LBS - Residential Mortgage Lending Report - July 13, 2017

JULY 13, 2017
Marc Charbin, CPA, CA, CFA
Financial Services Analyst
Tel: 416 865-5941
CharbinM@lb-securities.ca
Chris Martino
Associate
Tel: 647 252-5605
MartinoC@lb-securities.ca
ResidentialMortgageLending
First National Financial Corporation
Equitable Group Inc.
Positioning in a Changing Landscape
FN-T: $26.92 | Rating: Hold | Target price: $28.00
EQB-T: $55.46 | Rating: Buy | Target price: $74.00
Financial Services

July 13, 2017 Marc Charbin, CPA, CA, CFA, Financial Services Analyst | i
Residential Mortgage Lending
Positioning in a Changing Landscape
Market for Residential Mortgages in Canada.........................................................................................................................................1
Government Actions Have Made Little Impact Thus Far.................................................................................................................................. 1
Employment the Main Risk; Interest Rates Second......................................................................................................................................... 3
Expansion of Mortgage Credit Seems Relentless............................................................................................................................................ 4
Tailwinds with Balance Sheet Lenders… For Now........................................................................................................................................... 5
FIRST NATIONAL FINANCIAL CORPORATION
Company Profile............................................................................................................................................................................................... 8
Management Alignment/Control....................................................................................................................................................................... 9
Merlin Software a Significant Competitive Advantage...................................................................................................................................... 9
Unique Business Model among Public Mortgage Lenders............................................................................................................................. 10
Many Funding Sources .................................................................................................................................................................................. 11
Growth of Mortgages under Administration.................................................................................................................................................... 13
Many Competitors, but FN Has Staying Power.............................................................................................................................................. 14
Financial Forecast..................................................................................................................................................................................15
Q1/17 Results................................................................................................................................................................................................. 15
Impact of Mortgage Rule Changes to FN....................................................................................................................................................... 16
Significant Assumptions: Non-Single Family and Renewals Should Maintain Volume .................................................................................. 17
Valuation.................................................................................................................................................................................................19
Risks........................................................................................................................................................................................................21
Financial Statements .............................................................................................................................................................................22
Management and Board of Directors....................................................................................................................................................25
EQUITABLE GROUP INC.
Company Profile............................................................................................................................................................................................. 27
Insiders Well Aligned...................................................................................................................................................................................... 28
A Closer Look at Funding............................................................................................................................................................................... 29
Historical Loss Rates...................................................................................................................................................................................... 30
Non-Prime Residential Mortgage Market in Canada ...........................................................................................................................31
Market Size and Growth................................................................................................................................................................................. 31
Competition: Some Increasing Exposure, Others Losing Ground.................................................................................................................. 33
Financial Forecast..................................................................................................................................................................................34
Q1/17 Results a Blow Away........................................................................................................................................................................... 34
Financial Forecast Calls for Continued Growth.............................................................................................................................................. 34
Management Guidance.................................................................................................................................................................................. 36
Valuation.................................................................................................................................................................................................37
Risks........................................................................................................................................................................................................39
Financial Statements .............................................................................................................................................................................40
Management and Board of Directors....................................................................................................................................................43
Appendix I - Important Disclosures......................................................................................................................................................45

Laurentian Bank Securities | Equity Research Residential Mortgages in Canada
July 13, 2017 Marc Charbin, CPA, CA, CFA, Financial Services Analyst | 1
Market for Residential Mortgages in Canada
More Regulation Could
be Coming
There are more headwinds for mortgage lenders today than there have been since the last recession in
Canada in 2009. Federal, provincial and municipal governments are all taking material measures against
housing price appreciation as increasing employment, historically low interest rates and immigration inflow
continue to drive increases to housing prices, particularly in Vancouver and Toronto, and reaching into the
suburbs as well.
As always, government intervention will surely cause some sort of reverberation even if intended
consequences have yet to develop (i.e., house price moderation). For example, margins on insurable
mortgages are being compressed as demand for fixed income products (i.e., MBS) remains strong. This has
reduced profitability expectations for mortgage finance companies. By contrast, balance sheet lenders with
steady access to deposit funding are currently experiencing a strong inflow of volume, but have recently
experienced a sharp (yet brief) increase to deposit funding given liquidity issues with one lender in particular.
For consumers, high loan-to-value (LTV) mortgages (i.e., less than 20% down payment) are currently being
offered at lower rates than low-ratio mortgages (i.e., more than 20% down). This hardly seems fair.
Looking forward, if price appreciation persists, the federal government could move to regulate further.
Regulators are currently consulting on a potential risk-sharing framework. Furthermore, OSFI has published a
draft proposal for changes to uninsured mortgages (i.e., qualifying at rates 200bps above contract rates,
imposing maximum debt service ratios and limiting amortization periods to 25 years, down from 30). On July
6, 2017 the Office of the Superintendent of Financial Institutions (OSFI) announced that it has begun a
consultation on such a process, which will also include examining the impact of dynamic LTV mortgages
based on jurisdiction (i.e., lower LTV in areas with escalated pricing) and banning second mortgages where
they are used to circumvent regulated LTV requirements.
In this report, we examine the impact of government regulation changes to the market for mortgage finance in
Canada, as well as other key variables that may impact growth and risk going forward. For the time being, it
seems growth favours balance sheet lenders.
Government Actions Have Made Little Impact Thus Far
Price Increases Persist
Even Though Volumes
Down
In the last year, federal, provincial and municipal governments and related agencies have implemented
various measures to curb housing price appreciation, particularly in Vancouver and Toronto. Specifically:
 August 2016 – The City of Vancouver imposed a 15% tax on foreign buyers. While this tax has dampened
sales activity by approximately 30%, prices have continued to rise after falling briefly. Average pricing is now
1.5% higher than before the tax was announced and up 3.9% from December 2016.
 October 2016 – The Federal Government has likely been the most active in trying to address increased
prices, principally through limiting mortgage insurability. The largest mortgage insurer, the Canadian
Mortgage and Housing Corporation (CMHC) announced that all insured borrowers had to qualify at the 5-
year posted rate (4.65% at the time, versus 5-year fixed contract rates of ~2.50%), debt service criteria for
high-ratio mortgages would apply to low-ratio insured mortgages, and restrictions were placed on the
insurability of refinance transactions. Since these rules came into effect in November 2016, home prices are
up 6.1% across Canada and sales activity is up 7.1% on a y-y basis.
 April 2017 – The Province of Ontario also introduced a 15% foreign buyers tax, with certain exceptions.
Time will tell if this tax will have an impact. Thus far, Teranet reports that prices are up 3.6% m-m and sales
activity was up 14% y-y in May.

In Exhibit 1, we illustrate that these policy changes have likely yet to have the desired impact as prices
continue to increase, although perhaps at a lower rate of growth.
Exhibit 1. Average Prices in Canada, Vancouver, and Toronto
Source: Teranet, LBS
There are several factors that are contributing to the unabated increase to housing prices. Increasing
employment levels (particularly in non-energy producing regions) have maintained consumer confidence,
historically low interest rates continue to aid affordability and a steady stream of immigration in Canada has
also put a bid into housing.
100
120
140
160
180
200
220
240
260
May‐12
Jul‐12
Sep‐12
Nov‐12
Jan‐13
Mar‐13
May‐13
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
Sep‐14
Nov‐14
Jan‐15
Mar‐15
May‐15
Jul‐15
Sep‐15
Nov‐15
Jan‐16
Mar‐16
May‐16
Jul‐16
Sep‐16
Nov‐16
Jan‐17
Mar‐17
May‐17
Composite Vancouver Toronto Oct/16: All insured qualify at 5y posted
rates and cap on debt serivce; rules on
high-ratio extend to portfolio insured
Aug/16: City of Vancouver
imposes 15% tax on foreign
buyers
April/17: Province of Ontario
imposes 15% tax on foreign
buyers
Feb/16: Maximum LTV on houses over
$500,000 increased to 90% from 95%July/12: Max
amortization to 25y
from 30y; Max $1M
on high-ratio; cap on
GDS and TDS

Exhibit 2. Correlation of Prices and Arrears to Employment and Interest Rates
Source: Bank of Canada, StatsCan, CREA, LBS
Unemployment Rate GCAN 5-year
Price Growth (0.31) (0.37)
Arrears 0.72 0.54
Employment the Main Risk; Interest Rates Second
72% Correlation Be-
tween Arrears and
Unemployment
Record housing prices in major Canadian cities have incited pundits to stoke fears of a housing bubble for
most of the past decade. One catalyst offered for this elusive bubble to pop is the eventual increase to interest
rates from near-zero levels. Our analysis is that unemployment is likely a better indicator of housing market
conditions.
Our correlation analysis demonstrates that interest rates have a weak to moderate negative correlation to
price growth, and a moderate correlation to arrears. Unemployment has the strongest correlation to arrears,
but a weak negative correlation to price appreciation.
In Exhibit 2, we illustrate the results of our correlation analysis.
It’s more logical to us that arrears, and eventually price appreciation/declines, are tied to unemployment given
the reduced ability to pay. Increases to mortgage rates resulting in increased mortgage costs can be resolved
in the majority of cases in which the borrower has a steady income (i.e., via extending the amortization period or
reducing discretionary expenditures), while loss of employment is significantly more detrimental to ability to pay.
We emphasize this point further in Exhibits 3 and 4, which illustrate recent arrears and house price data
against unemployment. In Exhibits 3, we see that unemployment and arrears move together in lockstep.
Furthermore, despite declining mortgage rate during this period, house prices have remained essentially flat.
Exhibit 3. Arrears in Alberta versus Unemployment Exhibit 4. House Prices in Alberta versus Unemployment
Source: CBA, StatsCan, LBS Source: CBA, StatsCan, LBS
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Unemployment Arrears
0
20
40
60
80
100
120
140
160
180
200
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Unemployment House Prices

Expansion of Mortgage Credit Seems Relentless
Residential Mortgage
Credit Growing at 7.7%
Residential mortgage credit in Canada has grown relentlessly in the last 40 years. Since the mid-70s, there
has not been a single year in which residential mortgage credit has decreased, including during recessions.
Over this period, residential mortgage credit has grown at a pace of 8.6% per annum, reaching over $1.4
trillion, Exhibit 5.
Total residential mortgage credit outstanding has grown at a 7.7% CAGR since 2002, with a shifting
institutional split. The significant drop in NHA-MBS visible from 2010 to 2011 comes as a result of the
enactment of IRFS rules which removed the eligibility of a significant portion of NHA-MBS for off-balance
sheet treatment, resulting in the consolidation of those mortgages onto the balance sheets of their respective
lenders or issuers. Examining the data from this point forward (the last 6 years), the total outstanding balance
of residential mortgage credit has expanded from $1.1 trillion to $1.4 trillion. While the chartered banks
continue to dominate the majority of this value, NHA-MBS has accounted for a growing proportion of total
credit. As of Q4/16, NHA-MBS accounted for $56 billion of residential mortgage credit, a figure that excludes
securitizations which are consolidated on the banks' balance sheets as loans.
Exhibit 5. Growth of Residential Mortgage Credit in Canada by Funding Institution
Source: Bank of Canada, LBS
0
200
400
600
800
1,000
1,200
1,400
1,600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3
($Billions)
Chartered banks Mortgage Loan companies Life insurance companies Other financial institutions
Credit unions Pension funds NHA MBS SPCs (securitization)

88% of Canadians
have over 25% Equity
Although housing affordability is elevated in many centres and borrowing rates are historically low, the
December 2016 report by Mortgage Professionals Canada (formerly the Canadian Association of Accredited
Mortgage Professionals or CAAMP) indicates that there are some mitigating factors to the current risks in
housing prices:
 On average, home equity in Canada is equivalent to 74% of home values.
 89% of Canada’s 9.9 million homeowners have at least 25% equity in their homes.
 98% of homeowners have at least 10% home equity.
 Every year, more than a third of borrowers take actions to shorten their amortization periods, including lump
sum payments, higher payments or increased payment frequency. For homes purchased during the 2014
to 2016 period, buyers expect to repay their mortgages in 18.8 years (3.6 years shorter than the average
contracted period of 22.4 years).
 80% of home purchased in 2016 with a mortgage were fixed-rate mortgages and 68% of all mortgage
holders have elected to purchase fixed-rate mortgages.
Tailwinds with Balance Sheet Lenders… For Now
52% Broker Share for
Balance Sheet Lenders
Most of the federal government’s mortgage rule changes have targeted insured borrowers, whether it be
those with under 20% down payment that must purchase transactional insurance or those that are insured on
a pooled basis in order to create a more marketable fixed-income security. The message has been clear that
the government wants lenders to take on more risk.
In Exhibit 6, we illustrate that balance sheet lenders have rapidly gained share in the mortgage broker
channel, for example. Of the top ten lenders in the broker channel in Q1/17, balance sheet lenders (B/S
Lenders) accounted for 51.9% of volume, versus 46.4% in the prior year.
Exhibit 6. Broker Share by Lender Type
Source: D+H, canadamortgagetrends.com, LBS
Scotiabank 17.0% Scotiabank 14.1% Scotiabank 16.3% Scotiabank 20.0% Scotiabank 18.5% Scotiabank 23.0%
First National 13.9% First National 12.3% First National 15.2% First National 12.4% MCAP / RMG 16.0% First National 11.2%
Home Trust 8.5% Home Trust 8.8% MCAP 8.6% Street Capital 9.6% First National 11.2% Home Trust 10.7%
Street Capital 8.1% Merix Financial 8.1% Street Capital 8.4% TD 8.7% Street Capital 9.1% MCAP / RMG 10.3%
TD 7.9% MCAP 7.7% Merix Financial 6.9% Merix Financial 7.3% Home Trust 7.7% TD 7.5%
MCAP 7.5% Street Capital 7.6% RMG 6.8% Home Trust 7.1% TD 7.0% Street Capital 7.4%
Merix Financial 7.4% TD 5.8% Home Trust 6.7% MCAP 6.9% Merix Financial 6.7% Equitable Bank 5.8%
B2B Bank 4.5% RMG 5.6% TD 6.7% RMG 5.4% Equitable Bank 4.9% Merix Financial 4.4%
Equitable Bank 4.3% Equitable Bank 5.3% Equitble Bank 4.6% Equitable Bank 4.9% National Bank 3.6% B2B Bank 3.8%
National Bank 4.2% B2B Bank 3.8% B2B Bank 2.3% National Bank 2.5% B2B Bank 2.4% Canadian Western 1.1%
B/S Lenders 46.4% B/S Lenders 37.8% 36.6% 43.2% 44.1% 51.9%
MFC 36.9% MFC 41.3% 45.9% 41.6% 43.0% 33.3%
Q1/17Q4/15 Q1/16 Q2/16 Q3/16 Q4/16

In Exhibit 7, we have illustrated all Canadian pure-play mortgage lenders and their respective asset
concentration to insured and uninsured mortgages. We believe this should give investors direction on which
companies are well positioned to gain market share.
We highlight the following from Exhibit 7:
 With the current transition unfolding at Home Capital Group (HCG), the Company has stated in intends to
remain in the market for insured lending. Uninsured lending will likely always be its core product, but it
appears as though it will remain in the insured market as well. The degree to which HCG is able to
participate in this highly competitive market is unknown.
 Equitable Bank (EQB) is the most diverse lender by asset concentration, but given the relatively modest
margins of insured lending, this activity makes only a 5% contribution to revenue.
 Equity Financial (EQI) currently has no formal plans to enter the insured market.
 First National (FN) is the second most diverse of all lenders and we note that in 2016 it began to pivot
towards increased insured lending. This is illustrated by 71% of originations being insured in 2016, versus
79% of mortgages under administration with insurance. We believe this is indicative of FN adapting to
mortgage rule changes.
 While Street Capital (SCB) has historically insured all of its originations, we note that the Company has
entered the near-prime market, where it will be funding on-balance sheet mortgages with deposits through
its wholly-owned subsidiary, Street Capital Bank of Canada.
Exhibit 7. Mortgage Lender Concentration to Insured and Uninsured Mortgages in 2016
Source: D+H, canadamortgagetrends.com, LBS
HCG EQB EQI FN SCB
"Book" Expsoure
Insured 14% 40% 0% 79% 100%
Uninsured 86% 60% 100% 21% 0%
Revenue Exposure
Insured 9% 5% 0% 71% 100%
Uninsured 91% 95% 100% 29% 0%
Source: Company reports, LBS.
Balance Sheet Lenders Mortgage Finance Companies
% Loans % MUA
% Net Interest Income % Orignations

FN-T – $26.92
Hold – $28.00
Company Profile
First National Financial Corporation is a mortgage originator,
underwriter and servicer in Canada. Founded in 1988, FN currently
has close to $100 billion of mortgages under administration. The
Company is Canada’s largest non-bank originator of prime single
family mortgages. It also originates multi-unit residential and
commercial mortgages.
Source: BigCharts.com
Market and Company Data
First National: The Original Fintech
We are initiating coverage of First National Financial Corporation
with a Hold recommendation and target price of $28.00 per share.
We calculate our target price applying a 9.0x P/E multiple to 2018E EPS
of $3.13.
FN has historically traded at a P/E multiple between 7.9x and 12.0x on
average. That band has lowered in the last five years, likely due to the
market discounting residential mortgage credit in Canada, to between
7.3x and 10.8x. What used to be an average 1.6x P/E discount to the Big
6 banks is now 2.2x. Our target represents a 2.0x P/E discount to the Big
6 banks, reflecting the recent average 5-year discount.
Recurring revenue without credit risk. The term “Fintech” seems over
used, but not in the case of FN where it does not even come up. Its
business model does exactly what many financial technology firms are
striving to do: create customer facing technology to reduce transaction
friction and generate recurring revenue streams through fee income.
With FN maintaining the servicing rights to all the mortgages that it
originates, mortgage servicing income provides a stable and predictable
source of earnings, with a large pipeline of renewals. Despite mortgage
rule changes limiting the insurability of residential mortgages in
Canada, we estimate recurring revenue to increase 5.2% y-y in 2017.
Large player in a significant market. As the largest independent
originator of prime mortgages in Canada, FN is well-positioned in a
changing regulatory environment. FN has grown its mortgages under
administration at a 15% CAGR to over $99B in ten years, while achieving
7% share of Canada’s $1.4T market for residential mortgages. Its pipeline
of renewals should support originations of $21.5B in 2017E, down from
$22.7B in 2016.
Diverse funding sources provide flexibility. FN funds its originations
through institutional placements and securitization conduits. FN has
dozens of institutional investors which include banks, insurance
companies and pension funds.
Credit risk exposure. Over 99% of MUA has no residual credit risk to FN
due to the Company’s originate-to-sell (and service) model and relatively
high concentration of insured mortgage lending.
EPS growth is moderating due to mortgage rule changes. We
forecast a 2% increase to EPS in 2017E to $3.00, from $2.94 in 2016,
and to $3.13 in 2018E. The steady growth is due to higher relative
renewal volumes despite an expected 9% to 10% contraction in new
single family originations in each of the next two years.
Dividend may increase or a special dividend could be afforded. FN’s
payout ratio is ~60% on our 2017 and 2018 estimates, the low end of its
stated payout range of 60% to 70%.
Ticker Shares-Basic O/S (M) 60.0
Rating Shares-FD O/S (M) 60.0
Risk Market Cap (M) $1,614
Price Net debt (M) $118
1-Yr Target Enterprise value (M) $1,732
Yield Float O/S (M) 15.8
1-Yr ROR Avg Daily Volume (K) 60.0
52 Wk High-Low Ownership
Valuation 9.0x 2018E P/E Insiders 73.6%
Year End Institutional 4.8%
Next Reporting
EBITDA (M) Q1 Q2 Q3 Q4 Annual EV/EBITDA
F2015A $39 A $52 A $61 A $58 A $210 8.3x
F2016A $57 A $68 A $67 A $61 A $254 6.8x
F2017E $53 A $65 $68 $65 $251 6.9x
F2018E $260 6.7x
EPS Q1 Q2 Q3 Q4 Annual P/E
F2015A $0.40 A $0.58 A $0.70 A $0.65 A $2.35 11.5x
F2016A $0.64 A $0.79 A $0.80 A $0.71 A $2.94 9.2x
F2017E $0.62 A $0.78 $0.82 $0.79 $3.00 9.0x
F2018E $3.13 8.6x
Source: Company reports; CapitalIQ; LBS.
$28.00
FN-T
Hold
Medium
$26.92
6.9%
10.9%
$32.23 - $22.18
Dec-31
Jul-17

Laurentian Bank Securities | Equity Research First National Financial Corporation
Company Profile
Close to $100B in MUA First National Financial Corporation is a mortgage originator, underwriter and servicer. Founded in 1988 and
having gone public in 2006, First National currently has more than 900 employees and has grown its
mortgages under administration (MUA) to nearly $100 billion. FN is Canada’s largest independent (non-bank)
originator, underwriter and servicer of predominantly prime single family mortgages. On a smaller scale, the
Company also originates multi-unit residential (apartment) and commercial mortgages.
FN originates its single family residential mortgages almost exclusively through the mortgage broker channel
and its renewal base, while sourcing multi-unit residential and commercial mortgages through its in-house
underwriters. Operating an originate-to-sell (and service) model means FN has no residual credit risk after the
mortgages have been placed. The Company does, however, carry a balance of mortgages of approximately
$323 million that are held to maturity.
FN relies on capital markets to meet a significant portion of its funding requirements. As the Company is not
an OSFI-regulated deposit taking institution, it does not finance originations via direct deposits. First
National’s funding sources consist of institutional placements (where mortgages are sold on a fully-serviced
basis to banks, pension funds, insurance companies, etc.) and securitization vehicles, which include the
Government of Canada’s National Housing Act Mortgage Backed Securities program (NHA-MBS), Canada
Mortgage Bonds (CMB) and Asset-Backed Commercial Paper (ABCP).
We illustrate FN’s funding mix and origination mix in Exhibit FN-1 and FN-2, respectively.
10 Dividend Increases
in 11 Years
FN first became public as an income trust (100% payout ratio), and upon conversion in 2010, the payout ratio
has gradually declined as income has increased. Effective April 17, 2017, the dividend was increased to
$1.85 per share from $1.70, representing First National’s tenth dividend increase as a public company and
bringing our forecast 2017 payout ratio to 60%, at the lower end of the Company’s stated policy target payout
of 60% to 70%.
Exhibit FN-1. 2016 Funding Channel Split Exhibit FN-2. 2016 Origination Segment Split ($M)
Source: Company reports, LBS Source: Company reports, LBS
Institutional
Placement, 64%
Securitization,
34%
FN Internal
Resources, 2%
Single-Family
Residential,
$16,977 , 75%
Commercial and
Multi-Unit
Residential,
$5,785 , 25%

Management Alignment/Control
Co-foundersown 73.5% First National’s co-founders, Stephen Smith (Chairman and CEO) and Moray Tawse (Executive Vice
President) have a combined 73.5% controlling position in the Company’s common shares. As a result,
management’s interests are strongly aligned with those of minority shareholders.
Insider ownership is illustrated in Exhibit FN-3.
Merlin Software a Significant Competitive Advantage
Merlin the Origination
Backbone
Much of FN’s success can be attributed to the development of its broker-facing application, Merlin. The
software was Canada’s first web-based broker-facing software launched in Canada in the 1990s. Merlin is a
mortgage commitment platform that allows brokers to see the status of their deals with FN at any time and is
entirely paperless. At the time Merlin was launched, mortgage underwriting was still a very manual process
and many brokers had to call underwriters (who also relied on manually intensive systems) for updates on
documentation requirements and deal status. Like any financial technology, Merlin reduced friction between
brokers and underwriters by eliminating most dialogue between the two as documentation was submitted,
reviewed and finally approved or rejected.
Merlin was internally developed and is maintained and updated by First National staff.
Merlin is also the backbone to FN’s third party underwriting services. This service, launched in 2015, allows
other financial institutions (and specifically one Canadian bank) to use the Merlin platform to underwrite
mortgages in the broker channel. We believe this is a material endorsement of the technology.
Exhibit FN-3. Insider Ownership
Source: Sedi, LBS
Shares % Shares
Stephen Smith Co-founder, Chairman, CEO 23.0 38.4%
MorayTawse Co-founder, Director, EVP 21.0 35.1%
Co-founders 44.1 73.5%
Rob Inglis CFO 0.01 0.0%
John Brough Director 0.00 0.0%
Duncan Jackman Director 0.02 0.0%
Robert Mitchell Director 0.01 0.0%
Peter Copestake Director 0.02 0.0%
Barbara Palk Director 0.00 0.0%
All insiders 44.14 73.6%

Unique Business Model among Public Mortgage Lenders
First National earns revenue from net interest income on its securitized mortgages, placement fees from the
direct sale of mortgages to institutional investors and servicing income derived from the administration of the
Company’s MUA.
We describe FN’s sources of income in further detail as follows:
 Net interest income arises from the portion of the Company’s originations which are securitized through
NHA-MBS, CMB and ABCP. These transactions represent sales of mortgages from a legal perspective, but
do not meet the accounting conditions for sale recognition, therefore they are accounted for as secured
financings on which the Company earns net interest income. This income is sensitive to mortgage spreads
(the contractual rate on a mortgage less government bond yields) and origination volume. In 2016, net
interest margin represented 34% of revenue.
 Placement fees consist of cash received in excess of mortgage principal at the time of placement of
mortgages with institutional investors, and are dependent on origination volumes, the size of placement as
well as mortgage spreads. Deferred placement fees arise when mortgages are sold with spreads exceeding
a base spread, and the investor pays FN over time as it earns a net interest margin on the transaction. In
2016, placement fees (net of placement fees) were 21% of total revenue.
 Mortgage servicing income consists of fees for servicing and administration of substantially all of the
mortgages placed with institutional investors or where third party servicing agreements exist. Servicing
activities consist of mortgage administration, payment collection and processing, escrow management and
other responsibilities. Servicing is a recurring revenue stream so long as the mortgages are placed with third
parties (i.e., not securitized) and the Company is able to successfully renew mortgages. In 2016, mortgage
servicing revenue represented 31% of revenue.
As the majority of FN’s net income is attributable to mortgage servicing and net interest income from
securitized mortgages, the Company is not overly dependent on new origination activity to generate near-term
earnings, given the stability in value of the mortgage book. This provides FN with a relatively predictable
earnings stream.

Many Funding Sources
95% of Funding from
Institutions and NHA-
MBS
FN funds its originations through institutional placements and securitization conduits, which include ABCP,
NHA-MBS and the CMB. First National has been an approved issuer of NHA-MBS and seller into the CMB
since 2007, and we note that access to these vehicles has been a strong driver of the Company’s growth in
MUA.
In Exhibit FN-4, we illustrate FN’s funding of MUA in the last two years.
Exhibit FN-4. Mortgages Under Administration by Funding Source (M)
Source: Company reports, LBS
FN’s two most significant funding sources are described as follows:
1. Institutional placement. Institutional placements to banks, insurance companies and pensions typically
represent 55% to 65% of funding.
Institutional investors have historically constituted First National’s primary funding source, with some
degree of variability as illustrated in Exhibit FN-5 below. The Company’s success with this channel has
arisen from its ability to originate large volumes of low-risk prime conventional and insured mortgages,
which have consistently been a core asset category for many institutions.
2. NHA-MBS. Securitization through government sponsored conduits typically comprises 30% to 40% of the
Company’s funding.
The NHA-MBS program was initiated in 1986 to ensure low-cost funding for primarily residential insured
mortgage lending and for competition to exist in the mortgage market between monoline lenders (now also
commonly referred to as mortgage finance companies) and banks. The structure of NHA-MBS is as follows:
 Individual, insured mortgages are originated and warehoused by a bank or mortgage lender (the issuer).
 The issuer securitizes the mortgages into a pool using their NHA-MBS allocation, of which the largest pool
type is fixed-rate.
 The securitized mortgages are either sold in a syndicated or non-syndicated transaction. Often the
securitized products are held on a balance sheet in a bank’s securities portfolio or an investor’s fixed-
income portfolio, for example.
While these funding sources provide First National with flexibility to adjust the tilt of its mortgage allocation in
response to market conditions, FN’s relatively concentrated funding sources also present some risk. The
Company’s higher relative concentration to securitization channels, while providing significant funding at an
attractive cost, also exposes it to higher regulatory risk as evidenced by recent changes to mortgage rules.
Channel
Institutional Investors $55,633 59% $59,063 59%
Deferred placement investors $9,367 10% $10,418 10%
Mortgages accumulated for sale or securitization $1,739 2% $2,100 2%
Mortgages pledged under securitization $24,346 26% $25,946 26%
CMBS conduits $2,745 3% $1,865 2%
Total $93,830 100% $99,391 100%
2015 2016

We illustrate the variability to FN’s funding mix in Exhibit FN-5.
Exhibit FN-5. Origination Funding Channel Mix
Other Funding Through
$1.0B Credit Facility
and Unsecured Notes
Further to the Company’s primary funding sources described above, First National also has $175 million in
Senior Unsecured Notes outstanding (due April 9, 2020), a credit facility with a syndicate of lenders for $1.0
billion, of which $567 million was drawn as of Q1/17, and $1.0 billion in mortgages under repurchase
agreements. These funding sources are used to fund $1.8 billion in mortgages accumulated for sale.
Lastly, FN also has $97 million of Preferred Shares outstanding.
0%
10%
20%
30%
40%
50%
60%
70%
80%
2010 2011 2012 2013 2014 2015 2016
Institutional NHA-MBS / CMB / ABCP FN internal resources / CMB

Growth of Mortgages under Administration
10-Year MUA CAGR
of 15%
Over the last ten years, First National has steadily grown its mortgages under administration at a 15% CAGR
to $99.1 billion at Q1/17. It has also expanded its share of Canada’s total residential mortgage credit
outstanding from 3.3% to 7.0% over this period.
We illustrate First National’s growth in MUA and market share in Exhibit FN-6.
Exhibit FN-6. Growth in Mortgages Under Administration
Over 300,000 Mortgages
Administered
Additional details on FN’s MUA are as follows:
 The Company administered 303,389 mortgages as of Q4/16, up from 292,905 in 2015.
 FN originates mortgages for 102 institutional investors. One institution comprised 8.3% of placement fees
and servicing income in 2016, and 14% of originations.
 The average maturity of this portfolio is 41 months.
 75% of single family mortgages originated in 2016 were insured and insured mortgages represented 81% of
single family mortgages under administration.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
($Millions)
MUA (LHS) Share of total mortgage credit outstanding (RHS)

Many Competitors, but FN Has Staying Power
11.2% Market Share
in 2016
First National faces competition within the broker channel from both mortgage finance companies and certain
Canadian chartered banks. Scotiabank, First National, MCAP and Street Capital have dominated market
share of the broker channel in recent years. We illustrate market share in Exhibit FN-7.
Outside of the chartered banks, FN competes primarily with MCAP and Street Capital (SCB-T, Hold, $1.30
target). MCAP is likely FN’s most direct competitor given that it also retains servicing rights to the mortgages it
originates, while SCB outsources that function.
As increasingly more uninsured mortgages are originated through the mortgage broker channel due to
limitations placed on insurability of mortgages in the last year, we could reasonably expect FN’s market share
to decline with deposit-taking institutions like Scotiabank, Home Trust and Equitable picking up share. For
example, Scotiabank has increased its share to 23.0% from 14.1% in the last year given its ability to fund
insured and uninsured residential mortgages. Equitable Bank and B2B Bank have also steadily increased
share and Canadian Western Bank (CWB-T, Buy rated, $36.00 target) has just made an appearance in the
Top 10 in the broker channel.
In Exhibit FN-7, we also add the total share of broker volumes going to balance sheet lenders (B/S Lenders)
versus those originated by mortgage finance companies (MFCs). In Q1/17, we observe there was a very
sharp increase in broker share by balance sheet lenders (to 51.9% of the market), versus a significant drop
for mortgage finance companies (to 33.3%). These results are significant, but do not yet reflect the seasonal
impact of the mortgage market.
At this point, we do not believe this will materially change FN’s earnings profile in the near-term given its large
renewal pipeline and its demonstrated ability to scale its multi-unit and commercial segment.
Exhibit FN-7. Mortgage Broker Market Share
Source: DH Corp, canadianmortgagetrends.com, LBS
Scotiabank 17.0% Scotiabank 14.1% Scotiabank 16.3% Scotiabank 20.0% Scotiabank 18.5% Scotiabank 23.0%
First National 13.9% First National 12.3% First National 15.2% First National 12.4% MCAP / RMG 16.0% First National 11.2%
Home Trust 8.5% Home Trust 8.8% MCAP 8.6% Street Capital 9.6% First National 11.2% Home Trust 10.7%
Street Capital 8.1% Merix Financial 8.1% Street Capital 8.4% TD 8.7% Street Capital 9.1% MCAP / RMG 10.3%
TD 7.9% MCAP 7.7% Merix Financial 6.9% Merix Financial 7.3% Home Trust 7.7% TD 7.5%
MCAP 7.5% Street Capital 7.6% RMG 6.8% Home Trust 7.1% TD 7.0% Street Capital 7.4%
Merix Financial 7.4% TD 5.8% Home Trust 6.7% MCAP 6.9% Merix Financial 6.7% Equitable Bank 5.8%
B2B Bank 4.5% RMG 5.6% TD Canada Trust 6.7% RMG 5.4% Equitable Bank 4.9% Merix Financial 4.4%
Equitable Bank 4.3% Equitable Bank 5.3% Equitble Bank 4.6% Equitable Bank 4.9% National Bank 3.6% B2B Bank 3.8%
National Bank 4.2% B2B Bank 3.8% B2B Bank 2.3% National Bank 2.5% B2B Bank 2.4% Canadian Western 1.1%
B/S Lenders 46.4% 37.8% 36.6% 43.2% 44.1% 51.9%
MFC 36.9% 41.3% 45.9% 41.6% 43.0% 33.3%
Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17

Financial Forecast
Q1/17 Results
FN reported Q1/17 adjusted EPS of $0.62, down from $0.64 in the prior year. Revenue from net placement
fees declined $3 million as FN chose to securitize a greater portion of its originations relative to the prior year
(39% versus 34% in Q1/16). While securitization provides recurring income over the term of the security, the
trade-off is placement fees in the current quarter.
Q1/17 origination volumes were up 8% y-y, with multi-unit residential, commercial and renewals offsetting a
3% contraction in new single-family residential origination. New single-family residential volume of $1.9 billion
was down from $2.0 billion primarily on volume declines in Calgary and Vancouver, while new multi-
residential and commercial volume of $0.1 billion was 7% higher y-y.
Mortgages under administration increased 5% from the prior year driving mortgage servicing income growth
of 6%. We note that Q1/17 represents a seasonally weak period for mortgage lenders, including First
National, which means that we will need to see Q2/17 originations before the impact of mortgage rule
changes can be more reasonably assessed.
We summarize Q1/17 results in Exhibit FN-8.
Exhibit FN-8. Q1/17 Results
Q1/16 Q1/17 $ Var. % Var.
Originations (M) $3,963 $4,261 $298 8%
Mortgages Under Administration (M) $94,276 $99,062 $4,786 5%
Net interest margin (M) $37 $37 $1 1%
Mortgage servicing income (M) $28 $30 $2 6%
Net placement fees (M) $19 $16 ($3) (17)%
Total revenue, net of placement fees (M) $97 $97 $0 0%
Operaing expenses (M) $43 $45 $3 6%
Adjusted EBITDA (M) $57 $53 ($4) (6)%
Adjusted EPS $0.64 $0.62 ($0.02) (4)%

Impact of Mortgage Rule Changes to FN
Forecasting 1% Decrease
to Total Originations
In response to last October’s mortgage rule changes, FN has stated that it is anticipating a decline in new
single-family originations of 8% to 10%, or 2% to 3% of overall origination volume.
We identify the most significant mortgage rule changes and the impact to FN as follows:
 Stress test: Borrowers of 5-year fixed-rate high ratio mortgages must qualify based on the Bank of Canada
posted interest rate.
Impact: This could slow insured market activity, which constitutes 30% of the market, by 5% to 10%.
While not overly significant, it will be a headwind to single-family origination volumes in 2017.
 Limit imposed on insurability of conventional single-family mortgages: Low-ratio mortgages (i.e., LTV
under 80%) that are portfolio insured in order to securitize into government sponsored conduits will have to
meet the same debt service ratios as high LTV mortgages.
Impact: This could significantly reduce the amount of conventional mortgages that are insurable and
available for securitization in NHA-MBS and CMB programs, on which the Company is reliant.
 Refinanced mortgages are no longer insurable. Refinance transactions are no longer insurable but can
be underwritten conventionally for institutional investors.
Impact: This could significantly reduce the amount of insurable mortgages for securitization for FN and
its institutional investors.
 Capital changes for mortgage default insurers. The premiums for insurance on conventional loans of
65-80% LTV have increased by over 200%.
Impact. The higher insurance cost will impact net interest margins for any conventional mortgage the
Company insures and securitizes.
Furthermore, given that mortgage rules will almost certainly reduce the general availability of insured
mortgages, we would expect increased competition among lenders for the remaining volume, resulting in
tighter spreads and higher origination costs.

Significant Assumptions: Non-Single Family and Renewals
Should Maintain Volume
We summarize our major assumptions as follows:
2% EPS Growth in
2017E and 4% in
2018E
 Originations. We forecast total originations will decline 1% in 2017E and a further 3% in 2018E, decreasing
to $22.6 billion and $21.9 billion, respectively.
Most of the decline is with new single family volumes (9% decline in 2017E and 10% in 2018E) and
within management’s guidance. First National is not dependent on insured mortgages for private
placements, therefore we expect the composition of this funding channel to change in response to
mortgage rule changes.
We expect that renewal volumes will increase relative to prior years based on the pool of mortgages the
Company currently administers.
 Revenue, net of placement fees. Net interest income, mortgage servicing income and investment income
should continue to grow in-line with MUA; consequently we forecast revenue (net of placement fees) to
increase 2% in 2017E and 4% in 2018E.
Spreads on securitized mortgages are volatile and recent increases to 5-year bond yields suggests there
could be some near-term contraction, but given that this pool of mortgages has been securitized over the
last five years, we do not expect material changes to profitability in our forecast period. We forecast a
spread of 0.58% in our forecast period, versus 0.60% in 2016.
Given the lower profitability of placing uninsured mortgages with institutional investors, we have
estimated that placement fees will decline to 1.23% of institutional placements (from 1.33% in 2016) and
that brokerage fees will increase to 0.70% (from 0.60% in 2016). These estimates are consistent
throughout our forecast period.
Mortgage servicing income as a percentage of mortgages serviced remains at 0.18% throughout our
forecast period, consistent with 2016.
 Operating expenses estimated to keep increasing. Given FN’s technological tilt, we have estimated that
overhead will keep increasing at 5% on a y-y basis throughout our forecast period. Operating expenses only
increased 4.2% in 2016.
60% Payout Forecast Our assumptions calculate to adjusted EPS increasing 2% in 2017E to $3.00 and 4% in 2018E to $3.13.
The Company has established a track record of dividend growth. Our forecast 2017E payout ratio is 60%, at
the lower end of the Company’s stated policy target payout of 60% to 70%. In light of income growth and
given FN’s low credit exposure and net debt, we think there is capacity for either a near-term dividend hike or
a special dividend. Our current modeling, which excludes any further dividend increases, has payout
remaining relatively stable through 2019.
Our forecast is illustrated in Exhibit FN-9.

Exhibit FN-9. Historical Results and Forecast
2015 2016 2017E 2018E 2019E
New single family $12,880 $12,424 $11,336 $10,250 $10,250
New commercial and multi-unit $4,420 $4,811 $4,945 $5,100 $5,200
Single familyrenewal $4,287 $4,553 $5,048 $4,900 $4,900
Commercial and multi-unit renewal $923 $974 $1,232 $1,400 $1,400
Total originations $22,510 $22,762 $22,561 $21,650 $21,750
Mortgages Under Administration (M) $93,830 $99,391 $104,419 $108,318 $111,654
Net interest income (M) $132 $144 $158 $157 $148
Mortgage servicing income (M) $117 $131 $132 $143 $149
Net placement fees (M) $70 $89 $84 $86 $89
Investment income (M) $53 $57 $57 $62 $65
Total revenue, net of placement fees (M) $372 $423 $430 $447 $450
Operaing expenses (M) $171 $176 $180 $187 $195
Adjusted EBITDA (M) $210 $254 $255 $265 $260
Adjusted EPS $2.35 $2.94 $3.00 $3.13 $3.07
Payout ratio 66% 55% 60% 59% 60%

Valuation
9.0x 2018E P/E We value FN applying a 9.0x P/E multiple to 2018E EPS of $3.13.
First National currently trades at 9.3x consensus 2018 earnings, a premium to its mortgage lender peer
average of 7.3x, a slight discount to its 5-year average multiple of 9.1x and a discount to the Big 6 banks of
2.0x, relative to the 5-year average discount of 2.2x. While it is early into the post-regulatory change
environment for residential mortgages, we believe a premium multiple to peers is warranted given First
National’s recurring revenue profile and lack of credit risk.
In Exhibit FN-10 we illustrate FN’s historical P/E multiple relative to the Big 6 Canadian banks and in Exhibit
FN-11 we illustrate a comparable analysis versus all Canadian lenders.
Exhibit FN-10. Historical Results and Forecast
‐8.0x
‐6.0x
‐4.0x
‐2.0x
0.0x
2.0x
4.0x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
FN Big 6 Discount

Exhibit FN-11. Canadian Lender Comparable Analysis
P/BV Dividend
Company 2017E 2018E 2017E 2018E 2017E Yield
"Big 6" Banks 10% 5% 11.6x 11.1x 1.7x 3.9%
Canadian Western Bank 5% 15% 12.1x 10.5x 1.1x 3.3%
Laurentian Bank 3% 7% 9.4x 8.8x 1.1x 4.5%
All Banks 9% 6% 11.4x 10.7x 1.5x 4.0%
Equitable Group 7% 7% 6.4x 5.9x 0.9x 1.6%
Equity Financial N/A 91% 12.1x 6.3x 0.7x 0.0%
First National Financial (2)% 3% 9.3x 9.0x 3.1x 7.0%
Home Capital Group (75)% 31% 14.7x 11.2x 0.6x 7.2%
Street Capital (33)% 80% 11.6x 6.4x 1.0x 0.0%
Mortgage Lenders (18)% 39% 11.0x 7.2x 0.9x 2.9%
Other Lenders 10% 45% 12.6x 7.1x 1.3x 4.3%
EPS Growth P/E

Risks
Funding Risk The majority of the Company’s funding is derived through capital markets and bank lines. As such, FN has
exposure to capital markets conditions and institutional demand for mortgage products as well as the
availability of securitization vehicles. While these funding sources provide some flexibility in response to
market conditions compared to traditional deposit-taking lenders, FN’s reliance on institutional placement and
securitization also presents a risk exposure. The Company’s access to securitization channels, while
providing funding at an attractive cost, may not be limitless. The extent to which the availability of institutional
capital and securitization may be limited and could negatively impact FN’s origination capacity or reduce
profitability on funded mortgages.
Credit Risk Credit risk is the risk of losing principal and/or interest as a result of a borrower’s failure to meet its financial
obligations. Credit risk is most acute during economic recessions when wages stagnate or decline and
joblessness increases. As a prime originator with an originate-to-sell business model, we believe FN has the
lowest exposure to credit risk of all pure-play Canadian mortgage lenders.
Regulatory Risk In recent years, financial institution regulators have increased their oversight and by doing so have increased
capital requirements and have curtailed the allowable investing activities of its constituents. This trend will
likely endure for a number of years. It could be too that future shocks to the financial system could tighten
regulatory requirements further. In such an environment, it could be increasingly difficult for financial
institutions to grow at historical levels.
Regulators have also been narrowing criteria for the insurability of mortgages. This has resulted in an
increase to on-balance sheet uninsured lending in Canada. If these mortgages are not portfolio insured they
may qualify at lower interest rates and longer amortization periods than mortgages that could be securitized.
We believe it’s possible that if housing prices continue to rise, that regulators could narrow criteria for
uninsured lending as well. Unanticipated regulatory changes could include a risk-sharing framework, further
tightening of the mortgage insurance market or other changes. Any regulatory changes aimed at curtailing
credit growth could impact FN’s growth profile.
Competitive Risk FN participates in a relatively competitive market. The Company competes against larger and more diversified
financial institutions, including chartered banks, for origination activity and broker relationships. Given recent
regulatory intervention, we believe the mortgage market is particularly competitive for the insurable residential
mortgage product which is one of FN’s core products. A greater than expected contraction of mortgage
spreads due to heightened competition, particularly in the residential market, presents a risk to earnings.
Broker Risk FN relies almost exclusively on mortgage brokers to originate its mortgages. Recent events in the non-prime
mortgage lending industry have indicated that mortgage brokers can have a material impact on a lender’s
operations and that documentation from brokers is of varying quality. In addition, a reduced share of the
broker channel, or a reduced broker share of total origination activity due to a shift of volume to banks and
non-broker lenders, could present risk.
Operational Risk Other business risks include, but are not limited to, failed internal processes or systems, fraud, environmental
risk, reputational risk, unfavourable monetary or fiscal policy, the retention of key personnel, general business
conditions, and government regulations.

Financial Statements
Exhibit FN-12. Income statement ($M, except per share amounts) 2013 2014 2015 2016 Q1/17 Q2/17E Q3/17E Q4/17E 2017E 2018E 2019E
Net interest income - securitized mortgages 106 115 132 144 37 39 41 41 158 157 148
Placement fees 145 127 166 177 27 55 49 41 172 167 170
Gains on deferred placement fees 11 11 11 16 4 5 4 4 16 14 15
Mortgage investment income 54 57 53 57 14 14 14 15 57 62 65
Mortgage servicing income 93 93 117 131 30 33 34 35 132 143 149
Realized and unrealized gains/(losses) on financial instruments 44 (35) (52) 28 (3) - - - (3) - -
Total revenue 453 368 427 554 109 146 143 135 532 543 546
Brokerage fees 84 77 107 104 14 35 31 24 104 95 96
Salaries and benefits 62 68 85 88 23 24 23 23 93 97 102
Interest 29 36 36 38 10 9 9 9 37 37 37
Other operating 39 42 45 48 13 13 12 13 51 53 56
Amortization of intangible assets 6 5 5 3 - - - - - - -
Operating expenses 220 228 278 280 60 81 75 70 285 282 291
Income before income taxes 234 140 149 274 49 65 68 65 247 260 255
Income taxes 61 36 39 72 13 17 18 17 65 68 66
Net income 172 104 109 202 36 48 50 48 183 193 189
Non-controlling interest 2 3 2 2 1 - - - 1 - -
Dividend on preferred shares 5 5 3 1 1 1 1 4 5 5
Net income attributable to shareholders 170 97 102 197 35 47 49 47 178 188 184
EPS $2.75 1.620 $1.71 $3.28 $0.58 $0.78 $0.82 $0.79 $2.97 $3.13 $3.07
Adjusted EPS $2.29 $2.05 $2.35 $2.94 $0.62 $0.78 $0.82 $0.79 $3.00 $3.13 $3.07

Financial Statements (cont’d)
Exhibit FN-13. Balance Sheet ($M) 2013 2014 2015 2016 Q1/17 Q2/17E Q3/17E Q4/17E 2017E 2018E 2019E
Restricted cash 431 497 498 685 546 546 546 546 546 546 546
Cash collateral and short-term notes held by sec. trusts 25 19 29 23 22 22 22 22 22 22 22
Accounts receivable and sundry 60 71 74 92 96 96 96 96 96 96 96
Securities purchased under resale agreements and owned 1,055 1,332 974 1,308 1,085 1,085 1,085 1,085 1,085 1,085 1,085
Mortgages accumulated for sale or securitization 1,075 1,370 1,497 1,838 1,591 1,671 1,754 1,842 1,842 1,934 2,031
Mortgages pledged under securitization 17,652 22,337 24,524 26,107 26,148 26,664 26,924 26,853 26,853 27,337 27,518
Deferred placement fees receivable 34 35 38 44 45 45 45 45 45 45 45
Mortgage and loan investments 185 230 246 255 323 323 323 323 323 323 323
Other assets 50 50 46 43 44 44 44 44 44 44 44
Total assets 20,569 25,954 27,927 30,394 29,901 30,497 30,841 30,858 30,858 31,433 31,712
Bank indebtedness 274 610 583 629 567 1,159 1,223 1,291 1,291 1,316 1,345
Obligations related to securities sold under repo agreements 609 660 806 1,010 930 930 930 930 930 930 930
Accounts payable and accrued liabilities 66 95 125 122 110 110 110 110 110 110 110
Securities sold under repurchase agreements and sold short 1,050 1,331 972 1,308 1,085 1,085 1,085 1,085 1,085 1,085 1,085
Debt related to securitized and participation mortgages 17,884 22,573 24,744 26,514 26,412 26,397 26,655 26,585 26,585 27,063 27,243
Senior unsecured notes 179 176 174 175 175 175 175 175 175 175 175
Income taxes payable 4 - 10 23 - - - - - - -
Future income tax liabilities 51 57 55 63 63 63 63 63 63 63 63
Total liabilities 20,119 25,503 27,469 29,844 29,342 29,919 30,241 30,239 30,239 30,742 30,952
Common shares 123 123 123 123 123 123 123 123 123 123 123
Preferred shares 97 97 97 97 97 97 97 97 97 97 97
Retained earnings 185 193 205 302 311 330 351 371 371 443 512
Total equity 405 413 425 522 531 550 572 591 591 663 732
Non-controlling interest 45 39 33 28 28 28 28 28 28 28 28
Total liabilities and equity 20,569 25,954 27,927 30,394 29,901 30,497 30,841 30,858 30,858 31,433 31,712

Financial Statements (cont’d)
Exhibit FN-14. Statement of Cash Flow ($M) 2013 2014 2015 2016 Q1/17 Q2/17E Q3/17E Q4/17E 2017E 2018E 2019E
Net income for the period 172 104 109 202 36 48 50 48 183 188 184
Future income taxes 18 6 (2) 8 0 - - - 0 - -
Non-cash portion of gains on deferred placement fees (10) (10) (11) (16) (4) - - - (4) - -
Increase in restricted cash (96) (66) (1) (187) 139 - - - 139 - -
Net investment in mortgages pledged under securitization (4,601) (4,670) (2,168) (1,587) (36) (516) (260) 70 (742) (483) (182)
Net increase in debt related to securitized mortgages 4,631 4,683 2,167 1,785 (107) (15) 258 (70) 66 478 180
Provision for loans losses - - 3 4 1 1
Amortization of deferred placement fee receivable 18 9 8 10 3 - - - 3 - -
Amortization of purchased mortgage servicing rights 1 1 1 1 - - - - - - -
Amortization of capital assets 2 3 4 5 1 - - - 1 - -
Amortization of intangible assets 6 5 5 3 0 - - - 0 - -
Unrealized losses on fin. Instruments (19) 9 15 (30) 10 - - - 10 - -
Amortization of servicing liability - - - - - - - - - - -
Operating cash flow before working capital 122 75 130 195 44 (483) 48 49 (342) 183 182
Net change in non-cash working capital (273) (305) (117) (326) 200 (80) (84) (88) (51) (92) (97)
Cash flow from operations (151) (231) 13 (131) 244 (563) (36) (39) (393) 91 86
Additions to capital assets (3) (8) (3) (5) (2) - - - (2) - -
Investment of cash held as collateral under securitization 45 6 (10) 6 1 - - - 1 - -
Investment in mortgage and loan investments (142) (224) (183) (237) (100) - - - (100) - -
Repayment of mortgage and loan investments 131 178 165 224 32 - - - 32 - -
Investment in purchased mortgage servicing rights - - - - - - - - - - -
Investment in cash collateral and short-term notes, net - - - - - - - - - - -
Acquisition of FNFC business - - - - - - - - - - -
Investing activities 30 (48) (32) (11) (70) - - - (70) - -
Distributions paid (87) (93) (97) (104) (27) (29) (29) (29) (113) (116) (116)
Obligations related to securities sold under repo agreements 109 51 145 204 (80) - - - (80) - -
Debt related to participation mortgages (19) 6 3 (15) 5 - - - 5 - -
Securities purchased under resale agreements and owned (603) (276) 358 (334) 222 - - - 222 - -
Securities sold under repurchase agreements and sold short 602 265 (357) 350 (234) - - - (234) - -
Non-controlling interest 0 (9) (6) (5) (0) - - - (0) - -
Financing activities 2 (56) 45 97 (113) (29) (29) (29) (200) (116) (116)
Net increase in bank indebtedness during the period (119) (335) 27 (46) 62 (592) (65) (68) (662) (25) (30)

Management and Board of Directors
Stephen Smith, Co-Founder, Chairman and CEO
Mr. Smith is a co-founder of First National and has guided the Company’s growth over the last three decades.
Mr. Smith is also the Chairman of Canada Guaranty Mortgage Insurance Company and a director of The
Empire Life Insurance Company, in addition to other public service and philanthropic directorships. Mr. Smith
owns 24.2 million shares of the Company, or 40.3%.
Moray Tawse, Co-Founder, Director and EVP
Mr. Tawse is a co-founder of First National and has been instrumental to the Company’s growth over the last
three decades. Mr. Tawse is also a director of Regal Life Communities Inc. and BLF REIT. Mr. Tawse owns
22.1 million shares of the Company, or 36.8%.
Rob Inglis, CFO
Mr. Inglis joined First National in 1997 as the Director, Finance and Accounting, and became CFO in 2008.
Prior to joining the Company, Mr. Inglis was employed at Price Waterhouse.
John Brough, Director
Mr. Brough has been a director of the Company since 2006. He served as President of Wittington Properties
and Torwest Inc., and was SVP and CFO of Markborough Properties.
Duncan Jackman, Director
Mr. Jackman has been a director of the Company since 2006. He is Chairman and CEO of investment and
insurance holding company E-L Financial.
Robert Mitchell, Director
Mr. Mitchell has been a director of the Company since 2006. He was president of Dixon Mitchell Investment
Counsel Inc., and VP, Investments at Seaboard Life Insurance.
Barbara Palk, Director
Ms. Palk has been a director of the Company since 2013. She was President of TD Asset Management, has
30 years of experience in investment management and serves on several Boards.

EQB-T – $55.46
Buy – $74.00
Company Profile
Equitable Group Inc. operates through its wholly-owned subsidiary
Equitable Bank, a Schedule I chartered bank in Canada. The
Company’s core product is residential mortgages to the self-
employed, new immigrants and those with imperfect credit. The
Company also offers multi-unit and commercial mortgages.
Source: BigCharts.com
Market and Company Data
Equitable Group: Quietly Gaining Share
We are initiating coverage of Equitable Group Inc. with a Buy
recommendation and 12-month target price of $74.00. We value EQB
applying a 7.5x P/E multiple to 2018E EPS of $9.86. The valuation multiple
represents a 4.0x P/E discount to the “Big 6” Canadian Banks, which is in
line with the historical average for EQB.
Despite its historically higher growth profile, EQB is still a small lender with
less share liquidity and less diversified operations compared to the
diversified banks. We believe this discount could narrow if concerns in
Canadian real estate markets abate and the discount could potentially
widen if regulators make changes negatively impacting EQB or if economic
conditions begin to indicate weakness of Canadian consumers.
EPS growth. The consensus estimate calls for EPS growth of 7% and 6%
in 2017E and 2018E, respectively, which is more or less industry average
growth. With the reduction in deposit costs, price increases taking effect (40
bps across the single family portfolio) and improved growth prospects due to
issues with its primary competitor, we forecast EPS growth of 7% and 11%,
respectively. We forecast loan book growth at the high end of
management’s guidance (15% to 18% growth in the Alternative Single
Family loan book).
Favourable competitive landscape. With the government having reduced
insurance eligibility on a material segment of borrowers and EQB’s primary
competitor facing a run on deposits, EQB should be seeing record
application volumes. We don’t believe this will materially change its appetite
for growth, but it will certainly help the Company originate mortgages within
its risk/return parameters. We forecast Single Family originations will reach
$4.0B in 2018E, up from $3.6B in 2017E, a 12% increase.
We believe the most material risk to our forecast would be further
regulations by Canada’s federal government. Increasingly, lenders are
taking on uninsured mortgages on their balance sheets. These mortgages
can qualify at contract rates and can have extended amortization periods. If
prices continue to escalate in Canada, regulators could impose underwriting
restrictions on uninsured mortgages comparable to insured mortgages.
Insider ownership. Insiders own 13.5% of shares outstanding and the
Company’s CEO, Andrew Moor, owns 150,000 shares, making EQB’s
management and Board particularly aligned with other shareholders.
“Canada’s Challenger Bank.” While the Company’s positioning in the on-
line banking market is not necessarily visible in its earnings growth, we
believe investments made into this endeavour will help diversify funding
sources and stave off competitive threats in years to come. EQB’s direct
competitors are currently years behind EQB’s technological development,
which will include adding paperless bank accounts and GICs to the product
mix by the end of 2017.
Ticker Year End Dec. 31
Rating Next Reporting Aug-17
Risk Shares-basic O/S (M) 16.5
Price Shares-FD O/S (M) 17.1
1-Yr Target Market Cap (M) $914
Yield Float O/S (M) 14.3
1-Yr ROR Avg Daily Volume (K) 379.7
52 Wk High Ownership
52 Wk Low Manag. & Dir. 13.5%
Valuation 7.5x 2018E P/E Institutional 45.3%
EPS (FD) Q1 Q2 Q3 Q4 Annual P/E
F2016A $1.68 A $1.98 A $2.13 A $2.56 A $8.34 6.7x
F2017E $2.49 A $1.90 $2.04 $2.46 $8.92 6.2x
F2018E $9.86 5.6x
F2019E $11.36 4.9x
BVPS Q1 Q2 Q3 Q4 Annual
F2016A $50.98 A $52.72 A $54.94 A $61.05 A $56.51 1.0x
F2017E $56.16 A $57.85 $59.68 $61.93 $62.14 0.9x
F2018E $71.17 0.8x
F2019E $81.71 0.7x
Source: Company reports; CapitalIQ; LBS estimates.
1.7%
35.1%
$74.66
$36.15
EQB-T
Buy
Medium
$55.46
$74.00

Laurentian Bank Securities | Equity Research Equitable Group Inc.
Company Profile
Balance Sheet Lending
Drives 95% of Net
Interest Income
Equitable Group Inc. operates as a federally regulated Schedule I Bank in Canada through its wholly-owned
subsidiary Equitable Bank. Founded in 1970, Equitable Trust Company became Equitable Bank in 2013; the
Company’s principal operations are residential and commercial mortgage lending in Canada. Most mortgages are
sourced through broker channels, and its deposits (EQB’s primary funding source) are funded through deposit
agents, investment dealers and financial planners, though the Company also sources its own deposits directly
through its online platform. Other funding is achieved through securitization, capital markets, debt and equity.
EQB’s revenue generating activities are as follows:
 Single family lending: the core product offered to single family borrowers is targeted to the self-employed,
new immigrants and those with imperfect credit. These mortgages are uninsured and require that borrowers
fund the homes with at least 20% equity. This business segment also includes the Company’s home equity
line of credit product. As illustrated in Exhibit EQB-1, 45% of assets are concentrated in this segment.
 Commercial lending: the Company will fund mortgages against mixed-use, multi-unit residential, shopping
plazas, professional offices and industrial buildings, which typically range between $0.5 million to $25
million. This segment comprises 17% of the Company’s asset mix.
 Securitization financing: EQB also funds prime single-family and multi-unit residential properties. As these
mortgages are lower-yielding, they are funded through government sponsored securitization conduits. While
this segment comprises 38% of its asset base, it only contributes 5% to net interest income (NII).
In Exhibit EQB-1 we illustrate the Company’s assets and income by product type.
Exhibit EQB-1. EQB Assets and Income by Segment
Total ($M) % Total ($M) %
Single familylending 8,209 45%
Commercial lending 3,007 17%
Core lending 11,216 62% 252 95%
Securitization financing 6,869 38% 14 5%
Total 18,085 100% 266 100%
Assets (Q1/17) Net Interest Income (2016)

Insiders Well Aligned
13.5% Insider Owner-
ship
EQB insiders are highly aligned to stock price performance. In particular, EQB’s CEO, Andrew Moor, owns
$7.8 million in stock and, through one long-time shareholder, the Board owns 12.4% of shares outstanding.
Together, all insiders own 13.5% of common shares.
Furthermore, Stephen Smith (founder and CEO of First National Financial Corporation, FN-T, Hold rated with
$28.00 price target) owns 19.9% of EQB.
Insider ownership is illustrated in Exhibit EQB-2.
Exhibit EQB-2. Insider Ownership
Source: Sedi, LBS
Share
Ownership (M)
Value
Ownership
Ownership %
Andrew Moor CEO and Director 0.2 $8.5 0.9%
Tim Wilson CFO 0.0 $0.2 0.0%
Ron Tratch VP and CFO 0.0 $0.0 0.0%
Darren Lorimer VP Commercial Lending 0.0 $0.0 0.0%
David Downie VP Commercial Origination 0.0 $1.2 0.1%
Management 0.2 $10.0 1.1%
David LeGresley Chair 0.0 $1.0 0.1%
Eric Beutel Director 2.0 $114.0 12.2%
Johanne Brossard Director 0.0 $0.1 0.0%
Michael Emory Director 0.0 $0.1 0.0%
Kishore Kapoor Director 0.0 $0.1 0.0%
Eric Kirzner Director 0.0 $0.1 0.0%
Lynn McDonald Director 0.0 $0.2 0.0%
Rowan Saunders Director 0.0 $0.1 0.0%
Vincenza Sera Director 0.0 $0.1 0.0%
Michael Stramaglia Director 0.0 $0.1 0.0%
All Insiders 2.2 $125.9 13.5%

A Closer Look at Funding
Diversifying, Still Broker-
Centric
Deposit funding has become a headline issue with liquidity issues currently being experienced by EQB’s
primary competitor in the near- and non-prime residential mortgage lending business. These recent
developments have highlighted the vulnerability of funding through external channels (versus direct channels
such as branches or directly to consumers through online products).
In Exhibit EQB-3, we illustrate EQB’s existing funding structure. Of the Company’s total direct funding, 53% is
through deposits. Most GICs and HISAs (high interest savings accounts) are originated through the
Company’s external networks, while the recently launched EQ Bank Savings Account represents EQB’s
internal origination of deposits through direct-to-consumer mobile applications.
Regarding demand deposits, GICs are fixed in term and are matched to originations and expected renewal
volumes of mortgages. These GICs are typically not able prior to maturity, which gives the Company a degree
of predictability on levels and timing of funding.
The Company’s EQ Bank Savings Account was launched in 2016 and has quickly comprised 6% of total
funding. While this product is a demand deposit, we are supportive of the funding diversification and believe it
will increase further going forward.
Exhibit EQB-3. Funding Mix
On May 1, 2017, EQB also secured a $2.0 billion funding facility from a syndicate of Canadian banks. The
facility was secured to provide added liquidity in the event that EQB were to suffer a run on deposits or similar
type of liquidity shortage. EQB has yet to draw on the line and we do not believe there is evidence that EQB
will have to draw on this line at this time.
Furthermore, the Company expects to offer fixed term GIC products through its consumer facing application
by the end of 2017, further diversifying funding.
Total ($M) % Total ($M) % Total ($M) %
Deposits 8,115 54% 9,680 52% 9,950 53%
GIC 6,932 46% 7,276 39% 7,397 39%
Brokered HISA 948 6% 1,192 6% 1,183 6%
EQ Bank Savings 0 0% 1,062 6% 1,219 6.5%
Deposit note 236 2% 150 1% 150 1%
Securitization financing 6,109 40% 7,763 42% 7,794 41%
Secured debentures 65 0.4% 65 0% 65 0.3%
Preferred shares 73 0.5% 73 0% 73 0.4%
Retained earnings and shareholder's equity 724 5% 905 5% 951 5%
2015 2016 Q1/17

Historical Loss Rates
Historical Losses Quite
Low
If Canadians were in a recession at any point in the last ten years it wouldn’t be obvious looking at EQB’s
credit quality metrics. Since 2006, the Company has had an average write-off rate of 0.06%, which rose to
0.23% in 2009. Impairments during that period reached between 1.31% and 1.36%, versus a historical
average of 0.64%.
Granted the low write-off rate can be attributed in part to the levels of house price appreciation in Canada.
However, just as equally, the results reflect the average equity at origination of over 20% on uninsured
residential properties (loan-to-value was 69% on the residential portfolio at the end of 2016, versus 71% in
2015) and disciplined underwriting (our channel checks indicate that Equitable Bank has a reputation of only
considering “clean” deals to fund).
Historical provisioning, net write-offs and gross impaired loans are illustrated in Exhibit EQB-4.
Exhibit EQB-4. Historical Credit Quality Metrics
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1/17 Avg.
Provision for credit losses 0.05% 0.04% 0.12% 0.23% 0.31% 0.19% 0.17% 0.12% 0.04% 0.05% 0.03% 0.03% 0.11%
Net write-offs 0.00% 0.00% -0.07% 0.23% 0.15% 0.22% 0.02% 0.03% 0.01% 0.05% 0.01% 0.01% 0.06%
Gross impaired loans 0.05% 0.30% 1.31% 1.36% 1.03% 0.63% 0.71% 0.48% 0.57% 0.39% 0.37% 0.37% 0.64%

Non-Prime Residential Mortgage Market in Canada
Market Size and Growth
Market Size of $92
Billion
In our experience covering the non-prime mortgage sector, we have consistently heard some insiders
estimate the size of the Canadian market to be approximately 20% of the $1.4 trillion market for residential
mortgage credit. This analysis aims to put more rigour behind that estimate. Most often, consumers of non-
prime mortgage credit are the self-employed, new immigrants or those with limited or bruised credit. We
measure this group of consumers in Exhibit EQB-5.
With respect to our calculations in Exhibit EQB-5, we note the following:
 The total number of self-employed is derived from Statistics Canada. This segment of the employed
population is estimated to be 2.8 million Canadians in 2016 (column A). We divide this by the average
number of incomes per household (column B) to obtain an approximate number of households that could
be in the pool of non-prime mortgage candidates.
 For new immigrants, we add the total number of economic immigrants to Canada in the last two years. We
have taken two years of total immigration as this is the shortest period of time required for an individual with
limited credit history to be able to qualify for a prime mortgage. Our calculation for the recently bankrupt is
the same for new immigrants, we take the last two years of data.
On an adjusted basis, we estimate the total pool of self-employed and those with limited or bruised credit to
be 2.4 million households (Column C) and that the dollar size of the market is approximately $92 billion, or
6.6% of the market of residential mortgages outstanding.
Exhibit EQB-5. Calculation of Size of Non-prime Mortgage Market
Source: Statscan, CREA, LBS
Target (M)
Incomes per
household
Non-prime
Candidates
(M)
Imperfect
Credit
Ownership %
Equity
Between
25% and 50%
Adjusted
Candidates
(M)
Average
House Price
Equity
Market for Non-
Prime Mortgages
($B)
A B C = A/B D E F
G=
C*D*E*F
H I J=G*H*(1-I)
Self-employed 2.77 1.4 1.98 40% 69% 30% 0.16 $530,304 31.0% $60
Immigrants 0.34 1.4 0.24 100% 69% 30% 0.05 $530,304 31.0% $18
Recently bankrupt 0.26 1.4 0.18 100% 69% 30% 0.04 $530,304 31.0% $14
Total 3.11 2.40 0.25 $92

Up to 250,000 House-
holds in Non-Prime
Market
We make further adjustments to the total pool of households we estimate to comprise the market for non-
prime mortgages. Additional details on our calculations in Exhibit EQB-5 are as follows:
 We adjust the pool of self-employed for credit imperfections. For this group, we estimate that those with
limited or bruised credit (with a Beacon Score between 550 and 750) represent 40% of the Canadians. We
assume that all new immigrants and all the recently bankrupt have a limited or bruised credit history,
therefore we do not adjust this group on the basis of credit imperfections.
 We adjust our pool of potential consumers for the Canadian home ownership rate of 69.0% in column E.
 Next, we adjust for those consumers that have equity in the range of 20% to 50%. Regulated financial
institutions require at least 20% equity in Canada if a mortgage is to be uninsured. The Canadian
Association of Mortgage Professionals, in their report A Profile of Home Buying in Canada from Fall 2016,
estimates that 30% of homebuyers have equity between 20% and 50% in their homes.
 The average home price was obtained from data published by the Canadian Real Estate Association
(CREA).
 The average equity of 31% was applied from EQB’s most recent disclosure.
Based on our calculations in Exhibit EQB-5, we further refine the number of households in the non-prime
mortgage market to be 250,000.
Limiting Factor is
Regulatory Change
The factor that this analysis fails to identify is the growth in the market due to regulatory change. With
increased documentation requirements in recent years, many borrowers that could previously qualify with
traditional lenders were forced into the near- or non-prime mortgage markets. Furthermore, with the
government actively decreasing insurability of mortgages, a relatively higher concentration of mortgages is
being funded by lenders on-balance sheet, as opposed to through securitization conduits. Both of these
factors support growth for non-traditional lenders funding mortgages on-balance sheet.
Number of Borrowers
is Flat
Perhaps more important than the size of the non-prime mortgage market is the rate at which it is growing. We
illustrate the growth rates of the self-employed, economic immigrants and the recently bankrupt in Exhibit
EQB-6. Based on the calculations in Exhibit EQB-6, we note that the total pool of non-prime mortgage
consumers has been relatively flat in the last five years, with a compound growth rate of ~1%. Part of the
reason for the decline is that the number of self-employed (the largest subset) has been relatively flat and the
number of recently bankrupt has been in decline as the country moves further away from its last recession.
The growth in economic immigrants of 1.8% during that period appears to be sufficient to make this
demographic the fastest growing group of potential non-prime mortgage consumers.
Looking at the growth in the non-prime market in this way, and perhaps the entire market for mortgage credit,
indicates that the bulk of credit growth is being driven by price appreciation. However, this growth is also
subject to the limitations as described above.

Exhibit EQB-6. Non-Prime Mortgage Candidates in Canada
Source: Statscan, LBS
Competition: Some Increasing Exposure, Others Losing Ground
TwoPrimaryCompetitors Equitable Bank has one primary competitor: Home Capital Group Inc. (HCG-T, Hold rated, $17.00 target)
operating as Home Trust. Rapidly increasing its non-prime loan book is Equity Financial (EQI-T, Buy rated,
$10.00 target) and Street Capital (SCB-T, Hold rated, $1.30 target) is also entering the market for near-prime
mortgages this year through its subsidiary Street Capital Bank of Canada. The market size, non-prime loan
book and total assets of these three competitors is illustrated in Exhibit EQB-7.
We note that EQB has grown at a higher relative rate, partly because it was operating off a lower base of
mortgages in 2011. More importantly however, is that the competitive landscape was materially altered in EQB’s
favour in the last two years while HCG has had to deal with a variety of operational and regulatory concerns.
On a high level, these companies operate in the same manner: borrowers that are self-employed or that have
limited or bruised credit history are targeted, mortgages are sourced almost exclusively through mortgage
brokers, advances are funded with consumer deposits and retained earnings, operations are regulated by the
Office of the Superintendent of Financial Institutions and mortgages are held on-balance sheet.
We expect that EQB’s increased size and relatively stronger brand should allow it to remain in the top two in
market share, if not propel it to top spot in coming years.
2010 2011 2012 2013 2014 2015 2016 5-year
Population 34.0 34.3 34.8 35.2 35.5 35.7 36.3 1.1%
Total employed 13.8 14.2 14.4 14.6 14.7 14.9 15.1 1.2%
Self-employed 2.7 2.6 2.6 2.7 2.7 2.8 2.8 1.0%
Bankruptcy 0.1 0.1 0.1 0.1 0.1 0.1 0.1 1.1%
Economic immigrants 0.2 0.2 0.2 0.1 0.2 0.2 0.2 1.8%
3.0 2.9 2.9 2.9 2.9 3.1 3.1 1.0%
Exhibit EQB-7. Market for Non-Prime Mortgage Lending in Canada
Source: Bank of Canada, LBS
Market Size HCG EQB EQI SCB
2011 (B) $72 $8 $4 Nil Nil
2016 (B) $93 $15 $11 $1 Nil
5y CAGR 5% 15% 20% N/A N/A
Market share
2011 100% 11% 6% N/A N/A
2016 100% 16% 11% 1% N/A

Financial Forecast
Q1/17 Results a Blow Away
49% Y-Y EPS Growth
in Q1/17
EQB posted 49% EPS growth y-y in Q1/17, driven by an impressive 24% increase in the core loan book.
Adjusting Q1/16 EPS for $2.6M in advertising expenses incurred to launch EQ Bank’s online platform, y-y
growth was still well above loan book growth at 37%. The earnings growth was driven by an increase of 24%
in the Company’s core loan book, without a commensurate increase to non-interest expense, which grew only
2% on a y-y basis.
In Exhibit EQB-8, we highlight pertinent quarterly metrics.
Loan quality also improved for EQB on a y-y basis with impaired loans declining to 0.37% of the portfolio, from
0.40% in Q1/16. Net write-offs remained low at 0.01% in Q1/17, consistent with the level recorded in 2016.
Unfortunately for EQB, the turmoil with its largest competitor caused a sharp increase in deposit costs
subsequent to quarter end and also created substantial uncertainty with respect to deposit flows. Accordingly,
management revised its guidance for 2017, which we summarize in Exhibit EQB-10.
Financial Forecast Calls for Continued Growth
18% Loan Growth
Expected in 2017E
Our financial forecast for EQB is illustrated in Exhibit EQB-9.
We forecast that Equitable will grow earnings by 7% in 2017 and a further 11% in 2018. This growth counts
on the Company to increase the core loan book by 16% and 17% in each of the next two years, respectively,
and that non-interest expenses grow at a slower pace than net interest income.
Core lending loan book growth remains at approximately the same level as the Company is retaining
earnings. We expect that the Company will prioritize the growth in single-family lending, therefore our growth
in that portfolio is higher than in the core commercial portfolio.
We believe that EQB could post net interest margins above management’s guidance if deposit costs revert to
historical levels relative to peers and that the Company can successfully pass on its recent price increases.
Margin expansion will be limited, however, by the commitment fee on EQB’s back-stop facility, extending the
term of its GIC portfolio, and an expected increase in insurance costs.
Exhibit EQB-8. Q1/17 Results versus Prior Year
Q1/16A Q1/17A Var. % Var.
Net interest income (M) $64 $78 $15 23%
Net interest margin 2.53% 2.56% 0.03%
Provision for credit losses 0.01% 0.03% 0.02%
Adjusted net income (M) $27 $42 $15 57%
Adjusted EPS $1.68 $2.49 $0.82 49%
Core loan book (M) $9,061 $11,213 $2,152 24%

Similar to any other lender, this earnings forecast also reflects the current economic climate. If unemployment
begins to rise, particularly in Ontario, provisioning could increase from the trough levels currently being
realized by the Company. We have set our provision for credit losses increasing to 15bps in 2018E and
2019E, from an expected 8bps in 2017. These estimates are above the 10-year average of 0.11% and reflect
a growing portfolio, a reversion to the mean from trough levels and a buffer against the impact of one-off
credit events.
Exhibit EQB-9. Financial Forecast
2015 2016 2017E 2018E 2019E
Net interest income (M) $242 $279 $309 $359 $409
Net interest margin 2.75% 2.55% 2.46% 2.50% 2.50%
Provision for credit losses 0.05% 0.03% 0.08% 0.15% 0.15%
Non-interest income (M) $17 $26 $43 $40 $40
Non-interest expense (M) $88 $117 $133 $148 $161
Efficiency ratio 34.4% 38.4% 38.8% 39.0% 37.8%
Adjusted net income (M) $121 $133 $151 $167 $192
Adjusted EPS $7.75 $8.34 $8.92 $9.86 $11.36
ROE 17.9% 16.4% 15.4% 14.8% 14.9%
Core loan book (M) $8,675 $10,678 $12,216 $14,174 $15,840

Management Guidance
High-End of Loan Book
Growth; Within Range
on Margins
In Exhibit EQB-10, we illustrate management’s guidance issued subsequent to Q4/16 results and subsequent
to Q1/17 results. Given uncertainties at the time Q1/17 results were published, estimated asset growth across
all lending segments was lowered and net interest margin forecasts were also lowered.
We have summarized our estimates versus the Company’s guidance. Regarding asset growth, we are at the
high end of the updated guidance while our net interest margin assumptions are well within management’s
revised estimates. At the time of writing this report, it appears to us that many of the concerns that could have
impacted EQB a month ago seem to be abating. We believe that EQB is likely attracting much higher application
volume given the disruptions with Home Capital Group and that this should support loan book growth.
Net interest margins are slightly more uncertain. The Company’s price increases should add 40bps to interest
income yield on single-family originations, but margins will also be held back by increased deposit costs (while
these have come down from peaks, competition for deposits could escalate as the market for deposit flows
normalizes) and standby charges related to EQB’s $2.0 billion credit facility.
Exhibit EQB-10. Management Guidance
Q4/16 Guidance for 2017 Q1/17 Guidance for 2017
2017E/
2016
2017E/
Q117
2018E/
2017E
Core lending:
Alternative single family
Assets growth between 18% and 20% Assets growth between 15% and 18% 18% N/A 20%
Core lending:
Commercial
Assets growth between 10% and 12% Assets remain relatively flat 4% N/A 3%
Securitization:
Prime single family
Balance sheet and MUM grow at 25% to 30%
Balance sheet and MUM growth at mid‐
single digits
N/A
Securitization:
Multi‐unit
Balance sheet decline and MUM grows at low‐
single digits
Balance sheet decline and MUM grows at low‐
single digits
N/A
NIM:
Core lending
To decrease up to 5bps from Q4/16 Decrease up to 30bps from Q1/17 (0.09)% (0.22)% 0.04%
NIM:
Securitization
To decrease slightly from Q4/16 Consistent with Q1/17 (0.03)% (0.02)% 0.01%
NIM:
Total
Decrease by several bps from Q4/16 Decrease by up to 15bps relative to Q1/17 (0.18)% (0.04)% 0.13%
Gain on sale Consistent with 2016 Lower than 2016 (28.3)% N/A (48.5)%
Non‐interest expense Expense growth lower than 2016 (32%) Expense growth lower than 2016 (32%) 14% N/A 11%
Efficiency ratio Efficiency just above mid‐30% range Rising to high‐30% range 39% N/A 39%
(1)% 6%

Valuation
7.5x 2018E P/E We value EQB applying a 7.5x P/E multiple to 2018E EPS of $9.86. This multiple reflects a 4.0x P/E discount
to the “Big 6” banks, in line with historical average discounts for EQB.
In Exhibit EQB-11 and EQB-12 below, we illustrate EQB’s historical P/E and P/BV ratios and the discounts
against the “Big 6” Canadian Banks, respectively. Due to its size and the stock’s liquidity, it’s likely that EQB
will continue trading at a discount to its larger banking peers, despite its relatively higher forecast growth profile.
In Exhibit EQB-13, we illustrate a current Comparable Analysis for Canadian Lenders.
Exhibit EQB-11. Historical P/E Multiples Exhibit EQB-12. Historical P/BV Multiples
Source: CapitalIQ, LBS Source: CapitalIQ, LBS
(9.0)
(8.0)
(7.0)
(6.0)
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
0.0
1.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
EQB Big Banks Discount
(1.0)
(0.9)
(0.8)
(0.7)
(0.6)
(0.5)
(0.4)
(0.3)
(0.2)
(0.1)
0.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
EQB Big Banks Discount

Exhibit EQB-13. Canadian Lender Comparable Analysis
Source: CapitalIQ, LBS
P/BV Dividend
Company 2017E 2018E 2017E 2018E 2017E Yield
"Big 6" Banks 10% 5% 11.6x 11.1x 1.7x 3.9%
Canadian Western Bank 5% 15% 12.1x 10.5x 1.1x 3.3%
Laurentian Bank 3% 7% 9.4x 8.8x 1.1x 4.5%
All Banks 9% 6% 11.4x 10.7x 1.5x 4.0%
Equitable Group 7% 7% 6.4x 5.9x 0.9x 1.6%
Equity Financial N/A 91% 12.1x 6.3x 0.7x 0.0%
First National Financial (2)% 3% 9.3x 9.0x 3.1x 7.0%
Home Capital Group (75)% 31% 14.7x 11.2x 0.6x 7.2%
Street Capital (33)% 80% 11.6x 6.4x 1.0x 0.0%
Mortgage Lenders (18)% 39% 11.0x 7.2x 0.9x 2.9%
Other Lenders 10% 45% 12.6x 7.1x 1.3x 4.3%
EPS Growth P/E

Risks
Funding Risk The majority of the Company’s funding is through consumer deposits. Deposits are usually fixed in term and
matched to the term of the mortgage funded. In the event that deposit markets are unavailable to the
Company or deposit providers choose to re-allocate their capital, future growth could be at risk. This risk is not
unique to EQB; most financial institutions are capitalized in a similar manner.
In case the Company’s ability to fund with deposits becomes at risk, management has recently secured a
$2.0 billion stand-by credit facility from a syndicate of Canadian banks. This facility could alleviate a degree of
funding shortage but is by no means a fail-safe funding option.
Credit Risk Credit risk is the risk of losing principal and/or interest as a result of a borrower’s failure to meet its financial
obligations. Credit risk is most acute during economic recessions when wages stagnate or decline and
joblessness increases. We believe the down payment required by EQB will serve as an adequate buffer
against most borrower delinquencies and its historical credit metrics suggest underwriting discipline could
maintain the trend of lower loss levels than peers.
Regulatory Risk In recent years, financial institution regulators have increased their oversight and by doing so have increased
capital requirements and have curtailed the allowable investing activities of its constituents. This trend will
likely endure for a number of years. It could be too that future shocks to the financial system could tighten
regulatory requirements further. In such an environment, it could be increasingly difficult for financial
institutions to grow at historical levels.
Regulators have also been narrowing criteria for the insurability of mortgages. This has resulted in an
increase to on-balance sheet uninsured lending in Canada. If these mortgages are not portfolio insured they
may qualify at lower interest rates and longer amortization periods than mortgages that could be securitized.
We believe it’s possible that if housing prices continue to rise that regulators could narrow criteria for
uninsured lending as well.
Competitive Risk EQB competes in a relatively competitive market. Not only does EQB compete against comparable
alternative lenders, it competes with larger and more diversified financial institutions as well. We believe the
current mortgage market favours on-balance sheet lenders and, therefore, competition may not be as acute
as it is for insurable residential mortgages.
Mortgage Broker Risk EQB relies almost exclusively on mortgage brokers to originate its mortgages. Recent events in the non-prime
mortgage lending industry have indicated that mortgage brokers can have a material impact on a lender’s
operations and that documentation from brokers is of varying quality.
We will also add that, similar to other non-prime mortgage lenders, EQB relies on third-party data and its own
due diligence when underwriting a mortgage, not solely on documentation provided by mortgage brokers.
Therefore, in our view, mortgage broker risk is predominately related to origination volumes, and less so
related to credit risk.
We highlight that, in 2016, four brokerages represented between 5% and 10% of total volume. However,
lender decisions are typically made at the broker-level, as oppose to the company/brokerage level, reducing
risk to these parties.
General Business Risks Other business risks include, but are not limited to, failed internal processes or systems, fraud, environmental
risk, reputational risk, unfavourable monetary or fiscal policy, the retention of key personnel, general business
conditions, and government regulations.

Financial Statements
Exhibit EQB-14. Income statement ($M, except per share
amounts)
2013 2014 2015 2016 Q1/17 Q2/17E Q3/17E Q4/17E 2017E 2018E 2019E
Interest income 494 510 565 637 171 175 181 185 711 791 881
Interest expense 320 305 323 358 92 103 104 103 401 432 472
Net interest income 175 205 242 279 78 72 77 82 309 359 409
Provisions for credit losses 7 3 4 2 1 1 3 4 9 20 23
Net interest income after provision for credit losses 168 202 239 277 78 70 74 78 300 339 387
Fees and other income 6 8 11 18 8 8 8 14 37 37 37
Net (loss) gain on investments 1 1 (0) 0 - - - - - - -
Securitization activities 8 4 6 9 3 1 1 1 6 3 3
Other income 14 13 17 26 11 9 9 15 43 40 40
Net interest income and other income 182 215 255 303 89 79 83 93 343 379 427
Compensation benefits 34 43 50 60 16 19 19 17 72 80 88
Other 24 29 38 56 13 14 15 18 62 68 73
Non-interest expenses 58 72 88 117 30 34 34 35 133 148 161
Income before income taxes 125 144 167 187 59 45 48 58 210 231 265
Income tax expense 31 37 42 49 15 12 13 15 55 60 69
Net income before preferred share dividends 94 107 126 138 43 33 36 43 155 171 196
Preferred share dividends 1 5 5 5 1 1 1 1 5 5 5
Net income attributable to common shareholders 92 102 121 134 42 32 35 42 151 167 192
Basic EPS $5.89 $6.63 $7.83 $8.56 $2.56 $1.96 $2.10 $2.53 $9.14 $10.11 $11.64
Diluted EPS $5.82 $6.53 $7.73 $8.34 $2.49 $1.90 $2.04 $2.46 $8.92 $9.86 $11.36
Source: Company reports, LBS.

LBS - Residential Mortgage Lending Report - July 13, 2017

LBS - Residential Mortgage Lending Report - July 13, 2017

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LBS - Residential Mortgage Lending Report - July 13, 2017