News

Equitable Group Reports Strong Second Quarter 2011 Results

TORONTO, Aug. 10, 2011 /CNW/ - Equitable Group Inc. (TSX: ETC) and (ETC.PR.A) ("Equitable" or the "Company") today reported strong earnings growth for the three and six months ended June 30, 2011 and provided a positive outlook.

SECOND QUARTER HIGHLIGHTS

  • Diluted earnings per share increased 44.1% to $0.98 from $0.68 a year ago, while adjusted diluted earnings per share (a non-GAAP measure that removes gains and losses associated with unmatched derivative measurement accounting) grew 16.7% to $0.98 from $0.84 a year ago;
  • Net income increased 42.1% to $15.7 million from $11.1 million in the same period of 2010 and adjusted net income grew 16.6% to $15.7 million from $13.5 million a year ago;
  • Net interest income grew 16.0% to $32.5 million from $28.0 million in the corresponding period of 2010;
  • Total assets reached a record $9.6 billion as originations during the second quarter of 2011 amounted to $629.2 million, 46.1% of which were conventional single family residential mortgages;
  • Return on Equity ("ROE") was 16.8% compared to 13.7% in the second quarter of 2010 while adjusted ROE was 16.7% compared to 16.8% in the second quarter of 2010;
  • Productivity ratio on a TEB - a measure of efficiency - was 28.7%, compared to 28.3% in the second quarter of 2010;
  • Equitable Trust's total capital ratio (when collective allowance is included in capital) was 17.1% at June 30, 2011, compared to 16.6% a year earlier;
  • Book value per share at June 30, 2011 increased 18.8% to $24.05 from $20.24 a year ago.

Basic and diluted EPS for the second quarter of $0.99 and $0.98, respectively, were slightly lower than the basic and diluted EPS of $1.01 and $1.00 reported in the first quarter of 2011. This differential can be explained in the context of several factors that are individually minor, but which in aggregate cause some fluctuation in quarter over quarter results. In the case of the first and second quarters of 2011, gains and losses on the liquidation of equity securities sold, net prepayment penalty income earned in the Company's securitized portfolio, fluctuations in credit provisions, as well as fair value gains on hedges combined to cause quarter over quarter fluctuation in net income available to common shareholders, which if removed would have resulted in pro forma basic and diluted EPS in the second quarter that would have been $0.04 greater than those of the first quarter.

DIVIDEND DECLARATIONS
The Company's Board of Directors declared a dividend of $0.11 per share on the Company's common shares, payable on October 5, 2011, to common shareholders of record at the close of business on September 15, 2011. These payments are consistent with the 10% increase in common share dividend payments announced by the Company's Board of Directors in February, 2011. The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable on September 30, 2011, to preferred shareholders of record at the close of business on September 15, 2011.

SIX MONTH HIGHLIGHTS

  • Diluted earnings per share increased 39.2% to $1.99 from $1.43 a year ago, while adjusted diluted earnings per share advanced 15.2% to $1.97 from $1.71 a year ago;
  • Net income increased 36.9% to $31.8 million from $23.2 million in the same period of 2010 and adjusted net income grew 14.6% to $31.5 million from $27.5 million a year ago;
  • Net interest income increased 12.4% to a record $63.7 million from $56.6 million in the corresponding period of 2010;
  • ROE was 17.4% compared to 14.8% a year ago, while adjusted ROE was 17.3% compared to 17.7% a year ago;
  • Productivity ratio on a TEB was 28.1%, compared to 26.7%.

Note to Readers: Results for both reporting periods were prepared using International Financial Reporting Standards ("IFRS"), with a transition date of January 1, 2010. As a result, prior period comparative information in this news release, the Company's MD&A and financial statements reflects conversion from previous Canadian Generally Accepted Accounting Principles ("GAAP") to an IFRS basis.

MANAGEMENT COMMENTARY
"Equitable's strong rate of earnings growth to date this year reflects the ongoing success of our balanced business strategy, with its focus on service excellence, diligent cost and risk management and portfolio growth," said Andrew Moor, President and CEO. "Of note, we continue to derive significant advantages from our growing presence in the single family residential market in Canada, where conventional mortgage production in the first half of the year surpassed the half billion dollar mark - a new record for the period. As a result, Single Family Lending Services is now firmly established as our largest business, accounting for almost 48% of conventional mortgage principal outstanding at quarter end compared to just over 37% a year ago. This planned increase in emphasis adds to immediate earnings potential and has also allowed us to advance our standing with mortgage broker partners in our chosen markets. In the context of both market conditions and the traction gained with our mortgage portfolio growth strategies, we are extremely pleased with Equitable's performance as we close in on the $10 billion milestone for total assets."

"The substantial expansion of our mortgage book has translated into sizeable and ongoing year-over-year growth in net interest income," said John Ayanoglou, Senior Vice-President and Chief Financial Officer. "Looking at Net Interest Margin or NIM on a taxable equivalent basis shows that NIM was a healthy 2.5% on non-securitized assets in both reporting periods in 2011, while NIM on securitized assets was 0.5% in both 2011 periods. We generally expect to earn lower NIM on securitized mortgages, which are insured under government programs, but by seeking an optimal balance between conventional and securitized portfolios, our goal is to optimize the NIM we earn in order to drive an improvement in overall ROE."

MORTGAGE PORTFOLIO AND CREDIT HIGHLIGHTS

  • Single Family Lending Services originated $290.1 million of conventional mortgages in the second quarter of 2011, to bring year-to-date conventional production for this business line to $506.3 million compared to $488.3 million in the corresponding six months of 2010;
  • Commercial Mortgage - Broker Services originated $54.2 million of mortgages or 8.6% of total second quarter production to bring year-to-date production to $150.2 million compared to $167.8 million a year ago;
  • Commercial Lending Services originated $86.9 million of conventional mortgages to bring total conventional production for this business line over the first half of 2011 to $187.1 million from $155.8 million in the same period a year ago and originated $194.7 million of CMHC-insured multi-unit residential mortgages to bring total CMHC-related production to $488.7 million over the first half of 2011.

At quarter end:

  • Fixed-rate mortgages represented 90.9% of the mortgage portfolio compared to 88.1% a year earlier;
  • Conventional mortgage principal increased 19.2% during the 12 months ended June 30, 2011 to $3.9 billion, while the Company's securitized portfolio increased 14.5% to $5.0 billion;
  • Net impaired mortgages were 0.29% of total mortgage principal, compared to 0.45% a year ago and 0.33% at March 31, 2011;
  • Mortgage principal in arrears 90 days or more was 0.27% of total mortgage principal compared to 0.43% a year ago and 0.33% at March 31, 2011;
  • Early stage delinquency rates at quarter end decreased to 0.21% of total outstanding principal compared to 0.34% at December 31, 2010.

LOOKING AHEAD
"The results of our sales activities in the latter part of the second quarter and to-date in the third quarter have been encouraging," said Mr. Moor. "In fact, although it's still early, third quarter single family residential mortgage production is on track to significantly outperform second quarter origination volumes. The increase in our Single Family Lending Services portfolio of $637.3 million or 52.5% compared to June 30, 2010 is a strong indicator of the success we are having in this business. Combined with good levels of production in our commercial mortgage lending businesses, we expect portfolio growth to continue in the third quarter with commensurate benefits to our earnings performance for the balance of the year."

While market conditions may moderate in certain areas beyond the third quarter, and the potential for modest contraction in NIM remains, management believes that Equitable can continue to grow without undue risk and achieve strong results for shareholders. The Company also expects its productivity ratio to remain strong even as it supports further growth and expansion in its operations and core banking system.

Mr. Ayanoglou added: "Our capital base, which provides the foundation for continued growth, is strong and this is reflected in solid year-over-year enhancements to all capital ratios at quarter end. Going forward, we will manage our capital and liquidity positions as we grow to ensure the ongoing solidity and vibrancy of the Equitable franchise."

Q2 CONFERENCE CALL
The Company will hold its second quarter conference call and webcast at 10:00 a.m. ET Thursday August 11, 2011. To access the call live, please dial in five minutes prior to 416-640-9737. To access a listen-only version of the webcast, please log on to www.equitablegroupinc.com.

A replay of the call will be available until August 18, 2011 and it can be accessed by dialing 416-640-1917 and entering passcode 4461460 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS            
                   
                   
CONSOLIDATED BALANCE SHEETS (unaudited)            
AS AT JUNE 30, 2011                
With comparative figures as at December 31, 2010, June 30, 2010 and January 1, 2010    
($ THOUSANDS)                
                   
    June 30, 2011 December 31, 2010 June 30, 2010 January 1, 2010
                 
Assets                
Cash and cash equivalents $ 264,724 $ 155,242 $ 153,545 $ 389,170
Restricted cash   48,346   86,570   29,415   25,372
Investments   377,160   413,330   303,449   302,292
Mortgages receivable   3,865,669   3,468,507   3,241,713   2,763,020
Mortgages receivable - securitized   4,998,688   4,748,794   4,369,621   4,137,247
Other assets   12,768   11,686   11,591   15,191
  $ 9,567,355 $ 8,884,129 $ 8,109,334 $ 7,632,292
                 
Liabilities and Shareholders' Equity                
Liabilities:                
   Deposits $ 4,254,271 $ 3,878,853 $ 3,460,584 $ 3,332,319
   Securitization liabilities   4,776,241   4,531,680   4,170,998   3,885,187
   Obligations under repurchase agreements   34,298   -     37,558   -  
   Deferred tax liabilities   7,457   7,086   6,012   5,191
   Other liabilities   21,202   19,884   18,562   14,959
   Bank term loans   12,500   12,500   27,500   27,500
   Subordinated debentures   52,671   52,671   37,671   37,671
    9,158,640   8,502,674   7,758,885   7,302,827
                 
Shareholders' equity:                
   Preferred shares   48,494   48,494   48,494   48,494
   Common shares   129,054   128,068   127,631   127,336
   Contributed surplus   4,292   3,935   3,613   3,267
   Retained earnings   228,881   202,187   174,316   155,890
   Accumulated other comprehensive loss   (2,006)   (1,229)   (3,605)   (5,522)
    408,715   381,455   350,449   329,465
                 
  $ 9,567,355 $ 8,884,129 $ 8,109,334 $ 7,632,292

CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
       
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2011        
With comparative figures for the three and six month periods ended June 30, 2010        
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)                
                 
  Three months ended Six months ended
  June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
                 
Interest income:                
     Mortgages $ 50,474 $ 41,839 $ 98,323 $ 83,603
     Mortgages - securitized   52,610   48,373   104,762   95,593
     Investments   2,648   2,190   4,927   3,655
     Other   1,242   653   2,267   1,305
    106,974   93,055   210,279   184,156
Interest expense:                
     Deposits   28,251   22,958   54,991   44,730
     Securitization liabilities   45,111   40,990   89,380   80,558
     Bank term loans   203   430   403   894
     Subordinated debentures   870   649   1,732   1,276
     Other   78   44   107   53
    74,513   65,071   146,613   127,511
Net interest income   32,461   27,984   63,666   56,645
Provision for credit losses   2,217   1,488   4,155   4,428
Net interest income after provision for credit losses   30,244   26,496   59,511   52,217
Other income:                
     Fees and other income   790   875   1,644   1,641
     Net loss on investments   (311)   (68)   (13)   (124)
    479   807   1,631   1,517
Net interest and other income   30,723   27,303   61,142   53,734
Non-interest expenses:                
     Compensation and benefits   5,540   4,930   11,013   9,321
     Other   4,208   3,480   7,850   6,711
    9,748   8,410   18,863   16,032
Income before income taxes and fair value gain (loss)   20,975   18,893   42,279   37,702
Fair value gain (loss) on derivative financial instruments - securitization activities   48   (3,453)   367   (6,182)
Income before income taxes   21,023   15,440   42,646   31,520
Income taxes:                
     Current   5,149   4,551   10,476   8,928
     Deferred   139   (182)   371   (631)
    5,288   4,369   10,847   8,297
Net income   15,735   11,071   31,799   23,223
Dividends on preferred shares   906   906   1,812   1,812
Net income available to common shareholders $ 14,829 $ 10,165 $ 29,987 $ 21,411
                 
Earnings per share:                
     Basic $ 0.99 $ 0.68 $ 2.00 $ 1.44
     Diluted $ 0.98 $ 0.68 $ 1.99 $ 1.43
                 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
         
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2011                
With comparative figures for the three and six month periods ended June 30, 2010              
($ THOUSANDS)                
                 
  Three months ended Six months ended
  June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
                 
Net income $ 15,735 $ 11,071 $ 31,799 $ 23,223
Other comprehensive income (loss), net of tax:                
    Available for sale investments:                
        Net unrealized gains (losses) from change in fair value   903   (1,568)   1,726   1,008
        Reclassification of net losses to income   198   788   7   909
   Cash flow hedges:                
        Net unrealized losses from change in fair value   (3,700)   -     (2,501)   -  
        Reclassification of net losses (gains) to income   4   -     (9)    -  
Other comprehensive (loss) income   (2,595)   (780)   (777)   1,917
Comprehensive income $ 13,140 $ 10,291 $ 31,022 $ 25,140
                 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
         
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011              
With comparative figures for the three month period ended June 30, 2010              
($ THOUSANDS)                          
                           
June 30, 2011 Preferred
shares
Common
shares
Contributed
surplus
Retained earnings Accumulated
other
comprehensive
income
(loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 128,369 $ 4,169 $ 215,700 $ 589 $ 397,321  
Net income   -     -     -     15,735   -     15,735  
Other comprehensive income, net of tax   -     -     -     -     (2,595)   (2,595)  
Contributions from reinvestment of dividends   -     149   -     -     -     149  
Contributions from exercise of stock options   -     455   -     -     -     455  
Dividends:                          
     Preferred shares   -     -     -     (906)   -     (906)  
     Common shares   -     -     -     (1,648)   -     (1,648)  
Stock-based compensation   -     -     204   -     -     204  
Transfer relating to the exercise of stock options   -     81   (81)   -     -     -    
Balance, end of period $ 48,494 $ 129,054 $ 4,292 $ 228,881 $ (2,006) $ 408,715  
                           
                           
June 30, 2010 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income
(loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 127,568 $ 3,457 $ 165,643 $ (2,825) $ 342,337  
Net income   -     -     -     11,071   -     11,071  
Other comprehensive income, net of tax   -     -     -     -     (780)   (780)  
Contributions from reinvestment of dividends   -     59   -     -     -     59  
Contributions from exercise of stock options   -     3   -     -     -     3  
Dividends:                          
     Preferred shares   -     -     -     (906)   -     (906)  
     Common shares   -     -     -     (1,492)   -     (1,492)  
Stock-based compensation   -     -     157   -     -     157  
Transfer relating to the exercise of stock options   -     1   (1)   -     -     -    
Balance, end of period $ 48,494 $ 127,631 $ 3,613 $ 174,316 $ (3,605) $ 350,449  
                           

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
         
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011              
With comparative figures for the six month period ended June 30, 2010              
($ THOUSANDS)                          
                           
June 30, 2011 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income
(loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 128,068 $ 3,935 $ 202,187 $ (1,229) $ 381,455  
Net income   -     -     -     31,799   -     31,799  
Other comprehensive income, net of tax   -     -     -     -     (777)   (777)  
Contributions from reinvestment of dividends   -     276   -     -     -     276  
Contributions from exercise of stock options   -     599   -     -     -     599  
Dividends:                          
     Preferred shares   -     -     -     (1,812)   -     (1,812)  
     Common shares   -     -     -     (3,293)   -     (3,293)  
Stock-based compensation   -     -     468   -     -     468  
Transfer relating to the exercise of stock options   -     111   (111)   -     -     -  
Balance, end of period $ 48,494 $ 129,054 $ 4,292 $ 228,881 $ (2,006) $ 408,715  
                           
                           
June 30, 2010 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income
(loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 127,336 $ 3,267 $ 155,890 $ (5,522) $ 329,465  
Net income   -     -     -     23,223   -     23,223  
Other comprehensive income, net of tax   -     -     -     -     1,917   1,917  
Contributions from reinvestment of dividends   -     171   -     -     -     171  
Contributions from exercise of stock options   -     106   -     -     -     106  
Dividends:                          
     Preferred shares   -     -     -     (1,812)   -     (1,812)  
     Common shares   -     -     -     (2,985)   -     (2,985)  
Stock-based compensation   -     -     364   -     -     364  
Transfer relating to the exercise of stock options   -     18   (18)   -     -      
Balance, end of period $ 48,494 $ 127,631 $ 3,613 $ 174,316 $ (3,605) $ 350,449  
                           

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
       
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2011        
With comparative figures for the three and six month periods ended June 30, 2010        
($ THOUSANDS)                
                   
    Three months ended Six months ended
    June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income for the period $ 15,735 $ 11,071 $ 31,798 $ 23,223
Adjustments to determine cash flows relating to operating activities:                
  Financial instruments at fair value through income   1,000   2,580   1,099   4,275
  Amortization of capital assets   173   158   237   295
  Provision for credit losses   2,217   1,488   4,155   4,428
  Net (gain) loss on sale or redemption of investments   311   4   13   56
  Income taxes   5,288   4,369   10,847   8,297
  Taxes paid   (4,770)   (4,660)   (9,541)   (8,365)
  Stock-based compensation   204   157   468   364
  Amortization of premiums/discount on investments   887   456   1,672   868
  Net increase in mortgages receivable   (304,697)   (445,371)   (650,482)   (714,940)
  Net increase in deposits   221,880   177,858   375,418   128,429
  Change in obligations related to investments sold under repurchase agreements   34,298   7,640   34,298   37,558
  Net change in securitization liability   122,759   82,152   244,561   285,811
  Other assets   (3,663)   (871)   (5,093)   374
  Other liabilities   2,158   2,739   (35)   1,397
Cash flows used in operating activities   93,780   (160,230)   39,415   (227,930)
CASH FLOWS FROM FINANCING ACTIVITIES                
  Dividends paid on preferred shares   (906)   (906)   (1,812)   (1,812)
  Dividends paid on common shares   (1,499)   (1,432)   (3,018)   (2,812)
  Proceeds from issuance of common shares   455   3   599   106
Cash flows used in financing activities   (1,950)   (2,335)   (4,231)   (4,518)
CASH FLOWS FROM INVESTING ACTIVITIES                
  Purchase of investments   (20,071)   (67,557)   (59,722)   (197,115)
  Proceeds on sale or redemption of investments   13,406   43,834   34,349   141,418
  Net change in Canada Housing Trust re-investment accounts   (4,893)   (1,431)   (7,531)   (3,240)
  Purchase of investments under reverse repurchase agreements   (5,115)   (69,543)   (30,108)   (219,419)
  Proceeds on sale or redemption of investments under reverse repurchase agreements   24,993   149,876   99,901   279,597
  Changes in restricted cash   (11,942)   (7,069)   38,224   (12,776)
  Purchase of capital assets   (735)   (282)   (815)   (375)
Cash flows used in investing activities   (4,357)   47,828   74,298   (11,910)
Net increase (decrease) in cash and cash equivalents   87,473   (114,737)   109,482   (244,358)
Cash and cash equivalents, beginning of period   177,251   268,282   155,242   397,903
Cash and cash equivalents, end of period $ 264,724 $ 153,545 $ 264,724 $ 153,545
Supplementary cash flow information                
Net cash provided by (used in) operating activities include:                
  Interest paid $ 62,371 $ 55,097 $ 118,161 $ 104,400
  Interest received   103,570   91,869   204,253   180,068
  Dividends received   2,533   2,225   4,883   4,126

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 across Canada, with offices in Ontario, Alberta and Quebec. Equitable Group's shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A respectively. Visit the Company on line at www.equitabletrust.com and click on Investor Relations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements made by the Company in the sections of this report entitled "Management Commentary" and "Looking Ahead", in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws ("forward-looking statements"). These statements include, but are not limited to, statements about the Company's objectives, strategies and initiatives, financial result expectations and other statements made herein, whether with respect to the Company's businesses or the Canadian economy. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may" , "could", "would", "might" or "will be taken", "occur" or "be achieved." Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to capital markets and additional funding requirements, fluctuating interest rates and general economic conditions, legislative and regulatory developments, the nature of our customers and rates of default, and competition as well as those factors discussed under the heading "Risk Management" in the Management's Discussion and Analysis and in the Company's documents filed on SEDAR at www.sedar.com. All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting the Company and the Canadian economy. Although the Company believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.  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. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws. 

 

For further information:

John Ayanoglou
Senior Vice-President and Chief Financial Officer
416-515-7000

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