Stock market symbol
TSX: MKP
TORONTO, May 11, 2016 /CNW/ - MCAN Mortgage
Corporation ("MCAN", the "Company" or "we") reported strong
earnings today for the first quarter of 2016.
Highlights
Net Income
- Net income was $7.8 million in Q1
2016, an increase of $3.5 million
(81%) from $4.3 million in Q1 2015
due to a 79% increase in securitization income ($0.6 million) from a higher market
mortgage-backed securities ("MBS") program mortgage portfolio and a
$1.4 million increase in equity
income from MCAP Commercial LP ("MCAP"). Additionally, in Q1 2015
we had a hedge loss of $1.5 million
which contributed to the increase.
- Earnings per share increased by $0.13 (62%) to $0.34 in Q1 2016 from $0.21 in Q1 2015.
- Increase of 58% in return on average shareholders' equity to
11.80% in Q1 2016 from 7.49% in Q1 2015.
Dividend
- Consistent with the prior quarter dividend, the Board of
Directors (the "Board") declared a second quarter dividend of
$0.29 per share to be paid
June 30, 2016 to shareholders of
record as of June 15, 2016.
Corporate Activity
- Corporate assets totalled $1.23
billion at March 31, 2016, an
increase of $76 million from
December 31, 2015.
- Q1 2016 corporate asset activity included increases of
$54 million in mortgages,
$10 million in financial investments
and $8 million in marketable
securities.
- The corporate mortgage portfolio increased by $54 million during Q1 2016 to $998 million from $944
million, which included increases of $59 million in construction, $23 million in insured single family and
$6 million in commercial, offset by
decreases of $16 million in uninsured
single family and $18 million in
completed inventory.
- Subsequent to quarter end, we completed the implementation of a
new mortgage underwriting system and the upgrade of single family
underwriting processes which we expect will facilitate growth in
our internal Xceed origination platform.
- During Q1 2016, we originated $31
million of single family mortgages through our Xceed
origination platform, consisting of $24
million of insured single family and $7 million of uninsured single family.
Securitization Activity
- During Q1 2016, we did not issue and sell any new MBS to third
parties through the market MBS program but retained $20 million of MCAN-issued MBS on our corporate
balance sheet.
Credit Quality
- Impaired mortgages increased to $4.9
million from $2.7 million
during Q1 2016.
- The impaired total mortgage ratio increased to 0.20% from 0.11%
during Q1 2016.
- The impaired corporate mortgage ratio increased to 0.41% from
0.23% during Q1 2016.
- Total mortgage arrears increased to $43
million from $34 million
during Q1 2016.
Capital
- Our Common Equity Tier 1, Tier 1 and Total Capital to
risk-weighted assets ratios were 22.42% at March 31, 2016 on the transitional basis and
22.07% on the "all-in" basis compared to 23.64% and 23.08%,
respectively, at December 31,
2015.
- Our leverage ratio was 10.00% at March
31, 2016 compared to 9.96% at December 31, 2015.
- Income tax asset capacity was $135
million at March 31, 2016
compared to $141 million at
December 31, 2015.
Outlook
Canadian real estate markets continue to experience mixed
conditions, as some regional economies adjust to the negative
impact of weak oil prices on employment while other regional
economies benefit from the lower Canadian dollar and employment
strength in the manufacturing sector. Housing markets in the
Prairie Provinces continue to experience declines in home sale
volumes and weak prices as markets adjust to reduced demand caused
by weak oil prices, slow to negative economic growth and increasing
unemployment. Meanwhile, home sales remain strong in
Toronto and Vancouver, where home sales volumes continue
to grow, prices are increasing and housing inventory levels remain
at low levels. The rest of the country continues to see
stable housing markets as a result of historically low mortgage
rates.
We expect financial markets to remain volatile for the first
half of 2016 with fluctuations in stock markets as slowing global
growth and volatility in international currencies impact corporate
earnings and valuations. In Canada
the impact of a weak oil sector and soft commodity prices continues
to impact a significant portion of the market. Concerns over
low or negative economic growth and increases in unemployment rates
are expected to have a spillover effect on consumer confidence and
spending in 2016.
Forecasted GDP growth rates for Canada have been reduced to 1.7% for 2016 with
expected moderation in the second half of the year. With
relatively low levels of economic growth, the risk of increased
interest and mortgage rates is seen as low. We expect housing
markets to continue to benefit from low mortgage rates and
relatively stable employment in most of the country, with the
exception of the Prairie Provinces. We expect housing sales,
both new and resale, to decline moderately in the Prairie Provinces
for 2016 due to weakness in demand.
We expect construction activity to moderate nationally, although
British Columbia and Ontario are expected to benefit from strong
net job growth caused by a weaker Canadian dollar and increased
exports. Provinces with high concentrations in commodity
producing industries such as mining, oil and gas are expected to
experience relatively weak employment and declining construction
levels. Given economic uncertainty and growth projections for
a slower second half of the year in the Canadian economy, we are
closely monitoring our construction portfolio. Our portfolio
remains well diversified with projects supported by presales in
balanced markets and experienced developers.
The key risks to the housing market are the prospects for slow,
and possibly negative, economic growth and increases in regional
unemployment rates. These factors could have a direct impact on the
stability of the regional housing markets, particularly in
Alberta and Saskatchewan. The impact of oversupply in
local housing markets could lead to significant price
volatility. We will continue to be diligent in monitoring the
local housing markets in which we lend and will closely monitor our
mortgage portfolio for early indicators of potential performance
concerns.
Based on a strong level of activity in the first quarter and a
good pipeline of deals in construction and commercial, we believe
that 2016 originations and portfolio growth will allow us to
achieve our annual corporate asset growth target of 10%. We
will continue to diversify and re-balance our portfolio to optimize
return and lower our risk profile.
We expect the moderation in our single family origination
volumes to continue into the second quarter of 2016, as we reduced
volumes in the first quarter to allow for an underwriting system
upgrade that includes new underwriting software. We believe
that these enhancements will facilitate growth in our internal
Xceed origination platform. To minimize the impact of reduced
single family origination, we increased construction and commercial
loan balances to provide a positive offset to income.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan ("DRIP") is a program that
provides MCAN with a reliable source of new capital and existing
shareholders an opportunity to acquire additional shares at a
discount to market value. Under the DRIP, dividends paid to
shareholders are automatically reinvested in common shares issued
out of treasury at the weighted average trading price for the 5
days preceding such issue less a discount of 2%. For further
information on how to enrol in the DRIP, please refer to the
Management Information Circular dated March
11, 2016 or visit our website at www.mcanmortgage.com.
Non-IFRS Measures
The following metrics are considered to be Non-IFRS measures and
are defined in the "Non-IFRS Measures" section of the MD&A:
Return on Average Shareholders' Equity, Taxable Income,
Taxable Income Per Share, Average Interest Rate, Net Interest
Income, Impaired Mortgage Ratios, Mortgage Arrears, Common Equity
Tier 1, Tier 1 and Total Capital Ratios, Total Exposures,
Regulatory Assets, Leverage Ratio, Assets to Capital Multiple; Risk
Weighted Assets Ratios, Tier 1, Tier 2, Tier 3 and Total Liquid
Assets and Liquidity Ratios, Income Tax Assets, Income Tax
Liabilities, Income Tax Capital, Income Tax Assets to Capital
Ratio, Income Tax Asset Capacity, Market Capitalization, Book Value
per Common Share and Limited Partner's At-Risk Amount.
Further Information
Complete copies of the Company's 2016 First Quarter Report will
be filed on the System for Electronic Document Analysis and
Retrieval ("SEDAR") at www.sedar.com and on the Company's website
at www.mcanmortgage.com.
MCAN is a public company listed on the Toronto Stock Exchange
("TSX") under the symbol MKP and is a reporting issuer in all
provinces and territories in Canada. MCAN also qualifies as a
mortgage investment corporation ("MIC") under the Income Tax Act
(Canada) (the "Tax Act").
The Company's primary objective is to generate a reliable
stream of income by investing its corporate funds in a portfolio of
mortgages (including single family residential, residential
construction, non-residential construction and commercial loans),
as well as other types of financial investments, loans and real
estate investments. MCAN employs leverage by issuing term deposits
eligible for Canada Deposit Insurance Corporation ("CDIC") deposit
insurance up to a maximum of five times capital (on a
non-consolidated tax basis in the MIC entity) as permitted by the
Tax Act. The term deposits are sourced through a network of
independent financial agents. As a MIC, MCAN is entitled to deduct
from income for tax purposes 100% of dividends, except for capital
gains dividends, which are deducted at 50%. Such dividends
are received by the shareholders as interest income and capital
gains dividends, respectively.
MCAN's wholly-owned subsidiary, Xceed, focuses on the
origination and sale to third party mortgage aggregators of
residential first-charge mortgage products across Canada. As
such, Xceed operates primarily in one industry segment through its
sales team and mortgage brokers.
MCAN also participates in the NHA MBS program.
A CAUTION ABOUT FORWARD-LOOKING INFORMATION AND
STATEMENTS
This press release contains "forward-looking statements" within
the meaning of applicable Canadian securities laws. The words
"may," "believe," "will," "anticipate," "expect," "planned,"
"estimate," "project," "future," and other expressions that are
predictions of or indicate future events and trends and that do not
relate to historical matters identify forward-looking statements.
Such statements reflect management's current beliefs and are based
on information currently available to management. The
forward-looking statements in this press release include, among
others, statements and assumptions with respect to:
- the current business environment and outlook;
- possible or assumed future results;
- ability to create shareholder value;
- business goals and strategy;
- the stability of home prices;
- effect of challenging conditions on us;
- factors affecting our competitive position within the housing
markets;
- the price of oil and its impact on housing markets in
Western Canada;
- sufficiency of our access to capital resources; and
- the timing of the effect of interest rate changes on our cash
flows.
The material factors or assumptions that were identified and
applied by us in drawing conclusions or making forecasts or
projections set out in the forward-looking statements include, but
are not limited to:
- the Company's ability to successfully implement and realize on
its business goals and strategy;
- factors and assumptions regarding interest rates;
- housing sales and residential mortgage borrowing
activities;
- the effect of competition;
- government regulation of the Company's business;
- computer failure or security breaches;
- future capital and funding requirements;
- the value of mortgage originations;
- the expected margin between interest earned on mortgage
portfolios and interest paid on deposits;
- the relative continued health of real estate markets;
- acceptance of the Company's products in the marketplace;
- availability of key personnel;
- the Company's operating cost structure; and
- the current tax regime.
Reliance should not be placed on forward-looking statements
because they involve known and unknown risks, uncertainties and
other factors, which may cause the actual results to differ
materially from the anticipated future results expressed or implied
by such forward-looking statements. Factors that could cause actual
results to differ materially from those set forth in the
forward-looking statements include, but are not limited to:
- global market activity;
- worldwide demand for and related impact on oil and other
commodity prices;
- changes in government and economic policy;
- changes in general economic, real estate and other
conditions;
- changes in interest rates;
- changes in MBS spreads and swap rates;
- MBS and mortgage prepayment rates;
- mortgage rate and availability changes;
- adverse legislation or regulation;
- availability of MBS issuer allocation;
- technology changes;
- confidence levels of consumers;
- ability to raise capital and term deposits on favourable
terms;
- our debt and leverage;
- competitive conditions in the homebuilding industry, including
product and pricing pressures;
- ability to retain our executive officers and other
employees;
- litigation risk;
- relationships with our mortgage originators; and
- additional risks and uncertainties, many of which are beyond
our control, referred to in this press release and our other public
filings with the applicable Canadian regulatory authorities.
Subject to applicable securities law requirements, we undertake
no obligation to publicly update any forward-looking statements
whether as a result of new information, future events or
otherwise. However, any further disclosures made on related
subjects in subsequent reports should be consulted.
SOURCE MCAN Mortgage Corporation