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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 1-8972
INDYMAC BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3983415
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
155 NORTH LAKE AVENUE, PASADENA, CALIFORNIA 91101-7211
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 669-2300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock outstanding as of April 30, 2001: 61,032,351 shares
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INDYMAC BANCORP, INC.
FORM 10-Q QUARTERLY REPORT
FOR THE PERIOD ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets................................. 1
Consolidated Statements of Earnings......................... 2
Consolidated Statements of Shareholders' Equity and
Comprehensive Income...................................... 3
Consolidated Statements of Cash Flows....................... 4
Notes to Consolidated Financial Statements.................. 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................. 9
Item 3. Quantitative and Qualitative Disclosure of Market Risk...... 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 24
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3
INDYMAC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
Cash and cash equivalents................................... $ 35,790 $ 67,867
Investment securities available for sale, amortized cost of
$7,177 and $18,298, respectively.......................... 7,211 18,387
Mortgage-backed securities classified as trading
securities................................................ 249,233 --
Mortgage-backed securities available for sale, amortized
cost of $1,209,374 and $1,147,376, respectively ($213.3
million pledged as collateral for repurchase agreements at
March 31, 2001)........................................... 1,228,619 1,135,916
Loans receivable:
Loans held for sale
Prime.................................................. 1,708,665 1,219,737
Subprime............................................... 86,177 201,035
Loans held for investment
Mortgage............................................... 1,604,704 1,578,216
Builder construction................................... 547,923 554,028
Consumer construction.................................. 452,752 372,394
Income property........................................ 56,861 57,717
Revolving warehouse lines of credit.................... 20,019 57,492
Allowance for loan losses................................. (65,113) (58,962)
---------- ----------
Total loans receivable ($2.4 billion pledged as
collateral for repurchase agreements at March 31,
2001)............................................ 4,411,988 3,981,657
Mortgage servicing rights................................... 231,899 211,127
Foreclosed assets........................................... 14,230 16,265
Investment in Federal Home Loan Bank stock, at cost......... 80,529 63,281
Interest receivable......................................... 53,367 51,432
Goodwill and other intangible assets........................ 37,916 38,724
Other assets................................................ 275,733 155,548
---------- ----------
Total assets...................................... $6,626,515 $5,740,204
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.................................................... $1,185,769 $ 797,935
Advances from Federal Home Loan Bank........................ 1,609,615 1,264,457
Borrowings.................................................. 2,961,593 2,850,189
Other liabilities........................................... 116,386 99,730
---------- ----------
Total liabilities................................. 5,873,363 5,012,311
Shareholders' Equity
Preferred Stock -- authorized, 10,000,000 shares of $0.01
par value; none issued................................. -- --
Common Stock -- authorized, 200,000,000 shares of $0.01
par value; issued 82,638,780 shares (62,533,666
outstanding) at March 31, 2001 and issued 81,758,312
shares (62,176,316 outstanding) at December 31, 2000... 826 818
Additional paid-in-capital................................ 933,846 920,205
Accumulated other comprehensive income (loss)............... 7,370 (2,603)
Retained earnings........................................... 132,964 117,926
Treasury stock, 20,105,114 shares and 19,581,996 shares,
respectively.............................................. (321,854) (308,453)
---------- ----------
Total shareholders' equity........................ 753,152 727,893
---------- ----------
Total liabilities and shareholders' equity........ $6,626,515 $5,740,204
========== ==========
The accompanying notes are an integral part of these statements.
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INDYMAC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2001 2000
-------- --------
Interest income
Investment securities available for sale.................... $ 248 $ --
Mortgage-backed securities classified as trading............ 8,119 --
Mortgage-backed securities available for sale............... 23,192 18,270
Loans held for sale
Prime..................................................... 32,512 15,010
Subprime.................................................. 5,416 4,012
Loans held for investment
Mortgage.................................................. 35,179 27,087
Builder construction...................................... 15,012 22,650
Consumer construction..................................... 8,713 5,807
Income property........................................... 1,326 1,247
Revolving warehouse lines of credit....................... 691 4,400
Other....................................................... 1,552 150
-------- --------
Total interest income.............................. 131,960 98,633
Interest expense
Deposits.................................................... 14,474 --
Advances from Federal Home Loan Bank........................ 22,416 --
Borrowings.................................................. 52,013 55,284
-------- --------
Total interest expense............................. 88,903 55,284
-------- --------
Net interest income................................ 43,057 43,349
Provision for loan losses................................... 9,000 4,316
-------- --------
Net interest income after provision for loan
losses............................................. 34,057 39,033
Other income
Gain on sale of loans..................................... 49,199 18,570
Service fee income........................................ 9,643 8,236
Gain (loss) on mortgage-backed securities, net............ (2,487) 963
Fee and other income...................................... 12,766 6,743
-------- --------
Total other income................................. 69,121 34,512
-------- --------
Net revenues............................................ 103,178 73,545
Other expense
Operating expenses........................................ 59,365 35,988
Amortization of goodwill and other intangible assets...... 960 14
Non-recurring and other charges........................... (300) 10,223
-------- --------
Total other expense................................ 60,025 46,225
-------- --------
Earnings before provision for income taxes and cumulative
effect of a change in accounting principle................ 43,153 27,320
Provision for income taxes................................ 17,930 11,474
Income tax benefit from termination of REIT status........ -- (36,100)
-------- --------
Earnings before cumulative effect of a change in
accounting principle................................... 25,223 51,946
-------- --------
Cumulative effect of a change in accounting principle....... (10,185) --
-------- --------
Net earnings............................................ $ 15,038 $ 51,946
======== ========
Earnings per share before cumulative effect of a change in
accounting principle
Basic..................................................... $ 0.41 $ 0.70
Diluted................................................... $ 0.39 $ 0.69
Earnings per share from cumulative effect of a change in
accounting principle
Basic..................................................... $ (0.16) $ --
Diluted................................................... $ (0.16) $ --
Net earnings per share
Basic..................................................... $ 0.24 $ 0.70
Diluted................................................... $ 0.23 $ 0.69
Weighted average shares outstanding
Basic..................................................... 62,193 74,028
Diluted................................................... 64,615 74,787
The accompanying notes are an integral part of these statements.
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INDYMAC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
OTHER
COMPREHENSIVE CUMULATIVE
ADDITIONAL INCOME (LOSS) TOTAL DISTRIBUTIONS
COMMON PAID-IN ------------- RETAINED COMPREHENSIVE TO TREASURY
STOCK CAPITAL MBS EARNINGS INCOME SHAREHOLDERS STOCK
------ ---------- ------------- --------- ------------- ------------- ---------
Balance at December 31, 1999........ $807 $1,080,327 $ 7,433 $ 393,149 $(577,808) $ (76,378)
Common stock options exercised...... 2 900 -- -- $ -- -- --
Directors' and officers' notes
receivable........................ -- 29 -- -- -- -- --
Deferred compensation, restricted
stock............................. -- 1,982 -- -- -- -- --
401(k) contribution................. -- 233 -- -- -- -- --
Net loss on mortgage securities
available for sale................ -- -- (34) -- (34) -- --
Dividend reinvestment plan.......... -- 69 -- -- -- -- --
Purchases of common stock........... -- -- -- -- -- -- (27,315)
Close-out of cumulative earnings and
distributions to additional
paid-in capital................... -- (184,659) -- (393,149) -- 577,808 --
Net earnings........................ -- -- -- 51,946 51,946 -- --
---- ---------- ------- --------- ------- --------- ---------
Net change.......................... 2 (181,446) (34) (341,203) $51,912 577,808 (27,315)
---- ---------- ------- --------- ------- --------- ---------
Balance at March 31, 2000........... $809 $ 898,881 $ 7,399 $ 51,946 $ -- $(103,693)
==== ========== ======= ========= ========= =========
Balance at December 31, 2000........ $818 $ 920,205 $(2,603) $ 117,926 $ -- $(308,453)
Common stock options exercised...... 8 12,688 -- -- $ -- -- --
Directors' and officers' notes
receivable........................ -- (26) -- -- -- -- --
Deferred compensation, restricted
stock............................. 525 -- -- -- -- --
401(k) contribution................. 445 -- -- -- -- --
Net gain on mortgage securities
available for sale and interest
rate swap agreements.............. -- -- 9,973 -- 9,973 -- --
Dividend reinvestment plan.......... -- 9 -- -- -- -- --
Purchases of common stock........... -- -- -- -- -- -- (13,401)
Net earnings........................ -- -- -- 15,038 15,038 -- --
---- ---------- ------- --------- ------- --------- ---------
Net change.......................... 8 13,641 9,973 15,038 $25,011 -- (13,401)
---- ---------- ------- --------- ------- --------- ---------
Balance at March 31, 2001........... $826 $ 933,846 $ 7,370 $ 132,964 $ -- $(321,854)
==== ========== ======= ========= ========= =========
TOTAL
SHAREHOLDERS'
EQUITY
-------------
Balance at December 31, 1999........ $827,530
Common stock options exercised...... 902
Directors' and officers' notes
receivable........................ 29
Deferred compensation, restricted
stock............................. 1,982
401(k) contribution................. 233
Net loss on mortgage securities
available for sale................ (34)
Dividend reinvestment plan.......... 69
Purchases of common stock........... (27,315)
Close-out of cumulative earnings and
distributions to additional
paid-in capital................... --
Net earnings........................ 51,946
--------
Net change.......................... 27,812
--------
Balance at March 31, 2000........... $855,342
========
Balance at December 31, 2000........ $727,893
Common stock options exercised...... 12,696
Directors' and officers' notes
receivable........................ (26)
Deferred compensation, restricted
stock............................. 525
401(k) contribution................. 445
Net gain on mortgage securities
available for sale and interest
rate swap agreements.............. 9,973
Dividend reinvestment plan.......... 9
Purchases of common stock........... (13,401)
Net earnings........................ 15,038
--------
Net change.......................... 25,259
--------
Balance at March 31, 2001........... $753,152
========
The accompanying notes are an integral part of these statements.
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INDYMAC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 15,038 $ 51,946
Adjustments to reconcile net earnings to net cash used in
operating activities:
Amortization of securities and mortgage servicing
rights............................................... 44,116 40,580
Amortization of goodwill and other intangible
assets............................................... 960 14
Other depreciation and amortization................... 2,815 36
Gain on sale of loans................................. (49,199) (18,570)
Loss (gain) on sale of securities..................... 2,487 (963)
Provision for loan losses............................. 9,000 4,316
Non-cash compensation expense......................... 670 10,564
Cumulative effect of a change in accounting
principle............................................ 10,185 --
Purchases and originations of mortgage loans held for
sale.................................................... (3,164,206) (1,487,669)
Sale of and payments from mortgage loans held for sale.... 2,649,420 1,271,651
Payments from trading mortgage securities................. 126 --
Net increase in other assets and liabilities.............. (105,979) (21,694)
----------- -----------
Net cash used in operating activities................. (584,567) (149,789)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage loans held for investment........... (21,754) (470)
Payments from mortgage loans held for investment.......... 131,761 50,532
Net increase in construction loans receivable............. (71,872) (34,503)
Net decrease (increase) in revolving warehouse lines of
credit.................................................. 36,251 (6,070)
Purchases of mortgage securities available for sale....... (434,975) (146,502)
Sales of and payments from mortgage securities available
for sale................................................ 90,483 16,095
Purchases of mortgage servicing rights.................... (2,017) (317)
Net increase in investment in Federal Home Loan Bank
stock, at cost.......................................... (17,248) --
----------- -----------
Net cash used in investing activities................. (289,371) (121,235)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.................................. 387,754 --
Net increase in advances from Federal Home Loan Bank...... 344,963 --
Net increase in borrowings................................ 109,834 302,984
Net proceeds from issuance of common stock and exercise of
stock options........................................... 12,711 1,000
Purchases of common stock................................. (13,401) (27,315)
----------- -----------
Net cash provided by financing activities............. 841,861 276,669
----------- -----------
Net (decrease) increase in cash and cash equivalents........ (32,077) 5,645
Cash and cash equivalents at beginning of period............ 67,867 4,488
----------- -----------
Cash and cash equivalents at end of period.................. $ 35,790 $ 10,133
=========== ===========
Supplemental cash flow information:
Cash paid for interest................................ $ 87,822 $ 53,139
=========== ===========
Cash paid for income taxes............................ $ 44 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The fair value of noncash assets acquired and
liabilities assumed in the purchase of IndyMac, Inc.
in January of 2000 was approximately $424 million and
$332 million, respectively.
The accompanying notes are an integral part of these statements.
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INDYMAC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
IndyMac Bancorp, Inc. ("IndyMac" and together with its subsidiaries, "the
Company") conducts a diversified mortgage lending business, manages an
investment portfolio and offers commercial lending and retail banking products.
The consolidated financial statements include the accounts of IndyMac and
its subsidiaries, including IndyMac Bank, F.S.B. ("IndyMac Bank"). All
significant intercompany balances and transactions with IndyMac's consolidated
subsidiaries have been eliminated in consolidation. The financial statements of
the Company are prepared in conformity with accounting principles generally
accepted in the United States of America ("US GAAP"). Certain reclassifications
have been made to the financial statements for the period ended March 31, 2000
to conform to the March 31, 2001 presentation. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the quarter ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 2000.
NOTE 2 -- RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective January of 2001, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133," and Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- An Amendment of
FASB Statement No. 133," and Emerging Issues Task Force 99-20, "Recognition of
Interest Income and Impairment on Certain Investments" ("EITF 99-20").
Additionally, in September of 2000, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 140"), which the Company fully adopted by April 1, 2001.
SFAS 133
SFAS 133 requires the recognition of all derivative financial instruments
as either assets or liabilities in the balance sheet and measurement of those
instruments at fair value. Changes in the fair values of those derivatives are
reported in earnings or other comprehensive income ("OCI") depending on the use
of the derivative and whether it qualifies for hedge accounting. The accounting
for gains and losses associated with changes in the fair value of a derivative
and the effect on the consolidated financial statements will depend on whether
hedge accounting has been elected, its hedge designation and whether the hedge
is highly effective in achieving offsetting changes in the fair value or cash
flows of the asset or liability hedged. Under the provisions of SFAS 133, the
method that will be used for assessing the effectiveness of a hedging
derivative, as well as the measurement approach for determining the ineffective
aspects of the hedge, must be established at the inception of the hedge.
The following derivative financial instruments were identified and recorded
at fair value as of January 1, 2001:
- FNMA and FHLMC forward contracts,
- interest rate swap agreements,
- interest rate floor agreements,
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INDYMAC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
- interest rate cap agreements,
- loan commitments.
Generally speaking, if interest rates increase, the value of the mortgage
pipeline decreases and gain on sale margins are adversely impacted. The Company
hedges the risk of overall changes in fair value of loans held for sale by
selling forward contracts on securities of government sponsored entities to
economically hedge loan commitments and to create fair value hedges against the
funded loan portfolios. Under SFAS 133, these forward contracts qualify as a
fair value hedge of the funded loan portfolio. In January of 2001, a net after
tax gain of $21 thousand was recorded as a transition adjustment under SFAS 133
as a cumulative effect of a change in accounting principle on the forward
contracts and the funded loan portfolio. During the first quarter of 2001, hedge
ineffectiveness totaling $5.3 million was recorded as an increase to the gain on
sale of loans.
Loan commitments represent the Company's pipeline to originate loans. Under
SFAS 133, these commitments qualify as derivatives, and are marked to market
through current period earnings with changes in fair value included as a
component of gain on sale of loans. During the first quarter of 2001, the
changes in fair value of these commitments totaled $(3.5) million.
The Company uses interest rate swap agreements to reduce its exposure to
interest rate risk inherent in a portion of its repurchase agreement borrowings
and its mortgage servicing rights. A swap agreement is a contract between two
parties to exchange cash flows based on specified underlying notional amounts
and indices. Since the swap agreements used on the Company's repurchase
agreement borrowings qualify as a cash flow hedge, under SFAS 133, the fair
value of these agreements totaling $(2.5) million after tax was recorded as a
reduction to OCI in shareholders' equity in January of 2001. Future changes in
fair value on these interest rate swap agreements will be adjusted through OCI
as long as the cash flow hedge requirements are met. During the first quarter of
2001, the change in the fair value of the Company's interest rate swap
agreements was $(4.1) million after tax, recorded as a component of OCI, with
actual ineffectiveness of $83 thousand recorded through earnings as a component
of interest expense.
Although the Company has not elected SFAS 133 hedge accounting on its
servicing and servicing related assets, interest rate floors, caps and swaps are
used to economically hedge these assets to mitigate losses as a result of
changes and volatility in the interest rate environment. Gains and losses on
these derivative financial instruments are reported as a component of service
fee income for servicing assets, and as a component of gain (loss) on
mortgage-backed securities, net, for the Company's AAA rated interest-only
securities.
Under the provisions of SFAS 133, in January of 2001, the Company
transferred all of its AAA rated interest-only and principal-only securities
from available for sale to trading. The transfer of these securities had the
following effect on earnings and OCI upon adoption of SFAS 133:
AFTER-TAX
ADJUSTMENT
TO OTHER
TRADING (AT AFTER-TAX COMPREHENSIVE NET EQUITY
SECURITY FAIR VALUE) LOSS INCOME (LOSS) IMPACT
-------- ----------- --------- ------------- ----------
(DOLLARS IN THOUSANDS)
Principal-only securities................... $ 5,033 $(437) $437 $ --
AAA rated interest-only securities.......... 258,241 (530) 530 --
-------- ----- ---- ----
$263,274 $(967) $967 $ --
======== ===== ==== ====
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INDYMAC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
EITF 99-20
EITF 99-20 provides guidance on how transferors that retain an interest in
a securitization transaction, and companies that purchase a beneficial interest,
should account for interest income and impairment. The EITF concluded that the
holder of a beneficial interest should recognize interest income over the life
of the investment based on an anticipated yield determined by periodically
estimating cash flows. Interest income would be revised prospectively for
changes in cash flows. If the fair value of the beneficial interest has declined
below its carrying amount and the decline is other-than-temporary, an entity
should apply impairment of securities guidance using the fair value method. This
method differs significantly from the previous accounting method whereby
impairment was measured using a risk-free rate of return. The Company
periodically reviews its estimated cash flow streams on its securities. As a
result of its review during the first quarter of 2001, the Company recorded a
$3.2 million impairment charge on subordinated securities in accordance with
EITF 99-20.
The adoption of EITF 99-20 in January of 2001 was recorded as a cumulative
effect of a change in accounting principle, and had the following effect on net
earnings and OCI during the first quarter of 2001:
ADJUSTMENTS
----------------------------------------
OTHER
AFTER-TAX COMPREHENSIVE NET EQUITY
EARNINGS INCOME IMPACT
--------- ------------- ----------
(DOLLARS IN THOUSANDS)
Core operations:
Investment grade securities........................... $ (297) $ 297 $ --
Non-investment grade securities....................... (459) 459 --
Residual securities................................... (607) 607 --
-------- ------ -------
Total core operations......................... (1,363) 1,363 --
Non-core operations:
Manufactured housing securities:
Non-investment grade securities.................... (6,612) 4,867 (1,745)
Residual securities................................ (2,231) 1,889 (342)
-------- ------ -------
Total non-core operations..................... (8,843) 6,756 (2,087)
-------- ------ -------
Total cumulative effect of a change in
accounting principle........................ $(10,206) $8,119 $(2,087)
======== ====== =======
SFAS 140
SFAS 140 revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain additional
disclosures. The Company adopted SFAS 140 effective December 31, 2000 for
disclosures relating to securitization transactions and collateral, and
effective April 1, 2001 for transfers and servicing of financial assets and
extinguishments of liabilities. Adoption of SFAS 140 did not have a material
impact to the Company's consolidated financial statements.
NOTE 3 -- SEGMENT REPORTING
The Company's reportable operating segments include Mortgage Banking,
Investment Portfolio and Commercial Lending.
The Mortgage Banking segment purchases conforming, jumbo and other
non-conforming mortgage loans from B2B customers, and funds loans directly to
consumers ("B2C"). These loans are then either securitized
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INDYMAC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
through the issuance of mortgage-backed securities ("MBS"), sold to government
sponsored enterprises, resold in bulk whole loan sales to permanent investors,
or retained by the Company's Investment Portfolio segment. The Mortgage Banking
segment also administers the related construction advances for the purchase of
construction-to-permanent mortgage loans originated by or sourced through the
Company's B2B sellers and direct customers ("consumer construction").
Additionally, Mortgage Banking operates a B2R channel, which allows real estate
professionals to utilize the Company's technology to fulfill the mortgage loan
process for their customers in the process of purchasing a home.
The Investment Portfolio segment invests in residential loans and mortgage
securities on a long-term basis. The Investment Portfolio segment also manages
mortgage servicing rights and conducts servicing and collection activities.
The Commercial Lending segment makes residential construction loans to
builders and engages in secured warehouse lending operations for mortgage
brokers and mortgage bankers. In July of 2000, the Board of Directors approved
management's decision to begin a systematic wind-down of the Company's warehouse
lending activities. The Company will continue to honor its outstanding
commitments, but will not enter into any new commitments. It is anticipated that
the wind-down of this division will be substantially completed by mid 2001.
Operating segment profitability is measured on a fully-leveraged basis.
Corporate costs such as corporate salaries and related expenses, excess capital,
and non-recurring corporate items are unallocated and included in the "Other"
operating segment.
Segment information for the three months ended March 31, 2001 and 2000 were
as follows:
MORTGAGE INVESTMENT COMMERCIAL
BANKING PORTFOLIO LENDING OTHER CONSOLIDATED
---------- ---------- ---------- -------- ------------
(DOLLARS IN THOUSANDS)
Three months ended March 31,
2001
Net interest income......... $ 14,014 $ 15,706 $ 8,987 $ 4,350 $ 43,057
Net revenues................ 72,639 16,501 9,464 4,574 103,178
Net earnings (loss) before
cumulative effect of a
change in accounting
principle................ 22,500 5,649 3,813 (6,739) 25,223
Cumulative effect of a
change in accounting
principle................ 21 (10,206) -- -- (10,185)
Net earnings (loss)......... 22,521 (4,557) 3,813 (6,739) 15,038
Assets as of March 31,
2001..................... $2,511,837 $3,254,812 $ 742,537 $117,329 $6,626,515
Three months ended March 31,
2000
Net interest income......... $ 10,229 $ 10,267 $ 15,106 $ 7,747 $ 43,349
Net revenues................ 30,805 17,837 15,530 9,373 73,545
Net earnings................ 7,105 8,037 6,802 30,002 51,946
Assets as of March 31,
2000..................... $1,247,386 $1,996,933 $1,058,643 $ 54,778 $4,357,740
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
IndyMac Bancorp, Inc. ("IndyMac" and, together with its consolidated
subsidiaries, "the Company"), conducts a diversified mortgage banking business,
manages an investment portfolio, and offers commercial lending and retail
banking products. References to "IndyMac" refer to the parent company alone,
while references to the "Company" mean the parent company and its consolidated
subsidiaries.
MORTGAGE BANKING OPERATIONS
The Company's mortgage banking group is its core business. It is a
technology based, highly scalable operation that includes the following distinct
channels: (1) a business-to-business (B2B) channel, with mortgage brokers, small
mortgage bankers and community financial institutions effectively providing the
Company with access to a variable cost, nationwide "virtual" branch network, (2)
a branchless, technology driven, business-to-consumer (B2C) channel, and (3) a
business-to-realtor (B2R) channel, which allows real estate professionals to
utilize the Company's technology to fulfill the mortgage loan process for their
customers in the process of purchasing a home. The Company has been able to
successfully expand and leverage its proprietary loan approval and pricing
system, e-MITS(R), across its mortgage banking channels. These channels provide
the Company with comprehensive coverage of the consumer mortgage market.
The Company's principal sources of income from its mortgage banking
operations are gains recognized on the sale or securitization of mortgage loans,
fee income from the origination or purchase of such loans, and the net spread
between interest earned on mortgage loans and the interest costs associated with
financing such loans pending their sale or securitization.
B2B's production totaled $2.9 billion during the three months ended March
31, 2001, compared to total production of $2.7 billion and $1.6 billion during
the three months ended December 31, 2000 and March 31, 2000, respectively.
Included in B2B's production were commitments for new mortgage construction
loans totaling $261.1 million, $158.2 million, and $193.0 million during the
three months ended March 31, 2001, December 31, 2000, and March 31, 2000,
respectively. B2B's loan production was financed using equity and short-term
financing in the form of repurchase agreements and other credit facilities. The
Company sold $2.6 billion of mortgage loans during the three months ended March
31, 2001, compared with $2.4 billion and $1.3 billion of sales during the three
months ended December 31, 2000 and March 31, 2000, respectively.
The Company's B2C group funded $470.4 million of mortgage loans during the
three months ended March 31, 2001, compared to $306.8 million and $138.8 million
funded during the three months ended December 31, 2000 and March 31, 2000,
respectively. Contributing to B2C's production growth during the first quarter
of 2001 was the nation's strong refinance market. The Company's B2C group is its
primary beneficiary of a refinance market, and, correspondingly, this channel is
subject to more cyclicality than the Company's B2B or B2R channels.
The Company's B2R group was established during the second quarter of 2000.
B2R funded $36.8 million of mortgage loans during the three months ended March
31, 2001, compared to $22.6 million funded during the three months ended
December 31, 2000.
Loans funded through e-MITS during the three months ended March 31, 2001
were $2.7 billion, up from $2.4 billion during the three months ended December
31, 2000 and $987 million during the three months ended March 31, 2000. Loans
funded by the Company's B2C group through Internet channels totaled $237 million
for the three months ended March 31, 2001, compared to $184 million for the
three months ended December 31, 2000 and $64 million for the three months ended
March 31, 2000.
INVESTMENT PORTFOLIO OPERATIONS
The Company invests in residential loans and mortgage securities retained
in connection with the issuance of mortgage-backed securities, purchased in the
secondary mortgage market, or originated through B2C. The Company acts as
primary servicer and master servicer with respect to substantially all of the
9
12
mortgage loans it sells pursuant to private-label securitizations and loans sold
to government sponsored entities ("GSEs"). The Company's principal sources of
income from its investment portfolio operations are fee income from servicing
contracts, and the net spread between interest earned on residential loans and
mortgage securities and the interest costs associated with the borrowings used
to finance such loans and securities.
At March 31, 2001 and December 31, 2000, the Company's master servicing
portfolio had aggregate outstanding principal balances of $17.8 billion and
$18.0 billion, respectively, of which $13.4 billion and $14.1 billion,
respectively, represented loans sold with servicing retained for which a
mortgage servicing asset was capitalized. The weighted average coupon of the
Company's retained master servicing portfolio remained flat at 8.5% for both
periods. IndyMac Bank Home Loan Servicing's portfolio at March 31, 2001 and
December 31, 2000 was $17.3 billion and $15.4 billion, respectively, of which
$14.4 billion and $12.8 billion, respectively, represented loans sold with
servicing retained for which a mortgage servicing asset was capitalized. The
weighted average coupon of the Company's retained primary servicing portfolio
remained constant at 8.8% as of March 31, 2001 and December 31, 2000.
COMMERCIAL LENDING OPERATIONS
The Company conducts its builder construction lending activities through
its Construction Lending Corporation of America(R) ("CLCA") division, which
offers a variety of residential construction, land and lot loan programs for
builders and developers. The Company's principal sources of income from its
commercial lending operations are fee income from the origination of such loans,
and the net spread between interest earned on mortgage loans and the interest
costs associated with the borrowings used to finance such loans. At March 31,
2001, CLCA(R) had outstanding commitments to fund builder construction loans of
$1.3 billion compared to outstanding commitments of $1.4 billion at December 31,
2000.
The Company also conducts mortgage warehouse lending activities that
provide various types of short-term revolving financing to small-to-medium size
mortgage bankers and brokers. At March 31, 2001, the Company had extended
commitments to make warehouse and related lines of credit in an aggregate amount
of $55.3 million, compared to commitments of $113.3 million at December 31,
2000. In July of 2000, the Board of Directors approved management's decision to
begin a systematic wind-down of the Company's warehouse lending activities. The
Company will continue to honor its outstanding commitments, but will not enter
into any new commitments. It is anticipated that the wind-down of this division
will be substantially completed by mid 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31,
2000
Overview: The Company's net earnings before provision for income taxes,
non-recurring and other charges, and cumulative effect of a change in accounting
principle were $42.9 million for the three months ended March 31, 2001, compared
to $37.5 million for the three months ended March 31, 2000. The $5.4 million
increase was primarily due to a $30.6 million increase in gain on sale of loans,
offset in part by an increase in operating expenses of $23.4 million, coupled
with an increase in provision for loan losses of $4.7 million. The increase in
net revenues and expense was primarily due to the Company's overall growth
strategy, including the acquisition of SGVB in July of 2000.
During January of 2001, the Company recognized a $10.2 million charge to
earnings, net of tax, which was recorded as a cumulative effect of a change in
accounting principle in connection with the adoption of Emerging Issues Task
Force Issue No. 99-20 "Recognition of Interest Income and Impairment on Certain
Investments" ("EITF 99-20"). This charge was primarily attributable to the
non-investment grade and residual securities portfolio associated with the
discontinued manufactured housing product line. The Company discontinued its
manufactured housing product line with dealers during 1999; however, the
portfolio investments that were retained from this product line continue to be
impacted by declining trends in the industry. These securities had previously
been marked-to-market through other comprehensive income ("OCI"), a separate
component of shareholders' equity; as a result, this change did not have a
material effect on total shareholders' equity.
10
13
Net Interest Income: Net interest income was $43.1 million for the three
months ended March 31, 2001, compared to $43.3 million for the three months
ended March 31, 2000. The net interest margin was 2.95% in the first quarter of
2001, compared with 4.37% in the first quarter of 2000; the net spread decreased
to 2.50% from 3.21% quarter over quarter. The net interest spread is the
difference between the weighted average yield on interest-earning assets and the
weighted average cost of interest-bearing liabilities. The net interest margin
measures net interest income as a percentage of average interest-earning assets.
The decrease in net interest spread was primarily due to three factors. First,
mortgage rates decreased, on average, over a hundred basis points year over
year. This was partially offset by a decrease in the average cost of funds of 19
basis points. While the indices to which the Company's borrowings are tied
decreased, on average, approximately 50 basis points the Company's overall
borrowing rate did not decrease in proportion to the decrease in indices due to
its change in mix. A portion of the Company's borrowings are effectively fixed
rate borrowings to better match the Company's investment in fixed rate
interest-earning assets. Lastly, the Company's investment in higher grade
assets, consisting of AAA rated agency and non-agency securities, increased
$765.7 million year over year, resulting in a higher mix, in 2001, of lower
yielding assets compared to 2000. These securities earn a lower weighted average
yield (7.3% and 7.8% during the quarters ended March 31, 2001 and 2000,
respectively) than other securities. The Company's investment in these
securities is in line with its strategy to increase leverage through asset
growth.
The decrease in net interest margin was associated with the decrease in
spread and the Company's strategy to increase leverage through growth and share
repurchases.
The following table sets forth information regarding the Company's
consolidated average balance sheets, together with the total amounts of interest
income and interest expense and the weighted average interest rates for the
periods presented. Average balances are calculated on a daily basis. Non-accrual
loans are included in the average balances for the periods indicated. The
allowance for loan losses is excluded from the average loan balances. The
average loan balances for the three months ended March 31, 2000 have been
restated to conform to the presentation for the three months ended March 31,
2001.
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
2001 2000
------------------------------- -------------------------------
AVERAGE YIELD AVERAGE YIELD
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ----- ---------- -------- -----
(DOLLARS IN THOUSANDS)
Investment securities............................... $ 14,586 $ 248 6.91% $ -- $ -- 0.00%
Mortgage-backed securities.......................... 1,337,919 31,311 9.49% 717,942 18,270 10.24%
Mortgage loans held for sale........................ 1,839,363 37,928 8.36% 819,343 19,022 9.34%
Mortgage loans held for investment.................. 2,649,492 60,921 9.33% 2,446,531 61,191 10.06%
Investment in Federal Home Loan Bank stock and
other............................................. 84,878 1,552 7.41% 9,521 150 6.34%
---------- -------- ---------- -------
Total interest-earning assets............... 5,926,238 131,960 9.03% 3,993,337 98,633 9.93%
Other............................................... 443,624 247,572
---------- ----------
Total assets................................ $6,369,862 $4,240,909
========== ==========
Deposits............................................ $ 939,560 14,474 6.25% $ -- -- 0.00%
Advances from Federal Home Loan Bank................ 1,448,424 22,416 6.28% -- -- 0.00%
Borrowings.......................................... 3,135,908 52,013 6.73% 3,309,172 55,284 6.72%
---------- -------- ---------- -------
Total interest-bearing liabilities.......... 5,523,892 88,903 6.53% 3,309,172 55,284 6.72%
Other............................................... 106,623 74,159
---------- ----------
Total liabilities........................... 5,630,515 3,383,331
Shareholders' equity........................ 739,347 857,578
---------- ----------
Total liabilities and shareholders'
equity.................................... $6,369,862 $4,240,909
========== ==========
Net interest spread................................. 2.50% 3.21%
==== =====
Net interest margin................................. 2.95% 4.37%
==== =====
The dollar amounts of interest income and interest expense fluctuate
depending upon changes in the average balances (volume) and interest rates of
interest-earning assets and interest-bearing liabilities. The following table
details changes attributable to (i) changes in volume (changes in average
outstanding balances multiplied by the prior period's rate) and (ii) changes in
the rate (changes in the average interest rate
11
14
multiplied by the prior period's volume). Changes in rate/volume (changes in
rates times the changes in volume) are allocated proportionately to the effect
from the changes in volume and the changes in rates.
THREE MONTHS ENDED MARCH 31,
2001 VS 2000
----------------------------------
INCREASE/(DECREASE) DUE TO
VOLUME RATE TOTAL CHANGE
------- ------- ------------
(DOLLARS IN THOUSANDS)
INTEREST INCOME
Investment securities.............................. $ 248 $ -- $ 248
Mortgage-backed securities......................... 14,239 (1,198) 13,041
Loans held for sale................................ 20,637 (1,731) 18,906
Loans held for investment.......................... (2,250) 1,980 (270)
Investment in Federal Home Loan Bank stock and
other............................................ 1,373 29 1,402
------- ------- -------
Total interest income.................... 34,247 (920) 33,327
INTEREST EXPENSE
Deposits........................................... 14,474 -- 14,474
Advances from Federal Home Loan Bank............... 22,416 -- 22,416
Borrowings......................................... (3,341) 70 (3,271)
------- ------- -------
Total interest expense................... 33,549 70 33,619
------- ------- -------
Net interest income...................... $ 698 $ (990) $ (292)
======= ======= =======
Provision for Loan Losses: The provision for loan losses was $9.0 million
for the three months ended March 31, 2001 compared to $4.3 million for the three
months ended March 31, 2000. The $4.7 million increase in the provision was
primarily related to the $165 million product line of high loan-to-value/debt
consolidation home improvement loans, which are primarily second trust deeds.
While secured by equity in single-family residences, these loans tend to perform
more like unsecured consumer lines of credit with little recourse to the secured
property. The portfolio has declined from $250 million at the time that the
Company discontinued this line of business; however, charge-offs in this
portfolio have been significant. Charge-offs in this portfolio totaled $5.2
million or 48% of total charge-offs during 2000. While expected to decline by
the end of the year, charge-offs in this product line have not yet shown
improvement. The Company determined that, to be prudent, it should bolster the
reserves associated with this portfolio. The Company believes that with the
additional provision, the Company's allowance for loan losses was adequate at
March 31, 2001.
Other Income: Other income consisted of the following:
THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Gain on sale of loans.................................... $49,199 $18,570
Service fee income....................................... 9,643 8,236
Gain (loss) on mortgage-backed securities, net........... (2,487) 963
Fee and other income..................................... 12,766 6,743
------- -------
Total other income............................. $69,121 $34,512
======= =======
The gain on sale of loans was $49.2 million for the three months ended
March 31, 2001, up from $18.6 million for the same period in 2000. The 164.9%
increase was due to an increase in the principal sold to $2.6 billion in the
first quarter of 2001 from $1.3 billion in the first quarter of 2000, as well as
a 42 basis point increase in profit margin to 1.9% in the first quarter of 2001.
Service fee income totaled $9.6 million for the three months ended March
31, 2001, compared to $8.2 million for the same period in 2000. The increase in
service fee income was primarily attributable to an increase in the average
balance of the capitalized mortgage servicing rights to $218.2 million in the
first quarter of 2001 from $150.8 million in the first quarter of 2000. This
increase in the average balance was
12
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primarily due to the capitalization of servicing rights as a result of the
Company's loan sales to government-sponsored entities, whole loan sales, and
securitizations during the year.
The Company recorded a net loss on sale of mortgage-backed securities of
$2.5 million for the three months ended March 31, 2001, compared to a net gain
of $963 thousand for the same period in 2000. The loss in 2001 was primarily the
result of a $3.2 million impairment charge on subordinated securities in 2001
recorded in accordance with EITF 99-20.
Fee income increased to $12.8 million for the three months ended March 31,
2001 from $6.7 million for the same period in 2000. The 89.3% increase was
primarily due to an increase in mortgage production volume.
Total Expense: Total expense consisted of the following:
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Salaries and related..................................... $36,749 $22,496
Premises and equipment................................... 4,743 3,402
Data processing.......................................... 4,496 2,019
Office................................................... 2,890 1,608
Advertising and promotion................................ 2,697 1,822
Professional services.................................... 2,555 1,189
Loan purchase costs...................................... 2,372 1,594
Foreclosure related activities........................... 1,154 1,004
Amortization of goodwill and other intangible assets..... 960 14
Non-recurring and other charges.......................... (300) 10,223
Other.................................................... 1,709 854
------- -------
Total expenses................................. $60,025 $46,225
======= =======
The increase in salaries and related and general and administrative
expenses is due to the Company's overall growth, including the acquisitions of
SGVB in July of 2000 and PNB Mortgage in September of 2000, and the expansion of
mortgage banking operations to Sacramento, California.
During the three months ended March 31, 2001, amortization of goodwill and
intangibles was $1.0 million, up from $14 thousand for the same period in 2000.
The increase in amortization primarily resulted from the recording of goodwill
and core deposit intangible assets totaling $37.8 million on July 1, 2000 in
conjunction with the Company's acquisition of SGVB, which was accounted for
using the purchase method.
Non-recurring and other charges totaled $(300) thousand for the three
months ended March 31, 2001, compared to $10.2 million for the same period in
2000. The gain incurred in the first quarter of 2001 was due to variable plan
accounting for director stock options repriced subsequent to December 15, 1998.
The costs incurred in the first quarter of 2000 consisted primarily of $9.4
million in compensation expense related to the resignation of the former Vice
Chairman and President.
Income Taxes: Income taxes of $17.9 million for the three months ended
March 31, 2001 represented an effective tax rate of 41.55%. For the three months
ended March 31, 2000, the Company recorded a net tax benefit of $24.6 million,
which consisted of $11.5 million in income tax expense offset by a one-time tax
benefit of $36.1 million due to IndyMac's conversion from a REIT to a fully
taxable entity, effective January of 2000. Excluding this tax benefit, the
Company's effective tax rate for the three months ended March 31, 2000 would
have been approximately 42%.
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FINANCIAL CONDITION
Investment and Mortgage-Backed Securities: At March 31, 2001 and December
31, 2000, the carrying value of the Company's investment and mortgage-backed
securities portfolio totaled $1.5 billion and $1.2 billion, respectively. The
Company's AAA rated interest-only securities and AAA rated principal-only
securities were reclassified to trading securities from available for sale upon
adoption of SFAS 133 in January of 2001. All other securities are classified as
available for sale. The balances consisted of the following types of securities:
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
(DOLLARS IN THOUSANDS)
INVESTMENT SECURITIES:
Agency notes.............................................. $ 2,935 $ 10,829
Corporate notes and other................................. 4,276 7,558
---------- ----------
Total investment securities....................... 7,211 18,387
---------- ----------
MORTGAGE-BACKED SECURITIES:
AAA rated interest-only securities........................ 244,099 258,241
AAA rated agency securities............................... 225,857 261,225
AAA rated non-agency securities........................... 839,904 484,138
Other investment grade securities......................... 83,761 69,483
---------- ----------
Total investment grade mortgage-backed
securities...................................... 1,393,621 1,073,087
---------- ----------
Non-investment grade residual securities.................. 63,536 41,672
Other non-investment grade securities..................... 20,695 21,157
---------- ----------
Total non-investment grade mortgage-backed
securities...................................... 84,231 62,829
---------- ----------
Total mortgage-backed securities.................. 1,477,852 1,135,916
---------- ----------
Total investment and mortgage-backed securities... $1,485,063 $1,154,303
========== ==========
The Company evaluates the carrying value of its AAA rated interest-only
securities and its residual securities monthly by discounting estimated net
future cash flows. On these securities, estimated net future cash flows are
primarily based on assumptions related to prepayment speeds, in addition to
expected credit loss assumptions on the residual securities. Adjustments to the
carrying value of residual securities are recorded as a component of OCI in
shareholders' equity. Adjustments to the carrying value of AAA rated
interest-only securities were recorded as a component of OCI during 2000, and
gain (loss) on mortgage-backed securities through the statement of earnings
beginning January of 2001. The increase in the residual securities during the
quarter ended March 31, 2001 was due in part to the purchase of $11.4 million in
residual securities from third parties.
14
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The assumptions used to value these securities at March 31, 2001 and
December 31, 2000 follow:
ACTUAL VALUATION ASSUMPTIONS
----------------------------------------------------------------- ---------------------------------
3-MONTH WTD. REMAINING
BOOK COLLATERAL GROSS INTEREST PREPAYMENT AVG. PREPAYMENT DISCOUNT CUM. LOSS
VALUE BALANCE WAC STRIP SPEEDS(1) MULTIPLE SPEEDS YIELD RATE(2)
-------- ----------- ----- -------- ---------- -------- ---------- -------- ---------
(DOLLARS IN THOUSANDS)
MARCH 31, 2001
AAA rated interest-only
securities.............. $244,099 $10,587,800 8.28% 0.85% 14.2% 2.71 18.5% 12.3% NA
======== ===========
Residual securities
Prime................... $ 5,719 $ 230,758 8.33% 1.27% 20.9% 1.95 23.2% 18.2% 0.4%
Subprime................ 57,109 1,845,349 10.44% 2.55% 19.4% 1.21 32.1% 21.7% 1.9%
Manufactured housing.... 708 341,033 10.25% 2.31% 81 MHP 0.09 103 MHP 25.0% 8.2%
-------- ----------- ----- ---- ---- ---- --
Total residual
securities.............. $ 63,536 $ 2,417,140 10.21% 2.39% 1.10 21.8% 2.5%
======== ===========
DECEMBER 31, 2000
AAA rated interest-only
securities.............. $258,241 $11,089,253 8.27% 0.85% 12.6% 2.74 18.9% 12.9% NA
======== ===========
Residual securities
Prime................... $ 5,254 $ 245,556 8.35% 1.30% 17.3% 1.65 23.2% 20.0% 0.5%
Subprime................ 35,150 1,288,255 10.32% 1.97% 18.0% 1.39 29.3% 20.6% 1.7%
Manufactured housing.... 1,268 353,714 10.23% 2.32% 85 MHP 0.15 105 MHP 25.0% 7.5%
-------- ----------- ----- ---- ---- ---- --
Total residual
securities.............. $ 41,672 $ 1,887,525 10.05% 1.95% 1.13 21.4% 2.4%
======== ===========
- ---------------
(1) CPR, unless otherwise noted.
(2) Actual cumulative loss rate totaled 0.4%, 0.5%, and 5.3% for prime,
subprime, and manufactured housing residuals, respectively, as of March 31,
2001.
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18
Fair value for the Company's other investment and non-investment grade
mortgage-backed securities is estimated based on market quotes when available or
discounted cash flow techniques using assumptions for prepayment rates, market
yield requirements and credit losses. Adjustments to the carrying value are
recorded as a component of OCI in shareholders' equity except for the Company's
AAA rated principal-only securities, which are recorded as a component of gain
(loss) on mortgage-backed securities through the statement of earnings beginning
January of 2001. The detail of other investment and non-investment grade
securities by credit rating as of March 31, 2001 and December 31, 2000 follows:
PREMIUM
CURRENT (DISCOUNT)
FACE TO FACE AMORTIZED BOOK
VALUE VALUE COST VALUE
-------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
MARCH 31, 2001
AAA rated principal-only securities............ $ 6,911 $ (1,215) $ 5,696 $ 5,134
AA............................................. 21,523 (142) 21,381 21,743
A+............................................. 135 6 141 141
A.............................................. 12,398 (411) 11,987 12,048
A-............................................. 164 (9) 155 156
BBB............................................ 43,558 (2,317) 41,241 41,449
BBB-........................................... 3,306 (264) 3,042 3,090
-------- -------- -------- --------
Total other investment grade
mortgage-backed securities......... 87,995 (4,352) 83,643 83,761
-------- -------- -------- --------
BB+............................................ 150 (41) 109 109
BB............................................. 10,087 (4,020) 6,067 6,080
B.............................................. 7,489 (4,958) 2,531 2,532
B-............................................. 10,328 (6,088) 4,240 4,301
CCC............................................ 13,292 (8,208) 5,084 5,289
NR............................................. 7,590 (6,255) 1,335 2,384
-------- -------- -------- --------
Total other non-investment grade
mortgage-backed securities......... 48,936 (29,570) 19,366 20,695
-------- -------- -------- --------
Total other investment and
non-investment grade
mortgage-backed securities......... $136,931 $(33,922) $103,009 $104,456
======== ======== ======== ========
DECEMBER 31, 2000
AAA rated principal-only securities............ $ 7,056 $ (1,271) $ 5,785 $ 5,033
AA............................................. 8,762 81 8,843 9,023
A.............................................. 12,732 (388) 12,344 12,300
BBB............................................ 46,218 (3,358) 42,860 43,127
-------- -------- -------- --------
Total other investment grade
mortgage-backed securities......... 74,768 (4,936) 69,832 69,483
-------- -------- -------- --------
BB............................................. 17,665 (4,588) 13,077 10,561
B.............................................. 17,928 (2,277) 15,651 9,350
NR............................................. 6,324 (5,749) 575 1,246
-------- -------- -------- --------
Total other non-investment grade
mortgage-backed securities......... 41,917 (12,614) 29,303 21,157
-------- -------- -------- --------
Total other investment and
non-investment grade
mortgage-backed securities......... $116,685 $(17,550) $ 99,135 $ 90,640
======== ======== ======== ========
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DISCONTINUED PRODUCT LINES
The following table summarizes the remaining manufactured housing and home
improvement securities for the Company, including the assumptions used in
determining the fair value on the manufactured housing securities.
ACTUAL VALUATION ASSUMPTIONS
------------------------------------ ---------------------------------------------
CUM. MHP REMAINING TOTAL
BOOK 3-MONTH LOSS PREPAYMENT DISCOUNT CUM. LOSS CUM. LOSS
COLLATERAL VALUE MHP RATE SPEEDS YIELD RATE RATE
---------- ------ ------- ---- ---------- -------- --------- ---------
Manufactured Housing
Securities:
Non-investment grade
securities
1997-1 B2................ $ 86,795 $2,098 88 6.6% 105 16.3% 8.5% 15.1%
1998-1 B2................ 98,794 3,191 60 5.6% 97 16.3% 9.1% 14.7%
1998-2 B2................ 155,444 4,301 90 4.1% 105 16.3% 7.4% 11.6%
-------- ------ --- --- ----
$341,033 $9,590 5.3% 8.2% 13.4%
======== ======
Residual securities
MHD 1997-1............... $ 86,795 $ -- 88 6.6% 105 25.0% 8.5% 15.1%
MHD 1998-1............... 98,794 -- 60 5.6% 97 25.0% 9.1% 14.7%
MHD 1998-2............... 155,444 708 90 4.1% 105 25.0% 7.4% 11.6%
-------- ------ --- --- ----
$341,033 $ 708 5.3% 8.2% 13.4%
======== ======
Loans Receivable: Total loans (exclusive of the allowance for loan losses)
increased to $4.5 billion at March 31, 2001 from $4.0 billion at December 31,
2000. The increase in loans receivable corresponds with the Company's overall
growth strategy through a gain in market share in its mortgage banking
operations, customer expansion in its B2B channel, and expansion into the B2C
and B2R channels.
Non-Accrual Loans: Loans are generally placed on non-accrual status when
they are 90 days past due. Non-performing assets, which include non-accrual
loans and foreclosed assets, were $126.8 million or 1.9% of total assets at
March 31, 2001 compared to $113.9 million or 2.0% of total assets at December
31, 2000. The Company's foreclosed assets (properties acquired in foreclosure or
by deed in lieu of foreclosure) balance, which are recorded at estimated net
realizable value, totaled $14.2 million and $16.3 million at March 31, 2001 and
December 31, 2000, respectively. The Company recognized a total of $350 thousand
in net gains on sale of foreclosed assets during the three months ended March
31, 2001. Included in the Company's foreclosed assets as of March 31, 2001 and
December 31, 2000 were two properties originally acquired by the borrower from
Loeb Enterprises, LLC, an affiliate of the Company's Chairman, Mr. Loeb. The
loan balances prior to the foreclosure totaled $3.9 million. During April of
2001, these properties were sold. The Company recouped all the principle and
$322 thousand of the $430 thousand accrued interest that was previously written
off.
A summary of the Company's non-performing assets follows:
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(DOLLARS IN THOUSANDS)
Loans held for sale......................................... $ 15,291 $ 13,235
Loans held for investment
Mortgage loans............................................ 54,391 45,044
Residential construction.................................. 37,560 32,826
Revolving warehouse lines of credit....................... 5,293 6,509
-------- --------
Total non-performing loans........................ 112,535 97,614
Foreclosed assets........................................... 14,230 16,265
-------- --------
Total non-performing assets....................... $126,765 $113,879
======== ========
The average recorded investment in non-performing loans during the three
months ended March 31, 2001 was approximately $109.0 million. Non-performing
loans as a percentage of total loans remained relatively flat at March 31, 2001
and December 31, 2000, totaling 2.5% and 2.4%, respectively.
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Allowance for Loan Losses: An allowance is maintained to absorb losses
inherent in the loan portfolio. The adequacy of the allowance is periodically
evaluated by management to ensure the allowance is maintained at a level that is
sufficient to absorb expected loan losses. The allowance for loan losses is
increased by provisions for loan losses, and is decreased by charge-offs (net of
recoveries). The Company charges current earnings with a provision for estimated
credit losses on loans receivable. The provision considers both specifically
identified problem loans as well as credit risks not specifically identified in
the loan portfolio. The adequacy of the allowance is based on past loan loss
experience, known and inherent risks in the loan portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of
underlying collateral and economic conditions.
The following table sets forth the allocation of the Company's allowance
for loan losses and the percentage of allowance in each loan category to total
loans at the dates indicated:
MARCH 31, 2001 DECEMBER 31, 2000
--------------------- ---------------------
% OF TOTAL % OF TOTAL
BALANCE LOANS BALANCE LOANS
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
Residential construction.................. $26,605 0.59% $26,329 0.65%
Prime and subprime loans.................. 15,221 0.34% 17,021 0.42%
Home improvement.......................... 14,050 0.31% 5,539 0.14%
Manufactured housing...................... 7,625 0.17% 7,762 0.19%
Revolving warehouse lines of credit....... 1,612 0.04% 2,311 0.06%
------- ---- ------- ----
Total allowance for loan
losses........................ $65,113 1.45% $58,962 1.46%
======= ==== ======= ====
The following table summarizes the activity in the allowance for loan
losses for the periods indicated:
THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Balance, beginning of period............................. $58,962 $53,880
Provision for loan losses................................ 9,000 4,316
Charge-offs, net of recoveries........................... (2,849) (2,989)
------- -------
Balance, end of period................................... $65,113 $55,207
======= =======
Actual loss experience, as measured by net charge-offs, decreased to $2.8
million during the three months ended March 31, 2001 from $3.0 million for the
same period in 2000. Net charge-offs as a percentage of average loans were 0.06%
for the first quarter of 2001 compared to 0.10% for the first quarter of 2000.
Mortgage Servicing Rights: The Company's mortgage servicing rights balance
totaled $231.9 million at March 31, 2001, an increase of 10% from $211.1 million
at December 31, 2000. The increase in the mortgage servicing rights balance was
primarily due to mortgage servicing rights retained totaling $45.7 million
resulting
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from securitizations and sales to GSEs during the three months ended March 31,
2001. The assumptions used to value mortgage servicing rights at March 31, 2001
and December 31, 2000 follow:
ACTUAL
----------------------------------------------------- VALUATION ASSUMPTIONS
WTD. ---------------------
BOOK COLLATERAL GROSS SERVICING AVG. PREPAYMENT DISCOUNT
VALUE BALANCE WAC FEE MULTIPLE SPEEDS(1) YIELD
-------- ----------- ----- --------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
MARCH 31, 2001
Master Servicing(2)........... $ 48,016 $13,352,216 8.46% 0.10% 3.60 18.5% 18.3%
===========
Primary Servicing............. 183,883 $14,439,197 8.81% 0.44% 2.89 21.5% 14.2%
-------- ===========
Total mortgage
servicing
rights............ $231,899
========
DECEMBER 31, 2000
Master Servicing(2)........... $ 51,691 $14,118,761 8.47% 0.10% 3.60 18.4% 20.4%
===========
Primary Servicing............. 159,436 $12,759,143 8.80% 0.41% 3.05 20.3% 13.5%
-------- ===========
Total mortgage
servicing
rights............ $211,127
========
- ---------------
(1) CPR, unless otherwise noted.
(2) Included in the master servicing portfolio are loans included in the primary
servicing portfolio with an unpaid principal balance of $7.9 billion and
$8.0 billion at March 31, 2001 and December 31, 2000, respectively.
Other Assets: Other assets at March 31, 2001 totaled $275.7 million,
compared to $155.5 million at December 31, 2000. The $120.2 million increase was
primarily due to a receivable totaling $91.8 million for loans traded in March
of 2001 and settled in April of 2001. The remaining $28.4 million increase was
primarily due to an increase in the fair market value of the Company's hedging
positions.
Deposits: Deposits totaled $1.2 billion at March 31, 2001, compared to
$797.9 million at December 31, 2000. The increase in deposits was primarily
attributable to the Company's continued marketing efforts during the first
quarter. The composition of the Company's deposits and the deposit rate at March
31, 2001 and December 31, 2000 was as follows:
MARCH 31, 2001 DECEMBER 31, 2000
------------------- -----------------
AMOUNT RATE AMOUNT RATE
---------- ----- -------- -----
(DOLLARS IN THOUSANDS)
Noninterest-bearing checking............... $ 19,636 0.00% $ 16,324 0.00%
Interest-bearing checking.................. 25,960 1.93% 23,588 1.94%
Savings.................................... 152,196 4.91% 99,980 5.02%
---------- --------
Total core deposits.............. 197,792 4.03% 139,892 3.91%
Certificates of deposit.................... 987,977 6.23% 658,043 6.65%
---------- --------
Total deposits................... $1,185,769 5.86% $797,935 6.17%
========== ========
The weighted average remaining maturity of the Company's certificates of
deposit at March 31, 2001 was 7 months.
Advances from Federal Home Loan Bank: Advances from Federal Home Loan Bank
of San Francisco ("FHLB") totaled $1.6 billion at March 31, 2001, compared to
$1.3 billion at December 31, 2000. The increase in advances from FHLB was
primarily due to the Company's strategy to diversify its borrowing facilities
into lower-cost liabilities. The average cost of funds on the Company's advances
from FHLB was 6.28% during the three months ended March 31, 2001, compared to
6.73% on the Company's other primary borrowing facilities.
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Borrowings: The Company's borrowings totaled $3.0 billion at March 31,
2001, compared to $2.9 billion at December 31, 2000. Although the Company's
assets increased $886.3 million, or 15.4%, borrowings only increased $111.4
million, or 3.9%. This is due to the Company's strategy to continue to diversify
its borrowing facilities into lower-cost sources of funds such as deposits and
advances from the FHLB.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the financing of its mortgage
loan inventory and its investment in mortgage loans and mortgage-backed
securities. The Company's primary sources of funds used to meet these financing
needs include cash flow from operations, committed borrowings, advances from the
FHLB, deposits, structured financing, and unsecured debt.
At March 31, 2001, the Company had liquidity approximating $805.9 million,
with a leverage ratio (debt to equity) of 7.8 to 1. Liquidity is defined as cash
on hand and borrowing availability under committed lines of credit on assets
certified as eligible by the Company's collateral custodian. The Company
believes that its liquidity levels and borrowing capacity are sufficient to meet
its current operating requirements. As of March 31, 2001, the Company's
committed financing totaled $5.8 billion, with outstanding balances of $4.6
billion. Included in the committed financing balance is $1.9 billion in approved
FHLB credit, of which $1.6 billion was outstanding at March 31, 2001.
The Company's consumer bank, IndyMac Bank, F.S.B. ("IndyMac Bank") accepts
deposits from the general public and offers consumer loans and residential and
commercial real estate loans through the Company's mortgage banking and
commercial lending divisions. In addition to deposits obtained in California
through IndyMac Bank(SM)'s existing branch network and a centralized telebanking
operation, the Company markets deposits nationally through the Internet. The
Company reported $1.2 billion in deposits at March 31, 2001 compared to $797.9
million at December 31, 2000. At March 31, 2001, core deposits (defined as non-
term deposits, such as checking and non-term savings accounts) represented 17%
of total deposits, while certificates of deposit represented 83% of total
deposits.
As presented in the consolidated statements of cash flows, the sources of
liquidity vary between periods. The statements of cash flows include operating,
investing, and financing categories. Net cash used in operating activities
totaled $584.6 million and $149.8 million for the three months ended March 31,
2001 and 2000, respectively. Amounts fluctuated from period to period primarily
as a result of mortgage banking activity; purchases and originations of mortgage
loans held for sale exceeded the subsequent sale of such loans. Net cash used in
investing activities totaled $289.4 million and $121.2 million for the three
months ended March 31, 2001 and 2000, respectively. Fluctuations from period to
period are primarily due to changes in the amounts of securities purchased and
fluctuations in the balance of mortgage loans acquired for the Company's
investment portfolio. Net cash provided from financing activities totaled $841.9
million and $276.7 million for the three months ended March 31, 2001 and 2000,
respectively. Net cash provided from financing activities increased during 2001
compared to 2000 due to the Company's strategy to increase leverage.
The Company's ability to meet its long-term liquidity requirements is
subject to the renewal of its repurchase and credit facilities and/or obtaining
other sources of financing, including access to federally insured customer
deposits and advances from the FHLB, and issuing additional debt or equity from
time to time. Decisions by the Company's lenders and investors to make
additional funds available to the Company in the future will depend upon a
number of factors. These include the Company's compliance with the terms of its
existing credit arrangements, the Company's financial performance, industry and
market trends in the Company's various businesses, the general availability of,
and rates applicable to, financing and investments, such lenders' and/or
investors' own resources and policies concerning loans and investments, and the
relative attractiveness of alternative investment or lending opportunities.
During the first quarter of 2001, the Company continued to repurchase
shares of its outstanding common stock in accordance with the share repurchase
program. During the three months ended March 31, 2001, the Company repurchased
523 thousand shares in open market transactions at an average price of
approximately $25.62 per share, for a total of $13.4 million. In May of 2001,
the Company's Board of Directors approved an
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additional $100 million for the share repurchase plan, for a grand total of $400
million since inception of the program.
OTS capital regulations require savings associations to satisfy three
minimum capital ratio requirements: tangible capital, Tier 1 core (leverage)
capital, and risk-based capital. In general, an association's tangible capital,
which must be at least 1.5% of adjusted total assets, is the sum of common
shareholders' equity adjusted for the effects of OCI, less goodwill and other
disallowed assets. An association's ratio of Tier 1 core capital to adjusted
total assets (the "core capital" or "leverage" ratio) must be at least 3% for
the most highly rated associations and 4% for others. Tier 1 core capital
generally is the sum of tangible capital less certain intangible assets,
servicing assets, and investments. Under the risk-based capital requirement, a
savings association must have total capital (core capital plus supplementary
capital) equal to at least 8% of risk-weighted assets. Supplementary capital
mainly consists of qualifying subordinate debt and allowance for loan losses.
The capital requirements are viewed as minimum standards by the OTS. The
OTS regulations also specify minimum requirements to be considered a
"well-capitalized institution." Most associations are expected to maintain the
above-mentioned capital levels well above the minimum. Additionally, to qualify
as a "well-capitalized institution" a savings association's Tier 1 risk-based
capital (core capital plus supplementary capital less allowance for loan losses)
must be equal to at least 6% of risk-weighted assets. As a result of the
acquisition of SGVB in July of 2000, IndyMac Bank was mandated by the OTS to
hold Tier 1 core capital at 8% for three years following the consummation of the
transaction and to maintain a well-capitalized risk based capital position. In
addition, IndyMac Bank must double the risk weighting assigned to subprime
loans. The regulatory capital ratios of IndyMac Bank and the minimum regulatory
requirements to be categorized as well-capitalized under OTS regulations were as
follows:
MARCH 31, 2001
----------------------------------------------
AS DOUBLE RISK- WELL-CAPITALIZED
REPORTED WEIGHTED MINIMUM
-------- -------------- ----------------
Capital Ratios:
Tangible................................... 8.34% 8.34% 2.00%
Tier 1 core................................ 8.34% 8.34% 5.00%
Tier 1 risk-based.......................... 11.55% 11.39% 6.00%
Risk-based................................. 12.80% 12.64% 10.00%
At March 31, 2001, the Company had $166.1 million of capital in excess of
that required to be held by IndyMac Bank under the core capital ratio
calculation, which excess capital is largely held at the holding company.
In February of 2001 the OTS issued guidance for subprime lending programs
which requires a subprime lender to quantify the additional risks in its
subprime lending activities and determine the appropriate amounts of allowances
for loan and lease losses and capital it needs to offset those risks. The OTS
guidance suggests that subprime portfolios be supported by capital equal to one
and one-half to three times greater than what is appropriate for prime assets of
a similar type. As noted above, IndyMac Bank currently complies with a specific
mandate to double the risk-weighting otherwise assigned to subprime loans for
risk-based capital purposes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Due to the characteristics of its financial assets and liabilities, and the
nature of its business activities, the Company's financial position and results
of operations may be materially affected by changes in interest rates in various
ways. With respect to its financial assets and liabilities, the Company has
devised and implemented a general asset/liability investment management strategy
that seeks, on an economic basis, to mitigate significant fluctuations in the
financial position and results of operations of the Company likely to be caused
by changes in market interest rates. This strategy attempts, among other things,
to balance investments in various types of financial instruments whose values
could be expected to move inversely to each other in response to the movement in
market interest rates. The Company invests in servicing and servicing related
assets to hedge
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potential decreases in production volumes and gain on sale of loans due to
increases in interest rates. The Company also hedges its servicing and servicing
related assets to mitigate losses resulting from increased prepayments in a
declining interest rate environment. However, there can be no assurance that
this strategy (including assumptions concerning the correlation thought to exist
between different types of instruments) or its implementation will be successful
in any particular interest rate environment. In addition, cash flow
considerations may require the Company to utilize different strategies with
respect to hedging certain assets and/or production pipelines, including
utilizing options as opposed to futures contracts and principal-only mortgage
securities.
The Company is also subject to certain business and credit risks in
connection with interest rate changes. Increases in interest rates may
discourage potential mortgagors from borrowing or refinancing mortgage loans,
thus decreasing the volume of loans available to be purchased through the
Company's B2B operations, originated through B2C or B2R, or financed through the
Company's construction lending operations. Additionally, with respect to
adjustable rate loans, the rate of delinquency may increase in periods of
increasing interest rates as borrowers face higher adjusted mortgage payments.
The Company's liquidity position and net interest income could also be adversely
affected by significant interest rate fluctuations. Each of the Company's
collateralized borrowing facilities noted above in "Liquidity and Capital
Resources" permits the lender or lenders thereunder to require the Company to
repay amounts outstanding and/or pledge additional assets in the event that the
value of the pledged collateral declines due to changes in market interest
rates. In addition, increases in short-term borrowing rates relative to rates
earned on asset holdings that have not been financed to maturity through the
issuance of CMOs or other debt securities may also adversely affect the
Company's "spread income" on such assets and thus reduce the Company's earnings.
To hedge changes in the value of its AAA rated interest-only securities
portfolio and mortgage servicing rights, the Company generally chooses among
various strategies, consisting of either buying mortgage-backed or U.S.
Treasury-based securities, futures, floors, swaps, or options, depending on
various factors. The Company uses hedging instruments to reduce its exposure to
interest rate risk, not to speculate on the direction of market interest rates.
The Company has managed its interest rate risk during the three months ended
March 31, 2001 as described herein. As part of its interest rate risk management
process, the Company performs various interest rate calculations that quantify
the financial impact of changes in interest rates on its interest-earning
assets, commitments and hedges. As of March 31, 2001, the Company estimates that
a parallel downward shift in the U.S. Treasury bond rate of 100 basis points, or
1.00%, all else being constant, would result in an increase in after tax income
for the Company of $21.7 million. The after tax gain on available for sale
mortgage securities, recorded as a component of OCI, would be $7.0 million. The
combined result would be an increase to comprehensive income of $28.7 million.
The Company estimates that a parallel upward shift in U.S. Treasury bond rates
and short-term indices of 100 basis points, or 1.00%, all else being constant,
would result in an increase to after tax income for the Company of $3.3 million.
The after tax loss on available for sale mortgage securities, recorded as a
component of OCI, would be $13.9 million. The combined result would be a
reduction to comprehensive income of $10.6 million.
As of December 31, 2000, the Company estimated that a parallel downward
shift in the U.S. Treasury bond rate of 100 basis points, or 1.00%, all else
being constant, would result in a combined after tax gain to total comprehensive
income of $5.0 million. The Company's estimate of a parallel upward shift in the
U.S. Treasury bond rate of 100 basis points, or 1.00%, all else being constant,
was an $8.5 million after tax loss to total comprehensive income as of December
31, 2000. The change in the Company's profile at March 31, 2001 compared to
December 31, 2000 was partially due to the reclassification of the Company's AAA
rated interest-only and principal-only securities from available for sale to
trading in January of 2001, so changes in fair market value are now recorded as
a component of earnings rather than OCI. In addition, the Company purchased more
floors during the first quarter of 2001 in response to the change in the
interest rate environment during the period.
The assumptions inherent in the Company's model are based on March 31, 2001
asset classifications and include valuation changes in an instantaneous rate
shock and include assumptions as to a degree of correlation between the hedges
and hedged assets and as a result are subject to basis risk (i.e., the
spread-widening or spread-tightening risk among the change in rates on U.S.
Treasury bonds, swaps and/or mortgage-backed securities). Changes in OCI do not
reflect fair value changes in liabilities. As a result, the impact on OCI
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reported above tends to overstate gains and losses in decreasing and increasing
rate environments, respectively. In addition, the sensitivity analyses described
in the prior two paragraphs are limited by the fact that they are performed at a
particular point in time and do not incorporate other factors that would impact
the Company's financial performance in such a scenario, such as increases in
income associated with the increase in production volume that could result from
the decrease in interest rates. Consequently, the preceding estimates should not
be viewed as a forecast and there can be no assurance that actual results would
not vary significantly from the analysis discussed above.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q may be deemed to be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include the Company's statements regarding liquidity,
provisions for loan losses, capital resources, and anticipated future earnings
and expense levels and other anticipated aspects of future operations.
Forward-looking statements typically include the words "anticipate," "believe,"
"estimate," "expect," "project," "plan," "forecast," "intend," and other similar
expressions. These statements reflect the Company's current views with respect
to future events and financial performance. They are subject to risks and
uncertainties, including those identified below, which could cause future
results to differ materially from historical results or from the results
anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates or as of the date
hereof if no other date is identified. The Company undertakes no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
The following factors could cause future results to differ materially from
historical results or those anticipated in any forward-looking statements
herein:
(1) the level of demand for consumer loans, mortgage loans and
construction loans, which can be affected by such external factors as (a)
the level of interest rates, (b) tax laws, (c) the strength of various
segments of the economy (including the strength of the stock market), and
(d) demographics of the Company's lending markets;
(2) the direction of interest rates and the relationship between
interest rates and the Company's assets, liabilities, and hedging
strategies;
(3) the accuracy of the Company's estimates used in determining the
fair value of certain assets such as AAA rated interest only securities,
mortgage servicing rights, non-investment grade securities, and residual
securities;
(4) the rate of loan losses incurred by the Company, the level of loss
reserves maintained by the Company, and Company management's judgments
regarding the collectibility of loans;
(5) liquidity requirements of the Company, which may change as a
result of fluctuations in assets and liabilities and off-balance sheet
exposures of the Company;
(6) the implementation of recently issued Financial Accounting
Standards Board pronouncements (SFAS 133, SFAS 137 and SFAS 138) may cause
increased volatility in the Company's earnings reported in accordance with
accounting principles generally accepted in the United States of America;
(7) federal and state regulation of the Company's consumer lending and
banking operations -- the Company is a newly regulated federal savings
bank; its first comprehensive safety and soundness exam by the Office of
Thrift Supervision began in April of 2001;
(8) actions undertaken by current and potential competitors of the
Company, many of which may have lower costs of funds or other competitive
advantages over the Company;
(9) the availability of funds from the Company's lenders and other
sources of financing that support the Company's lending activities;
(10) decisions by the Company to securitize, sell, or purchase certain
loans or securities;
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(11) the Company's management of the borrower, industry, product and
geographic concentrations represented in its loan portfolio;
(12) the degree of success of the Company in executing upon its growth
plans for its consumer and mortgage banking operations;
(13) economic downturns or natural disasters in the Company's
principal lending markets, including California, Florida, New Jersey and
New York;
(14) other risks and uncertainties detailed herein under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In addition, the banking industry in general is subject to various monetary
and fiscal policies and regulations, which include those determined by the
Federal Reserve Board, the FDIC and the OTS, which could affect the Company's
results. At the time of the filing of this Form 10-Q, there are, without
limitation, new rules and regulations concerning subprime lending and
institutional capital requirements that could impact the Company's operations or
financial results.
Also, the Company's operations are centered in the State of California and
are heavily dependent upon the steady supply of electrical power. Although the
Company has not experienced energy shortages to date, at the time of the filing
of this Form 10-Q there exists uncertainty as to the steady availability of
electrical power throughout the State of California in the foreseeable future.
Extended shortages of energy could have an adverse impact on the Company.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 IndyMac Bank, F.S.B. Deferred Compensation Plan.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 22, 2001. Items included:
Item 5. Other Events regarding the Dividend Reinvestment and Stock Purchase
Plan.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on May 14, 2001 for the three months ended March
31, 2001.
INDYMAC BANCORP, INC.
By: /s/ MICHAEL W. PERRY
------------------------------------
Michael W. Perry
Vice Chairman of the Board of
Directors and
Chief Executive Officer
By: /s/ CARMELLA L. GRAHN
------------------------------------
Carmella L. Grahn
Executive Vice President and
Chief Financial Officer
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