Element Reports $0.32 per share of Free Operating Cash Flow and Initiates Quarterly Dividend of $0.025 per share

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1 News Release For Immediate Release Element Reports 0.32 per share of Free Operating Cash Flow and Initiates Quarterly Dividend of per share U.S. portion of GE Fleet transaction closed August 31 st creating a North American leader in fleet management Australia, New Zealand and Mexico portions of GE Fleet transaction closed on September 30th After tax adjusted operating income per share of 0.26 (basic) versus consensus of 0.25 Originations increased to 1.9 billion in Q3- up 61% from 1.2 billion in the same period last year Average earning assets increased to 13.0 in Q3- up 65% from 7.9 billion in the same period last year U.S. market accounted for 73% of Q3 period end [earning assets] versus 63% for the same period end last year Pre-tax adjusted return on average common equity at 12.3% pro forma in Q3- versus 9.7% for the same period last year Tangible leverage increased to 4.53:1 from 3.07:1 at the end of previous period TORONTO, Ontario, November 10, - Element Financial Corporation (TSX:EFN) ( Element or the Company ), one of North America s leading fleet management and equipment finance companies, today reported financial results for the three-month and nine-month periods ending with free operating cash flow million or 0.32 per share for the three-month period and after tax adjusted operating income of 87.2 million or 0.26 per share (basic) for the three-month period versus the consensus estimate of 0.25 per share. Free operating cash flow per share came in at 0.32 for the quarter and has now increased for the eighth consecutive quarter, noted Steven K. Hudson, Element s Chief Executive Officer. During that two year period we have consciously and meaningfully shifted the mix of our earning assets into our core business, fleet management a business where we have the scale, the visibility and the predictable growth in pre-tax cash flow that now backstops the initiation of our quarterly dividend at per share, added Mr. Hudson. Reported earnings and metrics for the third quarter exclude the full benefit of the 55 basis point reduction in Element s cost of funding arising from closing the GE Fleet transaction and the achievement of an investment grade rating. In addition, reported EPS and return on equity metrics did not fully benefit from the deployment of the million common shares which became part of the capital structure on August 31 st but were not fully engaged in the funding of earning assets until September 30 th when the Australia, New Zealand and Mexico parts of the GE Fleet acquisition were closed. Pro-forma the above two adjustments, Element would have reported an after-tax adjusted operating income per share of 0.28, versus the reported 0.26 per share, an average pre-tax yield on average earning assets of 3.40% versus the reported 3.30% and a return on average equity of 12.3% versus the reported 11.2%. Overall, new originations amounted to 1.9 billion for the three-month period ended representing a 60.9 percent increase over the 1.2 billion reported for the same period last year. Fleet Management accounted for million of Q3 originations, while the Rail Finance vertical contributed million. Aviation Finance accounted for 83.7 million of Q3 originations, while the Commercial & Vendor vertical accounted for million. Year-to-date origination volumes amount to 5.1 billion, which is slightly ahead of plan with respect to the Company s previous full-year guidance of 6.5 billion of new originations during and represents an increase of 68.7 percent over the same period last year. Financial revenue for the three-month period ended was million or 8.0 percent of average earning assets versus million or 8.0 percent of average earning assets in the same period last year. Management fees and other revenue included in financial revenue amounted to 65.9 million versus 47.3 million in the same period last year representing an increase of 39.2 percent. Interest expense was 73.6 million for the three-month period ended compared to 45.8 million for the same period last year. The average cost of borrowing was 2.53 percent in Q3- versus 2.56 percent reported during the previous quarter and 2.68 percent for the same period last year. 1

2 Net financial income for the three-month period ended was million versus million for the same period last year. Adjusted operating expenses for the three-month period ended were 77.8 million or 2.39 percent of average earning assets versus 51.2 million or 2.61 percent of average earning assets in the same period last year. Total earning assets increased to 19.3 billion as at versus 10.6 billion as at the end of the preceding quarter and 8.3 billion as at the end of the same period last year. Finance receivables increased to 15.2 billion and Equipment under operating leases increased to 4.0 billion as at September 30, versus 8.6 billion and 1.9 billion, respectively, reported at the end of the preceding quarter reflecting closing of the GE Fleet transaction as well as organic growth by way of new origination volumes. Total debt increased to 17.4 billion as at from 9.5 billion as at June 30, and 7.3 billion as at. The Company s tangible leverage ratio increased to 4.53:1 as at versus 3.07:1 as at June 30, and 3.47:1 as at. Using a discount rate of 6.5 percent, the Company estimates that the present value of the deferral of cash income tax liabilities for the next 12 plus years represents additional unleveraged value of 4.50 per share. The process of integrating the acquired GE fleet operations is now well underway and we are pleased to reaffirm our guidance on achieving US90 million to US95 million of integration savings and on delivering 1.61 (basic) of after-tax adjusted operating income per share in 2016, said Bradley Nullmeyer, Element s President. Dividends Declared The Company s Board of Directors has authorized and declared a quarterly dividend of per outstanding common share of Element for the fourth quarter of. The dividend will be paid on January 15, 2016 to shareholders of record at the close of business on December 31,. These dividends are designated to be eligible dividends for purposes of section 89(1) of the Income Tax Act (Canada). The Company s Board of Directors declared the following dividends on Element s preferred shares: A quarterly dividend of per outstanding Cumulative 5-Year Rate Reset Preferred Share, Series A (TSX: EFN.PR.A) payable on December 31, to shareholders of record on the close of business on December 17,. The dividend payment is for the quarterly period up to but excluding December 31,. A quarterly dividend of per outstanding Cumulative 5-Year Rate Reset Preferred Share, Series C (TSX: EFN.PR.C) payable on December 31, to shareholders of record on the close of business on December 17,. The dividend payment is for the quarterly period up to but excluding December 31,. A quarterly dividend of 0.40 per outstanding Cumulative 5-Year Rate Reset Preferred Share, Series E (TSX: EFN.PR.E) payable on December 31, to shareholders of record on the close of business on December 17,. The dividend payment is for the quarterly period up to but excluding December 31,. A quarterly dividend of per outstanding Cumulative 5-Year Rate Reset Preferred Share, Series G (TSX: EFN.PR.G) payable on December 31, to shareholders of record on the close of business on December 17,. The dividend payment is for the quarterly period up to but excluding December 31,. These dividends are designated to be eligible dividends for purposes of section 89(1) of the Income Tax Act (Canada). 2

3 Conference Call A conference call to discuss the results with analysts will be held on Tuesday, November 10, at 5:00 p.m. Eastern Time. The conference call can be accessed by dialing the following numbers: North America Toll-Free: passcode Local: passcode International: A series of presentation slides will be referenced by management during the conference call. These slides will be available on the Company s website in advance of the conference call and may be accessed at The conference call will be recorded and can be accessed until December 10, by dialing or and entering the pass code Non-IFRS Measures The Company s unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and the 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 of 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. 3

4 The following table provide a reconciliation of non-ifrs to IFRS measures related to the Company: thousands (except % and per share amounts) As at and for the three months ended June 30, As at and for the nine months ended Reported and adjusted income measures Net income (loss) A (4,656 ) 25,157 (19,959 ) 69,998 7,005 Adjustments: Amortization of debenture synthetic discount 2,906 1,956 1,418 6,334 1,418 Share-based compensation 8,774 9,438 4,861 24,748 12,716 Amortization of intangible assets from acquisitions 4,972 5, ,917 2,607 Transaction and integration costs 128,068 39,287 82, ,536 95,795 Provision (recovery) of income taxes (32,943 ) 7,724 (9,758 ) (10,258 ) (1,909 ) Adjusted operating income B 107,121 88,764 59, , ,632 Provision for taxes applicable to adjusted operating income C (19,948) (20,833) (12,724) (58,172) (24,692) After-tax adjusted operating income D=B-C 87,173 67,931 47, ,103 92,940 Cumulative preferred share dividends during the period Y 8,904 7,123 6,145 22,135 12,826 After-tax adjusted operating income attributable to common shareholders D1= D-Y 78,269 60,808 41, ,968 80,114 Selected cash flow amounts Adjusted operating income before income taxes B 107,121 88,764 59, , ,632 Selected statement of financial position amounts Finance receivables, before allowance for credit losses E 16,371,356 9,497,573 7,828,873 16,371,356 7,828,873 Allowance for credit losses F 24,135 19,313 16,308 24,135 16,308 Earning assets Net investment in finance receivable G 15,174,976 8,564,167 7,182,608 15,174,976 7,182,608 Equipment under operating leases H 3,991,195 1,938,032 1,113,530 3,991,195 1,113,530 Investment in managed fund H1 144, , ,340 Total earning assets I=G+H +H1 19,310,511 10,632,095 8,296,138 19,310,511 8,296,138 Average earning assets, net J 12,997,240 9,990,215 7,853,916 10,877,528 5,004,100 Goodwill and intangible assets K 2,152, , ,288 2,152, ,288 Accounts payable and accrued liabilities L 660, , , , ,096 Secured borrowings M 16,576,204 8,682,200 6,994,852 16,576,204 6,994,852 Unsecured convertible debentures N 831, , , , ,189 Total debt O=M+ N 17,408,120 9,511,670 7,296,041 17,408,120 7,296,041 Average debt P 11,645,733 9,088,283 6,835,759 9,786,448 3,843,964 Total shareholders' equity Q 5,377,345 3,269,854 2,723,435 5,377,345 2,723,435 Preferred shares R 533, , , , ,113 Common shareholders' equity S=Q-R 4,843,710 2,735,816 2,358,322 4,843,710 2,358,322 Average common shareholders' equity T 3,500,993 2,663,526 2,223,893 2,932,505 1,652,212 Average total shareholders' equity U 4,034,893 3,088,007 2,588,328 3,374,288 1,904,821 4

5 Non-IFRS and IFRS Key Annualized Operating Ratios and per Share Information: thousands (except % and per share amounts) Free operating cashflow per share [basic] After-tax adjusted operating income per share [basic] (1) After-tax proforma diluted adjusted operating income per share Key annualized operating ratios Leverage ratios As at and for the three months ended June 30, As at and for the nine months ended (B-Y)/W (D1)/W (D1+Z)/ X Financial leverage ratio O/Q Tangible leverage ratio Average financial leverage ratio P/U Average tangible leverage ratio Other key operating ratios Allowance for credit losses as a percentage of finance receivables F/E 0.15 % 0.20 % 0.21 % 0.15 % 0.21 % Adjusted operating income on average common shareholders equity (B-Y)/T % % 9.69 % % 8.46 % Adjusted operating income on average earning assets B/J 3.30 % 3.55 % 3.06 % 3.36 % 3.13 % After-tax adjusted operating income on average common shareholders equity (D-Y)/T 8.94 % 9.13 % 7.40 % 8.82 % 6.47 % After-tax adjusted operating income on average earning assets D/J 2.68 % 2.72 % 2.41 % 2.65 % 2.48 % Per share information Number of shares outstanding (including special warrants) V 385, , , , ,056 Weighted average number of shares outstanding [basic] W 305, , , , ,366 Proforma diluted average number of shares outstanding X 356, , , , ,411 Cumulative preferred share dividends during the period Y 8,904 7,123 6,145 22,135 12,826 Other effects of dilution adjusted operating income basis Z 9,029 5,472 17,963 Net income (loss) per share [basic] (A-Y)/W (0.04 ) 0.07 (0.10 ) 0.17 (0.03 ) Net income (loss) per share [diluted] (0.04 ) 0.07 (0.10 ) 0.17 (0.03 ) Book value per share S/V (1) Adjusted for the timing of the closing of the GE Fleet Operations in Mexico, Australia and New Zealand, the Company would report adjusted operating income per share of Refer to Management's Financial Commentary on the GE Fleet Operations Acquisition on page 27 of the Management Discussion and Analysis. 5

6 Selected Financial Information and Financial Ratios The following tables summarize key financial data and key operating ratios for the three-month and nine-month periods ended: 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) After tax adjusted operating income (loss) per share (basic) (1) June 30, Free operating cash flows per share (basic) (1) Financial revenue (1) 258, , , , ,620 Adjusted operating income (1) 107,121 88,764 59, , ,632 After tax adjusted operating income (1) 87,173 67,931 47, ,103 92,940 Income before taxes (37,599) 32,881 (29,717) 59,740 5,096 Net income (4,656) 25,157 (19,959) 69,998 7,005 Total assets 23,572,478 15,285,559 10,449,512 23,572,478 10,449,512 New originations 1,889,951 1,801,054 1,174,764 5,148,438 3,051,381 Finance receivables and equipment under operating lease from acquisitions (2) 7,791,853 4,298,224 7,791,853 4,298,224 Secured borrowings 16,576,204 8,682,200 6,994,852 16,576,204 6,994,852 Convertible debentures 831, , , , ,189 Total debt 17,408,120 9,511,670 7,296,041 17,408,120 7,296,041 Average finance receivables (1) 10,808,794 8,378,176 6,914,799 9,138,840 4,237,733 Average equipment under operating leases (1) 2,051,627 1,595, ,117 1,688, ,367 Average investment in managed fund 136,819 16,866 50,401 Average earning assets (1) 12,997,240 9,990,215 7,853,916 10,877,528 5,004,100 Average debt outstanding (1) 11,645,733 9,088,283 6,835,759 9,786,448 3,843,964 Number of shares outstanding (including special warrants) 385, , , , ,056 Weighted average number of shares outstanding (including special warrants) [basic] 305, , , , ,366 Total shareholders equity 5,377,345 3,269,854 2,723,435 5,377,345 2,723,435 Average common shareholders equity (1) 3,500,993 2,663,526 2,223,893 2,932,505 1,652,212 Earnings per share [basic] (0.04) 0.07 (0.10) 0.17 (0.03) Earnings per share [diluted] (0.04) 0.07 (0.10) 0.17 (0.03) (1) For additional information, see Description of Non-IFRS Measures section. (2) Three and nine-months ended September, relates to the estimated fair value assigned to finance receivables equipment under operating lease from the acquisition of the GE Fleet Operations on August 31, and (three and nine-months ended relates fair value assigned to the finance receivable assets from the acquisition of PHH Arval on July 7, ). 6

7 The following table summarizes key operating ratios as at and for the three and nine months ended: As at and for the three-months ended June 30, As at and for the nine months ended Leverage ratios Standard Leverage (2) (3) - Financial leverage ratio Average financial leverage ratio Bank Covenant (2) (4) - Tangible leverage ratio Average tangible leverage ratio Other ratios and yields Allowance for credit losses as a percentage of finance receivables (2) 0.15 % 0.20 % 0.21 % 0.15 % 0.21 % Annualized credit loss provision as a percentage of average finance receivables (2) 0.17 % 0.16 % 0.22 % 0.16 % 0.34 % Portfolio average remaining life (in months, excluding equipment under operating leases) (2) Adjusted operating income on average common shareholders equity (2) % % 9.69 % % 8.46 % Adjusted operating income on average earning assets (2) 3.30 % 3.55 % 3.06 % 3.36 % 3.13 % After-tax adjusted operating income on average common shareholders equity (2) 8.94 % 9.13 % 7.40 % 8.82 % 6.47 % After-tax adjusted operating income on average earning assets (2) 2.68 % 2.72 % 2.41 % 2.65 % 2.48 % Book value per share (1) All are ratios presented on an annualized basis. (2) For additional information, see Description of Non-IFRS Measures section. (3) Financial leverage ratio is computed as total debt (the sum of secured borrowings and extendible convertible debentures) divided by total shareholders' equity. (4) Computed under bank covenant. 7

8 Results of Operations For the three months ended, June 30, and and nine months ended and The following table sets forth a summary of the Company s results of operations for the three months ended, June 30, and and nine months ended September 30, and : For the three-month periods ended For the nine-month periods ended June 30, Net Financial Income Interest income 161, ,521 96, , ,341 Rental revenue, net (1) 36,173 28,592 17,306 90,746 41,981 Total interest income and rental revenue, net Interest expense 197,383 73, ,113 58, ,555 45, , , ,322 90,337 Net interest income and rental revenue, net before provision for credit losses Provision for credit losses 123,793 90,005 67, , ,985 4,770 3,284 3,851 11,281 10,677 Net interest income and rental revenue, net Management fees and other revenues 119,023 65,908 86,721 62,910 63,885 47, , , ,308 70,975 Net financial income Operating Expenses 184, , , , ,283 Salaries, wages and benefits 45,251 36,391 33, ,665 58,416 General and administration expenses 32,559 24,476 17,943 78,340 32,235 Amortization of debenture synthetic discount 2,906 1,956 1,418 6,334 1,418 Share-based compensation 8,774 9,438 4,861 24,748 12,716 89,490 72,261 57, , ,785 4,972 5, ,917 2, ,068 39,287 82, ,536 95, ,040 44,489 83, ,453 98,402 Net income before taxes Tax expense (37,599) (32,943) 32,881 7,724 (29,717) (9,758) 59,740 (10,258) 5,096 (1,909) Net income for the period (4,656) 25,157 (19,959) 69,998 7,005 Earnings per share [basic] (0.04) 0.07 (0.10) 0.17 (0.03) Earnings per share [diluted] (0.04) 0.07 (0.10) 0.17 (0.03) (in 000 s for stated values, except per unit amounts) Business acquisition costs Amortization of intangibles from acquisition Transaction and integration costs (1) Rental revenue, net is equal to rental income earned on equipment under operating leases, less depreciation on equipment under operating leases. 8

9 Overall Performance Highlights for the Three and Nine-Months Ended The Company s earning assets, consisting of the Company s net investment in finance receivables, equipment under operating leases and investment in managed fund, have grown substantially during the period to to 19,310.5 million from 9,028.9 million reported at December 31,. The growth over December 31, is primarily due to the combined effect of the acquisition of the GE Fleet Operations in August and September, which contributed 7,791.9 million of finance receivables and equipment under operating leases, total new originations for the year in the amount of 5,148.4 million, helped by the large contribution of the Trinity vendor program and origination volume contributed by PHH Arval, net of repayments, syndication activities, amortization of equipment under operating leases and changes in foreign exchange rates of 2,658.7 million. Net loss before income taxes for the three months ended was 37.6 million compared to a net loss before income taxes of 29.7 million reported for the three months ended and net income before income taxes of 32.9 million reported in the immediately preceding quarter. The loss in the current quarter is the result of the transaction and integration costs incurred in the current quarter related to the acquisition of the GE Fleet Operations. Net income before income taxes for nine months ended was 59.7 million compared to a net income before income taxes of 5.1 million reported for the nine months ended. The increase over the comparative nine months ended, is a result of growth in assets and related income during the intervening period, net of increases in business acquisition costs related to the acquisition of the GE Fleet Operations that closed on August 31, and. 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 non-cash items related to share-based compensation and business acquisition costs which do not relate to maintaining operating activities. Adjusted operating income for the three month period ended was million, an increase of 47.1 million or 78.5% over the amount reported during the comparative quarter ended and an increase of 18.3 million or 20.7% over the amount reported during the immediately preceding quarter ended June 30,. The increase over the comparative quarter ended is the result of strong organic growth in the intervening periods and the acquisition of the GE US Fleet Operations on August 31,. The increase over the immediately preceding quarter is primarily due to the acquisition of the GE US Fleet Operations on August 31,, continued growth in average earning assets, offset by a reduction in capital advisory fees and related transactions. Adjusted operating income for the nine month period ended was million, an increase of million or 133.2% over the amount reported during the comparative period ended. The increase over the comparative period ended is primarily the result of the acquisition of the PHH Arval on July 7, and the GE US Fleet Operations on August 31,, and strong organic growth. As indicated previously, Management also believes that Free Operating Cash Flows and Free Operating Cash Flows per Share as described in the Non-IFRS Measures section of this MD&A are a key statistics to properly assess the operating performances of the Company to mostly reflect the substantial value being created by the very long deferral of cash income taxes and the investment value produced by that deferral. Thus, while the Company is reporting after-tax adjusted operating income per share (basic) of 9

10 0.26 for the three months ended, free operating cash flows per share (basic) reaches 0.32, compared to 0.16 and 0.21, respectively, for the comparative three months ended, and 0.23 and 0.31, respectively, for the immediately preceding quarter ended June 30,. For the nine months ended, after-tax adjusted operating income per share is 0.70, while free operating cash flows per share reaches 0.91 per share, compared to 0.38 and 0.49, respectively, for the comparative period ended. Consolidated Financial Position 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) Cash June 30, December 31, 47,459 86,945 66, , , ,238 Cash held in escrow 1,997,329 Finance receivables 16,347,221 9,478,260 8,465,989 3,991,195 1,938,032 1,279, , ,896 Restricted cash Equipment under operating leases Investment in managed fund Derivative financial instruments Deferred tax assets Non-portfolio assets Total assets Accounts payable and accrued liabilities Subscription receipts escrow liability Secured borrowings Convertible debentures 15,831 45,632 5, ,870 49,250 39,405 2,424,022 1,072, ,585 23,572,478 15,285,559 11,290, , , ,113 1,997,329 16,576,204 8,682,200 7,751, , , ,147 Derivative financial instruments 65,066 16,950 11,196 Deferred tax liabilities 61,369 50,558 25,700 Total liabilities Shareholders equity 18,195,133 5,377,345 12,015,705 3,269,854 8,459,551 2,830,951 Total liabilities and shareholders equity 23,572,478 15,285,559 11,290,502 Element s unaudited interim financial statements and related management discussion and analysis as at and for the three-month and nine-month periods ended have been filed on SEDAR ( 10

11 About Element Financial Corporation With total assets in excess of 23.5 billion, Element Financial Corporation is one of North America s leading fleet management and equipment finance companies. Element operates across North America in four verticals of the equipment finance market - Fleet Management, Rail Finance, Commercial & Vendor Finance, and Aviation Finance. Contact: John Sadler Senior Vice President Michel Béland Chief Financial Officer (416) (416) jsadler@elementcorp.com mbeland@elementcorp.com 11

12 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 the integration and financial impact of the acquisition of various fleet management businesses from GE Capital, new originations in the current quarter, the anticipated pipeline of prospective transactions, and 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. A discussion of the material risks and assumptions associated with this outlook can be found in Element's MD&A, and Annual Information Form, all of which have been filed on SEDAR and can be accessed at 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. 12