Element Financial Achieves Breakout Results in 2012
TORONTO--Element Financial Corporation (TSX:EFN), Canada's leading independent equipment finance company, reported that record origination levels of $689.3 million contributed to revenue of $57.9 million, operating income of $14.9 million and operating income per share of $0.14 on an after-tax basis for the twelve month period ended December 31, 2012.
The Company also announced it is establishing the Element Equipment Finance Fund as a funding vehicle to complement the Company's existing securitization and syndication arrangements. The Fund will be capitalized with equity from Element and debt from Element's institutional funding partners and will specifically focus on secured equipment financing transactions in the $1.5 to $25 million range. With target leverage for the Fund in the range of 70% to 80%, Element believes it can significantly increase returns on the capital it contributes to this funding vehicle.
"To fully benefit from Element Capital's pipeline, I am pleased to report that Element has commenced the process to fund its first $500 million funding vehicle to finance transactions in the $1.5 million to $25.0 million range," said Steven Hudson, Element's Chairman and CEO. "Together with our own additional financial resources and with institutional support, we expect this new fund will provide Element Capital with increased profitability that is currently available for Element Finance's mid ticket business," added Mr. Hudson.
For the three-month period ended December 31, 2012, the Company reported record origination levels of $233.7 million contributing to revenue of $23.7 million, operating income of $6.7 million and operating income per share of $0.06 on an after-tax basis.
Of the $233.7 million of new originations booked in the fourth quarter, Element Finance contributed $110.4 million (47%), Element Capital contributed $52.5 million (23%) and Element Fleet contributed $70.8 million (30%).
Element closed its acquisition of CoActiv Capital Partners Inc. late in Q4 2012. As a result, the origination volumes, revenue, and operating income referenced above only include results from CoActiv's operations for 15 business days for the month of December. Financial contributions from the recently completed acquisition of Nexcap Finance Corporation acquisition are not included in the above referenced figures as this transaction closed after the end of the reporting period.
"Element has deep roots in the development and management of North American vendor finance programs and we are seeing evidence of strong demand for new equipment financings across our chosen market segments," noted Mr. Hudson. "With the full impact of the key acquisitions concluded during 2012, Element should be in a strong position to generate sizable origination growth in 2013," said Mr. Hudson. "In the large-ticket segment, Element Capital has a robust pipeline currently in the range of $1.2 billion and we are also seeing particularly strong demand from established credit worthy accounts for secured equipment financings in the $1.5 million to $25 million range," noted Mr. Hudson.
Average interest income yield for the twelve month period was 8.8% for Element Finance, 7.9% for Element Capital and 6.6% for Element Fleet for an average interest income yield of 7.9%. Other non-interest income from all three business verticals contributed in increasing overall yields, before amortization of lease origination costs and provision for credit losses to 9.3%.
Delinquencies at the end of the year remain low and within Element's target at 0.28% of total finance receivables. "The quality of the finance receivables that we are originating for our balance sheet and for our funding partners remains very strong," said Mr. Hudson. "We expect secured equipment financings to continue to offer low credit losses and superior yields over the duration of their average life relative to comparable public and private debt securities," he added.
Operating expenses as a percentage of average portfolio assets decreased from 3.36% during the previous quarter, to 3.26% for the three month period ended December 31, 2012. Element's financial leverage ratio calculated on tangible assets decreased slightly during the fourth quarter over the previous quarter from 3.19:1 to 2.97:1 as a result of the increased equity resulting from the issue of Special Warrants on November 23, 2012.
"Our focus for 2013 is to deliver improved returns for our shareholders through quality origination growth, reduced operating expense as a percentage of average finance assets and the prudent application of increased leverage on our balance sheet," added Mr. Hudson.