Equitable Group reports solid third quarter results

    
                   Net interest margins continue to expand
                           Credit metrics improve

    TSX Symbols: ETC and ETC.PR.A
    

TORONTO, Nov. 5 /CNW/ - Equitable Group Inc. ("Equitable" or the "Company") today reported solid growth for the three and nine months ended September 30, 2009 as it benefitted from the successful execution of its business and began to capitalize on improving market conditions and increased financial strength.

    
    THIRD QUARTER RESULTS

    -   Net income increased 12.0% to $12.0 million compared to $10.8 million
        in the same period a year ago.
    -   Diluted earnings per common share increased 9.5% to $0.81 per share
        compared to $0.74 per share a year ago.
    -   Return on equity was 15.7% compared to 16.5% in the second quarter of
        2009 and 16.7% in the third quarter of 2008.
    -   Return on average assets improved to 1.3% from 1.1% a year ago.
    -   Tangible common equity ratio, a key measure of capital strength, was
        12.1%, an improvement over the ratios of 11.8% and 10.0% for the
        second quarter of 2009 and third quarter of 2008 respectively.
    -   Productivity ratio on a taxable equivalent basis - a measure of
        efficiency - was 25.7% compared to 24.4% in the second quarter of
        2009 and 24.9% in the same quarter of 2008.
    -   Book value per common share increased 16.0% to $20.86 from $17.98 at
        September 30, 2008.
    

DIVIDEND DECLARATIONS

The Company's Board of Directors declared a dividend on the Company's common stock in the amount of $0.10 per share, payable on January 4, 2010, to shareholders of record at the close of business on December 15, 2009.

The Board also declared an initial dividend on its recently issued Series 1 preferred shares in the amount of $0.605822 per share, payable December 31, 2009 to preferred shareholders of record on December 15, 2009. Holders of Series 1 preferred shares will be entitled to receive fixed, non-cumulative preferential cash dividends, when declared by the Board, payable at an annual rate equal to $1.8125 per share.

MANAGEMENT COMMENTARY

"Equitable's strong performance in the third quarter was well in line with our financial and strategic goals for 2009," said Andrew Moor, President and CEO. "A clear highlight was at the earnings level, where we drove net interest margin to 2.2%, the highest it's been in six quarters. Key contributors to this strong performance were pricing enhancements that were implemented on new and renewing mortgages. Our interest rate floor strategy should contribute solidly to fourth quarter net interest income. In addition, we continued to benefit from improving credit metrics, reflecting our effective underwriting practices along with more stable economic and real estate market conditions. Of fundamental importance during the quarter was our success at raising $50 million in non-dilutive capital to support the ongoing growth we anticipate. The issuance of our Series 1 preferred shares at the beginning of September was a ground-breaking transaction for Equitable that will allow us to continue to access a form of Tier 1 capital that was previously unavailable to financial institutions of our size. In summary, this was an excellent quarter putting Equitable on track for another record year."

CREDIT QUALITY

Mortgages in arrears 90 days or more (excluding CMHC-insured mortgages that are less than 365 days in arrears) improved to 0.88% of total principal outstanding from 1.34% at June 30, 2009 reflecting the relative health of the Company's mortgage portfolio and success in managing defaults. Excluding one mortgage that was deemed to be impaired despite interest payments being up to date, net impaired mortgages improved to 0.57% of total mortgage assets from 0.79% at the end of the second quarter 2009. Inclusive of the allowance for this $19.2 million residential construction mortgage, net impaired mortgages amounted to 1.22% at quarter end. Net realized loan losses related to workout activities in the third quarter amounted to $1.7 million. Effective collections management and a recovery in real estate markets have allowed the Company to sell properties and workout problem loans expeditiously and without incurring unreasonable losses.

    
    THIRD QUARTER OPERATING HIGHLIGHTS

    -   Net interest margin on a taxable equivalent basis increased to 2.2%
        from 1.9% in the second quarter of 2009 and from 1.7% a year ago.
    -   Mortgage fundings amounted to $454.5 million while total mortgage
        principal outstanding at September 30, 2009 was $2.8 billion, as the
        Company continued to focus its Commercial Lending Services business
        on niches with the best investment return potential (including CMHC-
        insured mortgages on multi-family apartment buildings) while stepping
        up the pace of single family residential funding activity
        commensurate with improving real estate and economic conditions.
    -   Equitable securitized and sold $294.6 million of CMHC-insured
        mortgages - bringing its total securitized portfolio to $3.8 billion
        - and generated $4.3 million of securitization income, despite a
        temporary market delay in closing a CMB transaction involving 10-year
        term mortgages; this transaction is now expected to close in the
        fourth quarter.
    -   Fixed rate mortgages represented 64.8% of the portfolio compared to
        60.5% at June 30, 2009.

    NINE MONTH RESULTS

    -   Net income increased 16.8% to a record $35.9 million compared to
        $30.7 million in the same period a year ago.
    -   Diluted earnings per common share increased 5.7% to $2.40 per share
        compared to $2.27 per share a year ago.
    -   Return on equity was 16.7% compared to 18.1% in the same period of
        2008.
    

CONCLUSION

"The economic and credit market landscapes have improved continuously over the second and third quarters of 2009," said Mr. Moor. "With additional balance sheet strength, and our low-cost business model, Equitable is well positioned to generate attractive new mortgage business that meets our risk and return objectives. We also expect to benefit in the immediate term from continued improvement in our interest rate spreads as a result of a combination of positive market forces - including the Bank of Canada's current hold-the-line policy on its benchmark interest rate - and the pricing and mortgage mix strategies we've employed since the economic recession began. We are confident our business approach and the current strength of demand for mortgage financing will translate into strong performance for Equitable going forward."

John Ayanoglou, Senior Vice-President and Chief Financial Officer, said: "From a capital perspective, Equitable is in excellent condition. After the issuance of our preferred shares and a $2.5 million redemption of sub-debt in the third quarter, our total capital position at quarter end was 17.5% inclusive of general allowance - well ahead of our 13% target. This gives us a very solid foundation to pursue our objectives and to provide, in due course, the holders of certain of our subordinated debentures with the option of reinvesting in a new issuance or having their debentures redeemed. Even with the potential for redemptions, we expect that our capital position will remain robust and fully able to support the meaningful growth in our mortgage portfolio that we intend to seek."

THIRD QUARTER WEBCAST

Management will discuss Equitable's results during a conference call beginning at 9:30 a.m. ET today. To listen to the audio webcast, log on to www.equitablegroupinc.com. To participate in the call, please dial 416-915-5648.

MD&A

The Company will post its MD&A for the three and nine months ended September 30, 2009 on its website (www.equitablegroupinc.com) this morning. 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. 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 in Ontario, Alberta and Manitoba. Equitable Group's shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A. Visit the Company on line at www.equitablegroupinc.com or www.equitabletrust.com.

    
    INTERIM CONSOLIDATED FINANCIAL STATEMENTS


    CONSOLIDATED BALANCE SHEETS (unaudited)
    AS AT SEPTEMBER 30, 2009
    With comparative figures as at December 31, 2008 and September 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                                         September     December    September
                                          30, 2009     31, 2008     30, 2008
    -------------------------------------------------------------------------

    Assets
    Cash and cash equivalents          $   258,815  $    50,121  $    10,985
    Restricted cash                          8,070        8,422        5,000
    Investment purchased under
     reverse repurchase agreements         126,230      698,276      748,183
    Investments                            317,056      170,321      190,347
    Securitization retained interests      137,488      101,806       84,252
    Mortgages receivable                 2,829,135    3,023,015    3,036,281
    Other assets                            10,830       35,590       19,039
    -------------------------------------------------------------------------
                                       $ 3,687,624  $ 4,087,551  $ 4,094,087
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Liabilities:
      Customer deposits                $ 3,186,927  $ 3,692,569  $ 3,712,019
      Future income taxes                   19,442       17,839       14,018
      Other liabilities                     49,339       36,433       23,857
      Bank term loans                       40,784       44,595       44,595
      Subordinated debentures               31,969       31,969       31,969
    -------------------------------------------------------------------------
                                         3,328,461    3,823,405    3,826,458

    Shareholders' equity:
      Preferred shares                      48,576            -            -
      Common shares                        127,084      126,993      126,993
      Contributed surplus                    3,153        2,553        2,345
      Retained earnings                    180,765      149,365      142,959
      Accumulated other
       comprehensive loss                     (415)     (14,765)      (4,668)
    -------------------------------------------------------------------------
                                           359,163      264,146      267,629

    -------------------------------------------------------------------------
                                       $ 3,687,624  $ 4,087,551  $ 4,094,087
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF INCOME (unaudited)
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009
    With comparative figures for the three and nine month periods ended
    September 30, 2008
    (In thousands of dollars, except share and per share amounts)

    -------------------------------------------------------------------------
                              Three months ended         Nine months ended
                            September    September    September    September
                             30, 2009     30, 2008     30, 2009     30, 2008
    -------------------------------------------------------------------------

    Interest income:
      Mortgages           $    41,033  $    49,821  $   122,052  $   140,664
      Investments               4,089        1,739        9,847        6,061
      Other                       496        4,425        2,985       11,955
    -------------------------------------------------------------------------
                               45,618       55,985      134,884      158,680

    Interest expense:
      Customer deposits        22,942       35,690       73,671       98,527
      Deposit agent
       commissions              1,817        2,553        5,184        6,643
      Bank term loans             720          754        2,216        2,271
      Subordinated
       debentures                 592          590        1,757        1,758
    -------------------------------------------------------------------------
                               26,071       39,587       82,828      109,199
    -------------------------------------------------------------------------
    Net interest income        19,547       16,398       52,056       49,481
    Provision for credit
     losses                     1,250        1,300        4,350        1,900
    -------------------------------------------------------------------------
    Net interest income
     after provision for
     credit losses             18,297       15,098       47,706       47,581
    Other income:
      Fees and other income       789          525        2,540        1,306
      Net gain on investments       -          (72)          36          158
      Gains on securitization
       activities and
       income from
       retained interests       4,341        5,050       19,473       10,009
    -------------------------------------------------------------------------
                                5,130        5,503       22,049       11,473
    -------------------------------------------------------------------------
    Net interest income
     and other income          23,427       20,601       69,755       59,054
    Non-interest expenses:
      Compensation and
       benefits                 3,789        3,371       11,234        9,631
      Other                     2,718        2,284        7,652        6,853
    -------------------------------------------------------------------------
                                6,507        5,655       18,886       16,484
    -------------------------------------------------------------------------
    Income before
     income taxes              16,920       14,946       50,869       42,570
    Income taxes:
      Current                   2,437        1,212       11,333        6,200
      Future                    2,438        2,982        3,670        5,653
    -------------------------------------------------------------------------
                                4,875        4,194       15,003       11,853

    -------------------------------------------------------------------------
    Net income            $    12,045  $    10,752  $    35,866  $    30,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Dividends on
     preferred shares               -            -            -            -
    -------------------------------------------------------------------------

    Net income
     available to
     common shareholders  $    12,045  $    10,752  $    35,866  $    30,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic               $      0.81  $      0.74  $      2.41  $      2.28
      Diluted             $      0.81  $      0.74  $      2.40  $      2.27

    Weighted average
     number of shares
     outstanding:
      Basic                14,889,174   14,534,667   14,886,006   13,492,346
      Diluted              14,947,493   14,561,797   14,915,290   13,533,386

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



    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009
    With comparative figures for the three and nine month periods ended
    September 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                              Three months ended         Nine months ended
                            September    September    September    September
                             30, 2009     30, 2008     30, 2009     30, 2008
    -------------------------------------------------------------------------

    Preferred shares:
      Balance, beginning
       of period          $         -  $         -  $         -  $         -
      Gross proceeds of
       equity issue,
       Series 1                50,000            -       50,000            -
      Issue expense, net
       of tax recovery
       of - $615
         (2008 - nil)          (1,424)           -       (1,424)           -
    -------------------------------------------------------------------------
      Balance, end of
       period                  48,576            -       48,576            -

    Common shares:
      Balance, beginning
       of period              127,029       87,653      126,993       87,062
      Gross proceeds of
       equity issue                 -       40,850            -       40,850
      Issue expense, net
       of tax recovery
       of - nil
         (2008 - $698)              -       (1,510)           -       (1,510)
      Proceeds from
       reinvestment of
       dividend                    55            -           91            -
      Proceeds from
       exercise of stock
       options                      -            -            -          525
      Transfer from
       contributed surplus
       relating to the
       exercise of stock
       options                      -            -            -           66
    -------------------------------------------------------------------------
      Balance, end of
       period                 127,084      126,993      127,084      126,993

    Contributed surplus:
      Balance, beginning
       of period                2,984        2,124        2,553        1,778
      Stock-based
       compensation               169          221          600          633
      Transfer to common
       shares relating to
       the exercise of
       stock options                -            -            -          (66)
    -------------------------------------------------------------------------
      Balance, end of
       period                   3,153        2,345        3,153        2,345

    Retained earnings:
      Balance, beginning
       of period              170,209      133,695      149,365      116,325
      Net income               12,045       10,752       35,866       30,717
      Dividends - common
       shares                  (1,489)      (1,488)      (4,466)      (4,083)
    -------------------------------------------------------------------------
      Balance, end of
       period                 180,765      142,959      180,765      142,959

    Accumulated other
     comprehensive income
     (loss), net of tax:
      Balance, beginning
       of period               (3,453)      (2,374)     (14,765)      (1,995)
      Other comprehensive
       income (loss)            3,038       (2,294)      14,350       (2,673)
    -------------------------------------------------------------------------
      Balance, end of
       period                    (415)      (4,668)        (415)      (4,668)
    -------------------------------------------------------------------------
    Total retained
     earnings and
     accumulated other
     comprehensive income
     (loss)                   180,350      138,291      180,350      138,291
    -------------------------------------------------------------------------
    Total shareholders'
     equity               $   359,163  $   267,629  $   359,163  $   267,629
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009
    With comparative figures for the three and nine month periods ended
    September 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                              Three months ended         Nine months ended
                            September    September    September    September
                             30, 2009     30, 2008     30, 2009     30, 2008
    -------------------------------------------------------------------------

     Net income           $    12,045  $    10,752  $    35,866  $    30,717
     Other comprehensive
      income (loss), net
      of tax:
       Available for sale
        investments:
         Net unrealized
          gains (losses)
          from change in
          fair value            1,655       (2,163)      16,927       (2,554)
         Reclassification
          of net (gains)
          losses to income      1,383         (131)      (2,577)        (119)
    -------------------------------------------------------------------------
     Other comprehensive
      income (loss)             3,038       (2,294)      14,350       (2,673)
    -------------------------------------------------------------------------
     Comprehensive income $    15,083  $     8,458  $    50,216  $    28,044
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009
    With comparative figures for the three and nine month periods ended
    September 30, 2008
    (In thousands of dollars)

    -------------------------------------------------------------------------
                              Three months ended         Nine months ended
                            September    September    September    September
                             30, 2009     30, 2008     30, 2009     30, 2008
    -------------------------------------------------------------------------

    Cash provided by
     (used in):
    Operating activities:
      Net income          $    12,045  $    10,752  $    35,866  $    30,717
      Non-cash items:
        Financial
         instruments -
         fair value
         adjustments            8,313       (3,666)       5,314       (5,407)
        Securitizations
         gains                 (3,531)      (4,271)     (16,090)      (7,968)
        Amortization of
         capital assets           153          192          444          564
        Provision for
         credit losses          1,250        1,300        4,350        1,900
        Net (gain) loss
         on investments          (494)          72         (574)        (156)
        Future income taxes       986        2,285        2,218        4,956
        Stock-based
         compensation             169          221          600          633
        Amortization of
         premiums on
         investments, net         178          244          548        1,160
    -------------------------------------------------------------------------
                               19,069        7,129       32,676       26,399

      Changes in operating
       assets and
       liabilities:
        Other assets            1,149        1,698        9,799         (818)
        Other liabilities      (4,111)      (3,404)      (4,670)      (3,318)
    -------------------------------------------------------------------------
                               16,107        5,423       37,805       22,263

    Financing activities:
      (Decrease) increase
       in customer deposits   (92,669)     228,900     (500,745)     607,290
      Repayment of bank
       term loan               (2,466)           -       (3,811)           -
      Dividends paid on
       common shares           (1,489)      (1,488)      (4,466)      (4,083)
      Issuance of preferred
       shares                  47,961            -       47,961            -
      Issuance of common
       shares                      55       39,340           91       39,865
    -------------------------------------------------------------------------
                              (48,608)     266,752     (460,970)     643,072

    Investing activities:
      Purchase of
       investments            (14,259)           -      (23,577)      (5,000)
      Proceeds on sale or
       redemption of
       investments             17,775       20,844       48,299       95,936
      Purchase of
       investments
       purchased under
       reverse repurchase
       agreements            (126,230)    (748,183)    (811,960)  (1,435,261)
      Proceeds on sale or
       redemption of
       investments
       purchased under
       reverse repurchase
       agreements             145,037      412,004    1,384,006      919,198
      Change in restricted
       cash                    (3,070)           -          352            -
      Increase in mortgages
       receivable            (589,384)    (987,259)  (2,125,199)  (2,331,765)
      Mortgage principal
       repayments             287,991      346,235    1,086,288    1,065,485
      Proceeds from loan
       securitizations        292,360      442,741    1,054,211    1,008,681
      Securitization
       retained interests       7,746        4,349       19,638       12,613
      Purchase of capital
       assets                     (72)         (60)        (199)        (164)
    -------------------------------------------------------------------------
                               17,894     (509,329)     631,859     (670,277)
    -------------------------------------------------------------------------
    (Decrease) increase in
     cash and cash
     equivalents              (14,607)    (237,154)     208,694       (4,942)
    Cash and cash
     equivalents,
     beginning of period      273,422      248,139       50,121       15,927
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end
     of period            $   258,815  $    10,985  $   258,815  $    10,985
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

This press release contains "forward-looking statements" within the meaning of applicable Canadian securities legislation, including statements found in the Management Commentary and Conclusion sections, above. 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 or 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 in the Company's documents filed on SEDAR (www.sedar.com).

Although the Company has attempted to identify 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. 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. 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 and Chief Financial Officer, (416) 515-7000


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