TORONTO, Aug. 12, 2021 /CNW/ - MCAN Mortgage Corporation
("MCAN", the "Company" or "we") (TSX: MKP) reported net income of
$19.4 million ($0.73 earnings per share) in the second quarter
compared to net income of $7.8
million ($0.32 earnings per
share) for the same period in the prior year. For the six months
ended June 30, 2021, MCAN reported
net income of $35.3 million
($1.38 earnings per share), compared
to a net loss of $1.9 million
($0.08 loss per share) in the prior
year. Net income was 149% higher for the quarter and 1,925%
year to date 2021 due to growth in our corporate and securitization
assets, an increase in the market value of our REIT portfolio in
2021 (compared to market value losses in 2020), as well as a
decrease in our credit loss provision due to improved economic
forecasts. We also realized higher net corporate and
securitized mortgage spread income1 and higher equity
income from MCAP compared to the same periods in 2020.
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The Board of Directors (the "Board") declared a quarterly cash
dividend of $0.34 per share to be
paid September 30, 2021 to shareholders of record as of
September 15, 2021.
"We are very pleased with our strong Q2 2021 results. Our
mortgage portfolio continues to grow in response to a buoyant
housing market propelled by very low interest rates. We have
been enhancing our sales and marketing capabilities, services to
our mortgage brokers and our underwriting efficiency," said
Karen Weaver, President and Chief
Executive Officer. "We are also very pleased with our
$20.4 million capital raise during
the quarter which reflects our growth and support from our existing
shareholders. We continue to focus on sustainable growth,
reliable dividends and increasing return on equity for our
shareholders."
Highlights
- Corporate assets totalled $1.82
billion at June 30, 2021, an
increase of $260 million (17%) from
December 31, 2020 driven by growth in
all our major assets:
-
- Uninsured single family originations totalled $252 million year to date 2021, an increase of
$149 million (144%) from the same
period in 2020.
- Construction and commercial originations totalled $367 million year to date 2021, an increase of
$194 million (113%) from the same
period in 2020.
- Marketable securities totalled $70
million at June 30, 2021, an
increase of $20 million (41%) from
December 31, 2020 due to $10 million of REIT purchases and $10 million of fair value gains.
- Non-marketable securities totalled $60
million at June 30, 2021, an
increase of $4 million (7%) from
December 31, 2020 primarily from
three new investments with $26
million in remaining capital commitments expected to fund
over approximately two years.
- Securitized mortgages totalled $1.43
billion at June 30, 2021, an
increase of $299 million (26%) from
December 31, 2020 primarily due to an
increase in originations and securitizations:
-
- Insured single family originations totalled $366 million year to date 2021, an increase of
$165 million (82%) from the same
period in 2020.
- Insured single family securitizations totalled $403 million year to date 2021, an increase of
$168 million (72%) from the same
period in 2020.
Financial Update
- Net corporate mortgage spread income1 increased by
$2.0 million for Q2 2021 from Q2 2020
and increased $2.8 million for year
to date 2021 from 2020 due to a higher average corporate mortgage
portfolio balance1 and an increase in the spread of
corporate mortgages over term deposit interest1, as a
result of a larger reduction in term deposit rates compared to
mortgage rates. The initial impact of COVID-19 caused a temporary
higher demand for liquidity by financial institutions in the term
deposit market resulting in higher term deposit funding costs
primarily in the second quarter of 2020.
- Net securitized mortgage spread income1 increased by
$1.6 million for Q2 2021 from Q2 2020
and increased $2.8 million for year
to date 2021 from 2020 due to a higher average securitized mortgage
portfolio balance1 from significantly higher
originations of insured single family mortgages and an increase in
the spread of securitized mortgages over liabilities1.
In Q2 2020, the decrease in interest rates led to an increase in
the number of early repaid mortgages causing higher indemnity
expenses incurred compared to penalty income received which
decreased the spread of securitized mortgages over
liabilities1.
- Allowance for credit losses on our corporate mortgage portfolio
totalled $6.0 million at June 30, 2021, a net decrease of $0.2 million from December
31, 2020 and $0.3 million from
June 30, 2020. The decrease is due to
improved economic forecasts stemming from the vaccine roll-out and
reopenings, partially offset by growth in our portfolio versus the
prior periods.
- Equity income from MCAP Commercial LP ("MCAP") totalled
$6.9 million in Q2 2021, an increase
of $3.8 million (118%) from
$3.1 million in Q2 2020, and totalled
$13.6 million for year to date 2021,
an increase of $7.0 million (107%)
from $6.6 million year to date 2020.
For Q2 2021 and year to date 2021, this was mainly due to increased
volumes which contributed to higher mortgage related income on the
sale and securitization of these mortgages, higher assets under
management due to higher net growth in their portfolio and
onboarding of an additional subservicing portfolio compared to
prior year. There were also lower financial instrument losses in Q2
2021 and higher economic hedge gains year to date 2021 versus the
same prior periods. These were partially offset by lower mortgage
spreads in Q2 2021 compared to prior year. On July 14, 2021, MCAP announced the purchase of
Paradigm Quest Inc. which is expected to increase assets under
management. The transaction is expected to be completed in Q3 2021.
We expect that MCAP will have enhanced earnings post-closing given
this acquisition.
- In Q2 2021, we recorded a $6.5
million net gain on securities compared to a $1.4 million net gain on securities in Q2 2020.
Year to date net gain on securities was $10.4 million for 2021 compared to a year to date
net loss on securities of $14.3
million for 2020. We continue to see some volatility in the
market value of our REIT portfolio amid optimism in the economic
forecasts, reopenings, and vaccination rates though slightly
impacted by concerns regarding variants.
- Return on average shareholders' equity1 was 21.28%
in Q2 2021 compared to 9.96% in Q2 2020. Return on average
shareholders' equity1 was 19.75% for 2021 year to date,
which compares to (1.21)% in 2020.
Credit Quality
- The impaired corporate mortgage ratio1 was 0.11% at
June 30, 2021 compared to 1.10% at
March 31, 2021 and 0.30% at
December 31, 2020. The increase in
the previous quarter was due to one construction loan where an
asset recovery program was initiated and we recovered all past due
interest and principal in Q2 2021. The impairment of this
construction mortgage was not related to COVID-19.
- The impaired total mortgage ratio1 was 0.07% at
June 30, 2021 compared to 0.55% at
March 31, 2021 and 0.18% at
December 31, 2020. The increase in
the previous quarter is discussed above.
- The arrears total mortgage ratio1 was 0.58% at
June 30, 2021 compared to 1.19% at
March 31, 2021 and 1.25% at
December 31, 2020. The increase in
the previous two quarters relates to the one construction loan
discussed above.
- Average loan to value ratio ("LTV") of our uninsured single
family portfolio based on an industry index of current real estate
values was 58.0% at June 30, 2021
compared to 60.0% at March 31, 2021
and 60.6% at December 31, 2020.
Capital
- To support our continued growth and maintain our targeted
capital requirements, we offered rights to eligible holders of the
Company's common shares of record at the close of business on
May 12, 2021 which expired on
June 10, 2021. On June 10, 2021, we issued 1,306,467 new common
shares at a price of $15.65 per
common share and raised gross proceeds of $20.4 million from our rights offering which was
2.96 times oversubscribed.
- We issued 87,543 new common shares through the Dividend
Reinvestment Plan ("DRIP") in Q2 2021 compared to 106,242 in Q2
2020. The DRIP participation rate was 17% for Q2 2021 compared to
16% for the Q2 2020 dividend. The DRIP is a program that has
historically provided MCAN with a reliable source of new capital
and existing shareholders an opportunity to acquire additional
shares at a discount to market value.
- The income tax assets to capital ratio1 was 5.05 at
June 30, 2021 compared to 5.05 at
March 31, 2021 and 5.09 at
December 31, 2020.
- Common Equity Tier 1 ("CET 1") and Tier 1 Capital to
risk-weighted assets ratios1,2 were 21.91% at
June 30, 2021 compared to 21.65% at
March 31, 2021 and 21.67% at
December 31, 2020. Total Capital to
risk-weighted assets ratio1,2 was 22.24% at June 30, 2021 compared to 22.02% at March 31, 2021 and 22.02% at December 31, 2020.
- The leverage ratio1 was 9.59% at June 30, 2021 compared to 9.69% at March 31, 2021 and 10.17% at December 31, 2020.
1 Considered to be a "Non-IFRS
Measure". For further details, refer to the "Non-IFRS Measures"
section of this news release.
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2
Effective March 31, 2020, the total capital ratio reflects the
inclusion of stage 1 and stage 2 allowances on the Company's
mortgage portfolio in Tier 2 capital. In accordance with OSFI's
transitional arrangements for capital treatment of ECL issued March
27, 2020, a portion of stage 1 and stage 2 allowances that would
otherwise be included in Tier 2 capital are included in CET 1
capital. The adjustment to CET 1 capital will be measured each
quarter as the increase, if any, in stage 1 and stage 2 allowances
compared to the corresponding allowances at December 31, 2019. The
increase, if any, is subject to a scaling factor that will decrease
over time and is set at 70% in fiscal 2020, 50% in fiscal 2021 and
25% in fiscal 2022.
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Non-IFRS Measures
The following metrics are considered to be Non-IFRS measures and
are defined in the "Non-IFRS Measures" section of the 2021 Second
Quarter Report: Return on Average Shareholders' Equity, Net
Corporate Mortgage Spread Income, Spread of Corporate Mortgages
over Term Deposit Interest, Average Corporate Mortgage Portfolio
Balance, Net Securitized Mortgage Spread Income, Average
Securitized Mortgage Portfolio Balance, Spread of Securitized
Mortgages Over Liabilities, Impaired Corporate Mortgage Ratio,
Arrears Total Mortgage Ratio, Impaired Total Mortgage Ratio, Total
Mortgage Arrears, Common Equity Tier 1 ("CET 1") and Tier 1 Capital
to Risk-Weighted Assets Ratios, Total Capital to Risk-Weighted
Assets Ratio, Leverage Ratio and Income Tax Assets to Capital
Ratio.
Further Information
Complete copies of the Company's 2021 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.
For our Outlook, refer to the "Outlook" section of the 2021
Second Quarter Report.
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 Income Tax Act
(Canada) (the "Tax
Act").
The Company's primary objective is to generate a reliable
stream of income by investing 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 that are eligible for Canada Deposit Insurance Corporation
deposit insurance and are sourced through a network of independent
financial agents. We manage our capital and asset balances based on
the regulations and limits of both the Tax Act and OSFI.
As a MIC, we are entitled to deduct the dividends that we pay
to shareholders from our taxable income. Regular dividends
are treated as interest income to shareholders for income tax
purposes. We are also able to pay capital gains dividends,
which would be treated as capital gains to shareholders for income
tax purposes. Dividends paid to foreign investors may be subject to
withholding taxes. To meet the MIC criteria, 67% of our
non-consolidated assets measured on a tax basis are required to be
held in cash or cash equivalents and residential mortgages.
MCAN's wholly-owned subsidiary, XMC Mortgage Corporation, is
an originator of single family residential mortgage products across
Canada.
For how to enroll in the DRIP, please refer to the Management
Information Circular dated March 12,
2021 or visit our website at
www.mcanmortgage.com/investors/regulatory-filings. 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 five days preceding such issue less a
discount of 2% until further notice from MCAN.
A Caution About Forward-looking Information and
Statements
This news release contains forward-looking information within
the meaning of applicable Canadian securities laws. All
information contained in this news release, other than statements
of current and historical fact, is forward-looking information. All
of the forward-looking information in this news 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 news
release includes, among others, statements and assumptions with
respect to:
- the current business environment and outlook;
- the impact of global health pandemics on the Canadian economy
and globally, including the continuing impact of COVID-19;
- 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;
- performance of our investments;
- factors affecting our competitive position within the housing
markets;
- international trade and geopolitical uncertainties and their
impact on the Canadian economy;
- sufficiency of our access to capital resources;
- the timing of the effect of interest rate changes on our cash
flows; and
- the declaration and payment of dividends.
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;
- government regulation of our business and the cost to us of
such regulation, including the anticipated impact of government
actions related to COVID-19;
- the economic and social impact, management, duration and
potential worsening of the impact of COVID-19 or any other future
pandemic;
- factors and assumptions regarding interest rates;
- housing sales and residential mortgage borrowing
activities;
- the effect of competition;
- systems failure or cyber and security breaches;
- the availability of funding and capital to meet our
requirements;
- the value of mortgage originations;
- the expected spread 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;
- the stage of the real estate cycle and the maturity phase of
the mortgage market;
- impact on housing demand from changing population demographics
and immigration patterns;
- 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 and rates of
default;
- availability of key personnel;
- our operating cost structure;
- the current tax regime; and
- operations within our equity investments.
The COVID-19 pandemic has cast particular uncertainty on the
Company's internal expectations, estimates, projections,
assumptions and beliefs, including with respect to the Canadian
economy, employment conditions, interest rates, levels of housing
activity and household debt service levels. There can be no
assurance that they will continue to be valid. Given the rapid pace
of change with respect to the impact of the COVID-19 pandemic, it
is premature to make further assumptions about these matters. The
duration, extent and severity of the impact the COVID-19 pandemic
or any further outbreaks, including measures to prevent its spread
and related government actions adopted in response, will have on
our business continues to be highly uncertain and difficult to
predict at this time.
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, the
risks and uncertainties referred to in our Annual Information Form
for the year ended December 31,
2020.
Subject to applicable securities law requirements, we undertake
no obligation to publicly update or revise any forward-looking
information after the date of this news 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