Equitable Group Reports Strong Growth in Third Quarter 2012 Earnings

TORONTO, Nov. 13, 2012 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported record third quarter earnings for the three months ended September 30, 2012 on a $1 billion year-over-year increase in Core Lending mortgage principal.

THIRD QUARTER SUMMARY

• Net income grew 58% to $21 million from $13 million in the third quarter of 2011; net income growth was 24% adjusted for an operational loss provision taken in Q3 2011
• Diluted earnings per share ("EPS") increased 62% to $1.33 from $0.82 in the third quarter of 2011, or 25% on an adjusted basis
• Return on equity ("ROE") increased to 18.9% from 13.7% a year ago (adjusted ROE in 2011 was 17.6%)
• Core Lending mortgage principal reached $5 billion at the end of the third quarter, up by 25% over the prior year
• Book value per share increased 19% to $28.69 from $24.02 at September 30, 2011
• Equitable Trust's period-end total capital ratio was 15.5%

"This was another excellent period of performance punctuated by a 50% or $952 million year-over-year increase in Single Family mortgage principal, which Equitable delivered while keeping investment returns high, portfolio losses low and our capital ratios strong," said Andrew Moor, President and CEO. "Our mounting competitive strength on a national basis and responsiveness to market dynamics put us in an enviable position at this point in the real estate cycle."

THIRD QUARTER OPERATING HIGHLIGHTS

• Single Family Lending Services mortgage principal grew 50% to a record $2.8 billion at September 30 and represented 57% of Core Lending mortgage principal compared to 47% a year ago
• Single Family Lending Services third quarter production of $494 million represented an increase of 27% over the third quarter of 2011, as Equitable's strategic emphasis on this core lending activity and changes in the competitive landscape combined to drive strong growth
• Commercial Lending Services mortgage principal was unchanged year over year at $2.2 billion at September 30. Third quarter production was $224 million, up from $156 million in the second quarter of 2012 and down 16% or $44 million from an exceptionally strong third quarter in 2011
• Core Lending mortgage principal (comprised of Single Family and Commercial Lending) amounted to $5 billion, up 25% or $1 billion year-over-year, while third quarter Core Lending production increased 9% year over year to $718 million
• Securitization Financing mortgage principal was $5.1 billion, 3% lower than a year ago, reflecting the Company's strategy to emphasize core lending activity over the past several quarters. In the third quarter, the Company originated $288 million and securitized $263 million of insured residential mortgages. Included in that amount, the Company successfully securitized $164 million of mortgages using a transaction structure that transferred the risks and rewards of the securitized assets to third parties. The Company was able to recognize $0.9 million of related gains on the securitizations that used this new structure for origination and sale.

The Company continues to experience a low level of loan losses (net realized loan losses were $0.2 million in the third quarter of 2012) and posted solid credit metrics:

• Mortgages in arrears 90 days or more were 0.31% of total principal outstanding at quarter end compared to 0.24% a year earlier while early stage delinquencies - a leading indicator of losses - were the same as a year ago at 0.30% of total principal
• Net impaired mortgages were just 0.35% of total mortgage assets compared to 0.23% a year ago

DIVIDEND DECLARATIONS

The Company's Board of Directors today declared a quarterly dividend in the amount of $0.14 per common share, payable January 3, 2013, to common shareholders of record at the close of business on December 14, 2012. This amount is consistent with the dividend increase announced last quarter and is 17% higher than the dividends declared in the third quarter of 2011. The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable December 31, 2012, to preferred shareholders of record at the close of business on December 14, 2012.

NINE MONTH SUMMARY

• Net income increased 35% to a record $61.1 million from $45.2 million in the same nine month period of 2011
• Diluted EPS increased 37% to $3.85 from $2.81 in the same period of 2011
• ROE increased to 19.2% from 16.4% a year ago

Adjusted for certain non-recurring items in 2011 and 2012, diluted EPS increased by 18% year-over-year. Similarly, adjusted ROE was 18.1% in the first nine months of 2012, compared with 17.7% for 2011.

LOOKING AHEAD

Equitable is on track for another year of record earnings based on recent growth in the mortgage portfolio, relatively stable interest rate spreads (total NIM was 1.49% in the third quarter) and expectations of low realized loan losses. While it continues to closely monitor economic and credit market conditions and has prepared for softening in residential real estate prices through its responsive loan-to-value approach and other risk mitigation strategies, Equitable's outlook remains positive.

"In addition to new opportunities we've created for ourselves through our focus on customer and mortgage broker service leadership, we foresee added growth potential from two other developments," said Mr. Moor. "One, recent changes in the single family mortgage market may result in more self-employed borrowers seeking mortgages in the alternative lending channel. And two, we have developed a new approach to originate insured mortgages and securitize them. The new approach will allow us to resume growth in this part of our business. Combined, we expect to continue to capitalize on the expanded market available to us as a financially strong alternative mortgage lender."

Subsequent to third quarter end, Equitable closed a private placement offering of $65 million of Series 10 5.399% debentures due October 23, 2017. As a result, the Company has secured capital in anticipation of upcoming maturities and in advance of new rules for capital instruments coming into effect for most Canadian financial institutions in 2013.

"This successful offering served to reinforce our already strong capital base," said Tim Wilson, Vice President and CFO, "and will deliver interest expense savings as existing debt is redeemed due to the 118 basis point lower coupon rate on this debt compared to the average of our existing debt. We are very confident that our current capital position combined with future earnings will provide us with the means to fully support our strategic objectives and ongoing growth."

Q3 CONFERENCE CALL

The Company will hold its third quarter conference call and webcast at 10:00 a.m. ET Wednesday, November 14, 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 November 28, 2012 and it can be accessed by dialing 416-640-1917 and entering passcode 4566190 followed by the number sign. The webcast will also be archived on the Company's website for three months.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (unaudited)
AS AT SEPTEMBER 30, 2012
With comparative figures as at December 31, 2011, September 30, 2011
($ THOUSANDS)
	September 30, 2012		December 31, 2011		September 30, 2011
Assets
Cash and cash equivalents	$	356,082	$	170,845	$	173,122
Restricted assets		99,874		83,156		80,050
Securities purchased under reverse repurchase agreements		59,827		9,967		151,268
Investments		467,108		390,340		398,736
Mortgages receivable		5,063,558		4,262,147		4,121,858
Mortgages receivable - securitized		5,157,960		5,314,940		5,301,081
Securitization retained interests		2,199		-		-
Other assets		21,422		25,618		28,276
	$	11,228,030	$	10,257,013	$	10,254,391
Liabilities and Shareholders' Equity
Liabilities:
Deposits	$	5,546,360	$	4,627,904	$	4,671,138
Securitization liabilities		5,100,972		5,100,921		5,077,052
Obligations related to securities sold short		1,964		-		-
Deferred tax liabilities		6,402		7,790		7,930
Other liabilities		25,488		28,587		24,666
Bank term loans		12,500		12,500		12,500
Subordinated debentures		52,671		52,671		52,671
		10,746,357		9,830,373		9,845,957
Shareholders' equity:
Preferred shares		48,494		48,494		48,494
Common shares		131,598		129,771		129,193
Contributed surplus		5,094		4,718		4,538
Retained earnings		306,629		254,006		239,689
Accumulated other comprehensive loss		(10,142)		(10,349)		(13,480)
		481,673		426,640		408,434
	$	11,228,030	$	10,257,013	$	10,254,391

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2012
With comparative figures for the three and nine month periods ended September 30, 2011
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)
	Three months ended					Nine months ended
	September 30, 2012		September 30, 2011			September 30, 2012		September 30, 2011
Interest income:
Mortgages	$	63,069	$		53,627	$	179,229	$	151,950
Mortgages - securitized		54,194			54,470		162,250		159,232
Investments		2,274			2,624		7,400		7,551
Other		1,445			977		4,011		3,244
		120,982			111,698		352,890		321,977
Interest expense:
Deposits		33,455			29,992		95,393		84,984
Securitization liabilities		45,802			45,757		138,651		135,136
Bank term loans		204			205		609		608
Subordinated debentures		878			880		2,615		2,612
Other		3			105		8		212
		80,342			76,939		237,276		223,552
Net interest income		40,640			34,759		115,614		98,425
Provision for credit losses		1,872			1,991		5,792		6,146
Net interest income after provision for credit losses		38,768			32,768		109,822		92,279
Other income:
Fees and other income		983			925		2,969		2,569
Net gain on investments		389			121		692		108
Gains on securitization activities and income from         retained interests		857			-		857		-
		2,229			1,046		4,518		2,677
Net interest and other income		40,997			33,814		114,340		94,956
Non-interest expenses:
Compensation and benefits		7,298			5,849		20,833		16,862
Other		5,401			9,895		16,093		17,746
		12,699			15,744		36,926		34,608
Income before income taxes and the undernoted fair value loss		28,298			18,070		77,414		60,348
Fair value loss on derivative financial instruments -       securitization activities		-			(368)		(34)		(1)
Income before income taxes		28,298			17,702		77,380		60,347
Income taxes:
Current		6,508			3,866		17,701		14,342
Deferred		736			473		(1,388)		844
		7,244			4,339		16,313		15,186
Net income	$	21,054	$		13,363	$	61,067	$	45,161
Earnings per share:
Basic	$	1.34	$		0.83	$	3.88	$	2.84
Diluted	$	1.33	$		0.82	$	3.85	$	2.81

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2012
With comparative figures for the three and nine month periods ended September 30, 2011
($ THOUSANDS)
	Three months ended									Nine months ended
	September 30, 2012				September 30, 2011					September 30, 2012						September 30, 2011
Net income	$	21,054			$	13,363				$	61,067					$	45,161
Other comprehensive loss:
Available for sale investments:
Net unrealized gains (losses) from change in fair value		1,387				(2,474)					1,438						(76)
Reclassification of net gains to income		(449)				(256)					(1,587)						(246)
		938				(2,730)					(149)						(322)
Income tax (expense) recovery		(245)				766					39						90
		693				(1,964)					(110)						(232)
Cash flow hedges (Note 8)
Net unrealized losses from change in fair value		(952)				(12,982)					(1,311)						(16,457)
Reclassification of net losses (gains) to income		602				(235)					1,741						(248)
		(350)				(13,217)					430						(16,705)
Income tax recovery (expense)		90				3,707					(113)						4,686
		(260)				(9,510)					317						(12,019)
Total other comprehensive gain (loss)		433				(11,474)					207						(12,251)
Total comprehensive income	$	21,487			$	1,889				$	61,274					$	32,910

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2012
With comparative figures for the three month period ended September 30, 2011
($ THOUSANDS)
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
September 30, 2011	Preferred shares		Common shares		Contributed surplus		Retained earnings		Accumulated other comprehensive income (loss)			Total
Balance, beginning of period	$	48,494	$	129,054	$	4,292	$	228,881	$	(2,006)	$	408,715
Net income		-		-		-		13,363		-		13,363
Other comprehensive loss, net of tax		-		-		-		-		(11,474)		(11,474)
Reinvestment of dividends		-		139		-		-		-		139
Exercise of stock options		-		-		-		-		-		-
Dividends:
Preferred shares		-		-		-		(907)		-		(907)
Common shares		-		-		-		(1,648)		-		(1,648)
Stock-based compensation		-		-		246		-		-		246
Transfer relating to the exercise of stock options		-		-		-		-		-		-
Balance, end of period	$	48,494	$	129,193	$	4,538	$	239,689	$	(13,480)	$	408,434

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2012
With comparative figures for the nine month period ended September 30, 2011
($ THOUSANDS)
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
September 30, 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		-		-		-		45,161		-		45,161
Other comprehensive loss, net of tax		-		-		-		-		(12,251)		(12,251)
Reinvestment of dividends		-		415		-		-		-		415
Exercise of stock options		-		599		-		-		-		599
Dividends:
Preferred shares		-		-		-		(2,719)		-		(2,719)
Common shares		-		-		-		(4,940)		-		(4,940)
Stock-based compensation		-		-		714		-		-		714
Transfer relating to the exercise of stock options		-		111		(111)		-		-		-
Balance, end of period	$	48,494	$	129,193	$	4,538	$	239,689	$	(13,480)	$	408,434

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2012
With comparative figures for the three and nine month periods ended September 30, 2011
($ THOUSANDS)
	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period	$	21,054	$	13,363	$	61,067	$	45,161
Adjustments to determine cash flows relating to operating activities:
Financial instruments at fair value through income		358		3,537		14,347		4,636
Securitization gains		(846)		-		(846)		-
Depreciation of capital assets		249		256		718		493
Provision for credit losses		1,872		1,991		5,792		6,146
Net loss (gain) on sale or redemption of investments		120		(105)		(141)		(92)
Income taxes		7,244		4,339		16,384		15,186
Income taxes paid		(3,883)		(4,861)		(14,138)		(14,402)
Stock-based compensation		229		246		592		714
Amortization of premiums/discount on investments		945		834		1,621		2,506
Net increase in mortgages receivable		(411,409)		(558,341)		(817,312)		(1,208,823)
Net increase in deposits		314,757		416,867		918,456		792,285
Change in obligations related to securities under repurchase agreements		448		(34,298)		1,964		-
Net change in securitization liabilities		24,649		300,811		51		545,372
Net interest income, excluding non-cash items		(47,197)		(44,862)		(154,521)		(135,840)
Interest paid		(76,298)		(66,088)		(218,937)		(184,246)
Other assets		961		(22,374)		1,019		(27,467)
Other liabilities		(959)		(2,200)		(4,815)		(2,235)
Interest received		121,352		108,356		352,779		312,609
Dividends received		2,143		2,594		20,683		7,477
Cash flows (used in) from operating activities		(44,211)		120,065		184,763		159,480
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on preferred shares		(907)		(907)		(2,719)		(2,719)
Dividends paid on common shares		(1,915)		(1,509)		(5,148)		(4,527)
Proceeds from issuance of common shares		306		-		1,034		599
Cash flows used in financing activities		(2,516)		(2,416)		(6,833)		(6,647)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments		(112,331)		(66,260)		(179,863)		(125,982)
Proceeds on sale or redemption of investments		53,303		49,538		112,822		83,887
Net change in Canada Housing Trust re-investment accounts		(16,467)		(13,430)		(23,913)		(20,961)
Purchase of securities under reverse repurchase agreements		(59,827)		(151,268)		(201,100)		(181,376)
Proceeds on sale or redemption of securities under reverse repurchase agreements		101,351		5,115		151,240		105,016
Change in restricted cash		(33,337)		(31,704)		(16,718)		6,520
Proceeds from loan securitizations		165,187		-		165,187		-
Securitization retained interest		38		-		38		-
Purchase of capital assets		(145)		(1,242)		(386)		(2,057)
Cash flows from (used in) investing activities		97,772		(209,251)		7,307		(134,953)
Net increase (decrease) in cash and cash equivalents		51,045		(91,602)		185,238		17,880
Cash and cash equivalents, beginning of period		305,037		264,724		170,845		155,242
Cash and cash equivalents, end of period	$	356,082	$	173,122	$	356,082	$	173,122

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 actively originates mortgages across Canada. It serves single family, small and large commercial borrowers and their mortgage advisors. It also serves the investing public as a provider of insured Guaranteed Investment Certificates. Equitable Trust is active in providing GICs across all Canadian provinces and territories. 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 "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.

SOURCE: Equitable Group Inc.

Andrew Moor
President and CEO
416-513-7000     

Tim Wilson
Vice President and CFO
416-513-7000