Firm Capital Mortgage Investment Corporation Announces Results

TSX Symbol FC

TORONTO, Aug. 9, 2012 /CNW/ - Firm Capital Mortgage Investment Corporation (the "Corporation") (TSX FC), today released its financial statements for the three and six months ended June, 2012.

PROFIT & RETURN ON EQUITY
Comprehensive income and profit ("Profit") for the six months ended June 30, 2012 totaled $8,548,639 compared to $7,008,333 for the six months ended June 30, 2011. Profit for the six months ended June 30, 2012 exceeded dividends by $832,675 or $0.049 per share. Profit for the quarter ended June 30, 2012 totaled $4,610,727 compared to $3,461,415 for the quarter ended June 30, 2011. Profit for the quarter ended June 30, 2012 exceeded dividends by $613,298 or $0.036 per share.  The second quarter Profit represents an annualized return on average Shareholders' equity of 10.36% per annum.  This return on Shareholders' equity equates to 926 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 second quarter totaled $0.234 per share ($0.078 per share per month).

INVESTMENT PORTFOLIO HIGHLIGHTS:
Details on the Corporation's investment portfolio as at June 30, 2012 are as follows:

  • Total gross investment portfolio equals $300,221,621
  • Conventional first mortgages, being those mortgages with loan to values less than 75%, comprise 76.3% of our total portfolio, and total conventional mortgages with loan to values under 75% comprise 86.9% of our total portfolio.
  • Non-conventional mortgages total 4.4% of the portfolio.
  • Related investments total 8.7% of the portfolio.
  • Approximately 59% 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 8.93% per annum.
  • Regionally, the portfolio is diversified approximately as follows: Ontario 79.4%, Alberta 13.1%, British Columbia 4.1%, with the balance (3.4%) being in other provinces.
  • Investment portfolio breakdown by loan size is as follows:

Investment Portfolio Breakdown
Amount Number of
Investments
Total Amount
$0-$2,500,000 103  $ 95,718,132
$2,500,001-$5,000,000 21 73,778,093
$5,000,001-$7,500,000 11 66,663,546
$7,500,001 + 7 64,061,850
Total 142  $ 300,221,621

 

IMPAIRMENT PROVISION UPDATE:
Management has always taken a proactive approach to allowance provision reserves. This is a prudent approach to protecting our Shareholders' equity. In the second quarter of 2012 the Impairment provisions increased by $200,000 to $3,180,000 which represents 1.06% of the gross loan portfolio.

UNRECOGNIZED INCOME COLLECTED:
As at June 30, 2012, the Corporation has recorded as a receivable on its books, banked non-refundable fee income of $545,496, 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 and Six Months Ended June 30, 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)          
           
    Jun. 30, 2012     Dec. 31, 2011
           
Assets          
           
Amounts receivable and prepaid expenses $ 4,572,137   $ 3,478,338
Investment portfolio (note 4)   297,041,621     271,048,591
           
Total assets $ 301,613,758   $ 274,526,929
           
           
Liabilities and Equity          
           
Bank indebtedness $ 25,730,352   $ 37,763,021
Accounts payable and accrued liabilities   1,685,955     1,354,639
Unearned income   545,496     556,991
Shareholder dividend payable   1,335,225     2,008,118
Loans payable   13,698,050     15,649,081
Convertible debentures (note 5)   84,905,608     69,134,395
Total liabilities   127,900,686     126,466,245
           
Shareholders' Equity   173,202,223     148,382,510
Retained earnings / (deficit)   510,849     (321,826)
Total equity   173,713,072     148,060,684
           
Commitments (note 4)          
Contingent liabilities (note 11)          
           
Total liabilities and equity $ 301,613,758   $ 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     Six Months Ended
      June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011
                         
                         
Interest and fees earned     $ 7,513,928     $ 5,139,807     $ 13,901,238     $ 10,305,814
      7,513,928     5,139,807     13,901,238     10,305,814
                         
Corporation manager interest allocation (note 9)     565,513     410,017     1,088,245     789,928
Interest expense (note 10)     1,895,468     1,140,777     3,626,865     2,185,092
General and administrative expenses     242,220     127,598     437,489     322,461
Impairment loss on investment portfolio (note 4)     200,000     -     200,000     -
      2,903,201     1,678,392     5,352,599     3,297,481
                         
                         
Total comprehensive income and profit for the period     $ 4,610,727     $ 3,461,415     $ 8,548,639     $ 7,008,333
                         
Profit per share (note 7)                        
  Basic        $0.270     $0.237     $0.525     $0.483
  Diluted     $0.262     $0.237     $0.503     $0.482
                         
                         
See accompanying notes to unaudited interim financial statements                        
                         

FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION            
Condensed Interim Statements of Changes in Equity (unaudited)            
             
(in Canadian dollars)            
             
      Six Months Ended
      June 30, 2012     June 30, 2011
             
Shareholders' equity            
             
Shares (note 6):            
             
Balance, beginning of period     $ 147,200,878     $ 137,343,502
             
Proceeds from issuance of shares     21,568,271     368,137
             
Offering Costs     (878,494)     -
             
Conversion of debentures to shares     3,518,000     3,195,000
             
Balance, end of period     $ 171,408,655     $ 140,906,639
             
             
Equity component of convertible debentures (note 6):            
             
Balance, beginning of period     $ 1,181,632   $ 774,000
             
Conversion of debentures to shares     (78,064)     (71,046)
             
Equity component of debentures issued during the period     690,000     -
             
Balance, end of period     $ 1,793,568     $ 702,954
             
Total shareholders' equity     $ 173,202,223     $ 141,609,593
             
Deficit            
             
Deficit, beginning of period     $ (321,826)     $ (321,826)
             
Dividends to shareholders     (7,715,964)     (6,811,289)
             
Comprehensive income and profit for the period     8,548,639     7,008,333
             
Retained earnings/(deficit), end of period     $ 510,849     $ (124,782)
             
Total Equity     $ 173,713,072     $ 141,484,811
             
Shares issued and outstanding (note 6)     17,118,272     14,679,223
             
             
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   Six Months Ended
          June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011
                       
Cash provided by (used in):                      
                       
Operating activities:                      
  Total comprehensive income and profit for the period       $ 4,610,727   $ 3,461,415   $ 8,548,639   $ 7,008,333
  Adjustments for:                    
    Change in impairment loss on investment portfolio     200,000   -   200,000   -
    Implicit interest rate in excess of coupon rate - convertible debentures     60,163   21,205   124,834   44,722
    Deferred finance cost amortization - convertible debentures     175,171   96,664   317,977   192,267
  Net changes in non-cash items:                    
    Increase in amounts receivable and prepaid expenses     (954,450)   (175,092)   (1,093,799)   (824,892)
    Increase (decrease) in accounts payable and accrued liabilities     (71,236)   (1,039,770)   331,317   (701,519)
    Increase/(decrease) in unearned income     79,171   116,165   (11,495)   118,782
    Increase/(decrease) in shareholder dividend payable     9,189   10,308   (672,893)   (982,866)
Net cash flow from operating activities         4,108,734   2,490,895   7,744,580   4,854,827
                       
Financing activities:                      
  Proceeds from issuance of shares       400,301   163,910   21,568,271   368,236
  Proceeds from convertible debenture issued       -   -   20,485,000   -
  Debenture offering costs       (43,112)   -   (1,026,662)   -
  Offering Costs (equity)       (49,437)   -   (878,494)   -
  Funding/repayment of loans payable (net)       (1,016,555)   (35,925)   (1,951,032)   (436,820)
  Dividends to shareholders paid during the period       (3,997,429)   (3,429,647)   (7,715,964)   (6,811,289)
Net cash flow from financing activities         (4,706,232)   (3,301,662)   30,481,119   (6,879,873)
                       
Investing activities:                      
  Funding of investments       (42,074,249)   (51,924,287)   (89,175,351)   (91,472,794)
  Discharge of investments       41,028,089   34,113,403   62,982,321   60,282,487
Net cash flow used in investing activities         (1,046,160)   (17,810,884)   (26,193,030)   (31,190,307)
                       
                       
Bank indebtedness, beginning of period         (24,086,695)   (19,599,527)   (37,763,021)   (5,005,825)
Net (increase)/decrease in bank indebtedness for the period         (1,643,657)   (18,621,651)   12,032,669   (33,215,353)
Bank indebtedness, end of period         $ (25,730,352)   $ (38,221,178)   $ (25,730,352)   $ (38,221,178)
                       
Cash flows from operating activities include:                      
  Interest received       $ 5,617,095   $ 4,698,998   $ 10,913,826   $ 8,963,561
  Interest paid       $ 1,704,348   $ 1,904,711   $ 2,941,829   $ 2,040,651
                       
                       
See accompanying notes to unaudited interim financial statements                      
                       

FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION

Notes to Condensed Interim Financial Statements (unaudited)

Three and Six months ended June 30, 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.  FC Treasury Management Inc. is the Corporation manager.

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.

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 condensed 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 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's in its financial statements as at and for the year ended December 31, 2011 and accordingly should be read in conjunction with them.

4. Investment portfolio:

The following is a breakdown of the investment portfolio as at June 30, 2012 and December 31, 2011:

                         
    Jun. 30, 2012     Dec. 31, 2011
                         
Conventional first mortgages     $228,942,126     76.27%      $ 188,083,658     68.64%
Conventional non-first mortgages     31,742,220     10.57%     41,927,607     15.30%
Related investments     13,404,311     4.46%     19,958,571     7.28%
Non-conventional mortgages     26,132,964     8.70%     24,058,755     8.78%
Total investments (at cost)      $ 300,221,621     100.00%      $ 274,028,591     100.00%
                         
Impairment provision     (3,180,000)           (2,980,000)      
                         
Investment portfolio      $ 297,041,621            $ 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.  The impairment loss in the amount of $3,180,000 as at June 30, 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 8.93% 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 $61,126,658 as at June 30, 2012 (December 31, 2011 - $30,845,331).

Principal repayments based on contractual maturity dates are as follows:

 
                                                    
                           
Balance of 2012                         $99,030,929
2013                         139,235,679
2014                         54,070,595
2015                         7,884,418
                          $300,221,621

 

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


5. Convertible debentures:

                   
            Six Months Ended     Six Months Ended
            June 30, 2012     Jun. 30, 2011
            Total Debentures     Total Debentures
                   
Principal balance, beginning of period           $69,134,395     $53,628,903
Issued           18,768,338     -
Conversions           (3,518,000)     (3,195,000)
Adjustment to fair value of conversion option           78,064     71,046
Implicit interest rate in excess of coupon rate           124,834     44,723
Deferred finance cost amortization           317,977     192,266
                   
Principal balance, end of period           $84,905,608     $50,741,938


The breakdown of the Total Debentures for the six months ended June 30, 2012 presented in the above table is as follows: 


                               
        6.00%     5.75%     5.40%     5.25%    
        Convertible     Convertible     Convertible     Convertible    
        Debenture     Debenture     Debenture     Debenture   TOTAL
                               
Principal balance, beginning of period       $15,225,091     $30,021,130     $23,888,174     -   $69,134,395
Issued       -     -     -     $18,768,338   18,768,338
Conversions       (3,518,000)     -     -     -   (3,518,000)
Adjustment to fair value of conversion option       78,064     -     -     -   78,064
Implicit interest rate in excess of coupon rate       30,380     14,356     57,841     22,258   124,834
Deferred finance cost amortization       85,260     105,431     86,492     40,795   317,977
                               
Principal balance, end of period       $11,900,795     $30,140,917     $24,032,507     $18,831,391   $84,905,608
Maturity Date       Jun 30, 2013     Oct 31, 2017     Feb 28, 2019     Mar 31, 2019    

 

The breakdown of the Total Debentures for the year ended December 31, 2011 is as follows:

                         
        6.00%     5.75%     5.40%    
        Convertible     Convertible     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, $3,518,000 of the 6% convertible debentures were converted by the debenture holders to 299,396 shares of the 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 June 30, 2012, debentures payable 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 $89,499,000 as at June 30, 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 June 30, 2012:

                         
                  # of shares     Amount 
                         
Balance, beginning of period                 15,213,018     $147,200,878
                         
New shares from conversion of debentures                 299,396     3,518,000
                         
New shares from public offering                 1,541,000     20,726,450
                         
New shares issued during the period under Dividend Reinvestment Plan                 64,858     841,821
                         
Offering Costs                 -     (878,494)
Balance, end of period                 17,118,272     $171,408,655

 

The following shares were issued and outstanding as at December 31, 2011:

                         
                  # of shares     Amount
                         
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 Reinvestment Plan                 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 1,541,000 shares at $13.45 per share.


(b) Incentive option plan:

As at June 30, 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 table reconcile the numerators and denominators of the basic and diluted profit per share for the three and six months ended June 30, 2012 and 2011.

Basic profit per share calculation:

                               
            Three months ended           Six months ended
            June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011
Numerator for basic profit per share:                            
  Profit         $4,610,727     $3,461,415     $8,548,639     $7,008,333
                               
Denominator for basic profit per share:                            
  Weighted average shares         17,053,995     14,621,705     16,270,004     14,516,228
                               
Basic profit per share         $0.270     $0.237     $0.525     $0.483
                             
                               

 

Diluted profit per share calculation:

                             
            Three months ended           Six months ended
            June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011
Numerator for diluted profit per share:                            
  Profit:         $4,610,727     $3,461,415     $8,548,639     $7,008,333
  Interest on convertible debentures         1,479,553     892,014     2,724,162     1,820,491
                               
Net profit for diluted profit per share         $6,090,280     $4,353,429     $11,272,801     $8,828,824
                               
Denominator for diluted profit per share:                            
Weighted average shares         17,053,995     14,621,705     16,270,004     14,516,228
Net shares that would be issued:                            
  Assuming debentures are converted         6,162,321     3,785,973     6,162,321     3,785,973
Diluted weighted average shares         23,216,316     18,407,678     22,432,325     18,302,201
                               
Diluted profit per share:            $0.262     $0.237     $0.503     $0.482

 

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 six months ended June 30, 2012, the Corporated recorded dividends of $7,715,964 (2011 - $6,811,289) to its shareholders. Dividends were $0.468 per share (2011 - $0.468 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 six months ended June 30, 2012, this amount was $1,088,245 (2011 - $789,928), and for the three month period ending June 30, 2012 this amount was $565,513 (2011 - $410,017). Included in accounts payable and accrued liabilities at June 30, 2012 are amounts payable to the Corporation Manager of $175,481 (December 31, 2011 - $204,988).

The total directors' fee paid for the six months ended June 30, 2012 was $91,500 (2011 - $91,500).  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 $145,000 for the six months ended June 30, 2012 (2011 - $105,000).  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 six months ended June 30, 2012 was $493,235 (2011 - $395,711) and for the three month period ended June 30, 2012 was $150,737 (2011 - $226,177) and applicable special profit income for the six months ended June 30, 2012 was $681,361 (2011 - $150,375) and for the three month period ended June 30, 2012 was $625,433 (2011 - $119,857).

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 $13,800,000 (December 31, 2011 - $15,560,000) 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.

10. Interest expense:

                               
              Three months ended           Six months ended    
              June 30, 2012     June 30, 2011     June 30, 2012   June 30, 2011
                               
Bank interest expense             $251,936     $208,917     $565,088   $284,844
Loans payable interest expense             163,979     39,846     337,615   79,757
Debenture interest expense             1,479,553     892,014     2,724,162   1,820,491
Interest expense             $1,895,468     $1,140,777     $3,626,865   $2,185,092
Deferred finance cost amortization - convertible debentures             (175,171)     (96,665)     (317,977)   (192,267)
Implicit interest rate in excess of coupon rate - convertible debentures             (60,163)     (21,205)     (124,834)   (44,722)
Change in accrued interest             44,214     881,804     (242,225)   92,548
                               
Cash interest paid             $1,704,348     $1,904,711     $2,941,829   $2,040,651

 

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 value 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.

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 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 June 30, 2012 to be $90,236,068 (2011 - $53,996,688).  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