Xceed Mortgage Reports Fiscal 2010 First-Quarter Financial Results
- Achieves 44% increase in originations, underwriting $125 million of
insurable mortgages compared with $87 million in the 2009 first
quarter
- Reports net loss mainly resulting from negative fair-value
adjustments of $8.1 million on the deferred net mortgage interest
receivable related to remaining legacy portfolio of $0.8 billion of
uninsurable mortgages
- Assets under administration at $1.852 billion
- Mortgage default ratio remains stable
- Application to convert to federally chartered deposit-taking bank
(Bank Xceed/Xceed Banque) continues under review by federal
regulators
- Conference call at 10:00 a.m. (EDT) today (Thursday)
TORONTO, March 11 /CNW/ - Xceed Mortgage Corporation (TSX: XMC), a Canadian provider of insured mortgages, today announced its financial results for the fiscal 2010 first quarter ended January 31, 2010. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.
"The net loss that we are reporting for our first quarter is not indicative of the progress that Xceed is continuing to make in transitioning our business and in building a platform for what we expect will be future growth and the creation of value for our shareholders," said Ivan Wahl, Chairman and Chief Executive Officer.
"Perhaps the best indicator of our progress is that we achieved a nearly 44% increase in the volume of new mortgage originations during the quarter, underwriting $125 million worth compared with $87 million a year earlier. That is consistent with the rate of increase that we reported for all of 2009, when our originations were up more than 46%. Further, although the first quarter is historically a seasonally weaker period, our level of originations was nearly equal to the total in the 2009 fourth quarter.
"As all of the originations of new mortgages are insured products, which now are our principal focus, it means that we are accomplishing this rate of growth in a very competitive environment where we are successfully competing for business against banks and other competitors that are far bigger than us in their size and reach. We are winning this business by charging mortgage rates that are comparable to those across the industry. Our success is confirmation of the progress that we have made working with our network of brokers across Canada. During the past two years, we have worked hard with our brokers network in the transition from seeking to originate alternative, uninsurable mortgages to our focus on the insured market," Mr. Wahl said.
"Although it appears that an economic recovery is underway in Canada, the effects of the capital markets turmoil of the past two years are still being felt, particularly with respect to the lack of availability of funding at an acceptable cost for previously underwritten uninsurable mortgages.
"Xceed spent most of our fiscal 2008 transitioning away from underwriting uninsurable mortgages to focus solely on offering mortgages that could be sold to the Canada Mortgage Bond Program," he continued. "However, we still have a sizeable legacy portfolio of uninsurable mortgages amounting to about $0.8 billion. The main impact of the continued turmoil has been to create increased risk of refinancing of the uninsured mortgages at maturity, resulting in expected losses in cases where they cannot be refinanced. The situation regarding refinancing uninsured mortgages at maturity is being further affected by changes announced in February 2010 by the Federal Minister of Finance. In the current environment, the liquidity in the mortgage market continues to be available only for insured mortgages.
"Accordingly, our legacy business continued to impact our financial results in the first quarter with respect to the residual securitization income and the fair-value adjustments that we deemed to be necessary. As a result of the impact of the discontinued business line of uninsured mortgages, we recorded a negative fair-value adjustment resulting in writing down substantially all of the remaining deferred net mortgage interest receivable which assists us to put these legacy operations behind us. This write-down amounted to $8.1 million ($11.9 million pre-tax), which has been reported under the item 'Realized and unrealized losses from financial instruments' on the income statement. As at January 31, 2010, the company has a fair value of $1.2 million for the deferred net mortgage interest receivable. This relates to the gain on sale of mortgages which were renewed into one of our securitization trusts starting fiscal 2009," Mr. Wahl said.
Financial Highlights
- Xceed recorded a net loss for the 2010 first quarter of
$11.8 million, compared with net income of $3.3 million in the 2009
period. The 2010 first-quarter net loss is mainly attributable to the
fair-value adjustment write-down of $8.1 million ($11.9 million
pre-tax) taken with respect to the deferred net mortgage interest
receivable due to the 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 crystallized 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 caused by the inability of some mortgagors to refinance
their mortgage at maturity, resulting in higher costs to realize on
the value of collateral through foreclosure, and delayed timing. In
response to these worse-than-expected credit losses, Xceed made the
fair-value adjustment to the deferred net mortgage interest
receivable.
As has been previously reported, one of the securitization vehicles
of the company Xceed Mortgage Trust (XMT) went into early
amortization during the 2009 second quarter. The amortization period
for each XMT note series shall end when the principal amount
outstanding for all notes in each note series is repaid. As at
January 31, 2010, the Class A Senior Note for Series 2006-T1 was
fully repaid, and $83.7 million (October 31, 2009 - $147.3 million)
was outstanding for Series 2007-T2 Class A Senior Note. During the
2010 first quarter, the company wrote-off approximately $0.9 million
in excess funds ($1.3 million pre-tax) which were accumulated in the
Series 2006-T1 cash collateral account in anticipation of the loan
losses at maturity. This amount was included in the fair-value
adjustment on the deferred net mortgage interest receivable.
As at January 31, 2010, XMT holds $10.9 million (October 31, 2009 -
$10.9 million) in cash collateral for hedge counterparty valuations,
which do not provide credit support to the program. After the last
note matures in XMT, the company expects to receive the cash
collateral for hedge counterparty valuations in full after settling
all its hedge obligations. As at January 31, 2010, XMT had total
principal outstanding of $185.1 million (October 31, 2009 -
$262.6 million), funded by the Series 2006-T1 and Series 2007-T2
Notes.
The company also took a $0.4 million write-down ($0.6 million
pre-tax) for a negative fair-value adjustment on certain insured
mortgages in the warehouse from the past that Xceed considers to be
not readily saleable into the Canada Mortgage Bond Program as the
quoted market price is lower than the carrying value of these
mortgages.
Results for the 2009 first quarter 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 $5.3 million ($8.0 million
pre-tax) in favor of the company.
The basic and diluted loss per share for the 2010 first quarter was
$0.43 and $0.42, respectively. This compares with basic and diluted
earnings per share of $0.12 for the 2009 first quarter.
- The origination of new mortgages amounted to $125.0 million in the
2010 first quarter, a 43.7% increased from the $86.9 million of new
underwriting done in the 2009 period. All new originations are
insured mortgage products and funding is provided by the company's
warehouse credit facility.
Originations of new mortgages in the 2010 first quarter exceeded the
company's sales of mortgages by 28.1%. During the quarter, Xceed sold
mortgages valued at $97.6 million, compared with $86.0 million in the
corresponding quarter of 2009. Of these sales, in the 2010 first
quarter, $91.1 million were insured mortgages sold on a whole-loan
basis with upfront premium proceeds, compared with $84.8 million for
the corresponding quarter of the previous year. The sale of insured
mortgages generated gross premium proceeds of $2.0 million and
$5.0 million in the respective quarters. 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 has resulted in compressed spreads during the current
quarter.
During the 2010 first quarter, the company was also able to renew
$6.5 million (2009 - $Nil million) of uninsured mortgages, with a
gain on sale of $0.1 million (2009 - $Nil million). Further, the
company 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.
"We continue to seek ways to fund the renewal of our customers'
mortgages that were uninsurable when we originated them in past
years," said Mr. Wahl. "Unfortunately, finding the funding for this
continues to be very difficult and the criteria are necessarily even
more stringent than they were in the past. We currently are achieving
renewal rates exceeding 50% of those mortgages coming due for
renewal."
- Xceed's primary source of revenue is from the sale of pools of
mortgages to off-balance sheet entities. The net gain of $1.7 million
on the sale of mortgages in the 2010 first quarter was more than
offset by an RSI loss of $3.5 million, resulting in a securitization
loss of $1.8 million. 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 quarter amounted to
$0.9 million. Net origination costs for the quarter were
$1.8 million. Total first-quarter 2010 revenues were a negative
$2.7 million.
For the 2009 first quarter, the net gain on the sale of mortgages was
$3.0 million and RSI amounted to $5.9 million (including $6.2 million
related to the retroactive adjustment on funding costs and interest
on the illiquid ABCP that the company received upon the closing of
the third-party ABCP restructuring plan during the quarter) producing
securitization income of $8.8 million. Interest earned was
$1.1 million and the net origination costs were $1.4 million. Total
revenues for the 2009 first quarter were $8.5 million.
The net gain on the sale of mortgages in the 2010 first quarter was
1.8% of the amount of mortgages sold, compared with 2.3% for the
immediately preceding quarter, and 3.4% in the first quarter of 2009.
Factors affecting the 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 also impact
the gain on sale. Insured mortgages normally have borrowers with
better credit profiles and are arranged on fixed-rate terms,
entailing lower-spread margins than previously enjoyed.
- Mortgages and other assets under administration were $1.852 billion
at the end of the 2010 first quarter, down 3.2% from $1.914 billion
at the end of 2009 and down 11.1% from the 2009 first quarter.
- Return on average shareholders' equity for the 2010 first quarter was
a negative 15.8%, compared with a positive 4.0% for the corresponding
2009 period.
- 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 $0.6 million ($0.02 per
basic and diluted share) for the 2010 first quarter, compared with
$8.4 million ($0.30 per basic and diluted share) in the 2009 period.
Cash securitization income was $3.6 million in the 2010 quarter and
$16.6 million in 2009 period, including the $6.2 million received
following the closing of the third-party ABCP restructuring plan. The
company has also restated the 2009 first-quarter cash flow to exclude
the effects of accruals on the securitized assets. Cash-based
revenues in the 2010 first quarter were $4.6 million, compared with
$17.6 million a year earlier.
In the 2010 first quarter, Xceed employed an average of 51 full-time employees, which compares to an average of 42 people in the 2009 period. At the end of the first-quarter 2010, the company employed 53 people. The productivity index (calculated by dividing compensation and other operating expenses and intangible asset amortization by securitization income) was a negative 135.3% for the 2010 quarter, compared with 26.0% a year earlier. 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 3.75% for the 2010 first quarter, which was the same as experienced in the fourth quarter of 2009, but was an increase from the 3.09% in the period a year earlier. The increase mainly reflects defaults in the uninsured portfolio and some seasonality.
At the end of the 2010 first quarter, Xceed had cash and cash equivalents of $9.0 million, compared with $5.7 million at the end of 2009. The company believes that cash flow from continuing operations and existing cash 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 first 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
January 31, October 31,
2010 2009
$ $
-------------------------------------------------------------------------
ASSETS
Cash and cash equivalents 9,029 5,731
Investment in notes (notes 3d) and 7) 34,067 33,230
Cash collateral and other deposits receivable
from Trusts (note 3d)) 14,326 15,738
Deferred net mortgage interest receivable
(note 3c)) 1,167 14,005
Mortgages (note 4) 61,588 39,485
Accounts receivable (note 3d)) 6,793 4,418
Mortgage commitments (note 7) 35 12
Intangible assets, net 991 672
Fixed assets, net 108 134
Future income tax asset 303 -
----------- -----------
128,407 113,425
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Credit facilities (notes 5 and 7) 56,459 24,016
Accounts payable and accrued liabilities (note 3) 3,922 4,886
Derivative instruments 428 91
Future and other income tax liabilities - 5,048
----------- -----------
Total liabilities 60,809 34,041
----------- -----------
Shareholders' equity
Capital stock (note 6) 56,767 56,767
Contributed surplus (note 6) 1,746 1,716
Retained earnings 9,085 20,901
----------- -----------
Total shareholders' equity 67,598 79,384
----------- -----------
128,407 113,425
----------- -----------
----------- -----------
XCEED MORTGAGE CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
(unaudited)
(in thousands of dollars, except per share amounts)
-------------------------------------------------------------------------
Three months ended January 31, January 31,
2010 2009
$ $
-------------------------------------------------------------------------
REVENUE
Securitization income (loss) (note 3a)) (1,812) 8,846
Interest 934 1,077
----------- -----------
(878) 9,923
----------- -----------
Less: Net origination costs (1,837) (1,411)
----------- -----------
(2,715) 8,512
----------- -----------
EXPENSES
Compensation and benefits 1,561 1,335
Interest (note 5) 450 775
Amortization of intangible assets 39 48
Other operating 851 913
----------- -----------
2,901 3,071
----------- -----------
Realized and unrealized losses on financial
instruments (notes 3c), 4 and 7) (11,525) (681)
----------- -----------
Income (loss) before income taxes (17,141) 4,760
Provision for (recovery of) income taxes (5,325) 1,419
----------- -----------
Net income (loss) for the period (11,816) 3,341
Retained earnings, beginning of period 20,901 24,244
----------- -----------
Retained earnings, end of period 9,085 27,585
----------- -----------
----------- -----------
-------------------------------------------------------------------------
Earnings (loss) per share
Basic (0.43) 0.12
Diluted (0.42) 0.12
-------------------------------------------------------------------------
XCEED MORTGAGE CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
-------------------------------------------------------------------------
Three months ended January 31, January 31,
2010 2009
$ $
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) for the period (11,816) 3,341
Items not affecting operating cash:
Non-cash net loss on sale of mortgages 233 1,920
Amortization of deferred net mortgage
interest receivable 3,200 6,163
Amortization of servicing fee (390) (774)
Amortization of fixed assets 26 37
Amortization of intangible assets 39 48
Unrealized losses (gains) from financial
instruments 11,126 (747)
Net future income taxes (4,182) (1,985)
Decrease in accrual from securitized assets 2,410 395
----------- -----------
646 8,398
Other changes in net assets (28,817) 281
----------- -----------
(28,171) 8,679
----------- -----------
INVESTING ACTIVITIES
Sale of notes 132 229
Purchase of notes (732) (2,548)
Net increase in intangible assets (359) -
Purchase of fixed assets - (8)
----------- -----------
(959) (2,327)
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in credit facilities 32,399 (577)
Contributed surplus related to issuance of
options 29 78
----------- -----------
32,428 (499)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 3,298 5,853
Cash and cash equivalents, beginning of period 5,731 9,942
----------- -----------
Cash and cash equivalents, end of period 9,029 15,795
----------- -----------
----------- -----------
-------------------------------------------------------------------------
Supplemental cash flow information
Interest paid 436 880
Income taxes paid 2,250 -
-------------------------------------------------------------------------
Outlook
"With the financial adjustments that we took in the first quarter, we believe that we have fully addressed all of the known issues concerning our legacy portfolio of uninsurable mortgages. It is one reason why we view the balance of this fiscal year with optimism with respect to our financial performance," Mr. Wahl said.
"As to our operations, we have a solid team to which we have been gradually adding as we have been successful at significantly increasing our underwriting of insurable mortgages. We are pleased with the broker relationships that we have worked to establish and develop across Canada and will continue to focus on this.
"Of course, we continue to discuss with the federal regulators our application to become a federally regulated deposit-taking institution.
"Although there can be no guarantee that our application will be approved by the federal regulators, as Xceed Bank/Banque Xceed, we expect to be able to access stable capital at a reasonable cost and that should significantly increase our ability to underwrite mortgages. We believe that as a deposit-taking bank operating within the guidelines of the Office of the Superintendent of Financial Institutions (OFSI), we also will be able to improve our ability to provide financing options to some of the customers to whom we previously provided uninsurable mortgages and who now, despite having good payment records, are finding it difficult to secure alternative financing when their terms are expiring," Mr. Wahl said.
Conference Call and Webcast for Quarter and Annual General Meeting
Xceed will hold a conference call for analysts and investors at 10:00 a.m. (Eastern) today (March 11) (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 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=2988920 and www.xceedmortgage.com.
An archived recording of the call will be available at 416-849-0833 or 1-800-642-1687 (Passcode 60885796 followed by the number sign) from 1:00 p.m. on March 11 to 11:59 p.m. on March 18. An archived recording of the webcast also will be available at Xceed's website.
The company also will provide a live audio webcast of its Annual General Meeting of Shareholders on March 11, beginning at 2:00 p.m. (Eastern). The meeting will be held at The Gallery of the Broadcast Centre of the Toronto Stock Exchange, 130 King Street West, Toronto. Mr. Wahl will make a brief presentation on the company's performance, current operations, and outlook. The webcast will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2988700 and www.xceedmortgage.com.
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 $1.9 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: Investor and Media Relations: Richard Wertheim, Wertheim + Company Inc., (416) 594-1600 ext. 223 or ((416)-518-8479 cell), Email: [email protected]
Share this article