First National Financial Corp is Canada’s largest non-bank mortgage lender. Over the past thirty years of business, the company has built a leading reputation in real estate finance with more than $ 119 billion in mortgage management and is now the largest commercial mortgage lender in the country.

Residential real estate (single-family residential mortgages) and commercial (multi-family residential and commercial mortgages) are the two operational business areas. Prime mortgages make up more than 90% of the MUA.

Nearly 75% of First National’s MUAs are insured mortgages, followed by uninsured single-family homes (19%) and uninsured multi-family residential and commercial mortgages (6%). She maintains diverse and flexible sources of funding and is known for her prudent and conservative underwriting practices.

Size, large national presence and focus on mortgage financing are key differentiators for the company. First National serves more than three million borrowers across Canada. Its status is that of an income trust.

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Plant data

Sales growth & market presence

First National is Canada’s largest non-bank mortgage originator and insurer, and a top three market share in the mortgage broker distribution channel. The majority of First National’s MUAs are insured and funded from sources that do not introduce residual credit risk.

First National’s financing model is known for providing low-cost mortgage financing across a range of market conditions. The company’s proprietary technologies such as MERLIN and My Mortgage are effective tools for mortgage brokers and borrowers, respectively.

First National generates 68% of its income from institutional placements, 18% from interest, 24% from mortgage servicing and 9% from investments. Revenues are directly driven by the value of the mortgages being managed. The company’s core business is the financing of its origination activities from a variety of sources, supplemented by the underwriting and service business for third parties.

First National’s broad offering of mortgage solutions and innovative customer service have made it a preferred choice for hundreds of thousands of coast-to-coast borrowers and independent mortgage brokers. His partners include independent mortgage brokers, major insurance companies, banks and asset management firms.

First National increased single-family home startups by 58%, while startups in the commercial segment decreased 31% year over year. The company saw an increasing market share in the mortgage broker sales channel, aided by the value of its longstanding brokerage relationships and effective technology. The MUA rose 5% year over year to over $ 119 billion.

The company benefited from broad mortgage spreads. A robust real estate market across Canada acts as a strong tailwind for the company.

First National is effectively able to provide funding across Canada. The company is well positioned to capitalize on a growing Canadian mortgage market valued at over $ 1.1 trillion. First National’s business continues to benefit from population growth, aging demographics, and the demand for apartment rentals in urban markets. Revenue has increased 5.5% CAGR over the past decade.

Dividends

First National is a dividend aristocrat who has increased its dividends every year for the past 15 years since going public, paying special dividends for each of the past four years. The annual dividend yield is currently 4.7% and the payout ratio is 63%.

Despite the challenging environment, FNFC has further increased its regular monthly dividend and also paid a special dividend last year. The company has recently increased its dividend by more than 11%, increasing it by more than 5% CAGR every year for the past five years.

First National has paid nearly $ 1.4 billion in dividends to shareholders since it went public in 2006. The company has a large MUA that generates continuous revenue and cash flows to support future dividends. First National is also generating stable and recurring income from servicing the mortgages and is well positioned to generate sustainable income to support the higher dividends in a lower risk business environment.

The company has a large portfolio of securitized mortgages that serve as a good source of cash flow in the form of gross interest on the securitized mortgages. The EPS has seen a growth rate of 12% + CAGR over the past five years.

First National continues to have significant liquidity and access to various channels to fund its mortgages through its funding model and generate excess capital to fund its near-term growth opportunities from operations. The company currently has a small share of Canada’s single-family home mortgage market, which gives it ample headroom for future expansion.

First national (FN) historical return
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competition

First National’s main competitors are Chartered Banks and other mortgage brokerage companies.

It competes with the Equitable Group, a leading Canadian financial services company that offers its customers a wide range of credit and savings solutions for private and business customers.

Strong relationships with mortgage brokers and diverse funding sources set First National apart from the competition. Uncertain securitization margins and tighter mortgage spreads are the company’s concerns.

Bottom line

First National’s strong relationships with mortgage brokers and diverse funding sources should support future growth. The company expects future growth based on a full suite of mortgage solutions, growing assets under management, conservative risk profile, market demand and market share in the mortgage broker channel.

This is a financial growth stock that is powered by mortgages. In short, it’s tied to the Canadian real estate market. The only downer is the rating. The return is very low compared to historical norms and indicates high growth as the P / E ratio is a bit more normalized.

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