Stock market symbol
TSX: MKP
TORONTO, May 8, 2018 /CNW/ - MCAN Mortgage
Corporation ("MCAN", the "Company" or "we") announced net income of
$10.6 million ($0.45 per share) for the first quarter ended
March 31, 2018, up from $10.3 million ($0.44 per share) in the first quarter of
2017.
Highlights
Financial Performance
- Return on average shareholders' equity was 14.10% in Q1 2018
compared to 14.37% in Q1 2017.
- Equity income from MCAP Commercial LP ("MCAP") of $3.4 million, up from $1.9
million in Q1 2017.
- Recognized a $1.7 million gain on
the sale of a portion of partnership units in MCAP, which reduced
ownership interest from 14.41% to 13.83%.
- Income from financial investments and other loans decreased to
$1.6 million in Q1 2018 from
$4.3 million in Q1 2017.
- Adopted IFRS 9, Financial Instruments effective
January 1, 2018, prospectively, and
did not restate prior period financial information, which is in
accordance with IAS 39, Financial Instruments: Recognition and
Measurement. IFRS 9 impacts the calculation of the provision
for credit losses and requires MCAN to record unrealized gains and
losses on marketable securities and financial investments through
the consolidated income statement.
Dividend
- The Board of Directors (the "Board") declared a second quarter
dividend of $0.37 per share to be
paid on June 29, 2018 to shareholders
of record as of June 15, 2018.
Corporate Activity
- Corporate assets, which totalled $1.12
billion at March 31, 2018,
decreased by $61 million from
December 31, 2017.
- Corporate mortgage portfolio decreased by $4 million during Q1 2018 to $859 million from $863
million, which included decreases of $44 million in uninsured completed inventory,
$5 million in insured single family
and $2 million in uninsured single
family, partially offset by increases of $19
million in construction and $28
million in commercial.
- Corporate mortgage originations increased significantly to
$111 million in Q1 2018 from
$60 million in Q4 2017, primarily
driven by increased commercial mortgage originations.
- Financial investments increased by $5
million (8%) during Q1 2018 to $73
million from $68 million.
- Cash and cash equivalents decreased to $62 million from $118
million during Q1 2018 to a level more in line with our
internal liquidity targets.
Credit Quality
- Impaired total mortgage ratio increased to 0.10% at
March 31, 2018 from 0.09% at
December 31, 2017.
- Impaired corporate mortgage ratio increased to 0.22% at
March 31, 2018 from 0.20% at
December 31, 2017.
- Total mortgage arrears were $19
million at March 31, 2018
compared to $18 million at
December 31, 2017. The March 31, 2018 balance consists entirely of
single family mortgages, $7.0 million
of which were uninsured.
- Net write-offs were 0.6 basis points of the average corporate
portfolio in Q1 2018 compared to 11.9 basis points in Q1 2017.
- Average loan to value ratio ("LTV") of the uninsured single
family portfolio (based on an industry index of current real estate
values) was 53.1% at March 31, 2018
compared to 52.6% at December 31,
2017.
Capital
- Common Equity Tier 1, Tier 1 and Total Capital to risk-weighted
assets ratios were 21.29% at March 31,
2018 compared to 21.26% at December
31, 2017.
- Leverage ratio was 11.74% at March 31,
2018 compared to 11.31% at December
31, 2017.
- Income tax asset capacity was $356
million at March 31, 2018
compared to $287 million at
December 31, 2017, representing
potential additional investment capacity.
Outlook
Regulatory Changes
The revised OSFI Guideline B-20, Residential Mortgage
Underwriting Practices and Procedures came into effect on
January 1, 2018. The B-20
guideline now requires a stress test on uninsured single family
mortgage applications in the form of a 200 basis point increase to
the borrower's contractual rate. Insured single family
mortgages are required to qualify at the greater of the Bank of
Canada's benchmark rate and the
borrower contractual rate. We expect that the uninsured
stress test will continue to have some impact on the proportion of
mortgages that we approve and will have the largest impact on
market origination activity.
Real estate conditions
Canadian residential real estate markets continue to have a
mixed performance as regional markets adjust to both regulatory
changes and local economic conditions. We expect Canadian
housing market conditions to experience volatility and uncertainty
in 2018 and continue to face headwinds as consumers face a rising
interest rate environment.
We expect home sale levels to slow considerably in Ontario as buyers react to the uncertainty
caused by the multiple rule changes, with significant increases in
the number of days that listings are on the market and notable
decreases in sales volumes. We expect to see some level of weakness
in resale markets as markets adjust to fewer buyers and more
available listings. We expect that the negative impact of the
announced changes will impact the Greater
Toronto Area ("GTA") market for the first half of 2018,
similar to what occurred in the Greater
Vancouver Area ("GVA") market in 2017.
We expect the GVA to see reduced sales activity in 2018 but we
expect price inflation to return as demand is expected to outpace
supply. There continues to be a lack of inventory in this
market, which has and will continue to push prices upward.
The Prairie Provinces are expected to demonstrate stabilization
following the strengthening of oil prices. We expect to see
more lending opportunities in the Prairie market as conditions
continue to improve.
Impact on MCAN
Currently, there is a significant degree of uncertainty
surrounding the future performance of the mortgage market. We
believe that the mortgage market will require at least two quarters
to adjust to the new underwriting rules of Guideline B-20 and other
new regulations. While we continue to see significantly
reduced home sales and weakening prices, we will continue to
moderate our origination volumes.
We expect to see some offset by way of stronger activity from
the renewal of our own mortgages that are not subject to the same
stress tests as newly originated mortgages. We also expect to
see an increase in the level of activity from the prime mortgage
market to the alternative market that fits within our
XMC-originated mortgage products. In late 2017 we commenced new
acquisition programs for single family mortgages from MCAP and
another third party originator and we will continue examining
additional opportunities in 2018.
MCAN is a diversified lender to housing markets, and temporarily
adjusted its corporate mortgage portfolio composition in 2017 by
opportunistically deploying capital into other business lines such
as commercial and construction lending to compensate for the
shortfall in the single family business given the uncertainties in
that market. We believe that certain lower-risk segments of
the commercial mortgage market, such as loans secured by apartment
buildings, represent good lending opportunities in a slowing single
family market.
Our disciplined approach to investment in mortgages resulted in
MCAN not aggressively growing its uninsured single family mortgage
portfolio when the GTA and GVA markets were at record high home
prices. We believe that this conservative approach and the
moderation of originations amidst market volatility will reduce our
exposure to loss in the event of a market
correction.
MCAN has considerable experience in commercial and construction
lending, and has strategic lending relationships with MCAP and
KingSett Capital that provide MCAN with access to origination and
risk-managed participation in commercial and construction lending
opportunities. We will continue to leverage our strategic
business relationships to earn appropriate risk adjusted
returns.
Our corporate assets decreased by 5% in the first quarter of
2018 compared to our stated annual growth target of 10%.
While we maintain our stated annual growth target for corporate
assets of 10% per annum, we believe that this target provides our
shareholders with a measure of the long term expected pace of
annual growth for the Company. As market conditions change,
we may choose to deviate from this target to exercise prudent risk
management, or should an appropriate opportunity arise, we may
choose to exceed it. The combination of the current weakness
in home values in Canada's two
major markets and a tighter marketplace has led to a moderation in
our single family volumes.
We expect our equity investments in MCAP, Crown LP and the
KingSett High Yield Fund ("KSHYF") to positively contribute to our
earnings in 2018. In the first quarter we recognized a
$1.7 million gain on the partial sale
of our investment in MCAP, which reduced our ownership interest
from 14.41% to 13.83%. The growth of the KSHYF since Q2 2017
has advanced our investment level and is expected to continue to
have a positive impact on future income from this investment.
In the first quarter of 2018 we funded an additional $5 million of our capital commitment relating to
our investment in the KSHYF.
With low impaired mortgage ratios and arrears, we believe that
MCAN's balance sheet is well positioned in the current
market. In addition, with over 50% of our consolidated
balance sheet represented by insured mortgages, we believe that our
asset composition provides a sound risk adjusted return to our
shareholders. As the uncertainty in the current market
evolves, we believe that our strong capital position and asset
capacity can be deployed if and when opportunities arise.
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
9, 2018 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 2018 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 taxed in the hands of our shareholders as interest income and
capital gains dividends, respectively, to the extent that they are
held in a non-registered plan. Dividends paid to foreign
investors outside of Canada may be
subject to withholding taxes.
MCAN's wholly-owned subsidiary, XMC Mortgage Corporation
("XMC") (formerly Xceed Mortgage Corporation), is an originator of
residential first-charge mortgage products across Canada. As
such, XMC 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 information within
the meaning of applicable Canadian securities laws. All
information contained in this press release, other than statements
of current and historical fact, is forward-looking information. All
of the forward-looking information in this press release is
qualified by this cautionary note. Often, but not always,
forward-looking information can be identified by the use of words
such as "may," "believe," "will," "anticipate," "expect,"
"planned," "estimate," "project," "future," and variations of these
or similar words or other expressions that are predictions of or
indicate future events and trends and that do not relate to
historical matters. Forward-looking information in this press
release includes, among others, statements and assumptions with
respect to:
- the current business environment and outlook;
- possible or assumed future results;
- our ability to create shareholder value;
- our business goals and strategy;
- the potential impact of changes to regulations;
- the stability of home prices;
- the 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.
Forward-looking information is not, and cannot be, a guarantee
of future results or events. Forward-looking information reflects
management's current beliefs and is based on information currently
available to management. Forward-looking information is based on,
among other things, opinions, assumptions, estimates and analyses
that, while considered reasonable by us at the date the
forward-looking information is provided, inherently are subject to
significant risks, uncertainties, contingencies and other factors
that may cause actual results and events to be materially different
from those expressed or implied by the forward-looking
information.
The material factors or assumptions that we identified and were
applied by us in drawing conclusions or making forecasts or
projections set out in the forward-looking information include, but
are not limited to:
- our ability to successfully implement and realize on our
business goals and strategy;
- factors and assumptions regarding interest rates;
- housing sales and residential mortgage borrowing
activities;
- the effect of competition;
- government regulation of our business;
- computer failure or security breaches;
- the availability of funding and capital to meet our
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 our products in the marketplace;
- our ability to forecast future changes to borrower credit and
credit scores, loan to value ratios and other forward-looking
factors used in assessing expected credit losses;
- availability of key personnel;
- our operating cost structure; and
- the current tax regime.
Reliance should not be placed on forward-looking information
because it involves known and unknown risks, uncertainties and
other factors, which may cause actual results to differ materially
from anticipated future results expressed or implied by such
forward-looking information. Factors that could cause actual
results to differ materially from those set forth in the
forward-looking information 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;
- our 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;
- our ability to retain our executive officers and other
employees;
- litigation risk;
- our 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 or revise any forward-looking
information after the date of this MD&A whether as a result of
new information, future events or otherwise or to explain any
material difference between subsequent actual events and any
forward-looking information. However, any further disclosures
made on related subjects in subsequent reports should be
consulted.
SOURCE MCAN Mortgage Corporation