In 1988, two young Canadian entrepreneurs (Stephen Smith and Moray Tawse) founded First National Financial Corporation. Today, Stephen and Moray still remain deeply engaged in the day-to-day business operations as committed officers, directors and shareholders of a firm that now has almost $100 billion of mortgages under management and a market capitalization of over $1.6 billion. In this interview, we asked Moray to look back on First National’s early years and to look forward into the future of the Company he co-founded.
Let’s start at the beginning. Why did you team up with Stephen to create First National?
It was an easy decision to start First National because we had two years learning the mortgage banking business together before we put our own money on the line and took the leap
How so?
I worked at a trust company and my specialty was originating loans from the brokerage community. Stephen worked at a boutique investment dealer and his speciality was selling packaged loans to pension funds, life companies and mutual funds. I found Stephen’s business card, gave him a call and said why don’t we work together to originate, package and sell the mortgages for our firms? He thought that was a good idea and so off we went. One day, we were together in Vancouver seeing a mutual client, and we said to each other, we’re working hard, we’re making money for our employers, why don’t we do it for ourselves? It seemed like the logical thing to do.
They say timing is everything when it comes to starting a business.
Well we thought our timing was impeccable because mortgage securitization structures had just appeared and we saw securitizations as the future and based our business model on it. It turns out that we were too early. Just after we started the company, the securitization market collapsed. The secondary part of our business was to sell packages of loans. Right away, our whole business became selling packages and it continued that way until securitizations reappeared four or five years later.
Were you able to adapt?
Well, the business became profitable in that first year and we started hiring almost right away. Ever since, that small profit has continued to grow larger each year.
Sounds like a relatively painless start up.
Well, it was tough decision taking a second mortgage on my house to put in start-up capital, but we had a plan, and it came together quickly. I was able to originate mortgages, Stephen was able to sell them, we had good support from investors and mortgage brokers and here we are. It was like an airplane taking off on a long runway.
Who came up with the name First National?
We were just kicking around some names and Stephen’s assistant said, what about First National? That was a name that made us sound big, so we went with it.
What made First National a success to start?
We understood all areas of the market and we figured out how to make the best use of our mortgage assets, whether by selling or securitizing them. But the underlying reason for our success was that we were quite entrepreneurial and our big competitors, by comparison, weren’t. Being entrepreneurial meant, in large part, doing everything we could, and then some, to give customers a better experience. We responded quickly. We worked hard to find solutions and we saw everything through to the end seamlessly. It’s still the way First National operates today, only we have a lot more people who are dedicated to our customers and mortgage brokers.
First National is now a billion-dollar business. That’s quite an accomplishment.
The most satisfying part is just the fact that we could go into a space that was completely dominated by large institutions and create an institution like First National from a small business. For reference, our mortgage portfolio is now just a little smaller than Bank of Montreal’s.
Did you have a vision to be this large when you started?
No, like anyone who starts a business, we were worried about what we were going to be doing this week and next week and next month to grow. We didn’t have a grand vision, we just wanted to keep trying harder to get better. And we’ve kept with that philosophy over the years. I think it’s what you do in those weeks and months to get bigger and better that’s important.
How has your personal role in the Company changed over the years?
When we started, Stephen looked after our commercial business and I ran residential single family. As time went on and Scott McKenzie joined us, we basically switched roles. I took on commercial, Scott took on residential and reported to Stephen who was looking after our treasury operations. That’s still basically how we function. Stephen is the big picture, analytical guy and I do what I’m best at in marketing and sales. Scott’s still with us running single family and we’ve got great leaders beyond the three of us.
Are you are still day-to-day involved?
Absolutely. I’m here to do business, here to work with clients and to support our sales teams.
First National now has almost $100 billion of MUA, making it by far the largest non-bank mortgage lender in Canada. Where do you go from here? Do you become a bank, for example?
Absolutely not, we would never change the model. The non-bank business model we have is what makes us special. We’re like a mutual fund; we try not to take market risk and we make nickels and dimes but because we do billions of dollars a year in volumes, those nickels and dimes add up.
What about making it “First International” and expanding into new countries?
No, we understand the market here in Canada very well and we’re smart enough to know there are smart people in the U.S. and in other countries who know their markets better than we could ever hope to, so we’re content to remain a proudly and exclusively Canadian institution.
How about adding financial products other than residential and commercial mortgages?
It would have to be a line of business related to mortgages because we stay in our comfort zone with what we know best. I always say we weren’t just smart, we were also lucky and we don’t think we could be smart or lucky in an unrelated business.
It takes a certain discipline to limit yourselves in this way.
Perhaps, but it’s not as limiting as you might think. Over the past few years, we’ve created a mortgage fund business and a mortgage fulfillment and servicing business and both are perfectly aligned with First National’s core operations.
So the future looks like the past?
If you mean does the future include being growth oriented, customer focused and entrepreneurial, then yes.
First National went public more than 10 years ago on the TSX. Was that a good move?
Probably the best move we ever made because it added legitimacy. Before our IPO, potential customers might say, who is First National and how do we know they have a $50 million cheque to fund our mortgage? Now, they don’t have to take our word for it, they can verify our strength by looking at our statements. Our TSX listing helped to accelerate our growth by elevating our status as an institution.
You and Stephen still have substantial ownership stakes in the Company. Is that important?
It’s important to us but this is no longer the Stephen and Moray show and hasn’t been for many years. We have wonderful people at all levels of the Company. And it’s the team that steers this ship. The strength of that team has really invigorated us. Serving with these amazing people makes it a pleasure to come into the office every day.
Does the future of First National include Moray Tawse?
You can count on it.