EQUITABLE REPORTS RECORD ANNUAL AND FOURTH QUARTER 2010 EARNINGS

Conventional Mortgage Production Momentum Drives Gains.

TSX Symbols: ETC and ETC.PR.A

TORONTO, Feb. 23 /CNW/ - Equitable Group Inc. ("Equitable" or the "Company") today reported record earnings for the three and 12 months ended December 31, 2010 as it capitalized on strategic growth in mortgage production.

FOURTH QUARTER HIGHLIGHTS

  • Conventional mortgage production increased 47.4% to $393.4 million from $266.9 million in the fourth quarter of 2009 on the strength of $288.8 million in conventional single family production - a 78.3% year-over-year increase;
  • Pre-tax net income of $20.8 million increased 18.8% over the fourth quarter of 2009;
  • Net income of $16.2 million increased 19.0% and 3.7%, respectively, compared to $13.6 million in the third quarter of 2010 and $15.6 million a year ago; net income available to common shareholders of $15.2 million ($1.01 per diluted share) increased 20.4% and 6.2%, respectively, compared to $12.7 million ($0.84 per diluted share) in the third quarter of 2010 and $14.4 million ($0.96 per diluted share) a year ago;
  • Net interest income on a taxable equivalent basis ("TEB") increased 22.1% to $27.3 million from $22.4 million in the corresponding quarter of the prior year while net interest margin ("NIM") on a TEB was a healthy 2.4% in both periods;
  • Return on equity was 16.4% compared to 14.1% in the third quarter of 2010 and 17.9% in the same period of 2009 (which benefitted from certain one-time tax adjustments);
  • Productivity ratio on a TEB - a measure of efficiency - was 25.0%, an improvement from 26.3% in the third quarter of 2010 and 25.1% a year ago despite record single family residential mortgage production.

ANNUAL HIGHLIGHTS

  • Total mortgage production was $2.5 billion, 8.7% ahead of 2009 as single family conventional mortgage production increased 164.5% year over year to a record $1.02 billion;
  • Net income increased 5.5% to $54.3 million from $51.4 million in 2009; net income available to common shareholders increased 0.8% to $50.6 million ($3.38 per diluted share) from $50.2 million ($3.36 per diluted share) in 2009;
  • Net interest income on a TEB increased 29.8% to $99.3 million, from $76.5 million in 2009, while average NIM on a TEB increased to 2.4% compared to 1.9% in 2009;
  • Return on average assets was 1.3%, even with 2009, and return on equity was 14.5% compared to 17.0% in 2009;
  • Productivity ratio on a TEB was 26.6% compared to 24.9% in 2009;
  • Total capital ratio including general allowance was 16.9% versus 17.6% a year ago;
  • Book value per share increased 14.9% to $25.09 from $21.83 a year ago.

DIVIDEND DECLARATIONS

The Company's Board of Directors declared a dividend of $0.11 per share on the Company's common shares, which is the first increase to the Company's quarterly dividend since early 2006. This dividend is payable April 4, 2011 to common shareholders of record at the close of business on March 15, 2011.

The Board also declared a preferred share dividend of $0.453125 per share, payable March 31, 2011 to preferred shareholders of record on March 15, 2011.

MANAGEMENT COMMENTARY

"Equitable completed 2010 - our 40th year in business - by achieving a new production milestone in Single Family Lending Services, complementing that with best ever origination volumes in our Commercial Mortgage - Broker Services business and successfully shifting our focus to on-balance sheet mortgage lending activity," said Andrew Moor, President and CEO. "These achievements are meaningful because they not only contributed to record results in 2010 - more than offsetting the impact of significantly lower securitization earnings in the year - they gave us earnings momentum heading into 2011, which is evident in the net income and EPS levels of the third and fourth quarters of 2010. We are particularly pleased with the high quality nature of mortgages funded, and the early success of our lending business in Quebec and British Columbia. We have achieved these gains in market share through dedicated focus on providing superior service to our brokers and customers - an approach to business that we intend to improve further in years to come."

Single family residential mortgages now represent the largest component of Equitable's lending businesses at almost 45% of total mortgage principal, up from 30.2% in 2009. Equitable has increased its focus on this segment to take advantage of its strengths and competitive advantages in single family residential mortgage lending and to optimize ROE.

MORTGAGE PORTFOLIO HIGHLIGHTS

  • Single Family Lending Services originated $288.8 million of conventional mortgages in the fourth quarter, compared to $161.9 million in the same period of 2009, and $1.02 billion for all of 2010 compared to $386.3 million in 2009;
  • Commercial Mortgage - Broker Services originated $67.2 million of mortgages in the fourth quarter compared to $42.6 million in the fourth quarter of 2009 and $283.7 million for all of 2010 compared to $105.7 million in 2009;
  • Commercial Lending Services originated $224.1 million of mortgages in the fourth quarter compared to $430.7 million in 2009's fourth quarter, and for all of 2010, originated $909.3 million compared to $1.8 billion in 2009 (when its securitization of CMHC-insured multi-unit residential mortgages was being conducted at higher volumes);
  • Fixed-rate mortgages represented 78.5% of the mortgage portfolio at year end compared to 70.1% a year earlier, while floating rate mortgages with no interest rate floors amounted to 10.4% compared to 15.6% a year earlier;
  • Mortgage principal increased 25.5% to $3.5 billion at December 31, 2010 compared to $2.8 billion at year end 2009.

Equitable also earns interest from the recurring cash flows it receives on its securitized loan portfolio. The total securitized portfolio grew 14.9% to $4.7 billion at December 31, 2010 compared to $4.1 billion a year ago. The Company securitized and sold $235.2 million of CMHC-insured mortgages in the fourth quarter of 2010 compared to $344.9 million in the corresponding quarter of 2009. Lower volumes and securitization spreads (which were 90 basis points in the fourth quarter of 2010 compared to 118 basis points a year earlier) were offset by fair value gains on hedges and gains made on the sale of replacement assets. Total income from loan securitizations in the fourth quarter of $4.9 million was consistent with that of the fourth quarter of 2009.

CREDIT QUALITY

Effective mortgage administration and collections practices, as well as relatively stable real estate market conditions within Equitable's lending regions, allowed the Company to minimize credit losses and maintain strong control over its arrears. Net impaired mortgages were 0.85% of total mortgage principal at the end of 2010, compared to 1.20% at the end of 2009. Net realized loan losses of $3.3 million incurred during 2010 were charged against specific allowances and primarily related to the successful completion of loan workout activities.  Although mortgages in arrears 90 days or more increased to 1.05% of total mortgage principal outstanding at December 31, 2010 from 0.64% a year earlier, approximately $8.9 million of the $36.5 million mortgages in arrears 90 days or more were worked out through property sales or were otherwise brought up to date during January 2011. Removing this $8.9 million from arrears at December 31, 2010 improved the ratio of mortgages in arrears 90 days or more to 0.79% of total mortgage principal. Management expects arrears and net impaired mortgage levels to remain stable on a relative basis through 2011.

LOOKING AHEAD

"We believe 2011 will offer growth opportunities for us despite expectations of softer real estate market conditions compared to 2010," said Mr. Moor. "As such, we will continue to focus on growing our core mortgage lending businesses, while maintaining our lending risk management discipline and delivering ever improving customer service levels. We are confident that we have the right people in place, operating with a proven business strategy, to grow the business in 2011."

Mr. Moor added that the Company's key operating priorities for 2011 include optimizing ROE adjusted for risk by growing the lending businesses in which the Company has the best opportunity to earn attractive and sustainable risk-adjusted returns; investing in the continuous improvement of processes and operating efficiencies; and protecting shareholder value by operating prudently through strong management of the Company's business risks, managing mortgage arrears; and maintaining optimal levels of regulatory capital and liquidity. The Company's financial objectives for 2011 include continued growth in ROE and EPS, as investments in people and infrastructure made in 2010 and earlier result in long term growth and profitability.

John Ayanoglou, Senior Vice-President and Chief Financial Officer commented: "Equitable is fully capable of supporting our objectives for 2011. At year end, our total capital ratio of 16.9% including general allowance, Tier 1 capital ratio of 14.3% and tangible common equity ratio of 12.6% all reflected our focus on maintaining a high level of financial health and liquidity in our business. We will apply the same discipline to ensure we end 2011 as we started - with obvious financial strength."

Q4 CONFERENCE CALL

The Company will hold its fourth quarter conference call and webcast at 10:00 a.m. ET Thursday, February 24. To access the call live, please dial in five minutes prior to 416-644-3416.  To access a listen-only version of the webcast, please log on to www.equitablegroupinc.com.

A replay of the call will be available until March 3, 2011 and it can be accessed by dialing 416-640-1917 and entering passcode 4409125 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.

CONSOLIDATED BALANCE SHEETS                          
($ THOUSANDS)                    
                        
As at December 31           2010          2009
       
 
 
 
   
 
 
 
Assets                      
Cash and cash equivalents       $    163,797     $    395,835
Restricted cash           8,965         5,000
Investments purchased under reverse repurchase agreements           74,908         129,721
Investments            569,590          388,037
Securitization retained interests           153,567          147,195
Mortgages receivable           3,468,607         2,763,020
Other assets           14,032         17,266
        $   4,453,466     $   3,846,074
                       
                       
Liabilities and Shareholders' Equity                      
Liabilities:                      
  Customer deposits       $   3,878,853     $   3,332,319
  Future income taxes           22,163         19,999
  Other liabilities           63,817         54,724
  Bank term loans           12,500          27,500
  Subordinated debentures           52,671          37,671
            4,030,004         3,472,213
                       
Shareholders' equity:                      
  Preferred shares           48,523         48,523
  Common shares           128,156         127,424
  Contributed surplus           3,935         3,267
  Retained earnings           238,307          193,635
  Accumulated other comprehensive income           4,541          1,012
            423,462          373,861
Commitments and contingencies                      
        $     4,453,466     $    3,846,074

CONSOLIDATED STATEMENTS OF INCOME                      
($ THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)                      
                       
Years ended December 31           2010          2009 
                       
                       
Interest income:                      
  Mortgages       $   176,540     $   162,991
  Investments           16,029         13,548
  Other           2,744         3,599
            195,313         180,138
                       
Interest expense:                      
  Customer deposits           87,871         94,322
  Deposit agent commissions           8,591         7,149
  Bank term loans
          2,059         3,188
  Subordinated debentures           2,626         2,310
  Other           120         
            101,267          106,969 
Net interest income           94,046         73,169
Provision for credit losses           7,826         6,600
Net interest income after provision for credit losses           86,220         66,569
Other income:                      
  Fees and other income           2,882         3,246
  Net gain on investments           230         50
  Gains on securitization activities and income from retained interests           12,691         24,390
            15,803         27,686
Net interest income and other income           102,023         94,255
Non-interest expenses:                      
  Compensation and benefits           18,599         15,367
  Other           11,979         10,540
            30,578         25,907
Income before income taxes           71,445         68,348
Income taxes:                      
  Current           16,466         12,660
  Future           712         4,250
            17,178         16,910
Net income           54,267         51,438
Dividends on preferred shares           3,625          1,212
Net income available to common shareholders       $   50,642      $   50,226
                       
Weighted average number of shares outstanding:                      
  Basic           14,922,26         14,888,79
  Diluted           14,998,83         14,928,90
Earnings per share:                      
  Basic       $   3.39     $   3.37
  Diluted       $   3.38     $   3.36
 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                      
($ THOUSANDS)                      
                       
Years ended December 31           2010         2009
                       
Preferred shares:                      
  Balance, beginning of year       $   48,523     $   -
  Gross proceeds of equity issue, Series 1           -         50,000
  Issue expenses, net of tax recovery of nil (2009 − $638)           -         (1,477)
  Balance, end of year           48,523         48,523
                       
Common shares:                      
  Balance, beginning of year           127,424         126,993
  Proceeds from reinvestment of dividends           357         189
  Proceeds from exercise of stock options           318         195
  Transferred from contributed surplus relating to the exercise of stock options           57         47
  Balance, end of year           128,156         127,424
                       
Contributed surplus:                      
  Balance, beginning of year           3,267         2,553
  Stock-based compensation           725         761
  Transferred to common shares relating to the exercise of stock options           (57)         (47)
  Balance, end of year           3,935         3,267
                       
Retained earnings:                      
  Balance, beginning of year           193,635         149,365
  Net income           54,267          51,438
  Dividends                      
      Preferred shares           (3,625)         (1,212)
      Common shares           (5,970)         (5,956)
  Balance, end of year           238,307         193,635
                       
Accumulated other comprehensive income:                      
  Balance, beginning of year           1,012         (14,765)
  Other comprehensive income           3,529         15,777
  Balance, end of year           4,541         1,012
Total retained earnings and accumulated other comprehensive income           242,848         194,647
Total shareholders' equity       $   423,462     $   373,861

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                      
($ THOUSANDS)                      
                       
Years ended December 31           2010         2009
                       
Net income       $   54,267     $   51,438
Other comprehensive income, net of tax:                      
  Available for sale investments:                      
      Net unrealized gains from change in fair value           8,635         19,324
      Reclassification of net gains to income           (5,106)         (3,547)
Other comprehensive income           3,529         15,777
Comprehensive income       $   57,796     $   67,215
                       

CONSOLIDATED STATEMENTS OF CASH FLOWS                      
($ THOUSANDS)                      
                       
Years ended December 31           2010         2009
                       
Cash provided by (used in):                      
Operating activities:                      
    Net income       $   54,267     $   51,438
    Non-cash items:                      
        Financial instruments − fair value adjustments           (1,183)         2,572
        Securitization gains           (8,760)         (20,221)
        Amortization of capital assets           609         605
        Provision for credit losses           7,826         6,600
        Net loss (gain) on investments           2,504         (27)
        Future income taxes           2,164         2,798
        Stock-based compensation           725         761
        Amortization of premiums on investments, net           2,113         803
            60,265         45,329
                       
    Changes in operating assets and liabilities:                      
        Other assets           774         5,783
        Other liabilities           (4,010)         (6,312)
            57,029         44,800
                       
Financing activities:                      
    Increase (decrease) in customer deposits           546,534         (355,328)
    Repayment of bank term loan           (15,000)         (17,095)
    Issuance of subordinated debentures           20,000         23,221 
    Redemption of subordinated debentures           (5,000)         (17,519)
    Dividends paid on preferred shares           (3,625)         (1,212)
    Dividends paid on common shares           (5,612)         (5,765)
    Issuance of preferred shares           -         47,885
    Issuance of common shares           318         195
            537,615         (325,618)
                       
Investing activities:                      
    Purchase of investments           (524,988)         (239,098)
    Proceeds on sale or redemption of investments           499,318         248,080
    Purchase of investments purchased under reverse repurchase agreements           (364,189)         (941,681)
    Proceeds on sale or redemption of investments purchased under reverse
repurchase agreements
          419,002         1,510,236
    Change in restricted cash           (3,965)         3,422
    Increase in mortgages receivable           (2,977,263)         (2,838,218)
    Mortgage principal repayments           1,255,691         1,454,319
    Proceeds from loan securitizations           830,864         1,402,222
    Securitization retained interests           39,377         27,530
    Purchase of capital assets           (529)         (280)
            (826,682)         626,532 
                       
(Decrease) increase in cash and cash equivalents           (232,038)         345,714
Cash and cash equivalents, beginning of year           395,835         50,121
Cash and cash equivalents, end of year       $   163,797     $   395,835
                       
Supplemental cash flow information:                      
    Interest paid       $   79,218     $   102,811 
    Income taxes paid           16,329         15,767
                       

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. is a niche mortgage lender. Our core 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 serves single family, small and large commercial borrowers and their mortgage advisors. It also serves the investing public as a provider of Guaranteed Investment Certificates. Equitable is active in providing GICs across all Canadian provinces and territories. We actively originate mortgages across Canada, with offices in Ontario, Alberta and Quebec. Equitable Group's common and preferred shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A, respectively. Visit the Company on line at www.equitablegroupinc.com or www.equitabletrust.com.

Certain forward-looking statements are made in this news release, including statements found in the "Management Commentary", "Credit Quality" and "Looking Ahead" sections, above, regarding possible future business. Investors are cautioned that such forward-looking statements involve risks and uncertainties detailed from time to time in the Company's periodic reports filed with Canadian regulatory authorities. 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. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by these assumptions and the related forward-looking statements. Equitable does not undertake to update any forward-looking statements, oral or written, made by itself or on its behalf except in accordance with applicable securities laws. See the MD&A for further information on forward-looking statements.


SOURCE Equitable Group Inc.

For further information:

John Ayanoglou
Senior Vice-President and Chief Financial Officer
416-513-3535


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