News
Equitable Group reports record third quarter 2008 results
- 22.3% Net Income Growth
- Total Assets Surpass $4 Billion
- Capital and Liquidity Positions Substantially Strengthened
TSX Symbol: ETCTORONTO, Nov. 7 /CNW/ - Equitable Group Inc. ("Equitable" or the
"Company") today reported record financial performance for the three and nine
months ended September 30, 2008, while making significant progress toward its
strategic goals for the year.Third Quarter Financial Highlights
- Net income increased 22.3% to a record $10.8 million from
$8.8 million a year ago - surpassing targeted growth of between 16%
to 20%.
- Diluted earnings per share grew 10.4% to $0.74 a share, on more
shares outstanding, compared with $0.67 a diluted share a year
earlier.
- Return on equity was 16.7% - within Equitable's 2008 target range of
16% to 18% - compared to 18.2% a year ago.
- Total capital ratio, including general allowance, reached 13.3% on
September 30, 2008, up from 11.0% on January 1, 2008 and ahead of the
Company's 13.0% objective for the year.
- Total assets reached $4.1 billion - a new milestone - and 20.1%
higher than the December 31, 2007 asset base of $3.4 billion.
Nine Month Financial Highlights
- Net income increased 26.6% to $30.7 million from $24.3 million a year
ago.
- Diluted earnings per share grew 18.8% to $2.27 a share, on more
shares outstanding, compared to $1.91 a diluted share in the same
period of 2007.
- Return on equity was 18.1%, above Equitable's 2008 objective of 16%
to 18%.Dividend
The Company's Board of Directors declared a dividend of $0.10 per share
payable on January 5, 2009, to shareholders of record at the close of business
on December 15, 2008.
Credit Quality and Provision
The Company's mortgage portfolio continued to perform within
expectations. No loan losses were incurred in the quarter. Net impaired
mortgages were 0.33% of total mortgage assets at the end of the third quarter
of 2008 compared to 0.08% at the end of the third quarter of 2007. Due to the
impact of changes in economic conditions and real estate values in certain
regions of Western Canada, as well as changing economic forecasts associated
with commodities markets, the Company took the prudent measure of assessing a
pre-tax charge of $1.0 million in the third quarter to reflect the potential
for losses in its multi-unit residential portfolio. This proactive measure had
the effect of reducing earnings per share by $0.05 (basic and diluted).Operational Highlights
- Single-Family mortgage fundings increased 107.8% to $217.3 million
from $104.6 million in the third quarter last year - and consistent
with the Company's focus, Single-Family represented 22.3% of total
mortgage production, compared with 13.4% a year earlier.
- Total mortgage principal increased on a net basis by $343.1 million
or 12.7% from a year ago.
- Equitable funded $976.9 million of mortgages in the third quarter, an
increase of 25.3% or $197.5 million over the third quarter of 2007.
- The Company continued to benefit from credit market dynamics that
allowed it to securitize and sell $440.0 million of CMHC-insured
mortgages in the third quarter, at spreads wider than historical
averages.
- Productivity ratio on a Taxable Equivalent Basis improved to 24.9%
from 27.4% in the third quarter a year ago. Over the first nine
months of 2008, the productivity ratio was 25.9%, better than the
targeted range for the year of 27% to 30%.Management Commentary
"We are proud of the progress Equitable made in the third quarter as we
recorded our highest quarterly earnings ever and surpassed two milestones -
total assets of more than $4 billion and total mortgages receivable of greater
than $3 billion - all at a time when the market began showing some signs of
slowing," said Andrew Moor, President and Chief Executive Officer. "We have
successfully applied our plan for the year and are seeing the result -
quarterly earnings up more than 20%, the strongest capital ratio in our
history as a public company and a meaningful shift in the mix of our asset
portfolio towards single-family mortgages. Strategically, we continued to
build value by increasing our single-family business to support our return on
equity goals. With respect to risk management, we have maintained the
conservative underwriting practices that have given Equitable an enviable
track record of credit quality for many years. In light of rapid changes in
certain market niches, we moved proactively in the quarter to take an
additional general reserve for the potential for future credit losses. We are
satisfied that this is prudent relative to Equitable's risk-return profile at
this juncture and we are delighted with the Company's outstanding performance
to date."
Outlook
"Despite a more challenging economic climate, we are confident we will
meet our stated performance objectives for 2008," Mr. Moor said. "We continue
to closely monitor the economy and credit markets and at the present time, we
have not altered our plan or outlook for the year. We have, however, made some
adjustments to our underwriting criteria in light of slowing Canadian real
estate markets, softening of real estate values in some markets and
uncertainty as to the magnitude of further softening. While these adjustments
will impact originations, we feel that ours is the right approach to safeguard
the future health of our portfolio, and ultimately, shareholder value. We
continue to believe that adequate collateral is available to support mortgages
in our portfolio. A stronger balance sheet and the strategic improvements made
in our portfolio mix will enhance our value creation potential for the
future."
John Ayanoglou, Chief Financial Officer, said: "In preparation for the
future, we have decided to maintain higher levels of liquidity on our balance
sheet. This will affect our net interest margin, as will temporary spread
compression that is the result of two separate reductions in the Prime Rate
early in the fourth quarter. However, our enhanced liquidity position is
prudent in that it will help to insulate the Company's business from
unexpected and unforeseen disruptive effects in Canadian and international
capital markets. While volatility in capital markets has negatively impacted
our equity securities portfolio to date in the fourth quarter, we believe
there is no permanent impairment in this portfolio, which is comprised of
high-quality preferred shares. Competitively, our markets are now far less
crowded, and this fact, along with a stronger balance sheet and focus on
risk-weighted returns, will provide a long-term opportunity to improve
interest rate spreads and drive shareholder value creation."
Third Quarter Webcast
Management will discuss Equitable's results during a conference call
beginning at 10 a.m. ET today. To listen to the audio webcast, log on to
www.equitablegroupinc.com. To participate in the call, please dial
416-915-5761.
MD&A
The Company will post its MD&A for the three and nine months ended
September 30, 2008 on its website www.equitablegroupinc.com this morning. This
document will also be archived on the site.CONSOLIDATED BALANCE SHEETS (unaudited)
AS AT SEPTEMBER 30, 2008
With comparative figures as at December 31, 2007 and September 30, 2007
(In thousands of dollars)
-------------------------------------------------------------------------
September December September
30, 2008 31, 2007 30, 2007
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Assets
Cash and cash equivalents $ 10,985 $ 15,927 $ 282,096
Restricted cash 5,000 5,000 5,000
Investments purchased under reverse
repurchase agreements 748,183 232,120 -
Investments 190,347 220,697 282,225
Loan securitizations - retained
interests 84,252 51,214 53,335
Mortgages receivable 3,036,281 2,874,241 2,698,634
Other assets 19,039 10,427 11,282
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$ 4,094,087 $ 3,409,626 $ 3,332,572
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Liabilities and Shareholders' Equity
Liabilities:
Customer deposits $ 3,712,019 $ 3,104,524 $ 3,036,454
Future income taxes 14,018 7,945 8,237
Other liabilities 23,857 17,423 13,466
Bank term loans 44,595 44,595 44,595
Subordinated debentures 31,969 31,969 31,969
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3,826,458 3,206,456 3,134,721
Shareholders' equity:
Capital stock 126,993 87,062 86,861
Contributed surplus 2,345 1,778 1,570
Retained earnings 142,959 116,325 110,709
Accumulated other comprehensive
loss (4,668) (1,995) (1,289)
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267,629 203,170 197,851
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$ 4,094,087 $ 3,409,626 $ 3,332,572
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CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008
With comparative figures for the three and nine month periods ended
September 30, 2007
(In thousands of dollars, except per share amounts)
-------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
Interest income:
Mortgages $ 49,821 $ 42,821 $ 140,664 $ 117,302
Investments 1,739 3,191 6,061 9,823
Other 4,425 2,075 11,955 5,600
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55,985 48,087 158,680 132,725
Interest expense:
Customer deposits 35,690 29,178 98,527 79,679
Deposit agent
commissions 2,553 1,907 6,643 4,847
Bank term loans 754 752 2,271 2,198
Subordinated
debentures 590 592 1,758 1,775
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39,587 32,429 109,199 88,499
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Net interest income 16,398 15,658 49,481 44,226
Provision for credit
losses 1,300 225 1,900 675
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Net interest income
after provision for
credit losses 15,098 15,433 47,581 43,551
Other income:
Fees and other income 525 289 1,306 922
Net (loss) gain on
investments (72) 14 158 (1)
Loan securitizations
- retained interests 5,050 1,166 10,009 3,306
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5,503 1,469 11,473 4,227
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Net interest income
and other income 20,601 16,902 59,054 47,778
Non-interest expenses:
Compensation and
benefits 3,371 2,844 9,631 8,205
Other 2,284 2,220 6,853 6,389
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5,655 5,064 16,484 14,594
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Income before income
taxes 14,946 11,838 42,570 33,184
Income taxes:
Current 1,212 2,203 6,200 4,260
Future 2,982 847 5,653 4,664
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4,194 3,050 11,853 8,924
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Net income $ 10,752 $ 8,788 $ 30,717 $ 24,260
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Earnings per share:
Basic $ 0.74 $ 0.68 $ 2.28 $ 1.94
Diluted $ 0.74 $ 0.67 $ 2.27 $ 1.91
Weighted average
number of shares
outstanding:
Basic 14,534,667 12,920,606 13,492,346 12,492,458
Diluted 14,561,797 13,037,944 13,533,386 12,671,737
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008
With comparative figures for the three and nine month periods ended
September 30, 2007
(In thousands of dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
Capital stock:
Balance, beginning
of period $ 87,653 $ 86,339 $ 87,062 $ 57,849
Common shares issued
Gross proceeds of
equity issue 40,850 - 40,850 25,000
Issue expense, net
of tax recovery
of $698 (2007 -
$498) (1,510) - (1,510) (962)
Proceeds from
exercise of stock
options - 448 525 4,413
Transfer from
contributed surplus
relating to the
exercise of stock
options - 74 66 561
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Balance, end of period 126,993 86,861 126,993 86,861
Contributed surplus:
Balance, beginning
of period 2,124 1,415 1,778 1,539
Stock-based compensation 221 229 633 592
Transfer to common
shares relating to
the exercise of stock
options - (74) (66) (561)
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Balance, end of period 2,345 1,570 2,345 1,570
Retained earnings:
Balance, beginning of
period 133,695 103,215 116,325 90,348
Transition adjustment
- Financial
instruments - - - (113)
Net income 10,752 8,788 30,717 24,260
Dividends (1,488) (1,294) (4,083) (3,786)
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Balance, end of period 142,959 110,709 142,959 110,709
Accumulated other
comprehensive loss:
Balance, beginning of
period (2,374) (4,557) (1,995) -
Transition adjustment
- Financial
instruments - - - 302
Other comprehensive
(loss) income (2,294) 3,268 (2,673) (1,591)
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Balance, end of period (4,668) (1,289) (4,668) (1,289)
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Total retained earnings
and accumulated other
comprehensive loss 138,291 109,420 138,291 109,420
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Total shareholders'
equity $ 267,629 $ 197,851 $ 267,629 $ 197,851
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008
With comparative figures for the three and nine month periods ended
September 30, 2007
(In thousands of dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
Net income $ 10,752 $ 8,788 $ 30,717 $ 24,260
Other comprehensive loss:
Available-for-sale
assets, change in
unrealized gains
(losses) (2,163) 3,122 (2,554) (1,755)
Reclassification to
income for
realization of
available-for-sale
assets fair value
changes (131) 146 (119) 164
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Other comprehensive
loss (2,294) 3,268 (2,673) (1,591)
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Comprehensive income $ 8,458 $ 12,056 $ 28,044 $ 22,669
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008
With comparative figures for the three and nine month periods ended
September 30, 2007
(In thousands of dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
Cash provided by
(used in):
Operating activities:
Net income $ 10,752 $ 8,788 $ 30,717 $ 24,260
Non-cash items:
Financial
instruments -
fair value
adjustments (3,666) (2,047) (5,407) 593
Loan securitizations
- gain on
securitization
activities (4,271) (445) (7,968) (1,283)
Amortization of
capital assets 192 76 564 435
Provision for
credit losses 1,300 225 1,900 675
Net loss (gain)
on investments 72 (14) (156) 1
Future income taxes 2,285 2,695 4,956 3,536
Stock-based
compensation 221 229 633 592
Amortization of
premiums on
investments, net 244 970 1,160 3,033
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7,129 10,477 26,399 31,842
Changes in operating
assets and liabilities:
Other assets 1,698 3,468 (818) 3,696
Other liabilities (3,404) (6,353) (3,318) (8,781)
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5,423 7,592 22,263 26,757
Financing activities:
Increase in customer
deposits 228,900 423,116 607,290 646,868
Issuance of bank
term loan - - - 12,500
Repayment of bank
term loan - - - (2,655)
Issuance of
subordinated
debentures - - - 9,450
Redemption of
subordinated
debentures - - - (2,731)
Dividends paid on
common shares (1,488) (1,294) (4,083) (3,786)
Issuance of common
shares 39,340 448 39,865 28,451
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266,752 422,270 643,072 688,097
Investing activities:
Purchase of
investments - (3,022) (5,000) (126,919)
Proceeds on sale
or redemption of
investments 20,844 81,417 95,936 157,802
Purchase of
investments
purchased under
reverse repurchase
agreements (748,183) - (1,435,261) -
Proceeds on sale or
redemption of
investments
purchased under
reverse repurchase
agreements 412,004 - 919,198 -
Change in
restricted cash - - - (5,000)
Increase in
mortgages
receivable (987,259) (784,839) (2,331,765) (2,152,678)
Mortgage principal
repayments 346,235 269,481 1,065,485 1,314,975
Proceeds from loan
securitizations 442,741 121,982 1,008,681 262,020
Loan securitizations
- retained interests 4,349 3,236 12,613 9,861
Purchase of
capital assets (60) (253) (164) (661)
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(509,329) (311,998) (670,277) (540,600)
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(Decrease) increase in
cash and cash
equivalents (237,154) 117,864 (4,942) 174,254
Cash and cash
equivalents, beginning
of period 248,139 164,232 15,927 107,842
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Cash and cash
equivalents, end of
period $ 10,985 $ 282,096 $ 10,985 $ 282,096
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-------------------------------------------------------------------------About Equitable Group Inc.
Equitable Group Inc. is a leading niche financial institution focused on
single-family dwelling mortgage lending, Commercial Mortgage - Broker
Services, a business line that funds loans on a variety of properties
including mixed-use, apartment, commercial and industrial buildings, and
commercial lending in partnership with mortgage banking organizations.
Equitable is a nationally-licensed deposit-taking institution. It conducts
business through its wholly-owned subsidiary, The Equitable Trust Company,
which was founded in 1970. Equitable's non-branch business model, valued
relationships with independent mortgage professionals and deposit-taking
agents, and disciplined lending practices have allowed the Company to grow
profitably and efficiently for many years.
The common shares of Equitable Group Inc. are listed on the Toronto Stock
Exchange under the trading symbol of "ETC". For more information, visit
www.equitablegroupinc.com.
Certain forward-looking statements are made in this news release,
including statements 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. 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 such
forward-looking statements. Equitable does not undertake to update any
forward-looking statements, oral or written, made by itself or on its behalf.
See the MD&A for further information on forward-looking statements.
For further information:
For further information: John Ayanoglou, Chief Financial Officer, (416) 513-3535
™ Trademark of Equitable Bank, All Rights Reserved
EQ Bank is a trade name of Equitable Bank.
