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Press release from CNW Group

Equitable Group reports second quarter 2010 results

Wednesday, August 04, 2010

Equitable Group reports second quarter 2010 results22:44 EDT Wednesday, August 04, 2010Single Family Originations up 372%TSX Symbols: ETC and ETC.PR.ATORONTO, Aug. 4 /CNW/ - Equitable Group Inc. ("Equitable" or the "Company") today reported solid financial results for the three and six months ended June 30, 2010 as it continued to show strong growth in its on-balance sheet mortgage assets.SECOND QUARTER RESULTS << - Net interest income expanded by 29.3% to $22.6 million from $17.5 million in 2009, reflecting an improvement in net interest margin ("NIM") to 2.4% from 1.9% in the second quarter of 2009 and an increase in the size of the Company's mortgage portfolio; - Mortgage assets expanded by 14.2% or $403.4 million over the quarter primarily driven by the strong growth in the single family business; - Net income increased 6.0% to $12.6 million from $11.9 million as a result of the increase in net interest margin year over year more than offsetting a decline in earnings from securitization activities; - Diluted earnings were $0.78 per share compared to $0.80 per share a year ago and return on equity was 13.6% compared to 16.5% for the second quarter of 2009, reflecting the impact of dividend payments on preferred shares issued in the third quarter of 2009; - Book value per share increased 17.3% to $23.38 from $19.94 a year ago; - Return on average assets was 1.3%, equal to the return generated in 2009; - Productivity ratio on a taxable equivalent basis ("TEB") - a measure of efficiency - was 29.2% compared to 24.4% in the second quarter of 2009 reflecting on-going investment in growing mortgage originations; - Total capital ratio including general allowance was 16.6% compared to 15.3% a year ago; - Tier 1 capital ratio improved to 13.9% from 11.8% a year ago; and - Tangible common equity ratio, a key measure of capital strength, improved to 12.1% from 11.8% a year ago. >> DIVIDEND DECLARATIONSThe Company's Board of Directors declared a dividend of $0.10 per share on the Company's common shares, payable on October 4, 2010, to shareholders of record at the close of business on September 15, 2010. The Board also declared a preferred share dividend of $0.453125 per share, payable September 30, 2010, to preferred shareholders of record on September 15, 2010.SIX MONTH RESULTS << - NIM expanded to 2.4% from 1.8% a year ago; - Net income increased 3.0% to $24.5 million ($1.52 per diluted share) from $23.8 million ($1.60 per diluted share) in the first six months of 2009, while return on equity was 13.6% compared to 17.1% in the same period of 2009; - Return on average assets was 1.3%, compared to 1.2% a year earlier; and - Productivity ratio on a TEB was 27.7% compared to 24.4% in the same period of 2009. >> MANAGEMENT COMMENTARY"Equitable made excellent progress with our growth strategy in the second quarter," said Andrew Moor, President and CEO. "This strategy involves a focus on traditional on-balance sheet mortgage lending and an ongoing emphasis on higher ROE and prudent risk management. The highlights of the quarter were growth in Single Family Lending production, up 371.5% year over year and Commercial Mortgage - Broker Services production, up 234.7% over the corresponding quarter of the prior year. These gains reflect a relentless focus on offering superior service and successful sales efforts made by our origination teams in the context of a real estate market that was supportive to growth through much of the second quarter. As expected, NIM performance has remained strong and more than offset a decline in securitization income. While we have more work to do to achieve our objectives for 2010, the pace of improvements, including our key credit metrics, and substantial gains made in originating on-balance sheet mortgage assets puts Equitable right on schedule."John Ayanoglou, Chief Financial Officer commented: "Despite the growth in on-balance sheet mortgage assets, Equitable Trust maintained the strength of its capital position, which we bolstered significantly in recent periods through a combination of raising non-dilutive capital, retaining earnings and by carefully managing the capital deployed in the business. As a result, we have the capacity we need for more growth. As well, recent additions to our team, which are reflected in our productivity ratio, and planned geographic expansions, give us the means to secure the type of diversified, high quality mortgages that have been the hallmark of Equitable's approach for many years."MORTGAGE PORTFOLIO HIGHLIGHTS << - Single Family Lending Services funded $315.7 million of single family mortgages in the second quarter of 2010, up 371.5% from $67.0 million in the same period of 2009; - Commercial Mortgage - Broker Services funded $105.0 million of mortgages in the second quarter of 2010 compared to $31.4 million in the comparable period of 2009; - Commercial Lending Services funded $97.1 million of conventional mortgages in the second quarter compared to $41.2 million a year ago and $145.9 million of CMHC-insured multi-unit residential mortgages compared to $505.8 million a year ago; - At June 30, 2010, fixed-rate mortgages represented 72.8% of the mortgage portfolio compared to 60.5% a year earlier, while floating rate mortgages with no interest rate floors amounted to 13.3% compared to 24.2% a year earlier; and - Total mortgage fundings in the second quarter increased 2.9% to $663.7 million from $645.3 million in the same period of 2009 - showing that Equitable has successfully been able to replace the securitization business volumes of last year's quarter with on- balance sheet lending originations this year. >> Equitable also earns interest from the recurring cash flows it receives on its securitized loan portfolio. The Company securitized and sold $372.5 million of CMHC-insured mortgages in the first six months of 2010 compared to $761.5 million in the same period of 2009, reflecting lower volumes and a reduction in available gross margins. The total securitized portfolio amounted to $4.3 billion at June 30, 2010 compared to $3.5 billion at June 30, 2009.CREDIT QUALITYMortgages in arrears 90 days or more (excluding CMHC-insured mortgages that are less than 365 days in arrears) were 0.92% of total principal outstanding compared to 1.34% at June 30, 2009 as the Company benefitted from the relative health of its mortgage portfolio and ongoing success in managing defaults. Mortgages in early stage delinquency - a leading indicator of credit quality in future periods - decreased to 0.32% of total outstanding principal from 0.68% at year end 2009 and 1.07% a year ago. In order to prudently provide for mortgages that were considered to be impaired, the Company recorded $1.4 million in provision for credit losses during the quarter. At June 30, 2010, allowance for credit losses as a percentage of total mortgage principal outstanding was 0.48% compared to 0.56% reported at March 31, 2010. This reduction primarily relates to the Company's successful workout of previously impaired loans which were restructured during the quarter. The Company recognized $1.4 million of realized loan losses during the second quarter of 2010, charging these against specific allowances that had been recorded in prior quarters. Net impaired mortgages were 0.74% of total mortgage principal outstanding, compared to 1.20% at year end 2009 and 0.79% a year ago.LOOKING AHEAD"We're very confident that we can continue to expand our mortgage portfolio and that the solid asset growth recently achieved will translate into strong earnings performance in future quarters," said Mr. Moor. "Our objective of adding to our portfolio of single family mortgages should be assisted by additions we made to our sales team, and the broader geographic reach of our mortgage lending operations. Our Commercial Mortgage - Broker Services lending business has also been strengthened and has recently opened an office in Montreal. At the same time, we are cognizant that the recent strong activity levels in residential real estate, which have been in response to improving economic conditions and historically low interest rates, will not be sustained, and we appear to be entering a somewhat slower period. Taking a longer term view, this more subdued activity level is beneficial and reduces risk being taken in the portfolio, but it may slow down portfolio growth in the short term."Also factored into the Company's outlook is the prospect for an additional increase in the Bank of Canada's benchmark rate later this year. There are a number of ways that higher interest rates could impact the Company's net interest margin and while this combination of factors may result in some contraction in spread from the strong levels achieved to date in 2010, the impact is not expected to be significant. As well, the Company continues to expect securitization volumes and spreads to be lower than a year ago.SECOND QUARTER WEBCASTManagement will discuss Equitable's results during a conference call beginning at 2 p.m. ET on Thursday, August 5, 2010. To listen to the audio webcast, log on to www.equitablegroupinc.com. To participate in the call, please dial 416-644-3422.MD&AThe Company will post its second quarter 2010 MD&A on its website www.equitablegroupinc.com. This document will also be archived on the site.ABOUT EQUITABLE GROUP INC.Equitable Group Inc. is a niche mortgage lender. Our core business is first charge mortgage financing, which we offer through our wholly owned subsidiary, The Equitable Trust Company. Founded in 1970, Equitable Trust is a federally incorporated trust company, serving single family, small and large commercial borrowers and their mortgage advisors. We actively originate mortgages in Ontario, Alberta, Manitoba, British Columbia and Quebec. We also serve the investing public as a provider of Guaranteed Investment Certificates and provide GICs across all Canadian provinces and territories. Equitable Group's common and preferred shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A, respectively. Visit the Company on line at www.equitablegroupinc.com or www.equitabletrust.com.INTERIM CONSOLIDATED FINANCIAL STATEMENTS << CONSOLIDATED BALANCE SHEETS (unaudited) AS AT JUNE 30, 2010 With comparative figures as at December 31, 2009 and June 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- June 30, December 31, June 30, 2010 2009 2009 ------------------------------------------------------------------------- Assets Cash and cash equivalents $ 160,356 $ 395,835 $ 273,422 Restricted cash 5,000 5,000 5,000 Investments purchased under reverse repurchase agreements 69,543 129,721 145,037 Investments 403,105 388,037 292,598 Securitization retained interests 147,495 147,195 124,072 Mortgages receivable 3,243,655 2,763,020 2,857,378 Other assets 13,794 17,266 21,981 ------------------------------------------------------------------------- $ 4,042,948 $ 3,846,074 $ 3,719,488 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Liabilities: Customer deposits $ 3,460,584 $ 3,332,319 $ 3,280,565 Obligations under repurchase agreements 37,558 - - Future income taxes 20,957 19,999 19,071 Other liabilities 61,374 54,724 47,864 Bank term loans 27,500 27,500 43,250 Subordinated debentures 37,671 37,671 31,969 ------------------------------------------------------------------------- 3,645,644 3,472,213 3,422,719 Shareholders' equity: Preferred shares 48,523 48,523 - Common shares 127,719 127,424 127,029 Contributed surplus 3,613 3,267 2,984 Retained earnings 213,385 193,635 170,209 Accumulated other comprehensive income (loss) 4,064 1,012 (3,453) ------------------------------------------------------------------------- 397,304 373,861 296,769 ------------------------------------------------------------------------- $ 4,042,948 $ 3,846,074 $ 3,719,488 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2010 With comparative figures for the three and six month periods ended June 30, 2009 ($ THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Interest income: Mortgages $ 42,034 $ 40,005 $ 83,340 $ 81,019 Investments 4,106 3,293 7,599 5,758 Other 575 664 1,177 2,489 ------------------------------------------------------------------------- 46,715 43,962 92,116 89,266 Interest expense: Customer deposits 20,940 23,432 40,747 50,729 Deposit agent commissions 2,018 1,683 3,983 3,367 Bank term loans 430 758 894 1,496 Subordinated debentures 649 586 1,276 1,165 Other 44 - 53 - ------------------------------------------------------------------------- 24,081 26,459 46,953 56,757 ------------------------------------------------------------------------- Net interest income 22,634 17,503 45,163 32,509 Provision for credit losses 1,375 1,250 3,750 3,100 ------------------------------------------------------------------------- Net interest income after provision for credit losses 21,259 16,253 41,413 29,409 Other income: Fees and other income 824 998 1,566 1,751 Net (loss) gain on investments (68) - (124) 36 Gains on securitization activities and income from retained interests 2,152 5,798 4,805 15,132 ------------------------------------------------------------------------- 2,908 6,796 6,247 16,919 ------------------------------------------------------------------------- Net interest income and other income 24,167 23,049 47,660 46,328 Non-interest expenses: Compensation and benefits 4,923 3,481 9,305 7,445 Other 2,828 2,627 5,424 4,934 ------------------------------------------------------------------------- 7,751 6,108 14,729 12,379 ------------------------------------------------------------------------- Income before income taxes 16,416 16,941 32,931 33,949 Income taxes: Current 3,942 6,189 8,879 8,896 Future (114) (1,125) (494) 1,232 ------------------------------------------------------------------------- 3,828 5,064 8,385 10,128 ------------------------------------------------------------------------- Net income 12,588 11,877 24,546 23,821 Dividends on preferred shares 906 - 1,812 - ------------------------------------------------------------------------- Net income available to common shareholders $ 11,682 $ 11,877 $ 22,734 $ 23,821 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding: Basic 14,920,467 14,886,063 14,916,184 14,884,396 Diluted 14,997,402 14,914,954 14,991,731 14,898,921 Earnings per share: Basic $ 0.78 $ 0.80 $ 1.52 $ 1.60 Diluted $ 0.78 $ 0.80 $ 1.52 $ 1.60 ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2010 With comparative figures for the three and six month periods ended June 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Preferred shares: Balance, beginning of period $ 48,523 $ - $ 48,523 $ - Issued - - - - ------------------------------------------------------------------------- Balance, end of period 48,523 - 48,523 - Common shares: Balance, beginning of period 127,656 126,993 127,424 126,993 Proceeds from reinvestment of dividends 59 36 171 36 Proceeds from exercise of stock options 3 - 106 - Transfer from contributed surplus relating to the exercise of stock options 1 - 18 - ------------------------------------------------------------------------- Balance, end of period 127,719 127,029 127,719 127,029 Contributed surplus: Balance, beginning of period 3,457 2,872 3,267 2,553 Stock-based compensation 157 112 364 431 Transfer to common shares relating to the exercise of stock options (1) - (18) - ------------------------------------------------------------------------- Balance, end of period 3,613 2,984 3,613 2,984 Retained earnings: Balance, beginning of period 203,195 159,821 193,635 149,365 Net income 12,588 11,877 24,546 23,821 Dividends Preferred shares (906) - (1,812) - Common shares (1,492) (1,489) (2,984) (2,977) ------------------------------------------------------------------------- Balance, end of period 213,385 170,209 213,385 170,209 Accumulated other comprehensive income (loss): Balance, beginning of period 3,449 (8,431) 1,012 (14,765) Other comprehensive income 615 4,978 3,052 11,312 ------------------------------------------------------------------------- Balance, end of period 4,064 (3,453) 4,064 (3,453) ------------------------------------------------------------------------- Total retained earnings and accumulated other comprehensive income 217,449 166,756 217,449 166,756 ------------------------------------------------------------------------- Total shareholders' equity $ 397,304 $ 296,769 $ 397,304 $ 296,769 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2010 With comparative figures for the three and six month periods ended June 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Net income $ 12,588 $ 11,877 $ 24,546 $ 23,821 Other comprehensive income (loss), net of tax: Available for sale investments: Net unrealized gains from change in fair value 1,706 7,832 5,496 15,272 Reclassification of net gains to income (1,091) (2,854) (2,444) (3,960) ------------------------------------------------------------------------- Other comprehensive income 615 4,978 3,052 11,312 ------------------------------------------------------------------------- Comprehensive income $ 13,203 $ 16,855 $ 27,598 $ 35,133 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2010 With comparative figures for the three and six month periods ended June 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Cash provided by (used in): Operating activities: Net income $ 12,588 $ 11,877 $ 24,546 $ 23,821 Non-cash items: Financial instruments - fair value adjustments (615) 2,595 (1,286) (2,999) Securitization gains (999) (4,940) (2,570) (12,559) Amortization of capital assets 157 150 294 291 Provision for credit losses 1,375 1,250 3,750 3,100 Net loss (gain) on investments 732 4 56 (80) Future income taxes (113) (1,125) 958 1,232 Stock-based compensation 157 112 364 431 Amortization of premiums on investments, net 457 166 869 370 ------------------------------------------------------------------------- 13,739 10,089 26,981 13,607 Changes in operating assets and liabilities: Other assets (1,498) 8,438 1,116 8,650 Other liabilities 714 4,134 (1,891) (559) ------------------------------------------------------------------------- 12,955 22,661 26,206 21,698 Financing activities: Increase (decrease) in customer deposits, net 177,858 (188,919) 128,429 (408,076) Change in obligations related to investments sold under repurchase agreements 7,640 - 37,558 - Repayment of bank term loan - (1,345) - (1,345) Dividends paid on preferred shares (906) - (1,812) - Dividends paid on common shares (1,433) (1,489) (2,812) (2,977) Issuance of common shares 3 36 106 36 ------------------------------------------------------------------------- 183,162 (191,717) 161,469 (412,362) Investing activities: Purchase of investments (67,559) (9,318) (197,116) (9,318) Proceeds on sale or redemption of investments 74,060 26,065 211,863 30,524 Change in investments purchased under reverse repurchase agreements 80,333 395,656 60,178 553,239 Change in restricted cash - 1,300 - 3,422 Increase in mortgages receivable (785,321) (724,099) (1,354,834) (1,535,815) Mortgage principal repayments 237,129 379,005 464,871 798,297 Proceeds from loan securitizations 141,761 350,672 374,117 761,851 Securitization retained interests 9,065 5,973 18,142 11,892 Purchase of capital assets (282) (12) (375) (127) ------------------------------------------------------------------------- (310,814) 425,242 (423,154) 613,965 ------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents (114,697) 256,186 (235,479) 223,301 Cash and cash equivalents, beginning of period 275,053 17,236 395,835 50,121 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 160,356 $ 273,422 $ 160,356 $ 273,422 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Certain forward-looking statements are made in this news release, including statements found in the Management Commentary and Looking Ahead sections, above, regarding possible future business. Investors are cautioned that such forward-looking statements involve risks and uncertainties detailed from time to time in the Company's periodic reports filed with Canadian regulatory authorities. Certain material assumptions are applied by the Company in making forward-looking statements, including without limitation, assumptions regarding its continued ability to fund its mortgage business at current levels, a continuation of the current level of economic uncertainty that affects real estate market conditions, continued acceptance of its products in the marketplace, as well as no material changes in its operating cost structure and the current tax regime. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by these assumptions and the related forward-looking statements. Equitable does not undertake to update any forward-looking statements, oral or written, made by itself or on its behalf except in accordance with applicable securities laws. See the MD&A for further information on forward-looking statements.For further information: John Ayanoglou, Senior Vice-President, Finance and Chief Financial Officer, 416-515-7000