Xceed Mortgage Reports Fiscal 2009 Year-End Financial Results
- Cash flow from operations increase 13% to $12.2 million in 2009
- Xceed has achieved positive net income and cash flow from operations
in five of its past six quarters
- Significantly increased originations of new mortgages in 2009;
Xceed's origination of new mortgages was $524.1 million, a 46.3%
increase from the 2008 level
- Assets under administration at $1.914 billion at year-end
- Mortgage default ratio remains stable at 3.5%, down slightly from
2008 level
- Conference call at 10:00 a.m. (EDT) today (Thursday)
"Xceed's 2009 year coincided with the worst of the economic recession," said
"Excluding the negative residual securitization income that we previously reported for the third quarter and valuation write-downs reported for the first and third quarters, Xceed generated modest income for 2009. Further, we achieved cash flow from operations of
"As our fiscal year was drawing to a close, stock markets were reflecting optimism with respect to signs that an economic recovery was taking place in
"This uncertainty continued to be true regarding the availability of credit at reasonable costs for new mortgages and mortgage refinancing, particularly for funding for non-conventional, uninsured mortgages,"
Financial Highlights
- Xceed recorded a net loss for 2009 of $3.3 million compared with a
net loss of $12.0 million in 2008. The net loss for 2009 reflects the
previously reported third-quarter pre-tax valuation write-down of
$6.5 million ($4.4 million after tax) on the deferred purchase price
related to the write-off of the company's retained interest in Xceed
Mortgage Trust (XMT) and the increased credit-loss assumptions in the
valuations, partially offset by a positive fair-value adjustment on
the deferred purchase price for Okanagan Funding Trust (OFT) and the
decrease in the discount rates in the valuations.
The company's mortgage securitization facility provided by the
Canadian branch of an international bank through OFT was adjusted
with less favorable pricing terms during the second quarter of 2009.
The company took a $4.5 million ($3.0 million after-tax) write-down
to its deferred net mortgage interest receivable for the 2009 first
quarter. The facility has total outstanding mortgage principal of
$151.9 million as at October 31, 2009, of which $23.9 million was
funded by Xceed to provide credit enhancement for the senior notes.
The results for 2009 also reflect that, following the approval in
January 2009 of the ABCP (asset-backed commercial paper)
restructuring plan, Xceed received a onetime payment of $4.8 million
for the retroactive adjustment in funding costs. The company received
$1.4 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 $4.2 million after-tax ($6.2 million pre-tax) as
income under securitization income for the 2009 first and second
quarter. Xceed also recorded a fair-value increase of $5.9 million
after-tax ($8.8 million pre-tax) to its deferred purchase price 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, Xceed, as financial services
agent of XMT, announced that an amortization event had occurred first
for the Series 2007-T2 and then for the 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.
Since the commencement of the amortization period for XMT, the
funding costs for the Trust had risen by more than 400 basis points.
With XMT not being able to refinance the maturing fixed-rate notes
with a new class of floating rate notes as the offsetting swaps
matured, funding costs in the trust increased to where spreads were
negative. The company, acting for XMT, was unable to finance renewals
of many uninsured mortgages at their maturity as the result of the
market conditions, including for customers with good payment records.
The company took a $2.0 million ($1.4 million after-tax) write-down
on its deferred purchase price for the 2009 first quarter and a
further write down of $2.7 million in the third quarter, which fully
writes-off Xceed's retained interest. This valuation write-down
minimizes the company's exposure to further market challenges.
At the 2009 year-end, XMT held $11.7 million in cash collateral for
hedge valuations, which does not provide credit support to the
program. After the last note matures in XMT, Xceed expects to receive
the cash in full after settling all its hedge obligations. As at
October 31, 2009, XMT had total principal of $262.6 million
outstanding funded by the Series 2006-T1 and Series 2007-T2 Notes.
The 2008 results included second-quarter unusual items of
$10.2 million pre-tax ($6.8 million after-tax) related to
restructuring and a write-down of $2.7 million pretax ($1.8 million
after-tax) on the deferred purchase price for XMT as a result of
increased spreads for the new Class A-C-1 Notes issued during the
period.
The amortization period for each series of XMT's notes will end when
the principal amount outstanding for all notes in each series is
repaid. As at the 2009 year-end, the Class A Senior Note for Series
2006-T1 was fully repaid, and $147.3 million was outstanding for
Series 2007-T2.
The difficult conditions in the credit and funding market also are
reflected in the company's residual securitization income being
negative and in valuation write-downs on the deferred purchase prices
from its existing securitization programs. Residual securitization
income was negative largely as the result of the fallout of the
amortization events in XMT, resulting in negative spreads in the
Trust, and increased losses inside the securitization vehicles from
higher foreclosure activities during the late spring and into the
summer, and higher property management fees as the result of there
being longer periods from initiation to receiving foreclosure
proceeds in some weaker real estate markets. Results for 2009 also
were negatively impacted by the valuation write-down in the third
quarter that the company took on its deferred purchase prices due to
increases in credit loss assumptions used in the valuation models,
and the write-off on the deferred purchase price for XMT from which
the company no longer expects to reap any future economic benefits.
Fourth-quarter 2009 net income was $0.8 million, compared with net
income in the 2008 period of $1.6 million. The decline is mainly
attributable to sharply lower revenues, reflecting a reduced net gain
on the sale of mortgages and sharply lower securitization income.
The basic and diluted loss per share for fiscal 2009 were ($0.12)
compared with ($0.43) for the prior fiscal year. For the 2009 fourth
quarter, basic and diluted earnings per share were $0.03, which
compared with $0.06 for the corresponding period of 2008.
- Xceed significantly increased its originations of new mortgages in
2009 from the 2008 level. In 2009, Xceed's origination of new
mortgages was $524.1 million, a 46.3% increase from the
$358.3 million originated in 2008. For the 2009 fourth quarter,
Xceed's origination of new mortgages amounted to $130.2 million, a
55.4% increase from $83.8 million in the 2008 period. All new
originations in the company's pipeline are insured mortgage products.
All funding for new mortgage originations is provided by the
company's warehouse credit facility.
The amount of new mortgages underwritten in 2009 was approximately
equal to those sold by the company during the year. In 2009, Xceed
sold mortgages to securitization and other vehicles valued at
$532.8 million. This compares with $508.6 million sold in 2008. The
fourth-quarter 2009 sale of mortgages amounted to $185.2 million,
compared with $125.1 million in the 2008 period. Separating these
amounts by insured and uninsured mortgages, Xceed sold $495.7 million
and $174.0 million of insured mortgages in 2009 and in the fourth
quarter, compared with $392.5 million and $66.3 million on a whole-
loan basis during the comparable 2008 periods. The sales generated
premium proceeds in 2009 of $15.5 million for the year and
$4.2 million in the fourth quarter, compared with $17.8 million and
$2.3 million in the comparable 2008 periods. The gain on sales in
2009 amounted to $13.3 million for the year and $3.9 million in the
fourth quarter, compared with gains of $11.4 million and $3.6 million
in the respective 2008 periods.
During 2009, Xceed securitized $34.7 million, including $11.7 million
in the fourth quarter, of uninsured mortgages to off-balance sheet
securitization entities, and recorded a deferred purchase price of
$1.9 million and $0.5 million, respectively. This compares with
$113.7 million in 2008, including $56.4 million in the fourth
quarter, with deferred purchase prices of $5.0 million and
$3.3 million, respectively. The company separately sold uninsured
whole loans in 2009 of $1.2 million ($2.4 million in 2008) with net
proceeds of $1.2 million ($2.4 million in 2008). Xceed also sold a
mortgage pool comprising $1.3 million of defaulted mortgages with net
proceeds of $1.0 million, and retained the right to excess recoveries
from foreclosure sales.
Xceed incurred a loss in residual securitization income of
$2.9 million in 2009, including $1.9 million in the fourth quarter.
This compares with a gain for 2008 of $0.8 million, including a
fourth-quarter loss of $0.2 million. Once this residual
securitization income is added to the net gain on sale of mortgages,
combined income from securitized assets was $12.0 million and
$2.4 million for 2009 and in the fourth quarter, respectively,
compared with $14.8 million and $5.1 million for the corresponding
periods of 2008. Residual securitization income in 2009 included
$6.2 million related to the retroactive adjustment on funding costs
and interest on the illiquid ABCP which the company received upon the
closing of the third-party ABCP restructuring plan during the first
quarter.
In 2009, the net gain on the sale of mortgages amounted to an average
of 2.8%, including 2.3% in the fourth quarter. This compares with
2.8% for 2008, including 4.3% in the fourth 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 $1.914 billion
at the end of 2009, down 10.5% from $2.139 billion a year earlier,
and down 2.9% from $1.972 billion at the end of the 2009 third
quarter.
- Return on average shareholders' equity for 2009 was a negative 4.0%
and a positive 0.9% for the fourth quarter, compared with a negative
14.0% and positive 7.8% for the respective corresponding 2008
periods.
- Xceed's primary source of revenue is from the sale of pools of
mortgages to off-balance sheet entities. Total revenues, after giving
effect to an increase in the net gain on mortgages sales, the loss
from residual securitization income, interest earned, and higher
costs of net originations, amounted to $9.4 million in 2009, compared
with $22.3 million for 2008. In the fourth-quarter 2009, total
revenues declined to $2.1 million, compared with $6.4 million in the
prior-year period. 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 2009 was $4.1 million, down
from $11.2 million in 2008; in the 2009 fourth quarter, interest
earned was $1.0 million, compared with $2.0 million in the 2008
period. Net origination costs amounted to $6.7 million in 2009,
compared with $3.8 million in 2008; in the 2009 fourth quarter, net
origination costs were $1.3 million, up from $0.6 million a year
earlier.
- 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 $12.2 million ($0.44 per
basic and diluted share) for 2009, and a positive $2.6 million ($0.09
per basic and diluted share) for the 2009 fourth quarter. This
compares with $10.9 million ($0.39 per basic and diluted share) for
2008 (after removing one-time after-tax cash-based expense effects of
$1.5 million related to severance and $0.4 million in refinancing
costs for XMT) and $2.4 million ($0.09 per basic and diluted share)
in the comparative 2008 periods. Cash securitization income was
$29.2 million and $4.8 million in 2009 and the fourth quarter,
respectively, compared with $38.5 million and $8.2 million in the
comparative 2008 periods. Cash-based revenues in 2009 and in the
fourth quarter were $33.3 million and $5.8 million, respectively,
compared with $49.7 million and $10.1 million in the comparable
periods a year earlier.
In 2009, Xceed employed an average of 46 full-time employees, which compares to an average of 83 people in 2008. For the fourth quarter, the average number of employees was 49 in 2009 and 43 in 2008. At the 2009 year-end, the company employed approximately 50 people. The productivity index (calculated by dividing compensation and other operating expenses and intangible asset amortization by securitization income) was 78.4% for 2009 and 101.5% in 2008; for the fourth quarter, the productivity index was 92.7% in 2009, compared with 48.8% in the 2008 period. A lower productivity index generally is associated with a more-efficient cost structure.
The average mortgage default ratio (over 90 days in arrears) on the company's combined securitized and non-securitized portfolio continued to be stable and within the company's expectations at 3.46% for 2009 and 3.55% in 2008. For the fourth quarter, the average mortgage default ratio was 3.75% in 2009, compared with 3.75% in the 2008 period.
At the end of 2009, Xceed had cash and cash equivalents of
During the 2009 second quarter, Xceed announced its intention to make a normal course issuer bid (NCIB) to purchase up to 5% of its issued and outstanding common shares or 1,387,127 shares on or before
Xceed has filed its 2009 financial statements and management's discussion and analysis with SEDAR and they will be posted on the company's website.
Outlook
"Since the collapse in
"We look forward to our 2010 fiscal year with a renewed sense of optimism. Our financial performance indicates that we are headed in the right direction with respect to growing our business and creating value for our investors. We believe that this will be spurred by the recovery of the Canadian economy, even though it appears that this likely will be a gradual process.
"In particular," he continued, "this should be an exciting year as we are expecting to receive approval from the Office of the Superintendent of Financial Institutions (OSFI) of our application to become a federally regulated deposit-taking institution. We believe that the application process is making progress, but the timing of any approval is entirely up to OSFI," he continued.
"As Xceed Bank or Banque Xceed, we will have a new and important avenue for accessing stable capital at a reasonable cost. This will significantly increase our underwriting capacity. We believe that, operating within OSFI guidelines, the creation of Xceed Bank will enable us to assist more of our customers that have had good payment records and are seeking to renew their mortgages,"
"We also will continue to focus on originating mortgages that qualify for insurance and for sale under the
XCEED MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
-------------------------------------------------------------------------
October 31, October 31,
2009 2008
$ $
-------------------------------------------------------------------------
ASSETS
Cash and cash equivalents 5,731 9,942
Investment in notes (notes 3d) and 7) 33,230 27,423
Cash collateral and other deposits receivable
from Trusts (note 3d)) 15,738 13,773
Deferred net mortgage interest receivable
(note 3c)) 14,005 34,915
Mortgages (note 4) 39,485 63,210
Accounts receivable (note 3d)) 4,418 7,302
Derivative instruments (notes 12 and 13) - 209
Mortgage commitments (note 12) 12 48
Intangible assets, net (note 5) 672 238
Fixed assets, net (note 6) 134 240
----------------------
113,425 157,300
----------------------
----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Credit facilities (notes 7 and 12) 24,016 57,382
Accounts payable and accrued liabilities (note 3) 4,886 8,146
Derivative instruments (notes 12 and 13) 91 108
Future and other income tax liabilities (note 9) 5,048 9,038
----------------------
Total liabilities 34,041 74,674
----------------------
Shareholders' equity
Capital stock (note 8) 56,767 57,274
Contributed surplus (notes 8 and 15) 1,716 1,108
Retained earnings 20,901 24,244
----------------------
Total shareholders' equity 79,384 82,626
----------------------
113,425 157,300
----------------------
----------------------
XCEED MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND RETAINED EARNINGS
(in thousands of dollars, except per share amounts)
-------------------------------------------------------------------------
Years ended October 31, October 31,
2009 2008
$ $
-------------------------------------------------------------------------
REVENUE
Securitization income (note 3a)) 11,978 14,836
Interest 4,092 11,226
----------------------
16,070 26,062
Less: Net origination costs (6,657) (3,760)
----------------------
9,413 22,302
----------------------
EXPENSES
Compensation and benefits 5,785 7,739
Interest (note 7) 2,556 7,694
Amortization of intangible assets 155 1,230
Other operating 3,451 6,095
----------------------
11,947 22,758
----------------------
Realized and unrealized losses on financial
instruments (notes 3c), 4 and 12) (2,575) (8,985)
----------------------
Loss before unusual items and income taxes (5,109) (9,441)
Unusual items (note 16) - 9,874
Recovery of income taxes (note 9) (1,766) (7,343)
----------------------
Net loss for the year (3,343) (11,972)
Retained earnings, beginning of year 24,244 36,211
Shares purchased for cancellation - 5
----------------------
Retained earnings, end of year 20,901 24,244
----------------------
----------------------
-------------------------------------------------------------------------
Loss per share (note 8)
Basic (0.12) (0.43)
Diluted (0.12) (0.43)
-------------------------------------------------------------------------
XCEED MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
-------------------------------------------------------------------------
Years ended October 31, October 31,
2009 2008
$ $
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the year (3,343) (11,972)
Items not affecting operating cash:
Non-cash net loss on sale of mortgages 114 399
Amortization of deferred net mortgage interest
receivable 20,094 27,097
Amortization of servicing fee (2,958) (3,875)
Amortization of fixed assets 131 485
Amortization of intangible assets 155 1,230
Unrealized losses (gains) from financial
instruments (notes 3 and 12) 3,059 (3,433)
Net future income taxes (5,014) (8,350)
Non-cash unusual items - 7,473
----------------------
12,238 9,054
Other changes in net assets (note 10) 22,945 33,966
----------------------
35,183 43,020
----------------------
INVESTING ACTIVITIES
Sale of notes 1,043 13,403
Purchase of notes (6,484) (19,852)
Net increase in intangible assets (589) (538)
Purchase of fixed assets (25) (764)
----------------------
(6,055) (7,751)
----------------------
FINANCING ACTIVITIES
Net decrease in credit facilities (33,440) (33,913)
Share buyback (274) 5
Contributed surplus related to issuance of
options 375 (344)
----------------------
(33,339) (34,252)
----------------------
Net increase (decrease) in cash and cash
equivalents (4,211) 1,017
Cash and cash equivalents, beginning of year 9,942 8,925
----------------------
Cash and cash equivalents, end of year 5,731 9,942
----------------------
----------------------
-------------------------------------------------------------------------
Supplemental cash flow information
Interest paid 2,704 8,086
Income taxes paid 2,348 4,151
-------------------------------------------------------------------------
Conference Call and Webcast for Quarter and Special Meeting
Xceed will hold a conference call for analysts and investors at
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 www.newswire.ca and www.xceedmortgage.com.
An archived recording of the call will be available at 416-849-0833 or 1-800-642-1687 (Passcode 49327736) from two hours following the conclusion of the call on
About Xceed
Xceed Mortgage Corporation, based in
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: please contact Investor and Media Relations: Richard Wertheim, Wertheim + Company Inc., (416) 594-1600 (bus.) or (416) 518-8479 (cell), email: [email protected]
Share this article