Among the highlights in Q2 2009 as compared to Q2 2008:
- The mortgage portfolio grew 9% on an annual basis to $833 million;
- Originations of $23 million declined 42% and spread percentage of
3.17% increased from 3.09% in accordance with guidance issued in Q1
- Net loss of $0.36 per share compared to a loss of $0.20 per share;
- Income before unrealized losses on derivative instruments and
future income tax expenses increased by 6.3% to $0.17 per share from
$0.16 per share.
TORONTO, Aug. 4 /CNW/ - HOMEQ Corporation (TSX: HEQ (HOMEQ or the
Company)), today announced the financial results of its predecessor, Home
Equity Income Trust (the Trust) for the quarter ended June 30, 2009.
On June 30, 2009, Home Equity Income Trust converted (the "Conversion")
from an income trust to a taxable corporation, HOMEQ Corporation. As
previously announced, HOMEQ intends to apply to the Minister of Finance for
its subsidiary, Canadian Home Income Plan ("CHIP"), to become a federally
regulated Schedule I bank to be known as HomEquity Bank. The objective of
obtaining a bank charter is to enable HomEquity Bank to access retail deposits
sourced through deposit brokers so as to grow HOMEQ's consolidated reverse
mortgage portfolio and increase its spread income. Retail deposits represent a
stable and cost effective source of funds that will be used to supplement the
wholesale funding strategy that the HOMEQ has followed since its IPO in 2002.
HOMEQ had been advised by the Office of the Superintendent of Financial
Institutions that under current federal policy, the bank application would not
be considered by the Minister until the conversion of the Trust to a corporate
structure was completed.
Subject to the review and approval of its application by the Office of
the Superintendent of Financial Institutions and the Minister of Finance,
HOMEQ anticipates operating HomEquity Bank commencing in the third quarter of
2009. Prior to obtaining the bank charter, HOMEQ has taken various actions
resulting in a temporary reduction in originations. During the quarter the
portfolio grew by 9% to $833 million and mortgage originations of $23 million
were in accordance with guidance issued in Q1 2009.
Also in accordance with guidance previously issued, during Q2 2009,
spread percentage of 3.17% was eight basis points higher than Q2 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 2 years. Should this persist, it
will continue to help to restore spread percentage to higher rates.
In mid 2008, to counteract the effect of capital market volatility, HOMEQ
increased the interest rate charged for new mortgages and also changed the
interest rate reset methodology. As a greater proportion of the mortgage
portfolio is priced using the new methodology, it is beginning to be reflected
in HOMEQ's results.
"We are pleased with the improvement in our spreads and income this
quarter. HOMEQ continues to withstand the effects of extremely uncertain
economic conditions well beyond our control and we have proved that our
business model is sound." said President and Chief Executive Officer Mr.
Summary of operating results for the second quarter
The following table is derived from and should be read in conjunction
with, the Consolidated Statements of Income and includes non-GAAP measures.
Management believes this supplementary disclosure provides useful additional
information. See Non-GAAP Measures section for a discussion of non-GAAP terms
For the For the
three months ended six months ended
June 30, June 30,
(in thousands of dollars 2009 2008 2009 2008
except per share amounts) $ $ $ $
Net income (loss) (5,066) (2,803) (1,975) 10,242
Future income tax expense
(recovery) 2,108 (1,282) 3,018 1,902
losses on derivative
instruments 5,384 6,360 3,113 (7,946)
unrealized losses on
derivative instruments and
future income tax expenses 2,426 2,277 4,156 4,200
0.171 0.162 0.293 0.300
Income before unrealized losses on derivative instruments and future
income tax expenses in Q2 2009 of $2.4 million, $0.17 per share increased 6.3%
per share over Q2 2008. During the quarter HOMEQ incurred $0.5 million of
costs associated with the Conversion. Income before unrealized losses on
derivative instruments and future income tax expenses net of these costs was
$3.0 million or $0.21 per share.
Quarterly Financial Statements and Conference Call
The Q2 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
August 5, 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 1-888-804-6663.
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 666377).
HOMEQ uses a number of financial measures to assess its performance. Some
measures are calculated in accordance with GAAP, such as operating margin and
net income. Other measures such as distributable cash and net spread are
non-GAAP measures. These measures do not have standardized meanings under GAAP
and may not be comparable to similar measures used by other trusts and
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, in particular, the establishment of
HomEquity Bank, and the likelihood of HOMEQ's success in developing and
expanding its business. These may be included in HOMEQ's or 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 Home Equity Income Trust
HOMEQ Corporation earns a return from a portfolio of reverse mortgages
originated by its wholly owned subsidiary Canadian Home Income Plan
Corporation. As of June 30, 2009, the portfolio generating cash returns to the
Trust comprised approximately 7,000 reverse mortgages with an accrued value of
$833 million, secured by residential properties across Canada worth
approximately $2.3 billion. CHIP (www.chip.ca), has been the main underwriter
of reverse mortgages in Canada since pioneering the concept in 1986.
The Company'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:
For further information: Steven K. Ranson, President and Chief Executive
Officer, (416) 413-4663 or Gary Krikler, Senior Vice President and Chief
Financial Officer, (416) 413-4679