News

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
    -------------------------------------------------------------------------
                                       $ 4,399,758  $ 3,846,074  $ 3,687,624
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
                                         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)
    -------------------------------------------------------------------------
                                           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
    -------------------------------------------------------------------------
                                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
    -------------------------------------------------------------------------
                                4,187        4,875       12,572       15,003
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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

    -------------------------------------------------------------------------



    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)           -
    -------------------------------------------------------------------------
      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)
    -------------------------------------------------------------------------
      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
    -------------------------------------------------------------------------
      Balance, end of period    7,787         (415)       7,787         (415)
    -------------------------------------------------------------------------
    Total retained earnings
     and accumulated other
     comprehensive income     232,343      180,350      232,343      180,350
    -------------------------------------------------------------------------
    Total shareholders'
     equity               $   412,430  $   359,163  $   412,430  $   359,163
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    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
    -------------------------------------------------------------------------
                               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
    -------------------------------------------------------------------------
                              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)
    -------------------------------------------------------------------------
                             (261,602)      17,894     (684,756)     631,859
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end
     of period            $   249,996  $   258,815  $   249,996  $   258,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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
Back to top