Equitable Group Reports Record First Quarter 2012 Results

TORONTO, May 9, 2012 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported its financial results for the three months ended March 31, 2012 - a period of significant growth and momentum that supports a confident outlook for the year.

FIRST QUARTER RESULTS

• Diluted earnings per share ("EPS") increased 13% to $1.13 compared to $1.00 in the first quarter of 2011;
• Net income increased 12% to $17.9 million from $16.1 million in 2011;
• Net interest income increased 17% to $36.5 million from $31.2 million in 2011;
• Net interest margin ("NIM") was 1.45%, up marginally from 1.44% a year ago on growth in NIM on non-securitized assets (2.57% versus 2.52% a year ago);
• Return on equity ("ROE") was 17.7%, up from 17.3% in Q4 2011 and compared to 18.0% a year ago;
• Book value per share increased 13% to $26.26 from $23.32 a year ago;
• Total assets were $10.5 billion at period end, up 14% or $1.3 billion from March 31, 2011;
• Mortgage principal outstanding in the Company's Core Lending business (Single Family and Commercial) grew 23% to $4.4 billion from $3.6 billion a year ago;
• Single Family principal outstanding grew by 35% year-over-year, and now represents 51% of Core Lending balances;
• Equitable Trust's period-end total capital ratio was a solid 15.8% (including collective allowance).

"This was a strong opening to 2012 for Equitable as we surpassed our previous first quarter earnings record and added to the very positive momentum we've created in our Core Lending businesses where principal outstanding increased 23% year over year," said Andrew Moor, President and Chief Executive Officer. "We're delighted with these results as they were achieved during the traditionally slow season in Canadian real estate activity. Despite our substantial growth, we continued to build our portfolio with an absolute focus on credit quality."

Reflecting the Company's strategies, the growth leader in the quarter was the Single Family segment in which "we exceeded our own expectations on the strength of a 35% year-over-year increase in mortgage principal balances on 51% growth in originations," added Mr. Moor.

DIVIDEND DECLARATIONS

The Company's Board of Directors today declared a quarterly dividend in the amount of $0.12 per common share, payable on July 5, 2012, to common shareholders of record at the close of business on June, 15, 2012.   The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable on June 30, 2012, to preferred shareholders of record at the close of business on June 15, 2012.

CORE LENDING BUSINESSES

Equitable's Single Family and Commercial Lending businesses are collectively referred to as Equitable's "Core Lending" business.  Within the Core Lending business in Q1 2012:

• Single Family Lending Services mortgage principal amounted to a record $2.3 billion at March 31, 2012, $589 million higher than at March 31, 2011. During the most recent quarter, production amounted to $327 million, up $111 million from the same period in 2011;
• Commercial Lending Services mortgage principal at March 31, 2012 was $2.2 billion, $245 million higher than at the end of the first quarter of 2011. First quarter production was $120 million compared to $183 million a year ago.

These Core Lending businesses represented 46% of the Company's mortgage portfolio compared to 42% a year ago, reflecting Equitable's emphasis on optimizing returns adjusted for risk and its capital plan of maintaining strong capital ratios as its grows.

SECURITIZATION FINANCING BUSINESS

Equitable's Securitization Financing business originates insured mortgages with the intention of subsequently securitizing those assets. Approximately 92% of securitized mortgages at period end were secured by multi-unit residential properties and were underwritten by the Company's commercial credit team.  The remaining 8% were represented by insured, single family residential mortgages, some of which were securitized after residing in the Company's Core Lending portfolio.

During the first quarter:

• Securitization Financing mortgage principal outstanding at March 31, 2012 was $5.2 billion, 6% or $297 million higher than a year ago;
• Securitization Financing production was $115 million, $139 million lower than a year ago, reflecting a planned shift in emphasis toward Core Lending activities.

CREDIT QUALITY

Equitable maintained its exemplary track record of low realized loan losses during the first quarter ($0.5 million, net of recoveries). Solid key credit metrics were also posted:

• Mortgage principal in arrears 90 days or more was 0.25% of total mortgage principal outstanding, an improvement from 0.33% a year ago;
• Net impaired mortgages were 0.28% of total mortgage assets compared to 0.35% a year ago as workout activities continue to yield positive results.

Management remains comfortable that allowances for credit losses (0.22% of total mortgage assets versus 0.24% a year ago) adequately provide for the risk of loss.

LOOKING AHEAD

"Equitable built on and in some cases accelerated its momentum during the first quarter and this supports our plan and expectations of ongoing earnings growth and a solid ROE, backstopped by the maintenance of very healthy capital levels," said Mr. Moor. "The markets we choose to serve continue to benefit from a combination of population trends and economic stability, giving us an attractive foundation for growth. Our 2012 agenda is custom made for today's market realities and includes growth in mortgage assets that best suit our hurdle rates and credit risk tolerances, expansion of our national presence with emphasis on niches that are positioned to benefit from secular trends and, most importantly, an ongoing focus on broker and customer service excellence, which is generating tremendous results for us. By single-mindedly pursuing our service agenda while maintaining highly cost-effective operations, we will drive ever-improving results for our shareholders."

The Company is also monitoring recently announced changes in the regulatory environment, including CMHC's decision to curtail its portfolio insurance activities. This change is expected to have little direct impact on Equitable and could indirectly benefit the Company should competitors change their lending or pricing practices.  Equitable is also currently reviewing OSFI's "Draft Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures" and, while management expects some revisions to the proposal, recognizes that the outcome of the process continues to be uncertain.

Q1 CONFERENCE CALL

The Company will hold its first quarter conference call and webcast at 10:00 a.m. ET Thursday May 10, 2012. To access the call live, please dial in five minutes prior to 416-644-3414. 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 May 17, 2012 and it can be accessed by dialing 416-640-1917 and entering passcode 4530347 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 MARCH 31, 2012
With comparative figures as at December 31, 2011 and March 31, 2011
($ THOUSANDS)

		March 31, 2012		December 31, 2011			March 31, 2011
Assets
Cash and cash equivalents		$	239,517		$	170,845		$	177,251
Restricted cash			90,246			83,156			36,404
Securities purchased under reverse repurchase agreements			39,922			9,967			24,993
Investments			389,497			390,340			360,137
Mortgages receivable			4,476,637			4,262,147			3,683,777
Mortgages receivable - securitized			5,211,241			5,314,940			4,876,631
Other assets			23,178			25,618			13,788
		$	10,470,238		$	10,257,013		$	9,172,981
Liabilities and Shareholders' Equity
Liabilities:
	Deposits	$	4,860,547		$	4,627,904		$	4,032,391
	Securitization liabilities		5,069,853			5,100,921			4,653,482
	Deferred tax liabilities		6,608			7,790			7,318
	Other liabilities		24,602			28,587			17,298
	Bank term loans		12,500			12,500			12,500
	Subordinated debentures		52,671			52,671			52,671
			10,026,781			9,830,373			8,775,660
Shareholders' equity:
	Preferred shares		48,494			48,494			48,494
	Common shares		130,251			129,771			128,369
	Contributed surplus		4,813			4,718			4,169
	Retained earnings		269,235			254,006			215,700
	Accumulated other comprehensive (loss) income		(9,336)			(10,349)			589
			443,457			426,640			397,321
		$	10,470,238		$	10,257,013		$	9,172,981

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012  
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		Three months ended
		March 31, 2012			March 31, 2011
Interest income:
	Mortgages	$	57,187		$	47,849
	Mortgages - securitized		54,459			52,152
	Investments		2,248			2,279
	Other		1,226			1,025
			115,120			103,305
Interest expense:
	Deposits		30,350			26,741
	Securitization liabilities		47,174			44,268
	Bank term loans		202			200
	Subordinated debentures		869			862
	Other		1			29
			78,596			72,100
Net interest income			36,524			31,205
Provision for credit losses			2,227			1,938
Net interest income after provision for credit losses			34,297			29,267
Other income:
	Fees and other income		1,005			854
	Net gain on investments		249			298
			1,254			1,152
Net interest and other income			35,551			30,419
Non-interest expenses:
	Compensation and benefits		6,570			5,473
	Other		5,339			3,643
			11,909			9,116
Income before income taxes and fair value gain			23,642			21,303
Fair value gain on derivative financial instruments - securitization activities			51			319
Income before income taxes			23,693			21,622
Income taxes:
	Current		6,935			5,327
	Deferred		(1,182)			232
			5,753			5,559
Net income		$	17,940		$	16,063
Earnings per share:
	Basic	$	1.13		$	1.01
	Diluted	$	1.13		$	1.00

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS)

	Three months ended
	March 31, 2012		March 31, 2011
Net income	$	17,940	$	16,063
Other comprehensive income:
Available for sale investments:
Net unrealized gains from change in fair value		833		1,143
Reclassification of net gains to income		(1,082)		(265)
		(249)		878
Income tax		65		(246)
		(184)		632
Cash flow hedges
Net unrealized gains from change in fair value		1,028		1,665
Reclassification of net losses (gains) to income		592		(18)
		1,620		1,647
Income tax		(423)		(461)
		1,197		1,186
Total other comprehensive income		1,013		1,818
Total comprehensive income	$	18,953	$	17,881

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS)

March 31, 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			-		-		-		17,940		-		17,940
Other comprehensive income, net of tax			-		-		-		-		1,013		1,013
Contributions from reinvestment of dividends			-		188		-		-		-		188
Contributions from exercise of stock options			-		237		-		-		-		237
Dividends:
	Preferred shares		-		-		-		(906)		-		(906)
	Common shares		-		-		-		(1,805)		-		(1,805)
Stock-based compensation			-		-		150		-		-		150
Transfer relating to the exercise of stock options			-		55		(55)		-		-		-
Balance, end of period		$	48,494	$	130,251	$	4,813	$	269,235	$	(9,336)	$	443,457
March 31, 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			-		-		-		16,063		-		16,063
Other comprehensive income, net of tax			-		-		-		-		1,818		1,818
Contributions from reinvestment of dividends			-		127		-				-		127
Contributions from exercise of stock options			-		144		-		-		-		144
Dividends:
	Preferred shares		-		-		-		(906)		-		(906)
	Common shares		-		-		-		(1,644)		-		(1,644)
Stock-based compensation			-		-		264		-		-		264
Transfer relating to the exercise of stock options			-		30		(30)		-		-		-
Balance, end of period		$	48,494	$	128,369	$	4,169	$	215,700	$	589	$	397,321

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
With comparative figures for the three month period ended March 31, 2011
($ THOUSANDS)

		Three months ended
		March 31, 2012			March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period		$	17,940		$	16,063
Adjustments to determine cash flows relating to operating activities:
	Financial instruments at fair value through income		1,836			99
	Depreciation of capital assets		231			63
	Provision for credit losses		2,227			1,938
	Net gain on sale or redemption of investments		(249)			(298)
	Income taxes		5,825			5,559
	Income taxes paid		(4,801)			(4,771)
	Stock-based compensation		150			264
	Amortization of premiums/discount on investments		784			785
	Net increase in mortgages receivable		(113,976)			(345,787)
	Net increase in deposits		232,643			153,538
	Net change in securitization liabilities		(31,068)			121,802
	Net interest income, excluding non-cash items		(54,751)			(47,713)
	Interest paid		(63,692)			(58,179)
	Other assets		(191)			(1,430)
	Other liabilities		(3,260)			(2,342)
	Interest received		115,934			103,542
	Dividends received		2,509			2,350
Cash flows from (used in) operating activities			108,091			(54,517)
CASH FLOWS FROM FINANCING ACTIVITIES
	Dividends paid on preferred shares		(906)			(906)
	Dividends paid on common shares		(1,614)			(1,367)
	Proceeds from issuance of common shares		237			144
Cash flows used in financing activities			(2,283)			(2,129)
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of investments		(20,000)			(39,651)
	Proceeds on sale or redemption of investments		46,730			20,943
	Net change in Canada Housing Trust re-investment accounts		(26,671)			(2,638)
	Purchase of securities under reverse repurchase agreements		(39,922)			(24,993)
	Proceeds on sale or redemption of securities under reverse repurchase agreements		9,967			74,908
	Change in restricted cash		(7,090)			50,166
	Purchase of capital assets		(150)			(80)
Cash flows (used in) from investing activities			(37,136)			78,655
Net increase in cash and cash equivalents			68,672			22,009
Cash and cash equivalents, beginning of period			170,845			155,242
Cash and cash equivalents, end of period		$	239,517		$	177,251

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 serves single family, small and large commercial borrowers and their mortgage advisors. It also serves the investing public as a provider of Guaranteed Investment Certificates. Equitable is active in providing GICs across all Canadian provinces and territories. We actively originate mortgages across Canada, with offices in Ontario, Alberta and Quebec. 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 "Credit Quality" and "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.

 

Andrew Moor
President and CEO
416-515-7000

Tim Wilson
Chief Financial Officer
416-515-7000