Toronto, Ontario – May 9, 2022. MCAN Mortgage Corporation d/b/a MCAN Financial Group (“MCAN”, the “Company” or “we”) (TSX: “MKP”) reported strong net income of $15.5 million ($0.52 earnings per share) for the first quarter of 2022, a slight decrease from net income of $15.9 million ($0.64 earnings per share) in the first quarter of 2021. Earnings per share for the first quarter of 2022 was impacted by our Rights Offering of almost 2.0 million units completed in December 2021, for which there has only been one quarter impact of the investment of those proceeds. First quarter 2022 return on average shareholders’ equity1 was 14.19% compared to 18.15% in the prior year.
The Board of Directors declared a second quarter regular cash dividend of $0.36 per share to be paid June 30, 2022 to shareholders of record as of June 15, 2022.
“Our first quarter results were solid and in line with our expectations, despite market conditions materially changing since this time last yeardue to the increasing interest rate environment, housing market challenges, inflation and geopolitical uncertainties. We reached almost $4billion in total assets at the end of the quarter and grew our corporate assets by 5%,” said Karen Weaver, President and Chief Executive Officer.
“We also unveiled a new brand identity whereby MCAN Mortgage Corporation is now doing business as MCAN Financial Group. Our rebrand not only reflects the scope and breadth of all that we do, it also represents a new phase for MCAN – one defined by a continued focus on growth and ingenuity using our extensive real estate expertise and manifested by collaborative and fulfilling internal and external partnerships. We invest in our most important asset – our people – and we are proud to have been recently recognized as a 2022 5-Star Mortgage Employer by Canadian Mortgage Professional. We are also proud to have been certified as a Great Place to Work and in fact we recently ranked 13th overall on the 2022 list of Best WorkplacesTM (under 1000+ employees) in Canada.”
- Corporate assets totalled $2.28 billion at March 31, 2022, a net increase of $118 million (5%) from December 31, 2021 driven by growth in all our major assets:
- Uninsured residential mortgage originations totalled $120 million year to date 2022, an increase of $15 million (14%) from the same period in 2021.
- Construction and commercial originations totalled $102 million year to date 2022, a decrease of $19 million (15%) from the the same period in 2021.
- Marketable securities totalled $67 million at March 31, 2022, a net increase of $4 million (7%) from December 31, 2021 including $7 million of REIT purchases, $4 million of REIT sales and $1 million of net fair value gains.
- Non-marketable securities totalled $72 million at March 31, 2022, an increase of $7 million (10%) from December 31, 2021 with $45 million of remaining capital advances expected to fund over the next five years.
- Securitized mortgages totalled $1.66 billion at March 31, 2022, an increase of $75 million (5%) from December 31, 2021 primarily dueto originations and securitization volumes:
- Insured residential mortgage originations totalled $181 million year to date 2022, a decrease of $29 million (14%) from the same period in 2021.
- Insured residential mortgage securitizations totalled $137 million year to date 2022, a decrease of $91 million (40%) from
the same period in 2021.
- Net corporate mortgage spread income1 increased by $3.8 million in Q1 2022 compared to Q1 2021 due to a higher average corporate mortgage portfolio balance partially offset by a reduction in the spread of corporate mortgages over term deposit interest. The decrease in the spread of corporate mortgages over term deposit interest and expenses is due to a larger reduction in mortgage rates compared to term deposit rates. The decline in our mortgage rate is primarily due to continued market competition and appetite for variable rate mortgages which has kept rates compressed in our current portfolio mix.
- Net securitized mortgage spread income1 decreased by $0.2 million in Q1 2022 compared to Q1 2021 due to a lower spread of securitized mortgages over liabilities partially offset by a higher average securitized mortgage portfolio balance from insured residential mortgage originations. We have seen spreads decline on securitizations mainly as a result of a decline in the spread of Government of Canada bond yields versus our mortgage rates. Government of Canada bond yields have risen significantly in Q1 2022 as we have entered a rising interest rate environment.
- Allowance for credit losses on our corporate mortgage portfolio totalled $5.4 million at March 31, 2022, a net decrease of $1.3 million from December 31, 2021. The decrease was mainly due to improved economic forecasts as we recover from the economic effects of the COVID-19 pandemic partly offset by growth in our portfolio and increased uncertainty around inflation.
- Equity income from MCAP Commercial LP (“MCAP”) in Q1 2022 of $5.2 million, a decrease of $1.5 million from Q1 2021. This decrease was primarily due to competition in the mortgage origination space, which remained very strong in the first quarter of 2022 with low fixed rate mortgage spreads. Residential mortgage originations shifted significantly to variable rate mortgages in the quarter. This highly competitive mortgage origination space caused a decline in profitability quarter over quarter. This was partly offset by higher servicing and administration revenue from higher assets under management primarily related to its acquisition of Paradigm Quest Inc. in Q3 2021.
- In Q1 2022, we recorded a $1.2 million net gain on securities compared to a $3.9 million net gain on securities in Q1 2021 as we began to see more recent volatility in REIT prices from current geopolitical conflicts and an inflationary environment compared to optimism in Q1 2021 around vaccine rollouts. During Q1 2022, one REIT in our portfolio had a mandatory corporate action resulting in privatization and as such we recognized a $1.8 million realized loss.
- Return on average shareholders’ equity1 was 14.19% in Q1 2022, a decrease from 18.15% in Q1 2021.
- The impaired corporate mortgage ratio1 was 0.03% at March 31, 2022 compared to 0.05% at December 31, 2021.
- The impaired total mortgage ratio1 was 0.02% at March 31, 2022 compared to 0.03% at December 31, 2021.
- Arrears total mortgage ratio1 was 0.40% at March 31, 2022 compared to 0.46% at December 31, 2021.
- The average loan to value ratio of our uninsured residential mortgage portfolio based on an industry index of current real estate values was 55.5% at March 31, 2022 compared to 60.3% at December 31, 2021.
- We issued $28.8 million in new common shares on March 31, 2022 for our 2022 first quarter special stock dividend to shareholders (with fractional shares paid in cash) at the weighted average trading price for the five days preceding the record date of $18.9326.
- In 2021, we filed a Prospectus Supplement to our Base Shelf prospectus establishing an at-the-market equity program (“ATM Program”) 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 will be determined at our sole discretion. During Q1 2022, we sold 24,300 common shares at a weighted average price of $17.76 for gross proceeds of $440,000 and net proceeds of $404,000 including $9,000 of commission paid to our agent and $27,000 of other share issuance costs under the ATM Program.
- We issued $3.4 million in new common shares through the Dividend Reinvestment Program (“DRIP”) in Q1 2022 compared to $2.9 million in new common shares in Q1 2021. The DRIP participation rate was 17% for the Q1 2022 dividend (Q1 2021 – 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.
- The income tax assets to capital ratio3 was 5.53 at March 31, 2022 compared to 5.29 at December 31, 2021.
- The Common Equity Tier 1 (“CET 1”) and Tier 1 Capital to risk-weighted assets ratios2 were 19.32% at March 31, 2022 compared to 20.26% at December 31, 2021. Total Capital to risk-weighted assets ratio2 was 19.57% at March 31, 2022 compared to 20.54% at December 31, 2021.
- The leverage ratio2 was 8.96% at March 31, 2022 compared to 9.41% at December 31, 2021.
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 ratio reflects 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 are included in CET 1 capital. The adjustment to CET 1 capital will be 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, is subject to a scaling factor that will decrease over time and was 70% in fiscal 2020, 50% in fiscal 2021 and is set at 25% in fiscal 2022.
3 Tax balances are calculated in accordance with the Tax Act