Franklin Covey
Annual Report 2018

Plain-text annual report

Firm Capital Annual Report 2018 COVER v4.pdf 1 2019-03-29 2:06:38 PM 2018 ANNUAL REPORT BUILDING RELATIONSHIPS Mortgage Investment Corporation MORTGAGE INVESTMENT CORPORATION PROFILE Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is PROFILE a non-bank lender providing residential and commercial real estate finance. The Corporation’s investment Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is objective is the preservation of Shareholders’ Equity, while providing Shareholders with a stable stream of (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:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(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:17)(cid:3)(cid:55)(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:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) monthly dividends from the Corporation’s investments, targeting returns on equity in excess of 400 basis (cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:181)(cid:181)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(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:182)(cid:182)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(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:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:68)(cid:80)(cid:3) points over Government of Canada one year average treasury bill yields . The Corporation achieves its (cid:82)(cid:73)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:23)(cid:19)(cid:19)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3) investment objectives by pursuing a strategy of growth through investments in select niche markets that are (cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:3) (cid:82)(cid:81)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3) (cid:87)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3) (cid:69)(cid:76)(cid:79)(cid:79)(cid:3) (cid:92)(cid:76)(cid:72)(cid:79)(cid:71)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:3) under-serviced by large lending institutions . (cid:76)(cid:87)(cid:86)(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:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:83)(cid:88)(cid:85)(cid:86)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3)(cid:81)(cid:76)(cid:70)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:16)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) The shares are listed on the Toronto Stock Exchange, stock symbol - FC (cid:55)(cid:75)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:79)(cid:76)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:82)(cid:85)(cid:82)(cid:81)(cid:87)(cid:82)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:15)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:86)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:3)(cid:177)(cid:3)(cid:41)(cid:38) MORTGAGE BANKER PROFILE Boutique Mortgage Lenders® MORTGAGE BANKER PROFILE 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(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:17) Where Mortgage Deals Get Done® CONTENTS PROFILE Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is 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(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:16)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) Letter To Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CONTENTS 2 Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . 25 (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:55)(cid:82)(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: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:20) Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (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:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(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) 3 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (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 . . . . . . . . . . . . . . 31 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 . . . . . . . 32 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 (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 . . . . . . . . . . . . . . . . . . . . . 34 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 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) MORTGAGE BANKER PROFILE (cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:72)(cid:85)(cid:15)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3) 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(cid: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 LETTER TO SHAREHOLDERS We are pleased to report to you on the 2018 results for Firm Capital Mortgage Investment Corporation (the We are pleased to report to you the 2018 results for Firm Capital Mortgage Investment Corporation (the “Corporation”) . “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 2018, we were able to generate dividends to Shareholders of $0.986 per share, while maintaining a loan loss provision of $4,950,000, representing approximately 1% of the Corporation’s assets. HIGHLIGHTS DIVIDENDS For the year ended December 31, 2018, the Corporation declared dividends totaling $0.986 per share versus $1.006 per share for the year ended December 31, 2017. The December 2018 special dividend was 5 cents per unit. PROFIT Income and profit (referred to herein as “Profit”) for year ended December 31, 2018 of $25,750,696 represents approximately a 3.7% increase compared to $24,821,438 reported for the year ended December 31, 2017. Basic weighted average profit per share for the year ended December 31, 2017 was $0.986, compared to the $1.019 per share reported for the year ended December 31, 2017. DIVERSIFIED PORTFOLIO The Corporation’s Investment Portfolio at December 31, 2018 totaled $520.1 million (before impairment provision) consisting of 231 separate investments. The average interest rate on the Corporation’s investments at December 31, 2018 was 8.58% per annum. VERY SHORT-TERM PORTFOLIO WITH SIGNIFICANT ANNUAL TURNOVER In 2018, the Investment Portfolio repayments totaled $328 million with new investments during the year totaling $287 million. This turn is the key to our investment approach and demonstrates the short-term bridge financing nature of the portfolio. 2019 OUTLOOK We encourage Shareholders to read the Management Discussion and Analysis in this report and our Outlook for 2019. ELI DADOUCH President Chief Executive Officer ELI DADOUCH President Chief Executive Officer JONATHAN MAIR Executive Vice President Chief Operating Officer BORIS BARIL Chief Financial Officer Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 1 Building Relationshipstoday and tomorrowMANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS OUR BUSINESS Firm Capital Mortgage Investment Corporation (the “Corporation”) is a non-bank lender, investing predominantly in short-term residential and commercial real estate mortgage loans and real estate related debt investments. The Corporation operates as a mortgage investment corporation under the Income Tax Act (Canada). Mortgage investment corporations have no income tax payable provided that they satisfy the requirements in subsection 130.1(6) of the Income Tax Act (Canada). The Corporation’s primary investment objective is the preservation of shareholders’ equity, while providing shareholders with a stable stream of dividends from the Corporation’s investments. The Corporation achieves its investment objectives by pursuing a strategy of investing in loans in select niche real estate markets that are under-serviced by larger financial institutions. The Corporation’s more specific objective is to hold an investment portfolio that: (i) (ii) (iii) (iv) is widely diversified across many investments; is concentrated in first mortgages; reduces exposure as a result of participation in various loan syndicates; and is primarily short-term in nature. Firm Capital Corporation (the “Mortgage Banker”) is the Corporation’s mortgage banker and 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 12, 2019 and should be read in conjunction with the audited financial statements of the Corporation and the notes thereto for the years ended December 31, 2018 and 2017, as well as the Management’s Discussion and Analysis, including the section on “Risk and Uncertainties”, along with each of the quarterly reports for 2018 and 2017. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 1 2 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS HIGHLIGHTS PROFIT Profit for the three months ended December 31, 2018 was $6,097,699 as compared to $6,122,660 for the same period in the prior year. Profit for the year ended December 31, 2018 increased by 3.7% to $25,750,696 as compared to the $24,821,438 reported for the year ended December 31, 2017. Profit for the year ended December 31, 2017 included the recognition of a one-time special income on one of the Corporation’s non-conventional investments in the amount of $2,737,500. Total special income (other income) that occurred during the year ended December 31, 2017 was $3,072,099 compared to $331,251 for the year ended December 31, 2018. Excluding the one- time special income, profit for 2018 was 17% higher as compared to a normalized 2017. INTEREST AND FEES REVENUE Interest and fees revenue for the three months ended December 31, 2018 increased by 2.1% to $11,503,377 as compared to $11,270,747 reported for the same period in 2017. The increase is primarily derived from higher fee income with interest income remaining comparable as a result of the increase in the weighted average portfolio interest rate, being offset by a smaller average portfolio size. Interest and fees revenue for the year ended December 31, 2018 increased by 16.4% to $46,982,013 as compared to $40,351,170 for the year ended December 31, 2017. The increase is primarily derived from increased commitment and renewal fees plus higher interest income (resulting from a larger average investment portfolio in fiscal 2018 over the comparable 2017 and from an increase in the weighted average portfolio interest rate) offset by the lower special income in 2018. INVESTMENT PORTFOLIO The Corporation’s investment portfolio (the “Investment Portfolio”) as at December 31, 2018, decreased by $40.6 million to $520.9 million in comparison to $561.5 million as at December 31, 2017 (gross of impairment provision). The provision for credit losses as at December 31, 2018 was $4.95 million (December 31, 2017 – $5.70 million). 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 year ended December 31, 2018 represents an annual return on shareholders’ equity (based on the month end average shareholders’ equity during the year) of 9.01%, representing return on shareholders’ equity of 707 basis points per annum over the average one year Government of Canada Treasury bill yield of 1.94%. COMPLETION OF A CONVERTIBLE DEBENTURE OFFERINGS On November 23, 2018, the Corporation completed a public offering of 25,000 5.50% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,000,000. The debentures mature on January 31, 2026 and interest is paid semi-annually. The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price of $14.60. On June 21, 2018, the Corporation completed a public offering of 25,000 5.40% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,000,000. The debentures mature on June 30, 2025 and interest is paid semi-annually. The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price of $15.00. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 2 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 3 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS INVESTMENT PORTFOLIO The Corporation’s Investment Portfolio totaled $515,994,509 as at December 31, 2018 (net of the provision for impairment of $4,950,000) and was $555,801,977 (net of an impairment allowance of $5,700,000) as at December 31, 2017. The Investment Portfolio is comprised of 231 investments (251 as at December 31, 2017). The average gross investment size (excluding the provision for impairment) was approximately $2.3 million with 17 investments individually exceeding $7.5 million. As at December 31, 2018, 181 of the 231 investments are individually less than $2.5 million. December 31, 2018 December 31, 2017 Mortgage Amount $0 - $2,500,000 $2,500,001 - $5,000,000 $5,000,001 - $7,500,000 $7,500,001 + Number 181 27 6 17 231 Total Amount (before provision) $ $ 165,349,152 94,921,879 37,775,714 222,897,764 520,944,509 % of Portfolio Number 197 27 10 17 251 31.7% 18.2% 7.3% 42.8% 100% Total Amount (before provision) $ 169,511,967 96,807,234 48,217,047 246,965,728 561,501,976 $ % of Portfolio 30.2% 17.2% % Change (2.5%) (1.9%) 8.6% (21.7%) (9.7%) (7.2%) 44.0% 100% Unadvanced committed funds under the existing Investment Portfolio amounted to $89 million as at December 31, 2018 (December 31, 2017 – $92 million). 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, 2018 December 31, 2017 % of Portfolio Investment Categories Conventional First Mortgages Conventional Non-First Mortgages Related Investments Discounted Debt Non-Conventional Mortgages Total Investments Less: Impairment Provision $ Investment Portfolio * The yield on Discounted Debt Investments will be determined upon final repayment of the investments. Outstanding amount 399,214,814 41,808,791 70,259,622 5,336,525 4,324,757 520,944,509 (4,950,000) 515,994,509 W.A Interest Rate 8.47% 9.21% 9.44% - 9.23% 8.58% $ $ $ $ $ $ 76.6% 7.78% 8.0% 9.05% 13.5% 9.73% 1.0% 0.9% 11.11% 8.09% 100% W.A Interest Rate Outstanding amount 427,591,758 57,187,248 69,636,557 5,392,900 1,693,514 561,501,977 (5,700,000) 555,801,977 $ $ $ - % % of Change Portfolio (6.6%) 76.1% (26.9%) 10.2% 0.9% 12.4% (1.0%) 1.0% 0.3% 155.4% 100% (7.2%) The $40.6 million decrease in the Investment Portfolio (before the provision for impairment) was mainly due to the decrease in the size of the conventional first and conventional non-first mortgages, partially offset by the increase in the related investment category and non- conventional mortgages. Conventional first mortgages decreased by 6.6% and represented 76.6% of the Corporation’s portfolio as at December 31, 2018 and 76.1% as at December 31, 2017. Conventional non-first mortgages decreased by 26.9% and represented 8.0% of the Investment Portfolio at December 31, 2018 and 10.2% December 31, 2017. Both conventional first mortgage and conventional non- first mortgage decreases are a result of investment repayment in these categories exceeding new funding. Related investments increased by 0.9% and represented 13.5% of the Corporation’s Investment Portfolio as at December 31, 2018 in comparison to 12.4% at December 31, 2017. Discounted debt investments decreased by 1.0% and represented 1.0% of the Investment Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 3 4 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS Portfolio, at December 31, 2018 and 2017. Non-conventional mortgages increased by 155.4% as a result of funding new investments and represented 0.9% of the Investment Portfolio at December 31, 2018 and 0.3% at December 31, 2017. The weighted average face interest rate on the Corporation’s Investment Portfolio was 8.58% per annum as at December 31, 2018 compared to 8.09% per annum as at December 31, 2017. The provision for impairment is $4,950,000 as at December 31, 2018 (December 31, 2017 - $5,700,000), of which $4,265,000 represents the total amount of management's estimate of the shortfall between the investment balances and the estimated recoverable amount from the security under the specific loans. As at December 31, 2018, the Corporation carries a collective provision balance of $685,000 (December 31, 2017 - $400,000). The allocation of the Investment Portfolio between its seven types of investments is as follows: December 31, 2018 December 31, 2017 Property Type Construction Mortgages Single Family Land Condo (Including multi unit condo loans) Multi Family Residential Mortgages Related Investments Other 81 57 58 8 4 14 9 231 Total Amount (before provision) $ 112,395,511 51,468,471 182,614,627 40,628,403 43,010,019 70,259,622 20,567,856 520,944,509 $ % of Portfolio Number 98 62 53 12 3 13 10 251 21.6% 9.9% 35.1% 7.7% 8.3% 13.5% 3.9% 100% 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 8.5% 27.9% % Change 30.7% (34.9%) 7.9% 16.5% 9.2% (21.4%) (5.9%) 8.1% 0.9% 12.4% 17.7% 3.2% (7.2%) 100% The Corporation continues to focus its lending into core markets that can be monitored closely during evolving economic conditions. The Investment Portfolio has some geographic diversification with 8.5% of the investments in the portfolio secured by properties outside of Ontario, compared to 13.3% as at December 31, 2017. December 31, 2018 December 31, 2017 Geographic Segment Greater Toronto Area Non-GTA Ontario Quebec Alberta Saskatchewan Other Portfolio (excluding Related Investments) Related Investments Number 161 44 3 2 2 5 217 14 231 Total Amount (before provision) $ 292,815,303 119,616,945 8,634,670 4,000,000 10,914,942 14,703,027 450,684,887 70,259,622 520,944,509 $ $ % of 65.0% 26.5% 1.9% 0.9% 2.4% 3.3% 100% Portfolio Number 186 36 4 7 2 3 238 13 251 Total Amount (before provision) $ 323,167,700 103,225,547 26,357,552 17,877,234 12,975,036 8,262,350 491,865,420 69,636,557 561,501,977 $ $ % of Portfolio 65.7% 21.0% % Change (9.4%) 15.9% 5.4% (67.2%) 3.6% (77.6%) 2.6% (15.9%) 78.0% 1.7% 100% Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 4 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 5 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS The allocation of the Investment Portfolio between underlying the security type, is as follows: Underlying Security Type Residential Commercial Related Investments Number 203 14 14 231 December 31, 2018 Total Amount (before provision) $ $ 392,109,235 58,575,652 70,259,622 520,944,509 % of Portfolio Number 221 17 13 251 75.3% 11.2% 13.5% 100% December 31, 2017 Total Amount (before provision) $ 435,895,456 55,969,964 69,636,557 561,501,977 $ % of Portfolio % Change 77.6% (10.0%) 4.7% 10.0% 0.9% 12.4% (7.2%) 100% residential category The family dwellings, 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 conventional first mortgages are three United States ("US") dollar denominated investments (at amortized cost) of $5,709,177 (US$4,185,000) (December 31, 2017 - $nil). Included in related investments (at FVTPL) are two US dollar denominated investments of $5,376,199 (US$3,940,917), (December 31, 2017 - $5,958,875 (US$4,750,000)). These investments are a participation by the Corporation in limited partnerships that have provided preferred equity to real estate entities in the US. Income recorded on this investment during the year ended December 31, 2018 was $730,633 (US$562,948), (December 31, 2017 – $71,267 (US$55,896) and are included in interest and fees income. With respect to loans with no provision, the Investment Portfolio as at December 31, 2018 had two investments with balances totaling $1,474,000 (December 31, 2017 – two investments with balances totaling $2,361,437) with contractual interest arrears greater than 60 days past due amounting to $48,727 (December 31, 2017 – $35,188). Management has determined there to be no impairment requiring a provision (December 31, 2017 – $nil). The Investment Portfolio as at December 31, 2018 includes thirteen investments totaling $19,735,486 (December 31, 2017 – six investments of $28,901,947) with maturity dates that are past due and for which no extension or renewal was in place. Four of the thirteen investments were paid out during the first quarter of 2019, reducing the balance by $4,076,794, and additional four investments totaling $10,629,767 (December 31, 2017 – three investments of $12,918,805) have a provision against them included in the Corporation’s provision for impairment. The remaining five investments with maturity dates that are past due, and for which no extension or renewal was in place, totaling $5,028,925 (December 31, 2017 – three investments of $15,983,142), are considered not to require a provision. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 5 6 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS As at December 31, 2018, the Investment Portfolio continued to be heavily concentrated in short- term investments with 74.2% of the portfolio maturing by December 31, 2019 and 97.0% maturing on or before December 31, 2020. 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, 2018 Total Amount (before provision) $ $ $ $ $ 386,039,333 129,133,938 5,525,000 246,238 520,944,509 % of Portfolio 74.2% 24.8% 1.0% 0.0% 100% 2019 2020 2021 2022 Number 180 49 1 1 231 A significant number of the Corporation’s investments are shared with other syndicate partners including several members of the Board of Directors and senior management of the Mortgage Banker and/or officers and 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, 2018, 205 of the Corporation’s 231 investments (investment amount of $500,624,695) are shared with other participants, and for 38 of which (investment amount of $140,454,938) the Corporation is a participant for less than 50 percent of the loan amount. Certain members of the Board of Directors and senior management and their related entities co- invested approximately $80 million with the Corporation alongside its December 31, 2018 portfolio. 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 (i.e. Loans Payable), the Corporation ranks equally with other members of the syndicate as to receipt of principal, interest, and fees. RESULTS OF OPERATIONS INTEREST AND FEES AND OTHER INCOME For the three months ended December 31, 2018, interest and fees and other income earned increased by approximately 2% to $11,528,868 compared to $11,333,133 for the three months ended December 31, 2017. During the fourth quarter of 2018 the average interest was greater, but the average size of the investment portfolio was lower as compared to the fourth quarter of 2017. For the year ended December 31, 2018, interest and fees and other income earned increased by 9% to $47,313,264 compared to $43,423,269 for the year ended December 31, 2017. During 2018, the average size of the Investment Portfolio and average interest rates were greater than during 2017. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 6 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 7 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS Interest and fees earned for the three months and year ended December 31, 2018 and December 31, 2017 are broken down as follows: Three Months Ended Interest Commitment & Renewal Fees Other Income Year Ended Interest Commitment & Renewal Fees Other income $ Dec. 31, 2018 10,623,533 879,844 25,491 11,528,868 $ $ Dec. 31, 2018 44,466,299 2,515,714 331,251 47,313,264 $ % 92% 8% 0% 100% % 94% 5% 1% 100% $ Dec. 31, 2017 10,741,397 529,350 62,386 11,333,133 $ $ Dec. 31, 2017 38,519,968 1,831,202 3,072,099 43,423,269 $ % 93% 5% 1% 100% % 94% 4% 2% 100% % Change (1%) 66% (59%) 2% % Change 15% 37% (89% ) 9% For the three months ended December 31, 2018 interest income was $10,623,533, a decrease of 1% from $10,741,397 as reported for the comparable period 2017. For the year ended December 31, 2018 interest income was $44,466,299, an increase of 15% from $38,519,968 as reported for 2017. The increase in interest income is a result of the Corporation generating a higher average interest rate on the Investment Portfolio and holding a larger average Investment Portfolio over 2017. However, the portfolio declined due to higher discharges towards the end of 2018, resulting in a lower December 31, 2018 balance than December 31, 2017. For the three months ended December 31, 2018 and 2017, interest income represents 92% and 93% of the Corporation’s revenues, respectively. For the year ended December 31, 2018 and 2017, interest income, for both years, represents 94% of the Corporation’s revenues. For the three months ended December 31, 2018, commitment and renewal fees were $879,844, an increase of 66% from $529,350 reported in the prior comparable period. For the year ended December 31, 2018, commitment and renewal fees were $2,515,714, an increase of 37% from $1,831,202 for the year ended December 31, 2017. As at December 31, 2018, the Corporation had deferred commitment fee revenue of $795,486 (December 31, 2017 – $910,822). 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 deferred revenue on the Corporation’s balance sheet. These fees have been received and are not refundable to borrowers. For the three months ended December 31, 2018, other income was $25,491 a decrease of 59% from $62,386 as reported for the three months ended December 31, 2017. For the year ended December 31, 2018, other income was $331,251 a decrease of 89% from $3,072,099 as reported for the year ended December 31, 2017. The first quarter of 2017 included the recognition of special income in the amount of $2,737,500, earned on one of the Corporation’s non-conventional special investments. Other 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 other 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 Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 7 8 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS 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. CORPORATION MANAGER SPREAD INTEREST ALLOCATION The Corporation Manager, through an interest spread arrangement, received for the three months ended December 31, 2018 $993,850 (2017 – $992,162). For the year ended December 31, 2018, the spread interest amounted to $3,932,134 (2017 – $3,639,094), as the Corporation’s average Investment Portfolio over the year was larger in comparison to 2017. INTEREST EXPENSE For the three months ended December 31, 2018, interest expense increased by 2% to $3,672,297 as compared to $3,588,973 for the three months ended December 31, 2017. For the year ended December 31, 2018, interest expense increased by 13% to $14,908,334 as compared to $13,223,349 for the year ended December 31, 2017. Interest expense is higher for the year ended December 31, 2018 when compared to the previous year, as a result of the Corporation having a larger average loans payable amount and convertible debentures outstanding, which was partly offset by a reduction in the overall bank indebtedness balance during 2018. 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, 2018 224,803 340,855 3,106,639 3,672,297 $ $ Dec. 31, 2018 1,541,320 2,223,767 11,143,247 14,908,334 $ % 6% 9% 85% 100% % 10% 8% 82% 100% $ 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 $ % 11% 19% 71% 100% % 12% 1% 87% 100% % Change (41%) (49%) 23% 2% % Change 12% 121% 3% 13% GENERAL AND ADMINISTRATIVE (G&A) EXPENSES For the three months ended December 31, 2018, G&A expenses increased by $67,234 to $307,632 compared to the $240,398 for the three months ended December 31, 2017. For the year ended December 31, 2018, G&A expenses increased by $87,492 to $1,044,375 compared to the $956,883 for year ended December 31, 2017. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 8 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 9 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS THE PROVISION FOR IMPAIRMENT ON INVESTMENT PORTFOLIO AND INTEREST RECEIVABLE The provision for impairment for the three months ended December 31, 2018 was $455,497 (2017 – $388,000) and for the year ended December 31, 2018 was $1,667,325 (2017 – $1,240,000) Further details are described in the Provision for Impairment section. INCOME & PROFIT (“PROFIT”) Profit for the three months ended December 31, 2018 was reported at $6,097,699 as compared to $6,122,660 for the same period in the prior year which represents a decrease of 0.4%. Profit for the year ended December 31, 2018 was reported at $25,750,696 which represents an increase of 3.7% in comparison to the $24,821,438 for the year ended December 31, 2017. Profit for the three months ended December 31, 2018 represented an annualized return on shareholders’ equity (based on the month end average shareholders’ equity in the quarter) of 8.50%. This return on shareholders’ equity represents 656 basis points per annum over the average one-year Government of Canada Treasury bill yield of 1.94% 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. For the year ended December 31, 2018, the annual return on shareholders’ equity (based on the month end average shareholders’ equity during the year) is 9.01%, and 707 basis points over the one-year Government of Canada Treasury bill yield of 1.94%. The above return on shareholders’ equity is a non-IFRS financial measure and does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. This non-IFRS measure provides useful information to the Corporation’s shareholders as it provides a measure of return generated on the Corporation’s equity base. TOTAL COMPREHENSIVE INCOME The Corporation has invested in units and debentures of publicly traded real estate investment trusts. Upon the adoption of IFRS 9 on January 1, 2018 the Corporation classifies these investments at FVTPL and any changes in the fair value of the marketable securities and debenture portfolio are reflected in the statement of income. The change in fair value of marketable securities and debenture investments reclassified to income for the three months ended December 31, 2018 was $nil (2017 – $135,362). The realized gains on disposal of marketable securities and debenture investments reclassified to income for the year ended December 31, 2018 were $nil compared (2017 – $458,435). PROFIT PER SHARE Basic weighted average profit per share for the three months ended December 31, 2018, was $0.233, which is 0.9% lower than the $0.235 per share reported for the three months ended December 31, 2017. Basic weighted average profit per share for the year ended December 31, 2018, was $0.986, which is 3.2% lower than the $1.019 per share reported for the year ended December 31, 2017. Profit for the year ended December 31, 2017, included the recognition of a one-time special income on one of the Corporation’s non-conventional investments in the amount of $2,737,500. Total special income (other income) that was recorded during the year ended December 31, 2017 amounted to $3,072,099 compared to $331,251 for the year ended December 31, 2018. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 9 10 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS Diluted weighted average profit per share for the three months ended December 31, 2018, was $0.231, which is largely in-line with the $0.232 per share reported for the three months ended December 31, 2017. Diluted weighted average profit per share for the year ended December 31, 2018, was $0.963, which is 2.1% lower than the $0.984 per share reported for the year ended December 31, 2017. QUARTERLY FINANCIAL INFORMATION ($ 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 2018 11.53 3.67 0.99 0.31 0.46 6.10 $ $ Sep. 30 2018 12.39 3.81 0.96 0.23 0.46 6.93 $ $ Jun. 30 2018 11.64 3.68 0.97 0.25 0.45 6.29 $ $ Mar. 31 2018 11.74 3.75 1.00 0.26 0.30 6.43 $ $ 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 $ $0.233 $0.231 $0.284 $0.265 $0.253 $0.234 $0.241 $0.237 $0.234 $0.247 $0.241 $0.234 $0.235 $0.232 $0.304 $0.241 $0.237 $0.234 $0.238 $0.234 $0.234 $0.311 $0.284 $0.234 DIVIDENDS For the three months and year ended December 31, 2018, the Corporation declared dividends totaling $7,432,171 and $25,750,696, respectively, or $0.284 and $0.986 per share versus $7,923,428 and $24,821,438 or $0.304 and $1.006 per share for the three months and year ended December 31, 2017. The number of shares outstanding at December 31, 2018 was 26,143,544, compared to 26,064,310 at December 31, 2017. Year Ended Cash Flows From Operating Activities (net of cash interest paid) Profit Declared Dividends Excess Cash Flows From Operating Activities Over Declared Dividends Profit Over Declared Dividends Dec. 31, 2018 27,335,019 $ Dec. 31, 2017 27,714,278 $ Change (1% ) $ $ 25,750,696 25,750,696 $ $ 24,821,438 24,821,438 4% 4% 1,584,323 $ $ - 2,892,840 $ $ - CHANGES IN FINANCIAL POSITION AMOUNTS RECEIVABLE & PREPAID EXPENSES The amounts receivable and prepaid expenses totaled $3,875,248 as at December 31, 2018 (comprised of interest receivable of $3,472,030, prepaid expenses of $128,701, fees receivable of $254,881, and other income receivable of $19,636), compared to $5,226,204 as at December 31, 2017. MARKETABLE SECURITIES The Corporation holds publicly traded units of one Canadian 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 units generate distributions that are consistent with the Corporation’s overall yield objective. The $199,204 balance reported on the Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 10 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 11 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS Corporation’s balance sheet as at December 31, 2018 represents the fair value of the marketable securities comprising the portfolio (December 31, 2017 – $210,194). The Corporation’s purchase price for the units was $175,025. The approximate average interest yield on the cost of these investments is 10.00% per annum. BANK INDEBTEDNESS As at December 31, 2018 and December 31, 2017, bank indebtedness was $32,704,070 and $60,268,468, respectively. LOANS PAYABLE As at December 31, 2018, the Corporation had loans payable of $14,718,382 (December 31, 2017 – $51,662,949). 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 was $18,672,754 at December 31, 2018 (December 31, 2017 – $67,694,104). CONVERTIBLE DEBENTURES As at December 31, 2018, the Corporation has eight series of convertible debentures outstanding, as outlined below: Ticker Symbol FC.DB.C FC.DB.D FC.DB.E FC.DB.F FC.DB.G FC.DB.H FC.DB.I FC.DB.J Total / Average Coupon Issue Date Maturity Date 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 5.40% Jun. 21, 2018 Jun. 30, 2025 5.50% Nov. 23, 2018 Jan. 31, 2026 5.29% $ $ Current Principal 20,485,000 20,000,000 25,000,000 23,000,000 22,500,000 26,500,000 25,000,000 25,000,000 187,485,000 Strike Price Per Share $ 14.80 15.80 13.95 14.00 15.25 15.25 15.00 14.60 Carrying Value 20,422,154 19,734,544 24,329,835 22,105,324 21,440,326 25,279,056 23,599,710 23,083,484 179,994,433 $ $ As at December 31, 2018, the principal balance for the outstanding convertible debentures was $187,485,000. The recorded convertible debenture carrying value as at December 31, 2018 was $179,994,433, compared to $157,464,904 as at December 31, 2017. The weighted average effective interest rate is 5.29% per annum (5.26% as at December 31, 2017). On December 27, 2018, the Corporation completed an early redemption of its 5.40% convertible unsecured subordinated debentures, which were scheduled to mature on February 28, 2019. It was a cash redemption of the aggregate principal amount of $25,738,000 and all accrued interest to the time of Redemption Date. On November 23, 2018, the Corporation closed a $25,000,000 aggregate principal amount of 5.50% convertible unsecured subordinated debentures due January 31, 2026. These debentures bear interest at a rate of 5.50% per annum, payable semi-annually in arrears on the day of June and December each year commencing on December 31, 2018. The debentures mature on Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 11 12 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS January 31, 2026 and are convertible at the holder’s option into common shares of the Corporation at a conversion price of $14.60. On June 21, 2018, the Corporation closed a $25,000,000 aggregate principal amount of 5.40% convertible unsecured subordinated debentures due June 30, 2025. These debentures bear interest at a rate of 5.40% per annum, payable semi-annually in arrears on the day of June and December each year commencing on December 31, 2018. The debentures mature on June 30, 2025 and are convertible at the holder’s option into common shares of the Corporation at a conversion price of $15.00. OTHER LIABILITIES Other liabilities for the Corporation include the following: Additional Liabilities Accounts Payable and Accrued Liabilities Deferred Revenue Shareholders' Dividend Payable Total $ Dec. 31, 2018 2,018,504 1,179,220 3,346,374 6,544,098 $ $ Dec. 31, 2017 2,649,558 1,294,556 3,857,518 7,801,632 $ % Change (24%) (9%) (13%) (16% ) Accounts payable and accrued liabilities decreased by 24% to $2,018,506 as at December 31, 2018, compared to $2,649,558 as at December 31, 2017. Accounts payable and accrued liabilities include interest payable of $1,379,501 and accrued liabilities of $639,005. Deferred revenue is comprised of commitment fees generated on the Corporation’s mortgage investments and interest income received in advance. As at December 31, 2018, the portion related to commitment fees was $795,485 (December 31, 2017 – $910,821) and the portion related to interest income was $383,735 (December 31, 2017 – $383,735). 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 deferred revenue on the Corporation’s balance sheet. SHAREHOLDERS’ EQUITY Shareholders’ equity at December 31, 2018 totaled $286,107,978 compared to $284,040,422 as at December 31, 2017. The Corporation had 26,143,544 shares issued and outstanding as at December 31, 2018 compared to 26,064,310 as at December 31, 2017. The increase in shares is attributable to shares issued as part of the At-The-Market (“ATM”) share issue program and shares issued under the dividend reinvestment plan and stock option plan. PROVISION FOR IMPAIRMENT 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 investments are measured at amortized cost using the effective interest method, less any provision for impairment. The Company assesses individually significant investments at each reporting date to determine whether there is objective evidence of impairment. The provision for impairment 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 Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 12 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 13 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS 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 provision for impairment. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the provision. Changes in the provision for impairment are recognized in the statement of income and reflected in the provision for impairment against the investments. Interest on the impaired asset continues to be recognized to the extent it is deemed to be collectible. The provision for credit loss is as follows: Conventional First Mortgages Conventional Non-First Mortgages Related Investments Discounted Debt Investments Non-Conventional Mortgages Total Specific Provision Collective Allowance IFRS 9 Collective Allowance Total Provision The changes to the provision Balance at January 1, 2018 Provision for credit losses Transfer to (from): Stage 1 Stage 2 Stage 3 Allocation of provision to interest receivable Balance at December 31, 2018 December 31, 2018 Outstanding amount December 31, 2017 Outstanding amount 3,293,000 3,620,866 - - 860,000 112,000 4,265,000 - 685,000 4,950,000 - - 1,180,000 499,134 5,300,000 400,000 - 5,700,000 Stage 1 Stage 2 400,000 285,000 - - - - - 685,000 Stage 3 5,300,000 1,382,325 Total 5,700,000 1,667,325 - - - - - - - - (2,417,325) 4,265,000 (2,417,325) 4,950,000 - - - - - - - - The loans comprising the Investment Portfolio are stated at amortized cost and FVTPL. The provision for impairment is $4,950,000 as at December 31, 2018, of which $4,265,000 represents the total amount of management's estimate of the shortfall between the investment balances and the estimated recoverable amount from the security under the specific loans in default. 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 provision 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, 2018, the Corporation carries a collective provision of $685,000 (December 31, 2017 – $400,000). Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 13 14 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS Commencing in the second quarter of 2018, the provision pertaining to the uncollectible interest receivable was credited against amounts receivable as opposed to the Investment Portfolio. As at December 31, 2018, the Corporation has allocated the impairment provision in the amount of $2,417,325 (2017 – nil) to interest receivable related to loans in default. GROSS CARRYING VALUE OF EXPOSURE BY RISK RATING The following table presents the gross carrying amount of the investment portfolio stated at amortized cost subject to IFRS 9 impairment requirements by internal risk ratings used by the Corporation for credit risk purposes. The internal risk ratings presented in the table below are defined as follows: Category Low Low to Medium Medium Medium to high High Stage 1 Low Low to Medium Medium Medium to High High Stage 2 Medium Medium to High Stage 3 Default Total Impairment provision Carrying amount Borrower Quality Certainty of Repayment Property Location Strong Medium\Strong Medium Weak\Medium Weak Strong High High\Moderate Medium\Strong Moderate Low\Moderate Weak\Medium Low Medium Weak Loan to Value Low Low\Medium Medium Medium\High High Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non- conventional mortgages $ 22,778,707 98,364,457 163,343,498 47,554,392 7,848,500 $ 7,024,993 8,038,456 22,644,010 588,000 1,846,667 1,666,666 - - - 21,649,614 11,331,937 - 26,343,708 399,214,814 3,978,000 395,236,814 $ $ $ 41,808,791 $ 54,023,423 - - $ 41,808,791 $ 54,023,423 $ - - 54,023,423 - - - - - - $ - $ - 188,525 - - - 256,757 180,000 1,950,000 938,000 - - - - - - 5,148,000 5,336,525 860,000 4,476,525 $ $ 1,000,000 4,324,757 112,000 4,212,757 $ $ Total $ 29,803,700 106,848,195 240,190,931 50,092,392 10,633,167 - 23,316,280 11,331,937 - 32,491,708 504,708,310 4,950,000 499,758,310 $ $ Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 14 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 15 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS 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 certain 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 three months ended December 31, 2018, this amount was $993,850 (December 31, 2017 - $992,162). For the year ended December 31, 2018, this amount was $3,932,134 (2017 - $3,638,094). Included in accounts payable and accrued liabilities at December 31, 2018 are amounts payable to the Corporation's Manager of $314,105 (December 31, 2017 - $341,367). For the three months ended December 31, 2018, the total directors' fees expensed was $91,000 (2017 - $71,000). For the year ended December 31, 2018, the total directors' fees expensed were $304,000 (2017 - $272,333). Key management personnel are also directors of the Corporation and receive compensation from the Corporation's Manager. The Directors held 492,837 shares in the Corporation as at December 31, 2018 (December 31, 2017 - 481,768). For the three months ended December 31, 2018 the Corporation did not grant any options (2017 – nil) under the incentive options plan. For the year ended December 31, 2018 the Corporation did not grant any options (2017 – 70,000). 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 $524,000 for the year ended December 31, 2018 (2017 - $485,000) and approximately $133,000 for the three months ended December 31, 2018 (2017 - $132,000). 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. During the first quarter of 2018, the two mortgage investments totaling $1,400,000 (December 31, 2017- two mortgage investments totaling $1,400,000) that were issued to a borrower controlled by an independent director of the Corporation were fully repaid. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 15 16 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS The Corporation holds a mortgage investment totaling $5,148,000 at December 31, 2018 (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, 2017 - $4,985,500). 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. For the three and twelve months ended December 31, 2018, the Corporation recognized interest and fees earned of $nil (December 31, 2017 - $nil) from this investment. The impairment provision recorded on this loan was $860,000 as at December 31, 2018 (December 31, 2017 - $1,180,000). 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. 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 $548,799 for the three months ended December 31, 2018 (2017 - $542,482) and for the year ended December 31, 2018 $2,196,744 (2017 – $2,083,453), all of which was paid by the Corporation's Manager and not by the Corporation. Related party transactions are further discussed and detailed in the Corporation’s AIF and in Note 13 of the accompanying financial statements. INCOME TAXES The Corporation qualifies as a mortgage investment corporation within the meaning of the Income Tax Act (Canada). As such, the Corporation is entitled to deduct from its taxable income dividends paid to shareholders during the year or within the first 90 days of the following taxation year. In order to maintain its status as a mortgage investment corporation, the Corporation must continually meet all criteria enumerated in the relevant section of the Income Tax Act (Canada) throughout such taxation year. The Corporation intends to maintain its status as a mortgage investment corporation and intends to distribute sufficient dividends in the year and in future years to ensure that the Corporation has no tax payable under the Income Tax Act (Canada). Accordingly, for financial statement reporting purposes, the tax deductibility of the Corporation’s dividends results in the Corporation being effectively exempt from taxation and no provision for current or deferred income taxes is required. CRITICAL ACCOUNTING ESTIMATES The determination of the impairment provision for the Investment Portfolio is a critical accounting estimate. The Investment Portfolio is classified as loans and receivables. Such investments are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, the mortgage loans are measured at amortized cost using the effective interest method, less any impairment losses. The investments are assessed at each reporting date to determine an impairment provision. Losses are recognized in the statement of income and Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 16 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 17 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS reflected in the provision 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 to those estimates, assumptions and judgements listed in the consolidated financial statements for the year ended December 31, 2018, the Corporation has identified new judgement areas as a result of the adoption of IFRS 9 as follows: CLASSIFICATION & MEASUREMENT OF FINANCIAL ASSETS Mortgage investments and other loans are classified based on the business model for managing assets and the contractual cash flow characteristics of the asset. The Corporation exercises judgment in determining both the business model for managing the assets and whether cash flows comprise solely of principal and interest. MEASUREMENT OF EXPECTED CREDIT LOSS The expected credit loss model requires the recognition of credit losses based on 12 months of expected losses for performing loans and recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination. The determination of a significant increase in credit risk takes into account different factors and varies by nature of investment. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due as well as other criteria, such as watch list status and changes in weighted probability of default since origination. The assessment of significant increase in credit risk requires experienced credit judgment. In determining whether there has been a significant increase in credit risk and in calculating the amount of expected credit losses, the Corporation must rely on estimates and exercise judgment regarding matters for which the ultimate outcome is unknown. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or decrease in the provision for credit losses. The calculation of expected credit losses includes the explicit incorporation of forecasts of future economic inputs, such as house price indices. 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. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 17 18 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2018 and December 31, 2017. 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, 2018 are due as follows: 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 $ 32,704,070 2,018,506 3,346,374 14,718,382 187,485,000 240,272,332 89,188,507 329,460,839 $ $ $ 32,704,070 2,018,506 3,346,374 14,718,382 20,485,000 73,272,332 89,188,507 162,460,839 $ $ 1-3 years - $ - - - 68,000,000 68,000,000 - 68,000,000 $ $ 4 - 7 years - $ - - - 99,000,000 99,000,000 - 99,000,000 $ $ SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies are described in note 3 of the Corporation’s financial statements for the three months ended December 31, 2018 and year ended December 31, 2018. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 18 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 19 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2018, 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 $89 million as at December 31, 2018 (December 31, 2017 - $91 million). 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’s directors take an active role in approving each and every investment the Corporation makes. During fiscal year 2018, 170 investment approvals were sent to the Board of Directors (2017 – 141). The Corporation shall not make an investment, which exceeds $1 million, unless approved by no less than three of the Independent Directors. 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.  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. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 19 20 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS  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.  Liquidity risk. Liquidity risk is the risk the Corporation will not be able to meet its financial obligations as they come due. The Corporation’s approach to managing liquidity risk is to ensure, to the extent possible, that it always has sufficient liquidity to meet its liabilities when they come due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Corporation’s credit worthiness. The Corporation manages liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. If the Corporation is unable to continue to have access to its loans and mortgages syndications and revolving operating facility, the size of the Corporation’s loan and mortgage investments will decrease and the income historically generated through holding larger investments by utilizing leverage will not be earned.  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 • 2018 • Fourth Quarter Page 20 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 21 Building Relationshipstoday and tomorrow 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 Corporation 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. SUBSEQUENT EVENT On March 1, 2019, the Corporation completed an equity offering of 1,520,000 common shares at a price of $13.20 per share for gross proceeds of $20,064,000. The over-allotment option was exercised in full and the Corporation issued an additional 228,000 shares at a price of $13.20 per share for gross proceeds of $3,009,600. The total shares issued was 1,748,000. 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 unaudited interim condensed consolidated financial statements as at December 31, 2018 and 2017. 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 December 31, 2018 and have concluded that such disclosure controls and procedures were appropriately designed and were operating effectively. The Corporation has also established adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of the Corporation’s financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS for periods Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 21 22 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS effective January 1, 2010. The Corporation’s Chief Executive Officer and the Chief Financial Officer assessed, or caused an assessment under their direct supervision of, the design and operating effectiveness of the Corporation’s internal controls over financial reporting (as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) as at December 31, 2018. Based on that assessment, it was determined that the Corporation’s internal controls over financial reporting were appropriately designed and were operating effectively. The Corporation did not make any changes to the design of the Corporation’s internal controls over financial reporting period ended December 31, 2018 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 2018 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 Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 22 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 23 Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS opportunities are presented to the Corporation; and adequate bank indebtedness are available to the Corporation. Although the forward-looking information contained in this MD&A is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. All forward-looking statements in this MD&A are qualified by these cautionary statements. Except as required by applicable law, the Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. OUTLOOK The Corporation will continue to focus on disciplined investment decisions, risk management and exit strategies, keeping in mind the significant historical increase in real estate valuations in certain geographical and asset segments. This approach could result in a decrease in the Corporation’s Investment Portfolio if repayments exceed new investments. The impact of this can be mitigated with higher interest rates on new investments and taking larger portions of investments. Firm Capital Mortgage Investment Corporation • 2018 • Fourth Quarter Page 23 24 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report MANAGEMENT’S RESPONSIBILTY FOR FINANCIAL REPORTING MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING 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(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3) Chief Executive Officer (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:45)(cid:50)(cid:49)(cid:36)(cid:55)(cid:43)(cid:36)(cid:49)(cid:3)(cid:48)(cid:36)(cid:44)(cid:53) (cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:16)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87) (cid: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) BORIS BARIL Chief Financial Officer (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 ● 2018 ● Annual Report 25 Building Relationshipstoday and tomorrowINDEPENDENT AUDITOR’S REPORT To the Shareholders of Firm Capital Mortgage Investment Corporation Opinion We have audited the consolidated financial statements of Firm Capital Mortgage Investment Corporation (the “Entity”), which comprise: the consolidated balance sheets as at December 31, 2018 and 2017 the consolidated statements of income for the years then ended the consolidated statements of comprehensive income for the years then ended the consolidated statements of changes in shareholders’ equity for the years then ended the consolidated statements of cash flows for the years then ended • • • • • • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated balance sheets of the Entity as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS) . Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards . Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report . We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion . Other Information Management is responsible for the other information . Other information comprises: • • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions . the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Glossy Annual Report” . Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon . In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated . 26 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report INDEPENDENT AUDITOR’S REPORT We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report . If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report . We have nothing to report in this regard . The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Glossy Annual Report” is expected to be made available to us after the date of this auditors report . If, based on the work we will perform on this information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance . Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error . In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so . Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion . Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists . Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit . We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. • The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control . Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 27 Building Relationshipstoday and tomorrowINDEPENDENT AUDITOR’S REPORT • Obtain an understanding of internal control relevant to the audit 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 . • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management . the  Evaluate the overall presentation, structure and content of • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or Page 4 conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion . Our conclusions are based on the audit evidence obtained up to the date of our auditors’ financial report . However, future events or conditions may cause the Entity to cease to continue as a going statements, including the disclosures, and whether the financial statements concern . represent the underlying transactions and events in a manner that achieves fair • Evaluate the overall presentation, structure and content of the financial statements, including the presentation. disclosures, and whether the financial statements represent the underlying transactions and events in  Communicate with those charged with governance regarding, among other a manner that achieves fair presentation . matters, the planned scope and timing of the audit and significant audit findings, • Communicate with those charged with governance regarding, among other matters, the planned scope including any significant deficiencies in internal control that we identify during our audit. and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit .  Provide those charged with governance with a statement that we have complied • Provide those charged with governance with a statement that we have complied with relevant ethical with relevant ethical requirements regarding independence, and communicate requirements regarding independence, and communicate with them all relationships and other matters with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. that may reasonably be thought to bear on our independence, and where applicable, related safeguards . • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business  Obtain sufficient appropriate audit evidence regarding the financial information of activities within the group to express an opinion on the financial statements. We are responsible for the the entities or business activities within the group to express an opinion on the direction, supervision and performance of the group audit . We remain solely responsible for our audit financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion . opinion. Chartered Professional Accountants, Licensed Public Accountants The engagement partner on the audit resulting in this auditors' report is Saqib Jawed. Toronto, Canada March 12, 2019 28 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 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) Investment portfolio (note 6) Total assets December 31, 2018 As at December 31, 2017 December 31, 2018 December 31, 2017 Assets $ Amounts receivable and prepaid expenses (note 4) Marketable securities (note 5) Investment portfolio (note 6) Total assets $ 3,875,248 199,204 515,994,509 520,068,961 5,226,204 210,194 555,801,977 561,238,375 $ $ Liabilities Liabilities Bank indebtedness (note 7) Accounts payable and accrued liabilities Deferred revenue Shareholders' dividends payable Loans payable (note 8) Convertible debentures (note 9) Total liabilities $ $ Bank indebtedness (note 7) 32,704,070 Accounts payable and accrued liabilities 2,018,504 Deferred revenue 1,179,220 Shareholders' dividends payable 3,346,374 Loans payable (note 8) 14,718,382 Convertible debentures (note 9) 179,994,433 Total liabilities 233,960,983 $ $ 60,268,468 2,649,558 1,294,556 3,857,518 51,662,949 157,464,904 277,197,953 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) 282,362,724 3,254,000 Equity component of convertible debentures 91,633 Stock options (note 10) 686,276 Contributed surplus (286,655) Deficit Accumulated other comprehensive income -- Total shareholders' equity 286,107,978 $ 281,377,245 2,780,000 93,556 76,276 (321,826) 35,171 284,040,422 $ Commitments (note 6) Contingent liabilities (note 15) $ Total liabilities and shareholders' equity 520,068,961 $ 561,238,375 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 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 29 $ 3,875,248 $ 5,226,204 199,204 515,994,509 210,194 555,801,977 $ 520,068,961 $ 561,238,375 $ 32,704,070 $ 60,268,468 $ 233,960,983 $ 277,197,953 $ 282,362,724 $ 281,377,245 2,018,504 1,179,220 3,346,374 14,718,382 179,994,433 3,254,000 91,633 686,276 (286,655) -- 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 $ 286,107,978 $ 284,040,422 $ 520,068,961 $ 561,238,375 Building Relationshipstoday and tomorrowFIRM CAPITAL MORTGAGE INVESTMENT CORPORATION FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION Consolidated Statements of Income Consolidated Statements of Income Years ended December 31, 2018 and 2017 (in Canadian dollars) Revenues Interest and fees income Other income Realized gains on disposal of debenture portfolio investments (note 5) Realized gains on disposal of marketable securities investments (note 5) Operating expenses Corporation manager spread interest allocation (note 13) Interest expense (note 14) General and administrative expenses Unrealized foreign exchange loss (gain) Realized foreign exchange loss Provision for impairment on investment portfolio and interest receivable (note 6) Income and profit for the year Profit per share (note 11) Basic Diluted See accompanying notes to consolidated financial statements. 2018 2017 $ 46,982,013 331,251 -- -- 47,313,264 $ 40,351,170 3,072,099 240,618 217,817 43,881,704 3,932,134 14,908,334 1,044,375 (1,059) 11,459 1,667,325 21,562,568 $ 3,639,094 13,223,349 956,883 940 -- 1,240,000 19,060,266 $ $ 25,750,696 $ 24,821,438 $0.986 $0.963 $1.019 $0.984 3 30 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Years ended December 31, 2018 and 2017 (in Canadian dollars) Income and profit for the year Other comprehensive income: Nine Months Ended 2018 2017 $ 25,750,696 $ 24,821,438 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) -- -- 130,362 (458,435) Total Comprehensive income for the year $ 25,750,696 $ 24,493,365 See accompanying notes to consolidated financial statements. 4 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 31 Building Relationshipstoday and tomorrowFIRM CAPITAL MORTGAGE INVESTMENT CORPORATION Consolidated Statements of Changes in Shareholder’s Equity FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION Consolidated Statements of Changes in Shareholders' Equity Years ended December 31, 2018 and 2017 (in Canadian dollars) Equity  component of  convertible  debentures Common shares Stock options Contributed  surplus Surplus (Deficit) Accumulated other  comprehensive  income  Shareholders'  equity Balance at December 31, 2017 Cumulative effect of adopting IFRS 9 Balance at January 1, 2018 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)) Income and profit for the year Dividends to shareholders Balance at December 31, 2018 $ $ $ $ $ $ $ $ 281,377,245 - 281,377,245 735,818 (35,382) 47,520 - - - 237,523 - - 282,362,724 2,780,000 - 2,780,000 - - - (610,000) 1,084,000 - - - - 3,254,000 93,556 - 93,556 - - - - - - (1,923) - - 91,633 76,276 - 76,276 - - - 610,000 - - - - - 686,276 ($321,826) 35,171 ($286,655) - - - - - - - 25,750,696 (25,750,696) (286,655) $35,171 (35,171) - - - - - - - - - - $ - $ 284,040,422 - $284,040,422 735,818 (35,382) 47,520 - 1,084,000 - 235,600 25,750,696 (25,750,696) 286,107,978 $ $ $ $ $ Shares issued and outstanding (note 10) 26,143,544 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 Income and profit for the year Dividends to shareholders Balance at December 31, 2017 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 Stock options Contributed  surplus Surplus (Deficit) $ 95,123 - - - - - 11,030 (12,597) $ 1,924 - - - 74,352 - - - ($321,826) - - - - - - - Accumulated other  comprehensive  income (loss) $363,244 - - - - - - - Shareholders'  equity $ 238,969,851 44,303,727 (1,345,374) 676,082 - 210,000 11,030 1,543,179 - - - - - 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 See accompanying notes to consolidated financial statements. 5 32 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION Statements of Cash Flows Statements of Cash Flows (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 9) Deferred finance cost amortization - convertible debentures (note 14) Provision for impairment on investment portfolio and interest receivable Realized gains on disposal of debenture portfolio investments (note 5) Realized gains on disposal of marketable securities investments (note 5) Share-based compensation Unrealized loss on marketable securities investments (note 5) Net change in non-cash operating items: Accrued interest payable Receivable and prepaid expenses Accounts payable and accrued liabilities Deferred revenue Net cash flow from operating activities Financing activities: Issuance of shares in new offerings Issuance of shares from dividend reinvestment Exercise of stock options Proceeds from convertible debentures issued (note 9) Repayment of convertible debentures (note 9) Debenture offering costs (note 9) 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 (used in) financing activities Investing activities: Disposition of marketable securities Disposition of debenture portfolio investments Funding of investment portfolio Discharging of investment portfolio Net cash flow from (used in) investing activities Net increase (decrease) in cash flow 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 2018 2017 $ 25,750,696 $ 24,821,438 13,187,646 11,582,725 437,426 1,283,262 1,667,325 -- -- (1,923) 10,990 415,179 1,225,446 1,240,000 (240,618) (217,817) 11,030 -- 485,960 (1,066,371) (631,054) (115,336) 41,008,621 $ (386,246) (503,013) 547,928 414,705 38,910,757 $ 735,818 47,520 237,523 50,000,000 (25,738,000) (2,369,157) (35,382) (36,944,567) -- (13,673,606) (26,261,840) (54,001,691) $ 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 $ -- -- (287,000,225) 327,557,693 40,557,468 $ 2,099,067 2,221,366 (374,838,421) 262,091,077 (108,426,911) $ $ 27,564,398 (60,268,468) (32,704,070) $ $ $ (14,831,856) (45,436,612) (60,268,468) $ 43,283,752 $ 38,077,048 $ - $ 21,278,427 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) 1. Organization of Corporation: Firm Capital Mortgage Investment Corporation (the "Corporation"), through its mortgage banker, Firm Capital Corporation (the "Mortgage Banker), 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. (a) Basis of presentation: 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 12, 2019. These consolidated financial statements include the adoption of IFRS 9 Financial Instruments effective January 1, 2018, without restatement of comparative periods. Significant changes to accounting policies are described in note 3(a). (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") 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. 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: 7 34 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) Provision for 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. Classification of investment portfolio - Investment portfolio is classified based on the assessment of business model and the cash flow characteristics of the investments. The Corporation exercises judgement in determining the classification of loans in the investment portfolio into measurement categories (note 3(a)). 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: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Level 3: Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (that is, as prices) or indirectly (that is, derived from prices) Inputs for the assets or liabilities that are not based on observable market data (that is, unobservable inputs) The Corporation reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or appraisals are used to measure fair values, the Corporation will assess the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. The information about the assumptions made in measuring fair value is included in note 16. 3. Significant accounting policies: The Corporation's accounting policies and its standards of financial disclosure set out below are in accordance with IFRS. (a) Financial instruments The Corporation adopted IFRS 9 effective January 1, 2018, without restatement of comparative periods. Changes in accounting policies resulting from the adoption of IFRS 9 as of January 1, 2018 are described below: Classification & Measurement of Financial Assets Recognition and initial measurement The Corporation on the date of origination or purchase recognizes loans, debt and equity securities, deposits and subordinated debentures at the fair value of consideration paid. Regular-way purchases and sales of financial assets are recognized on the settlement date. All other financial assets and liabilities are initially recognized on the date at which the Corporation becomes a party to the contractual provisions of the instrument. 8 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The initial measurement of a financial asset or liability is at fair value plus transaction costs that are directly attributable to its purchase or issuance. For instruments measured at fair value through profit or loss, transaction costs are recognized immediately in profit or loss. Financial assets include both debt and equity instruments. Debt instruments Debt instruments, including loans and debt securities, are classified into one of the following measurement categories: (i) (ii) (iii) Amortized cost; Fair value through other comprehensive income (FVOCI); or Fair value through profit or loss (FVTPL) for trading related assets. Classification of debt instruments is determined based on: (i) (ii) The business model under which the asset is held; and The contractual cash flow characteristics of the instrument. Business model assessment Business model assessment involves determining whether financial assets are managed in order to generate cash flows from collection of contractual cash flows. The Corporation takes into consideration the following factors: How the performance of assets in a portfolio is evaluated and reported; (i) (ii) The risks that affect the performance of assets held within a business model and how those risks are managed; and (iii) Whether the assets are held for trading purposes. Cash flow characteristics assessment The contractual cash flow characteristics assessment involves assessing the contractual features of an instrument to determine if they give rise to cash flows that are consistent with a basic lending arrangement. Contractual cash flows are consistent with a basic lending arrangement if they represent cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI). Principal is defined as the fair value of the instrument at initial recognition. Principal may change over the life of the instruments due to repayments. Interest is defined as consideration for the time value of money and the credit risk associated with the principal amount outstanding and for other basic lending risks and costs (liquidity risk and administrative costs), as well as a profit margin. In performing this assessment, the Corporation takes into consideration contractual features that could change the amount or timing of contractual cash flows, such that the cash flows are no longer consistent with a basic lending arrangement. If the Corporation identifies any contractual features that could modify the cash flows of the instrument such that they are no longer consistent with a basic lending arrangement, the related financial asset is classified and measured at FVTPL. Debt instruments measured at amortized cost Debt instruments are measured at amortized cost if they are held within a business model whose objective is to hold for collection of contractual cash flows where those cash flows represent solely payments of principal and interest. After initial measurement, debt instruments in this category are carried at amortized cost using the effective interest method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial asset to the gross carrying amount of a financial asset. Amortized cost is calculated taking into account any discount or premium on acquisition, transaction costs and fees that are an integral part of the effective interest rate. Amortization is included in Interest income in the Consolidated Statement of Income. Impairment on debt instruments measured at amortized cost is calculated using the expected credit loss approach. Loans and debt securities measured at amortized cost are presented net of the allowance for credit losses (ACL) in the Consolidated Balance Sheets. 9 36 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) Debt instruments measured at FVOCI Debt instruments are measured at FVOCI if they are held within a business model whose objective is both to hold for collection of contractual cash flows and to sell financial assets, where the assets’ cash flows represent payments that are solely payments of principal and interest. Subsequent to initial recognition, unrealized gains and losses on debt instruments measured at FVOCI are recorded in other comprehensive Income (OCI), unless the instrument is designated in a fair value hedge relationship. Impairment on debt instruments measured at FVOCI is calculated using the expected credit loss approach. The ACL on debt instruments measured at FVOCI does not reduce the carrying amount of the asset in the Consolidated Balance Sheets, which remains at its fair value. Instead, an amount equal to the provision that would arise if the assets were measured at amortized cost is recognized in OCI with a corresponding charge to provision for impairment in the Consolidated Statement of Income. The accumulated provision recognized in OCI is recycled to the Consolidated Statement of Income upon derecognition of the debt instrument. Debt instruments measured at FVTPL Debt instruments measured at FVTPL include assets held for trading purposes, assets held as part of a portfolio managed on a fair value basis and assets whose cash flows do not represent payments that are solely payments of principal and interest. These instruments are measured at fair value in the Consolidated Balance Sheets, with transaction costs recognized immediately in the Consolidated Statement of Income as part of Non-interest income. Realized and unrealized gains and losses are recognized as part of Non-interest income in the Consolidated Statement of Income. Equity instruments Equity instruments are measured at FVTPL, unless an election is made to designate them at FVOCI upon purchase. For equity instruments measured at FVTPL, changes in fair value are recognized as part of other income in the Consolidated Statement of Income. The Corporation can elect to classify non-trading equity instruments at FVOCI. This election will be used for certain equity investments for strategic or longer term investment purposes. The FVOCI election is made upon initial recognition on an instrument-by instrument basis and once made is irrevocable. Impairment The impairment model measures credit loss allowances using a three-stage approach based on the extent of credit deterioration since origination: Stage 1 – Where there has not been a significant increase in credit risk (SIR) since initial recognition of a financial instrument, an amount equal to 12 months expected credit loss is recorded. The expected credit loss is computed using a probability of default occurring over the next 12 months. For those instruments with a remaining maturity of less than 12 months, a probability of default corresponding to remaining term to maturity is used. Stage 2 – When a financial instrument experiences a SIR subsequent to origination but is not considered to be in default, it is included in Stage 2. This requires the computation of expected credit loss based on the probability of default over the remaining estimated life of the financial instrument. Stage 3 – Financial instruments that are considered to be in default are included in this stage. Similar to Stage 2, the allowance for credit losses captures the lifetime expected credit losses. Measurement of expected credit loss The probability of default (PD), exposure at default (EAD), and loss given default (LGD) inputs used to estimate expected credit losses are modelled based on macroeconomic variables that are most closely related with credit losses in the relevant portfolio. Details of these statistical parameters/inputs are as follows: PD – The probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the remaining estimated life, if the facility has not been previously derecognized and is still in the portfolio. EAD – The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. 10 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) LGD – The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD. Macroeconomic factors In its models, the Corporation relies on forward looking information as economic inputs, such as house price indices. The inputs and models used for calculating expected credit losses may not always capture all characteristics of the market at the date of the financial statements. To reflect this, qualitative adjustments or overlays may be made as temporary adjustments using expert credit judgement. Assessment of significant increase in credit risk (SIR) At each reporting date, the Corporation assesses whether there has been a significant increase in credit risk for exposures since initial recognition by comparing the risk of default occurring over the remaining expected life from the reporting date and the date of initial recognition. The assessment considers borrower-specific quantitative and qualitative information without consideration of collateral, and the impact of forward-looking macro-economic factors, management judgement and delinquency and monitoring. The common assessments for SIR on investment portfolios include macroeconomic outlook, management judgement, and delinquency and monitoring. Forward looking macroeconomic factors are a key component of the macroeconomic outlook. The importance and relevance of each specific macroeconomic factor depends on the type of product, characteristics of the financial instruments and the borrower and the geographical region. Quantitative models may not always be able to capture all reasonable and supportable information that may indicate a significant increase in credit risk. Qualitative factors may be assessed to supplement the gap. With regards to delinquency and monitoring, there is a rebuttable presumption that the credit risk of the financial instrument has increased since initial recognition when contractual payments are more than 30 days overdue. Presentation of allowance for credit losses in the Statement of Financial Position (i) (ii) Financial assets measured at amortized cost: as a deduction from the gross carrying amount of the financial assets; Debt instruments measured at fair value through other comprehensive income: no provision is recognized in the Statement of Financial Position because the carrying value of these assets is their fair value. However, the provision determined is presented in the accumulated other comprehensive income. Definition of default The Corporation considers a financial instrument to be in default as a result of one or more loss events that occurred after the date of initial recognition of the instrument and the loss event has a negative impact on the estimated future cash flows of the instrument that can be reliably estimated. This includes events that indicate: (i) (ii) (iii) (iv) significant financial difficulty of the borrower; default or delinquency in interest or principal payments; high probability of the borrower entering a phase of bankruptcy or a financial reorganization; measurable decrease in the estimated future cash flows from the loan or the underlying assets that back the loan. The Corporation considers that default has occurred and classifies the financial asset as impaired when it is more than 90 days past due, unless reasonable and supportable information demonstrates that a more lagging default criterion is appropriate. Individual provision for impairment For loans that are considered individually impaired the Corporation assesses on a case-by-case basis at each reporting period whether an individual provision for loan losses is required. For those loans where objective evidence of impairment exists and the Corporation has determined a loan to be impaired, impairment is determined based on the Corporation's aggregate exposure to the customer considering the following factors: (i) (ii) the customer's ability to generate sufficient cash flow to service debt obligations; the extent of other creditors' commitments ranking ahead of, or pari passu with, the Corporation and the likelihood of other creditors continuing to support the company; and (iii) the realizable value of security (or other credit mitigants) and likelihood of successful repossession. 11 38 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) Impairment losses are calculated by discounting the expected future cash flows of a loan at its original effective interest rate, and comparing the resultant present value with the loan's current carrying amount. This results in interest income being recognized using the original effective interest rate. Collective provision for impairment For loans that have not been individually assessed as being impaired, the Corporation pools them into groups to assess them on a collective basis. Collective provisions are calculated for performing loans. Provisions related to performing loans estimate probable incurred losses that are inherent in the portfolio but have not yet been specifically identified as impaired. Internal risk rating parameters are used in calculation of the collective provision for impairment. basis for calculating the quantitative portion of the collective provision for performing loans: Internal risk rating parameters form the (i) (ii) Probability of Default rates (PD) which are based upon the internal rating for each borrower; Loss Given Default ratings (LGD); and (iii) Exposure at Default factors (EAD). Funded exposures are multiplied by the borrower's PD and by the relevant LGD parameter. Committed but undrawn exposure are multiplied by the borrower's PD, by the relevant LGD parameter, and by the relevant EAD parameter. A model stress component is also applied to recognize uncertainty in the credit risk parameter and the fact that current actual loss rates may differ from the long-term averages included in the model. Write-off Investment portfolio and interest receivable (and the related provision for impairment accounts) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Write-off is generally after receipt of any proceeds from the realization of security. In circumstances where the net realizable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier. Investment portfolio - Policy prior to January 1, 2018: 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 portfolio is 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. 12 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The Corporation 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 provision. 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 to be impaired and all individually insignificant mortgages are then assessed collectively, in groups of mortgages with similar risk characteristics, to determine whether a collective provision should be recorded due to incurred loss events for which there is objective evidence but whose effects are not yet evident. (b) Revenue recognition: (i) (ii) 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. Non-conventional mortgages: At each reporting period the Corporation determines the fair value of the special profit and interest participation receivable on non-conventional mortgages. Any changes in fair value are recognized in Other Income. (c) Share-based compensation: The Corporation has a share-based compensation plan (i.e. incentive option plan), which is described in note 10(b). The expense of equity-settled incentive option plans are measured based on fair value of the awards of each tranche at the grant date. The expense is recognized on a proportionate basis consistent with the vesting features of each tranche of the grant. (d) Income taxes: The Corporation is a mortgage investment corporation ("MIC") pursuant to the Income Tax Act (Canada). As such, the Corporation is entitled to deduct from its taxable income dividends paid to shareholders during the year or within 90 days of the end of the year to the extent the dividends were not deducted previously. The Corporation intends to maintain its status as a MIC and intends to distribute sufficient dividends in the year and in future years to ensure that the Corporation is not subject to income taxes. Accordingly, for financial statement reporting purposes, the tax deductibility of the Corporation's dividends results in the Corporation being effectively exempt from taxation and no provision for current or future income tax is required for the Corporation and its subsidiaries. (e) Financial assets and liabilities: Financial assets include the Corporation's amounts receivable, marketable securities, and investment portfolio. Financial liabilities include bank indebtedness, accounts payable and accrued liabilities, shareholder dividend payable, loans payable, and convertible debentures. The Corporation classified its financial assets into the following categories: financial assets at amortized cost, FVOCI, or FVTPL. Marketable securities have been designated as FVTPL. Internal reporting and 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 the investment portfolio are classified as amortized cost with some related investments at FVTPL. 13 40 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The Corporation classifies its financial liabilities at amortized cost. Recognition and measurement of financial instruments: The Corporation determines the classification of its financial assets and liabilities at 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 FVOCI 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 at amortized cost are subsequently measured at amortized cost less any costs of impairment. Financial assets and liabilities - Policy prior to January 1, 2018: Financial assets include the Corporation's amounts receivable, marketable securities, and investment portfolio. Financial liabilities include bank indebtedness, accounts payable and accrued liabilities, shareholder dividend payable, loans payable, and convertible debentures. The Corporation classified 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 have been designated as available for sale. Internal reporting and 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. The Corporation classified its financial liabilities into the other liabilities category. Recognition and measurement of financial instruments: The Corporation determined the classification of its financial assets and liabilities at 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 FVOCI 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 at amortized cost are subsequently measured at amortized cost less any costs of impairment. (f) Derecognition of financial assets and liabilities: (i) Financial assets: The Corporation derecognized 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. 14 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) 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. (h) Share capital: Common shares are classified as equity. Incremental costs directly attributable to the issue of common 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: Transactions amounts denominated in foreign currencies are translated into Canadian dollar equivalents at the rate 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 receipt of the payments from translations are included in realized gains/loss on foreign exchange in the consolidated statements of income and comprehensive income. All unrealized foreign 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) IFRS 15, Revenue from contracts with customers ("IFRS 15") The Corporation adopted the standard on January 1, 2018 and applied the requirements of the standards retrospectively. IFRS 15 replaces 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 implementation of IFRS 15 did not have a significant impact on the consolidated financial statements. 15 42 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report Accounts payable and accrued liabilities Deferred revenue Shareholders' dividends payable Loans payable Convertible debentures Total liabilities Shareholders' Equity Common shares Equity component of convertible debentures Stock options Contributed surplus Deficit (1) Accumulated other comprehensive income (1) Total shareholders' equity 8 9 10 10 FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Years ended December 31, 2018 and 2017 (in Canadian dollars) (l) Transition to IFRS 9 Reconciliation of IAS 39 to IFRS 9 The following table provides the impact from the transition to IFRS 9 on the Consolidated Balance Sheets at transition date, January 1, 2018. The impact consists of reclassification and remeasurement. Reclassification and remeasurement These adjustments reflect the movement of balances between categories and changes to carrying values of the items on the Consolidated Balance Sheets with an impact to shareholder's equity. As at January 1, 2018 Note basis IAS 39 Measurement IAS 39 Carrying amount Reclassification Remeasurement IFRS 9 Carrying amount IFRS 9 Measurement basis Assets Amounts receivable and prepaid expenses Marketable securities (1) Investment portfolio (2) Investment portfolio (2) Total assets Liabilities 4 5 6 6 Loans and receivables Available for sale Loans and receivables Loans and receivables $ 5,226,204 210,194 555,801,977 - $ 561,238,375 - $ - (6,518,875) 6,518,875 $ - - $ - - - $ - $ 5,226,204 210,194 549,283,102 6,518,875 561,238,375 $ Amortized cost FVTPL Amortized cost FVTPL Bank indebtedness 7 Other Liabilities $ 60,268,468 Other Liabilities Other Liabilities Other Liabilities Other Liabilities Other Liabilities 2,649,558 1,294,556 3,857,518 51,662,949 157,464,904 277,197,953 $ - - - - - - - - - - - - $ - $ - $ 60,268,468 Amortized cost 2,649,558 1,294,556 3,857,518 51,662,949 157,464,904 277,197,953 $ Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost $ 281,377,245 - 2,780,000 93,556 76,276 (321,826) - - - 35,171 35,171 284,040,422 $ (35,171) $ - - - - - - - $ - $ 281,377,245 2,780,000 93,556 76,276 (286,655) - 284,040,422 $ Total liabilities and shareholders' equity $ 561,238,375 $ - $ - $ 561,238,375 (1) Available for sale (AFS) marketable securities (December 31, 2017 - $210,194) previously fair valued through AOCI are now classified as FVTPL, which results in reclassification of AOCI to Deficit. (2) Upon adoption of IFRS 9, the Corporation identified three investments which did not meet the SPPI criterion and have been reclassified at FVTPL. 16 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) Recognition of the provision for impairment balance from IAS 39 to IFRS 9 The following table reconciles the closing impairment allowance for financial assets in accordance with IAS 39 and provisions for loan commitment and financial guarantee contracts in accordance with IAS 39 Provisions, Contingent Liabilities and Contingent Assets as at December 31, 2017 to the opening provision for credit losses as at January 1, 2018: Impairment allowance under IAS 39 as at December 31, 2017 Remeasurement Impairment allowance under IFRS 9 as at January 1, 2018 Investment portfolio Total $ $ 5,700,000 5,700,000 $ - $ - $ $ 5,700,000 5,700,000 4. Amounts receivable and prepaid expenses: The following is a breakdown of amounts receivable and prepaid expenses as at December 31, 2018 and December 31, 2017: Interest receivable, net of impairment provision (note 6) Prepaid expenses Fees receivable Special profit income receivable Amounts receivable and prepaid expenses 5. Marketable securities: December 31, 2018 3,472,030 $ 128,701 254,881 19,636 3,875,248 $ December 31, 2017 4,715,194 $ 233,836 254,097 23,077 5,226,204 $ The Corporation holds units in publicly traded real estate investment trusts and debentures of publicly traded real estate investment trusts, which are classified as FVTPL (2017 - classified as available for sale). The fair value of the units and debentures is based on the closing price of the investments, which are actively traded in the marketplace and any adjustments to fair value are reflected in other income. The fair value of the marketable securites at December 31, 2018 is $199,204 (December 31, 2017 - $210,194). For the year ended December 31, 2018, the Corporation recorded an unrealized loss of $10,990 (December 31, 2017 - an unrealized gain of $130,362). For 2017, the corresponding increases (decreases) are reflected in other comprehensive income. Upon the adoption of IFRS 9 on January 1, 2018, the corresponding increases (decreases) are reflected in other income. For the year ended December 31, 2018, the Corporation recorded realized gains on disposal of marketable securities and debenture investments reclassified to income of $nil (December 31, 2017 - $458,435). 17 44 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) 6. Investment portfolio: The following is a breakdown of the investment portfolio as at December 31, 2018 and December 31, 2017: December 31, 2018 IFRS 9 December 31, 2017 IAS 39 Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non-conventional mortgages Total investments (at amortized cost) Provision for impairment Total investments (at amortized cost), net Related investments (at FVTPL) Total investments (at FVTPL) Investment portfolio By geography: Canada United States Total $ 399,214,814 41,808,791 54,023,423 5,336,525 4,324,757 504,708,310 (4,950,000) 499,758,310 16,236,199 16,236,199 515,994,509 $ $ $ 504,909,133 11,085,376 515,994,509 76.6% 8.0% 10.4% 1.1% 0.8% 96.9% 3.1% 100% 97.9% 2.1% 100% $ $ 427,591,758 57,187,248 69,636,557 5,392,900 1,693,514 561,501,977 76.1% 10.2% 12.4% 1.0% 0.3% 100.0% (5,700,000) 555,801,977 - - $ 555,801,977 $ $ 549,843,102 5,958,875 555,801,977 100% 98.9% 1.1% 100% The amounts for the year ended December 31, 2018 have been prepared in accordance with IFRS 9; prior period amounts have not been restated. Included in conventional first mortgages are three United States ("US") dollar denominated investments (at amortized cost) of $5,709,177 (US$4,185,000) (December 31, 2017 - $nil). Included in related investments (classified at FVTPL) are two US dollar denominated investments of $5,376,199 (US$3,940,917), (December 31, 2017 - $5,958,875 (US$4,750,000)). These investments are a participation by the Corporation in limited partnerships that have provided preferred equity to real estate entities in the US. Income recorded on these investments during the year ended December 31, 2018 was $730,663 (US$562,948), (December 31, 2017 - $71,267 (US$55,896) and are included in interest and fees income. Related investments (classified as FVTPL) also include two investments (December 31, 2017 - one investment) of $10,860,000 (December 31, 2017 - $560,000). Income recorded related to FVTPL included in interest and fees income is $730,663 (2017 - $71,267). As at December 31, 2018, $18,672,754 (December 31, 2017 - $67,694,104) of the mortgages within the conventional first mortgage portfolio have first priority syndicate participations totaling $14,718,382 (December 31, 2017 - $51,662,949) (recorded on the Corporation's balance sheets as loans payable) (see note 8). The Corporation's net investment in these mortgages is $3,954,372 (December 31, 2017 - $16,031,155). 18 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) Conventional first mortgages are loans secured by a first priority mortgage charge with loan to values not exceeding 75%. Conventional non-first mortgages are loans with mortgage charges not registered in first priority with loan to values not exceeding 75%. Related investments are loans that may not necessarily be secured by mortgage charge security. Discounted debt investments are loans purchased from arms-length third parties at a discount to their face value. Non-conventional mortgages are loans that in some cases have loan to values that exceed or may exceed 75% and are investments that are the source of all special profit participation earned by the Corporation. The amounts for the year ended December 31, 2018 have been prepared in accordance with IFRS 9. The following is a breakdown of the investment portfolio: Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non-conventional mortgages Total investment portfolio Gross carrying amount $ December 31, 2018 Provision for impairment $ 399,214,814 41,808,791 70,259,622 5,336,525 4,324,757 520,944,509 $ $ 3,978,000 - - 860,000 112,000 4,950,000 Net carrying amount 395,236,814 $ 41,808,791 70,259,622 4,476,525 4,212,757 515,994,509 $ Included in the total provision for impairment of $4,950,000 is a collective allowance of $685,000. The amounts for the year ended December 31, 2017 have been prepared in accordance with IAS 39; prior period amounts have not been restated. The following is a breakdown of the investment portfolio: Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non-conventional mortgages Collective provision Total Gross carrying amount $ December 31, 2017 Allowance for credit losses $ 427,591,758 57,187,248 69,636,557 5,392,900 1,693,514 - 561,501,977 3,620,866 - - 1,180,000 499,134 400,000 5,700,000 Net carrying amount $ 423,970,892 57,187,248 69,636,557 4,212,900 1,194,380 (400,000) 555,801,977 $ $ $ The following is a breakdown of the provision for impairment credit losses of the investment portfolio as at December 31, 2018: Gross impaired loans $ December 31, 2018 Provision for impairment $ Net $ 36,352,685 - - 5,148,000 1,938,000 43,438,685 3,978,000 - - 860,000 112,000 4,950,000 32,374,685 - - 4,288,000 1,826,000 38,488,685 $ $ $ $ $ 43,438,685 - 43,438,685 $ $ 4,950,000 - 4,950,000 $ $ 38,488,685 - 38,488,685 Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non-conventional mortgages Total investment portfolio By geography: Canada United States Total 19 46 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The following is a breakdown of the allowance for credit losses of the investment portfolio as at December 31, 2017: Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non-conventional mortgages Collective provision Total By geography: Canada United States Total Gross carrying amount $ December 31, 2017 Allowance for credit losses $ 22,983,809 - - 4,985,500 1,000,000 - 28,969,309 3,620,866 - - 1,180,000 499,134 400,000 5,700,000 Net carrying amount 19,362,943 $ - - 3,805,500 500,866 (400,000) 23,269,309 $ $ $ $ $ 28,969,309 - 28,969,309 $ $ 5,700,000 - 5,700,000 $ $ 23,269,309 - 23,269,309 The following table presents the gross investments at amortized cost as at December 31, 2018: Gross investments at amortized cost As at December 31, 2018 Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non-conventional mortgages Total By geography: Canada United States Total Stage 1 $ Stage 2 $ Stage 3 $ Total $ 339,889,554 40,142,125 54,023,423 188,525 3,324,757 437,568,384 32,981,552 1,666,666 - - - 34,648,218 26,343,708 - - 5,148,000 1,000,000 32,491,708 399,214,814 41,808,791 54,023,423 5,336,525 4,324,757 504,708,310 $ $ $ $ $ $ 431,859,207 5,709,177 437,568,384 $ $ 34,648,218 - 34,648,218 $ $ 32,491,708 - 32,491,708 $ $ 498,999,133 5,709,177 504,708,310 The following table presents the provision for credit losses on loans as at December 31, 2018: Provision for impairment of credit losses on loans As at December 31, 2018 Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non-conventional mortgages Total By geography: Canada United States Total Stage 1 $ $ $ $ 573,000 - - - 112,000 685,000 685,000 - 685,000 Stage 2 - $ - - - - $ - - $ - $ - Stage 3 $ Total $ 3,405,000 - - 860,000 - 4,265,000 3,978,000 - - 860,000 112,000 4,950,000 $ $ $ $ 4,265,000 - 4,265,000 $ $ 4,950,000 - 4,950,000 20 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The following table presents the changes to the provision for credit losses on loans as at December 31, 2018: The changes to the provision Balance at January 1, 2018 Provision for credit losses Transfer to (from): Stage 1 Stage 2 Stage 3 Allocation of provision to interest receivable Balance at December 31, 2018 Stage 1 $ 400,000 285,000 Stage 2 - $ - Stage 3 $ 5,300,000 1,382,325 Total $ 5,700,000 1,667,325 - - - - 685,000 $ - - - - $ - - - - (2,417,325) 4,265,000 $ - - - (2,417,325) 4,950,000 $ The loans comprising the investment portfolio are stated at amortized cost and FVTPL. The provison for impairment is $4,950,000 as at December 31, 2018, of which $4,265,000 represents the total amount of management's estimate of the shortfall between the investment balances and the estimated recoverable amount from the security under the specific loans in default. 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, 2018, the Corporation carries a collective allowance of $685,000. The Corporation has allocated the impairment provision in the amount of $2,417,325 (2017 - nil) to interest receivable (note 4) related to loans in default. Gross carrying value of exposure by risk rating The following table presents the gross carrying amount of the investment portfolio stated at amortized cost subject to IFRS 9 impairment requirements by internal risk ratings used by the Corporation for credit risk purposes. The internal risk ratings presented in the table below are defined as follows: Category Low Low to Medium Medium Medium to High High Borrower Quality Strong Medium\Strong Medium Weak\Medium Weak Certainty of Repayment Property Location Strong High High\Moderate Medium\Strong Moderate Low\Moderate Low Medium Weak\Medium Weak Loan to Value Low Low\Medium Medium Medium\High High Conventional first mortgages Conventional non-first mortgages Related investments Discounted debt investments Non- conventional mortgages Stage 1 Low Low to Medium Medium Medium to High High Stage 2 Medium Medium to High Stage 3 Default Total Impairment provision Carrying amount $ 22,778,707 98,364,457 163,343,498 47,554,392 7,848,500 $ 7,024,993 8,038,456 22,644,010 588,000 1,846,667 21,649,614 11,331,937 - 26,343,708 399,214,814 3,978,000 395,236,814 $ $ 1,666,666 - - - - $ - 54,023,423 - - - - - - $ - $ - 188,525 - - - - - - 256,757 180,000 1,950,000 938,000 - - - 5,148,000 5,336,525 860,000 4,476,525 $ $ 1,000,000 4,324,757 112,000 4,212,757 $ $ $ 41,808,791 $ 54,023,423 - - $ 41,808,791 $ 54,023,423 21 Total $ 29,803,700 106,848,195 240,190,931 50,092,392 10,633,167 - 23,316,280 11,331,937 - 32,491,708 504,708,310 4,950,000 499,758,310 $ $ 48 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The loans comprising the Investment portfolio bear interest at the weighted average rate of 8.58% per annum (December 31, 2017 - 8.09% per annum) and mature between 2019 and 2022. The unadvanced funds under the existing investment portfolio (which are commitments of the Corporation) amounted to $89,188,507 as at December 31, 2018 (December 31, 2017 - $91,953,643). Principal repayments based on contractual maturity dates are as follows: 2019 2020 2021 2022 $ $ 386,039,333 129,133,938 5,525,000 246,238 520,944,509 Borrowers who have open loans generally have the option on notice to repay principal at any time prior to the maturity date without penalty, subject to written notice, according to each mortgage loan. 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. 22 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) As at December 31, 2018, the carrying value of the priority participants' payable was $14,718,382 (December 31, 2017 - $51,662,949). interests in the Corporation's investment portfolio and loans With respect to loans with no provision, the Investment Portfolio as at December 31, 2018 had two investments with balances totaling $1,474.000 (December 31, 2017 – two investments with balances totaling $2,361,437) with contractual interest arrears greater than 60 days past due amounting to $48,727, (December 31, 2017 – $35,188). Management has determined that no provision for impairment is required (December 31, 2017 – $nil). The investment portfolio as at December 31, 2018 includes thirteen investments totaling $19,735,486 (December 31, 2017 - six investments totaling $28,901,947) with maturity dates that are past due and for which no extension or renewal was in place. Four of the thirteen investments were paid out during the first quarter of 2019, reducing the balance by $4,076,794, and an additional four investments totaling $10,629,767 (December 31, 2017 - three investments totaling $12,918,805) have an allowance against them included in the Corporation's provision for impairment. The remaining five investments with maturity dates that are past due, and for which no extension or renewal was in place, totalling $5,028,925 (December 31, 2017 - three investments totaling $15,983,142) are considered not to require a provision. As at December 31, 2018, 205 of the Corporations’ 231 investments (investment amount of $500,624,695) 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 $32,704,070 has been drawn as at December 31, 2018 (December 31, 2017 - $60,268,468). Interest on bank indebtedness is predominantly charged at a 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 had a committed term to December 31, 2018 and has been extended to December 31, 2019 (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, 2018 and December 31, 2017, the Corporation was in compliance with all financial covenants. 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 and bear interest at the weighted average effective rate of 6.09% as at December 31, 2018 (December 31, 2017 – 5.34%). The Corporation's principal balance outstanding under the mortgages for which a first priority charge has been granted is $18,672,754 as at December 31, 2018 (December 31, 2017 - $67,694,104). The loans are repayable at the earlier of the contractual expiry date of the underlying mortgage investments and the date the underlying mortgage is repaid. Repayments based on contractual maturity dates are as follows: 2019 $ 14,718,382 23 50 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) 9. Convertible debentures: 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 Year Ended December 31, 2018 157,464,904 $ 46,546,839 - (25,738,000) 437,426 1,283,262 179,994,433 $ $ Year Ended December 31, 2017 162,305,989 24,961,290 (21,278,427) (10,164,573) 415,179 1,225,446 157,464,904 $ The breakdown of the convertible debentures for the year ended December 31, 2018 presented in the above table is as follows: $ Balance, beginning of period 25,445,554 20,173,140 19,515,688 24,136,563 21,889,426 21,235,666 25,068,867 Issued $ - - - - - - - - - 23,489,730 23,057,109 Conversions $ - - - - - - - - Implicit interest rate in excess of coupon rate $ 90,947 114,465 66,713 21,632 48,907 40,036 25,294 20,328 9,104 Deferred finance cost amortization $ 201,497 134,549 152,143 171,640 166,991 164,624 184,895 89,652 17,271 Repayments upon Redemption $ (25,738,000) - - - - - - - Balance, end of period $ - 20,422,154 19,734,544 24,329,835 22,105,324 21,440,326 25,279,056 23,599,710 23,083,484 Maturity date Feb 28, 2019 Mar 31, 2019 Mar 31, 2020 May 31, 2022 Dec 31, 2022 Dec 31, 2023 Aug 31, 2024 Jun 30, 2025 Jan 31, 2026 Convertible debenture 5.40% 5.25% 4.75% 5.30% 5.50% 5.20% 5.30% 5.40% 5.50% Total $ 157,464,904 437,426 As at December 31, 2018, debentures payable bear interest at the weighted average effective rate of 5.29% per annum (December 31, 2017 - 5.26% per annum). Notwithstanding the carrying value of the convertible debentures, the principal balance outstanding to the debenture holders is $187,485,000 as at December 31, 2018 (December 31, 2017 - $163,223,000). (25,738,000) 179,994,433 46,546,839 $ - 1,283,262 $ $ $ $ $ On December 27, 2018, the Corporation completed an early redemption of its 5.40% convertible unsecured subordinated debentures, which were scheduled to mature on February 28, 2019. It was a cash redemption of the aggregate principal amount of $25,738,000 and all accrued interest to the time of Redemption Date. On November 23, 2018, the Corporation completed a public offering of 25,000 5.50% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,000,000, less issuance costs of $1,182,887. The debentures mature on January 31, 2026 and interest is paid semi-annually on the last day of June and December 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 $14.60. The debentures may not be redeemed by the Corporation prior to January 31, 2022. On or after January 31, 2022, but prior to January 31, 2024, 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 January 31, 2024 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. 24 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The convertible debentures were allocated into liability and equity components on the date of issuance as follows: Liability Equity Principal $ 24,240,000 760,000 $ 25,000,000 On June 21, 2018, the Corporation completed a public offering of 25,000 5.40% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,000,000, less issuance costs of $1,186,270. The debentures mature on June 30, 2025 and interest is paid semi-annually on the last day of June and December 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 $15.00. The debentures may not be redeemed by the Corporation prior to June 30, 2021. On or after June 30, 2021, but prior to June 30, 2023, 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 June 30, 2023 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: $ $ 24,676,000 324,000 25,000,000 Liability Equity Principal 25 52 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The breakdown of the convertible debentures for the year ended December 31, 2017 presented in the above table is as follows: $ Balance, beginning of period 31,243,770 25,177,718 19,930,572 19,300,141 23,944,422 21,676,254 21,033,112 Convertible debenture 5.75% 5.40% 5.25% 4.75% 5.30% 5.50% 5.20% 5.30% Total Issued $ - Conversions $ (21,278,427) - - - - - - - - - - - - - $ (21,278,427) Implicit interest rate in excess of coupon rate $ Deferred finance cost amortization $ 166,807 173,458 134,549 152,143 171,640 166,991 164,624 95,234 1,225,446 $ Repayments upon maturity $ (10,164,573) - - - - - - - $ (10,164,573) Balance, end of period $ - 25,445,554 20,173,140 19,515,688 24,136,563 21,889,426 21,235,666 25,068,867 157,464,904 $ 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 32,423 94,378 108,019 63,404 20,501 46,181 37,930 12,343 415,179 - $ 162,305,989 24,961,290 24,961,290 $ $ 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 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 $ $ 26,290,000 210,000 26,500,000 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. 26 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) 10. Shareholders' equity: The beneficial interest in the Corporation is represented by a single class of shares that are unlimited in number. Each share carries a single vote at any meeting of shareholders and carries the right to participate pro rata in any dividends. (a) Shares issued and outstanding: The following shares were issued and outstanding as at December 31, 2018: Balance, beginning of year At-the-market program Equity offering costs Options exercised in the year New shares issued during the period under Dividend Reinvestment Plan Balance, end of year The following shares were issued and outstanding as at December 31, 2017: Balance, beginning of year New shares from equity offering New shares 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 # of shares 26,064,310 55,600 - 20,000 3,634 26,143,544 # of shares 22,490,489 1,633,000 1,759,944 - - 131,000 49,877 26,064,310 Amount 281,377,245 735,818 (35,382) 237,523 47,520 282,362,724 Amount 236,031,386 23,025,300 21,278,427 155,648 (1,345,374) 1,555,776 676,082 281,377,245 $ $ $ $ During the twelve months ended December 31, 2018, the Corporation issued 55,600 shares at a weighted average price of $13.23 per share for gross proceeds of $735,818 from its At-The-Market ("ATM") program as previously announced. 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. 27 54 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) 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 was 1,633,000. (b) Incentive option plan: Balance at December 31, 2016 Options issued Options exercised Balance at December 31, 2017 Options exercised Balance at December 31, 2018 # of options 1,007,250 70,000 (131,000) 946,250 (20,000) 926,250 $ $ $ Amount 95,123 11,030 (12,597) 93,556 (1,923) 91,633 During the year ended December 31, 2018, the Corporation did not grant any options. During the year ended December 31, 2017, the Corporation granted 70,000 options to directors of the Corporation at an exercise price of $13.15 per share. These options were fully vested upon granting. During the year ended December 31, 2018, 20,000 options were exercised by an officer of the Corporation. During the year ended December 31, 2017, 131,000 options were exercised, of which 125,000 options were exercised by officers of the Corporation. (c) Dividend reinvestment plan and direct share purchase plan: The Corporation has a dividend reinvestment plan and direct share purchase plan for its shareholders that allows participants to reinvest their monthly cash dividends or purchase 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 table reconciles the numerators and denominators of the basic and diluted profit per share for the year ended December 31, 2018 and 2017. Basic profit per share calculation: Numerator for basic profit per share: Net income and profit for the period Denominator for basic profit per share: Weighted average shares Basic profit per share Three months ended 2018 2017 2018 2017 6,097,699 $ 6,122,660 $ 25,750,696 $ 24,821,438 26,124,729 0.233 $ 24,511,623 0.250 $ 26,109,949 0.986 $ 24,362,355 1.019 28 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 55 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, 2018 and 2017 (in Canadian dollars) Diluted profit per share calculation: Numerator for diluted profit per share: Net income and profit for the period 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: Three months ended 2018 2017 2018 2017 $ $ 6,097,699 1,963,191 8,060,890 $ $ 6,122,660 2,533,661 8,656,321 $ $ 25,750,696 9,474,914 35,225,610 $ $ 24,821,438 9,334,991 34,156,429 26,124,729 24,511,623 26,109,949 24,362,355 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: 85,938 8,639,788 34,850,455 0.231 $ 70,621 11,091,621 35,673,865 0.243 $ 85,938 10,366,838 36,562,725 0.963 $ 88,948 10,248,953 34,700,256 0.984 $ 12. Dividends: The Corporation intends to make dividend payments to the shareholders on a monthly basis on or about the 15th day of each following 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, 2018, the Corporation recorded dividends of $25,750,696 (2017 - $24,821,438) to its shareholders. Dividends were $0.986 per share (2017 - $1.006 per share). 13. Related party transactions and balances: The Corporation's Manager (a company related to certain 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 2018 this amount was $3,932,134 (2017 - $3,639,094). Included in accounts payable and accrued liabilities at December 31, 2018 are amounts payable to the Corporation's Manager of $314,105 (December 31, 2017 - $341,367). For the year ended December 31, 2018, the total directors' fee expensed was $304,000 (2017 - $272,333). Certain key management personnel are also directors of the Corporation and receive compensation from the Corporation's Manager. The Directors held 492,837 shares in the Corporation as at December 31, 2018 (December 31, 2017 - 481,768). For the year ended December 31, 2018, no directors were awarded options. 29 56 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) For the year ended December 31, 2017, two directors were awarded 70,000 options under the incentive plan. The Mortgage Banker (a company related to certain 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 $524,000 for the year ended December 31, 2018 (2017 - $485,000). The Mortgage Banker also retains all overnight float interest and incidental fees and charges payable by borrowers on the Corporation's investments. The Corporation'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. During the first quarter of 2018, the two mortgage investments totaling $1,400,000 (December 31, 2017- two mortgage investments totaling $1,400,000) that were issued to a borrower controlled by an independent director of the Corporation were fully repaid. The Corporation holds a mortgage investment totaling $5,148,000 at December 31, 2018 (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, 2017 - $4,985,500). 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. For the year ended December 31, 2018, the Corporation recognized interest and fees earned of $nil (2017 - $nil) from this investment. The impairment provision recorded on this loan was $860,000 as at December 31, 2018 (December 31, 2017 - $1,180,000). Key management compensation: Aggregate compensation paid to key management personnel (including payments to related parties for their recovery of overhead costs), consisted of short-term employee compensation. For the year ended December 31, 2018 the compensation was $2,196,744 (2017 - $2,083,453), all of which was paid by the Corporation's Manager and not by the Corporation. 30 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 57 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, 2018 and 2017 (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 payable Cash interest paid 15. Contingent liabilities: Three months ended 2018 2017 2018 2017 $ $ $ $ 224,802 340,855 3,106,640 3,672,297 (377,259) 381,929 671,989 2,535,056 3,588,974 (289,437) 1,541,319 2,223,767 11,143,248 14,908,334 (1,283,262) 1,372,878 1,005,264 10,845,207 13,223,349 (1,225,446) $ $ $ $ (116,170) (100,667) (437,426) (415,179) 550,043 3,728,911 $ $ (329,422) 2,869,448 485,960 13,673,606 $ $ (386,246) 11,196,478 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, 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 generally 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 following table presents the changes in related investments (at FVTPL) as at December 31, 2018 Changes to related investments at FVTPL Balance at January 1, 2018 Funding of investments Discharging of investments Balance at December 31, 2018 $ $ 6,518,875 11,289,679 (1,572,354) 16,236,200 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. 31 58 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) The tables below present the fair values of the Corporation's financial instruments as at December 31, 2018 and December 31, 2017. 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: 2018 Marketable securities Convertible debentures December 31, 2017 Marketable securities Convertible debentures 17. Risk management: Level 1 Level 2 Level 3 Total $ 199,204 - - $ 199,204 182,566,500 - - 182,566,500 Level 1 Total $ 210,194 - - $ 210,194 164,306,323 - - 164,306,323 Level 3 Level 2 The Corporation is exposed to the symptoms and effects of global economic conditions and other factors that could adversely affect its business, 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. financial condition, and operating results. Many of The Corporation's business activities, including its use of financial significant of which are interest rate risk, credit and operational risks, and liquidity risk. instruments, exposes the Corporation to various risks, the most (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. 32 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 59 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, 2018 and 2017 (in Canadian dollars) (ii) Interest expense risk: The Corporation's floating-rate debt comprises bank indebtedness, and 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, 2018, 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 dividends payable Loans payable Convertible debentures Total increase (b) Credit and operational risks: Carrying Value -1% +1% $ 3,875,248 199,204 515,994,509 - - (1,330,969) - - 4,026,693 32,704,070 2,018,504 3,346,374 14,718,382 179,994,433 $ 327,041 - - - - (1,003,928) $ (327,041) - - - - 3,699,652 $ Credit risk is the possibility that a borrower under one of the mortgages comprising the investment portfolio, may be unable to honour the 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. 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). 33 60 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) As at December 31, 2018, the Corporation had not utilized its full leverage availability, being a guideline of 50% of its first mortgage investments. Unadvanced committed funds under the existing investment portfolio amounted to $89,188,507 as at December 31, 2018 (December 31, 2017 - $91,953,643). 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 extended to September 30, 2019. If the committed line is not renewed on September 30, 2019, the terms of the facility allow for the Corporation to repay the balance owed on September 30, 2019 within 12 months. In the current economic climate and capital market conditions, there are no assurances that the bank borrowing line will be renewed or that it could be replaced If it is not extended at maturity, repayments under the Corporation's investment portfolio would be with another lender if not renewed. 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 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, 2018 are due as follows: Bank indebtedness Accounts payable and accrued liabilities Shareholders dividends payable Loans payable Convertible debentures Subtotal - Liabilities Future advances under portfolio Liabilities and contractual obligations $ $ Total 32,704,070 2,018,504 3,346,374 14,718,382 187,485,000 240,272,330 89,188,507 329,460,837 $ $ Less than 1 year 32,704,070 2,018,504 3,346,374 14,718,382 20,485,000 73,272,330 89,188,507 162,460,837 $ $ 1-3 years - $ - - - 68,000,000 68,000,000 - 68,000,000 $ $ 4 - 7 years - $ - - - 99,000,000 99,000,000 - 99,000,000 $ $ The bank indebtedness and loans payable are liabilities resulting from the funding of the Corporation's investments. Repayment of investments results in a direct and corresponding pay down of the bank 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. Interest payments on debentures (assuming the amounts remain unchanged) would be $9,108,366 for less than 1 year, $16,016,500 for 1 to 3 years and $19,592,000 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. 34 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 61 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, 2018 and 2017 (in Canadian dollars) 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 convertible debentures or repay bank indebtedness (if any) and loans payable. 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: the Corporation (i) will not invest more than 10% of the amount of its capital 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 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 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. (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 Corporation 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 1% change in the exchange rate of the Canadian dollar against the U.S. dollar will not result in a significant change to the net income and comprehensive income and equity. 18. Supplementary information: The following table reconciles the changes in cash flows from financing activities for loans payable and convertible debentures: Balance, beginning of the year Financing cash flow activities: Repayment of loans payable Proceeds from convertible debentures issued Debenture offering costs Repayment of convertible debentures Total cash flow from financing activities Financing non-cash activities: Convertible debenture equity (note 9) Implicit interest rate in excess of coupon rate (note 14) Deferred finance cost amortization (note 14) Total non-cash flow financing activities Loans Payable Convertible Debentures 51,662,949 157,464,904 (36,944,567) - - - (36,944,567) - - - - - 50,000,000 (2,369,159) (25,738,000) 21,892,841 (1,084,000) 437,426 1,283,262 636,688 Balance, end of the year 14,718,382 179,994,433 35 62 Firm Capital Mortgage Investment Corporation ● 2018 ● 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, 2018 and 2017 (in Canadian dollars) 19. Subsequent event: On March 1, 2019, the Corporation completed an equity offering of 1,520,000 common shares at a price of $13.20 per share for gross proceeds of $20,064,000. The over-allotment option was exercised in full and the Corporation issued an additional 228,000 shares at a price of $13.20 per share for gross proceeds of $3,009,600. The total shares issued was 1,748,000. 36 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report 63 Building Relationshipstoday and tomorrowTotal Return Since IPO Total Return Since IPO An Attractive Investment MORTGAGE INVESTMENT CORPORATION $484 $685 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 2018 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Since Oct . 5th, 1999 till December 31st, 2017 Since Oct. 5th, 1999 till December 31st, 2018 Since Oct . 5th, 1999 till Dec . 31st, 2018 An investment in Firm Capital, since its initial public offering, has generated an attractive return for investors . (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) Since the IPO in 1999, a $100 investment in Firm Capital has appreciated to $685 when factoring in full dividend (cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:51)(cid:50)(cid:3)(cid:76)(cid:81)(cid:3)(cid:20)(cid:28)(cid:28)(cid:28)(cid:15)(cid:3)(cid:68)(cid:3)(cid:7)(cid:20)(cid:19)(cid:19)(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:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)567.28(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:3) reinvestment over the same period . The compounded annual growth rate or “CAGR” in Firm Capital Mortgage (cid:71)(cid:76)(cid:89)(cid:76)d(cid:72)(cid:81)(cid:71)(cid:3)(cid:85)(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:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:68)(cid:80)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:38)(cid:36)(cid:42)(cid:53)(cid:180)(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) Investment Corporation shares, since 1999 has been in excess of 10 .52% (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:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:20)(cid:28)(cid:28)(cid:28)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:20)(cid:17)(cid:20)7(cid:8)(cid:17) DIVIDEND REINVESTMENT PLAN DIVIDEND REINVESTMENT PLAN Shareholders are reminded that they can participate in the Corporations Dividend Reinvestment Plan and Share (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:76)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3) Purchase Plan . The plan allows participants to have their monthly dividend reinvested in additional shares . (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:17)(cid:3) SHARE PURCHASE PLAN SHARE PURCHASE PLAN (cid:50)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15) Once registered with the plan, participants have the right to purchase additional Shares at 5 day weighted average (cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:7)(cid:20)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:7)(cid:21)(cid:24)(cid:19)(cid:17)(cid:19)(cid:19)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:17) P(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)Shareholders (cid:83)(cid:68)(cid:92) market price from the Corporation, totaling no greater than $12,000 per year and no less than $250 .00 per month . (cid:81)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:17) Participating Shareholders pay no commission . For further information, including answers to frequently asked questions about the program, please refer to (cid:41)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:86)(cid:90)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:78)(cid:72)(cid:71)(cid:3)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:15)(cid:3)(cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3) our website: www.firmcapital.com. To enroll, please contact your investment advisor or, if you are a registered (cid:90)(cid:72)(cid:69)(cid:86)(cid:76)(cid:87)(cid:72)(cid:29)(cid:3)(cid:90)(cid:90)(cid:90)(cid:17)(cid:191)(cid:85)(cid:80)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:17)(cid:70)(cid:82)(cid:80)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:68)(cid:69)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:81)(cid:81)(cid:72)(cid:85)(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:17)(cid:3)(cid:55)(cid:82)(cid:3)(cid:72)(cid:81)(cid:85)(cid:82)(cid:79)(cid:79)(cid:15)(cid:3) Shareholder, complete the Authorization Form located on our website and forward to our Transfer Agent, (cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:70)(cid:87)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:71)(cid:89)(cid:76)(cid:86)(cid:82)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:73)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3) Computershare Trust Company of Canada, at the address noted on the website . You can also contact Investor (cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:90)(cid:72)(cid:69)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:3)(cid:36)(cid:74)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:85)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3) (cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:15)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) Relations at the Corporation by calling 416-635-0221, who will assist you in enrolling in the program . (cid:68)(cid:71)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:72)(cid:69)(cid:3)(cid:86)(cid:76)(cid:87)(cid:72)(cid:17)(cid:3)(cid:3)(cid:60)(cid:82)(cid:88)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:70)(cid:87)(cid:3)(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3) (cid:23)(cid:20)(cid:25)(cid:16)(cid:25)(cid:22)(cid:24)(cid:16)(cid:19)(cid:21)(cid:21)(cid:20)(cid:15)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:81)(cid:85)(cid:82)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:17) 64 Firm Capital Mortgage Investment Corporation ● 2018 ● Annual Report Building Relationships today and tomorrow (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)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:23)(cid:22) MORTGAGE INVESTMENT CORPORATION REAL ESTATE FINANCING SOLUTIONS Mortgage Banker Sample Transactions: BRIDGE LOAN $61,500,000 SECOND MORTGAGE Land refinancing for an active 861,113 sq. ft. mixed-use construction project TORONTO, ON BRIDGE LOAN $12,000,000 SECOND MORTGAGE 68 residential building lots INVENTORY LOAN $13,500,000 FIRST MORTGAGE 38 condominium units LAND LOAN $3,450,000 FIRST MORTGAGE 16 future residential building lots CONSTRUCTION LOAN $54,000,000 FIRST MORTGAGE 12 storey 239 rental apartment units TORONTO, ON BRAMPTON, ON OSHAWA, ON BRIDGE LOAN $1,750,000 FIRST MORTGAGE 1,843 sq. ft. luxury condo CONSTRUCTION LOAN $1,705,000 FIRST MORTGAGE 3,483 sq. ft. custom home BRIDGE LOAN $1,400,000 FIRST MORTGAGE 2,950 sq. ft. commercial building STOUFFVILLE, ON TORONTO, ON TORONTO, ON TORONTO, ON LAND & CONSTRUCTION LOAN $4,500,000 CONSTRUCTION LOAN $47,725,000 INFILL CONSTRUCTION LOAN CONSTRUCTION LOAN $1,475,000 $11,700,000 FIRST MORTGAGE 5 townhouse units & 1 single family custom home FIRST MORTGAGE 15 storey 189 unit condominium building SECOND MORTGAGE 5,085 sq. ft. luxury custom home FIRST MORTGAGE 15 townhouses and 1 single family home TORONTO, ON RICHMOND HILL, ON TORONTO, ON VAUGHAN, ON BOUTIQUE MORTGAGE LENDERS ® PROVIDING REAL ESTATE CAPITAL FOR: BRIDGE FINANCING RESIDENTIAL FINANCING COMMERCIAL FINANCING STRUCTURED REAL ESTATE FINANCING TAILORED MORTGAGE ENGINEERING BY FIRM CAPITAL 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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