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 March 31, 2012.
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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2012 2011
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Unaudited Unaudited
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Fees and margin revenue $ 4,545 $ 6,866
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Net interest income $ 901 $ 51
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Revenue growth (21%) 36%
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EBTDA $ 325 $ 2,008
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Net earnings and comprehensive income $ 46 $ 1,267
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Net earnings and comprehensive income
growth (96%) 169%
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Earnings per share, basic $ 0.01 $ 0.17
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Earnings per share, diluted $ 0.01 $ 0.17
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Diluted earnings per share growth (94%) 143%
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Return on equity (annualized) 0% 15%
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Cash and cash equivalents at period end $ 17,332 $ 32,051
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Although we encountered difficult market conditions in the first quarter, we
continued to grow our balance sheet as we successfully completed the first year
of operations for our new mortgage lending and deposit-taking business. While we
had a positive contribution from our mortgage segment, our revenue and net
earnings were down as a result of reduced contributions from our transfer agent
and foreign exchange revenue streams, particularly due to an absence of the
large-volume transactions which contributed substantially to our first quarter
revenues in the prior year. The key elements of our performance by operating
segment for the quarter were as follows:
Our new mortgage lending and deposit-taking unit met its target of $100 million
in mortgage originations for the first twelve months of operations. As at March
31, 2012, we have mortgage loans outstanding of over $105 million and we have
estimated commitments to make future advances on mortgage loans of $16.9
million. This is now an established recurring revenue stream and net earnings
from these operations have moved beyond the break-even point.
In our transfer agent and trust segment our transfer agent client base continued
to increase gradually and we expanded our national reach by opening a new office
in Montreal. Revenues from our corporate trust business increased by 26%;
however, stock transfer activity during the quarter remained at the lower levels
we experienced during the second half of last year, resulting in a decline in
transfer agent revenues of 16%.
Results for our foreign exchange segment for the first quarter were down
significantly compared to prior year, primarily due to the absence of
large-volume transactions but also reflecting a decline in our core revenues. At
the end of the first quarter we hired a senior leader with twenty years of
experience in the foreign exchange industry, charged with regaining the positive
momentum we experienced in this segment in previous years.
Overall, our fee and margin revenue and net interest income declined by 21%
compared to the first quarter of last year, resulting in net earnings of $46,
compared to last year's first quarter net income of $1,267. Key elements of our
results for this first quarter are as follows:
Fee and margin revenue(2) decreased by $2,321, or 34%, to $4,545 (2011 -
$6,866), primarily reflecting lower transaction volumes for our transfer agent
business and the absence of large-volume transactions in our foreign exchange
unit.
Net interest income(3) increased by $850, or 1,667%, to $901 (2011 - $51). Our
entry into the business of mortgage lending and deposit taking has significantly
increased our income from this source and we expect it to remain our fastest
growing income stream in 2012.
We had net earnings of $46, compared to net income of $1,267 in 2011. This
decline primarily reflects the decrease in fee and margin revenue.
We had basic earnings per share of 1 cent, compared to earnings per share of 17
cents in 2011.
Earnings before income taxes, depreciation and amortization (EBTDA) decreased by
$1,682 or 84%, to $325 (2011 - $2,008)
We incurred an annualized return on equity of 0%, compared to an annualized
return on equity of 15% in 2011.
EQI President & CEO Paul G. Smith said,
"Although we encountered difficult market conditions this quarter, we remain
confident in our strategy and business plan. The continued expansion of our
mortgage and deposit-taking business remains a clear priority for us and subject
to our continuing to meet regulatory requirements we believe we have built a
robust and scalable infrastructure that will support this continued growth. Our
mortgage business represents a new and growing source of recurring revenue and
we expect this segment to continue to be our fastest growing income stream in
2012. After a full year of operations and given the seasonality of spring
home-buying we expect mortgage origination volumes in the second quarter to
exceed those of the first quarter of 2012 and also be higher than those of the
second quarter of 2011.
In respect of our other business lines, we remain focused on strengthening our
brand and diversifying our operations. Our recent opening of our Montreal office
has expanded the national reach of our core transfer agent and trust operations.
We have hired a new senior leader for our foreign exchange segment. We've also
been recognized as one of 2012's Top 50 "Best Workplaces in Canada" and Top 25
"Best Places to Work for Women" by the Great Places to Work(R) Institute.
Based on management's past experiences of the peaks and troughs both of market
activity as a whole and of our own client relationships, we believe this quarter
represents something of a base level of activity. As we demonstrated last year,
activity above this base level translates very quickly into significant profit.
This was evident in the second quarter of 2011 when we earned our highest ever
quarterly earnings, primarily as a result of large-volume transactions. As we
have always emphasized, it remains impossible to predict the amount and timing
of these transactions for subsequent periods. As our mortgage portfolio expands,
we expect the impact of large-volume transactions on our operating results to
gradually decline over time."
Our Interim Consolidated Financial Statements and Management's Discussion and
Analysis for the three months ended March 31, 2012 can be found in our filings
on SEDAR at www.sedar.com and on our website at www.equityfinancialholdings.com
Quarterly Conference Call
EQI will hold a conference call on May 11, 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
earnings expectations, 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 interest and foreign exchange rates,
availability of key personnel, the effect of competition, government regulation
of its business, computer failure or security breaches, future capital
requirements, 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 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.
(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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