ATRIUM MORTGAGE INVESTMENT CORPORATION
C ANADA’S PREMIER NON-BANK LENDER TM
ANNUAL
REPORT
2014
FOR IMMEDIATE RELEASE
ATRIUM MORTGAGE INVESTMENT CORPORATION
GENERATES RECORD EARNINGS IN 2014
TORONTO: February 10, 2015 – Atrium Mortgage Investment Corporation (TSX: AI, AI.DB, AI.DB.A,
AI.DB.B) today released its financial results for the year ended December 31, 2014.
Highlights
•
$0.91 basic and fully diluted earnings per share for the year ended December 31, 2014, up
over 7% from the previous year
•
•
$0.07 per share special dividend to shareholders of record December 31, 2014
$0.89 total dividends per share in 2014, representing a yield of 8.8% on book value
• Regular monthly dividend increased in 2015 to $0.84 annual rate, $0.07 per month
• Mortgage portfolio increased 53.8% year-over-year to $434 million at December 31, 2014
• High quality mortgage portfolio
o 80.2% of portfolio in conventional first mortgages
o 97.2% of loan portfolio is less than 75% loan to value
o Continued focus on low risk real estate sectors
“We are very pleased with our results for 2014,” said Robert Goodall, CEO of Atrium. He continued,
“Our lending team across the country did an extraordinary job of originating high quality loan
opportunities throughout the year, which allowed us to grow the portfolio and generate substantially
higher earnings per share in 2014. Our five offices across Canada have allowed us to become one of the
largest MICs on the TSX.
“We would like to thank our real estate clients for their loyalty, and our new and existing shareholders
who allowed us to successfully complete three financings in 2014 totaling over $100 million − common
shares, and two issues of convertible debentures. I believe that Atrium is now regarded as ‘Canada’s
premier non-bank lender™’.”
Interested parties are invited to participate in a conference call with management on Wednesday,
February 11, 2015 at 4:00 p.m. EST. Please refer to the call-in information at the end of this news release.
1
Results of operations
For the year ended December 31, 2014, mortgage interest and fees revenue aggregated $35.0 million,
compared to $23.8 million in the prior year, an increase of 47%. The weighted average interest rate on the
mortgage portfolio increased to 8.81% at December 31, 2014, slightly higher than the 8.72% at December
31, 2013. Earnings and total comprehensive income were up 16.9% from the previous year.
Condensed Statements of Earnings and Comprehensive Income
($000s, except per share amounts)
Revenue
Mortgage servicing and management fees
Other expenses
Provision for mortgage losses
Income before financing costs
Financing costs
Earnings and total comprehensive income
Year Year Year
ended
ended
ended
December 31
December 31
December 31
2012
2013
2014
17,235
23,760
$ 34,956
1,568
2,468
3,553
935
845
1,014
193
63
1,817
14,539
20,384
28,572
1,181
2,384
7,535
13,358
18,000
$ 21,037
$
$
$
$
Basic earnings per share
Diluted earnings per share
$
$
0.91
0.91
$
$
0.85
0.85
$
$
0.86
0.86
For further information on the financial results, please refer to Atrium’s financial statements for the year
ended December 31, 2014, and its management’s discussion and analysis for the same period, available
on SEDAR at www.sedar.com, and on the company’s website at www.atriummic.com.
Mortgage portfolio
($000s)
Mortgage category
Commercial/mixed use
House and apartment
Low-rise residential
Construction
High-rise residential
Mid-rise residential
Condominium corporation
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgages receivable
December 31, 2014
Outstanding % of
December 31, 2013
Outstanding % of
Portfolio Number
27
59
17
9
5
3
11
131
31.1%
21.4%
19.7%
14.1%
10.1%
2.8%
0.8%
100.0%
Number
31
90
23
17
8
8
13
190
amount
$ 134,990
93,070
85,678
61,095
44,048
12,127
3,260
434,268
2,177
(465)
(835)
(2,388)
$ 432,757
Portfolio
31.7%
24.6%
20.7%
7.8%
11.7%
2.6%
0.9%
100.0%
$
amount
89,475
69,485
58,466
22,093
32,967
7,440
2,434
282,360
1,562
(339)
(724)
(1,151)
$ 281,708
2
A summary of mortgages by size is presented below.
($000s)
Mortgage amount
$0 - $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
December 31, 2014
Outstanding % of
December 31, 2013
Outstanding % of
Number
139
26
9
16
190
amount
$ 119,655
90,602
54,931
169,080
$ 434,268
Portfolio Number
95
24
7
5
131
27.6%
20.9%
12.6%
38.9%
100.0%
$
amount
98,812
81,090
46,820
55,638
$ 282,360
Portfolio
35.0%
28.7%
16.6%
19.7%
100.0%
As of December 31, 2014, the average outstanding mortgage balance was $2.3 million (December 31,
2013 – $2.2 million), and the median outstanding mortgage balance was $1.1 million (December 31, 2013
– $1.4 million).
Conference call
Interested parties are invited to participate in a conference call with management on Wednesday,
February 11, 2015 at 4:00 p.m. EST.
To participate or listen to the conference call live, please call 1 (888) 241-0551 or (647) 427-3415.
For a replay of the conference call (available until February 25, 2015) please call 1 (855) 859-2056,
Conference ID 63676629.
About Atrium
Canada’s Premier Non-Bank Lender™
Atrium is a non-bank provider of residential and commercial mortgages that lends in major urban centres
in Canada where the stability and liquidity of real estate are high. Atrium’s objectives are to provide its
shareholders with stable and secure dividends and preserve shareholders’ equity by lending within
conservative risk parameters.
Atrium is a Mortgage Investment Corporation (MIC) as defined in the Income Tax Act. Accordingly,
Atrium is not taxed on income provided that its taxable income is paid to its shareholders in the form of
dividends within 90 days after December 31 each year. Such dividends are generally treated by
shareholders as interest income, so that each shareholder is in the same position as if the mortgage
investments made by the company had been made directly by the shareholder. For further information,
please
at www.sedar.com or Atrium’s website
refer
at www.atriummic.com.
regulatory
available
filings
to
For additional information, please contact
Robert G. Goodall
President and Chief Executive Officer
Jeffrey D. Sherman
Chief Financial Officer
(416) 607-4200
ir@atriummic.com
www.atriummic.com
3
ATRIUM MORTGAGE INVESTMENT CORPORATION
C ANADA’S PREMIER NON-BANK LENDER TM
MD&A
MANAGEMENT’S DISCUSSION
AND ANALYSIS
YEAR ENDED
DECEMBER 31, 2014
6 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis
December 31, 2014
Our business
We are a mortgage lender that fills the lending gap caused by the limited
number of financial institutions operating in Canada. We lend in major
urban centres where the stability and liquidity of real estate are at the
highest levels. We focus on loans that cannot be placed with financial
institutions but which represent an acceptable underwriting risk. We invest
in mortgages secured by all types of residential, multi-residential and
commercial real property located in Canada, subject to compliance with
our investment policies. Our strategy is to grow in a controlled manner by
diversifying geographically, and focusing on those real estate sectors with
the lowest risk profiles.
Our investment objectives are to preserve our shareholders’ equity and
to provide our shareholders with stable and secure dividends from our
investments in mortgage loans within the criteria mandated for a Mortgage
Investment Corporation (MIC). Working within conservative risk
parameters, we endeavour to maximize income and dividends through the
sourcing and efficient management of our mortgage investments.
Highlights
Atrium had an excellent year, despite a challenging economy. For the year
ended December 31, 2014, our total revenue was $35 million, up 47%
from the previous year, and we earned $21 million ($0.91 per share basic
and fully diluted), compared to $18 million ($0.85 per share, basic and
diluted) for the previous year, an increase of 17% in earnings, and 7% in
earnings per share. We thank our staff, underwriters and our clients for our
success.
During this year we have actively managed the risk profile of our
mortgage portfolio, and currently target commercial real estate, low-rise
infill developments and single family mortgages. We also carefully
increased balance sheet leverage from 24% debt-to-assets at the end of
2013 to a still-conservative 41% at the end of 2014, to improve our return
to shareholders.
We declared a regular dividend of $0.068333 per share for each month
in 2014, a rate of $0.82 per year. In addition, we declared a special
dividend of $0.07, for a total dividend of $0.89 for 2014, compared to
$0.85 for the previous year.
We had $433 million of mortgages receivable as at December 31, 2014,
an increase of 54% from December 31, 2013. During the year, $278
million of new mortgages were advanced, and $131 million of mortgages
were repaid.
Earned
91 cents per share
basic;
8.8% return on book
value
EPS ↑ 7.1%
from previous year
Strong mortgage
portfolio
80%
first mortgages
97.2%
less than 75%
loan-to-value
Mortgages receivable
$433 million
↑ 54% from 2013
Nine mortgage
originators in
five offices across
central and western
Canada
MANAGEMENT’S DISCUSSION AND ANALYSIS• 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 7
Here are some further operating highlights of a successful 2014:
In February and March 2014, we completed a public offering of $31.8
million aggregate principal amount of 6.25% convertible debentures, the
net proceeds of which were used to repay indebtedness under our operating
credit facility.
Effective May 15, 2014, we appointed Marianne Dobslaw as managing
director for British Columbia. Ms. Dobslaw has over 25 years’ experience
underwriting residential and commercial financings throughout Western
Canada.
We completed a public share offering in May 2014 for gross proceeds
of $34.6 million, including an overallotment option that was fully
exercised, the net proceeds of which were used to repay indebtedness
under our operating credit facility.
In September and October 2014, we completed a public offering of
$40.25 million aggregate principal amount of 5.50% convertible
debentures, including an overallotment option that was fully exercised, the
net proceeds of which were used to repay indebtedness under our operating
credit facility.
On October 6, 2014, we renewed our operating credit facility with a
syndicate of lenders increasing the facility to $100 million, from $80
million. The revised operating credit facility is for a two year term. At the
time we noted that the increase in the operating credit facility reflected our
lenders’ confidence in us, and would allow us to create additional value for
shareholders by investing in mortgages yielding far higher rates than the
cost of the bank line.
On October 23, 2014, Mr. Michael Cooper stepped down from our
board of directors, and Mr. Andrew Grant was appointed to the board. Mr.
Grant is president of PCI Group, a major developer in British Columbia.
PCI Group has completed many high profile developments in greater
Vancouver, and through its partner, Warrington PCI Management,
provides property management services on over 5 million square feet of
commercial real estate throughout British Columbia.
8 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • MANAGEMENT’S DISCUSSION AND ANALYSIS
Investment portfolio
Our mortgage portfolio consists of 190 mortgage loans and aggregated $434 million at December 31, 2014, an
increase of 54% from December 31, 2013.
Mortgage category
(outstanding amounts in $000s)
Commercial/mixed use
House and apartment
Low-rise residential
Construction
High-rise residential
Mid-rise residential
Condominium corporation
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgages receivable
December 31, 2014
Outstanding % of
December 31, 2013
Outstanding % of
Number
amount
Portfolio Number
amount
Portfolio
31.1%
21.4%
19.7%
14.1%
10.1%
2.8%
0.8%
100.0%
27
59
17
9
5
3
11
131
31
90
23
17
8
8
13
190
$ 134,990
93,070
85,678
61,095
44,048
12,127
3,260
434,268
2,177
(465)
(835)
(2,388)
$ 432,757
31.7%
24.6%
20.7%
7.8%
11.7%
2.6%
0.9%
100.0%
$
89,475
69,485
58,466
22,093
32,967
7,440
2,434
282,360
1,562
(339)
(724)
(1,151)
$ 281,708
A summary of our mortgages by size is presented below.
Mortgage amount
(outstanding amounts in $000s)
$0 - $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
December 31, 2014
Outstanding % of
December 31, 2013
Outstanding % of
Number
amount
Portfolio Number
amount
Portfolio
139
26
9
16
190
$ 119,655
90,602
54,931
169,080
$ 434,268
27.6%
20.9%
12.6%
38.9%
100.0%
95
24
7
5
131
$
98,812
81,090
46,820
55,638
$ 282,360
35.0%
28.7%
16.6%
19.7%
100.0%
As of December 31, 2014, the average outstanding mortgage balance was $2.3 million (December 31, 2013 – $2.2
million), and the median outstanding mortgage balance was $1.1 million (December 31, 2013 – $1.4 million).
Analyses of our mortgages as at December 31, 2014 by type of mortgage, nature of the underlying property, and
location of the underlying property is set out below and on the next page. The tables show the weighted average
interest rate excluding lender fees paid by the borrower, which reflects the yield to Atrium including any mortgage
discount or premium.
Description
($000s)
Type of Mortgage
First mortgages
Second and third mortgages
Nature of underlying property
Residential
Commercial
Number of
mortgages
Amount
Percentage
156
34
190
159
31
190
$ 351,310
82,958
$ 434,268
$ 299,278
134,990
434,268
80.9%
19.1%
100.0%
68.9%
31.1%
100.0%
Weighted
average
interest rate
8.50%
10.13%
8.81%
8.87%
8.68%
8.81%
MANAGEMENT’S DISCUSSION AND ANALYSIS• 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 9
Description
($000s)
Location of underlying property
Greater Toronto Area
Non-GTA Ontario
Saskatchewan
Alberta
British Columbia
Number of
mortgages
Amount
Percentage
136
11
1
31
11
190
$ 296,405
38,716
2,880
66,325
29,942
434,268
68.2%
8.9%
0.7%
15.3%
6.9%
100.0%
Weighted
average
interest rate
8.81%
9.66%
8.50%
8.47%
8.64%
8.81%
We have an exceptionally high percentage of our portfolio invested in first mortgages (80.2%), which is a core
strategy and is unmatched by our peer group.
The weighted average loan-to-value ratio in our mortgage portfolio is 64.3%, with 97.2% of the portfolio below
75% loan-to-value.
Mortgage category
($000s)
Conventional first mortgages
Conventional second and third
mortgages
Non-conventional mortgages
Other
December 31
2014
%
December 31
2013
%
% change
$ 348,050
80.2%
$ 249,328
88.3%
39.6%
70,728
12,230
3,260
$ 434,268
16.3%
2.8%
0.7%
100.0%
25,711
4,887
2,434
$ 282,360
9.1%
1.7%
0.9%
100.0%
175.1%
150.3%
34.0%
53.8%
Conventional mortgages are those mortgages with a loan-to-value of less than or equal to 75%. Seventy-five percent
(75%) loan-to-value is the industry norm for determining a conventional versus non-conventional mortgage. Non-
conventional mortgages are those mortgages with a loan-to-value in excess of 75%.
The weighted average term remaining for our mortgages receivable at December 31, 2014 is 13.7 months
(December 31, 2013 – 13.5 months).
Our business
We are a mortgage lender that fills the lending gap caused by the limited number of financial institutions operating
in Canada. We lend in major urban centres where the stability and liquidity of real estate are at the highest levels.
We focus on loans that cannot be placed with financial institutions but which represent an acceptable underwriting
risk. The weighted average loan-to-value ratio of our mortgage portfolio, as a whole, at the time of underwriting
each loan in our portfolio, will not exceed 75%. A typical loan in our portfolio has an interest rate of 8% to 10% per
annum, a one or two-year term and monthly interest-only mortgage payments.
Our lending parameters are as follows:
•
•
•
•
•
First or second mortgages on income-producing real estate up to a maximum of 85% of appraised value.
Mortgages on residential and commercial properties up to a maximum of 75% of appraised value.
Loans on single family residences up to 75% of appraised value.
Construction loans up to a maximum of 90% of cost.
Loans to condominium corporations.
Mortgage loan amounts are generally $300,000 to a maximum of $20 million. The largest single mortgage in our
mortgage portfolio as at December 31, 2014 was $13.7 million. For loan amounts in excess of $20 million, we
generally co-lend with a financial institution or private lender. The parameters listed above are our maximum
mortgage lending parameters. At December 31, 2014, the weighted average loan-to-value ratio of the mortgage
portfolio remained conservative at 64.3%, compared to 64.1% at December 31, 2013.
Our investment policies, which may be changed by our board of directors, are as follows:
•
•
•
We may invest only in residential mortgages, commercial mortgages, commercial mortgage backed
securities and certain related investments.
All investments must be mortgages on the security of real property situated within Canada, loans to
condominium corporations, or certain permitted interim investments.
Commercial mortgages may not constitute more than 50% of our total assets at any time.
10 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
•
•
•
•
•
•
The term of the mortgage may be no greater than ten years.
No single borrower may account for more than 15% of our total assets. In addition, any loan or
amendment that would result in an exposure to one borrower exceeding the lesser of $50 million or 10%
of the portfolio requires approval of the board.
All mortgages are supported by external appraisals by a qualified appraiser. All mortgages, except
mortgages secured by one to six residential units, are supported by environmental audits.
The maximum initial loan-to-value ratio of an individual mortgage is 85%, including any prior ranking
encumbrances, and the maximum weighted average loan-to-value ratio of our mortgage portfolio, as a
whole, at the time of underwriting each loan in our portfolio, is 75%.
Our ratio of debt to equity must be less than 1:1.
We do not invest directly in real property, although real property may be acquired through foreclosing
on a mortgage.
A mortgage investment: (i) of $2,000,000 or more requires approval of the board; (ii) of between
$1,000,000 and $2,000,000 requires approval of three members of the board, including at least two
independent directors; and (iii) of $1,000,000 or less requires approval of any one member of the board.
For loans previously approved, if the mortgage amount exceeds the amount approved by up to $200,000
and if the loan-to-value ratio increases by less than 5% where the ratio is 75% or less, requires the
approval of one member of the board, otherwise the general limits apply. We may invest in interim
investments that are guaranteed by the Government of Canada or of a province or territory of Canada or
deposits or certificates of deposits, acceptances and other similar instruments issued, endorsed or
guaranteed by a Schedule I Bank in any amount without prior board approval.
We may not make unsecured loans to, nor invest in securities issued by, our manager or its affiliates, nor
make loans to the directors or officers of the manager.
We may not make any investment, or incur any indebtedness, that would result in our not qualifying as a
MIC.
Our investment objectives are to preserve our shareholders’ equity and to provide our shareholders with
stable and secure dividends from our investments in mortgage loans within the criteria mandated for a MIC.
Working within conservative risk parameters, we endeavour to maximize income and dividends through the
sourcing and efficient management of our mortgage investments.
We are a non-bank lender and invest in mortgages secured by all types of residential, multi-residential and
commercial real property located in Canada, subject to compliance with our investment policies. The types of
properties that we finance include residential houses, small multi-family residential properties comprised of six or
fewer units, residential apartment buildings, mixed-use residential apartments and store-front properties, commercial
properties, residential and commercial land development sites and construction projects. We also invest in short-
term bridge financing for real estate developers. Our strategy is to grow in a controlled manner by diversifying
geographically, and focusing on real estate sectors with the lowest risk profiles.
We qualify as a MIC and are restricted from any activity that would result in us failing to qualify as a MIC. In
order to qualify as a MIC, we must satisfy the requirements in subsection 130.1(6) of the ITA throughout the
taxation year. Among the requirements are:
•
•
•
•
•
•
We can only invest or manage funds and cannot manage or develop real property.
We cannot own debts secured on real property situated outside Canada, debts owing by non-residents
unless such debts were secured on real property situated in Canada, shares of the capital stock of
corporations not resident in Canada, or real property situated outside of Canada or any leasehold interest
in such property.
No shareholder (together with related persons, as defined in the ITA) may at any time own, directly or
indirectly, more than 25% of our common shares.
The cost for tax purposes of cash on hand, debts secured on specified residential properties, and funds on
deposit with a Canada Deposit Insurance Fund or Régie de l’assurance-dépôts du Québec-insured
institution or credit union must constitute at least 50% of the cost of all of our property.
The cost for tax purposes of any interests in real property (including leaseholds but excepting real or
immovable property acquired by foreclosure after default by the mortgagor) may not exceed 25% of the
cost of all of our property.
There are certain restrictions as to our maximum debt-to-equity ratio.
MANAGEMENT’S DISCUSSION AND ANALYSIS• 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 11
We are managed by Canadian Mortgage Capital Corporation (the “manager” or “CMCC”), which is our
exclusive manager and arranges and services our mortgage loans and otherwise directs our affairs and manages our
business.
For explanations as to some of the terms used herein, please refer to our Annual Information Form for the year
ended December 31, 2014, which is available at www.sedar.com.
Results of Operations
(In this section, dollars are in thousands of Canadian dollars, except per share amounts)
Financial summary
Revenue
Mortgage servicing and management fees
Other expenses
Provision for mortgage losses
Income before financing costs
Financing costs
Earnings and total comprehensive income
Basic earnings per share
Diluted earnings per share
Dividends declared
Mortgages receivable, end of period
Total assets, end of period
Shareholder’ equity, end of period
Revenue
Mortgage servicing and management fees
Other expenses
Provision for mortgage losses
Income before financing costs
Financing costs
Earnings and total comprehensive income
Basic earnings per share
Diluted earnings per share
Dividends declared
Mortgages receivable, end of period
Total assets, end of period
Shareholders’ equity, end of period
$
Year Year Year
ended
ended
ended
December 31
December 31
December 31
2012
2013
2014
17,235
23,760
34,956
1,568
2,468
3,553
935
845
1,014
193
63
1,817
14,539
20,384
28,572
1,181
2,384
7,535
13,358
18,000
21,037
$
$
$
$
$
$
$
$
0.91
0.91
20,837
$ 432,757
$ 433,127
$ 248,204
$
$
$
0.85
0.85
17,970
$ 281,708
$ 281,981
$ 212,019
$
$
$
0.86
0.86
13,385
$ 201,955
$ 212,603
$ 210,110
Three
months
ended
December 31
2014
(unaudited)
$
Three
months
ended
December 31
2013
(unaudited)
$
9,919
1,094
334
737
7,754
2,364
5,390
0.22
0.22
6,714
$
$
$
$
6,545
678
234
–
5,633
989
4,644
0.22
0.22
5,298
$
$
$
$
$ 432,757
$ 433,127
$ 248,204
$ 281,708
$ 281,981
$ 212,019
12 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • MANAGEMENT’S DISCUSSION AND ANALYSIS
Summary of quarterly results (unaudited)
Revenue
Mortgage servicing and management fees
Other expenses
Provision for mortgage losses
Income before financing costs
Financing costs
Earnings and comprehensive income
Basic earnings per share
Diluted earnings per share
Dividends declared
1,094
334
Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013
$ 7,645 $ 6,545 $ 6,281 $ 5,845 $ 5,089
$ 9,919 $ 9,096 $ 8,296
518
662
826
916
188
207
252
213
–
–
112
737 504
5,431
7,151
4,319
7,463
2,364 1,920
129
837
1,883
$ 5,390 $ 5,543 $ 5,268 $ 4,836 $ 4,644 $ 4,594 $ 4,572 $ 4,190
$ 0.22 $ 0.23 $ 0.23 $ 0.23 $ 0.22 $ 0.22
$ 0.22 $ 0.20
$ 0.22 $ 0.20
$ 0.22 $ 0.23 $ 0.23 $ 0.23 $ 0.22 $ 0.22
$ 6,714 $ 4,994 $ 4,777 $ 4,352 $ 5,298 $ 4,230 $ 4,224 $ 4,219
717
260
464
6,204
1,368
610
171
63
5,001
429
678
234
–
5,633
989
7,754
Results of operations – three months ended December 31, 2014
For the three months ended December 31, 2014, mortgage interest and fees revenue aggregated $9,919, compared to
$6,545 in the comparative period, an increase of 52%. The weighted average interest rate on our mortgage portfolio
increased to 8.81% at December 31, 2014, slightly higher than the 8.77% at September 30, 2014, and 8.72% at the
previous year end, December 31, 2013.
Operating expenses, excluding the provision for mortgage losses, for the three months ended December 31, 2014
were $1,428, compared to $912 in the comparative period, an increase of 57%, due to the increase in the size of the
mortgage portfolio. The general provision for mortgage losses was $737 in the quarter to bring the total general
provision to $2,388, or 55 basis points (0.55%) of the mortgage portfolio. Mortgage servicing and other fees paid to
the manager (that is, the management fee plus HST) aggregated $1,094 for the three months ended December 31,
2014, compared with $678 in the prior year period, reflecting the growth of our mortgage portfolio. There was no
specific provision for mortgage losses during the quarter or at December 31, 2014.
Financing costs for the three months ended December 31, 2014 were $2,364, compared to $989 in the same
period of 2013, an increase of 139%. This increase is due to the increased use of our bank line of credit compared to
the comparable period, and two convertible debentures issued during 2014, as we optimized our balance sheet
leverage, which increased from 24% debt-to-assets at the end of 2013 to a still-conservative 41% at the end of 2014
This increased debt improved the return to shareholders, while keeping leverage at prudent levels. (We define debt
as the aggregate of the total borrowings under the bank credit facility and the unsecured convertible debentures.)
Net earnings for the three months ended December 31, 2014 were $5,390, an increase of 16% from net earnings
of $4,644 for the same period in the prior year. Basic and fully diluted earnings per common share were $0.22, for
the three months ended December 31, 2014, compared with $0.22 per common share for the comparable period in
the previous year.
During the three months ended December 31, 2014, we funded gross mortgages aggregating $63,694. Of these
advances, $44,483 were first mortgages, representing 70% of the total loans funded. Eight of these advances were on
properties in British Columbia, 25 were on properties in Alberta, two were non-GTA Ontario, one was on a property
in Saskatchewan and the remaining 26 were made in the Greater Toronto Area. There were $42,696 of gross
repayments during the period. The total portfolio increased from $412,820 to $434,268 during the period.
Results of operations – year ended December 31, 2014
For the year ended December 31, 2014, mortgage interest and fees revenue aggregated $34,956, compared to
$23,760 in the prior year, an increase of 47%. The weighted average interest rate on our mortgage portfolio
increased to 8.81% at December 31, 2014, slightly higher than the 8.72% at December 31, 2013.
Operating expenses, excluding the provision for mortgage losses, for the year ended December 31, 2014 were
$4,567, compared to $3,313 in the prior year, an increase of 38%, due to the increase in the size of the mortgage
portfolio. The general provision for mortgage losses was $1,817 during the year to bring the total general provision
to $2,388, or 55 basis points (0.55%) of the mortgage portfolio. There was no specific provision for mortgage losses
during the year or at December 31, 2014.
Operating expenses include mortgage servicing and other fees paid to the manager (that is, the management fee
plus HST) that aggregated $3,553 for the year ended December 31, 2014, compared with $2,468 in the prior year, as
a result of the growth of our mortgage portfolio.
Financing costs for the year ended December 31, 2014 were $7,535, compared to $2,384 in the prior year. This
increase is due to the increased use of our bank line of credit compared to the prior year, and two convertible
debentures issued during 2014, as we optimized our balance sheet leverage, which increased from 24% debt-to-
MANAGEMENT’S DISCUSSION AND ANALYSIS• 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 13
assets at the end of 2013 to a still-conservative 41% at the end of 2014. The increased debt improved the return to
shareholders while keeping leverage at prudent levels. (We define debt as the aggregate of the total borrowings
under the bank credit facility and the unsecured convertible debentures.)
Net earnings for the year ended December 31, 2014 were $21,037, an increase of 17% from net earnings of
$18,000 for the same period in the prior year. Basic and fully diluted earnings per common share were $0.91, for the
year ended December 31, 2014, compared with $0.85 in the previous year.
During the year ended December 31, 2014, we funded gross mortgages aggregating $278,319. Of these advances,
$220,684 were first mortgages, representing 79% of the total loans funded. Twelve of these advances were on
properties in British Columbia, 36 were on properties in Alberta, 10 were non-GTA Ontario, one was on a property
in Saskatchewan and the remaining 83 were made in the Greater Toronto Area. There were $130,983 of gross
repayments during the period. The total mortgage portfolio increased from $282,360 to $434,268 during the year.
Liquidity and capital resources
At December 31, 2014, we had bank indebtedness and operating line outstanding of $80,298. The operating line is
provided by a syndicate of two major chartered banks, drawn through bankers’ acceptances and bank loans in order
to minimize our borrowing costs. We are in compliance with the covenants required in our operating credit facility
as at December 31, 2014, and we expect to remain in compliance with such covenants going forward. We have three
convertible debentures outstanding, with a total book value of $99,235 at December 31, 2014.
Growth in our mortgage portfolio has historically been financed by the issuance of common shares and by the
issuance of convertible debt. We expect to be able to generate sufficient funds for future net mortgage loan
investments through a combination of common share issuances, convertible or other debt, and the operating credit
facility.
Investing activities during 2014 consisted of advances on new mortgage loan investments of $278,319, less
repayments received of $130,983, for net cash used for net new mortgage loan investments of $147,336.
Sources of cash from financing activities during 2014 consisted primarily of drawings under our bank operating
line and the issuance of convertible debentures and common shares. Draws less repayments under our operating
facility represented a $44,062 source of cash.
During 2014, we issued two convertible debentures which resulted in $68,644 of cash, net of issue costs. Net
cash provided by financing activities was $128,087 after paying dividends of $19,931 for 2014. During the second
quarter we issued 3,036,000 common shares in a public offering for gross proceeds of $34,610. Net proceeds after
expenses of all common shares issued during 2014, including those issued under the dividend reinvestment plan and
employee share purchase plan, were $35,099.
Changes in financial position
Bank indebtedness, bankers’ acceptances and bank loans payable (under our operating credit facility) increased to
$80,298 at December 31, 2014, from $36,236 at December 31, 2013, reflecting our objective of using a prudent
amount of leverage to improve shareholder returns. As at December 31, 2014, total debt (including bank debt,
operating line and convertible debentures) remained modest at 41% of total assets.
In February and March 2014, we completed a public offering of $31,801 aggregate principal amount of 6.25%
convertible debentures, the net proceeds of which were used to repay indebtedness under our operating credit
facility. In September and October 2014, we completed a public offering of $40,250 aggregate principal amount of
5.50% convertible debentures, including an overallotment option that was fully exercised, the net proceeds of which
were used to repay indebtedness under our operating credit facility.
On October 6, 2014, we renewed our operating credit facility with a syndicate of lenders increasing the facility to
$100 million, from $80 million. The revised operating credit facility is for a two year term. At the time we noted that
the increase in the operating credit facility reflected our lenders’ confidence in us, and would allow us to create
additional value for shareholders by investing in mortgages yielding far higher rates than the cost of the bank line.
Accounts payable and accrued charges were $523 at December 31, 2014 compared to $460 at December 31,
2013. Dividends payable were $3,379 at December 31 2014 up from $2,473 at December 31, 2013, primarily due to
the increase in the special dividend from $0.05 per share in 2013 to $0.07 in 2014.
Share capital increased to $245,794 at December 31, 2014 from $210,659 at December 31, 2013 primarily due to
the public common share issuance in the second quarter, our dividend reinvestment plan, and the employee share
purchase plan.
14 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • MANAGEMENT’S DISCUSSION AND ANALYSIS
Contractual obligations
Contractual obligations due at December 31, 2014 were as follows:
Obligations at December 31, 2014
Bank indebtedness
Operating line
Accounts payable and accrued liabilities
Accrued convertible debentures interest
Dividends payable
Due to related party
Convertible debentures
Total
Total
$ 313
79,985
523
1,093
3,379
395
99,235
$ 184,923
Less than 1
year
$ 313
79,985
523
1,093
3,379
395
–
$ 85,688
1-2 years
$ –
3-7 years
$ –
–
–
–
–
–
$ –
–
–
99,235
$ 99,235
We have commitments to advance additional funds under existing mortgages of $99,757 and for new mortgages of
$10,063 at December 31, 2014 (December 31, 2013 – $51,437 and $46,728 respectively). Generally, outstanding
commitments are expected to be funded within the next 24 months. However, our experience has been that a portion
of the unfunded amounts on existing mortgages will never be drawn.
Off-balance sheet arrangements
As at December 31, 2014, we had $4,483 of letters of credit (LCs) outstanding which were issued under our
operating credit facility. The LCs reduce the maximum available under our operating credit facility by the amount of
the LCs. The maximum available by way of LCs under our operating credit facility is $10,000. LCs represent
irrevocable assurances that our banks will make payments in the event that a customer cannot meet its obligations to
third parties. LCs carry the same credit risk, recourse and collateral security requirements as mortgages extended to
customers.
Share-based payments
Deferred shares granted
Year ended December 31, 2012
2013
2014
Income deferred shares earned
Year ended December 31, 2012
2013
2014
Share compensation expense
September 1, 2014 grant
August 30, 2013 grant
August 29, 2012 grant
September 1
2014 grant
August 30
2013 grant
August 29
2012 grant
–
–
21,500
21,500
–
–
375
375
–
23,000
–
23,000
21,500
–
–
21,500
–
592
1,738
2,330
680
1,741
1,714
4,135
Total
21,500
23,000
21,500
66,000
680
2,333
3,827
6,840
December 31
2014
December 31
2013
$
$
55
125
68
248
$
$
–
54
150
204
Grants are provided to certain directors and employees under our deferred share incentive plan. The deferred share
units vest annually over three years. Common shares are issued to participants on the vesting date of each tranche of
deferred share units, unless a participant elects to defer the issuance. In addition, income deferred share units are
credited to holders of deferred share units based upon dividends paid on our common shares.
MANAGEMENT’S DISCUSSION AND ANALYSIS• 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 15
Transactions with related parties
Transactions with related parties are in the normal course of business and are recorded at the exchange amount,
which is the amount of consideration established and agreed to by the related parties, and are measured at fair value.
The manager is responsible for our day-to-day activities. We incurred management and mortgage servicing fees
from a subsidiary of the manager of $3,548 for the year ended December 31, 2014 (2013 – $2,455). Mr. Robert G.
Goodall is a director and part of the key management personnel of the manager, received compensation from the
manager, and is also a director of Atrium. The management agreement between us and the manager contains
provisions for the payment of termination fees to the manager in the event that the management agreement is
terminated in certain circumstances. The manager also acts as broker for our mortgages. The manager receives
origination fees from the borrowers of up to 1% of the amount being funded; origination fees in excess of 1% are
split equally between the manager and Atrium.
Critical accounting estimates and policies
Our annual financial statements for the years ended December 31, 2014 and 2013 are prepared in accordance with
Canadian generally accepted accounting principles and IFRS, as set out in Part I of the CPA Canada Handbook.
Management makes certain estimates and relies upon certain assumptions related to reporting our assets and
liabilities as well as results of operations in conformity with Canadian generally accepted accounting principles.
Actual results will differ from these estimates and assumptions.
The most subjective of these estimates are the valuation of mortgages receivable, and the provision for mortgage
losses, as well as the measurement of the liability and equity components of each of our convertible debentures.
Management believes that its estimates are appropriate; however, actual results could differ from the amounts
estimated. Estimates and underlying assumptions are reviewed each quarter. The more significant accounting
policies are set out below:
Revenue recognition
Mortgage interest and fees revenues are recognized in the statements of earnings and comprehensive income using
the effective interest method. Mortgage interest and fees revenues include our share of any fees received, as well as
the effect of any discount or premium on the mortgage.
The effective interest method derives the interest rate that discounts the estimated future cash payments and
receipts during the expected life of the mortgage receivable (or, where appropriate, a shorter period) to its carrying
amount. When calculating the effective interest rate, future cash flows are estimated considering all contractual
terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate includes
all fees and transaction costs paid or received. Fees and transaction costs include incremental revenues and costs that
are directly attributable to the acquisition or issuance of the mortgage.
Mortgages receivable
A mortgage receivable, carried at amortized cost, is considered impaired when there is objective evidence that there
has been a deterioration of credit quality subsequent to its initial recognition to the extent that we no longer have
reasonable assurance as to the timely collection of the full amount of principal and interest.
We assess mortgages receivable for objective evidence of impairment both individually and collectively each
reporting period. The specific and general provisions for mortgage losses are determined by taking into account the
following factors:
• Delays in the collection of interest and principal
• The point at which we consider a loan to be in default (which we define as 90 days for single family
residential mortgages and 30 days for all other mortgages)
• Other known factors specific to the property, the borrower or the guarantor
• Economic and other real estate market conditions in the geographic area in which a borrower’s project is
located
• Our judgement as to whether current economic and credit conditions are such that the actual inchoate or
potential losses at the reporting date are likely to be higher or lower than the amounts suggested by historic
experience
• Any other factors that apply to a particular mortgage or group of mortgages
Several of these factors involve estimates and judgements on the part of management in determining the
provisions for mortgage losses. The other key estimates used for quantifying the specific and general provisions for
mortgage losses are:
16 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • MANAGEMENT’S DISCUSSION AND ANALYSIS
• The period of time expected to elapse between the contractual maturity or interest and principal repayment
dates and the date at which recovery is estimated
• The amount expected to be ultimately recovered on impaired loans, taking into account the probability of
different outcomes, where necessary
• The value of underlying security, and whether Atrium expects to take possession of the property
• The amount of any legal and other third party costs estimated to be incurred
An impairment loss is calculated as the difference between the carrying amount of the mortgage receivable and
the present value of the estimated future cash flows discounted at the original effective interest rate. Losses are
charged to the statements of earnings and comprehensive income and are reflected in the provision for mortgage
losses.
If there is no objective evidence of impairment for an individual mortgage receivable, it is included in a group of
mortgages with similar credit risk characteristics and collectively assessed for impairment for losses incurred but not
identified, and reported as a general provision. For the purpose of determining the group of mortgages with similar
credit risk characteristic, mortgages are grouped by category: commercial/mixed use, house and apartment, low-rise
residential, construction, high-rise residential, mid-rise residential, and condominium corporations.
Convertible debentures
The convertible debentures can be converted into our common shares at the option of the investor. They are
compound financial instruments with two components: a financial liability, and a call option which is an equity
instrument. The fair value of the liability component is measured as of the date that the debentures were issued, and
the equity instrument is valued on that date based upon the difference between the fair value of the debenture and
the fair value of the liability component.
The measurement of the fair value of the liability component is based upon market rates of interest on similar
debt instruments without the conversion feature. Expenses of issue are allocated between the two components on a
pro-rata basis. The book value of the debt is accreted up to its face value over the life of the debentures using the
effective interest method, which provides for the application of a constant interest rate over the life of the debenture.
The value of the equity component is not re-measured subsequent to its initial measurement date.
Income taxes
We are, and intend to maintain our status as, a MIC, and as such are not taxed on income provided that it flows
through to our shareholders as dividends during the year or within 90 days after December 31 each year. It is our
policy to pay such dividends out to the shareholders to remain non-taxable. Accordingly, no provision for current or
future income taxes is required.
Controls and procedures
Our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as
those terms are defined in National Instrument (NI) 52-109 – Certification of Disclosure in Issuers’ Annual and
Interim Filings.
We designed the DC&P and ICFR, the latter of which was using the framework in Internal Control – Integrated
Framework (as revised in 2013) to provide reasonable assurance that material information relating to us is made
known to our CEO and CFO during the reporting period; and information required to be disclosed by us in our
filings under securities legislation is recorded, processed, summarized and reported within the required time periods;
and provide reasonable assurance regarding the reliability of financial reporting and preparation of financial
statements for external purposes in accordance with Canadian generally accepted accounting principles (GAAP).
Our CEO and CFO evaluated the design effectiveness of the DC&P and ICFR, as defined by NI 52-109, as of
December 31, 2014. Based on this evaluation, they concluded that the designs of the DC&P and ICFR were
effective as of December 31, 2014. NI 52-109 also requires Canadian public companies to disclose in their MD&A
any change in ICFR during the most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, ICFR. No such change to ICFR has occurred during the most recently completed quarter.
It should be noted that a control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that its objectives are met. Because of the inherent limitations in any control
system, no evaluation of control can provide absolute assurance that all control weaknesses including, for example,
any instances of fraud, have been detected. The inherent limitations include, among other items: (i) that
management’s assumptions and judgements could ultimately prove to be incorrect as conditions and circumstances
vary; (ii) the impact of any undetected errors; and (iii) controls may be circumvented through the unauthorized acts
of individuals, by collusion of two or more people, or by management override. The design of any system of control
MANAGEMENT’S DISCUSSION AND ANALYSIS• 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 17
is also based in part upon certain assumptions as to the likelihood of future events, and there is no assurance that any
design will succeed in achieving its stated goals under all potential future conditions.
Outstanding share data
Our authorized capital consists of an unlimited number of common shares, of which 24,428,965 were issued and
outstanding at December 31, 2014, and 24,444,867 were issued and outstanding as at the date hereof. In addition, as
at the date hereof, 2,407,408, 2,391,054 and 2,747,440 common shares are issuable upon conversion or redemption
or in respect of repayment at maturity of the outstanding 5.25%, 6.25%, and the 5.50% convertible debentures, using
the conversion price of $13.50, $13.30 and $14.65, respectively, for each common share.
We also have an employee share purchase plan, a deferred share incentive plan and a dividend reinvestment plan
pursuant to which common shares may be issued from time to time. These plans are each described elsewhere in this
MD&A.
Risks and uncertainties
We are subject to many risks and uncertainties that may limit our ability to execute our strategies and achieve our
objectives. We have processes and procedures in place in an attempt to control or mitigate certain risks, while others
cannot be or are not mitigated. Material risks that cannot be mitigated include a significant decline in the general
real estate market, interest rates changing markedly, being unable to make mortgage loans at rates consistent with
rates historically achieved, not having adequate mortgage loan opportunities presented to us, and not having
adequate sources of bank finance available.
Please also refer to “Forward-looking information,” below, and the “Risk Factors” section of our Annual
Information Form for the year ended December 31, 2014 which is incorporated herein by reference and is available
at www.sedar.com and at www.atriummic.com.
Forward-looking information
Certain information included in this MD&A contains forward-looking statements within the meaning of applicable
securities legislation, including statements with respect to management’s beliefs, estimates, and intentions, and
similar statements concerning anticipated future events, results, circumstances, performance or expectations that are
not historical facts. Forward-looking statements generally can be identified by the use of forward-looking
terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intent”, “estimate”, “anticipate”, “believe”,
“should”, “plans” or “continue” or similar expressions suggesting future outcomes or events. Forward-looking
statements regarding earnings and mortgage portfolio growth are based upon the following assumptions: that other
factors such as revenues and expenses continue to follow current trends, and that current trends in our mortgage
portfolio growth continue.
All forward-looking statements reflect management’s current beliefs and are based on information currently
available to management. These statements are not guarantees of future performance and are based on our estimates
and assumptions that are subject to risks and uncertainties which could cause our actual results to differ materially
from the forward-looking statements contained in this MD&A. Those risks and uncertainties include risks associated
with mortgage lending, competition for mortgage lending, real estate values, interest rate fluctuations, environmental
matters and the general economic environment. For other risks and uncertainties, please refer to “Risks and
uncertainties” above, and the “Risk Factors” section of our Annual Information Form for the year ended December
31, 2014 which is available at www.sedar.com and at www.atriummic.com. We caution that the foregoing list is not
exhaustive, as other factors could adversely affect our results, performance or achievements. The reader is cautioned
against undue reliance on any forward-looking statements.
Although the forward-looking information contained in this MD&A is based upon what management believes are
reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking
statements. Except as required by applicable law, we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events or otherwise.
18 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • MANAGEMENT’S DISCUSSION AND ANALYSIS
Dividend Reinvestment Plan
A Dividend Reinvestment Plan (DRIP) is available to holders of our common shares. The DRIP allows participants
to have their monthly cash dividends reinvested in additional common shares, at a discount of 2% from the market
price. Shareholders who wish to enroll or who would like further information about the DRIP should contact their
broker or our agent for the DRIP, Computershare Trust Company of Canada, at 1 (800) 564-6253
or www.computershare.com.
Employee share purchase plan
We have an employee share purchase plan (ESPP) under which participants may purchase our shares within certain
limits, and the manager then matches 50% of their contribution. Thus, Atrium does not bear any of the cost of the
ESPP, but issues shares from treasury upon receipt of the funds.
Environmental matters
Under various federal, provincial and municipal laws, an owner or operator of real property could become liable for
the cost of removal or remediation of certain hazardous or toxic substances released on or in its properties or
disposed of at other locations. We do not own any real property and thus would not attract environmental liability to
which an owner would be exposed. In rare circumstances where a mortgage is in default, we may take possession of
real property and may become liable for environmental issues as a mortgagee in possession. As part of the due
diligence performed in respect of our mortgage loan investments, we obtain a Phase I environmental audit on the
underlying real property provided as security for a mortgage, unless the manager has determined that a Phase I
environmental audit is not necessary.
Responsibility of management and the board of directors
Management is responsible for the information disclosed in this MD&A, and has in place the appropriate
information systems, procedures and controls to ensure that the information used internally by management and
disclosed externally is materially complete and reliable. In addition, our audit committee and board of directors
provide an oversight role with respect to our public financial disclosures, and have reviewed and approved this
MD&A and the annual financial statements.
Additional information
Additional information about Atrium, including our Annual Information Form for the year ended December 31,
2014, is available on SEDAR at www.sedar.com. You may also obtain further information about us from our
website at www.atriummic.com, by telephone at (416) 607-4200, or by email at ir@atriummic.com.
ATRIUM MORTGAGE INVESTMENT CORPORATION
C ANADA’S PREMIER NON-BANK LENDER TM
FINANCIAL
STATEMENTS
YEAR ENDED
DECEMBER 31, 2014
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
To the shareholders of
Atrium Mortgage Investment Corporation:
The management of Atrium Mortgage Investment Corporation is responsible for the preparation,
presentation and integrity of these financial statements, and the accompanying Management’s Discussion
and Analysis. This responsibility includes the selection and consistent application of appropriate
accounting principles and methods in addition to making the judgements and estimates necessary to prepare
the financial statements in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
Management of Atrium is responsible to provide reasonable assurance that assets are safeguarded and
that relevant and reliable financial information is produced. We are required to design a system of internal
controls and certify as to the design and operating effectiveness of internal controls over financial reporting.
We have implemented a system of internal controls that we believe provides reasonable assurance in all
material respects that transactions are authorized, assets are safeguarded and financial records are reliable
for producing financial statements. Crowe Soberman LLP was appointed as the independent auditor by a
vote of Atrium’s shareholders to audit the financial statements; their report appears on the next page.
The Board of Directors, through the Audit Committee comprised solely of independent directors, is
responsible for determining that management fulfills its responsibilities in the preparation of these financial
statements and the financial control of operations. The Audit Committee recommends the independent
auditors for appointment by the shareholders, and it meets regularly with senior and financial management
to discuss internal controls and financial reporting matters. The independent auditors have unrestricted
access to the Audit Committee.
These financial statements and accompanying Management’s Discussion and Analysis have been
approved by the Board of Directors based upon the review and recommendation of the Audit Committee.
Toronto, Canada
February 10, 2015
“Robert G. Goodall”
Robert G. Goodall
President and Chief Executive Officer
“Jeffrey D. Sherman”
Jeffrey D. Sherman
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Atrium Mortgage Investment Corporation
We have audited the accompanying financial statements of Atrium Mortgage Investment Corporation, which
comprise the statements of financial position as at December 31, 2014 and December 31, 2013 and the statements of
earnings and comprehensive income, changes in equity, 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 financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of 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 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 financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of
material misstatement of the 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 financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion 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 financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Atrium
Mortgage Investment Corporation as at December 31, 2014 and December 31, 2013, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Crowe Soberman LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 10, 2015
22 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars)
Notes
2014
2013
December 31
Assets
Mortgages receivable
Prepaid expenses
Liabilities
Bank indebtedness
Operating line
Accounts payable and accrued liabilities
Accrued convertible debenture interest
Dividends payable
Due to related party
Convertible debentures
Shareholders’ equity
Share capital
Contributed surplus and other equity
Equity component of convertible debentures
Retained earnings
5
6
6
7
8
9
$ 432,757
370
$ 433,127
$
313
79,985
523
1,093
3,379
395
99,235
184,923
245,794
1,085
1,062
263
248,204
$ 433,127
$ 281,708
273
$ 281,981
$
326
35,910
460
–
2,473
182
30,611
69,962
210,659
899
398
63
212,019
$ 281,981
Commitments
6, 13
The accompanying notes are an integral part of these financial statements.
Approved on behalf of the board of directors:
“Robert Goodall”
Robert Goodall, Director
“Mark Silver”
Mark Silver, Director
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, except for number of common shares)
Notes
Balance, December 31, 2012
Shares issued under dividend reinvestment plan
Shares issued under employee share purchase plan
Shares issued under deferred share incentive plan
Share-based payments
Shares subscribed
Equity component of convertible debentures issued
Issue costs attributable to equity component of
convertible debentures issued
Earnings and comprehensive income
Dividends declared
Balance, December 31, 2013
Shares issued
Shares issued under dividend reinvestment plan
Shares issued under employee share purchase plan
Shares issued under deferred share incentive plan
Issue costs
Share-based payments
Shares subscribed
Equity component of convertible debentures issued
Issue costs attributable to equity component of
convertible debentures issued
Earnings and comprehensive income
Dividends declared
Balance, December 31, 2014
10
10
10
11
9
9
7
10
10
10
10
10
11
9
9
7
FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 23
Common shares
Number
21,078,537
116,765
3,328
2,203
–
–
–
–
–
–
21,200,833
3,036,000
175,851
12,854
3,427
–
–
–
–
Amount
$ 209,383
1,217
35
24
–
–
–
–
–
–
210,659
34,610
1,954
144
36
(1,609)
–
–
–
Contributed
surplus and
other equity
693
$
–
–
(24)
204
26
–
–
–
–
899
–
–
–
(36)
–
248
(26)
–
Equity
component
of convertible
debentures
–
$
–
–
–
–
419
(21)
–
–
398
–
–
–
–
–
–
–
697
Retained
earnings
33
$
–
–
–
–
–
–
18,000
(17,970)
63
–
–
–
–
–
–
–
–
Total
$ 210,109
1,217
35
–
204
26
419
(21)
18,000
(17,970)
212,019
34,610
1,954
144
–
(1,609)
248
(26)
697
–
–
–
24,428,965
–
–
–
$ 245,794
–
–
–
1,085
$
(33)
–
–
1,062
$
–
21,037
(20,837)
263
$
(33)
21,037
(20,837)
$ 248,204
The accompanying notes are an integral part of these financial statements.
24 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • FINANCIAL STATEMENTS
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands of Canadian dollars, except for per share amounts)
Revenues
Mortgage interest and fees
Notes
2014
2013
Years ended December 31
$ 34,956
$ 23,760
Operating expenses
Mortgage servicing and management fees
Transfer agent, regulatory fees and investor relations
Share-based payments
Professional fees
Directors’ fees
Administration and general
Provision for mortgage losses
8
8, 11
8
5
Income before financing costs
Financing costs
Interest on convertible debentures
Interest and other bank charges
3,553
320
248
144
175
127
1,817
6,384
28,572
4,627
2,908
7,535
2,468
224
204
170
147
100
63
3,376
20,384
1,065
1,319
2,384
Earnings and comprehensive income for the year
$ 21,037
$ 18,000
Earnings per common share
Basic
Diluted
12
12
$
$
0.91
0.91
$
$
0.85
0.85
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 25
STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
Cash provided by (used in):
Operating activities
Earnings and comprehensive income for the year
Add (subtract) non-cash items
Share-based payments
Interest capitalized on mortgages
Amortization of mortgage discount
Amortization of mortgage origination fees
Non-cash portion of interest on convertible debentures
Provision for mortgage losses
Changes in operating assets and liabilities
Accrued interest receivable
Prepaid expenses
Accounts payable and accrued liabilities
Accrued convertible debenture interest
Additions to mortgage discount
Additions to mortgage origination fees
Cash provided by operating activities
Investing activities
Advances of mortgages receivable
Repayment of mortgages receivable
Cash used by investing activities
Financing activities
Bank indebtedness, net
Operating line advanced
Operating line repaid
Increase (decrease) in due to related party
Issuance of common shares
Common shares issue costs
Issuance of convertible debentures
Convertible debenture issue costs
Dividends paid
Cash provided by financing activities
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
Cash provided by operating activities includes:
Interest received
Interest paid
The accompanying notes are an integral part of these financial statements.
Years ended December 31
2014
2013
$ 21,037
$ 18,000
222
(5,152)
(122)
(1,153)
644
1,817
17,293
(615)
(97)
63
1,093
248
1,264
1,956
19,249
(278,319)
130,983
(147,336)
(13)
528,535
(484,460)
213
36,708
(1,609)
72,051
(3,407)
(19,931)
128,087
–
–
–
$
$ 27,914
5,434
$
206
(1,612)
(208)
(881)
149
63
15,717
1,027
(253)
(1)
–
161
961
1,895
17,612
(186,703)
107,438
(79,265)
326
267,778
(231,868)
(23)
1,277
–
32,500
(1,641)
(17,324)
51,025
(10,628)
10,628
$
–
$ 19,697
2,088
$
26 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • NOTES TO THE FINANCIAL STATEMENTS
1.
NATURE OF OPERATIONS
Atrium Mortgage Investment Corporation is a corporation domiciled in Canada, incorporated under the
Ontario Business Corporations Act. The address of the company’s registered head office and principal place
of business is Suite 900, 20 Adelaide Street East, Toronto, Ontario M5C 2T6.
The company is a Mortgage Investment Corporation (MIC) as defined in Section 130.1(6) of the Canada
Income Tax Act (ITA). Accordingly, the company is not taxed on income provided that its taxable income is
paid to its shareholders in the form of dividends within 90 days after December 31 each year. Such dividends
are generally treated by shareholders as interest income, so that each shareholder is in the same position as if
the mortgage investments made by the company had been made directly by the shareholder.
The company’s common shares are listed on the Toronto Stock Exchange (TSX) under the symbol AI
and its convertible debentures are listed under the symbols AI.DB, AI.DB.A and AI.DB.B.
2.
BASIS OF PRESENTATION
(a) Statement of compliance
These financial statements have been prepared by management in accordance with Canadian generally
accepted accounting principles and International Financial Reporting Standards (IFRS), as set out in Part 1 of
the CPA Canada Handbook – Accounting. These annual financial statements were authorized for issuance
by the Board of Directors on February 10, 2015.
(b) Basis of measurement
These financial statements are prepared on the historical cost basis.
(c) Functional and presentation currency
These financial statements are presented in Canadian dollars, which is also the company’s functional
currency. Dollars are expressed in thousands except for per share amounts or where the context requires
otherwise.
(d) Use of estimates and judgements
The preparation of financial statements in accordance with IFRS requires management to make estimates,
assumptions and judgements that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the reporting date and the reported amounts of revenue and expenses
during the reporting period. The most subjective of these estimates relates to: (a) the valuation of mortgages
receivable, which is affected primarily by the provision for mortgage losses which is determined by
management’s estimate as to the required general and specific provisions; and (b) the measurement of the
liability and equity components of the convertible debentures which depend upon the estimated market
interest rates for a comparable debenture without the convertibility feature. Management believes that its
estimates are appropriate; however, actual results could differ from the amounts estimated. Estimates and
underlying assumptions are reviewed each quarter. Revisions to accounting estimates are recognized in the
period in which the estimate is revised and in any future periods affected.
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 27
3.
SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue recognition
Mortgage interest and fees revenues are recognized in the statement of earnings and comprehensive income
using the effective interest method. Mortgage interest and fees revenues include the company’s share of any
fees received, as well as the effect of any discount or premium on the mortgage.
The effective interest method derives the interest rate that discounts the estimated future cash payments
and receipts during the expected life of the mortgage receivable (or, where appropriate, a shorter period) to its
carrying amount. When calculating the effective interest rate, future cash flows are estimated considering all
contractual terms of the financial instrument, but not future credit losses (see Note 3 (c)). The calculation of
the effective interest rate includes all fees and transaction costs paid or received. Fees and transaction costs
include incremental revenues and costs that are directly attributable to the acquisition or issuance of the
mortgage.
(b) Financial assets – classification, initial recognition and measurement
Classification of financial assets depends on the purpose for which the financial assets were acquired.
Management determines the classification of financial assets at initial recognition. Mortgages receivable are
classified as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
Loans and receivables are initially recognized at fair value plus transaction costs and subsequently
carried at amortized cost using the effective interest method.
All financial assets are subject to review for impairment quarterly, and written down when there is
evidence of impairment.
(c) Mortgages receivable
A mortgage receivable, carried at amortized cost, is considered impaired when there is objective evidence at
the end of the reporting period that there has been a deterioration of credit quality subsequent to its initial
recognition to the extent that the company no longer has reasonable assurance as to the timely collection of
the full amount of principal and interest. The company assesses mortgages receivable for objective evidence
of impairment both individually and collectively at each reporting period. The specific and general
provisions for mortgage losses are determined by taking into account the following factors:
•
•
•
•
Delays in the collection of interest and principal
The point at which management considers a loan to be in default (which is defined as 90 days
for single family residential mortgages and 30 days for all other mortgages)
Other known factors specific to the property, the borrower or the guarantor
Economic and other real estate market conditions in the geographic area in which a borrower’s
project is located
• Management’s judgement as to whether current economic and credit conditions are such that
the inchoate or potential losses at the reporting date are likely to be higher or lower than the
amounts suggested by historic experience
Any other factors that apply to a particular mortgage or group of mortgages
•
Several of these factors involve estimates and judgements on the part of management in determining
provisions for mortgage losses. The other key estimates used for quantifying the specific and general
provisions for mortgage losses are:
•
•
•
•
The period of time expected to elapse between the contractual maturity or interest and principal
repayment dates and the date at which recovery is estimated
The amount expected to be ultimately recovered on impaired loans, taking into account the
probability of different outcomes, where necessary
The value of underlying security, and whether the company expects to take possession of the
property
The amount of any legal and other third party costs estimated to be incurred
28 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • NOTES TO THE FINANCIAL STATEMENTS
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Mortgages receivable (continued)
An impairment loss is calculated as the difference between the carrying amount of the mortgage receivable
and the present value of the estimated future cash flows discounted at the original effective interest rate.
Losses are charged to the statements of earnings and comprehensive income and are reflected in the provision
for mortgage losses.
If there is no objective evidence of impairment for an individual mortgage receivable, it is included in a
group of mortgages with similar credit risk characteristics and collectively assessed for impairment for losses
incurred but not identified, and reported as a general provision. For the purpose of determining the group of
mortgages with similar credit risk characteristic, mortgages are grouped by category: commercial/mixed use,
house and apartment, low-rise residential, construction, high-rise residential, mid-rise residential, and
condominium corporations.
(d) Convertible debentures
Convertible debentures can be converted into common shares of the company at the option of the investor.
They are compound financial instruments with two components: a financial liability, and a call option which
is an equity instrument. The fair value of the liability component is measured as of the date that the
debentures were issued, and the equity instrument is valued on that date based upon the difference between
the fair value of the convertible debenture and the fair value of the liability component. The measurement of
the fair value of the liability component is based upon market rates of interest on similar debt instruments
without the conversion feature. Expenses of issue are allocated between the two components on a pro-rata
basis. The book value of the debt is accreted up to its face value over the life of the debentures using the
effective interest method, which provides for the application of a constant interest rate over the life of the
debenture. The value of the equity component is not remeasured subsequent to its initial measurement date.
(e) Other financial liabilities
Other financial liabilities are non-derivative liabilities recognized initially at fair value, net of transaction
costs, and are subsequently stated at amortized cost using the effective interest method. The company has
classified bank indebtedness, operating line, accounts payable and accrued liabilities, dividends payable, due
to related party and the liability component of convertible debentures as other financial liabilities.
(f) Income taxes
The company qualifies as a Mortgage Investment Corporation under the ITA, and as such is not taxed on
income provided that its taxable income is distributed to its shareholders in the form of dividends within 90
days after December 31 each year. It is the company’s policy to pay such dividends to remain non-taxable.
Accordingly, no provision for current or future income taxes is required.
(g) Earnings per common share
Basic earnings per common share is calculated by dividing earnings during the period by the weighted
average number of common shares outstanding during the period. Diluted earnings per share is calculated by
adjusting the earnings attributable to common shareholders and the weighted average number of common
shares outstanding for the effects of all dilutive items such as convertible debentures and deferred share
incentive plans.
(h) Share-based payments
The company has an equity-settled share-based compensation plan for grants to eligible directors, officers,
and senior management under its deferred share incentive plan. Grants are measured based upon the fair
value of the awards granted, based on the volume-weighted average trading share price for the five trading
days prior to date of the grant.
4.
RECENT ACCOUNTING PRONOUNCEMENTS
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 29
Various pronouncements have been issued by the IASB or IFRS Interpretations Committee (IFRIC) that will
be effective for future accounting periods, most of which do not apply to the company; one that is applicable
is summarized below.
IFRS 9 – Financial Instruments is a new standard on accounting for financial instruments that will replace
IAS 39, Financial Instruments: Recognition and Measurement. The effective date has been tentatively set to
be applicable for the company’s December 31, 2018 financial statements. IFRS 9 has two measurement
categories: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument
is recorded at amortized cost only if the entity is holding the instrument to collect contractual cash flows and
the cash flows represent principal and interest. Otherwise it is recorded at fair value through profit or loss.
IFRS 9 requires an expected-loss impairment model (replacing the current incurred loss impairment model)
that will require more timely recognition of expected losses and requires accounting for expected credit
losses when financial instruments are first recognized and to accelerate the recognition of full lifetime
expected losses. The potential impact of the new standard on the company’s financial statements has not been
determined.
5.
MORTGAGES RECEIVABLE
(a) Mortgage portfolio
December 31, 2014
Outstanding % of
December 31, 2013
Outstanding % of
Number
31
90
23
17
8
8
13
190
Mortgage category
Commercial/mixed use
House and apartment
Low-rise residential
Construction
High-rise residential
Mid-rise residential
Condominium corporation
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgages receivable
amount
$ 134,990
93,070
85,678
61,095
44,048
12,127
3,260
434,268
2,177
(465)
(835)
(2,388)
$ 432,757
Portfolio Number
27
59
17
9
5
3
11
131
31.1%
21.4%
19.7%
14.1%
10.1%
2.8%
0.8%
100.0%
Portfolio
31.7%
24.6%
20.7%
7.8%
11.7%
2.6%
0.9%
100.0%
$
amount
89,475
69,485
58,466
22,093
32,967
7,440
2,434
282,360
1,562
(339)
(724)
(1,151)
$ 281,708
The mortgage portfolio has maturity dates between 2015 and 2025 with a weighted average term to maturity
of 13.7 months at December 31, 2014 (December 31, 2013 – 13.5 months). The portfolio has a weighted
average interest rate (which excludes lender fees paid to the company) of 8.81% for the year ended December
31, 2014 (8.72% for the year ended December 31, 2013).
Principal repayments based on contractual maturity dates are as follows:
Years ended December 31, 2015
2016
2017
2018
2019
Thereafter
167,709
220,156
43,274
54
72
3,003
$ 434,268
38.6%
50.7%
10.0%
0.0%
0.0%
0.7%
100.0%
30 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • NOTES TO THE FINANCIAL STATEMENTS
5.
MORTGAGES RECEIVABLE (continued)
(a) Mortgage portfolio (continued)
Year ended December 31, 2014
Location of underlying property
Greater Toronto Area
Non-GTA Ontario
Saskatchewan
Alberta
British Columbia
Number of
mortgages
136
11
1
31
11
190
Amount
$ 296,405
38,716
2,880
66,325
29,942
434,268
Weighted
average
Percentage interest rate
68.2%
8.9%
0.7%
15.3%
6.9%
100.0%
8.81%
9.66%
8.50%
8.47%
8.64%
8.81%
Year ended December 31, 2013
Location of underlying property
Greater Toronto Area
Non-GTA Ontario
Saskatchewan
Alberta
British Columbia
Number of
mortgages
111
6
–
7
7
131
Amount
$ 228,391
22,465
–
24,910
6,594
282,360
Weighted
average
Percentage interest rate
80.9%
8.0%
–
8.8%
2.3%
100.0%
8.64%
9.10%
–
8.57%
10.75%
8.72%
Mortgage category
Conventional first mortgages
Conventional second and third
mortgages
Non-conventional mortgages
Other
December 31
2014
$ 348,050
70,728
12,230
3,260
$ 434,268
%
80.2%
16.3%
2.8%
0.7%
100.0%
December 31
2013
$ 249,328
%
88.3%
% change
39.6%
25,711
4,887
2,434
$ 282,360
9.1%
1.7%
0.9%
100.0%
175.1%
150.3%
34.0%
53.8%
Conventional mortgages are those mortgages with a loan-to-value of less than or equal to 75%. Seventy-five
percent (75%) loan-to-value is the industry norm for determining a conventional versus non-conventional
mortgage. Non-conventional mortgages are those mortgages with a loan-to-value in excess of 75%.
The weighted average term remaining for our mortgages receivable at December 31, 2014 is 13.7
months (December 31, 2013 – 13.5 months).
(b) Provision for mortgage losses
Specific provision
General provision
Provision for mortgage losses
December 31
2014
December 31
2013
$
$
–
2,388
2,388
$
$
590
561
1,151
Balance, beginning of year
Mortgage settled during the year
Released to general provision
Increase in general provision during the year
Balance, end of year
Specific
provision
590
$
(580)
(10)
–
–
$
Year ended December 31, 2014
General
provision
561
$
–
10
1,817
2,388
$
$
$
Total
1,151
(580)
–
1,817
2,388
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 31
5.
MORTGAGES RECEIVABLE (continued)
(b) Provision for mortgage losses (continued)
Balance, beginning of year
Increase in specific provision for the year
Balance, end of year
Specific
provision
527
$
63
590
$
Year ended December 31, 2013
General
provision
561
$
–
561
$
$
$
Total
1,088
63
1,151
One mortgage was in default at December 31, 2014 (one at December 31, 2013, which was subsequently
settled). The company does not expect to incur losses on the mortgage in default at December 31, 2014 taking
into account market conditions, the value of real property securing the mortgages, and other factors. The
increase in the general provision for mortgage losses during the period is based upon assessment of the
factors described in Note 3(c).
6.
CREDIT FACILITY
At December 31, 2014, the company had a credit facility from a syndicate of two Canadian financial
institutions of $100,000 (December 31, 2013 – $80,000) at a formula rate that varies with bank prime and the
market bankers’ acceptance rate. Drawings under the credit facility may be by way of a bank loan (including
bank indebtedness of up to $500), bankers’ acceptances or letters of credit (LCs). LCs represent irrevocable
assurances that the company’s banks will make payments in the event that a customer cannot meet its
obligations to third parties. LCs carry the same credit risk, recourse and collateral security requirements as
mortgages extended to customers. The committed credit facility was effective October 6, 2014, has a term of
two years, and is subject to certain conditions of drawdown and other covenants. During the year ended
December 31, 2014 there were various amendments to the operating credit facility negotiated from time to
time with the banks that were subsequently repaid and cancelled.
The credit facility is secured by a lien over all of the company’s assets by means of a general security
agreement. The amount that may be drawn down under the credit facility is determined by the aggregate
value of mortgages that are acceptable to the lender. Under the terms of the credit facility, covenants must be
met in respect of shareholders’ equity, debt to total assets and interest coverage. At December 31, 2014 and
December 31, 2013, the company was in compliance with these covenants.
Credit facility
Bankers’ acceptances
Bank loan
Operating line
Bank indebtedness
Total borrowing under credit facility
Letters of credit
Total credit facility utilization
7.
DIVIDENDS
Year ended
December 31
2014
$ 57,000
22,985
79,985
313
80,298
4,483
$ 84,781
Year ended
December 31
2013
$ 20,000
15,910
35,910
326
36,236
2,680
$ 38,916
The company follows a dividend policy so that it is non-taxable under the provisions of the ITA related to
Mortgage Investment Corporations. Dividends amounted to $0.89 per share for the year ended December 31,
2014 (2013 – $0.85).
Dividends payable, beginning of year
Dividends declared
Dividends paid
Dividends payable, end of year
$
December 31
2014
2,473
20,837
(19,931)
3,379
$
$
December 31
2013
1,827
17,970
(17,324)
2,473
$
32 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • NOTES TO THE FINANCIAL STATEMENTS
8.
RELATED PARTY TRANSACTIONS
The company pays management and mortgage servicing fees to Canadian Mortgage Capital Corporation
(CMCC), which is the manager of the company, and responsible for its day to day management. The majority
beneficial owner and Chief Executive Officer (CEO) of the manager is also CEO of the company. The
company incurred management and mortgage servicing fees of $3,548 for the year ended December 31, 2014
(2013 – $2,455). The management agreement between the company and CMCC contains provisions for the
payment of termination fees to the manager in the event that the management agreement is terminated in
certain circumstances. Amounts due to related party are due to CMCC, in the normal course of business, are
non-interest bearing and due on demand, and are paid within 30 days of each period end.
Key management includes directors and officers of the company. Compensation expenses for key
management personnel include:
Directors’ fees
Share-based payments to directors (Note 11)
Share-based payments to officers (Note 11)
Year ended
December 31
2014
175
110
101
386
$
$
Year ended
December 31
2013
147
98
92
337
$
$
Related party transactions are recorded at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
9.
CONVERTIBLE DEBENTURES
Year ended December 31, 2014
Convertible
debenture
5.50%
AI.DB.B
Convertible
debenture
6.25%
AI.DB.A
Sept. 30, 2021 March 31, 2019
Convertible
debenture
5.25%
AI.DB
June 30, 2020
$
–
40,250
(536)
(1,861)
26
37,879
88
$
–
31,801
(161)
(1,546)
7
30,101
273
$
30,611
–
–
–
–
30,611
283
$
Total
30,611
72,051
(697)
(3,407)
33
98,591
644
Maturity date
Convertible debentures,
beginning of year
Issued
Equity component
Issue costs
Issue costs attributed to
equity component
Convertible debentures
Accretion for the year
Convertible debentures,
end of year
$ 37,967
$
30,374
$
30,894
$
99,235
Maturity date
Convertible debentures, beginning of year
Issued
Equity component
Issue costs
Issue costs attributed to equity component
Convertible debentures
Accretion for the year
Convertible debentures, end of year
Year ended December 31, 2013
Convertible
Debenture
5.25%
AI.DB
June 30, 2020
$
–
32,500
(419)
(1,640)
21
30,462
149
$ 30,611
Total
$
–
32,500
(419)
(1,640)
21
30,462
149
$ 30,611
9.
CONVERTIBLE DEBENTURES (continued)
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 33
During the year ended December 31, 2014, the company completed a public offering for 5.50%, unsecured
convertible debentures due September 30, 2021 aggregating $35,000 and an overallotment option of a further
$5,250 that closed September 23, 2014 and October 2, 2014, respectively. The interest on the debentures is
payable on March 31 and September 30 each year. Debentures are convertible into common shares at the
option of the holder at any time prior to their maturity at a conversion price of $14.65 per share, subject to
various adjustments in accordance with the trust indenture. The debentures may not be redeemed by the
company before September 30, 2017. After September 30, 2017 and prior to September 30, 2019, the
debentures may be redeemed, in whole or in part, from time to time at the company’s option at par plus
accrued interest provided that the weighted average trading price of the common shares is not less than 125%
of the conversion price. After September 30, 2019, the company may, at its option, redeem the debentures, in
whole or in part, at par plus accrued and unpaid interest. On issuance, the company recorded a liability of
$37,879, net of equity component of $536 and issue costs attributable to debt of $1,835.
During the year ended December 31, 2014, the company completed a public offering for 6.25%,
unsecured convertible debentures due March 31, 2019 aggregating $30,000 and an overallotment option of a
further $1,801 that were closed February 27, 2014 and March 5, 2014, respectively. The interest on the
debentures is payable on March 31 and September 30 each year. Debentures are convertible into common
shares at the option of the holder at any time prior to their maturity at a conversion price of $13.30 per share,
subject to various adjustments in accordance with the trust indenture. The debentures may not be redeemed
by the company before March 31, 2017. After March 31, 2017 and prior to March 31, 2018, the debentures
may be redeemed, in whole or in part, from time to time at the company’s option at par plus accrued interest
provided that the weighted average trading price of the common shares is not less than 125% of the
conversion price. After March 31, 2018, the company may, at its option, redeem the debentures, in whole or
in part, at par plus accrued and unpaid interest. On issuance, the company recorded a liability of $30,101, net
of equity component of $161 and issue costs attributable to debt of $1,539.
During the year ended December 31, 2013, the company completed a public offering for of 5.25%,
unsecured convertible debentures due June 30, 2020 aggregating $30,000 and an overallotment option of
$2,500 that were closed on June 18, 2013 and July 9, 2013, respectively. The interest on the debentures is
payable on June 30 and December 31 each year. Debentures are convertible into common shares at the option
of the holder at any time prior to their maturity at a conversion price of $13.50 per share, subject to various
adjustments in accordance with the trust indenture. The debentures may not be redeemed by the company
before June 30, 2016. After June 30, 2016 and prior to June 30, 2018, the debentures may be redeemed, in
whole or in part, from time to time at the company’s option at par plus accrued interest provided that the
weighted average trading price of the common shares is not less than 125% of the conversion price. After
June 30, 2018, the company may, at its option, redeem the debentures, in whole or in part, at par plus accrued
and unpaid interest. On issuance, the company recorded a liability of $30,462, net of equity component of
$419 and issue costs attributable to debt of $1,619.
10.
SHARE CAPITAL
The company is authorized to issue an unlimited number of common shares without par value. Common
shares rank equally with each other and have no preference, conversion, exchange or redemption rights.
Common shares participate pro rata with respect to any dividends paid, including distributions upon
termination and dissolution.
The company has an optional dividend reinvestment plan (DRIP) for shareholders, whereby participants
may reinvest cash dividends in additional common shares of the company at the volume weighted average
price for five days prior to distribution, less a 2% discount. Shares issued under the DRIP are issued by the
company from treasury.
Under the employee share purchase plan (ESPP), each participant may contribute up to an annual
maximum to the ESPP, and CMCC (the manager) will match 50% of the participant’s contribution. Thus, the
company does not bear any of the cost of the ESPP, but is reimbursed by CMCC and the participants.
34 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • NOTES TO THE FINANCIAL STATEMENTS
10.
SHARE CAPITAL (continued)
Year ended December 31, 2014
Shares issued –
ESPP, January 1, 2014
DRIP, January 14, 2014
DRIP, February 13, 2014
DRIP, March 5, 2014
DRIP, March 13, 2014
ESPP, April 1, 2014
DRIP, April 14, 2014
DRIP, May 13, 2014
Public offering, May 22, 2014*
DRIP, June 13, 2014
ESPP, June 30, 2014
DRIP, July 14, 2014
DRIP, Aug 13, 2014
DRIP, September 12, 2014
ESPP, September 30, 2014
DRIP, October 13, 2014
DRIP, November 13, 2014
DSIP, December 1, 2014
DRIP, December 12, 2014
ESPP, December 30, 2014
Total shares issued during the year
Public offering*
DRIP
ESPP
DSIP
Total shares issued during the year
*Issue costs for the May 22, 2014 public offering aggregated $1,609.
Year ended December 31, 2013
Shares issued –
DRIP, January 29, 2013
DRIP, February 26, 2013
DRIP, March 21, 2013
DRIP, March 27, 2013
DRIP, April 15, 2013
DRIP, May 15, 2013
DRIP, June 14, 2013
DRIP, July 15, 2013
ESPP, July 23, 2013
DRIP, August 14, 2013
DRIP, September 13, 2013
ESPP, October 1, 2013
DRIP, October 14, 2013
DRIP, November 14, 2013
DSIP, November 14, 2013
DRIP, December 13, 2013
Total shares issued during the year
DRIP
ESPP
DSIP
Total shares issued during the year
Common shares
Number
Amount
2,368
12,543
12,859
8,841
12,606
1,888
13,287
13,035
3,036,000
14,461
2,533
14,876
14,539
14,121
3,070
15,400
14,478
3,427
14,805
2,995
3,228,132
3,036,000
175,851
12,854
3,427
3,228,132
$
$
$
26
131
134
99
141
21
145
145
34,610
157
28
163
163
159
35
172
171
36
174
34
36,744
34,610
1,954
144
36
36,744
Common shares
Number
Amount
6,580
6,814
1,785
8,889
8,515
8,806
9,228
9,208
1,332
10,721
11,550
1,996
11,580
10,695
2,203
12,394
122,296
116,765
3,328
2,203
122,296
$
$
$
71
74
19
95
92
94
97
94
14
107
115
21
117
112
24
130
1,276
1,217
35
24
1,276
11.
SHARE-BASED PAYMENTS
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 35
Deferred shares granted
Year ended December 31, 2012
2013
2014
Income deferred shares earned
Year ended December 31, 2012
2013
2014
Share compensation expense:
September 1, 2014 grant
August 30, 2013 grant
August 29, 2012 grant
September 1
2014 grant
August 30
2013 grant
August 29
2012 grant
–
–
21,500
21,500
–
–
375
375
–
23,000
–
23,000
21,500
–
–
21,500
–
592
1,738
2,330
680
1,741
1,714
4,135
Total
21,500
23,000
21,500
66,000
680
2,333
3,827
6,840
Year ended
December 31
2014
Year ended
December 31
2013
$
$
55
125
68
248
$
$
–
54
150
204
Grants are provided to certain directors and employees under the company’s deferred share incentive plan
(“DSIP”). The deferred share units vest annually over three years. Common shares are issued to participants
on the vesting date of each tranche of deferred share units, unless a participant elects to defer the issuance. In
addition, income deferred share units are credited to holders of deferred share units based upon dividends
paid on common shares. The fair value of share-based compensation was based upon the volume weighted
average market price of the common shares five days prior to the grant date of September 1, 2014 ($11.46),
August 30, 2013 ($10.13) and August 29, 2012 ($11.00).
12.
EARNINGS PER SHARE
Basic earnings per share –
Numerator
Earnings for the year
Denominator
Weighted average common shares outstanding
Basic earnings per share
Diluted earnings per share –
Numerator
Earnings for the year
Interest on convertible debentures
Earnings for diluted earnings per share
Denominator
Weighted average common shares outstanding
Convertible debentures
Deferred share incentive plan
Income deferred share units
Weighted average common shares outstanding – diluted basis
Diluted earnings per share
Year ended
December 31
2014
Year ended
December 31
2013
$
21,037
$
18,000
23,151
0.91
21,037
4,627
25,664
23,151
5,153
49
3
28,356
0.91
$
$
$
21,133
0.85
18,000
1,065
19,065
21,133
1,283
29
1
22,446
0.85
$
$
$
36 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • NOTES TO THE FINANCIAL STATEMENTS
13.
FINANCIAL INSTRUMENTS
(a) Classification of financial instruments
Financial assets comprise mortgages receivable. All financial assets are classified as loans and receivables.
Financial liabilities comprise bank indebtedness, operating line, accounts payable and accrued liabilities,
dividends payable, due to related party and the liability component of convertible debentures. All financial
liabilities are classified as other financial liabilities.
(b) Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between arm’s length market participants at the measurement date. The fair value hierarchy
establishes three levels to classify the inputs to valuation techniques used to measure fair value:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or
liabilities in active markets, inputs other than quoted prices that are observable for the asset or
liability, or inputs that are derived principally from or corroborated by observable market data or
other means.
• Level 3 inputs are unobservable (supported by little or no market activity).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3
inputs. All financial assets are classified as loans and receivables and are recorded at amortized cost. Their
carrying values approximate their fair value due to their relatively short-term maturities and because market
interest rates have not fluctuated significantly since the date at which the loans were entered into. The fair
value of the operating line approximates book value since it bears interest at floating rates. Mortgages
receivable mature between 2015 and 2025 with a weighted average term to maturity at December 31, 2014 of
13.7 months (2013 – 13.5 months). Fair value of mortgages receivable is established by Level 3 inputs.
The fair value of convertible debentures at the time of issue is established using Level 2 inputs. The fair
value of convertible debentures has been determined based on the closing prices of the convertible
debentures on the TSX on the respective dates.
Convertible debentures
Fair value
Less book value of equity component
December 31
2014
$ 104,507
(1,062)
$ 103,445
December 31
2013
30,225
(398)
29,827
$
$
Book value of financial liability component
$
99,235
$
30,611
The fair value of other financial liabilities is estimated using level 3 inputs.
(c) Credit risk
The following asset is exposed to credit risk: mortgages receivable. Credit risk is the risk that a counterparty
to a financial instrument will fail to discharge its obligation or commitment, resulting in a financial loss to the
company.
The company controls the credit risk of mortgages receivable by maintaining strict credit policies
including due diligence processes, credit limits, documentation requirements, review and approval of new
mortgages by the board of directors or a subgroup thereof, quarterly review of the entire portfolio by the
board of directors, and other credit policies approved by the board of directors. Credit risk is approved by the
board of directors. At December 31, 2014 no single borrower accounted for more than 7.9% of mortgages
receivable (December 31, 2013 – 14.6%). See Note 5(a) for geographic as well as mortgage rank breakdown.
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 37
13.
FINANCIAL INSTRUMENTS (continued)
(d) Liquidity risk
Liquidity risk is the risk that the company will not be able to meet its obligations when due. The primary
sources of liquidity risk are the requirements to fund commitments for new mortgages, advances on existing
mortgages, as well as obligations under the company’s credit facility. The company’s liquidity risk is
managed on an ongoing basis in accordance with the policies and procedures in place that reduce the risk to
an acceptable level. Policies and procedures include continual monitoring of expected cash flows, reviewing
credit requirements with the company’s bankers, issuing convertible debentures or common shares in the
public markets from time to time as required, and staggering the maturities of convertible debentures when
they are issued. From time to time the company has arranged temporary increases in its credit facility with its
banks in order to manage liquidity requirements, and expects to be able to continue to do so in the future if
required. The company’s significant financial liabilities include bank indebtedness, operating line, accounts
payable and accrued liabilities, dividends payable, due to related party and the liability component of
convertible debentures. The bank indebtedness and operating line are drawn upon as required to discharge
accounts payable and accrued liabilities as well as to pay out dividends on a monthly basis. The company’s
agreement with the lender is that the operating line will not be called provided that all covenants are met and
that any significant excess cash is used to pay down the bank loan and indebtedness.
As at December 31, 2014, management considers that it has adequate procedures in place to manage
liquidity risk.
Obligations at December 31, 2014
Bank indebtedness
Operating line
Accounts payable and
accrued liabilities
Accrued convertible debentures interest
Dividends payable
Due to related party
Convertible debentures
Total
Less than 1
year
3-7 years
Total
$ 313 $ 313 $ – $ –
1-2 years
79,985
79,985
523
523
–
–
1,093
1,093
–
3,379
3,379
–
395
395
99,235
–
–
$ 184,923 $ 85,688 $ –
–
–
99,235
$ 99,235
The company has commitments to advance additional funds under existing mortgages of $99,757 and for
new mortgages of $10,063 at December 31, 2014 (December 31, 2013 – $51,437 and $46,728 respectively).
Generally, outstanding commitments are expected to be funded within the next 24 months. However, the
experience of the company has been that a portion of the unfunded amounts on existing mortgages will never
be drawn.
(e) Interest rate risk
The company is exposed to interest rate risk in that an increase in interest rates will result in increased interest
expense due to its operating line and indebtedness being set at a variable rate but all mortgages being set at
fixed rates. The financial structure of the company results in relatively moderate interest rate risk because
most of the company’s financing is through common shares and convertible debentures, with a moderate
amount of borrowings under the credit facility that bear floating interest rates.
If interest rates on debt had been one percentage point higher (lower) during the year ended December 31,
2014, earnings would have been reduced (increased) by approximately $680 during the period, assuming that
no changes had been made to the interest rates at which new mortgage loans were entered into. However, if
new mortgage loans had been entered into at higher (lower) interest rates, the resulting reduction of earnings
would have been less than (greater than) $680.
(f) Currency risk
Currency risk is the risk that the value of financial assets and liabilities will fluctuate due to changes in
foreign exchange rates. The company is not currently exposed to significant currency risk as all assets and
liabilities are denominated in Canadian funds.
38 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2014 • NOTES TO THE FINANCIAL STATEMENTS
13.
FINANCIAL INSTRUMENTS (continued)
(g) Changes to risk exposure and management of risk exposure
During the year ended December 31, 2014, the company issued 6.25% unsecured convertible debentures
with a face value of $31,801 (see Note 9), and issued 5.50% unsecured convertible debentures with a face
value of $40,250 (see Note 9), which had the effect of altering its risk exposure profile to be less sensitive to
changes in general market interest rates. The effect will be favourable if general interest rates increase, and
adverse if general interest rates decline. In addition, during the year ended December 31, 2014, the company
issued common shares for net proceeds of $35,135, which had the effect of reducing its leverage and
consequently reducing its exposure to changes in interest rates in general.
14.
CAPITAL MANAGEMENT
The company defines capital as total debt plus shareholders’ equity, as shown below:
Bank indebtedness
Operating line
Total borrowing under credit facility
Convertible debentures
Total debt
Shareholders’ equity
Capital employed
$
December 31
2014
313
79,985
80,298
99,235
179,533
248,204
$ 427,737
$
December 31
2013
326
35,910
36,236
30,611
66,847
212,019
$ 278,866
The company’s objectives for managing capital are to:
•
•
•
preserve shareholders’ equity
provide shareholders with stable dividends
use leverage in a conservative manner to improve return to shareholders
The company manages capital by using conservative amounts of financial leverage to improve its return
to shareholders. The company finances growth of its portfolio by issuing common shares and debt. In
addition, a small amount of equity is raised every month through a dividend reinvestment plan for
shareholders.
As bank borrowings increase, the company could expect to raise further funds through public offerings of
convertible debentures or common shares, and through private placements of debt. The company’s bank
indebtedness, bankers’ acceptances and bank loan are subject to external covenants as set out in Note 6.
There has been no change in the company’s capital management objectives since the prior period.
15.
INCOME TAXES
NOTES TO THE FINANCIAL STATEMENTS • 2014 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 39
The company is a Mortgage Investment Corporation (MIC) as defined in Section 130.1(6) of the ITA.
Accordingly, the company is not taxed on its taxable income (as defined in the ITA) provided that it is
distributed as dividends within 90 days of December 31 each year.
Due to certain provisions of the ITA, taxable income does not precisely equal income under IFRS. The
company has tax loss carry forwards available that may serve to permit future distributions to shareholders to
be less than taxable income in the year while preserving its status as a MIC.
Earnings and comprehensive income for the year
Non-deductible expenses
Issue costs deductible pursuant to Section 20(1)(e)
of the ITA
Change in deferred revenue
Cumulative eligible capital deduction
Taxable income
Less: dividends declared during the year and within
90 days of year end
Taxable income (loss) for the year
Add: tax loss carry forward from previous years
Tax loss carry forward, end of year
Tax losses generated in 2013 will expire in 2033.
16.
SUBSEQUENT EVENTS
December 31
2014
21,037
3,018
December 31
2013
18,000
483
(2,409)
110
(2)
21,754
(20,837)
917
(1,438)
(521)
$
$
(1,350)
80
(2)
17,211
(17,971)
(760)
(678)
(1,438)
$
$
On January 13, 2015, the company issued 15,902 common shares ($178) to shareholders under its dividend
reinvestment plan.
BOARD OF DIRECTORS
MANAGEMENT
TRANSFER AGENT
Robert G. Goodall
CEO and President
Jeffrey D. Sherman, FCPA, FCA
CFO and Secretary
Michael Lovett
Managing Director – Ontario
Bram Rothman
Managing Director – Ontario
Phil Fiuza
Managing Director –
Ontario, Residential
Daniel Stewart
Managing Director –
Alberta and Saskatchewan
Marianne Dobslaw
Managing Director –
British Columbia
Mark L. Silver
Chair of the Board
Atrium Mortgage Investment
Corporation
President
Optus Capital Corporation
Robert G. Goodall
CEO and President
Atrium Mortgage Investment
Corporation
Peter P. Cohos
President
Copez Properties Ltd.
Robert H. DeGasperis
President
Metrus Properties Inc.
Andrew Grant
President
PCI Group
Nancy H. O. Lockhart
Director
Barrick Gold Corporation
Director
Gluskin Sheff + Associates
Director
Loblaw Companies Ltd.
David M. Prussky
Director
Carfinco Financial Group Inc.
Director
Lonestar West Inc.
Computershare Trust Co. of Canada
100 University Ave.
9th Floor, North Tower
Toronto, ON M5J 2Y1
T. (800) 564-6253
AUDITORS
Crowe Soberman LLP
1100 – 2 St. Clair Ave. E.
Toronto, ON M4T 2T5
T. (416) 964-7633
SHARE LISTING
Common shares,
TSX: AI
Convertible debentures 5.25%,
TSX: AI.DB
Convertible debentures 6.25%,
TSX: AI.DB.A
Convertible debentures 5.5%,
TSX: AI.DB.B
Atrium offers a dividend reinvestment
plan (DRIP) so that shareholders may
automatically reinvest their dividends
in new shares of Atrium at a 2%
discount from market price and with
no commissions. This provides an
easy way to realize the benefits of
compound growth of their investment
in Atrium. Shareholders can enroll in
the DRIP program by contacting their
investment advisor or Computershare.
www.AtriumMIC.com
20 Adelaide Street East, Suite 900
Toronto, ON M5C 2T6
T. (416) 867-1053
F. (416) 867-1303
Email ir@atriummic.com