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 three months ended September 30, 2011.
Financial Highlights (all dollar amounts, except per-share, are in $000s unless
otherwise stated)(1)
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Three months Nine months
ended Sep. 30 ended Sep. 30
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2011 2010 2011 2010
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Unaudited Unaudited Unaudited Unaudited
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Revenue $ 5,529 $ 6,705 $ 30,321 $ 18,113
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Revenue growth (18%) 4% 67% 17%
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EBITDA $ 300 $ 2,572 $ 12,933 $ 4,460
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Net income and comprehensive
income $ 60 $ 1,634 $ 8,640 $ 2,675
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Net income & comprehensive
income growth (96%) 0% 223% 28%
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Earnings per share, basic $ 0.01 $ 0.24 $ 1.01 $ 0.39
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Earnings per share, diluted $ 0.01 $ 0.24 $ 1.00 $ 0.39
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Diluted earnings per share
growth (96%) (4%) 156% 22%
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Return on equity
(annualized) 0% 26% 30% 15%
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Cash and cash equivalents at
period end $ 35,536 $ 14,392 $ 35,536 $ 14,392
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At the end of the third quarter of 2011, our revenue, net earnings and earnings
per share for the year to date are the highest in our history. We have also
achieved another milestone as our assets have grown to over $100 million for the
first time, reflecting the changing nature of our balance sheet as a result of
entering the business of mortgage lending and deposit-taking.
Our third quarter revenues are significantly lower than in the prior year
primarily due to the absence of large-volume foreign exchange transactions. The
second quarter of this year had generated our highest quarterly contribution to
date from such transactions; however, we emphasized at that time the
impossibility of forecasting the incidence of such transactions for the
remainder of 2011. Our transfer and trust segment continued to perform well
during the third quarter, with steady transfer agent revenues and a 43% increase
in corporate trust revenues. We also continued to make investments in our
mortgage lending and foreign exchange operations, as well as our sales and
marketing activities, building toward a robust and scalable infrastructure to
support continued growth in our various business lines. Along with the decline
in overall revenue, the costs of this additional infrastructure led to subdued
third quarter net earnings.
As at September 30, 2011, on the strength of third quarter originations of $34.5
million we have outstanding mortgage loans of over $53 million and we have
estimated commitments to make future advances on mortgage loans of $15.7
million. We believe this pace is on track to meet our previously disclosed
target of $100 million in outstanding loans within the first twelve months of
operations. At this early stage, however, these operations are only generating a
small portion of our revenue, while representing an increase in costs. As with
our other operations, the investment in our mortgage operations provides an
infrastructure that should allow us to manage significant additional volumes
with correspondingly lower increases in costs, translating rapidly into
increased net income.
Highlights of our results for the third quarter are as follows:
Revenue decreased by $1,176, or 18%, to $5,529 for the third quarter, reflecting
the absence of large-volume foreign exchange transactions that occurred in the
third quarter of 2010, the occurrence of which is inherently unpredictable.
Revenue increased by $12,208, or 67%, to $30,321 for the year to date. The
increase for the year is predominantly attributable to large-volume trust and
foreign exchange transactions that occurred in the second quarter.
Net earnings decreased by $1,573 or 96% to $60 for the third quarter. The sharp
decline resulted from the decrease in revenue along with a 27% increase in our
operating expenses as explained further below.
Net earnings for the year to date increased by $5,965 or 223%, to $8,640. Our
operating expenses for the year to date have increased by 27%, flowing from our
continued investments in our mortgage lending and foreign exchange operations,
as well as our sales and marketing activities. These expenses are in line with
our expectations and consistent with our past messages that we are assembling a
robust and scalable infrastructure to support continued growth in our various
business lines, including the building of a much larger balance sheet. For the
year to date, these increased operating expenses are proportionately much less
than the increase in our revenue, demonstrating how large-volume transactions
allow us to leverage our existing infrastructure.
Basic earnings per share for the third quarter correspondingly decreased by
$0.23 or 96%, from $0.24 to $0.01; for the year to date, they increased by $0.62
or 159 %, from $0.39 to $1.01. Diluted earnings per share for the third quarter
correspondingly decreased by $0.23 or 96%, from $0.24 to $0.01; for the year to
date, they increased by $0.61 or 156%, from $0.39 to $1.00.
Earnings before income taxes, depreciation and amortization (EBITDA) decreased
by $2,272 or 88%, to $300 for the third quarter; it increased by $8,473 or 190%,
to $12,933 for the year to date.
Annualized return on Equity decreased to 0% from 26% for the third quarter; it
increased to 30% from 15% for the year to date.
EQI President & CEO Paul G. Smith said,
"Our revenue, net earnings and earnings per share for the year to date are the
highest in our history, already exceeding our results for all of fiscal 2010.
These results were due in large part to significant revenues from large-volume
transactions, evidencing our success in accessing the opportunities that exist
in this area, but they also reflect strong performance across all of our
established lines of business. However, as this quarter's results demonstrate,
the inherent unpredictability of large-volume transaction revenues will
inevitably lead to fluctuations in our net earnings and earnings per share. As
our mortgage portfolio grows, the impact of large one-off transactions on our
operating results can be expected to gradually decline over time.
At the end of the third quarter we have over $100 million in assets on our
balance sheet for the first time, reflecting the changing nature of our balance
sheet as a result of our entry into the business of mortgage lending and
deposit-taking. To date, the initial activity of this new business has been in
line with our plan, expanding at a pace consistent with our target of achieving
$100 million in loans outstanding by the end of our first twelve months of
operations. During the third quarter, we have continued 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 Interim Consolidated Financial Statements and Management's Discussion and
Analysis for the third quarter ended September 30, 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 November 11, 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
the corporate and institutional markets, and the retail mortgage market. Learn
more at www.equityfinancialholdings.com.
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(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 the appropriate
factor to arrive at an annualized figure) 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.
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 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, 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.
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