Annual Report Cover 2017 - FINAL - MARCH.pdf 1 30/03/2017 12:37:15 PM
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ANNUAL
2017 REPORT
BUILDING RELATIONSHIPS
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 . . . . . . . . . . . . . . 24
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Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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 . . . . . . . . . . . . . . 28
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 . . . . . . . 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: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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(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 . . . . . . . . . . . . . . . . . . . . . 31
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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)
(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:90)(cid:85)(cid:76)(cid:87)(cid:72)(cid:85)(cid:15)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:85),(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:92)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:17)(cid:3)(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:20)(cid:28)(cid:27)(cid:27)(cid:15)(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:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3) (cid:69)(cid:72)(cid:72)(cid:81)(cid:3) (cid:68)(cid:3) (cid:81)(cid:82)(cid:81)(cid:16)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3) (cid:79)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)
(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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(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
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)
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)
LETTER TO SHAREHOLDERS
We are pleased to report to you on the 2017 results for Firm Capital Mortgage Investment Corporation (the
“Corporation”).
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 investor partners. We are
continually monitoring all markets and rebalancing the portfolio to reflect the current environment and market
conditions. In 2017, we were able to generate dividends to Shareholders of $1.006 per share, while adding to
the size of our loan loss provision by $1,240,000, bringing the year-end balance up to $5,700,000,
representing 1% of the Corporation’s assets.
HIGHLIGHTS
DIVIDENDS
For the year ended December 31, 2017, the Corporation declared dividends totaling $1.006 per share versus
$0.996 per share for the year ended December 31, 2016. The December 2017 special dividend was 7 cents
per unit.
PROFIT
Income and profit (referred to herein as “Profit”) for year ended December 31, 2017 of $24,821,438 represents
approximately a 17% increase compared to $21,190,613 reported for the year ended December 31, 2016.
Basic weighted average profit per share for the year ended December 31, 2017 was $1.019, which is 5% higher
compared to the $0.972 per share reported for the year ended December 31, 2016.
DIVERSIFIED PORTFOLIO WITH A SIGNIFICANT 25% YEAR OVER YEAR GROWTH
The Corporation’s Investment Portfolio at December 31, 2017 totaled $561.5 million (before impairment
provision) consisting of 251 separate investments. The average interest rate on the Corporation’s investments
at December 31, 2017 was 8.09% per annum. The Corporation’s portfolio increased by $112.7 million during
the year. The Alberta Mortgage Portfolio decreased from 13 investments as at December 31, 2016 to 7
investments at December 31, 2017, for a total of $17.8 million.
VERY SHORT TERM PORTFOLIO WITH SIGNIFICANT ANNUAL TURNOVER
In 2017, the Investment Portfolio repayments totaled $262 million with new investments during the year totaling
$375 million. This turn is the key to our investment approach and demonstrates the short term bridge financing
nature of the portfolio.
2018 OUTLOOK
We encourage Shareholders to read the Management Discussion and Analysis in this report and our Outlook
for 2018.
ELI DADOUCH
President
Chief Executive Officer
JONATHAN MAIR
Senior Vice-President
Chief Financial Officer
Firm Capital Mortgage Investment Corporation ● 2017 ● 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 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 acts
as the Corporation’s loan originator, underwriter, servicer, and syndicator. The Corporation’s
affairs are administered by FC Treasury Management Inc. (the “Corporation Manager”).
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 20, 2018 and should be read in conjunction with
the audited financial statements of the Corporation and the notes thereto for the years ended
December 31, 2017 and 2016, along with each of the quarterly reports for 2017 and 2016.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 1
2
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
HIGHLIGHTS
PROFIT
Income and profit (referred to herein as “Profit”) for the three months ended December 31, 2017
of $6,122,600 represents approximately a 14% increase compared to $5,368,851 for the same
period in the prior year. Profit for the year ended December 31, 2017 of $24,821,438 represents
approximately a 17% increase compared to $21,190,613 reported for the year ended December
31, 2016.
Basic weighted average profit per share for the three months ended December 31, 2017 was
$0.235, which is 1.7% lower than the $0.239 per share reported for the three months ended
December 31, 2016. Basic weighted average profit per share for the year ended December 31,
2017 was $1.019, which is 4.8% higher compared to the $0.972 per share reported for the year
ended December 31, 2016.
SIGNIFICANT PORTFOLIO GROWTH
The Corporation’s investment portfolio (the “Investment Portfolio”) as at December 31, 2017
increased by $112.8 million to approximately $561.5 million compared to $448.7 million as at
December 31, 2016 (before the impairment provision of $5.7 million and $4.5 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, 2017 represents an annualized return on
shareholders’ equity (based on the average of the month end shareholders’ equity in the quarter)
of 8.58%, representing return on shareholders’ equity of 705 basis points per annum over the
average one year Government of Canada Treasury bill yield of 1.53%.
INVESTMENT PORTFOLIO
The Corporation’s Investment Portfolio totaled $555,801,977 as at December 31, 2017 (net of an
impairment loss provision of $5,700,000) compared to $444,294,633 (net of an impairment loss
provision of $4,460,000) as at December 31, 2016, representing an increase of approximately
$111.5 million. The December 31, 2017 Investment Portfolio is comprised of 251 investments
(245 as at December 31, 2016). The average gross investment size (excluding impairment loss
provision) was approximately $2.2 million with 17 investments individually exceeding $7,500,000.
December 31, 2017
December 31, 2016
Mortgage Amount
$0 - $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
Number
197
27
10
17
251
Total Amount
(before provision)
$
169,511,967
96,807,234
48,217,047
246,965,728
561,501,977
$
% of
Portfolio Number
192
36
6
11
245
30.2%
17.2%
8.6%
44.0%
100.0%
Total Amount
(before provision)
$
164,927,050
125,766,186
34,014,437
124,046,960
448,754,633
$
%
% of
Change
Portfolio
2.8%
36.8%
28.0% (23.0%)
7.6% 41.8%
27.6% 99.1%
25.1%
100.0%
Unadvanced committed funds under the existing Investment Portfolio amounted to $91,953,643
as at December 31, 2017 ($131,268,094 as at December 31, 2016). The vast majority of the
Corporation’s investments are shared with other syndicate partners, the advantage of which
include risk diversification.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 2
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
3
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The allocation of the Investment Portfolio between the five main investment categories (as well
as the weighted average interest rate) is as follows:
December 31, 2017
December 31, 2016
Weighted
average
interest rate Outstanding amount
Percentage
outstanding
Weighted
average
interest rate Outstanding amount
$
7.78%
9.05%
9.73%
-
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
* The yield on Discounted Debt Investments will be determined upon final repayment of the investments.
427,591,758
57,187,248
69,636,557
5,392,900
1,693,514
561,501,977
(5,700,000)
555,801,977
76.1%
10.2%
12.4%
1.0%
0.3%
100.0%
7.53%
8.71%
8.62%
-
11.11%
8.09%
10.76%
7.83%
$
$
$
$
$
336,745,396
46,265,981
56,734,231
5,071,525
3,937,500
448,754,633
(4,460,000)
444,294,633
Percentage
outstanding
%
Change
27%
75.1%
24%
10.3%
23%
12.6%
6%
1.1%
0.9% (57%)
25%
100.0%
25%
The $112.8 million growth in the Investment Portfolio was essentially achieved by the Corporation
increasing the size of its investments in the conventional first mortgage, conventional non-first
mortgage, and related investments categories, offset by the decrease in investments in the non-
conventional mortgages.
Conventional first mortgages increased by 27% and represented 76% of the Corporation’s
portfolio at December 31, 2017 compared to 75% at December 31, 2016. Conventional non-first
mortgages increased by 24% and represented 10% of the Investment Portfolio at December 31,
2017 and December 31, 2016. Related investments increased by 23% and represented 12% of
the Corporation’s Investment Portfolio in comparison to 13% at December 31, 2016. Discounted
debt investments represented 1% of the Investment Portfolio, which remained consistent from
December 31, 2016. Non-conventional mortgages decreased by 57% and represented less than
1% of the Investment Portfolio at December 31, 2017 and December 31, 2016.
The weighted average face interest rate on the Corporation’s Investment Portfolio was 8.09% per
annum as at December 31, 2017 compared to 7.83% per annum as at December 31, 2016.
The allocation of the Investment Portfolio between its seven types of investments is as follows:
December 31, 2017
December 31, 2016
Property Type
Construction Mortgages
Single Family
Land
Condo (Including multi unit condo loans)
Multi Family Residential Mortgages
Related Investments
Other
Number
98
62
53
12
3
13
10
251
Total Amount
(before provision)
$
172,550,850
47,697,780
156,749,455
51,686,674
45,701,051
69,636,557
17,479,611
561,501,977
$
% of
Portfolio Number
83
60
59
15
3
14
11
245
30.7%
8.5%
27.9%
9.2%
8.1%
12.4%
3.1%
100.0%
$
139,028,716
41,733,220
134,905,245
39,301,579
15,223,878
56,734,231
21,827,764
448,754,633
$
%
Change
31.0% 24.1%
9.3% 14.3%
30.1% 16.2%
8.8% 31.5%
3.4% 200.2%
12.6% 22.7%
4.9% (19.9%)
25.1%
100.0%
Total Amount
(before provision)
% of
Portfolio
The Corporation continues to focus its lending into core markets that can be monitored closely
during evolving economic conditions. The mortgage investment portfolio has some geographic
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 3
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Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
diversification with 13% of the investments in the portfolio (excluding Related Investments)
secured by properties outside of Ontario, a reduction from 18% as at December 31, 2016.
December 31, 2017
December 31, 2016
Geographic Segment
Greater Toronto Area
Non-GTA Ontario
Quebec
Alberta
Saskatchewan
New Brunswick
British Columbia
Manitoba
Portfolio (excluding Related Investments)
Related Investments
Number
186
36
4
7
2
1
1
1
238
13
251
Total Amount
(before provision)
$
323,167,700
103,225,547
26,357,552
17,877,234
12,975,036
4,250,000
875,000
3,137,350
491,865,420
69,636,557
561,501,977
$
$
% of
65.7%
21.0%
5.4%
3.6%
2.6%
0.9%
0.2%
0.6%
100%
Portfolio Number
177
32
3
13
2
2
1
1
231
14
245
Total Amount
(before provision)
$
276,764,285
45,257,712
19,164,055
32,911,862
9,255,088
1,609,300
3,500,000
3,558,100
392,020,402
56,734,231
448,754,633
$
$
% of
Portfolio
%
Change
70.6% 16.8%
11.5% 128.1%
4.9% 37.5%
8.4% (45.7%)
2.4% 40.2%
0.4% 164.1%
0.9% (75.0%)
0.9% (11.8%)
25.5%
100%
The Corporation’s investment portfolio as at December 31, 2017 included participation in 7
mortgage loans on real estate located in Alberta, which is a decrease from the 13 investments
held at December 31, 2016. The investment amount at December 31, 2017 totals $17.9 million,
being 3.6% of the Corporation’s mortgage investments, down from 8.4% at December 31, 2016.
The average investment size is $2.5 million. The Corporation has intentionally reduced its
investment in mortgages in Alberta.
The allocation of the Investment Portfolio between investment underlying security type, is as
follows:
December 31, 2017
December 31, 2016
Underlying Security Type
Residential
Commercial
Related Investments
Number
221
17
13
251
Total Amount
(before provision)
$
$
435,895,456
55,969,964
69,636,557
561,501,977
% of
Portfolio Number
208
23
14
245
77.6%
10.0%
12.4%
100.0%
Total Amount
(before provision)
$
327,862,224
64,158,178
56,734,231
448,754,633
$
% of
Portfolio
%
Change
73.1% 33.0%
14.3% (12.8%)
12.6% 22.7%
25.1%
100.0%
residential category
family dwellings,
The
condominiums, residential land, residential construction, and multifamily residential.
includes mortgages on single
residential
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.
The weighted average loan to value ratio on conventional mortgages (being the combined
conventional first and conventional non-first mortgages) is approximately 60% based on the
appraisals obtained at the time of funding each mortgage loan.
Included in related investments is one United States ("US") dollar denominated investment of
$5,958,875 (US$4,750,000) (2016 - nil). The investment is a participation by the Corporation in a
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 4
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
limited partnership that has provided preferred equity to a real estate entity in the US. Income
recorded on this investment during the year was $71,267 (US$55,896) (2016 - nil) and is included
in interest and fees earned.
The Corporation holds a mortgage investment totaling $4,985,500 at December 31, 2017
(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, 2016 -
$4,628,000) 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 investment portfolio as at December 31, 2017 includes two investments totalling $2,361,437
with contractual interest arrears greater than 60 days past due, for which no impairment provision
is in place (2016 - nil). Both investments were subsequently brought current by the borrowers.
The investment portfolio as at December 31, 2017 includes six investments totalling $28,901,947
(2016 – one investment of $756,040) with maturity dates that are past due and for which no
extension or renewal was in place. As at December 31, 2017, three of the investments totalling
$12,918,805 (2016 – one investment of $756,040) are considered to be impaired and are
included in the Corporation’s impairment provision, and the remaining three investments, totaling
$15,983,142 (2016 – nil) are considered not to be impaired.
As at December 31, 2017, the Investment Portfolio continued to be heavily concentrated in short-
term investments with 74% of the portfolio maturing by December 31, 2018. 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.
Principal repayments based on contractual maturity dates are as follows:
December 31, 2017
Year ended December 31, 2018
2019
2020
Number
193
51
7
251
$
Total Amount
(before provision)
413,693,664
125,337,505
22,470,808
561,501,977
$
% of
Portfolio
74%
22%
4%
100%
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, interest, and fees. As at December 31, 2017, 210 of the
Corporation’s 251 investments (investment amount of $500,989,958) are shared with other
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 5
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
participants, 46 of which (investment amount of $123,424,719), the Corporation is a participant
for less than 50 percent of the loan amount.
The Mortgage Banker services the entire investment in which the Corporation is a participant, on
behalf of all participants and except for the case of investments with a first priority syndicate
participant, the Corporation ranks equally with other members of the syndicate as to receipt of
principal, interest and fees.
RESULTS OF OPERATIONS
INTEREST AND FEES
For the three months ended December 31, 2017, interest and fees earned increased by 21% to
$11,333,133 compared to $9,332,738 for the three months ended December 31, 2016. Interest
and fees earned for the year ended December 31, 2017 increased by 20% to $43,423,269 as
compared to $36,042,890 for the year ended December 31, 2016. Interest and fees earned for
the three months and year ended December 31, 2017 and December 31, 2016 are broken down
as follows:
Three Months Ended
Interest
Commitment & Renewal Fees
Special Income
Dec. 31, 2017
10,741,397
$
529,350
62,386
11,333,133
$
$
% Dec. 31, 2016
8,702,983
456,277
173,478
9,332,738
95%
4%
1%
100%
$
%
93%
5%
2%
100%
Year Ended
Interest
Commitment & Renewal Fees
Special Income
Dec. 31, 2017
38,519,968
$
1,831,202
3,072,099
43,423,269
$
$
% Dec. 31, 2016
33,716,098
1,612,758
714,034
36,042,890
89%
4%
7%
100%
$
%
94%
4%
2%
100%
%
Change
23%
16%
(64% )
21%
%
Change
14%
14%
330%
20%
Interest income of $10,741,397 for the three months increased by 23% when compared to the
same three month period in the prior year. Interest income of $38,519,968 for the year ended
December 31, 2017 increased by 14% as compared to the year ended December 31, 2016.
Interest income represents 95% of the Corporation’s revenues for the three months ended
December 31, 2017 and 89% for the year ended December 31, 2017. The increase in interest
income in 2017 compared to 2016 is a result of the Corporation holding a larger investment
portfolio compared to the same period in the previous year, and an increase in the weighted
average portfolio interest rate.
Fee income relating to commitment and renewal fees of $529,350 for the three months ended
December 31, 2017 increased by 16% compared to the same three month period in the prior year.
Fee income relating to commitment and renewal fees of $1,831,202 for the year ended December
31, 2017 increased by 14% as compared to the year ended December 31, 2016. As at December
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 6
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
31, 2017, the Corporation had unearned commitment fee income of $1,294,556 (December 31,
2016 - $879,851). 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, 2017 was $62,386
compared to $173,478 during the same period in the previous year. Special income generated
during the year ended December 31, 2017 of $3,072,099 was $2,358,065 higher than the special
income earned previous year. $2,737,500 of special income was earned on one of the
Corporation’s non-conventional investments in 2017. 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 selective in cautiously sourcing high yielding,
non-conventional mortgages that meet the Corporation’s investment criteria.
REALIZED GAIN ON DISPOSAL OF MARKETABLE SECURITIES AND DEBENTURE
PORTFOLIO INVESTMENTS
During the year ended December 31, 2017, the Corporation sold part of its marketable securities
investments for proceeds of $2,099,067. The Corporation realized a total gain on disposal of
marketable security investments of $217,817 and this amount was reclassified from accumulated
other comprehensive income to the statement of income. During the year ended December 31,
2017, the Corporation sold its entire debenture portfolio investments for proceeds of $2,221,366.
The Corporation realized a total gain on disposal of debenture portfolio investments of $240,618
and this amount was reclassified from accumulated other comprehensive income to the statement
of income.
CORPORATION MANAGER SPREAD INTEREST ALLOCATION
The Corporation Manager, through an interest spread arrangement, received $992,162 for the
three months ended December 31, 2017 compared to $828,631 for the three months ended
December 31, 2016. For the year ended December 31, 2017, the Corporation Manager received
$3,639,094 as compared to $3,152,050 for the year ended December 31, 2016. The increase is
generally due to the increase in the size of the Corporation’s Investment Portfolio over the
comparable periods.
INTEREST EXPENSE
For the three months ended December 31, 2017, interest expense increased by 34% to
$3,588,973 as compared to $2,673,178 for the three months ended December 31, 2016. For the
year ended December 31, 2017, interest expense increased by 24% to $13,223,349 as compared
to the year ended December 31, 2016 amount of $10,628,040. Interest expense is higher in 2017
when compared to the same period in the previous year generally as a result of the Corporation
having a higher balance of convertible debentures outstanding in 2017 versus 2016, an increase
in loans payable interest expense resulting from an increase in loans payable, and higher interest
rates. The additional indebtedness that resulted in an increase in interest expense in 2017 allowed
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 7
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
the Corporation to hold a larger investment portfolio, which generated additional interest income
when compared to 2016. The Corporation completed one public offering of convertible unsecured
debentures in June 2017. 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, 2017
381,928
$
671,989
2,535,056
3,588,973
$
Dec. 31, 2017
1,372,878
$
1,005,264
10,845,207
13,223,349
$
% Dec. 31, 2016
317,371
-
$
%
12%
2,355,807
2,673,178
$
88%
100%
11%
19%
70%
100%
$
% Dec. 31, 2016
1,313,699
93,280
9,221,061
10,628,040
10%
8%
82%
100%
$
%
12%
1%
87%
100%
%
Change
20%
-
8%
34%
%
Change
5%
978%
18%
24%
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES
G&A expenses increased by 4% to $240,398 for the three months ended December 31, 2017
compared to the $232,078 reported for the three months ended December 31, 2016. G&A
expenses increased by 14% to $956,883 for the year ended December 31, 2017 compared to
$842,187 for the year ended December 31, 2016.
IMPAIREMENT LOSS ON INVESTMENT PORTFOLIO
An impairment loss of $388,000 was recorded for three months ended December 31, 2017
compared to $230,000 for the three months ended December 31, 2016. An impairment loss of
$1,240,000 was recorded for the year ended December 31, 2017 compared to $230,000 for the
year ended December 31, 2016. The recording of the impairment loss is a result of the
Corporation’s increasing its impairment provision during the respective period.
INCOME & PROFIT (“PROFIT”)
Profit for the three months ended December 31, 2017 of $6,122,600 represents approximately a
14% increase compared to $5,368,851 for the same period in the prior year. Profit for the year
ended December 31, 2017 of $24,821,438 represents approximately a 17% increase compared
to $21,190,613 reported for the year ended December 31, 2016.
Profit for the quarter ended December 31, 2017 represented an annualized return on
shareholders’ equity (based on the average of the month end shareholders’ equity in the quarter)
of 8.58% versus a previously reported return on shareholders’ equity of 8.87% for the quarter
ended December 31, 2016. This return on shareholders’ equity represents 705 basis points per
annum over the average one year Government of Canada Treasury bill yield of 1.53% 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
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 8
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 realized gain on marketable securities and the debenture portfolio reclassified to income for
the quarter ended December 31, 2017 was nil (2016 - nil). The realized gain on marketable
securities and the debenture portfolio reclassified to income for the year ended December 31,
2017 was $458,435 compared to nil for the year ended December 31, 2016. The fair value of
marketable securities and debenture portfolio decreased by $5,495 for the quarter ended
December 31, 2017 and $71,742 for the quarter ended December 31, 2017. The change in value
of marketable securities and debenture portfolio was $130,362 for the year ended December 31,
2017 and $364,848 for the year ended December 31, 2016. Total comprehensive income for the
three months ended December 31, 2017 was $6,117,165 compared to $5,297,109 for the three
months ended December 31, 2016. Total comprehensive income for the year ended December
31, 2017 was $24,493,365 compared to $21,555,461 for the year ended December 31, 2016.
PROFIT PER SHARE
Basic weighted average profit per share for the three months ended December 31, 2017 was
$0.235, which is 1.7% lower than the $0.239 per share reported for the three months ended
December 31, 2016. Basic weighted average profit per share for the year ended December 31,
2017 was $1.019, which is 4.8% higher compared to the $0.972 per share reported for the year
ended December 31, 2016.
Diluted weighted average profit per share for the three months ended December 31, 2017 was
$0.232 which is slightly lower compared to the $0.234 per share reported for the three months
ended December 31, 2016. Diluted weighted average profit per share for the year ended
December 31, 2017 was $0.984 which is 3.6% higher compared to the $0.950 per share reported
for the year ended December 31, 2016.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 9
10 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
QUARTERLY FINANCIAL INFORMATION
($ 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
2017
11.33
3.60
0.99
0.24
0.39
6.11
$
$
Sep. 30
2017
10.92
3.63
0.94
0.22
0.23
5.90
$
$
Jun. 30
2017
9.93
3.01
0.87
0.28
-
5.77
$
$
Mar. 31
2017
11.70
3.00
0.83
0.22
0.63
7.02
$
$
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
$
$
$
$
$
$
$0.235
$0.232
$0.304
$0.241
$0.237
$0.234
$0.238
$0.234
$0.234
$0.311
$0.284
$0.234
$0.239
$0.234
$0.264
$0.241
$0.236
$0.234
$0.246
$0.240
$0.234
$0.246
$0.239
$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, 2017, the Corporation declared dividends
totaling $7,923,428 and $24,821,438 respectively or $0.304 and $1.006 per share versus
$5,933,751 and $21,190,613 or $0.264 and $0.966 per share for the three months and year ended
December 31, 2016. The number of shares outstanding at December 31, 2017 was 26,064,310
compared to 22,490,489 at December 31, 2016.
Dividends for 2017 totaled $24,821,438 (2016 - $21,190,613) which is equivalent to the profit for
2017 of $24,821,438 (2016 - $21,190,613). The dividends paid for 2017 of $1.006 (2016 - $0.966)
per share differ from the profit per share for 2017 of $1.019 (2016 - $0.972) as a result of the profit
per share being calculated based on the weighted average number of shares outstanding during
the year, while dividend on shares are paid based on the actual shares outstanding.
Year Ended
Cash Flow From Operating Activities
(net of cash interest paid)
Profit
Declared Dividends
Excess Cash Flow From Operating Activities
Over Declared Dividends
Profit Over Declared Dividends
CHANGES IN FINANCIAL POSITION
Dec. 31, 2017
$
27,714,278
Dec. 31, 2016
$
22,654,466
Change
22%
$
$
24,821,438
24,821,438
$
$
21,190,613
21,190,613
17%
17%
2,892,840
$
$
-
1,463,853
$
$
-
AMOUNTS RECEIVABLE & PREPAID EXPENSES
The amounts receivable and prepaid expenses totaled $5,226,204 as at December 31, 2017
(comprised of interest receivable of $4,715,194, fees receivable of $254,097, special income
receivable of $23,077 and prepaid expenses of $233,836) compared to $4,723,191 as at
December 31, 2016.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 10
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKETABLE SECURITIES
The Corporation holds units in publicly traded real estate investment trust. 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 $210,194 balance reported on the Corporation’s
balance sheet as at December 31, 2017 represents the fair value of the marketable securities
comprising the portfolio (December 31, 2016 – $2,200,329). The Corporation’s purchase price for
the units was $175,025.
During 2017, the Corporation sold majority of its marketable securities investments. Details on
the proceeds of the sale and realized gains are provided in the Realized Gain and Disposal of
Marketable Securities and Debenture Portfolio Investments section earlier herein.
DEBENTURE PORTFOLIO INVESTMENT
As of December 31, 2017, the Corporation did not hold any publicly traded convertible debentures
of Canadian real estate investment trusts as compared to a portfolio of $2,199,937 held as of
December 31, 2016. During 2017, the Corporation sold its debenture portfolio investments.
Details on the proceeds of the sale and realized gains are provided in the Realized Gain on
Disposal of Marketable Securities and Debenture Portfolio Investments section earlier herein.
LOAN ON DEBENTURE PORTFOLIO INVESTMENT
The Corporation did not hold any publicly traded convertible debentures of Canadian real estate
investment trusts as of December 31, 2017 (December 31, 2016 - $2,199,937). As a result, the
Corporation had no loan payable against the portfolio at December 31, 2017 (December 31, 2016
- $1,295,184).
BANK INDEBTEDNESS
Bank indebtedness increased by $14,831,856 to $60,268,468 at December 31, 2017 compared
to $45,436,612 at December 31, 2016. The increase in bank indebtedness is mainly a result of
the utilization of funds to increase the size of the investment portfolio.
LOANS PAYABLE
As at December 31, 2017, the Corporation had loans payable of $51,662,949 (December 31,
2016 – nil). First priority charges on specific mortgage investments are granted as security for the
loans payable. The loans mature on dates consistent with those of the underlying mortgages. The
loans are on a non-recourse basis and bear interest at their contractual rates. The Corporation’s
principal balance outstanding under the mortgages for which a priority charge has been granted
is $67,694,104 at December 31, 2017 (December 31, 2016 - nil).
CONVERTIBLE DEBENTURES
As at December 31, 2017, the Corporation has seven series of convertible debentures
outstanding, as outlined below:
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 11
12 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Ticker
Symbol
FC.DB.B
FC.DB.C
FC.DB.D
FC.DB.E
FC.DB.F
FC.DB.G
FC.DB.H
Total / Average
Coupon
Issue Date Maturity Date
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
5.30% Jun. 27, 2017 Aug. 31, 2024
5.26%
$
Current
Principal
25,738,000
20,485,000
20,000,000
25,000,000
23,000,000
22,500,000
26,500,000
163,223,000
Strike Price
Per Share
14.35
$
14.80
15.80
13.95
14.00
15.25
15.25
$
Accounting
Liability
25,445,554
20,173,140
19,515,688
24,136,563
21,889,426
21,235,666
25,068,867
157,464,904
$
$
As at December 31, 2017, the principal balance for the outstanding convertible debentures is
$163,223,000. The recorded convertible debenture liability as at December 31, 2017 is
$157,464,904 compared to $162,305,989 as at December 31, 2016. The weighted average
effective interest rate is 5.26% per annum (5.34% as at December 31, 2016).
On September 20, 2017, the Corporation completed an early redemption of its 5.75% convertible
unsecured subordinated debentures, which were scheduled to mature on October 31, 2017. This
series of convertible unsecured subordinated debentures had a conversion price of $15.90 per
share. As part of the early redemption, the holders of the debentures were provided an option to
convert at 95% of the weighted average market price per share for the preceding 20 trading days
ending on the fifth trading day preceding the redemption date (being September 13, 2017). Of the
outstanding $31,443,000 principal, $21,278,427 was converted to 1,759,944 common shares at
a price of $12.09 per share and the remaining balance of $10,164,573 was repaid in cash.
OTHER LIABILITIES
Other liabilities for the Corporation include the following:
Additional Liabilities
Accounts Payable and Accrued Liabilities
Unearned Income
Shareholders Dividend Payable
Total
$
Dec. 31, 2017
2,649,558
1,294,556
3,857,518
7,801,632
$
$
Dec. 31, 2016
2,101,630
879,851
2,428,973
5,410,454
$
% Change
26%
47%
59%
44%
Accounts payable and accrued liabilities increased by 26% to $2,649,558 as at December 31,
2017 compared to $2,101,630 as at December 31, 2016. Accounts payable and accrued liabilities
include interest payable of $1,924,364 and accrued liabilities of $725,194.
Unearned income relating to commitment fees generated on the Corporation’s mortgage
investments increased by 47% to $1,294,556 as at December 31, 2017 compared to $879,851
as at December 31, 2016. 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.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 12
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
13
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
SHAREHOLDERS’ EQUITY
Shareholders’ equity at December 31, 2017 totaled $284,040,422 compared to $238,969,851 as
at December 31, 2016. The Corporation had 26,064,310 shares issued and outstanding as at
December 31, 2017 compared to 22,490,489 as at December 31, 2016. The increase in shares
is attributable to an offering of shares that was completed during the first quarter of 2017, early
redemption and cancellation of its outstanding 5.75% convertible unsecured subordinated
debentures, shares issued under the dividend reinvestment plan and stock option plan.
On March 28, 2017, the Corporation completed an equity offering of 1,420,000 common shares
at a price of $14.10 per share for gross proceeds of $20,022,000. The over-allotment option was
exercised in full and the Corporation issued an additional 213,000 shares at a price of $14.10 per
Share for gross proceeds of $3,003,300. The total additional shares issued was 1,633,000.
On June 27, 2017, the Corporation closed a $26,500,000 aggregate principal amount of 5.30%
convertible unsecured subordinated debentures due August 31, 2024. These debentures bear
interest at a rate of 5.30% per annum, payable semi-annually in arrears on the last day of February
and August in each year commencing on August 31, 2017. The debentures mature on August
31, 2024 and are convertible at the holder's option into common shares of the Corporation at a
conversion price of $15.25 per Share.
On September 20, 2017, the Corporation completed the early redemption and cancellation of its
outstanding 5.75% convertible unsecured subordinated debentures, which were scheduled to
mature on October 31, 2017. Of the outstanding $31,443,000 principal, $21,278,427 was
converted to 1,759,944 common shares at a price of $12.09 per share, which equaled to 95% of
the weighted average market price per share for the preceding 20 trading days ending on the fifth
trading day preceding the redemption date (being September 13, 2017). The remaining balance
of $10,164,573 was repaid in cash.
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.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 13
14 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The investment portfolio is stated at amortized cost. The impairment provision in the amount of
$5,700,000 as at December 31, 2017 (2016 - $4,460,000), of which $5,300,000 represents the total
amount of management's estimate of the shortfall between the investment balances plus accrued
interest and the estimated recoverable amount from the security under the loans broken down as
follows:
Conventional First Mortgages
Conventional Non-First Mortgages
Related Investments
Discounted Debt Investments
Non-Conventional Mortgages
Total Specific Provision
ADD: Collective Provision
Total Provision
December 31, 2017
$
3,620,866
December 31, 2016
$
3,270,000
-
-
1,180,000
499,134
5,300,000
400,000
5,700,000
$
$
-
-
1,190,000
-
$
4,460,000
-
$
4,460,000
The $5,300,000 comprises a provision against principal of $4,019,134 (December 31, 2016 -
$3,684,386) and interest receivable on mortgages in default of $1,280,866 (December 31, 2016 -
$775,614).
The Corporation also assessed collectively for impairment to identify potential future losses, by
grouping the investment portfolio with similar risk characteristics, to determine whether a collective
allowance should be recorded due to loss events for which there is objective evidence but whose
effects are not yet evident. Based on the amounts determined by the analysis, the Corporation used
judgement to determine the amounts calculated. As at December 31, 2017, the Corporation carries a
collective impairment loss provision balance of $400,000 (December 31, 2016 - nil).
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
$5,700,000 as at December 31, 2017 (December 31, 2016 - $4,460,000) 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 Corporation's assets.
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.
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, 2017, this amount was $3,639,094 (2016 - $3,152,050). Included in
accounts payable and accrued liabilities at December 31, 2017 are amounts payable to the
Corporation's Manager of $341,367 (2016 - $275,563).
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 14
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
15
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The total directors' fees paid for the year was $272,333 (2016 - $224,375). 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
481,768 shares in the Corporation as at December 31, 2017 (2016 - 430,946).
During the year ended December 31, 2017, two directors were awarded 70,000 options under the
incentive option plan (2016 - nil).
The Mortgage Banker (a company related to officers and/or directors of the Corporation) receives
certain fees 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 of the commitment and renewal
fees generated from the Corporation's investments; and 25% of all of 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 $485,000 for the year ended December 31, 2017 (2016
- $420,000). 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.
Two mortgage investments totaling $1,400,000 (December 31, 2016 - three mortgage investments
totaling $4,850,000) 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 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 $3,232,768 (December 31, 2016 - $961,475) from these investments
during the year.
The Corporation holds a mortgage investment totaling $4,985,500 at December 31, 2017 (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, 2016 - $4,628,000). 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 that occurred after the
purchase of the underlying Schedule 1 bank mortgage. The Corporation is a pari passu participant in
the mortgage, having the same rights as all other participants in the loan. 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, and for this reason, the borrower is classified
as a related party. The Corporation recognized interest and fees earned of nil (December 31, 2016 -
nil) from this investment during the year. The impairment provision recorded on this loan was
$1,180,000 as at December 31, 2017 (December 31, 2016 - $1,190,000). 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
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 15
16 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
discussed and detailed in the Corporation’s AIF and in Note 13 of the accompanying financial
statements.
Aggregate compensation paid to key management personnel (including payments to related parties
for their recovery of overhead costs), all consisting of short-term employee compensation, was
$2,083,453 in 2017 (2016 - $1,960,779), all of which was paid by the Corporation's Manager and nil
by the Corporation.
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 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. In addition, the Corporation also assessed collectively for impairment
to identify potential future losses, by grouping the investment portfolio with similar risk
characteristics, to determine whether a collective allowance should be recorded due to loss events
for which there is objective evidence but whose effects are not yet evident. Based on the amounts
determined by the analysis, the Corporation used judgement to determine the amounts calculated.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 16
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
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Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
As December 31, 2017, the Corporation carries a collective impairment loss provision balance of
$400,000 (December 31, 2016 - nil).
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, 2017 and December 31, 2016. 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.
CONTRACTUAL OBLIGATIONS
Contractual obligations as at December 31, 2017 are due as follows:
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 17
18 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total
Less than 1
year
Bank indebtedness
Accounts payable and accrued liabilities
Shareholder dividends payable
Loans payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
$
60,268,468
2,649,558
3,857,518
51,662,949
163,223,000
281,661,493
91,953,643
373,615,136
$
$
$
60,268,468
2,649,558
3,857,518
30,773,760
-
97,549,304
91,953,643
189,502,947
$
$
1-3 years
-
$
-
-
20,889,189
66,223,000
87,112,189
-
87,112,189
$
$
4 - 6 years
-
$
-
-
-
97,000,000
97,000,000
-
97,000,000
$
$
SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies is described in note 3 of the Corporation’s financial statements for
the year ended December 31, 2017 and year ended December 31, 2016.
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, 2017, the
Corporation had not utilized its full leverage availability, being a maximum of 50% of its first
mortgage investments. Unadvanced committed funds under the existing Investment Portfolio
amounted to $91,953,643 as at December 31, 2017 (December 31, 2016 - $131,268,094). 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.
• Economic conditions that would result in a significant decline in real estate values and corresponding
loan losses.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 18
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
19
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
• 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. The Corporation’s operating loan is floating rate and an increase in short term rates
would increase the Corporation’s cost of borrowing.
•
• 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
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 obtain additional leverage, if required.
• Demand loan bank indebtedness. A significant component of the Corporation’s bank indebtedness is
in the form of a demand facility, repayment of which can be demanded by the bank at any time.
• 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.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 19
20 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
• 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.
• Change in Legislation. There can be no assurance that certain laws applicable to the Corporation,
including Canadian federal and provincial tax legislation, commodity and sales tax legislation, tax
proposals, other governmental policies or regulations and governmental, administrative or judicial
interpretation thereof, will not change in a manner that will adversely affect the Corporation or
fundamentally alter the tax consequences to shareholders acquiring, holding or disposing of Shares.
• Currency risk. Currency risk is the risk that the fair value or future cash flows of the Corporation's
foreign currency-denominated investments and cash and cash equivalents will fluctuate based on
changes in foreign currency exchange rates. Consequently, the Company is subject to currency
fluctuations that may impact its financial position and results of operations. The Corporation manages
its currency risk on its investments by borrowing the same amount as the investment in the same
currency. As a result, a change in exchange rate of the Canadian dollar against the U.S. dollar will not
change the net income and comprehensive income and equity. As a result, a change in exchange rate
of the Canadian dollar against the U.S. dollar will not result in a material change to the net income and
comprehensive income and equity.
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, 2017 and 2016.
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, 2017 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. 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, 2017. Based
on that assessment, it was determined that the Corporation’s internal controls over financial
reporting were appropriately designed and were operating effectively.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 20
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
21
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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, 2017 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 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
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 21
22 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
revise any forward-looking statement, whether as a result of new information, future events, or
otherwise.
OUTLOOK
Looking ahead into 2018, we will continue to focus on the quality and composition of the
Corporation’s evolving mortgage portfolio, with a focus on risk management. The Mortgage
Banker is aware of the significant historical increase in real estate valuations in certain
geographical and asset segments and is factoring this into its mortgage underwriting and
structuring. This is a long-term view to preservation of capital held by management.
Management is focused on maintaining a strong balance sheet, which management believes to
be more important than focusing on earnings per share.
The high levels of cash liquidity in the market in our view fueled aggressive lending practices by
many mortgage providers. These practices include overlending and/or providing capital to real
estate not worthy of receiving such capital, all for the sake of putting capital to work in the credit
marketplace. We continue to seek investments that provide both an adequate return as well as
the required degree of safety for our shareholders. Firm Capital has always taken a contrarian
approach to investing and this will continue into 2018 and beyond. We will focus on participating
in investments that might require more manpower in credit underwriting and structuring.
While cautious, management is nonetheless optimistic about the opportunities 2018 presents, as
the Corporation has been investing defensively for the past many years. In addition, the 30 years
of origination history of the Mortgage Banker provides it with a vast amount of transactions to look
at before one is selected.
The Mortgage Banker has found that, to be successful over the long term, we need to: stick to the
asset classes we know; stick to large liquid markets in this environment; ensure the portfolio of
investments is very widely diversified; and lend at what we perceive to be valuation discount to
market value.
Firm Capital Mortgage Investment Corporation • 2017 • Fourth Quarter Page 22
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
23
Building Relationshipstoday and tomorrow
MANAGEMENT’S RESPONSIBILTY FOR FINANCIAL REPORTING
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
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24 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
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INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Firm Capital Mortgage Investment Corporation
We have audited the accompanying consolidated financial statements of Firm Capital Mortgage Investment
Corporation, which comprise the consolidated balance sheets as at December 31, 2017 and 2016, the
consolidated 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 consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error .
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Auditors’ Responsibility
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(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)
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(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)
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits . We conducted our audits in accordance with Canadian generally accepted auditing standards .
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement .
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error . In making those risk assessments, we consider internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an 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 consolidated financial statements.
Page 2
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 consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material
financial position of Firm Capital Mortgage Investment Corporation as at December 31, 2017 and 2016,
respects, the consolidated financial position of Firm Capital Mortgage Investment
and its consolidated financial performance and its consolidated cash flows for the years then ended in
Corporation as at December 31, 2017 and 2016, and its consolidated financial
accordance with International Financial Reporting Standards .
performance and its consolidated cash flows for the years then ended in accordance
with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
March 20, 2018
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 ● 2017 ● Annual Report
25
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
$
Amounts receivable and prepaid expenses (note 4)
$
5,226,204
Marketable securities (note 5)
210,194
Debenture portfolio investments (note 5)
--
Investment portfolio (note 6)
555,801,977
Total assets
$
561,238,375
4,723,191
2,200,329
2,199,937
444,294,633
453,418,090
$
As at
December 31, 2017
December 31, 2016
December 31, 2017
December 31, 2016
Assets
$
5,226,204
$
4,723,191
210,194
--
555,801,977
2,200,329
2,199,937
444,294,633
$
561,238,375
$
453,418,090
$
60,268,468
$
45,436,612
$
277,197,953
$
214,448,239
$
281,377,245
$
236,031,386
--
2,649,558
1,294,556
3,857,518
51,662,949
157,464,904
2,780,000
93,556
76,276
(321,826)
35,171
1,295,184
2,101,630
879,851
2,428,973
--
162,305,989
2,800,000
95,123
1,924
(321,826)
363,244
$
284,040,422
$
238,969,851
$
561,238,375
$
453,418,090
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
$
Bank indebtedness (note 7)
$
60,268,468
Loan on debenture portfolio investments (note 5)
--
Accounts payable and accrued liabilities
2,649,558
Unearned income
1,294,556
Shareholders' dividends payable
3,857,518
Loans payable (note 8)
51,662,949
Convertible debentures (note 9)
157,464,904
Total liabilities
$
277,197,953
45,436,612
1,295,184
2,101,630
879,851
2,428,973
--
162,305,989
214,448,239
$
Shareholders' Equity
Shareholders' Equity
Common shares (note 10)
Equity component of convertible debentures
Stock options (note 10)
Contributed surplus
Deficit
Accumulated other comprehensive income
Total shareholders' equity
Commitments (note 6)
Contingent liabilities (note 15)
Total liabilities and shareholders' equity
$
Common shares (note 10)
$
281,377,245
2,780,000
Equity component of convertible debentures
93,556
Stock options (note 10)
76,276
Contributed surplus
(321,826)
Deficit
Accumulated other comprehensive income
35,171
Total shareholders' equity
$
$
284,040,422
236,031,386
2,800,000
95,123
1,924
(321,826)
363,244
238,969,851
Commitments (note 6)
Contingent liabilities (note 15)
Total liabilities and shareholders' equity
$
561,238,375
$
453,418,090
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
On behalf of the Directors:
On behalf of the Directors:
"Eli Dadouch" "Jonathan Mair"
ELI DADOUCH JONATHAN MAIR
"Eli Dadouch" "Jonathan Mair"
ELI DADOUCH JONATHAN MAIR
Director Director
Director Director
2
2
26 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Statements of Income
Consolidated Statements of Income
Years ended December 31, 2017 and 2016
(in Canadian dollars)
Interest and fees earned
Realized gains on disposal of debenture portfolio investments (note 5)
Realized gains on disposal of marketable securities investments (note 5)
Corporation manager spread interest allocation (note 13)
Interest expense (note 14)
General and administrative expenses
Unrealized foreign exchange loss
Impairment loss on investment portfolio (note 6)
Income and profit for the year
Profit per share (note 11)
Basic
Diluted
See accompanying notes to consolidated financial statements.
2017
2016
$
43,423,269
240,618
217,817
43,881,704
$
36,042,890
--
--
36,042,890
3,639,094
13,223,349
956,883
940
1,240,000
19,060,266
$
3,152,050
10,628,040
842,187
--
230,000
14,852,277
$
$
24,821,438
$
21,190,613
$1.019
$0.984
$0.972
$0.950
3
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
27
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, 2017 and 2016
(in Canadian dollars)
2017
2016
Income and profit for the year
$
24,821,438
$
21,190,613
Other comprehensive income:
Change in fair value of available for sale marketable securities and
debenture investments (note 5)
130,362
364,848
Realized gains on disposal of marketable securities and debenture
investments reclassified to income (note 5)
(458,435)
--
Total Comprehensive income for the year
$
24,493,365
$
21,555,461
See accompanying notes to consolidated financial statements.
4
28 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Statements of Changes in Shareholder’s Equity
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 2017 and 2016
(in Canadian dollars)
Balance at January 1, 2017
Issuance of shares
Offering costs
Proceeds from issuance of shares from dividend reinvestment
Conversion and redemption of debentures
Equity component of debentures issued during the year (note 9)
Stock based compensation (note 10 (b))
Exercise of stock options (note 10 (b))
Change in fair value of available for sale marketable securities and
debenture investments (note 5)
Realized gains on disposal of marketable securities and debenture
investments reclassified to income (note 5)
Income and profit for the year
Dividends to shareholders
Balance at December 31, 2017
Stock options
Contributed
surplus
Surplus
(Deficit)
Accumulated
other
comprehensive
income
Equity
component of
convertible
debentures
$
2,800,000
-
-
-
(230,000)
210,000
-
-
Common shares
$
236,031,386
44,303,727
(1,345,374)
676,082
155,648
-
-
1,555,776
$
95,123
-
-
-
-
11,030
(12,597)
$
1,924
-
-
-
74,352
-
-
-
Shareholders'
equity
$
238,969,851
44,303,727
(1,345,374)
676,082
-
210,000
11,030
1,543,179
-
-
-
($321,826)
-
-
-
$
363,244
-
-
-
-
-
-
-
-
-
-
-
130,362
130,362
-
-
-
281,377,245
$
-
-
-
2,780,000
$
-
-
-
93,556
$
-
-
-
76,276
$
-
24,821,438
(24,821,438)
(321,826)
(458,435)
-
-
35,171
$
(458,435)
24,821,438
(24,821,438)
284,040,422
$
Shares issued and outstanding (note 10)
26,064,310
Balance at January 1, 2016
Issuance of shares
Offering costs
Proceeds from issuance of shares from dividend reinvestment
Equity component of debentures issued during the year (note 9)
Exercise of stock options (note 10 (b))
Forfeiture of stock options
Change in fair value of available for sale marketable securities and
debenture investments (note 5)
Income and profit for the year
Dividends to shareholders
Balance at December 31, 2016
Equity
component of
convertible
debentures
$
2,484,000
-
-
-
316,000
-
-
Common shares
$
209,220,787
25,367,850
(1,246,207)
2,139,684
-
549,272
-
Stock options
Contributed
surplus
Surplus
(Deficit)
$
100,531
-
-
-
-
(4,446)
(962)
$
962
-
-
-
-
-
962
($321,826)
-
-
-
-
-
-
Accumulated
other
comprehensive
income (loss)
Shareholders'
equity
(1,604)
-
-
-
-
-
-
$
211,482,850
25,367,850
(1,246,207)
2,139,684
316,000
544,826
-
-
-
-
236,031,386
$
-
-
-
2,800,000
$
-
-
-
95,123
$
-
-
-
1,924
$
-
21,190,613
(21,190,613)
(321,826)
364,848
-
-
363,244
364,848
21,190,613
(21,190,613)
238,969,851
Shares issued and outstanding (note 10)
22,490,489
See accompanying notes to consolidated financial statements.
5
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
29
Building Relationshipstoday and tomorrow
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Cash Flows
Statements of Cash Flows
Years ended December 31, 2017 and 2016
(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 (note 14)
Deferred finance cost amortization - convertible debentures (note 14)
Change in impairment loss on investment portfolio
Realized gains on disposal of debenture portfolio investments (note 5)
Realized gains on disposal of marketable securities investments (note 5)
Share-based compensation
Net change in non-cash operating items:
Increase (decrease) in accrued interest payable
Decrease 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 (note 9)
Repayment of convertible debentures (note 9)
Debenture offering costs
Equity offering costs
Funding (repayment) of loans payable (net)
Repayment of loan on debenture portfolio
Cash interest paid (note 14)
Dividends to shareholders paid during the year (note 12)
Net cash flow from financing activities
Investing activities:
Disposition of marketable securities
Disposition (acquisition) of debenture portfolio investments
Funding of investment portfolio
Discharging of investment portfolio
Net cash flow used in investing activities
Net 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
Supplementary cash flow information:
Conversions of debenture to shares (note 9)
See accompanying notes to consolidated financial statements.
6
30 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
2017
2016
$
24,821,438
$
21,190,613
11,582,725
415,179
1,225,446
1,240,000
(240,618)
(217,817)
11,030
9,252,322
357,767
1,017,951
230,000
--
--
--
(386,246)
(503,013)
547,928
414,705
38,910,757
229,721
(13,950)
(93,785)
(34,130)
32,136,509
$
23,025,300
676,082
1,543,179
26,500,000
(10,164,573)
(1,328,710)
(1,345,374)
51,662,949
(1,295,184)
(11,196,478)
(23,392,893)
54,684,298
$
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
$
2,099,067
2,221,366
(374,838,421)
262,091,077
(108,426,911)
$
--
(9,512)
(290,942,160)
245,107,165
(45,844,507)
$
(14,831,856)
(45,436,612)
(60,268,468)
$
(3,723,484)
(41,713,128)
(45,436,612)
$
$
38,077,048
$
33,776,364
$
21,278,427
$
-
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(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 Inc. 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.
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 20, 2018.
(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 each 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 from its activities. All
intercompany transactions and balances are
eliminated upon consolidation.
(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.
7
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
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:
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)
If third party information,
The Corporation reviews significant unobservable inputs and valuation adjustments.
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.
8
32 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
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.
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 including interest and the present value 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.
Investments that have been assessed individually and found not
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.
to be impaired and all
(b) Revenue recognition:
(i)
Interest and fee income: Interest income earned is accounted for using the effective interest method.
Commitment fees received are amortized to profit and loss over the expected term of the investment.
(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.
9
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
(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.
Income taxes:
(d)
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.
(e) Financial assets and liabilities:
Financial assets include the Corporation's amounts receivable and prepaid expenses, marketable securities,
debenture portfolio investments, and investment portfolio. Financial liabilities include bank indebtedness, loan
on debenture portfolio investments, 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
reporting and
debenture portfolio investments have been designated as available for sale.
performance measurement of these investments are on a fair value basis and are based on prices as quoted
in an active public marketplace. 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.
10
34 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
(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 transferred mortgage or loan investments.
If all or substantially all risks and rewards are retained,
then the 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.
(ii) Financial liabilities:
The Corporation derecognizes a financial liability when the obligation under the liability is discharged,
cancelled or expires.
(g) Compound financial instruments:
Compound financial
instruments issued by the Corporation comprise convertible debentures that can be
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.
11
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
(h) Share capital:
Incremental costs directly attributable to the issue of common
Common shares are classified as equity.
shares are recognized as a deduction from equity. Dividends to shareholders are recognized in shareholders'
equity.
(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)
Foreign currency translation:
Transaction amounts denominated in foreign currencies are translated into Canadian dollar equivalents at the
rates of exchange prevailing at the time of the transactions. Carrying values of monetary assets and liabilities
are translated at exchange rates prevailing at the dates of the consolidated statements of financial position.
Foreign exchange gains and losses on the receipts of payments from translations are included in realized
gain/loss on foreign exchange in the consolidated statements of income and comprehensive income. All
unrealized foreign exchange gains and losses on monetary assets and liabilities are included in unrealized
foreign exchange gain/loss in the consolidated statements of income and comprehensive income.
(k) Accounting standards implemented in 2017:
(i) Annual Improvements to IFRS (2014 - 2016) Cycle
On December 8, 2016, the IASB issued narrow-scope amendments to IFRS 12 Disclosures of Interests
in Other Entities ("IFRS 12") as part of its annual improvements process. A clarification was made that
IFRS 12 also applies to interests that are classified as held for sale, held for distribution, or discontinued
operations, effective retrospectively for annual periods beginning on or after January 1, 2017. Upon
adoption of the amendment, the Corporation's financial statements were not materially impacted.
(ii) IAS 7 Statement of Cash Flows ("IAS 7")
In January 2016, the IASB issued amendments to IAS 7 Statement of Cash Flows ("IAS 7") which will
require specific disclosures for movements in liabilities arising from finanacing activities on the statement
of cash flows. The amendments apply prospectively for annual periods beginning on or after January 1,
2017. The Corporation has adopted the amendments to comply with the requirements.
(l) Future changes in accounting policies:
Various pronouncements have been issued by the IASB or IFRS Interpretations Committee (IFRIC) that will
be effective for future accounting periods. The standards that are applicable to the Corporation are
summarized below.
12
36 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments (“IFRS 9”) replacing IAS 39,
Financial Instruments Recognition and Measurements. The Corporation will adopt IFRS 9 effective January 1,
2018, the mandatory effective date. IFRS 9 must be applied retrospectively with some exceptions.
(i) Classification – Financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the
business model in which assets are managed and their cash flow characteristics.
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost,
fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL).
The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and
available for sale.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the
instrument as a whole is assessed for
standard are never bifurcated. Instead, the hybrid financial
classification.
Upon initial recognition, each financial asset will be classified as either FVTPL, amortized cost, or FVOCI.
All equity instruments are measured at fair value. A debt instrument is recorded at amortized cost only if
the entity is holding the instrument to collect contractual cash flows and the cash flows represent solely
principal and interest. Otherwise it is recorded at FVTPL.
(ii) Impairment – Financial assets and contract assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL)
model. This will require considerable judgement as to how changes in economic factors affect ECLs,
which will be determined on a probability-weighted basis.
The new impairment model will apply to financial assets measured at amortized cost or FVOCI, except for
investments in equity instruments, and to contract assets.
The new ECL model will require an allowance for expected credit losses being recorded regardless of
whether or not there has been an actual loss event.
Under IFRS 9, loss allowances will be measured on either of the following bases:
• 12-month ECLs: These are ECLs that result from possible default events within the 12 months after the
reporting date; and
• lifetime ECLs: These are ECLs that result from possible default events over the expected life of a
financial instrument.
Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has
increased significantly since initial recognition and 12-month ECL measurement applies if it has not. An
entity may determine that a financial asset’s credit risk has not increased significantly if the asset has low
credit risk at the reporting date. However, lifetime ECL measurement always applies for trade receivables
and contract assets without a significant financing component; an entity may choose to apply this policy
also for trade receivables and contract assets with a significant financing component.
13
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
The Corporation believes that impairment losses are likely to become more volatile for assets in the
scope of the IFRS 9 impairment model.
(iii) Classification – Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities.
However, under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognized in profit
or loss, whereas under IFRS 9 these fair value changes are generally presented as follows:
• the amount of change in the fair value that is attributable to changes in the credit risk of the liability is
presented in OCI; and
• the remaining amount of change in the fair value is presented in profit or loss.
The Corporation has not designated any financial liabilities as FVTPL and the Corporation has no current
intention to do so.
(v) Disclosures
IFRS 9 will require extensive new disclosures, in particular about credit risk and ECLs. The Corporation
plans to implement the system and control changes that it believes will be necessary to capture the
required data.
(vi) Transition
Changes in accounting policies resulting from the adoption of
retrospectively, except as described below:
IFRS 9 will generally be applied
• The Corporation plans to take advantage of the exemption allowing it not to restate comparative
to classification and measurement (including impairment)
information for prior periods with respect
changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the
adoption of IFRS 9 will generally be recognised in retained earnings and reserves as at January 1, 2018;
The Corporation has evaluated the impact of this standard on each of its financial instruments. Based
upon the Corporation's existing financial instruments and related accounting policies at December 31,
2017, the principal areas impacted are: classification of financial assets and impairment of financial
assets. As at December 31, 2017, the Corporation identified two investments of $6,518,875 which will be
reclassified from amortized cost to FVTPL as these investments do not meet the 'solely for payments of
these investments is not materially
principal and interest' requirement. The estimated fair value of
different from their amortized cost carrying value. In addition, the Corporation has estimated the adoption
of new ECL model will not lead to a material change in the Corporation's shareholders' equity.
14
38 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
IFRS 15, Revenue from Contracts with Customers ("IFRS 15")
In May 2014, the IASB issued IFRS 15 which provides a comprehensive framework for recognition,
measurement and disclosure of revenue from contracts with customers. It does not apply to insurance
contracts, financial instruments, or lease contracts, which fall within the scope of other IFRSs. The new
standard is effective for annual periods beginning on or after January 1, 2018 and is to be applied
retrospectively with earlier application permitted. IFRS 15 will replace IAS 11 Construction Contracts, IAS
18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real
Estate, IFRIC 18 Transfer of Assets from Customers, and SIC 31 Revenue: Barter Transaction Involving
Advertising Services. The Corporation intends to adopt IFRS 15 in its financial statements for the annual
period beginning on January 1, 2018. The Corporation does not expect the new standard to have a
material impact on the consolidated financial statements.
4. Amounts receivable and prepaid expenses:
The following is a breakdown of amounts receivable and prepaid expenses as at December 31, 2017 and
2016:
Interest receivable
Prepaid expenses
Fees receivable
Special income receivable
Amounts receivable and prepaid expenses
2017
$
4,715,194
233,836
254,097
23,077
$
5,226,204
2016
$
4,272,274
151,795
269,807
29,315
$
4,723,191
5. Marketable securities and debenture portfolio investments:
The Corporation holds units in publicly traded real estate investment trusts (marketable securities), which are
classified as available for sale. The fair value of the marketable securities 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 records the change in fair value in the Statements of Income. The fair value of the marketable
securities at December 31, 2017 is $210,194 (2016 - $2,200,329). The fair value of the debentures portfolio at
December 31, 2017 is nil (2016 - $2,199,937).
For the year ended December 31, 2017,
the available for sale marketable securities and debenture
investments increased in fair value by $130,362 (December 31, 2016 - an unrealized gain of $364,848) with a
corresponding increase in other comprehensive income.
Total cumulative realized gain on disposal of marketable securities and debenture portfolio investments
reclassified from accumulated other comprehensive income to statements of income for the year ended
December 31, 2017 is $458,435 (2016 - nil).
15
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
During the year, the Corporation sold its entire debenture portfolio investments for proceeds of $2,221,366
(2016 - acquisition of $9,512). The Corporation realized a total gain on disposal of debenture portfolio
investments of $240,618 (2016 - nil) and this amount was reclassified from accumulated other comprehensive
income to the statements of income.
During the year, the Corporation sold a portion of its marketable securities investments for proceeds of
$2,099,067 (2016 - nil). The Corporation realized a total gain on disposal of marketable security investments
of $217,817 (2016 - nil) and this amount was reclassified from accumulated other comprehensive income to
the statements of income.
The Corporation had a margin loan against the debenture portfolio which was fully paid out in the second
quarter of 2017. 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 1.5% per annum (2016 - 1% per annum).
In aggregate, the gains on disposal of the debenture portfolio and marketable securities were $458,435 for the
year ended December 31, 2017 (2016 - nil).
6.
Investment portfolio:
The following is a breakdown of the investment portfolio between the five main investment categories as at
December 31, 2017 and 2016:
December 31, 2017
December 31, 2016
Weighted
average
interest rate Outstanding amount
Percentage
outstanding
Weighted
average
interest rate Outstanding amount
$
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
* The yield on Discounted Debt Investments will be determined upon final repayment of the investments.
427,591,758
57,187,248
69,636,557
5,392,900
1,693,514
561,501,977
(5,700,000)
555,801,977
76.1%
10.2%
12.4%
1.0%
0.3%
100.0%
7.78%
9.05%
9.73%
-
7.53%
8.71%
8.62%
-
11.11%
8.09%
10.76%
7.83%
$
$
$
336,745,396
46,265,981
56,734,231
5,071,525
3,937,500
448,754,633
(4,460,000)
444,294,633
$
$
Percentage
outstanding
75.1%
10.3%
12.6%
1.1%
0.9%
100.0%
Included in related investments is one United States ("US") dollar denominated investment of $5,958,875
(US$4,750,000) (2016 - nil). The investment is a participation by the Corporation in a limited partnership that
has provided preferred equity to a real estate entity in the US. Income recorded on this investment during the
year is $71,267 (US$55,896) (2016 - nil) and is included in interest and fees earned.
16
40 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
As at December 31, 2017, $67,694,104 (2016 - nil) of the mortgages within the conventional first mortgage
portfolio have first priority syndicate participations (2016 - nil) (recorded on the Corporation's balance sheets
as loans payable (see note 8)). The Corporation's net investment in these mortgages is $16,031,155 (2016 -
nil).
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 (i) a bond, debenture, note or other
evidence of indebtedness, or a share, unit or other evidence of ownership in an entity, or (ii) a loan that is not
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 is $5,700,000 as at December
31, 2017 (2016 - $4,460,000), of which $5,300,000 represents the total amount of management's estimate of
the shortfall between the investment balances plus accrued interest and the estimated recoverable amount
from the security under the loans. The $5,300,000 comprises a provision against principal of $4,019,134
(December 31, 2016 - $3,684,386) and accrued interest receivable on mortgages in default of $1,280,866
(December 31, 2016 - $775,614).
The Corporation also assessed collectively for impairment to identify potential future losses, by grouping the
investment portfolio with similar risk characteristics, to determine whether a collective allowance should be
recorded due to loss events for which there is objective evidence but whose effects are not yet evident. Based
on the amounts determined by the analysis, the Corporation used judgement to determine the amounts
calculated. As at December 31, 2017, the Corporation carries a collective impairment loss provision balance
of $400,000 (December 31, 2016 - nil).
The loans comprising the investment portfolio bear interest at the weighted average rate of 8.09% per annum
(2016 - 7.83% per annum) and mature between 2018 and 2020.
The unadvanced funds under the existing investment portfolio (which are commitments of the Corporation)
amounted to $91,953,643 as at December 31, 2017 (2016 - $131,268,094).
Principal repayments based on contractual maturity dates are as follows:
2018
2019
2020
Thereafter
$
$
413,693,664
125,337,505
22,470,808
-
561,501,977
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.
17
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
The Corporation enters into participation agreements with respect to certain mortgage investments from time
to time, whereby the other participating investors take the senior position and the Corporation retains a
subordinated position. Under these certain participation 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 de-recognition criteria described in the notes to the annual financial statements.
The portion of such mortgage interests held by the priority participant is included in investment portfolio and
recorded as loans payable (note 8). Any gross interest and fees earned on the priority participant’s interests
and the related interest expense is recognized in income and profit.
As at December 31, 2017, the carrying value of
investment portfolio and loans payable is $51,662,949 (2016 - nil).
the priority participants'
interests in the Corporation's
The investment portfolio as at December 31, 2017 includes two investments totalling $2,361,437 with
contractual interest arrears greater than 60 days past due, for which no impairment provision is in place (2016
- nil). Both investments were subsequently brought current by the borrowers.
The investment portfolio as at December 31, 2017 includes six investments totalling $28,901,947 (2016 - one
investment of $756,040) with maturity dates that are past due and for which no extension or renewal was in
place. As at December 31, 2017, three of the investments totalling $12,918,805 (2016 - one investment of
$756,040) are considered to be impaired and are included in the Corporation's impairment provision, and the
remaining three investments, totaling $15,983,142 (2016 - nil) are considered not to be impaired.
As at December 31, 2017, 210 of the Corporations’ 251 investments (investment amount of $500,989,958)
are shared with other participants.
The Mortgage Banker services the entire investment in which the Corporation is a participant, on behalf of all
participants and except for the case of investments with a first priority syndicate participant, the Corporation
ranks equally with other members of the syndicate as to receipt of principal, interest and income.
7. Bank indebtedness:
The Corporation has entered into credit arrangements, of which $60,268,468 has been drawn as at December
31, 2017 (2016 - $45,436,612). 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,
2018 (as further detailed in note 17(c)). Bank indebtedness is secured by a general security agreement. The
credit agreement contains certain financial covenants that must be maintained. As at December 31, 2017 and
2016, the Corporation was in compliance with all financial covenants.
18
42 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
8. 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. The loans are on a non-
recourse basis to the Corporation and bear interest at a rate of 5.34% as at December 31, 2017 (2016 - nil).
The Corporation's principal balance outstanding under the mortgages for which a first priority charge has been
granted is $67,694,104 as at December 31, 2017 (December 31, 2016 - nil).
The loans are repayable at the earlier of the contractual expiry date of the underlying mortgage investment
and the date the underlying mortgage is repaid. Repayments based on contractual maturity dates are as
follows:
2018
2019
9. Convertible debentures:
Year Ended, December 31
Carrying value, beginning of year
Issued
Conversions of debentures to shares
Repayments upon maturity
Implicit interest rate in excess of coupon rate
Deferred finance cost amortization
Carrying value, end of year
2017
162,305,989
24,961,290
(21,278,427)
(10,164,573)
415,179
1,225,446
157,464,904
$
$
30,773,760
20,889,189
51,662,949
$
2016
139,904,049
21,026,222
-
-
357,767
1,017,951
162,305,989
$
$
The breakdown of the convertible debentures for the year ended December 31, 2017 presented in the above
table is as follows:
Convertible
debenture
5.75%
5.40%
5.25%
4.75%
5.30%
5.50%
5.20%
5.30%
Total
Conversions
$
(21,278,427)
Balance,
beginning of year
31,243,770
$
25,177,718
19,930,572
19,300,141
23,944,422
21,676,254
21,033,112
Issued
-
-
-
-
-
-
-
-
24,961,290
Repayments
upon
Redemption
(10,164,573)
$
Implicit interest
rate in excess of
coupon rate
$
32,423
94,378
108,019
63,404
20,501
46,181
37,930
12,343
Deferred
finance cost
amortization
166,807
$
173,458
134,549
152,143
171,640
166,991
164,624
95,234
Balance,
end of year
$
-
25,445,554
20,173,140
19,515,688
24,136,563
21,889,426
21,235,666
25,068,867
Maturity date
Oct 31, 2017
Feb 28, 2019
Mar 31, 2019
Mar 31, 2020
May 31, 2022
Dec 31, 2022
Dec 31, 2023
Aug 31, 2024
$
162,305,989
$
24,961,290
$
(21,278,427)
$
415,179
$
1,225,446
$
(10,164,573)
$
157,464,904
19
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
The breakdown of the convertible debentures for the year ended December 31, 2016 presented in the above
table is as follows:
Convertible
debenture
5.75%
5.40%
5.25%
4.75%
5.30%
5.50%
5.20%
Total
Balance,
beginning of year
30,994,955
$
24,914,687
19,693,717
19,087,320
23,748,170
21,465,200
Issued
-
-
-
-
-
-
-
$
139,904,049
21,026,222
21,026,222
$
Conversions
-
$
-
$
$
-
-
$
-
$
-
$
-
$
$
-
Implicit interest
rate in excess of
coupon rate
$
Deferred
finance cost
amortization
212,020
$
173,934
134,918
152,560
172,110
167,448
4,961
1,017,951
$
Repayments
upon maturity
$
-
-
$
$
-
$
-
$
-
$
-
$
-
$
-
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
$
On June 27, 2017, the Corporation completed a public offering of 26,500 5.30% convertible unsecured
subordinated debentures at a price of $1,000 per debenture for gross proceeds of $26,500,000, less issuance
costs of $1,328,710. The debentures mature on August 31, 2024 and interest is paid semi-annually on the
last day of February and August of each year. 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. The debentures may not be redeemed by
the Corporation prior to August 31, 2020. On or after August 31, 2020, but prior to August 31, 2022, 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 August 31, 2022 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
the shares for the 20 consecutive trading days ending on the fifth day preceding the
trading price of
redemption or maturity date.
The convertible debentures were allocated into liability and equity components on the date of issuance as
follows:
Liability
Equity
Principal
26,290,000
210,000
26,500,000
$
$
20
44 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
On September 20, 2017, the Corporation completed an early redemption of its 5.75% convertible unsecured
subordinated debentures, which were scheduled to mature on October 31, 2017. This series of convertible
unsecured subordinated debentures had a conversion price of $15.90 per share. As part of
the early
redemption, the holders of the debentures were provided an option to convert at 95% of the weighted average
market price per share for the preceding 20 trading days ending on the fifth trading day preceding the
redemption date (being September 13, 2017). Of the outstanding $31,443,000 principal, $21,278,427 was
converted to 1,759,944 common shares at a price of $12.09 per share and the remaining balance of
$10,164,573 was repaid in cash.
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
As at December 31, 2017, debentures payable bear interest at the weighted average effective rate of 5.26%
per annum (December 31, 2016 - 5.34% per annum). Notwithstanding the carrying value of the convertible
debentures, the principal balance outstanding to the debenture holders is $163,223,000 as at December 31,
2017 (December 31, 2016 - $168,166,000).
21
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
10. Shareholders' equity:
interest in the Corporation is represented by a single class of shares that are unlimited in
The beneficial
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, 2017:
Balance, beginning of year
New shares issued from equity offering
New shares issued from debenture conversion (note 9)
Debenture equity conversion
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, 2016:
Balance, beginning of year
New shares from equity offering
New shares issued from debenture conversion (note 9)
Equity offering costs
Options exercised in the year
New shares issued during the year under Dividend Reinvestment Plan
Balance, end of year
# of shares
22,490,489
1,633,000
1,759,944
-
-
131,000
49,877
26,064,310
# of shares
20,313,943
1,966,500
-
-
46,250
163,796
22,490,489
Amount
236,031,386
23,025,300
21,278,427
155,648
(1,345,374)
1,555,776
676,082
281,377,245
Amount
209,220,787
25,367,850
-
(1,246,207)
549,272
2,139,684
236,031,386
$
$
$
$
During the third quarter of 2017, the Corporation completed an early redemption of 5.75% convertible
unsecured subordinated debentures due October 31, 2017. Of
the outstanding $31,443,000 principal,
$21,278,427 was converted to common shares at a price of $12.09 per share, which equaled to 95% of the
weighted average market price per share for the preceding 20 trading days ending on the fifth trading day
preceding the redemption date. The remaining balance of $10,164,573 was repaid in cash.
During the first quarter of 2017, the Corporation completed an equity offering of 1,420,000 common shares at
a price of $14.10 per share for gross proceeds of $20,022,000. The over-allotment option was exercised in
full and the Corporation issued an additional 213,000 shares at a price of $14.10 per share for gross proceeds
of $3,003,300. The total shares issued were 1,633,000.
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 were 1,966,500.
22
46 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
(b)
Incentive option plan:
During the second quarter of 2017, the Corporation granted 70,000 options to directors of the Corporation at
an exercise price of $13.15 per share. These options fully vested upon granting.
During the year of 2017, 131,000 options were exercised, of which 125,000 options were exercised by
officers of the Corporation.
During the year of 2016, 46,250 options were exercised, of which 35,000 options were exercised by officers of
the Corporation.
# of options
Amount
Balance at December 31, 2015
Options exercised
Options forfeited
Balance at December 31, 2016
Options issued
Options exercised
Balance at December 31, 2017
1,063,500
(46,250)
(10,000)
1,007,250
70,000
(131,000)
946,250
$
100,531
(4,446)
(962)
95,123
11,030
(12,597)
93,556
$
$
(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, 2017 and 2016.
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
2017
2016
$
24,821,438
$
21,190,613
24,362,355
$
1.019
21,810,736
$
0.972
23
Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
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
Diluted profit per share
12. Dividends:
2017
2016
$
24,821,438
9,334,991
$
34,156,429
$
21,190,613
7,164,273
$
28,354,886
24,362,355
21,810,736
88,948
10,248,953
34,700,256
120,884
7,922,849
29,854,469
$
0.984
$
0.950
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, 2017,
$21,190,613) to its shareholders. Dividends were $1.006 per share (2016 - $0.966 per share).
the Corporation recorded dividends of $24,821,438 (2016 -
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,
2017, this amount was $3,639,094 (2016 - $3,152,050).
Included in accounts payable and accrued liabilities
at December 31, 2017 are amounts payable to the Corporation's Manager of $341,367 (2016 - $275,563).
The total directors' fees paid for the year was $272,333 (2016 - $224,375). 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 481,768 shares in
the Corporation as at December 31, 2017 (2016 - 430,946).
During the year ended December 31, 2017,
option plan (2016 - nil).
two directors were awarded 70,000 options under the incentive
24
48 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
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
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
$485,000 for the year ended December 31, 2017 (2016 - $420,000). The Mortgage Banker also retains all
overnight
fees and charges payable by borrowers on the Corporation's
investments.
the commitment and renewal
interest and incidental
float
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.
Two mortgage investments totaling $1,400,000 (December 31, 2016 - three mortgage investments totaling
the Corporation. The
$4,850,000) were issued to a borrower controlled by an independent director of
investments were made by way of a participation in a direct loan to the entity controlled by the director. The
investment
is 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 $3,232,768
(December 31, 2016 - $961,475) from these investments during the year.
The Corporation holds a mortgage investment totaling $4,985,500 at December 31, 2017 (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, 2016 - $4,628,000). 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 that occurred after the purchase of the underlying Schedule 1 bank
mortgage. The Corporation is a pari passu participant in the mortgage, having the same rights as all other
participants in the loan. 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, and for this
reason, the borrower is classified as a related party. The Corporation recognized interest and fees earned of
nil (December 31, 2016 - nil) from this investment during the year. The impairment provision recorded on this
loan was $1,180,000 as at December 31, 2017 (December 31, 2016 - $1,190,000). 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 paid to key management personnel (including payments to related parties for their
recovery of overhead costs), all consisting of short-term employee compensation, was $2,083,453 in 2017
(2016 - $1,960,779), all of which was paid by the Corporation's Manager and nil by the Corporation.
25
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
49
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, 2017 and 2016
(in Canadian dollars)
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
Cash interest paid
15. Contingent liabilities:
2017
2016
$
$
$
$
1,372,878
1,005,264
10,845,207
13,223,349
(1,225,446)
(415,179)
(386,246)
1,313,699
93,280
9,221,061
10,628,040
(1,017,951)
(357,767)
229,721
$
11,196,478
$
9,482,043
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.
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.
26
50 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, 2017 and 2016
(in Canadian dollars)
The tables below present the fair values of the Corporation's financial instruments as at December 31, 2017
It does not include fair value information for financial assets and financial liabilities not measured
and 2016.
at fair value if the carrying amount is a reasonable approximation of fair value:
2017
Level 1
Level 2
Level 3
Total
Debenture portfolio investment
Marketable securities
Convertible debentures
$ - - - $ -
210,194 - - 210,194
164,306,323 - - 164,306,323
2016
Level 1
Level 2
Level 3
Total
Debenture portfolio investment
Marketable securities
Convertible debentures
17. Risk management:
$ 2,199,937 - - $ 2,199,937
2,200,329 - - 2,200,329
168,831,871 - - 168,831,871
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 instruments, exposes the Corporation to
various risks, the most significant of which are interest rate risk, credit and operational risks, and liquidity risk.
(a)
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.
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.
27
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
51
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, 2017 and 2016
(in Canadian dollars)
(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.
At December 31, 2017, 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
Investment portfolio
Financial liabilities:
Bank indebtedness
Accounts payable and accrued liabilities
Shareholders dividend payable
Loans payable
Convertible debentures
Total increase
(b) Credit and operational risks:
Carrying Value
-1%
+1%
5,226,204
210,194
555,801,977
-
-
(252,771)
-
-
3,059,859
60,268,468
2,649,558
3,857,518
51,662,949
157,464,904
602,685
-
-
-
-
(602,685)
-
-
-
-
$
349,914
$
2,457,174
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.
(c) Liquidity risk:
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting its financial obligations as they
become due.
28
52 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
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, 2017,
50% of its first mortgage investments. Unadvanced committed funds under the existing investment portfolio
amounted to $91,953,643 as at December 31, 2017 (2016 - $131,268,094). These commitments are
anticipated to be funded from the Corporation's credit facility and borrower repayments. The Corporation has
a demand revolving line of credit of $70 million and a committed revolving line of credit with its principal
banker to fund the timing differences between investment advances and investment repayments. The
committed line of $20 million is a committed facility with a maturity date of September 30, 2018.
If the
comitted line is not renewed on September 30, 2018, the terms of the facility allow for the Corporation to repay
In the current economic climate and capital
the balance owed on September 30, 2018 within 12 months.
market conditions, there are no assurances that the bank borrowing line will be renewed or that it could be
replaced with another lender if not renewed.
is not extended at maturity, repayments under the
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, 2017 are due as follows:
Bank indebtedness
Accounts payable and accrued liabilities
Shareholder dividend payable
Loans payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
Total
Less than 1
year
$
60,268,468
2,649,558
3,857,518
51,662,949
163,223,000
281,661,493
91,953,643
373,615,136
$
$
$
60,268,468
2,649,558
3,857,518
30,773,760
-
97,549,304
91,953,643
189,502,947
$
$
1-3 years
-
$
-
-
20,889,189
66,223,000
87,112,189
-
87,112,189
$
$
4 - 7 years
-
$
-
-
-
97,000,000
97,000,000
-
97,000,000
$
$
29
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
53
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, 2017 and 2016
(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 $8,579,815 for less
than 1 year, $12,017,008 for 1 to 3 years and $13,066,917 for 4 to 7 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.
the Corporation (i) will not invest more than 10% of
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
following:
in any single
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.
30
54 Firm Capital Mortgage Investment Corporation ● 2017 ● 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, 2017 and 2016
(in Canadian dollars)
e) Currency risk:
Currency risk is the risk that the fair value or future cash flows of the Corporation's foreign currency-
denominated investments and cash and cash equivalents will fluctuate based on changes in foreign currency
exchange rates. Consequently, the Company is subject to currency fluctuations that may impact its financial
position and results of operations. The Corporation manages its currency risk on its investments by borrowing
the same amount as the investment in the same currency. As a result, a change in exchange rate of the
Canadian dollar against
income and
comprehensive income and equity.
in a material change to the net
the U.S. dollar will not result
18. Supplementary information:
The following table reconciles the changes in cash flows from financing activities for loan on debenture
portfolio investments, loans payable and convertible debentures:
Balance, beginning of the year
Financing cash flow activities:
Repayment of loan on debenture portfolio
Proceeds from loans payable
Proceeds from convertible debentures issued
Debenture offering costs
Repayment of convertible debentures
Total cash flow from financing activities
Loan on
Debenture
Portfolio
Investments
Loans Payable
1,295,184
(1,295,184)
-
-
-
-
-
-
51,662,949
-
-
-
(1,295,184)
51,662,949
Financing non-cash activities:
Convertible debenture equity (note 9)
Conversion of debenture to shares (note 9 & 10)
Implicit interest rate in excess of coupon rate (note 14)
Deferred finance cost amortization (note 14)
Total non-cash flow financing activities
Balance, end of the year
-
-
-
-
-
-
-
-
-
-
-
Convertible
Debentures
162,305,989
-
-
26,500,000
(1,328,710)
(10,164,573)
15,006,717
(210,000)
(21,278,427)
415,179
1,225,446
(19,847,802)
51,662,949
157,464,904
31
Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
55
Building Relationshipstoday and tomorrow
Total Return Since IPO
Total Return Since IPO
An Attractive Investment
MORTGAGE INVESTMENT CORPORATION
$484
$657
0 %
1 . 1
1
+
$100
$100
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Since Oct. 5th, 1999 till December 31th, 2017
Since Oct . 5th, 1999 till December 31st, 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 $657 .00 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 10 .86%
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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
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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
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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 .
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Participating Shareholders pay no commission .
For further information, including answers to frequently asked questions about the program, please refer to
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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,
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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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56 Firm Capital Mortgage Investment Corporation ● 2017 ● Annual Report
Building Relationships today and tomorrow
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Jonathan Mair, CPA, CA
Vice-President, Mortgage Banking
and Chief Financial Officer Firm
Capital Corporation
Miller Thomson LLP
FC.DB.G,
FC.DB.H
, F.DB.F
Director, Firm Capital Mortgage
Investment Corporation
The Honourable Joe Oliver, P.C.
The Honourable Francis (Frank)
Newbould, Q.C.
Former Justice at the Ontario Superior
Court of Justice
(5)
Jonathan Mair, CPA, CA
Chief Operating Officer, and
Executive Vice President
(5)
Sandy Poklar, CPA, CA
Executive Vice President and
Managing Director Finance
Boris Baril, CPA, CA
Chief Financial Officer
(5)
Senior Vice President, Credit
and Equity Capital
Firm Capital Mortgage
Investment Corporation
(1) Member of the Investment Committee
(2) Member of the Audit Committee
(3) Independent Directors
(4) Chairman of the Board, Investment Committee
and Audit Committee
(5) Effective April 1, 2018
Jonathan Mair, CPA, CA
Vice-President, Mortgage Banking
Jonathan Mair, CPA, CA
and Chief Financial Officer Firm
Vice-President, Mortgage Banking
Capital Corporation
and Chief Financial Officer Firm
Capital Corporation
Miller Thomson LLP
Miller Thomson LLP
FC.DB.G,
FC.DB.H
, F.DB.F
, F.DB.F
FC.DB.G,
FC.DB.H
(1) Member of the Investment Committee
(2) Member of the Audit Committee
(3) Independent Directors
(4) Chairman of the Board, Investment Committee
(1) Member of the Investment Committee
and Audit Committee
(2) Member of the Audit Committee
(5) Effective April 1, 2018
(3) Independent Directors
(4) Chairman of the Board, Investment Committee
and Audit Committee
(5) Effective April 1, 2018
Director, Firm Capital Mortgage
Investment Corporation
Director, Firm Capital Mortgage
Investment Corporation
The Honourable Joe Oliver, P.C.
The Honourable Joe Oliver, P.C.
The Honourable Francis (Frank)
Newbould, Q.C.
Former Justice at the Ontario Superior
The Honourable Francis (Frank)
Court of Justice
Newbould, Q.C.
Former Justice at the Ontario Superior
Court of Justice
(5)
Jonathan Mair, CPA, CA
Chief Operating Officer, and
Executive Vice President
(5)
Jonathan Mair, CPA, CA
Chief Operating Officer, and
Executive Vice President
(5)
Sandy Poklar, CPA, CA
Executive Vice President and
Managing Director Finance
(5)
Sandy Poklar, CPA, CA
Executive Vice President and
Boris Baril, CPA, CA
Managing Director Finance
Chief Financial Officer
(5)
(5)
Boris Baril, CPA, CA
Senior Vice President, Credit
Chief Financial Officer
and Equity Capital
Firm Capital Mortgage
Investment Corporation
Senior Vice President, Credit
and Equity Capital
Firm Capital Mortgage
Investment Corporation
MORTGAGE INVESTMENT CORPORATION
REAL ESTATE FINANCING SOLUTIONS
Mortgage Banker Sample Transactions:
Land Loan
$147,000,000
First Mortgage
893,404 sq. ft.
mixed-use building
Inventory Loan
$17,500,000
First Mortgage
64 condominium
units
Construction Loan
$67,100,000
First Mortgage
Mixed-use condo
project
Land & Construction Loan
$17,380,000
First Mortgage
38 townhome units & 5
commercial/retail units
TORONTO, ON
MONTREAL, QC
TORONTO, ON
PICKERING, ON
Infill Construction Loan
$1,765,000
Second Mortgage
3,486 sq. ft.
custom home
Bridge Loan
$3,200,000
First Mortgage
2 office buildings
Inventory Loan
$13,250,000
First Mortgage
30 condominium
units
Mezzanine Equity Loan
$15,400,000
Partial Interest
544,000 sq. ft.
retail centre
TORONTO, ON
WATERLOO, ON
TORONTO, ON
VANCOUVER, B.C.
Infill Construction Loan
$4,000,000
Land Loan
$24,500,000
Infill Construction Loan
$1,575,000
First Mortgage
4 single family
custom homes
TORONTO, ON
First Mortgage
20 acre future residential
development site
OAKVILLE, ON
First Mortgage
3,448 sq. ft.
custom home
TORONTO, ON
Land Loan
$10,675,000
First Mortgage
Future residential
development site
TORONTO, ON
BOUTIQUE MORTGAGE LENDERS
® PROVIDING REAL ESTATE CAPITAL FOR:
COMMERCIAL FINANCING
RESIDENTIAL FINANCING
BRIDGE FINANCING
STRUCTURED REAL ESTATE FINANCING
TAILORED MORTGAGE ENGINEERING
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
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