IndyMac Provides Update on 2006 Results
January 16 2007 - 6:00AM
Business Wire
The following is a letter to shareholders of Indymac and other
Indymac stakeholders from Michael W. Perry, Chairman and Chief
Executive Officer: Dear Shareholders and other Indymac
Stakeholders: Unfortunately, we are starting the year off with some
bad news. Based on the earnings forecast we provided after the end
of last quarter, we anticipated that our EPS for the fourth quarter
would be $1.35 (in a range of $1.30 to $1.40). However, last week,
as we began to complete our quarterly accounting "roll-up," it
became clear that our Q4 earnings would be substantially below our
forecast. While our internal quarterly accounting certification
process is not yet complete and adjustments could still be made as
we finalize our accounting, we now expect to report approximately
$0.97 EPS for the quarter when we release earnings as scheduled on
January 25th. This shortfall reflects the challenging times being
faced by the mortgage and housing industries and the difficult
nature of forecasting earnings in our business. I have stated many
times before that Indymac is not immune to deteriorating mortgage
industry conditions, and it is clear now that during the fourth
quarter industry conditions continued to erode. While we have not
yet completed our detailed analysis of all of the variances, our
assessment as of today is that the main differences between our
prior forecast of $1.35 and what looks to be our earnings of $0.97
are the following: 1. An increase in credit costs related to the
loan loss provision, secondary market reserve, and
marking-to-market delinquent loans held-for-sale and residuals and
non-investment grade securities; 2. A reduction in net interest
margin related to loans held-for-sale and the thrift investment
portfolio due to yield curve inversion and the fact that our loan
production mix shifted more toward fixed rate and intermediate term
fixed rate loans; 3. A decline of the servicing/interest-only
securities portfolio return on equity (ROE) from a high level of 30
percent last quarter to a more normalized level, in addition to a
forecasted sale of some securities (at a gain) that did not occur;
and 4. As an offset to the above shortfalls, a tax benefit,
reflecting the reduction of our annual effective tax rate from 39.5
percent to 39.1 percent. The effective rate declined as a result of
doing more business in lower tax-rate states than in California.
While I and the rest of Indymac's management team are clearly
disappointed with our shortfall from expectations, stepping back
from this situation ... if we do report EPS of $0.97 for the
quarter, this would represent a 14.6 percent ROE ... in a very
challenging market for housing and the mortgage business. This ROE
would still be significantly better than the average ROE reported
for the third quarter for the top ten thrifts, excluding Indymac,
of 10.3 percent, while at the same time many mortgage companies and
mortgage divisions of major financial institutions reported losses.
In addition, if we report $0.97 for the fourth quarter as now
anticipated, we would still earn an all-time record $4.82 for 2006,
representing a 19.1 percent ROE and a 9 percent increase from 2005
... in a year where industry volumes were down 17 percent, the
third year in a row of down industry volumes. In comparison, our
research indicates that a majority of the top ten thrifts will
report EPS declines for 2006, while only Indymac and a few others
will grow EPS for the year. Despite our solid performance in a
tough market, I understand that Indymac's reputation has been hurt
by this earnings miss, and I take full responsibility for this
situation. While our internal forecasting processes have been
generally predictive of actual earnings in the past and we have had
few earnings surprises prior to this quarter, as we have stated in
past press releases, in our industry - which has significant
operating leverage - actual earnings and future prospects can
change rapidly, making it a challenge to forecast future earnings.
Nonetheless, we feel strongly that management has a responsibility
to provide earnings forecasts to its shareholders to the best of
its ability. Accordingly, we will have an updated 2007 forecast
when we formally release earnings on January 25th, and, at that
time, we will present an action plan of key steps we will take to
improve our prospects and continue to outperform our peers in the
current market environment. As one of these steps, I will be
recommending to our board of directors that we not increase our
quarterly dividend but maintain it at the current level of $0.50
per share for this quarter. We also plan to explore stock
repurchases, a step we have successfully used in the past, as a way
to enhance shareholder value. Thank you again for the trust and
confidence you have placed in Indymac and its team. We will
continue to work tirelessly to ensure that your trust and
confidence are justified. Very truly yours, Michael W. Perry
Chairman and Chief Executive Officer On Thursday, Jan. 25, 2007, at
8:00 a.m. PT (11:00 a.m. ET), Mr. Perry will host a live Webcast
and conference call to review fourth quarter and full year 2006
financial results, which are scheduled to be released before the
market opens on that morning. A slide presentation will accompany
the Webcast/conference call and can be accessed along with
Indymac�s Form 8-K via Indymac Bank�s home page at
www.indymacbank.com. If you would like to participate: Please
R.S.V.P. for the call at (800) 289-0579 or (719) 457-2550
(international) access code #9448230. Internet Webcast access will
be available at: http://www.indymacbank.com The telephone dial-in
number is (877) 502-9274 or (913) 981-5584 (international) access
code #9448230; and The replay number is (888) 203-1112 or (719)
457-0820 (international) access code #9448230. To participate on
the call, please dial in 15 minutes prior to the scheduled start
time. The conference call will be replayed continuously beginning
on Jan. 25 at 12:00 p.m. PT through 10:00 p.m. PT on Jan. 30 and
will be available on Indymac�s Website at www.indymacbank.com.
About Indymac Bank IndyMac Bancorp, Inc. (NYSE:NDE) (Indymac�) is
the holding company for IndyMac Bank, F.S.B. (Indymac Bank�), the
7th largest savings and loan and the 9th largest mortgage
originator in the nation. Indymac Bank, operating as a hybrid
thrift/mortgage banker, provides cost-efficient financing for the
acquisition, development, and improvement of single-family homes.
Indymac also provides financing secured by single-family homes and
other banking products to facilitate consumers� personal financial
goals. With an increased focus on building customer relationships
and a valuable consumer franchise, Indymac is committed to becoming
a top six mortgage lender in the U.S. by 2010, while maintaining
annualized earnings per share growth in excess of 15 percent.
Indymac is dedicated to continually raising expectations and
conducting itself with the highest level of ethics. For more
information about Indymac and its affiliates, or to subscribe to
the company's Email Alert feature for notification of company news
and events, please visit http://about.indymacbank.com/investors.
FORWARD-LOOKING STATEMENTS Certain statements contained in this
press release may be deemed to be forward-looking statements within
the meaning of the federal securities laws. The words "anticipate,"
"believe," "estimate," "expect," "project," "plan," "forecast,"
"intend," "goal," "target," and similar expressions identify
forward-looking statements that are inherently subject to risks and
uncertainties, many of which cannot be predicted or quantified.
Actual results and the timing of certain events could differ
materially from those projected in or contemplated by the
forward-looking statements due to a number of factors, including,
the effect of economic and market conditions including industry
volumes and margins(1); the level and volatility of interest
rates(1); the Company�s hedging strategies, hedge effectiveness and
asset and liability management(1); the accuracy of subjective
estimates used in determining the fair value of financial assets of
Indymac; the credit risks with respect to our loans and other
financial assets; the actions undertaken by both current and
potential new competitors(1); the availability of funds from
Indymac's lenders and from loan sales and securitizations, to fund
mortgage loan originations and portfolio investments; the execution
of Indymac's growth plans and ability to gain market share in a
significant market transition(1); the impact of disruptions
triggered by natural disasters; pending or future legislation,
regulations(1) or litigation; and other risk factors described in
the reports that Indymac files with the Securities and Exchange
Commission, including its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, and its reports on Form 8-K. (1) While all of
the above items are important, the highlighted items represent
those that, in management�s view, merit increased focus given
current conditions.
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