Increase in loss provisions provides a buffer against housing default risks
Nonbank Atrium Mortgage Investment Corporation posted solid first-quarter results but increased its allowance for potential mortgage losses amid the ongoing turmoil in Canadian real estate markets.
For the three months ended March 31, 2024, Atrium reported $25.2 million in revenues, up 6.3% from a year earlier. Net income was $12.0 million, a 15.3% decline from Q1 2023.
"Atrium began 2024 with another strong quarter. Earnings per share of $0.27 was consistent with our fourth quarter results and significantly exceeded the dividends declared of $0.225," Atrium CEO Rob Goodall said in the company’s earnings report.
Goodall attributed the revenue growth to its targeted lending strategy in lower-risk sectors.
“Our lending program is specifically targeting lower-risk sectors to protect shareholder capital during this downturn in the cycle,” he explained. “Maintaining a defensive portfolio remains our top priority at quarter end, the weighted average loan to value on the mortgage portfolio remained conservative at 64.0%, and 96.7% of Atrium's mortgages were first mortgages.”
The mortgage lender's portfolio stood at $867.1 million as of March 31st, down slightly from $876.7 million at the end of 2023 after $78.4 million in new lending and $81.6 million in repayments during Q1. The weighted average interest rate was 11.25%.
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However, despite the portfolio's stable performance, Atrium increased its allowance for potential mortgage losses to $24.9 million or 2.81% of the total portfolio value. This is up from the $22.6 million or 2.53% provision at the end of 2023.
"We decided to increase our allowance for mortgage losses in recognition of the continued challenges experienced by real estate markets across Canada," Goodall said.
He added, “While the prospect of lower rates and easing inflation in the second half of the year should improve market conditions, we intend to remain diligent in managing the existing portfolio and continue to focus on our preferred sectors for new loan business.”
As of March 31st, the weighted average loan-to-value ratio on Atrium's mortgage portfolio was a conservative 64.0%, with 96.7% being first mortgages.
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