HOMEQ Corporation Announces the Release of its Third Quarter 2009 Financial Results
Highlights in the quarter included:
- New mortgage originations of $29.5 million, the highest level since Q3 2008
- Net loss per share of $0.01 compared to net income per share of $0.25 in Q3 2008
- Adjusted net income per share of $0.15 compared to $0.09 in Q3 2008
Toronto, November 5, 2009 - HOMEQ Corporation [TSX: HEQ (HOMEQ or the Company)], today announced its financial results for the quarter ended September 30, 2009.
On October 13, 2009, HOMEQ announced that its operating subsidiary, Canadian Home Income Plan Corporation, had received its Letters Patent and Order to Commence as a federally regulated Schedule I bank from the Minister of Finance. The new bank is called HomEquity Bank and is a strategic initiative that will allow access to additional cost-effective and reliable sources of funding from retail deposits. Retail deposits will be used to supplement the wholesale funding strategy that HOMEQ has followed since its IPO in 2002. This will directly enhance HOMEQ's ability to offer competitively positioned products and services to meet client needs and grow the business.
"We are extremely gratified with our success in achieving our new status, and Canadian seniors will benefit from lower interest rates on reverse mortgages as a result of HomEquity Bank's diversified sources of funding and lower cost of borrowing," said President and Chief Executive Officer, Mr. Steven Ranson.
During the last two years HOMEQ has operated in an environment of extreme uncertainty. Starting in late 2008, actions were taken to reduce the level of new mortgage originations by up to 50% in order to conserve cash. With the anticipation of the imminent launch of HomEquity Bank, in Q3 2009 many of those actions were reversed in order to restore the previous growth rate. The result was that originations in Q3 2009 of $29.5 million were 78% of that achieved in Q3, 2008 and the highest since that date.
Spread percentage in the quarter of 3.20% was 16 basis points higher than Q3 2008, and was the highest achieved since Q1 2008. The Canadian debt capital markets have recently been more consistent with historic experience than has been the case since Q3 2007. In particular, the difference between the Prime Rate and the rate on Government of Canada Treasury Bills, on which mortgage rates have in the past been based, and the rate on Bankers' Acceptances, on which HOMEQ's debt and hedging instruments are based, have returned to historical norms after deviating significantly over the last two years.
This quarter marks the first period in which our financial statements and management discussion and analysis have been prepared as a financial institution rather than as an income trust. The relevant disclosure and pertinent measures are consistent with financial industry practice in this regard. The significant change in the corporate structure from an income trust to a taxable entity, and the relevant change in presentation may make comparison to prior year periods somewhat inconsistent for the forthcoming year.
Net loss for the quarter was $0.2 million ($0.01 per share) compared to net income of $3.5 million ($0.25 per share) in Q3 2008. In the quarter HOMEQ increased its provision for credit losses by $1.7 million ($1.2 million after tax) which reduced net income per share by $0.08. Adjusted net income was $2.1 million ($0.15 per share) compared to $1.3 million ($0.09 per share) in Q3 2008. Adjusted return on equity (annualized) for the quarter was 9.7% in comparison to 5.7% in Q3 2008. In calculating adjusted net income and adjusted return on equity HOMEQ removes certain items from reported results as it believes that these items are not indicative of the underlying business performance.
Subsequent to the end of the quarter, HomEquity Bank's subsidiary CHIP Mortgage Trust successfully issued $150 million of medium term notes at favourable rates, and the proceeds were used to repay an equivalent amount of medium term notes that matured on November 1, 2009. In addition, HomEquity Bank issued $10 million of subordinated medium term notes due October 31, 2014. The proceeds were used to repurchase an equivalent amount of subordinated medium term notes maturing in November 2012. The new subordinated notes qualify as Tier 2 B Capital of HomEquity Bank thus increasing its regulatory capital. The pro-forma total capital ratio of HomEquity Bank at September 30, 2009, including the impact of these notes, would have been in excess of 17% and its assets to capital multiple would have been 11.3 times.
"Over the last two years we have proven the soundness of our business model and have been able to withstand the effects of extremely uncertain economic conditions well beyond our control" continued Mr. Ranson. "Our immediate goal is to build on the tremendous achievement of becoming a bank and to return to the growth rate we enjoyed prior to the financial crisis."
Quarterly Financial Statements and Conference Call
The Q3 2009 interim financial statements are available on HOMEQ's website at www.homeq.ca and www.sedar.com.
HOMEQ will hold a conference call to discuss these financial results on November 6, 2009, at 9:00 am (Eastern).
Available on the call to answer questions will be Steven Ranson, President and Chief Executive Officer, and Gary Krikler, Senior Vice President and Chief Financial Officer.
To participate in the conference call, please dial 1-888-892-3255.
A live audio webcast (listen-only mode) of the conference call will be available at www.homeq.ca.
An archived recording of the call will be available at 1-800-937-6305 (conference ID 190427).
Forward Looking Statements
HOMEQ Corporation from time to time makes written and verbal forward-looking statements about business objectives, operations, performance, and financial condition, including the likelihood of HOMEQ's success in developing and expanding its business. These may be included in HOMEQ's and its predecessor's annual reports, regulatory filings, reports to shareholders, press releases, presentations and other communications. These forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of HOMEQ. Actual results may differ materially from those expressed or implied by such forward-looking statements. HOMEQ does not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time.
About HOMEQ Corporation
HOMEQ's wholly owned subsidiary HomEquity Bank is Canada's newest Schedule 1 bank. HomEquity Bank is the only national provider of reverse mortgages to homeowners aged 60 and over, Canada's fastest growing demographic segment. HomEquity Bank originates and administers Canada's largest portfolio of reverse mortgages under the CHIP Home Income Plan brand. As of September 30, 2009, the mortgage portfolio comprised approximately 7,000 reverse mortgages with an accrued value of $837 million, secured by residential properties across Canada worth approximately $2.3 billion. HomEquity Bank's predecessor, Canadian Home Income Plan Corporation, has been the main underwriter of reverse mortgages in Canada since pioneering the concept in 1986.
HOMEQ's shares trade on the Toronto Stock Exchange under the symbol HEQ. Additional information on HOMEQ, including annual and quarterly reports can be viewed at www.homeq.ca.
For further information, please contact: Gary Krikler, Senior Vice President and Chief Financial Officer, (416) 413-4679, or Scott Cameron, Vice President, Finance, (416) 413-6605.