Xceed Mortgage Reports Fiscal 2011 Year End Financial Results

    




  




        --  Reports net loss of $1.3 million for the year
        --  Assets under administration at $1.2 billion




 TORONTO, Jan. 12, 2012 /CNW/ - Xceed Mortgage Corporation [TSX: XMC], a  Canadian provider of residential mortgages, today announced its  financial results for the fiscal 2011 year ended October 31, 2011.  All  references to quarters or years are for the fiscal periods and all  currency amounts are in Canadian dollars unless otherwise noted. 

 "We began the year," said Michael Jones, Chief Executive Officer,  "focusing on three primary objectives.  Firstly, protecting shareholder  value by ensuring that qualifying mortgage loans that were originally  financed in an ABCP conduit (or related vehicle), were offered renewal  terms thereby avoiding an unnecessary default at maturity." 

 "Secondly, managing the company's investments in its legacy portfolio  (notes, cash collateral accounts, whole mortgages etc), so as to ensure  those investments would be ultimately returned to the company in the  form of cash." 

 "Thirdly, exploring financing opportunities in the insured and uninsured  residential mortgage lines of business, that would allow us to  originate and service mortgage loans at a profit." 

 "To these ends", Mr. Jones continued, "management undertook a series of  initiatives that have had the effect of minimizing defaults and losses,  and turning hitherto illiquid assets into cash and more liquid assets." 

 "In December 2010, we exercised a clean-up call option for Xceed  Mortgage Trust Series 2006 T-1 repaying existing note holders and  thereby closing out one of the trust transactions.  This transaction  resulted in the company taking back $3.0 million of outstanding  mortgages, $2.8 million of which have since been repaid, or refinanced  in full; one mortgage for $0.2 million outstanding at year-end." 

 "In January 2011, the company suspended broker origination activities.  During the following 6 months, sales and underwriting teams were  reorganized, and new insured products designed and made available to  renewal customers. In the fourth quarter, we renewed our broker  origination activities on a limited scale, with a small set of mortgage  brokers," continued Mr. Jones 

 "In March 2011, the company refinanced the assets owned by Okanagan  Funding Trust (a trust to which the company had sold mortgages, and  took back notes from in the past), with a Canadian financial  institution. The primary goal of this initiative was to convert an  illiquid $21.9 million subordinated investment in the trust owned by  the company, into a combination of notes and whole mortgages, most of  which were at or past maturity. As a result of this transaction, a  $21.9 million illiquid note was transformed into $13.5 million of cash,  a $3.9 million participation note and $5.8 million of mortgages by the  end of fiscal 2011, including fair value changes." 

 Mr. Jones also noted, "In August 2011, the company settled its  outstanding litigation with HSBC Financial Corporation Limited ("HSBC")  for $1.7 million without admitting any liability or wrongdoing.  This  provided the company with an opportunity to eliminate a material  uncertainty, based on the size of the initial claim of $18.0 million." 

 "In August 2011, in conjunction with other parties, the company resolved  a number of outstanding issues related to QSPE-XCD Trust, that resulted  from the Montreal Accord settlement in 2009. This resolution enabled  the company to convert an $8.3 million cash balance held in escrow, and  a further $2.3 million of cash held on its balance sheet into a senior  subordinated note investment in the trust. This had the result of  generating additional yield and providing additional certainty as to  the timing of repayment, and conversion into cash, of escrow balances  administered by a third party." 

 "These and other initiatives have improved the company's liquidity and  balance sheet strength, such that as at October 31(st) 2011, cash and cash equivalents , now stand at $12.0 million, compared  to $6.0 million at the end of fiscal 2010.  Additionally, the company  has commenced utilizing additional cash to offer short-term renewals to  customers with insured and uninsured mortgages on a limited basis." 

 "The company continues to seek new funding sources to support both  insured and uninsured mortgage originations.  This continues to remain  the company's primary challenge and focus." 

 Mr. Jones also announced that "the company recorded a net loss after tax  of $1.3 million for fiscal 2011.   Most of this loss was attributable  to the $1.7 settlement (pre-tax) of the litigation noted earlier." 

 "The basic and diluted loss per share for 2011 was $0.05, compared with  a basic and diluted loss per share of $0.64 in 2010." 

 Mr. Jones highlighted "that for fiscal 2012, continuing on from 2011,  our primary focus will be to continue to maximize value for our  shareholders by completing the orderly exit from the company's legacy  portfolio of securitized mortgages, continuing to service and manage  the existing mortgage portfolios by provide refinancing offers to  qualifying customers in a manner that will generate an acceptable  return to the company, and continuing to investigate other business  opportunities and strategies in the markets that we understand, and  that can produce attractive returns." 

 Financial Highlights  




        --  The company recorded a net loss for 2011 of $1.3 million,
            including a net loss of $0.4 million in the fourth quarter. 
            This compares with a net loss of $17.6 million in 2010 (net
            loss of $7.6 million in the fourth quarter).  The net loss for
            2011 is mainly attributable to the settlement of law suit with
            HSBC for $1.7 million (pre-tax) in the fourth quarter.
        --  The company earned residual securitization income of $1.8
            million for 2011 (2010 - loss of $2.7 million). The 2011 income
            was mainly due to the receipt of penalty interest payments from
            XMT-2, an off balance sheet trust to which the company sold
            mortgages.
        --  The basic and diluted loss per share for 2011 was $0.05,
            compared with a basic and diluted loss per share of $0.64 in
            2010.  For the 2011 fourth quarter, the basic and diluted loss
            per share were both $0.01, compared with a basic and diluted
            loss per share of $0.28 for the 2010 period.
        --  The origination of new mortgages totaled $75.6 million in 2011,
            compared with $403.4 million in 2010.  For the 2011 fourth
            quarter, originations amounted to $24.8 million, compared with
            $51.1 million in the prior-year period.  All new originations
            were of insured mortgage products.  Reductions in origination
            volumes from the prior year are primarily the result of reduced
            broker volumes originated in 2011, caused by the suspension of
            new broker originations for approximately 7 months.
        --  The company's primary source of revenue comes from the sale of
            pools of insured mortgages to off-balance sheet entities.  In
            2011, the company sold $107.5 million ($12.2 million in the
            fourth quarter) of insured mortgages, compared with $360.1
            million in 2010 ($5.5 million in the fourth quarter).
        --  For 2011, the company reported a net gain on the sale of
            mortgages (gross gain on sale less hedging costs) of $1.7
            million (including a net loss in the fourth quarter of $0.1
            million).  In 2010, the net gain amounted to $7.8 million
            (including a loss of $0.4 million in the fourth quarter).
        --  Interest earned amounted to $3.4 million in 2011 ($1.0 million
            in the fourth quarter), compared with $3.0 million in 2010
            ($0.8 million in the fourth quarter).
        --  Net origination costs for 2011 were $0.3 million, compared with
            $4.2 million in 2010 ($0.8 million in the fourth quarter).
        --  Total 2011 revenues were $7.6 million ($1.3 million in the
            fourth quarter), compared with $5.0 million in 2010 ( negative
            $0.4 million in the fourth quarter).
        --  Mortgages and other assets under administration were $1.175
            billion at the end of 2011, down from $1.252 billion at the end
            of the 2011 third quarter, and down from $1.557 billion at the
            end of 2010.
        --  Return on average shareholders' equity for 2011 was negative
            2.1%, compared with negative 25.1% for 2010.
        --  The company'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 negative $3.6
            million in 2011 (negative $0.5 million for the fourth quarter),
            compared with negative $2.0 million in 2010 (negative $0.6
            million for the fourth quarter).  On a basic and diluted basis,
            2011 cash flow was a negative $0.13 per share (negative $0.02
            per share for the fourth quarter).  This compares with basic
            and diluted negative cash flow per share of $0.07 for 2010
            (negative $0.02 in the fourth quarter).
            Cash securitization income was $4.0 million in 2011 ($0.7
            million in the fourth quarter), compared with $9.2 million in
            2010 ($0.6 million in the fourth quarter).  Cash-based revenues
            in 2011 were $7.4 million ($1.7 million in the fourth quarter),
            compared with $12.2 million a year earlier ($1.4 million in the
            fourth quarter). Net origination costs and other cash-based
            expenses in 2011 were $10.9 million ($2.2 million in the fourth
            quarter), compared with $14.2 million in 2010 ($2.0 million in
            the fourth quarter).
        --  In 2011, the company employed an average of 31 full-time
            employees, compared with an average of 52 people in 2010.  The
            company's core workforce was comprised of 27 employees at the
            fiscal year ended October 31, 2011.
        --  As at October 31, 2011, the company had cash and cash
            equivalents of $12.0 million, compared with $6.0 million at
            October 31, 2010.  The company believes that cash and funding
            resources will be sufficient to meet its short-term and
            long-term requirements.




 The company has filed its 2011 Annual Report including the financial  statements and management's discussion and analysis for 2011 with SEDAR  and they will be posted on the company's website.  These filings  provide additional details on the above noted items along with  additional information regarding results for the quarter and cautions  regarding forward-looking statements.  The materials can be accessed by  clicking here 

 XCEED MORTGAGE CORPORATION CONSOLIDATED BALANCE SHEETS 

 (in thousands of dollars) 





                                                               

                                                  October 31, October 31,
                                                         2011        2010

                                                            $           $

                                                                         

    ASSETS                                                               

                                                                         

    Cash and cash equivalents                          12,005       5,952

    Investment in notes                                19,787      39,215

    Cash collateral and other deposits receivable
    from Trusts                                         4,751      13,266

    Mortgages                                          39,450      74,482

    Accounts receivable                                 3,299       3,177

    Current taxes receivable, net                       1,083       5,375

    Derivative instruments                            —         148

    Intangible assets, net                                195         614

    Future tax asset, net                                 201          60

    Fixed assets, net                                     127         191

                                                                         

                                                       80,898     142,480

                                                                         

    LIABILITIES AND SHAREHOLDERS' EQUITY                                 

                                                                         

    Liabilities                                                          

    Credit facilities                                  14,342      76,427

    Accounts payable and accrued liabilities            5,629       4,074

    Mortgage commitments                              —           1

    Derivative instruments                                 97     —

                                                                         

    Total liabilities                                  20,068      80,502

                                                                         

    Shareholders' equity                                                 

    Capital stock                                      56,365      56,767

    Contributed surplus                                 2,508       1,944

    Retained earnings                                   1,957       3,267

                                                                         

    Total shareholders' equity                         60,830      61,978

                                                                         

                                                       80,898     142,480






    

 XCEED MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF LOSS AND RETAINED EARNINGS 

 (in thousands of dollars, except per share amounts) 





                                                           

    Years ended                               October 31, October 31,
                                                     2011        2010

                                                        $           $

                                                                     

    REVENUE                                                          

    Securitization income                           3,583       5,073

    Interest                                        3,401       2,998

    Other income                                      962       1,126

                                                                     

                                                    7,946       9,197

                                                                     

    Less: Net origination costs                     (317)     (4,226)

                                                                     

                                                    7,629       4,971

                                                                     

    EXPENSES                                                         

    Compensation and benefits                       3,797       5,636

    Interest                                        1,257       1,622

    Amortization and write down of intangible         159       1,360
    assets

    Settlement of law suit                          1,700     —

    Other operating                                 3,928       3,675

                                                                     

                                                   10,841      12,293

                                                                     

    Realized and unrealized gains (losses) on       2,022    (18,539)
    financial instruments

                                                                     

    Loss before income taxes                      (1,190)    (25,861)

                                                                     

    Restructuring expenses                            542     —

    Recovery of income taxes                        (422)     (8,227)

                                                                     

    Net loss for the year                         (1,310)    (17,634)

                                                                     

    Retained earnings, beginning of year            3,267      20,901

                                                                     

    Retained earnings, end of year                  1,957       3,267

                                                                     

    Loss per share                                                   

    Basic                                         $(0.05)     $(0.64)

    Diluted                                       $(0.05)     $(0.64)






    

 XCEED MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS 

 (in thousands of dollars) 





                                                                 

    Years ended                                     October 31, October 31,
                                                           2011        2010

                                                              $           $

    OPERATING ACTIVITIES                                                   

      Net loss for the year                             (1,310)    (17,634)

                                                                           

    Items not affecting operating cash:                                    

      Non-cash net loss (gain) on sale of mortgages         328     (2,504)

      Amortization of deferred net mortgage             —       4,991
      interest receivable

      Amortization of servicing liability               (1,030)     (1,023)

      Amortization of fixed assets                           86         106

      Amortization and write down of intangible             159       1,360
      assets

      Unrealized losses from financial instruments      (2,321)      15,072

      Net future income taxes                             (141)     (3,941)

      Restructuring expenses                                542     —

      Net change in securitization income accrual           129       1,564

                                                        (3,558)     (2,009)

                                                                           

    Other changes in non cash net assets                 73,752    (40,109)

                                                                           

                                                         70,194    (42,118)

                                                                           

    INVESTING ACTIVITIES                                                   

      Sale of notes                                       3,944         503

      Purchase of notes                                 (7,431)     (9,417)

      Net increase in intangible assets                     260     (1,302)

      Purchase of fixed assets                             (23)       (162)

                                                                           

                                                        (3,250)    (10,378)

                                                                           

    FINANCING ACTIVITIES                                                   

      Net increase (decrease) in credit facilities     (61,052)      52,489

      Share buyback                                       (151)     —

      Contributed surplus related to issuance of            312         228
      options

                                                                           

                                                       (60,891)      52,717

                                                                           

    Net increase in cash and cash equivalents             6,053         221

      Cash and cash equivalents, beginning of year        5,952       5,731

                                                                           

    Cash and cash equivalents, end of year               12,005       5,952

                                                                           

    Supplemental cash flow information                                     

      Interest paid                                       1,021       1,465

      Income taxes paid                                     440       2,250






   

 Investor Inquiries  

 Michael Jones, President and Chief Executive Officer, and Jeff Bouganim,  Chief Financial Officer will be available from Thursday, January 12,  2012 onwards to respond to investor inquiries regarding these results. 

 About Xceed Mortgage 

 Xceed Mortgage Corporation, based in Toronto, is a Canadian provider of  residential mortgages that it originates in Canada.  The company has  approximately $1.2 billion of mortgages and other assets under  administration.  The company's shares are traded on the Toronto Stock  Exchange .  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 the  company to continue to execute its growth and development strategy, and  the reliance of the company on key personnel.  The company and the  company's management assume 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 the company's  regulatory filings available on its website and at www.sedar.com.  

   

Xceed Mortgage Corporation


CONTACT:  Michael Jones can be reached at:Telephone: [phone] Ext.3434 E-mail: [e-mail] Bouganim can be reached at:Telephone: [phone] Ext.3335 E-mail: [e-mail] 


    

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