Equitable Group reports first quarter 2010 results

    
                     - Single family production up 479%
                     - NIM increases to 2.5%
    

TSX Symbols: ETC and ETC.PR.A

TORONTO, May 11 /CNW/ - Equitable Group Inc. ("Equitable" or the "Company") today reported its financial results for the three months ended March 31, 2010 including a 478.7% year-over-year increase in single family mortgage originations, solid growth in net interest margin ("NIM") and the maintenance of its strong capital position.

FIRST QUARTER RESULTS

    
    -   NIM expanded to 2.5% from 1.6% a year ago, a peak last reached in
        2006;
    -   Net income was $12.0 million, compared to $11.9 million in the first
        quarter of 2009;
    -   Reflecting the payment of dividends on recently issued preferred
        share capital that is now being deployed to grow the business,
        diluted earnings were $0.74 per share compared to $0.80 per share a
        year ago and return on equity was 13.5% compared to 17.8% in the
        first quarter of 2009;
    -   Return on average assets improved to 1.3% from 1.2% a year ago;
    -   Productivity ratio on a taxable equivalent basis - a measure of
        efficiency - was 26.1% compared to 24.3% in the first quarter of 2009
        and remained well ahead of the ratios of Canada's chartered banks;
    -   Total capital ratio including general allowance improved to 17.5%
        compared to 14.3% at March 31, 2009;
    -   Tier 1 capital ratio improved to 14.6% from 10.8% a year ago;
    -   Tangible common equity ratio, a key measure of capital strength,
        improved to 12.7% from 10.8% a year ago;
    -   Book value per share increased 19.8% to $22.64 from $18.90 a year
        ago.
    

DIVIDEND DECLARATIONS

The Company's Board of Directors declared a quarterly dividend on the Company's common shares in the amount of $0.10 per share, payable on July 5, 2010, to shareholders of record at the close of business on June 15, 2010. The Board also declared a quarterly dividend on Equitable's Series 1 preferred shares in the amount of $0.453125 per share, payable June 30, 2010 to preferred shareholders of record on June 15, 2010.

MANAGEMENT COMMENTARY

"This was a solid start to 2010 that was consistent with our plan for the year," said Andrew Moor, President and CEO. "The clear highlight was the substantial growth achieved in both Single Family Lending and Commercial Mortgage - Broker Services production. We're pleased not only with the pace of growth, but with the quality of the mortgage assets originated, which together speak to strong demand in our niches, the success of our recently increased sales efforts and our disciplined underwriting practices. We're also very satisfied with NIM expansion, which reflects improved conditions in our traditional mortgage markets, our pricing strategies and the replacement of cashable GICs with less expensive funding. These initiatives have more than made up for the necessary burden of higher than normal levels of liquidity on our balance sheet, which safeguard the integrity of our institution. Underlying this progress was a transition aimed at increasing our on-balance sheet mortgage assets to take advantage of better relative returns. This transition has occurred somewhat faster than anticipated due to normalization of securitization market conditions compared to earlier periods, which had the effect of reducing available margin opportunities in segments of that business. While we will continue to transact securitizations at spreads that make economic sense, we have and intend to continue to successfully offset this market-driven change through robust on-balance sheet production in mortgage niches where we have clear and compelling strengths and advantages. Overall, we believe this ongoing expansion of on-balance sheet mortgage business will improve Equitable's positioning for quality earnings growth and ROE enhancements."

John Ayanoglou, Chief Financial Officer commented: "Due to significant enhancements made to our capital structure in 2009 including the issuance of preferred shares, as well as the support we continue to give to our capital position through the retention of earnings and our emphasis on single family residential mortgage assets - which require lower levels of regulatory capital than other forms of mortgage lending - we have significant capacity for additional growth. Consistent with our overall strategy, our expansion will be controlled and channeled to ensure good returns without excessive risk taking. So as robust as first quarter production was in Single Family and Broker Services, it's only the beginning of what's possible for Equitable given our strength."

MORTGAGE PORTFOLIO HIGHLIGHTS

    
    -   Single Family Lending Services funded $229.2 million of mortgages in
        the first quarter - compared to $39.6 million in the same period of
        2009, a 478.7% increase;
    -   Commercial Mortgage - Broker Services funded $62.8 million of
        mortgages in the first quarter of 2010, a more than eight fold or
        $55.7 million increase over the same period of 2009;
    -   Commercial Lending Services funded $202.5 million of mortgages in the
        first quarter of 2010 - $143.7 million of which were CMHC-insured
        multi-unit residential - compared to $485.5 million in the first
        quarter of 2009;
    -   At March 31, 2010, fixed-rate mortgages represented 71.0% of the
        mortgage portfolio compared to 52.4% a year ago while floating rate
        mortgages with no interest rate floors amounted to 14.5% compared to
        35.6% at March 31, 2009;
    -   Total mortgage fundings in the first quarter of 2010, excluding
        mortgages funded for securitization, were $319.8 million compared to
        $60.1 million in the same period of 2009.
    

Equitable also earns interest from the recurring cash flows it receives on its securitized mortgage portfolio. The Company securitized and sold $231.2 million of CMHC-insured mortgages in the first quarter of 2010 compared to $407.6 million in the same quarter of 2009, reflecting both lower volumes and gross margins. Gross margins on CMHC-insured mortgages decreased to 60 basis points from 118 basis points in the fourth quarter of 2009. The total securitized portfolio amounted to $4.3 billion at March 31, 2010 compared to $4.1 billion at December 31, 2009 and $3.2 billion at March 31, 2009.

CREDIT QUALITY

Mortgages in arrears 90 days or more (excluding CMHC-insured mortgages that are less than 365 days in arrears) were 1.24% of total principal outstanding compared to 1.49% at March 31, 2009 as the Company benefitted from the relative health of its mortgage portfolio and ongoing success in managing defaults. Mortgages in early stage delinquency - a leading indicator of credit quality in future periods - decreased to 0.44% of total outstanding principal at March 31, 2010 from 0.68% at year end 2009. In order to prudently provide for mortgages that were considered to be impaired at quarter end, the Company recorded $1.4 million in net additional allowances, which increased its allowance for credit losses as a percentage of total mortgage principal outstanding to 0.56% from 0.53% at year end 2009. Net impaired mortgages were 1.34% of total mortgage principal outstanding, compared to 1.20% at year end 2009. Net realized loan losses of $0.2 million were incurred in the first quarter.

LOOKING AHEAD

"We expect to drive strong growth in single family mortgage production at Equitable this year through our own sales efforts supported by surprisingly robust demand for residential real estate caused by exceptionally low interest rates and a recovering economy," said Mr. Moor. "With economic recovery comes the inevitable prospect of higher interest rates and in this regard, many economists anticipate the Bank of Canada will increase its benchmark rate next month and perhaps again later this year. All things considered, we continue to be aware of the potential for volatility in real estate markets, including risks of an asset bubble developing in certain regions. As a result, we will remain vigilant in managing our lending activities, including our risk appetite, to ensure we are not lending imprudently against unsustainable values in any of our niche markets."

Mr. Moor said there are a number of ways that higher interest rates could impact the Company's net interest margin, "both on the upside and downside, and while this combination of factors may result in some contraction in spread from the strong levels achieved in the first quarter, on balance, we are not expecting the impact to be significant."

To further enhance growth prospects, Equitable established an office in Montreal to originate commercial mortgages in Quebec.

FIRST QUARTER WEBCAST

Management will discuss Equitable's results during a conference call beginning at 9 a.m. ET on Wednesday, May 12. To listen to the audio webcast, log on to www.equitablegroupinc.com. To participate in the call, please dial 416-644-3421.

MD&A

The Company will post its first quarter 2010 MD&A on its website www.equitablegroupinc.com. This document will also be archived on the site.

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, serving single family, small and large commercial borrowers and their mortgage advisors. We actively originate mortgages in Ontario, Alberta, Manitoba, British Columbia and Quebec. We also serve the investing public as a provider of Guaranteed Investment Certificates and provide GICs across all Canadian provinces and territories. 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.

    
    INTERIM CONSOLIDATED FINANCIAL STATEMENTS


    CONSOLIDATED BALANCE SHEETS (unaudited)
    AS AT MARCH 31, 2010
    With comparative figures as at December 31, 2009 and March 31, 2009
    ($ THOUSANDS)

    -------------------------------------------------------------------------
                                        March 31,  December 31,     March 31,
                                            2010          2009          2009
    -------------------------------------------------------------------------

    Assets
    Cash and cash equivalents        $   275,053   $   395,835   $    17,236
    Restricted cash                        5,000         5,000         6,300
    Investment purchased under
     reverse repurchase agreements       149,876       129,721       540,693
    Investments                          409,214       388,037       270,269
    Securitization retained interests    150,283       147,195       122,734
    Mortgages receivable               2,840,231     2,763,020     2,895,085
    Other assets                          12,553        17,266        36,183
    -------------------------------------------------------------------------
                                     $ 3,842,210   $ 3,846,074   $ 3,888,500
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders'
     Equity
    Liabilities:
      Customer deposits              $ 3,282,827   $ 3,332,319   $ 3,471,953
      Obligations under repurchase
       agreements                         29,918             -             -
      Future income taxes                 21,070        19,999        20,196
      Other liabilities                   56,944        54,724        38,532
      Bank term loans                     27,500        27,500        44,595
      Subordinated debentures             37,671        37,671        31,969
    -------------------------------------------------------------------------
                                       3,455,930     3,472,213     3,607,245

    Shareholders' equity:
      Preferred shares                    48,523        48,523             -
      Common shares                      127,656       127,424       126,993
      Contributed surplus                  3,457         3,267         2,872
      Retained earnings                  203,195       193,635       159,821
      Accumulated other
       comprehensive income (loss)         3,449         1,012        (8,431)
    -------------------------------------------------------------------------
                                         386,280       373,861       281,255

    -------------------------------------------------------------------------
                                     $ 3,842,210   $ 3,846,074   $ 3,888,500
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF INCOME (unaudited)
    FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2010
    With comparative figures for the three month period ended March 31, 2009
    ($ THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

    -------------------------------------------------------------------------
                                                        Three months ended
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Interest income:
      Mortgages                                    $    41,306   $    41,014
      Investments                                        3,493         2,465
      Other                                                602         1,825
    -------------------------------------------------------------------------
                                                        45,401        45,304

    Interest expense:
      Customer deposits                                 19,807        27,297
      Deposit agent commissions                          1,965         1,684
      Bank term loans                                      464           738
      Subordinated debentures                              627           579
      Other                                                  9             -
    -------------------------------------------------------------------------
                                                        22,872        30,298
    -------------------------------------------------------------------------
    Net interest income                                 22,529        15,006
    Provision for credit losses                          2,375         1,850
    -------------------------------------------------------------------------
    Net interest income after provision for
     credit losses                                      20,154        13,156
    Other income:
      Fees and other income                                742           753
      Net (loss) gain on investments                       (56)           36
      Gains on securitization activities and
       income from retained interests                    2,653         9,334
    -------------------------------------------------------------------------
                                                         3,339        10,123
    -------------------------------------------------------------------------
    Net interest income and other income                23,493        23,279
    Non-interest expenses:
      Compensation and benefits                          4,382         3,964
      Other                                              2,596         2,307
    -------------------------------------------------------------------------
                                                         6,978         6,271
    -------------------------------------------------------------------------
    Income before income taxes                          16,515        17,008
    Income taxes:
      Current                                            4,937         2,707
      Future                                              (380)        2,357
    -------------------------------------------------------------------------
                                                         4,557         5,064
    -------------------------------------------------------------------------
    Net income                                          11,958        11,944
    Dividends on preferred shares                          906             -
    -------------------------------------------------------------------------
    Net income available to common shareholders    $    11,052   $    11,944
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of common shares
     outstanding:
      Basic                                         14,911,853    14,882,710
      Diluted                                       14,985,996    14,882,710

    Earnings per share:
      Basic                                        $      0.74   $      0.80
      Diluted                                      $      0.74   $      0.80

    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
    FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2010
    With comparative figures for the three month period ended March 31, 2009
    ($ THOUSANDS)

    -------------------------------------------------------------------------
                                                        Three months ended
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Preferred shares:
      Balance, beginning of period                 $    48,523   $         -
      Issued                                                 -             -
    -------------------------------------------------------------------------
      Balance, end of period                            48,523             -

    Common shares:
      Balance, beginning of period                     127,424       126,993
      Proceeds from reinvestment of dividends              112             -
      Proceeds from exercise of stock options              103             -
      Transfer from contributed surplus relating
       to the exercise of stock options                     17             -
    -------------------------------------------------------------------------
      Balance, end of period                           127,656       126,993

    Contributed surplus:
      Balance, beginning of period                       3,267         2,553
      Stock-based compensation                             207           319
      Transfer to common shares relating to
       the exercise of stock options                       (17)            -
    -------------------------------------------------------------------------
      Balance, end of period                             3,457         2,872

    Retained earnings:
      Balance, beginning of period                     193,635       149,365
      Net income                                        11,958        11,944
      Dividends
        Preferred shares                                  (906)            -
        Common shares                                   (1,492)       (1,488)
    -------------------------------------------------------------------------
      Balance, end of period                           203,195       159,821

    Accumulated other comprehensive income (loss):
      Balance, beginning of period                       1,012       (14,765)
      Other comprehensive income                         2,437         6,334
    -------------------------------------------------------------------------
      Balance, end of period                             3,449        (8,431)
    -------------------------------------------------------------------------
    Total retained earnings and accumulated
     other comprehensive income                        206,644       151,390
    -------------------------------------------------------------------------
    Total shareholders' equity                     $   386,280   $   281,255
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
    FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2010
    With comparative figures for the three month period ended March 31, 2009
    ($ THOUSANDS)

    -------------------------------------------------------------------------
                                                        Three months ended
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Net income                                     $    11,958   $    11,944
    Other comprehensive income (loss), net of tax:
      Available for sale investments:
        Net unrealized gains from change in fair
         value                                           3,790         7,440
        Reclassification of net gains to income         (1,353)       (1,106)
    -------------------------------------------------------------------------
    Other comprehensive income                           2,437         6,334
    -------------------------------------------------------------------------
    Comprehensive income                           $    14,395   $    18,278
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
    FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2010
    With comparative figures for the three month period ended March 31, 2009
    ($ THOUSANDS)

    -------------------------------------------------------------------------
                                                        Three months ended
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
      Net income                                   $    11,958   $    11,944
      Non-cash items:
        Financial instruments - fair value
         adjustments                                      (671)       (5,594)
        Securitization gains                            (1,571)       (7,619)
        Amortization of capital assets                     137           141
        Provision for credit losses                      2,375         1,850
        Net gain on investments                           (676)          (84)
        Future income taxes                              1,071         2,357
        Stock-based compensation                           207           319
        Amortization of premiums on investments,
         net                                               412           204
    -------------------------------------------------------------------------
                                                        13,242         3,518

      Changes in operating assets and liabilities:
        Other assets                                     2,614           212
        Other liabilities                               (2,605)       (4,693)
    -------------------------------------------------------------------------
                                                        13,251          (963)

    Financing activities:
      Decrease in customer deposits                    (49,429)     (219,157)
      Change in obligations related to investments
       sold under repurchase agreements                 29,918             -
      Dividends paid on preferred shares                  (906)            -
      Dividends paid on common shares                   (1,379)       (1,488)
      Issuance of common shares                            103             -
    -------------------------------------------------------------------------
                                                       (21,693)     (220,645)

    Investing activities:
      Purchase of investments                         (129,557)            -
      Proceeds on sale or redemption of
       investments                                     137,803         4,459
      Change in investments purchased under
       reverse repurchase agreements                   (20,155)      157,583
      Change in restricted cash                              -         2,122
      Increase in mortgages receivable                (569,513)     (811,716)
      Mortgage principal repayments                    227,742       419,292
      Proceeds from loan securitizations               232,356       411,179
      Securitization retained interests                  9,077         5,919
      Purchase of capital assets                           (93)         (115)
    -------------------------------------------------------------------------
                                                      (112,340)      188,723
    -------------------------------------------------------------------------
    Decrease in cash and cash equivalents             (120,782)      (32,885)
    Cash and cash equivalents, beginning of period     395,835        50,121
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period       $   275,053   $    17,236
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Certain forward-looking statements are made in this news release, including statements found in the Outlook and Objectives section, 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: For further information: John Ayanoglou, Senior Vice-President, Finance and Chief Financial Officer, (416) 515-7000


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