Morningstar DBRS Confirms Life & Banc Split Corp. Preferred Shares Rating at Pfd-3

DBRS Limited (DBRS Morningstar) confirmed its credit rating on the Preferred Shares issued by Life & Banc Split Corp. (the Company) at Pfd-3. The Company invests, on an approximately equally weighted basis, in a portfolio consisting of common shares (the Portfolio) of the six largest Canadian banks (Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and The Toronto-Dominion Bank) and the four largest publicly listed Canadian life insurance companies (Great-West Lifeco Inc., iA Financial Corporation Inc., Manulife Financial Corporation, and Sun Life Financial Inc.). The Portfolio is rebalanced at least annually. The maturity date of the Company is October 30, 2028. The board of directors may extend the maturity date by successive terms of up to five years, provided that shareholders are given an optional special retraction right at the end of each successive term. Brompton Funds Limited is acting as the manager (the Manager) for the Company.

Holders of the Preferred Shares are entitled to fixed cumulative quarterly dividends offering a return of 7.25% per year on the original issue price of $10.00 per share. Holders of the Class A Shares receive monthly distributions targeted at $0.10 per share. As protection to the holders of the Preferred Shares, an asset coverage test does not permit the Company to make monthly distributions to the Class A Shares if the dividends of the Preferred Shares are in arrears or if the net asset value (NAV) of the Company falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares. In addition, the Company will not pay distributions in excess of $0.10 per month on the Class A Shares if, after payment of the distribution, the NAV per unit (one notional unit consists of one Preferred Share and one Class A Share) would be less than $25.00, unless the Company needs to make that distribution to fully recover refundable taxes.

On January 13, 2026, the Company renewed its at-the-market equity program (the ATM Program) that allows the Company to issue Preferred Shares and Class A Shares to the public from time to time at the Company's discretion, effective until February 12, 2028, unless terminated prior to such date by the Company. The maximum gross proceeds from the issuance of the shares will be $250 million for each of the Class A and Preferred Shares. During the six-month period ended June 30, 2025, 499,600 Preferred Shares were sold through the ATM Program at an average selling price of $10.80 per Preferred Share, raising gross proceeds worth $5.38 million. During the same period, 499,200 Class A Shares were sold through the ATM Program at an average selling price of $8.55 per Class A Share, raising gross proceeds worth $4.19 million.

During 2025, the Company completed a share split of the Class A shares due to the Company's strong performance. Class A shareholders of record at the close of business on October 27, 2025 received 10 additional Class A shares for every 100 Class A shares held. Class A shareholders continue to receive regular monthly cash distributions targeted to be $0.10 per class A share following the Share Split. As a result, the total dollar amount of distributions to be paid to class A shareholders was increased by approximately 10%. The negative impact on the NAV per unit from the share split has been more than offset by the Company's strong performance. The NAV per unit has increased to $23.09 as of January 22, 2026 from $21.49 as of October 31, 2025.

As of January 22, 2026, the downside protection available to holders of the Preferred Shares has increased to 56.7% from 50.1% as of January 31, 2025. The dividend coverage has remained stable for the last three years at approximately 0.9x. The dividend coverage below 1.0x indicates that the current dividend income earned by the Company is not enough to fully cover the Company's targeted distributions on the Preferred Shares, which increases the reliance on the Manager to generate a high yield to meet distributions without having to liquidate portfolio securities. To supplement the Portfolio income, the Company may engage in covered call option writing on all or a portion of the shares held in the Portfolio. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the Preferred Share distributions together with the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 6.8% per year over the next 5 years.

Taking into consideration the credit quality and diversification of the Portfolio, level of downside protection available to the Preferred Shares, dividend coverage ratio below 1x and projected grind on the portfolio, Morningstar DBRS has confirmed the credit rating on the Preferred Shares at Pfd-3.

The main constraints to the credit rating are as follows:

(1) Volatility in stock prices along with changes in the dividend policies of the underlying issuers may result in significant reductions in the Preferred Shares' dividend coverage or downside protection from time to time.

(2) Preferred Shares dividend coverage that is less than 1x.

(3) Reliance on the manager to generate a high yield, through methods such as option writing or securities lending, on the investment portfolio to meet distributions and other expenses without having to liquidate portfolio securities.

(4) The monthly cash distributions to holders of the Class A Shares which create grind on the Portfolio. This risk is mitigated by a NAV test.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology applicable to the credit rating is Rating Canadian Split Share Companies and Trusts (June 24, 2025) https://dbrs.morningstar.com/research/456806.

Other methodologies referenced in this transaction are listed at the end of this press release.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Morningstar DBRS expects Structured Finance issuers and originators of Structured Finance products to make all relevant information regarding these products available to investors to conduct their own analyses.

DBRS Limited
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].