FIRM CAPITAL
MORTGAGE INVESTMENT CORPORATION
CAPITAL PRESERVATION • DISCIPLINED INVESTING
REPORT TO
SHAREHOLDERS
THIRD QUARTER
SEPTEMBER 30, 2024
FIRM CAPITAL
MORTGAGE INVESTMENT CORPORATION
CAPITAL PRESERVATION • DISCIPLINED INVESTING
MD&A
MANAGEMENT
DISCUSSION
AND ANALYSIS
THIRD QUARTER
SEPTEMBER 30, 2024
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:
- 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.sedarplus.ca.
RECENT DEVELOPMENTS AND OUTLOOK
The Corporation's investment portfolio (the "Investment Portfolio") for the nine months ended September 30, 2024, continued to revolve, with new fundings and discharges of investments being $234.3 million and $186.5 million respectively (nine months ended September 30, 2023 - $162.9 million and $244.8 million, respectively). During the quarter, the allowance for impairment increased by $3.3M and the fair value adjustment on investment increased by $1.2M offset by the write off $8.1M on a FMV investment that had a full unrealized loss in previous reporting periods while generating earnings per share of $0.250 and $0.746 during the three and nine months ended September 30, 2024. At September 30, 2024, the gross amount of the Investment Portfolio consisted of 92.9% of conventional first mortgages. The Corporation continues to participate in new investments on a disciplined basis with conservative underwriting on real estate in large urban centers.
During the balance of 2024, the Corporation expects to continue to revolve the Investment Portfolio selectively, with an investment policy of holding a hard line on acceptable exposure levels, borrower quality and warranted interest rate pricing. There are no assurances on achievable portfolio size as the primary focus is on security. The Mortgage Banker continues to reject a significant number of potential investments that do not meet our investment criteria and risk tolerance.
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 November 5, 2024 and should be read in conjunction with the unaudited interim consolidated financial statements of the Corporation and the notes thereto as at, and for the three and nine months ended September 30, 2024, and 2023, as well as the Corporation's Management's Discussion and Analysis, including the section on "Risks and Uncertainties", and each of our quarterly reports for 2024 and 2023.
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 1 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
NET INCOME
For the three months ended September 30, 2024, net income increased by 4.3% to $8,960,532 as compared to $8,594,640 for the same period in 2023. Net income for the nine months ended September 30, 2024 increased by 0.9% to $26,064,088, as compared to $25,828,891 reported for the same period in 2023.
EARNINGS PER SHARE
Basic weighted average earnings per share for the three months ended September 30, 2024 was $0.250 (2023 - $0.249). Diluted weighted average earnings per share for the three months ended September 30, 2024 was $0.249 (2023
- $0.247).
Basic weighted average earnings per share for the nine months ended September 30, 2024 was $0.746 (2023 - $0.749). Diluted weighted average earnings per share for the nine months ended September 30, 2024 was $0.744 (2023 - $0.742).
REVENUES
For the three months ending September 30, 2024, revenues increased by 10.6% to $19,078,666, up from $17,245,057 for the same period in 2023. Such increase in revenues $1.8 million over the previous year, was largely driven by a onetime special profit of $1.9 million from a single investment. For the nine months ending September 30, 2024, revenues decreased by 2.5% to $52,434,825 compared to $53,786,731 for the same period in 2023. Such decrease in revenues was mainly due to reduced interest income. This resulted from a decrease in the average interest rate compared to the same period in 2023. For the nine months ending September 30, 2024, the weighted average Investment Portfolio size was $623 million versus $625 million in 2023, with a monthly weighted average interest rate of 10.59% compared to 11.19% in 2023.
INVESTMENT PORTFOLIO
The Corporation's Investment Portfolio increased by 6.7% to $637,937,381 as at September 30, 2024, in comparison to $598,110,536 as at December 31, 2023 (in each case, gross of impairment allowance, fair value adjustment, and unamortized fees). The allowance for impairment and fair value adjustment as of September 30, 2024 was $24,202,826 (December 31, 2023 - $22,711,894), comprising (i) $17,768,500 (December 31, 2023 - $10,653,000) representing 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, (ii) $5,002,826 (December 31, 2023 - $10,392,194) representing the total amount of management's estimate of fair value adjustment on investments stated at fair value through profit or loss ("FVTPL"), and (iii) a collective allowance balance of $1,431,500 (December 31, 2023 - $1,666,700). The unamortized fees as of September 30, 2024, were $1,028,442 (December 31, 2023 - $943,901).
CAPITAL RAISING ACTIVITIES
On August 8, 2024, the Corporation completed a bought deal public offering with a syndicate of underwriters, selling 1,950,000 Shares at $11.30 per Share (the "Issue Price"), raising gross proceeds of $22,035,000. On August 12, 2024, the underwriters exercised their over-allotment option in full, resulting in the issuance of an additional 292,500 Shares at the Issue Price, generating an additional $3,305,250. Total gross proceeds from the public offering was $25,340,250.
On August 31, 2024, the Corporation fully repaid its outstanding 5.30% convertible unsecured subordinated debentures (FC.DB.H). The repayment was made through a cash payment of the total principal amount of $26,500,000, along with all accrued interest up to the maturity date.
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 2 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
INVESTMENT PORTFOLIO
The Corporation's Investment Portfolio was $612,706,113 as at September 30, 2024 (net of the allowance for impairment of $19,200,000, fair value loss adjustment of $5,002,826 and unamortized fees of $1,028,442) and was $574,454,741 as at December 31, 2023 (net of the allowance for impairment of $12,319,700, fair value loss adjustment of $10,392,194 and unamortized fees of $943,901). On September 30, 2024, the total Investment Portfolio comprised of 289 investments (243 as at December 31, 2023). The average gross investment size was approximately $2.2 million, with 15 investments individually exceeding $7.5 million.
September 30, 2024 | December 31, 2023 | |||||||||
Total Amount | % of | Total Amount | % of | |||||||
Investments Amounts | Number | (before provision) | Portfolio | Number | (before provision) | Portfolio | % Change | |||
$0 - $2,500,000 | 230 | $ | 216,176,287 | 33.9% | 174 | $ | 175,897,085 | 27.7% | 22.9% | |
$2,500,001 | - $5,000,000 | 27 | 93,013,103 | 14.6% | 39 | 135,258,957 | 23.7% | (31.2%) | ||
$5,000,001 | - $7,500,000 | 17 | 102,567,938 | 16.1% | 16 | 97,433,745 | 21.5% | 5.3% | ||
$7,500,001 | + | 15 | 226,129,087 | 35.4% | 14 | 189,469,782 | 27.0% | 19.3% | ||
Marketable securities | 50,966 | 0.00% | 50,966 | 0.00% | - | |||||
Total gross carrying amount | 289 | $ | 637,937,381 | 100% | 243 | $ | 598,110,536 | 100% | 6.7% | |
Less: Impairment allowance | (19,200,000) | (12,319,700) | ||||||||
Less: Fair value adjustment | (5,002,826) | (10,392,194) | ||||||||
Less: Unamortized fees | (1,028,442) | (943,901) | ||||||||
Total Investments | $ | 612,706,113 | $ | 574,454,741 |
Unadvanced committed funds under the existing Investment Portfolio amounted to $145 million as at September 30, 2024 (December 31, 2023 - $155 million).
The allocation of the Investment Portfolio between the five main investment categories (as well as the weighted average interest rate) is as follows:
September 30, 2024 | December 31, 2023 | ||||||||
W.A Interest | Outstanding | % of | W.A Interest | Outstanding | % of | ||||
Investment Categories | Rate | amount | Portfolio | Rate | amount | Portfolio | % Change | ||
Conventional First Mortgages | 10.19% | $ | 569,504,846 | 92.8% | 10.88% | $ | 523,562,081 | 91.1% | 8.8% |
Conventional Non-First Mortgages | 11.11% | 39,106,942 | 6.3% | 11.84% | 39,550,432 | 6.9% | (1.1%) | ||
Non-Conventional Mortgages | 13.79% | 12,043,139 | 1.9% | 14.37% | 9,614,348 | 1.7% | 25.3% | ||
Debtor In Possession Loans | 11.50% | 6,669,208 | 1.0% | 12.00% | 6,481,110 | 1.1% | 2.9% | ||
Related Debt Investments & Marketable securities (at FVTPL) | 5.00% | 5,455,420 | 0.8% | 4.46% | 6,620,371 | 1.2% | (17.6%) | ||
Related Debt Investments (at amortized cost) | 10.45% | 155,000 | 0.0% | 15.25% | 1,890,000 | 0.3% | (91.8%) | ||
Less: Allowance for impairment on investments at amortized cost | (19,200,000) | (3.1%) | (12,319,700) | (2.1%) | 55.8% | ||||
Less: Unamortized fees | (1,028,442) | (0.2%) | (943,901) | (0.2%) | 9.0% | ||||
Total Investments | 10.28% | $ | 612,706,113 | 100% | 10.99% | $ | 574,454,741 | 100% | 6.7% |
The related debt investments 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.
A debtor in possession loan ("DIP Loan") is a loan obtained by an insolvent debtor while that debtor is restructuring its business under the Companies' Creditors Arrangement Act (Canada). A DIP Loan has "super-priority" security on the assets of the debtor company awarded by the court.
The 6.7% increase in the total Investment Portfolio was mainly due to an increase in the amount of the conventional first mortgages and non-conventional mortgages. During the nine months ended September 30, 2024, new investment funding was $234.3million (2023 - $162.9 million), while repayments during the period were $186.5 million (2023 - $244.8 million), resulting in an increase in the Investment Portfolio size.
Total Conventional first mortgages increased by 8.8% and represented 92.9% of the Investment Portfolio as at September 30, 2024 (91.1% as at December 31, 2023). Conventional non-first mortgages decreased by 1.1% and represented 6.4% of the Investment Portfolio at September 30, 2024 (6.9% as at December 31, 2023). Non-conventional mortgages increased by 25.3% and represented 2.0% of the total Investment Portfolio as at September 30, 2024 (1.7% as at December 31, 2023). The DIP Loan increased by 2.9% and represented 1.1% of the Investment Portfolio as at September 30, 2024 (1.1% as at December 31, 2023). The Related Debt Investments at FVTPL at September 30, 2024 were $5,455,420 (December 31,2023 - $6,620,371) which included: (i) Six Canadian Related debt investments (classified as FVTPL) (December 31, 2023 - five Canadian Related debt investments) totaling $6,650,509 (December 31, 2023 - $6,540,366), (ii) one US dollar denominated investments (classified at FVTPL) totaling $3,756,771 (US $2,783,000) (December 31, 2023 - two US dollar denominated investments totaling $10,421,233 (US$7,879,354)) with fair value decrease of $5,000,000 and (iii) Marketable securities totaling $48,140. Related debt investments (at amortized cost) decreased by 91.8%.
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 3 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
The weighted average face interest rate on the Corporation's Investment Portfolio was 10.28% per annum as at September 30, 2024, compared to 10.99% per annum as at December 31, 2023.
The allowance for impairment and fair value loss adjustment was $24,202,826 as at September 30, 2024 (December 31, 2023, allowance for impairment and fair value loss adjustment - $22,711,894), comprised of (i) $17,768,500 (December 31, 2023 - $10,653,000) representing 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, (ii) $5,002,826 (December 31, 2023 - $10,392,194) representing the total amount of management's estimate of fair value adjustment on investments and (iii) a collective allowance balance of $1,431,500 (December 31, 2023 - $1,666,700).
During the quarter, the fair value adjustment decreased from $11,868,127 to $5,002,286, due to an $8,058,900 write-off of the loan's equity portion, offset by a $1,193,599 fair value decrease.
The gross carrying amount allocation of the Investment Portfolio between its 10 different loan categories is as follows:
September 30, 2024 | December 31, 2023 | ||||||||
Total Amount | % of | Total Amount | % of | ||||||
Property Type | (before provision) | Portfolio | (before provision) | Portfolio | % Change | ||||
Construction Mortgages | 91 | $ | 219,082,797 | 34.3% | 72 | $ | 142,640,836 | 23.8% | 53.6% |
Land & Housing Sites | 28 | 128,122,528 | 20.1% | 36 | 151,442,650 | 25.3% | (15.4%) | ||
Single Family Dwelling and Condo unit(s) | 125 | 162,294,232 | 25.4% | 82 | 151,209,871 | 25.3% | 7.3% | ||
Retail | 9 | 51,527,491 | 8.1% | 10 | 51,382,177 | 8.6% | 0.3% | ||
Multi Family Residential Mortgages | 7 | 33,514,507 | 5.3% | 9 | 38,034,552 | 6.4% | (11.9%) | ||
Related Debt Investments | 7 | 10,562,281 | 1.7% | 8 | 18,851,599 | 3.2% | (44.0%) | ||
Land Servicing & Serviced Lots | 6 | 9,107,421 | 1.4% | 8 | 15,695,990 | 2.6% | (42.0%) | ||
Industrial | 5 | 11,755,098 | 1.8% | 5 | 11,656,431 | 1.9% | 0.8% | ||
Mixed Use & Other | 5 | 8,957,500 | 1.4% | 6 | 12,347,500 | 2.1% | (27.5%) | ||
Office & Office Condos (owner occupied) | 6 | 2,962,559 | 0.5% | 7 | 4,797,964 | 0.8% | (38.3%) | ||
Marketable securities | 50,966 | 0.0% | 50,966 | 0.0% | |||||
Total gross carrying amount | 289 | $ | 637,937,381 | 100% | 243 | $ | 598,110,536 | 100% | 6.7% |
The Corporation continues to focus its lending in core markets that can be monitored closely during evolving economic conditions, with a strong focus in Ontario. The Mortgage Banker does not service or underwrite mortgages on hotels, hospitality properties or long-term care facilities and, as such, the Corporation does not have any investment exposure to these asset types.
As at September 30, 2024, the gross carrying value of the Investment Portfolio that is secured by properties outside of Ontario was 11.8%, compared to 15.5% as at December 31, 2023.
September 30, 2024 | December 31, 2023 | ||||||||
Geographic Segment | Number | Total Amount | % of | Number | Total Amount | % of | % Change | ||
Greater Toronto Area | 169 | $ | 352,406,223 | 56.2% | 155 | $ | 327,580,879 | 52.4% | 7.6% |
Non-GTA Ontario | 91 | 200,830,807 | 32.0% | 57 | 175,206,939 | 32.1% | 14.6% | ||
Quebec | 8 | 37,211,000 | 5.9% | 13 | 41,309,698 | 8.3% | (9.9%) | ||
Western Canada | 12 | 22,443,965 | 3.6% | 7 | 17,253,389 | 3.6% | 30.1% | ||
United States | 1 | 13,248,232 | 2.1% | 3 | 17,857,066 | 3.6% | (25.8%) | ||
Nova Scotia | 1 | 1,183,908 | 0.2% | 0 | - | 0.0% | - | ||
Mortgage Investment Portfolio | 282 | $ | 627,324,135 | 100% | 235 | $ | 579,207,971 | 100% | 8.3% |
Related Debt Investments | 7 | 10,562,280 | 8 | 18,851,599 | |||||
Marketable securities | 50,966 | 50,966 | |||||||
Total gross carrying amount | 289 | $ | 637,937,381 | 243 | $ | 598,110,536 | 6.7% |
*The Related Debt Investments at September 30, 2024 includes $155,000 investments at amortized cost and $10,458,246 of investments at FVTPL and then adjusted for a fair value decrease of $5,002,826.
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 4 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
The gross carrying amount allocation of the Investment Portfolio between the underlying security types is as follows:
September 30, 2024 | December 31, 2023 | ||||||||
Total Amount | % of | Total Amount | % of | ||||||
Mortgage Participation | Number | (before provision) | Portfolio | Number | (before provision) | Portfolio | % Change | ||
100% | 44 | $ | 29,335,123 | 4.6% | 47 | $ | 47,419,558 | 7.9% | (38.1%) |
90% to 100% | - | - | - | 2 | 4,017,360 | 0.7% | (100.0%) | ||
70% to 89% | 155 | 298,169,997 | 46.7% | 112 | 275,462,577 | 46.1% | 8.2% | ||
50% to 69% | 66 | 180,279,198 | 28.3% | 54 | 159,702,041 | 26.7% | 12.9% | ||
Less then 50% | 24 | 130,102,097 | 20.4% | 28 | 111,458,033 | 18.6% | 16.7% | ||
Marketable securities | 50,966 | - | 50,966 | 0.0% | - | ||||
Total gross carrying amount | 289 | $ | 637,937,381 | 100.0% | 243 | $ | 598,110,536 | 100.0% | 6.7% |
The residential category includes mortgages on single family dwellings, residential condominiums, residential land, residential construction, and multifamily residential.
The commercial category includes mortgages on retail, industrial, retail or commercial land, offices, and DIP loans.
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 under 55% based on the appraisals obtained at the time of funding each mortgage loan.
Included in conventional first mortgages is one United States ("US") dollar denominated investment (at amortized cost) of $13,248,232 (US$9,814,232) (December 31, 2023 - two US dollar denominated investments of $14,257,066 (US$10,779,575)).
For the three months ended September 30, 2024, income recorded on the US investments (at amortized cost and FVTPL) was $387,156 (US$282,769), (September 30, 2023 - $438,078 (US$325,079)). For the nine months ended September 30, 2024, income recorded on the US investments (at amortized costs and FVTPL) was $1,193,589 (US$873,431), (September 30, 2023 - $1,313,268 (US $976,960)). These amounts are included in interest and fees income.
As at September 30, 2024, the Investment Portfolio included eleven investments totaling $65,070,070 (December 31, 2023 - six investments totaling $53,709,591) for which a specific allowance of $17,768,500 (December 31, 2023 - $10,653,000) was recorded by the Corporation.
As at September 30, 2024, excluding investments for which there is an allowance or a fair value adjustment recorded against them by the Corporation, the Investment Portfolio had five investments totaling $7,164,275 (December 31, 2023 - three investments with a balance totaling $5,203,609) with contractual interest arrears greater than 60 days past due amounting to $491,210 (December 31, 2023 - $617,675).
The Investment Portfolio as at September 30, 2024, included seventeen investments totaling $42,188,456 (December 31, 2023 - fifteen investments totaling $56,461,478) with maturity dates that are past due and for which no extensions or renewals were in place. Two of these investments were paid out after September 30, 2024 for an amount of $3,567,875 (December 31, 2023 - one investment was paid out in the amount of $1,863,750). Four of these investments totaling $26,592,535 (December 31, 2023 - two investments totaling $10,572,193) have allowances recorded against them included in the Corporation's allowance for impairment. The remaining eleven investments with maturity dates that are past due and for which no extensions or renewals were in place amount to $15,595,921 (December 31, 2023 - twelve investments totaling $44,025,536) and do not require a specific allowance
As at September 30, 2024, the Investment Portfolio continued to be heavily concentrated in short-term investments, with approximately 29% maturing on or before December 31, 2024. The short-term nature of the Investment 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. Of the 289 investments, 269 were underwritten (as part of a renewal process or for new fundings) between 2024 and 2023, representing 84% of the Investment Portfolio, while the remaining 16% were underwritten in 2022 or prior.
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 5 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
The contractual maturity dates of the Investment Portfolio are as follows:
2024
2025
2026
Total gross carrying amount
September 30, 2024
Total Amount | |||
No. | (before allowance and Fair | ||
market adjustment) | % of Portfolio | ||
81 | $ | 183,335,611 | 28.7% |
191 | 407,897,550 | 64.0% | |
17 | 46,704,220 | 7.3% | |
289 | $ | 637,937,381 | 100.0% |
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 September 30, 2024, 245 of the Corporation's 289 investments (investment amount of $608,602,258) are shared with other participants, and 24 of which (with a total investment amount of $130,102.098) the Corporation is a participant for less than 50% of the loan amount.
Certain members of our Board of Directors and senior management and their related entities co-invested approximately $34 million with the Corporation alongside its Investment Portfolio as at September 30, 2024.
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 an investment with a first priority syndicate participant (i.e., loans payable), the Corporation ranks pari-passu with other members of the syndicate as to the receipt of principal, interest, and fees. As at September 30, 2024 and 2023, there were no mortgages with first priority participants.
As at September 30, 2024, the Corporation had unamortized fees of $1,028,442 (December 31, 2023 - $943,901) which are netted against the Investment Portfolio. The Corporation's policy is to recognize unamortized fees using the effective interest method over the contractual terms of mortgages.
RESULTS OF OPERATIONS
REVENUES
For the three months ended September 30, 2024, revenues increased by 10.6% to $19,078,666 compared to $17,245,057 for the three months ended September 30, 2023.
Revenues for the three and nine months ended September 30, 2024 and 2023 are broken down as follows:
Three Months Ended | September 30, 2024 | September 30, 2023 | % Change | ||||
Interest | $ | 16,268,494 | 85.3% | $ | 16,563,897 | 96.0% | (1.8%) |
Commitment & Renewal Fees | 480,326 | 2.5% | 582,673 | 3.4% | (17.6%) | ||
Other Income | 2,329,846 | 12.2% | 98,487 | 0.6% | 2,265.6% | ||
$ | 19,078,666 | 100% | $ | 17,245,057 | 100.0% | 10.6% | |
Nine Months Ended | September 30, 2024 | September 30, 2023 | % Change | ||||
Interest | $ | 48,301,270 | 92.1% | $ | 51,815,395 | 96.3% | (6.8%) |
Commitment & Renewal Fees | 1,549,009 | 3.0% | 1,750,756 | 3.3% | (11.5%) | ||
Other Income | 2,584,546 | 4.9% | 220,580 | 0.4% | 1,071.7% | ||
$ | 52,434,825 | 100% | $ | 53,786,731 | 100.0% | (2.5%) |
For the three months ended September 30, 2024, interest income was $16,268,494, a decrease of 1.8% over the $16,563,897 reported for the comparable period in 2023. Interest income for the nine months ended September 30, 2024 decreased by 6.8% to $48,301,270 as compared to $51,815,395 reported for the same period in 2023. The decrease is primarily a result of lower interest income due to a lower weighted average portfolio size and a lower weighted average interest rate, over the comparable period in 2023.
For the three months ended September 30, 2024, commitment and renewal fees were $480,326, a decrease of 17.6% from $582,673 reported for the comparable period in 2023. For the nine months ended September 30, 2024, commitment and renewal fees were $1,549,009, a decrease of 11.5% from $1,750,756 reported for the comparable period in 2023.
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 6 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months September 30, 2024, other income was $2,329,846 and $2,584,546 (2023 - $98,487 and $220,580), respectively. The rise in other income was largely driven by a one-time special profit of $1.9 million from a single loan.
CORPORATION MANAGER INTEREST ALLOCATION
During the three months ending September 30, 2024, the Corporation Manager received $1,184,000 (September 30, 2023 - $1,073,157), through a joint venture interest arrangement with the Corporation. For the nine months ended September 30, 2024, $3,419,328 (September 30, 2023 - $3,691,227) was received by the Corporation Manager under this arrangement. The decrease resulted mainly from the smaller average portfolio size in 2024 as compared to 2023.
INTEREST EXPENSE
Interest expense includes interest on our borrowing facility and outstanding debentures. For the three months ended September 30, 2024, interest expense decreased by 0.1% to $3,569,038 as compared to $3,574,140 for the three months ended September 30, 2023. For the nine months ended September 30, 2024, interest expense decreased by 7.8% to $10,772,374 as compared to $11,677,762 for the nine months ended September 30, 2023. The decrease in interest expense is primarily due to a smaller amount of debentures outstanding during the third quarter of 2024 relative to 2023, offset by an overall increase in utilization of Corporation's credit facility.
Interest expense is broken down as follows:
Three Months Ended | September 30, 2024 | September 30, 2023 | % Change | ||||
Bank Interest Expense | $ | 1,038,677 | 29.1% | $ | 575,049 | 16.1% | 80.6% |
Debenture Interest Expense | 2,530,361 | 70.9% | 2,999,091 | 83.9% | (15.6%) | ||
$ | 3,569,038 | 100% | $ | 3,574,140 | 100.0% | (0.1%) | |
Nine Months Ended | September 30, 2024 | September 30, 2023 | % Change | ||||
Bank Interest Expense | $ | 2,927,553 | 27.2% | $ | 2,701,109 | 23.1% | 8.4% |
Debenture Interest Expense | 7,844,821 | 72.8% | 8,976,653 | 76.9% | (12.6%) | ||
$ | 10,772,374 | 100% | $ | 11,677,762 | 100.0% | (7.8%) |
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES
For the three months ended September 30, 2024, G&A expenses were $350,975 (2023 - $426,885). For the nine months ended September 30, 2024, G&A expenses were $1,111,086, as compared to $1,206,979 in the comparable period in 2023.
INCENTIVE OPTION PLAN
The following is the status of the stock options issued under the Corporation's stock option plan:
Nine months ended September 30, 2024 | Year ended December 31, 2023 | ||||||||
Weighted | Weighted | ||||||||
average | average | ||||||||
Number of | exercise | Number of | exercise | ||||||
options | price | Amount3 | options | price | Amount3 | ||||
Outstanding, beginning of period | 3,245,000 | $ | 11.73 | $ | 2,535,489 | 3,427,500 | $ | 11.69 | $ 2,453,050 |
Options granted/amortization amount | - | - | 61,886 | - | - | 82,439 | |||
Cancelled | - | - | - | (182,500) | 12.13 | - | |||
Outstanding, end of period | 3,245,000 | 11.73 | $ | 2,597,375 | 3,245,000 | $ | 11.73 | $ 2,535,489 | |
Number of options exercisable | 2,725,000 | $ | 11.75 | 2,725,000 | $ | 11.75 |
3The outstanding amount corresponds to the stock-based compensation associated with the issued stock options.
The following options were issued and outstanding as at September 30, 2024:
Number of options | |||
Expiry date | outstanding | Exercise price | Number of options exercisable |
August 14, 2030 | 1,515,000 | 11.70 | 1,345,000 |
December 6, 2031 | 100,000 | 13.97 | 100,000 |
July 6, 2032 | 1,630,000 | 11.62 | 1,280,000 |
Total | 3,245,000 | $11.73 | 2,725,000 |
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 7 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
The total number of stock options outstanding as at September 30, 2024 is 3,245,000 (December 31, 2023 - 3,245,000), of which 2,725,000 stock options are vested and exercisable (December 31, 2023 - 2,725,000).
FAIR VALUE ADJUSTMENT ON INVESTMENT PORTFOLIO AND ALLOWANCE FOR IMPAIRMENT ON INVESTMENT PORTFOLIO AND INTEREST RECEIVABLE
The Fair Value Adjustment on the Corporation's Investment Portfolio as at September 30, 2024 was $5,002,826 (2023 - $10,392,194). The provision for impairment on Investment Portfolio and interest receivable for the three months ended September 30, 2024 was $3,793,341 (2023 - recovery $202,337). The sum of the fair value adjustment and provision for impairment for the three months ended September 30, 2024, was an expense of $4,993,341 (2023 - $3,557,663). As disclosed in our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2024, income is gross of the interest receivable impairment allowance for the third quarter of 2024 of $534,441. The remaining fair value and loan impairment expense is related to an increase in the impairment allowance and fair value adjustment of $4,458,900.
NET INCOME AND COMPREHENSIVE INCOME
Net income and comprehensive income for the three months ended September 30, 2024, was $8,960,532 (September 30, 2023 - $8,594,640), which represents an increase of 4.3% over the comparable prior year quarter. Net income and comprehensive income for the nine months ended September 30, 2024, was $26,064,088 (September 30,2023 - $25,828,891), which represents a increase of 0.9% over the comparable prior year period. Income for the three months ended September 30, 2024 represented an annualized return on total shareholders' equity (based on the month end average total shareholders' equity in the quarter) of 8.97%. This return on total shareholders' equity represents 510 basis points per annum over the average one-year Government of Canada Treasury bill yield of 3.87%. The above return on total 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 issues. 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 September 30, 2024 was $0.250 (September 30, 2023 - $0.249). Basic weighted average earnings per share for the nine months ended September 30, 2024 was $0.746 (September 30, 2023 - $0.749).
Diluted weighted average earnings per share for the three months ended September 30, 2024 was $0.249 (September 30, 2023 - $0.247). Diluted weighted average earnings per share for the nine months ended September 30, 2024 was $0.744 (September 30, 2023 - $0.742).
QUARTERLY FINANCIAL INFORMATION
Sep. 30 | Jun. 30 | Mar. 31 | Dec. 31 | Sep. 30 | Jun. 30 | Mar. 31 | Dec. 31 | Sep. 30 | Jun. 30 | Mar. 31 | Dec. 31 | |||||||||||||
($ in millions except per unit amounts) | 2024 | 2024 | 2024 | 2023 | 2023 | 2023 | 2023 | 2022 | 2022 | 2022 | 2022 | 2021 | ||||||||||||
Operating revenue | $ | 19.08 | $ | 17.07 | $ | 16.29 | $ | 18.11 | $ | 17.24 | $ | 17.52 | $ | 19.02 | $ | 17.53 | $ | 16.37 | $ | 13.90 | $ | 12.59 | $ | 13.05 |
Interest expense | 3.57 | 3.77 | 3.44 | 3.88 | 3.57 | 4.10 | 4.00 | 4.10 | 3.75 | 3.64 | 3.68 | 3.24 | ||||||||||||
Corporation manager spread interest allocation | 1.19 | 1.11 | 1.12 | 1.16 | 1.07 | 1.12 | 1.50 | 1.12 | 1.21 | 1.17 | 1.16 | 1.21 | ||||||||||||
General & administrative expenses | 0.35 | 0.40 | 0.36 | 0.66 | 0.43 | 0.46 | 0.32 | 0.46 | 0.53 | 0.33 | 0.27 | 0.38 | ||||||||||||
Share based compensation | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | 1.11 | 0.01 | 0.01 | 0.07 | ||||||||||||
Fair value adjustment on investment portfolio | 1.20 | 0.11 | 1.37 | (0.08) | 3.76 | 2.00 | - | 2.10 | 2.39 | - | - | 0.80 | ||||||||||||
Impairment loss/(recovery) on investment portfolio | 3.79 | 3.12 | 1.41 | 4.14 | (0.20) | 1.30 | 4.47 | 1.30 | (0.80) | 0.51 | (0.39) | (0.39) | ||||||||||||
Income | $ | 8.96 | $ | 8.54 | $ | 8.57 | $ | 8.33 | $ | 8.59 | $ | 8.52 | $ | 8.71 | $ | 8.43 | $ | 8.18 | $ | 8.24 | $ | 7.86 | $ | 7.74 |
Earnings per share | ||||||||||||||||||||||||
Basic | $0.250 | $0.247 | $0.248 | $0.242 | $0.249 | $0.245 | $0.253 | $0.245 | $0.237 | $0.239 | $0.232 | $0.234 | ||||||||||||
Diluted | $0.249 | $0.247 | $0.247 | $0.241 | $0.247 | $0.243 | $0.242 | $0.243 | $0.234 | $0.237 | $0.230 | $0.223 | ||||||||||||
Dividends per share | $0.234 | $0.234 | $0.234 | $0.288 | $0.234 | $0.234 | $0.234 | $0.248 | $0.234 | $0.234 | $0.234 | $0.246 |
DIVIDENDS
For the nine months ended September 30, 2024, the Corporation declared dividends on the Shares totaling $24,562,104 or $0.702 per Share, versus $24,210,051 or $0.702 per Share for the nine months ended September 30, 2023. The number of Shares outstanding at September 30, 2024 was 36,733,777, compared to 34,488,577 at September 30, 2023.
Firm Capital Mortgage Investment Corporation • 2024 • Third Quarter | Page 8 |