IndyMac Bancorp, Inc. (NYSE:NDE)�(�Indymac�� or the �Company�), the
holding company for IndyMac Bank, F.S.B. (�Indymac Bank��), today
reported net earnings of $52.4 million, or $0.70 per share, for the
first quarter of 2007, compared with net earnings of $79.8 million,
or $1.18 per share, in the first quarter of 2006, representing a 34
percent decrease in net earnings and a 41 percent decrease in
earnings per share (EPS). Indymac has filed a Form 10-Q with the
Securities and Exchange Commission, which is available on Indymac�s
Website at www.indymacbank.com. First Quarter 2007 Compared with
First Quarter 2006 Net revenues of $302.1 million, down 1 percent.
Net earnings of $52.4 million, down 34 percent. EPS of $0.70, down
41 percent. Return on equity (ROE) of 10.5 percent, compared to
20.3 percent. Record total assets of $29.7 billion, up 23 percent.
Mortgage loan production of $26 billion, up 28 percent. Record
mortgage market share1 of 3.92 percent, up 23 percent from 3.19
percent. Record pipeline of mortgage loans in process of $16.1
billion at March 31, 2007, up 38 percent. Record portfolio of
mortgage loans serviced for others of $156 billion at March 31,
2007, up 62 percent. Record total number of consumer customers of
908,510, up 43 percent. Non-performing assets (NPAs) of $324
million, up 214 percent, and ratio of NPAs to total assets of 1.09
percent versus 0.43 percent. Efficiency ratio of 69 percent,
compared to 56 percent, and total expenses to loan production of 83
basis points, compared to 84 basis points. Solid First Quarter
Results in a Continued Challenging Market �While we are
disappointed with these results because they are considerably below
our historical levels,� commented Michael W. Perry, Indymac�s
Chairman and Chief Executive Officer, �our earnings must be
considered solid in light of the challenging conditions we faced
this quarter, particularly with respect to significant and unusual
spread widening for private mortgage-backed securities (i.e.,
pricing erosion with respect to loan sales into the secondary
market) and increased credit costs. Very few mortgage companies
earned a profit during the quarter, and many, in fact, failed.
Indymac�s 10.5 percent ROE was comparable to the median ROE of 11.7
percent that the 36 thrifts with assets greater than $5 billion
earned for all of 2006, before the current stresses in the housing
and mortgage markets had fully developed. �This quarter was a
serious test of our hybrid thrift/mortgage banking business model,�
continued Perry. �With our strong liquidity and stable funding base
and the diversification of our earnings within home lending
activities, we met this challenge very well, particularly in
comparison to how we were able to perform during the global
liquidity crisis of 1998. �In our loan production business, two of
our major profit contributors over the past few years, the
Wholesale and Conduit channels, saw earnings decline from Q4-06 by
60 percent and 95 percent, respectively. However, Financial
Freedom, our reverse mortgage subsidiary, posted a 50 percent
increase over last quarter such that we were able to earn $44
million and an ROE of 26 percent from mortgage production for the
quarter. Mortgage loan servicing posted a strong 68 percent
increase in earnings over last quarter to $25 million. As a result,
our total consumer mortgage banking business, while down 22 percent
from last quarter, was solidly profitable, earning $60 million and
a 24 percent ROE. Further bolstering our profitability was our
thrift segment, which rebounded solidly from Q4-06, earning $30
million, up 7 percent.� Performance by Business Segment $ in
millions Q1-07 Q4-06 Q1-06 Mortgage Loan Production (2) Net Income
$44� $71� $65� ROE 26% 42% 51% Mortgage Loan Servicing (2) Net
Income $25� $15� $12� ROE 30% 20% 24% Total Consumer Mortgage
Banking (2) Net Income $60� $77� $68� ROE 24% 31% 38% � � � �
Thrift Portfolio (2) Net Income $30� $28� $45� ROE 14% 13% 25% � �
� � Total Operating Divisions (2) Net Income $81� $100� $104� ROE
18% 22% 29% � � � � Total Company Net Income $52� $72� $80� ROE 10%
15% 20% Mortgage Production �Mortgage production earnings were
negatively impacted by continued mortgage banking revenue (MBR)
erosion, as the combined MBR margin for all production segments
declined to 68 basis points (bps) from 91 bps last quarter and 110
bps in Q1-06,� commented Richard Wohl, Indymac Bank�s President.
�Of the 23 bps decline from Q4-06, 14 bps was due to Q1-07 spread
widening in the secondary market for private mortgage-backed
securities and 9 bps was due to increased credit costs. Although
profit margins were down, it is important to note that we were able
to sell $24.5 billion into the secondary market, equating to 96
percent of the quarter�s production. �Looking ahead, the MBA is
currently forecasting that industry volumes in the second half of
2007 will be down 11 percent from the first half and 16 percent
from the second half of last year,� continued Wohl. �Our recent
guideline cuts will reduce our production volumes to some extent,
although some of the displaced production will migrate to other
Indymac loan products for which these borrowers qualify, and we
expect to continue to capture volume from other lenders who are
struggling or have exited the business. With respect to MBR
margins, the spread widening in the private mortgage-backed
securities markets that occurred in the first quarter will continue
to impact margins in the second quarter, as GAAP accounting
recognizes this impact at the time of sale. As the impact of our
pricing changes flows through our pipeline and our recently
implemented guideline cuts reduce credit costs, we are currently
forecasting a recovery in MBR margins in the second half of 2007.
�Another negative in the second quarter is that we expect a
substantial reduction in MBR margins and profits for Financial
Freedom. While the Financial Freedom team has been able to leverage
Indymac�s secondary marketing expertise to substantially improve
Financial Freedom�s secondary market execution and temporarily
expand its revenue margins and profits, new entrants into the
reverse mortgage business are exerting competitive pressures,
reducing revenue margins to more normal levels. We expect net
income for Financial Freedom to decline from $28 million in Q1-07
to roughly $12 million in the second quarter and then likely grow
from there.� Mortgage Loan Servicing The Company�s portfolio of
loans serviced for others increased to $156 billion in the first
quarter, up 12 percent over the fourth quarter and 62 percent year
over year. Net earnings for the segment of $25 million were up 68
percent from the prior quarter and 114 percent from the same
quarter last year. The ROE was also up, to 30 percent for the first
quarter from 20 percent in the fourth quarter and 24 percent one
year ago. Commenting on the earnings and ROE increases, John
Olinski, EVP and co-head of Capital Markets and Investments,
stated, �The earnings growth in our mortgage servicing business
segment was the result of strong growth in the servicing book,
lower than expected prepayment speeds and improved results from our
efforts to retain customers from the servicing portfolio who are
obtaining new loans. Year over year, we have improved our customer
retention percentage among customers paying off their mortgages
from 9 percent to 15 percent. Combined with the 62 percent growth
in our servicing portfolio, this has enabled our earnings from
customer retention to increase from $1.1 million in Q1-06 to $8.7
million in Q1-07, an almost eight-fold increase.� Thrift Portfolio
In the first quarter the Company moved its residual and
non-investment grade securities from the mortgage servicing segment
and consolidated them into the thrift portfolio alongside its
investment grade mortgage-backed securities to better reflect that
these two asset classes are managed together to optimize their
capital utilization by blending the capital requirements of these
two asset groups. Custodial account deposit balances for loans
serviced for the GSEs ($704 million in average balances in the
first quarter) were also moved from the servicing segment into the
thrift to achieve better comparability of the thrift�s performance
versus peers. 3 Earnings for the thrift portfolio were $30 million,
up 7 percent over last quarter but down 34 percent from Q1-06. The
ROE was 14 percent versus 13 percent last quarter and 25 percent in
Q1-06. A key driver of the thrift�s performance is the net interest
margin, which was 2.11 percent for the quarter versus 2.09 percent
in the fourth quarter and 2.42 percent in Q1-06. �During the
quarter, we restructured our SFR whole loan portfolio and related
funding in order to improve the net interest margin and ROE going
forward, as we committed to sell $1.3 billion of our lower margin
loans, or roughly 20 percent of the portfolio, to the GSEs,� stated
Patrick Hymel, Chief Investment Officer. �These commitments
resulted in a $4.5 million pre-tax GAAP loss. Offsetting the GAAP
loss on the loan sales commitments were liabilities and hedges
related to this restructuring which had pre-tax gains at the date
of commitment of $9.3 million, such that the net economic impact
was a pre-tax gain of $4.8 million. The $9.3 million in hedge gains
will be recognized as reductions of interest expense over roughly
the next three-and-a-half years.� Operating Expenses Total
operating expenses of $216 million were up 2 percent over the
fourth quarter and 26 percent year over year. �Operating expense
growth was driven by continued growth in the Company�s three main
business segments, as, year over year, our mortgage production grew
by 28 percent, total assets by 23 percent and the servicing
portfolio by 62 percent,� stated Scott Keys, Chief Financial
Officer. �While erosion in our revenue margins led to a worsening
of the efficiency ratio to 69 percent from 64 percent last quarter
and 56 percent in Q4-06, the reality is that we did become more
efficient during the quarter. Operating expenses to loan production
declined from 84 bps in Q1-06 to 83 bps in Q1-07. Had our MBR
margins in Q1-07 been at the same level as in Q1-06, our efficiency
ratio this quarter would have been 52 percent. The hiring freeze on
non-revenue generating personnel is having a positive effect, as
our headcount in those areas declined by an annualized 20 percent
rate from the fourth quarter. Our headcount among revenue
generating staff rose by an annualized 20 percent rate as we
continue to pursue growth opportunities for our business.� Future
Outlook �We anticipate that our second quarter earnings performance
will be similar to the first quarter, with an ROE of roughly 10
percent,� stated Keys. �While earnings from mortgage production
will be down from Q1-07 given continued secondary market and credit
pressures and the expected significant decline in Financial
Freedom�s earnings, we expect solid profits from our servicing and
thrift segments and anticipate recording after tax gains of roughly
$15 million related to the sale and leaseback of an office
building, which we purchased in 2004, and $7 million on the
freezing of the Company�s defined benefit pension plan, which had
been closed to new entrants after 2002. These actions will also
result in annual after tax savings of roughly $6 million per year
for the next ten years. �We had previously provided guidance
related to the second half of 2007 in which we indicated that we
were projecting the ROE to be at or slightly above 15 percent.�Our
current forecast now shows the ROE in the second half being
approximately 13.5 percent with the fourth quarter ROE at roughly
15 percent. �The primary reasons for the lowering of our second
half of 2007 guidance are the removal from our forecast of the
preferred stock issuance and related share repurchase, which had
been projected to increase the second half ROE by about 1.5
percent. We have not yet completed the preferred stock offering
given current market conditions. We are still actively pursuing the
offering and believe that the offering and related share repurchase
can be completed, however the timing remains uncertain and is
dependent on market conditions. As a result, we removed the impact
of these transactions from our current forecast. In addition, we
have made further mortgage production guideline cuts than were
included in our previous guidance for the second half of 2007 in
response to increased credit costs and illiquidity in the secondary
market and expect that these further cuts will reduce mortgage
volumes from our previous forecast in the second half of 2007.
Please keep in mind that the housing and mortgage markets,
including the secondary market for private mortgage-backed
securities, remains uncertain, and, as a result, we are internally
updating our forecast almost weekly. If our current forecast
changes materially, either negatively or positively, from the
above, we will alert the market promptly. Lastly, it should also be
pointed out that some are predicting a �doomsday scenario� for the
housing and mortgage markets. Although we believe this to be
unlikely, if that were to occur, our financial performance could
worsen materially from what we are currently forecasting.�
Quarterly Cash Dividend Based on Indymac�s operating performance
and financial position - including earnings, capital and liquidity
- and its commitment to shareholder value, Indymac�s Board of
Directors declared a cash dividend of $0.50 per share. This equals
the dividend paid last quarter and represents an increase of 14
percent from the dividend declared and paid in the first quarter of
2006. The cash dividend is payable June 7, 2007 to shareholders of
record on May 10, 2007. Indymac�s New NYSE Ticker Symbol On May 1,
2007, Indymac will begin trading on the NYSE under the ticker
symbol �IMB.� The Company�s Warrants and Income Redeemable Equity
Securities also will begin trading on the NYSE under the ticker
symbol �IMB.PR.� �The new ticker symbol incorporates Indymac�s new
logo and is a better representation of our business in the market
place,� noted Perry. Shareholders using an automated portfolio
tracker are advised to replace NDE with IMB on the first of May.
Conference Call On Thursday, April 26, 2007, 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, immediately
following Indymac�s annual shareholders� meeting, to discuss the
results of the first quarter in greater detail, which will be
followed by a question and answer session. The annual shareholders�
meeting begins at 9:00 a.m. PDT and is expected to adjourn after
approximately 45 minutes. 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, 2007 via Indymac Bank�s
home page at www.indymacbank.com. If you would like to participate:
Internet Webcast access is available at: www.indymacbank.com The
telephone dial-in number is (888) 396-7846 or (706) 758-0230
(international); access code #3829781; and The replay number is
(800) 642-1687 or (706) 645-9291 (international); access code
#3829781. To participate on the call, please dial in 15 minutes
prior to the scheduled start time. The conference call will be
replayed continuously beginning two hours after the live event on
April 26, 2007, through midnight on May 2, 2007, and will be
available on Indymac�s Website at www.indymacbank.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.indymacbank.com. About Indymac Bank IndyMac Bancorp, Inc.
(NYSE: NDE) (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, development, and
improvement of single-family homes. Indymac also provides financing
secured by single-family homes and other banking products to
facilitate consumers� personal financial goals. With an increased
focus on building customer relationships and a valuable consumer
franchise, Indymac is committed to becoming a top five mortgage
lender in the U.S. by 2011, with a long-term goal of providing
returns on equity of 15 percent or greater. The company is
dedicated to continually raising expectations and conducting itself
with the highest level of ethics. For more information about
Indymac and its affiliates, or to subscribe to the company's Email
Alert feature for notification of company news and events, please
visit http://about.indymacbank.com/investors. 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. The words "anticipate," "believe,"
"estimate," "expect," "project," "plan," "forecast," "intend,"
"goal," "target," and similar expressions 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 industry volumes and margins; the level
and volatility of interest rates; the Company�s hedging strategies,
hedge effectiveness and asset and liability management; the
accuracy of subjective estimates used in determining the fair value
of financial assets of Indymac; the credit risks with respect to
our loans and other financial assets; the actions undertaken by
both current and potential new competitors; the availability of
funds from Indymac's lenders and from loan sales and
securitizations to fund mortgage loan originations and portfolio
investments; the execution of Indymac's growth plans and ability to
gain market share in a significant market transition; the impact of
disruptions triggered by natural disasters; the impact of current,
pending or future legislation, regulations or litigation; and other
risk 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. 1 Our market share is calculated based on our total loan
production, both purchased (correspondent and conduit) and
originated (retail and wholesale), in all channels (the numerator)
divided by the Mortgage Bankers Association (�MBA�) April 23, 2007
Mortgage Finance Long-Term Forecast estimate of the overall
mortgage market (the denominator). See our Form 10-Q filed with the
SEC on April 26, 2007 for further details. 2 Net income for
Mortgage Loan Production, Mortgage Loan Servicing and the Thrift
Portfolio is before divisional and corporate overhead. Net income
for Total Consumer Mortgage Banking and Total Operating Divisions
is after divisional overhead but before corporate overhead. 3
Segment financial reports for prior periods have been adjusted to
reflect the changes and ensure period to period comparability.
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