Equitable Group assets surpass $3 billion in third quarter



    TSX Symbol: ETC

    TORONTO, Nov. 1 /CNW/ - Equitable Group Inc. ("Equitable" or the
"Company") today reported its financial results for the three months ended
September 30, 2007 - including substantial growth in assets based on record
mortgage production.

    
    Third Quarter Highlights

      -  Mortgage production reached a quarterly record of $779.4 million
      -  Assets grew 38.1% to $3.33 billion as at September 30, 2007, from
         $2.41 billion as at September 30, 2006
      -  Net income increased 23.0% to $8.8 million from $7.1 million a year
         earlier
      -  Diluted earnings per share increased 13.6% to $0.67 compared to
         $0.59 a year ago
      -  Annualized return on average equity was 18.2% compared to 20.3% a
         year earlier
      -  No loan losses were recorded in the period and mortgages in arrears
         90 days or more amounted to just 0.08% of total mortgages
      -  Equitable Trust's total capital ratio was 11.3% compared to 11.1% a
         year earlier

    Nine-Month Period Highlights

      -  Net income increased 23.9% to $24.3 million from $19.6 million a
         year earlier
      -  Diluted earnings per share increased 17.9% to $1.91 compared to
         $1.62 a year earlier
      -  Annualized return on average equity was 18.5% compared to 19.5% a
         year earlier
    

    Dividend

    The Company's Board of Directors has declared a dividend in the amount of
$0.10 per share payable on January 4, 2008 to shareholders of record at the
close of business on December 14, 2007.

    Management Commentary

    "This was a good quarter for Equitable driven by a significant increase
in assets, which well surpassed $3 billion for the first time in the Company's
history," said Andrew Moor, President and CEO. "Asset expansion was registered
in each of our core niches including single-family dwelling and mixed use
mortgages receivable - which are long-term focus areas. Looking deeper,
Equitable set a new quarterly record for mortgage originations in the third
quarter, including a record funding of $450.3 million of conventional product
other than warehoused mortgages. We also took advantage of credit market
turmoil by buying insured mortgages that became available for purchase, which
contributed to significant year-over-year growth in securitization activity
within our CMHC-MBS program. This is just one of several highlights of a
strong quarter."

    Impact of Credit Market Volatility

    Equitable has no investments in Asset Backed Commercial Paper ("ABCP"),
does not utilize ABCP to securitize mortgages and does not provide back-up
credit facilities to any ABCP conduits.
    The impact on Equitable of recent global credit market turmoil was,
however, apparent in two areas.
    First, in its warehoused mortgage business, Equitable experienced higher
than expected mortgage balances and interest income as these mortgages were
discharged at a slower rate than anticipated due to the slowdown in
securitization activity by its customers.
    Second, interest rate spreads were narrowed between short-term GICs that
Equitable uses to fund its floating rate mortgages, and the Prime Rate, the
benchmark against which Equitable prices these mortgages. This was due to
greater competition in the GIC market resulting in higher rates paid without a
further increase in Prime. As a result, net income grew at a slower rate than
asset growth.
    "This compression was disappointing given the fact that spreads rebounded
in early July following the Bank of Canada's Prime Rate increase," said Mr.
Moor. "However, in the context of market turmoil, the 23.0% year-over-year
increase Equitable did achieve in third quarter net income was more than
satisfactory. Going forward, our goal remains to drive earnings as a means of
building shareholder value."

    Retirement of Board Member

    Geoffrey Bledin has announced his intention to retire from the Company's
Board of Directors in December.
    "Geoffrey's retirement is consistent with our expectations and the timing
reflects the fact that Andrew has made a very smooth and effective transition
into his new role as President and CEO," said Austin Beutel, Chairman of the
Board. "We thank Geoffrey for his support during this important period and we
wish him well in retirement."
    The Company is progressing on schedule with the recruitment of a Chief
Financial Officer following the retirement of Stephen Coffey at the end of the
third quarter and expects to make an appointment in the near future.

    Outlook

    "Our outlook for the remainder of the year is positive based on strong
fundamentals in our niches and the Bank of Canada's recent decision to hold
the line on interest rates, which supports real estate activity," said Mr.
Moor. "The challenge area is spreads and to address this, we have raised rates
on new mortgage loans. This strategy is designed to enhance margins between
mortgage pricing and the cost of GIC funding. It will not, however, have a
meaningful impact on the total portfolio for several quarters as only a modest
percentage of Equitable's portfolio matures in any given period."
    Mr. Moor added that following several quarters of record expansion, the
Company is focused on growing its Return on Equity through effective capital
allocation strategies. This approach is consistent with Equitable's adherence
to disciplined lending practices and its dedication to maintaining the
financial strength that is key to achieving profitable long-term growth.
    Longer-term, Equitable believes the re-intermediation of credit markets
will be positive for regulated financial institutions such as Equitable. It
means there will be "less competition from lenders using securitization
markets, particularly for single-family dwelling and mixed use mortgage
lending," said Mr. Moor. "If this expectation is fulfilled, Equitable will
grow faster in these niches than in our other businesses. In our view, this
would have a positive impact on Equitable's ROE."

    Third Quarter Webcast

    Management will discuss Equitable's results during a conference call
beginning at 8:30 a.m. ET today. To listen to the audio webcast, log on to
www.equitablegroupinc.com. To participate in the call, please dial
416-644-3419.

    MD&A

    The Company will post its MD&A for the three and nine months ended
September 30, 2007 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 leading niche mortgage lender that focuses on
single-family dwelling, multi-unit residential and commercial mortgage
financing in selected geographic territories in Canada. It conducts business
through its wholly-owned subsidiary, The Equitable Trust Company, which was
founded in 1970. Equitable is also a nationally-licensed deposit-taking
institution. Equitable's non-branch business model, valued relationships with
third-party mortgage professionals and deposit-taking agents, and disciplined
lending practices have allowed the Company to grow profitably and efficiently
for many years.
    The common shares of Equitable Group Inc. are listed on the Toronto Stock
Exchange under the trading symbol of "ETC". For more information, visit
www.equitablegroupinc.com.

    Certain forward-looking statements are made in this news release,
including statements regarding possible future business. Investors are
cautioned that such forward-looking statements involve risks and uncertainties
detailed from time to time in the Company's periodic reports filed with
Canadian regulatory authorities. Many factors could cause actual results,
performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by such
forward-looking statements. Equitable does not undertake to update any
forward-looking statements, oral or written, made by itself or on its behalf.
See the MD&A for further information on forward-looking statements.


    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
    OF OPERATIONS

    (for the three and nine months ended September 30, 2007)

    This Management's Discussion and Analysis ("MD&A") should be read in
conjunction with the interim unaudited consolidated financial statements for
the period ended September 30, 2007, as well as the audited consolidated
financial statements and MD&A for the year ended December 31, 2006, available
on SEDAR at www.sedar.com. Except as indicated below, the factors discussed
and referred to in the MD&A for 2006 remain substantially unchanged.

    OVERVIEW

    Equitable Group Inc. ("Equitable" or the "Company") is a niche mortgage
lender. Its core business is to raise funds by selling GICs to depositors and
to lend these funds to borrowers on the security of first mortgages on real
estate. It does this through its wholly-owned subsidiary - The Equitable Trust
Company ("Equitable Trust"). The Company's mortgage products bear fixed or
floating rates of interest and are primarily for fixed terms. The mortgages
are segregated as follows:

    
    -  residential mortgages - either single-family dwellings or multi-unit
       (apartments, nursing homes etc.)
    -  commercial mortgages
    -  construction mortgages
    -  residential and commercial mortgages held for sale (often referred to
       as "warehoused mortgages" because they usually remain on the Company's
       books for short durations of up to six months) which are originated by
       third-party lenders who require financing prior to pooling and
       eventually selling the mortgages to investors
    -  residential insured mortgages for securitization through the Canada
       Mortgage and Housing Corporation Mortgage-Backed Securities
       ("CMHC-MBS") program
    

    Equitable conducts business through Equitable Trust, which is regulated
by the Office of the Superintendent of Financial Institutions - Canada
("OSFI"). Equitable Trust has prescribed capital requirements based on the
type and amount of assets on its balance sheet and on certain off-balance
sheet items. For this reason, Equitable focuses on capital management as a
means to balance growth and Return on Average Equity ("ROAE") targets.
    The third quarter was a time of significant volatility and change in
global credit markets. In Canada, changes in credit market conditions led to
widely-publicized difficulties in the Asset Backed Commercial Paper ("ABCP")
market that a number of the Company's competitors use to fund their mortgage
portfolios. In the latter half of the quarter, Canadian financial markets
significantly reduced mortgage securitization activity compared to prior
quarters other than securitization backed by the strength of a government
guarantee.
    These market changes had limited impact on the Company due to the fact
that Equitable:

    
    -  had no investments in commercial paper
    -  does not utilize ABCP to securitize its mortgages
    -  has not provided back-up credit facilities to any ABCP conduits
    

    Long term, management believes that Equitable will benefit from the
re-intermediation of credit markets as there will be less competition from
securitization conduits in its core lending niches (see "Outlook").
    The changes in the credit markets did affect the Company's performance in
the quarter in two areas.
    First as a result of the slowdown in securitization activity, customers
in its warehouse business discharged mortgages at a slower rate than was
anticipated. This resulted in higher mortgage balances and interest income
than otherwise would have been the case. This, along with substantial growth
in each of its three niches (single-family, multi-unit and commercial), pushed
Equitable's assets well beyond the $3 billion mark in the third quarter for
the first time in the Company's history. Mortgage originations achieved a new
quarterly high of $779.4 million in third quarter 2007, including a record
funding of $450.3 million of conventional mortgages other than warehoused
mortgages. Overall, the increase in mortgage originations of 59.2% over the
same period in 2006 translated in to a 36.1% increase in the mortgage
portfolio on a year-over-year basis and 26.3% increase from the beginning of
the year.
    Second, the Company experienced strong demand for its GIC products
throughout the quarter as investors sought safety by depositing funds in
regulated financial institutions. The pricing of these GICs was compressed
compared to the Prime interest rate, the benchmark against which Equitable
prices its floating rate loans. Management believes this compression reflected
greater than normal competition in the GIC market as other financial
institutions sought to raise GIC funds rather than face increased costs in
other short-term money markets. Primarily as a result of the compression in
interest rate spreads on the Company's floating rate loans, net income
increased at a slower rate than assets.
    Equitable's performance during the nine month period ended September 30,
2007 equaled or exceeded its growth objectives for the full year with the
exception of the growth rate in diluted earnings per share ("EPS"), which, as
expected was impacted by the issuance of 769,231 common shares on April 30,
2007 and spread compression.

    
    Table 1: Performance against objectives

                                             Performance         Performance
                                           for the three        for the nine
                                         months ended or     months ended or
                                2007               as at               as at
                          Objectives  September 30, 2007  September 30, 2007
    -------------------------------------------------------------------------

    Growth in assets(1)
     - year-over-year         18-22%               38.1%               38.1%
    Increase in net
     income(1)                18-22%               23.0%               23.9%
    Increase in diluted
     earnings per share
     ("EPS")(1)               18-22%               13.6%               17.9%
    Return on average
     equity ("ROAE")(1)       18-22%               18.2%               18.5%
    Productivity ratio
     - Tax Equivalent
     Basis ("TEB")(2)         32-35%               34.2%               33.9%

    (1) Asset growth performance is based upon current period end balances as
        compared to those of the prior year; net income and EPS performance
        is based upon performance comparisons to the comparable prior year
        periods; ROAE is presented on an annualized basis.
    (2) See explanation of TEB at the end of this MD&A.


    On October 31, 2007, the Company's Board declared a quarterly dividend in
the amount of $0.10 per share, payable on January 4, 2008, to shareholders of
record at the close of business December 14, 2007.


    Table 2: Selected financial information
    ($ thousands, except share and per share amounts)

                                  Three Months Ended       Nine Months Ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006

    OPERATIONS
    Net income               $     8,788 $     7,144 $    24,260 $    19,586
    Earnings per share
     - basic                        0.68        0.60        1.94        1.65
    Earnings per share
     - diluted                      0.67        0.59        1.91        1.62
    Net interest income(1)        16,846      13,455      47,061      37,400
    Total revenue                 49,556      37,572     136,952     102,400
    Return on weighted average
     equity - annualized           18.2%       20.3%       18.5%       19.5%
    Return on average assets
     - annualized                   1.1%        1.2%        1.1%        1.2%
    Productivity ratio
     - TEB(1)(2)                   34.2%       32.7%       33.9%       32.6%

    BALANCE SHEET AND
     OFF-BALANCE SHEET

    Total assets                                     $ 3,332,572 $ 2,413,811
    Mortgages receivable                               2,698,634   1,981,594
    Shareholders' equity                                 197,851     142,897
    Mortgage-backed security
     assets under
     administration                                    1,848,719   1,862,789

    COMMON SHARES

    Number of common shares
     outstanding at period end                        12,940,099  11,908,245
    Dividends per share                              $      0.30 $      0.30
    Book value per share                             $     15.29 $     12.00
    Share price - close                                    29.00       29.47
    Market capitalization                                375,263     350,936

    CREDIT QUALITY

    Realized loan losses
     - net of recoveries                             $        21 $        21
    Mortgages in arrears
     90 days or more as a
     % of total mortgages                                  0.08%       0.05%
    Net impaired mortgages(3)
     as a % of total mortgages                             0.08%       0.06%
    Allowance for credit
     losses as a % of gross
     impaired mortgages                                   409.8%      278.2%

    (1) See explanation of treatment of net mortgage commitment fees and
        deposit agent commissions at the end of this MD&A.
    (2) See explanation of TEB at the end of this MD&A.
    (3) Gross mortgage principal of impaired loans less specific reserves.
    

    FINANCIAL REVIEW

    EARNINGS

    Net income for the three months ended September 30, 2007 increased 23.0%
year-over-year to $8.8 million and increased 17.5% from the second quarter of
2007. With the increase in Prime Rate (which Equitable uses to price its
floating rate mortgages) on July 10, 2007, net interest margin expanded at the
beginning of the quarter, as expected. However, this increase was offset later
in the quarter as interest rates on short-term GICs used to fund floating rate
mortgages increased due to unfavourable credit conditions noted above without
a further increase in Prime Rate.

    
    Table 3: Net interest income

                                    Three months ended    Three months ended
    ($ thousands)                   September 30, 2007    September 30, 2006

    Interest revenues or interest   Revenue/   Average    Revenue/   Average
     expenses derived from:         Expense       rate    Expense       rate
     derived from:
    Assets:
    Liquidity investments            $3,570       3.9%     $2,170       3.9%
    Equity securities - TEB(1)        3,023       6.6%      2,272       6.6%
    Mortgage loans                   42,102       6.7%     32,156       6.7%
    Total interest earning
     assets - TEB(1)                 48,695       6.4%     36,598       6.4%
    Total assets - TEB(1)            48,695       6.2%     36,598       6.2%

    Liabilities and
     shareholders' equity:
    Customer deposits                29,178       4.2%     21,094       4.1%
    Bank term loan                      752       6.7%        594       6.8%
    Subordinated debt                   592       7.3%        475       7.5%
    Total interest bearing
     liabilities                     30,522       4.3%     22,163       4.1%
    Total liabilities and
     shareholders' equity            30,522       3.9%     22,163       3.8%
    Net interest income
     - TEB(1)(2)                     18,173                14,435
    Net interest margin
     - TEB(1)(2)                                  2.3%                  2.5%

    Less: Taxable equivalent
     adjustment(1)                   (1,327)                 (980)
    Add: Net mortgage
     commitment fees(2)                 719                     -
    Less: Deposit agent
     commissions(2)                  (1,907)                    -
    Net interest income per
     financial statements            15,658                13,455


                                     Nine months ended     Nine months ended
    ($ thousands)                   September 30, 2007    September 30, 2006

    Interest revenues or interest   Revenue/   Average    Revenue/   Average
     expenses derived from:         Expense       Rate    Expense       Rate
    Assets:
    Liquidity investments           $10,420       4.2%     $5,897       4.0%
    Equity securities - TEB(1)        8,999       7.1%      6,206       6.7%
    Mortgage loans                  115,290       6.4%     87,605       6.4%
    Total interest earning
     assets - TEB(1)                134,709       6.2%     99,708       6.2%
    Total assets - TEB(1)           134,709       6.0%     99,708       6.0%

    Liabilities and
     shareholders' equity:
    Customer deposits                79,679       4.0%     56,622       3.9%
    Bank term loan                    2,198       6.9%      1,478       6.8%
    Subordinated debt                 1,775       7.4%      1,567       7.6%
    Total interest bearing
     liabilities                     83,652       4.1%     59,667       4.0%
    Total liabilities and
     shareholders' equity            83,652       3.8%     59,667       3.6%
    Net interest income
     - TEB(1)(2)                     51,057                40,041
    Net interest margin
     - TEB(1)(2)                                  2.3%                  2.4%

    Less: Taxable equivalent
     adjustment(1)                   (3,996)               (2,641)
    Add: Net mortgage
     commitment fees(2)               2,012                     -
    Less: Deposit agent
     commissions(2)                  (4,847)                    -
    Net interest income per
     financial statements            44,226                37,400

    (1) See explanation of TEB at the end of this MD&A.
    (2) See explanation of treatment of net mortgage commitment fees and
        deposit agent commissions at the end of this MD&A.
    

    Total interest revenues on a TEB increased 33.1% to $48.7 million in the
third quarter, compared to $36.6 million in the comparable 2006 period, due
primarily to growth in the Company's interest-earning asset base. Mortgage
revenues increased $9.9 million or 30.9% in the third quarter 2007 over 2006,
while average rates remained consistent at 6.7% for both periods. Equity
securities' income on a TEB increased $0.8 million or 33.1% compared to the
same period in the prior year due primarily to the increase in the average
size of the portfolio of $47.4 million.
    Interest rates on average customer deposits outstanding during the third
quarter of 2007 increased to 4.2% from 4.1% in 2006 due to increases in
interest rates prevailing in the GIC market. Overall interest expense on
customer deposits for the quarter grew $8.1 million or 38.3% over 2006 due to
these higher interest rates as well as a 34.1% increase in average customer
deposits outstanding during the third quarter of 2007 compared to 2006.
    During the third quarter of 2007, the Company entered into an additional
$105.0 million of interest rate swaps in order to hedge interest rates on term
GICs used to fund floating rate mortgages. The GICs to which these swaps
relate have been designated as "held-for-trading" financial instruments and
are carried at fair value. Any change in their value is included in interest
expense and all transaction costs related to raising these GICs are expensed
at the time of designation.
    Net interest income - TEB increased $3.7 million or 25.9% to
$18.2 million in the third quarter of 2007 compared to the $14.4 million
earned during the same period of 2006. In conjunction with the adoption of new
accounting policies for financial instruments effective January 1, 2007,
deposit agent commissions are accounted for as a component of interest expense
and net mortgage commitment fees as a component of mortgage interest income.
This change from prior years' financial statement presentation has not been
applied retroactively and certain elements of this MD&A have been presented in
a manner so that certain current ratios such as net interest margins - TEB and
productivity ratios - TEB are consistent with past MD&A presentation.

    Other Income

    Other income includes ancillary fees related to the mortgage portfolio,
gains on the securitization of mortgages and excess interest, net of servicing
fee earned on mortgages issued through the Company's CMHC-MBS program. Sundry
income, gains or losses on the sale or redemption of investments and other
non-mortgage related fees are also included in other income. Other income
amounted to $1.5 million for the three months ended September 30, 2007,
compared to $2.0 million in the third quarter a year ago. The decrease is
primarily related to the classification of net mortgage commitment fees as a
component of mortgage interest income. This change from prior periods'
presentation has not been applied retroactively in conjunction with the
adoption of new accounting policies for financial instruments in 2007.
    During the third quarter, the Company securitized, through the CMHC-MBS
program, $124.2 million of mortgages compared to $36.4 million during the
comparable period in 2006. Much of this increase was the result of the Company
buying insured mortgages that became available for purchase as a result of
challenging conditions in the credit markets. Gains on sale of mortgages were
$0.4 million, an increase from the $0.1 million gain in the comparable period
of 2006. Gross margins on the securitization of mortgages remained consistent
at 25 basis points in the third quarter of 2007 compared to 26 basis points in
the comparable period. Excess interest net of servicing fees was $0.7 million
during the third quarter of 2007, a decrease of $0.2 million from the
$0.9 million earned in the third quarter of 2006. This change was due to a
decrease in average outstanding securitized mortgages during the third quarter
of 2007 which was $1.82 billion compared to $1.89 billion a year earlier.

    Non-Interest Expenses

    Non-interest expenses include all of the expenses not related to interest
or credit provisions required to operate Equitable's business. The major
elements of non-interest expenses consist primarily of salaries and benefits,
premises and equipment expenses, capital taxes, insurance, and other general
and administrative expenses. In prior periods, deposit agent commissions were
included in non-interest expenses. In conjunction with the adoption of the new
accounting policies for financial instruments, commencing in 2007 deposit
agent commissions are accounted for as a component of interest expense. This
change from prior periods' presentation has not been applied retroactively and
commentary on non-interest expenses in this MD&A is presented including
deposit agent commissions so that comparison with prior periods' results is
meaningful. For more information, see the "Non-GAAP Financial Measures"
section at the end of this MD&A. Non-interest expenses and deposit agent
commissions totalled $7.0 million in the third quarter compared to
$5.4 million during the same period in 2006. This increase primarily reflected
higher employment levels to support growth and variable expenses related to
the expansion of the business including deposit agent commissions as well as
office and equipment costs to accommodate growth in staff.
    Included in non-interest expenses during the third quarter of 2007 was a
charge for stock-based compensation expense in the amount of $0.2 million
related to grants of options from 2004 to 2007 compared to a $0.1 million
charge for the quarter ended September 30, 2006. The offset to this expense
was an increase to contributed surplus in the same amount.
    The Company's productivity ratio - TEB was 34.2% in the third quarter of
2007 compared to 32.7% in the third quarter of 2006. This increase is
primarily the result of expensing $0.3 million of deposit agent commissions in
the most recent quarter when certain term GICs were designated as "held-for-
trading" compared to no such charge in the prior year. Had the Company not
chosen to manage its interest rate risk through swap activity, the
productivity ratio in the most recent quarter would have been comparable to
the prior year at 32.9%. This ratio (the lower, the more efficient the
operations) is a non-GAAP financial measure. In 2007 it is calculated by
dividing non-interest expenses, plus deposit agent commissions, by the sum of
net interest income - TEB, net mortgage commitment fees (as illustrated in
Table 3), and other income.

    BALANCE SHEET

    Mortgages

    The Company's mortgage lending is focused on first charges for real
estate in three primary niches: single-family dwelling, multi-unit residential
and commercial. At September 30, 2007, single-family dwelling mortgages
represented the largest portion of the portfolio (see Table 4) and increased
27.3% from December 31, 2006 and 36.8% from September 30, 2006. Multi-unit
residential mortgages increased 40.0% compared to a year earlier and increased
29.5% from December 31, 2006. Commercial mortgages increased 60.8% from a year
ago and 40.6% from December 31, 2006. Growth in all of these mortgage lending
activities reflects strong demand.

    
    Table 4: Mortgages receivable

                                    September 30, 2007     December 31, 2006
    ($ thousands)                     $     % of total      $     % of total

    Single-family dwelling          944,370      35.1%    741,732      34.8%
    Multi-unit residential          738,333      27.4%    570,312      26.7%
    Commercial                      605,835      22.5%    431,017      20.2%
    Conventional mortgages held
     for sale                       323,468      12.0%    268,396      12.6%
    Construction                     61,605       2.3%     87,043       4.1%
    CMHC-insured                     20,193       0.7%     33,617       1.6%
                                 -----------           -----------
    Total mortgage principal      2,693,804     100.0%  2,132,117     100.0%
    Deferred net mortgage
     commitment fees, net
     premiums and sundry                133                 1,423
                                 -----------           -----------
    Mortgages reported            2,693,937             2,133,540
    Accrued interest                 13,397                10,168
    Allowances for credit losses     (8,700)               (8,046)
                                 -----------           -----------
    Total mortgages receivable    2,698,634             2,135,662
                                 -----------           -----------
                                 -----------           -----------


                                    September 30, 2006
    ($ thousands)                     $     % of total

    Single-family dwelling          690,579      34.9%
    Multi-unit residential          527,380      26.7%
    Commercial                      376,816      19.0%
    Conventional mortgages held
     for sale                       261,866      13.2%
    Construction                     90,532       4.6%
    CMHC-insured                     31,637       1.6%
                                 -----------
    Total mortgage principal      1,978,810     100.0%
    Deferred net mortgage
     commitment fees, net
     premiums and sundry              1,174
                                 -----------
    Mortgages reported            1,979,984
    Accrued interest                  9,431
    Allowances for credit losses     (7,821)
                                 -----------
    Total mortgages receivable    1,981,594
                                 -----------
                                 -----------
    

    Mortgage principal increased $561.7 million or 26.3% during the
nine-month period ended September 30, 2007 and increased $715.0 million or
36.1% since September 30, 2006. The Company funded a total of $779.4 million
of mortgages during the third quarter, an increase of 59.2% over last year's
third quarter when a total of $489.7 million of mortgages were funded.
    Conventional mortgages (other than warehoused mortgages) funded during
the third quarter of 2007 amounted to $450.3 million, an increase of 128.9%
year-over-year. CMHC mortgages funded during the third quarter of 2007
amounted to $112.4 million compared to $43.7 million a year earlier.
Conventional mortgages repaid and discharged during the third quarter of 2007
totalled $271.0 million compared to $305.3 million a year earlier.
    In conjunction with the adoption of the new accounting policies for
financial instruments, commencing in 2007 deferred finders fees and deferred
mortgage commitment fees are accounted for as a component of mortgages
receivable. Formerly, these were presented as a component of other assets and
other liabilities, respectively. This change from prior periods' presentation
has not been applied retroactively.
    Table 5 shows mortgage principal funded by segment.

    
    Table 5: Mortgage production

                                             Three Months Ended
                               September 30, 2007         September 30, 2006
                          Mortgage                   Mortgage
                         Principal                  Principal
    ($ thousands)           Funded     % of total      Funded     % of total

    Conventional
      mortgages
      other than
      warehoused
      mortgages           $450,264          57.8%    $196,708          40.2%
    Warehoused
      mortgages            216,699          27.8%     249,279          50.9%
    CMHC-insured
      mortgages            112,410          14.4%      43,711           8.9%
                       ------------------------------------------------------
    Total                 $779,373         100.0%    $489,698         100.0%


                                             Nine Months Ended
                               September 30, 2007         September 30, 2006
                          Mortgage                   Mortgage
                         Principal                  Principal
    ($ thousands)           Funded     % of total      Funded     % of total

    Conventional
      mortgages
      other than
      warehoused
      mortgages         $1,127,867          52.5%    $631,188(1)       42.2%
    Warehoused
      mortgages            761,207          35.5%     635,534(1)       42.5%
    CMHC-insured
      mortgages            256,421          12.0%     228,465          15.3%
                       ------------------------------------------------------
    Total               $2,145,495         100.0%  $1,495,187         100.0%

    (1) Amounts have been adjusted by $19.6 million (warehoused up,
        conventional other than warehoused down) from prior reports in order
        to correct a misclassification.
    

    The timing of warehoused mortgage production and discharges can lead to
significant volatility in balances held in the warehouse mortgage program. The
level of warehouse discharge activity during the third quarter was abnormally
low reflecting the lower levels of activity in securitization markets.
    Table 6 is a continuity schedule for warehoused mortgages.

    
    Table 6: Warehoused mortgage program

                                    Three Months Ended     Nine Months Ended
                                  September  September  September  September
    ($ thousands)                  30, 2007   30, 2006   30, 2007   30, 2006

    Principal balance,
     beginning of period           $212,059   $172,794   $268,396   $163,743
    Production                      216,699    249,279    761,207    635,534
    Repayments and discharges      (105,290)  (160,207)  (706,135)  (537,411)
                                  -------------------------------------------
    Principal balance,
     end of period                 $323,468   $261,866   $323,468   $261,866

    Net increase in principal
     balance                       $111,409    $89,072    $55,072    $98,123
    

    Mortgage Credit Quality

    The Company did not realize any credit losses during either the third
quarter of 2007 or 2006. Mortgages in arrears 90 days or more amounted to
0.08% of total principal outstanding at September 30, 2007 compared to 0.05%
of total principal outstanding at September 30, 2006. Mortgages identified as
impaired amounted to 0.08% of total mortgage principal outstanding at
September 30, 2007, compared to 0.14% a year earlier. The provision for credit
losses for the third quarter of 2007 of $225 thousand was equal to the amount
recorded in the comparable prior year period.

    
    Table 7: Asset categories

                  September 30, 2007   December 31, 2006  September 30, 2006
                       Asset    % of       Asset    % of       Asset    % of
    ($ thousands)     Amount   total      Amount   total      Amount   total

    Liquidity
     investments    $399,059   12.0%    $260,490    9.9%    $231,180    9.6%
    Equity
     securities      170,262    5.1%     166,669    6.4%     137,015    5.7%
    Mortgage
     loans         2,698,634   81.0%   2,135,662   81.3%   1,981,594   82.1%
    Loan securit-
     izations -
     retained
     interests        53,335    1.6%      48,271    1.8%      49,591    2.0%
    Other assets      11,282    0.3%      14,663    0.6%      14,431    0.6%
                 ------------------------------------------------------------
    Total         $3,332,572  100.0%  $2,625,755  100.0%  $2,413,811  100.0%
    

    Total assets at September 30, 2007 increased $706.8 million or 26.9% from
$2.63 billion at December 31, 2006 and increased $918.8 million or 38.1% from
$2.41 billion at September 30, 2006. Management expanded the Company's
portfolio of liquidity investments towards the end of the third quarter as a
prudent approach during a period of credit market uncertainty. Total liquid
resources including liquidity investments and equity securities comprised
17.1% of total assets at September 30, 2007, compared to 16.3% at December 31,
2006 and 15.3% as at September 30, 2006.
    Liquidity investments at the end of the quarter consisted of
$341.6 million of treasury bills issued by the Government of Canada,
promissory notes and bonds issued by certain provinces of Canada, $40.4
million of third party NHA-mortgage backed securities and $17.0 million was
held as cash in bank accounts with major Canadian banks. The Company has no
investments in commercial paper.
    Equity securities are comprised of preferred shares. At September 30,
2007 equity securities were $3.6 million or 2.2% higher than at December 31,
2006 and $33.2 million or 24.3% higher compared to September 30, 2006.
Management evaluated the available returns on its preferred share portfolio as
part of its disciplined approach to capital allocation. As a result of this
third quarter analysis, $23.9 million of preferred shares that were determined
to provide returns below the Company's hurdle rates were sold for a gain of
$15 thousand. Tax exempt dividend income from equity securities assists in
lowering the Company's effective tax rate. The Company's effective tax rate
was 26.9% for the nine months ended September 30, 2007 compared to 28.2% for
the period ended September 30, 2006.
    Loan securitizations - retained interests increased $5.1 million to
$53.3 million at September 30, 2007 from $48.3 million at December 31, 2006
and were $3.7 million or 7.5% higher than a year ago. Total mortgages in the
CMHC-MBS program outstanding at September 30, 2007 were $1.85 billion, a
$14.1 million decrease from $1.86 billion at September 30, 2006 but an
increase from $1.81 billion outstanding at December 31, 2006.

    Liabilities

    Customer deposits are utilized to fund the bulk of the Company's asset
acquisitions and consist of GICs, sourced primarily through a national
distribution network of deposit agents. Customer deposits at September 30,
2007 increased $645.9 million or 27.6% from December 31, 2006 and
$839.3 million or 39.2% from September 30, 2006. Commencing in 2007, as stated
elsewhere in this MD&A, deferred deposit agent commissions are required to be
presented as a component of customer deposits. Formerly, these were presented
as an "other" asset.
    Future income taxes payable result from differences between the
measurement of assets and liabilities for financial statement purposes, as
opposed to tax purposes, and relate primarily to the Company's securitization
activities, allowance for credit losses and the unrealized losses of its
equity securities portfolio.

    Other Assets and Liabilities

    Other assets at September 30, 2007 decreased $3.4 million from
December 31, 2006 and $3.1 million from a year earlier. Other liabilities
include the future servicing liability of securitized mortgages, realty taxes
collected from borrowers, accounts payable, income taxes payable in 2006 and
periodic drawings under the Company's bank line of credit facility. No
drawings were made on this line at September 30, 2007, December 31, 2006 or at
September 30, 2006.
    As stated elsewhere in the MD&A, commencing in 2007 deferred finders fees
and deferred mortgage commitment fees are accounted for as a component of
mortgages receivable. Formerly, these were presented as a component of other
assets and other liabilities, respectively. In addition, deferred deposit
agent commissions are required to be presented as a component of customer
deposits. Formerly, these were presented as an "other" asset. These changes
from prior periods' presentation have not been applied retroactively.

    Shareholders' Equity

    Total shareholders' equity increased $48.1 million or 32.1% to
$197.9 million at September 30, 2007 from $149.7 million at December 31, 2006
and grew 38.5% compared to September 30, 2006. The Company completed a
$25.0 million equity issue on April 30, 2007 with the sale of 769,231 common
shares to the public. Also, as a result of the exercise of employee stock
options, 25,400 common shares were issued for cash proceeds of $0.4 million
which was added to common share capital during the third quarter of 2007
compared to 4,600 common shares issued and $85 thousand cash proceeds added to
common share capital in the third quarter of 2006. At September 30, 2007, the
Company had 12,940,099 common shares issued and outstanding, up 1,031,854 or
8.7% from 11,908,245 common shares issued and outstanding at September 30,
2006.
    Shareholders' equity now includes accumulated other comprehensive loss as
a result of the adoption of the new accounting policies outlined in Note 2 to
the interim unaudited consolidated financial statements for the period ended
September 30, 2007.
    Accumulated other comprehensive loss includes the after tax change in
unrealized gains and losses on available-for-sale investments and retained
interests - loan securitizations. This category of equity appears for the
first time in 2007 and prior periods have not been restated.
    Other comprehensive loss amounted to $1.6 million at September 30, 2007,
with a net gain of $3.3 million recorded during the third quarter of 2007. For
the nine months ended September 30, 2007, other comprehensive loss includes a
loss of $2.3 million related to unrealized loss, net of income tax recovery,
on the Company's preferred share portfolio. During the third quarter of 2007,
as a result of the proposed terms of a takeover bid for BCE Inc., there has
been a significant increase in the value of BCE preferred shares held by the
Company. The net gain in accumulated other comprehensive income recorded
during the third quarter of 2007 was largely attributed to the increase in
value of the BCE preferred shares.
    As a result of adopting the new financial instrument accounting policies,
the opening balance of retained earnings has been adjusted to reflect the
January 1, 2007 fair values of assets and liabilities required to be, or
designated to be, characterized as "held-for-trading." Changes in the fair
values of these held-for-trading assets and liabilities - which include CMHC
mortgages to be securitized, mortgage commitments on CMHC mortgages to be
securitized, GICs designated as held-for-trading and derivative financial
instruments - flow through the statement of income.

    Capital Management

    The Company maintains a capital management policy to govern the quality
and quantity of capital utilized by Equitable Trust, the Company's wholly
owned subsidiary, in its regulated operations. The objective of the policy is
to ensure that adequate capital requirements are met, while providing
sufficient return to investors. As well, the Company requires sufficient
regulatory capital to meet the needs of its asset growth targets. During the
first six months of 2007, the Company took two major steps to increase
regulatory capital. The first was the authorization for Equitable Trust to
issue up to $40.0 million of series 7 subordinated debentures eligible as
Tier 2 capital. A total of $22.0 million of these debentures were issued in
the first quarter of 2007 - $12.5 million of this total was financed by the
receipt of a bank loan. During the second quarter of 2007, Equitable Trust
redeemed $5.4 million of series 5 subordinated debentures. The second step to
increase regulatory capital was the Company's $25.0 million equity issue and
the subsequent investment of the net proceeds to increase Tier 1 capital in
Equitable Trust. The net impact of these measures, along with the growth in
total assets and retained earnings, is that Equitable Trust's total capital
ratio at September 30, 2007 was 11.3% compared to 10.6% at December 31, 2006
and 11.1% at September 30, 2006.
    Given the rapid pace of asset expansion, and the Company's dedication to
achieving profitable growth while maintaining its solid financial base,
management has embarked on a series of measures to increase regulatory capital
levels. These measures include slowing the growth of risk weighted assets and
examining different approaches to raising Tier 2 capital.
    Table 8 summarizes Equitable Trust's regulatory capital position.

    
    Table 8: Capital measures (relating solely to Equitable Trust)

    ($ thousands)                      September      December     September
                                        30, 2007      31, 2006      30, 2006

    Tier 1 capital                      $196,060      $148,466      $141,910
    Tier 2 capital                        76,564        60,000        60,000
    Total capital                        272,624       208,466       201,910
    Total risk weighted assets         2,419,745     1,967,779     1,819,062
    Total capital as a % of total
     risk weighted assets                  11.3%         10.6%         11.1%
    Authorized asset to capital
     multiple                              17.5x         17.5x         17.5x
    Utilized asset to capital
     multiple                              12.2x         12.6x         12.0x
    

    OSFI has issued guidance on new capital requirements in accordance with
the Bank for International Settlements, Basel II pronouncements. These
pronouncements will result in a revision to Equitable Trust's capital
requirements based on the nature of its assets and the introduction of
additional capital requirements based on the operational and other risks of
Equitable Trust. Calculation of capital under Basel II takes effect on
January 1, 2008.

    Eight Quarter Summary

    Table 9 summarizes the Company's performance over the last eight
quarters. Generally, the real estate market experiences periods of seasonality
at different times of the year, but traditionally, this has had little impact
on Equitable's results. Of much greater importance, as stated elsewhere in
this MD&A, is any movement in interest rates and interest rate spreads.

    
    Table 9: Summary of quarterly results

    ($ thousands, except assets
     and per share amounts)                              2007           2006
                                                  Q3      Q2      Q1      Q4

    Total assets at quarter end - $ millions   3,333   2,901   2,866   2,626
    Total revenues - TEB(1)                   50,883  46,177  43,888  41,941
    Total revenues                            49,556  44,728  42,668  40,819
    Net interest income - TEB(1)(2)           18,173  16,787  16,097  15,359
    Net interest income(2)                    16,846  15,338  14,877  14,237
    Net earnings                               8,788   7,480   7,992   7,752
    EPS - basic                               $ 0.68  $ 0.59  $ 0.67  $ 0.65
    EPS - diluted                             $ 0.67  $ 0.59  $ 0.66  $ 0.64
    ROAE                                       18.2%   17.0%   21.1%   21.0%

                                                         2006           2005
                                                  Q3      Q2      Q1      Q4

    Total assets at quarter end - $ millions   2,414   2,244   2,113   2,012
    Total revenues - TEB(1)                   38,552  34,885  31,604  28,881
    Total revenues                            37,572  34,008  30,820  27,867
    Net interest income - TEB(1)(2)           14,435  13,463  12,143  12,017
    Net interest income(2)                    13,455  12,586  11,359  11,003
    Net earnings                               7,144   6,609   5,833   5,562
    EPS - basic                               $ 0.60  $ 0.56  $ 0.49  $ 0.47
    EPS - diluted                             $ 0.59  $ 0.55  $ 0.49  $ 0.46
    ROAE                                       20.3%   19.8%   18.6%   18.1%

    (1) For an explanation of TEB see the end of this MD&A.
    (2) See explanation of treatment of net mortgage commitment fees and
        deposit agent commissions at the end of this MD&A.
    

    OFF BALANCE SHEET ACTIVITIES

    The Company's off balance sheet activities include its securitization
activities, its interest rate hedging derivative financial instruments and its
commitments to fund mortgages (see Notes 4, 5 and 14 to the interim unaudited
consolidated financial statements for the period ended September 30, 2007).
For additional information regarding these and other off balance sheet items,
please also refer to pages 34 to 36 in the Company's 2006 Annual Report.

    RISKS AND UNCERTAINTIES

    The Company faces a number of risks. Please refer to pages 36 to 42 in
the Company's 2006 Annual Report, page 9 in the December 31, 2006 Annual
Information Form and pages 7 to 11 of the Short Form Prospectus dated
April 23, 2007, all of which are available at www.sedar.com for further
information on risks of the business. The risk factors below are not
all-inclusive, but do include risks which vary as the assets and liabilities
of the Company change.
    Liquidity risk relates to the Company's ability to redeem its deposit
obligations as they come due or otherwise arise, and to fund asset commitments
as scheduled.
    Interest rate risk involves the sensitivity of the Company's earnings to
sudden changes in interest rates.
    Credit risk is the risk of financial loss resulting from the failure of a
borrower or any counterparty to fully honour its financial or contractual
obligations.

    Liquidity Risk Management

    Mitigating liquidity risk requires the Company to match its asset and
liability maturities and to keep sufficient liquid assets on hand at all times
to meet mortgage funding and investment purchase commitments, mortgage
renewals or extensions and any GIC redemptions. On a daily basis, the Company
raises funds based upon asset growth, target liquidity levels and forecasts of
its future liquidity requirements. Eligible liquid assets for regulatory
purposes consist of cash and cash equivalents and debt instruments guaranteed
by governments. Assets eligible for regulatory liquidity purposes were
$394.1 million at September 30, 2007 compared to $260.5 million at December
31, 2006 and $231.2 million at September 30, 2006. Total liquid resources,
including marketable equity securities, were $564.3 million at September 30,
2007 compared to $427.2 million as at December 31, 2006 and $368.2 million at
September 30, 2006.

    Interest Rate Risk Management

    The Company's primary method of mitigating interest rate risk is matching
asset and liability maturity or re-pricing terms, employing derivatives to
simulate re-pricing matching, closely monitoring interest rates and acting
upon any mismatch in a timely fashion, to ensure that any sudden or prolonged
change in interest rates does not significantly affect the Company's net
interest income.
    The Company manages its asset and liability maturity or re-pricing
profile by adjusting GIC interest rates on a daily basis to raise GICs with
the appropriate maturities to best match the maturity or re-pricing profile of
assets being funded. The Company closely monitors the effects of possible
interest rate changes on both net interest income for the following 12 month
period and on the economic value of shareholders' equity using simulated
interest rate change sensitivity modeling and assumptions of borrower and
depositor behavior based upon historical experience. As estimated by the
Company, an immediate and sustained 1% increase in interest rates as of
September 30, 2007, would positively impact net interest income before any tax
effect for the following 12 month period by $3.3 million. If interest rates
were to decrease 1% on an immediate and sustained basis as at September 30,
2007, and if cashable GICs were to stay on the books until maturity in the
manner forecast by management, the estimated negative impact to net interest
income before any tax effect for the following 12 month period would be
$7.8 million.
    The Company has adopted a consistent and disciplined approach to hedging
the interest rate risk attached to its MBS activities. MBS interest rate risk
refers to the risk that interest rates will vary between the time a mortgage
interest rate is committed to and the time the underlying mortgage is
securitized and that the change in rates will reduce the value of the mortgage
being sold. The Company hedges the interest rate risk for all mortgages that
are targeted to be sold through the CMHC-MBS program. Hedging protects the
Company from losses due to changes in interest rates during the relevant
period. The hedge is initiated on the date that the mortgage is priced and
committed to and terminated on the date that the pool is sold. Changes in
interest rates affect the price at which the mortgage pool is sold and
inversely affects the value of the hedge. These hedges are derivative
financial instruments and are required to be carried at fair value under the
new financial instrument accounting policies.

    Credit Risk Management

    Under the Company's lending criteria, all mortgages are individually
evaluated under a risk rating system to determine the level of risk
attributable to each loan.
    In accordance with sound business and financial practices, Equitable
Trust's credit risk policies include the annual review of all commercial loans
and mortgages. In addition, all loans that are in arrears are reviewed to
determine whether any should be classified as doubtful or as a potential loss.
Generally, a loan is classified as impaired when management is of the opinion
that there is no longer reasonable assurance of full and timely collection of
principal and interest. On a regular basis, management reviews all loans in
these categories in order to determine the appropriate loan loss reserves
required. Reviews of credit policies and lending practices are regularly
undertaken by senior management and approved by Equitable Trust's Investment
Committee.
    Equitable Trust's Investment Committee meets on a quarterly basis to
review the status of the Company's investment portfolio, the transactions
during the past quarter and the portfolio characteristics such as term, credit
rating and type of security. Investment policies are reviewed regularly by
Equitable Trust's Investment Committee to ensure that the type, credit
quality, duration and concentration of investments in marketable securities
are appropriate, prudent and consistent with the risk profile targets adopted
by the Company. P-2 or equivalent and higher rated securities comprised 72.3%
of the preferred share equity securities portfolio at September 30, 2007,
compared to 78.5% a year earlier.

    CHANGES IN ACCOUNTING POLICIES

    Significant accounting policies are detailed on pages 51 to 67 of the
Company's 2006 Annual Report. Effective January 1, 2007, the Company adopted
new accounting policies issued by the Canadian Institute of Chartered
Accountants: Financial Instruments - Recognition and Measurement, Hedges,
Comprehensive Income and Financial Instruments - Disclosure and Presentation.
A new section of shareholders' equity - Accumulated other comprehensive income
- has been created by virtue of the adoption of these new standards. Please
refer to Note 2 of the interim unaudited consolidated financial statements for
further details on these accounting changes.
    Please also see Note 15 of the interim unaudited consolidated financial
statements for the period ended September 30, 2007 for information on future
accounting changes.

    CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

    There are no changes in the Company's internal control over financial
reporting that occurred during the third quarter ended September 30, 2007 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. As expected, Stephen
Coffey, Senior Vice-President and Chief Financial Officer retired from the
Company on September 30, 2007. The Company has engaged a recruitment firm to
assist in hiring a new Chief Financial Officer.

    NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL MEASURES

    The presentation of financial information on a taxable equivalent basis
("TEB") is a common practice of presentation in the banking and trust company
industries and does not have a standardized meaning within GAAP. Therefore,
TEB calculations may not be comparable to similar measures presented by other
companies. On a selective basis, Equitable uses TEB in analyzing revenues,
interest margins and productivity ratios in this MD&A. The TEB methodology
grosses up tax exempt income, such as dividends from equity securities, by an
amount which makes this income comparable, on a pre-tax basis, to regular
taxable income such as mortgage interest. For the nine months ended
September 30, 2007, this gross-up amounted to $4.0 million as compared to
$2.6 million during the comparable period in 2006.
    The adoption on January 1, 2007 of new accounting policies for financial
instruments requires that Equitable report deferred deposit agent commissions
as a component of customer deposits and the amortization or current expense of
these deferred charges as a component of interest expense in its financial
statements. Formerly, deferred deposit agent commissions were reported in
other assets and amortization was presented as a non-interest expense. The new
accounting policies for financial instruments further requires deferred net
mortgage commitment fees, comprised of deferred finders fees and deferred
mortgage commitment fees, to be accounted for as a component of mortgages
receivable on the balance sheet with the amortization of these fees reported
as a component of mortgage interest income. In prior years, deferred finders
fees and deferred mortgage commitment fees were reported as a component of
other assets and other liabilities on the balance sheet, respectively, with
the related amortization reported as other income. In order to make
comparisons of current results for net interest income, net interest margins
and productivity ratios meaningful, this MD&A presents deposit agent
commissions and net mortgage commitment fees on the same basis as that
presented in the prior year.

    UPDATED SHARE INFORMATION

    As a result of the issuance of 769,231 common shares on April 30, 2007
and the exercise of employee stock options, the Company had 12,940,099 common
shares issued and outstanding at September 30, 2007. There are unexercised
options to purchase 619,611 common shares and a further 674,399 common shares
are reserved for option grants.

    FORWARD-LOOKING STATEMENTS

    Certain statements in this Management's Discussion and Analysis ("MD&A")
contain forward-looking information within the meaning of applicable
securities laws ("forward-looking statements"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of Equitable
Group Inc., or developments in Equitable's business or in its industry, to
differ materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements.
Forward-looking information includes all disclosure regarding possible events,
conditions or results of operations that is based on assumptions about future
economic conditions and courses of action. Forward-looking statements may also
include, without limitation, any statement relating to future events,
conditions or circumstances. Equitable cautions you not to place undue
reliance upon any such forward-looking statements, which speak only as of the
date they are made.
    Forward-looking statements relate to, among other things, realizing the
value of Equitable's assets, capitalizing on market demand for Equitable's
mortgage products, executing Equitable's strategic plan, and the demand for
Equitable's deposit products. The risks and uncertainties that may affect
forward-looking statements include, among others, risks involved in
fluctuating interest rates and general economic conditions, legislative and
regulatory developments, the nature of Equitable's customers, competition and
other risks detailed from time to time in Equitable's filings with Canadian
provincial securities regulators, including Equitable's Annual Report and
Annual Information Form dated February 26, 2007. Forward-looking statements
are based on management's current plans, estimates, projections, beliefs and
opinions, and Equitable does not undertake to update forward-looking
statements should assumptions related to these plans, estimates, projections,
beliefs and opinions change.

    OUTLOOK

    Based on Equitable's performance during the nine months ended
September 30, 2007, management remains confident in the Company's ability to
achieve all performance objectives with the exception of its EPS growth
target. As previously noted, the EPS growth target of 18-22% is unattainable
because of the April 2007 issuance of new shares.
    At the time of writing, demand for residential and commercial mortgage
financing remains strong in the Company's primary niche markets. Resale
housing activity in Equitable's target geographical territories (Ontario and
Alberta) remains strong and, while the Prime Rate increased in July, the most
recent decision by the Bank of Canada to hold the line on interest rates is
expected to be supportive of ongoing real estate market activity this year.
    Looking forward, Equitable has increased the pricing on new mortgage
loans. Management believes this strategy is appropriate from a competitive
perspective - given the reduced supply of capital generally available in the
market due to credit turmoil - and should serve to expand the margins between
new mortgage pricing and the cost of GIC funding. However, due to the fact
that only a modest percentage of Equitable's mortgage portfolio matures in any
given quarter, this repricing strategy is not expected to have a meaningful
impact on net interest margins for several quarters. In addition, following
several quarters of strong asset expansion, the Company expects to slow the
rate of loan growth to allow regulatory capital levels to increase. Management
believes this strategy is consistent with the Company's adherence to
disciplined lending practices and its focus on maintaining the financial
strength that is key to achieving profitable long-term growth.
    Looking further forward, the Company is anticipating that there will be
less competition from lenders using securitization conduits, particularly for
single-family dwelling mortgage assets. If this expectation is fulfilled,
Equitable would expect to grow its single-family dwelling business faster than
other components of its mortgage portfolio. Management believes this will have
a positive impact on Equitable's long-term ROE performance.

    October 31, 2007


    
    CONSOLIDATED BALANCE SHEET
    AS AT SEPTEMBER 30, 2007 - UNAUDITED
    With comparative figures as at December 31, 2006 and September 30, 2006
    (In thousands of dollars)

    -------------------------------------------------------------------------
                                           September    December   September
                                            30, 2007    31, 2006    30, 2006
    -------------------------------------------------------------------------

    Assets

    Cash and cash equivalents               $287,096    $107,842    $110,724
    Investments (note 3)                     282,225     319,317     257,471
    Loan securitizations - retained
     interests (note 4)                       53,335      48,271      49,591
    Mortgages receivable (note 5)          2,698,634   2,135,662   1,981,594
    Other assets (note 6)                     11,282      14,663      14,431
    -------------------------------------------------------------------------
                                          $3,332,572  $2,625,755  $2,413,811
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Liabilities:

    Customer deposits (note 7)            $3,036,454  $2,389,755  $2,189,158
    Future income taxes payable                8,237       4,700       5,772
    Other liabilities (note 8)                13,466      21,564      15,984
    Bank term loan (note 10)                  44,595      34,750      34,750
    Subordinated debt (note 11)               31,969      25,250      25,250
    -------------------------------------------------------------------------
                                           3,134,721   2,476,019   2,270,914

    Shareholders' equity:

    Capital stock (note 12)                   86,861      57,849      57,663
    Contributed surplus (note 12)              1,570       1,539       1,445
    Retained earnings                        110,709      90,348      83,789
    Accumulated other comprehensive
     income (loss) (note 13)                  (1,289)          -           -
    -------------------------------------------------------------------------
                                             197,851     149,736     142,897

    -------------------------------------------------------------------------
                                          $3,332,572  $2,625,755  $2,413,811
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim unaudited consolidated financial
    statements.



    CONSOLIDATED STATEMENT OF INCOME
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 - UNAUDITED
    With comparative figures for the three and nine month periods ended
    September 30, 2006
    (In thousands of dollars, except per share amounts)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                               September   September   September   September
                               30,  2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Interest income:
      Mortgages                  $42,821     $32,156    $117,302     $87,605
      Investments                  3,191       2,072       9,823       5,716
      Other                        2,075       1,390       5,600       3,746
    -------------------------------------------------------------------------
                                  48,087      35,618     132,725      97,067
    Interest expense:
      Customer deposits           29,178      21,094      79,679      56,622
      Deposit agent
       commissions (note 2)        1,907           -       4,847           -
      Term loan                      752         594       2,198       1,478
      Subordinated debt              592         475       1,775       1,567
    -------------------------------------------------------------------------
                                  32,429      22,163      88,499      59,667
    -------------------------------------------------------------------------

    Interest income, net          15,658      13,455      44,226      37,400

    Provision for credit
     losses (note 5)                 225         225         675         675
    -------------------------------------------------------------------------

    Net interest income after
     provision for credit losses  15,433      13,230      43,551      36,725

    Other income:
      Mortgage commitment income
       and other fees (note 2)       289         938         922       2,414
      Net gain (loss) on sale or
       redemption of investments      14           1          (1)          3
      Loan securitizations -
       retained interests
       (note 4)                    1,166       1,015       3,306       2,916
    -------------------------------------------------------------------------

                                   1,469       1,954       4,227       5,333
    -------------------------------------------------------------------------
    Net interest income and
     other income                 16,902      15,184      47,778      42,058

    Non-interest expenses:
      Compensation and benefits    2,844       2,472       8,205       6,862
      Deposit agent commissions
       (note 2)                        -       1,183           -       3,339
      Other                        2,220       1,703       6,389       4,586
    -------------------------------------------------------------------------
                                   5,064       5,358      14,594      14,787

    Income before income taxes    11,838       9,826      33,184      27,271
    Income taxes (recovery)
     (note 9):
      Current                      2,203       3,134       4,260       8,451
      Future                         847        (452)      4,664        (766)
    -------------------------------------------------------------------------
                                   3,050       2,682       8,924       7,685
    -------------------------------------------------------------------------

    Net income                    $8,788      $7,144     $24,260     $19,586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                        $0.68       $0.60       $1.94       $1.65
      Diluted                      $0.67       $0.59       $1.91       $1.62

    Weighted average number
     of shares outstanding:
      Basic                   12,920,606  11,904,267  12,492,458  11,867,544
      Diluted                 13,037,944  12,094,030  12,671,737  12,061,306

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

    See accompanying notes to interim unaudited consolidated financial
    statements.



    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 - UNAUDITED
    With comparative figures for the three and nine month periods ended
    September 30, 2006
    (In thousands of dollars)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Common shares:
      Balance, beginning
       of period                 $86,339     $57,569     $57,849     $55,510
      Common shares issued
       (note 12)
        Gross proceeds of
         equity issue                  -           -      25,000           -
        Issue expenses, net of
         tax recovery of $498          -           -        (962)          -
        Proceeds from exercise of
         employee stock options      448          85       4,413       1,965
        Transfer from contributed
         surplus relating to the
         exercise of stock options    74           9         561         188
    -------------------------------------------------------------------------
      Balance, end of period      86,861      57,663      86,861      57,663

    Contributed surplus:
      Balance, beginning
       of period                   1,415       1,362       1,539       1,327
      Stock-based compensation
       (note 12)                     229          92         592         306
      Transfer to common shares
       relating to the exercise
       of stock options              (74)         (9)       (561)       (188)
    -------------------------------------------------------------------------
      Balance, end of period       1,570       1,445       1,570       1,445

    Retained earnings:
      Balance, beginning
       of period                 103,215      77,835      90,348      67,771
      Transition adjustment -
       Financial instruments
       (note 2)                        -           -        (113)          -
      Net income                   8,788       7,144      24,260      19,586
      Dividends                   (1,294)     (1,190)     (3,786)     (3,568)
    -------------------------------------------------------------------------
      Balance, end of period     110,709      83,789     110,709      83,789

    Accumulated other
     comprehensive income
     (loss):
      Balance, beginning of
       period                     (4,557)          -           -           -
      Transition adjustment -
       Financial instruments
       (note 2)                        -           -         302           -
      Other comprehensive
       income (loss) (note 13)     3,268           -      (1,591)          -
    -------------------------------------------------------------------------
      Balance, end of period      (1,289)          -      (1,289)          -

    -------------------------------------------------------------------------
    Total shareholders' equity  $197,851    $142,897    $197,851    $142,897
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 - UNAUDITED
    (In thousands of dollars)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Net income                    $8,788      $7,144     $24,260     $19,586
    Other comprehensive income
     (loss)
      Available-for-sale assets,
       change in unrealized gains
       (losses) (note 13)          3,122           -      (1,755)          -
      Reclassification to
       earnings for realization
       of available-for-sale
       assets fair value
       changes (note 13)             146           -         164           -
    -------------------------------------------------------------------------
    Other comprehensive
     income (loss)                 3,268           -      (1,591)          -
    -------------------------------------------------------------------------
    Comprehensive income         $12,056      $7,144     $22,669     $19,586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim unaudited consolidated financial
    statements.



    CONSOLIDATED STATEMENT OF CASH FLOWS
    FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 - UNAUDITED
    With comparative figures for the three and nine month periods ended
    September 30, 2006
    (In thousands of dollars)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net income                  $8,788      $7,144     $24,260     $19,586
      Non-cash items:
        Financial instruments -
         fair value adjustments
         and reclassifications    (2,047)          -         593           -
        Loan securitizations -
         gains on sale of
         mortgages                  (445)        (95)     (1,283)       (515)
        Amortization                  76         109         435         327
        Provision for credit
         losses                      225         225         675         675
        Net gain on sale or
         redemption of investments   (14)         (1)          1          (3)
        Future income taxes
         (recovery)                2,695        (452)      3,536        (766)
        Stock-based compensation     229          92         592         306
        Amortization of premiums
         on investments              970         637       3,033       2,171
    -------------------------------------------------------------------------
                                  10,477       7,659      31,842      21,781

      Changes in operating
       assets and liabilities:
        Other assets               3,468      (2,074)      3,696      (3,603)
        Other liabilities         (6,353)     (3,505)     (8,781)     (6,648)
    -------------------------------------------------------------------------
                                   7,592       2,080      26,757      11,530

    Financing activities:
      Increase in customer
       deposits                  423,116     165,861     646,868     380,203
      Issuance (redemption) of
       subordinated debt, net          -           -       6,719      (6,444)
      Receipt (repayment) of
       bank term loan, net             -           -       9,845      15,000
      Dividends paid on
       common shares              (1,294)     (1,190)     (3,786)     (3,568)
      Issuance of common shares      448          85      28,451       1,965
    -------------------------------------------------------------------------
                                 422,270     164,756     688,097     387,156

    Investing activities:
      Purchase of investments     (3,022)    (70,891)   (126,919)   (120,251)
      Proceeds on sale or
       redemption of investments  81,417      14,873     157,802      55,041
      Investments in mortgages
       receivable               (784,839)   (490,399) (2,152,678) (1,496,523)
      Mortgage principal
       repayments                269,481     303,083   1,314,975     965,471
      Proceeds from loan
       securitizations           121,982      36,064     262,020     220,269
      Loan securitizations -
       retained interests          3,236       3,812       9,861      11,378
      Purchase of capital assets    (253)       (131)       (661)       (561)
    -------------------------------------------------------------------------
                                (311,998)   (203,589)   (535,600)   (365,176)

    Increase (decrease) in cash
     and cash equivalents        117,864     (36,753)    179,254      33,510

    Cash and cash equivalents,
     beginning of period         169,232     147,477     107,842      77,214
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period              $287,096    $110,724    $287,096    $110,724
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Comprised of:
      Deposits at banks          $21,235     $13,693     $21,235      13,693
      Short term investments     270,076     106,848     270,076     106,848
      Cheques and other items
       in transit                 (4,215)     (9,817)     (4,215)     (9,817)
    -------------------------------------------------------------------------
                                $287,096    $110,724    $287,096    $110,724
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:

      Interest paid              $23,276     $15,871     $74,785     $50,471
      Income taxes paid            1,908       2,558      12,145      11,460

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

    See accompanying notes to interim unaudited consolidated financial
    statements.



    NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007
    (In thousands of dollars, except per share amounts)

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

    1.  Basis of preparation:

    These interim unaudited consolidated financial statements should be read
    in conjunction with the notes to the consolidated financial statements
    for the year ended December 31, 2006 as set out on pages 51 to 67 of the
    2006 Annual Report. These interim unaudited consolidated financial
    statements have been prepared in accordance with Canadian generally
    accepted accounting principles ("GAAP") using the same accounting
    policies and methods of computation as were used in the preparation of
    the consolidated financial statements for the year ended December 31,
    2006 except as described in note 2.

    These interim unaudited consolidated financial statements reflect amounts
    which must, of necessity, be based on the best estimates and judgment of
    management with appropriate consideration as to materiality. Actual
    results may differ from these estimates.

    Certain comparative figures have been reclassified to conform with the
    current period's presentation.

    2.  Changes in accounting policy:

    Effective January 1, 2007, the Company adopted new accounting standards
    issued by the Canadian Institute of Chartered Accountants ("CICA"):
    Comprehensive Income, Financial Instruments - Recognition and
    Measurement, Hedges and Financial Instruments - Disclosure and
    Presentation. As a result of adopting these standards, a new category,
    accumulated other comprehensive income (loss), has been added to
    shareholders' equity and certain unrealized gains and losses are reported
    in accumulated other comprehensive income (loss) until realization.

    As a result of adopting these new accounting standards, certain financial
    assets and liabilities are measured at fair value with the remainder
    recorded at amortized cost. Under the new standards, adjustments to the
    previously recorded amounts have been made either to retained earnings or
    to accumulated other comprehensive income (loss) as at January 1, 2007.
    The Company has not restated prior period consolidated financial
    statements.

    Significant aspects of the Company's implementation of these new
    standards include:

      -  Investments in preferred shares, government bonds, treasury bills
         and notes and loan securitizations - retained interests have been
         designated as available-for-sale and are reported on the balance
         sheet at fair value with changes in fair value included in other
         comprehensive income, net of income taxes.

      -  Government guaranteed mortgages held for securitization and
         commitments to fund government guaranteed mortgages for
         securitization have been recorded on the balance sheet at fair
         value, with changes in fair value included in loan securitizations -
         retained interests in the statement of income.

      -  Cash and cash equivalents, mortgages, with the exception of
         government guaranteed mortgages held for securitization, customer
         deposits, with the exception of those designated as held-for-
         trading, bank term loans and subordinated debt continue to be
         recorded at amortized cost using the effective interest method.

      -  Guaranteed investment certificates designated as held-for-trading
         have been recorded on the balance sheet at fair value, with changes
         in fair value included in interest expense in the statement of
         income.

      -  Derivative financial instruments are recorded on the balance sheet
         at fair value, with changes in fair value included in loan
         securitizations - retained interests for derivatives relating to
         securitization activities and in interest expense for derivatives
         relating to interest rate swaps.

      -  Deferred deposit agent commissions are accounted for as a component
         of customer deposits with the amortization of these commissions,
         with the exception of commissions relating to customer deposits
         designated as held-for-trading being expensed as incurred, being
         calculated on an effective yield basis as a component of interest
         expense. In prior years, deferred deposit agent commissions were
         reported as a component of other assets, with amortization being
         reported as a non-interest expense.

      -  Deferred net mortgage commitment fees, comprised of deferred finders
         fees and deferred mortgage commitment fees, are accounted for as a
         component of mortgages receivable on the balance sheet with the
         amortization of these fees, being calculated on an effective yield
         basis, reported as a component of mortgage interest income. In prior
         years, deferred finders fees and deferred mortgage commitment fees
         were reported as a component of other assets and other liabilities
         on the balance sheet, respectively, with the related amortization
         reported as other income.

    For financial instruments measured at fair value where active market
    prices are available, bid prices are used for financial assets and ask
    prices used for financial liabilities. For those financial instruments
    measured at fair value where an active market is not available, fair
    value estimates are determined using valuation methods which refer to
    observable market data and include discounted cash flow analysis and
    other commonly used valuation techniques.

    Transition adjustments - financial instruments recorded at January 1,
    2007 relate to:

    -------------------------------------------------------------------------
                                                          Income
                                                Gross      Taxes         Net
    -------------------------------------------------------------------------

    Retained earnings - increase (decrease)
      Fair value adjustment of government
       guaranteed mortgages held for
       securitization                             $(5)       $(2)        $(3)
      Fair value of government guaranteed
       mortgage commitments for securitization    284        103         181
      Fair value of derivatives                  (456)      (165)       (291)
                                               ------------------------------
                                                $(177)      $(64)      $(113)

    Accumulated other comprehensive
     income (loss)
      Available-for-sale investments,
       unrealized gains (losses)                 $850       $307        $543
      Available-for-sale loan
       securitizations - retained interests,
       unrealized gains (losses)                 (378)      (137)       (241)
                                               ------------------------------
                                                 $472       $170        $302

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

    3.  Investments:

    (a) Carrying value:

    -------------------------------------------------------------------------
                                           September    December   September
                                            30, 2007    31, 2006    30, 2006
    -------------------------------------------------------------------------

    Preferred shares                        $170,262    $166,669    $135,896
    Government bonds, treasury bills
     and notes                               111,963     152,648     120,456
    Common shares                                  -           -       1,119

    -------------------------------------------------------------------------
                                            $282,225    $319,317    $257,471
    -------------------------------------------------------------------------

    Investments are accounted for at settlement date. Net unrealized gains
    (losses) included in carrying value on the balance sheet as at
    September 30, 2007 as required by the change in accounting policies
    described in note 2 are as follows:

    -------------------------------------------------------------------------
                                                                   September
                                                                    30, 2007
    -------------------------------------------------------------------------

    Preferred shares                                                 $(2,914)
    Government bonds, treasury bills and notes                          (262)

    -------------------------------------------------------------------------
                                                                     $(3,176)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (b) Derivative financial instruments:

    The Company's equity securities contain embedded derivatives which are
    bifurcated from the investment and valued separately. These embedded
    derivatives do not currently have significant value and therefore they
    are not reported separately.

    (c) Credit facility:

    The Company has a bank line of credit facility. Under this facility, the
    Company may borrow up to $35.0 million (December 31, 2006 -
    $35.0 million, September 30, 2006 - $35.0 million) for short-term
    liquidity purposes. The facility is secured by the Company's investments
    in preferred shares. There was no outstanding balance on the line as at
    September 30, 2007 (December 31, 2006 - $Nil, September 30, 2006 - $Nil).

    4.  Loan securitizations:

    (a) Retained interests:

    The Company securitizes Canadian government guaranteed residential
    mortgage loans through the creation of mortgage-backed securities and
    removes the mortgages from the balance sheet. As at September 30, 2007,
    outstanding securitized mortgages totalled $1,848,719 (December 31, 2006
    - $1,807,479, September 30, 2006 - $1,862,789), substantially all of
    which are multi-family residential mortgage loans.

    During the period, the Company securitized Canadian government guaranteed
    residential mortgage loans and received net cash proceeds of $262,020
    (September 30, 2006 - $220,270). The Company retained the rights to
    future excess interest on the residential mortgages valued at $14,645
    (September 30, 2006 - $8,450) and received net cash flows on interests
    retained of $11,884 (September 30, 2006 - $13,779). The Company retained
    the responsibility for servicing the mortgages and enjoys the right to
    receive the future excess interest spread. The Company has outsourced the
    servicing of the transferred loans to an unrelated third party and has
    recorded a servicing liability of $1,479 (September 30, 2006 - $1,000)
    relating to loans securitized during the period.

    Retained interests are accounted for at settlement date. The fair value
    of the retained interests is determined with internal valuation models
    using market data inputs, where possible, by discounting the expected
    future cash flows at like term Government of Canada bond interest rates
    plus a spread.

    Net unrealized gains (losses) included in carrying value on the balance
    sheet as required by the change in accounting policies described in
    note 2 are as follows:

    -------------------------------------------------------------------------
                                                                   September
                                                                    30, 2007
    -------------------------------------------------------------------------

    Loan securitizations - retained interests                         $1,158
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The components of income from loan securitizations - retained interests
    are as follows:

    -------------------------------------------------------------------------
                                                       September   September
                                                        30, 2007    30, 2006
    -------------------------------------------------------------------------

    Gain on sale of mortgages                             $1,283        $515
    Excess interest net of servicing fee                   2,023       2,401

    -------------------------------------------------------------------------
                                                          $3,306      $2,916
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There are no expected credit losses, as the mortgages underlying the
    retained interests are government guaranteed.

    (b) Derivative financial instruments:

    The Company enters into hedging transactions to manage market interest
    rate exposures on government guaranteed mortgages held for securitization
    and commitments for government guaranteed mortgages to be securitized,
    typically for periods of up to 90 days. Hedge instruments outstanding at
    September 30, 2007, December 31, 2006 and September 30, 2006 relating to
    forward contracts on Government of Canada bonds, where the counterparties
    for which are chartered banks, are as follows:

    -------------------------------------------------------------------------
                  September 30, 2007   December 31, 2006  September 30, 2006
    -------------------------------------------------------------------------
    Bond term     Notional      Fair  Notional      Fair  Notional      Fair
     (years)        amount     value    amount     value    amount     value
    -------------------------------------------------------------------------

    1 to 5          $2,700    $2,658   $14,400   $14,289   $19,400   $19,382
    5 to 10          4,800     4,675    21,800    22,444    32,400    34,149

    -------------------------------------------------------------------------
                    $7,500    $7,333   $36,200   $36,733   $51,800   $53,531
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The hedge instruments are fair value hedges and are required to be
    classified as held-for-trading and carried at fair value. The fair values
    of the hedge instruments are determined by reference to the ask side of
    the related Government of Canada bonds as at the reporting date. The
    period end fair value of hedges of $(83) is disclosed in note 8, other
    liabilities.

    (c) Mortgage commitments:

    Mortgage commitments for government guaranteed mortgages to be
    securitized are designated as held-for-trading and are carried at fair
    value. Fair value is determined by reference to the bid side of a like
    term Government of Canada bond plus a spread between the bond yield and
    the mortgage rate. Changes in fair value reflect changes in interest
    rates which have occurred since the mortgage interest rate was committed
    to. The period end fair value of mortgage commitments of $59 is disclosed
    in note 6, other assets.

    5.  Mortgages receivable:

    (a) Mortgages receivable and impaired mortgages:

    -------------------------------------------------------------------------
    September 30, 2007              Allowance for credit losses
                                  ------------------------------
                      Gross amount  Specific  General      Total  Net amount
    -------------------------------------------------------------------------

    Residential
     mortgages          $1,728,549       $50   $5,969     $6,019  $1,722,530
    Other mortgages        635,215         -    1,873      1,873     633,342
    Mortgages held for
     securitization
     or for sale           330,173         -      808        808     329,365
    Accrued interest        13,397         -        -          -      13,397
    -------------------------------------------------------------------------
                        $2,707,334       $50   $8,650     $8,700  $2,698,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    December 31, 2006               Allowance for credit losses
                                  -------------------------------
                      Gross amount  Specific  General      Total  Net amount
    -------------------------------------------------------------------------

    Residential
     mortgages          $1,373,842      $160   $5,168     $5,328  $1,368,514
    Other mortgages        472,635         -    2,047      2,047     470,588
    Mortgages held for
     securitization
     or for sale           287,063         -      671        671     286,392
    Accrued interest        10,168         -        -          -      10,168
    -------------------------------------------------------------------------
                        $2,143,708      $160   $7,886     $8,046  $2,135,662
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    September 30, 2006              Allowance for credit losses
                                  -------------------------------
                      Gross amount  Specific  General      Total  Net amount
    -------------------------------------------------------------------------

    Residential
     mortgages          $1,283,522    $1,580   $4,060     $5,640  $1,277,882
    Other mortgages        417,972         -    1,526      1,526     416,446
    Mortgages held for
     securitization
     or for sale           278,490         -      655        655     277,835
    Accrued interest         9,431         -        -          -       9,431
    -------------------------------------------------------------------------
                        $1,989,415    $1,580   $6,241     $7,821  $1,981,594
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Included in mortgages held for securitization or for sale are Canadian
    Government insured mortgages of $6,632, as at September 30, 2007
    (December 31, 2006 - $18,551, September 30, 2006 - $16,480). These
    Government of Canada guaranteed loans held for securitization have been
    designated as held-for-trading and are carried at fair value determined
    by reference to the bid side of a like term Government of Canada bond
    plus a spread between the bond yield and the mortgage rate. Changes in
    fair value reflect changes in interest rates which have occurred since
    the mortgage interest rate was committed to. The period end fair value
    adjustment of Government of Canada guaranteed loans held for
    securitization is $16. Loans held for sale include loans which are to be
    pooled and discharged subsequent to the balance sheet date at their
    investment cost. These loans are carried at the lower of cost or fair
    value. There are no foreclosed assets held for sale at September 30,
    2007, December 31, 2006 and September 30, 2006.

    The principal outstanding and net carrying amount of mortgages receivable
    classified as impaired as at September 30, 2007 aggregated $2,123
    (December 31, 2006 - $1,138, September 30, 2006 - $2,811) and $2,073
    (December 31, 2006 - $978, September 30, 2006 - $1,231), respectively.

    The Company has commitments to fund a total of $301,934 (December 31,
    2006 - $279,278, September 30, 2006 - $361,953) of mortgages as at the
    end of the period.

    (b) Allowance for credit losses:

    -------------------------------------------------------------------------
                                                          September 30, 2007
    -------------------------------------------------------------------------
                                            Specific     General
                                           allowance   allowance       Total
    -------------------------------------------------------------------------

    Balance, beginning of period                $160      $7,886      $8,046
    Provision for credit losses                  (89)        764         675
    Recoveries                                    29           -          29
    Realized losses                              (50)          -         (50)

    -------------------------------------------------------------------------
    Balance, end of period                       $50      $8,650      $8,700
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                          September 30, 2006
    -------------------------------------------------------------------------
                                            Specific     General
                                           allowance   allowance       Total
    -------------------------------------------------------------------------

    Balance, beginning of period              $2,087      $5,080      $7,167
    Provision for credit losses                 (486)      1,161         675
    Recoveries                                     -           -           -
    Realized losses                              (21)          -         (21)

    -------------------------------------------------------------------------
    Balance, end of period                    $1,580      $6,241      $7,821
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  Other assets:

    -------------------------------------------------------------------------
                                           September    December   September
                                            30, 2007    31, 2006    30, 2006
    -------------------------------------------------------------------------

    Income taxes recoverable                  $4,441          $-          $-
    Capital assets                             2,489       2,263       1,736
    Accrued interest on non-mortgage assets    1,648       1,866       2,676
    Other receivables                          1,874       1,868       1,909
    Prepaid expenses and other                   741       2,378       1,942
    Mortgage commitments (note 4)                 59           -           -
    Derivative financial instruments -
     interest rate swaps (note 14)                30           -           -
    Deferred deposit agent commissions
     (note 2)                                      -       6,288       6,168

    -------------------------------------------------------------------------
                                             $11,282     $14,663     $14,431
    -------------------------------------------------------------------------

    7.  Customer deposits:

    -------------------------------------------------------------------------
                                           September    December   September
                                            30, 2007    31, 2006    30, 2006
    -------------------------------------------------------------------------

    Cashable GICs, payable on demand        $847,962    $570,455    $489,586
    GICs with fixed maturity dates         2,134,448   1,766,011   1,653,561
    Accrued interest                          62,293      53,289      46,011
    Deferred deposit agent commissions
     (note 2)                                 (8,249)          -           -

    -------------------------------------------------------------------------
                                          $3,036,454  $2,389,755  $2,189,158
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Included in GICs with fixed maturity dates are $115,000 of GICs
    designated as held-for-trading. These GICs are carried at fair market
    value determined by reference to market interest rates of like term GICs
    as at the reporting date. Changes in fair value reflect changes in
    interest rates which have occurred since the GICs were issued. The period
    end fair value adjustment of these GICs is $169 and is included in
    interest expense.

    8.  Other liabilities:

    -------------------------------------------------------------------------
                                           September    December   September
                                            30, 2007    31, 2006    30, 2006
    -------------------------------------------------------------------------

    Securitized mortgage servicing
     liability                                $6,281      $6,044      $6,111
    Accounts payable and accrued
     liabilities                               4,689       6,860       6,083
    Mortgagor realty taxes                     2,413       5,089       2,133
    Derivative financial instruments -
     securitization activities (note 4)           83           -           -
    Income taxes payable                           -       3,571       1,657

    -------------------------------------------------------------------------
                                             $13,466     $21,564     $15,984
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  Income taxes:

    The provision for income taxes shown in the statement of income differs
    from that obtained by applying statutory income tax rates to income
    before income taxes for the following reasons:

    -------------------------------------------------------------------------
                                                       September   September
                                                        30, 2007    30, 2006
    -------------------------------------------------------------------------

    Canadian statutory income tax rate                     35.9%       36.1%
    Increase (decrease) resulting from:
      Tax exempt income                                    (7.7%)      (7.4%)
      Future tax rate reductions                           (1.5%)      (0.8%)
      Non-deductible expenses and other                     0.2%        0.3%
    -------------------------------------------------------------------------
    Effective income tax rate                              26.9%       28.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. Bank term loans:

    The Company has received three non-revolving term loans from Canadian
    Western Bank. Each loan is for a fixed term of five years with the
    balance of the loan, together with all accrued and unpaid interest, due
    on the fifth anniversary of the loan. The proceeds of the loans were used
    to purchase $19,750 of Series 5, $15,000 of Series 6 and $12,500 of
    Series 7 of the Subordinated Debentures of the Company's subsidiary, The
    Equitable Trust Company ("Equitable Trust"). The loans are repayable in
    full at the option of the Company at any time during their term and as
    collateral for the loans, the Company has provided a promissory note, a
    general security agreement, a pledge of all the issued and outstanding
    shares in the capital of Equitable Trust and an assignment of the
    Subordinated Debentures purchased from Equitable Trust using the proceeds
    of the loans.

    -------------------------------------------------------------------------
    2007                                      Out- Received  Repaid     Out-
    Bank                Date              standing   during  during standing
    term  Interest      loan   Maturity   December      the     the September
    loans     rate  received       date   31, 2006   period  period 30, 2007
    -------------------------------------------------------------------------

    Loan 1  6.37%  March 2005  March 2010  $19,750  $     -  $2,655  $17,095
    Loan 2  6.82%  April 2006  April 2011   15,000        -       -   15,000
    Loan 3  6.41%  March 2007  March 2012        -   12,500       -   12,500

    -------------------------------------------------------------------------
                                           $34,750  $12,500  $2,655  $44,595
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    2006                                      Out- Received  Repaid     Out-
    Bank                Date              standing   during  during standing
    term  Interest      loan   Maturity   December      the     the September
    Loans     rate  received       date   31, 2005   period  period 30, 2006
    -------------------------------------------------------------------------

    Loan 1  6.37%  March 2005  March 2010  $19,750  $     -  $    -  $19,750
    Loan 2  6.82%  April 2006  April 2011        -   15,000       -   15,000

    -------------------------------------------------------------------------
                                           $19,750  $15,000  $    -  $34,750
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Subordinated debt:

    The Company has issued debentures which are subordinated to the deposits
    and other liabilities of the Company and which are repayable at any time
    without penalty. Any redemption of this debt, contractual or earlier, is
    subject to regulatory approval. Interest is paid quarterly.

    -------------------------------------------------------------------------
                                             Out-  Issued  Redeemed     Out-
    2007       Inter-                    standing  during    during standing
    Debenture    est  Issue   Maturity   December     the       the September
    series      Rate   date       date   31, 2006  period    period 30, 2007
    -------------------------------------------------------------------------

    Series 5  7.31%-  2004/  January 2015  $20,250  $    -   $2,731  $17,519
               7.58%   05
    Series 6  7.27%   2006   January 2016    5,000       -        -    5,000
    Series 7  7.10%   2007   January 2017        -   9,450        -    9,450

    -------------------------------------------------------------------------
                                           $25,250  $9,450   $2,731  $31,969
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                             Out-  Issued  Redeemed     Out-
    2006       Inter-                    standing  during    during standing
    Debenture    est  Issue   Maturity   December     the       the September
    series      rate   date       date   31, 2005  period    period 30, 2006
    -------------------------------------------------------------------------

    Series 4  7.54%-  2003   January 2013  $11,444  $    -  $11,444  $     -
               8.15%
    Series 5  7.31%-  2004/  January 2015   20,250       -        -   20,250
               7.58%   05
    Series 6  7.27%   2006   January 2016        -   5,000        -    5,000

    -------------------------------------------------------------------------
                                           $31,694  $5,000  $11,444  $25,250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. Shareholders' equity:

    (a) Capital stock:

          Authorized:
            Unlimited number of common shares
            Unlimited number of preferred shares

          Issued:
            Common shares:

    -------------------------------------------------------------------------
                                  September 30, 2007      September 30, 2006
    -------------------------------------------------------------------------
                               Number of               Number of
                                  shares      Amount      shares      Amount
    -------------------------------------------------------------------------

    Balance, beginning
     of period                11,924,468     $57,849  11,781,940     $55,510
    Issued during the period   1,015,631      28,451     126,305       1,965
    Transfer from contributed
     surplus relating to the
     exercise of stock options         -         561           -         188
    -------------------------------------------------------------------------
    Balance, end of period    12,940,099     $86,861  11,908,245     $57,663
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company completed an equity issue on April 30, 2007. As a result of
    this issue, 769,231 common shares were issued to the public for cash
    proceeds of $25,000 before issue expenses. Transaction costs related to
    the issue have been capitalized net of income taxes recovered.

    (b) Stock-based compensation plans:

    Stock option plan:

    Under the Company's stock option plan, options on common shares are
    periodically granted to eligible participants for terms of five years and
    vest over a four or five-year period. The maximum number of common shares
    available for issuance under the plan is 10% of the Company's issued and
    outstanding common shares. The outstanding options expire on various
    dates to August 2012. A summary of the Company's stock option activity
    and related information for the periods ended September 30, 2007 and
    September 30, 2006 is as follows:

    -------------------------------------------------------------------------
                                  September 30, 2007      September 30, 2006
    -------------------------------------------------------------------------
                                            Weighted                Weighted
                                  Number     average      Number     average
                                of stock    exercise    of stock    exercise
                                 options       price     options       price
    -------------------------------------------------------------------------

    Outstanding, beginning
     of period                   749,011      $20.54     768,539      $18.07
    Granted                      180,000       34.03           -           -
    Exercised                   (246,400)      17.91    (126,305)      15.56
    Forfeited/cancelled          (63,000)      20.47     (14,000)      23.04
    -------------------------------------------------------------------------
    Outstanding, end of period   619,611      $25.52     628,234      $18.46
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Exercisable, end of period   102,500      $18.29     141,511      $17.34
    -------------------------------------------------------------------------

    Under the fair value-based method of accounting for stock options, the
    Company has recorded compensation expense in the amount of $592
    (September 30, 2006 - $306) related to grants of options in 2004 to 2007
    under the stock option plan. This amount has been credited to contributed
    surplus. During the period ended September 30, 2007, a total of 180,000
    stock options were granted (2006 - nil). The fair value of options
    granted in 2007 is estimated at the date of grant using the Black-Scholes
    valuation model, with the following assumptions: (i) risk-free rate of
    4.1%; (ii) expected option life of 4.0 years; (iii) expected volatility
    of 23.0%; and (iv) expected dividends of 1.2%. The weighted average fair
    value of each option granted was $6.72.

    13. Accumulated other comprehensive income (loss):

    Accumulated other comprehensive income (loss) includes the after tax
    change in unrealized gains and losses on available-for-sale investments
    and retained interests - loan securitizations.

    -------------------------------------------------------------------------
                                                                   September
                                                                    30, 2007
    -------------------------------------------------------------------------

    Available-for-sale investments:
      Transition adjustment on adoption of new accounting
       standards, net (note 2)                                          $543
      Losses from changes in fair value, net of income taxes
       of $(1,546)                                                    (2,734)
      Reclassification to earnings for loss on sale or
       redemption of investments, net of income taxes of $91             161
    -------------------------------------------------------------------------
    Balance, end of period                                            (2,030)

    Available-for-sale loan securitizations -
     retained interests:
      Transition adjustment on adoption of new accounting
       standards, net (note 2)                                          (241)
      Gains from changes in fair value, net of income taxes of $554      979
      Reclassification to earnings for loan securitizations -
       retained interests, net of income taxes of $2                       3
    -------------------------------------------------------------------------
    Balance, end of period                                               741

    -------------------------------------------------------------------------
    Total accumulated other comprehensive income (loss)              $(1,289)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. Interest rate sensitivity:

    The following table shows the Company's position with regard to interest
    rate sensitivity of assets, liabilities and equity on the date of the
    earlier of contractual maturity or re-pricing date, as at September 30,
    2007, December 31, 2006 and September 30, 2006:

    -------------------------------------------------------------------------
                                                          September 30, 2007
    -------------------------------------------------------------------------
                          Floating
                           rate or                                     Total
                          within 1        1 to 3      3 months        within
                             month        months     to 1 year        1 year
    -------------------------------------------------------------------------

    Total assets        $1,860,729      $111,100      $363,146    $2,334,975

    Total liabilities
     and equity          1,390,724       277,938       478,235     2,146,897
    -------------------------------------------------------------------------

    Interest rate
     sensitive gap        $470,005     $(166,838)    $(115,089)     $188,078
    -------------------------------------------------------------------------

    Cumulative gap        $470,005      $303,167      $188,078      $188,078
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets           14.10%         9.10%         5.64%         5.64%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                          Non-
                         1 year to        Over 5      interest
                           5 years         years     sensitive    Total(a)(b)
    -------------------------------------------------------------------------

    Total assets          $926,405       $55,107       $16,085    $3,332,572

    Total liabilities
     and equity            880,277        31,969       273,429     3,332,572
    -------------------------------------------------------------------------

    Interest rate
     sensitive gap         $46,128       $23,138     $(257,344)          $ -
    -------------------------------------------------------------------------

    Cumulative gap        $234,206      $257,344           $ -           $ -
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            7.03%         7.72%         0.00%         0.00%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                           December 31, 2006
    -------------------------------------------------------------------------
                          Floating
                           rate or                                     Total
                          within 1        1 to 3      3 months        within
                             month        months     to 1 year        1 year
    -------------------------------------------------------------------------

    Cumulative gap        $261,613       $83,012      $113,316      $113,316
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            9.96%         3.16%         4.32%         4.32%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                          Non-
                         1 year to        Over 5      interest
                           5 years         years     sensitive         Total
    -------------------------------------------------------------------------

    Cumulative gap        $203,091      $211,366           $ -           $ -
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            7.73%         8.05%         0.00%         0.00%
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                          September 30, 2006
    -------------------------------------------------------------------------
                          Floating
                           rate or                                     Total
                          within 1        1 to 3      3 months        within
                             month        months     to 1 year        1 year
    -------------------------------------------------------------------------

    Cumulative gap        $397,868      $267,906      $131,762      $131,762
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets           16.48%        11.10%         5.46%         5.46%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                          Non-
                         1 year to        Over 5      interest
                           5 years         years     sensitive         Total
    -------------------------------------------------------------------------

    Cumulative gap        $188,870      $190,688           $ -           $ -
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            7.82%         7.90%         0.00%         0.00%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (a) Totals include interest sensitive interest rate hedges at the
        notional amount.
    (b) Accrued interest is excluded in calculating interest sensitive assets
        and liabilities.
    (c) Potential prepayments of fixed rate loans have not been estimated.
        Cashable GICs are included with floating rate liabilities as these
        are cashable by the depositor upon demand. Any prepayments of
        subordinated debt, contractual or otherwise, have not been estimated
        as these would require pre-approval by OSFI.

    The Company has interest rate hedging facilities available at chartered
    banks secured by investments in preferred shares and cash equivalents.
    Interest rate swaps are classified as held-for-trading and are carried at
    fair market value with changes in fair value included in interest
    expense. The period end fair value of these hedges of $30 is disclosed in
    note 6, other assets.

    15. Future accounting changes:

    The CICA has issued a new accounting standard: "Capital Disclosures"
    which will be in effect for the Company for its 2008 fiscal year. This
    standard requires the disclosure of qualitative and quantitative
    information enabling financial statement users to evaluate the Company's
    objectives, policies and processes for managing capital.

    The CICA plans to converge Canadian GAAP for public companies with
    International Financial Reporting Standards ("IFRS") over a transition
    period expected to end in 2011. The impact of IFRS convergence of
    financial reporting standards on the Company's consolidated financial
    statements is not yet determinable.
    





For further information:

For further information: Andrew Moor, (416) 513-3519


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890