Equitable Group reports record 2009 results

    
    -   Single family production up 63% in fourth quarter
    -   Strong capital position
    

TSX Symbols: ETC and ETC.PR.A

TORONTO, Feb. 25 /CNW/ - Equitable Group Inc. ("Equitable" or the "Company") today reported record earnings for the three and 12 months ended December 31, 2009 - on solid growth in its net interest margin - and indicated it is poised for growth in its lending markets as a result of its strong capital position.

2009 ANNUAL RESULTS

    
    -   Net income grew 33.2% to $51.4 million - a new annual earnings
        record - compared to $38.6 million a year ago;
    -   Diluted earnings increased 20.9% to $3.36 per share from $2.78 per
        share a year ago;
    -   Return on equity grew to 17.0% from 16.6% in 2008;
    -   Productivity ratio on a taxable equivalent basis ("TEB") - a measure
        of efficiency - improved to 24.9% from 27.4%;
    -   Total capital ratio including general allowance improved to 17.6%
        compared to 13.5% at the end of 2008;
    -   Tangible common equity ratio, a key measure of capital strength,
        improved to 12.6% from 10.1% a year ago;
    -   Book value per share grew 23.0% to $21.83 from $17.75 a year ago.
    

FOURTH QUARTER RESULTS

    
    -   Net income increased 97.3% to $15.6 million compared to $7.9 million
        in the same period a year ago due to net interest margin ("NIM")
        expansion and a one-time benefit that lowered its income taxes;
    -   Diluted earnings increased 81.1% to $0.96 per share from $0.53 per
        share a year ago;
    -   NIM on a TEB expanded to 2.4% from 1.5% a year ago and 2.2% in the
        third quarter;
    -   Return on average assets doubled to 1.6% from 0.8% a year ago;
    -   Return on equity was 17.9% compared to 11.8% a year ago;
    -   Productivity ratio on a TEB improved to 25.1% from 32.7% a year ago.
    

DIVIDENDS

The Company's Board of Directors declared a dividend on the Company's common shares in the amount of $0.10 per share, payable on April 5, 2010, to shareholders of record at the close of business on March 15, 2010. The Board also declared a dividend in the amount of $0.453125 per share on the Company's Series 1 preferred shares, payable March 31, 2010, to preferred shareholders of record at the close of business on March 15, 2010.

MANAGEMENT COMMENTARY

"Equitable's record results in 2009 reflected the strength of our business and demonstrated our Company's ability to address both the recessionary and recovering market conditions that we experienced during the year," said Andrew Moor, President and CEO. "We are pleased with this performance, including the expansion of our net interest margin to its highest level in 12 quarters - and the effectiveness of our underwriting in managing risk and volatility. However, the real highlight of 2009 was that we substantially built our capital in preparation for long-term growth and improvement. With the best capital ratios in our history, Equitable has capacity to capitalize on the many opportunities available to us, particularly in single family mortgage lending. Consistent with our strategy and risk practices, we added over $167 million to our single family portfolio in the fourth quarter - a 63% year-over-year production increase. In total, Equitable met all of its objectives for 2009 and our goal is to surpass this outstanding performance in 2010."

John Ayanoglou, Chief Financial Officer commented: "During the fourth quarter, we continued to strengthen our capital structure, which has the dual benefit of supporting ongoing mortgage accumulation and reducing our relative costs. We did this by successfully issuing $23.2 million of Series 8 Debentures, a new class of sub debt with an initial interest cost of 6.50%. At the same time, we redeemed all of Equitable Trust's $30.8 million of remaining Series 5 subordinated debt, which bore an average interest cost to us of 7.43%. Series 8 provided Equitable with the ability to extend the average term of its subordinated debt at lower average interest costs and on other advantageous terms - and it provides Equitable with the ability to restructure certain other components of its existing sub debt in a similar fashion. While this may cause a marginal decline in our capital ratio, Equitable's capital position will remain robust and well able to support meaningful growth in our mortgage portfolio."

MORTGAGE PORTFOLIO HIGHLIGHTS

    
    -   Single Family Lending Services business funded $397.7 million of
        mortgages in 2009 - including $167.2 million in the fourth quarter -
        compared to $609.9 million in 2008 ($102.5 million in the fourth
        quarter of 2008);
    -   Commercial Mortgage - Broker Services funded $105.7 million of
        mortgages in 2009 - including $42.6 million in the fourth quarter -
        compared to $165.1 million in 2008 ($16.8 million in the fourth
        quarter of 2008);
    -   Commercial Lending Services funded $1.8 billion of mortgages in
        2009 - 90.6% of which were CMHC-insured multi-unit residential
        compared to $1.6 billion in 2008 of which 80.6% was CMHC-insured;
    -   At year end, fixed-rate mortgages represented 70.1% of the mortgage
        portfolio compared to 50.0% at year end 2008 while floating rate
        mortgages with no interest rate floors amounted to 15.6% compared to
        39.4% a year earlier;
    -   Total mortgage fundings in 2009 amounted to $2.3 billion, the same as
        in 2008.
    

Equitable also earns interest from recurring cash flows on its securitized mortgage portfolio. This portfolio grew to $4.1 billion at year end from $2.8 billion at December 31, 2008.

CREDIT QUALITY

Mortgages in arrears 90 days or more (excluding CMHC-insured mortgages that are less than 365 days in arrears) improved to 0.64% of total principal outstanding from 1.57% at December 31, 2008 as the Company benefitted from the relative health of its mortgage portfolio and ongoing success in managing defaults. At the end of the third quarter, the Company deemed a $19.2 million residential construction mortgage as impaired. Despite the fact that interest payments were up to date as at December 31, 2009, allowances of $1.0 million were placed against this mortgage in each of the fourth and third quarters. As a result, net impaired mortgages were 1.20% of total mortgage principal outstanding, compared to 1.21% at year end 2008. Net realized loan losses in 2009 of $6.5 million were well below industry norms and not considered to be material in relation to the Company's $2.8 billion mortgage portfolio.

LOOKING AHEAD

"The credit market and economic environment in our lending regions improved again in the fourth quarter and we continue to respond to this recovery with targeted sales efforts and strong underwriting processes aimed at growing our mortgage portfolio and improving returns without excessive risk taking," said Mr. Moor. "Going forward, we expect to emphasize single family in our growth, which is consistent with our strategy and objective of improving investment returns on a risk-weighted basis. As anticipated and realized in each of the last few quarters, our interest rate spreads have improved. Based on an expectation of stability in the Bank of Canada's benchmark interest rate through the first half of 2010, better GIC market dynamics that have eased overall deposit costs and improved pricing on our mortgages, we see continued strength in our NIM. Given our well-capitalized balance sheet, quality mortgage portfolio and focused risk management processes, we are confident in Equitable's ability to translate opportunity into value in 2010 for our shareholders."

FOURTH QUARTER WEBCAST

Management will discuss Equitable's results during a conference call beginning at 10 a.m. ET today. To listen to the audio webcast, log on to www.equitablegroupinc.com. To participate in the call, please dial 416-644-3419.

MD&A

The Company will post its MD&A for 2009 on its website (www.equitablegroupinc.com) this morning. This document will also be archived on the site.

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. is a niche mortgage lender. Our core business is first charge mortgage financing, which we offer through our wholly owned subsidiary, The Equitable Trust Company. Founded in 1970, Equitable Trust is a federally incorporated trust company. 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 in Ontario, Alberta and Manitoba. Equitable Group's shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A. Visit the Company on line at www.equitablegroupinc.com or www.equitabletrust.com.

    
    CONSOLIDATED BALANCE SHEETS
    ($ THOUSANDS)

    As at December 31                                      2009         2008
    -------------------------------------------------------------------------

    Assets
    Cash and cash equivalents                       $   395,835  $    50,121
    Restricted cash                                       5,000        8,422
    Investments purchased under reverse repurchase
     agreements                                         129,721      698,276
    Investments                                         388,037      170,321
    Securitization retained interests                   147,195      101,806
    Mortgages receivable                              2,763,020    3,023,015
    Other assets                                         17,266       35,590
    -------------------------------------------------------------------------
                                                    $ 3,846,074  $ 4,087,551
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Liabilities:
      Customer deposits                             $ 3,332,319  $ 3,692,569
      Future income taxes                                19,999       17,839
      Other liabilities                                  54,724       36,433
      Bank term loans                                    27,500       44,595
      Subordinated debentures                            37,671       31,969
    -------------------------------------------------------------------------
                                                      3,472,213    3,823,405

    Shareholders' equity:
      Preferred shares                                   48,523            -
      Common shares                                     127,424      126,993
      Contributed surplus                                 3,267        2,553
      Retained earnings                                 193,635      149,365
      Accumulated other comprehensive income (loss)       1,012      (14,765)
    -------------------------------------------------------------------------
                                                        373,861      264,146

    -------------------------------------------------------------------------
                                                    $ 3,846,074  $ 4,087,551
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF INCOME
    ($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)

    Years ended December 31                                2009         2008
    -------------------------------------------------------------------------

    Interest income:
      Mortgages                                     $   162,991  $   186,519
      Investments                                        13,548        8,180
      Other                                               3,599       17,255
    -------------------------------------------------------------------------
                                                        180,138      211,954
    Interest expense:
      Customer deposits                                  94,322      133,770
      Deposit agent commissions                           7,149        8,468
      Bank term loans                                     3,188        3,025
      Subordinated debentures                             2,310        2,348
    -------------------------------------------------------------------------
                                                        106,969      147,611
    -------------------------------------------------------------------------
    Net interest income                                  73,169       64,343
    Provision for credit losses                           6,600        3,450
    -------------------------------------------------------------------------
    Net interest income after provision for credit
     losses                                              66,569       60,893
    Other income:
      Fees and other income                               3,246        1,832
      Net gain (loss) on investments                         50         (295)
      Gains on securitization activities and income
       from retained interests                           24,390       13,275
    -------------------------------------------------------------------------
                                                         27,686       14,812
    -------------------------------------------------------------------------
    Net interest income and other income                 94,255       75,705
    Non-interest expenses:
      Compensation and benefits                          15,367       13,253
      Other                                              10,540        9,438
    -------------------------------------------------------------------------
                                                         25,907       22,691
    -------------------------------------------------------------------------
    Income before income taxes                           68,348       53,014
    Income taxes:
      Current                                            12,660        4,929
      Future                                              4,250        9,474
    -------------------------------------------------------------------------
                                                         16,910       14,403
    -------------------------------------------------------------------------
    Net income                                           51,438       38,611
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Dividends on preferred shares                         1,212            -
    -------------------------------------------------------------------------
    Net income available to common shareholders     $    50,226  $    38,611
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                                         $      3.37  $      2.79
      Diluted                                       $      3.36  $      2.78
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
    ($ THOUSANDS)

    Years ended December 31                                2009         2008
    -------------------------------------------------------------------------

    Preferred shares:
      Balance, beginning of year                    $         -  $         -
      Gross proceeds of equity issue, Series 1           50,000            -
      Issue expenses, net of tax recovery of
       $638 (2008 - nil)                                 (1,477)           -
    -------------------------------------------------------------------------
      Balance, end of year                               48,523            -
    -------------------------------------------------------------------------

    Common shares:
      Balance, beginning of year                        126,993       87,062
      Gross proceeds of equity issue                          -       40,850
      Issue expenses, net of tax recovery of nil
       (2008 - $698)                                          -       (1,510)
      Proceeds from reinvestment of dividends               189            -
      Proceeds from exercise of stock options               195          525
      Transferred from contributed surplus relating
       to the exercise of stock options                      47           66
    -------------------------------------------------------------------------
      Balance, end of year                              127,424      126,993
    -------------------------------------------------------------------------

    Contributed surplus:
      Balance, beginning of year                          2,553        1,778
      Stock-based compensation                              761          841
      Transferred to common shares relating to the
       exercise of stock options                            (47)         (66)
    -------------------------------------------------------------------------
      Balance, end of year                                3,267        2,553
    -------------------------------------------------------------------------

    Retained earnings:
      Balance, beginning of year                        149,365      116,325
      Net income                                         51,438       38,611
      Dividends
        Preferred shares                                 (1,212)           -
        Common shares                                    (5,956)      (5,571)
    -------------------------------------------------------------------------
      Balance, end of year                              193,635      149,365
    -------------------------------------------------------------------------

    Accumulated other comprehensive income (loss):
      Balance, beginning of year                        (14,765)      (1,995)
      Other comprehensive income (loss)                  15,777      (12,770)
    -------------------------------------------------------------------------
      Balance, end of year                                1,012      (14,765)
    -------------------------------------------------------------------------
    Total retained earnings and accumulated other
     comprehensive income                               194,647      134,600
    -------------------------------------------------------------------------
    Total shareholders' equity                      $   373,861  $   264,146
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    ($ THOUSANDS)

    Years ended December 31                                2009         2008
    -------------------------------------------------------------------------

    Net income                                      $    51,438  $    38,611
    Other comprehensive income (loss), net of tax:
      Available for sale investments:
        Net unrealized gains (losses) from change in
         fair value                                      19,324      (12,483)
        Reclassification of net gains to income          (3,547)        (287)
    -------------------------------------------------------------------------
    Other comprehensive income (loss)                    15,777      (12,770)
    -------------------------------------------------------------------------
    Comprehensive income                            $    67,215  $    25,841
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF CASH FLOWS
    ($ THOUSANDS)

    Years ended December 31                                2009         2008
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
      Net income                                    $    51,438  $    38,611
      Non-cash items:
        Financial instruments - fair value adjustments    2,572      (10,023)
        Securitization gains                            (20,221)     (10,076)
        Amortization of capital assets                      605          779
        Provision for credit losses                       6,600        3,450
        Net (gain) loss on investments                      (27)          39
        Future income taxes                               2,798        9,475
        Stock-based compensation                            761          841
        Amortization of premiums on investments, net        803        1,344
    -------------------------------------------------------------------------
                                                         45,329       34,440

      Changes in operating assets and liabilities:
        Other assets                                      5,783       (3,586)
        Other liabilities                                (6,312)         511
    -------------------------------------------------------------------------
                                                         44,800       31,365

    Financing activities:
      (Decrease) increase in customer deposits         (355,328)     582,665
      Repayment of bank term loan                       (17,095)           -
      Issuance of subordinated debentures                23,221            -
      Redemption of subordinated debentures             (17,519)           -
      Dividends paid on preferred shares                 (1,212)           -
      Dividends paid on common shares                    (5,765)      (5,571)
      Issuance of preferred shares                       47,885            -
      Issuance of common shares                             195       39,167
    -------------------------------------------------------------------------
                                                       (325,618)     616,261

    Investing activities:
      Purchase of investments                          (239,098)      (5,000)
      Proceeds on sale or redemption of investments     248,080      104,538
      Purchase of investments purchased under reverse
       repurchase agreements                           (941,681)  (2,133,537)
      Proceeds on sale or redemption of investments
       purchased under reverse repurchase agreements  1,510,236    1,667,381
      Change in restricted cash                           3,422       (3,422)
      Increase in mortgages receivable               (2,838,218)  (3,135,352)
      Mortgage principal repayments                   1,454,319    1,581,808
      Proceeds from loan securitizations              1,402,222    1,291,679
      Securitization retained interests                  27,530       18,931
      Purchase of capital assets                           (280)        (458)
    -------------------------------------------------------------------------
                                                        626,532     (613,432)
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents               345,714       34,194
    Cash and cash equivalents, beginning of year         50,121       15,927
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year          $   395,835  $    50,121
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Certain forward-looking statements are made in this news release, including statements found in the Outlook and Objectives section, above, regarding possible future business. Investors are cautioned that such forward-looking statements involve risks and uncertainties detailed from time to time in the Company's periodic reports filed with Canadian regulatory authorities. Certain material assumptions are applied by the Company in making forward-looking statements, including without limitation, assumptions regarding its continued ability to fund its mortgage business at current levels, a continuation of the current level of economic uncertainty that affects real estate market conditions, continued acceptance of its products in the marketplace, as well as no material changes in its operating cost structure and the current tax regime. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by these assumptions and the related forward-looking statements. Equitable does not undertake to update any forward-looking statements, oral or written, made by itself or on its behalf except in accordance with applicable securities laws. See the MD&A for further information on forward-looking statements.

SOURCE Equitable Group Inc.

For further information: For further information: John Ayanoglou, Senior Vice-President, Finance and Chief Financial Officer, (416) 515-7000


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