MCAN Mortgage Corporation (MKP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I guess this is what it actually looks like to have real people instead of the screen. The last 2 years have been tough, but we got through it. Welcome to the Annual and General Meeting of Shareholders of MCAN Mortgage Corporation, where we're now operating doing business as MCAN Financial Group. My name is Derek Sutherland, and I am Chair of the Board of MCAN Mortgage. This year, our meeting is being held in person and is also accessible online by a live video, which is why we had to start at 4:30 exactly, for those of you who cannot be here in person. I'm happy to welcome all of our employees, shareholders and directors joining us in person and virtually from around the country. Joining me at the meeting in person today are Karen Weaver, our President and Chief Executive; Floriana Cipollone, Senior Vice President and Chief Financial Officer; Avish Buck, Senior Vice President and Chief Operating Officer; Carl Brown, Senior Vice President, Investments and Corporate Development; and Sylvia Pinto, our Corporate Secretary.  As in past years, we expect that the vast majority of votes have been cast in advance of the meeting by proxy through the various available channels. That said, the right to vote and participate in the meeting is very important, and we are fully supportive of such participation. Registered shareholders and duly appointed proxy holders who have not voted or wish to change their vote may vote in person by paper ballot or online by clicking on the voting icon on the virtual meeting platform. Once discussion on all business items has concluded, those participating will be provided further time to enter their votes before I declare voting closed on all resolutions. Registered shareholders and beneficial shareholders who have appointed themselves as proxy holders can submit questions any time online by clicking on the question icon. For those attending in person, we will be opening the floor for questions at the end of the meeting. A recording of the meeting will be available on MCAN's website following the meeting.  Before beginning the formal portion of the meeting, I would like to draw your attention to the advisory on the screen regarding forward-looking information that may be discussed at today's meeting. I now call the meeting to order. I will act as Chair of the meeting and Sylvia Pinto, our Corporate Secretary, will act as secretary of the meeting. I hereby appoint Pina Pacifico of Computershare Trust Company of Canada, our transfer agent, to act as scrutineer for the meeting. The Secretary has advised me that a notice calling this meeting, together with the management information circular and a form of proxy have been mailed to each intermediary and registered holder of shares of the company on the record date for the meeting as well as to our directors and our auditors.  The annual report contains the financial statements of the company for the year ended December 31, 2022, and the auditor's report thereon was mailed to all registered shareholders, except those who asked not to receive it and are those beneficial shareholders who requested a copy. The secretary has provided proof of mailing of the notice of this meeting. I direct that a copy of such notice with proof of mailing be attached to the minutes of this meeting as a schedule. The scrutineer's confirmed that a quorum is present. I direct the scrutineer's final report to be kept with the minutes of this meeting. As due notice has been given and a quorum is present, I declare that this meeting has been duly convened and constituted to transact the business for which it has been called. Please note that after the formal business is concluded and the meeting is terminated, our executive management team will address shareholders, after which there will be a question period. If you're participating online, your questions should be submitted through your phone, tablet or computer. There are 3 matters set out in the notice of this meeting to be voted on by shareholders. If you are a registered shareholder or a duly appointed proxy holder, and if you have not already done so prior to today, you'll be asked to cast your vote at the appropriate time.  We are conducting voting in person and online at today's meeting. For those present in person, paper ballots will have been distributed to you by the scrutineer at the registration desk. If you did not receive any ballots and would like to vote today, please raise your hand and the scrutineer will distribute the ballots to you. When completing each ballot, please indicate your vote by marketing an X in the appropriate space and signing and printing your name clearly where indicated. If you already voted by proxy and do not wish to change your vote, you do not need to complete a paper ballot. Remember, you are not entitled to vote by ballot if you've already completed and signed a proxy form, giving someone else the power to vote your shares unless you properly revoked your proxy. If you own shares and your shares are registered in the name of a nominee, you are also not entitled to vote by ballot unless your nominee has completed and signed a proxy expressly giving you the power to vote your shares. For those persons attending today's meeting online, you will be asked to cast your vote at the appropriate time by clicking on the voting icon on your phone, tablet or computer. A user guide with further details was distributed to shareholders with the meeting materials and is available online at MCAN's website.  Each registered shareholder or duly appointed proxy holder may vote on all matters at this meeting, in particular, matter #1, the election of directors by selecting for or withhold for all director nominees, distributing your votes equally among them or by selecting the specific for and withhold votes you wish to allocate to each director nominee. Matter number 2, the appointment of an auditor by selecting either for or withhold; and matter number 3, the Board's approach to executive compensation by selecting for or against. If you have submitted your vote prior to this meeting, you should not vote on any matters at this meeting unless you wish to change your vote. Preliminary results will be announced later in the meeting after all matters have been voted on. The first step in today's meeting is the receipt of the audited consolidated financial statements for the financial year ended December 31, 2022, together with the auditor's report thereon as included in the 2022 annual report. A copy of the annual report has been made available to shareholders, either hard copy or electronically. A copy of the annual report is also found on our website. I now place before the meeting the consolidated financial statements and report of the auditor thereon for the year ended December 31, 2022.  The next item of business is the election of directors in accordance with MCAN's bylaws and as there were no further nominations received pursuant to MCN's advanced notice provisions for nomination of directors, the Board has determined that 9 directors are to be elected at this meeting. I would ask that the nominees as directors who are present please stand as their names are called. In addition to Karen Weaver and myself, the other nominees for election as directors of the company are Bonnie Agostinho, Brian Chu, Philip Gillin, Gordon Herridge, Gaelen Morphet and not able to be present with us today are John Coke and Glenn Dore. Thank you, guys. If elected, the nominees will hold office until the close of the next annual meeting of shareholders or until their successors are elected or appointed, subject to the Trust and Loan Companies Act and the company's bylaws. Voting will occur by the way of cumulative voting, which entitles each shareholder to cast votes equal to the number of shares held by that shareholder times 9. Each shareholder may cast all their votes in favor of 1 nominee or distribute them among the nominees in any manner.  For example, a shareholder owning 100 shares could cast 900 votes in favor of one nominee or distribute 900 votes equally among all nominees, or distribute the votes in any other manner among the nominees as long as the total number of votes cast do not exceed 900. May I have a motion that the 9 persons nominated by the elected directors of MCAN Mortgage Corporation until the close of the next Annual Meeting of Shareholders or until their successors are elected or appointed.

I so move.

Thank you, Aaron. May I have a seconder?

I second the motion.

Thank you, Justin. I will now give instructions on how shareholders can vote this motion. Those in attendance can vote in respect to this motion by placing an X opposite for all nominees withhold for all nominees or by writing the number of votes you wish to distribute to each director nominee in the appropriate column opposite each nominee's name. Please sign and print your name in the space indicated on the paper ballot. Those participating virtually will be able to see the motion on their screen. If you have not already done so, please cast your vote by accessing the voting page and selecting the all for, all withhold or all for accept options and entering the number of votes you wish to distribute to each director nominee in the appropriate column opposite such nominee's name. Please press the submit vote button once completed. We will now pause for 30 seconds to allow shareholders to vote on the matter. Please hold your paper ballots until the end of the meeting, at which time the scrutineer will collect all ballots at once. Preliminary results will be announced later in the meeting after all matters have been voted on. We'll just pause for a few seconds. Thank you.  The next item for business is the appointment of auditors for the current financial year. The Audit Committee and the Board of Directors proposed that Ernst & Young LLP, chartered accountants be reappointed as auditors of the company until the close of the next Annual Meeting of Shareholders or until their successors are duly appointed. May I have a motion on this matter, please?

I so move.

Thank you, Mike. May I have a seconder?

I second the motion.

Thank you, Paul. I will now give instructions on how shareholders can vote on this motion. Those in attendance can record your vote in respect to this motion by placing an X opposite for or withhold, as the case may be, and signing and printing your name in the space indicated on the paper ballot. Those participating virtually will be able to see that motion on their screen. If you have not already done so, please cast your vote by accessing the voting page and selecting the for or withhold buttons and pressing the submit button once completed. We will now pause for a few seconds to allow shareholders to vote on this motion. Thank you.  The next item of business is the adoption of the advisory resolution on the Board's approach to executive compensation. As described in the circular, the Board believes that shareholders should have the opportunity to fully understand the objectives and principles that the Board has used in its approach to executive compensation. Shareholders are asked to vote for or against the Board's approach to executive compensation as disclosed in the circular. The form of this advisory resolution is set out on Page 10 of the circular. Adoption of the advisory resolution will require that it be passed by a majority of the votes cast. As this is an advisory resolution, the results will not be binding upon the company. However, the Board will take the results and the vote into account as appropriate when considering future executive compensation policy and programs. May I have a motion that this resolution be approved.

I so move.

Thank you, Justin. May I have a seconder?

Chairman, I second the motion.

Thank you, Mike. I will now give instructions on how the shareholders can vote this motion. Those in attendance can record your vote in respect of this motion by placing an X opposite for or against, as the case may be in signing and printing your name in the space indicated on the paper ballot. Those participating virtually will be able to see the motion on their screen. If you've not already done so, please cast your vote by accessing the voting page and selecting the for or against buttons and pressing the submit vote button once completed. We will now pause for a few seconds to allow shareholders to vote on the matter. Thank you. For those of you who have not voted on all of the resolutions, please do so now as I will shortly ask the scrutineers to collect the paper ballots and close the online polls. Can the scrutineer now collect any paper ballots and close the online polls. Just raise your hand if you have a paper ballot.  Thank you. The online polls on all motions are now closed. The scrutineer has provided a preliminary report based on proxies received prior to the meeting. The preliminary results are as follows: results of director elections. Each of the 9 nominees have been elected as Director of MCAN Mortgage Corporation with at least 99.5% of votes in favor of their election. Results of auditor vote. Ernst & Young LLP has been reappointed auditor of MCAN Mortgage Corporation with 99.7% of the votes in favor of their appointment. Results of the advisory resolution on Board's approach to executive compensation, the advisory resolution on the Board's approach to executive compensation has passed with 98.7% of the votes in favor of the resolution. I note that the company will report the detailed final voting results once the tabulation is complete after the meeting, including those votes submitted in person by paper ballot as well as those submitted online.  I adopt the preliminary report of the scrutineer and declare the 9 director nominees duly elected directors of MCAN Mortgage Corporation and each of the other matters of the business passed. I direct that the scrutineers' report be included with the minutes of this meeting. Ladies and gentlemen, your duly elected directors of MCAN Mortgage Corporation are Bonnie Agostinho, Brian Chu, John Coke, Glenn Dore, Philip Gillin, Gordon Herridge, sorry, Gaelen Morphet, Derek Sutherland and Karen Weaver. As there is no other business that may properly be brought before this meeting, this concludes the formal business of the meeting. Thank you all for participating. May I please have a motion that this meeting be concluded.

I so move.

Thank you, Paul. May I have a seconder?

So Chairman, I second motion.

Thank you, Aaron. Thank you. I now declare the formal business of the 2023 Annual General Meeting of Shareholders of MCAN Mortgage Corporation at an end. I would now like to ask Karen Weaver, MCAN's President and Chief Executive Officer; and Floriana Cipollone, MCAN Senior Vice President and Chief Financial Officer, to report on MCAN's 2022 year-end operating results and 2023 outlook. Avish Buck, Carl Brown and Floriana Cipollone will then report on the company's business operations. If you are participating online and have any questions, you may submit them by clicking on the question icon at any time. Please include your e-mail address so we can contact you should we not get to your question at the meeting. Floriana will then read out any questions we receive. For those shareholders present in person, we will open the floor to questions following management's presentation and just step up to the mics in the middle of the aisle here. Now over to you, Karen.

Good afternoon, everyone. Thank you, Derek. Thank you Board members, the team members and the guests. It was last year at the AGM that we introduced to you our new brand identities. These brand identities reflect the strategic components of the company and what makes up MCAN. Today, we'll share more about our business with you and how along with our collaborative culture and our very strong client and partner relationships, we actually execute on our strategy. So what exactly is our business? We like to think of ourselves as investing in Canadian communities. And we do this through 5 different investment activities. First, we have our mortgages on residential homes, which provide opportunities for Canadians to realize on their dreams. We have funding for residential construction for experienced builders to provide new homes in Canada. We have our remarketable securities portfolio, which historically provides enhanced long-term returns. We have our nonmarketable securities which comprises our investments in loan funds and real estate funds primarily focused on residential projects. And lastly and importantly, we have a partial ownership of MCAN who is such a great partner to us in several key areas of our business.  So when you invest in MCAN, you actually have the opportunity to participate in these various channels and forms of investing in the Canadian real estate market, which otherwise are often not available to a shareholder. Today, we'll talk about the business along with the funding of the business and the role that our team plays. Our vision is to be the preferred mortgage lender and investor within our chosen real estate markets in Canada. This may sound a bit vanilla, but what is key is how we deliver on achieving that vision. Our mission is what we do every day to achieve it. We're focused on delivering sustainable growth and value for all of our stakeholders. We focus first on relationship-driven mortgage lending and investing, whether it's through our BDMs and our teams in residential lending or it is our investment team working with our various partner originators. We are focused on relationships for the long run and a win-win approach. Secondly, we look to provide quality work from an expert, engaged and committed team, and we invest in ensuring that we have quality work tools. We provide -- have a productive culture. We have strong supportive teams and training and development for our team members.  And lastly, we are dedicated to the service to our clients, our colleagues and our communities. And each team member has clear accountability and ownership of their roles. And then as a team, they proudly execute their duties. And I am telling you that this has been a very, very powerful result for the company. There's a quote that comes to mind when I think about our teams, and it's evident today as we watch the hockey playoffs. The quote is this. "Talent may win the game, but it is teamwork and intelligence that wins a championship." Let's hope the lease can do as well as MCAN. To provide a context for the attributes of an MCAN team member, which we developed, of course, as a team, the MCAN Drive. While nicely depicted on this slide, the MCAN Drive is essentially all about the behaviors in the team, the values of the team and inspiration for the team collectively. This is what drives our performance and thus, our success.  When you look at MCAN's value proposition, we have a unique structure and thus a unique proposition. So we are a MIC, and we're an OSFI regulated institution. It provides us with advantages relative to our peers. So being a MIC, means that we're essentially in the mortgage business. And relative to our MIC peers, we have a lower risk profile due to lower leverage, and we have access to lower cost term deposit funding. We differentiate ourselves from our OSFI regulated peers with our strategic focus on residential construction, residential lending, residential real estate investments; and then our senior leadership team, many of who are here today, with over 120 years in collective experience in our sectors, take our capital, our assets and our strategic differentiators to put them to work to provide attractive returns to our shareholders. Our portfolio today is diversified amongst our various assets, and we ended 2022 better optimized than last year. This has been a multiyear initiative that we have focused on. Our executives will provide insights on each of these components shortly. Our strategy is to continue to optimize our asset mix on the balance sheet in line with our risk appetite to achieve the highest possible sustainable returns for our shareholders.  Before we talk about the business, the year and our strategic future, I just want to take a moment to recap what we have achieved over the past 4 years. So first and foremost, we have achieved business growth with strategies that support long-term sustainability and high-quality earnings. In unexpected developments like a pandemic or a dramatically changing economic or interest rate environment, disruptions to liquidity and funding, all of which have had a profound effect on the housing markets and thus, the mortgage market and thus the construction markets in Canada, we have been able to successfully pivot and adapt to the change. These actions, while they occur at a company level, they also occurred daily within smaller groups, solving important issues throughout the days, the weeks and the years that might seemingly go unnoticed, yet they are very impactful to the business. We have built across all functions, all technology, all business processes and effective infrastructure comprised of systems, teams, capability, risk frameworks, policies and procedures to support operations and ensure an appropriate control and risk management environment.  This too was a multiyear process achieved by a multidisciplinary team and also from individual initiative taken by even just one person to make their own workplace better. We have focused also on serving all of our customers, internal or external, so that we can accelerate our business together and differentiate ourselves in this very, very competitive world. And that is so that the team can be the best it can be. This too has been highly recognized and awarded in the market. And lastly, as measured by multiple factors, engagement scores, low turnover, team spirit and the often quoted descriptor of the MCAN family, we have built a tremendous culture of teamwork, respect, diversity and inclusion. And given this is my last AGM as your CFO, I'm kidding. I've been in more AGM as the CFO as I have the CFO in the last 25 years. Anyway, I am deeply and profoundly grateful and so impressed by the work that the MCAN team has accomplished since I was appointed CEO, and I thank you for all of that. So I'm going to ask Floriana to the podium, who is our CFO, and she will review with you the financial side of the business from many perspectives.

Thanks, Karen. This is my third year here at MCAN and I'm very proud of the work that we've accomplished. I actually want to take you through some of those financial accomplishments. If we look at our track record since the beginning of 2019, you'll see what tremendous growth we've had. And all of this through a pandemic, post-pandemic economic shock, economic uncertainty, global instability, steeply rising interest rates and persistent inflation. I'm not sure if I've missed anything there. In that time, we've doubled our corporate mortgage portfolio. We've almost doubled total assets. Net income has gone up by 53%. We've had a 13% increase in regular cash, sustained dividends and paid out $1.82 per share in special stock dividends. And we've improved our return on equity. Our average return on equity over that 4-year period is almost 1% higher than the previous 4-year period. That's incredible, actually.  Let me now take you through a snapshot of what we achieved in 2022. We ended the year strong with solid results. In fact, Q4 2022 was a banner quarter for us. Looking back, we were hard-pressed to find a better one. We ended the year with over $4 billion in total assets and 6% corporate asset growth. Originations were less than 2021, but that was partly by design. We put a focus on preserving our bottom line over corporate asset growth amid a competitive mortgage market, and we succeeded. We achieved a 41% increase in our net corporate mortgage spread income, the controllables of our business. Not only did we benefit from the impact that the higher interest rate environment had on our construction and commercial portfolio, which is almost entirely at floating rates, but we also successfully managed our net interest margins on our residential lending portfolio. This allowed us to end the year with $55 million of net income or $1.77 per share, equating to a very respectable return on equity of 12.5%. This allowed us to pay $1.44 per share in regular cash dividends plus we had an additional $0.97 special stock dividend in the first quarter of 2022.  And finally, we ended the year with over $0.5 billion in market cap. And so far this year, we're off to a great start. We've continued with a stellar first quarter. Our thoughtful business strategy and execution have exceeded our expectations. Our corporate spreads are over 1% higher than the prior year, and we recorded a 75% year-over-year increase in our corporate mortgage spread income. This resulted in a 50% increase in net income with a return on equity over 4% higher than the prior year at a whopping 18.6%. Although we continue to focus on protecting our bottom line over asset growth, we still grew our asset base, ending the quarter at $4.2 billion in total assets. So I just talked about how well we've performed over the last 4 years and to the end of the first quarter of this year. But a large and often overlooked piece of that equation is one of the bedrocks of our business, which is our liquidity and funding. We have a clearly defined funding and liquidity strategy, and we've made significant strides over the last several years maturing and expanding it to help grow our business.  We started 2020 with a very nascent treasury function, one operating facility, low to moderate manual deposit raising activity, and we hadn't done a capital raise for several years. By the end of 2022, we expanded and reduced the cost of our operating facility and added a new $50 million warehouse facility to bridge our business between insured residential mortgage fundings and securitizations, negotiated an agreement to sell insured residential mortgage commitments, which helps us pivot opportunistically between securitizations and loan sales, improved treasury analytics, monitoring and digital capabilities, added a hedging program to our toolbox to help manage interest rate risk, raised $87 million in equity capital via 3 successful and oversubscribed rights offerings, filed a $400 million base shelf prospectus to accommodate future equity raises, launched an at-the-market program with an investment bank, which raises us incremental equity capital at a low cost and expanded our investor visibility and still we're not done.  This year, we will continue to expand our liquidity and funding sources to support the growth of our business. How will we do this? Well, we're looking at expanding our hedging program to add more tools in our toolbox to manage the interest rate risk that we are currently seeing. In terms of other funding strategies, we will not only continue to sell loans at the commitment stage, but we are also looking to do that with additional partners and with new mortgage products. We also want to mature our capital market strategies. By continuing to garner market visibility and eventually, we would like to expand our shareholder base through other forms of equity raises as markets warrant. I'll now pass it over to Avish to provide us with an update on one of our top line businesses through our MCAN Home division.

Thanks, Floriana. Having been here for 3 years, I am very proud of everything that we've accomplished despite the challenging environment and market conditions. When I started, we had a very nascent residential lending business, no real brand presence in the broker channel and limited products. Each year since then, we've continued to grow our market share, increase our product line and improve our service level through digital enhancements and operational efficiency. So what do we do at MCAN Home? MCAN Home provides mortgage solutions to a variety of borrowers. We have a full suite of products from purchases to refinances, and we work closely with our broker partners to find the best solutions for their clients. The geographical focus of our portfolio is the major urban areas of Ontario, Alberta and BC. We're full service with in-house origination, boots on the ground in our core markets with deep relationships with third-party mortgage brokers. We also opportunistically pivot between securitizing or selling our insured mortgage commitments through our aggregator program.  MCAN Home's performance in 2022 reflected rapidly changing market conditions and the result of abrupt increases in Bank of Canada policy rates. Total new single-family originations were $957 million in 2022. While that number is down from 2021 levels due to higher interest rates, it's also down as a result of our own strategy of focusing on net interest margins over growth. This actually led to record spreads in the fourth quarter. We also took advantage of available opportunities in the year to renew 73% higher residential mortgages than a year ago. We successfully grew our mortgage portfolio and continued to build our portfolio of mortgages pledged under securitization. MCAN Home will benefit from this growth in the future, earning income from the mortgages and improving our position to capture increased renewal opportunities, where over the last year, we've seen a material increase in our renewal rate.  We also launched 2 new products based on market demand and saw great traction. Last year, we made a deliberate effort to focus on Western Canada by adding more boots on the ground, and I'm pleased to say that we had a 25% year-over-year growth in total volume funded. With all our enhancements, to improve our service level and investment in technology, we also saw a 21% year-over-year growth in our broker network. With every year, we've improved our brand's reach, including launching our own MCAN TV, we've also been nominated for a number of awards. It's powerful to receive that kind of feedback from your team and your partners. Part of this recognition is tied to how we support our brokers and borrowers through our many programs. Our brokers need partners who understand the environment, partners they can trust with their client and their business. That's MCAN Home.  For this year, our risk management, credit monitoring and assessment activities continue to remain critical in operating our business. We expect to continue to have a portfolio with a strong credit profile with minimal level of arrears. In the short term, the expectation is for lower residential mortgage originations at higher mortgage as higher mortgage rates continue to dampen activity across the country, particularly in comparison to the second quarter of 2022, which was seasonally very strong. Without an increase to the overnight rate since January 2023, we hope reduced uncertainty will encourage prospective buyers such that in the second half of the year, home-buying activity will accelerate. Accordingly, we foresee improving origination volumes in the second half of the year. Higher immigration is also expected to support the housing market. Product preferences continue to shift, and we continue to pivot by adding new products and new funding sources. Through all of the growth that we've achieved, we remain dedicated to continuously improving our service for our borrowers and our broker partners and streamlining their interactions with us.  As part of our growth, we'll continue to expand our geographic footprint to gain further market share while building customer loyalty and retention. We are and will remain a prudent and disciplined lender. Looking ahead, we're confident that our strong relationship with our mortgage brokers, array of mortgage solutions and diverse funding sources will continue to fuel our growth. I would personally like to thank our broker partners and our team for making MCAN Home a success in the past 4 years. We're all looking forward to the next phase of our journey, and I'm really pleased when I look at the room today to see some of our broker partners here. Thank you. I'll now pass it over to Carl to provide an update on MCAN Capital division.

Thanks, Avish. I am very pleased in growing the business that we do at MCAN Capital over the last 4 years. In 2022, MCAN Capital had a strong year of growth and profitability. MCAN Capital's business is focused on 3 core areas: one, construction and commercial lending; two, marketable securities and three, nonmarketable securities. 2022 marks strong performance with 20% year-over-year growth in outstanding construction and commercial loan balances to $930 million from $777 million. Originations were $537 million. Although we prefer a stable and lower interest rate environment to support housing, our net interest margin did benefit from the quick run-up in interest rates during 2022. Ultimately, this led to a 50% year-over-year increase in our business unit net income contribution. We've been successful with overall returns on our marketable securities, including realized capital gains of $14 million over the last 5 years. Our nonmarketable securities grew to $176 million in commitments, and these investments will assist us in generating longer-term returns over the next 10 years.  As I just mentioned, 2022 was a solid year for the construction and commercial portfolio with strong growth, including high margins as we benefited from higher interest rates, and we've maintained a strong portfolio from a credit perspective. Real estate activity is expected to strengthen as inflation is controlled and interest rates moderate. Over the long term, due to high immigration policy levels, we expect strong housing demand to support the residential construction industry. As of Q1, we have surpassed $1 billion of outstanding loan balances, and our net interest margins have reached record highs. Our growth is driven through strategic relationships with co-investors and partners who originate and service the loans. MCAP has been our core strategic relationship since inception. I've been with MCAN and MCAP for over these 30 years, and I'm very proud of the 2 organizations and how we work together. I also note there's other strategic partners, [indiscernible] Stevens as well. In 2023, we will continue to build our pipeline to manage runoff we expect later in the year.  REITs. REITs are beneficial to us achieving longer-term total returns over 9%. When interest rates are not stable, there is market volatility that we manage across our balance sheet, but our long-term investment approach has been proven by investing in these strong businesses. Overall, we are pleased with our long-term track record from this portfolio. As we look at 2023, with interest rates stabilizing, we do see improvements in REIT valuations. Following historically successful investments in real estate funds, we expanded our strategy to continue to grow our investments in nonmarketable securities. Our nonmarketable securities portfolio is held for the long term with a 12% to 15% targeted return for real estate equity funds and 9% to 12% target return for real estate mortgage debt funds.  Investment in MCAP. We continue to prosper from a long-running ownership interest in MCAP with a 14% share. MCAP is Canada's largest independent mortgage finance company with assets under management of $154 billion, serving many institutional investors in over 400,000 homeowners. MCAP is our largest originator of construction loans for over 2 decades and provide us various servicing capabilities. Due to its size and market leadership position, we expect MCAP will continue to provide solid returns to MCAN over the long term. Finally, I would like to thank our strategic partners, originators and our teams for a successful 2022 and continued success going forward. I'll now pass it over to Floriana to come back and talk about our MCAN Wealth division.

Thanks, Carl. So I mentioned that liquidity and funding were important bedrocks of our business and our MCAN Wealth division focuses on one of our main funding sources. Our funding strategy since 1993 has been focused on leveraging term deposits eligible for CDIC Insurance. Term deposits provide us with a source of low-cost liability funding and represent a significant source of funding for the business. We offer short- and long-term investment options for our customers and positive and less risky for our business is the fact that our GICs are nonredeemable. 2022 is an active year for our MCAN Wealth division. We raised a large number of deposits. We have typically had a go longer strategy for our deposit raising activities that have served us well over the years. That said, we will pivot this strategy as markets change. And we raised this money through 3 large bank boards and over 40 brokers and agents.  In 2022, we were successful in gaining access to another large bank deposit Board, our third, an important achievement. We raised a record $1 billion in term deposits. We began to be more efficient in our deposit operations and we began working on a new digital deposit channel. For 2023, our outlook is dynamic. We believe there will continue to be an active market for deposits, but that there will be continued volatility in bond rates. We are well prepared for this based on all of our treasury tools. In terms of strategy, we are focused in 2 main areas: first, operating efficiencies; and second, launching later this year, our digital channel. We are very excited for that. I'll pass it back now to Karen for a discussion of our longer-term strategy and outlook.

Okay. Just a few things and then we'll be done. So I look to the future by looking at the past, and I'd like to start with our dividends. We've been paying dividends for 32 years. This chart shows the last decade of dividends. And my conclusion here is that we will continue to have dividends in the future. And then if you look at our total shareholder returns, these are 3-, 5- and 10-year measurements and CAGRs. And again, I'm quite happy with them, notwithstanding the stock market, which is not controllable. But I would expect that both our dividends and our returns will continue to be -- reflect the growth of the company. So as it grows, they will grow. So I'm not going to talk to you about our market outlook because my colleagues have done that. But what I am going to say is that we all know it's been very dynamic in the last 3 years. Fortunately, we have some incredible fundamentals, which back the -- our business and its growth, and we know what those are. But we are in the business for the long run, and we have to operate in every market. And we have to figure out how to operate to our best advantage in those markets given the demands, the competition and the funding costs. This is the job of the executive team.  So again, I would just say, if you want to look to the past, and we have just reported to you an incredible year, an incredible first quarter this year off the back of 4 amazing years. And so I will let the past through results of MCAN speak for the capability and the future opportunity. With respect to the strategic priorities, we will continue to focus on all aspects of maturing and growing the business. And while our growth over the past 4.5 years has been internal and organic, opportunities to grow externally would allow us to grow faster and to further utilize our infrastructure and grow our profitability and scale. So where do we see this business in the next 3 to 5 years? These are the bullets from our strategic objectives that we all think about, but this is what I see and what I hear. I see service. I see increase. I see expansion, streamlining, investments, team, relationships, partnerships and quality. That is our strategy and our strategic outlook.  There is no AGM on the plan these days, that doesn't go without saying something about ESG, and I'm very proud to give you our 4 bullets. This is a recent focus of ours, not on the ESG, but actually to quantify it and to report it. And you will see more of this. But this is what I love. We planted 8,260 trees in partnership with our brokers. We have committed funds for various equity real estate funds that contribute to, I would say, the net positive impact of the communities where they build. We have provided loans to builders who are doing park enhancements. We provide mortgage payments to support customers generally in need. We provide team member development. We support Habitat for Humanity and other community groups, and it is absolutely integral to how we do our business. The final area of investment focus is our team. We have been actively focused on this since early 2019. Today, we're dedicated to supporting our team through our culture, our benefits and our development programs. We provide for each team member an opportunity to continue to develop their skills, which supports their own career advancements. And I am proud each time I hear about a course taken to advance skills and then hear how it has been applied to the business. I'll look at Paul because my most recent story was out of your IT department.  These 2 statistics on this slide are from our 2022 engagement survey, and we believe that they speak to our team culture and success. Further recognition for our team is from multiple external parties. And I'd like to say that it's been an absolute privilege to lead this team. And I think I've thanked everybody earlier. So thank you that. And I just want to finish my remarks with the summary of the MCAN value proposition. It's really quite a simple business that's been delivering for 32 years through many, many economic cycles. So I thank you all for being shareholders, team members, partners to the company, directors, colleagues. Thank you for your attention today. I'll turn over the podium to Derek for Q&A.

Thank you, Karen. I'd now like to open the floor to questions. If you have a question, please stand and state your name and whether you are a shareholder of the company or a proxy holder of a shareholder of the company. If you're participating online, you can use the question feature on the virtual meeting platform to ask a question. In this forum, we will answer questions that are in the interest of the broader shareholder base. If you have questions about current performance and guidance, I would ask you to refer to our Q1 report that we published yesterday evening. Any appropriate questions asked will be answered. However, we may not have time to answer all your questions as part of this Q&A period. If your question is not brought forward this afternoon, look for a response electronically from the Office of the President and CEO or the Senior Vice President and CFO. There may be a bit of a lag between questions as they come into our online system. With that, I'd like to open the meeting to questions. Please, in person come to the mic. Good, [ Mr. Engles ].

My name is [ Daniel Engles ]. I'm a shareholder. I just have one question about I heard, I think that you -- for the mortgages, you're focusing on specific urban areas. And I think I saw a slide about 3 urban areas. And I'm just curious to know why the company isn't considering all urban areas in Canada, like, for example, Quebec or the Maritimes or Saskatchewan and Manitoba. Can someone speak about that?

Yes. I'll pass that down to Karen first and then on Avish and Carl.

Yes. One of our strategies is boots on the ground. And so we don't actually have boots on the ground in Quebec. And some of their laws make it actually challenging, especially if you don't have boots on the ground to do that. We would like to expand to other areas. We're in Ottawa, obviously, the GTA in Edmonton and Alberta and then the Greater Vancouver area. But we are in the outskirts. So you will see us do. We will follow the population and most importantly, we follow transportation. So I'd love to do more in Halifax. I think that's a tremendous market, and that's actually where I'm going right now. So I'm going to excuse myself.

Karen has a prior commitment with another board that she's on.

So thank you. But Carl, do you want to speak to anything else?

Yes. I mean the other reason is these core markets have been proven to us, and they've been the most resilient over good times and bad times of real estate. So we want to stick to what we know well with our boots, with our operators across Canada in those primary markets of Greater Vancouver area, Calgary and Toronto.

Okay. So if I can just do a follow-up. When you say you don't have boots on the ground in Quebec, I mean, what's holding you back?

Well, there's a few reasons. One, if you go into Quebec, there's a cost, you need to know the market and so on. And our strategic partners are primarily reside outside of Quebec. We don't need that much market share to go growing right through Canada. We're very happy with the geographies we covered today and the market share we have today. So we're not looking for growth in any markets that we're not really comfortable with at the moment.

That being said, we do consider them on an ongoing basis. Any other questions?

My name is [ Frank Mcgillacati ] and my daughter's on your shares and our ESP. So I'm also an owner of another MIC on the TSX called [indiscernible] Creek, and they pay monthly. And I wanted to know if you have considered paying your dividend monthly like they do because I think it helps maintain the price in that retail ownership space because I know there's probably not a not a lot of institutional ownership of your shares, so it's probably all retail. And I think you've just some kind of dip because you pay quarterly. I observe that between you and them.

Thank you. Flo?

Yes. So we've considered it in the past, and we'll keep considering it in the future. It hasn't been lucrative for us to do that for various other reasons in terms of our business and our funding and timing of funding and timing of our leveraging of our balance sheet. But it's always in the back of our mind, and I'm glad that you brought it up, and we're going to consider it again as we do from time to time.

Any questions online?

Nothing online.

Nothing online. Surprise. Thank you, Daniel and Frank for getting the ball rolling on questions. I think it's very healthy. Congratulations to the team on a great quarter and good very good '22. But I noticed from the chart, we paid that $0.97 dividend early this year in stock. And it added to our capital. But I've had a lot of calls, probably more than you Floriana, shareholders complaining that they just paid $0.52 of that $0.97 in taxes. And not only is the stock dividend dilutive to earnings per share, but it also is very punitive to a lot of shareholders. So I would like to ask, are we looking at maximizing the sustainable regular dividend and limiting the amount of extras that we would probably pay in shares, diluting our earnings per share and creating real tax problems for a lot of shareholders. And I noticed in our taxable income reconciliation in this quarter's MD&A that the timing differences that switched to creating more taxable income coming out of our own securitizations. And they haven't quite come that way on MCAP's earnings, but there's a cumulative $37 million in the last 9 quarters of tax losses in excess of reported income from MCAP, and those are largely timing differences that will come into income, taxable income. And are we trending those out to maximize what should be a sustainable dividend increase in the near future? Thank you.

Yes, yes, yes. So I think on -- you had 2 questions there, right? So the first one, I think, was on stock dividends. So absolutely, we understand the implications of the stock dividend and absolutely that we look over a long horizon to see what's sustainable because the last thing that we want to do is to ever cut dividends. So short answer is yes. On the second part, absolutely, we do and have taken into account the tax losses that we're building now, and those are essentially timing differences, you're right. But we also have to look at the time horizon over which we will use those up. And so it behooves us to be a little careful, especially during these economic times, not to overestimate or be overzealous on that front and to make sure that we're not going to continue to build up losses on an ongoing basis, and make sure that we can see through to that, the reversal of those losses. But the short answer is yes and yes.

Anything further?

Now I haven't had something else to speak about, which is the fact that you've -- what's kind of interesting is that I find the year statements are so much easier to read than any other organization because you don't have a lot of tax issues, at least my sense of it by looking at them compared to, say, a bank report. So therefore, you have effectively externalized all the tax onto your unitholders because they face the reality of interest income. And what's interesting is that you also have another group, and I'm talking about team all the time, high T4 income is also only exposed to tax. And I don't know if you have ever considered that you should maybe differently than any other organization because you're paying pure interest, not dividends and dividend attract interest rate, or tax rate around 25%. There are methods that people can do to achieve that with interest and T4 income. And obviously, there are 2 different sets of stakeholders in our world, and maybe the unitholders are more important. I don't know. I don't want to say that. But the point is there's ways to pay less income, and I don't know if you want to explore that or think about that in responsibility because most of the organizations on the TSX just pay dividends and they're done, but you don't have that simplicity in your world.

If I get that straight, I'm not sure I do.

While you split those things can get...

Yes. No, for sure. We've been in MIC for 32 years. It is what we are. We pay out all of our -- we attempt to pay out all of our taxable income, but from our operations, from our investments. And we expect to continue to do that. That being said, it is something that we look at on an ongoing basis as part of our annual strategic planning on what's the right structure for the company and how are we going to operate to best structure of the company for its future successes.

Just to be fair, no other MIC is talking about tax [indiscernible]

We're in a good company.

So in a sense, you're the same. [indiscernible]

Yes. And that would be the same in the REIT world as well. So, yes.

All right. Nothing else online.

There is nothing online.

Okay. Ladies and gentlemen, that concludes the question-and-answer session. On behalf of MCAN Mortgage Corporation, I'd like to thank each of you for taking the time to join us today. And I want to thank our MCAN family for their ongoing commitment and dedication. We look forward to seeing everyone next year. Unfortunately, Karen had to leave. So I didn't get to say thank you on behalf of the Board and shareholders for all her successes over the many years that she's been with us. On that note, refreshments are down the hall. Please join us. Myself, my fellow directors and management team will be there for any further types of discussions.