Equity Financial Holdings Inc. (TSX:EQI) ("EQI" or "the Corporation"), a
Canadian financial services company serving the corporate, institutional and
retail mortgage market, reported today its financial results for the three
months ended March 31, 2011.
Financial Highlights (all dollar amounts, except per-share, are in $000s unless
otherwise stated)(1)
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Three months ended Mar. 31
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2011 2010
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Unaudited Unaudited
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Revenue $ 6,917 $ 5,083
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Revenue growth 36% 28%
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EBITDA $ 2,008 $ 901
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Net income and comprehensive income $ 1,267 $ 472
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Net income & comprehensive income growth 169% 125%
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Earnings per share, basic $ 0.17 $ 0.07
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Earnings per share, diluted $ 0.17 $ 0.07
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Diluted earnings per share growth 143% 133%
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Return on equity (annualized) 15% 8%
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Cash and cash equivalents at period end $ 32,051 $ 12,437
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The first quarter of 2011 was a successful quarter for EQI. We generated the
highest quarterly revenue in our history and also our highest first quarter net
income, continuing the strong momentum of our 2010 fiscal year.
Our revenues increased by 36% compared to the first quarter of last year,
including a 29% increase in revenue from transfer agent activities and a 69%
increase in revenue from foreign exchange operations, primarily due to
large-volume transactions. Our expenses increased by only 17%, again reflecting
how our operations benefit from economies of scale. Consequently, our net
earnings increased by 169%.
Highlights of our results for the first quarter are as follows:
Revenue increased $1,834, or 36%, to $6,917 (2010: $5,083). The increase in
revenue is spread across all areas of our business, benefiting in particular
from increased transfer agent activity and large-volume foreign exchange
transactions.
Net earnings increased $795 or 169%, to $1,267 (2010: $472). Our operating
expenses again increased proportionately less than the increase in our revenue,
reflecting our ability to lever our existing resources.
Basic earnings per share correspondingly increased by 10 cents or 143%, to 17
cents per share (2010: 7 cents per share).
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased by $1,107 or 123%, to $2,008 (2010: $901).
Annualized return on Equity increased from 8% to 15%.
The increases in our basic earnings per share and annualized return on equity
occurred despite the significant addition to the number of common shares we have
outstanding and our share capital following the completion of our public share
offering on March 1, 2011 (see below).
Our strategic plan envisages growing through diversification into financial
services that are adjacent to and complement our existing operations. During the
quarter, we took significant steps to move this plan forward.
On March 1, 2011 we completed an underwritten public offering of 2,070,000
common shares for aggregate gross proceeds of approximately $14.5 million. We
used $12 million of the net proceeds to purchase additional shares of Equity
Financial Trust Company ("EFT"), enabling EFT to attain a capital balance
sufficient to meet regulatory expectations to support its entry into the
residential mortgage lending business. This was followed by our announcement on
March 2, 2011 that EFT had obtained regulatory approval to become a
deposit-taking institution ("DTI").
After receiving DTI status, EFT immediately began accepting applications through
mortgage brokers for alternative residential mortgages, a segment estimated to
comprise between 5% and 10% of the total Canadian mortgage market, but which we
believe is currently underserved by existing lenders. Due to the timing of
closings, we did not fund any mortgages or recognize revenue from mortgage
lending operations in the first quarter, however, as at March 31, 2011 we had
commitments to make future advances on mortgage loans of $9.2 million. We are
targeting $100 million in outstanding mortgage loans within the first twelve
months of operations and as at the date of this news release, we have funded
outstanding loan balances of approximately $7 million.
EQI President & CEO Paul G. Smith said,
"This quarter's results again support our consistent message about the success
of our strategic direction, and provide a strong beginning to a year we expect
to be important in our history. Starting in the second quarter, we expect to
begin generating revenue from our expansion into residential mortgage lending,
which is a significant new business line that further diversifies our activities
in the financial services sector.
"We also expect our momentum across our existing lines of business to remain
strong. Based on activity to the date of this news release, we have recorded
revenues of approximately $11 million in April 2011, a significant portion of
which resulted from large volume trust and foreign exchange transactions.
Accordingly, we expect that our consolidated revenues for the second quarter of
2011 will be significantly higher than the $6.3 million achieved for the second
quarter of 2010. Furthermore, as a result of this significant increase, we
anticipate that our consolidated revenues for the first six months of 2011 will
be in the same range as the $23.7 million total revenue we achieved for all of
fiscal 2010. We believe this illustrates our continuing success in increasing
our access to the opportunities that exist in this area. Nevertheless, it
remains impossible to predict the incidence of such transactions for the
remainder of the second quarter or for subsequent periods, and our revenues as a
whole will remain sensitive to the inherent uncertainties of market conditions,
including the risks detailed from time-to-time in our quarterly filings, annual
information forms, annual reports and annual filings with securities
regulators."
The financial statements for this quarter are the first financial statements we
have prepared since our transition to International Financial Reporting
Standards ("IFRS"). We prepared our financial statements until December 31, 2010
in accordance with Canadian Generally Accepted Accounting Principles ("CGAAP"),
which differ in certain respects from IFRS. In preparing our March 31, 2011
interim consolidated financial statements, we amended certain accounting
policies we previously applied in the CGAAP financial statements, to comply with
IFRS. However, these changes have not had any material impact on the amounts we
previously recorded under CGAAP. For more information, see note 2(a) to our
unaudited interim consolidated financial statements for the three months ended
March 31, 2011.
Our Interim Consolidated Financial Statements and Management's Discussion and
Analysis for the three months ended March 31, 2011 can be found in our filings
on SEDAR at www.sedar.com and on the Corporation's website at
www.equityfinancialholdings.com.
Quarterly Conference Call
EQI will hold a conference call on May 13, 2011 at 9AM Eastern Time to discuss
its third quarter operating results and answer questions. Participants can dial
416-340-2216 or toll free 866-226-1792.
About Equity Financial Holdings Inc.
Through its wholly owned subsidiaries, EQI provides transfer agent, corporate
trust, foreign exchange, retail mortgage and corporate secretarial services to
corporations, institutions, other entities and individuals in North American
capital markets. Learn more at www.equityfinancialholdings.com.
Certain portions of this press release as well as other public statements by the
Corporation contain "forward-looking information" within the meaning of
applicable Canadian securities legislation, which is also referred to as
"forward-looking statements", which may not be based on historical fact.
Wherever possible, words such as "will", "plans," "expects," "targets,"
"continue", "estimates," "scheduled," "anticipates," "believes," "intends,"
"may," and similar expressions or statements that certain actions, events or
results "may," "could," "would," "might" or "will" be taken, occur or be
achieved, have been used to identify forward-looking information. Such
forward-looking statements include, without limitation, the Corporation's EBITDA
and earnings expectations for the mortgage and deposit business, fee income,
expense levels, general economic, political and market factors in North America
and internationally, interest and foreign exchange rates, global equity and
capital markets, business competition, technological change, changes in
government regulations, unexpected judicial or regulatory proceedings,
catastrophic events, and the Corporation's ability to complete strategic
transactions and integrate acquisitions and other factors.
All material assumptions used in making forward-looking statements are based on
management's knowledge of current business conditions and expectations of future
business conditions and trends, including their knowledge of the current credit,
interest rate and liquidity conditions affecting the Corporation and the
Canadian economy. Certain material factors or assumptions are applied by the
Corporation in making forward-looking statements, including without limitation,
factors and assumptions regarding its ability to fund its mortgage business, the
value of mortgage originations, the competitive nature of the alternative
mortgage market, the expected margin between the interest earned on its mortgage
portfolio and the interest to be paid on its deposits, the relative continued
health of real estate markets, acceptance of its products in the marketplace, as
well as its operating cost structure and the current tax regime.
Forward-looking statements reflect the Corporation's current views with respect
to future events and are subject to a number of risks and uncertainties. Actual
results may differ materially from results contemplated by the forward-looking
statements. Readers should not place undue reliance on such forward-looking
statements, as they reflect the Corporation's current views with respect to
future events and are subject to risks and uncertainties and are necessarily
based upon a number of estimates and assumptions that, while considered
reasonable by the Corporation, are inherently subject to significant business,
economic, regulatory, competitive, political and social uncertainties and
contingencies.
Many factors could cause the Corporation's actual results, performance or
achievements to be materially different from any future results, performance, or
achievements that may be expressed or implied by such forward-looking
statements, including among others a significant downturn in capital markets or
the economy as a whole, errors or omissions by the Corporation in providing
services to its customers, significant changes in foreign currency exchange
rates, extreme price and volume fluctuations in the stock markets, significant
increases in the cost of complying with applicable regulatory requirements,
civil unrest, economic recession, pandemics, war and acts of terrorism which may
adversely impact the North American and global economic and financial markets,
inability to raise funds through public or private financing in the event that
the Corporation incurs operating losses or requires substantial capital
investment in order to respond to unexpected competitive pressures, significant
changes in interest rates, failure by Equity Financial Trust Company ("EFT") to
meet ongoing regulatory requirements to carry on its deposit-taking and mortgage
activities, the failure of borrowers or counterparties to honour their financial
or contractual obligations to EFT, failure by the Corporation to generate or
obtain sufficient cash or cash equivalents in a timely manner and at a
reasonable price or to meet its commitments as they become due, failure by EFT
to adequately monitor and/or adjust its mortgage portfolio management practices
for changing circumstances, failure by the Corporation to attract and to retain
the necessary employees to meet its needs, failure by EFT to adequately monitor
the services provided by third party service providers or to establish
alternative arrangements if required, failure by EFT to secure sufficient
deposits from securities dealers or a sufficient level of mortgage origination
from its mortgage broker network, a failure of the computer systems of the
Corporation or one or more of its service providers or the risks detailed from
time-to-time in the Corporation's quarterly filings, annual information forms,
annual reports and annual filings with securities regulators. Forward-looking
information will be updated as required pursuant to the requirements of
applicable securities laws.
(1)The following unaudited information was determined in accordance with
International Financial Reporting Standards (IFRS), except EBITDA (Earnings
Before Income Taxes, Depreciation and Amortization) and Return on Equity
(annualized) (net income divided by the simple average of opening and closing
shareholders' equity, multiplied by 4) which do not have any standardized
meaning prescribed by IFRS and may not be comparable to similar measures
presented by other issuers. However, we believe financial analysts and investors
view these as key measures of certain aspects of our performance. They use
EBITDA as an indication of our ability to invest in property, plant and
equipment, and to raise and service debt; and they use Return on Equity as a key
indicator of whether we use our capital resources efficiently. These measures
should not be considered as an alternative to cash flows from operating
activities nor to any other measures of performance presented in accordance with
IFRS.
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