Earnings call transcript: Atrium Mortgage beats Q1 2025 EPS forecast

Atrium Mortgage Investment Corp (AI) reported its first-quarter earnings for 2025, revealing a stronger-than-expected earnings per share (EPS) of $0.25, surpassing the forecast of $0.23. Revenue for the quarter reached $22 million, down from $25.2 million the previous year. Despite the revenue decline, Atrium’s stock saw a slight decrease of 0.09% to close at $11.01. According to InvestingPro data, the company maintains a strong dividend track record, having paid dividends consistently for 14 consecutive years, making it an interesting option for income-focused investors.

Key Takeaways

• Atrium’s Q1 EPS exceeded expectations, coming in at $0.25 versus a forecast of $0.23.
• Revenue fell year-over-year, highlighting challenges in the mortgage sector.
• The company’s stock price experienced a minor decline post-earnings announcement.
• Atrium is focusing on lower-risk loan sectors and maintaining portfolio stability.
• The Canadian and U.S. economies showed contraction, impacting market conditions.

Company Performance

Atrium Mortgage Investment Corp’s performance in Q1 2025 demonstrated resilience, with EPS surpassing analyst expectations. The company faced a revenue decline compared to the same period last year, reflecting broader challenges in the real estate and mortgage sectors. With a beta of 1.98 according to InvestingPro, the stock shows higher volatility than the market average. Atrium’s strategic shift towards lower-risk loans and a stable portfolio size indicates a cautious approach amid economic uncertainties, supported by its impressive current ratio of 6.74, suggesting strong liquidity position.

Financial Highlights

• Revenue: $22 million, down from $25.2 million year-over-year
• Earnings per share: $0.25, compared to a forecast of $0.23
• Gross mortgage portfolio: $875 million, slightly decreased from $887 million
• Loan loss reserve: $29.1 million, representing 333 basis points of the portfolio

Earnings vs. Forecast

Atrium’s actual EPS of $0.25 was higher than the forecasted $0.23, marking a positive surprise of approximately 8.7%. This outperformance is notable given the revenue decline, suggesting effective cost management or other operational efficiencies.

Market Reaction

Following the earnings release, Atrium’s stock experienced a slight decline of 0.09%, closing at $11.01. This movement is within the context of its 52-week range of $9.97 to $12. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued at current levels. Analyst targets range from $15 to $56, suggesting potential upside opportunities. The minor stock dip may reflect investor concerns over the revenue drop and broader market conditions, despite the EPS beat. For deeper insights into Atrium’s valuation and comprehensive analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Looking forward, Atrium aims to maintain its portfolio size while targeting lower-risk loan sectors. The company has secured preliminary approval for a two-year extension of its credit facility, positioning itself for potential market share gains in the non-bank lending sector. InvestingPro analysis reveals strong financial health metrics and significant dividend payments to shareholders, with additional ProTips available to subscribers looking to make informed investment decisions.

Executive Commentary

CEO Robert Goodall emphasized Atrium’s strategic focus on reducing risk and capitalizing on market opportunities. "Atrium’s results during past downturns have been exceptional," he stated, highlighting the company’s robust positioning. Goodall also noted, "We have been attempting to lower the risk profile of the portfolio by targeting lower-risk sectors and not chasing yield."

Risks and Challenges

• Economic contraction in Canada and the U.S. could impact mortgage demand.
• Revenue decline suggests potential challenges in maintaining growth momentum.
• Real estate market fluctuations, with declining home prices, could affect portfolio performance.
• Interest rate changes may impact mortgage rates and borrowing costs.
• Competitive pressures in the non-bank lending sector could influence market share.

Q&A

During the earnings call, analysts inquired about Atrium’s portfolio stability and origination strategies. The company reiterated its focus on the Ontario market and cautious approach to new development loans, aiming to mitigate risks associated with economic volatility.

Full transcript - Atrium Mortgage Investment Corp (AI) Q1 2025:

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: Ladies and gentlemen, please stand by. Your conference is about to begin. Welcome to the Atrium Mortgage Investment Corporation’s First Quarter Results Conference Call. At this time, all lines are in listen only mode. Later in the call, we will conduct a question and answer session.

At that time, if you have a question, you’ll press star two on your touch tone keypad. A reminder that this conference is being recorded, Wednesday, 05/14/2025. Certain statements will be made during this phone call that may may be forward looking statements. Although Atrium believes that such statements are based upon reasonable assumptions, actual results may differ materially. Forward looking statements are based upon beliefs, estimates, and opinions of Atrium’s management on the date the statements are made.

Atrium undertakes no obligation to update these forward looking statements in the event that management’s beliefs, estimates, opinion or other factors change. I would now like to turn the conference over to your host, Robert Goodall, CEO of Atrium. Mr. Goodall, please go ahead. Thank you for calling in today.

Our Interim CFO, Raz Van Voku, will start by talking about our financial results, and then I’ll speak about our performance from an operational and portfolio perspective. Raz? Thanks, Rob. Atrium had a solid start to fiscal ’twenty five, delivering Q1 earnings per share of $0.25 which continues to outpace our fixed dividend of $0.02 $3.02 $5 First quarter revenues were $22,000,000 compared to $25,200,000 in the same period last year due to a decline in interest rates and the turnover of the portfolio. As expected, the rate on the mortgage portfolio came down from 9.98% at the beginning of the year, 9.56% at Q1, following two twenty five basis points Bank of Canada rate cuts on January 29 and March 12.

Our strategy is to continue sourcing lower risk profile loans, which command lower rates in order to protect shareholder capital as we navigate through uncertain market conditions. So our credit facility being priced off prime to short term core market rates, the average rate on the credit facility also came down to 5.38% over the quarter from 6.34% in the fourth quarter. Our gross mortgage portfolio ended the quarter at $875,000,000 down from $887,000,000 at the start of the year. This reflects $119,000,000 in principal advances, offset by $121,000,000 in principal repayments, including a significant $62,000,000 repaid on March 31 alone. Phase III loans declined to $19,500,000 and 29,000,000 primarily due to the repayment of the troubled loans and DC.

We wrote off $2,600,000 on this loan against an allowance of $3,100,000 previously set aside. Stage two loans increased during the quarter following the addition of a $21,700,000 commercial loan that entered interest arrears. Forward committed to rectifying the interest arrears. Stage one provision still remains high at 109 basis points due to a soft macroeconomic outlook. As a percentage of the mortgage portfolio, our allowance for mortgage losses remained healthy at three thirty three basis points at Q1, which is consistent with the beginning of the year.

We continue to maintain a strong, liquid and well capitalized balance sheet. As of Q1, balance sheet debt remained low at 39% with $219,000,000 drawn under $340,000,000 credit facility, leaving ample available capacity. During the quarter, we repaid our $28,700,000 debenture using the credit facility. We also retained the flexibility to do the same with our upcoming December maturing $34,500,000 debenture should market pricing for new debenture issuances remain elevated. Overall, Q1 was a strong and consistent quarter in terms of financial performance for shareholders.

We continue to adhere to our established risk appetite in terms of new opportunities, remain disciplined with respect to operating expenses and maintain a strong balance sheet that will withstand stresses from the current cycle downturn. Rob, I’ll pass back to you for business and portfolio updates. Thank you. As Brad said, we had a strong first quarter of the year. Atrium generated basic earnings per share of $0.25 in Q1.

We increased our loan provisions by $2,200,000 which is similar to last quarter, but has been gradually reducing over time. To date, we’ve never had any problem loans where our provisions were inadequate. In fact, in virtually every circumstance, there’s been a net recovery. Overall, the portfolio decreased very slightly from $887,000,000 last quarter to $875,000,000 in Q1. But for much of the quarter, we actually had a portfolio balance in excess of $900,000,000 In fact, on the final day of the quarter, we had $62,000,000 in loan repayments.

In Q1, loan advances were actually very strong at $119,000,000 which is a really solid quarter for us even under normal market conditions. Loan repayments in Q1 were also unusually high at $121,000,000 Based on the last two quarters, we’ve had an annualized portfolio turnover of more than 55%, which is a testament to our loan quality. We’ve also made good progress implementing CMCC’s strategy to increase our exposure to commercial loans and single family mortgages. Commercial loans rose to 24% and single family and apartment mortgages were 17.2%. These two lower risk sectors now represent over 41% of our total portfolio, and we expect that trend to continue in calendar twenty twenty five.

Atrium’s average mortgage rate dropped to 9.56% due to two basis point two twenty five basis point reductions in the prime rate of interest, but also our high portfolio turnover has meant that higher yielding loans, which were funded when prime was elevated, were replaced with loans at today’s lower market rates. The total of high ratio loans, that is loans over 75% loan to value, was only 32,000,000 in Q1, equal to just 3.7% of the portfolio. This total was down dramatically from a year ago when the balance was $78,600,000 equal to 8.8% of the portfolio. And in Q1, the average loan to value of the portfolio dropped from 64% last year to 61.1 today, which continues to be well within our desired range. Atrium’s percentage of first mortgages remained very high at 96.7%.

Construction loans represented only 3.6% of the total mortgage portfolio. Construction costs have become more stable in our target markets and in the case of the GTA are actually dropping. So we are now more willing to consider underwriting construction loans with experienced developers. Turning to Stage three loans. In Q1, the total of Stage three loans dropped from $29,000,000 to 19,500,000.0 Our total Stage two and Stage three loans combined also continues to be the lowest amongst our publicly traded peer group.

There are only two commercial loans two commercial and multi residential loans, which are our Stage III loans, and I’ll briefly describe each of these loans. The first is a $14,500,000 first mortgage secured by a townhouse site based in Langley, D. C. Due to unanticipated changes to the city’s neighborhood plan and infrastructure requirements needed from the city, the development time frame for this project for actually, for all projects in this region has been extended. The property is listed for sale, and we are comfortable that our loan loss provision is adequate.

The other loan is a $2,850,000 loan secured by three Toronto office buildings. In Q4 of twenty twenty four, we negotiated additional security and anticipate a substantial paydown of the loan by the end of Q2. Once received, we will likely have a full recovery of this loan and a reversal of the loan loss provision in place. As mentioned earlier, we increased Atrium’s loan loss reserve in Q1 by $2,200,000 The loan loss the total loan loss reserve is now a very healthy 29,100,000.0 equal to three thirty three basis points on the overall portfolio. It’s worth noting that we increased the general reserve against our highest quality Stage one loans to 109 basis points.

We strongly believe that we have adequate provisions in place, which will protect profits in the future. I’m also very pleased to announce that we have preliminary approval for a two year extension of our $340,000,000 line of credit. The renewal terms are identical to the pricing and terms that we currently enjoy. We expect the renewal to close before the May. I’d like to thank TD Bank, our lead lender, for managing that process.

The economic news globally and within Canada has weakened considerably since the U. S. Government commenced its trade war involving tariffs in most countries across the world. In Canada, GDP contracted by 0.2% in February, and The U. S.

Economy contracted by 0.3% in March. Not surprisingly, CPI in both countries has dropped recently. In Canada, CPI slowed to 2.3% in March, down from 2.6% a month earlier. The IMF has forecasted Canadian GDP growth of 1.4% in 2025, but other economists have projected much slower growth. Truth is it’s impossible to forecast economic output until the trade war settles down and we have a better idea of the outlook going forward.

With the Canadian election concluded, the Prime Minister can now commence negotiations with The U. S. With U. S. President, Donald Trump, and hopefully reduce the burden of tariffs impacting Canada.

Turning to the real estate markets and, in particular, the commercial real estate market. National cap rates continued to hold steady in Q1 with the average cap rate decreasing by one basis point to 6.67%. Marginal changes in cap rates were seen across the asset classes with retail, multifamily and industrial cap rates dropping slightly, while office cap rates continued at very gradual upward ascent. Most commercial real estate sectors are actually performing quite well, including multifamily, retail, industrial and seniors housing. Looking at the residential and multi residential real estate market and first of resale.

In the GTA, resales in April were up on a seasonally adjusted basis from last month, but still down 23% from April 2024. New listings were up 8.1% year over year, and the MLS composite benchmark was down 54% year over year in April. Grab is still forecasting a 12.4% increase in sales and a 2.6% increase in the average price in 2025. Similar to the GTA, resales in Metro Vancouver in April also declined by 23% on a year over year basis, And newly listed properties dropped by 3.4% from last year but are still above the ten year average. The sales to active listing ratio was 13.8%, which is on the lower end of a balanced market.

The home price index in Metro Vancouver was down 1.8% from a year earlier and 0.5 from last month. Turning to new home sales. The new home market remains extremely slow. In the GTA, new home sales in Q1 decreased by 53% compared to the same period in ’twenty four. Number of high rise and low rise sales both declined year over year, with high rise sales falling more significantly.

The inventory on the market increased by 10% year over year, and the benchmark price dropped by 3.9% for low rise and 3.2% for high rise over the last twelve months. Combination of lower prices and higher construction costs has significantly impacted the profitability of new homes. In Metro Vancouver, new home sales were marginally better. New sales in Q1 were down 28% from the previous quarter and 47% compared to the same quarter last year. There were 16 projects launched totaling 1,300 units of new inventory, and they were 24% presold in Q1.

We need the combination of further decline to construction costs. And by the way, Altus has suggested or has indicated, the costs are down 15% already from their peak in the GTA. And we also need sustained price appreciation in the resale market before we see a recovery in the new home market. To conclude, I’m very pleased with our first quarter results from both an earnings and portfolio quality perspective. Our underwriting teams originated almost $120,000,000 of new business loans in Q1, which is well above our historic average and is particularly impressive in a market that has so little activity.

We have begun to notice slightly less competition in the nonbank sector, and we’re hopeful that Atrium X can pick up market share over the next year or two. What is within our control is continuing to maintain a defensively positioned portfolio and to continue to underwrite new loans on a disciplined basis. So we have been attempting to lower the risk profile of the portfolio by targeting lower risk sectors and not chasing yield. As I’ve reminded you in the past, Atrium’s results during past downturns have been exceptional. So we’ve proven we know how to build a strong portfolio of loans that is resilient to market downturns.

In particular, we reduced our portfolio loan to value over the last twelve months from 64 percent to 61.1%, and the percentage of conventional mortgages has increased from ninety one point two percent twelve months ago to 96.3% at the end of Q1. Our Stage three loans has also dropped to just 2.2% of the mortgage portfolio, which is the lowest level since Q2 of twenty twenty three. Our annualized loan turnover has risen to approximately 55% over the last two quarters, which is unusually high and is a testament to the quality of the loans in the portfolio. In summary, our earnings are strong. Our portfolio is in very good shape, and we’re well positioned to take advantage of opportunities in the market.

That’s all for the presentation, but we’d be pleased to take any questions from the listeners. First question is from Sid Rejes from Fundamental Research. Sid, please go ahead. Thank you, Rob, and congrats on a strong Q1, especially the steep reduction in Stage three. I have a few questions, if I may.

We’re already halfway into Q2. Do you anticipate receivables to increase by end of the quarter? Or how do you see the pipeline? Sorry. Do I anticipate a portfolio size increase?

Yes. Mortgage receivables increase. At this point, my best guess, it would be probably treading water, which believe it or not, is pretty good in this market because I think I think you’ll find many portfolios are actually shrinking in size. And your near near term focus is on commercial and single family. Historically, these sectors have been highly competitive.

So do you anticipate your average lending rates to decline more than the market rates? Well, I’d say that happened this quarter. We’re going to increase our pricing a little bit going forward. So there might be some drop. I’d say one of the biggest contributors the drop in pricing that we had is that we had older loans that were priced higher.

They’d hit their floors on the rate. So we were getting unusually attractive yields on those deals. And then when we go and do a new deal, it’s obviously at current rates with a floor that’s based on current rates. And so you lose out what came off. Was it an artificially high spread?

And what comes on has a decent spread to it, but it’s not as attractive as the one that was repaid. So I’d say it was sort of a combination of a lot of loans, as I mentioned, 62,000,000 of loans being repaid on the last day of the quarter, and about 50,000,000 of those loans had very high yields to them. So that was a contributor. You’re right, probably doing more commercial and single family is slightly lower yielding, but not that much. I’d say it was more the portfolio turnover that caused it.

And because we’ve had so much portfolio turnover, that will become a lesser and lesser effect going forward, unless Bank of Canada rates start to come down steeply, which was not the case, obviously, the last month or two. Got it. In terms of turnover, 118,000,000 in originations or advancements this quarter. What percent of that, just to get an idea, was, I mean, new loans rather than the newest? How much was new loans versus advances under existing loans?

Yeah. Is that what you’re asking? So at least a hundred of it was brand new loans. That really shows. Okay.

Got it. Yeah. No. They our team our team did a really good job originating good quality stuff in in q one. It just shows there are a lot a lot more new projects out there, development projects, construction projects out there in last year?

There’s well, there’s there’s actually not that much that’s coming up for construction. We don’t have much of a construction portfolio. These one of the big deals we did was a refinancing of a project that was retail at the front of it was sort of a suburban commercial project with retail at the front and industrial buildings at the back. And we teamed with a pension fund, and we were competitive enough to do the deal. So there are all different types of transactions that are happening, but development is obviously really slow.

So most of the loans we’re doing are not development loans. Okay. And just one more question. Ontario exposure keeps increasing. I know you don’t have you know, province wise targets, but what specifically are you seeing in Ontario versus, let’s say, BC?

Well, we we we have 12 underwriters for Ontario. So the the we have a really good knowledge of province of the GTA in particular, and we’ve been here, you know, since 02/2001. So in fairness to the the Vancouver operation, there’s there’s two underwriters as opposed to 12. But I also think you’ll see some activity in Vancouver, in DC in Q2 and going forward. But it’s it’s it’s fair to say that it’s not like you’re seeing more opportunities in Ontario.

It’s just that you have a larger team there. That’s it. Yeah. So you naturally see more opportunities because you just have more more contacts, more more awareness in the market of who Atrium is. I mean, we’re pretty well known in in Vancouver as well, but our portfolio is, you know, 800,000,000 or thereabouts over $800,000,000 just almost in the GTA alone.

So we’re very well known in the city. Next question is from Graham Ryding from TD Securities. Graham, please go ahead.

Graham Ryding, Analyst, TD Securities: Maybe just broadly the size of the portfolio as you sort of looking through the rest of this year, trying to factor in, I guess, that the market is pretty soft in some areas? Or what’s your expectation for, you know, your ability to grow the portfolio from from current level?

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: I mean, we’re trying to grow it. And if we’d had normal turnover, it would be growing. So it’s not only how much business we can bring in, it’s how much business is being repaid. As I’ve mentioned before, a lot of our repayments come from the big six banks. And they’re still actively lending for bankable clients.

And most of our clients are bankable clients. They’re using us for a specific purpose as opposed to the fact that they may not be bankable with the big six. Almost all of

Graham Ryding, Analyst, TD Securities: them

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: are. We’re hoping to to increase the I mean, I’d love to get to $900,000,000 Do I think we could get there? It’s really hard to know because the repayments have been faster than we expected. We’ve actually done a really good job of booking new business, but it’s been entirely offset by repayment. That’s not much of an answer, know, but it’s it’s the best I can do right now.

Yeah.

Graham Ryding, Analyst, TD Securities: No. It’s helpful that you you wanna get to 900, but it’s it’s not actually in your control sometimes. That’s fair. On the stage loans, can you just and you if I miss it, I’ll go on apologize. But on the stage three, there was something that was written off in the quarter.

Can you remind us what that was? And then it looked like there were actually some mortgages that improved or cured in the stage three bucket. Can you flag what those were?

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: Yes. So there were three loans last quarter, Graham, and one of them we knew we were going to lose money on. We had it provisioned. And it was we actually ended up selling the mortgages as opposed to the property. I’ve only seen that a couple of times in my career because there’s always interest in doing that, but it never seems to come to fruition this time it did.

So it was a very quick closing. That was part of the appeal to us because, obviously, interest is accruing and not being paid. And we ended up having rather a small net recovery on that one. Right? That’s right.

Yes. But it wasn’t a big surprise. We were going to lose money on it. And fortunately, we’d reserve more than what we that we lost.

Graham Ryding, Analyst, TD Securities: And then were there some others that cured in the quarter in the freeze free bucket?

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: No. But it’s I don’t think so, is it? So on the single family side, we had one one loan that got repaid for a small loss of 70,000. So three single family homes remain in the in the stage three bucket. Has there even a net improvement on on the single family stage three?

Yep. Yep. Sorry. I always forget about single family ones. I only end up focusing on the larger ones.

Graham Ryding, Analyst, TD Securities: That’s fine. And then on the in the stage two, it looks like it was fairly stable on most periods except on the commercial side, an increase in a little bit. Quarter to quarter to 28,000,000. Any is that one loan or is that a group of loans? Any color

Or is it

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: think it went up by 23,000,000 on the commercial and multi residential side. It was essentially it’s essentially one loan. And it’s an industrial project, very strong guarantor. I think it’s working itself out. It’s more of an ownership dispute that caused this, But we have a very strong guarantor, and we’ve sort of allowed him a little bit of time to resolve that issue.

I I think the loan is fine. Don’t think anywhere near 100% loan to value, put it that way, plus we have, as I mentioned, a strong gearing for it.

Graham Ryding, Analyst, TD Securities: Okay. And then the $120,000,000 originations in the quarter, could you sort of describe the key buckets that that those originations are from in terms of sort of the assets? Because I think the GTA condo market seems like there’s probably not a lot of activity there.

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: Do you have that, Russ? I don’t have that off the top of my head. I know about just under 20 of it with single family. I think a big portion of it was commercial. Like, 50 maybe commercial.

Sorry. Hold on for a second. I didn’t have that one in the down. Oh, only 18 on commercial. K.

Oh, that’s 31, the half million? Yep. The rise 11. It so it’s pretty spread out. Yeah.

Yep. It must have been the quarter before that we had the large loan that we did on commercial. Yeah. Okay.

Graham Ryding, Analyst, TD Securities: Okay. That’s it for me. Thank you.

Robert Goodall, CEO, Atrium Mortgage Investment Corporation: It appears that there are no other questions at this time. I will now give the callback to Robert Goodall for closing statements. Okay. Thank you all for attending the conference call. We’re pleased with the results.

I hope you guys are as well. For existing shareholders, thank you for your continued support. Thanks very much. Thank you all for participating. This conference call has now concluded.

Please hang up.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.