ANNUAL REPORT 2010
MCAN MORTGAGE CORPORATION
TABLE OF CONTENTS
MESSAGE TO SHAREHOLDERS ............................................................................................................................. 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS .................................................................. 3
CONSOLIDATED FINANCIAL STATEMENTS ......................................................................................................27
DIRECTORS .............................................................................................................................................................51
OFFICERS AND MANAGEMENT ...........................................................................................................................51
CORPORATE INFORMATION ................................................................................................................................52
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
MESSAGE TO SHAREHOLDERS
MCAN Mortgage Corporation (“MCAN”, the “Company” or “we”) reported another period of strong results in the fourth quarter
of 2010, with reported net income of $6.1 million, unchanged from the prior year. Earnings per share for the quarter were $0.42
compared to $0.43 in the prior year.
Net income for the year ended December 31, 2010 was $25.4 million, up from $24.7 million in 2009, while earnings per share
were $1.76 compared to $1.73 in 2009. Our return on equity for the year was 20%.
We have declared a first quarter dividend of $1.00 per share to be paid March 31, 2011 to shareholders of record as of March 2,
2011. This dividend comprises the regular quarterly dividend of $0.27 per share (increased from $0.26 per share) and an extra
dividend of $0.73 per share in order to pay out substantially all of our 2010 taxable income.
During the year we grew our mortgage portfolio by $127 million, from $295 million as at December 31, 2009 to $422 million as
at December 31, 2010.
As of December 31, 2010, total consolidated assets were $579 million, an increase of $72 million from December 31, 2009. The
increase in assets includes the aforementioned increase of $127 million in mortgages and an increase of $7 million in marketable
securities, partially offset by a decrease of $60 million in securitization investments.
The credit performance of the portfolio remains strong, with impaired mortgages as a percentage of total mortgages decreasing to
3.06% at December 31, 2010 from 5.81% at December 31, 2009, while total mortgage arrears decreased from $47 million to $31
million in the fourth quarter. Net write-offs of $6,000 for the fourth quarter of 2010 and $66,000 for the year ended December
31, 2010 have improved by 63% and 66%, respectively, from $16,000 and $194.000 recorded in the same periods of 2009.
Capital ratios remained strong with a Tier 1 capital ratio of 22.10% at December 31, 2010 compared to 27.75% at December 31,
2009.
In 2010, we grew our investment portfolio by taking advantage of unutilized investment capacity. We plan to continue to grow
our mortgage portfolio throughout 2011 by taking advantage of opportunities in the single family mortgage and residential
construction loan markets, and through a measured increase in our commercial mortgage portfolio. To facilitate our growth
plans, we plan to expand the Canadian markets in which we invest to further reduce existing geographic concentrations in our
current portfolio in Alberta, Ontario and British Columbia.
William Jandrisits
President and Chief Executive Officer
- 2 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS
This Management’s Discussion and Analysis of Operations (“MD&A”) should be read in conjunction with the consolidated
financial statements and accompanying notes for the year ended December 31, 2010, which have been prepared in accordance
with Canadian Generally Accepted Accounting Principles (“GAAP”) and have been presented in Canadian currency. This
MD&A has been prepared as at March 4, 2011.
Additional information regarding MCAN Mortgage Corporation (the “Company”, “MCAN” or “we”), including copies of our
continuous disclosure materials such as the Annual Information Form, is available on our website at www.mcanmortgage.com or
through the System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com.
A NOTE ABOUT FORWARD-LOOKING INFORMATION AND STATEMENTS
This MD&A may contain forward-looking information or statements, including statements regarding the business and
anticipated financial performance of the Company. These forward-looking statements can generally be identified as such
because of the context of the statements and often include words such as the Company “believes”, “anticipates”, “expects”,
“plans”, “estimates” or words of a similar nature. These statements are based on current expectations, and 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 changes, 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 herein
and in the Company’s 2011 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 or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
DESCRIPTION OF THE BUSINESS
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”).
Our objective is to generate a reliable stream of income by investing our funds in a portfolio of mortgages (including single
family residential, residential construction, non-residential construction and commercial loans), as well as other types of loans
and investments, real estate and securitization investments. We employ 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 basis)
as limited by the provisions of the Tax Act applicable to a MIC. The term deposits are sourced through a network of
independent financial agents. As a MIC, we are entitled to deduct from income for tax purposes 50% of capital gains d ividends
and 100% of non-capital gains dividends that we pay to shareholders. Such dividends are received by our shareholders as capital
gains dividends and interest income, respectively.
- 3 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Selected Financial Information
(dollars in thousands except for per share amounts)
2010
2009
2008
Change from 2009
%
Operating Results
Net investment income
Operating expenses
Income before income taxes
Provision for income taxes
Net income
$ 31,696
6,331
25,365
-
$ 25,365
$ 30,641
5,899
24,742
-
$ 24,742
$ 36,082
5,734
30,348
-
$ 30,348
$ 1,055
432
623
-
623
$
3.4%
7.3%
2.5%
-
2.5%
Mortgage portfolio yield
Term deposit average interest rate
7.22%
1.86%
7.48%
3.12%
7.66%
4.39%
(0.26%)
(1.26%)
(3.5%)
(40.4%)
Basic and diluted earnings per share
Dividends per share
Return on average shareholders’ equity
$
$
1.76
1.19
20.04%
$
$
1.73
1.44
20.69%
$
$
2.14
0.96
28.09%
$
0.03
$ (0.25)
(0.65%)
1.73%
(17.4%)
(3.1%)
Balance Sheet Highlights
Assets
Mortgages
Liabilities
Shareholders’ equity
Capital Ratios
Tier 1 Capital Ratio
Total Capital Ratio
Credit Quality
Impaired mortgage ratio
Total mortgage arrears
$ 578,702
422,393
449,333
129,369
$ 506,683
295,415
383,804
122,879
$ 570,154
393,010
453,545
116,609
$ 72,019
126,978
65,529
6,490
14.2%
43.0%
17.1%
5.3%
22.10%
22.06%
27.75%
27.47%
24.09%
23.69%
(5.65%)
(5.41%)
(20.4%)
(19.7%)
3.06%
5.81%
0.80%
$ 30,638
$ 30,515
$ 34,049
$
(2.75%)
423
(47.3%)
1.4%
Share Information (end of period)
Number of common shares outstanding at year-end
Book value per common share
Common share price - close
Market capitalization
14,448
8.95
$
$
13.86
$ 200,249
14,321
8.58
$
$
13.60
$ 194,766
14,224
8.20
$
$
9.10
$ 129,438
127
0.37
$
$
0.26
$ 5,483
0.9%
4.3%
1.9%
2.8%
HIGHLIGHTS
Driven by growth in net investment income, MCAN reported net income of $25.4 million for 2010, a 3% increase from
$24.7 million in the prior year. Current year results included improved spread income, lower provisions for credit
losses and an increase in equity income from MCAP Commercial LP (“MCLP”).
Earnings per share increased to $1.76 from $1.73 in the prior year.
MCAN’s return on equity remained high at 20.0% in 2010, compared to 20.7% in 2009.
MCAN declared a first quarter dividend of $1.00 per share to be paid on March 31, 2011. This dividend comprises the
regular quarterly dividend of $0.27 per share (increased from $0.26 per share) and an extra dividend of $0.73 per share
in order to pay out substantially all of our 2010 taxable income.
Impaired mortgages as a percentage of total mortgages decreased to 3.06% at December 31, 2010 from 5.81% in the
prior year.
Total consolidated assets were $579 million at December 31, 2010, an increase of $72 million from the prior year. The
change included an increase of $127 million in our mortgage portfolio, consisting of increases of $63 million in
construction loans, $58 million in single family mortgages and $6 million in commercial loans.
OUTLOOK
In 2010, we grew our investment portfolio by taking advantage of unutilized investment capacity. We plan to continue to grow
our mortgage portfolio throughout 2011 by taking advantage of opportunities in the single family mortgage and residential
construction loan markets, and through a measured increase in our commercial mortgage portfolio. To facilitate our growth plans,
- 4 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
we plan to expand the Canadian markets in which we invest to further reduce existing geographic concentrations in our current
portfolio in Alberta, Ontario and British Columbia.
The Canadian economy continued to demonstrate strength with GDP growth of 3.1% in 2010, while forecasted GDP growth for
2011 is 3.2%. The unemployment rate at the end of 2010 was approximately 8%, and is expected to improve to 7.8% by the end
of 2011.
Canadian mortgage rates are expected to remain stable in 2011. Rates could increase if economic growth and inflation increase
more significantly than anticipated. Interest rates have remained low and are expected to remain so, by historical standards. The
recent level of the Canadian dollar also presents challenges as its strength and potential increases in domestic interest rates will
further compromise the competitiveness of Canadian exports.
The market for new housing construction has to date shown evidence of slowing in 2011, in part due to government initiatives
aimed at reducing the potential risks from an overheated housing market. Changes by the Canada Mortgage and Housing
Corporation (“CMHC”) to its mortgage programs reducing maximum amortization terms and permitted loan to value ratios on
refinanced mortgages are intended to reduce leverage in the mortgage market, protecting home owners from future defaults. The
impact to housing markets will be a measured reduction in home sale volumes as purchasers adjust to increased equity
requirements and higher monthly mortgage payments.
New home sales increased in 2010 after experiencing strong growth in the first half of the year due in part to the effect of new
CMHC equity requirements from February 2010 and strong sales in Ontario and British Columbia from the mid-year introduction
of new HST rules on housing. Sales in the second half of the year moderated. Forecasts for 2011 indicate a slowing in the
housing market throughout Canada. New home sales are expected to decline to 174,800 units in 2011, down from 186,200 units
in 2010.
Existing home sales decreased by 3.9% in 2010 to 447,010. In 2011, sales are expected to decrease to the 400,000 to 440,000
level, down from the 2005-2009 average of 478,500.
Overall, the Canadian housing market is expected to remain in balance, with new home sales stabilizing to more normal levels
against historical averages and existing home sales finding a more stable level, slowing the price increases seen over previous
years.
RESULTS OF OPERATIONS
MCAN reported net income of $25.4 million for the year ended December 31, 2010, up from $24.7 million in the prior year.
Earnings per share were $1.76 compared to $1.73 in the prior year, an increase of 2%.
Net Investment Income
(in thousands)
Investment Income
Mortgage interest
Interest on loans and investments
Securitization income
Fees
Equity income from MCAP Commercial LP
Interest on cash and cash equivalents
Marketable securities
Gain on sale of mortgages
Financial Expenses
Term deposit interest and expenses
Mortgage expenses
Provision for (recovery of) credit losses
2010
2009
2008
$ 25,828
2,507
3,949
5,561
3,743
230
31
-
41,849
7,619
2,921
(387)
10,153
$ 27,420
3,878
7,558
8,024
1,456
234
-
-
48,570
13,133
2,761
2,035
17,929
$ 33,429
5,617
7,761
5,051
3,025
1,109
(97)
5,326
61,221
20,684
3,524
931
25,139
Net Investment Income
$ 31,696
$ 30,641
$ 36,082
Net investment income was $31.7 million in 2010, an increase of $1.1 million from $30.6 million in 2009. The increase is
primarily due to higher spread income, lower provisions for credit losses and an increase in equity income from MCLP in the
current year, mostly offset by decreases in securitization income and fees.
- 5 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Mortgage interest income decreased by $1.6 million from the prior year as a result of an $18 million decrease in the average
mortgage portfolio (from $375 million in 2009 to $357 million in 2010) and a decrease in the average mortgage yield to 7.22% in
2010 from 7.48% in 2009. The decrease in the overall portfolio yield was largely driven by the decrease in discount income from
MCAN’s acquired mortgage portfolios, although their impact was partially offset by an increase of 0.20% in the yield on the
regular mortgage portfolio.
The mortgages in the acquired portfolios have higher effective yields than those in our regular portfolio, as they have been
acquired at a discount to their par values. The portion of the discount that we expect to recover is amortized into income over the
remaining term of the respective mortgages. Upon the payout of a mortgage, the remaining unamortized discount is recognized
as income.
Although we do not recognize interest income on impaired mortgages, we include interest owing but not accrued in the mortgage
yield calculation to accurately represent the underlying portfolio. During the year, impaired mortgage interest income not
recognized was $1.2 million. The mortgage yield would have decreased by 0.33% to 6.89% if this amount was excluded from
the mortgage yield calculation.
During the year, we realized $3.7 million (2009 - $4.6 million) relating to the partial recovery of purchase price discounts on
MCAN’s acquired portfolios, included in mortgage interest income. We also received $2.3 million (2009 - $4.9 million) of fees
from MCLP from a profit sharing arrangement relating to the discounted mortgage portfolios acquired by MCLP.
Interest on loans and investments decreased by $1.4 million from the prior year as a result of a significantly lower average
portfolio balance in the current year.
We securitize insured mortgages through the Canada Mortgage Bonds (“CMB”) program. Securitization income from the
current and prior years is as follows:
(in thousands)
Gain on securitization
Residual securitization income - fair value changes
Residual securitization income - other components
Write-down of interest-only strips
2010
2009
$
$
75
(1,714)
5,588
-
3,949
$
$
6,410
(2,350)
4,733
(1,235)
7,558
The up-front gain from securitization decreased significantly in the current year, as we only securitized $28 million of mortgages
in 2010 compared to $836 million in 2009. In general, fair value changes in the interest rate swaps largely offset those in the
interest-only strips, however significant fluctuations in the forward rate curve during both years had a negative impact to income.
Other components of residual securitization income increased over the prior year due to an increase in refinancing and renewal
gains.
During 2009, a net write-down of $1.2 million was recorded on the outstanding interest-only strips. To the time of the write-
down, the prepayment level of CMB mortgages was significantly higher than anticipated and decreased expected future cash
flows, as the assets in which principal collections are reinvested generally yield less than the securitized mortgages. As part of
the write-down, we revised our assumptions regarding mortgage prepayment levels to reflect actual activity to date.
Fees decreased by $2.5 million over 2010, primarily due to the decrease noted above in fees received from MCLP related to
profit sharing on its discounted mortgage portfolios. Fees also include commitment, extension, renewal and letter of credit fees
earned on our mortgage portfolio.
Equity income of $3.7 million from our ownership in MCLP increased significantly from $1.5 million in the prior year due to
gains on sale of certain financial and other assets.
Term deposit interest and expenses decreased by $5.5 million from 2009 as a result of a decrease in the average term deposit rate
to 1.86% in 2010 from 3.12% in 2009 and a $28 million decrease in the average term deposit balance to $344 million in 2010
from $372 million in 2009. The decrease in the average term deposit rate from the prior year is a result of the funding rate on
new term deposits being lower than that of the maturing term deposits despite recent increases in the prime rate.
Mortgage expenses, consisting primarily of mortgage servicing expenses, were $2.9 million in 2010 compared to $2.8 million in
the prior year.
- 6 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Credit Quality
Provisions for credit losses in the current and prior years were as follows:
(in thousands)
Mortgages - general provision (recovery)
Mortgages - specific provision (recovery)
Loans and investments - general provision (recovery)
Other provisions
Securitization investments - write-down
2010
1,090
(1,536)
(141)
200
-
(387)
$
$
2009
(497)
2,618
(186)
-
100
2,035
$
$
General provision activity in the current and prior years is consistent with the respective changes in the balances of mortga ges,
loans and investments that attract an allowance for credit loss.
During the year, we recorded a $200,000 provision relating to our pro-rata share of expected losses pursuant to an indemnity on
the underlying assets of a residential construction loan securitization program.
Specific provision activity for the current and prior years was as follows:
(in thousands)
Residential construction
Full reversal of existing allowance
Net increase of existing allowances
Uninsured single family
2010
2009
$
$
(2,000)
273
191
(1,536)
$
$
-
2,727
(109)
2,618
During 2010, we reversed a previously recorded $2.0 million allowance on a residential construction loan upon its payout in full
with no principal loss. Prior year activity included the initial recording of the aforementioned $2.0 million allowance, in addition
to two other residential construction loan allowances totalling $727,000.
Mortgage write-offs were 1.8 basis points ($66,000) on average mortgage balances, compared to 5.2 basis points ($194,000) in
the prior year.
Impaired mortgages as a percentage of total mortgages (net of specific allowances) are as follows:
(in thousands)
Residential construction
Uninsured single family
December 31
2010
December 31
2009
$
$
9,892
2,939
12,831
$
$
15,815
1,356
17,171
3.06%
5.81%
Impaired mortgages decreased significantly during 2010, mostly due to the payout of the residential construction loan noted
above. We continue to proactively monitor loan arrears and take prudent steps to collect overdue accounts. Although impaired
mortgages decreased over 2009, total mortgage arrears were unchanged at $31 million. While total mortgage arrears have
remained stable, the composition has shifted towards single family mortgages, which generally require a shorter time frame to
resolve than residential construction loans.
Operating Expenses
(in thousands)
Salaries and benefits
General and administrative
2010
2009
2008
$
$
2,711
3,620
6,331
$
$
2,587
3,312
5,899
$
$
2,226
3,508
5,734
Operating expenses increased by $432,000 over the prior year, primarily due to higher professional fees.
- 7 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Income Taxes
(in thousands)
Provision (recovery) against income
Charge (recovery) to retained earnings
2010
$
$
-
3,451
3,451
2009
-
(679)
(679)
$
$
2008
$
$
-
6,059
6,059
We have taken the position that it is more likely than not that sufficient dividends will be paid to shareholders in future periods to
recover current and future taxes. As a result of this, we charge (recover) our current and future tax liabilities directly to retained
earnings. The provision for taxes recorded in the consolidated statements of income relates to taxes that cannot be recovere d
from the payment of future dividends.
During 2010, there was a significant tax charge to retained earnings, as a result of a substantial increase in the magnitude of the
March 31, 2011 dividend compared to 2010. A future tax liability arose since this dividend had not yet been paid as of year -end,
but was deductible from 2010 taxable income. As at December 31, 2010, this liability was significantly higher than the
corresponding liability from the prior year due to the comparatively higher March 2011 dividend, which led to the significant tax
charge during the year. The prior year recovery of taxes was also primarily due to the decrease in the corresponding March 31st
dividend, partially offset by a future tax charge that arose from new CMB issuances in 2009.
Cash Flows
Operating activities provided cash flows of $30 million in 2010 and provided $23 million in 2009. The increase was a result of
higher CMB-related net cash inflows in the current year.
Investing activities used cash flows of $75 million in 2010 and provided $94 million in 2009. The increase was due to significant
net mortgage outflows in 2010 compared to significant inflows in 2009, partially offset by substantial net securitization
investment inflows in 2010.
Financing activities provided cash flows of $45 million in 2010 and used $85 million in 2009. There was a net term deposit
inflow in 2010 compared to a net outflow in 2009.
Summary of Three Year Results of Operations
In 2010, net income remained strong, increasing by $623,000 over 2009 although the composition was substantially different.
Positive variances in 2010 included higher spread income, significantly lower provisions for credit losses (primarily due to the
reversal of a significant specific mortgage allowance) and a significant increase in equity income from MCLP. Conversely, there
were significant decreases in fees and securitization income, while operating expenses increased over 2009.
Net income in 2009 decreased by $5.6 million from 2008. Our profitability remained strong as a result of significant
securitization income and income from the acquired portfolios. The one-time gains from sale of mortgage in 2008 and the higher
provisions for losses in 2009 comprised the majority of the decrease.
SUMMARY OF FOURTH QUARTER RESULTS
The Company reported net income for the quarter ended December 31, 2010 of $6.1 million ($0.42 per share), compared to $6.1
million ($0.43 per share) a year earlier as follows:
(in thousands, except for per share amounts)
For the Quarters Ended December 31
Net investment income
Operating expenses
Income before income taxes
Provision for income taxes
Net income
Basic and diluted earnings per share
Dividends per share
2010
8,102
2,016
6,086
-
6,086
0.42
0.26
$
$
$
$
2009
8,056
1,952
6,104
-
6,104
0.43
0.26
$
$
$
$
- 8 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Net Investment Income
(in thousands)
For the Quarters Ended December 31
Investment Income
Mortgage interest
Interest on loans and investments
Securitization income
Fees
Equity income from MCAP Commercial LP
Interest on cash and cash equivalents
Marketable securities
Financial Expenses
Term deposit interest and expenses
Mortgage expenses
Provision for credit losses
2010
2009
$
7,521
309
37
1,382
1,779
105
31
11,164
2,134
882
46
3,062
$
7,413
910
1,801
1,893
523
34
-
12,574
2,525
615
1,378
4,518
Net Investment Income
$
8,102
$
8,056
Net investment income was $8.1 million for the fourth quarter, unchanged from 2009.
Mortgage interest income increased by $108,000 as the impact of a $64 million increase in the average mortgage portfolio was
mostly offset by a 1.56% decrease in the average mortgage yield from 8.65% to 7.09%. Equity income from MCLP increased
significantly due to a gain on the sale of certain financial and other assets, while securitization income decreased significantly due
to an increase in negative mark-to-market adjustments. Interest on loans and investments and fee income also decreased in the
current year.
Term deposit interest and expenses decreased by $391,000 as a result of a 0.30% decrease in the average term deposit interest
rate from 2.19% to 1.89%, partially offset by a $29 million increase in the average outstanding balance. Provisions for credit
losses decreased substantially as there was minimal activity in the current year compared to a significant increase to an existing
specific mortgage allowance in the prior year.
Operating Expenses
Operating expenses were $2.0 million for the fourth quarter, unchanged from last year.
(in thousands)
For the Quarters Ended December 31
Salaries and benefits
General and administrative
2010
1,038
978
2,016
$
$
2009
933
1,019
1,952
$
$
- 9 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
SELECTED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
2010
2009
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Net investment income
Operating expenses
Income before income taxes
Provision for income taxes
Net income
$6,106
1,308
4,798
-
$4,798
$7,114
1,473
5,641
-
$5,641
$10,374
1,534
8,840
-
$8,840
$8,102
2,016
6,086
-
$6,086
$7,703
1,269
6,434
-
$6,434
$6,875
1,268
5,607
-
$5,607
$8,007
1,410
6,597
-
$6,597
$8,056
1,952
6,104
-
$6,104
Basic and diluted earnings
per share
Dividends per share
Regular
Extra
Total
$0.33
$0.40
$0.61
$0.42
$0.45
$0.39
$0.46
$0.43
$0.26
0.15
$0.41
$0.26
-
$0.26
$0.26
-
$0.26
$0.26
-
$0.26
$0.25
0.43
$0.68
$0.25
-
$0.25
$0.25
-
$0.25
$0.26
-
$0.26
No dividends paid during the past eight quarters have included a capital gains component.
Quarterly income has been relatively stable for the past eight quarters. Securitization income and income from the acquired
portfolios was strong during 2009 and 2010. The increase in net income for the third quarter of 2010 over recent quarters was
primarily due to the reversal of a significant specific mortgage provision upon payout.
FINANCIAL POSITION
Total assets were up $72 million from December 31, 2009. This change consisted of increases of $127 million in mortgages, $7
million in marketable securities and other investments, $2 million in derivative financial instruments and $2 million in our equity
investment in MCLP, partially offset by decreases of $60 million in securitization investments and $7 million in loans receivable
and other investments.
Assets
(in thousands)
2010
2009
2008
Cash and cash equivalents
Marketable securities
Mortgages
Securitization investments
Loans receivable and other investments
Equity investment in MCLP
Derivative financial instruments
Other assets
$ 89,373
6,608
422,393
13,605
10,079
20,315
13,120
3,209
$ 578,702
15.4%
1.1
73.0
2.4
1.7
3.5
2.3
0.6
100.0%
$ 89,843
-
295,415
73,590
16,885
17,905
11,490
1,555
$ 506,683
17.7%
-
58.3
14.5
3.3
3.5
2.3
0.4
100.0%
$ 58,071
-
393,010
39,743
35,624
18,300
23,541
1,865
$ 570,154
10.2%
-
68.9
7.0
6.2
3.2
4.2
0.3
100.0%
Cash and cash equivalents include cash balances with banks and overnight term deposits. These investments ensure adequate
liquidity to meet maturing term deposit and new mortgage commitments. Our cash balances were extremely high by historical
standards at the end of both years. In 2010, we increased our year-end cash balances in anticipation of upcoming significant
mortgage fundings, while in the prior year we had significant mortgage sales near year end.
Marketable securities include corporate bonds, exchange traded funds and real estate investment trusts. We commenced the
purchase of marketable securities in the second half of 2010.
The composition of our mortgage portfolio as at December 31, 2010 and 2009 was as follows:
(in thousands)
Single family uninsured
Single family insured
Construction
Commercial
Principal
$ 180,424
44,541
188,297
13,349
$ 426,611
2010
Allowance
Net
Principal
2009
Allowance
Net
$
$
1,386
-
2,640
192
4,218
$ 179,038
44,541
185,657
13,157
$ 422,393
$ 127,889
38,990
126,059
7,207
$ 300,145
$
$
874
-
3,728
128
4,730
$ 127,015
38,990
122,331
7,079
$ 295,415
- 10 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
We invest in insured and uninsured single family mortgages in Canada. We believe that the Canadian residential property market
continues to exhibit healthy fundamentals. We do not invest in the United States mortgage market. The uninsured mortgages we
invest in may not exceed 80% of the value of the real estate securing such loans at the time of funding. For the purposes of this
ratio, value is the appraised value of the property as determined by a qualified appraiser at the time of funding. Residential
mortgages insured by CMHC or Genworth Financial Mortgage Insurance Company Canada may exceed this ratio.
Uninsured residential construction loans are made to homebuilders to finance residential construction projects. These loans
generally have a floating rate of interest and terms of one to two years. Our limit on conventional construction loans is 250% of
regulatory capital. Non-residential construction loans may comprise up to one half of this limit. The maximum single
conventional construction loan may not exceed the lesser of $13.5 million or 20% of regulatory capital as per our internal limits.
Mortgages increased by $127 million during 2010 (refer to Note 5 to the consolidated financial statements). The increase
consisted of increases of $63 million in construction loans, $52 million in uninsured single family mortgages, $6 million in
commercial loans and $6 million in insured single family mortgages. We continue to monitor market conditions closely and have
continued to be selective in our mortgage approvals. Consequently, we have observed significant repayments on our uninsured
single family mortgage portfolio. In addition, we have been applying minimum rates on renewed and newly funded construction
loans where possible and aggressively managing the repayment of these loans, as they are mostly prime-based and have less
attractive yields in the current interest rate environment.
Cyclically low interest rates have contributed to a stabilization of residential property values across Canada. As economic
conditions have improved in Canada, we have observed a decline in arrears levels since 2008. Although still high by historical
levels, our account management and that of our mortgage servicers continue to be proactive in managing arrears. We believe that
these factors will mitigate loan losses. We continue to regard residential mortgages as a solid investment asset class.
As at December 31, 2010, we held discounted mortgages with a net discount of $14 million (2009 - $22 million). We retain 50%
of any recoveries of that amount, and we pay the remaining 50% to MCLP. 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 2011 (for certain fixed rate mortgages) to 2032 (for certain floating rate
mortgages). As such, it is difficult to accurately estimate the timing and quantum of the discount ultimately recovered.
Securitization investments consist of investments in securitization programs, the interest-only strips from the CMB program and
insured mortgage-backed securities (refer to Note 6 to the consolidated financial statements). Securitization investments
decreased by $60 million in 2010 primarily due to decreases of $43 million in insured mortgage-backed securities, $9 million in
investments in securitization programs and $7 million in CMB interest-only strips.
Loans receivable and other investments (refer to Note 7 to the consolidated financial statements) decreased by $7 million during
the year, primarily due to the full payout of a significant loan.
Our largest single investment is our minority interest in MCLP. We intend to continue to participate in the mortgage origination
and servicing business through our interest in MCLP. MCLP is an originator and servicer of mortgage loans for third party
investors in Canada. We outsource our mortgage and loan origination and servicing to MCLP and other third party servicers.
Derivative financial instruments at December 31, 2010 consist of interest rate swaps relating to the CMB program. We have
entered into “pay-floating, receive-fixed” swaps to hedge against interest rate risk on reinvested CMB principal collections.
Other assets include capital assets, prepaid expenses, accounts receivable and deferred costs.
Liabilities and shareholders’ equity
(in thousands)
2010
2009
2008
2009
2008
Change from
Liabilities
Term deposits
Securitization liabilities
Accounts payable and accrued charges
Future taxes payable
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
- 11 -
$ 421,061
7,000
10,809
10,463
449,333
$ 360,744
5,048
11,001
7,011
383,804
$ 426,663
7,095
12,186
7,601
453,545
$ 60,317
1,952
(192)
3,452
65,529
$
(5,602)
(95)
(1,377)
2,862
(4,212)
100,112
510
26,956
1,791
129,369
$ 578,702
98,490
510
22,165
1,714
122,879
$ 506,683
97,493
510
17,313
1,293
116,609
$ 570,154
1,622
-
4,791
77
6,490
$ 72,019
2,619
-
9,643
498
12,760
8,548
$
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Term deposit liabilities increased by $60 million during the year, comparable to the change in assets.
Securitization liabilities relate to CMB interest-only strips in liability positions, discussed below in the “CMB Program”
disclosure.
Total shareholders’ equity of $129 million increased by $6.5 million from December 31, 2009. The increase is primarily due to
the significant excess of 2010 net income ($25.4 million) over dividends declared ($17.1 million). Since we are able to deduct
dividends paid up to 90 days after year-end from taxable income, a year-end disconnect may occur between these two
components of retained earnings. The balance of 2010 taxable income, which was high by historical standards, will not be pai d
out as dividends to shareholders until March 31, 2011. In addition, there are generally differences between income for
accounting purposes and taxable income. We issued $833,000 of new common shares on a quarterly basis under the dividend
reinvestment plan at the average closing price for the 20 days preceding such issues, and issued $789,000 of new common shares
through the Executive Share Purchase Plan the (“Share Purchase Plan”). There was also a $3.5 million charge to retained
earnings related to current and future income taxes and a $77,000 increase in accumulated other comprehensive income.
CMB PROGRAM
We participate in the CMB program, which involves the securitization of insured single family and multi family mortgages. We
participate in the CMB program with MCLP and a private company. For accounting purposes, we recognize an up-front gain on
securitization, and at that time we recognize an interest-only strip, which is a retained interest in the securitized mortgages. The
interest-only strips consist of the discounted value of future mortgage interest, principal reinvestment interest receipts and penalty
income less coupon interest payments. We also recognize liabilities for future mortgage servicing and other costs, which we
subcontract to MCLP and the private company that participates in the CMB program. For tax purposes, we recognize CMB-
related income on the cash basis, wherein the payment of upfront CMB expenses is a deduction from taxable income at the date
of issuance, and the ongoing collection of net CMB cash flows is recognized in taxable income as received over the duration of
the issuance. In the early years of a CMB issuance, taxable income is significantly lower than accounting income due to the
absence of an upfront gain on securitization for tax purposes to offset upfront cash requirements. However, taxable income
significantly exceeds accounting income in the later years of a CMB issuance, in line with the receipt of ongoing CMB cash
flows such as mortgage interest and principal reinvestment interest.
In addition, we earn residual securitization income, which includes the net yield earned on the interest -only strips and the CMB
liabilities, refinancing and renewal gains, interest rate swap receipts (payments) and fair value changes in the i nterest-only strips
and interest rate swaps.
During the year, we securitized $28 million of mortgages through the CMB program compared to $836 million in the prior year.
We recorded $499,000 of interest-only strips and $83,000 of liabilities on the respective closing dates.
As part of the CMB program, we enter into “pay-floating, receive-fixed” interest rate swaps. The purpose of these swaps is to
hedge interest rate risk on the interest-only strips. We receive interest on reinvested CMB principal collections, the discounted
future value of which is included in the interest-only strips. Changes in the fair market value of the interest rate swaps generally
offset the changes in the fair value of the interest-only strips.
In March 2010, OSFI released a final advisory with respect to the impact of International Financial Reporting Standards (“IFRS”)
rules regarding securitization on regulatory capital ratios, since IFRS rules regarding securitization require assets and liabilities
that are subject to securitization to be reflected as on-balance sheet items. The advisory indicated that any on-balance sheet
assets and liabilities recognized from securitization transactions (including insured mortgages that are securitized through the
CMB program) were required to be included in the calculation of a regulated financial institution’s regulatory capital ratios.
Pursuant to these guidelines, we are required to include any assets and liabilities recognized from securitization transactions
undertaken after June 30, 2010 in the calculation of our regulatory capital ratios under IFRS. Consequently, our future
participation in securitization transactions, namely through our participation in the CMB program, was significantly reduced at
this time from historical participation levels in order for us to comply with our regulatory capital ratios. Although we are
reviewing potential alternative structures and arrangements that may permit our continued participation in the CMB program,
there can be no assurance that any such alternative structures or arrangements will be available on commercially reasonable
terms, or can be implemented in a timely manner.
PERFORMANCE CHARTS
Shareholder Return
The following graph compares MCAN’s cumulative total shareholder return (assuming an investment of $100 on December 31,
2005 on its common shares during the period from January 1, 2006 to December 31, 2010, with the S&P/TSX Composite Index
(Total Return) and the S&P/TSX Financial Services Index (Total Return), assuming reinvestment of all dividends.
- 12 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
MCAN
TSX
TSX Financial Services
Note: Dividends declared on MCAN’s common shares are assumed to be reinvested at the closing price on the payment date.
Dec 31
2005
100
100
100
Dec 31
2006
132
117
118
Dec 31
2007
127
129
117
Dec 31
2008
129
86
75
Dec 31
2009
219
117
110
Dec 31
2010
244
137
119
Compound
Annual
Growth
19.5%
6.5%
3.5%
Ten Year Financial Summary
(in thousands, except per share amounts)
$
Net
Income
25,365
24,742
30,348
14,843
15,211
14,116
11,601
8,247
5,430
6,795
$
Earnings
Per Share
1.76
1.73
2.14
1.12
1.23
1.18
1.12
0.84
0.58
0.85
Dividends
Per Share
1.19
$
1.44
0.96
1.00
1.18
0.97
1.11
0.68
0.68
0.68
$
Total
Assets
578,702
506,683
570,154
557,425
498,107
434,369
454,365
369,477
327,059
222,397
As at December 31
Shareholders’
Equity
$ 129,369
122,879
116,609
103,007
84,611
81,164
74,965
61,741
58,383
48,149
Market
Capitalization
$ 200,249
194,766
129,438
140,416
141,052
116,918
103,374
83,747
80,293
72,656
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
DESCRIPTION OF CAPITAL STRUCTURE
The authorized share capital of the Company consists of an unlimited number of common shares with no par value. At December
31, 2010, there were 14,447,743 common shares outstanding. At March 4, 2011, there were 14,461,305 common shares
outstanding. For additional information related to share capital, refer to Note 17 to the consolidated financial statements.
DIVIDEND POLICY AND RECORD
Our dividend policy is to pay out substantially all of our taxable income to our shareholders. As a MIC under the Tax Act, we
can deduct dividends paid to shareholders during the year and within 90 days thereafter from income for tax purposes. We pay
out substantially all of our taxable income to shareholders, whereas other financial institutions generally pay out only a portion of
their taxable income to their shareholders. These dividends are taxable in the shareholders’ hands as interest. In addition , a MIC
- 13 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
can pay certain capital gains dividends which are taxed as capital gains in the shareholders’ hands. We intend to continue to
declare dividends on a quarterly basis.
Dividends per share over the past three years are as follows:
Fiscal Period
First Quarter - Regular Dividend
First Quarter - Extra Dividend
Second Quarter
Third Quarter
Fourth Quarter
Taxable Dividends
Capital Gains Dividends
2010
$ 0.26
0.15
0.26
0.26
0.26
$ 1.19
$ 1.19
-
$ 1.19
2009
0.25
0.43
0.25
0.25
0.26
1.44
1.44
-
1.44
$
$
$
$
2008
0.23
-
0.23
0.25
0.25
0.96
0.85
0.11
0.96
$
$
$
$
The Board of Directors declared a first quarter dividend of $1.00 per share to be paid March 31, 2011 to shareholders of record as
of March 2, 2011. The dividend comprises the regular quarterly dividend of $0.27 per share (increased from $0.26 per share) and
a $0.73 per share extra dividend.
The March 2011 extra dividend is required to pay out the balance of taxable income to shareholders. In 2010, taxable income
was comparable to income for accounting purposes. In 2009, accounting income significantly exceeded taxable income as we
recognized $6.4 million of upfront gains from securitization for accounting purposes. The associated taxable income is earned
throughout the duration of the issuance.
OFF BALANCE SHEET ARRANGEMENTS
We commit to fund mortgages to borrowers in advance of funding at agreed upon interest rates. Substantially all of these
commitments relate to floating rate construction loans. At December 31, 2010, outstanding commitments for future fundings of
mortgages intended for our portfolio were $200 million.
Off balance sheet arrangements relating to the CMB program are discussed in the “CMB Program” section above.
CONTRACTUAL OBLIGATIONS
We have contractual obligations to make principal and interest payments on term deposits and an operating lease. In addition, we
have outstanding commitments for future fundings of mortgages intended for our own portfolio, as discussed above.
As part of the CMB program, we are required to pay servicing expenses on the securitized mortgages and other ongoing costs.
(in thousands)
Term deposits
Operating lease
Mortgage fundings
CMB obligations
Less than
one year
One to five
years
Over five
years
$ 311,408
263
179,710
908
$ 492,289
$ 109,653
724
19,968
1,442
$ 131,787
$
$
-
-
-
-
-
Total
$ 421,061
987
199,678
2,350
$ 624,076
We outsource our mortgage and loan origination and servicing. We continue to pay servicing expenses as long as the mortgages
and loans remain on our balance sheet.
TRANSACTIONS WITH RELATED PARTIES
In 2010, we purchased certain corporate services from MCLP in the amount of $433,000, purchased certain mortgage origination
and administration services from MCLP in the amount of $2.8 million and received fees of $3.7 million from MCLP. Corporate
services include premises and systems. The fees received from MCLP include commitment, extension, renewal and letter of
credit fees. We use MCLP’s systems, including networks, subsystems, and general ledger. We also receive technology support
from MCLP.
In 2010, we paid MCLP $4.2 million of fees relating to a profit sharing arrangement on a portfolio of discounted mortgages. We
received $2.3 million from MCLP relating to a profit sharing arrangement on a portfolio of discounted mortgages.
- 14 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
In 2010, we entered into an arrangement with MCLP to sublease space at 200 King Street West, Toronto, Ontario, expiring in
2014.
The Company has established the Share Purchase Plan whereby the Board of Directors can approve loans to key personnel for the
purpose of purchasing the Company’s common shares. The aggregate number of common shares issued pursuant to the Share
Purchase Plan may not exceed 480,000, provided that the number of common shares which may be issued pursuant to the Share
Purchase Plan together with common shares which may be issued pursuant to any other MCAN share compensation agreements
may not exceed 10% of the outstanding common shares, and the common shares which may be issued pursuant to the Share
Purchase Plan to any one person may not exceed 5% of the outstanding common shares. At December 31, 2010, $1,699,000 of
loans were outstanding. The maximum authorized loan balance is $1,720,000. The loans under the Share Purchase Plan bear
interest at prime plus 1% and have a five-year term. MCAN, at its discretion, reimburses officers the interest amount in
connection with loans provided pursuant to the Share Purchase Plan. Additional information related to the Share Purchase Plan is
included in Note 17 to the consolidated financial statements and in our Management Information Circular dated March 25, 2011.
In 2010, we established a Deferred Share Units Plan (the “DSU Plan”) whereby the Board of Directors granted units under the
DSU Plan to the President and Chief Executive Officer (the “Participant”). Each unit is equivalent in value to one common share
of the Company. Following his retirement/termination date, the Participant is entitled to receive cash for each unit. The
individual unit value is based on the average market value of the Company’s common shares for the five days preceding the
retirement/termination date. The Participant was granted 30,000 units under the DSU Plan during 2010. In addition, the
Participant is entitled to receive dividend distributions in the form of additional units. The underlying units follow a graded
vesting schedule over three years. All dividends paid prior to July 6, 2014 vest as at July 6, 2014. All dividends paid after July
6, 2014 vest immediately. As at December 31, 2010, no units had yet vested.
We recognize compensation expenses associated with the DSU Plan in line with the graded vesting schedule. The compensation
expense recognized in 2010 related to the DSU Plan was $128,000, included in salaries and benefits. As at December 31, 2010,
the accrued DSU Plan liability was $128,000, included in accounts payable and accrued liabilities.
CAPITAL MANAGEMENT
We derive our net investment income from the investment of our equity and the difference or spread between amounts earned on
our assets and the cost of the term deposits that we issue to fund such assets. As a MIC under the Tax Act, we are limited to a
liabilities to capital ratio of 5:1 (or an assets to capital ratio of 6:1), based on our non-consolidated balance sheet measured at its
tax value. As a loan company under the Trust and Loan Companies Act (the “Trust Act”), OSFI regulates our consolidated
regulatory assets to capital and has granted us a maximum consolidated regulatory assets to capital ratio. We borrow to the
extent that we are satisfied that the borrowing and additional investments will increase our overall profitability.
OSFI has issued guidelines to federally regulated companies for capital adequacy, which include meeting a minimum regulatory
capital to risk-weighted assets ratio of 10% for Total capital and 7% for Tier 1 capital. To December 31, 2010, our internal target
minimum Tier 1 and Total capital ratios were both 15%. As at February 17, 2011, the Board of Directors increased both internal
target minimums to 20%.
- 15 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Our income tax assets and capital, regulatory assets and capital, and maximum assets and ratios over the past three years are as
follows:
December 31 (dollar amounts in thousands)
2010
2009
2008
Tax Act Test
Income Tax Assets
Income Tax Capital
Income Tax Assets to Capital ratio
Maximum Assets (non-consolidated)
Maximum Assets to Capital ratio
Regulatory Test (OSFI)
Regulatory Assets
Regulatory Capital
Regulatory Assets to Capital ratio
Total Regulatory Capital to Risk-Weighted Assets ratio
Minimum Total Regulatory Capital to Risk-Weighted Assets ratio
Tier 1 Regulatory Capital to Risk-Weighted Assets ratio
Minimum Tier 1 Regulatory Capital to Risk-Weighted Assets ratio
$ 555,360
$ 126,374
4.39
$ 758,244
6.00
$ 595,473
$ 120,534
4.94
22.06%
10.00%
22.10%
7.00%
$ 488,024
$ 120,732
4.04
$ 724,392
6.00
$ 508,351
$ 110,231
4.61
27.47%
10.00%
27.75%
7.00%
$ 551,589
$ 115,998
4.76
$ 695,988
6.00
$ 578,124
$ 107,991
5.35
23.69%
10.00%
24.09%
7.00%
We are limited to the lowest maximum assets amount in the above two asset tests, and the maximum leverage permitted under the
Tax Act is more constraining on the Company than the regulatory assets to capital ratio mandated by OSFI. We manage our
assets to a level of 5.75 times capital on a tax basis to provide a prudent cushion between the maximum and total actual assets.
We fund the majority of our investments through the issue of term deposits eligible for CDIC deposit insurance with varying
maturities in certain provinces of Canada. We do not use capital markets (including asset-backed commercial paper) for
liquidity.
In order to promote a more resilient banking sector and strengthen global capital standards, the Basel Committee on Banking
Supervision (“BCBS”) proposed significant enhancements and capital reforms to the current framework. The revised framework,
referred to as Basel III, will be effective January 1, 2013 and provides lengthy periods for transitioning numerous new
requirements.
Significant Basel III reforms include the following:
Introducing a new minimum common equity ratio (the “Common Equity Tier 1 ratio”). Financial institutions will be
required to meet the new Common Equity Tier 1 ratio standard during a transition period beginning January 1, 2013
and ending on January 1, 2019. The minimum requirement, which includes a conservation buffer, increases during the
transition period.
Increasing the minimum Tier 1 capital and Total capital ratios. These increases will also be phased-in commencing
January 1, 2013 with financial institutions expected to meet the new standards through a transition period ending on
January 1, 2019.
Introducing a new global leverage ratio to address balance sheet leverage. The BCBS will be monitoring and refining
this new ratio between 2011 and 2017 before its final implementation in 2018.
We maintain prudent capital planning practices to ensure that we are adequately capitalized and continue to satisfy minimum
standards and internal targets. Based on our current understanding of the revised capital requirements proposed by BCBS, we
expect to satisfy the new requirements ahead of the implementation timelines that have been proposed by BCBS and confirmed
by OSFI.
For additional information on our capital management, refer to Note 20 to the consolidated financial statements.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The majority of our consolidated balance sheet consists of financial instruments, and the majority of net income is derived from
the related income, expenses, gains and losses. Financial instruments include cash and cash equivalents, marketable securities,
mortgages, securitization investments, loans receivable and other investments, term deposits and derivative financial instruments,
which are discussed throughout this MD&A.
- 16 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
The use of financial instruments exposes us to interest rate, credit, liquidity and market risk. A discussion of these risks and how
these risks are managed is found under “Risk Management” below.
Information on the financial statement classification and amounts of income, expenses, gains and losses associated with the
instruments are located in the Results from Operations and Financial Position sections of this MD&A. Information on the
determination of the fair market value of financial instruments is located in the Critical Accounting Policies and Estimates section
of this MD&A.
LIQUIDITY
We closely monitor our liquidity position to ensure that we have sufficient cash to meet liability obligations as they become due.
The Investment Committee of the Board (“ICB”) is responsible for the review and approval of liquidity policies. The Asset an d
Liability Management Committee (“ALCO”) is responsible for liquidity management. To December 31, 2010, we maintained a
standard level of liquid investments and credit facilities of at least 20% of term deposits maturing within 100 days. As at
February 17, 2011, this standard level was increased to 125%. In addition, all single family mortgages are readily marketable
within a time frame of one to three months, providing us with added flexibility to meet our liquidity needs. We have access to
capital through our ability to issue term deposits eligible for CDIC deposit insurance. These term deposits also provide us with
the ability to fund asset growth as needed. We also have an overdraft banking facility in place to fund asset growth or meet
short-term funding obligations as required. The overdraft facility is a component of a larger credit facility that also has a portion
which guarantees letters of credit used to support the obligations of borrowers to municipalities in conjunction with construction
loans. We believe that our liquidity position and our access to capital markets support our ability to meet current and future
commitments. We are not aware of any contingencies or known events that are likely to materially affect our liquidity positi on.
Our liquidity management process includes a Liquidity Risk Management Framework that incorporates multi scenario stress
testing. Results of the stress testing are reported to management on a monthly basis and to the ICB on a quarterly basis.
The composition of our liquidity ratios over the last three years is as follows:
As at December 31
Tier 1 liquidity
Cash and cash equivalents
Less: cash pledged as collateral
Banking facility
Tier 2 liquidity
75% of eligible insured single family mortgages
2010
2009
2008
$
89,373
(2,243)
27,505
114,635
$
89,843
(1,642)
30,000
118,201
$
6,476
6,665
58,071
-
30,000
88,071
9,864
Total liquidity
$ 121,111
$ 124,866
$
97,935
100 day term deposit maturities
$
67,002
$ 111,125
$ 131,696
Liquidity ratios
Tier 1 liquidity to 100 day term deposit maturities
Total liquidity to 100 day term deposit maturities
171%
181%
106%
112%
67%
74%
We have established and maintain liquidity policies which meet the standards set under the Trust Act and any regulations or
guidelines issued by OSFI.
A further analysis of our liquidity risks is found under “Risk Management” below.
RISK FACTORS
The shaded areas of this MD&A represent a discussion of risk factors and risk management policies and procedures relating to
credit, market and liquidity risks as required under the CICA Handbook section 3862, Financial Instruments - Disclosures, which
permits these specific disclosures to be included in the MD&A. Therefore, the shaded areas presented on pages 16 to 20 of this
MD&A form an integral part of the audited consolidated financial statements for the year ended December 31, 2010.
We are exposed to a number of risks that can adversely affect our ability to achieve our business objectives or execute our
business strategies, and which may result in a loss of earnings, capital or reputation. The risks identified by MCAN may not be
the only risks faced by the Company. Other risks of which the Company is not aware or which the Company currently deems to
be immaterial may surface and have a material adverse impact on the Company’s business, results from operations and financial
condition.
- 17 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
The significant risks to which we are exposed are as follows:
Credit Risk
Credit risk is the risk of financial loss resulting from the failure of a counterparty, for any reason, to fully honour its financial or
contractual obligations to the Company, primarily arising from our mortgage and lending activities. Fluctuations in real estate
values may increase the risk of default and may also reduce the net realizable value of the collateral property to the Compan y.
These risks may result in defaults and credit losses, which may result in a loss of earnings. Credit losses occur when a
counterparty fails to meet its obligations to the Company and the value realized on the sale of the underlying security deteriorates
below the carrying amount of the exposure.
Liquidity Risk
Liquidity risk is the risk that cash inflows, supplemented by assets readily convertible to cash, will be insufficient to honour all
cash outflow commitments (both on and off-balance sheet) as they come due. The failure of borrowers to make regular mortgage
payments increases the uncertainties associated with liquidity management, notwithstanding that we may eventually collect the
amounts outstanding, which may result in a loss of earnings or capital, or have an otherwise adverse effect on our financial
condition and results of operations.
Interest Rate Risk
Interest rate risk is the potential impact of changes in interest rates on our earnings and net equity. Interest rate risk arises when
our assets and liabilities, both on and off-balance sheet, have mismatched repricing dates. Changes in interest rates where we
have mismatched repricing dates may have an adverse effect on our financial condition and results of operations. In addition,
interest rate risk may arise when changes in the underlying interest rates on assets do not match changes in the interest rates on
liabilities. This potential mismatch may have an adverse effect on our financial condition and results of operations.
Our exposure to interest rate risk is discussed further in Note 18 to the consolidated financial statements.
Economic Conditions
The Canadian economy continued to demonstrate strength in 2010, as evidenced by growth in both gross domestic product and
employment. Cyclically low interest rates contributed to the stabilization of the housing market. We expect the economy to
remain stable in 2011, however housing sales are expected to decline in all key markets as a result of lower levels of invent ory
for new homes that require an extended timeline to move through the construction process. Resales are expected to decline
slightly as a result of recent changes to CMHC mortgage insurance rules.
Higher interest rates or a decline in general economic conditions could cause default rates to increase as creditworthiness
decreases for borrowers who are more highly leveraged or as unemployment increases. This decline could negatively affect our
net income. In addition, a general decline in economic conditions could slow the pace of housing sales and adversely affect
growth in the single family mortgage market, which could adversely affect our ability to grow our mortgage portfolio.
Regulatory Risk
Changes in laws and regulations, including interpretation or implementation, could affect the Company by limiting the products
or services that we can provide and increasing the ability of competitors to compete with our products and services. Also, a ny
failure by the Company to comply with applicable laws and regulations could result in sanctions and financial penalties which
could adversely impact our earnings and damage our reputation.
Market Risk
Market risk is the exposure to adverse changes in the value of financial assets. For the Company, market risk factors include
price risk on marketable securities, interest rates, real estate values, commodity prices and foreign exchange rates, among others.
Any changes in these market risk factors may negatively affect the value of our financial assets, which may have an adverse
effect on our financial condition and results of operations. We do not undertake trading activities as part of our regular
operations, and therefore are not exposed to risks associated with activities such as market making, arbitrage or proprietary
trading.
Monetary Policy
Our earnings are affected by the monetary policies of the Bank of Canada. Changes in the supply of money and the general level
of interest rates could affect our earnings. Changes in the level of interest rates affect the interest spread between our mortgages,
loans and investments, securitization investments and term deposits, and as a result impact our net investment income. Changes
to monetary policy and in financial markets in general are beyond our control and are difficult to predict or anticipate.
- 18 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Outsourcing Risk
Outsourcing risk is the risk incurred when we contract out a business function to a service provider instead of performing the
function ourselves, and the service provider performs at a lower standard than we would have under similar circumstances. We
outsource all mortgage and loan origination and servicing to MCLP and other third parties.
Reliance on Key Personnel
Our future performance is dependent on the abilities, experience and efforts of our management and other key personnel. Ther e
is no assurance that we will be able to continue to attract and retain key personnel, although it remains a key objective of the
Company. Should any key personnel be unwilling or unable to continue their employment with MCAN, there may be an adverse
effect on our financial condition and results of operations.
Competition Risk
Our operations and income are a function of the interest rate environment and the availability of mortgage products at reasonable
yields. The availability of mortgage products for the Company and the yields thereon are dependent on market competition. In
the event that we are unable to compete successfully against our current or future competitors, there may be an adverse effect on
our financial condition and results of operations.
Operational and Infrastructure Risk
We are exposed to many types of operational risks that affect all companies. Such risks include the risk of fraud by employees or
others, unauthorized transactions by employees, and operational or human error. We are also exposed to the risk that compute r
or telecommunication systems could fail, despite efforts to maintain these systems in working order. Shortcomings or failures in
internal processes, employees or systems, including any of our financial, accounting or other data processing systems, could lead
to financial loss and damage to our reputation. In addition, despite our contingency plans in place, our ability to conduct business
may be adversely affected by a disruption in the infrastructure that supports our operations.
Accuracy and Completeness of Information on Customers and Counterparties
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on
information furnished by them, including financial statements and other financial information. We may also rely on the
representations of customers and counterparties as to the accuracy and completeness of that information. Our financial condition
and results of operations may be negatively affected to the extent that we rely on financial statements and financial information
that do not comply with GAAP, that are materially misleading or that do not fairly represent, in all material respects, the financial
condition and results of operations of the customers and counterparties.
Environmental Risk
We recognize that environmental hazards are a potential liability. This risk exposure can result from non-compliance with
environmental laws either as principal or lender, which may negatively affect our financial condition and results of operations.
We aim to mitigate this risk by complying with all environmental laws and by applying a rigorous environmental policy to our
commercial and development lending activities.
Changes in Laws and Regulations
Changes to current laws, regulations, regulatory policies or guidelines (including changes in their interpretation, implementation
or enforcement), the introduction of new laws, regulations, regulatory policies or guidelines or the exercise of discretionar y
oversight by regulatory or other competent authorities including OSFI, could adversely affect us, including by limiting the
products or services that we provide, restricting the scope of our operations or business lines, increasing the ability of competitors
to compete with our products and services or requiring us to cease carrying on business. In addition, delays in the receipt of any
regulatory approvals and authorizations that may be necessary to the operation of our business could adversely affect our
operations and financial conditions. Our failure to comply with applicable laws and regulations could result in sanctions and
financial penalties that could adversely impact our earnings and damage our reputation.
Changes in Accounting Standards and Accounting Policies
We may be subject to changes in the financial accounting and reporting standards that govern the preparation of our financial
statements, including the adoption of IFRS for the fiscal year commencing January 1, 2011. These changes may materially
impact how we record and report our financial condition and results of operations and, in certain circumstances, we may be
required to retroactively apply a new or revised standard that results in our restating prior period financial statements.
For further details on our conversion to IFRS, refer to “Future Changes in Accounting Policy”.
- 19 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Leverage
Leverage increases our potential exposure to all risk factors described above.
No Assurance of Achieving Investment Objectives or Payment of Dividends
As a result of the risks discussed above, there is no assurance that the Company will be able to achieve its investment objectives
or be able to pay dividends at targeted or historic levels. The funds available for the payment of dividends to our shareholders
will vary according to, among other things, the interest and principal payments received in respect of the Company’s investments.
There can be no assurance that the Company will generate any returns or be able to pay dividends to our shareholders.
RISK MANAGEMENT
We operate in changing regulatory and economic environments. As a result, our management and the Board of Directors are
particularly diligent in their consideration of issues of risk. Our goal is not to eliminate risk, as this would result in s ignificantly
reduced earnings, but rather to be proactive in our assessment and management of risk, as a means to gain a strategic advantage
and ultimately enhance shareholder value.
Our senior management is responsible for the quality of processes, policies, procedures and controls and for internal reporting on
a day-to-day basis. The Board of Directors is actively involved in the risk management process, providing oversight and
guidance on an ongoing basis and at least quarterly. Internal audit is involved in the risk management process to provide
validation of its effectiveness, with reports provided to senior management and the Board of Directors.
As discussed above under “Risk Factors,” we are exposed to various inherent risks, particularly interest rate risk and credit risk.
We mitigate these risks through investment diversification, and by diligent management of assets and liabilities.
Credit Risk
Credit and commitment exposure is closely monitored through a reporting process that includes a formal monthly review
involving ALCO and a formal quarterly review involving the ICB. Weekly monitoring also takes place through our Operating
Committee and Capital Commitments Committee, both of which are comprised of Management.
Our exposure to credit risk is managed through risk management policies and procedures that emphasize the quality and
diversification of our investments. Our policies establish limits on concentration by asset class, risk rating, geographic region,
dollar limit and borrower. We use these policies to assess credit risk and portfolio quality. All members of management are
subject to limits on their ability to commit the Company to credit risk.
We identify potential risk in our mortgage portfolio by way of regular review of market metrics, which are a key component of
quarterly market reports provided to the Board of Directors. We also undertake site visits of active mortgages. Existing risks in
our mortgage portfolio are identified by arrears reporting, portfolio diversification analysis, annual reviews of large loans and risk
rating trends of the entire mortgage portfolio. The aforementioned reporting and analysis provides adequate monitoring of and
control over our exposure to credit risk. In the current economic environment, we have increased our monitoring of real estate
market values for single family mortgages, with independent assessments of value obtained as individual mortgages exceed 90
days in arrears.
We assess a credit score and risk rating for all mortgages at the time of underwriting based on the quality of the borrower and the
underlying real estate. Subsequent to the initial mortgage advance, the ongoing monitoring of a mortgage may lead to the
downgrading of the status of a mortgage to monitored, in arrears, or impaired.
We have established a methodology for determining the adequacy of our general allowances. The adequacy of general
allowances is assessed periodically, taking into consideration economic factors such as employment and housing market
conditions.
We record a specific allowance to the extent that the estimated realizable value of a mortgage has decreased below its net book
value. Specific allowances include all of the accumulated provisions for credit losses on a particular mortgage. At December 31,
2010, we had recorded $1.2 million (2009 - $2.8 million) of specific allowances on our mortgage portfolio (refer to Note 5 to the
consolidated financial statements).
Our maximum credit exposure on our individual financial assets is equal to the par value of the respective assets.
Liquidity Risk
We closely monitor our liquidity position to ensure that we have sufficient cash to meet liability obligations as they become due.
The ICB is responsible for the review and approval of liquidity policies. To December 31, 2010, we maintained a standard level
of liquid investments and credit facilities in excess of 20% of term deposits maturing within 100 days. As at February 17, 2011,
this standard level was increased to 125%. In addition, all single family mortgages are readily marketable within a time frame of
- 20 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
one to three months, providing us with added flexibility to meet liquidity needs. We have access to capital through our abil ity to
issue term deposits eligible for CDIC deposit insurance. These term deposits also provide us with the ability to fund asset growth
as needed. We also maintain an overdraft facility to fund asset growth or meet our short-term obligations as required. The
overdraft facility is a component of a larger credit facility that also has a portion which guarantees letters of credit used to support
the obligations of borrowers to municipalities in conjunction with construction loans. The total facility is $50 million, wi th sub-
limits of $30 million for overdrafts and $30 million for letters of credit. Since our issued letters of credit at December 31, 2010
were $22 million, the available portion of the credit facility at this date dedicated to overdrafts was $28 million.
We believe that our liquidity position and our access to capital markets in the form of term deposits and the banking facility
support our ability to meet current and future commitments.
Management has developed a Liquidity Risk Management Framework that is reviewed and approved annually by the Board of
Directors. This framework details the daily, monthly and quarterly analysis that is performed by management. Management
monitors changes in cash and cash requirements on a daily basis and formally reports to ALCO on a monthly basis. Management
also completes monthly and quarterly stress testing which is reviewed by ALCO and the ICB. Management monitors trends in
deposit concentration with significant term deposit brokers on a monthly basis.
Our liquidity position and access to funding support our ability to meet current and future commitments. Our liquid investments
and credit facilities were 171% (2009 - 106%) of term deposits maturing within 100 days at December 31, 2010. For further
details on our liquid assets and our ability to meet liability obligations, refer to Note 19 to the consolidated financial statements.
We have established and maintain liquidity policies which meet the standards set under the Trust Act and any regulations or
guidelines issued by OSFI.
Our sources and uses of liquidity are outlined in the table below. We manage our net liquidity surplus/deficit by raising term
deposits as mentioned above.
Sources of liquidity
Cash and cash equivalents
Marketable securities
Mortgages
Securitization investments
Loans receivable and other
investments
Uses of liquidity
Term deposits
Securitization liabilities
Accounts payable and
accrued charges
Within
3 Months
3 Months
To 1 Year
1 to 5
Years
Over 5
Years
2010
Total
2009
Total
$ 89,373
-
97,033
18
$ -
-
160,687
-
$ -
-
142,807
10,108
$ -
6,608
21,866
3,479
$ 89,373
6,608
422,393
13,605
$ 89,843
-
295,415
73,590
89
186,513
2,138
162,825
1,441
154,356
6,411
38,364
10,079
542,058
16,885
475,733
57,455
-
9,075
66,530
253,953
-
-
253,953
109,653
7,000
-
116,653
-
-
-
-
421,061
7,000
360,744
5,048
9,075
437,136
10,408
376,200
Net liquidity surplus (deficit)
$ 119,983
$ (91,128)
$ 37,703
$ 38,364
$ 104,922
$ 99,533
Off-Balance Sheet
Unfunded mortgage commitments
Interest Rate Risk
$ 19,968
$ 159,742
$ 19,968
$ -
$ 199,678
$ 96,173
We evaluate our exposure to a variety of changes in interest rates across the term spectrum of our assets and liabilities, including
both parallel and non-parallel changes in interest rates. By managing and matching the terms of invested assets and term deposits
so that they offset each other, we seek to reduce the risks associated with interest rate changes, and in conjunction with liqui dity
management policies, we also manage cash flow mismatches. ALCO reviews our interest rate exposure on a monthly basis using
interest rate spread and gap analysis as well as interest rate sensitivity analysis based on various scenarios. This informati on is
also formally reviewed by the ICB each quarter. We do not currently use derivative financial instruments outside of the CMB
program, however the potential use of such instruments for our on-balance sheet assets is analyzed and reported to ALCO on a
monthly basis.
Ultimately, risk management is controlled at the highest level of the Company. ALCO reviews and manages these risks on a
monthly basis. Our Board of Directors reviews and approves all risk management policies and procedures. Management reports
to the Board of Directors on the status of risk management at least quarterly.
- 21 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
PEOPLE
As at December 31, 2010, we had fifteen employees, an increase of one from the prior year.
REGULATORY COMPLIANCE
Our Chief Compliance Officer ensures that management understands the impact of all relevant legislation affecting the busines s,
assesses compliance with current and pending legislation and works with management to address any gaps in policies and
procedures. We use a Legislative Compliance Management System that ensures all managers assess their compliance with
relevant legislation on a quarterly basis. Senior management liaises with regulators to keep them apprised of Company progress
and changes to our business. Our Chief Compliance Officer reports quarterly to the Conduct Review, Corporate Governance &
Human Resources Committee of the Board of Directors.
INTERNAL AUDIT
We outsource our Internal Audit function to Protiviti, an independent risk consulting firm. The Internal Audit function has
unrestricted access to our operations, records, property and personnel, including senior management and the Chairman of the
Audit Committee of the Board of Directors (the “Audit Committee”). Internal Audit formulates an annual risk-based plan for
approval by the Audit Committee and then undertakes internal audit reviews throughout the year with regular and direct reporting
to both senior management and the Audit Committee.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The notes to our consolidated financial statements provide detailed information on our significant accounting policies, the
method of applying those policies, and the material components of the amounts in the consolidated balance sheets and the
statements of income, changes in shareholders’ equity, comprehensive income and cash flows. The policies discussed below are
considered particularly important, as they require management to make judgments involving estimations. We have control
procedures to ensure that these policies are applied consistently and that the policies are independently reviewed on at leas t an
annual basis. Changes to accounting policies are made only after an appropriate amount of research and discussion has occurred
and independent advice is obtained. Estimates are considered carefully and reviewed at an appropriate level within the Company.
We believe that our estimates of the value of our assets and liabilities are appropriate.
Financial Instruments
All financial instruments are required to be measured at fair value on initial recognition, except for certain related party
transactions, and classified based on management’s intention. Financial assets are classified as held for trading, held to maturity,
available for sale or loans and receivables, and financial liabilities are classified as held for trading or other. Changes in the
unrealized fair value of financial instruments classified as held for trading are recognized to income. Changes in the unrealized
fair value of available for sale financial assets are recognized in accumulated other comprehensive income, except for those
considered to be changes attributable to impairment which are charged to income. Upon disposal, the cumulative change in fair
value is transferred to income. Other classifications are subsequently measured at amortized cost. From time to time, the
Company may use derivative and non-derivative financial instruments to manage interest rate risk. Hedge accounting is optional,
and where it can be applied, it requires the Company to document the hedging relationship and to test the effectiveness of the
hedging item to offset changes in value of the underlying hedged item on an ongoing basis. At December 31, 2010, the Company
did not have any hedge accounting relationships.
For further details on financial instruments, refer to Notes 2, 5, 6, 7, 10, 12, 13 and 21 to the consolidated financial statements.
Allowance for Credit Losses
The allowance for credit losses reduces the carrying value of mortgage assets to provide for an estimate of the principal amounts
that borrowers may not repay in the future. In assessing the estimated realizable value of assets, we must rely on estimates and
exercise judgment regarding matters for which the ultimate outcome is unknown. A number of factors can affect the amount that
we ultimately collect, including the quality of our own underwriting process and credit criteria, the diversification of the
portfolio, the underlying security relating to the loans and the overall economic environment. Specific provisions include all of
the accumulated provisions for losses on particular assets required to reduce the related assets to estimated realizable valu e. The
general provision represents losses that we believe have been incurred but not yet specifically identified. The general provision is
established by considering historical loss trends during economic cycles, the risk profile of our current portfolio, estimated losses
for the current phase of the economic cycle and historic industry experience. Provisioning rates depend on asset class, as
different classes have varying underlying risks. Future changes in circumstances could materially affect our future provisions for
credit losses from those provisions determined in the current year, and there could be a need to increase or decrease the allowance
for credit losses.
- 22 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
We complete a review of all provisioning policies at least annually. We continue to monitor asset performance and current
economic conditions, focusing on any regionally specific issues to assess the adequacy of the current provisioning policies.
Provisioning rates are reviewed on a quarterly basis.
Although employment levels across Canada have improved, we continue to observe the effects of employment reductions from
2008 and 2009, which have resulted in higher arrears levels. However, abnormally low interest rates have contributed to a
stabilization of residential property values across Canada. Economic growth and job creation were evident during the fourth
quarter, and as this trend continues we expect lower mortgage arrears.
In addition to considering the current economic conditions, we assessed the probability of default, expected loss as a result of
default and the loan exposure at the time of default when establishing our general allowance. Based on historical trends, our
current mortgage portfolios are performing within an acceptable range that required no further adjustment to our allowance
assumptions. Our overall arrears trends remained high during 2010, although losses to date have been insignificant. We continue
to review our underwriting and credit requirements on a regular basis, and we have taken measures as warranted by changes in
the market and economic conditions.
We believe that we have established adequate provisioning rates given the current economic concerns. Our current provisioning
rates consider the impact of a decline in real estate values and anticipated default/loss percentages that are suffi cient to offset
current and historical loss experiences.
On an ongoing basis, we reassess the fair value of our loans and investments, determined on the basis of expected discounted
cash flows. When a decline in value is identified as a result of impairment that is other than temporary, an allowance is recorded
through the income statement.
For further details on our accounting policies and balances of the allowances for credit losses, refer to Notes 2, 5 and 7 to the
consolidated financial statements.
Securitization
On the closing date of a CMB issuance, we recognize an interest-only strip, which is a retained interest in the securitized
mortgages. We require the use of estimates to determine the fair value of the interest-only strips, which represent the present
value of expected future cash flows. As a result of this, estimates and assumptions could have a material impact on net income.
We review the estimates used to determine the fair value of the interest-only strips on an ongoing basis to ensure their
appropriateness. For further information, please refer to Note 8 to the consolidated financial statements, which presents a
sensitivity analysis of the current fair value of the interest-only strips to immediate 10% and 20% adverse changes in key
assumptions.
Discount Income Recognition
The Company may acquire mortgage portfolios from third parties at fair market value. A mortgage discount will exist to the
extent that the fair market value of a mortgage is less than its par value. The discount is allocated between a valuation reserve
component and an accretion component. The valuation reserve component represents the risk of credit loss, while the accretion
component represents the part of the discount to be recognized to income over time, thereby adjusting the yield on the mortgage
from its face rate to an effective yield. The accretion component is amortized to income over the term of the related mortga ge
through the application of the effective interest rate method. The valuation reserve component is only recognized into income
upon payout, less any realized credit loss.
Income Taxes
As a MIC, we can deduct dividends paid to our shareholders from our calculation of taxable income. We have taken the position
that it is more likely than not that future dividends will be sufficient to recover current or future income tax liabilities, and as a
result of this, we charge the related provision for future and current taxes directly to retained earnings. The provision for income
taxes consists of various taxes that cannot be recovered from the payment of future dividends. For further details on our
accounting policies and balances relating to income taxes, refer to Notes 2 and 16 to the consolidated financial statements. We
will continue to proactively monitor on a quarterly basis that this is an appropriate position.
FUTURE CHANGES IN ACCOUNTING POLICY
International Financial Reporting Standards
The Accounting Standards Board (“AcSB”) requires Canadian public companies to prepare their interim and annual financial
statements in accordance with IFRS relating to fiscal years beginning on or after January 1, 2011.
For the fiscal year commencing January 1, 2011, we ceased the use of GAAP and adopted IFRS. Financial results for the quarter
ended March 31, 2011 will be presented using IFRS.
- 23 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
We have recognized that the conversion to IFRS is complex and requires a significant amount of company resources. As a result
of this, we engaged a major accounting firm to advise and assist us with identifying accounting treatment differences between
GAAP and IFRS and to provide education and training. This engagement has continued to create efficiencies in MCAN’s IFRS
conversion process.
Our IFRS conversion plan consists of three key phases, as follows:
1. Scoping and diagnostic phase
2. Assessment of impact of IFRS differences
3.
Implementation of conversion plan
The scoping and diagnostic phase, which involved a high-level impact assessment to identify key areas impacted by the
conversion to IFRS, has been completed. We have completed our assessment of the impact of differences between GAAP and
IFRS on our accounting policies, information systems and business activities. During 2011, we will complete our assessment of
the impact of IFRS on our financial reporting and control environment. We have begun the implementation of our conversion
plan, which remains on schedule.
We are monitoring the potential impact of changes to financial reporting processes, internal controls over financial reportin g and
disclosure controls and procedures. As the implications of the conversion are identified, continual requirements for
infrastructure, expertise, training and education will be assessed. We will continue to assess the impact of adopting IFRS and
will update our MD&A disclosures on a quarterly basis to report on the progress of our IFRS plan.
Most adjustments required as a result of the transition from GAAP to IFRS will be made retrospectively as of January 1, 2010
based on IFRS applicable at that time.
The analysis below should not be regarded as a complete list of estimated changes that will result from our transition to IFRS,
and is intended to highlight those areas that we currently believe to be the most significant. Disclosures will be made in our
MD&A for the quarter ending March 31, 2011 regarding any significant changes in the adjustments as a result of the completion
of our transition to IFRS.
Our assessment of the differences between GAAP and IFRS identified several material differences, as follows:
CMB Program: The most significant IFRS difference for MCAN is the accounting for the securitization of insured
mortgages through our participation in the CMB program. Based on IFRS as of the date of transition, we will no longer
account for these transactions as sales of mortgages and will reverse all previously recognized up-front gains on securitization
through opening retained earnings. This reversal will be partially offset by mortgage interest income, principal reinvestment
income and penalty income less coupon interest expense that would have been recognized from the dates of the respective
CMB issuances to the date of transition. Our IFRS balance sheet will include mortgages securitized through the CMB
program, assets in which principal repayments have been re-invested and a liability to the Canada Housing Trust (“CHT”).
On a go-forward basis under IFRS, we will recognize mortgage interest income, principal reinvestment income, penalty
income and coupon interest expense on the accrual basis, and we will include any future mortgages securitized through the
CMB program on our balance sheet.
Under GAAP, and from a general economic perspective, changes in the fair value of the interest rate swaps were generally
offset by changes in the fair value of the interest-only strips. Since the interest-only strips were eliminated on the transition
to IFRS, changes in the fair value of the interest rate swaps will no longer have a natural offset, which will lead to increased
volatility to net income under IFRS.
For regulatory purposes, we will be able to exclude mortgages securitized prior to June 30, 2010 from our regulatory assets to
capital ratio.
As at our transition date, retained earnings decreased by $1.6 million (including a deferred tax charge of $1.4 million)
relating to the CMB program. In addition, we recognized $3.1 billion of new assets and $3.1 billion of new liabilities.
Mortgage, Loan and Investment Credit Loss Allowances: While IFRS follows similar principles to GAAP in the calculation
of the collective/general allowance for credit losses, IFRS also provides additional guidance on how the credit loss
assessment model should be designed and documented, based on historical loss experience that is adjusted for observable
market conditions. As at our transition date, our mortgage, loan and investment collective allowance decreased by $640,000,
which increased opening retained earnings by $387,000, net of taxes.
Income Taxes: Under GAAP, we were able to charge our current and future tax liabilities directly to retained earnings
instead of recognizing the changes through net income. Based on IFRS as of the date of transition, we will no longer be able
to charge current and future taxes directly to retained earnings, which will result in increased volatility to net income. In
addition, MCAN’s future tax position will change to the extent that the accounting values of balance sheet items that have
differing values for accounting and tax purposes are impacted by IFRS.
- 24 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
Equity investment in MCLP: To the extent that MCLP’s opening retained earnings were impacted as at MCAN’s transition
date, we adjusted the value of our equity investment in MCLP based on our pro-rata share of the total opening retained
earnings impact based on information provided by MCLP. As at our transition date, our equity investment in MCLP
decreased by $6.4 million, which decreased opening retained earnings by $4.6 million, net of taxes.
The overall impact of the transition to IFRS as at January 1, 2010 was a decrease to retained earnings of $6.0 million and a
decrease to accumulated other comprehensive income of $1.7 million. In addition, total assets increased by $3.1 billion, while
total liabilities increased by $3.1 billion.
Our estimates of income, assets, liabilities and shareholders’ equity under IFRS have not yet been audited and may be subject to
further revision.
The following table outlines certain elements of our IFRS conversion plan and an assessment of our progress towards the plan as
at December 31, 2010. Changes in regulations, economic conditions, business activities or other circumstances could impact t he
IFRS conversion plan and result in changes to the key activities and deadlines. Our IFRS conversion plan is currently on
schedule.
Key Activity
Accounting Policies
Completion Date
Status
Identify differences in Canadian GAAP and IFRS
accounting policies
Select ongoing IFRS policies
Select IFRS 1 policies and exemptions
Quantify impact of transition to IFRS
Financial Reporting
2011 IFRS financial statement and note
disclosure format
Identify additional financial statement disclosures
Prepare 2010 interim and annual reconciliations
Q2 2009
Q4 2009
Q4 2009
Q1 2011
Q1 2011
Q1 2011
Q1 2011
from GAAP to IFRS
Control Environment
Differences identified and analyzed
Policies selected
Policies selected
Substantially completed
Analysis in progress, on schedule
Analysis in progress, on schedule
Analysis in progress, on schedule
Assess Internal Controls over Financial Reporting
(“ICFR”) design and effectiveness implications
for all accounting policy changes
Implement changes to ICFR
Assess Disclosure Controls and Procedures
(“DC&P”) design and effectiveness implications
for all accounting policy changes
Implement changes to DC&P
Q1 2011
Analysis in progress, on schedule
Q1 2011
Q1 2011
Q1 2011
To be finalized upon completion of
analysis
Analysis in progress, on schedule
To be finalized upon completion of
analysis
Information Systems
Creation of general ledger for both GAAP and
Q4 2009
IFRS
Program upgrades/modifications
One-off calculations (IFRS 1)
Gathering data for disclosures
Business Policies
Assess impact on capital plan
Revise capital plan as needed
Q4 2009
Q4 2009
Q4 2009
Q2 2010
Q4 2010
Completed
Completed
Completed
Completed
Completed
Completed
- 25 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS / 2010 ANNUAL REPORT
MCAN MORTGAGE CORPORATION
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
As of December 31, 2010, an evaluation was carried out of the effectiveness of disclosure controls and procedures. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer will certify that those disclosure controls and procedures
were effective as at the end of the financial year ended December 31, 2010.
Also at December 31, 2010, an evaluation was carried out of the effectiveness of internal controls over financial reporting t o
provide reasonable assurance regarding the reliability of financial reporting and financial statements compliance with GAAP.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer will certify that those internal controls over
financial reporting were effective as at the end of the financial year ended December 31, 2010.
These evaluations were conducted in accordance with the standards of the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”), a recognized control model, and the requirements of National Instrument 52-109 -
Certification of Disclosure in Issuers’ Annual and Interim Filings. A Disclosure Committee, comprised of members of senior
management, assists the Chief Executive Officer and Chief Financial Officer in their responsibilities.
There were no changes in our internal controls over financial reporting that occurred during the period beginning on January 1,
2010 and ending on December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
- 26 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
2010 CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION
The accompanying consolidated financial statements of MCAN Mortgage Corporation (“MCAN” or the “Company”) are the
responsibility of management and have been approved by the Board of Directors. Management is responsible for the information
and representations contained in these consolidated financial statements, the Management’s Discussion and Analysis of
Operations and all other sections of the annual report. The consolidated financial statements have been prepared by management
in accordance with Canadian generally accepted accounting principles (“GAAP”), including the accounting requirements of our
regulator, the Office of the Superintendent of Financial Institutions Canada.
The Company’s accounting system and related internal controls are designed, and supporting procedures maintained to provide
reasonable assurance that the Company’s financial records are complete and accurate and that assets are safeguarded against l oss
from unauthorized use or disposition.
The Office of the Superintendent of Financial Institutions Canada makes such examination and enquiry into the affairs of MCAN
as deemed necessary to be satisfied that the provisions of the Trust and Loan Companies Act are being duly observed for the
benefit of depositors and that the Company is in sound financial condition.
The Board of Directors is responsible for ensuring that management fulfils its responsibility for financial reporting and is
ultimately responsible for reviewing and approving the consolidated financial statements. These responsibilities are carried out
primarily through an Audit Committee of unrelated directors appointed by the Board of Directors. The Chief Financial Officer
reviews internal controls, control systems and compliance matters and reports thereon to the Audit Committee.
The Audit Committee meets periodically with management and the external auditors to discuss internal controls over the
financial reporting process, auditing matters and financial reporting issues. The Audit Committee reviews the consolidated
financial statements and recommends them to the Board of Directors for approval. The Audit Committee also recommends to the
Board of Directors and Shareholders the appointment of external auditors and approval of their fees.
The consolidated financial statements have been audited by the Company’s external auditors, Ernst & Young LLP, in accordance
with Canadian generally accepted auditing standards. Ernst & Young LLP has full and free access to the Audit Committee.
William Jandrisits
President and Chief Executive Officer
Tammy Oldenburg
Vice President and Chief Financial Officer
Toronto, Canada,
February 17, 2011
- 27 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
Independent auditors’ report
To the Shareholders of MCAN Mortgage Corporation
We have audited the accompanying consolidated balance sheets of MCAN Mortgage Corporation, as at December 31, 2010 and
2009 and the consolidated statements of income, changes in shareholders’ equity, comprehensive income and cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opini on on
the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of MCAN
Mortgage Corporation as at December 31, 2010 and December 31, 2009, and the results of its operations and its cash flows for
the years then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Licensed Public Accountants
Toronto, Canada,
February 17, 2011
- 28 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
As at December 31
Note
2010
2009
Assets
Investments
Cash and cash equivalents
Marketable securities
Mortgages
Securitization investments
Loans receivable and other investments
Equity investment in MCAP Commercial LP
Other
Derivative financial instruments
Other assets
Liabilities and Shareholders’ Equity
Liabilities
Term deposits
Securitization liabilities
Accounts payable and accrued charges
Future taxes payable
Shareholders’ Equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
3
4
5
6
7
9
10
11
12
13
14
16
17
17
18
$ 89,373
6,608
422,393
13,605
10,079
20,315
562,373
$
89,843
-
295,415
73,590
16,885
17,905
493,638
13,120
3,209
$ 578,702
11,490
1,555
506,683
$
$ 421,061
7,000
10,809
10,463
449,333
100,112
510
26,956
1,791
129,369
$ 578,702
$ 360,744
5,048
11,001
7,011
383,804
98,490
510
22,165
1,714
122,879
$ 506,683
The accompanying notes and shaded areas of the “Risk Factors” and “Risk Management” sections of Management’s Discussion and Analysis of
Operations are an integral part of these consolidated financial statements.
On behalf of the Board:
William Jandrisits
President and Chief Executive Officer
David G. Broadhurst
Director, Chairman of the Audit Committee
- 29 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except for per share amounts)
Years Ended December 31
Note
2010
2009
Investment Income
Mortgage interest
Interest on loans and investments
Securitization income
Fees
Equity income from MCAP Commercial LP
Interest on cash and cash equivalents
Marketable securities
Financial Expenses
Term deposit interest and expenses
Mortgage expenses
Provision for (recovery of) credit losses
Net Investment Income
Operating Expenses
Salaries and benefits
General and administrative
Income Before Income Taxes
Provision for income taxes
Net Income
8
9
5, 7
16
$ 25,828
2,507
3,949
5,561
3,743
230
31
41,849
7,619
2,921
(387)
10,153
31,696
2,711
3,620
6,331
$ 27,420
3,878
7,558
8,024
1,456
234
-
48,570
13,133
2,761
2,035
17,929
30,641
2,587
3,312
5,899
25,365
-
$ 25,365
24,742
-
24,742
$
Basic and diluted earnings per share
Dividends per share
Weighted average number of basic and diluted shares (000’s)
$ 1.76
$ 1.19
14,389
$ 1.73
$ 1.44
14,294
The accompanying notes and shaded areas of the “Risk Factors” and “Risk Management” sections of Management’s Discussion and Analy sis of
Operations are an integral part of these consolidated financial statements.
- 30 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands)
Years Ended December 31
Note
2010
2009
Share capital
Balance, beginning of year
Common shares issued
Balance, end of year
$ 98,490
$
17
1,622
100,112
Contributed surplus
Balance, beginning of year
Changes to contributed surplus
Balance, end of year
Retained earnings
Balance, beginning of year
Net income
Income taxes recovered (charged) to retained earnings
Dividends declared
Balance, end of year
Accumulated other comprehensive income
Balance, beginning of year
Other comprehensive income
Balance, end of year
510
-
510
16
22,165
25,365
(3,451)
(17,123)
26,956
1,714
77
1,791
97,493
997
98,490
510
-
510
17,313
24,742
679
(20,569)
22,165
1,293
421
1,714
Total shareholders’ equity
$ 129,369
$
122,879
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Years Ended December 31
Net income
Other comprehensive income, net of taxes
Change in unrealized gain on available for sale mortgages
Change in unrealized gain on available for sale securitization investments
Change in unrealized gain on available for sale marketable securities
Other changes
Other comprehensive income
Comprehensive income
2010
2009
$ 25,365
$
24,742
631
(544)
(32)
22
77
(410)
823
-
8
421
$ 25,442
$
25,163
The accompanying notes and shaded areas of the “Risk Factors” and “Risk Management” sections of Management’s Discussion and A nalysis of
Operations are an integral part of these consolidated financial statements.
- 31 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years Ended December 31
Cash provided by (used for):
Operating Activities
Net income
Adjusted for non-cash items:
Equity income
Provision for (recovery of) credit losses
Securitization income
Amortization of other assets
Amortization of mortgage discounts
Distributions from MCAP Commercial LP
Decrease (increase) in other receivables
Decrease in accounts payable and accrued charges
Cash flows from operating activities
Investing Activities
Mortgage advances
Mortgage reductions
Proceeds on sale of mortgages
Decrease (increase) in securitization investments
Decrease in loans receivable and other investments
Additions to other assets
Marketable securities
Cash flows (for) from investing activities
Financing Activities
Issue of term deposits
Repayment of term deposits
Issue of common shares
Dividends paid
Cash flows from (for) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary Information
Interest paid during the year
Taxes paid during the year
2010
2009
$
25,365
$
24,742
(3,764)
(387)
8,644
986
168
1,333
(1,573)
(633)
30,139
(1,497)
2,035
(1,615)
650
145
1,851
308
(3,176)
23,443
(947,398)
348,862
472,612
51,214
6,966
(1,067)
(6,647)
(75,458)
(1,971,788)
341,923
1,724,664
(19,631)
18,966
(481)
-
93,653
554,080
(493,763)
1,622
(17,090)
44,849
(470)
89,843
89,373
511,082
(577,001)
997
(20,402)
(85,324)
31,772
58,071
89,843
$
7,078
186
$ 15,060
345
$
$
$
$
The accompanying notes and shaded areas of the “Risk Factors” and “Risk Management” sections of Management’s Discussion and A nalysis of
Operations are an integral part of these consolidated financial statements.
- 32 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
1.
2.
3.
Basis of Presentation ......................................................................................................................................... 34
Summary of Significant Accounting Policies .................................................................................................... 34
Cash and Cash Equivalents ................................................................................................................................ 36
Page
4. Marketable Securities ........................................................................................................................................ 36
5. Mortgages ........................................................................................................................................................ 37
6.
7.
Securitization Investments ................................................................................................................................. 39
Loans Receivable and Other Investments ........................................................................................................... 40
8. Asset Sales ....................................................................................................................................................... 40
9.
Equity Investment in MCAP Commercial LP ..................................................................................................... 42
10. Derivative Financial Instruments........................................................................................................................ 42
11. Other Assets ..................................................................................................................................................... 42
12. Term Deposits .................................................................................................................................................. 42
13. Securitization Liabilities .................................................................................................................................... 43
14. Accounts Payable and Accrued Charges ............................................................................................................. 43
15. Credit Facilities................................................................................................................................................. 43
16.
Income Taxes ................................................................................................................................................... 44
17. Share Capital and Contributed Surplus ............................................................................................................... 44
18. Accumulated Other Comprehensive Income ....................................................................................................... 45
19.
Interest Rate Sensitivity ..................................................................................................................................... 45
20. Capital Management ......................................................................................................................................... 47
21. Financial Instruments ........................................................................................................................................ 48
22. Lease Commitments.......................................................................................................................................... 50
23. Guarantees ........................................................................................................................................................ 50
24. Comparative Amounts....................................................................................................................................... 50
25. Future Changes in Accounting Policy ................................................................................................................ 50
- 33 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
1.
Basis of Presentation
MCAN Mortgage Corporation (the “Company” or “MCAN”) is a Loan Company under the Trust and Loan Companies Act
(the “Trust Act”) and a Mortgage Investment Corporation (“MIC”) under the Income Tax Act (Canada) (the “Tax Act”).
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The
Company’s 22.5% partnership interest in MCAP Commercial LP (“MCLP”) is accounted for using the equity method.
MCAN holds a 25% voting interest in MCLP.
The purchase method has been used to account for all acquisitions. Intercompany balances and transactions of fully
consolidated subsidiaries are eliminated. All related party transactions took place under normal trade terms and have been
recorded at the exchange amounts.
2.
Summary of Significant Accounting Policies
The accompanying consolidated financial statements and accounting principles followed by the Company including the
accounting requirements of the Office of the Superintendent of Financial Institutions Canada (“OSFI”) conform with
Canadian generally accepted accounting principles (“GAAP”). Significant accounting policies used in the preparation of
these consolidated financial statements are summarized below.
Measurement Uncertainty and Use of Estimates
Management of the Company exercises its best judgment with regard to certain estimates and assumptions, which affect the
reported amounts of revenue, expenses, assets and liabilities. Specific amounts subject to such judgment include provisions
for credit losses, discount rates, fair value estimations, estimated residual values and prepayment rates. Actual results could
differ from management’s estimates.
Financial Instruments
All financial instruments are required to be measured at fair value on initial recognition, except for certain related party
transactions, and classified based on management’s intention. Financial assets are classified or designated as held for
trading, held to maturity, available for sale or loans and receivables, and financial liabilities are classified or designated as
held for trading or other. Changes in the unrealized fair value of financial instruments classified or designated as held for
trading are recognized to income. Changes in the unrealized fair value of available for sale financial assets are
recognized in accumulated other comprehensive income, except for those considered to be changes attributable to
impairment which are charged to income. Upon disposal, the cumulative change in the fair value of available for sale
financial assets is transferred to income. Other classifications are subsequently measured at amortized cost. From time to
time, the Company may use derivative and non-derivative financial instruments to manage interest rate risk. Hedge
accounting is optional, and where it can be applied, it requires the Company to document the hedging relationship and to
test the effectiveness of the hedging item to offset changes in value of the underlying hedged item on an ongoing basis.
At December 31, 2010, the Company did not have any hedge accounting relationships.
Transaction costs for all financial asset classifications except for held for trading are capitalized.
The classification of each financial instrument is discussed in the respective note disclosure.
Equity Accounting
Equity investments over which the Company can exercise significant influence but does not exercise control are recorded
using the equity method of accounting. The Company records equity income equal to its proportionate share of the
equity investee’s net income.
Impaired Mortgages
Interest on mortgages is accrued as earned until such time that a mortgage is classified as impaired. At that time, a specific
provision is made to reflect management’s estimate of realizable amounts. Accordingly, the impaired mortgage is measured
on the basis of expected future cash flows discounted at the mortgage’s original effective interest rate.
When a mortgage becomes impaired the recognition of interest income in accordance with the terms of the original mortgage
agreement will cease. Changes in the estimated realizable amount arising subsequent to initial recognition of impairment are
reflected in the consolidated statements of income in the current period.
The entire change in the estimated realizable amount is reported as a charge or recovery to provision for credit losses.
Impaired mortgages include uninsured mortgages which are more than 90 days in arrears or are less than 90 days in arrears
but for which management does not have reasonable assurance that the full amount of principal and interest will be collected
- 34 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
in a timely manner. An insured mortgage is considered impaired when the mortgage is 365 days past due, whether or not
collection is in doubt.
Allowance for Credit Losses
An allowance for mortgage credit losses, consisting of specific and general allowances, is maintained at a level that, in
management's judgment, is adequate to absorb all credit related losses in the Company's portfolio. Specific provisions
include all of the accumulated provisions for credit losses on particular assets required to reduce the related assets to
estimated realizable value. The general provision includes provisions for credit losses which are considered to have occurred
but cannot be determined on an item-by-item basis. The general provision is established by considering historical credit loss
trends during economic cycles, the risk profile of the Company’s current portfolio, estimated credit losses for the current
phase of the economic cycle and historic industry experience.
The allowance is increased by provisions for credit losses, which are charged against income, and reduced by write-offs, net
of recoveries. Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and
the possibility of further collection is considered to be remote.
Asset Sales
The Company accounts for the sale of assets when control over the assets is transferred to a third party. At this point, the
assets are removed from the consolidated balance sheets.
The Company participates in the Canada Mortgage Bonds (“CMB”) program, which involves the securitization of
insured single family and multi family mortgages. On the sale date, the Company sells mortgages to the Canada Housing
Trust and recognizes an interest-only strip, which is a retained interest in the securitized mortgages. The Company also
recognizes a liability for future mortgage servicing and other costs. At this time, the Company recognizes an upfront gain
on securitization. The gain on securitization depends on the previous carrying values of the mortgages involved in the
transfer, allocated between the mortgages sold and the interest-only strip based on their relative fair values at the date of
transfer.
In other mortgage sales, the Company records a gain or loss at the time of sale of the mortgages that is equal to the fair
value of the proceeds received less the carrying value of the mortgages. The Company receives full cash consideration at
the time of sale.
The Company may retain servicing obligations on asset sales and subcontracts such servicing obligations to MCLP or
other private companies. In these cases, the Company includes the servicing obligations in its gain on sale calculation.
Revenue and Expense Recognition
(a)
(b)
The Company is entitled to fees for mortgage commitments. These fees are deferred and amortized into income
over the term of the mortgage.
Origination costs paid on the Company’s mortgage portfolio are deferred and amortized over the term of the
mortgage.
(c)
Commissions paid on the issue of term deposits are deferred and amortized over the term of the term deposit.
Discount Income Recognition
The Company may acquire mortgage portfolios from third parties at fair market value. A mortgage discount will exist to
the extent that the fair market value of a mortgage is less than its par value. The discount is allocated between a valuation
reserve component and an accretion component. The valuation reserve component represents the risk of credit loss, while
the accretion component represents the part of the discount to be recognized to income over time, thereby adjusting the
yield on the mortgage from its face rate to an effective yield. The accretion component is amortized to income over the
term of the related mortgage through the application of the effective interest rate method. The valuation reserve
component is only recognized into income upon payout, less any realized credit loss.
- 35 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, future tax assets and
liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are
measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to
reverse.
The Company is a MIC under the Tax Act. As such, it is permitted to deduct from income for tax purposes dividends paid
to shareholders during the year and within 90 days thereafter. The Company intends to continue conducting its affairs in
such a manner as to continue qualifying as a MIC. When it is considered more likely than not that future dividends will
be sufficient to recover current or future income tax liabilities, the Company charges the related provision for (recovery
of) income taxes directly to retained earnings rather than to income.
Variable Interest Entities
CICA Accounting Guideline 15 (“AcG 15”) defines the consolidation rules for variable interest entities (“VIEs”). A VIE
is an entity where the equity is considered insufficient to finance the entity’s activities or the equity holders do not have a
controlling financial interest. These rules require the holder of the majority of variable interests of a VIE to consolidate
the entity. Variable interests are defined as the exposure to both expected losses and expected gains. These rules do not
apply to VIEs considered to be Qualifying Special Purpose Entities. The Company did not hold a majority of the variable
interests in any VIE at the time of, or since, adoption of AcG 15.
Other Accounting Policies
Other specific accounting policies are disclosed in the notes to the consolidated financial statements, where applicable.
3.
Cash and Cash Equivalents
Cash balances with banks
Overnight term deposits
Cash pledged as collateral - CMB program
2010
9,130
78,000
2,243
89,373
$
$
2009
$
$
43,201
45,000
1,642
89,843
Cash and cash equivalents include balances with banks and short-term investments with maturity dates of less than 90 days
from the date of acquisition. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.
4. Marketable Securities
Corporate bonds
Exchange-traded funds and real estate investment trusts
Unrealized gains (losses)
Marketable securities at fair value
2010
4,982
1,665
(39)
6,608
$
$
2009
-
-
-
-
$
$
Marketable securities are designated as available for sale. The marketable securities portfolio has no specific maturity
date except for corporate bonds, which mature in over five years. Fair values are based on bid prices quoted in active
markets.
- 36 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
5. Mortgages
Single family mortgages
- Uninsured
- Uninsured (completed inventory loans)
- Insured
Construction loans
- Residential
- Non-residential
Commercial loans
- Uninsured
- Insured
Fair value adjustment
Accrued interest
Single family mortgages
- Uninsured
- Uninsured (completed inventory loans)
- Insured
Construction loans
- Residential
- Non-residential
Commercial loans
- Uninsured
- Insured
Fair value adjustment
Accrued interest
Principal
General
Allowance
Specific
Total
2010
Net
$ 138,889
38,877
44,227
$ 861
279
-
$ 246
-
-
$ 1,107
279
-
$ 137,782
38,598
44,227
175,918
11,600
1,538
102
1,000
-
2,538
102
173,380
11,498
12,768
419
422,698
2,270
424,968
1,643
$ 426,611
192
-
2,972
-
2,972
-
$ 2,972
Principal
General
-
-
1,246
-
1,246
-
$ 1,246
Allowance
Specific
192
-
4,218
-
4,218
-
$ 4,218
12,576
419
418,480
2,270
420,750
1,643
$ 422,393
Total
2009
Net
$ 96,050
30,227
38,465
125,403
23
6,699
479
297,346
1,490
298,836
1,309
$ 300,145
$
$
621
198
-
1,001
-
128
-
1,948
-
1,948
-
1,948
$
$
55
-
-
676
198
-
$ 95,374
30,029
38,465
2,727
-
-
-
2,782
-
2,782
-
2,782
3,728
-
121,675
23
128
-
4,730
-
4,730
-
4,730
6,571
479
292,616
1,490
294,106
1,309
$ 295,415
$
$
The Company invests in insured and uninsured single family mortgages in Canada. The Company does not invest in the
United States mortgage market. Uninsured mortgages may not exceed 80% of the value of the real estate securing such
loans at the time of funding. Residential mortgages insured by Canada Mortgage and Housing Corporation or Genworth
Financial Mortgage Insurance Company Canada Inc. may exceed this ratio.
Uninsured completed inventory loans are credit facilities extended to provide interim mortgage financing on residential
units (condominium or freehold), where all construction has been completed.
Residential construction loans are made to homebuilders to finance residential construction projects.
Commercial loans include commercial term mortgages and high ratio mortgage loans.
Mortgages are designated as available for sale. Outside of the change during the year shown in the above tables, there
were no significant fluctuations in mortgage balances within the year.
Principal balances presented above are net of the unamortized discount on the Company’s portfolio of single family
mortgages purchased at a discount. As at December 31, 2010, the Company holds discounted mortgages with an
aggregate discount of $14,357 (2009 - $22,036). Upon the payout of a mortgage, the remaining unamortized discount is
recognized as income. The Company retains 50% of any recoveries of the discount and pays the remaining 50% to
MCLP (refer to note 14 for profit sharing fees paid to/from MCLP). In addition, the Company amortizes the portion of
the discount that it expects to recover into income over the remaining term of the mortgage on an effective interest rate
method basis. 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 2011 (for certain fixed rate mortgages) to 2032 (for certain floating rate mortgages). As such, it is difficult to
accurately estimate the timing and quantum of the discount ultimately recovered.
- 37 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
The composition of the discount is as follows:
Fixed rate
Floating rate
The geographical breakdown of mortgages by province is as follows:
2010
2009
$
2,752
11,605
$ 14,357
$
4,859
17,177
$ 22,036
Ontario
Alberta
British Columbia
Other
Ontario
Alberta
British Columbia
Other
Single
Family
Construction
Commercial
2010
Total
$ 102,678
67,632
32,048
21,220
$ 223,578
$ 61,619
78,369
38,683
6,987
$ 185,658
$ 2,656
10,501
-
-
$ 13,157
$ 166,953
156,502
70,731
28,207
$ 422,393
39.5%
37.1
16.7
6.7
100.0%
Single
Family
Construction
Commercial
2009
Total
$
82,195
52,849
15,853
15,109
$ 166,006
$
52,435
47,682
15,826
6,387
$ 122,330
$ 4,247
2,832
-
-
$ 7,079
$ 138,877
103,363
31,679
21,496
$ 295,415
47.0%
35.0
10.7
7.3
100.0%
As at December 31, 2010, the Company had $2,499 (2009 - $4,861) of its single family mortgage portfolio pledged as
collateral related to the CMB program.
Outstanding commitments for future fundings of mortgages intended for the Company’s portfolio were $199,678 at
December 31, 2010 (2009 - $96,173). The majority of these commitments relate to floating rate construction loans.
The details of the mortgage allowances for credit losses are as follows:
General
Specific
2010
Total
General
Specific
2009
Total
Balance, beginning of year
Provisions (recoveries)
Write-offs
Balance, end of year
$
1,948
1,090
(66)
2,972
$
$ 2,782
(1,536)
-
1,246
$
$ 4,730
(446)
(66)
$ 4,218
$
2,639
(497)
(194)
1,948
$
$ 164
2,618
-
2,782
$
$ 2,803
2,121
(194)
4,730
$
At December 31, 2010, the Company had $1,246 of specific provisions (2009 - $2,782), as follows: uninsured single
family - $246 (2009 - $55), residential construction - $1,000 (2009 - $2,727).
Mortgages past due but not impaired are as follows:
1 to 30
days
31 to 60
days
61 to 90
days
Over 90
days
2010
Total
Single family - uninsured
Single family - insured
Residential construction
Commercial - uninsured
$
6,233
909
-
673
7,815
$
$
$
3,050
-
3,743
-
6,793
$
1,499
-
1,941
-
$ 3,440
$
$
-
59
-
-
59
$ 10,782
968
5,684
673
$ 18,107
- 38 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
1 to 30
days
31 to 60
days
61 to 90
days
Over 90
days
2009
Total
Single family - uninsured
Single family - insured
Residential construction
$
$
5,232
278
1,627
7,137
$
$
2,561
113
406
3,080
$
$
1,560
-
1,316
2,876
$
$
-
251
-
251
$
9,353
642
3,349
$ 13,344
Impaired mortgages (net of specific provisions) are as follows:
Single
Family
Residential
Construction
2010
Total
Single
Family
Residential
Construction
2009
Total
Ontario
Alberta
British Columbia
Other
$ 1,150
1,458
-
331
$ 2,939
$ 1,339
6,661
-
1,892
$ 9,892
$
2,489
8,119
-
2,223
$ 12,831
$ 266
831
259
-
$ 1,356
$
8,916
6,899
-
-
$ 15,815
$
9,182
7,730
259
-
$ 17,171
6.
Securitization Investments
Investments in Securitization Programs
Subordinated loan - residential mortgage
securitization program
Asset-backed commercial paper
Deferred purchase price receivable - residential
construction loan securitization program
- senior position
- first loss position
Securitization Investments - CMB Program
CMB - interest-only strips
Other securitization assets
Insured mortgage-backed securities
Total securitization investments
2010
2009
$
2,946
$
457
4,578
2,480
-
-
3,403
$
3,908
1,671
12,637
$
Note
2010
2009
8, 13
$
$
10,065
137
-
10,202
16,921
$
623
43,409
60,953
$
$
13,605
$
73,590
The subordinated loan - residential mortgage securitization program bears interest at 10% (2009 - 10%). The loan is
rated BB high by Dominion Bond Rating Service (“DBRS”), classified as loans and receivables and has no specific
maturity date. The subordinated loan is receivable from a VIE. The Company did not hold the majority of the variable
interests in this VIE and therefore does not consolidate it. The repayment of this investment follows the cash flows in the
securitization program.
During 2010, the Company sold its MAV II asset-backed commercial paper (“ABCP”) investment, recognizing a gain of
$82 (over carrying value). ABCP as at December 31, 2010 consists of a MAV III investment, which is classified as loans
and receivables and matures in more than five years.
At December 31, 2009, the Company held investments in the senior position and first loss position of a residential
construction loan securitization program. The senior position yield was prime plus 5% (7.25% at December 31, 2009),
while the first loss position had no fixed yield. During 2010, both of these investments were repaid in full as part of the
windup of the securitization program. The investments were replaced by an indemnity agreement whereby the investors
of the securitization program are responsible for any incurred losses in the underlying loans in accordance with their pro-
rata share of the first loss investment at the time that the securitization program was wound up. Since the Company
previously held 25% of the first loss position, it is responsible for 25% of any losses incurred on the remaining loans in
the securitization program. As at December 31, 2010, the Company had accrued a $200 liability representing expected
- 39 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
losses associated with this indemnity. As at December 31, 2010, the outstanding balance of the remaining loans was
$26,420.
At December 31, 2009, the Company held insured mortgage-backed securities with a weighted average yield of CDOR
plus 1.14% (1.54%).
7.
Loans Receivable and Other Investments
Loans receivable - private companies
Loans receivable - employees
Investment - commercial real estate
Loan receivable - bridge lending fund
Other loans and investments
Note
Principal
Allowance
2010
Net
2009
Net
17
$
1,455
1,699
3,973
338
2,656
$ 10,121
$
$
19
-
-
2
21
42
$
1,436
1,699
3,973
336
2,635
$ 10,079
$ 10,156
1,397
99
2,393
2,840
$ 16,885
Loans receivable have been made to two private companies. A loan made to one company bears interest at the greater of
7% and prime plus 4%, 7% at December 31, 2010 (2009 - 7%) and has an outstanding balance of $1,436 at December 31,
2010 (2009 - $1,670). One loan previously advanced to a private company paid out during 2010 and had an interest rate
of the greater of 7¾% and prime plus 1⅜%, 7¾% at December 31, 2009. This loan had an outstanding balance of $8,486
at December 31, 2009. Both of these loans are payable on demand.
The Company holds an equity interest in a commercial real estate investment in which it has a fixed proportionate share.
As acquisitions are made by the fund, the Company advances its proportionate share to finance the acquisitions. This
investment has been designated as available for sale and is carried at cost.
The Company participates in a bridge lending fund in which it has a fixed proportionate share. As funds are advanced to
borrowers of the lending fund, the Company advances its proportionate share to the fund to finance the loans. There is no
fixed interest rate on the loan, but the Company is entitled to its pro-rata share of interest and fees collected from
borrowers.
All loans receivable and other investments are classified as loans and receivables except for investment - commercial real
estate, which is designated as available for sale, and a $766 (2009 - $796) equity-accounted investment included in other
loans and investments which is not considered to be a financial asset.
8.
Asset Sales
The Company securitizes insured mortgages through the CMB program, in which it participates with MCLP and a private
company. Upon sale, the Company recognizes an interest-only strip, which is a retained interest in the securitized
mortgages. The interest-only strips consist of the discounted value of future mortgage interest, principal reinvestment
receipts and penalty income less fixed coupon interest payments. The interest-only strips are generally in asset positions,
however they can potentially go into liability positions upon a significant decrease in forward interest rates after issuance.
In addition, the Company recognizes liabilities for future mortgage servicing and other costs, which are included in
accounts payable and accrued charges. The Company subcontracts mortgage servicing obligations to MCLP and the
private company that participates in the CMB program.
During 2010, the Company securitized $28,249 (2009 - $836,266) of mortgages as part of the CMB program as follows:
single family - $28,249 (2009 - $786,375), multi family - $nil (2009 - $49,891). The Company recorded interest-only
strips of $499 (2009 - $10,892) and servicing and other liabilities of $83 (2009 - $1,493) on the respective closing dates.
The following table sets out certain amounts recognized in the Company’s consolidated statements of income related to
the CMB program.
Residual securitization income
Gain on securitization
Write-down of interest-only strips
2010
3,874
75
-
3,949
$
2009
2,383
6,410
(1,235)
$
7,558
$
$
Residual securitization income includes the net yield earned on the interest-only strips and the CMB liabilities,
refinancing and renewal gains, interest rate swap receipts (payments) and fair value changes in the interest-only strips
(which are designated as held for trading using the fair value option) and the interest rate swaps. Fair value changes had a
- 40 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
negative impact on residual securitization income of $1,714 during the year (2009 - negative impact of $2,350). In
general, fair value changes in the interest rate swaps largely offset those in the interest-only strips, however significant
fluctuations in the forward rate curve had a negative impact to income in both years. Other components of residual
securitization income were $5,588 in the current year compared to $4,733 in the prior year due to an increase in
refinancing and renewal gains.
During 2009, a net write-down of $1,235 was recorded on the outstanding interest-only strips. To the time of the write-
down, the prepayment level of CMB mortgages was significantly higher than anticipated and decreased expected future
cash flows, as the assets in which principal collections are reinvested generally yield less than the securitized mortgages.
At the time that the write-down was recorded, the calculation of the fair value of the interest-only strips was revised to
include the discounted value of future penalty income as a result of a recent significant increase in mortgage liquidations.
This revision had a positive impact to income of $1,023, which is included in the net interest-only strip write-down of
$1,235.
The amounts reported in the consolidated financial statements represent only the Company’s share in the economics of its
participation in the CMB program with MCLP and the private company.
The following table summarizes certain cash flows received from the CMB program.
2010
2009
Proceeds from new securitizations
Net cash flows received (paid) on interest-only strips
Net cash flows paid on CMB servicing and other liabilities
$
28,403
$ (630)
897
$
$
$
$
841,785
500
809
The following table outlines the key assumptions used to measure the fair value of the interest-only strips and the
sensitivity to immediate changes of 10% and 20% in these assumptions. The sensitivities are hypothetical and should be
used with caution. Interest rates and credit losses have minimal impact and are not included below.
Prepayment rate (%)
Discount rate (%)
2010
18.0%
7.4%
2009
17.7%
7.5%
2010
2009
Net interest-only strip asset
$
3,065
$
11,873
Adverse impact of change in prepayment rate
Prepayment rate
10% increase
20% increase
Adverse impact of change in discount rate
Discount rate
10% increase
20% increase
18.0%
392
762
7.4%
38
77
$
$
$
$
17.7%
721
1,405
7.5%
106
211
$
$
$
$
In addition to the aforementioned sales, the Company may sell other residential mortgages, commercial loans and
residential construction loans. During 2010, the Company sold $472,612 (2009 - $1,382,929) of these mortgages,
recognizing no gain on sale in either year. Of these mortgage sales, $460,803 (2009 - $1,372,135) were made to MCLP.
The Company has no retained interest in any of these sales from 2009 and 2010. Purchasers of these mortgages have no
recourse to the Company.
- 41 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
9.
Equity Investment in MCAP Commercial LP
Balance, beginning of year
Equity income
Distributions received
Balance, end of year
2010
17,905
3,743
(1,333)
20,315
$
$
2009
18,300
1,456
(1,851)
17,905
$
$
During 2010, MCLP redeemed non-voting class B units such that MCAN’s interest in MCLP increased from 22.3% to
22.5% (2009 - 22.0% to 22.3%).
MCAN holds a 25% voting interest in MCLP. The remaining 75% is held by Cadcap Limited Partnership, a subsidiary
of the Caisse de dépôt et placement du Québec.
10. Derivative Financial Instruments
As part of the CMB program, the Company enters into “pay-floating, receive-fixed” interest rate swaps. The purpose of
these swaps is to hedge interest rate risk on the interest-only strips. The Company receives interest on reinvested CMB
principal collections, the discounted future value of which is included in the interest-only strips.
The following table outlines the Company’s pro-rata share of derivative financial instruments by term to maturity:
Less than
one year
One to
five years
Over five
years
2010
Total
2009
Total
CMB interest rate swaps - fair value
CMB interest rate swaps - outstanding notional
$
$
-
-
$ 13,120
$ 279,138
$
$
-
-
$ 13,120
$ 279,138
$ 11,490
$ 260,095
11. Other Assets
Capital assets
Deferred charges and prepaid expenses
Other assets - CMB program
Other receivables
12.
Term Deposits
Term deposits
Accrued interest
Fair value
2010
241
1,123
1,308
537
3,209
$
$
2009
291
995
72
197
1,555
$
$
2010
2009
$ 418,151
2,910
$ 421,061
$ 423,996
$ 357,150
3,594
$ 360,744
$ 364,021
Term deposits are issued to various individuals and institutions with original maturities ranging from 30 days to five
years (2009 - 30 days to five years) and bear interest at rates ranging from 0.10% to 4.60% (2009 - 0.10% to 5.10%). The
Company’s term deposits are eligible for Canada Deposit Insurance Corporation deposit insurance.
Term deposits are classified as other financial liabilities and are recorded at amortized cost. The estimated fair value of
term deposits as presented above is determined by discounting the contractual cash flows, using market interest rates
currently offered for deposits of similar remaining maturities.
- 42 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
13.
Securitization Liabilities
CMB - interest-only strips
2010
2009
$
7,000
$
5,048
As at December 31, 2010, certain CMB interest-only strips were in a liability position. CMB interest-only strips in an
asset position (note 6) totalled $10,065 at December 31, 2010 (2009 - $16,921). On a net basis, CMB interest-only strips
were in an asset position of $3,065 at December 31, 2010 (2009 - net asset position of $11,873). All interest-only strips
mature within one to five years.
The Company’s interest rate risk that arises from the reinvestment of CMB principal collections in primarily floating rate
assets is hedged by interest rate swaps (note 10), which were in an asset position of $13,120 at December 31, 2010 (2009
- asset position of $11,490).
14. Accounts Payable and Accrued Charges
Accounts payable and accrued charges
Dividends payable
Deferred mortgage commitment fees
Related party payable - MCLP
2010
2009
$ 5,145
3,756
1,734
174
$ 10,809
$
$
5,670
3,723
593
1,015
11,001
During 2010, the Company purchased certain corporate services from MCLP in the amount of $433 (2009 - $336),
included in general and administrative expenses. During 2010, the Company also purchased certain mortgage origination
and administration services from MCLP in the amount of $2,769 (2009 - $1,852). During 2010, the Company received
$3,663 (2009 - $2,382) of mortgage fee income from MCLP.
During 2010, the Company paid fees in the amount of $4,230 (2009 - $5,593) to MCLP relating to a profit sharing
arrangement on a portfolio of discounted mortgages. During 2010, the Company received $2,263 (2009 - $4,855) of fees
from MCLP relating to a profit sharing arrangement on a portfolio of discounted mortgages.
As part of the aforementioned profit sharing arrangements, MCLP pays MCAN 50% of any recoveries of discounts on
mortgages held on MCLP’s balance sheet, which is reflected in fee income. In addition, MCAN reimburses MCLP for
50% of any credit losses on discounted mortgages held on MCLP’s balance sheet (where MCAN participates in a profit
sharing arrangement), and vice versa.
Accounts payable and accrued charges includes a $200 liability related to expected losses as part of the Company’s
indemnity agreement associated with the securitization program windup discussed in note 6.
15. Credit Facilities
The Company has a line of credit from a Canadian chartered bank that is a $50,000 facility bearing interest at prime plus
1.50%, 4.50% at December 31, 2010 (2009 - 3.75%). The facility has a sub limit of $30,000 for issued letters of credit
and $30,000 for overdrafts, and is due and payable upon demand. The letters of credit have a term of up to one year from
the date of issuance, plus a renewal clause providing for an automatic one-year extension at the maturity date subject to
the bank’s option to cancel by written notice at least 30 days prior to the letters of credit expiry date. The letters of credit
are for the purpose of supporting developer obligations to municipalities in conjunction with developer loans. At
December 31, 2010, there were letters of credit in the amount of $22,495 issued (2009 - $11,143) and additional letters of
credit in the amount of $9,798 committed but not issued (2009 - $7,670).
- 43 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
16.
Income Taxes
Income before income taxes
Less: dividends
Income subject to tax
Statutory rate of tax
Tax provision before the following:
Statutory rate difference in subsidiaries
Rate change re:windup of subsidiary
Rate changes and other differences
Non-taxable portion of capital gains
2010
2009
$ 25,365
(17,123)
8,242
41%
3,379
(93)
1,041
(527)
(349)
3,451
$
$
24,742
(20,569)
4,173
42%
1,753
(533)
-
(951)
(948)
(679)
Tax provision (recovery) per consolidated financial statements
$
Presentation of tax provision (recovery) in consolidated financial statements
Provision against income
Charge (recovery) to retained earnings
The details of the future tax assets (liabilities) are as follows:
Provision for credit losses
Equity investment in MCAP Commercial LP
Dividends deductible for tax purposes
CMB-related items
Capital assets
Financial assets
Loss carryforward benefit
$
$
-
3,451
3,451
$ -
(679)
(679)
$
2010
2009
$
1,242
(1,001)
(5,724)
(4,855)
(44)
(380)
299
$ (10,463)
$
$
1,821
(475)
(2,389)
(6,333)
(72)
(444)
881
(7,011)
The Company has loss carryforward amounts of $930 (2009 - $2,809), the benefit of which has been recorded to future
taxes, expiring as follows:
2028
2029
$ 127
$ 803
17.
Share Capital and Contributed Surplus
The authorized share capital of the Company is unlimited common shares with no par value.
Issued
Balance, January 1
Issued
Dividend reinvestment plan
Executive Share Purchase Plan
Balance, December 31
Number
of Shares
2010
Number
of Shares
2009
14,320,980
$
98,490
14,223,506
$
97,493
65,447
61,316
14,447,743
833
789
$ 100,112
80,872
16,602
14,320,980
843
154
98,490
$
During 2010, the Company issued 65,447 (2009 - 80,872) shares under the dividend reinvestment plan out of treasury at
the weighted average trading price for the 20 days preceding such issue.
The Company had no potentially dilutive instruments for the years ended December 31, 2010 and 2009.
Contributed surplus of $510 represents the discount on the repurchase of warrants in 2004.
- 44 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
Executive Share Purchase Plan
The Company has established an Executive Share Purchase Plan (the “Share Purchase Plan”) whereby the Board of
Directors can approve loans to key personnel for the purpose of purchasing the Company’s common shares. During
2010, 61,316 common shares were issued out of treasury under the Share Purchase Plan (2009 - 16,602). The maximum
amount of loans approved under the Share Purchase Plan is limited to 10% of the issued and outstanding common shares.
Dividend distributions on the common shares are used to reduce the principal balance of the loans as follows: 50% of
regular distributions, and 75% of capital gain distributions. Common shares are issued out of treasury for the Share
Purchase Plan at the weighted average trading price for the 20 days preceding such issue.
MCAN advanced $789 of loans under the Share Purchase Plan in 2010 (2009 - $154). At December 31, 2010, $1,699 of
loans were outstanding (2009 - $1,397) (note 7). The loans under the Share Purchase Plan bear interest at prime plus 1%,
4% at December 31, 2010 (2009 - 3.25%) and have a five-year term. The shares are pledged as security for the loans and
have a market value of $2,562 at December 31, 2010 (2009 - $2,313).
Deferred Share Units Plan
In 2010 the Company established a Deferred Share Units Plan (the “DSU Plan”) whereby the Board of Directors granted
units under the DSU Plan to the President and Chief Executive Officer (the “Participant”). Each unit is equivalent in
value to one common share of the Company. Following his retirement/termination date, the Participant is entitled to
receive cash for each unit. The individual unit value is based on the average market value of the Company’s common
shares for the five days preceding the retirement/termination date. The Participant was granted 30,000 units under the
DSU Plan during 2010. In addition, the Participant is entitled to receive dividend distributions in the form of additional
units. The underlying units follow a graded vesting schedule over three years. All dividends paid prior to July 6, 2014
vest as at July 6, 2014. All dividends paid after July 6, 2014 vest immediately. As at December 31, 2010, no units had
yet vested.
The Company recognizes compensation expenses associated with the DSU Plan in line with the graded vesting schedule.
The compensation expense recognized in 2010 related to the DSU Plan was $128, included in salaries and benefits. As at
December 31, 2010, the accrued DSU Plan liability was $128, included in accounts payable and accrued liabilities.
18. Accumulated Other Comprehensive Income
Accumulated other comprehensive income includes unrealized gains and losses (net of taxes) on available for sale
marketable securities, mortgages and securitization investments.
Note
2010
2009
Unrealized gain (loss) on available for sale marketable securities 4
5
Unrealized gain on available for sale mortgages
Unrealized gain on available for sale securitization investments
6
Other
$ (32)
1,823
-
-
1,791
$
$ -
1,192
544
(22)
1,714
$
19.
Interest Rate Sensitivity
Interest rate risk arises when principal and interest cash flows, both on and off balance sheet, have mismatched repricing
and maturity dates. Interest rate risk, or sensitivity, is the potential impact of changes in interest rates on financial assets
and liabilities.
An interest rate gap is a common measure of interest rate sensitivity. A positive gap occurs when more assets than
liabilities reprice within a particular time period. A negative gap occurs when there is an excess of liabilities over assets
repricing. The former provides a positive earnings impact in the event of an increase in interest rates during the time
period. Conversely, negative gaps are positively positioned for decreases in interest rates during that particular time
period. The determination of the interest rate sensitivity or gap position is based upon the earlier of the repricing or
maturity date of each asset and liability, and includes numerous assumptions.
The interest rate sensitivity analysis is based on the Company’s consolidated balance sheet as at December 31, 2010 and
does not incorporate mortgage and loan prepayments. The analysis is subject to significant change in subsequent periods
based on changes in customer preferences and in the application of asset/liability management policies.
Floating rate assets and liabilities are immediately sensitive to a change in interest rates while other assets are sensitive to
changing interest rates periodically, either as they mature, as interest payments are collected or paid, or as contractual
- 45 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
repricing events occur. Non-interest rate sensitive assets and liabilities are not directly affected by changes in interest
rates.
The Company manages interest rate risk by matching the terms of invested assets and term deposits. To the extent that
the two components offset each other, the risks associated with interest rate changes are reduced. The Asset and Liability
Management Committee (“ALCO”) reviews the Company's interest rate exposure on a monthly basis using interest rate
spread and gap analysis as well as interest rate sensitivity analysis based on various scenarios. This information is also
formally reviewed by the Investment Committee of the Board each quarter. The Company does not currently use
derivative financial instruments outside of the CMB program, however the potential use of such instruments for the
Company’s on-balance sheet assets is analyzed and reported to ALCO on a monthly basis.
The following table presents the assets and liabilities of the Company by interest rate sensitivity:
Floating
Rate
Within
3 Months
3 Months
to 1 Year
1 to 5
Years
Over 5
Years
Non-
Interest
Sensitive
2010
Total
2009
Total
ASSETS
Investments
Cash and cash equivalents
Marketable securities
Mortgages
Securitization investments
Loans receivable and other
investments
Equity investment in
MCAP Commercial LP
Derivative financial
instruments
Other assets
Total Assets
Yield
$
89,373
-
72,510
457
3,147
$
-
-
60,625
18
$
-
-
143,119
-
$
-
-
137,270
8,474
$
-
6,608
1,261
2,944
$
-
-
7,608
1,712
$
89,373
6,608
422,393
13,605
$
89,843
-
295,415
73,590
89
100
1,323
-
5,420
10,079
16,885
-
165,487
-
60,732
-
143,219
-
147,067
-
10,813
20,315
35,055
20,315
562,373
17,905
493,638
-
-
$ 165,487
-
-
60,732
$
-
-
$ 143,219
13,120
$ 160,187
1.55%
5.90%
6.14%
6.02%
-
- -
10,813
12.50%
$
-
3,209
$ 38,264
13,120
3,209
$ 578,702
11,490
1,555
$ 506,683
LIABILITIES AND SHAREHOLDERS’ EQUITY
Term deposits
Securitization liabilities
Accounts payable and
- $
-
$
57,455
-
$ 253,953
-
$ 109,653
7,000
$ -
-
$
-
-
$ 421,061
7,000
$ 360,744
5,048
accrued charges
Future taxes payable
Shareholders’ equity
Total Liabilities and
Shareholders’ Equity
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,809
10,463
129,369
10,809
10,463
129,369
11,001
7,011
122,879
-
-
$ 57,455
$ 253,953
$ 116,653
1.50%
1.84%
2.73%
$ -
-
$ 150,641
$ 578,702
$ 506,683
$ 165,487 $
3,277
$ (110,734) $
43,534
$
10,813
$ (112,377) $
-
$
-
Yield
GAP
YIELD SPREAD
1.55% 4.40%
4.30%
3.29%
12.50%
Certain residential construction loans and single family uninsured completed inventory loans are subject to the greater of
a minimum interest rate (ranging between 4.25% and 10%) or a prime based interest rate. To the extent that the
minimum rate exceeds the prime based rate at December 31, 2010, these mortgages have been reflected in the table above
as fixed rate mortgages, as follows: within 3 months - $19,117, 3 months to 1 year - $76,004, and 1 to 5 years - $44,147.
An immediate and sustained 1% increase (decrease) to market interest rates at December 31, 2010 would have a positive
(adverse) effect of $1,072 (2009 - $2,144) to net income over the following twelve month period.
An immediate and sustained 1% increase (decrease) to market interest rates at December 31, 2010 would have an adverse
(positive) effect to accumulated other comprehensive income of $3,817 (2009 - $1,902).
When calculating the effect of an immediate and sustained 1% change in market interest rates on net investment income,
the Company determines which assets and liabilities reprice over the following twelve months and applies a 1% change
to their respective yields at the time of repricing to determine the change in net investment income for the duration of the
twelve month period.
- 46 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
20. Capital Management
The Company's primary capital management objectives are to maintain sufficient capital for regulatory purposes and to
earn acceptable and sustainable risk weighted returns for shareholders. Through its risk management and corporate
governance framework, the Company assesses current and projected economic, housing market, interest rate and credit
conditions to determine appropriate levels of capital. The Company typically pays out all of its taxable income by way of
dividends. Capital growth is achieved through retained earnings, rights offerings and the dividend reinvestment plan.
The Company's capital management is driven by the guidelines set out by the Tax Act and OSFI. As a MIC under the
Tax Act, the Company is limited to a liabilities to capital ratio of 5:1 (or an assets to capital ratio of 6:1), based on the
non-consolidated balance sheet measured at its tax value. As a loan company under the Trust Act, the Company has been
granted a maximum consolidated regulatory assets to capital ratio by OSFI. The Company manages its assets to a level
of 5.75 times capital on a non-consolidated tax basis to provide a prudent cushion between its limit and total actual assets.
The Company manages its capital to comply with the requirements of the MIC test and OSFI regulations at all times.
The Company has adopted the Basel II capital management framework. The Company has implemented the standardized
approach to calculating risk-weighted assets for credit risk and the basic indicator approach for the calculation of
operational risk.
Tier 1 capital includes common shares, contributed surplus, retained earnings and certain components of accumulated
other comprehensive income. Tier 1 and Tier 2 capital are both reduced by 50% of unrated securitization exposures and
Tier 1 capital is reduced by a portion of gains on securitization. OSFI’s target minimum Tier 1 and Total capital ratios
for the Company are 7% and 10%, respectively. The Company’s target minimum Tier 1 and Total capital ratios are both
15%.
As at December 31
Tax Act Test
Income tax assets
Income tax capital
Income tax assets to capital ratio
Income tax liabilities to capital ratio
Regulatory Tests (OSFI)
Tier 1 capital
Share capital
Contributed surplus
Retained earnings
Tier 1 capital deductions
Tier 2 capital
Tier 2 capital deductions
Total capital
Total regulatory assets
Capital ratios
Tier 1 capital to risk-weighted assets ratio
Total capital to risk-weighted assets ratio
Assets to capital ratio
$
$
$
2010
2009
555,360
126,374
4.39
3.39
$
$
488,024
120,732
4.04
3.04
100,112
510
26,956
(6,815)
120,763
$ 98,490
510
22,165
(9,792)
111,373
(229)
(229)
(1,142)
(1,142)
$
120,534
$
110,231
$
595,473
$
508,351
22.10%
22.06%
4.94
27.75%
27.47%
4.61
As at December 31, 2010, the Company was in compliance with the capital guidelines issued by OSFI under Basel II.
- 47 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
The Company's assets, analyzed on a risk-weighted basis, are as follows:
As at December 31
On-Balance Sheet Assets
Cash and cash equivalents
Marketable securities
Mortgages
Securitization investments
Loans receivable and other investments
Equity investment in MCLP
Derivative financial instruments
Other assets
2010
2009
Balance
Risk-Weighted
Balance Risk-Weighted
$
89,373
6,608
422,393
13,605
10,079
20,315
13,120
3,209
$ 578,702
$
18,140
6,608
294,907
13,926
10,079
20,315
-
3,209
$ 367,184
$ 89,843
-
295,415
73,590
16,885
17,905
11,490
1,555
$ 506,683
$
18,260
-
202,272
29,759
16,885
17,905
-
1,555
$ 286,636
Off-Balance Sheet Assets
Letters of credit
Mortgage funding commitments
Derivative Financial Instruments
CMB interest rate swaps
Outstanding notional
Add-on factor
Potential credit exposure
Positive replacement cost
Credit equivalent
Risk weighting
Risk-weighted equivalent
Charge for operational risk
Total Risk-Weighted Assets
$ 279,138
0.5%
1,396
13,120
14,516
20%
11,247
99,839
111,086
2,903
65,238
$ 260,095
0.5%
1,300
11,490
12,790
20%
5,572
48,087
53,659
2,558
58,475
$ 546,411
$ 401,328
The risk-weighting of all on-balance sheet assets (except derivative financial instruments) and all off-balance sheet assets
is based on a prescribed percentage of the underlying asset position, in addition to adjustments for other items such as
impaired mortgages and unrated securitization investments. The derivative financial instrument credit equivalent consists
of the fair market value of the derivative and an amount representing the potential future credit exposure. Risk-weighted
assets also include an operational risk charge, which is based on certain components of the Company’s net investment
income over the past three years.
21.
Financial Instruments
The majority of the Company’s consolidated balance sheet consists of financial instruments, and the majority of net
income is derived from the related income, expenses, gains and losses. Financial instruments include cash and cash
equivalents, marketable securities, mortgages, securitization investments, loans receivable and other investments, term
deposits and derivative financial instruments.
All financial instruments that are carried on the consolidated balance sheet at fair value (marketable securities, mortgages,
certain securitization investments and derivative financial instruments) are estimated using valuation techniques based on
observable market data such as market interest rates currently charged for similar financial investments to expected
maturity dates.
The fair value of the Company’s mortgages considers the existing terms of the portfolio of mortgages (e.g. interest rate,
term to maturity, risk rating) relative to the current market for similar mortgages.
- 48 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
The following table summarizes financial assets and liabilities reported at fair value as at December 31, 2010. Financial
assets and liabilities are classified into three levels, as follows: quoted prices in an active market (Level 1), fair value
based on observable inputs other than quoted prices (Level 2) and fair value based on inputs that are not based on
observable data (Level 3).
Financial Assets
Marketable securities
Mortgages
Securitization investments
Derivative financial instruments
Financial Liabilities
Securitization liabilities
Level 1
Level 2
Level 3
$ 1,652
-
-
-
1,652
$
$ 4,956
422,393
-
13,120
$ 440,469
$ -
-
10,065
-
10,065
$
$
-
$
-
$
7,000
The following table is a reconciliation of changes during 2010 in the fair value of Level 3 financial instruments:
Financial Assets
Securitization investments
Financial Liabilities
Securitization liabilities
Opening
Balance
Additions
Settlements
Changes in
Fair Value
Closing
Balance
$ 18,943
$
499
$
(4,569)
$
(4,808)
$ 10,065
$
5,048
$
-
$
(3,177)
$
5,129
$
7,000
The following table summarizes financial assets and liabilities reported at fair value as at December 31, 2009.
Financial Assets
Mortgages
Securitization investments
Derivative financial instruments
Financial Liabilities
Securitization liabilities
Level 1
Level 2
Level 3
$
$
$
-
-
-
-
-
$ 295,415
43,409
11,490
$ 350,314
$
$
-
18,943
-
18,943
$
-
$
5,048
The following table is a reconciliation of changes during 2009 in the fair value of Level 3 financial instruments:
Opening
Balance
Additions
Settlements
Changes in
Fair Value
Closing
Balance
$
5,337
$ 10,892
$
(1,625)
$
4,339
$ 18,943
$
7,095
$
-
$
(1,125)
$ (922)
$
5,048
Financial Assets
Securitization investments
Financial Liabilities
Securitization liabilities
Risk Management
The types of risks to which the Company is exposed include interest rate, credit, liquidity and market risk. The
Company’s enterprise risk management framework includes policies, guidelines and procedures, with oversight by senior
management and the Board of Directors. These policies are developed and implemented by management and reviewed
and approved annually by the Board of Directors.
The nature of these risks and how they are managed is provided in the Risk Management and Risk Factors section of the
Management’s Discussion and Analysis of Operations (“MD&A”). Certain disclosures required under the CICA
Handbook section 3862, Financial Instruments - Disclosures, related to the management of credit, interest rate, liquidity
and market risks inherent with financial instruments are included in the MD&A. The relevant MD&A sections are
identified by shading within boxes and the content forms an integral part of these consolidated financial statements.
- 49 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / 2010 CONSOLIDATED FINANCIAL STATEMENTS
MCAN MORTGAGE CORPORATION
December 31, 2010 (Dollar amounts in thousands except for per share amounts)
22.
Lease Commitments
The future minimum annual lease commitments for premises are as follows:
2011
2012
2013
2014
2015 and thereafter
23. Guarantees
$
263
263
263
198
-
987
$
The Company guarantees certain of the credit and operating activities of MCAP Financial Corporation (“MFC”) and
MCLP. CDP Capital - Real Estate Advisory Inc. (“CDP Capital - Real Estate Advisory”) indemnifies the Company to the
extent of 75% of the costs resulting from any claims on the guarantees. The effect of this indemnity is that the cost of any
claim will be borne by the Company and CDP Capital - Real Estate Advisory pro rata to their respective voting interests in
MCLP.
The guarantees subject to the CDP Capital - Real Estate Advisory indemnity as follows:
(a) guarantee of the performance of MFC and MCLP with respect to the warehousing of residential construction loans
related to MCLP’s residential construction loan securitization program; and
(b) guarantee of the premises lease with respect to the premises occupied by MFC, MCLP and the Company at 200 King
Street West, Toronto with a current monthly rent of $116 and expiring in September 2014.
MCLP has issued Class B units to management of MCLP, which were financed by bank loans to management. Under
certain circumstances, the Company may be required to contribute up to 25% of the fair value of the Class B units to MCLP
in order to repurchase the Class B units or to repay the bank financing and subrogate the bank’s position. At December 31,
2010, the outstanding bank loan balances were $6,315. As at December 31, 2010, the fair value of the Class B units
exceeded the outstanding bank loan balances.
24. Comparative Amounts
Certain comparative amounts have been reclassified to conform to the presentation adopted in the current year. There was
no impact to the financial position or net income as a result of these reclassifications.
25. Future Changes in Accounting Policy
For the fiscal year commencing January 1, 2011, the Company will adopt International Financial Reporting Standards
(“IFRS”).
For additional information regarding the Company’s transition to IFRS, please refer to pages 23 to 25 of the MD&A.
- 50 -
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
DIRECTORS
David G. Broadhurst
President, Poynton Investments Limited; Chairman of the
Audit Committee; Member of Conduct Review, Corporate
Governance and Human Resources Committee; Director since
May 1997.
Brydon Cruise
President and Managing Partner, Brookfield Financial;
Member of Conduct Review, Corporate Governance and
Human Resources Committee; Member of Investment
Committee; Director since May 2010.
Derek A. Norton
President and CEO, MCAP Commercial LP; Director since
July 2000.
Jean C. Pinard
Corporate Director; Member of Investment Committee;
Director since November 2005.
Susan Doré
Corporate Director; Member of Audit Committee; Member of
Conduct Review, Corporate Governance and Human
Resources Committee; Director since May 2010.
Robert A. Stuebing
Corporate Director; Member of Audit Committee; Member of
Investment Committee; Director since April 2004.
Brian A. Johnson
Partner, Crown Capital Partners and Crown Realty Partners;
Member of Investment Committee; Chairman of Conduct
Review, Corporate Governance and Human Resources
Committee; Director since January 2001.
Ian Sutherland
Chairman, MCAN Mortgage Corporation; Director since
January 1991.
David A. MacIntosh
Corporate Director; Chairman of Investment Committee;
Member of Audit Committee; Director since January 2000.
William Jandrisits
President and Chief Executive Officer, MCAN Mortgage
Corporation; Director since August 2010.
OFFICERS AND MANAGEMENT
William Jandrisits
President and Chief Executive Officer
Tammy Oldenburg
Vice President and Chief Financial Officer
Michael Misener
Vice President, Investments
Paco Lai
Senior Manager, Cash Operations
Sylvia Pinto
Corporate Secretary
Chief Compliance Officer
Derek Sutherland
Assistant Vice President, Investments
Dipti Patel
Investment Analyst
John Tyas
Controller
Ekaterina Gorzheltson
Assistant Controller
Sal Jadavji
Enterprise Risk Management Officer
Chief Anti-Money Laundering Officer
Privacy Officer
Business Continuity/Disaster Recovery Coordinator
- 51 -
CORPORATE INFORMATION
Head Office
200 King Street West, Suite 400
Toronto, Ontario
M5H 3T4
Tel: (416) 598-2665
Fax: (416) 598-4142
Web: www.mcanmortgage.com
Corporate Counsel
Goodmans LLP
Toronto, Ontario
Auditors
Ernst & Young LLP
Toronto, Ontario
Public Listing
Toronto Stock Exchange
Exchange symbol MKP
Bank
Bank of Montreal
First Canadian Place
Toronto, Ontario
2010 ANNUAL REPORT / MCAN MORTGAGE CORPORATION
Corporate Information
This MCAN Mortgage Corporation 2010 Annual Report is available for
viewing/printing on our web site at www.mcanmortgage.com, or additionally on
SEDAR at www.sedar.com. To request a printed copy, please contact Ms. Sylvia
Pinto, Corporate Secretary, 200 King Street West, Suite 400, Toronto, Ontario M5H
3T4, by phone 416-591-5214 or 1-800-387-4405, or e-mail
spinto@mcanmortgage.com.
Registrar and Transfer Agent
For dividend information, change in share registration or address, lost certificates,
estate transfers, or to advise of duplicate mailings, please call MCAN Mortgage
Corporation’s Transfer Agent and Registrar at 1-800-564-6253, or write to
Computershare Trust Company of Canada, 100 University Avenue, 9th Floor,
Toronto, Ontario M5J 2Y1.
General Information
For general enquiries about MCAN Mortgage Corporation, please write to Ms.
Sylvia Pinto, Corporate Secretary or e-mail mcanexecutive@mcanmortgage.com.
Annual Meeting
4:30 p.m., on May 11, 2011
St. Andrew’s Club and Conference Centre
150 King Street West
Inverness Room
27th Floor
Toronto, Ontario
- 52 -