Equitable Group reports second quarter 2010 results
Single Family Originations up 372%
TSX Symbols: ETC and ETC.PR.A
TORONTO, 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 DECLARATIONS
The 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 QUALITY
Mortgages 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 WEBCAST
Management 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&A
The 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
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$ 4,042,948 $ 3,846,074 $ 3,719,488
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-------------------------------------------------------------------------
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 -
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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
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7,751 6,108 14,729 12,379
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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
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3,828 5,064 8,385 10,128
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Net income 12,588 11,877 24,546 23,821
Dividends on preferred
shares 906 - 1,812 -
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Net income available to
common shareholders $ 11,682 $ 11,877 $ 22,734 $ 23,821
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-------------------------------------------------------------------------
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
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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 -
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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) -
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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)
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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)
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Total retained earnings
and accumulated other
comprehensive income 217,449 166,756 217,449 166,756
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Total shareholders'
equity $ 397,304 $ 296,769 $ 397,304 $ 296,769
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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)
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Other comprehensive
income 615 4,978 3,052 11,312
-------------------------------------------------------------------------
Comprehensive income $ 13,203 $ 16,855 $ 27,598 $ 35,133
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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
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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
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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)
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(310,814) 425,242 (423,154) 613,965
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(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
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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
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