Atrium Mortgage Investment Corporation (AI) Earnings Call Transcript & Summary

Welcome to the Atrium Mortgage Investment Corporation's Annual Shareholder Meeting Conference Call. [Operator Instructions] A reminder that this conference is being recorded, Wednesday, May 14, 2025. Certain statements will be made during this phone call that may be forward-looking statements, although Atrium believes that such statements are based upon reasonable assumptions, actual results may differ materially. Forward-looking statements are based upon beliefs, estimates and opinions of Atrium's management on the date that statements are made. Atrium undertakes no obligations to update these forward-looking statements in the event that management's beliefs, estimates, opinions or other factors change. I would now like to turn the conference over to your host, Razvan Vulcu, Interim CFO. Mr. Vulcu, please go ahead.

Thank you. I'd like to welcome all shareholders to Atrium's Annual General Meeting. I'll now hand the meeting over to Mark Silver, Chair of the Board of Atrium. Mark?

Thank you very much, Raz. The Annual Meeting of Shareholders of Atrium Mortgage Investment Corporation will now come to order. I am Mark Silver, the Chair of the Board of Directors of Atrium. I'll preside as Chair of the meeting and Raz Vulcu, Interim CFO and Interim Corporate Secretary of Atrium will act as Secretary of this meeting. I'd like to thank everyone for joining us today, either in person or by dialing in or logging in to listen to this meeting as it is being audio webcast live. I would remind everyone that this is a meeting of shareholders of Atrium and only shareholders or their proxies are entitled to participate in the business of the meeting. After the formal business of this meeting, there will be a presentation by management and an opportunity for questions and comments following the presentation. With the consent of the meeting, Anoop Das of Computershare, Atrium's transfer agent and registrar, will act as scrutineer of this meeting to report on the number of shareholders present in person and the number of securities represented by proxy at this meeting to complete the votes cast by the ballot should any ballots be conducted at this meeting and to report to me on these matters. Prior to the commencement of this meeting, the scrutineer filed a preliminary report on attendance in person and by proxy. The Secretary has confirmed that there is a quorum of shareholders. I've asked the scrutineer to deliver a formal report to the Secretary as soon as possible. The notice calling this meeting and the accompanying materials have been mailed to all shareholders and the Secretary of the meeting has provided me with proof of same. Accordingly, the reading of the notice of meeting will be dispensed with. While the scrutineer is preparing a report on attendance, we will proceed with the business of the meeting. The financial statements of Atrium Mortgage Investment Corporation for the fiscal year ended December 31, 2024, together with the report of the auditors thereon have been posted on SEDAR and on the company's website and were mailed to those shareholders who requested them. With the consent of the meeting, the reading of the auditor's report will be dispensed with and these audited financial statements shall be received. Our bylaws provide that any meeting of our shareholders, the holders present in person or represented by proxy of at least 5% of our outstanding shares entitled to be voted at the meeting constitutes a quorum. I will now ask the Secretary to read the scrutineers' report on attendance to the meeting. Raz?

I have confirmed with the scrutineer that there are 9,008,593 shares represented at the meeting, constituting 19% of the outstanding shares. This satisfies the quorum requirements.

Okay. I can declare that a quorum of shareholders is present and that this meeting is properly constituted for the transaction of business. I direct that the scrutineers' report on attendance be attached to the minutes of this meeting. Each shareholder is entitled to 1 vote for each share held by them. In order to expedite voting, I propose to conduct all votes by a show of hands. Please note, however, that each proxy holder present in person at this meeting has the right to demand that a ballot be conducted on any resolution, either before the show of hands vote or following that vote. For a ballot conducted on any resolution, I will vote all proxies submitted. As I am chairing this meeting remotely, I'd ask Rob Goodall, Director and CEO of Atrium to conduct the in-person voting as required. First matter is appointment of auditors. The first item of business is the appointment of Crowe Soberman, Chartered Professional Accountants and Licensed Public Accountants as our independent auditors and authorizing the directors to fix their remuneration. In order to be approved, the resolution must be passed by a majority of votes cast. May I have a motion for the approval of this resolution?

I move that Crowe Soberman LLP be appointed as the independent auditors of the corporation to hold office until the close of the next Annual General Meeting of Shareholders or until their successors are appointed and the directors of the corporation be authorized to fix their remuneration.

I second the motion.

All those in favor of the resolution, please raise your hand. Contrary, if any? I declare that the resolution is carried.

Thank you very much. We will now proceed with the election of directors. I now declare the meeting open for nominations for directors to hold office until the conclusion of Atrium's next Annual General Meeting or until their successors are elected or appointed. The management information circular states that there are 8 proposed director candidates. May I have a motion to nominate such individuals, please?

I nominate the following for election of directors of Atrium for the period described by the Chair. Peter Cohos, Robert DeGasperis, Robert Goodall, Andrew Grant, Maish Kagan, Nancy Lockhart, Jennifer Schofield and Mark Silver.

I second the motion.

Thank you. Is there -- are there any further nominations?

Mr. Chair, I note there are no further nominations.

Okay. Thank you. I can declare the nominations are closed. I would like to remind you that directors are to be voted on individually rather than as a slate in accordance with the majority voting policy adopted by Atrium, which is described in the management information circular. May I have a motion in favor of the election of each of the 8 persons nominated, please?

I move that each of the persons nominated be individually elected as directors of Atrium Mortgage Investment Corporation until the conclusion of the next Annual Meeting of Shareholders or until his or her successor is duly elected or appointed or he or she otherwise ceases to hold office subject to the corporation's policy with respect to the election of directors.

I second the motion.

The meeting will now vote on the election of directors individually. Will those in favor of the election of a director, please signify by raising your hands after his or her name is called.

In favor of Peter Cohas. Contrary, if any? In favor of Robert De Gasperis. Contrary, if any? In favor of Robert Goodall. Contrary, if any? In favor of Andrew Grant, Contrary, if any? In favor of Maish Kagan. Contrary, if any? In favor of Nancy Lockhart. Contrary, if any? And in favor of Mark Silver. Contrary, if any. I'm sorry, and in favor of Jennifer Scofield. Contrary, if any? Mr. Chair, all votes present were in favor of the election of the directors.

Thank you, Rob. I declare each motion carried with each individual nominee having been elected as a director of Atrium for the term described or until his or her successor is elected or appointed. Before terminating the formal portion of this meeting, I would ask if there are any further business. As there is no further business, I declare the formal portion of this meeting terminated. Management would like me to remind all shareholders attending or listening to this meeting that there will be a conference call at 4:00 p.m. today to discuss the first quarter financial results. The call-in information can be found in our May 6 news release posted on Atrium's website under News in the Investor Center selection. We will now continue with the presentation by management. All attendees are invited to stay in person or on the line for this business update. Thank you, Rob.

Thank you. Okay. We'll start the presentation by first mentioning that there are some forward-looking statements. But we'll start on the first slide, which is what we view as our pillars of success. Just going through it from left to right, low loan-to-value portfolio, we normally operate, almost always operate within a loan-to-value band of 60% to 65%, and we're within that range right now. We focus on first mortgages in major urban markets. Our 2 markets, as you know, are Ontario and BC. In Ontario, our loans are generally within the GTA, but also some in Ottawa, some in Hamilton and some in Cambridge, Waterloo and the occasional single-family mortgage in places like London. In BC, I think we're entirely focused on Vancouver and Victoria. In terms of Board oversight, we have somewhat of a unique structure where every loan over $2 million is approved by the Board of Directors. It puts a lot of responsibility and a lot of effort on their part. There were 58 loans actually in the last year that were approved by the Board, just to give you a sense of the workload that they've taken on and agreed to, and it's really helped us. Next one is deep expertise. I should also mention -- we're talking about the management team, but I should also mention the expertise of our Board of Directors, many of whom have really significant real estate experience. But in terms of the management team, we have 4 of us with over 20 years of experience. And all of our managing directors have a minimum of 15 years of real estate lending experience. So what that has allowed is some degree of experience across all the different market sectors. In terms of consistency, we have a slide that we'll be showing you of the consistency of both our earnings and our dividend since our inception in 2001.

Turning to our financial position. We released our Q1 results last night. But the story here is one of stability and strength. Our mortgage portfolio has remained stable over the last couple of years, which is a real testament to the origination team and continuing to source good quality loans despite soft market. Our portfolio continues to turn over at a healthy rate. In fact, when looking at the past 6 months to March 31, our portfolio turnover rate was over 50% on an annualized basis. Although high, we view this as a positive in maintaining a healthy mortgage portfolio. Our capital stack remains strong with over 60% composed of equity with the balance made up of both floating and fixed rate debt. Past Q1, we repaid our $28.7 million debenture using our credit facility, which continues to have ample available capacity of $340 million. In terms of our earnings, Q1 was another strong and consistent quarter with earnings per share of $0.25, outpacing our fixed dividend of $0.2325. Top line revenue has come down due to portfolio turnover and a decline in interest rates. However, we remain disciplined with our operating expenses and prudent with our loan loss provisioning in order to continue to generate strong earnings for shareholders. As we look at Atrium's historical earnings, we are pleased with the consistency and earnings growth achieved. Earnings have continued to outpace our fixed dividend. And for 2025, we increased our dividend to $0.93, signaling our continued confidence in generating strong earnings for shareholders.

I'm pleased to announce that we have verbal approval of a 2-year extension of our line of credit, which is what this slide speaks about. It has the same pricing and terms as we currently have. So we're really pleased about it. We added 2 new lenders. So there's more capacity within the lending group to increase the line of credit in the future. This slide, the 3 colors relate to the amount of the credit facility that we're currently using. That's the dark blue. The light blue is the capacity. So you can see that there's a lot of unused capacity, which is important in this market and allows us the potential to grow the portfolio without necessarily having to do a common share issue. And then we have the accordion portion of the line of credit, which, if necessary, could be used beyond the $340 million, and that would take us up to $400 million. I spoke earlier about our focus on trying to have as high a position in first mortgages as we can, and you can see we're at record levels to that effect. I don't hope we'll be able to keep it at almost 97%, but we will maintain it at a very high level.

We wanted to provide a comparison between Atrium's returns and its public MIC peers. As we see since 2019, Atrium has consistently shown resilience in generating strong and stable returns, oftentimes outpacing our peer group. However, we recognize that despite these strong returns, our stock has been trading at a discount relative to its public MIC peers. When we look at it from a price to earnings ratio perspective, we do feel there is a level of undervaluation. We also believe this represents a compelling opportunity for investors given our track record of delivering strong, consistent earnings and disciplined risk management.

As I mentioned earlier, we try to consistently keep our loan-to-value somewhere between 60% and 65%. You see over the last couple of years in the downturn, we've tried to be on the lower end of that band. This graph hopefully confirms to you that there's substantial borrower equity in all of our loans. And what it does is provide a buffer in times like today when values can drop. We also talked in the past about how we're proud of our earnings profile in downturns. So we've looked at the financial crisis, the early impact of COVID and then the market instability or real estate downturn over the last few years. And you can see we performed well in all 3 scenarios. In the financial crisis, we were actually a private company, and we experienced 25% redemptions, not because of what we did wrong, but because of what we did right. We had virtually no loan losses. We had strong earnings, and we allowed shareholders to redeem at par, while the stock market was down 25% to 30%. So a lot of investors actually redeemed our shares in order to look after liquidity issues they had outside of the real estate market. We still were able to perform and earn $0.98 and $0.99 in 2008 and 2009. At the beginning of COVID, in 2020, we entered very uncertain times and performed better and better over time in '20 to '22. And at the same time, we were adding significantly to our loan loss reserves to ensure that we were protecting future profits. And maybe what we're most proud of is '23 and '24, which have been very weak markets for real estate. Downturn, in our opinion, probably started midway through 2022. So we're 2.5 years at least into this downturn, and we've managed to have very strong earnings again. And we've also maintained our portfolio quality at the same time. So that's the end of our presentation. We -- we'd be pleased to answer any questions you might have. Thanks, Rob.

[Operator Instructions]

I guess the question I have is one that is a bit forward-looking in that we're in a state of a lot of uncertainty in this country. And I was wondering if even though you have strong loan to value, you were anticipating any changes to loan loss reserves going forward.

Well, they've been gradually coming down because whatever issues we've had, we've -- for the most part, resolved. But where we really distinguish ourselves is in what they call the Stage 1 portion of the loans, which are the healthiest loans in the portfolio. There's Stage 1, which are the healthiest loans. There's Stage 2, which are higher risk but not impaired loans and there's Stage 3, which are the impaired loans. So first of all, our impaired loans are only 2.2% of our portfolio. They've actually gone down over the last year, 1.5 years, which would be contrary to virtually any other lender out there. And what we're particularly proud of is our reserve on Stage 1, so the healthiest loans is 109 basis points. And our total reserve at the beginning of COVID, 2019, say, just before the beginning of COVID was 74 for the entire -- 74 basis points for the entire portfolio. So we're 25% to 30% more reserved just in our healthiest loans today than we were in the entire portfolio. But having said that, we're reviewing every single loan every quarter to make sure that we're not going to get blindsided by a loss that we don't see coming, and we're trying to be as proactive as we can. In the recent past, our loan loss provisions have been coming down because we were pretty aggressive on the loan loss provisions when interest rates were high and we could still declare terrific earnings and yet protect the portfolio by having large loan loss reserves. Now that most of the issues that we did have have been dealt with, we're just going to go from quarter-to-quarter and see what's needed. But what we have done is double the percentage of our portfolio in single-family mortgages, which we view as about as low risk as you can have as a sector. And also, we've increased dramatically our exposure to commercial real estate as opposed to say development real estate. So we've been trying to derisk the portfolio and the composition that we're -- of the portfolio. So I think that's -- the answer is, we provisioned really really significantly. And I think that's protected us, but also we're actively trying to derisk the portfolio as much as we can. The other thing I should mention is we're at almost an all-time low in terms of loans over 75% loan-to-value. I think we're -- what would the percentage be? It's $32 million in total. So probably [indiscernible] between 3% and 4%. Yes, $32 million, I remember it off the top of my head. So there's a lot of metrics that we're really paying attention to. And so far, so good.

[Operator Instructions] We would now like to open the Q&A session to the phone and online callers as well. [Operator Instructions] It appears that there are no other questions at this time. I would now like to give the call back to Robert Goodall for closing statements.

Okay. Thank you very much for attending today's session. I hope you're pleased with our results. We do have a call at 4:00 this afternoon where we're going to provide a few more insights into our Q1 results. But I think you'll be pleased with them as well. I think they were announced over the system last night. So thank you again.

Thank you for participating. This conference call has now concluded. Please hang up.