TORONTO, Nov. 6, 2023
/CNW/ - MCAN Mortgage Corporation d/b/a MCAN Financial Group
("MCAN", the "Company" or "we") (TSX: MKP) reported net income
of $18.5 million ($0.53 earnings per share) for the third quarter
of 2023, an increase from net income of $11.7 million ($0.37 earnings per share) in the third quarter of
2022. Third quarter 2023 return on average shareholders'
equity1 was 14.20% compared to 10.52% for the same
period in the prior year. Year to date 2023, we reported net
income of $57.6 million ($1.66 earnings per share), an increase from net
income of $31.3 million ($1.01 earnings per share) for the same period in
the prior year. Year to date 2023 return on average shareholders'
equity1 was 15.06% compared to 9.47% 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
$8.2 million for the current quarter
and $25.2 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 fourth quarter regular cash
dividend of $0.38 per share to be
paid on January 2, 2024 to
shareholders of record as of December 15,
2023. As a mortgage investment corporation, we pay out all
of our taxable income to shareholders through dividends. As a
result of tax timing differences on various investing strategies
that we have engaged in, we currently do not expect to have taxable
income per share materially greater than our regular cash dividends
per share for 2023. We therefore do not anticipate
distributing a special dividend, or if so not a material one, in
the first quarter of 2024. Depending on various factors, whether we
distribute a special dividend may be subject to change.
"Our diversified portfolio continues to deliver strong results
despite having to closely navigate and monitor market conditions,
credit quality, geopolitical conflicts and other economic factors
that could impact our business. It has been a very
challenging economic environment, yet while the economy will
continue to change and provide uncertainty, our entire MCAN team
has contributed to successfully growing our business and improving
all aspects of our operations," said Derek
Sutherland, Interim Chief Executive Officer. "Looking ahead,
we will continue to focus on the growth and profitability of our
business to drive value for all our stakeholders. Our embedded
culture of being vigilant and proactively managing the business
through market volatility forms the roots of our exceptional
performance."
Highlights
- Corporate assets totalled $2.67
billion at September 30, 2023,
a net increase of $384 million (17%)
from December 31, 2022.
- Construction and commercial mortgages totalled $1.09 billion at September
30, 2023, a net increase of $164
million (18%) from December 31,
2022. Year to date 2023, the positive movement in the
construction and commercial portfolios is attributed to
originations of $480 million in new
construction and commercial mortgages, partially offset by
maturities and repayments. Originations have been strong this year
and some extensions of projects due to normal construction delays
or normal delays relating to the permitting and zoning process has
meant that we have not experienced as much run-off in the portfolio
as expected. To date, projects continue to progress toward
completion.
- Uninsured residential mortgages totalled $956 million at September
30, 2023, a net increase of $128
million (15%) from December 31,
2022. Uninsured residential mortgage originations totalled
$284 million year to date 2023, a
decrease of $36 million (11%) from
the same period in 2022. We actively manage origination and renewal
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 renewal rates with
renewals of $380 million year to date
2023 compared to $308 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 $112
million at September 30, 2023,
an increase of $14 million (15%) from
December 31, 2022 with $78 million of remaining capital advances
expected to fund over the next five years.
- Marketable securities totalled $46
million at September 30, 2023,
a net decrease of $8 million (14%)
from December 31, 2022 due to net
unrealized fair value losses. In 2023, we saw more significant
declines in REIT prices mainly from the steeply rising interest
rate environment.
- Securitized mortgages totalled $1.84
billion at September 30, 2023,
a net increase of $84 million (4.8%)
from December 31, 2022. Insured
residential mortgages totalled $269
million at September 30, 2023,
a net increase of $125 million (86%)
from December 31, 2022.
- Overall, for the year to date, 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 $375 million
year to date 2023, a decrease of $125
million (25%) from the same period in 2022. This includes
$25 million of insured residential
mortgage commitments originated and sold compared to $184 million in 2022. Insured residential
mortgage securitizations totalled $232
million year to date 2023, a decrease of $83 million (26%) 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
$8.2 million for Q3 2023 from Q3 2022
and increased $25.2 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. On the
term deposit side, we have been actively managing our interest rate
risk during this period of higher interest rates by continually
reviewing, and if necessary, changing the laddering of the duration
of our term deposits relative to our corporate mortgage portfolio.
We are seeing the increase in average term deposit rates generally
exceeding the pace of increase in our mortgage portfolio, given the
amount of term deposits that we originated coupled with the impact
of maturing lower-rate term deposits.
- Net securitized mortgage spread income1 decreased by
$0.3 million for Q3 2023 from Q3 2022
and decreased $0.9 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.
- For Q3 2023, we had a provision for credit losses on our
corporate mortgage portfolio of $0.4
million compared to a provision for credit losses of
$0.9 million in Q3 2022. For year to
date 2023, we had a provision for credit losses on our corporate
mortgage portfolio of $2.4 million
compared to a provision for credit losses of $27 thousand for year to date 2022. For year to
date 2023, the provision was mainly due to growth in our portfolio
and less favourable underlying economic forecasts.
- Equity income from MCAP Commercial LP totalled $4.3 million in Q3 2023, a decrease of
$3.9 million (48%) from $8.2 million in Q3 2022, and totalled
$17.6 million for year to date 2023,
a decrease of $2.1 million (11%) from
$19.7 million year to date 2022. For
year to date 2023, the decrease was primarily due to (i) lower
mortgage origination fees from lower mortgage originations and
sales; (ii) a decrease in fair value adjustments on mortgages due
to the higher interest rate environment; and (iii) higher interest
expense on credit facilities. These were partially offset by (i)
higher securitized mortgage interest income from a higher average
securitized portfolio; (ii) higher hedge gains; (iii) higher
investment revenue from higher average mortgage rates; and (iv)
lower mortgage origination expenses from lower origination
volumes.
- In Q3 2023, we recorded a $1.6
million net unrealized loss on our marketable and
non-marketable securities compared to a $5.1
million net unrealized loss on our marketable securities in
Q3 2022. Year to date net unrealized loss on marketable and
non-marketable securities was $5.6
million for 2023 compared to a year to date net realized and
unrealized loss on our marketable securities of $13.8 million for 2022. In 2023, we saw REIT
prices decrease due to Bank of Canada interest rate increases resuming and
uncertainty around future rate increases and recessionary
pressures. In 2022, we saw more significant declines in REIT prices
mainly from the steeply rising interest rate environment. We are
invested for the long term and we continue to realize the benefits
of solid cash flows and distributions from these investments. Year
to date, we received distributions of $2.8
million (distribution yield1 of 6.22%) from our
REITs compared to $2.7 million
(distribution yield1 of 5.86%) in 2022. In Q3 2023, we
had a $2.1 million unrealized gain on
our non-marketable securities investments due to value-add leasing
activity on one underlying property investment. In year to date
2022, we also had a $1.8 million
realized loss on one REIT in our portfolio that had a mandatory
corporate action resulting in its privatization.
Credit Quality
- Impaired corporate mortgage ratio1 was 1.76% at
September 30, 2023 compared to 1.70%
at June 30, 2023 and 1.66% at
December 31, 2022. At September 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 0.99% at
September 30, 2023 compared to 0.96%
at June 30, 2023 and 0.89% at
December 31, 2022.
- Arrears total mortgage ratio1 was 2.16% at
September 30, 2023 compared to 1.73%
at June 30, 2023 and 1.57% at
December 31, 2022. The majority of
our residential mortgage arrears activity occurs in the 1-30 day
category, in which the bulk of arrears are resolved and do not
migrate to arrears categories over 30 days. While greater than 30
days arrears have increased in our residential mortgages, it is
still low compared to the size of our portfolio and low relative to
historical norms. We believe that we have a quality residential
mortgage loan portfolio. We have also had historically low arrears
related to our construction and commercial loan portfolios due to
our prudent and selective lending methodology and our default
management processes in these product types. We have a strong track
record with our asset recovery programs should the need arise.
- Average loan to value ratio ("LTV") of our uninsured
residential mortgage portfolio based on an industry index of
current real estate values was 67.0% at September 30, 2023 compared to 67.4% at
June 30, 2023 and 62.1% at
December 31, 2022.
Capital
- During the current quarter, we renewed our (i) Base Shelf
Prospectus; and (ii) ATM Program established pursuant to a
Prospectus Supplement to our Base Shelf Prospectus allowing us 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. The volume and timing of
distributions under the ATM Program are determined at our sole
discretion. During Q3 2023, we sold 100,000 common shares at a
weighted average price of $16.28 for
gross proceeds of $1.6 million and
net proceeds of $1.4 million
including $33 thousand of agent
commission paid and $0.2 million of
other share issuance costs under the ATM Program. Year to date
2023, we sold 153,400 common shares at a weighted average price of
$16.12 for gross proceeds of
$2.5 million and net proceeds of
$2.1 million including $0.1 million of agent commission paid and
$0.3 million of other share issuance
costs under the ATM Program.
- We issued $4.0 million in new
common shares in Q3 2023 (Q3 2022 - $2.0
million) and $14.5 million
year to date 2023 (year to date 2022 - $7.4
million) through the Dividend Reinvestment Plan ("DRIP").
The DRIP participation rate for the 2023 third quarter dividend was
30% (2023 second quarter - 29%; 2022 third 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 5.14 at
September 30, 2023 compared to 5.22
at June 30, 2023 and 4.93 at
December 31, 2022.
- Common Equity Tier 1 ("CET 1") and Tier 1 Capital to
risk-weighted assets ratios2 were 17.72% at September 30, 2023 compared to 17.90% at
June 30, 2023 and 19.60% at
December 31, 2022. Total Capital to
risk-weighted assets ratio2 was 17.98% at September 30, 2023 compared to 18.14% at
June 30, 2023 and 19.83% at
December 31, 2022. Leverage
ratio2 was 9.76% at September 30,
2023 compared to 9.71% at June 30,
2023 and 9.83% at December 31,
2022. Beginning 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 Third 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
Third 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.
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 Third 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)
|
Q3
|
Q3
|
Change
|
YTD
|
YTD
|
Change
|
For the Periods
Ended September 30
|
2023
|
2022
|
($)
|
2023
|
2022
|
($)
|
Mortgage interest -
corporate assets
|
$ 44,144
|
$ 27,216
|
|
$
118,591
|
$ 70,539
|
|
Term deposit interest
and expenses
|
21,083
|
12,330
|
|
53,858
|
31,033
|
|
Net Corporate
Mortgage Spread Income
|
$ 23,061
|
$ 14,886
|
$
8,175
|
$ 64,733
|
$ 39,506
|
$ 25,227
|
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)
|
Q3
|
Q3
|
Change
|
YTD
|
YTD
|
Change
|
For the Periods
Ended September 30
|
2023
|
2022
|
($)
|
2023
|
2022
|
($)
|
Mortgage interest -
securitized assets
|
$
9,616
|
$
7,949
|
|
$ 28,026
|
$ 22,804
|
|
Interest on financial
liabilities from securitization
|
8,147
|
6,214
|
|
23,172
|
17,096
|
|
Net Securitized
Mortgage Spread Income
|
$
1,469
|
$
1,735
|
$
(266)
|
$
4,854
|
$
5,708
|
$
(854)
|
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 geopolitical conflicts, 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