News
TORONTO, May 9, 2012 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported its financial results for the three months ended March 31, 2012 - a period of significant growth and momentum that supports a confident outlook for the year.
FIRST QUARTER RESULTS
- Diluted earnings per share ("EPS") increased 13% to $1.13 compared to $1.00 in the first quarter of 2011;
- Net income increased 12% to $17.9 million from $16.1 million in 2011;
- Net interest income increased 17% to $36.5 million from $31.2 million in 2011;
- Net interest margin ("NIM") was 1.45%, up marginally from 1.44% a year ago on growth in NIM on non-securitized assets (2.57% versus 2.52% a year ago);
- Return on equity ("ROE") was 17.7%, up from 17.3% in Q4 2011 and compared to 18.0% a year ago;
- Book value per share increased 13% to $26.26 from $23.32 a year ago;
- Total assets were $10.5 billion at period end, up 14% or $1.3 billion from March 31, 2011;
- Mortgage principal outstanding in the Company's Core Lending business (Single Family and Commercial) grew 23% to $4.4 billion from $3.6 billion a year ago;
- Single Family principal outstanding grew by 35% year-over-year, and now represents 51% of Core Lending balances;
- Equitable Trust's period-end total capital ratio was a solid 15.8% (including collective allowance).
"This was a strong opening to 2012 for Equitable as we surpassed our previous first quarter earnings record and added to the very positive momentum we've created in our Core Lending businesses where principal outstanding increased 23% year over year," said Andrew Moor, President and Chief Executive Officer. "We're delighted with these results as they were achieved during the traditionally slow season in Canadian real estate activity. Despite our substantial growth, we continued to build our portfolio with an absolute focus on credit quality."
Reflecting the Company's strategies, the growth leader in the quarter was the Single Family segment in which "we exceeded our own expectations on the strength of a 35% year-over-year increase in mortgage principal balances on 51% growth in originations," added Mr. Moor.
DIVIDEND DECLARATIONS
The Company's Board of Directors today declared a quarterly dividend in the amount of $0.12 per common share, payable on July 5, 2012, to common shareholders of record at the close of business on June, 15, 2012. The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable on June 30, 2012, to preferred shareholders of record at the close of business on June 15, 2012.
CORE LENDING BUSINESSES
Equitable's Single Family and Commercial Lending businesses are collectively referred to as Equitable's "Core Lending" business. Within the Core Lending business in Q1 2012:
- Single Family Lending Services mortgage principal amounted to a record $2.3 billion at March 31, 2012, $589 million higher than at March 31, 2011. During the most recent quarter, production amounted to $327 million, up $111 million from the same period in 2011;
- Commercial Lending Services mortgage principal at March 31, 2012 was $2.2 billion, $245 million higher than at the end of the first quarter of 2011. First quarter production was $120 million compared to $183 million a year ago.
These Core Lending businesses represented 46% of the Company's mortgage portfolio compared to 42% a year ago, reflecting Equitable's emphasis on optimizing returns adjusted for risk and its capital plan of maintaining strong capital ratios as its grows.
SECURITIZATION FINANCING BUSINESS
Equitable's Securitization Financing business originates insured mortgages with the intention of subsequently securitizing those assets. Approximately 92% of securitized mortgages at period end were secured by multi-unit residential properties and were underwritten by the Company's commercial credit team. The remaining 8% were represented by insured, single family residential mortgages, some of which were securitized after residing in the Company's Core Lending portfolio.
During the first quarter:
- Securitization Financing mortgage principal outstanding at March 31, 2012 was $5.2 billion, 6% or $297 million higher than a year ago;
- Securitization Financing production was $115 million, $139 million lower than a year ago, reflecting a planned shift in emphasis toward Core Lending activities.
CREDIT QUALITY
Equitable maintained its exemplary track record of low realized loan losses during the first quarter ($0.5 million, net of recoveries). Solid key credit metrics were also posted:
- Mortgage principal in arrears 90 days or more was 0.25% of total mortgage principal outstanding, an improvement from 0.33% a year ago;
- Net impaired mortgages were 0.28% of total mortgage assets compared to 0.35% a year ago as workout activities continue to yield positive results.
Management remains comfortable that allowances for credit losses (0.22% of total mortgage assets versus 0.24% a year ago) adequately provide for the risk of loss.
LOOKING AHEAD
"Equitable built on and in some cases accelerated its momentum during the first quarter and this supports our plan and expectations of ongoing earnings growth and a solid ROE, backstopped by the maintenance of very healthy capital levels," said Mr. Moor. "The markets we choose to serve continue to benefit from a combination of population trends and economic stability, giving us an attractive foundation for growth. Our 2012 agenda is custom made for today's market realities and includes growth in mortgage assets that best suit our hurdle rates and credit risk tolerances, expansion of our national presence with emphasis on niches that are positioned to benefit from secular trends and, most importantly, an ongoing focus on broker and customer service excellence, which is generating tremendous results for us. By single-mindedly pursuing our service agenda while maintaining highly cost-effective operations, we will drive ever-improving results for our shareholders."
The Company is also monitoring recently announced changes in the regulatory environment, including CMHC's decision to curtail its portfolio insurance activities. This change is expected to have little direct impact on Equitable and could indirectly benefit the Company should competitors change their lending or pricing practices. Equitable is also currently reviewing OSFI's "Draft Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures" and, while management expects some revisions to the proposal, recognizes that the outcome of the process continues to be uncertain.
Q1 CONFERENCE CALL
The Company will hold its first quarter conference call and webcast at 10:00 a.m. ET Thursday May 10, 2012. To access the call live, please dial in five minutes prior to 416-644-3414. To access a listen-only version of the webcast, please log on to www.equitabletrust.com under Investor Relations.
A replay of the call will be available until May 17, 2012 and it can be accessed by dialing 416-640-1917 and entering passcode 4530347 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 MARCH 31, 2012
With comparative figures as at December 31, 2011 and March 31, 2011
($ THOUSANDS)
March 31, 2012 | December 31, 2011 | March 31, 2011 | |||||||
Assets | |||||||||
Cash and cash equivalents | $ | 239,517 | $ | 170,845 | $ | 177,251 | |||
Restricted cash | 90,246 | 83,156 | 36,404 | ||||||
Securities purchased under reverse repurchase agreements | 39,922 | 9,967 | 24,993 | ||||||
Investments | 389,497 | 390,340 | 360,137 | ||||||
Mortgages receivable | 4,476,637 | 4,262,147 | 3,683,777 | ||||||
Mortgages receivable - securitized | 5,211,241 | 5,314,940 | 4,876,631 | ||||||
Other assets | 23,178 | 25,618 | 13,788 | ||||||
$ | 10,470,238 | $ | 10,257,013 | $ | 9,172,981 | ||||
Liabilities and Shareholders' Equity | |||||||||
Liabilities: | |||||||||
Deposits | $ | 4,860,547 | $ | 4,627,904 | $ | 4,032,391 | |||
Securitization liabilities | 5,069,853 | 5,100,921 | 4,653,482 | ||||||
Deferred tax liabilities | 6,608 | 7,790 | 7,318 | ||||||
Other liabilities | 24,602 | 28,587 | 17,298 | ||||||
Bank term loans | 12,500 | 12,500 | 12,500 | ||||||
Subordinated debentures | 52,671 | 52,671 | 52,671 | ||||||
10,026,781 | 9,830,373 | 8,775,660 | |||||||
Shareholders' equity: | |||||||||
Preferred shares | 48,494 | 48,494 | 48,494 | ||||||
Common shares | 130,251 | 129,771 | 128,369 | ||||||
Contributed surplus | 4,813 | 4,718 | 4,169 | ||||||
Retained earnings | 269,235 | 254,006 | 215,700 | ||||||
Accumulated other comprehensive (loss) income | (9,336) | (10,349) | 589 | ||||||
443,457 | 426,640 | 397,321 | |||||||
$ | 10,470,238 | $ | 10,257,013 | $ | 9,172,981 | ||||
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended | ||||||
March 31, 2012 | March 31, 2011 | |||||
Interest income: | ||||||
Mortgages | $ | 57,187 | $ | 47,849 | ||
Mortgages - securitized | 54,459 | 52,152 | ||||
Investments | 2,248 | 2,279 | ||||
Other | 1,226 | 1,025 | ||||
115,120 | 103,305 | |||||
Interest expense: | ||||||
Deposits | 30,350 | 26,741 | ||||
Securitization liabilities | 47,174 | 44,268 | ||||
Bank term loans | 202 | 200 | ||||
Subordinated debentures | 869 | 862 | ||||
Other | 1 | 29 | ||||
78,596 | 72,100 | |||||
Net interest income | 36,524 | 31,205 | ||||
Provision for credit losses | 2,227 | 1,938 | ||||
Net interest income after provision for credit losses | 34,297 | 29,267 | ||||
Other income: | ||||||
Fees and other income | 1,005 | 854 | ||||
Net gain on investments | 249 | 298 | ||||
1,254 | 1,152 | |||||
Net interest and other income | 35,551 | 30,419 | ||||
Non-interest expenses: | ||||||
Compensation and benefits | 6,570 | 5,473 | ||||
Other | 5,339 | 3,643 | ||||
11,909 | 9,116 | |||||
Income before income taxes and fair value gain | 23,642 | 21,303 | ||||
Fair value gain on derivative financial instruments - securitization activities |
51 | 319 | ||||
Income before income taxes | 23,693 | 21,622 | ||||
Income taxes: | ||||||
Current | 6,935 | 5,327 | ||||
Deferred | (1,182) | 232 | ||||
5,753 | 5,559 | |||||
Net income | $ | 17,940 | $ | 16,063 | ||
Earnings per share: | ||||||
Basic | $ | 1.13 | $ | 1.01 | ||
Diluted | $ | 1.13 | $ | 1.00 | ||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS)
Three months ended | ||||
March 31, 2012 | March 31, 2011 | |||
Net income | $ | 17,940 | $ | 16,063 |
Other comprehensive income: | ||||
Available for sale investments: | ||||
Net unrealized gains from change in fair value | 833 | 1,143 | ||
Reclassification of net gains to income | (1,082) | (265) | ||
(249) | 878 | |||
Income tax | 65 | (246) | ||
(184) | 632 | |||
Cash flow hedges | ||||
Net unrealized gains from change in fair value | 1,028 | 1,665 | ||
Reclassification of net losses (gains) to income | 592 | (18) | ||
1,620 | 1,647 | |||
Income tax | (423) | (461) | ||
1,197 | 1,186 | |||
Total other comprehensive income | 1,013 | 1,818 | ||
Total comprehensive income | $ | 18,953 | $ | 17,881 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS)
March 31, 2012 |
Preferred shares |
Common shares |
Contributed surplus |
Retained earnings |
Accumulated other comprehensive income (loss) |
Total | |||||||
Balance, beginning of period | $ | 48,494 | $ | 129,771 | $ | 4,718 | $ | 254,006 | $ | (10,349) | $ | 426,640 | |
Net income | - | - | - | 17,940 | - | 17,940 | |||||||
Other comprehensive income, net of tax | - | - | - | - | 1,013 | 1,013 | |||||||
Contributions from reinvestment of dividends | - | 188 | - | - | - | 188 | |||||||
Contributions from exercise of stock options | - | 237 | - | - | - | 237 | |||||||
Dividends: | |||||||||||||
Preferred shares | - | - | - | (906) | - | (906) | |||||||
Common shares | - | - | - | (1,805) | - | (1,805) | |||||||
Stock-based compensation | - | - | 150 | - | - | 150 | |||||||
Transfer relating to the exercise of stock options | - | 55 | (55) | - | - | - | |||||||
Balance, end of period | $ | 48,494 | $ | 130,251 | $ | 4,813 | $ | 269,235 | $ | (9,336) | $ | 443,457 | |
March 31, 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 | - | - | - | 16,063 | - | 16,063 | |||||||
Other comprehensive income, net of tax | - | - | - | - | 1,818 | 1,818 | |||||||
Contributions from reinvestment of dividends | - | 127 | - | - | 127 | ||||||||
Contributions from exercise of stock options | - | 144 | - | - | - | 144 | |||||||
Dividends: | |||||||||||||
Preferred shares | - | - | - | (906) | - | (906) | |||||||
Common shares | - | - | - | (1,644) | - | (1,644) | |||||||
Stock-based compensation | - | - | 264 | - | - | 264 | |||||||
Transfer relating to the exercise of stock options | - | 30 | (30) | - | - | - | |||||||
Balance, end of period | $ | 48,494 | $ | 128,369 | $ | 4,169 | $ | 215,700 | $ | 589 | $ | 397,321 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS)
Three months ended | ||||||
March 31, 2012 | March 31, 2011 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income for the period | $ | 17,940 | $ | 16,063 | ||
Adjustments to determine cash flows relating to operating activities: | ||||||
Financial instruments at fair value through income | 1,836 | 99 | ||||
Depreciation of capital assets | 231 | 63 | ||||
Provision for credit losses | 2,227 | 1,938 | ||||
Net gain on sale or redemption of investments | (249) | (298) | ||||
Income taxes | 5,825 | 5,559 | ||||
Income taxes paid | (4,801) | (4,771) | ||||
Stock-based compensation | 150 | 264 | ||||
Amortization of premiums/discount on investments | 784 | 785 | ||||
Net increase in mortgages receivable | (113,976) | (345,787) | ||||
Net increase in deposits | 232,643 | 153,538 | ||||
Net change in securitization liabilities | (31,068) | 121,802 | ||||
Net interest income, excluding non-cash items | (54,751) | (47,713) | ||||
Interest paid | (63,692) | (58,179) | ||||
Other assets | (191) | (1,430) | ||||
Other liabilities | (3,260) | (2,342) | ||||
Interest received | 115,934 | 103,542 | ||||
Dividends received | 2,509 | 2,350 | ||||
Cash flows from (used in) operating activities | 108,091 | (54,517) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Dividends paid on preferred shares | (906) | (906) | ||||
Dividends paid on common shares | (1,614) | (1,367) | ||||
Proceeds from issuance of common shares | 237 | 144 | ||||
Cash flows used in financing activities | (2,283) | (2,129) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Purchase of investments | (20,000) | (39,651) | ||||
Proceeds on sale or redemption of investments | 46,730 | 20,943 | ||||
Net change in Canada Housing Trust re-investment accounts | (26,671) | (2,638) | ||||
Purchase of securities under reverse repurchase agreements | (39,922) | (24,993) | ||||
Proceeds on sale or redemption of securities under reverse repurchase agreements | 9,967 | 74,908 | ||||
Change in restricted cash | (7,090) | 50,166 | ||||
Purchase of capital assets | (150) | (80) | ||||
Cash flows (used in) from investing activities | (37,136) | 78,655 | ||||
Net increase in cash and cash equivalents | 68,672 | 22,009 | ||||
Cash and cash equivalents, beginning of period | 170,845 | 155,242 | ||||
Cash and cash equivalents, end of period | $ | 239,517 | $ | 177,251 |
ABOUT EQUITABLE GROUP INC.
Equitable Group Inc. is a niche mortgage lender. Our primary 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 including
those entitled "Credit Quality" 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.
Andrew Moor
President and CEO
416-515-7000
Tim Wilson
Chief Financial Officer
416-515-7000