Equitable Group reports record first quarter results, 6% common share dividend increase

TORONTO, May 6, 2014 /CNW/ - Equitable Group Inc. (TSX: EQB and EQB.PR.A) ("Equitable" or the "Company") today reported its financial results for the three months ended March 31, 2014, a period of strong performance for its wholly owned subsidiary, Equitable Bank (the "Bank").

FIRST QUARTER HIGHLIGHTS

  • Net income grew 21% to $25.3 million, a first quarter record, up from $20.9 million in 2013
  • Diluted earnings per share increased 20% to $1.56 from $1.30 in 2013
  • Return on Equity ("ROE") was 17.9%, up from 17.5% in Q1 2013
  • Book value per common share increased 18% to $36.58 from $31.07 at March 31, 2013

"Equitable's first quarter results again demonstrated the Bank's ability to perform for customers and shareholders across our growing business lines," said Andrew Moor, President and Chief Executive Officer.  "Earnings reached a new first quarter record while ROE performance showed an increase over the same period last year and was above our five-year average of 17.5%.  I am particularly encouraged by the positive feedback I am getting from our mortgage broker partners about the consistently good service they are receiving from the Bank.  I believe that this reputation, now firmly established in the market, is the key reason for the 42% growth in single family originations in this quarter compared to the same quarter last year.  Combining a strong operational focus, a culture of cost control, strong risk management practices and discipline in capital allocation has allowed us to increase the dividends on our common shares for the 6th time in just over three years."

DIVIDEND DECLARATIONS

The Company's Board of Directors today declared a common share dividend in the amount of $0.17 per common share, payable July 3, 2014, to common shareholders of record at the close of business on June 13, 2014.  This represents a 6% increase over dividends declared in the previous quarter and a 13% increase over dividends declared in May 2013.

The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable June 30, 2014, to preferred shareholders of record at the close of business on June 13, 2014.

OPERATING HIGHLIGHTS

  • Single Family Lending Services origination was $404 million, up 42% from $285 million a year ago.  On strong origination volumes and mortgage renewal success, Single Family mortgage principal at March 31, 2014 was a record $4.1 billion, up 35% adjusted for $238 million of mortgages securitized during the past four quarters.
  • Commercial Lending Services mortgage principal was $2.4 billion, up 10% or $210 million from a year ago.  Quarterly origination volumes were $126 million compared to $173 million in 2013.
  • Securitization Financing Mortgages under Management of $5.8 billion remained at the same level as last year, which was broadly in-line with Management's expectations.
  • Deposit Services total deposit principal increased 15% year-over-year to $6.4 billion at March 31, 2014.

The high quality of Equitable's mortgage portfolio is reflected in its strong credit metrics. In the three months ended March 31, 2014, the Company had a net impairment recovery of $42 thousand compared to an impairment provision of $0.5 million a year ago. Similarly, after the Company's normal extensive review of its collective allowance, Equitable determined that recording a lower than normal provision in the quarter of $0.5 million would be sufficient to maintain appropriate allowance levels.  At quarter end, net impaired mortgage assets were 0.35% of total mortgage assets compared to 0.34% a year ago and well within historical norms.

CAPITAL

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

  • Common Equity Tier 1 capital ratio was 12.9%, well ahead of the Basel III minimum of 7.0%, and most competitive benchmarks
  • Total capital ratio was 16.6%, up from 16.4% a year ago, exceeding the regulatory requirement of 10.5% on an all-in basis

STRATEGIC INITIATIVES

Equitable will broaden its foundation as Canada's ninth largest independent Bank during 2014.

"In the first quarter, we took an important step in this regard by expanding our national Single Family Lending Services footprint to include the Greater Montreal and Gatineau regions of Quebec," said Mr. Moor.  "This further diversifies our largest core lending line and provides us with a new opportunity to serve borrowers in some of Canada's largest residential markets."

Equitable will also enter the prime single family mortgage market later this year, a strategic initiative that has been encouraged by policy changes that improve the ability of smaller banks to compete in the Canadian financial services market.  The Bank intends to fund a majority of prime mortgages through the Canada Mortgage and Housing Corporation ("CMHC") Mortgage Backed Securities ("MBS") program.  In 2014, this initiative will likely have an immaterial impact on earnings but it offers significant long-term strategic and financial value.  Management's goal is to originate $1 billion to $2 billion of prime single family loans per year once the program reaches a steady-state.

Equitable also continues to offer a broader range of services to savers and investors to diversify its sources of funding with two significant accomplishments in 2014 to date:

  • Attracted $91 million in deposits to the Equitable Bank High Interest Savings Account, a product available through the FundSERV platform under the Code EQB100 and which pays 1.50% annually, since its launch in late 2013
  • Successfully completed a $150 million, three-year fixed rate 2.595% Deposit Note offering subsequent to quarter end, attracting broad institutional investor demand.  Over time, the Bank intends to become a regular Deposit Note issuer across a variety of terms.

BUSINESS OUTLOOK

Equitable expects that its growth and performance strategies will continue to deliver high returns on shareholders' equity in 2014.

"The Bank started 2014 in record fashion and we intend to remain focused on the fundamental drivers of performance to sustain this very positive momentum throughout the year," said Mr. Moor.  "As we move into the spring and summer quarters, we look to take advantage of seasonally stronger real estate and mortgage market activity by maintaining the standards of service and responsiveness that have made Equitable a favoured choice for mortgage brokers and borrowers across Canada."

In commenting on profitability, Tim Wilson, Vice President and Chief Financial Officer said: "Net interest income increased 21% year-over-year in the first quarter on 3% growth in average asset balances and a 25 basis point increase in total NIM, which stood at 1.67%.  As we move deeper into 2014, we expect that total NIM will continue to reflect the positive benefit of the shift in our asset mix towards higher margin Core Lending activities and efficient liquidity management."

CONFERENCE CALL AND WEBCAST

The Company will hold its first quarter conference call and webcast [with accompanying slides] at 10:00 a.m. ET Wednesday, May 7, 2014.  To access the call live, please dial 416-644-3415 five minutes prior.  To access a listen-only version of the webcast, please log on to www.equitablebank.ca under Investor Relations.

A replay of the call will be available until May 14, 2014 and it can be accessed by dialing 416-640-1917 and entering passcode 4678810 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, 2014            
With comparative figures as at December 31, 2013 and March 31, 2013
($ THOUSANDS)            
               
      March 31, 2014   December 31, 2013   March 31, 2013
             
Assets:            
Cash and cash equivalents $ 303,662 $ 243,645 $ 265,131
Restricted cash   57,687   87,319   97,486
Securities purchased under reverse repurchase agreements   20,172   54,860   84,681
Investments   239,305   240,614   380,141
Mortgages receivable - Core Lending   6,433,785   6,188,278   5,348,498
Mortgages receivable - Securitization Financing   4,770,564   4,941,589   5,389,111
Securitization retained interests   33,386   30,455   11,954
Other assets   27,918   29,693   25,291
  $ 11,886,479 $ 11,816,453 $ 11,602,293
             
Liabilities and Shareholders' Equity            
Liabilities:            
   Deposits $ 6,563,120 $ 6,470,029 $ 5,648,679
   Securitization liabilities   4,471,954   4,591,404   5,289,174
   Obligations under repurchase agreements     8,143   6,992
   Deferred tax liabilities   11,406   10,826   8,097
   Other liabilities   44,066   55,250   35,039
   Bank facilities   91,994    
   Debentures   92,483   92,483   92,483
    11,275,023   11,228,135   11,080,464
             
Shareholders' equity:            
   Preferred shares   48,494   48,494   48,494
   Common shares   139,107   137,969   135,408
   Contributed surplus   5,385   5,326   5,028
   Retained earnings   426,391   404,467   341,614
   Accumulated other comprehensive loss   (7,921)   (7,938)   (8,715)
    611,456   588,318   521,829
             
  $ 11,886,479 $ 11,816,453 $ 11,602,293
             
             

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2014
With comparative figures for the three month period ended March 31, 2013
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)        
         
  Three months ended
    March 31, 2014   March 31, 2013
         
Interest income:        
     Mortgages - Core Lending $ 77,271 $ 64,651
     Mortgages - Securitization Financing   43,703   52,986
     Investments   1,479   2,035
     Other   1,585   1,856
    124,038   121,528
Interest expense:        
     Deposits   36,803   33,714
     Securitization liabilities   36,623   45,249
     Debentures   1,394   2,373
     Bank facilities   513   7
     Other   21   23
    75,354   81,366
Net interest income   48,684   40,162
Provision for credit losses   507   2,100
Net interest income after provision for credit losses   48,177   38,062
Other income:        
     Fees and other income   1,466   1,457
     Net gain on investments   17   645
     Gains on securitization activities and income from securitization retained interests   866   881
    2,349   2,983
Net interest and other income   50,526   41,045
Non-interest expenses:        
     Compensation and benefits   10,136   7,727
     Other   6,309   5,509
    16,445   13,236
Income before income taxes   34,081   27,809
Income taxes:        
     Current   8,209   7,324
     Deferred   581   (429)
    8,790   6,895
Net income $ 25,291 $ 20,914
         
Earnings per share:        
     Basic $ 1.59 $ 1.32
     Diluted $ 1.56 $ 1.30
           
         

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2014
With comparative figures for the three month period ended March 31, 2013
($ THOUSANDS)        
         
  Three months ended
    March 31, 2014   March 31, 2013
         
Net income $ 25,291 $ 20,914
         
Other comprehensive income - items that may be reclassified subsequently to income:        
         
Available for sale investments:        
Net unrealized gains from change in fair value   1,573   2,557
Reclassification of net gains to income   (9)   (847)
    1,564   1,710
Income tax expense   (413)   (450)
    1,151   1,260
         
Cash flow hedges:        
Net unrealized losses from change in fair value   (2,058)   (767)
Reclassification of net losses to income   517   647
    (1,541)   (120)
Income tax recovery   407   32
    (1,134)   (88)
Total other comprehensive income   17   1,172
Total comprehensive income $ 25,308 $ 22,086
         
         

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)  
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2014                    
With comparative figures for the three month period ended March 31, 2013                    
($ THOUSANDS)                                
                                 
                  Accumulated other
comprehensive
income (loss)
   
March 31, 2014 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Cash flow
hedges
Available
for sale
investments
  Total   Total
                                 
Balance, beginning of period $ 48,494 $ 137,969 $ 5,326 $ 404,467 $ (3,364) $ (4,574) $ (7,938) $ 588,318
Net income         25,291         25,291
Other comprehensive (loss) income, net of tax           (1,134)   1,151   17   17
Reinvestment of dividends     266             266
Exercise of stock options     712             712
Dividends:                                
    Preferred shares         (906)         (906)
     Common shares         (2,461)         (2,461)
Stock-based compensation       219           219
Transfer relating to the exercise of stock options     160   (160)          
Balance, end of period $ 48,494 $ 139,107 $ 5,385 $ 426,391 $ (4,498) $ (3,423) $ (7,921) $ 611,456
                                 
                                 
                  Accumulated other
comprehensive
income (loss)
   
March 31, 2013 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Cash flow
hedges
Available
for sale
investments
  Total   Total
                                 
Balance, beginning of period $ 48,494 $ 134,224 $ 5,003 $ 323,737 $ (9,279) $ (608) $ (9,887) $ 501,571
Net income         20,914         20,914
Other comprehensive (loss) income, net of tax           (88)   1,260   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 $ (9,367) $ 652 $ (8,715) $ 521,829

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2014
With comparative figures for the three month period ended March 31, 2013
($ THOUSANDS)        
         
  Three months ended
    March 31, 2014   March 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income for the period $ 25,291 $ 20,914
Adjustments for non-cash items in net income:        
    Financial instruments at fair value through income   (467)   1,441
    Amortization of premiums/discount on investments   585   509
    Amortization of capital assets   303   242
    Amortization of deferred costs   556   286 
    Provision for credit losses   507   2,100
    Securitization gains   (751)   (1,126)
    Net gain on sale or redemption of investments   (17)   (531)
    Stock-based compensation   219   201
    Income taxes   8,790   6,895
Changes in operating assets and liabilities:        
    Restricted cash   29,632   (33,885)
    Securities purchased under reverse repurchase agreements   34,688   (6,130)
    Mortgages receivable   (173,426)   (251,378)
    Other assets   1, 135   (121)
    Deposits   91,908   (3,038)
    Securitization liabilities   (119,450)   27,504
    Obligations under repurchase agreements   (8,143)   (2,890)
    Bank facilities   91,994   -
    Other liabilities   (3,044)   (4,593)
Income taxes paid   (16,426)   (10,867)
Proceeds from loan securitizations   95,165   118,543
Securitization retained interests   1,339   332
Cash flows from (used in) from operating activities   60,388   (135,592)
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   (2,190)   (1,874)
Proceeds from issuance of common shares   712   756
Cash flows used in financing activities   (2,384)   (39,712)
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of investments   (39,396)   (2,420)
Proceeds on sale or redemption of investments   45,189   64,138
Net change in Canada Housing Trust re-investment accounts   (3,633)   (429)
Purchase of capital assets   (147)   (301)
Cash flows from investing activities   2,013   60,988
Net increase (decrease) in cash and cash equivalents   60,017   (114,316)
Cash and cash equivalents, beginning of period   243,645   379,447
Cash and cash equivalents, end of period $ 303,662 $ 265,131
         
Cash flows from operating activities include:        
Interest received   123,697   122,191
Interest paid   (48,311)   (63,090)
Dividends received   1,509   1,475

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. is a growing Canadian financial services business that operates through its wholly-owned subsidiary, Equitable Bank.  Equitable Bank is a Schedule I Bank regulated by the Office of the Superintendent of Financial Institutions Canada with total assets of approximately $12 billion, with more than 300 employees and proven capabilities in lending and deposit-taking.  The Company's integrated operations are organized according to specialty. We serve retail and commercial customers across Canada with a range of savings solutions and mortgage lending products.  Within Equitable Bank's Core Lending business, Single Family Lending Services funds mortgages for owner-occupied and investment properties across Canada while Commercial Lending Services provides mortgages on a variety of commercial properties on a national basis.  Equitable's Securitization Financing business originates and securitizes insured residential mortgages under the Canada Mortgage and Housing Corporation administered National Housing Act.  Measured by assets, Equitable Bank was the ninth largest independent Schedule I Bank in Canada at December 31, 2013. 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 "First Quarter Highlights", "Operating Highlights", Strategic Initiatives", "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 first 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.

ADDITIONAL GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL MEASURES

This news release references net interest income, an additional GAAP measure that management believes provide useful information to investors regarding the Company's financial results of operations.  The "ADDITIONAL Generally Accepted Accounting Principles ("GAAP") Financial Measures" section of the Company's first quarter 2014 Management's Discussion and Analysis provides a detailed description of net interest income and should be read in conjunction with this report.  Readers are cautioned that additional 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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