News
Equitable Group reports strong second quarter 2009 results
- SOLID IMPROVEMENT IN NET INTEREST MARGIN
- OUTLOOK SUPPORTS INCREASED SALES ACTIVITYTSX Symbol: ETC
TORONTO, Aug. 6 /CNW/ - Equitable Group Inc. ("Equitable" or the
"Company") today reported excellent quarterly earnings for the three months
ended June 30, 2009, on par with the record earnings reported in the first
quarter of 2009.SECOND QUARTER RESULTS
- Net income increased 15.5% to $11.9 million compared to $10.3 million
in the same period a year ago;
- Net interest income earned increased by $2.5 million from the prior
quarter and $2.0 million from the corresponding quarter of the prior
year;
- Diluted earnings per share increased to $0.80 per share, slightly
ahead of $0.79 per share a year ago;
- Return on equity was 16.5% compared to 17.8% in the first quarter of
2009 and 19.1% in the second quarter of 2008;
- Tangible Common Equity ratio (TCE) ratio, a key measure of capital
strength, was 11.8%, an improvement over the ratios of 10.8% and 8.6%
for the first quarter of 2009 and second quarter of 2008,
respectively;
- Productivity ratio on a Taxable Equivalent Basis - a measure of
efficiency - improved to 24.4% from 26.8% in the same quarter of
2008;
- Net impaired mortgages improved to 0.79% of total mortgage principal
outstanding from 0.94% at the end of the first quarter of 2009;
- Book value per share increased 17.1% to $19.94 from $17.03 at
June 30, 2008.DIVIDEND
The Company's Board of Directors declared a quarterly dividend in the
amount of $0.10 per share, payable on October 5, 2009, to shareholders of
record at the close of business on September 15, 2009.
MANAGEMENT COMMENTARY
"Equitable made strong progress in creating shareholder value over the
first half of 2009 through a combination of margin improvement measures,
excellent productivity, diligent risk management and the achievement of
attractive securitization volumes and spreads," said Andrew Moor, President
and CEO. "Given turbulent economic conditions, we are very pleased with
Equitable's performance to date, including growth in our $3.5 billion
securitized mortgage portfolio and our robust capital position. Period end
total capital ratio of 15.3% (inclusive of general allowance) is well ahead of
our target for the year and supports meaningful growth in new mortgage
business."
SECOND QUARTER OPERATING HIGHLIGHTS- Net interest margin on a taxable equivalent basis increased to 1.9%
from 1.6% in the first quarter of 2009 - despite a 25 basis point
decrease in Prime Rate early in the second quarter - as a result of
pricing strategies on new and renewing mortgages;
- Floating rate mortgages that did not have interest rate floors
represented 24.2% of the mortgage portfolio at June 30, 2009,
compared to 35.6% at the end of the prior quarter as the Company
successfully reduced its interest rate exposure by converting
floating to fixed rate mortgages and putting interest rate floors on
floating rate mortgages as they renewed;
- Floating rate mortgages that had interest rate floors represented
15.3% of the mortgage portfolio at June 30, 2009 compared to 12.0% at
March 31, 2009 and based on interest rate levels at June 30th, these
mortgages are expected to generate a significant increase in interest
income in the third quarter over what would have been earned had the
floors not been implemented;
- Equitable securitized and sold $353.9 million of CMHC-insured
mortgages compared to $410.0 million in the same quarter of 2008 and
earned $5.8 million in income from securitizations;
- Mortgage fundings in the second quarter amounted to $645.3 million,
an increase of 21.3% over first quarter 2009 fundings of
$532.1 million;
- Mortgage principal was $2.9 billion, essentially unchanged from a
year ago but lower than the year end 2008 total of $3.0 billion due
to securitizations of CMHC-insured multi-residential and single
family mortgages as well as natural amortization and payout of the
portfolio.CREDIT QUALITY
Net impaired mortgages improved to 0.79% of total mortgage principal
outstanding from 0.94% at the end of the first quarter of 2009, reflecting the
health of the Company's mortgage portfolio, success in curing problem mortgage
loans and relatively healthier real estate market conditions in Equitable's
chosen lending regions. Mortgages in arrears 90 days or more (excluding
CMHC-insured mortgages that are less than 365 days in arrears) also improved
to 1.34% of total principal outstanding from 1.49% at March 31, 2009. Net
realized loan losses related to workout activities in the second quarter
amounted to $1.0 million. Effective collections management and a recovery in
real estate markets have allowed the Company to sell properties and work out
problem loans expeditiously and without incurring unreasonable losses.
SIX MONTH RESULTS- Net income increased 19.3% to a record $23.8 million compared to
$20.0 million in the same period a year ago;
- Diluted earnings per share increased 4.6% to $1.60 per share compared
to $1.53 per share a year ago;
- Return on equity was 17.1% compared to 18.9% in the same period of
2008.CONCLUSION
"Economic conditions appear to be improving relative to the past few
quarters and, based on our increasing comfort with credit and real estate
market dynamics, we have increased our sales efforts within the context of
ongoing lending and risk management discipline," said Mr. Moor. "Our robust
balance sheet certainly supports incremental asset accumulation, and we're
confident that our low-cost business approach will allow us to add to our
portfolio on a very profitable basis. For several reasons, we also expect
continued improvement in our interest rate spreads. Notably, recent market
conditions have eased overall deposit costs while the Bank of Canada has
indicated that its benchmark interest rate should remain at its current level
through the first half of 2010, assuming inflation remains in check. With
greater market stability, combined with the progress we continue to make in
implementing significantly enhanced pricing, we have a solid opportunity for
additional shareholder value creation in the second half of 2009 and well into
2010."
John Ayanoglou, Senior Vice-President and Chief Financial Officer, said:
"An important factor related to improving spreads is the $400 million in
cashable GICs that comprise part of our $3.3 billion portfolio of customer
deposits that will mature and are expected to be replaced with less expensive
funding over the next two quarters. This should have a positive impact on our
margins, partially offset by the maintenance of higher than normal levels of
liquidity we are maintaining to be prepared for any unexpected developments in
our markets. As we identify and originate new mortgages in this environment,
we will retain our bias toward high quality investments, including insured
fundings for securitization, and continue to apply our ROE optimization
strategies. In short, we will maintain our focus on safeguarding the future
health and performance potential of our portfolio through strong underwriting
practices that ensure improving returns without excessive risk taking."
SECOND QUARTER WEBCAST
Management will discuss Equitable's results during a conference call
beginning at 9:30 a.m. ET today. To listen to the audio webcast, log on to
www.equitablegroupinc.com. To participate in the call, please dial
416-915-5762.
MD&A
The Company will post its MD&A for the three and six months ended June
30, 2009 on its website (www.equitablegroupinc.com) this morning. 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. 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 in Ontario, Alberta and Manitoba. Equitable
Group's shares are traded on the Toronto Stock Exchange under the symbol ETC.
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, 2009
With comparative figures as at December 31, 2008 and June 30, 2008
(In thousands of dollars)
-------------------------------------------------------------------------
June 30, December 31, June 30,
2009 2008 2008
-------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 273,422 $ 50,121 $ 248,139
Restricted cash 5,000 8,422 5,000
Investment purchased under reverse
repurchase agreements 145,037 698,276 412,004
Investments 292,598 170,321 149,214
Securitization retained interests 124,072 101,806 67,469
Mortgages receivable 2,857,378 3,023,015 2,915,912
Other assets 21,981 35,590 16,457
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$ 3,719,488 $ 4,087,551 $ 3,814,195
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Liabilities and Shareholders'
Equity
Liabilities:
Customer deposits $ 3,280,565 $ 3,692,569 $ 3,483,607
Future income taxes 19,071 17,839 11,733
Other liabilities 47,864 36,433 21,193
Bank term loans 43,250 44,595 44,595
Subordinated debentures 31,969 31,969 31,969
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3,422,719 3,823,405 3,593,097
Shareholders' equity:
Capital stock 127,029 126,993 87,653
Contributed surplus 2,984 2,553 2,124
Retained earnings 170,209 149,365 133,695
Accumulated other comprehensive
loss (3,453) (14,765) (2,374)
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296,769 264,146 221,098
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$ 3,719,488 $ 4,087,551 $ 3,814,195
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CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
With comparative figures for the three and six month periods ended
June 30, 2008
(In thousands of dollars, except share and per share amounts)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Interest income:
Mortgages $ 40,005 $ 45,151 $ 81,019 $ 90,843
Investments 3,293 2,146 5,758 4,322
Other 664 3,807 2,489 7,530
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43,962 51,104 89,266 102,695
Interest expense:
Customer deposits 23,432 32,128 50,729 62,837
Deposit agent
commissions 1,683 2,148 3,367 4,090
Bank term loans 758 771 1,496 1,517
Subordinated
debentures 586 584 1,165 1,168
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26,459 35,631 56,757 69,612
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Net interest income 17,503 15,473 32,509 33,083
Provision for credit
losses 1,250 300 3,100 600
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Net interest income
after provision for
credit losses 16,253 15,173 29,409 32,483
Other income:
Fees and other income 998 421 1,751 781
Net gain on investments - 49 36 230
Gains on
securitization
activities and income
from retained
interests 5,798 4,278 15,132 4,959
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6,796 4,748 16,919 5,970
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Net interest income and
other income 23,049 19,921 46,328 38,453
Non-interest expenses:
Compensation and
benefits 3,481 3,233 7,445 6,260
Other 2,627 2,448 4,934 4,569
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6,108 5,681 12,379 10,829
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Income before income
taxes 16,941 14,240 33,949 27,624
Income taxes:
Current 6,189 1,384 8,896 4,988
Future (1,125) 2,576 1,232 2,671
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5,064 3,960 10,128 7,659
Net income $ 11,877 $ 10,280 $ 23,821 $ 19,965
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Earnings per share:
Basic $ 0.80 $ 0.79 $ 1.60 $ 1.54
Diluted $ 0.80 $ 0.79 $ 1.60 $ 1.53
Weighted average
number of shares
outstanding:
Basic 14,886,063 12,975,018 14,884,396 12,965,458
Diluted 14,914,954 13,008,490 14,898,921 13,013,529
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
With comparative figures for the three and six month periods ended
June 30, 2008
(In thousands of dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Capital stock:
Balance, beginning
of period $ 126,993 $ 87,257 $ 126,993 $ 87,062
Common shares issued
Proceeds from
reinvestment of
dividend 36 - 36 -
Proceeds from
exercise of stock
options - 350 - 525
Transfer from
contributed
surplus relating
to the exercise
of stock options - 46 - 66
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Balance, end of
period 127,029 87,653 127,029 87,653
Contributed surplus:
Balance, beginning
of period 2,872 1,961 2,553 1,778
Stock-based
compensation 112 209 431 412
Transfer to common
shares relating to
the exercise of
stock options - (46) - (66)
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Balance, end of
period 2,984 2,124 2,984 2,124
Retained earnings:
Balance, beginning
of period 159,821 124,714 149,365 116,325
Net income 11,877 10,280 23,821 19,965
Dividends (1,489) (1,299) (2,977) (2,595)
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Balance, end
of period 170,209 133,695 170,209 133,695
Accumulated other
comprehensive income
(loss), net of tax:
Balance, beginning
of period (8,431) (1,996) (14,765) (1,995)
Other comprehensive
income (loss) 4,978 (378) 11,312 (379)
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Balance, end
of period (3,453) (2,374) (3,453) (2,374)
-------------------------------------------------------------------------
Total retained
earnings and
accumulated other
comprehensive income
(loss) 166,756 131,321 166,756 131,321
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Total shareholders'
equity $ 296,769 $ 221,098 $ 296,769 $ 221,098
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
With comparative figures for the three and six month periods ended
June 30, 2008
(In thousands of dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Net income $ 11,877 $ 10,280 $ 23,821 $ 19,965
Other comprehensive
income (loss), net
of tax:
Available for sale
investments:
Net unrealized
gains (losses)
from change in
fair value 7,832 (304) 15,272 (391)
Reclassification
of net (gains)
losses to income (2,854) (74) (3,960) 12
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Other comprehensive
income (loss) 4,978 (378) 11,312 (379)
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Comprehensive income $ 16,855 $ 9,902 $ 35,133 $ 19,586
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
With comparative figures for the three and six month periods ended
June 30, 2008
(In thousands of dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by
(used in):
Operating activities:
Net income $ 11,877 $ 10,280 $ 23,821 $ 19,965
Non-cash items:
Financial
instruments -
fair value
adjustments 2,595 (609) (2,999) (1,741)
Securitizations
gains (4,940) (3,739) (12,559) (3,697)
Amortization of
capital assets 150 187 291 372
Provision for
credit losses 1,250 300 3,100 600
Net loss (gain)
on investments 4 (49) (80) (228)
Future income taxes (1,125) 2,576 1,232 2,671
Stock-based
compensation 112 209 431 412
Amortization of
premiums on
investments, net 166 367 370 916
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10,089 9,522 13,607 19,270
Changes in operating
assets and
liabilities:
Other assets 8,438 (3,498) 8,650 (2,516)
Other liabilities 4,134 3,856 (559) 86
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22,661 9,880 21,698 16,840
Financing activities:
Increase (decrease)
in customer deposits (188,919) 426,069 (408,076) 378,390
Repayment of bank
term loan (1,345) - (1,345) -
Dividends paid on
common shares (1,489) (1,299) (2,977) (2,595)
Issuance of common
shares 36 350 36 525
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(191,717) 425,120 (412,362) 376,320
Investing activities:
Purchase of
investments (9,318) (5,000) (9,318) (5,000)
Proceeds on sale or
redemption of
investments 26,065 51,342 30,524 75,092
Purchase of
investments
purchased under
reverse repurchase
agreements (145,037) (412,004) (685,730) (687,078)
Proceeds on sale or
redemption of
investments
purchased under
reverse repurchase
agreements 540,693 275,074 1,238,969 507,194
Change in restricted
cash 1,300 - 3,422 -
Increase in mortgages
receivable (724,099) (968,494) (1,535,815) (1,344,506)
Mortgage principal
repayments 379,005 451,772 798,297 719,250
Proceeds from loan
securitizations 350,672 402,849 761,851 565,940
Securitization
retained interests 5,973 5,060 11,892 8,264
Purchase of capital
assets (12) (42) (127) (104)
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425,242 (199,443) 613,965 (160,948)
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Increase in cash and
cash equivalents 256,186 235,557 223,301 232,212
Cash and cash
equivalents, beginning
of period 17,236 12,582 50,121 15,927
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Cash and cash
equivalents, end of
period $ 273,422 $ 248,139 $ 273,422 $ 248,139
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For further information:
For further information: John Ayanoglou, Senior Vice-President and Chief Financial Officer, (416) 513-3535
™ Trademark of Equitable Bank, All Rights Reserved
EQ Bank is a trade name of Equitable Bank.
