Xceed Mortgage Reports Fiscal 2007 Third Quarter



    
    -   Reports strong third-quarter results as mortgage fundings increase
        24% from 2006 level and mortgages and other assets under
        administration reach $2.7 billion
    -   Net income declines slightly resulting from focus on higher credit
        quality mix of business, which entails lower spreads
    -   Recent turbulence in asset-backed commercial paper (ABCP) market
        affects short-term outlook
    -   Conference call at 10:00 a.m. (ET) today
    

    TORONTO, Sept. 13 /CNW/ - Toronto, Ontario, September 13, 2007 - Xceed
Mortgage Corporation (TSX: XMC), a leading non-traditional mortgage lender,
today announced its financial results for the third quarter and first nine
months of fiscal 2007 ended July 31, 2007. All references to quarters or years
are for the fiscal periods and all currency amounts are in Canadian dollars
unless otherwise noted.
    "Barely two weeks after Xceed had completed yet another very strong
quarter, the capital markets turmoil experienced in other countries,
particularly the United States, suddenly and dramatically swept into Canada,"
said Ivan Wahl, Chairman and Chief Executive Officer.
    "On August 13, we went from conditions of smooth sailing to a situation
of extreme turbulence following the announcement by one of Xceed's mortgage
securitization agents that it was unable to place new Asset-Backed Commercial
Paper (ABCP) to fund the repayment of previously issued ABCP that was
maturing.
    "Since that announcement, charting Xceed's course through this period of
capital markets turbulence has been the principal focus of our management
team," he continued. "At this time, we have no way of knowing how long the
current market conditions will last. For the duration of this period, it is
going to be a difficult and challenging time for our industry, Xceed, and our
investors.
    "We remain very confident that Xceed will successfully come through this
period and will emerge still a leader in the non-traditional mortgage market.
That market is not going away. It will, in fact, continue to grow over time,
although it likely will undergo some changes as the result of what the
industry now is experiencing," Mr. Wahl said.

    
    Financial Highlights - Quarterly Fundings Up 24%; Net Income Off 6%

    -   Net income for the 2007 third quarter was $6.5 million, down 6.0%
        from $6.9 million in the 2006 period. The decline is attributable to
        a 16.3% decrease in the amount realized from the sale of mortgages
        and residual securitization income in the 2007 quarter ($12.1 million
        compared with $14.5 million in the 2006 quarter). Xceed has been
        focusing more on a higher credit quality, lower loan-to-value mix of
        business, which entails lower spreads. Xceed has also encountered
        additional competition, particularly in this better credit quality
        sector.

        For the first nine months net income was $18.0 million in 2007, up
        18.7% compared with $15.1 million in the 2006 period. The amount
        realized from the sale of mortgages and residual securitization
        income in the 2007 period was up 3.1% ($38.5 million compared with
        $37.3 million in the 2006 period). Removing the effects of one-time
        charges in the first and second quarter, net income for the first
        nine months of 2007 would have been $20.8 million.

    -   Basic and diluted earnings per share were $0.24 and $0.22,
        respectively in the 2007 third quarter, compared with $0.24 and $0.23
        a year earlier. For the first nine months of 2007, basic and diluted
        earnings per share were $0.66 and $0.62 compared with $0.54 and $0.51
        in the first nine months of 2006. Removing the effects of one-time
        charges in the first and second quarter, basic and diluted earnings
        per share would have been $0.76 and $0.72, respectively, for the
        first nine months of 2007.

        During the 2007 third quarter, the company made no further purchases
        under its normal course issuer bid that had received regulatory
        approval on May 31, 2006 and has been allowed to expire. During the
        first nine months of 2007, the company purchased 270,600 common
        shares under the bid and these shares were cancelled. During the
        course of the issuer bid, the company purchased a total of 1,068,000
        of the 1,412,460 shares that it was permitted to buy.

    -   Mortgage fundings in the 2007 third quarter were $323.5 million, up
        24.2% from $260.4 million in the 2006 quarter. In the first nine
        months of 2007, Xceed's mortgage fundings were $944.7 million, a
        66.0% increased compared with $568.9 million in the 2007 period.

    -   Mortgages and other assets under administration rose 3.2% in the 2007
        third quarter to $2.7 billion from $2.6 billion at April 30, and were
        up 31.0% compared with $2.1 billion a year earlier.

    -   Return on average shareholders' equity was 22.5% in 2007 third
        quarter and 21.4% for the first nine months of the year. In 2006, the
        return on average shareholders' equity was 28.4% and 21.3% in the
        respective periods. Excluding one-time charges in the first and
        second quarter, return on average shareholders' equity would have
        been 24.4% in the first nine months of 2007.

    -   Cash flow from operations for the third-quarter 2007 was $9.7 million
        or $0.35 and $0.33 per basic and diluted share, respectively, up
        54.7% from $6.2 million ($0.22 per basic and $0.21 per diluted share)
        in the 2006 quarter. For the first nine months of 2007, normalized
        cash flow was $20.5 million or $0.75 per basic and $0.71 per diluted
        share, compared with $13.5 million or $0.48 per basic and $0.45 per
        diluted share a year earlier.
    

    Revenues in the 2007 third quarter were $17.8 million and $53.3 million
for the first nine months of the year, respectively 14.8% and 36.8% increases
from the $15.5 million and $39.0 million of revenues reported for the 2006
periods. The level of revenue growth reflects the decrease in the amount
realized from the sale of mortgages and residual securitization income in the
2007 third quarter and slight increase for the nine-month period.
    The net gain realized was 3.3% of the amount of mortgages sold in the
2007 third quarter, compared with 4.8% in the 2006 period. The lower 2007
level is lower than in recent quarters (4.1% and 4.4% in the 2007 second and
first quarters, respectively) reflecting the change made by Xceed to focus on
better-credit-profile borrowers, as well as the origination of mortgages with
lower loan-to-values and shorter terms arranged on a fixed-rate basis. Such
mortgages entail lower spread margins than the mix of business originated in
past quarters. The interest spreads its portfolio earns have also been
affected by increased competition in the alternative mortgage market,
particularly in the better credit quality (lower Beacon score) sector. As a
result, the net gain on the sale of mortgages to securitization trusts
amounted to $9.5 million in the 2007 quarter, down from $11.1 million in the
2006 period. In the first nine months of the year, the net gain on the sale of
mortgages to securitization trusts was $35.7 million, compared with
$31.1 million in the 2006 period.
    As Xceed has grown, it has increased its processing ability to manage its
mortgage fundings by hiring additional staff during the past 12 months. In the
2007 third quarter, it employed an average of 146 full-time staff, a 29.2%
increase from the average of 113 employed a year ago. Xceed views the
increased staffing as needed to handle its growing business while maintaining
its reputation for service quality. The company's productivity index was 46.1%
for the third-quarter 2007, compared with 31.1% in the 2006 period. A lower
productivity index generally is associated with a more efficient cost
structure.
    The average mortgage default ratio (90 or more days in arrears) on the
company's combined securitized and non-securitized portfolio declined to 2.53%
in the 2007 third quarter from 2.72% in the second quarter, but was up
slightly from 2.34% in 2006 period (and compared with 2.22% for all of 2006).
In the first nine months of 2007, the average mortgage default was 2.58%,
compared with 2.17% for the corresponding period a year earlier. The increase
in the 2007 levels is primarily due to the aging of the portfolio, since
defaults are less likely to occur in the early stages of a mortgage term. It
should be noted that under Xceed's current management, these default levels
have resulted in only 12 basis points per annum of losses, on average.

    Temporary Suspension of Dividend

    Despite the company's strong financial results through the first nine
months of 2007, in view of the current market turbulence and its expected
impact for several months on Xceed's performance, the company's Board of
Directors determined that it would be prudent to conserve cash and temporarily
suspend declaration of a dividend for the current period. The company's cash
dividend had been increased following the second quarter to $0.09 per share.

    Outlook - Xceed Advanced In Negotiating For New Securitization Facility

    "Our results through the third quarter of this fiscal year provide
further confirmation of the inherent strength of our business and of the
growth in the non-traditional mortgage market," said Mr. Wahl. "We were
clearly tracking well to achieve an excellent year of further growth in all
aspects of our business.
    "However, the disruption now being experienced in capital markets,
including Canada, has created a very different environment and while we remain
confident about the long-term prospects for our industry and for Xceed, in
particular, the shorter term will be a difficult period," he said.
    As a result of this market disruption, one of the funding conduits to
which Xceed has sold mortgage assets has extended the term of extendible ABCP
(in accordance with the terms of that paper). While this market disruption
continues, new blocks of extendible ABCP mature on a daily basis and are also
extended. Extendible ABCP are notes that are not supported by liquidity
facilities. Their terms provide for the automatic extension of the notes that,
when combined with the original term of the notes, can be up to 364 days in
the event of a market disruption.
    The effects of these events on Xceed are twofold. First, those investors
who are holders of the extended ABCP are, in effect, providing liquidity in
accordance with the terms of that paper and receive a premium yield reward of
110 basis points for continuing to hold these R1(high)-rated assets during the
extension period.
    Imputing the current extended ABCP pricing into the cost of funds paid by
Xceed to fund that portion of its portfolio that is funded by extended ABCP,
this could translate into approximately $1.0 million of foregone operating
cash flows per month, while these conditions last. This would result in a
commensurate write-down of the net securitization receivable which represents
the net present value of these residual cash flows.
    Second, Xceed is in the latter stages of negotiating a new securitization
facility. Given the current costs associated with funding in a bank-sponsored,
global-style liquidity facility, any securitization sales transacted will be
more expensive to perform. As such, Xceed expects to achieve near-break-even
economics on any securitization sales made in the fiscal fourth quarter.
    The company has been actively reviewing the breadth and pricing of its
product offerings to manage future origination volumes at sustainable levels.
In pursuing the continual enhancement and diversification of funding sources,
in addition to the new securitization facility being negotiated, Xceed's
management has been in discussion with several Canadian and international
providers of warehouse facilities to establish additional warehouse capacity.
Management has also been in discussion with several mortgage insurance
companies to establish liquidity for its underlying mortgage assets. While
there are no assurances that new facilities will be available during this time
of market disruption, the company expects to be successful in arranging
additional funding for Xceed's business.
    In the meantime, Xceed is using its existing warehouse facility of
$350 million to provide funding for new mortgage originations for the next
several months and it expects to be able to sell these assets to the new
securitization facility.
    "Despite the rapid and unexpected widening of spreads encountered during
this period of turbulence," Mr. Wahl stated, "Xceed has decided to honor all
mortgage commitments made to its customers, without raising the interest rate
pricing on those commitments."
    Given that a portion of Xceed's portfolio is currently funded by extended
ABCP and wider market credit spreads associated with ABCP prevail, these are
expected to have a negative impact on Xceed's profitability and cash flows.
The magnitude of the effect will depend on the size of the increase in market
spreads and for how long such conditions last.
    Xceed cannot predict how long this period of market turbulence and
widening credit spreads will last, nor can it predict the extent to which the
market disruption will affect the special purpose entities' (the trusts)
ability to raise funds to continue to finance their operations. Since the
company is unable to predict if, or when, the balance between supply and
demand in the Canadian ABCP market will be restored, it is also unable to
predict whether ABCP spreads and liquidity will return to historic levels.
    "It is important to note that the Canadian housing market remains
healthy," Mr. Wahl stated. "Canadian mortgage markets have performed
significantly better than their United States counterparts, with defaults and
losses that are a fraction of those found within the U.S. market. At
origination, Xceed's securitized mortgage loan-to-values have averaged
approximately 83% - which of course does not take into consideration real
estate market appreciation since origination. Mortgages originated and
administered within our portfolios have, in specific, performed within the
expectations communicated to investors when these were sold to the trusts,
and, as such, continue to be rated in accordance with their R-1(high) rating."

    Conference Call and Webcast

    Xceed will hold a conference call for analysts and investors to discuss
its third quarter results on September 13, 2007 at 10:00 a.m. (Eastern).
    Ivan Wahl, Chairman and Chief Executive Officer, Michael Jones, President
and Chief Operating Officer, and John Ayanoglou, Chief Financial Officer, will
be available to answer questions during the call.
    To participate in the call, please dial 416-644-3420 or 1-800-732-1073 at
least five minutes prior to the start of the call.
    A live audio webcast of the conference call will be available at
www.newswire.ca and www.xceedmortgage.com.
    An archived recording of the call will be available at 416-640-1917 or
1-877-289-8525 (Passcode 2124601 followed by the number sign) from noon on
September 13 to 11:59 p.m. on September 20. An archived recording of the
webcast will also be available at Xceed's website.
    Xceed has filed its fiscal 2007 third-quarter financial statements and
management's discussion and analysis with SEDAR and they will be posted on the
company's website.

    About Xceed

    Xceed is one of a new breed of alternative residential mortgage lenders
in Canada. Xceed helps Canadians fulfill their aspirations of home ownership.
Its borrowers range from those who have solid credit and income histories, but
have not managed to save a down payment, to those who have gone through
periods with limited and specific credit difficulties but have since recovered
and repaired their credit. A growing proportion of Xceed's applicants are
renters, self-employed entrepreneurs, and recent immigrants to Canada, who may
otherwise not conform to major banks' electronic credit-scoring criteria.
    By meeting the needs of Canadians for alternative financing, Xceed
Mortgage Corporation has grown to become one of the largest non-traditional
residential mortgage financing companies in Canada, with mortgage and other
assets under administration of approximately $2.7 billion. Xceed operates in a
market that is estimated to have a potential size of approximately
$70 billion. Xceed's shares are traded on the Toronto Stock Exchange
(TSX: XMC). To find out more about Xceed Mortgage Corporation, visit our
website at www.xceedmortgage.com.

    Forward-Looking Statements

    Forward-looking statements in this document are based on current
expectations that are subject to significant risks and uncertainties. Actual
results might differ materially due to various factors such as the competitive
nature of the mortgage industry, the ability of Xceed to continue to execute
its growth and development strategy, and the reliance of Xceed on key
personnel. Xceed assumes no obligation to update these forward-looking
statements, or to update the reasons why actual results could differ from
those reflected in these. Additional information identifying risks and
uncertainties is contained in Xceed's regulatory filings available on its
website and at www.sedar.com.

    
    XCEED MORTGAGE CORPORATION
    INTERIM CONSOLIDATED BALANCE SHEETS
    (unaudited)

    (in thousands of dollars)
    -------------------------------------------------------------------------
                                                          As at        As at
                                                        July 31,  October 31,
                                                           2007         2006
                                                              $            $
    -------------------------------------------------------------------------
    Assets
    Cash and cash equivalents                            11,353        9,943
    Investment in notes                                  15,000            -
    Cash collateral and other deposits receivable
     from Trusts                                         10,655        5,154
    Deferred net mortgage interest receivable            93,743       79,498
    Mortgages                                           129,252       73,535
    Accounts receivable                                   8,896       11,504
    Deferred charges                                      5,808        7,540
    Fixed assets, net                                     1,994        1,883
    Future income tax asset                                   -        1,356
    -------------------------------------------------------------------------
                                                        276,701      190,413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Credit facilities                                    94,849       35,381
    Accounts payable and accrued liabilities             30,972       23,673
    Derivative instruments                                  110            -
    Mortgage commitments                                     24            -
    Future and other income taxes                        33,544       29,941
    -------------------------------------------------------------------------
    Total Liabilities                                   159,499       88,995
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock                                        57,274       57,090
    Contributed surplus                                   1,193          505
    Retained earnings                                    58,735       43,823
    -------------------------------------------------------------------------
    Total Shareholders' Equity                          117,202      101,418
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                        276,701      190,413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    XCEED MORTGAGE CORPORATION
    INTERIM CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    (unaudited)

    (in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                                              Three months       Nine months
                                                     ended             ended
                                          July 31, July 31, July 31, July 31,
                                             2007     2006     2007     2006
                                                $        $        $        $
    -------------------------------------------------------------------------
    Revenues
    Securitization income                  12,109   14,466   38,484   37,316
    Realized and unrealized gains
     on financial instruments                 364        -    1,948        -
    Interest earned                         3,447    1,207    7,889    3,143
    -------------------------------------------------------------------------
                                           15,920   15,673   48,321   40,459
    Add: Net origination income (costs)     1,929     (126)   4,978   (1,496)
    -------------------------------------------------------------------------
                                           17,849   15,547   53,299   38,963
    -------------------------------------------------------------------------

    Expenses
    Compensation and benefits               3,420    2,594   10,948    7,764
    Interest                                2,201      335    4,623      743
    Other operating                         2,158    1,936    9,988    6,777
    -------------------------------------------------------------------------
                                            7,779    4,865   25,559   15,284
    -------------------------------------------------------------------------
    Income before income taxes             10,070   10,682   27,740   23,679
    Provision for income taxes              3,598    3,795    9,759    8,531
    -------------------------------------------------------------------------

    Net income for the period               6,472    6,887   17,981   15,148

    -------------------------------------------------------------------------
    Retained earnings, beginning
     of period                             54,760   36,147   43,823   30,428
    Add:   Transition adjustment on
            adoption of financial
            instruments standards               -        -    4,775        -
    Less:  Dividends declared              (2,497)  (1,686)  (6,593)  (4,228)
    Less:  Shares purchased for
            Cancellation                        -   (1,215)  (1,251)  (1,215)
    -------------------------------------------------------------------------
    Retained earnings, end of period       58,735   40,133   58,735   40,133
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    XCEED MORTGAGE CORPORATION
    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)

    (in thousands of dollars)
    -------------------------------------------------------------------------
                                              Three months       Nine months
                                                     ended             ended
                                          July 31, July 31, July 31, July 31,
                                             2007     2006     2007     2006
                                                $        $        $        $
    -------------------------------------------------------------------------
    Operating activities
    Net income for the period               6,472    6,887   17,981   15,148
    Items not affecting operating cash:
      Net gain on sale of mortgages        (9,513) (11,070) (35,697) (31,096)
      Amortization of deferred net
       mortgage interest receivable        11,194    8,859   32,698   24,591
      Amortization of servicing fee        (1,054)    (753)  (2,916)  (2,160)
      Amortization of fixed assets            215      173      610      480
      Amortization of deferred charges        559      577    1,650    1,137
      Unrealized loss (gain) from
       financial instruments                2,772        -    2,086        -
      Net future income taxes                (976)   1,576    1,876    3,794
    -------------------------------------------------------------------------
                                            9,670    6,249   18,288   11,894
    Other changes in non-cash net assets  (38,888)  (8,718) (53,898)  32,447
    -------------------------------------------------------------------------
                                          (29,218)  (2,469) (35,610)  44,341
    -------------------------------------------------------------------------
    Investing activities
    Sale of notes                             391   12,797   15,726   27,489
    Purchase of notes                      (5,391)  (6,965) (30,726) (23,090)
    Net increase (decrease) in
     deferred charges                        (563)    (654)      82   (4,830)
    Purchase of fixed assets                 (425)    (306)    (721)  (1,276)
    -------------------------------------------------------------------------
                                           (5,988)   4,872  (15,639)  (1,707)
    -------------------------------------------------------------------------
    Financing activities
    Credit facilities, net of repayments   40,103    3,496   59,467  (34,681)
    Share buyback                               -   (1,832)  (1,813)  (1,832)
    Proceeds from treasury shares             747        -      747        -
    Dividends paid                         (2,174)  (1,412)  (5,742)  (3,390)
    -------------------------------------------------------------------------
                                           38,676      252   52,659  (39,903)
    -------------------------------------------------------------------------
    Net increase (decrease) in cash and
     cash equivalents                       3,470    2,655    1,410    2,731
    Cash and cash equivalents,
     beginning of period                    7,883    2,856    9,943    2,780
    -------------------------------------------------------------------------
    Cash and cash equivalents, end
     of period                             11,353    5,511   11,353    5,511
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the interim consolidated financial statements
    





For further information:

For further information: please contact Investor and Media Relations:
Richard Wertheim, Wertheim + Company Inc., (416) 594-1600 or (416) 518-8479
cell, wertheim@wertheim.ca

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