Canada NewsWire
TORONTO, Aug. 11, 2017
Stock market symbol
TSX: MKP
TORONTO, Aug. 11, 2017 /CNW/ - MCAN Mortgage Corporation ("MCAN", the "Company" or "we") reported Q2 2017 net income of $8.9 million, down from $13.6 million in Q2 2016. Earnings per share decreased to $0.39 in Q2 2017 from $0.59 in Q2 2016. The decreases were largely driven by the recognition of $3.8 million of distribution income in Q2 2016 from our investment in Crown Realty II Limited Partnership ("Crown LP").
Highlights
Net Income
Q2 2017
Year to Date 2017
Dividend
Corporate Activity
Credit Quality
Capital
Outlook
Market conditions
We expect housing markets to continue to benefit from historically low interest rates, but also expect a slowdown in housing sales as a result of the impact of regulatory changes and new taxes recently announced in Ontario and announced last year in British Columbia.
Canadian residential real estate markets continue to have mixed performances as regional markets adjust with local economic conditions. The Prairie Provinces continue to demonstrate weakness as oil prices remain in the $50 range, which is negatively impacting employment. Other regional economies previously benefited from the lower Canadian dollar, which helped to strengthen employment in the manufacturing sector. These regional economies now face a strengthening Canadian dollar while a strong Canadian GDP supports higher interest rates.
Ontario and British Columbia have continued to exhibit strong fundamentals, with GDP growth driven by exports and immigration. We continue to focus our origination in Ontario and British Columbia and selectively lend in Alberta.
Real estate conditions
Canadian housing market conditions are expected to be volatile through the remainder of the year. Markets are adjusting to an unprecedented level of regulatory and policy changes affecting mortgage insurance rules, foreign buyer taxes, underwriting requirements for regulated lenders and rising interest rates. It will take 6 to 12 months to see the full impact of these changes on housing sale volumes and prices. We expect home sales levels to slow as buyers react to the uncertainty caused by the multiple rule changes and evidence of increases in listings and decreases in sales. We expect to see some level of weakness in the resale markets as markets adjust to fewer buyers and more available listings.
The Greater Toronto Area (GTA) saw existing home sales decrease by 15.1% in June. The GTA is expected to go through a six-month stall in demand, similar to Vancouver, as markets react to the Government of Ontario's announced reforms to rental and housing markets (see below). That said, the GTA still has near record lows in available new home lots and the lowest levels of available new homes in over 15 years.
Vancouver has recovered to more normal levels of home sales and is experiencing price deflation following changes in mortgage underwriting rules and the 15% tax on non-resident real estate purchases enacted in mid-2016. While June sales decreased by 11.5% from the prior year, they are relatively healthy against the 10-year average for the month of June. The greatest impact of the foreign buyer tax has been on homes selling above $5 million.
While we expect to see lower levels of resale homes for the remainder of the year in both Toronto and Vancouver, we expect the impact to new home sales to be minimal due to lot supply shortages and relatively low mortgage rates.
We believe that there is an increased risk of a price correction in residential housing through the remainder of the year as prices adjust from historical highs in many geographic markets. We will continue to operate with more conservative underwriting and credit policies for uninsured mortgages through this market transition.
Regulatory Changes
In July 2017, the Office of the Superintendent of Financial Institutions Canada ("OSFI") issued an announcement regarding its expectations for residential mortgage underwriting for federally regulated financial institutions and advised that it would be increasing its supervisory intensity and enhancing its B-20 Guideline, Residential Mortgage Underwriting Practices and Procedures. The advisory specifically referenced its intention to clarify and strengthen areas including:
On April 20, 2017 the Ontario government announced reforms to Ontario's rental and housing market with the intent of slowing the rapid price increases in the Toronto real estate market and providing affordable rental options for residents. The Ontario government has put together a 16-point plan to address high home price inflation. Given the recency of the announcement, we are currently not able to determine the magnitude of the impact on MCAN. We will monitor housing and mortgage markets to quantify this impact.
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 have increased premiums on mortgage portfolio insurance paid by lenders which may impact rates charged to borrowers.
In late 2016, the Department of Finance announced new mortgage regulations. The impact of these new regulations to date are as follows:
Impact on MCAN
We will continue to monitor housing markets and market developments as they evolve, and will continue to ensure that our mortgage portfolio remains well positioned. Our corporate assets have increased by 1.0% for the year to date compared to our stated annual growth target of 10%. Given the noted discussion above relating to the markets, we believe that there is higher uncertainty that this target will be attained in 2017. We expect to continue to make adjustments to the composition of our balance sheet as we evaluate the risks and rewards of each of our product lines in the geographic markets we lend to.
KingSett's announcement during Q2 regarding its agreement to acquire $1.2 billion in commercial mortgages from Home Capital may have a positive impact on future income from our investment in the KingSett High Yield Fund.
We continue to evaluate the impact of regulatory changes to the market and MCAN. We believe that it will require 6-12 months to see the impact of these changes on construction, home sales, and mortgage volumes. MCAN has made significant changes to its underwriting procedures over the past 18 months and we believe that we are well positioned against the regulatory changes outlined above, and do not expect a material impact to our financial results. We believe that MCAN is well positioned to adapt to changes in mortgage and housing markets.
The Bank of Canada increased the overnight rate subsequent to quarter end, which led to an increase in the prime rate. We expect this rate increase to increase revenues from the floating-rate component of our corporate mortgage portfolio, while associated increases in funding costs generally lag since the deposit portfolio is fixed-rate. Uninsured single family market rates are still very uncertain given the volatility that we experienced in the spring, however we have observed increases in rates in this market segment. Securitization spreads have tightened recently and we expect them to remain compressed given reduced supply in the insured single family securitization 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 10, 2017 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 2017 Second 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.
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
View original content: http://www.newswire.ca/en/releases/archive/August2017/11/c5685.html