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Equitable Group Reports Strong Second Quarter 2012 Earnings, 17% Common Share Dividend Increase


News provided by

Equitable Group Inc.

Aug 09, 2012, 21:32 ET

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TORONTO, Aug. 9, 2012 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported record financial performance for the six months ended June 30, 2012 and announced a 17% increase in its common share dividend in recognition of its strong growth prospects and capital position.

As a result of strong long-term growth, the Company also noted that its mortgage portfolio has doubled in size in the past five years, reaching the $10 billion milestone at June 30, 2012.

SECOND QUARTER HIGHLIGHTS

  • Net income increased 40% to $22.1 million from $15.7 million in the second quarter of 2011
  • Diluted earnings per share ("EPS") increased 43% to $1.40 from $0.98 in the second quarter of 2011
  • Return on equity ("ROE") increased to 21.1% from 16.8% a year ago
  • Equitable Trust's period-end total capital ratio was 15.6%

"Equitable's outstanding performance in the second quarter reflected our growing marketplace advantages as a national, service-oriented mortgage lender," said Andrew Moor, President and Chief Executive Officer. "Once again, we grew mortgage principal in every one of our lending businesses compared to a year ago, led by a 37% increase in Single Family, which also generated 65% growth in production in the quarter year over year. Our ability to expand at low cost without compromising credit quality is a demonstration of the strength of our value creation strategies and great execution by our dedicated team."

Consistent with previous disclosures, results in the second quarter of 2012 included a $0.24 per share [diluted] gain related to one of the Company's securities portfolio holdings. The gain was reflected in a lower effective tax rate of 13.1% in the second quarter.  Adjusted for this gain, second quarter net income increased 17% to $18.5 million from $15.7 million a year ago, EPS increased 18% to $1.16 from $0.98 a year ago and ROE increased to 17.5% from 16.8% a year ago.

OTHER SECOND QUARTER HIGHLIGHTS

Equitable continued to capitalize on its strong competitive position and expanding national presence to drive growth in mortgage balances across its lending lines:

  • Single Family Lending Services mortgage principal was a record $2.5 billion at June 30, up 37% from a year earlier

  • Single Family Lending Services second quarter production of $483 million was up 65% or $189 million from a year ago, reflecting the strength of Equitable's relationships with its mortgage broker network, strong activity in real estate markets and changes in the competitive environment

  • Commercial Lending Services mortgage principal was $2.2 billion at June 30, $224 million or 12% higher than at the end of the second quarter of 2011.  Second quarter production was $157 million, up 32% or $38 million from a year ago

  • Securitization Financing mortgage principal increased $261 million or 5% year over year to $5.2 billion at June 30, a rate of growth that reflects the Company's focus on achieving attractive risk-adjusted returns from Core Lending activities and placing less emphasis on securitized multi-unit residential mortgages

As a result of the rigorous application of its underwriting policies and the availability of high quality lending opportunities, Equitable posted excellent credit metrics in the second quarter:

  • Mortgage principal in arrears 90 days or more was 0.22% of total mortgage principal, an improvement from 0.27% a year ago
  • Net impaired mortgages improved to 0.27% of total mortgage assets from 0.29% a year ago

The Company also recognized a net recovery of $20 thousand during the second quarter of 2012, continuing a long-term trend of realizing minimal or no loan losses.

DIVIDEND DECLARATIONS

The Company's Board of Directors today declared a quarterly dividend in the amount of $0.14 per common share, payable October 4, 2012, to common shareholders of record at the close of business on September 15, 2012. This represents a 17% increase in the Company's quarterly common share dividend - the third dividend increase since the beginning of 2011.  The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable September 30, 2012, to preferred shareholders of record at the close of business on September 15, 2012.

SIX MONTH HIGHLIGHTS

  • Net income increased 26% to $40.0 million from $31.8 million in the first six months of 2011
  • EPS increased 27% to $2.52 from $1.99 in the same period of 2011
  • ROE increased to 19.4% from 17.4% a year ago
  • Book value per share increased 14% to $27.46 from $24.05 at June 30, 2011

LOOKING AHEAD

Equitable's positive outlook includes expectations of strong earnings and ROE, healthy capital levels in the second half of 2012, and continued consumer demand for its mortgage solutions.

"We hope to set new earnings records in 2012 and have calibrated our strategies to ensure we capitalize on our recent momentum without deviating from our underwriting comfort zone," said Mr. Moor. "We are cognizant of heightened marketplace risk but by continuing to channel our expansion into real estate property types in urban centres that are backstopped by strong fundamentals, including population growth and diversified economic drivers, we believe we can grow at a very attractive pace while maintaining our traditional risk profile and exceptionally low arrears. All things considered, the future has never looked brighter for Equitable."

Included in the Company's immediate term outlook are expectations that net interest margins (1.49% in the second quarter) will remain stable this year, its productivity ratio (30.6% in the second quarter) will continue to reflect efficient operations, and that recent marketplace developments may create opportunities for growing the business and expanding interest rate spreads in the single family business. Management is also hopeful that new transaction structures under discussion will allow the Company to increase its multi-unit residential originations well beyond current levels.

"The Company is well capitalized and we believe our earnings in future periods will generate adequate capital to support our strategic objectives including ongoing expansion of mortgage principal.  The Company will remain open to raising non-dilutive capital in the future to replace maturing obligations and to fund incremental growth opportunities if they arise, and our recent investment grade debt rating from DBRS would help us to do so at a lower cost," said Tim Wilson, Vice President and CFO.

Q2 CONFERENCE CALL

The Company will hold its second quarter conference call and webcast at 10:00 a.m. ET Friday August 10, 2012. To access the call live, please dial in five minutes prior to 416-644-3418. To access a listen-only version of the webcast, please log on to www.equitabletrust.com under Investor Relations. A replay of the call will be available until August 17, 2012 and it can be accessed by dialing 416-640-1917 and entering passcode 4551299 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 JUNE 30, 2012            
With comparative figures as at December 31, 2011, June 30, 2011
($ THOUSANDS)            
               
    June 30, 2012   December 31, 2011   June 30, 2011
             
Assets            
Cash and cash equivalents $ 305,037 $ 170,845 $ 264,724
Restricted cash   66,537   83,156   48,346
Securities purchased under reverse repurchase agreements   101,351   9,967   5,115
Investments   391,169   390,340   372,045
Mortgages receivable   4,723,293   4,262,147   3,865,669
Mortgages receivable - securitized   5,255,425   5,314,940   4,998,688
Other assets   24,719   25,618   12,768
  $ 10,867,531 $ 10,257,013 $ 9,567,355
             
Liabilities and Shareholders' Equity            
Liabilities:            
  Deposits $ 5,231,603 $ 4,627,904 $ 4,254,271
  Securitization liabilities   5,076,323   5,100,921   4,776,241
  Obligations related to securities sold short   1,515   -    - 
  Obligations related to securities sold under repurchase agreements   -     -    34,298
  Deferred tax liabilities   5,666   7,790   7,457
  Other liabilities   24,780   28,587   21,202
  Bank term loans   12,500   12,500   12,500
  Subordinated debentures   52,671   52,671   52,671
    10,405,058   9,830,373   9,158,640
             
Shareholders' equity:            
  Preferred shares   48,494   48,494   48,494
  Common shares   131,045   129,771   129,054
  Contributed surplus   4,913   4,718   4,292
  Retained earnings   288,596   254,006   228,881
  Accumulated other comprehensive loss   (10,575)   (10,349)   (2,006)
    462,473   426,640   408,715
             
  $ 10,867,531 $ 10,257,013 $ 9,567,355
CONSOLIDATED STATEMENTS OF INCOME (unaudited)        
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012        
With comparative figures for the three and six month periods ended June 30, 2011        
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)                
                 
  Three months ended Six months ended
    June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011
                 
Interest income:                
  Mortgages $ 58,973 $ 50,474 $ 116,160 $ 98,323
  Mortgages - securitized   53,598   52,610   108,057   104,762
  Investments   2,878   2,648   5,126   4,927
  Other   1,340   1,242   2,566   2,267
    116,789   106,974   231,909   210,279
Interest expense:                
  Deposits   31,589   28,251   61,939   54,991
  Securitization liabilities   45,675   45,111   92,849   89,380
  Bank term loans   202   203   404   403
  Subordinated debentures   868   870   1,737   1,732
  Other   4   78   5   107
    78,338   74,513   156,934   146,613
Net interest income   38,451   32,461   74,975   63,666
Provision for credit losses   1,693   2,217   3,920   4,155
Net interest income after provision for credit losses   36,758   30,244   71,055   59,511
Other income:                
  Fees and other income   981   790   1,986   1,644
  Net gain (loss) on investments   54   (311)   303   (13)
    1,035   479   2,289   1,631
Net interest and other income   37,793   30,723   73,344   61,142
Non-interest expenses:                
  Compensation and benefits   6,965   5,540   13,535   11,013
  Other   5,354   4,208   10,693   7,850
    12,319   9,748   24,228   18,863
Income before income taxes and the undernoted fair value (loss) gain   25,474   20,975   49,116   42,279
Fair value (loss) gain on derivative financial instruments - securitization activities   (85)   48   (34)   367
Income before income taxes   25,389   21,023   49,082   42,646
Income taxes:                
  Current   4,258   5,149   11,193   10,476
  Deferred   (942)   139   (2,124)   371
    3,316   5,288   9,069   10,847
Net income $ 22,073 $ 15,735 $ 40,013 $ 31,799
                 
Earnings per share:                
  Basic $ 1.41 $ 0.99 $ 2.54 $ 2.00
  Diluted $ 1.40 $ 0.98 $ 2.52 $ 1.99
                 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)          
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012                
With comparative figures for the three and six month periods ended June 30, 2011
($ THOUSANDS)                
                 
  Three months ended Six months ended
    June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011
                 
Net income $ 22,073 $ 15,735 $ 40,013 $ 31,799
                 
Other comprehensive loss:                
                 
Available for sale investments:                
Net unrealized (losses) gains from change in fair value   (782)   1,255   51   2,399
Reclassification of net (gains) losses to income   (55)   275   (1,137)   10
    (837)   1,530   (1,086)   2,409
Income tax   219   (429)   284   (676)
    (618)   1,101   (802)   1,733
                 
Cash flow hedges (Note 8)                
Net unrealized losses from change in fair value   (1,387)   (5,143)   (359)   (3,476)
Reclassification of net losses (gains) to income   547   6   1,139   (13)
    (840)   (5,137)   780   (3,489)
Income tax   219   1,441   (204)   979
    (621)   (3,696)   576   (2,510)
Total other comprehensive loss   (1,239)   (2,595)   (226)   (777)
Total comprehensive income $ 20,834 $ 13,140 $ 39,787 $ 31,022
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)          
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2012              
With comparative figures for the three month period ended June 30, 2011              
($ THOUSANDS)                          
                           
June 30, 2012 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income (loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 130,251 $ 4,813 $ 269,235 $ (9,336) $ 443,457  
Net income   -    -    -    22,073   -    22,073  
Other comprehensive loss, net of tax   -    -    -    -    (1,239)   (1,239)  
Reinvestment of dividends   -    190   -    -    -    190  
Exercise of stock options   -    491   -    -    -    491  
Dividends:                          
  Preferred shares   -    -    -    (906)   -    (906)  
  Common shares   -    -    -    (1,806)   -    (1,806)  
Stock-based compensation   -    -    213   -    -    213  
Transfer relating to the exercise of stock options   -    113   (113)   -    -    -   
Balance, end of period $ 48,494 $ 131,045 $ 4,913 $ 288,596 $ (10,575) $ 462,473  
                           
                           
June 30, 2011 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income (loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 128,369 $ 4,169 $ 215,700 $ 589 $ 397,321  
Net income   -    -    -    15,735   -    15,735  
Other comprehensive loss, net of tax   -    -    -    -    (2,595)   (2,595)  
Reinvestment of dividends   -    149   -    -    -    149  
Exercise of stock options   -    455   -    -    -    455  
Dividends:                          
  Preferred shares   -    -    -    (906)   -    (906)  
  Common shares   -    -    -    (1,648)   -    (1,648)  
Stock-based compensation   -    -    204   -    -    204  
Transfer relating to the exercise of stock options   -    81   (81)   -    -    -   
Balance, end of period $ 48,494 $ 129,054 $ 4,292 $ 228,881 $ (2,006) $ 408,715  
                           
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)          
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2012              
With comparative figures for the six month period ended June 30, 2011              
($ THOUSANDS)                          
                           
June 30, 2012 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income (loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 129,771 $ 4,718 $ 254,006 $ (10,349) $ 426,640  
Net income   -    -    -    40,013   -    40,013  
Other comprehensive loss, net of tax   -    -    -    -    (226)   (226)  
Reinvestment of dividends   -    378   -    -    -    378  
Exercise of stock options   -    728   -    -    -    728  
Dividends:                           
  Preferred shares   -    -    -    (1,812)   -    (1,812)  
  Common shares   -    -    -    (3,611)   -    (3,611)  
Stock-based compensation   -    -    363   -    -    363  
Transfer relating to the exercise of stock options   -    168   (168)   -    -    -   
Balance, end of period $ 48,494 $ 131,045 $ 4,913 $ 288,596 $ (10,575) $ 462,473  
                           
                           
June 30, 2011 Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income (loss)
  Total  
                           
Balance, beginning of period $ 48,494 $ 128,068 $ 3,935 $ 202,187 $ (1,229) $ 381,455  
Net income   -    -    -    31,799   -    31,799  
Other comprehensive loss, net of tax   -    -    -    -    (777)   (777)  
Reinvestment of dividends   -    276   -    -    -    276  
Exercise of stock options   -    599   -    -    -    599  
Dividends:                          
  Preferred shares   -    -    -    (1,812)   -    (1,812)  
  Common shares   -    -    -    (3,293)   -    (3,293)  
Stock-based compensation   -    -    468   -    -    468  
Transfer relating to the exercise of stock options   -    111   (111)   -    -    -   
Balance, end of period $ 48,494 $ 129,054 $ 4,292 $ 228,881 $ (2,006) $ 408,715  
                           
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012
With comparative figures for the three and six month periods ended June 30, 2011
($ THOUSANDS)                
                 
  Three months ended Six months ended
  June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income for the period $ 22,073  $ 15,735 $ 40,013  $ 31,798
Adjustments to determine cash flows relating to operating activities:                
  Financial instruments at fair value through income   12,153    1,000   13,989    1,099
  Depreciation of capital assets   238    173   469    237
  Provision for credit losses   1,693    2,217   3,920    4,155
  Net loss (gain) on sale or redemption of investments   (11)    311   (260)    13
  Income taxes   3,315    5,288   9,140    10,847
  Income taxes paid   (5,454)    (4,770)   (10,255)    (9,541)
  Stock-based compensation   213    204   363    468
  Amortization of premiums/discount on investments   (108)    887   676    1,672
  Net increase in mortgages receivable   (291,926)    (304,697)   (405,903)    (650,482)
  Net increase in deposits   371,056    221,880   603,699    375,418
  Change in obligations related to securities sold   1,515    -   1,515    -
  Change in obligations related to securities under repurchase agreements   -      34,298   -   34,298
  Net change in securitization liabilities   6,471    122,759   (24,597)    244,561
  Net interest income, excluding non-cash items   (52,573)    (43,732)   (107,324)    (90,975)
  Interest paid   (78,947)    (62,371)   (142,639)    (118,161)
  Other assets   250    (3,663)   59    (5,093)
  Other liabilities   (601)    2,158   (3,856)    (35)
  Interest received   115,493    103,570   231,427    204,253
  Dividends received   16,027    2,533   18,536    4,883
Cash flows from operating activities   120,877    93,780   228,972    39,415
CASH FLOWS FROM FINANCING ACTIVITIES                
  Dividends paid on preferred shares   (906)    (906)   (1,812)    (1,812)
  Dividends paid on common shares   (1,616)    (1,499)   (3,233)    (3,018)
  Proceeds from issuance of common shares   491    455   728    599
Cash flows used in financing activities   (2,031)    (1,950)   (4,317)    (4,231)
CASH FLOWS FROM INVESTING ACTIVITIES                
  Purchase of investments   (47,532)    (20,071)   (67,532)    (59,722)
  Proceeds on sale or redemption of investments   12,789    13,406   59,519    34,349
  Net change in Canada Housing Trust re-investment accounts   19,227    (4,893)   (7,444)    (7,531)
  Purchase of securities under reverse repurchase agreements   (101,351)    (5,115)   (141,273)    (30,108)
  Proceeds on sale or redemption of securities under reverse repurchase agreements   39,922    24,993   49,889    99,901
  Change in restricted cash   23,710    (11,942)   16,619    38,224
  Purchase of capital assets   (91)    (735)   (241)    (815)
Cash flows (used in) from investing activities   (53,326)    (4,357)   (90,463)    74,298
Net increase in cash and cash equivalents   65,520    87,473   134,192    109,482
Cash and cash equivalents, beginning of period   239,517    177,251   170,845    155,242
Cash and cash equivalents, end of period $ 305,037  $ 264,724 $ 305,037  $ 264,724
                 

2011 ANNUAL REPORT

The Company wishes to clarify and correct the figure reported in its 2011 Annual Report, on page 25, Table 1: Selected Financial Information where Total liquid assets for 2011 were reported as "84,386" and the figure should have been "784,386".

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. is a niche mortgage lender. Our primary 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 actively originates mortgages across Canada. It serves single family, small and large commercial borrowers and their mortgage advisors. It also serves the investing public as a provider of insured Guaranteed Investment Certificates. Equitable Trust is active in providing GICs across all Canadian provinces and territories. 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 including those entitled "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:

Andrew Moor
President and CEO
416-513-7000

Tim Wilson
Vice President and CFO
416-513-7000

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