Equitable Group reports record 2007 results and 2008 objectives



    TSX Symbol: ETC

    TORONTO, Feb. 27 /CNW/ - Equitable Group Inc. ("Equitable" or the
"Company") today reported its financial results for the three and 12 months
ended December 31, 2007 and introduced its financial objectives and capital
plan for 2008.

    
    2007 Financial Highlights

    -   Net income increased 14% to a record $31.2 million ($2.44 per share
        diluted) compared to $27.3 million ($2.26 per share diluted) in 2006.
    -   Adjusted net income (excluding the previously-announced $3.4 million
        after-tax write-down of a preferred share holding) increased 26% to
        $34.5 million ($2.71 per share diluted).
    -   Return on equity was 17.2% (18.9% adjusted) compared to 19.9% in
        2006.
    -   Mortgage assets increased to a record $2.87 billion at year end - 35%
        higher than the previous year.
    -   Mortgage originations climbed to a record $2.73 billion from
        $2.16 billion in 2006.
    -   Realized loan losses, net of recoveries were $21 thousand - the same
        as in 2006.
    -   Total capital ratio was 11.4% compared to 10.6% at year end 2006.
    -   Book value per common share was $15.69, up 25% from 2006.

    Fourth Quarter Highlights

    -   Net income was $6.9 million ($10.3 million on an adjusted basis to
        remove the $3.4 million after-tax write-down of the preferred share
        holding) compared to $7.8 million in the fourth quarter of 2006.
    -   Diluted earnings per share were $0.53 per share ($0.79 on an adjusted
        basis) compared to $0.64 a year ago.
    -   Return on equity was 13.7% (20.3% on an adjusted basis) compared to
        21.0% in the same period of 2006.
    -   Conventional mortgage production, excluding warehoused mortgages, was
        $347.7 million, compared to $334.5 million in 2006.
    

    Dividend

    The Company's Board of Directors has declared a dividend in the amount of
$0.10 per share payable on April 4, 2008 to shareholders of record at the
close of business on March 14, 2008. The Company intends to maintain its
current dividend throughout 2008.

    2007 Commentary

    "Equitable performed at a high level in 2007, achieving record earnings
and an attractive return on equity," said Andrew Moor, President and Chief
Executive Officer. "We are pleased with this performance, which was delivered
during a period of substantial volatility in global financial markets."
    Beyond record financial results, Equitable generated substantial asset
expansion during 2007. A major highlight was the 35% year-over-year growth
achieved in single-family mortgages receivable and 49% growth in mixed-use
mortgages receivable. Growth in other conventional mortgages, other than
warehoused, was 28%.
    Despite record asset expansion, the Company maintained its outstanding
credit track record. Over the past five years, total realized loan losses
amounted to just $42 thousand.

    Fourth Quarter Commentary

    During the fourth quarter, the Company deliberately slowed the pace of
conventional mortgage production in response to uncertain market conditions.
Said Mr. Moor: "We felt this was most appropriate for our balance sheet and
return on equity objectives. By reducing warehoused mortgage production to
$63.4 million (from $276.9 million in the fourth quarter of 2006) we improved
our capital ratio and generated a strong ROE in spite of market conditions."

    2008 Objectives and Capital Plan

    Equitable operates with three long-term objectives designed to generate
shareholder value:

    
    -   Build its lending businesses in those segments where the Company has
        the best market position, profit and sustainability potential.
    -   Operate in a manner consistent with continuously improving processes
        and operating efficiencies.
    -   Fund future growth primarily from the retention of earnings and non-
        dilutive forms of capital.

    In order to meet these objectives, the Company has put greater emphasis on
three lines of business:

    -   Single-family dwelling mortgage lending, a business the Company
        intends to expand to other parts of Canada (beyond its current
        lending areas of Ontario and Alberta) starting in 2008.
    -   Commercial Mortgage - Broker Services, which originates mortgages
        through a large network of independent mortgage brokers. This
        business line funds loans on a variety of property types, including
        mixed-use, apartment, commercial and industrial buildings.
    -   Niche commercial mortgage lending where the Company partners on a
        selective basis with other mortgage banking organizations in areas
        such as construction lending, single-family warehoused loans and CMHC
        multi-family loans for securitization.

    Equitable has also developed a capital plan consistent with these
objectives that will see the Company expand its capital ratio in 2008 as part
of the new Basel II regulatory regime.

    More specifically, Equitable's financial goals for 2008 are:

    -   Return on equity of 16%-18%.
    -   16%-20% growth in net income over 2007.
    -   Total capital ratio (including general reserves) of 13%.
    -   Productivity ratio (Taxable Equivalent Basis) of 27%-30%.
    

    "In designing these goals, we took into account current market
conditions, the new Basel II regulatory regime which requires additional
capital to support operational risk, and our long-term objective of growing
sustainably within our capital base," said Mr. Moor. "As a result, in 2008, we
plan to slow the rapid pace of asset growth we have generated in recent years,
which will allow us to build our capital ratio and focus on mortgage assets
that generate higher returns on capital. These goals will be accomplished
within our traditional credit risk tolerances. We believe this is the
appropriate course of action in these times, and one that will enable
Equitable to generate the best returns for our shareholders on a sustainable
basis and support strong performance in future years."
    These financial goals assume that no additional subordinated debt will be
raised during 2008. The raising of additional subordinated debt, assuming
market conditions are supportive, or the securitization of single-family
mortgages under the Canada Mortgage Bonds Program would result in faster
growth in earnings and assets.
    In looking ahead, Equitable's competitive market position appears to be
highly supportive of growth in the business. Mr. Moor said credit market
tightening and changes in securitization have "reduced competition in the
alternative lending space and this is likely to provide Equitable with an
opportunity to increase interest spreads and return on equity."

    Fourth Quarter Webcast

    Management will discuss Equitable's results during a conference call
beginning at 10 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 12 months ended
December 31, 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 financial institution focused on
single-family dwelling mortgage lending, Commercial Mortgage - Broker
Services, a business line that funds loans on a variety of properties
including mixed-use, apartment, commercial and industrial buildings, and
commercial lending in partnership with mortgage banking organizations.
Equitable is also a nationally-licensed deposit-taking institution. Equitable
conducts business through its wholly-owned subsidiary, The Equitable Trust
Company, which was founded in 1970. Equitable's non-branch business model,
valued relationships with independent 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

    Management's Discussion and Analysis ("MD&A") is provided to enable a
reader to assess results of operations and financial condition for the fiscal
year ended December 31, 2007 and compare those results with corresponding
prior periods. This MD&A should be read in conjunction with the Consolidated
Financial Statements and related notes. The financial statements are prepared
in accordance with Canadian Generally Accepted Accounting Principles ("GAAP").
    Additional information about the Company, including its 2007 Annual
Information Form, will be available at www.equitablegroupinc.com and
www.sedar.com.
    Certain components of other income and non-interest expense have been
reclassified in conjunction with the adoption of the new accounting policies
for financial instruments. The adoption of the new accounting policies for
financial instruments has not been applied retroactively and prior period
financial statements have not been restated. Management's discussion and
analysis of other income and non-interest expense is based on the prior year's
presentation to provide a meaningful comparison.

    Business Overview

    Equitable Group Inc. ("Equitable" or the "Company") is a niche lender
providing residential first mortgage financing through its wholly-owned
subsidiary, The Equitable Trust Company ("Equitable Trust"). Equitable Trust
was founded in 1970. The primary sources of the Company's revenue are interest
income derived from its mortgage financing business and interest and dividend
income from investments. In addition, the Company earns income from
commitment, renewal and discharge fees on its mortgage portfolio and from the
securitization of mortgages and recurring income from a continuing interest in
these mortgages within the Canada Mortgage and Housing Corporation ("CMHC")
Mortgage Backed Securities ("MBS") program. The Company's approach is to
operate without a branch network to achieve low overheads. Its business model
is based on outsourcing mortgage origination to independent mortgage brokers
and outsourcing deposit origination to independent deposit agents. This
business model and the growing nature of the Company's mortgage lending niches
have contributed to strong financial results.

    Objectives & Initiatives

    Equitable's diversified mortgage portfolio across both residential and
commercial real estate is a core strength of the organization. In order to
build the business to deliver long-term shareholder value, the Board and
management have defined three key corporate objectives:

    
    -   Fund future growth primarily from the retention of earnings and non-
        dilutive forms of capital;
    -   Build lending businesses where the Company has the best market
        position, profit and potential for sustainability; and
    -   Operate in a manner consistent with continuously-improving processes
        and operating efficiencies recognizing that, while productivity
        ratios are important, shareholders are best served by focusing on
        maximizing return on equity ("ROE") adjusted for risk.
    

    Capital Plan

    The Company believes that shareholders' interests are best served if
future growth is funded primarily by retained earnings and non-dilutive forms
of capital. The Company's long-term business plan has been developed to assume
that, absent significant acquisitions, equity will not be issued from treasury
except through the exercise of stock options and in unusual circumstances. The
implications of this approach are that asset growth will slow in 2008, as
compared to prior years, as Equitable builds its regulatory capital through
retention of earnings to levels appropriate for the new Basel II regulatory
regime (see "Capital Management"). In the years 2009 and beyond, asset growth
is expected to accelerate to a rate consistent with growth in capital.

    Lending Businesses

    Management has identified the following areas of competitive strength in
its lending business and will emphasize activities associated with each in the
future:

    
    -   Single-Family Dwelling ("Single Family") lending business:
        Equitable's Single Family operation has a variety of strengths
        including a large independent broker network, a disciplined approach
        to credit evaluation and collections and a focus on customer service.
        These strengths have allowed the Company to excel in an environment
        where many competitors have been forced to withdraw from the market;
    -   Commercial Mortgage - Broker Services ("Broker Services"): This line
        of business funds loans on a variety of property types, including
        mixed-use, apartment buildings, commercial and industrial sourced
        from independent mortgage brokers. Broker Services specializes in
        assisting experienced entrepreneurs, business operators and real
        estate investors. It has several strengths including broad mortgage
        broker relationships, and strong underwriting capabilities;
    -   Niche commercial lending business: This operation works with mortgage
        banking organizations to invest in commercial mortgages that
        typically do not meet the criteria of traditional long-term investors
        but provide low risk and good return characteristics for Equitable.
        Commercial loans that have particularly attractive qualities include
        short-term construction loans, single-family warehoused loans and
        CMHC-insured multi-family loans for securitization.
    

    As a result of this emphasis, the Company expects to grow its single-
family portfolio faster than its other mortgage assets and expand its single-
family lending business beyond the provinces of Ontario and Alberta. To
support the growth of the single-family business, Equitable has recently
joined the Canadian Payments Association and has become an Approved Seller
under the Canada Mortgage Bonds Program.

    Operating Efficiency and ROE

    The Company is bringing the same discipline to bear on its ROE
requirements as it brings to credit evaluation. Equitable has developed a
proprietary methodology to price each loan or investment to evaluate its
contribution to return on equity and ensure investment returns meet
established requirements. Single-family loans require less regulatory capital
than other types of mortgages and, although they require greater costs to
process, typically generate a higher return on equity than commercial loans.
    Management believes that shareholders are best served by focusing on
loans that optimize ROE even at the expense of a slightly increased
productivity ratio as a result of higher processing costs. The Company is
committed to using automation and improving operating efficiencies to reduce
costs where possible.

    
    2007 Highlights

    -   Equitable had the most profitable year in its history, generating net
        income of $31.2 million, even after taking into account the impact of
        a $3.4 million after-tax write-down on a preferred share investment.
    -   Mortgage assets increased to a record $2.87 billion at year end - 35%
        higher than the previous year.
    -   Mortgage originations climbed to a record $2.73 billion - including a
        record year for single-family originations of $528.6 million
        (excluding mixed-use properties) - as management focused on building
        this area of the business.

    To address the need for additional capital to support growth, the Company
issued $25.0 million of common equity and Equitable Trust issued $22.0 million
of subordinated debentures.
    Table 1 provides a summary of the performance highlights of the year that
should be read in conjunction with the "Financial Results Overview" section
that follows.

    Table 1: Selected financial information

    ($ thousands, except share, per share and employee amounts)
                           2007         2006         2005   Change from 2006
    -------------------------------------------------------------------------
    OPERATIONS                                                    $        %

    Net income           31,171       27,338       19,757     3,833      14%
    Net income
     - adjusted(1)       34,549       27,338       19,757     7,211      26%
    Basic earnings
     per share
     ("EPS")             $ 2.47       $ 2.30       $ 1.68    $ 0.17       7%
    Basic earnings
     per share
     - adjusted(1)       $ 2.74       $ 2.30       $ 1.68    $ 0.44      19%
    Diluted earnings
     per share           $ 2.44       $ 2.26       $ 1.65    $ 0.18       8%
    Diluted earnings
     per share
     - adjusted(1)       $ 2.71       $ 2.26       $ 1.65    $ 0.45      20%
    Net interest
     income(2)           65,445       51,637       37,906    13,808      27%
    Total revenue       185,933      143,219      100,432    42,714      30%
    Return on
     equity(4)             17.2%        19.9%        17.0%
    Return on equity
     - adjusted(1)(4)      18.9%        19.9%        17.0%
    Return on average
     assets                 1.0%         1.2%         1.1%
    Return on average
     assets
     - adjusted(1)          1.1%         1.2%         1.1%
    Productivity
     ratio
     - TEB(2)(3)(6)        35.6%        32.0%        31.9%
    Productivity
     ratio - TEB
     - adjusted
     (1)(2)(3)(6)          33.3%        32.0%        31.9%
    Number of
     employees at
     year end               124          107           82
    BALANCE SHEET
     AND OFF
     BALANCE SHEET
    Total assets      3,409,626    2,625,755    2,012,252   783,871      30%
    Mortgages
     receivable       2,874,241    2,135,662    1,678,420   738,579      35%
    Shareholders'
     equity             203,170      149,736      124,608    53,434      36%
    Mortgage-backed
     security assets
     under
     administration   1,888,250    1,807,479    1,878,405    80,771       4%
    COMMON SHARES
    Number of common
     shares
     outstanding at
     year end        12,952,710   11,924,468   11,781,940                 9%
    Dividends per
     share               $ 0.40       $ 0.40       $ 0.32       $ -       0%
    Book value per
     common share       $ 15.69      $ 12.56      $ 10.58    $ 3.13      25%
    Common share
     price - close      $ 28.75      $ 31.20      $ 24.60   $ (2.45)     (8%)
    Market
     capitalization     372,390      372,043      289,836       347       0%
    CREDIT QUALITY
    Realized loan
     losses - net of
     recoveries              21           21            0
    Mortgages in
     arrears 90 days
     or more as a %
     of total
     mortgages             0.30%        0.05%        0.10%
    Net impaired
     mortgages as a %
     of total
     mortgages(5)          0.30%        0.05%        0.09%
    Allowance for
     credit losses as
     a % of gross
     impaired
     mortgages            103.6%       707.0%       199.8%
    MORTGAGE
     PRODUCTION
    Conventional
     mortgages other
     than warehoused
     mortgages        1,475,578      965,706      908,238   509,872      53%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Adjusted for a preferred share write-down in the Company's
        investment portfolio - see Financial Results Overview and the Non-
        GAAP Financial Measures section.
    (2) See explanation of treatment of net mortgage commitment fees and
        deposit agent commissions at the end of this MD&A.
    (3) See explanation of Taxable Equivalent Basis ("TEB") at the end of
        this MD&A.
    (4) Return on equity is calculated based on the weighted average equity
        outstanding during the year.
    (5) Gross mortgage principal of impaired loans less specific allowance.
    (6) Decreases in this ratio reflect improved efficiencies.
    

    Global Credit Market Impact on 2007

    Global credit markets experienced significant volatility in 2007 as a
result of rapidly rising mortgage default rates and a lack of confidence in
the US mortgage market, combined with concerns about the complex financing
structures used to fund these mortgages. These issues resulted in some widely-
publicized challenges for large numbers of financial institutions around the
world with many of them experiencing significant credit losses and strains on
liquidity. Despite these problems in the United States and elsewhere in the
world, the Canadian mortgage market continued to enjoy strong levels of
activity and low rates of mortgage default.
    Credit market volatility had less impact on Equitable than many other
financial institutions, since, among other factors:

    
    -   The Company's only securitization activity is executed through a
        government-sponsored program that continues to operate;
    -   Equitable does not own any asset-backed commercial paper ("ABCP");
        and
    -   The Guaranteed Investment Certificate ("GIC") market continues to
        provide good liquidity funding for the Company.

    Challenges in credit markets did have some impact on Equitable during 2007
in two key areas:

    -   A number of larger institutions participated more actively than is
        typical in the GIC market in order to fund their liquidity needs.
        This increased the cost of funding the Company's mortgage assets; and
    -   The general decrease in securitization activity slowed discharge
        rates for warehoused mortgages, resulting in higher mortgage balances
        for this part of the portfolio.
    

    The disruption to credit markets during 2007 caused a number of the
Company's competitors to withdraw from the alternative mortgage market.
Management believes this improved competitive environment will help
Equitable's efforts to source mortgage assets with attractive interest margins
and good real estate collateral.

    Financial Review - Earnings

    Net Income

    Net income was $31.2 million compared with $27.3 million in 2006. This
increase was the result of strong growth in mortgage receivables of
$738.6 million or 35% compared to the previous year, offset by a $3.4 million
after-tax write-down on one preferred share holding in the investment
portfolio at year end. Management determined that an impairment write-down at
December 31, 2007 for preferred shares of Quebecor World Inc. was necessary
when Quebecor World filed for bankruptcy protection and management believed
that a recovery of this investment could not be reasonably assured. The
write-down amounted to $0.41 per share on a pre-tax basis, $0.27 per share
after-tax.
    Excluding this write-down, adjusted net income was $34.5 million compared
with $27.3 million a year ago. Diluted earnings per share were $2.44, compared
with $2.26 in 2006. Adjusted diluted earnings per share were $2.71, an
increase of 20%. The increase in per share earnings was partially offset by an
increase in the average number of common shares outstanding due to the common
equity issue of 769,231 shares in April 2007.
    The following table sets out the Company's financial objectives for 2007
and the actual performance against those objectives.

    
    Table 2: Performance against objectives

                                                                        2007
                                          2007           2007    Performance
                                    Objectives    Performance   - Adjusted(1)
    -------------------------------------------------------------------------

    Growth in assets                    18-22%          29.9%          29.9%
    Increase in net income              18-22%          14.0%          26.4%
    Increase in diluted earnings
     per share                          18-22%           8.0%          19.9%
    ROE                                 18-22%          17.2%          18.9%
    Productivity ratio - TEB(1)         32-35%          35.6%          33.3%

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) See explanation of "TEB" and "Adjusted" at the end of this MD&A.

    Net Interest Income

    Net interest income is the main driver of profitability for the Company.
It is measured on a Taxable Equivalent Basis ("TEB") (see explanation of TEB
in the "Non-GAAP Financial Measures" section) so that income from equity
securities may be compared on a pre-tax basis to ordinary interest income.
    Table 3 illustrates the Company's net interest margin in 2007 compared to
2006 on a TEB.

    Table 3: Net interest income

                                  2007                        2006
                      --------------------------  ---------------------------
                       Average  Revenue/ Average   Average  Revenue/ Average
    ($ thousands)      Balance   Expense    Rate   Balance   Expense    Rate
    -------------------------------------------------------------------------
    Interest revenues
     or interest
     expenses derived
     from:

    Assets:
    Liquidity
     investments       289,227   14,467    5.0%    210,150    8,925    4.2%
    Equity
     securities
     - TEB(1)(3)       161,226   12,968    7.2%    139,252    8,719    6.7%
    Mortgage loans   2,492,610  161,768    6.5%  1,898,443  121,406    6.4%
    -------------------------------------------------------------------------
    Total interest
     earning assets
     - TEB(1)        2,943,063  189,203    6.4%  2,247,845  139,050    6.2%
    -------------------------------------------------------------------------
    Total assets
     - TEB(1)        3,017,691  189,203    6.3%  2,319,004  139,050    6.0%
    -------------------------------------------------------------------------

    Liabilities and
     shareholders'
     equity:
    Customer
     deposits        2,684,242  112,017    4.2%  2,054,209   79,537    3.9%
    Bank term
     loans(3)           39,673    2,952    6.8%     27,250    2,072    6.8%
    Subordinated
     debentures(3)      28,610    2,367    7.4%     28,472    2,041    7.5%
    -------------------------------------------------------------------------
    Total interest
     bearing
     liabilities     2,752,525  117,336    4.3%  2,109,931   83,650    4.0%
    -------------------------------------------------------------------------
    Total
     liabilities
     and
     shareholders'
     equity          3,017,691  117,336    3.9%  2,319,004   83,650    3.6%
    -------------------------------------------------------------------------
    Net interest
     income
     - TEB(1)(2)                 71,867                      55,400
    Net interest
     margin
     - TEB(1)(2)                           2.4%                        2.4%

    Less: Taxable
     equivalent
     adjustment(1)               (6,422)                     (3,763)
    Add: Net
     mortgage
     commitment
     fees(2)                      2,863                           -
    Less: Deposit
     agent
     commissions(2)              (6,729)                          -

    Net interest
     income per
     financial
     statements                  61,579                      51,637
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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.
    (3) Average rate is calculated based on the weighted average balances
        outstanding during the year for bank term loans and subordinated
        debentures. Average rate for equity securities is calculated based on
        the average of the month end balances outstanding during the year.
        For equity securities, prior year's calculation is presented using
        the current year's presentation.
    

    Total interest revenues increased $50.2 million or 36% to $189.2 million
in 2007 compared to prior year growth of $41.2 million. This increase was
primarily due to growth across all mortgage segments. Total mortgage interest
revenues increased $40.4 million or 33% in 2007 over the prior year.
    The average Prime Rate of Interest ("Prime Rate") in 2007, based on the
rate in effect at each month-end, was 6.10% compared to 5.81% in 2006. The
Company's net interest margin remained consistent at 2.4% in 2007.
    Generally, interest on the Company's floating rate mortgages is
immediately affected by any change in the Prime Rate while the effect on
liabilities is delayed. The Company's cashable GICs are the only liabilities
that might be immediately affected by an increase in interest rates through
early redemption and reinvestment by GIC holders. Therefore, an increase in
the Prime Rate usually leads to temporary improvements in net interest margins
while a decrease has the opposite effect. In 2007, the Company experienced a
Prime Rate increase in the second quarter and a decrease in the fourth
quarter.
    The interest rate on average customer deposits outstanding increased to
4.2% in 2007 from 3.9% in 2006. Also during 2007, overall interest expense on
customer deposits grew $32.5 million or 41% over 2006 due to the increase in
rates along with a 31% increase in average customer deposits outstanding.
    Changes in the credit markets had an impact on net interest margins in
2007. Consumer demand for GIC products increased throughout the latter half of
the year as investors sought safety by depositing funds in regulated financial
institutions. At the same time, the Company experienced greater than normal
competition in the GIC market from other financial institutions seeking to
raise GIC funds to improve liquidity. The spread between the pricing of GICs
and the Prime Rate, the benchmark against which the Company prices floating
rate loans, was compressed commencing in the second quarter of the year.
Management responded by raising rates on new mortgages, but this had only a
marginal impact on net interest margins during the period.
    Interest income from the Company's liquidity investments increased
$5.5 million or 62% from 2006 due to higher-yielding investments along with a
larger debt securities portfolio throughout the year.
    The TEB adjustment of $6.4 million in 2007 was 71% higher than in 2006
due to increased dividends received from the Company's larger average equity
securities portfolio throughout 2007 and because of the impact of the
redemption of certain preferred shares. Premiums or discounts on preferred
shares with defined maturity or re-pricing dates (retractable, wind-up shares,
fixed/floating securities) within the equity securities portfolio are
amortized against the dividend income from these securities.
    During 2007, the Company entered into $185.0 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 were designated as "held-for-
trading" financial instruments and 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.
    In conjunction with the adoption of the 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; however,
certain elements of the MD&A have been presented in a manner so that certain
current ratios such as net interest margins-TEB and productivity ratios-TEB
remained 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 spread, net of
servicing fees earned on mortgages issued through the Company's CMHC-MBS
program. Sundry income, gains or losses on investments and other non-mortgage
related fees are also included in other income. Other income amounted to
$0.3 million for 2007, compared to $7.9 million a year ago. The decrease is
primarily related to the write-down of the preferred share holding in the
investment portfolio of $5.2 million (described under the "Net Income"
section) and the reclassification of $2.9 million of net mortgage commitment
fees as a component of mortgage interest income. After adjusting for the
investment portfolio write-down and net mortgage commitment fees, other income
was up 5% from the prior year. Commencing in 2007, in conjunction with the
adoption of the new accounting policies for financial instruments, net
mortgage commitment fees are accounted for as a component of mortgage interest
income. This change from prior periods' presentation has not been applied
retroactively; however, commentary on other income, including mortgage
commitment fees in this MD&A, has been presented in a way to provide a
meaningful comparison with prior periods. For more information, see the "Non-
GAAP Financial Measures" section at the end of this MD&A.
    The components of securitization income are excess interest spread, net
of servicing fee and gain on sale of mortgages. Total income from loan
securitizations increased $0.3 million or 8% to $4.2 million in 2007. Gross
margins on the securitization of CMHC-insured mortgages increased to 36 basis
points in 2007 from 26 basis points in 2006. The Company securitized
$359.5 million of mortgages during 2007 compared to $273.7 million during
2006.
    Excess interest spread, net of servicing fee, decreased $0.3 million or
9% in 2007 over 2006. This decrease reflected a lower average securitized
principal balance outstanding during 2007 compared to 2006 and lower interest
penalties received on early discharge of certain securitized mortgages.
    Net pre-tax loss on investments was $5.2 million in 2007 as a result of
the aforementioned write-down of a preferred share investment. This compares
to net gain on investments of $0.7 million in 2006.

    
    Table 4: Other income

    ($ thousands)                         2007      2006    Change from 2006
    -------------------------------------------------------------------------
                                                                 $         %
    Loan securitizations - excess
     interest spread net of
     servicing fee                       2,907     3,182      (275)      (9%)
    Loan securitizations - gain
     on sale of mortgages                1,277       708       569       80%
    -------------------------------------------------------------------------
    Total income from loan
     securitizations                     4,184     3,890       294        8%
    Mortgage commitment income
     and other fees(1)                   1,275     3,373    (2,098)     (62%)
    Net gain (loss) on investments      (5,170)      669    (5,839)    (873%)
    -------------------------------------------------------------------------
    Total                                  289     7,932    (7,643)     (96%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) See explanation of treatment of net mortgage commitment fees at the
        end of this MD&A.
    

    Non-Interest Expenses

    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. Non-interest expense excludes the
provision for credit losses. In prior periods, deposit agent commissions were
included in non-interest expenses. In conjunction with the 2007 adoption of
the new accounting policies for financial instruments, deposit agent
commissions are accounted for as a component of interest expense. This change
from prior periods' presentation has not been applied retroactively; however,
to provide a meaningful comparison with prior periods, commentary on non-
interest expenses in this MD&A is presented including deposit agent
commissions. 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
$26.7 million compared to $20.3 million in 2006. This increase primarily
reflected higher deposit agent commissions due to growth in GIC liabilities
and $0.5 million of deposit agent commissions expensed in 2007 for certain
term GICs designated as "held-for-trading" compared to no such charge in the
prior year. Overall deposit agent commission rates were comparable to the
prior year. In addition, higher compensation expense was experienced due to
increased employment levels to support business growth, as well as higher
office and equipment costs to accommodate growth in staff. Included in
non-interest expenses during 2007 was a charge for stock-based compensation
expense in the amount of $0.8 million related to grants of options compared to
a $0.4 million charge for 2006. The offset to this expense was an increase to
contributed surplus in the same amount.
    The Company's adjusted productivity ratio-TEB increased to 33.3% in 2007
compared to the 32.0% in 2006. This ratio, although slightly increased from
the prior year, continued to reflect the benefits of the Company's low-cost
business model based on outsourcing.

    
    Table 5: Non-interest expenses and productivity ratio

    ($ thousands)                         2007      2006    Change from 2006
    -------------------------------------------------------------------------
                                                                 $         %

    Compensation and benefits           11,340     9,022     2,318       26%
    GIC deposit agent commissions(1)         -     4,669    (4,669)    (100%)
    Capital taxes, licenses,
     regulatory fees and insurance       2,680     2,299       381       17%
    Premises and equipment               2,031     1,573       458       29%
    Marketing, travel and
     communications                        927       874        53        6%
    Mortgage servicing                     993       768       225       29%
    Legal, audit and related services      541       453        88       19%
    Other                                1,456       621       835      134%
    -------------------------------------------------------------------------
    Total                               19,968    20,279      (311)      (2%)
    Productivity ratio-TEB
     - adjusted(1)(2)(3)                 33.3%     32.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) See explanation of treatment of deposit agent commissions at the end
        of this MD&A.
    (2) See explanation of TEB at the end of this MD&A.
    (3) Adjusted for a preferred share write-down in the Company's investment
        portfolio - see Financial Results Overview and the Non-GAAP Financial
        Measures section.
    

    Income Taxes

    The Company's effective tax rate in 2007 was 24.0% compared to 28.8% in
2006. Tax-exempt dividend income from the securities portfolio continued to
assist in lowering the Company's effective tax rate. The Company recorded a
one-time tax benefit of $0.8 million related to the tax treatment accorded to
a preferred share redemption. The net increase in future income tax expense of
$6.6 million from the prior year was primarily due to future taxes payable
relating to loan securitizations. The effective tax rate was less than the
statutory tax rate of 35.9% primarily due to the tax-exempt income earned in
the equity securities portfolio.
    Income taxes are allocated between current and future taxes. Future taxes
result from timing differences between the Company's financial statement
earnings and earnings for tax purposes. The future taxes are established at
the rates expected to be in effect at the date of the reversal of the timing
differences.

    Financial Review - Balance Sheet

    Mortgages

    All of the Company's mortgages are first charges on real estate. Table 6
provides details on the composition of the mortgage portfolio.

    
    Table 6: Mortgages receivable
                                   % of               % of               % of
    ($ thousands)          2007   total       2006   total       2005   total
    -------------------------------------------------------------------------

    Single-family
     dwelling
     including
     mixed-use
     property(1)      1,026,693(1)  36%    741,732(1)  35%    628,240     37%
    Multi-unit
     residential        660,071     23%    570,312     27%    500,666     30%
    Commercial          652,783     23%    431,017     20%    292,200     17%
    Conventional
     mortgages held
     for sale           272,370      9%    268,396     13%    163,743     10%
    Construction         77,395      3%     87,043      4%     61,836      4%
    CMHC-insured        178,971      6%     33,617      1%     30,452      2%
    -------------------------------------------------------------------------
    Total mortgage
     principal        2,868,283    100%  2,132,117    100%  1,677,137    100%
    Deferred net
     mortgage
     commitment
     fees(2), net
     premiums and
     sundry                 368              1,423              1,422
    -------------------------------------------------------------------------
    Mortgages
     reported         2,868,651          2,133,540          1,678,559
    Accrued interest     14,515             10,168              7,028
    Allowances for
     credit losses       (8,925)            (8,046)            (7,167)
    -------------------------------------------------------------------------
    Total mortgages
     receivable       2,874,241          2,135,662          1,678,420
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) A mixed-use property is a building that includes both residential and
        commercial space. Mortgage principal outstanding for mixed-use
        properties was $287.6 million at December 31, 2007 and $192.4 million
        at December 31, 2006.
    (2) See explanation of treatment of net mortgage commitment fees at the
        end of this MD&A.
    

    Mortgage lending activity increased across all business segments in 2007.
A significant area of growth was in single-family dwellings. Excluding growth
in mixed-use properties, single-family mortgage principal increased
$189.8 million or 35% compared to a year ago. This increase is consistent with
the Company's corporate strategy to enhance Equitable's single-family
business.
    Mortgages on mixed-use properties increased by $95.2 million or 49% from
December 31, 2006. These mortgages on mixed-use properties are originated by
Broker Services.
    Multi-unit residential mortgages increased by $89.8 million or 16% from
December 31, 2006. In this segment the Company provides mortgages on
properties including apartment buildings and retirement residences. Commercial
mortgages increased $221.8 million or 51% from December 31, 2006.
    Conventional mortgages held for sale ("warehoused mortgages") increased
1% from 2006. This portfolio was comprised of 60% residential and 40%
commercial mortgages originated by third-party lenders who require financing
prior to pooling and eventually selling the mortgages to investors. These
mortgages usually stay on the books of the Company for periods of up to six
months and are therefore referred to as warehoused mortgages. Historically,
the Company has derived several advantages from participating in this market
niche. For example, a broker commission is not paid on origination, the loans
are floating rate and therefore easily matched with short-term GICs and the
loan yields are usually attractive. Recent tightening of credit markets has
slowed the number of loans financed in this manner as ultimate securitization
of the loans has become limited. At year end, approximately $166.6 million of
warehoused mortgages were outstanding that were intended for Commercial
Mortgage Backed Securities conduits. These loans are not anticipated to move
off the balance sheet in time frames previously experienced.
    Construction mortgages decreased $9.6 million or 11% compared to the
prior year and comprised 3% of the portfolio. CMHC-insured mortgages comprised
6% of the portfolio compared to 1% a year ago while the principal balance
outstanding increased $145.4 million over the preceding year to
$179.0 million. Subsequent to year end, $159.1 million of CMHC-insured
mortgages were securitized, however at narrower spreads than normally
realized. Floating rate mortgages within the portfolio increased 36% to
$1.50 billion at December 31, 2007 from $1.10 billion a year ago and
represented 52% of the portfolio.
    The majority of the Company's mortgages are sourced each year by a
network of independent mortgage brokers and other mortgage originators. An
arrangement exists with First National Financial LP ("FNFLP"), one of Canada's
leading mortgage banking organizations, to source and administer the mortgages
in the Company's CMHC-MBS program and conventional mortgage product, including
a component of conventional mortgages held for sale. FNFLP originated
approximately $1.06 billion or 37% of the Company's outstanding on-balance
sheet mortgage principal at December 31, 2007. This is consistent with the 36%
of the outstanding principal reported a year earlier. The Company's
conventional mortgages held for sale and CMHC-insured mortgages are located
across Canada. CMHC-insured mortgages are funded almost exclusively for
securitization through the CMHC-MBS program. When these loans are securitized,
the Company records a gain on sale and retains the rights and obligations with
respect to servicing the mortgages. In contrast, when the Company discharges
the conventional mortgages held for sale, no gain or loss is recorded and the
Company has no rights or obligations with respect to the mortgages after they
have been discharged.
    At year end, approximately 70% of the Company's mortgages receivable were
secured by properties located in Ontario, compared to 83% a year ago. This
change was due to a combination of the increase in large commercial lending
outside Ontario, the increase in warehoused mortgages on properties located
outside Ontario and the continued expansion of the Company's single-family
operations in Alberta. The Company's single-family dwelling mortgage presence
in Alberta grew strongly with $149.3 million in total mortgages outstanding at
year end, compared to $58.5 million at December 31, 2006.
    Mortgage principal increased $736.2 million or 35% during 2007 to
$2.87 billion at year-end. Mortgage production is classified into three major
sub-categories: conventional (uninsured) mortgages other than warehoused
mortgages, warehoused mortgages and CMHC-insured mortgages. The Company funded
$1.48 billion of non-warehoused conventional mortgages during 2007, up 53%
from $965.7 million in 2006. In response to changes in the credit markets,
warehoused mortgage production in 2007 decreased $87.8 million to
$824.7 million as Equitable stopped making further commitments with a number
of customers in August 2007. CMHC-insured mortgages funded during 2007
amounted to $428.0 million compared to $278.4 million in 2006.

    
    Table 7: Mortgage production
                                             2007               2006
                                         Mortgage           Mortgage
                                        Principal    % of  Principal    % of
    ($ thousands)                          Funded   total     Funded   total
    -------------------------------------------------------------------------

    Conventional mortgages other
     than warehoused mortgages          1,475,578     54%    965,706(1)  45%
    Warehoused mortgages                  824,656     30%    912,468(1)  42%
    CMHC-insured mortgages                428,003     16%    278,362     13%
    -------------------------------------------------------------------------
    Total                               2,728,237    100%  2,156,536    100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                             2005
                                         Mortgage
                                        Principal    % of
    ($ thousands)                          Funded   total   Change from 2006
    -------------------------------------------------------------------------
                                                                   $       %
    Conventional mortgages other
     than warehoused mortgages            908,238     64%    509,872     53%
    Warehoused mortgages                  247,363     17%    (87,812)   (10%)
    CMHC-insured mortgages                276,357     19%    149,641     54%
    -------------------------------------------------------------------------
    Total                               1,431,958    100%    571,701     27%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Amounts have been adjusted by $19.6 million to correct a
        misclassification in the prior year. Warehoused mortgage production
        was understated and conventional mortgages other than warehoused was
        overstated by $19.6 million in 2006.



    Table 8: Warehoused mortgage program

    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------

    Principal balance, beginning of period                 268,396   163,743
    Production                                             824,656   912,468
    Repayments and discharges                             (820,682) (807,815)
    -------------------------------------------------------------------------
    Principal balance, end of period                       272,370   268,396

    Net change in principal balance                          3,974   104,653
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Mortgage Credit Quality

    The Company realized $21 thousand in net credit losses in 2007. The
Company's provision for credit losses in 2007 remained consistent with last
year at $0.9 million. Mortgages in arrears 90 days or more amounted to 0.30%
of total principal outstanding at year end compared to 0.05% a year earlier.
All arrears over 90 days related to mortgages on single-family dwellings.
Management believes that significant equity is available in these properties
and only nominal losses, if any, will materialize. Further, management is
satisfied that, despite the increase in arrears, corporate underwriting
practices continue to be conservative and that adequate collateral is
available to support the mortgages.

    
    Table 9: Mortgage credit quality

    ($ thousands)          2007         2006         2005   Change from 2006
    -------------------------------------------------------------------------
                                                                  $        %
    Credit quality
     measures:
    Gross impaired
     mortgage principal   8,617        1,138        3,587     7,479     657%
    Allowance for
     credit losses        8,925        8,046        7,167       879      11%
    Allowance for
     credit losses as
     a % of gross
     impaired
     mortgages           103.6%       707.0%       199.8%
    Allowance for credit
     losses as a % of
     total mortgage
     principal            0.31%        0.38%        0.43%
    Mortgage principal
     in arrears over
     90 days              8,617        1,138        1,603     7,479     657%
    Mortgage principal
     in arrears over
     90 days as a % of
     total mortgage
     principal            0.30%        0.05%        0.10%

    Continuity of
     allowance for
     credit losses:
      Balance beginning
       of year            8,046        7,167        6,442
      Realized losses
       deducted from
       allowance            (50)         (21)           -
      Recovery of prior
       year losses added
       to allowance          29            -            -
      Provision charged
       to statement
       of income            900          900          725
    -------------------------------------------------------------------------
      Balance end
       of year            8,925        8,046        7,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Cash, Cash Equivalents, Investments and Liquidity Practices

    Liquidity for regulatory purposes at Equitable Trust includes cash,
short- term investments, government guaranteed bonds, treasury bills and
notes. Non- regulatory liquidity is comprised of preferred shares which are
held as security for a credit facility of $35.0 million with the Company's
bank.
    At December 31, 2007 liquid assets eligible for regulatory purposes
increased $52.5 million or 20% to $313.0 million. Liquid assets eligible for
regulatory purposes represented 9% of total assets compared to 10% a year ago.
This decline is attributable to the Company's regulatory liquidity
requirements growing at a slower pace than total assets. Mortgage commitments
were $290.2 million at year end up 4% from $279.3 million a year ago.
    Cash and cash equivalents decreased $86.9 million to $20.9 million
(including $5.0 million which is restricted relating to the Company's interest
rate swap transactions) at December 31, 2007 from $107.8 million a year ago.
Longer-term government bonds and notes decreased $87.7 million or 57% to
$64.9 million from $152.6 million during the same period. The Company
purchased $232.1 million of Government of Canada Treasury Bills under a
reverse repurchase agreement prior to year end which were resold in early
2008. Equity securities decreased $10.9 million or 7% to $155.8 million at
year end from $166.7 million a year earlier.

    
    Table 10: Liquid resources

    ($ thousands)          2007         2006         2005   Change from 2006
    -------------------------------------------------------------------------
                                                                  $        %
    Deposits with
     regulated
     financial
     institutions        15,927(1)    21,688       46,039    (5,761)    (27%)
    Government
     guaranteed debt
     instruments        297,035(2)   238,802      113,771    58,233      24%
    -------------------------------------------------------------------------
    Liquid assets for
     regulatory
     purposes           312,962      260,490      159,810    52,472      20%
    Equity securities   155,782      166,669      111,833   (10,887)     (7%)
    -------------------------------------------------------------------------
    Total liquid assets 468,744      427,159      271,643    41,585      10%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total liquid assets
     for regulatory
     purposes as a % of
     total assets            9%          10%           8%
    Total liquid assets
     as a % of total
     assets                 14%          16%          13%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Excludes $5.0 million of restricted cash held as collateral by a
        third party for the Company's interest rate swap transactions.
    (2) Includes $232.1 million of investments purchased under a reverse
        repurchase agreement in 2007.
    

    Loan Securitizations - Retained Interests

    The Company periodically securitizes mortgage loans primarily to
diversify funding sources and enhance liquidity positions. The Company
securitizes CMHC-insured mortgage loans through the creation of Mortgage
Backed Securities ("MBS"). Equitable continues to service the underlying
mortgages that were securitized. Refer to Note 1 to the Consolidated Financial
Statements for the accounting policy on loan securitizations. Total mortgages
in the CMHC-MBS program increased to $1.89 billion at year end from
$1.81 billion the prior year.
    Loan securitizations - retained interests amounted to $51.2 million at
December 31, 2007, an increase of $2.9 million or 6% from 2006. Loan
securitizations - retained interests represent the discounted future earnings
to be received relating to the insured mortgages securitized through the CMHC-
MBS program. It is presented gross of the estimated future servicing liability
included in other liabilities. For further information, see Note 5 to the
Consolidated Financial Statements and the Critical Accounting Estimates,
Financial Instruments and Off-Balance Sheet Arrangements sections of this
MD&A.

    Deposits

    The Company funds mortgages receivable by issuing GICs. These provide a
reliable and stable source of funding that can be properly matched against
mortgage maturities.
    Total deposit principal outstanding increased $703.8 million or 30% to
$3.04 billion at year end from $2.34 billion the prior year. Accrued interest
increased 36% over the December 31, 2006 balance, reflecting higher interest
rates and higher GIC balances.
    Issuances of cashable GICs continued to grow strongly in 2007, with
principal balances up $139.7 million or 24% from 2006. At year end, cashable
GICs represented 23% of total deposits outstanding versus 24% in 2006. The
Company's cashable GIC is a one-year product, cashable at any time upon
demand. Other GIC products consist of 30-day to five-year fixed term GICs. The
Company is licensed in all jurisdictions in Canada to accept deposits.
    Commencing in 2007, in conjunction with the adoption of the new
accounting policies for financial instruments, deferred deposit agent
commissions are included as a component of customer deposits. Formerly, these
were presented as a component of other assets.

    
    Table 11: Deposits

    ($ thousands)          2007         2006         2005   Change from 2006
    -------------------------------------------------------------------------
                                                                  $        %
    Cashable GIC
     deposits           710,194      570,455      348,885   139,739      24%
    Fixed-term GIC
     deposits         2,330,040    1,766,011    1,423,066   564,029      32%
    Accrued interest
     on deposits         72,507       53,289       37,004    19,218      36%
    Deferred deposit
     agent
     commissions         (8,217)           -            -    (8,217)    n/a
    -------------------------------------------------------------------------
    Total             3,104,524    2,389,755    1,808,955   714,769      30%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Subordinated Debentures and Bank Term Loans

    Subordinated debentures are subordinated to the rights of Equitable
Trust's depositors and other creditors. Such debentures form an integral part
of regulatory capital.
    Subordinated debentures are issued for a period of 10 years. Subject to
regulatory approval, debentures are redeemed each year in an amount equal to
20% of Equitable Trust prior year's net income. The Company may elect to
redeem additional subordinated debentures with the approval of the Office of
the Superintendent of Financial Institutions Canada ("OSFI").
    During 2007, Equitable Trust issued $22.0 million of Series 7
subordinated debentures; $9.5 million directly to third parties and
$12.5 million purchased by the Company as the parent of Equitable Trust using
proceeds from a five-year bank term loan in the same amount. The Company is in
compliance with all of the covenants required by its bank lender.

    
    Table 12: Subordinated debentures and bank term loans

                       Interest
    ($ thousands)          Rate     2007     2006     2005  Change from 2006
    -------------------------------------------------------------------------
                                                                  $        %
    Subordinated
     debentures
    Series 4        7.54%-8.15%        -        -   11,444        -        -
    Series 5        7.31%-7.58%   17,519   20,250   20,250   (2,731)    (13%)
    Series 6              7.27%    5,000    5,000        -        -        -
    Series 7              7.10%    9,450        -        -    9,450      n/a
    -------------------------------------------------------------------------
    Total
     subordinated
     debentures                   31,969   25,250   31,694    6,719      27%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Bank term loans
                          6.37%   17,095   19,750   19,750   (2,655)    (13%)
                          6.82%   15,000   15,000        -        -        -
                          6.41%   12,500        -        -   12,500      n/a
    -------------------------------------------------------------------------
    Total bank
     term loans                   44,595   34,750   19,750    9,845      28%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total
     subordinated
     debentures
     and bank term
     loans                        76,564   60,000   51,444   16,564      28%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Other Assets, Future Income Taxes and Other Liabilities

    Other assets decreased $4.2 million or 29% to $10.4 million from
$14.7 million a year earlier. Other assets include income taxes recoverable,
capital assets consisting of leasehold improvements, office furniture and
computer equipment and sundry receivables and prepaid expenses. The decrease
in other assets was primarily due to the reclassification of deferred deposit
agent commissions and deferred finders' fees. In the current year, deferred
deposit agent commissions are included in customer deposits, and deferred
finders' fees are included in mortgages receivable. In 2006, $6.3 million of
deferred agent commissions and $1.9 million of deferred finders' fees were
included in other assets. Accrued interest and dividends on investments
decreased $1.5 million over that of the prior year. The overall decrease in
other assets is primarily offset by income taxes recoverable of $3.4 million.
In 2006, the Company recorded income taxes payable of $3.6 million.

    
    Table 13: Other assets, future income taxes and other liabilities

    ($ thousands)          2007         2006         2005   Change from 2006
    -------------------------------------------------------------------------
                                                                  $        %
    Other assets
    Other receivables
     and prepaids         3,586        6,112        3,301    (2,526)    (41%)
    Income taxes
     recoverable          3,382            -            -     3,382     n/a
    Capital assets        2,857        2,263        1,502       594      26%
    Derivative
     financial
     instruments -
     interest rate
     swaps                  539            -            -       539     n/a
    Mortgage commitments     63            -            -        63     n/a
    Deferred deposit
     agent commissions        -        6,288        5,791    (6,288)   (100%)
    -------------------------------------------------------------------------
    Total                10,427       14,663       10,594    (4,236)    (29%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ($ thousands)          2007         2006         2005   Change from 2006
    -------------------------------------------------------------------------
                                                                  $        %
    Future income taxes
     and other
     liabilities Future
     income taxes         7,945        4,700        6,538     3,245      69%
    Mortgagor realty
     taxes                6,616        5,089        5,266     1,527      30%
    Securitized mortgage
     servicing liability  5,953        6,044        6,460       (91)     (2%)
    Accounts payable and
     accrued liabilities  2,858        6,860        4,315    (4,002)    (58%)
    Derivative financial
     instruments
     - securitization
     activities           1,996            -            -     1,996     n/a
    Income taxes payable      -        3,571        4,666    (3,571)   (100%)
    -------------------------------------------------------------------------
    Total                25,368       26,264       27,245      (896)     (3%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Future income taxes payable result from differences between the
measurement of assets and liabilities for financial statement purposes as
opposed to tax purposes. A large portion of future taxes relates to the
Company's securitization activities net of its general allowance for credit
losses. Future income taxes increased primarily as a result of the increase in
future tax payable related to loan securitizations. Securitized mortgage
servicing liability relates to the Company's estimate of future costs of FNFLP
servicing the mortgages in the CMHC-MBS portfolio.

    Shareholders' Equity

    Total shareholders' equity increased $53.4 million or 36% to
$203.2 million from $149.7 million a year earlier. This increase in
shareholders' equity reflected earnings, net of dividends and the issuance of
new equity during the year. In 2007, the Company issued 1,028,242 common
shares that contributed $28.6 million to common share capital. In 2007, the
majority of this new equity was issued through a public offering - priced at
$32.50 per share - in April 2007 that raised $25.0 million. The balance of new
equity in 2007 came from the exercise of employee stock options. In 2006, the
Company issued 142,528 common shares - exclusively through the exercise of
employee stock options - that contributed $2.1 million to common share
capital.
    The Company paid an annual dividend of $0.40 per share in 2007 which
management expects to be maintained throughout 2008.

    
    Table 14: Shareholders' equity

    ($ thousands)          2007         2006         2005   Change from 2006
    -------------------------------------------------------------------------
                                                                  $        %

    Shareholders'
     equity:
      Common shares      87,062       57,849       55,510    29,213      50%
      Contributed
       surplus            1,778        1,539        1,327       239      16%
      Retained
       earnings         116,325       90,348       67,771    25,977      29%
      Accumulated
       other
       comprehensive
       loss              (1,995)           -            -    (1,995)    n/a
    -------------------------------------------------------------------------
      Total
       shareholders'
       equity           203,170      149,736      124,608    53,434      36%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Dividends paid      5,081        4,761        3,765       320       7%
      Dividends per
       share             $ 0.40       $ 0.40       $ 0.32         -       0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital Management

    The Company maintains a capital management policy to govern both the
quality and quantity of capital utilized by Equitable Trust in its regulated
operations to support its business plans.
    Equitable Trust's key capital benchmarks under the Basel I regulatory
requirements prevailing at year end were as follows:

    -   Total regulatory capital should exceed 10% of total risk-weighted
        assets.
    -   Tier 1 capital must be no less than 7% of total risk-weighted assets.
    -   Tier 2B capital must not exceed 50% of Tier 1 capital.
    -   The Company's ratio of total assets to capital must not exceed
        17.5 times.

    As shown in Table 15, Equitable Trust met these regulatory requirements at
year end.

    Table 15: Capital measures (relating solely to Equitable Trust)

                                                                 Change from
    ($ thousands)                               2007        2006        2006
    -------------------------------------------------------------------------
    Tier 1 Capital:
      Capital stock                           87,621      57,834      29,787
      Contributed surplus                      1,363       1,124         239
      Retained earnings                      114,645      89,508      25,137
      Accumulated other comprehensive
       loss(1)                                (2,982)          -      (2,982)
    -------------------------------------------------------------------------
    Total                                    200,647     148,466      52,181
    -------------------------------------------------------------------------

    Tier 2 Capital:
      Subordinated debentures (Tier B)(2)     76,564      60,000      16,564
    -------------------------------------------------------------------------
    Total                                     76,564      60,000      16,564
    -------------------------------------------------------------------------

    Total regulatory capital                 277,211     208,466      68,745
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total risk-weighted assets             2,423,118   1,967,779     455,339

    Regulatory capital to
     risk-weighted assets
      Tier 1 Capital                             8.3%        7.5%        0.8%
      Tier 2 Capital                             3.1%        3.1%        0.0%
    -------------------------------------------------------------------------
    Total regulatory capital as a % of
     total risk-weighted assets                 11.4%       10.6%        0.8%
    -------------------------------------------------------------------------

    Authorized asset to capital multiple        17.5        17.5           -
    Utilized asset to capital multiple(3)       12.9        12.6         0.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Effective January 1, 2007, shareholders' equity includes accumulated
        other comprehensive loss, which is described in Note 2 of the
        Company's audited Consolidated Financial Statements. Accumulated
        other comprehensive loss related to unrealized losses on available-
        for-sale equity securities reduces Tier 1 Capital.
    (2) Tier 2B capital may be included in Tier 2 Capital to a maximum of 50%
        of net Tier 1 Capital.
    (3) Total assets plus off-balance sheet instruments such as sale and
        repurchase agreements divided by regulatory capital.
    

    Equitable Trust is currently in the process of transitioning from the
Basel I to the Basel II regulatory risk management and reporting environment.
Effective January 1, 2008, the Company will report its capital ratio based on
Basel II requirements ("BCAR ratio"). Under Basel II, certain asset classes
attract different risk weightings than under Basel I and additional capital is
required to support operational risk.
    As part of the transition to Basel II, Equitable Trust developed and
implemented an Internal Capital Adequacy Assessment Process ("ICAAP") in 2007.
The ICAAP identified risks in the business and determined prudent capital
levels to maintain based on those risks. As a result of this ICAAP, it is the
Company's intention to build its regulatory capital base to a BCAR ratio of
13% during 2008, calculated by including general reserves as part of
regulatory capital. Equitable Trust's BCAR ratio calculated under this basis
would have been 11.0% at December 31, 2007 had this new regulatory regime been
in effect.

    Outlook

    Looking at market conditions, rising demand for mortgages - stimulated by
population growth and low interest rates - is expected to support Equitable's
continued strong profitability. Reduced competition in Equitable's mortgage
markets is likely to give the Company an opportunity to increase interest
spreads and return on assets. While management expects consumer credit quality
to remain solid in a historical context, it anticipates an increase in
delinquency rates as a result of tightening credit conditions.
    During 2008, Equitable plans to slow its rapid asset growth of recent
years while it builds its capital ratio. During the year, the Company will
focus on originating mortgage assets that generate higher returns on capital
while maintaining a relatively low tolerance for credit risk.
    The Company's objectives have been framed in the context of the current
conditions in the credit markets and assume that no additional subordinated
debt is raised during the year. If additional subordinated debt is raised or
the Company securitizes single-family mortgages under the Canada Mortgage
Bonds Program, this would facilitate faster growth in earnings and assets.

    
    Table 16: 2008 objectives
                                                             2008 Objectives
    -------------------------------------------------------------------------

    Return on equity(1)                                                16-18%
    Percentage increase in net income over that of the prior year(2)   16-20%
    Total capital ratio (including general reserves)                      13%
    Productivity ratio - TEB(3)                                        27-30%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Return on equity is calculated based on the weighted average equity
        outstanding during the year.
    (2) This objective is referenced with respect to net income. The target
        percentage increase compared to adjusted net income would be
        4.6% to 8.3%.
    (3) The calculation for productivity ratio - TEB does not include deposit
        agent commissions as a component of non-interest expense. These
        commissions are included as a component of net interest income. The
        2007 adjusted productivity ratio - TEB presented on this basis would
        be 27.2%.

    Fourth Quarter Review

    Overview

    -   Net income was $6.9 million, down 11% from the fourth quarter of
        2006. Adjusted net income (excluding the preferred share write-down
        in the quarter) was $10.3 million, up 33% from a year ago. On this
        adjusted basis, the fourth quarter was the most profitable quarter on
        record.
    -   Diluted earnings per share were $0.53 compared to $0.64 in the same
        period a year ago, down 17% from prior year. Adjusted diluted
        earnings per share were $0.79 compared to $0.64 from a year ago, up
        23% from prior year.
    -   Return on equity was 13.7% compared to 21.0% in the fourth quarter of
        2006. Return on equity, adjusted for the preferred share write-down,
        was 20.3%.
    -   Single-family production, excluding mixed-used properties, was
        $147.8 million compared to $112.8 million in the fourth quarter
        of 2006.
    -   During the quarter, Equitable funded $81.5 million through Broker
        Services, compared to $57.5 million in the fourth quarter of 2006.
    -   The Company deliberately slowed the pace of asset expansion in order
        to allow its capital ratio to increase through the retention of
        earnings.
    -   Book value per share was $15.69 compared to $12.56 at
        December 31, 2006.

    Table 17: Income Statement - Fourth Quarter 2007 and 2006

    ($ thousands, except     Three months ended
     share and per share  December 31, December 31,
     amounts)                    2007         2006        Change from 2006
    -------------------------------------------------------------------------
                                                              $            %
    Interest income:
      Mortgages(1)             47,329       33,801       13,528          40%
      Investments               2,357        2,533         (176)         (7%)
      Other                     3,233        1,886        1,347          71%
    -------------------------------------------------------------------------
                               52,919       38,220       14,699          38%
    Interest expense:
      Customer deposits        32,338       22,915        9,423          41%
      Deposit agent
       commissions(1)           1,882            -        1,882         n/a
      Bank term loans             754          594          160          27%
      Subordinated
       debentures                 592          474          118          25%
    -------------------------------------------------------------------------
                               35,566       23,983       11,583          48%
    -------------------------------------------------------------------------
    Net interest income        17,353       14,237        3,116          22%
    Provision for credit
     losses                       225          225            -           0%
    -------------------------------------------------------------------------
    Net interest income
     after provision for
     credit losses             17,128       14,012        3,116          22%
    Other income:
      Mortgage commitment(1)
       income and other fees      353          959         (606)        (63%)
      Net gain (loss) on
       investments             (5,169)         666       (5,835)       (876%)
      Loan securitizations
       - retained interests       878          974          (96)        (10%)
    -------------------------------------------------------------------------
                               (3,938)       2,599       (6,537)       (252%)
    -------------------------------------------------------------------------
    Net interest income and
     other income              13,190       16,611       (3,421)        (21%)
    Non-interest expenses:
      Compensation and
       benefits                 3,135        2,160          975          45%
      Other                     2,239        2,002          237          12%
      Deposit agent
       commissions                  -        1,330       (1,330)       (100%)
    -------------------------------------------------------------------------
                                5,374        5,492         (118)         (2%)
    -------------------------------------------------------------------------
    Income before income
     taxes                      7,816       11,119       (3,303)        (30%)
    Income taxes (recovery):
      Current                     803        4,439       (3,636)        (82%)
      Future                      102       (1,072)       1,174        (110%)
    -------------------------------------------------------------------------
                                  905        3,367       (2,462)        (73%)
    -------------------------------------------------------------------------
    Net income                  6,911        7,752         (841)        (11%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                $     0.53   $     0.65   $    (0.12)        (18%)
      Basic - Adjusted(2)  $     0.79   $     0.65   $     0.14          22%
      Diluted              $     0.53   $     0.64   $    (0.11)        (17%)
      Diluted -
       Adjusted(2)         $     0.79   $     0.64   $     0.15          23%
    Weighted average
     number of shares
     outstanding:
      Basic                12,943,749   11,911,900    1,031,849
      Diluted              13,039,976   12,120,576      919,400
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) See explanation of treatment of net mortgage commitment fees and
        deposit agent commissions at the end of this MD&A.
    (2) Adjusted for a preferred share write-down in the Company's investment
        portfolio - see Financial Results Overview and the Non-GAAP Financial
        Measures section.
    

    During the fourth quarter, the balance of average interest-earning assets
was $3.29 billion, up 35% from $2.45 billion from the same period a year ago.
Mortgage interest income (excluding net mortgage commitment income of
$0.9 million) increased 38% to $46.5 million compared to $33.8 million a year
earlier due to the increase in the mortgage portfolio and higher interest
rates. Investment income decreased 7% from the same quarter a year ago due to
a decline in the balance of the Company's equity investment securities. Net
interest income (excluding net mortgage commitment income and deposit agent
commission) increased $4.1 million or 29% from the same quarter a year ago due
to expansion in the Company's asset base during the previous three quarters.
This growth was partially offset during the fourth quarter by compressed
spreads on the Company's floating rate mortgages resulting from a Prime Rate
decrease, combined with narrower spreads between the Prime Rate and short-term
deposit rates. The Company experienced no loan losses during the fourth
quarter of 2007 or 2006.
    Other income (including net mortgage commitment income of $0.9 million)
decreased $5.7 million or 219% during the quarter compared to the same period
a year ago primarily due to the write-down of a preferred share investment.
    Non-interest expenses (including deposit agent commission expense)
increased 32% in the fourth quarter compared to the same quarter of 2006
primarily due to higher deposit agent commissions and compensation costs.
Deposit commissions increased due to growth in GIC liabilities and
$0.2 million of deposit agent commissions expensed in the quarter for certain
term GICs designated as "held-for-trading" compared to no such charge in the
same period a year ago.
    During the fourth quarter, the Company recorded a one-time tax benefit of
$0.8 million relating to the tax treatment accorded to the redemption of
preferred shares. The effective tax rate in the fourth quarter of 2007 was
11.6%, compared to 30.3% a year earlier.

    Summary of Quarterly Results

    Key performance highlights of the past eight quarters are presented in
Table 18.

    
    Table 18: Summary of Quarterly Results

    ($ thousands, except balance sheet
     and off balance sheet items and
     per share amounts)                                 2007
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------

    OPERATIONS
    Net income                        6,911      8,788      7,480      7,992
    Net income - adjusted(1)         10,289      8,788      7,480      7,992
    Basic EPS                       $  0.53    $  0.68    $  0.59    $  0.67
    Basic EPS - adjusted(1)         $  0.79    $  0.68    $  0.59    $  0.67
    Diluted EPS                     $  0.53    $  0.67    $  0.59    $  0.66
    Diluted EPS - adjusted(1)       $  0.79    $  0.67    $  0.59    $  0.66
    Net interest income(2)           18,384     16,846     15,338     14,877
    Net interest margin - TEB(2)(3)     2.4%       2.3%       2.3%       2.4%
    Total revenues                   48,981     49,556     44,728     42,668
    Return on equity                   13.7%      18.2%      17.0%      21.1%
    Return on equity - adjusted(1)     20.3%      18.2%      17.0%      21.1%
    Return on average assets
     - annualized                      0.8%        1.1%       1.0%       1.2%
    Return on average assets
     - annualized - adjusted(1)        1.2%        1.1%       1.0%       1.2%
    Productivity ratio - TEB(2)(3)    40.9%       34.2%      35.4%      32.1%
    Productivity ratio - TEB
     - adjusted(1)(2)(3)              31.7%       34.2%      35.4%      32.1%
    BALANCE SHEET AND OFF BALANCE
     SHEET ($ millions)
    Total assets at quarter end      3,410       3,333      2,901      2,866
    Mortgages receivable at
     quarter end                     2,874       2,699      2,313      2,299
    Shareholders' equity at
     quarter end                       203         198        186        158
    Mortgage-backed security assets
     under administration at
     quarter end                     1,888       1,849      1,785      1,816
    MORTGAGE PRODUCTION
    Conventional mortgages other
     than warehoused mortgages     347,711     450,264    406,625    270,978
    Warehoused mortgages            63,449     216,699    249,643    294,865
    CMHC-insured mortgages         171,582     112,410     45,652     98,359
                                   ------------------------------------------
    Total                          582,742     779,373    701,920    664,202
                                   ------------------------------------------
                                   ------------------------------------------



    ($ thousands, except balance sheet
     and off balance sheet items and
     per share amounts)                                 2006
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------

    OPERATIONS
    Net income                        7,752      7,144      6,609      5,833
    Net income - adjusted(1)          7,752      7,144      6,609      5,833
    Basic EPS                       $  0.65    $  0.60    $  0.56    $  0.49
    Basic EPS - adjusted(1)         $  0.65    $  0.60    $  0.56    $  0.49
    Diluted EPS                     $  0.64    $  0.59    $  0.55    $  0.49
    Diluted EPS - adjusted(1)       $  0.64    $  0.59    $  0.55    $  0.49
    Net interest income(2)           14,237     13,455     12,586     11,359
    Net interest margin - TEB(2)(3)     2.4%       2.5%       2.5%       2.4%
    Total revenues                   40,819     37,572     34,008     30,820
    Return on equity                   21.0%      20.3%      19.8%      18.6%
    Return on equity - adjusted(1)     21.0%      20.3%      19.8%      18.6%
    Return on average assets
     - annualized                       1.2%       1.2%       1.2%       1.1%
    Return on average assets
     - annualized - adjusted(1)         1.2%       1.2%       1.2%       1.1%
    Productivity ratio - TEB(2)(3)     30.6%      32.7%      33.1%      32.0%
    Productivity ratio - TEB
     - adjusted(1)(2)(3)               30.6%      32.7%      33.1%      32.0%
    BALANCE SHEET AND OFF BALANCE
     SHEET
     ($ millions)
    Total assets at quarter end       2,626      2,414      2,244      2,113
    Mortgages receivable at
     quarter end                      2,136      1,982      1,832      1,770
    Shareholders' equity at
     quarter end                        150        143        137        131
    Mortgage-backed security assets
     under administration at
     quarter end                      1,807      1,863      1,914      1,928
    MORTGAGE PRODUCTION
    Conventional mortgages other
     than warehoused mortgages      334,518    196,708  159,355(4)   275,125
    Warehoused mortgages            276,934    249,279  186,398(4)   199,857
    CMHC-insured mortgages           48,897     43,711     69,884    114,870
                                   ------------------------------------------
    Total                           661,349    489,698    415,637    589,852
                                   ------------------------------------------
                                   ------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Adjusted for a preferred share write-down in the Company's
        investment portfolio - see Financial Results Overview and the
        Non-GAAP Financial Measures section.
    (2) See explanation of treatment of net mortgage commitment fees and
        deposit agent commissions at the end of this MD&A.
    (3) For explanation of TEB see the end of this MD&A.
    (4) Amounts have been adjusted by $19.6 million to correct a
        misclassification in the prior year. Warehoused mortgage production
        was understated and conventional mortgages other than warehoused was
        overstated by $19.6 million in 2006.
    

    Table 18 shows the effects of the Company's growing asset base and
increased capital, as well as variations in the Prime Rate. Throughout the
eight quarters summarized, the Company continued to increase its asset base
primarily through mortgage growth and, to a lesser extent, through growth in
its equity securities portfolio. This growth led to higher net interest
income. As a result of the steady increases in earnings, adjusted ROE has
remained strong on a quarterly basis.

    Changes in Accounting Policies Including Initial Adoption

    A summary of the Company's significant accounting policies is presented
in Note 1 to the Consolidated Financial Statements. Effective January 1, 2007,
the Company adopted new accounting policies issued by the CICA: 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 Consolidated Financial Statements for details on these
accounting changes.

    Critical Accounting Estimates

    The Company's critical accounting estimates are primarily in the areas of
credit risk, allowance for credit losses and loan securitizations - retained
interests. The policies and methodology used to determine these estimates and
the significance of these accounting estimates to the Company's financial
condition have been outlined in this MD&A and in Note 1 to the Consolidated
Financial Statements.
    The allowance for credit losses reflects management's best estimate of
probable losses in the mortgage portfolio as at the balance sheet date. In
order to assess the likelihood of a loss, management takes into consideration
a broad range of information, including economic factors, developments
affecting particular property types and geographic areas, the age of a
mortgage and specific issues with respect to individual borrowers. Changes in
any of these factors may cause future assessment of credit risk to be
significantly different from current assessments and could affect the level of
allowance for credit losses being maintained by the Company. The Company's
general allowance for credit losses of $8.8 million as at December 31, 2007
represented 0.3% of total mortgage principal outstanding.
    The Company uses estimates in valuing retained interests in loan
securitizations. This valuation and changes thereto affect the gain on sale of
mortgages in a securitization and could affect the measurement of excess
interest spread, net of servicing fee. Management uses its best estimates in
determining the value of retained interests on each securitization, taking
into account current interest rates, the terms of the mortgages being sold,
the propensity for prepayment and the cost of the future mortgage servicing.
On a quarterly basis, management reassesses its estimates to ensure that these
estimates are still valid under the current economic environment. Management
uses historical data to support any amendments to its estimation methodology
and the carrying value of loan securitizations - retained interests. A
sensitivity analysis of two adverse changes in the estimate used to value the
Company's retained interests in loan securitizations is presented in Note 5 to
the Consolidated Financial Statements.

    Off-Balance Sheet Arrangements

    The Company is responsible for servicing the mortgages securitized
through the CMHC-MBS program, including the collection of principal and
interest, payments to MBS investors, and the management and collection of
mortgages in arrears. Under a contract expiring December 2009, the Company has
entered into a servicing agreement with FNFLP as the sub-servicer of the
securitized mortgage portfolio. Should FNFLP be unable or unwilling to act as
sub-servicer, the Company can choose to service the mortgages itself or to
appoint a replacement sub-servicer. The Company has recorded a liability of
$6.0 million in other liabilities for the future servicing of mortgages in the
CMHC-MBS program which have been securitized subsequent to June 2001. The
servicing liability for mortgages securitized prior to that time has been
netted against the asset loan securitizations - retained interests.

    Derivative Financial Instruments

    The Company uses Government of Canada Bond forward contracts to hedge
interest rate risk on CMHC-insured multi-unit residential mortgages and
mortgage commitments targeted for securitization. The risk is that interest
rates rise between the rate commitment date and the sale date, leading to a
reduced value of the mortgage upon securitization. The hedge acts to
significantly reduce the likelihood that the proceeds on the sale of the
mortgage (comprised of the fair value of the mortgage and the fair value of
bond forward) will vary from the fair value of the mortgage at the date of
rate commitment as a result of interest rate movements. The Company also uses
interest rate swaps to manage market interest rate exposure on term GICs used
to fund floating rate mortgages. For more information on hedges and forward
bond contracts see Note 6 to the Consolidated Financial Statements.

    Contractual Obligations

    The material contractual obligations of the Company at December 31, 2007
are outlined in Table 19.

    
    Table 19: Contractual obligations

                                            Payments due by period
                                 --------------------------------------------
                                  Less than      1 - 3      4 - 5      After
    ($ thousands)          Total     1 year      years      years    5 years
    -------------------------------------------------------------------------
    GIC principal and
     interest          3,282,467  2,227,732    514,916    539,819          -
    Subordinated
     debentures
     principal and
     interest(1)          50,120      2,348      4,697      4,697     38,378
    Bank term loans
     principal and
     interest             53,748      2,921     22,059     28,768          -
    Operating leases(2)    3,608        467        934        890      1,317
    -------------------------------------------------------------------------
    Total contractual
     obligations       3,389,943  2,233,468    542,606    574,174     39,695
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Obligations do not include any pre-maturity redemptions relating to
        prior year's earnings as prior regulatory approval is required.
    (2) Represents minimum lease payments for premises rental.
    

    In addition to these contractual obligations, the Company is responsible
to CMHC for ongoing mortgage servicing on mortgages securitized through the
CMHC-MBS program. This obligation is discussed in "Off-Balance Sheet
Arrangements".

    Related Party Transactions

    Certain of the Company's directors and officers have purchased GICs and
subordinated debentures from the Company in the ordinary course of business,
at market terms and conditions. Note 17 to the Consolidated Financial
Statements provides details on these transactions.

    Risk Management

    Overview

    The Company, like other financial institutions, is exposed to several
factors that could adversely affect its business, financial condition or
operating results and which may also influence an investor to buy, sell or
hold shares in the Company. Many of these risk factors are beyond the
Company's direct control.
    Senior management is responsible for identifying risks and developing an
appropriate risk management framework. The Board of Directors and the
Committees of the Board play an active role in monitoring the Company's key
risks and in determining the policies that are best suited to manage these
risks.
    The Company cautions that the discussion of risks set out below is not
exhaustive.

    Credit Risk

    Equitable Trust's main area of investment is providing first mortgage
loans on real estate. All mortgages are individually evaluated by underwriters
using internal and external credit risk assessment tools and are assigned a
risk rating, in accordance with the level of credit risk attributed to each
loan. The underwriting approach places a strong emphasis on security
evaluation and judgmental analysis of the risks in the transaction rather than
being formulaic in structure. As a result, Equitable Trust can underwrite
mortgages on favourable terms to borrowers who have good equity and debt
service ratios in situations where conventional lenders would typically
decline borrowers.
    On a regular basis, management establishes credit limits for exposure to
certain counterparties, industries or market segments, monitors these credit
exposures, and prepares detailed analyses and reports assessing overall credit
risk within the mortgage portfolio. Key subsets of credit risk that are
closely monitored and measured are credit concentration risk and the risk
associated with economically-sensitive assets.
    The Company also invests in preferred share securities to generate
returns that meet an acceptable hurdle threshold from a return on equity
perspective. These securities represent a potential source of liquidity to the
Company. However, such investments expose the Company to credit risk if the
issuer of the preferred shares cannot make dividend payments, or in the worst
case scenario, if the issuer becomes insolvent.
    Securities rated P-2 and higher comprised 80% of the preferred share
equity securities portfolio at December 31, 2007, compared to 89% a year
earlier.

    Interest Rate Risk Management

    The Company's primary method of managing interest-rate risk is matching
asset and liability maturity/re-pricing profiles, 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 uses simulated interest rate change sensitivity modeling to
estimate the effects of various interest rate change scenarios on net interest
income for the twelve months following the measurement date and on the
economic value of shareholders' equity. Certain assumptions, such as pre-
maturity redemptions of GICs and early payouts of mortgages, based upon actual
experience, are built into the economic value model for simulation purposes.
The probabilities of cashable GIC redemptions are also modeled.
    Management's sensitivity modeling indicates that in the event of an
immediate and sustained 1% interest rate increase, net interest income would
increase $3.4 million before any tax effect for the 12-month period following
December 31, 2007. If interest rates were to decrease by 1% and if cashable
GICs were to stay on the books until maturity, net interest income before any
tax effect for the following 12 month period would decrease by $6.4 million.
    The Company hedges the interest rate risk for all mortgages that are 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 Company's earnings are affected by changes in interest rates. The
estimate of sensitivity to interest rate changes is dependent on a number of
assumptions that could result in a difference in actual outcomes in the event
of an actual interest rate change.

    Liquidity Risk Management

    Managing liquidity risk requires management to keep sufficient liquid
assets on hand at all times to meet mortgage funding needs, investment
purchase commitments and to fund GIC redemptions and maturities. 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 $313.0 million as at December 31, 2007 and
$260.5 million at December 31, 2006. The increase on a year-over-year basis is
prompted by liquidity requirements related to the potential redemption of
deposit obligations.
    It is the Company's policy to maintain, at all times, regulatory liquid
assets at levels equivalent to, or greater than 20% of GICs maturing in the
next 100 days (including all cashable GICs). At December 31, 2007, these
maturities amounted to $1.58 billion compared to $1.33 billion as at
December 31, 2006 and the corresponding liquidity ratios were 29.7% and 32.1%.
Liquidity is calculated by the sum of cash, cash equivalents, investments
purchased under reverse repurchase agreements and other investments divided by
total maturities. As part of liquidity contingency planning, the Company has a
line of credit with its bank in the amount of $35.0 million, which is secured
by shares in the equity securities portfolio.

    Operational Risk

    Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or as a result of external events.
Operational risk includes legal and regulatory risk. The Company maintains a
control environment to manage these risks, recognizing that operational risks
may arise in the normal course of business.
    Changes to laws and regulations, including changes in their
interpretation or application, could affect the Company, limiting the products
or services it may provide and increasing the ability of competitors to
compete with Equitable's products or services. Failure to comply with
applicable laws and regulations could result in sanctions and financial
penalties that could adversely impact earnings and damage the Company's
reputation. Management undertakes reasonable and prudent measures designed to
achieve compliance with governing laws and regulations including Equitable's
legislative compliance management framework.

    Control/Management Risk

    Control/management risk is the possibility that the Company will
experience control or management deficiencies due to limitations typically
found in smaller institutions that may have insufficient resources and
capacities to establish appropriate governance systems and controls.
    Equitable's operations depend on the abilities, experience and efforts of
management and other key employees. Should any of these persons be unable or
unwilling to continue in their employment, this could potentially have a
material adverse effect on the business, financial condition and results of
the operations of the Company.

    Strategic Risk

    The Company manages strategic risk through a comprehensive annual
strategic planning process, which includes establishing Board approved
business growth strategies and quantifiable performance targets for each
business unit over the forthcoming three-year period. Management of this risk
includes regular monitoring of actual versus forecasted performance and
reporting to senior management and to the Board of Directors.

    Business Risk

    The residential and commercial first mortgage business is highly
competitive and Equitable Trust's products compete with those offered by other
trust companies, banks, insurance companies, and other financial institutions
in the jurisdictions in which it operates, especially in Ontario and Alberta.
Many of these companies are strongly capitalized and hold a larger percentage
share of the Canadian residential and commercial mortgage business. There is
always a risk that there will be new entrants in the market with more
efficient systems and operations that could impact the Company's market share
in its mortgage lending and deposit-taking activities.
    The Company's business model does not use retail branches to originate
GICs or mortgages. Through its deposit-taking activities, Equitable Trust is
reliant on members of the Investment Dealers Association and the Federation of
Canadian Independent Deposit Brokers to raise funds. Mortgage originations
depend on a network of independent mortgage brokers, mortgage brokerages and
other mortgage banking organizations. Under adverse circumstances, it might be
difficult to attract new deposits from agents or mortgage business from
brokers to sustain current operating requirements. The potential failure to
sustain or increase current levels of deposits or mortgage originations from
these sources could negatively affect the financial condition and operating
results of the Company. A single mortgage broker, FNFLP, originated 37% of the
Company's outstanding on-balance sheet mortgages as at December 31, 2007.
Management believes it has a strong relationship with FNFLP; however, should
this situation change, the Company would need to find alternative sources for
mortgage originations. If the Company was to lose a major mortgage broker or
deposit agent, it would need to replace the product supplied by that broker or
agent, either from existing or new brokers or retail agents, in order to meet
corporate targets.

    Reputational Risk

    Reputational risk is the possibility that current and potential
customers, counterparties, analysts, shareholders/investors, regulators and/or
others will have an adverse perception of the Company - irrespective of
whether this opinion is based on facts or merely public perception. This can
result in potential losses to the Company arising from short-falls in revenues
as well as from increased funding costs. The Company has established a number
of policies and procedures to manage this risk.

    Responsibilities of Management and the Board of Directors

    Management is responsible for the information disclosed in this MD&A and
the accompanying Consolidated Financial Statements. Equitable has in place
appropriate information systems and procedures to ensure that information used
internally by management and disclosed externally is materially complete and
reliable. In addition, the Company's Audit Committee, on behalf of the Board
of Directors, performs an oversight role with respect to all public financial
disclosures made by the Company and has reviewed and approved this MD&A and
the accompanying Consolidated Financial Statements.

    Disclosure Controls and Procedures

    Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is accumulated and communicated to
senior management, including the President and Chief Executive Officer on a
timely basis, to enable appropriate decisions to be made regarding public
disclosure. Management has evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in the rules of the Canadian
Securities Administrators) as of December 31, 2007. Based on that evaluation,
management has concluded that these disclosure controls and procedures were
effective.

    Internal Control over Financial Reporting

    Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with Canadian GAAP.
Management has evaluated the design of the Company's internal control over
financial reporting as of December 31, 2007 to provide reasonable assurance
regarding the reliability of financial reporting. This evaluation was
conducted in accordance with the framework established by the Committee of
Sponsoring Organizations of the Treadway Commission for Smaller Businesses, a
recognized control model, and the requirements of Multilateral Instrument 52-
109 of the Canadian Securities Administrators. Based on this evaluation,
management has concluded that the design of internal control over financial
reporting was effective as of December 31, 2007.

    Changes in Internal Control over Financial Reporting

    Equitable appointed a new Chief Financial Officer on December 5, 2007 who
subsequently resigned from the Company on February 12, 2008. There were no
other changes in the Company's internal control over financial reporting that
occurred during the fourth quarter ended December 31, 2007 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

    Non-Generally Accepted Accounting Principles Financial Measures

    The presentation of financial information on a Taxable Equivalent Basis
("TEB") is a common practice 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, the Company uses TEB in the discussion of 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. In 2007, the grossed-up amount was
$6.4 million and in 2006 it was $3.8 million.
    In conjunction with the adoption of the new accounting policies for
financial instruments, commencing in 2007 deferred deposit agent commissions
are accounted for 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 of these commissions was presented
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 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.
    The Company also utilizes non-GAAP financial measures referred to as
"adjusted" results to assess the overall corporate performance of the Company.
To arrive at "adjusted" results, the Company removes items of note, net of
income taxes, from reported results. The items of note relate to items which
management does not believe are indicative of underlying business performance.
The Company believes that adjusted results provide the reader with a better
understanding of how management views the Company's performance. In 2007, the
single "item of note" removed from the reported results was the impairment
write-down of the Quebecor World Inc. preferred shares, as more fully
described under the section titled "Net Income". "Adjusted" and related terms
used in this MD&A are not defined terms under GAAP and, therefore, may not be
comparable to similar terms used by other issuers.

    Forward-looking Statements

    Certain statements in this 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, or developments in the Company's business or the 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. The Company cautions readers not to place undue
reliance upon any such forward-looking statements, which speak only as of the
date they are made. Often, but not always, forward-looking statements can be
identified by the use of words or phrases such as "plans", "expects" or "does
not expect", "is expected", "budget", "scheduled", "estimates" or "forecasts".
Other phrases or words may include "intends", "anticipates", or "does not
anticipate", "believes", or state that certain actions, events or results
"may", "could", "would", "might", or "will" be taken, occur or be achieved.
Forward-looking statements relate to, among other things, realizing the value
of the Company's assets, capitalizing on increasing market demand for mortgage
products, executing the strategic plan, success in introducing new loan
products, growing in new geographic territories and the demand for 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 our customers, competition and other risks detailed from time to
time in filings with Canadian provincial securities regulators, including the
Equitable Group Inc. Annual Report and Annual Information Form dated March 3,
2008. Forward-looking statements are based on management's current plans,
estimates, projections, beliefs and opinions. Management does not undertake
any obligation to update forward-looking statements should assumptions related
to these plans, estimates, projections, beliefs and opinions change. The
"Outlook" sections in this MD&A are forward-looking, as previously defined and
actual outcomes are uncertain. When reviewing these "Outlook" sections
specifically and the MD&A generally, readers are advised to consider the risks
regarding forward looking statements.



    Consolidated Financial Statements of

    EQUITABLE GROUP INC.

    Years ended December 31, 2007 and 2006


    MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

    The consolidated financial statements of Equitable Group Inc. (the
"Company") are prepared by management, which is responsible for the integrity
and fairness of the information presented. The information provided herein, in
the opinion of management, has been prepared, within reasonable limits of
materiality, using appropriate accounting policies that are in accordance with
Canadian generally accepted accounting principles as well as the accounting
requirements of the Office of the Superintendent of Financial Institutions
Canada ("OSFI") as these apply to its subsidiary, The Equitable Trust Company
("Equitable Trust"). The consolidated financial statements reflect amounts
which must, of necessity, be based on informed judgments and estimates of the
expected effects of current events and transactions.
    Management maintains a system of internal control to meet its
responsibility for the integrity of the financial statements. Management also
administers a program of ethical business conduct, which includes quality
standards in hiring and training employees, written policies and a written
corporate code of conduct.
    The Board of Directors of the Company (the "Board") oversees management's
responsibilities for the financial statements through the Audit Committee. The
Audit Committee conducts a detailed review of the financial statements with
management and internal and external auditors before recommending their
approval to the Board.
    The Company's subsidiary, Equitable Trust, is federally regulated under
the Trust and Loan Companies Act (Canada) by OSFI. On a regular basis, OSFI
conducts an examination to assess the operations of Equitable Trust and its
compliance with statutory requirements and sound business practices.
    KPMG LLP has been appointed as external auditors by the shareholders to
examine the financial statements of the Company in accordance with Canadian
generally accepted auditing standards. The external auditors have unrestricted
access to and periodically meet with the Audit Committee, with and without
management present, to discuss their audits and related matters.

    
    Andrew Moor                              Tamara Malozewski
    President and Chief Executive Officer    Vice President, Finance

    February 26, 2008
    


    AUDITORS' REPORT TO THE SHAREHOLDERS

    We have audited the consolidated balance sheets of Equitable Group Inc.
as at December 31, 2007 and 2006 and the consolidated statements of income,
changes in shareholders' equity, comprehensive income and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
    We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
    In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at
December 31, 2007 and 2006 and the results of its operations and its cash
flows for the years then ended in accordance with Canadian generally accepted
accounting principles.

    (signed)
    KPMG LLP

    Chartered Accountants, Licensed Public Accountants

    Toronto, Canada
    February 26, 2008


    
    EQUITABLE GROUP INC.
    Consolidated Balance Sheets
    (In thousands of dollars)

    December 31, 2007 and 2006

    -------------------------------------------------------------------------
                                                         2007           2006
    -------------------------------------------------------------------------

    Assets

    Cash and cash equivalents (note 3)           $     20,927   $    107,842
    Investments purchased under reverse
     repurchase agreements (note 4)                   232,120              -
    Investments (note 4)                              220,697        319,317
    Loan securitizations - retained interests
     (note 5)                                          51,214         48,271
    Mortgages receivable (note 7)                   2,874,241      2,135,662
    Other assets (note 8)                              10,427         14,663

    -------------------------------------------------------------------------
                                                 $  3,409,626   $  2,625,755
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Liabilities:
      Customer deposits (note 9)                 $  3,104,524   $  2,389,755
      Future income taxes (note 10)                     7,945          4,700
      Other liabilities (note 11)                      17,423         21,564
      Bank term loans (note 12)                        44,595         34,750
      Subordinated debentures (note 13)                31,969         25,250
      -----------------------------------------------------------------------
                                                    3,206,456      2,476,019

    Shareholders' equity (notes 14 and 15):
      Capital stock                                    87,062         57,849
      Contributed surplus                               1,778          1,539
      Retained earnings                               116,325         90,348
      Accumulated other comprehensive loss
       (note 19)                                       (1,995)             -
      -----------------------------------------------------------------------
                                                      203,170        149,736

    Commitments and contingencies (note 16)

    -------------------------------------------------------------------------
                                                 $  3,409,626   $  2,625,755
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.

    On behalf of the Board:

    ------------------------------- Director

    ------------------------------- Director



    EQUITABLE GROUP INC.
    Consolidated Statements of Income
    (In thousands of dollars, except per share amounts)

    Years ended December 31, 2007 and 2006

    -------------------------------------------------------------------------
                                                         2007           2006
    -------------------------------------------------------------------------

    Interest income:
      Mortgages (note 2)                         $    164,631   $    121,406
      Investments                                      12,180          8,249
      Other                                             8,833          5,632
      -----------------------------------------------------------------------
                                                      185,644        135,287

    Interest expense:
      Customer deposits                               112,017         79,537
      Deposit agent commissions (note 2)                6,729              -
      Bank term loans                                   2,952          2,072
      Subordinated debentures                           2,367          2,041
      -----------------------------------------------------------------------
                                                      124,065         83,650
    -------------------------------------------------------------------------

    Net interest income                                61,579         51,637

    Provision for credit losses (note 7)                  900            900
    -------------------------------------------------------------------------

    Net interest income after provision for
     credit losses                                     60,679         50,737

    Other income:
      Mortgage commitment income and other fees
       (note 2)                                         1,275          3,373
      Net gain (loss) on investments (note 4)          (5,170)           669
      Loan securitizations - retained interests
       (note 5)                                         4,184          3,890
      -----------------------------------------------------------------------
                                                          289          7,932
    -------------------------------------------------------------------------

    Net interest income and other income               60,968         58,669

    Non-interest expenses:
      Compensation and benefits                        11,340          9,022
      Other                                             8,628          6,588
      Deposit agent commissions (note 2)                    -          4,669
      -----------------------------------------------------------------------
                                                       19,968         20,279
    -------------------------------------------------------------------------

    Income before income taxes                         41,000         38,390

    Income taxes (recovery) (note 10):
      Current                                           5,063         12,890
      Future                                            4,766         (1,838)
      -----------------------------------------------------------------------
                                                        9,829         11,052

    -------------------------------------------------------------------------
    Net income                                   $     31,171   $     27,338
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share (note 14):
      Basic                                      $       2.47   $       2.30
      Diluted                                            2.44           2.26

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

    See accompanying notes to consolidated financial statements.



    EQUITABLE GROUP INC.
    Consolidated Statements of Changes in Shareholders' Equity
    (In thousands of dollars)

    Years ended December 31, 2007 and 2006

    -------------------------------------------------------------------------
                                                         2007           2006
    -------------------------------------------------------------------------

    Capital stock:
      Balance, beginning of year                 $     57,849   $     55,510
      Common shares issued (note 14):
        Gross proceeds of equity issue                 25,000              -
        Issue expenses, net of tax recovery
         of $497                                         (953)             -
        Proceeds from exercise of employee
         stock options                                  4,587          2,138
        Transfer from contributed surplus
         relating to the exercise of stock
         options                                          579            201
      -----------------------------------------------------------------------
      Balance, end of year                             87,062         57,849

    Contributed surplus:
      Balance, beginning of year                        1,539          1,327
      Stock-based compensation (note 15)                  818            413
      Transfer to common shares relating to
       the exercise of stock options                     (579)          (201)
      -----------------------------------------------------------------------
      Balance, end of year                              1,778          1,539

    Retained earnings:
      Balance, beginning of year                       90,348         67,771
      Transition adjustment - financial
       instruments (note 2)                              (113)             -
      Net income                                       31,171         27,338
      Dividends                                        (5,081)        (4,761)
      -----------------------------------------------------------------------
      Balance, end of year                            116,325         90,348

    Accumulated other comprehensive loss:
      Balance, beginning of year                            -              -
      Transition adjustment - financial
       instruments (note 2)                               302              -
      Other comprehensive loss (note 19)               (2,297)             -
      -----------------------------------------------------------------------
      Balance, end of year                             (1,995)             -
      -----------------------------------------------------------------------

    Total retained earnings and accumulated
     other comprehensive loss                         114,330         90,348

    -------------------------------------------------------------------------
    Total shareholders' equity                   $    203,170   $    149,736
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Comprehensive Income
    (In thousands of dollars)

    Years ended December 31, 2007 and 2006

    -------------------------------------------------------------------------
                                                         2007           2006
    -------------------------------------------------------------------------

    Net income                                   $     31,171   $     27,338

    Other comprehensive loss:
      Available-for-sale assets, change in
       unrealized gains (losses) (note 19)             (3,660)             -
      Reclassification to income for realization
       of available-for-sale assets fair value
       changes (note 19)                                1,363              -
      -----------------------------------------------------------------------
      Other comprehensive loss                         (2,297)             -

    -------------------------------------------------------------------------
    Comprehensive income                         $     28,874   $     27,338
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



    EQUITABLE GROUP INC.
    Consolidated Statements of Cash Flows
    (In thousands of dollars)

    Years ended December 31, 2007 and 2006

    -------------------------------------------------------------------------
                                                         2007           2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net income                                 $     31,171   $     27,338
      Non-cash items:
        Financial instruments - fair value
         adjustments and reclassifications               (604)             -
        Loan securitizations - gains on sale
         of mortgages                                  (1,277)          (708)
        Amortization of capital assets                    694            513
        Provision for credit losses                       900            900
        Net loss (gain) on investments                  5,170           (669)
        Future income taxes                             4,766         (1,838)
        Stock-based compensation                          818            413
        Amortization of premiums on
         investments, net                               3,864          3,111
      -----------------------------------------------------------------------
                                                       45,502         29,060
      Changes in operating assets and liabilities:
        Other assets                                    5,432         (3,308)
        Other liabilities                              (6,985)        (1,368)
      -----------------------------------------------------------------------
                                                       43,949         24,384
    Financing activities:
      Increase in customer deposits                   714,989        580,800
      Issuance of bank term loan                       12,500         15,000
      Repayment of bank term loan                      (2,655)             -
      Issuance of subordinated debentures               9,450          5,000
      Redemption of subordinated debentures            (2,731)       (11,444)
      Restricted cash on interest rate swap            (5,000)             -
      Dividends paid on common shares                  (5,081)        (4,761)
      Issuance of common shares                        28,137          2,138
      -----------------------------------------------------------------------
                                                      749,609        586,733
    Investing activities:
      Purchase of investments                        (126,919)      (224,565)
      Proceeds on sale or redemption of
       investments                                    211,849         97,235
      Purchase of investments purchased under
       reverse repurchase agreements                 (232,120)             -
      Increase in mortgages receivable             (2,735,737)    (2,158,998)
      Mortgage principal repayments                 1,716,441      1,424,726
      Proceeds from loan securitizations              269,209        267,756
      Loan securitizations - retained interests        13,092         14,631
      Purchase of capital assets                       (1,288)        (1,274)
      -----------------------------------------------------------------------
                                                     (885,473)      (580,489)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash
     equivalents                                      (91,915)        30,628

    Cash and cash equivalents, beginning of year      107,842         77,214

    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year       $     15,927   $    107,842
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information:
      Interest paid                              $     99,196   $     67,172
      Income taxes paid                                13,530         13,985

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

    See accompanying notes to consolidated financial statements.



    EQUITABLE GROUP INC.
    Notes to Consolidated Financial Statements
    (In thousands of dollars, except per share amounts)

    Years ended December 31, 2007 and 2006
    -------------------------------------------------------------------------

    Equitable Group Inc. (the "Company") was formed on January 1, 2004 as the
    parent company of its wholly owned subsidiary, The Equitable Trust
    Company ("Equitable Trust"). Equitable Trust is federally regulated under
    the Trust and Loan Companies Act (Canada) by the Office of the
    Superintendent of Financial Institutions Canada ("OSFI").

    The Company operates principally in one industry segment as a deposit-
    taking institution investing in mortgages.

    1.  Significant accounting policies:

        These consolidated financial statements have been prepared in
        accordance with Canadian generally accepted accounting principles
        ("GAAP"). The following notes describe the Company's significant
        accounting policies:

        (a) Basis of presentation:

            The consolidated financial statements include the assets,
            liabilities and results of operations of the Company and its
            wholly owned subsidiary, Equitable Trust, after the elimination
            of intercompany transactions and balances.

        (b) Cash and cash equivalents:

            Cash and cash equivalents consist of deposits with regulated
            financial institutions and highly liquid short-term investments,
            including government guaranteed investments and other money
            market instruments, whose term to maturity at date of purchase is
            less than three months. Interest earned on cash and cash
            equivalents is included in interest income - other in the
            statements of income. These short-term investments are carried at
            cost plus accrued interest which approximates fair value.

        (c) Investments purchased under reverse repurchase agreements:

            Investments purchased under reverse repurchase agreements
            represent a purchase of Government of Canada securities by the
            Company effected with a simultaneous agreement to sell them back
            at a specified price on a specified future date, which is
            generally short term. The investment is held on the consolidated
            balance sheet and is recorded at its carrying value which
            approximates its fair value due to the short-term nature of the
            transaction. The interest income related to these investments is
            recorded on an accrual basis and is included in interest income -
            other.

        (d) Investments:

            Investments, including loan securitizations - retained interests,
            have been designated as available-for-sale, are accounted for at
            settlement date and reported on the consolidated balance sheet at
            fair value with unrealized gains and losses reported in other
            comprehensive income, net of income taxes. In the prior year,
            investments were stated at cost, adjusted for amortization of
            premiums and discounts to maturity on the consolidated balance
            sheets.

            Investments are purchased with the original intention to hold the
            securities to maturity or until market conditions render
            alternative investments more attractive. If an impairment in
            value is other than temporary, any write-down to net realizable
            value is reported in the statements of income. Gains and losses
            realized on the sale, redemption or write-down of investments are
            recorded in other income in the statements of income. Interest
            income earned, amortization of premiums and discounts and
            dividends are included in interest income - investments in the
            statements of income. The fair values of investments are
            generally based on quoted market prices.

        (e) Mortgages receivable and revenue recognition:

            Mortgages receivable, other than mortgages held for
            securitization, are recorded at cost plus accrued interest, less
            an allowance for credit losses. Mortgages held for securitization
            are carried at fair value. Fees relating to loan origination are
            amortized to income over the term of the mortgages to which they
            relate, and are included in mortgage interest income in the
            statements of income.

            Interest on mortgages receivable is recorded on the accrual
            basis. The Company classifies a mortgage receivable as impaired
            when, in the opinion of management, there is reasonable doubt as
            to the collectibility, either in whole or in part, of principal
            or interest. Mortgages where payment is contractually past due
            90 days are automatically placed on a non-accrual basis, unless
            management is reasonably assured as to the recoverability of
            principal and interest. Thereafter, interest income is recognized
            on a cash basis, but only after prior write-offs and provisions
            for losses have been recovered, provided there is no further
            doubt as to the collectibility of principal.

            When an impaired mortgage is identified, the carrying amount of
            the mortgage is reduced to its net realizable amount, measured on
            the basis of expected future cash flows, and discounted at the
            loan's effective interest rate. This impairment is reflected in
            the statements of income in the years in which the impairment is
            recognized. In subsequent periods, recoveries of amounts
            previously written off and any increase in the carrying value of
            the mortgage are credited to the allowance for credit losses on
            the consolidated balance sheets.

        (f) Allowance for credit losses:

            The allowance for credit losses consists of both specific and
            general allowances. Specific allowances relate to individual
            mortgages that, in the opinion of management, are necessary to
            reflect the estimated net realizable value of the particular
            mortgage as described in (e) above. General allowances are based
            on management's assessment of probable, unidentified losses in
            the portfolio at the consolidated balance sheet dates that have
            not been specifically identified as impaired. The allowance is
            determined based on management's identification and evaluation of
            problem accounts and includes an assessment of statistical and
            qualitative analyses of the performance of the portfolio taking
            into account such factors as economic conditions, security and
            mortgage type, concentration risks and geographical exposure.

        (g) Loan securitizations:

            For each securitization transaction, where the Company retains
            the servicing rights, an asset is recognized as loan
            securitizations - retained interests on the consolidated balance
            sheets. Loan securitizations - retained interests are classified
            as available-for-sale securities and are carried at fair value
            with changes in fair value reported in other comprehensive
            income, net of income taxes. When loan receivables are sold in a
            securitization transaction under terms that transfer control to
            third parties, the transaction is recognized as a sale and the
            related loan assets are removed from the consolidated balance
            sheets. In the securitization transaction, certain interests are
            retained including the right to receive the future excess
            interest spread and the mortgage servicing obligation. For
            securitizations entered into after July 1, 2001, the servicing
            liability is reported as a component of other liabilities. For
            securitizations entered into prior to this date, the servicing
            liability and the future excess interest spread are reported on a
            net basis. A gain or loss on the sale of the loan receivables is
            recognized immediately in the statements of income. The amount of
            the gain or loss recognized depends in part on the previous
            carrying amount of the loan receivables involved in the transfer,
            allocated between the assets sold and the retained interests
            based on their relative fair values at the date of transfer. To
            obtain fair values, the Company uses estimates based on the
            present value of future expected cash flows determined using
            management's best estimates of key assumptions including
            prepayment rates and discount rates commensurate with the risks
            involved.

        (h) Derivative financial instruments:

            The Company uses derivatives primarily to manage exposure to
            interest rate risks. The most frequently used derivative products
            are interest rate swaps and forward contracts. The derivatives
            are recorded on the consolidated balance sheet at fair value.
            Interest rate swaps are used to adjust exposure to interest rate
            risk by modifying the maturity characteristics of existing assets
            and liabilities. Forward contracts are used to hedge interest
            rate exposure on mortgages held for securitization and
            commitments for mortgages to be securitized. These derivative
            instruments are reported on the consolidated balance sheet as
            held-for-trading financial instruments and are carried at fair
            value (note 2).

        (i) Stock-based compensation plan:

            The Company operates a stock option plan for directors and
            eligible employees of Equitable Trust. Under this plan, options
            are periodically awarded to participants to purchase common
            shares at prices equal to the closing market price of the shares
            on the date prior to the date the options were granted. Prior to
            the initial public offering of the Company's shares on March 18,
            2004, certain options were granted to purchase common shares at
            prices equal to the fair value of the shares as determined under
            the plan. The Company uses the fair value-based method of
            accounting for stock options and recognizes compensation expense
            based on the fair value of the options on the date of the grant
            which is determined using the Black-Scholes option pricing model.
            The fair value of the options is recognized over the vesting
            period of the options granted as compensation expense and
            contributed surplus. The contributed surplus balance is reduced
            as the options are exercised and the amount initially recorded
            for the options in contributed surplus is credited to capital
            stock. Compensation expense related to the stock-based
            compensation plan is included in the consolidated statements of
            income.

        (j) Income taxes:

            The Company follows the asset and liability method of accounting
            for income taxes. Under the asset and liability method, future
            tax assets and liabilities represent the amount of tax applicable
            to temporary differences between the carrying amounts of the
            assets and liabilities and their values for tax purposes. Future
            tax assets and liabilities are measured using enacted or
            substantively enacted tax rates expected to apply to taxable
            income in the years in which those temporary differences are
            expected to be recovered or settled. The effect on future tax
            assets and liabilities of a change in tax rates is recognized in
            income in the years that include the date of enactment or
            substantive enactment.

        (k) Capital assets:

            Capital assets are carried at cost less accumulated amortization.
            Amortization is provided on a reducing-balance method over the
            estimated useful life of the assets as follows:

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

            Furniture, fixtures and office equipment                      20%
            Computer hardware and software                                30%

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

            Leasehold improvements are amortized on a straight-line basis
            over the remaining term of the lease.

        (l) Fair values of financial instruments:

            The estimated fair value of mortgages receivable is determined
            using a discounted cash flow calculation and the market interest
            rates currently charged for mortgages receivable with similar
            terms and credit risks. Similarly, the estimated fair values of
            the customer deposits, loan securitizations - retained interests,
            bank term loan and subordinated debentures are determined by
            discounting contractual cash flows, using market interest rates
            currently offered for similar terms.

            The fair values of cash and cash equivalents and certain other
            assets (note 8) and other liabilities (note 11) are assumed to
            approximate their carrying values due to their short-term nature.

        (m) Earnings per share:

            Earnings per share is computed by dividing net income by the
            weighted average number of common shares outstanding for the
            year. Diluted earnings per share reflects the potential dilution
            that could occur if additional common shares are assumed to be
            issued under securities or contracts that entitle their holders
            to obtain common shares in the future. The number of additional
            shares for inclusion in diluted earnings per share calculations
            is determined using the treasury stock method. Under this method,
            stock options which exercise price is less than the average
            market price of the Company's common shares are assumed to be
            exercised and the proceeds are used to repurchase common shares
            at the average market price for the year. The incremental number
            of common shares issued under stock options and repurchased from
            proceeds is included in the calculation of diluted earnings per
            share.

        (n) Use of estimates:

            The preparation of the financial statements requires management
            to make estimates and assumptions that affect the reported
            amounts of assets and liabilities and disclosure of contingent
            assets and liabilities at the dates of the financial statements
            and the reported amounts of revenue and expenses during the
            years. Certain estimates, including the allowance for credit
            losses, the fair value of financial instruments, accounting for
            securitizations and income taxes require management to make
            subjective or complex judgements. Accordingly, actual results
            could differ from those estimates.

    2.  Changes in accounting policy:

        Effective January 1, 2007, the Company adopted new accounting
        standards issued by The Canadian Institute of Chartered Accountants
        (the "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 on the consolidated balance sheet
        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 adopted these new
        accounting standards retrospectively without restatement to prior
        period consolidated financial statements.

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

        (a) Investments in preferred shares, government bonds, treasury bills
            and notes and loan securitizations - retained interests have been
            designated as available-for-sale and are recorded on the
            consolidated balance sheet at fair value with unrealized gains
            and losses being recognized in other comprehensive income, net of
            income taxes.

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

        (c) 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 debentures are recorded
            on the consolidated balance sheet at amortized cost using the
            effective interest method.

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

        (e) Derivative financial instruments are recorded on the consolidated
            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.

        (f) 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, which are
            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.

        (g) 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 consolidated
            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
            consolidated 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               $      850  $      307  $      543
          Available-for-sale loan
           securitizations - retained
           interests, unrealized losses         (378)       (137)       (241)

        ---------------------------------------------------------------------
                                          $      472  $      170  $      302
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    3.  Cash and cash equivalents:

        ---------------------------------------------------------------------
                                                            2007        2006
        ---------------------------------------------------------------------
        Deposits with regulated financial
         institutions                                 $   20,927  $   21,688
        Short-term investments                                 -      86,154

        ---------------------------------------------------------------------
                                                      $   20,927  $  107,842
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Cash and cash equivalents include $5,000 of restricted cash held as
        collateral by a third party for the Company's interest rate swap
        transactions.

        The weighted average effective yield of cash and cash equivalents is
        approximately 4.19% (2006 - 4.12%).

    4.  Investments:

        The analysis of investments at carrying value, by type and maturity,
        is as follows:

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

        ---------------------------------------------------------------------
                                                 Maturities
                              -----------------------------------------------
                                  Within   Over 1 to   Over 3 to      Over 5
                                  1 year     3 years     5 years       years
        ---------------------------------------------------------------------

        Debt securities issued
         or guaranteed by:
          Canada              $   26,064  $        -  $        -  $        -
          Provinces               38,851           -           -           -
        Equity securities:
          Preferred shares        16,909       9,055      60,262    69,556(2)

        ---------------------------------------------------------------------
                              $   81,824  $    9,055  $   60,262  $   69,556
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------
                                    2007        2006
        ---------------------------------------------
                                   Total       Total
                                carrying    carrying
                                 value(1)      value
        ---------------------------------------------

        Debt securities
         issued or
         guaranteed by:
          Canada              $   26,064  $   31,567
          Provinces               38,851     121,081
        Equity securities:
          Preferred shares       155,782     166,669

        ---------------------------------------------
                              $  220,697  $  319,317
        ---------------------------------------------
        ---------------------------------------------
        (1) As discussed in note 2 at December 31, 2007, investments are
            reported on the consolidated balance sheet at fair value. In the
            prior year, investments were reported at cost, adjusted for
            amortization of premiums and discounts to maturity.
        (2) Includes investments with no specific maturity.

        The analysis of investments at fair value is as follows:

        ---------------------------------------------------------------------
                                                                        2007
        ---------------------------------------------------------------------
                               Amortized  Unrealized  Unrealized   Estimated
                                    cost       gains      losses  fair value
        ---------------------------------------------------------------------

        Debt securities issued
         or guaranteed by:
          Canada              $   26,089  $        -  $      (25) $   26,064
          Provinces               38,832          22          (3)     38,851
        Equity securities:
          Preferred shares       160,435         506      (5,159)    155,782

        ---------------------------------------------------------------------
                              $  225,356  $      528  $   (5,187) $  220,697
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                                                        2006
        ---------------------------------------------------------------------
                               Amortized  Unrealized  Unrealized   Estimated
                                    cost       gains      losses  fair value
        ---------------------------------------------------------------------

        Debt securities issued
         or guaranteed by:
          Canada              $   31,567  $       23  $      (29) $   31,561
          Provinces              121,081         274         (79)    121,276
        Equity securities:
          Preferred shares       166,669       2,215        (841)    168,043

        ---------------------------------------------------------------------
                              $  319,317  $    2,512  $     (949) $  320,880
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The weighted average effective yield for debt securities is 4.28%
        (2006 - 4.15%) based on yield to maturity, and for preferred shares
        is 4.16% (2006 - 4.05%).

        The Company has a credit facility in place with a major Canadian
        chartered bank. Under this facility, the Company may borrow up to
        $35,000 for short-term liquidity purposes. The facility is secured by
        the Company's investments in equity securities. There was no
        outstanding balance as at December 31, 2007 (2006 - nil).

        The Company wrote down its available-for-sale preferred share
        positions at December 31, 2007 by $5,175 (2006 - nil) in the
        consolidated statements of income, of which $1,873 (2006 - nil)
        represents the reclassification of realized loss from the
        consolidated statement of comprehensive income.

        The Company purchased investments under reverse repurchase agreements
        in the amount of $232,120 (2006 - nil). Investments purchased under
        reverse repurchase agreements represent a purchase of Government of
        Canada securities by the Company effected with a simultaneous
        agreement to sell the assets back at a specified price on a specified
        future date, which is generally short-term.

        The weighted average effective yield for investments purchased under
        reverse repurchase agreements is 4.09% (2006 - nil).

    5.  Loan securitizations - retained interests:

        (a) Retained interests:

            The Company securitizes Government of Canada guaranteed
            residential mortgage loans through the creation of mortgage-
            backed securities and removes the mortgages from the consolidated
            balance sheets. As at December 31, 2007, outstanding securitized
            mortgages totalled $1,888,250 (2006 - $1,807,479).

            During 2007, the Company securitized Government of Canada
            guaranteed residential mortgage loans and received cash proceeds
            net of accrued interest and other cash disposition of $269,209
            (2006 - $267,756). The Company retained the rights to future
            excess interest on the mortgages valued at $15,174 (2006 -
            $10,385) and received net cash flows on interests retained of
            $15,999 (2006 - $17,813). The Company retained the responsibility
            for servicing the mortgages and holds 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 $5,953 (2006 - $6,044)
            which is included in other liabilities (note 11). The amount of
            servicing liability amortized during the year was $1,421 (2006 -
            $1,436).

            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.

            A net unrealized gain of $1,545 is included in the carrying value
            on the consolidated balance sheet as required by the changes in
            accounting policy described in note 2, relating to loan
            securitizations - retained interests.

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

            -----------------------------------------------------------------
                                                            2007        2006
            -----------------------------------------------------------------

            Gain on sale of mortgages                 $    1,277  $      708
            Excess interest spread, net of
             servicing fee                                 2,907       3,182

            -----------------------------------------------------------------
                                                      $    4,184  $    3,890
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            The valuation of the future excess interest spread includes an
            excess spread of 0.69% (2006 - 0.79%), and the key assumption of
            a discount rate of 4.31% (2006 - 4.97%). There are no expected
            credit losses as the mortgages are government guaranteed. Multi-
            family residential mortgages have no prepayment rate estimates,
            as under the terms of the multi-family residential mortgages,
            prepayment penalties are sufficient to ensure that the Company
            will receive all of its investment upon the early discharge of
            any mortgage. Single-family residential mortgages have been
            valued with an estimated annual prepayment rate of 15.0%.

            The following table presents the sensitivity of the fair value of
            retained interests to two adverse changes in the key assumption
            relating to the discount rate as at December 31, 2007. The
            following sensitivity analysis is hypothetical and therefore
            should be used with caution.

            -----------------------------------------------------------------
                                                           Residential loans
            -----------------------------------------------------------------
            Carrying value of retained interest                   $   51,214
            Discount rate                                              4.31%
            Impact on fair value of a 10% adverse change          $     (545)
            Impact on fair value of a 20% adverse change          $   (1,090)

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

            The Company estimates that the future excess interest spread and
            servicing liability will be received or paid as follows:

            -----------------------------------------------------------------
                                                 Excess interest   Servicing
                                                          spread   liability
            -----------------------------------------------------------------
            2008                                      $   11,710  $    1,321
            2009                                           9,542       1,089
            2010                                           7,920         939
            2011                                           6,812         821
            2012                                           4,894         590
            Thereafter                                    10,336       1,193

            -----------------------------------------------------------------
                                                      $   51,214  $    5,953
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (b) 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 that have occurred since
            commitment to the mortgage interest rate. The year end fair value
            of mortgage commitments of $63 is included in other assets
            (note 8).

    6.  Derivative financial instruments:

        (a) Hedge instruments:

            The Company's securitization activities are subject to interest
            rate risk, which represents the potential for changes in the
            value of assets and liabilities due to fluctuations in interest
            rates. The Company enters into hedging transactions to manage
            interest rate exposures on mortgages held for securitization and
            commitments for mortgages to be securitized, typically for
            periods of up to 90 days.

            Hedge instruments outstanding at December 31, 2007 and 2006
            relating to forward contracts on Government of Canada bonds,
            where the counterparties are chartered banks, are as follows:

            -----------------------------------------------------------------
                                                                        2007
                                        -------------------------------------
            Bond term                       Notional        Fair  Unrealized
            (years)                           amount       value      loss(1)
            -----------------------------------------------------------------

            1 - 5                         $   94,300  $   96,685  $      863
            5 - 10                            74,500      74,589       1,133

            -----------------------------------------------------------------
                                          $  168,800  $  171,274  $    1,996
            -----------------------------------------------------------------
            -----------------------------------------------------------------


            -----------------------------------------------------------------
                                                                        2006
                                        -------------------------------------
            Bond term                       Notional        Fair  Unrealized
            (years)                           amount       value        loss
            -----------------------------------------------------------------

            1 - 5                         $   14,400  $   14,289  $       55
            5 - 10                        $   21,800      22,444         393

            -----------------------------------------------------------------
                                          $   36,200  $   36,733  $      448
            -----------------------------------------------------------------
            -----------------------------------------------------------------
           (1) The hedge instruments are fair value hedges and are held-for-
               trading and carried at fair value with changes in fair value
               included in other income - loan securitizations - retained
               interests. The fair values of the hedge instruments are
               determined by reference to the ask side of the related
               Government of Canada bonds at the reporting date. The year end
               fair value of hedges is included in other liabilities
               (note 11).

        (b) Interest rate swaps:

            The Company enters into interest rate swaps to manage interest
            rate exposures on term guaranteed investment certificates
            ("GICs") used to fund floating rate mortgages. The credit risk is
            limited to the amount of any adverse change in interest rates
            applied on the notional contract amount should the counterparty
            default. Approved counterparties are limited to Schedule A Banks
            and their subsidiaries.

            -----------------------------------------------------------------
                                              2007                      2006
                              ----------------------- -----------------------
            Swap term           Notional        Fair    Notional        Fair
            (years)               amount       value      amount       value
            -----------------------------------------------------------------

            1 - 5             $  185,000  $      539  $        -  $        -

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

            The fair value of these interest rate swap agreements is included
            in other assets (note 8) and the change in fair value is included
            in interest expense.

        (c) Embedded derivatives:

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

    7.  Mortgages receivable:

        (a) Mortgages receivable and impaired mortgages:

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

    Residential
     mortgages    $1,737,437  $      150  $    6,074  $    6,224  $1,731,213
    Other
     mortgages       693,372           -       2,020       2,020     691,352
    Mortgages
     held for
     securitization
     or for sale     437,842           -         681         681     437,161
    Accrued
     interest         14,515           -           -           -      14,515

    -------------------------------------------------------------------------
                  $2,883,166  $      150  $    8,775  $    8,925  $2,874,241
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

            Included in mortgages held for securitization or for sale are
            Government of Canada insured mortgages of $165,527 (2006 -
            $18,551). Subsequent to December 31, 2007, $159,118 of mortgages
            held for securitization was securitized. These Government of
            Canada guaranteed mortgages 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 that have occurred since commitment to the mortgage
            interest rate. The year end fair value adjustment of Government
            of Canada guaranteed mortgages held for securitization is $1,814.
            Mortgages held for sale include mortgages which are to be pooled
            and discharged subsequent to the consolidated balance sheet date
            at their investment cost. These mortgages are carried at fair
            value. There are no foreclosed assets held for sale at
            December 31, 2007 and 2006. All mortgages are secured by real
            estate property in Canada.

            The principal outstanding and net carrying amount of mortgages
            receivable classified as impaired as at December 31, 2007
            aggregated $8,617 (2006 - $1,138) and $8,467 (2006 - $978),
            respectively. As at December 31, 2007, the estimated fair value
            of mortgages receivable is $2,855,700 (2006 - $2,137,143). The
            weighted average effective yield of mortgages receivable is 6.67%
            (2006 - 6.56%) based on the yield to maturity.

            Concentration of credit exposure may arise when a group of
            counterparties have similar economic characteristics or are
            located in the same geographical region. The ability of these
            counterparties to meet contractual obligations may be affected by
            changing economic or other conditions. The Company's mortgage
            portfolio consists of $1,999,362 (2006 - $1,768,919) of mortgages
            secured by properties located in the Province of Ontario and
            $495,195 (2006 - $178,804) of mortgages secured by properties
            located in the Province of Alberta.

        (b) Allowance for credit losses:

            -----------------------------------------------------------------
                                                                        2007
            -----------------------------------------------------------------
                                            Specific     General
                                           allowance   allowance       Total
            -----------------------------------------------------------------

            Balance, beginning of year    $      160  $    7,886  $    8,046
            Write-offs                           (50)          -         (50)
            Recoveries                            29           -          29
            Provision for credit losses           11         889         900

            -----------------------------------------------------------------
            Balance, end of year          $      150  $    8,775  $    8,925
            -----------------------------------------------------------------
            -----------------------------------------------------------------


            -----------------------------------------------------------------
                                                                        2006
            -----------------------------------------------------------------
                                            Specific     General
                                           allowance   allowance       Total
            -----------------------------------------------------------------

            Balance, beginning of year    $    2,087  $    5,080  $    7,167
            Write-offs                           (21)          -         (21)
            Recoveries                             -           -           -
            Provision for credit losses       (1,906)      2,806         900

            -----------------------------------------------------------------
            Balance, end of year          $      160  $    7,886  $    8,046
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (c) The following table presents information about the Company's
            reported and securitized mortgage principal:

            -----------------------------------------------------------------
                                                                   Principal
                                                                   amount of
                                                                   mortgages
                                                           Gross       90 or
                                                       principal   more days
            2007                                          amount    past due
            -----------------------------------------------------------------
            Residential mortgages                     $3,625,687  $   11,491
            Other mortgages                              693,372           -
            Mortgages held for securitization
             or for sale                                 437,842           -
            -----------------------------------------------------------------

            Total mortgages reported and securitized   4,756,901      11,491
            Less mortgages securitized                 1,888,250       2,874

            -----------------------------------------------------------------
            Mortgages reported prior to accrued
             interest (note 7(a))                     $2,868,651  $    8,617
            -----------------------------------------------------------------
            -----------------------------------------------------------------


            -----------------------------------------------------------------
                                                                   Principal
                                                                   amount of
                                                                   mortgages
                                                           Gross       90 or
                                                       principal   more days
            2006                                          amount    past due
            -----------------------------------------------------------------
            Residential mortgages                     $3,181,321  $    5,828
            Other mortgages                              472,635           -
            Mortgages held for securitization
             or for sale                                 287,063           -
            -----------------------------------------------------------------

            Total mortgages reported and securitized   3,941,019       5,828
            Less mortgages securitized                 1,807,479       4,690

            -----------------------------------------------------------------
            Mortgages reported prior to accrued
             interest (note 7(a))                     $2,133,540  $    1,138
            -----------------------------------------------------------------
            -----------------------------------------------------------------

    8.  Other assets:

        ---------------------------------------------------------------------
                                                            2007        2006
        ---------------------------------------------------------------------

        Income taxes recoverable                      $    3,382  $        -
        Capital assets                                     2,857       2,263
        Prepaid expenses and other                         1,614       2,467
        Receivable relating to securitization
         activities                                        1,123       1,310
        Accrued interest and dividends on non-mortgage
         assets                                              849       2,335
        Derivative financial instruments - interest
         rate swaps (note 6)                                 539           -
        Mortgage commitments (note 5)                         63           -
        Deferred deposit agent commissions (note 2)            -       6,288

        ---------------------------------------------------------------------
                                                      $   10,427  $   14,663
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  Customer deposits:

        ---------------------------------------------------------------------
                                                            2007        2006
        ---------------------------------------------------------------------

        Income taxes recoverable                      $    3,382  $        -
        Cashable GICs, payable on demand              $  710,194  $  570,455
        GICs with fixed maturity dates                 2,330,040   1,766,011
        Accrued interest                                  72,507      53,289
        Deferred deposit agent commissions (note 2)       (8,217)          -

        ---------------------------------------------------------------------
                                                      $3,104,524  $2,389,755
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company issues GICs to depositors. As at December 31, 2007, the
        estimated fair value of customer deposits is $3,041,273 (2006 -
        $2,336,869). The weighted average effective yield to maturity of
        customer deposits is 4.27% (2006 - 4.02%).

        Included in GICs with fixed maturity dates are $185,000 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 $220 and is
        included in interest expense.

        The following table outlines the maturity profile of customer
        deposits:

        ---------------------------------------------------------------------
                                                  Maturities
        ---------------------------------------------------------------------
                              Payable on      Within      1 to 3      3 to 5
                                  demand      1 year       years       years
        ---------------------------------------------------------------------

        GICs                  $  710,194  $1,418,602  $  440,593  $  470,845

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


        ---------------------------------------------
                                    2007        2006
        ---------------------------------------------

                                   Total       Total
        ---------------------------------------------

        GICs                  $3,040,234  $2,336,466

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

    10. Income taxes:

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

        ---------------------------------------------------------------------
                                                            2007        2006
        ---------------------------------------------------------------------

        Canadian statutory income tax rate                35.9 %      36.1 %
        Increase (decrease) resulting from:
          Tax-exempt income                              (10.0)%      (7.1)%
          Non-deductible expenses                          0.2 %       0.4 %
          Future tax rate decreases                       (2.1)%      (0.6)%

        ---------------------------------------------------------------------
        Effective income tax rate                         24.0 %      28.8 %
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The net future income tax liability is comprised of:

        ---------------------------------------------------------------------
                                                            2007        2006
        ---------------------------------------------------------------------

        Future income tax assets:
          Allowance for credit losses                 $    2,488  $    2,608
          Share issue expenses                               578         425
          Deferred mortgage fees                             485         608
          Available-for-sale financial instruments         1,117           -
          Other                                                -         466
          -------------------------------------------------------------------
                                                           4,668       4,107
        Future income tax liabilities:
          Deferred GIC commissions                         2,659       2,141
          Loan securitizations - retained interests        8,368       6,666
          Other                                            1,586           -
          -------------------------------------------------------------------
                                                          12,613       8,807

        ---------------------------------------------------------------------
        Net future income tax liability               $    7,945  $    4,700
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. Other liabilities:

        ---------------------------------------------------------------------
                                                            2007        2006
        ---------------------------------------------------------------------

        Mortgagor realty taxes                        $    6,616  $    5,089
        Securitized mortgage servicing liability           5,953       6,044
        Accounts payable and accrued liabilities           2,858       6,860
        Derivative financial instruments
         - securitization activities (note 6)              1,996           -
        Income taxes payable                                   -       3,571

        ---------------------------------------------------------------------
                                                      $   17,423  $   21,564
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    12. Bank term loans:

        The Company has non-revolving term loans totalling $44,595. 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 subordinated debentures of the Company's subsidiary,
        Equitable Trust. The loans are repayable in full at the option of the
        Company at any time during their term. 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. Interest is paid monthly.

    -------------------------------------------------------------------------
                                              Received   Repaid
                 Date            Outstanding,   during   during  Outstanding,
    Interest     loan  Maturity  December 31,      the      the  December 31,
    rate     received      date         2006      year     year         2007
    -------------------------------------------------------------------------

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

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


    -------------------------------------------------------------------------
                                              Received   Repaid
                 Date            Outstanding,   during   during  Outstanding,
    Interest     loan  Maturity  December 31,      the      the  December 31,
    rate     received      date         2005      year     year         2006
    -------------------------------------------------------------------------

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

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

        As at December 31, 2007, the estimated fair value of the bank term
        loans is $44,771 (2006 -$34,792).

    13. Subordinated debentures:

        The Company has issued debentures which are unsecured obligations and
        are subordinated in right of payment to the claims of depositors and
        other liabilities of the Company. All subordinated debentures are
        redeemable at our option. Any redemption of this debt, contractual or
        earlier, is subject to regulatory approval. Interest is paid
        quarterly.

        ---------------------------------------------------------------------
                         Interest    Issue      Maturity
        Debenture(1)         rate     date          date      2007      2006
        ---------------------------------------------------------------------

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

        ---------------------------------------------------------------------
                                                          $ 31,969  $ 25,250
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) The redemption of any series of subordinated debentures commences
            only after the redemption of all outstanding preceding series.
            The redemption amount is equal to 20% of Equitable Trust's
            previous year's net income.

        As at December 31, 2007, the estimated fair value of subordinated
        debentures is $33,253 (2006 - $25,836).

    14. Shareholders' equity:

        (a) Capital stock:

            Authorized:
              Unlimited preferred shares
              Unlimited common shares

            Issued:

            -----------------------------------------------------------------
                                                2007                    2006
            -----------------------------------------------------------------
                               Number of               Number of
                                  shares      Amount      shares      Amount
            -----------------------------------------------------------------

            Common shares:
              Balance,
               beginning
               of year        11,924,468  $   57,849  11,781,940  $   55,510
              Issued           1,028,242      28,634     142,528       2,138
              Transfer from
               contributed
               surplus relating
               to the exercise
               of stock options        -         579           -         201

            -----------------------------------------------------------------
            Balance,
             end of year      12,952,710  $   87,062  11,924,468  $   57,849
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            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. Issue
            expenses of $953 related to the issue have been capitalized net
            of income taxes recovered of $497.

            During 2007, 259,011 (2006 - 142,528) shares were issued as a
            result of the exercise of employee stock options for cash
            consideration of $4,587 (2006 - $2,138) and $579 (2006 - $201)
            was transferred from contributed surplus to common shares as a
            result of these exercises.

            The weighted average number of shares outstanding used to
            calculate basic and diluted earnings per share is as follows:

            -----------------------------------------------------------------
                                                            2007        2006
            -----------------------------------------------------------------

            Basic                                     12,606,208  11,878,724
            Relating to stock options                    158,345     197,521

            -----------------------------------------------------------------
            Diluted                                   12,764,553  12,076,245
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            Options to purchase 180,000 common shares (2006 - nil) were
            excluded from the computation of diluted earnings per share as
            the exercise price exceeded the average market price of common
            shares for the year.

        (b) Dividend restrictions:

            The Company's subsidiary, Equitable Trust, is subject to minimum
            capital requirements as prescribed by OSFI under the Trust and
            Loan Companies Act (Canada). In addition, OSFI must be notified
            of any dividend declaration, and prescribes restrictions as to
            the amount of dividends which can be paid out in any fiscal year.

    15. Stock-based compensation 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 December 2012. A summary of the
        Company's stock option activity and related information for the years
        ended December 31, 2007 and 2006 is as follows:

        ---------------------------------------------------------------------
                                                2007                    2006
        ---------------------------------------------------------------------
                                            Weighted                Weighted
                                  Number     average      Number     average
                                of stock    exercise    of stock    exercise
                                 options       price     options       price
        ---------------------------------------------------------------------

        Outstanding,
         beginning of year       749,011  $    20.54     768,539  $    18.07
        Granted                  272,500       32.20     140,000       28.75
        Exercised               (259,011)      17.71    (142,528)      15.00
        Forfeited/cancelled      (70,000)      21.06     (17,000)      22.58

        ---------------------------------------------------------------------
        Outstanding,
         end of year             692,500       26.14     749,011       20.54
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Exercisable,
         end of year             145,000  $    20.79     157,400  $    18.49

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

        The following table summarizes information relating to stock options
        outstanding and exercisable at December 31, 2007:

        ---------------------------------------------------------------------
                                                                      Options
                                           Options outstanding    exercisable
        ---------------------------------------------------------------------

                                                        Weighted
                                                         average
                                                       remaining
                                                     contractual
        Exercise                              Number        life      Number
        price                            outstanding      (years) exercisable
        ---------------------------------------------------------------------

        $17.50                               200,000         1.1      85,000
        $20.40                                28,000         1.9      12,000
        $24.10                                57,000         2.9      21,000
        $28.75                               135,000         3.9      27,000
        $34.49                               150,000         4.2           -
        $31.75                                30,000         4.6           -
        $28.50                                30,000         4.9           -
        $28.63                                30,000         4.9           -
        $28.79                                32,500         4.9           -

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

        Under the fair value-based method of accounting for stock options,
        the Company has recorded compensation expense in the amount of $818
        (2006 - $413) related to grants of options under the stock option
        plan. This amount has been credited to contributed surplus. The fair
        value of options granted during the year is estimated at the date of
        grant using the Black-Scholes valuation model, with the following
        assumptions: (i) risk-free rate of 4.0% (2006 - 3.9%); (ii) expected
        option life of 4.0 years (2006 - 4.0 years); (iii) expected
        volatility of 23.0% (2006 - 19.0%); and (iv) expected dividends of
        1.3% (2006 - 2.3%). The weighted average fair value of each option
        granted during the year was $6.22 (2006 - $3.49).

    16. Commitments and contingencies:

        (a) The Company is committed to annual payments under two non-
            cancellable operating leases for office premises through 2015 in
            the total amount of approximately $3,608. Annual payments are:

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

            2008                                                  $      467
            2009                                                         467
            2010                                                         467
            2011                                                         451
            2012                                                         439
            Thereafter                                                 1,317

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

            In addition to these minimum lease payments for premises rental,
            the Company will pay its share of common area maintenance and
            realty taxes over the term of the leases.

        (b) The Company has commitments to fund a total of $290,212 (2006 -
            $279,278) of mortgages in the ordinary course of business at year
            end.

        (c) In the normal course of operations, the Company enters into
            agreements that provide general obligations in connection with
            its loan securitization activities. The nature of these
            agreements prevents us from making a reasonable estimate of the
            maximum amount required to be paid. There are no expected credit
            losses as the loans are government guaranteed.

        (d) The Company is subject to various claims and litigation arising
            from time to time in the ordinary course of business. Management
            has determined that the aggregate liability, if any, that may
            result from various outstanding legal proceedings would not be
            material and no provisions have been recorded in these financial
            statements.

    17. Related party transactions:

        Certain of the Company's directors and officers have purchased GIC
        deposits, and/or purchased subordinated debentures from the Company.
        These purchases were made in the ordinary course of business at terms
        comparable to those offered to unrelated parties. As at December 31,
        2007, directors and officers have purchased $1,881 (2006 - $2,202) of
        GIC deposits and $7,591 (2006 - $8,425) of subordinated debentures.

    18. Future accounting changes:

        International Financial Reporting Standards:

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

        Capital and Financial Instrument Disclosures:

        The CICA issued new accounting standards that require the disclosure
        of both qualitative and quantitative information that enables
        financial statement users to evaluate the objectives, policies and
        processes for managing capital as well as enhanced disclosure
        regarding financial instruments. These new standards are effective
        for the Company beginning January 1, 2008.

    19. Other comprehensive loss:

        Other comprehensive loss includes the after tax change in unrealized
        gains and losses on available-for-sale investments and retained
        interests - loan securitizations.

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

        Available-for-sale investments:
          Losses from changes in fair value, net of income
           taxes of $(2,771)                                      $   (4,948)
          Reclassification to income for loss on investments,
           net of income taxes of $794                                 1,418
          -------------------------------------------------------------------
          Balance, end of year  (3,530)

        Available-for-sale loan securitizations - retained
          interests:
          Gains from changes in fair value, net of income
           taxes of $721                                               1,288
          Reclassification to income for loan securitizations
           - retained interests, net of income taxes of $(31)            (55)
          -------------------------------------------------------------------
          Balance, end of year                                         1,233

        ---------------------------------------------------------------------
        Total other comprehensive loss                            $   (2,297)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    20. 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 repricing date, as at
        December 31, 2007:

        ---------------------------------------------------------------------
                                Floating       0 - 3      4 - 12       1 - 5
                                    rate      months      months       years
        ---------------------------------------------------------------------

        Assets:(a)
          Cash and cash
           equivalents        $   20,927  $        -  $        -  $        -
          Effective interest
           rate                    4.19%           -           -           -

          Investments
           purchased under
           reverse repurchase
           agreements                  -     232,120           -           -
          Effective interest
           rate                        -       4.09%           -           -

          Investments                  -      51,162      58,457      93,152
          Effective interest
           rate                        -       4.14%       4.18%       4.00%

          Loan securitizations
           - retained interests        -       3,107       8,213      28,278
          Effective interest
           rate                        -       4.81%       4.82%       4.91%

          Mortgages
           receivable(b)       1,495,455     232,335     275,495     854,930
          Effective interest
           rate                    6.84%       5.71%       6.98%       6.66%

          Other assets                 -           -           -           -

        ---------------------------------------------------------------------
        Total assets          $1,516,382  $  518,724  $  342,165  $  976,360
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------
                                 Greater        Non-
                                    than    interest
                                 5 years   sensitive       Total
        ---------------------------------------------------------

        Assets:(a)
          Cash and cash
           equivalents        $        -  $        -  $   20,927
          Effective interest
           rate                        -           -       4.19%

          Investments
           purchased under
           reverse repurchase
           agreements                  -           -     232,120
          Effective interest
           rate                        -           -       4.09%

          Investments             22,585      (4,659)    220,697
          Effective interest
           rate                    4.27%           -       4.19%

          Loan securitizations
           - retained interest    10,070       1,546      51,214
          Effective interest
           rate                    4.91%           -       4.74%

          Mortgages
           receivable(b)               -      16,026   2,874,241
          Effective interest
           rate                        -           -       6.67%

          Other assets                 -      10,427      10,427

        ---------------------------------------------------------
        Total assets          $   32,655  $   23,340  $3,409,626
        ---------------------------------------------------------
        ---------------------------------------------------------



        ---------------------------------------------------------------------
                                Floating       0 - 3      4 - 12       1 - 5
                                    rate      months      months       years
        ---------------------------------------------------------------------

        Liabilities:(a)
          Customer
           deposits(b)        $  710,195  $1,019,812  $  418,924  $  891,523
          Effective interest
           rate                    4.18%       4.45%       4.44%       4.36%

          Other                        -           -           -           -

          Bank term loans              -           -           -      44,595
          Effective interest
           rate                        -           -           -       6.53%

          Subordinated
           debentures(b)               -           -           -           -
          Effective interest
           rate                        -           -           -           -

        Shareholders' equity           -           -           -           -
        ---------------------------------------------------------------------

        Total liabilities and
         shareholders' equity $  710,195  $1,019,812  $  418,924  $  936,118

        ---------------------------------------------------------------------
        Excess (deficiency)
         of assets over
         liabilities and
         shareholders' equity $  806,187  $ (501,088) $  (76,759) $   40,242
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Total assets - 2006   $1,125,430  $  231,988  $  384,720  $  832,169
        Total liabilities and
         shareholders' equity
         - 2006                  570,455     703,951     354,416     742,394

        ---------------------------------------------------------------------
        Excess (deficiency)
         of assets over
         liabilities and
         shareholders' equity
         - 2006               $  554,975  $ (471,963) $   30,304  $   89,775
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------
                                 Greater        Non-
                                    than    interest
                                 5 years   sensitive       Total
        ---------------------------------------------------------

        Liabilities:(a)
          Customer
           deposits(b)        $        -  $   64,070  $3,104,524
          Effective interest
           rate                        -           -       4.27%

          Other                        -      25,368      25,368

          Bank term loans 	        -           -      44,595
          Effective interest rate      -           -       6.53%

          Subordinated
           debentures(b)          31,969           -      31,969
          Effective interest
           rate                    7.35%           -       7.35%

        Shareholders' equity           -     203,170     203,170
        ---------------------------------------------------------

        Total liabilities and
         shareholders' equity $   31,969  $  292,608  $3,409,626

        ---------------------------------------------------------
        Excess (deficiency)
         of assets over
         liabilities and
         shareholders' equity $      686  $ (269,268) $        -
        ---------------------------------------------------------
        ---------------------------------------------------------

        Total assets - 2006   $   33,525  $   17,923  $2,625,755
        Total liabilities and
         shareholders' equity
         - 2006                   25,250     229,289   2,625,755

        ---------------------------------------------------------
        Excess (deficiency)
         of assets over
         liabilities and
         shareholders' equity
         - 2006               $    8,275  $ (211,366) $        -
        ---------------------------------------------------------
        ---------------------------------------------------------

        (a) Accrued interest is excluded in calculating interest sensitive
            assets and liabilities.
        (b) 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 debentures, contractual or
            otherwise, have not been estimated as these would require pre-
            approval by OSFI.

        An immediate and sustained 1% decrease in interest rates as at
        December 31, 2007 would negatively impact net interest income for the
        following 12-month period by $3,058 (2006 - $1,086) before adjusting
        for income taxes.
    





For further information:

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


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