Xceed Mortgage Reports Fiscal 2009 Second-Quarter Results



    
    -   Fourth consecutive profitable quarter and positive operating cash
        flow
    -   Originations of new mortgages increase in second quarter and first
        half of 2009, compared with 2008 periods, and exceed mortgage sales
    -   Assets under administration nearly unchanged from first quarter
    -   Mortgage default ratio within expected range and below 2008 level
    -   Conference call at 10:00 a.m. (EDT) today (Thursday)
    

    TORONTO, June 11 /CNW/ - Xceed Mortgage Corporation (TSX: XMC), a
Canadian provider of insured mortgages, today announced its financial results
for the fiscal 2009 second-quarter and first six months ended April 30, 2009.
All references to quarters or years are for the fiscal periods and all
currency amounts are in Canadian dollars unless otherwise noted.
    "Xceed has made steady progress in stabilizing, maintaining, and
redirecting our business since the second quarter a year ago. The 2009 second
quarter marked a year since we carried out a series of difficult but necessary
cost-reduction measures to structure our operations to fit the new environment
in which we found ourselves operating following the global financial turmoil
that had developed during the latter part of 2008 and that persists today,"
said Ivan Wahl, Chairman and Chief Executive Officer.
    "Since last year's second quarter, we have reported four consecutive
quarters of net income and of positive operating cash flows. We have met our
principal objective of protecting our liquidity financing needs, including
preserving the residual interest cash flows from our existing securitization
program and expanding premium proceeds from our insured whole-loan sale
program.
    "While we have placed all of our emphasis on originating only insurable
mortgages, with the implementation of the third-party asset-backed commercial
paper restructuring, we also have been able to offer renewals for certain
uninsured mortgages," Mr. Wahl said.

    
    Financial Highlights

    -   Net income for the 2009 second-quarter and first half was
        $0.05 million and $3.4 million, respectively, compared with losses of
        $16.7 million and $15.2 million in the comparative 2008 periods. The
        2009 second-quarter income reflected a positive fair-value adjustment
        of $1.4 million after-tax ($2.1 million pre-tax) for the deferred net
        mortgage interest receivable from Xceed's mortgage securitization
        facility, Okanagan Funding Trust (OFT) related to the improvement in
        spreads on asset-backed commercial paper that has taken place in
        2009.

        First-half net income in the 2009 and 2008 periods reflected several
        one-time items, including accounting and fair value adjustments.
        Excluding the effect of one-time items and fair value adjustments,
        net income would have been a net loss of $3.3 million in the first
        six months of 2009, compared with net loss of $7.9 million in the
        2008 first half.

        With the approval in January 2009 of the third-party Asset-Backed
        Commercial Paper (ABCP) restructuring plan, Xceed received a one-time
        payment of $4.8 million for the retroactive adjustment in funding
        costs. The company also was entitled to receive $0.9 million for
        interest earned on the illiquid ABCPs through its residual interest
        in a securitization vehicle that Xceed previously had written off in
        the 2008 second quarter. As the result of these, Xceed recorded
        $3.8 million after-tax ($5.7 million pre-tax) as income under
        securitization income for the 2009 first quarter. Xceed also recorded
        a fair-value increase of $5.9 million after-tax ($8.8 million
        pre-tax) to its deferred net mortgage interest receivable for the
        securitization vehicle that had been affected.

        There were two significant one-time charges in the 2009 first quarter
        that partially offset the ABCP-related gains. One charge was caused
        by the fact that on March 17, 2009 and April 17, 2009, respectively,
        Xceed, as financial services agent of Xceed Mortgage Trust (XMT),
        announced that an amortization event had occurred for Series 2007-T2
        and Series 2006-T1 Notes as a result of XMT not being able to issue a
        new tranche of A-C Notes to retire the senior notes on the targeted
        principal distribution date and that an amortization period had
        commenced for each note series.

        During the amortization period, principal and interest collections
        from the underlying asset pool of the note series continue unchanged.
        These principal and interest collections will be paid monthly to
        holders of the senior notes, on a pro-rata basis with coupon interest
        converted to a monthly equivalent rate. Holders of Class B, C, D, and
        E Subordinated Notes, will be sequentially paid in priority sequence
        after all senior notes have been fully repaid, with the most
        subordinate tranche being paid last, in each case, in accordance with
        the Material Contracts as defined and described in the prospectus for
        each note series. The residual cash collected from the underlying
        asset pool of the note series, after the final interest and principal
        distributions to all subordinated notes, will be paid to the residual
        interest holder (Xceed). The amortization period for each note series
        will end when the principal amount outstanding for all notes in each
        note series is repaid. Xceed took a $1.4 million after-tax
        ($2.0 million pre-tax) write-down to its deferred net mortgage
        interest receivable at the fiscal first quarter ended 2009. XMT has
        total outstanding principal of $391.8 million as at April 30, 2009.

        The second charge taken in the 2009 first quarter was for
        $3.0 million after-tax ($4.5 million pre-tax) related to increased
        funding costs for OFT. Effective in the 2009 second quarter, the
        Canadian branch of the international bank providing this facility
        increased the pricing of the funding provided to OFT. As at the end
        of the second quarter, the OFT facility had total outstanding
        mortgage principal of $186.0 million.

        In the 2008 first quarter, Xceed recognized a one-time reversal of
        $1.3 million after-tax ($2.0 million pre-tax) related to its employee
        long-term incentive plan and an executive long-term compensation
        plan.

        The basic and diluted earnings per share for the 2009 second quarter
        and first six months were nil and $0.12, respectively. In the 2008
        period, basic and diluted earnings per share were a loss of $0.60 for
        the second quarter and a loss of $0.55 basic and $0.54 diluted for
        the first six months of the year.

    -   In the 2009 second quarter and first half, Xceed sold mortgages
        valued at $134.2 million and $220.2 million, respectively, to
        securitization and other vehicles. The majority were insured and sold
        on a whole-loan basis. In the comparable 2008 periods, Xceed sold
        $78.2 million and $209.4 million of mortgages.

        In the second quarter, Xceed's origination of new mortgages amounted
        to $135.1 million, compared with $125.3 million in the 2008 second
        quarter. For the first half of 2009, originations were
        $222.0 million, compared with $191.0 million a year ago. All new
        originations in the company's pipeline are insured mortgage products.

        The net gain on its mortgage sales was $4.6 million in the 2009 first
        quarter and $7.6 million in the first half of the year, compared with
        $2.1 million and $5.3 million in the respective 2008 periods. The
        company received premium proceeds from the sale of insured whole-loan
        mortgages of $4.7 million in the second-quarter 2009 and $9.6 million
        for the first six months, compared with $3.5 million and $9.6 million
        in the comparable 2008 periods. The 2008 first quarter also included
        the sale to OFT of $1.0 million of uninsured mortgages and insurance
        premium costs of $2.3 million to insure the mortgages prior to the
        sale.

        In the 2009 second quarter, the net gain amounted to 3.4% of the
        sales, which compares with 2.7% in the 2008 quarter. Net gains as a
        percentage of sales reflect changes in average sales mix trends
        between insured and uninsured mortgage products. Insured mortgages
        normally have borrowers with better credit profiles and are arranged
        on fixed-rate terms, entailing lower spread margins than previously
        enjoyed. Other factors affecting the gains as a percentage of sales
        relate to the overall mix of business securitized, including the
        length of the average mortgage duration, the average risk profile,
        and the costs of the respective credit enhancement or
        collateralization levels required, as well as market factors such as
        the discount rate used for valuation and pricing.

    -   Mortgages and other assets under administration were $2.039 billion
        at the end of 2009 second quarter, down from $2.4 billion a year
        earlier, and flat with the $2.084 billion at the end of the 2009
        first quarter.

    -   Return on average shareholders' equity for the 2009 first quarter and
        first half was 0.21% and 7.98% (negative 7.67% if one-time items are
        excluded), compared with negative 78.4% and negative 33.8% for the
        respective corresponding 2008 periods.

    -   Total revenues amounted to $2.0 million in the 2009 second quarter
        and $10.5 million for the first half of the year, compared with
        $2.6 million and $8.4 million in the comparative 2008 periods. The
        decrease in total revenues in the 2009 second quarter compared with
        the prior year period's amount is the result of a residual
        securitization loss of $1.8 million compared with a loss of
        $0.2 million in the 2008 quarter. Pending sales, the company earns
        interest income on mortgages that are on the company's balance sheet
        for the brief intervening period. Interest earned in the 2009 quarter
        was $1.0 million, compared with $2.9 million in the 2008 period. Net
        origination costs amounted to $1.8 million, down from $2.2 million in
        the 2008 quarter.

        For the first half of 2009, securitization income was $11.6 million
        compared with $4.7 million in the six-month 2008 period. In the first
        quarter of 2009, securitization income included $5.7 million
        resulting from the implementation of the third-party ABCP
        restructuring plan. Interest earned in the 2009 first half was
        $2.1 million, compared with $6.3 million in the 2008 period. Net
        origination costs were $3.2 million, compared with costs of
        $2.6 million in the 2008 period.

    -   Cash flow from operations was $2.1 million ($0.08 per basic and
        diluted share) and $10.1 million ($0.36 per basic and diluted share)
        for the 2009 second quarter and first six months, respectively,
        compared with $0.2 million ($0.01 per basic and diluted share) and
        $1.8 million ($0.07 per basic and diluted share) in the comparative
        2008 periods. Cash securitization income was $6.4 million in the 2009
        second quarter and $22.6 million in the first six months, and
        $9.0 million and $18.7 million in the comparative 2008 periods. The
        cash securitization income in the first half of 2009 includes the
        funds received on the implementation of the ABCP restructuring plan
        as well as the interest earned on the illiquid ABCPs that the company
        had previously written off in 2008. Cash-based revenues in the 2009
        second quarter were $7.4 million and were $24.6 million in the first
        half of the year, compared with $11.9 million and $25.0 million in
        the comparable periods a year earlier. Excluding the effect of the
        one-time items, cash flow from operations for the 2009 first half
        would have been $4.4 million or $0.15 per basic and diluted share.
    

    In the 2009 second quarter, Xceed employed an average of 46 full-time
employees, which was down from an average of 99 people a year earlier. The
productivity index was 87.3% for the 2009 second quarter and 40.6% for the
first six months, compared with 324.9% in the 2008 second quarter and 219.3%
for the 2008 six-month period. A lower productivity index generally is
associated with a more-efficient cost structure.
    The average mortgage default ratio (greater than 90 days in arrears) on
the company's combined securitized and non-securitized portfolio was 3.48% for
the 2009 second quarter and 3.29% in the first half of the year, compared with
3.53% in the 2008 second quarter and 3.43% for the first six months of 2008.
    In the 2009 second quarter, Xceed renewed its revolving warehouse credit
facility for another term with less favorable pricing terms. Anticipating this
and based on its assessment of its volume requirements, Xceed reduced the
facility limit from $150 million to $100 million, thereby reducing standby
fees. The next renewal date of the warehouse credit facility is December 31,
2009.
    At the end of the 2009 second quarter, Xceed had cash and cash
equivalents of $13.5 million, which compared with $15.8 million at the end of
the first quarter. Cash invested in mortgages not sold to trusts totaled $62.8
million, compared with $64.9 million at the end of the 2009 first quarter.
    During the 2009 second quarter, Xceed announced its intention to make a
normal course issue bid (NCIB) to purchase up to 5% of its issued and
outstanding common shares or 1,387,127 shares on or before March 22, 2010.
Pursuant to the terms of the NCIB, the Company purchased 78,700 shares at an
average price of $1.01, of which 7,700 shares were cancelled on April 21,
2009, and 71,000 were cancelled subsequent to April 30, 2009.
    Xceed has filed its 2009 second-quarter and six-month financial
statements and management's discussion and analysis with SEDAR and they will
be posted on the company's website.


    
    XCEED MORTGAGE CORPORATION
    INTERIM CONSOLIDATED BALANCE SHEETS
    (unaudited)

    (in thousands of dollars)
    -------------------------------------------------------------------------
                                                          As at        As at
                                                       April 30,  October 31,
                                                           2009         2008
                                                              $            $
    -------------------------------------------------------------------------
    Assets
    Cash and cash equivalents                            13,549        9,942
    Investment in notes (note 3)                         31,783       27,423
    Cash collateral and other deposits receivable
     from Trusts (note 3)                                14,915       13,773
    Deferred net mortgage interest receivable
     (notes 3 and 6)                                     26,013       34,915
    Mortgages (note 4)                                   62,784       63,210
    Accounts receivable                                   4,681        7,302
    Derivative instruments (note 6)                         123          209
    Mortgage commitments                                      -           48
    Deferred charges                                        284          238
    Fixed assets, net                                       186          240
    -------------------------------------------------------------------------
                                                        154,318      157,300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Credit facilities (note 5)                           51,003       57,382
    Accounts payable and accrued liabilities
     (note 3)                                             6,486        8,146
    Derivative instruments (note 6)                           -          108
    Mortgage commitments                                    181            -
    Future and other income taxes                        10,558        9,038
    -------------------------------------------------------------------------
    Total liabilities                                    68,228       74,674
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock (note 7)                               57,110       57,274
    Contributed surplus (note 8)                          1,349        1,108
    Retained earnings                                    27,631       24,244
    -------------------------------------------------------------------------
    Total shareholders' equity                           86,090       82,626
    -------------------------------------------------------------------------
                                                        154,318      157,300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the interim consolidated financial statements



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

    (in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                             April 30,    April 30,    April 30,    April 30,
                                 2009         2008         2009         2008
                                    $            $            $            $
    -------------------------------------------------------------------------

    Revenues

    Securitization income
     (note 3)                   2,778        1,909       11,624        4,693
    Interest earned               986        2,912        2,063        6,285
    -------------------------------------------------------------------------
                                3,764        4,821       13,687       10,978
    Add: Net origination
     income (costs)            (1,791)      (2,202)      (3,202)      (2,621)
    -------------------------------------------------------------------------
                                1,973        2,619       10,485        8,357
    -------------------------------------------------------------------------

    Expenses

    Compensation and benefits   1,497        3,323        2,832        4,875
    Interest                      674        2,192        1,449        4,249
    Deferred charge
     amortization                  35          491           83        1,187
    Other operating               894        2,389        1,807        4,230
    -------------------------------------------------------------------------
                                3,100        8,395        6,171       14,541
    -------------------------------------------------------------------------

    Realized and unrealized
     gains (losses) on
     financial instruments      1,342       (8,893)         661       (7,444)

    -------------------------------------------------------------------------
    Income (loss) before
     unusual items and
     income taxes                 215      (14,669)       4,975      (13,628)
    -------------------------------------------------------------------------

    Unusual items (note 9)          -      (10,170)           -      (10,170)

    -------------------------------------------------------------------------
    Provision for (recovery
     of) income taxes             169       (8,168)       1,588       (8,645)
    -------------------------------------------------------------------------

    Net income (loss) for
     the period                    46      (16,671)       3,387      (15,153)

    -------------------------------------------------------------------------
    Retained earnings,
     beginning of period       27,585       37,734       24,244       36,211
    Less: Shares purchased
     for cancellation (note 7)      -            -            -            5
    -------------------------------------------------------------------------
    Retained earnings, end
     of period                 27,631       21,063       27,631       21,063
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share
    Basic                        0.00        (0.60)        0.12        (0.55)
    Diluted                      0.00        (0.60)        0.12        (0.54)

    See accompanying notes to the interim consolidated financial statements



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

    (in thousands of dollars)
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                             April 30,    April 30,    April 30,    April 30,
                                 2009         2008         2009         2008
                                    $            $            $            $
    -------------------------------------------------------------------------
    Operating activities
    Net income (loss) for
     the period                    46      (16,671)       3,387      (15,153)
    Items not affecting
     operating cash:
    Non-cash net gain (loss)
     on sale of mortgages         (13)       1,364        1,907        1,965
    Amortization of deferred
     net mortgage interest
     receivable                 4,335        6,790       10,498       14,213
    Amortization of
     servicing fee               (700)      (1,077)      (1,474)      (2,184)
    Amortization of fixed
     assets                        37          176           74          407
    Amortization of deferred
     charges                       35          491           83        1,187
    Unrealized loss (gain)
     from financial
     instruments               (1,249)       6,078       (1,996)      (1,122)
    Net future income taxes      (403)      (6,754)      (2,388)      (7,285)
    Non-cash unusual items          -        7,907            -        7,907
    -------------------------------------------------------------------------
                                2,088       (1,696)      10,091          (65)
    Other changes in non-cash
     net assets                 4,136      (61,771)       4,890      (70,820)
    -------------------------------------------------------------------------
                                6,224      (63,467)      14,981      (70,885)
    -------------------------------------------------------------------------
    Investing activities
    Sale of notes                  69        1,747          298        8,331
    Purchase of notes          (2,345)           -       (4,893)      (8,726)
    Net increase (decrease)
     in deferred charges         (129)        (352)        (129)        (601)
    Purchase of fixed assets      (10)        (612)         (18)        (704)
    -------------------------------------------------------------------------
                               (2,415)         783       (4,742)      (1,700)
    -------------------------------------------------------------------------
    Financing activities
    Credit facilities, net
     of repayments             (5,976)      55,081       (6,553)      68,653
    Share buyback                 (79)           -          (79)           5
    -------------------------------------------------------------------------
                               (6,055)      55,081       (6,632)      68,658
    -------------------------------------------------------------------------
    Net increase (decrease)
     in cash and cash
     equivalents               (2,246)      (7,603)       3,607       (3,927)
    Cash and cash
     equivalents,
     beginning of period       15,795       12,601        9,942        8,925
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of period             13,549        4,998       13,549        4,998
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information
    Interest paid                 691        2,075        1,571        4,096
    Income taxes paid               -            -            -        4,053

    See accompanying notes to the interim consolidated financial statements
    


    Conference Call and Webcast for Quarter and Annual and Special Meeting

    Xceed will hold a conference call for analysts and investors at 10:00
a.m. (Eastern). Ivan Wahl, Chairman and Chief Executive Officer, and Karen L.
Martin, President and Chief Financial Officer, will be available to answer
questions during the call.
    To participate in the call, please dial 416-644-3418 or 1-800-731-6941 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 21308058 followed by the number sign) from noon on
June 11 to 11:59 p.m. on June 18. An archived recording of the webcast also
will be available at Xceed's website.

    About Xceed

    Xceed Mortgage Corporation, based in Toronto, is a Canadian provider of
insured residential mortgages that it originates in Canada. The company has
approximately $2.0 billion of mortgages and other assets under administration.
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.





For further information:

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

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