Ladies and gentlemen, please stand by. Your conference is about to begin. Welcome to the Atrium Mortgage Investment Corporation's Second Quarter Results Conference Call. At this time, all lines are in listen-only mode. Later in the call, we will conduct a question and answer session. At that time, if you have a question, you'll be asked by star two on your touch-tone keypad. A reminder that this conference is being recorded. Friday, August 8, 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 the beliefs, estimates, and opinions of Atrium's management on the date 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.
Thank you, and thank you for calling in today. Our CFO, Jeffrey Sherman, will start by talking about our financial results, and then I'll speak about our performance from an operational and portfolio perspective. Jeffrey?
Thank you, Bob. Atrium continues to generate another strong quarter for our shareholders. Our earnings per share were $0.28 in the second quarter, up from $0.26 in the second quarter last year and $0.25 in the first quarter of this year. On a year-to-date basis, our business share is at $0.53, well ahead of the fixed dividend of $0.465. Our Q2 second quarter earnings performance was driven by an increase in our mortgage balance to $921 million, up from $887 million at the beginning of the year, and higher than the prior year levels of $908 million in the second quarter of last year. As expected, the rate on our mortgage portfolio has come down to 9.3% at the end of the quarter, compared to 9.98% at the beginning of this year.
The decrease was driven largely by retainments of loans at high yield compared to new loan origination, and two 25 basis point cuts by the Bank of Canada in the first quarter of this year. 83.7% of our mortgage portfolio is priced off floating rates, with the majority having rate floors in place. Loans that we classify as stage two increased in the quarter to $89.9 million, primarily due to the addition of three commercial loans totaling $56.4 million, which is partially offset by $37.2 million of loans that migrated out of stage two. Stage three loans increased in the quarter to $45.7 million, primarily due to the addition of two commercial loans totaling $7.6 million and $18.8 million of single-family loans that were migrated to stage three.
Given the challenging market that we face, which Rob will be elaborating on, these are quite modest increases that reflect our cautious approach to lending. We continue to maintain strong liquidity and a well-capitalized balance sheet. As of the end of the second quarter, balance sheet debt remained low at 41.6% of total assets, with $265 million drawn on our credit facility that totals $340 million, leaving a substantial amount of additional capacity. During the quarter, we secured a three-year extension on our credit facility, and we expanded the syndicate group by 10 new members. Overall, the second quarter was another strong quarter in terms of our financial performance. We continue to adhere to our cautious risk appetite in terms of new opportunities, and operating expenses remain very well controlled. Our balance sheet is strong, and that will enable us to withstand stresses in the current cyclical downturn.
Rob, back to you.
Thank you. As Jeffrey said, we had a strong second quarter and first half of 2025. Atrium Mortgage Investment Corporation generated basic earnings per share of $0.28 in Q2 and $0.53 for the first six months of the year. Overall, the portfolio increased from $875 million last quarter to $921 million in Q2. Loan advances were very strong at $105 million, and they were $224 million for the first six months of 2025. This new loan volume is well above, indeed almost $50 million higher than the volume which we produced in the first half of last year. This represents a really solid six months of origination for Atrium Mortgage Investment Corporation under normal economic conditions, and it's exceptional under current market conditions. Loan repayments slowed in Q2 to $60 million after unusually high repayments over the previous two quarters, when we had annualized portfolio turnover of more than 55%.
We do expect new loan volume and repayments to slow in Q3, given the lack of transactions occurring in the real estate sector. We continue to make good progress in implementing CMCC strategy to increase our exposure to commercial loans and single-family mortgages. Commercial loans rose to 27% of the portfolio, and single-family mortgages and apartments grew to 18% of the portfolio. These two lower risk sectors now represent over 45% of our total portfolio, up from 41% last year. We did experience an uptick in single-family arrears despite virtually never lending beyond 75% loan-to-value at the time of origination. In order to ensure the resilience of our portfolio, we have implemented more conservative underwriting policies for single-family loans. In Q2, Atrium 's average mortgage rate dropped to 9.3% from 9.56% last quarter.
Our high level of repayments of higher-yielding loans, many with interest rate floors in place, were partly to blame, but the strong loan production over the last six months at today's lower interest rates also contributed to the decline in the average mortgage rate. We expect the decline in our average mortgage rate to stabilize going forward. The total of high ratio loans, that is, loans over 75% loan-to-value, was $48 million, equal to 5.2% of the total portfolio. This total is up on a quarter-over-quarter basis, but still well below a year ago when the balance was $79 million, or roughly 9% of the portfolio. In Q2, the average loan-to-value of the portfolio was little changed from the previous quarter at 61.2% and continues to be well within our desired range. Atrium's percentage of first mortgages remained very high at 96.8%.
Construction loans represented only 3.6% of the total mortgage portfolio. As I mentioned before, construction costs have become more stable in our target market, and in the case of the GTA, they're actually dropping. We are now more willing to consider underwriting construction loans with experienced developers. Turning to portfolio quality, as Jeff mentioned, in Q2, the total of stage two and stage three loans increased from 10.6% of the portfolio to 14.8% of the portfolio. The increase was partly due to a change in Atrium's policy of categorizing stage two and stage three loans to be more in keeping with industry practice. The most significant impact was for single-family loans, where $12 million were transferred from stage two to stage three. Previously, we viewed stage three loans as impaired loans, meaning we expected to incur a loss.
Under the new policy, we include any loan in default in stage three, regardless of the risk profile. In other words, it can include loans where we do not expect to incur a loss. Please note that this change in policy does not affect the provisions made for individual loans or for the portfolio made as a whole. There were four commercial and multi-residential loans totaling $25.1 million in stage three at the end of Q2. This represents an addition of approximately $8 million from last quarter and is made up of two loans, both of which are in default. The good news is that we do expect a full recovery on both loans. We've made progress on the other two loans as well in stage three.
One is now conditionally sold, and the other had a significant paydown in Q2, which should result in a substantial recovery of the loan. Turning to the loan loss reserve, Atrium's aggregate loan loss reserve was virtually unchanged in Q2 at $28.9 million. This is equal to 314 basis points on the overall mortgage portfolio, and we continue to believe that we have adequate provisions in place to protect the portfolio. In Q2, we renewed our line of credit. Our $340 million line of credit was renewed for two years at the end of June and included all of the existing participants plus two new lenders. The new maturity date is now May 15, 2027. In the capital markets during Q2, we arranged a $30 million convertible debenture with a coupon of 6% and a seven-year term.
As described in our press release of June 30, we reluctantly terminated the contract due to an ongoing audit by the regulator of our previous auditor. That audit revealed that insufficient procedures and testing were completed by our former auditor on the 2023 financial statements of Atrium Mortgage Investment Corporation. We are assisting our former auditors by providing additional information to satisfy their regulator. We're hopeful that the matter will be resolved by the end of Q3. My economic commentary is as follows: the Canadian economy, and indeed the global economy, remained very uncertain in Q2. The Bank of Canada is now estimating the GDP declined by 1.5% in Q2 in Canada and will grow slowly at 1% for the balance of the year. The weakness in Canada has been triggered, of course, by uncertainty surrounding tariffs by the U.S.
There are mounting expectations that some level of tariff will remain in place, particularly after Japan and the European Union recently agreed to 15% tariffs on most goods and 50% on steel and aluminum. CPI in Canada rose to 1.9% in June from 1.7% the previous month, affirming that price pressures remain sticky. Headline inflation also accelerated in the U.S. to 2.7%. As a result, both the Bank of Canada and the Fed policy rates were unchanged on July 30. However, a subsequent weak job report in the U.S., as well as a downward restatement of job growth the previous two months, has increased the possibility of an interest rate cut by the Fed at their next meeting. Certainly, a drop in interest rates would be a welcome relief for the real estate industry.
Turning to the commercial markets, national cap rates appear to have peaked, having dropped by five basis points over the last four quarters. In the GTA, multi-residential cap rates for apartments range from 3.85%- 5%, while industrial cap rates were 5%- 6%. Office cap rates had a much wider range of 5.25%- 7.25%, the latter being deep quality suburban office space. In Vancouver, cap rates for apartments are lower but rose to 3%- 4.5% for apartments, while industrial cap rates were 4.5%- 5.25%. Office cap rates ranged from 5.25%- 7%. Most commercial real estate sectors are performing quite well, including multi-residential, industrial, retail, and senior housing. The office sector continues to be weak, but there were positive signs in Q2 that many large corporations are requiring their employees to return to the office four to five days a week.
Looking at the residential and multi-residential real estate markets, and first at resales in the GTA, resales were up both in June and July. In fact, in July, sales were up almost 11% on a year-over-year basis, the highest volume of resales for July since 2021. New listings were up only 5.7% versus 7.7% the previous month. With sales increasing more than listings, market conditions actually tightened slightly. The MLS composite benchmark was down 5.4% year-over-year in July. On a month-over-month basis, the benchmark price was flat. The weakest sector, of course, was the condo market, which has declined 8.1% on a year-over-year basis. Metro Vancouver resales in July were down 2% year-over-year. New listings were approximately the same as a year ago, and the home price in metro was down 2.7% year-over-year and 0.7% from last month.
In the new home market, conditions remain extremely slow across most markets in Canada. In the GTA, new home sales in June were down 60% year-over-year and 82% below the 10-year average. Condominiums have been the weakest sector, with only five high-rise launches totaling 1,200 units so far in 2025. The only good news is that the number of condominium units under construction in the GTA continued to drop, from a high of 108,000 units in 2022 to 65,400 units at the end of Q2. Completions are projected to total 17,000 units for the remaining six months of 2025, before declining to a historically normal annual level in 2026, and then a very sharp contraction in 2027 when a recovery should start to take place. In Metro Vancouver, the new home market is somewhat stronger.
2,200 new homes were sold in Q2, which was up 55% from the previous quarter, although still down 29% on a year-over-year basis. 25 projects totaling almost 2,100 units were released in Q2 and were 25% pre-sold by quarter end. The inventory levels remain high, however, which has prompted developers to reduce prices and enhance incentives. For the new home market to fully recover, we need the combination of higher resales, which appears to be happening in the GTA, and we need to sustain the price appreciation, which has not happened yet. Further government incentives are also needed. For instance, HST, perhaps some relief, further relief on development charges, and perhaps some tax incentives like MRRs. We need a further decline in construction costs, which I think will happen naturally over the next 12- 18 months.
To conclude, I'm pleased with our results for the first half of the year, but we're under no illusions that real estate markets remain weak and we are in the midst of a real estate downturn. We must remain very disciplined in our underwriting standards. On the positive side, our underwriting teams have done a great job of originating loans in the first half of 2025. Our year-to-date loan originations are nearly 25% above the volume produced in the first six months of 2024. Recently, however, we've noted a slowdown in good opportunities, so we are unlikely to generate as much loan volume in the next six months. While conditions are difficult, Atrium 's results are strong, to date are strong, as they have consistently been in past downturns.
Our track record indicates that we know how to build and manage a resilient loan portfolio in all stages of the market cycle. That's all for the presentation, but I'd be pleased to take any questions from the listeners.
The Q&A session will now begin. Please enter Star two on your keypad so that the operator knows you have a question. The first question is from Michael McHugh from PV Securities. Michael, please go ahead.
Hi. Good morning, everyone. I'd just like to start with some clarification on the new staging process. You mentioned that any loan now that is in default is automatically placed in stage three. Would that be part of the reason why the provision in the quarter will be lower than we would have expected given the increase in stage three loans? Is that the right way to think about it? You're still expecting full recovery on these loans even though they've been moved into stage three?
Yeah. We actually anticipated that question. There's no real change in stage two, but in stage three, roughly $25 million of the $45 million in stage three were as a result of a policy change where we do not expect impairment. One of the issues was credit impairment. We interpreted it to mean a loss, but the industry practice is, and again, it's quite interpretive, not prescriptive, but the industry practice is that credit impairment doesn't necessarily mean a loss. It means a weakening, I guess, to a high-risk situation, and default is deemed to be that type of situation. You could actually have a loan in stage three, and we don't have any of these, but you could actually have a loan that's at 40% loan-to-value but is in default that would be transferred into stage three. We weren't practicing that.
We were viewing that stage three was where the loan would have a loss. It might be a $20 million loan with a $1 million loss, but that's the way we interpreted it, which we discovered was not the practice that other larger financial institutions were using.
The way we define phase three is objective evidence of impairment. If there's a default, I guess that's objective impairment, even if we don't expect to lose on the loan.
Right. Okay. Thanks for that explanation. That makes sense. Rob, as you mentioned, to dig a little bit further into the, a lot of the stage three increase did come from single-family, as mentioned, and just some commentary on your level of comfort with the LTVs on these loans, given that, as discussed, the single-family housing market still remains a little soft in pockets.
Yeah. Atrium virtually never does a single-family loan over 75% loan-to-value, even though in industry standards, single-family loans up to 80% are considered conventional. We don't go to 80%. What's happened, obviously, is the market values have weakened. When they're renewed, they may have started at 75%, but they now may be at 82% because year- over- year, there's been about an 8% decrease in condo values. We're being more careful in terms of looking at the borrower as opposed to, I would say, being more of an asset lender. We're looking at the borrower, looking at the type of real estate more carefully just to make sure that we continue to have a pretty good portfolio. Most of that $20 million that's in phase three, we do not expect to lose money on.
In fact, I think we have $2 million or something like that of reserve against that $20 million. That'll give you a sense of it.
Okay. Great. Thanks. If I just may, one quickly just about liquidity and funding. Once the audit issue is resolved, you mentioned maybe a timeline, possibly end of Q3. Would you be looking to come back to markets with that convertible debenture offering that was primed earlier in the year?
We might. You know, we didn't do that, as I may have told you before. We didn't do that convertible debenture for liquidity reasons. We did it to balance the line of credit with the converts, which we always like to do. We like to have some floating rates, obviously, in the line of credit. We obviously need that, but we like to balance it with some long-term fixed-rate money you get from the converts. The real question will be, I think, is what does our portfolio size look like? How much are we using the line of credit? Is the line of credit way down because repayments are staying potentially larger than originations? We're finding originations not easy right now. There is not a lot of activity in the marketplace.
I think every lender, including institutional lenders, are finding the same thing. There is just not a lot of activity going on. More than likely, I think more than likely we'll want to do the convert because the objective, as I say, was not for liquidity reasons. It was more to balance the liabilities between fixed rate and floating rate. I can't say for certain. We'll have to look at it when we're able to go back to the markets. We know the investment dealers were really happy with the way the convert sold. I think the market will be there when the opportunity arises.
It sort of depends on the originations and repayments in the next couple of months. That makes sense. Thanks very much. That's awesome.
Okay, thank you.
If anyone else has a question, please enter star two on your keypad. It appears that there are no other questions at this time. I will now give the call back to Robert Goodall for closing statements.
Okay. Thank you very much for attending the conference call. We're pleased with the results. I hope you are as well. For existing shareholders, thank you for your continued support of Atrium.
Thank you all for participating. The conference call is now concluded. Please hang up.