Equity Financial Holdings Inc.

Equity Financial Holdings Inc.

May 12, 2011 17:05 ET

EQI Reports First Quarter 2011 Results

- Highest Quarterly Revenue and Highest First Quarter Net Income in Our History

- Earnings Per Share 17 Cents

- Achieves DTI Status, Launches Mortgage Lending Business

TORONTO, ONTARIO--(Marketwire - May 12, 2011) - 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

Three months ended Mar. 31
Revenue growth36%28%
Net income and comprehensive income$1,267$472
Net income & comprehensive income growth169%125%
Earnings per share, basic$0.17$0.07
Earnings per share, diluted$0.17$0.07
Diluted earnings per share growth143%133%
Return on equity (annualized)15%8%
Cash and cash equivalents at period end$32,051$12,437

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.

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

Contact Information

  • Equity Financial Holdings Inc.
    Paul G. Smith
    President & CEO
    (416) 361-0930 Ext 270