Equity Financial Holdings Inc.

Equity Financial Holdings Inc.

February 13, 2013 07:31 ET

Equity Financial Holdings Reports 2012 Results

Mortgage loans outstanding over $198 million; total assets over $251 million

TORONTO, ONTARIO--(Marketwire - Feb. 13, 2013) - Equity Financial Holdings Inc. (TSX:EQI) ("Equity" or "the Corporation"), a Canadian financial services company serving the corporate and institutional markets and the retail mortgage market, today reported its annual financial results for the year ended December 31, 2012.

Financial Highlights (all dollar amounts, except per-share, are in $000s, unless otherwise stated)
Fiscal year ending Change
Dec. 31, 2012 Dec. 31, 2011 $ %
Operating Results
Net interest income $ 4,791 $ 1,332 $ 3,459 260
Other revenue 2,083 13,571 (11,488 ) (85 )
Net interest income and other revenue 6,874 14,903 (8,029 ) (54 )
Net earnings and comprehensive income1 534 9,230 (8,696 ) (94 )
Earnings per share, basic1 $ 0.06 $ 1.07 $ (1.01 ) (94 )
Earnings per share, diluted1 $ 0.06 $ 1.05 $ (0.99 ) (94 )
Return on equity2 1 % 24 %
Balance Sheet Highlights
Cash and cash equivalents $ 34,429 $ 25,568 $ 8,861 35
Assets 251,442 129,736 121,706 94
Liabilities 199,175 79,738 119,437 150
1 As a result of the Transaction noted below we have also reported on the operating results of continuing and discontinued operations. Please refer to our 2012 Audited Financial Statements and MD&A for additional details.
2 Return on equity (net earnings divided by the simple average of reported shareholders' equity at the beginning and end of the period) does 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 return on equity as a key indicator of whether we use our capital resources efficiently. This measure 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 total net earnings were down $8,696 or 94%, to $534 for the year ended December 31, 2012, primarily affected by the absence of significant revenue from large-volume transactions which had contributed to record results in 2011. Our total earnings per share also decreased by $1.01 or 94%, to $0.06 (basic) for the year ended December 31, 2012.

Subsequent to December 31, 2012, we executed a definitive agreement for the sale of the assets of our transfer agent and corporate trust services business to an affiliate of TMX Group Inc. (we announced this "Transaction" today in a separate press release). This Transaction represents the culmination of a strategic review undertaken in 2012 during which we considered options for obtaining capital resources to support further growth in our mortgage business, which we believe offers the best potential returns to our shareholders. By realizing the inherent value of the assets being sold we will immediately improve EFT's regulatory capital position and expect to reduce our need to consider further equity or debt financing over the coming years.

Our mortgage lending and deposit-taking business unit provided a source of growth for the Corporation in a year where our other business units were negatively affected by difficult market conditions. Revenue and net earnings contributed by the mortgage unit increased each quarter in 2012 and mortgages receivable more than doubled to a balance of $198,147 as at December 31, 2012 ($84,780 as at December 31, 2011). Net interest income represents a reliable and recurring revenue stream which increased $3,459 or 260%, to $4,791 year over year, driven by the growth in our mortgage loan portfolio.

Our foreign exchange segment experienced an absence of large-volume transactions in 2012 compared to those which occurred in 2011. These large-volume foreign exchange revenues are associated with our corporate trust services and are included in the Transaction. We also saw a decline in revenue from retail foreign exchange operations, leading to the decision to begin winding down our day-to-day foreign exchange business. This wind-down is expected to be completed in the first quarter of 2013, at which time our foreign exchange segment will be reclassified as a discontinued operation. Other revenue from our foreign exchange segment decreased 87% by $11,807 to $1,726 for the year ended December 31, 2012.

Our transfer agent and corporate trust segment also experienced a decline in revenue for the financial year ended December 31, 2012 compared to 2011. Persistently difficult capital market conditions that started in the second half of 2011 affected transaction volumes for the transfer agent business and provided limited opportunities for our corporate trust group to act in merger and acquisition transactions. As a result of these factors, revenue from transfer agent and corporate trust decreased by $4,993 or 23%, to $17,169 for the year ended December 31, 2012.

Equity Financial Holdings President & CEO, Paul G. Smith said,

"The decision to sell our transfer agent and corporate trust services business represents the culmination of our strategic review, resulting in our decision to shift our strategy and focus on our mortgage unit. We believe adopting this exclusive focus on our growing business unit - in which we recorded growth in revenue and net earnings each quarter in 2012 - offers greater potential for our company. With the proceeds from the sale of our transfer agent and trust business to TMX Group Inc., we have the opportunity to invest in the future growth of our mortgage business in order to create value for our shareholders."

Audited annual consolidated financial statements and Management's Discussion and Analysis for the fiscal year ended December 31, 2012 can be found on SEDAR at www.sedar.com and on Equity's website at www.equityfinancialholdings.com.

Analyst Conference Call

Equity will hold a conference call on February 13, 2013 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 foreign exchange and retail mortgage 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 Equity Financial Holdings Inc. (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, those relating to the anticipated timing and completion of the proposed sale transaction and the Corporation's ability to receive all necessary approvals related thereto, the expected effect of the completion of the proposed sale transaction on the Corporation, its business, operations and financial results, the Corporation's expected need for regulatory capital and equity or debt financing, the expected timing of the Corporation's previously announced wind-down of its day-to-day retail foreign exchange operations and its expected impact on the Corporation's business, operations and financial results, 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 activities, business competition, technological change, changes in government regulations and regulatory guidelines, 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, retail mortgage markets, housing sales, and equity and capital market, as well as those assumptions relating to the completion of the proposed sale transaction and receipt of required approvals in connection therewith and those assumptions relating to the Corporation's ability to implement and realize on its new strategic focus, assumptions relating to the Corporation's ability to wind-down its day-to-day retail foreign exchange operations and the expected impact on the Corporation's business, operations and financial results, and assumptions relating to the Corporation's capital and debt or equity financing requirements. Certain material factors or assumptions are applied by the Corporation in making forward-looking statements, including without limitation, the Corporation's ability to successfully close the proposed sale transaction and successfully implement and realize on its new strategic focus, 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 failure to successfully close the proposed sale transaction, failure by the corporation to implement or realize on its new strategic focus, a significant downturn in capital markets or the economy as a whole, delays in completing the wind-down of the Corporation's day-to-day retail foreign exchange operations or other unforeseen circumstances arising from such wind-down, 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. The Corporation disclaims any intent or obligation to update or revise publicly any forward-looking statements whether as a result of new information, estimates, future events or results, or otherwise, unless required to do so by applicable laws.

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

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