Equitable Group Reports Record 2013 and Fourth Quarter Results

TORONTO, Feb. 27, 2014 /CNW/ - Equitable Group Inc. (TSX: EQB and EQB.PR.A) ("Equitable" or the "Company") today reported its financial results for the three and 12 months ended December 31, 2013, delivering record performance in each period on strong growth in its wholly owned subsidiary, Equitable Bank.

FOURTH QUARTER HIGHLIGHTS

• Net income increased 32% to a quarterly record of $26.5 million from $20.1 million in 2012
• Diluted earnings per share increased 31% to $1.65 from $1.26 in 2012
• Return on Equity ("ROE") was 19.2%, up from 17.3% in 2012 and 17.5% in the prior quarter
• Book value per common share increased 18% to $35.14 from $29.83 at year-end 2012, and was up 4% from $33.77 at September 30, 2013

2013 HIGHLIGHTS

• Net income increased 15% to a record $93.5 million from $81.2 million in 2012
• Diluted earnings per share grew 14% to $5.82 from $5.11 in 2012
• ROE was 18.1%, which is above the Company's five-year average of 17.5% and reflects a trend of consistently improving performance over the past three years
• The Company declared common share dividends of $0.60 per share, up 15% from 2012
• Core Lending balances increased 20% or $1 billion to $6.2 billion

"Equitable's strategies are designed to consistently create shareholder and customer value and that is exactly what they delivered throughout 2013," said Andrew Moor, President and Chief Executive Officer.  "From record earnings in each quarter, generated from what is now a $12 billion portfolio of mortgages under management, to strong annual ROE performance, 2013 was a period of tremendous progress for the Bank.  We also ended the year on a very positive note by posting best-ever quarterly production volumes for our Single Family Lending Services business, and our momentum in that business seems to have carried into Q1.  In a string of great years, 2013 was our best yet, as we delivered valued financial solutions to more Canadians than ever, successfully introduced new products, and retained capital that is available to fuel additional growth."

FOURTH QUARTER OPERATING HIGHLIGHTS

Equitable Bank continued to build its diversified financial services franchise, comprised of its Core Lending (comprised of Single Family Lending Services and Commercial Lending Services), Securitization Financing, and Deposit Services businesses:

• Single Family Lending Services production was up 29% or $113 million to $506 million from a year ago, a new quarterly record that exceeded the previous quarterly record set in the third quarter of 2013.  As a result of production and mortgage renewal success, Single Family mortgage principal at December 31, 2013 was a record $3.8 billion, up 25% or $771 million year over year.
• Commercial Lending Services mortgage principal was $2.4 billion, up 12% or $265 million from a year ago.  Fourth quarter production was $183 million compared to $186 million in 2012.
• Securitization Financing Mortgages Under Management were $5.9 billion, up 3% or $160 million year over year.  Securitization financing production amounted to $366 million compared to $475 million in the fourth quarter of 2012 as the Company met its goal of having originations and renewals equal its quarterly Canada Mortgage Bond capacity allocation.
• Deposit Services increased year-end total deposit principal outstanding by 15% or $811 million, to $6.4 billion, compared to December 31, 2012.

Equitable's disciplined underwriting and collection practices allowed it to sustain its low-risk profile. At December 31, 2013:

• Mortgages in arrears 90 days or more were just 0.23% of total principal, an improvement over the prior year's level of 0.32%
• Allowance for credit losses were 105% of gross impaired mortgages at year-end and have averaged 86% of gross impaired mortgages over the past three years, an amount that far exceeded actual realized losses over the period
• The impairment provision in 2013 totalled less than $0.7 million or 0.01% of the average loan portfolio compared to $1.9 million or 0.02% a year ago
• The loan-to-value ratio in the Single Family Lending portfolio was 69% at year end

DIVIDEND DECLARATIONS

The Company's Board of Directors today declared a common share dividend in the amount of $0.16 per common share, payable April 3, 2014, to common shareholders of record at the close of business on March 14, 2014.  This represents a 14% increase over dividends declared in February 2013.

The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable March 31, 2014, to preferred shareholders of record at the close of business on March 14, 2014.

CAPITAL

All of Equitable Bank's capital ratios exceeded minimum regulatory standards and most industry benchmarks throughout 2013.  As at December 31, 2013:

• Common Equity Tier 1 capital ratio was 12.4%, well ahead of the Basel III minimum of 7.0%
• Total capital ratio was 16.3%, down from 17.4% a year ago due to the redemption of $38 million of subordinated debentures in early 2013 and year-over-year asset growth in Core Lending. The 2012 Total capital ratio was calculated under the Basel II framework.

BUSINESS OUTLOOK

Equitable expects that its strategy, including its disciplined approach to capital allocation, will continue to deliver high returns on shareholders' equity in 2014.

"The Bank set the stage for another year of outstanding performance in 2014 by growing our core businesses and expanding our Bank franchise to include the Equitable Bank Home Equity Line of Credit and the High-Interest Savings Account," said Mr. Moor.  "While seasonality makes the winter months typically weak for new business, 2014 has started strongly for the Bank. To sustain our momentum, we will continue to focus on diversifying and bringing our unique brand of financial solutions to Canadian consumers who are not well served by Canada's other banks.  Central to our plan is a passion for customer service, which remains a core differentiator in all lines of business."

In order to offer a true coast-to-coast offering in the Single Family business, the Bank expects to offer mortgages in attractive urban markets in Québec beginning in the spring of 2014.  The Bank's plans are well advanced and it will develop the business from Equitable's office in Montréal. This initiative is expected to contribute to growth in the Bank's attractive Single Family mortgage lending business.

In commenting on profitability, Tim Wilson, Vice President and Chief Financial Officer said: "In the fourth quarter, we saw healthy year-over-year increases in both net interest income and Net interest margin ("NIM"), the former growing by 16.5% and the latter by 16 basis points.  As a result, total NIM grew from 1.44% a year ago to 1.60% in the fourth quarter of 2013.  Looking to 2014, we expect normal fluctuations due to mortgage prepayment charge income, but on balance, anticipate strong NIM performance due to the shift in our asset mix towards higher margin Core Lending activities, recent pricing changes, and more efficient management of our liquidity portfolio."

CONFERENCE CALL AND WEBCAST

The Company will hold its fourth quarter conference call and webcast [with accompanying slides] at 10:00 a.m. ET Friday, February 28, 2014.  To access the call live, please dial 416-644-3414 five minutes prior.  To access a listen-only version of the webcast, please log on to www.equitablebank.ca under Investor Relations.

A replay of the call will be available until March 7, 2014 and it can be accessed by dialing 416-640-1917 and entering passcode 4661721 followed by the number sign.  Alternatively, the call will be archived on the Company's website for three months.

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
($ THOUSANDS)
As at December 31		2013		2012
Assets
Cash and cash equivalents		$	243,645	$	379,447
Restricted cash			87,319		63,601
Securities purchased under reverse repurchase agreements			54,860		78,551
Investments			240,614		439,480
Mortgages receivable - Core Lending			6,188,278		5,154,943
Mortgages receivable - Securitization Financing			4,941,589		5,454,529
Securitization retained interests			30,455		7,263
Other assets			29,693		23,626
		$	11,816,453	$	11,601,440
Liabilities and Shareholders' Equity
Liabilities:
	Deposits	$	6,470,029	$	5,651,717
	Securitization liabilities		4,591,404		5,261,670
	Obligations under repurchase agreements		8,143		9,882
	Deferred tax liabilities		10,826		5,498
	Other liabilities		55,250		40,931
	Bank facilities		-		12,500
	Debentures		92,483		117,671
			11,228,135		11,099,869
Shareholders' equity:
	Preferred shares		48,494		48,494
	Common shares		137,969		134,224
	Contributed surplus		5,326		5,003
	Retained earnings		404,467		323,737
	Accumulated other comprehensive loss		(7,938)		(9,887)
			588,318		501,571
		$	11,816,453	$	11,601,440

CONSOLIDATED STATEMENTS OF INCOME
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years ended December 31		2013		2012
Interest income:
	Mortgages - Core Lending	$	278,921	$	242,459
	Mortgages - Securitization Financing		200,522		217,276
	Investments		6,473		10,272
	Other		8,263		6,520
			494,179		476,527
Interest expense:
	Deposits		142,431		131,042
	Securitization liabilities		170,110		184,260
	Bank facilities		420		813
	Debentures		6,578		4,212
	Other		103		30
			319,642		320,357
Net interest income			174,537		156,170
Provision for credit losses			6,732		7,992
Net interest income after provision for credit losses			167,805		148,178
Other income:
	Fees and other income		5,815		3,970
	Net gain on investments		987		629
	Gains on securitization activities and income from securitization retained interests		7,584		2,073
			14,386		6,672
Net interest and other income			182,191		154,850
Non-interest expenses:
	Compensation and benefits		33,870		28,246
	Other		23,644		21,930
			57,514		50,176
Income before income taxes			124,677		104,674
Income taxes
	Current		25,819		25,759
	Deferred		5,328		(2,292)
			31,147		23,467
Net income		$	93,530	$	81,207
Earnings per share
	Basic	$	5.89	$	5.15
	Diluted	$	5.82	$	5.11

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ THOUSANDS)
Years ended December 31	2013		2012
Net income	$	93,530	$	81,207
Other comprehensive income - items that may be reclassified subsequently to income:
Available for sale investments:
Net unrealized (losses) gains from change in fair value		(4,241)		1,492
Reclassification of net gains to income		(1,143)		(1,709)
		(5,384)		(217)
Income tax recovery		1,418		57
		(3,966)		(160)
Cash flow hedges:
Net unrealized gains (losses) from change in fair value		5,768		(1,521)
Reclassification of net losses to income		2,261		2,365
		8,029		844
Income tax expense		(2,114)		(222)
		5,915		622
Total other comprehensive income		1,949		462
Total comprehensive income	$	95,479	$	81,669

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ THOUSANDS)
											Accumulated other
											comprehensive
											income (loss)
													Available
2013		Preferred shares		Common shares		Contributed surplus		Retained earnings		Cash flow hedges		for sale investments			Total		Total
Balance, beginning of year		$	48,494	$	134,224	$	5,003	$	323,737	$	(9,279)	$	(608)	$	(9,887)	$	501,571
Net income			-		-		-		93,530		-		-		-		93,530
Other comprehensive income (loss), net of tax			-		-		-		-		5,915		(3,966)		1,949		1,949
Reinvestment of dividends			-		849		-		-		-		-		-		849
Exercise of stock options			-		2,379		-		-		-		-		-		2,379
Dividends:
	Preferred shares		-		-		-		(3,625)		-		-		-		(3,625)
	Common shares		-		-		-		(9,175)		-		-		-		(9,175)
Stock-based compensation			-		-		840		-		-		-		-		840
Transfer relating to the exercise of stock options			-		517		(517)		-		-		-		-		-
Balance, end of year		$	48,494	$	137,969	$	5,326	$	404,467	$	(3,364)	$	(4,574)	$	(7,938)	$	588,318
											Accumulated other
											Comprehensive
											income (loss)
												Available
2012		Preferred shares		Common shares		Contributed surplus		Retained earnings		Cash flow hedges		for sale investments			Total		Total
Balance, beginning of year		$	48,494	$	129,771	$	4,718	$	254,006	$	(9,901)	$	(448)	$	(10,349)	$	426,640
Net income			-		-		-		81,207		-		-		-		81,207
Other comprehensive income (loss), net of tax			-		-		-		-		622		(160)		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	$	(9,279)	$	(608)	$	(9,887)	$	501,571

CONSOLIDATED STATEMENTS OF CASH FLOWS
($ THOUSANDS)
Years ended December 31		2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	93,530	$	81,207
Adjustments for non-cash items in net income:
	Financial instruments at fair value through income		7,784		11,930
	Amortization of premiums/discounts on investments		2,373		2,808
	Depreciation of capital assets		1,215		1,015
	Provision for credit losses		6,732		7,992
	Securitization gains		(5,613)		(2,005)
	Net loss on sale or redemption of investments		154		823
	Stock-based compensation		840		853
	Income taxes		31,147		23,467
Changes in operating assets and liabilities:
	Restricted cash		(23,718)		19,555
	Securities purchased under reverse repurchase agreements		23,691		(68,584)
	Mortgages receivable		(1,228,321)		(1,380,351)
	Other assets		(3,581)		(942)
	Deposits		818,312		1,023,813
	Securitization liabilities		(670,266)		160,749
	Obligations under repurchase agreements		(1,739)		9,882
	Other liabilities		5,200		6,854
Income taxes paid			(22,557)		(18,791)
Net interest income, excluding non-cash items			(216,586)		(192,678)
Interest received			500,708		474,547
Interest paid			(290,194)		(305,303)
Dividends received			6,072		23,434
Proceeds from loan securitizations			683,844		335,661
Securitization retained interests			2,721		212
Cash flows (used in) from operating activities			(278,252)		216,148
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of bank term loan			(12,500)		-
Issuance of debentures			-		65,000
Redemption of debentures			(25,188)		-
Dividends paid on preferred shares			(3,625)		(3,625)
Dividends paid on common shares			(7,997)		(6,709)
Proceeds from issuance of common shares			2,379		3,068
Cash flows (used in) from financing activities			(46,931)		57,734
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments			(57,877)		(230,037)
Proceeds on sale or redemption of investments			232,892		185,456
Net change in Canada Housing Trust re-investment accounts			16,056		(19,901)
Purchase of capital assets			(1,690)		(798)
Cash flows from (used in) investing activities			189,381		(65,280)
Net (decrease) increase in cash and cash equivalents			(135,802)		208,602
Cash and cash equivalents, beginning of year			379,447		170,845
Cash and cash equivalents, end of year		$	243,645	$	379,447

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. is a growing Canadian financial services business that serves the market through its wholly-owned subsidiary, Equitable Bank.  Equitable Bank is a federally regulated Schedule I Bank with total assets of approximately $12 billion, with 295 skilled employees and proven capabilities in lending and deposit-taking. The Company's integrated operations are organized according to specialty. Within Equitable Bank's Core Lending business, Single Family Lending Services funds mortgages for owner-occupied and investment properties across Canada while Commercial Lending Services provides mortgages on a variety of commercial properties on a national basis. Equitable's Securitization Financing business originates and securitizes insured residential mortgages under the Canada Mortgage and Housing Corporation administered National Housing Act. Equitable Bank provides savings products including Guaranteed Investment Certificates and savings accounts. Equitable Bank was founded in 1970 as The Equitable Trust Company. For more information, visit the Company's website at www.equitablebank.ca 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 "2013 Highlights", "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 press 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, 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 2013 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.

ADDITIONAL GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL MEASURES

This press release references net interest income, an additional GAAP measure that management believes provide useful information to investors regarding the Company's financial results of operations.  The "ADDITIONAL Generally Accepted Accounting Principles ("GAAP") Financial Measures" section of the Company's 2013 Management's Discussion and Analysis provides a detailed description of net interest income and should be read in conjunction with this report.  Readers are cautioned that additional 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.

Andrew Moor 
President and Chief Executive Officer
416-515-7000   

Tim Wilson
Vice President and Chief Financial Officer
416-515-7000