First National Financial Corporation

Good morning, ladies and gentlemen, and welcome to First National's fourth quarter 2020 analyst call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time on how to queue up to ask a question. This call is being recorded for replay purposes on March 3, 2021, at 10 a.m. Eastern Time. It is now my pleasure to turn the call over to Stephen Smith, Chairman and Chief Executive Officer of First National. Please proceed, Mr. Smith.

Thank you, operator, and good morning, everyone. Welcome to our call, and thank you for participating. Also on the line are Jason Ellis, our President and Chief Operating Officer, Rob Ingalls, Chief Financial Officer, and Maury Tawes, Executive Vice President. Now, before we begin, I will remind you that our remarks and answers may contain forward-looking information about future events for the company's future performance.

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This information is subject to risk and uncertainties and should be considered in conjunction with the risk factors detailed in our MD&A. First National's financial performance in 2020 was record setting. It included growth in all key value creation metrics. We're also very pleased that the year ended well, with fourth quarter results substantially above the prior year period. Our business has done well in periods of financial turmoil over the past three decades, but 2020 provided challenges that were far different from anything we've experienced before. We are not surprised by the durability of our business model, but we were surprised by the resilience of the housing market. Last spring, when the first pandemic lockdown was declared, we assumed originations would slow during the year. In fact, the opposite occurred. Historically, low interest rates spurred home purchasing across the country. As you've already seen from the results we issued in the second and third quarters of the year, First National was poised to take advantage of the surge in demand. Our business model resonated with our mortgage broker partners and commercial borrowers alike, and we set records for origination in both the residential and commercial segments. From a shareholder perspective, the outcome for First National is very positive. Net income per share grew 8% to a record $3.12. In November, regular dividends were increased by 8% to $2.10 per share, and the company declared a special dividend of $0.50 per share, the fourth year in a row with a special dividend. The dividend payout in regular common shares was 63%, and with the special dividend included, it was still a very comfortable 79%. First National has developed a reputation as a high-yielding investment for good reason. Since our IPO 14 years ago, we have raised the dividend every year and paid out $1.4 billion, or $25.80 per share. Combined with share price appreciation, the total return to IPO investors stood at 573% at December 31, 2020. This return reflects the efficient use of the capital by the business. This is clearly evidenced in the after-tax pre-fair market value return on shareholders' equity, which was 50% in 2020. and has averaged about 43% over the past decade. There are many factors, including those outside our control, that drive success in a given year. But to form at this level for such a period speaks to the strength and longevity of the business model. One of those strengths is First National's culture, which at its core features entrepreneurial people working together tirelessly to build strong relationships throughout the organization and our business partners. Despite the challenges of physical distancing, our employees have done a remarkable job of sustaining productive relationships this year. I would like to sincerely thank all First National employees for their hard work. Of course, our performance for shareholders would not be possible without the engagement of our customers and business partners. We thank both groups for your confidence in our company. Now it's my pleasure to turn the call over to Jason. As you know, Jason added the title of president just before the pandemic struck and has done a great job, as we know he would, in leading our company forward on a day-to-day basis. We welcome Jason as a contributor to these calls going forward.

Jason. Thanks, Stephen, and good morning, everyone. I would echo Stephen's comments about our employees. Despite the abrupt move to working from home last March, the team did a fantastic job in responding to all the challenges the pandemic presented. We expanded our workforce by 18% in 2020 to meet the demands of growth, and yet productivity remained high as our earnings attest. In this environment, preserving the culture that Stephen and Maury built required some creative thinking by our HR and marketing groups, with an emphasis on timely and meaningful communication and virtual team building exercises. Under the extenuating circumstances, we're very pleased that once again, First National has achieved the Great Places to Work certification in 2020. This is the fourth consecutive year of certification, which is based on an independent survey of our employees, making it a meaningful proxy for engagement and the state of our culture. In my remarks today, I'll highlight our structural advantages and describe how our strategic strategies have positioned us for success. Rob will then provide a financial summary, and Stephen will discuss our outlook. As we see it, First National has several key advantages. Our diverse funding model, our technology backbone, and our position in the mortgage broker channel are always among the top three. And all three played a role in the record results achieved in 2020, which is not surprising since all three have proven their worth through the many economic challenges and opportunities of the past 30 years. Let's start with our funding model. At First National, we originate to sell to large institutional investors or to securitize using stable and liquid programs like mortgage-backed securities, Canada mortgage bonds, and asset-backed commercial paper. Even though we do not take deposits like a bank, Our funding sources have proven as reliable as those of any financial institution, and this was demonstrated again in 2020 as total originations and renewals reached a record $36.9 billion, 30% above last year.

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You have a team that can go execute. It's not going to weigh you down in terms of the things that you already have going on. The second piece is the Profit Squared Method is specifically centered around real estate. So what have we done? Our team that did 200 houses in 2019 and has bought, renovated, and rented hundreds and hundreds of houses, we go through and we find the deals. We know how much it's gonna take to rehab them, we've walked them, we know what they're gonna rent for after it's done, we've done all the due diligence. Okay, that entire process has already been taken care of. The third piece now is we get to where we can optimize it. Optimize it for what? We have a process we take people through called the path. And the path is where we put specific numbers to your situation. We'll put up, okay, I want to replace $150,000 of my working income. What's that going to take? 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$25 billion of that origination was placed with institutions, and the rest was largely funded in securitization programs. As a result of swift and significant monetary and fiscal actions by policymakers in Ottawa, securitization markets functioned well through the pandemic, save for a very brief period in March when the pandemic was first declared. Similarly, demand from our institutional investors was persistent, This is evidenced by a 62% year-over-year growth in placement fees. With substantial liquidity in the financial system, funding markets remain strong in 2021 and are supportive of our growth ambitions. Our strategy of developing diversified relationships with institutional investors and securitization market participants has ensured we are consistently in the market with competitive products and rates. and we continue to develop new funding sources. As an example, our commercial division recently launched a competitive conventional term product with new institutional sponsorship. This product fills a gap in our offering and will complement our leading position in multi-residential mortgage financing. Broadening our funding sources has also had a positive impact on the expansion of our Excalibur program. In 2020, more balance sheet investors and securitization sponsors reached out to us about these higher yielding mortgages. This new interest has allowed us to add new products and expand our origination efforts beyond Ontario. While First National's single family business will always be dominated by prime lending, just like the Big Bang, Excalibur is an important complement to our offering that allows us to leverage our other key advantages. technology, and broker relationships. These other advantages worked well together throughout 2020. More specifically, we believe the pandemic sent more home buyers to the broker channel as an alternative to visiting a bank branch for a mortgage. And as more volume entered the channel, more opportunities flowed to First National through our Merlin underwriting system, which makes the broker's job easier through its automation of the deal submission and tracking process. Our third-party underwriting and fulfillment processing business also benefited from higher volume through the broker channel, which we captured and managed for our bank customers using customized software based on Merlin. As you'll recall, we added another bank customer to our third-party underwriting platform in late 2019 as part of our strategy of further leveraging our capabilities and building additional sources of fee-based income. The timing was good for both our new partner and for First National. Between our own origination and that of our third-party partners, we believe First National underwrote about 30% of all mortgages in the broker distribution channel in 2020. We see our position in the broker channel as fundamental to our ongoing strength and will seek to preserve and expand it as we go forward by leveraging Merlin to provide market-leading service.

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As a result of the record origination, First National ended 2020 with record mortgages under administration of $118.7 billion, 7% above the prior year. In fact, in the years that First National has been a public company, mortgages under administration has grown every year. So while our business practices became particularly effective during the pandemic and played to our strengths, we have been successful in all market conditions. In addition to contributing to record mortgages under administration, strong originations combined with wider mortgage spreads in 2020, resulting in record earnings in the fourth quarter and the fiscal year. I'll now turn the call over to Rob to expand on our results with his financial summary. Rob? Thanks, Jason, and good morning, everyone. In the interest of time, I will focus my comments on the fourth quarter. Results were very strong and did not show the typical effects of seasonality. Single-family originations increased 64%, or $2.3 billion, over last year, with double-digit growth registered by all First National sales offices across Canada. And in commercial, originations were up 22%, or by about half a billion dollars to cap a record year of production. Low interest rates certainly supported real estate activity as it improved broker or borrower confidence entering the fourth quarter compared to earlier last year. As a result of record new originations and success with renewals, MUA grew an annualized rate of 5% during the quarter itself. Turning now to fourth quarter revenue, It increased 13% over last year for $45 million if we exclude the impact of changes in fair market value gains and losses related to interest rate movements between the quarters. Revenue growth was driven by higher placement fees. Placement fees increased by over 100% for $52 million compared to Q4 last year, reflecting growth in mortgage volume with institutional investors along with wider mortgage spreads. Mortgage servicing income also increased in the quarter by 20% over last year. This reflected growth in revenue earned in the company's underwriting and fulfillment processing services business, as our third-party customers also are growing their market share and benefiting from the advantages provided by Merlin. Growth was also registered in deferred placement fee revenue, which was ahead of Q4 last year by about $6 million. This reflected higher product origination for these programs but the big driver was wider spreads on the mortgages. Net interest revenue earned on securitized mortgages increased 3% or $1 million, largely due to the benefit of wider securitization spreads, which were a consequence of the pandemic. These gains were offset by the cost of indemnities payable to NHAMBS debt holders when mortgages prepaid prior to their scheduled maturity dates. These indemnities are calculated to make whole NHA MBS debt holders, or assumed to reinvest the prepayments principle at risk-free reinvestment rates. Not all sources of revenue grew. Another impact of the interest rate environment was on mortgage investment income, which decreased 22% year-over-year as mortgage rates earned in the warehouse period were lower than in 2019. Although First National's financial performance in 2020 was very strong, there were several significant hurdles that faced the company. One was providing assistance to borrowers who lost employment income as a result of the lockdown in the spring. First National quickly provided qualifying borrowers with loan payment deferrals. By mid-May, the company had approved mortgage payment deferrals for about 14% of eligible single-family MUAs. By mid-July, this number had fallen to 4.2%, and at year-end, virtually no borrowers were on deferral. The deferrals had the most significant impact on the company's NHAMVS program, where First National is required to make timely payments on the securities issued despite not getting payments from the borrowers. In Q4, this obligation reached its peak of about $70 million of investment from the company. This investment is now coming down each month as mortgages renew, pay out, and amortize down. At January 31st, 2021, the obligation was approximately $65 million. Despite this investment, arrears rates, while elevated over 2019 levels, were not materially different from pre-pandemic levels. We also have not incurred any losses on our Excalibur program. This speaks to the quality of our underwriting. Also, as a result of our funding model, First National only has direct credit exposure to about 2.4% or 2.8 billion of our MUA. Part of our strategy is to carefully manage costs of both funding and operations. In Q4, brokerage expenses increased by over 100%, driven almost entirely by higher origination volumes. Per unit broker fees were generally consistent between the years. Wage costs increased 31% as a result of growth in FTE, but mainly for performance-based compensation earned by our commercial sales team on the high volumes of origination. Other operating expenses increased in Q4 by 18%, largely due to higher hedging costs as 30-day interest rates moved down significantly relative to 5- and 10-year bond yields. On the other hand, interest expense decreased 48%, due to the decline in short-term lending rates. We pay interest on mortgages warehouse prior to settlement. Moving now to profitability metrics, Q4 pre-fair market value income increased by 57% compared to last year's growth in revenue, low to the bottom line. Net income per share increased 41%. This was a very strong finish to a record year and provides good support for our regular dividend which is now being paid at an annualized rate of $2.10 per share. And now here's Stephen with our outlook. Thanks, Rob.

We believe that business advantages which served us well in 2020 will continue unfortunately as we enter year two of the pandemic. It's difficult to really forecast more than a quarter or two out in this environment since we can't predict the spread of the virus, the impact on unemployment, or the pace of vaccinations. That said, the results of the last three quarters of 2020 and what we've seen so far in Q1 provide us with reasons to be very positive about 2021. By very positive, I mean we expect residential originations to be at least in line with the record set in 2020 as a combination of a built-in advantage over traditional bank origination channels and the stimulative effect of low interest rates brings more business ROA. We also expect success in maintaining commercial origination levels, and overlaying all of that, we are counting on continued technology-based productivity. For the purpose of this outlook, we have not assumed a return to high levels of immigration just yet. We believe border restrictions will remain in place for at least part of the year. But on the positive side, we can look forward to pent-up demand for housing being unleashed at some point in the future as a result of the state of government policy of welcoming over 400,000 newcomers to Canada per year over the next few years. Population growth of this nature is an obvious driver of the real estate market overall, and specifically in the segments where we lead, single family as well as multi-unit departments. We have certainly observed suburbanization as a new trend in our largest cities driven by the pandemic. We are well positioned for this given our extensive broker relationships. On the funding side, we expect demand from institutional investors to remain strong as a result of the substantial amount of liquidity in the financial system. And we expect securitization markets to remain stable and well supported. Looking ahead, our confidence is bolstered by the fact we will continue to generate income and cash flow from our $34 million portfolio of mortgages pledged under securitization and our $83 billion servicing portfolio. We also have significant value creation potential in our single-family renewal. To conclude, 2020 was a record year of performance and growth for First National, and we intend to build on the lessons learned and structural advantages created over the years to deliver results to all stakeholders in 2021. This concludes our prepared remarks. We will now be pleased to take your questions. Aubrey, will you open the line for questions?

If you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. And your first question comes from the line of Etienne Ricard, of BMO Capital Markets.

Thank you and good morning. So looking at net interest earned on securitized mortgages, I think prepayment indemnity costs have remained a bit elevated in Q4, I believe about $5 million. Given the recent increase to bond yields, how would you expect this impact to moderate over upcoming quarters.

Hi, it's Jason. We expect a continuing trend towards a narrowing of the basis between the indemnity we receive from the borrowers and the indemnity we pay to the MBS holders. So that should be a favorable trend going forward.

Okay, perfect. Switching gears towards your single-family renewals have been very strong in 2020. How do you believe the pandemic has impacted renewal rates, and how do you believe you can keep that momentum in a post-pandemic world?

Well, it's difficult to assess exactly what role the pandemic played in our renewal rates. I guess at the margin, it's fair to perhaps assume that people were less mobile and more likely to remain with their existing lender. But I would say that the larger impact to our overall single-family renewal success this year was the introduction of a new electronic signature process within the borrower's mortgage portal that allowed them to renew digitally and greatly simplified the process, which I think has had a positive impact on our retention rate.

But our retention rates were materially different from 19 to 20.

No, Stephen makes a fair point. I don't believe that the retention rates were materially different. It just may be that there were more renewal opportunities in the year, which may have driven year-over-year change as well.

All right, perfect. And I'm curious, this is maybe a high-level question. In your discussions with with mortgage brokers since the start of the pandemic. I'm curious to hear what have been the most significant changes in the way brokers do business and how has First National been positioned on that front?

Well, I would say that our channel and certainly technology like Merlin that we use to deliver our services to the broker community have always just naturally been appropriate for a scenario just like this one. I don't believe the way brokers engage with their borrowers and certainly the way they engage with First National has changed in any meaningful way during the pandemic. If anything, the pandemic has just simply revealed the advantages that our model has over the traditional bricks and mortar distribution channel of some of the Sched 1 banks?

I guess when you think of how people entertain, I think in many ways, because everyone's at home, everyone's now doing Zoom calls. And so you're on the same competitive basis and certainly probably gives brokers the ability to, in many ways, do more business. You know, I'm struck, some of the surveys... coming out of the United States and I look at hours worked and it's actually increased. I think in many ways productivity has been increased because people aren't driving to meetings, going to meetings, preparing for meetings in person. People are often working at home and I think in many ways brokers can reach out to more clients and do more things by doing calls as opposed to in the past they were probably doing more in person.

So it's been it's been good for brokers that way. Perfect. Thank you for your comments.

Your next question comes from the line of Jeff Kwan of RBC Capital Markets.

Hi, good morning. You mentioned the estimate, I think it was 30% market share within the brokers for First National and then I guess the two banks you originate for. what would have been the rough estimate or where you think FirstNet on a standalone basis would have been on market share?

Oh, well, actually, those numbers are, we do see those numbers, and our standalone basis, yeah, 15, 16, 15, 16, and we'd be number two in the chat.

And how much would that have, increased versus pre-pandemic. And just curious your thoughts when we get back to, let's call it normal, how much of those market share gains that you might have had over the past few quarters do you think you'll be able to sustain?

Well, within the channel, I think the share is maybe the broker channel is maybe getting share from A little bit from the bank, the bench.

Yeah, but no, that's a good question. How much can we sustain? But I guess our overall share within the overall mortgage market would be in the neighborhood of 5%, 5 or 6%. If you look at our share relative to origination, I mean, there's three origination channels. The branch, mobile sales force at the DCIPS, and then there's mortgage broker channel. The mortgage broker channel is in the third range, give or take, and we're about 15%, 16% of that. So we're in the five to six range. I think we have a good shot at maintaining our share that we've picked up. We picked up share from competitors in our channel as well. So there's those issues. So I think we would think that we'll be able to maintain share this year.

Yeah, sorry, maybe I should ask in a better way was how much within the broker channel? Obviously, brokers got more market share through the pandemic, but within the broker channel itself, how much market share gains did you get during the pandemic? But also, too, is do you have an expectation of, you know, as we get back to normal, that the banks and the mobile sales forces plus the branch levels will start to regain some of the lost market share?

Hi, Jeff. It's Jason. I think that it's entirely possible that eventually when we exit the pandemic, some mortgage origination may flow back to more traditional bank channels. But I think that it's quite reasonable to believe that at least some of the shifts in market share to the broker channel will persist. And in terms of your question about First National within the channel, I would say we probably increased market share in the broker channel by somewhere between two and three percentage points year over year, largely driven by relatively strong performance through the summer months. So we are hopeful of certainly maintaining those gains in 2021. Got it.

Okay, perfect. And then on the spring housing season, Just curious what you're seeing so far in terms of deal applications and volumes. Are you seeing it slowing down from the pace that we've seen through, I guess, the second half of last year? Any color on interesting things you're seeing?

No, we're not. It's very strong. I would say a good number, just generally for analysts, just get the numbers that CREA does. They do it at the end of every month. That would be I would say that tends to be a good metric for how everyone is doing. And they and as as you know, I think for January record sales will still get the February numbers, but. We we've I would say when we did our forecast for. We said we're going to at least do what we did in 2020. I would. I would think that would be the continue to be the case, but the. Q1 has been certainly stronger than Q1 in 2020.

Okay, thank you. And just if I can ask one last question, is that the CMHC fees, you talked about five basis points higher cost of funding on an annual basis. I know it seems pretty small, but do you expect or have you seen it already, that incremental costs kind of getting passed on through higher mortgage rates, or is that something that might get absorbed?

So my view on that would be is that there tends to be two markets. And there tends to be the market from the mortgage finance companies that sell to aggregators and go into NHA and BS. And then there tends to be for insured product. And then there tends to be the, what I would say, the conventional market. That's really set by the DCIPs. And I would say that five basis points at the leading edge tends to be set by the mortgage finance company selling to the aggregators. I think that will get passed on. So we're not worried that that five basis points is going to make us less competitive. I think what it does is it tends to make the banks a little bit more competitive.

Okay, great. Thank you very much.

Your next question comes from the line of Graham Riding from TD Securities.

Hi, good morning. Morning, Greg. Maybe I could touch on your funding mix. So I think you did $11 billion that you securitized in 2020 across your different Securitization conduits. Are you operating your near capacity within those channels? Or is that a good estimate for what you could securitize in 2021? Or is there anything that you've got further capacity or new developing on the private securitization front?

Hi, it's Jason. I would say that we definitely are maximizing our utility CMHC-sponsored securitization programs by way of mortgage-backed securities and the Canada Mortgage Bond. However, there is ability to issue additional amounts. However, they would come with a marginal guarantee fee relative to the first $9 billion. As it relates to asset-backed commercial paper, we have a great deal of capacity there and are actually quite encouraged by renewed interest from conduit sponsors in growing their portfolios of mortgages. So lots of opportunities yet for growth and funding.

Got it. And those asset-backed commercial people comments, are those both for your prime and your Excalibur?

I'm sorry, could you repeat it?

Is it for both your prime residential and your Excalibur product that goes in that commercial paper?

Yes. One of the most encouraging developments in the last couple of years is an increased interest and willingness to securitize Alt-A mortgages, which for a period of time perhaps were misunderstood or frowned upon following the events of the global financial crisis all those years ago. So very positive reception right now to the Excalibur program.

Okay, got it. So when you talk about your $2.4 billion of credit exposure, I presume most of that would be related to what you have securitized through those private conduits. Is that correct?

It's a combination of commercial mortgages held on the balance sheet and the principal balance of conventional mortgages sold into ABCP conduits. It's probably worth mentioning, though, that that is the full principal balance of all the mortgages sold into conduits when, in fact, technically speaking, our exposure would be limited to the cash and credit enhancements in those conduits. So that is the largest possible way to express our credit exposure.

Okay, can you break that out, what your cash collateral is?

Well, what's the commercial market price?

I would say, you know, the commercial thing is almost on the balance sheet. You can see that there. And the biggest chunk of the single family is low to value, 8% less on conventional. And what's the exposure there? That'd probably be a billion eight and five. Yeah, the biggest chunk is just going to be regular conventional mortgages between 80% and whatever. And then there's, of course, a little bit of Excalibur that was securitized in the last couple of years.

Okay, understood. Okay. And my last question, then, would just be if I could. Just obviously, we've seen bond yields move higher year to date. Can you provide us some context of what you're seeing in terms of spread so far in 2021? both your placement fees and your new securitization issues?

Yeah.

Sure. I would say at this moment in time, spreads are, I would say, closer to our long-term normalized expectations. We definitely enjoyed some wider than average securitized spreads through the middle of last year. At this point, though, recent increases in underlying benchmarks like Government of Canada bonds and swap rates have receded somewhat, yet we have already increased mortgage coupons against the backdrop of rising rates. So I would say that right now, we are at sort of a long-term expected spread. And I'd say over the course of 2021, we would expect a moderating in spreads relative to what we enjoyed in 2020, but certainly nothing that would be below our expectations.

Perfect. Thank you.

Again, if you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. And our next question comes from the line of Jamie Glowing. from National Bank Financial.

Yeah, thanks. Good morning. Hi, Jamie. First question is tied to the Excalibur program. I was just curious if you could give us a little bit more color around the rollout of Excalibur, the potential growth that we're going to see in that program in 2021. Just a little bit more details there in terms of the rollout.

Well, I think we feel pretty confident about the Excalibur program. We had a great 2020. We did well in excess of a billion dollars, and we've only gotten to that product two years ago, and I think it's a witness to the strength of the first national brand and the broker channel and our extensive distribution that we were able to go from not being a player in that market to being number three in the In the. Near prime all day space within the course of a year. We see further growth there and the growth is going to be. Really propelled. By I guess the large amounts of liquidity through a combination of institutional distribution and also securitization. We are launching. We've just, and that, that older building is just essentially Ontario. So we're going to be launching out west, which includes the prairies in British Columbia this year. So we expect to see further growth, further growth there. We're very encouraged by this product. And we used to have an all-day product back prior to the 05, 06, 07, when it was funded by Asset Pack Commercial Paper and or that went to the ABCP market in Canada. The other great thing we like about the Excalibur product is just with the introduction of B20 in 2012, the whole migration of the mortgage market is Excalibur product now would be, I'd say, prime decent product from 2012. products, we're comfortable with the risk. So we see that being a very big growth area for us over the next two to three years.

Okay, great. In terms of the mortgage servicing income, obviously MUA, nice growth there in the high single digits. The piece that's interesting, I think, is the third-party plan or relationship that you have. What's your view of taking that to other third parties beyond the major relationship that we have today? And in terms of like the rate or service and income as a percentage of the mortgage under administration, is that level that we saw in Q4, is that something that might be sustainable in 2021?

We would think so. So the third party servicing we get out of that would be includes third party underwriting. And we underwrite for two banks currently. We certainly are getting inbound calls from other institutions. We see that as a growth opportunity, not a huge growth opportunity. I think what has happened, I mean, we underwrite now for the Toronto Dominion Bank and also for Manulife Bank. And it's... people want to go for outsourced underwriting. I think what we've seen, particularly in the, it's gone over a period of decades, and I would say starting with B20, with AML, with just one level of regulation after another, we've seen a complexity with respect to credit adjudication that is even complex for small So, there's a desire for people to go out and get the gold standard with respect to adjudication and underwriting. So, to that extent, we still see inbound calls, but they take time to wrap up and put together, but we would see that continuing to grow.

Can I just add that the third-party underwriting stuff, James, we don't have an MUA. We just underwrite for those banks, and that goes away. So, what's happened is the revenue line is both our regular servicing income and the income from that business. So, the extent that we've done very well with the third-party underwriting, that number and revenue will get bigger faster than the MUA will grow. So, I think you're seeing that development. That's why you see the high Q4 numbers.

Yeah, that makes sense. Thank you. That's a good answer on that front. Last one for me then is just in terms of clearly the strength in the cash flows and pre-FMV income today and looking at that, the payout ratio kind of around 50%. Is there... Is there an updated view in terms of how you're thinking about dividends and returning capital to shareholders through dividends and special dividends? And how should we continue to think about that as being still in that sort of like 55-65 range? Or is there some other change or shift in that?

Well, that's something I've been thinking about, and we've had some spirited debates here. Of course, as you know, I'm a major shareholder, and so is Maury, and I'm a big fan of giving money back to the shareholders. So I first national started as an income trust. And I've always been a big fan that we should. And I think I think with more in our in our shareholding position, 75% be sure to see capital. We can give it out. We can also put it back in so I. I I I I wrestle with the fact that we've had four years in a row of special Does that? I would seem to be probably can support a higher regular dividend, so I would. I would tend to think we're going to see. We'll certainly see a dividend increase in 2000. And 21. So we find. That I think I think the income. I think the income will could support a higher dividend, certainly higher annual dividend break. It's it's an interesting issue. We've sort of generally been. Saying that should be 60 to 70%. That's the number where we've been in terms of where we think internally and one might argue that's a conservative number given the support ability and sustainability of our cash flows. But we've tended to run things here relatively conservatively in terms of. Let's say some of the REITs are where they have very high. high payout ratios. We certainly would get feedback from the investment bankers and analysts that if we had a higher, the market doesn't properly appreciate the specials and that we should be going for a higher annual dividend so that shareholders can count on that regular dividend. So anyway, I can give you some of the input. But to your point, dividends are going to be going up this year.

Great. Thank you very much.

And Mr. Smith, there are no further questions. Back to you for closing comments.

Thank you very much, Operator. As there are no further questions, we look forward to hosting a virtual annual meeting of shareholders on May 6th, with our first quarter results being issued on April 27th.

Thanks, everyone, for taking part in our call today, and have a good day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.