MCAN Mortgage Corporation reports fourth quarter earnings



    Stock market symbol
    TSX: MKP

    TORONTO, Feb. 15 /CNW/ - MCAN Mortgage Corporation ("MCAN", the "Company"
or "we") reported net income of $3.2 million for the fourth quarter of 2007,
down from $5.2 million a year earlier. Earnings per share for the quarter were
$0.23 compared to $0.42 last year. Net income for the year ended December 31,
2007 was $14.8 million, down from $15.2 million in 2006, while earnings per
share were $1.12 compared to $1.23 in 2006. The 2006 earnings per share have
been restated from $1.24 to $1.23 and 2007 second quarter earnings per share
have been restated from $0.34 to $0.33 to reflect the impact of the rights
offering that we completed in the third quarter.

    Net Investment Income: Net investment income for the fourth quarter
decreased from $6.2 million in 2006 to $4.3 million in 2007. The decrease is
primarily due to significantly lower equity income from our ownership in MCAP
Commercial LP ("MCLP") and substantial gains from sales of marketable
securities in the fourth quarter of 2006.
    Mortgage interest income increased from $6.9 million to $8.0 million. The
average portfolio increased by $45 million as a result of increased asset
capacity from the rights offering, and the average yield increased by 0.19%.
    Interest on loans and investments was $1.4 million for the quarter,
consistent with the prior year.
    Marketable securities income decreased from $1.1 million to $5,000. The
Company had significant gains from sales of its marketable securities
portfolio in 2006 following statements by the federal government regarding the
future taxation of income trusts, compared to minimal income in 2007. The
portfolio was $156,000 at December 31, 2007 compared to $12 million at
December 31, 2006.
    There was an equity loss of $817,000 in the quarter from our ownership in
MCLP compared to income of $1.6 million in 2006. MCLP took write-downs on
certain of its securitization programs in the quarter due to widening spreads
and an increased cost of funds.
    We recognized securitization income of $511,000 during the quarter
relating to the securitization of insured mortgages through the Canada
Mortgage Bonds program.
    Term deposit interest and expenses increased from $4.5 million in 2006 to
$5.5 million in 2007. The average interest rate increased by 0.47% due to a
significant increase in the cost of new fundings, and the average outstanding
balance increased by $49 million as a result of increased capacity from the
rights offering.
    The securitization programs that we have participated in have been
impacted by repricing in debt markets. We have not received sufficient
information to assess fully the degree to which our investments have been
impaired. At the end of the third quarter, we recorded a write-down of
$700,000 on our securitization investments based on available information. We
revised the write-down to $794,000 at December 31, 2007. The repricing process
is not yet complete and may have a further impact on the returns on some of
our investments in securitization programs.
    Allowances for loan losses were decreased by $286,000 during the quarter
compared to an increase of $427,000 for the same period last year. During the
quarter, we recorded a specific allowance of $67,000. Write-offs were not
material. Impaired loans net of specific allowances were 0.58%, compared to
0.61% at September 30, 2007 and 0.28% at December 31, 2006.

    Operating Expenses: Operating expenses of $1.1 million were consistent
with 2006.

    Financial Position: As of December 31, 2007, total consolidated assets
were $558 million, an increase of $9 million from September 30, 2007. The
growth in assets since September 30, 2007 consists of increases of $4 million
in cash and $9 million in loans and investments. Term deposit liabilities were
$445 million at December 31, 2007, up $8 million from September 30, 2007.
Total shareholders' equity of $103 million was unchanged from September
30, 2007. Activity for the quarter consisted of net income of $3.2 million and
the issuance of $311,000 of new common shares under the dividend reinvestment
plan, offset by the fourth quarter dividend of $3.2 million and a decrease to
accumulated other comprehensive income of $911,000.

    Outlook: Our primary objective is to fully invest the balance sheet while
maintaining acceptable and sustainable returns. We are subject to maximum
asset levels under both the Income Tax Act (Canada) (the "Tax Act") and the
Trust and Loan Companies Act. The maximum asset level permitted under the Tax
Act, which is the most constraining for us, effectively limits assets to 6
times capital on a non-consolidated basis, measured at tax values. We manage
our assets to a level of 5.75 times capital to provide a prudent cushion
between the maximum and total actual assets. We have not yet fully levered our
new capital from the rights offering and as a result of this we were
underinvested by $27 million at year end against our 5.75 internal limit. Our
objective is to fully invest our remaining asset capacity from the rights
offering by the second quarter of 2008. Maintaining our balance sheet at full
investment will depend on our ability to find assets with satisfactory yields
at manageable levels of risk. Our operations and income are a function of the
interest rate environment and the availability of mortgage product at
reasonable yields. The availability of mortgage product for us and the yields
thereon is based on market competition.
    MCAN has no exposure to the United States mortgage market. The Company
invests in insured and uninsured residential mortgages in Canada, which are
lower risk than United States sub-prime mortgages. The uninsured mortgages may
not exceed 80% of the value of the real estate securing such loans ("LTV") and
are usually below 75% LTV. Unlike the United States, the Canadian residential
property market continues to exhibit healthy fundamentals.
    The disruption in debt markets has not affected the capital or liquidity
of the Company.

    Dividend: The Board of Directors declared a first quarter dividend of
$0.23 per share to be paid March 28, 2008 to shareholders of record as of
March 14, 2008. The Board designated $0.11 of this dividend as a capital gains
dividend. After the payment of this dividend, there is no extra dividend to be
distributed in March 2008 relating to 2007 taxable income.

    
    Selected Quarterly Financial Data (Unaudited)
    (In thousands of dollars, except per share amounts)

    Year Ended December 31, 2007      Q1       Q2       Q3       Q4    Total
                                 --------------------------------------------
    Net investment income         $5,444   $5,140   $4,083   $4,259  $18,926
    Operating expenses             1,075      955    1,000    1,079    4,109
                                 --------------------------------------------
    Income before income taxes     4,369    4,185    3,083    3,180   14,817
    Provision for (recovery of)
     income taxes and large
     corporations taxes              (24)      (2)       -        -      (26)
                                 --------------------------------------------
    Net income                    $4,393   $4,187   $3,083   $3,180  $14,843
                                 --------------------------------------------

    Basic and diluted earnings
     per share                     $0.35    $0.33    $0.21    $0.23    $1.12
    Dividends per share
      Regular                      $0.19    $0.23    $0.23    $0.23    $0.88
      Capital gains                 0.12        -        -        -     0.12
                                 --------------------------------------------
      Total                        $0.31    $0.23    $0.23    $0.23    $1.00
                                 --------------------------------------------

    Year Ended December 31, 2006      Q1       Q2       Q3       Q4    Total
                                 --------------------------------------------
    Net investment income         $3,982   $4,380   $4,377   $6,232  $18,971
    Operating expenses               893      960      923    1,080    3,856
                                 --------------------------------------------
    Income before income taxes     3,089    3,420    3,454    5,152   15,115
    Provision for (recovery of)
     income taxes and large
     corporations taxes               13      (37)     (18)     (54)     (96)
                                 --------------------------------------------
    Net income                    $3,076   $3,457   $3,472   $5,206  $15,211
                                 --------------------------------------------

    Basic and diluted earnings
     per share                     $0.25    $0.28    $0.28    $0.42    $1.23
    Dividends per share
      Regular                      $0.43    $0.21    $0.21    $0.21    $1.06
      Capital gains                 0.12        -        -        -     0.12
                                 --------------------------------------------
      Total                        $0.55    $0.21    $0.21    $0.21    $1.18
                                 --------------------------------------------



    -------------------------------------------------------------------------
                          MCAN MORTGAGE CORPORATION
                         CONSOLIDATED BALANCE SHEETS

                     (Unaudited) (dollars in thousands)
    -------------------------------------------------------------------------
                                     December 31  September 30   December 31
    As at                                   2007          2007          2006
    -------------------------------------------------------------------------

    Assets
    Investments
      Cash and cash equivalents       $   54,008    $   49,822    $   17,685
      Marketable securities                  156           175        12,473
      Mortgages                          412,685       414,741       395,788
      Loans and investments               71,286        61,834        53,377
      Equity investment in
       MCAP Commercial LP                 17,095        17,911        17,340
    -------------------------------------------------------------------------
                                         555,230       544,483       496,663

      Capital assets and other assets      2,399         3,716         1,444
    -------------------------------------------------------------------------
                                      $  557,629    $  548,199    $  498,107
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Liabilities
      Term deposits                   $  445,368    $  437,427    $  408,734
      Accounts payable and
       accrued charges                     8,293         5,688         4,448
      Future taxes payable                   961         1,595           314
    -------------------------------------------------------------------------
                                         454,622       444,710       413,496
    -------------------------------------------------------------------------

    Shareholders' Equity
      Share capital                       96,370        96,059        78,211
      Contributed surplus                    510           510           510
      Retained earnings                    6,654         6,536         5,890
      Accumulated other comprehensive
       income (loss)                        (527)          384             -
    -------------------------------------------------------------------------
                                         103,007       103,489        84,611
    -------------------------------------------------------------------------
                                      $  557,629    $  548,199    $  498,107
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                          MCAN MORTGAGE CORPORATION
                      CONSOLIDATED STATEMENTS OF INCOME

       (Unaudited) (dollars in thousands except for per share amounts)
    -------------------------------------------------------------------------
                                  For the Quarters Ended         Years Ended
                                             December 31         December 31
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------

    Investment Income
      Mortgage interest               $  7,984  $  6,858  $ 28,669  $ 24,642
      Interest on loans and
       investments                       1,372     1,414     5,728     4,528
      Interest on cash and cash
       equivalents                         542       163     1,299       571
      Fees                                 995       791     3,384     3,161
      Marketable securities                  5     1,133       956     2,802
      Equity income from MCAP
       Commercial LP                      (817)    1,584       890     1,840
      Securitization income                511         -     1,190         -
      Gain on sale of mortgages              2        25        22        53
    -------------------------------------------------------------------------
                                        10,594    11,968    42,138    37,597
    -------------------------------------------------------------------------

    Financial Expenses
      Term deposit interest
       and expenses                      5,543     4,461    18,996    14,710
      Mortgage expenses                  1,078       848     3,699     3,037
      Provision for (recovery of)
       losses                             (286)      427       517       879
    -------------------------------------------------------------------------
                                         6,335     5,736    23,212    18,626
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net Investment Income                4,259     6,232    18,926    18,971
    -------------------------------------------------------------------------

    Operating Expenses
      Salaries and benefits                511       477     1,878     1,785
      General and administrative           568       603     2,231     2,071
    -------------------------------------------------------------------------
                                         1,079     1,080     4,109     3,856
    -------------------------------------------------------------------------

    Income Before Income Taxes           3,180     5,152    14,817    15,115
      Provision for (recovery of)
       income taxes and large
       corporations taxes                    -       (54)      (26)      (96)
    -------------------------------------------------------------------------
    Net Income                        $  3,180  $  5,206  $ 14,843  $ 15,211
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted earnings
     per share                        $   0.23  $   0.42  $   1.12  $   1.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Dividends per share               $   0.23  $   0.21  $   1.00  $   1.18
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of basic
     and diluted shares (000's)         14,098    12,470    13,306    12,395
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Further Information: Complete copies of the Company's 2007 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 by March 30, 2008.

    This report may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of the Company.
These statements are subject to a number of risks and uncertainties that may
cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, competition,
technology change, global market activity, interest rates, changes in
government and economic policy and general economic conditions in geographic
areas where the Company operates. Reference is made to the risk factors
disclosed in the Company's 2007 Annual Information Form, which are
incorporated herein by reference. These and other factors should be considered
carefully and undue reliance should not be placed on the Company's
forward-looking statements. Subject to applicable securities law requirements,
we do not undertake to update any forward-looking statements.





For further information:

For further information: MCAN Mortgage Corporation, Website:
www.mcanmortgage.com, e-mail: mcanexecutive@mcanmortgage.com; Blaine Welch,
President and Chief Executive Officer, (416) 591-2726; Tammy Oldenburg, Vice
President and Chief Financial Officer, (416) 847-3542


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