Xceed Mortgage Reports Fiscal 2010 Second-Quarter Financial Results

    
    -  Company returns to profitability in 2010 second quarter
    -  Originations of mortgages continues strong as company underwrites
       $134 million of insurable mortgages in the 2010 second quarter, up
       from $125 million in the first quarter and level with amount of 2009
       period; first-half 2010 originations up 17%
    -  Assets under administration at $1.783 billion
    -  Federal regulators continue to review Xceed's application to convert
       to federally regulated deposit-taking bank
    -  Conference call at 10:00 a.m. (EDT) today (Thursday)
    

TORONTO, June 10 /CNW/ - Xceed Mortgage Corporation (TSX: XMC), a Canadian provider of insured mortgages, today announced its financial results for the fiscal 2010 second quarter ended April 30, 2010. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.

"As expected, Xceed returned to profitability in the 2010 second quarter, despite a very competitive marketplace that placed considerable pressure on underwriting spreads. We also achieved another strong quarter of mortgage originations, underwriting $134 million of new mortgages, up from $125 million in the first quarter and about equal to the amount underwritten in the 2009 second quarter," said Ivan Wahl, Chairman and Chief Executive Officer.

"For the first half of 2010, Xceed achieved a 16.8% increase in mortgage originations, compared with the 2009 amount. This is indicative of the success of our efforts to be competitive against other major lenders across Canada, although pricing levels have resulted in varying spreads on this new business. We believe that there are signs of some general improvement taking place in the spreads, but cannot yet say with certainty that this will continue. Earlier this week, we announced that we have entered into a new uncommitted funding agreement with an international bank to sell insured mortgages intended for ultimate sale to the Canada Mortgage Bond (CMB) program," said Mr. Wahl.

Financial Highlights

    
    -  Net income for Xceed amounted to $0.4 million for the 2010 second
       quarter, compared with $0.05 million of net income in the 2009 period.
       For the first half of 2010, Xceed recorded a net loss of
       $11.4 million, compared with net income of $3.4 million in the first
       six months of 2009. The 2010 first-half net loss is largely
       attributable to the previously reported fair-value adjustment of
       $10.6 million ($7.2 million after-tax) taken with respect to the
       deferred net mortgage interest receivable. This fair value adjustment
       was the result of an increase in the estimated loan loss assumptions
       used to value the receivable. This adjustment was taken because of
       continuing shortfalls in excess spreads resulting in negative residual
       securitization income (RSI). RSI is the difference between monthly
       spread income and the amortization of the deferred net mortgage
       interest receivable. The shortfalls and hence negative RSI for the
       first quarter of fiscal 2010 were primarily caused by actual credit
       losses inside the securitization trusts that were in excess of the
       credit loss assumptions used in the establishment of the deferred net
       mortgage interest receivable. This in turn was partly caused by the
       inability of some mortgagors to refinance their mortgage at maturity,
       resulting in higher losses when realized on the value of collateral
       through foreclosure. In response to these worse-than-expected credit
       losses, Xceed made the fair-value adjustment to the deferred net
       mortgage interest receivable.

       Another factor in the first-half 2010 loss is the write-off of
       approximately $1.3 million ($0.9 million after-tax) in excess funds
       which were accumulated in the Series 2006-T1 cash collateral account,
       and negative residual securitization income caused by foreclosure
       losses inside the securitization trusts. The 2010 first-quarter
       results also included a negative fair value adjustment of $0.6 million
       ($0.4 million after tax) on the fair value of certain insured
       mortgages from the past that are not readily saleable into the CMB
       program as the quoted market price is lower than the fair value of
       these mortgages. Results for the 2009 second quarter and first six
       months were affected positively by the implementation of the
       third-party ABCP (asset-backed commercial paper) restructuring plan,
       as well as a number of related accounting and fair value adjustments
       to the company's deferred net mortgage interest receivable. These
       items totalled $8.0 million ($5.3 million after tax) in favor of the
       company.

       The basic and diluted earnings per share for the 2010 second quarter
       were $0.02 and $0.01, respectively; for the first half of 2010, the
       basic and diluted loss per share was $0.41. This compares with basic
       and diluted earnings per share of $0.00 for the 2009 second quarter
       and $0.12 for the first six months.

    -  The origination of new mortgages amounted to $134 million in the 2010
       second quarter and $259 million for the first half of the year,
       compared with $135 million in the 2009 second quarter and $222 million
       in the first six months of 2009. All new originations are insured
       mortgage products.

       In the second quarter and first half of the year, Xceed's whole loan
       sale of mortgages totaled $91.5 and $182.6 million, respectively.
       During the 2009 second quarter, Xceed sold whole loan mortgages valued
       at $121.2 million; first-half 2009 sales were $206 million. Premium
       proceeds received by the company from insured whole-loan sales for
       the 2010 second quarter and first six months amounted to $1.8 and
       $3.8 million, respectively, compared with $4.7 and $9.6 million for
       the corresponding periods of 2009. The decrease in premium proceeds
       is mainly due to the company's decision to keep the mortgage rates
       offered to its clients competitive with other lenders in the market.
       This resulted in compressed spreads during 2010 to date.

       In addition, for the 2010 second quarter and first half, the company
       was able to renew $45.4 and $51.9 million, respectively of uninsured
       mortgages (2009 - $13.0 and $14.2 million), with a gain on sale of
       $1.6 and $2.0 million in the respective periods (2009 - $0.8 and
       $0.8 million). During the first quarter of 2010, the company also
       received $0.3 million towards settlement from the sale of a mortgage
       pool comprising $1.3 million of defaulted mortgages, which had been
       sold in the second quarter of fiscal 2009 with proceeds of
       $1.0 million at that time.

    -  Xceed's primary source of revenue is from the sale of pools of
       mortgages to off-balance sheet entities. In the 2010 second quarter
       and first half, the company reported net gains of $2.8 million and
       $4.5 million, respectively on the sale of mortgages.

       For the second quarter of 2010, the Company reported RSI of
       $1.3 million, reducing the RSI loss for the first six months to
       $2.3 million.

       Securitization income amounted to $4.1 million for the 2010 second
       quarter and $2.3 million for the first half of the year.

       Interest earned in the second quarter and first six months of 2010
       amounted to $0.5 million and $1.5 million, respectively.

       Net origination costs for the 2010 second quarter were $0.9 million
       and for the first six months they were $2.7 million. Total
       second-quarter 2010 revenues were $3.7 million and six-month revenues
       were $1.0 million.

       In the comparable 2009 periods, the second-quarter and first-half the
       net gain on the sale of mortgages was $4.6 million and $7.6 million,
       respectively, and RSI amounted to a negative $1.8 million and positive
       $4.1 million. The securitization income amounted to $2.8 million for
       2009 second quarter and $11.6 million for the first six months.
       Interest earned was $1.0 million for the second quarter and
       $2.1 million for the first six months of 2009. Net origination costs
       were $1.8 million for the 2009 second quarter and $3.2 million for the
       first half of the year. Total revenues were $2.0 million for the 2009
       second quarter and $10.5 million for the first six months.

       The net gain on the sale of mortgages in the 2010 second quarter was
       2.1% of the amount of mortgages sold, compared with 1.8% for the
       immediately preceding quarter, and 3.4% in the second quarter of 2009.
       Factors affecting the gain as a percentage of sales relate to the
       overall mix of business securitized and market interest rate spreads.

    -  Mortgages and other assets under administration were $1.783 billion
       at the end of the 2010 second quarter, down 3.7% from $1.852 billion
       at the end of the 2010 first quarter, and down 12.6% from
       $2.039 billion at the end of the 2009 second quarter.

    -  Return on average shareholders' equity for the 2010 second quarter
       was 0.61%; it was a negative 16.0% for the first half of the year.
       For the 2009 second quarter, the return was 0.21%; it was 8.0% for
       the first six months of 2009.

    -  Xceed's management believes that cash flow from operations, while a
       non-GAAP (generally accepted accounting principles) measure, is a
       useful indicator of the performance of its business. The company
       defines cash flow from operations as the cash generated by its
       operating activities, before taking into consideration the net change
       in other non-cash net asset balances which are related to operating
       activities. This can be calculated by removing the effects of
       amortization and other items not affecting operating cash from net
       income. However, this also can be calculated by subtracting expenses
       that are operating cash outflows from the revenues that generate
       operating cash inflows.

       On that basis, cash flow from operations was a negative $0.7 million
       and negative $0.08 million for the 2010 second quarter and first six
       months, respectively (negative $0.03 per basic and diluted share for
       the second quarter and negative $0.00 per basic and diluted share for
       the first half of the year). This compares with $4.0 million and
       $12.4 million in the respective 2009 periods ($0.14 per basic and
       diluted share in the 2009 second quarter and $0.44 per basic and
       diluted share for the first six months of the year). Cash
       securitization income was $2.3 million in the 2010 second quarter,
       compared with $8.3 million in the 2009 period. Cash-based revenues in
       the 2010 second quarter were $2.9 million, compared with $9.3 million
       a year earlier.
    

In the 2010 second quarter, Xceed employed an average of 53 full-time employees, which compares with an average of 46 people in the 2009 period. At the end of the second-quarter 2010, the company employed 53 people.

At the end of the 2010 second quarter, Xceed had cash and cash equivalents of $8.6 million, compared with $5.7 million at the end of fiscal 2009. The company believes that cash and funding resources will be sufficient to meet its short-term and long-term requirements.

Xceed has filed its financial statements and management's discussion and analysis for the second quarter 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 April 30,  As at October 31,
                                                     2010               2009
                                                        $                  $
    -------------------------------------------------------------------------

    ASSETS

    Cash and cash equivalents                       8,577              5,731
    Investment in notes (notes 3d) and 7)          38,776             33,230
    Cash collateral and other deposits
     receivable from Trusts (note 3d))             13,934             15,738
    Deferred net mortgage interest
     receivable (note 3c))                          2,346             14,005
    Mortgages (note 4)                             52,498             39,485
    Accounts receivable (note 3d))                  7,895              4,418
    Mortgage commitments (note 7)                       -                 12
    Intangible assets, net                          1,618                672
    Fixed assets, net                                  83                134
                                          -----------------------------------

                                                  125,727            113,425
                                          -----------------------------------
                                          -----------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Liabilities
    Credit facilities (notes 5 and 7)              53,514             24,016
    Accounts payable and accrued liabilities
     (note 3a))                                     3,519              4,886
    Derivative instruments (note 7)                   279                 91
    Mortgage commitments (note 7)                      44                  -
    Future and other income tax liabilities           331              5,048
                                          -----------------------------------

    Total liabilities                              57,687             34,041
                                          -----------------------------------

    Shareholders' equity
    Capital stock (note 6)                         56,767             56,767
    Contributed surplus                             1,774              1,716
    Retained earnings                               9,499             20,901
                                          -----------------------------------

    Total shareholders' equity                     68,040             79,384
                                          -----------------------------------

                                                  125,727            113,425
                                          -----------------------------------
                                          -----------------------------------



    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,
                                       2010       2009       2010       2009
                                          $          $          $          $
    -------------------------------------------------------------------------

    Revenues

    Securitization income (notes 3
     and 9)                           4,082      2,778      2,270     11,624
    Interest earned                     542        986      1,476      2,063
    -------------------------------------------------------------------------
                                      4,624      3,764      3,746     13,687
    Add: Net origination income
     (costs)                           (880)    (1,791)    (2,717)    (3,202)
    -------------------------------------------------------------------------
                                      3,744      1,973      1,029     10,485
    -------------------------------------------------------------------------

    Expenses
    Compensation and benefits         1,798      1,497      3,359      2,832
    Interest                            368        674        818      1,449
    Intangible asset amortization        44         35         83         83
    Other operating                     888        894      1,739      1,807
    -------------------------------------------------------------------------
                                      3,098      3,100      5,999      6,171
    -------------------------------------------------------------------------

    Realized and unrealized gains
     (losses) on financial
     instruments                          6      1,342    (11,519)       661

    -------------------------------------------------------------------------
    Income (loss) before income taxes   652        215    (16,489)     4,975
    Provision for (recovery of)
     income taxes                       238        169     (5,087)     1,588
    -------------------------------------------------------------------------

    Net income (loss) for the period    414         46    (11,402)     3,387

    -------------------------------------------------------------------------
    Retained earnings, beginning of
     period                           9,085     27,585     20,901     24,244

    -------------------------------------------------------------------------
    Retained earnings, end of period  9,499     27,631      9,499     27,631
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share
    Basic                              0.02       0.00      (0.41)      0.12
    Diluted                            0.01       0.00      (0.41)      0.12



    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,
                                       2010       2009       2010       2009
                                          $          $          $          $
    -------------------------------------------------------------------------
    Operating activities Net
     income (loss) for the period       414         46    (11,402)     3,387
    Items not affecting operating
     cash:
    Non-cash net loss (gain) on sale
     of mortgages                    (1,042)       (13)      (809)     1,907
      Amortization of deferred net
       mortgage interest receivable     279      4,335      3,479     10,498
      Amortization of servicing fee    (431)      (700)      (821)    (1,474)
      Amortization of fixed assets       26         37         52         74
      Amortization of intangible
       assets                            44         35         83         83
      Unrealized losses (gains) from
       financial instruments            (99)    (1,249)    11,027     (1,996)
      Net future income taxes           634       (403)    (3,548)    (2,388)
      Decrease (increase) in accrual
       from securitized assets         (549)     1,883      1,861      2,278
    -------------------------------------------------------------------------
                                       (724)     3,971        (78)    12,369
    Other changes in non-cash net
     assets                           8,488      2,253    (20,329)     2,612
    -------------------------------------------------------------------------
                                      7,764      6,224    (20,407)    14,981
    -------------------------------------------------------------------------
    Investing activities Sale of
     notes                              121         69        253        298
    Purchase of notes                (4,800)    (2,345)    (5,532)    (4,893)
    Net increase in intangible
     assets                            (670)      (129)    (1,029)      (129)
    Purchase of fixed assets             (1)       (10)        (1)       (18)
    -------------------------------------------------------------------------
                                     (5,350)    (2,415)    (6,309)    (4,742)
    -------------------------------------------------------------------------
    Financing activities Credit
     facilities, net of repayments   (2,894)    (5,976)    29,505     (6,553)
    Contributed surplus related to
     issuance of stock options           28        (79)        57        (79)
    -------------------------------------------------------------------------
                                     (2,866)    (6,055)    29,562     (6,632)
    -------------------------------------------------------------------------
    Net increase (decrease) in
     cash and cash equivalents         (452)    (2,246)     2,846      3,607
    Cash and cash equivalents,
     beginning of period              9,029     15,795      5,731      9,942
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                    8,577     13,549      8,577     13,549
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information
    Interest paid                       224        691        660      1,571
    Income taxes paid                     -          -      2,250          -
    

Outlook

"Our focus during the second half of 2010 will be on maintaining the stability of our business while seeking growth in originations and improved underwriting spreads. In that respect, we are hopeful that recent signs of some marketplace improvement in the pricing and spreads will continue, but cannot be certain that this will be the case," said Mr. Wahl.

On March 29, 2010, Xceed announced that it had established a new $50 million warehouse facility with Maple Bank, the Canadian Foreign Bank Branch of Maple Bank GmbH. This new warehouse facility continues to provide Xceed with warehouse funding at competitive rates for its origination of insured mortgages.

As announced on May 19, 2010, a banking conduit to which Xceed had been selling insured mortgages intended for sale to the CMB Program informed the company that it would no longer be purchasing mortgages from Xceed beyond the CMB Program's quarterly cycle that ends in June.

"Subsequently, we have been successful in arranging a new uncommitted funding agreement with another large international bank enabling the Company to offer for sale insured mortgages for aggregation and subsequent sale to the CMB program. We have already in June completed our first sale of insured mortgages to this bank for $59 million," Mr. Wahl said.

"We continue to remain hopeful regarding our pending application to become a federally regulated deposit-taking institution." Mr. Wahl said.

Conference Call and Webcast

Xceed will hold a conference call for analysts and investors at 10:00 a.m. (Eastern) today (June 10) (Eastern). Michael Jones, President, and Jeff Bouganim, Chief Financial Officer, will be available to answer questions during the call.

To participate in the call, please dial 647-427-7450 or 1-888-231-8191 at least five minutes prior to the start of the call.

A live audio webcast of the conference call will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3101780 and www.xceedmortgage.com.

An archived recording of the call will be available at 416-849-0833 or 1-800-642-1687 (Passcode 79263991 followed by the number sign) from 1:00 p.m. on June 10 to 11:59 p.m. on June 17. An archived recording of the webcast also will be available at Xceed's website.

About Xceed Mortgage

Xceed Mortgage Corporation, based in Toronto, is a Canadian provider of insured residential mortgages that it originates in Canada. The company has approximately $1.8 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.

%SEDAR: 00020677E

SOURCE XCEED Mortgage Corporation

For further information: For further information: Investor and Media Relations: Richard Wertheim, Wertheim + Company Inc., (416) 594-1600 ext. 223 or (416-518-8479 cell), Email: wertheim@wertheim.ca

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