IndyMac Loses $509 Million in Fourth Quarter, Suspends Dividend
IndyMac Bancorp, Inc. said Tuesday morning that it lost $509.1 million, or ($6.43) per share, during the recently-completed fourth quarter. The Q4 loss compares to net earnings of $72.2 million in the year-ago period. The quarterly loss drove the Pasadena, Calif.-based thrift to its first-ever full-year loss of $614.8 million, or ($8.28) per share. Not surprisingly, single-family loan production at the former Alt-A powerhouse continued to fall, dropping to $12.1 billion in Q4 -- off $4.7 billion from Q3, and $13.9 million below origination volume one year earlier. The thrift absorbed a total of $863 million in write-downs and loss provisions during the quarter, CEO Michael Perry said. Loan loss reserves ballooned to $2.4 billion, net of just $179 million in fourth quarter charge-off activity -- underscoring just how much the lender believes it will lose in the future on the loans in its portfolio. Perry said he expected charge-offs to "increase substantially in 2008 over 2007," but said that the lender expects that only an additional $372 million will be needed in 2008 loss provisions to cover credit costs. IndyMac set aside $1.45 billion in such provision charges during 2007. It's worth nothing that despite a multi-billion dollar loss reserve, comparative reserves have been shrinking in size relative to the non-performing loans in IndyMac's portfolio. At the end of 2007, the allowance for loan losses represented 30.44 percent of non-performing loans; that ratio stood at 47.64 percent at the end of Q3, and 57.51 percent one year earlier. While Perry touted the company's "solid overall financial position," the bank suspended its quarterly common cash dividend amid growing losses, a move expected to preserve $400 million in capital. More borrowers missing payments Loan servicing was profitable, as IndyMac reported net earnings of $39.3 million in its servicing division during the fourth quarter. But the number of troubled borrowers continues to rise, quickly. The bank said the number of borrowers 30+ days in arrears reached 7.31 percent of unpaid principal balance during the fourth quarter. One quarter earlier, 6.77 percent of the portfolio volume was delinquent, compared to 5.02 percent one year earlier. Digging into non-performing loans -- otherwise known as severe delinquencies -- what's stunning is the dramatic increase in prime-borrower NPLs. The investor presentation shows that NPLs among prime loans held for investment have jumped to 9.2 percent of unpaid principal balance; that's up from 4.2 percent just one quarter earlier. Increasing borrower difficulties notwithstanding, Perry said IndyMac's future in 2008 looked good. "Our goal is to return Indymac to profitability in Q2-08 and grow our profit each quarter thereafter, and I believe that we have a realistic shot of achieving this goal," Perry said. "Even if we are wrong in our forecast for 2008, and the mortgage and housing markets worsen beyond what we are already forecasting ... which could happen given our experience in 2007 ... we have the capital to absorb nearly triple our presently forecasted 2008 credit costs." The bank also released its shareholder letter, available here. Commentary on the letter is available over at the Calculated Risk blog. For more information, visit http://www.indymac.com.