Where Mortgage Deals Get Done®
Mortgage Investment Corporation
TAILORED MORTGAGE ENGINEERING BY FIRM CAPITAL
• Bridge Financing - 1st & 2nd Mortgages
• Land & Construction Financing
• Purpose Built Rental Construction
• Infill Construction
• Residential Mortgages
• Mezzanine Equity Capital
• Preferred Equity Capital
• Partnerships for Investment Properties
• Joint Venture Equity Capital
SELECTED TRANSACTIONS - BOUTIQUE MORTGAGE LENDERS®
LAND FINANCING
$10 8
BRIDGE LOAN
LAND & CONSTRUCTION LOAN
$4 75
$ 08 0
PURPOSE BUILT RENTAL
CONSTRUCTION LOAN
$99 24
FIRST MORTGAGE
FIRST MORTGAGE
FIRST MORTGAGE
FIRST MORTGAGE
2.4 acre residential
development site
75,400 sq. ft. mixed-use
industrial/office building
41 storey mixed-use
condominium building with
112 luxury residential units
20 storey rental building
with 370 units
TORONTO
MONTREAL, QC
TORONTO, ON
OSHAWA, ON
LOAN
SUBORDINATED CORPORATE
DEBENTURE
4 125
$30 0
915
SUBORDINATED
CONVERTIBLE DEBENTURE
$20 0
SECOND MORTGAGE
CORPORATE LINE OF CREDIT
FIRST MORTGAGE
PRIVATE PLACEMENT
8 semi-detached units
and 1 single family house
International real estate
development company
with Canadian operations
4 detached single
family homes
Corporate Finance
Investment
AUGUST 2019
OAKVILLE, ON
JULY 2019
RESIDENTIAL MORTGAGE
INVENTORY LOAN
CONSTRUCTION LOAN
BRIDGE LOAN
$ 23
28
20 000
$12,0
SECOND MORTGAGE
5,120 sq. ft.
single-family dwelling
MONTREAL , QC
73 residential
condominium units
TORONTO &
MISSISSAUGA, ON
SECOND MORTGAGE
SECOND MORTGAGE
100 semi-detached
units
66 residential
building lots
MARKHAM, ON
STOUFFVILLE
RELATIONSHIP DRIVEN • EXECUTION FOCUSED
2019
ANNUAL REPORT
BUILDING
RELATIONSHIPS
FOR OVER
30 YEARS
FOR MORE INFORMATION, PLEASE CONTACT:
BUILDING RELATIONSHIPS
Firm Capital
(416) 635-0221
www.FirmCapital.com
A REAL ESTATE CAPITAL FINANCE COMPANY
DISCIPLINED INVESTING CAPITAL PRESERVATION
Mortgage Investment Corporation
MORTGAGE INVESTMENT CORPORATION
PROFILE
Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is
PROFILE
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
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monthly dividends from the Corporation’s investments, targeting returns on equity in excess of 400 basis
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points over Government of Canada one year average treasury bill yields . The Corporation achieves its
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investment objectives by pursuing a strategy of growth through investments in select niche markets that are
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under-serviced by large lending institutions .
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TSX: FC, FC .DB .E, FC .DB .F, FC .DB .G, FC .DB .H, FC .DB .I and FC .DC .J .
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MORTGAGE BANKER PROFILE
Boutique Mortgage Lenders®
MORTGAGE BANKER PROFILE
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Where Mortgage Deals Get Done®
CONTENTS
PROFILE
Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is
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Letter To Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONTENTS
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 2
Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . 25
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Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . 30
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Consolidated Statements of Changes in Shareholders Equity . . . . . . . 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)
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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)
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 33
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Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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Dividend Reinvestment and Share Purchase Plan . . . . . . . . . . . . . . . . 61
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Notes to Financial Statements(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3) (cid:21)(cid:23)
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
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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)
(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)
Where Mortgage Deals Get Done®
Where Mortgage Deals Get Done®
Mortgage Banker
Firm Capital Corporation
www.firmcapital.com
Corporation Manager
FC Treasury Management Inc.
Registered Office
Firm Capital Mortgage
Investment Corporation
163 Cartwright Avenue
Toronto, Ontario
M6A 1V5
Telephone: 416-635-0221
Fax: 416-635-1713
Email: investorrelations@firmcapital.com
Auditors
KPMG LLP
Transfer Agent
Computershare Trust Company of Canada
Legal Counsel
Fogler, Rubinoff LLP
Stock Exchange Listing
Shares Listed TSX
Symbol: FC
Debentures Listed
TSX Symbol: FC, FC.DB.E, FC.DB.F, FC.DB.G,
FC.DB.H, FC.DB.I, FC.DB.J
Plan Eligibility
RRSP RRIF DPSP TFSA
Shareholder Dividend
Reinvestment Plan
Firm Capital Mortgage Investment Corporation is
offering Canadian Shareholders of the
Corporation, an opportunity to increase their
holdings by participating in the Corporation's
Shareholder Dividend Reinvestment Plan.
If you are a Shareholder and would like to enroll
or would like further information about the Plan,
please contact Firm Capital Mortgage Investment
Corporation, Attention: Sandy Poklar - Executive
Vice President and Managing Director Finance
Telephone
(416) 635-0221
(1) Member of the Investment Committee
(2) Member of the Audit Committee
(3) Independent Directors
(4) Chairman of the Board, Investment Committee
and Audit Committee
CORPORATE DIRECTORY
Board of Directors
Stanley Goldfarb, FCPA, FCA (1)(2)(3)(4)
President
Goldfarb Management Services Limited
Morris Fischtein (1)(2)(3)
President
High City Holdings Limited
Anthony Heller (1)(2)(3)
President
Plazacorp Investments Limited
Larry Shulman, B. Comm., CPA, CA (1)(2)(3)
President
Rabbim Company Finance Inc.
Keith L. Ray, CPA, CA (1)(2)(3)
President
Realvest Management
Geoffrey Bledin (1)(3)
Corporate Director
Eli Dadouch
President
Firm Capital Corporation
Jonathan Mair, CPA, CA
Vice-President, Mortgage Banking and
Chief Financial Officer Firm Capital
Corporation
Edward Gilbert, CPA, CA
Director, Mortgage Investments Firm
Capital Corporation
Victoria Granovski, MFin
Director, Firm Capital Mortgage
Investment Corporation
The Honourable Joe Oliver, P.C(1)(3).
Former Minister of Finance, Minister of Natural
Resources and Member of Parliament
The Honourable Francis (Frank)
Newbould, Q.C.(1)(3)
Former Justice at the Ontario Superior Court of
Justice
Officers & Senior Management
Eli Dadouch
President and
Chief Executive Officer
Jonathan Mair, CPA, CA
Chief Operating Officer, and
Executive Vice President
Joseph Fried
Secretary
Sandy Poklar, CPA, CA
Executive Vice President and
Managing Director Finance
Boris Baril, CPA, CA
Chief Financial Officer
Victoria Granovski, MFin, CFA
Senior Vice President, Credit and
Equity Capital
LETTER TO SHAREHOLDERS
LETTER TO SHAREHOLDERS
We are pleased to report to you the 2019 results for Firm Capital Mortgage Investment
Corporation (the “Corporation”) .
Managing risk and maintaining a strong balance sheet is our main priority . We mitigate risk by
maintaining a diversified portfolio that has the majority of the investments shared with other
investor partners . We are continually monitoring all markets and rebalancing the portfolio to reflect
the current environment and market conditions . In 2019, we were able to generate dividends to
Shareholders of $1 .006 per share, while maintaining our loan loss provision of $5,480,000
representing approximately 1% of the Corporation’s investment portfolio .
HIGHLIGHTS
DIVIDENDS
For the year ended December 31, 2019, the Corporation declared dividends totaling $1 .006 per
share versus $0 .986 per share for the year ended December 31, 2018 . The December 2019
special dividend was 7 cents per share .
INCOME
Income for year ended December 31, 2019 of $28,002,051 represents an 8.7% increase compared
to $25,750,696 reported for the year ended December 31, 2018. Basic weighted average profit per
share for the year ended December 31, 2019 was $1.008, which is 2.2% higher compared to the
$0.986 per share reported for the year ended December 31, 2018.
INVESTMENT PORTFOLIO
The Corporation’s Investment Portfolio at December 31, 2019 totaled $481 million (before
impairment provision) consisting of 196 separate investments . The average interest rate on the
Corporation’s investments at December 31, 2019 was 8 .49% per annum .
VERY SHORT-TERM PORTFOLIO WITH SIGNIFICANT ANNUAL TURNOVER
In 2019, the Investment Portfolio’s repayments totaled $300 million with new investments during
the year totaling $260 million . This turn is the key to our investment approach and demonstrates
the short-term bridge financing nature of the portfolio .
2020 OUTLOOK
We encourage Shareholders to read the Management Discussion and Analysis in this report and
our Outlook for 2020 .
ELI DADOUCH
President
Chief Executive Officer
BORIS BARIL
Chief Financial Officer
ELI DADOUCH
President
Chief Executive Officer
BORIS BARIL
Chief Financial Officer
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
1
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 are able to 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 Management’s Discussion and Analysis (“MD&A”) is dated as of March 18, 2020
and should be read in conjunction with the unaudited interim condensed consolidated financial
statements of the Corporation and the notes thereto for the of the Corporation years ended
December 31, 2019 and 2018, as well as the Management’s Discussion and Analysis, including
the section on “Risk and Uncertainties”, along with each of the quarterly reports for 2019 and
2018.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 1
2
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
HIGHLIGHTS
INCOME
Income for the three months ended December 31, 2019 increased by 9.5% to $6,678,983 as
compared to $6,097,699 reported for the same period in 2018. Income for the year ended
December 31, 2019 increased by 8.7% to $28,002,051 as compared to $25,750,696 reported for
the year ended December 31, 2018.
REVENUES
Revenues for the three months ended December 31, 2019 decreased by 4.2% to $11,040,763 as
compared to $11,528,868 reported for the same period in 2018. The decrease is mainly a result
of lower interest income from holding a smaller average portfolio size. Revenues for the year
ended December 31, 2019 increased by approximately 0.1% to $47,342,851 as compared to
$47,313,264 for the year ended December 31, 2018.
INVESTMENT PORTFOLIO
The Corporation’s investment portfolio (the “Investment Portfolio”) decreased by $40.0 million to
$480.9 million as at December 31, 2019, in comparison to $520.9 million as at December 31,
2018 (gross of impairment provision). The allowance for credit losses as at December 31, 2019
was $5.48 million (December 2018 - $4.95 million). While there was a strong level of new
investment funding during 2019 of $260.2 million (2018 – $287.0 million), repayments were large
at $300.3 million (2018 – $327.6 million). The repayment level was higher than the funding of the
investment portfolio and has resulted in the decrease in the investment portfolio size.
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. Income for the year ended December 31, 2019 represents an annualized return on
shareholders’ equity (based on the month end average shareholders’ equity in the year) of 9.09%,
representing a return on shareholders’ equity of 733 basis points per annum over the average
one-year Government of Canada Treasury bill yield of 1.76%.
EQUITY OFFERINGS
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 were 1,748,000.
On May 15, 2019, the Corporation completed a non-brokered private placement of 209,630
Shares at a price of $13.20 per Share for gross proceeds of $2,767,116.
REDEMPTIONS
On March 29, 2019, the Corporation completed the redemption of its 5.25% convertible unsecured
subordinated debentures. It was a cash redemption of the aggregate principal amount of
$20,485,000 and all accrued interest to the time of Redemption Date.
On December 20, 2019, the Corporation completed the redemption of its 4.75% convertible
unsecured subordinated debentures. It was a cash redemption of the aggregate principal amount
of $20,000,000 and all accrued interest to the time of Redemption Date.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 2
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Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
INVESTMENT PORTFOLIO
The Corporation’s Investment Portfolio was $475,445,143 as at December 31, 2019 (net of the
provision for impairment of $5,480,000) and was $515,994,509 as at December 31, 2018 (net of
the provision for impairment of $4,950,000). The Investment Portfolio is comprised of 196
investments (231 as at December 31, 2018). The average gross investment size was
approximately $2.5 million, with 17 investments individually exceeding $7.5 million. As at
December 31, 2019, 151 of the 196 investments are individually less than $2.5 million.
December 31, 2019
December 31, 2018
Mortgage Amount
$0 - $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
Number
151
21
7
17
196
Total Amount
(before provision)
$
$
148,256,833
70,373,853
48,279,560
214,014,898
480,925,143
% of
Portfolio Number
181
27
6
17
231
30.8%
14.6%
10.0%
44.5%
100%
Total Amount
(before provision)
$
165,349,152
94,921,879
37,775,714
222,897,764
520,944,509
$
% of
Portfolio
%
Change
31.7% (10.3%)
18.2% (25.9%)
27.8%
(4.0%)
(7.7%)
7.3%
42.8%
100%
Unadvanced committed funds under the existing Investment Portfolio amounted to $108 million
as at December 31, 2019 (December 31, 2018 – $89 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, 2019
December 31, 2018
$
% of
Portfolio
Investment Categories
Conventional First Mortgages
Conventional Non-First Mortgages
Related Investments
Discounted Debt Investments*
Non-Conventional Mortgages
Total Investments
Less: Impairment Allowance
Investment Portfolio
* The yield on Discounted Debt Investments will be determined upon final repayment of the investments.
Outstanding
amount
334,859,014
42,337,892
95,532,087
5,378,150
2,818,000
480,925,143
(5,480,000)
475,445,143
W.A
Interest
Rate
8.32%
8.84%
9.45%
-
8.52%
8.49%
69.6% 8.47%
8.8% 9.21%
19.9% 9.44%
1.1%
0.6% 9.23%
8.58%
100%
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
$
$
$
$
$
-
% of
Portfolio
76.6%
8.0%
13.5%
1.0%
0.9%
100%
%
Change
(16.1%)
1.3%
36.0%
0.8%
(34.8%)
(7.9%)
The $40.0 million decrease in the Investment Portfolio (before the provision for impairment) was
mainly due to the decrease in the amount of the conventional first mortgages category and non-
conventional mortgages, offset by an increase in related investments and a marginal increase in
conventional non-first mortgages, with discounted debt investments being largely inline. While
there was a strong level of new investment funding during 2019 of $260.2 million (2018 – $287.0
million), repayments were large at $300.3 million (2018 – $327.6 million). The repayment level
was higher than the funding of the investment portfolio and has resulted in the decrease in the
investment portfolio size.
Conventional first mortgages decreased by 16.1% and represented 69.6% of the Investment
Portfolio as at December 31, 2019 (76.6% as at December 31, 2018). Conventional non-first
mortgages increased by 1.3% and represented 8.8% of the Investment Portfolio at December 31,
2019 (8.0% as at December 31, 2018). Conventional first mortgages decreased as a result of
investment repayments in these categories exceeding funding. Related investments increased
by 36.0% and represented 19.9% of the Investment Portfolio as at December 31, 2019 (13.5% as
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 3
4
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
at December 31, 2018). Discounted debt investments increased by 0.8% and represented 1.1%
of the Investment Portfolio, as at December 31, 2019 (1.0% as at December 31, 2018). Non-
conventional mortgages decreased by 34.8% and represented 0.6% of the Investment Portfolio
as at December 31, 2019 (0.9% as at December 31, 2018).
The related investment category is a basket of investments that are all participating in debt
investments to a variety of third-party borrowers. Such debt investments are not secured by
mortgage charges, and instead have other forms of security or recourse.
The timing for recognition and collection of accrued interest and special profit on non-conventional
mortgages is difficult to estimate given the nature of such instruments. As such, the Corporation
will recognize revenue when amounts are determinable, and management is reasonably assured
of collection.
The weighted average face interest rate on the Corporation’s Investment Portfolio was 8.49% per
annum as at December 31, 2019, compared to 8.58% per annum as at December 31, 2018.
The provision for impairment is $5,480,000 as at December 31, 2019 (December 31, 2018 -
$4,950,000), of which $5,084,000 (December 31, 2018 – $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, 2019, the
Corporation carries a collective provision balance of $396,000 (December 31, 2018 - $685,000).
The allocation of the Investment Portfolio between its seven property types is as follows:
December 31, 2019
December 31, 2018
Property Type
Construction Mortgages
Single Family
Land
Condo/Including multi unit condo loans
Multi Family Resi Mortgages
Related Investments
Other
62
60
39
4
5
17
9
196
Total Amount
(before provision)
$
109,565,010
70,222,853
142,171,487
32,480,000
20,770,261
95,532,086
10,183,446
480,925,143
$
% of
Portfolio Number
81
57
58
8
4
14
9
231
22.8%
14.6%
29.6%
6.8%
4.3%
19.9%
2.1%
100%
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
21.6%
9.9%
%
Change
(2.5%)
36.4%
35.1% (22.1%)
7.7% (20.1%)
8.3% (51.7%)
36.0%
3.9% (50.5%)
(7.7%)
100%
13.5%
The Corporation continues to focus its lending into core markets that can be monitored closely
during evolving economic conditions, with a strong focus on Ontario. As at December 31, 2019
the value of the portfolio that is secured by properties outside of Ontario is 7.0%, compared to
8.5% as at December 31, 2018.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 4
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Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
5
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
December 31, 2019
December 31, 2018
Geographic Segment
Greater Toronto Area
Non-GTA Ontario
Quebec
Alberta
Saskatchewan
Other
Portfolio (excluding Related Investments)
Related Investments
Number
136
28
9
2
2
2
179
17
196
Total Amount
(before provision)
$
314,459,608
43,591,476
10,350,127
4,000,000
10,556,355
2,435,491
385,393,057
95,532,087
480,925,144
$
$
% of
81.7%
11.3%
2.7%
1.0%
2.7%
0.6%
100%
Portfolio Number
161
44
3
2
2
5
217
13
230
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
69,636,557
520,321,444
$
$
%
% of
Change
Portfolio
7.4%
65.0%
26.5% (63.6%)
19.9%
1.9%
-
0.9%
(3.3%)
2.4%
3.3% (83.4%)
100%
The allocation of the Investment Portfolio between the underlying security types, is as follows:
Underlying Security TypeNumber
168
Residential
11
Commercial
17
Related Investments
196
December 31, 2019
Total Amount
(before provision)
$
$
333,754,669
51,638,387
95,532,087
480,925,143
% of
Portfolio Number
203
14
14
231
69.4%
10.7%
19.9%
100%
December 31, 2018
Total Amount
(before provision)
$
$
392,109,235
58,575,652
70,259,622
520,944,509
% of
Portfolio
%
Change
75.3% (14.9%)
11.2% (11.8%)
36.0%
13.5%
(7.7%)
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 two United States ("US") dollar denominated
investments (at amortized cost) of $2,435,491 (US$1,875,186) (December 31, 2018 - $5,709,177
(US$4,185,000)).
Included in related investments are four US dollar denominated investments of $16,726,003
(US$12,878,043), (December 31, 2018 - two US dollar denominated investments of $5,376,199
(US$3,940,917)). These investments are a participation by the Corporation in limited partnerships
that have provided equity to real estate entities in the US.
For the three months ended December 31, 2019, income recorded on the US investments (at
amortized cost and FVTPL) was $455,904 (US$345,088), (2018 - $182,737 (US$137,793). For
the year ended December 31, 2019, income recorded on the US investments was $1,274,748
(US$962,317), (2018 - $730,663 (US$562,948)). These amounts are included in interest and
fees income.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 5
6
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Investment Portfolio as at December 31, 2019 had six investments with balances totaling
$12,903,309 (December 31, 2018 – two investments with balances totaling $1,474,000) with
contractual interest arrears greater than 60 days past due and were not brought current at year
end, amounting to $666,620 (December 31, 2018 – $48,727), for which management has
determined that no provision for impairment is required (December 31, 2018 – $nil). Subsequent
to year end, two of the six investments was paid out reducing the balance by $2,242,562.
The investment portfolio as at December 31, 2019 includes eleven investments totaling
$23,762,718 (December 31, 2018 - thirteen investments totaling $19,735,486) with maturity dates
that are past due and for which no extension or renewal was in place. Three of the eleven
investments were paid out after December 31, 2019, reducing the balance by $3,107,050. Three
investments totaling $13,034,106 (December 31, 2018 - four investments totaling $10,629,767)
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, totaling $7,621,561 (December 31, 2018 - five investments totaling
$5,028,925) have been determined to not require a provision.
As at December 31, 2019, the Investment Portfolio continued to be heavily concentrated in short-
term investments, with 76.1% of the portfolio maturing by December 31, 2020 and 96.5% maturing
on or before December 31, 2021. 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.
Renewals are offered to borrowers when deemed appropriate.
Principal repayments of the Investment Portfolio based on contractual maturity dates are as
follows:
December 31, 2019
Total Amount
(before provision)
$
365,727,134
98,279,848
13,688,686
-
3,229,475
480,925,143
$
% of
Portfolio
76.1%
20.4%
2.9%
0.0%
0.7%
100%
2020
2021
2022
2023
2024
Number
168
23
3
1
1
196
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, 2019,
165 of the Corporation’s 196 investments (investment amount of $440,819,005) are shared with
other participants, and for 29 of which (investment amount of $123,668,335) the Corporation is a
participant for less than 50% percent of the loan amount.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 6
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Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Certain members of the Board of Directors and senior management and their related entities co-
invested approximately $60 million with the Corporation alongside its December 31, 2019,
Investment 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 pari passu with other members of the
syndicate as to receipt of principal, interest, and fees. As at December 31, 2019, no such first
priority syndicate participations were outstanding.
RESULTS OF OPERATIONS
REVENUES
For the three months ended December 31, 2019, revenues decreased by 4.2% to $11,040,763
compared to $11,528,868 for the three months ended December 31, 2018. For the year ended
December 31, 2019, revenues increased by approximately 0.1% to $47,342,851 compared to
$47,313,264 for the year ended December 31, 2018. During 2019, the average size of the
Investment Portfolio was lower.
Revenues for the three months and year ended December 31, 2019 and December 31, 2018 are
broken down as follows:
Three Months Ended
Interest
Commitment & Renewal Fees
Other Income
Year Ended
Interest
Commitment & Renewal Fees
Other income
$
Dec. 31, 2019
10,212,313
613,372
215,078
11,040,763
$
$
Dec. 31, 2019
44,356,376
2,167,688
818,787
47,342,851
$
$
% Dec. 31, 2018
10,623,533
879,844
25,491
11,528,868
92%
6%
2%
100%
$
$
% Dec. 31, 2018
44,466,299
2,515,714
331,251
47,313,264
94%
5%
2%
100%
$
% % Change
(3.9%)
(30.3%)
743.7%
(4.2% )
92%
8%
0%
100%
%
%
(0.2%)
94%
4%
(13.8%)
2% 147.2%
0.06%
100%
For the three months ended December 31, 2019, interest income was $10,212,313, a decrease
of 3.9% over the $10,623,533 reported for the comparable period in 2018. The decrease is a
result of the Corporation holding a lower average Investment Portfolio. For the year ended
December 31, 2019, interest income was $44,356,376 a decrease of 0.2% over the $44,466,299
as reported for the same year ended period in 2018. During 2019, the decrease in the average
Investment Portfolio size was largely offset by the higher average interest rates over the
comparable period in 2018.
For the three months ended December 31, 2019, commitment and renewal fees were $613,372,
a decrease of 30.3% from $879,844 reported for the comparable period in 2018. For the year
ended December 31, 2019, fee income relating to commitment and renewal fees was $2,167,688,
a decrease of 13.8% over the $2,515,714 reported for the same year ended comparable period
in 2018. As at December 31, 2019, the Corporation has deferred commitment fee revenue of
$950,377 (December 31, 2018 – $795,485). The Corporation’s policy is to recognize commitment
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 7
8
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 and year ended December 31, 2019, other income was $215,079 and
$818,787 (December 31,2018 - $25,491 and $331,251), respectively. Other income was
unusually high as a result of the collection of one-off special income on certain of the Corporations
non-conventional investments.
CORPORATION MANAGER SPREAD INTEREST ALLOCATION
The Corporation Manager, through a spread interest arrangement, received for the three months
ended December 31, 2019, $819,988 (2018 – $993,850). For the year ended December 31,
2019, $3,685,593 (2018 – $3,932,134), was received. The decrease in the spread interest is
related to the decrease in the size of the Corporation’s average Investment Portfolio over the
comparable periods in 2018.
INTEREST EXPENSE
For the three months ended December 31, 2019, interest expense decreased by 24.5% to
$2,770,997 as compared to $3,672,297 for the three months ended December 31, 2018. For the
year ended December 31, 2019, interest expense decreased by 15.0% to $12,670,346 as
compared to $14,908,334 for the year ended December 31, 2018. The Corporation’s
indebtedness in 2019 was lower than in 2018, as result of two convertible debenture redemptions
totaling $40,458,000 and the lower average investment portfolio during the period which required
a smaller draw on the credit facility. This translated into lower interest expense.
Interest expense is broken down as follows:
Three Months Ended
Bank Interest (Earned) Expense
Loan Payable Interest Expense
Debenture Interest Expense
Year Ended
Bank Interest Expense
Loan Payable Interest Expense
Debenture Interest Expense
$
Dec. 31, 2019
(51,836)
167,598
2,655,235
2,770,997
$
$
Dec. 31, 2019
769,197
1,150,753
10,750,395
12,670,345
$
$
% Dec. 31, 2018
224,803
340,855
3,106,639
3,672,297
$
-2%
6%
96%
100%
$
% Dec. 31, 2018
1,541,320
6%
2,223,767
9%
11,143,247
85%
14,908,334
100%
$
% % Change
n/a
6%
(50.8%)
9%
(14.5%)
87%
(24.5% )
100%
%
10%
15%
75%
100%
%
(50.1%)
(48.3%)
(3.5%)
(15.0% )
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES
For the three months ended December 31, 2019, G&A expenses increased by $69,614 to
$379,139 compared to the $309,525 for the three months ended December 31, 2018. For the
year ended December 31, 2019, G&A expenses increased by $180,009 to $1,234,784 compared
to the $1,054,775 for the year ended December 31, 2018. During the fourth quarter of 2019, the
Corporation expensed enforcement costs (consisting of property tax and insurance) in the amount
of $152,291 relating to one of its defaulting mortgages. The property securing the mortgage was
sold in the first quarter of 2020 with no further costs paid.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 8
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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, 2019 was $391,656 (2018
– $455,497). For the year ended December 31, 2019, the provision for impairment was
$1,750,077 (2018 – $1,667,325). Further details are described in the Provision for Impairment
section.
NET INCOME AND COMPREHENSIVE INCOME
Net income and comprehensive income for the three months ended December 31, 2019 was
reported at $6,678,983 (2018 – $6,097,699), which represents an increase of 9.5%. Net income
and comprehensive income for the year ended December 31, 2019, was reported at $28,002,051
(2018 – $25,750,696), which represents an increase of 8.7%.
Income for the quarter ended December 31, 2019 represented an annualized return on
shareholders’ equity (based on the month end average shareholders’ equity in the quarter) of
8.51%. This return on shareholders’ equity represents 675 basis points per annum over the
average one-year Government of Canada Treasury bill yield of 1.76% 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, 2019 the
annual return on shareholders’ equity (based on the month end average shareholders’ equity
during the year) is 9.09%, and 733 basis points over the one-year Government of Canada
Treasury bill yield of 1.76%. 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.
EARNINGS PER SHARE
Basic weighted average earnings per share for the three months ended December 31, 2019, was
$0.237 (2018 – $0.233), an increase of 1.7% over the comparable quarter. Basic weighted
average earnings per share for the year ended December 31, 2019 was $1.008 (2018 – $0.986),
an increase of 2.2% over the comparable period.
Diluted weighted average earnings per share for the three months ended December 31, 2019,
was $0.209, (2018 – 0.231), a decrease of 9.5% over the comparable quarter. Diluted weighted
average earnings per share for the year ended December 31, 2019 was $0.953 (2018 – $0.963),
a decrease of 1.0% over the comparable period.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 9
10 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
QUARTERLY FINANCIAL INFORMATION
($ in millions except per unit amounts)
Operating revenue
Interest expense
Corporation manager spread interest allocation
General & administrative expenses
Impairment loss on investment portfolio
Income
Earnings per share
- Basic
- Diluted
Dividends per share
$
$
$
Dec. 31
2019
11.04
2.77
0.82
0.38
0.39
6.68
Sep. 30
2019
12.23
2.93
0.90
0.33
0.38
7.69
Jun. 30
2019
12.21
3.37
1.01
0.28
0.50
7.05
$
Mar. 31
2019
11.86
3.60
0.95
0.24
0.47
6.60
$
$
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
$
$
$
$
$0.237
$0.209
$0.304
$0.273
$0.260
$0.234
$0.251
$0.244
$0.234
$0.246
$0.241
$0.234
$0.233
$0.231
$0.284
$0.265
$0.253
$0.234
$0.241
$0.237
$0.234
$0.247
$0.241
$0.234
DIVIDENDS
For the three months and year ended December 31, 2019, the Corporation declared dividends on
the Shares totaling $8,587,699 and $28,002,051, respectively, or $0.304 and $1.006 per share
versus $7,432,171 and $25,750,696 respectively, or $0.284 and $0.986 per Share for the three
months and year ended December 31, 2018. The number of Shares outstanding at December
31, 2019 was 28,334,972, compared to 26,143,544 at December 31, 2018.
Year Ended
Cash Flows From Operating Activities
(net of cash interest paid)
Income
Declared Dividends
Excess Cash Flows From Operating Activities
Over Declared Dividends
Income Over Declared Dividends
Dec. 31, 2019
28,940,104
$
Dec. 31, 2018
27,335,015
$
Change
5.9%
$
$
28,002,051
28,002,051
$
$
27,750,696
25,750,696
0.9%
8.7%
$
$
-
938,053
$
$
-
1,584,319
CHANGES IN FINANCIAL POSITION
AMOUNTS RECEIVABLE & PREPAID EXPENSES
The amounts receivable and prepaid expenses of $4,099,876 as at December 31, 2019,
comprised of interest receivable (net of impairment provision) of $3,402,067, prepaid expenses
of $136,364, fees receivable of $532,769, and other income receivable of $28,676, compared to
$3,875,248 as at December 31, 2018.
MARKETABLE SECURITIES
The Corporation holds publicly traded units of a Canadian real estate investment trust. The units
were mostly acquired through the exercise of warrants that were granted by the issuer 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 $250,285 balance reported on the
Corporation’s balance sheet as at December 31, 2019 represents the fair value of the marketable
securities comprising the portfolio (December 31, 2018 – $199,204). The Corporation’s purchase
price for the units was $185,026. The approximate average interest yield on the cost of these
investments is 10.0% per annum.
BANK INDEBTEDNESS
As at December 31, 2019 and December 31, 2018, bank indebtedness was $20,336,957 and
$32,704,070, respectively.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 10
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
LOANS PAYABLE
First priority charges on specific mortgage investments have been granted as security for the
loans payable. These loans matured on dates consistent with those of the underlying mortgages,
which have been fully repaid during the third quarter of 2019. These loans were on a non-recourse
basis and bore interest at the weighted average effective rate of 6.10% at the time of repayment
(December 31, 2018 – 6.09%). The Corporation's principal balance outstanding under the
mortgages for which a first priority charge has been granted is $nil as at December 31, 2019
(December 31, 2018 - $18,672,754).
CONVERTIBLE DEBENTURES
As at December 31, 2019, the Corporation has six series of convertible debentures outstanding,
as outlined below:
Ticker
Symbol
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
5.30% 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
5.37%
Current
Principal
23,996,000
21,984,000
22,500,000
26,500,000
25,000,000
25,000,000
144,980,000
$
Strike Price
Per Share
13.95
14.00
15.25
15.25
15.00
14.60
Carrying
Value
23,539,994
21,339,774
21,647,210
25,490,648
23,808,324
23,335,542
139,161,491
$
As at December 31, 2019, the principal balance for the outstanding convertible debentures was
$144,980,000 (December 31, 2018 – $187,485,000). The recorded convertible debenture
carrying value as at December 31, 2019 was $139,161,491 (December 31, 2018 – $179,994,443).
The weighted average effective interest rate of the convertible debentures is 5.37% per annum
(December 31, 2018 – 5.29%).
On December 20, 2019, the Corporation completed the redemption of its 4.75% convertible
unsecured subordinated debenture, through a cash redemption of the aggregate principal amount
of $20,000,000 and all accrued interest to the time of redemption.
On March 29, 2019, the Corporation completed the redemption of its 5.25% convertible unsecured
subordinated debentures, through a cash redemption of the aggregate principal amount of
$20,485,000 and all accrued interest to the time of redemption.
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,
through 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 the issuance of $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 last day of June and December each year, commencing on December 31, 2018. The
debentures mature on January 31, 2026 and are convertible at the holder’s option into Shares at
a conversion price of $14.60.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 11
12 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
On June 21, 2018, the Corporation completed the issuance of $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
last 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 Shares 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, 2019
1,253,498
950,377
4,193,576
6,397,451
Dec. 31, 2018
2,018,504
1,179,220
3,346,374
6,544,098
% Change
(37.9%)
(19.4%)
25.3%
(2.2% )
$
$
Accounts payable and accrued liabilities decreased by 37.9% to $1,253,498 as at December 31,
2019, compared to $2,018,504 as at December 31, 2018. Accounts payable and accrued liabilities
include interest payable of $627,262 (December 31, 2018 – $1,379,501) and accrued liabilities of
$626,236 (December 31, 2018 – $639,003). Interest expense was lower during 2019, due to the
repayment of loans payable and lower draw on the credit facility.
Deferred revenue is comprised of commitment fees generated on the Corporation’s mortgage
investments and interest income received in advance. As at December 31, 2019, the portion
related to commitment fees was $950,377 (December 31, 2018 – $795,485) and the portion
related to interest income was $nil (December 31, 2018 – $383,735). The Corporation’s policy is
to recognize commitment fees over the term of the related loans. During the third quarter of 2019,
the Corporation recognized deferred interest income of $383,735 (2018 – $nil), upon the receipt
of a payment related to an investment that had both a conventional and a non-conventional facility.
SHAREHOLDERS’ EQUITY
Shareholders’ equity at December 31, 2019 totaled $313,899,405 compared to $286,107,978 as
at December 31, 2018. The Corporation had 28,334,972 Shares issued and outstanding as at
December 31, 2019 compared to 26,143,544 Shares as at December 31, 2018. The increase in
Shares is attributable to the equity offering completed in the first quarter of 2019, a private
placement completed in the second quarter of 2019, a small number of Shares issued under the
DRIP and the stock option plan and the conversions of debentures to Shares in the fourth quarter
of 2019.
During 2019, $2,020,000 in debentures were converted into 144,539 common shares.
On May 15, 2019, the Corporation completed a private placement of 209,630 Shares at a price of
$13.20 per Share for gross proceeds of $2,767,116.
On March 1, 2019, the Corporation completed an equity offering of 1,520,000 Shares at a price
of $13.20 per Share for gross proceeds of $20,064,000. The over-allotment option was exercised
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 12
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 number of Shares issued was 1,748,000.
PROVISION FOR IMPAIRMENT
Investments consist primary 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 Corporation
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 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 losses is as follows:
Conventional First Mortgages
Conventional Non-First Mortgages
Related Investments
Discounted Debt Investments
Non-Conventional Mortgages
Total Specific Provision
IFRS 9 Collective Provision
Total Provision
December 31, 2019
4,819,000
46,000
-
-
219,000
5,084,000
396,000
5,480,000
December 31, 2018
3,293,000
-
-
860,000
112,000
4,265,000
685,000
4,950,000
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 13
14 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents the changes to the provision for credit losses on loans as at
December 31, 2019:
Stage 1 Stage 2
685,000
(289,000)
The changes to the allowance
Balance at January 1, 2019
Provision for credit losses
Allocation of credit losses to interest receivable
Transfer to (from):
Non-Conventional Mortgages
Stage 1
Stage 2
Stage 3
-
-
-
-
-
-
Balance at December 31, 2019
396,000
Stage 3
4,265,000
2,039,077
Total
4,950,000
1,750,077
-
-
-
-
-
-
-
-
-
-
(1,220,077)
5,084,000
(1,220,077)
5,480,000
-
-
-
-
-
-
-
-
-
The loans comprising the Investment Portfolio are stated at amortized cost and FVTPL. The
provision for impairment is $5,480,000 as at December 31, 2019, of which $5,084,000 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, 2019, the Corporation
carries a collective impairment provision of $396,000 (December 31, 2018 – $685,000).
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 14
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15
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
High to Default
Stage 1
Low
Low to Medium
Medium
Medium to High
High
Stage 2
Low to Medium
Medium
Medium to High
High to Default
Stage 3
Medium
Medium to High
High to Default
Total
Impairment provision
Carrying amount
Borrower
Quality
Certainty of
Repayment
Property
Location
Strong
Medium\Strong
Medium
Weak\Medium
Weak
Very Weak
Strong
High
High\Moderate Medium\Strong
Moderate
Low\Moderate Weak\Medium
Low
Very Low
Weak
Weak
Medium
Loan to
Value
Low
Low\Medium
Medium
Medium\High
High
High
Conventional Conventional
non-first
first
mortgages
Non-
Related Discounted conventional
Debt mortgages
mortgages Investments
$
6,602,518
62,707,385
170,039,864
17,644,631
630,000
2,320,000
11,200,720
4,000,000
-
22,250,728
19,166,451
18,296,717
334,859,014
5,215,000
329,644,014
$
$
$
2,374,409
16,752,232
19,316,251
895,000
-
-
3,000,000
-
-
-
-
-
$
$
42,337,892
46,000
42,291,892
$
-
$
-
21,527,244
38,953,840
-
-
-
-
-
-
-
-
-
165,150
-
-
-
-
-
-
5,213,000
-
-
-
$
60,481,084
$
5,378,150
-
-
$
60,481,084
$
5,378,150
-
$
-
1,950,000
868,000
-
-
-
-
-
-
-
-
$
$
2,818,000
219,000
2,599,000
Total
$
8,976,927
101,152,011
230,259,955
19,407,631
630,000
-
-
2,320,000
14,200,720
4,000,000
5,213,000
-
-
22,250,728
19,166,451
18,296,717
445,874,140
5,480,000
440,394,140
$
$
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, 2019, this amount was
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 15
16 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
$819,988 (2018 - $993,850). For the year ended December 31, 2019, the amount was
$3,685,593 (2018 - $3,932,134). Included in accounts payable and accrued liabilities at
December 31, 2019 are amounts payable to the Corporation's Manager of $275,964 (December
31, 2018 - $314,105).
For the three months ended December 31, 2019 the director’s fee expense were $76,750 (2018
– $91,000). For the year ended December 31,2019 the total directors' fee expenses were
$307,000 (2018 - $304,000). Certain key management personnel are also directors of the
Corporation and receive compensation from the Corporation's Manager. The Directors and
Officers held 542,587 Shares in the Corporation as at December 31, 2019 (December 31, 2018 -
492,837).
During 2019, the Corporation did not grant any options (2018 – nil) under its stock options plan.
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 $109,332 for the three months ended
December 31, 2019 (2018 - $129,000) and approximately $491,000 for the year ended December
31, 2019 (2018 - $524,000). 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 Spread Interest Agreement and Mortgage Banking Agreement contain,
respectively, 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 that were
issued to a borrower controlled by an independent director of the Corporation were fully repaid.
The Corporation holds a mortgage investment totaling $5,213,000 at December 31, 2019
(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, 2018 -
$5,148,000). The Corporation’s investment is by way of a participation in a mortgage loan to the
entity that took title to the real estate following the completion of the enforcement foreclosure that
occurred after the purchase of the underlying Schedule 1 bank mortgage. The Corporation is a
pari passu participant in the mortgage, having the same rights as all other participants in the loan.
The entity that holds title to the real estate as agent is related to the other participants in the
mortgage loan investment, including entities related to certain directors of the Corporation, and
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 16
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17
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
for this reason, the borrower is classified as a related party. For the three months and year ended
December 31, 2019, the Corporation recognized interest and fees earned of $nil (2018 - $nil) from
this investment. The impairment provision recorded on this loan was reduced to $nil as at
December 31, 2019.
Aggregate compensation paid to key management personnel (including payments to related
parties for recovery of costs), all consisted of short-term employee compensation of $497,442 for
the three months ended December 31, 2019 (2018 - $548,799) and for the year ended December
31, 2019 was $2,122,507 (2018 - $2,196,744), 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 consolidated 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
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.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 17
18 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
consist 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 Corporation 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.
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 the 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The fair value of marketable securities has been determined based on the closing price of the
security of the respective entity listed on the Toronto Stock Exchange for the respective date.
The tables in note 16 of the accompanying consolidated financial statements present the fair
values of the Corporation's financial instruments as at December 31, 2019 and December 31,
2018. They do 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, 2019 are due as follows:
Total
Less than 1
year
Bank indebtedness
Accounts payable and accrued liabilities
Shareholder dividends payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
$
20,336,957
1,253,498
4,193,576
144,980,000
170,764,031
107,961,384
278,725,415
$
$
$
20,336,957
1,253,498
4,193,576
-
25,784,031
107,961,384
133,745,415
$
$
1-3 years
-
$
-
-
45,980,000
45,980,000
-
45,980,000
$
$
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 and year ended December 31, 2019 and 2018.
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, 2019, 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 $108 million as at December 31, 2019 (December 31, 2018 - $89 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.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 19
20 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 the investments that the Corporation
makes. During the fiscal year of 2019, 79 investment approvals were sent to the Board of
Directors (2018 – 170) for approval. Under the investment guidelines, investment amounts
between $1 million to $2 million, require one Independent Director’s approval, and investments
with total investment amounts over $2 million, require no less than three Independent Director’s
approvals.
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.
COVID-19 outbreak was declared by the World Health Organization. The situation is dynamic with
various cities and countries around the world responding in different ways to address the outbreak.
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.
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
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 20
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21
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
the Canadian Income Tax Act (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.
Investment portfolio size. The investment portfolio size (and income generated thereon) can fluctuate
and will decrease when repayments exceed new advances. 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. Repayments of investments can be
significant given the open prepayment provision associated with most investments.
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.
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.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 21
22 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS
Management is responsible for the information disclosed in this MD&A, and has in place the
appropriate information systems, procedures, and controls to ensure that the information used
internally by management and disclosed externally is complete, reliable, and timely. In addition,
the Corporation’s Audit Committee and Board of Directors provide an oversight role with respect
to all public financial disclosures by the Corporation and have reviewed and approved this MD&A
as well as the audited consolidated financial statements as at December 31, 2019 and 2018.
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, 2018 and December 31, 2019 and have
concluded that such disclosure controls and procedures were appropriately designed and were
operating effectively.
The Corporation has also established adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of the Corporation’s financial reporting and the
preparation of the financial statements for external purposes in accordance with IFRS for periods
effective January 1, 2010. The Corporation’s Chief Executive Officer and the Chief Financial
Officer assessed, or caused an assessment under their direct supervision, of the design and
operating effectiveness of the Corporation’s internal controls over financial reporting (as defined
in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings)
as at December 31, 2019. 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, 2019 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.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 22
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Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 2019
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 above in this
MD&A under Risks and Uncertainties, which could cause our actual results to differ materially
from the forward-looking statements contained in this MD&A. Those risks and uncertainties
include risks associated with mortgage lending, competition for mortgage lending, real estate
values, interest rate fluctuations, environmental matters, and shareholder liability. Material factors
or assumptions that were applied in drawing a conclusion or making an estimate set out in the
forward-looking information include the assumption that there is not a significant decline in the
value of the general real estate market; market interest rates remain relatively stable; the
Corporation is generally able to sustain the size of its Investment Portfolio; adequate investment
opportunities are presented to the Corporation; and adequate bank indebtedness are available to
the Corporation. Although the forward-looking information contained in this MD&A is based upon
what management believes are reasonable assumptions, there can be no assurance that actual
results will be consistent with these forward-looking statements.
All forward-looking statements in this MD&A are qualified by these cautionary statements. Except
as required by applicable law, the Corporation undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of new information, future events, or
otherwise.
OUTLOOK
The Corporation’s investment portfolio has continued to revolve with the significant investment
repayments exceeding new investing in 2019. We are reinvesting the repaid funds selectively,
keeping in mind the high values in various real estate sectors and the significant increases in
values. We expect that this trend could continue through the first part of 2020. The Mortgage
Banker continues to reject a significant number of potential investments as a result of not meeting
its investment criteria and risk tolerance.
SUBSEQUENT EVENT
Subsequent to year end, the COVID-19 pandemic is causing significant financial market and
social dislocation. The situation is dynamic with various cities and countries around the world
responding in different ways to address the outbreak. The Corporation continues to monitor the
investment portfolio and assess the impact COVID-19 will have on its business activities. The
extent of the effect of the COVID-19 pandemic on the Corporation is uncertain.
Firm Capital Mortgage Investment Corporation • 2019 • Fourth Quarter Page 23
24 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
MANAGEMENT’S RESPONSIBILTY FOR FINANCIAL REPORTING
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
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ELI DADOUCH
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(cid:3)
President
(cid:3)
(cid:3)
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Chief Executive Officer
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(cid:3)
(cid:3)
(cid:3)
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BORIS BARIL
Chief Financial Officer
Building Relationships
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today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
25
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, 2019 and 2018
the consolidated statements of income and 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, 2019 and 2018, 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 “2019 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 ● 2019 ● 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 “2019 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 .
•
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
27
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
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
Evaluate
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
presentation .
Evaluate the overall presentation, structure and content of the financial statements, including the
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 entities or business activities within the group to express an opinion on the
financial statements . We are responsible for the direction, supervision and
the direction, supervision and performance of the group audit . We remain solely responsible for our
performance of the group audit . We remain solely responsible for our audit
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 18, 2020
28 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Balance Sheets
Consolidated Balance Sheets
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
As at
December 31, 2019
December 31, 2018
Assets
$
Amounts receivable and prepaid expenses (note 4)
Marketable securities (note 5)
Investment portfolio (note 6)
Total assets
$
4,099,876
250,285
475,445,143
479,795,304
3,875,248
199,204
515,994,509
520,068,961
$
$
Liabilities
Liabilities
Credit facility and bank indebtedness (note 7)
Accounts payable and accrued liabilities
Deferred revenue
Shareholders' dividends payable
Loans payable (note 8)
Convertible debentures (note 9)
Total liabilities
$
Credit facility and bank indebtedness (note 7)
20,336,957
$
Accounts payable and accrued liabilities
1,253,498
Deferred revenue
950,377
Shareholders' dividends payable
4,193,576
Loans payable (note 8)
--
Convertible debentures (note 9)
139,161,491
Total liabilities
$
165,895,899
32,704,070
2,018,504
1,179,220
3,346,374
14,718,382
179,994,433
233,960,983
$
Shareholders' Equity
Shareholders' Equity
Common shares (note 10)
Equity component of convertible debentures
Stock options (note 10)
Contributed surplus
Deficit
Total shareholders' equity
Commitments (note 6)
Contingent liabilities (note 15)
Total liabilities and shareholders' equity
$
$
Common shares (note 10)
310,158,598
2,111,650
Equity component of convertible debentures
87,186
Stock options (note 10)
1,828,626
Contributed surplus
(286,655)
Deficit
Total shareholders' equity
$
313,899,405
282,362,724
3,254,000
91,633
686,276
(286,655)
286,107,978
$
Commitments (note 6)
Contingent liabilities (note 15)
Total liabilities and shareholders' equity
$
479,795,304
$
520,068,961
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
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
29
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Income and Comprehensive Income
Years ended December 31, 2019 and 2018
(in Canadian dollars)
Revenues
Interest and fees income
Other income
Operating expenses
Corporation manager spread interest allocation (note 13)
Interest expense (note 14)
General and administrative expenses
Provision for impairment on investment portfolio and interest receivable (note 4 and 6)
Income and comprehensive income for the year
Earnings per share (note 11)
Basic
Diluted
See accompanying notes to consolidated financial statements.
Nine Months Ended
2019
2018
$
46,524,064
818,787
47,342,851
$
46,982,013
331,251
47,313,264
3,685,593
12,670,346
1,234,784
1,750,077
19,340,800
$
3,932,134
14,908,334
1,054,775
1,667,325
21,562,568
$
$
28,002,051
$
25,750,696
$1.008
$0.954
$0.986
$0.963
3
30 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 2019 and 2018
(in Canadian dollars)
Equity
component of
convertible
debentures
Common shares
Stock options
Contributed
surplus
Surplus
(Deficit)
Accumulated other
comprehensive
income
Balance at January 1, 2019
Issuance of shares
Offering costs
Proceeds from issuance of shares from dividend reinvestment
Conversion and redemption of debentures
Exercise of stock options (note 10 (b))
Income and comprehensive income for the year
Dividends to shareholders (note 12)
Balance at December 31, 2019
$
$
$
$
282,362,724
25,840,712
(1,215,762)
601,652
2,020,000
549,272
-
-
310,158,598
3,254,000
-
-
-
(1,142,350)
-
-
-
2,111,650
91,633
-
-
-
-
(4,447)
-
-
87,186
686,276
-
-
-
1,142,350
-
-
-
1,828,626
($286,655)
-
-
-
-
-
28,002,051
(28,002,051)
(286,655)
$
-
-
-
-
-
-
-
-
-
$
$
$
$
Shareholders'
equity
$286,107,978
25,840,712
(1,215,762)
601,652
2,020,000
544,825
28,002,051
(28,002,051)
313,899,405
$
Shares issued and outstanding (note 10)
28,334,972
Equity
component of
convertible
debentures
Common shares
Stock options
Contributed
surplus
Surplus
(Deficit)
Accumulated other
comprehensive
income (loss)
Shareholders'
equity
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)
Exercise of stock options (note 10 (b))
Income and comprehensive income for the year
Dividends to shareholders (note 12)
Balance at December 31, 2018
$
$
$
$
281,377,245
735,818
(35,382)
47,520
-
-
237,523
-
-
282,362,724
2,780,000
-
-
-
(610,000)
1,084,000
-
-
-
3,254,000
93,556
-
-
-
-
-
(1,923)
-
-
91,633
76,276
-
-
-
610,000
-
-
-
-
686,276
($286,655)
-
-
-
-
-
-
25,750,696
(25,750,696)
(286,655)
-
-
-
-
-
-
-
-
-
-
$
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
See accompanying notes to consolidated financial statements.
4
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
31
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 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
Share-based compensation
Unrealized (gain)/loss on marketable securities investments (note 5)
Net change in non-cash operating items:
Accrued interest payable
Receivables 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
Repayment of loans payable (net)
Cash interest paid (note 14)
Dividends to shareholders paid during the year (note 12)
Net cash flow from (used in) financing activities
Investing activities:
Purchase of marketable securities
Funding of investment portfolio
Discharging of investment portfolio
Net cash flow from (used in) investing activities
Net increase in cash flow for the year
Cash and cash equivalents (bank indebtedness), beginning of year
Cash and cash equivalents (bank indebtedness), end of year
2019
2018
$
28,002,051
$
25,750,696
10,998,289
13,187,646
400,837
1,271,220
1,750,077
(4,447)
(41,080)
437,426
1,283,262
1,667,325
(1,923)
10,990
707,946
(1,444,705)
(765,006)
(228,843)
40,646,339
$
485,960
(1,066,371)
(631,054)
(115,336)
41,008,621
$
25,840,712
601,652
549,272
--
(40,485,000)
--
(1,215,762)
(14,718,382)
(11,706,235)
(27,154,849)
(68,288,592)
$
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)
$
(10,001)
(260,232,222)
300,251,589
40,009,366
$
--
(287,000,225)
327,557,693
40,557,468
$
$
12,367,113
(32,704,070)
(20,336,957)
$
$
$
27,564,398
(60,268,468)
(32,704,070)
Cash flows from operating activities include:
Interest received
$
43,206,263
$
43,283,752
Supplementary cash flow information :
Conversions of debenture to shares (note 9)
See accompanying notes to consolidated financial statements.
5
32 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(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 Canada 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 18, 2020.
(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:
6
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
33
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(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:
Level 2:
Level 3:
Quoted prices (unadjusted) in active markets for identical assets or liabilities
Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities,
either directly (that is, as prices) or indirectly (that is, derived from prices)
Inputs for the assets or liabilities that are not based on observable market data (that is, unobservable
inputs)
The Corporation reviews significant unobservable inputs and valuation adjustments.
If third party information, such as broker quotes
or appraisals are used to measure fair values, the Corporation will assess the evidence obtained from the third parties to support the
conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations
should be classified.
The information about the assumptions made in measuring fair value is included in note 16.
3.
Significant accounting policies:
The Corporation's accounting policies and its standards of financial disclosure set out below are in accordance with IFRS.
(a)
Financial instruments
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.
7
34 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(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:
(i)
How the performance of assets in a portfolio is evaluated and reported;
(ii)
(iii)
The risks that affect the performance of assets held within a business model and how those risks are managed; and
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
they represent cash flows that are solely payments of principal and interest on the principal amount
outstanding (SPPI).
if
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.
8
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
35
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(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
Income. The
accumulated provision recognized in OCI is recycled to the Consolidated Statement of Income upon derecognition of the debt
instrument.
in the Consolidated Statement of
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
9
36 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
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.
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.
10
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
37
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
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.
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.
the basis for calculating the quantitative portion of the collective provision for performing loans:
Internal risk rating parameters form
(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.
(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.
11
38 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
(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 classifies 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.
The Corporation classifies its financial assets and liabilities as follows:
Assets
Amounts receivable and prepaid expenses
Marketable securities
Investment portfolio
Investment portfolio
Liabilities
Credit facility and bank indebtedness
Accounts payable and accrued liabilities
Deferred revenue
Shareholders' distributions payable
Loans payable
Convertible debentures
Classification
Amortized cost
FVTPL
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
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.
Investment portfolio assets classified at FVTPL are subsequently measured at FV using level 3 inputs.
Marketable securities 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.
12
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
39
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
(f)
Derecognition of financial assets and liabilities:
Financial assets:
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expires, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership
of the financial asset are transferred, or in which the Corporation neither transfers nor retains substantially all the risks and rewards of
ownership and it does not retain control of the financial asset. Any interest in such transferred financial assets that qualify for
derecognition that is created or retained by the Corporation is recognized as a separate asset or liability. On derecognition of a
financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset
transferred), and the sum of (a) the consideration received (including any new asset obtained less any new liability assumed) and (b)
any cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.
The Corporation enters into transactions whereby it transfers mortgage or loan investments recognized on its statements of financial
position, but retains either all or substantially all of the risks and rewards of the transferred mortgage or loan investments.
If all or
substantially all risks and rewards are retained, then the transferred mortgage or loan investments are not derecognized.
In transactions in which the Corporation neither retains nor transfers substantially all the risks and rewards of ownership of a financial
asset and it retains control over the asset, the Corporation continues to recognize the asset to the extent of its continuing involvement,
determined by the extent to which it is exposed to changes in the value of the transferred asset.
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
instrument is measured at amortized cost using the effective interest method. The equity
component of a compound financial
Interest, dividends, losses and
component of a compound financial instrument is not re-measured subsequent to initial recognition.
gains relating to the financial liability are recognized in profit or loss.
(h)
Share capital:
Common shares are classified as equity.
deduction from equity. Dividends to shareholders are recognized in shareholders' equity.
Incremental costs directly attributable to the issue of common shares are recognized as a
(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.
13
40 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
(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)
Future changes in accounting policies
Amendments to References to the Conceptual Framework in IFRS Standards
On March 29, 2018 the IASB issued a revised version of its Conceptual Framework for Financial Reporting (the Framework), that
underpins IFRS Standards. The IASB also issued Amendments to References to the Conceptual Framework in IFRS Standards to
update references in IFRS Standards to previous versions of the Conceptual Framework. Both documents are effective from January
1, 2020 with earlier application permitted.
The Corporation will adopt the amendments in its financial statements for the annual period beginning on January 1, 2020. The
Corporation does not expect the amendments to have a material impact on the financial statements.
Definition of Material (Amendments to IAS 1 and IAS 8)
On October 31, 2018, the IASB refined its definition of material and removed the definition of material omission or misstatements from
IAS 8. The amendments are effective for annual periods beginning on or after January 1, 2020. Early adoption is permitted.
The definition of material has been aligned across IFRS Standards and the Framework. The amendments provide a definition and
explanatory paragraphs in one place.
Pursuant to the amendments, information is material if omitting, misstating or obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which
provide financial information about a specific reporting entity.
The Corporation will adopt the amendments to IAS 1 and IAS 8 in its financial statements for the annual period beginning on January
1, 2020. The Corporation does not expect the amendments to have a material impact on the financial statements.
14
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
41
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
4.
Amounts receivable and prepaid expenses:
The following is a breakdown of amounts receivable and prepaid expenses as at December 31, 2019 and December 31, 2018:
Interest receivable, net of impairment provision
Prepaid expenses
Fees receivable
Special profit income receivable
Amounts receivable and prepaid expenses
$
December 31, 2019
3,402,067
136,364
532,769
28,676
4,099,876
$
$
December 31, 2018
3,472,030
128,701
254,881
19,636
3,875,248
$
Interest receivable is net of the impairment provision of $1,220,077 (December 31, 2018 - $2,417,325); see note 6. The prior year's
balances for interest receivable and impairment provision of $2,178,639 was written off during the year. The Corporation will continue
to seek recovery on amounts that were written off during the year, unless we no longer have the right to collect or we have exhausted
all reasonable efforts to collect.
5.
Marketable securities:
The Corporation holds units in publicly traded real estate investment trusts, which are classified as FVTPL. The fair value of the units
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 securities at December 31, 2019 is $250,285 (December 31, 2018 -
$199,204). For the year ended December 31, 2019, the Corporation recorded an unrealized gain of $41,080 (2018 - an unrealized
loss of $10,990).
6.
Investment portfolio:
The following is a breakdown of the investment portfolio as at December 31, 2019 and December 31, 2018:
December 31, 2019
December 31, 2018
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
$
334,859,014
42,337,892
60,481,084
5,378,150
2,818,000
445,874,140
(5,480,000)
440,394,140
35,051,003
35,051,003
475,445,143
$
$
$
456,283,649
19,161,494
475,445,143
69.6%
8.8%
12.6%
1.2%
0.6%
92.8%
7.2%
100%
96.0%
4.0%
100%
$
$
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%
Included in conventional
$2,435,491 (US$1,875,186) (December 31, 2018 - $5,709,177 (US$4,185,000)).
first mortgages are two United States ("US") dollar denominated investments (at amortized cost) of
Included in related investments (classified at FVTPL) are four US dollar denominated investments of $16,726,003 (US$12,878,043),
(December 31, 2018 - two US dollar denominated investments of $5,376,199 (US$3,940,917)). These investments are a participation
by the Corporation in limited partnerships that have provided equity to real estate entities in the US.
15
42 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
For the three ended December 31, 2019, income recorded on the US investments (at amortized cost and FVTPL) was $455,904
(US$345,088), (2018 - $182,737 (US$137,793). For the year ended December 31, 2019, income recorded on the US investments
was $1,274,748 (US$962,317), (2018 - $730,663 (US$562,948)). These amounts are included in interest and fees income.
Related investments (classified as FVTPL) also includes two Canadian investments (December 31, 2018 - two investments) of
$18,325,000 (December 31, 2018 - $10,860,000).
As at December 31, 2019, there were no mortgages with first priority syndicate participants. As at December 31, 2018, $18,672,764
of the mortgages within the conventional first mortgage portfolio had first priority syndicate participations totaling $14,718,382, which
were recorded on the Corporation's balance sheets as loans payable (see note 8). These mortgage investments were fully repaid
during the year.
first mortgages are loans secured by a first priority mortgage charge with loan to values not exceeding 75%.
Conventional
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 following is a breakdown of the investment portfolio as at December 31, 2019:
December 31, 2019
Conventional first mortgages
Conventional non-first mortgages
Related investments
Discounted debt investments
Non-conventional mortgages
Total investment portfolio
Gross carrying
amount
$
Provision for
impairment
$
Net carrying
amount
$
334,859,014
42,337,892
95,532,087
5,378,150
2,818,000
480,925,143
5,215,000
46,000
-
-
219,000
5,480,000
329,644,014
42,291,892
95,532,087
5,378,150
2,599,000
475,445,143
$
$
$
Included in the total provision for impairment of $5,480,000 is a collective allowance of $396,000.
The following is a breakdown of the investment portfolio as at December 31, 2018:
December 31, 2018
Conventional first mortgages
Conventional non-first mortgages
Related investments
Discounted debt investments
Non-conventional mortgages
Total
Gross carrying
amount
$
Provision for
impairment
$
Net carrying
amount
$
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
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.
16
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
43
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
The following is a breakdown of the provision for impairment credit losses of the investment portfolio as at December 31, 2019:
December 31, 2019
Conventional first mortgages
Conventional non-first mortgages
Related investments
Discounted debt investments
Non-conventional mortgages
Total investment portfolio
By geography:
Canada
United States
Total
Gross impaired
loans
$
Provision for
impairment
$
Net
$
58,723,081
1,181,000
-
-
1,950,000
61,854,081
5,215,000
46,000
-
-
219,000
5,480,000
53,508,081
1,135,000
-
-
1,731,000
56,374,081
$
$
$
$
$
61,854,081
-
61,854,081
$
$
5,480,000
-
5,480,000
$
$
56,374,081
-
56,374,081
The following is a breakdown of the provision for impairment credit losses of the investment portfolio as at December 31, 2018:
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
Gross carrying
amount
$
Provision for
impairment
$
Net carrying
amount
$
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
The following table presents the staging of gross investments at amortized cost as at December 31, 2019:
Gross investments at amortized cost
As at December 31, 2019
Conventional first mortgages
Conventional non-first mortgages
Related investments
Discounted debt investments
Non-conventional mortgages
Total
By geography:
Canada
United States
Total
$
$
$
$
Stage 1
257,624,398
39,337,892
60,481,084
165,150
2,818,000
360,426,525
Stage 2
17,520,720
3,000,000
-
5,213,000
-
25,733,720
Stage 3
59,713,896
-
-
-
-
59,713,896
Total
334,859,014
42,337,892
60,481,084
5,378,150
2,818,000
445,874,140
$
$
$
$
$
$
357,991,034
2,435,491
360,426,525
$
$
25,733,720
-
25,733,720
$
$
59,713,896
-
59,713,896
$
$
443,438,650
2,435,491
445,874,140
17
44 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
The following table presents the staging of 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 investments as at December 31, 2019:
Provision for impairment of credit losses on loans
As at December 31, 2019
Conventional first mortgages
Conventional non-first mortgages
Related investments
Discounted debt investments
Non-conventional mortgages
Total
By geography:
Canada
United States
Total
$
$
$
Stage 1
131,000
46,000
-
-
219,000
396,000
Stage 2
-
$
-
-
-
-
$
-
-
$
-
$
-
$
$
396,000
-
396,000
Stage 3
5,084,000
-
-
-
-
5,084,000
Total
5,215,000
46,000
-
-
219,000
5,480,000
$
$
5,084,000
-
5,084,000
$
$
5,480,000
-
5,480,000
$
$
$
The following table presents the provision for credit losses on investments 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
$
$
$
18
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
45
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
The following table presents the changes to the provision for credit losses on investments as at December 31, 2019:
The changes to the provision
Balance at January 1, 2019
Provision for (recovery of) credit losses
Transfer to (from):
Stage 1
Stage 2
Stage 3
Balance at December 31, 2019
$
Stage 1
685,000
(289,000)
Stage 2
-
$
-
$
Stage 3
4,265,000
2,039,077
$
Total
4,950,000
1,750,077
-
-
-
396,000
$
-
-
-
$
-
-
-
(1,220,077)
5,084,000
$
-
-
(1,220,077)
5,480,000
$
The loans comprising the investment portfolio are stated at amortized cost and FVTPL. As at December 31, 2019 the provison for
impairment is $5,480,000, (2018 - $4,950,000) of which $5,084,000 (2018 - 4,625,000) 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, 2019, the Corporation carries a collective allowance of $396,000
(2018 - $685,000).
19
46 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
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
High to Default
Borrower
Quality
Strong
Medium\Strong
Medium
Weak\Medium
Weak
Very Weak
Certainty of
Repayment
Property
Location
Strong
High
High\Moderate Medium\Strong
Moderate
Low\Moderate Weak\Medium
Low
Very Low
Weak
Weak
Medium
Loan to
Value
Low
Low\Medium
Medium
Medium\High
High
High
Total
$
8,976,927
101,152,011
230,259,955
19,407,631
630,000
-
-
2,320,000
14,200,720
4,000,000
5,213,000
-
-
22,250,728
19,166,451
18,296,717
445,874,140
5,480,000
440,394,140
$
$
Conventional Conventional
non-first
first
mortgages
Non-
Related Discounted conventional
Debt mortgages
mortgages Investments
-
$
-
1,950,000
868,000
-
-
-
-
-
-
-
-
$
$
2,818,000
219,000
2,599,000
Stage 1
Low
Low to Medium
Medium
Medium to High
High
Stage 2
Low to Medium
Medium
Medium to High
High to Default
Stage 3
Medium
Medium to High
High to Default
Total
Impairment provision
Carrying amount
$
6,602,518
62,707,385
170,039,864
17,644,631
630,000
2,320,000
11,200,720
4,000,000
-
22,250,728
19,166,451
18,296,717
334,859,014
5,215,000
329,644,014
$
$
$
2,374,409
16,752,232
19,316,251
895,000
-
-
3,000,000
-
-
-
-
-
$
$
42,337,892
46,000
42,291,892
$
-
$
-
21,527,244
38,953,840
-
-
-
-
-
-
-
-
-
165,150
-
-
-
-
-
-
5,213,000
-
-
-
$
60,481,084
$
5,378,150
-
-
$
60,481,084
$
5,378,150
20
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
47
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
The loans comprising the Investment portfolio bear interest at the weighted average rate of 8.49% per annum (December 31, 2018 -
8.58% per annum) and mature between 2020 and 2024.
The unadvanced funds under
$107,961,384 as at December 31, 2019 (December 31, 2018 - $89,188,507).
the existing investment portfolio (which are commitments of
the Corporation) amounted to
Principal repayments based on contractual maturity dates as at December 31, 2019, are as follows:
2020
2021
2022
2023
Thereafter
$
$
365,727,134
98,279,848
13,688,686
-
3,229,475
480,925,143
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 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
interests and the related interest expense is
payable (note 8). Any gross interest and fees earned on the priority participants'
recognized in income and profit.
As at December 31, 2019, the carrying value of the priority participants' interests in the Corporation's investment portfolio and loans
payable was $nil (December 31, 2018 - $14,718,382).
The Investment Portfolio as at December 31, 2019 had six investments with balances totaling $12,903,309 (December 31, 2018 – two
investments with balances totaling $1,474,000) with contractual interest arrears greater than 60 days past due and were not brought
current at year end, amounting to $666,620 (December 31, 2018 – $48,727), for which management has determined that no provision
for impairment is required (December 31, 2018 – $nil). Subsequent to year end, two of the six investments was paid out reducing the
balance by $2,242,562.
The investment portfolio as at December 31, 2019 includes eleven investments totaling $23,762,718 (December 31, 2018 - thirteen
investments totaling $19,735,486) with maturity dates that are past due and for which no extension or renewal was in place. Three of
the eleven investments were paid out after December 31, 2019, reducing the balance by $3,107,050. Three investments totaling
$13,034,106 (December 31, 2018 - four investments totaling $10,629,767) 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, totaling $7,621,561 (December 31, 2018 - five investments totaling $5,028,925) have been
determined to not require a provision.
As at December 31, 2019, 165 of the Corporations’ 196 investments (investment amount of $440,819,005) 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 pari passu with other members of the
syndicate as to receipt of principal, interest and fees.
21
48 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
7.
Credit facility and bank indebtedness
The Corporation has entered into credit arrangements of which $20,336,957 has been drawn as at December 31, 2019 (December
31, 2018 - $32,704,070).
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 facility, a component of which is a demand facility and a component of which had a committed term
extended to September 30, 2020 (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, 2019 and December 31,
2018, 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. These loans matured on
dates consistent with those of the underlying mortgages, which have been fully repaid during the third quarter of 2019. These loans
were on a non-recourse basis and bore interest at the weighted average effective rate of 6.10% at the time of repayment (December
31, 2018 – 6.09%). The Corporation's loans payable balance is $nil (2018 - $14,718,382) and the principal balance outstanding under
the mortgages for which a first priority charge has been granted is $nil as at December 31, 2019 (December 31, 2018 - $18,672,754).
The loans were repayable at the earlier of the contractual expiry date of the underlying mortgage investments and the date the
underlying mortgage was repaid.
9.
Convertible debentures:
Carrying value, beginning of the year
Issued
Conversions of debentures to shares
Repayments upon maturity
Implicit interest rate in excess of coupon rate
Deferred finance cost
Carrying value, end of the year
Year Ended
December 31, 2019
179,994,433
$
-
(2,020,000)
(40,485,000)
400,837
1,271,220
139,161,491
$
$
Year Ended
December 31, 2018
157,464,906
46,546,839
-
(25,738,000)
437,426
1,283,262
179,994,433
$
$
-
The continuity of the convertible debentures for the year ended December 31, 2019:
Convertible
debenture
5.25%
4.75%
5.30%
5.50%
5.20%
5.30%
5.40%
5.50%
Total
Balance,
beginning of year
20,422,154
19,734,544
24,329,835
22,105,324
21,440,326
25,279,056
23,599,710
23,083,484
Issued
-
$
-
-
-
-
-
Conversions
-
$
-
(1,004,000)
(1,016,000)
-
-
-
Implicit interest
rate in excess of
coupon rate
29,668
88,302
25,260
61,005
42,260
26,697
39,939
87,706
Deferred
finance cost
amortization
33,177
177,153
188,899
189,445
164,624
184,895
168,675
164,352
Repayments upon
Redemption
$
(20,485,000)
(20,000,000)
Balance,
end of year
-
$
-
-
-
-
-
-
-
23,539,994
21,339,774
21,647,210
25,490,648
23,808,324
23,335,542
Maturity date
Mar 31, 2019
Mar 31, 2020
May 31, 2022
Dec 31, 2022
Dec 31, 2023
Aug 31, 2024
Jun 30, 2025
Jan 31, 2026
$
179,994,433
$
-
(2,020,000)
$
400,837
$
1,271,220
$
(40,485,000)
$
139,161,491
As at December 31, 2019, debentures payable bear interest at the weighted average effective rate of 5.37% per annum (December
31, 2018 - 5.29% per annum). Notwithstanding the carrying value of the convertible debentures, the principal balance outstanding to
the debenture holders is $144,980,000 as at December 31, 2019 (December 31, 2018 - $187,485,000).
22
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Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
49
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
On December 20, 2019, the Corporation completed the redemption of its 4.75% convertible unsecured subordinated debentures,
which were scheduled to mature on March 31, 2020. It was a cash redemption of the aggregate principal amount of $20,000,000 and
all accrued interest to the time of Redemption Date.
On March 29, 2019, the Corporation completed the redemption of its 5.25% convertible unsecured subordinated debentures. It was a
cash redemption of the aggregate principal amount of $20,485,000 and all accrued interest to the time of Redemption Date.
The continuity of the convertible debentures for the year ended December 31, 2018:
Convertible
debenture
5.40%
5.25%
4.75%
5.30%
5.50%
5.20%
5.30%
5.40%
5.50%
Total
Balance,
beginning of year
25,445,554
$
20,173,140
19,515,688
24,136,563
21,889,426
21,235,666
25,068,867
-
-
$
157,464,904
Issued
-
$
-
-
-
-
-
-
23,489,730
23,057,109
46,546,839
$
Conversions
-
$
-
-
-
-
-
-
-
-
$
-
Implicit interest
rate in excess of
coupon rate
$
Deferred
finance cost
amortization
201,497
$
134,549
152,143
171,640
166,991
164,624
184,895
89,652
17,271
1,283,262
$
Repayments upon
maturity
(25,738,000)
$
-
-
-
-
-
-
-
-
$
(25,738,000)
$
-
Balance,
end of year 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
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
$
90,947
114,465
66,713
21,632
48,907
40,036
25,294
20,328
9,104
437,426
$
23
50 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
On December 27, 2018, the Corporation completed the redemption of its 5.40% convertible unsecured subordinated debentures,
It was a cash redemption of the aggregate principal amount of $25,738,000
which were scheduled to mature on February 28, 2019.
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.
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:
Liability
Equity
Principal
24
$
$
24,676,000
324,000
25,000,000
Building Relationships
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Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
51
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(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, 2019:
Balance, beginning of year
New shares from equity offering
Conversion of convertible debenture to shares
Private Placement equity offering
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, 2018:
Balance, beginning of year
New shares from equity offering
Equity offering costs
Options exercised in the year
New shares issued during the year under Dividend Reinvestment Plan
Balance, end of year
# of shares
26,143,544
1,748,000
144,539
209,630
-
46,250
43,009
28,334,972
# of shares
26,064,310
55,600
-
20,000
3,634
26,143,544
Amount
282,362,724
23,073,600
2,020,000
2,767,112
(1,215,762)
549,272
601,652
310,158,598
Amount
281,377,245
735,818
(35,382)
237,523
47,520
282,362,724
$
$
$
$
During 2019, $2,020,000 in debentures were converted into 144,539 common shares.
On May 15, 2019, the Corporation completed a non-brokered private placement of 209,630 common shares at a price of $13.20 per
share for gross proceeds of $2,767,116.
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 were 1,748,000.
During 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.
25
52 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(in Canadian dollars)
(b)
Incentive option plan:
Balance, beginning of year
Options exercised
Balance, end of year
# of options
926,250
(46,250)
880,000
$
$
Amount
91,633
(4,447)
87,186
During the year ended December 31, 2019, the Corporation did not grant any options (2018 - nil).
During the year ended December 31, 2019, 46,250 options were exercised (2018 - 20,000).
(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:
Earnings per share calculation:
The following table reconciles the numerators and denominators of the basic and diluted earnings per share for the year ended
December 31, 2019 and 2018.
Basic earnings per share calculation:
Numerator for basic earnings per share:
Net earnings for the period
Denominator for basic earnings per share:
Weighted average shares
Net basic earnings per share
Diluted earnings per share calculation:
Numerator for diluted earnings per share:
Net earnings for the period
Interest on convertible debentures
Net diluted earnings per share
Three months ended
2019
2018
2019
2018
6,678,983
$
6,097,699
$
28,002,051
$
25,750,696
28,183,257
0.237
$
26,124,729
0.233
$
27,786,966
1.008
$
26,109,949
0.986
Three months ended
2019
2018
2019
2018
$
$
6,678,983
1,948,079
8,627,062
$
$
6,097,699
1,963,191
8,060,890
$
$
28,002,051
9,229,908
37,231,959
$
$
25,750,696
9,474,914
35,225,610
Denominator for diluted earnings per share:
Weighted average shares
Net shares that would be issued:
Assuming the proceeds from options are used to
repurchase units at the average share price
Assuming debentures are converted
Diluted weighted average shares
Diluted earnings per share:
28,183,257
26,124,729
27,786,966
26,109,949
163,917
9,882,539
38,229,713
0.209
$
85,938
8,639,788
34,850,455
0.231
$
123,914
11,113,682
39,024,562
0.954
$
85,938
10,366,838
36,562,725
0.963
$
26
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
53
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
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, 2019, the Corporation recorded dividends of $28,002,051 (2018 - $25,750,696) to its shareholders.
Dividends were $1.006 per share (2018 - $0.986 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 31, 2019, this amount was $3,685,593 (2018 - $3,932,134).
Included in accounts payable and accrued liabilities at December 31, 2019 are amounts payable to the Corporation's Manager of
$275,964 (December 31, 2018 - $314,105).
For the year ended December 31, 2019 the total directors' fee expenses were $307,000 (2018 - $304,000). Certain key management
personnel are also directors of the Corporation and receive compensation from the Corporation's Manager. The Directors and
Officers held 542,587 shares in the Corporation as at December 31, 2019 (December 31, 2018 - 492,837).
For the year ended December 31, 2019, no directors were awarded options (2018 - nil).
loan servicing fees equal
receives certain fees from the
The Mortgage Banker (a company related to certain officers and/or directors of the Corporation)
borrowers as follows:
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 $491,000 for theyear ended December 31, 2019 (2018 - $524,000).The Mortgage Banker also retains all overnight float
interest and incidental fees and charges payable by borrowers on the Corporation's investments.
to 0.10% per annum on the principal amount of each of
The Corporation's Spread Interest Agreement and Mortgage Banking Agreement contain, respectively, 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 that were issued to a borrower controlled by an
independent director of the Corporation were fully repaid.
The Corporation holds a mortgage investment totaling $5,213,000 at December 31, 2019 (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, 2018 - $5,148,000). The Corporation’s investment is by way of a participation in a mortgage loan to the entity that took title to the
real estate following the completion of the enforcement foreclosure that occurred after the purchase of the underlying Schedule 1
bank mortgage. The Corporation is a pari passu participant in the mortgage, having the same rights as all other participants in the
loan. The entity that holds title to the real estate as agent is related to the other participants in the mortgage loan investment, including
entities related to certain directors of the Corporation, and for this reason, the borrower is classified as a related party. For the year
ended December 31, 2019, the Corporation recognized interest and fees earned of $nil (2018 - $nil) from this investment. The
impairment provision recorded on this loan was reduced to $300,000 as at December 31, 2019, from $860,000 as at December 31,
2018, due to an improvement in the realization that will be generated on the underlying real estate.
Key management compensation:
Aggregate compensation paid to key management personnel (including payments to related parties for their recovery of costs), all
consisted of short-term employee compensation of $2,122,507 for the year ended December 31, 2019 ( 2018 - $2,196,744). All of
this compensation was paid by the Corporation's Manager and not by the Corporation.
27
54 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(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
2019
2018
2019
2018
$
$
$
$
115,763
-
2,655,234
2,770,997
(360,463)
224,802
340,855
3,106,640
3,672,297
(377,259)
1,534,245
385,706
10,750,396
12,670,346
(1,271,220)
1,541,319
2,223,767
11,143,248
14,908,334
(1,283,262)
$
$
$
$
(117,074)
(116,170)
(400,837)
(437,426)
1,288,808
3,582,267
$
550,043
3,728,911
$
707,946
11,706,235
$
485,960
13,673,606
$
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, 2019
Changes to related investments at FVTPL
Balance, beginning of year
Funding of investments
Discharging of investments
Unrealized foreign exchange
Balance, end of year
$
$
16,236,199
19,901,724
(800,000)
(286,920)
35,051,003
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.
28
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
55
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
The tables below present the fair values of the Corporation's financial instruments as at December 31, 2019 and December 31, 2018.
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:
2019
Marketable securities
Convertible debentures
2018
Marketable securities
Convertible debentures
17.
Risk management:
Level 1
Total
$ 250,285 - - $ 250,285
149,806,418 - - 149,806,418
Level 3
Level 2
Level 1
Total
$ 199,204 - - $ 199,204
182,566,500 - - 182,566,500
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, financial condition, and operating results. Many of these risk factors are beyond the Corporation's direct control. The
Corporation Manager and Board of Directors play an active role in monitoring the Corporation's key risks and in determining the
policies that are best suited to manage these risks. There has been no change in the process since the previous year.
The Corporation's business activities, including its use of financial instruments, exposes the Corporation to various risks, the most
significant of which are interest rate risk, credit and operational risks, and liquidity risk.
(a)
Interest rate risk:
Interest rate risk is the risk that fair value of future cash flows of financial assets or financial
changes in market interest rates.
liabilities will fluctuate because of
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.
29
56 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(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, 2019, 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:
Cash and cash equivalents
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%
$
-
4,099,876
250,285
475,445,143
20,336,957
1,253,498
4,193,576
-
139,161,491
$
-
-
-
(212,896)
-
-
-
3,387,649
203,370
-
-
-
-
(9,526)
$
(203,370)
-
-
-
-
3,184,279
$
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
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.
the real estate securing mortgage loans that comprise the Corporation's investment portfolio. This could result
(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).
30
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
57
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(in Canadian dollars)
As at December 31, 2019,
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 $107,961,384 as at December 31,
2019 (December 31, 2018 - $89,188,507). 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 $80 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, 2020.
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 with
another lender if not renewed.
If it is not extended at maturity, repayments under the Corporation's investment portfolio would be
utilized to repay the bank indebtedness. There are limitations in the availability of funds under the revolving line of credit. The
Corporation's investments are predominantly short-term in nature, and as such, the continual repayment by borrowers of existing
investments creates liquidity for ongoing investments and funding commitments. Loans payable relate to borrowings on specific
investments within the Corporation's portfolio and only have to be repaid once the specific loan is paid out by the borrower.
If 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, 2019 are due as follows:
Bank indebtedness
Accounts payable and accrued liabilities
Shareholders dividends payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
$
Total
20,336,957
1,253,498
4,193,576
$ 144,980,000
170,764,031
107,961,384
278,725,415
$
$
Less than 1 year
20,336,957
$
1,253,498
4,193,576
-
25,784,031
107,961,384
133,745,415
$
$
1-3 years
4 - 7 years
$
$
$
-
-
-
45,980,000
45,980,000
-
45,980,000
$
-
-
-
$ 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 $7,780,408 for less than 1 year, $14,818,939
for 1 to 3 years and $11,125,417 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
shareholders, and
to provide an adequate return to shareholders by obtaining an appropriate amount of debt, commensurate with the level of risk.
it can continue to provide returns for
31
58 Firm Capital Mortgage Investment Corporation ● 2019 ● 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, 2019 and 2018
(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,
the performing first mortgage portfolio size, and indebtedness to total assets. The
Corporation is in compliance with all such bank covenants.
indebtedness as a percentage of
(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
income and
the U.S. dollar will not result
exchange rate of
comprehensive income and equity.
in a significant change to the net
the Canadian dollar against
18.
Supplementary information:
The following table reconciles the changes in cash flows from financing activities for loans payable and convertible debentures:
Loans Payable
Convertible
Debentures
Balance, beginning of the year
14,718,382
179,994,433
Financing cash flow activities:
Repayment of loans payable
Repayment of convertible debentures
Total cash flow from financing activities
Financing non-cash activities:
Conversion of convertible debenture to shares (note 9 & 10)
Implicit interest rate in excess of coupon rate (note 14)
Deferred finance cost amortization (note 14)
Total non-cash flow financing activities
Balance, end of the year
(14,718,382)
-
(14,718,382)
-
(40,485,000)
(40,485,000)
-
-
-
-
-
(2,020,000)
400,837
1,271,220
(347,943)
139,161,491
19.
Subsequent event:
Subsequent to year end, the COVID-19 pandemic is causing significant financial market and social dislocation. The situation is
dynamic with various cities and countries around the world responding in different ways to address the outbreak. The Corporation
continues to monitor the investment portfolio and assess the impact COVID-19 will have on its business activities. The extent of the
32
effect of the COVID-19 pandemic on the Corporation is uncertain.
Building Relationships
today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
59
Total Return Since IPO
Total Return Since IPO
An Attractive Investment
MORTGAGE INVESTMENT CORPORATION
$484
$806
0 %
1 . 1
1
+
$100
$100
1999
2000
2001
1999
2000
2002
2001
2003
2004
2005
2006
2002
2003
2004
2007
2005
2008
2009
2010
2006
2007
2011
2008
2012
2013
2014
2009
2010
2015
2011
2016
2017
2018
2019
2012
2013
2014
Since Oct . 5th, 1999 till December 31st, 2017
Since Oct. 5th, 1999 till December 31st, 2019
Since Oct . 5th, 1999 till Dec . 31st, 2019
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 $806 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
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Once registered with the plan, participants have the right to purchase additional Shares at 5 day weighted average
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market price from the Corporation, totaling no greater than $12,000 per year and no less than $250 .00 per month .
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Participating Shareholders pay no commission .
For further information, including answers to frequently asked questions about the program, please refer to
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our website: www.firmcapital.com. To enroll, please contact your investment advisor or, if you are a registered
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Shareholder, complete the Authorization Form located on our website and forward to our Transfer Agent,
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Computershare Trust Company of Canada, at the address noted on the website . You can also contact Investor
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Relations at the Corporation by calling 416-635-0221, who will assist you in enrolling in the program .
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60 Firm Capital Mortgage Investment Corporation ● 2019 ● Annual Report
Building Relationships today and tomorrow
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
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monthly dividends from the Corporation’s investments, targeting returns on equity in excess of 400 basis
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points over Government of Canada one year average treasury bill yields . The Corporation achieves its
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investment objectives by pursuing a strategy of growth through investments in select niche markets that are
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under-serviced by large lending institutions .
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TSX: FC, FC .DB .E, FC .DB .F, FC .DB .G, FC .DB .H, FC .DB .I and FC .DC .J .
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MORTGAGE BANKER PROFILE
Boutique Mortgage Lenders®
MORTGAGE BANKER PROFILE
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Where Mortgage Deals Get Done®
CONTENTS
PROFILE
Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is
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Letter To Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONTENTS
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 2
Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . 25
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Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . 30
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Consolidated Statements of Changes in Shareholders Equity . . . . . . . 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)
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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)
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 33
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Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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Dividend Reinvestment and Share Purchase Plan . . . . . . . . . . . . . . . . 61
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Notes to Financial Statements(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3) (cid:21)(cid:23)
Performance Graph(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
MORTGAGE BANKER PROFILE
(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:72)(cid:85)(cid:15)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3)
(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:90)(cid:85)(cid:76)(cid:87)(cid:72)(cid:85)(cid:15)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:85),(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:92)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:17)(cid:3)(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:20)(cid:28)(cid:27)(cid:27)(cid:15)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3) (cid:69)(cid:72)(cid:72)(cid:81)(cid:3) (cid:68)(cid:3) (cid:81)(cid:82)(cid:81)(cid:16)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3) (cid:79)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)
(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92),(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:72)(cid:85)(cid:15)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:72)(cid:85),(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)
(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)
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Where Mortgage Deals Get Done®
Where Mortgage Deals Get Done®
Mortgage Banker
Firm Capital Corporation
www.firmcapital.com
Corporation Manager
FC Treasury Management Inc.
Registered Office
Firm Capital Mortgage
Investment Corporation
163 Cartwright Avenue
Toronto, Ontario
M6A 1V5
Telephone: 416-635-0221
Fax: 416-635-1713
Email: investorrelations@firmcapital.com
Auditors
KPMG LLP
Transfer Agent
Computershare Trust Company of Canada
Legal Counsel
Fogler, Rubinoff LLP
Stock Exchange Listing
Shares Listed TSX
Symbol: FC
Debentures Listed
TSX Symbol: FC, FC.DB.E, FC.DB.F, FC.DB.G,
FC.DB.H, FC.DB.I, FC.DB.J
Plan Eligibility
RRSP RRIF DPSP TFSA
Shareholder Dividend
Reinvestment Plan
Firm Capital Mortgage Investment Corporation is
offering Canadian Shareholders of the
Corporation, an opportunity to increase their
holdings by participating in the Corporation's
Shareholder Dividend Reinvestment Plan.
If you are a Shareholder and would like to enroll
or would like further information about the Plan,
please contact Firm Capital Mortgage Investment
Corporation, Attention: Sandy Poklar - Executive
Vice President and Managing Director Finance
Telephone
(416) 635-0221
(1) Member of the Investment Committee
(2) Member of the Audit Committee
(3) Independent Directors
(4) Chairman of the Board, Investment Committee
and Audit Committee
CORPORATE DIRECTORY
Board of Directors
Stanley Goldfarb, FCPA, FCA (1)(2)(3)(4)
President
Goldfarb Management Services Limited
Morris Fischtein (1)(2)(3)
President
High City Holdings Limited
Anthony Heller (1)(2)(3)
President
Plazacorp Investments Limited
Larry Shulman, B. Comm., CPA, CA (1)(2)(3)
President
Rabbim Company Finance Inc.
Keith L. Ray, CPA, CA (1)(2)(3)
President
Realvest Management
Geoffrey Bledin (1)(3)
Corporate Director
Eli Dadouch
President
Firm Capital Corporation
Jonathan Mair, CPA, CA
Vice-President, Mortgage Banking and
Chief Financial Officer Firm Capital
Corporation
Edward Gilbert, CPA, CA
Director, Mortgage Investments Firm
Capital Corporation
Victoria Granovski, MFin
Director, Firm Capital Mortgage
Investment Corporation
The Honourable Joe Oliver, P.C(1)(3).
Former Minister of Finance, Minister of Natural
Resources and Member of Parliament
The Honourable Francis (Frank)
Newbould, Q.C.(1)(3)
Former Justice at the Ontario Superior Court of
Justice
Officers & Senior Management
Eli Dadouch
President and
Chief Executive Officer
Jonathan Mair, CPA, CA
Chief Operating Officer, and
Executive Vice President
Joseph Fried
Secretary
Sandy Poklar, CPA, CA
Executive Vice President and
Managing Director Finance
Boris Baril, CPA, CA
Chief Financial Officer
Victoria Granovski, MFin, CFA
Senior Vice President, Credit and
Equity Capital
Where Mortgage Deals Get Done®
Mortgage Investment Corporation
TAILORED MORTGAGE ENGINEERING BY FIRM CAPITAL
• Bridge Financing - 1st & 2nd Mortgages
• Land & Construction Financing
• Purpose Built Rental Construction
• Infill Construction
• Residential Mortgages
• Mezzanine Equity Capital
• Preferred Equity Capital
• Partnerships for Investment Properties
• Joint Venture Equity Capital
SELECTED TRANSACTIONS - BOUTIQUE MORTGAGE LENDERS®
LAND FINANCING
$10 8
BRIDGE LOAN
LAND & CONSTRUCTION LOAN
$4 75
$ 08 0
PURPOSE BUILT RENTAL
CONSTRUCTION LOAN
$99 24
FIRST MORTGAGE
FIRST MORTGAGE
FIRST MORTGAGE
FIRST MORTGAGE
2.4 acre residential
development site
75,400 sq. ft. mixed-use
industrial/office building
41 storey mixed-use
condominium building with
112 luxury residential units
20 storey rental building
with 370 units
TORONTO
MONTREAL, QC
TORONTO, ON
OSHAWA, ON
LOAN
SUBORDINATED CORPORATE
DEBENTURE
4 125
$30 0
915
SUBORDINATED
CONVERTIBLE DEBENTURE
$20 0
SECOND MORTGAGE
CORPORATE LINE OF CREDIT
FIRST MORTGAGE
PRIVATE PLACEMENT
8 semi-detached units
and 1 single family house
International real estate
development company
with Canadian operations
4 detached single
family homes
Corporate Finance
Investment
AUGUST 2019
OAKVILLE, ON
JULY 2019
RESIDENTIAL MORTGAGE
INVENTORY LOAN
CONSTRUCTION LOAN
BRIDGE LOAN
$ 23
28
20 000
$12,0
SECOND MORTGAGE
5,120 sq. ft.
single-family dwelling
MONTREAL , QC
73 residential
condominium units
TORONTO &
MISSISSAUGA, ON
SECOND MORTGAGE
SECOND MORTGAGE
100 semi-detached
units
66 residential
building lots
MARKHAM, ON
STOUFFVILLE
RELATIONSHIP DRIVEN • EXECUTION FOCUSED
2019
ANNUAL REPORT
BUILDING
RELATIONSHIPS
FOR OVER
30 YEARS
FOR MORE INFORMATION, PLEASE CONTACT:
BUILDING RELATIONSHIPS
Firm Capital
(416) 635-0221
www.FirmCapital.com
A REAL ESTATE CAPITAL FINANCE COMPANY
DISCIPLINED INVESTING CAPITAL PRESERVATION
Mortgage Investment Corporation