Stock Name: MKP
Amount: CAD 0.28
Announcement Date: 08/11/2012
Record Date: 13/12/2012
Dividend Detail:
TSX: MKP
TORONTO, Nov. 8, 2012 /CNW/ - MCAN Mortgage Corporation's ("MCAN", the
"Company" or "we") net income for the third quarter of 2012 decreased
to $3.5 million from $7.6 million in 2011, although estimated taxable
income for the quarter was $4.8 million ($0.27 per share) compared to
$4.5 million ($0.27 per share) in the prior year.�� The decrease in net
income was primarily due to a significant negative fair market value
adjustment to derivative financial instruments in the current quarter,
partially offset by a recovery of income taxes. Earnings per share were
$0.19 for the quarter compared to $0.45 in the prior year.
For the year to date, net income was $14.2 million, down from $21.9
million in the prior year as a result of the reasons noted above for
the quarter.�� However, estimated taxable income for the year to date
was $19.1 million ($1.11 per share) compared to $14.4 million ($0.91
per share) in the prior year. For the year to date, earnings per share
were $0.82 compared to $1.38 in the prior year.
The key differences between estimated taxable income and pre-tax net
income for accounting purposes include the non-deductibility of fair
market value adjustments, collective provisions for credit losses and
the amortization of upfront Canada Mortgage Bonds ("CMB") program costs
for tax purposes, the treatment of capital gains income, and
differences between equity income from MCAP Commercial LP ("MCAP") for
accounting and tax purposes.�� As a mortgage investment corporation
("MIC"), we typically pay out all of our taxable income to shareholders
through dividends.
During the quarter, the Company successfully completed a fully
subscribed rights offering that raised net proceeds of $20 million with
1,699,157 new common shares issued. This resulted in additional asset
capacity of $115 million based on our target assets to capital ratio of
5.75, which is measured on a tax basis. As at September 30, 2012, we
had remaining asset capacity of $95 million.
We separate our assets into corporate and securitization portfolios for
reporting purposes.�� Corporate assets represent our core strategic
investments, and are funded by term deposits and share capital.��
Securitization assets consist primarily of mortgages securitized
through the CMB program and reinvestment assets purchased with mortgage
principal repayments and are funded by financial liabilities from
securitization.
Net Investment Income:�� Net investment income was $4.5 million for the quarter, down from $11.4
million during the same quarter of the prior year.�� Net investment
income consisted of $5.9 million from corporate assets (2011 - $5.4
million) and a loss of $1.4 million from securitization assets (2011 -
income of $6.0 million).�� The loss from securitization assets includes
a $1.9 million negative fair market value adjustment to derivative
financial instruments (positive $4.9 million in 2011).
Net Investment Income - Corporate Assets
Mortgage interest income increased to $10.6 million in the current year
from $8.2 million in the prior year as a result of a $168 million
increase in the average mortgage portfolio from $517 million to $685
million, partially offset by a 0.62% decrease in the average mortgage
yield from 6.47% in 2011 to 5.85% in 2012 that was primarily due to
lower average yields in the uninsured single family and construction
portfolios.�� The construction loan portfolio is primarily floating
rate, however, certain loans carry a minimum interest rate.�� The
proportion of minimum rate loans has declined from 2011, leading to the
decrease in yield. The decrease in the uninsured single family mortgage
yield was a result of the maturity in the current year of certain
high-yielding mortgages that contributed to the high 2011 yield.
Mortgage interest income includes $527,000 of realized discount income
from MCAN's acquired mortgage portfolios (2011 - $341,000).
As at September 30, 2012, we held discounted mortgages with a net
discount of $6.0 million.�� We retain 50% of any recoveries of that
amount, and we pay the remaining 50% to MCAP.�� The amount of the
discount ultimately recovered is dependent on the value of the real
estate securing the mortgage, as well as the financial capacity of the
borrower.�� Additionally, these mortgages have maturity dates ranging
from 2012 (for certain fixed rate mortgages) to 2032 (for certain
floating rate mortgages).�� The recognition of discount income is based
on management's expectations as to when cash will be received.
Equity income from our ownership in MCAP was $331,000 in the quarter,
comparable to $360,000 in the prior year.�� During the quarter, MCAP
securitized approximately $900 million of mortgages.�� The associated
interest income will be earned over the term of these mortgages.
Fees were $339,000 in the quarter, up from $333,000 in the prior year.��
Fees consist of other mortgage fees of $337,000 (2011 - $251,000) and
fee income from a profit sharing arrangement relating to mortgage
portfolios acquired by MCAP of $2,000 (2011 - $82,000).
Marketable securities income decreased to $40,000 in the current year
from $427,000 in the prior year primarily due to a lower average
portfolio and a loss of $255,000 on sales and early redemption of bonds
during the quarter.
Interest on financial investments and other loans was $333,000 in the
current year compared to $102,000 in the prior year as a result of a
significantly larger average portfolio.
Term deposit interest and expenses increased to $4.6 million in the
current year from $3.3 million in the prior year as a result of a $165
million increase in the average outstanding term deposit balance from
$510 million in 2011 to $675 million in 2012, partially offset by a
slight decrease in the average term deposit rate to 2.44% in 2012 from
2.45% in 2011.��
There was a provision for credit losses of $592,000 in the quarter
compared to $80,000 in the prior year, which included net individual
mortgage provisions of $445,000 (2011 - $95,000) and collective
mortgage provisions of $150,000 (2011 - recovery of $12,000). Although
there was a small net decrease in the mortgage portfolio during the
third quarter of 2012, the increase in construction loans, which
attract a higher provisioning rate than uninsured single family
mortgages, led to a net collective provision during the quarter.��
Corporate mortgage growth in the third quarter of 2011 consisted almost
entirely of insured single family mortgages, which do not attract a
collective allowance. Mortgage write-offs were $72,000 during the
quarter compared to $59,000 in the prior year.
Net Investment Income - Securitization Assets
Mortgage interest income decreased to $3.5 million in the current year
from $5.0 million in the prior year as a result of a $573 million
decrease in the average mortgage portfolio from 2011.�� As the
securitized mortgages repay, we reinvest the collected principal in
certain permitted investments, which include financial investments and
short-term investments.
Interest on financial investments decreased to $1.1 million from $1.5
million in the prior year due to a decrease in the average yield and a
smaller average portfolio balance.
Other securitization income was $1.8 million in the quarter compared to
$2.0 million in the prior year, consisting primarily of interest rate
swap receipts of $1.6 million (2011 - $1.9 million).�� In addition, we
earned $340,000 of income from the sale of mortgage-backed securities
("MBS") in the current year (2011 - $nil).
Interest on financial liabilities from securitization decreased to $6.2
million in the current year from $7.5 million in the prior year as a
result of a lower average liability balance in the current year. The
decrease was a result of the maturity of two CMB issuances during the
second quarter of 2012.
The negative fair market value adjustment to derivative financial
instruments of $1.9 million (2011 - positive $4.9 million) for the
quarter relates to the CMB interest rate swaps.�� The unrealized portion
of this fair market value adjustment can be volatile as it is driven by
changes in the forward interest rate curve.�� From an economic
perspective, this adjustment is generally offset by changes in future
expected income from securitized mortgages and principal reinvestment
assets that have a floating interest rate.�� We regularly monitor our
interest rate swap hedge position to minimize our exposure to interest
rate risk.�� From an accounting perspective, changes in future expected
income from these floating rate assets are not reflected in the
consolidated statement of income, which can cause significant
volatility to net income since there is no offset to the fair market
value adjustment to derivative financial instruments.
Operating Expenses:�� Operating expenses were $2.0 million compared to $1.6 million during the
same quarter in the prior year as a result of higher salaries and
benefits from an increase in the number of employees and increased
corporate expenses.
Income Taxes:�� There was a recovery of $1.0 million of income taxes in the third
quarter of 2012 compared to a provision of $2.2 million in the prior
year.�� Activity in both years related primarily to deferred taxes as a
result of fair market value adjustments during the quarter.
Credit Quality:�� Impaired mortgages as a percentage of total mortgages (net of individual
allowances) were 0.36% ($6.5 million) at September 30, 2012, up from
0.35% ($6.6 million) at June 30, 2012.�� Impaired corporate mortgages as
a percentage of the corporate portfolio decreased to 0.91% at September
30, 2012 from 0.92% at June 30, 2012.
Total mortgage arrears were $71 million at September 30, 2012, up from
$66 million at June 30, 2012. Mortgage arrears consist of $30 million
of insured securitized mortgages and $41 million of corporate
mortgages, relating primarily to insured and uninsured single family
loans.�� There were no other assets in arrears at quarter end.�� We
continue to proactively monitor loan arrears and take prudent steps to
collect overdue accounts.
Financial Position: As at September 30, 2012, total consolidated assets were $3.61 billion,
consisting of $909 million of corporate assets and $2.70 billion of
securitization assets.�� Corporate assets increased by $17 million
during the quarter, while securitization assets decreased by $10
million.
Corporate asset activity included an increase of $22 million in cash and
an $8 million decrease in mortgages.
Term deposit liabilities were $710 million at September 30, 2012, up
from $704 million at June 30, 2012.
Total shareholders' equity of $176 million increased by $20 million from
June 30, 2012. Activity for the quarter included net income of $3.5
million, new common shares of $20 million issued through the rights
offering, $513,000 of new common shares issued through the dividend
reinvestment plan and the third quarter dividend of $5.0 million.
Asset Capacity:�� As at September 30, 2012, our remaining asset capacity was $95 million,
based on our target assets to capital ratio of 5.75.
Outlook:�� While economic conditions in Canada remain stable, the global economy
continues to be a concern for central banks and financial markets
around the world.�� Consequently, the Canadian economy is showing signs
of weakening and job growth appears to be slowing.�� The inventory of
unsold homes has risen in most markets over the last quarter. ��We
expect housing markets to slow throughout��the remainder of 2012 and
into 2013 as a result of weakening GDP and job growth. The current low
interest rate environment continues to support affordability for home
buyers. ��MCAN believes that Canada should avoid a significant housing
market correction, however we see the possibility of a slowdown of 10%
to 15% in housing sales.
Regulatory changes to underwriting standards appear to have impacted the
number of eligible home buyers in addition to the amount that home
purchasers are able to borrow under the government-backed mortgage
insurance program. ��We believe that the regulatory changes have
resulted in some downward pressure on price points in our core markets
and expect this to continue throughout 2013. ��We have observed the
cancellation of construction projects within our core markets as
developers concentrate on managing inventory and focus on sales
activity within their existing projects. ��We expect the impact of these
new regulations to become more pronounced into the spring of 2013.
We continue to monitor the impacts of changes to the mortgage markets
and will adjust our investment strategy accordingly.�� We have
concentrated our origination efforts on the entry level/affordable
segment within our core markets in an effort to minimize the potential
impacts of any weakness in home values. ��We have historically been
active in uninsured single family mortgage markets and expect this
segment to improve its risk adjusted returns with the recently
announced regulatory changes. ��With prudent underwriting, we continue
to regard residential mortgages as a solid investment asset class.
Dividend:�� The Board of Directors declared a fourth quarter dividend of $0.28 per
share (increased from $0.27 per share) to be paid January 2, 2013 to
shareholders of record as of December 17, 2012.
Further Information:�� Complete copies of the Company's 2012 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 by November 14, 2012.
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 Income Tax Act (Canada) (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 financial investments, loans and real estate investments. MCAN
employs leverage by issuing term deposits eligible for Canada Deposit
Insurance Corporation ("CDIC") deposit insurance up to a maximum of
five times capital (on a non-consolidated tax basis) as permitted by
the Tax Act. 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 also participates in the CMB program, and other securitizations of
insured mortgages.
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 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;
sufficiency of our access to capital resources; and
the timing of the effect of interest rate changes on our cash flows.
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 commodity prices;
changes in government and economic policy;
changes in general economic, real estate and other conditions;
changes in interest rates;
mortgage rate and availability changes;
adverse legislation or regulation;
technology changes;
confidence levels of consumers;
ability to raise capital on favourable terms;
our debt and leverage;
competitive conditions in the homebuilding industry, including product
and pricing pressures;
ability to retain our executive officers;
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
For further information:
MCAN Mortgage Corporation��
Website:��www.mcanmortgage.com
e-mail:����mcanexecutive@mcanmortgage.com
William Jandrisits��
President and Chief Executive Officer
(416) 591-2726
Tammy Oldenburg
Vice President and Chief Financial Officer
(416) 847-3542
