EQUITABLE GROUP REPORTS SOLID FIRST QUARTER 2011 RESULTS

TORONTO, May 17 /CNW/ - Equitable Group Inc. (TSX: ETC) (TSX: ETC.PR.A) ("Equitable" or the "Company") today reported solid earnings performance for the three months ended March 31, 2011 as it continued to profit from its growth strategies and strong mortgage production in its chosen market niches.

The results of the first quarter were prepared using International Financial Reporting Standards ("IFRS"), with a transition date of January 1, 2010. As a result, prior period comparative information in this news release, the Company's MD&A and financial statements reflects conversion from previous Canadian Generally Accepted Accounting Principles ("GAAP") to an IFRS basis.

FIRST QUARTER HIGHLIGHTS

  • Diluted earnings per share increased 33.3% to $1.00 from $0.75 per share a year ago;
  • Net income increased 32.2% to $16.1 million compared to $12.2 million in the first quarter of 2010;
  • Net interest income grew 8.9% to $31.2 million from $28.7 million in the corresponding period of 2010;
  • Total assets reached a record $9.2 billion, with originations during the first three months of 2011 totaling $666.7 million,  a 34.9% increase over the same period in 2010;
  • Adjusted net income (a non-GAAP financial measure that removes gains and losses associated with unmatched derivative measurement accounting) increased 12.7% to $15.8 million from $14.0 million in the same period of 2010, while adjusted diluted earnings per share grew 12.5% to $0.99 from $0.88 a year ago;
  • ROE was 18.0% compared to 15.9% in the first quarter of 2010 while adjusted ROE was 17.8% compared to 18.5% in the first quarter of 2010;
  • Productivity ratio on a taxable equivalent bases - a measure of efficiency - was 27.4%, compared to 25.2% a year ago primarily as a result of the costs associated with growing the Company's single family residential mortgage portfolio;
  • Equitable Trust's total capital ratio (when collective allowance is included in capital) was a healthy 17.4% at March 31, 2011, compared to 17.5% a year earlier;
  • Book value per share at period end increased 18.4% to $23.32 from $19.70 a year ago.

DIVIDEND DECLARATIONS

The Company's Board of Directors declared a dividend of $0.11 per share on the Company's common shares, payable on July 5, 2011, to common shareholders of record at the close of business on June 15, 2011. These payments are consistent with the 10% increase in common share dividend payments announced by the Company's Board of Directors on February 23, 2011.

The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable on June 30, 2011, to preferred shareholders of record at the close of business on June 15, 2011.

MANAGEMENT COMMENTARY

"Equitable opened 2011 with good performance that reflects the successful execution of our ongoing growth and earnings enhancement strategies as well as our insistence on operating within well established risk tolerances," said Andrew Moor, President and CEO. "While IFRS reporting presents challenges to year-over-year comparability of results, even the transition in accounting standards cannot mask the fact that key performance metrics, including net interest income are well ahead of last year's opening quarter. Considering the slower pace of activity in Canadian real estate markets compared to a year ago, we are pleased with mortgage origination volumes. Growth in high quality funding opportunities is a direct result of the emphasis we've placed on delivering excellent service to our mortgage broker network. This is a long-term effort that is yielding excellent short-term benefits. In fact, across our mortgage lending businesses, origination volumes experienced in the first quarter of 2011 generally surpassed those of the first quarter of 2010 by a healthy margin. This adds to our earnings potential."

"Net interest income earned in the first quarter reflects the robust growth in our mortgage portfolio," said John Ayanoglou, Senior Vice-President and Chief Financial Officer. "As expected, Net Interest Margin or NIM on a taxable equivalent basis reflected the inclusion of securitization spreads. NIM on non-securitization assets was a healthy 2.5% compared to NIM of 1.4% as calculated on total assets. While delivering this level of performance and growth, the other noteworthy highlight of the quarter is the strength of our capital ratios. Our tangible common equity ratio improved to 13.0% (from 12.7% a year ago) and our Tier 1 capital ratio improved to 14.7% (from 14.6% last year). We continue to have the financial strength to support our growth strategies."

MORTGAGE PORTFOLIO AND CREDIT HIGHLIGHTS

After becoming the largest component of Equitable's conventional mortgage lending businesses in 2010, single family residential mortgages grew again in the first quarter on both an absolute and relative basis. At quarter end, the mortgage portfolio originated by Equitable's single family residential business represented 19.9% of total mortgage principal, compared to 14.0% a year ago, or 46.0% of total conventional mortgage principal, compared to 35.2% a year ago. Equitable has increased its focus on this segment to take advantage of its strengths and to optimize ROE.

During the quarter:

  • Single Family Lending Services originated $216.3 million of conventional mortgages, representing an 11.0% increase over fundings of $194.8 million in the same period of 2010;
  • Commercial Mortgage - Broker Services originated $95.9 million of mortgages, 52.7% higher than fundings of $62.8 million a year ago;
  • Commercial Lending Services originated $100.2 million of conventional mortgages - an increase of 70.6% compared to $58.7 million a year ago - as well as $254.1 million of CMHC-insured multi-unit residential mortgages compared to $143.7 million a year ago.

At quarter end:

  • Fixed-rate mortgages represented 90.8% of the mortgage portfolio compared to 88.1% a year earlier, while floating rate mortgages with no interest rate floors amounted to 4.3% compared to 6.1% a year earlier;
  • Conventional mortgage principal increased 29.7% to $3.7 billion, while the Company's securitized portfolio grew 12.8% to $4.8 billion;
  • Net impaired mortgages were 0.33% of total mortgage principal, compared to 0.42% at the end of 2010 and 0.64% at March 31, 2010;
  • Mortgage principal in arrears 90 days or more were 0.33% of total mortgage principal compared to 0.46% at year end and 0.54% a year ago;
  • Net realized loan losses of $2.9 million were charged against specific allowances recorded in prior quarters.

Management expects arrears and net impaired mortgage levels to remain stable through 2011, a view supported by early stage delinquency rates at quarter end, which decreased to 0.19% of total outstanding principal compared to 0.34% at year end 2010.

LOOKING AHEAD

"We expect to make even more progress with our strategies in 2011 by focusing on two priorities: continued service excellence in support of higher origination volumes in our chosen market areas and the optimization of ROE supported by high quality earnings and the maintenance of our strong capital base," said Mr. Moor. "While we have seen some evidence of slowing activity levels in certain sectors of the real estate market, and this is influencing the pace of originations, we believe we can continue to grow our portfolio without undue risk and achieve solid results for our shareholders."

While Equitable has three important lending businesses, an increasing focus over the last two years has been the building of the Company's single family residential business across Canada.  "We are completing the expansion of our single family business in western Canada by commencing lending on single family homes in Saskatchewan, which follows the successful development of this business in Alberta, Manitoba and British Columbia," said Mr Moor.  "It will take time to build relationships with brokers in Saskatoon and Regina, but, we are confident that our commitment to service will allow us to build enduring partnerships over time."

Mr. Ayanoglou added: "We believe Equitable is well-positioned, with a high level of financial health, to continue to grow its assets, revenue and net income. While we believe there is the potential for some modest contraction in NIM in 2011 from the excellent levels achieved in 2010, net interest income will remain strong and spreads on our conventional mortgage products are expected to remain relatively stable. In all, we are confident that we will continue to generate solid results, growing earnings as the year progresses."

Q1 CONFERENCE CALL

The Company will hold its first quarter conference call and webcast at 10:00 a.m. ET Wednesday, May 18, 2011. To access the call live, please dial in five minutes prior to 416-644-3417. To access a listen-only version of the webcast, please log on to www.equitablegroupinc.com.

A replay of the call will be available until May 25, 2011 and it can be accessed by dialing 416-640-1917 and entering passcode 4438879 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, 2011              
With comparative figures as at December 31, 2010,  March 31, 2010 and January 1, 2010    
($ THOUSANDS)                
                 
  March 31, 2011 December 31, 2010 March 31, 2010 January 1, 2010
                 
Assets                
Cash and cash equivalents $ 177,251  $ 155,242  $ 268,282  $ 389,170 
Restricted cash   36,404    86,570    22,346    25,372 
Investments   385,130    413,330    360,210    302,292 
Mortgages receivable   3,683,777    3,468,507    2,840,231    2,763,020 
Mortgages receivable - securitized   4,876,631    4,748,794    4,326,582    4,137,247 
Other assets   13,788    11,686    11,073    15,191 
  $ 9,172,981  $ 8,884,129  $ 7,828,724  $ 7,632,292 
                 
Liabilities and Shareholders' Equity                
Liabilities:                
   Deposits $ 4,032,391  $ 3,878,853  $ 3,282,827  $ 3,332,319 
   Securitization liabilities   4,653,482    4,531,680    4,088,846    3,885,187 
   Obligations under repurchase agreements       29,918   
   Deferred tax liabilities   7,318    7,086    6,194    5,191 
   Other liabilities   17,298    19,884    13,431    14,959 
   Bank term loans   12,500    12,500    27,500    27,500 
   Subordinated debentures   52,671    52,671    37,671    37,671 
    8,775,660    8,502,674    7,486,387    7,302,827 
                 
Shareholders' equity:                
   Preferred shares   48,494    48,494    48,494    48,494 
   Common shares   128,369    128,068    127,568    127,336 
   Contributed surplus   4,169    3,935    3,457    3,267 
   Retained earnings   215,700    202,187    165,643    155,890 
   Accumulated other comprehensive income (loss)   589    (1,229)   (2,825)   (5,522)
    397,321    381,455    342,337    329,465 
                 
  $ 9,172,981  $ 8,884,129  $ 7,828,724  $ 7,632,292 

CONSOLIDATED STATEMENTS OF INCOME (unaudited)    
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2011    
With comparative figures for the three month period ended March 31, 2010    
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)        
         
  Three months ended
  March 31, 2011 March 31, 2010
         
Interest income:        
     Mortgages $ 47,849  $ 41,803 
     Mortgages - securitized   52,152    47,181 
     Investments   2,279    1,465 
     Other   1,025    652 
    103,305    91,101 
Interest expense:        
     Deposits   26,741    21,772 
     Securitization liabilities   44,268    39,568 
     Bank term loans   200    464 
     Subordinated debentures   862    627 
     Other   29   
    72,100    62,440 
Net interest income   31,205    28,661 
Provision for credit losses   1,938    2,940 
Net interest income after provision for credit losses   29,267    25,721 
Other income:        
     Fees and other income   854    766 
     Net gain (loss) on investments   298    (56)
    1,152    710 
Net interest and other income   30,419    26,431 
Non-interest expenses:        
     Compensation and benefits   5,473    4,391 
     Other   3,643    3,231 
    9,116    7,622 
Income before income taxes and fair value gain (loss)   21,303    18,809 
Fair value gain (loss) on derivative financial instruments − securitization activities   319    (2,729)
Income before income taxes   21,622    16,080 
Income taxes:        
     Current   5,327    4,377 
     Deferred   232    (449)
    5,559    3,928 
Net income   16,063    12,152 
Dividends on preferred shares   906    906 
Net income available to common shareholders $ 15,157  $ 11,246 
         
Earnings per share:        
     Basic $ 1.01  $ 0.75 
     Diluted $ 1.00  $ 0.75 
         

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)        
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2011        
With comparative figures for the three month period ended March 31, 2010        
($ THOUSANDS)        
   
  Three months ended
  March 31, 2011 March 31, 2010
         
Net income $ 16,063  $ 12,152 
Other comprehensive income (loss), net of tax:        
    Available for sale investments:        
        Net unrealized gains from change in fair value   823    2,575 
        Reclassification of net (gains) losses to income   (191)   122 
    Cash flow hedges:        
        Net unrealized gains from change in fair value   1,199   
        Reclassification of net gains to income   (13)   
Other comprehensive income (loss)   1,818    2,697 
Comprehensive income $ 17,881  $ 14,849 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY        
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2011            
With comparative figures for the three month period ended March 31, 2010            
($ THOUSANDS)                        
                         
March 31, 2011 Preferred shares Common shares Contributed surplus Retained earnings Accumulated
other
comprehensive
income (loss)
Total
                         
Balance, beginning of year $ 48,494 $ 128,068 $ 3,935 $ 202,187 $ (1,229) $ 381,455
Net income         16,063     16,063
Other comprehensive income, net of tax           1,818   1,818
Contributions from reinvestment of dividends     127         127
Contributions from exercise of stock options     144     -     144
Dividends:                             
     Preferred shares         (906)     (906)
     Common shares         (1,644)     (1,644)
Stock-based compensation       264       264
Transfer relating to the exercise of stock options     30   (30)      
Balance, end of period $ 48,494 $ 128,369 $ 4,169 $ 215,700 $ 589 $ 397,321
                         
March 31, 2010 Preferred shares Common shares Contributed surplus Retained earnings Accumulated
other
comprehensive
income (loss)
Total
                         
Balance, beginning of year $ 48,494 $ 127,336 $ 3,267 $ 155,890 $ (5,522) $ 329,465
Net income   -   -   -   12,152   -   12,152
Other comprehensive income, net of tax   -   -   -   -   2,697   2,697
Contributions from reinvestment of dividends   -   112   -   -   -   112
Contributions from exercise of stock options   -   103   -   -   -   103
Dividends:                        
     Preferred shares   -   -   -   (906)   -   (906)
     Common shares   -   -   -   (1,493)   -   (1,493)
Stock-based compensation   -   -   207   -   -   207
Transfer relating to the exercise of stock options   -   17   (17)   -   -   -
Balance, end of period $ 48,494 $ 127,568 $ 3,457 $ 165,643 $ (2,825) $ 342,337

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2011
With comparative figures for the three month periods ended March 31, 2010
($ THOUSANDS)        
         
  Three months ended
  March 31, 2011 March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income for the period $ 16,063  $ 12,152 
Adjustments to determine cash flows relating to operating activities:        
    Financial instruments at fair value through income   99    1,695 
    Amortization of capital assets   63    137 
    Provision for credit losses   1,938    2,940 
    Net (gain) loss on sale or redemption of investments   (298)   52 
    Income taxes   5,559    3,928 
    Taxes paid   (4,771)   (3,705)
    Stock-based compensation   264    207 
    Amortization of premiums/discount on investments   785    412 
    Net increase in mortgages receivable   (345,785)   (269,569)
    Net increase in deposits   153,538    (49,429)
    Change in obligations related to investments sold under repurchase agreements     29,918 
    Net change in securitization liability   121,802    203,659 
    Other assets   (1,429)   1,243 
    Other liabilities   (2,193)   (1,342)
Cash flows used in operating activities   (54,365)   (67,702)
CASH FLOWS FROM FINANCING ACTIVITIES        
    Dividends paid on preferred shares   (906)   (906)
    Dividends paid on common shares   (1,519)   (1,379)
    Proceeds from issuance of common shares   144    103 
Cash flows used in financing activities   (2,281)   (2,182)
CASH FLOWS FROM INVESTING ACTIVITIES        
    Purchase of investments   (39,651)   (129,557)
    Proceeds on sale or redemption of investments   20,943    97,584 
    Net change in Canada Housing Trust re-investment accounts   (2,638)   (1,809)
    Purchase of investments under reverse repurchase agreements   (24,993)   (149,876)
    Proceeds on sale or redemption of investments under reverse repurchase agreements   74,908    129,721 
    Changes in restricted cash   50,166    (5,707)
    Purchase of capital assets   (80)   (93)
Cash flows used in investing activities   78,655    (59,737)
Net increase (decrease) in cash and cash equivalents   22,009    (129,621)
Cash and cash equivalents, beginning of period   155,242    397,903 
Cash and cash equivalents, end of period $ 177,251  $ 268,282 

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 across Canada, with offices in Ontario, Alberta and Quebec. Equitable Group's shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A respectively. Visit the Company on line at www.equitabletrust.com and click on Investor Relations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements made by the Company in the sections of this report entitled "Management Commentary" and "Looking Ahead", in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws ("forward-looking statements"). These statements include, but are not limited to, statements about the Company's objectives, strategies and initiatives, financial result expectations and other statements made herein, whether with respect to the Company's businesses or the Canadian economy. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may" , "could", "would", "might" or "will be taken", "occur" or "be achieved." Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to capital markets and additional funding requirements, fluctuating interest rates and general economic conditions, legislative and regulatory developments, the nature of our customers and rates of default, and competition as well as those factors discussed under the heading "Risk Management" in the Management's Discussion and Analysis and in the Company's documents filed on SEDAR at www.sedar.com. All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting the Company and the Canadian economy. Although the Company believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.  Certain material assumptions are applied by the Company in making forward-looking statements, including without limitation, assumptions regarding its continued ability to fund its mortgage business at current levels, a continuation of the current level of economic uncertainty that affects real estate market conditions, continued acceptance of its products in the marketplace, as well as no material changes in its operating cost structure and the current tax regime. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.


 

 

SOURCE Equitable Group Inc.

For further information:

John Ayanoglou
Senior Vice-President and Chief Financial Officer
416-513-7000


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