News

TORONTO, Nov. 2, 2011 /CNW/ - Equitable Group Inc. (TSX: ETC) and (ETC.PR.A) ("Equitable" or the "Company") today reported its financial results for the three and nine months ended September 30, 2011 and announced an increase in its common share dividend.

THIRD QUARTER PERFORMANCE
The Company's mortgage portfolio produced strong earnings and credit performance in the third quarter in spite of an operational provision related to an alleged mortgage fraud in the amount of $5 million pre-tax ($0.24 per share) ("the provision") related to these loans (see "Operational Provision" below).

In the third quarter:

• Diluted earnings per share ("EPS") increased 60.8% to $0.82 from $0.51 a year ago;
• Adjusted EPS on a diluted basis (see "Adjusting for Accounting Changes" below) was $0.84, or $1.08 excluding the provision, compared to $0.84 a year ago;
• Adjusted net income was $13.6 million, or $17.2 million excluding the provision, compared to $13.5 million a year ago;
• Adjusted net income available to common shareholders increased to $12.7 million, or $16.3 million excluding the provision, from $12.6 million a year ago;
• Net interest income was $34.8 million, up 14.0% from $30.5 million a year ago;
• Total assets reached a record $10.3 billion at period end, up 18.9% from a year earlier  as total mortgage production increased 41.2%, led by single family conventional mortgage production growth of 55.2%;
• Return on equity ("ROE") was 13.7% compared to 9.9% a year ago;
• Adjusted ROE for the third quarter was 14.0%, or 17.9% excluding the provision, compared to 16.2% a year ago;
• Productivity ratio on a taxable equivalent basis ("TEB") was 42.8%, or 29.2% excluding the provision;
• Equitable Trust's total capital ratio was 16.3% (including collective allowance) compared to 16.5% at September 30, 2010;
• Book value per share at period end increased 15.3% to $24.02 compared to $20.83 a year ago.

DIVIDEND INCREASE AND DECLARATIONS
The Company's Board of Directors announced a 9.1% annualized increase in the Company's common share dividends and declared the third quarter common share dividend of $0.12 per share, an increase of $0.01 per share, payable on January 3, 2012, to common shareholders of record at the close of business on December 15, 2011. This is the second common share dividend increase in 2011. The Board also declared a quarterly dividend in the amount of $0.453125 per preferred share, payable on December 31, 2011, to preferred shareholders of record at the close of business on December 15, 2011.

MANAGEMENT COMMENTARY
"The third quarter featured several meaningful accomplishments, including a 41% increase in mortgage production, record quarterly net interest income and outstanding credit performance," said Andrew Moor, President and CEO. "By capitalizing on our strategies for service excellence and our expanding national presence, we funded almost $380 million in conventional single family residential mortgages, surpassing second quarter production by almost 31% and production in this business line a year ago by over 55%.  As a result of this growth, ongoing success in our other business lines and long-term adherence to strict underwriting and risk management practices, Equitable's mortgage portfolio is increasingly well positioned to deliver high quality earnings growth in the quarters ahead. While the alleged fraud is unwelcome, it is isolated to a small group of condominium corporation loans in the portfolio and will not distract us from our longer-term plan to build value for our shareholders.  Overall, the fundamentals of our business are strong."

MORTGAGE PORTFOLIO AND CREDIT HIGHLIGHTS

• Single Family Lending Services originated $379.9 million of conventional mortgages or 40.0% of total third quarter production to bring conventional production for this business line to $886.2 million for the first nine months of 2011 from $732.9 million in the corresponding period of 2010;
• Commercial Mortgage - Broker Services originated $84.5 million of mortgages or 8.9% of total third quarter production to bring nine-month production to $234.7 million compared to $216.5 million a year ago;
• Commercial Lending Services originated $187.9 million of conventional mortgages or 19.8% of total production to bring total conventional production for this business line over the first nine months of 2011 to $375.0 million from $196.7 million in the same period a year ago.

At quarter end:

• Conventional mortgage principal increased 20.1% or $690.9 million during the 12 months ended September 30, 2011 to $4.1 billion;
• Securitized assets increased 17.1% or $769.1 million year over year to $5.3 billion at September 30, 2011 and included $207.7 million in single family residential mortgage assets previously originated as conventional loans that the Company insured and securitized as part of its ongoing strategy to manage funding costs;
• Net impaired mortgages improved to 0.23% of total mortgage principal, compared to 0.38% a year ago and 0.29% at June 30, 2011;
• Mortgage principal in arrears 90 days or more was 0.24% compared to 0.40% a year ago and 0.27% at June 30, 2011.

NINE MONTH PERFORMANCE

• Diluted EPS increased 44.8% to  $2.81 from $1.94 a year ago;
• Adjusted EPS on a diluted basis was $2.81, or $3.05 excluding the provision, compared to $2.56 a year ago;
• Adjusted net income was $45.2 million, or $48.8 million excluding the provision, compared to $41.0 million in the same period of 2010;
• Adjusted net income available to common shareholders increased to $42.4 million, or $46.0 million excluding the provision, from $38.3 million a year ago;
• Net interest income increased 13.0% to $98.4 million from $87.1 million a year ago;
• ROE was 16.4% compared to 13.1% a year ago;
• Adjusted ROE was 16.4%, or 17.7% excluding the provision, compared to 17.0% a year ago;
• Productivity ratio on a TEB was 33.3%, or 28.5% excluding the provision, compared to 26.5% a year ago.

OPERATIONAL PROVISION
In a press release dated August 23, 2011 the Company reported an alleged fraud relating to four condominium corporation loans with a total outstanding balance of approximately $14.0 million. This amount has been reduced to $13.9 million as a result of a partial recovery. Management has engaged external counsel to assist in this matter. The Company has commenced an action against several parties to the subject loan transactions and has been named, along with other defendants, in two separate statements of claim made by parties seeking relief from mortgage amounts owing. Management will defend these claims and will cross claim against a number of the defendants and will continue to review all legal options available to it in pursuing its recourse. In addition to any potential recoveries under its claims, the Company will also claim under its Financial Institution Bond, which is intended to protect against fraud losses, however, there is no assurance that proceeds or recoveries, if any, will be received in a timely manner or that such proceeds will be sufficient to recover the full amount of the loans. Accordingly, the Company recorded a pre-tax operational provision of $5.0 million ($0.24 per share) in the third quarter and reclassified the mortgages in question from mortgages receivable to other assets. While the total loss, if any, arising from this alleged fraud cannot be definitively determined at this time, management has established the allowance based on the information available at the reporting date and will continue to assess the progress of recovery efforts and the resulting estimate of recoverable amounts.

ADJUSTING FOR ACCOUNTING CHANGES
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 reflects conversion from previous Canadian Generally Accepted Accounting Principles ("GAAP") to IFRS. In addition to being affected by differences in the method of accounting for securitized assets, the restatement of the Company's financial results from previous Canadian GAAP to IFRS is affected by differences in the method of accounting for the related derivatives that are within its securitization activities, including the activities it undertakes to hedge interest rate risk associated with mortgage commitments and mortgages issued but awaiting securitization, as well as the interest rate risk associated with the respective securitization liabilities. In order to help readers, the Company analyzes its 2011 performance by comparing it to 2010 on an adjusted basis, which removes gains and losses associated with unmatched derivative measurement accounting. Adjusted figures are non-GAAP financial measures and do not remove the operational provision taken in the third quarter.

LOOKING AHEAD
"While market perceptions of risk have been heightened, and are factored into our business strategies, we remain confident in Equitable's ability to create value through profitable growth at this stage of the economic cycle," said Mr. Moor. "With respect to production, we expect to continue to expand our conventional mortgage assets in chosen markets and over the coming year, to reduce securitization activity related to multi-family insured mortgages as part of our strategy to grow earnings and maintain our strong capital position. Included in our fourth quarter outlook is an expectation that conventional single family mortgage originations will remain strong and at levels similar to the fourth quarter of 2010. Net interest margin should also remain stable for the remainder of the year, even with the potential for a minor contraction should the Bank of Canada reduce its benchmark-setting rate. In total, we believe earnings should reflect the momentum associated with recent expansion in our conventional mortgage assets."

In respect of Canadian real estate, management has long focused on urban centres where it believes long-term fundamentals (such as diversified local economies and population growth) support demand. Management will continue to apply this approach, along with its traditional discipline in setting loan-to-value ratios and other prudent lending criteria going forward within its active sales strategies.

Q3 CONFERENCE CALL
The Company will hold its third quarter conference call and webcast at 9:00 a.m. ET Thursday November 3, 2011. To access the call live, please dial in five minutes prior to 416-644-3417. 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 November 11, 2011 and it can be accessed by dialing 416-640-1917 and entering passcode 4481312 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", "Operational Provision" 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.