Indymac Bancorp (NYSE:IMB)
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IndyMac Bancorp, Inc. (NYSE:IMB) (“Indymac®”
or the “Company”),
the holding company for IndyMac Bank, F.S.B. (“Indymac
Bank®”),
today reported a net loss of $184.2 million, or ($2.27) per share, for
the first quarter of 2008, compared with net earnings of $52.4 million,
or $0.70 per share, in the first quarter of 2007. The net loss and the
loss per share for the first quarter of 2008 both represented
improvements of 64 percent from the net loss and loss per share reported
for the fourth quarter of 2007. Indymac has filed a Form 10-Q with the
Securities and Exchange Commission, which is available on Indymac’s
Website at www.imb.com.
“While many others in the mortgage finance
industry saw worsening losses during the first quarter given the current
state of the housing and credit markets, we achieved a 64 percent
reduction in our net loss from last quarter as we took the appropriate
steps in the second half of last year to get the bulk of our credit
costs behind us,” stated Michael W. Perry,
Indymac’s Chairman and CEO. “Last
quarter, we took major write-downs and established significant credit
reserves in the fourth quarter of 2007, absorbing $863 million in total
pre-tax credit provisions/costs during that quarter and building our
total credit reserves for future losses by 71 percent during the quarter
to $2.4 billion at December 31, 2007, a four-fold increase from $619
million at December 31, 2006. With those reserves in place, we were able
to reduce our total credit provisions/costs to $249 million in the first
quarter of 2008, a 71 percent reduction from last quarter, allowing us
to reduce our overall net loss this quarter. It is important to also
understand that 24 percent of our first quarter loss is from staff
reduction severance and office closing costs, and another 22 percent is
from business activities that we have permanently closed and where
losses are expected to diminish over time, such as homebuilder
construction lending, home equity lending and our conduit channel.
“We also continued to build our total credit
reserves to $2.7 billion, a 13 percent increase over last quarter and
more than a three-fold increase over $813 million in Q1-07. Actual
realized credit losses during the first quarter totaled $334 million,
such that the Company’s total reserves at
March 31, 2008 equate to 8.0 times current quarterly realized credit
losses. Excluding non-investment grade and residual securities, total
Q1-08 realized credit losses were $178 million, and the total related
credit reserve at March 31 was $1.3 billion, or 7.2 times the realized
credit losses in the first quarter.
“As I have been saying for the past year,”
continued Mr. Perry, “safety and soundness
remains our highest priority during these challenging times, and we
finished the first quarter again in a solid overall financial position.
Our capital levels continue to exceed the levels defined as ‘well
capitalized’ by our regulators. To supplement
the $676 million of equity capital we prudently raised in 2007, we
recommenced raising equity capital through our Direct Stock Purchase
Plan (DSPP) on February 26, 2008 and raised $39 million in new equity
through March 31, 2008. We are continuing to raise capital nearly every
business day through the DSPP and have raised $97 million through this
program year to date through May 9. At March 31, 2008, Indymac Bank’s
Tier 1 ‘core’
capital ratio was 5.74 percent, our Tier 1 risk-based ratio was 9.00
percent, and our total risk-based capital ratio was 10.26 percent, above
the ‘well-capitalized’
regulatory levels of 5.00 percent, 6.00 percent and 10.00 percent,
respectively.1
“With respect to profitability, we do not
expect that Indymac will be able to return to overall profitability
until the current decline in home prices decelerates. As it is uncertain
that this will happen in 2008, we are not currently forecasting a return
to profitability this year. With that said, we are forecasting continued
improvement in our performance and declining quarterly losses for the
remainder of 2008, with a $20 million loss projected for the fourth
quarter, which would be a 96 percent reduction from Q4-07 and an 89
percent reduction from Q1-08. With respect to our key business segments,
we are forecasting that our mortgage banking business (including
mortgage production and servicing) will be profitable in the second
quarter and thereafter. We are forecasting that our thrift segment
(including our MBS, SFR whole loan and consumer construction portfolios)
will become profitable in the third quarter and that our overall
business, excluding discontinued activities, will be close to breakeven
by the third quarter and have a small profit for the second half of
2008. The net loss from discontinued business activities is projected to
decline from $40 million in Q1-08 to roughly $23 million in Q4-08.
“Given our forecast for continued losses in
2008, we need to take all prudent measures to preserve our capital,
improve our capital ratios and keep Indymac safe and sound. Therefore,
we have made the decision to exercise our contractual rights and defer
the interest on our trust preferred securities at the holding company
and suspend the dividends on our non-cumulative, perpetual preferred
stock at Indymac Bank, as this represents the most efficient and least
dilutive means of generating capital in the current environment. The
contractual provisions in these preferred securities that allow us to
take these actions were clearly put in place for extraordinary times and
events such as we are now experiencing, and the presence of these
provisions is one reason why these preferred securities are considered ‘core’
capital for regulatory purposes. Taking these actions will improve our
cash flow by $7.4 million per quarter at the holding company, enabling
us to contribute more capital to the bank, and preserve capital of $10.6
million per quarter (which also flows directly to earnings) directly at
the bank. We view the deferral/suspension of the interest/dividends on
the preferred stock issues as temporary, and, once the market stabilizes
and Indymac returns to solid profitability, we anticipate resuming the
interest/dividend payments and paying the accumulated deferred interest
on the holding company trust preferred.
“We continued to maintain solid total
operating liquidity in excess of $4 billion at the end of the first
quarter, roughly the same as one year ago, but our liquidity needs are
significantly lower now than last year, as last year we had roughly
three times the mortgage production as we currently have and our current
GSE/FHA/VA-dominated production is far more liquid, and we have no
capital markets funding sources today (no commercial paper or reverse
repurchase borrowings), while we had roughly $3 billion of such funding
one year ago. Our solid liquidity is enabled by the fact that virtually
all of Indymac’s business is conducted and
assets are held within Indymac Bank. As a result, we are 100 percent
funded with deposits (over 95 percent of our deposits are fully insured
by the FDIC), FHLB advances, long-term debt and equity.
“While the housing and mortgage markets
remain very challenging,” continued Mr.
Perry, “we continue to successfully convert
our mortgage production to a GSE/FHA/VA model. We produced $9.6 billion
in new mortgage loans in Q1-08 with 88 percent of this production being
saleable to the GSEs or into Ginnie Mae securities. Importantly, the
credit quality of our new production is the best we have ever generated.
As calculated using Standard & Poor’s
(S&P) LEVELS model, the lifetime loss estimate for Q1-08’s
evaluated production of $8.2 billion is 0.23 percent (and is 0.17
percent and 0.18 percent for March and April, respectively), compared
with 1.86 percent in Q1-07, an 88 percent year-over-year reduction.2
In addition, first payment defaults (FPDs) on our new production
continue to improve. FPDs based on the first payment due date declined
to 0.6 percent in April from 1.1 percent in March, 1.8 percent in
February, 2.1 percent in January, 2.2 percent in December and 3.2
percent in Q3-07 (when we started tracking them). Generally 25 percent
to 35 percent of FPDs cure in the subsequent month and 60 percent to 70
percent cure within six months. Although mortgage production volumes and
profit margins continue to be a struggle in the current environment, we
are improving the profit performance of our new production model.
Mortgage production had a net loss of $17 million in the first quarter
of 2008, which was a 66 percent improvement from the prior quarter. All
of our 9 regional wholesale centers and 104 of our 152 retail lending
branches were profitable in March, and we project that mortgage
production will be close to breakeven in the second quarter and will be
profitable in the second half of 2008.
“We do not at this time forecast a return to
overall profitability in 2008 given current market conditions, but we do
forecast significantly declining losses each quarter for the balance of
the year, as our restructuring charges abate, credit provisions/costs
and losses from discontinued operations decline, and the profits from
our new business model grow,” concluded Mr.
Perry. “In this respect, I believe that we
have turned a corner and that our business is improving. But to
reiterate, our highest priority is maintaining our safety and soundness,
and we continue to raise capital and shrink our balance sheet to bolster
our capital ratios. With these actions and with declining quarterly
losses, we forecast that our capital ratios will improve throughout the
remainder of the year and that we should remain well-capitalized
throughout this crisis, although we can make no guarantees that that
will be the case. The bottom line is that, while we have made a lot of
progress in converting our business model, reducing our losses and
keeping Indymac safe and sound despite being at the epicenter of this
credit crisis, the housing and mortgage markets remain volatile and
uncertain, forecasting remains very challenging, and our actual results
could be materially different than our current forecast. However, I am
confident that Indymac will be a survivor, and, in the long run, home
lending, which is a basic business that is vital to our society and
economy, will return to prosperity with many fewer competitors than
there have been in the past. Indymac is the last remaining major
independent home lender, and we will be a better company and stronger
competitor for having survived the current crisis period, which should
position us well to take advantage of the opportunities that will surely
return.”
Conference Call
On Monday, May 12, at 10:00 a.m. PDT (1:00 p.m. EDT), Michael W. Perry,
Chairman and Chief Executive Officer, will host a live webcast and
conference call to discuss the results of the first quarter in greater
detail, which will be followed by a question and answer session. A slide
presentation will accompany the webcast/conference call and can be
accessed along with Indymac’s Form 10-Q for
the quarter ended March 31, 2008, via Indymac Bank’s
home page at www.imb.com.
If you would like to participate:
Internet webcast access will be available at: http://www.imb.com
The telephone dial-in number is (888) 396-7846 or (706) 758-0230
(international) access code #41707382; and
The replay number is (800) 642-1687 or (706) 645-9291 (international)
access code #41707382
To participate on the call, please dial in 15 minutes prior to the
scheduled start time. During the question and answer period we will
begin with questions from the equity analysts that cover Indymac and our
top 50 shareholders. If time permits, we will then take questions from
other interested parties.
The conference call will be replayed continuously beginning two hours
after the live event on May 12, 2008, through midnight ET on May 19,
2008, and will be available on Indymac’s Web
site at www.imb.com. We will
also have available, 24 hours after the live call, an MP3 downloadable
file of the full earnings review and Q&A session at www.imb.com.
About Indymac Bank
IndyMac Bancorp, Inc. (NYSE:IMB) (Indymac®)
is the holding company for IndyMac Bank, F.S.B. (Indymac Bank®),
the 7th largest savings and loan and the 2nd
largest independent mortgage lender in the nation. Indymac Bank,
operating as a hybrid thrift/mortgage banker, provides cost-efficient
financing for the acquisition of single-family homes. Indymac also
provides financing secured by single-family homes and other FDIC-insured
banking products to facilitate consumers’
personal financial goals.
For more information about Indymac and its affiliates, or to subscribe
to the company’s E-mail Alert feature for
notification of company news and events, please visit http://about.indymacbank.com/investors.
To visit Indymac’s corporate blog, please
visit http://www.theimbreport.com.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this press release may be deemed to be
forward-looking statements within the meaning of the federal securities
laws. Examples include forecasts of continued declines in credit costs
and overall losses for the remainder of 2008, the anticipation that the
deferral/suspension of the interest/dividends will be temporary,
improving capital ratios and our expectation to remain well-capitalized.
Words such as "anticipate," "believe," "estimate," "expect," "project,"
"plan," "forecast," "intend," "goal," "target," and similar expressions,
as well as future or conditional verbs, such as "will," "would,"
"should," "could," or "may," identify forward-looking statements that
are inherently subject to risks and uncertainties, many of which cannot
be predicted or quantified. Actual results and the timing of certain
events could differ materially from those projected in or contemplated
by the forward-looking statements due to a number of factors, including:
the effect of economic and market conditions including, but not limited
to, recent disruptions in the housing and credit markets, including the
level of housing prices, industry volumes and margins; the level and
volatility of interest rates; Indymac's hedging strategies, hedge
effectiveness and overall asset and liability management; the accuracy
of subjective estimates used in determining the fair value of financial
assets of Indymac; the implementation of new accounting pronouncements
and guidance; the various credit risks associated with our loans and
other financial assets, including increased credit losses due to demand
trends in the economy and the real estate market and increased
delinquency rates of borrowers; the adequacy of credit reserves and the
assumptions underlying them; the actions undertaken by both current and
potential new competitors; the availability of funds from Indymac's
lenders (in particular, the Federal Home Loan Bank), loan sales,
securitizations, deposits and all other sources used to fund mortgage
loan originations and portfolio investments; and the execution of
Indymac's business and growth plans and its ability to gain market share
in a significant and turbulent market transition. Additional risk
factors include the impact of disruptions triggered by natural
disasters; pending or future legislation, regulations and regulatory
action, or litigation, and factors described in the reports that Indymac
files with the Securities and Exchange Commission, including its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, and its reports on
Form 8-K. Indymac does not undertake to update or revise forward-looking
statements to reflect the impact of circumstances for events that arise
after the date the forward-looking statements are made.
(1)
These capital ratios reflect two regulatory requirements that we
believe do not fully reflect Indymac's financial condition. First,
we are currently required to hold capital on a dollar-for-dollar
basis against the portion of our mortgage servicing rights (MSR)
that exceed our Tier 1 core capital, even though we have a long
track record of successfully hedging this asset, and it is our
highest earning asset in this environment. Excluding the penalty
we receive on the MSR that exceeds our Tier 1 core capital, our
capital ratios as of March 31, 2008 would be 6.07 percent Tier 1
core, 9.53 percent Tier 1 risk-based and 10.79 percent total
risk-based. Second, the regulations require us to exclude from our
Tier 2 capital the portion of our allowance for loan losses (ALL)
that exceeds the 1.25 percent of risk-weighted assets limitation.
If we were further allowed to include in Tier 2 capital our ALL
that exceeds 1.25 percent of our risk-weighted assets, our capital
ratios would be 6.07 percent Tier 1 core, 9.47 percent Tier 1
risk-based and 11.36 percent total risk-based.
(2)
While our production is evaluated using the S&P LEVELS model, the
data is not audited or endorsed by S&P. The estimates reported here
are from S&P's 6.3 model released in March 2008.