Xceed Mortgage Reports Fiscal 2008 Second Quarter

    -   Second-quarter results reflect completion of transition to focusing
        on solely originating mortgages qualifying for insurance and
        structuring operations to suit prevailing market conditions and
        reduced business volumes
    -   Unusual expense items, including structuring costs, principal reason
        for generating expected net loss for the period
    -   Company expects to return to profitability in second half of fiscal
    -   Volume of originations consistent with stated expectations of between
        $40 million and $45 million of new and renewing insured mortgages a
    -   Assets under administration at $2.3 billion
    -   Conference call at 10:00 a.m. (EDT) today

    TORONTO, June 12 /CNW/ - Xceed Mortgage Corporation (TSX: XMC), a
Canadian provider of insured mortgages, today announced its financial results
for the fiscal 2008 second quarter ended April 30, 2008. All references to
quarters or years are for the fiscal periods and all currency amounts are in
Canadian dollars unless otherwise noted.
    "As we previously indicated, the second quarter was a transition period
for Xceed Mortgage as we adjusted our business in view of the turmoil that has
been ongoing in Canada since last summer with the collapse of the asset-backed
commercial paper (ABCP) market," said Mr. Wahl.
    "During the 2008 second quarter, we completed the shift of our focus
entirely away from our past core business of offering primarily
non-traditional products. Xceed now is solely originating mortgages that
qualify for insurance and sale to the Canada Mortgage Bond Program. During the
first half of 2008, we were able to insure approximately $102.4 million of
previously uninsured mortgages that we had originated in the past.
    "With the shift to focusing on insurable mortgages, we also proceeded
with structuring our organization to suit the current market conditions and
our reduced volume of business. This structure included eliminating
approximately 100 employee positions, including four members of our senior
executive management team, as well as related office space and equipment.
    "In total, Xceed recorded in the 2008 second quarter unusual pre-tax
charges related to these cost-reduction measures of $10.2 million comprising
severance and terminations costs, a deferred charge write-down, a write-down
of fixed assets, and lease costs. The measures taken are expected to result in
annualized after-tax savings of about $10 - $13 million.
    "During the second quarter, we also were successful in dealing with 
$295 million of maturing notes issued by Xceed Mortgage Trust (XMT). Despite
the market uncertainties and turbulence, we were able to fully retire the
maturing notes on March 17 and April 17 by negotiating approximately
$168.2 million of funding and using $126.8 million of mortgage collections
that had accumulated in XMT. However, as previously announced, the interest
costs of this refinancing are substantially higher than when the notes were
sold, requiring that Xceed take an after-tax write-down of our deferred net
mortgage interest receivable from the XMT vehicle of $1.8 million," he said.
    "We also will realize lower standby charges as the result of having
reduced the size of the committed warehouse and other active securitization
facilities from $650 million to $492 million. We believe this reduced level is
adequate in view of the anticipated lower amount of new mortgage originations.
    "We believe that the measures that our management has taken will meet our
stated objectives of maximizing value for the company's shareholders,
particularly by protecting the company's ongoing liquidity. This includes the
preservation of the residual interest cash flows from securitization vehicles
as well as those cash inflows that result from the sale of originated
    "These measures also position Xceed to return to profitability in the
second half of our fiscal 2008," Mr. Wahl said.

    Financial Highlights for Second Quarter and Six Months

    -   Reflecting the unusual pre-tax charges of $10.2 million and the
        after-tax write-down of $1.8 million of the deferred net mortgage
        interest receivable from XMT, the company recorded a net loss of
        $16.7 million for the second quarter (basic and fully diluted loss of
        $0.60 per share) and a net loss of $15.2 million for the first half
        of 2008 (basic loss of $0.55 per share and $0.54 per share on a fully
        diluted basis). The losses also are attributable to the company's
        curtailment of business volumes as it shifted its focus to
        originating only insurable mortgages, which is lower-margin business
        than the non-traditional mortgages that previously represented nearly
        all of Xceed's business.

        In 2007, the company reported net income of $4.7 million for the
        second quarter (basic earnings of $0.17 per share and $0.16 per share
        on a fully diluted basis) and $11.5 million for the first half of the
        year (basic earnings of $0.42 per share and $0.40 per share on a
        fully diluted basis).

        Results for the 2008 second quarter and first half also were affected
        by fluctuations in the fair value of financial instruments. This
        resulted in a realized and unrealized loss of $8.9 million and a loss
        of $7.4 million, respectively for the second quarter and first six
        months of 2008, compared with gains of $0.9 million and $1.6 million
        in the comparative 2007 periods. Net income for the 2008 second
        quarter and first half also was affected by provisions for the
        recovery of income taxes amounting to $8.2 million and $8.6 million
        for the respective periods. In the 2007 second quarter and first
        half, the company had provisions for income taxes of $2.5 million and
        $6.2 million in the comparative periods.

        Xceed's origination business and the sale of originated mortgages to
        third parties have historically generated the vast majority of the
        company's revenue.

        The company sold mortgages to securitization and other vehicles in
        the 2008 second quarter valued at $78.2 million, compared with
        $339.8 million in the 2007 period. The net gain on the sale of these
        mortgages decreased to $2.1 million in the 2008 second quarter,
        compared with $13.8 million a year earlier (excluding a one-time
        $0.6 million charge related to an XMT transaction). For the first
        half of 2008, Xceed's sale of mortgages amounted to $209.4 million
        (including $57.1 million of mortgages that the company had sold to
        Okanagan Funding Trust, bought back, insured, and resold to an
        insurance aggregator of insured mortgages on a whole-loan basis),
        compared with $637.1 million in the six-month 2007 period. The net
        gain on the sale of mortgages in the 2008 first half was
        $5.3 million, compared with $26.2 million.

        The decreases in the net gains as a percentage of sales in the 2008
        periods reflect changes in average sales mix trends between insured
        and uninsured mortgage product. Insured mortgages normally have
        borrowers with better credit profiles and are arranged on fixed-rate
        terms, entailing lower spread margins than previously enjoyed. These
        effects resulted in gains recognized in the 2008 second-quarter and
        first-half of 2.7% and 2.5%, respectively of the amount of mortgages
        sold, compared with 4.1% and 4.2% for the corresponding prior-year
        periods. 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.

    -   Mortgage fundings in the 2008 second quarter were $125.3 million,
        which compares with $281.2 million in the 2007 period. "This is
        consistent with our previously stated expectations that we will
        originate between $40 million and $45 million of new and renewing
        insured mortgages a month that can be sold to the Canada Mortgage
        Bond Program," Mr. Wahl noted.

        In the first half of 2008, fundings amounted to $191.0 million,
        compared with $621.2 million in the first six months of 2007.

    -   Given reduced originations and securitization sales, mortgages and
        other assets under administration declined 2.5% to $2.35 billion as
        at April 30, 2008, compared with $2.52 billion as at January 31,
        2008, and were down 8.2% from $2.64 billion at April 30, 2007.

    -   Return on average shareholders' equity for the 2008 second quarter
        was a negative 78.4%, compared with 17.2% a year earlier. For the
        first half of 2008, it was a negative 33.8%, compared with 20.9% in
        the 2007 period.

    -   Revenues totaled $2.6 million in the 2008 second quarter, down from
        $16.4 million in the 2007 period, reflecting the reduced level of
        mortgage sales and lower securitization income of $1.9 million
        compared with $13.2 million in the 2007 quarter. Pending sales, the
        company also earns interest income on mortgages that are on the
        company's balance sheet for the brief intervening period. Interest
        earned in the 2008 quarter was $2.9 million, up from $2.4 million in
        the second-quarter 2007. For the six months, total revenues were
        $8.4 million in the 2008 period, down from $33.9 million in the first
        half of 2007. Securitization income declined to $4.7 million from
        $26.4 million a year earlier, while interest earned increased to
        $6.3 million from $4.4 million in the 2007 first half.

    -   Cash flow from operations, adjusted for unusual items and XMT
        financing charges, for the second-quarter 2008 was $0.2 million or
        $0.01 per basic and diluted share, compared with $5.6 million ($0.21
        per basic and $0.19 per diluted share) in the 2007 quarter. Second-
        quarter 2008 cash securitization income was $9.0 million, compared
        with $10.4 million in the 2007 quarter. However, unlike in the 2007
        quarter, the second-quarter 2008 included the higher costs in Xceed's
        trust vehicles resulting from the disruption in the ABCP market. The
        impact of this on cash securitization income was partially offset by
        approximately $3.5 million of cash premium proceeds recorded from
        whole-loan sale transactions. For the first half of 2008, cash flow
        from operations amounted to $1.8 million, compared with $10.8 million
        in the first half of 2007. Cash flow in 2008 also was affected by the
        fact that the majority of mortgages funded during the year was
        insured business, which does not earn an application fee on
        origination. Lower cash flows can also be attributed to the
        $0.3 million and $2.7 million in insurance premiums paid by Xceed
        during the quarter and first six months to insure a portion of its
        portfolio. No such premiums were paid in the 2007 periods. Xceed also
        incurred increased hedging cost in 2008 as the result of declining
        market swap rates.

    In the 2008 second quarter, Xceed employed an average of 99 full-time
staff, compared with an average of 137 employed a year ago. As noted, however,
Xceed's employment level is being reduced to approximately 40 employees. The
company's productivity index was 324.9% for the 2008 second quarter and 43.3%
in the comparative 2007 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 was 3.53% in
second-quarter 2008, up slightly from 3.33% in the 2008 first quarter, and
compared with 2.72% in the 2007 period. As expected, the increase in the 2008
level primarily is due to the aging of the portfolio, since defaults are less
likely to occur in the early stages of a mortgage term. An increase in the
ratio can also occur as a result of a reduction in portfolio size, due to
principal prepayments, when this is not accompanied by a commensurate
reduction in defaulted mortgages. Slowness of defaulted mortgage property
sales in the winter months, which occurs due to the seasonality of the real
estate markets, also plays a factor.
    Xceed has filed its 2008 second-quarter financial statements and
management's discussion and analysis with SEDAR and they will be posted on the
company's website.



    (in thousands of dollars)
                                                           As at       As at
                                                        April 30, October 31,
                                                            2008        2007
    Cash and cash equivalents                              4,998       8,925
    Investment in notes                                   24,182      25,536
    Cash collateral and other deposits receivable
     from Trusts                                          11,935      11,434
    Deferred net mortgage interest receivable             41,357      56,306
    Mortgages                                            176,084     115,190
    Accounts receivable                                    7,720       7,073
    Derivative instruments                                     -         190
    Mortgage commitments                                      50          54
    Deferred charges                                         428       6,410
    Fixed assets, net                                        258       2,110
                                                         267,012     233,228

    Credit facilities                                    160,554      91,903
    Accounts payable and accrued liabilities              18,631      24,882
    Derivative instruments                                   564       1,137
    Future and other income taxes                          7,735      20,369
    Total liabilities                                    187,484     138,291

    Shareholders' equity
    Capital stock                                         57,274      57,274
    Contributed surplus                                    1,191       1,452
    Retained earnings                                     21,063      36,211
    Total shareholders' equity                            79,528      94,937
                                                         267,012     233,228


    (in thousands of dollars, except per share amounts)
                                  Three months ended        Six months ended
                                April 30,   April 30,   April 30,   April 30,
                                    2008        2007        2008        2007

    Securitization income          1,909      13,200       4,693      26,375
    Interest earned                2,912       2,404       6,285       4,442
                                   4,821      15,604      10,978      30,817
    Add: Net origination
     income (costs)               (2,202)        765      (2,621)      3,095
                                   2,619      16,369       8,357      33,912

    Compensation and benefits      3,323       3,820       4,875       7,528
    Interest                       2,192       1,378       4,249       2,470
    Deferred charge amortization     491         562       1,187       1,091
    Other operating                2,389       4,315       4,230       6,737
                                   8,395      10,075      14,541      17,826

    Realized and unrealized
     gains (losses) on financial
     instruments                  (8,893)        942      (7,444)      1,584

    Income (loss) before unusual
     items and income taxes      (14,669)      7,236     (13,628)     17,670

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

    Provision for (recovery of)
     income taxes                 (8,168)      2,492      (8,645)      6,161

    Net income (loss)
     for the period              (16,671)      4,744     (15,153)     11,509

    Retained earnings,
     beginning of period          37,734      53,214      36,211      43,823
    Add:  Transition adjustment
          on adoption of
          financial instruments
          standards                    -           -           -       4,775
    Less: Dividends declared           -      (2,174)          -      (4,096)
    Less: Shares purchased for
          cancellation                 -      (1,024)          5      (1,251)
    Retained earnings,
     end of period                21,063      54,760      21,063      54,760

    Earnings (loss) per share
    Basic                          (0.60)       0.17       (0.55)       0.42
    Diluted                        (0.60)       0.16       (0.54)       0.40


    (in thousands of dollars)
                                  Three months ended        Six months ended
                                April 30,   April 30,   April 30,   April 30,
                                    2008        2007        2008        2007
    Operating activities
    Net income (loss)
     for the period              (16,671)      4,744     (15,153)     11,509
    Items not affecting
     operating cash:
      Non-cash net (gain) on
       sale of mortgages           1,364     (13,208)      1,965     (26,184)
      Amortization of
       deferred net mortgage
       interest receivable         6,790      11,335      14,213      21,504
      Amortization of
       servicing fee              (1,077)       (971)     (2,184)     (1,861)
      Amortization of
       fixed assets                  176         202         407         395
      Amortization of
       deferred charges              491         562       1,187       1,091
      Unrealized loss (gain)
       from financial
       instruments                 6,078         328      (1,122)       (686)
      Net future income taxes     (6,754)      1,044      (7,285)      2,852
      Non-cash unusual items       7,907           -       7,907           -
                                  (1,696)      4,036         (65)      8,620
    Other changes in
     non-cash net assets         (61,771)     30,635     (70,820)    (15,012)
                                 (63,467)     34,671     (70,885)     (6,392)
    Investing activities
    Sale of notes                  1,747      14,063       8,331      15,335
    Purchase of notes                  -     (20,520)     (8,726)    (25,335)
    Net increase (decrease)
     in deferred charges            (352)       (458)       (601)        645
    Purchase of fixed assets        (612)       (217)       (704)       (296)
                                     783      (7,132)     (1,700)     (9,651)
    Financing activities
    Credit facilities,
     net of repayments            55,081     (21,183)     68,653      19,364
    Share buyback                      -      (1,482)          5      (1,813)
    Dividends paid                     -      (1,921)          -      (3,568)
                                  55,081     (24,586)     68,658      13,983
    Net increase (decrease) in
     cash and cash equivalents    (7,603)      2,953      (3,927)     (2,060)
    Cash and cash equivalents,
      beginning of period         12,601       4,930       8,925       9,943
    Cash and cash equivalents,
     end of period                 4,998       7,883       4,998       7,883

    Supplemental cash
     flow information
    Interest paid                  2,075       1,322       4,096       2,125
    Income taxes paid                  -          48       4,053       5,144

           See accompanying notes to interim consolidated financial
                     statements filed on www.sedar.com.


    Conference Call and Webcast

    Xceed will hold a conference call for analysts and investors to discuss
its second quarter results on June 12, 2008 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 416-644-3417 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 21273316 followed by the number sign) from noon on
June 12 to 11:59 p.m. on  June 19. An archived recording of the webcast will
also 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 $2.3 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

    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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