EQUITABLE GROUP REPORTS THIRD QUARTER 2010 RESULTS
Single Family Conventional Mortgage Originations Double Over 2009
TSX Symbols: ETC and ETC.PR.A
TORONTO, 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 DECLARATIONS
The 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 QUALITY
Mortgages 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 WEBCAST
Management 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&A
The 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
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$ 4,399,758 $ 3,846,074 $ 3,687,624
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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
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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)
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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
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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
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4,187 4,875 12,572 15,003
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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
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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
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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) -
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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)
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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
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Balance, end of period 7,787 (415) 7,787 (415)
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Total retained earnings
and accumulated other
comprehensive income 232,343 180,350 232,343 180,350
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Total shareholders'
equity $ 412,430 $ 359,163 $ 412,430 $ 359,163
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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
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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
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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
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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)
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(261,602) 17,894 (684,756) 631,859
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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
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Cash and cash
equivalents, end
of period $ 249,996 $ 258,815 $ 249,996 $ 258,815
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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
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