Equitable Group reports record first quarter 2013 earnings

TORONTO, May 9, 2013 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported record first quarter earnings for the three months ended March 31, 2013.

HIGHLIGHTS

  • Net income increased 17% to a first quarter record of $20.9 million from $17.9 million in 2012
  • Diluted earnings per share ("EPS") increased 15% to $1.30 from $1.13 in 2012
  • Return on Equity ("ROE") was 17.5% compared to 17.3% in the fourth quarter of 2012 and 17.7% a year ago
  • Book value per share increased 18% to $31.07 from $26.26 at March 31, 2012 and was up 4% from December 31, 2012
  • The Board of Directors announced a common share dividend increase of 7.1% to $0.15 cents per quarter from$0.14 cents effective with the next payment in July

"Equitable delivered outstanding results in the first quarter, even in the context of what appears to be a softer  Canadian housing market and despite adjusting our business to accommodate the new B-20 mortgage lending guidelines," said Andrew Moor, President and CEO. "Through a combination of solid Core Lending production and strong mortgage renewal rates, we were able to grow mortgage assets by $1.0 billion or 11% year over year and register an ROE performance that was above our five-year average of 17.2%. This performance provides yet another example of the value-creation capabilities of our business across different market cycles and illustrates the benefits of our diversified mortgage portfolio."

FIRST QUARTER OPERATING HIGHLIGHTS

  • Core Lending mortgage principal (comprised of Single Family and Commercial Lending) amounted to $5.4 billion, up 20% or $0.9 billion year over year- while first quarter Core Lending production increased 13% year over year to $458 million
  • Single Family Lending Services mortgage principal grew 39% or $892 million to a record $3.2 billion on production of $285 million and strong mortgage renewal rates
  • Commercial Lending Services mortgage principal was $2.2 billion, the same as a year ago, while production increased 46% year over year to $173 million
  • Securitization Financing mortgage principal increased 3% or $149 million to $5.4 billion on production of $166 million compared to $111 million a year ago.  Also in the quarter, the Company securitized and derecognized $118 million of mortgages on which it earned $1.1 million of gains on sale.

Equitable's strategies of employing best in class underwriting and collection efforts allowed the Company to maintain its low-risk profile. For the first quarter:

  • Realized net loan losses were just $0.02 million compared to $0.5 million a year ago
  • Early-stage delinquencies were 0.27% of total principal, an improvement from 0.39% at March 31, 2012 and 0.31% in the fourth quarter of 2012
  • Mortgages in arrears 90 days or more were 0.36% of total principal outstanding at quarter end, in line with historical norms but above 0.25% a year ago and 0.32% in the fourth quarter of 2012.

DIVIDEND DECLARATIONS

The Company's Board of Directors today declared a quarterly dividend in the amount of $0.15 per common share, payable July 4, 2013, to common shareholders of record at the close of business June 14, 2013. This amount is $0.01 higher than the dividends declared in the prior quarter and is 25% higher than the dividends declared in the first quarter of 2012.

The Board declared a quarterly dividend in the amount of $0.453125 per preferred share, payable June 28, 2013, to preferred shareholders of record at the close of business June 14, 2013.

CAPITAL

All of Equitable's capital ratios, including the newly prescribed Common Equity Tier 1 ("CET1") ratio, continued to exceed minimum regulatory standards at March 31, 2013:

  • CET1 was 12.2%, well ahead of Basel III guidelines of 7.0% and most competitive benchmarks
  • Total capital ratio was 16.4% compared to 15.3% at March 31, 2012 due to the net effect of a $65 million Series 10 subordinated debenture issuance in the fourth quarter of 2012 and $38 million of subordinated debenture redemptions in the first quarter of 2013

LOOKING AHEAD

The Company expects to generate attractive earnings and ROE in 2013, anticipates that net interest margin ("NIM") will remain relatively stable and that arrears and loan losses will remain low.

"We believe Equitable is well positioned to achieve our performance objectives for the year," said Mr. Moor, "although we will face challenges along the way. While not unique to Equitable, one of those challenges is activity levels in Canadian housing markets. On this front, we expect to remain relatively less affected than many other Canadian lenders due to our competitive positioning and the specialized nature of our products. Our continued success with mortgage renewals should also help our overall balances to grow at double digit rates even though single family production growth may remain low compared to record 2012 levels.  As well, the reaction of policymakers to developments in the Canadian mortgage market could also impact our business."

With respect to profitability, the Company incurred, as expected, approximately $0.8 million of extra interest expense in the first quarter due to the early repayment of debt. "We will not incur these expenses in subsequent quarters," said Tim Wilson, Vice President and CFO, "and this will benefit earnings per share and NIM.  We will also continue to manage our expense growth prudently given the uncertainty around growth of the Canadian housing market."

Q1 CONFERENCE CALL

The Company will hold its first quarter conference call and webcast at 10:00 a.m. ET Friday, May 10, 2013. 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, 2013 and it can be accessed by dialing 416-640-1917 and entering passcode 4611882 followed by the number sign. The webcast will also be archived on the Company's website for three months.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (unaudited)            
AS AT MARCH 31, 2013            
With comparative figures as at December 31, 2012 and March 31, 2012
($ THOUSANDS)            
               
    March 31, 2013 December 31, 2012 March 31, 2012
             
Assets:            
Cash and cash equivalents $ 265,131 $ 379,447 $ 239,517
Restricted cash   97,486   63,601   90,246
Securities purchased under reverse repurchase agreements   84,681   78,551   39,922
Investments   380,141   439,480   389,497
Mortgages receivable - Core Lending   5,348,498   5,154,943   4,443,162
Mortgages receivable - Securitization Financing   5,389,111   5,454,529   5,244,716
Securitization retained interests   11,954   7,263  
Other assets   25,291   23,626   23,178
  $ 11,602,293 $ 11,601,440 $ 10,470,238
             
Liabilities and Shareholders' Equity            
Liabilities:            
  Deposits $ 5,648,679 $ 5,651,717 $ 4,860,547
  Securitization liabilities   5,289,174   5,261,670   5,069,853
  Obligations under repurchase agreements   6,992   9,882  
  Deferred tax liabilities   8,097   5,498   6,608
  Other liabilities   35,039   40,931   24,602
  Bank term loans     12,500   12,500
  Debentures   92,483   117,671   52,671
    11,080,464   11,099,869   10,026,781
             
Shareholders' equity:            
  Preferred shares   48,494   48,494   48,494
  Common shares   135,408   134,224   130,251
  Contributed surplus   5,028   5,003   4,813
  Retained earnings   341,614   323,737   269,235
  Accumulated other comprehensive loss   (8,715)   (9,887)   (9,336)
    521,829   501,571   443,457
             
  $ 11,602,293 $ 11,601,440 $ 10,470,238
             
             


CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2013
With comparative figures for the three month period ended March 31, 2012
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)        
         
  Three months ended
  March 31, 2013 March 31, 2012
         
Interest income:        
  Mortgages - Core Lending $ 64,651 $ 57,108
  Mortgages - Securitization Financing   52,986   54,538
  Investments   2,035   2,248
  Other   1,856   1,226
    121,528   115,120
Interest expense:        
  Deposits   33,714   30,350
  Securitization liabilities   45,249   47,174
  Bank term loans   7   202
  Debentures   2,373   869
  Other   23   1
    81,366   78,596
Net interest income   40,162   36,524
Provision for credit losses   2,100   2,227
Net interest income after provision for credit losses   38,062   34,297
Other income:        
  Fees and other income   1,457   1,005
  Net gain on investments   645   249
  Gains on securitization activities and income from securitization retained interests   881   51
    2,983   1,305
Net interest and other income   41,045   35,602
Non-interest expenses:        
  Compensation and benefits   7,727   6,570
  Other   5,509   5,339
    13,236   11,909
Income before income taxes   27,809   23,693
Income taxes:        
  Current   7,324   6,935
  Deferred   (429)   (1,182)
    6,895   5,753
Net income $ 20,914 $ 17,940
         
Earnings per share:        
  Basic $ 1.32 $ 1.13
  Diluted $ 1.30 $ 1.13
         
          
          
         


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2013        
With comparative figures for the three month period ended March 31, 2012
($ THOUSANDS)        
         
  Three months ended
  March 31, 2013 March 31, 2012
         
Net income $ 20,914 $ 17,940
         
Other comprehensive income        
Items that may be reclassified subsequently to profit or loss:        
         
Available for sale investments:        
Net unrealized gains from change in fair value   2,557   833
Reclassification of net gains to income   (847)   (1,082)
    1,710   (249)
Income tax (expense) recovery   (450)   65
    1,260   (184)
         
Cash flow hedges:        
Net unrealized (losses) gains from change in fair value   (767)   1,028
Reclassification of net losses to income   647   592
    (120)   1,620
Income tax recovery (expense)   32   (423)
    (88)   1,197
Total other comprehensive income   1,172   1,013
Total comprehensive income $ 22,086 $ 18,953
         


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)        
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2013            
With comparative figures for the three month period ended March 31, 2012            
($ THOUSANDS)                        
                         
March 31, 2013 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income (loss)
  Total
                         
Balance, beginning of period $ 48,494 $ 134,224 $ 5,003 $ 323,737 $ (9,887) $ 501,571
Net income         20,914     20,914
Other comprehensive income, net of tax           1,172   1,172
Reinvestment of dividends     252         252
Exercise of stock options     756         756
Dividends:                        
  Preferred shares         (906)     (906)
  Common shares         (2,131)     (2,131)
Stock-based compensation       201       201
Transfer relating to the exercise of stock options     176   (176)      
Balance, end of period $ 48,494 $ 135,408 $ 5,028 $ 341,614 $ (8,715) $ 521,829
                         
                         
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
Reinvestment of dividends     188         188
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


CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2013
With comparative figures for the three month period ended March 31, 2012
($ THOUSANDS)        
         
  Three months ended
  March 31, 2013 March 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income for the period $ 20,914 $ 17,940
Adjustments to determine cash flows relating to operating activities:        
  Financial instruments at fair value through income   1,441   1,836
  Securitization gains   (1,126)  
  Depreciation of capital assets   242   231
  Provision for credit losses   2,100   2,227
  Net gain on sale or redemption of investments   (531)   (249)
  Income taxes   6,895   5,825
  Income taxes paid   (10,867)   (4,801)
  Stock-based compensation   201   150
  Amortization of premiums/discount on investments   509   784
  Net increase in mortgages receivable   (251,378)   (113,976)
  Net increase in deposits   (3,038)   232,643
  Change in obligations related to investments sold under repurchase agreements   (2,890)  
  Net change in securities purchased and sold under reverse repurchase agreements   78,551   9,967
  Net change in securitization liability   27,504   (31,068)
  Purchase of investments under reverse repurchase agreements   (84,681)   (39,922)
  Change in restricted cash   (33,885)   (7,090)
  Proceeds from loan securitization   118,543  
  Securitization retained interest   332  
  Net interest income, excluding non-cash items   (45,278)   (54,751)
  Interest received   122,191   115,934
  Interest paid   (78,388)   (63,692)
  Other assets   165   (191)
  Other liabilities   (4,593)   (3,260)
  Dividends received   1,475   2,509
Cash flows (used in) from operating activities   (135,592)   71,046
CASH FLOWS FROM FINANCING ACTIVITIES        
  Repayment of bank term loan   (12,500)  
  Redemption of debentures   (25,188)  
  Dividends paid on preferred shares   (906)   (906)
  Dividends paid on common shares   (1,874)   (1,614)
  Proceeds from issuance of common shares   756   237
Cash flows used in financing activities   (39,712)   (2,283)
CASH FLOWS FROM INVESTING ACTIVITIES        
  Purchase of investments   (2,420)   (20,000)
  Proceeds on sale or redemption of investments   64,138   46,730
  Net change in Canada Housing Trust re-investment accounts   (429)   (26,671)
  Purchase of capital assets   (301)   (150)
Cash flows from (used in) investing activities   60,988   (91)
Net (decrease) increase in cash and cash equivalents   (114,316)   68,672
Cash and cash equivalents, beginning of period   379,447   170,845
Cash and cash equivalents, end of period $ 265,131 $ 239,517

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 actively originates mortgages across Canada. It serves single family, small and large commercial borrowers and their mortgage advisors. It also serves the investing public as a provider of insured Guaranteed Investment Certificates. Equitable Trust is active in providing GICs across all Canadian provinces and territories. 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 press release including those entitled "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 (including the proposal to convert Equitable Trust into a Schedule I Bank), 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.

 

 

 

SOURCE: Equitable Group Inc.

For further information:

Andrew Moor
President and CEO
416-513-7000

Tim Wilson
Vice President and CFO
416-513-7000


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