Q1 Earnings Beat and Lower Risk Profile Boost Outlook

• BCF reported record revenue and EPS in Q1. Mortgage receivables (net) increased 20% QoQ to $52M, surpassing our year-end estimate of $49M. 
• EPS was up 13% YoY, beating our estimate by 2%. Annual regular dividends remained unchanged at $0.80/share, reflecting a yield of 9.13%.
• We believe the MIC has lowered its risk profile, driven by a higher allocation to first mortgages. Additionally, stage three mortgages (impaired) decreased  33% QoQ to 2.6% of mortgages.
• BCF’s strong loan growth is encouraging, given the slowdown in key Canadian housing markets caused by high interest rates, affordability issues, and economic uncertainty.

• Although the BoC is expected to hold rates in this week’s upcoming meeting, we believe there is potential for one or two more cuts later this year, driven by slowing GDP growth, elevated uncertainty and trade risks, rising unemployment, and cooling inflation. Historically, lower rates have supported MIC/financial stocks.
• Mortgage delinquencies remain a concern, but we believe the risk is easing as rates decline. We expect a gradual rebound in pre-sales, and lower financing costs for developers, and increased transaction activity for real estate lenders this year.
• Based on our stress tests presented later in this report, we believe BCF can comfortably maintain its $0.80/share annual dividend this year.

Price and Volume (1-year)

Portfolio Details 

Mortgage advancements were up 214% YoY; repayments were up 87% YoY. Mortgage receivables (net) were up 20% QoQ, to a record-high of $52M 

First mortgages increased 0.6 pp QoQ to 98.8%, implying lower risk. Increased exposure to AB, and decreased exposure to B.C. as management is observing more attractive opportunities, and fewer competitors in AB  

Remains focused on single-family units (construction). The average mortgage size was up 13%, implying higher risk. LTV remained unchanged 

The average lending rate declined, primarily due to the BoC’s rate cuts. Stage three mortgages (impaired) decreased 33% QoQ to 2.6% of mortgages. In summary, we believe the portfolio’s risk profile decreased, driven by higher first mortgages, and fewer stage three mortgages

Financials

Revenue was up 50% YoY, beating our estimate by 15%, due to higher than anticipated mortgage advancements. EPS was up 13% YoY, beating our estimate by 2%, though growth was tempered by interest expenses from the recent bond financing

Dividends remained unchanged at $0.26/share, or 11% of shareholders’ equity 

Dividends for Class A investors remained unchanged at $0.80/share, implying a yield of 9.13%. 

Debt/capital increased 6 pp to 20%, due to higher lending activity. In Q1, the company raised an additional $4.75M as part of its ongoing $50M unsecured bond financing, bringing the total raised to $11.75M by quarter-end

FRC’s Projections and Valuation

As Q1 exceeded expectations, we are raising our 2025 EPS estimate by 2% to $1.06/share.  We believe the company can comfortably distribute its stated $0.80/share annual dividend

We note that BCF should be able to distribute $0.80/share even if lending rates decline by 2%, and loan loss provisions increase by 200%

On average, MICs and banks are expected to report 4.2% revenue growth this year vs 0.9% in 2024. Sector multiples are up 5% since our previous report in April 2025

As a result, our fair value estimate increased from $9.92 to $10.20/share

We are reiterating our BUY rating, and raising our fair value estimate from $9.92 to $10.20/share, implying an expected return of 26% (including dividends) in the next 12 months. BCF delivered record Q1 revenue and EPS, driven by strong loan growth, and a healthier mortgage portfolio with fewer impaired loans. Despite ongoing economic challenges, and a slowing housing market, we believe the MIC’s increased focus on first mortgages has lowered risk. With potential rate cuts on the horizon, BCF is well-positioned to maintain its 9.13% yield this year. 

Risks 

Maintaining our risk rating of 3

The following, we believe, are the key risks of the company:

• Market concentration: BCF’s primary market is residential construction
• Allows borrowers to defer interest payments till maturity
• Credit and collateral 
• Timely deployment of capital is critical
• Distributions are not guaranteed
• Investments in mortgages are typically affected by macroeconomic conditions, and local real estate markets
• The company uses leverage, increasing the fund’s exposure to negative events
• Default rates can rise during recessions

APPENDIX