Atrium Mortgage Investment Corporation (TSX: AI) Record Year / Shares at Attractive Entry Levels. Sector/Industry: Mortgage Investment Corporation

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1 Siddharth Rajeev, B.Tech, MBA, CFA Analyst February 17, 2016 Atrium Mortgage Investment Corporation (TSX: AI) Record Year / Shares at Attractive Entry Levels Sector/Industry: Mortgage Investment Corporation Market Data (as of February 17, 2016) Current Price C$11.00 Fair Value C$12.80 Rating* BUY Risk* 2 52 Week Range C$ C$12.89 Shares O/S million Market Cap C$ million Yield (forward) 8.7% P/E (forward) 11.6x P/B 1.2x YoY change in share price -12.3% YoY TSX -17.8% *See back of report for rating and risk definitions Highlights Atrium Mortgage Investment Corporation ( company, Atrium, AI ) reported its highest ever revenues and net profits in Revenues grew by 15% YOY to $40.21 million in (our forecast was $40.24 million). Net income increased by 11% YOY to $23.34 million (EPS: $0.94) versus our forecast of $24.00 million (EPS: $0.94). Atrium s mortgage receivables at the end of 2015 were $448 million. No new originations were made in Alberta. The portfolio s exposure to Alberta dropped QOQ from $68 million (14.6% of the total) to $61 million (13.5% of the total) by the end of Q4. 98% of the loans in Alberta are first mortgages. There were no material changes in any of the key portfolio parameters. Management expects the portfolio to be approximately $475 million by the end of the year. We are maintaining our 2016 year end estimate at $500 million. A $25 million equity financing in November 2015, we believe, has strengthened the balance sheet, which will allow the company to take advantage of its line of credit to fund mortgages. The company paid out total dividends of $0.93 per share in 2015, up from $0.89 per share in The 2016 regular dividend is $0.86 per share. Our forecast for total dividends in 2016 is $0.95 per share. We are maintaining our fair value estimate of $12.80 per share. Key Financials (FYE - Dec 31) (C$) (F) 2017(F) Mortgage Receivables(net) $ 281,708,139 $ 432,757,000 $ 448,099,000 $ 499,480,990 $ 524,744,810 Cash $ - $ - $ - $ 0 $ 0 Revenues $ 23,759,620 $ 34,956,000 $ 40,206,000 $ 42,190,406 $ 46,125,000 Net Income $ 17,999,888 $ 21,037,000 $ 23,337,000 $ 25,558,401 $ 28,141,556 EPS $ 0.85 $ 0.91 $ 0.94 $ 0.95 $ 1.01 Dividends per Share $ 0.85 $ 0.89 $ 0.93 $ 0.95 $ Fundamental Research Corp. 10+ years of bringing undiscovered investment opportunities to the forefront

2 Page 2 Portfolio and valuation remain strong relative to peers The following table shows Atrium s portfolio versus its peers. As shown in the table, their portfolio has the highest percentage of first mortgages (78%) and the lowest loan-to-value ( LTV ) of 64.7%. Atrium s portfolio, which was dominated by mortgages in Ontario, is now reasonably diversified due to an aggressive expansion in Western Canada in the past two years. Name LTV First Mortgages 1 Firm Capital MIC 70% 2 Timbercreek MIC 72.3% 77% 3 TREZ Capital MIC 68.2% 77% Geographical Diversification 66% ON, 11% QC, 9% AB and Others 38% ON, 21% QC, 6% AB and 4% BC, and Others 40% ON, 27% AB, 11% BC and Others Interest Rate Mortgage Oustanding ($, MM) Debt to Capital 8.05% $ % 9.10% $ % 7.55% $ % Group (1) Average 70.3% 74.7% 8.23% 27.2% 1 Timbercreek Senior MIC 55.0% 100% 2 TREZ Capital Senior MIC 34.9% 100% 39% ON, 31% QC, 10% SK, 10% AB, and Others 59% ON, 26% AB, 13% BC, and Others 6.10% $ % 5.90% $ % Group (2) Average 44.95% % 6.00% 36.07% Average of (1) and (2) 57.60% 87.35% 7.12% 31.61% Atrium MIC 64.7% 78% 67% ON, 17% BC, 14% AB, and 2% SK 8.66% $ % Atrium s shares continue to be undervalued compared to its peers as shown by the lower P/E and the higher dividend yield. Name Ticker P/E P/B Dividend Yield 1 Firm Capital MIC FC % 2 Timbercreek MIC TMC % 3 TREZ Capital MIC TZZ % Group (1) Average % 1 Timbercreek Senior MIC MTG % 2 TREZ Capital Senior MIC TZS % Group (2) Average % Average of (1) and (2) % Atrium MIC AI % Atrium MIC (2016 forward) AI %

3 Page 3 Exits 2015 at $448M Atrium s mortgage receivables at the end of 2015 were $448 million versus $459 million at the end of Q3. Our estimate was $464 million. The company originated $55 million mortgages in Q4, versus $59 million in Q3, $94 million in Q2, and $63 million in Q1. Of the new mortgages originated in Q4, 41% were in Ontario, and the remaining 59% were in BC, with no new originations in Alberta. The portfolio s exposure to Alberta dropped QOQ from $68 million (14.6% of the total) to $61 million (13.5% of the total). 98% of the Alberta loans are first mortgages. None of the mortgages are tied to higher risk sectors, such as office, high-rise condominiums, hotels, etc. In their quarterly conference call, management indicated that they expect to continue to bring their AB exposure down to under 10% by the end of Source: Company Atrium s portfolio is much more diversified than when we initiated coverage in early At the end of 2013, approximately 89% of the portfolio was secured by properties in ON versus the current 67.3%. We had expressed concerns on the portfolio s lack of diversification. We are extremely pleased with management s ability to diversify the portfolio so rapidly while maintaining the overall portfolio risk at moderate levels. In the conference call, management stated that they expect the portfolio to be approximately $475 million by the end of the year. However, we are maintaining our 2016 year end estimate at $500 million. The company was able to lower its debt to capital ratio to 37.5% by the end of 2015, down from 44.6% at the end of Q3, due to a $25 million equity financing completed in November We believe the company will be able to exit the year at approximately $500 million using the line of credit, and without any need to

4 Page 4 pursue equity financings. Our models forecast debt to capital of 43.9% by the year end. Our estimate for 2017 year end (which we are introducing in this report) is $525 million. First mortgages at 77.8% The percentage of first mortgages increased QOQ from 75.4% to 77.8%. Source: Company Exposure to property types The following table shows the outstanding loans by category. The lower risk segments such as low-rise residential, and homes/apartments, accounted for approximately 43% versus 42% at the end of Q3. Source: Company Other key parameters The following highlights other key portfolio parameters: As of December 31, 2015, the average outstanding mortgage balance was $2.2 million versus $2.3 million as of December 31, 2014.

5 Page 5 The weighted average interest rate, excluding lender fees, of the portfolio, was 8.66% at the end of Q4 (8.77% at the end of Q3). The weighted average term to maturity was 11.1 months at the end of the year versus 12.5 months at the end of Q3. Management indicated that they expect the average term to rise in Q The LTV was 64.7% compared to 64.9% at the end of Q3. The company reported a loan loss provision of $0.70 million in the quarter, bringing the total provision to $4.30 million, and increasing the total provision to 0.95% (up from 0.78% at the end of Q3); all of which are under general provision. This increase provides a good safety net for investors. At the end of Q4, 7 mortgages, totaling $6.62 million, were in default. In the conference call, management did not express any material concerns over the mortgages in default. Their predictions have been reasonably accurate in the previous calls, and we believe they have a good grasp on the current mortgages in default. Record Year Revenues grew by 15% YOY to $40.21 million in Net income increased by 11% YOY to $23.34 million (EPS: $0.94). Our revenue forecast was $40.24 million, and our net income forecast was $24.00 million (EPS: $0.94). Interest income (including lender fees) as a percentage of mortgage receivables: As shown in the table below, interest income as a percentage of mortgage receivables decreased YOY from 9.79% to 9.13% p.a. in Net income as a percentage of mortgage receivables dropped from 5.89% to 5.30% p.a. % of Mortgage Receivables (net)- annualized Interest Income + Origination 9.82% 9.79% 9.13% Less: Management Fee 1.02% 0.99% 0.95% Loan Loss Provision 0.03% 0.51% 0.43% G&A Expenses 0.27% 0.21% 0.20% Interest Expenses 0.99% 2.11% 2.18% Share Based Payments 0.08% 0.07% 0.07% Net 7.44% 5.89% 5.30% Dividends as a Percentage of Book Value 8.51% 9.06% 8.92% *The calculations in the above table are approximates as we used the average of beginning and end of period mortgage receivables outstanding. We are lowering our revenue forecast for 2016 to $42.19 million (previous - $44.45 million) as we expect lending rates to drop due to the lower interest rate environment. Our forecast for 2017 is $46.13 million (introducing in this report). We have slightly lowered our income estimate for 2016 to $25.56 million (EPS: $0.95), from $27.27 million (EPS:

6 Page 6 $1.06). Our forecast for 2017 is $28.14 million (EPS:$1.01). Dividends The company paid out a regular dividend of $0.84 per year, or $0.07 per month, in 2015, and offered a special dividend of $0.09 per share for a total dividend of $0.93for the year, compared to $0.89 per share in The 2016 regular dividend is $0.86 per share. Our forecast for 2016, and 2017, are total dividends of $0.95 per share and $1.01 per share, respectively. The table below shows a summary of the balance sheet Mortgages receivable, net $281,708,139 $432,757,000 $448,099,000 Cash LT debt $30,610,763 $100,328,000 $101,230,000 Debt $67,029,130 $180,689,000 $168,198,000 Equity $212,018,978 $248,204,000 $274,984,000 Total Capital $279,048,108 $428,893,000 $443,182,000 Debt to Capital 24.0% 42.1% 38.0% Debt to Asset 23.8% 41.7% 37.5% EBIT/ Interest expense Our calculations are slightly different from the company s calculations. 3.4 The company significantly lowered its debt to capital to 38% at the end of 2015, from 45% at the end of Q3. Debt includes bank indebtness, operating line, due to related party, and convertible debentures. The company s lenders require debt to be lower than 50% of assets. Options and Warrants Rating The company has no options or warrants outstanding. We are maintaining our fair value estimate of $12.80 per share and BUY rating (Risk 2) Risks The following, we believe, are the key risks of the company: Like all mortgages, AI mortgages are exposed to credit and interest rate risks. Interest rate risks are minimal as most of the mortgages are short-term with fixed rates. A downturn in the real estate sector may impact the company s deal flow. Timely deployment of capital is critical. Investments in mortgages are typically affected by macroeconomic conditions, and local real estate markets. Competition is high in the mortgage lending business. Like most MICs, the company uses leverage to fund mortgages. Leverage, if not maintained below optimum levels, can have a negative impact.

7 Page 7 Appendix Income Statement (F) 2017(F) YE - December 31 Revenue Mortgage interest and other fees $23,759,620 $34,956,000 $40,206,000 $42,190,406 $46,125,000 Total Revenue s $23,759,620 $34,956,000 $40,206,000 $42,190,406 $46,125,000 Expenses G&A 641, , , ,099 1,025,000 Mortgage servicing and management fees 2,467,672 3,553,000 4,173,000 4,480,067 4,843,449 Share based payments 204, , , , ,183 Interest + Bank Charges 1,318,474 2,908,000 2,724,000 3,745,656 4,892,260 Interest on convertible debenture 1,065,078 4,627,000 6,873,000 6,589,362 6,589,362 Loan loss provision 63,000 1,817,000 1,912, , ,190 Total Expense s 5,759,732 13,919,000 16,869,000 16,632,005 17,983,444 Net Income $17,999,888 $21,037,000 $23,337,000 $25,558,401 $28,141,556 EPS $0.85 $0.91 $0.94 $0.95 $1.01

8 Page 8 Balance Sheet (F) 2017(F) YE - December 31 Assets Cash - - $0 $0 Mortgages receivable, net $281,708,139 $432,757,000 $448,099,000 $499,480,990 $524,744,810 Accrued interest receivable Prepaid Expenses $272,615 $38,000 $54,000 $259,425 $283,619 Receivables Total Asset $281,980,754 $432,795,000 $448,153,000 $499,740,415 $525,028,429 Liabilities Credit facility $36,235,930 $79,966,000 $66,566,000 $117,518,879 $122,917,254 Account payable and accrued liabilities $459,209 $523,000 $677,000 $995,993 $1,076,922 Due to related party $182,437 $395,000 $402,000 $402,000 $402,000 Dividend payable $2,473,437 $3,379,000 $4,294,000 $4,259,733 $4,690,259 Convertible debenture $30,610,763 $100,328,000 $101,230,000 $101,230,000 $101,230,000 Total Liabilities $69,961,776 $184,591,000 $173,169,000 $224,406,605 $230,316,436 Share capital $210,659,880 $245,794,000 $272,698,000 $272,698,000 $291,698,000 Contributed surplus $898,827 $1,085,000 $970,000 $1,319,810 $1,697,993 Equity component of convertible debenture $397,539 $1,062,000 $1,062,000 $1,062,000 $1,062,000 Retained Earnings $62,732 $263,000 $254,000 $254,000 $254,000 Total Shareholders Equity $212,018,978 $248,204,000 $274,984,000 $275,333,810 $294,711,993 Total Shareholders Equity+Liabilities $281,980,754 $432,795,000 $448,153,000 $499,740,415 $525,028,429

9 Page 9 Cash Flow Statement (F) 2017(F) YE - December 31 Operating Activities Net Income $17,999,888 $21,037,000 $23,337,000 $25,558,401 $28,141,556 Add (subtract) non cash item Share based payments $205,628 $222,000 $325,000 $349,810 $378,183 Loan provision $63,000 $1,817,000 $1,912,000 $519,010 $255,190 Interest capitalized to mortgages -$1,611,503 -$5,152,000 -$353, Amortization of mortgage discount -$207,828 -$122,000 -$158, Amortization of mortgage origination fees -$881,347 -$753,000 -$639, Non cash portion of interest on convertible debentures $148,846 $644,000 $945,000 Total $15,716,684 $17,693,000 $25,369,000 $26,427,221 $28,774,929 Net changes in non-cash operating items Prepaid expenses -$253,038 -$7,000 -$16,000 -$205,425 -$24,194 Accrued interest receivable $1,027,466 -$615,000 $217, Accounts payable and accrued liabilities -$1,359 $63,000 $154,000 $284,726 $511,456 Additions to mortgage discount $160,800 $248,000 $133, Additions to mortgage origination fee $961,064 $1,264,000 $1,046, Others $1,093,000 -$43,000 Cash From Operating Activities $17,611,617 $19,739,000 $26,860,000 $26,506,521 $29,262,191 Investing Activities Mortgage investments(net) -$79,264,840 -$147,336,000 -$16,970,000 -$51,901,000 -$25,519,010 Cash used Investing Activities -$79,264,840 -$147,336,000 -$16,970,000 -$51,901,000 -$25,519,010 Financing Activities Credit facility $35,910,000 $43,572,000 -$13,930,000 $50,952,879 $5,398,375 Increase/decrease in amounts due to related party -$23,168 $213,000 $7, Issuance of share capital $1,276,573 $36,708,000 $27,672,000 $20,000,000 Share capital issue costs - -$1,609,000 -$1,208, $1,000,000 Cash dividends paid during the year -$17,323,951 -$19,931,000 -$22,431,000 -$25,558,401 -$28,141,556 Proceeds from issuance of convertible debentures $32,500,000 $72,051,000 Convertible debenture issue costs -$1,640,544 -$3,407, Cash used in Financing Activities $50,698,910 $127,597,000 -$9,890,000 $25,394,478 -$3,743,181 Net Increase(Decrease) in Cash -$10,954,313 $0 $0 $0 $0

10 Page 10 Fundamental Research Corp. Equity Rating Scale: Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold Annual expected rate of return is between 5% and 12% Sell Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. 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