The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

Equitable Group Reports Record First Quarter 2012 Results

Wednesday, May 09, 2012

Equitable Group Reports Record First Quarter 2012 Results20:21 EDT Wednesday, May 09, 2012TORONTO, May 9, 2012 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported its financial results for the three months ended March 31, 2012 - a period of significant growth and momentum that supports a confident outlook for the year.FIRST QUARTER RESULTSDiluted earnings per share ("EPS") increased 13% to $1.13 compared to $1.00 in the first quarter of 2011;Net income increased 12% to $17.9 million from $16.1 million in 2011;Net interest income increased 17% to $36.5 million from $31.2 million in 2011;Net interest margin ("NIM") was 1.45%, up marginally from 1.44% a year ago on growth in NIM on non-securitized assets (2.57% versus 2.52% a year ago);Return on equity ("ROE") was 17.7%, up from 17.3% in Q4 2011 and compared to 18.0% a year ago;Book value per share increased 13% to $26.26 from $23.32 a year ago;Total assets were $10.5 billion at period end, up 14% or $1.3 billion from March 31, 2011;Mortgage principal outstanding in the Company's Core Lending business (Single Family and Commercial) grew 23% to $4.4 billion from $3.6 billion a year ago;Single Family principal outstanding grew by 35% year-over-year, and now represents 51% of Core Lending balances;Equitable Trust's period-end total capital ratio was a solid 15.8% (including collective allowance)."This was a strong opening to 2012 for Equitable as we surpassed our previous first quarter earnings record and added to the very positive momentum we've created in our Core Lending businesses where principal outstanding increased 23% year over year," said Andrew Moor, President and Chief Executive Officer. "We're delighted with these results as they were achieved during the traditionally slow season in Canadian real estate activity. Despite our substantial growth, we continued to build our portfolio with an absolute focus on credit quality."Reflecting the Company's strategies, the growth leader in the quarter was the Single Family segment in which "we exceeded our own expectations on the strength of a 35% year-over-year increase in mortgage principal balances on 51% growth in originations," added Mr. Moor.DIVIDEND DECLARATIONSThe Company's Board of Directors today declared a quarterly dividend in the amount of $0.12 per common share, payable on July 5, 2012, to common shareholders of record at the close of business on June, 15, 2012.   The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable on June 30, 2012, to preferred shareholders of record at the close of business on June 15, 2012.CORE LENDING BUSINESSESEquitable's Single Family and Commercial Lending businesses are collectively referred to as Equitable's "Core Lending" business.  Within the Core Lending business in Q1 2012:Single Family Lending Services mortgage principal amounted to a record $2.3 billion at March 31, 2012, $589 million higher than at March 31, 2011. During the most recent quarter, production amounted to $327 million, up $111 million from the same period in 2011;Commercial Lending Services mortgage principal at March 31, 2012 was $2.2 billion, $245 million higher than at the end of the first quarter of 2011. First quarter production was $120 million compared to $183 million a year ago.These Core Lending businesses represented 46% of the Company's mortgage portfolio compared to 42% a year ago, reflecting Equitable's emphasis on optimizing returns adjusted for risk and its capital plan of maintaining strong capital ratios as its grows.SECURITIZATION FINANCING BUSINESSEquitable's Securitization Financing business originates insured mortgages with the intention of subsequently securitizing those assets. Approximately 92% of securitized mortgages at period end were secured by multi-unit residential properties and were underwritten by the Company's commercial credit team.  The remaining 8% were represented by insured, single family residential mortgages, some of which were securitized after residing in the Company's Core Lending portfolio.During the first quarter:Securitization Financing mortgage principal outstanding at March 31, 2012 was $5.2 billion, 6% or $297 million higher than a year ago;Securitization Financing production was $115 million, $139 million lower than a year ago, reflecting a planned shift in emphasis toward Core Lending activities.CREDIT QUALITYEquitable maintained its exemplary track record of low realized loan losses during the first quarter ($0.5 million, net of recoveries). Solid key credit metrics were also posted:Mortgage principal in arrears 90 days or more was 0.25% of total mortgage principal outstanding, an improvement from 0.33% a year ago;Net impaired mortgages were 0.28% of total mortgage assets compared to 0.35% a year ago as workout activities continue to yield positive results.Management remains comfortable that allowances for credit losses (0.22% of total mortgage assets versus 0.24% a year ago) adequately provide for the risk of loss.LOOKING AHEAD"Equitable built on and in some cases accelerated its momentum during the first quarter and this supports our plan and expectations of ongoing earnings growth and a solid ROE, backstopped by the maintenance of very healthy capital levels," said Mr. Moor. "The markets we choose to serve continue to benefit from a combination of population trends and economic stability, giving us an attractive foundation for growth. Our 2012 agenda is custom made for today's market realities and includes growth in mortgage assets that best suit our hurdle rates and credit risk tolerances, expansion of our national presence with emphasis on niches that are positioned to benefit from secular trends and, most importantly, an ongoing focus on broker and customer service excellence, which is generating tremendous results for us. By single-mindedly pursuing our service agenda while maintaining highly cost-effective operations, we will drive ever-improving results for our shareholders."The Company is also monitoring recently announced changes in the regulatory environment, including CMHC's decision to curtail its portfolio insurance activities. This change is expected to have little direct impact on Equitable and could indirectly benefit the Company should competitors change their lending or pricing practices.  Equitable is also currently reviewing OSFI's "Draft Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures" and, while management expects some revisions to the proposal, recognizes that the outcome of the process continues to be uncertain.Q1 CONFERENCE CALLThe Company will hold its first quarter conference call and webcast at 10:00 a.m. ET Thursday May 10, 2012. To access the call live, please dial in five minutes prior to 416-644-3414. To access a listen-only version of the webcast, please log on to under Investor Relations.A replay of the call will be available until May 17, 2012 and it can be accessed by dialing 416-640-1917 and entering passcode 4530347 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.INTERIM CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS (unaudited)AS AT MARCH 31, 2012With comparative figures as at December 31, 2011 and March 31, 2011 ($ THOUSANDS)             March 31, 2012December 31, 2011March 31, 2011         Assets        Cash and cash equivalents$239,517 $170,845 $177,251Restricted cash 90,246  83,156  36,404Securities purchased under reverse repurchase agreements 39,922  9,967  24,993Investments 389,497  390,340  360,137Mortgages receivable 4,476,637  4,262,147  3,683,777Mortgages receivable - securitized 5,211,241  5,314,940  4,876,631Other assets 23,178  25,618  13,788 $10,470,238 $10,257,013 $9,172,981         Liabilities and Shareholders' Equity        Liabilities:         Deposits$4,860,547 $4,627,904 $4,032,391 Securitization liabilities 5,069,853  5,100,921  4,653,482 Deferred tax liabilities 6,608  7,790  7,318 Other liabilities 24,602  28,587  17,298 Bank term loans 12,500  12,500  12,500 Subordinated debentures 52,671  52,671  52,671  10,026,781  9,830,373  8,775,660         Shareholders' equity:         Preferred shares 48,494  48,494  48,494 Common shares 130,251  129,771  128,369 Contributed surplus 4,813  4,718  4,169 Retained earnings 269,235  254,006  215,700 Accumulated other comprehensive (loss) income (9,336)  (10,349)  589  443,457  426,640  397,321          $10,470,238 $10,257,013 $9,172,981         CONSOLIDATED STATEMENTS OF INCOME (unaudited)FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012  With comparative figures for the three month period ended March 31, 2011($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)       Three months ended March 31, 2012 March 31, 2011      Interest income:      Mortgages$57,187 $47,849 Mortgages - securitized 54,459  52,152 Investments 2,248  2,279 Other 1,226  1,025  115,120  103,305Interest expense:      Deposits 30,350  26,741 Securitization liabilities 47,174  44,268 Bank term loans 202  200 Subordinated debentures 869  862 Other 1  29  78,596  72,100Net interest income 36,524  31,205Provision for credit losses 2,227  1,938Net interest income after provision for credit losses 34,297  29,267Other income:      Fees and other income 1,005  854 Net gain on investments 249  298  1,254  1,152Net interest and other income 35,551  30,419Non-interest expenses:      Compensation and benefits 6,570  5,473 Other 5,339  3,643  11,909  9,116Income before income taxes and fair value gain 23,642  21,303Fair value gain on derivative financial instruments- securitization activities 51  319Income before income taxes 23,693  21,622Income taxes:      Current 6,935  5,327 Deferred (1,182)  232  5,753  5,559Net income$17,940 $16,063      Earnings per share:      Basic$1.13 $1.01 Diluted$1.13 $1.00       CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012With comparative figures for the three month period ended March 31, 2011 ($ THOUSANDS)      Three months ended March 31, 2012March 31, 2011     Net income$17,940$16,063     Other comprehensive income:         Available for sale investments:    Net unrealized gains from change in fair value 833 1,143Reclassification of net gains to income (1,082) (265)  (249) 878Income tax 65 (246)  (184) 632     Cash flow hedges    Net unrealized gains from change in fair value 1,028 1,665Reclassification of net losses (gains) to income 592 (18)  1,620 1,647Income tax (423) (461)  1,197 1,186Total other comprehensive income 1,013 1,818Total comprehensive income$18,953$17,881     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012With comparative figures for the three month period ended March 31, 2011($ THOUSANDS)             March 31, 2012PreferredsharesCommonsharesContributedsurplusRetainedearningsAccumulatedothercomprehensiveincome (loss)  Total             Balance, beginning of period$48,494$129,771$4,718$254,006$(10,349)$426,640Net income - - - 17,940 - 17,940Other comprehensive income, net of tax - - - - 1,013 1,013Contributions from reinvestment of dividends - 188 - - - 188Contributions from exercise of stock options - 237 - - - 237Dividends:             Preferred shares - - - (906) - (906) Common shares - - - (1,805) - (1,805)Stock-based compensation - - 150 - - 150Transfer relating to the exercise of stock options - 55 (55) - - -Balance, end of period$48,494$130,251$4,813$269,235$(9,336)$443,457             March 31, 2011PreferredsharesCommonsharesContributedsurplusRetainedearningsAccumulatedothercomprehensiveincome (loss) Total             Balance, beginning of period$48,494$128,068$3,935$202,187$(1,229)$381,455Net income - - - 16,063 - 16,063Other comprehensive income, net of tax - - - - 1,818 1,818Contributions from reinvestment of dividends - 127 -   - 127Contributions from exercise of stock options - 144 - - - 144Dividends:             Preferred shares - - - (906) - (906) Common shares - - - (1,644) - (1,644)Stock-based compensation - - 264 - - 264Transfer relating to the exercise of stock options - 30 (30) - - -Balance, end of period$48,494$128,369$4,169$215,700$589$397,321 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012With comparative figures for the three month period ended March 31, 2011 ($ THOUSANDS)       Three months ended March 31, 2012 March 31, 2011CASH FLOWS FROM OPERATING ACTIVITIES     Net income for the period$17,940 $16,063Adjustments to determine cash flows relating to operating activities:      Financial instruments at fair value through income 1,836  99 Depreciation of capital assets 231  63 Provision for credit losses 2,227  1,938 Net gain on sale or redemption of investments (249)  (298) Income taxes 5,825  5,559 Income taxes paid (4,801)  (4,771) Stock-based compensation 150  264 Amortization of premiums/discount on investments 784  785 Net increase in mortgages receivable (113,976)  (345,787) Net increase in deposits 232,643  153,538 Net change in securitization liabilities (31,068)  121,802 Net interest income, excluding non-cash items (54,751)  (47,713) Interest paid (63,692)  (58,179) Other assets (191)  (1,430) Other liabilities (3,260)  (2,342) Interest received 115,934  103,542 Dividends received 2,509  2,350Cash flows from (used in) operating activities 108,091  (54,517)CASH FLOWS FROM FINANCING ACTIVITIES      Dividends paid on preferred shares (906)  (906) Dividends paid on common shares (1,614)  (1,367) Proceeds from issuance of common shares 237  144Cash flows used in financing activities (2,283)  (2,129)CASH FLOWS FROM INVESTING ACTIVITIES      Purchase of investments (20,000)  (39,651) Proceeds on sale or redemption of investments 46,730  20,943 Net change in Canada Housing Trust re-investment accounts (26,671)  (2,638) Purchase of securities under reverse repurchase agreements (39,922)  (24,993) Proceeds on sale or redemption of securities under reverse repurchase agreements 9,967  74,908 Change in restricted cash (7,090)  50,166 Purchase of capital assets (150)  (80)Cash flows (used in) from investing activities (37,136)  78,655Net increase in cash and cash equivalents 68,672  22,009Cash and cash equivalents, beginning of period 170,845  155,242Cash and cash equivalents, end of period$239,517 $177,251ABOUT EQUITABLE GROUP INC. Equitable Group Inc. is a niche mortgage lender. Our primary 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. It serves single family, small and large commercial borrowers and their mortgage advisors. It also serves the investing public as a provider of Guaranteed Investment Certificates. Equitable is active in providing GICs across all Canadian provinces and territories. We actively originate mortgages across Canada, with offices in Ontario, Alberta and Quebec. Equitable Group's shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A, respectively. Visit the Company on line at and click on Investor Relations.CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSStatements made by the Company in the sections of this report including those entitled "Credit Quality" and "Looking Ahead", in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws ("forward-looking statements"). These statements include, but are not limited to, statements about the Company's objectives, strategies and initiatives, financial result expectations and other statements made herein, whether with respect to the Company's businesses or the Canadian economy. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may" , "could", "would", "might" or "will be taken", "occur" or "be achieved." Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to capital markets and additional funding requirements, fluctuating interest rates and general economic conditions, legislative and regulatory developments, the nature of our customers and rates of default, and competition as well as those factors discussed under the heading "Risk Management" in the Management's Discussion and Analysis and in the Company's documents filed on SEDAR at All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting the Company and the Canadian economy. Although the Company believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.  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. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws. For further information: Andrew Moor President and CEO 416-515-7000 Tim Wilson Chief Financial Officer 416-515-7000