Ladies and gentlemen, please stand by. Your conference is about to begin. Welcome to the Atrium Mortgage Investment Corporation's third 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 to press star two on your touch-tone keypad. A reminder that this conference is being recorded. It's 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 obligations to update these forward-looking statements in the event that management's beliefs, estimates, and 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 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?
Thank you, Rob. Atrium continued to generate another strong quarter for shareholders amid a challenging economic environment. Atrium generated net income of CAD 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 CAD 0.25 per share for the quarter, which continues to exceed our fixed dividend of CAD 0.2325 per share. On a year-to-date basis, we generated CAD 0.78 per share, again ahead of our fixed dividend rate of CAD 0.6975 per share. As expected, the average interest rate on the mortgage portfolio has decreased to 9.2% as of September 30, 2025, from 9.98% as of December 31, 2024.
The decrease was largely driven by repayments of loans with higher yields compared to new loan originations and the impact of three 25-basis-point rate cuts by the Bank of Canada during the period, with two in the first quarter and one in the third quarter impacting floating interest rates. As of 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 CAD 917.3 million, which is an increase from CAD 886.7 million at December 31, 2024. As of 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 CAD 29.5 million at the end of the third quarter, which, as a percentage of the mortgage portfolio, represents a healthy 321 basis points. Stage two loans increased to CAD 96.8 million at the end of the third quarter, up from CAD 89.9 million at June 30, 2025, primarily due to the addition of three commercial loans totaling CAD 40.7 million and CAD 6.1 million of single-family loans. This was offset by two commercial loans totaling CAD 13.5 million that migrated to stage three and three commercial loans totaling CAD 26.8 million that migrated to stage one. Stage three loans increased to CAD 56.3 million at the end of the third quarter, up from CAD 45.7 million at the end of the second quarter, primarily due to the addition of two commercial loans totaling CAD 13.9 million and offset by CAD 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 of September 30, 2025, balance sheet debt remained low at 41%, with CAD 253 million drawn on our CAD 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 CAD 40 million- CAD 380 million, which underscored the confidence of our lenders. We are pleased to announce that PricewaterhouseCoopers has been appointed as our new auditor, 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 of 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.
Thank you. As Chris said, Atrium 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 CAD 1.63 million loan loss provision this quarter versus nil last quarter. Our nine-month results are $0.78 a share, virtually identical to last year and well ahead of our dividend. Overall, the portfolio was steady at CAD 917 million versus CAD 921 million last quarter. Loan advances were CAD 63 million in the quarter and CAD 287 million for the first three 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 CAD 65 million, which is very similar to the repayment level in Q2.
For the first nine 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's strategy to increase our exposure to commercial loans and single-family mortgages. The commercial category has seen a net increase of CAD 101 million over the last 12 months and has risen to a 27.2% share of the portfolio, representing an 11% increase year- over- year. 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 CAD 52 million, equal to 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 CAD 79 million and roughly 9% of the portfolio. In addition, one CAD 6.2 million high ratio loan was paid off shortly after quarter end, and another CAD 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 market and are actually declining in the GTA, so we are now more willing to consider underwriting construction loans with experienced developers. We anticipate funding a CAD 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 two and stage three loans increased slightly. Stage two loans increased from 9.8% last quarter to 10.6%, and stage three loans increased from 5%- 6.1%. In the stage three category, there are six commercial and multi-residential loans totaling CAD 39.4 million. A CAD 6.2 million loan was repaid shortly after the end of the quarter, and another CAD 5.7 million loan is expected to be repaid tomorrow. 100% of the principal and interest will be collected on both of those loans.
We expect that another two of the remaining loans in stage three will be repaid before the end of Q4. As many as four of the six commercial and multi-residential loans in stage three are anticipated to be repaid in Q4 or very shortly thereafter. Turning to the loan loss reserve, we expense a loan loss provision of CAD 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 CAD 28.9 million last quarter to CAD 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 CAD 40 million.
They very quickly obtained approval, and on October 22nd, we closed the transaction. As a result, the committed amount of our line of credit has now increased from CAD 340 million to CAD 380 million, with only CAD 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 two 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 one-half of 1% 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 U.S. also accelerated to 3% in September. Both the Bank of Canada and the Fed dropped interest rates on October 29 by 25 basis points, suggesting they are more worried about economic growth and jobs than they are about inflation. Based on the recent employment gains in Canada, it is 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 have stabilized. According to CBRE, the national average all-properties cap rate held flat in Q3 after dropping by just one basis point in Q2. Most commercial real estate sectors are actually performing quite well, including multi-residential, 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 four to five days a week. Looking at the residential and multi-residential real estate market, 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 2023, 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 Greater Toronto Area, 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 in the Greater Toronto Area 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 drop 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 Price year north of Fraser area and by 35% in the more affordable south of 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 completions starts to drop sharply. To conclude, Atrium continues 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 PricewaterhouseCoopers as our new auditors, increasing the committed amount of our line of credit by CAD 40 million to CAD 380 million to ensure ample liquidity, and fully recovering CAD 12 million of principal and interest on two stage three 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 were well above the volume funded over the same period in 2024.
We intend to actively source new loan business in our target market, while some of our private non-bank 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 is all for the presentation, but we'd be pleased to take any questions from the listeners.
The Q&A session will now begin. Please enter STAR2 on your keypad to let the operator know you have a question. First question is from Michael McHugh of TD Securities. Michael, please go ahead.
Hi, good afternoon. Thanks for taking the question. Just first on sort of the portfolio growth front, obviously a bit of cautious sentiment, but you did mention that you expect both originations and repayments to be a fair bit higher in Q4. Any commentary on sort of an 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?
I think they will be in the lower risk sectors, although with repayments, some of those repayments will also be in those same sectors. It is difficult to know, but we are continuing to push hard to increase our exposure to that commercial and single-family area. We are expecting the portfolio size to increase, but we literally have about a month before the market sort of shuts down for new funding. Some of them are on the edge as to whether they will be funded in December or at the beginning of January. It is difficult to forecast, but we are thinking the portfolio will be up slightly.
Okay, great. That's very helpful. And then sort of to that end, obviously you saw you upsized the credit facility. Any appetite at the moment to re-enter the convertible market now that the audit is behind you?
Yeah, 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.
Great. I might just sneak one 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?
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 two or three years, and they often have very high coupon rates. So a lot of their or some of the reduction that we've had over the last nine months is because we dealt with our problem loans. We haven't just kept them on our books and hoped that time would solve the problem. We've actually dealt with them. 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. A couple of loans, quite frankly, in our queue 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.
Great. Okay. That's very helpful, and I will requeue for now. Thanks.
Okay.
The next question is from Sid Rajeev of Fundamental Research Corp. Sid, please go ahead.
Hi, thank you. With four out of six loans in stage three to be repaid in Q4 and Q1 mostly, could you please provide some guidance on forecasting provisions and allowances in Q4?
In Q4?
Yes.
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 two and stage three actively, but you never know if another loan's going to deteriorate and come into that. Right now, we feel good, as I say, about the portfolio, but we still got another month and a half in the quarter. The real estate market, as I say, particularly the housing market, is pretty weak in Ontario and British Columbia.
Okay. And just one more question. You talked about interest rates and it being steady the next quarter, likely. How are you pricing your current originations? Just to get your internal thoughts, are you anticipating one more rate cut?
Sorry, how are we pricing new business?
Yes.
We generally are still pricing new business at prime plus, and we obviously are not a prime plus one or prime plus one and a half like a bank or a higher spread. We try to institute floors. For instance, if we were at prime plus three and a half, that would be roughly, what, 8% today. Am I getting it right? 8% today, 4.45 plus three and a half. Yeah, 7.95. We would try and put in a floor of 7.95. Depends how competitively bid the business is, whether you can actually negotiate that and keep it.
Got it. Appreciate it. Thank you all.
Yeah, because one of the reasons the borrowers want floating is because they do not see rates moving up, and they see them possibly continuing to move down.
Makes sense. Thank you.
Okay.
If anyone else has a question, please enter STAR2 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 for attending our conference call. We're pleased with the result. I hope you are as well. For existing shareholders, thank you for your continued support. Have a great day.
Thank you for participating. This conference call is now concluded. Please hang up.