Reflecting continued troubles in mortgage banking, IndyMac Bank acknowledged Tuesday that the nation’s 9th largest mortgage originator would not meet earlier earnings guidance. The acknowledgement comes ahead of the company’s scheduled earnings release next Thursday. In a letter sent to IndyMac shareholders and obtained by Housing Wire, IndyMac CEO Michael Perry said that the company expects to report approximately $0.97 EPS, compared to earlier company targets estimating $1.35 per share. The earnings miss represents a nearly 28 percent EPS decline from expected per-share earnings.
“This shortfall reflects the challenging times being faced by the mortgage and housing industries and the difficult nature of forecasting earnings in our business,” said Perry. “I have stated many times before that Indymac is not immune to deteriorating mortgage industry conditions, and it is clear now that during the fourth quarter industry conditions continued to erode.” The company pointed to three factors behind its current earnings troubles:
- An increase in credit costs related to the loan loss provision, secondary market reserve, and marking-to-market delinquent loans held-for-sale and residuals and non-investment grade securities
- A reduction in net interest margin related to loans held-for-sale and the thrift investment portfolio due to yield curve inversion and the fact that our loan production mix shifted more toward fixed rate and intermediate term fixed rate loans
- A decline of the servicing/interest-only securities portfolio return on equity (ROE) from a high level of 30 percent last quarter to a more normalized level, in addition to a forecasted sale of some securities (at a gain) that did not occur
IndyMac will release financial results for the fourth quarter and fiscal year 2006 on January 25, but has already said it will likely not be boosting its dividends this quarter, and that it will be exploring stock repurchases as a vehicle to protect investors’ returns. For more information, visit http://www.indymac.com.