Equity Financial Holdings Inc.

Equity Financial Holdings Inc.

May 14, 2013 18:09 ET

Equity Financial Holdings Reports First Quarter 2013 Results

Assets sold for $64 million, focusing on Mortgage Business

TORONTO, ONTARIO--(Marketwired - May 14, 2013) - Equity Financial Holdings Inc. (TSX:EQI) ("Equity" or "the Corporation"), a Canadian financial services company serving the alternative retail mortgage market, today reported its interim financial results for the three months ended March 31, 2013.

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

For the three months ended March 31,




Operating Results
Net interest income 1,808 857 951 111 %
Other revenue 147 43 104 242 %
Net interest income and other revenue 1,955 900 1,055 117 %
Net earnings (loss) and comprehensive income: 1
Continuing operations 1 (388 ) (664 ) 276 42 %
Discontinued operations 1 (638 ) 710 (1,348) (190 %)
Total Net earnings (loss) and comprehensive income (1,026 ) 46 (1,072) (2330 %)
Earnings per share, basic 1 $ (0.11 ) $ 0.01 $ (0.12) (1200 %)
Earnings per share, diluted 1 $ (0.11 ) $ 0.01 $ (0.12) (1200 %)
Return on equity (annualized) 2 (8 %) 0 %
March 31, December 31, Change over Mar 2013-Dec 2012
As at 2013 2012 $ %
Balance Sheet Highlights
Cash and cash equivalents 37,463 34,429 3,034 9 %
Mortgage recievables 226,876 198,147 28,729 14 %
Total assets 282,179 251,442 30,737 12 %
Total liabilities 230,840 199,175 31,665 16 %
1 As a result of the Transaction noted below we have also reported on the operating results of continuing and discontinued operations. For additional details please refer to our interim consolidated financial statements and MD&A for the three months ended March 31, 2013.
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.

On April 5, 2013 we completed the previously announced sale of the assets of our transfer agent and corporate trust services business, including corporate trust foreign exchange services, to an affiliate of the TMX Group Inc. for cash consideration of $64,000 received at closing, subject to post closing adjustments (the "Transaction"). Our wholly-owned subsidiary Equity Financial Trust Company ("EFT") will use the majority of the net proceeds from the Transaction to significantly increase our regulatory capital base to a level that is expected to provide support for the expansion of our mortgage loan portfolio over the coming years.

As a result of the Transaction and the parallel wind-down of our foreign exchange operations the Corporation is now focused solely on our mortgage lending and deposit taking business segment. Our previously reported transfer agent and corporate trust segment and our foreign exchange segment are now classified as discontinued operations (see note 16 of our interim consolidated financial statements).

We originated $39,531 of new mortgage loans during the first quarter of 2013 (an increase of 75% from 2012) and as at March 31, 2013 we had estimated commitments to make future advances on mortgage loans of $22,500. We ended the first quarter with mortgage loans outstanding of $226,876, representing an increase of 14% compared to December 31, 2012 and an increase of 115% compared to March 31, 2012. We remain confident in our expectation that compared to the balance at the end of 2012 our mortgage portfolio will be approximately double in size by the end of 2013. We maintained a net interest margin of 3.21% compared to 3.22% for the comparable period last year, which is above our long run expectation of approximately 3.0%.

As a result of the increase in our mortgage portfolio, the total of net interest income and other revenue contributed by our mortgage unit increased by 117% year over year.

Although revenue increased compared to the prior year we have reported a net loss from our continuing mortgage operations of $388 for the three months ended March 31, 2013, compared to a net loss of $664 for the comparable period in 2012. This represents a change in presentation as we had previously reported net earnings of $118 from our mortgage segment for the first quarter of 2012. The change in net earnings presented reflects approximately $1,000 of corporate overhead costs previously assigned to the transfer agent and corporate trust segment and the foreign exchange segment that have now been reallocated to our continuing mortgage operation. These overhead costs include executive management, administration and risk and control functions which provide the foundational infrastructure to support our strategy to grow our mortgage operation.

Our discontinued transfer agent and corporate trust and foreign exchange operations contributed a net loss of $638 for the three months ended March 31, 2013 compared to net earnings of $710 for the comparable period in 2012. The results of our discontinued operations include before tax costs of $1,149 incurred in connection with the Transaction during the first quarter of 2013. These non-recurring costs were primarily for investment banking, legal and other advisory services. Also during the first quarter of 2013 we incurred before tax costs of $500 in connection with the wind-down of our foreign exchange business.

In total we experienced a net loss of $1,026 for the three months ended March 31, 2013 compared to net earnings of $46 for the comparable period in 2012. We had a net loss per share of $0.11 for the three months ended March 31, 2013 compared to net earnings per share of $0.01 for the comparable period in 2012. Despite the fact it is now absorbing overhead costs previously allocated between three operating segments we anticipate our continuing mortgage business segment to be modestly profitable in 2013. As well, a gain on sale from the Transaction will be recognized in the second quarter.

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

"The sale of our transfer agent and corporate trust services business is important for us as it positions us to focus exclusively on our growing mortgage and deposit-taking business, thereby clarifying our strategic direction and value proposition to our investors. Management believes the most attractive opportunities are available to us under our mortgage and deposit-taking business and realizing on the inherent value of our transfer agent and corporate trust business allows us to allocate our resources accordingly."

Equity Financial Trust CEO, Nick Kyprianou said,

"We started the year by originating $39,531 of new mortgage loans during the first quarter and ended with mortgage loans outstanding of $226,876. We remain confident in our expectation that compared to the balance at the end of 2012 our mortgage portfolio will be approximately double in size by the end of 2013."

Interim Consolidated Financial Statements and Management's Discussion and Analysis for the first quarter and fiscal period ended March 31, 2013 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 May 15, 2013 at 9 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.

Equity is a Canadian financial services company serving the alternative retail mortgage market through its federally regulated and wholly-owned subsidiary, Equity Financial Trust Company. 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", "could", "would", "might" or "will" be taken, statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, o ccur or be achieved, have been used to identify forward-looking information. Such forward-looking statements include, without limitation, operations and financial results, and otherwise with respect to the Corporation's business, operations and policies, including the Corporation's new strategic focus of operating as a mortgage provider and deposit-taking institution, 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, the Corporation's expected need for equity or debt financing, 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 markets, operations and financial results and assumptions relating to the Corporation's capital and 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 factors and assumptions regarding interest rates, housing sales and retail mortgage borrowing activities, availability of key personnel, the effect of competition, government regulation of its business, computer failure or security breaches, future capital and funding 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, 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 the economy as a whole, errors or omissions by the Corporation in providing services to its customers, 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 obligations, 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 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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