Equitable Group Reports Strong Second Quarter 2012 Earnings, 17% Common Share Dividend Increase

TORONTO, Aug. 9, 2012 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported record financial performance for the six months ended June 30, 2012 and announced a 17% increase in its common share dividend in recognition of its strong growth prospects and capital position.

As a result of strong long-term growth, the Company also noted that its mortgage portfolio has doubled in size in the past five years, reaching the $10 billion milestone at June 30, 2012.

SECOND QUARTER HIGHLIGHTS

• Net income increased 40% to $22.1 million from $15.7 million in the second quarter of 2011
• Diluted earnings per share ("EPS") increased 43% to $1.40 from $0.98 in the second quarter of 2011
• Return on equity ("ROE") increased to 21.1% from 16.8% a year ago
• Equitable Trust's period-end total capital ratio was 15.6%

"Equitable's outstanding performance in the second quarter reflected our growing marketplace advantages as a national, service-oriented mortgage lender," said Andrew Moor, President and Chief Executive Officer. "Once again, we grew mortgage principal in every one of our lending businesses compared to a year ago, led by a 37% increase in Single Family, which also generated 65% growth in production in the quarter year over year. Our ability to expand at low cost without compromising credit quality is a demonstration of the strength of our value creation strategies and great execution by our dedicated team."

Consistent with previous disclosures, results in the second quarter of 2012 included a $0.24 per share [diluted] gain related to one of the Company's securities portfolio holdings. The gain was reflected in a lower effective tax rate of 13.1% in the second quarter.  Adjusted for this gain, second quarter net income increased 17% to $18.5 million from $15.7 million a year ago, EPS increased 18% to $1.16 from $0.98 a year ago and ROE increased to 17.5% from 16.8% a year ago.

OTHER SECOND QUARTER HIGHLIGHTS

Equitable continued to capitalize on its strong competitive position and expanding national presence to drive growth in mortgage balances across its lending lines:

• Single Family Lending Services mortgage principal was a record $2.5 billion at June 30, up 37% from a year earlier
  
  
• Single Family Lending Services second quarter production of $483 million was up 65% or $189 million from a year ago, reflecting the strength of Equitable's relationships with its mortgage broker network, strong activity in real estate markets and changes in the competitive environment
  
  
• Commercial Lending Services mortgage principal was $2.2 billion at June 30, $224 million or 12% higher than at the end of the second quarter of 2011.  Second quarter production was $157 million, up 32% or $38 million from a year ago
  
  
• Securitization Financing mortgage principal increased $261 million or 5% year over year to $5.2 billion at June 30, a rate of growth that reflects the Company's focus on achieving attractive risk-adjusted returns from Core Lending activities and placing less emphasis on securitized multi-unit residential mortgages

As a result of the rigorous application of its underwriting policies and the availability of high quality lending opportunities, Equitable posted excellent credit metrics in the second quarter:

• Mortgage principal in arrears 90 days or more was 0.22% of total mortgage principal, an improvement from 0.27% a year ago
• Net impaired mortgages improved to 0.27% of total mortgage assets from 0.29% a year ago

The Company also recognized a net recovery of $20 thousand during the second quarter of 2012, continuing a long-term trend of realizing minimal or no loan losses.

DIVIDEND DECLARATIONS

The Company's Board of Directors today declared a quarterly dividend in the amount of $0.14 per common share, payable October 4, 2012, to common shareholders of record at the close of business on September 15, 2012. This represents a 17% increase in the Company's quarterly common share dividend - the third dividend increase since the beginning of 2011.  The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable September 30, 2012, to preferred shareholders of record at the close of business on September 15, 2012.

SIX MONTH HIGHLIGHTS

• Net income increased 26% to $40.0 million from $31.8 million in the first six months of 2011
• EPS increased 27% to $2.52 from $1.99 in the same period of 2011
• ROE increased to 19.4% from 17.4% a year ago
• Book value per share increased 14% to $27.46 from $24.05 at June 30, 2011

LOOKING AHEAD

Equitable's positive outlook includes expectations of strong earnings and ROE, healthy capital levels in the second half of 2012, and continued consumer demand for its mortgage solutions.

"We hope to set new earnings records in 2012 and have calibrated our strategies to ensure we capitalize on our recent momentum without deviating from our underwriting comfort zone," said Mr. Moor. "We are cognizant of heightened marketplace risk but by continuing to channel our expansion into real estate property types in urban centres that are backstopped by strong fundamentals, including population growth and diversified economic drivers, we believe we can grow at a very attractive pace while maintaining our traditional risk profile and exceptionally low arrears. All things considered, the future has never looked brighter for Equitable."

Included in the Company's immediate term outlook are expectations that net interest margins (1.49% in the second quarter) will remain stable this year, its productivity ratio (30.6% in the second quarter) will continue to reflect efficient operations, and that recent marketplace developments may create opportunities for growing the business and expanding interest rate spreads in the single family business. Management is also hopeful that new transaction structures under discussion will allow the Company to increase its multi-unit residential originations well beyond current levels.

"The Company is well capitalized and we believe our earnings in future periods will generate adequate capital to support our strategic objectives including ongoing expansion of mortgage principal.  The Company will remain open to raising non-dilutive capital in the future to replace maturing obligations and to fund incremental growth opportunities if they arise, and our recent investment grade debt rating from DBRS would help us to do so at a lower cost," said Tim Wilson, Vice President and CFO.

Q2 CONFERENCE CALL

The Company will hold its second quarter conference call and webcast at 10:00 a.m. ET Friday August 10, 2012. To access the call live, please dial in five minutes prior to 416-644-3418. 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 August 17, 2012 and it can be accessed by dialing 416-640-1917 and entering passcode 4551299 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 JUNE 30, 2012
With comparative figures as at December 31, 2011, June 30, 2011
($ THOUSANDS)
			June 30, 2012		December 31, 2011		June 30, 2011
Assets
Cash and cash equivalents		$	305,037	$	170,845	$	264,724
Restricted cash			66,537		83,156		48,346
Securities purchased under reverse repurchase agreements			101,351		9,967		5,115
Investments			391,169		390,340		372,045
Mortgages receivable			4,723,293		4,262,147		3,865,669
Mortgages receivable - securitized			5,255,425		5,314,940		4,998,688
Other assets			24,719		25,618		12,768
		$	10,867,531	$	10,257,013	$	9,567,355
Liabilities and Shareholders' Equity
Liabilities:
	Deposits	$	5,231,603	$	4,627,904	$	4,254,271
	Securitization liabilities		5,076,323		5,100,921		4,776,241
	Obligations related to securities sold short		1,515		-		-
	Obligations related to securities sold under repurchase agreements		-		-		34,298
	Deferred tax liabilities		5,666		7,790		7,457
	Other liabilities		24,780		28,587		21,202
	Bank term loans		12,500		12,500		12,500
	Subordinated debentures		52,671		52,671		52,671
			10,405,058		9,830,373		9,158,640
Shareholders' equity:
	Preferred shares		48,494		48,494		48,494
	Common shares		131,045		129,771		129,054
	Contributed surplus		4,913		4,718		4,292
	Retained earnings		288,596		254,006		228,881
	Accumulated other comprehensive loss		(10,575)		(10,349)		(2,006)
			462,473		426,640		408,715
		$	10,867,531	$	10,257,013	$	9,567,355

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012
With comparative figures for the three and six month periods ended June 30, 2011
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)
		Three months ended				Six months ended
			June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Interest income:
	Mortgages	$	58,973	$	50,474	$	116,160	$	98,323
	Mortgages - securitized		53,598		52,610		108,057		104,762
	Investments		2,878		2,648		5,126		4,927
	Other		1,340		1,242		2,566		2,267
			116,789		106,974		231,909		210,279
Interest expense:
	Deposits		31,589		28,251		61,939		54,991
	Securitization liabilities		45,675		45,111		92,849		89,380
	Bank term loans		202		203		404		403
	Subordinated debentures		868		870		1,737		1,732
	Other		4		78		5		107
			78,338		74,513		156,934		146,613
Net interest income			38,451		32,461		74,975		63,666
Provision for credit losses			1,693		2,217		3,920		4,155
Net interest income after provision for credit losses			36,758		30,244		71,055		59,511
Other income:
	Fees and other income		981		790		1,986		1,644
	Net gain (loss) on investments		54		(311)		303		(13)
			1,035		479		2,289		1,631
Net interest and other income			37,793		30,723		73,344		61,142
Non-interest expenses:
	Compensation and benefits		6,965		5,540		13,535		11,013
	Other		5,354		4,208		10,693		7,850
			12,319		9,748		24,228		18,863
Income before income taxes and the undernoted fair value (loss) gain			25,474		20,975		49,116		42,279
Fair value (loss) gain on derivative financial instruments - securitization activities			(85)		48		(34)		367
Income before income taxes			25,389		21,023		49,082		42,646
Income taxes:
	Current		4,258		5,149		11,193		10,476
	Deferred		(942)		139		(2,124)		371
			3,316		5,288		9,069		10,847
Net income		$	22,073	$	15,735	$	40,013	$	31,799
Earnings per share:
	Basic	$	1.41	$	0.99	$	2.54	$	2.00
	Diluted	$	1.40	$	0.98	$	2.52	$	1.99

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012
With comparative figures for the three and six month periods ended June 30, 2011
($ THOUSANDS)
	Three months ended				Six months ended
		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Net income	$	22,073	$	15,735	$	40,013	$	31,799
Other comprehensive loss:
Available for sale investments:
Net unrealized (losses) gains from change in fair value		(782)		1,255		51		2,399
Reclassification of net (gains) losses to income		(55)		275		(1,137)		10
		(837)		1,530		(1,086)		2,409
Income tax		219		(429)		284		(676)
		(618)		1,101		(802)		1,733
Cash flow hedges (Note 8)
Net unrealized losses from change in fair value		(1,387)		(5,143)		(359)		(3,476)
Reclassification of net losses (gains) to income		547		6		1,139		(13)
		(840)		(5,137)		780		(3,489)
Income tax		219		1,441		(204)		979
		(621)		(3,696)		576		(2,510)
Total other comprehensive loss		(1,239)		(2,595)		(226)		(777)
Total comprehensive income	$	20,834	$	13,140	$	39,787	$	31,022

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2012
With comparative figures for the three month period ended June 30, 2011
($ THOUSANDS)
June 30, 2012		Preferred shares		Common shares		Contributed surplus		Retained earnings		Accumulated other comprehensive income (loss)			Total
Balance, beginning of period		$	48,494	$	130,251	$	4,813	$	269,235	$	(9,336)	$	443,457
Net income			-		-		-		22,073		-		22,073
Other comprehensive loss, net of tax			-		-		-		-		(1,239)		(1,239)
Reinvestment of dividends			-		190		-		-		-		190
Exercise of stock options			-		491		-		-		-		491
Dividends:
	Preferred shares		-		-		-		(906)		-		(906)
	Common shares		-		-		-		(1,806)		-		(1,806)
Stock-based compensation			-		-		213		-		-		213
Transfer relating to the exercise of stock options			-		113		(113)		-		-		-
Balance, end of period		$	48,494	$	131,045	$	4,913	$	288,596	$	(10,575)	$	462,473
June 30, 2011		Preferred shares		Common shares		Contributed surplus		Retained earnings		Accumulated other comprehensive income (loss)			Total
Balance, beginning of period		$	48,494	$	128,369	$	4,169	$	215,700	$	589	$	397,321
Net income			-		-		-		15,735		-		15,735
Other comprehensive loss, net of tax			-		-		-		-		(2,595)		(2,595)
Reinvestment of dividends			-		149		-		-		-		149
Exercise of stock options			-		455		-		-		-		455
Dividends:
	Preferred shares		-		-		-		(906)		-		(906)
	Common shares		-		-		-		(1,648)		-		(1,648)
Stock-based compensation			-		-		204		-		-		204
Transfer relating to the exercise of stock options			-		81		(81)		-		-		-
Balance, end of period		$	48,494	$	129,054	$	4,292	$	228,881	$	(2,006)	$	408,715

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2012
With comparative figures for the six month period ended June 30, 2011
($ THOUSANDS)
June 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			-		-		-		40,013		-		40,013
Other comprehensive loss, net of tax			-		-		-		-		(226)		(226)
Reinvestment of dividends			-		378		-		-		-		378
Exercise of stock options			-		728		-		-		-		728
Dividends:
	Preferred shares		-		-		-		(1,812)		-		(1,812)
	Common shares		-		-		-		(3,611)		-		(3,611)
Stock-based compensation			-		-		363		-		-		363
Transfer relating to the exercise of stock options			-		168		(168)		-		-		-
Balance, end of period		$	48,494	$	131,045	$	4,913	$	288,596	$	(10,575)	$	462,473
June 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			-		-		-		31,799		-		31,799
Other comprehensive loss, net of tax			-		-		-		-		(777)		(777)
Reinvestment of dividends			-		276		-		-		-		276
Exercise of stock options			-		599		-		-		-		599
Dividends:
	Preferred shares		-		-		-		(1,812)		-		(1,812)
	Common shares		-		-		-		(3,293)		-		(3,293)
Stock-based compensation			-		-		468		-		-		468
Transfer relating to the exercise of stock options			-		111		(111)		-		-		-
Balance, end of period		$	48,494	$	129,054	$	4,292	$	228,881	$	(2,006)	$	408,715

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012
With comparative figures for the three and six month periods ended June 30, 2011
($ THOUSANDS)
		Three months ended				Six months ended
		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period		$	22,073	$	15,735	$	40,013	$	31,798
Adjustments to determine cash flows relating to operating activities:
	Financial instruments at fair value through income		12,153		1,000		13,989		1,099
	Depreciation of capital assets		238		173		469		237
	Provision for credit losses		1,693		2,217		3,920		4,155
	Net loss (gain) on sale or redemption of investments		(11)		311		(260)		13
	Income taxes		3,315		5,288		9,140		10,847
	Income taxes paid		(5,454)		(4,770)		(10,255)		(9,541)
	Stock-based compensation		213		204		363		468
	Amortization of premiums/discount on investments		(108)		887		676		1,672
	Net increase in mortgages receivable		(291,926)		(304,697)		(405,903)		(650,482)
	Net increase in deposits		371,056		221,880		603,699		375,418
	Change in obligations related to securities sold		1,515		-		1,515		-
	Change in obligations related to securities under repurchase agreements		-		34,298		-		34,298
	Net change in securitization liabilities		6,471		122,759		(24,597)		244,561
	Net interest income, excluding non-cash items		(52,573)		(43,732)		(107,324)		(90,975)
	Interest paid		(78,947)		(62,371)		(142,639)		(118,161)
	Other assets		250		(3,663)		59		(5,093)
	Other liabilities		(601)		2,158		(3,856)		(35)
	Interest received		115,493		103,570		231,427		204,253
	Dividends received		16,027		2,533		18,536		4,883
Cash flows from operating activities			120,877		93,780		228,972		39,415
CASH FLOWS FROM FINANCING ACTIVITIES
	Dividends paid on preferred shares		(906)		(906)		(1,812)		(1,812)
	Dividends paid on common shares		(1,616)		(1,499)		(3,233)		(3,018)
	Proceeds from issuance of common shares		491		455		728		599
Cash flows used in financing activities			(2,031)		(1,950)		(4,317)		(4,231)
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of investments		(47,532)		(20,071)		(67,532)		(59,722)
	Proceeds on sale or redemption of investments		12,789		13,406		59,519		34,349
	Net change in Canada Housing Trust re-investment accounts		19,227		(4,893)		(7,444)		(7,531)
	Purchase of securities under reverse repurchase agreements		(101,351)		(5,115)		(141,273)		(30,108)
	Proceeds on sale or redemption of securities under reverse repurchase agreements		39,922		24,993		49,889		99,901
	Change in restricted cash		23,710		(11,942)		16,619		38,224
	Purchase of capital assets		(91)		(735)		(241)		(815)
Cash flows (used in) from investing activities			(53,326)		(4,357)		(90,463)		74,298
Net increase in cash and cash equivalents			65,520		87,473		134,192		109,482
Cash and cash equivalents, beginning of period			239,517		177,251		170,845		155,242
Cash and cash equivalents, end of period		$	305,037	$	264,724	$	305,037	$	264,724

2011 ANNUAL REPORT

The Company wishes to clarify and correct the figure reported in its 2011 Annual Report, on page 25, Table 1: Selected Financial Information where Total liquid assets for 2011 were reported as "84,386" and the figure should have been "784,386".

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