Equitable Group Reports Record Third Quarter Earnings, Increases Common Share Dividend

TORONTO, Nov. 13, 2013 /CNW/ - Equitable Group Inc. (TSX: EQB) and (EQB.PR.A) ("Equitable" or the "Company") today reported record earnings for the three and nine month periods ended September 30, 2013 and announced an increase in its common share dividend.  The Company operates through its wholly-owned Schedule I Bank subsidiary, Equitable Bank, a growing Canadian financial services business with total assets of approximately $12 billion and 290 committed employees, offering savings and mortgage lending products to retail and commercial customers across Canada.

THIRD QUARTER HIGHLIGHTS

• Net income increased 10% to a record $23.2 million from $21.1 million in 2012.
• Diluted earnings per share increased 8% to $1.44 from $1.33 in 2012.
• Return on Equity ("ROE") was 17.5%, exceeding our five-year average of 17.2%.
• Book value per common share increased 18% to $33.77 from $28.69 at September 30, 2012 and was up 4% from June 30, 2013.

"Equitable Bank delivered strong growth and record earnings performance in the third quarter after successfully converting from its trust company roots on July 1^st," said Andrew Moor, President and CEO.  "Core Lending production reached a record $729 million as a result of strong home buying activity, our superior customer service levels, and our partnerships in the commercial lending marketplace.  Portfolio growth coupled with highly efficient operations provided the impetus for continued profit increases and supported another common share dividend increase.  We once again validated the strategy of retaining the majority of our earnings and having discipline in capital allocation to drive consistent ROE. All of this was made possible by Equitable Bank's employees who continue to show a passion for service to our customers and determination in building the business."

THIRD QUARTER OPERATING HIGHLIGHTS

As a diversified financial services business, Equitable Bank derives strength from Core Lending operations (comprised of Single Family Lending Services and Commercial Lending Services), and Securitization Financing capabilities:

• Single Family Lending Services mortgage principal was a record $3.5 billion, up 24% or $686 million year over year.  Production was up 8% to $464 million over the third quarter of 2012.
• Commercial Lending Services mortgage principal was $2.4 billion, up 9% from a year ago.  Production increased 28% year over year to $265 million.
• Securitization Financing mortgages under management were $5.8 billion, up 9% year over year.

Equitable's disciplined underwriting and collection practices allowed it to maintain a low-risk profile with minimal credit losses in the quarter. At September 30, 2013:

• Mortgages in arrears 90 days or more were just 0.31% of total principal, the same as a year ago.
• Early-stage delinquencies were 0.21% of total principal, an improvement from 0.27% a year ago.
• The loan to value ratio in our Single Family Lending portfolio was 68% at quarter end.

DIVIDEND DECLARATIONS AND INCREASE

The Company's Board of Directors today announced an increase in its common share dividend as it declared a quarterly dividend in the amount of $0.16 per common share, payable January 3, 2014, to common shareholders of record at the close of business on December 13, 2013.  This represents a 14% increase over dividends declared in November 2012 and is the 4^th increase in the common share dividend since 2011.

The Board declared a quarterly dividend in the amount of $0.453125 per preferred share, payable December 31, 2013, to preferred shareholders of record at the close of business on December 13, 2013.

CAPITAL

All of Equitable's capital ratios continued to exceed minimum regulatory standards and most industry benchmarks as at September 30, 2013:

• Common equity tier 1 was 12.1% compared to 11.9% a year ago, well ahead of Basel III guidelines of 7.0%.
• Total capital ratio was 15.9% compared to 15.5% a year ago as growth in the mortgage portfolio was covered by the net effects of a $65 million Series 10 subordinated debenture issuance in the fourth quarter of 2012 and $38 million of subordinated debenture redemptions in the first quarter of 2013.

BUSINESS OUTLOOK

Management expects the Company's performance trends through the first nine months will continue into the final quarter of 2013.

"We are focused on promoting our brand and on providing service excellence to build on the momentum of earlier periods as we conclude what we expect will be another year of record performance and shareholder value creation," said Mr. Moor.  "Looking forward, we intend to continue broadening our reach as we believe there is an excellent opportunity to capture a greater share of business in areas that are underserved by the country's other banks."

Mr. Moor also noted two important developments in Equitable Bank's ability to grow: "We have further diversified our funding sources by successfully introducing the Equitable Bank High Interest Savings Account to our $6 billion deposit solutions portfolio and by securing a $300 million bank facility to finance insured multi-residential mortgages prior to securitization.  These actions serve to support our future growth and performance."

In commenting on profitability, Tim Wilson, Vice President and CFO said: "Growth in net interest income, the main driver of our profitability, was strong in the third quarter and reflects the $1 billion increase in our average asset balances since this time last year and a one basis point year-over-year increase in total Net Interest Margin ("NIM") which stood at 1.50%.  We expect net interest income to grow in the fourth quarter on higher balances and we expect total NIM to continue to benefit from the ongoing shift in our product mix to higher margin Core Lending."

Canadian policymakers have been active in recent periods in respect to housing and mortgage markets and while management does not expect additional interventions in 2013, any such actions could impact mortgage activity levels and the Company's outlook.

Q3 CONFERENCE CALL

The Company will hold its third quarter conference call and webcast at 10:00 a.m. ET, November 14, 2013.  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.equitablebank.ca under Investor Relations.  A replay of the call will be available until November 21, 2013 and it can be accessed by dialing 416-640-1917 and entering passcode 4640861 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 SEPTEMBER 30, 2013
With comparative figures as at December 31, 2012 and September 30, 2012
($ THOUSANDS)
		September 30, 2013		December 31, 2012		September 30, 2012
Assets:
Cash and cash equivalents		$	373,994	$	379,447	$	356,082
Restricted cash			67,061		63,601		99,874
Securities purchased under reverse repurchase agreements			62,808		78,551		59,827
Investments			300,120		439,480		467,108
Mortgages receivable - Core Lending			5,890,023		5,154,943		5,005,815
Mortgages receivable - Securitization Financing			5,080,200		5,454,529		5,215,703
Securitization retained interests			24,069		7,263		2,199
Other assets			32,880		23,626		21,422
		$	11,831,155	$	11,601,440	$	11,228,030
Liabilities and Shareholders' Equity
Liabilities:
	Deposits	$	6,380,288	$	5,651,717	$	5,546,360
	Securitization liabilities		4,740,418		5,261,670		5,100,972
	Obligations related to securities sold short		-		-		1,964
	Obligations under repurchase agreements		5,570		9,882		-
	Deferred tax liabilities		10,043		5,498		6,402
	Other liabilities		36,847		40,931		25,488
	Bank term loans		-		12,500		12,500
	Debentures		92,483		117,671		52,671
			11,265,649		11,099,869		10,746,357
Shareholders' equity:
	Preferred shares		48,494		48,494		48,494
	Common shares		137,176		134,224		131,598
	Contributed surplus		5,242		5,003		5,094
	Retained earnings		381,337		323,737		306,629
	Accumulated other comprehensive loss		(6,743)		(9,887)		(10,142)
			565,506		501,571		481,673
		$	11,831,155	$	11,601,440	$	11,228,030

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
With comparative figures for the three and nine month periods ended September 30, 2012
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)
		Three months ended				Nine months ended
		September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Interest income:
	Mortgages - Core Lending	$	71,633	$	62,442	$	204,123	$	178,205
	Mortgages - Securitization Financing		49,498		54,821		153,797		163,274
	Investments		1,141		2,274		4,897		7,400
	Other		2,271		1,445		6,368		4,011
			124,543		120,982		369,185		352,890
Interest expense:
	Deposits		36,601		33,455		105,071		95,393
	Securitization liabilities		41,800		45,802		131,575		138,651
	Bank term loans		-		204		7		609
	Debentures		1,403		878		5,175		2,615
	Other		34		3		83		8
			79,838		80,342		241,911		237,276
Net interest income			44,705		40,640		127,274		115,614
Provision for credit losses			1,650		1,872		5,400		5,792
Net interest income after provision for credit losses			43,055		38,768		121,874		109,822
Other income:
	Fees and other income		1,654		983		4,348		2,969
	Net (loss) gain on investments		(13)		389		631		692
	Gains on securitization activities and income from    securitization retained interests		1,677		857		5,589		823
			3,318		2,229		10,568		4,484
Net interest and other income			46,373		40,997		132,442		114,306
Non-interest expenses:
	Compensation and benefits		8,738		7,298		25,128		20,833
	Other		6,559		5,401		17,662		16,093
			15,297		12,699		42,790		36,926
Income before income taxes			31,076		28,298		89,652		77,380
Income taxes
	Current		6,795		6,508		18,068		17,701
	Deferred		1,055		736		4,546		(1,388)
			7,850		7,244		22,614		16,313
Net income		$	23,226	$	21,054	$	67,038	$	61,067
Earnings per share
	Basic	$	1.46	$	1.34	$	4.22	$	3.88
	Diluted	$	1.44	$	1.33	$	4.17	$	3.85

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
With comparative figures for the three and nine month periods ended September 30, 2012
($ THOUSANDS)
	Three months ended				Nine months ended
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Net income	$	23,226	$	21,054	$	67,038	$	61,067
Other comprehensive income - items that may be    reclassified subsequently to income:
Available for sale investments:
Net unrealized (losses) gains from change in fair value		(2,456)		1,387		(2,748)		1,438
Reclassification of net losses (gains) to income		15		(449)		(844)		(1,587)
		(2,441)		938		(3,592)		(149)
Income tax recovery (expense)		643		(245)		946		39
		(1,798)		693		(2,646)		(110)
Cash flow hedges
Net unrealized gains (losses) from change in fair value		172		(952)		6,067		(1,311)
Reclassification of net losses to income		512		602		1,792		1,741
		684		(350)		7,859		430
Income tax (expense) recovery		(180)		90		(2,069)		(113)
		504		(260)		5,790		317
Total other comprehensive (loss) income		(1,294)		433		3,144		207
Total comprehensive income	$	21,932	$	21,487	$	70,182	$	61,274

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2013
With comparative figures for the three month period ended September 30, 2012
($ THOUSANDS)
September 30, 2013		Preferred shares		Common shares		Contributed surplus		Retained earnings		Accumulated other comprehensive income (loss)			Total
Balance, beginning of period		$	48,494	$	136,462	$	5,098	$	361,314	$	(5,449)	$	545,919
Net income			-		-		-		23,226		-		23,226
Other comprehensive loss, net of tax			-		-		-		-		(1,294)		(1,294)
Reinvestment of dividends			-		302		-		-		-		302
Exercise of stock options			-		340		-		-		-		340
Dividends:
	Preferred shares		-		-		-		(907)		-		(907)
	Common shares		-		-		-		(2,296)		-		(2,296)
Stock-based compensation			-		-		216		-		-		216
Transfer relating to the exercise of stock options			-		72		(72)		-		-		-
Balance, end of period		$	48,494	$	137,176	$	5,242	$	381,337	$	(6,743)	$	565,506
September 30, 2012		Preferred shares		Common shares		Contributed surplus		Retained earnings		Accumulated other comprehensive income (loss)			Total
Balance, beginning of period		$	48,494	$	131,045	$	4,913	$	288,596	$	(10,575)	$	462,473
Net income			-		-		-		21,054		-		21,054
Other comprehensive income, net of tax			-		-		-		-		433		433
Reinvestment of dividends			-		199		-		-		-		199
Exercise of stock options			-		306		-		-		-		306
Dividends:
	Preferred shares		-		-		-		(907)		-		(907)
	Common shares		-		-		-		(2,114)		-		(2,114)
Stock-based compensation			-		-		229		-		-		229
Transfer relating to the exercise of stock options			-		48		(48)		-		-		-
Balance, end of period		$	48,494	$	131,598	$	5,094	$	306,629	$	(10,142)	$	481,673

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2013
With comparative figures for the nine month period ended September 30, 2012
($ THOUSANDS)
September 30, 2013		Preferred shares		Common shares		Contributed surplus		Retained earnings		Accumulated other comprehensive income (loss)			Total
Balance, beginning of period		$	48,494	$	134,224	$	5,003	$	323,737	$	(9,887)	$	501,571
Net income			-		-		-		67,038		-		67,038
Other comprehensive income, net of tax			-		-		-		-		3,144		3,144
Reinvestment of dividends			-		840		-		-		-		840
Exercise of stock options			-		1,744		-		-		-		1,744
Dividends:
	Preferred shares		-		-		-		(2,719)		-		(2,719)
	Common shares		-		-		-		(6,719)		-		(6,719)
Stock-based compensation			-		-		607		-		-		607
Transfer relating to the exercise of stock options			-		368		(368)		-		-		-
Balance, end of period		$	48,494	$	137,176	$	5,242	$	381,337	$	(6,743)	$	565,506
September 30, 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			-		-		-		61,067		-		61,067
Other comprehensive income, net of tax			-		-		-		-		207		207
Reinvestment of dividends			-		577		-		-		-		577
Exercise of stock options			-		1,034		-		-		-		1,034
Dividends:
	Preferred shares		-		-		-		(2,719)		-		(2,719)
	Common shares		-		-		-		(5,725)		-		(5,725)
Stock-based compensation			-		-		592		-		-		592
Transfer relating to the exercise of stock options			-		216		(216)		-		-		-
Balance, end of period		$	48,494	$	131,598	$	5,094	$	306,629	$	(10,142)	$	481,673

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
With comparative figures for the three and nine month periods ended September 30, 2012
($ THOUSANDS)
		Three months ended				Nine months ended
		September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period		$	23,226	$	21,054	$	67,038	$	61,067
Adjustments for non-cash items in net income:
	Financial instruments at fair value through income		12,320		358		10,139		14,347
	Amortization of premiums/discount on investments		636		945		1,760		1,621
	Depreciation of capital assets		308		249		872		718
	Provision for credit losses		1,650		1,872		5,400		5,792
	Securitization gains		(1,570)		(846)		(4,190)		(846)
	Net loss (gain) on sale or redemption of investments		13		120		(631)		(141)
	Stock-based compensation		216		229		607		592
	Income taxes		7,850		7,244		22,614		16,384
Changes in operating assets and liabilities:
	Restricted cash		8,823		(33,337)		(3,460)		(16,718)
	Securities purchased and sold under reverse    repurchase agreements		85,525		41,524		15,743		(49,860)
	Mortgages receivable		(375,153)		(411,409)		(849,636)		(817,312)
	Other assets		(3,018)		961		(8,273)		1,019
	Deposits		275,780		314,757		728,571		918,456
	Securitization liability		(293,133)		24,649		(521,252)		51
	Obligations related to investments sold under    repurchase agreements		(10,130)		448		(4,311)		1,964
	Other liabilities		(3,366)		(959)		(7,637)		(4,815)
Income taxes paid			(2,322)		(3,883)		(19,458)		(14,138)
Net interest income, excluding non-cash items			(56,428)		(47,197)		(143,577)		(154,521)
Interest received			126,841		121,352		375,233		352,779
Interest paid			(71,617)		(76,298)		(235,482)		(218,937)
Dividends received			1,204		2,143		3,826		20,683
Proceeds from loan securitization			201,602		165,187		469,948		165,187
Securitization retained interests			779		38		1,654		38
Cash flows (used in) from operating activities			(69,964)		129,201		(94,502)		283,410
CASH FLOWS FROM FINANCING ACTIVITIES
	Repayment of bank term loan		-		-		(12,500)		-
	Redemption of debentures		-		-		(25,188)		-
	Dividends paid on preferred shares		(907)		(907)		(2,719)		(2,719)
	Dividends paid on common shares		(1,990)		(1,915)		(5,710)		(5,148)
	Proceeds from issuance of common shares		340		306		1,744		1,034
Cash flows used in financing activities			(2,557)		(2,516)		(44,373)		(6,833)
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of investments		(2,500)		(112,331)		(38,053)		(179,863)
	Proceeds on sale or redemption of investments		38,639		53,303		174,920		112,822
	Net change in Canada Housing Trust re-investment accounts		(6,812)		(16,467)		(2,131)		(23,913)
	Purchase of capital assets		(214)		(145)		(1,314)		(386)
Cash flows from (used in) investing activities			29,113		(75,640)		133,422		(91,340)
Net (decrease) increase in cash and cash equivalents			(43,408)		51,045		(5,453)		185,237
Cash and cash equivalents, beginning of period			417,402		305,037		379,447		170,845
Cash and cash equivalents, end of period		$	373,994	$	356,082	$	373,994	$	356,082

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. (TSX: EQB and EQB.PR.A) 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 and 290 skilled employees, offering savings and mortgage lending products to retail and commercial customers across Canada. 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 ("CMHC") 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 "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 Equity ("ROE"), Net Interest Margin ("NIM"), capital ratios, book value per share, and productivity ratios 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 Management Discussion and Analysis provides a detailed description of each non-GAAP measure and should be read in conjunction with this report.  The Management 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 CEO
416-513-7000

Tim Wilson
Vice President and CFO
416-513-7000