Disclosure: Atrium Mortgage Investment Corporation has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Price and Volume (1-year)
Portfolio Update
Q2 loan advancements were up 9% YoY; repayments were down 23% YoY. Net mortgages outstanding increased 5% QoQ to $898M
No material changes in key portfolio metrics. As expected, lending rates continued to trend lower following BoC rate cuts
Continued to increase exposure to revenue generating commercial properties while scaling back on residential development projects, implying a lower risk profile
No material change in exposure by province. Note that AI’s lending is driven by project merit, not provincial targets
Stage Three (impaired) mortgages, which fell 33% QoQ in Q1, spiked 135% QoQ to $46M (5% of mortgages) due to an elevated risk profile and Atrium’s decision to revise its stage three loan policy to align with industry standards
Now, all defaulted loans are classified as stage three—even those with no expected losses. In Q2, AI lowered loan loss allowances by 19 bp to 3.14% of mortgages, reflecting management’s view of no incremental losses
Financials
Q2 revenue was down 15% YoY (Q1 was down 13% YoY), amid lower lending rates, coming in 3% below our estimate. However, net income rose 14% YoY, in line with expectations, due to lower loan loss provisions
Annual regular dividends remained unchanged at $0.93/ share, reflecting a 7.94% yield. Debt/capital increased due to robust lending growth
However, interest coverage also improved, indicating robust EBIT growth, which is positive
FRC Forecasts & Valuation
As Q2 was largely in line with our expectations, we are not making any changes to our EPS forecasts
Our estimate for the 2025 dividend varies between $0.89 and $1.04/share, as loan loss provisions and lending rates vary
Sector multiples are up 3% since our previous report in May 2025, and 6% YoY. As a result, our fair value estimate increased from $12.85 to $12.98/share
We are reiterating our BUY rating, and adjusting our fair value estimate from $12.85 to $12.98/share, implying a potential return of 19% (including dividends) in the next 12 months. We believe Q2 results demonstrate resilience in mortgage receivables growth alongside continued easing in lending rates. While net income rose, and loan loss provisions remained stable, the notable increase in impaired mortgages warrants monitoring. Management’s disciplined focus on lower-risk property types and prudent underwriting should help navigate near-term market softness. Overall, with an improved sector outlook and stable dividend yield, we are maintaining a cautiously optimistic stance on AI.
Risks
Maintaining our risk rating of 3 (Average)
We believe the company is exposed to the following risks:
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