TORONTO,
Feb. 26, 2013 /CNW/ - Equitable Group
Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company")
today reported record earnings for the 12 months ended December 31, 2012 as solid growth continued in
the fourth quarter.
2012 SUMMARY
- Net income increased 31% to a record $81.2 million from $62.2
million in 2011
- Diluted earnings per share ("EPS") increased 32% to
$5.11 from $3.88 in 2011
- Return on Equity ("ROE") increased to 18.7% from 16.5% in
2011
- Book value per share increased 18% to $29.83 from $25.18
at December 31, 2011
Adjusted for certain non-recurring items in 2011
and 2012, diluted EPS increased by 17.7% in 2012, and ROE increased
to 17.9% in 2012 from 17.4% for 2011.
FOURTH QUARTER SUMMARY
- Net income grew 18% to $20.1
million from $17.0 million in
the fourth quarter of 2011
- Diluted EPS increased 18% to $1.26 from $1.07 in
the fourth quarter of 2011
- ROE was 17.3% and unchanged from a year ago
"Equitable delivered record results in 2012 and
ended the year as we started - with another solid quarter of
earnings growth driving outstanding ROE performance," said
Andrew Moor, President and CEO. "ROE
is a tell-tale sign of the effectiveness of our strategies and at
18.7% for the year, provides the most important indicator of our
progress and potential. Our five-year ROE average now stands at
17.1%, demonstrating a clear track record of consistently creating
value for our shareholders. We are also pleased to note that
even with two dividend increases in 2012, we retained approximately
90% of net income available for common shareholders to fuel future
growth with the result that book value also increased 18%. We will
follow this winning formula to create substantial value for our
shareholders in coming quarters."
FOURTH QUARTER OPERATING HIGHLIGHTS
- Core Lending mortgage principal (comprised of Single
Family and Commercial Lending) amounted to $5.2 billion, up 21% or $895 million year over year, while fourth quarter
Core Lending production increased 17% year over year to
$649 million
- Single Family Lending Services mortgage principal grew
46% to a record $3 billion at
year-end 2012 and represented 59% of Core Lending mortgage
principal compared to 49% a year ago. Single Family
Lending Services fourth quarter production of $458 million was 27% higher than in the fourth
quarter of 2011
- Commercial Lending Services mortgage principal was
$2.1 billion at year-end 2012
compared to $2.2 billion a year ago.
Fourth quarter production was $190
million, down marginally from $193
million a year ago
- Securitization Financing mortgage principal increased 3%
or $143 million from Q4 of 2011 to
$5.4 billion at year-end 2012.
Fourth quarter production was up year-over-year by 567% to
$511 million, which reflected the
Company's renewed emphasis on the business. Also in the quarter,
the Company securitized $171 million
of mortgages that qualified for balance sheet de-recognition, on
which it earned $1.2 million of gains
on sale.
Realized net loan losses were just $0.4
million in the fourth quarter or less than 0.7 basis points
of non-securitized mortgage principal, reflecting the quality of
the Company's mortgage portfolio, and its diligent credit
management and collection efforts. Other fourth quarter credit
metrics were also solid:
- Mortgages in arrears 90 days or more were 0.32% of total
principal outstanding at quarter end, in line with historical norms
but above 0.22% a year ago, while early stage delinquencies - a
leading indicator of losses - were 0.31% compared to 0.30% of total
principal at September 30, 2012 and
0.22% a year ago
- Net impaired mortgages were just 0.30% of total mortgage assets
at year-end 2012 down from 0.35% at the end of the third quarter
and 0.25% a year ago
For all of 2012, the Company realized net loan losses of
$1.0 million, down 88% from
$8.6 million in 2011.
DIVIDEND DECLARATIONS
The Company's Board of Directors today declared
a quarterly dividend in the amount of $0.14 per common share, payable April 4, 2013, to common shareholders of record
at the close of business March 15,
2013. This amount is consistent with the latest dividend
increase announced in the second quarter of 2012 and is 17% higher
than the dividends declared in the fourth quarter of 2011. In
total, the Company increased its dividends declared to $0.52 per common share in 2012 from $0.45 in 2011 reflecting, in part, the Board's
assessment of Equitable's ability to fund future asset expansion
and its positive outlook.
The Board declared a quarterly dividend in the
amount of $0.453125 per preferred
share, payable March 31, 2013, to
preferred shareholders of record at the close of business
March 15, 2013.
CAPITAL
Equitable Trust's year-end 2012 total capital
ratio was 17.4%, well in excess of current and proposed regulatory
minimums. During the fourth quarter, the Company successfully
raised $65 million of debentures at a
rate of 5.399% in anticipation of upcoming debt maturities and
redemptions, and in advance of new rules for capital instruments
that came into effect for most Canadian financial institutions in
2013. This additional capital caused Equitable's total capital
ratio and its interest expenses to increase during the final
quarter of 2012. On January 3,
2013, Equitable repaid a $12.5
million term loan and $9.5
million of subordinated debentures, bearing interest rates
of 6.41% and 7.1% interest respectively. Interest expenses on
debentures and term loans will consequently decline slightly in the
first quarter of 2013 compared to the fourth quarter of 2012. The
Company will begin to report new capital metrics required by Basel
III and Canadian regulators such as Common Equity Tier I ("CET1")
beginning in the first quarter of 2013. The minimum CET1 standard
is 7.0%. On a pro forma basis, Equitable Trust's CET1 ratio was
12.2% at year-end 2012.
LOOKING AHEAD
Equitable entered 2013 with good momentum and
strong capital levels, which provide it with the ongoing potential
to grow earnings and deliver ROE in the high teens. The
Company will continue to create value by providing outstanding
service and thoughtful product solutions to the Canadian
alternative mortgage marketplace.
"The ability to generate higher earnings at a
consistently attractive ROE is well-entrenched at Equitable and we
believe we can continue to demonstrate it in today's mortgage
marketplace," said Mr. Moor. "Entering 2013, we are well aware of
softening in segments of Canadian real estate but believe that we
have effective risk mitigation strategies in place, including the
emphasis we've placed on urban centres with positive economic and
demographic prospects. Furthermore, our potential is strengthened
by our growing relationships with the country's mortgage brokers
and the enhanced competitive position we now enjoy as a result of
recent marketplace reaction to regulatory changes. These factors
are leading more consumers to seek our product solutions. In short,
all of the ingredients are in place for ongoing value
creation."
The Company expects non-interest expenses to
increase in 2013 to a level that supports the efficient growth of
the business and sustains high levels of customer and broker
service while allowing for continued strength in its operating
margins.
"We expect NIM to remain stable in 2013," said
Tim Wilson, Vice President and CFO.
"Overall NIMs should benefit from the ongoing emphasis we've placed
on growing our Core Lending book and the resulting shift to higher
return single family mortgages. The combination of stable NIMs and
our operational efficiency supports further performance
improvements as we grow. While changes in business mix in
favour of single family mortgage lending and the regulatory
environment have added to expense levels, our productivity ratio of
30.2% in 2012 puts us among the most cost-effective lenders in
Canada."
EQUITABLE BANK
To support its strategy, in 2013 Equitable Trust
also intends to apply to the Office of the Superintendent of
Financial Institutions Canada ("OSFI") and to the Minister of
Finance for consent to convert from a trust company operating under
the Trust and Loans Companies Act to a Schedule I bank operating
under the Bank Act. If approved, Equitable Trust intends to
operate as Equitable Bank. The Company believes that, in the longer
term, operating as a bank will support the development of the
business, promote efficiencies, appeal to a new generation of
borrowers and depositors, and may provide advantages in raising
capital. Such a conversion would have no impact on
Equitable's strong capital position or its current business
model. The conversion application requires approvals from
OSFI and the Minister of Finance, Canada. There is no assurance as to when or if
these approvals will be received.
Q4 CONFERENCE CALL
The Company will hold its fourth quarter conference call and
webcast at 10:00 a.m. ET Wednesday, February
27, 2013. To access the call live, please dial in five
minutes prior to 416-644-3415.
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 March 6,
2013 and it can be accessed by dialing 416-640-1917 and
entering passcode 4590933 followed by the number sign. The webcast
will also be archived on the Company's website for three
months.
CONSOLIDATED BALANCE SHEETS
|
($ THOUSANDS)
|
|
|
|
|
|
|
As at December 31 |
2012 |
|
2011 |
|
|
|
|
|
Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
379,447 |
|
$ |
170,845 |
Restricted cash |
|
63,601 |
|
|
83,156 |
Securities purchased under reverse
repurchase agreements |
|
78,551 |
|
|
9,967 |
Investments |
|
439,480 |
|
|
390,340 |
Mortgages receivable |
|
5,266,591 |
|
|
4,262,147 |
Mortgages receivable -
securitized |
|
5,342,881 |
|
|
5,314,940 |
Securitization retained interests |
|
7,263 |
|
|
- |
Other assets |
|
23,626 |
|
|
25,618 |
|
$ |
11,601,440 |
|
$ |
10,257,013 |
|
|
|
|
|
|
Liabilities and Shareholders'
Equity |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Deposits |
$ |
5,651,717 |
|
$ |
4,627,904 |
|
Securitization liabilities |
|
5,261,670 |
|
|
5,100,921 |
|
Obligations under repurchase agreements |
|
9,882 |
|
|
- |
|
Deferred tax liabilities |
|
5,498 |
|
|
7,790 |
|
Other liabilities |
|
40,931 |
|
|
28,587 |
|
Bank term loan |
|
12,500 |
|
|
12,500 |
|
Debentures |
|
117,671 |
|
|
52,671 |
|
|
11,099,869 |
|
|
9,830,373 |
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
Preferred shares |
|
48,494 |
|
|
48,494 |
|
Common shares |
|
134,224 |
|
|
129,771 |
|
Contributed surplus |
|
5,003 |
|
|
4,718 |
|
Retained earnings |
|
323,737 |
|
|
254,006 |
|
Accumulated other comprehensive loss |
|
(9,887) |
|
|
(10,349) |
|
|
501,571 |
|
|
426,640 |
|
|
|
|
|
|
|
$ |
11,601,440 |
|
$ |
10,257,013 |
CONSOLIDATED STATEMENTS OF
INCOME |
|
|
|
|
|
($ THOUSANDS, EXCEPT PER SHARE
AMOUNTS) |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
2012 |
|
2011 |
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
Mortgages |
$ |
245,122 |
|
$ |
206,987 |
|
Mortgages - securitized |
|
214,613 |
|
|
213,604 |
|
Investments |
|
10,272 |
|
|
10,307 |
|
Other |
|
6,520 |
|
|
4,403 |
|
|
476,527 |
|
|
435,301 |
Interest expense: |
|
|
|
|
|
|
Deposits |
|
131,042 |
|
|
115,314 |
|
Securitization liabilities |
|
184,260 |
|
|
181,694 |
|
Bank term loans |
|
813 |
|
|
812 |
|
Debentures |
|
4,212 |
|
|
3,493 |
|
Other |
|
30 |
|
|
217 |
|
|
320,357 |
|
|
301,530 |
Net interest income |
|
156,170 |
|
|
133,771 |
Provision for credit losses |
|
7,992 |
|
|
7,183 |
Net interest income after provision
for credit losses |
|
148,178 |
|
|
126,588 |
Other income: |
|
|
|
|
|
|
Fees and other income |
|
3,970 |
|
|
3,545 |
|
Net gain on investments |
|
629 |
|
|
144 |
|
Gains on securitization activities
and income from securitization retained interests |
|
2,010 |
|
|
- |
|
|
6,609 |
|
|
3,689 |
Net interest and other income |
|
154,787 |
|
|
130,277 |
Non-interest expenses: |
|
|
|
|
|
|
Compensation and benefits |
|
28,246 |
|
|
22,856 |
|
Other |
|
21,930 |
|
|
22,858 |
|
|
50,176 |
|
|
45,714 |
Income before income taxes and the
undernoted fair value gain (loss) |
|
104,611 |
|
|
84,563 |
Fair value gain (loss) on derivative
financial instruments - securitization activities |
|
63 |
|
|
(648) |
Income before income taxes |
|
104,674 |
|
|
83,915 |
Income taxes |
|
|
|
|
|
|
Current |
|
25,759 |
|
|
21,026 |
|
Deferred |
|
(2,292) |
|
|
703 |
|
|
23,467 |
|
|
21,729 |
Net income |
$ |
81,207 |
|
$ |
62,186 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
Basic |
$ |
5.15 |
|
$ |
3.91 |
|
Diluted |
$ |
5.11 |
|
$ |
3.88 |
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME |
|
|
|
|
|
($ THOUSANDS) |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
2012 |
|
2011 |
|
|
|
|
|
|
Net income |
$ |
81,207 |
|
$ |
62,186 |
|
|
|
|
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments: |
|
|
|
|
|
Net unrealized gains from change in fair
value |
|
1,492 |
|
|
1,470 |
Reclassification of net gains to income |
|
(1,709) |
|
|
(385) |
|
|
(217) |
|
|
1,085 |
Income tax recovery (expense) |
|
57 |
|
|
(304) |
|
|
(160) |
|
|
781 |
|
|
|
|
|
|
Cash flow hedges: |
|
|
|
|
|
Net unrealized losses from change in fair
value |
|
(1,521) |
|
|
(13,684) |
Reclassification of net losses (gains) to
income |
|
2,365 |
|
|
(77) |
|
|
844 |
|
|
(13,761) |
Income tax (expense) recovery |
|
(222) |
|
|
3,860 |
|
|
622 |
|
|
(9,901) |
Total other comprehensive income (loss) |
|
462 |
|
|
(9,120) |
Total comprehensive income |
$ |
81,669 |
|
$ |
53,066 |
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY |
|
|
|
|
($ THOUSANDS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
Preferred shares |
Common
shares |
Contributed
surplus |
Retained
earnings |
Accumulated
other
comprehensive
income (loss) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
$ |
48,494 |
$ |
129,771 |
$ |
4,718 |
$ |
254,006 |
$ |
(10,349) |
$ |
426,640 |
Net income |
|
- |
|
- |
|
- |
|
81,207 |
|
- |
|
81,207 |
Other comprehensive income, net of
tax |
|
- |
|
- |
|
- |
|
- |
|
462 |
|
462 |
Reinvestment of dividends |
|
- |
|
817 |
|
- |
|
- |
|
- |
|
817 |
Exercise of stock options |
|
- |
|
3,068 |
|
- |
|
- |
|
- |
|
3,068 |
Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
- |
|
- |
|
- |
|
(3,625) |
|
- |
|
(3,625) |
|
Common shares |
|
- |
|
- |
|
- |
|
(7,851) |
|
- |
|
(7,851) |
Stock-based compensation |
|
- |
|
- |
|
853 |
|
- |
|
- |
|
853 |
Transfer relating to the exercise of
stock options |
|
- |
|
568 |
|
(568) |
|
- |
|
- |
|
- |
Balance, end of year |
$ |
48,494 |
$ |
134,224 |
$ |
5,003 |
$ |
323,737 |
$ |
(9,887) |
$ |
501,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
- |
|
- |
|
- |
|
62,186 |
|
- |
|
62,186 |
Other comprehensive loss, net of
tax |
|
- |
|
- |
|
- |
|
- |
|
(9,120) |
|
(9,120) |
Reinvestment of dividends |
|
- |
|
582 |
|
- |
|
- |
|
- |
|
582 |
Exercise of stock options |
|
- |
|
943 |
|
- |
|
- |
|
- |
|
943 |
Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
- |
|
- |
|
- |
|
(3,625) |
|
- |
|
(3,625) |
|
Common shares |
|
- |
|
- |
|
- |
|
(6,742) |
|
- |
|
(6,742) |
Stock-based compensation |
|
- |
|
- |
|
961 |
|
- |
|
- |
|
961 |
Transfer relating to the exercise of
stock options |
|
- |
|
178 |
|
(178) |
|
- |
|
- |
|
- |
Balance, end of year |
$ |
48,494 |
$ |
129,771 |
$ |
4,718 |
$ |
254,006 |
$ |
(10,349) |
$ |
426,640
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
($ THOUSANDS) |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
2012 |
|
2011 |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
|
|
|
|
Net income for the year |
$ |
81,207 |
|
$ |
62,186 |
Adjustments to determine cash flows
relating to operating activities: |
|
|
|
|
|
|
Financial instruments at fair value through
income |
|
11,930 |
|
|
2,857 |
|
Securitization gains |
|
(2,005) |
|
|
- |
|
Depreciation of capital assets |
|
1,015 |
|
|
712 |
|
Provision for credit losses |
|
7,992 |
|
|
7,183 |
|
Net gain (loss) on sale or redemption of
investments |
|
823 |
|
|
(144) |
|
Income taxes |
|
23,467 |
|
|
21,729 |
|
Income taxes paid |
|
(18,791) |
|
|
(18,280) |
|
Stock-based compensation |
|
853 |
|
|
961 |
|
Amortization of premiums/discounts on
investments |
|
2,808 |
|
|
3,273 |
|
Net increase in mortgages receivable |
|
(1,380,351) |
|
|
(1,363,900) |
|
Net increase in deposits |
|
1,023,813 |
|
|
749,051 |
|
Change in obligations related to investment sold
under repurchase agreements |
|
9,882 |
|
|
- |
|
Net change in securities purchased and sold under
reverse repurchase agreements |
|
(68,584) |
|
|
64,941 |
|
Net change in securitization liability |
|
160,749 |
|
|
569,241 |
|
Net interest income, excluding non-cash items |
|
(192,678) |
|
|
(176,923) |
|
Interest received |
|
474,547 |
|
|
431,207 |
|
Interest paid |
|
(305,303) |
|
|
(264,312) |
|
Other assets |
|
(942) |
|
|
(28,756) |
|
Other liabilities |
|
6,854 |
|
|
5,981 |
|
Dividends received |
|
23,434 |
|
|
10,028 |
Cash flows (used in) from operating
activities |
|
(139,280) |
|
|
77,035 |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
|
|
|
Issuance of debentures |
|
65,000 |
|
|
- |
|
Dividends paid on preferred shares |
|
(3,625) |
|
|
(3,625) |
|
Dividends paid on common shares |
|
(6,709) |
|
|
(5,853) |
|
Proceeds from issuance of common shares |
|
3,068 |
|
|
943 |
Cash flows from (used in) financing
activities |
|
57,734 |
|
|
(8,535) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES |
|
|
|
|
|
|
Purchase of investments |
|
(230,037) |
|
|
(138,934) |
|
Proceeds on sale or redemption of investments |
|
185,456 |
|
|
105,730 |
|
Net change in Canada Housing Trust re-investment
accounts |
|
(19,901) |
|
|
(20,762) |
|
Change in restricted cash |
|
19,555 |
|
|
3,414 |
|
Proceeds from loan securitization |
|
335,661 |
|
|
- |
|
Securitization retained interests |
|
212 |
|
|
- |
|
Purchase of capital assets |
|
(798) |
|
|
(2,345) |
Cash flows from (used in) investing
activities |
|
290,148 |
|
|
(52,897) |
Net increase in cash and cash
equivalents |
|
208,602 |
|
|
15,603 |
Cash and cash equivalents, beginning
of year |
|
170,845 |
|
|
155,242 |
Cash and cash equivalents, end of
year |
$ |
379,447 |
|
$ |
170,845 |
|
|
|
|
|
|
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 (including the proposal
to convert Equitable Trust into a Schedule I Bank), 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.