Counsel Announces Second Quarter 2013 Results

REVENUES INCREASE 45%; RECORD RESULTS IN MORTGAGES SOLD

TORONTO, Aug. 14, 2013 /CNW/ - Counsel Corporation ("Counsel" or the "Company") (TSX: CXS), a financial services company, today announced income from continuing operations attributable to shareholders of $5.5 million, or $0.06 per diluted share, on $46.4 million in revenue in the second quarter ended June 30, 2013, compared to $4.7 million, or $0.05 per diluted share, on $32.0 million in revenue in the same period of 2012. For the six months ended June 30, 2013, income from continuing operations attributable to shareholders was $7.3 million, or $0.08 per diluted share, on $72.1 million in revenue compared to $7.8 million, or $0.08 per diluted share, on $56.7 million in revenue in the same period of 2012. All amounts are stated in Canadian dollars, unless noted.

The Company also announced that all $12.0 million of the Company's convertible debentures issued May 31, 2011, which were convertible into common shares at $1.2264 per share, have been or will be converted. Approximately $10.9 million of the debentures were converted between May and July and the balance will be converted by August 16, 2013.

During the second quarter, the Company's residential mortgage lending business, Street Capital Financial Corporation ("Street Capital"), received approvals from the Canada Mortgage and Housing Corporation (CMHC) to be an approved issuer of National Housing Act mortgage backed securities and an approved seller under the Canada Mortgage Bond program.

"This was a superb quarter for us with our net income increasing 10% and revenue 45% over the same quarter last year," said Allan Silber, Chairman and CEO of Counsel Corporation. "Additionally, the conversion of our debentures significantly improves our balance sheet while potentially increasing the liquidity of our common shares."

"Our core residential mortgage lending business, Street Capital, recorded tremendous results in the quarter, including a record $2.5 billion in mortgages sold. It also increased its mortgages under administration to $15 billion, a 58% increase over the past year and a 25% increase for the year to date," added Mr. Silber. "In a short period of time, Street Capital has become one of Canada's leading prime residential mortgage lenders. The business has grown its mortgage broker origination network extensively due to its combination of excellent customer service and competitive mortgage products. It has also increased its funding capacity through new relationships with liquidity providers, who continue to provide strong wholesale demand for Street Capital's high quality mortgages, which are the result of its stringent underwriting and robust quality assurance processes. The CMHC approvals it has received to securitize mortgages directly broadens Street Capital's funding capabilities and provides the business with access to an additional source of liquidity for its mortgages."

The year-over-year increase in Counsel's revenue in the second quarter of 2013 was primarily due to an increase in the gain on sale of mortgages underwritten by Street Capital, despite lower spreads in the credit market compared to the same period in 2012. The year-over-year increase in income from continuing operations in the second quarter was due to contributions from Street Capital and a fair value appreciation of $2.9 million related primarily to an increase in the fair value of Counsel's private equity portfolio inclusive of foreign exchange fluctuations, compared to a fair value appreciation of $1.7 million in the second quarter of 2012.

Counsel's overall net income attributable to shareholders, including discontinued operations, increased to $4.5 million, or $0.05 per basic and diluted share, in the second quarter of 2013 versus $4.1 million, or $0.05 per basic and $0.04 per diluted share, in the second quarter of 2012. The year-over-year increase was primarily attributable to an increase of contributions from Street Capital and the increase in fair value appreciation noted above, partially offset by a loss of $1.5 million in the Company's discontinued operations that were held for sale versus a loss of $0.8 million in the second quarter of 2012. For the six months ended June 30, 2013, net income attributable to shareholders was $5.2 million versus $7.5 million in the same period in 2012. The decrease was primarily attributable to a loss of $2.8 million in discontinued operations versus a loss of $0.4 million in the same period in 2012. The Company continues to pursue its plan to dispose of its non-core businesses, which were classified as discontinued operations in the first quarter of 2013, by the first quarter of 2014.

Mortgage Lending Business

Counsel carries on its mortgage lending business through its wholly owned subsidiary Street Capital (www.streetcapital.ca). The company sources its mortgages solely through a network of independent, high quality mortgage brokers across Canada with whom it has built relationships. The company offers a broad lineup of high ratio and conventional mortgages, predominantly to prime borrowers, and sells the mortgages it underwrites to top-tier financial institutions. Business revenues are almost entirely from the gain on sale of mortgages.

The business generated $46.3 million and $71.7 million in revenues in the three and six months ended June 30, 2013 compared to $31.9 million and $56.1 million in the respective corresponding periods in 2012. The increase in both periods was due to growth in the volume of mortgages sold. Operating expenses, consisting of the cost to source and underwrite mortgages sold by Street Capital, totaled $29.5 million and $47.1 million in the three and six months ended June 30, 2013 compared to $18.4 million and $31.9 million in the respective corresponding periods in 2012. The increases reflect the increase in mortgages sold, costs incurred to expand Street Capital's share of the mortgage broker channel, as well as investments made in the first quarter of 2013 to support the company's application for a bank license including non-recurring costs.

Street Capital sold $2.499 billion and $4.050 billion of mortgages in the three and six months ended June 30, 2013, compared to $1.615 billion and $2.674 billion in the respective corresponding periods in 2012. The business increased its portfolio of mortgages under administration to $15.0 billion at June 30, 2013 compared to $9.5 billion at June 30, 2012 and $13.3 billion at March 31, 2013.

Counsel's Management's Discussion and Analysis and Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2013 will be available on SEDAR (www.sedar.com).