IndyMac Bancorp today reported second-quarter profits of $44.6 million, down 57 percent from a year ago. The company is based in Pasadena and has two units in Irvine.
Second quarter total assets were $31.7 billion, up 33 percent from a year ago and up 7 percent from the first quarter. The company made $22.5 billion in loans over the past three months, a 12 percent increase from a year earlier, but 12 percent less than the first quarter of this year.
The earnings announcement came a week after the company cut 400 jobs or 4 percent of its staff. Twenty were laid off in Irvine — about 3% of the 633 workers in Orange County.
John Olinski, an executive vice president, said in today’s statement that the market for selling loans has worsened in recent weeks “due in large part to widely publicized issues with subprime-related hedge funds and other secondary market participants, including rating agencies.”
At least a handful of hedge funds, including two owned by investment bank Bear Stearns, that invested in subprime mortgages have lost all or much of their value recently amid loan delinquencies. And rating agencies have lowered or threatened to lower their ratings on billions in securities backed by subprime and some Alt-A mortgages.
“The capital markets remain volatile and less liquid.” Olinski said. “Importantly, Indymac has substantial capital and funding resources to manage through these challenging times. Eventually, we believe investor demand will return to take advantage of the higher credit quality of new production, increased credit support resulting from rating agency model changes and attractive mortgage spreads that exist today.”
CEO Mike Perry said, “We anticipate that the second half of 2007 and 2008 will continue to be challenging for the mortgage and housing markets and for Indymac.”
The company did not provide an earnings forecast for the year, citing market conditions.
IndyMac said 5.23 percent of the unpaid balance on the $184 billion in loans it services is 30 days or more past due. That’s up from 4.26 percent in the first quarter and 3.96 percent a year ago.
The company set aside an additional $17 million to cover losses on dud loans. While that was the largest provision for losses so far in this down cycle, its overall reserve remains low compared to sour loans and foreclosed real estate on its books.
In an SEC filing, the lender said its reserve for losses covered 36 percent of loans 90 days or more past due and foreclosed real estate. That’s down from 44 percent in the first quarter and 91 percent a year ago.
However, the reserve covers 0.89 percent of loans held for investment, up from 0.75 percent in the first quarter and 0.66 percent a year ago.
Perry said, “During these challenging times, safety and soundness is of paramount importance. The issuance of $500 million in perpetual preferred stock by Indymac Bank during the quarter increased the bank’s Tier 1 core capital by 23 percent to $2.5 billion. As a result, our Tier 1, ‘core’ capital ratio now stands at 8.10 percent and our total risk-based capital ratio is at 12.09 percent. These capital ratios are 62 percent and 21 percent above the regulatory capital levels required to be considered a ‘well-capitalized’ thrift, respectively.”
By the way, I’m not a banking expert, but Wikipedia describes Tier 1 capital as “the core measure of a bank’s financial strength from a regulator’s point of view. It consists of the types of financial capital considered the most reliable and liquid, primarily shareholders’ equity. Examples of Tier 1 capital are common stock, preferred stock that is irredeemable and non-cumulative, and retained earnings.”
