TORONTO, May 7, 2019 /CNW/ - MCAN Mortgage Corporation
("MCAN", the "Company" or "we") (TSX: "MKP") announced net income
of $14.3 million ($0.60 per share) for the first quarter ended
March 31, 2019, an increase of 35%
from $10.6 million ($0.45 per share) in the first quarter of
2018. Q1 2019 income included an $8.0
million unrealized gain on securities, which impacted
earnings per share by $0.34.
Highlights
Financial Performance
- The unrealized gain on securities of $8.0 million consisted primarily of unrealized
gains in the real estate investment trust ("REIT") component of our
marketable securities portfolio, compared to an unrealized loss of
$0.1 million in Q1 2018.
- Equity income from MCAP Commercial LP ("MCAP") decreased by
$0.9 million (25%) from Q1 2018 due
to hedging losses during Q1 2019.
- Return on average shareholders' equity1 increased to
18.36% in Q1 2019 from 14.10% in Q1 2018.
1
Considered to be a "Non-IFRS Measure". For further details,
refer to the "Non-IFRS Measures" section of this press
release.
|
Corporate Activity
- Corporate assets totalled $1.26
billion at March 31, 2019, an
increase of $37 million (3%) from
$1.22 billion at December 31, 2018 and $140
million (12%) from $1.12
billion at March 31,
2018.
- Corporate mortgage portfolio totalled $996 million at March 31,
2019, an increase of $74
million (8%) from December 31,
2018 and $137 million (16%)
from March 31, 2018.
- Uninsured single family portfolio totalled $308 million at March 31,
2019, an increase of $52
million (20%) from December 31,
2018 and $111 million (56%)
from March 31, 2018.
- Uninsured single family originations were $63 million in Q1 2019, an increase of 25% from
Q4 2018 and 420% from Q1 2018.
- Insured single family originations were $38 million in Q1 2019, an increase of 39% from
Q4 2018 and 195% from Q1 2018.
- Growth in single family originations are primarily due to our
investment in internal sales and marketing, which is consistent
with our growth strategy.
- Construction and commercial portfolios decreased by
$4 million (1%) from December 31, 2018 and $36
million (6%) from March 31,
2018.
CEO Commentary
"We are very pleased with the strong performance in our single
family business this quarter," said Karen
Weaver, Chief Executive Officer, Interim. "Management,
along with the entire MCAN team, is focused on building our
business and delivering sustainable returns to shareholders."
Dividend
- The Board of Directors declared a second quarter dividend of
$0.32 per share on May 7, 2019 to be paid June 28, 2019 to shareholders of record as of
June 14, 2019.
Credit Quality
- The impaired corporate mortgage ratio2 decreased to
0.30% at March 31, 2019 from 0.34% at
December 31, 2018 and 0.44% at
March 31, 2018.
- The impaired total mortgage ratio2 decreased to
0.24% at March 31, 2019 from 0.27% at
December 31, 2018 and 0.26% at
March 31, 2018.
- Total mortgage arrears2 were $19 million at March 31,
2019 compared to $16 million
at December 31, 2018 and $19 million at March 31,
2018.
- Net write-offs were $23,000 or
0.9 basis points of the average corporate portfolio in Q1 2019
compared to $13,000 or 0.6 basis
points in Q1 2018.
- Average loan to value ratio ("LTV") of our uninsured single
family portfolio based on an industry index of current real estate
values was 65.0% at March 31, 2019
compared to 63.8% at December 31,
2018 and 60.3% at March 31,
2018.
2
Considered to be a "Non-IFRS Measure". For further details,
refer to the "Non-IFRS Measures" section of this press
release.
|
Capital
- We manage our capital and asset balances 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").
- Common Equity Tier 1 ("CET 1"), Tier 1 and Total Capital to
risk-weighted assets ratios3 were 22.09% at March 31, 2019 compared to 21.66% at December 31, 2018 and 21.29% at March 31, 2018.
- The leverage ratio3 was 12.05% at March 31, 2019 compared to 11.79% at December 31, 2018 and 11.74% at March 31, 2018.
- The income tax assets to capital ratio3 was 4.69 at
March 31, 2019 compared to 4.64 at
December 31, 2018 and 4.33 at
March 31, 2018.
- We issued 241,920 new common shares through the Dividend
Reinvestment Program ("DRIP") in Q1 2019 compared to 181,360 in Q1
2018. The DRIP participation rate was 26% for the 2019 first
quarter dividend compared to 18% for the 2018 fourth quarter
dividend and 20% for the 2018 first quarter dividend.
3
Considered to be a "Non-IFRS Measure". For further details,
refer to the "Non-IFRS Measures" section of this press
release.
|
Outlook
Market Outlook
The Bank of Canada now
forecasts 2019 Gross Domestic Product to grow by 1.2%, down from
the annual growth rate previously expected for 2019. Canadian
job growth and unemployment continue to be steady, with some
regions lower than the average. Stable employment and
corporate earnings suggest that the slow growth trend will continue
through the end of 2019. Canadian real estate markets
continue to be challenged with the impacts of the revised OSFI
Guideline B-20, Residential Mortgage Underwriting Practices and
Procedures, specifically the stress test. The Canadian housing
market appears to have cooled somewhat in all regional housing
markets, except for Ottawa and
Montreal. Home sales, both new and resale, are down, while
home prices have been sustained thus far in 2019 in the face of
mounting downward pressure. Housing shortages will continue
to drive growth in residential construction over the long
term. Forecasts at the start of the year generally included
two or three potential interest rate increases, while the current
outlook is for no increases or even a potential interest rate
decrease. These changes in interest rate forecasts continue
to provide for a mixed housing market outlook.
Housing affordability also continues to contribute to market
uncertainty as Canadian household indebtedness remains high.
Gains in the labour market, population growth in major markets and
continued demand for housing at lower price points have all
somewhat moderated the impact of the factors restraining the
housing market, as discussed above. If an interruption is
experienced in relation to current population growth trends,
employment or actual economic conditions outside of current
expectations, we would expect market conditions to deteriorate.
Although the 2019 Federal Budget released on March 9, 2019 included initiatives to support
first-time homebuyers through increased support from the government
in the form of Registered Retirement Savings Plan withdrawal
limits, amongst other support, we do not feel that these
initiatives will have a material impact on Canadian housing
affordability.
Business Outlook
We will continue to ensure that our mortgage portfolio remains
well positioned amidst a mixed market outlook. Profitable
long-term success in growing our uninsured single family mortgage
portfolio is driven by the continued development of our sales and
marketing programs, strengthening our relationships with the
mortgage broker community and improving our internal underwriting
platform efficiency. Collectively, these initiatives will
allow us to target originations toward our desired markets and
borrowers, as defined by our risk appetite, and will further
improve efficiencies and our ability to grow profitability.
We believe that our current pipeline will continue to support
growth in our uninsured originations during 2019, although at
spreads lower than our historical levels. We are currently
observing some positive signs of widening spreads in our single
family pipeline; however, we expect that this will have a marginal
earnings impact in 2019 if spreads compress again due to the Bank
of Canada outlook and ongoing
competitive pressures. We also expect some compression in our
spreads on new originations in our construction and commercial
portfolios as competition from other lenders increases.
We will continue to focus on increasing our originations and
securitizations of insured single family mortgages. We also
continue to seek alternatives to increase our participation in
securitization markets, including commercial multi family
loans.
Volatility in the REIT market has impacted portfolio values
resulting in material unrealized gains and losses being recorded
through net income in Q4 2018 and Q1 2019. We expect
continuing volatility in the valuation of our marketable securities
portfolio.
Our primary funding source, term deposits eligible for Canada
Deposit Insurance Corporation ("CDIC") insurance that are sourced
through the deposit broker network, remains stable. Given our
growth outlook, we believe that this funding source will be
sufficient to meet our expected portfolio growth in 2019.
Continuous improvement in our operating platform will be
implemented throughout 2019 to help ensure that our business model
meets all strategic, operational and compliance objectives over the
long term.
We believe that our pragmatic approach to lending, articulated
risk appetite and expertise in loan management will allow us to
effectively grow our business and optimize opportunities through
varying market conditions. We will continue to manage and
monitor market trends, make adjustments to the composition of our
balance sheet and utilize our chosen business model as we adapt to
changing market dynamics and execute our business plan. Our
targeted annual growth in corporate assets over the long term is
10%, within our risk appetite. Our current 2019 corporate
asset growth outlook is in the range of 5-8%, which has increased
from 4-6% at Q4 2018.
This Outlook contains forward-looking statements. For further
information, please refer to the "A Caution About Forward-Looking
Information and Statements" section of this press release.
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
15, 2019 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 2019 first
quarter 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, Risk Weighted Assets
Ratios, Income Tax Assets, Income Tax Liabilities, Income Tax
Capital, Income Tax Assets to Capital Ratio, Income Tax Liabilities
to Capital Ratio, Market Capitalization, Book Value per Common
Share and Limited Partner's At-Risk Amount.
Effective January 1, 2019, we
revised the impaired mortgage ratios to include insured mortgages
in the numerator such that the ratios are equal to impaired
mortgages divided by portfolio balance. Prior period ratios
have been restated.
Further Information
Complete copies of the Company's Q1 2019 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
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
diversified portfolio of Canadian 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 deposit insurance. We
manage our capital and asset balances based on the regulations and
limits of both the Tax Act and the Office of the
Superintendent of Financial Institutions. 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 50% of capital gains dividends and 100% of
non-capital gains dividends that we pay to shareholders. Such
dividends are taxed in the hands of our shareholders as capital
gains dividends and interest income, respectively, to the extent
that they are held in a non-registered plan. Dividends paid
to foreign investors may be subject to withholding taxes.
MCAN's wholly-owned subsidiary, XMC Mortgage Corporation, is
an originator of single family residential mortgage products across
Canada.
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 new regulations and changes to existing
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 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:
- 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 uncertainty and volatility 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 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 Canada Mortgage
Bonds ("CMB") and mortgage-backed securities ("MBS") spreads and
swap rates;
- MBS and mortgage prepayment rates;
- mortgage rate and availability changes;
- adverse legislation or regulation, including recent changes
implemented by OSFI and the potential for higher capital and
liquidity requirements for real estate lending;
- 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;
- the success of the business underlying our investment in MCAP,
marketable securities and non-marketable securities;
- litigation risk;
- our ability to respond to and reposition ourselves within a
changing market;
- our relationships with our mortgage originators;
- additional risks and uncertainties, many of which are beyond
our control, referred to in this MD&A 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 press release 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