Equitable Group reports strong second quarter 2009 results



    
    -   SOLID IMPROVEMENT IN NET INTEREST MARGIN
    -   OUTLOOK SUPPORTS INCREASED SALES ACTIVITY
    

    TSX Symbol: ETC

    TORONTO, Aug. 6 /CNW/ - Equitable Group Inc. ("Equitable" or the
"Company") today reported excellent quarterly earnings for the three months
ended June 30, 2009, on par with the record earnings reported in the first
quarter of 2009.

    
    SECOND QUARTER RESULTS

    -   Net income increased 15.5% to $11.9 million compared to $10.3 million
        in the same period a year ago;
    -   Net interest income earned increased by $2.5 million from the prior
        quarter and $2.0 million from the corresponding quarter of the prior
        year;
    -   Diluted earnings per share increased to $0.80 per share, slightly
        ahead of $0.79 per share a year ago;
    -   Return on equity was 16.5% compared to 17.8% in the first quarter of
        2009 and 19.1% in the second quarter of 2008;
    -   Tangible Common Equity ratio (TCE) ratio, a key measure of capital
        strength, was 11.8%, an improvement over the ratios of 10.8% and 8.6%
        for the first quarter of 2009 and second quarter of 2008,
        respectively;
    -   Productivity ratio on a Taxable Equivalent Basis - a measure of
        efficiency - improved to 24.4% from 26.8% in the same quarter of
        2008;
    -   Net impaired mortgages improved to 0.79% of total mortgage principal
        outstanding from 0.94% at the end of the first quarter of 2009;
    -   Book value per share increased 17.1% to $19.94 from $17.03 at
        June 30, 2008.
    

    DIVIDEND

    The Company's Board of Directors declared a quarterly dividend in the
amount of $0.10 per share, payable on October 5, 2009, to shareholders of
record at the close of business on September 15, 2009.

    MANAGEMENT COMMENTARY

    "Equitable made strong progress in creating shareholder value over the
first half of 2009 through a combination of margin improvement measures,
excellent productivity, diligent risk management and the achievement of
attractive securitization volumes and spreads," said Andrew Moor, President
and CEO. "Given turbulent economic conditions, we are very pleased with
Equitable's performance to date, including growth in our $3.5 billion
securitized mortgage portfolio and our robust capital position. Period end
total capital ratio of 15.3% (inclusive of general allowance) is well ahead of
our target for the year and supports meaningful growth in new mortgage
business."

    SECOND QUARTER OPERATING HIGHLIGHTS

    
    -   Net interest margin on a taxable equivalent basis increased to 1.9%
        from 1.6% in the first quarter of 2009 - despite a 25 basis point
        decrease in Prime Rate early in the second quarter - as a result of
        pricing strategies on new and renewing mortgages;
    -   Floating rate mortgages that did not have interest rate floors
        represented 24.2% of the mortgage portfolio at June 30, 2009,
        compared to 35.6% at the end of the prior quarter as the Company
        successfully reduced its interest rate exposure by converting
        floating to fixed rate mortgages and putting interest rate floors on
        floating rate mortgages as they renewed;
    -   Floating rate mortgages that had interest rate floors represented
        15.3% of the mortgage portfolio at June 30, 2009 compared to 12.0% at
        March 31, 2009 and based on interest rate levels at June 30th, these
        mortgages are expected to generate a significant increase in interest
        income in the third quarter over what would have been earned had the
        floors not been implemented;
    -   Equitable securitized and sold $353.9 million of CMHC-insured
        mortgages compared to $410.0 million in the same quarter of 2008 and
        earned $5.8 million in income from securitizations;
    -   Mortgage fundings in the second quarter amounted to $645.3 million,
        an increase of 21.3% over first quarter 2009 fundings of
        $532.1 million;
    -   Mortgage principal was $2.9 billion, essentially unchanged from a
        year ago but lower than the year end 2008 total of $3.0 billion due
        to securitizations of CMHC-insured multi-residential and single
        family mortgages as well as natural amortization and payout of the
        portfolio.
    

    CREDIT QUALITY

    Net impaired mortgages improved to 0.79% of total mortgage principal
outstanding from 0.94% at the end of the first quarter of 2009, reflecting the
health of the Company's mortgage portfolio, success in curing problem mortgage
loans and relatively healthier real estate market conditions in Equitable's
chosen lending regions. Mortgages in arrears 90 days or more (excluding
CMHC-insured mortgages that are less than 365 days in arrears) also improved
to 1.34% of total principal outstanding from 1.49% at March 31, 2009. Net
realized loan losses related to workout activities in the second quarter
amounted to $1.0 million. Effective collections management and a recovery in
real estate markets have allowed the Company to sell properties and work out
problem loans expeditiously and without incurring unreasonable losses.

    SIX MONTH RESULTS

    
    -   Net income increased 19.3% to a record $23.8 million compared to
        $20.0 million in the same period a year ago;
    -   Diluted earnings per share increased 4.6% to $1.60 per share compared
        to $1.53 per share a year ago;
    -   Return on equity was 17.1% compared to 18.9% in the same period of
        2008.
    

    CONCLUSION

    "Economic conditions appear to be improving relative to the past few
quarters and, based on our increasing comfort with credit and real estate
market dynamics, we have increased our sales efforts within the context of
ongoing lending and risk management discipline," said Mr. Moor. "Our robust
balance sheet certainly supports incremental asset accumulation, and we're
confident that our low-cost business approach will allow us to add to our
portfolio on a very profitable basis. For several reasons, we also expect
continued improvement in our interest rate spreads. Notably, recent market
conditions have eased overall deposit costs while the Bank of Canada has
indicated that its benchmark interest rate should remain at its current level
through the first half of 2010, assuming inflation remains in check. With
greater market stability, combined with the progress we continue to make in
implementing significantly enhanced pricing, we have a solid opportunity for
additional shareholder value creation in the second half of 2009 and well into
2010."
    John Ayanoglou, Senior Vice-President and Chief Financial Officer, said:
"An important factor related to improving spreads is the $400 million in
cashable GICs that comprise part of our $3.3 billion portfolio of customer
deposits that will mature and are expected to be replaced with less expensive
funding over the next two quarters. This should have a positive impact on our
margins, partially offset by the maintenance of higher than normal levels of
liquidity we are maintaining to be prepared for any unexpected developments in
our markets. As we identify and originate new mortgages in this environment,
we will retain our bias toward high quality investments, including insured
fundings for securitization, and continue to apply our ROE optimization
strategies. In short, we will maintain our focus on safeguarding the future
health and performance potential of our portfolio through strong underwriting
practices that ensure improving returns without excessive risk taking."

    SECOND QUARTER WEBCAST

    Management will discuss Equitable's results during a conference call
beginning at 9:30 a.m. ET today. To listen to the audio webcast, log on to
www.equitablegroupinc.com. To participate in the call, please dial
416-915-5762.

    MD&A

    The Company will post its MD&A for the three and six months ended June
30, 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 symbol ETC.
Visit the Company on line at www.equitablegroupinc.com or
www.equitabletrust.com.


    
    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    CONSOLIDATED BALANCE SHEETS (unaudited)
    AS AT JUNE 30, 2009
    With comparative figures as at December 31, 2008 and June 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                                           June 30, December 31,     June 30,
                                              2009         2008         2008
    -------------------------------------------------------------------------

    Assets
    Cash and cash equivalents          $   273,422  $    50,121  $   248,139
    Restricted cash                          5,000        8,422        5,000
    Investment purchased under reverse
     repurchase agreements                 145,037      698,276      412,004
    Investments                            292,598      170,321      149,214
    Securitization retained interests      124,072      101,806       67,469
    Mortgages receivable                 2,857,378    3,023,015    2,915,912
    Other assets                            21,981       35,590       16,457
    -------------------------------------------------------------------------
                                       $ 3,719,488  $ 4,087,551  $ 3,814,195
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders'
     Equity
    Liabilities:
      Customer deposits                $ 3,280,565  $ 3,692,569  $ 3,483,607
      Future income taxes                   19,071       17,839       11,733
      Other liabilities                     47,864       36,433       21,193
      Bank term loans                       43,250       44,595       44,595
      Subordinated debentures               31,969       31,969       31,969
    -------------------------------------------------------------------------
                                         3,422,719    3,823,405    3,593,097

    Shareholders' equity:
      Capital stock                        127,029      126,993       87,653
      Contributed surplus                    2,984        2,553        2,124
      Retained earnings                    170,209      149,365      133,695
      Accumulated other comprehensive
       loss                                 (3,453)     (14,765)      (2,374)
    -------------------------------------------------------------------------
                                           296,769      264,146      221,098

    -------------------------------------------------------------------------
                                       $ 3,719,488  $ 4,087,551  $ 3,814,195
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF INCOME (unaudited)
    FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
    With comparative figures for the three and six month periods ended
    June 30, 2008
    (In thousands of dollars, except share and per share amounts)

    -------------------------------------------------------------------------
                               Three months ended         Six months ended
                              June 30,     June 30,     June 30,     June 30,
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------

    Interest income:
      Mortgages           $    40,005  $    45,151  $    81,019  $    90,843
      Investments               3,293        2,146        5,758        4,322
      Other                       664        3,807        2,489        7,530
    -------------------------------------------------------------------------
                               43,962       51,104       89,266      102,695

    Interest expense:
      Customer deposits        23,432       32,128       50,729       62,837
      Deposit agent
       commissions              1,683        2,148        3,367        4,090
      Bank term loans             758          771        1,496        1,517
      Subordinated
       debentures                 586          584        1,165        1,168
    -------------------------------------------------------------------------
                               26,459       35,631       56,757       69,612
    -------------------------------------------------------------------------
    Net interest income        17,503       15,473       32,509       33,083
    Provision for credit
     losses                     1,250          300        3,100          600
    -------------------------------------------------------------------------
    Net interest income
     after provision for
     credit losses             16,253       15,173       29,409       32,483
    Other income:
      Fees and other income       998          421        1,751          781
      Net gain on investments       -           49           36          230
      Gains on
       securitization
       activities and income
       from retained
       interests                5,798        4,278       15,132        4,959
    -------------------------------------------------------------------------
                                6,796        4,748       16,919        5,970
    -------------------------------------------------------------------------
    Net interest income and
     other income              23,049       19,921       46,328       38,453
    Non-interest expenses:
      Compensation and
       benefits                 3,481        3,233        7,445        6,260
      Other                     2,627        2,448        4,934        4,569
    -------------------------------------------------------------------------
                                6,108        5,681       12,379       10,829
    -------------------------------------------------------------------------
    Income before income
     taxes                     16,941       14,240       33,949       27,624
    Income taxes:
      Current                   6,189        1,384        8,896        4,988
      Future                   (1,125)       2,576        1,232        2,671
    -------------------------------------------------------------------------
                                5,064        3,960       10,128        7,659

    Net income            $    11,877  $    10,280  $    23,821  $    19,965
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic               $      0.80  $      0.79  $      1.60  $      1.54
      Diluted             $      0.80  $      0.79  $      1.60  $      1.53

    Weighted average
     number of shares
     outstanding:
      Basic                14,886,063   12,975,018   14,884,396   12,965,458
      Diluted              14,914,954   13,008,490   14,898,921   13,013,529

    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
    FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
    With comparative figures for the three and six month periods ended
    June 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                               Three months ended         Six months ended
                              June 30,     June 30,     June 30,     June 30,
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Capital stock:
      Balance, beginning
       of period          $   126,993  $    87,257  $   126,993  $    87,062
      Common shares issued
        Proceeds from
         reinvestment of
         dividend                  36            -           36            -
        Proceeds from
         exercise of stock
         options                    -          350            -          525
        Transfer from
         contributed
         surplus relating
         to the exercise
         of stock options           -           46            -           66
    -------------------------------------------------------------------------
      Balance, end of
       period                 127,029       87,653      127,029       87,653

    Contributed surplus:
      Balance, beginning
       of period                2,872        1,961        2,553        1,778
      Stock-based
       compensation               112          209          431          412
      Transfer to common
       shares relating to
       the exercise of
       stock options                -          (46)           -          (66)
    -------------------------------------------------------------------------
      Balance, end of
       period                   2,984        2,124        2,984        2,124

    Retained earnings:
      Balance, beginning
       of period              159,821      124,714      149,365      116,325
      Net income               11,877       10,280       23,821       19,965
      Dividends                (1,489)      (1,299)      (2,977)      (2,595)
    -------------------------------------------------------------------------
      Balance, end
       of period              170,209      133,695      170,209      133,695

    Accumulated other
     comprehensive income
     (loss), net of tax:
      Balance, beginning
       of period               (8,431)      (1,996)     (14,765)      (1,995)
      Other comprehensive
       income (loss)            4,978         (378)      11,312         (379)
    -------------------------------------------------------------------------
      Balance, end
       of period               (3,453)      (2,374)      (3,453)      (2,374)
    -------------------------------------------------------------------------
    Total retained
     earnings and
     accumulated other
     comprehensive income
     (loss)                   166,756      131,321      166,756      131,321
    -------------------------------------------------------------------------
    Total shareholders'
     equity               $   296,769  $   221,098  $   296,769  $   221,098
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
    FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
    With comparative figures for the three and six month periods ended
    June 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                               Three months ended         Six months ended
                              June 30,     June 30,     June 30,     June 30,
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Net income            $    11,877  $    10,280  $    23,821  $    19,965
    Other comprehensive
     income (loss), net
     of tax:
      Available for sale
       investments:
        Net unrealized
         gains (losses)
         from change in
         fair value             7,832         (304)      15,272         (391)
        Reclassification
         of net (gains)
         losses to income      (2,854)         (74)      (3,960)          12
    -------------------------------------------------------------------------
    Other comprehensive
     income (loss)              4,978         (378)      11,312         (379)
    -------------------------------------------------------------------------
    Comprehensive income  $    16,855  $     9,902  $    35,133  $    19,586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
    FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
    With comparative figures for the three and six month periods ended
    June 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                               Three months ended         Six months ended
                              June 30,     June 30,     June 30,     June 30,
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------

    Cash provided by
     (used in):
    Operating activities:
      Net income          $    11,877  $    10,280  $    23,821  $    19,965
      Non-cash items:
        Financial
         instruments -
         fair value
         adjustments            2,595         (609)      (2,999)      (1,741)
        Securitizations
         gains                 (4,940)      (3,739)     (12,559)      (3,697)
        Amortization of
         capital assets           150          187          291          372
        Provision for
         credit losses          1,250          300        3,100          600
        Net loss (gain)
         on investments             4          (49)         (80)        (228)
        Future income taxes    (1,125)       2,576        1,232        2,671
        Stock-based
         compensation             112          209          431          412
        Amortization of
         premiums on
         investments, net         166          367          370          916
    -------------------------------------------------------------------------
                               10,089        9,522       13,607       19,270

      Changes in operating
       assets and
       liabilities:
        Other assets            8,438       (3,498)       8,650       (2,516)
        Other liabilities       4,134        3,856         (559)          86
    -------------------------------------------------------------------------
                               22,661        9,880       21,698       16,840

    Financing activities:
      Increase (decrease)
       in customer deposits  (188,919)     426,069     (408,076)     378,390
      Repayment of bank
       term loan               (1,345)           -       (1,345)           -
      Dividends paid on
       common shares           (1,489)      (1,299)      (2,977)      (2,595)
      Issuance of common
       shares                      36          350           36          525
    -------------------------------------------------------------------------
                             (191,717)     425,120     (412,362)     376,320

    Investing activities:
      Purchase of
       investments             (9,318)      (5,000)      (9,318)      (5,000)
      Proceeds on sale or
       redemption of
       investments             26,065       51,342       30,524       75,092
      Purchase of
       investments
       purchased under
       reverse repurchase
       agreements            (145,037)    (412,004)    (685,730)    (687,078)
      Proceeds on sale or
       redemption of
       investments
       purchased under
       reverse repurchase
       agreements             540,693      275,074    1,238,969      507,194
      Change in restricted
       cash                     1,300            -        3,422            -
      Increase in mortgages
       receivable            (724,099)    (968,494)  (1,535,815)  (1,344,506)
      Mortgage principal
       repayments             379,005      451,772      798,297      719,250
      Proceeds from loan
       securitizations        350,672      402,849      761,851      565,940
      Securitization
       retained interests       5,973        5,060       11,892        8,264
      Purchase of capital
       assets                     (12)         (42)        (127)        (104)
    -------------------------------------------------------------------------
                              425,242     (199,443)     613,965     (160,948)
    -------------------------------------------------------------------------

    Increase in cash and
     cash equivalents         256,186      235,557      223,301      232,212
    Cash and cash
     equivalents, beginning
     of period                 17,236       12,582       50,121       15,927
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end of
     period               $   273,422  $   248,139  $   273,422  $   248,139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: John Ayanoglou, Senior Vice-President and Chief
Financial Officer, (416) 513-3535


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