I would like to welcome all shareholders t
o Atrium's Annual General Meeting. I will now hand the meeting over to Mark Silver, Chair of the Board of Atrium. Mark?
Thank you, John. The annual meeting of shareholders of Atrium Mortgage Investment Corporation will now come to order. I am Mark Silver, the chair of the Board of Directors of Atrium. I'll preside as chair of the meeting, and John Ahmad, CFO and corporate secretary of Atrium, will act as secretary of this meeting. Firstly, I'd like to thank everyone for joining us today, especially those who have dialed in or logged in to listen to this meeting as it is being audio webcast live. I would remind everyone that this is the meeting of shareholders of Atrium, and only shareholders or their proxies are entitled to participate in the business of the meeting.
With the consent of the meeting, Anup Das of Computershare, Atrium's transfer agent and registrar, will act as scrutineer of this meeting to report on the number of shares present in person and represented by proxy at this meeting, and to report to me on these matters. Prior to the commencement of this meeting, the scrutineer filed this preliminary report on attendance in person and by proxy. The secretary has confirmed that there is a quorum of shareholders. I have asked that the scrutineer deliver a formal report to the secretary as soon as possible. The notice calling this meeting and the accompanying material have been mailed to all shareholders, and the secretary of the meeting has provided me with proof of service of such material. Accordingly, the reading of notice of the meeting will be dispensed with.
The financial statements of Atrium Mortgage Investment Corporation for the fiscal year ended December 31st, 2023, together with the report of the auditors thereon, have been posted on SEDAR and on the company's website and were mailed to those shareholders who requested them. With the consent of the meeting, the reading of the auditor's report will be dispensed with, and these audited financial statements shall be received. Our bylaws provide that any meeting of our shareholders, the holders present in person or represented by proxy of at least 5% of the outstanding shares entitled to be voted at the meeting, constitutes a quorum. I will now ask the secretary to read the scrutineer's report on attendance to the meeting. John?
Today we have 1 shareholder in person representing 2,221 shares. We have 36 shareholders represented by proxy, which totals 11,177,766 shares. The total shareholdings represented is 11,179,987. The total issued and outstanding shares at the record date is 44,226,319. The total percentage of shares represented at this meeting is 25.28%.
Thank you very much, John. I declare a quorum of shareholders is present and that this meeting is properly constituted for the transaction of business. I direct that the scrutineer's report on attendance be attached to the minutes of this meeting. The first item of business is the appointment of Crowe Soberman LLP, Chartered Professional Accountants and licensed public accountants, as our independent auditors, authorizing the directors to fix their remuneration. In order to be approved, the resolution must be passed by a majority of the votes cast. May I have a motion for the approval of this resolution, please?
I move that Crowe Soberman LLP be appointed as the independent auditors of the corporation to hold office until the close of the next annual general meeting of shareholders, or until their successors are appointed, and the directors of the corporation be authorized to fix their remuneration.
I second the motion.
Thank you, Emily and Rajan.
The meeting will now vote on the motion. While we normally would take vote by way of show of hands, there are no shareholders voting in person today, accordingly, we will read the votes received by proxy on this matter. We have received 11,051,627 votes for this motion and 126,139 votes withheld.
I can declare the resolution carried. We will now proceed with the election of directors. I now declare the meeting open for nominations for directors to hold office until the conclusion of Atrium's next annual general meeting or until their successors are elected or appointed. The management information circular states that there are eight proposed director candidates. May I have a motion to nominate such individuals, please?
I nominate the following for election as directors of Atrium for the period described by the chair: Peter Cohos, Robert DeGasperis , Robert Goodall, Andrew Grant, Maurice Kagan, Nancy Lockhart, Jennifer Scoffield, and Mark Silver.
I second the motion.
Thank you. I note that there are no further nominations. I therefore declare the nominations closed. I'd like to remind you that directors are to be voted on individually rather than as a slate, in accordance with the majority voting policy adopted by Atrium, which is described in the management information circular. May I have a motion in favor of the election of each of the eight persons nominated, please?
I move that each of the persons nominated be individually elected as directors of Atrium Mortgage Investment Corporation until the conclusion of the next annual meeting of shareholders or until his or her successor is duly elected. S he otherwise ceases to hold office, subject to the Corporation's policy with respect to the election of directors.
I second the motion.
Thank you both. The meeting will now vote on the election of directors individually. As there are no shareholders voting in person today, we'll read the votes reviewed by proxy on the election of each director.
For Peter Cohos, we received 11,022,798 votes for his election and 154,968 votes withheld. For Robert DeGasperis, we received 11,165,050 votes for his election and 12,716 votes withheld. For Robert Goodall, we received 11,164,700 votes for his election and 13,066 votes withheld. For Andrew Grant, we received 11,125,140 votes for his election and 52,626 votes withheld. For Maurice Kagan , we received 11,157,408 votes for his election and 20,358 votes withheld.
For Nancy Lockhart, we received 11,006,901 votes for her election and 170,865 votes withheld. For Jennifer Scoffield, we received 11,138,822 votes for her election and 38,944 votes withheld. For Mark Silver, we received 11,040,993 votes for his election and 136,773 votes withheld.
Thank you. I declare as such, each motion carried with each individual nominee having been elected as a director of Atrium for the term described, or until his or her successor is elected or appointed. If there is no further business, I declare this meeting terminated. Management would like to remind all shareholders attending and listening to this meeting that they will be holding a conference call at 4:00 P.M. this afternoon to discuss the Q1 financial results. Calling information can be found in May 2 news release , posted on Atrium's website under News in the Investor Center. Management would like to invite all attendees to stay on the line for a business update. Rob, are you there?
Yep, I'm here.
Excellent.
Okay. Thank you very much, Mark. We'll now provide the management presentation. We have the standard slide that talks about forward-looking statements. Most of what we're going to show you are actually historical and factual information, but occasionally we're talking about some forward-looking statements, and we've tried to be as reasonable as we can. We'll go on to the next slide. We think the pillars of our success can be divided into three different categories: risk management, our expertise, and our consistency. In terms of risk management, we've always tried to keep a low loan-to-value on a portfolio basis, a band of anywhere from 60%-65%. It's around 64% as of the results that were presented for Q1 yesterday.
In terms of looking at first mortgages, that's obviously going to be less risky than having secondary charges on a property. I think we hit an all-time high of 96.7%. You'll see a slide that shows the historic numbers later on. We've really, really focused on the first mortgages and the percentage of first mortgages in this downturn. In terms of board oversight, I think we may be the only MIC that has approval by our board of directors on all loans over CAD 2 million. A single director, which is usually me, has approval authority for loans under CAD 2 million. In terms of expertise, we have a pretty seasoned management team.
There are 5 of us, 5 managing directors who have at least 18 years of experience, and we have experience in all different sectors. We lend on a pretty diversified portfolio, residential single-family mortgages, multi-residential mortgages, development loans, and commercial loans. All of the, all of the normal sectors you would see from a major institutional lender as well. In terms of consistency, we've always had a pretty defensive lending strategy by focusing on first mortgages, by focusing on a portfolio loan-to-value within a set range, by focusing on lending in major urban centers. Even within Toronto, most of our loans would be within 416, and less in 905, and also by having teams on the ground.
Our largest exposures are in BC and Ontario, and we have significant offices in both Toronto and Vancouver to look after those loans. That way, we know what's going on in the marketplace, and we're not guessing by not being located directly there.
In terms of a track record, there's lots of slides which will confirm just how consistent our earnings and dividends have been literally over the last 21, 22 years, half of which we were private and half of which we were on the TSX as a publicly traded company. The next slide is showing how we've slightly adjusted our lending in today's environment to be more resilient. We've increased our single-family mortgage area, and we're trying to build that area up. We had a large quarter, at least 35%. Around 35% of our originations in Q1 were single-family mortgages, and we're interviewing people to build up that area of the book. Why single-family mortgages? Because we view resales as probably the most liquid and safe type of real estate to lend to right now.
We still do development loans, multi-residential. We're trying to focus on townhouses, which would have a lower price point because of affordability issues in today's market. We're still looking at development loans, but obviously in the major urban centers with a relatively low loan-to-value. Most of our clients, and this is a misperception I think of a lot of people have. Most of our clients are actually bank clients as well. Just to give you an example, in 2021, we had 71% turnover in the Ontario portfolio, and almost all of that was the Big Five banks refinancing our loans with clients that we both share as clients. The last area that we're increasing our exposure to is commercial, because it's got a recurring income.
That's what we're looking for. Obviously, we're not really focused on office. We're focused more on retail, industrial, and mixed-use type of properties. That's how we slightly adjusted our target markets to be to make our loans more resilient in today's downturn.
As mentioned earlier, we're going to go through our Q1 results in more detail later this afternoon at 4:00 on our quarterly conference call. I'll just touch on some high-level highlights right now. You can see over the past couple of years that, you know, our portfolio has remained very stable and growing slightly. We've achieved this despite slower and softer market conditions. One thing we've done last year was, as you can see, we had an investment property that was on our books for a little while.
We actually sold that for a slight gain, which allowed us to pay off our credit line and free up funds to deploy to more accretive assets. The other point I just want to put up here on this slide is that if you look at our funding stack, it's diversified across our credit line and our debentures and equity, but our equity is 56% of our business. I mean, if you look at a bank, you're going to see a number there like 6%, 7%, 8%. Our goal is really to keep a really strong balance sheet with lots of capital, lots of capacity in our debt. Our debt capacity is CAD 315 right now.
You can see we have draws of CAD 214. This allows us to have gunpowder in case the market changes and we're ready to grow again. It also implies that we have a lot of liquidity in case we have any issues as well, which is very important in this market. This next slide illustrates our P&L results over the last couple of years. You can see that we've managed to grow our earnings. 2022, we had CAD 1.08 of EPS. That was a record at that year. 2023 was another record at CAD 1.18. We believe we've got off to a good start, given market conditions of CAD 0.27 for Q1.
You know, by any means, if you look historically at our business, CAD 0.27 was actually a record going not that far back, like late 2022. We feel we're off to a good start as well to 2024. Looking at our P&L, if, you know, you just, you know, ignore the provision for mortgage losses, just our core operating expenses, we run a very lean business, and you can see this year, last year, prior years, our total expenses are about 1.1% of our, of our assets. Now, our Q1 is lower than last year because we have taken a larger provision. You can see the CAD 3.9 billion in Q1 versus CAD 1 million last year.
We believe that this is prudent, you know, to recognize higher credit risks in our portfolio. We'll get into a little bit more detail on that later. This next slide illustrates our historical earnings. This is going back to the beginning of time, even before Atrium was public. We went public in late 2012. Prior to that, Atrium was a private company. If you look back, you know, you can see very consistent and growing earnings over time. It's a little bit more volatility when we were private. That's because the book was under CAD 200 million, it was quite smaller. You can see, since going public, a lot more steady and a lot more growing returns. As a MIC, we want to distribute all our taxable income to avoid corporate in-income tax.
As you probably know, we achieve this through a base dividend of CAD 0.90 a year, or CAD 0.075 a month. We pay a special at the end of the year to the extent our taxable income exceeds our dividends for the year. We have paid some years. We have maintained our dividend at CAD 0.90 for now. We chose to do this given the volatile market conditions. We run our business conservatively, so we take a conservative approach here. As we see market fundamentals change, we certainly will reevaluate that.
This next slide we've never shown to our shareholders before. It, it highlights how well we do in a market downturn. If somebody's thinking: "Okay, how's Atrium going to perform through this market downturn?" The best evidence is historic. In the financial crisis, 2008, 2009, you can see we did extremely well. Our average earnings over the last 22 years since we started, have probably been mid-nineties. say CAD 0.95 or thereabouts. You can see in the financial crisis, we were at CAD 0.98 and CAD 0.99. We skated through without a lot of problems and generated above average earnings. You can say the same thing about this four-year period of COVID, where we started at CAD 0.98. In 2022, we had the second best year in our history at CAD 1.08.
Last year, we had the best year of our history at CAD 1.18, and we're off to a really good start in 2024. What's interesting and not clearly visible to you, is that we've been aggregating very healthy provisions for future loan losses as we've generated these above average earnings. Okay, I mentioned earlier, what we try to do is stay within the 60%-65% loan-to-value band. We moved up from 61-64 in Q1. That had really to do with 2 things that happened. One is we had a large loan that was reappraised, and it came in at a lower appraisal. Appraised value, I'm sorry. The second thing is, as I mentioned, we're trying to do more single-family lending. You don't do single-family lending at 60%-65%.
You tend to do it at 65%-75% in order to compete, because it is the most liquid and most competitive market out there. That'll push these numbers up. I don't see us going significantly beyond 65%, but the change in sector mix will push us a little bit higher. We'll always try and keep within this band to make sure that, as in the past, we have a very conservative portfolio that can handle a protracted downturn.
Banks doing well?
On average, in loan-to-value, the Big Five for single family, that's the only one I'm aware of, would be in the mid-fifties. The Big Five have the cheapest money in the marketplace. If you move to other financial institutions, so the smaller banks, they'd be in around 65%. Not so different from what we are. I think I looked at our single-family portfolio is about CAD 100 million now, and I think I looked at our weighted average portfolio, and it's like 67%, 68%. It's not so different from the financial institutions, other than the Big Five, who have obviously such a pricing advantage, they have lower loan-to-values.
This next slide, we illustrate our loan loss reserves as a % of our mortgage portfolio and how that's changed over time. Before I get into this, just want to remind everyone how we stage our mortgages in accordance with IFRS. Stage 1 mortgages are performing loans. Stage 2 mortgages are loans that exhibit higher than usual credit risk, so they may have missed a payment, or there may have been a deterioration in collateral, or concerns about some other aspect of the borrower's covenant. Stage 3 are impaired loans, where we feel we are not going to collect a portion, usually just a portion, not the whole loan, of principal and/or interest accrued on the loan. Just like every single financial institution out there, you know, Atrium is not immune to higher credit risk.
all lenders are. The increase over the years is to be expected and consistent with the industry. I do want to point out a couple of things. One, that, you know, we've increased our provisions over the last couple of years, but as mentioned earlier, we've also had record earnings. you know, our business model is scaled to a size and scale where, you know, we can still generate great cash flow and still absorb, you know, higher than reserves above historic levels. Yes?
What are the actual losses you've incurred?
We've only, over the last, probably last... This quarter, going back to last year, last two years, CAD 1.5 million.
One of the loans we recovered.
Yeah.
Some on the guarantee, is that CAD 1.5, the net number?
1.5, that's the late, the last loan you didn't see.
Yeah.
Yeah.
We've done really well. I mean, we got CAD 24.9 million in reserves, and we've had the loss that John just mentioned. We think we're very well provisioned, but better to be safe than sorry, right?
If you look at our provision, you know, how it's broken out, the dark blue is the Stage 1 provision, the general... almost 40% of our total reserves. That's not really allocated to a particular loan, the way the light blue and the orange is. Those are allocated to particular loans, and that's probably not very common, at least in the information that we see, in terms of building up a general reserve. We're happy to have that. It, you know, we feel it's prudent because there is higher credit risk, and it will help protect future earnings as well.
It's tax-free.
To a certain extent. Sometimes our provisions have got large enough, and we don't have a history of losses that we're right on the edge in terms of taxable versus accounting income. I won't say more than that because I'm not the accountant in the company. It's tax free to a certain extent. Yeah.
The last point I want to make here, the most important number is the orange, which is the Stage 3, your impaired loans. Out of our 281 BPS, 76 BPS is allocated to Stage 3 or impaired loans. You know, that number is real, and that's a number, you know, you can benchmark to other FIs, other peers in the industry. I'd say that looking at everything we see, that's the lowest number.
I mean, you should be worried if you ever saw that dark blue going down to almost nothing, because that means the provisions you could have against healthy loans is almost nothing, meaning that all your provisions are against loans you've already identified are in trouble. You have no cushion there at all. You can see our dark blue block is actually larger than it was in 2019 before the market downturn. That's just another way of us telling you that we're trying to be really conservative and carry this really healthy loan loss provision.
Most recently, for Q1, which was just released last night, if you look at our loans, the staging between Stage 1, Stage 2, and Stage 3, these are loan dollars. Our loan risk profile has actually improved quarter-over-quarter. Our total Stage 2 and Stage 3 loans actually decreased from 18% down to 15.5%, which means that 85% of our loans are performing as the quarter ends. We're happy to see stabilization in our credit risk profile. This next slide is about our credit facility usage and capacity over time. One of the most important aspects that we believe in running this business, especially given uncertain economic conditions, is to make sure we always have steady access to funding.
We want to remain very liquid, and we also want to keep gunpowder and funding for growth to seize opportunities as they arise. You can see the dark blue there is our draws on our credit facility. The light blue is capacity. We always keep a lot of capacity. At Q1, the latest quarter, we have about CAD 90 million that we can tap into if we need to. Our lending facility is led by TD, made up of five banks, including three of the top six banks in Canada. you know, we can even go so far to say that, you know, there are other large banks that have expressed interest in joining our credit facility as well.
The way our facility is underwritten is that we actually have an accordion feature on top of our existing credit facility, so that's the orange. As of right now, we have an additional CAD 60 million, if the lenders agree to it, to further increase our debt capacity if needed. We feel this is also a very good testament to our business because, you know, it's really based on our business results and a solid market, a solid lending portfolio. You can see that that accordion feature, that option, has actually increased over time as well.
An accordion, just because I didn't know what it was before we went public, I presume some of the listeners don't know what it is. It's approved by the lenders, by the five existing financial institutions on the line of credit. They've committed to fund CAD 315. In other words, the dark blue and the light blue. That they have to fund. The other part, they've approved, but they don't have to fund it if they don't feel like it. We might have to bring in a new lender to fund. It's doubtful, but that's what we could do, is bring in a new lender to fund that additional amount. That's what an accordion means.
You don't pay a standby fee on it because the banks aren't committing to lend it, but the banks are allowing as much as CAD 375 to be borrowed. Okay, I mentioned earlier that I think we hit an all-time high, as far as I can recall anyway, on first mortgages of 96.7%. I'm not sure we can keep it that high going forward, but you can see that we certainly haven't reduced that number as we've entered into the market downturn. We've tried to be as conservative as we can. Just to show you how we're adjusting our lending as situations change, we used to be basically a fixed rate lender until about 2019, because that's what a borrower would generally want.
Rates were so low, that's what they wanted. As prime started to move up and the Bank of Canada started to move up its overnight rate, we adjusted our lending to become a floating rate lender, and we went as high as you can see, as almost 90%. What that helped us do, it actually improved our earnings, because only about 25% or so of our liabilities, which is our line of credit, was floating rate. Our convertible debentures and our equity obviously weren't floating. They're basically fixed obligations. When we moved the portfolio to almost 90% floating, rates kept moving up, it allowed us to make more and more money.
Now we're less concerned about whether we price something as a fixed rate or a floating rate mortgage, because as far as we're concerned, rates have probably peaked. The borrower, if they're opinionated one way or the other, we're fine to do either. You'll probably see that number, that blue block come down as a percentage of the total portfolio as time goes on. Rob, what's that comment you made about mortgage rates, they've peaked? In your opinion. I think it's pretty clear that the Bank of Canada is only going to go one direction here on in, and that's lower short-term rates. You know, I think You can read it that way.
Yeah, I think everybody would be absolutely shocked if the Bank of Canada raised its overnight rate beyond 5%. Most economists are predicting that it comes down to 3% in about two years. Maybe 4% by the end of this year, and a further 1% down to 3% next year. You know, would we rather do fixed rate now, given that scenario? Probably. If you want to do good quality loans, you have to listen to what the customer wants as well. All I'm saying is, in that previous slide, is we're not fixated on doing floating anymore because rates have peaked almost certainly.
This next slide are some stress scenarios, and these are scenarios that we run to test the resiliency of our business model. Our approach is, we took our Q1 results, we normalized the loan loss reserve because we had a higher than usual historical loan loss reserve. We normalized it at about CAD 1 million, took our earnings and asked ourselves, you know, what can happen here to our business? We looked at 3 different scenarios. The first one being a really protracted downturn with lots of impairments. You know, with the highest we've ever had is CAD 4.8 million booked as provision. The first scenario you can see, we do 5 every single quarter. The second scenario, we look at rate declines.
We assume 25 BPS a quarter for the next four. The last scenario, we look at volume declines in the case where we can't find good, risk-adjusted mortgages and the portfolio decreases. In each case, you'll see that our earnings per share continue to produce strong results and well ahead of the base dividend that I'll remind you is $0.90. Our business, as far as we, as we see it, is designed to protect our dividend to shareholders and provides a good margin of safety. This next slide is a little bit of a benchmarking of Atrium versus some other peer MICs that are publicly traded. We look at return on equity. This is an important metric for us because this represents earnings on shareholder capital, which essentially will proxy your dividend, and it's an all-encompassing number.
Price, volume, expenses, gains, losses, everything is in there. On a standalone basis, if you look at the dark blue bars, you'll see that our return on equity is very consistent and has been increasing over time. If you, if you look at it relative to other traded MICs, you'll see that we're a lot less volatile, and we also produce higher absolute returns. This last slide here continues some of the benchmarking. In this case here, we're looking at earnings per share and P/E ratio, which proxies valuation. You'll see that our earnings per share has exceeded our peers over the last 12 quarters. Our price P/E ratio in dark blue still trends near the bottom. You know, I think the gap appears to have closed somewhat over the last year or so.
It's a little bit of a tighter band, but given our performance, you know, we believe that there's upside potential in terms of valuation, given that we're trading near the bottom of this band. That concludes our prepared remarks.
Yeah, we've had the highest earnings per share amongst our peers for 12 straight quarters, so, I think we're not getting full respect with, having the lowest... Tied for the lowest P/E ratio, so.
You're good, Rob, but not the highest.
What's that?
You're good. Your returns are good, but you're not the highest.
No. No.
Do you include Equitable Bank in?
No, just MICs. Yeah. Equitable Bank's a different animal. It's a bank. It has a very small dividend, so it's really relying on capital appreciation, which has done a good job. Our shareholders are really mostly interested in the dividend. you know, it's their retirement savings.
Ideal for retirement savings.
Right. Right. It's a different animal from. We're not CDIC insured with and government regulated with OSFI. We're really totally different from a, from a bank. Yeah.
Okay, thank you very much. That's the end of our presentation.