IndyMac posted second quarter results this morning, which showed that the Alt-A specialist is feeling the heat from a continued downturn in the housing market. The company reported earnings of $44.6 million in the second quarter of 2007, down 57 percent from the year-ago period; net revenues declined 21 percent, falling to $297.8 million. IndyMac also said it will suspend providing a financial forecast, with company CEO Michael Perry citing "uncertainty" in the current mortgage market. Not surprisingly, mortgage production took a hit during the quarter:
“Our total mortgage loan production volume of $22.5 billion was down 12 percent versus last quarter,� noted Frank Sillman, President of Indymac's Mortgage Bank. “This was driven by a $3.1 billion, or 37 percent, decline in Conduit production, as we were less aggressive on our bids for this business due to its inherently lower profit margins and the current uncertainty with respect to secondary market spreads and execution ... “Our largest production group, the Wholesale Division, had a solid rebound during the quarter, increasing earnings to $23 million from $13 million last quarter, as the mortgage banking revenue margin (MBR) for that group improved to 88 bps from 66 bps last quarter,� continued Mr. Sillman.
While mortgage production dipped, IndyMac's servicing portfolio managed to reach a record high of $184 billion during the quarter, a dramatic 50 percent increase from year-ago levels. Not surprisingly, the bank said it had booked a sizable gain on the value of its mortgage servicing rights. IndyMac's thrift portfolio, however, fared poorly during the quarter:
“... earnings were down 48 percent from last quarter to $15.5 million and the ROE declined to 7 percent from 14 percent,� continued [CIO Patrick] Hymel ... We took net valuation losses totaling $16.3 million in the non-investment grade and residual securities portfolio in the thrift ... We also increased the loan loss provision in the SFR whole loan portfolio to $13.8 million this quarter from $8.5 million in Q107, leading to a loss of $1.4 million for the quarter."
While no formal earnings guidance was provided, Perry did say he expects the remainder of 2007 and an unspecified period of 2008 to be "challenging for the mortgage and housing markets and for IndyMac." It looks to me, BTW, that the fact IndyMac is organized as a thrift is perhaps its largest saving grace at the moment. Update: Looks like Tanta over at CR has a similar opinion.