News

TORONTO, Aug. 10, 2011 /CNW/ - Equitable Group Inc. (TSX: ETC) and (ETC.PR.A) ("Equitable" or the "Company") today reported strong earnings growth for the three and six months ended June 30, 2011 and provided a positive outlook.

SECOND QUARTER HIGHLIGHTS

• Diluted earnings per share increased 44.1% to $0.98 from $0.68 a year ago, while adjusted diluted earnings per share (a non-GAAP measure that removes gains and losses associated with unmatched derivative measurement accounting) grew 16.7% to $0.98 from $0.84 a year ago;
• Net income increased 42.1% to $15.7 million from $11.1 million in the same period of 2010 and adjusted net income grew 16.6% to $15.7 million from $13.5 million a year ago;
• Net interest income grew 16.0% to $32.5 million from $28.0 million in the corresponding period of 2010;
• Total assets reached a record $9.6 billion as originations during the second quarter of 2011 amounted to $629.2 million, 46.1% of which were conventional single family residential mortgages;
• Return on Equity ("ROE") was 16.8% compared to 13.7% in the second quarter of 2010 while adjusted ROE was 16.7% compared to 16.8% in the second quarter of 2010;
• Productivity ratio on a TEB - a measure of efficiency - was 28.7%, compared to 28.3% in the second quarter of 2010;
• Equitable Trust's total capital ratio (when collective allowance is included in capital) was 17.1% at June 30, 2011, compared to 16.6% a year earlier;
• Book value per share at June 30, 2011 increased 18.8% to $24.05 from $20.24 a year ago.

Basic and diluted EPS for the second quarter of $0.99 and $0.98, respectively, were slightly lower than the basic and diluted EPS of $1.01 and $1.00 reported in the first quarter of 2011. This differential can be explained in the context of several factors that are individually minor, but which in aggregate cause some fluctuation in quarter over quarter results. In the case of the first and second quarters of 2011, gains and losses on the liquidation of equity securities sold, net prepayment penalty income earned in the Company's securitized portfolio, fluctuations in credit provisions, as well as fair value gains on hedges combined to cause quarter over quarter fluctuation in net income available to common shareholders, which if removed would have resulted in pro forma basic and diluted EPS in the second quarter that would have been $0.04 greater than those of the first quarter.

DIVIDEND DECLARATIONS
The Company's Board of Directors declared a dividend of $0.11 per share on the Company's common shares, payable on October 5, 2011, to common shareholders of record at the close of business on September 15, 2011. These payments are consistent with the 10% increase in common share dividend payments announced by the Company's Board of Directors in February, 2011. The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable on September 30, 2011, to preferred shareholders of record at the close of business on September 15, 2011.

SIX MONTH HIGHLIGHTS

• Diluted earnings per share increased 39.2% to $1.99 from $1.43 a year ago, while adjusted diluted earnings per share advanced 15.2% to $1.97 from $1.71 a year ago;
• Net income increased 36.9% to $31.8 million from $23.2 million in the same period of 2010 and adjusted net income grew 14.6% to $31.5 million from $27.5 million a year ago;
• Net interest income increased 12.4% to a record $63.7 million from $56.6 million in the corresponding period of 2010;
• ROE was 17.4% compared to 14.8% a year ago, while adjusted ROE was 17.3% compared to 17.7% a year ago;
• Productivity ratio on a TEB was 28.1%, compared to 26.7%.

Note to Readers: Results for both reporting periods were prepared using International Financial Reporting Standards ("IFRS"), with a transition date of January 1, 2010. As a result, prior period comparative information in this news release, the Company's MD&A and financial statements reflects conversion from previous Canadian Generally Accepted Accounting Principles ("GAAP") to an IFRS basis.

MANAGEMENT COMMENTARY
"Equitable's strong rate of earnings growth to date this year reflects the ongoing success of our balanced business strategy, with its focus on service excellence, diligent cost and risk management and portfolio growth," said Andrew Moor, President and CEO. "Of note, we continue to derive significant advantages from our growing presence in the single family residential market in Canada, where conventional mortgage production in the first half of the year surpassed the half billion dollar mark - a new record for the period. As a result, Single Family Lending Services is now firmly established as our largest business, accounting for almost 48% of conventional mortgage principal outstanding at quarter end compared to just over 37% a year ago. This planned increase in emphasis adds to immediate earnings potential and has also allowed us to advance our standing with mortgage broker partners in our chosen markets. In the context of both market conditions and the traction gained with our mortgage portfolio growth strategies, we are extremely pleased with Equitable's performance as we close in on the $10 billion milestone for total assets."

"The substantial expansion of our mortgage book has translated into sizeable and ongoing year-over-year growth in net interest income," said John Ayanoglou, Senior Vice-President and Chief Financial Officer. "Looking at Net Interest Margin or NIM on a taxable equivalent basis shows that NIM was a healthy 2.5% on non-securitized assets in both reporting periods in 2011, while NIM on securitized assets was 0.5% in both 2011 periods. We generally expect to earn lower NIM on securitized mortgages, which are insured under government programs, but by seeking an optimal balance between conventional and securitized portfolios, our goal is to optimize the NIM we earn in order to drive an improvement in overall ROE."

MORTGAGE PORTFOLIO AND CREDIT HIGHLIGHTS

• Single Family Lending Services originated $290.1 million of conventional mortgages in the second quarter of 2011, to bring year-to-date conventional production for this business line to $506.3 million compared to $488.3 million in the corresponding six months of 2010;
• Commercial Mortgage - Broker Services originated $54.2 million of mortgages or 8.6% of total second quarter production to bring year-to-date production to $150.2 million compared to $167.8 million a year ago;
• Commercial Lending Services originated $86.9 million of conventional mortgages to bring total conventional production for this business line over the first half of 2011 to $187.1 million from $155.8 million in the same period a year ago and originated $194.7 million of CMHC-insured multi-unit residential mortgages to bring total CMHC-related production to $488.7 million over the first half of 2011.

At quarter end:

• Fixed-rate mortgages represented 90.9% of the mortgage portfolio compared to 88.1% a year earlier;
• Conventional mortgage principal increased 19.2% during the 12 months ended June 30, 2011 to $3.9 billion, while the Company's securitized portfolio increased 14.5% to $5.0 billion;
• Net impaired mortgages were 0.29% of total mortgage principal, compared to 0.45% a year ago and 0.33% at March 31, 2011;
• Mortgage principal in arrears 90 days or more was 0.27% of total mortgage principal compared to 0.43% a year ago and 0.33% at March 31, 2011;
• Early stage delinquency rates at quarter end decreased to 0.21% of total outstanding principal compared to 0.34% at December 31, 2010.

LOOKING AHEAD
"The results of our sales activities in the latter part of the second quarter and to-date in the third quarter have been encouraging," said Mr. Moor. "In fact, although it's still early, third quarter single family residential mortgage production is on track to significantly outperform second quarter origination volumes. The increase in our Single Family Lending Services portfolio of $637.3 million or 52.5% compared to June 30, 2010 is a strong indicator of the success we are having in this business. Combined with good levels of production in our commercial mortgage lending businesses, we expect portfolio growth to continue in the third quarter with commensurate benefits to our earnings performance for the balance of the year."

While market conditions may moderate in certain areas beyond the third quarter, and the potential for modest contraction in NIM remains, management believes that Equitable can continue to grow without undue risk and achieve strong results for shareholders. The Company also expects its productivity ratio to remain strong even as it supports further growth and expansion in its operations and core banking system.

Mr. Ayanoglou added: "Our capital base, which provides the foundation for continued growth, is strong and this is reflected in solid year-over-year enhancements to all capital ratios at quarter end. Going forward, we will manage our capital and liquidity positions as we grow to ensure the ongoing solidity and vibrancy of the Equitable franchise."

Q2 CONFERENCE CALL
The Company will hold its second quarter conference call and webcast at 10:00 a.m. ET Thursday August 11, 2011. To access the call live, please dial in five minutes prior to 416-640-9737. 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 August 18, 2011 and it can be accessed by dialing 416-640-1917 and entering passcode 4461460 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.

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 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 entitled "Management Commentary" and "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.