What 30 means to me: Stephen Smith’s perspectives on First National’s past, present and future
On March 31st, 2018, First National began a year of celebrations to mark its 30th anniversary. To commemorate this important milestone, we asked key leaders to share their personal perspectives on the company’s long history of service, innovation and performance. In this interview, Stephen Smith, Chairman, Chief Executive Officer and co-founder of First National offers his thoughts.
It’s been 30 years since you and Moray Tawse created First National. What’s the most important lesson you’ve learned from building a successful business?
The importance of building honest and trusting relationships with people over time. If I was giving advice to anyone setting up a business, it would be to think long term and treat people fairly, the way you yourself would like to be treated. When you're starting out, it's easy to lose focus on what's truly important. The problem occurs when you do short-term deals at the expense of the long run. The better way to endure and succeed over years is to protect the relationships that count. For First National, that includes relationships with residential and commercial borrowers, mortgage brokers and investors.
Did you envision that First National would grow to be Canada's largest non-bank mortgage lender?
No, and it really didn't occur to us that we could become bigger until about 15 or 16 years ago. We were small back then. In 2002, we had $5 billion in mortgages under administration and reaching that level was significant.
What’s your most cherished memory from the past 30 years?
As you can imagine, there are many. Reaching the $100 billion milestone last year is one. Opening each branch across the country starting in Vancouver in 1991 and filling in the gaps to become a truly national residential and commercial lender by 2008. I think going public on the TSX was significant because it took us to another level as a business and gave us a new platform for growth. And the launch of Merlin in 2001 was a seminal event. In the space of one year, we created an entirely paperless organization and in so doing, provided online mortgage information so mortgage brokers could follow their transactions as they unfolded in our offices. Merlin was revolutionary and transformed us into a major player in the broker space.
You are an engineer by training, and yet you wrote a lot of the original coding for Merlin. Were you self-taught?
When I was in university, I worked as an advisor at the Computer Centre and in 1969-1970, I taught coding as a summer job on IBM 360s.
Where did you get the idea for Merlin?
In 1988, Moray said we're going to underwrite mortgages, which meant producing commitment letters. This was in the days when letters were typed out by hand. Maybe if you had a great typist, you could produce six commitments in an hour. But if the commitment letter changed, it had to be re-typed from scratch. I thought, maybe we could do that more efficiently if we developed a database to track all of the data in a mortgage, populate commitment letters electronically and print these letters on a dot matrix printer. That's how Merlin was conceived.
How did you transmit commitment letters back then?
In the beginning by courier and fax. Fax technology was introduced to the workplace around 1987 and it was a big deal.
Beyond technology, what aspect of doing business has changed the most in three decades?
The pace of business. It's just much faster and more intense. Customer expectations are also much higher. Thirty years ago, financial institutions operated to some degree with the attitude that customers were lucky to get a mortgage, that they should be grateful that a mortgage officer was even talking to them. Over the decades, we've seen that change for the better to a much more customer-focused approach to doing business in general and in lending specifically.
Did First National help to push the industry to adopt a more customer-friendly approach?
I think so but it's a whole combination of factors. The Internet in particular allowed consumers to get a much better sense of their competitive options and as a result, they no longer accepted imperious attitudes.
Has the pace of your job changed over the years?
To a degree, yes. In our first year, we only had about 10 employees and as a small business, we all wore different hats. Moray did the books, and I was the IT department and performed securitization and legal work. It felt like our hands were in everything. Slowly over time, these tasks were delegated to much more experienced experts and we built out dedicated departments. So now, my role is more external facing and I participate at a higher level in decision making. In some cases, decisions need to be made quickly so in that way, the pace is faster. But I also have the time to look longer term and think more strategically than I did when we started.
You mentioned the word delegation; some business founders aren't good at that.
That's true but we've always thought it was appropriate to delegate authority along with accountability. I think Moray and I have a unique skill in that we aren't micro-managers. We've always believed in leveraging the talents of the people we work with. Delegation empowers people and brings out the best in each of us.
What’s the one thing that hasn’t changed since you started the business?
The importance of good relationships. That's a perpetual feature of doing business. When we started, we had small relationships and now we have big relationships. To show you how small, I remember Moray and I having a breakfast meeting in 1993 with our bankers. We had a $1 million line of credit and we wanted more money. Our relationship manager didn't seem too keen, so we asked a competitor if they would lend us the money. The competitor said sure. We went back to our bank and we told them we were going to move our account. They got back to us a day later and said they would give us $4 million. Today, our line of credit facility is in excess of $1 billion and, additionally, we have access to over $5 billion of funding from Asset Backed Commercial Paper and repo facilities. So small relationships turn into big ones if you nurture them, which is what we try to do when we're the ones lending money.
Thinking about the people of First National, how has your workforce changed over 30 years?
Our employees are much more technologically savvy and better educated. Thirty years ago, most people who worked for us were high-school graduates. Now most are university graduates, which reflects the general improvement in education levels in Canadian society as a whole. We have a much more sophisticated workforce and a workforce that expects more in terms of career opportunities. It's a constant challenge to create those opportunities and we can't always do it but we at least feel good if someone leaves with a solid foundation and finds success elsewhere. We feel even better if they come back to First National, which happens from time to time.
How would you describe your company's culture?
It's a place where if you are a manager, you have to earn the respect of your colleagues. It's not a command and control environment. We lead by communicating our vision and asking people to share that vision and pursue it.
Is that approach your guiding philosophy as a business leader?
I try to focus on two or three broad themes and pursue those to the best of my ability.
Is the culture today the same as it was in the past?
I don't think it's changed fundamentally. Of course, it's easier for a group of 10 employees to have tight-knit relationships than it is for a company of 950 people, but by the same token, I still think there is a family atmosphere. In part, it's because we have a flat organizational structure. There are probably only two or three levels between Moray and I and our entry-level employees.
Within a business, how does a family atmosphere manifest itself?
We have people who have been here a long time. Within our senior management ranks, I think Hilda Wong is the newest member and she's been with us for 10 years. So relationships tend to go on for a longer time in a family-like company.
How do you go about making First National a career destination?
By creating an environment where people can succeed by working hard. There is a tried and true path in our company. Many, if not most managers started as entry-level employees and worked their way up.
What would you like employees to know about First National’s future?
Our prospects our strong and we have a solid value proposition. When you think about it, lending has been around for thousands of years and it isn't going away; we aren't going to be disintermediated. Yes, there will be market cycles, but mortgage lending tends to grow with population growth and growth in the economy and over the long run, we're going to see both here in Canada so the future for our business is bright.
You mentioned disintermediation. Isn't fintech a threat?
We are fintech. We've been fintech for more than 15 years. First National is at the leading edge of technology as a lender, and we're motivated to remain that way.
Thinking about mortgage brokers, why did you align your company’s future to that channel?
They provide great value to borrowers. When people ask me for a mortgage, I always refer them to a broker. I say to them, the broker will assess your needs and if your needs and First National's solutions align, we'll get your business and the broker will get a fee from us at no cost to you. If, on the other hand, First National isn't right for you, the broker will take you to a different lender who can better meet your needs.
There's a risk in doing that.
There is but it doesn't serve our long-term interests as a business to sell products that are not right for borrowers. Again, it's about building trusting, honest and fair relationships and brokers help us to do that.
How has the channel and First National’s place in that channel changed over the past 30 years?
When we started, brokers had 5% market share, now their share is over 30%. When we started, brokers were predominantly offering non-prime mortgages, today they are a mainstream channel for all borrowers. Brokers have also become very sophisticated. They have expertise in a number of product areas and their technology is advanced. As for how our position has changed, First National is now a leading lender in the channel. In past, we were number seven or eight.
How has your single-family product set changed over the years and how might it change in future?
We've offered a pretty full range of conventional and insured mortgages for many years, but we just launched a near-prime product called Excalibur. In future, we will look to expand penetration of Excalibur and generally, to continue offering a complete suite of mortgage options through the broker channel.
Overall, what does the 30th anniversary mean to you?
In some ways it's a measure of our continued success. From a standing start 30 years ago, we're now the largest single-family lender in Canada outside the big banks, and the country's largest commercial mortgage lender. I think our longevity and scale demonstrate that we provide a meaningful alternative to Canadian consumers in terms of good service and good interest rates and for mortgage brokers we have an effective underwriting capability. There is also a lot of experience resident in our operations. We have many employees who have been with us for 15 years, 20 years and some for 25 and 30. That gives us consistency, which is critical to building good relationships.
After 30 years, is there anything left to accomplish?
Absolutely. We're motivated to make First National bigger and better for all stakeholders.