SYS-CON MEDIA Authors: Yeshim Deniz, Doug Masi, Mat Mathews, PR.com Newswire, David Smith

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Element Doubles Originations in Q4 to Deliver $0.09 Adjusted Operating EPS

All five business verticals post record quarterly volumes totaling $1 billion in Q4

TORONTO, ONTARIO -- (Marketwired) -- 02/20/14 -- Element Financial Corporation (TSX:EFN) ("Element" or "the Company"), one of North America's leading equipment finance companies, today reported financial results for the 12-month and three-month periods ending December 31, 2013 with all five business verticals delivering record originations volumes contributing to a 30 percent increase in the Company's Net Finance Receivables of $3 billion as at December 31, 2013 versus $2.3 billion as at September 30, 2013. After tax adjusted operating income increased to $15.0 million in Q4-2013 producing $0.09 of operating earnings per share for the period in line with the consensus of analysts' estimates.

"We were very active across all segments of the business in the fourth quarter which allowed us to show the core strength of this management team's ability to grow Element's asset base both organically and through strategic acquisitions," said Steven Hudson, Element's Chairman and CEO. "This record performance in the fourth quarter, together with continued favourable trends for the acquisition of new capital equipment in the markets we serve in North America, positions Element for continued strong growth in 2014 across each of our business verticals," added Mr. Hudson.

Across all segments, new originations grew to $997 million for the three-month period ended December 31, 2013 versus $410 million in Q3-2013. Commercial and Vendor Finance (Canada) accounted for $196 million of Q4 originations versus $166 million in the previous period. Commercial and Vendor Finance (US) accounted for $113 million of Q4 originations versus $94 million in the previous period. Aviation Finance accounted for $462 million of Q4 originations, which included a $243 million contribution from the acquisition of GE Capital Corporation's helicopter portfolio, versus $92 million in the previous period. Fleet Management accounted for $114 million of Q4 originations versus $58 million in the previous period. The Rail Finance vertical, which was established in December of 2013 following the launch of Element's strategic alliance with Dallas-based Trinity Industries, contributed $112 million to Q4 originations.

The Company's adjusted operating expense ratio continued to decline during the fourth quarter to 2.26 percent of average portfolio assets versus 2.49 percent in the third quarter. The Company's financial leverage ratio declined to 1.31:1 as at December 31, 2013 versus 1.93:1 as at September 30, 2013.

"As we continue to add scale to our asset base through 2014, we expect our OPEX ratio to continue to fall and our leverage ratio to begin to rise allowing us to push more of our top line growth directly through to operating earnings and better returns for our shareholders," noted Mr. Hudson. "For example, in the fourth quarter of 2013, we absorbed more than $1 million of unallocated transaction pursuit costs into our operating expense line as we invested resources in identifying and analyzing various acquisition opportunities that have yet to be harvested. While we expect to continue to invest in pursuing these and other acquisition opportunities over the near term, the impact of these costs is expected to diminish as we add further scale to the business throughout 2014," added Mr. Hudson.

Element expects to organically originate more than $3.8 billion of new equipment loans and leases during 2014 across the Company's five North American market verticals representing an increase of 80% over the $2.1 billion Element organically originated in 2013.

Financial revenue for the quarter increased to $50.9 million versus $46.4 million in the previous quarter generating net financial income of $34.2 million for the quarter versus $31.8 million in the previous quarter. Adjusted operating expenses were $13.8 million for the quarter versus $13.5 million in the previous quarter resulting in adjusted operating income before income taxes of $20.4 million for the current quarter versus $18.4 million for the previous quarter. After tax adjusted operating income was $15.0 million or $0.09 per share for the current period versus $13.5 million or $0.09 per share for the previous quarter. Total assets increased to $3.5 billion at the end of the quarter versus $2.7 billion at the end of the previous quarter and book value per share increased to $7.66 versus $5.72 reported at the end of the previous period.

Finance receivables increased to $3.0 billion at the end of December 2013 versus $2.3 billion reported as at September 30, 2013. Average finance receivables for the quarter were $2.45 billion versus $2.16 billion for the previous quarter. Delinquencies represented 0.29% of total finance receivables as at December 31, 2013 compared to 0.38% as at September 30, 2013. At the end of the period, the Company had 188.9 million common shares outstanding.

Audited Statements and MD&A

Element's audited financial statements and related management discussion and analysis as at and for the fiscal year ended December 31, 2013 have been filed on SEDAR (www.sedar.com).

Conference Call

A conference call to discuss the results with analysts will be held on Friday February 21, 2014 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 March 6, 2014 by dialing 905-694-9451 or 1-800-408-3053 and entering the pass code 6626144.

Non-IFRS Measures

The Company's audited 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 adopted are 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 year ended December 31, 2013.

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


                      As at and for the three-months    As at and for the   
                                   ended                   years ended      
----------------------------------------------------------------------------
$ thousands (except %                                                       
 and per share         December  September   December   December   December 
 amounts)              31, 2013   30, 2013   31, 2012   31, 2013   31, 2012 
----------------------------------------------------------------------------
                                                                            
After-tax                                                                   
 adjusted                                                                   
 operating income                                                           
 per share                                                                  
 (basic)          C/M      0.09       0.09       0.06       0.34       0.14 
                                                                            
----------------------------------------------------------------------------
Reported and                                                                
 adjusted income                                                            
 measures                                                                   
Net income (loss)   A      (278)     7,825     (3,376)    (1,650)    (6,420)
Adjustments:                                                                
  Share-based                                                               
   compensation           4,212      3,467        920     11,949      3,107 
  Amortization of                                                           
   intangible assets                                                        
   from acquisitions      1,176        348        334      2,206        664 
  Integration                                                               
   costs                    200      3,000      3,600     11,200      6,350 
  Transaction                                                               
   costs                 14,560          0      9,859     35,060     16,159 
  Provision                                                                 
   (recovery) of                                                            
   income taxes             489      3,722     (4,641)     6,496     (4,950)
----------------------------------------------------------------------------
Adjusted                                                                    
 operating income   B    20,359     18,362      6,696     65,261     14,910 
Provision for taxes                                                         
 applicable to                                                              
 adjusted operating                                                         
 income                  (5,322)    (4,814)    (1,782)   (17,581)    (3,969)
----------------------------------------------------------------------------
After-tax                                                                   
 adjusted                                                                   
 operating income   C    15,037     13,548      4,914     47,680     10,941 
----------------------------------------------------------------------------
Selected                                                                    
 statement of                                                               
 financial                                                                  
 position amounts                                                           
Finance                                                                     
 receivables,                                                               
 before allowance                                                           
 for credit                                                                 
 losses (1)         D 3,013,354  2,312,809  1,324,020  3,013,354  1,324,020 
Allowance for                                                               
 credit losses      E    11,071     11,384      9,403     11,071      9,403 
----------------------------------------------------------------------------
Finance                                                                     
 receivables, net                                                           
 (1)                F 3,002,283  2,301,425  1,314,617  3,002,283  1,314,617 
  Average finance                                                           
   receivables,                                                             
   net              G 2,454,446  2,163,841  1,052,733  1,893,778    629,485 
Secured                                                                     
 borrowings         H 1,893,910  1,713,973    989,128  1,893,910    989,128 
  Average secured                                                           
   borrowings       I 1,752,400  1,586,258    799,527  1,381,880    453,356 
Total                                                                       
 shareholders'                                                              
 equity             J 1,446,656    889,072    423,425  1,446,656    423,425 
  Average                                                                   
   shareholders'                                                            
   equity           K   977,678    882,929    365,196    740,968    300,807 
----------------------------------------------------------------------------
Key annualized                                                              
 operating ratios                                                           
Financial                                                                   
 leverage ratio   H/J      1.31       1.93       2.34       1.31       2.34 
Allowance for                                                               
 credit losses as                                                           
 a percentage of                                                            
 finance                                                                    
 receivables      E/D      0.37%      0.49%      0.71%      0.37%      0.71%
Adjusted                                                                    
 operating income                                                           
 on average                                                                 
 shareholders'                                                              
 equity           B/K      8.33%      8.32%      7.33%      8.81%      4.96%
Adjusted                                                                    
 operating income                                                           
 on average                                                                 
 finance                                                                    
 receivables      B/G      3.32%      3.39%      2.54%      3.45%      2.37%
After-tax                                                                   
 adjusted                                                                   
 operating income                                                           
 on average                                                                 
 shareholders'                                                              
 equity           C/K      6.15%      6.14%      5.38%      6.43%      3.64%
After-tax                                                                   
 adjusted                                                                   
 operating income                                                           
 on average                                                                 
 finance                                                                    
 receivables      C/G      2.45%      2.50%      1.87%      2.52%      1.74%
Per share                                                                   
 information                                                                
Number of shares                                                            
 outstanding                                                                
 (including                                                                 
 special                                                                    
 warrants)          L   188,935    155,399    102,542    188,935    102,542 
Weighted average                                                            
 number of shares                                                           
 outstanding                                                                
 (basic)            M   160,530    155,321     91,095    138,423     78,132 
Weighted average                                                            
 number of shares                                                           
 outstanding                                                                
 (diluted)          N   160,530    159,618     91,095    138,423     78,132 
Net income (loss)                                                           
 per share                                                                  
 (basic)          A/M      0.00       0.05      (0.04)     (0.01)     (0.08)
Net income (loss)                                                           
 per share                                                                  
 (diluted)        A/N      0.00       0.05      (0.04)     (0.01)     (0.08)
Book value per                                                              
 share            J/L      7.66       5.72       4.13       7.66       4.13 
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Selected Financial Information and Financial Ratios

The following tables summarize key financial data and key operating ratios for the three-month periods ended December 31, 2013, September 30, 2013 and December 31, 2012:


                                             As at and for the three-months 
                                                         ended              
                                              December  September  December 
                                              31, 2013   30, 2013  31, 2012 
(in $000's for stated values, except ratios                                 
 and per share amounts)                              $          $         $ 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
After tax adjusted operating income per                                     
 share (basic) (1)                                0.09       0.09      0.05 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial revenue                               50,945     46,374    21,904 
----------------------------------------------------------------------------
Adjusted operating income                       20,359     18,362     6,696 
----------------------------------------------------------------------------
After tax adjusted operating income             15,037     13,548     4,914 
----------------------------------------------------------------------------
Income/(loss) before taxes                         211     11,547    (8,017)
----------------------------------------------------------------------------
Net income/(loss)                                 (278)     7,825    (3,376)
----------------------------------------------------------------------------
Total assets                                 3,454,653  2,725,955 1,508,892 
----------------------------------------------------------------------------
Finance receivables, net                     3,002,283  2,301,425 1,314,617 
----------------------------------------------------------------------------
New originations                               997,172    410,436   219,690 
Loan acquisitions                                    -          -   299,412 
----------------------------------------------------------------------------
Secured borrowings                           1,893,910  1,713,973   989,128 
----------------------------------------------------------------------------
Average finance receivables                  2,454,446  2,163,841 1,052,733 
----------------------------------------------------------------------------
Average debt outstanding                     1,752,400  1,586,258   799,527 
----------------------------------------------------------------------------
Number of shares outstanding (including                                     
 special warrants)                             188,935    155,399   102,542 
Weighted average number of shares                                           
 outstanding (including special warrants)      160,530    155,321    91,095 
Total shareholders' equity                   1,446,656    889,072   423,425 
Average shareholders' equity                   977,678    882,929   365,196 
----------------------------------------------------------------------------
Net income/(loss) per share (basic and                                      
 diluted)                                         0.00       0.05     (0.04)
----------------------------------------------------------------------------

(1) All ratios are presented on an annualized basis

Selected Financial Information and Financial Ratios

The following tables summarize key financial data and key operating ratios as at and for the year ended December 31, 2013:


                                            As at and                       
                                              for the             As at and 
                      As at and  As at and      nine-  As at and    for the 
                        for the    for the     months    for the six-months 
                     year ended year ended      ended year ended      ended 
                       December   December   December  March 31,  March 31, 
                       31, 2013   31, 2012   31, 2011       2011       2010 
(in $000's for stated                                                       
 values, except                                                             
 ratios and per share                                                       
 amounts)                     $          $          $          $          $ 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
After tax adjusted                                                          
 operating income                                                           
 (loss) per share                                                           
 (basic) (1)               0.34       0.14      (0.01)     (0.34)     (1.42)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial revenue (1)   163,117     53,006     10,386      1,728        363 
----------------------------------------------------------------------------
Adjusted operating                                                          
 income (loss) (1)       65,261     14,910       (428)    (1,449)      (128)
----------------------------------------------------------------------------
After tax adjusted                                                          
 operating income                                                           
 (loss) (1)              47,680     10,941     (1,034)    (1,449)      (128)
----------------------------------------------------------------------------
Income/(loss) before                                                        
 taxes                    4,846    (11,370)    (7,544)    (1,449)      (128)
----------------------------------------------------------------------------
Net income/(loss)        (1,650)    (6,420)    (6,071)    (1,449)      (128)
----------------------------------------------------------------------------
Total assets          3,454,653  1,508,892    416,715     47,073      6,450 
----------------------------------------------------------------------------
Finance Receivables,                                                        
 net (2)              3,002,283  1,314,617    231,537     37,586      5,095 
----------------------------------------------------------------------------
New originations      2,101,755    689,330    119,671     46,604      2,403 
Loan acquisitions       573,008    756,236    158,474          -          - 
----------------------------------------------------------------------------
Secured borrowings    1,893,910    989,128    172,517     33,250      5,379 
----------------------------------------------------------------------------
Average finance                                                             
 receivables (1)      1,893,778    629,485    168,099     17,782      5,108 
----------------------------------------------------------------------------
Average debt                                                                
 outstanding (1)      1,381,880    453,356    119,624     15,980      5,553 
----------------------------------------------------------------------------
Number of Shares                                                            
 outstanding                                                                
 (including special                                                         
 warrants)              188,935    102,542     66,380      4,412        292 
Weighted average                                                            
 number of shares                                                           
 outstanding                                                                
 (including special                                                         
 warrants)              138,423     78,132     33,302      3,923         90 
Total Shareholders'                                                         
 equity               1,446,656    423,425    238,341      8,001        379 
Average shareholders'                                                       
 equity                 740,968    300,807     91,687      7,178        181 
----------------------------------------------------------------------------
Net income (loss) per                                                       
 share (basic and                                                           
 diluted)                 (0.01)     (0.08)     (0.18)     (0.37)     (1.42)
----------------------------------------------------------------------------

(1) All ratios are presented on an annualized basis

Consolidated Statements of Operations


                                              For the three-month periods   
                                                         ended              
                                            ------------------------------- 
                                              December  September  December 
                                              31, 2013   30, 2013  31, 2012 
(in 000's for stated values, except per unit                                
 amounts)                                            $          $         $ 
----------------------------------------------------------------------------
Net Financial Income                                                        
Interest income                                 43,344     37,011    19,379 
Interest expense                                16,745     14,525     6,872 
----------------------------------------------------------------------------
Net interest income before provision for                                    
 credit losses                                  26,599     22,486    12,507 
Provision for credit losses                      1,064      1,670       987 
----------------------------------------------------------------------------
Net interest income                             25,535     20,816    11,520 
Other revenue items                              8,665     11,033     3,512 
----------------------------------------------------------------------------
Net financial income                            34,200     31,849    15,032 
Operating Expenses                                                          
Salaries, wages and benefits                    10,015      9,479     5,167 
General and administration expenses              3,826      4,008     3,169 
Share-based compensation                         4,212      3,467       920 
----------------------------------------------------------------------------
                                                18,053     16,954     9,256 
----------------------------------------------------------------------------
Business acquisition costs                                                  
Amortization of intangibles from acquisition     1,176        348       334 
Integration costs                                  200      3,000     3,600 
Transaction costs                               14,560          -     9,859 
----------------------------------------------------------------------------
                                                15,936      3,348    13,793 
----------------------------------------------------------------------------
Net income/(loss) before taxes                     211     11,547    (8,017)
Tax expense/(recovery)                             489      3,722    (4,641)
----------------------------------------------------------------------------
Net income/(loss) for the period                  (278)     7,825    (3,376)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Overall Performance Highlights

The Company is reporting net loss of $0.3 million for the quarter ended December 31, 2013 compared to net loss of $3.4 million for the same comparative quarter ended December 31, 2012 and compared to a net income of $7.8 million reported during the immediately preceding quarter ended September 30, 2013. The net loss reported in the current quarter is the direct result of the inclusion of transaction and integration costs of $14.3 million in connection with the acquisition of the railcar and helicopter portfolios on December 19, 2013, and $0.5 million of other costs. The net loss reported in the comparative quarter ended December 31, 2012 is a result of the inclusion of business acquisition costs related to the acquisition of CoActiv and Nexcap. Business acquisition costs will continue to create volatility in the Company's net income as the Company continues its expansion through business acquisitions.

As we have stated in the past, 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 adjusted operating income of $0.09 per share for the quarter ended December 31, 2013 on 160.5 million average common shares outstanding after giving effect to the equity issue of 33.5 million common shares issued on December 17, 2013, compared to $0.05 per share for the quarter ended December 31, 2012 and $0.09 per share for the immediately preceding quarter ended September 30, 2013 on total average number of shares outstanding of 91.1 million and 155.3 million, respectively.

Adjusted operating income for the three-month period ended December 31, 2013 was $20.4 million, an increase of $13.7 million or 204.0% over the amount reported during the comparative quarter ended December 31, 2012 or an increase of $2.0 million or 10.9% over the amount reported during the immediately preceding quarter ended September 30, 2013. The increase over the comparative quarter ended December 31, 2012 is the result of: (i) the acquisition of CoActiv on November 30, 2012, (ii) the acquisition of Nexcap on January 18, 2013, (iii) the acquisition of the GE Portfolio on June 28, 2013, and (iv) strong organic growth which includes the acquisitions of the railcar and helicopter portfolios on December 19, 2013. The increase over the quarter ended September 30, 2013 is due to the continued impact of the organic growth of the Company's finance receivable portfolio including the contribution of the rail and helicopter finance receivable portfolios acquired on December 19, 2013.

Adjusted operating income on average receivable was 3.32% during the quarter ended December 31, 2013 compared to 2.54% for the quarter ended December 31, 2012 and 3.39% for the immediately preceding quarter ended September 30, 2013, reflecting the substantial improvement of the Company's performance year over year from a larger balance sheet and from integration initiatives. The small decline quarter over quarter is a result of reduced "other revenue items" which include syndication fees and other revenue. Syndication fees and other revenue items are dependent on the volume and the timing of individual transactions and not necessarily correlated with average finance receivables. During the quarter the Company experienced a lower volume of transactions in these revenue categories, including lower prepayment charges and wholesale program fees, offset by increases in fleet service revenues.

Similarly, adjusted operating income on average shareholders' equity was 8.33% during the quarter ended December 31, 2013 compared to 7.33% for the quarter ended December 31, 2012 and 8.32% for the immediately preceding quarter ended September 30, 2013. After-tax adjusted operating income on average shareholders' equity was 6.15% during the quarter ended December 31, 2013 compared to 5.38% for the quarter ended December 31, 2012 and 6.14% for the immediately preceding quarter ended September 30, 2013, reflecting a 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. While the result for the current quarter over the immediately preceding quarter are consistent, this was achieved with a much lower leverage ratio which was reduced from 1.93:1 as at September 30, 2013 to 1.31 as at December 31, 2013 resulting from the equity issuance on December 17, 2013.

Financial revenue for the three-month period ended December 31, 2013 was $50.9 million, an increase of $29.0 million or 132.6% over the amount of $21.9 million reported during the quarter ended December 31, 2012, and an increase of $4.5 million or 9.9% over the amount of $46.4 million reported during the immediately preceding quarter ended September 30, 2013. These improvements result from increases in average finance receivables outstanding during the periods which grew to $2,454.4 million during quarter ended December 31, 2013, from $1,052.7 million during the quarter ended December 31, 2012 and from $2,163.8 million during the immediately preceding quarter ended September 30, 2013. Finance receivables have increased to $3,002.3 million as at December 31, 2013 compared to $1,314.6 million as at December 31, 2012 and $2,301.4 million at September 30, 2013 reflecting respective increases of 128.4% and 30.5% 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) continued organic growth, including the contributions of the railcar and helicopter portfolios acquired on December 19, 2013. Total originations reached a record total of $997.2 million during the quarter ended December 31, 2013, compared to originations of $219.7 million during the quarter ended December 31, 2012 and $410.4 million during the immediately preceding quarter ended September 30, 2013. Financial revenue as a percentage of average finance receivables has remained consistent year over year declining marginally by 0.02% to 8.30% from 8.32%, and declined by 0.27% from 8.57% for the quarter ended September 30, 2013. The decline quarter over quarter is a result of reduced "other revenue items" which include syndication fees and other revenue. Syndication fees and other revenue items are dependent on the volume and the timing of individual transactions and not necessarily correlated with average finance receivables.

Interest income average yield was 7.06% for the quarter ended December 31, 2013 compared to 7.36%for the comparative quarter ended December 31, 2012 and 6.84% for the immediately preceding quarter ended September 30, 2013. A direct comparison against the results for the quarter ended December 31, 2012 is not entirely meaningful as a result of the numerous acquisitions completed during 2013 and the resulting different mix of the business. The increase average interest yields of 0.22% compared to the immediately preceding quarter ended September 30, 2013 is a result of a slight increase in yields in the Commercial and Vendor Finance vertical and the impact of the addition of the rail portfolio acquired in December 2013at a higher rental rate and the positive contribution of added interest income from surplus cash during the quarter resulting from the equity issue during December 2013

Interest expense was $16.7 million for the quarter ended December 31, 2013, compared to $6.9 million for the quarter ended December 31, 2012 and $14.5 million for the immediately preceding quarter ended September 30, 2013, reflecting respective increases of $9.8 million and $2.2 million. These increases are the result of increases in the average outstanding debt during the periods which increased to $1,752.4 million during the quarter ended December 31, 2013 from $799.5 million during the quarter ended December 31, 2012 and $1,586.3 million during the quarter ended September 30, 2013. In addition, the average cost of borrowing increased to 3.82% for the quarter ended December 31, 2013 versus 3.44% for the comparative quarter ended December 31, 2012 and 3.66% in the immediately preceding quarter ended September 30, 2013 reflecting a change in the mix of borrowings and new debt structures entered into during the periods to allow for the continued growth and expansion of financing programs which result in proportionately higher expenses due to a lower leverage as the underlying debt facilities are not fully utilized.

Operating expenses were $18.1 million for the quarter ended December 31, 2013, compared to $9.3 million for the comparative period in 2012, and $17.0 million for the immediately preceding quarter ended September 30, 2013. Adjusted operating expenses were $13.8 million for the quarter ended December 31, 2013 compared to $8.3 million for the quarter ended December 31, 2012 and $13.5 million for the immediately preceding quarter, an increase of 66.0% over period ended December 31, 2012 and an increase of 2.6% over the immediately preceding quarter ended September 30, 2013. The adjusted operating expenses ratio decreased to 2.26% during the quarter ended December 31, 2013 from 3.17% during the quarter ended December 31, 2012 and 2.49% reported for the immediately preceding quarter ended September 30, 2013. 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's stock option plan and deferred share units granted during the period, was $4.2 million during the three months ended December 31, 2013 compared to $0.9 million during the three-months December 31, 2012 and $3.5 million reported in the immediately preceding quarter ended September 30, 2013. The increase is reflective of additional options and DSUs granted during the period, and the impact of the amortization of the fair value of options granted.

Business acquisition costs which consist of the amortization of certain acquired intangibles from acquisition and transaction and integration costs associated with the acquisitions concluded in the current quarter ended December 31, 2013 were $15.9 million. Of that amount, $14.3 million related to the acquisition and integration costs associated with the acquisition of the helicopter portfolio and the execution of the railcar vendor finance program with Trinity and $0.5 million for other costs. As we have noted previously, business and asset acquisition costs will continue to create volatility in the Company's net income as the Company continues executing on its acquisition based growth plan.

Net income before income taxes for the three-months ended December 31, 2013 was $0.2 million compared to a net loss before taxes of $8.0 million reported for the three-months ended December 31, 2012 and net income before income taxes of $11.5 million reported in the immediately preceding quarter. The net income before income taxes for the three-months ended December 31, 2013 was negatively impacted by $14.8 million of transaction and integration costs associated with the recently acquired rail portfolio and the helicopter portfolio and the associated customer list. The net income before income taxes during the quarter ended September 30, 2013 was impacted by $3.0 million of integration costs associated with the acquisition of the GE Fleet Portfolio.

Consolidated Statements of Operations


                                                       For the years ended  
                                                        December   December 
                                                        31, 2013   31, 2012 
(in 000's for stated values, except per unit amounts)          $          $ 
----------------------------------------------------------------------------
Net Financial Income                                                        
Interest income                                          135,715     47,398 
Interest expense                                          49,525     16,156 
----------------------------------------------------------------------------
Net interest income before provision for credit losses    86,190     31,242 
Provision for credit losses                                5,404      1,957 
----------------------------------------------------------------------------
Net interest income                                       80,786     29,285 
Other revenue items                                       32,806      7,565 
----------------------------------------------------------------------------
Net financial income                                     113,592     36,850 
Operating Expenses                                                          
Salaries, wages and benefits                              34,650     14,442 
General and administration expenses                       13,681      7,498 
Share-based compensation                                  11,949      3,107 
----------------------------------------------------------------------------
                                                          60,280     25,047 
----------------------------------------------------------------------------
Business acquisition costs                                                  
Amortization of intangibles from acquisitions              2,206        664 
Integration costs                                         11,200      6,350 
Transaction costs                                         35,060     16,159 
----------------------------------------------------------------------------
                                                          48,466     23,173 
----------------------------------------------------------------------------
Net income/(loss) before taxes                             4,846    (11,370)
Tax expense/(recovery)                                     6,496     (4,950)
----------------------------------------------------------------------------
Net income/(loss) for the period                          (1,650)    (6,420)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Overall Performance Highlights

Total originations were $2,101.8 million during the year ended December 31, 2013, an increase of 204.9% or $1,412.5 million over the comparative year ended in December 31, 2012.

Total originations from the Company's Commercial and Vendor Finance vertical was $986.7 million, an increase of $647.1 million or 190.5% over the $339.6 million generated during the year ended December 31, 2012. The acquisition of CoActiv on November 30, 2012 and Nexcap on January 18, 2013 collectively contributed $506.8 million to the total origination of the mid-ticket business for the year.

Total originations for the Fleet Management vertical initially acquired in June 2012 were $311.6 million during the year ended December 31, 2013, an increase of $189.9 or 156.1% over the prior year. Volumes of Fleet Management have increased year over year as a result of a full year of originations on the initial acquisition of TLS and the new volumes generated from the GE Portfolio acquired on June 28, 2013. The acquired GE operations contributed $82.5 million to the total originations in this vertical.

Total originations for the Company's Aviation Finance vertical which was established in January 2012, were $691.7 million for the year ended December 31, 2013, compared to $228.0 million for the year ended December 31, 2012, an increase of $463.7 million or 252.4%. The acquisition of General Electric Capital Corporation's helicopter portfolio contributed $242.7 million of this origination growth. 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. Aviation Finance continues to have a strong pipeline which is in excess of $1.5 billion at December 31, 2013.

Total originations for the Company's Rail Finance vertical were $111.7 million for the year ended December 31, 2013. Rail Finance was launch in December 2013, when the Company entered into a strategic alliance agreement with Trinity Industries, Inc. to provide lease financing for up to $2 billion worth of railcars over the next two years.

The Company's finance receivables portfolio of leases and loans has grown substantially during the year ended December 31, 2013 to $3,002.3 million from $1,314.6 million reported at December 31, 2012. The growth over December 31, 2012 is primarily due to the combined effect of the total new originations for the year in the amount of $2,101.8 million, the $84.3 million acquired as part of the acquisitions of Nexcap, and the $487.2 million acquired as part of the acquisition of the GE Portfolio, net of repayments and syndication activities for $974.3 million and others of $11.3 million.

The Company is reporting a net loss of $1.7 million for the year ended December 31, 2013, compared to a net loss of $6.4 million in the prior year ended December 31, 2012. Net loss per share was $0.01 for the year ended December 31, 2013, compared to a net loss of $0.08 per share for the year ended December 31, 2012. The improvement results from increasing operating margins as the Company gains scale and is able to better leverage its fixed cost infrastructure.

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. For the year ended December 31, 2013, the Company is reporting adjusted operating income of $65.3 million and after-tax adjusted operating income per share of $0.34, compared to $14.9 million in adjusted operating income or $0.14 in after tax adjusted operating income per share for the comparative year ended December 31, 2012.

Consolidated Financial Position

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


                                                           As at            
----------------------------------------------------------------------------
                                                                            
                                                December September  December
                                                     31,       30,       31,
(in 000's for stated values, except per unit        2013      2013      2012
 amounts)                                              $         $         $
----------------------------------------------------------------------------
                                                                            
                                                                            
Cash                                              12,401    52,258     9,997
Restricted cash                                  103,550    87,482    51,279
Finance receivables                            3,002,283 2,301,425 1,314,617
Deferred tax assets                               28,231    19,630    16,152
Non-portfolio assets                             308,188   265,160   116,847
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Total assets                                   3,454,653 2,725,955 1,508,892
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
Accounts payable and accrued liabilities          80,917    91,695    70,057
Secured borrowings                             1,893,910 1,713,973   989,128
Derivative financial instruments                   3,014     3,275       645
Deferred tax liabilities                          30,156    27,940    25,637
----------------------------------------------------------------------------
Total liabilities                              2,007,997 1,836,883 1,085,467
Shareholders' equity                           1,446,656   889,072   423,425
----------------------------------------------------------------------------
Total liabilities and shareholders' equity     3,454,653 2,725,955 1,508,892
----------------------------------------------------------------------------
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About Element Financial Corporation

With total assets in excess of $4.0 billion as of February 20, 1014, Element Financial Corporation is one of North America's leading independent equipment finance companies. Element operates across North America in four verticals of the equipment finance market - Commercial and Vendor Finance, Fleet Management, Aviation Finance and Rail Finance

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.

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