Stock market symbol
TSX: MKP
TORONTO, Nov. 11, 2016 /CNW/ - MCAN Mortgage Corporation
("MCAN", the "Company" or "we") reported earnings today for the
third quarter of 2016. Net income of $9.8 million increased by 36% from Q3 2015 and
earnings per share of $0.43 increased
by 34% from Q3 2015.
Highlights
Net Income
Q3 2016
- Net income was $9.8 million in Q3
2016, an increase of $2.6 million
from $7.2 million in Q3 2015 as a
result of higher equity income from MCAP Commercial LP ("MCAP"),
higher corporate mortgage interest and a hedge loss incurred in Q3
2015, offset by higher operating expenses in Q3 2016.
- Earnings per share increased by $0.11 (34%) to $0.43 in Q3 2016 from $0.32 in Q3 2015.
- Increase of 2.72% in return on average shareholders' equity to
14.08% in Q3 2016 from 11.36% in Q3 2015.
- Continued strong equity income from our investment in MCAP of
$3.3 million in Q3 2016, an increase
of 64% from $2.0 million in Q3
2015.
- Increase of 28% in securitization income from our continued
participation in the market mortgage-backed securities ("MBS")
program and the Canada Mortgage Bonds ("CMB") program in 2016.
Year to Date 2016
- For the year to date in 2016, net income was $31.2 million, an increase of $7.8 million (33%) from $23.4 million in 2015 due to the Q3 items noted
above and higher securitization income for the year to date.
- Earnings per share increased by $0.27 (25%) to $1.36 for the year to date in 2016 from
$1.09 in 2015.
- Increase of 2.34% in return on average shareholders' equity to
15.36% for the year to date in 2016 from 13.02% in 2015.
Dividend
- The Board of Directors declared an increase to the quarterly
dividend from $0.29 per share to
$0.30 per share effective with the
2016 fourth quarter regular dividend to be paid January 3, 2017 to shareholders of record as of
December 15, 2016.
Corporate Activity
Q3 2016
- Corporate assets totalled $1.21
billion at September 30, 2016,
a decrease of $48 million from
June 30, 2016, which included a
decrease of $55 million in mortgages
and an increase of $6 million in cash
and cash equivalents.
- The corporate mortgage portfolio decreased during Q3 2016 to
$965 million from $1.02 billion, which included decreases of
$39 million in uninsured single
family and $32 million in
construction, offset by increases of $9
million in commercial and $6
million in insured single family.
Year to Date 2016
- Corporate assets have increased by $55
million (5%) for the year to date in 2016, including
increases of $21 million in corporate
mortgages, $12 million in marketable
securities, $8 million in financial
investments and $5 million in our
equity investment in MCAP.
- For the year to date in 2016, we have originated $117 million of single family mortgages through
our Xceed origination platform, consisting of $100 million of insured single family and
$17 million of uninsured single
family.
Securitization Activity
- We continued our participation in the CMB program in Q3 2016 by
securitizing $22 million of insured
single family mortgages and $33
million of multi family loans.
- We issued and sold $17 million of
new MBS to third parties through the market MBS program.
- For the year to date, we have securitized $154 million of mortgages through both
programs.
Credit Quality
- Impaired mortgages increased to $5.0
million from $3.9 million
during Q3 2016. The majority of the increase related to insured
single family mortgages.
- The impaired total mortgage ratio increased to 0.15% from 0.14%
during Q3 2016.
- The impaired corporate mortgage ratio increased to 0.32% from
0.29% during Q3 2016.
- Total mortgage arrears increased to $40
million from $39 million
during Q3 2016.
Capital
- Our Common Equity Tier 1, Tier 1 and Total Capital to
risk-weighted assets ratios were 22.22% at September 30, 2016 on the transitional basis and
21.81% on the "all-in" basis compared to 21.65% and 21.27%,
respectively, at June 30, 2016.
- Our leverage ratio was 10.24% at September 30, 2016 compared to 10.01% at
June 30, 2016.
- Income tax asset capacity was $175
million at September 30, 2016
compared to $90 million at
June 30, 2016.
Outlook
The Bank of Canada's forecasted
2016 GDP growth rate for Canada
has been reduced to 1.7%, with expected moderation in the last
quarter of the year. With relatively low levels of economic
growth, the probability of increased interest rates is low.
We expect housing markets to continue to benefit from historically
low interest rates, but we also expect a slowdown as a result of
the impact of regulatory changes to mortgage insurance.
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. The Canadian dollar has
continued to weaken because of a stronger U.S. economy and the
potential for interest rate increases in the U.S.
We expect financial markets to remain volatile through the end
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 affect 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.
Ontario and British Columbia have continued to exhibit
strong fundamentals and growth, with GDP growth driven by exports
and immigration. In Alberta, housing markets continued to
slow as a result of impacts of the weakness in oil prices and
weakening employment. We continue to focus our origination in
Ontario and British Columbia and moderate our exposure to
Alberta. We are closely monitoring the performance of the
residential construction projects with particular vigilance in
Alberta.
The Toronto and Vancouver housing markets have experienced
significant price inflation for the year to date, well in excess of
supporting employment and income growth. While some of the
price inflation is driven by low mortgage rates and lot supply
shortages, we believe that price inflation at the current high
levels increases the risk of a price correction. We are
operating with tightened underwriting policies for uninsured
mortgages, specifically for self-employed applicants.
We have seen slower sales in Vancouver caused by the newly legislated 15%
tax on non-resident real estate purchases, which was intended to
help restore housing affordability for residents in the Metro
Vancouver Area by raising non-residents' cost of purchasing and, on
the margin, discouraging foreign speculation. The government
intends to use some of these new tax revenues to help boost housing
supply. The change in the use of the principal residence
exemption for taxable gains on home sales is expected to impact
demand.
Subsequent to quarter end, the Department of Finance announced
new mortgage regulations. The most significant regulations to
MCAN are as follows:
- Expanding the stress tests to all insured mortgages, to be
qualified using the Bank of Canada's posted rate (currently at
4.64%).
- All portfolio-insured mortgages will be required to conform to
the same lending guidelines as insured mortgages.
- Principal residence capital gains will be limited to Canadian
residents.
We expect the impact of these new regulations to be as
follows:
- No change to overall CMB issuance levels.
- Expected decrease to MBS issuance levels and tighter MBS
spreads as less mortgages are eligible for portfolio
insurance.
- Redirection of uninsurable mortgages to balance sheet investors
such as MCAN, chartered bank covered bonds, asset-backed commercial
paper and potentially the private residential mortgage-backed
securities ("RMBS") market.
- Higher uninsured mortgage rates as lenders price in higher
capital requirements and increased funding costs.
- Stable short-term insured mortgage rates due to increased
competition amongst lenders.
The Department of Finance also launched a consultation
subsequent to quarter end on lender risk sharing for government
backed insured mortgages. We expect the impact of potential
risk sharing to be as follows:
- Increased lender costs; the Department of Finance expects an
increase of 20-30 basis points in lender costs over a five-year
period.
- Increase risk-weighting and capital requirements for these
assets due to higher risk of loss, which may require increased
collective and individual mortgage allowances.
We are continuing to evaluate the impact of these regulatory
changes to the market and MCAN. We believe that the effect of
these changes will likely require a minimum of 6-12 months to begin
providing clarity on the direction of the mortgage market in
Canada.
We will continue to monitor housing market developments as they
evolve and will continue to ensure our mortgage lending book
remains well positioned. MCAN has a stated annual
growth target of 10% growth of corporate assets per annum.
With the declining single family uninsured balance, and other
changes on our balance sheet, growth in the corporate assets was 5%
year to date for 2016.
We believe that MCAN is well positioned to adapt to changes in
mortgage and housing markets given that we, as a regulated
financial institution, have access to both the insured
securitization market as well as the term deposit funding
market.
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/investor-relations/investor-materials.
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 Third 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, is an originator 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 is also an NHA MBS issuer.
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 CMB and MBS spreads and swap rates;
- MBS and mortgage prepayment rates;
- mortgage rate and availability changes;
- adverse legislation or regulation;
- availability of CMB and 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