SOUND POSITION

Dominion, Volume 33, Issue 191, 9 May 1940, Page 12

SOUND POSITION

Equitable Building Co. CHAIRMAN’S REVIEW At tiic annual meeting oi the Equitable Building and Investment Company, of Wellington, Ltd., yesterday, the chairman of directors, Mr. Malcolm Eraser, moving the adoption of the report and accounts, said that this, the 62nd annual report, might be said to mark the beginning of a new era in the affairs of the company. The period of reconstruction and reorganization was ended; the business had responded to the stimulus of new life: there had been a substantial increase in I lie transactions effected during the year; the funds were higher than ar any time since 1921. The position of the company was one of extraordinary strength.

During the year 55 new loans totalling £45 275/11/7 were approved: the average’ loan being £823/3/10. all on table basis. Twelve mortgages totalling £16,070/4/9 were repaid, while 12 mortgages, totalling £13,549/9/7, were renewed. Only eight mortgages of farm properties totalling £21.160/10/10 now remained on the books; all were well secured, and gave no cause tor anxiety, as opportunity offered, these were being withdrawn. Freehold properties held had increased by £2,344/6/10, two properties having been taken over, and one sold during the year; whenever vacant possession could be given, these properties were being sold. . t A total of 181 new deposits totalling £62,191/18/1 were received, while .106 deposits totalling £38,913,. were repaid, and 170 deposits totalling £48,200/9/2 were renewed. The substantial increase of £23,277/16/- during the year was gratifying. Since the close of the year this had been further increased by T’hefross income at £19,127/8/8 was equal to 4.88 per cent, per annum on the average of mortgage ami property assets. The net income before providing for reserves was £4,695/17/11. From this, £2lOO, or 44.71 per cent.., had to be_pu» aside for taxation, leaving £2,110/17/11 for appropriation account. The directors recommended a final dividend of 7d. a share, making, with interim dividend already paid, 1/- a share for the year. On the funds belonging to shareholders, paid-up share capital plus reserves, the net return for the year was only 5.02 per cent., of which 44.71 per cent, is required for taxation. No dividend being payable o_n reserve funds, a higher dividend than 5.02 per cent, could be paid on share capital.

Directors’ Policy. Tile chairman then reviewed the work of the previous five or six years and the policy of the directors. The first consideration had been to find a solution of the problem created by the fact that the company received so much of its funds on comparatively short-term deposits, while its advances on mortgage were for much longer terms. The policy adopted to meet this problem consisted of several factors:

First in importance was the arrangement. with the New Zealand Insurance Company of a guarantee for the payment of all deposits on due date. This, on the one hand, effectively protected the company againdt any emergency, and on the other hand, assured to depositors, the security of their deposits, and established confidence that these would be paid on due dates if the money was required for other purposes. It freed the company from the necessity of maintaining any considerable liquid assets. It permitted the whole of the company’s funds to be lent on the more profitable first mortgage investments. It allowed the management to concentrate its main attention ou securing the safety of its mortgage investments, and ou keeping all its funds fully invested. The guarantee arrangement was not entered into solely to relieve the emergency position which had arisen as a result of the general economic crisis, but as part of a long-term policy for the better carrying on of the company’s business; its beneficial fruits were now being reaped. The fair and helpful co-operation of the New Zealand Insurance Company had been greatly appreciated. Deposits and Mortgages. Due dates of existing deposits were spread over a four-year period and control methods were adopted so that the maximum sum acceptable for deposits falling due in any month is regulated. The possibility of having to meet demands for unduly large withdrawals in any one month was avoided. It had been decided to withdraw as opportunity offered, from al] farm ami country investments- and to concentrate on small mortgages on dwellings in the Wellington city or suburbs. Thus investments were well spread, reducing loss risk, and securities were situated where they could be regularly inspected. The adoption of a table basis for all mortgages, thus ensuring a steady stream of principal repayments which both increased the margin of security, and made funds available for reinvestment or to meet deposit withdrawals. During the period since December 31. 1934, 214 advances were made, the average loan being £690 ; 73.4 per cent, in number and 70.2 per cent, in value of the mortgages were now on a table basis, and the repayments of principal totalled approximately £7OOO per annum.

As a result of continuous attention given to the improvement of securities, the whole of the company’s assets were now in a clean and healthy condition. Of the 460 accounts <m the books at. March 31. only two were not producing full interest. and of the others, in only seven eases were interest payments, totalling £lB7/17/- in arrenr for longer than three months. Stabilization Reserve. The continuation of a depreciation provision as previously shown, was not considered accessary. The balance left in flic securities depreciation account bad been transferred to form a stabilization reserve which would be a permanent feature of the accounts. While maintaining the general reserve of £70,000 intact, the stabilization reserve would be available for any emergency or purpose necessary to keep the affairs of the company steady aud secure on the present basis. It would be used to meet any losses which might arise. A loss risk premium charge of 2j per cent, of the gross income was to be transferred to stabilization reserve each year from profit and loss account, the charge this year being £485. Further, the carry-forward in the appropriation accodnt would bo kept at approximately Hie existing level to ensure that the present rate of divl dend would be maintained. Any surplus would be transferred to the stabilization reserve and applied to the extinction of tlie uncalled capital liability. It was [,roposed that the latter should be made in steps of 1/- a share, and it was hoped to tnlic the first step next year. Until the uncalled capital liability was entirely extinguished, the dividend of 1/- a share would not lie increased. In February, 1938. the company’s £1 share paid up to 14/- was sold at 10/-. All these shares were converted to 5 per cent, debenture stock, n bonus share of 2/6 being issued for each converted share. The bonus shares of 2/6 were consolidated to £1 shares, 10/- paid up, and for these latter there were today buyers at. 13/-, but no sellers. This spoke for itself and needed no comment. The company's business now , rested on a secure and stable foundation, and a reasonable return to shareholders on their investment was made as certain for the future as such matters could be. The report and balance-sheet and the dividend recommendation were adopted. The retiring director, Mr. It. I’. Blewarf. was re-elected, as were the tuidilors, Messrs. E. Bucholz and W. S. Wheeler. Votes of thanks and appreciation of the work of the staff and the directors were carried.