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Press release from CNW Group

Equitable Group Reports Strong Second Quarter 2012 Earnings, 17% Common Share Dividend Increase

Thursday, August 09, 2012

Equitable Group Reports Strong Second Quarter 2012 Earnings, 17% Common Share Dividend Increase21:32 EDT Thursday, August 09, 2012TORONTO, Aug. 9, 2012 /CNW/ - Equitable Group Inc. (TSX: ETC and ETC.PR.A) ("Equitable" or the "Company") today reported record financial performance for the six months ended June 30, 2012 and announced a 17% increase in its common share dividend in recognition of its strong growth prospects and capital position.As a result of strong long-term growth, the Company also noted that its mortgage portfolio has doubled in size in the past five years, reaching the $10 billion milestone at June 30, 2012.SECOND QUARTER HIGHLIGHTSNet income increased 40% to $22.1 million from $15.7 million in the second quarter of 2011Diluted earnings per share ("EPS") increased 43% to $1.40 from $0.98 in the second quarter of 2011Return on equity ("ROE") increased to 21.1% from 16.8% a year agoEquitable Trust's period-end total capital ratio was 15.6%"Equitable's outstanding performance in the second quarter reflected our growing marketplace advantages as a national, service-oriented mortgage lender," said Andrew Moor, President and Chief Executive Officer. "Once again, we grew mortgage principal in every one of our lending businesses compared to a year ago, led by a 37% increase in Single Family, which also generated 65% growth in production in the quarter year over year. Our ability to expand at low cost without compromising credit quality is a demonstration of the strength of our value creation strategies and great execution by our dedicated team."Consistent with previous disclosures, results in the second quarter of 2012 included a $0.24 per share [diluted] gain related to one of the Company's securities portfolio holdings. The gain was reflected in a lower effective tax rate of 13.1% in the second quarter.  Adjusted for this gain, second quarter net income increased 17% to $18.5 million from $15.7 million a year ago, EPS increased 18% to $1.16 from $0.98 a year ago and ROE increased to 17.5% from 16.8% a year ago.OTHER SECOND QUARTER HIGHLIGHTSEquitable continued to capitalize on its strong competitive position and expanding national presence to drive growth in mortgage balances across its lending lines:Single Family Lending Services mortgage principal was a record $2.5 billion at June 30, up 37% from a year earlierSingle Family Lending Services second quarter production of $483 million was up 65% or $189 million from a year ago, reflecting the strength of Equitable's relationships with its mortgage broker network, strong activity in real estate markets and changes in the competitive environmentCommercial Lending Services mortgage principal was $2.2 billion at June 30, $224 million or 12% higher than at the end of the second quarter of 2011.  Second quarter production was $157 million, up 32% or $38 million from a year agoSecuritization Financing mortgage principal increased $261 million or 5% year over year to $5.2 billion at June 30, a rate of growth that reflects the Company's focus on achieving attractive risk-adjusted returns from Core Lending activities and placing less emphasis on securitized multi-unit residential mortgagesAs a result of the rigorous application of its underwriting policies and the availability of high quality lending opportunities, Equitable posted excellent credit metrics in the second quarter:Mortgage principal in arrears 90 days or more was 0.22% of total mortgage principal, an improvement from 0.27% a year agoNet impaired mortgages improved to 0.27% of total mortgage assets from 0.29% a year agoThe Company also recognized a net recovery of $20 thousand during the second quarter of 2012, continuing a long-term trend of realizing minimal or no loan losses.DIVIDEND DECLARATIONSThe Company's Board of Directors today declared a quarterly dividend in the amount of $0.14 per common share, payable October 4, 2012, to common shareholders of record at the close of business on September 15, 2012. This represents a 17% increase in the Company's quarterly common share dividend - the third dividend increase since the beginning of 2011.  The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable September 30, 2012, to preferred shareholders of record at the close of business on September 15, 2012.SIX MONTH HIGHLIGHTSNet income increased 26% to $40.0 million from $31.8 million in the first six months of 2011EPS increased 27% to $2.52 from $1.99 in the same period of 2011ROE increased to 19.4% from 17.4% a year agoBook value per share increased 14% to $27.46 from $24.05 at June 30, 2011LOOKING AHEADEquitable's positive outlook includes expectations of strong earnings and ROE, healthy capital levels in the second half of 2012, and continued consumer demand for its mortgage solutions."We hope to set new earnings records in 2012 and have calibrated our strategies to ensure we capitalize on our recent momentum without deviating from our underwriting comfort zone," said Mr. Moor. "We are cognizant of heightened marketplace risk but by continuing to channel our expansion into real estate property types in urban centres that are backstopped by strong fundamentals, including population growth and diversified economic drivers, we believe we can grow at a very attractive pace while maintaining our traditional risk profile and exceptionally low arrears. All things considered, the future has never looked brighter for Equitable."Included in the Company's immediate term outlook are expectations that net interest margins (1.49% in the second quarter) will remain stable this year, its productivity ratio (30.6% in the second quarter) will continue to reflect efficient operations, and that recent marketplace developments may create opportunities for growing the business and expanding interest rate spreads in the single family business. Management is also hopeful that new transaction structures under discussion will allow the Company to increase its multi-unit residential originations well beyond current levels."The Company is well capitalized and we believe our earnings in future periods will generate adequate capital to support our strategic objectives including ongoing expansion of mortgage principal.  The Company will remain open to raising non-dilutive capital in the future to replace maturing obligations and to fund incremental growth opportunities if they arise, and our recent investment grade debt rating from DBRS would help us to do so at a lower cost," said Tim Wilson, Vice President and CFO.Q2 CONFERENCE CALLThe Company will hold its second quarter conference call and webcast at 10:00 a.m. ET Friday August 10, 2012. To access the call live, please dial in five minutes prior to 416-644-3418. To access a listen-only version of the webcast, please log on to www.equitabletrust.com under Investor Relations. A replay of the call will be available until August 17, 2012 and it can be accessed by dialing 416-640-1917 and entering passcode 4551299 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.INTERIM CONSOLIDATED FINANCIAL STATEMENTS                      CONSOLIDATED BALANCE SHEETS (unaudited)       AS AT JUNE 30, 2012      With comparative figures as at December 31, 2011, June 30, 2011($ THOUSANDS)                 June 30, 2012 December 31, 2011 June 30, 2011       Assets      Cash and cash equivalents$305,037$170,845$264,724Restricted cash 66,537 83,156 48,346Securities purchased under reverse repurchase agreements 101,351 9,967 5,115Investments 391,169 390,340 372,045Mortgages receivable 4,723,293 4,262,147 3,865,669Mortgages receivable - securitized 5,255,425 5,314,940 4,998,688Other assets 24,719 25,618 12,768 $10,867,531$10,257,013$9,567,355       Liabilities and Shareholders' Equity      Liabilities:       Deposits$5,231,603$4,627,904$4,254,271 Securitization liabilities 5,076,323 5,100,921 4,776,241 Obligations related to securities sold short 1,515 -  -  Obligations related to securities sold under repurchase agreements -   -  34,298 Deferred tax liabilities 5,666 7,790 7,457 Other liabilities 24,780 28,587 21,202 Bank term loans 12,500 12,500 12,500 Subordinated debentures 52,671 52,671 52,671  10,405,058 9,830,373 9,158,640       Shareholders' equity:       Preferred shares 48,494 48,494 48,494 Common shares 131,045 129,771 129,054 Contributed surplus 4,913 4,718 4,292 Retained earnings 288,596 254,006 228,881 Accumulated other comprehensive loss (10,575) (10,349) (2,006)  462,473 426,640 408,715        $10,867,531$10,257,013$9,567,355CONSOLIDATED STATEMENTS OF INCOME (unaudited)    FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012    With comparative figures for the three and six month periods ended June 30, 2011    ($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)                  Three months endedSix months ended  June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011         Interest income:         Mortgages$58,973$50,474$116,160$98,323 Mortgages - securitized 53,598 52,610 108,057 104,762 Investments 2,878 2,648 5,126 4,927 Other 1,340 1,242 2,566 2,267  116,789 106,974 231,909 210,279Interest expense:         Deposits 31,589 28,251 61,939 54,991 Securitization liabilities 45,675 45,111 92,849 89,380 Bank term loans 202 203 404 403 Subordinated debentures 868 870 1,737 1,732 Other 4 78 5 107  78,338 74,513 156,934 146,613Net interest income 38,451 32,461 74,975 63,666Provision for credit losses 1,693 2,217 3,920 4,155Net interest income after provision for credit losses 36,758 30,244 71,055 59,511Other income:         Fees and other income 981 790 1,986 1,644 Net gain (loss) on investments 54 (311) 303 (13)  1,035 479 2,289 1,631Net interest and other income 37,793 30,723 73,344 61,142Non-interest expenses:         Compensation and benefits 6,965 5,540 13,535 11,013 Other 5,354 4,208 10,693 7,850  12,319 9,748 24,228 18,863Income before income taxes and the undernotedfair value (loss) gain 25,474 20,975 49,116 42,279Fair value (loss) gain on derivative financial instruments - securitization activities (85) 48 (34) 367Income before income taxes 25,389 21,023 49,082 42,646Income taxes:         Current 4,258 5,149 11,193 10,476 Deferred (942) 139 (2,124) 371  3,316 5,288 9,069 10,847Net income$22,073$15,735$40,013$31,799         Earnings per share:         Basic$1.41$0.99$2.54$2.00 Diluted$1.40$0.98$2.52$1.99         CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)     FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012        With comparative figures for the three and six month periods ended June 30, 2011($ THOUSANDS)                  Three months endedSix months ended  June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011         Net income$22,073$15,735$40,013$31,799         Other comprehensive loss:                 Available for sale investments:        Net unrealized (losses) gains from change in fair value (782) 1,255 51 2,399Reclassification of net (gains) losses to income (55) 275 (1,137) 10  (837) 1,530 (1,086) 2,409Income tax 219 (429) 284 (676)  (618) 1,101 (802) 1,733         Cash flow hedges (Note 8)        Net unrealized losses from change in fair value (1,387) (5,143) (359) (3,476)Reclassification of net losses (gains) to income 547 6 1,139 (13)  (840) (5,137) 780 (3,489)Income tax 219 1,441 (204) 979  (621) (3,696) 576 (2,510)Total other comprehensive loss (1,239) (2,595) (226) (777)Total comprehensive income$20,834$13,140$39,787$31,022CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)     FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2012       With comparative figures for the three month period ended June 30, 2011       ($ THOUSANDS)                           June 30, 2012Preferred sharesCommon sharesContributed surplusRetained earningsAccumulated other comprehensive income (loss) Total               Balance, beginning of period$48,494$130,251$4,813$269,235$(9,336)$443,457 Net income -  -  -  22,073 -  22,073 Other comprehensive loss, net of tax -  -  -  -  (1,239) (1,239) Reinvestment of dividends -  190 -  -  -  190 Exercise of stock options -  491 -  -  -  491 Dividends:              Preferred shares -  -  -  (906) -  (906)  Common shares -  -  -  (1,806) -  (1,806) Stock-based compensation -  -  213 -  -  213 Transfer relating to the exercise of stock options -  113 (113) -  -  -  Balance, end of period$48,494$131,045$4,913$288,596$(10,575)$462,473                             June 30, 2011PreferredsharesCommonsharesContributedsurplusRetainedearningsAccumulatedothercomprehensiveincome (loss) Total               Balance, beginning of period$48,494$128,369$4,169$215,700$589$397,321 Net income -  -  -  15,735 -  15,735 Other comprehensive loss, net of tax -  -  -  -  (2,595) (2,595) Reinvestment of dividends -  149 -  -  -  149 Exercise of stock options -  455 -  -  -  455 Dividends:              Preferred shares -  -  -  (906) -  (906)  Common shares -  -  -  (1,648) -  (1,648) Stock-based compensation -  -  204 -  -  204 Transfer relating to the exercise of stock options -  81 (81) -  -  -  Balance, end of period$48,494$129,054$4,292$228,881$(2,006)$408,715               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)     FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2012       With comparative figures for the six month period ended June 30, 2011       ($ THOUSANDS)                           June 30, 2012Preferred sharesCommon sharesContributed surplusRetained earningsAccumulated other comprehensive income (loss) Total               Balance, beginning of period$48,494$129,771$4,718$254,006$(10,349)$426,640 Net income -  -  -  40,013 -  40,013 Other comprehensive loss, net of tax -  -  -  -  (226) (226) Reinvestment of dividends -  378 -  -  -  378 Exercise of stock options -  728 -  -  -  728 Dividends:               Preferred shares -  -  -  (1,812) -  (1,812)  Common shares -  -  -  (3,611) -  (3,611) Stock-based compensation -  -  363 -  -  363 Transfer relating to the exercise of stock options -  168 (168) -  -  -  Balance, end of period$48,494$131,045$4,913$288,596$(10,575)$462,473                             June 30, 2011PreferredsharesCommonsharesContributedsurplusRetainedearningsAccumulatedothercomprehensiveincome (loss) Total               Balance, beginning of period$48,494$128,068$3,935$202,187$(1,229)$381,455 Net income -  -  -  31,799 -  31,799 Other comprehensive loss, net of tax -  -  -  -  (777) (777) Reinvestment of dividends -  276 -  -  -  276 Exercise of stock options -  599 -  -  -  599 Dividends:              Preferred shares -  -  -  (1,812) -  (1,812)  Common shares -  -  -  (3,293) -  (3,293) Stock-based compensation -  -  468 -  -  468 Transfer relating to the exercise of stock options -  111 (111) -  -  -  Balance, end of period$48,494$129,054$4,292$228,881$(2,006)$408,715               CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2012With comparative figures for the three and six month periods ended June 30, 2011($ THOUSANDS)                  Three months endedSix months ended June 30, 2012June 30, 2011June 30, 2012June 30, 2011CASH FLOWS FROM OPERATING ACTIVITIES        Net income for the period$22,073 $15,735$40,013 $31,798Adjustments to determine cash flows relating to operating activities:         Financial instruments at fair value through income 12,153  1,000 13,989  1,099 Depreciation of capital assets 238  173 469  237 Provision for credit losses 1,693  2,217 3,920  4,155 Net loss (gain) on sale or redemption of investments (11)  311 (260)  13 Income taxes 3,315  5,288 9,140  10,847 Income taxes paid (5,454)  (4,770) (10,255)  (9,541) Stock-based compensation 213  204 363  468 Amortization of premiums/discount on investments (108)  887 676  1,672 Net increase in mortgages receivable (291,926)  (304,697) (405,903)  (650,482) Net increase in deposits 371,056  221,880 603,699  375,418 Change in obligations related to securities sold 1,515  - 1,515  - Change in obligations related to securities under repurchase agreements -     34,298 - 34,298 Net change in securitization liabilities 6,471  122,759 (24,597)  244,561 Net interest income, excluding non-cash items (52,573)  (43,732) (107,324)  (90,975) Interest paid (78,947)  (62,371) (142,639)  (118,161) Other assets 250  (3,663) 59  (5,093) Other liabilities (601)  2,158 (3,856)  (35) Interest received 115,493  103,570 231,427  204,253 Dividends received 16,027  2,533 18,536  4,883Cash flows from operating activities 120,877  93,780 228,972  39,415CASH FLOWS FROM FINANCING ACTIVITIES         Dividends paid on preferred shares (906)  (906) (1,812)  (1,812) Dividends paid on common shares (1,616)  (1,499) (3,233)  (3,018) Proceeds from issuance of common shares 491  455 728  599Cash flows used in financing activities (2,031)  (1,950) (4,317)  (4,231)CASH FLOWS FROM INVESTING ACTIVITIES         Purchase of investments (47,532)  (20,071) (67,532)  (59,722) Proceeds on sale or redemption of investments 12,789  13,406 59,519  34,349 Net change in Canada Housing Trust re-investment accounts 19,227  (4,893) (7,444)  (7,531) Purchase of securities under reverse repurchase agreements (101,351)  (5,115) (141,273)  (30,108) Proceeds on sale or redemption of securities under reverse repurchase agreements 39,922  24,993 49,889  99,901 Change in restricted cash 23,710  (11,942) 16,619  38,224 Purchase of capital assets (91)  (735) (241)  (815)Cash flows (used in) from investing activities (53,326)  (4,357) (90,463)  74,298Net increase in cash and cash equivalents 65,520  87,473 134,192  109,482Cash and cash equivalents, beginning of period 239,517  177,251 170,845  155,242Cash and cash equivalents, end of period$305,037 $264,724$305,037 $264,724         2011 ANNUAL REPORT The Company wishes to clarify and correct the figure reported in its 2011 Annual Report, on page 25, Table 1: Selected Financial Information where Total liquid assets for 2011 were reported as "84,386" and the figure should have been "784,386".ABOUT EQUITABLE GROUP INC. Equitable Group Inc. is a niche mortgage lender. Our primary business is first charge mortgage financing, which we offer through our wholly owned subsidiary, The Equitable Trust Company. Founded in 1970, Equitable Trust is a federally incorporated trust company. It actively originates mortgages across Canada. It serves single family, small and large commercial borrowers and their mortgage advisors. It also serves the investing public as a provider of insured Guaranteed Investment Certificates. Equitable Trust is active in providing GICs across all Canadian provinces and territories. Equitable Group's shares are traded on the Toronto Stock Exchange under the symbols ETC and ETC.PR.A respectively. Visit the Company on line at www.equitabletrust.com and click on Investor Relations.CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSStatements made by the Company in the sections of this report including those entitled "Looking Ahead", in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws ("forward-looking statements"). These statements include, but are not limited to, statements about the Company's objectives, strategies and initiatives, financial result expectations and other statements made herein, whether with respect to the Company's businesses or the Canadian economy. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may" , "could", "would", "might" or "will be taken", "occur" or "be achieved." Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to capital markets and additional funding requirements, fluctuating interest rates and general economic conditions, legislative and regulatory developments, the nature of our customers and rates of default, and competition as well as those factors discussed under the heading "Risk Management" in the Management's Discussion and Analysis and in the Company's documents filed on SEDAR at www.sedar.com. All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting the Company and the Canadian economy. Although the Company believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.  Certain material assumptions are applied by the Company in making forward-looking statements, including without limitation, assumptions regarding its continued ability to fund its mortgage business at current levels, a continuation of the current level of economic uncertainty that affects real estate market conditions, continued acceptance of its products in the marketplace, as well as no material changes in its operating cost structure and the current tax regime. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws. SOURCE: Equitable Group Inc.For further information: Andrew Moor President and CEO 416-513-7000 Tim Wilson Vice President and CFO 416-513-7000