Q2 2026 Timbercreek Financial Corp Earnings Call

Speaker #1: The second quarter reflected steady execution against our key priorities: we maintained stable distributable income, delivered strong origination activity, and continued to reduce our Stage 2 loan exposure.

Speaker #1: During the quarter, we advanced approximately $154 million, reflecting positive market conditions. Net investment income for the quarter was solid at $24.9 million, and we generated distributable income of $14.6 million, or $0.18 per share, resulting in a payout ratio of 97.7%.

Speaker #1: We believe our current earnings profile continues to support the monthly dividend, while providing opportunities for further improvement as capital tied up in staged positions continues to be redeployed into performing investments.

Speaker #1: At the same time, we continue to execute on several important asset management initiatives and made meaningful progress reducing our Stage loan exposure through a combination of resolutions, sale processes, and other asset-specific strategies.

Speaker #1: Overall, we're very encouraged by the underlying activity levels in the business, the stability of distributable income, and the progress we're making against our key priorities for 2026.

Speaker #1: With that, I'll turn the call over to Scott to walk through the portfolio in more detail. Scott?

Speaker #2: Thanks, Blair, and good afternoon, everyone. I'll spend a few minutes reviewing portfolio composition and performance, as well as asset management activity related to stage loans, and then hand things over to Jeff to discuss origination trends and the lending environment.

Speaker #2: At a high level, the portfolio remains well aligned with our long-standing investment strategy and risk framework. At quarter-end, just over 81% of the portfolio was invested in cash-flowing properties, and multi-residential assets represented approximately 60% of the investments.

Speaker #2: The emphasis on income-producing real estate has been a core element of our strategy through multiple market cycles and remains unchanged today. At quarter-end, first mortgages represented approximately 94% of investments.

Speaker #2: The weighted average loan-to-value was 68.3%. The weighted average interest rate for the quarter was 7.6%, compared with 7.7% in Q1 and 8.6% a year ago.

Speaker #2: The decline primarily reflects lower benchmark rates and the repayment of certain higher-rate investments. Importantly, approximately 90% of the portfolio remains invested in floating-rate loans with contractual floors, and substantially all of those loans are currently operating at their floor rates.

Speaker #2: This continues to provide meaningful support to portfolio yields despite the lower-rate environment. While lower benchmark rates have reduced portfolio yields over the past year, the earnings impact has been moderated by increased syndication activity, healthy fee generation, and lower borrowing costs.

Speaker #2: Together, these factors continue to support the portfolio's overall earnings profile and distributable income generation. The portfolio remains well diversified by geography and asset type, 97% of invested capital remains concentrated in Ontario, BC, Quebec, and Alberta, with a focus on major urban markets that benefit from stronger liquidity.

Speaker #2: As Blair mentioned, we continue to make meaningful progress on our remaining Stage 2 and Stage 3 positions during the quarter. Since year-end, Stage 3 balances have declined by more than 51%, reflecting the successful execution of multiple asset-specific resolution strategies and completed exits.

Speaker #2: During the quarter, we resolved two Calgary stage 3 positions through receiver-led sales processes, and continue advancing several of our larger remaining files. In terms of expected credit losses during the quarter, a significant portion was related to the Vancouver retail portfolio and reflects the carrying costs associated with positioning the asset for sale and advancing the exit strategy.

Speaker #2: We also updated valuation assumptions on certain Victoria assets to reflect current transaction activity and evolving sale processes. While these adjustments impacted earnings in the quarter, they are occurring alongside continued progress on the underlying exit strategies.

Speaker #2: Although additional work remains, we believe we are now in the later stages of resolving many of the larger stage positions that have weighed on the portfolio in recent years.

Speaker #2: As these assets are resolved and capital is recycled into new mortgage investments, we expect an increasing proportion of the portfolio to contribute to earnings and distributable income generation.

Speaker #2: At this point, I'll turn things over to Jeff.

Speaker #1: Thanks, Scott, and good afternoon, everyone. Commercial real estate activity continued to improve through the second quarter, supported by increasing transaction volumes, improving financing market stability, and healthy borrower demand across our target markets.

Speaker #1: We advanced approximately $154 million during the quarter, including 11 new mortgage investments and additional advances on existing relationships. Originations remained concentrated within our core lending categories, particularly multi-residential opportunities, with attractive risk-adjusted returns.

Speaker #1: Year to date, we've advanced approximately $315 million through 24 new investments, representing a meaningful increase over the same period last year. Repayments totaled approximately $250 million during the quarter.

Speaker #1: While elevated, this activity was consistent with our expectations and reflects the healthy turnover characteristics of a transitional lending portfolio. More importantly, these repayments provide meaningful capacity to recycle capital into new opportunities, while generating fee income that supports distributable income.

Speaker #1: Additionally, I would note that the quarter-end portfolio balance is a point-in-time measure that excludes an additional $100 million net, which was subsequently deployed in early July.

Speaker #1: This further highlights the robust originations activity through the first half, with the resulting current portfolio balance of approximately $1.24 billion. Syndication activity also remained strong during the quarter, continuing to support balance sheet capacity while contributing to earnings and distributable income.

Speaker #1: In summary, we continue to see an active flow of opportunities across our core markets and believe conditions remain supportive of robust origination activity through the balance of the year.

Speaker #1: I'll now turn the call over to Tracy.

Speaker #3: Thanks, Jeff, and good afternoon, everyone. Net investment income on financial assets measured at amortized cost totaled $24.9 million during Q2, essentially unchanged from both the prior quarter and the comparative period.

Speaker #3: Portfolio growth, increased fee generation, and lower funding costs largely offset the impact of lower benchmark interest rates. Distributable income totaled $14.6 million, or $0.18 per share, compared to $14.5 million in the first quarter.

Speaker #3: The payout ratio remained within our targeted range at 97.7%. Net income and comprehensive income totaled $7.8 million for the quarter, compared to $12.4 million in the prior period.

Speaker #3: As Scott discussed, the increase in expected credit losses reflects updated assumptions related to certain Stage 2 and Stage 3 positions and capital advances as part of ongoing resolution strategies.

Speaker #3: Importantly, net income before expected credit losses remained stable at $14.5 million, or $0.18 per share, compared with $14.1 million, or $0.17 per share, in Q2 of last year.

Speaker #3: We believe this provides a useful view of the underlying earning capacity of the portfolio as staged loan resolutions continue to progress. This slide highlights the stability of our distributable income over time, despite fluctuations in IFRS earnings resulting from the timing of credit provisions and valuation adjustments.

Speaker #3: As we've consistently said, distributable income remains the best measure of the recurring cash-generating ability of the portfolio, and its capacity to support the monthly dividend.

Speaker #3: Over the medium term, quarterly distributable income per share has generally ranged between $0.17 and $0.21, averaging approximately $0.19 per share. The consistency of our distributable income profile reflects both the underlying earning power of the portfolio and the benefits of active capital deployment across the business.

Speaker #3: Looking quickly at the balance sheet, net mortgage investments totaled approximately $1.14 billion at quarter-end, an increase of approximately $30 million year-over-year.

Speaker #3: Credit utilization increased during the quarter, reflecting the pace of origination activity. At the same time, the company continued to generate liquidity through repayments, syndication activity, and staged asset resolutions.

Speaker #3: Supporting the ongoing recycling of capital into new lending opportunities. With an active pipeline and several resolution initiatives continuing to progress, we believe we are well positioned to redeploy capital into opportunities that meet our risk and return objectives.

Speaker #3: With that, I'll turn the call back to Scott for closing remarks.

Speaker #2: Thanks, Tracy. As we enter the second half of 2026, our focus remains on executing against the same priorities that drove results in the first half of the year.

Speaker #2: Disciplined originations, staged loan resolutions, and redeploying capital into investments that enhance earnings generation. The progress achieved on staged loan resolutions over the past several quarters is creating an increasingly attractive opportunity set for capital redeployment.

Speaker #2: With more than $314 million of originations completed year to date, and an active near-term pipeline, we continue to see opportunities to put recovered capital back to work across our core lending categories.

Speaker #2: That concludes our prepared remarks. We'll now open the call to questions.

Speaker #4: We will now take any analyst questions. If you have a question, please click the raise hand button at the bottom right of your screen. The first question comes from Steven Boland.

Speaker #4: Steven, your line is open. Please go ahead.

Speaker #5: Hi. Can you just talk about obviously, multi-unit is your kind of bread and butter, but can you just talk about the environment for some of the other segments?

Speaker #5: The market, as you mentioned, was stabilized. But I'm just curious which ones are leading and which ones are trailing, if you don't mind.

Speaker #1: Yeah. No, listen, as Jeff—hi. Happy to answer that question. I mean, yeah, obviously, the multi-risk space continues to kind of be a primary focus of ours.

Speaker #1: As a MIC, obviously, and given the historical stability in this market—irrespective of some softness in the broader residential markets over the last period of time—we do continue to see that as a primary focus, for sure.

Speaker #1: Additionally, we are starting to see some broader activity—again, somewhat of a broader indication of improving transactional and market activity outside of multi-residential. And industrial would kind of be the second primary class that I think we've been speaking about over the last number of quarters as the other primary food group for us to this point in time.

Speaker #1: But listen, of late, we are starting to see—I mean, retail continues to be an opportunity that's out there. We're looking at opportunities; they get bid pretty competitively, so again, it's one-offs on those, and we don't expect to do a ton of that business, but we are seeing some increased trading activity in the retail space.

Speaker #1: And then we are also starting to see more office opportunities. Again, I think we're looking at those cautiously out of the gate, for sure.

Speaker #1: But the frequency of office transactions, and the opportunities to consider financing them, has been more prevalent—certainly over the last quarter—than we've seen in the months or years prior to that point.

Speaker #1: So, that's again, I think, a broader indication of where transaction activity is occurring. We're seeing activity in the student residence space, in the retirement home space, some lesser activity—though it's a product we like—in the self-storage space, and the manufactured housing space.

Speaker #1: Again, that tends to be—these are smaller, one-off opportunities, but again, pretty historically stable. Manufactured housing, in particular, is much more aligned with residential generally.

Speaker #1: But again, it is a broadening scope of asset classes that we're starting to see more so than has been the case in prior quarters, or the last year or two.

Speaker #5: Okay, just my second question would be: in terms of repayments, is this typically—I know there's seasonality—is this typically, just for modeling purposes, does this tend to be the high watermark?

Speaker #5: Q2?

Speaker #1: Yeah. I don't know if it's—I mean, I think it's in line with what we would typically expect, and I don't know if it's necessarily a high watermark in Q2, per se.

Speaker #1: I think it is generally fairly consistent throughout the year. Again, it will ebb and flow a little bit in and around that range, but I don't think it's an overly seasonal thing.

Speaker #1: I think origination activity tends to be more seasonal than repayment activity, and frankly, for the first half, we've been very, very pleased with the levels of activity.

Speaker #1: I'd say it's been higher than what seasonally would be the case for the first half, and the second half generally, for us, is where we do the majority of our business, and we continue to expect that to be the case.

Speaker #1: The repayments, I think, are a little bit more consistent throughout the year.

Speaker #2: Yeah, I'll add to that. Scott, I'm often—actually, we see Q4 as a major repayment. So this was a little high for Q2, but exactly to Jeff's point, for us, repayments sort of create the capacity for loans.

Speaker #2: So sometimes it is a little random. Some projects get completed sooner, or there's a moment in the market when borrowers feel they could refinance.

Speaker #2: We normally get sort of 60 days' heads-up when that's happening, right? And that helps us create the runway for future loans. So, as an example, in Q2 there were significant repayments, and so I can tell you in July, we had significant fundings, right?

Speaker #2: So it's just kind of sometimes, just sort of, one falls after the other.

Speaker #5: That's all I had. Thanks.

Speaker #4: Next call comes from Graham. Graham, your line is open. Please go ahead.

Speaker #6: Hey, this is Gabriel from Bolten. It's nice to see that disconnection pick up. Obviously, it's a higher return for Timber. I'm just wondering, can you talk about how the team's thinking about this part of the book a bit?

Speaker #5: Sorry, who's speaking? We couldn't quite hear you there.

Speaker #6: Sorry. Can you hear me now?

Speaker #4: Sorry. This is Gabriel from Bolten.

Speaker #5: All right. Hey, Gabriel, sorry—I couldn't hear you there. Hi. Would you mind just repeating that question?

Speaker #6: Yeah, sorry about that. Hopefully, this is better.

Speaker #5: Yeah, that is better. Yeah, thanks.

Speaker #6: Okay, perfect. Yeah, so I was thinking about the syndication. It's ticked up in the quarter—obviously, higher return. I'm just wondering how you're thinking about this part of the book.

Speaker #1: Yeah. So, listen, I think syndications, for us—we think about it, we utilize it for a handful of reasons, right? I mean, I think it's a combination of managing exposure on a given deal.

Speaker #1: It's secondarily—I mean, we utilize it to create incremental origination capacity, right? So, obviously, as we syndicate an A-note and hold a B-note, that capital can be deployed into another opportunity.

Speaker #1: And then, obviously, it really is a yield enhancement strategy as well, right? So our ability to manage yield and drive optimal yield through syndication is another valuable tool from that standpoint.

Speaker #1: Generally, with syndication, we tend to syndicate the larger transactions. At the same time, I think of late, and certainly as we think about ways to drive incremental yield into the book, we are looking at opportunities to syndicate smaller loans than we might typically syndicate in order to drive incremental yield.

Speaker #1: And again, incremental originations capacity. And the market, from a syndication standpoint—third-party institutional syndication partners—the demand is substantial. I'd say it's probably since Q3, Q4 of last year where demand really started to increase, and it has remained at elevated levels.

Speaker #1: We have lots of interest, have new partners reaching out, looking to work with us and partner with us on transactions. So it does give us meaningful incremental capacity to continue to drive originations where the flow supports it, which has been the case for the last couple of quarters.

Speaker #5: Yeah, Gabriel, it's Blair. I'll just maybe clarify one point. From a yield enhancement perspective, one of the ways it's helpful, as I think you're getting at, is the detachment point for the A-note can be higher.

Speaker #5: So, the B-note, the return on that B-note—the equity yield on that—is higher than it might be if we use the credit facility.

Speaker #5: We're only going to do that when the credit facility is effectively fully utilized. So when you see a larger syndication position on our balance sheet, it's certainly a leading indicator of things going well.

Speaker #6: Right. Yeah. And then your originations are strong—we can see that. So I'm just wondering how you're thinking about this back half, and then also, I guess, the credit quality as well.

Speaker #6: These recently originated loans—how are they comparing versus the historical averages?

Speaker #1: Yeah. So, the back half, we're expecting, is going to play out as, generally speaking, it does, being outweighed relative to the first half. Pipeline activity remains strong.

Speaker #1: Again, since the end of the quarter, we've continued to close on significant transactions and have a really strong pipeline through August and September. At this point, we continue to originate month, two months, three months out, depending on the specific transaction.

Speaker #1: So we're feeling very optimistic about the balance of the year and have a current pipeline to support that. In general, we feel very good about, call it, the vintage of loans that we've been originating over the past handful of years, and it continues to be. Again, in a market where transaction activity is increasing, that's partly driven by the buyers and the sellers being able to sort of meet on pricing, and obviously pricing has softened such that we're landing in positions at lower bases. We're feeling good about whatever strategic plan might relate to that particular asset and the probability for us to successfully exit.

Speaker #1: And participate in the value creation that occurs.

Speaker #5: Yeah, it's a good question, Gabriel. I mean, understandably, people are interested to hear how we're progressing with the staged loans, but if you take that, whatever, $200 million-ish, and put that aside and talk about the other $1.1 billion, that part of the portfolio is healthier than—well, it is in very good shape.

Speaker #5: And on an absolute basis and relative to some of those that we compete with. So that's it's important to kind of point that out as well.

Speaker #6: Yeah, it just seems like the business is going well and things are on track. Maybe I'll just touch on one more, continuing on this origination line, and then I'll wrap it up with that.

Speaker #6: Are you seeing any indirect origination benefits now that you've had the CMHC activity at TMSI for a while? I wanted to touch on that.

Speaker #1: Yeah, no, listen, absolutely. I mean, I think the CMHC business has introduced us to a new subset of borrowers that we didn't necessarily have prior relationships with.

Speaker #1: I mean, borrowers who are primarily CMHC borrowers tend to obviously deal with CMHC lenders, and where and when they have other needs, they tend to go back to that primary lender for those other products that they need.

Speaker #1: And now that we do have the CMHC product, it is again initiating conversations and resulting in new deal flow from those groups, obviously from a CMHC standpoint. But to your question, for the interim facilities, fundamentally, they also do need again—whether it's the project isn't quite ready to go to CMHC, or any combination of interim potential needs.

Speaker #1: They now have—we've had conversations with them about the CMHC product, and now they're having conversations with us about the other products that we offer.

Speaker #1: So, it's definitely been—there have been indirect benefits from that program for the benefit of TF, as was part of what was intended here.

Speaker #1: In launching that program.

Speaker #6: Perfect. Appreciate it. Thank you very much.

Speaker #4: The next call comes from Graham. Graham, your line is open. Please go ahead.

Speaker #6: Hi, can you hear me now?

Speaker #7: Hey, Graham.

Speaker #1: Yeah.

Speaker #6: Great. Maybe we could just start with the asset—the GTA improved land mortgage—that was moved to fair value through profit and loss.

Speaker #6: Can you just explain, I guess, why that one moves to fair value profit or loss and doesn't sit in your mortgage receivable portfolio?

Speaker #4: Yeah, sure, Tracy. So, that one does have a bit of an equity component at the end, in terms of structuring that deal and the ultimate sale.

Speaker #4: So, because of that, it moves into fair value through profit and loss. Only deals that are solely payments of principal and interest remain within our amortized cost book, and any time there's any sort of equity characteristic to the deals, they move to fair value through profit and loss.

Speaker #6: Okay, that makes sense. You made some good progress on stage three mortgages this quarter. There's still about 20% of your portfolio in stage two and three.

Speaker #6: Should we expect PCLs to remain elevated over the near term as you sort of work to bring that stage two, stage three mix down back towards that sort of historical 7 to 10 percent range?

Speaker #5: I mean, I guess, as we—it's Blair, Graham—as we talked about yesterday, we have visibility into the resolution of, frankly, all of them that are remaining.

Speaker #5: To get back down to that, there will always be a few that cycle through, as we've talked about before, and that should be kind of the baseline of that 7% to 9%, or whatever the number may be in that neighborhood.

Speaker #5: For the other call, it's 12%. Yeah, we certainly expect those to continue to be resolved. And stand kind of behind our guidance that the expectation is most, if not all, will have much better visibility to resolution by the end of the year or be resolved.

Speaker #5: So there's this—we're looking at this sort of being measured in quarters, obviously, not years, to kind of be back in a position to be talking about growth rather than stage loans.

Speaker #6: Okay. So your message is that you feel comfortable with the valuations where they're currently marked—is that correct?

Speaker #5: Oh, absolutely. Today, of course. I mean, if we weren't comfortable with them, we wouldn't be carrying them there. As we've talked about before, they're all a little bit different.

Speaker #5: Sometimes it's a sponsor issue, sometimes it's an asset issue, and sometimes it's at a higher level. We continue to focus on full recoveries. In some circumstances, as we've talked about in the past with specific examples, the math kind of tells you that a bird in the hand is sometimes better than two in the bush if you're able to turn around and redeploy whatever that is quickly.

Speaker #5: So in yield, generate whatever, a 12% equity yield on that. So we continue to focus on full recoveries. Will we get full recoveries?

Speaker #5: We'll see. But they're going to be resolved, one way or the other, soon.

Speaker #6: Okay, fair. I thought that was an encouraging data point. You said the portfolio is back up to $1.24 billion as of July. It looked like your leverage was 48% as of the end of Q2.

Speaker #6: So, what's the implied leverage in the business that's sort of sitting behind 1.24, sort of net portfolio today?

Speaker #4: It's similar. So, it carries again, just as the book has grown, and on a pro-rata basis, the leverage increases. So, we're still hovering around that mark.

Speaker #4: And then obviously, that 1.24 is a net number, but we have this indication ability as well, right, to continue making that—I'm not going to move off that leverage point.

Speaker #6: Okay. And then my last question—just, the rental income was $1.8 million in the quarter. It was, I think, $1 million last quarter. What's the reasonable run rate for that line?

Speaker #4: That would be more of one-time items that are going through there. So, we had an investment in condos that are closing, and it’s been a great investment, but you shouldn’t really—there’ll be a little bit more, but not the same run rate.

Speaker #6: Okay.

Speaker #5: But we'll be replaced, obviously, when that capital is redeployed into mortgages, of course.

Speaker #6: Right. Yeah. Okay, that's it for me. Thank you.

Speaker #5: Thanks, Graham.

Speaker #4: The next question comes from Jamie. Jamie, your line is open. Please go ahead.

Speaker #2: Yeah. Can you hear me?

Speaker #5: Yes.

Speaker #2: Okay, sorry, I had some mic difficulties. Just one quick one, actually. Around the lender fees on new and renewed mortgages, it seems to be lower than what we’ve seen in years past.

Speaker #2: Oh, consistent with recent quarters, but just lower than years past. So I just wonder if you can give us a little more guidance or color into that result, and what it looks like going forward on lender fees.

Speaker #4: Yeah, I think you should continue to expect it to remain in the range that we've been reporting this year.

Speaker #5: I don't know why it would have been. I mean, obviously, it ties in with originations, right? So the fees as a percentage of principal advanced are pretty consistent.

Speaker #5: So, as Jeff said, if we're going to do whatever the number is—I'm not sure—are we going to originate more than last year? Same as last year?

Speaker #5: I mean, but it's the same, right? So, I mean, it should—was there any last year? Maybe there was.

Speaker #2: I might be a little closer to it. I would just say, Scott, I actually agree with you. It was a little lower in Q2, but that comes back to the timing of the repayments and the new loans.

Speaker #2: So, we had some loans in June that slipped to early July, Jim. So those, so Q3 would be a little higher than normal, I would say.

Speaker #2: So I would say overall, for the full year, I think we're actually tracking for—I'm expecting fees to be higher than last year's. I see what you're looking at, though.

Speaker #2: The Q2 did come in a little low, and we did have about—I want to say it's about $80 million worth of deals—that flipped into July.

Speaker #2: Normally, Q3 is a little lower for us. This year, Q3 is going to be a little higher, and Q2 is a little lower. That's a fair observation.

Speaker #3: Okay. Thank you.

Speaker #4: There are no other questions at this time, so I'll turn the meeting back to Blair for closing remarks.

Speaker #5: Great, thank you. Thanks, everyone, for joining us today. As usual, we look forward to speaking to you again in about 90 days. And, of course, if you have any questions in the interim, please do reach out.