Saturday 13th August 2022

MCAN Mortgage Corporation Announces Q3 2021 Results and Declares $0.34 Cash Dividend Per

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TORONTO, Nov. 5, 2021 /CNW/ – MCAN Mortgage Corporation (“MCAN”, the “Company” or “we”) (TSX: MKP) reported strong net income of $13.0 million ($0.47 earnings per share) for the third quarter of 2021, a decrease from net income of $22.7 million ($0.92 earnings per share) in the third quarter of 2020 primarily due to an expected decrease in equity income from MCAP related to lower mortgage origination and processing fees, including non-recurring new contracts in the prior year.  Third quarter 2021 return on average shareholders’ equity was 13.22% compared to 28.04% in the prior year.  Results for the third quarter of 2021 were positively impacted by growth in our core business compared to the third quarter of 2020.

Year to date, we reported net income of $48.3 million ($1.84 earnings per share), an increase of 132% from a net income of $20.8 million ($0.85 earnings per share) for the same period in 2020. Year to date return on average shareholders’ equity was 17.40% compared to 8.61% in the prior year.  Year to date 2021 results were mainly impacted by fair value gains on our marketable securities compared to fair value losses at the onset of the pandemic and growth in our core business, partly offset by an expected decrease in equity income from MCAP.  The Company typically sees swings in its earnings per share due to fluctuations in marketable and non-marketable securities investment income, realized gains and unrealized gains and losses.

The Board of Directors (the “Board”) declared a quarterly cash dividend of $0.34 per share to be paid January 4, 2022 to shareholders of record as of December 15, 2021.

“We are very pleased with our strong year to date results.  Our mortgage originations continue to be strong and our portfolio continues to grow in response to very low interest rates and our exceptional client service. We have been enhancing our sales and marketing capabilities, services to our mortgage brokers and our underwriting efficiency and our efforts are paying off. We recently won Canadian Mortgage Professional’s 5-star Mortgage Products Award in the Alternative Lending Category,” said Karen Weaver, President and Chief Executive Officer.  “We are also looking to expand our sources of capital, both debt and equity, and to that end have recently filed a Base Shelf prospectus and launched an at-the-market equity program to be executed over a maximum 24 month period that will supplement other capital raising initiatives.”

Highlights

  • Corporate assets totalled $2.02 billion at September 30, 2021, an increase of $463 million (30%) from December 31, 2020 driven by growth in all our major assets:
    • Uninsured single family originations totalled $417 million year to date 2021, an increase of $247 million (146%) from the same period in 2020.
    • Construction and commercial originations totalled $569 million year to date 2021, an increase of $214 million (60%) from the same period in 2020.
    • Marketable securities totalled $71 million at September 30, 2021, an increase of $21 million (43%) from December 31, 2020 due to $10 million of REIT purchases and $11 million of unrealized fair value gains. 
    • Non-marketable securities totalled $60 million at September 30, 2021, an increase of $4 million (7%) from December 31, 2020 primarily from three new investments with $23 million in remaining capital commitments expected to fund over approximately two years.

       

  • Securitized mortgages totalled $1.53 billion at September 30, 2021, an increase of $395 million (35%) from December 31, 2020 primarily due to an increase in originations and securitizations:
    • Insured single family originations totalled $569 million year to date 2021, an increase of $171 million (43%) from the same period in 2020.  In addition, we originated and sold $65 million of insured single family commitments year to date 2021 under a new agreement with MCAP Securities Limited Partnership, a wholly owned subsidiary of MCAP.
    • Insured single family securitizations totalled $582 million year to date 2021, an increase of $130 million (29%) from the same period in 2020.

Financial Update

  • Net corporate mortgage spread income1 increased by $2.7 million for Q3 2021 from Q3 2020 and increased $5.5 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. Term deposit rates in 2020 were impacted by a temporary higher demand for liquidity by financial institutions in the term deposit market resulting in higher term deposit funding costs at the onset of the pandemic.
  • Net securitized mortgage spread income1 increased by $0.6 million for Q3 2021 from Q3 2020 and increased $3.4 million for year to date 2021 from 2020 mainly due to a higher average securitized mortgage portfolio balance1 from significantly higher originations of insured single family mortgages. For Q3 2021, this was partially offset by a decrease in the spread of securitized mortgages over liabilities1 compared to Q3 2020 due to a decline in the spread of Government of Canada bond yields versus our mortgage rates. For year to date 2021, there was an increase in the spread compared to the same period last year. The decrease in interest rates at the start of the pandemic led to an increase in the number of early repaid mortgages in Q1 and Q2 2020, causing higher indemnity expenses incurred compared to penalty income received which decreased the spread of securitized mortgages over liabilities1 during that period.
  • Allowance for credit losses on our corporate mortgage portfolio totalled $5.9 million at September 30, 2021, a net decrease of $0.3 million from December 31, 2020 and $0.3 million from September 30, 2020. The decrease is due to improved economic forecasts as we start making our way out of the pandemic partially offset by growth in our portfolio versus the prior periods.
  • Equity income from MCAP Commercial LP (“MCAP”) totalled $5.6 million in Q3 2021, a decrease of $12.4 million (69%) from $18.0 million in Q3 2020, and totalled $19.2 million for year to date 2021, a decrease of $5.3 million (22%) from $24.5 million year to date 2020. For Q3 2021, this was primarily due to lower financial instruments gains compared to the prior year and decreased mortgage origination and processing fees from (i) lower mortgage spreads, (ii) higher Government of Canada bond yields, and (iii) non-recurring new contracts in the prior year. For 2021 year to date, the decrease is due to the same factors as for Q3 2021 mentioned above, except with partial offsets of (i) higher interest income on securitized mortgages as a result of an increase in that portfolio and higher spreads being earned on that portfolio, and (ii) economic hedge gains recorded this year versus losses recorded in the prior year.
  • In Q3 2021, we recorded a $1.0 million net gain on securities compared to a $0.5 million net loss on securities in Q3 2020. Year to date net gain on securities was $11.4 million for 2021 compared to a year to date net loss on securities of $14.8 million for 2020. Activity in both periods relates to unrealized fair value changes on our REIT portfolio, with both periods experiencing volatility due to COVID-19. The recovery in 2021 comes amid optimism in economic forecasts, reopenings and higher vaccination rates.
  • Return on average shareholders’ equity1 was 13.22% in Q3 2021 compared to 28.04% in Q3 2020. Return on average shareholders’ equity1 was 17.40% for 2021 year to date, which compares to 8.61% for 2020 year to date.

Credit Quality

  • Impaired corporate mortgage ratio1 was 0.06% at September 30, 2021 compared to 0.11% at June 30, 2021 and 0.30% at December 31, 2020.
  • Impaired total mortgage ratio1 was 0.04% at September 30, 2021 compared to 0.07% at June 30, 2021 and 0.18% at December 31, 2020.
  • Arrears total mortgage ratio1 was 0.40% at September 30, 2021 compared to 0.58% at June 30, 2021 and 1.25% at December 31, 2020.
  • Average loan to value ratio (“LTV”) of our uninsured single family portfolio based on an industry index of current real estate values was 59.3% at September 30, 2021 compared to 58.0% at June 30, 2021 and 60.6% at December 31, 2020.

Capital

  • In order to add to our existing funding sources, on August 20, 2021, we filed a Base Shelf prospectus allowing us to make public offerings of up to $400 million of debt…

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