Equitable Group reports 2007 second quarter



    TSX Symbol: ETC

    TORONTO, Aug. 2 /CNW/ - Equitable Group Inc. today reported its financial
results for the three and six months ended June 30, 2007 - a period that
featured record mortgage production and the successful completion of a
secondary offering of common shares that bolstered the Company's regulatory
capital in support of future growth.

    
    Second Quarter Highlights

    -   Net income increased 13.2% to $7.5 million from $6.6 million a year
        earlier despite a modest reduction in net interest margin.
    -   Diluted earnings per share increased 7.3% to $0.59 compared to $0.55
        a year ago - reflecting the impact of the April 30, 2007 issuance of
        769,231 new common shares.
    -   Return on average equity was 17.0% compared to 19.8% a year earlier.
    -   Assets expanded 29.3% to $2.90 billion from $2.24 billion a year
        earlier - despite the repayment and discharge of $388.5 million of
        short-term warehoused mortgages.
    -   There were no loan losses in the period and mortgages in arrears
        90 days or more amounted to 0.14% of total mortgages.
    -   Equitable Trust's total capital ratio was 12.4% compared to 11.6% at
        June 30, 2006.

    Six Month Highlights

    -   Net income increased 24.4% to $15.5 million from $12.4 million a year
        earlier.
    -   Diluted earnings per share increased 20.4% to $1.24 compared to $1.03
        a year ago.
    -   Annualized return on average equity was 19.0% compared to 19.2% a
        year earlier.
    

    Dividend

    The Company's Board declared a dividend in the amount of $0.10 per share
payable October 4, 2007 to shareholders of record at the close of business
September 14, 2007.

    Management Commentary

    "Equitable established a new high water mark - $702 million - for
quarterly mortgage production and achieved profitable year-over-year growth in
the second quarter," said Andrew Moor, President and CEO. "At the same time,
however, the pace of earnings growth was constrained due to a modest reduction
in net interest margin (2.3% versus 2.5% a year ago). This was caused by an
increase in interest rates on short-term GICs used to fund our floating rate
mortgages without a corresponding increase in the prime rate to which our
floating rate mortgages are tied. With the prime rate increase in July, this
situation has subsequently corrected itself. As a result of this factor, and
the dilution caused by our recent equity offering, we did not track as closely
to our annual performance objectives as we would have liked for earnings
growth, ROAE and our productivity ratio in the quarter. Even so, we made
important progress for the future by enhancing Equitable Trust's regulatory
capital through the equity offering and adding selectively to our human
resources in preparation for future growth."
    During the second quarter, the Company recruited William Edmunds to fill
the role of Senior Vice President, Credit and Chief Risk Officer. Mr. Edmunds
has extensive professional credit experience in both commercial and retail
environments, has managed mortgage operations and is an important addition to
the Company's leadership team. Most recently, he was President and Chief Risk
Officer of GE Money Trust Company, and, among his many other career
highlights, served as Vice President, Credit and Portfolio Administration at
TD Asset Finance Corp., and in various capacities at the Toronto-Dominion Bank
starting in 1972. He is a Certified General Accountant and a Fellow of the
Institute of Canadian Bankers.
    Said Stephen Coffey, Senior Vice President and CFO: "During the second
quarter, our productivity ratio on a taxable equivalent basis was 35.4%. While
this was higher than our objective for the year primarily as a result of the
lag in net interest income growth due to higher interest rates, Equitable
remains a very efficient lender and we remain committed to achieving our
productivity objectives for the year."

    Mortgages Receivable

    Year over year growth in the Company's mortgage portfolio was registered
in all of its niches:

    
    -   Single family dwelling mortgages increased 19.3% to $795.3 million.
    -   Multi-unit residential mortgages increased 22.7% to $623.9 million.
    -   Commercial mortgages increased 44.0% to $535.5 million.
    -   Conventional mortgages held for sale increased 22.7% to
        $212.1 million.
    -   Construction loans increased 28.2% to $110.9 million.
    

    The Company also continued to advance its growth initiative in Alberta
where $45.3 million in single family dwelling mortgages were originated during
the second quarter.
    During the second quarter, the Company discharged two very significant
short-term warehoused mortgage pools, which somewhat masked the very positive
impact of record production volume.

    Outlook

    "To date in the third quarter, demand in our mortgage niches remains
strong and this, coupled with current market forecasts, should support
ongoing, profitable growth for the balance of the year," said Mr. Moor.
"Importantly, with the increase in the prime rate announced subsequent to the
second quarter (July 10, 2007), we've also seen a recovery in the net interest
margin between mortgages and customer deposits. This should have a positive
impact on earnings performance relative to the second quarter. In total, over
the first six months of 2007, we believe we have established a solid
foundation to pursue our growth and profit objectives for the year."

    Second Quarter Webcast

    Equitable's second quarter webcast begins at 10 am eastern time today. To
listen, please log on to www.equitablegroupinc.com. To participate in the
call, please dial 416 915 5761.

    MD&A

    The Company will post its MD&A for the three and six months ended
June 30, 2007 on its website www.equitablegroupinc.com this morning. This
document will also be archived on the site.

    About Equitable Group Inc.

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

    The interim unaudited consolidated financial statements and notes have
not been reviewed by the Company's auditors but have been reviewed and
approved by the Company's Audit Committee and Board of Directors.


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

    (for the three and six months ended June 30, 2007)

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

    OVERVIEW

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

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

    Equitable conducts business through Equitable Trust, which is regulated
by the Office of the Superintendent of Financial Institutions - Canada
("OSFI"). Equitable Trust has prescribed capital requirements based on the
type and amount of assets on its balance sheet and on certain off-balance
sheet items. For this reason, Equitable focuses on capital management as a
means to balance growth and Return on Average Equity ("ROAE") targets.
    During the second quarter of 2007, Equitable generated 13.2% growth in
net income compared to the same period in 2006 supported by 29.3% year-over-
year growth in assets. The Company also increased its staff complement -
including hiring a Senior Vice-President, Credit and Chief Risk Officer,
advanced its presence in Alberta, established interest rate swap facilities at
two chartered banks, and successfully completed a $25.0 million secondary
offering of common shares with the proceeds used to enhance regulatory
capital. As a result of these developments, management believes the Company
improved its positioning for the future.
    At the same time, however, the pace of second quarter growth in earnings
was lower, compared to recent periods of record high performance, due to
several factors. Notably, growth in net income was negatively impacted by a
compression in net interest margin resulting from an increase in interest
rates without a corresponding increase in the prime rate (see "Earnings"
review below). As expected, earnings per share ("EPS") and ROAE were also
affected by the Company's April 30, 2007 issuance of 769,231 common shares. As
a result, on a diluted basis, second quarter 2007 EPS was $0.59 compared to
$0.55 in the second quarter of 2006 - a 7.3% increase - but 10.6% lower than
first quarter 2007 EPS of $0.66. At 17.0%, second quarter ROAE was also lower
than in the first quarter of 2007 and in the corresponding quarter of 2006.
    While the Company funded a record $701.9 million in total mortgages
including a record $406.6 million of conventional mortgages other than
warehoused mortgages during the second quarter, the increase in mortgage
production did not translate into as large an increase in the mortgage
portfolio at June 30, 2007 as might have been expected. This was due to two
large repayments and discharges (aggregating $388.5 million) of warehoused
mortgages during the quarter compared to repayments and discharges of
$212.4 million in the first quarter of 2007 and $116.5 million in the second
quarter a year earlier. The timing of warehoused mortgage discharges is not
predictable and these mortgages tend to be short term in nature compared to
other conventional mortgages. Of primary importance, however, is that the
outstanding principal of conventional mortgages other than warehoused
mortgages registered a quarterly increase of $152.6 million, or 8.0% to
$2.07 billion at June 30, 2007 from $1.91 billion outstanding at March 31,
2007.
    Despite the factors which impeded Equitable's ability to achieve its
performance objectives in the second quarter (see table below), Equitable's
performance over the first half of 2007 (six months ended June 30, 2007)
equaled or exceeded its growth objectives for the full year.


    
    Table 1: Performance against objectives

                                            Performance          Performance
                                          for the three          for the six
                              2007      months ended or      months ended or
                        Objectives  as at June 30, 2007  as at June 30, 2007
    -------------------------------------------------------------------------
    Growth in assets(1)
     - year-over-year       18-22%                29.3%                29.3%
    Increase in net
     income(1)              18-22%                13.2%                24.4%
    Increase in diluted
     earnings per share
     ("EPS")(1)             18-22%                 7.3%                20.4%
    Return on average
     equity ("ROAE")(1)     18-22%                17.0%                19.0%
    Productivity ratio
     - Tax Equivalent
     Basis ("TEB")(1)(2)    32-35%                35.4%                33.8%

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

    On August 1, 2007, the Company's Board declared a quarterly dividend in
the amount of at $0.10 per share. The $0.10 per share dividend is payable on
October 4, 2007, to shareholders of record at the close of business
September 14, 2007.

    FORWARD-LOOKING STATEMENTS

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

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

                                  Three Months Ended        Six Months Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
    OPERATIONS
    Net income               $     7,480 $     6,609 $    15,472 $    12,442
    Earnings per share
     - basic                        0.59        0.56        1.26        1.05
    Earnings per share
     - diluted                      0.59        0.55        1.24        1.03
    Net interest income(1)        15,338      12,586      30,215      23,945
    Total revenue                 44,728      34,008      87,396      64,828
    Return on weighted average
     equity - annualized           17.0%       19.8%       19.0%       19.2%
    Return on average assets
     - annualized                   1.0%        1.2%        1.1%        1.2%
    Productivity ratio
     - TEB(1) (2)                  35.4%       33.1%       33.8%       32.5%

    BALANCE SHEET AND OFF-
     BALANCE SHEET

    Total assets                                     $ 2,901,194 $ 2,244,458
    Mortgages receivable                               2,313,024   1,831,586
    Shareholders' equity                                 186,412     136,766
    Mortgage-backed security
     assets under
     administration                                    1,785,271   1,914,418

    COMMON SHARES

    Number of common shares
     outstanding at period end                        12,914,699  11,903,645
    Dividends per share                                    $0.20       $0.20
    Book value per share                                  $14.43      $11.49
    Share price - close                                    32.05       26.25
    Market capitalization                                413,916     312,471

    CREDIT QUALITY

    Realized loan losses -
     net of recoveries                              $        21 $        21
    Mortgages in arrears 90 days
     or more as a % of
     total mortgages                                        0.14%       0.03%
    Net impaired mortgages(3) as
     a % of total mortgages                                 0.13%       0.05%
    Allowance for credit losses as
     a % of gross impaired mortgages                       271.6%      311.7%

    (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) Gross mortgage principal of impaired loans less specific reserves.
    

    FINANCIAL REVIEW

    EARNINGS

    Net income for the three months ended June 30, 2007 increased 13.2% year-
over-year to $7.5 million. Compared to recent quarters, this slower rate of
growth resulted from a decrease in the Company's net interest margin, which
stood at 2.3% in the second quarter of 2007 compared to 2.5% in the same
period a year ago. This reduction in net interest margin was caused by an
increase in interest rates on short-term GICs used to fund floating rate
mortgages - without a corresponding increase in the prime rate to which the
floating rate mortgages are tied. These floating rate mortgages generally
comprise approximately 50% of the Company's mortgage portfolio (50.9% as at
June 30, 2007 and 51.7% as at December 31, 2006). Management believes the
increase in the prime rate on July 10, 2007 should improve the net interest
margin between mortgages and customer deposits in the third quarter compared
to the second quarter of 2007.

    
    Table 3: Net interest income

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

    Interest revenues or interest      Revenue/  Average   Revenue/  Average
     expenses derived from:            Expense      Rate   Expense      Rate
    Assets:
    Liquidity investments               $3,715       4.6%   $2,003       4.2%
    Equity securities - TEB(1)           3,261       6.7%    2,084       6.7%
    Mortgage loans                      37,415       6.5%   29,044       6.5%
    Total interest earning assets
     - TEB(1)                           44,391       6.3%   33,131       6.3%
    Total assets - TEB(1)               44,391       6.2%   33,131       6.1%

    Liabilities and shareholders'
     equity:
    Customer deposits                   26,147       4.1%   18,617       3.9%
    Bank term loan                         831       7.1%      559       7.0%
    Subordinated debt                      626       7.4%      492       7.5%
    Total interest bearing liabilities  27,604       4.2%   19,668       4.0%
    Total liabilities and shareholders'
     equity                             27,604       3.8%   19,668       3.6%
    Net interest income - TEB(1)(2)     16,787              13,463
    Net interest margin - TEB(1)(2)                  2.3%                2.5%

    Less: Taxable equivalent
     adjustment(1)                       1,449                 877
    Less: Deposit agent commissions(2)   1,542                   -

    Net interest income per financial
     statements                         13,796              12,586


    ($ thousands)                       Six months ended    Six months ended
                                          June 30, 2007       June 30, 2006

    Interest revenues or interest      Revenue/  Average   Revenue/  Average
     expenses derived from:            Expense      Rate   Expense      Rate
    Assets:
    Liquidity investments               $6,850       4.7%   $3,727       4.0%
    Equity securities - TEB(1)           5,976       6.6%    3,934       6.4%
    Mortgage loans                      73,188       6.7%   55,449       6.4%
    Total interest earning assets
     - TEB(1)                           86,014       6.4%   63,110       6.2%
    Total assets - TEB(1)               86,014       6.3%   63,110       6.0%

    Liabilities and shareholders'
     equity:
    Customer deposits                   50,501       4.2%   35,528       3.8%
    Bank term loan                       1,446       6.9%      884       6.9%
    Subordinated debt                    1,183       7.4%    1,092       7.6%
    Total interest bearing liabilities  53,130       4.3%   37,504       3.9%
    Total liabilities and shareholders'
     equity                             53,130       3.9%   37,504       3.6%
    Net interest income - TEB(1)(2)     32,884              25,606
    Net interest margin - TEB(1)(2)                  2.4%                2.4%

    Less: Taxable equivalent
     adjustment(1)                       2,669               1,661
    Less: Deposit agent commissions(2)   2,940                   -

    Net interest income per financial
     statements                         27,275              23,945


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

    Total interest revenues on a TEB were $44.4 million in the second quarter
compared to $33.1 million in the comparable 2006 period, an increase of 34.0%
due to growth in the Company's interest earning asset base and increases in
interest rates. Mortgage revenues increased $8.4 million or 28.8% in the
second quarter 2007 over 2006 while average rates remained consistent at 6.5%
for both periods. Equity securities' income on a TEB increased $1.2 million or
56.5% on a quarter-over-quarter basis due primarily to the larger portfolio.
    Interest rates on average customer deposits outstanding for the second
quarter of 2007 increased to 4.1% from 3.9% in 2006 due to general increases
in interest rates, while overall interest expense on customer deposits for the
quarter grew $7.5 million or 40.4% over 2006 due to these higher interest
rates as well as a 32.4% increase in average customer deposits outstanding
during the second quarter of 2007 compared to 2006.
    During the second quarter of 2007, the Company entered into $10.0 million
of interest rate swaps in order to hedge interest rates on one-year term GICs
used to fund floating rate mortgages. These swaps are derivative financial
instruments. Any change in their value is included in interest expense. The
GICs to which these swaps relate have been designated as held-for-trading
financial instruments and are carried at fair value. Any change in their value
is included in interest expense and all transaction costs related to raising
these GICs are expensed as incurred.
    Net interest income - TEB increased $3.3 million or 24.7% to
$16.8 million for the second quarter of 2007 compared to the $13.5 million
earned during the same period in 2006. As a result 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'
financial statement presentation has not been applied retroactively and
certain elements of this MD&A have been presented in a manner so that certain
current ratios such as net interest margins - TEB and productivity ratios -
TEB are consistent with past MD&A presentation.

    Other Income

    Other income includes ancillary fees related to the mortgage portfolio,
gains on the securitization of mortgages and excess interest net of servicing
fee earned on mortgages issued through the Company's CMHC-MBS program. Sundry
income, gains or losses on the sale or redemption of investments and other
non- mortgage related fees are also included in other income. Other income
amounted to $1.8 million for the three months ended June 30, 2007, the same as
in the second quarter a year ago but 21.1% less than the $2.3 million earned
during the previous quarter when larger than usual discharge penalty income
was recorded in loan securitizations - retained interests. Mortgage related
fees increased to $1.0 million for the three months ended June 30, 2007
compared to $0.8 million in the comparable period of 2006 due primarily to the
increase in the production of non-warehoused conventional mortgages in the
second quarter of 2007 (Table 5).
    During the second quarter, the Company securitized, through the CMHC-MBS
program, $42.6 million of mortgages compared to $86.7 million during the
comparable period in 2006. Even though securitization activity in the second
quarter of 2007 was less than half that of the comparable 2006 period, gains
on sale of mortgages were the same as in the comparable period of 2006 at $0.1
million. Gross margins on the securitization of mortgages increased to 32
basis points in the second quarter of 2007 from 16 basis points in the
comparable period due to a widening of spreads on this business. Excess
interest net of servicing fees was $0.6 million during the second quarter of
2007, a decrease of $0.2 million from the $0.8 million earned in the second
quarter of 2006. This change was due to a decrease in outstanding securitized
mortgages which stood at $1.79 billion at June 30, 2007 compared to $1.91
billion a year earlier.

    Non-Interest Expenses

    Non-interest expenses include all of the expenses not related to interest
or credit provisions required to operate Equitable's business. The major
elements of non-interest expenses consist primarily of salaries and benefits,
premises and equipment expenses, capital taxes, insurance and other general
and administrative expenses. In prior periods, deposit agent commissions were
included in non-interest expenses. As a result of adopting new accounting
policies for financial instruments, commencing in 2007 deposit agent
commissions are accounted for as a component of interest expense. This change
from prior periods' presentation has not been applied retroactively and
commentary on non-interest expenses in this MD&A is presented including
deposit agent commissions so that comparison with prior periods' results is
meaningful. For more information, see the Non-GAAP Financial Measures section
at the end of this MD&A. Non-interest expenses and deposit agent commissions
totalled $6.6 million in the second quarter compared to $5.0 million during
the same period in 2006. This increase primarily reflected higher employment
levels to support growth and variable expenses related to the expansion of the
business including deposit agent commissions as well as office and equipment
costs to accommodate growth in staff. Also, the Company realized a one-time
charge of $245 thousand in the second quarter of 2007 related to the failure
of a lawyer to register a mortgage. The Company is pursuing a legal remedy.
    Included in non-interest expenses during the second quarter of 2007 was a
charge for stock-based compensation expense in the amount of $0.2 million
related to grants of options from 2004 to 2007 compared to a $0.1 million
charge for both the quarter ended June 30, 2006 and the previous quarter. The
offset to this expense was an increase to contributed surplus in the same
amount.
    The Company's productivity ratio - TEB was 35.4% in the second quarter of
2007 compared to 33.1% in the second quarter of 2006. This increase primarily
relates to a lag in net interest income growth due to the factors outlined in
the "Earnings" section above, an increase in expenses and the one-time charge
outlined above. Excluding the one-time charge, the productivity ratio - TEB in
the second quarter would have been 34.1%. This ratio (the lower, the more
efficient the operations) is a non-GAAP financial measure. In 2007 it is
calculated by dividing non-interest expenses, plus deposit agent commissions,
by the sum of net interest income - TEB, as illustrated in Table 2, and other
income. When not measured on a TEB, these ratios were 38.4% and 35.1% in the
second quarter of 2007 and 2006 respectively.

    BALANCE SHEET

    Mortgages

    The Company's mortgage lending is focused on first charges for real
estate in three primary niches: single family dwelling, multi-unit residential
and commercial. At June 30, 2007, single family dwelling mortgages represented
the largest portion of the portfolio (see Table 4). This portion of the
portfolio increased 7.2% from December 31, 2006 and 19.3% from June 30, 2006.
Multi-unit residential mortgages increased 22.7% compared to a year earlier
and increased 9.4% from December 31, 2006. Commercial mortgages increased
44.0% from a year ago and 24.2% from December 31, 2006. Growth in all of these
mortgage lending activities reflects strong demand.

    The composition of the Company's mortgage portfolio at June 30, 2007
reflects management's mortgage asset weighting strategy as shown in the
following table together with comparisons for prior periods.

    
    Table 4: Mortgages receivable

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

    Single family dwelling           795,281      34.4%    741,732      34.8%
    Multi-unit residential           623,902      27.0%    570,312      26.7%
    Commercial                       535,497      23.2%    431,017      20.2%
    Conventional mortgages held
     for sale                        212,059       9.2%    268,396      12.6%
    Construction                     110,862       4.8%     87,043       4.1%
    CMHC-insured                      31,996       1.4%     33,617       1.6%
                                  -----------           -----------
    Total mortgage principal       2,309,597     100.0%  2,132,117     100.0%
    Net premiums and sundry            1,271                 1,423
                                  -----------           -----------
    Mortgages reported             2,310,868             2,133,540
    Accrued interest                  10,631                10,168
    Allowances for credit losses      (8,475)               (8,046)
                                  -----------           -----------
    Total mortgages receivable     2,313,024             2,135,662
                                  -----------           -----------
                                  -----------           -----------


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

    Single family dwelling           666,779      36.5%
    Multi-unit residential           508,659      27.8%
    Commercial                       371,813      20.3%
    Conventional mortgages held
     for sale                        172,794       9.4%
    Construction                      86,447       4.7%
    CMHC-insured                      24,487       1.3%
                                  -----------
    Total mortgage principal       1,830,979     100.0%
    Net premiums and sundry             (332)
                                  -----------
    Mortgages reported             1,830,647
    Accrued interest                   8,535
    Allowances for credit losses      (7,596)
                                  -----------
    Total mortgages receivable     1,831,586
                                  -----------
                                  -----------
    

    Mortgage principal increased $177.5 million or 8.3% during the six month
period ended June 30, 2007 and increased $478.6 million or 26.1% since
June 30, 2006. The Company funded a total of $701.9 million of mortgages
during the quarter, an increase of 68.9% over last year's second quarter when
a total of $415.6 million of mortgages were funded. Conventional mortgages
(other than warehoused mortgages) funded during the second quarter of 2007
amounted to $406.6 million, an increase of 155.2% year-over-year. CMHC
mortgages funded during the second quarter of 2007 amounted to $45.7 million
compared to $69.9 million a year earlier. Conventional mortgages repaid and
discharged during the second quarter of 2007 totalled $642.5 million and
included $388.5 million of short-term warehoused mortgages. In the second
quarter of 2006, $265.8 million of conventional mortgages were repaid and
discharged including $116.5 million of warehoused mortgages. These warehoused
mortgage discharge levels are considered normal relative to the short term
duration of these mortgages.

    Table 5 segments mortgage principal funded.

    
    Table 5: Mortgage Production

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

    Conventional
     mortgages
     other than
     warehoused
     mortgages             $406,625          57.9%    $159,355(1)       38.3%
    Warehoused
      mortgages             249,643          35.6%     186,398(1)       44.9%
    CMHC-insured
      mortgages              45,652           6.5%      69,884          16.8%
                          ---------------------------------------------------
    Total                  $701,920         100.0%    $415,637         100.0%


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

    Conventional
     mortgages
     other than
     warehoused
     mortgages             $677,603          49.6%    $434,479(1)       43.2%
    Warehoused
      mortgages             544,508          39.9%     386,256(1)       38.4%
    CMHC-insured
      mortgages             144,011          10.5%     184,754          18.4%
                          ---------------------------------------------------
    Total                $1,366,122         100.0%  $1,005,489         100.0%

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

    The timing of the production and discharges of the Company's warehoused
mortgages can lead to "lumpiness" in terms of the growth trends of the
Company's total mortgages receivable as demonstrated by the variation in
discharge amounts in Table 6. This table indicates a net decrease in
warehoused mortgages during the second quarter of 2007 of $138.8 million
compared to a net increase a year earlier of $69.9 million. During the first
quarter of 2007, warehoused mortgages grew by a net amount of $82.5 million.
Thus, although the Company has achieved its highest mortgage production ever
in the second quarter of 2007, including record production of non-warehoused
mortgages, the net growth in total mortgage principal from the first quarter
of 2007 to the second quarter of 2007 of $14.4 million does not serve to
illustrate these records in mortgage production.

    
    Table 6 represents a continuity schedule for warehoused mortgages.

    Table 6: Warehoused Mortgage Program

                                   Three Months Ended      Six Months Ended
    ($ thousands)                  June 30,   June 30,    June 30,   June 30,
                                      2007       2006        2007       2006

    Principal balance, beginning
     of period                    $350,886   $102,905    $268,396   $163,743
    Production                     249,643    186,398     544,508    386,256
    Repayments and discharges     (388,470)  (116,509)   (600,845)  (377,205)
                                 --------------------------------------------
    Principal balance,
     end of period                $212,059   $172,794    $212,059   $172,794

    Net increase (decrease) in
     principal balance           $(138,827)   $69,889    $(56,337)    $9,051
    

    Mortgage Credit Quality

    The Company did not realize any credit losses during the second quarter
of 2007 compared to $21 thousand a year earlier and $50 thousand in the first
quarter of 2007. An $8 thousand recovery was realized during the second
quarter. Mortgages in arrears 90 days or more amounted to 0.14% of total
principal outstanding at June 30, 2007 compared to 0.03% of total principal
outstanding at June 30, 2006. While this represents an increase in arrears
over 90 days, these arrears statistics remain low and management does not
believe the increase is reflective of any change in the market or in
Equitable's lending practices. Mortgages identified as impaired amounted to
0.14% of total mortgage principal outstanding at June 30, 2007, compared to
0.13% a year earlier. The provision for credit losses for the second quarter
of 2007 of $225 thousand was equal to the amount recorded in the comparable
prior year period and in the first quarter.

    
    Table 7: Asset Categories

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

    Liquidity
     investments    $331,256   11.4%    $260,490    9.9%    $215,348    9.6%
    Equity
      securities     195,864    6.8%     166,669    6.4%     134,218    6.0%
    Mortgage
     loans         2,313,024   79.7%   2,135,662   81.3%   1,831,586   81.6%
    Loan securit-
     izations -
     retained
     interests        46,491    1.6%      48,271    1.8%      50,971    2.3%
    Other assets      14,559    0.5%      14,663    0.6%      12,335    0.5%
    -------------------------------------------------------------------------
    Total         $2,901,194  100.0%  $2,625,755  100.0%  $2,244,458  100.0%
    

    Total assets at June 30, 2007 increased $275.4 million or 10.5% from
$2.63 billion at December 31, 2006 and increased $656.7 million or 29.3% from
$2.24 billion at June 30, 2006. Liquidity investments include cash and cash
equivalents as well as government bonds and notes. Total liquid resources
include liquidity investments and equity securities which comprised 18.2% of
total assets at June 30, 2007, compared to 16.3% at December 31, 2006 and
15.6% as at June 30, 2006.
    Equity securities are comprised of preferred shares. At June 30, 2007
equity securities were $29.2 million or 17.5% higher than at December 31, 2006
and $61.6 million or 45.9% higher compared to June 30, 2006. Tax exempt
dividend income from equity securities assists in lowering the Company's
effective tax rate. The Company's effective tax rate was 27.5% for the six
months ended June 30, 2007 compared to 28.7% for the period ended June 30,
2006.
    Loan securitizations - retained interests decreased $1.8 million to
$46.5 million at June 30, 2007 from $48.3 million at December 31, 2006 and are
$4.5 million or 8.8% lower than a year ago. The decline from June 30, 2006 was
due to a decrease in mortgage-backed security assets under administration at
June 30, 2007 as compared to June 30, 2006, and to the shorter average
duration of securitized mortgages at June 30, 2007 as compared to a year
earlier. Total mortgages in the CMHC-MBS program outstanding at June 30, 2007
were $1.79 billion, a $129.1 million decrease from $1.91 billion at June 30,
2006 but down only slightly from $1.81 billion outstanding at December 31,
2006.

    Liabilities

    Customer deposits are utilized to fund the bulk of the Company's asset
acquisitions and consist of GICs, sourced primarily through a national
distribution network of deposit agents. Customer deposits at June 30, 2007
increased $229.7 million or 9.8% from December 31, 2006 and $582.8 million or
29.4% from June 30, 2006. Sales of cashable GICs, first introduced in 2005,
continued to increase. Cashable GICs totalled $800.1 million at June 30, 2007,
up 79.8% from the June 30, 2006 balance of $444.9 million and 40.3% greater
than the December 31, 2006 balance of $570.5 million. Commencing in 2007, as
stated elsewhere in this MD&A, deferred deposit agent commissions are required
to be presented as a component of customer deposits. Formerly, these were
presented as an other asset.
    Future income taxes payable result from differences between the
measurement of assets and liabilities for financial statement purposes, as
opposed to tax purposes, and relate primarily to the Company's securitization
activities, allowance for credit losses and the unrealized losses of its
equity securities portfolio.

    Other Assets and Liabilities

    Other assets at June 30, 2007 remained relatively unchanged from
December 31, 2006 and increased $2.2 million or 18.0% from a year earlier due
primarily to an increase in income taxes recoverable. In 2007, largely as a
result of the mark-to-market treatment of equity securities for tax purposes,
income tax installments paid exceeded tax liabilities at June 30, 2007 and are
recorded as an other asset.
    Other liabilities include the future servicing liability of securitized
mortgages, realty taxes collected from borrowers, accounts payable, income
taxes payable in 2006 and periodic drawings under the Company's bank line of
credit facility. No drawings were made on this line at June 30, 2007,
December 31, 2006 or at June 30, 2006.

    Shareholders' Equity

    Total shareholders' equity increased $36.7 million or 24.5% to
$186.4 million at June 30, 2007 from $149.7 million at December 31, 2006 and
grew 36.3% compared to June 30, 2006. The Company completed a $25.0 million
equity issue on April 30, 2007 with the sale of 769,231 common shares to the
public. Also, as a result of the exercise of employee stock options, 108,000
common shares were issued for cash proceeds of $2.0 million which was added to
common share capital during the second quarter of 2007 compared to 31,000
common shares issued and $0.56 million cash proceeds added to common share
capital in the second quarter of 2006. At June 30, 2007, the Company had
12,914,699 common shares issued and outstanding, up 1,011,054 or 8.5% from
11,903,645 common shares issued and outstanding at June 30, 2006.
    Shareholders' equity now includes accumulated other comprehensive loss as
a result of the adoption of the new accounting policies outlined in Note 2 to
the interim unaudited consolidated financial statements for the period ended
June 30, 2007.
    Accumulated other comprehensive loss includes the after tax change in
unrealized gains and losses on available-for-sale investments and retained
interests - loan securitizations. This category of equity appears for the
first time in 2007 and prior periods have not been restated.
    Other comprehensive loss amounted to $4.9 million at June 30, 2007,
$4.5 million of which was recorded during the second quarter of 2007. For the
six months ended June 30, 2007, other comprehensive loss is primarily
comprised of a loss of $4.8 million related to unrealized losses, net of
income tax recovery, on the Company's preferred share portfolio; $3.3 million
of which is attributable to BCE Inc. preferred shares. Subsequent to June 30,
2007, there has been a significant increase in the value of these BCE
preferred shares as a result of the proposed terms of a takeover bid for BCE
Inc. The balance of the other comprehensive loss relating to the Company's
preferred share portfolio relates to lower preferred share fair values as a
result of the increase in interest rates during the second quarter of 2007.
    Also, as a result of adopting the new financial instrument accounting
policies, the opening balance of retained earnings has been adjusted to
reflect the January 1, 2007 fair values of assets and liabilities required to
be, or designated to be, characterized as held-for-trading. Changes in the
fair values of these held-for-trading assets and liabilities, which include
CMHC mortgages to be securitized, mortgage commitments on CMHC mortgages to be
securitized, GICs designated as held-for-trading and derivative financial
instruments, will flow through the statement of income.

    Capital Management

    The Company maintains a capital management policy to govern the quality
and quantity of capital utilized by Equitable Trust, the Company's wholly
owned subsidiary, in its regulated operations. The objective of the policy is
to ensure that adequate capital requirements are met, while providing
sufficient return to investors. As well, the Company requires sufficient
regulatory capital to meet the needs of its asset growth targets. During the
first six months of 2007, the Company took two major steps to increase
regulatory capital. The first was the authorization for Equitable Trust to
issue up to $40.0 million of series 7 subordinated debentures eligible as
Tier 2 capital. A total of $22.0 million of these debentures were issued in
the first quarter of 2007, $12.5 million of which were financed by the receipt
of a bank loan. During the second quarter of 2007, Equitable Trust redeemed
$5.4 million of series 5 subordinated debentures. The second step to increase
regulatory capital was the Company's $25.0 million equity issue and the
subsequent investment of the net proceeds to increase Tier 1 capital in
Equitable Trust. As a result of these measures, Equitable Trust's total
capital ratio at June 30, 2007 was 12.4% compared to 10.6% at December 31,
2006 and 11.6% at June 30, 2006. Also, the discharge of warehoused mortgages
increases total capital ratios through the reduction of risk weighted assets,
as was the case at June 30, 2007.

    
    Table 8 summarizes Equitable Trust's regulatory capital position.

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

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

    Tier 1 capital                      $185,385      $148,466      $135,462
    Tier 2 capital                        76,564        60,000        60,000
    Total capital                        261,949       208,466       195,462
    Total risk weighted assets         2,107,986     1,967,779     1,685,403
    Total capital as a % of total
     risk weighted assets                  12.4%         10.6%         11.6%
    Authorized asset to capital
     multiple                              17.5x         17.5x         17.5x
    Utilized asset to capital
     multiple                              11.1x         12.6x         11.5x
    

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

    Eight Quarter Summary

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

    
    Table 9: Summary of Quarterly Results

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

    Total assets at quarter end - $ millions   2,901   2,866   2,626   2,414
    Total revenues - TEB(1)                   46,177  43,888  41,941  38,552
    Total revenues                            44,728  42,668  40,819  37,572
    Net interest income - TEB(1)(2)           16,787  16,097  15,359  14,435
    Net interest income(2)                    15,338  14,877  14,237  13,455
    Net earnings                               7,480   7,992   7,752   7,144
    EPS - basic                               $ 0.59  $ 0.67  $ 0.65  $ 0.60
    EPS - diluted                             $ 0.59  $ 0.66  $ 0.64  $ 0.59
    ROAE                                       17.0%   21.1%   21.0%   20.3%

                                                     2006            2005
                                                  Q2      Q1      Q4      Q3

    Total assets at quarter end - $ millions   2,244   2,113   2,012   1,821
    Total revenues - TEB(1)                   34,885  31,604  28,881  26,530
    Total revenues                            34,008  30,820  27,867  25,667
    Net interest income - TEB(1)(2)           13,463  12,143  12,017  10,439
    Net interest income(2)                    12,586  11,359  11,003   9,576
    Net earnings                               6,609   5,833   5,562   4,985
    EPS - basic                               $ 0.56  $ 0.49  $ 0.47  $ 0.42
    EPS - diluted                             $ 0.55  $ 0.49  $ 0.46  $ 0.42
    ROAE                                       19.8%   18.6%   18.1%   16.8%

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

    OFF BALANCE SHEET ACTIVITIES

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

    RISKS AND UNCERTAINTIES

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

    Liquidity Risk Management

    Mitigating liquidity risk requires the Company to match its asset and
liability maturities and to keep sufficient liquid assets on hand at all times
to meet mortgage funding and investment purchase commitments, mortgage
renewals or extensions and any GIC redemptions. On a daily basis, the Company
raises funds based upon asset growth, target liquidity levels and forecasts of
its future liquidity requirements. Eligible liquid assets for regulatory
purposes consist of cash and cash equivalents and debt instruments guaranteed
by governments. Assets eligible for regulatory liquidity purposes were
$326.3 million at June 30, 2007 compared to $260.5 million at December 31,
2006 and $215.3 million at June 30, 2006. Total liquid resources, including
marketable equity securities, were $522.1 million at June 30, 2007 compared to
$427.2 million as at December 31, 2006 and $349.6 million at June 30, 2006.

    Interest Rate Risk Management

    The Company's primary method of mitigating interest rate risk is matching
asset and liability maturity or re-pricing terms, employing derivatives to
simulate re-pricing matching, closely monitoring interest rates and acting
upon any mismatch in a timely fashion, to ensure that any sudden or prolonged
change in interest rates does not significantly affect the Company's net
interest income.
    The Company manages its asset and liability maturity or re-pricing
profile by adjusting GIC interest rates on a daily basis to raise GICs with
the appropriate maturities to best match the maturity or re-pricing profile of
assets being funded. The Company closely monitors the effects of possible
interest rate changes on both net interest income for the following twelve
month period and on the economic value of shareholders' equity using simulated
interest rate change sensitivity modeling and assumptions of borrower and
depositor behavior based upon historical experience. As estimated by the
Company, an immediate and sustained 1% increase in interest rates as of
June 30, 2007, would positively impact net interest income before any tax
effect for the following twelve month period by $2.4 million. If interest
rates were to decrease 1% on an immediate and sustained basis as at June 30,
2007, and if cashable GICs were to stay on the books until maturity in the
manner forecast by management, the estimated negative impact to net interest
income before any tax effect for the following twelve month period would be
$6.9 million.
    The Company has adopted a consistent and disciplined approach to hedging
the interest rate risk attached to its MBS activities. MBS interest rate risk
refers to the risk that interest rates will vary between the time a mortgage
interest rate is committed to and the time the underlying mortgage is
securitized and that the change in rates will reduce the value of the mortgage
being sold. The Company hedges the interest rate risk for all mortgages that
are targeted to be sold through the CMHC-MBS program. Hedging protects the
Company from losses due to changes in interest rates during the relevant
period. The hedge is initiated on the date that the mortgage is priced and
committed to and terminated on the date that the pool is sold. Changes in
interest rates affect the price at which the mortgage pool is sold and
inversely affects the value of the hedge. These hedges are derivative
financial instruments and are required to be carried at fair value under the
new financial instrument accounting policies.

    Credit Risk Management

    Under the Company's lending criteria, all mortgages are individually
evaluated under a risk rating system to determine the level of risk
attributable to each loan.
    In accordance with sound business and financial practices, Equitable
Trust's credit risk policies include the annual review of all commercial loans
and mortgages. In addition, all loans that are in arrears are reviewed to
determine whether any should be classified as doubtful or as a potential loss.
Generally, a loan is classified as impaired when management is of the opinion
that there is no longer reasonable assurance of full and timely collection of
principal and interest. On a regular basis, management reviews all loans in
these categories in order to determine the appropriate loan loss reserves
required. Reviews of credit policies and lending practices are regularly
undertaken by senior management and approved by Equitable Trust's Investment
Committee.
    Equitable Trust's Investment Committee meets on a quarterly basis to
review the status of the Company's investments portfolio, the transactions
during the past quarter and the portfolio characteristics such as term, credit
rating and type of security. Investment policies are reviewed regularly by
Equitable Trust's Investment Committee to ensure that the type, credit
quality, duration and concentration of investments in marketable securities
are appropriate, prudent and consistent with the risk profile targets adopted
by the Company. P-2 and better rated securities comprised 73.2% of the
preferred share equity securities portfolio at June 30, 2007, compared to
78.6% a year earlier.

    Changes in Accounting Policies

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

    Changes in Internal Control over Financial Reporting:

    There are no changes in the Company's internal control over financial
reporting that occurred during the second quarter ended June 30, 2007 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Subsequent to the quarter
end, the Company appointed William Edmunds Senior Vice-President, Credit and
Chief Risk Officer and Stephen Coffey, Senior Vice-President and Chief
Financial Officer announced his intention to resign from the Company effective
September 30, 2007.

    Non-Generally Accepted Accounting Principles ("GAAP") Financial Measures

    The presentation of financial information on a taxable equivalent basis
("TEB") is a common practice of presentation in the banking and trust company
industries and does not have a standardized meaning within GAAP. Therefore,
TEB calculations may not be comparable to similar measures presented by other
companies. On a selective basis, Equitable uses TEB in analyzing revenues,
interest margins and productivity ratios in this MD&A. The TEB methodology
grosses up tax exempt income, such as dividends from equity securities, by an
amount which makes this income comparable, on a pre-tax basis, to regular
taxable income such as mortgage interest. For the six months ended June 30,
2007, this gross-up amounted to $2.7 million as compared to $1.7 million
during the comparable period in 2006.
    The adoption on January 1, 2007 of new accounting policies for financial
instruments requires that Equitable report deferred deposit agent commissions
as a component of customer deposits and the amortization or current expense of
these deferred charges as a component of interest expense in its financial
statements. Formerly, deferred deposit agent commissions were reported in
other assets and amortization was presented as a non-interest expense. Prior
period presentation is not restated. 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 on the same basis as
that presented in the prior year.

    Updated Share Information

    As a result of the issue of 769,231 common shares on April 30, 2007 and
the exercise of employee stock options, the Company currently has 12,914,699
common shares issued and outstanding. There are unexercised options to
purchase 635,011 common shares and a further 656,459 common shares are
reserved for option grants.

    OUTLOOK

    The Company's outlook, expressed in its annual MD&A, remains unchanged.

    Demand for residential and commercial mortgage financing is strong in the
Company's primary niche markets, resale housing activity in Equitable's target
geographical markets is robust and, while the prime rate has recently
increased, the interest rate environment is currently supportive to the real
estate industry. Activity levels so far in the third quarter are strong and
management continues to position Equitable to take advantage of these
conditions through the continuation of disciplined niche lending practices.
    Based on Equitable's performance during the first half of 2007, except
for the impact on EPS of the increased number of shares resulting from its
equity issue, management remains confident of the Company's ability to achieve
its 2007 targets and performance objectives.
    During this time of strong demand, the Company remains committed to its
disciplined lending practices and intends to continue to build a well
balanced, quality portfolio based primarily on single family, multi-unit
residential and commercial mortgage lending. The Company is investigating new
geographical market opportunities and will cautiously expand its single family
dwelling operations when opportunities are identified.

    August 1, 2007


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

    -------------------------------------------------------------------------
                                         June 30,  December 31,      June 30,
                                            2007          2006          2006
    -------------------------------------------------------------------------

    Assets

    Cash and cash equivalents           $169,232      $107,842      $147,477
    Investments (note 3)                 357,888       319,317       202,089
    Loan securitizations - retained
     interests (note 4)                   46,491        48,271        50,971
    Mortgages receivable (note 5)      2,313,024     2,135,662     1,831,586
    Other assets (note 6)                 14,559        14,663        12,335
    -------------------------------------------------------------------------
                                      $2,901,194    $2,625,755    $2,244,458
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders'
     Equity

    Liabilities:
    Customer deposits (note 7)        $2,613,504    $2,389,755    $2,023,297
    Future income taxes payable            5,541         4,700         6,224
    Other liabilities (note 8)            19,173        21,564        18,171
    Bank term loan (note 10)              44,595        34,750        34,750
    Subordinated debt (note 11)           31,969        25,250        25,250
    -------------------------------------------------------------------------
                                       2,714,782     2,476,019     2,107,692

    Shareholders' equity:
    Capital stock (note 12)               86,339        57,849        57,569
    Contributed surplus (note 12)          1,415         1,539         1,362
    Retained earnings                    103,215        90,348        77,835
    Accumulated other comprehensive
     (loss) (note 13)                     (4,557)            -             -
    -------------------------------------------------------------------------
                                         186,412       149,736       136,766

    -------------------------------------------------------------------------
                                      $2,901,194    $2,625,755    $2,244,458
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim unaudited consolidated financial
    statements.



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                 June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Interest income:
      Mortgages                  $37,415     $29,044     $73,188     $55,449
      Investments                  3,478       1,890       6,632       3,644
      Other                        2,049       1,320       3,525       2,356
    -------------------------------------------------------------------------
                                  42,942      32,254      83,345      61,449
    Interest expense:
      Customer deposits           26,147      18,617      50,501      35,528
      Deposit agent commissions
       (note 2)                    1,542           -       2,940           -
      Term loan                      831         559       1,446         884
      Subordinated debt              626         492       1,183       1,092
    -------------------------------------------------------------------------
                                  29,146      19,668      56,070      37,504
    -------------------------------------------------------------------------

    Interest income, net          13,796      12,586      27,275      23,945

    Provision for credit
     losses (note 5)                 225         225         450         450
    -------------------------------------------------------------------------

    Net interest income after
     provision for credit losses  13,571      12,361      26,825      23,495

    Other income:
      Mortgage commitment income
       and other fees              1,016         802       1,926       1,476
      Net gain (loss) on sale or
       redemption of Investments       -           -         (15)          2
      Loan securitizations -
       retained interests
       (note 4)                      770         952       2,140       1,901
    -------------------------------------------------------------------------

                                   1,786       1,754       4,051       3,379
    -------------------------------------------------------------------------
    Net interest income and
     other income                 15,357      14,115      30,876      26,874

    Non-interest expenses:
      Compensation and benefits    2,780       2,342       5,361       4,390
      Deposit agent commissions
       (note 2)                        -       1,111           -       2,156
      Other                        2,257       1,577       4,169       2,883
    -------------------------------------------------------------------------
                                   5,037       5,030       9,530       9,429

    Income before income taxes    10,320       9,085      21,346      17,445
    Income taxes (recovery)
     (note 9):
      Current                      2,978       2,284       5,033       5,317
      Future                        (138)        192         841        (314)
    -------------------------------------------------------------------------
                                   2,840       2,476       5,874       5,003
    -------------------------------------------------------------------------

    Net income                    $7,480      $6,609     $15,472     $12,442
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                        $0.59       $0.56       $1.26       $1.05
      Diluted                      $0.59       $0.55       $1.24       $1.03

    Weighted average number
     of shares outstanding:
      Basic                   12,592,821  11,894,569  12,274,836  11,848,877
      Diluted                 12,776,704  12,081,098  12,485,598  12,044,672

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

    See accompanying notes to interim unaudited consolidated financial
    statements.



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                 June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Common shares:
      Balance, beginning
       of period                 $60,050     $56,959     $57,849     $55,510
      Common shares issued
       (note 12)
        Gross proceeds of
         equity issue             25,000           -      25,000           -
        Issue expenses, net of
         tax recovery of $498       (962)          -        (962)          -
        Proceeds from exercise of
         employee stock Options    1,966         555       3,965       1,880
        Transfer from contributed
         surplus relating to the
         exercise of stock options   285          55         487         179
    -------------------------------------------------------------------------
      Balance, end of period      86,339      57,569      86,339      57,569

    Contributed surplus:
      Balance, beginning
       of period                   1,485       1,323       1,539       1,327
      Stock-based compensation
       (note 12)                     215          94         363         214
      Transfer to common shares
       relating to the exercise
       of stock options             (285)        (55)       (487)       (179)
    -------------------------------------------------------------------------
      Balance, end of period       1,415       1,362       1,415       1,362

    Retained earnings:
      Balance, beginning
       of period                  97,025      72,417      90,348      67,771
      Transition adjustment -
       Financial instruments
       (note 2)                        -           -        (113)          -
      Net income                   7,480       6,609      15,472      12,442
      Dividends                   (1,290)     (1,191)     (2,492)     (2,378)
    -------------------------------------------------------------------------
      Balance, end of period     103,215      77,835     103,215      77,835

      Accumulated other
       comprehensive income
       (loss):
      Balance, beginning of period   (63)          -           -           -
      Transition adjustment -
       Financial instruments
       (note 2)                        -           -         302           -
      Other comprehensive income
       (loss) (note 13)           (4,494)          -      (4,859)          -
    -------------------------------------------------------------------------
      Balance, end of period      (4,557)          -      (4,557)          -

    -------------------------------------------------------------------------
    Total shareholders' equity  $186,412    $136,766    $186,412    $136,766
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                 June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net income                    $7,480      $6,609     $15,472     $12,442
    Other comprehensive income
     (loss)
      Available-for-sale assets,
       change in unrealized
       gains (losses) (note 13)   (4,886)          -      (4,877)          -
      Reclassification to
       earnings for realization
       of available-for-sale
       assets fair value changes
       (note 13)                     392           -          18           -
    -------------------------------------------------------------------------
    Other comprehensive
     income (loss)                (4,494)          -      (4,859)          -
    -------------------------------------------------------------------------
    Comprehensive income          $2,986      $6,609     $10,613     $12,442
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim unaudited consolidated financial
    statements.



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                 June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net income                  $7,480      $6,609     $15,472     $12,442
      Non-cash items:
        Financial instruments -
         fair value adjustments
         and reclassifications     2,564           -       2,640           -
        Loan securitizations -
         gains on sale of
         mortgages                  (135)       (143)       (838)       (420)
        Amortization                 159         109         359         218
        Provision for
         credit losses               225         225         450         450
        Net (gain) loss on sale
         or redemption of
         investments                   -           -          15          (2)
        Future income taxes
         (recovery)                 (138)        192         841        (314)
        Stock-based compensation     215          94         363         214
        Amortization of premiums
         on investments              992         653       2,063       1,534
    -------------------------------------------------------------------------
                                  11,362       7,739      21,365      14,122

      Changes in operating
       assets and liabilities:
        Other assets              (4,118)       (115)        228      (1,529)
        Other liabilities          3,380       2,026      (2,428)     (3,143)
    -------------------------------------------------------------------------
                                  10,624       9,650      19,165       9,450

    Financing activities:
      Increase in customer
       deposits                    8,977     110,592     223,752     214,342
      Issuance (redemption) of
       subordinated debt, net     (2,731)     (2,603)      6,719      (6,444)
      Receipt (repayment) of
       bank term loan, net        (2,655)     15,000       9,845      15,000
      Dividends paid on
       common shares              (1,290)     (1,191)     (2,492)     (2,378)
      Issuance of common shares   26,004         555      28,003       1,880
    -------------------------------------------------------------------------
                                  28,305     122,353     265,827     222,400

    Investing activities:
      Purchase of investments    (62,615)    (29,400)   (123,897)    (49,360)
      Proceeds on sale or
       redemption of
       investments                39,816      25,377      76,385      40,168
      Investments in
       mortgages receivable     (701,984)   (415,839) (1,367,839) (1,006,124)
      Mortgage principal
       repayments                645,083     267,216   1,045,494     662,388
      Proceeds from loan
       securitizations            41,502      84,239     140,038     184,205
      Loan securitizations -
       retained interests          3,332       4,092       6,625       7,566
      Purchase of capital assets     (50)       (390)       (408)       (430)
    -------------------------------------------------------------------------
                                 (34,916)    (64,705)   (223,602)   (161,587)

    -------------------------------------------------------------------------
    Increase in cash and
     cash equivalents              4,013      67,298      61,390      70,263

    Cash and cash equivalents,
     beginning of period         165,219      80,179     107,842      77,214
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period              $169,232    $147,477    $169,232    $147,477
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Comprised of:
      Deposits at banks          $85,666    $140,993     $85,666    $140,993
      Short term investments      89,967      15,000      89,967      15,000
      Cheques and other items
       in transit                 (6,401)     (8,516)     (6,401)     (8,516)
    -------------------------------------------------------------------------
                                $169,232    $147,477    $169,232    $147,477
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:
      Interest paid              $27,163     $18,715     $51,509     $34,600
      Income taxes paid            6,294       2,455      13,340       8,902

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

    See accompanying notes to interim unaudited consolidated financial
    statements.



    1.  Basis of preparation:

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

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

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

    2.  Changes in accounting policy:

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

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

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

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

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

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

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

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

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

    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:

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

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

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

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

    3.  Investments:

    (a) Carrying value:

    -------------------------------------------------------------------------
                                         June 30,  December 31,      June 30,
                                            2007          2006          2006
    -------------------------------------------------------------------------

    Preferred shares                    $195,864      $166,669      $133,099
    Government bonds, treasury bills
     and notes                           162,024       152,648        67,871
    Common shares                              -             -         1,119
    -------------------------------------------------------------------------
                                        $357,888      $319,317      $202,089
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                                               June 30, 2007
    -------------------------------------------------------------------------
    Preferred shares                                                 $(6,484)
    Government bonds, treasury bills and notes                          (381)
    -------------------------------------------------------------------------
                                                                     $(6,865)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (b) Derivative financial instruments:

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

    (c) Credit facility:

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

    4.  Loan securitizations:

    (a) Retained interests:

    The Company securitizes Canadian government guaranteed residential
    mortgage loans through the creation of mortgage-backed securities and
    removes the mortgages from the balance sheet. As at June 30, 2007,
    outstanding securitized mortgages totalled $1,785,271 (December 31,
    2006 - $1,807,479, June 30, 2006 - $1,914,418), substantially all of
    which are multi-family residential mortgage loans.

    During the period, the Company securitized Canadian government guaranteed
    residential mortgage loans and received net cash proceeds of $140,038
    (June 30, 2006 - $184,205). The Company retained the rights to future
    excess interest on the residential mortgages valued at $6,062 (June 30,
    2006 - $7,145) and received net cash flows on interests retained of
    $7,927 (June 30, 2006 - $9,047). The Company retained the responsibility
    for servicing the mortgages and enjoys the right to receive the future
    excess interest spread. The Company has outsourced the servicing of the
    transferred loans to an unrelated third party and has recorded a
    servicing liability of $981 (June 30, 2006 - $810) relating to loans
    securitized during the period.

    Retained interests are accounted for at settlement date. The fair value
    of the retained interests is determined with internal valuation models
    using market data inputs, where possible, by discounting the expected
    future cash flows at like term Government of Canada bond interest rates
    plus a spread. Net unrealized gains (losses) included in carrying value
    on the balance sheet as required by the change in accounting policies
    described in note 2 are as follows:

    -------------------------------------------------------------------------
                                                               June 30, 2007
    -------------------------------------------------------------------------

    Loan securitizations - retained interests                          $(270)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                                       June 30,      June 30,
                                                          2007          2006
    -------------------------------------------------------------------------

    Gain on sale of mortgages                             $838          $420
    Excess interest net of servicing fee                 1,302         1,481

    -------------------------------------------------------------------------
                                                        $2,140        $1,901
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    (b) Derivative financial instruments:

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

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

    1 to 5            $200      $194   $14,400   $14,289    $3,700    $3,689
    5 to 10         32,200    31,411    21,800    22,444    54,300    54,126

    -------------------------------------------------------------------------
                   $32,400   $31,605   $36,200   $36,733   $58,000   $57,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The hedge instruments are fair value hedges and are required to be
    classified as held-for-trading and carried at fair value. The fair values
    of the hedge instruments are determined by reference to the ask side of
    the related Government of Canada bonds as at the reporting date. The
    period end fair value of hedges of $35 is disclosed in note 6, other
    assets.

    (c) Mortgage commitments:

    Mortgage commitments for government guaranteed mortgages to be
    securitized are designated as held-for-trading and are carried at fair
    value. Fair value is determined by reference to the bid side of a like
    term Government of Canada bond plus a spread between the bond yield and
    the mortgage rate. Changes in fair value reflect changes in interest
    rates which have occurred since the mortgage interest rate was committed
    to. The period end fair value of mortgage commitments of $40 is disclosed
    in note 6, other assets.

    5.  Mortgages receivable:

    (a) Mortgages receivable and impaired mortgages:

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

    Residential
     mortgages          $1,506,532       $50    $5,962    $6,012  $1,500,520
    Other mortgages        573,919         -     1,933     1,933     571,986
    Mortgages held for
     securitization
     or for sale           230,417         -       530       530     229,887
    Accrued interest        10,631         -         -         -      10,631
    -------------------------------------------------------------------------
                        $2,321,499       $50    $8,425    $8,475  $2,313,024
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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


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

    Residential
     mortgages          $1,234,036    $1,570    $4,091    $5,661  $1,228,375
    Other mortgages        414,580         -     1,503     1,503     413,077
    Mortgages held for
     securitization
     or for sale           182,031         -       432       432     181,599
    Accrued interest         8,535         -         -         -       8,535
    -------------------------------------------------------------------------
                        $1,839,182    $1,570    $6,026    $7,596  $1,831,586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Included in mortgages held for securitization or for sale are Canadian
    Government insured mortgages of $18,333, as at June 30, 2007
    (December 31, 2006 - $18,551, June 30, 2006 - $9,214). These Government
    of Canada guaranteed loans held for securitization have been designated
    as held-for-trading and are carried at fair value determined by reference
    to the bid side of a like term Government of Canada bond plus a spread
    between the bond yield and the mortgage rate. Changes in fair value
    reflect changes in interest rates which have occurred since the mortgage
    interest rate was committed to. The period end fair value adjustment of
    Government of Canada guaranteed loans held for securitization is ($105).
    Loans held for sale include loans which are to be pooled and discharged
    subsequent to the balance sheet date at their investment cost. These
    loans are carried at the lower of cost or fair value. There are no
    foreclosed assets held for sale at June 30, 2007, December 31, 2006 and
    June 30, 2006.

    The principal outstanding and net carrying amount of mortgages receivable
    classified as impaired as at June 30, 2007 aggregated $3,120
    (December 31, 2006 - $1,138, June 30, 2006 - $2,437) and $3,070
    (December 31, 2006 - $978, June 30, 2006 - $867), respectively.

    The Company has commitments to fund a total of $422,074 (December 31,
    2006 - $279,278, June 30, 2006 - $330,760) of mortgages as at the end of
    the period.

    (b) Allowance for credit losses:

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

    Balance, beginning of period            $160        $7,886        $8,046
    Provision for credit losses              (89)          539           450
    Recoveries                                29             -            29
    Realized losses                          (50)            -           (50)

    -------------------------------------------------------------------------
    Balance, end of period                   $50        $8,425        $8,475
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    Balance, beginning of period          $2,087        $5,080        $7,167
    Provision for credit losses             (496)          946           450
    Recoveries                                 -             -             -
    Realized losses                          (21)            -           (21)

    -------------------------------------------------------------------------
    Balance, end of period                $1,570        $6,026        $7,596
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  Other assets:

    -------------------------------------------------------------------------
                                         June 30,  December 31,      June 30,
                                            2007          2006          2006
    -------------------------------------------------------------------------

    Income taxes recoverable              $4,736            $-            $-
    Prepaid expenses and other             3,673         2,378         1,767
    Capital assets                         2,312         2,263         1,714
    Accrued interest on
     non-mortgage assets                   1,885         1,866         1,251
    Other receivables                      1,878         1,868         1,516
    Mortgage commitments (note 4)             40             -             -
    Derivative financial instruments -
     securitization activities (note 4)       35             -             -
    Deferred deposit agent
     commissions (note 2)                      -          6,288        6,087

    -------------------------------------------------------------------------
                                         $14,559        $14,663      $12,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  Customer deposits:

    -------------------------------------------------------------------------
                                         June 30,  December 31,      June 30,
                                            2007          2006          2006
    -------------------------------------------------------------------------

    Cashable GICs, payable on demand    $800,132      $570,455      $444,947
    GICs with fixed maturity dates     1,766,058     1,766,011     1,538,442
    Accrued interest                      54,858        53,289        39,908
    Deferred deposit agent
     commissions (note 2)                 (7,544)            -             -

    -------------------------------------------------------------------------
                                      $2,613,504    $2,389,755    $2,023,297
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Included in GICs with fixed maturity dates are $10,000 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 $3.

    8.  Other liabilities:

    -------------------------------------------------------------------------
                                         June 30,  December 31,      June 30,
                                            2007          2006          2006
    -------------------------------------------------------------------------

    Accounts payable and accrued
     liabilities                          $7,554        $6,860        $5,584
    Securitized mortgage servicing
     liability                             6,187         6,044         6,421
    Mortgagor realty taxes                 5,429         5,089         5,085
    Derivative financial instruments -
     interest rate swaps (note 14)             3             -             -
    Income taxes payable                       -         3,571         1,081

    -------------------------------------------------------------------------
                                         $19,173       $21,564       $18,171
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  Income taxes:

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

    -------------------------------------------------------------------------
                                                       June 30,      June 30,
                                                          2007          2006
    -------------------------------------------------------------------------

    Canadian statutory income tax rate                   36.1%         36.1%
    Increase (decrease) resulting from:
      Tax exempt income                                  (8.0%)        (6.0%)
      Future tax rate reductions                         (0.8%)        (1.5%)
      Non-deductible expenses and other                   0.2%          0.1%
    -------------------------------------------------------------------------
    Effective income tax rate                            27.5%         28.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. Bank term loans:

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

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

    Loan 1  6.37%  March 2005  March 2010  $19,750  $     -  $2,655  $17,095
    Loan 2  6.82%  April 2006  April 2011   15,000        -       -   15,000
    Loan 3  6.41%  March 2007  March 2012        -   12,500       -   12,500
    -------------------------------------------------------------------------
                                           $34,750  $12,500  $2,655  $44,595
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    Loan 1  6.37%  March 2005  March 2010  $19,750  $     -  $    -  $19,750
    Loan 2  6.82%  April 2006  April 2011        -   15,000       -   15,000
    -------------------------------------------------------------------------
                                           $19,750  $15,000  $    -  $34,750
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Subordinated debt:

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

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

    Series 5  7.31%-  2004/  January 2015  $20,250  $    -   $2,731  $17,519
               7.58%   05
    Series 6  7.27%   2006   January 2016    5,000       -        -    5,000
    Series 7  7.10%   2007   January 2017        -   9,450        -    9,450
    -------------------------------------------------------------------------
                                           $25,250  $9,450   $2,731  $31,969
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    Series 4  7.54%-  2003   January 2013  $11,444  $    -  $11,444  $     -
               8.15%
    Series 5  7.31%-  2004/  January 2015   20,250       -        -   20,250
               7.58%   05
    Series 6  7.27%   2006   January 2016        -   5,000        -    5,000
    -------------------------------------------------------------------------
                                           $31,694  $5,000  $11,444  $25,250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. Shareholders' equity:

    (a) Capital stock:

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

          Issued:
            Common shares:

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

    Balance, beginning
     of period          11,924,468       $57,849    11,781,940       $55,510
    Issued during the
     period                990,231        28,003       121,705         1,880
    Transfer from
     contributed surplus
     relating to the
     exercise of stock
     options                     -           487             -           179
    -------------------------------------------------------------------------
    Balance, end of
     period             12,914,699       $86,339    11,903,645       $57,569
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    (b) Stock-based compensation plans:

    Stock option plan:

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

    -------------------------------------------------------------------------
                                   June 30, 2007               June 30, 2006
    -------------------------------------------------------------------------
                                        Weighted                    Weighted
                         Number of       average     Number of       average
                             stock      exercise         stock      exercise
                           options         price       options         price
    -------------------------------------------------------------------------
    Outstanding, beginning
     of period             749,011        $20.54       768,539        $18.07
    Granted                150,000         34.49             -             -
    Exercised             (221,000)        17.94      (121,705)        15.45
    Forfeited/cancelled    (43,000)        21.85             -             -
    -------------------------------------------------------------------------
    Outstanding, end of
     period                635,011        $24.65       646,834        $18.56
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Exercisable, end of
     period                107,900        $18.28       146,111        $17.37
    -------------------------------------------------------------------------

    Under the fair value-based method of accounting for stock options, the
    Company has recorded compensation expense in the amount of $363 (June 30,
    2006 - $214) related to grants of options in 2004 to 2007 under the stock
    option plan. This amount has been credited to contributed surplus. During
    the period ended June 30, 2007, a total of 150,000 stock options were
    granted (2006 - nil). The fair value of options granted in 2007 is
    estimated at the date of grant using the Black-Scholes valuation model,
    with the following assumptions: (i) risk-free rate of 4.0%; (ii) expected
    option life of 4.0 years; (iii) expected volatility of 23.0%; and (iv)
    expected dividends of 1.2%. The weighted average fair value of each
    option granted was $6.71.

    13. Accumulated other comprehensive income (loss):

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

    -------------------------------------------------------------------------
                                                               June 30, 2007
    -------------------------------------------------------------------------

    Available-for-sale investments:
      Transition adjustment on adoption of new accounting
       standards, net (note 2)                                          $543
      Losses from changes in fair value, net of income taxes
       (recovered) of ($2,796)                                        (4,944)
      Reclassification to earnings for gain (loss) on sale or
       redemption of investments, net of income taxes paid of $9          16
    -------------------------------------------------------------------------
    Balance, end of period                                            (4,385)

    Available-for-sale loan securitizations - retained interests:
      Transition adjustment on adoption of new accounting
       standards, net (note 2)                                          (241)
      Gains from changes in fair value, net income taxes of $38           67
      Reclassification to earnings for loan securitizations -
       retained interests, net of income taxes of $1                       2
    -------------------------------------------------------------------------
    Balance, end of period                                              (172)

    -------------------------------------------------------------------------
    Total accumulated other comprehensive income (loss)              $(4,557)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. Interest rate sensitivity:

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

    -------------------------------------------------------------------------
                                                               June 30, 2007
    -------------------------------------------------------------------------
                          Floating
                           rate or                                     Total
                          within 1        1 to 3      3 months        within
                             month        months     to 1 year        1 year
    -------------------------------------------------------------------------
    Total assets        $1,437,055       $91,751      $401,377    $1,930,183
    Total liabilities
     and equity          1,177,760       178,058       439,788     1,795,606
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap        $259,295      $(86,307)     $(38,411)     $134,577
    -------------------------------------------------------------------------
    Cumulative gap        $259,295      $172,988      $134,577      $134,577
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            8.94%         5.96%         4.64%         4.64%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                         Non-
                         1 year to        Over 5      interest
                           5 years         years     sensitive       Total(a)
    -------------------------------------------------------------------------
    Total assets          $901,199       $57,215       $12,597    $2,901,194
    Total liabilities
     and equity            815,182        31,969       258,437     2,901,194
    -------------------------------------------------------------------------
    Interest rate
     sensitive gap         $86,017       $25,246     $(245,840)          $ -
    -------------------------------------------------------------------------
    Cumulative gap        $220,594      $245,840           $ -           $ -
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            7.60%         8.47%         0.00%         0.00%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                           December 31, 2006
    -------------------------------------------------------------------------
                          Floating
                           rate or                                     Total
                          within 1        1 to 3      3 months        within
                             month        months     to 1 year        1 year
    -------------------------------------------------------------------------
    Cumulative gap        $261,613       $83,012      $113,316      $113,316
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            9.96%         3.16%         4.32%         4.32%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                          Non-
                         1 year to        Over 5      interest
                           5 years         years     sensitive         Total
    -------------------------------------------------------------------------
    Cumulative gap        $203,091      $211,366           $ -           $ -
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            7.73%         8.05%         0.00%         0.00%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                               June 30, 2006
    -------------------------------------------------------------------------
                          Floating
                           rate or                                     Total
                          within 1        1 to 3      3 months        within
                             month        months     to 1 year        1 year
    -------------------------------------------------------------------------
    Cumulative gap        $388,273      $236,174      $120,168      $120,168
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets           17.30%        10.52%         5.35%         5.35%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                          Non-
                         1 year to        Over 5      interest
                           5 years         years     sensitive         Total
    -------------------------------------------------------------------------
    Cumulative gap        $175,087      $184,251           $ -           $ -
    -------------------------------------------------------------------------
    Cumulative gap as
     a percentage of
     total assets            7.80%         8.21%         0.00%         0.00%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    The Company has interest rate hedging facilities available at chartered
    banks secured by investments in preferred shares and cash equivalents.
    Interest rate swaps are classified as held-for-trading and are carried at
    fair market value with changes in fair value included in interest
    expense. The period end fair value of these hedges of ($3) is disclosed
    in note 8, other liabilities.

    15. Future accounting changes:

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

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

    %SEDAR: 00020356E




For further information:

For further information: Andrew Moor, (416) 513-3519; Stephen Coffey,
(416) 515-7000


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