MCAN Mortgage Corporation Reports Third Quarter Earnings and an Increase in the Quarterly Dividend

MCAN Mortgage Corporation Reports Third Quarter Earnings and an Increase in 
the Quarterly Dividend 
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 throughoutthe 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 and on the Company's website at 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. 
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
    --  sufficiency of our access to capital resources; and
    --  the timing of the effect of interest rate changes on our cash

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

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.

MCAN Mortgage Corporation

William Jandrisits President and Chief Executive Officer (416) 591-2726

Tammy Oldenburg Vice President and Chief Financial Officer (416) 847-3542

SOURCE: MCAN Mortgage Corporation

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CO: MCAN Mortgage Corporation
ST: Ontario

-0- Nov/08/2012 21:00 GMT

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