MCAN Financial Group’s Strong Shareholder Support Amid Challenging Markets

MCAN Financial Group (TSX: MKP), Canada’s largest federally regulated Mortgage Investment Corporation (MIC), has announced the final voting results of its 2025 Annual and Special Meeting of Shareholders, revealing robust support for its leadership and strategic direction. Despite a challenging first quarter marked by declining net income and macroeconomic uncertainty, the company’s high director approval rates underscore investor confidence in its ability to navigate risks and sustain growth.

Voting Results Highlight Strong Shareholder Alignment

All director nominees secured overwhelming approval, with withhold rates remaining exceptionally low. For example:
- Derek G. Sutherland (CEO) received 99.42% of votes cast in favor, with only 0.58% withheld.
- Bonnie Agostinho garnered 98.91% approval, while Brian W. Chu and Gaelen J. Morphet each exceeded 99% support.

The average withhold rate across all eight nominees was 0.66%, slightly higher than the 0.17%–1.02% range seen in 2024 but still negligible. This outcome reflects continued trust in MCAN’s management team, which has prioritized capital preservation and portfolio diversification amid rising credit risks.

Financial Performance: Resilience Amid Headwinds

While voting results signal confidence, MCAN’s Q1 2025 financials highlight the challenges it faces. Net income fell to $16.6 million ($0.43 per share), down 28% year-over-year, driven by $3.1 million in provisions for credit losses—a stark contrast to the $0.6 million recovery in Q1 2024.

Despite the decline, key metrics remain robust:
- Capital ratios stayed well within regulatory limits, with CET1 at 19.12% and a leverage ratio of 9.64%, reflecting prudent risk management.
- Total assets grew 1.8% to $5.4 billion, fueled by a 5.1% rise in non-securitized assets (e.g., uninsured residential mortgages and construction loans).

Strategic Priorities: Diversification and Liquidity

MCAN is doubling down on growth in uninsured residential mortgages (+2% to $1.1 billion) and construction loans (+2% to $1.1 billion), which now account for 60% of non-securitized assets. This shift aims to reduce reliance on insured mortgages, which saw originations drop 75% year-over-year to $53 million due to market volatility.

The company also emphasized hedging strategies to manage interest rate risks and maintained dividend stability, declaring a $0.41 per share payout for Q2 2025. However, participation in its Dividend Reinvestment Plan (DRIP) fell to 15% from 29% in Q1 2024, signaling cautious investor sentiment.

Risks and Uncertainties

MCAN faces significant headwinds:
- Economic and geopolitical risks: Rising credit provisions reflect concerns over housing market slowdowns and global conflicts.
- Funding challenges: The ATM Program, which raised only $1.1 million in Q1 2025 (vs. $8.2 million in Q1 2024), highlights reduced investor appetite for new equity issuance.

Conclusion: A Resilient Play for Defensive Investors

MCAN’s strong shareholder support and fortress-like capital position position it to weather current macroeconomic storms. While net income declined, its uninsured mortgage portfolio’s average LTV of 64.3% and 9.64% leverage ratio demonstrate prudent risk management.

Investors should monitor two critical metrics:
1. Credit quality trends: The arrears total mortgage ratio rose to 2.24%, but impaired loans remain manageable at 2.31% of non-securitized mortgages.
2. Funding flexibility: With $19.9 million remaining under its ATM Program, MCAN retains tools to bolster liquidity if needed.

In a sector fraught with uncertainty, MCAN’s disciplined strategy and shareholder alignment make it a compelling pick for investors seeking stability in the mortgage space. While near-term earnings may remain pressured, its fortress balance sheet and growth initiatives in resilient lending segments suggest long-term resilience.

Final Take: Hold for investors focused on dividend stability and capital preservation, but keep an eye on housing market trends and geopolitical developments.