Press release from Marketwire
EQI Reports First Quarter 2012 Results
Mortgage Loans Outstanding Over $105 Million; Total Assets Over $140 Million Quarter's Results Reflect Difficult Market Conditions
Thursday, May 10, 2012
EQI Reports First Quarter 2012 Results17:20 EDT Thursday, May 10, 2012TORONTO, ONTARIO--(Marketwire - May 10, 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 months ended March 31, 2012.Financial Highlights (all dollar amounts, except per-share, are in $000s unless otherwise stated)1Three months ended Mar. 3120122011UnauditedUnauditedFees and margin revenue$4,545$6,866Net interest income$901$51Revenue growth(21%)36%EBTDA$325$2,008Net earnings and comprehensive income$46$1,267Net earnings and comprehensive income growth(96%)169%Earnings per share, basic$0.01$0.17Earnings per share, diluted$0.01$0.17Diluted earnings per share growth(94%)143%Return on equity (annualized)0%15%Cash and cash equivalents at period end$17,332$32,051Although we encountered difficult market conditions in the first quarter, we continued to grow our balance sheet as we successfully completed the first year of operations for our new mortgage lending and deposit-taking business. While we had a positive contribution from our mortgage segment, our revenue and net earnings were down as a result of reduced contributions from our transfer agent and foreign exchange revenue streams, particularly due to an absence of the large-volume transactions which contributed substantially to our first quarter revenues in the prior year. The key elements of our performance by operating segment for the quarter were as follows: Our new mortgage lending and deposit-taking unit met its target of $100 million in mortgage originations for the first twelve months of operations. As at March 31, 2012, we have mortgage loans outstanding of over $105 million and we have estimated commitments to make future advances on mortgage loans of $16.9 million. This is now an established recurring revenue stream and net earnings from these operations have moved beyond the break-even point. In our transfer agent and trust segment our transfer agent client base continued to increase gradually and we expanded our national reach by opening a new office in Montreal. Revenues from our corporate trust business increased by 26%; however, stock transfer activity during the quarter remained at the lower levels we experienced during the second half of last year, resulting in a decline in transfer agent revenues of 16%. Results for our foreign exchange segment for the first quarter were down significantly compared to prior year, primarily due to the absence of large-volume transactions but also reflecting a decline in our core revenues. At the end of the first quarter we hired a senior leader with twenty years of experience in the foreign exchange industry, charged with regaining the positive momentum we experienced in this segment in previous years.Overall, our fee and margin revenue and net interest income declined by 21% compared to the first quarter of last year, resulting in net earnings of $46, compared to last year's first quarter net income of $1,267. Key elements of our results for this first quarter are as follows: Fee and margin revenue 2 decreased by $2,321, or 34%, to $4,545 (2011 - $6,866), primarily reflecting lower transaction volumes for our transfer agent business and the absence of large-volume transactions in our foreign exchange unit. Net interest income 3 increased by $850, or 1,667%, to $901 (2011 - $51). Our entry into the business of mortgage lending and deposit taking has significantly increased our income from this source and we expect it to remain our fastest growing income stream in 2012. We had net earnings of $46, compared to net income of $1,267 in 2011. This decline primarily reflects the decrease in fee and margin revenue. We had basic earnings per share of 1 cent, compared to earnings per share of 17 cents in 2011. Earnings before income taxes, depreciation and amortization (EBTDA) decreased by $1,682 or 84%, to $325 (2011 - $2,008) We incurred an annualized return on equity of 0%, compared to an annualized return on equity of 15% in 2011.EQI President & CEO Paul G. Smith said, "Although we encountered difficult market conditions this quarter, we remain confident in our strategy and business plan. The continued expansion of our mortgage and deposit-taking business remains a clear priority for us and subject to our continuing to meet regulatory requirements we believe we have built a robust and scalable infrastructure that will support this continued growth. Our mortgage business represents a new and growing source of recurring revenue and we expect this segment to continue to be our fastest growing income stream in 2012. After a full year of operations and given the seasonality of spring home-buying we expect mortgage origination volumes in the second quarter to exceed those of the first quarter of 2012 and also be higher than those of the second quarter of 2011.In respect of our other business lines, we remain focused on strengthening our brand and diversifying our operations. Our recent opening of our Montreal office has expanded the national reach of our core transfer agent and trust operations. We have hired a new senior leader for our foreign exchange segment. We've also been recognized as one of 2012's Top 50 "Best Workplaces in Canada" and Top 25 "Best Places to Work for Women" by the Great Places to Work® Institute. Based on management's past experiences of the peaks and troughs both of market activity as a whole and of our own client relationships, we believe this quarter represents something of a base level of activity. As we demonstrated last year, activity above this base level translates very quickly into significant profit. This was evident in the second quarter of 2011 when we earned our highest ever quarterly earnings, primarily as a result of large-volume transactions. As we have always emphasized, it remains impossible to predict the amount and timing of these 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 three months ended March 31, 2012 can be found in our filings on SEDAR at www.sedar.com and on our website at www.equityfinancialholdings.comQuarterly Conference CallEQI will hold a conference call on May 11, 2012 at 9:00 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.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, 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.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.2 To better reflect the evolution of our business we have separately presented fees and margin revenue, which were previously included in Revenue, and net interest income (see below).3 We have added net interest income as a key financial metric in 2011, as a result of our new mortgage lending and deposit taking business. It comprises interest earned on mortgages and other investments, less interest expense on deposits.FOR FURTHER INFORMATION PLEASE CONTACT: Paul G. SmithEquity Financial Holdings Inc.President & CEO(416) 361-0930 Ext 270www.equityfinancialholdings.comThe Toronto Stock Exchange has neither approved nor disapproved the contents of this press release.