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Analysis••By Frankie

First National Preferred Shares Reset: How a Real 5-Year Rate Reset Works

First National FN.PR.A Resets After 5 Years

On April 1, 2026, First National Financial Corporation's Series 1 Preferred Shares (FN.PR.A) completed their five-year rate reset cycle. The previous fixed dividend rate of 2.895% — set back in April 2021 — has now been replaced with a new rate based on the current 5-year Government of Canada bond yield plus the original spread.

This is a textbook example of how rate reset preferred shares work, and it's worth understanding the mechanics.

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How the Reset Works

Rate reset preferred shares have a dividend that's recalculated every five years. The formula is straightforward:

New Dividend Rate = 5-Year Canada Bond Yield + Fixed Spread

For FN.PR.A:

  • The 5-year Government of Canada bond yield as of the reset date is approximately 3.11%

  • The contractual spread was set at issuance

  • The new annual dividend rate will be significantly higher than the previous 2.895%

    • This means shareholders who held through the reset will see their quarterly dividend payments increase substantially.

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    The Conversion Option

    Rate reset preferreds typically come with a conversion feature. At each reset date, holders can choose to convert:

  • Series 1 (Fixed Rate) → Series 2 (Floating Rate), or stay in the fixed series

  • Series 2 (Floating Rate) → Series 1 (Fixed Rate), or stay in the floating series

    • The conversion date was March 31, 2026. Holders who converted to Series 2 (FN.PR.B) will receive floating rate dividends based on the 90-day Treasury Bill rate plus a spread of 2.07%. With short-term rates at current levels, FN.PR.B is yielding approximately 4.19%.

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    Current Pricing

    | Share | Price | Current Yield | Type |
    |-------|-------|--------------|------|
    | FN.PR.A | $24.99 | 2.88% | Fixed Rate Reset |
    | FN.PR.B | $25.24 | 4.19% | Floating Rate |

    FN.PR.A is trading slightly below the $25.00 par value, while FN.PR.B trades at a small premium — the market is currently favoring the floating rate option given the rate environment.

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    Why This Matters for Investors

    The First National reset illustrates a key dynamic in the preferred share market right now:

    1. Resets are accelerating yields. Shares that reset in 2021 locked in historically low rates. The 2026 resets are locking in significantly higher dividends for the next five years.

    2. Fixed vs. Floating is a real choice. With the Bank of Canada holding at 2.25% and some economists predicting the next move is a hike, the fixed vs. floating decision matters. Fixed resets lock in today's higher bond yields for five years; floating shares benefit if rates rise further.

    3. Par value matters. Both series trade near $25.00 par, meaning the redemption value is essentially guaranteed. The risk-reward comes down to the dividend stream.

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    What to Watch

    Several other preferred shares are resetting in the coming months. The 5-year bond yield has stabilized around 3.1%, making this a favorable environment for new reset rates. Check our reset calendar for upcoming resets and projected yields.

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    Data as of April 2026. This is not investment advice. Always consult a qualified financial advisor before making investment decisions.