Stock market symbol
TSX: MKP
TORONTO, Nov. 8, 2018 /CNW/ - MCAN Mortgage
Corporation ("MCAN", the "Company" or "we") announced net income of
$11.0 million ($0.47 per share) for the third quarter ended
September 30, 2018, up 11% from
$9.9 million ($0.42 per share) in the third quarter of
2017.
Highlights
Financial Performance
Q3 2018
- Return on average shareholders' equity was 14.29% in Q3 2018
compared to 13.63% in Q3 2017.
- Operating expenses decreased significantly from Q3 2017 as a
result of a reduction in variable compensation accruals and a
non-recurring reimbursement of previously incurred and accrued
legal expenses.
Year to Date 2018
- For 2018 year to date, we earned net income of $32.7 million, up $3.6
million (12%) from $29.1
million in 2017.
- Earnings per share were $1.39 for
2018 year to date, up $0.14 (11%)
from $1.25 in 2017.
- Return on average shareholders' equity was 14.31% for 2018 year
to date compared to 13.45% in 2017.
Dividend
- On September 24, 2018, the Board
of Directors (the "Board") declared a fourth quarter dividend of
$0.32 per share to be paid on
January 2, 2019 to shareholders of
record as of December 14, 2018.
- This dividend has been accrued as a liability as at
September 30, 2018 due to the fact
that it was declared prior to the end of the quarter. Shareholders'
equity as at September 30, 2018 is
calculated net of both this dividend and the third quarter dividend
that was paid September 28,
2018.
- The dividend decrease reflects the expected impact from
shifting to a more conservative asset mix, the slower than expected
growth in our single family originations to date and the related
impact on our net interest income.
Corporate Activity
- Corporate assets, which totalled $1.24
billion at September 30, 2018,
increased by $27 million (2%) from
June 30, 2018.
- Corporate mortgage portfolio increased by $47 million (5%) during Q3 2018 to $966 million from $919
million, which included increases of $20 million in construction, $17 million in uninsured single family and
$15 million in insured single family,
partially offset by a decrease of $5
million in completed inventory loans.
- Corporate mortgage originations increased to $83 million in Q3 2018 from $48 million in Q3 2017, including increases of
$21 million in insured single family
and $22 million in uninsured single
family.
Credit Quality
- The impaired total mortgage ratio was 0.03% at September 30, 2018 compared to 0.02% at
June 30, 2018.
- The impaired corporate mortgage ratio was 0.06% at September 30, 2018 compared to 0.03% at
June 30, 2018.
- Total mortgage arrears were $17
million at September 30, 2018,
compared to $21 million at
June 30, 2018. The September 30, 2018 balance consists entirely of
single family mortgages, $5.7 million
of which were uninsured.
- Net write-offs were nil basis points of the average corporate
portfolio in Q3 2018 compared to 4.3 basis points in Q3 2017.
- Average loan to value ratio ("LTV") of our uninsured single
family portfolio based on an industry index of current real estate
values was 57.1% at September 30,
2018 compared to 56.9% at June 30,
2018.
Capital
- Common Equity Tier 1, Tier 1 and Total Capital to risk-weighted
assets ratios were 20.58% at September 30,
2018 compared to 21.47% at June 30,
2018.
- The leverage ratio was 11.35% at September 30, 2018 compared to 11.55% at
June 30, 2018.
- The income tax asset to capital ratio was 4.90 at September 30, 2018 compared to 4.60 at
June 30, 2018.
- The Common Equity Tier 1, Tier 1 and Total Capital to
risk-weighted assets ratios, the leverage ratio and the income tax
asset to capital ratio are calculated net of the fourth quarter
dividend payable January 2, 2019 due
to the fact that this dividend was declared prior to quarter end
and therefore it was deducted from shareholders' equity as at
September 30, 2018. This deduction
has contributed to the decrease in these metrics as at September 30, 2018.
- Capital and asset balances are managed based on the regulations
and limits of both the Income Tax Act (Canada) (the "Tax Act") and the Office of the
Superintendent of Financial Institutions ("OSFI").
Management Changes
Effective October 9, 2018,
Karen Weaver was appointed as Chief
Executive Officer of the Company on an interim basis. Ms.
Weaver has served on the Board of Directors since November 2011 and as a member and Chair of the
Audit Committee. Subsequently, we have appointed Ms.
Dipti Patel as Vice President and
Chief Financial Officer, and Mr. Carl
Brown, Vice President, Operations and Treasurer. In October
we also appointed Ms. Emily Randle
as Vice President and Chief Risk Officer. Additionally, Mr.
Joseph Shaw joined the Company as
Vice President and Chief Investment Officer on October 1, 2018 from a major Canadian financial
institution, bringing significant experience in real estate,
portfolio management and investments. The full executive
team profiles are available on our website at
www.mcanmortgage.com.
Outlook
Regulatory Changes
Effective January 1, 2018,
additional granularity was added to Guideline B-20, Residential
Mortgage Underwriting Practices and Procedures ("Guideline
B-20") by OSFI, including a stress test for uninsured
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. We expect that this stress test, amongst
other changes to Guideline B-20, 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 downward pressure and
uncertainty for the remainder of 2018 and continue to encounter
headwinds into 2019 as consumers face a rising interest rate
environment, challenging affordability.
Consistent with our expectation last quarter, we saw some signs
of recovery in home sale levels during the third quarter as buyers
continued to adjust to the new mortgage rules. However, we
have observed weakness in resale markets and construction starts
through 2018, and we expect this to continue into 2019. In
October 2018, the Bank of
Canada announced a further
increase to its benchmark interest rate to 1.75%. We expect
interest rates to continue to increase into 2019, which we believe
will place further pressures on consumer spending and
housing/mortgage affordability.
Impact on MCAN
MCAN has historically repositioned itself during times of
uncertainty to adapt its portfolio to changing market
dynamics. Consistent with our disclosures in the Second
Quarter outlook, we continue to reposition our mortgage portfolio
to focus more on single family mortgages and less on construction
lending given the uncertainty in the housing market, the impact of
increasing rates, the overall economy and related risk
factors.
Our construction lending activity, as discussed in the "Risk
Governance and Management" section of Management's Discussion and
Analysis (the "MD&A"), is considered a higher risk lending
activity and we believe that it is prudent to moderate lending
activities in this business segment as we believe that we are
approaching the end of a real estate cycle. For further
information on our construction lending activities, refer to the
"Construction and commercial lending" sub-section of the "Financial
Position" section of the MD&A. We believe that single
family lending provides a more moderate risk profile as
uncertainties remain with respect to the housing market and the
broader economy. Accordingly, we will focus on continuing to
grow our uninsured single family origination volumes compared to
the past two years.
Given competitive market conditions and the recent regulatory
changes related to OSFI Guideline B-20, we believe that there will
be challenges in originating adequate volumes to grow the single
family portfolio. Notwithstanding these challenges, to assist
with our single family growth plans, we have launched programs to
attract potential loans through the brokerage community and have
increased our internal sales capabilities. In addition,
through MCAP and other originators, we have accelerated discussions
to acquire additional single family mortgages. Additionally,
we expect to experience mortgage rate pressures in our single
family lending business as we compete with other lenders for
originations. As a result of this rebalancing, we are
observing historically low spread levels in our mortgage
originations. We expect to invest in sustainable internal
operating platforms to ensure that there are sufficient processes
and monitoring in place to support growth, rebalancing and risk
management. Collectively, we believe that this strategy may
impact our net interest margins, while at the same time increasing
the strength and stability of our balance sheet.
As noted above, recent announcements by the Bank of Canada to increase interest rates, may provide
an environment in which mortgage spreads could improve.
However, improving mortgage spreads are also highly dependent on
the overall rates offered by larger competitors in the space in
addition to the broader market impact of housing ownership costs
relative to household income.
Our corporate assets have increased by 5% year to date, compared
to our stated annual growth target of 10%. 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
tactically seize appropriate opportunities if they arise.
As volatility 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 our review of the
current state of the Canadian economy and housing markets.
Over the longer term we will focus on a strategy that effectively
grows our balance sheet and returns to our shareholders.
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/investors/regulatory-filings/.
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 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 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 securities, loans and real estate
investments. MCAN employs leverage by issuing term deposits
eligible for Canada Deposit Insurance Corporation ("CDIC") deposit
insurance. We manage our capital and asset balances
based on the regulations and limits of both the Tax Act and
OSFI. 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