INVESTOR PRESENTATION JULY 2014
North American equipment finance experts VENDOR FINANCE AVIATION FINANCE RAILCAR FINANCE FLEET MANAGEMENT 2
North American Equipment Finance Experts Element Financial Post PHH Arval $10.0 billion total assets $3.5 billion market capitalization TSX composite index member FTSE Global Equity index member 1,400 employees 86,000+ customers Head Office Toronto, ON US Philadelphia, PA and Sparks, MD 3
Growth Drivers 4
Total Assets Element s Growth PHH Pro Forma $10 Billion 2011 2012 2013 2014 $47 Million $428 Million $1.8 Billion $4.2 Billion Toronto Stock Exchange listing under EFN Alter Moneta GE Capital Aerospace Team TLS Fleet Co Active Capital Partners Nexcap Finance EFN added to the TSX Composite Index GE Capital Canadian Fleet Services Bush Truck Leasing GE Capital Helicopter Portfolio EFN added to the FTSE Global Equity Index Trinity Industries Alliance expansion Celadon Group Bridger CargoJet Trinity Industries Alliance PHH Arval 5
2014 YTD Milestones 2014 January February March April May June Significant achievements Targets $3.8 billion in originations for 2014 Completed purchase of US$400 million of leased railcars from Trinity Announced $997 million of originations for Q4 2013 Issued $125 million of cumulative 5 year rate rest preferred shares EFN added to the FTSE Global Equity Index Completed purchase of US$118 million of leased railcars from Trinity Entered multi year equipment financing agreement with US based Celadon Accessed rated ABS market for US$340 million to fund rail assets Signed US$220 million transportation equipment financing facility with Dallas based Bridger Signed US$ 1.4 billion agreement to acquire PHH Arval at 1.56 X adjusted book value 10+ percent accretive in 2015 and 2016 with leverage at 4:1 on closing 6
Growth Drivers 2012 Results 2013A 2014E 2015E 2016E 20127E US GDP 2.8% (Real) 1.9% 2.8% 3.1% 3.1% 2.4% US Equipment Investment Equipment Finance Volume 8.0% Growth 16.4% Growth Average equipment replacement cycle of 8 years Growth led by various transportation segments including Air, Rail & Autos Propensity to finance increasing with competing calls on capital US Commercial Finance is one of the fastest growing financial services sectors Source: US Federal Reserve Bank of Philadelphia 7
2014 Growth Drivers COMMERCIAL & VENDOR FINANCE AVIATION FINANCE RAILCAR FINANCE FLEET MANAGEMENT Continued US commercial and industrial recovery Continued US commercial and industrial recovery Continued US commercial and industrial recovery Deferred vehicle replacement cycle Deferred equipment replacement cycle Favourable C$/US$ exchange for Canadian equipment manufacturers Demand for energy to fuel US economic growth Retrenchment of key competitors Engagement of US based helicopter team Deep relationships with key manufacturers Demand for energy to fuel US economic growth Deep relationships with Trinity Industries, leading NA railcar manufacturer Opportunities to acquire third party portfolios Strong growth in 2009/2010 fleet registrations drive 2014 replacements Expansion of fleet management services offering Continued commercial and industrial recovery in Canada 8
2014 Growth Drivers COMMERCIAL & VENDOR FINANCE AVIATION FINANCE RAILCAR FINANCE FLEET MANAGEMENT * Prior to PHH Arval Acquisition 9
US Commercial & Vendor Originations 160 94 113 64 35 $ millions Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 10
Portfolio Quality Contractual Delinquencies As a % of Finance Receivables March 31, 2014 99.6% Allowance for Credit Losses As a % of Finance Receivables 0.71% 0.4% 0.37% Current Past Due 2012 2013 11
Balance Sheet Capacity 12
PHH Arval Acquisition FLEET MANAGEMENT 13
A North American Fleet Management Leader Founded in 1946 US$4.6 billion in total assets as at March 31, 2014 US$4 billion net investment in fleet leases Annual originations of US$1.7 billion in 2013 12% CAGR pre tax income growth from 2009 to 2013 Strong management team Exceptional customer service culture Pristine credit quality Efficient established funding sources PHH Arval Transaction 14
Transaction Highlights Transformative Transformational benefits Benefits Increased scale Establishes Element as a North American $10 billion asset company on closing Balance sheet scale allows Element to source/keep larger deals across all verticals Adds stability North American fleet business delivers longterm stable cash flows Visibility on cash flow increases from 3 years to +10 years Reduces risk North American fleet customers are Fortune 500 credits < 3 bps of credit losses over last 10 years 15 Accelerates growth Delivers minimum 10% accretion on 2015 Operating EPS of $0.88 No taxes payable until 2030 + Improves profitability Transaction immediately increases leverage Provides documented pathway to investment grade ratings and lower cost of capital (debt and equity
Transaction Highlights with some acceptable costs Defers achievement of target ROE by 12 months but improves economics on arrival Brings convertible debt into the capital structure but minimizes common issuance Leverage not immediately optimized but delivers 200% increase on closing and optimizes in 2015 16
Three Accretion Drivers 1. PHH Arval Acquisition 3. Investment Grade Ratings 2. Increased Balance Sheet Scale = ROA Leverage ROE 17
1. PHH Arval Acquisition Identified accretion drivers $20 million annualized synergies by end of 2014 Public company costs, corporate allocations and Canadian duplication 10% increase in finance assets Growth of portfolios and increased penetration of card programs Significant opportunity to add other assets (material handling equipment/trucks) to PHH client customer base 18
1. PHH Arval Acquisition Added and potential accretion drivers not factored into our model Additional cost savings beyond $20 million Additional portfolio growth beyond forecast 10% increase Expand Chesapeake and FLRT funding 19
Larger scale drives growth across all verticals 2. Increased Balance Sheet Scale Railcar Finance, Aviation Finance, Vendor Finance to benefit from balance sheet scale Raises overall transaction size limits and single obligor limits Higher commitment capacity to take deals off the street and deliver commitments and advisory services More on balance sheet financing with annuity income versus lower up front returns from syndication Before After 20 Equity $1.6 billion $2.8 billion * Single Obligor Limit $99mln/name $168mln/name * Excludes overallotment option
2. Increased Balance Sheet Scale Transaction examples RAILCAR FINANCE Bridger $220 million driven by railcar expertise VENDOR FINANCE Celadon $100 million driven by size, scope and products AVIATION FINANCE CargoJet $100 million driven by aviation expertise 21
3. Investment Grade Ratings Update unpublished Kroll rating review post Trinity and PHH Issue $400 million private placement with at least NAIC 2 rating Security release occurs automatically Debt Cost of Funds (Spreads) Bank Lines BeforeIG After IG Comparables Fully secured Borrowing Base +200bps Unsecured +150bps AirLease T+100bps Fleet Securitization 150bps 70 80bps PHH Fleet Equity (Coupon) BeforeIG After IG Comparables Preferred Shares 6.40% 6.50% 4.25% 5.0% (P 3,pfd 3) 3.80% 4.20% (P 2,pfd 2) P 3, pfd3 P 2, pfd2 22
3. Investment Grade Ratings Common 825,000 Convertible 300,000 Preferred 125,000 Tangible Leverage Bank Covenant Rating Agencies Pro Forma March 31, 2014 2.9 3.7 Pro Forma June 30, 2014 3.2 3.9 Pro Forma December 31, 2014 3.4 4.3 Pro Forma December 31, 2015 4.1 5.1 Pro Forma December 31, 2016 4.3 5.5 23
Timing of achieving target ROE deferred 12 months 2015 2016 2017 Before 11.0% 13.1% 14.5% After 10.0% 12.6% 14.5% However, tax deferral increased to 20+ years 2015 2016 Pre Tax EPS $1.33 $1.87 Post Tax EPS $0.95 $1.35 ROE & EPS Impact 24
Leverage & ROA Drives ROE Annual Return on Average Assets Leverage 2.3% 2.5% 2.75% 3:1 9.2% 10.0% 11.0% 4:1 11.5% 12.5% 13.8% 5:1 13.8% 15.0% 16.5% 6:1 16.1% 17.5% 19.3% 25
2014 Outlook 26
2014 Originations 4,500 4,000 2013 2014 Outlook * Prior to PHH Arval Acquisition 3,500 3,000 2,500 2,000 1,500 1,000 500 $ millions Fleet Management Aviation Commercial & Vendor Railcar TOTAL 27
North American Portfolio Distribution Canada USA Portfolio Mix 2012 Actual 81% 19% 2013 Actual 74% 26% 2014 Outlook* 58% 42% Originations 2012 Actual 98% 2% 2013 Actual 69% 31% 2014 Outlook* 50% 50% * Prior to PHH Arval Acquisition 28
Growth Trajectory Total Assets $ billions ~ 20.0 16.9 12.2 $ billions 3.5 2013 2014 2015 2016 29
Key Performance Indicators Q2 2013 Q3 2013 Q4 2013 Q1 2014 Financial Revenue 879 bps 857 bps 830 bps 790 bps Financial Expense 238 bps 269 bps 272 bps 255 bps Average Net Financial Margin 640 bps 588 bps 558 bps 535 bps Operating Expense 265 bps 249 bps 226 bps 222 bps Total Originations $397.9 million $410.4 million $997.2 million $1.1 billion Pipeline Aviation & Rail $1.8 billion $2.0 billion $2.0+ billion $2.4 billion 30
QUESTIONS