Xceed Mortgage Reports Fiscal 2007 Year-end Results



    
    -   Mortgage fundings increase 30.6% in 2007 to $1.14 billion; mortgages
        and other assets under administration up 19.2% in the year to
        $2.7 billion
    -   Fourth-quarter after-tax write-down of $18.5 million results in net
        loss for the year and fourth quarter
    -   Conference call at 10:00 a.m. (ET) today
    

    TORONTO, Jan. 17 /CNW/ - Xceed Mortgage Corporation (TSX: XMC), a leading
non-traditional mortgage lender, today announced its financial results for the
fiscal 2007 year end fourth quarter ended October 31, 2007. All references to
quarters or years are for the fiscal periods and all currency amounts are in
Canadian dollars unless otherwise noted.
    "Xceed was achieving solid financial growth through the first nine months
of our fiscal year," said Ivan Wahl, Chairman and Chief Executive Officer,
"and we expected to achieve record results in all of the key aspects of our
business. However, early in our fourth quarter, on August 13, that picture
suddenly and dramatically changed when the securitization agent of one of our
trusts holding Xceed's mortgage securities as assets announced it was unable
to place new Asset-Backed Commercial Paper (ABCP) to fund the repayment of
previously issued ABCP that was maturing.
    "That announcement set off a period of extreme capital market turbulence
in Canada. The effects are still being felt. The financial results for the
fourth quarter and year-end that we are today reporting do not meet the
expectations we had last summer.
    "Our profitability is directly affected by the magnitude of the spread
margins associated with our mortgage product offerings and a significant
factor determining this is the cost of the capital used to fund the portfolio.
As the securitization agent could not roll over its ABCP, it extended the term
of the extendable ABCP for up to one year. As the result of the situation that
developed, a significant portion of Xceed's mortgage portfolio now is funded
by the extendable ABCP at the wider market credit spreads that have prevailed
since last August. This has negatively impacted our profitability and cash
flow," Mr. Wahl said.
    "Reflecting this, we have taken an after-tax valuation write-down of our
deferred net mortgage interest receivable amounting to $18.5 million
($28.1 million before tax) during the fiscal fourth quarter. This is
consistent with the news release that we issued on November 9, 2007, advising
that Xceed expected to take an after-tax charge of between $17 million and $20
million when valuing the deferred net mortgage interest receivable on our
balance sheet.
    "This write-down charge more than offset the profitability of our
operations and resulted in our incurring a net loss for the 2007 fourth
quarter and the year. In determining the amount of the write-down, we assumed
that the increased credit spreads will continue over the full term of the
mortgages affected. Accordingly, we remain confident that, as stated on
November 9, we have captured the maximum effect of this event on Xceed's
balance sheet," Mr. Wahl said.

    Financial Highlights for 2007 and the Fourth Quarter

    
    -   Including the after-tax $18.5 million valuation write-down taken in
        the fourth quarter, the company recorded a net loss for 2007 and the
        fourth quarter of $4.5 million and $22.5 million, respectively. The
        company also took pre-tax write-offs of $1.1 million and $2.8 million
        in the 2007 first and fourth quarters, respectively, related to
        infrastructure and other expenditures from which it no longer expects
        to benefit. Excluding the effect of the write-down and other one-time
        items, including infrastructure write-offs, Xceed's adjusted net
        income was $18.6 million for 2007, compared with $21.8 million for
        2006.

        The decline in net income, excluding the write-down and one time
        items, is largely attributable to decreases in the amounts realized
        from the sale of mortgages in the 2007 fourth quarter and for the
        year compared with the 2006 levels. Sales of mortgages to
        securitization vehicles in 2007 and in the fourth quarter amounted to
        $1.141 billion and $218.3 million respectively, not including the
        sale of previously originated and securitized mortgages to Xceed
        Mortgage Trust, compared with $851.4 million and $283.1 million in
        the respective 2006 periods.

        The net gain on sale of mortgages was $35.6 million for 2007 and
        $41.6 million in 2006, not including effects of selling previously
        originated and securitized mortgages to Xceed Mortgage Trust. For the
        2007 and 2006 fourth quarters, the company recorded a net loss of
        $0.7 million and net gain of $12.3 million, respectively. The
        decreased profitability in 2007 on the sales of mortgages directly
        reflects the turbulence in the capital market and the lack of
        profitability on the sale of $218.3 million of mortgages on
        October 27, 2007 to Okanagan Funding Trust (OFT). OFT is a
        $300 million mortgage securitization facility established by Xceed in
        October, sponsored by Deutsche Bank AG. Because Xceed originated and
        committed the mortgages included in that transaction prior to the
        widening of credit spreads, profitability on the sale of these to OFT
        was break-even and resulted in a loss of $0.7 million once the cost
        of hedging the related commitments is included. Subsequent sales to
        OFT will be at more profitable levels since they will involve
        mortgages committed and funded after rates had been increased.

    -   The basic and diluted loss per share for 2007 amounted to $0.17 and
        $0.16, respectively, compared with basic and diluted earnings per
        share of $0.78 and $0.74, respectively, a year earlier. For the
        fourth quarter, the basic and diluted net loss per share was $0.81
        and $0.79, compared with basic and diluted earnings per share of
        $0.25 and $0.23 in the 2006 quarter. Removing the effects of the
        valuation write-down and other one-time items, including
        infrastructure write-offs, basic and diluted earnings per share would
        have been $0.68 and $0.64 for 2007, respectively.

        During 2007, the company purchased under its normal course issuer bid
        270,600 common shares and these shares were cancelled. The bid was
        allowed to expire at the end of May 2007. The average number of
        shares outstanding for 2007 on an undiluted and diluted basis was
        27,438,464 and 28,824,406, respectively.

    -   Mortgage fundings in 2007 were $1.139 billion, a 30.6% increase from
        the $872 million of originations in 2006. In the 2007 fourth quarter,
        reflecting the market turbulence, fundings amounted to
        $194.4 million, down 35.9% from the $303.1 million in the 2006
        period.

    -   Mortgages and other assets under administration were $2.7 billion at
        the 2007 year-end, flat with the level at the end of the third
        quarter and 19.2% higher than the $2.3 billion at the end of 2006.

    -   As the result of the write-down and other one-time items, including
        infrastructure write-offs, return on average shareholders' equity
        (ROE) was a negative 4.1% for 2007 and negative 20.6% for the fourth
        quarter. Removing the effects of the write-down and other one-time
        items, including infrastructure write-offs, ROE was a positive 16.2%
        in 2007. In 2006, the return on average shareholders' equity was
        22.9%.

    -   Cash flow from operations for 2007 amounted to $26.3 million or $0.96
        and $0.91 per basic and diluted share, respectively, up 28.3%
        compared with $20.5 million ($0.73 per basic and $0.69 per diluted
        share) in 2006, after removing the negative effects one-time items,
        including infrastructure write-offs. For the fourth quarter of 2007,
        cash flow was $5.5 million or $0.20 per basic and $0.19 per diluted
        share, down 21.4% compared with $7.0 million or $0.25 per basic and
        $0.24 per diluted share a year earlier.

    -   Revenues in 2007 were $55.9 million, up 2.6% from $54.5 million in
        2006. For the fourth quarter, 2007 revenues were $5.3 million, down
        65.7% from the level of $15.6 million a year earlier. The level of
        revenues reflects the decrease in the amount realized from the sale
        of mortgages and residual securitization income in the 2007 periods.
    

    As Xceed has grown, it has increased its processing ability to manage its
mortgage fundings by hiring additional staff. In 2007, it employed an average
of 141 full-time staff, a 24.8% increase from the average of 113 employed in
2006. 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 62.4% for 2007 and not calculable in the fourth quarter
due to the loss reported, compared with 36.2% in 2006 and 35.7% in the fourth
quarter a year ago. A lower productivity index generally is associated with a
more efficient cost structure. The productivity levels in 2007 were adversely
affected by the lower volume of business in the fourth quarter and the loss
incurred.
    The average mortgage default ratio (90 or more days in arrears) on the
company's combined securitized and non-securitized portfolio was 2.59% in 2007
and 2.62% in the fourth quarter, up slightly from 2.53% in the third quarter.
In 2006, the average mortgage default ratio was 2.22%. As expected, the
increases in the 2007 levels are primarily due to the aging of the portfolio,
since defaults are less likely to occur in the early stages of a mortgage
term.

    Outlook

    "The turmoil that we encountered in the capital market since last summer
tested the strength of our management team. While we received some bumps and
bruises managing our way through this period, we have accomplished a great
deal in positioning Xceed for growth in fiscal 2008 and the future," Mr. Wahl
said.
    "In analyzing 2007, it is important to note that our operations remained
significantly profitable, excluding the necessary write-down in the valuation
of the deferred net mortgage interest receivable that was necessitated by the
higher spreads currently prevailing. Over time, as the capital market settles
down, we expect spreads will normalize and this should enhance our
profitability. Our average mortgage default ratio remains within the expected
range.
    "In the meanwhile," he continued, "we have taken other measures to
strengthen our business. We have increased our rates and eliminated certain
products. In the latter part of fiscal 2006, we applied for and were granted
approved lender status by the Canadian Mortgage and Housing Corporation and
have since become an approved lender with another Canadian mortgage insurer.
This has given Xceed the ability to insure newly originated mortgages that can
eventually be sold to the Canada Mortgage Bond Program.
    "While the spread margins associated with insured mortgages are not as
robust as our uninsured business, an increased focus on generating this type
of volume provides us with valuable diversification since it introduces us to
a broader range of mortgage brokers and entails new and more easily accessible
funding sources. We believe that this program also will enhance our asset
retention strategy as it offers borrowers with improved credit an attractive
solution when their mortgages are due for renewal. Since the latter part of
fiscal 2007, we have been placing greater emphasis on marketing insured
mortgages and are beginning to see the positive results of this.
    "In addition to the OFT facility that we established last October, we
continue to explore other options for funding our mortgage securitizations.
The Canadian housing market remains healthy, although we recognize that along
with the economy it may slow down. We are confident that there is significant
opportunity for Xceed Mortgage to continue growing its business," Mr. Wahl
said.

    Conference Call and Webcast

    Xceed will hold a conference call for analysts and investors to discuss
its fourth quarter results on January 17, 2008 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 416-644-3414 or 1-800-733-7571 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 21258518 followed by the number sign) from noon on
January 17 to 11:59 p.m. on January 24. An archived recording of the webcast
will also be available at Xceed's website.
    Xceed has filed its fiscal 2007 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
    CONSOLIDATED BALANCE SHEETS

    (in thousands of dollars)
    -------------------------------------------------------------------------
                                                     October 31,  October 31,
                                                           2007         2006
                                                              $            $
    -------------------------------------------------------------------------

    ASSETS

    Cash and cash equivalents                             8,925        9,943
    Investment in notes                                  25,536            -
    Cash collateral and other deposits receivable
     from Trusts                                         11,434        5,154
    Deferred net mortgage interest receivable            56,306       79,498
    Mortgages                                           115,190       73,535
    Accounts receivable                                   7,073       11,504
    Derivative instruments                                  190            -
    Mortgage commitments                                     54            -
    Deferred charges                                      6,410        7,540
    Fixed assets, net                                     2,110        1,883
    Future income tax asset                                   -        1,356
                                                    -------------------------
                                                        233,228      190,413
                                                    -------------------------
                                                    -------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Liabilities
    Credit facilities                                    91,903       35,381
    Accounts payable and accrued liabilities             24,882       23,673
    Derivative instruments                                1,137            -
    Future and other income tax liabilities              20,369       29,941
                                                    -------------------------

    Total liabilities                                   138,291       88,995
                                                    -------------------------

    Shareholders' equity
    Capital stock                                        57,274       57,090
    Contributed surplus                                   1,452          505
    Retained earnings                                    36,211       43,823
                                                    -------------------------

    Total shareholders' equity                           94,937      101,418
                                                    -------------------------

                                                        233,228      190,413
                                                    -------------------------
                                                    -------------------------



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

    (in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
    Year ended                                       October 31,  October 31,
                                                           2007         2006
                                                              $            $
    -------------------------------------------------------------------------

    REVENUE
    Securitization income                                38,371       50,654
    Interest earned                                      12,107        4,487
                                                    -------------------------

                                                         50,478       55,141
                                                    -------------------------

    Add: Net origination income (costs)                   5,469         (606)
                                                    -------------------------

                                                         55,947       54,535
                                                    -------------------------

    EXPENSES
    Compensation and benefits                            14,107       10,261
    Interest                                              6,963        1,179
    Deferred charge amortization                          2,937        1,744
    Other operating                                      11,042        7,293
                                                    -------------------------

                                                         35,049       20,477
                                                    -------------------------

    Realized and unrealized losses on financial
     instruments                                         27,383            -
                                                    -------------------------

    Income (loss) before income taxes                    (6,485)      34,058

    Provision for (recovery of) income taxes             (1,942)      12,084
                                                    -------------------------


    Net income (loss) for the year                       (4,543)      21,974


    Retained earnings, beginning of year                 43,823       30,428
    Add:   Transition adjustment on adoption of
            financial instruments Standards               4,775            -
    Less:  Dividends declared                            (6,593)      (5,875)
    Less:  Shares purchased for cancellation             (1,251)      (2,704)
                                                    -------------------------

    Retained earnings, end of year                       36,211       43,823
                                                    -------------------------
                                                    -------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per share
    Basic                                                 (0.17)        0.78
    Diluted                                               (0.16)        0.74



    XCEED MORTGAGE CORPORATION
    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (in thousands of dollars)
    -------------------------------------------------------------------------
    Year ended                                       October 31,  October 31,
                                                           2007         2006
                                                              $            $
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net income (loss) for the year                       (4,543)      21,974

    Items not affecting operating cash:
    Net gain on sale of mortgages                       (35,020)     (43,412)
    Amortization of deferred net mortgage interest
     receivable                                          43,596       33,876
    Amortization of servicing fee                        (4,011)      (2,959)
    Amortization of fixed assets                            844          667
    Amortization of deferred charges                      2,937        1,744
    Unrealized losses from financial instruments         29,041            -
    Net future income taxes                             (10,822)       6,972
                                                    -------------------------
                                                         22,022       18,862

    Other changes in non-cash net assets                (41,739)      12,131
                                                    -------------------------

                                                        (19,717)      30,993
                                                    -------------------------

    INVESTING ACTIVITIES
    Sale of notes                                        17,195       40,565
    Purchase of notes                                   (42,731)     (32,266)
    Net increase in deferred charges                     (1,909)      (7,008)
    Purchase of fixed assets                             (1,071)      (1,463)
                                                    -------------------------

                                                        (28,516)        (172)
                                                    -------------------------

    FINANCING ACTIVITIES
    Credit facility, net of repayments                   56,522      (14,220)
    Shares purchased for cancellation                    (1,813)      (4,363)
    Proceeds from treasury shares                           747            -
    Dividends paid                                       (8,241)      (5,075)
                                                    -------------------------

                                                         47,215      (23,658)
                                                    -------------------------

    Increase (decrease) in cash and cash
     equivalents                                         (1,018)       7,163
    Cash and cash equivalents, beginning of year          9,943        2,780
                                                    -------------------------

    Cash and cash equivalents, end of year                8,925        9,943
                                                    -------------------------
                                                    -------------------------

    See accompanying notes
    





For further information:

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

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