Element Reports Strong Growth in Operating Income in Q3-2013

After tax adjusted operating income increases 30% over Q2 to $13.6 million or $0.09 per share

• Record volumes in commercial finance segment offset industry-wide fleet seasonality
• US commercial finance originations increase 47% over Q2 to account for 23% of new business
• Purchase of $250 million helicopter portfolio establishes Element as a leader in the N.A. helicopter finance industry

TORONTO, Nov. 13, 2013 /CNW/ - Element Financial Corporation (TSX:EFN) ("Element" or "the Company"), one of North America's leading independent equipment finance companies, today reported financial results for the three and nine month periods ending September 30, 2013 showing strong growth in earnings and increased origination volumes in the Company's commercial finance business vertical offsetting the industry-wide third quarter seasonality of the fleet management vertical. US-based volumes accounted for 23% of new business in Q3 versus 16% in the previous period and adjusted operating income increased 30% over the previous period.

"The mix of business that we booked in Q3 shows the strength and potential of the US-based origination team that we acquired late last year," said Steven Hudson, Element's Chairman and CEO. "By removing the funding caps that had previously constrained their growth, this team is now tapping into a deep reservoir of high quality new business opportunities," added Mr. Hudson.

Across all segments, new originations grew to $410.4 million for the three month period versus $397.9 million in the previous period. Element Finance accounted for $260.5 million or 63%, Element Capital accounted for $91.6 million or 22% of the new business volume and Element Fleet originated $58.3 million or 14% of the period's new business volume.

The order book in the fleet industry is mainly driven by the replacement of existing vehicles that fleet operators take out of service before warranties expire.  Just as the weak 2009 order book set the stage for 2013, the improved industry outlook for 2014 is built on the strength of an improved 2010 order book.

"In addition to the macro effect of this replacement cycle, fleet operators will also seek to reduce their total cost of ownership by deferring the scheduled replacement of certain vehicles to pick up the first run of a new model year," noted Mr. Hudson. "This behaviour, which typically results in lowering Q3 volumes in favour of subsequent quarters, was amplified this quarter due to a delay in the production of some of the more popular models of cars and light trucks ordered by our fleet customers. Volumes have rebounded in Q4 as a result of this order migration with originations expected to double over the previous period," added Mr. Hudson.

Element's Aviation Finance business had a solid quarter with more than $91 million of new originations booked during the period.  In late October, this team signed Letters of Intent for financing civil aviation assets valued at more than $400 million at the 2013 National Business Association (NBAA) Convention and Exhibition in Las Vegas. In addition, the Company announced that it has entered into an agreement to acquire a $250 million portfolio of finance assets secured by individual helicopters operated by a diversified base of customers across a variety of industries in the U.S. The transaction, which is expected to close by December 31, 2013, strengthens Element's position as a leader in the North American helicopter finance market. "The purchase of this helicopter portfolio adds to the already strong outlook for this business unit for the fourth quarter and well into 2014 with a pipeline of prospective transactions that now exceeds $2 billion," added Mr. Hudson.

Financial revenue for the quarter increased to $46.4 million versus $34.0 million in the previous quarter generating net financial income of $31.8 million for the quarter versus $24.7 million in the previous quarter. Adjusted operating expenses were $13.5 million for the quarter versus $10.3 million in the previous quarter resulting in adjusted operating income before income taxes of $18.4 million for the current quarter versus $14.5 million for the previous quarter. After tax adjusted operating income was $13.6 million or $0.09 per share for the current period versus $10.5 million or $0.08 per share for the previous quarter. Total assets increased to $2.7 billion at the end of the quarter versus $2.5 billion at the end of the previous quarter and book value per share increased to $5.72 versus $5.67 reported at the end of the previous period.

The Company's adjusted operating expense ratio continued to decline falling from 2.65% of average portfolio assets reported in the previous period to 2.49% in the third quarter.  "We succeeded in taking costs out of our acquired businesses in the third quarter as we continue to drive toward our target operating expense ratio of 2%," noted Mr. Hudson. "Transformational acquisitions are expected to significantly accelerate our achievement of this target, but can also add to operating costs in the short run as we engage resources in the hunt for these transactions."

Finance receivables increased to $2.25 billion at the end of September 2013 versus $2.14 billion reported as at June 30, 2013. Average finance receivables for the quarter were $2.16 billion versus $1.54 billion for the previous quarter.  Delinquencies represented 0.38% of total finance receivables as at September 30, 2013 compared to 0.15% as at June 30, 2013 and 0.28% as at March 31, 2013. This variance from quarter to quarter is expected to normalize as collection policies and practices are standardized with the further integration of Element's acquired fleet portfolios. Element's financial leverage ratio increased to 1.93:1 as at September 30, 2013 from 1.75:1 at the June 30, 2013 well below the Company's target. At the end of the period, the Company had 155.4 million shares outstanding.

The Company expects to originate new business in the fourth quarter of 2013 of more than $600 million, an increase of nearly 50% over total originations for the third quarter with increases in all segments.

Conference Call

A conference call to discuss the results with analysts will be held on Thursday November 14, 2013 at 8:00 a.m. ET. The conference call can be accessed by dialing the following numbers:

North America Toll- Free:

1-866-696-5910 passcode 2707932

Local & International:

1-416-340-2217 passcode 2707932

The call will be recorded and can be accessed until November 28, 2013 by dialing 905-694-9451 or 1-800-408-3053 and entering the pass code 6626144.

Non-IFRS Measures

The Company's unaudited condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and accounting policies we adopted in accordance with IFRS.

The Company believes that certain Non-IFRS Measures can be useful to investors because they provide a means by which investors can evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period. Throughout this Press Release, management used a number of terms and ratios which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations.  A full description of these measures can be found in the Management Discussion & Analysis that accompanies the financial statements for the quarter ended September 30, 2013.

Selected Financial Information and Financial Ratios

The following table summarizes key financial data to be read in conjunction with the unaudited condensed consolidated financial statements of the Company as at and for three-month and nine-month periods ended September 30, 2013.

	As at and for the three months ended						As at and for the nine months ended
(in $000's for stated values, except ratios and per share amounts)	September 30, 2013 $		June 30, 2013 $		September 30, 2012 $		September 30, 2013 $		September 30, 2012 $
After tax adjusted operating income (loss) per share (basic) (1)	0.09		0.08		0.05		0.25		0.08
Financial revenue	46,374		33,960		18,124		112,172		31,102
Adjusted operating income	18,362		14,497		5,374		44,902		8,214
After tax adjusted operating income	13,548		10,451		3,943		32,643		6,027
Income/(loss) before taxes	11,547		(14,164)		4,349		4,635		(3,353)
Net income/(loss)	7,825		(13,882)		3,012		(1,372)		(3,044)
Total assets	2,725,955		2,533,370		1,109,653		2,725,955		1,109,653
Finance Receivables, net	2,253,186		2,143,133		927,298		2,253,186		927,298
New originations	410,436		397,896		219,690		1,104,583		455,702
Loan acquisitions	—		488,691		—		573,008		456,824
Secured borrowings	1,713,973		1,539,011		720,297		1,713,973		720,297
Average finance receivables	2,163,841		1,546,145		847,130		1,704,873		487,173
Average debt outstanding	1,586,258		1,093,655		651,717		1,257,016		337,123
Number of Shares outstanding (including special warrants)	155,399		155,116		83,015		155,399		83,015
Weighted average number of shares outstanding (including special warrants)	155,321		129,362		83,001		130,973		73,779
Total Shareholders' equity	889,072		879,560		316,187		889,072		316,187
Average shareholders' equity	882,929		635,079		314,222		661,197		272,583
Net income (loss) per share [basic and diluted]	0.05		(0.11)		0.04		(0.01)		(0.04)

The following table provides a reconciliation of non-IFRS to IFRS measures related to the Company:

			As at and for the three months ended						As at and for the nine months ended
$ thousands (except % and per share amounts)			September 30, 2013		June 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Reported and adjusted income measures			7,825		(13,882)		3,012		(1,372)		(3,044)
Net income (loss)		A
Adjustments:
	Share-based compensation		3,467		2,818		695		7,737		2,187
	Amortization of intangible assets from acquisitions		348		343		330		1,030		330
	Integration costs		3,000		5,000		—		11,000		2,750
	Transaction costs		—		20,500		—		20,500		6,300
	Provision (recovery) of income taxes		3,722		(282)		1,337		6,007		(309)
Adjusted operating income		B	18,362		14,497		5,374		44,902		8,214
Provision for taxes applicable to adjusted operating income			(4,814)		(4,046)		(1,431)		(12,259)		(2,187)
After tax adjusted operating income		C	13,548		10,451		3,943		32,643		6,027
Selected statement of financial position amounts					2,154,106		931,427		2,264,570		931,427
Finance receivables, before allowance for credit losses		D	2,264,570
Allowance for credit losses		E	11,384		10,973		4,129		11,384		4,129
Finance receivables, net		F	2,253,186		2,143,133		927,298		2,253,186		927,298
	Average finance receivables, net	G	2,163,841		1,546,145		847,130		1,704,873		487,173
Secured borrowings		H	1,713,973		1,539,011		720,297		1,713,973		720,297
	Average Secured Borrowings	I	1,586,258		1,093,655		651,717		1,257,016		337,123
Total shareholders' equity		J	889,072		879,560		316,187		889,072		316,187
	Average shareholders' equity	K	882,929		635,079		314,222		661,197		272,583
Key annualized operating ratios
Financial leverage ratio		H/J	1.93		1.75		2.28		1.93		2.28
Allowance for credit losses as a percentage of finance receivables		E/D	0.50%		0.51%		0.44%		0.50%		0.44%
Adjusted operating income on average shareholders' equity		B/K	8.32%		9.13%		6.84%		9.05%		4.02%
Adjusted operating income on average finance receivables		B/G	3.39%		3.75%		2.54%		3.51%		2.25%
After-tax adjusted operating income on average shareholders' equity		C/K	6.14%		6.58%		5.02%		6.58%		2.95%
After-tax adjusted operating income on average finance receivables		C/G	2.50%		2.70%		1.86%		2.55%		1.65%
Per share information
Number of shares outstanding (including special warrants)		L	155,399		155,116		83,015		155,399		83,015
Weighted average number of shares outstanding [basic]		M	155,321		129,362		83,001		130,973		73,779
Weighted average number of shares outstanding [diluted]		N	159,618		129,362		84,310		130,973		73,779
Net income (loss) per share [basic]		A/M	0.05		(0.11)		0.04		(0.01)		(0.04)
Net income (loss) per share [diluted]		A/N	0.05		(0.11)		0.04		(0.01)		(0.04)
Book value per share		J/L	5.72		5.67		3.81		5.72		3.81
After-tax adjusted operating income per share [basic]		C/M	0.09		0.08		0.05		0.25		0.08

The following table summarizes key operating ratios to be read in conjunction with the unaudited condensed consolidated interim financial statements of the Company as at and for the three-month and nine-month periods ended September 30, 2013:      

        

		As at and for the three-month periods ended					As at and for the nine month periods ended
		September 30, 2013	June 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Ratios		1.93:1	1.75:1		2.28:1		1.93:1		2.28:1
Financial leverage ratio
Allowance for credit losses as a percentage of
	finance receivables	0.50%	0.51%		0.44%		0.50%		0.44%
Annualized credit loss provision as a percentage
	of average finance receivables	0.31%	0.28%		0.30%		0.34%		0.27%
Portfolio average remaining life (in months)		26.8	22.6		19.0		26.8		19.0
Adjusted operating income on average
	shareholders' equity	8.32%	9.13%		6.84%		9.05%		4.02%
Adjusted operating income on average
	finance receivables	3.39%	3.75%		2.54%		3.51%		2.25%
After-tax adjusted operating income on
	shareholders' equity	6.14%	6.58%		5.02%		6.58%		2.95%
After-tax adjusted operating income on
	average finance receivables	2.50%	2.70%		1.86%		2.55%		1.65%
Book value per share		$5.72	$5.67		$3.81		$5.72		$3.81

(1)	All are ratios presented on an annualized basis.

The following table sets forth a summary of the Company's results of operations for the three months ended September 30, 2013, June 30, 2013 and September 30, 2012:

	For the three-month periods ended
(in 000's for stated values, except per unit amounts)	September 30, 2013 $		June 30, 2013 $		September 30, 2012 $
Net Financial Income
Interest income	37,011		28,916		15,589
Interest expense	14,525		9,212		5,635
Net interest income before provision for credit losses	22,486		19,704		9,954
Provision for credit losses	1,670		1,099		640
Net interest income	20,816		18,605		9,314
Other revenue items	11,033		6,143		3,175
Net financial income	31,849		24,748		12,489
Operating Expenses
Salaries, wages and benefits	9,479		7,994		5,142
General and administration expenses	4,008		2,257		1,973
Share-based compensation	3,467		2,818		695
	16,954		13,069		7,810
Business acquisition costs
Amortization of intangibles from acquisition	348		343		330
Integration costs	3,000		5,000		—
Transaction costs	—		20,500		—
	3,348		25,843		330
Net income/(loss) before taxes	11,547		(14,164)		4,349
Tax expense/(recovery)	3,722		(282)		1,337
Net income/(loss) for the period	7,825		(13,882)		3,012
Net income (loss) per share [basic and diluted]	$0.05		($0.11)		$0.04

The following table sets forth a summary of the Company's results of operations for the nine months ended September 30, 2013 and 2012:

	For the nine-month periods ended
(in 000's for stated values, except per unit amounts)	September 30, 2013 $		September 30, 2012 $
Net Financial Income
Interest income	92,371		28,019
Interest expense	32,780		9,284
Net interest income before provision for credit losses	59,591		18,735
Provision for credit losses	4,340		970
Net interest income	55,251		17,765
Other revenue items	24,141		4,053
Net financial income	79,392		21,818
Operating Expenses
Salaries, wages and benefits	24,635		9,275
General and administration expenses	9,855		4,329
Share-based compensation	7,737		2,187
	42,227		15,791
Business acquisition costs
Amortization of intangibles from acquisitions	1,030		330
Integration costs	11,000		2,750
Transaction costs	20,500		6,300
	32,530		9,380
Net income/(loss) before taxes	4,635		(3,353)
Tax expense/(recovery)	6,007		(309)
Net income/(loss) for the period	(1,372)		(3,044)
Net loss per share - basic and diluted	($0.01)		($0.04)

The following table sets forth a summary of the Company's consolidated financial position as of the dates presented:

			As at
(in 000's for stated values, except per unit amounts)	September 30, 2013 $		June 30, 2013 $		December 31, 2012 $
Cash	52,258		41,534		9,997
Restricted cash	87,482		64,142		51,279
Finance receivables	2,253,186		2,143,133		1,294,591
Deferred tax assets	19,630		25,272		16,152
Non-portfolio assets	313,399		259,289		136,873
Total assets	2,725,955		2,533,370		1,508,892
Accounts payable and accrued liabilities	91,695		83,883		70,057
Secured borrowings	1,713,973		1,539,011		989,128
Derivative financial instruments	3,275		2,562		645
Deferred tax liabilities	27,940		28,354		25,637
Total liabilities	1,836,883		1,653,810		1,085,467
Shareholders' equity	889,072		879,560		423,425
Total liabilities and shareholders' equity	2,725,955		2,533,370		1,508,892

Overall Performance Highlights

Total originations were a record $410.4 million during the three months ended September 30, 2013, an increase of 86.8% or $190.7 million over the originations for the three months ended September 30, 2012, and an increase of 3.2% or $12.5 million over the originations for the prior quarter ended June 30, 2013. Total originations were $1,104.6 million during the nine months ended September 30, 2013, an increase of 142.4% or $648.9 million over the comparative period in 2012.

Total originations from the Company's mid-ticket Element Finance business were $260.5 million during the three months ended September 30, 2013, an increase of $173.9 million or 200.7% over the $86.6 million generated during the three months ended September 30, 2012, and an increase of $29.6 million or 12.8% over the prior quarter ended June 30, 2013. The acquisition of CoActiv on November 30, 2012 and Nexcap on January 18, 2013 contributed $102.2 million and $38.8 million, respectively, to the total origination of the mid-ticket business for three months ended September 30, 2013. For the nine months ended September 30, 2013, total originations from the Element Finance business were $677.4 million, an increase of $448.1 million or 195.5% over the $229.3 million generated during the nine months ended September 30, 2012.

Total originations for the Element Fleet vertical initially acquired in June 2012 were $58.3 million during the three months ended September 30, 2013, a decrease of $22.1 million or 27.4% over the prior quarter and an increase of $7.4 or 14.6% over the same quarter in the prior year, and $197.8 million on a year to date basis or an increase of $146.9 or 288.4%. Volumes of Element Fleet have decreased quarter over quarter as a result of seasonality, availability of vehicles from manufacturers and the purchase cycle of existing Element Fleet customers offset by the new volumes generated from the GE Portfolio acquired on June 28, 2013. Management expects volume to increase as the Company enters a seasonally stronger fourth quarter and as the Company increases its ability to leverage the relative strengths of the TLS and GE Portfolio acquisitions.

Total originations for the Company's large-ticket Element Capital business which was established in January 2012, were $91.6 million compared to $86.6 million in the immediately preceding quarter and $82.1 million in the comparative quarter in 2012, and $229.3 million for the nine months ended September 30, 2013, compared to $175.5 million for the nine months ended September 30, 2012. As management has reported in the past, this business unit will not report even volumes over accounting periods due to the nature of the business. Element Capital continues to have a strong pipeline which was in excess of $1.8 billion at September 30, 2013 and the Company expects record originations in the fourth quarter of 2013.

The Company's finance receivables portfolio of leases and loans has grown substantially during the three months ended September 30, 2013 to $2,253.2 million from $2,143.1 million reported on June 30, 2013 and from $1,294.6 million reported at December 31, 2012. The growth over June 30, 2013 is primarily due to the combined effect of the total new originations for the three months ended in the amount of $410.4 million, net of repayments and syndication activities of $297.3 million. The growth over December 31, 2012 is primarily due to the combined effect of the total new originations for the nine months ended in the amount of $1,104.6 million, the $488.7 million acquired as part of the acquisition of the GE Portfolio and $84.3 million acquired as part of the acquisitions of Nexcap, net of repayments and syndication activities for $711.5 million.

The Company is reporting net income of $7.8 million for the three months ended September 30, 2013, compared to a net income of $3.0 million in the three months ended September 30, 2012 and net loss of $13.9 million for the immediately preceding quarter ended June 30, 2013.  Net income per share was $0.05 for the three months ended September 30, 2013, compared to net income of $0.04 per share for the three months ended September 30, 2012 and a net loss per share of $0.11 for the immediately preceding quarter ended June 30, 2013. The large variances between periods are primarily the result of business acquisition and integration costs incurred on mergers and acquisition activities and are therefore not predictable.

As indicated previously, management believes that adjusted operating income is the most appropriate operating measure of the Company's performance as it excludes non-cash items related to share-based compensation and business acquisition costs which do not relate to maintaining operating activities. The Company is reporting adjusted operating income of $18.4 million for the three months ended September 30, 2013, compared to $5.4 million for the three months ended September 30, 2012 and $14.5 million for the prior quarter ended June 30, 2013, and after tax adjusted operating income per share of $0.09 compared to $0.05 per share for the three months ended September 30, 2012 and $0.08 per share for the prior quarter ended June 30, 2013. For the nine months ended September 30, 2013, the Company is reporting adjusted operating income of $44.9 million and after tax adjusted operating income per share of $0.25, compared to $8.2 million in adjusted operating income or $0.08 in after tax operating income per share for the comparative nine-month period ended September 30, 2012.

The Company continued to execute on its growth plan and strategy during the quarter ended September 30, 2013 and is reporting improved performance from operations (net income before business acquisition costs and taxes) both over the comparable period of the previous year and the immediately preceding quarter. The improved performance is in part the result of the acquisition and integration of TLS, CoActiv, Nexcap and the GE Portfolio that were completed on June 29, 2012, November 30, 2012, January 18, 2013 and June 28, 2013, respectively.

The Company is reporting net income of $7.8 million for the quarter ended September 30, 2013 compared to net income of $3.0 million for the same comparative quarter ended September 30, 2012 and compared to a net loss of $13.9 million reported during the previous quarter ended June 30, 2013. The net loss reported in the prior quarter is the direct result of the inclusion of business acquisition costs of $25.5 million related to the GE Portfolio acquisition completed during the second quarter of 2013. Business acquisition costs will continue to create volatility to the net income of the Company as the Company continues on its acquisitive path.

Basic and diluted income per share was $0.05 for the three months ended September 30, 2013, compared to basic and diluted income per share of $0.04 for the quarter ended September 30, 2012, and a net loss of $0.11 per share for the immediately preceding quarter ended June 30, 2013. The large variances between these earnings are the result of the inclusion of business acquisition costs in the computation of net income.

As indicated previously, management believes that adjusted operating income, a Non-IFRS Measure, is the most appropriate operating measure of the Company's performance as it excludes business acquisition costs and non-cash items related to share-based compensation which do not relate to maintaining operating activities. The Company is reporting basic and adjusted operating income of $0.09 per share for the quarter ended September 30, 2013 compared to $0.05 per share for the quarter ended September 30, 2012 and $0.08 per share for the immediately preceding quarter ended June 30, 2013 on total average number of shares outstanding of 155.3 million, 83.0 million and 129.4 million, respectively.

Adjusted operating income for the three month period ended September 30, 2013 was $18.4 million, an increase of $13.0 million or 241.7% over the amount reported during the comparative quarter ended September 30, 2012 or an increase of $3.9 million or 26.7% over the amount reported during the immediately preceding quarter. The increase over the quarter ended June 30, 2013 is due to the continued impact of the organic growth on the Company's finance receivable portfolio and the contribution of the GE Portfolio acquired on June 28, 2013. The increase over the September 30, 2012 quarter is the result of organic growth as well as the contribution of CoActiv acquired on November 30, 2012, Nexcap acquired on January 18, 2013 and the GE Portfolio acquired on June 28, 2013.

Adjusted operating income on average receivable was 3.39% during the quarter ended September 30, 2013 compared to 2.54% for the quarter ended September 30, 2012 and 3.75% for the prior quarter ended June 30, 2013, reflecting the substantial improvement of the Company's performance year over year from a larger balance sheet and from integration initiatives. The decline quarter over quarter is a result of reduced interest revenue as a percentage of average assets, primarily due to the inclusion of the GE Portfolio which has lower interest yields than the legacy Element Fleet business, declining interest yields on new originations in the Company's U.S. operations and an increase in interest expense as a percentage of average assets as the Company diversifies its funding sources.

Similarly, adjusted operating income on average shareholders' equity was 8.32% during the quarter ended September 30, 2013 compared to 6.84% for the quarter ended September 30, 2012 and 9.13% for the prior quarter ended June 30, 2013. After-tax adjusted operating income on average shareholders' equity was 6.14% during the quarter ended September 30, 2013 compared to 5.02% for the quarter ended September 30, 2012 and 6.58% for the prior quarter ended June 30, 2013, reflecting the substantial improvement of the Company's performance year over year from a larger balance sheet, integration initiatives and the deployment of capital into finance receivables. The decline quarter over quarter, is the result of an increase to average shareholders' equity as a result of the June 18, 2013 issuance of special warrants that increased share capital by $283.5 million. This issuance was used to partially fund the acquisition of the GE Portfolio, which as discussed above has lower interest yields than the legacy Element Fleet business. The acquisition of the GE Portfolio also included $73.0 million of goodwill and intangible assets that do not generate an income yield, these factors contributed to the decline in adjusted operating income and after-tax adjusted operating income on average shareholders' equity quarter over quarter.

Financial revenue for the three month period ended September 30, 2013 was $46.4 million, an increase of $28.3 million or 155.9% over the amount of $18.1 million reported during the quarter ended September 30, 2012, and an increase of $12.4 million or 36.6% over the amount of $34.0 million reported during the immediately preceding quarter ended June 30, 2013. These increases result from increases in average finance receivables outstanding during the periods which grew to $2,163.8 million during quarter ended September 30, 2013, from $847.1 million during the quarter ended September 30, 2012 and from $1,546.1 million during the immediately preceding quarter ended June 30, 2013. Finance receivables have increased to $2,253.2 million as at September 30, 2013 compared to $927.3 million as at September 30, 2012 and $2,143.1 million at June 30, 2013 reflecting respective increases of 143.0% and 5.1% resulting from a combination of (i) the acquisition of TLS on June 29, 2012, (ii) the acquisition of CoActiv on November 30, 2012, (iii) the acquisition of Nexcap on January 18, 2013, (iv) the acquisition of the GE Portfolio on June 28, 2013, and (v) the continued organic growth in originations which reached a record total of $410.4 million during the quarter ended September 30, 2013, compared to $397.9 million during the immediately preceding quarter ended June 30, 2013 and compared to originations of $219.7 million during the quarter ended September 30, 2012.

Gross average yield was 8.88% for the quarter ended September 30, 2013 compared to 9.07% for the immediately preceding quarter ended June 30, 2013 and 8.86% for the comparative quarter ended September 30, 2012. A direct comparison against the results for the quarter ended September 30, 2012 is not meaningful as a result of the numerous acquisitions completed subsequent to that comparative quarter and the resulting different mix of businesses. The decrease in gross yields of 0.19% compared to the immediately preceding quarter ended June 30, 2013 was impacted by the acquisition of the GE Portfolio which has a lower yields than the legacy Element Fleet business and lower yields earned on the Company's new U.S. origination volumes. These were offset by higher non-interest revenue earned in the quarter. Other non-interest revenue is primarily ancillary service revenues and will fluctuate period to period based on the number of transactions and is not directly correlated to average finance receivables.

Interest expense was $14.5 million for the quarter ended September 30, 2013, compared to $5.6 million for the quarter ended September 30, 2012 and $9.2 million for the immediately preceding quarter ended June 30, 2013, reflecting respective increases of $8.9 million and $5.3 million. These increases are the result of increases in the average outstanding debt during the periods which increased to $1,586.3 million during the quarter ended September 30, 2013 from $1,093.7 million during the quarter ended June 30, 2013 and $651.7 million during the quarter ended September 30, 2012. The average cost of borrowing has however increased to 3.66% for the quarter ended September 30, 2013 versus 3.37% in the immediately preceding quarter and 3.46% for the comparative quarter ended September 30, 2012 reflecting a change in the mix of borrowings, new debt structures and diversification of funding sources entered into during the periods.

Operating expenses were $17.0 million for the quarter ended September 30, 2013, compared to $7.8 million for the comparative period in 2012, and $13.1 million for the immediately preceding quarter ended June 30, 2013. Adjusted operating expenses were $13.5 million for the quarter ended September 30, 2013 compared to $10.3 million for the immediately preceding quarter and $7.1 million for the quarter ended September 30, 2012, an increase of 31.6% over the amount reported during the previous quarter ended June 30, 2013 and an increase of 89.6% over the amount reported during the comparative period ended September 30, 2012. The adjusted operating expenses ratio decreased to 2.49% during the quarter ended September 30, 2013 from 2.65% reported for the immediately preceding quarter ended June 30, 2013 and decreased from 3.36% during the quarter ended September 30, 2012. The continued improvements reflect operating efficiencies from the growing balance sheet of the Company and the impact of the integration of recent acquisitions.

Share-based compensation, which consists of non-cash expenses related to the fair value of options granted under the Company stock option plan and deferred share units ("DSUs") granted during the period, was $3.5 million during the three months ended September 30, 2013 compared to $2.8 million during the three months ended June 30, 2013 and $0.7 million reported in the comparative quarter ended September 30, 2012. The increase is directly attributed to the additional grant of options and DSUs, and the increasing estimated fair value of those options and the change in the fair value of the DSUs as the Company's share price continues to increase.

Business acquisition costs, which consist of the amortization of certain acquired intangibles from the acquisition of TLS and the GE Portfolio, and integration costs associated with the GE Portfolio acquisition were $3.3 million during the quarter ended September 30, 2013. During the quarter, the Company accrued $3.0 million in additional integration costs associated with the legacy Element Fleet operations and the recently acquired GE Portfolio. As we have noted previously, these types of expenses will continue to negatively impact the Company's performance going forward as it continues on its growth plan and where such costs will continue to be expensed as incurred under IFRS.

Net income before income taxes for the three months ended September 30, 2013 was $11.5 million compared to net income before taxes of $4.3 million reported for the three months ended September 30, 2012 and net loss before income taxes of $14.2 million reported in the immediately preceding quarter. The net income before income taxes for the three months ended September 30, 2013 was negatively impacted by $3.0 million of integration costs associated with the recently acquired GE Portfolio. The net income before income taxes during the quarter ended June 30, 2013 was impacted by $25.5 million of transaction and integration costs associated with the acquisition of the GE Portfolio during that quarter.

About Element Financial Corporation

With total assets of approximately $2.7 billion, Element Financial Corporation is one of North America's leading independent equipment finance companies. Element operates across North America in three verticals of the equipment finance market - Element Capital provides large ticket equipment financing, Element Finance serves the mid-ticket equipment finance market and Element Fleet provides vehicle fleet leasing and management solutions.

This release includes forward-looking statements regarding Element and its business.  Such statements are based on the current expectations and views of future events of Element's management.  In some cases the forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "plan", "anticipate", "intend", "potential", "estimate", "believe" or the negative of these terms, or other similar expressions intended to identify forward-looking statements, including, among others, statements regarding new originations in the current quarter, the anticipated pipeline of prospective transactions, and proposed purchases of portfolios of finance assets.  The forward-looking events and circumstances discussed in this release may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting Element, including risks regarding the equipment finance industry, economic factors, risks related to completion of the proposed purchases of portfolios of finance assets, and many other factors beyond the control of Element.  No forward-looking statement can be guaranteed.  Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information.  Accordingly, readers should not place undue reliance on any forward-looking statements or information.  Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Element undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

 

 

SOURCE: Element Financial Corporation

Contact:

John Sadler
Senior Vice President
Corporate Affairs & Investor Relations
[phone] ext. 2313
[email protected]

Michel Béland
Chief Financial Officer
[phone] ext. 2225
[email protected]