Equity Financial Holdings Inc.

Equity Financial Holdings Inc.

August 02, 2012 17:15 ET

EQI Reports Second Quarter 2012 Results

Mortgage loans outstanding over $138 million; total assets over $212 million Quarter's results reflect difficult market conditions, variations in large-volume transactions

TORONTO, ONTARIO--(Marketwire - Aug. 2, 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 three and six months ended June 30, 2012.

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

Three months ended Jun. 30 Year to date ended Jun. 30
2012 2011 2012 2011
Unaudited Unaudited Unaudited Unaudited
Fees and margin revenue $ 5,830 $ 17,743 $ 10,375 $ 24,610
Net interest income $ 1,095 $ 181 $ 1,996 $ 232
Fees and margin revenue and net interest income $ 6,925 $ 17,924 $ 12,371 $ 24,842
Fees and margin revenue and net interest income growth (61 %) 183 % (50 %) 117 %
EBTDA $ 702 $ 10,624 $ 1,028 $ 12,633
Net earnings and comprehensive income $ 274 $ 7,313 $ 320 $ 8,580
Net earnings and comprehensive income growth (96 %) 1183 % (96 %) 723 %
Earnings per share, basic $ 0.03 $ 0.82 $ 0.04 $ 1.04
Earnings per share, diluted $ 0.03 $ 0.80 $ 0.03 $ 1.02
Diluted earnings per share growth (96 %) 900 % (97 %) 580 %
Return on equity (annualized) 2 % 64 % 1 % 45 %
Cash and cash equivalents at period end $ 55,139 $ 28,452 $ 55,139 $ 28,452

(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.

Our mortgage lending and deposit-taking business gained strength during the second quarter, as we originated $40 million of new mortgage loans, our highest quarterly origination figure to date. Our non-mortgage business units were constrained by ongoing difficult market conditions including an absence of large-volume transactions, whereas in the second quarter of 2011 large-volume transactions contributed to record results. The key elements by operating segment of our performance for the quarter were as follows:

On the strength of our second quarter originations, we now have mortgage loans outstanding of $138.7 million as at June 30, 2012, and we have estimated commitments to make future advances on mortgage loans of $11.7 million. During the second quarter, our mortgage unit moved further into profitability, with segment earnings nearly doubling those of the first quarter at $208 ($326 for the year to date).

Our transfer agent client base continued to increase gradually, but our revenue per client was constrained by depressed market activity: trading volumes and financing volumes have both been significantly lower in 2012 than in 2011. In conjunction with the absence of the large-volume corporate trust transactions that drove our record results in the second quarter of 2011, this inevitably generated a decline in the revenues and results for our transfer agent and trust segment. Even so, this segment remained profitable with segment earnings for the quarter of $276 ($591 for the year to date).

Results for our foreign exchange segment were also significantly lower than last year, primarily due to the absence of large-volume transactions but also reflecting a decline in our core revenues. In response to the decline in our core revenues we are refocusing our sales efforts under a new senior leader with industry experience and we have also reduced segment operating costs. This segment incurred a loss of $132 for the quarter ($511 for the year to date).

Overall, our fees and margin revenue and net interest income declined by 61% compared to the second quarter of last year, resulting in a 96% decline in consolidated net earnings to $274, down from last year's second quarter net earnings of $7,313. Most of the decline is due to the absence of large-volume transaction revenues in our corporate trust and foreign exchange businesses; however, core revenues for these units are also down as a result of the difficult market conditions currently being experienced. To address the challenges faced by these business lines we are refocusing our sales efforts and are actively identifying cost efficiencies, including tactical headcount reductions initiated in the third quarter. We will, however, retain the capacity to earn significant additional profits when market conditions allow, as we demonstrated in the second quarter last year.

With the increase in our mortgage loan portfolio, net interest income and fees contributed by our mortgage business have each increased substantially compared to last year, offsetting some of the revenue decline in our other business units. Key elements of our results for the second quarter are as follows:

Fees and margin revenue decreased by $11,913, or 67%, to $5,830 (for the year to date, decreased by $14,235, or 58%, to $10,375), primarily reflecting lower market activity and the absence of large-volume transactions.

Net interest income increased by $914, or 505%, to $1,095 (for the year to date, increased by $1,764 or 760%, to $1,996), attributable to the growth of our mortgage business - we expect this to remain our fastest growing income stream through the remainder of 2012.

Net earnings decreased by $7,039, or 96%, to $274 (for the year to date, decreased by $8,260 or 96%, to $320), driven by the decrease in fees and margin revenue.

Basic and diluted earnings per share for the second quarter were each 3 cents (82 cents and 80 cents for the second quarter of 2011). Basic and diluted earnings were 4 and 3 cents, respectively, for the year to date ($1.04 and $1.02 for the comparative year to date).

Earnings before income taxes, depreciation and amortization (EBTDA) decreased by $9,922 or 93%, to $702 (for the year to date, decreased by $11,605 or 92%, to $1,028).

We incurred an annualized return on equity for the quarter of 2%, compared to an annualized return on equity of 64% in 2011 (1% for the year to date, compared to 45% in 2011).

EQI President & CEO Paul G. Smith said,

"Our mortgage lending and deposit-taking business gained strength during the second quarter and based on our capacity and current pace of originations we expect our loan book by year end 2012 to at least double in size compared to its balance at the end of 2011. We believe we have built a robust and scalable infrastructure that will support this growth and we have recently expanded our lending activities to the Ottawa market. Although the regulatory environment is rapidly evolving for mortgage lenders, we have proactively responded to new lending guidelines issued by the financial services supervisory authorities and are confident in our ability to meet these regulatory requirements. Our mortgage loan portfolio provides a source of recurring revenue and we expect this segment to continue to be our fastest growing income stream through the remainder of 2012.

To address the challenges faced by our non-mortgage business lines, we are refocusing our sales efforts and are actively identifying cost efficiencies which include tactical headcount reductions initiated in the third quarter. We will, however, retain the capacity to earn significant additional profits when market conditions allow. As we have always emphasized, it remains impossible to predict market activity, including the amount and timing of large volume-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 second quarter ended June 30, 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 August 3, 2012 at 9:00 AM Eastern Time to discuss its operating results and to answer questions. Participants can dial 416-340-2218 or toll free 866-226-1793.

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.

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.

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