Annual Report Cover 2017 - FINAL - MARCH.pdf 1 30/03/2017 12:37:15 PM
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ANNUAL
2016
REPORT
DISCIPLINED INVESTING CAPITAL PRESERVATION
Mortgage Investment Corporation
MORTGAGE INVESTMENT CORPORATION
PROFILE
Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is
PROFILE
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Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is
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MORTGAGE BANKER PROFILE
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Boutique Mortgage Lenders®
MORTGAGE BANKER PROFILE
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Where Mortgage Deals Get Done®
Where Mortgage Deals Get Done®
CONTENTS
PROFILE
Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is
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CONTENTS
Letter To Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONTENTS
2
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . .
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Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . 22
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Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:41)(cid:82)(cid:85)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:20)(cid:27)
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Balance Sheets(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:21)(cid:19)
(cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:20)(cid:28)
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . 26
Statements of Income(cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:21)(cid:20)
Balance Sheets(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:21)(cid:19)
Consolidated Statements of Changes in Shareholders Equity . . . . . . . 27
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:3)(cid:21)(cid:20)
Statements of Income(cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:21)(cid:20)
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) 22
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:3)(cid:21)(cid:20)
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 29
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:41)(cid:79)(cid:82)(cid:90) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) 23
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) 22
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Notes to Financial Statements(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3) (cid:21)(cid:23)
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:41)(cid:79)(cid:82)(cid:90) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) 23
Dividend Reinvestment Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Performance Graph(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
Notes to Financial Statements(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3) (cid:21)(cid:23)
(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
Performance Graph(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
MORTGAGE BANKER PROFILE
(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:72)(cid:85)(cid:15)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3)
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(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92),(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:72)(cid:85)(cid:15)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:72)(cid:85),(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)
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Where Mortgage Deals Get Done®
Where Mortgage Deals Get Done®
CONTENTS
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Notes to Financial Statements(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3) (cid:21)(cid:23)
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LETTER TO SHAREHOLDERS
LETTER TO SHAREHOLDERS
LETTER TO SHAREHOLDERS
We are pleased to report to you on the 2016 results for Firm Capital Mortgage Investment Corporation (the
“Corporation”).
We are pleased to report to you on the 2016 results for Firm Capital Mortgage Investment Corporation (the
“Corporation”).
Over the course of 2016 the Corporation had investment repayments of $245 million, which is equivalent to a 62%
turnover in the portfolio. This turnover, coupled with $290 million in new investments, resulted in year-over-year
portfolio growth of 11%.
Over the course of 2016 the Corporation had investment repayments of $245 million, which is equivalent to a 62%
turnover in the portfolio. This turnover, coupled with $290 million in new investments, resulted in year-over-year
portfolio growth of 11%.
Managing risk and maintaining a strong balance sheet is our main priority. We mitigate risk by maintaining a
diversified portfolio that has the majority of the investments shared with other syndicate partners. We are
continuously monitoring all markets and rebalancing the portfolio to reflect the current environment and market
conditions. During the year, Management was content to invest in lower yielding mortgage investments that met its’
adjusted risk tolerance. In 2016, we were able to generate dividends to Shareholders of $0.96.6 per share, while
adding to the size of our loan loss provision by $230,000, bringing the year-end balance up to $4,460,000,
representing 1% of the gross portfolio.
Managing risk and maintaining a strong balance sheet is our main priority. We mitigate risk by maintaining a
diversified portfolio that has the majority of the investments shared with other syndicate partners. We are
continuously monitoring all markets and rebalancing the portfolio to reflect the current environment and market
conditions. During the year, Management was content to invest in lower yielding mortgage investments that met its’
adjusted risk tolerance. In 2016, we were able to generate dividends to Shareholders of $0.96.6 per share, while
adding to the size of our loan loss provision by $230,000, bringing the year-end balance up to $4,460,000,
representing 1% of the gross portfolio.
HIGHLIGHTS
HIGHLIGHTS
DIVIDENDS
For the year ended December 31, 2016, the Corporation declared dividends totaling $0.966 per share versus
$0.991 per share for the year ended December 31, 2015. The December 2016 special dividend was 3 cents per
unit.
DIVIDENDS
For the year ended December 31, 2016, the Corporation declared dividends totaling $0.966 per share versus
$0.991 per share for the year ended December 31, 2015. The December 2016 special dividend was 3 cents per
unit.
PROFIT
Income and profit (referred to herein as “Profit”) for year ended December 31, 2016 of $21,190,613 represents
approximately a 6% increase compared to $20,081,258 reported for the year ended December 31, 2015. Basic
weighted average profit per share for the year ended December 31, 2016 was $0.972, which is 2% lower
compared to the $0.991 per share reported for the year ended December 31, 2015.
PROFIT
Income and profit (referred to herein as “Profit”) for year ended December 31, 2016 of $21,190,613 represents
approximately a 6% increase compared to $20,081,258 reported for the year ended December 31, 2015. Basic
weighted average profit per share for the year ended December 31, 2016 was $0.972, which is 2% lower
compared to the $0.991 per share reported for the year ended December 31, 2015.
DIVERSIFIED PORTFOLIO WITH A SIGNIFICANT 11% YEAR OVER YEAR GROWTH
The Corporation’s Investment Portfolio at December 31, 2016 totaled $444.3 million (before impairment provision)
consisting of 245 separate investments. The average interest rate on the Corporation’s investments at December
31, 2016 was 7.83% per annum. The Corporation’s portfolio increased by $45.6 million during the year. The
Corporation’s Alberta Mortgage Portfolio decreased from 31 investments as at December 31, 2015 to 13 at
December 31, 2016, for a total of $32.9 million.
DIVERSIFIED PORTFOLIO WITH A SIGNIFICANT 11% YEAR OVER YEAR GROWTH
The Corporation’s Investment Portfolio at December 31, 2016 totaled $444.3 million (before impairment provision)
consisting of 245 separate investments. The average interest rate on the Corporation’s investments at December
31, 2016 was 7.83% per annum. The Corporation’s portfolio increased by $45.6 million during the year. The
Corporation’s Alberta Mortgage Portfolio decreased from 31 investments as at December 31, 2015 to 13 at
December 31, 2016, for a total of $32.9 million.
VERY SHORT TERM PORTFOLIO WITH SIGNIFICANT ANNUAL TURNOVER
In 2016, the Investment Portfolio repayments totaled $245 million with new investments during the year totaling
$290 million. This turn is the key to our investment approach and demonstrates the short term bridge financing
nature of the portfolio.
VERY SHORT TERM PORTFOLIO WITH SIGNIFICANT ANNUAL TURNOVER
In 2016, the Investment Portfolio repayments totaled $245 million with new investments during the year totaling
$290 million. This turn is the key to our investment approach and demonstrates the short term bridge financing
nature of the portfolio.
ELI DADOUCH
President
Chief Executive Officer
JONATHAN MAIR
Senior Vice-President
Chief Financial Officer
ELI DADOUCH
President
Chief Executive Officer
JONATHAN MAIR
Senior Vice-President
Chief Financial Officer
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
1
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OUR BUSINESS
Firm Capital Mortgage Investment Corporation (the “Corporation”) is a non-bank lender,
investing predominantly in short-term residential and commercial real estate mortgage loans
and real estate related debt investments. The Corporation operates as a mortgage investment
corporation under the Income Tax Act (Canada). Mortgage investment corporations have no
income tax payable provided that they satisfy the requirements in subsection 130.1(6) of the
Income Tax Act (Canada).
The Corporation’s primary investment objective is the preservation of shareholders’ equity, while
providing shareholders with a stable stream of dividends from the Corporation’s investments.
The Corporation achieves its investment objectives by pursuing a strategy of investing in loans
in select niche real estate markets that are under-serviced by larger financial institutions. The
Corporation’s more specific objective is to hold an Investment Portfolio that:
(i)
(ii)
(iii)
(iv)
is widely diversified across many investments;
is concentrated in first mortgages;
reduces exposure as a result of participation in various loan syndicates; and
is primarily short-term in nature.
Firm Capital Corporation (the “Mortgage Banker”) is the Corporation’s mortgage banker and
loan originator, underwriter, servicer, and syndicator. The
acts as
Corporation’s affairs are administered by FC Treasury Management Inc. (the “Corporation
Manager”).
the Corporation’s
The Corporation has in place a Dividend Reinvestment Plan (“DRIP”) and a Share Purchase
Plan (collectively, with the DRIP, the “Plans”) that are available to its shareholders. The Plans
allow participants to have their monthly cash dividends reinvested in additional common shares
of the Corporation (“Shares”) and grant participants the right to purchase additional Shares.
Shareholders who wish to enroll or who would like further information about the Plans should
contact Investor Relations at (416) 635-0221.
Additional information on the Corporation, its Plans, and its Investment Portfolio is available on
the Corporation’s web site at www.firmcapital.com. Additional information about the
Corporation, including its Annual Information Form (“AIF”), can be found on the SEDAR website
at www.sedar.com.
BASIS OF PRESENTATION
The Corporation has adopted International Financial Reporting Standards (“IFRS”), as issued by
the International Accounting Standards Board, as its basis of financial reporting. The
Corporation’s functional and reporting currency is the Canadian dollar.
The following discussion is dated as of March 21, 2017 and should be read in conjunction with
the audited financial statements of the Corporation and the notes thereto for the years ended
December 31, 2016 and 2015, along with each of the quarterly reports for 2016 and 2015.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 1
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Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
HIGHLIGHTS
PROFIT
Income and profit (referred to herein as “Profit”) for the year ended December 31, 2016
increased by approximately 6% to $21,190,613 as compared to $20,081,258 reported for the
year ended December 31, 2015.
Basic weighted average profit per share for the three months ended December 31, 2016 was
$0.239 compared to $0.265 per share reported for the same period in 2015. Basic weighted
average profit for the year ended December 31, 2016 was $0.972 compared to $0.991 per
share reported for the year ended December 31, 2015.
PORTFOLIO GROWTH
The Corporation’s investment portfolio (the “Investment Portfolio”) as at December 31, 2016
increased by $45.8 million to approximately $448.7 million compared to $402.9 million as at
December 31, 2015 (before the impairment provision of $4.5 million and $4.2 million
respectively).
RETURN ON EQUITY
The Corporation continues to exceed its yield objective of producing a return on shareholders’
equity in excess of 400 basis points over the average one year Government of Canada Treasury
bill yield. Profit for the quarter ended December 31, 2016 represents an annualized return on
shareholders’ equity (based on the month end average shareholders’ equity in the quarter) of
8.87%, representing return on shareholders’ equity of 824 basis points per annum over the
average one year Government of Canada Treasury bill yield of 0.63%.
INVESTMENT PORTFOLIO
The Corporation’s Investment Portfolio totaled $444,294,633 as at December 31, 2016 (net of
an impairment loss provision of $4,460,000) compared to $398,689,638 (net of an impairment
loss provision of $4,230,000) as at December 31, 2015, representing an increase of
approximately $45.8 million. The December 31, 2016 Investment Portfolio is comprised of 245
investments (225 as at December 31, 2015). The average gross investment size (excluding
impairment loss provision) was approximately $1.8 million with 11 investments individually
exceeding $7,500,000.
Amount
$0 - $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
Number of
Investments
192
36
6
11
245
%
78.4%
14.7%
2.4%
4.5%
Total Amount
(before provision)
%
$
164,927,050
36.8%
125,766,186
28.0%
34,014,437
7.6%
124,046,960
27.6%
100.0%
$
448,754,633
100.0%
Unadvanced committed
to
$131,268,094 as at December 31, 2016 ($113,464,052 as at December 31, 2015). Generally,
investments are shared with other syndicate partners to diversify risk.
Investment Portfolio amounted
funds under
the existing
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 2
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
3
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Conventional First Mortgages
Conventional Non-First Mortgages
Related Investments
Discounted Debt Investments
Non-Conventional Mortgages
Total Investments (at amortized cost)
Less: Impairment Provision
Investment Portfolio
Dec. 31, 2016
336,745,396
$
46,265,981
56,734,231
5,071,525
3,937,500
448,754,633
(4,460,000)
444,294,633
$
$
75.1%
10.3%
12.6%
1.1%
0.9%
100.0%
Dec. 31, 2015
283,869,955
$
41,799,212
59,422,966
5,022,775
12,804,730
402,919,638
(4,230,000)
398,689,638
$
$
70.5%
10.4%
14.7%
1.2%
3.2%
100.0%
% Change
19%
11%
(5% )
1%
(69% )
11%
5%
11%
The $45.8 million growth in the Investment Portfolio was achieved by the Corporation increasing
the size of its investments in the conventional first mortgage and conventional non-first
mortgage investment categories, offset by the decrease in investments in the related
investments and non-conventional mortgages.
Conventional first mortgages increased by 19% and represented 75% of the Corporation’s
portfolio at December 31, 2016 compared to 71% at December 31, 2015. Conventional non-first
mortgages increased by 11% and represented 10% of the Investment Portfolio at December 31,
2016 and December 31, 2015. Related investments decreased by 5% and represented 13% of
the Corporation’s Investment Portfolio in comparison to 15% at December 31, 2015.
Discounted debt investments represented 1% of the Investment Portfolio, which remained
consistent from December 31, 2015. Non-conventional mortgages decreased by 69% and
represented 1% of the Investment Portfolio at December 31, 2016 and 3% at December 31,
2015.
The weighted average face interest rate on the Corporation’s Investment Portfolio was 7.83%
per annum as at December 31, 2016 compared to 8.19% per annum as at December 31, 2015.
The Corporation holds a mortgage investment totaling $4,758,000 at December 31, 2016
(classified as Discounted debt investment) that originated from the purchase of a mortgage loan
from a schedule 1 bank at a discount to its original principal balance (December 31, 2015 -
$4,303,000) on which interest payments are not being received. The Corporation’s investment
is by way of a participation in a mortgage loan to the entity that took title to the real estate
following the completion of the enforcement foreclosure of the real estate that occurred after the
purchase of the mortgage. Recoveries under the investment resulting from the sale of the
secured real estate will be treated in the same fashion as that for non-conventional mortgage
investments held by the Corporation.
The Corporation continues to focus its lending into core markets that can be monitored closely
during evolving economic conditions. The mortgage portfolio has some geographic
diversification with 17% of the investments in the portfolio secured by properties outside of
Ontario, a reduction from 28% as at December 31, 2015.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 3
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Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Corporation’s investment portfolio as at December 31, 2016 included participation in 13
mortgage loans on real estate located in Alberta, which is a significant decrease from the 31
investments held at December 31, 2015 and a decrease of 5 from September 30, 2016. The
investment amount at December 31, 2016 totals $32.9 million, being 8% of the Corporations’
mortgage investments, down from 11% at December 31, 2015 and 9% at September 30, 2016.
The average investment size is $2.5 million. Of the 13 investments, 5 are individually less than
$1 million. In the Alberta Portfolio, $32.7 million (99%) is secured on residential real estate,
while $0.2 million (1%) is secured on commercial real estate.
The Corporation has intentionally reduced its investment in small mortgages in Alberta and is
content to maintain its investments in longer mortgages on more substantial real estate to larger
borrowers. The Alberta portfolio has been rebalanced as a result of being paid out of the
majority of the small mortgages to small borrowers.
The Corporation’s strategy is to mitigate loan loss risk by focusing on those areas of mortgage
lending that have historically withstood market corrections and retained their underlying real
estate asset value, while limiting its exposure to those real estate asset classes that do not.
As at December 31, 2016, the Investment Portfolio continued to be heavily concentrated in
short-term investments with 67% of the portfolio maturing by December 31, 2017. The short-
term nature of the portfolio provides the Corporation with the ability to continually revolve the
portfolio and adapt to changes in the real estate market.
RESULTS OF OPERATIONS
INTEREST AND FEES
For the three months ended December 31, 2016, interest and fees earned decreased by 3% to
$9,332,738 compared to $9,641,484 for the three months ended December 31, 2015. Interest
and fees earned for the year ended December 31, 2016 increased by 6% to $36,042,890 as
compared to $34,005,435 for the year ended December 31, 2015. Interest and fees earned for
the three months and year ended December 31, 2016 and December 31, 2015 are broken down
as follows:
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 4
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
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Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Three Months Ended
Interest
Commitment & Renewal Fees
Special Income
Year Ended
Interest
Commitment & Renewal Fees
Special Income
Dec. 31, 2016
8,702,983
$
456,277
173,478
9,332,738
$
Dec. 31, 2016
$
33,716,098
1,612,758
714,034
36,042,890
$
$
% Dec. 31, 2015
9,008,247
381,822
251,415
9,641,484
93%
5%
2%
100%
$
$
% Dec. 31, 2015
31,429,521
1,410,513
1,165,401
34,005,435
94%
4%
2%
100%
$
%
Change
(3% )
19%
(31% )
(3% )
%
Change
7%
14%
(39% )
6%
%
93%
4%
3%
100%
%
93%
4%
3%
100%
Interest income of $8,702,983 for the three months decreased by 3% when compared to the
same three month period in the prior year. Interest income of $33,716,098 for the year ended
December 31, 2016 increased by 7% as compared to the year ended December 31, 2015.
Interest income represents 93% of the Corporation’s revenues for the three months ended
December 31, 2016 and 94% for the year ended December 31, 2016. The year over year
annual increase in interest income is a result of the Corporation holding a larger investment
portfolio compared to the same period in the previous year, partially offset by the lower average
face interest rate on the portfolio.
Fee income relating to commitment and renewal fees for the quarter ended December 31, 2016
increased by 19% compared to the quarter ended December 31, 2015. As at December 31,
2016, the Corporation had unearned commitment fee income of $879,851 (December 31, 2015 -
$913,981). The Corporation’s policy is to recognize commitment fees over the term of the
related loan. The unrecognized component of the fees is recorded as unearned income on the
Corporation’s balance sheet. These fees have been received and are not refundable to
borrowers.
Special income generated during the three months ended December 31, 2016 represented 2%
of overall income earned compared to 3% during the same period in the previous year. Special
income generated during the three months ended December 31, 2016 decreased by 31% when
compared to the same period in the previous year. Special income generated during the year
ended December 31, 2016 decreased by 39% when compared to the previous year. Special
income relates to certain fees and interest generated from a number of the Corporation’s non-
conventional mortgages and the timing of earning of such income is not necessarily consistent
in each period. The timing of the recognition and collection of special income is difficult to
predict and the collection of a particular amount is not a reflection of the future collection of such
income. Non-conventional mortgage investments can attract higher loss risk due to their
subordinate ranking to other mortgage charges and/or high loan to value ratio. Consequently,
this higher risk is compensated for by a higher rate of return. The Corporation remains very
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 5
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Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
selective and cautious in sourcing high yielding, non-conventional mortgages that meet the
Corporation’s investment criteria.
CORPORATION MANAGER SPREAD INTEREST ALLOCATION
The Corporation Manager, through an interest spread arrangement, received $828,631 for the
three months ended December 31, 2016 compared to $766,306 for the three months ended
December 31, 2015. For the year ended December 31, 2016, the Corporation Manager received
$3,152,050 as compared to $2,873,993 for the year ended December 31, 2015. The increase is
generally due to the increase in the size of the Corporation’s daily average Investment Portfolio
over the comparable periods.
INTEREST EXPENSE
For the three months ended December 31, 2016, interest expense increased by 10% to
$2,673,178 as compared to $2,423,290 for the three months ended December 31, 2015. For the
year ended December 31, 2016, interest expense increased by 14% to $10,628,040 as
compared to the year ended December 31, 2015 amount of $9,350,610. Interest expense is
higher in 2016 when compared to the same period in the previous year generally as a result of
the Corporation having larger convertible debentures outstanding in 2016 versus 2015, offset by
a decrease in loans payable interest expense resulting from a reduction in loans payable. The
additional indebtedness that resulted in an increase in interest expense in 2016 allowed the
Corporation to hold a larger investment portfolio, which generated additional interest income
when compared to 2015. The Corporation completed one public offering of convertible
unsecured debentures in 2016 and two public offerings of convertible unsecured debentures
during 2015, accounting for the increase in debenture interest expense. Interest expense is
broken down as follows:
Three Months Ended
Bank Interest Expense
Loan Payable Interest Expense
Debenture Interest Expense
Year Ended
Bank Interest Expense
Loan Payable Interest Expense
Debenture Interest Expense
Dec. 31, 2016
317,371
$
-
2,355,807
2,673,178
$
Dec. 31, 2016
1,313,699
$
93,280
9,221,061
10,628,040
$
$
% Dec. 31, 2015
348,447
121,237
1,953,606
2,423,290
12%
-
88%
100%
$
$
% Dec. 31, 2015
1,166,770
920,995
7,262,845
9,350,610
12%
1%
87%
100%
$
%
Change
(9% )
(100% )
21%
10%
%
Change
13%
(90% )
27%
14%
%
14%
5%
81%
100%
%
12%
10%
78%
100%
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES
G&A expenses decreased by 2% to $232,078 for the three months ended December 31, 2016
compared to the $235,681 reported for the three months ended December 31, 2015. G&A
expenses increased by 2% to $842,187 for the year ended December 31, 2016 compared to
$829,574 for the year ended December 31, 2015.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 6
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
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Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
INCOME & PROFIT (“PROFIT”)
Profit for the three months ended December 31, 2016 remained relatively consistent at
$5,368,851 as compared to $5,376,207 for the same period in the prior year. Profit for the year
ended December 31, 2016 of $21,190,613 represents approximately a 6% increase compared
to $20,081,258 reported for the year ended December 31, 2015.
Profit for the quarter ended December 31, 2016 represented an annualized return on
shareholders’ equity (based on the month end average shareholders’ equity in the quarter) of
8.87% versus a previously reported return on shareholders’ equity of 10.18% for the quarter
ended December 31, 2015. This return on shareholders’ equity represents 824 basis points per
annum over the average one year Government of Canada Treasury bill yield of 0.63% and is
well in excess of the Corporation’s stated target yield objective of 400 basis points per annum
over the average one year Government of Canada Treasury bill yield. The above return on
shareholders’ equity is a non-IFRS financial measure and does not have any standardized
meaning prescribed by IFRS and is, therefore, unlikely to be comparable to similar measures
presented by other issuers. This non-IFRS measure provides useful information to the
Corporation’s shareholders as it provides a measure of return generated on the Corporation’s
equity base.
TOTAL COMPREHENSIVE INCOME
As discussed further in the Marketable Securities and Debenture Portfolio Investment sections
later herein, the Corporation has invested in units of publicly traded real estate investment trusts
and debentures of publicly traded real estate investment trusts. The Corporation classifies these
financial assets as available for sale and as such records the investments’ carrying values at fair
value.
The statements of comprehensive income present the impact of the changes in fair value of the
marketable securities and debenture portfolio.
The change in fair value of marketable securities and the debenture portfolio for the year ended
December 31, 2016 was an increase of $364,848 compared to a decrease of $74,570 for the
year ended December 31, 2015. Total comprehensive income for the year ended December 31,
2016 was $21,555,461 compared to $20,006,688 for the year ended December 31, 2015.
PROFIT PER SHARE
Basic weighted average profit per share for the three months ended December 31, 2016 was
$0.239, which is 9.8% lower than the $0.265 per share reported for the three months ended
December 31, 2015. Basic weighted average profit per share for the year ended December 31,
2016 was $0.972, which is 2.0% lower compared to the $0.991 per share reported for the year
ended December 31, 2015.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 7
8
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
QUARTERLY FINANCIAL INFORMATION
($ in millions except per unit amounts)
Operating revenue
Interest expense
Corporation manager spread interest allocation
General & administrative expenses
Impairment loss on investment portfolio
Profit
Profit per share
- Basic
- Diluted
Dividends per share
$
$
$
$
$
$
$
Dec. 31
2016
9.33
2.67
0.83
0.23
0.23
5.37
$
Sep. 30
2016
8.99
2.59
0.78
0.21
-
5.41
Jun. 30
2016
8.99
2.62
0.77
0.20
-
5.40
Mar. 31
2016
8.72
2.75
0.77
0.19
-
5.01
Dec. 31
2015
9.64
2.42
0.77
0.24
0.84
5.37
Sep. 30
2015
8.59
2.55
0.76
0.20
0.03
5.05
Jun. 30
2015
8.12
2.37
0.71
0.24
-
4.80
$
Mar. 31
2015
7.65
2.00
0.64
0.16
-
4.85
$
$
$
$
$
$
$
$0.239
$0.234
$0.264
$0.241
$0.236
$0.234
$0.246
$0.240
$0.234
$0.246
$0.239
$0.234
$0.265
$0.258
$0.289
$0.249
$0.243
$0.234
$0.237
$0.231
$0.234
$0.240
$0.238
$0.234
Note:
Fourth quarter dividends include one-time payout of accumulated excess earnings throughout the year
DIVIDENDS
For the three months and year ended December 31, 2016, the Corporation declared dividends
totaling $5,933,751 and $21,190,613 respectively, or $0.264 and $0.966 per share, versus
$5,867,815 and $20,081,258, or $0.289 and $0.991 per share, for the three months and year
ended December 31, 2015. The number of shares outstanding at December 31, 2016 was
22,490,489 compared to 20,313,943 at December 31, 2015.
Dividends for 2016 totaled $21,190,613 (2015 - $20,081,258), which is equivalent to the profit
for 2016 of $21,190,613 (2015 - $20,081,258). The dividends paid for 2016 of $0.966 (2015 -
$0.991) per share differ from the profit per share for 2016 of $0.972 (2015 - $0.991) as a result
of the profit per share being calculated based on the weighted average number of shares
outstanding during the year, which is impacted by the timing of when shares are issued during
the year.
Year Ended
Cash Flow From Operating Activities
(net of cash interest paid)
Profit
Declared Dividends
Excess Cash Flow From Operating Activities
Over (Under) Declared Dividends
Profit Over Declared Dividends
CHANGES IN FINANCIAL POSITION
Dec. 31, 2016
$
22,654,466
Dec. 31, 2015
$
20,055,780
Change
13%
$
$
21,190,613
21,190,613
$
$
20,081,258
20,081,258
6%
6%
1,463,853
$
$
-
(25,478)
$
$
-
AMOUNTS RECEIVABLE & PREPAID EXPENSES
The amounts receivable and prepaid expenses totaled $4,723,191 as at December 31, 2016
(comprised of interest receivable of $4,272,274, fees receivable of $269,807, special income
receivable of $29,315, and prepaid expenses of $151,795) compared to $4,709,241 as at
December 31, 2015.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 8
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
9
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKETABLE SECURITIES
The Corporation holds publicly traded units of two Canadian real estate investment trusts. The
units were acquired through the exercise of warrants that were granted by the issuers as part of
a loan facility in which the Corporation was a participant. The units generate distributions that
are consistent with the Corporation’s overall yield objective. The $2,200,329 balance reported
on the Corporation’s balance sheet as at December 31, 2016 represents the fair value of the
marketable securities comprising the portfolio (December 31, 2015 – $1,949,106). The
Corporation’s purchase price for the units was $2,056,275. The approximate average interest
yield on the cost of these investments is 8.5% per annum.
DEBENTURE PORTFOLIO INVESTMENT
The Corporation holds a small portfolio of publicly traded convertible debentures of Canadian
real estate investment trusts. These investments, when purchased at the appropriate purchase
price, generate interest income and yields that are consistent with the Corporation’s overall yield
objective. The $2,199,937 balance reported on the Corporation’s balance sheet at December
31, 2016 (December 31, 2015 - $2,076,800) represents the fair value of the convertible
debentures comprising the portfolio. The Corporation’s purchase price for the debenture
portfolio was $1,980,747.
LOAN ON DEBENTURE PORTFOLIO INVESTMENT
The Corporation holds a small portfolio of publicly traded convertible debentures of Canadian
real estate investment trusts within its debenture portfolio investment. As a result of the very
attractive leverage available on the portfolio from an interest rate standpoint, the Corporation
has a loan payable against the portfolio in the amount of $1,295,184 as at December 31, 2016
(December 31, 2015 - $1,420,073). The loan essentially represents a margin loan against the
debenture portfolio at a current interest rate of 1% per annum and is open for repayment at any
time.
BANK INDEBTEDNESS
Bank indebtedness increased by $3,723,484 to $45,436,612 for the fiscal year ended December
31, 2016 compared to $41,713,128 for the fiscal year ended December 31, 2015. The increase
in bank indebtedness is mainly a result of the utilization of funds to increase the size of the
investment portfolio, offset by proceeds received from the issuance of shares and the debenture
offering during the year.
LOANS PAYABLE
First priority charges on specific mortgage investments have been granted as security for the
loans payable. The loans mature on dates consistent with those of the underlying mortgages.
There are no loans outstanding as at December 31, 2016 (December 31, 2015 - $7,093,535).
The loans are on a non-recourse basis and bear interest at their contractual rates (December
31, 2015 – 4.85%).
CONVERTIBLE DEBENTURES
As at December 31, 2016, the Corporation has seven series of convertible debentures
outstanding, as outlined below:
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 9
10 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Ticker
Symbol
FC.DB.A
FC.DB.B
FC.DB.C
FC.DB.D
FC.DB.E
FC.DB.F
FC.DB.G
Total / Average
Coupon
.
.
.
.
Issue Date Maturity Date
5.75% Oct. 13, 2010 Oct. 31, 2017
5.40% Aug. 23, 2011 Feb. 28, 2019
5.25% Mar. 31, 2012 Mar. 31, 2019
4.75% Mar. 28, 2013 Mar. 31, 2020
5.30% Apr. 17, 2015 May. 31, 2022
5.50% Dec. 22, 2015 Dec. 31, 2022
5.20% Dec. 21, 2016 Dec. 31, 2023
5.34%
.
$
Current
Principal
31,443,000
25,738,000
20,485,000
20,000,000
25,000,000
23,000,000
22,500,000
168,166,000
$
Strike Price
Per Share
$
15.90
$
14.35
$
14.80
$
15.80
$
13.95
$
14.00
$
15.25
$
Accounting
Liability
31,243,770
25,177,718
19,930,572
19,300,141
23,944,422
21,676,254
21,033,112
162,305,989
$
As at December 31, 2016, the principal balance for the outstanding convertible debentures is
$168,166,000. The recorded convertible debenture liability as at December 31, 2016 is
$162,305,989 compared to $139,904,049 as at December 31, 2015. The weighted average
effective interest rate is 5.34% per annum (5.36% as at December 31, 2015).
OTHER LIABILITIES
Other liabilities for the Corporation include the following:
Additional Liabilities
Accounts Payable and Accrued Liabilities
Unearned Income
Shareholders Dividends Payable
Total
$
Dec. 31, 2016
2,101,630
879,851
2,428,973
5,410,454
$
$
Dec. 31, 2015
2,195,415
913,981
2,701,754
5,811,150
$
% Change
(4% )
(4% )
(10% )
(7% )
Accounts payable and accrued liabilities decreased by 4% to $2,101,630 as at December 31,
2016 compared to $2,195,415 as at December 31, 2015. Accounts payable and accrued
liabilities include interest payable of $1,413,450 and accrued liabilities of $688,180.
Unearned income relating to commitment fees generated on the Corporation’s mortgage
investments decreased by 4% to $879,851 as at December 31, 2016 compared to $913,981 as
at December 31, 2015. The Corporation’s policy is to recognize commitment fees over the term
of the related loan. The unrecognized component of the fees is recorded as unearned income
on the Corporation’s balance sheet.
SHAREHOLDERS’ EQUITY
Shareholders’ equity at December 31, 2016 totaled $238,969,851 compared to $211,482,850 as
at December 31, 2015. The Corporation had 22,490,489 shares issued and outstanding as at
December 31, 2016 compared to 20,313,943 as at December 31, 2015. The increase in shares
is attributable to an offering of shares that was completed during the second quarter of 2016 and
shares issued under the dividend reinvestment plan and stock option plan.
During the second quarter of 2016, the Corporation completed an equity offering of 1,710,000
common shares at a price of $12.90 per share for gross proceeds of $22,059,000. The over-
allotment option was exercised in full and the Corporation issued an additional 256,500 shares
at a price of $12.90 per Share for gross proceeds of $3,308,850. The total additional shares
issued was 1,966,500.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 10
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
11
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
IMPAIRMENT LOSS
Investments consist of participation in mortgage loans and real estate related debt investments.
Such investments are recognized initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, the mortgage loans are measured at amortized cost
using the effective interest method, less any impairment losses. The Company assesses
individually significant investments at each reporting date to determine whether there is
objective evidence of impairment. An impairment loss in respect of the investments measured at
amortized cost is calculated as the difference between its carrying amount and the amount of
the future cash flows estimated to be recovered on the loan security. Estimates and
assumptions are made as to the gross sale proceeds that would be generated on the forced
sale of the real property securing the related mortgage loan and reflect estimates of the current
local market conditions. Estimates are made as to the costs of enforcing under the mortgage
loan and of realizing on the real property. In particular, judgment by management is required in
the estimation of the amount and timing of future cash flows when determining the impairment
loss. These estimates are based on assumptions about a number of factors and actual results
may differ, resulting in future changes to the allowance. Losses are recognized in the statement
of income and reflected in an impairment provision against the investments. Interest on the
impaired asset continues to be recognized to the extent it is deemed to be collectible.
Investments that have been assessed individually and found not to be impaired and all
individually insignificant mortgages are then assessed collectively in groups of mortgages with
similar risk characteristics to determine whether a collective allowance should be recorded due
to incurred loss events for which there is objective evidence but whose effects are not yet
evident. The collective assessment takes into account (i) data from the Investment Portfolio
(such as borrower financial position, loan defaults and arrears, loan to value ratios, etc.); (ii)
economic data (including current real estate prices for various real estate asset categories); and
(iii) actual historical loan losses. Modeling and projections based on historical loan losses have
not been done given that no actual loan losses have been incurred. The impact of the
assumed theoretical declines in real estate values on the collective loan category is also
considered. The conclusion of this assessment is that zero collective allowance is required to
be taken.
When a subsequent event causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through income or profit. The impairment provision stood at
$4,460,000 as at December 31, 2016 (December 31, 2015 - $4,230,000) and represents the
total amount of management’s estimate of the shortfall between the Investment Portfolio
principal balances and the estimated net realizable recovery from the collateral securing the
loans. The impairment provision represents approximately 1% of the Investment Portfolio
balance.
RELATED PARTY TRANSACTIONS
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.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 11
12 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Corporation Manager (a company related to officers and/or directors of the Corporation)
receives an allocation of interest, referred to as the Corporation Manager spread interest,
calculated as 0.75% per annum of the Corporation’s daily outstanding performing investment
balances. For the year ended December 31, 2016, the amount was $3,152,050 (December 31,
2015 - $2,873,993) and for the three months ended December 31, 2016, this amount was
$828,631 (December 31, 2015 - $766,306). Included in accounts payable and accrued liabilities
of the Corporation at December 31, 2016 are amounts payable to the Corporation Manager of
$275,563 (December 31, 2015 - $253,538).
The total directors’ fees expensed for the year ended December 31, 2016 was $224,375
(December 31, 2015 - $183,000). Certain key management personnel are also directors of the
Corporation and receive compensation from the Corporation Manager.
The Mortgage Banker (a company related to officers and/or directors of the Corporation)
receives certain fees directly from the borrowers as follows: loan servicing fees equal to 0.10%
per annum on the principal amount of each of the Corporation’s investments; 75% of all the
commitment and renewal fees generated from the Corporation’s investments; and 25% of all the
special profit income generated from the non-conventional investments after the Corporation
has yielded a 10% per annum return on its investments. Interest and fee income of the
Corporation is net of the loan servicing fees paid to the Mortgage Banker of approximately
$420,000 for the year ended December 31, 2016 (December 31, 2015 - $383,000). The
Mortgage Banker also retains all overnight float interest and incidental fees and charges
payable by borrowers on the Corporation’s investments.
The Corporation Management Agreement and Mortgage Banking Agreement contain provisions
for the payment of termination fees to the Corporation Manager and Mortgage Banker in the
event that the respective agreements are either terminated or not renewed.
A significant number of the Corporation’s investments are shared with other investors of the
Mortgage Banker, which may include members of management of the Mortgage Banker and/or
officers or directors of the Corporation. The Corporation ranks equally with other members of the
syndicate as to receipt of principal and income.
Three mortgage investments totaling $4,850,000 (December 31, 2015 -one mortgage
investment totaling $5,250,000) were issued to a borrower controlled by an independent director
of the Corporation. The investments were made by way of a participation in a direct loan to the
entity controlled by the director. The investment is dealt in accordance with the Corporation's
existing investment and operating policies and is personally guaranteed by the director. The
Corporation recognized interest and fees earned of $624,689 (December 31, 2015 - $669,095)
from these investments during the year.
A mortgage investment of nil (December 31, 2015 - $1,082,657) was outstanding from a
borrower controlled by the same independent director set out above. The investment
represented a participation in a first mortgage loan assumed by an entity controlled by the
director. The director became involved in the borrower entity by virtue of his position as a
second mortgage lender to the borrower that fell into default. During the year, the mortgage was
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 12
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
discharged in full and the Corporation recognized interest and fees earned of $535,757
(December 31, 2015 - $74,874) from this investment during the year.
The Corporation also holds a mortgage investment totaling $4,628,000 at December 31, 2016
(classified as Discounted debt investment) that originated from the purchase of a mortgage loan
from a schedule 1 bank at a discount to its original principal balance (December 31, 2015 -
$4,303,000). The Corporation’s investment is by way of a participation in a mortgage loan to the
entity that took title to the real estate following the completion of the enforcement foreclosure of
the real estate that occurred after the purchase of the underlying Schedule 1 bank mortgage.
The entity that holds title to the real estate as agent is related to the other participants in the
mortgage loan investment, including entities related to certain directors of the Corporation. The
Corporation recognized interest and fees earned of nil (December 31, 2015 - nil) from this
investment during the year. The impairment provision was reduced by $660,000 in the current
year (2015 - provision increase of $575,000) bringing the impairment allowance recorded on this
loan to $1,190,000 as at December 31, 2016 (December 31, 2015 - $1,850,000). Recoveries
under the investment resulting from the sale of the secured real estate will be treated the same
as for all non-conventional mortgage investments held by the Corporation.
Related party transactions are further discussed and detailed in the Corporation’s AIF and in
Note 13 of the accompanying financial statements.
INCOME TAXES
The Corporation qualifies as a mortgage investment corporation within the meaning of the
Income Tax Act (Canada). As such, the Corporation is entitled to deduct from its taxable
income dividends paid to shareholders during the year or within the first 90 days of the following
taxation year. In order to maintain its status as a mortgage investment corporation, the
Corporation must continually meet all criteria enumerated in the relevant section of the Income
Tax Act (Canada) throughout such taxation year. The Corporation intends to maintain its status
as a mortgage investment corporation and intends to distribute sufficient dividends in the year
and in future years to ensure that the Corporation has no tax payable under the Income Tax Act
(Canada). Accordingly, for financial statement reporting purposes, the tax deductibility of the
Corporation’s dividends results in the Corporation being effectively exempt from taxation and no
provision for current or deferred income taxes is required.
CRITICAL ACCOUNTING ESTIMATES
The determination of the impairment provision for the Investment Portfolio is a critical
accounting estimate.
The Investment Portfolio is classified as loans and receivables. Such investments are
recognized initially at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, the mortgage loans are measured at amortized cost using the effective
interest method, less any impairment losses. The mortgage investments are assessed at each
reporting date to determine whether there is objective evidence of impairment. An impairment
loss in respect of the mortgage investments measured at amortized cost is calculated as the
difference between its carrying amount and the present value of the estimated future cash flows
and cash recoveries discounted at the asset’s original effective interest rate. Losses are
recognized in the statement of income and reflected in an allowance account against the
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 13
14 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
mortgage investments. When a subsequent event causes the amount of impairment loss to
decrease, the decrease in impairment loss is reversed through income or profit. Management is
required to consider the estimated future cash flow recovery from the collateral securing the
mortgage investments. The estimation of cash flow recovery is performed on an individual
mortgage basis and is based on assumptions pertinent to each mortgage investment. Each
mortgage analysis often has unique factors that are considered in determining the cash flow and
realizable value of the underlying security. The estimates are based on historical experience
and other assumptions that management believes are responsible and appropriate in the
circumstances. Actual results may differ from these estimates.
FINANCIAL INSTRUMENTS
The fair values of amounts receivable and prepaid expenses, bank indebtedness, accounts
payable and accrued liabilities, and shareholder dividends payable approximate their carrying
values due to their short-term maturities.
The fair value of the Investment Portfolio approximates its carrying value as the majority of the
loans are fully open for repayment at any time without penalty and have floating interest rates.
There is no quoted price in an active market for the mortgage and loan investments or mortgage
syndication liabilities. Management makes its determinations of fair value based on its
assessment of the current lending market for mortgage and loan investments of same or similar
terms. As a result, the fair value of mortgage and loan investments is based on Level 3 on the
fair value hierarchy.
The fair values of loans payable approximate their carrying values due to the fact that the
majority of the loans are: (i) repayable in full, at any time, upon the repayment of the underlying
loan that secures the loan payable, and (ii) have floating interest rates linked to bank prime.
The fair value of convertible debentures, including their conversion option, has been determined
based on the closing price of the debentures of the Corporation on the Toronto Stock Exchange
for the respective date.
The fair value of the debenture portfolio investment has been determined based on the closing
price of convertible debenture securities of the respective listed entities on the Toronto Stock
Exchange for the respective date.
The fair value of marketable securities has been determined based on the closing price of the
security of the respective listed entities on the Toronto Stock Exchange for the respective date.
The fair value of loans on the debenture portfolio approximates its carrying value due to the fact
that it is fully open for repayment and has a floating rate of interest.
The tables in note 16 of the financial statements present the fair values of the Corporation's
financial instruments as at December 31, 2016 and December 31, 2015. It does not include fair
value information for financial assets and financial liabilities not measured at fair value if the
carrying amount is a reasonable approximation of fair value.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 14
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONTRACTUAL OBLIGATIONS
Contractual obligations as at December 31, 2016 are due as follows:
Bank indebtedness
Accounts payable and accrued liabilities
Loan on debenture portfolio investment
Shareholder dividends payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
Total
Less than 1
year
$
45,436,612
2,101,630
1,295,184
2,428,973
168,166,000
219,428,399
131,268,094
350,696,493
$
$
$
45,436,612
2,101,630
1,295,184
2,428,973
31,443,000
82,705,399
131,268,094
213,973,493
$
$
1-3 years
$
-
-
-
-
66,223,000
66,223,000
-
66,223,000
$
$
4 - 6 years
$
-
-
-
-
70,500,000
70,500,000
-
70,500,000
$
$
SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies is described in note 3 of the Corporation’s financial statements
for the year ended December 31, 2016 and year ended December 31, 2015.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Corporation’s intent to qualify as a mortgage investment corporation, the
Corporation intends to distribute no less than 100% of the taxable income of the Corporation,
determined in accordance with the Income Tax Act (Canada), to its shareholders. The result is
that growth in the Investment Portfolio can only be achieved through the raising of additional
equity, issuing debt, and utilizing available borrowing capacity. As at December 31, 2016, the
Corporation had not utilized its full leverage availability, being a maximum of 60% of its first
mortgage investments. Unadvanced committed funds under the existing Investment Portfolio
amounted to $131,268,094 as at December 31, 2016 (December 31, 2015 - $113,464,052).
These commitments are anticipated to be funded from the Corporation’s credit facility and
borrower repayments under the Investment Portfolio. The Corporation has a revolving line of
credit with its principal banker to fund the timing differences between mortgage advances and
mortgage repayments. There are limitations in the availability of funds under the revolving line of
credit, which is made up of a committed component and a demand component. The
Corporation’s investments are predominantly short-term in nature, and as such, the continual
repayment by borrowers of existing mortgage investments creates liquidity for ongoing
investments and funding commitments.
RISKS AND UNCERTAINTIES
The Corporation follows investment guidelines and operating policies. The board of directors, in
its discretion, may amend or approve investments that exceed these guidelines and policies as
investments are made. These policies govern such matters as: (i) restricting exposure per
mortgage investment; (ii) requirements for director approvals; and (iii) implementation of
operational risk management policies.
The Corporation is faced with the following ongoing risk factors, among others, that would affect
shareholders’ equity and the Corporation’s ability to generate returns. A greater discussion of
risk factors that affect the Corporation are included in the AIF under the section “Risk Factors”,
which section is incorporated herein by reference.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 15
16 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
• Credit risks: Credit risk is the possibility that a borrower under one of the mortgages comprising the
investment portfolio, may be unable to honour their debt commitment as a result of a negative
change in the borrowers’ financial position or market conditions that could result in a loss to the
Corporation. Any instability in the real estate sector or an adverse change in economic conditions in
Canada could result in declines in the value of real property securing the Corporation's investments.
There have been significant increases in real estate values in various sectors of the Canadian market
over the past few years. A correction or revaluation of real estate in such sectors will result in a
reduction in values of the real estate securing mortgage loans that comprise the Corporation's
investment portfolio. This could result in impairments in the mortgage loans or loan losses in the
event the real estate security has to be realized upon by the lender. The Corporation's maximum
exposure to credit risk is represented by the fair values of amounts receivable and the investment
portfolio.
• 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. The existence of such liability can
have a negative impact on the value of the underlying real property securing a mortgage. The
Corporation does not own the real property securing its Investment Portfolio and thus would not
attract the environmental liability that an owner would be exposed to. In rare circumstances where a
mortgage is in default, the Corporation may take possession of real property and may become liable
for environmental issues as a mortgagee in possession. The Corporation obtains phase 1
environmental reports for mortgages where the Mortgage Banker determines that such reports would
be prudent given the nature of the underlying property.
• The inability to obtain borrowings and leverage, thus reducing yield enhancement.
• Dependence on the Corporation Manager and Mortgage Banker. The Corporation’s earnings are
impacted by the Mortgage Banker’s ability to source and generate appropriate investments that
provide sufficient yields while maintaining pre-determined risk parameters. The Corporation has also
entered into long-term contracts with the Mortgage Banker and the Corporation Manager, as more
particularly described in the AIF. The Corporation is exposed to adverse developments in the
business and affairs of the Corporation Manager and Mortgage Banker, since the day to day
activities of the Corporation are run by the Corporation Manager and since all of the Corporation’s
investments are originated by the Mortgage Banker.
•
• Portfolio face rate fluctuations. The interest rate earned on the Corporation’s Investment Portfolio
fluctuates given that (i) it continually revolves given that it is short term in nature; and (ii) the portfolio
is predominately floating rate interest with floors.
Interest rate risk. Interest rate risk is the risk that fair value of future cash flows of financial assets or
financial liabilities will fluctuate because of changes in market interest rates.
•
(i) Interest income risk: A significant portion of the Corporation's investment portfolio comprise
investments in short term mortgage loans that generally are repaid by the borrowers in under
twenty-four months. The reinvestment of funds received from such repayments are invested at
current market interest rates. As such, the weighted average interest rate applicable to the
investment portfolio changes with time. This creates an ongoing risk that the weighted average
interest rate on the investment portfolio will decrease, which will have a negative impact on the
Corporation's interest income and net income.
(ii) Interest expense risk: The Corporation's floating-rate debt comprises bank indebtedness, loan
on debenture portfolio investment, with each bearing interest based on bank prime and/or based
on short term bankers' acceptance interest rates as a benchmark.
•
• No guaranteed return. There is no guarantee as to the return that an investment in Shares of the
Corporation will earn.
• Qualification as a Mortgage Investment Corporation. Although the Corporation intends to qualify at all
times as a mortgage investment corporation, no assurance can be provided in this regard. If for any
reason the Corporation does not maintain its qualification as a mortgage investment corporation
under the Tax Act, dividends paid by the Corporation on the Shares will cease to be deductible by the
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 16
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Corporation in computing its income and will no longer be deemed by the rules in the Tax Act that
apply to mortgage investment corporations to have been received by shareholders as bond interest
or a capital gain, as the case may be. In consequence, the rules in the Tax Act regarding the taxation
of public corporations and their shareholders should apply, with the result that the combined
corporate and shareholder tax may be significantly greater.
• Availability of investments. Our ability to make investments in accordance with our objectives and
investment policies depends upon the availability of suitable investments and the general economy
and marketplace. Increased competition in the lending market place in which the Corporation
operates from chartered banks or other public or private lending entities may impact the availability of
suitable investments and achievable investment yields for the Corporation.
• Limited sources of borrowing. The Canadian financial marketplace is characterized as having a
limited number of financial institutions that provide credit to entities such as ours. The limited
availability of sources of credit may limit our ability to take advantage of leveraging opportunities to
enhance the yield on our mortgage investments.
• Specific investment risk for non-conventional mortgage and second mortgage investments. Non-
conventional and second mortgage investments attract higher loan loss risk due to their subordinate
ranking to other mortgage charges and sometimes high loan to value ratio. Consequently, this higher
risk is compensated for by a higher rate of return. In order to mitigate risk and maintain a well-
diversified investment portfolio, the operating policies of the Corporation generally limit the amount of
Conventional Non-First Mortgage investments to a maximum of 30% of the Corporation’s capital,
subject to the Board of Directors’ approval for any modifications to the operating policies.
• Specific investment risk for land mortgage investments. Land mortgages pose a unique risk in the
event of default in that the work-out period can be lengthy while the asset has no capacity to
generate cash flow.
• Reliance on Borrowers. After the funding of an investment, we rely on borrowers to maintain
adequate insurance and proper adherence to environmental regulations during the ongoing
management of their properties.
• Credit Risk. The Investment portfolio is exposed to credit risk. Credit risk is the risk that a
counterparty to a financial investment will fail to fulfill its obligations or Commitment, resulting in a
financial loss to the corporation.
SUBSEQUENT EVENT
On March 21, 2017, the Corporation filed a final prospectus to sell, on a bought deal basis,
1,420,000 common shares at a price of $14.10 per share for gross proceeds of $20,022,000.
The offering is scheduled to close on or about March 28, 2017. The Corporation has granted
the underwriters an over-allotment option to purchase up to 213,000 common shares
exercisable, in whole or in part, at any time until 30 days following the closing of the offering. If
the over-allotment option is exercised in full, the gross proceeds of the offering will be
$23,025,300.
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 complete, reliable, and timely. In addition,
the Corporation’s Audit Committee and Board of Directors provide an oversight role with respect
to all public financial disclosures by the Corporation, and have reviewed and approved this
MD&A as well as the audited financial statements as at December 31, 2016 and 2015.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 17
18 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONTROLS AND PROCEDURES
The Corporation maintains appropriate information systems, procedures, and controls to ensure
that information disclosed externally is complete, reliable, and timely. The Corporation’s Chief
Executive Officer and Chief Financial Officer evaluated, or caused an evaluation under their
direct supervision of, the design and operating effectiveness of the Corporation’s disclosure
controls and procedures (as defined in National Instrument 52-109, Certification of Disclosure in
Issuers’ Annual and Interim Filings) as at December 31, 2016 and have concluded that such
disclosure controls and procedures were appropriately designed and were operating effectively.
The Corporation has also established adequate internal controls over financial reporting to
provide reasonable assurance regarding the reliability of the Corporation’s financial reporting
and the preparation of the financial statements for external purposes in accordance with IFRS
for periods effective January 1, 2010. The Corporation’s Chief Executive Officer and the Chief
Financial Officer assessed, or caused an assessment under their direct supervision of, the
design and operating effectiveness of the Corporation’s internal controls over financial reporting
(as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and
Interim Filings) as at December 31, 2016. Based on that assessment, it was determined that the
Corporation’s internal controls over financial reporting were appropriately designed and were
operating effectively.
The Corporation did not make any changes to the design of the Corporation’s internal controls
over financial reporting during the year ended December 31, 2016 that would have materially
affected or would be reasonably likely to materially affect the Corporation’s internal controls over
financial reporting.
It should be noted that a control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues, including instances of fraud, if any, have
been detected. These inherent limitations include, among other items: (i) that management’s
assumptions and judgments could ultimately prove to be incorrect under varying conditions and
circumstances; (ii) the impact of any undetected errors; and (iii) controls may be circumvented
by the unauthorized acts of individuals, by collusion of two or more people, or by management
override. The design of any system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
FORWARD LOOKING INFORMATION
Certain information included in this MD&A contains forward-looking statements within the
meaning of applicable securities laws including, among others, statements concerning our 2016
objectives and our strategies to achieve those objectives, as well as 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
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 18
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
events. Such 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, including those described below in
this MD&A under 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 shareholder liability.
Material factors or assumptions that were applied in drawing a conclusion or making an estimate
set out in the forward-looking information include the assumption that there is not a significant
decline in the value of the general real estate market; market interest rates remain relatively
stable; the Corporation is generally able to sustain the size of its Investment Portfolio; adequate
investment opportunities are presented to the Corporation; and adequate bank indebtedness
are available to the Corporation. 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.
All forward-looking statements in this MD&A are qualified by these cautionary statements.
Except as required by applicable law, the Corporation undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new information, future
events, or otherwise.
OUTLOOK
Looking ahead into 2017, we will continue to focus on the quality and composition of the
Corporation’s evolving mortgage portfolio, with a focus on risk management and mitigation
resulting from large year over year increases in real property values. The Mortgage Banker is
aware of the significant increase in real estate valuations in certain geographical and asset
segments and is factoring this into its mortgage underwriting and structuring. Future mortgage
structuring at appropriate exposure levels is expected to result in lower achieved interest rates
and an overall reduction in the portfolio average face interest rate, however, should provide for
safer investments in the face of a possible market correction.
Management is focused on strengthening the balance sheet with a view to increasing Net Asset
Value or NAV per share, which management believes to be a much more important metric than
Earnings Per Share or EPS. This could mean lower EPS in the short term. However,
management feels that the long-term benefit of increasing NAV outweighs lower earnings as a
higher NAV will reduce over the long-term dilution in earnings and provide enhanced returns to
patient investors, and maintains the Corporation’s access to the public markets for capital.
From all published reports, recent real estate valuation increases have been extreme. The
Mortgage Banker sees this every day in its lending practice. Combined with the disconcerting
levels of cash liquidity in the market, this has fueled, in our view, irresponsible lending practices
by many mortgage providers. These practices include over lending and/or providing capital to
real estate not worthy of receiving such capital, all for the sake of putting at-risk capital to work
in the credit marketplace. We will not participate in such behavior. We continue to seek safer
lower yielding investments that provide both an adequate return as well as a degree of safety for
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 19
20 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
our shareholders. Firm Capital has always taken a contrarian approach to investing and this will
continue into 2017 and beyond.
We operate under the mindset that our Shareholders understand our view is that of long term
business performance and generation of Shareholder value over the long term as opposed to a
short term focus on quarterly results.
While cautious, management is nonetheless optimistic about the opportunities 2017 presents,
as the Corporation has been investing defensively for the past many years. Shareholders will
benefit by seeing the continuation of a conservative investment portfolio yielding superior risk-
adjusted returns.
Capitalism is about business performance and the generation of shareholder value over the long
term as opposed to ‘short-termism’ and quarterly results. We subscribe to this mindset.
Shareholders need to understand this mindset, as this has been our operating philosophy since
going public in 1999.
Firm Capital Mortgage Investment Corporation • 2016 • Fourth Quarter Page 20
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MANAGEMENT’S RESPONSIBILTY FOR FINANCIAL REPORTING
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
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22 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
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(cid:40)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:92)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3) (cid:68)(cid:3) (cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:86)(cid:72)(cid:3) (cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:82)(cid:80)(cid:72)(cid:3)
(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)
(cid:55)(cid:75)(cid:72)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:17)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)
(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:17)
(cid:40)(cid:47)(cid:44)(cid:3)(cid:39)(cid:36)(cid:39)(cid:50)(cid:56)(cid:38)(cid:43)(cid:3)(cid:3)
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:45)(cid:50)(cid:49)(cid:36)(cid:55)(cid:43)(cid:36)(cid:49)(cid:3)(cid:48)(cid:36)(cid:44)(cid:53)
(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:16)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:3) (cid:3)
(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Firm Capital Mortgage Investment Corporation
We have audited the accompanying financial statements of Firm Capital Mortgage Investment Corporation,
which comprise the balance sheets as at December 31, 2016 and 2015, the statements of income,
comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and
notes, comprising 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 our 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, we consider 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
Page 2
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
Opinion
In our opinion, the financial statements present fairly, in all material respects, the
In our opinion, the financial statements present fairly, in all material respects, the financial position of Firm
financial position of Firm Capital Mortgage
Investment Corporation as at
Capital Mortgage Investment Corporation as at December 31, 2016 and 2015, and its financial performance
December 31, 2016 and 2015, and its financial performance and its cash flows for the
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
March 21, 2017
Toronto, Canada
(cid:20)(cid:27)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:135)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:135)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
23
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Balance Sheets
Consolidated Balance Sheets
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Balance Sheets
(in Canadian dollars)
(in Canadian dollars)
As at
Assets
Amounts receivable and prepaid expenses (note 4)
Marketable securities (note 5)
Debenture portfolio investments (note 5)
Investment portfolio (note 6)
Total assets
As at
December 31, 2016
December 31, 2015
December 31, 2016
December 31, 2015
Assets
Amounts receivable and prepaid expenses (note 4)
4,723,191
$
Marketable securities (note 5)
2,200,329
Debenture portfolio investments (note 5)
2,199,937
Investment portfolio (note 6)
444,294,633
Total assets
453,418,090
4,709,241
1,949,106
2,076,800
398,689,638
407,424,785
$
$
$
$
4,723,191
2,200,329
2,199,937
444,294,633
453,418,090
$
$
4,709,241
1,949,106
2,076,800
398,689,638
$
407,424,785
$
45,436,612
1,295,184
2,101,630
879,851
2,428,973
--
$
41,713,128
1,420,073
2,195,415
913,981
2,701,754
7,093,535
162,305,989
214,448,239
$
139,904,049
$
195,941,935
$
236,031,386
2,800,000
$
209,220,787
95,123
1,924
(321,826)
363,244
$
238,969,851
$
211,482,850
2,484,000
100,531
962
(321,826)
(1,604)
$
453,418,090
$
407,424,785
Liabilities
Liabilities
Bank indebtedness (note 7)
Loan on debenture portfolio investments (note 5)
Accounts payable and accrued liabilities
Unearned income
Shareholders dividends payable
Loans payable (note 8)
Convertible debentures (note 9)
Total liabilities
Shareholders' Equity
Common shares (note 10)
Equity component of convertible debentures (note 9)
Stock options (note 10)
Contributed surplus
Deficit
Accumulated other comprehensive income (loss)
Total shareholders' equity
$
Bank indebtedness (note 7)
$
45,436,612
Loan on debenture portfolio investments (note 5)
1,295,184
Accounts payable and accrued liabilities
2,101,630
Unearned income
879,851
Shareholders dividends payable
2,428,973
Loans payable (note 8)
--
Convertible debentures (note 9)
162,305,989
Total liabilities
214,448,239
41,713,128
1,420,073
2,195,415
913,981
2,701,754
7,093,535
139,904,049
195,941,935
$
$
$
Shareholders' Equity
Common shares (note 10)
$
236,031,386
2,800,000
Equity component of convertible debentures (note 9)
95,123
Stock options (note 10)
1,924
Contributed surplus
(321,826)
Deficit
Accumulated other comprehensive income (loss)
363,244
Total shareholders' equity
238,969,851
$
209,220,787
2,484,000
100,531
962
(321,826)
(1,604)
211,482,850
$
Commitments (note 6)
Contingent liabilities (note 15)
Commitments (note 6)
Contingent liabilities (note 15)
Total liabilities and shareholders' equity
Total liabilities and shareholders' equity
453,418,090
$
$
407,424,785
See accompanying notes to financial statements.
See accompanying notes to financial statements.
On behalf of the Directors:
On behalf of the Directors:
"Eli Dadouch" "Jonathan Mair"
ELI DADOUCH JONATHAN MAIR
Director Director
"Eli Dadouch" "Jonathan Mair"
ELI DADOUCH JONATHAN MAIR
Director Director
1
1
24 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Statements of Income
Consolidated Statements of Income
Years ended December 31, 2016 and 2015
(in Canadian dollars)
Interest and fees earned
Corporation manager spread interest allocation (note 13)
Interest expense (note 14)
General and administrative expenses
Impairment loss on investment portfolio (note 6)
Income and profit for the year
Profit per share (note 11)
Basic
Diluted
See accompanying notes to financial statements.
2016
2015
$
36,042,890
36,042,890
$
34,005,435
34,005,435
3,152,050
10,628,040
842,187
230,000
14,852,277
$
2,873,993
9,350,610
829,574
870,000
13,924,177
$
$
21,190,613
$
20,081,258
$0.972
$0.950
$0.991
$0.970
2
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
25
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Statements of Comprehensive Income
Consolidated Statements of Comprehensive Income
Years ended December 31, 2016 and 2015
(in Canadian dollars)
Income and profit for the year
Other comprehensive income:
2016
2015
$
21,190,613
$
20,081,258
Unrealized gain (loss) on marketable securities and debenture
investments (note 5)
364,848
(74,570)
Total comprehensive income for the year
$
21,555,461
$
20,006,688
See accompanying notes to financial statements.
3
26 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Statements of Changes in Shareholder’s Equity
Years ended December 31, 2016 and 2015
(in Canadian dollars)
Balance at January 1, 2016
Proceeds from issuance of shares in new offering
Offering costs
Proceeds from issuance of shares from dividend reinvestment
Equity component of debentures issued during the year
Exercise of stock options
Forfeiture of stock options
Change in fair value of available for sale financial assets
Income and profit for the year
Dividends to shareholders
Balance at December 31, 2016
Shares issued and outstanding (note 10)
Balance at January 1, 2015
Proceeds from issuance of shares in new offering
Offering costs
Proceeds from issuance of shares from dividend reinvestment
Equity component of debentures issued during the year
Stock based compensation
Change in fair value of available for sale financial assets
Income and profit for the year
Dividends to shareholders
Balance at December 31, 2015
Shares issued and outstanding (note 10)
See accompanying notes to financial statements.
Equity
component of
convertible
debentures
2,484,000
-
-
-
316,000
-
-
-
-
-
2,800,000
Equity
component of
convertible
debentures
1,960,000
-
-
-
524,000
-
-
-
-
2,484,000
Common shares
209,220,787
25,367,850
(1,246,207)
2,139,684
-
549,272
-
-
-
-
236,031,386
22,490,489
Common shares
207,378,123
980,000
(21,931)
884,595
-
-
-
-
-
209,220,787
20,313,943
4
Stock options
Contributed
surplus
100,531
-
-
-
-
(4,446)
(962)
-
-
-
95,123
962
-
-
-
-
-
962
-
-
-
1,924
Accumulated
other
comprehensive
income (loss)
(1,604)
-
-
-
-
-
-
364,848
-
-
363,244
Shareholders'
equity
211,482,850
25,367,850
(1,246,207)
2,139,684
316,000
544,826
-
364,848
21,190,613
(21,190,613)
238,969,851
Deficit
(321,826)
-
-
-
-
-
-
-
21,190,613
(21,190,613)
(321,826)
Stock options
Contributed
surplus
98,894
-
-
-
-
1,637
-
-
-
100,531
962
-
-
-
-
-
-
-
-
962
Adjusted other
comprehensive
income
72,966
-
-
-
-
-
(74,570)
-
-
(1,604)
Shareholders'
equity
209,189,119
980,000
(21,931)
884,595
524,000
1,637
(74,570)
20,081,258
(20,081,258)
211,482,850
Deficit
(321,826)
-
-
-
-
-
-
20,081,258
(20,081,258)
(321,826)
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
27
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Cash Flows
Statements of Cash Flows
2016
2015
$
21,190,613
$
20,081,258
9,252,322
8,271,352
357,767
230,000
1,017,951
--
281,723
870,000
797,535
1,637
229,721
(13,950)
(93,785)
(34,130)
32,136,509
$
(279,261)
(2,262,524)
72,372
213,779
28,047,871
$
25,367,850
2,139,684
544,826
22,500,000
(1,157,778)
(1,246,207)
(7,093,535)
(124,889)
(9,482,043)
(21,463,394)
9,984,514
$
980,000
884,595
--
48,000,000
(2,398,005)
(21,931)
(14,754,435)
1,088,273
(7,992,091)
(19,637,678)
6,148,728
$
--
(9,512)
(290,942,160)
245,107,165
(45,844,507)
$
92,515
(1,283,477)
(344,618,478)
284,563,891
(61,245,549)
$
(3,723,484)
(41,713,128)
(45,436,612)
$
(27,048,950)
(14,664,178)
(41,713,128)
$
$
33,776,364
$
29,286,963
Years ended December 31, 2016 and 2015
(in Canadian dollars)
Cash provided by (used in):
Operating activities:
Income and profit for the year
Adjustments for:
Financing costs (net of implicit interest rate and deferred finance cost
amortization)
Implicit interest rate in excess of coupon rate - convertible debentures
Change in impairment loss on investment portfolio
Deferred finance cost amortization - convertible debentures
Share-based compensation
Net change in non-cash operating items:
Increase (decrease) in accrued interest payable
Decrease (increase) in amounts receivable and prepaid expenses
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in unearned income
Net cash flow from operating activities
Financing activities:
Proceeds from issuance of shares in new offerings
Proceeds from issuance of shares from dividend reinvestment
Proceeds from exercise of stock options
Proceeds from convertible debentures issued
Debenture offering costs
Equity offering costs
Repayment of loans payable (net)
Funding (repayment) of loan on debenture portfolio
Cash interest paid (note 14)
Dividends to shareholders paid during the year
Net cash flow from financing activities
Investing activities:
Net disposals (purchases) of marketable securities
Funding of debenture portfolio investments
Funding of investment portfolio
Discharging of investment portfolio
Net cash flow used in investing activities
Net decrease (increase) in bank indebtedness for the year
Bank indebtedness, beginning of year
Bank indebtedness, end of year
Cash flows from operating activities include:
Interest received
See accompanying notes to financial statements.
5
28 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
1. Organization of the Corporation:
Firm Capital Mortgage Investment Corporation (the "Corporation"), through its mortgage banker, Firm Capital
Corporation,
is a non-bank lender providing primarily residential and commercial short-term bridge and
conventional real estate financing, including construction, mezzanine, and equity investments. The shares of
the Corporation are listed on the Toronto Stock Exchange under the symbol "FC". The Corporation is a
Canadian mortgage investment corporation and the registered office of the Corporation is 163 Cartwright
Avenue, Toronto, Ontario, M6A 1V5. FC Treasury Management
is the Corporation's manager (the
"Corporation Manager"). The Corporation was incorporated pursuant to the laws of the Province of Ontario on
October 22, 2010.
Inc.
2. Basis of presentation:
(a) Statement of compliance:
The consolidated financial statements of the Corporation have been prepared by management in accordance
with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards
Board ("IASB").
The consolidated financial statements were approved by the Board of Directors on March 21, 2017.
(b) Basis of measurement:
The financial statements have been prepared on the historical cost basis, except for financial
instruments
classified as fair value through profit or loss ("FVTPL") or available for sale (through accumulated other
comprehensive income), which are measured at fair value at reach reporting date.
(c) Principles of consolidation
The consolidated financial statements comprise the financial statements of the Corporation and its
subsidiaries, which includes FC Finance Trust. Subsidiaries are fully consolidated from the date on which
the Corporation obtains control, and continue to be consolidated until the date that such control ceases.
Control exists when the Corporation has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefit
transactions and
balances are eliminated upon consolidation.
its activities. All
intercompany
from
(d) Functional and presentation currency:
These financial statements are presented in Canadian dollars, which is the Corporation's functional currency.
(e) Critical estimates and judgements:
The preparation of the financial statements requires management to make estimates that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the year. Actual results could differ
from those estimates.
In making estimates, management relies on external information and observable conditions where possible,
supplemented by internal analysis as required. Revisions to accounting estimates are recognized in the year in
which estimates are revised. Those estimates and judgements have been applied in a manner consistent with
previous years and there are no known trends, commitments, events or uncertainties that management
believes will materially affect
the methodology or assumptions utilized in making those estimates and
judgements in these audited financial statements. The significant estimates and judgements used in
determining the recorded amount for assets and liabilities in the financial statements are as follows:
6
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
29
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
Investment impairment - The most significant estimates that the Corporation is required to make relate to the
impairment of the investments (notes 3(a) and 6). These estimates include assumptions regarding local real
estate market conditions, interest rates and the availability of credit, cost and terms of financing, the impact of
present or future legislation or regulation, prior encumbrances, adverse changes in the payment status of
borrowers, and other factors affecting the investments and underlying security of the investments. These
assumptions are limited by the availability of reliable comparable data, economic uncertainty, ongoing
geopolitical concerns, and the uncertainty of predictions concerning future events. Accordingly, by their nature,
estimates of impairment are subjective and do not necessarily result in precise determinations of the actual
outcome. Should the underlying assumptions change, the estimated fair value could vary by a material
amount.
Measurement of fair values - The Corporation's accounting policies and disclosures require the measurement
of fair values for both financial and non-financial assets and liabilities.
When measuring the fair value of an asset or liability, the Corporation uses market observable data where
possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in
the valuation techniques as follows:
Level 1:
Level 2:
Level 3:
Quoted prices (unadjusted) in active markets for identical assets or liabilities
Inputs other than quoted prices included within Level 1 that are observable for the
assets or liabilities, either directly (that is, as prices) or indirectly (that is, derived from
prices)
Inputs for the assets or liabilities that are not based on observable market data (that
is, unobservable inputs)
The Corporation reviews significant unobservable inputs and valuation adjustments.
If third party information,
such as broker quotes or appraisals are used to measure fair values, the Corporation will assess the evidence
obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS,
including the level in the fair value hierarchy in which such valuations should be classified.
The information about the assumptions made in measuring fair value is included in note 16.
3. Significant accounting policies:
The Corporation's accounting policies and its standards of financial disclosure set out below are in accordance
with IFRS and have been applied consistently to all periods presented in these financial statements.
(a)
Investment portfolio:
The investment portfolio is classified as loans and receivables. Such investments are recognized initially at
cost plus any directly attributable transaction costs. Subsequent to initial recognition, the investment loans are
measured at amortized cost using the effective interest method, less any impairment provisions.
The investments are assessed at each reporting date to determine whether there is objective evidence of
impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after
the initial recognition of an asset, and that the loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
7
30 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
The Company assesses individually significant investments at each reporting date to determine whether there
is objective evidence of impairment. An impairment loss in respect of the investments measured at amortized
cost is calculated as the difference between its carrying amount and the amount of the future cash flows
estimated to be recovered on the loan security. Estimates and assumptions are made as to the gross sale
proceeds that would be generated on the forced sale of the real property securing the related mortgage loan,
and reflect estimates of the current local market conditions. Estimates are made as to the costs of enforcing
under the mortgage loan and of realizing on the real property.
In particular, judgment by management is
required in the estimation of the amount and timing of future cash flows when determining the impairment loss.
These estimates are based on assumptions about a number of factors and actual results may differ, resulting in
future changes to the allowance. Losses are recognized in the statement of income and reflected in an
impairment provision against the investments. Interest on the impaired asset continues to be recognized to the
extent it is deemed to be collectible.
Investments that have been assessed individually and found not to be impaired and all individually insignificant
mortgages are then assessed collectively, in groups of mortgages with similar risk characteristics, to determine
whether a collective allowance should be recorded due to incurred loss events for which there is objective
evidence but whose effects are not yet evident. The collective assessment takes into account (i) data from the
investment portfolio (such as borrower financial position, loan defaults and arrears, loan to value ratios, etc.),
(ii) economic data (including current real estate prices for various real estate asset categories), and (iii) actual
historical loan losses. Modeling and projections based on historical loan losses have not been done given that
no actual
loan losses have been incurred. The impact of the assumed theoretical declines in real estate
values on the collective loan category is also considered. The conclusion of this assessment is that zero
collective allowance is required to be taken.
(b) Revenue recognition:
(i)
Interest and fee income:
Commitment fees received are amortized to profit and loss over the expected term of the investment.
Interest income earned is accounted for using the effective interest method.
(ii)
Non-conventional mortgages: Special profit and interest participations earned by the Corporation on
non-conventional mortgages are recognized and included in interest and fees earned only once the
receipt of such amounts are certain.
(c) Share-based compensation:
The Corporation has a share-based compensation plan (i.e. incentive option plan), which is described in note
10(b). The expense of equity-settled incentive option plans are measured based on fair value of the awards of
each tranche at the grant date. The expense is recognized on a proportionate basis consistent with the vesting
features of each tranche of the grant.
(d)
Income taxes:
The Corporation is a mortgage investment corporation ("MIC") pursuant to the Income Tax Act (Canada). As
such, the Corporation is entitled to deduct from its taxable income dividends paid to shareholders during the
year or within 90 days of the end of the year to the extent the dividends were not deducted previously. The
Corporation intends to maintain its status as a MIC and intends to distribute sufficient dividends in the year and
in future years to ensure that the Corporation is not subject to income taxes. Accordingly, for financial
statement reporting purposes, the tax deductibility of the Corporation's dividends results in the Corporation
being effectively exempt from taxation and no provision for current or future income tax is required for the
Corporation and its subsidiaries.
8
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
31
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
(e) Financial assets and liabilities:
Financial assets include the Corporation's amounts receivable and prepaid expenses, marketable securities,
debenture portfolio investment, and investment portfolio. Financial liabilities include bank indebtedness, loan
on debenture portfolio investment, accounts payable and accrued liabilities, unearned income, shareholder
dividend payable, loans payable, and convertible debentures.
The Corporation classifies its financial assets into the following categories:
financial assets at fair value
through profit or loss ("FVTPL"), loans and receivables, and available for sale. Marketable securities and
debenture portfolio investments have been designated as available for sale.
reporting and
performance measurement of these investments are on a fair value basis and are based on prices as quoted in
Internal reporting and performance measurement of these investments are on a
an active public marketplace.
fair value basis. Amounts receivable and prepaid expenses and investment portfolio are classified as loans
and receivables.
Internal
The Corporation classifies its financial liabilities into the other liabilities category.
Recognition and measurement of financial instruments:
its financial assets and liabilities at
The Corporation determines the classification of
initial recognition.
Financial instruments are recognized initially at fair value and, in the case of financial assets and liabilities,
carried at amortized cost, adjusted for directly attributable transaction costs. Financial assets classified as
available for sale are subsequently measured at fair value using the bid/ask price, with gains and losses
recognized in other comprehensive income. Financial assets classified as at FVTPL are subsequently
measured at fair value using the bid/ask price, with gains and losses recognized in profit or loss. Financial
instruments classified as loans and receivables or other liabilities are subsequently measured at amortized cost
less any costs of impairment.
(f) Derecognition of financial assets and liabilities:
(i) Financial assets:
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the
financial asset expires, or it transfers the rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the financial asset are transferred, or in which
the Corporation neither transfers nor retains substantially all the risks and rewards of ownership and it
does not retain control of the financial asset. Any interest in such transferred financial assets that qualify
for derecognition that is created or retained by the Corporation is recognized as a separate asset or
liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or
the carrying amount allocated to the portion of the asset transferred), and the sum of (a) the consideration
received (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or
loss that had been recognized in other comprehensive income is recognized in profit or loss.
The Corporation enters into transactions whereby it transfers mortgage or loan investments recognized on
its statements of financial position, but retains either all or substantially all of the risks and rewards of the
If all or substantially all risks and rewards are retained, then the
transferred mortgage or loan investments.
transferred mortgage or loan investments are not derecognized.
In transactions in which the Corporation neither retains nor transfers substantially all the risks and rewards
of ownership of a financial asset and it retains control over the asset, the Corporation continues to
recognize the asset to the extent of its continuing involvement, determined by the extent to which it is
exposed to changes in the value of the transferred asset.
9
32 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
(ii) Financial liabilities:
The Corporation derecognizes a financial liability when the obligation under the liability is discharged,
cancelled, or expires.
(g) Compound financial instruments:
instruments issued by the Corporation comprise convertible debentures that can be
Compound financial
converted into shares of the Corporation at the option of the holder, and the number of shares to be issued
does not vary with changes in their fair value. The liability component of a compound financial instrument is
recognized initially at the fair value of a similar liability that does not have an equity conversion option. The
equity component is recognized initially as the difference between the fair value of the compound financial
instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs
are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent
to the initial recognition, the liability component of a compound financial instrument is measured at amortized
cost using the effective interest method. The equity component of a compound financial instrument is not re-
measured subsequent to initial recognition. Interest, dividends, losses and gains relating to the financial liability
are recognized in profit or loss.
(h) Share capital:
Common shares are classified as equity.
are recognized as a deduction from equity. Dividends to shareholders are recognized in shareholders' equity.
Incremental costs directly attributable to the issue of common shares
(i) Basic and diluted per share calculation:
The Corporation presents basic and diluted profit per share data for its common shares. Basic per share
amounts are calculated by dividing the profit and loss attributable to common shareholders of the Corporation
by the weighted average number of common shares outstanding during the year. Diluted per share amounts
are calculated using the "if converted method" and are determined by adjusting the profit or loss attributable to
common shareholders and the weighted average number of common shares outstanding, adjusted for the
effects of all potential dilutive convertible debentures and any options granted under the incentive option plan.
(j) Accounting standards implemented in 2016:
Amendments to IAS 1 ("IAS 1"):
In 2014, the IASB issued amendments to IAS 1, Presentation of Financial Statements, as part of its major
initiative to improve presentation and disclosure in financial reports. The Corporation implemented these
amendments prospectively on January 1, 2016. There was no significant impact on the Corporation's
consolidated financial statements as a result of the implementation of this amendment.
10
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
33
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
(k) Future changes in accounting policies:
(i)
IFRS 15, Revenue from Contracts with Customers ("IFRS 15"):
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The new standard
provides a comprehensive framework for recognition, measurement, and disclosure of revenue from
contracts with customers, excluding contracts within the scope of the standard on leases, insurance
contracts, and financial instruments. The new standard is effective for annual periods beginning on or after
January 1, 2018. Earlier application is permitted on a retrospective basis. The Corporation intends to adopt
IFRS 15 in its financial statements for the annual period beginning on January 1, 2018. The extent of the
impact of adoption of the standard has not yet been determined.
(ii)
IFRS 9, Financial instruments ("IFRS 9"):
In July 2014, the IASB issued the complete IFRS 9, replacing IAS 39, Financial Instruments – Recognition
and Measurement. IFRS 9 introduces new requirements for classification and measurement, impairment,
and general hedging. The standard becomes effective for annual periods beginning on or after January 1,
2018 and is to be applied retrospectively. Early adoption is permitted. The Corporation intends to adopt
IFRS 9 in its financial statements for the annual period beginning on January 1, 2018. The extent of the
impact of adoption of the standard has not yet been determined.
4. Amounts receivable and prepaid expenses:
The following is a breakdown of amounts receivable and prepaid expenses as at December 31, 2016 and
2015:
Interest receivable
Prepaid expenses
Fees receivable
Special income receivable
Amounts receivable and prepaid expenses
2016
$
4,272,274
151,795
269,807
29,315
$
4,723,191
2015
$
4,332,539
137,820
238,882
-
$
4,709,241
5. Marketable securities and debenture portfolio investments:
trusts which are classified as available for sale. The fair value of
The Corporation holds units in publicly traded real estate investment trusts and debentures of publicly traded
real estate investment
the units and
debentures is based on the closing price of the investments, which are actively traded in the marketplace and
any adjustments to fair value are reflected in the Statements of Comprehensive Income until the investments
are disposed of or impaired, at which time the Corporation would record the change in fair value in the
Statements of Income. The fair value of the units at December 31, 2016 is $2,200,329 (2015 - $1,949,106).
The fair value of the debentures at December 31, 2016 is $2,199,937 (2015 - $2,076,800). For the year ended
December 31, 2016, the Corporation recorded an unrealized gain of $364,848 (2015 - an unrealized loss of
$74,570) with a corresponding increase (decrease) in other comprehensive income.
The Corporation has a margin loan against the debenture portfolio and is open for repayment at any time. The
current interest rate on this loan is equal to the Bank of Canada's overnight rate plus a spread. The effective
rate is equal to 1% per annum.
11
34 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
6.
Investment portfolio:
The following is a breakdown of the investment portfolio as at December 31, 2016 and 2015:
2016
2015
Conventional first mortgages
Conventional non-first mortgages
Related investments
Discounted debt investments
Non-conventional mortgages
Total investments (at amortized cost)
$
336,745,396
46,265,981
56,734,231
5,071,525
3,937,500
448,754,633
$
75.04%
10.31%
12.64%
1.13%
0.88%
100.00%
$
283,869,955
41,799,212
59,422,966
5,022,775
12,804,730
402,919,638
$
70.45%
10.37%
14.75%
1.25%
3.18%
100.00%
Impairment provision
Investment portfolio
(4,460,000)
$
444,294,633
(4,230,000)
$
398,689,638
As at December 31, 2016, none (2015 - $8,866,920) of the mortgages within the conventional first mortgage
portfolio have first priority syndicate participations (2015 - $7,093,535) (recorded on the Corporation's balance
sheets as loans payable (see note 8)).
Conventional first mortgages are loans secured by a first priority mortgage charge with loan to values not
exceeding 75%. Conventional non-first mortgages are loans with mortgage charges not registered in first
priority with loan to values not exceeding 75%. Related investments are loans that may not necessarily be
secured by mortgage charge security. Discounted debt investments are loans purchased from arms-length
third parties at a discount to their face value. Non-conventional mortgages are loans that in some cases have
loan to values that exceed or may exceed 75% and are investments that are the source of all special profit
participation earned by the Corporation.
The investment portfolio is stated at amortized cost. The impairment provision in the amount of $4,460,000 as
at December 31, 2016 (2015 - $4,230,000) represents the total amount of management's estimate of the
shortfall between the investment principal balances and the estimated recoverable amount from the security
under the loans.
The loans comprising the investment portfolio bear interest at the weighted average rate of 7.83% per annum
(2015 - 8.19% per annum) and mature between 2017 and 2020.
The unadvanced funds under the existing investment portfolio (which are commitments of the Corporation)
amounted to $131,268,094 as at December 31, 2016 (2015 - $113,464,052).
Principal repayments based on contractual maturity dates are as follows:
2017
2018
2019
2020
Thereafter
$
301,400,622
118,384,175
25,988,499
2,981,337
-
448,754,633
$
12
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
35
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
Borrowers who have open loans have the option to repay principal at any time prior to the maturity date, upon
providing written notice in advance.
The Corporation enters into participation arrangements with a bank with respect
to certain mortgage
investments from time to time, whereby such participant takes the senior position and the Corporation retains a
subordinated position. Under these certain agreements, the Corporation has retained a residual portion of the
credit and/or default risk as a result of holding the subordinated interest in the mortgage and has therefore not
met the derecognition criteria described in note 3(f).
The portion of such mortgage interests held by the bank participant is included in investment portfolio and
recorded as loans payable (note 8). Any gross interest and fees earned on the bank participants’ interests and
the related interest expense is recognized in income and profit.
As at December 31, 2016,
investment portfolio and loans payable is nil (2015 - $7,093,535).
the carrying value of
the priority participants'
interests in the Corporation's
7. Bank indebtedness:
The Corporation has entered into credit arrangements, of which $45,436,612 has been drawn as at December
31, 2016 (2015 - $41,713,128).
Interest on bank indebtedness is predominantly charged at a formula rate that
varies with bank prime and may have a component with a fixed interest rate established based on a formula
linked to bankers' acceptance rates. The credit arrangement comprises a revolving operating facililty, a
component of which is a demand facility and a component of which has a committed term to September 30,
2017. Bank indebtedness is secured by a general security agreement. The credit agreement contains certain
financial covenants that must be maintained. As at December 31, 2016 and 2015, the Corporation was in
compliance with all financial covenants.
8.
Loans payable:
First priority charges on specific mortgage investment have been granted as security for the loans payable. The
loans mature on dates consistent with those of the underlying mortgages. There are no loans outstanding as at
December 31, 2016 (2015 - $7,093,535). The loans are on a non-recourse basis and bear interest at their
contractual rates (2015 – 4.85%).
13
36 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
9. Convertible debentures:
Year Ended
Liability component, beginning of year
Issued
Implicit interest rate in excess of coupon rate
Deferred finance cost amortization
Liability component, end of year
2016
139,904,049
21,026,222
357,767
1,017,951
162,305,989
$
$
$
2015
93,746,796
45,077,995
281,723
797,535
139,904,049
$
The breakdown of the convertible debentures for the year ended December 31, 2016 presented in the above
table is as follows:
Issued
Implicit interest
rate in excess of
coupon rate
$
Convertible
debenture
5.75%
5.40%
5.25%
4.75%
5.30%
5.50%
5.20%
$
Balance, beginning
of year
30,994,955
24,914,687
19,693,717
19,087,320
23,748,170
21,465,200
-
Total
$
139,904,049
-
-
-
-
-
-
21,026,222
21,026,222
$
Deferred finance
cost amortization
$
212,020
173,934
134,918
152,560
172,110
167,448
4,961
1,017,951
$
$
Balance, end of
year
31,243,770
25,177,718
19,930,572
19,300,141
23,944,422
21,676,254
21,033,112
162,305,989
$
Maturity date
Oct 31, 2017
Feb 28, 2019
Mar 31, 2019
Mar 31, 2020
May 31, 2022
Dec 31, 2022
Dec 31, 2023
36,795
89,097
101,937
60,261
24,142
43,606
1,929
357,767
$
The breakdown of the convertible debentures for the year ended December 31, 2015 presented in the above
table is as follows:
Implicit interest
rate in excess of
coupon rate
Issued
$
Convertible
debenture
5.75%
5.40%
5.25%
4.75%
5.30%
5.50%
$
Balance, beginning
of year
30,748,803
24,657,119
19,462,971
18,877,903
-
-
Total
$
93,746,796
-
-
-
-
23,618,421
21,459,574
45,077,995
$
Deferred finance
cost amortization
$
211,441
173,458
134,549
152,143
121,369
4,575
797,535
$
$
Balance, end of
year
30,994,955
24,914,687
19,693,717
19,087,320
23,748,170
21,465,200
139,904,049
$
Maturity date
Oct 31, 2017
Feb 28, 2019
Mar 31, 2019
Mar 31, 2020
May 31, 2022
Dec 31, 2022
34,711
84,110
96,197
57,274
8,380
1,051
281,723
$
14
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
37
Building Relationshipstoday and tomorrow
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
On December 21, 2016, the Corporation completed a public offering of 22,500 5.20% convertible unsecured
subordinated debentures at a price of $1,000 per debenture for gross proceeds of $22,500,000. The
debentures mature on December 31, 2023 and interest is paid semi-annually on June 30 and December 31.
The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion
price of $15.25 per share. The debentures may not be redeemed by the Corporation prior to December 31,
2019. On or after December 31, 2019, but prior to December 31, 2021, the debentures are redeemable at a
price equal to the principal, plus accrued and unpaid interest, at the Corporation's option on not more than 60
days' and not less than 30 days' notice, provided that the weighted average trading price of the shares on the
Toronto Stock Exchange for the 20 consecutive trading days ending 5 trading days preceding the date on
which the notice of redemption is given is not less than 125% of the conversion price. On or after December
31, 2021 and prior to the maturity date, the debentures are redeemable at a price equal to the principal amount
plus accrued and unpaid interest, at the Corporation's option on not more than 60 days' and not less than 30
days' prior notice. On redemption or at maturity, the Corporation may, at its option, on not more than 60 days'
and not less than 40 days' prior notice, elect to satisfy its obligation to pay all or a portion of the principal of the
debenture by issuing that number of shares of the Corporation obtained by dividing the principal amount being
repaid by 95% of the weighted average trading price of the shares for the 20 consecutive trading days ending
on the fifth day preceding the redemption or maturity date.
The convertible debentures were allocated into liability and equity components on the date of issuance as
follows:
Liability
Equity
Principal
$
$
22,184,000
316,000
22,500,000
On April 17, 2015,
the Corporation completed a public offering of 25,000 5.30% convertible unsecured
subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,000,000. The
debentures mature on May 31, 2022 and interest is paid semi-annually on May 31 and November 30. The
debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price
of $13.95 per share. The debentures may not be redeemed by the Corporation prior to May 31, 2018. On or
after May 31, 2018, but prior to May 31, 2019, the debentures are redeemable at a price equal to the principal,
plus accrued and unpaid interest, at the Corporation's option on not more than 60 days' and not less than 30
days' notice, provided that the weighted average trading price of the shares on the Toronto Stock Exchange for
the 20 consecutive trading days ending 5 trading days preceding the date on which the notice of redemption is
given is not less than 125% of the conversion price. On or after May 31, 2019 and prior to the maturity date,
the debentures are redeemable at a price equal to the principal amount plus accrued and unpaid interest, at the
Corporation's option on not more than 60 days' and not less than 30 days' prior notice. On redemption or at
maturity, the Corporation may, at its option, on not more than 60 days' and not less than 40 days' prior notice,
elect to satisfy its obligation to pay all or a portion of the principal of the debenture by issuing that number of
shares of the Corporation obtained by dividing the principal amount being repaid by 95% of the weighted
average trading price of the shares for the 20 consecutive trading days ending on the fifth day preceding the
redemption or maturity date.
15
38 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
The convertible debentures were allocated into liability and equity components on the date of issuance as
follows:
Liability
Equity
Principal
$
$
24,842,000
158,000
25,000,000
On December 22, 2015, the Corporation completed a public offering of 20,000 5.50% convertible unsecured
subordinated debentures at a price of $1,000 per debenture for gross proceeds of $20,000,000. Additionally,
pursuant to the exercise of the over-allotment option, an additional 3,000 5.50% convertible unsecured
subordinated debentures were issued at a price of $1,000 per debenture for gross proceeds of $3,000,000.
The debentures mature on December 31, 2022 and interest is paid semi-annually on June 30 and December
31. The debentures are convertible at the option of the holder at any time prior to the maturity date at a
conversion price of $14.00 per share. The debentures may not be redeemed by the Corporation prior to
December 31, 2018. On or after December 31, 2018, but prior to December 31, 2019, the debentures are
redeemable at a price equal to the principal, plus accrued and unpaid interest, at the Corporation's option on
not more than 60 days' and not less than 30 days' notice, provided that the weighted average trading price of
the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending 5 trading days preceding
the date on which the notice of redemption is given is not less than 125% of the conversion price. On or after
December 31, 2019 and prior to the maturity date, the debentures are redeemable at a price equal to the
principal amount plus accrued and unpaid interest, at the Corporation's option on not more than 60 days' and
not less than 30 days' prior notice. On redemption or at maturity, the Corporation may, at its option, on not
more than 60 days' and not less than 40 days' prior notice, elect to satisfy its obligation to pay all or a portion of
the principal of the debenture by issuing that number of shares of the Corporation obtained by dividing the
principal amount being repaid by 95% of
the shares for the 20
consecutive trading days ending on the fifth day preceding the redemption or maturity date.
the weighted average trading price of
The convertible debentures were allocated into liability and equity components on the date of issuance as
follows:
Liability
Equity
Principal
$
$
22,634,000
366,000
23,000,000
As at December 31, 2016, debentures payable bear interest at the weighted average effective rate of 5.34%
(2015 - 5.36%) per annum. Notwithstanding the carrying value of the convertible debentures, the principal
balance outstanding to the debenture holders is $168,166,000 as at December 31, 2016 (2015 -
$145,666,000).
16
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
39
Building Relationshipstoday and tomorrow
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
10. Shareholders' equity:
The beneficial
interest in the Corporation is represented by a single class of shares that are unlimited in
number. Each share carries a single vote at any meeting of shareholders and carries the right to participate pro
rata in any dividends.
(a) Shares issued and outstanding:
The following shares were issued and outstanding as at December 31, 2016:
Balance, beginning of year
New shares from equity offering
Equity offering costs
Options exercised in the year
New shares issued during the year under Dividend Reinvestment Plan
Balance, end of year
The following shares were issued and outstanding as at December 31, 2015:
Balance, beginning of year
New shares from equity offering
Equity offering costs
New shares issued during the year under Dividend Reinvestment Plan
Balance, end of year
# of shares
20,313,943
1,966,500
-
46,250
163,796
22,490,489
# of shares
20,162,266
80,000
-
71,677
20,313,943
Amount
209,220,787
25,367,850
(1,246,207)
549,272
2,139,684
236,031,386
Amount
207,378,123
980,000
(21,931)
884,595
209,220,787
$
$
$
$
During the second quarter of 2016, the Corporation completed an equity offering of 1,710,000 common shares
at a price of $12.90 per share for gross proceeds of $22,059,000. The over-allotment option was exercised in
full and the Corporation issued an additional 256,500 shares at a price of $12.90 per share for gross proceeds
of $3,308,850. The total shares issued was 1,966,500.
In the first quarter of 2015, the Corporation completed a private placement of 80,000 shares at $12.25 per
share for gross proceeds of $980,000.
Incentive option plan:
(b)
During the second quarter of 2015, the Corporation granted 35,000 options at an exercise price of $12.21 per
share. These options fully vested upon granting.
As at December 31, 2016, of the 1,075,000 options granted, the total options excerised to date is 47,750 and
the total amount of options forfeited to date is 20,000.
Amount
98,894
1,637
100,531
(4,446)
(962)
95,123
$
$
$
Balance at December 31, 2014
Options granted
Balance at December 31, 2015
Options exercised
Options forfeited
Balance at December 31, 2016
# of options
1,028,500
35,000
1,063,500
(46,250)
(10,000)
1,007,250
17
40 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
(c) Dividend reinvestment plan and direct share purchase plan:
The Corporation has a dividend reinvestment plan and direct share purchase plan for its shareholders, which
allows participants to reinvest their monthly cash dividends in additional shares of the Corporation at a share
price equivalent to the weighted average price of shares for the preceding five-day period.
11. Per share amounts:
Profit per share calculation:
The following tables reconciles the numerators and denominators of the basic and diluted profit per share for
the years ended December 31, 2016 and 2015.
Basic profit per share calculation:
Numerator for basic profit per share:
Net income and profit for the year:
Denominator for basic profit per share:
Weighted average shares
Basic profit per share
Diluted profit per share calculation:
Numerator for diluted profit per share:
Net income and profit for the year:
Interest on convertible debentures
Net profit for diluted profit per share
Denominator for diluted profit per share:
Weighted average shares
Net shares that would be issued:
Assuming the proceeds from options are used to
repurchase units at the average share price
Assuming debentures are converted
Diluted weighted average shares
2016
2015
$
21,190,613
$
20,081,258
21,810,736
$
0.972
20,253,665
$
0.991
2016
2015
$
21,190,613
7,164,273
$
28,354,886
$
20,081,258
5,208,722
$
25,289,980
21,810,736
20,253,665
120,884
7,922,849
29,854,469
52,264
5,755,708
26,061,637
Diluted profit per share
$
0.950
$
0.970
12. Dividends:
The Corporation intends to make dividend payments to the shareholders on a monthly basis on or about the
15th day of each month. The operating policies of the Corporation set out that the Corporation intends to
distribute to shareholders within 90 days after the year end at least 100% of the net income of the Corporation
determined in accordance with the Income Tax Act (Canada), subject to certain adjustments.
For the year ended December 31, 2016,
$20,081,258) to its shareholders. Dividends were $0.966 per share (2015 - $0.991 per share).
the Corporation recorded dividends of $21,190,613 (2015 -
18
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
41
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
13. Related party transactions and balances:
The Corporation's Manager (a company related to officers and/or directors of the Corporation) receives an
allocation of interest, referred to as the Corporation Manager spread interest, calculated at 0.75% per annum of
the Corporation's daily outstanding performing investment balances. For the year ended December 31, 2016,
Included in accounts payable and accrued liabilities at
this amount was $3,152,050 (2015 - $2,873,993).
December 31, 2016 are amounts payable to the Corporation's Manager of $275,563 (2015 - $253,538).
The total directors' fees paid for the year was $224,375 (2015 - $183,000). This amount has been fully settled
during the year. The listing of the members of the Board of Directors is shown in the annual report. Key
management personnel are also directors of the Corporation and receive compensation from the Corporation's
Manager. The Directors held 430,946 shares in the Corporation as at December 31, 2016 (2015 - 428,986).
During the year ended December 31, 2016, none of the directors were awarded options under the incentive
option plan (2015 - 35,000).
the Corporation's investments; 75% of all of
The Mortgage Banker (a company related to officers and/or directors of the Corporation) receives certain fees
loan servicing fees equal to 0.10% per annum on the principal amount of each
from the borrowers as follows:
of
fees generated from the
Corporation's investments; and 25% of all of the special profit income generated from the non-conventional
Interest and fee
investments after the Corporation has yielded a 10% per annum return on its investments.
income of the Corporation is net of the loan servicing fees paid to the Mortgage Banker of approximately
$420,000 for the year ended December 31, 2016 (2015 - $383,000). The Mortgage Banker also retains all
overnight float interest and incidental fees and charges payable by borrowers on the Corporation's investments.
the commitment and renewal
The Corporation's Management Agreement and Mortgage Banking Agreement contains provisions for the
payment of termination fees to the Corporation Manager and Mortgage Banker in the event that the respective
agreements are either terminated or not renewed.
A significant number of the Corporation's investments are shared with other investors of the Mortgage Banker,
which may include members of management of the Mortgage Banker and/or Officers or directors of the
Corporation. The Corporation ranks equally with other members of the syndicate as to receipt of principal and
income.
Three mortgage investments totaling $4,850,000 (December 31, 2015 - one mortgage investment totaling
$5,250,000) were issued to a borrower controlled by an independent director of
the Corporation. The
investments were made by way of a participation in a direct loan to the entity controlled by the director. The
investment is dealt with in accordance with the Corporation's existing investment and operating policies and is
personally guaranteed by the director. The Corporation recognized interest and fees earned of $624,689
(December 31, 2015 - $669,095) from these investments during the year.
A mortgage investment of nil (December 31, 2015 - $1,082,657) was outstanding from a borrower controlled by
the same independent director set out above. The investment represented a participation in a first mortgage
loan assumed by an entity controlled by the director. The director became involved in the borrower entity by
virtue of his position as a second mortgage lender to the borrower that fell into default. During the year, the
mortgage was discharged in full and the Corporation recognized interest and fees earned of $535,757
(December 31, 2015 - $74,874) from this investment during the year.
19
42 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
The Corporation also holds a mortgage investment totaling $4,628,000 at December 31, 2016 (classified as
Discounted debt investment) that originated from the purchase of a mortgage loan from a schedule 1 bank at a
discount to its original principal balance (December 31, 2015 - $4,303,000). The Corporation’s investment is by
way of a participation in a mortgage loan to the entity that took title to the real estate following the completion of
the enforcement foreclosure of the real estate that occurred after the purchase of the underlying Schedule 1
bank mortgage. The entity that holds title to the real estate as agent is related to the other participants in the
mortgage loan investment, including entities related to certain directors of the Corporation. The Corporation
recognized interest and fees earned of nil (December 31, 2015 - nil) from this investment during the year. The
impairment provision was reduced by $660,000 in the current year (2015 - provision increase of $575,000)
bringing the impairment allowance recorded on this loan to $1,190,000 as at December 31, 2016 (December
31, 2015 - $1,850,000). Recoveries under the investment resulting from the sale of the secured real estate will
be treated the same as for all non-conventional mortgage investments held by the Corporation.
Key management compensation:
Aggregate compensation for key management personnel (including payments to related parties for their
recovery of overhead costs), all consisting of short-term employee compensation, was $1,960,779 in 2016
(2015 - $1,892,130), all of which was paid by the Corporation's Manager and nil by the Corporation.
14.
Interest expense:
Bank interest expense
Loans payable interest expense
Debenture interest expense
Interest expense
Deferred finance cost amortization - convertible debentures
Implicit interest rate in excess of coupon rate - convertible debentures
Change in accrued interest
2016
2015
$
$
1,313,699
93,280
9,221,061
10,628,040
(1,017,951)
(357,767)
229,721
1,166,770
920,995
7,262,845
9,350,610
(797,535)
(281,723)
(279,261)
$
$
Cash interest paid
$
9,482,043
$
7,992,091
15. Contingent liabilities:
The Corporation is involved in certain litigation arising out of the ordinary course of investing in loans. Although
such matters cannot be predicted with certainty, management believes the claims are without merit and does
not consider the Corporation's exposure to such litigation to have a material
impact on these financial
statements.
20
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
43
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
16. Fair value:
The fair values of amounts receivable and prepaid expenses, bank indebtedness, accounts payable and
accrued liabilities, and shareholders dividends payable approximate their carrying values due to their short-
term maturities.
The fair value of the investment portfolio approximates its carrying value as the majority of the loans are
repayable in full at any time without penalty and have floating interest rates. There is no quoted price in an
active market for the mortgage and loan investments or mortgage syndication liabilities. The Corporation
makes its determinations of fair value based on its assessment of the current lending market for mortgage and
loan investments of same or similar terms. As a result, the fair value of mortgage and loan investments is
based on Level 3 of the fair value hierarchy.
The fair values of loans payable approximate their carrying values due to the fact that the majority of the loans
are: (i) repayable in full, at any time, upon the repayment of the underlying loan that secures the loan payable,
and (ii) have floating interest rates linked to bank prime.
The fair value of convertible debentures, including their conversion option, has been determined based on the
closing price of the debentures of the Corporation on the Toronto Stock Exchange for the respective date.
The fair value of marketable securities has been determined based on the closing price of the security of the
respective listed entities on the Toronto Stock Exchange for the respective date.
The fair value of debenture portfolio investment has been determined based on the closing price of convertible
debenture securities of the respective listed entities on the Toronto Stock Exchange for the respective date.
The fair value of loans on the debenture portfolio approximates its carrying value due to the fact that it is fully
open for repayment and has a floating rate of interest.
The tables below present the fair values of the Corporation's financial instruments as at December 31, 2016
and 2015.
It does not include fair value information for financial assets and financial liabilities not measured at
fair value if the carrying amount is a reasonable approximation of fair value:
2016
Level 1
Level 2
Level 3
Total
Debenture portfolio investment
Marketable securities
Convertible debentures
$ 2,199,937
2,200,329
168,831,871
-
-
-
- $ 2,199,937
- 2,200,329
- 168,831,871
2015
Level 1
Level 2
Level 3
Total
Debenture portfolio investment
Marketable securities
Convertible debentures
$ 2,076,800
1,949,106
144,113,082
-
-
-
- $ 2,076,800
- 1,949,106
- 144,113,082
21
44 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
17. Risk management:
The Corporation is exposed to the symptoms and effects of global economic conditions and other factors that
could adversely affect its business, financial condition, and operating results. Many of these risk factors are
beyond the Corporation's direct control. The Corporation Manager and Board of Directors play an active role in
monitoring the Corporation's key risks and in determining the policies that are best suited to manage these
risks. There has been no change in the process since the previous year.
The Corporation's business activities, including its use of financial
various risks, the most significant of which are interest rate risk, credit and operational risks, and liquidity risk.
instruments, exposes the Corporation to
(a)
Interest rate risk:
Interest rate risk is the risk that fair value of future cash flows of financial assets or financial
fluctuate because of changes in market interest rates.
liabilities will
The Corporation’s operations are subject to interest rate fluctuations. The interest rate on the majority of the
investments is set at the greater of a floor rate and a formula linked to bank prime. The floor interest rate
mitigates the effect of a drop in short-term market interest rates on existing investments while the floating
component linked to bank prime allows for increased interest earnings on a component of the investments
where short-term market rates increase.
(i)
Interest income risk:
A significant portion of the Corporation's investment portfolio comprise investments in short term mortgage
loans that generally are repaid by the borrowers in under twenty-four months. The reinvestment of funds
received from such repayments are invested at current market interest rates. As such, the weighted average
interest rate applicable to the investment portfolio changes with time. This creates an ongoing risk that the
weighted average interest rate on the investment portfolio will decrease which will have a negative impact on
the Corporation's interest income and net profit.
(ii)
Interest expense risk:
The Corporation's floating-rate debt comprises bank indebtedness, loan on debenture portfolio investment, with
each bearing interest based on bank prime and/or based on short term bankers' acceptance interest rates as a
benchmark.
22
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
45
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
At December 31, 2016, if interest rates at that date had been 100 basis points lower or higher, with all other
variables held constant, comprehensive income and equity for the year would be affected as follows:
Financial assets:
Amounts receivable and prepaid expenses
Marketable securities
Debenture portfolio investment
Investment portfolio
Financial liabilities:
Bank indebtedness
Loan on debenture portfolio investment
Accounts payable and accrued liabilities
Shareholders dividend payable
Convertible debentures
Total increase
(b) Credit risks:
Carrying Value
-1%
+1%
4,723,191
2,200,329
2,199,937
444,294,633
45,436,612
1,295,184
2,101,630
2,428,973
162,305,989
-
-
-
-
-
-
-
1,526,301
454,366
12,952
-
-
-
(454,366)
(12,952)
-
-
-
$
467,318
$
1,058,983
Credit risk is the possibility that a borrower under one of the mortgages comprising the investment portfolio,
may be unable to honour their debt commitment as a result of a negative change in the borrowers' financial
position or market conditions that could result in a loss to the Corporation.
Any instability in the real estate sector or an adverse change in economic conditions in Canada could result in
declines in the value of real property securing the Corporation's investments. There have been significant
increases in real estate values in various sectors of the Canadian market over the past few years. A correction
or revaluation of real estate in such sectors will result in a reduction in values of the real estate securing
mortgage loans that comprise the Corporation's investment portfolio. This could result in impairments in the
mortgage loans or loan losses in the event the real estate security has to be realized upon by the lender. The
Corporation's maximum exposure to credit risk is represented by the fair values of amounts receivable and the
investment portfolio.
23
46 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
(c) Liquidity risk:
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting its financial obligations as they
become due.
The Corporation's liquidity requirements relate to its obligations under its bank indebtedness, loans payable,
convertible debentures, and its obligations to make future advances under its existing portfolio. Liquidity risk is
managed by ensuring that the sum of (i) availability under the Corporation's bank borrowing line, (ii) the
sourcing of other borrowing facilities, and (iii) projected repayments under the existing investment portfolio,
exceeds projected needs (including funding of further advances under existing and new investments).
the Corporation had not utilized its full leverage availability, being a guideline of
As at December 31, 2016,
60% of its first mortgage investments. Unadvanced committed funds under the existing investment portfolio
amounted to $131,268,094 as at December 31, 2016 (2015 - $113,464,052). These commitments are
anticipated to be funded from the Corporation's credit facility and borrower repayments. The Corporation has a
revolving line of credit with its principal banker to fund the timing differences between investment advances and
investment repayments. The bank borrowing line is a committed facility with a maturity date of September 30,
If the loan is not renewed on September 30, 2017, the terms of the facility allow for the Corporation to
2017.
repay the balance owed on September 30, 2017 within 12 months.
In the current economic climate and capital
market conditions, there are no assurances that the bank borrowing line will be renewed or that it could be
is not extended at maturity, repayments under the
replaced with another lender if not renewed.
Corporation's investment portfolio would be utilized to repay the bank indebtedness. There are limitations in
the availability of funds under the revolving line of credit. The Corporation's investments are predominantly
short-term in nature, and as such, the continual repayment by borrowers of existing investments creates
liquidity for ongoing investments and funding commitments. Loans payable relate to borrowings on specific
investments within the Corporation's portfolio and only have to be repaid once the specific loan is paid out by
the borrower.
If
it
If the Corporation is unable to continue to have access to its bank borrowing line and loans payable, the size of
the Corporation's investment portfolio will decrease and the income historically generated through holding a
larger portfolio by utilizing leverage will not be earned.
Contractual obligations as at December 31, 2016 are due as follows:
Total
Less than 1 year
1-3 years
4 - 6 years
Bank indebtedness
Accounts payable and accrued liabilities
Loan on debenture portfolio investment
Shareholder dividend payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
-
$ 45,436,612 $ 45,436,612 $
-
2,101,630 2,101,630
-
1,295,184 1,295,184
2,428,973 2,428,973
-
168,166,000 31,443,000 66,223,000 70,500,000
$ 219,428,399 $ 82,705,399 $ 66,223,000 $ 70,500,000
131,268,094 131,268,094
-
$ 350,696,493 $ 213,973,493 $ 66,223,000 $ 70,500,000
- $
-
-
-
-
24
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
47
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(in Canadian dollars)
The bank indebtedness and loans payable are liabilities resulting from the funding of
the Corporation's
the bank
investments. Repayment of
indebtedness and/or loans payable. The obligations for future advances under the Corporation's investment
portfolio are anticipated to be funded from the Corporation's credit facility and borrower repayments. Upon
funding of same, the funded amount forms part of the Corporation's investments.
investments results in a direct and corresponding pay down of
Interest payments on debentures (assuming the amounts remain unchanged) would be $8,681,958 for less
than 1 year, $16,383,322 for 1 to 3 years and $8,022,500 for 4 to 6 years.
(d) Capital risk management:
The Corporation defines capital as being the funds raised through the issuance of publicly traded securities of
the Corporation. The Corporation's objectives when managing capital/equity are:
•
•
to safeguard the Corporation's ability to continue as a going concern, so that it can continue to provide
returns for shareholders, and
to provide an adequate return to shareholders by obtaining an appropriate amount of debt, commensurate
with the level of risk.
The Corporation manages the capital/equity structure and makes adjustments to it in light of changes in
economic conditions. In order to maintain or adjust the capital structure, the Corporation may issue new shares
or repay bank indebtedness (if any) and loans payable.
invest more than 10% of
the Corporation (i) will not
The Corporation's investment guidelines, which can be varied at the discretion of the Board of Directors,
incorporate various guidelines and investment operating policies. The Corporation's guidelines include the
in any single
following:
conventional first mortgage where the loan to value on such loan is less than 60%, (ii) will not invest more than
8% of the amount of its capital in any single conventional first mortgage where the loan to value on such loan is
between 60% and 70%, (iii) will not invest more than 5% of the amount of its capital in any single conventional
first mortgages where the loan to value on such loan exceeds 70%, (iv) will not invest more than 2.5% of the
amount of its capital in any single non-conventional mortgage or conventional investment that it is not a first
mortgage, and (v) will only borrow funds in order to acquire or invest in investments in amounts up to 60% of
the book value of the Corporation's portfolio of conventional first mortgages. Capital is defined as the sum of
shareholders' equity plus the face amount of convertible debentures.
the amount of
its capital
The Corporation is required by its bank lender to maintain various covenants, including minimum equity
amount, interest coverage ratios, indebtedness as a percentage of the performing first mortgage portfolio size,
and indebtedness to total assets. The Corporation is in compliance with all such bank covenants.
All of the Corporation's operations and investments are denominated in Canadian dollars, resulting in no direct
foreign exchange risk.
18. Subsequent event:
On March 21, 2017, the Corporation filed a final prospectus to sell, on a bought deal basis, 1,420,000 common
shares at a price of $14.10 per share for gross proceeds of $20,022,000. The offering is scheduled to close on
or about March 28, 2017. The Corporation has granted the underwriters an over-allotment option to purchase
up to 213,000 common shares exercisable, in whole or in part, at any time until 30 days following the closing of
the offering.
the offering will be
$23,025,300
the over-allotment option is exercised in full,
the gross proceeds of
If
25
48 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
Total Return Since IPO
Total Return Since IPO
An Attractive Investment
11.444%
17.47
Total CAGR Including Reinvestment
Term
MORTGAGE INVESTMENT CORPORATION
$484
$664
0 %
1 . 1
1
+
$100
$100
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Since Oct. 5th, 1999 till March 21th, 2017
Since Oct . 5th, 1999 till March 21th, 2017
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
An investment in Firm Capital, since its initial public offering, has generated an attractive return for investors. Since
(cid:36)(cid:81)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:87)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3)
the IPO in 1999, a $100 investment in Firm Capital has appreciated to $567.28 when factoring in full dividend
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reinvestment over the same period . The compounded annual growth rate or “CAGR” in Firm Capital Mortgage
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Investment Corporation shares, since 1999 has been in excess of 11.17%
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DIVIDEND REINVESTMENT PLAN
DIVIDEND REINVESTMENT PLAN
Shareholders are reminded that they can participate in the Corporations Dividend Reinvestment Plan and Share
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:76)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)
Purchase Plan . The plan allows participants to have their monthly dividend reinvested in additional shares .
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SHARE PURCHASE PLAN
SHARE PURCHASE PLAN
(cid:50)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)
Once registered with the plan, participants have the right to purchase additional Shares at 5 day weighted average
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market price from the Corporation, totaling no greater than $12,000 per year and no less than $250.00 per month.
(cid:81)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:17)
Participating Shareholders pay no commission .
For further information, including answers to frequently asked questions about the program, please refer to
(cid:41)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:86)(cid:90)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:78)(cid:72)(cid:71)(cid:3)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:15)(cid:3)(cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
our website: www.firmcapital.com. To enroll, please contact your investment advisor or, if you are a registered
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Shareholder, complete the Authorization Form located on our website and forward to our Transfer Agent,
(cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:70)(cid:87)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:71)(cid:89)(cid:76)(cid:86)(cid:82)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:73)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)
Computershare Trust Company of Canada, at the address noted on the website. You can also contact Investor
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Relations at the Corporation by calling 416-635-0221, who will assist you in enrolling in the program.
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(cid:23)(cid:20)(cid:25)(cid:16)(cid:25)(cid:22)(cid:24)(cid:16)(cid:19)(cid:21)(cid:21)(cid:20)(cid:15)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:81)(cid:85)(cid:82)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:17)
Building Relationships
today and tomorrow
Building Relationships today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
49
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NOTESNOTES
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50 Firm Capital Mortgage Investment Corporation ● 2016 ● Annual Report
Corporate Director
Miller Thomson LLP
F.DB.G
, F.DB.F
MORTGAGE INVESTMENT CORPORATION
REAL ESTATE FINANCING SOLUTIONS
Mortgage Banker Sample Transactions:
Construction Loan
$45,015,000
First Mortgage
18-storey, 220-unit
condominium building
Land Loan
$12,000,000
Infill Construction Loan
$2,225,000
First Mortgage
12.64-acre, multi-family
residential site
First Mortgage
4,700 sq. ft.
custom home
OAKVILLE, ON
MARKHAM, ON
BURLINGTON, ON
Inventory Loan
$3,800,000
First Mortgage
3 luxury townhomes
OTTAWA, ON
Construction Loan
$9,000,000
First Mortgage
9-storey, 66-unit
condominium building
OTTAWA, ON
Land & Construction Loan
$8,000,000
First Mortgage
4 custom homes & 2
commercial buildings
BRAMPTON, ON
Land Loan
$5,500,000
Land & Construction Loan
$7,265,000
First Mortgage
2.0 acre infill residential
development site
First Mortgage
7 residential
building lots
Bridge Loan
$3,500,000
First Mortgage
3 lakefront lots
Bridge Loan
$4,750,000
First Mortgage
2 office buildings
(10,193 & 29,505 sq. ft.)
WATERLOO, ON
Mezzanine Loan
$12,240,000
Second Mortgage
25-storey, 288-unit
condominium building
CALGARY, AB
Construction Loan
$20,367,400
First Mortgage
73 condo units
RICHMOND HILL, ON
MISSISSAUGA, ON
MUSKOKA LAKES, ON
MISSISSAUGA, ON
BOUTIQUE MORTGAGE LENDERS
® PROVIDING REAL ESTATE CAPITAL FOR:
COMMERCIAL FINANCING
RESIDENTIAL FINANCING
BRIDGE FINANCING
STRUCTURED REAL ESTATE FINANCING
Building Relationships | since 1988
A Non-Bank Lender Providing Construction, Bridge,
Equity and Conventional Real Estate Financing
T: 416.635.0221 • F: 416.635.1713 • www.FirmCapital.com
Ontario Mortgage Brokerages, Lenders and Administrators Act LIC. #10164, Administrators LIC. #11442
Annual Report Cover_2016.indd 5
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