Atrium Mortgage Investment Corp

TSX:AI

Q3-2025 Earnings Call

[Operator]

Welcome to the Atrium Mortgage Investment Corporation's Third Quarter Results Conference Call. [Operator Instructions] A reminder that this conference is being recorded Thursday, November 13, 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 on the beliefs, estimates and opinions of Atrium's management on the date the statements are made. Atrium undertakes no obligation 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, Robert Goodall, CEO of Atrium. Mr. Goodall, please go ahead.

[Robert G. Goodall, executive]

Thank you for calling in today. Our interim CFO, Jeffrey Sherman, is on holiday, so our Senior Vice President of Finance, Chris Anastasopoulos will be speaking today. Chris will start by talking about our financial results, and then I'll speak about our performance from an operational and portfolio perspective. Chris?

[Unknown Executive]

Thank you, Rob. Atrium continued to generate another strong quarter for shareholders amid a challenging economic environment. Atrium generated net income of $11.9 million in the third quarter, an increase of 2.5% over the prior year. Our basic and fully diluted earnings per share was $0.25 per share for the quarter, which continues to exceed our fixed dividend of $0.2325 per share. On a year-to-date basis, we generated $0.78 per share, again, ahead of our fixed dividend rate of $0.6975 per share. As expected, the average interest rate on the mortgage portfolio has decreased to 9.2% as at September 30, 2025, from 9.98% as at December 31, 2024. The decrease was largely driven by repayments of loans with higher yields compared to new loan originations and the impact of 325 basis point rate cuts by the Bank of Canada during the period with 2 in the first quarter and 1 in the third quarter, impacting floating interest rates. As at September 30, 2025, 83.2% of the mortgage portfolio was priced based on floating interest rates, with the majority having rate floors in place.

The mortgage portfolio ended the third quarter at $917.3 million, which is an increase from $886.7 million at December 31, 2024. As at September 30, 2025, 96% of our mortgages were first mortgages, and we maintained a conservative average loan-to-value ratio of 60.8% for the portfolio, which decreased from 61.9% at December 31, 2024. Our allowance for mortgage losses was $29.5 million at the end of the third quarter, which is as a percentage of the mortgage portfolio represents a healthy 321 basis points.

Stage 2 loans increased to $96.8 million at the end of the third quarter, up from $89.9 million at June 30, 2025, primarily due to the addition of 3 commercial loans totaling $40.7 million and $6.1 million of single-family loans. This was offset by 2 commercial loans totaling $13.5 million that migrated to Stage 3, and 3 commercial loans totaling $26.8 million that migrated to Stage 1.

Stage 3 loans increased to $56.3 million at the end of the third quarter, up from $45.7 million at the end of the second quarter, primarily due to the addition of 2 commercial loans totaling $13.9 million and offset by $3.7 million of single-family loans that were either repaid or brought current.

We continue to maintain a strong, liquid and well-capitalized balance sheet. As at September 30, 2025, balance sheet debt remained low at 41%, with $253 million drawn on our $340 million credit facility, leaving a healthy available capacity. The weighted average cost of borrowing on the credit facility was 5.14% for the third quarter, down from 6.96% in the prior year. Subsequent to quarter end, on October 22, we exercised our right to increase our credit facility by $40 million to $380 million, which underscores the confidence of our lenders.

We are pleased to announce that PricewaterhouseCoopers has been appointed as our new auditors effective for the year ending December 31, 2025. In addition, we would like to provide an update on our press release issued on June 30, 2025, where our predecessor auditor was asked to complete remediation procedures identified by the Canadian Public Accountability Board. Atrium has been informed by the predecessor auditor that the remediation procedures have been completed and the audit opinions for Atrium's annual financial statements as at and for the years ended December 31, 2023 and 2024 are fully supported and no restatements are required.

The third quarter continues our trend of strong financial performance for our shareholders this year. We continue to apply our disciplined risk management approach to new opportunities, manage our operating expenses and maintain a strong balance sheet to navigate the current economic cycle with confidence.

I'll now pass you back to Rob for the business and portfolio updates.

[Robert G. Goodall, executive]

Thank you. As Chris said, Atrium MIC had a good quarter with basic earnings per share in Q3 of $0.25 compared to $0.28 last quarter. The reduced earnings were mostly due to a $1.63 million loan loss provision this quarter versus nil last quarter. Our 9-month results are $0.78 a share, virtually identical to last year and well ahead of our dividend. Overall, the portfolio was steady at $917 million versus $921 million last quarter. Loan advances were $63 million in the quarter and $287 million for the first 3 quarters of 2025, which is more than 23% ahead of last year's loan production. We're proud of this accomplishment given the lack of overall activity in the real estate markets across Canada.

Loan repayments in Q3 were $65 million, which is very similar to the repayment level in Q2. For the first 9 months of 2025, we had annualized portfolio turnover of 36%, which is only slightly below our long-term turnover rate and is a sign of a healthy portfolio. We expect both new loan advances and repayments to be considerably higher in Q4.

We continue to make good progress implementing CMCC strategy to increase our exposure to commercial loans and single-family mortgages. The commercial category has seen a net increase of $101 million over the last 12 months and has risen to 27.2% share of the portfolio, representing an 11% increase year-over-year. And the single-family and apartment category has risen to 19.1% of the total portfolio. These lower risk sectors now represent 46.3% of our total portfolio.

In Q3, Atrium's average mortgage rate dropped to 9.2% from 9.3% last quarter, which reflects the 25 basis point drop in the prime rate of interest in September. The total of high ratio loans, that is loans over 75% loan-to-value was $52 million, equal to 5.7 of the total -- 5.7% of the total portfolio, and a little change from last quarter. This total is still well below a year ago when the balance was $79 million and roughly 9% of the portfolio. In addition, one $6.2 million high ratio loan was paid off shortly after quarter end, and another $5.7 million loan is scheduled to be repaid by the end of this month.

In Q3, the average loan-to-value of the portfolio declined slightly from 61.2% last quarter to 60.8% in Q3, and continues to be well within our desired range of 65%. Atrium's percentage of first mortgages remained high at 96%, construction loans represented only 3.5% of the portfolio. Construction costs have become more stable in our target markets and are actually declining in the GTA, so we are now more willing to consider underwriting construction loans with experienced developers. We anticipate funding of $12.5 million loan with a well-known Toronto developer on a purpose-built rental project in Q4.

Turning to portfolio quality. In Q3, the level of Stage 2 and Stage 3 loans increased slightly. Stage 2 loans increased from 9.8% last quarter to 10.6%, and Stage 3 loans increased from 5% to 6.1%. In the Stage 3 category, there are 6 commercial and multi-residential loans totaling $39.4 million. A $6.2 million loan was repaid shortly after the end of the quarter and another $5.7 million loan is expected to be repaid tomorrow. 100% of the principal and interest will be collected on both of those loans. And we expect that another 2 of the remaining loans in Stage 3 will be repaid before the end of Q4. There was many as 4 of the 6 commercial and multi-residential loans in Stage 3 are anticipated to be repaid in Q4 or very shortly thereafter.

Turning to the loan loss reserve. We expensed a loan loss provision of $1.63 million in Q3 after having no loan loss expense in Q2. On a net basis, Atrium's total loan loss reserve increased marginally from $28.9 million last quarter to $29.5 million this quarter, equal to 321 basis points on the overall mortgage portfolio.

With regard to our line of credit, we met with ATB Bank early in Q3 after they expressed an interest in joining our lender syndicate. At the meeting, they expressed a strong interest in participating for $40 million. They very quickly obtained approval. And on October 22, we closed the transaction. As a result, the committed amount of our line of credit has now increased from $340 million to $380 million, with only $20 million of the accordion remaining uncommitted.

My economic commentary is as follows: economic data in Canada has improved recently with the unemployment rate dropping to 6.9% after 2 consecutive months of outsized employment gains in September and October. The Canadian economy had contracted 1.6% in the second quarter, led by a sharp pullback in exports and the preliminary estimate for Q3 is a 0.5% gain. The growth forecast for calendar 2025 is still tepid at 1.2%. Business investment is expected to remain weak as companies remain apprehensive until they have a better sense of the Canada-U.S. trade relationship.

CPI in Canada rose to 2.4% in September from 1.9% last quarter. Headline inflation in the United States also accelerated to 3% in September. But both the Bank of Canada and the Fed dropped interest rates on October 29 by 25 basis points, suggesting they're more worried about economic growth in jobs than they are about inflation. But based on the recent employment guidance at Canada, it's unclear whether there will be more interest rate cuts in Canada this year.

Turning to commercial real estate. After a period of weakness, the commercial real estate sectors across Canada has stabilized. According to CBRE, the national average all properties cap rate held flat in Q3 after dropping by just 1 basis point in Q2. Most commercial real estate sectors are actually performing quite well, including multiresidential, industrial, retail and seniors housing. The office sector continues to be weak, but there are signs of improvement, especially in downtown Toronto, as many large companies are requiring their employees to return to the office 4 to 5 days a week.

Looking at the residential and multiresidential real estate markets, the sentiment of real estate developers and realtors in the GTA and the Greater Vancouver area is quite negative. First, looking at resales. In the GTA, resales in October were down 9.5% compared to October 24, but they were up from last month. The MLS composite benchmark was down 5% year-over-year in October and was flat on a month-over-month basis. In Metro Vancouver, it was much the same situation. Resales in October were down 14% on a year-over-year basis, and the home price index in Metro Vancouver was down 3.4% from a year earlier.

Turning to new home sales. The new home market remains extremely slow. In the GTA, there were only 438 new home sales in September, which was down 29% on a year-over-year basis. Condominium sales were down 44% on a year-over-year basis, while single-family new homes were down 16% from the previous year. In the condo sector, the only good news is that the number of condominium units under construction and GTA has dropped sharply from a high of 108,000 units in 2023, to 61,000 units at the end of this last quarter, and to approximately 50,000 units by the end of 2025. Completions will decline from over 30,000 units this year to a more normal level of 18,000 units in 2026, and then dropped very sharply in 2027 when we expect the market to recover.

In Vancouver, new sales were a little better. They totaled 1,200 units in Q3, but it was still down 46% from the previous quarter and 38% when compared to the same quarter last year. Sales decreased 55% in the pricier North of Fraser area, and by 35% in the more affordable South Fraser area compared to the previous quarter. Like the GTA, Vancouver has a lot of completions in 2025 and 2026 before falling to less than 10,000 units in 2027.

The housing market clearly needs a resolution of the trade war and lower interest rates to improve consumer confidence. We believe that a sustained recovery in the housing market should occur in early 2027, when the number of project completion starts to drop sharply.

To conclude, Atrium continued to perform well in a difficult real estate market. Our year-to-date earnings per share of $0.78 is almost identical to last year's results and well above our dividend. We made considerable progress on a number of fronts in Q3, including engaging PwC as our new auditors, increasing the committed amount of our line of credit by $40 million to $380 million to ensure ample liquidity, and fully recovering $12 million of principal and interest on 2 Stage 3 loans.

One of the lessons I've learned over my 35-year banking career is that it's important to continue lending in a downturn, albeit as conservatively as possible. Our underwriting teams have done a great job of originating loans this year, and we're well above the volume funded over the same period in 2024. We intend to actively source new loan business in our target markets, while some of our private nonbank competitors are facing loan portfolio issues and/or redemption requests leaving them with limited financial capacity to generate new loan business. While conditions are difficult, Atrium's results to date have been strong as they consistently have been in past downturns. Our track record confirms that we know how to construct and manage a resilient loan portfolio in all stages of the market cycle.

That's all for the presentation, but we'd be pleased to take any questions from the listeners.

[Operator]

[Operator Instructions] First question is from Michael McHugh of TD Securities.

[Michael McHugh, analyst]

Just first on sort of the portfolio growth front, obviously a bit of cautious sentiment. But you did mention that you expect both the originations and repayments to be a fair bit higher in Q4. Any commentary on sort of the outlook for portfolio size? And then within those originations, if that's going to be more focused on some of the lower risk sectors that you had mentioned?

[Robert G. Goodall, executive]

I think they will be in the lower risk sectors, although with repayments -- some of those repayments will also be in those same sectors. So it's difficult to know, but we're continuing to push hard to increase our -- as closer to that commercial and single-family area. We're expecting the portfolio size to increase. But we literally have about a month before the market sort of shut down for new fundings. So some of them are on the edge as to whether they'll be funded in December or at the beginning of January. So it's difficult to forecast, but we're thinking the portfolio will be up slightly.

[Michael McHugh, analyst]

Okay. Great. That's very helpful. And then sort of to that end, obviously, you saw you upsize the credit facility. Any appetite at the moment to reenter the convertible market now that the audit is behind you?

[Robert G. Goodall, executive]

Yes. We're going to look at it very closely at the beginning of 2026, probably shortly after our Q4 financials or full year financials are completed and released in late February 2026.

[Michael McHugh, analyst]

Great. And then I might just sneak 1 more in before requeuing. The average mortgage rate held up pretty well quarter-over-quarter in a more broadly declining rate environment. Any sort of commentary on dynamics there and what we can expect going forward, maybe rates on originations versus repayments as we move into a lower policy rate environment?

[Robert G. Goodall, executive]

I was saying to the Board yesterday, the irony is when you get rid of and dispose of the difficult loans, they've usually been on the books for 2 or 3 years, and they often have very high coupon rates. So a lot of the -- or some of the reduction that we've had over the last 9 months is because we've dealt with our problem loans. We haven't just kept them on our books and hope that time would solve the problem. We've actually dealt with them. And that caused a reduction in rate. No question every quarter. Also with rates probably staying and prime probably staying where it is for the rest of the year, and a couple of loans, quite frankly, in our Q right now of new loans to be funded that have pretty healthy coupons on them. We're thinking that the average rate will be steady.

[Operator]

The next question is from Sid Rajeev of Fundamental Research Corp.

[Siddharth Rajeev, analyst]

With 4 out of 6 loans in Stage 3 to be repaid in Q4 and Q1 mostly. Could you please provide some guidance on forecasting provisions and allowances in Q4?

[Robert G. Goodall, executive]

In Q4?

[Siddharth Rajeev, analyst]

Yes.

[Robert G. Goodall, executive]

We tend not to do that. We're pleased with the way the portfolio looks. But -- it's a fairly weak market. So we're dealing with the Stage 2 and Stage 3 actively. But you never know if another loan is going to deteriorate and come into that. Right now, we feel good, as I say, about the portfolio, but we still got another 1.5 months in the quarter. And the real estate markets, as I say, particularly the housing market is pretty weak in Ontario and BC.

[Siddharth Rajeev, analyst]

Okay. And then just 1 more question. You talked about interest rate being steady in the next quarter, likely. How are you pricing your current originations just to get your internal thoughts? Are you anticipating 1 more rate cut?

[Robert G. Goodall, executive]

Sorry, how are we pricing new business?

[Siddharth Rajeev, analyst]

Yes.

[Robert G. Goodall, executive]

So we generally are still pricing new business at prime plus. And we obviously are not a prime plus 1 or prime plus 1.5 like a bank or a higher spread. And we try to institute floors. So, for instance, if we were a prime plus 3.5, that would be roughly, what, 8% today. Am I getting it right? 8% today. [ 45 plus 3.5 -- 3 -- 7.95 ]. So we would try and put in a floor of [ 7.95% ], depends how competitively bid the businesses, whether you can actually negotiate that and keep it.

[Siddharth Rajeev, analyst]

Got it. I appreciate it.

[Robert G. Goodall, executive]

Because one of the reasons borrowers want floating is because they don't see rates moving up, and they see them possibly continuing to move down.

[Operator]

[Operator Instructions]. It appears that there are no other questions at this time. I will now give the call back to Robert Goodall for closing statements.

[Robert G. Goodall, executive]

Okay. Thank you for attending our conference call. We're pleased with the results. I hope you are as well. And for existing shareholders, thank you for your continued support. Have a great day.

[Operator]

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