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Press release from CNW Group

Firm Capital Mortgage Investment Corporation Announces Q1/2013 Results and Appoints New COO

Tuesday, May 07, 2013

Firm Capital Mortgage Investment Corporation Announces Q1/2013 Results and Appoints New COO

21:40 EDT Tuesday, May 07, 2013

TSX Symbol FC

TORONTO, May 7, 2013 /CNW/ - Firm Capital Mortgage Investment Corporation (the "Corporation") (TSX: FC), today released its financial statements for the three months ended March 31, 2013.

PROFIT & RETURN ON EQUITY
Comprehensive income and profit ("Profit") for the first quarter ended March 31, 2013 increased by 7% to $4,194,465 as compared to $3,937,912 for the same period last year. Basic weighted average profit per share for the first quarter ended March 31, 2013 was $0.240, in comparison to the $0.258 reported for the first quarter ended March 31, 2012. Profit for the quarter ended March 31, 2013 exceeded dividends to Shareholders by $97,007.

Profit for the three months ended March 31, 2013 represented an annualized return on shareholders' equity of 9.45%. This return on shareholders' equity represents 842 basis points per annum over the average Government of Canada One Year Treasury Bill yield for the first quarter of 2013 of 1.03%, and is well in excess of the Corporation's stated target yield objective of 400 basis points per annum over the average One Year Treasury Bill yield.

DIVIDEND OVERVIEW
For the first quarter ended March 31, 2013, the Corporation paid dividends totaling $4,097,458 or $0.234 per share versus $3,718,535 or $0.234 per share for the first quarter ended March 31, 2012.

INVESTMENT PORTFOLIO HIGHLIGHTS
Details on the Corporation's investment portfolio as at March 31, 2013 are as follows:

  • Total gross investment portfolio equals $317,684,716, which is a 7% increase over December 31, 2012.
  • Conventional first mortgages, being those mortgages with loan to values less than 75%, comprise 64.4% of our total portfolio, and total conventional mortgages with loan to values under 75% comprise 73.5% of our total portfolio.
  • Related investments total 13.6% of the portfolio.
  • Non-conventional mortgages total 9.6% of the portfolio.
  • Discounted debt investments total 3.3% of the portfolio.
  • Approximately 65% of the portfolio matures by March 31, 2014. This results in a continuously revolving portfolio, allowing management to assess market conditions.
  • The average face interest rate on the portfolio is 8.79% per annum.
  • Regionally, the portfolio is diversified approximately as follows: Ontario (75.1%), Alberta (10.7%), Quebec (9.4%) and British Columbia (4.8%).
  • Investment portfolio breakdown by loan size is as follows:

                                   
Amount       Number of
Investments
      %         Total Amount       %
  $0-$2,500,000       103       71%       $ 90,478,832       28%
  $2,500,001 - $5,000,000       23       16%         78,699,917       25%
  $5,000,001 - $7,500,000       9       6%         54,087,369       17%
  $7,500,000 +       10       7%         94,418,598       30%
        145       100%       $ 317,684,716       100%
                                     

IMPAIRMENT PROVISION UPDATE
Management has always taken a proactive approach to allowance provision reserves. This is a prudent approach to protecting our Shareholders' equity. The impairment provision remains unchanged at $3,180,000 which represents 1% of the gross loan portfolio.

UNRECOGNIZED INCOME COLLECTED
As at March 31, 2013, the Corporation has recorded as a receivable on its books, banked non-refundable fee income of $656,591, which will be recognized as income over the term of the corresponding investments.

DIVIDEND AND SHARE PURCHASE PLAN
The Corporation has in place a Dividend Reinvestment Plan (DRIP) and Share Purchase Plan that is available to its Shareholders. The plans allows participants to have their monthly cash dividends reinvested in additional shares at a 2% discount to market and grants participants the right to purchase, without commission, additional shares, up to a maximum of $12,000 per annum.

NEW COO APPOINTMENT
The Corporation also announces the retirement of Mr. Edward Gilbert as Chief Operating Officer of the Corporation.  Mr. Gilbert remains a management-appointed director of the Corporation. The board of directors of the Corporation has appointed Mr. Sandy Poklar to act as Chief Operating Officer of the Corporation.

Mr. Gilbert has served as Chief Operating Officer and as a trustee or director since the initial public offering of Firm Capital Mortgage Investment Trust, the Corporation's predecessor, in 1999. Mr. Gilbert will continue to be an important part of the Firm Capital Corporation management team through his ongoing role with the Corporation's advisor and as a director of the Corporation.

ABOUT THE CORPORATION
The Corporation, through its Mortgage Banker, Firm Capital Corporation, is a non-bank lender providing residential and commercial short-term bridge and conventional real estate financing, including construction, mezzanine and equity investments. The Corporation's investment objective is the preservation of Shareholders' equity, while providing Shareholders with a stable stream of monthly dividends from investments. The Corporation achieves its investment objectives by pursuing a strategy of growth through investments in selected niche markets that are under-serviced by large lending institutions. Lending activities to date continue to develop a diversified mortgage portfolio, producing a stable return to Shareholders. Full reports of the financial results of the Corporation for the year are outlined in the audited financial statements and the related management discussion and analysis of Firm Capital, available on the SEDAR website at www.sedar.com. In addition, supplemental information is available on Firm Capital's website at www.firmcapital.com.

Forward-Looking Statements
This news release contains forward-looking statements within the meaning of applicable securities laws including, among others, statements concerning our objectives, our strategies to achieve those objectives, our performance, our mortgage portfolio and our distributions, as well as statements with respect to management's beliefs, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.  Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intent", "estimate", "anticipate", "believe", "should", "plans" or "continue" or similar expressions suggesting future outcomes or events.  Such forward-looking statements reflect management's current beliefs and are based on information currently available to management.

These statements are not guarantees of future performance and are based on our estimates and assumptions that are subject to risks and uncertainties, including those described in our Annual Information Form under "Risk Factors" (a copy of which can be obtained at www.sedar.com), which could cause our actual results and performance to differ materially from the forward-looking statements contained in this circular.  Those risks and uncertainties include, among others, risks associated with mortgage lending, dependence on the Corporation's manager and mortgage banker, competition for mortgage lending, real estate values, interest rate fluctuations, environmental matters, shareholder liability and the introduction of new tax rules.  Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include, among others, that the Corporation is able to invest in mortgages at rates consistent with rates historically achieved; adequate mortgage investment opportunities are presented to the Corporation; and adequate bank indebtedness and bank loans are available to the Corporation.  Although the forward-looking information continued in this new release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results and performance will be consistent with these forward-looking statements.

All forward-looking statements in this news release are qualified by these cautionary statements.  Except as required by applicable law, the Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

NOTICE UNDER NATIONAL INSTRUMENT 51-102

National Instrument 51-102: Continuous Disclosure Requirements requires that these interim financial statements be accompanied by this notice which indicates that these financial statements have not been reviewed by the auditors of Firm Capital Mortgage Investment Corporation.

 

 

Condensed Interim Financial Statements of


FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION


For the Three Months Ended March 31, 2013 and 2012 (unaudited)

 

FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION  
Condensed Interim Balance Sheets      
       
(in Canadian dollars)      
       
  March 31, 2013   December 31, 2012
  (unaudited)    
       
       
Assets      
       
Amounts receivable and prepaid expenses  $        3,274,449    $       3,026,057
Investment portfolio (note 4) 314,504,716   294,037,271
       
Total assets  $    317,779,165    $   297,063,328
       
       
       
Liabilities and Shareholders' Equity      
       
Bank indebtedness  $     26,258,473    $   24,379,151
Accounts payable and accrued liabilities 1,818,673   1,741,192
Unearned income 656,591   520,055
Shareholder dividend payable 1,368,839   2,300,218
Loans payable 8,678,562   9,045,731
Convertible debentures (note 5) 100,578,227   82,698,573
Total liabilities 139,359,365   120,684,920
       
Shareholders' Equity 178,644,619   176,700,234
Deficit (224,819)   (321,826)
Total shareholders' equity 178,419,800   176,378,408
       
Commitments (note 4)      
Contingent liabilities (note 11)      
       
Total liabilities and shareholders' equity   $  317,779,165    $  297,063,328
       
       
See accompanying notes to unaudited condensed interim financial statements    

 

FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Unaudited Condensed Interim Statements of Comprehensive Income    
         
(in Canadian dollars)        
         
    Three Months Ended
    March 31, 2013   March 31, 2012
         
         
Interest and fees earned   $6,624,220   $6,387,310
    6,624,220   6,387,310
         
Corporation manager interest allocation (note 9)   525,365   522,732
Interest expense (note 10)   1,718,927   1,731,397
General and administrative expenses   185,463   195,269
    2,429,755   2,449,398
         
         
Total comprehensive income and profit for the period   $4,194,465   $3,937,912
         
Profit per share (note 7)        
Basic    $0.240   $0.258
 Diluted   $0.229   $0.232
         
         
         
See accompanying notes to unaudited condensed interim financial statements    

 

FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Unaudited Condensed Interim Statements of Changes in Shareholders' Equity  
         
(in Canadian dollars)        
         
    Three Months Ended
    March 31, 2013   March 31, 2012
         
Shareholders' equity        
         
Shares (note 6):        
         
Balance, beginning of period    $   174,982,358    $   147,200,878
         
Proceeds from issuance of shares   595,636   21,167,971
         
Offering costs   -   (829,058)
         
Conversion of debentures to shares   931,000   2,498,000
         
Balance, end of period    $   176,508,994    $  170,037,791
         
         
Equity component of convertible debentures (note 6):      
         
Balance, beginning of period    $      1,717,876    $      1,181,632
         
Conversion of debentures to shares   (12,251)   (55,488)
         
Equity component of debentures issued during the period 430,000   690,000
         
Balance, end of period    $      2,135,625    $      1,816,144
         
Total shareholders' equity    $ 178,644,619    $ 171,853,935
         
Retained earnings/(Deficit)        
         
Deficit, beginning of period    $ (321,826)    $ (321,826)
         
Dividends to shareholders   (4,097,458)   (3,718,535)
         
Comprehensive income and profit for the period   4,194,465   3,937,912
         
Retained earnings/(deficit), end of period    $      (224,819)    $      (102,449)
         
Total Shareholders' Equity    $ 178,419,800    $ 171,751,486
         
Shares issued and outstanding (note 6)   17,549,223   17,000,465
         
         
         
         
See accompanying notes to unaudited condensed interim financial statements    

 

FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Unaudited Condensed Interim Statements of Cash Flow        
             
(in Canadian dollars)        
             
        Three Months Ended
        March 31, 2013   March 31, 2012
             
Cash provided by (used in):        
             
Operating activities:        
  Comprehensive income and profit for the period    $ 4,194,465    $ 3,937,912
  Adjustments for:        
    Interest Expense (net of implicit interest rate and accrued interest)   1,483,644   1,813,922
    Implicit interest rate in excess of coupon rate - convertible debentures   63,446   64,671
    Deferred finance cost amortization - convertible debentures   171,837   142,806
  Net changes in non-cash operating items:        
    Decrease in accrued interest   (43,527)   (286,439)
    Increase in amounts receivable and prepaid expenses   (248,392)   (139,350)
    Increase (decrease) in accounts payable and accrued liabilities   77,481   402,552
    Increase (decrease) in unearned income   136,536   (90,666)
Net cash flows from operating activities   5,835,490   5,845,408
             
Financing activities:        
  Proceeds from issuance of shares   595,636   21,167,971
  Proceeds from convertible debentures issued   20,000,000   20,485,000
  Debenture offering costs   (1,006,881)   (983,550)
  Offering Costs (equity)   -   (829,058)
  Funding/repayment of loans payable (net)   (367,168)   (934,476)
  Cash interest paid   (1,440,117)   (1,527,483)
  Dividends to shareholders paid during the period   (5,028,837)   (4,400,618)
Net cash flows from (used in) financing activities   12,752,633   32,977,786
             
Investing activities:        
  Funding of investments   (73,349,329)   (47,101,102)
  Discharge of investments   52,881,884   21,954,233
Net cash flows from (used in) investing activities   (20,467,445)   (25,146,869)
             
             
Bank indebtedness, beginning of period   (24,379,151)   (37,763,021)
Net (increase)/decrease in bank indebtedness for the period   (1,879,322)   13,676,325
Bank indebtedness, end of period    $  (26,258,473)    $  (24,086,696)
             
Cash flows from operating activities include:        
  Interest received    $      6,578,245    $      5,296,730
             
             
See accompanying notes to unaudited condensed interim financial statements    

 

FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Unaudited Notes to Condensed Interim Financial Statements        
                     
Three months ended March 31, 2013 and 2012        
                     
(in Canadian dollars)              
                     

1. Organization of the Corporation:

Firm Capital Mortgage Investment Corporation (the "Corporation"), through its mortgage banker, Firm Capital Corporation, in a non-bank lender providing residential and commercial short-term bridge and conventional real estate financing, including construction, mezzanine and equity investments.  The shares of the Corporation are listed on the Toronto Stock Exchange under the symbol "FC".  The Corporation is a Canadian mortgage investment corporation and the registered office of the Corporation is 1244 Caledonia Road, Toronto, Ontario, M6A 2X5.  FC Treasury Management Inc. is the Corporation's manager.

 2. Basis of presentation:

The unaudited condensed interim financial statements of the Corporation have been prepared by management in accordance with International Accounting Standards ("IAS") 34, Interim Financial Reporting.  The preparation of these unaudited condensed interim financial statements is based on accounting policies and practices in accordance with International Financial Reporting Standards ("IFRS").  The accompanying unaudited condensed interim financial statements should be read in conjunction with the notes to the Corporation's audited financial statements for the year ended December 31, 2012, since they do not contain all disclosures required by IFRS for annual financial statements.  These unaudited condensed interim financial statements reflect all normal and recurring  adjustments which are, in the opinion of management, necessary for a fair presentation of the respective interim periods presented.

These unaudited condensed interim financial statements have been prepared on the historical cost basis, except for financial instruments classified as fair value through profit or loss, which are measured at fair value.  These financial statements are presented in Canadian dollars, which is the Corporation's functional currency.

3. Significant accounting policies:

The accounting policies applied by the Corporation in these unaudited condensed interim financial statements are the same as those applied by the Corporation in its financial statements for the year ended December 31, 2012 and accordingly should be read in conjunction with them.

New accountings policies:

(a) Investments in subsidiaries:

IFRS 10, Consolidated Financial Statements ("IFRS 10"), replaced the guidance in IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation - Special Purpose Entities.  IFRS 10 provides a single control model to be applied in the control analysis for all investors.  In addition, the consolidation procedures are carried financial substantially unmodified from IAS 29 (2008).  For the purpose of this assessment, the Corporation determines it controls an entity when:

(i) it is exposed, or has rights, to variable returns from its involvement with that entity; and
(ii) it has the ability to affect those returns through its power over that entity.

(b) Fair value measurements:

IFRS 13, Fair Value Measurement ("IFRS 13"), replaces the fair value measurement guidance contained in individual IFRS's with a single source of fair value measurement guidance.  It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweeen market participants at the measurement date, ie. an exit price.

The Corporation adopted IFRS 13 on January 1, 2013 on a prospective basis.  The adoption of IFRS 13 did not require any adjustments to the valuation techniques used the Corporation to determine fair value and did not result in any measurement adjustments as at January 1, 2013.

4. Investment portfolio:

The following is a breakdown of the investment portfolio as at March 31, 2013 and December 31, 2012:

                               
            March 31, 2013     December 31, 2012  
                               
Conventional first mortgages    $ 204,562,488 64.39%      $ 185,038,057   62.26%  
Conventional non-first mortgages   28,985,913 9.12%     34,472,723   11.60%  
Related investments     43,197,899 13.60%     34,916,788   11.75%  
Discounted Debt Investments   10,345,300 3.26%     9,370,300   3.15%  
Non-conventional mortgages   30,593,116 9.63%     33,419,403   11.24%  
Total investments (at cost)    $ 317,684,716 100.00%      $ 297,217,271   100.00%  
                               
Impairment provision     (3,180,000)       (3,180,000)      
                               
Investment portfolio      $ 314,504,716        $ 294,037,271      

 

Conventional first mortgages are loans secured by a first priority mortgage charge with loan to values not exceeding 75%.  Conventional non-first mortgages are loans with mortgage charges not registered in first priority with loan to values not exceeding 75%.  Related investments are loans that may not necessarily be secured by mortgage charge security.  Non-conventional mortgages are loans that in some cases have loan to values that exceed or may exceed 75% and are the investments that are the source of all special profit participations earned by the Corporation.

Investment portfolio is stated at amortized cost.  The impairment loss in the amount of $3,180,000 as at March 31, 2013 represents the total amount of management's estimate of the shortfall between the investment principal balances and the estimated recoverable amount from the collateral securing the loans.

The loans comprising the Investment portfolio bear interest at the weighted average rate of 8.79% per annum (December 31, 2012 - 9.03% per annum) and mature between 2013 and 2018.

The un-advanced funds under the existing investment portfolio (which are commitments of the Corporation) amounted to $46,774,817 as at March 31, 2013 (December 31, 2012 - $43,212,906).

Principal repayments based on contractual maturity dates are as follows:

                               
                               
2013                 $169,625,548      
2014                 104,962,696      
2015                 39,995,372      
2016                 2,681,100      
2017                 -      
2018                 420,000      
                    $317,684,716      
                       

 

Borrowers who have open loans have the option to repay principal at any time prior to the maturity date. 

5. Convertible debentures:

                               
              Quarter Ended     Year-Ended    
              March 31, 2013     December 31, 2012    
              Total Debentures     Total Debentures    
                               
Liability component, beginning of period     $82,698,573      $ 69,134,395    
Issued         18,563,120     18,848,730    
Conversions of debentures to shares     (931,000)     (6,349,000)    
Adjustment to fair value of conversion option   12,251     153,756    
Implicit interest rate in excess of coupon rate   63,446     247,853    
Deferred finance cost amortization     171,837     662,839    
                               
Liability component, end of period     $100,578,227      $ 82,698,573    
                               
The breakdown of the Total Debentures for the three months ended March 31, 2013 presented in the above table is as follows:  
                               
        6.00%   5.75%   5.40%   5.25%   4.75%      
        Convertible   Convertible   Convertible   Convertible   Convertible      
        Debenture   Debenture   Debenture   Debenture   Debenture   TOTAL  
                               
Liability component, beginning of period $9,263,022   $30,262,286   $24,155,841   $19,017,424   -   $82,698,573  
Issued   -   -   -   -   $18,563,120   18,563,120  
Conversions (931,000)   -   -   -   -   (931,000)  
Adjustment to fair value of conversion option 12,251   -   -   -   -   12,251  
Implicit interest rate in excess of coupon rate 16,038   7,554   18,337   20,954   563   63,446  
Deferred finance cost amortization 42,162   52,137   42,771   33,177   1,591   171,837  
                               
Liability component, end of period $8,402,473   $30,321,976   $24,216,949   $19,071,555   $18,565,274   $100,578,227  
Maturity Date Jun 30, 2013   Oct 31, 2017   Feb 28, 2019   Mar 31, 2019   Mar 31, 2020      
                               
The breakdown of the Total Debentures for the year ended December 31, 2012 is as follows:          
                               
        6.00%   5.75%   5.40%   5.25%          
        Convertible   Convertible   Convertible   Convertible          
        Debenture   Debenture   Debenture   Debenture   TOTAL      
                               
Liability component, beginning of year $15,225,091   $30,021,130   $23,888,174   -   $69,134,395      
Issued   -   -   -   $18,848,730   18,848,730      
Conversions (6,349,000)   -   -   -   (6,349,000)      
Adjustment to fair value of conversion option 153,756   -   -   -   153,756      
Implicit interest rate in excess of coupon rate 61,718   29,136   93,733   63,266   247,853      
Deferred finance cost amortization 171,457   212,020   173,934   105,428   662,839      
                               
Liability component, end of year $9,263,022   $30,262,286   $24,155,841   $19,017,424   $82,698,573      

 

In the first quarter of 2012, the Corporation completed a public offering of 20,485, 5.25% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $20,485,000.  The debentures mature on March 31, 2019 and interest is paid semi-annually on March 31 and September 30.  The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price of $14.80.  The debentures may not be redeemed by the Corporation prior to March 31, 2015.  On or after March 31, 2015, but prior to March 31, 2016, the debentures are redeemable at a price equal to the principal, plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days' notice, provided that the weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price.  On or after March 31, 2016 and prior to the maturity date, the debentures are redeemable at a price equal to the principal amount plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days' prior notice.  On redemption or at maturity, the Corporation may, at its option, elect to satisfy its obligation to pay all or a portion of the principal of the debenture by issuing that number of shares of the Corporation obtained by dividing the principal amount being repaid by 95% of the weighted average trading price of the shares for the 20 consecutive trading days ending on the fifth trading day preceding the redemption or maturity date.


The convertible debentures were allocated into liability and equity components on the date of issuance as follows:

                               
Liability               $19,795,000          
Equity                 690,000          
Principal             $20,485,000          
                     

In the first quarter of 2013, the Corporation completed a public offering of 20,000, 4.75% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $20,000,000.  The debentures mature on March 31, 2020 and interest is paid semi-annually on March 31 and September 30.  The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price of $15.80.  The debentures may not be redeemed by the Corporation prior to March 31, 2016.  On or after March 31, 2016, but prior to March 31, 2017, the debentures are redeemable at a price equal to the principal, plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days' notice, provided that the weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price.  On or after March 31, 2017 and prior to the maturity date, the debentures are redeemable at a price equal to the principal amount plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days' prior notice.  On redemption or at maturity, the Corporation may, at its option, elect to satisfy its obligation to pay all or a portion of the principal of the debenture by issuing that number of shares of the Corporation obtained by dividing the principal amount being repaid by 95% of the weighted average trading price of the shares for the 20 consecutive trading days ending on the fifth trading day preceding the redemption or maturity date.


The convertible debentures were allocated into liability and equity components on the date of issuance as follows:

                               
Liability               $19,570,000          
Equity                 430,000          
Principal             $20,000,000          
                     

 

As at March 31, 2013, debentures payable bear interest at the weighted average effective rate of 5.40% per annum (December 31, 2012 - 5.55% per annum).

Notwithstanding the carrying value of the convertible debentures, the principal balance outstanding to the debenture holders is $105,737,000 as at March 31, 2013.

6. Shareholders' equity:

On January 1, 2011, all outstanding units were exchanged on a one-for-one basis for common shares of the Corporation, as described in Note 1.

The beneficial interests in the Corporation are represented by a single class of shares which are unlimited in number.  Each share carries a single vote at any meeting of shareholders and carries the right to participate pro-rata in any dividends.

(a) Shares issued and outstanding:

The following shares were issued and outstanding as at March 31, 2013: 

                     
              # of shares   Amount
                     
Balance, beginning of period       17,425,884    $ 174,982,358
                     
New shares from conversion of debentures   79,232   931,000
                     
New shares issued during the period under Dividend Reinvestment Plan     44,107   595,636
Balance, end of period     17,549,223    $ 176,508,994
     
                     
The following shares were issued and outstanding as at December 31, 2012:      
                     
              # of shares Amount
                     
Balance, beginning of year       15,213,018    $ 147,200,878
                     
New shares from conversion of debentures   540,323   6,349,000
                     
New shares from public offering       1,541,000   20,726,450
                     
New shares issued during the period under the Dividend Reinvestment Plan   131,543   1,720,590
                     
Offering costs     -   (1,014,560)
Balance, end of year       17,425,884    $ 174,982,358
       

 

In the first quarter of 2012, the Corporation completed a public offering of 1,541,000 shares at $13.45 per share.

(b) Incentive option plan:

As at March 31, 2013, no options are outstanding (December 31, 2012 - nil).

(c) Dividend reinvestment plan and direct share purchase plan:

The Corporation has a dividend reinvestment plan and direct share purchase plan for its shareholders which allows participants to reinvest their monthly cash dividends in additional Corporation shares at a share price equivalent to the weighted average price of shares for the preceding five-day period.

7. Per share amounts:

(a) Profit per share calculation:

The following table reconcile the numerators and denominators of the basic and diluted profit per share for the quarter ended March 31, 2013 and 2012.

Basic profit per share calculation:                        
      Three months ended       Three months ended
      March 31, 2013         March 31, 2012
Numerator for basic profit per share:                        
  Profit   $ 4,194,465   $ 3,937,912
                               
Denominator for basic profit per share:                      
  Weighted average shares         17,481,008         15,280,894
                               
 Basic profit per share    $ 0.240   $ 0.258  
                               
Diluted profit per share calculation:                      
       Three months ended       Three months ended
      March 31, 2013     March 31, 2012
Numerator for diluted profit per share:                        
  Profit:   $ 4,194,465    $ 3,937,912
  Interest on convertible debentures         1,434,524         1,244,608
                               
Net profit for diluted profit per share   $ 5,628,989   $ 5,182,520
                               
Denominator for diluted profit per share:                      
Weighted average shares         17,481,008         15,280,894
Net shares that would be issued:                        
  Assuming debentures are converted       7,107,974         7,100,194
             
 Diluted weighted average shares      24,588,982      22,381,088
             
 Diluted profit per share   $ 0.229   $ 0.232  

 

8. Dividends:

The Corporation intends to make dividend payments to the shareholders on a monthly basis on or about the 15th day of each month.  The  operating policies of the Corporation set out that the Corporation intends to distribute to shareholders within 90 days after the year end at least 100% of the net income of the Corporation determined in accordance with the Income Tax Act (Canada), subject to certain adjustments.

For the quarter ended March 31, 2013, the Corporation recorded dividends of $4,097,458 (2012 - $3,718,535) to its shareholders.  Dividends were $0.234 per share (2012 - $0.234 per share).


9. Related party transactions and balances:

Transactions with related parties are in the normal course of business and are recorded at the exchange amount which is the amount of consideration established and agreed to by the related parties, and are measured at fair value.

The Corporation's Manager (a company controlled by some of the directors) receives an allocation of interest, referred to as Corporation Manager spread interest, calculated at 0.75% per annum of the Corporation's daily outstanding performing investment balances.  For the quarter ended March 31, 2013, this amount was $525,365 (2012 - $522,732).  Included in accounts payable and accrued liabilities at March 31, 2013 are amounts payable to the Corporation's Manager of $186,144 (December 31, 2012 - $179,141).

The total directors' fee paid for the quarter ended March 31, 2013 was $40,875 (2012 - $45,750).  The listing of the members of the board of directors is shown in the annual report.  The key management personnel are also directors of the Corporation and receive compensation from the Corporation Manager.

The Mortgage Banker (a company controlled by a director) receives certain fees from the borrowers as follows:  loan servicing fees equal to 0.10% per annum on the principal amount of each of the Corporation's investments; 75% of all the commitment and renewal fees generated from the Corporation's investments; and 25% of all the special profit income generated from the non-conventional investments after the Corporation has  yielded a 10% per annum return on its investments.  Interest and fee income is net of the loan servicing fees paid to the Mortgage Banker of approximately $70,000 for the quarter ended March 31, 2013 (2012 - $70,000).  The Mortgage Banker also retains all overnight float interest and incidental fees and charges payable by borrowers on the Corporation's investments.  The Corporation's share of commitment and renewal fees is recorded in income and for the quarter ended March 31, 2013 was $251,840 (2012 - $342,498) and applicable special profit income for the quarter ended March 31, 2013 was $419,516 (2012 - $55,928).

The Corporation's Management Agreement and Mortgage Banking Agreement contains provisions for the payment and termination fees to the Corporation Manager and Mortgage Banker in the event that the respective agreements are either terminated or not renewed.

Several of the Corporation's investments are shared with other investors of the Mortgage Banker, which may include members of management of the Mortgage Banker and/or Officers or directors of the Corporation.  The Corporation ranks equally with other members of the syndicate as to receipt of principal and income.

Mortgages totalling $16,000,000 (December 31, 2012 - $13,500,000) are outstanding to borrowers controlled by an independent director of the Corporation.  Each investment is dealt with in accordance with the Corporation's existing investment and operating policies.

Key management compensation:

Aggregate compensation for key management personnel (all being short term employee benefits) was $302,847 for the quarter ended March 31, 2013, all of which was paid by the Mortgage Banker and nothing by the Corporation.


10. Interest expense:

                           
      Three months ended
      March 31, 2013     March 31, 2012
                           
Bank interest expense   $ 178,632   $ 313,152
Loans payable interest expense       105,771     173,637
Debenture interest expense       1,434,524     1,244,608
Interest expense   $ 1,718,927   $ 1,731,397
Deferred finance cost amortization - convertible debentures     (171,837)     142,806
Implicit interest rate in excess of coupon rate -
convertible debentures
    (63,446)     (60,281)
Change in accrued interest       (43,527)     (286,439)
                           
Cash interest paid   $ 1,440,117   $ 1,527,483
                           

 

11. Contingent liabilities:

The Corporation is involved in certain litigation arising out of the ordinary course of investing in loans.  Although such matters cannot be predicted with certainty, management believes the claims are without merit and does not consider the Corporation's exposure to such litigation to have an impact on these unaudited condensed interim financial statements.

12. Fair value of financial instruments:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Corporation uses various methods in estimating the fair values of assets and liabilities that are measured at fair value on recurring or non-recurring basis in the statement of financial position.  The fair value hierarchy reflects the significance of inputs used in determining the fair values.

Level 1 - fair value is based on unadjusted quoted prices trades in active markets for identical instruments;

Level 2 - fair value is based on models using significant market-observable inputs other than quoted prices for the instruments; and

Level 3 - fair value is based on models using significant inputs that are not based on observable market data.

The fair values of amounts receivable, bank indebtedness, accounts payable and accrued liabilities and shareholder dividend payable approximate their carrying values due to their short-term maturities.

The fair value of investment portfolio approximates its carrying value as the majority of the loans are repayable in full at any time without penalty.

The fair values of loans payable approximate their carrying values due to the fact that the majority of the loans are: (i) repayable in full, at any time upon the borrower under the underlying loan that secures the loan payable repaying their loan without penalty, and (ii) have floating interest rates linked to bank prime.

The fair value of convertible debentures, including their conversion option, has been determined based on the closing price of the debentures of the Corporation on the Toronto Stock Exchange for the respective date.  The fair value has been estimated at March 31, 2013 to be $107,150,471 (December 31, 2012 - $87,541,693).  This is a level 1 input which is based on a quoted price in an active market.

SOURCE: Firm Capital Mortgage Investment Corporation

For further information:

Firm Capital Mortgage Investment Corporation
Eli Dadouch
President & Chief Executive Officer
(416) 635-0221

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