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

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TORONTO, Aug. 9, 2012 /CNW/ - Equitable Group Inc. ("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 HIGHLIGHTS -- Net income increased 40% to $22.1 million from $15.7 million in the second quarter of 2011 -- Diluted earnings per share ("EPS") increased 43% to $1.40 from $0.98 in the second quarter of 2011 -- Return on equity ("ROE") increased to 21.1% from 16.8% a year ago -- Equitable 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 HIGHLIGHTS Equitable 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 earlier -- Single 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 environment -- Commercial 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 ago -- Securitization 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 mortgages As 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 ago -- Net impaired mortgages improved to 0.27% of total mortgage assets from 0.29% a year ago The 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 DECLARATIONS The 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 HIGHLIGHTS -- Net income increased 26% to $40.0 million from $31.8 million in the first six months of 2011 -- EPS increased 27% to $2.52 from $1.99 in the same period of 2011 -- ROE increased to 19.4% from 17.4% a year ago -- Book value per share increased 14% to $27.46 from $24.05 at June 30, 2011 LOOKING AHEAD Equitable'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 CALL The 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 $ 305,037 $ 170,845 $ 264,724 equivalents Restricted cash 66,537 83,156 48,346 Securities 101,351 9,967 5,115 purchased under reverse repurchase agreements Investments 391,169 390,340 372,045 Mortgages 4,723,293 4,262,147 3,865,669 receivable Mortgages 5,255,425 5,314,940 4,998,688 receivable - securitized Other 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 5,076,323 5,100,921 4,776,241 liabilities Obligations 1,515 - - related to securities sold short Obligations - - 34,298 related to securities sold under repurchase agreements Deferred tax 5,666 7,790 7,457 liabilities Other liabilities 24,780 28,587 21,202 Bank term loans 12,500 12,500 12,500 Subordinated 52,671 52,671 52,671 debentures 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 4,913 4,718 4,292 surplus Retained earnings 288,596 254,006 228,881 Accumulated other (10,575) (10,349) (2,006) comprehensive loss 462,473 426,640 408,715 $ 10,867,531 $ 10,257,013 $ 9,567,355 CONSOLIDATED 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 ended Six months ended June 30, June 30, June 30, June 30, 2011 2012 2011 2012 Interest income: Mortgages $ 58,973 $ 50,474 $ 116,160 $ 98,323 Mortgages - 53,598 52,610 108,057 104,762 securitized Investments 2,878 2,648 5,126 4,927 Other 1,340 1,242 2,566 2,267 116,789 106,974 231,909 210,279 Interest expense: Deposits 31,589 28,251 61,939 54,991 Securitization 45,675 45,111 92,849 89,380 liabilities Bank term 202 203 404 403 loans Subordinated 868 870 1,737 1,732 debentures Other 4 78 5 107 78,338 74,513 156,934 146,613 Net interest 38,451 32,461 74,975 63,666 income Provision for 1,693 2,217 3,920 4,155 credit losses Net interest 36,758 30,244 71,055 59,511 income after provision for credit losses Other income: Fees and other 981 790 1,986 1,644 income Net gain 54 (311) 303 (13) (loss) on investments 1,035 479 2,289 1,631 Net interest and 37,793 30,723 73,344 61,142 other income Non-interest expenses: Compensation 6,965 5,540 13,535 11,013 and benefits Other 5,354 4,208 10,693 7,850 12,319 9,748 24,228 18,863 Income before 25,474 20,975 49,116 42,279 income taxes and the undernotedfair value (loss) gain Fair value (85) 48 (34) 367 (loss) gain on derivative financial instruments - securitization activities Income before 25,389 21,023 49,082 42,646 income taxes Income taxes: Current 4,258 5,149 11,193 10,476 Deferred (942) 139 (2,124) 371 3,316 5,288 9,069 10,847 Net 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 ended Six months ended June 30, June 30, June 30, 2012 June 30, 2011 2012 2011 Net income $ 22,073 $ 15,735 $ 40,013 $ 31,799 Other comprehensive loss: Available for sale investments: Net unrealized (782) 1,255 51 2,399 (losses) gains from change in fair value Reclassification (55) 275 (1,137) 10 of net (gains) losses to income (837) 1,530 (1,086) 2,409 Income tax 219 (429) 284 (676) (618) 1,101 (802) 1,733 Cash flow hedges (Note 8) Net unrealized (1,387) (5,143) (359) (3,476) losses from change in fair value Reclassification 547 6 1,139 (13) of net losses (gains) to income (840) (5,137) 780 (3,489) Income tax 219 1,441 (204) 979 (621) (3,696) 576 (2,510) Total other (1,239) (2,595) (226) (777) comprehensive loss Total $ 20,834 $ 13,140 $ 39,787 $ 31,022 comprehensive income CONSOLIDATED 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) Accumulated other Preferred Common Contributed Retained comprehensive June 30, 2012 shares shares surplus earnings income (loss) Total Balance, $ 48,494 $ 130,251 $ 4,813 $ 269,235 $ (9,336) $ 443,457 beginning of period Net income - - - 22,073 - 22,073 Other - - - - (1,239) (1,239) comprehensive loss, net of tax Reinvestment - 190 - - - 190 of dividends Exercise of - 491 - - - 491 stock options Dividends: Preferred - - - (906) - (906) shares Common - - - (1,806) - (1,806) shares Stock-based - - 213 - - 213 compensation Transfer - 113 (113) - - - relating to the exercise of stock options Balance, end $ 48,494 $ 131,045 $ 4,913 $ 288,596 $ (10,575) $ 462,473 of period Accumulated other Preferred Common Contributed Retained comprehensive June 30, 2011 shares shares surplus earnings income (loss) Total Balance, $ 48,494 $ 128,369 $ 4,169 $ 215,700 $ 589 $ 397,321 beginning of period Net income - - - 15,735 - 15,735 Other - - - - (2,595) (2,595) comprehensive loss, net of tax Reinvestment - 149 - - - 149 of dividends Exercise of - 455 - - - 455 stock options Dividends: Preferred - - - (906) - (906) shares Common - - - (1,648) - (1,648) shares Stock-based - - 204 - - 204 compensation Transfer - 81 (81) - - - relating to the exercise of stock options Balance, end $ 48,494 $ 129,054 $ 4,292 $ 228,881 $ (2,006) $ 408,715 of period 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) Accumulated other Preferred Common Contributed Retained comprehensive June 30, 2012 shares shares surplus earnings income (loss) Total Balance, $ 48,494 $ 129,771 $ 4,718 $ 254,006 $ (10,349) $ 426,640 beginning of period Net income - - - 40,013 - 40,013 Other - - - - (226) (226) comprehensive loss, net of tax Reinvestment - 378 - - - 378 of dividends Exercise of - 728 - - - 728 stock options Dividends: Preferred - - - (1,812) - (1,812) shares Common - - - (3,611) - (3,611) shares Stock-based - - 363 - - 363 compensation Transfer - 168 (168) - - - relating to the exercise of stock options Balance, end $ 48,494 $ 131,045 $ 4,913 $ 288,596 $ (10,575) $ 462,473 of period Accumulated other Preferred Common Contributed Retained comprehensive June 30, 2011 shares shares surplus earnings income (loss) Total Balance, $ 48,494 $ 128,068 $ 3,935 $ 202,187 $ (1,229) $ 381,455 beginning of period Net income - - - 31,799 - 31,799 Other - - - - (777) (777) comprehensive loss, net of tax Reinvestment - 276 - - - 276 of dividends Exercise of - 599 - - - 599 stock options Dividends: Preferred - - - (1,812) - (1,812) shares Common - - - (3,293) - (3,293) shares Stock-based - - 468 - - 468 compensation Transfer - 111 (111) - - - relating to the exercise of stock options Balance, end $ 48,494 $ 129,054 $ 4,292 $ 228,881 $ (2,006) $ 408,715 of period CONSOLIDATED STATEMENTS OF CASH FLOWS (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 ended Six months ended June 30, June 30, June 30, June 30, 2011 2012 2011 2012 CASH FLOWS FROM OPERATING ACTIVITIES Net income for the $ 22,073 $ 15,735 $ 40,013 $ 31,798 period Adjustments to determine cash flows relating to operating activities: Financial 12,153 1,000 13,989 1,099 instruments at fair value through income Depreciation of 238 173 469 237 capital assets Provision for 1,693 2,217 3,920 4,155 credit losses Net loss (gain) (11) 311 (260) 13 on sale or redemption of investments Income taxes 3,315 5,288 9,140 10,847 Income taxes paid (5,454) (4,770) (10,255) (9,541) Stock-based 213 204 363 468 compensation Amortization of (108) 887 676 1,672 premiums/discount on investments Net increase in (291,926) (304,697) (405,903) (650,482) mortgages receivable Net increase in 371,056 221,880 603,699 375,418 deposits Change in 1,515 - 1,515 - obligations related to securities sold Change in - 34,298 - 34,298 obligations related to securities under repurchase agreements Net change in 6,471 122,759 (24,597) 244,561 securitization liabilities Net interest (52,573) (43,732) (107,324) (90,975) income, excluding non-cash items 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 16,027 2,533 18,536 4,883 received Cash flows from 120,877 93,780 228,972 39,415 operating activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on (906) (906) (1,812) (1,812) preferred shares Dividends paid on (1,616) (1,499) (3,233) (3,018) common shares Proceeds from 491 455 728 599 issuance of common shares Cash flows used in (2,031) (1,950) (4,317) (4,231) financing activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of (47,532) (20,071) (67,532) (59,722) investments Proceeds on sale 12,789 13,406 59,519 34,349 or redemption of investments Net change in 19,227 (4,893) (7,444) (7,531) Canada Housing Trust re-investment accounts Purchase of (101,351) (5,115) (141,273) (30,108) securities under reverse repurchase agreements Proceeds on sale 39,922 24,993 49,889 99,901 or redemption of securities under reverse repurchase agreements Change in 23,710 (11,942) 16,619 38,224 restricted cash Purchase of (91) (735) (241) (815) capital assets Cash flows (used (53,326) (4,357) (90,463) 74,298 in) from investing activities Net increase in 65,520 87,473 134,192 109,482 cash and cash equivalents Cash and cash 239,517 177,251 170,845 155,242 equivalents, beginning of period Cash and cash $ 305,037 $ 264,724 $ 305,037 $ 264,724 equivalents, end of period 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 STATEMENTS Statements 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. Equitable Group Inc. CONTACT: Andrew MoorPresident and CEO416-513-7000Tim WilsonVice President and CFO416-513-7000

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