Canada NewsWire
TORONTO, Feb. 24, 2017
Stock market symbol
TSX: MKP
TORONTO, Feb. 24, 2017 /CNW/ - MCAN Mortgage Corporation ("MCAN", the "Company" or "we") announced Q4 2016 net income of $9.0 million ($0.39 per share) compared to $9.5 million ($0.42 per share) in Q4 2015. We also announced record net income for the second consecutive year of $40.2 million in fiscal 2016, up 22% from $32.9 million in 2015.
Highlights
Net Income
Q4 2016
Fiscal 2016
Dividend
Corporate Activity
Q4 2016
Fiscal 2016
Securitization Activity
Credit Quality
Q4 2016
Fiscal 2016
Capital
Outlook
Market conditions
The Bank of Canada has forecasted 2017 Canadian GDP growth of 2.1%, a slight increase over the 1.9% rate for Q4 2016. With the relatively low levels of expected economic growth, the probability of increased interest rates is again low for 2017. However, one of the effects of the recent U.S. election has been an increase in U.S. bond yields, which has also impacted the interest rate market in Canada. We expect housing markets to continue to benefit from historically low interest rates, but we also expect a slowdown in housing as a result of the impact of regulatory changes announced last quarter to mortgage underwriting and insurance.
Canadian residential real estate markets continue to have mixed performances as regional economies adjust with local economic conditions. Western Canada continues to experience the negative impact of weak oil prices on employment, while other regional economies benefit from the lower Canadian dollar and employment strength in the manufacturing sector. The Canadian dollar has strengthened marginally since the U.S. election, but has continued to trade at a discount to the U.S. dollar due to weak world-wide commodity prices, a stronger U.S. economy, higher U.S. interest rates and the potential for further U.S. rate increases.
We expect financial markets to experience increased volatility following the U.S. election result, with increased uncertainty around U.S. policy, particularly trade. Fluctuations in stock markets upon reaction to announced changes will impact expectations for global growth and volatility in international currencies as they impact corporate earnings and valuations. In Canada, the impact of a weak oil sector and soft commodity prices continues to affect a significant portion of the stock market. Concerns over low or regionally negative economic growth and increases in unemployment rates are expected to have a spillover effect on consumer confidence.
Ontario and British Columbia have continued to exhibit strong fundamentals and growth, with GDP growth driven by exports and immigration. In Alberta, housing markets have continued to slow as a result of lower oil prices and weakening employment. We continue to focus our origination in Ontario and British Columbia and monitor our exposure to Alberta. We are selective in our origination of new residential construction projects.
Real estate conditions
Canadian housing market conditions continue to be mixed. The Toronto housing market continues to experience significant price inflation with forecasts for continued strength in 2017. Price inflation in Toronto continues to be well in excess of levels supported by employment and income growth.
Vancouver has recently experienced a slowing of sales and price inflation. This has arisen after recent changes in mortgage underwriting rules and the 15% tax on non-resident real estate purchases enacted in mid-2016. This tax was intended to help restore housing affordability for residents in the Metro Vancouver Area by raising non-residents' cost of purchasing and, on the margin, discouraging foreign speculation. The greatest impact of this foreign buyer tax has been on homes selling above $5 million.
While some of the price inflation in both Toronto and Vancouver is driven by low mortgage rates and lot supply shortages, we believe that price inflation at these high levels increases the risk of a price correction. We are operating with tightened underwriting policies for uninsured mortgages, specifically for self-employed applicants.
In late 2016, the Department of Finance announced new mortgage regulations. The most significant regulations expected to impact the market are as follows:
We expect the impact of these new regulations to be as follows:
The Department of Finance also launched a consultation in late 2016 on lender risk sharing for government backed insured mortgages. We expect the impact of potential risk sharing to be as follows:
We have observed the early impacts of the changes noted above on housing markets, specifically the slowing of first time buyers in the market. However, Q4 2016 market activity is not a good indicator of market momentum, given the relatively small portion of annual sales that it represents. We are continuing to evaluate the impact of these regulatory changes to the market and MCAN. We believe that the effect of these changes will likely require a minimum of 6-12 months to begin providing clarity on the direction of the mortgage market in Canada.
Effective January 1, 2017, the Office of the Superintendent of Financial Institutions Canada ("OSFI") introduced new minimum capital adequacy requirements for mortgage insurers. These changes are expected to increase premiums on mortgage portfolio insurance paid by lenders which may impact rates charged to borrowers.
Impact on MCAN
We will continue to monitor housing market developments as they evolve and will continue to ensure that our mortgage portfolio remains well positioned. MCAN has a stated annual corporate asset growth target of 10%. In 2016, we experienced below-target growth of 3%. In 2017, we expect to continue to make adjustments to the composition of our balance sheet so as to evaluate the risks and rewards of each of our product lines.
We believe that MCAN is well positioned to adapt to changes in mortgage and housing markets given that we, as a regulated financial institution, have access to both the insured securitization market as well as the term deposit funding market.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan ("DRIP") is a program that provides MCAN with a reliable source of new capital and existing shareholders an opportunity to acquire additional shares at a discount to market value. 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 5 days preceding such issue less a discount of 2%. For further information on how to enrol in the DRIP, please refer to the Management Information Circular dated March 11, 2016 or visit our website at www.mcanmortgage.com/investor-relations/investor-materials.
Non-IFRS Measures
The following metrics are considered to be Non-IFRS measures and are defined in the "Non-IFRS Measures" section of the MD&A: Return on Average Shareholders' Equity, Taxable Income, Taxable Income Per Share, Average Interest Rate, Net Interest Income, Impaired Mortgage Ratios, Mortgage Arrears, Common Equity Tier 1, Tier 1 and Total Capital Ratios, Total Exposures, Regulatory Assets, Leverage Ratio, Assets to Capital Multiple; Risk Weighted Assets Ratios, Tier 1, Tier 2, Tier 3 and Total Liquid Assets and Liquidity Ratios, Income Tax Assets, Income Tax Liabilities, Income Tax Capital, Income Tax Assets to Capital Ratio, Income Tax Asset Capacity, Market Capitalization, Book Value per Common Share and Limited Partner's At-Risk Amount.
Further Information
Complete copies of the Company's 2016 Annual 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.
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 in the MIC entity) 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's wholly-owned subsidiary, Xceed, is an originator of residential first-charge mortgage products across Canada. As such, Xceed operates primarily in one industry segment through its sales team and mortgage brokers.
MCAN is also an NHA MBS issuer.
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 and assumptions with respect to:
The material factors or assumptions that were identified and applied by us in drawing conclusions or making forecasts or projections set out in the forward-looking statements include, but are not limited to:
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:
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
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