Xceed Earnings Down 77.6%

Like many Canadian lenders,Xceed Xceed mortgage has been in a credit whirlpool the past six months.  The former subprime-turned-prime lender earned just $1.5 million last quarter, down from $6.8 million a year prior.

More surprisingly, Xceed’s funded mortgages plummeted from $340.0 million to $65.7 million in that same timeframe.

From what we can see, Xceed is weathering the subprime storm as best they can and we wish them well.  However, the Toronto Star writes that a quick turnaround isn’t likely.

Here are some key notes from Xceed’s latest earnings report:

  • According to CEO Ivan Wahl, “The capital markets turmoil that began last summer has proven more severe and protracted than most anticipated. It was hoped that a greater level of stability and normalcy would have returned to the markets by now or at least clearly be on the horizon. This, however, is not the case and the financial condition of Xceed’s business, as well as our financial results and operations have been, and continue to be, materially and adversely affected by ongoing market disruption.”
  • Xceed has cut back on its lending and “may decide to curtail originations further in order to preserve capital resources.”
  • Xceed “has made concerted efforts to shift its origination efforts away from non-conforming mortgages.”  More specifically, Xceed’s “management has decided to accept only business that meets the underwriting guidelines of mortgage insurers,” says Mr. Wahl.  As of this earnings report, the vast majority of mortgages in Xceed’s pipeline were insured deals.
  • Unlike some of its non-insured/subprime mortgage business from last year, Xceed’s current insured business entails no lender/application fees and has much lower margins.
  • Xceed’s default ratio (mortgages 90+ days in arrears) was 3.33% in the first quarter, versus 2.49% a year prior.  The company says this is “due to the aging of the portfolio, since defaults are less likely to occur in the early stages of a mortgage term.”
  • Xceed’s average loan-to-value is ~84% (based on mortgages it has already securitized).
  1. Xceed Announces Further Cost-Reduction Measures
    TORONTO, March 27 /CNW/ – Xceed Mortgage Corporation (TSX: XMC), a Canadian originator of insured mortgages, today announced that it is taking further measures to reduce the size of its organization, in line with the volume of mortgages that it expects to originate for the foreseeable future and its requirements to manage the approximately $2.5 billion of mortgages and other assets that it currently has under administration. The measures include the departure of an additional 74 employees, including several members of the senior executive team, as well as reductions in infrastructure, including office space. The measures announced today are expected to result in additional annualized after-tax savings of about $10-13 million. However, the measures will entail an additional after-tax charge of $1.7 million for severance as well as the write-off of approximately $4-5 million in deferred charges and fixed assets, all of which it expects to recognize in the 2008 second quarter ending April 30, 2008. “It is very difficult for us to have to lose so many excellent individuals who contributed to Xceed’s past growth and success,” said Ivan Wahl, Chairman and Chief Executive Officer. “When the current market turmoil began last August, we had hoped that after a reasonable period of time the environment would become calmer and we would be able to return to our past business model as a leading provider of non-traditional residential mortgages in Canada. That has not been the case and it has become clear that there is no way of knowing when we will be able to return to that business model, if ever. “Xceed has simplified its business. We are focused on maximizing value for our shareholders by continuing to originate approximately $40-45 million per month in new and renewing insured mortgage business that is saleable to the Canada Mortgage Bond Program. Following the departures announced today, the Company will continue to employ approximately 38 employees. At these origination and infrastructure levels, we expect that our business can return to profitability in the third quarter of fiscal 2008. In so doing, we will also be protecting our ongoing liquidity, including the preservation of residual interest cash flows from securitization vehicles as well those cash inflows that result from the sale of previously originated mortgages,” he continued. “These simplifications, at a reduced level of business volume require a far smaller organization to manage,” Mr. Wahl said. The continuing senior management team will be comprised of industry veteran Ivan Wahl, Chairman and Chief Executive Officer, and Karen Martin, in her new role as President and Chief Financial Officer. Senior executives leaving the company include Xceed’s President and Chief Operating Officer, Michael Jones, and its Chief Financial Officer, John Ayanoglou, who have resigned their positions, but will remain on hand for a brief period to effect an orderly transition of their responsibilities. Mr. Jones’ responsibilities will be assumed by Mr. Wahl, while Mr. Ayanoglou’s responsibilities will transition to Ms. Martin. Ms. Martin was formerly Xceed’s Vice-President, Securitization and Capital Markets, but held the title of Chief Financial Officer prior to Mr. Ayanoglou. As a result of the anticipated lower level of new mortgage originations and a desire to further reduce standby charges, Xceed also announced that it has reduced the size of its committed warehouse and other active securitization program facilities, which were in total approximately $550 million prior to this release, to approximately $500 million, and that it may reduce these further in future. 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 $2.5 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 http://www.xceedmortgage.com: <http://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 http://www.sedar.com: <http://www.sedar.com>.

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