Equity Financial Holdings Inc.

Equity Financial Holdings Inc.

February 08, 2012 17:10 ET

EQI Reports 2011 Results

Highest Annual Revenue and Net Earnings in Our History

Mortgage Loans Outstanding Over $84 Million; Total Assets Over $129 Million

TORONTO, ONTARIO--(Marketwire - Feb. 8, 2012) - 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)

Three months ended
Dec. 31
Twelve months ended
Dec. 31
2011 2010 2011 2010
Unaudited Unaudited Unaudited Unaudited
Fees and margin revenue and net interest income $ 6,494 $ 5,580 $ 37,002 $ 23,693
Revenue growth 16 % 21 % 56 % 18 %
EBTDA $ 969 $ 1,203 $ 13,902 $ 5,662
Net earnings and comprehensive income $ 480 $ 731 $ 9,119 $ 3,405
Net earnings and comprehensive income growth (34 %) 144 % 168 % 43 %
Earnings per share, basic $ 0.07 $ 0.11 $ 1.07 $ 0.50
Earnings per share, diluted $ 0.06 $ 0.11 $ 1.05 $ 0.49
Diluted earnings per share growth (45 %) 175 % 114 % 36 %
Return on equity (annualized) 5 % 11 % 24 % 14 %
Cash and cash equivalents at year end $ 25,568 $ 15,481 $ 25,568 $ 15,481

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.

The Toronto Stock Exchange has neither approved nor disapproved the contents of this press release.

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