Firm Capital Mortgage Investment Corporation Announces Results
TSX Symbol FC
TORONTO, May 9, 2012 /CNW/ - Firm Capital Mortgage Investment Corporation (the "Corporation") (TSX FC), today released its financial statements for the first quarter ended March 31, 2012.
PROFIT & RETURN ON EQUITY
Profit for the quarter ended March 31, 2012 totaled $3,937,912 compared to $3,546,919 for the quarter ended March 31, 2011. Profit for the quarter ended March 31, 2011 exceeded dividends by $219,377 or $0.013 per share. The first quarter Profit represents an annualized return on average Shareholders' equity of 10.03% per annum. This return on Shareholders' equity equates to 901 basis points per annum over the average one year Government of Canada Treasury bill yield for the quarter and is well in excess of the Corporation's target yield objective of 400 basis points per annum over the one year Treasury bill yield.
DIVIDEND OVERVIEW:
Monthly dividends for the first quarter totaled $0.234 per share ($0.078 per share per month).
INVESTMENT PORTFOLIO HIGHLIGHTS:
Details on the Corporation's investment portfolio as at March 31, 2012 are as follows:
- Total gross investment portfolio equals $299,175,460
- Conventional first mortgages, being those mortgages with loan to values less than 75%, comprise 70.8% of our total portfolio, and total conventional mortgages with loan to values under 75% comprise 84.3% of our total portfolio.
- Non-conventional mortgages total 8.1% of the portfolio.
- Related investments total 7.6% of the portfolio.
- Approximately 54% of the portfolio matures within 12 months. This results in a continuously revolving portfolio, allowing management to assess market conditions.
- The average face interest rate on the portfolio is 8.96% per annum.
- Regionally, the portfolio is diversified approximately as follows: Ontario 76.0%, Alberta 11.6%, British Columbia 7.4%, with the balance (5.0%) being in other provinces.
- Investment portfolio breakdown by loan size is as follows:
| Investment Portfolio Breakdown | ||
| Amount | Number of Investments | Total Amount |
| $0-$2,500,000 | 87 | $ 83,021,841 |
| $2,500,001-$5,000,000 | 23 | 81,072,031 |
| $5,000,001-$7,500,000 | 13 | 78,011,589 |
| $7,500,001 + | 6 | 57,070,000 |
| Total | 129 | $299,175,461 |
IMPAIRMENT PROVISION UPDATE:
Management has always taken a proactive approach to allowance provision reserves. This is a prudent approach to protecting our Shareholders' equity. Impairment provisions remained at $2,980,000 representing 1.00% of the gross loan portfolio.
UNRECOGNIZED INCOME COLLECTED:
As at March 31, 2012, the Corporation has banked non-refundable fee income of $466,325, 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.
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, Unitholder 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.
Unaudited Condensed Interim Financial Statements of
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
For the Three Months Ended March 31, 2012 and 2011 (unaudited)
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.
| FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION | |
||||
| Condensed Interim Balance Sheets (unaudited) | |||||
| (in Canadian dollars) | |||||
| Mar. 31, 2012 | Dec. 31, 2011 | ||||
| Assets | |||||
| Amounts receivable and prepaid expenses | $ | 3,617,688 | $ | 3,478,338 | |
| Investment portfolio (note 4) | 296,195,461 | 271,048,591 | |||
| Total assets | $ | 299,813,149 | $ | 274,526,929 | |
| Liabilities and Equity | |||||
| Bank indebtedness | $ | 24,086,696 | $ | 37,763,021 | |
| Accounts payable and accrued liabilities | 1,757,191 | 1,354,639 | |||
| Unearned income | 466,325 | 556,991 | |||
| Shareholder dividend payable | 1,326,036 | 2,008,118 | |||
| Loans payable | 14,714,605 | 15,649,081 | |||
| Convertible debentures (note 5) | 85,710,810 | 69,134,395 | |||
| Total liabilities | 128,061,663 | 126,466,245 | |||
| Shareholders' Equity | 171,853,935 | 148,382,510 | |||
| Deficit | (102,449) | (321,826) | |||
| Total equity | 171,751,486 | 148,060,684 | |||
| Commitments (note 4) | |||||
| Contingent liabilities (note 11) | |||||
| Total liabilities and equity | $ | 299,813,149 | $ | 274,526,929 | |
| See accompanying notes to unaudited interim financial statements | |||||
| FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION | |||||
| Condensed Interim Statements of Comprehensive Income (unaudited) | |||||
| (in Canadian dollars) | |||||
| Three Months Ended | |||||
| March 31, 2012 | March 31, 2011 | ||||
| Interest and fees earned | $6,387,310 | $5,166,007 | |||
| 6,387,310 | 5,166,007 | ||||
| Corporation manager interest allocation (note 9) | 522,732 | 379,911 | |||
| Interest expense (note 10) | 1,731,397 | 1,044,315 | |||
| General and administrative expenses | 195,269 | 194,862 | |||
| Impairment loss on investment portfolio (note 4) | - | - | |||
| 2,449,398 | 1,619,088 | ||||
| Total comprehensive income and profit for the period | $3,937,912 | $3,546,919 | |||
| Profit per share (note 7) | |||||
| Basic | $0.258 | $0.246 | |||
| Diluted | $0.232 | $0.244 | |||
| See accompanying notes to unaudited interim financial statements | |||||
| FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION | |||||
| Condensed Interim Statements of Changes in Equity (unaudited) | |||||
| (in Canadian dollars) | |||||
| Three Months Ended | |||||
| March 31, 2012 | March 31, 2011 | ||||
| Shareholders' Equity | |||||
| Shares (note 6): | |||||
| Balance, beginning of period | $ | 147,200,878 | $ | 137,343,502 | |
| Proceeds from issuance of shares | 21,167,971 | 204,220 | |||
| Offering Costs | (829,058) | - | |||
| Conversion of debentures to shares | 2,498,000 | 1,797,000 | |||
| Balance, end of period | $ | 170,037,791 | $ | 139,344,722 | |
| Equity component of convertible debentures (note 6): | |||||
| Balance, beginning of period | $ | 1,181,632 | $ | 774,000 | |
| Conversion of debentures to shares | (55,488) | - | |||
| Equity component of debentures issued during the period | 690,000 | - | |||
| Balance, end of period | $ | 1,816,144 | $ | 774,000 | |
| Total Shareholders' equity | $ | 171,853,935 | $ | 140,118,722 | |
| Deficit | |||||
| Deficit, beginning of period | $ | (321,826) | $ | (321,826) | |
| Dividends to shareholders | (3,718,535) | (3,381,635) | |||
| Comprehensive income and profit for the period | 3,937,912 | 3,546,919 | |||
| Deficit, end of period | $ | (102,449) | $ | (156,542) | |
| Total Equity | $ | 171,751,486 | $ | 139,962,180 | |
| Shares issued and outstanding (note 6) | 17,000,465 | 14,547,060 | |||
| See accompanying notes to unaudited interim financial statements | |||||
| FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION | ||||||||
| Condensed Interim Statements of Cash Flow (unaudited) | ||||||||
| (in Canadian dollars) | ||||||||
| Three Months Ended | ||||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Cash provided by (used in): | ||||||||
| Operating activities: | ||||||||
| Total comprehensive income and profit for the period | $ | 3,937,912 | $ | 3,546,919 | ||||
| Adjustments for: | ||||||||
| Implicit interest rate in excess of coupon rate - convertible debentures | 64,671 | 23,516 | ||||||
| Deferred finance cost amortization - convertible debentures | 142,806 | 95,603 | ||||||
| Net changes in non-cash items: | ||||||||
| Increase in amounts receivable and prepaid expenses | (139,350) | (649,800) | ||||||
| Increase in accounts payable and accrued liabilities | 402,552 | 338,252 | ||||||
| Increase/(decrease) in unearned income | (90,666) | 2,617 | ||||||
| Decrease in dividend payable | (682,082) | (993,181) | ||||||
| Net cash flow from operating activities | 3,635,843 | 2,363,926 | ||||||
| Financing activities: | ||||||||
| Proceeds from issuance of shares | 21,167,971 | 204,326 | ||||||
| Proceeds from convertible debenture issued | 20,485,000 | - | ||||||
| Debenture offering costs | (983,550) | - | ||||||
| Offering Costs (equity) | (829,058) | - | ||||||
| Funding/repayment of loans payable (net) | (934,476) | (400,895) | ||||||
| Dividends to shareholders paid during the period | (3,718,535) | (3,381,635) | ||||||
| Net cash flow from financing activities | 35,187,352 | (3,578,204) | ||||||
| Investing activities: | ||||||||
| Funding of investments | (47,101,102) | (39,548,508) | ||||||
| Discharge of investments | 21,954,233 | 26,169,084 | ||||||
| Net cash flow used in investing activities | (25,146,869) | (13,379,424) | ||||||
| Bank indebtedness, beginning of period | (37,763,021) | (5,005,825) | ||||||
| Net (increase)/decrease in bank indebtedness for the period | 13,676,325 | (14,593,702) | ||||||
| Bank indebtedness, end of period | $ | (24,086,696) | $ | (19,599,527) | ||||
| Cash flows from operating activities include: | ||||||||
| Interest received | $ | 5,296,730 | $ | 4,126,742 | ||||
| Interest paid | $ | 1,527,483 | $ | 255,055 | ||||
| See accompanying notes to unaudited interim financial statements | ||||||||
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Condensed Interim Financial Statements
Three months ended March 31, 2012 and 2011
(in Canadian Dollars)
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.
1. Organization of Corporation:
On November 30, 2010, Firm Capital Mortgage Investment Trust (the "Trust") entered into a plan of arrangement ("Reorganization"), whereby the Trust was converted from an income trust structure into the public corporation, Firm Capital Mortgage Investment Corporation, effective January 1, 2011. The Corporation was incorporated pursuant to the Laws of the Province of Ontario on October 22, 2010 for the purposes of participating in the Reorganization.
Pursuant to the Reorganization, units of the Trust were exchanged on a one-for-one basis for common shares of the Corporation. Holders of units therefore became the sole shareholders of the Corporation effective January 1, 2011.
As part of the Reorganization, the Trust was wound up and its assets were distributed to the Corporation. The Reorganization was treated as a change in business form rather than a change in control, and therefore, has been accounted for as a continuity of interest. The carrying amounts of assets, liabilities, and unitholders' equity in the financial statements of the Trust immediately prior to the Reorganization were the same as the carrying values of the Corporation immediately following the Reorganization.
The Corporation's mortgage banker is Firm Capital Corporation and the Corporation's manager is FC Treasury Management Inc.
2. Basis of presentation:
The 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 condensed consolidated 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 consolidated financial statements for the year ended December 31, 2011, 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 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 consolidated interim financial statements are the same as those applied by the Corporation's in its financial statements as at and for the year ended December 31, 2011 and accordingly should be read in conjunction.
4. Investment portfolio:
The following is a breakdown of the investment portfolio as at March 31, 2012 and December 31, 2011:
| Mar. 31, 2012 | Dec. 31, 2011 | |||||||||
| Conventional first mortgages | $ | 211,845,200 | 70.81% | $ | 188,083,658 | 68.64% | ||||
| Conventional non-first mortgages | 40,370,567 | 13.49% | 41,927,607 | 15.30% | ||||||
| Related investments | 22,800,958 | 7.62% | 19,958,571 | 7.28% | ||||||
| Non-conventional mortgages | 24,158,736 | 8.08% | 24,058,755 | 8.78% | ||||||
| Total investments (at cost) | $ | 299,175,461 | 100.00% | $ | 274,028,591 | 100.00% | ||||
| Impairment provision | (2,980,000) | (2,980,000) | ||||||||
| Investment portfolio | $ | 296,195,461 | $ | 271,048,591 | ||||||
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 as discussed in note 3(a). The impairment loss in the amount of $2,980,000 as at March 31, 2012 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 8.96% per annum (December 31, 2011 - 9.06% per annum) and mature between 2012 and 2015.
The un-advanced funds under the existing investment portfolio (which are commitments of the Corporation) amounted to $46,273,533 as at March 31, 2012 (December 31, 2011 - $30,845,331).
Principal repayments based on contractual maturity dates are as follows:
| 2012 | $116,297,573 | |||||||
| 2013 | 120,991,910 | |||||||
| 2014 | 53,985,181 | |||||||
| 2015 | 7,900,798 | |||||||
| $299,175,461 | ||||||||
| 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 | ||||||||||||
| Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||
| Total Debentures | Total Debentures | ||||||||||||
| Principal balance, beginning of period | $69,134,395 | $53,628,803 | |||||||||||
| Issued | 18,811,450 | 23,822,547 | |||||||||||
| Conversions | (2,498,000) | (9,093,000) | |||||||||||
| Adjustment to fair value of conversion option | 55,488 | 202,368 | |||||||||||
| Implicit interest rate in excess of coupon rate | 64,671 | 91,487 | |||||||||||
| Deferred finance cost amortization | 142,806 | 482,190 | |||||||||||
| Principal balance, end of period | $85,710,810 | $69,134,395 |
|||||||||||
The breakdown of the Total Debentures for the quarter ended March 31, 2012 presented in the above table is as follows:
| 6.00% Convertible |
5.75% Convertible |
5.40% Convertible |
5.25% Convertible |
||||||||||||
| Debenture | Debenture | Debenture | Debenture | TOTAL | |||||||||||
| Principal balance, beginning of period |
$ | 15,225,091 |
$ | 30,021,130 |
$ | 23,888,174 |
- |
$ | 69,134,395 |
||||||
| Issued |
- |
- |
- |
$ | 18,811,450 |
18,811,450 |
|||||||||
| Conversions |
(2,498,000) |
- |
- |
- |
(2,498,000) |
||||||||||
| Adjustment to fair value of conversion |
55,488 |
- |
- |
- |
55,488 |
||||||||||
| Implicit interest rate in excess of coupon rate |
15,072 |
7,126 |
40,279 |
2,195 |
64,671 |
||||||||||
| Deferred finance cost amortization |
42,630 |
52,715 |
43,246 |
4,215 |
142,806 |
||||||||||
| Principal balance, end of period |
$ | 12,840,281 |
$ | 30,080,971 |
$ | 23,971,698 |
$ | 18,817,860 |
$ | 85,710,810 |
|||||
The breakdown of the Total Debentures for the year ended December 31, 2011 is as follows:
| 6.00% Convertible |
5.75% Convertible |
5.40% Convertible |
||
| Debenture | Debenture | Debenture | TOTAL | |
| Principal balance, beginning of year | $23,886,736 | $29,742,067 | - | $53,628,803 |
| Issued | - | - | 23,822,547 | 23,822,547 |
| Conversions | (9,093,000) | - | - | (9,093,000) |
| Adjustment to fair value of conversion option | 202,368 | - | - | 202,368 |
| Implicit interest rate in excess of coupon rate | 57,998 | 30,117 | 3,372 | 91,487 |
| Deferred finance cost amortization | 170,989 | 248,946 | 62,255 | 482,190 |
| Principal balance, end of year | $15,225,091 | $30,021,130 | $23,888,174 | $69,134,395 |
In 2009, $536,000 of the 6% convertible debentures were converted by the debenture holders to 45,617 shares of the Corporation. In 2010, $20,000 of the 6% convertible debentures were converted by the debenture holders to 1,702 shares of the Corporation. In 2011, $9,093,000 of the 6% convertible debentures were converted by the debenture holders to 773,681 shares of the Corporation. In 2012, $2,498,000 of the 6% convertible debentures were converted by the debenture holders to 212,590 share of Corporation.
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 | |||||||
As at March 31, 2012, debentures payables bear interest at the weighted average effective rate of 5.57% per annum (December 31, 2011 - 5.68% per annum).
Notwithstanding the carrying value of the convertible debentures, the principal balance outstanding to the debenture holders is $90,519,000 as at March 31, 2012.
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, 2012:
| # of shares | $ | |
| Balance, beginning of period | 15,213,018 | 147,200,878 |
| New shares from conversion of debentures | 212,590 | 2,498,000 |
| New shares from public offering | 1,541,000 | 20,726,450 |
| New shares issued during the period under Dividend Reinvestment Plan | 33,857 | 441,521 |
| Offering Costs | (829,058) | |
| Balance, end of period | 17,000,465 | 170,037,791 |
| The following shares were issued and outstanding as at December 31, 2011: | ||
| # of shares | $ | |
| Balance, beginning of year | 14,377,333 | 137,343,502 |
| New shares from conversion of debentures | 773,861 | 9,093,000 |
| New shares issued during the period under Dividend | 61,824 | 764,376 |
| Balance, end of year | 15,213,018 | 147,200,878 |
In the first quarter of 2012, the Corporation completed a public offering of 1,340,000 shares at $13.45 per share.
(b) Incentive option plan:
As at March 31, 2012, no options are outstanding (December 31, 2011 - 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 tables reconcile the numerators and denominators of the basic and diluted profit per share for the quarter ended March 31, 2012 and March 31, 2011.
| Basic profit per share calculation: | |||
| Three months ended March 31, 2012 |
Three months ended March 31, 2011 |
||
| Numerator for basic profit per share: | |||
| Profit | $3,937,912 | $3,546,919 | |
| Denominator for basic profit per share: | |||
| Weighted average shares | 15,280,894 | 14,406,864 | |
| Basic profit per share | $0.258 | $0.246 | |
| Diluted profit per share calculation: | |||
| Three months ended March 31, 2012 |
Three months ended March 31, 2011 |
||
| Numerator for diluted profit per share: | |||
| Profit: | $3,937,912 | $3,546,919 | |
| Interest on convertible debentures | 1,244,608 | 928,477 | |
| Net profit for diluted profit per share | $5,182,520 | $4,475,396 | |
| Denominator for diluted profit per share: | |||
| Weighted average shares | 15,280,894 | 14,406,864 | |
| Net shares that would be issued: | |||
| Assuming debentures are converted | 7,100,194 | 3,904,951 | |
| Diluted weighted average shares | 22,381,088 | 18,311,815 | |
| Diluted profit per share: | $0.232 | $0.244 | |
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, 2012, the Corporation record dividends of $3,718,535 (2011 - $3,381,635) to its shareholders. Dividends were $0.234 per share (2011 - $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 Manager (a company controlled by some of the directors) receives an allocation of interest, referred to as Corporation Manager spread interest, calculated as 0.75% per annum of the Corporation's daily outstanding performing investment balances. For the quarter ended March 31, 2012, this amount was $522,732 (2011 - $379,911). Included in accounts payable and accrued liabilities at March 31, 2012 are amounts payable to the Corporation Manager of $182,988 (December 31, 2011 - $204,988).
The total directors' fee paid for the quarter was $45,750 (2011 - $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, 2012 (2011 - $50,000). 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 for the quarter ended March 31, 2012 was $342,498 (2011 - $169,534) and applicable special profit income for the quarter ended March 31, 2012 was $55,928 (2011 - $30,518).
The Corporation 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 $15,560,000 (December 31, 2011 - $15,560,000) were issued to borrowers controlled by certain directors of the Corporation. Each investment is dealt with in accordance with the Corporation's existing investment and operating policies and is personally guaranteed by the related directors.
10. Interest expense:
| Three months ended | ||
| March 31, 2012 | March 31, 2011 | |
| Bank interest expense | $313,152 | $75,927 |
| Loans payable interest expense | 173,637 | 39,911 |
| Debenture interest expense | 1,244,608 | 928,477 |
| Interest expense | $1,731,397 | $1,044,315 |
| Deferred finance cost amortization - convertible debentures | 142,806 | (95,603) |
| Implicit interest rate in excess of coupon rate - convertible debentures | (60,281) | (23,517) |
| Change in accrued interest | (286,439) | (789,260) |
| Cash interest paid | $1,527,483 | $135,936 |
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 financial statements.
12. Fair value of financial instruments:
The fair value 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 approximate its carrying value as the majority of the loans are repayable in full at any time without penalty, and have floating interest rates.
The fair value 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 the convertible debentures, including their conversion option, has been determined based on the closing price of the debentures of the Corporation on the TSX for the respective date. The fair value has been estimated at March 31, 2012 to be $92,562,984 (December 31, 2011 - $73,722,648). This is a level 1 input which is based on a quoted price in an active market.
Firm Capital Mortgage Investment Corporation
Eli Dadouch
President & Chief Executive Officer
(416) 635-0221
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