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.

For further information:

Andrew Moor
President and CEO
416-513-7000     

Tim Wilson
Vice President and CFO
416-513-7000