ATRIUM MORTGAGE
INVESTMENT CORPORATION
C ANADA’S PREMIER NON-BANK LENDER TM
ATRIUM
ANNUAL
REPORT
2015
FOR IMMEDIATE RELEASE
ATRIUM MORTGAGE INVESTMENT CORPORATION
GENERATES RECORD EARNINGS AND
RECORD BONUS DIVIDEND IN 2015
TORONTO: February 9, 2016 – 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, 2015.
Highlights
•
$0.94 basic and $0.93 fully diluted earnings per share for the year ended December 31,
2015, up over 3% from the previous year
•
•
$0.09 per share special dividend to shareholders of record December 31, 2015
$0.93 total dividends per share in 2015, representing a yield of 9.1% on book value
• Regular monthly dividend increased to $0.0717, (annualized rate of $0.86) in 2016
• Mortgage portfolio increased 4% year-over-year to $452 million at December 31, 2015
• High quality mortgage portfolio
o 77.8% of portfolio in first mortgages
o 96.2% of loan portfolio is less than 75% loan to value
o Continued focus on low risk real estate sectors
o Alberta exposure reduced from 19.5% of portfolio at March 31, 2015 to 13.5% at
year-end; 98% of remaining Alberta loans are first mortgages
“2015 was another great year for us,” said Robert Goodall, CEO of Atrium. He continued, “Our lending
team continued to do an excellent job of originating high quality loan opportunities which allowed us to
continue to grow the portfolio. We were again able to generate higher earnings per share in 2015, despite
the relatively weak performance of the Canadian economy. Our experienced team, working in our five
offices across Canada, coupled with our controlled growth objectives and conservative risk parameters,
have allowed us to continue to grow in these conditions.
“Once again we would like to thank our real estate clients for their continued loyalty, and our new and
existing shareholders who allowed us to successfully complete another common share issuance in 2015.
We are proud to state that Atrium continues to be regarded as ‘Canada’s premier non-bank lender™’.”
Interested parties are invited to participate in a conference call with management on Wednesday,
February 10, 2016 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, 2015, mortgage interest and fees revenue aggregated $40.2 million,
compared to $35.0 million in the prior year, an increase of 15.0%. The weighted average interest rate on
the mortgage portfolio was 8.66% at December 31, 2015, compared with 8.81% at December 31, 2014.
Earnings and total comprehensive income were up 10.9% 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
2013
2014
2015
23,760
34,956
$ 40,206
(2,468)
(3,553)
(4,173)
(845)
(1,014)
(1,187)
(63)
(1,817)
(1,912)
20,384
28,572
32,934
(2,384)
(7,535)
(9,597)
18,000
21,037
$ 23,337
$
$
$
$
Basic earnings per share
Diluted earnings per share
$
$
0.94
0.93
$
$
0.91
0.91
$
$
0.85
0.85
For further information on the financial results, please refer to Atrium’s financial statements for the year
ended December 31, 2015, 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
(outstanding amounts in 000s)
Low-rise residential
House and apartment
Construction
High-rise residential
Mid-rise residential
Condominium corporation
Residential portfolio
Commercial/mixed use
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgages receivable
December 31, 2015
Outstanding % of
December 31, 2014
Outstanding % of
Number
amount
Portfolio Number
amount
Portfolio
24.3%
18.8%
9.9%
9.4%
3.2%
0.9%
66.5%
33.5%
100.0%
23
90
17
8
8
13
159
31
190
19.7%
21.4%
14.1%
10.1%
2.8%
0.8%
68.9%
31.1%
100.0%
$
85,678
93,070
61,095
44,048
12,127
3,260
299,278
134,990
434,268
2,177
(465)
(835)
(2,388)
$ 432,757
23
110
9
9
7
18
176
31
207
$ 110,034
84,755
44,701
42,245
14,662
4,111
300,508
151,083
451,591
1,960
(440)
(712)
(4,300)
$ 448,099
2
A summary of mortgages by size is presented below.
($000s)
December 31, 2015
Outstanding % of
December 31, 2014
Outstanding % of
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 - $10,000,000
$10,000,001 +
Number
amount
Portfolio Number
amount
Portfolio
154
28
13
4
8
207
$ 118,170
99,800
83,259
32,538
117,824
$ 451,591
26.2%
22.1%
18.4%
7.2%
26.1%
100.0%
139
26
9
7
9
190
$ 119,655
90,602
54,931
64,091
104,989
$ 434,268
27.6%
20.9%
12.6%
14.7%
24.2%
100.0%
As of December 31, 2015, the average outstanding mortgage balance was $2.2 million (December 31,
2014 – $2.3 million), and the median outstanding mortgage balance was $1.0 million (December 31, 2014
– $1.1 million).
Conference call
Interested parties are invited to participate in a conference call with management on Wednesday,
February 10, 2016 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 23, 2016) please call 1 (855) 859-2056,
Conference ID 95356785.
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,
filings available at www.sedar.com or Atrium’s website at
refer
please
www.atriummic.com.
regulatory
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 ANAL YSIS
YEAR ENDED
DECEMBER 31, 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 7
Management’s Discussion and Analysis
December 31, 2015
Our business
Atrium is a mortgage lender filling the lending gap caused by the limited
number of financial institutions operating in Canada. We lend in major
urban centres and where the stability and liquidity of real estate is high.
Our loan portfolio is of high quality but we are able to charge higher rates
than the banks because we offer flexibility including flexible repayment
terms. Our mortgages are secured by all types of residential, multi-
residential and commercial real property located in Canada, subject to
compliance with our investment policies. Atrium has achieved its strategic
objectives over the past 15 years: to grow in a controlled manner by
diversifying geographically, and focusing on real estate sectors with the
lowest risk profiles.
Our investment objectives are to preserve our shareholders’ equity and
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.
Information herein is current as of February 9, 2016.
Highlights
Atrium had an excellent year, despite a challenging economy. For the year
ended December 31, 2015, our total revenue was $40 million, up 15%
from the previous year, and we earned $23 million ($0.94 per share basic
and $0.93 per share fully diluted), compared to $21 million ($0.91 per
share, basic and diluted) for the previous year, an increase of 11% in
earnings, and 3% 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. Balance sheet leverage
increased from 41% debt-to-assets at the end of 2014 to 44% at the end of
our third quarter, then decreased to 37% at the end of 2015 primarily due
to an issue of common shares during the fourth quarter.
We declared a regular dividend of $0.07 per share for each month in
2015, a rate of $0.84 per year. In addition, we declared a special dividend
of $0.09, for a total dividend of $0.93 for 2015, compared to $0.89 for the
previous year.
We had $448 million of mortgages receivable as at December 31, 2015,
an increase of 4% from December 31, 2014. During the year, $267 million
of gross new mortgages were advanced, and $250 million of gross
mortgages were repaid.
Record results
$0.94 per share (basic)
EPS ↑ 3.3%
from previous year
Strong mortgage
portfolio
78%
first mortgages
96%
less than 75%
loan-to-value
Mortgages receivable
$448 million
Alberta exposure
reduced from
19.5% of portfolio at
March 31, 2015 to
13.5% at year-end
98% of Alberta loans
are first mortgages
8 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • MANAGEMENT’S DISCUSSION AND ANALYSIS
Investment portfolio
Our mortgage portfolio consisted of 207 mortgage loans and aggregated $451.6 million at December 31, 2015, an
increase of 4% from December 31, 2014.
Mortgage category
(outstanding amounts in 000s)
Low-rise residential
House and apartment
Construction
High-rise residential
Mid-rise residential
Condominium corporation
Residential portfolio
Commercial/mixed use
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgages receivable
December 31, 2015
Outstanding % of
December 31, 2014
Outstanding % of
Number
amount
Portfolio Number
amount
Portfolio
24.3%
18.8%
9.9%
9.4%
3.2%
0.9%
66.5%
33.5%
100.0%
23
90
17
8
8
13
159
31
190
23
110
9
9
7
18
176
31
207
$ 110,034
84,755
44,701
42,245
14,662
4,111
300,508
151,083
451,591
1,960
(440)
(712)
(4,300)
$ 448,099
19.7%
21.4%
14.1%
10.1%
2.8%
0.8%
68.9%
31.1%
100.0%
$
85,678
93,070
61,095
44,048
12,127
3,260
299,278
134,990
434,268
2,177
(465)
(835)
(2,388)
$ 432,757
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 - $10,000,000
$10,000,001 +
December 31, 2015
Outstanding % of
December 31, 2014
Outstanding % of
Number
amount
Portfolio Number
amount
Portfolio
154
28
13
4
8
207
$ 118,170
99,800
83,259
32,538
117,824
$ 451,591
26.2%
22.1%
18.4%
7.2%
26.1%
100.0%
139
26
9
7
9
190
$ 119,655
90,602
54,931
64,091
104,989
$ 434,268
27.6%
20.9%
12.6%
14.7%
24.2%
100.0%
As of December 31, 2015, the average outstanding mortgage balance was $2.2 million (December 31, 2014 – $2.3
million), and the median outstanding mortgage balance was $1.0 million (December 31, 2014 – $1.1 million).
The tables below show our mortgage portfolio by location of the underlying property and type of mortgage. The
weighted average interest rates shown exclude the lender fees paid by the borrower, which reflect the yield to
Atrium including any mortgage discount or premium.
We have successfully reduced our exposure in Alberta – from 19.5% of the mortgage portfolio at March 31,
2015 ($76.7 million), to 13.5% at December 31, 2015 ($61.1 million). 98% of the remaining Alberta loans are first
mortgages. In that market our exposure is further mitigated by not lending to office, high-rise condominiums or to
hotels.
Location of underlying property
(outstanding amounts in 000s)
Greater Toronto Area
Non-GTA Ontario
Saskatchewan
Alberta
British Columbia
December 31, 2015
Number of
mortgages
Outstanding
amount
Percentage
outstanding
Weighted Weighted
average
average
interest rate
loan to value
152
15
1
25
14
207
$ 292,547
11,436
10,822
61,078
75,708
$ 451,591
64.8%
2.5%
2.4%
13.5%
16.8%
100.0%
66.1%
67.3%
71.1%
59.7%
62.6%
64.7%
8.61%
8.99%
8.50%
8.68%
8.83%
8.66%
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 9
Location of underlying property
(outstanding amounts in 000s)
Greater Toronto Area
Non-GTA Ontario
Saskatchewan
Alberta
British Columbia
December 31, 2014
Number of
mortgages
Outstanding Percentage
outstanding
amount
Weighted
average
loan to value
Weighted
average
interest rate
135
11
1
31
12
190
$ 296,150
38,716
2,880
66,325
30,197
$ 434,268
68.2%
8.9%
0.7%
15.3%
6.9%
100.0%
66.2%
66.0%
71.1%
60.3%
65.9%
64.3%
8.81%
9.66%
8.50%
8.47%
9.64%
8.81%
We have an exceptionally high proportion of our portfolio invested in first mortgages (77.8%), which is one of our
core strategies.
At December 31, 2015, the weighted average loan-to-value ratio in our mortgage portfolio was 64.7%, with
96.2% of the portfolio below 75% loan-to-value. (At December 31, 2014, the weighted average loan-to-value ratio
in our mortgage portfolio was 64.3%, with 97.2% of the portfolio below 75% loan-to-value.)
Type of mortgage
(outstanding amounts in 000s)
First mortgages
Conventional
Non-Conventional
Other
Second and third mortgages
Conventional
Non-conventional
Type of mortgage
(outstanding amounts in 000s)
First mortgages
Conventional
Other
Second and third mortgages
Conventional
Non-conventional
December 31, 2015
Number of Outstanding
amount
mortgages
Weighted
Percentage average
outstanding interest rate
143
3
18
164
33
10
43
207
$ 340,759
6,789
4,111
351,659
89,619
10,313
99,932
$ 451,591
75.4%
1.5%
0.9%
77.8%
8.34%
9.68%
7.41%
8.35%
19.9%
2.3%
22.2%
100.0%
9.55%
11.35%
9.74%
8.66%
December 31, 2014
Number of
mortgages
Outstanding
amount
Weighted
Percentage average
outstanding interest rate
142
13
155
31
4
35
190
$ 345,950
3,260
349,210
72,828
12,230
85,058
$ 434,268
79.6%
0.8%
80.4%
8.49%
8.36%
8.49%
16.8%
2.8%
19.6%
100.0%
10.31%
9.14%
10.14%
8.81%
Conventional mortgages are those with a loan-to-value of less than or equal to 75%, which is the industry standard
for determining whether a mortgage is conventional. Non-conventional mortgages are those with a loan-to-value in
excess of 75%.
The weighted average term remaining for our mortgage portfolio at December 31, 2015 is 11.1 months
(December 31, 2014 – 13.7 months).
10 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • MANAGEMENT’S DISCUSSION AND ANALYSIS
Our business
We are a mortgage lender filling 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 is at the highest level. 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 $20 million. The largest single mortgage in our mortgage
portfolio as at December 31, 2015 was $20.4 million (December 31, 2014 – $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, 2015, the weighted average loan-to-value
ratio of the mortgage portfolio remained conservative at 64.7%, compared to 64.3% at December 31, 2014.
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.
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 also supported by environmental audits.
The maximum initial loan-to-value ratio of an individual mortgage is 85% including any prior ranking
encumbrances, and the weighted average loan-to-value ratio of our mortgage portfolio at the time of
underwriting each loan may not exceed 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 11
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.
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, 2015, 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 year
Total assets, end of year
Shareholder’ equity, end of year
$
Year Year Year
ended
ended
ended
December 31
December 31
December 31
2013
2014
2015
23,760
34,956
40,206
(2,468)
(3,553)
(4,173)
(845)
(1,014)
(1,187)
(63)
(1,817)
(1,912)
20,384
28,572
32,934
(2,384)
(7,535)
(9,597)
18,000
21,037
23,337
$
$
$
$
$
$
$
$
0.94
0.93
23,346
$ 448,099
$ 448,153
$ 274,984
$
$
$
0.91
0.91
20,837
$ 432,757
$ 432,795
$ 248,204
$
$
$
0.85
0.85
17,970
$ 281,708
$ 281,739
$ 212,019
12 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • 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
(984)
(271)
(1,099)
(383)
(1,094)
(334)
(1,005)
(245)
Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014
$ 10,546 $ 10,542 $ 9,626 $ 9,492 $ 9,919 $ 9,096 $ 8,296 $ 7,645
(717)
(1,085)
(260)
(288)
(250) (362) (737) (504) (112) (464)
(700) (600)
6,204
8,569
(2,530) (2,488)
(2,306) (2,273) (2,364) (1,920) (1,883) (1,368)
$ 5,834 $ 6,081 $ 5,820 $ 5,602 $ 5,390 $ 5,543 $ 5,268 $ 4,836
$ 0.23 $ 0.25 $ 0.24 $ 0.23 $ 0.22 $ 0.23 $ 0.23 $ 0.23
$ 0.23 $ 0.24 $ 0.24 $ 0.23 $ 0.22 $ 0.23 $ 0.23 $ 0.23
$ 7,894 $ 5,163 $ 5,151 $ 5,138 $ 6,714 $ 4,994 $ 4,778 $ 4,352
(916)
(213)
(826)
(207)
7,875
8,126
7,754
7,463
7,151
8,364
Results of operations – three months ended December 31, 2015
For the three months ended December 31, 2015, mortgage interest and fees revenue aggregated $10,546, compared
to $9,919 in the comparative period, an increase of 6.3%, as a result of growth of our mortgage portfolio. The
weighted average interest rate on our mortgage portfolio was 8.66% at December 31, 2015, compared with 8.81% at
the previous year end, December 31, 2014.
Operating expenses, excluding the provision for mortgage losses, for the three months ended December 31, 2015
were $1,482, compared to $1,428 in the comparative period, an increase of 3.8%, due to the growth of the mortgage
portfolio. The provision for mortgage losses was $700 in the quarter to bring the total reserve to $4,300. There were
seven mortgages in default at December 31, 2015. At December 31, 2014 there was one mortgage in default
which was subsequently repaid in full.
Mortgage servicing and other fees paid to the manager (that is, the management fee plus HST) aggregated $1,099
for the three months ended December 31, 2015, compared with $1,094 in the prior year period. Financing costs for
the three months ended December 31, 2015 were $2,530, compared to $2,364 in the same period of 2014, an
increase of 7.0%. This increase is due to the increased use of our bank line of credit compared to the comparable
period as we maintained our balance sheet leverage, which was 37.3% at December 31, 2015 (December 31, 2014 –
41%).
Net earnings for the three months ended December 31, 2015 were $5,834, an increase of 8.2% from net earnings
of $5,390 for the same period in the prior year. Basic and diluted earnings per common share were $0.23, for the
three months ended December 31, 2015, compared with $0.22 basic and diluted per common share for the
comparable period in the previous year.
During the three months ended December 31, 2015, we funded gross mortgages aggregating $54,513. Of those
advances, $41,010 were first mortgages, representing 75.2% of the total loans funded. British Columbia advances
were $19,081, $8,820 were on properties in Alberta, $1,032 were non-GTA Ontario, $2,984 were on properties in
Saskatchewan and the remaining $22,596 were for mortgages on properties located in the Greater Toronto Area.
There were $65,073 of gross repayments during the period. The total portfolio decreased from $462,151 to $451,591
during the three month period.
Results of operations – year ended December 31, 2015
For the year ended December 31, 2015, mortgage interest and fees revenue aggregated $40,206, compared to
$34,956 in the comparative period, an increase of 15.0%. The weighted average interest rate on our mortgage
portfolio was 8.66% at December 31, 2015, compared with 8.81% at the previous year end, December 31, 2014.
Operating expenses, excluding the provision for mortgage losses, for the year ended December 31, 2015 were
$5,360 compared to $4,567 in the comparative period, an increase of 17.4%, due to the increase in the mortgage
portfolio. The provision for mortgage losses was $1,912 in the year ended December 31, 2015, to bring the total
reserve to $4,300. There were seven mortgages in default at December 31, 2015. At December 31, 2014 there
was one mortgage in default which was subsequently repaid in full.
Mortgage servicing and other fees paid to the manager (that is, the management fee plus HST) aggregated $4,173
for the year ended December 31, 2015, compared with $3,553 in the prior year period, reflecting the growth of our
mortgage portfolio.
Financing costs for the year ended December 31, 2015 were $9,597, compared to $7,535 in the same period of
2014, an increase of 27%. 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 13
Net earnings for the year ended December 31, 2015 were $23,337, an increase of 10.9% from net earnings of
$21,037 in the prior year. Basic and diluted earnings per common share were $0.94 and $0.93, respectively, for the
year ended December 31, 2015, compared with $0.91 basic and diluted earnings per common share for the previous
year.
During the year ended December 31, 2015, we funded gross mortgages aggregating $281,113. Of these advances,
$210,642 were first mortgages, representing 74.9% of the total loans funded. British Columbia advances were
$71,464, $34,229 were on properties in Alberta, $6,790 were non-GTA Ontario, $7,943 were on properties in
Saskatchewan and the remaining $160,687 were made in the Greater Toronto Area. There were $263,790 of gross
repayments during the period. The total portfolio increased from $434,268 to $451,591 during the period.
Liquidity and capital resources
At December 31, 2015, we had bank indebtedness and operating line outstanding of $66,566. The operating line is
provided by a syndicate of two major chartered banks, drawn through a combination of bankers’ acceptances and
bank loans to minimize our borrowing costs. We are in compliance with the covenants in our operating credit
facility as at December 31, 2015, and we expect to remain in compliance with such covenants going forward. We
also have three series of convertible debentures outstanding, with a total book value of $100,180 at December 31,
2015.
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 growth in net mortgage
loan investments through a combination of common share issuances, convertible or other debt, and the operating
credit facility.
Investing activities during the year ended December 31, 2015 consisted of advances on new mortgage loan
investments of $266,522, less repayments received of $249,552, for net cash from new mortgage loan investments
of $16,970.
Cash used by financing activities during the year ended December 31, 2015 consisted primarily of net
repayments of our bank line as a result of issuance of common shares during the year. Repayments less draws under
our operating facility used cash of $13,343.
Changes in financial position
Bank indebtedness, bankers’ acceptances and bank loans payable (all under our operating credit facility) decreased
to $66,566 at December 31, 2015, from $79,966 at December 31, 2014, as a result of the issuance of common shares
during the year. As at December 31, 2015, total debt (consisting of bank debt, operating line and convertible
debentures) was 37.3% of total assets.
Accounts payable and accrued charges were $677 at December 31, 2015 compared to $523 at December 31,
2014. Dividends payable were $4,294 at December 31, 2015 up from $3,379 at December 31, 2014. The increase
was primarily due to the increase in the regular and special dividend from 2015.
Share capital increased slightly to $272,698 at December 31, 2015 from $245,794 at December 31, 2014 due to a
share issuance completed in November (which accounted for $25,003 of the increase) along with our dividend
reinvestment plan and the employee share purchase plan.
Contractual obligations
Contractual obligations due at December 31, 2015 were as follows:
Obligations at December 31 2015
Bank indebtedness
Operating line
Accounts payable and
accrued liabilities
Accrued convertible debentures interest
Dividends payable
Due to related party
Convertible debentures
Total
Total
$ 29
66,925
677
1,050
4,294
402
104,551
$ 177,928
Less than
1 year
$ –
–
677
1,050
4,294
402
–
$ 6,423
1-2 years
$ 29
66,925
3-5 years
$ –
–
More than
5 years
$ –
–
–
–
–
–
–
–
–
$ 66,954
–
–
–
64,301
$ 64,301
–
–
–
40,250
$ 40,250
14 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • MANAGEMENT’S DISCUSSION AND ANALYSIS
We have commitments to advance additional funds under existing mortgages of $71,856 and for new mortgages of
$300 at December 31, 2015 (December 31, 2014 – $99,757 and $10,063 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, 2015, we had $2,616 (December 31, 2014 – $4,483) of letters of credit (LCs) outstanding which
were issued under our operating credit facility. The maximum available by way of LCs under our operating credit
facility is $10,000, and those drawn reduce that maximum. 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.
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 $4,173 for the year ended December 31, 2015 (2014 – $3,548). 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 and part of the key management personnel 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, 2015 and 2014 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 preparation of financial statements in accordance with IFRS requires us to make estimates, assumptions and
judgements. The most subjective of these are the valuation of mortgages receivable including the provision for
mortgage losses, as well as the measurement of the liability and equity components of our convertible debentures.
We believe that our 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 15
We assess mortgages receivable for objective evidence of impairment both individually and collectively each
reporting period. The provision 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 provision 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 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 a counterparty specific 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. For the purpose of determining the group of mortgages with similar credit risk
characteristic, mortgages are grouped by the location of the underlying property and by other risk characteristics.
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 to our 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.
16 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • MANAGEMENT’S DISCUSSION AND ANALYSIS
We designed the DC&P and ICFR, the latter of which was using the framework in Internal Control – Integrated
Framework (published by COSO, 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, 2015. Based on this evaluation, they concluded that the designs of the DC&P and ICFR were
effective as of December 31, 2015. 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. Inherent limitations include: (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 is also based upon
assumptions as to the likelihood of future events and there is no assurance that any design will succeed in achieving
its goals under future conditions.
Outstanding share data
Our authorized capital consists of an unlimited number of common shares, of which 26,834,574 were issued and
outstanding at December 31, 2015, and 26,852,034 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 are issued from time to time.
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.
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.
Please also refer to “Forward-looking information,” below, and the “Risk Factors” section of our Annual
Information Form for the year ended December 31, 2015 which is incorporated herein by reference and is available
at www.sedar.com and at www.atriummic.com.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 17
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, 2015 which is available at www.sedar.com and at www.atriummic.com. That 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 law, we will not publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
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.
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.
Additional information
Additional information about Atrium, including our Annual Information Form for the year ended December 31,
2015, 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, 2015
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 9, 2016
“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, 2015 and December 31, 2014 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, 2015 and December 31, 2014, 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 9, 2016
22 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars)
Notes
2015
2014
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
$ 448,099
54
$ 448,153
$
29
66,537
677
1,050
4,294
402
100,180
173,169
272,698
970
1,062
254
274,984
$ 448,153
$ 432,757
38
$ 432,795
$
313
79,653
523
1,093
3,379
395
99,235
184,591
245,794
1,085
1,062
263
248,204
$ 432,795
Commitments
6, 12
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)
Common shares
Notes
Balance, December 31, 2013
Shares issued by prospectus May 22, 2014
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
Shares issued by prospectus November 19, 2015
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
Earnings and comprehensive income
Dividends declared
Balance, December 31, 2015
9
9
10
10
8
8
9
9
10
10
Number
21,200,833
3,036,000
175,851
12,854
3,427
–
–
–
–
–
–
–
24,428,965
2,137,000
216,687
11,578
40,344
–
–
–
–
26,834,574
Amount
$ 210,659
34,610
1,954
144
36
(1,609)
–
–
–
–
–
–
245,794
25,003
2,532
137
440
(1,208)
–
–
–
$ 272,698
Dividends amounted to $0.93 per share for the year ended December 31, 2015 (2014 – $0.89)
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 23
Contributed
surplus and
other equity
899
$
–
–
–
(36)
–
248
(26)
–
–
–
–
1,085
–
–
–
(440)
–
325
–
–
970
$
Equity
component
of convertible
debentures
398
$
–
–
Retained
earnings
63
$
–
–
–
–
–
–
697
(33)
–
–
1,062
–
–
–
–
–
–
–
–
1,062
$
–
–
–
–
–
–
21,037
(20,837)
263
–
–
–
–
–
–
23,337
(23,346)
254
$
Total
$ 212,019
34,610
1,954
144
–
(1,609)
248
(26)
697
(33)
21,037
(20,837)
248,204
25,003
2,532
137
–
(1,208)
325
23,337
(23,346)
$ 274,984
24 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • FINANCIAL STATEMENTS
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands of Canadian dollars)
Revenues
Mortgage interest and fees
Operating expenses
Mortgage servicing and
management fees
Transfer agent, regulatory fees and
investor relations
Share-based payments
Professional fees
Directors’ expense
Administration and general
Provision for mortgage losses
Income before financing costs
Financing costs
Interest on convertible debentures
Interest and other bank charges
Earnings and comprehensive income
for the year
Earnings per common share
Basic
Diluted
Years ended December 31
Notes
2015
2014
$
40,206
$ 34,956
7
7, 10
7
5
4,173
353
325
132
182
195
1,912
7,272
32,934
6,873
2,724
9,597
3,553
320
248
144
175
127
1,817
6,384
28,572
4,627
2,908
7,535
$
23,337
$ 21,037
11
11
$
$
0.94
0.93
$
$
0.91
0.91
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS • 2015 • 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
Amortization of finance costs
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
Additions to unamortized finance costs
Increase in due to related party
Issuance of common shares
Common shares issue costs
Issuance of convertible debentures
Convertible debenture issue costs
Dividends paid
Cash (used in) 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
2015
2014
$
23,337
$
21,037
325
(353)
(158)
(1,169)
530
945
1,912
25,369
217
(16)
154
(43)
133
1,046
1,491
26,860
(266,522)
249,552
(16,970)
(284)
544,040
(557,100)
(586)
7
27,672
(1,208)
–
–
(22,431)
(9,890)
–
–
–
38,745
8,566
$
$
$
222
(5,152)
(122)
(1,153)
400
644
1,817
17,693
(615)
(7)
63
1,093
248
1,264
2,046
19,739
(278,319)
130,983
(147,336)
(13)
528,535
(484,460)
(490)
213
36,708
(1,609)
72,051
(3,407)
(19,931)
127,597
–
–
–
27,914
5,434
$
$
$
26 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • 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 in accordance with International Financial Reporting
Standards (IFRS), as set out in Part I of the CPA Canada Handbook – Accounting. These annual financial
statements were authorized for issuance by the board of directors on February 9, 2016.
(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) valuation of mortgages
receivable, which is affected primarily by the provision for mortgage losses, 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.
FINANCIAL STATEMENTS • 2015 • 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 upon 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 reviewed 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 provision for mortgage losses
is 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
property 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 the
provision for mortgage losses. The other key estimates used for quantifying the provision 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
likelihood of different outcomes
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 • 2015 • 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 a counterparty specific 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. For the purpose of determining groups of mortgages with
similar credit risk characteristics, mortgages are grouped by the location of the underlying property and by
other risk characteristics.
(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 applies a constant interest rate over the life of each 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
FINANCIAL STATEMENTS • 2015 • 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 is 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, 2015
Outstanding % of
December 31, 2014
Outstanding % of
Number
23
110
9
9
7
18
176
31
207
Mortgage category
Low-rise residential
House and apartment
Construction
High-rise residential
Mid-rise residential
Condominium corporation
Residential portfolio
Commercial/mixed use
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgages receivable
amount
Portfolio Number
amount
24.3%
18.8%
9.9%
9.4%
3.2%
0.9%
66.5%
33.5%
100.0%
$
$
110,034
84,755
44,701
42,245
14,662
4,111
300,508
151,083
451,591
1,960
(440)
(712)
(4,300)
448,099
23 $
90
17
8
8
13
159
31
190
$
85,678
93,070
61,095
44,048
12,127
3,260
299,278
134,990
434,268
2,177
(465)
(835)
(2,388)
432,757
Portfolio
19.7%
21.4%
14.1%
10.1%
2.8%
0.8%
68.9%
31.1%
100.0%
The mortgage portfolio has maturity dates between 2016 and 2030 with a weighted average term to maturity
of 11.1 months at December 31, 2015 (December 31, 2014 – 13.7 months). The portfolio has a weighted
average interest rate (which excludes lender fees earned by the company) of 8.66% for the year ended
December 31, 2015 (8.81% for the year ended December 31, 2014).
Within the mortgage portfolio, at December 31, 2015 there were twelve loans aggregating $26,603 (5.9% of
the mortgage portfolio) in which the company has a subordinate position in a syndicated mortgage
(December 31, 2014 – six mortgages aggregating $9,823, 2.3% of the portfolio).
Additional analysis of the mortgage portfolio, including by location of underlying property and type of
mortgage, is set out in the “Investment Portfolio” section of the Management’s Discussion and Analysis for
the year ended December 31, 2015.
30 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • NOTES TO THE FINANCIAL STATEMENTS
5.
MORTGAGES RECEIVABLE
(a) Mortgage portfolio (continued)
Principal repayments based on contractual maturity dates are as follows:
Years ended December 31, 2016
2017
2018
2019
2020
Thereafter
(b) Provision for mortgage losses
Balance, beginning of year
Mortgages settled during the year
Provision for mortgage losses
Balance, end of year
298,947
102,798
45,851
57
–
3,938
$ 451,591
66.2%
22.8%
10.2%
0.0%
0.0%
0.8%
100.0%
Years ended December 31
2015
$
$
2,388
–
1,912
4,300
2014
1,151
(580)
1,817
2,388
$
$
The increase in the provision for mortgage losses during the period is based upon assessment of the factors
described in Note 3(c). Also, see Note 12(c).
6.
CREDIT FACILITY
At December 31, 2015, the company had a credit facility from a syndicate of two Canadian financial
institutions of $130,000 (December 31, 2014 – $100,000) 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 September 25,
2015, has a term of two years, and is subject to certain conditions of drawdown and other covenants.
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, 2015 and
December 31, 2014, the company was in compliance with these covenants.
Credit facility
Bankers’ acceptances
Bank loan
Unamortized finance costs
Operating line
Bank indebtedness
Total borrowing under credit facility
Letters of credit
Total credit facility utilization
December 31
2015
$ 61,000
5,925
(388)
66,537
29
66,566
2,616
$ 69,182
December 31
2014
$ 57,000
22,985
(332)
79,653
313
79,966
4,483
$ 84,449
7.
RELATED PARTY TRANSACTIONS
FINANCIAL STATEMENTS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 31
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 $4,173 for the year ended December 31,
2015 (2014 – $3,548). 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 10)
Share-based payments to officers (Note 10)
Years ended December 31
2015
177
123
105
405
$
$
2014
175
110
101
386
$
$
Related party transactions are recorded at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
8.
CONVERTIBLE DEBENTURES
Year ended December 31, 2015
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
Total
$ 40,250
$
31,801
$
32,500
$ 104,551
$ 37,967
328
$
30,374
331
$
30,894
286
$
99,235
945
Maturity date
Issued and outstanding
Face value
Book value –
Convertible debentures,
beginning of year
Accretion for the year
Convertible debentures,
end of year
$ 38,295
$
30,705
$
31,180
$ 100,180
32 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • NOTES TO THE FINANCIAL STATEMENTS
8.
CONVERTIBLE DEBENTURES (continued)
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)
25
37,878
88
$
–
31,801
(161)
(1,546)
8
30,102
273
$
30,611
–
–
–
–
30,611
283
Total
$
30,611
72,051
(697)
(3,407)
33
98,591
644
Maturity date
Book value
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
$ 37,966
$
30,375
$
30,894
$
99,235
9.
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.
10.
SHARE-BASED PAYMENTS
Year ended
December 31, 2015
Deferred
share
units
61,500
24,000
–
(33,083)
52,417
Income
deferred
share
units
6,155
–
5,532
(7,261)
4,426
Total
67,655
24,000
5,532
(40,344)
56,843
Balance, beginning of year
Units granted
Units earned
Common shares issued
Balance, end of year
Year ended
December 31, 2014
Income
deferred
share
units
2,810
–
3,772
(427)
6,155
Total
43,310
24,000
3,772
(3,427)
67,655
Deferred
share
units
40,500
24,000
–
(3,000)
61,500
FINANCIAL STATEMENTS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 33
10.
SHARE-BASED PAYMENTS (continued)
Share compensation expense:
September 1, 2015 grant
September 1, 2014 grant
August 30, 2013 grant
August 29, 2012 grant
Years ended December 31
2015
2014
$
$
62
166
63
34
325
$
$
–
55
125
68
248
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 (“IDSU”) 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, 2015
($11.58) and September 1, 2014 ($11.46).
11.
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
Years ended December 31
2015
2014
$
23,337
$
21,037
24,804,827
0.94
$
23,151,129
0.91
$
$
23,337
6,873
30,210
$
21,037
4,627
25,664
24,804,827
7,545,902
66,659
6,768
32,424,156
0.93
$
23,151,129
5,152,647
49,381
2,909
28,356,066
0.91
$
12.
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.
34 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • NOTES TO THE FINANCIAL STATEMENTS
12.
FINANCIAL INSTRUMENTS (continued)
(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 bank indebtedness and operating line approximates book value since it bears interest at floating
rates. The accounts payable and accrued liabilities, dividends payable and due to related party carrying value
approximates their fair value due to the short term nature of the items. Mortgages receivable mature between
2016 and 2030 with a weighted average term to maturity at December 31, 2015 of 11.1 months (December
31, 2014 – 13.7 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
2015
$ 103,815
(1,062)
$ 102,753
December 31
2014
$ 104,507
(1,062)
$ 103,445
Book value of financial liability component
$ 100,180
$
99,235
The fair value of all 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.
Seven mortgages were in default at December 31, 2015, aggregating $6,619 (one was in default at
December 31, 2014, aggregating $546, which has been subsequently brought up to date).
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. The largest related group of borrowers accounted for 10.0% of mortgages receivable at
December 31, 2015 (December 31, 2014 – 7.9%). See Note 5(a) for a breakdown of mortgages by category.
FINANCIAL STATEMENTS • 2015 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 35
12.
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, 2015, management considers that it has adequate procedures in place to manage
liquidity risk.
Obligations at December 31, 2015
Bank indebtedness
Operating line
Accounts payable and
accrued liabilities
Less than 1
year
Total
$ 29 $ –
–
66,925
3-5 years
1-2 years
$ 29 $ –
–
66,925
More than
5 years
$ –
–
677
677
–
–
–
Accrued convertible debentures interest
Dividends payable
Due to related party
Convertible debentures
Total
1,050
1,050
4,294
4,294
402
402
104,551
–
$ 177,928 $ 6,423
–
–
–
–
$ 66,954
–
–
–
64,301
$ 64,301
–
–
–
40,250
$ 40,250
The company has commitments to advance additional funds under existing mortgages of $71,856 and for
new mortgages of $300 at December 31, 2015 (December 31, 2014 – $99,757 and $10,063 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,
2015, earnings would have been reduced (increased) by approximately $761 during the year, 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) $761.
(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.
36 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2015 • NOTES TO THE FINANCIAL STATEMENTS
13.
CAPITAL MANAGEMENT
The company defines capital as total debt plus shareholders’ equity, as shown below:
Bank indebtedness
Operating line
Unamortized finance costs
Total borrowing under credit facility
Convertible debentures
Total debt
Shareholders’ equity
Capital employed
$
December 31
2015
29
66,925
(388)
66,566
100,180
166,746
274,984
$ 441,730
$
December 31
2014
313
79,985
(332)
79,966
99,235
179,201
248,204
$ 427,405
The company’s objectives for managing capital are to preserve shareholders’ equity, provide shareholders
with stable dividends, and to use leverage in a conservative manner to improve 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 year.
14.
SUBSEQUENT EVENTS
On January 12, 2015, the company issued 17,460 common shares ($193) to shareholders under its dividend
reinvestment plan.
BOARD OF DIRECTORS
MANAGEMENT
TRANSFER AGENT
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 2,4
President
Copez Properties Ltd.
Robert H. DeGasperis
President
Metrus Properties Inc.
Andrew Grant 4
President
PCI Group
Nancy H. O. Lockhart 2,3
Director
Barrick Gold Corporation
Director
Gluskin Sheff + Associates
Director
Loblaw Companies Ltd.
David M. Prussky 1
Director
Lonestar West Inc.
Director
Swisher Hygiene Inc.
1. Chair of Audit Committee
2. Member if Audit Committee
3. Chair of Nominating and
Governance Committee
4. Member of Nominating and
Governance Committee
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
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 info@atriummic.com