Company Announcements

TORONTO , July 29, 2025 /CNW/ - First National Financial Corporation (TSX: FN) (TSX: FN.PR.A) (TSX: FN.PR.B) (the "Company" or "FNFC") today announced its financial results for the three and six months ended June 30, 2025. The Company derives virtually all of its earnings from its wholly owned subsidiary, First National Financial LP ("FNFLP" or "First National"), one of Canada's largest non-bank mortgage originators and underwriters.

Second Quarter Summary

• Mortgages Under Administration ("MUA") increased 8% to a record $159.9 billion from $148.2 billion at June 30, 2024
• Revenue increased 15% to $621.3 million from $538.4 million a year ago
• Pre-FMV Income⁽¹⁾ increased 1% to $77.9 million from $77.5 million a year ago
• Net income was $63.4 million ($1.04 cents per share) compared to $54.1 million ($0.88 cents per share) a year ago

Management Commentary

"A healthy pipeline of new mortgage commitments and the successful conversion of a sizeable cohort of renewing mortgages produced a record quarter of origination volume for First National," said Jason Ellis, President and Chief Executive Officer. "Production growth was most pronounced in our single-family residential business although our commercial segment had its best-ever quarter with volumes surpassing $5 billion. Profitability reflected the steady expansion of MUA and our portfolio of mortgages pledged under securitization even as we continued to support growth through investments in technology and people. While the current trade dispute with the U.S. presents a challenge to Canada's economic and housing market outlook, the fact that First National issued over $3 billion of new prime residential mortgage commitments in June alone provides a constructive backdrop for the next two quarters. As we move forward, we will remain steadfast in our commitment to good service and leverage the advantages of our business model."

Second Quarter Review

First National's MUA increased 8% to $159.9 billion at June 30, 2025 from $148.2 billion at June 30, 2024 reflecting growth in its single-family and commercial mortgage portfolios.  MUA increased at an annualized rate of 12% during the quarter. At June 30, 2025, single-family residential MUA was $97.9 billion, up 3% from $94.8 billion at June 30, 2024, while commercial MUA was $61.9 billion, up 16% from $53.3 billion a year ago.

Single-family mortgage origination (including renewals) was $8.7 billion compared to $6.1 billion in the second quarter of 2024, an increase of 42%. Higher volumes were anticipated on the strength of the Company's pipeline of commitments to fund mortgages entering the period. Additionally, the Company experienced solid renewals as borrowers who had chosen shorter mortgage maturity terms during the pandemic renewed alongside those with more typical five-year terms taken in 2020. First National's MERLIN technology and operating systems continued to support efficient and effective mortgage underwriting across the country.

Commercial segment origination (including renewals) was a quarterly record $5.1 billion, up 2% from $5.0 billion a year ago, reflecting demand for insured multi-unit residential mortgage products.

Second quarter revenue increased 15% to $621.3 million from $538.4 million a year ago. During the quarter, the Company generated:

• $81.4 million in placement fees compared to $45.3 million a year ago, an 80% increase as placement activity increased 52% year over year and the composition of placement fees shifted in favour of new mortgages compared to renewed mortgages which have relatively lower per-unit fees
• $69.4 million in mortgage servicing income compared to $70.1 million a year ago, a 1% decline reflecting the impact of a lower interest rate environment on interest revenues earned on escrow deposits, partially offset by growth in the third-party underwriting business and administration departments on higher MUA
• $56.0 million in net interest revenue earned on securitized mortgages (NII) compared to $53.7 million a year ago, a 4% increase on 11% portfolio growth
• $35.3 million in mortgage investment income compared to $35.7 million as year ago, a 1% decline reflecting several factors including movements in the balances of mortgages accumulated for securitization, lower balances of mortgage and loan investments and generally lower mortgage rates reflecting the interest rate environment
• $3.2 million of gains on deferred placement fees compared to $4.6 million a year ago, a 30% decline reflecting tighter spreads for multi-unit residential mortgages originated and sold to institutional investors

Second quarter income before income taxes was $86.2 million compared to $73.5 million a year ago, a 17% increase reflecting changing capital market conditions which affected the value of financial instruments used to economically hedge residential mortgage commitments. During the 2025 second quarter, the Company recorded $8.3 million of net gains on financial instruments compared to a net loss of $4.0 million a year ago.

Earnings before income taxes and gains and losses related to financial instruments ("Pre-FMV Income¹"), which excludes the impact of these changes, increased 1% to $77.9 million from $77.5 million in the second quarter of 2024. This change largely reflected higher net interest income from securitization on a larger portfolio. Increases in net placement fees were offset by higher operating costs to support the Company's growth objectives.

Outstanding Securities

At June 30, 2025 and July 29, 2025, the Company had outstanding: 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 2025 senior unsecured notes; 200,000 September 2026 unsecured notes; and 200,000 November 2027 senior unsecured notes.

Dividends

Common share dividends paid or declared in the second quarter amounted to $37.5 million compared to $36.7 million a year ago, reflecting an increase in the regular monthly dividend to an annualized rate of $2.50 per common share from $2.45 per effective in December 2024. The common share payout ratio in the second quarter of 2025 was 60%. If gains and losses on financial instruments are excluded, the common share dividend payout ratio would have been 67% in the second quarter of 2025 compared to 66% in the second quarter a year ago.

First National paid $0.9 million of dividends on its preferred shares in the second quarter of 2025 compared to $1.0 million in the 2024 second quarter. As announced on June 16, 2025, the quarterly dividend rate on its Class A Series 2 Preference Shares for the period July 1 to September 30, 2025 was set at 4.714%, as determined in accordance with the terms of that Series.

First National, for the purposes of the Income Tax Act (Canada) and any similar provincial legislation, advises that its dividends declared will be eligible dividends, unless otherwise indicated.

Outlook

At the mid year point, the Company continued to build its MUA and its portfolio of mortgages pledged under securitization. It will benefit from both MUA and its securitized portfolio in the future: earning income from mortgage administration, net securitization margin and improving its position to capture increased renewal opportunities.

In the short term, the Company expects increased year-over-year single-family originations in the next two quarters as continued strength in new commitment activity has resulted in a larger pipeline compared to 2024. With 5-year fixed mortgage rates about 0.65-0.85% lower than a year ago and favorable employment rates, housing activity may prove resilient. This outlook, however, must be considered alongside the uncertain and potential negative impact of U.S. tariffs. Management believes the imposition of U.S. tariffs may have an unfavorable impact to the Canadian economy and, in particular, employment. The impact may also increase the risk of recession in the country.

As indicated above, the Company continued to see year-over-year growth of single-family mortgage commitments in the second quarter of 2025. In June 2025, First National recorded over $3 billion of new prime residential commitments which was more than double for the same month in 2024. Accordingly, management expects third quarter origination volumes to exceed those from the same quarter last year. For its commercial segment, the Company anticipates steady new origination volumes based on a robust pipeline of commitments. The CMB program and its dedicated allocations to apartment financing has created a reliable and stable source of funds for the Company to originate CMHC insured multi-unit mortgages. However, with the increased certainty of these programs, other lenders have entered this market, and spreads are tighter than the levels available in 2024. In both business segments, management is confident that First National will remain a competitive lender in the marketplace.      

First National is well prepared to execute its business plan and is confident that the strong relationships it has with mortgage brokers and diverse funding sources are enduring competitive advantages. In 2025, the Company expects to continue to enjoy the value of its goodwill with broker partners earned over the last 35+ years. With diverse institutional investors relationships and solid securitization markets, the Company also has access to consistent and reliable sources of funding.   

Going forward, the Company will generate income and cash flow from its now $46 billion portfolio of mortgages pledged under securitization and $111 billion servicing portfolio while focusing on the value inherent in its significant single-family renewal book.

Complete consolidated financial statements for the Company as well as management's discussion and analysis are available at www.sedar.com and at www.firstnational.ca.

Second Quarter Earnings Call

With the recent announcement of the acquisition of the Company by Birch Hill and Brookfield, the Company has cancelled its previously announced conference call which had been scheduled for July 30, 2025. 

About First National Financial Corporation

First National Financial Corporation (TSX:FN, TSX:FN.PR.A, TSX:FN.PR.B) is the parent company of First National Financial LP, a Canadian-based originator, underwriter and servicer of predominantly prime residential (single-family and multi-unit) and commercial mortgages. With almost $160 billion in mortgages under administration, First National is one of Canada's largest non-bank mortgage originators and underwriters and is among the top three in market share in the mortgage broker distribution channel.  For more information, please visit www.firstnational.ca.

¹ Non-GAAP Measures

The Company uses IFRS as its accounting framework. IFRS are generally accepted accounting principles (GAAP) for Canadian publicly accountable enterprises for years beginning on or after January 1, 2011. The Company also refers to certain measures to assist in assessing financial performance. These "non-GAAP measures" such as "Pre-FMV EBITDA" and "After tax Pre-FMV Dividend Payout Ratio" should not be construed as alternatives to net income or loss or other comparable measures determined in accordance with GAAP as an indicator of performance or as a measure of liquidity and cash flow. Non-GAAP measures do not have standard meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers.

Forward-Looking Information

Certain information included in this news release may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will, "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding the future financial position, business strategy and strategic goals, product development activities, projected costs and capital expenditures, financial results, risk management strategies, hedging activities, geographic expansion, licensing plans, taxes and other plans and objectives of or involving the Company. Particularly, information regarding growth objectives, any 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 differ 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 Affecting the Business" section. In evaluating this information, the reader should specifically consider various factors, including the risks outlined in the "Risk and Uncertainties Affecting the Business" section, that may cause actual events or results to differ materially from any forward-looking information. The forward-looking information contained in this discussion represents management's expectations as of July 29, 2025, 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

SOURCE First National Financial Corporation