Equity Financial Holdings Inc.

Equity Financial Holdings Inc.

August 10, 2011 17:10 ET

EQI Reports Second Quarter 2011 Results

New Records for Quarterly Revenue, Quarterly Net Income and Quarterly Earnings Per Share

Earnings Per Share 82 Cents

Initial Revenue Recorded From Mortgage Lending Business

TORONTO, ONTARIO--(Marketwire - Aug. 10, 2011) - 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 June 30, 2011.

Financial Highlights (all dollar amounts, except per-share, are in $000s unless otherwise stated)1

Three months ended Jun. 30 Six months ended Jun. 30
2011 2010 2011 2010
Unaudited Unaudited Unaudited Unaudited
Revenue $ 17,875 $ 6,325 $ 24,792 $ 11,408
Revenue growth 183 % 24 % 117 % 26 %
EBITDA $ 10,625 $ 986 $ 12,633 $ 1,888
Net income and comprehensive income $ 7,313 $ 570 $ 8,580 $ 1,042
Net income & comprehensive income growth 1183 % 134 % 723 % 130 %
Earnings per share, basic $ 0.82 $ 0.08 $ 1.04 $ 0.15
Earnings per share, diluted $ 0.80 $ 0.08 $ 1.02 $ 0.15
Diluted earnings per share growth 900 % 100 % 580 % 114 %
Return on equity (annualized) 64 % 10 % 45 % 9 %
Cash and cash equivalents at period end $ 28,452 $ 14,805 $ 28,452 $ 14,805

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.

The second quarter of 2011 generated exceptional financial results for EQI, establishing new records for quarterly revenue, quarterly net income and quarterly earnings per share. Our revenue, net income and earnings per share for the first six months of the year have already exceeded the results we achieved for all of fiscal 2010.

The second quarter saw strong performance across all our established lines of business, including the highest quarterly contribution to date from large-volume corporate trust and foreign exchange transactions. These drove some 60% of total quarterly revenues, accelerating the growth of capital resources available to pursue our business strategies. We believe that the impact of such transactions in this quarter is evidence of our success in accessing the opportunities that exist in this area. Even so, the amount and timing of large-volume transactions is inherently unpredictable and it remains impossible to forecast the incidence of such transactions for the remainder of 2011 or for subsequent periods.

While recording our best-ever results from our existing businesses, we also took significant steps to further our strategy and broaden our revenue sources. After over a year of preparation, we recorded the first transactions from our expansion into residential mortgage lending. Although this business unit made only a modest contribution to revenue in this initial quarter, the volumes of activity are in line with our plans and expectations. As at June 30, 2011 we have originated over $20 million of mortgages and have commitments to fund a further $14 million. We believe this pace of mortgage originations is consistent with our previously disclosed target of $100 million in outstanding loans within the first twelve months of operations.

Highlights of our results for the second quarter are as follows:

Revenue increased by $11,550, or 183%, to $17,875; for the year to date, it increased by $13,384, or 117%, to $24,792. The increase is predominantly attributable to large-volume trust and foreign exchange transactions.

Net earnings increased by $6,743 or 1,183% to $7,313; for the year to date, it increased by $7,538 or 723%, to $8,580. Our operating expenses increased by only 36% (28% for the year to date), proportionately much less than the increase in our revenue, reflecting how our operations benefit from large-volume transactions which allow us to leverage our existing infrastructure.

Basic earnings per share for the second quarter correspondingly increased by $0.74 or 925%, to $0.82; for the year to date, it increased by $0.89 or 593%, from $0.15 to $1.04. Diluted earnings per share for the second quarter correspondingly increased by $0.72 or 900%, from $0.08 to $0.80; for the year to date, it increased by $0.87 or 580%, from $0.15 to $1.02.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by $9,639 or 977%, to $10,625; for the year to date, it increased by $10,745 or 569%, to $12,633.

Annualized return on Equity increased to 64% from 10%; for the year to date, it increased to 45% from 9%.

EQI President & CEO Paul G. Smith said,

"With the results of our second quarter, we have already exceeded our results for all of fiscal 2010. These results were due in large part to significant revenues from large-volume transactions. We believe this is evidence of our success in accessing the opportunities that exist in this area.

Even so, revenues from this source remain inherently unpredictable, and while we expect momentum across our existing lines of business to remain strong in the second half of fiscal 2011, we do not expect to repeat the results we reported for this second quarter.

In the third quarter we expect the expansion of our residential mortgage loan portfolio will remain on pace with our target of achieving $100 million in loans outstanding by the end of our first twelve months of operations. We expect to fund those mortgages primarily through our deposit-taking activities, specifically by issuing Guaranteed Investment Certificates. Our strong performance during this quarter has also provided additional capital resources which will be available for this purpose."

Our Interim Consolidated Financial Statements and Management's Discussion and Analysis for the second quarter ended June 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 Thursday August 11, 2011 at 9AM Eastern Time to discuss its second 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.

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, 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.

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

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