Equity Financial Holdings Inc. (TSX:EQI) ("EQI" or "the Corporation"), a
Canadian financial services company serving the corporate and institutional
markets, and the retail mortgage market, reported today its financial results
for the year ended December 31, 2011.
Financial Highlights (all dollar amounts, except per-share, are in $000s unless
otherwise stated)(1)
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Three months ended Twelve months ended
Dec. 31 Dec. 31
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2011 2010 2011 2010
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Unaudited Unaudited Unaudited Unaudited
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Fees and margin revenue and
net interest income $ 6,494 $ 5,580 $ 37,002 $ 23,693
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Revenue growth 16% 21% 56% 18%
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EBTDA $ 969 $ 1,203 $ 13,902 $ 5,662
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Net earnings and
comprehensive income $ 480 $ 731 $ 9,119 $ 3,405
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Net earnings and
comprehensive income
growth (34%) 144% 168% 43%
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Earnings per share, basic $ 0.07 $ 0.11 $ 1.07 $ 0.50
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Earnings per share, diluted $ 0.06 $ 0.11 $ 1.05 $ 0.49
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Diluted earnings per share
growth (45%) 175% 114% 36%
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Return on equity
(annualized) 5% 11% 24% 14%
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Cash and cash equivalents
at year end $ 25,568 $ 15,481 $ 25,568 $ 15,481
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This was a highly successful year for EQI. We recorded both the highest annual
revenue and the highest net income in our history, in both cases significantly
surpassing the previous highest results obtained in 2010. In March 2011 we
completed a public share offering and invested $12 million of the net proceeds
into our wholly-owned subsidiary, Equity Financial Trust Company ("EFT"), after
which EFT obtained regulatory approval to become a deposit-taking institution
("DTI"). We then successfully launched our residentia l mortgage lending
business, which represents a major step to further our strategy and broaden our
revenue sources. This new business line has materially changed the nature of our
balance sheet with mortgage assets and deposit liabilities now being the two
largest elements. We have also expanded the national reach of our core transfer
and trust operations with our recently announced opening of a Montreal office.
Our performance this year again confirms our message about the increasing
strength of our brand and the diversity of our operations. Fees and margin
revenue rose by 51%, built on increases across all of our lines of business. Our
transfer agency business saw a modest increase in both the number of customers
and average revenue per customer. We benefited significantly from large-volume
trust and foreign exchange transactions several times during the year, most
significantly in the second quarter, illustrating our continuing success in
accessing the opportunities that exist in this area. Our non-interest expenses
increased by 27% as a result of investments in our mortgage lending and foreign
exchange operations, as well as our sales and marketing activities, as we
enhanced our robust and scalable infrastructure to support continued growth in
our various lines of business. The higher growth in our revenues compared to
that of our expenses indicates our ability to leverage our existing
infrastructure, so that greater activity translates rapidly into earnings: our
net income for 2011 grew by 171%.
After over a year of preparation, we recorded the first transactions from our
expansion into residential mortgage lending. As at December 31, 2011, we have
mortgage loans outstanding of over $84 million and we have estimated commitments
to make future advances on mortgage loans of $8.6 million. We are confident we
are on track to meet our previously disclosed target of $100 million in
outstanding loans within the first twelve months of operations; however, growth
in our mortgage originations remains contingent on our receiving positive
regulatory reviews. For 2011, these operations generated only a small portion of
our revenue, while representing an increase in costs; however, we believe the
investment in our mortgage operations infrastructure should allow us to manage
significant additional volumes with correspondingly lower increases to our
costs, translating rapidly into increased net earnings.
Overall, we made great progress this year both in enhancing our financial
results and in pursuing our strategic initiatives. Highlights of our results for
the year are as follows:
Fee and margin revenue(2) increased by $12,078, or 51%, to $35,677 (2010 -
$23,599), the highest in our history, built on increases across all of our lines
of business, and benefiting very significantly from large- volume trust and
foreign exchange transactions during the second quarter.
Net interest income(3) increased by $1,231, or 1,310%, to $1,325 (2010 - $94).
Our entry into the business of mortgage lending and deposit taking significantly
added to the amount of net interest income we earned this year and while
currently a small portion of our total earnings, we expect this to be our
fastest growing income stream in 2012.
Net earnings increased by $5,825, or 171%, to $9,230 (2010 - $3,405), also the
highest in our history. The increases in our revenue far outweigh the increases
in our costs, reflecting our ability to leverage our existing infrastructure so
that greater activity translates rapidly into growth in our net earnings.
Basic earnings per share increased by $0.57 or 114%, to $1.07 (2010 - $0.50).
Diluted earnings per share was $1.05 (2010 - $0.49).
Earnings before income taxes, depreciation and amortization (EBTDA) increased by
$8,350 or 147%, to $14,013 (2010 - $5,662)
Annualized return on Equity increased to 24% from 14%.
Our revenue and net income for the fourth quarter of 2011 increased 16% and
decreased 19% respectively compared to the same period in 2010. A significant
portion of the increase in fourth quarter revenue reflects the growing
contribution of our mortgage-lending unit. However, in this particular quarter,
the increased revenues were insufficient to outweigh the increase in our costs,
driven in large part by our decision to build capacity in anticipation of
growth.
EQI President & CEO Paul G. Smith said,
"This year's performance again confirms our message about the increasing
strength of our brand and the diversity of our operations. We again demonstrated
our ability to successfully attract large-volume trust and foreign exchange
transactions and we will continue to pursue these opportunities in 2012,
however, the future amount and timing of large-volume transactions remains
inherently unpredictable. We will also focus on maintaining steady growth in our
core transfer agent business and on continuing to expand our mortgage and
deposit-taking business. As our mortgage portfolio expands, the impact of
large-volume transactions on our operating results can be expected to gradually
decline over time.
"To date, the initial activity of our new mortgage-lending and deposit-taking
business has been in line with our plan and we are confident we are on track to
meet our previously disclosed target of $100 million in outstanding loans within
the first twelve months of operations, however, as we've noted, growth in our
mortgage originations remains contingent on our receiving positive regulatory
reviews. We are continuing to invest in building a robust and scalable
infrastructure to support a much larger balance sheet as this business grows
beyond the first year."
Our Consolidated Financial Statements and Management's Discussion and Analysis
for the year ended December 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 February 9, 2012 at 9:00 AM Eastern Time to
discuss its operating results and to 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
the corporate and institutional markets, and the retail mortgage market. Learn
more at www.equityfinancialholdings.com.
Advisory notes: 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 EBTDA 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, reduced large-volume foreign exchange
revenue which could lead to an impairment of goodwill in our foreign exchange
unit, 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 re quirements or receive regulatory approval to increase
mortgage originations, 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 EBTDA
(Earnings Before Taxes, Depreciation and Amortization) and Return on
Equity (net income divided by the simple average of opening and closing
shareholders' equity) 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 EBTDA 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.
(2) To better reflect the evolution of our business we have separately
presented fees and margin revenue, which were previously included in
Revenue, and net interest income (see below).
(3) We have added net interest income as a key financial metric in 2011, as
a result of our new mortgage lending and deposit taking business. It
comprises interest earned on mortgages and other investments, less
interest expense on deposits.
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