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.
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