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

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 ended March 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 on June 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 at March 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 billion at 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 at Canada'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.ca under 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.ca and 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.

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