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