Stock market symbol
TSX: MKP
TORONTO, Nov. 4 /CNW/ - MCAP Inc. ("MCAP" or the "Company") reported net
income of $2.7 million for the third quarter of 2005, up from $2.1 million a
year earlier. Earnings per share for the quarter were $0.22 compared to $0.21
last year. For the nine months ended September 30, 2005, net income was
$9.4 million, up from $8.9 million in the prior year, and earnings per share
were $0.80 compared to $0.89 in the prior year. The 2004 year-to-date earnings
per share have been restated from $0.91 to $0.89 to reflect the impact of the
rights offering that MCAP completed in the fourth quarter of 2004.
In April 2004, MCAP reorganized its involvement in the mortgage
origination and servicing business (the "Business Reorganization"). The
transactions comprising the Business Reorganization included the sale of MCAP
Financial Corporation ("MFC") to MCAP Commercial Limited Partnership ("MCLP")
and the acquisition of a 25% limited partnership interest in MCLP. Prior to
the Business Reorganization, the Company consolidated MFC. The Company now
equity accounts for the income from the mortgage origination and servicing
business based on its 25% minority interest in MCLP.
Net Investment Income: Net investment income was $3.9 million compared to
$3.2 million in the same period of 2004. Last year's net investment income
included a one-time gain of $579,000 on the sale of a private investment.
Mortgage interest income was $5.0 million in the quarter versus
$4.2 million last year. Mortgage interest income increased by $780,000
compared to last year as a result of a 21% increase in the average mortgage
portfolio.
Fees of $966,000 were earned in the quarter compared to $467,000 in the
same period last year.
Marketable securities income was $485,000 in the quarter compared to
$138,000 last year. Gains from sales of marketable securities were $182,000 in
the quarter compared to $nil in the same period last year. In addition, a
write-down of $184,000 was taken on a specific security in the portfolio in
the quarter. Unrealized gains on the portfolio at the end of September were
$5.3 million compared to $3.1 million at June 30, 2005.
There is currently significant uncertainty regarding the marketable
securities portfolio based on recent statements from the federal and some
provincial governments. Subsequent to the end of the quarter, there was a
general market decline in income trust units. The Company sold down its book
crystallizing gains totalling $1.2 million which will be reported in the
fourth quarter. At November 2, 2005, the Company's securities portfolio at
carrying value was $14 million and the unrealized gain was $1.1 million.
Equity income from the Company's 25% ownership in MCLP was $470,000 in
the quarter compared to $352,000 last year.
Debenture interest and expenses were $2.9 million compared to
$2.4 million in 2004. The average debenture balance for the third quarter was
$317 million compared to $277 million in 2004.
Mortgage expenses were $703,000 in the quarter compared to $456,000 in
the same period last year, as a result of a larger mortgage portfolio.
Net provisions for losses of $252,000 recorded in the quarter were
primarily used to increase the general allowance for mortgages. Impaired loans
net of specific allowances (excluding insured mortgages) were 0.36%, down from
0.65% at September 30, 2004 and 0.77% at June 30, 2005.
Operating Expenses: Operating expenses during the quarter were $733,000
compared to $1.2 million in 2004.
Income Taxes: In the current quarter, the Company recorded a provision
for income taxes of $488,000 primarily because income of $3.1 million before
income taxes exceeded the $2.3 million dividend ($0.19 per share) paid on
September 30, 2005.
Financial Position: As of September 30, 2005, total consolidated assets
were $429 million, up $21 million from June 30, 2005 and up $50 million from
September 30, 2004. Significant increases in assets since June 30, 2005
consist of $3 million in marketable securities, $10 million in mortgages and
$12 million in loans and other investments. At quarter-end, the Company had
drawn $15 million on its bank line of credit. The loan was repaid subsequent
to the end of the quarter but may be required from time to time in the future
to balance short term liquidity needs as the Company grows its assets. Total
assets are down $25 million from December 31, 2004. This decrease is the net
of a $46 million decrease in cash and a $21 million increase in non-cash
assets. Total shareholders' equity of $79 million was up $3 million from
June 30, 2005. The majority of the increase relates to the issuance of
$2.6 million of shares for cash.
Outlook: The Business Reorganization constituted a shift in the Company's
operations to a greater emphasis on mortgage lending and investing activities.
The Company's participation in the mortgage origination and servicing business
is now through its 25% interest in MCLP and MCAP now operates primarily as a
closed end mortgage fund. Income from investing activities is directly
reflective of the total assets invested and available spreads. Currently,
interest rates are at historically low levels, and a high level of market
competition for mortgage loans has compressed the spreads available to all
mortgage lenders. For the Company to achieve its income potential, it must
increase its assets to an amount closer to the maximum levels permitted under
the income tax and loan companies legislation to which it is subject. At
September 30, 2005, the Company's assets were $72 million below the level
permitted under the Income Tax Act, and $51 million below the Company's target
asset level as the Company targets a prudent cushion between the maximum and
actual total assets. The Company is increasing its mortgage book prudently
without compromising its credit parameters, and is now targeting to be fully
invested by the middle of next year. However, achieving this target will be
dependent on market competition.
Dividend: The Board of Directors declared a fourth quarter dividend of
$0.19 per share to be paid January 3, 2006 to shareholders of record as of
December 15, 2005.
Further Information: Complete copies of the Company's 2005 Third Quarter
Report will be filed on SEDAR at www.sedar.com and on the Company's website at
www.mcapinc.com by November 14th.
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. These and other factors should be considered
carefully and undue reliance should not be placed on the Company's forward-
looking statements. The Company does not undertake to update any forward-
looking statements.
