Posts Record Q3; Impairment Growth Signals Caution

• Q3 was another record quarter. Mortgage advancements rose 68% YoY to $20M, the highest Q3 on record. Net receivables grew 8% QoQ to $52M, also a record.
• Revenue grew 47% YoY and EPS rose 12% YoY, with both beating our estimates by 1% due to higher-than-anticipated lending rates.

• Annual dividend remained $0.80/share, an 8.26% yield.
• The MIC remains focused on residential construction mortgages. Stage three (impaired) mortgages rose 313% QoQ to 11% of mortgage receivables vs 5-10% for comparables. However, allowances were reduced 32 bp to 3.09% of receivables, signaling that management does not anticipate additional losses. That said, we remain cautious and will closely track portfolio quality in the coming quarters; we have raised our loan-loss provision estimates.
• Since June 2024, the BoC has cut rates nine times (275 bps) to 2.25%, with the possibility of one more cut in early 2026 amid tepid GDP growth, soft consumer confidence, elevated trade tensions, and high unemployment. While mortgage delinquencies remain a concern, we believe easing rates should support a rebound in pre-sales, lower developer financing costs, and higher transaction volumes for real estate lenders next year.
• As noted in our prior reports, declining rate environments have historically boosted MIC and financial stocks. However, in the current falling-rate environment, MICs have lagged financials (flat YoY vs. +23% YoY) and are tracking REITs, given both their exposure to residential real estate, which, as mentioned above, is undergoing a slow phase with negative sentiment. With residential real estate poised for recovery in 2026, we expect MIC stocks to experience an upswing.
• With Q3 results beating forecasts, we are raising full-year revenue and EPS estimates. Stress tests indicate BCF can comfortably sustain its $0.80/share annual dividend.

Price and Volume (1-year)

* Builders Capital has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions. 

Portfolio Update

Mortgage advancements increased 68% YoY to $20M, the highest Q3 on record

As a result, receivables (net) grew 8% QoQ to $52M

First mortgages fell 2 pp, implying slightly higher risk, but remain above the five-year average of 94%, with the portfolio still concentrated in AB and B.C.

Remains focused on single-family units (construction

The average mortgage size fell 5% QoQ to $0.95M vs. the five-year average of $0.99M

LTV rose 2 pp to 78%, above the five-year average of 75%, indicating higher risk

Turnover of a few low interest loans pushed BCF’s average lending rate up 0.5 pp, despite declining market rates

Source: FRC / Company

Stage three mortgages (impaired) increased 313% QoQ to 11% of mortgages

However, allowances  fell 32 bp to 3.09% of receivables, indicating management does not expect incremental losses 

*Red (green) indicates an increase (decrease) in risk level.

Source: FRC

In summary, we believe the portfolio’s risk profile has increased, with one green and four red signals

Financials

Q3 revenue rose 47% YoY, driven by higher receivables

EPS increased 12% YoY

Both revenue and EPS beat our estimates by 1%, driven by higher-than-expected lending rates

Source: FRC / Company

Dividends remained unchanged at 11% of shareholders’ equity 

*Yields were calculated based on the average share price for the given time period.

Note: Class A non-voting common shares are publicly listed, while Class B non-voting common shares are held by management and private investors. In terms of dividend distribution, Class A shares (public investors) rank first, followed by Class B shares. Class A shares will be paid $0.80 per share, before dividends are paid on Class B shares.

Dividends for Class A investors remained unchanged at $0.80/share, implying a yield of 8.26%

Source: FRC / Company

Debt-to-capital increased 6 pp to 20%, driven by higher mortgage advancements

At the end of Q3, BCF had raised $12M of an ongoing $50M unsecured bond financing

FRC’s Projections and Valuation

We are raising our 2025 EPS estimate due to higher-than-anticipated lending rates, partially offset by higher loan loss provisions

Source: FRC

 We believe the MIC can comfortably distribute its stated $0.80/share annual dividend

Source: S&P Capital IQ / FRC

On average, MICs and banks are expected to report 6% revenue growth this year vs 2% in 2024

Since September 2025, MIC multiples are down 4%

As a result, our fair value estimate dropped to $10.59/share from $10.93/share, even with a higher EPS forecast

We are reiterating our BUY rating, and adjusting our fair value estimate from $10. 93 to $ 10.59 /share, implying an expected return of 18 % (including dividends) in the next 12 months.

Q3 was a record quarter for BCF, with strong growth in mortgage advancements, net receivables, revenue, and EPS, while the $0.80/share dividend remains well-supported. Despite rising stage three mortgages, easing rates and a potential residential real estate recovery in 2026 suggest positive momentum for MIC stocks.

Risks

• 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

Maintaining our risk rating of 3

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