MCAP Inc. Reports Fourth Quarter Earnings.TORONTO Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing -- MCAP MCAP Market Capitalization (public company valuation method) MCAP Monterey County AIDS Project (Monterey, CA) MCAP Manned/Unmanned Common Architecture Program (US Army AH-64 helicopter) Inc. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :MKP MKP Mankind Project MKP MAP Kinase Phosphatase MKP Maoist Communist Party (Turkey) MKP Maurin Kiribati Pati (Kiribati) MKP Multidimensional Knapsack Problem MKP Mazdoor Kissan Party ) ("MCAP" or the "Company") today announced its results for the fourth quarter of 2004. Net income for the quarter was $2.7 million, up from $2.3 million a year earlier. Earnings per share for the quarter were $0.23 compared to $0.23 last year. For the 12 months ended December December: see month. 31, 2004, net income was $11.6 million, up from $8.2 million in the prior year, and earnings per share were $1.12 compared to $0.84 in the prior year. The 2003 annual earnings per share have been restated from $0.85 to $0.84 to reflect the impact of the rights offering which MCAP completed in the fourth quarter. This offering was dilutive as the shares were issued at $7.50, a 9% discount from the market price at that time. In addition, the September September: see month. 2004 year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. earnings per share have been restated from $0.91 to $0.89 to reflect this dilution Dilution A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities. Notes: Adding to the number of shares outstanding reduces the value of holdings of existing shareholders. . On April 19, 2004 the Company completed a series of transactions commenced on April 15th to reorganize re·or·gan·ize v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es v.tr. To organize again or anew. v.intr. To undergo or effect changes in organization. its involvement in the mortgage origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real and servicing business (see "Business Reorganization" below). The transactions comprising the reorganization included the sale of MCAP Financial Corporation ("MFC (Microsoft Foundation Class) An application framework for writing Microsoft C/C++ and Visual C++ applications. See application framework. MFC - Microsoft Foundation Class ") to MCAP Commercial Limited Partnership ("MCLP MCLP Maximal Covering Location Problem (resource limitations) MCLP Massachusetts Certified Landscape Professional MCLP Maricopa County Libertarian Party MCLP Michigan Clinical Law Program MCLP Mobile Computing Lending Program ") and the acquisition of a 25% limited partnership interest in MCLP. The Company recorded a $5.0 million pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta gain on the sale of MFC. Prior to April 16th, the Company consolidated MFC. The Company now equity accounts for the income from the mortgage origination and servicing business based on its 25% minority interest in MCLP. Subsequent to the business reorganization, the Company reclassified the financial statements to facilitate understanding and analysis of the reorganized re·or·gan·ize v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es v.tr. To organize again or anew. v.intr. To undergo or effect changes in organization. business. There was no impact to the financial position or net income as a result of these reclassifications. As part of the reclassifications, the Company's investment in MCLP and the related equity income are now shown separately to highlight the strategic importance of this investment. Net Investment Income For the fourth quarter, net investment income was $3.5 million compared to $7.7 million in the same period of 2003. The 2004 investment income comprises MCAP's investing operations only, as MCAP now equity accounts for its interest in the mortgage banking operations. The 2003 comparative income includes the income from the mortgage banking business before the related operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. . Mortgage Interest Income: Mortgage interest income was $4.9 million in the quarter versus $4.0 million last year. Mortgage interest increased by $881,000 compared to the prior year as a result of a higher average mortgage portfolio. Interest on Cash and Cash Equivalents: Interest on cash and cash equivalents was $102,000 compared to $441,000 in the same period last year due to lower average cash balances for the fourth quarter notwithstanding the high year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. balance. Fees: Fees of $755,000 were recognized for the fourth quarter compared to $3.4 million in the same period last year. The majority of the fees from 2003 relate to the mortgage banking operations. The fees in the current quarter primarily relate to fees earned on MCAP's mortgage portfolio. Marketable Securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has : Marketable securities income was $68,000 in the quarter compared to $477,000 last year. The decrease is partly due to a $224,000 write down taken on two specific securities in the portfolio in the fourth quarter. Also, MCAP sold one security in the quarter at a loss of $3,000 compared to gains on sales of $277,000 in 2003. Unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. on the portfolio at the end of December were $2.9 million compared to unrealized gains of $1.4 million at September 30, 2004 and $1.3 million at December 31, 2003. Equity Income from MCLP: Equity income from the Company's 25% ownership in MCLP was $189,000 in the quarter compared to $nil last year as MCAP consolidated the results from the mortgage banking operations in 2003. Other Income: Other income of $973,000 was significantly lower than the $2.3 million generated in 2003, as 2003 included leasing income of $1.7 million and the equity income from the Company's 20% ownership of MCAP Service Corporation ("MSC (1) (MSC.Software Corporation, Santa Ana, CA, www.mscsoftware.com) Founded in 1963 by Richard H. MacNeal and Robert G. Schwendler, MSC is the world's largest provider of mechanical computer aided engineering (MCAE) strategies, simulation software and services. "). Gain on Sale of Mortgages: Gain on sale of mortgages was $168,000 in the quarter versus $118,000 last year. Debenture debenture (dəbĕn`chər), document acknowledging indebtedness. In Great Britain a debenture is practically the same as a bond, and debenture stock is similar to preferred stock. Interest and Expenses: Debenture interest and expenses were $2.9 million compared to $2.7 million in 2003. Debentures at December 31, 2004 were $371 million compared to $267 million at December 31, 2003. However, debenture interest and expenses increased by only $161,000 as a 0.42% decrease in average debenture interest rates substantially offset the cost of the increase in the debenture book. Operating Expenses Operating expenses during the quarter were $1.2 million, $4.2 million lower than last year. Operating expenses in the quarter were 33.4% of net investment income compared to an annual rate of 71.7% in 2003. As a result of the business reorganization, there is considerably less activity in the Company and its consolidated entities. There were minimal occupancy and information systems expenses recorded in the quarter as these costs were covered in management expenses paid to MCLP which are included in salaries and administrative expenses. The Company began paying for occupancy expenses directly in December 2004 and will begin paying for information systems expenses directly in January January: see month. 2005. Credit Risk and Provisions Net provisions for losses of $182,000 were recorded in the quarter, which were used to increase the general allowance for mortgages. Specific provisions were negligible  This article or section is written like a personal reflection or and may require .Please [ improve this article] by rewriting this article or section in an . and no losses were recorded during the quarter. The Company's reserving policy is to maintain a general allowance on the mortgage portfolio of at least 1% of risk-weighted assets Risk-Weighted Assets In terms of the minimum amount of capital that is required within banks and other institutions, based on a percentage of the assets, weighted by risk. Notes: The idea of risk-weighted assets is a move away from having a static requirement for capital. . The increase in the general allowance is a result of an increase in mortgage balances at December 31, 2004 over September 30, 2004. Impaired loans net of specific allowances were 0.54%, consistent with 0.54% in September 2004 and 0.55% at December 31, 2003. Financial Position As of December 31, 2004, total consolidated assets were $454 million, up $75 million from September 30, 2004 and up $85 million from December 31, 2003. The increase in assets since September 30, 2004 relates to the Company's efforts to grow its assets towards an optimal range reflecting the increased regulatory capital that resulted from the business reorganization and the rights offering. The most significant increases in assets since September 30, 2004 include $17 million in mortgages, $13 million in marketable securities and $41 million in cash. Cash balances ended the quarter at $47 million, increasing from the September 30, 2004 level of $6 million due to sales of mortgages near year-end. The Company intends to reduce its cash levels in the first quarter of 2005 and further grow its mortgage and investment book. The Company's liabilities for debentures increased $69 million over September 30, 2004 reflecting the Company's growth in assets. The composition of the balance sheet has changed significantly from December 31, 2003. Due to the reorganization, the Company no longer consolidates MFC. This has resulted in decreases to accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) , goodwill and intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. , accounts payable, accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. charges and the subordinated debenture subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before as compared to December 31, 2003. Total shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. of $75 million was up $11 million from September 30, 2004. The majority of the increase relates to the new capital raised under the rights offering in October October: see month. net of the special dividend of $0.31 paid in November November: see month. . In addition, the Company issued shares from treasury to satisfy the dividend reinvestment plan Dividend Reinvestment Plan (DRP) Plan which provides for automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. (DRIP). Issuing the DRIP from treasury provides the Company with predictable growth in capital over time at a rate that can be invested in a timely manner. Rights Offering and Special Dividend On October 18, 2004 the Company announced the successful completion of the fully subscribed Fully Subscribed A situation in which an underwriting firm has successfully sold to investors all of its available issues of a public offering of securities. When the issue is fully subscribed, the underwriter's risk of being undersubscribed (being unable to sell its allotment of rights offering that expired ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. on October 15, 2004. The offering raised gross proceeds of $13.4 million with 1,788,940 new common shares issued. Of the new common shares issued, 1,528,033 were subscribed for under the initial subscription privilege Subscription privilege The right of current shareholders of a corporation to buy newly issued shares before they are available to the public. subscription privilege See preemptive right. and 260,907 were subscribed for under the additional subscription privilege. The directors and officers of the Company fully participated in the rights offering. Also on October 18, 2004, the Board of Directors declared a special capital gains dividend of $0.31 per share which was paid November 10, 2004 to shareholders of record as of October 28, 2004. On payment of this dividend, the Company recovered the income tax charged on the gain on the business reorganization. Business Reorganization On April 19, 2004, MCAP completed the combination of its mortgage origination and servicing business with that of the Caisse Caisse, a French word, may refer to:
- MCAP sold MFC to MCLP. - MCAP incorporated a new subsidiary to hold its beneficial interest in MCLP. - MCAP incorporated a second new subsidiary, which acquired MCAP Securities Inc. and the immigrant investor business from MFC. - CDP CDP (cytidine diphosphate): see cytosine. (1) (Certificate in Data Processing) An earlier award for the successful completion of an examination in hardware, software, systems analysis, programming, management and accounting, Capital - Real Estate Advisory Inc. ("CDP Capital - REA REA Rural Electrification Administration REA Rural Electric Association REA Railway Express Agency REA Repertorio Economico Amministrativo REA Rapid Environmental Assessment REA Resident Evil: Apocalypse (movie) "), a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of the Caisse acquired an additional 25% interest in MCLP in consideration of the contribution of cash and the commercial mortgage origination, underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. , management and servicing business of CDP Capital - Mortgages, a subsidiary of the Caisse. - As a result of the above, the Company's beneficial interest in MCLP reduced from 50% to 25% and CDP Capital - REA interest increased from 50% to 75%. Additional information related to the Business Reorganization can be found in the Report for the Second Quarter Ended June 30, 2004. The MCLP group mortgage origination and servicing business is now significantly larger than before the contribution of CDP Capital - Mortgages' business. At November 30, 2004, MCLP had $26.4 billion of assets under administration including residential mortgages serviced by MCAP Service Corporation which MCLP partly owns. MCAP Securities Inc. Prior to December 31, 2004, MCAP Securities Inc. ("MSI MSI: see integrated circuit. (1) (MicroSoft Installer) See Windows Installer. (2) (Medium Scale Integration) Between 100 and 3,000 transistors on a chip. See SSI, LSI, VLSI and ULSI. ") gave notice to the Investment Dealers Association of Canada of its intention to resign as a securities dealer. The primary activity of MSI was a securities dealer for immigrant investor programs. MCAP worked with a Quebec based company that specializes in that business under a profit sharing profit sharing, arrangement by which employees receive, in addition to their wages, a share of the net profits of a business. The purpose is to give them an incentive to increase their output through enhanced morale, less wasteful use of materials, better care of arrangement. Effective December 31, 2004, MCAP restructured its relationship with the Quebec company which concurrently established a new arrangement with a Quebec based securities dealer. MCAP continues to support the Quebec company in this business by providing credit support on normal market terms. Outlook The business reorganization constitutes a shift in the Company's operations to a greater emphasis on mortgage lending and investing activities. The Company's participation in the mortgage origination and servicing business is now through its 25% interest in MCLP. While the former business is generally more stable than the latter, income from investing activities is directly reflective Refers to light hitting an opaque surface such as a printed page or mirror and bouncing back. See reflective media and reflective LCD. of the total assets invested and available spreads. Currently, interest rates are at historically low levels, and a high level of market competition for mortgage loans has compressed the spreads available to all mortgage lenders. At $454 million of assets, the Company is nearing its optimum leverage permitted under the income tax and loan companies legislation to which it is subject. However, at December 31, 2004, the Company had not optimized its asset mix as the weighting of cash and cash equivalents was too high. The Company is increasing its mortgage book prudently, without compromising its credit parameters, and expects to fully deploy its excess cash by the end of the first quarter of 2005. Earnings will increase as the Company grows its mortgage and investment book, but the growth in earnings will lag the growth in assets in the short term, as the general provisions against the increase in the mortgage book will create some drag on Verb 1. drag on - last unnecessarily long drag out last, endure - persist for a specified period of time; "The bad weather lasted for three days" 2. the increase in earnings. The Company also expects increasing income from its investment in MCLP through 2005. In summary, management reasonably expects that earnings from its investing activities will grow through 2005 as the Company achieves the optimum level of investments. Dividend The Board of Directors declared a first quarter dividend of $0.40 per share to be paid March 31, 2005 to shareholders of record as of March 15, 2005 comprising the regular $0.19 quarterly dividend and a $0.21 extra dividend. Under the Income Tax Act, the Company can deduct de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. dividends paid up to 90 days following year-end against the previous year's taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . The extra dividend is necessary to fully offset taxable income in 2004. This extra dividend (and the $0.31 special capital gains dividend paid in November) generally reflect one-time capital gains earned in 2004. The Company expects to maintain the $0.19 regular quarterly dividend through 2005. While there will always be an element of dividend adjustment in the first quarter of each year to equate e·quate v. e·quat·ed, e·quat·ing, e·quates v.tr. 1. To make equal or equivalent. 2. To reduce to a standard or an average; equalize. 3. dividends to taxable income, MCAP does not expect the magnitude of the special and extra dividends with respect to 2004 operations will be repeated.
Selected Quarterly Financial Data (Unaudited)
(In thousands of dollars, except per share amounts)
Year Ended December 31, 2004 Q1 Q2 Q3 Q4 Total
------ ------ ------ ------ -------
Net Investment Income $8,075 $7,595 $3,227 $3,540 $22,437
Net Income $2,546 $4,288 $2,065 $2,702 $11,601
Earnings per share, basic $ 0.25 $ 0.43 $ 0.21 $ 0.23 $ 1.12
Earnings per share, diluted $ 0.24 $ 0.41 $ 0.21 $ 0.23 $ 1.09
Dividends per share $ 0.27 $ 0.17 $ 0.17 $ 0.50 $ 1.11
Year Ended December 31, 2003 Q1 Q2 Q3 Q4 Total
------ ------ ------ ------ -------
Net Investment Income $7,439 $7,287 $7,203 $7,712 $29,641
Net Income $2,003 $1,985 $1,960 $2,299 $ 8,247
Earnings per share, basic $ 0.21 $ 0.20 $ 0.20 $ 0.23 $ 0.84
Earnings per share, diluted $ 0.20 $ 0.20 $ 0.20 $ 0.22 $ 0.82
Dividends per share $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.68
CONSOLIDATED BALANCE SHEET
(dollars in thousands) (Unaudited)
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As at December 31 September 30 December 31
2004 2004 2003
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Assets
Investments
Cash and cash equivalents $ 47,315 $ 6,175 $ 31,395
Marketable securities 24,516 11,578 17,918
Mortgages 314,157 297,421 238,583
Loans and other investments 51,807 47,248 50,297
Equity investment in MCAP
Commercial Limited Partnership 14,896 15,183 -
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452,691 377,605 338,193
Accounts receivable 753 321 8,331
Capital assets 134 5 4,843
Goodwill and intangible assets - - 10,502
Other assets 787 1,195 7,608
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$ 454,365 $ 379,126 $ 369,477
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Liabilities and Shareholders' Equity
Liabilities
Debentures $ 371,335 $ 302,254 $ 267,446
Accounts payable and
accrued charges 8,065 2,851 22,019
Loans payable - 10,000 650
Subordinated debenture - - 17,621
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379,400 315,105 307,736
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Shareholders' Equity
Share capital 71,927 57,828 58,980
Contributed surplus 510 510 -
Retained earnings 2,528 5,683 2,761
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74,965 64,021 61,741
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$ 454,365 $ 379,126 $ 369,477
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CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(dollars in thousands except for per share amounts) (Unaudited)
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For the Quarter Ended Year Ended
December 31 December 31
2004 2003 2004 2003
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Investment Income
Mortgage interest $ 4,887 $ 4,006 $ 16,229 $ 16,910
Interest on cash and
cash equivalents 102 441 659 1,609
Fees 755 3,399 4,920 10,443
Marketable securities 68 477 755 2,376
Equity income from
MCAP Commercial Limited
Partnership 189 - 613 -
Other income 973 2,325 4,924 8,109
Gain on sale of MCAP Financial
Corporation - - 4,967 -
Gain on sale of mortgages 168 118 1,494 2,384
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7,142 10,766 34,561 41,831
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Financial Expenses
Debenture interest
and expenses 2,879 2,719 9,876 10,735
Mortgage expenses 723 335 2,248 1,455
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3,602 3,054 12,124 12,190
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Net Investment Income 3,540 7,712 22,437 29,641
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Operating Expenses
Salaries and administrative 1,163 4,376 8,799 17,072
Occupancy 12 401 463 1,573
Information systems 1 589 781 2,603
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1,176 5,366 10,043 21,248
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Income Before Income Taxes 2,364 2,346 12,394 8,393
Provision for (recovery of)
income taxes and large
corporation taxes (338) 47 793 146
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Net Income for the Period $ 2,702 $ 2,299 $ 11,601 $ 8,247
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Retained earnings,
beginning of period 5,683 2,117 2,761 978
Dividends (5,857) (1,655) (11,834) (6,464)
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Retained earnings,
end of period $ 2,528 $ 2,761 $ 2,528 $ 2,761
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Earnings per share $ 0.23 $ 0.23 $ 1.12 $ 0.84
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Diluted earnings per share $ 0.23 $ 0.23 $ 1.09 $ 0.82
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Dividends per share $ 0.50 $ 0.17 $ 1.11 $ 0.68
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Weighted average #
of shares (000's) 11,472 9,908 10,353 9,862
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Weighted average # of
diluted shares (000's) 11,472 10,204 10,616 10,096
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This report may contain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , including statements regarding the business and anticipated financial performance of the Company. These statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include legislative or regulatory developments, competition, technology change, global market activity, interest rates, changes in government and economic policy and general economic conditions in geographic areas where the Company operates. These and other factors should be considered carefully and undue reliance should not be placed on the Company's forward-looking statements. MCAP Inc. does not undertake to update any forward-looking statements. MCAP Inc. (TSX:MKP) |
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