Stock market symbol
TSX: MKP
TORONTO, Aug. 9, 2018 /CNW/ - MCAN Mortgage Corporation
("MCAN", the "Company" or "we") announced net income of
$11.1 million ($0.47 per share) for the second quarter ended
June 30, 2018, up 24% from
$8.9 million ($0.39 per share) in the second quarter of
2017.
Highlights
Financial Performance
Q2 2018
- Return on average shareholders' equity was 14.54% in Q2 2018
compared to 12.37% in Q2 2017.
- Recognized a $3.3 million
unrealized gain on financial instruments (consisting of marketable
securities and financial investments) in Q2 2018. IFRS 9,
Financial Instruments, which was adopted effective
January 1, 2018, requires unrealized
gains and losses on equities to be recorded through net income.
Prior period financial information was governed by IAS 39,
Financial Instruments: Recognition and Measurement, which
required unrealized gains and losses on equities to be recorded
through other comprehensive income. Prior period financial
information was not restated on adoption of IFRS 9.
Year to Date 2018
- For 2018 year to date, we earned net income of $21.7 million, up $2.5
million (13%) from $19.2
million in 2017.
- Earnings per share were $0.92 for
2018 year to date, up $0.09 (11%)
from $0.83 in 2017.
- Return on average shareholders' equity was 14.32% for 2018 year
to date compared to 13.37% in 2017.
Dividend
- The Board of Directors (the "Board") declared a third quarter
dividend of $0.37 per share to be
paid on September 28, 2018 to
shareholders of record as of September 14,
2018.
Corporate Activity
- Corporate assets, which totalled $1.21
billion at June 30, 2018,
increased by $90 million (8%) from
March 31, 2018.
- Corporate mortgage portfolio increased by $60 million (7%) during Q2 2018 to $919 million from $859
million, which included increases of $50 million in insured single family,
$25 million in construction loans and
$7 million in uninsured single
family, partially offset by a decrease of $24 million in commercial loans.
- Corporate mortgage originations increased to $112 million in Q2 2018 from $94 million in Q2 2017, including increases of
$20 million in insured single family
and $19 million in uninsured single
family.
Credit Quality
- Impaired total mortgage ratio decreased significantly to 0.02%
at June 30, 2018 from 0.10% at
March 31, 2018.
- Impaired corporate mortgage ratio decreased to 0.03% at
June 30, 2018 from 0.22% at
March 31, 2018.
- Total mortgage arrears were $21
million at June 30, 2018,
compared to $19 million at
March 31, 2018. The June 30, 2018 balance consists entirely of single
family mortgages, $3.8 million of
which were uninsured.
- Net write-offs were 10.6 basis points of the average corporate
portfolio in Q2 2018 compared to 4.7 basis points in Q2 2017.
- Average loan to value ratio ("LTV") of our uninsured single
family portfolio based on an industry index of current real estate
values was 56.9% at June 30, 2018
compared to 53.1% at March 31,
2018.
Capital
- Common Equity Tier 1, Tier 1 and Total Capital to risk-weighted
assets ratios were 21.47% at June 30,
2018 compared to 21.29% at March 31,
2018.
- Leverage ratio was 11.55% at June 30,
2018 compared to 11.74% at March 31,
2018.
- Income tax asset capacity was $293
million at June 30, 2018
compared to $356 million at
March 31, 2018. This balance
represents the additional amount of corporate assets in which we
could invest within the rules of the Income Tax Act
(Canada) (the "Tax Act") that
govern leverage for mortgage investment corporations.
Outlook
Regulatory Changes
Effective January 1, 2018,
significant changes were implemented to Guideline B‐20,
Residential Mortgage Underwriting Practices and Procedures
by OSFI. While creating uncertainty in terms of the number of
borrowers that qualify for new mortgages, these new stress tests
provide for an improvement in the quality of newly originated
mortgages. We estimate that the uninsured stress test has
impacted approximately 10-15% of mortgages that we underwrite based
on the borrower's ability to service the higher mortgage rates used
in the stress test, and will continue to have some impact on the
proportion of mortgages that we approve.
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, making mortgages less affordable.
We expect home sale levels to partially recover in Ontario in the second half of the year as
buyers adjust to the multiple rule changes. We have seen
significant increases in the number of days that resale home
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. Similar to the
Greater Vancouver Area ("GVA")
market in 2017, the Greater Toronto
Area ("GTA") market has experienced lower sales in the first
half of 2018 as a result of the announced mortgage rule changes,
and we expect to see some level of recovery in the second half of
2018.
We expect the GVA to experience reduced sales activity in the
second half of 2018 as buyers become less active in the market,
allowing the supply of homes for sale to accumulate to levels
higher than the last few years. Notwithstanding the above,
there continues to be a lack of inventory in this market, which has
and which we believe will continue to push prices upward.
The Prairie Provinces are expected to continue to demonstrate
stabilization following the strengthening of oil prices. We
expect to see more lending opportunities in this market as
conditions continue to improve.
Given the recent increase in unsold homes in the resale market
that we have seen, we expect to observe some weakness in
construction markets in the near future.
Impact on MCAN
MCAN has historically repositioned itself during times of
uncertainty to adapt its portfolio to changing market
dynamics. At this time, we have decided to reposition our
mortgage portfolio to focus more on single family mortgages and
less on construction lending over future periods, given the
uncertainty in the housing market, the economy and related risk
factors.
Our construction lending activity is considered a higher risk
lending activity, and we believe that it is prudent to moderate
lending activities in this business segment as we are currently
seeing sales levels and property values weaken in the construction
housing market. Comparatively, we believe that the single
family business provides a more moderate risk profile as we enter
into more uncertain times with respect to the housing market and
the economy as a whole. Accordingly, we will focus on further
growth in uninsured single family origination volumes in comparison
to the volumes from the past two years.
To assist with our single family growth plans, we have been
reviewing the launch of new single family products through XMC
Mortgage Corporation ("XMC") and we have recommenced our program of
acquiring uninsured single family mortgages from third
parties. Through MCAP and other originators, we have
accelerated discussions to acquire additional single family
mortgages.
Given the competitive market conditions for single family
lending market and the recent regulatory changes related to OSFI
Guideline B-20, we believe that there will be some challenge in
originating adequate volumes to grow the single family
portfolio. Additionally, we expect to experience competitive
mortgage rate pressures in our single family lending business as we
compete with other lenders for market share. As a result of
this rebalancing, we expect to observe a reduction in historical
spread levels and economics in our mortgage portfolio. We
expect to add additional resources and invest in new systems to
ensure that there are sufficient processes and monitoring in place
to support this growth and rebalancing. Collectively, we
believe that this strategy may impact our net interest margins,
while at the same time we believe that it will increase the
strength of our balance sheet and improve our internal operating
capabilities.
Our corporate assets have increased by 3% year to date, compared
to our stated annual growth target of 10%. After experiencing
a 5% decrease in the first quarter of the year, our corporate
balance sheet achieved growth of 8% during the second
quarter. We maintain our stated annual growth target for
corporate assets of 10% per annum, as 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. We currently have
$293 million of available income tax
asset capacity to take advantage of market opportunities.
As uncertainty in the current market evolves, we believe that
our strong capital position and asset capacity can be deployed if
and when opportunities arise. Overall, we believe that our
strategy in the near term is prudent given the current state of the
economy and housing markets.
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 Second 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, XMC, 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 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