Equitable Group Reports Record First Quarter 2015 Results - Increases Common Share Dividend

MAY. 12, 2015

TORONTO, May 12, 2015 /CNW/ - Equitable Group Inc. (TSX: EQB and EQB.PR.C) ("Equitable" or the "Company") today reported its financial results for the three months endedMarch 31, 2015 and announced its sixth common share dividend increase in four years on consistently strong growth and performance by its wholly owned subsidiary, Equitable Bank (the "Bank").

FIRST QUARTER HIGHLIGHTS

  • Net income was a record $29.5 million, up 16% from $25.3 million in Q1 2014 and up 10% from last quarter
  • Diluted earnings per share were $1.81, up 16% from $1.56 in Q1 2014 and up 14% from Q4 2014
  • Return on Equity ("ROE") was 17.9% in Q1 of 2014 and 2015, and up from 16.0% last quarter
  • Book value per common share was $42.13, up 15% from $36.58 at March 31, 2014

 

DIVIDEND DECLARATIONS

The Board of Directors declared a quarterly dividend in the amount of $0.19 per common share, payable on July 3, 2015, to common shareholders of record at the close of business onJune 15, 2015.  This dividend represents a 12% increase over dividends declared in May 2014.  In addition, the Board declared a quarterly dividend in the amount of $0.396875 per preferred share, payable on June 30, 2015, to preferred shareholders of record at the close of business on June 15, 2015.

COMMENTARY

"Equitable Bank's brand of high value, high service lending and savings solutions continues to strike the right chord with customers and their advisors across Canada, evidenced by record first quarter mortgage originations of $776 million and $1.2 billion of growth in savings balances compared to last year," said Andrew Moor, President and Chief Executive Officer. "For fellow shareholders, the financial impact of efficiently delivering this growth through our branchless operating model was record quarterly profit and ample support for another common share dividend increase – our sixth in four years. The Bank's proven method of meeting the needs of customers has enabled us to generate consistently strong earnings and ROE and made us one of Canada's best performing banks."

OPERATING HIGHLIGHTS

  • Single Family Lending originations were a first quarter record $568 million, up 41% from$404 million a year ago. On record originations, Single Family mortgage principal atMarch 31, 2015 reached $5.7 billion, up 31% from $4.3 billion a year ago.  
  • Commercial Lending originations in the first quarter were $208 million, up 65% from$126 million a year ago, as a result of strong partnerships in a competitive market and the Bank's success in its business focused Small and Medium-Sized (SME) borrowers. Reflecting the Bank's disciplined approach to pricing and risk, commercial mortgage principal was $2.3 billion compared to $2.4 billion a year ago, a 2% decline. 
  • Securitization Financing Mortgages under Management amounted to $6.4 billion, up 16% or $5.5 billion from Q1 2014, driven by our successful entry into the prime mortgage market.
  • Deposit principal outstanding increased 18% or $1.2 billion year over year to $7.6 billionat March 31, 2015 reflecting strong demand for the Bank's diverse savings products.

 

Credit metrics continue to reflect the high quality of the Bank's mortgage portfolio and remain favourable to Equitable's long-term experience. Impairment Provision was one basis point of the mortgage portfolio in the first quarter and net impaired mortgage assets were 0.28% of total mortgage assets. The allowance for credit losses represented 86% of gross impaired mortgage assets and Equitable's residential mortgage portfolio had a loan-to-value ("LTV") ratio of 69% at quarter end.  Management expects arrears rates and impairment provisions to remain low in 2015 at a national level assuming that Canadian economic conditions remain within the range of broad market expectations. 

In light of the downturn in the housing market in Alberta and Saskatchewan, the Bank expects arrears rates in those provinces to rise in future quarters, although they are currently low. Management has extensively stress tested the Bank's exposure and believes the risk of incurring any significant credit losses in these provinces is low.

CAPITAL

Equitable Bank's capital ratios exceed minimum regulatory standards and most industry benchmarks.  At March 31, 2015:

  • Common Equity Tier 1 capital ratio was 13.2%, surpassing the Basel III minimum of 7.0%, most competitive benchmarks and last year's ratio of 12.9%.
  • Total capital ratio was 17.0%, well above the regulatory requirement of 10.5% on an all-in basis and up from 16.6% a year ago.
  • The Leverage Ratio was 5.5% and as such the Bank was fully compliant with the new leverage ratio target that OSFI sets on an institution-by-institution basis. This confidential target is based on the Basel III leverage ratio and replaced the Assets to Capital Multiple framework effective in January, 2015.

 

The Bank currently uses the standardized approach to calculate its capital ratios but is in the early stages of exploring a migration to the Advanced Internal Ratings Based approach. Management believes that this approach could have many benefits to Equitable, such as providing enhanced risk management models, matching appropriate levels of capital to its risks, and introducing a methodology that better allocates capital across a broader range of asset types. 

STRATEGIC UPDATE

The Bank's strategy is to continue to grow and diversify its lending and savings solutions and, in so doing, offer greater choice and more responsive service to Canadian consumers. In this regard, Equitable has achieved solid results with its most recent expansion initiatives.

In particular, the Bank noted strong demand for its recently launched Equitable Bank High Interest Savings Account ("HISA"), with balances surpassing half a billion dollars to reach $504 million at March 31, 2015. Available on the FundSERV platform under the codes EQB100 and EQB200, the Bank's HISA delivers rates of interest that are typically above those available atCanada's Big Banks.

On the lending side, the Bank's Single Family Lending Services benefited from recent gains in market share in the mortgage broker channel, the expansion of its footprint to new urban centres in Eastern Canada, and incremental contributions from its high margin Equitable Bank Home Equity Line of Credit. The Bank also gained momentum in its prime mortgage business even during a period of seasonally low activity in the market.  During the quarter, the Bank closed almost $192 million of prime mortgages and reported that its origination pipeline and the ongoing development of its service capabilities are both progressing as planned.

BUSINESS OUTLOOK

Management expects Equitable to achieve high returns on shareholders' equity throughout 2015 while it fulfills its mission of providing excellent service for customers. 

"It is clear to us that there is strong consumer demand in Canada for a bank that is devoted to its customers - and that describes Equitable Bank perfectly," said Mr. Moor. "We have distinct advantages because of our agility, branchless business model and passion for service excellence that will help us to achieve our objectives this year. We expect that by following a prudent lending course, continuing to add quality assets and remaining cost effective in everything we do, Equitable will produce another year of solid growth and performance.  Hand in hand with this achievement will be the delivery of great results for our shareholders."

The Bank plans to leverage its competitive advantages and offer new alternatives to Canadian savers through the introduction of digital banking capabilities late this year. As previously indicated, management will make additional investments of $3-5 million this year to reinforce customer service and increase consumer awareness in support of our digital banking initiative.  The majority of these investments will be made in the second half of the year.

"In spite of the Bank of Canada's January rate cut and our follow-on measure to lower our prime mortgage rates, Equitable's net interest margins ("NIM") were strong in the first quarter reflecting the low level of interest rate risk in our book," said Tim Wilson, Vice President and Chief Financial Officer. "Looking ahead, we will sustain the pricing and capital allocation disciplines that contributed to this performance. In terms of Net Interest Income, we anticipate low double digit growth for the rest of 2015 on continued strong growth in our assets.  Even so, we expect NIM to decrease slightly from quarter one's level as the year progresses due to a combination of factors, including shifts in the mix of our assets."

The full text of Equitable's business outlook can be found in Management's Discussion and Analysis for the three months ended March 31, 2015, which is available on SEDAR and on the Company's website.

CONFERENCE CALL AND WEBCAST

The Company will hold its first quarter conference call and webcast with accompanying slides at 10:00 a.m. ET May 13, 2015.  To access the call live, please dial 416-847-6330 five minutes prior.  The listen-only webcast with accompanying slides is available at www.equitablebank.caunder Investor Relations.

A replay of the call will be available until May 20, 2015 and it can be accessed by dialing 647-436-0148 and entering passcode 1669167 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.

ANNUAL MEETING OF SHAREHOLDERS

Equitable will host its annual meeting of shareholders on Wednesday, May 13, 2015 at 4:15 pm ET at the TMX Broadcast Centre, The Exchange Tower, 130 King Street West, Toronto, Ontario.

 

 

 

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS












CONSOLIDATED BALANCE SHEETS (unaudited)







AS AT MARCH 31, 2015







With comparative figures as at December 31, 2014 and March 31, 2014

($ THOUSANDS)
















March 31, 2015


December 31, 2014


March 31, 2014








Assets:







Cash and cash equivalents

$

243,634

$

230,063

$

303,662

Restricted cash


64,117


67,690


57,687

Securities purchased under reverse repurchase agreements


10,535


18,117


20,172

Investments


182,221


187,664


239,305

Mortgages receivable – Core Lending


8,014,573


7,684,425


6,717,019

Mortgages receivable – Securitization Financing


4,771,279


4,585,520


4,487,330

Securitization retained interests


52,957


44,983


33,386

Other assets


48,599


36,441


27,918


$

13,387,915

$

12,854,903

$

11,886,479








Liabilities and Shareholders' Equity







Liabilities:








Deposits

$

7,750,244

$

7,489,418

$

6,563,120


Securitization liabilities


4,457,760


4,355,328


4,471,954


Obligations under repurchase agreements


225,698


52,413


-


Deferred tax liabilities


18,507


14,843


11,406


Other liabilities


60,014


61,971


44,066


Bank facilities


67,086


92,236


91,994


Debentures


85,000


85,000


92,483



12,664,309


12,151,209


11,275,023








Shareholders' equity:








Preferred shares


72,557


72,412


48,494


Common shares


141,245


140,657


139,107


Contributed surplus


4,505


4,331


5,385


Retained earnings


521,587


496,097


426,391


Accumulated other comprehensive loss


(16,288)


(9,803)


(7,921)



723,606


703,694


611,456









$

13,387,915

$

12,854,903

$

11,886,479






















CONSOLIDATED STATEMENTS OF INCOME (unaudited)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2015

With comparative figures for the three month period ended March 31, 2014

($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)











Three months ended



March 31, 2015


March 31, 2014






Interest income:






Mortgages – Core Lending

$

93,333

$

80,125


Mortgages – Securitization Financing


37,296


40,849


Investments


1,578


1,479


Other


1,265


1,585



133,472


124,038

Interest expense:






Deposits


41,828


36,803


Securitization liabilities


33,002


36,623


Debentures


1,277


1,394


Bank facilities


614


513


Other


414


21



77,135


75,354

Net interest income


56,337


48,684

Provision for credit losses


814


507

Net interest income after provision for credit losses


55,523


48,177

Other income:






Fees and other income


2,308


1,466


Net (loss) gain on investments


(203)


17


Gains on securitization activities and income from securitization retained interests


1,702


866



3,807


2,349

Net interest and other income


59,330


50,526

Non-interest expenses:






Compensation and benefits


11,386


10,136


Other


8,314


6,309



19,700


16,445

Income before income taxes


39,630


34,081

Income taxes:






Current


6,609


8,209


Deferred


3,560


581



10,169


8,790

Net income

$

29,461

$

25,291






Earnings per share:






Basic

$

1.83

$

1.59


Diluted

$

1.81

$

1.56
















CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2015

With comparative figures for the three month period ended March 31, 2014

($ THOUSANDS)











Three months ended



March 31, 2015


March 31, 2014






Net income

$

29,461

$

25,291






Other comprehensive income – items that may be reclassified subsequently to income:










Available for sale investments:





Net unrealized (losses) gains from change in fair value


(6,302)


1,573

Reclassification of net losses (gains) to income


375


(9)



(5,927)


1,564

Income tax recovery (expense)


1,565


(413)



(4,362)


1,151






Cash flow hedges:





Net unrealized losses from change in fair value


(3,516)


(2,058)

Reclassification of net losses to income


632


517



(2,884)


(1,541)

Income tax recovery


761


407



(2,123)


(1,134)

Total other comprehensive (loss) income


(6,485)


17

Total comprehensive income

$

22,976

$

25,308
















CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)









FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2015











With comparative figures for the three month period ended March 31, 2014











($ THOUSANDS)











































Accumulated other

comprehensive

income (loss)



March 31, 2015

Preferred
shares

Common
shares

Contributed
surplus

Retained
earnings

Cash flow
hedges

Available

for sale
investments


Total


Total


















Balance, beginning of period

$

72,412

$

140,657

$

4,331

$

496,097

$

(5,902)

$

(3,901)

$

(9,803)

$

703,694

Net income


-


-


-


29,461


-


-


-


29,461

Other comprehensive (loss) income, net of tax


-


-


-


-


(2,123)


(4,362)


(6,485)


(6,485)

Issuance cost


145


-


-


-


-


-


-


145

Exercise of stock options


-


494


-


-


-


-


-


494

Dividends:


















Preferred shares


-


-


-


(1,191)


-


-


-


(1,191)


Common shares


-


-


-


(2,780)


-


-


-


(2,780)

Stock-based compensation


-


-


268


-


-


-


-


268

Transfer relating to the exercise of stock options


-


94


(94)


-


-


-


-


-

Balance, end of period

$

72,557

$

141,245

$

4,505

$

521,587

$

(8,025)

$

(8,263)

$

(16,288)

$

723,606












































Accumulated other

comprehensive

income (loss)



March 31, 2014

Preferred
shares

Common
shares

Contributed
surplus

Retained
earnings

Cash flow

hedges

Available

for sale
investments


Total


Total


















Balance, beginning of period

$

48,494

$

137,969

$

5,326

$

404,467

$

(3,364)

$

(4,574)

$

(7,938)

$

588,318

Net income


-


-


-


25,291


-


-


-


25,291

Other comprehensive (loss) income, net of tax


-


-


-


-


(1,134)


1,151


17


17

Reinvestment of dividends


-


266


-


-


-


-


-


266

Exercise of stock options


-


712


-


-


-


-


-


712

Dividends:


















Preferred shares


-


-


-


(906)


-


-


-


(906)


Common shares


-


-


-


(2,461)


-


-


-


(2,461)

Stock-based compensation


-


-


219


-


-


-


-


219

Transfer relating to the exercise of stock options


-


160


(160)


-


-


-


-


-

Balance, end of period

$

48,494

$

139,107

$

5,385

$

426,391

$

(4,498)

$

(3,423)

$

(7,921)

$

611,456




















































CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2015

With comparative figures for the three month period ended March 31, 2014

($ THOUSANDS)











Three months ended



March 31, 2015


March 31, 2014

CASH FLOWS FROM OPERATING ACTIVITIES





Net income for the period

$

29,461

$

25,291

Adjustments for non-cash items in net income:






Financial instruments at fair value through income


(3,238)


(467)


Amortization of premiums/discount on investments


196


585


Amortization of capital assets


335


303


Amortization of deferred costs


411


556


Provision for credit losses


814


507


Securitization gains


(1,530)


(751)


Net gain on sale or redemption of investments


203


(17)


Stock-based compensation


268


219


Income taxes


10,169


8,790

Changes in operating assets and liabilities:






Restricted cash


3,573


29,632


Securities purchased under reverse repurchase agreements


7,582


34,688


Mortgages receivable


(705,238)


(173,426)


Other assets


(658)


1,135


Deposits


256,701


91,908


Securitization liabilities


102,432


(119,450)


Obligations under repurchase agreements


173,284


(8,143)


Bank facilities


(25,150)


91,994


Other liabilities


(1,925)


(3,044)

Income taxes paid


(10,852)


(16,426)

Proceeds from loan securitizations


180,685


95,165

Securitization retained interests


2,273


1,339

Cash flows from operating activities


19,796


60,388

CASH FLOWS FROM FINANCING ACTIVITIES





Dividends paid on preferred shares


(1,191)


(906)

Dividends paid on common shares


-


(2,190)

Preferred share issuance cost


145


-

Proceeds from issuance of common shares


494


712

Cash flows used in financing activities


(552)


(2,384)

CASH FLOWS FROM INVESTING ACTIVITIES





Purchase of investments


(12,844)


(39,396)

Proceeds on sale or redemption of investments


3,498


45,189

Net change in Canada Housing Trust re-investment accounts


7,841


(3,633)

Purchase of capital assets and system development costs


(4,168)


(147)

Cash flows (used in) from investing activities


(5,673)


2,013

Net increase in cash and cash equivalents


13,571


60,017

Cash and cash equivalents, beginning of period


230,063


243,645

Cash and cash equivalents, end of period

$

243,634

$

303,662






Cash flows from operating activities include:





Interest received

$

131,538

$

123,697

Interest paid


(59,130)


(48,311)

Dividends received


1,765


1,509






 

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. serves consumers and their advisors through Equitable Bank, a diversified financial institution that operates coast to coast. Equitable Bank provides residential (prime and alternative) single family lending services, commercial lending services and a variety of savings solutions including high-interest savings products and GICs for individual Canadians. Since its founding in 1970, Equitable has grown to become Canada's ninth largest independent Schedule I Bank and a recognized service leader through its proven branchless banking approach. For more information, visit the Company's website at www.equitablebank.caand click on Investor Relations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL MEASURES

This news release references certain non-GAAP measures such as Return on Shareholders' Equity ("ROE"), Net Interest Margin ("NIM"), capital ratios, book value per share, impairment provision (recovery), and Mortgages Under Management that management believes provide useful information to investors regarding the Company's financial condition and results of operations.  The "Non-Generally Accepted Accounting Principles ("GAAP") Financial Measures" section of the Company's first quarter 2015 Management's Discussion and Analysis provides a detailed description of each non-GAAP measure and should be read in conjunction with this report.  The Management's Discussion and Analysis also provides a reconciliation between all non-GAAP measures and the most directly comparable GAAP measure, where applicable.  Readers are cautioned that non-GAAP measures do not have any standardized meaning, and therefore, may not be comparable to similar measures presented by other companies.

SOURCE Equitable Group Inc.

For further information: Andrew Moor, President and Chief Executive Officer, 416-515-7000; Tim Wilson, Vice President and Chief Financial Officer, 416-515-7000