fees
Gains on deferred placement fees
Mortgage investment income
Mortgage servicing income
Realized and unrealized gains on fnancial instruments
EXPENSES
Brokerage fees
Salaries and benefts
Interest
Other operating
Income before income taxes
Income tax expense
Net income for the year
EARNINGS PER SHARE
Basic
See accompanying notes
908,569
(739,295)
169,274
268,640
15,043
105,655
216,776
59,610
834,998
173,290
192,989
136,009
63,628
565,916
269,082
71,350
197,732
793,507
(630,279)
163,228
303,694
16,126
63,875
211,589
5,815
764,327
201,786
177,038
69,734
51,948
500,506
263,821
69,260
194,561
3.25
3.20
3
4
6
19
18
17
50
First National Financial Corporation 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31
(in thousands of Canadian dollars)
NET INCOME FOR THE YEAR
OTHER COMPREHENSIVE INCOME ITEMS THAT
MAY BE SUBSEQUENTLY RECLASSIFIED TO INCOME
Net gains from change in fair value of cash fow hedges
Reclassifcation of net losses (gains) to income
Income tax expense
Total other comprehensive income
Total comprehensive income
See accompanying notes
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended December 31
Notes
18
2022
197,732
123,327
(30,477)
92,850
(24,550)
68,300
266,032
2021
194,561
31,206
3,712
34,918
(9,290)
25,628
220,189
(in thousands of Canadian dollars)
Common
shares
Preferred
shares
Retained
earnings
Accumulated other
comprehensive
income Total equity
BALANCE AS AT JANUARY 1, 2022
122,671
97,394
364,974
(7,629)
577,410
Net income for the year
Other comprehensive income
Dividends paid or declared
—
—
—
—
—
—
197,732
—
197,732
—
68,300
68,300
(144,462)
—
(144,462)
BALANCE AS AT DECEMBER 31, 2022
122,671
97,394
418,244
60,671
698,980
Common
shares
Preferred
shares
Retained
earnings
Accumulated other
comprehensive loss Total equity
BALANCE AS AT JANUARY 1, 2021
122,671
97,394
383,993
(33,257)
570,801
Net income for the year
Other comprehensive income
Dividends paid or declared
—
—
—
—
—
—
194,561
—
(213,580)
—
194,561
25,628
25,628
—
(213,580)
BALANCE AS AT DECEMBER 31, 2021
122,671
97,394
364,974
(7,629)
577,410
51
First National Financial Corporation 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net income for the year
Add (deduct) items
Deferred income taxes
Non-cash portion of gains on deferred placement fees
Decrease (increase) in restricted cash
2022
2021
197,732
194,561
36,850
(14,490)
210,099
11,610
(16,040)
(146,588)
Net investment in mortgages pledged under securitization
(1,953,607)
(1,359,472)
Net increase in debt related to securitized mortgages
Securities purchased under resale agreements, net
Securities sold short, net
Amortization of deferred placement fees receivable
Amortization of property, plant and equipment
Unrealized gains on fnancial instruments
Net change in non-cash working capital balances related to operations
Cash provided by (used in) operating activities
INVESTING ACTIVITIES
Additions to property, plant and equipment
Investment of cash held as collateral for securitization
Investment in mortgage and loan investments
Repayment of mortgage and loan investments
Cash used in investing activities
FINANCING ACTIVITIES
Dividends paid
Obligations related to securities and mortgages sold under repurchase agreements
Repayment of lease liabilities
Cash provided by (used in) fnancing activities
Net increase in bank indebtedness during the year
Bank indebtedness, beginning of year
Bank indebtedness, end of year
SUPPLEMENTAL CASH FLOW INFORMATION
Interest received
Interest paid
Income taxes paid
52
1,415,282
(275,216)
420,370
14,212
13,622
(49,607)
15,247
493,910
509,157
1,372,287
(793,161)
855,759
14,205
9,182
(37,507)
104,836
(507,730)
(402,894)
(12,380)
(55,604)
(31,956)
(16,902)
(1,306,771)
(1,420,147)
1,321,883
(52,872)
1,456,265
(12,740)
(144,012)
(407,082)
(5,639)
(556,733)
(100,448)
(965,420)
(1,065,868)
1,073,914
773,905
44,225
(212,305)
349,584
(4,233)
133,046
(282,588)
(682,832)
(965,420)
957,742
647,049
77,855
First National Financial Corporation 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[in thousands of Canadian dollars,
unless otherwise indicated]
December 31, 2022 and 2021
1. GENERAL ORGANIZATION AND BUSINESS OF FIRST NATIONAL
FINANCIAL CORPORATION
First National Financial Corporation [the “Corporation” or “Company”] is the parent
company of First National Financial LP [“FNFLP”], a Canadian-based originator,
underwriter and servicer of predominantly prime residential [single family and
multi unit] and commercial mortgages. With over $131 billion in mortgages under
administration as at December 31, 2022, FNFLP is a signifcant participant in the
mortgage broker distribution channel.
The Corporation is incorporated under the laws of the Province of Ontario, Canada
and has its registered ofce and principal place of business located at 16 York Street,
Toronto, Ontario. The Corporation’s common and preferred shares are listed on the
Toronto Stock Exchange under the symbols FN, FN.PR.A and FN.PR.B, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
[A] BASIS OF PREPARATION
The consolidated fnancial statements have been prepared in accordance with
International Financial Reporting Standards [“IFRS”]. The consolidated fnancial
statements have been prepared on a historical cost basis, except for derivative fnancial
instruments and certain fnancial assets and fnancial liabilities that are recorded at fair
value through proft or loss [“FVTPL”] and measured at fair value. The carrying values
of recognized assets and liabilities that are designated as hedged items in fair value
hedges, and that would otherwise be carried at amortized cost, are adjusted to record
changes in fair value attributable to the risks that are being mitigated in efective
hedge relationships. The consolidated fnancial statements are presented in Canadian
dollars and all values are rounded to the nearest thousand except when otherwise
indicated. The consolidated fnancial statements were authorized for issue by the
Board of Directors on February 28, 2023.
53
First National Financial Corporation 2022 ANNUAL REPORT
[B] BASIS OF CONSOLIDATION
[C] USE OF ESTIMATES
The consolidated fnancial statements
Company does not control. The SPEs
The preparation of consolidated fnancial
comprise the fnancial statements of the
are sponsored by third-party fnancial
statements in conformity with IFRS
Company and its subsidiaries, including
institutions which acquire assets from
requires management to make estimates
FNFLP, First National Financial GP
various sellers including mortgages
and assumptions that afect the reported
Corporation [“GP”, the general partner of
from the Company. As at December
amounts of assets and liabilities,
FNFLP], FNFC Trust, a special purpose
31, 2022, the Company recorded, on its
including contingencies, at the date of
entity [“SPE”] which is used to manage
consolidated statements of fnancial
the consolidated fnancial statements and
undivided co ownership interests in
position, its portion of the assets of the
the reported amounts of revenue and
mortgage assets funded with Asset-
SPEs amounting to $3,119 million [2021
expenses during the reporting period.
Backed Commercial Paper [“ABCP”],
– $2,227 million]. The Company also
Actual results may difer from those
First National Asset Management Inc.
recorded, in its consolidated statements
estimates. Major areas requiring use of
[“FNAM”], and First National Mortgage
of income, interest revenue – securitized
estimates by management are those that
Corporation.
mortgages of $87,258 [2021 – $55,551]
require reporting of fnancial assets and
FNAM is a wholly owned subsidiary of
the GP, and an indirect subsidiary of the
Company. FNAM is a NHA approved
and interest expense – securitized
mortgages of $62,816 [2021 – $36,969]
related to its interest in the SPEs.
fnancial liabilities at fair value.
lender and NHA-MBS issuer in the
The consolidated fnancial statements
capacity of an “aggregator”. Its business
have been prepared using consistent
model is to purchase mortgages from
accounting policies for like transactions
mortgage originators in order to create
and other events in similar circumstances.
NHA-MBS pools, and subsequently sell
All intercompany assets and liabilities,
these into the Canada Mortgage Bonds
equity, income, expenses and cash fows
programs [“CMB”].
The Company earns interest income
from the retained interest related
to mortgages transferred to four
special purpose entities which the
relating to transactions between these
companies are eliminated in full on
consolidation.
54
First National Financial Corporation 2022 ANNUAL REPORT
[D] SIGNIFICANT ACCOUNTING POLICIES
Financial Instruments
The Company accounts for its fnancial assets and liabilities in accordance with IFRS 9,
Financial Instruments [“IFRS 9”].
CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
The Company classifes its fnancial assets as either amortized cost or at FVTPL
as summarized below:
Securities purchased under resale agreements
Mortgages accumulated for securitization
Mortgages accumulated for sale
Mortgages pledged under securitization
Mortgage and loan investments – commercial segment
Mortgage and loan investments – residential segment
other than one specifc portfolio of residential mortgages
A portfolio of residential mortgages in Mortgage and
loan investment
Deferred placement fees receivable
Amortized cost
Amortized cost
FVTPL
Amortized cost
FVTPL
FVTPL
Amortized cost
Amortized cost
CLASSIFICATION AND MEASUREMENT OF FINANCIAL LIABILITIES
The Company classifes its fnancial liabilities as either amortized cost or at FVTPL as
summarized below:
Obligations related to securities and mortgages sold
under repurchase agreements
Securities sold short
Debt related to securitized mortgages
Servicing liabilities
Senior unsecured notes
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
55
First National Financial Corporation 2022 ANNUAL REPORT
CASH FLOW HEDGES
The Company applies cash fow hedge
accounting for the anticipated funding
of its multi-unit residential commercial
segment mortgages. At the time of
mortgage commitment, the Company
shorts Government of Canada bonds
as the hedging instrument to hedge
the cash fows on the anticipated
future debt to be arranged through
securitization of these mortgages
obtained through CMB, disclosed as debt
related to securitized mortgages. The
Company also uses the same hedging
strategy when placing mortgages with
institutional investors who plan to use
CMB funding. The efective portion of the
change in the fair value of the designated
hedging instrument qualifying as
a cash fow hedge is recognized in
other comprehensive income [“OCI”]
in the consolidated statements of
comprehensive income. When the
hedge relationship is terminated, the
cumulative amounts recognized in OCI
are amortized into interest expense –
securitized mortgages over the term
of the securitized debt, or amortized
against placement fees from institutional
investors. Any change in fair value of
the hedge determined as inefective
is recognized immediately in the
consolidated statements of income.
Impairment
The expected credit loss [“ECL”] impairment model applies to all fnancial assets
classifed as amortized cost or FVOCI, as well as certain of-balance sheet loan
commitments. The IFRS 9 ECL approach has three stages: Stage 1 – the credit risk has
not increased signifcantly since initial recognition such that an allowance for credit
loss is recognized and maintained equal to 12 months of expected credit loss; Stage
2 – the credit risk has increased signifcantly since initial recognition, and the allowance
for credit loss is increased to cover full lifetime expected credit loss; and Stage 3 – a
fnancial asset is considered credit impaired and the allowance for credit loss continues
to be the full lifetime expected credit loss, with interest revenue calculated on the
carrying amount [net of the allowance for credit loss], rather than the gross carrying
value of the fnancial assets.
The Company assesses the credit risk of the mortgages based on the expected
repayments of principal and interest. All mortgages with arrears that are less than
31 days past due are included in Stage 1 whereas mortgages with principal in arrears
between 31 to 90 days are included in Stage 2. While mortgages in these two stages
are not considered to be impaired, the Company recognizes a 12-month ECL for Stage
1 mortgages and a lifetime ECL for Stage 2 mortgages. When a mortgage is in arrears
for over 90 days or the Company has issued a legal demand for repayment, there is a
specifc expectation of a detrimental impact on the estimated cash fows and, therefore,
the Company considers the mortgages as impaired and includes them in Stage 3.
The Company’s ECL impairment model is built on an unbiased and probability-
weighted method, determined by evaluating a range of possible outcomes supported
by past loss events and expectation of future possible outcomes, discounted to refect
the time value of money. The key inputs in the measurement of ECL include Probability
of Default, Loss Given Default and forecast of future economic conditions, which
involve signifcant judgement.
HEDGE ACCOUNTING
The Company applies IFRS 9 hedge accounting for certain mortgage commitments
and funded mortgages.
The Company uses a combination of short Government of Canada bonds and
bond repo arrangements to manage exposure to interest rate risk associated with
mortgage commitments and funded mortgages held prior to securitization. In
addition, the Company uses interest rate swaps to manage exposure to interest rate
risk for mortgages in SPEs. The Company documents a hedging relationship between
the hedging instrument and the hedged item at inception when the relationship is
established. The Company also assesses the efectiveness of the hedges at both
the hedge inception and on an ongoing basis. Any inefectiveness of any hedging
relationship is recognized immediately in the consolidated statements of income.
56
First National Financial Corporation 2022 ANNUAL REPORT
FAIR VALUE HEDGES
Revenue recognition
The Company enters into interest rate
swaps to protect against changes in the
fair value of fxed rate mortgages funded
by ABCP debt. The Company also shorts
The Company earns revenue from placement, securitization and servicing activities
related to its mortgage business. The majority of originated mortgages are sold
to institutional investors through the placement of mortgages or funded through
securitization conduits. The Company retains servicing rights on substantially all of
Government of Canada bonds to manage
the mortgages it originates, providing the Company with servicing fees.
interest rate exposure for a portion of
single-family mortgage commitments
and funded residential mortgages
accumulated for securitization. The
Company applies hedge accounting for
the swaps. For the short bond hedges,
the Company documents a hedging
relationship during the period when the
mortgages are funded until the date they
are securitized or placed with an arm’s
INTEREST REVENUE AND EXPENSE FROM MORTGAGES PLEDGED
UNDER SECURITIZATION
The Company enters into securitization transactions to fund a portion of the mortgages
it has originated. Upon transfer of these mortgages to securitization vehicles, the
Company receives cash proceeds from the transaction. These proceeds are accounted
for as debt related to securitized mortgages and the Company continues to hold the
mortgages on its consolidated statements of fnancial position, unless:
length investor. The Company does not
[i] substantially all of the risks and rewards associated with the fnancial
apply hedge accounting to the short
bonds used to mitigate interest risk on
single-family mortgage commitments.
The Company’s policy is not to utilize
derivative fnancial instruments for
trading or speculative purposes.
In the case of the swaps and short
bonds used to hedge funded mortgages,
changes in fair value of the hedged
item, to the extent that the hedging
relationship is efective, are ofset by
changes in the fair value of the hedging
instrument, both of which are recognized
in the consolidated statements of
income. At hedge unwind, the realized
change in the value of the hedged risk
is adjusted to the carrying value of the
hedged mortgages and amortized into
interest revenue over the term of the
hedged mortgages. Any changes in the
fair value of an inefective hedge are
immediately recorded in the consolidated
statements of income.
instruments have been transferred, in which case the assets are derecognized
in full; or
[ii] a signifcant portion, but not all, of the risks and rewards have been transferred.
The asset is derecognized entirely if the transferee has the ability to sell the
fnancial asset; otherwise the asset continues to be recognized to the extent
of the Company’s continuing involvement.
Where [i] or [ii] above applies to a fully proportionate share of all or specifcally
identifed cash fows, the relevant accounting treatment is applied to that proportion
of the mortgage.
For securitized mortgages that do not meet the criteria for derecognition, no gain
or loss is recognized at the time of the transaction. Instead, net interest income is
recognized over the term of the mortgages. Interest revenue – securitized mortgages
represents the interest portion of mortgage payments received and accrued by
borrowers and is net of the amortization of capitalized origination costs. Interest
expense – securitized mortgages represents the costs to fnance these mortgages,
net of the amortization of debt discounts and premiums.
Capitalized origination fees and debt discounts or premiums are amortized on an
efective yield basis over the term of the related mortgages or debt.
57
First National Financial Corporation 2022 ANNUAL REPORT
Derecognition
A fnancial asset is derecognized when:
• The right to receive cash fows from the asset has expired; or
• The Company has transferred its rights to receive cash fows from the assets or
has assumed an obligation to pay the cash fows, received in full without material
delay to a third party under a “pass-through” arrangement; and either [a] the
Company has transferred substantially all the risks and rewards of the asset; or [b]
the Company has neither transferred nor retained substantially all of the risks and
rewards of the asset, but has transferred control of the asset.
PLACEMENT FEES AND DEFERRED
PLACEMENT FEES RECEIVABLE
The Company enters into placement
agreements with institutional investors
to purchase the mortgages it originates.
When mortgages are placed with
institutional investors, the Company
transfers the contractual right to
receive mortgage cash fows to the
investors. Because it has transferred
substantially all the risks and rewards of
these mortgages, it derecognizes these
assets. The Company retains a residual
interest representing the rights and
obligations associated with servicing the
mortgages. Placement fees are earned
by the Company for its origination and
underwriting activities on a completed
transaction basis when the mortgage
is funded. Amounts immediately
collected or collectible in excess of the
mortgage principal are recognized as
placement fees. When placement fees
and associated servicing fees are earned
over the term of the related mortgages,
the Company determines the present
value of the future stream of placement
fees and records a gain on deferred
placement fees and a deferred placement
fees receivable. Since quoted prices
are generally not available for retained
interests, the Company estimates values
recognized in income over the life of
based on the net present value of
future expected cash fows, calculated
the servicing obligation as payments
are received from mortgagors. Interest
using management’s best estimates of
income earned by the Company from
key assumptions related to expected
holding cash in trust related to servicing
prepayment rates and discount rates
activities is classifed as mortgage
commensurate with the risks involved.
servicing income. The amortization of
MORTGAGE SERVICING INCOME
The Company services substantially
all of the mortgages that it originates
whether the mortgage is placed with
an institutional investor or transferred
to a securitization vehicle. In addition,
mortgages are serviced on behalf
of third-party institutional investors
and securitization structures. For all
mortgages administered for investors or
third parties, the Company recognizes
any servicing liabilities is also recorded
as mortgage servicing income.
The Company provides underwriting
and fulfllment processing services for
mortgages originated by two large
Canadian banks through the mortgage
broker distribution channel. The
Company recognizes servicing income
when the services are rendered and the
underwritten mortgages have
been funded.
servicing income when services are
MORTGAGE INVESTMENT INCOME
rendered. For mortgages placed under
deferred placement arrangements,
the Company retains the rights and
obligations to service the mortgages. The
deferred placement fees receivable is the
present value of the excess retained cash
fows over market servicing fee rates
and is reported as deferred placement
revenue at the time of placement.
Servicing income related to mortgages
placed with institutional investors is
The Company earns interest income
from its interest-bearing assets including
deferred placement fees receivable,
mortgage and loan investments and
mortgages accumulated for sale or
securitization. Mortgage investment
income is recognized on an accrual basis.
58
First National Financial Corporation 2022 ANNUAL REPORT
Brokerage fees
Securities sold short and securities
purchased under resale agreements
Brokerage fees are primarily fees paid to external mortgage brokers. Brokerage fees
relating to mortgages placed with institutional investors are expensed as incurred, and
Securities sold short consist typically of
those relating to mortgages recorded at amortized cost are capitalized to the carrying
the short sale of Government of Canada
cost of the related mortgages and amortized over the term of the mortgages.
bonds. Bonds purchased under resale
Mortgages pledged under securitization
Mortgages pledged under securitization are mortgages that the Company has
originated and funded with debt raised through the securitization markets and have
been classifed at amortized cost. The Company has a continuous involvement in
these mortgages, including the right to receive future cash fows arising from these
mortgages. Origination costs, such as brokerage fees and bulk insurance premiums
that are directly attributable to the acquisition of such assets, are deferred and
amortized over the term of the mortgages on an efective yield basis.
Debt related to securitized mortgages
Debt related to securitized mortgages represents obligations related to the fnancing
of mortgages pledged under securitization. This debt is measured at its amortized cost
using the efective yield method. Any discount/premium and issuance costs on raising
these debts that is directly attributable to obtaining such liabilities is deferred and
amortized over the term of the debt obligations.
Mortgages accumulated for sale or securitization
agreements consist of the purchase
of a bond with the commitment from
the Company to resell the bond to the
original seller at a specifed price. The
Company uses the combination of bonds
sold short and bonds purchased under
resale agreements to economically
hedge its mortgage commitments and
the portion of funded mortgages that
it intends to securitize in subsequent
periods.
Bonds sold short are classifed as FVTPL
and are recorded at fair value. The
efective yield payable on bonds sold
short is recorded as hedge expense
in other operating expenses. Bonds
purchased under resale agreements are
carried at cost plus accrued interest,
which approximates their market value.
The diference between the cost of
the purchase and the predetermined
Mortgages accumulated for sale are mortgages funded pending subsequent settlement
proceeds to be received on a resale
with institutional investors and are classifed as FVTPL and recorded at fair value. These
agreement is recorded over the term
mortgages are held for terms usually not exceeding 90 days.
Mortgages accumulated for securitization are mortgages funded pending the
arrangement of term debt through the Company’s various securitization programs and
are measured at amortized cost.
of the hedged mortgages as an ofset
to hedge expense. Transactions are
recorded on a settlement date basis.
59
First National Financial Corporation 2022 ANNUAL REPORT
Mortgage and loan investments
Mortgage and loan investments
Property, Plant
and Equipment
Goodwill
Goodwill represents the price paid for
consists of two portfolios: a portfolio
Property, plant and equipment is
the Company’s business in excess of the
of commercial segment bridge and
recorded at cost and depreciated over
fair value of the net tangible assets and
mezzanine loans and a portfolio of
the estimated useful life of the assets on
identifable intangible assets acquired
residential segment mortgages. Both
a straight-line basis.
commercial segment and residential
segment mortgages are non-
derivative fnancial assets with fxed or
determinable payments. The Company
classifes the mortgages as FVTPL or
at amortized costs depending on the
Company’s intention. The mortgages
held at fair value are measured using
management’s best estimate of
the fair value. Changes in fair value
are recognized immediately in the
consolidated statements of income.
Generally, commercial investments are
measured at FVTPL, and residential
segment investments are measured
at amortized cost.
Leases
Computer
equipment
Ofce equipment
Leasehold
improvements
Computer
software
in connection with the IPO. Goodwill
is reviewed annually for impairment
or more frequently when an event or
change in circumstances indicates that
the asset might be impaired.
3 years
5 years
1 – 10 years
Restricted cash
5 – 10 years
Restricted cash represents principal
and interest collected on mortgages
pledged under securitization that is
held in trust until the repayment of debt
The Company used the declining balance
related to these mortgages is made in a
method to depreciate all property, plant
subsequent period.
and equipment other than leasehold
improvements in the years prior to
2022. During the year, the Company
re-assessed this depreciation method,
and concluded that a straight-line basis
depreciation over the useful life of the
Bank indebtedness
Bank indebtedness consists of bank
loans net of cash balances or deposit
with banks.
Cash held as collateral
for securitization
Cash held as collateral for securitization
represents cash-based credit
enhancements held by various
securitization vehicles, including FNFC
Trust and a Canadian Trust Company
acting as the title custodian for the
Company’s NHA MBS program.
The Company measures right-of-use
assets is more appropriate. This change
assets at cost. The right-of-use assets
has been accounted for prospectively.
are subsequently amortized using the
The depreciation of property, plant and
straight-line method. The right-of-use
equipment would have been $6,892
assets are also subject to impairment.
in 2021 had it been calculated on the
Lease liabilities are calculated using
straight-line basis now used by the
the present value of future lease
Company.
Property, plant and equipment are
subject to an impairment review if there
are events or changes in circumstances
that indicate the carrying amount may
not be recoverable.
payments, discounted at the Company’s
incremental borrowing rate. After the
commencement date, the amount of
lease liabilities is increased to refect
the accretion of interest and reduced
for the lease payments made.
The Company’s major leases are for
premises at its Toronto head ofce and
four regional ofces. The Company
has elected not to recognize right-of-
use assets and a lease liability for its
various ofce equipment leases, which
are insignifcant for application of the
standard.
60
First National Financial Corporation 2022 ANNUAL REPORT
Deferred income taxes arise on
temporary diferences between the
carrying amounts of assets and liabilities
on the consolidated statements of
fnancial position and their tax bases.
Deferred tax liabilities are generally
recognized for all taxable temporary
diferences and deferred tax assets are
recognized to the extent that future
realization of the tax beneft is probable.
Deferred taxes are calculated using
the tax rates expected to apply in the
periods in which the assets will be
realized or the liabilities settled. Deferred
tax assets and liabilities are ofset when
they arise in the same tax reporting
group and relate to income taxes levied
by the same taxation authority, and when
a legal right to ofset exists in the entity.
Earnings per common share
The Company presents earnings per
share [“EPS”] amounts for its common
shares. EPS is calculated by dividing the
net earnings attributable to common
shareholders of the Company by the
weighted average number of common
shares outstanding during the year.
3. MORTGAGES PLEDGED UNDER
SECURITIZATION
The Company securitizes residential
and commercial mortgages in order
to raise debt to fund these mortgages.
Most of these securitizations consist of
the transfer of fxed and foating rate
mortgages into securitization programs,
such as ABCP, NHA MBS and CMB. In
these securitizations, the Company
transfers the assets to structured entities
for cash, and incurs interest-bearing
obligations typically matched to the term
of the mortgages. These securitizations
do not qualify for derecognition,
although the structured entities and
other securitization vehicles have no
recourse to the Company’s other assets
for failure of the mortgages to make
payments when due.
As part of the ABCP transactions,
the Company provides cash collateral
for credit enhancement purposes as
required by the rating agencies. Credit
exposure to securitized mortgages is
generally limited to this cash collateral.
The principal and interest payments
on the securitized mortgages are paid
by the Company to the structured
entities monthly over the term of the
mortgages. The full amount of the cash
collateral is recorded as an asset and
the Company anticipates full recovery of
these amounts. NHA MBS securitizations
may also require cash collateral in
some circumstances. As at December
31, 2022, the cash held as collateral
for securitization was $160,712 [2021 –
$105,108].
Servicing liability
The Company places mortgages with
third-party institutional clients and retains
the rights and obligations to service these
mortgages. When the service-related
fees are paid upfront by a third party,
the Company records a servicing liability.
The liability represents the portion of the
upfront fee required to earn a market rate
of servicing over the related mortgage
term. This is similar to the method which
the Company uses to calculate deferred
placement fees. Since quoted prices
are generally not available for retained
interests, the Company estimates its
value based on the net present value of
future expected cash fows, calculated
using management’s best estimates of
key assumptions related to expected
prepayment rates and discount rates
commensurate with the risks involved.
The Company earns the related servicing
fees over the term of the mortgages on
an efective yield basis.
Income taxes
The Company accounts for income taxes
in accordance with the liability method
of tax allocation. Under this method, the
provision for income taxes is calculated
based on income tax laws and income
tax rates substantively enacted as at the
dates of the consolidated statements
of fnancial position. The income tax
provision consists of current income
taxes and deferred income taxes. Current
and deferred taxes relating to items
in the Company’s equity are recorded
directly against equity.
Current income taxes are amounts
expected to be payable or recoverable
as the result of operations in the current
year and any adjustment to tax payable
or tax recoverable amounts recorded in
previous years.
61
First National Financial Corporation 2022 ANNUAL REPORT
The following table compares the carrying amount of mortgages pledged for
securitization and the associated debt:
2022
Securitized mortgages
Capitalized amounts related to
hedge accounting
Capitalized origination costs
Debt discounts
Add
Principal portion of payments
recorded in restricted cash
2021
Securitized mortgages
Capitalized amounts related to
hedge accounting
Capitalized origination costs
Debt discounts
Add
Principal portion of payments
recorded in restricted cash
Carrying amount of
securitized mortgages ($)
37,127,747
(46,173)
204,248
—
37,285,822
541,618
37,827,440
Carrying amount of
associated liabilities ($)
(37,281,919)
—
—
393,524
(36,888,395)
—
(36,888,395
Carrying amount of
securitized mortgages ($)
Carrying amount of
associated liabilities ($)
35,186,217
50,880
198,358
—
35,435,455
—
766,118
36,201,573
(35,659,675)
(46,933)
—
130,255
(35,576,353)
—
—
(35,576,353)
The principal portion of payments held in restricted cash represents payments on
account of mortgages pledged under securitization which has been received at year-
end but has not yet been applied to reduce the associated debt. This cash is applied
to pay down the debt in the month subsequent to collection. In order to compare the
components of mortgages pledged under securitization to securitization debt, this
amount is added to the carrying value of mortgages pledged under securitization in
the above table.
Mortgages pledged under securitization have been classifed as amortized cost and are
carried at par plus adjustment for unamortized origination costs and amounts related
to hedge accounting.
62
First National Financial Corporation 2022 ANNUAL REPORT
The changes in capitalized origination costs for the years ended December 31 are
summarized as follows:
Opening balance, January 1
Add new origination costs capitalized in the year
Less amortization in the year
Ending balance, December 31
2022 ($)
198,358
101,302
(95,412)
204,248
2021 ($)
184,818
114,789
(101,249)
198,358
During the year ended December
The following table summarizes the mortgages pledged under securitization that are
31, 2022, the Company invested in
31 days or more past due as at December 31:
mortgages that were transferred into
the securitization vehicles with principal
balances as at December 31, 2022 of
$8,628,395 [2021 – $8,940,445].
The contractual maturity profle of the
Arrears days
31 to 60
mortgages pledged under securitization
61 to 90
programs is summarized as follows:
Greater than 90
2022 ($)
2021 ($)
4,712
3,343
905
8,960
1,086
447
752
2,285
($)
5,509,598
4,998,610
6,646,988
2023
2024
2025
2026
All the mortgages listed above are insured, except for 14 mortgages which are
uninsured and have a principal balance of $7,555 as at December 31, 2022 [2021 –
six mortgages, $1,505]. The Company’s exposure to credit loss is limited to uninsured
7,081,116
mortgages with principal balances totaling $4,433,482 [2021 – $3,094,301], before
2027 and thereafter
12,891,435
consideration of the value of underlying collateral. Approximately one half of the
uninsured mortgages are conventional prime single-family mortgages, with loan to
37,127,747
value ratios of 80% or less. The Company has provided an allowance for expected
credit losses of $3,485 as of December 31, 2022 [2021 – $766] related to mortgages
pledged under securitization.
63
First National Financial Corporation 2022 ANNUAL REPORT
4. DEFERRED PLACEMENT FEES RECEIVABLE
The Company enters into transactions with institutional investors to sell primarily fxed-
rate mortgages in which placement fees are received over time as well as at the time
of the mortgage placement. These mortgages are derecognized when substantially all
of the risks and rewards of ownership are transferred and the Company has minimal
exposure to the variability of future cash fows from these mortgages. The investors
have no recourse to the Company’s other assets for failure of mortgagors to make
payments when due.
Deferred placement fees receivable are classifed as amortized cost and are initially
determined based on the present value of the anticipated future stream of cash fows.
This determination assumes there will be no credit losses, commensurate with the
credit quality of the investors. It is also assumed that there will be no prepayment
for the commercial segment as borrowers cannot refnance for fnancial advantage
without paying the Company a fee commensurate with the value of its investment
in the mortgage. The efect of variations, if any, between actual experience and
assumptions will be recorded in future consolidated statements of income but is
expected to be minimal.
2022
Mortgages placed with institutional investors
Gains on deferred placement fees created
Cash receipts on deferred placement fees received
2021
Residential ($)
Commercial ($)
—
—
419
3,218,988
15,043
16,500
Mortgages placed with institutional investors
1,018,328
2,421,410
Gains on deferred placement fees created
Cash receipts on deferred placement fees received
1,442
97
14,684
16,775
Residential ($)
Commercial ($)
Total ($)
3,218,988
15,043
16,919
Total ($)
3,439,738
16,126
16,872
64
First National Financial Corporation 2022 ANNUAL REPORT
The Company estimates that the expected undiscounted cash fows to be received on
the deferred placement fees receivable will be as follows:
2023
2024
2025
2026
2027 and thereafter
Residential ($)
Commercial ($)
Total ($)
365
307
259
127
—
1,058
16,395
14,449
12,213
9,126
20,267
72,450
16,760
14,756
12,472
9,253
20,267
73,508
5. MORTGAGES ACCUMULATED FOR SALE OR SECURITIZATION
Mortgages accumulated for sale or securitization consist of mortgages the Company
has originated for its own securitization programs, together with mortgages funded in
advance of settlement with institutional investors.
Mortgages originated for the Company’s own securitization programs are classifed as
amortized cost and are recorded at par plus adjustment for unamortized origination
costs. Mortgages funded for placement with institutional investors are designated as
FVTPL and are recorded at fair value. The fair values of mortgages classifed as FVTPL
approximate their carrying values as the time period between origination and sale is
short. The following table summarizes the components of mortgages according to
their classifcation:
Mortgages accumulated
for securitization
Mortgages accumulated for sale
2022 ($)
2021 ($)
2,226,825
24,369
2,251,194
2,726,697
30,943
2,757,640
The Company’s exposure to credit loss is limited to $491,786 [2021 – $299,446]
of principal balances of uninsured mortgages within mortgages accumulated for
securitization, before consideration of the value of underlying collateral. As at
December 31, 2022, three of these mortgages are in arrears past 31 days, with a total
principal balance of $1,330 [2021 – NIL]. These are primarily conventional prime
single-family mortgages similar to the mortgages described in note 3. Accordingly,
the expected credit loss related to these mortgages is insignifcant.
65
First National Financial Corporation 2022 ANNUAL REPORT
6. MORTGAGE AND LOAN INVESTMENTS
Mortgage and loan investments consist of two portfolios: commercial frst and second
mortgages held for various terms, the majority of which mature within one year; and
residential frst mortgages which are held to maturity.
Except for a portion of the residential loan portfolio that is classifed as amortized
cost, mortgage and loans are measured at FVTPL with any change in fair value being
immediately recognized in income. The portion of the residential loan portfolio that is
classifed at amortized cost has a total balance of $10,171 as at December 31, 2022 which
is subject to expected credit loss. The Company recorded losses of fair value related
to the commercial segment investments of $710 [2021 – $730] for the year ended
December 31, 2022.
The following table discloses the composition of the Company’s portfolio of mortgage
and loan investments by geographic region as at December 31, 2022:
Province/Territory
Alberta
British Columbia
Manitoba
New Brunswick
Newfoundland and Labrador
Nova Scotia
Nunavut
Ontario
Prince Edward Island
Quebec
Saskatchewan
Yukon
Portfolio balance ($)
Percentage of portfolio (%)
5,183
36,903
3,479
186
166
9,850
5
111,013
54
22,628
534
121
190,122
2.73
19.41
1.83
0.10
0.09
5.18
0.00
58.39
0.03
11.90
0.28
0.06
100.00
The following table discloses the mortgages that are past due as at December 31:
2022 ($)
2021 ($)
54
—
952
1,006
884
397
14,015
15,296
Arrears days
31 to 60
61 to 90
Greater than 90
66
First National Financial Corporation 2022 ANNUAL REPORT The portfolio contains $11,577 [2021 – $12,723] of insured mortgages and $178,545 [2021
– $179,617] of uninsured mortgage and loan investments as at December 31, 2022. Of
the uninsured mortgages, approximately $1,006 [2021 – $10,712] have principal balances
in arrears of more than 30 days.
The maturity profle of the principal amount of the loans in the table below is based on
the earlier of contractual renewal or maturity dates:
Residential
Commercial
2023
($)
16,468
2024
($)
2,328
2025
($)
2026
($)
2027 and
thereafter
($)
Total
($)
6,232
12,567
19,114
56,709
102,786
30,777
505
—
—
134,068
119,254
33,105
6,737
12,567
19,114
190,777
Total
($)
68,682
137,270
205,952
2022
2021
Interest income earned for the year was $17,311 [2021 – $14,292] and is included in
mortgage investment income on the consolidated statements of income.
7. OTHER ASSETS
The components of other assets are as follows as at December 31:
Property, plant and equipment, net
Right-of-use assets
Goodwill
2022 ($)
2021 ($)
39,993
49,374
29,776
119,143
36,968
52,385
29,776
119,129
The right-of-use assets pertain to fve premises leases for the Company’s ofce space.
The leases have remaining terms of one to fourteen years. The related lease liability of
$51,171 as at December 31, 2022 [2021 – $52,871] is grouped with accounts payable and
accrued liabilities on the consolidated statements of fnancial position.
The recoverable amount of the Company’s goodwill is calculated by reference to the
Company’s market capitalization, mortgages under administration, origination volume,
and proftability. These factors indicate that the Company’s recoverable amount
exceeds the carrying value of its net assets and, accordingly, goodwill is not impaired.
67
First National Financial Corporation 2022 ANNUAL REPORT
8. MORTGAGES UNDER ADMINISTRATION
As at December 31, 2022, the Company managed mortgages under administration
of $131,000,635 [2021 – $123,907,627], including mortgages held on the Company’s
consolidated statements of fnancial position. Mortgages under administration
are serviced for fnancial institutions such as banks, insurance companies, pension
funds, mutual funds, trust companies, credit unions and securitization vehicles. As at
December 31, 2022, the Company administered 321,470 mortgages [2021 – 325,399] for
113 institutional investors [2021 – 119] with an average remaining term to maturity of 43
months [2021 – 43 months].
Mortgages under administration are serviced as follows:
Institutional investors
Mortgages accumulated for sale or securitization and mortgage and loan investments
Mortgages pledged under securitization
CMBS conduits
The Company’s exposure to credit loss is limited to mortgage and loan investments
as described in note 6, securitized mortgages as described in note 3 and uninsured
mortgages held in mortgages accumulated for securitization as described in note 5.
The Company maintains trust accounts on behalf of the investors it represents.
The Company also holds municipal tax funds in escrow for mortgagors. Since the
Company does not hold a benefcial interest in these funds they are not presented on
the consolidated statements of fnancial position. The aggregate of these accounts
as at December 31, 2022 was $759,676 [2021 – $806,268]. As at December 31, 2022,
the Company has included in accounts receivable and sundry $339 [2021 – $702] of
uninsured non-performing mortgages.
2022 ($)
2021 ($)
90,249,205
84,184,863
2,450,613
37,127,747
1,173,070
2,969,617
35,186,217
1,566,930
131,000,635
123,907,627
68
First National Financial Corporation 2022 ANNUAL REPORT 9. BANK INDEBTEDNESS
10. DEBT RELATED TO
SECURITIZED MORTGAGES
11. SWAP CONTRACTS
Bank indebtedness includes a revolving
Swaps are over-the-counter contracts
credit facility of $1,500,000 [2021 –
Debt related to securitized mortgages
in which two counterparties exchange
$1,500,000] maturing in March 2027.
represents the funding for mortgages
a series of cash fows based on agreed-
At December 31, 2022, $1,065,868
pledged under the NHA-MBS, CMB and
upon rates to a notional amount. The
[2021 – $965,420] was drawn, of which
ABCP programs. As at December 31,
Company uses interest rate swaps to
the following have been pledged as
2022, debt related to securitized
manage interest rate exposure relating
collateral:
mortgages was $36,888,395 [2021 –
to variability of interest earned on
[a] a general security agreement
over all assets, other than real
property, of the Company; and
[b] a general assignment of all
mortgages owned by the
Company.
The credit facility bears a variable rate
of interest based on prime and bankers’
acceptance rates.
$35,576,353], net of unamortized
mortgages pledged under securitization.
discounts of $393,524 [2021 – $130,255].
The swap agreements that the Company
A comparison of the carrying amounts of
enters into are interest rate swaps
the pledged mortgages and the related
wherve two counterparties exchange a
debt is summarized in note 3.
series of payments based on diferent
Debt related to securitized mortgages
is reduced on a monthly basis when the
interest rates applied to a notional
amount in a single currency.
principal payments received from the
The following tables present, by
mortgages are applied. Debt discounts
remaining term to maturity, the notional
and premiums are amortized over the
amounts and fair values of the swap
term of each debt on an efective yield
contracts outstanding as at December 31,
basis. Debt related to securitization
2022 and 2021:
mortgages had a similar contractual
maturity profle as the associated
mortgages in mortgages pledged
under securitization.
2022
Interest rate
swap contracts
2021
Interest rate
swap contracts
Less than
3 years ($)
3 to 5 years
($)
6 to 10 years
($)
Total notional
amount ($)
Fair value
($)
3,135,786
801,573
—
3,937,360
106,563
Less than
3 years ($)
3 to 5 years
($)
6 to 10 years
($)
Total notional
amount ($)
Fair value
($)
2,403,943
990,683
—
3,394,626
17,444
Favourable fair values of the interest rate swap contracts are included in accounts
receivable and sundry and unfavourable fair values are included in accounts payable
and accrued liabilities on the consolidated statements of fnancial position.
69
First National Financial Corporation 2022 ANNUAL REPORT
12. SENIOR UNSECURED NOTES
The Company has two note issuances outstanding. $200 million of fve-year term
Series 2 senior unsecured notes bearing interest at 3.582% payable in equal semi-
14. SECURITIES TRANSACTIONS
UNDER REPURCHASE AND RESALE
AGREEMENTS
annual payments maturing in November 2024. $200 million of fve-year Series 3 senior
The Company’s outstanding securities
unsecured notes bearing interest at 2.961% payable in equal semi-annual payments
purchased under resale agreements
maturing in November 2025.
13. COMMITMENTS, GUARANTEES AND CONTINGENCIES
As at December 31, 2022, the Company has the following operating lease commitments
for its ofce premises:
2023
2024
2025
2026 and thereafter
($)
10,268
9,400
9,307
93,887
122,862
and securities sold under repurchase
agreements have a remaining term to
maturity of less than three months.
15. OBLIGATIONS RELATED TO
SECURITIES AND MORTGAGES
SOLD UNDER REPURCHASE
AGREEMENTS
The Company uses repurchase
agreements to fund specifc mortgages
included in mortgages accumulated
for sale or securitization. The current
contracts are with fnancial institutions,
based on bankers’ acceptance rates and
mature on or before January 31, 2023.
The Company’s commitments for premises listed above have remaining terms of one to
fourteen years, and have been accounted in right-of-use assets and recorded as other
assets on the consolidated statements of fnancial position.
Outstanding commitments for future advances on mortgages with terms of one to
10 years amounted to $1,795,019 as at December 31, 2022 [2021 – $1,939,420]. The
commitments generally remain open for a period of up to 90 days. These commitments
have credit and interest rate risk profles similar to those mortgages that are currently
under administration. Certain of these commitments have been sold to institutional
investors while others will expire before being drawn down. Accordingly, these amounts
do not necessarily represent future cash requirements of the Company.
In the normal course of business, the Company enters into a variety of guarantees.
Guarantees include contracts where the Company may be required to make payments
to a third party, based on changes in the value of an asset or liability that the third
party holds. In addition, contracts under which the Company may be required to
make payments if a third party fails to perform under the terms of the contract [such
as mortgage servicing contracts] are considered guarantees. The Company has
determined that the estimated potential loss from these guarantees is insignifcant.
70
First National Financial Corporation 2022 ANNUAL REPORT 16. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The major components of accounts payable and accrued liabilities are as follows as
at December 31:
Accrued liabilities
Accrued dividends payable
Accrued interest on securitization debt
Servicing liability
Lease liability
17. SHAREHOLDERS’ EQUITY
[a] Authorized
Unlimited number of common shares
2022 ($)
74,465
12,878
68,258
39,714
51,171
246,486
2021 ($)
72,508
12,427
46,763
37,800
52,871
222,369
Unlimited number of cumulative 5-year rate reset preferred shares, Class A Series 1
Unlimited number of cumulative 5-year rate reset preferred shares, Class A Series 2
[b] Capital Stock
Balance, December 31, 2022 and 2021
Common shares
Preferred shares
#
$
59,967,429
4,000,000
122,671
97,394
71
First National Financial Corporation 2022 ANNUAL REPORT
[c] Preferred shares
On January 25, 2011, the Company issued 4 million Class A Series 1 Preferred Shares
at a price of $25.00 per share for gross proceeds of $100,000 before issue expenses.
18. INCOME TAXES
The major components of deferred
provision for (recovery of) income taxes
for the years ended December 31 consist
Holders of Class A Series 1 Preferred Shares have the right, at their option, to convert
of the following:
Related to
origination
and reversal
of temporary
diferences
2022 ($)
2021 ($)
36,850
11,610
The major components of the current
income tax expense for the years ended
December 31 consists of the following:
2022 ($)
2021 ($)
Income taxes
relating to the
current year
34,500
57,650
their shares into cumulative, foating rate Class A Preferred Shares, Series 2 [“Series
2 Preferred Shares”], subject to certain conditions, on March 31, 2021 and on March
31 every fve years thereafter. On March 31, 2021, 399,700 of the outstanding Series 1
Preference Shares were tendered for conversion, on a one-for-one basis, into Series 2
Preference Shares, while 497,388 of the outstanding Series 2 Preference Shares were
tendered for conversion, on a one-for-one basis, into Series 1 Preference Shares. As
at December 31, 2022 and 2021, there were 2,984,835 Series 1 Preferred Shares and
1,015,165 Series 2 Preferred Shares outstanding with an aggregate carrying value of
$97,394.
Holders of the Class A Series 1 Preferred Shares receive a cumulative quarterly fxed
dividend at a rate equal to the fve year Government of Canada yield plus 2.07%. The
dividend rate may be reset every fve years, as and when approved by the Board of
Directors. The current dividend rate on the Class A Series 1 Preferred Shares is 2.895%
annually for a fve-year term ending March 31, 2026.Holders of the Class A Series 2
Preferred Shares will be entitled to receive cumulative quarterly foating dividends at
a rate equal to the three month Government of Canada Treasury bill yield plus 2.07%,
as and when declared by the Board of Directors.
Both classes of preferred shares do not have voting rights, are redeemable only at
the option of the Company, and are therefore classifed as equity. The par value per
preferred share is $25.
[d] Earnings per Share
Net income attributable to shareholders
Less: dividends declared on
preferred shares
Net income attributable to common
shareholders
2022 ($)
197,732
2021 ($)
194,561
(3,039)
(2,695)
194,693
191,866
Number of common shares outstanding
59,967,429
59,967,429
Basic earnings per common share
3.25
3.20
72
First National Financial Corporation 2022 ANNUAL REPORT
The efective income tax rate reported in the consolidated statements of income varies
from the Canadian statutory tax rate of 26.42% for the year ended December 31, 2022
[2021 – 26.42%] for the following reasons:
COMPANY’S STATUTORY TAX RATE
Income before income taxes
Income tax at statutory tax rate
Increase (decrease) resulting from
Permanent diferences
Prior year adjustment
Other
Income tax expense
2022 ($)
26.42%
269,082
71,091
292
(42)
9
71,350
2021 ($)
26.42%
263,821
69,702
193
(457)
(178)
69,260
The movement in signifcant components of the Company’s deferred income tax
liabilities and assets for the years ended December 31, 2022 and 2021 are as follows:
As at
January 1, 2022
($)
Recognized
in income and OCI
($)
As at
December 31, 2022
($)
DEFERRED INCOME TAX
Deferred placement fees receivable
Deferred costs – securitization
Carrying values of mortgages pledged under
securitization in excess of tax values
Other
Right-of-use asset
Lease liability
Unrealized gains on interest rate swaps
Cumulative eligible capital property
Servicing liability
Fair value adjustments not deducted for tax purposes
Total
17,007
84,886
184
3,522
13,840
(13,968)
(1,882)
(3,399)
(9,987)
(2,203)
88,000
80
70,551
(184)
1,729
(790)
445
(11,239)
236
(509)
1,081
61,400
17,087
155,437
—
5,251
13,050
(13,523)
(13,121)
(3,163)
(10,496)
(1,122)
149,400
73
First National Financial Corporation 2022 ANNUAL REPORT
DEFERRED INCOME TAX
Deferred placement fees receivable
Deferred costs – securitization
Carrying values of mortgages pledged under
securitization in excess of tax values
Other
Right-of-use asset
Lease liability
Unrealized gains on interest rate swaps
Cumulative eligible capital property
Servicing liability
Fair value adjustments not deducted for tax purposes
Total
As at
January 1, 2021
($)
Recognized in
income and OCI
($)
As at
December 31, 2021
($)
16,553
67,890
2,629
811
6,015
(6,067)
(2,863)
(3,662)
(7,940)
(6,266)
67,100
454
16,996
(2,445)
2,711
7,825
(7,901)
981
263
(2,047)
4,063
20,900
17,007
84,886
184
3,522
13,840
(13,968)
(1,882)
(3,399)
(9,987)
(2,203)
88,000
The amount of deferred tax expense recorded in income and OCI consists of an expense of $36,850
[2021 –$11,610] recorded in net income and an expense of $24,550 [2021 – $9,290] recorded in OCI related
to unrealized gains on cash fow hedges.
The calculation of taxable income of the Company is based on estimates and the interpretation of tax
legislation. In the event that the tax authorities take a diferent view from management, the Company may
be required to change its provision for income taxes or deferred income tax balances and the change
could be signifcant.
74
First National Financial Corporation 2022 ANNUAL REPORT
19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Risk management
The various risks to which the Company
is exposed and the Company’s policies
and processes to measure and manage
them individually are set out below:
Interest rate risk
securitization vehicle and the underlying
For single-family mortgages, only a
cost of funding is set. As interest rates
portion of the commitments issued
change, the values of these interest
by the Company eventually fund. The
rate dependent fnancial instruments
Company must assign a probability of
vary inversely with the values of the
funding to each mortgage in the pipeline
mortgage contracts. As interest rates
and estimate how that probability
increase, a gain will be recorded on
changes as mortgages move through
the economic hedge which will be
the various stages of the pipeline. The
ofset by the reduced future spread on
amount that is actually economically
Interest rate risk is the risk that the fair
mortgages pledged under securitization
hedged is the expected value of the
value or future cash fows of a fnancial
as the mortgage rate committed to
mortgages funding within the future
instrument will fuctuate because of
the borrower is fxed at the point of
commitment period.
changes in market interest rates. The
commitment.
Company’s exposure to the risk of
changes in market interest rates relates
primarily to the Company’s mortgages
accumulated for securitization.
The Company uses various strategies to
The table below provides the fnancial impact that an immediate and sustained 100
reduce interest rate risk. The Company’s
basis point and 200 basis point increase and decrease in short-term interest rates
risk management objective is to maintain
would have had on the net income of the Company in 2022 and 2021.
interest rate spreads from the point
that a mortgage commitment is issued
to the transfer of the mortgage to the
related securitization vehicle or sale to
an institutional investor. Primary among
these strategies is the Company’s
decision to sell mortgages at the time of
commitment, passing on interest rate risk
that exists prior to funding to institutional
investors. The Company uses synthetic
bond forwards consisting of bonds sold
short and bonds purchased under resale
agreements to manage interest rate
exposure between the time a mortgage
rate is committed to the borrower and
the time the mortgage is sold to a
Decrease in
interest rate(1)
Increase in
interest rate
2022
($)
2021
($)
2022
($)
2021
($)
100 BASIS POINT SHIFT
Impact on net income
21,804
13,180
(21,804)
(7,959)
200 BASIS POINT SHIFT
Impact on net income
43,608
29,760
(43,608)
(15,919)
(1) Interest rate is not decreased below 0%.
75
First National Financial Corporation 2022 ANNUAL REPORT
Credit risk
Liquidity risk and
capital resources
Market risk
Credit risk is the risk of loss associated
Market risk is the risk of loss that may
with a counterparty’s inability or
Liquidity risk is the risk that the
arise from changes in market factors
unwillingness to fulfll its payment
Company will be unable to meet its
such as interest rates and credit spreads.
obligations. The Company’s credit risk
fnancial obligations as they come due.
The level of market risk to which the
is mainly lending related in the form of
mortgage default. The Company uses
stringent underwriting criteria and
experienced adjudicators to mitigate
this risk. The Company’s approach to
managing credit risk is based on the
consistent application of a detailed set
of credit policies and prudent arrears
management. As at December 31,
2022, 88% [2021 – 91%] of the pledged
mortgages were insured mortgages.
See details in note 3. The Company’s
exposure is further mitigated by the
relatively short period over which a
mortgage is held by the Company
prior to securitization.
The Company’s liquidity strategy has
been to use bank credit to fund working
capital requirements and to use cash
fow from operations to fund longer-term
assets. The Company’s credit facilities are
typically drawn to fund: [i] mortgages
accumulated for sale or securitization,
[ii] origination costs associated with
mortgages pledged under securitization,
[iii] cash held as collateral for
securitization, [iv] costs associated with
deferred placement fees receivable, [v]
Company is exposed varies depending
on market conditions, expectations of
future interest rates and credit spreads.
Customer concentration risk
Placement fees and mortgage servicing
income from one Canadian fnancial
institution represent approximately 12.7%
[2021 – 19.6%] of the Company’s total
revenue.
accounts receivable and sundry, and [vi]
Fair value measurement
mortgage and loan investments. The
Company has a credit facility with
a syndicate of fnancial institutions,
The Company uses the following
hierarchy for determining and disclosing
the fair value of fnancial instruments
recorded at fair value in the consolidated
statements of fnancial position:
Level 1 – quoted market price
observed in active markets for identical
instruments;
Level 2 – quoted market price observed
in active markets for similar instruments
or other valuation techniques for which
all signifcant inputs are based on
observable market data; and
Level 3 – valuation techniques in which
one or more signifcant inputs are
unobservable.
The maximum credit exposures of
which provides for a total of $1,500,000
the fnancial assets are their carrying
in fnancing.
values as refected on the consolidated
statements of fnancial position. The
Company does not have signifcant
concentration of credit risk within any
particular geographic region or group
of customers.
The Company fnances the majority of
its mortgages with debt derived from
the securitization markets, primarily
NHA MBS, ABCP and CMB. Debt related
to NHA-MBS and ABCP securitizations
reset monthly such that the receipts of
The Company is at risk that the
principal on the mortgages are used to
underlying mortgages default and the
pay down the related debt within a 30
servicing cash fows cease. The large
day period. Accordingly, these sources
portfolio of individual mortgages that
of fnancing amortize at the same rate
underlies these assets is diverse in terms
as the mortgages pledged thereunder,
of geographical location, borrower
providing an almost perfectly matched
exposure and the underlying type of
asset and liability relationship.
real estate. This diversity and the priority
ranking of the Company’s rights mitigate
the potential size of any single credit loss.
Securities purchased under resale
agreements are transacted with large
regulated Canadian institutions such
that the risk of credit loss is very remote.
Securities transacted are all Government
of Canada bonds and, as such, have
virtually no risk of credit loss.
76
First National Financial Corporation 2022 ANNUAL REPORT
Carrying value and fair value of
selected fnancial instruments
The fair value of the fnancial assets
and fnancial liabilities of the Company
approximates its carrying value,
except for mortgages pledged under
securitization, which has a carrying value
of $37,285,823 [2021 – $35,435,455]
and a fair value of $35,990,243 [2021 –
$36,515,923]; debt related to securitized
mortgages, which has a carrying value
of $36,888,395 [2021 – $35,576,353]
and a fair value of $34,968,655 [2021
– $35,864,253]; and senior unsecured
notes, which have a carrying value of
$399,222 [2021 – $398,888] and a fair
value of $374,120 [2021 – $409,056].
These fair values are estimated using
valuation techniques in which one or
more signifcant inputs are unobservable
[Level 3].
Valuation methods and assumptions
The Company uses valuation techniques to estimate fair values, including reference to
third party valuation service providers using proprietary pricing models and internal
valuation models such as discounted cash fow analysis. The valuation methods and
key assumptions used in determining fair values for the fnancial assets and fnancial
liabilities are as follows:
[a] Mortgages and loan investments
Commercial segment mortgages and loan investments are measured at FVTPL. The
fair value of these mortgages is based on non-observable inputs and is measured at
management’s best estimate of the fair value.
[b] Deferred placement fees receivable
The fair value of deferred placement fees receivable at inception is determined by
internal valuation models using market data inputs, where possible. The value is
determined by discounting the expected future cash fows related to the placed
mortgages at market interest rates. The expected future cash fows are estimated
based on certain assumptions which are not supported by observable market data.
[c] Securities owned and sold short
The fair values of securities owned and sold short used by the Company to hedge its
interest rate exposure are determined by quoted prices on a secondary market.
[d] Servicing liability
The fair value of the servicing liability at inception is determined by internal valuation
models using market data inputs, where possible. The value is determined by
discounting the expected future cost related to the servicing of explicit mortgages at
market interest rates. The expected future cash fows are estimated based on certain
assumptions which are not supported by observable market data.
[e] Other fnancial assets and fnancial liabilities
The fair value of mortgages accumulated for sale, cash held as collateral for
securitization, restricted cash and bank indebtedness correspond to the respective
outstanding amounts due to their short-term maturity profles.
[f] Fair value of fnancial instruments not carried at fair value
The fair value of these fnancial instruments is determined by discounting projected
cash fows using market industry pricing practices, including the rate of unscheduled
prepayment. Discount rates used are determined by comparison to similar term loans
made to borrowers with similar credit. This methodology will refect changes in interest
rates which have occurred since the mortgages were originated. These fair values
are estimated using valuation techniques in which one or more signifcant inputs are
unobservable [Level 3] and are calculated for disclosure purposes only.
77
First National Financial Corporation 2022 ANNUAL REPORT
The following tables represent the Company’s fnancial instruments measured at fair
value on a recurring basis as at December 31:
2022
FINANCIAL ASSETS
Mortgages accumulated for sale
Mortgage and loan investments
Total fnancial assets
FINANCIAL LIABILITIES
Securities sold short
Interest rate swaps
Total fnancial liabilities
2021
FINANCIAL ASSETS
Mortgages accumulated for sale
Mortgage and loan investments
Interest rate swaps
Total fnancial assets
FINANCIAL LIABILITIES
Securities sold short
Total fnancial liabilities
Level 1 ($)
Level 2 ($)
Level 3 ($)
Total ($)
—
—
—
—
—
—
24,369
—
24,369
2,954,374
13,434
2,967,808
—
164,919
164,919
—
—
—
24,369
164,919
189,288
2,954,374
13,434
2,967,808
Level 1 ($)
Level 2 ($)
Level 3 ($)
Total ($)
—
—
—
—
—
—
30,943
—
688
31,631
2,677,689
2,677,689
—
192,340
—
192,340
30,943
192,340
688
223,971
—
—
2,677,689
2,677,689
In estimating the fair value of fnancial assets and fnancial liabilities using valuation techniques or pricing
models, certain assumptions are used, including those that are not fully supported by observable market
prices or rates [Level 3]. The amount of the change in fair value recognized by the Company in net income for
the year ended December 31, 2022 that was estimated using a valuation technique based on assumptions that
are not fully supported by observable market prices or rates was approximately a loss of $710 [2021 – $730].
Although the Company’s management believes that the estimated fair values are appropriate as at the date
of the consolidated statements of fnancial position, those fair values may difer if other reasonably possible
alternative assumptions are used.
Transfers between levels in the fair value hierarchy are deemed to have occurred at the beginning of the period
in which the transfer occurred. Transfers between levels can occur as a result of additional or new information
regarding valuation inputs and changes in their observability. During 2022 and 2021, the Company did not
have any transfers between levels.
78
First National Financial Corporation 2022 ANNUAL REPORT
The following table presents changes in the fair values, including realized gains of
$192,983 [2021 – $10,666] of the Company’s fnancial assets and fnancial liabilities for
the years ended December 31, 2022 and 2021, all of which have been classifed
as FVTPL:
FVTPL mortgages
Securities sold short
Interest rate swaps
2022 ($)
2021 ($)
(710)
74,441
(14,121)
59,610
(730)
15,397
(8,852)
5,815
The Company does not have any assets or liabilities that are measured at fair value
on a non recurring basis.
Movement in Level 3 fnancial instruments measured at fair value
The following tables show the movement in Level 3 fnancial instruments in the fair
value hierarchy for the years ended December 31, 2022 and 2021. The Company
classifes fnancial instruments to Level 3 when there is reliance on at least one
signifcant unobservable input in the valuation models.
Fair value as at
January 1, 2022
($)
Investments
($)
Losses recorded
in income
($)
Payment and
amortization
($)
Fair value as at
December 31, 2022
($)
FINANCIAL ASSETS
Mortgage and
loan investments
FINANCIAL ASSETS
Mortgage and
loan investments
192,340
400,483
(710)
(427,194)
164,919
Fair value as at
January 1, 2021
($)
Investments
($)
Losses recorded
in income
($)
Payment and
amortization
($)
Fair value as at
December 31, 2021
($)
138,021
608,109
(730)
(628,340)
192,340
79
First National Financial Corporation 2022 ANNUAL REPORT
20. CAPITAL MANAGEMENT
The Company’s objective is to maintain
a capital base so as to maintain investor,
creditor and market confdence and
sustain future development of the
business. Management defnes capital
as the Company’s common share
capital and retained earnings. FNFLP
has a minimum capital requirement as
stipulated by its bank credit facility.
The agreement limits the debt under
bank indebtedness together with the
unsecured notes to four times FNFLP’s
equity. As at December 31, 2022, the ratio
was 1.88:1 [2021 – 2.21:1]. The Company
was in compliance with the bank
covenant throughout the year.
On May 16, 2022, Refnitiv Benchmark Service (UK) Limited (RBSL), the administrator
of CDOR, announced that the calculation and publication of all tenors of CDOR will
permanently cease following a fnal publication on June 28, 2024. The Canadian
Alternative Reference Rate Working Group [“CARR”] was created to identify and seek
to develop a new risk-free Canadian dollar interest rate benchmark. An enhanced
Canadian Oversight Repo Rate Average [“CORRA”] has been designed to comply with
recommendations of the Financial Stability Board as part of a global efort to reform
benchmark interest rates. There is some uncertainty about how the Canadian dollar
benchmark rates will evolve and the speed at which CORRA will become a dominant
benchmark for Canadian dollar borrowings. Starting in 2022, CMHC has introduced
foating rate NHA MBS pool type which coupon is referenced to CORRA. The Company
has many swaps and other derivatives that are referenced to CDOR. All of these
instruments are with large Canadian fnancial institutions and the Company will rely
on those institutions to amend the agreements as required to incorporate the new
reference rate. The Company believes this transition will have a minimal impact, if any,
on the Company’s operations.
The following table discloses the Company’s exposure to signifcant interest rate
benchmark subject to CDOR reform as of December 31:
Non-derivative fnancial liabilities
Derivative notional amounts
2022
($)
946,792
3,937,360
2021
($)
1,044,188
3,394,626
80
First National Financial Corporation 2022 ANNUAL REPORT
21. EARNINGS BY BUSINESS SEGMENT
The Company operates principally in two business segments, Residential and
Commercial. These segments are organized by mortgage type and contain revenue
and expenses related to origination, underwriting, securitization and servicing activities.
Identifable assets are those used in the operations of the segments.
2022
REVENUE
Interest revenue – securitized mortgages
Interest expense – securitized mortgages
Net interest – securitized mortgages
Placement and servicing
Mortgage investment income [note 6]
Realized and unrealized gains (losses) on fnancial instruments
EXPENSES
Amortization
Interest
Other operating
INCOME BEFORE INCOME TAXES
Identifable assets
Goodwill
Total assets
Residential ($)
Commercial ($)
Total ($)
595,573
(482,721)
112,852
390,497
68,832
60,320
632,501
11,822
100,029
348,109
459,960
172,541
312,996
(256,574)
56,422
109,962
36,823
(710)
202,497
1,800
35,980
68,176
105,956
96,541
908,569
(739,295)
169,274
500,459
105,655
59,610
834,998
13,622
136,009
416,285
565,916
269,082
28,923,269
14,810,627
43,733,896
—
—
29,776
28,923,269
14,810,627
43,763,672
CAPITAL EXPENDITURES
8,667
3,713
12,380
81
First National Financial Corporation 2022 ANNUAL REPORT 2021
REVENUE
Interest revenue – securitized mortgages
Interest expense – securitized mortgages
Net interest – securitized mortgages
Placement and servicing
Mortgage investment income [note 6]
Realized and unrealized gains (losses) on fnancial instruments
EXPENSES
Amortization
Interest
Other operating
INCOME BEFORE INCOME TAXES
Identifable assets
Goodwill
Total assets
CAPITAL EXPENDITURES
Residential ($)
Commercial ($)
Total ($)
538,317
(422,707)
115,610
444,658
41,050
6,525
607,843
8,065
47,760
352,652
408,477
199,366
255,190
(207,572)
47,618
86,751
22,825
(710)
156,484
1,117
21,974
68,938
92,029
64,455
793,507
(630,279)
163,228
531,409
63,875
5,815
764,327
9,182
69,734
421,590
500,506
263,821
28,813,695
13,430,687
42,244,382
—
—
29,776
28,813,695
13,430,687
42,274,158
22,380
9,576
31,956
22. RELATED PARTY AND OTHER TRANSACTIONS
The Company has servicing contracts
insurance company provides insurance
in connection with commercial bridge
policies to the Company’s borrowers at
and mezzanine mortgages originated
market rates. In addition, the insurance
by the Company and subsequently
company has also provided the Company
sold to various entities controlled by a
with portfolio insurance at market
senior executive and shareholder of the
premiums. The total bulk insurance
Company. The Company services these
premium paid by the Company in 2022
mortgages during their terms at market
was $1,899 [2021 – $1,966], net of third-
commercial servicing rates. During the
party investor reimbursement.
year, the Company originated $286,763
of new mortgages for the related parties.
The related parties also funded several
progress draws totaling $17,328 on
existing mortgages originated by the
Company. All such mortgages, which are
administered by the Company, have a
balance of $259,673 as at December 31,
2022 [2021 – $213,648
A senior executive and shareholder of the
Company has a signifcant investment in
a Canadian bank. The Company has an
agreement to originate and adjudicate
applications for secured credit cards
for the bank. These applications are
originated through the Company’s
mortgage broker relationships. The
Company receives an immaterial fee
A senior executive and shareholder of the
for successfully adjudicating such
Company has a signifcant investment in
applications.
a mortgage default insurance company.
In the ordinary course of business, the
82
First National Financial Corporation 2022 ANNUAL REPORT CORPORATE GOVERNANCE
First National’s Board of Directors and management
team fully acknowledge the importance of their duty
to serve the long-term interests of shareholders. Sound
corporate governance is fundamental to maintaining
the confdence of investors and increasing shareholder
value. As such, First National is committed to the highest
standards of integrity, transparency, compliance and
discipline. These standards defne the relationships
among all of our stakeholders – Board, management
and shareholders – and are the basis for building these
values and nurturing a culture of accountability and
responsibility across the organization.
83
First National Financial Corporation 2022 ANNUAL REPORT
POLICIES
COMMITTEES
The Board supervises and evaluates
The Board of Directors has established an Audit Committee and a Governance
the management of the Company,
Committee to assist in the efcient functioning of the Company’s corporate
oversees matters related to our strategic
governance strategy.
direction and assesses results relative
to our goals and objectives. As such,
the Board has adopted several policies
that refect recommended practices
in governance and disclosure. These
include a Disclosure Policy, a Code of
Business Ethics and Conduct Policy,
a Whistleblower Policy and an Insider
Trading Policy. These policies follow
Audit Committee
The Audit Committee’s responsibilities include:
• Management of the relationship with the external auditor, including the oversight
and supervision of the audit of the Company’s fnancial statements;
• Oversight and supervision of the quality and integrity of the Company’s fnancial
statements, and
the corporate governance guidelines of
• Oversight and supervision of the adequacy of the Company’s internal accounting
the Canadian Securities Administrators.
As a public company, First National’s
Board continues to update, develop
and implement appropriate governance
policies and practices as it sees ft.
controls and procedures, as well as its fnancial reporting practices.
The Audit Committee consists of three independent directors, all of whom
are considered fnancially literate for the purposes of the Canadian Securities
Administrators’ Multilateral Instrument 52-110 – Audit Committees.
COMMITTEE MEMBERS
Robert Mitchell (Chair), Robert Pearce and Diane Sinhuber
Governance Committee
The Governance Committee’s responsibilities include:
• Periodically assessing and making recommendations on the Company’s approach
to governance issues;
• Assisting in the development of governance policies, practices and procedures for
approval by the Board of Directors;
• Reviewing conficts of interest and transactions involving related parties of the
Company; and
• Periodically reviewing the composition and efectiveness of the Board of Directors.
The Governance Committee consists of four directors, all of whom are independent
for the purposes of National Instrument 58-101 – Disclosure of Corporate Governance
Practices.
COMMITTEE MEMBERS
Barbara Palk (Chair), Duncan Jackman, Robert Pearce and Martine Irman
84
First National Financial Corporation 2022 ANNUAL REPORT
BOARD OF DIRECTORS
STEPHEN SMITH
Stephen Smith, one of Canada’s
leading fnancial services entrepreneurs,
is the Chairman and CEO of Smith
Financial Corporation. During his
career, he has been an innovator in the
development and utilization of various
securitization techniques to fnance
mortgage assets as well as a leader in
the development and application of
information technology (MERLIN)
in the mortgage industry.
Mr. Smith co-founded First National
Financial Corporation in 1988, served
as CEO until 2022, and remains as
Executive Chair. Mr. Smith is Chair of
Canada Guaranty Mortgage Insurance
Company, which he owns in partnership
with Ontario Teachers’ Pension Plan.
He is Chair and co-owner of Peloton
Capital Management, a mid-market
North American private equity frm. He
is Chair and co-owner of Glass, Lewis
& Co., a leading global proxy advisory
Mr. Smith holds a B.Sc (Hons.) in
and interest rate derivatives. Mr. Ellis
Electrical Engineering from Queen’s
holds a BA degree from the University
University and a M.Sc. in Economics from
of Western Ontario, a MBA degree
the London School of Economics. In 2017,
from McMaster University and is a CFA
Queen’s University awarded him
charterholder.
an Honourary LL.D.
MORAY TAWSE
DUNCAN JACKMAN
Duncan N. R. Jackman has been
Moray Tawse is Executive Vice President
and Secretary of the Corporation, and
Chairman, President and Chief Executive
Ofcer of E-L Financial Corporation,
Executive Vice President and Co-
an investment and insurance holding
founder of First National. Mr. Tawse
company, since 2003. In 2003, he was
directs the operations of all of First
also elected Chairman of the board of
National’s commercial mortgage
directors of The Empire Life Insurance
origination activities. With over 30 years
Company. Mr. Jackman is also Chairman
of experience in the real estate fnance
of Algoma Central Corporation, the
industry, Mr. Tawse is one of Canada’s
largest Great Lakes bulk shipper, as
leading experts on commercial real
well as Chairman and President of
estate and is often called upon to deliver
Economic Investment Trust Limited
keynote addresses at national real estate
and United Corporations Limited, two
symposiums.
JASON ELLIS
frm. Also, he is Chair and co-owner of
Jason Ellis is the President and Chief
Fairstone Bank of Canada and the largest
Executive Ofcer for First National
shareholder in Equitable Bank.
and is responsible for the design and
He is Chair of Historica Canada, creator
of the Heritage Minutes and publisher
of The Canadian Encyclopedia. He is the
member of the Boards of the Rideau Hall
Foundation, Canada Infrastructure Bank
and the C.D. Howe Institute and is
a Honourary Governor of the Royal
Ontario Museum.
In 2015, Queen’s University announced
the naming of The Stephen J.R. Smith
School of Business at Queen’s University
in honour of Mr. Smith and his historic
$50-million donation to the school. In
2019, Mr. Smith was inducted into the
Canadian Business Hall of Fame. In 2012,
he was awarded the Queen’s Diamond
Jubilee Medal.
maintenance of strategy and operational
excellence across the organization. Mr.
Ellis joined First National in 2004 as
Director, Capital Markets responsible
for leading First National’s capital
markets’ activities including interest
rate risk management, funding, and
securitization for all commercial and
residential mortgage origination. Mr.
Ellis was appointed Chief Operating
Ofcer in 2018 and President in 2019. On
January 12, 2022, Mr. Ellis was appointed
Chief Executive Ofcer. Prior to joining
First National in 2004, Mr. Ellis was
with the Asset/Liability Management
group at Manulife Financial and with
RBC Dominion Securities in Toronto and
New York where he traded fxed income
Canadian listed closed-end funds. He
also serves as a member of the board
of directors of several other public
and private companies. Mr. Jackman
is a member of the Business Council
of Canada and formerly served on
the Economic Advisory Council to the
Minister of Finance, Government of
Canada. He is also Chair of the Patron’s
Council for Community Living Toronto,
which provides support to thousands of
individuals with an intellectual disability.
Mr. Jackman graduated from McGill
University in Montreal.
85
First National Financial Corporation 2022 ANNUAL REPORT
ROBERT MITCHELL
ROBERT PEARCE
Robert Mitchell was appointed Executive
Robert Pearce serves on the board of
Chair and Chair of the Investment
directors of Canada Guaranty Mortgage
Committee of Dixon Mitchell Investment
Insurance Company, CPI Card Group
Counsel Inc., a Vancouver-based
and Fairstone Bank of Canada. Mr.
investment management company, on
Pearce spent 26 years with BMO Bank
January 1, 2021. From 2000 to 2020,
of Montreal from 1980 to 2006, most
he was President of Dixon Mitchell
recently holding the position of President
Investment Counsel Inc. Prior to that,
and Chief Executive Ofcer, Personal and
he was Vice President, Investments at
Commercial Client Group. He also served
Seaboard Life Insurance Company. Mr.
on the board of directors of MasterCard
Mitchell has an MBA from the University
International from 1998 to 2006 and
of Western Ontario and a Bachelor of
as Chairman of the Canadian Bankers’
Commerce (Finance) from the University
Association from 2004 to 2006. Mr.
of Calgary, and is a CFA charterholder.
Mr. Mitchell sits on the board of
Pearce holds a BA from the University of
Victoria and an MBA from the University
Equestrian Canada.
BARBARA PALK
Barbara Palk retired as President of
TD Asset Management Inc. in 2010,
following a 30-year career in institutional
investment and investment management.
of British Columbia. Mr. Pearce brings
over 40 years of operational and
leadership experience in the fnancial
services industry to the Board of
Directors.
DIANE SINHUBER
She currently serves on the board
Diane Sinhuber serves on the board
of directors of Crombie Real Estate
of directors of First National Financial
Investment Trust, where she chairs the
Corporation and Scarborough Health
Governance and Nominating Committee.
Network and is an independent and
Her experience on boards of directors
objective fnancial expert, as well
include the Ontario Teachers’ Pension
as a risk, governance and controls
Plan, where she chaired the Investment
professional with over 35 years’
Committee; TD Asset Management
experience providing accounting and
USA Funds Inc.; Canadian Coalition for
auditing services, including reporting
Good Governance, where she chaired
to and chairing Audit Committees. Ms.
the Governance Committee; Greenwood
Sinhuber is knowledgeable in IFRS,
Ms. Sinhuber has a Bachelor of Business
Administration, is a Fellow of Chartered
Professional Accountants of Ontario
(FCPA) and holds the ICD.D certifcation.
MARTINE IRMAN
Martine Irman serves on the board of
directors of First National Financial
Corporation, the TMX Group of
Companies and Plan International
Canada. She also sits on the Board of St.
Michael’s Hospital Foundation and the
Campaign Committee of MAP Centre
For Urban Health Solutions, and is the
Immediate Past Chair of the Board for
Export Development Canada. Ms. Irman
is a senior fnancial executive and brings
over 30 years’ experience in international
banking, treasury, securities and trade
and has spent 20 years sitting on both
corporate and not-for-proft boards
along with Executive Advisory Councils.
She held several senior level positions
over a 30 year period with TD including
as Vice-Chair, TD Securities and Senior
Vice President, TD Bank Group. She is
also a Past Chair of the Board of the
YMCA of Greater Toronto. Ms. Irman
holds a Bachelor of Arts in Economics
and Financial Studies and has completed
The Wharton Business School Advanced
Management Executive Program.
She is a graduate of the Rotman
School of Management Institute of
Corporate Directors and holds the ICD.D
College School; the Investment
Canadian accounting standards for
certifcation.
Counselling Association of Canada; the
private enterprises and not-for-proft
Perimeter Institute; the Shaw Festival;
organizations, US GAAP, and PCAOB
UNICEF Canada; and Queen’s University,
requirements and has provided services
where she was the Chair of the Board
to all types of fnancial institutions and
of Trustees. Ms. Palk is a member of the
within a global bank. She is a retired
Institute of Corporate Directors, a Fellow
Deputy Chief Auditor of TD Bank Group
of the Canadian Securities Institute and a
and held several positions with Ernst
CFA charterholder. She holds a Bachelor
& Young LLP over a 29 year period,
of Arts (Honours) in Economics from
including as leader of EY Canada’s
Queen’s University, and has been named
one of Canada’s Top 100 Most Powerful
Financial Services Organization for all
service lines. She previously served on
Women (2004).
a number of Boards including as Chair
of the YMCA of Greater Toronto and the
Kidney Foundation of Canada in Toronto.
86
First National Financial Corporation 2022 ANNUAL REPORT STAKEHOLDER INFORMATION
CORPORATE ADDRESS
First National Financial Corporation
16 York Street, Suite 1900
Toronto, Ontario M5J 0E6
Phone: 416.593.1100
Fax: 416.593.1900
INVESTOR RELATIONS WEBSITE
www.frstnational.ca
ANNUAL MEETING
OF SHAREHOLDERS
May 16, 2023, 10:00 a.m. EDT
TMX Market Centre
Pearce Bunting Room
120 Adelaide St W
Toronto, ON
REGISTRAR AND
TRANSFER AGENT
Computershare Investor Services Inc.
Toronto, Ontario
1.800.564.6253
EXCHANGE LISTING
AND SYMBOLS
Common shares: (TSX) FN
Class A Series 1 Preference Shares: (TSX) FN.PR.A
Class A Series 2 Preference Shares: (TSX) FN.PR.B
INVESTOR RELATIONS CONTACTS
Robert Inglis
Chief Financial Ofcer
rob.inglis@frstnational.ca
Ernie Stapleton
President, Fundamental
ernie@fundamental.ca
AUDITORS
Ernst & Young LLP, Toronto, Ontario
LEGAL COUNSEL
Stikeman Elliott LLP, Toronto, Ontario
SENIOR EXECUTIVES OF FIRST NATIONAL
FINANCIAL CORPORATION
Stephen Smith
Co-founder and Executive Chairman
Moray Tawse
Co-founder and Executive Vice President
Jason Ellis
President and Chief Executive Ofcer
Robert Inglis
Chief Financial Ofcer
Thomas Kim
Senior Vice President and Managing Director,
Capital Markets
Scott McKenzie
Senior Vice President, Residential Mortgages
Jeremy Wedgbury
Senior Vice President, Commercial Mortgages
Hilda Wong
Senior Vice President and General Counsel
Vancouver Calgary Toronto Montréal Halifax
FIRSTNATIONAL.CA
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