TORONTO, Aug. 8, 2023
/CNW/ - MCAN Mortgage Corporation d/b/a MCAN Financial Group
("MCAN", the "Company" or "we") (TSX: MKP) reported net income of
$15.9 million ($0.46 earnings per share) for the second quarter
of 2023, an increase from net income of $4.1
million ($0.13 earnings per
share) in the second quarter of 2022. Second quarter 2023
return on average shareholders' equity1 was 12.47%
compared to 3.75% for the same period in the prior year. Year
to date 2023, we reported net income of $39.2 million ($1.13 earnings per share), an increase from net
income of $19.6 million ($0.64 earnings per share) for the same period in
the prior year. Year to date 2023 return on average shareholders'
equity1 was 15.51% compared to 8.94% for the same period
in the prior year. We reported higher total net income mainly
as a result of higher net corporate mortgage spread income.
Our net corporate mortgage spread income1 increased by
$8.0 million for the current quarter
and $17.1 million for the current
year to date compared to the same periods in the prior year. While
the economy continues to change and provide uncertainty, we are
committed to a strategy of managing controllable factors to protect
our bottom line and taking advantage of opportunities that
arise.
The Board of Directors declared a third quarter regular cash
dividend of $0.38 per share (an
increase of nearly 6% from our second quarter 2023 dividend). The
dividend will be paid on September 29, 2023 to shareholders of
record as of September 15, 2023. As a mortgage investment
corporation, we pay out all of our taxable income to shareholders
through dividends. At this time, we expect to have taxable income
per share greater than our regular cash dividends per share for
2023 due to our strong year to date results and, therefore, we
anticipate distributing a special dividend in the first quarter of
2024.
"Our 2023 results so far are very strong driven by our core
lending business. We have built a strong portfolio and I am
proud to say that this was accomplished all while closely
navigating and monitoring market conditions, credit quality and
other economic factors that could impact our business. We
provide our shareholders with a unique opportunity to invest in
various channels of the Canadian real estate landscape and our
assets are resilient through various economic cycles and,
therefore, our financial performance over the long term as well,"
said Derek Sutherland, Interim Chief
Executive Officer. "The culture we have nurtured at MCAN is
foundational to our exceptional performance and inspires the
transformative creativity that drives opportunity and continued
growth. We look to continue to improve our market position as we
continue to invest in communities and homes for
Canadians."
Highlights
- Corporate assets totalled $2.62
billion at June 30, 2023, a
net increase of $336 million (15%)
from December 31, 2022:
- Construction and commercial mortgages totalled $1.06 billion at June 30,
2023, a net increase of $134
million (14%) from December 31,
2022. Year to date 2023, the positive movement in the
construction and commercial portfolios is attributed to
originations of $276 million in new
construction and commercial mortgages, partially offset by
maturities and repayments.
- Uninsured residential mortgages totalled $906 million at June 30,
2023, a net increase of $78
million (9%) from December 31,
2022. Uninsured residential mortgage originations totalled
$177 million year to date 2023, a
decrease of $71 million (29%) from
the same period in 2022. We actively manage origination volumes in
order to protect our net interest margins and our bottom line.
Volumes were also slower in the first part of 2023 as a result of
general market conditions, with many Canadians electing not to
participate in the housing market given higher rates and inflation,
and uncertainty on further Bank of Canada rate hikes. However, we have seen an
increase in our uninsured residential mortgage renewals with
$258 million year to date 2023
compared to $200 million year to date
2022 as borrowers find it more convenient to stay with their
current lender in the current market environment.
- Non-marketable securities totalled $107
million at June 30, 2023, an
increase of $10 million (10%) from
December 31, 2022 with $80 million of remaining capital advances
expected to fund over the next five years.
- Marketable securities totalled $50
million at June 30, 2023, a
net decrease of $4 million (7%) from
December 31, 2022 due to net
unrealized fair value losses. In 2023, we saw a decline in REIT
stocks from the uncertain interest rate and macroeconomic
environment.
- Securitized mortgages totalled $1.75
billion at June 30, 2023, a
net increase of $4 million (0.2%)
from December 31, 2022. Insured
residential mortgages totalled $245
million at June 30, 2023, a
net increase of $100 million (69%)
from December 31, 2022.
-
- Overall, total origination volumes (including commitments sold)
were lower in 2023 as a result of the higher interest rate
environment, particularly for first time home buyers, who would be
a significant portion of the borrowers of insured residential
mortgages. Insured residential mortgage originations totalled
$211 million year to date 2023, a
decrease of $162 million (43%) from
the same period in 2022. This includes $22
million of insured residential mortgage commitments
originated and sold compared to $97
million in 2022. Insured residential mortgage
securitizations totalled $87 million
year to date 2023, a decrease of $171
million (66%) from the same period in 2022. We use various
channels in funding the insured residential mortgage portfolio, in
the context of market conditions and net contributions over the
life of the mortgages, in order to support our overall
business.
Financial Update
- Net corporate mortgage spread income1 increased by
$8.0 million for Q2 2023 from Q2 2022
and increased $17.1 million for year
to date 2023 from year to date 2022 mainly due to a higher average
corporate mortgage portfolio balance from continued net mortgage
originations and renewals, and an increase in the spread of
corporate mortgages over term deposit interest and expenses mainly
from our floating rate residential construction mortgages. That
said, we have also successfully focused on and achieved increasing
our net spread from our uninsured residential mortgage
originations. On the term deposit side, we have had a greater focus
on raising shorter duration deposits, therefore resulting in a
smaller increase in our average term deposit rates. Compared to Q1
2023, we saw average term deposit rates generally exceeding the
pace of increase in our mortgage portfolio due to new term deposit
originations at higher current rates and the maturity of lower-rate
term deposits.
- Net securitized mortgage spread income1 decreased by
$0.1 million for Q2 2023 from Q2 2022
and decreased $0.6 million for year
to date 2023 from year to date 2022 mainly due to a decrease in the
spread of securitized mortgages over liabilities partially offset
by a higher average securitized mortgage portfolio balance from
originations of insured residential mortgages. Since 2022, we have
seen the spread of securitized mortgages over liabilities decline
on securitizations mainly as a result of higher securitization
liability interest expense from higher Government of Canada bond yields in a rising interest rate
environment; however, we are beginning to see wider spreads due to
a decrease in Government of Canada
bond yields.
- For Q2 2023, we had a provision for credit losses on our
corporate mortgage portfolio of $0.8
million compared to a provision for credit losses of
$0.4 million in Q2 2022. For year to
date 2023, we had a provision for credit losses on our corporate
mortgage portfolio of $2.0 million
compared to a recovery of credit losses of $0.8 million for year to date 2022. For year to
date 2023, the provision was due to (i) one commercial loan where
an asset recovery program has been initiated and we expect to
recover all past due principal and interest; (ii) model
enhancements; (iii) growth in our portfolio; and (iv) uncertainty
regarding the impacts of monetary policy on macroeconomic
indicators and the mortgage portfolio. These were partially offset
by more favourable underlying economic forecasts, particularly
around expected housing price index growth.
- Equity income from MCAP Commercial LP totalled $5.3 million in Q2 2023, a decrease of
$1.0 million (16%) from $6.3 million in Q2 2022, and totalled
$13.3 million for year to date 2023,
an increase of $1.8 million (15%)
from $11.5 million year to date 2022.
For year to date 2023, the increase was due to (i) higher
securitized mortgage interest income from higher securitization
volumes; (ii) higher servicing and administration income from
higher assets under management; and (iii) higher investment revenue
from higher average mortgage rates. These were partially offset by
(i) lower mortgage origination fees from lower whole loan sale
volumes; (ii) lower financial instrument gains due to the interest
rate environment; (iii) higher interest expense on warehousing and
repurchase facilities; (iv) higher securitization expense from
higher securitization volumes; and (v) higher operating costs from
higher headcount and project expenses.
- In Q2 2023, we recorded a $5.0
million net unrealized loss on securities compared to a
$9.9 million net unrealized loss on
securities in Q2 2022. Year to date net unrealized loss on
securities was $4.0 million for 2023
compared to a year to date net realized and unrealized loss on
securities of $8.7 million for 2022.
In 2023, we saw a decline in REIT stocks from the uncertain
interest rate and macroeconomic environment. Year to date, we
received distributions of $2.1
million (distribution yield1 of 6.62%) from our
REITs compared to $1.8 million
(distribution yield1 of 5.77%) in 2022.
Credit Quality
- Impaired corporate mortgage ratio1 was 1.70% at
June 30, 2023 compared to 1.92% at
March 31, 2023 and 1.66% at
December 31, 2022. At June 30, 2023, we have two impaired construction
mortgages and one commercial loan where asset recovery programs
have been initiated and we expect to recover all past due interest
and principal.
- Impaired total mortgage ratio1 was 0.96% at
June 30, 2023 compared to 1.05% at
March 31, 2023 and 0.89% at
December 31, 2022.
- Arrears total mortgage ratio1 was 1.73% at
June 30, 2023 compared to 1.57% at
March 31, 2023 and 1.57% at
December 31, 2022. The increase in
the arrears total mortgage ratio is primarily due to 1-30 day
arrears of uninsured residential mortgages where the bulk of these
arrears are resolved and do not migrate to arrears categories over
30 days. We closely monitor and actively manage these arrears.
- Average loan to value ratio ("LTV") of our uninsured
residential mortgage portfolio based on an industry index of
current real estate values was 67.4% at June
30, 2023 compared to 64.7% at March
31, 2023 and 62.1% at December 31,
2022.
Capital
- We have a Prospectus Supplement to our Base Shelf prospectus
establishing an at-the-market equity program ("ATM Program") to
issue up to $30 million common shares
to the public from time to time over a 2 year period at the market
prices prevailing at the time of sale. This Prospectus Supplement
expires in October 2023. We intend to
renew the Prospectus Supplement. The volume and timing of
distributions under the ATM Program will be determined at our sole
discretion. During Q2 2023, we sold 45,100 common shares at a
weighted average price of $15.96 for
gross proceeds of $720 thousand and
net proceeds of $688 thousand
including $14 thousand of agent
commission paid and $16 thousand of
other share issuance costs under the ATM Program. Year to date
2023, we sold 53,400 common shares at a weighted average price of
$15.82 for gross proceeds of
$845 thousand and net proceeds of
$771 thousand including $17 thousand of agent commission paid and
$56 thousand of other share issuance
costs under the ATM Program.
- We issued $3.6 million in new
common shares in Q2 2023 (Q2 2022 - $2.0
million) and $10.5 million
year to date 2023 (year to date 2022 - $5.4
million) through the Dividend Reinvestment Plan ("DRIP").
The DRIP participation rate for the 2023 second quarter dividend
was 29% (2023 first quarter - 29%; 2022 second quarter - 17%). 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.
- Income tax assets to capital ratio3 was 5.22 at
June 30, 2023 compared to 5.02 at
March 31, 2023 and 4.93 at
December 31, 2022.
- Common Equity Tier 1 ("CET 1") and Tier 1 Capital to
risk-weighted assets ratios2 were 17.90% at June 30, 2023 compared to 19.59% at March 31, 2023 and 19.60% at December 31, 2022. Total Capital to risk-weighted
assets ratio2 was 18.14% at June
30, 2023 compared to 19.81% at March
31, 2023 and 19.83% at December 31,
2022. Leverage ratio2 was 9.71% at June 30, 2023 compared to 9.94% at March 31, 2023 and 9.83% at December 31, 2022. At June
30, 2023, our total capital and leverage ratios decreased
due to Office of the Superintendent of Financial Institutions
Canada's revised rules that incorporate Basel III reforms that came
into effect. All of our capital and leverage ratios are within our
regulatory and internal risk appetite guidelines.
1 Considered to be a non-GAAP and
other financial measure. For further details, refer to the
"Non-GAAP and Other Financial Measures" section of this new
release. Non-GAAP and other financial measures and ratios
used in this document are not defined terms under IFRS and,
therefore, may not be comparable to similar terms used by other
issuers.
|
2
These measures have been calculated in accordance with OSFI's
Leverage Requirements and Capital Adequacy Requirements
guidelines. Effective March 31, 2020, the total capital
ratios in 2022 reflected 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 were included in CET 1 capital. The adjustment to CET 1
capital was 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, was subject to a
scaling factor that decreased over time and was 25% in fiscal
2022.
|
3 Tax balances are
calculated in accordance with the Tax Act.
|
Further Information
Complete copies of the Company's 2023 Second Quarter Report will
be filed on the System for Electronic Document Analysis and
Retrieval ("SEDAR+") at www.sedarplus.ca and on the Company's
website at www.mcanfinancial.com.
For our Outlook, refer to the "Outlook" section of the 2023
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 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 residential mortgages, 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. MCAN is Investing in Communities and Homes for
Canadians.
For how to enroll in the DRIP, please refer to the Management
Information Circular dated March 13, 2023 or visit our website
at www.mcanfinancial.com/investors/regulatory filings/dividends -
historical. 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.
Website: www.mcanfinancial.com
Non-GAAP and Other Financial
Measures
This news release references a number of non-GAAP and other
financial measures and ratios to assess our performance such as
return on average shareholders' equity, net corporate mortgage
spread income, net securitized mortgage spread income, impaired
corporate mortgage ratio, impaired total mortgage ratio, and
arrears total mortgage ratio. These measures are not
calculated in accordance with International Financial Reporting
Standards ("IFRS"), are not defined by IFRS and do not have
standardized meanings that would ensure consistency and
comparability between companies using these measures. These
metrics are considered to be non-GAAP and other financial measures
and are incorporated by reference and defined in the "Non-GAAP and
Other Financial Measures" section of our 2023 Second Quarter
Management's Discussion and Analysis of Operations ("MD&A")
available on SEDAR+ at www.sedarplus.ca. Below are reconciliations
for our non-GAAP financial measures included in this news release
using the most directly comparable IFRS financial measures.
Net Corporate Mortgage Spread Income
Non-GAAP
financial measure that is an indicator of net interest
profitability of income-earning assets less cost of funding for our
corporate mortgage portfolio. It is calculated as the
difference between corporate mortgage interest and term deposit
interest and expenses.
(in
thousands)
|
Q2
|
Q2
|
Change
|
YTD
|
YTD
|
Change
|
For the Periods
Ended June 30
|
2023
|
2022
|
($)
|
2023
|
2022
|
($)
|
Mortgage interest -
corporate assets
|
$ 38,691
|
$ 22,815
|
|
$ 74,447
|
$ 43,323
|
|
Term deposit interest
and expenses
|
18,034
|
10,185
|
|
32,775
|
18,703
|
|
Net Corporate
Mortgage Spread Income
|
$ 20,657
|
$ 12,630
|
$
8,027
|
$ 41,672
|
$ 24,620
|
$ 17,052
|
Net Securitized Mortgage Spread Income
Non-GAAP financial
measure that is an indicator of net interest profitability of
income-earning securitization assets less cost of securitization
liabilities for our securitized mortgage portfolio. It is
calculated as the difference between securitized mortgage interest
and interest on financial liabilities from
securitization.
(in
thousands)
|
Q2
|
Q2
|
Change
|
YTD
|
YTD
|
Change
|
For the Periods
Ended June 30
|
2023
|
2022
|
($)
|
2023
|
2022
|
($)
|
Mortgage interest -
securitized assets
|
$
9,342
|
$
7,598
|
|
$ 18,410
|
$ 14,855
|
|
Interest on financial
liabilities from securitization
|
7,524
|
5,633
|
|
15,025
|
10,882
|
|
Net Securitized
Mortgage Spread Income
|
$
1,818
|
$
1,965
|
$
(147)
|
$
3,385
|
$
3,973
|
$
(588)
|
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, economic environment and
outlook;
- the impact of global health pandemics on the Canadian economy
and globally;
- 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;
- the performance of our investments;
- factors affecting our competitive position within the housing
lending market;
- international trade, international economic uncertainties,
failures of international financial institutions and geopolitical
uncertainties and their impact on the Canadian economy;
- sufficiency of our access to liquidity and capital
resources;
- the timing and 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;
- factors and assumptions regarding interest rates, including the
effect of Bank of Canada actions
already taken;
- the effect of supply chain issues;
- the effect of inflation;
- housing sales and residential mortgage borrowing
activities;
- the effect of household debt service levels;
- the effect of competition;
- systems failure or cyber and security breaches;
- the availability of funding and capital to meet our
requirements;
- investor appetite for securitization products;
- 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, and market conditions relating to, our
equity and other investments.
External conflicts such as the Russia/Ukraine conflict, failures of international
financial institutions, and post-pandemic government and Bank of
Canada actions taken, have
resulted in uncertainty relating to the Company's internal
expectations, estimates, projections, assumptions and beliefs,
including with respect to the Canadian economy, employment
conditions, interest rates, supply chain issues, inflation, levels
of housing activity and household debt service levels. There can be
no assurance that such expectations, estimates, projections,
assumptions and beliefs will continue to be valid. The impact
any further pandemics, variants or outbreaks, including measures to
prevent their spread and related government actions adopted in
response thereto, will have on our business is uncertain and
difficult to predict.
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
risk that any of the above opinions, estimates or assumptions are
inaccurate and the other risks and uncertainties referred to in our
Annual Information Form for the year ended December 31, 2022,
our 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 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