Equity Financial Holdings Reports First Quarter 2014 Results

TORONTO, May 13, 2014 /CNW/ - Equity Financial Holdings Inc. (TSX: EQI) ("Equity" or the "Corporation"), a Canadian financial services company serving the alternative retail mortgage market through its wholly-owned subsidiary, Equity Financial Trust Company ("Equity Trust"), today reported its interim financial results for the three months ended March 31, 2014.

First Quarter Financial Highlights

(dollar amounts, except per-share, are in $000s)

  • Mortgage loan book ending balance of $397,036, a 75% increase year over year
  • Mortgage originations in the quarter of $25,330, a 36% decrease year over year
  • Net interest income of $3,447, up 91% year over year
  • Net interest margin of 3.19%
  • Net loss from continuing operations of $3,495; basic net loss per share of $0.37
  • Net loss due to significant and non-recurring one-time costs
  • Adjusted net earnings from continuing operations1 of $599
  • Adjusted basic earnings per share from continuing operations1 of $0.06 per share

______________________________________
1Adjusted net earnings from continuing operations and adjusted basic and diluted earnings per share from continuing operations are Non-IFRS Measures, as defined in our MD&A for the for the first quarter ended March 31, 2014

Equity's CEO Michael R. Jones said,

"We are currently focused on replacing and rebuilding the foundations for success in the medium and long term for all shareholders. This will require investments in people and systems as we build the infrastructure needed to grow our mortgage portfolio and to take advantage of related opportunities in the Canadian mortgage market.  As a result of this focus on rebuilding, we expect the pace of our mortgage originations to slow materially for the balance of the year and we anticipate net growth in our mortgage loan portfolio will be flat or negative for fiscal 2014.  Our year end loan book balance will depend on origination volume and run-off.  Origination volume will depend on how quickly management is able to finish the reorganization of the sales, underwriting, and risk management teams, and market competition.  Run-off will depend on maturity schedules and whether or not our customers are able to solicit more attractive renewal offers from prime and other competitors.  Our mortgage loan portfolio continues to generate net interest and fee income while we rebuild our origination volumes and, despite the one-time costs incurred in the first quarter of 2014, Equity Trust remains a well-capitalized deposit-taking institution, which provides a base for continued growth in the future."

Interim Consolidated Financial Statements and Management's Discussion and Analysis for the quarter ended March 31, 2014 can be found on SEDAR at www.sedar.com and on Equity's website at www.equityfinancialtrust.com


Financial Highlights (Unaudited)

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




















For the three months ended

($000s, except share, per share and percentage amounts)




March 31,
2014


December 31,
2013


March 31,
2013

OPERATIONS












Net interest income and other income, net of provision



$

3,768

$

3,598

$

1,854

Net interest margin







3.19%


3.20%


3.21%

Net earnings (loss)












Continuing






$

(3,495)

$

235

$

(388)

Discontinued







-


-


(638)








(3,495)


235


(1,026)

Earnings (loss) per share - basic/diluted










Continuing






$

 (0.37)/(0.37) 

$

0.03/0.02

$

(0.04)/(0.04)

Discontinued







-


-


(0.07)/(0.07)








 (0.37)/(0.37) 


0.03/0.02


(0.11)/(0.11)













ROE from continuing operations (annualized) 1





(15.0%)


1.0%


(3.0%)

ADJUSTED EARNINGS












Adjusted net earnings (loss) from continuing operations 2



$

599

$

1,080

$

(388)

Adjusted earnings (loss) per share from continuing operations - basic/diluted 2

0.06/0.06


0.12/0.11


(0.04)/(0.04)













As at







March 31,
2014


December 31,
2013


March 31,
2013

BALANCE SHEET












Total assets






$

463,137

$

442,376

$

282,179

Mortgages







397,036


394,812


226,876

Deposits







362,906


332,437


224,913

Shareholders' Equity







92,806


96,110


51,339

FINANCIAL STRENGTH












Capital Measures 3












Regulatory Capital (transitional basis)




$

85,675

$

86,591

$

34,467

Assets-to-Capital Multiple






5.3


5.0


7.7

Common Equity Tier 1 Ratio






53.4%


54.1%


25.8%

Share Information












Book value per common share





$

9.93

$

10.33

$

5.61

Common share price - close





$

11.38

$

12.35

$

9.89

Common shares outstanding






9,348,341


9,305,840


9,155,840

Market Capitalization






$

106,384

$

114,927

$

90,551

See definition of return on equity under Non-IFRS financial measures section of our MD&A for the quarter ended March 31, 2014.

Adjusted net earnings from continuing operations, adjusted basic earnings per share from continuing operations and adjusted diluted earnings per share from continuing operations are defined in the Non-IFRS financial measures section of our MD&A for the quarter ended March 31, 2014.

These figures relate to the Corporation's operating subsidiary, Equity Financial Trust, and are calculated under Basel III.

Non-Recurring One-time Costs

In the first quarter of 2014, the Corporation incurred significant non-recurring one-time costs related to (1) the settlement of a shareholder action which included significant changes to the board of directors and the Chief Executive Officer, and (2) an independent Board-led review (the "Review") of underwriting processes and risk management controls after certain process control issues were brought to the attention of the then CEO.

The shareholder action was initiated by the largest shareholder of the Corporation, Smoothwater Capital Partners LP I, in the fall of 2013, and the settlement was announced on February 26, 2014.  The Corporation incurred total one-time costs of $4,820 related to the shareholder action, of which $4,270 was recognized in the first quarter of 2014.  Total one-time costs incurred in the first quarter of 2014 included:

  • $2,803 for legal and other advisory services
  • $264 in respect of special Board fees
  • $950 of severance paid to the former CEO
  • $253 for executive search advisory fees

The Corporation incurred one-time costs of $1,300 in the first quarter of 2014 in relation to the Review and follow on work, which resulted in no significant issues identified with the quality or value of real estate collateral and the conclusion that no material errors existed in the Corporation's financial results and disclosures.  

Permanent CEO Appointed

During the quarter the Board established an executive search committee to identify candidates and select a permanent CEO.  The committee retained Korn Ferry (Toronto) to assist in this process and on May 13, 2014 the Corporation announced the selection of Michael Jones as Chief Executive Officer of both the Corporation and Equity Trust.

New Chief Risk Officer Appointed

On February 18, 2014, the Corporation announced the appointment of Paul Bowers as the Chief Risk Officer of its wholly owned subsidiary, Equity Financial Trust Company.  Mr. Bowers has over 30 years of experience in the financial services industry in risk management, lending and regulation.

Annual General Meeting

The annual meeting of the shareholders will be held at 2 pm on May 28, 2014 at the St. Andrew's Club and Conference Centre, 150 King Street West, 16th Floor, Toronto.

Information related to the Meeting can be found in Equity's Management Information Circular, available on the Company's website at www.equityfinancialtrust.com and on SEDAR at www.sedar.com.

Analyst Conference Call

The Corporation will hold a conference call on May 14, 2014 at 10 a.m. Eastern Time to discuss its operating results and to answer questions. Participants can dial in locally at 416-340-8010 or toll free at 1-866-223-7781.

Forward Looking Information

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 expectations in respect of earnings, fee income, expense levels, general economic, political and market factors in North America and internationally, interest rates, global equity and capital markets, activities, the Corporation's expected need for equity on debt financing, 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 rates, availability of key personnel, the effect of competition on the Corporation's business, 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 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 a significant downturn in capital markets or the economy as a whole, 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 significant changes in interest rates, failure by Equity Financial Trust Company ("Equity Trust") to meet ongoing regulatory requirements, the failure of borrowers or counterparties to honour their financial or contractual obligations to Equity Trust, failure by Equity Trust 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 Equity Trust to adequately monitor the services provided by third party service providers or to establish alternative arrangements if required, failure by Equity Trust 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 preceding list is not exhaustive of possible factors. 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.

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.equityfinancialtrust.com.

SOURCE: Equity Financial Holdings Inc.

For further information: Equity Financial Holdings Inc., Michael R. Jones, President & CEO, (416) 361-0152 Ext 290, www.equityfinancialtrust.com


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