Equitable Group reports fourth quarter, 2014 annual results and record originations

TORONTO, Feb. 24, 2015 /CNW/ - Equitable Group Inc. (TSX: EQB and EQB.PR.C) ("Equitable" or the "Company") today reported its financial results for the three and 12 months ended December 31, 2014, both periods of substantial lending and deposit growth for its wholly owned subsidiary, Equitable Bank (the "Bank").

2014 HIGHLIGHTS

  • Net income was a record $106.7 million, up 14% from $93.5 million in 2013
  • Diluted earnings per share were $6.53, up 12% from $5.82 in 2013
  • Return on Equity ("ROE") was 17.4%, in line with the five-year average of 17.5%
  • Book value per common share was $40.90, up 16% from $35.14 at year-end 2013

FOURTH QUARTER HIGHLIGHTS

  • Net income was $26.9 million compared to $26.5 million in 2013
  • Diluted earnings per share were $1.59 compared to $1.65 in 2013 as the Bank invested to support its growth and to advance future opportunities
  • ROE was 16.0%, compared to 19.2 % in 2013
  • Results were affected by the payment of a dividend on the Company's Series 3 preferred shares that covered the period from August 8th, 2014 to December 31st, 2104, or almost five months ($0.2338 higher than in a typical quarter).
  • Mortgages Under Management grew by a record $0.9 billion or 7% in the quarter alone
  • Originations were an all-time record $1.6 billion, up 51% from the fourth quarter of 2013

DIVIDEND DECLARATIONS

The Board of Directors declared a quarterly dividend in the amount of $0.18 per common share, payable on April 3, 2015, to common shareholders of record at the close of business on March 13, 2015.  This dividend represents a 13% increase over dividends declared in February 2014. In addition, the Board declared a quarterly dividend in the amount of $0.396875 per preferred share, payable on March 31, 2015, to preferred shareholders of record at the close of business on March 13, 2015.

COMMENTARY

"Equitable demonstrated the competitive advantages of our national, branchless banking service model in 2014 by growing our assets under management by $1.6 billion in the year, adding over $1 billion of deposits to the Bank's savings business, and generating our best annual earnings performance on record," said Andrew Moor, President and Chief Executive Officer. "We are particularly pleased to note that our earnings surpassed $100 million for the first time and our status as one of Canada's best performing banks was recognized as our market capitalization crested the billion dollar mark during the year. Of the year's many positives, the one that stands out is our single family market-share gain in the mortgage broker channel, which was reflected in the 50% year-over-year growth in originations in the final quarter. These gains are a product of our commitment to serving this channel and the growing number of borrowers who use it, and they signal the successful execution of our strategy to expand our single family business that began in 2009."

OPERATING HIGHLIGHTS

  • Single Family Lending Services originations in the fourth quarter were a record $758 million, up 50% from $506 million a year ago. On record originations and the Bank's mortgage renewal success, Single Family mortgage principal at year-end 2014 was a record $5.0 billion, up 31% from $3.8 billion a year ago.
  • Commercial Lending Services originations in the fourth quarter were $254 million, up 39% from $183 million a year ago, benefitting from strong partnerships in a competitive market. Commercial mortgage principal was $2.3 billion compared to $2.4 billion a year ago, with the slight decrease a reflection of the Bank's disciplined approach to pricing and risk.
  • Securitization Financing Mortgages under Management amounted to $6.5 billion at the end of 2014, up 10% or $585 million from 2013.
  • Deposit principal outstanding increased $426 million during the fourth quarter and $1 billion or 16% year-over-year to $7.4 billion at year-end 2014 as the Bank continued to successfully broaden its long-standing reputation for providing competitive rates of return across a variety of safe and secure savings products.

Equitable's credit metrics continue to reflect the high quality of the mortgage portfolio and remain well in line with the Bank's long-term experience as a prudent lender.  The Company's Impairment provision was one basis point of the mortgage portfolio in 2014 and net impaired mortgage assets were only 0.30% of total mortgage assets. The allowance for credit losses represented 81% of gross impaired mortgage assets and Equitable's residential mortgage portfolio had a loan-to-value ratio of 69% at year end. Assuming that Canadian economic conditions remain within the range of broad market expectations, the Company expects arrears rates and impairment provisions to remain low in 2015 at a national level.  Regionally, arrears rates in Alberta and Saskatchewan could increase in 2015 from their currently low levels, but the Bank does not anticipate incurring material losses from its lending activities in either province. On a combined basis, the Bank has only $1.1 billion of uninsured mortgages in these provinces, representing 10% of its total mortgage principal.

CAPITAL

Equitable Bank's capital ratios exceed minimum regulatory standards and most industry benchmarks.  At December 31, 2014:

  • Common Equity Tier 1 capital ratio was 13.5%, surpassing the Basel III minimum of 7.0%, most competitive benchmarks and last year's ratio of 12.4%.
  • Total capital ratio was 17.3%, well above the regulatory requirement of 10.5% on an all-in basis and up from 16.3% a year ago.

STRATEGIC UPDATE

In the fourth quarter, Equitable completed a multi-year plan to establish itself as a coast-to-coast branchless lender by introducing its Single Family lending services to selected urban markets in Newfoundland, New Brunswick and Prince Edward Island and Quebec (including Quebec City).  This follows on geographic expansions to the Greater Montreal and Gatineau regions earlier in 2014. As a result, Equitable now serves all major urban centres with diversified economies across the country and is well positioned to address changing economic, migration and immigration patterns within Canada.

The Bank also advanced its most recent product growth initiatives, introducing its new eqb evolution suite™ prime single family residential mortgage products in additional markets in the fourth quarter. Even with a phased geographic roll out of this offering, the Bank closed over $40 million of prime mortgages in the past four months alone. As with all Equitable Bank products, these prime mortgage offerings provide flexible financial solutions to address the needs of a wide range of consumers and their mortgage broker advisors and are differentiated in the marketplace by Equitable's approach to service excellence. The Bank expects to steadily build its prime mortgage portfolio as 2015 progresses through organic growth, supplemented with mortgages originated through business partners.

Equitable Bank's stature as a deposit-taking institution – now with well over $7 billion of deposits – was also enhanced by substantial growth in Equitable Bank High Interest Savings Account balances, which surpassed $366 million at year end up from $21 million a year ago. This product, available on the FundSERV platform under the Codes EQB100 and EQB200, addresses the needs of those wishing to earn high rates of interest on their hard-earned savings, made possible by a highly efficient branchless banking model.

"In support of these important growth initiatives, we incurred additional costs in the fourth quarter of approximately $1.4 million," said Mr. Moor. "This included investments which occurred ahead of their associated benefits, such as early-stage development of future digital banking capabilities, growth in the Bank's workforce, and well deserved volume-driven incentive payments to mortgage brokers. While we saw a resulting spike in the Bank's efficiency ratio in the quarter to 35.4%, these costs will support next-stage earnings growth and value creation."

BUSINESS OUTLOOK

For 2015, Equitable expects to deliver high returns on equity while it builds its status as one of the country's leading mid-sized banks. 

"Our key objectives for this year include further differentiating the Bank through great service, making targeted investments in our consumer brand and digital banking capabilities, sustaining the very attractive growth rates we've achieved over many quarters in our lending and savings businesses and applying our usual rigor in cost management and credit to ensure that the full benefits of our strategies are captured in our bottom line," said Mr. Moor. "We recognize that there are challenges to meeting these objectives, including regional economic volatility. However, with recent gains in market share, the diversification of our portfolio, and our careful avoidance of high-risk real estate segments, we are confident in our prospects."

With respect to profitability, "we maintain a very low level of interest rate risk in our book and have a rigorous capital allocation discipline," said Tim Wilson, Vice President and Chief Financial Officer, "and as such do not expect that recent rate decisions by the Bank of Canada will have a significant impact on our margins or ROE this year. From the perspective of non-interest expenses, our previously announced plan to increase annual marketing costs in the second half of 2015 by approximately $3 to 5 million is taking shape. We continue to believe that in 2015 these costs will be largely offset by the revenue generated from securitizing insured single family mortgages such that the impact on earnings will be minimal. Other expenses will increase only at rates in line with the growth of the overall business. Given our expectations for quarterly spending and asset growth, we expect to see a slight improvement in our efficiency ratio in the first half of 2015 compared to the fourth quarter of 2014, followed by another increase in the ratio in the last half of the year as we resume investing more heavily in our key initiatives and corporate branding.  Overall, it should be a very solid year of profitability as we extend Equitable's track record of superior earnings and ROE."

The complete business outlook can be found in Management's Discussion and Analysis for the three and 12 months ended December 31, 2014, which is available on SEDAR and on the Company's website.

BOARD APPOINTMENT

The Board of Directors of Equitable Group is pleased to announce the appointment of Johanne Brossard as a Director, effective immediately. Ms. Brossard brings more than 30 years of international and Canadian financial services experience to this important role, including expertise in the development of online banking strategies. Most recently, she served as President and CEO of Bank West, a subsidiary of Desjardins, the largest cooperative financial group in Canada and as Desjardins' Vice President of National Online Banking Development. Before that, she was President and CEO and board member of ResMor Trust, a subsidiary of Ally Financial. During her 14-years at ING Direct, Ms. Brossard assisted the organization in establishing its presence in Canada, France and Japan and served as President and CEO of ING Bank of Canada from 2003 to 2008. She was also General Manager of ING Direct's Head Office in Amsterdam. Ms. Brossard holds an MBA from the Richard Ivey School of Business and has a General Management Certificate from INSEAD.

CONFERENCE CALL AND WEBCAST

The Company will hold its fourth quarter conference call and webcast with accompanying slides at 10:00 a.m. ET February 25, 2015. To access the call live, please dial 416-849-1847 five minutes prior.  The listen-only webcast with accompanying slides is available at www.equitablebank.ca under Investor Relations.

A replay of the call will be available until March 4, 2015 and it can be accessed by dialing 647-436-0148 and entering passcode 9702325 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.

CONSOLIDATED FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS





($ THOUSANDS)










As at December 31

2014

2013





Assets 





Cash and cash equivalents 

$

230,063

$

243,645

Restricted cash 


67,690


87,319

Securities purchased under reverse repurchase agreements 


18,117


54,860

Investments  


187,664


240,614

Mortgages receivable – Core Lending 


7,257,475


6,188,278

Mortgages receivable – Securitization Financing 


5,012,470


4,941,589

Securitization retained interests 


44,983


30,455

Other assets 


36,441


29,693


$

12,854,903

$

11,816,453






Liabilities and Shareholders' Equity 





Liabilities: 





   Deposits 

$

7,489,418

$

6,470,029

   Securitization liabilities 


4,355,328


4,591,404

   Obligations under repurchase agreements 


52,413


8,143

   Deferred tax liabilities 


14,843


10,826

   Other liabilities 


61,971


55,250

   Bank facilities 


92,236


-

   Debentures 


85,000


92,483



12,151,209


11,228,135






Shareholders' equity: 





   Preferred shares 


72,412


48,494

   Common shares 


140,657


137,969

   Contributed surplus 


4,331


5,326

   Retained earnings 


496,097


404,467

   Accumulated other comprehensive loss 


(9,803)


(7,938)



703,694


588,318







$

12,854,903

$

11,816,453

CONSOLIDATED STATEMENTS OF INCOME





($ THOUSANDS, EXCEPT PER SHARE AMOUNTS) 











Years ended December 31 

2014

2013







Interest income: 






Mortgages – Core Lending 

$

324,692

$

278,921


Mortgages – Securitization Financing 


171,643


200,522


Investments 


6,432


6,473


Other 


6,777


8,263




509,544


494,179

Interest expense: 






Deposits 


154,980


142,431


Securitization liabilities 


141,518


170,110


Bank facilities 


2,810


420


Debentures 


5,598


6,578


Other 


116


103




305,022


319,642

Net interest income 


204,522


174,537

Provision for credit losses 


2,627


6,732

Net interest income after provision for credit losses 


201,895


167,805

Other income: 






Fees and other income 


8,345


5,815


Net gain on investments 


1,033


987


Gains on securitization activities and income from securitization retained interests 


4,045


7,584




13,423


14,386

Net interest and other income 


215,318


182,191

Non-interest expenses: 






Compensation and benefits 


42,545


33,870


Other 


29,099


23,644




71,644


57,514

Income before income taxes 


143,674


124,677

Income taxes 






Current 


31,076


25,819


Deferred  


5,880


5,328




36,956


31,147

Net income 

$

106,718

$

93,530

Earnings per share 






Basic 

$

6.63

$

5.89


Diluted 

$

6.53

$

5.82












CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





($ THOUSANDS) 










Years ended December 31

2014

2013






Net income

$

106,718

$

93,530






Other comprehensive income – items that may be reclassified subsequently to income:










Available for sale investments:





Net unrealized gains (losses) from change in fair value


1,779


(4,241)

Reclassification of net gains to income


(865)


(1,143)



914


(5,384)

Income tax (expense) recovery 


(241)


1,418



673


(3,966)






Cash flow hedges: 





Net unrealized (losses) gains from change in fair value


(5,676)


5,768

Reclassification of net losses to income


2,228


2,261



(3,448)


8,029

Income tax recovery (expense) 


910


(2,114)



(2,538)


5,915

Total other comprehensive (loss) income


(1,865)


1,949

Total comprehensive income

$

104,853

$

95,479

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY









($ THOUSANDS)










































Accumulated other













comprehensive










 income (loss)



Preferred

Common

Contributed

Retained

Cash flow

Available

for sale




2014

shares

shares

surplus

earnings

hedges

investments


Total


Total



















Balance, beginning of year

$

48,494

$

137,969

$

5,326

$

404,467

$

(3,364)

$

(4,574)

$

(7,938)

$

588,318

Net income


-


-


-


106,718




-


-


106,718

Other comprehensive income (loss), net of tax


-


-


-


-


(2,538)


673


(1,865)


(1,865)

Preferred shares issued, net of redemption


23,918


-


(1,506)


-


-


-


-


22,412

Reinvestment of dividends


-


542


-


-


-


-


-


542

Exercise of stock options


-


1,746


-


-


-


-


-


1,746

Dividends:














-


-


Preferred shares


-


-


-


(4,611)


-


-


-


(4,611)


Common shares


-


-


-


(10,477)


-


-


-


(10,477)

Stock-based compensation


-


-


911


-


-


-


-


911

Transfer relating to the exercise of stock options


-


400


(400)


-


-


-


-


-

Balance, end of year

$

72,412

$

140,657

$

4,331

$

496,097

$

(5,902)

$

(3,901)

$

(9,803)

$

703,694












































Accumulated other













comprehensive










 income (loss)



Preferred

Common

Contributed

Retained

Cash flow


Available for sale




2013

shares

shares

surplus

earnings

hedges

investments


Total


Total



















Balance, beginning of year

$

48,494

$

134,224

$

5,003

$

323,737

$

(9,279)

$

(608)

$

(9,887)

$

501,571

Net income


-


-


-


93,530




-


-


93,530

Other comprehensive income (loss), net of tax


-


-


-


-


5,915


(3,966)


1,949


1,949

Reinvestment of dividends


-


849


-


-


-


-


-


849

Exercise of stock options


-


2,379


-


-


-


-


-


2,379

Dividends:














-


-


Preferred shares


-


-


-


(3,625)


-


-


-


(3,625)


Common shares


-


-


-


(9,175)


-


-


-


(9,175)

Stock-based compensation


-


-


840


-


-


-


-


840

Transfer relating to the exercise of stock options


-


517


(517)


-


-


-


-


-

Balance, end of year

$

48,494

$

137,969

$

5,326

$

404,467

$

(3,364)

$

(4,574)

$

(7,938)

$

588,318

CONSOLIDATED STATEMENTS OF CASH FLOWS





($ THOUSANDS)











Years ended December 31

2014

2013

CASH FLOWS FROM OPERATING ACTIVITIES





Net income

$

106,718

$

93,530

Adjustments for non-cash items in net income:






Financial instruments at fair value through income


(2,769)


7,784


Amortization of premiums/discounts on investments


1,470


2,373


Depreciation of capital assets


1,399


1,215


Amortization of deferred costs


1,888


1,110


Provision for credit losses


2,627


6,732


Securitization gains


(3,960)


(5,613)


Net (gain) loss on sale or redemption of investments


(1,033)


154


Stock-based compensation


911


840


Income taxes


36,956


31,147

Changes in operating assets and liabilities:






Restricted cash


19,629


(23,718)


Securities purchased under reverse repurchase agreements


36,743


23,691


Mortgages receivable


(1,723,493)


(1,228,321)


Other assets


(1,789)


(4,691)


Deposits


1,018,811


818,312


Securitization liabilities


(236,076)


(670,266)


Obligations under repurchase agreements


44,270


(1,739)


Bank facilities


92,236


-


Other liabilities


15,028


5,200

Income taxes paid


(38,164)


(22,557)

Proceeds from loan securitizations


565,062


683,844

Securitization retained interests


6,479


2,721

Cash flows used in operating activities


(57,057)


(278,252)

CASH FLOWS FROM FINANCING ACTIVITIES






Issuance of preferred shares


71,479


-


Redemption of preferred shares


(50,000)


-


Proceeds from issuance of common shares


1,746


2,379


Repayment of bank term loan


-


(12,500)


Redemption of debentures


(7,483)


(25,188)


Dividends paid on preferred shares


(4,611)


(3,625)


Dividends paid on common shares


(12,390)


(7,997)

Cash flows used in financing activities


(1,259)


(46,931)

CASH FLOWS FROM INVESTING ACTIVITIES






Purchase of investments


(134,791)


(57,877)


Proceeds on sale or redemption of investments


164,051


232,892


Net change in Canada Housing Trust re-investment accounts


24,142


16,056


Purchase of capital assets and system development costs


(8,668)


(1,690)

Cash flows from investing activities


44,734


189,381

Net decrease in cash and cash equivalents


(13,582)


(135,802)

Cash and cash equivalents, beginning of year


243,645


379,447

Cash and cash equivalents, end of year

$

230,063

$

243,645







Cash flow used in operating activities include:





Interest received

$

506,610

$

500,583

Interest paid


(274,144)


(292,592)

Dividends received


5,478


6,072

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. serves consumers and their advisors through Equitable Bank, a diversified financial institution that operates coast to coast. Equitable Bank provides residential (prime and alternative) single family lending services, commercial lending services and a variety of savings solutions including high-interest savings products and GICs for individual Canadians.  Since its founding in 1970, Equitable has grown to become Canada's ninth largest independent Schedule I Bank and a recognized service leader through its proven branchless banking approach. For more information, visit the Company's website at www.equitablebank.ca and click on Investor Relations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements made by the Company in the sections of this news release including those entitled "Fourth Quarter Highlights", "Operating Highlights", Strategic Update", "Business Outlook", 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.

NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL MEASURES

This news release references certain non-GAAP measures such as Return on Shareholders' Equity ("ROE"), Net Interest Margin ("NIM"), capital ratios, book value per share, impairment provision (recovery), and Mortgages Under Management that management believes provide useful information to investors regarding the Company's financial condition and results of operations. The "Non-Generally Accepted Accounting Principles ("GAAP") Financial Measures" section of the Company's fourth quarter 2014 Management's Discussion and Analysis provides a detailed description of each non-GAAP measure and should be read in conjunction with this report.  The Management's Discussion and Analysis also provides a reconciliation between all non-GAAP measures and the most directly comparable GAAP measure, where applicable. Readers are cautioned that non-GAAP measures do not have any standardized meaning, and therefore, may not be comparable to similar measures presented by other companies.

SOURCE Equitable Group Inc.

For further information: Andrew Moor, President and Chief Executive Officer, 416-515-7000; Tim Wilson, Vice President and Chief Financial Officer, 416-515-7000

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