News

Equitable Group reports record fourth quarter 2006 results, sets out its objectives for 2007

    TSX Symbol: ETC

    TORONTO, Feb. 27 /CNW/ - Equitable Group Inc. today reported its
financial results for the three and 12 months ended December 31, 2006 -
setting new records in both periods. It also published a range of objectives
for 2007.

    Fourth Quarter Highlights-   Net earnings increased 39.4% to $7.8 million from $5.6 million a year
        earlier.
    -   Diluted earnings per share were 39.1% higher at $0.64 compared to
        $0.46 last year.
    -   Return on average equity increased to 21.0% compared to 18.1% a year
        earlier.
    -   Assets expanded 30.5% to $2.63 billion from $2.01 billion a year
        earlier.
    -   Growth was registered in all mortgage niches: Mortgage originations
        grew 52.1% to $661.3 million from $434.7 million last year.
    -   Productivity ratio (the lower the better) declined to 30.6% on a tax
        equivalent basis from 32.6% a year ago.

    2006 Highlights

    -   Net earnings increased 38.4% to $27.3 million compared to
        $19.8 million a year earlier.
    -   Diluted earnings per share were 37.0% higher at $2.26 compared to
        $1.65 in 2005.
    -   Return on average equity was 19.9%, up from 17.0% in 2005.
    -   Growth was registered in all mortgage niches: single family dwelling
        mortgage assets increased 18.1% ($113.5 million), commercial mortgage
        assets increased 47.5% ($138.8 million), mortgages held for sale
        increased 63.9% ($104.7 million), and multi-unit residential grew
        13.9% ($69.6 million).
    -   Mortgage originations grew 50.6% to $2.16 billion from $1.43 billion
        last year.
    -   Productivity ratio (the lower the better) was 32.0% on a tax
        equivalent basis compared to 31.9% a year ago.
    -   Realized loan loss was $21 thousand - which was fully recovered in
        early 2007.Dividend

    The Company declared a dividend in the amount of $0.10 per share payable
April 4, 2007 to shareholders of record at the close of business March 16,
2007. The Board has chosen to maintain the quarterly dividend at $0.10, which
will cause the payout ratio to fall below Equitable's previous practice of
paying approximately 25% of trailing (previous year) earnings as a dividend.
    In commenting on the dividend payout, Austin Beutel, Chairman of the
Board said: "Equitable continued to demonstrate profitable growth in 2006 and
expects further growth in 2007. Since our Company is earning, after taxes,
approximately 20% return on equity, the Board has decided to retain a higher
proportion of net earnings to finance growth rather than issue additional
shares from treasury, which would result in some dilution of shareholders'
ownership.
    "The quarterly dividend at 10 cents per share is equivalent to an
approximate payout of 17.4% of 2006 earnings and affords a yield of 1.3%. The
yield is in line with the payout and yield of other companies in the financial
sector and elsewhere that are enjoying good growth and will result in a higher
automatic reinvestment of shareholder funds in what the Board considers to be
an attractive opportunity. The Board will continue to review the Company's
dividend payout policy on a quarterly basis."

    Management Commentary

    "We are delighted with Equitable's results in both the fourth quarter and
full year," said Geoffrey Bledin, President and CEO. "To us, the highlights of
both reporting periods are the growth in profitability and assets, which far
surpassed our performance targets. In addition, we strengthened our team to
meet the demands of growth and yet improved productivity. Against all
measures, in fact, Equitable enjoyed an outstanding year, once again
demonstrating the value of disciplined yet opportunistic niche mortgage
lending."
    "From an earnings perspective, we achieved 42.9% growth in total interest
revenues in 2006 due to the substantial expansion of our asset base," said
Stephen Coffey, Senior Vice President and CFO. "Net interest margin also
increased to 2.4% from 2.3% in 2005 due to an increase in the prime rate
during the first half of 2006. Normally, prime rate increases only result in
temporary improvements in net interest margins but this past year, the benefit
was prolonged because of a combination of our mortgage mix and market GIC
rates."

    Mortgage Credit Quality Highlights-   Mortgage principal in arrears over 61 days as a percentage of total
        mortgage principal was 0.08% in 2006, an improvement compared to an
        already minimal 0.17% in 2005.
    -   Mortgages identified as impaired amounted to 0.05% of total mortgage
        principal outstanding at period end compared to 0.21% a year ago.
    -   Realized credit loss was $21,000 (representing 0.001% of average
        principal outstanding) in 2006 versus $0 in 2005 - however, this loss
        was recovered in its entirety in January 2007.Geographic Expansion

    At period end 2006, Equitable had almost $60 million in total mortgages
outstanding in the Alberta single family dwelling market. This long-term
geographic expansion began in 2005 with very conservative "learn first, grow
second" goals and the Company has continued to systematically increase its
presence and partnerships in this growing region. At period end 2005, total
Alberta mortgages outstanding were $8.1 million. Equitable has now expanded
its focus beyond Calgary to Edmonton. Due to growth in Alberta, as well as
activity in other national niches (such as warehoused mortgages), Ontario
represented approximately 83.0% of mortgage principal outstanding at period
end compared to 88.7% a year ago. Equitable has also recently expanded its
focus in Ontario to markets outside the Greater Toronto Area, most
particularly Ottawa.

    2007 Range of Objectives

    Equitable today published a new range of financial objectives for 2007.
These include:-   18-22% growth in assets over 2006
    -   18-22% growth in net earnings over 2006
    -   18-22% growth in diluted earnings per share over 2006
    -   18-22% return on average equity
    -   32-35% productivity ratio on a tax equivalent basisLooking Ahead

    "Equitable entered 2007 with strong momentum in all mortgage niches,"
said Mr. Bledin, "and we are well positioned for another strong year. In
context, however, as we look forward to 2007, we believe it's important to set
performance targets in broader ranges than we have in the past to reflect two
realities. One, we are starting with a higher opening asset base, which makes
growth in percentage terms more difficult to achieve, and two, we believe it's
important to acknowledge the possibility that the market environment may not
be as favourable in 2007 as it has been in the recent past. However, we retain
our desire to see Equitable do as it has in the past: meet or exceed our
performance targets by a considerable margin.
    "As we move into the year, we expect to continue our disciplined yet
opportunistic pursuit of profitable growth. Operationally, as announced in
early January, we received approval to issue up to $40 million in subordinated
debentures, eligible for Tier 2 capital treatment to support our growth. And
strategically, we intend to continue to strengthen our position under the
leadership of our incoming President and CEO Andrew Moor. Andrew's first day
on the job is March 1 and we look forward to profiting from his leadership,
experience, contacts and ideas over the long term."

    Fourth Quarter Webcast

    Equitable's fourth 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 416 644 3419.

    MD&A

    The Company will post its MD&A for the three and 12 months ended
December 31, 2006 on its website www.equitablegroupinc.com this morning. This
document will be archived on the site.

    About Equitable Group Inc.

    Equitable Group Inc. provides first mortgage financing through its
wholly-owned subsidiary, The Equitable Trust Company. It also offers
Guaranteed Investment Certificates to depositors as a nationally-licensed
deposit-taking institution. Equitable Trust was founded in 1970, and by
following a prudent, results-driven approach, Equitable has become a leader in
its primary niches: alternative single family dwelling as well as multi-unit
residential mortgage lending. The common shares of Equitable Group Inc. are
listed on the Toronto Stock Exchange under the trading symbol of "ETC". For
more information visit www.equitablegroupinc.com.

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



    Management's Discussion and Analysis of Financial Condition and Results
    of Operations
    (for the year ended December 31, 2006)

    Business Overview

    Equitable Group Inc. ("Equitable" or the "Company") is a niche lender
providing residential first mortgage financing through its wholly-owned
subsidiary, The Equitable Trust Company ("Equitable Trust"). Equitable Trust
was founded in 1970. The primary sources of the Company's revenue are interest
income derived from its mortgage financing business and interest and dividend
income from its investments. In addition, the Company earns income from
commitment, renewal and discharge fees on its mortgage portfolio and from the
securitization of mortgages and recurring income from its continuing interest
in these mortgages within the Canada Mortgage and Housing Corporation ("CMHC")
mortgage backed securities ("MBS") program. The Company's business model is
based on outsourcing mortgage origination to independent mortgage brokers and
outsourcing deposit origination to independent deposit agents rather than
using a branch network to conduct its business. Equitable's business model and
the growing nature of its mortgage lending niches have contributed to strong
long-term financial results. In the five years ended December 31, 2006, the
Company's net earnings grew at a compound annual rate of 22.8%, its assets
grew 29.3% compounded annually and return on average shareholders' equity
averaged 17.2%.

    Business Strategies

    The Company's business strategies, set out below, are intended to support
the Company's dual objectives of achieving long-term profitable growth while
maintaining strong productivity and solid mortgage credit quality:-   Maintain a niche market focus on mortgage financing of single family
        dwelling properties and multi-unit residential properties in targeted
        geographic regions;
    -   Complement the focus on residential property financing with selective
        mortgage lending on commercial properties and warehoused mortgages
        ("conventional mortgages held for sale");
    -   Emphasize a strict, disciplined approach to mortgage financing,
        concentrating on sound product underwriting;
    -   Support growth at low cost by:
           -  funding its mortgage financing operations through deposits from
              the public across Canada in the form of Canada Deposit
              Insurance Corporation ("CDIC") insured GICs;
           -  outsourcing mortgage origination and deposit-taking functions
              without using a branch network;
    -   Develop and nurture strategic business alliances in the mortgage
        financing industry;
    -   Utilize effective regulatory capital planning;
    -   Foster a strong growth orientation and culture.2006 Operating Highlights

    During 2006, Equitable expanded its asset base, strategic alliances with
mortgage originators, staffing levels and its geographical scope of
operations. This expansion was consistent with the Company's stated
strategies. It was carried out with the same attention to mortgage credit
quality and the same disciplined approach that the Company has demonstrated in
the past.More specifically:

    -   Equitable expanded its warehoused mortgage assets in keeping with its
        ability to capitalize on market niche opportunities.
    -   Equitable extended its presence in Alberta by entering the Edmonton
        market for single family dwelling mortgage lending, while growing its
        mortgage business in Calgary (established in 2005) and expanding its
        substantial coverage in Ontario, its primary geographic region, by
        lending in the Ottawa area.
    -   To ensure that all of these areas of expansion remain well financed
        and managed on a disciplined basis, Equitable completed a Series 6
        Subordinated Debenture financing, the proceeds of which are eligible
        as regulatory capital for leverage purposes, and increased staffing
        levels in key operational areas.2006 Financial Highlights

    In 2006, Equitable set new performance records for both earnings and
asset growth. Although the Company increased staffing levels to support
ongoing growth and public company corporate governance requirements, it also
achieved its stated productivity ratio objectives.
    The following table provides a useful summary that should be read in
conjunction with the "Financial Review" sections below.Table 1: Selected financial information

    ($ thousands, except share, per share and employee amounts)

                           2006         2005         2004   Change from 2005
    -------------------------------------------------------------------------
    OPERATIONS                                                    $        %

    Net earnings         27,338       19,757       14,978     7,581    38.4%
    Earnings per
     share - basic       $ 2.30       $ 1.68       $ 1.33    $ 0.62    36.9%
    Earnings per
     share - diluted     $ 2.26       $ 1.65       $ 1.30    $ 0.61    37.0%
    Net interest
     income              51,637       37,906       26,780    13,731    36.2%
    Total revenue       143,219      100,432       74,767    42,787    42.6%
    Return on
     weighted average
     equity               19.9%        17.0%        15.5%
    Return on average
     assets                1.2%         1.1%         1.1%
    Productivity
     ratio(1) - TEB(2)    32.0%        31.9%        32.5%
    Number of
     employees at
     year end               107           82           54
    BALANCE SHEET AND
    OFF BALANCE SHEET
    Total assets      2,625,755    2,012,252    1,543,251   613,503    30.5%
    Mortgages
     receivable       2,135,662    1,678,420    1,302,084   457,242    27.2%
    Shareholders'
     equity             149,736      124,608      107,553    25,128    20.2%
    Mortgage-backed
     security assets
     under
     administration   1,807,479    1,878,405    1,858,442   (70,926)   (3.8%)
    COMMON SHARES
    Number of common
     shares
     outstanding at
     year end        11,924,468   11,781,940   11,680,750               1.2%
    Dividends per
     share               $ 0.40       $ 0.32       $ 0.13    $ 0.08    25.0%
    Book value per
     common share       $ 12.56      $ 10.58       $ 9.21    $ 1.98    18.7%
    Common share
     price - close      $ 31.20      $ 24.60      $ 22.85    $ 6.60    26.8%
    Market
     capitalization     372,043      289,836      266,905    82,207    28.4%
    CREDIT QUALITY
    Realized loan
     losses(1)               21            0            0
    Mortgages in
     arrears 61 days
     or more as a %
     of total
     mortgages(1)         0.08%        0.17%        0.17%
    Net impaired
     mortgages as a
     % of total
     mortgages(1)         0.05%        0.09%        0.16%
    Allowance for
     credit losses
     as a % of gross
     impaired
     mortgages           707.0%       199.8%       141.8%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Notes:

    (1) The lower the better.

    (2) Productivity ratio - Tax Equivalent Basis ("TEB") is a non-GAAP
        financial measure derived by dividing non-interest expense by the sum
        of net interest income - TEB and other income. See explanation at the
        end of this Management's Discussion and Analysis ("MD&A").2006 Performance Versus Objectives

    Equitable achieved or surpassed all of its financial targets for 2006,
its third year as a public company and 36th year since business inception.
Asset growth was 30.5%, well in excess of Equitable's previously stated 2006
objective of 20%. Similarly, the 38.4% increase in net earnings comfortably
exceeded the 2006 objective of 20% while the 19.9% Return on Average Equity
("ROAE") achieved the stated objective of greater than 17% return.
    Based on this performance, management has set new targets for 2007.
    The following table sets out the Company's financial objectives for 2006,
its 2006 performance and its objectives for 2007.Table 2: Performance and objectives

                                          2006           2006           2007
                                    Objectives    Performance     Objectives
    -------------------------------------------------------------------------
    % growth in assets over those
      at the end of the prior year         20%          30.5%         18-22%

    % increase in net earnings
      over that of the prior year          20%          38.4%         18-22%

                                       greater
    return on average equity          than 17%          19.9%         18-22%

    % increase in EPS(1),
      over that of the prior year          20%          37.0%         18-22%

    productivity ratio - TEB(2),
      the lower the better           32 to 34%          32.0%      32 to 35%
    -------------------------------------------------------------------------

    Notes:

    (1) Earnings per share - diluted.

    (2) See explanation of TEB at the end of this MD&A.In recent years, Equitable has exceeded its performance targets by
considerable margins. As management looks forward to 2007, it is adjusting its
expectations to reflect the higher opening asset base from which the Company
is operating and to reflect the possibility that the market environment may
not be as buoyant in 2007 as it has been in the recent past.

    Outlook

    While overall market conditions could be more challenging in 2007 as
compared to recent years, management believes Equitable is well positioned to
meet its financial objectives for 2007. Revenues and net interest income are
expected to increase as a result of continued asset growth and customer demand
in the Company's market niches. Asset and revenue growth, in combination with
stable interest rates, an efficient productivity ratio and minimal loan losses
are expected to positively impact net earnings and ROAE.

    Dividends and Outlook

    As a result of its 2006 growth and the capital required to sustain this
growth, the Company's Board has chosen to maintain the quarterly dividend at
$0.10 per share. This will cause the Company's payout ratio to fall below the
previously stated target of 25% of trailing net earnings. The Board believes,
however, that given the Company's strong prospects and current level of ROAE,
shareholders will benefit by leaving additional funds in the Company. The
$0.10 per share dividend payment has been declared by the Board for payment on
April 4, 2007 to shareholders of record as at March 16, 2007.

    Financial Review - Earnings

    Net interest income

    Net interest income is the main driver of profitability for the Company.
It is measured on a TEB so that income from equity securities may be compared
on a pre-tax basis to ordinary interest income.
    The following table illustrates the Company's interest income and
interest margin performance in 2006 compared to 2005, all presented on a TEB.Table 3: Net interest income

                                            2006                        2005
                       Average  Revenue/ Average   Average  Revenue/ Average
    ($ thousands)      balance   Expense    rate   Balance   Expense    rate
    -------------------------------------------------------------------------

    Interest revenues
     or interest
     expenses derived
     from:

    Assets:
    Liquidity
     investments       210,150    8,925   4.2%     129,517   3,642    2.8%
    Equity
     securities
     - TEB(1)          139,252    8,719   6.3%      94,600   6,166    6.5%
    Mortgage loans   1,898,443  121,406   6.4%   1,483,942  88,026    5.9%
    -------------------------------------------------------------------------
    Total interest
     earning assets
     - TEB(1)        2,247,845  139,050   6.2%   1,708,059  97,834    5.7%
    -------------------------------------------------------------------------
    Total assets
     - TEB(1)        2,319,004  139,050   6.0%   1,777,752  97,834    5.5%
    -------------------------------------------------------------------------

    Liabilities and
     shareholders'
     equity:
    Customer
     deposits        2,054,209   79,537   3.9%   1,563,786   53,351   3.4%
    Bank term loan      27,250    2,072   6.8%(2)    9,875    1,043   6.7%(2)
    Subordinated debt   28,472    2,041   7.5%(2)   30,422    2,382   7.7%(2)
    -------------------------------------------------------------------------
    Total interest
     bearing
     liabilities     2,109,931   83,650   4.0%   1,604,083   56,776   3.5%
    -------------------------------------------------------------------------
    Total
     liabilities and
     shareholders'
     equity          2,319,004   83,650   3.6%   1,777,752   56,776   3.2%
    -------------------------------------------------------------------------
    Net interest
     income - TEB(1)             55,400                      41,058
    Net interest
     margin - TEB(1)                      2.4%                        2.3%

    Less: Taxable
     equivalent
     adjustment                   3,763                       3,152
    Net interest
     income per
     financial
     statements                  51,637                      37,906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Notes:

    (1) See explanation of TEB at the end of this MD&A.

    (2) In order to provide more accurate disclosure, the average rate is
        calculated based on the weighted average outstanding bank term loan
        and subordinated debt during 2006 and 2005 using month-end balances
        outstanding.Total interest revenues increased $41.2 million or 42.1% to
$139.1 million in 2006 compared to $97.8 million in 2005. This increase was
primarily due to growth in mortgages. Mortgage interest revenues increased
$33.4 million or 37.9% in 2006 over 2005.
    The average prime rate in 2006, based on the rate in effect at each
month-end, was 5.81% compared to 4.42% in 2005. As a result of prime rate
increases during the first six months of 2006, Equitable's net interest margin
increased to 2.4% in 2006, from 2.3% in 2005. Generally, interest on the
Company's floating rate mortgages is immediately affected by any change in the
prime rate while the effect on liabilities is staggered. Only the Company's
cashable GIC products might be immediately affected by an increase in the
prime rate through early redemption and reinvestment by GIC holders. All other
GICs would be re-priced as they mature. Therefore, an increase in the prime
rate of interest usually leads only to temporary improvements in net interest
margins for the Company; however, due to the mortgage mix and market GIC
interest rates during 2006, the Company has been able to benefit from a longer
than temporary increase in margins.
    The TEB adjustment of $3.8 million in 2006 was 19.4% higher than in 2005
due to increased dividends received from the Company's larger equity
securities portfolio. Premiums or discounts on preferred shares with defined
maturity or re-pricing dates (retractable, wind-up shares, fixed/floating
securities) within the equity securities portfolio are amortized against the
dividend income from these securities.
    Interest income from the Company's liquidity investments increased
$5.3 million or 145.1% from 2005 due to higher interest rates in 2006 compared
to 2005 along with a larger debt securities portfolio prompted by greater
liquidity requirements.
    Interest expense on average customer deposits outstanding increased to
3.9% in 2006 from 3.4% in 2005 due to the increases in interest rates
previously mentioned. Overall interest expense on customer deposits grew
$26.2 million or 49.1% over 2005 due to this increase in rates along with a
31.4% increase in average customer deposits outstanding.

    Outlook

    Certain economists predict that the prime rate will remain stable
throughout 2007. Based in part on these forecasts, management believes
Equitable will be able to achieve close to the same net interest margins in
2007 as it realized in 2006. Revenue growth and earnings targets for 2007
should also be achieved with further growth in the Company's interest earning
asset base.

    Other income

    The components of securitization income are excess interest, net of
servicing fee and gain on sale of mortgages. Total income from loan
securitizations increased $0.1 million or 1.5% to $3.9 million in 2006 up
slightly from $3.8 million in 2005. Increased competition for multi-unit
residential mortgages has led to lower profit margins on the securitization of
these loans in 2006 as compared to 2005. Gross margin on the securitization of
CMHC mortgages decreased to 26 basis points in 2006 from 42 basis points in
2005. As a result, gain on sale of mortgages was lower in 2006 than in 2005.
Excess interest, net of servicing fee, increased $0.5 million or 18.2% in 2006
over 2005. This increase reflects the receipt of interest penalties on the
early discharge of certain securitized mortgages.
    Mortgage commitment income and other fees (consisting of mortgage related
fees, commitment and renewal fees and other non-mortgage related fees)
increased by $1.4 million or 69.4% because mortgage originations were greater
in 2006 than in 2005.
    Net gain on sale or redemption of investments was $0.7 million in 2006 as
a result of the sale of a common share investment in the fourth quarter. This
compares to a loss of $0.1 million in 2005. In 2006, the Company did not write
down any of its preferred share positions. In 2005, the Company wrote down its
preferred share positions by $0.6 million.Table 4: Other income

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

    Loan securitizations - excess
     interest net of servicing fee       3,182     2,693       489     18.2%
    Loan securitizations - gain
     on sale of mortgages                  708     1,141      (433)   (37.9%)
    -------------------------------------------------------------------------
    Total income from loan
     securitizations                     3,890     3,834        56      1.5%
    Mortgage commitment income
     and other fees                      3,373     1,991     1,382     69.4%
    Net gain(loss) on sale or
     redemption of investments             669       (75)      744       n/a
    -------------------------------------------------------------------------
    Total                                7,932     5,750     2,182     37.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Outlook

    Management believes that other income will not change significantly in
2007 compared to 2006. Securitization levels in 2007 are expected to
approximate the experience in 2006, however, if competition for multi-unit
mortgages increases, this activity may decrease. It is possible that increased
mortgage funding in 2007 could augment commitment fee income. Management does
not expect the Company to realize any significant gains or losses in its
equity securities portfolio in 2007.

    Non-interest expenses

    Total non-interest expenses increased $5.4 million or 35.9% in 2006. The
most significant non-interest expenses were compensation and benefits,
including directors' fees and stock-based compensation expense. At
December 31, 2006, Equitable employed 107 staff compared to 82 a year earlier.
Included in compensation and benefits in both 2006 and 2005 was $0.4 million
of expense related to stock option grants to directors and employees (see
Shareholders' Equity discussion for details on the stock option plan).
    The second most significant non-interest expense was GIC deposit agent
commissions amounting to $4.7 million, compared to $3.4 million in 2005, a
39.0% increase. The increase in deposit agent commissions over 2005 levels was
due to an increase in agent sourced GIC deposits during 2006 which stood at
$2.27 billion outstanding at December 31, 2006, as compared to $1.65 billion a
year earlier. These commissions are expensed over the term of the GICs to
which they relate.
    Other non-interest expenses increased with the expanded operations of the
Company during 2006. Non-interest expenses excluding compensation and benefits
and GIC deposit agent commissions totalled $6.6 million in 2006, an increase
of $1.1 million or 19.6% over $5.5 million in 2005.
    The Company's productivity ratio - TEB remained relatively flat at 32.0%
in 2006 as compared to the 31.9% in 2005 - and in line with management's
overall objective for the year. This ratio (the lower the better) reflects the
benefits of the Company's low-cost business model based on outsourcing.Table 5: Non-interest expenses and productivity ratio

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

    Compensation and benefits            9,022     6,052     2,970     49.1%
    GIC deposit agent commissions        4,669     3,360     1,309     39.0%
    Capital taxes, licences,
     regulatory fees and Insurance       2,299     2,010       289     14.4%
    Premises and equipment               1,573     1,103       470     42.6%
    Marketing, travel and
     communications                        874       796        78      9.8%
    Mortgage servicing                     768       743        25      3.4%
    Legal, audit and related services      453       301       152     50.5%
    Other                                  621       557        64     11.5%
    -------------------------------------------------------------------------
    Total                               20,279    14,922     5,357     35.9%
    Productivity Ratio - TEB(1)          32.0%     31.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Notes:

    (1) See explanation of TEB at the end of this MD&A.Outlook

    Management is targeting a productivity ratio - TEB of between 32% and 35%
in 2007. It intends to achieve this attractive ratio by levering its low cost
business model and through proactive expense management.

    Income Taxes

    The Company's effective tax rate in 2006 was 28.8% compared to 29.5% in
2005. Tax-exempt dividend income from portfolio securities continued to assist
in lowering the Company's effective tax rate. The Company recorded a one-time
tax benefit in the amount of $0.3 million in the third quarter of 2006
relating to a special dividend received on an investment in common shares. As
well, future income tax expense decreased $0.3 million due to a decrease in
the future federal enacted tax rate. The effective tax rate is less than the
statutory 36.1% tax rate, in 2006 due in part to these items, but for both
2006 and 2005 primarily due to tax-exempt income earned in the equity
securities portfolio.
    Income taxes are allocated between current and future taxes. Future taxes
result from timing differences between the Company's financial statement
earnings and its earnings for tax purposes. These future taxes are established
at the rates expected to be in effect at the date of the reversal of the
timing differences.

    Outlook

    Management expects to be able to achieve an effective tax rate of between
30% and 32% in 2007 by actively managing taxation through the Company's
investments in its tax-exempt/preferred, income yielding, equity securities
portfolio.

    Financial Review - Balance Sheet

    Mortgages

    All of Equitable's mortgages are first charges on real estate. The
composition of the Company's mortgage portfolio as at December 31, 2006
reflects management's mortgage asset mix strategy and is shown in the table
below together with comparisons for prior periods.Table 6: Mortgages receivable

                                   % of               % of               % of
    ($ thousands)          2006   total       2005   total       2004   total
    -------------------------------------------------------------------------

    Single family
     dwelling           741,732   34.8%    628,240   37.5%    510,146   39.2%
    Multi-unit
     residential        570,312   26.7%    500,666   29.8%    463,391   35.6%
    Commercial          431,017   20.2%    292,200   17.4%    232,943   17.9%
    Conventional
     mortgages held
     for Sale           268,396   12.6%    163,743    9.8%     45,120    3.5%
    Construction         87,043    4.1%     61,836    3.7%     26,680    2.0%
    CMHC-insured         33,617    1.6%     30,452    1.8%     24,063    1.8%
    -------------------------------------------------------------------------
    Total mortgage
     principal        2,132,117  100.0%  1,677,137  100.0%  1,302,343  100.0%
    Net premiums
     and sundry           1,423              1,422                590
    -------------------------------------------------------------------------
    Mortgages
     reported         2,133,540          1,678,559          1,302,933
    Accrued interest     10,168              7,028              5,593
    Allowances for
     credit losses       (8,046)            (7,167)            (6,442)
    -------------------------------------------------------------------------
    Total mortgages
     receivable       2,135,662          1,678,420          1,302,084
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Mortgage lending activity increased in all of the Company's niches in
2006. The biggest increase was in conventional mortgages held for sale (see
below). This changed the Company's mortgage portfolio mix in that single
family dwelling and multi-unit residential mortgages declined to 61.5% of
total mortgage principal compared to 67.3% a year ago. However, single family
dwelling and multi-unit residential mortgages remain the Company's primary
niches.
    Single family dwelling mortgages represented the largest portion of the
portfolio at December 31, 2006 at 34.8%. They increased $113.5 million or
18.1% from December 31, 2005. In this niche, Equitable is an alternative
lender to borrowers who are unable to satisfy the underwriting criteria of
conventional mortgage lenders. This is a large and, management believes,
growing niche market.
    The Company's second largest niche was multi-unit residential mortgages.
Here, the mortgage portfolio increased by $69.6 million or 13.9% from
December 31, 2005. In this niche, the Company provides mortgages on properties
such as apartment buildings and retirement residences.
    In terms of dollar growth, Equitable's fastest-growing niche in 2006 was
commercial mortgage lending. Commercial mortgages increased $138.8 million or
47.5% from December 31, 2005. Despite this growth, Equitable remained highly
selective in the commercial area as part of its risk management activities and
continued to apply its self-imposed cap on commercial mortgages to ensure this
portfolio does not exceed 25% of Equitable's total portfolio in any given
year. The Company believes this limit is prudent in managing overall portfolio
risk.
    The growth leader on a percentage basis among Equitable's niches in 2006
was conventional mortgages held for sale where mortgage principal increased
63.9%. These mortgages are comprised of residential (42.4% of the 2006
portfolio) and commercial mortgages (57.6% in 2006) originated by third-party
lenders who require financing prior to pooling and eventually selling the
mortgages to investors. These mortgages usually stay on the books of the
Company for periods of up to six months and are therefore often referred to as
'warehoused' mortgages. Equitable derives several advantages from
participating in this market niche:-   no broker commission is paid on origination;

    -   the loans are floating rate and therefore easily matched with short-
        term GICs;

    -   the yields from carrying the loans are attractive.Construction mortgages increased $25.2 million or 40.8% compared to
December 31, 2005 to comprise 4.1% of the portfolio. CMHC-insured mortgages
comprised 1.6% of the portfolio while principal balance outstanding increased
$3.2 million over that of the preceding year.
    Floating rate mortgages within the portfolio increased 36.2% to
$1.10 billion at December 31, 2006 from $0.81 billion at December 31, 2005 and
represent 51.7% of the portfolio compared to 48.3% last year.
    The vast majority of Equitable's mortgages are sourced each year by the
Company's network of independent mortgage brokers. Equitable also has an
arrangement with First National Financial LP ("FNFLP"), one of Canada's
leading mortgage specialists, to source and administer the mortgages in the
Company's CMHC-MBS program and conventional mortgage product, including a
component of mortgages held for sale. FNFLP originated approximately
$771.0 million or 36.2% of the Company's outstanding reported mortgage
principal as at December 31, 2006 approximately the same as the 36.1% of the
outstanding reported principal a year earlier.
    The Company's conventional mortgages held for sale and CMHC-insured
mortgages are located across Canada. CMHC-insured mortgages are funded almost
exclusively for securitization through the CMHC-MBS program. When they are
securitized, the Company records a gain on sale; it also retains the rights
and obligations with respect to servicing the mortgages. In contrast, when the
Company sells the conventional mortgages held for sale, it records no gain or
loss and has no rights or obligations with respect to the mortgages after they
have been discharged.
    At December 31, 2006 approximately 83.0% of the Company's mortgage
principal was secured by properties located in Ontario, compared to 88.7% at
December 31, 2005. This change is primarily due to the continued expansion of
the Company's single family Alberta operations and to an increase in
warehoused mortgages on properties located outside Ontario. The Company's
single family dwelling Alberta presence is growing with just over
$58.5 million in total mortgages outstanding at year-end, compared to $8.1
million at December 31, 2005.
    Mortgage principal increased $455.0 million or 27.1% during 2006 to
$2.13 billion at year-end. Mortgage production is classified into three major
sub-categories: conventional (uninsured) mortgage production other than
warehoused mortgages, warehoused mortgages and CMHC-insured production. The
Company funded $985.3 million of non-warehoused conventional mortgages during
2006, up 8.5% from $908.2 million in 2005. Warehoused mortgage production in
2006 increased $645.5 million or over three and a half times that of 2005.
CMHC insured mortgages funded during 2006 amounted to $278.4 million compared
to $276.4 million in 2005. The combined conventional and insured mortgage
production in 2006 was 50.6% greater than in 2005.Table 7: Mortgage production
                                             2006               2005
                                         Mortgage           Mortgage
                                        Principal    % of  Principal    % of
    ($ thousands)                          Funded   total     Funded   total
    -------------------------------------------------------------------------
    Conventional mortgages other
      than warehoused mortgages           985,306   45.7%    908,238   63.4%
    Warehoused mortgages                  892,868   41.4%    247,363   17.3%
    CMHC-insured mortgages                278,362   12.9%    276,357   19.3%
    -------------------------------------------------------------------------
    Total                               2,156,536  100.0%  1,431,958  100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             2004
                                         Mortgage
                                        Principal    % of
    ($ thousands)                          Funded   total   Change from 2005
    -------------------------------------------------------------------------
                                                                    $      %
    Conventional mortgages other
      than warehoused mortgages           722,240   60.6%     77,068    8.5%
    Warehoused mortgages                   98,246    8.3%    645,505  261.0%
    CMHC-insured mortgages                370,942   31.1%      2,005    0.7%
    -------------------------------------------------------------------------
    Total                               1,191,428  100.0%    724,578   50.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Outlook

    Management believes Equitable can maintain good growth in mortgage assets
in 2007 assuming stable interest rates and business conditions, because of the
Company's unique niches. As part of its ongoing growth strategy, the Company
will continue to emphasize single family dwelling and multi-unit residential
mortgage areas, as well as conventional mortgages held for sale.

    Mortgage Credit Quality

    The Company realized a $21 thousand credit loss on one mortgage during
2006, its first loss in over five years. This loss was subsequently recovered
in its entirety in early 2007.Table 8: Mortgage credit quality

    ($ thousands)          2006         2005         2004   Change from 2005
    -------------------------------------------------------------------------
                                                                  $        %
    Credit quality
     measures:
    Gross impaired
     mortgage
     principal            1,138        3,587        4,543    (2,449)  (68.3%)
    Allowance for
     credit losses        8,046        7,167        6,442       879    12.3%
    Allowance for
     credit losses
     as a % of
     gross impaired
     mortgages           707.0%       199.8%       141.8%
    Mortgage
     principal in
     arrears over
     61 days              1,725        2,806        2,187    (1,081)  (38.5%)
    Mortgage
     principal in
     arrears over 61
     days as a % of
     total mortgage
     principal            0.08%        0.17%        0.17%

    Continuity of
     Allowance for
     Credit Losses:
      Balance
       beginning of
       year               7,167        6,442        5,737
      Provision
       charged to
       statement of
       earnings             900          725          700
      Realized losses
       deducted from
       allowance            (21)           -            -
      Recovery of
       prior year
       losses added
       to allowance           -            -            5
    -------------------------------------------------------------------------
      Balance end of
       year               8,046        7,167        6,442
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Mortgages in arrears 61 days or more amounted to 0.08% of total principal
outstanding at December 31, 2006, compared to 0.17% in December 31, 2005.
Mortgages identified as impaired amounted to 0.05% of total mortgage principal
outstanding as at December 31, 2006, compared to 0.21% a year earlier. The
Company has increased its provision for credit losses in 2006 by 24.1% to
$0.9 million, from $0.7 million in 2005, to reflect substantial growth in the
portfolio.

    Outlook

    Management expects the Company to maintain its track record of minimal
loan losses. Although deterioration in housing affordability may lead to a
modest increase in arrears in the mortgage industry generally, management
expects its disciplined lending policies, the quality of the Company's
borrowers and its collection practices will result in continued low arrears.

    Cash, Cash Equivalents, Investments and Liquidity Practices

    The Company maintains two components of liquid resources. The first is
holdings which are eligible as liquidity for regulatory purposes at Equitable
Trust. These include cash, short-term investments and government guaranteed
bonds, treasury bills and notes. The second component is investments which are
not eligible as liquidity for regulatory purposes at Equitable Trust. These
include preferred and common shares which have been utilized as security for a
credit facility of $35.0 million with the Company's bank for short-term
liquidity purposes.
    At December 31, 2006 liquid assets eligible for regulatory purposes
increased 63.0% to represent 9.9% of total assets compared to 7.9% of total
assets at December 31, 2005. This increase was due to increased liquidity
requirements related to the shorter average term of GICs and the increase in
cashable GICs in the GIC portfolio. As well, Company liquidity requirements
include the funding of mortgage investments. Mortgage commitments at
December 31, 2006 were $279.3 million, down 9.3% from $308.0 million at
December 31, 2005.
    Cash and cash equivalents increased $30.6 million to $107.8 million at
December 31, 2006 from $77.2 million at December 31, 2005 and longer-term
government bonds, treasury bills and notes increased $70.1 million or 84.8% to
$152.6 million from $82.6 million during the same period.
    Equity securities increased $54.8 million or 49.0% to $166.7 million at
December 31, 2006 from $111.8 million a year earlier. This increase relates to
the Company's strategy of earning additional tax-exempt income in an effort to
manage its effective tax rate.Table 9: Liquid resources

    ($ thousands)          2006         2005         2004   Change from 2005
    -------------------------------------------------------------------------
                                                                  $        %
    Deposits with
     regulated
     financial
     institutions        21,688       46,039       39,942   (24,351)  (52.9%)
    Government
     guaranteed debt
     instruments        238,802      113,771       59,281   125,031   109.9%
    -------------------------------------------------------------------------
    Liquid assets
     for regulatory
     purposes           260,490      159,810       99,223   100,680    63.0%
    Equity securities   166,669      111,833       77,367    54,836    49.0%
    -------------------------------------------------------------------------
    Total liquid
     assets             427,159      271,643      176,590   155,516    57.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total liquid
     assets for
     regulatory
     purposes as a %
     of total assets       9.9%         7.9%         6.4%
    Total liquid
     assets as a %
     of total assets      16.3%        13.5%        11.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Outlook

    In 2007, management expects the Company will, at all times, continue to
maintain liquid assets eligible for regulatory purposes at levels equivalent
to 20% of its GICs coming due in the next 100 days. Further, it expects to
increase its equity securities portfolio in order to manage its effective tax
rate - provided that additional equity investments meet the Company's
investment criteria.

    Loan Securitizations - Retained Interests

    Total mortgages in the CMHC-MBS program remained relatively constant at
$1.81 billion at December 31, 2006 and $1.88 billion at December 31, 2005.
Securitization activity during the past two years was also relatively
consistent with $273.7 million of CMHC-insured multi-unit residential
mortgages securitized during 2006, an increase of $3.7 million or 1.4% from
the 2005 level of $270.0 million. Loan securitizations - retained interests
amounted to $48.3 million at December 31, 2006, a decrease of $3.3 million or
6.4% from December 31, 2005. The decrease was due to the shorter duration of
the securitized mortgage portfolio at the end of 2006 as compared to 2005.
    Loan securitizations - retained interests represent the discounted future
earnings to be received relating to the insured mortgages securitized through
the CMHC-MBS program. It is presented gross of the estimated future servicing
liability included in other liabilities representing the future cost of
servicing these securitized mortgages. For further information, see Note 4 to
the Company's Consolidated Financial Statements for the year ended
December 31, 2006 (the "Consolidated Financial Statements") and the Critical
Accounting Estimates, Financial Instruments and Off-Balance Sheet Arrangements
sections of this MD&A.

    Outlook

    Securitization levels may decrease in 2007 if competition increases for
multi-unit product. Otherwise, the Company's management expects securitization
activity in 2007 to approximate 2006 levels.

    Deposits

    Sales of cashable GICs continued to show strong growth in 2006, up
$221.6 million or 63.5% on a year over year basis. At December 31, 2006,
cashable GICs represented 24.4% of total deposits outstanding versus 19.7% in
2005. This product is a one year GIC, cashable at any time upon demand. The
Company's other GIC products consist of 30-day to five-year fixed term GICs.
The Company is licensed in all jurisdictions in Canada to accept deposits.
    Deposit principal outstanding increased $564.5 million or 31.9% to
$2.34 billion at December 31, 2006 from $1.77 billion at December 31, 2005.
Accrued interest has increased 44.0% over the December 31, 2005 balance,
reflecting higher interest rates and GICs at December 31, 2006 than at
December 31, 2005.Table 10: Deposits

    ($ thousands)          2006         2005         2004  Change - from 2005
    -------------------------------------------------------------------------
                                                                  $        %
    Cashable GIC
     deposits           570,455      348,885            -   221,570    63.5%
    Fixed term GIC
     deposits         1,766,011    1,423,066    1,355,620   342,945    24.1%
    Accrued interest
     on deposits         53,289       37,004       29,028    16,285    44.0%
    -------------------------------------------------------------------------
    Total             2,389,755    1,808,955    1,384,648   580,800    32.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Outlook

    Management expects the Company will increase its deposit base in 2007 by
increasing market share through existing deposit brokers.

    Subordinated Debt and Bank Term Loan

    Subordinated debt is subordinated to the rights of the Company's
depositors and other creditors. It represents eligible regulatory Tier 2
capital for Equitable Trust to a maximum level of 50% of Tier 1 capital
(Equitable Trust's shareholder's equity) and forms an integral part of the
Company's capital management plan.
    Subordinated debt is issued for a period of 10 years. Subject to
regulatory approval, debt is redeemed each year in an amount equal to 20% of
the prior year's net earnings. The Company may redeem additional subordinated
debt if it so chooses, with the approval of the Office of the Superintendent
of Financial Institutions ("OSFI"). Subordinated debt of $11.4 million was
redeemed in 2006, compared to $3.5 million in 2005.Table 11: Subordinated debentures and bank term loan

                       Interest
    ($ thousands)          Rate     2006     2005     2004  Change from 2005
    -------------------------------------------------------------------------
                                                                  $        %
    Subordinated
     debentures
    Series 3        8.48%-8.82%        -        -    3,530      n/a      n/a
    Series 4        7.54%-8.15%        -   11,444   11,444  (11,444)   (100%)
    Series 5        7.31%-7.58%   20,250   20,250   14,175        -        -
    Series 6              7.27%    5,000        -        -    5,000      n/a
    -------------------------------------------------------------------------
    Total sub debt                25,250   31,694   29,149   (6,444)  (20.3%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Bank term loans
                          6.37%   19,750   19,750        -        -        -
                          6.82%   15,000        -        -   15,000      n/a
    -------------------------------------------------------------------------
    Total term loans              34,750   19,750        -   15,000    75.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total sub debt
     and term loans               60,000   51,444   29,149    8,556    16.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------During 2006, Equitable Trust completed its issuance of Series 6
subordinated debentures. A total of $20.0 million of debentures were issued;
$5.0 million directly to subscribers and $15.0 million purchased by the
Company as the parent of Equitable Trust using proceeds from a five-year bank
term loan in the same amount. On consolidation of Equitable Trust, a total of
$34.8 million of inter-company subordinated debt was eliminated and the
$34.8 million bank term loan is presented in the Company's Consolidated
Financial Statements. The Company is in compliance with all of the covenants
required by the bank lender.
    It is a Company objective to provide ongoing financing of Equitable
Trust's regulatory capital requirements using an appropriate mixture of Tier 1
and Tier 2 capital. By doing so, management intends to achieve a better return
on equity than would be the case without the use of Tier 2 capital.

    Outlook

    Management expects the Company (through Equitable Trust) will maintain an
optimal mix of Tier 1 and Tier 2 capital in 2007 to assist it in meeting its
corporate capital and return objectives. Management took an important step in
this regard in January 2007 when Equitable Trust sought and received
authorization from OSFI to issue up to $40 million of subordinated debentures,
Series 7, during 2007.

    Other Assets, Future Income Taxes and Other Liabilities

    Other assets increased $4.1 million or 38.4% to $14.7 million as at
December 31, 2006 from $10.6 million a year earlier. Other assets include
deferred GIC commissions paid to deposit brokers, capital assets consisting of
leasehold improvements, office furniture and computer equipment and sundry
receivables and prepaid expenses. The largest component of these assets was
deferred GIC commissions. These are commissions paid to deposit agents; they
are expensed over the term of the GICs to which they relate. Deferred GIC
commissions have not increased in proportion to the increase in agent-sourced
GICs due to the shorter average term of the GICs sourced by deposit brokers
during 2006. Other receivables and prepaids also include accrued interest on
non-mortgage assets which has increased $1.0 million from $0.9 million at
December 31, 2005 to $1.9 million at December 31, 2006 due to the increase in
assets eligible for regulatory liquidity purposes.Table 12: Other assets, future income taxes and other liabilities

    ($ thousands)          2006         2005         2004   Change from 2005
    -------------------------------------------------------------------------
                                                                  $        %
    Other assets
    Deferred GIC
     commissions          6,288        5,791        3,803       497     8.6%
    Other receivables
     and prepaids         6,112        3,301        3,582     2,811    85.2%
    Capital assets        2,263        1,502        1,370       761    50.7%
    -------------------------------------------------------------------------
    Total                14,663       10,594        8,755     4,069    38.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ($ thousands)          2006         2005         2004   Change from 2005
    -------------------------------------------------------------------------
                                                                  $        %
    Future income
     taxes and Other
     liabilities
    Accounts payable
     and accrued
     liabilities          6,860        4,315        2,111     2,545    59.0%
    Securitized
     mortgage
     servicing
     liability            6,044        6,460        6,180      (416)   (6.4%)
    Mortgagor realty
     taxes                5,089        5,266        4,595      (177)   (3.4%)
    Future income
     taxes                4,700        6,538        8,040    (1,838)  (28.1%)
    Income taxes
     payable              3,571        4,666          975    (1,095)  (23.5%)
    -------------------------------------------------------------------------
    Total                26,264       27,245       21,901      (981)   (3.6%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Future income taxes payable result from differences between the
measurement of assets and liabilities for financial statement purposes as
opposed to tax purposes. A large portion of these future taxes relate to the
Company's securitization activities net of its general allowance for credit
losses. Future income taxes decreased primarily as a result of the increase in
non-tax-deductible mortgage credit reserves and the shorter duration of the
securitized mortgages at December 31, 2006 in comparison to 2005. The
securitized mortgage servicing liability relates to the Company's estimate of
the future costs of FNFLP's servicing of the mortgages in the CMHC-MBS
portfolio.

    Outlook

    Management expects that any change in other assets, future income taxes
and other liabilities in 2007 will either not be significant or will be in
proportion to the change in the associated assets or liabilities.

    Shareholders' Equity

    Total shareholders' equity increased $25.1 million or 20.2% to
$149.7 million at December 31, 2006, from $124.6 million at December 31, 2005.
In 2006, the Company issued 142,528 common shares and added $2.1 million to
common share capital through the exercise of employee stock options. In 2005,
the Company issued 101,190 common shares and added $0.7 million to common
share capital through the exercise of employee stock options.
    The Company has a stock option plan for directors and eligible employees.
At the Equitable Group annual general meeting held in May 2006, the Company's
shareholders approved an amendment to the plan. Under this change, as options
are exercised, additional options can be reserved until total options reserved
for stock option grants are 10% of the then issued and outstanding common
shares of the Company.
    The Company uses its stock option plan to motivate and reward its valued
workforce. During 2006, a total of 140,000 options were granted to employees.
In 2005, 135,000 options were granted to directors and employees. Total
options outstanding at December 31, 2006 amounted to 6.3% of issued common
shares compared to 6.5% a year earlier. Stock-based compensation expense has
been added to contributed surplus.
    The Company's dividend payout ratio in 2006 was 25% of the prior year's
net earnings, equivalent to an annual dividend of $0.40 per share. At the
present time, the Board is maintaining the quarterly dividend at $0.10 per
share in 2007, resulting in a lower payout ratio but providing the Company
with additional capital to support growth.Table 13: Shareholders' equity

    ($ thousands)          2006         2005         2004   Change from 2005
    -------------------------------------------------------------------------
                                                                  $        %
    Shareholders'
     equity:
      Common shares      57,849       55,510       54,815     2,339     4.2%
      Contributed
       surplus            1,539        1,327          959       212    16.0%
      Retained
       earnings          90,348       67,771       51,779    22,577    33.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Total
       shareholders'
       equity           149,736      124,608      107,553    25,128    20.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Dividends paid      4,761        3,765        1,517       996    26.5%
      Dividends per
       share             $ 0.40       $ 0.32       $ 0.13    $ 0.08    25.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Capital Management

    The Company maintains a capital management policy to govern both the
quality and quantity of capital utilized by Equitable Trust in its regulated
operations. The objective of the policy is to ensure that regulatory capital
requirements are met, while providing sufficient return to investors. Capital
Guidelines, as stipulated by OSFI, require that:-  total capital be in excess of 10% of total risk-weighted assets
           in order for a company to be considered "well capitalized";

        -  Tier 1 capital be no less than 7% of total risk-weighted assets;

        -  Tier 2 capital not exceed 50% of Tier 1 capital;

        -  the ratio of total assets to capital not exceed 17.5 times.

    As shown in the following table, Equitable Trust met these standards at
December 31, 2006, 2005 and 2004.


    Table 14: Capital measures (relating solely to Equitable Trust):

    ($ thousands)                               2006        2005        2004
    -------------------------------------------------------------------------
    Tier 1 capital                           148,466     122,793     106,210
    Tier 2 capital                            60,000      51,444      29,149
    Total risk weighted assets             1,967,779   1,504,815   1,168,328
    Tier 1 capital as a % of total risk
     weighted assets                            7.5%        8.2%        9.1%
    Tier 2 capital as a % of total risk
     weighted assets                            3.1%        3.4%        2.5%
    Total capital as a % of total risk
     weighted assets                           10.6%       11.6%       11.6%
    Authorized asset to capital multiple       17.5x       17.5x       17.5x
    Utilized asset to capital multiple         12.6x       11.6x       11.4x
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------Risk-weighted assets are derived from assigning an OSFI mandated risk
weighting of 0%, 20%, 50% or 100% to individual asset components on the
balance sheet. As indicated in the Table 14, Equitable Trust had a total
capital ratio of 10.6% at December 31, 2006 and 11.6% at December 31, 2005.
Total regulatory capital at December 31, 2006 increased $34.2 million or 19.6%
over December 31, 2005. The increase was due to the additional regulatory
capital raised through the issuance of Series 6 Subordinated Debentures in
2006, earnings retained in 2006 net of dividends paid, and the increase in
contributed surplus. The Company's utilized asset to capital multiple at
December 31, 2006 was 12.6 times, significantly less than the authorized
maximum of 17.5 times.

    Outlook

    Equitable Trust will maintain regulatory capital at levels sufficient to
support the asset growth it expects to achieve in 2007 through the retention
and accumulation of Tier 1 and Tier 2 capital.

    Fourth Quarter Review

    The fourth quarter of 2006 was the Company's most profitable quarter on
record. ROAE was 21.0% compared to 18.1% in the fourth quarter of 2005.Other highlights of the fourth quarter included:

        -  a 39.4% increase in net earnings to $7.8 million, from
           $5.6 million in the fourth quarter of 2005;
        -  a 39.1% increase in earnings per share (diluted) to
           $0.64 per share compared to $0.46 in the same period in 2005;
        -  a 38.3% increase in earnings per share (basic) to $0.65, up from
           $0.47 in the same period in 2005;
        -  a 52.1% increase in mortgage originations, which totalled
           $661.3 million compared to $434.7 million a year earlier;
        -  a 30.5% or $613.5 million increase in total assets compared to a
           year ago;
        -  a productivity ratio - TEB of 30.6% compared to 32.6% in the
           fourth quarter of 2005; and
        -  a book value per common share of $12.56 compared to $10.58 at the
           end of 2005.A major contributing factor in asset expansion in 2006 was fourth quarter
warehoused loan originations. These mortgages are invariably temporary in
nature and as such, management expects the loans will stay on the Company's
books for periods of up to six months only. The timing of initial funding and
subsequent discharge can lead to lumpiness in asset growth in the short term,
but provides a positive contribution to earnings.

    The following earnings statement summary provides additional details.Table 15: Earnings Statement - Fourth Quarter 2006 and 2005

                                                          Three months ended
    ($ thousands, except share and                        Dec 31,     Dec 31,
     per share amounts)                                     2006        2005
    -------------------------------------------------------------------------
    Interest income:
      Mortgages                                           33,801      24,512
      Investments                                          2,533       1,504
      Other                                                1,886         543
    -------------------------------------------------------------------------
                                                          38,220      26,559
    Interest expense:
      Customer deposits                                   22,915      14,610
      Subordinated debt                                      474         614
      Bank term loan                                         594         332
    -------------------------------------------------------------------------
                                                          23,983      15,556
    -------------------------------------------------------------------------
    Interest income, net                                  14,237      11,003
    Provision for credit losses                              225         200
    -------------------------------------------------------------------------
    Net interest income after provision for
     credit losses                                        14,012      10,803
    Other income:
      Mortgage commitment income and other fees              959         522
      Net gain (loss) on sale or redemption
       of investments                                        666        (119)
      Loan securitizations - retained interests              974         905
    -------------------------------------------------------------------------
                                                           2,599       1,308
    -------------------------------------------------------------------------
    Net interest income and other income                  16,611      12,111
    Non-interest expenses:
      Compensation and benefits                            2,160       1,758
      Deposit agent commissions                            1,330         934
      Other                                                2,002       1,646
    -------------------------------------------------------------------------
                                                           5,492       4,338
    -------------------------------------------------------------------------
    Earnings before income taxes                          11,119       7,773
    Income taxes:
      Current                                              4,439       2,391
      Future                                              (1,072)       (180)
    -------------------------------------------------------------------------
                                                           3,367       2,211
    -------------------------------------------------------------------------
    Net earnings                                           7,752       5,562
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                                               $ 0.65      $ 0.47
      Diluted                                             $ 0.64      $ 0.46
    Weighted average number of shares outstanding:
      Basic                                           11,911,900  11,780,419
      Diluted                                         12,120,576  11,965,385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------During the fourth quarter, the balance of average interest earning assets
was $2.45 billion, up 32.4% from $1.85 billion during the fourth quarter of
2005. Mortgage interest income increased 37.9% to $33.8 million in the fourth
quarter of 2006 compared to $24.5 million a year earlier due to the increase
in the mortgage portfolio and higher interest rates. Investment income
increased 68.4% on a quarter-over-quarter basis due to increases in debt and
equity securities portfolios. Net interest income increased $3.2 million or
29.4% on a quarter-over-quarter basis due to expansion in the Company's asset
base and the increase in prime interest rates. The Company realized no loan
losses during the fourth quarter of either 2006 or 2005.
    The provision for credit losses increased 12.5% or $25 thousand on a
quarter-over-quarter basis due to the Company's prudence in increasing its
credit reserves in response to increases in the mortgage portfolio. Other
income increased $1.3 million or 98.7% in the fourth quarter of 2006 compared
to 2005 largely as a result of a gain on the sale of a common share investment
in the amount of $0.7 million and increased mortgage fees related to higher
originations.
    Non-interest expenses increased 26.6% in the fourth quarter of 2006
compared to the same quarter of 2005 due to increased staff levels and
increased general operating activity. Productivity ratio - TEB for the 2006
fourth quarter was 30.6%, a noticeable improvement over the ratio of 32.6%
from a year earlier. The effective tax rate in the fourth quarter of 2006 was
30.3%, compared to 28.4% a year earlier.
    Fourth quarter 2006 net earnings were 8.5% higher than in the third
quarter of 2006, while earnings per share (diluted) in the fourth quarter of
2006 increased $0.05 or 8.5% over the third quarter of 2006. Total assets also
grew sequentially by 8.7% from September 30, 2006. ROAE increased to 21.0% in
the fourth quarter compared to 20.3% in the third quarter of 2006.

    Summary of Quarterly Results

    Key performance highlights of the past eight quarters are presented in
the following table.Table 16: Summary of Quarterly Results

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

    Total assets at quarter end -
     $ millions                             2,626    2,414    2,244    2,113
    Net interest income - TEB(1)           15,359   14,435   13,463   12,143
    Less TEB(1) adjustment                  1,122      980      877      784
    Net interest income per financial
     statements                            14,237   13,455   12,586   11,359
    Other income                            2,599    1,954    1,754    1,625
    Net interest margin - TEB(1)             2.4%     2.5%     2.5%     2.4%
    Total revenues - TEB(1)                41,941   38,552   34,885   31,604
    Total revenues                         40,819   37,572   34,008   30,820
    Net earnings                            7,752    7,144    6,609    5,833
    Return on average equity                21.0%    20.3%    19.8%    18.6%
    Return on average assets - annualized    1.2%     1.2%     1.2%     1.1%
    EPS - basic                            $ 0.65   $ 0.60   $ 0.56   $ 0.49
    EPS - diluted                          $ 0.64   $ 0.59   $ 0.55   $ 0.49
    Productivity ratio - TEB(1)             30.6%    32.7%    33.1%    32.0%
    Mortgage production:
      Conventional mortgages other than
       warehoused mortgages               334,518  196,708  178,955  275,125
      Warehoused mortgages                276,934  249,279  166,798  199,857
      CMHC-insured mortgages               49,897   43,711   69,884  114,870
                                          -----------------------------------
      Total                               661,349  489,698  415,637  589,852
                                          -----------------------------------
                                          -----------------------------------

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


    ($ thousands, except assets and
     per share amounts)                                     2005
                                               Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------

    Total assets at quarter end -
     $ millions                             2,012    1,821    1,788    1,704
    Net interest income - TEB(1)           12,017   10,439    9,843    8,759
    Less TEB(1) adjustment                  1,014      863      719      556
    Net interest income per financial
     statements                            11,003    9,576    9,124    8,203
    Other income                            1,308    1,451    1,324    1,667
    Net interest margin - TEB(1)             2.5%     2.3%     2.3%     2.2%
    Total revenues - TEB(1)                28,881   26,530   25,039   23,134
    Total revenues                         27,867   25,667   24,320   22,578
    Net earnings                            5,562    4,985    4,728    4,482
    Return on average equity                18.1%    16.8%    16.7%    16.6%
    Return on average assets - annualized    1.2%     1.1%     1.1%     1.1%
    EPS - basic                            $ 0.47   $ 0.42   $ 0.40   $ 0.38
    EPS - diluted                          $ 0.46   $ 0.42   $ 0.40   $ 0.38
    Productivity ratio - TEB(1)             32.6%    32.2%    31.9%    30.6%
    Mortgage production:
      Conventional mortgages other than
       warehoused mortgages               285,688  194,383  260,538  167,629
      Warehoused mortgages                 65,242   61,661   68,791   51,669
      CMHC-insured mortgages               83,781   64,492   84,883   43,201
                                          -----------------------------------
      Total                               434,711  320,536  414,212  262,499
                                          -----------------------------------
                                          -----------------------------------

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

    Notes:

    (1) For an explanation of TEB see the end of this MD&A.This summary of quarterly results shows the effects of the Company's
growing asset base and increased capital, as well as increasing prime interest
rates. Throughout the eight quarters summarized, the Company continued to
increase its asset base primarily through mortgage growth and, to a lesser
extent, through growth in its equity securities portfolio. This growth has led
to continually higher net interest income - TEB and not adjusted for TEB - in
all quarters. As a result of steady increases in earnings and capital
management practices, ROAE has also continually risen on a quarterly basis
from 16.6% in the first quarter of 2005 to 21.0% in the fourth quarter of
2006. Generally, in the mortgage industry, originations are lower in the first
quarter than in other quarters due to seasonality; this seasonality has,
however, not traditionally impacted Equitable's business.

    Changes in Accounting Policies Including Initial Adoption

    A summary of the Company's significant accounting policies is presented
in Note 1 to the Consolidated Financial Statements. During 2006, the Canadian
Institute of Chartered Accountants ("CICA") issued accounting requirements
regarding Stock Based Compensation for Employees Eligible to retire before the
Vesting Date. The fair value of options granted to employees who are eligible
to retire within the vesting period will be recognized over the required
period of service rather than the grant's vesting period. There has been no
significant effect on the Company's earnings or contributed surplus in
adopting this policy.
    The CICA has issued three new accounting standards: Financial Instruments
- Recognition and Measurement, Hedges, and Comprehensive Income, which are
effective for the Company as of January 1, 2007. As a result of adopting these
standards, a new category, accumulated other comprehensive income, will be
added to shareholders' equity and certain unrealized gains and losses will be
reported in other comprehensive income until realization.
    Effective January 1, 2007, certain financial assets and liabilities will
be measured at fair value and others at amortized cost. Any adjustment of the
previous carrying amounts will be recognized as an adjustment to either
accumulated other comprehensive income or retained earnings at January 1, 2007
and prior period financial statements will not be restated. Significant
components of the Company's implementation of the standards include:(a) Cash and cash equivalents and investments have been designated as
        available for sale and will be recorded on the balance sheet at fair
        value with changes in fair value recorded in other comprehensive
        income.

    (b) Mortgages held for securitization or for sale and derivative
        financial instruments will be recorded on the balance sheet at fair
        value with changes in fair value recorded in the statement of
        earnings.

    (c) Mortgages, other than those held for securitization or for sale,
        deposits and subordinated debentures will continue to be recorded at
        amortized cost.Critical Accounting Estimates

    The Company's critical accounting estimates are primarily in the areas of
credit risk and allowance for credit losses and loan securitizations -
retained interests. The policies and methodology used to determine these
estimates and the significance of these accounting estimates to the Company's
financial condition have been outlined in this Management's Discussion and
Analysis and in Note 1 to the Consolidated Financial Statements.
    The allowance for credit losses reflects management's best estimate of
probable losses in the mortgage portfolio as at the balance sheet date. In
order to assess the likelihood of a loss, management takes into consideration
a great variety of information, including economic factors, developments
affecting particular property types and geographic areas, the age of a
mortgage and specific issues with respect to individual borrowers. Changes in
any of these factors may cause future assessment of credit risk to be
significantly different from current assessments and could affect the level of
allowance for credit losses being maintained by the Company. The Company's
general allowance for credit losses of $7.9 million as at December 31, 2006
represented 0.37% of total mortgage principal outstanding. A 0.01% movement in
the general allowance for credit losses, up or down, would increase or
decrease the allowance by $0.2 million.
    The Company uses estimates in valuing its retained interests in loan
securitizations. This valuation and changes thereto affect the gain on sale of
mortgages in a securitization and could affect the measurement of excess
interest net of servicing fee. Management uses its best estimates in
determining the value of retained interests on each securitization, taking
into account current interest rates, the terms of the mortgages being sold,
the propensity for prepayment and the cost of the future servicing of the sold
mortgages. On a quarterly basis, management reassesses its estimates to
satisfy themselves that these estimates are still valid under the then current
economic environment. Management uses historical data to support any
amendments to its estimation methodology and the carrying value of its loan
securitizations - retained interests. A sensitivity analysis of two adverse
changes in the estimate used to value the Company's retained interests in loan
securitizations is presented in Note 4 to the Consolidated Financial
Statements.

    Basel II Implementation

    In June 2004, the Basel Committee on Banking Supervision released its
report entitled "International Convergence of Capital Measurement and Capital
Standards: A Revised Framework" ("Basel II"). The new framework, expected to
take effect January 1, 2008, is designed to more closely align regulatory
capital requirements with underlying risks by introducing substantive changes
in the treatment of credit and operational risks.
    There are several accepted approaches for measuring risk under the new
Basel framework. Equitable Trust will be utilizing the simpler approaches
allowed by the regulators. As a result of the more risk-based capital
attribution approach called for under Basel II, potential capital reductions
or increases might be possible; however, it is too early at this stage to
predict the impact.

    Off-Balance Sheet Arrangements

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

    Financial Instruments

    The Company uses Government of Canada bond forwards to hedge interest
rate risk on CMHC-insured multi-unit residential mortgages and mortgage
commitments targeted for securitization. The risk is that interest rates rise
between the rate commitment date and the sale date, leading to a reduced value
of the mortgage upon securitization. The hedge acts to significantly reduce
the likelihood that the proceeds on the sale of the mortgage (made up of the
fair value of the mortgage and the fair value of bond forward) will vary from
the fair value of the mortgage at the date of rate commitment as a result of
interest rate movements. For more information on hedges and forward bond
contracts see Note 4 to the Consolidated Financial Statements.

    Contractual Obligations

    The material contractual obligations of the Company at December 31, 2006
are outlined in the following table.Table 17: Contractual obligations

                                                      Payments due by period

                                   Less than                  4 - 5    After
    ($ thousands)         Total       1 year  1 - 3 years     years  5 years
    -------------------------------------------------------------------------

    GIC principal
     and interest     2,504,199    1,700,191      399,659   404,349        -
    Subordinated
     debt principal
     and interest(1)     40,677        1,882        3,765     3,765   31,265
    Bank term loans
     principal and
     interest            43,184        2,281        4,568    36,335        -
    Operating
     leases(2)              882          407          435        40        -
    -------------------------------------------------------------------------
    Total contractual
     obligations      2,588,942    1,704,761      408,427   444,489   31,265
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Notes:

    (1) These obligations do not include any pre-maturity redemptions
        relating to prior year's earnings as these are subject to regulatory
        approval.
    (2) In addition to these minimum lease payments for premises rental, the
        Company will pay its share of common area maintenance and realty
        taxes over the term of the lease.In addition to these contractual obligations, the Company is responsible
to CMHC for the ongoing servicing of the mortgages it has securitized through
the CMHC-MBS program. This obligation is discussed in "Off-Balance Sheet
Arrangements".

    Related Party Transactions

    Certain of the Company's employees, directors and shareholders have
purchased GICs and subordinated debt from the Company in the ordinary course
of business, at market terms and conditions. Note 14 to the Consolidated
Financial Statements provides further detail on these transactions.

    Risk Management

    Overview

    The Boards of Directors and the Committees of the Boards of both the
Company and Equitable Trust play an active role in monitoring operational and
structural risk and in determining the policies that are best suited to
mitigating these risks. It is management's responsibility to illustrate and
communicate the existing and potential risks that the Company endures, or may
endure, to the Board. It is the Board's responsibility to ensure that this
communication is as complete and as detailed as is necessary in order to
enable them to establish effective risk management policies.
    The Board of Directors of the Company and the Board of Directors of
Equitable Trust each has an Audit Committee and a Corporate Governance
Committee. The Board of Directors of Equitable Trust has, in addition, an
Investment Committee, a Human Resources and Compensation Committee and a
Conduct Review Committee.

    Liquidity Risk Management

    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. 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 its mortgage funding and investment purchase commitments and
GIC redemptions. 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 $260.5 million as at
December 31, 2006 and $159.8 million at December 31, 2005. The increase on a
year-over-year basis is prompted by liquidity requirements related to the
potential redemption of deposit obligations. It is the Company's policy to
maintain, at all times, regulatory liquid assets at levels equivalent to or
greater than 20% of GICs maturing in the next 100 days (including all cashable
GICs). At December 31, 2006 these maturities amounted to $1.33 billion
compared to $0.86 billion as at December 31, 2005. Total liquid resources,
including the Company's equity securities portfolio, were $427.2 million at
December 31, 2006 and $271.6 million as at December 31, 2005. As part of its
liquidity contingency planning, the Company has a line of credit with its bank
in the amount of $35.0 million, which is secured by shares in its equity
securities portfolio.

    Interest Rate Risk Management

    Interest rate risk involves the sensitivity of the Company's earnings to
changes in interest rates. The Company's primary method of mitigating interest
rate risk is matching asset and liability maturity/re-pricing profiles (the
"profile"), 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 earnings.
    The Company manages its asset liability profile by adjusting GIC interest
rates on a daily basis to raise GICs with characteristics that match the
profile of assets being funded. It is the Company's policy not to allow an
annual maturity gap, on all maturities with terms greater than twelve months,
in excess of 5% of total assets.
    The Company uses simulated interest rate change sensitivity modeling to
estimate the effects of various interest rate change scenarios on net interest
income for the twelve months following the measurement date and on the
economic value of shareholders' equity. Certain assumptions, such as
pre-maturity redemptions of GICs and early payouts of mortgages, based upon
actual experience, are built into the economic value model for simulation
purposes. The probabilities of cashable GIC redemptions are also modeled. When
interest rates increase, it is expected that the majority of these depositors
will redeem their GICs in order to obtain a better rate. Conversely, when
interest rates decrease, it is assumed that the majority will hold their GICs
until maturity.
    In the event of an immediate and sustained 1% interest rate increase, net
interest income before any tax effect, for the twelve month period following
December 31, 2006, would increase $1.5 million. If interest rates were to
decrease and if cashable GICs were to stay on the books until maturity, net
interest income before any tax effect for the following twelve month period
would decrease $4.4 million.
    The Company uses 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 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 is
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 affect the value of
the hedge. All costs related to hedging activities are matched to mortgages
and are accounted for when the mortgage is securitized under the CMHC-MBS
program. Commencing January 1, 2007, the Company will adopt the new CICA
guidelines for financial instruments, hedges and comprehensive income which
will affect how the change in valuation of CMHC-insured mortgages targeted for
securitization and their related hedges are accounted for.

    Credit Risk Management

    Credit risk is the risk of financial loss resulting from a borrower or
any counterparty failing to fully honour its financial or contractual
obligations to the Company. Under the Company's lending criteria, all
mortgages are individually evaluated under a risk rating system to assess the
level of risk to be attributed to each loan.
    In accordance with sound business and financial practices, Equitable
Trust's credit risk policies provide for an 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 and determines appropriate loan loss reserves.
Reviews of credit policies and lending practices are regularly undertaken by
senior management and approved by Equitable Trust's Investment Committee. The
Committee meets on a quarterly basis to review all new lending activity during
the quarter and to review significant trends in the industry in order to
better direct credit policies.
    Equitable Trust's Investment Committee reviews the Company's debt and
equity securities portfolio each quarter. The review covers the current status
of investments, the transactions during the past quarter, the portfolio
characteristics (such as term, credit rating and type of security), and
compliance with OSFI regulations. 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 89.0% of the
preferred share equity securities portfolio at December 31, 2006, compared to
76.2% a year earlier.

    Changes in Borrower Creditworthiness

    The factors used to determine a borrower's creditworthiness are subject
to change over time. These factors can be summarized in terms of character (of
borrowers), capacity (to repay loans), capital (resources of borrowers that
can be used to cover any shortfalls), collateral (in support of loans) and
conditions (of loans). Deterioration in these factors could lead to
difficulties in the repayment of loans, which could result in higher loan
losses. An increase in loan losses could have a material and adverse effect on
the operating results of Equitable.

    Accuracy and Completeness of Information on Customers and Counterparties

    Equitable depends on the accuracy and completeness of financial
information such as financial statements for commercial mortgages and proof of
employment and income verification for residential mortgages in deciding
whether to extend credit. Equitable's financial condition and earnings could
be negatively impacted to the extent it relies on financial information that
does not comply with generally accepted accounting principles, that is
materially misleading, or that does not fairly present, in all material
respects, the financial condition and results of operations of the customers
and counterparties.

    Environmental Risk Management

    A mortgage may go into default if a borrower is unable to repay loans due
to environmental cleanup costs. Equitable may become directly liable for
cleanup costs if it is deemed to have taken control or ownership of a
contaminated property. Equitable will not grant mortgages where there are
known or suspected environmental liabilities which could expose Equitable to
potential costs of pollution clean up. Equitable has risk assessment criteria,
policies and procedures to detect environmental contamination of properties
prior to entering into a mortgage.

    Operating Risks

    Outsourcing Risk

    Equitable uses outsourcing to control costs, enhance service levels, and
obtain mortgages and deposits in quantities and on terms that meet its
requirements. Outsourcing any of the administrative functions to third parties
runs the risk of failure or that the products obtained through third parties
will be insufficient for Equitable's requirements. Should a provider of
administrative services fail to perform in accordance with Equitable's
expectations, the Company would be required to find an alternative service
provider or take back that administrative function. If the service were taken
in-house, extra costs in the form of additional staff and overhead might
result.

    Reliance on Independent Mortgage Brokers and Deposit Agents

    Equitable's business model does not use retail branches to obtain GICs or
mortgages. Equitable, through its Deposit department, is reliant on members of
the Investment Dealers Association and the Federation of Canadian Independent
Deposit Brokers to raise funds. Equitable's mortgage originations depend on a
network of independent mortgage brokers, mortgage brokerages and other
financial institutions. Under adverse circumstances, Equitable may find it
difficult to attract new deposits from agents or mortgage business from
brokers to sustain current operating requirements. The failure by Equitable to
sustain or increase its current level deposits or mortgage origination from
these sources could negatively affect the financial condition and operating
results of the Company. A single mortgage broker, FNFLP, originated 36% of
Equitable's outstanding mortgages as at December 31, 2006 under a long-term
agreement that expires in December 2009. Management believes it has a strong
partnership with FNFLP; however, should this agreement not be renewed, the
Company would have to find another partner.
    If the Company were to lose a major mortgage broker or deposit agent, it
would have to replace the product supplied by that broker, either from
existing or new brokers or retail agents, in order to meet corporate targets.

    Reliance on Key Personnel

    Equitable's operations depend on the abilities, experience and efforts of
its management and other key employees. Should any of these persons be unable
or unwilling to continue in their employment, this could have a material
adverse effect on the business, financial condition and results of the
operations of the Company.

    Information Systems and Technology

    Equitable depends on the successful operation and uninterrupted
functioning of its computer and data processing systems and software. The
failure of these systems could interrupt operations or materially impact
Equitable's ability to originate, process or adjust items associated with
deposits. If sustained or repeated, a system failure could negatively affect
the operating results of Equitable. Equitable also depends on automated
software to match the maturity and repricing terms of its deposit liabilities
and mortgage assets. If such software fails or is unavailable on a prolonged
basis, Equitable could be required to take alternative steps to complete such
activities, which could have a short-term negative effect on its operations.

    General Economic Conditions

    Industry Growth: The residential mortgage business in Canada has
    ---------------- benefited from historically low interest rates. There is
a risk that upward movement in interest rates or a deteriorating economy will
slow the pace of housing sales and affect the growth in the residential
mortgage market. This may negatively affect the Company's mortgage business
through slower growth. A decrease in commercial mortgage and warehoused
mortgage activity could also result from an increase in interest rates.
Weakness in general economic conditions could also cause default rates to
increase as creditworthiness decreases for borrowers who are more highly
leveraged.

    Profitability: The spread between interest paid on GICs and interest
    -------------- charged on mortgages and earned on investments creates
Equitable's net interest income. The mortgage and investment portfolios of the
Company include assets whose value can fluctuate because of changing interest
rates and economic and market conditions. In addition, some of these assets
may be difficult to sell at any given time.

    Changes in Competition

    The residential and commercial first mortgage business is highly
competitive. The Company's products compete with those offered by other trust
companies, banks, insurance companies, and other financial institutions in the
jurisdictions in which it operates, especially Ontario and Alberta. Many of
these companies are better capitalized than Equitable and hold a larger
percentage of the Canadian residential and commercial mortgage business than
Equitable.
    There is always a risk that there will be new entrants in the market who
are better capitalized with more efficient systems and operations that could
impact the Company's market share in its mortgage lending and deposit taking
activities.

    Regulatory Risk

    The Trust and Loan Companies Act and Regulations ("TLCA") and provincial
and territorial legislation require Equitable Trust to file annual and other
reports on its financial condition, impose restrictions on transactions with
related parties and set out requirements governing capital and other matters.
The activities of Equitable Trust are supervised by OSFI.
    Changes to laws and regulations, including changes in their
interpretation or application, could affect Equitable, limiting the products
or services it may provide and increasing the ability of competitors to
compete with its products or services. Also, Equitable Trust's failure to
comply with applicable laws and regulations could result in sanctions and
financial penalties that could adversely impact its earnings and damage its
reputation
    Equitable Trust undertakes reasonable and prudent measures designed to
achieve compliance with governing laws and regulations including its
legislative compliance management framework. There is, however, no guarantee
that it will always be in compliance or deemed to be in compliance by the
Regulators.

    Litigation Risk Management

    It is possible that litigation, and, in particular class action
litigation, may increase in Canada as a result of changes in Canadian
securities laws. Litigation risk is also inherent in mortgage lending. The
Company has taken steps to reduce the likelihood of lawsuits and to address
the threat of class actions under the new regime by adopting a Disclosure
Control Policy and Procedure, maintaining an appropriate Directors and
Officers insurance policy and providing written indemnities to directors and
officers.

    Reputation Risk Management

    Reputation Risk is the risk to the Company's earnings from breaches of
legislation, the Code of Conduct, failure to manage operational risk or a
compliance failure and includes external factors (such as industry trends or
downturns in the market) which are beyond the Company's control.
    Equitable's management oversees the Company's risk management framework
through its Enterprise Risk Management Program that has been approved by the
Board. The Enterprise Risk Management Program includes the assessment of real
and potential reputation risk, in addition to specific duties,
responsibilities, and reporting mechanisms to evaluate the adequacy of and
adherence to risk management controls and practices.

    Responsibilities of Management and the Board of Directors

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

    Disclosure Controls and Procedures

    Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is accumulated and communicated to
senior management, including the President and Chief Executive Officer (CEO)
and the Senior Vice President and Chief Financial Officer (CFO), on a timely
basis, so that appropriate decisions can be made regarding public disclosure.
    Management has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in the rules of the Canadian Securities
Administrators) as of December 31, 2006. Based on that evaluation, management
has concluded that these disclosure controls and procedures were effective.

    Internal Control over Financial Reporting

    Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with Canadian generally
accepted accounting principles ("GAAP").
    Management has evaluated the design of the Company's internal control
over financial reporting as of December 31, 2006 to provide reasonable
assurance regarding the reliability of financial reporting. The evaluation was
conducted in accordance with the framework established by the Committee of
Sponsoring Organizations of the Treadway Commission for Smaller Business, a
recognized control model, and the requirements of Multilateral Instrument
52-109 of the Canadian Securities Administrators. Based on this evaluation,
management has concluded that the design of internal control over financial
reporting was effective.

    Changes in Internal Control over Financial Reporting

    There were no changes in the Company's internal control over financial
reporting that occurred during the fourth quarter ended December 31, 2006 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

    Forward-Looking Statements

    Certain statements in this MD&A contain forward-looking information
within the meaning of applicable securities laws ("forward-looking
statements"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Equitable, 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
readers not to place undue reliance upon any such forward-looking statements,
which speak only as of the date they are made. Often, but not always,
forward-looking statements can be identified by the use of words or phrases
such as "plans", "expects" or "does not expect", "is expected", "budget",
"scheduled", "estimates" or "forecasts". Other phrases or words may include
"intends", "anticipates", or "does not anticipate", "believes", or state that
certain actions, events or results "may", "could", "would", "might", or "will"
be taken, occur or be achieved.
    Forward-looking statements relate to, among other things, realizing the
value of Equitable's assets, capitalizing on increasing 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 March 19, 2007. Forward-looking statements are
based on management's current plans, estimates, projections, beliefs and
opinions. Equitable does not undertake any obligation to update
forward-looking statements should assumptions related to these plans,
estimates, projections, beliefs and opinions change.
    The "Outlook" sections in this MD&A are forward-looking, as previously
defined, and actual outcomes are uncertain. When reviewing these "Outlook"
sections specifically and the rest of the MD&A generally, readers are advised
to consider the risks regarding forward-looking statements.

    Non-Generally Accepted Accounting Principles Financial Measures

    The presentation of financial information on a taxable equivalent basis
("TEB") is a common practice in the banking and trust company industries and
does not have a standardized meaning within generally accepted accounting
principles (GAAP). Therefore, TEB calculations may not be comparable to
similar measures presented by other companies. On a selective basis, Equitable
uses TEB in the discussion of revenues, interest margins and productivity
ratios in this MD&A. The TEB methodology grosses up tax exempt income, such as
dividends from equity securities, by an amount which makes this income
comparable on a pre-tax basis to regular taxable income such as mortgage
interest. In 2006 the gross-up amounted to $3.8 million and in 2005 it was
$3.2 million.

    February 26, 2007Consolidated Financial Statements of

           EQUITABLE GROUP INC.

           Years ended December 31, 2006 and 2005Management's Responsibility for Financial Reporting

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

    Geoffrey Bredin, CA                     Stephen Coffey, CA
    President and Chief                     Senior Vice-President and
    Executive Officer                       Chief Finacial Officer

    February 26, 2007Auditors' Report to the Shareholders

    We have audited the consolidated balance sheets of Equitable Group Inc.
as at December 31, 2006 and 2005 and the consolidated statements of earnings,
changes in shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
    We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
    In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at
December 31, 2006 and 2005 and the results of its operations and its cash
flows for the years then ended in accordance with Canadian generally accepted
accounting principles.

    "KPMG LLP"

    Chartered Accountants
    Toronto, Canada
    February 26, 2007EQUITABLE GROUP INC.
    Consolidated Balance Sheets
    (In thousands of dollars)

    December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                         2006           2005
    -------------------------------------------------------------------------

    Assets

    Cash and cash equivalents (note 2)           $    107,842   $     77,214
    Investments (note 3)                              319,317        194,429
    Loan securitizations
     - retained interests (note 4)                     48,271         51,595
    Mortgages receivable (note 5)                   2,135,662      1,678,420
    Other assets (note 6)                              14,663         10,594

    -------------------------------------------------------------------------
                                                 $  2,625,755   $  2,012,252
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Liabilities:
      Customer deposits (note 7)                 $  2,389,755   $  1,808,955
      Future income taxes (note 8)                      4,700          6,538
      Other liabilities (note 9)                       21,564         20,707
      Bank term loan (note 10)                         34,750         19,750
      Subordinated debt (note 11)                      25,250         31,694
      -----------------------------------------------------------------------
                                                    2,476,019      1,887,644

    Shareholders' equity (note 12):
      Capital stock                                    57,849         55,510
      Contributed surplus                               1,539          1,327
      Retained earnings                                90,348         67,771
      -----------------------------------------------------------------------
                                                      149,736        124,608

    Commitments and contingencies (note 13)

    -------------------------------------------------------------------------
                                                 $  2,625,755   $  2,012,252
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.

    On behalf of the Board:

    "Signed"   Director
    -----------
    "Signed"   Director
    -----------



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

    Years ended December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                         2006           2005
    -------------------------------------------------------------------------

    Interest income:
      Mortgages                                  $    121,406   $     88,026
      Investments                                       8,249          5,013
      Other                                             5,632          1,643
      -----------------------------------------------------------------------
                                                      135,287         94,682

    Interest expense:
      Customer deposits                                79,537         53,351
      Subordinated debt                                 2,041          2,382
      Bank term loan                                    2,072          1,043
      -----------------------------------------------------------------------
                                                       83,650         56,776
    -------------------------------------------------------------------------

    Interest income, net                               51,637         37,906

    Provision for credit losses(note 5)                   900            725
    -------------------------------------------------------------------------

    Net interest income after provision
     for credit losses                                 50,737         37,181

    Other income:
      Mortgage commitment income and other fees         3,373          1,991
      Net gain (loss) on sale or
       redemption of investments                          669            (75)
      Loan securitizations
       - retained interests (note 4)                    3,890          3,834
      -----------------------------------------------------------------------
                                                        7,932          5,750
    -------------------------------------------------------------------------

    Net interest income and other income               58,669         42,931

    Non-interest expenses:
      Compensation and benefits                         9,022          6,052
      Deposit agent commissions                         4,669          3,360
      Other                                             6,588          5,510
      -----------------------------------------------------------------------
                                                       20,279         14,922
    -------------------------------------------------------------------------

    Earnings before income taxes                       38,390         28,009

    Income taxes (recovery) (note 8):
      Current                                          12,890          9,754
      Future                                           (1,838)        (1,502)
      -----------------------------------------------------------------------
                                                       11,052          8,252

    Net earnings                                 $     27,338   $     19,757
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share (note 12):
      Basic                                      $       2.30   $       1.68
      Diluted                                            2.26           1.65

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



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

    Years ended December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                         2006           2005
    -------------------------------------------------------------------------

    Capital stock:
      Balance, beginning of year                 $     55,510   $     54,815
      Common shares issued (note 12):
        Proceeds from exercise of
         employee stock options                         2,138            666
        Transfer from contributed surplus
         relating to the exercise of
         stock options                                    201             29
      -----------------------------------------------------------------------
      Balance, end of year                             57,849         55,510

    Contributed surplus:
      Balance, beginning of year                        1,327            959
      Stock-based compensation (note 12)                  413            397
      Transfer to common shares relating to
       the exercise of stock options                     (201)           (29)
      -----------------------------------------------------------------------
      Balance, end of year                              1,539          1,327

    Retained earnings:
      Balance, beginning of year                       67,771         51,779
      Net earnings                                     27,338         19,757
      Dividends                                        (4,761)        (3,765)
      -----------------------------------------------------------------------
      Balance, end of year                             90,348         67,771

    -------------------------------------------------------------------------
    Total shareholders' equity                   $    149,736   $    124,608
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



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

    Years ended December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                         2006           2005
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net earnings                               $     27,338   $     19,757
      Non-cash items:
        Loan securitizations
         - gains on sale of mortgages                    (708)        (1,141)
        Amortization of capital assets                    513            370
        Provision for credit losses                       900            725
        Net (gain) loss on sale or
         redemption of investments                       (669)            75
        Future income taxes                            (1,838)        (1,502)
        Stock-based compensation                          413            397
        Amortization of premiums on
         investments, net                               3,111          3,727
      -----------------------------------------------------------------------
                                                       29,060         22,408

      Changes in operating assets and liabilities:
        Other assets                                   (3,308)        (1,707)
        Other liabilities                              (1,368)         5,359
      -----------------------------------------------------------------------
                                                       24,384         26,060

    Financing activities:
      Increase in customer deposits                   580,800        424,307
      Issuance of bank term loan                       15,000         19,750
      Issuance (redemption) of
       subordinated debt, net                          (6,444)         2,545
      Dividends paid on common shares                  (4,761)        (3,765)
      Issuance of common shares                         2,138            666
      -----------------------------------------------------------------------
                                                      586,733        443,503

    Investing activities:
      Purchase of investments                        (224,565)      (179,483)
      Proceeds on sale or redemption
       of investments                                  97,235        117,900
      Increase in mortgages receivable             (2,158,998)    (1,432,473)
      Mortgage principal repayments                 1,424,726        781,497
      Proceeds from loan securitizations              267,756        266,200
      Loan securitizations - retained interests        14,631         14,570
      Purchase of capital assets                       (1,274)          (502)
      -----------------------------------------------------------------------
                                                     (580,489)      (432,291)
    -------------------------------------------------------------------------

    Increase in cash and cash equivalents              30,628         37,272

    Cash and cash equivalents,
     beginning of year                                 77,214         39,942

    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year       $    107,842   $     77,214
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information:
      Interest paid                              $     67,172   $     48,800
      Income taxes paid                                13,985          6,063

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



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

    Years ended December 31, 2006 and 2005
    -------------------------------------------------------------------------

    Equitable Group Inc. (the "Company") was formed on January 1, 2004 as the
parent company of its wholly owned subsidiary, The Equitable Trust Company
("Equitable Trust"). Equitable Trust is federally regulated under the Trust
and Loan Companies Act (Canada) by the Office of the Superintendent of
Financial Institutions Canada ("OSFI").
    The Company operates principally in one industry segment as a
deposit-taking institution investing in mortgages.

    1.  Significant accounting policies:

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

       (a) Basis of presentation:

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

       (b) Cash and cash equivalents:

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

       (c) Investments:

           Investments are purchased with the intention of holding until
           maturity or until market conditions provide a better investment
           opportunity. Investments, including loan securitizations -
           retained interests, are carried at cost, adjusted for amortization
           of premiums and discounts to maturity. When there is an other than
           temporary decline in value, investments are written down to
           reflect the estimated loss. All gains and losses on the sale,
           redemption or write-down of investments are recorded in the
           statements of earnings. Interest income earned, amortization of
           premiums and discounts and dividends are included in interest
           income - investments in the statements of earnings. The fair value
           of investments is based on quoted market prices.

       (d) Mortgages receivable and revenue recognition:

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

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

           Impaired loans are measured on the basis of expected future cash
           flows, discounted at the loan's effective interest rate. This
           impairment is reflected in the statements of earnings in the years
           in which the impairment is recognized.

       (e) Allowance for credit losses:

           The allowance for credit losses consists of both specific and
           general provisions. Specific provisions relate to individual loans
           that, in the opinion of management, are necessary to reflect the
           estimated net realizable value of the particular loan as described
           in (d) above. General provisions are based on management's
           assessment of probable, unidentified losses in the portfolio at
           the balance sheet dates that have not been specifically identified
           in the determination of specific provisions. The assessment
           includes statistical and qualitative analyses of the performance
           of the portfolio taking into account such factors as economic
           conditions, security and loan type, concentration risks and
           geographical exposure.

           Concentration of credit exposure may arise when a group of
           counterparties have similar economic characteristics or are
           located in the same geographical region. The ability of these
           counterparties to meet contractual obligations may be affected by
           changing economic or other conditions. The Company's mortgage
           portfolio is primarily related to property located in the Province
           of Ontario.

       (f) Loan securitizations:

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

           Subsequent to the securitization, any retained interests that
           cannot be contractually settled in such a way that the Company can
           recover substantially all of its recorded investment are adjusted
           to fair value and the charge is recognized immediately in the
           statements of earnings. The fair value of retained interests is
           determined using the present value of future expected cash flows
           in the manner described above.

       (g) Derivative financial instruments:

           The Company uses forward contracts on Government of Canada bonds
           to manage market interest rate exposure on mortgages held for
           securitization and commitments for mortgages to be securitized.
           Gains and losses on these hedge instruments are deferred in other
           assets and are recognized in the statements of earnings at the
           time the related mortgages are securitized in accordance with
           hedge accounting. Hedge accounting requires that certain
           documentation, designation and effectiveness standards be met. The
           fair value of derivative financial instruments is based on quoted
           market prices.

       (h) Stock-based compensation plan:

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

       (i) Income taxes:

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

       (j) Capital assets:

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


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

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

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


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

       (k) Use of estimates:

           The preparation of financial statements requires management to
           make estimates and assumptions that affect the reported amounts of
           assets and liabilities and disclosure of contingent assets and
           liabilities at the date of the financial statements and the
           reported amounts of revenue and expenses during the years. Actual
           results could differ from those estimates.

       (l) Fair values of financial instruments:

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

           The fair values of cash and cash equivalents and certain other
           assets (note 6) and other liabilities (note 9) are assumed to
           approximate their carrying values due to their short-term nature.

    2.  Cash and cash equivalents:

        ---------------------------------------------------------------------
                                                         2006           2005
        ---------------------------------------------------------------------
        Deposits with regulated financial
         institutions                            $     21,688   $     46,039
        Short-term investments                         86,154         31,175
        ---------------------------------------------------------------------
                                                 $    107,842   $     77,214
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        The weighted average effective yield of cash and cash equivalents is
        approximately 4.12% (2005 - 3.20%).

    3.  Investments:

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

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

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

        Debt securities issued
         or guaranteed by:
          Canada                $  13,245  $  18,322  $       -  $       -
          Province or
           municipality           111,415      9,666          -          -
        Equity securities:
          Preferred shares         48,613     39,937      54,877    23,242(1)
          Common shares                 -          -           -         -

        ---------------------------------------------------------------------
                                $ 173,273  $  67,925   $  54,877 $  23,242
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------
                                     2006       2005
        ---------------------------------------------

                                    Total      Total
                                 carrying   carrying
                                    value      value

        Debt securities issued
         or guaranteed by:
          Canada                $  31,567  $  34,681
          Province or
           municipality           121,081     47,915
        Equity securities:
          Preferred shares        166,669    110,714
          Common shares                 -      1,119

        ---------------------------------------------
                                $ 319,317  $ 194,429
        ---------------------------------------------
        ---------------------------------------------
        (1) Includes investments with no specific maturity.


        The analysis of investments at fair value is as follows:

        ---------------------------------------------------------------------
                                                                        2006
        ---------------------------------------------------------------------
                                                                   Estimated
                                Carrying  Unrealized  Unrealized      market
                                   value       gains      losses       value
        ---------------------------------------------------------------------
        Debt securities issued
         or guaranteed by:
          Canada              $   31,567  $       23  $      (29) $   31,561
          Province or
           municipality          121,081         274         (79)    121,276
        Equity securities:
          Preferred shares       166,669       2,215        (841)    168,043
          Common shares                -           -           -           -

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


        ---------------------------------------------------------------------
                                                                        2005
        ---------------------------------------------------------------------
                                                                   Estimated
                                Carrying  Unrealized  Unrealized      market
                                   value       gains      losses       value
        ---------------------------------------------------------------------
        Debt securities issued
         or guaranteed by:
          Canada              $   34,681  $       25  $     (116) $   34,590
          Province or
           municipality           47,915         171        (138)     47,948
        Equity securities:
          Preferred shares       110,714       1,504        (773)    111,445
          Common shares            1,119         337           -       1,456

        ---------------------------------------------------------------------
                              $  194,429  $    2,037  $   (1,027) $  195,439
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The weighted average effective yield for debt securities is 4.15%
        (2005 - 3.20%) based on yield to maturity, and for preferred shares
        is 4.05% (2005 - 3.82%).

        The Company has established a bank line of credit facility. Under
        this facility, the Company may borrow up to $35,000 for short-term
        liquidity purposes. The facility is secured by the Company's
        investments in equity securities. There was no outstanding balance
        on the line as at December 31, 2006 (2005 - nil).


    4.  Loan securitizations - retained interests:

        The Company securitizes Government of Canada guaranteed residential
        mortgage loans through the creation of mortgage-backed securities and
        removes the mortgages from the balance sheets. As at December 31,
        2006, outstanding securitized mortgages totalled $1,807,479 (2005 -
        $1,878,405), substantially all of which are multi-family residential
        mortgage loans.

        During 2006, the Company securitized Government of Canada guaranteed
        multi-family residential mortgage loans and received net cash
        proceeds of $267,756 (2005 - $266,200). The Company retained the
        rights to future excess interest on the mortgages valued at $10,385
        (2005 - $10,672) and received net cash flows on interests retained of
        $17,813 (2005 - $17,263). 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 $6,044 (2005 - $6,460) which is included in
        other liabilities (note 9). The amount of servicing liability
        amortized during the year was $1,436 (2005 - $1,285).

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

        ---------------------------------------------------------------------
                                                            2006        2005
        ---------------------------------------------------------------------

        Gain on sale of mortgages                     $      708  $    1,141
        Excess interest, net of servicing fee              3,182       2,693

        ---------------------------------------------------------------------
                                                      $    3,890  $    3,834
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        The valuation of the future excess interest spread includes an excess
        spread of 0.79% (2005 - 0.84%), and the key assumption of a discount
        rate of 4.97% (2005 - 5.08%). There are no expected credit losses as
        the mortgages are government guaranteed, and no prepayment rate
        estimates as under the terms of the multi-family residential
        mortgages, prepayment penalties are sufficient to ensure that the
        Company will receive all of its investment upon the early discharge
        of any mortgage.

        The following table presents the key economic assumption and the
        sensitivity of the fair value of retained interests to two adverse
        changes in the key assumption as at December 31, 2006. The following
        sensitivity analysis is hypothetical and should be used with caution.

        ---------------------------------------------------------------------
                                                                Multi-family
                                                           residential loans
        ---------------------------------------------------------------------
        Carrying value of retained interests                      $   48,271
        Discount rate                                                  4.97%
        Impact of a 10% adverse change                            $     (650)
        Impact of a 20% adverse change                            $   (1,300)

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


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

        ---------------------------------------------------------------------
                                                 Excess interest   Servicing
                                                          spread   liability
        ---------------------------------------------------------------------
        2007                                          $   11,387  $    1,341
        2008                                               9,280       1,173
        2009                                               7,143         912
        2010                                               5,671         753
        2011                                               4,507         628
        Thereafter                                        10,283       1,237

        ---------------------------------------------------------------------
                                                      $   48,271  $    6,044
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


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

        Hedge instruments outstanding at December 31, 2006 and 2005 relating
        to forward contracts on Government of Canada bonds, where the
        counterparties are chartered banks, are as follows:

        ---------------------------------------------------------------------
                                                          2006
                                          -----------------------------------
        Bond term                           Notional      Market  Unrealized
        (years)                               amount       value        loss
        ---------------------------------------------------------------------
        1 to 5                            $   14,400  $   14,289  $      (55)
        5 to 10                               21,800      22,444        (393)

        ---------------------------------------------------------------------
                                          $   36,200  $   36,733  $     (448)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                                          2005
                                          -----------------------------------
        Bond term                           Notional      Market  Unrealized
        (years)                               amount       value        loss
        ---------------------------------------------------------------------
        1 to 5                            $   10,200  $   10,381  $      (16)
        5 to 10                               39,200      42,320        (382)

        ---------------------------------------------------------------------
                                          $   49,400  $   52,701  $     (398)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    5.  Mortgages receivable:

       (a) Mortgages receivable and impaired mortgages:

    -------------------------------------------------------------------------
                                  Allowance for credit losses
                       Gross  -----------------------------------        Net
    2006              amount    Specific     General       Total      amount
    -------------------------------------------------------------------------
    Residential
     mortgages    $1,373,842  $      160  $    5,168  $    5,328  $1,368,514
    Other
     mortgages       472,635           -       2,047       2,047     470,588
    Mortgages
     held for
     securitization
     or for sale     287,063           -         671         671     286,392
    Accrued
     interest         10,168           -           -           -      10,168

    -------------------------------------------------------------------------
                  $2,143,708  $      160  $    7,886  $    8,046  $2,135,662
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                  Allowance for credit losses
                       Gross  -----------------------------------        Net
    2005              amount    Specific     General       Total      amount
    -------------------------------------------------------------------------
    Residential
     mortgages    $1,184,434  $    2,087  $    3,634  $    5,721  $1,178,713
    Other
     mortgages       320,496           -       1,037       1,037     319,459
    Mortgages
     held for
     securitization
     or for sale     173,629           -         409         409     173,220
    Accrued interest   7,028           -           -           -       7,028

    -------------------------------------------------------------------------
                  $1,685,587  $    2,087  $    5,080  $    7,167  $1,678,420
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


        Included in mortgages held for securitization or for sale are
        Government of Canada insured mortgages of $18,551 (2005 - $9,664).
        These loans held for securitization, together with the related
        interest rate hedges, are carried at the lower of cost or fair value.
        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 December 31, 2006 and
        2005.

        The principal outstanding and net carrying amount of mortgages
        receivable classified as impaired as at December 31, 2006 aggregated
        $1,138 (2005 - $3,587) and $978 (2005 - $1,500), respectively. As at
        December 31, 2006, the estimated fair value of mortgages receivable
        is $2,137,143 (2005 - $1,691,570). The weighted average effective
        yield of mortgages receivable is 6.56% (2005 - 5.98%) based on the
        yield to maturity.

       (b) Allowance for credit losses:

        ---------------------------------------------------------------------
                                                                        2006
        ---------------------------------------------------------------------
                                        Specific       General
                                       allowance     allowance         Total
        ---------------------------------------------------------------------
        Balance, beginning of year  $      2,087  $      5,080  $      7,167
        Provision for credit losses       (1,906)        2,806           900
        Realized credit losses               (21)            -           (21)

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


        ---------------------------------------------------------------------
                                                                        2005
        ---------------------------------------------------------------------
                                        Specific       General
                                       allowance     allowance         Total
        ---------------------------------------------------------------------
        Balance, beginning of year  $      2,438  $      4,004  $      6,442
        Provision for credit losses         (351)        1,076           725
        Realized credit losses                 -             -             -

        ---------------------------------------------------------------------
        Balance, end of year        $      2,087  $      5,080  $      7,167
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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


        ---------------------------------------------------------------------
                                                                   Principal
                                                                   amount of
                                                         Gross  mortgages 61
                                                     principal  or more days
        2006                                            amount      past due
        ---------------------------------------------------------------------
        Residential mortgages                     $  3,313,749  $      6,415
        Other mortgages                                627,270             -
        ---------------------------------------------------------------------
        Total mortgages reported and securitized     3,941,019         6,415
        Less mortgages securitized                   1,807,479         4,690

        ---------------------------------------------------------------------
        Mortgages reported prior to accrued
         interest (note 5(a))                     $  2,133,540  $      1,725
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                                                   Principal
                                                                   amount of
                                                         Gross  mortgages 61
                                                     principal  or more days
        2005                                            amount      past due
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Residential mortgages                     $  3,157,465  $      6,476
        Other mortgages                                399,499           105
        ---------------------------------------------------------------------
        Total mortgages reported and securitized     3,556,964         6,581
        Less mortgages securitized                   1,878,405         3,775

        ---------------------------------------------------------------------
        Mortgages reported prior to accrued
         interest (note 5(a))                     $  1,678,559  $      2,806
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    6.  Other assets:

        ---------------------------------------------------------------------
                                                          2006          2005
        ---------------------------------------------------------------------
        Deferred guaranteed investment
         certificate ("GIC") commissions          $      6,288  $      5,791
        Prepaid expenses and other                       2,378           977
        Capital assets                                   2,263         1,502
        Other receivables                                1,868         1,469
        Accrued interest on non-mortgage assets          1,866           855

        ---------------------------------------------------------------------
                                                  $     14,663  $     10,594
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    7.  Customer deposits:

        ---------------------------------------------------------------------
                                                          2006          2005
        ---------------------------------------------------------------------

        Cashable GICs, payable on demand          $    570,455  $    348,885
        GICs with fixed maturity dates               1,766,011     1,423,066
        Accrued interest                                53,289        37,004

        ---------------------------------------------------------------------
                                                  $  2,389,755  $  1,808,955
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        The Company issues GICs to depositors. As at December 31, 2006, the
        estimated fair value of customer deposits is $2,336,869 (2005 -
        $1,770,063). The weighted average effective yield to maturity of
        customer deposits is 4.02% (2005 - 3.51%).

    8.  Income taxes:

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

        ---------------------------------------------------------------------
                                                          2006          2005
        ---------------------------------------------------------------------
        Canadian statutory income tax rate              36.1 %        36.1 %
        Increase (decrease) resulting from:
          Tax-exempt income                             (7.1)%        (7.1)%
          Non-deductible expenses                        0.4 %         0.5 %
          Future tax rate decreases                     (0.6)%           -

        ---------------------------------------------------------------------
        Effective income tax rate                       28.8 %        29.5 %
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        The net future income tax liability is comprised of:

        ---------------------------------------------------------------------
                                                          2006          2005
        ---------------------------------------------------------------------
        Future income tax assets:
          Allowance for credit losses             $      2,608  $      1,910
          Share issue expenses                             425           647
          Deferred mortgage fees                           608           558
          Other                                            466           415
          -------------------------------------------------------------------
                                                         4,107         3,530

        Future income tax liabilities:
          Deferred GIC commissions                       2,141         2,092
          Loan securitizations - retained interests      6,666         7,976
          -------------------------------------------------------------------
                                                         8,807        10,068

        ---------------------------------------------------------------------
        Net future income tax liability           $      4,700  $      6,538
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    9.  Other liabilities:

        ---------------------------------------------------------------------
                                                          2006          2005
        ---------------------------------------------------------------------

        Accounts payable and accrued liabilities  $      6,860  $      4,315
        Securitized mortgage servicing liability         6,044         6,460
        Mortgagor realty taxes                           5,089         5,266
        Income taxes payable                             3,571         4,666

        ---------------------------------------------------------------------
                                                  $     21,564  $     20,707
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    10. Bank term loan:

        The Company has received two non-revolving bank term loans totalling
        $34,750, $19,750 of which was received on March 17, 2005 and $15,000
        on April 17, 2006. 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 and $15,000 of
        Series 6 of the Subordinated Debentures of the Company's subsidiary,
        Equitable Trust. The loans are repayable in full at the option of the
        Company at any time during their term 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. Interest is payable monthly on the $19,750 loan at 6.37% and
        on the $15,000 loan at 6.82%.

        As at December 31, 2006, the estimated fair value of the bank term
        loan is $34,792 (2005 - $19,721).

    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.

    -------------------------------------------------------------------------
               Inter-                 Outstanding,               Outstanding,
    Debenture  est     Issue  Maturity  December                    December
    series     rate    date   date      31, 2005  Issued  Redeemed  31, 2006
    -------------------------------------------------------------------------
    Series 4  7.54% -   2003   January  $ 11,444 $     -  $ 11,444  $      -
              8.15%               2013
    Series 5  7.31% -   2004/  January    20,250       -         -    20,250
              7.58%       05      2015
    Series 6  7.27%     2006   January         -   5,000         -     5,000
                                  2016

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


    -------------------------------------------------------------------------
               Inter-                 Outstanding,               Outstanding,
    Debenture  est     Issue  Maturity  December                    December
    series     rate    date   date      31, 2004  Issued  Redeemed  31, 2005
    -------------------------------------------------------------------------
    Series 3  8.48% -   2002   January  $  3,530 $     -  $  3,530  $      -
              8.82%               2012
    Series 4  7.54% -   2003   January    11,444       -         -    11,444
              8.15%               2013
    Series 5  7.31% -   2004/  January    14,175   6,075         -    20,250
              7.58%       05      2015

    -------------------------------------------------------------------------
                                        $ 29,149 $ 6,075  $  3,530  $ 31,694
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


        As at December 31, 2006, the estimated fair value of subordinated
        debt is $25,836 (2005 - $33,074).

    12. Shareholders' equity:

       (a) Capital stock:

           Authorized:
             Unlimited preferred shares
             Unlimited common shares

           Issued:

    -------------------------------------------------------------------------
                                   2006                        2005
    -------------------------------------------------------------------------
                         Number of                   Number of
                            shares        Amount        shares        Amount
    -------------------------------------------------------------------------
    Common shares:
      Balance,
       beginning
       of year          11,781,940  $     55,510    11,680,750  $     54,815
      Issued               142,528         2,138       101,190           666
      Transfer from
       contributed surplus
       relating to the
       exercise of
       stock options             -           201             -            29

    -------------------------------------------------------------------------
    Balance,
     end of year        11,924,468  $     57,849    11,781,940  $     55,510
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


           During 2006, 142,528 (2005 - 101,190) shares were issued as a
           result of the exercise of employee stock options for cash
           consideration of $2,138 (2005 - $666) and $201 (2005 - $29) was
           transferred from contributed surplus to common shares as a result
           of these exercises.

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

           ------------------------------------------------------------------
                                                          2006          2005
           ------------------------------------------------------------------

           Basic                                    11,878,724    11,747,564
           Relating to stock options                   197,521       198,901

           ------------------------------------------------------------------
           Diluted                                  12,076,245    11,946,465
           ------------------------------------------------------------------
           ------------------------------------------------------------------


       (b) Capital requirements and dividend restrictions:

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

       (c) Stock-based compensation plan:

           Under the Company's stock option plan, options on common shares
           are periodically granted to eligible participants for terms of
           five years and vest over a four or five-year period. The maximum
           number of common shares available for issuance under the plan is
           10% of the Company's issued and outstanding common shares. The
           outstanding options expire on various dates to November 2011. A
           summary of the Company's stock option activity and related
           information for the years ended December 31, 2006 and 2005 is as
           follows:

    -------------------------------------------------------------------------
                                            2006                        2005
    -------------------------------------------------------------------------
                                        Weighted                    Weighted
                            Number       average        Number       average
                          of stock      exercise      of stock      exercise
                           options         price       options         price
    -------------------------------------------------------------------------
    Outstanding,
     beginning of year     768,539  $      18.07       809,729  $      15.86
    Granted                140,000         28.75       135,000         24.13
    Exercised             (142,528)        15.00      (101,190)         6.57
    Forfeited/cancelled    (17,000)        22.58       (75,000)        20.67

    -------------------------------------------------------------------------
    Outstanding,
     end of year           749,011         20.54       768,539         18.07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Exercisable,
     end of year           157,400  $      18.49       126,611  $      17.28

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


           The following table summarizes information relating to stock
           options outstanding and exercisable at December 31, 2006:

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

           $    9.07                       7,111           1.9             -
           $   17.50                     464,500           2.1       127,000
           $   20.40                      39,400           2.9        12,400
           $   24.25                      24,000           3.4         4,000
           $   24.10                      74,000           3.9        14,000
           $   28.75                     140,000           4.9             -

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


           Under the fair value-based method of accounting for stock options,
           the Company has recorded compensation expense in the amount of
           $413 (2005 - $397) related to grants of options under the stock
           option plan. This amount has been credited to contributed surplus.
           The fair value of options granted during the year is estimated at
           the date of grant using the Black-Scholes valuation model, with
           the following assumptions: (i) risk-free rate of 3.9% (2005 -
           3.9%); (ii) expected option life of 4.0 years (2005 - 4.0 years);
           (iii) expected volatility of 19.0% (2005 - 19.0%); and
           (iv) expected dividends of 2.3% (2005 - 2.2%). The fair value of
           each option granted was $3.49 (2005 - $2.92).

    13. Commitments and contingencies:

       (a) The Company is committed to annual payments under two
           non-cancellable operating leases for office premises through 2011
           in the total amount of approximately $882. Annual payments are:

        ---------------------------------------------------------------------
           2007                                                 $        407
           2008                                                          407
           2009                                                           28
           2010                                                           28
           2011                                                           12
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

       (b) The Company has commitments to fund a total of $279,278 (2005 -
           $307,970) of mortgages in the ordinary course of business at year
           end.

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

    14. Related party transactions:

        Certain of the Company's employees and directors have purchased GIC
        deposits and/or subordinated debt from the Company. These purchases
        were made in the ordinary course of business at terms comparable to
        those offered to unrelated parties. As at December 31, 2006,
        employees and directors have purchased $2,622 (2005 - $53,179) of GIC
        deposits and $8,425 (2005 - $7,604) of subordinated debt.

    15. Future accounting changes:

        Financial instruments:

        The Canadian Institute of Chartered Accountants has issued four new
        accounting standards: Handbook Section 3855, Financial Instruments -
        Recognition and Measurement, Handbook Section 3865, Hedges, Handbook
        Section 1530, Comprehensive Income and Handbook Section 3251, Equity,
        which are effective for the Company as of January 1, 2007. As a
        result of adopting these standards, a new category, accumulated other
        comprehensive income, will be added to shareholders' equity, and
        certain unrealized gains and losses will be reported in other
        comprehensive income until realization. Effective January 1, 2007,
        certain financial assets and liabilities will be measured at fair
        value and others at amortized cost. Any adjustment of the previous
        carrying amounts will be recognized as an adjustment to either
        accumulated other comprehensive income or retained earnings at
        January 1, 2007 and prior period financial statements will not be
        restated.

    16. Interest rate sensitivity:

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

    -------------------------------------------------------------------------
                          Floating         0 - 3        4 - 12         1 - 5
                              rate        months        months         years
    -------------------------------------------------------------------------
    Assets:(a)
      Cash and cash
       equivalents    $     21,688  $     86,154  $          -  $          -
      Effective
       interest rate          3.82%         4.20%            -             -

      Investments                -        53,492       119,781       122,802
      Effective
       interest rate             -          4.57%         4.01%         3.98%

      Loan
       securitizations
       - retained
       interests                 -         3,566         7,821        26,601
      Effective
       interest rate             -          4.99%         4.98%         5.15%

      Mortgages
       receivable(b)     1,103,742        88,776       257,118       682,766
      Effective
       interest rate          6.56%         6.37%         6.70%         6.52%

      Other assets               -             -             -             -
    -------------------------------------------------------------------------
    Total assets      $  1,125,430  $    231,988  $    384,720  $    832,169
    -------------------------------------------------------------------------


    -----------------------------------------------------------
                      Greater than  Non-interest
                           5 years     sensitive         Total
    -----------------------------------------------------------
    Assets:(a)
      Cash and cash
       equivalents    $          -  $          -  $    107,842
      Effective
       interest rate             -             -          4.12%

      Investments           23,242             -       319,317
      Effective
       interest rate         4.10%             -          4.10%

      Loan
       securitizations
       - retained
       interests           10,283              -        48,271
      Effective
       interest rate         5.17%             -          5.11%

      Mortgages
       receivable(b)            -          3,260     2,135,662
      Effective
       interest rate            -              -          6.55%

      Other assets              -         14,663        14,663
    -----------------------------------------------------------
    Total assets      $    33,525  $      17,923  $  2,625,755
    -----------------------------------------------------------



    -------------------------------------------------------------------------
                          Floating         0 - 3        4 - 12         1 - 5
                              rate        months        months         years
    -------------------------------------------------------------------------
    Liabilities:(a)
      Customer
       deposits(b)    $    570,455  $    703,951  $    354,416  $    707,644
      Effective
       interest rate          3.86%         3.99%         4.17%         4.10%

      Other                      -             -             -             -

      Bank term loan             -             -             -        34,750
      Effective
       interest rate             -             -             -          6.56%

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

    Shareholders' equity         -             -             -             -
    -------------------------------------------------------------------------
    Total liabilities
     and shareholders'
     equity           $    570,455  $    703,951  $    354,416  $    742,394
    -------------------------------------------------------------------------
    Excess (deficiency)
     of assets over
     liabilities and
     shareholders'
     equity           $    554,975  $   (471,963) $     30,304  $     89,775
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets
     - 2005           $    854,192  $    127,329  $    302,301  $    694,010
    Total liabilities
     and shareholders'
     equity - 2005         348,885       492,178       274,806       675,832
    -------------------------------------------------------------------------
    Excess (deficiency)
     of assets over
     liabilities and
     shareholders'
     equity - 2005    $    505,307  $   (364,849) $     27,495  $     18,178
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -----------------------------------------------------------
                      Greater than  Non-interest
                           5 years     sensitive         Total
    -----------------------------------------------------------
    Liabilities:(a)
      Customer
       deposits(b)    $          -  $     53,289  $  2,389,755
      Effective
       interest rate             -             -          3.93%

      Other                      -        26,264        26,264

      Bank term loan             -             -        34,750
      Effective
       interest rate             -             -          6.56%

      Subordinated
       debt(b)              25,250             -        25,250
      Effective
       interest rate          7.45%            -          7.45%

    Shareholders' equity         -       149,736       149,736
    -----------------------------------------------------------
    Total liabilities
     and shareholders'
     equity           $     25,250  $    229,289  $  2,625,755
    -----------------------------------------------------------
    Excess (deficiency)
     of assets over
     liabilities and
     shareholders'
     equity           $      8,275  $   (211,366) $          -
    -----------------------------------------------------------
    -----------------------------------------------------------
    Total assets
     - 2005           $     19,254  $     15,166  $  2,012,252
    Total liabilities
     and shareholders'
     equity - 2005          31,694       188,857     2,012,252
    -----------------------------------------------------------
    Excess (deficiency)
     of assets over
     liabilities and
     shareholders'
     equity - 2005    $    (12,440) $   (173,691) $          -
    -----------------------------------------------------------
    -----------------------------------------------------------

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


        An immediate and sustained 1% decrease in interest rates as at
        December 31, 2006 would negatively impact net interest income for the
        following 12-month period by $1,086 (2005 - $1,659) before adjusting
        for income taxes.
For further information:
For further information: Geoffrey Bledin, (416) 515-7000; Stephen
Coffey, (416) 515-7000

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