Mr. Donald Coulter reports

MCAN FINANCIAL GROUP ANNOUNCES Q1 2024 RESULTS AND DECLARES $0.39 REGULAR CASH DIVIDEND

MCAN Mortgage Corp., doing business as MCAN Financial Group, had a net income of $23.2-million (65 cents per share) for the first quarter of 2024, relatively consistent with a net income of $23.3-million (67 cents per share) in the first quarter of 2023.

The first quarter 2024 return on average shareholders' equity (1) was 17.09 per cent, compared with 18.60 per cent in the first quarter of 2023.

While the company's net income was relatively consistent to the same period last year, its net corporate mortgage spread income (1) increased by 4 per cent or $900,000 from Q1 2023.

The company closed a successful overnight marketed offering on March 28, 2024, for aggregate gross proceeds of $28.8-million. Due to strong investor demand, it was able to upsize the base offering by 25 per cent from $20-million to $25-million, plus receive the full exercise of the overallotment option of an additional $3.8-million. This offering allowed the company to expand its shareholder base and shows the support its shareholders have for its business and strategy. These proceeds will allow MCAN to grow its residential mortgage lending and residential construction lending business.

The board of directors declared a second quarter regular cash dividend of 39 cents per share. The dividend will be paid on June 28, 2024, to shareholders of record as of June 14, 2024.

"Our first quarter results were solid with continued growth in our net mortgage interest and originations volumes in our residential lending portfolio. We grew our uninsured residential mortgage portfolio to over $1-billion in the quarter -- a record high -- with strong renewal volumes. With our successful overnight marketed offering raising $28.8-million, we look to continue growing our business as we have consistently done over many years," said chief executive officer Don Coulter. "During the quarter, we were also recognized as one of Canada's Top Small and Medium Employers. We believe in our team members' well-being and professional growth because that builds a stronger MCAN. As we celebrate our achievements this quarter, we remain committed to driving sustainable growth and maximizing shareholder value in the long term."

Highlights:

• Corporate assets totalled $2.75-billion at March 31, 2024, a net decrease of $5-million (0.2 per cent) from Dec. 31, 2023.
• Construction and commercial mortgages totalled $1.09-billion at March 31, 2024, a net decrease of $26-million (2 per cent) from Dec. 31, 2023. In Q1 2024, the movement in the construction and commercial portfolios is attributed to net originations of $122-million in new construction and commercial mortgages, offset by maturities and repayments. Originations in the first quarter were 2 per cent higher compared with the same period in 2023 and the company has seen some extensions of projects due to normal construction delays or normal delays relating to the permitting and zoning process. To date, projects continue to progress toward completion.
• Uninsured residential mortgages reached $1.01-billion at March 31, 2024, a net increase of $41-million (4 per cent) from Dec. 31, 2023. Uninsured residential mortgage originations totalled $84-million in the first quarter of 2024, an increase of $21-million (34 per cent) from the same period in 2023. The economic and interest rate environment and its impact on the housing market and borrowers have improved due to expectations about future interest rate cuts. Canadian housing resale activity was strong in Q1 2024, creating demand for mortgages. MCAN has also seen an increase in its uninsured residential mortgage renewal rates with renewals of $127-million in the first quarter of 2024, compared with $112-million for the same period in 2023, as borrowers find it more convenient to stay with their existing lender in the current market environment.
• Non-marketable securities totalled $113-million at March 31, 2024, an increase of $3-million (2 per cent) from Dec. 31, 2023, with $76-million of remaining commitments expected to finance over the next five years.
• Marketable securities totalled $50-million at March 31, 2024, relatively consistent with Dec. 31, 2023.
• Securitized mortgages totalled $2.09-billion at March 31, 2024, a net increase of $165-million (9 per cent) from Dec. 31, 2023, due to higher securitization volumes being ahead of maturities.
  • Over all, total insured residential mortgage origination volumes, including an increase in the company's adjustable rate mortgage originations compared with last quarter, are higher due to expectations about future interest rate cuts and improved economic forecasts. Insured residential mortgage originations totalled $171-million in the first quarter of 2024, an increase of $103-million (151 per cent) from the same period in 2023. Insured residential mortgage securitizations totalled $214-million in the first quarter of 2024, an increase of $203-million (1,845 per cent) from the same period in 2023. Insured residential mortgages being held for upcoming securitizations totalled $240-million at March 31, 2024, a net decrease of $37-million (13 per cent) from Dec. 31, 2023. MCAN uses various channels in financing the insured residential mortgage portfolio, in the context of market conditions and net contributions over the life of the mortgages, in order to support its overall business. As it has seen favourable securitization spreads, the company opted to securitize its insured residential mortgages as opposed to selling them at the commitment stage.

Financial update:

• Net corporate mortgage spread income (1) increased by $900,000 for Q1 2024 from Q1 2023, mainly due to a higher average corporate mortgage portfolio balance from continued net mortgage originations, partially offset by a reduction in the spread of corporate mortgages over term deposit interest and expenses. The decrease in the spread of corporate mortgages over term deposit interest and expenses is mainly due to higher effective interest rates on the company's term deposits and unrealized fair value hedge losses. This was partially offset by higher average mortgage rates primarily due to the impact of the higher-rate environment on the company's floating rate residential construction loans.
• Net securitized mortgage spread income (1) increased by $600,000 for Q1 2024 from Q1 2023, mainly due to an increase in the spread of securitized mortgages over liabilities and by a higher average securitized mortgage portfolio balance from higher securitization volumes of insured residential mortgages exceeding maturities. MCAN has seen better economics on securitizations as the spread of government of Canada bond yields versus its mortgage rates has widened on the expectation of interest rate cuts in the second half of the year.
• For Q1 2024, MCAN had a recovery of credit losses on its corporate mortgage portfolio of $600,000, compared with a provision for credit losses of $1.2-million in Q1 2023. For Q1 2024, the recovery was mainly due to improved economic forecasts, particularly around the housing price index and gross domestic product, partially offset by an increase in impaired uninsured residential mortgages. MCAN believes that it has a quality uninsured residential mortgage loan portfolio with an average loan to value (LTV) of 65.5 per cent at March 31, 2024, based on an industry index of current real estate values. It has also seen its arrears stabilize since Q1 2024.
• Equity income from MCAP Commercial LP totalled $7.2-million in Q1 2024, a decrease of $800,000 (10 per cent) from $8.0-million in Q1 2023. The decrease in the quarter was primarily due to: (i) higher hedge losses; (ii) higher interest expense on credit facilities; and (iii) higher securitization expenses. These were partially offset by: (i) higher securitized mortgage net interest income from a higher average securitized portfolio; (ii) higher servicing and administration income from higher assets under management; (iii) higher mortgage origination fees as a result of higher mortgage origination fee rates; and (iv) higher investment revenue from higher average mortgage rates on non-securitized mortgages.
• In Q1 2024, MCAN had a net unrealized fair value loss on its marketable securities of $300,000, compared with a $1.0-million net unrealized fair value gain in Q1 2023. The company expects continued volatility in the REIT (real estate investment trust) market given the economic uncertainty and interest rate environment. The company is a long-term investor and continues to realize the benefits of solid cash flows and distributions from these investments. For its non-marketable securities, MCAN had a net unrealized fair value gain of $300,000 in Q1 2024, mainly relating to an updated property valuation, as well as actual execution on leasing activities on another underlying property. In Q1 2023, there was no fair value gain or loss on the company's non-marketable securities as these investments were in early stages.

Credit quality:

• Arrears total mortgage ratio (1) was 3.18 per cent at March 31, 2024, compared with 2.70 per cent at Dec. 31, 2023. The majority of the company's residential mortgage arrears activity occurs in the one-to-30-day category, in which the bulk of arrears are resolved and do not migrate to arrears categories over 30 days. While greater-than-30-day arrears have increased in the company's uninsured residential mortgages, MCAN believes over all that it has a quality uninsured residential mortgage loan portfolio with an average LTV (loan to value) of 65.5 per cent at March 31, 2024, compared with 63.4 per cent at Dec. 31, 2023, based on an industry index of current real estate values. It has also seen its arrears stabilize since Q1 2024. With respect to its construction and commercial loan portfolio, the company has a strong record with its default management processes and asset recovery programs as the need arises.
• Impaired corporate mortgage ratio (1) was 3.42 per cent at March 31, 2024, compared with 3.26 per cent at Dec. 31, 2023. At March 31, 2024, impaired mortgages mainly represent five impaired construction mortgages where asset recovery programs have been initiated.
• Impaired total mortgage ratio (1) was 1.83 per cent at March 31, 2024, compared with 1.82 per cent at Dec. 31, 2023.

Capital:

• MCAN manages its capital and asset balances based on the regulations and limits of both the Income Tax Act (Canada) and Office of the Superintendent of Financial Institutions Canada (OSFI).
• The company has a base shelf prospectus allowing it to make certain public offerings of debt or equity securities during the period that it is effective, through prospectus supplements:
  • On March 28, 2024, it closed an overnight marketed offering, established pursuant to a prospectus supplement to its base shelf prospectus, at a price of $15.40 per common share for gross proceeds of $28.8-million and net proceeds of $27.2-million, including share issuance costs.
  • The company has an at-the-market (ATM) equity program, established pursuant to a prospectus supplement to its base shelf prospectus, allowing MCAN to issue up to $30-million common shares to the public from time to time at the market prices prevailing at the time of sale. In Q1 2024, it issued no common shares through its ATM program. At March 31, 2024, MCAN has $28.4-million remaining available to be issued through its ATM program. The volume and timing of distributions under the ATM program are determined at MCAN's sole discretion.
• The company issued $8.2-million in new common shares through the dividend reinvestment plan (DRIP) in Q1 2024, compared with $6.9-million in new common shares in Q1 2023. The DRIP participation rate was 29 per cent for the Q1 2024 dividend (Q1 2023 -- 29 per cent).
• Income tax assets to capital ratio (3) was 5.14 at March 31, 2024, compared with 5.52 at Dec. 31, 2023.
• Common equity Tier 1 (CET 1) and Tier 1 capital to risk-weighted assets ratios (2) were 19.00 per cent at March 31, 2024, compared with 17.61 per cent at Dec. 31, 2023. Total capital to risk-weighted assets ratio (2) was 19.23 per cent at March 31, 2024, compared with 17.91 per cent at Dec. 31, 2023. The leverage ratio (2) was 10.11 per cent at March 31, 2024, compared with 9.49 per cent at Dec. 31, 2023. Improvement to the company's March 31, 2024, capital and leverage ratios were due to the timing of MCAN's overnight marketed offering mentioned above.

(1) Considered to be non-GAAP (generally accepted accounting principles) measures.

(2) These measures have been calculated in accordance with OSFI's leverage requirements and capital adequacy requirements guidelines.

(3) Tax balances are calculated in accordance with the Income Tax Act.

Annual general meeting of shareholders

The company's annual general meeting of shareholders will be held at 4:30 p.m. Toronto time on May 7, 2024.

Further information

Complete copies of the company's 2024 first quarter report will be filed on SEDAR+ and on the company's website.

For MCAN's outlook, refer to the outlook section of the 2024 first quarter report.

MCAN is a public company listed on the Toronto Stock Exchange 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. MCAN is the largest MIC in Canada and the only federally regulated MIC.

The company's primary objective is to generate a reliable stream of income by investing in a diversified portfolio of Canadian mortgages, including residential mortgages, residential construction, non-residential construction and commercial loans, as well as other types of securities, loans and real estate investments. MCAN employs leverage by issuing term deposits that are eligible for Canada Deposit Insurance Corporation deposit insurance. MCAN is investing in communities and homes for Canadians.

For how to enroll in the DRIP (dividend reinvestment program), please refer to the management information circular dated March 15, 2024, or visit the company's website. 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 five days preceding such issue less a discount of 2 per cent until further notice from MCAN.

Non-GAAP and other financial measures

This news release references a number of non-GAAP and other financial measures and ratios to assess the company's performance, such as return on average shareholders' equity, net corporate mortgage spread income, net securitized mortgage spread income, impaired corporate mortgage ratio, impaired total mortgage ratio and arrears total mortgage ratio. These measures are not calculated in accordance with IFRS (international financial reporting standards), are not defined by IFRS, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures. These metrics are considered to be non-GAAP and other financial measures and are incorporated by reference and defined in the non-GAAP and other financial measures section of the 2024 first quarter management's discussion and analysis of operations (MD&A), available on SEDAR+. Attached tables provide reconciliations for the company's non-GAAP financial measures included in this news release using the most directly comparable IFRS financial measures.

Net corporate mortgage spread income is a non-GAAP financial measure that is an indicator of net interest profitability of income-earning assets less cost of financing for the company's corporate mortgage portfolio. It is calculated as the difference between corporate mortgage interest and term deposit interest and expenses.

Net securitized mortgage spread income is a non-GAAP financial measure that is an indicator of net interest profitability of income-earning securitization assets less cost of securitization liabilities for the company's securitized mortgage portfolio. It is calculated as the difference between securitized mortgage interest and interest on financial liabilities from securitization.

We seek Safe Harbor.