Atrium Mortgage Investment Corporation

Ladies and gentlemen, please stand by. Your conference is about to begin. Welcome to the Atrium Mortgage Investment Corporation's second 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 will be asked for a star tool on your touch-tone keypad. A reminder that this conference is being recorded Thursday, August 6, 2026. Certain statements will be made during this phone call that 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 the date the statements are made. Atrium undertakes no obligations to update these forward-looking statements in the event that management's beliefs, estimates, opinions, 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, and thank you all for calling in this morning. Our CFO, Chris Anastasopoulos, is joining me today. Chris will begin with an overview of our financial results, and then I will speak about our performance from an operational and portfolio perspective.

Thank you, Rob. Atrium delivered solid financial results for shareholders in the second quarter, despite mixed market conditions and ongoing economic uncertainty. For the second quarter, Atrium generated net income of $11.7 million, and our basic earnings per share was $0.24 per share, compared to net income of $13.1 million and basic earnings per share of $0.28 in the comparative quarter of 2025. Our quarterly earnings continue to exceed our regular quarterly dividend of $0.2325 per share. The weighted average interest rate on our mortgage portfolio declined to 8.69% at June 30th from 8.86% at March 31, 2026, as higher-yielding loans were repaid and replaced with new loan originations priced at lower yields based on current market conditions. As of June 30, 2026, 80.9% of the mortgage portfolio was priced at floating interest rates, with the majority of loans having interest rate floors in place. The mortgage portfolio ended the quarter at $860.1 million, which was a decrease of 6.2% from $917.1 million at December 31, 2035. The decrease was due to unusually high mortgage repayments outpacing mortgage advances in the second quarter, with $88.2 million of mortgage principal advanced and $121.9 million repaid and transferred net up write-offs of $1 million during the quarter. This resulted in a portfolio turnover rate of 58% on an annualized basis compared to 38% for 2025, which is an indicator of a healthy portfolio. We expect repayment activity to moderate over the balance of the year. As of June 30, 2026, 96.9% of our mortgages were first mortgages, and we had maintained a conservative weighted average loan-to-value ratio of 62.5% for the portfolio, up from 61.4% at year-end. Our mortgages classified as Stage 1 were $704.6 million at June 30, 2026, down $77.8 million from $782.4 million at December 31, 2025. Stage 2 mortgages rose to $93.9 million, up $45.2 million from December 31, 2025. $48.7 million at December 31, 2025. This included 24.4 million of mortgages transferred to Stage 2 for being over 30 days past their maturity. However, these loans remain current on their interest payments. Most importantly, Stage 3 loans decreased 28% to $61.5 million at June 30, 2026, down from $86 million at December 31, 2025. This was primarily due to $46.3 million in repayments, partially offset by the addition of a $13.5 million loan that went into default for being over 30 days past maturity, although the loan remains current on its interest payments. The total allowance for credit losses was $30.1 million at June 30, 2026, a 1.3% decrease from $30.5 million at December 31, 2025. However, due to the reduction in the mortgage portfolio, the allowance for credit losses represents 3.5% of the portfolio, up from 3.32% at December 31, 2025. By stage, the allowance breaks down as follows. the Stage 1 allowance increased to $7.3 million from $6.1 million at year-end, representing a 1.04% increase in Stage 1 loans. The Stage 2 allowance grew to $8.1 million from $2.9 million at year-end, consistent with the migration of loans into this category. And the Stage 3 allowance declined significantly to $14.7 million from $21.5 million at year-end, in line with the reductions in Stage 3 balances discussed previously. Our balance sheet remains strong, liquid, and well-capitalized. At June 30, 2026, our debt remained low at 36.5% of total assets, with $224.1 million drawn on our $208 million credit facility, leaving healthy available capacity. The weighted average cost of borrowing on the credit facility declined to 4.67% for the quarter compared to 5.1% in the same quarter last year and 5.08% for the full year of 2025. The Board also declared monthly dividends of 7.75 cents per share for the months of October, November, and December 2026 consistent with our previously announced 93 cents per share standard dividend for the year. Overall, these results reflect another quarter of consistent performance for our shareholders, notwithstanding the challenging market backdrop. We remain disciplined in our risk management approach, continue to strengthen our team's capability, manage expenses prudently, and are focused on maintaining a balance sheet that can weather the pressures of the current economic cycle while pursuing new lending opportunities as they arise. I'll now pass you back to Rob for the business and portfolio updates.

Thank you, Chris. As Chris said, Atrium next had a solid second quarter with basic earnings per share of 24 cents. The year-to-date results of 49 cents are comfortably above our dividend of 46.5 cents per share. The portfolio declined 4% on a quarter-over-quarter basis from $896 million last quarter to $860 million at June 30th. This occurred despite having our highest level of loan production since Q2 of 2025. The D.C. office made a significant contribution to loan production in Q2 and is off to a good start in Q3. The drop in the portfolio in Q2 was due to an unusually high level of repayments, totaling $122 million. Repayments are often lumpy on a quarterly basis, and we expect repayment activity to moderate over the balance of the year. In terms of the composition of the portfolio, commercial loans grew to 30% of the portfolio, up from 29% the previous quarter, and house and apartment mortgages increased to 23.4%, up sharply from 20.1% in Q1. Combined, our exposure to these two preferred sectors now represents 53.4% of the portfolio, up sharply from 49% just last quarter and 23% of the portfolio in 2023. The total of high ratio loans, that is loans over 75% loan to value, was $82 million in Q2, virtually unchanged from the previous quarter, and equal to roughly 9.5% of the total portfolio. there was approximately a 50-50 split between single-family loans and commercial and multi-residential loans. In Q2, the average loan-to-value of the portfolio increased slightly to 62.5% and continues to be well within our desired range of 65%. ATRIB's percentage of first mortgages remained elevated at 96.9%, which is one of the highest levels we've ever recorded. I expect that this figure will drop in the next quarter, given that we are reviewing two new second mortgage proposals, but it will still remain high relative to historic norms. Construction loans within the portfolio increased to $52 million in the quarter from $43 million in Q1, as we're more comfortable lending in this area given the return of more stable construction costs. We recently funded two construction loans whose balances will increase over the next year, and we're currently looking at construction loan opportunities. So this figure is expected to continue to gradually increase. Turning to portfolio quality, the portfolio quality improved in Q2. Stage 3 loans, which are considered impaired loans, decreased from $95 million last quarter to $62 million at the end of Q2, as we anticipated. The two large Stage 3 loans, representing $41 million that we expected to be repaid or refinanced by the end of May, were in fact resolved during the quarter, more than offsetting the addition of one $13.5 million commercial loan that moved into Stage 3 only because it is 90 days past maturity, although the board remains current on its interest payments. Stage 2 loans increased to $94 million from $66 last quarter, largely reflecting $24 million of loans that migrated into this category for being over 30 days past due to their contractual maturity date. As was the case last quarter, these borrowers remained current on their interest payments, and we have no fundamental credit concerns with these loans. Turning to the loan loss reserve, we spent the loan loss provision of $137,000 in the second quarter compared to $651,000 in the previous quarter. Patron's total allowance for credit losses for the quarter is $30.1 million, equal to 350 basis points on the overall mortgage portfolio and up slightly from 347 basis points in Q1. My economic commentary is as follows. Bank of Canada held its policy rate steady at 2.25% through the second quarter while trimming its 2026 growth forecast to 0.71%. Trade uncertainty with the United States continues to weigh on exports and business investments. Canadian CPI came in at 2.8% year-over-year in June, easing from 3.2% in May as gasoline prices moderated and the Bank of Canada does not expect inflation to return to its 2% target until early 2027. Meanwhile, the U.S. Federal Reserve also held its policy rate steady in July at a rate of 3.5% to 3.75%, even as U.S. CPI of 3.5% in June remains well above the Fed's target of 2%. Both central banks continue to flag the ongoing conflict in the Middle East as a key risk to the inflation outlook given its impact on global oil prices. Turning to commercial real estate, according to CBRE, commercial real estate markets continue to stabilize in Q2. The all-properties capitalization rate grew three basis points lower in Q2 after dropping by two basis points in the previous quarter. The office sector, which had experienced weakness over the last few years, has now posted four consecutive quarters of net absorption. Absorption in Q2 was led by Toronto, Calgary and Montreal, with downtown fundamentals improving in all but one Canadian market. The vacancy rate in downtown Toronto was down to 14.1%, although the suburban vacancy rate is still elevated at 20.2%. Vancouver has one of the lowest vacancy rates, 12.2% downtown and 11% in the suburbs. The industrial sector, national availability declined for the first time since Q3 2022, climbing by 10 basis points to 5.5%. Activity was led by, again, the GTA, Montreal, and Vancouver. Vacancy rates at the end of the quarter were 3.4% in Toronto, 5% in Vancouver, 3.8% in Calgary, and 2.7% in Edmonton. We already reported apartment trends for June. Vacancy rates were 4.2% in Vancouver, 4.8% in the GTA, 5.8% in Edmonton, and 6.8% in Calgary. Calgary, in particular, has experienced a large increase in supply, which has increased the vacancy rate. Rents on new purpose-built rentals have decreased in all four markets from their peak levels. but overall commercial real estate has held up remarkably well as we enter the fifth year of a real estate downturn. Turning to the residential and multi-residential real estate, in the GTA resales increased by 9.4% on a year-over-year basis and was also up on a month-to-month basis, and listings declined by 13% on a year-over-year basis. The story was similar in Greater Vancouver, where June resales increased by 9.6% year-over-year and new listings decreased by 6%. So overall market conditions tightened slightly in both cities in June. In Calgary and Edmonton, June resales were down 3.8% and 4.1% respectively. However, relative to the population sizes of the GTA in Vancouver, these Alberta markets had much stronger resale activity. Turning to new home sales, the relatively soft resale market conditions have contributed to very slow activity in the new home sales market across most Canadian markets. There were 5,400 new home sales in the GTA from January to June, representing an increase of 102% compared to the same period in 2025, but it's still 52% below the 10-year average. Low-rise sales continue to lead the way, as they have for the last three months since the introduction of the HSP rebate program, with 4,000 new sales, representing a 145% increase versus last year. Low-rise sales are actually now 36% above the 10-year average. Conversely, high-rise sales struggled and remain 85% below the 10-year average. Industry experts have been forecasting a recovery in the low-rise sector first, and this is proven accurate. In Greater Vancouver, buyer demand was soft in Q2 with 1,100 new home sales, up from the previous quarter, but down from last year. Similar to Toronto, most new home sales were actually recently completed units, which highlights that buyers prefer a ready-to-move-in product. The weakest sector in both the GTA and GBA remains the high-rise condominium market, which will start to recover once the excess supply is absorbed. In the GTA, condo inventory under construction has dropped to 38,250 units from 48,400 units just last quarter, and from a high of 105,400 units in mid-2023. So the excess supply and the amount of product under construction is dropping fairly quickly. To conclude, we had a good quarter overall with an improvement in portfolio quality as our state's free loan balance dropped to $62 million from $95 million last quarter. Despite the decline in our mortgage portfolio this quarter, we had our most active quarter for new business in 12 months. and I believe we're well positioned heading into the second half of the year. While it's always difficult to forecast loan production and repayments from quarter to quarter, I do believe that the loan portfolio will increase to at least $900 million by the end of the year due to a slowdown in repayments and contributions in new loan business from all three of our offices. The biggest change in the second half will be a larger contribution to new loan production from Western Canada. The BC office had a strong quarter of origination in Q2 and has a full pipeline of potential loans in Q3. Our Alberta office opened in mid-April, and we've already closed one loan and negotiated binding commitments on two others. As I've mentioned in the past, Atrium's results have historically been strong during periods of uncertainty. In Q2, we continued that legacy of delivering strong, consistent results for our shareholders despite challenging market conditions. Atrium remains in solid footing with ample financial resources to take advantage of opportunities in the market. That's all for the presentation, but we'd be pleased to take any questions from listeners.

The Q&A session will now begin. Please enter star 2 on your keypad to let the operator know you have a question. First question goes to Jane Gloin of Nation Bank Capital Markets. Gene, please go ahead.

Alex, good morning. Just first question just on the growth guidance or target to end the year over $900 million. Could you just give us a little bit more color as to the pipeline? Do you have some deals expected to close already in Q3 or how does that shape up? What gives you the confidence to hit that level?

As I say, it's always hard to predict, but just based on the pipeline that we have in place now of loans that we think we're going to win, and based on what we've closed to date, but it's still early in the quarter, I think we'll certainly be higher than we ended this quarter at. And I think both Q3 and Q4... will ratchet up our balance and, you know, we're thinking we will be over $900 billion by the end of the year.

Okay. And then anything on the repayment side of things? Obviously, turnover a lot more elevated this quarter and perhaps unexpectedly so. Are there any indications that that more elevated repayment activity or turnover activity could continue into the second half of this year or somewhat one-timey.

Well, as I said, the repayments are often lumpy. I can tell you this quarter, it doesn't seem like the repayments are going to be significant. But sometimes that can change quite quickly because, you know, most repayment terms on our loans are either 30- or 60-day notices. requirements for repayment. So it could change, but right now the repayments don't seem anywhere near what they were in Q2.

Okay, great. And then shifting to the uh the credit side of the story um pretty good performance this quarter from a pcl standpoint you the stage three improved as you as you get it to um and then you've made some comments as well about the stage two loan increases and how they're 30 days past maturity but still current on interest payments maybe just sort of walk us through your strategies and your process for, I'll say, curing those loans, but bringing them, I guess, either to a renewal or a successful refinancing. What's your process and maybe some comments specifically about those two loans and their trajectory?

Okay, so those loans are 30 days past due. The borrower sometimes, we will offer renewal, and the borrower will think, well, I've improved the property or I've increased the income on the property, and I think I can get cheaper financing. And what ends up happening is they don't sign back a renewal offer, and they search to see if they can find cheaper financing. They keep us current during that period of time, and we're not going to call the loan because we're hoping to renew it. So it's just a fact of life in commercial real estate lending that sometimes borrowers, sometimes some of your best borrowers, who you don't want to ruin your relationship with forever. And to call a loan, I mean, legally, you'd be on thin ground anyway if they were keeping the interest rates current. But the point is, we like those loans. We're hoping that we will renew them. But under new IFRS 930, you have to consider them stage two, even though they have the risk profile of what you would think would be a stage one loan. That gives you the context of what these loans are about.

Yeah. Okay, great. That's well understood. And then I apologize if I missed it on the prepared remarks about the one commercial loan in stage three that... is now 90 days past its maturity, but still current. What's the situation there in terms of recovery from that loan? Maybe you could talk about the geographic and asset type exposure, maybe just some more color on that one specifically.

Sure. We're not worried about that one either. That one is 90 days past its due because they're looking for... and are very close to getting replacement financing. It's a rental project. It's a purpose-built rental project, so right now it's land. It's going to have a purpose-built rental project built on it, and they're very close to financing. And so we offer a short-term renewal with a fee. They don't want to pay the fee, so they're paying the interest but not accepting the renewal. And there's two of us that are lending on that project, and... Again, we're not going to call it a loan. We know that probably in the next three months that financing will be secured. We sort of checked it out that we're pretty comfortable that financing is going to be secured.

Excellent. And then last one, just on the weighted average interest rate, you know, ticked down kind of as expected as rates were moving lower. You know, we have stability in overnight rates. The longer bond or longer part of the curve is ticking a little bit higher. What's your expectation about how that wear will evolve here in the second half of 26?

You know, the irony is the old legacy loans, some of which were in Stage 3. So some of you know we paid off $41 million in Stage 3 loans. There are older loans that were booked when rates were higher. So the good news is we got repaid on the loan, full principal and interest. The bad news is they had high rates on them. That was probably the biggest contributor to the reduction in the average interest rate. So it was sort of a good news, bad news thing. We're happy to get repaid. Unfortunately, it was one of our higher yielding mortgages. So I think it'll be, I'm hoping and thinking it'll be more stable going forward.

Right, yeah, visibility on that repayment curve and then what's in the pipeline stability is the expectation, plus or minus.

Yeah. I mean, the market's pretty competitive. The market's pretty competitive right now because, as you know, there's not a heck of a lot of activity going on by buying and selling in the marketplace. So as a result, the lenders are chasing business. And I think as I said before, we very rarely are competing. We're very rarely competing with other non-bank lenders. We're usually competing with smaller institutions. And some of them, you know, are finding, just like we did, some of them are finding their mortgage balances are dropping and they're sort of migrating into our territory of lending. So it's a very competitive market. It doesn't matter, you know, even the life coats in the banks are really competing hard against each other. So that's part of what's keeping the interest rates high. That's part of what caused the interest rates to come down as well. It's just a very competitive market because there's not a heck of a lot of activity in the market. So the good deals that are out there are sometimes seeing pricing that we haven't seen in years.

Understood. Thanks for taking all my questions. Appreciate it. Thank you.

The next question is from Graham Writing of TD Securities. Graham? Please go ahead.

Hi, Rob. Good morning. Appreciate the color you gave on all the different verticals within your mortgage portfolio or I guess the market overall. If I had to try and summarize your message, am I right in that the commercial side of the market is fairly healthy? The residential side, you're seeing some green shoots of improving activity on the civil family side, but there's still some work to do on the condo side in terms of clearing the excess supply. Am I getting the certain key messages right?

100%. I mean, the only good news on the high-rise condo sector in Toronto, and I don't think it's too dissimilar in Vancouver, is we've had about 30,000 units completed each of the last two years, which we've never seen anything like that before. And now, total, there's 38,000 under construction. So, it tells you we're hopefully getting near to the end of certainly what's under construction to be completed. and the market should start to improve. That's why there's a lot of groups trying to put together a bulk purchase fund of condominiums. And that's the reason is they can see that the market should improve over the next couple of years. But there's no question the market right now is very soft.

Okay. Great message from you, Rob. Thanks.

Okay. The next question is from Zachary Weisbord of Canaccord Genuity. Zachary, please go ahead.

Thanks. Good morning. Reaping activity seemed to be heavier than expected this quarter. Can you speak to what drove that? Were borrowers refinancing with other lenders, or was this primarily takeout financing as projects reached completion and moved to longer-term debt?

Good question. I think, honestly, it was a mix of the two. Let me give you an example of the two, say, three loans that totaled $41 million that were repaid. The $31 million, the bigger one, was actually a sale. And the $10 million one, very fortunately, the borrower found a very strong joint venture partner in a difficult market to find that person. So that one was a refinancing. So it was a mix of the two.

Okay, thanks. And with the Alberta office now up and running, Can you talk about the opportunity set that you're seeing there and how it differs from Ontario in terms of deal flow or profile pricing?

Certainly the market's more active. The three deals that we've either closed or tied up now, One is a small apartment, 41 units, that's being constructed, purpose-built rental right beside the university. The second one is a recently completed small bay industrial, which is a super strong market in both the Alberta major cities, Calgary and Edmonton. And the third one was a... a commercial building, a sort of medical office where literally before closing somehow, I don't know how he did it, pre-sold most of the building. He was converting it to medical office from more traditional commercial use and he literally is almost repaying our loan once he finishes the setup of the space from pre-sales to various medical office uses. So three very different loans, all commercial, which we like. And we're not really diving into development there either. We're sort of cutting the development portfolio down reduced in size. And so the strategy is not that dissimilar from what we're doing in D.C. and Toronto.

Okay. Thanks. Appreciate the comments. Okay.

It appears that there are no other questions at this time. I'll now give the call back to Robert Goodall for closing statements.

Thanks for attending our conference call. Thanks for all the questions. We're pleased with the results. I hope you are as well. And for our existing shareholders, thank you for your continued support. Have a great day. Thank you all for participating.

This conference call is now concluded. Please hang up.