<<
- Company reports net income of $1.4 million for the quarter
- Assets under administration at $1.668 billion
- Conference call at 10:00 a.m. (EDT) today (Thursday)
>>
TORONTO, Sept. 9 /CNW/ - Xceed Mortgage Corporation (TSX: XMC), a Canadian provider of insured mortgages, today announced its financial results for the fiscal 2010 third quarter ended July 31, 2010. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.
"We are pleased that Xceed now has posted consecutive quarters of improving profitability. Although our level of mortgage originations was lower than in prior quarters, as we were affected by changing market conditions and an apparent slowdown in our industry in July, Xceed still earned $1.4 million for the quarter", said Ivan Wahl, Chairman and Chief Executive Officer.
"This net income of $1.4 million included a write-up of $0.7 million (after tax) as the result of a partial reversal of a write-down that we took earlier this year of $0.9 million (after tax) in anticipation of an increase in loan losses at maturity with respect to the accounts of Xceed Mortgage Trust. Even excluding this gain, our net income in the third quarter is a significant improvement from the $0.4 million of net income we reported for the 2010 second quarter and compares with a loss of $7.5 million that we incurred in the 2009 period. As expected, we have seen some general improvement in market pricing for mortgages, although spreads are still tighter than those that we have experienced in the past," Mr. Wahl said.
"On August 4, we were able to increase the maximum borrowing limit on the warehouse funding facility that we announced on March 29, 2010 with the Canadian branch of Maple Bank GmbH, Germany. The increase in the facility is to $75 million from the initially set level of $50 million. This facility will provide us further funding for the origination of insured mortgages. We also are continuing to work with the federal regulatory authorities to gain approval for the conversion of our company to a bank. We expect that as a bank we will have further access to funds that will enable us to grow our product offerings and mortgage portfolio for the benefit of Canadians across the country," he continued.
Financial Highlights
<<
- Third-quarter 2010 net income was $1.4 million, compared with a loss
of $7.5 million in the 2009 period. For the first nine months of
2010, Xceed recorded a net loss of $10.0 million, compared with a net
loss of $4.1 million in the comparable 2009 period. For the 2010
first quarter, in anticipation of an increase in loan losses at
maturity, the company had written-down the $1.3 million ($0.9 million
after-tax) in excess funds which were accumulated in the Xceed
Mortgage Trust (XMT) Series 2006-T1 cash collateral account to zero.
As at July 31, 2010, the amount of excess funds accumulated in this
account have grown to $1.4 million. Simultaneously, the pool balance
has decreased to $6.5 million. Based on current estimates of
projected net interest spread and expected credit losses within XMT
Series 2006 T-1, Xceed now expects to receive $1.0 million of the
excess spread and as a result recorded a positive $1.0 million fair-
value adjustment to XMT Series 2006 T-1 cash collateral. Results for
the 2009 third quarter included a valuation write-down of
$6.5 million ($4.4 million after-tax) on the deferred purchase price
related to the write-down of the company's remaining retained
interest in XMT and the increased credit loss assumptions used in the
valuations. Results for the 2009 third quarter also were affected by
residual securitization losses of $5.0 million ($3.4 million after-
tax). The losses were mainly attributable to negative spreads in XMT
from the fallout of the amortization events.
The net loss in the first nine months of 2010 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, and the concomitant reduction in future
expected Residual Securitization Income (RSI). RSI is the difference
between monthly spread income and the amortization of the deferred
net mortgage interest receivable. Results for the first nine months
of 2009 were affected positively by the implementation of the third-
party asset-backed commercial paper (ABCP) 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 Xceed.
The basic and diluted earnings per share for the 2010 third quarter
were $0.05, compared with a basic and diluted loss per share of $0.27
in the 2009 period. For the first nine months of 2010, the basic and
diluted loss per share was $0.36, which compares with a basic and
diluted loss per share of $0.15 for the 2009 period.
- Origination of new mortgages amounted to $93.1 million the 2010 third
quarter and $352.3 million for the first nine months of the year,
compared with $171.8 million in the 2009 third quarter and
$393.8 million in the first nine months of 2009. All new originations
are insured mortgage products.
The company still has a legacy portfolio of uninsurable mortgages
under administration amounting to $0.6 billion. The main impact of
the turmoil in the financial markets has been to increase the
inability of mortgagors to refinance their uninsured mortgages at
maturity, resulting in losses in cases where they cannot be
refinanced. The situation regarding refinancing uninsured mortgages
at maturity has been further affected by changes announced in
February 2010 by the Federal Minister of Finance. These changes
prevent the insured refinancing of mortgages where the loan exceeds
90% of the equity value, limit insured refinancing for non-owner-
occupied rentals to where the mortgage does not exceed 80% of the
value of the property, and require that borrowers must prove that
they would qualify for an insured mortgage at prevailing five-year
rates.
At the same time, Xceed renewed $33.2 million and $85.1 million of
uninsured mortgages in the 2010 third quarter and first nine months
of the year, respectively, under the auspices of a program which
manages the wind down of one of mortgage trusts serviced by Xceed
This compares with renewals of $10.0 million and $23.0 million in
comparative 2009 period.
Xceed's primary source of revenue is from the sale of pools of
insured mortgages to off-balance sheet entities. For the 2010 third
quarter and nine months, the company sold $86.8 million and
$269.4 million (2009 - $117.5 million and $323.5 million) of insured
mortgages on a whole-loan basis, with gross premium proceeds of
$2.0 million and $5.8 million, (2009 - $1.7 million and
$11.3 million), respectively. The decrease in premium proceeds is
mainly due to a decrease in volumes, caused by a conscious decision
on the company's part not to match rates posted by the competition,
during a very competitive period that began in early spring and ended
in mid-summer.
In the 2010 third quarter and first nine months, the company reported
net gain on sale of mortgages (gross gain on sale less hedging costs)
of $3.7 million and $8.2 million, respectively. In the comparative
2009 periods, net gains amounted to $3.0 million and $10.6 million,
respectively.
For the third quarter of 2010, the company reported RSI of
$0.7 million, compared with a loss in the 2009 period of
$5.0 million. For the nine-month 2010 period, RSI amounted to a loss
of $1.6 million, compared with a loss in the first nine months of
2009 of $1.0 million.
Securitization income amounted to $4.4 million for the 2010 third
quarter and $6.6 million for the first nine months of the year. In
2009, the company reported a securitization loss of $2.0 million in
the third quarter and income of $9.6 million for the nine-month
period.
Interest earned in the third quarter and first nine months of 2010
amounted to $0.7 million and $2.2 million, respectively. In the same
periods in 2009, interest earned was $1.0 million and $3.1 million,
respectively.
Net origination costs for the 2010 third quarter were $0.7 million
and for the first nine months $3.4 million. In the comparative 2009
periods, these costs amounted to $2.2 million for the quarter and
$5.4 million for the first nine months.
Total third-quarter 2010 revenues were $4.4 million and nine-month
revenues were $5.4 million. For the 2009 third quarter, revenues were
a negative $3.1 million; nine-month 2009 total revenues were
$7.4 million.
During the 2010 third quarter, the net gain on the sales recognized
was 3.1% of the amount of mortgages sold, an improvement from 2.1% in
the second quarter of the year and from the 2.3% realized in the 2009
third quarter. Factors affecting gain as percentage of sales relate
to the overall mix of business securitized and market interest rate
spreads. For uninsured mortgages, additional factors such as mortgage
duration, risk profile, and cost of credit enhancement, impact the
gain on sale as well.
- The average mortgage default level remained in the expected range at
3.2% for the 2010 third quarter, compared with 3.8% in the second
quarter and 3.5% for the 2009 period.
- Mortgages and other assets under administration were $1.668 billion
at the end of the 2010 third quarter, down 6.5% from $1.783 billion
at the end of the 2010 second quarter, and down 15.5% from
$1.972 billion at the end of the 2009 third quarter.
- Return on average shareholders' equity for the 2010 third quarter was
2.01%, and negative 13.4% for the first nine months of the year. For
the 2009 third quarter, the return was a negative 36.42%, and
negative 6.6% for the first nine 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. Xceed 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 negative $1.3 million
and negative $1.4 million for the 2010 third quarter and first nine
months, respectively (negative $0.05 per basic and diluted share for
both periods). This compares with negative $0.5 million and positive
$11.9 million in the comparable 2009 periods (negative $0.02 per
basic and diluted share in the 2009 third quarter and positive $0.43
per basic and diluted share for the first nine months of 2009). Cash
securitization income was $2.7 million in the 2010 third quarter,
compared with $1.8 million in the 2009 period. Cash-based revenues in
the 2010 third quarter were $3.3 million, compared with $2.9 million
a year earlier, wheras cash-based expenses in the 2010 third quarter
were $4.0 million as compared with $1.2 million in the corresponding
period of the previous year. The principal reason for the increase of
$2.8 million in other cash based expenses is cash settlement of
$1.7 million during the quarter in favour of the hedge counterparty
with which the company hedges its mortgage warehouse and pipeline of
originations.
- In the 2010 third quarter, Xceed employed an average of 48 full-time
employees, which compares with an average of 46 people in the 2009
period. At the end of the third-quarter 2010, the company employed 48
people.
- At the end of the 2010 third quarter, Xceed had cash and cash
equivalents of $4.0 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 As at
July 31, October 31,
2010 2009
$ $
-------------------------------------------------------------------------
ASSETS
Cash and cash equivalents 4,044 5,731
Investment in notes (notes 3d) and 7) 42,881 33,230
Cash collateral and other deposits receivable
from Trusts (notes 3c) and 3d)) 14,730 15,738
Deferred net mortgage interest receivable
(note 3c)) 2,988 14,005
Mortgages (note 4) 29,151 39,485
Accounts receivable (notes 3a) and 3d)) 6,095 4,418
Mortgage commitments (note 7) 31 12
Intangible assets, net 1,750 672
Fixed assets, net 146 134
------------------------
101,816 113,425
------------------------
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Credit facilities (notes 5 and 7) 27,200 24,016
Accounts payable and accrued liabilities
(note 3a)) 3,894 4,886
Derivative instruments (note 7) 347 91
Future and other income tax liabilities 919 5,048
------------------------
Total liabilities 32,360 34,041
------------------------
Shareholders' equity
Capital stock (note 6) 56,767 56,767
Contributed surplus (note 8) 1,802 1,716
Retained earnings 10,887 20,901
------------------------
Total shareholders' equity 69,456 79,384
------------------------
101,816 113,425
------------------------
------------------------
XCEED MORTGAGE CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
(unaudited)
(in thousands of dollars, except per share amounts)
-------------------------------------------------------------------------
Three months ended Nine months ended
July 31, July 31, July 31, July 31,
2010 2009 2010 2009
$ $ $ $
-------------------------------------------------------------------------
Revenues
Securitization income
(loss) (note 3) 4,367 (2,011) 6,637 9,613
Interest earned 683 1,043 2,159 3,106
-------------------------------------------------------------------------
5,050 (968) 8,796 12,719
Net origination costs (681) (2,168) (3,398) (5,370)
-------------------------------------------------------------------------
4,369 (3,136) 5,398 7,349
-------------------------------------------------------------------------
Expenses
Compensation and benefits 1,329 1,550 4,688 4,382
Interest 341 588 1,159 2,037
Amortization of
intangible assets 56 49 139 132
Other operating 701 878 2,440 2,685
-------------------------------------------------------------------------
2,427 3,065 8,426 9,236
-------------------------------------------------------------------------
Realized and unrealized
gains (losses) on
financial instruments 5 (4,725) (11,514) (4,064)
-------------------------------------------------------------------------
Income (loss) before
income taxes 1,947 (10,926) (14,542) (5,951)
Provision for (recovery
of) income taxes 559 (3,407) (4,528) (1,819)
-------------------------------------------------------------------------
Net income (loss) for
the period 1,388 (7,519) (10,014) (4,132)
-------------------------------------------------------------------------
Retained earnings,
beginning of period 9,499 27,631 20,901 24,244
-------------------------------------------------------------------------
Retained earnings, end
of period 10,887 20,112 10,887 20,112
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
Basic 0.05 (0.27) (0.36) (0.15)
Diluted 0.05 (0.27) (0.36) (0.15)
XCEED MORTGAGE CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
July 31, July 31, July 31, July 31,
2010 2009 2010 2009
$ $ $ $
-------------------------------------------------------------------------
Operating activities
Net income (loss) for
the period 1,388 (7,519) (10,014) (4,132)
Items not affecting
operating cash:
Non-cash net loss (gain)
on sale of mortgages (2,233) (1,400) (3,042) 507
Amortization of
deferred net mortgage
interest receivable 747 5,937 4,226 16,435
Amortization of
servicing fee (308) (638) (1,129) (2,112)
Amortization of fixed
assets 25 32 77 106
Amortization of
intangible assets 56 49 139 132
Unrealized losses
(gains) from financial
instruments (1,683) 5,458 9,344 3,462
Net future income
taxes 587 (2,338) (2,961) (4,726)
Decrease (increase) in
accrual from securitized
assets 86 (54) 1,947 2,224
-------------------------------------------------------------------------
(1,335) (473) (1,413) 11,896
Other changes in non-cash
net assets 26,968 (35,104) 6,639 (32,492)
-------------------------------------------------------------------------
25,633 (35,577) 5,226 (20,596)
-------------------------------------------------------------------------
Investing activities
Sale of notes 192 509 445 807
Purchase of notes (3,796) (389) (9,328) (5,282)
Net increase in
intangible assets (188) (247) (1,217) (376)
Purchase of fixed assets (88) (3) (89) (21)
-------------------------------------------------------------------------
(3,880) (130) (10,189) (4,872)
-------------------------------------------------------------------------
Financing activities
Credit facilities, net
of repayments (26,315) 28,889 3,190 22,336
Contributed surplus
related to issuance of
stock options 29 (190) 86 (269)
-------------------------------------------------------------------------
(26,286) 28,699 3,276 22,067
-------------------------------------------------------------------------
Net decrease in cash
and cash equivalents (4,533) (7,008) (1,687) (3,401)
Cash and cash equivalents,
beginning of period 8,577 13,549 5,731 9,942
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 4,044 6,541 4,044 6,541
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash
flow information
Interest paid 285 578 945 2,149
Income taxes paid - 1,160 2,250 1,160
>>
Conference Call and Webcast
Xceed will hold a conference call for analysts and investors at 10:00 a.m. (Eastern) today (September 9) (Eastern). Ivan Wahl, Chairman and Chief Executive Officer, 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=3208040 and www.xceedmortgage.com.
An archived recording of the call will be available at 416-849-0833 or 1-800-642-1687 (Passcode 98698495 followed by the number sign) from 1:00 p.m. on September 9 to 11:59 p.m. on September 16. 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 $1.7 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.
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