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Press release from CNW Group

EQUITABLE GROUP REPORTS THIRD QUARTER 2010 RESULTS

Wednesday, November 03, 2010

EQUITABLE GROUP REPORTS THIRD QUARTER 2010 RESULTS20:05 EDT Wednesday, November 03, 2010Single Family Conventional Mortgage Originations Double Over 2009TSX Symbols: ETC and ETC.PR.ATORONTO, Nov. 3 /CNW/ - Equitable Group Inc. ("Equitable" or the "Company") today reported a solid increase in net income for the three and nine months ended September 30, 2010 as it began to capture additional benefits from its focus on high quality, on-balance sheet mortgage asset growth.THIRD QUARTER RESULTS << - Net income increased 12.7% to $13.6 million ($0.84 per diluted share) from $12.0 million ($0.81 per share) a year ago as on-balance sheet mortgage growth in the second quarter of 2010 began to translate into higher earnings and more than offset the anticipated reduction in securitization activity and spreads; - Net interest margin ("NIM") on a taxable equivalent basis ("TEB") expanded to 2.4% from 2.2% in the third quarter of 2009; net interest income on a TEB increased to $25.0 million this quarter, from $20.2 million in the corresponding quarter of the prior year; - Return on average assets was 1.3%, equal to the return generated in 2009; - Return on equity ("ROE") improved to 14.1% from 13.6% in the second quarter of 2010 and was 15.7% a year ago, when returns were not affected by the payment of preferred dividends on shares issued by the Company in the latter part of 2009; - Productivity ratio on a TEB - a measure of efficiency - was 26.3% compared to 25.7% in the third quarter of 2009 reflecting the costs associated with a 210.2% year-over-year increase in single family mortgage originations; - Total capital ratio including general allowance was 16.5% versus 17.5% a year ago; - Book value per share increased 16.9% to $24.38 from $20.86 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 January 4, 2011, to shareholders of record at the close of business on December 15, 2010. The Board also declared a preferred share dividend of $0.453125 per share, payable December 31, 2010 to preferred shareholders of record on December 15, 2010.NINE MONTH RESULTS << - Net income increased 6.3% to $38.1 million ($2.36 per diluted share) from $35.9 million ($2.40 per diluted share) in the first nine months of 2009; - NIM on a TEB expanded to 2.3% from 1.9% a year ago; net interest income on a TEB increased to $72.0 million, from $54.1 million in the corresponding period of 2009; - Return on average assets was 1.2%, even with last year; - ROE was 13.7% compared to 16.7% in the same period of 2009; - Productivity ratio on a TEB was 27.2% compared to 24.8% in the same period of 2009. >>MANAGEMENT COMMENTARY"Equitable has made good progress with its origination initiatives and taken advantage of market conditions to date this year to drive substantial growth in high quality, on-balance sheet mortgage assets," said Andrew Moor, President and CEO. "This growth, combined with the prudence shown in our mortgage underwriting, has resulted in both a solid year-over-year and sequential increase in net income and will benefit our earnings and ROE in future quarters. In particular, we're very pleased with the pace of growth in our Single Family Lending Services business where conventional mortgage production more than doubled year over year in the third quarter. As a result, overall conventional Single Family fundings grew by 102.8% on a year-over-year basis and, for the first time, Single Family now represents the largest component of Equitable's lending businesses at 42.0% of total mortgage principal. Of equal importance, our credit metrics and productivity ratio remain among the industry's best. This performance reflects the alignment we've made between our strategies and competitive strengths, and, combined with the maintenance of strong NIM, has more than offset lower contributions from securitizations. In total, Equitable is on track with its plan for the year and has the resources to continue to deliver."John Ayanoglou, Chief Financial Officer commented: "Our capital position remains strong and ready to support additional high quality mortgage portfolio growth. Beyond a total capital ratio of 16.5% at quarter end, including general allowance, our Tier 1 capital ratio and tangible common equity ratio were a healthy 13.9% and 12.1%, respectively. We believe we can maintain our strength as we grow by retaining earnings and emphasizing single family residential mortgage assets, which require lower levels of regulatory capital than other forms of mortgage lending."THIRD QUARTER MORTGAGE PORTFOLIO HIGHLIGHTS << - Total mortgage fundings in the third quarter increased 48.0% to $672.8 million from $454.5 million in the same period of 2009; - Single Family Lending Services funded $244.8 million of conventional single family mortgages, up 102.8% from $120.7 million in the same period of 2009; - The Company also funded $139.6 million of CMHC-insured single family mortgages in the quarter, up from $3.2 million a year ago; - Commercial Mortgage - Broker Services funded $48.7 million of mortgages, an increase of 98.0% from the comparable period's fundings of $24.6 million; - Commercial Lending Services funded $239.7 million of mortgages including $40.9 million of conventional product, compared to $306.0 million a year ago; - At September 30, 2010, fixed-rate mortgages represented 74.8% of the mortgage portfolio compared to 64.8% a year earlier, while floating rate mortgages with no interest rate floors amounted to 12.8% compared to 20.5% a year earlier; - Mortgage principal increased 21.4% or $607.4 million on a year-over- year basis to $3.4 billion at September 30, 2010. >>Equitable also earns interest from the recurring cash flows it receives on its securitized loan portfolio. The Company securitized and sold $223.4 million of CMHC-insured mortgages in the third quarter of 2010 compared to $294.6 million in the corresponding quarter of 2009. Due to changes in securitization markets that lowered spreads (to 65 basis points from 104 basis points a year ago), and reduced business volumes, total income from loan securitizations was $3.0 million in the third quarter of 2010 compared to $4.3 million a year ago. The total securitized portfolio amounted to $4.5 billion at September 30, 2010 compared to $4.1 billion at December 31, 2009 and $3.8 billion at September 30, 2009.CREDIT QUALITYMortgages in arrears 90 days or more (excluding CMHC-insured mortgages that are less than 365 days in arrears) were 0.89% of total principal outstanding compared to 0.92% at June 30, 2010 and 0.88% a year earlier. This solid performance reflected the health of Equitable's mortgage portfolio and ongoing success in managing defaults. Mortgages that were deemed to be impaired increased by $3.8 million during the third quarter of 2010. During the quarter, the Company increased its specific allowances by $2.4 million and realized net loan losses of $0.2 million, charging these against specific allowances recorded in prior quarters. Net impaired mortgages were 0.74% of total mortgage principal, on par with the second quarter of 2010. The total allowance for credit losses, as a percentage of total mortgage principal outstanding, was 0.51% compared to 0.48% at June 30, 2010.LOOKING AHEAD"We remain confident that our strategy and focus on single family residential mortgage lending will position Equitable for future earnings growth," said Mr. Moor. "Looking at our markets, as anticipated, we are entering a period of slower real estate activity following earlier quarters in 2010 when pent up demand was unleashed following the economic recession and in advance of expected increases in interest rates and HST implementation in two provinces. As a result, we expect and plan for a more moderate rate of asset expansion and continue to expect more normalized securitization volumes and spreads relative to a year ago. While we may see some contraction in the Company's strong NIM performance in future quarters, management does not expect this to be significant. We believe Equitable will perform very well in the context of these new market realities due to our niche focus, our expertise in these niches and the quality of the mortgage assets that were underwritten in anticipation of lower real estate values."THIRD QUARTER WEBCASTManagement will discuss Equitable's results during a conference call beginning at 10 a.m ET on Thursday November 4, 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 third 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 SEPTEMBER 30, 2010 With comparative figures as at December 31, 2009 and September 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- September December September 30, 2010 31, 2009 30, 2009 ------------------------------------------------------------------------- Assets Cash and cash equivalents $ 249,996 $ 395,835 $ 258,815 Restricted cash 7,240 5,000 8,070 Investments purchased under reverse repurchase agreements 69,862 129,721 126,230 Investments 471,173 388,037 317,056 Securitization retained interests 154,832 147,195 137,488 Mortgages receivable 3,437,117 2,763,020 2,829,135 Other assets 9,538 17,266 10,830 ------------------------------------------------------------------------- $ 4,399,758 $ 3,846,074 $ 3,687,624 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Liabilities: Customer deposits $ 3,838,997 $ 3,332,319 $ 3,186,927 Future income taxes 22,675 19,999 19,442 Other liabilities 60,485 54,724 49,339 Bank term loans 27,500 27,500 40,784 Subordinated debentures 37,671 37,671 31,969 ------------------------------------------------------------------------- 3,987,328 3,472,213 3,328,461 Shareholders' equity: Preferred shares 48,523 48,523 48,576 Common shares 127,780 127,424 127,084 Contributed surplus 3,784 3,267 3,153 Retained earnings 224,556 193,635 180,765 Accumulated other comprehensive income (loss) 7,787 1,012 (415) ------------------------------------------------------------------------- 412,430 373,861 359,163 ------------------------------------------------------------------------- $ 4,399,758 $ 3,846,074 $ 3,687,624 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 With comparative figures for the three and nine month periods ended September 30, 2009 ($ THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2010 30, 2009 30, 2010 30, 2009 ------------------------------------------------------------------------- Interest income: Mortgages $ 46,123 $ 41,033 $ 129,463 $ 122,052 Investments 3,524 4,089 11,123 9,847 Other 765 496 1,942 2,985 ------------------------------------------------------------------------- 50,412 45,618 142,528 134,884 Interest expense: Customer deposits 23,051 22,942 63,798 73,671 Deposit agent commissions 2,256 1,817 6,239 5,184 Bank term loans 467 720 1,361 2,216 Subordinated debentures 653 592 1,929 1,757 Other 54 - 107 - ------------------------------------------------------------------------- 26,481 26,071 73,434 82,828 ------------------------------------------------------------------------- Net interest income 23,931 19,547 69,094 52,056 Provision for credit losses 2,351 1,250 6,101 4,350 ------------------------------------------------------------------------- Net interest income after provision for credit losses 21,580 18,297 62,993 47,706 Other income: Fees and other income 580 789 2,146 2,540 Net gain on investments 144 - 20 36 Gains on securitization activities and income from retained interests 3,026 4,341 7,831 19,473 ------------------------------------------------------------------------- 3,750 5,130 9,997 22,049 ------------------------------------------------------------------------- Net interest income and other income 25,330 23,427 72,990 69,755 Non-interest expenses: Compensation and benefits 4,743 3,789 14,048 11,234 Other 2,830 2,718 8,254 7,652 ------------------------------------------------------------------------- 7,573 6,507 22,302 18,886 ------------------------------------------------------------------------- Income before income taxes 17,757 16,920 50,688 50,869 Income taxes: Current 2,469 2,437 11,348 11,333 Future 1,718 2,438 1,224 3,670 ------------------------------------------------------------------------- 4,187 4,875 12,572 15,003 ------------------------------------------------------------------------- Net income 13,570 12,045 38,116 35,866 Dividends on preferred shares 907 - 2,719 - ------------------------------------------------------------------------- Net income available to common shareholders $ 12,663 $ 12,045 $ 35,397 $ 35,866 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding: Basic 14,923,444 14,889,174 14,918,630 14,886,006 Diluted 14,991,004 14,947,493 14,991,485 14,915,290 Earnings per share: Basic $ 0.85 $ 0.81 $ 2.37 $ 2.41 Diluted $ 0.84 $ 0.81 $ 2.36 $ 2.40 ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 With comparative figures for the three and nine month periods ended September 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2010 30, 2009 30, 2010 30, 2009 ------------------------------------------------------------------------- Preferred shares: Balance, beginning of period $ 48,523 $ - $ 48,523 $ - Gross proceeds of equity issue, Series 1 - 50,000 - 50,000 Issue expense, net of tax recovery - (1,424) - (1,424) ------------------------------------------------------------------------- Balance, end of period 48,523 48,576 48,523 48,576 Common shares: Balance, beginning of period 127,719 127,029 127,424 126,993 Proceeds from reinvestment of dividends 61 55 232 91 Proceeds from exercise of stock options - - 106 - Transfer from contributed surplus relating to the exercise of stock options - - 18 - ------------------------------------------------------------------------- Balance, end of period 127,780 127,084 127,780 127,084 Contributed surplus: Balance, beginning of period 3,613 2,984 3,267 2,553 Stock-based compensation 171 169 535 600 Transfer to common shares relating to the exercise of stock options - - (18) - ------------------------------------------------------------------------- Balance, end of period 3,784 3,153 3,784 3,153 Retained earnings: Balance, beginning of period 213,385 170,209 193,635 149,365 Net income 13,570 12,045 38,116 35,866 Dividends Preferred shares (907) - (2,719) - Common shares (1,492) (1,489) (4,476) (4,466) ------------------------------------------------------------------------- Balance, end of period 224,556 180,765 224,556 180,765 Accumulated other comprehensive income (loss): Balance, beginning of period 4,064 (3,453) 1,012 (14,765) Other comprehensive income 3,723 3,038 6,775 14,350 ------------------------------------------------------------------------- Balance, end of period 7,787 (415) 7,787 (415) ------------------------------------------------------------------------- Total retained earnings and accumulated other comprehensive income 232,343 180,350 232,343 180,350 ------------------------------------------------------------------------- Total shareholders' equity $ 412,430 $ 359,163 $ 412,430 $ 359,163 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 With comparative figures for the three and nine month periods ended September 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2010 30, 2009 30, 2010 30, 2009 ------------------------------------------------------------------------- Net income $ 13,570 $ 12,045 $ 38,116 $ 35,866 Other comprehensive income, net of tax: Available for sale investments: Net unrealized gains from change in fair value 5,130 1,655 10,626 16,927 Reclassification of net (gains) losses to income (1,407) 1,383 (3,851) (2,577) ------------------------------------------------------------------------- Other comprehensive income 3,723 3,038 6,775 14,350 ------------------------------------------------------------------------- Comprehensive income $ 17,293 $ 15,083 $ 44,891 $ 50,216 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 With comparative figures for the three and nine month periods ended September 30, 2009 ($ THOUSANDS) ------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2010 30, 2009 30, 2010 30, 2009 ------------------------------------------------------------------------- Cash provided by (used in): Operating activities: Net income $ 13,570 $ 12,045 $ 38,116 $ 35,866 Non-cash items: Financial instruments - fair value adjustments (2,018) 8,313 (3,304) 5,314 Securitization gains (2,124) (3,531) (4,694) (16,090) Amortization of capital assets 155 153 449 444 Provision for credit losses 2,351 1,250 6,101 4,350 Net (gain) loss on investments (41) (494) 15 (574) Future income taxes 1,718 986 2,676 2,218 Stock-based compensation 171 169 535 600 Amortization of premiums on investments, net 685 178 1,554 548 ------------------------------------------------------------------------- 14,467 19,069 41,448 32,676 Changes in operating assets and liabilities: Other assets 3,872 1,149 4,988 9,799 Other liabilities (5,451) (4,111) (7,342) (4,670) ------------------------------------------------------------------------- 12,888 16,107 39,094 37,805 Financing activities: Increase (decrease) in customer deposits, net 378,249 (92,669) 506,678 (500,745) Change in obligations related to investments sold under repurchase agreements (37,558) - - - Repayment of bank term loan - (2,466) - (3,811) Dividends paid on preferred shares (907) - (2,719) - Dividends paid on common shares (1,430) (1,489) (4,242) (4,466) Issuance of preferred shares - 47,961 - 47,961 Issuance of common shares - 55 106 91 ------------------------------------------------------------------------- 338,354 (48,608) 499,823 (460,970) Investing activities: Purchase of investments (77,547) (14,259) (274,663) (23,577) Proceeds on sale or redemption of investments 41,313 17,775 253,176 48,299 Change in investments purchased under reverse repurchase agreements (319) 18,807 59,859 572,046 Change in restricted cash (2,240) (3,070) (2,240) 352 Increase in mortgages receivable (860,374) (589,384) (2,215,208) (2,125,199) Mortgage principal repayments 405,293 287,991 870,164 1,086,288 Proceeds from loan securitizations 222,390 292,360 596,507 1,054,211 Securitization retained interests 9,953 7,746 28,095 19,638 Purchase of capital assets (71) (72) (446) (199) ------------------------------------------------------------------------- (261,602) 17,894 (684,756) 631,859 ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 89,640 (14,607) (145,839) 208,694 Cash and cash equivalents, beginning of period 160,356 273,422 395,835 50,121 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 249,996 $ 258,815 $ 249,996 $ 258,815 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>Certain forward-looking statements are made in this news release, including statements found in the "Management Commentary", "Credit Quality" 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