Record Results / Gradual Housing Recovery Could Lift MIC Stocks

• 2025 Results: Revenue and EPS were broadly in line with our estimates, with small beats of 0.81% and 1.67%, respectively. Revenue rose 47% YoY, and EPS increased 15% YoY, both reaching record levels, driven by robust lending activity and higher lending rates. Loan advances rose 52% YoY, driving net mortgages outstanding up 13% YoY, to $48M.
• Macroeconomic backdrop: Following nine rate cuts totaling 275 bps since June 2024 (bringing the policy rate to 2.25%), the Bank of Canada has held rates steady over the past four meetings. We expect rates to remain unchanged through 2026, as unemployment levels have eased since peaking in September 2025, and inflation remains moderate. Supported by lower rates, we believe the sector entered 2026 with lower default risk, and improving mortgage origination momentum. That said, development and construction activity (BCF’s target market) is expected to remain sluggish, weighed down by lower immigration and international student inflows, slower GDP growth, geopolitical uncertainty, and ongoing U.S. trade tensions.

• Sector trends: We are seeing a notable increase in M&A activity among private MICs; several managers are pursuing acquisitions to scale platforms, and realize cost synergies in administration, operations, and staffing. While BCF has not indicated any acquisition plans, we would not be surprised to see either a strategic transaction, or a potential bid from a larger player.
• Market positioning: Historically, declining rates have boosted MICs and financial stocks. In the past 12 months, MICs have lagged financials (+7% vs +41%), and are tracking REITs (+8%) due to shared exposure to a soft residential real estate market. We believe a gradual rebound in residential real estate in 2026 will support MIC stocks this year.
• 2026 outlook: With Q4 results broadly in line with expectations, we are making no material changes to our 2026 estimates. Our stress testing indicates 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. All figures are in C$. 

Mortgage advancements increased 52% YoY to $65M, an all-time high

Portfolio  Update

Repayments were up 100% YoY, indicating higher turnover

Net receivables grew 13% YoY, to $48M

Exposure to first mortgages remained relatively flat at 98% vs a five-year average of 94%, indicating lower risk levels

Source: FRC / Company

Improved portfolio diversification by trimming exposure to Calgary and B.C., and broadening allocation across other regions in AB

Remains focused on single-family units (construction) 

Average mortgage size remained flat at ~$900K vs. the five-year average of $1.0M

Source: FRC / Company

LTV rose 2.6 pp YoY to 79%, above the five-year average of 76%, indicating higher risk

Even with declining market rates, BCF’s lending rates increased as new mortgages were priced above existing ones

Stage three (impaired) mortgages increased 155% YoY, but declined 11% QoQ, representing 10% of total mortgages

Source: FRC / Company

However, allowances remained relatively flat at 3.14% of receivables, indicating management does not expect incremental losses

Following the rise in stage three loans in Q3, we had increased our loan loss provision forecasts; 2025 provisions rose 37% YoY to $1.03M, just 2% above our estimate

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

Source: FRC

On a YoY basis, we believe the portfolio’s risk profile has increased, driven by higher LTVs, and a rise in stage three mortgages

Financials

2025 revenue rose 47% YoY, driven by higher receivables, and lending rates

EPS increased 15% YoY

Revenue and EPS were broadly in line, with small beats of 0.81% and 1.67%, respectively, driven by higher mortgage receivables and 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 deceased 2 pp YoY to 12%, implying lower risk levels

FRC’s Projections and Valuation

As 2025 results were broadly in line with our estimates, we are not making any major changes to our 2026 forecasts

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 4% revenue growth in 2026 vs 7% in 2025, primarily driven by lower rates

Since our last report in December 2025, MIC sector multiples are up 5%

As a result, our fair value estimate increased from $10.59 to $10.89/share

We are reiterating our BUY rating, and adjusting our fair value estimate from $10.59 to $10.89/share, implying an expected return of 21% (including dividends) in the next 12 months. Overall, BCF delivered a strong 2025, with record earnings and robust loan growth. While near-term macro headwinds remain for development lending, we believe stabilizing rates, improving mortgage activity, and a potential recovery in the housing market, support a more positive near-term outlook for the stock.

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 (Average)

APPENDIX