Indymac Bancorp, Inc.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission file
number: 1-8972
INDYMAC BANCORP, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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95-3983415
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(State or other jurisdiction of
incorporation)
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(I.R.S. Employer Identification
No.)
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888 East Walnut Street, Pasadena, California
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91101-7211
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(Address of principal executive
offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(800) 669-2300
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 Par Value
(including related preferred stock purchase rights)
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New York Stock Exchange
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WIRES Units
(Trust Preferred Securities and Warrants)
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
[None.]
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of
1934. Yes o No þ
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 filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K
þ.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of
“accelerated filer and large accelerated filer and
“smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Based on the closing price for shares of Common Stock as of
June 30, 2007, the aggregate market value of Common Stock
held by non-affiliates of the registrant was approximately
$2,126,645,122. For the purposes of the foregoing calculation
only, in addition to affiliated companies, all directors and
executive officers of the registrant have been deemed affiliates.
As of February 15, 2008, 80,894,900 shares of IndyMac
Bancorp, Inc. Common Stock, $.01 par value per share, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 2008 Annual Meeting —
Part III
INDYMAC
BANCORP, INC.
2007 ANNUAL REPORT ON
FORM 10-K
TABLE OF CONTENTS
1
PART I
FORWARD-LOOKING
STATEMENTS
Certain statements contained in this
Form 10-K
may be deemed to be forward-looking statements within the
meaning of the federal securities laws. Words such as
“anticipate,” “believe,”
“estimate,” “expect,” “project,”
“plan,” “forecast,” “intend,”
“goal,” “target,” and similar expressions,
as well as future or conditional verbs, such as
“will,” “would,” “should,”
“could,” or “may,” 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, but not limited to, the level of housing prices,
industry volumes and margins; the level and volatility of
interest rates; Indymac’s hedging strategies, hedge
effectiveness and overall asset and liability management; the
accuracy of subjective estimates used in determining the fair
value of financial assets of Indymac; the various credit risks
associated with our loans and other financial assets, including
increased credit losses due to demand trends in the economy and
the real estate market and increased delinquency rates of
borrowers; the adequacy of credit reserves and the assumptions
underlying them; the actions undertaken by both current and
potential new competitors; the availability of funds from
Indymac’s lenders, loan sales, securitizations, funds from
deposits and all other sources used to fund mortgage loan
originations and portfolio investments; the execution of
Indymac’s business and growth plans and its ability to gain
market share in a significant and turbulent market transition.
Additional risk factors include the impact of disruptions
triggered by natural disasters; pending or future legislation,
regulations and regulatory action, or litigation, and factors
described in the reports that Indymac files with the Securities
and Exchange Commission, including this Annual Report on
Form 10-K,
its Quarterly Reports on
Form 10-Q,
and its reports on
Form 8-K.
Indymac does not undertake to update or revise forward-looking
statements to reflect the impact of circumstances for events
that arise after the date the forward-looking statements are
made.
References to “IndyMac Bancorp” or the “Parent
Company” refer to the parent company alone, while
references to “Indymac,” the “Company,” or
“we” refer to the parent company and its consolidated
subsidiaries. References to “Indymac Bank” or the
“Bank” refer to our subsidiary, IndyMac Bank, F.S.B.,
and its consolidated subsidiaries.
IndyMac Bancorp, Inc. is the holding company for IndyMac Bank,
F.S.B., a $33 billion hybrid thrift/mortgage bank,
headquartered in Pasadena, California. Indymac Bank originates
mortgages in all 50 states of the U.S. and is the
(1) largest savings and loan headquartered in Los Angeles
County, California, and the seventh largest nationwide, based on
assets according to American Banker, (2) the second largest
independent mortgage lender in the nation according to National
Mortgage News, (3) the ninth largest residential mortgage
originator, based on third quarter 2007 mortgage origination
volume according to National Mortgage News, and (4) the
eighth largest mortgage servicer, according to National Mortgage
News as of September 30, 2007. Indymac Bank provides
cost-efficient financing for the acquisition of single-family
homes and also provides financing secured by single-family homes
and other banking products to facilitate consumers’
personal financial goals. We originate mortgage loans through
our
e-MITS®
(Electronic Mortgage Information and Transaction System)
platform that automates underwriting, risk-based pricing and
rate locking on a nationwide basis via the Internet at the point
of sale. Indymac Bank offers highly competitive mortgage
products and services tailored to meet the needs of both
consumers and mortgage professionals.
Indymac was founded as a passive mortgage real estate investment
trust (“REIT”) in 1985 and transitioned its business
model to become an active, operating mortgage lender in 1993. In
response to the global liquidity crisis during the fourth
quarter of 1998, in which many non-regulated financial
institutions, mortgage lenders and mortgage REITs were adversely
impacted or did not survive, we determined that it would be
advantageous to become a depository institution. The depository
structure provides significant advantages in the form of
diversified financing sources, the retention of capital to
support growth and a strong platform for the origination of
mortgages. Effective January 1, 2000, we terminated our
status as a REIT and converted to a fully taxable entity, and,
on July 1, 2000, we acquired SGV Bancorp, Inc.
(“SGVB”), which then was the parent of First Federal
Savings and Loan
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Association of San Gabriel Valley, a federal savings
association. We contributed substantially all of our assets and
operations to the subsidiary savings association, which we
renamed Indymac Bank.
We entered the reverse mortgage industry through the acquisition
of 93.75% of the outstanding shares of common stock of Financial
Freedom Holdings, Inc. (“Financial Freedom”), the
leading provider of reverse mortgages in the U.S., and the
related assets from Lehman Brothers Bank, F.S.B. and its
affiliates on July 16, 2004. The remaining shares of the
common stock of Financial Freedom were purchased by us from
Financial Freedom’s chief executive officer, James Mahoney,
on July 3, 2006. The acquisition was consummated as part of
our strategy to offer niche mortgage products and servicing a
broad customer base.
BUSINESS
MODEL
Indymac’s hybrid thrift/mortgage banking business model
provides a strong framework and the flexibility to operate
efficiently in varying interest-rate environments. Our
businesses are aligned into two primary operating segments,
mortgage banking and thrift. Mortgage banking involves the
originating and trading of mortgage loans and related assets, as
well as the servicing of these loans. Revenues from mortgage
banking consist primarily of gains on the sale of the loans;
interest income earned while the loans are held for sale; and
servicing fee income. The thrift side of our business invests in
single-family residential mortgage assets, primarily whole loan
and mortgage-backed securities (“MBS”), which we hold
on our balance sheet. Revenues from the thrift side of our
business consists primarily of spread income, which represents
the difference between the interest earned on the loans and the
cost of funds.
Mortgage banking is less capital-intensive than thrift investing
and offers higher returns on invested capital. However, mortgage
banking is cyclical: origination volumes are significantly
correlated to interest rates, rising when rates fall and
declining when rates rise. Thrift investing requires more
capital than mortgage banking, resulting in lower returns on
invested capital. However, the returns tend to be more stable
and less cyclical than those from mortgage banking, and they
generally improve as returns on mortgage banking decline. As
interest rates rise, there is little incentive for borrowers to
refinance, so portfolio runoff (i.e., loan payoffs) is reduced.
Thrift profitability is also more exposed to credit risk as we
retain credit risk on most thrift assets. Significant changes in
the asset quality after acquisition impact returns.
During 2007, there has been an unprecedented disruption in the
U.S. mortgage market. Secondary markets for virtually every
loan type other than GSE and government guaranteed loan has
virtually ceased to exist. Numerous originators have failed and
remaining lenders have dramatically tightened lending guidelines.
This disruption has resulted in home prices declining in
virtually all markets in the U.S. The combination of
significantly reduced lending activity and declining home prices
has contributed to increasing delinquencies and foreclosures
nationally. These increased loan defaults have been particularly
severe in higher LTV lending products and in second lien
products.
These market factors have had a dramatic impact on our business
and results both from declining volumes and increased
expectations of credit losses. These factors make comparisons to
prior years very difficult.
SEGMENTS
Indymac is structured to achieve synergies among its operations
and to enhance customer service, operating through its two main
segments, mortgage banking and thrift. The common denominator of
our business is providing consumers with single-family
residential mortgages through relationships with each
segment’s core customers via the channel in which each
operates.
For further information on the revenues earned and expenses
incurred by each of our segments, refer to “Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Summary of Business
Segment Results” and “Note 3 — Segment
Reporting” included in our consolidated financial
statements incorporated herein.
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MORTGAGE
BANKING SEGMENT
The mortgage banking segment’s core activities are loan
production, loan sales, and the performance of our servicing
functions. Loan production is achieved by delivering a suite of
prime mortgage products to our customers using a
technology-based approach across multiple channels on a
nationwide basis supported by 11 strategically distributed
regional mortgage centers. Our broad product offering includes
adjustable-rate mortgages (“ARMs”), intermediate term
fixed-rate loans, pay option ARMs offering borrowers multiple
payment options, fixed-rate mortgages, and reverse mortgages.
Our largest production channel, the mortgage professionals group
(“MPG”), originates or purchases mortgage loans
through its relationships with mortgage brokers, mortgage
bankers, and financial institutions. In April 2007, we acquired
the retail platform of New York Mortgage Company
(“NYMC”) and hired over 1,400 retail lending
professionals. We also offer mortgages and reverse mortgages to
consumers through channels such as direct mail, internet leads,
online advertising, affinity relationships, real estate
professionals, including realtors, and through our Southern
California retail bank branches.
We sell mortgage loans, which are usually on a non-recourse
basis, but we do make certain representations and warranties
concerning the loans. We generally retain the servicing rights
with respect to loans sold to the government sponsored
enterprises (“GSEs”), primarily Federal National
Mortgage Association (“Fannie Mae”) and Federal Home
Loan Mortgage Company (“Freddie Mac”). The credit
losses on these loans are absorbed by the GSEs. We pay guarantee
fees to the GSEs to compensate them for their assumption of
credit risk. The continued severe disruption in the secondary
market for loans and securities not sold to the GSEs has caused
us to rapidly change our production business model from a
primary focus on non-GSE mortgage banking to a model that now
produces production that is 75%-85% eligible for sale to the
GSEs.
We also sell loans through private-label securitizations. Loans
sold through private-label securitizations consist primarily of
non-conforming loans and subprime loans. The securitization
process involves the sale of the loans to one of our
wholly-owned bankruptcy remote special purpose entities, which
then sells the loans to a separate, transaction-specific
securitization trust in exchange for cash and certain trust
interests that we retain. The securitization trust issues and
sells undivided interests to third-party investors that entitle
the investors to specified cash flows generated from the
securitized loans. These undivided interests are usually
represented by certificates with varying interest rates and are
secured by the payments on the loans acquired by the trust, and
commonly include senior and subordinated classes. The senior
class securities are usually rated “AAA” by at least
two of the major independent rating agencies and have priority
over the subordinated classes in the receipt of payments. We
have no obligation to provide funding support (other than
temporary servicing advances) to either the third-party
investors or securitization trusts. Neither the third-party
investors nor the securitization trusts have recourse to our
assets or us, and neither have the ability to require us to
repurchase their securities. We do make certain representations
and warranties concerning the loans, such as lien status or
mortgage insurance coverage, and if we are found to have
breached a representation or warranty, we could be required to
repurchase the loan from the securitization trust. We do not
guarantee any securities issued by the securitization trusts.
The securitization trusts represent “qualified special
purpose entities,” which meet the legal isolation criteria
of Statement of Financial Accounting Standards No. 140,
“Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities”
(“SFAS 140”), and are therefore not
consolidated for financial reporting purposes. We also sell
loans on a whole-loan basis to institutional investors with
servicing on such loans either retained by us or released to the
institutional investors.
In addition to the cash we receive from the sale of MBS, we
typically retain certain interests in the securitization trust
as payment for the loans. These retained interests may include
mortgage servicing rights (“MSRs”), AAA-rated
interest-only securities, AAA-rated principal-only securities,
AAA-rated senior securities, securities associated with
prepayment charges and late fee charges on the underlying
mortgage loans, subordinated classes of securities, residual
securities, cash reserve funds, or an over collateralization
account. Other than MSRs, AAA-rated interest-only and
principal-only securities, AAA-rated senior securities, and the
securities associated with prepayment charges and late fees on
the underlying mortgage loans, these retained interests are
subordinated and serve as credit enhancement for the more senior
securities issued by the securitization trust. We are entitled
to receive payment on most of these retained interests only
after the third party investors are repaid their investment
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plus interest and there is excess cash in the securitization
trust. Our ability to obtain repayment of our residual interests
depends solely on the performance of the underlying mortgage
loans. Material adverse changes in performance of the loans,
including actual credit losses and prepayment speeds differing
from our assumptions, may have a significant adverse effect on
the value of these retained interests.
We usually retain the servicing rights for the securitized
mortgage loans, as discussed in the description of servicing
operations below under the caption “Loan Servicing.”
As a servicer, we are entitled to receive a servicing fee equal
to a specified percentage of the outstanding principal balance
of each loan. This servicing fee is calculated and payable on a
monthly basis. We may also be entitled to receive additional
servicing compensation, such as late payment fees or prepayment
charges. Our servicing fees have priority in payment over each
class of securities issued by the securitization trusts.
Refer to “Note 13 — Transfers and Servicing
of Financial Assets” in the accompanying notes to
consolidated financial statements for additional information.
Mortgage
Production Division
Consumer
Direct Division
This division markets mortgage products directly to existing and
new consumers nationwide through direct mail, Internet lead
aggregators, outbound telesales, online advertising, and
referral programs, as well as through our Southern California
retail bank branches.
Through our call center operations and our Southern California
retail bank branch network, loan consultants counsel consumers
on the loan application process and make lending decisions using
our e-MITS
technology. Loans are processed and funded by our operations
group within our regional mortgage centers.
Mortgage
Professionals Group
Our largest production division, the MPG, was responsible for
62% of our total mortgage production during 2007. This group is
responsible for the production of mortgage loans through
relationships with mortgage brokers, mortgage bankers, financial
institutions, capital market participants across the country,
realtors, and homebuilders, and is composed of two channels:
retail, and mortgage broker and banker.
Mortgage loans could be either funded by us or purchased by us
as closed loans on a flow basis from mortgage bankers or
community financial institutions. When originating or purchasing
mortgage loans, we generally acquire the rights to
“service” the mortgage loans (as described below).
When we sell the loans, we may either retain the related
servicing rights and service the loans through our mortgage
servicing division or sell those rights. See “Loan
Servicing” below.
This division targets customers based on their loan production
volume, product mix and projected revenue to us. The sales force
is responsible for maintaining and increasing loan production
from these customers by marketing our strengths, which include a
“one stop shop” for all products, competitive pricing
and response time efficiencies in the loan purchase process
through our
e-MITS
underwriting capability and high customer service standards.
The retail lending group, a channel of the MPG, provides
mortgage financing primarily to home purchase oriented consumers
by targeting realtors, homebuilders and financial professionals
via storefront mortgage loan offices. As of December 31,
2007, we had 182 retail mortgage offices.
During 2007, in light of the current market conditions,
Indymac’s MPG did not open any additional regional
wholesale mortgage centers. We had 16 regional mortgage centers
as of December 31, 2007. We have decided to close five
regional wholesale mortgage centers, including Tampa,
Philadelphia, Boston, Columbia (South Carolina) and Kansas City,
and consolidate these mortgage operations into our remaining 11
regional wholesale mortgage wholesale centers by the end of the
first quarter of 2008.
Financial
Freedom Division
Financial Freedom is the leading provider of reverse mortgages
in the United States. This group is responsible for the
origination, purchase and servicing of reverse mortgage products
with senior customers via a retail loan
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officer sales force and a mortgage banker and broker
relationship sales force. Reverse mortgages allow homeowners
age 62 and older to convert home equity into cash to
supplement their retirement income. The equity may be withdrawn
in a lump sum, as annuity-style monthly payments, as a credit
line, or any combination thereof. Reverse mortgages offered by
us feature: no recourse to the borrower, no repayment during the
borrower’s occupancy of the home, and a repayment amount
that cannot exceed the value of the home (after costs of sale).
Comparing 2007 to 2006, our reverse mortgage volume decreased 6%
to $4.7 billion in 2007 from $5.0 billion in 2006
primarily due to the expected increased competition and the
secondary market disruption in the later half of 2007. As a
result, margin for this product was negatively impacted.
However, with the increased familiarity that senior homeowners
and their financial advisors have with this product, the reverse
mortgage market is expected to continue to grow.
Mortgage
Servicing Division
This division manages the assets we retain in conjunction with
our mortgage loan sales. The assets held include the following:
(i) MSRs, interest-only securities, prepayment penalty
securities and late fee securities; (ii) derivatives and
securities held as hedges of such assets, including forward rate
agreements swaps, options, futures, principal-only securities,
agency debentures and U.S. Treasury bonds; and
(iii) loans acquired through
clean-up
calls or originated through our customer retention programs. We
hedge the MSRs to protect the economic value of the MSRs.
At December 31, 2007, primarily through our Home Loan
Servicing operation in Kalamazoo, Michigan, we serviced
$198.2 billion of mortgage loans, of which
$181.7 billion was serviced for others, an increase of 30%
from $139.8 billion serviced for others in 2006. The
servicing portfolio includes prime loans, reverse mortgages,
manufactured housing loans and home improvement loans.
Servicing of mortgage loans includes: collecting loan payments;
responding to customers’ inquiries; accounting for
principal and interest; holding custodial (impound) funds for
payment of property taxes and insurance; counseling delinquent
mortgagors; modifying and refinancing loans; supervising
foreclosures and liquidation of foreclosed property; performing
required tax reporting; and performing other loan administration
functions necessary to protect investors’ interests and
comply with applicable laws and regulations. Servicing
operations also include remitting loan payments, less servicing
fees, to trustees and, in some cases, advancing delinquent
borrower payments to investors, subject to a right of
reimbursement.
THRIFT
SEGMENT
The strategy of our thrift segment has been to leverage our
capital infrastructure with prudent mortgage related asset
growth to diversify company-wide earnings, targeting a return on
equity exceeding the cost of both core and risk-based capital.
The thrift segment principally invests in single-family
residential (“SFR”) mortgage loans (predominantly
prime ARMs, including intermediate term fixed-rate loans),
mortgage-backed securities and construction financing for
single-family residences or lots provided directly to individual
consumers. The primary sources of revenue for the thrift segment
are net interest income on loans and securities, and to a lesser
extent, the gain on sale of loans.
Portfolio
Divisions
Mortgage-Backed
Securities Division
MBS includes predominantly AAA-rated private label MBS.
SFR
Mortgage Loans HFI Division
Single-family residential mortgage loans held for investment
(“HFI”) are generally originated or acquired through
our mortgage banking production divisions and transferred to the
thrift. Held for investment loans may also be acquired from
third party sellers and such loans are typically prime loans.
The thrift attempts to invest in loans on
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which it can earn an acceptable return on equity. This division
had significant asset growth in 2007 as we transferred a
significant amount of loans from held for sale as market
conditions made the sale of these loans uneconomic.
Consumer
Construction Division
Our consumer construction division provides construction
financing for individual consumers who want to build a new
primary residence or second home. Through our streamlined
e-MITS
online application process, the division offers a single-close
construction-to-permanent
loan that provides borrowers with the funds to build a primary
residence or vacation home. This product typically provides
financing for a construction term of 6 to 12 months and
automatically converts to a permanent mortgage loan at the end
of construction. The end result is a product that represents a
hybrid activity between our portfolio lending and mortgage
banking activities. We earn net interest income on these loans
during the construction phase. When the home is completed, the
loan automatically converts to a permanent mortgage loan without
any additional cost or closing documents, which is typically
sold in the secondary market or acquired by the SFR mortgage
loans HFI division. This division also provides financing to
builders who are building single-family residences without a
guaranteed sale at inception of project, or on a speculative
basis. Approximately 68% of new commitments are generated
through mortgage broker customers of the mortgage professional
group and the remaining 32% of new commitments are retail
originations. Beginning in 2008, we have temporarily suspended
production in this division to reduce our balance sheet size.
DISCONTINUED
BUSINESS ACTIVITIES
As conditions in the U.S. mortgage market have
deteriorated, we have exited certain production channels and are
reporting them in a separate category in our segment reporting,
“Discontinued Business Activities”. These exited
production channels include the conduit, homebuilder and home
equity channels. These activities are not considered
discontinued operations pursuant to Generally Accepted
Accounting Principles (“GAAP”) under Statement of
Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”
(“SFAS 144”) due to our significant continuing
involvement in these activities. For additional information, see
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Summary of Business Segment Results — Discontinued
Business Activities.”
REGULATION AND
SUPERVISION
GENERAL
As a savings and loan holding company, IndyMac Bancorp is
subject to regulation by the Office of Thrift Supervision
(“OTS”) under the savings and loan holding company
provisions of the Federal Home Owners’ Loan Act
(“HOLA”). As a federally chartered and insured savings
and loan association, Indymac Bank is subject to regulation,
supervision and periodic examination by the OTS, which is the
primary federal regulator of savings associations, and the
Federal Deposit Insurance Corporation (“FDIC”), in its
role as federal deposit insurer. The primary purpose of
regulatory examination and supervision is to protect depositors,
financial institutions and the financial system as a whole
rather than the shareholders of financial institutions or their
holding companies. The following summary is not intended to be a
complete description of the applicable laws and regulations or
their effects on us, and it is qualified in its entirety by
reference to the particular statutory and regulatory provisions
described.
REGULATION OF
INDYMAC BANK
General
Both Indymac Bank and the Company are required to file periodic
reports with the OTS concerning our activities and financial
condition. The OTS has substantial enforcement authority with
respect to savings associations, including authority to bring
enforcement actions against a savings association and any of its
“institution-affiliated parties,” which term includes
directors, officers, employees, controlling shareholders, agents
and other
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persons who participate in the conduct of the affairs of the
institution. The FDIC has “backup” enforcement
authority over us and has the power to terminate a savings
association’s FDIC deposit insurance. In addition, we are
subject to regulations of the Federal Reserve Board relating to
equal credit opportunity, electronic fund transfers, collection
of checks, truth in lending, truth in savings, and availability
of funds for deposit customers.
Qualified
Thrift Lender Test
Like all savings and loan holding company subsidiaries, Indymac
Bank is required to meet a qualified thrift lender
(“QTL”) test to avoid certain restrictions on our
operations, including the activities restrictions applicable to
multiple savings and loan holding companies, restrictions on our
ability to branch interstate and IndyMac Bancorp’s
mandatory registration as a bank holding company under the Bank
Holding Company Act of 1956. A savings association satisfies the
QTL test if: (i) on a monthly average basis, for at least
nine months out of each twelve month period, at least 65% of a
specified asset base of the savings association consists of
loans to small businesses, credit card loans, educational loans,
or certain assets related to domestic residential real estate,
including residential mortgage loans and mortgage securities; or
(ii) at least 60% of the savings association’s total
assets consist of cash, U.S. government or government
agency debt or equity securities, fixed assets, or loans secured
by deposits, real property used for residential, educational,
church, welfare, or health purposes, or real property in certain
urban renewal areas. Indymac Bank is currently, and expects to
remain, in compliance with QTL standards.
Regulatory
Capital Requirements
OTS capital regulations require savings associations to satisfy
three sets of capital requirements: tangible capital,
Tier 1 capital, and risk-based capital. In general, an
association’s tangible capital, which must be at least 1.5%
of tangible assets, is the sum of common shareholders’
equity adjusted for the effects of other comprehensive income
(“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 strong
associations that are not anticipating or experiencing
significant growth and have well-diversified risks, including no
undue interest rate risk exposure, excellent asset quality, high
liquidity, and good earnings; and 4% for others. Higher capital
ratios may be required if warranted by the particular
circumstances, risk profile, or growth rate of a given
association. Under the risk-based capital requirement, a savings
association must have Tier 1 risk-based capital equal to at
least 4% of risk-weighted assets and total risk-based capital
(core capital plus supplementary capital) equal to at least 8%
of risk-weighted assets. Tier 1 capital must represent at
least 50% of total capital and consists of core capital
elements, which include common shareholders’ equity,
qualifying noncumulative, nonredeemable perpetual preferred
stock, and minority interests in the equity accounts of
consolidated subsidiaries, but exclude goodwill and certain
other intangible assets. Supplementary capital consists mainly
of qualifying subordinated debt, preferred stock that does not
meet Tier 1 capital requirements, and a portion of the
allowance for loan losses.
The above capital requirements are viewed as minimum standards
by the OTS. The OTS regulations also specify minimum
requirements for a savings association to be considered a
“well-capitalized institution” as defined in the
“prompt corrective action” regulation described below.
A “well-capitalized” savings association must have a
total risk-based capital ratio of 10% or greater, a Tier 1
risk-based capital ratio of 6% or greater and a Tier 1
(core) capital ratio of 5% or greater. Indymac Bank currently
meets the requirements of a “well-capitalized
institution.”
The OTS regulations include prompt corrective action provisions
that require certain remedial actions and authorize certain
other discretionary actions to be taken by the OTS against a
savings association that falls within specified categories of
capital deficiency. The relevant regulations establish five
categories of capital classification for this purpose, ranging
from “well-capitalized” to “adequately
capitalized” through “undercapitalized,”
“significantly undercapitalized” and “critically
undercapitalized.” In general, the prompt corrective action
regulations prohibit an OTS-regulated institution from declaring
any dividends, making any other capital distributions, or paying
a management fee to a controlling person, such as its parent
holding company, if, following the distribution or payment, the
institution would be within any of the three undercapitalized
categories.
9
Insurance
of Deposit Accounts
Deposits of the Bank are presently insured by the FDIC, up to
$100,000 per depositor. The FDIC has established a risk-based
system for setting deposit insurance assessments. Under the
risk-based assessment system, a savings association’s
insurance assessments vary according to the level of capital the
institution holds and the degree to which it is the subject of
supervisory concern. Assessment rates currently range between
five and 43 cents per $100 in deposits. Insurance of deposits
may be terminated by the FDIC upon a finding that the savings
association has engaged in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the OTS. All insured depository
institutions, including the Bank, are required to pay an
additional assessment, currently 1.14 cents per $100 in
deposits, in order to retire Financial Corporation bonds that
were issued between 1987 and 1989.
Capital
Distribution Regulations
OTS regulations limit “capital distributions” by
savings associations, which include, among other things,
dividends and payments for stock repurchases. Refer to
“Note 22 — Regulatory Requirements” in
the accompanying notes to our consolidated financial statements
for further discussion.
Community
Reinvestment Act and the Fair Lending Laws
Savings associations are examined under the Community
Reinvestment Act (“CRA”) and related regulations of
the OTS on the extent of their efforts to help meet the credit
needs of their communities, including low and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and
the Fair Housing Act, together known as the “Fair Lending
Laws,” prohibit lenders from discriminating in their
lending practices on the basis of characteristics specified in
those statutes. Enforcement of these regulations has been an
important focus of federal regulatory authorities and of
community groups in recent years. A failure by Indymac Bank to
comply with the provisions of the CRA could, at a minimum,
result in adverse action on branch and certain other corporate
applications, and regulatory restrictions on our activities, and
failure to comply with the Fair Lending Laws could result in
enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice. Indymac Bank
received an overall “Satisfactory” rating during our
most recent CRA evaluation.
Privacy
Protection
The OTS has adopted privacy protection regulations which require
each savings association to adopt procedures to protect
consumers’ and customers’ “nonpublic personal
information.” It is Indymac Bank’s policy not to share
customers’ information with any unaffiliated third parties,
except as expressly permitted by law, or to allow third party
companies to provide marketing services on our behalf, or under
joint marketing agreements between us and other unaffiliated
financial institutions. In addition to federal laws and
regulations, we are required to comply with any privacy
requirements prescribed by California and other states in which
we do business that afford consumers with protections greater
than those provided under federal law.
INCOME
TAX CONSIDERATIONS
We report our income on a calendar year basis using the
liability method of accounting. We are subject to federal income
taxation under existing provisions of the Internal Revenue Code
of 1986, as amended, in generally the same manner as other
corporations. We are also subject to state taxes in the areas in
which we conduct business.
EMPLOYEES
As of December 31, 2007, we had 9,907 full-time
equivalent employees (“FTE”), including 870 FTE
off-shore as part of our Global Resources program.
10
COMPETITION
While the current disruptions in the housing and credit markets
have reduced the number of competitors, we still face
significant competition for lending volume. Many of our
competitors are larger and enjoy both financial and customer
awareness advantages over us. In addition, the reduction in
salability of many mortgages has caused us to temporarily
discontinue certain lending products that many of our
competitors are able to originate.
While we believe that our current plans and strategies will
allow us to compete in the market, there can be no assurance
that we will succeed and as a result, our financial results
could be materially worse than we expect.
WEBSITE
ACCESS TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FILINGS
All reports filed electronically by us with the Securities and
Exchange Commission (“SEC”), including Annual Reports
on
Form 10-K,
quarterly reports on
Form 10-Q,
and current event reports on
Form 8-K,
as well as any amendments to those reports, are made accessible
as soon as reasonably practicable after filing with the SEC at
no cost on our website at www.imb.com. These filings are
also accessible on the SEC’s website at www.sec.gov.
We have a Code of Business Conduct and Ethics that is applicable
to all of our employees and officers, including the principal
executive officer, the principal financial officer and the
principal accounting officer. In addition, Indymac has a
Director Code of Ethics that sets forth the policy and standards
concerning ethical conduct for directors of Indymac. We also
adopted formal corporate governance standards in January 2002,
which the Corporate Governance Committee of the Board of
Directors reviews annually to ensure they incorporate recent
corporate governance developments and generally meet the
corporate governance needs of Indymac. You may obtain copies of
each of the Code of Business Conduct and Ethics, the Director
Code of Ethics, and the Board of Directors’ Guidelines for
Corporate Governance Issues by accessing the “Corporate
Governance” subsection of the “Investors” section
of www.imb.com, or free of charge by writing to our
Corporate Secretary at IndyMac Bancorp, Inc., 888 East Walnut
Street, Pasadena, California 91101. Indymac intends to post
amendments to or waivers of the Code of Business Conduct and
Ethics (to the extent applicable to Indymac’s principal
executive officer, principal financial officer or principal
accounting officer) and of the Director Code of Ethics at the
website location referenced above.
KEY
OPERATING RISKS
Like all businesses, we assume a certain amount of risk in order
to earn returns on our capital. For further information on these
and other key operating risks, see “Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Risk Factors That May
Affect Future Results.”
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
11
Our significant leased properties are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
Principal Lease
|
|
Purpose
|
|
Location
|
|
Square Feet
|
|
|
Expiration
|
|
|
Corporate Headquarters/Administration
|
|
Pasadena, California
|
|
|
192,000
|
|
|
|
2010
|
|
Corporate Headquarters/Administration*
|
|
Pasadena, California
|
|
|
179,000
|
|
|
|
2016
|
|
Mortgage Banking Headquarters
|
|
Pasadena, California
|
|
|
190,000
|
|
|
|
2017
|
|
Corporate IT
|
|
Tempe, Arizona
|
|
|
28,500
|
|
|
|
2015
|
|
Home Loan Servicing — Customer Service and Loan
Administration
|
|
Kalamazoo, Michigan
|
|
|
46,000
|
|
|
|
2013
|
|
Home Loan Servicing — Master Servicing and Investor
Reporting
|
|
Austin, Texas
|
|
|
106,000
|
|
|
|
2012
|
|
Consumer Cross-Sell and Retention Headquarters; Mortgage Bank
Operations; Financial Freedom Headquarters, Legal/Administration
|
|
Irvine, California
|
|
|
138,000
|
|
|
|
2012
|
|
Regional Mortgage Banking Center, Consumer Direct Operations and
Sales
|
|
Kansas City, Missouri
|
|
|
53,000
|
|
|
|
2009
|
|
Regional Mortgage Banking Center, Consumer Direct Operations and
Sales
|
|
Overland Park, Kansas
|
|
|
21,000
|
|
|
|
2009
|
|
Regional Mortgage Banking Center
|
|
Ontario, California
|
|
|
41,500
|
|
|
|
2012
|
|
Regional Mortgage Banking Center
|
|
San Ramon, California
|
|
|
46,500
|
|
|
|
2010
|
|
Regional Mortgage Banking Center
|
|
Atlanta (Norcross), Georgia
|
|
|
67,500
|
|
|
|
2009
|
|
Regional Mortgage Banking Center
|
|
Scottsdale, Arizona
|
|
|
46,000
|
|
|
|
2009-2011
|
|
Regional Mortgage Banking Center
|
|
Marlton, New Jersey
|
|
|
62,000
|
|
|
|
2012
|
|
Regional Mortgage Banking Center
|
|
East Norriton, Pennsylvania
|
|
|
39,000
|
|
|
|
2011
|
|
Regional Mortgage Banking Center
|
|
Columbia, South Carolina
|
|
|
36,000
|
|
|
|
2009
|
|
Regional Mortgage Banking Center
|
|
Dallas (Irving), Texas
|
|
|
41,000
|
|
|
|
2008
|
|
Regional Mortgage Banking Center
|
|
Seattle (Bellevue), Washington
|
|
|
31,000
|
|
|
|
2008
|
|
Regional Mortgage Banking Center
|
|
Sacramento (Rancho Cordova), California
|
|
|
34,000
|
|
|
|
2012
|
|
Regional Mortgage Banking Center
|
|
Tampa, Florida
|
|
|
34,000
|
|
|
|
2013
|
|
Regional Mortgage Banking Center
|
|
Chicago (Schaumburg), Illinois
|
|
|
62,000
|
|
|
|
2013
|
|
Regional Mortgage Banking Center
|
|
Boston (Quincy), Massachusetts
|
|
|
26,000
|
|
|
|
2013
|
|
Eastern Operations Center — Financial Freedom
|
|
Atlanta, Georgia
|
|
|
44,000
|
|
|
|
2012
|
|
Western Operations Center — Financial Freedom
|
|
Sacramento (Roseville), California
|
|
|
55,000
|
|
|
|
2008-2009
|
|
Loan Servicing, Accounting and Finance — Financial
Freedom
|
|
San Francisco, California
|
|
|
23,000
|
|
|
|
2008
|
|
Retail Lending Group
|
|
182 locations in various states
|
|
|
494,000
|
|
|
|
2008-2013
|
|
Consumer Bank Retail Operations
|
|
28 locations in Southern California
|
|
|
101,000
|
|
|
|
2008-2017
|
|
Other Sales Offices and Locations
|
|
55 locations in various states
|
|
|
48,000
|
|
|
|
2008-2010
|
|
|
|
|
* |
|
5,203 square feet relates to a Consumer Bank Retail
Operation |
In addition to the above leased office space, we own a building
in La Mirada, California of approximately
16,500 square feet, which houses our information technology
data center. We own an additional four retail banking
properties, containing an aggregate of approximately
56,000 square feet, located in Southern California.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
In the ordinary course of business, the Company and its
subsidiaries are defendants in or parties to a number of legal
actions. Certain of such actions involve alleged violations of
employment laws, unfair trade practices,
12
consumer protection laws, including claims relating to the
Company’s sales, loan origination and collection efforts,
and other federal and state banking laws. Management believes,
based on current knowledge and after consultation with counsel,
that these legal actions, individually and in the aggregate, and
the losses, if any, resulting from the likely final outcome
thereof, will not have a material adverse effect on the Company
and its subsidiaries’ financial position, but may have a
material impact on the results of operations of particular
periods. Refer to “Note 20 — Commitments and
Contingencies” in the accompanying notes to consolidated
financial statements for further discussion.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of shareholders during the
quarter ended December 31, 2007.
PART II
|
|
ITEM 5.
|
MARKET
FOR INDYMAC BANCORP, INC.’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
STOCK
INFORMATION
IndyMac Bancorp, Inc.’s common stock is traded on the New
York Stock Exchange (“NYSE”) under the symbol
“IMB” effective May 1, 2007. Previously, it was
trading under the symbol “NDE”.
The following table sets forth the high and low sales prices (as
reported by Bloomberg Financial Service) for shares of IndyMac
Bancorp, Inc.’s common stock for the years ended
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
First Quarter
|
|
|
45.82
|
|
|
|
26.27
|
|
|
|
43.24
|
|
|
|
37.71
|
|
Second Quarter
|
|
|
37.50
|
|
|
|
28.37
|
|
|
|
50.50
|
|
|
|
40.44
|
|
Third Quarter
|
|
|
31.50
|
|
|
|
16.86
|
|
|
|
47.24
|
|
|
|
37.15
|
|
Fourth Quarter
|
|
|
25.38
|
|
|
|
5.75
|
|
|
|
48.14
|
|
|
|
40.35
|
|
ISSUANCE
OF COMMON STOCK
The Company has a direct stock purchase plan which offers
investors the ability to purchase shares of our common stock
directly over the Internet. Investors interested in investing
over $10,000 can also participate in the waiver program
administered by Mellon Investor Services LLC. For the year ended
December 31, 2007, we issued 7,427,104 shares of
common stock at an average market price of $19.60 through this
plan, as compared to the year ended December 31, 2006, for
which we issued 3,532,360 shares of common stock at an
average market price of $42.04 through this plan.
13
SHARE
REPURCHASE ACTIVITIES
The following summarizes share repurchase activities during the
three months ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Approximate
|
|
|
|
Total
|
|
|
|
|
|
Shares Purchased
|
|
|
Dollar Value (In Million) of
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
as Part of Publicly
|
|
|
Shares that may yet be
|
|
|
|
Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
Purchased Under the
|
|
|
|
Purchased(1)
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Plans or Programs(2)
|
|
|
Calendar Month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2007
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
300
|
|
November 2007
|
|
|
2,886
|
|
|
|
17.63
|
|
|
|
—
|
|
|
|
300
|
|
December 2007
|
|
|
375
|
|
|
|
8.48
|
|
|
|
—
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,261
|
|
|
|
16.58
|
|
|
|
—
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All shares purchased during the periods indicated represent
withholding of a portion of shares to cover taxes in connection
with vesting of restricted stock or exercise of stock options. |
|
(2) |
|
Our Board of Directors previously approved a $500 million
share repurchase program. Since its inception in 1999, we have
repurchased a total of 28.0 million shares through this
program. In January 2007, we obtained an authorization from the
Board of Directors to repurchase an additional
$236.4 million of common stock for a total current
authorization of up to $300 million. |
As of February 15, 2008, 80,894,900 shares of IndyMac
Bancorp, Inc.’s common stock were held by approximately
1,847 shareholders of record.
DIVIDEND
POLICY
In light of the current financial performance of Indymac, the
Board of Directors indefinitely suspended its quarterly cash
dividend payments on our common stock beginning the first
quarter of 2008.
For the years ended December 31, 2007 and 2006, we declared
the following cash dividends:
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
Dividend
|
|
|
|
per
|
|
|
Payout
|
|
|
|
Share
|
|
|
Ratio(1)
|
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.50
|
|
|
|
71
|
%
|
Second Quarter
|
|
$
|
0.50
|
|
|
|
83
|
%
|
Third Quarter
|
|
$
|
0.50
|
|
|
|
(18
|
)%
|
Fourth Quarter
|
|
$
|
0.25
|
|
|
|
(4
|
)%
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.44
|
|
|
|
37
|
%
|
Second Quarter
|
|
$
|
0.46
|
|
|
|
31
|
%
|
Third Quarter
|
|
$
|
0.48
|
|
|
|
40
|
%
|
Fourth Quarter
|
|
$
|
0.50
|
|
|
|
52
|
%
|
|
|
|
(1) |
|
Dividend payout ratio represents dividends declared per share as
a percentage of diluted earnings (loss) per share. This ratio
was negative for the third and fourth quarters of 2007 due to
the Company’s net loss and resulting diluted loss per share
for those two periods. |
14
In 2007 and 2006, we funded the payment of dividends primarily
from the dividend from Indymac Bank and cash on hand at the
Parent Company. The future principal source of funds for the
dividend payments is anticipated to be the dividends we will
receive from Indymac Bank. The payment of dividends by Indymac
Bank is subject to regulatory requirements and review. See
“Item 1. Business- Regulation and
Supervision-Regulations of Indymac Bank-Capital Distribution
Regulations” for further information. There is no assurance
that the Bank will be able to pay dividends to the Company in
the future.
EQUITY
COMPENSATION PLANS INFORMATION
The equity compensation plans information required under this
Item 5 is hereby incorporated by reference to Indymac
Bancorp’s definitive proxy statement, to be filed pursuant
to Regulation 14A within 120 days after the end of our
2007 fiscal year.
15
ITEM 6. SELECTED
FINANCIAL DATA
(Dollars in millions, except per
share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005(2)
|
|
|
2004(2,3,4)
|
|
|
2003(2,4)
|
|
|
Selected Balance Sheet Information (at December 31)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
562
|
|
|
$
|
542
|
|
|
$
|
443
|
|
|
$
|
356
|
|
|
$
|
115
|
|
Securities (trading and available for sale)
|
|
|
7,328
|
|
|
|
5,443
|
|
|
|
4,102
|
|
|
|
3,689
|
|
|
|
1,838
|
|
Loans held for sale
|
|
|
3,777
|
|
|
|
9,468
|
|
|
|
6,024
|
|
|
|
4,446
|
|
|
|
2,573
|
|
Loans held for investment
|
|
|
16,454
|
|
|
|
10,177
|
|
|
|
8,278
|
|
|
|
6,750
|
|
|
|
7,449
|
|
Allowance for loan losses
|
|
|
(398
|
)
|
|
|
(62
|
)
|
|
|
(55
|
)
|
|
|
(53
|
)
|
|
|
(53
|
)
|
Mortgage servicing rights
|
|
|
2,495
|
|
|
|
1,822
|
|
|
|
1,094
|
|
|
|
641
|
|
|
|
444
|
|
Other assets
|
|
|
2,516
|
|
|
|
2,105
|
|
|
|
1,566
|
|
|
|
997
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
32,734
|
|
|
$
|
29,495
|
|
|
$
|
21,452
|
|
|
$
|
16,826
|
|
|
$
|
13,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
17,815
|
|
|
$
|
10,898
|
|
|
$
|
7,672
|
|
|
$
|
5,743
|
|
|
$
|
4,351
|
|
Advances from Federal Home Loan Bank
|
|
|
11,189
|
|
|
|
10,413
|
|
|
|
6,953
|
|
|
|
6,162
|
|
|
|
4,935
|
|
Other borrowings
|
|
|
652
|
|
|
|
4,637
|
|
|
|
4,367
|
|
|
|
3,162
|
|
|
|
2,622
|
|
Other liabilities and preferred stock in subsidiary
|
|
|
1,734
|
|
|
|
1,519
|
|
|
|
917
|
|
|
|
478
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Preferred Stock in Subsidiary
|
|
$
|
31,390
|
|
|
$
|
27,467
|
|
|
$
|
19,909
|
|
|
$
|
15,545
|
|
|
$
|
12,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
$
|
1,344
|
|
|
$
|
2,028
|
|
|
$
|
1,543
|
|
|
$
|
1,280
|
|
|
$
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Information(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
567
|
|
|
$
|
527
|
|
|
$
|
425
|
|
|
$
|
405
|
|
|
$
|
311
|
|
Provision for loan losses
|
|
|
(396
|
)
|
|
|
(20
|
)
|
|
|
(10
|
)
|
|
|
(8
|
)
|
|
|
(20
|
)
|
Gain (loss) on sale of loans
|
|
|
(354
|
)
|
|
|
668
|
|
|
|
592
|
|
|
|
431
|
|
|
|
387
|
|
Service fee income
|
|
|
519
|
|
|
|
101
|
|
|
|
44
|
|
|
|
(12
|
)
|
|
|
(16
|
)
|
Gain (loss) on securities
|
|
|
(439
|
)
|
|
|
21
|
|
|
|
18
|
|
|
|
(24
|
)
|
|
|
(31
|
)
|
Fee and other income
|
|
|
107
|
|
|
|
50
|
|
|
|
37
|
|
|
|
27
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
4
|
|
|
|
1,347
|
|
|
|
1,106
|
|
|
|
819
|
|
|
|
650
|
|
Total expenses
|
|
|
(999
|
)
|
|
|
(791
|
)
|
|
|
(621
|
)
|
|
|
(483
|
)
|
|
|
(382
|
)
|
(Provision) benefit for income taxes
|
|
|
380
|
|
|
|
(213
|
)
|
|
|
(192
|
)
|
|
|
(134
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(615
|
)
|
|
$
|
343
|
|
|
$
|
293
|
|
|
$
|
202
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loan production
|
|
$
|
76,979
|
|
|
$
|
89,951
|
|
|
$
|
60,774
|
|
|
$
|
37,902
|
|
|
$
|
29,236
|
|
Total loan production(5)
|
|
|
78,316
|
|
|
|
91,698
|
|
|
|
62,714
|
|
|
|
39,048
|
|
|
|
30,036
|
|
Mortgage industry market share(6)
|
|
|
3.30
|
%
|
|
|
3.30
|
%
|
|
|
2.01
|
%
|
|
|
1.37
|
%
|
|
|
0.77
|
%
|
Pipeline of SFR mortgage loans in process (at December 31)
|
|
$
|
7,506
|
|
|
$
|
11,821
|
|
|
$
|
10,488
|
|
|
$
|
6,689
|
|
|
$
|
4,116
|
|
Loans sold
|
|
|
71,164
|
|
|
|
79,049
|
|
|
|
52,297
|
|
|
|
31,036
|
|
|
|
23,176
|
|
Loans sold/SFR mortgage loans production
|
|
|
92
|
%
|
|
|
88
|
%
|
|
|
86
|
%
|
|
|
82
|
%
|
|
|
79
|
%
|
SFR mortgage loans serviced for others (at December 31)(7)
|
|
$
|
181,724
|
|
|
$
|
139,817
|
|
|
$
|
84,495
|
|
|
$
|
50,219
|
|
|
$
|
30,774
|
|
Total SFR mortgage loans serviced (at December 31)
|
|
|
198,170
|
|
|
|
155,656
|
|
|
|
90,721
|
|
|
|
56,038
|
|
|
|
37,066
|
|
Average number of full-time equivalent employees
(“FTEs”)
|
|
|
9,518
|
|
|
|
7,935
|
|
|
|
6,240
|
|
|
|
4,715
|
|
|
|
3,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share(8)
|
|
$
|
(8.28
|
)
|
|
$
|
5.07
|
|
|
$
|
4.67
|
|
|
$
|
3.41
|
|
|
$
|
2.92
|
|
Diluted earnings (loss) per share(9)
|
|
|
(8.28
|
)
|
|
|
4.82
|
|
|
|
4.43
|
|
|
|
3.27
|
|
|
|
2.88
|
|
Dividends declared per share
|
|
|
1.75
|
|
|
|
1.88
|
|
|
|
1.56
|
|
|
|
1.21
|
|
|
|
0.55
|
|
Dividend payout ratio(10)
|
|
|
(21
|
)%
|
|
|
39
|
%
|
|
|
35
|
%
|
|
|
37
|
%
|
|
|
19
|
%
|
Book value per share (at December 31)
|
|
$
|
16.61
|
|
|
$
|
27.78
|
|
|
$
|
24.02
|
|
|
$
|
20.65
|
|
|
$
|
18.17
|
|
Closing price per share (at December 31)
|
|
|
5.95
|
|
|
|
45.16
|
|
|
|
39.02
|
|
|
|
34.45
|
|
|
|
29.79
|
|
Average shares (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,261
|
|
|
|
67,701
|
|
|
|
62,760
|
|
|
|
59,513
|
|
|
|
55,247
|
|
Diluted
|
|
|
74,261
|
|
|
|
71,118
|
|
|
|
66,115
|
|
|
|
62,010
|
|
|
|
55,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity
|
|
|
(31.10
|
)%
|
|
|
19.09
|
%
|
|
|
21.23
|
%
|
|
|
17.38
|
%
|
|
|
17.02
|
%
|
Return on average assets
|
|
|
(1.71
|
)%
|
|
|
1.17
|
%
|
|
|
1.38
|
%
|
|
|
1.20
|
%
|
|
|
1.38
|
%
|
Net interest margin, consolidated
|
|
|
1.81
|
%
|
|
|
2.02
|
%
|
|
|
2.16
|
%
|
|
|
2.61
|
%
|
|
|
2.91
|
%
|
Net interest margin, thrift(11)
|
|
|
2.16
|
%
|
|
|
2.11
|
%
|
|
|
2.27
|
%
|
|
|
2.15
|
%
|
|
|
1.78
|
%
|
Mortgage banking revenue (“MBR”) margin on loans
sold(12)
|
|
|
(0.22
|
)%
|
|
|
1.06
|
%
|
|
|
1.36
|
%
|
|
|
1.80
|
%
|
|
|
2.21
|
%
|
Efficiency ratio(13)
|
|
|
244
|
%
|
|
|
58
|
%
|
|
|
55
|
%
|
|
|
58
|
%
|
|
|
57
|
%
|
Operating expenses to loan production
|
|
|
1.24
|
%
|
|
|
0.86
|
%
|
|
|
0.99
|
%
|
|
|
1.24
|
%
|
|
|
1.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet Data and Asset Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
31,232
|
|
|
$
|
26,028
|
|
|
$
|
19,645
|
|
|
$
|
15,521
|
|
|
$
|
10,675
|
|
Average assets
|
|
|
35,969
|
|
|
|
29,309
|
|
|
|
21,278
|
|
|
|
16,871
|
|
|
|
11,712
|
|
Average equity
|
|
|
1,977
|
|
|
|
1,796
|
|
|
|
1,381
|
|
|
|
1,167
|
|
|
|
949
|
|
Debt to equity ratio (at December 31)(14)
|
|
|
16.2:1
|
|
|
|
13.5:1
|
|
|
|
12.9:1
|
|
|
|
12.1:1
|
|
|
|
11.8:1
|
|
Tier 1 (core) capital ratio (at December 31)(15)
|
|
|
6.24
|
%
|
|
|
7.39
|
%
|
|
|
8.21
|
%
|
|
|
7.66
|
%
|
|
|
7.56
|
%
|
Risk-based capital ratio (at December 31)(15)
|
|
|
10.50
|
%
|
|
|
11.72
|
%
|
|
|
12.20
|
%
|
|
|
12.02
|
%
|
|
|
12.29
|
%
|
Non-performing assets to total assets (at December 31)
|
|
|
4.61
|
%
|
|
|
0.63
|
%
|
|
|
0.34
|
%
|
|
|
0.73
|
%
|
|
|
0.76
|
%
|
Allowance for loan losses to total loans held for investment
(at December 31)
|
|
|
2.42
|
%
|
|
|
0.61
|
%
|
|
|
0.67
|
%
|
|
|
0.78
|
%
|
|
|
0.71
|
%
|
Allowance for loan losses to non-performing loans held for
investment
(at December 31)
|
|
|
30.44
|
%
|
|
|
57.51
|
%
|
|
|
127.10
|
%
|
|
|
107.67
|
%
|
|
|
140.04
|
%
|
16
|
|
|
(1) |
|
The items under the balance sheet and statement of operations
sections are rounded individually and therefore may not
necessarily add to the total. |
|
(2) |
|
2003-2005
data has been retrospectively adjusted to reflect the stock
option expenses under Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), “Share
Based Payment” (“SFAS 123(R)”). Refer to
“Note 23 — Benefit Plans” in the
accompanying notes to our consolidated financial statements for
further discussion. |
|
(3) |
|
For the year ended December 31, 2004, the data is presented
on a pro forma basis excluding the effect of change in
accounting principle for rate lock commitments under Staff
Accounting Bulletin No. 105, “Application of
Accounting Principles to Loan Commitments”
(“SAB 105”), effective April 1, 2004,
and for the impact of the purchase accounting adjustments for
Financial Freedom. The SAB 105 impact for the year ended
December 31, 2004 was $59.5 million. Additionally, the
impact of the purchase accounting adjustment for Financial
Freedom totaled $7.9 million before-tax. The pro forma
results are provided so that investors can evaluate our results
on a comparable basis. A full reconciliation between the pro
forma and GAAP amounts, with the relevant performance ratios, is
as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
Gain on sale of loans
|
|
$
|
364
|
|
|
$
|
67
|
|
|
$
|
431
|
|
Net revenues
|
|
|
751
|
|
|
|
67
|
|
|
|
818
|
|
Other expense
|
|
|
483
|
|
|
|
—
|
|
|
|
483
|
|
Income taxes
|
|
|
106
|
|
|
|
27
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
162
|
|
|
$
|
40
|
|
|
$
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.61
|
|
|
$
|
0.66
|
|
|
$
|
3.27
|
|
ROE
|
|
|
13.89
|
%
|
|
|
|
|
|
|
17.38
|
%
|
ROA
|
|
|
0.96
|
%
|
|
|
|
|
|
|
1.20
|
%
|
|
|
|
(4) |
|
The Company previously classified the initial deferral of the
incremental direct origination costs net of the fees collected
on the loans as a net reduction in operating expenses. However,
during 2005, we revised the presentation to reflect the deferral
of the total fees collected as a reduction of fee and other
income and the deferral of the incremental direct origination
costs as a reduction of operating expenses. All prior periods
were revised to conform to the current year presentation. This
revision had no impact on reported earnings or the balance sheet
in 2005 or in any prior period. Certain performance ratios based
on net revenues or operating expenses were revised accordingly. |
|
(5) |
|
Total loan production includes newly originated commitments on
builder construction loans as well as commercial real estate
loan production, which started in March 2007. |
|
(6) |
|
Mortgage industry market share is calculated based on our total
SFR mortgage loan production, both purchased (mortgage broker
and banker) and originated (retail and mortgage broker and
banker), in all channels (the numerator) divided by the Mortgage
Bankers Association (“MBA”) February 15, 2008
Mortgage Finance Long-Term Forecast estimate of the overall
mortgage market (the denominator). Our market share calculation
is consistent with that of our mortgage banking peers. It is
important to note that these industry calculations cause
purchased mortgages to be counted more than once, i.e., first
when they are originated and again by the purchasers (through
financial institutions and conduit channels) of the mortgages.
Therefore, our market share calculation may not be
mathematically precise, but it is consistent with industry
calculations, which we believe provides investors with a good
view of our relative standing compared to our top mortgage
lending peers. |
|
(7) |
|
SFR mortgage loans serviced for others represent the unpaid
principal balance on loans sold with servicing retained by
Indymac. Total SFR mortgage loans serviced include mortgage
loans serviced for others and mortgage loans owned by and
serviced for Indymac. |
|
(8) |
|
Net earnings (loss) divided by weighted average basic shares
outstanding for the year. |
17
|
|
|
(9) |
|
Net earnings (loss) divided by weighted average diluted shares
outstanding for the year. Due to the net loss for the year ended
December 31, 2007, no potentially dilutive shares are
included in the diluted loss per share calculation as including
such shares in the calculation would be anti-dilutive. |
|
(10) |
|
Dividend payout ratio represents dividends declared per share as
a percentage of diluted earnings (loss) per share. This ratio
was negative for 2007 due to the Company’s net loss and
resulting diluted loss per share for the year. |
|
(11) |
|
Net interest margin, thrift, represents the combined margin for
thrift, elimination and other, and corporate overhead. |
|
(12) |
|
Mortgage banking revenue margin is calculated using the sum of
consolidated gain (loss) on sale of loans and the net interest
income earned on loans held for sale by our mortgage banking
production divisions divided by total loans sold. |
|
(13) |
|
Efficiency ratio is defined as operating expenses divided by net
revenues, excluding provision for loan losses. |
|
(14) |
|
Total debt divided by total shareholders’ equity. For
December 31, 2007, preferred stock in subsidiary is
included in the calculation. |
|
(15) |
|
The Tier 1 (core) capital ratio and risk-based capital
ratio are for Indymac Bank and exclude unencumbered cash at the
Parent Company available for investment in Indymac Bank. The
risk-based capital ratio is calculated based on the regulatory
standard risk weightings adjusted for the additional risk
weightings for subprime loans. |
18
|
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis should be read in
conjunction with our consolidated financial statements, and the
notes thereto and the other information incorporated by
reference herein.
OVERVIEW
The U.S. mortgage industry experienced unprecedented
disruption in 2007. A combination of credit tightening and
softening real estate prices throughout the U.S. has
resulted in an industry-wide increase in delinquencies and
foreclosures. Many mortgage lenders were forced to sell loans
and securities at distressed prices, and many that were not
depository institutions collapsed or were severely affected. As
a result of this disruption, Indymac has made significant
changes in its business model. We are currently expecting to
originate a significant portion of our loans for sale to the
GSEs as that market remains the only reliable secondary market,
at present.
We have reduced our mortgage production by eliminating
production channels and suspending products. We have suspended
or eliminated many higher risk products, including high CLTV
closed-end second liens and HELOCs, consumer and builder
construction loans, and most non-conforming loan production.
Also, we exited certain production channels, including the
conduit channel, the homebuilder division and the home equity
division. As a result, production results for 2007 show a
significant decline from the prior year.
2007 was also severely impacted by worsening credit
conditions as home prices and home sales declined. This has led
to a significant increase in delinquencies in many products,
particularly in higher
loan-to-value
(“LTV”) first and second lien loans and builder
construction loans. As a result of the significantly worsening
trends in home prices and loan delinquencies, we recorded
significant charges, principally related to credit risk in our
HFI portfolio, builder construction portfolio, and consumer
construction portfolio. In addition, we recorded significant
valuation adjustments in our loans held for sale, investment and
non-investment grade securities and in residual securities.
Finally, delinquency and repurchase demand trends, predominantly
in our higher CLTV/LTV loan products, increased significantly.
As a result of these changes, virtually all of our operating
segments, except for the mortgage servicing division and
Financial Freedom, our reverse mortgage lending subsidiary,
reported material losses in 2007. For the year ended
December 31, 2007, Indymac had a consolidated net loss of
$614.8 million. Regarding business segment
performance1(,
the mortgage production division had a net loss of
$96.8 million in 2007 while the mortgage servicing division
had earnings of $181.4 million. Combining mortgage
production and servicing, the mortgage banking segment recorded
net earnings of $33.0 million. The thrift segment recorded
a net loss of $199.2 million for 2007 and our discontinued
business activities recorded a net loss of $281.1 million.
As a result of our thrift structure and strong capital and
liquidity positions, we were not forced to sell assets at
liquidation prices and our funding capacity was not materially
impacted.
(1 Net
income for the mortgage production division, mortgage servicing
division and the thrift segment is before divisional and
corporate overhead. Net income for the total mortgage banking
segment is after divisional overhead but before corporate
overhead.
19
NARRATIVE
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
Year
ended December 31, 2007 Compared to Year ended
December 31, 2006
The Company recorded a net loss of $614.8 million, or $8.28
loss per diluted share, for the year ended December 31,
2007, compared with net earnings of $342.9 million, or
$4.82 per diluted share, for the year ended December 31,
2006. The decline in profitability is mainly attributable to
higher credit costs and significant reduction in gain on sale of
loans due to spread widening and illiquidity in the secondary
mortgage market. We recorded $1.4 billion of credit costs
for the year ended December 31, 2007 compared to
$126.1 million for the year ended December 31, 2006.
As a result, our total credit reserves increased to
$2.4 billion at December 31, 2007 compared to
$619 million as of December 31, 2006. See the
“Asset Quality” section for further information on
credit reserves.
SFR
Mortgage Loan Production
Our total SFR mortgage loan production for the year ended
December 31, 2007 dropped 14%, to $77.0 billion, as
compared to $90.0 billion for 2006. This decline in volume
is mainly reflected in the 47%, or $14.0 billion, drop in
production from our conduit channel from 2006 as we exited this
channel due to its inherently lower profit margins and the
current uncertainty with respect to secondary market spreads and
execution. Also, volume from the mortgage broker and banker
channel declined by $1.7 billion, or 4%, from 2006 as we
migrated our production efforts to focus primarily on
GSE-eligible loans. Total SFR mortgage loan production,
excluding the conduit channel, produced $60.9 billion in
2007, reflecting a slight increase of 2% from $59.9 billion
in 2006. Our retail channel continued to grow with production
reaching $2.0 billion this year, significantly up from
$7.0 million in 2006. The servicing retention channel saw
an increase of 70% from 2006. The pipeline of SFR mortgage loans
in process ended at $7.5 billion, down 37% from
$11.8 billion at December 31, 2006.
Mortgage
Banking Revenue Margin
Net revenues for the Company declined to $3.6 million for
2007 compared to $1.3 billion for 2006. This decline in net
revenues is primarily due to the decline in MBR margin caused by
the secondary market disruption discussed earlier and higher
credit costs due to worsening delinquencies in our held for sale
(“HFS”), HFI and credit risk securities portfolios.
Our MBR margin declined to a negative 0.22% for the year ended
December 31, 2007 from a positive 1.06% for the year ended
December 31, 2006. This year over year MBR margin decline
was primarily due to higher credit costs and the change in
product mix of loans sold.
In the fourth quarter of 2007, we transferred HFS loans with an
original cost basis of $10.9 billion to HFI loans as we no
longer intend to sell these loans given the extreme disruption
in the secondary mortgage market. These loans were transferred
at the lower of cost or market (“LOCOM”), and,
accordingly, we reduced the cost basis by $0.6 billion,
resulting in an increase in HFI loans of $10.3 billion. The
$0.6 billion reduction was a combination of LOCOM reserves
existing at the third quarter of 2007 and additional charges to
the gain on sale of loans during the fourth quarter of 2007.
Embedded in this reduction are estimated credit losses of
$474 million.
During 2007, we sold a total of $71.2 billion in loans and
recorded a loss on sale of $354.4 million. By comparison,
we sold a total of $79.0 billion in loans during 2006,
which generated $668.0 million in gain on sale.
Other
Credit Costs
As discussed earlier, credit costs during the year ended
December 31, 2007 significantly increased primarily due to
higher delinquency and foreclosure rates in both our HFS and HFI
portfolios. For the HFI portfolio, we increased the provision
for loan losses to $395.5 million for the year ended
December 31, 2007 compared to $20.0 million for the
year ended December 31, 2006. We repurchased
$613 million of loans for the year ended December 31,
2007, mainly due to early payment defaults, compared to
$194 million during the year ended December 31, 2006.
Based on delinquency trends and demand activity, we expect to
repurchase additional loans in 2008 and beyond. Accordingly, we
recorded a provision for the secondary market reserve of
$232.5 million for the year ended December 31, 2007,
compared to $37.3 million for the prior year.
20
Non-interest
Income
Total non-interest income, excluding gain on sale of loans,
increased 9% from $171.9 million for the year ended
December 31, 2006 to $186.7 million for the year ended
December 31, 2007. This increase is largely due to the
strong performance from our mortgage servicing division. Service
fee income increased $417.9 million as a direct result of
the growth in our servicing portfolio, slower prepayment rates
and effective hedge performance. These increases were offset by
a reduction in revenue from our mortgage-backed securities
(“MBS”) portfolio. The MBS portfolio revenue declined
from a gain of $20.5 million for the year ended
December 31, 2006 to a loss of $439.7 million for the
year ended December 31, 2007, primarily due to valuation
adjustments on non-investment grade and residual securities.
Operating
Expenses
Total operating expenses increased 23% from $789.0 million
for the year ended December 31, 2006 to $973.7 million
for the year ended December 31, 2007. The increase is
primarily reflected in the 20% growth of our average FTEs from
7,935 for 2006 to 9,518 for 2007, which was necessary to support
the expansion of our retail lending group and growth in loan
servicing and default management functions. Contributing to the
increase in expenses were REO related expenses, which increased
by $42.2 million due to further write-downs on REOs
resulting from the rapid decline in values, as well as higher
foreclosures resulting from worsened delinquencies in our
portfolio. In addition, we recorded severance charges of
approximately $28 million in the third quarter of 2007
related to the reduction of our workforce.
Year
ended December 31, 2006 Compared to Year ended
December 31, 2005
Industry loan volumes of $2.7 trillion were 28% below
2003’s historic high level and 10% lower than in 2005.
Mortgage banking revenue margins declined further after sharp
declines in 2005, and net interest margins continued to
compress, as the yield curve inverted with the average spread
between the
10-year
Treasury yield and the
1-month
LIBOR declining from 89 basis points in 2005 to negative
31 basis points in 2006. The housing industry slowed down
significantly, increasing loan delinquencies and non-performing
assets and driving up credit costs for all mortgage lenders.
Yet, despite these challenges, Indymac reached new performance
heights in 2006, achieving:
|
|
|
|
•
|
Record mortgage loan production of $90 billion, a 48%
increase over 2005;
|
|
|
•
|
Record mortgage market share of 3.30%, a 64% gain over the 2.01%
share we had in 2005;
|
|
|
•
|
Record net revenues of $1.3 billion, a 22% increase over
2005;
|
|
|
•
|
Record earnings per share of $4.82, a 9% gain;
|
|
|
•
|
Record growth in total assets, which increased by
$8 billion, or 37%, to $29.5 billion;
|
|
|
•
|
Record growth in our portfolio of loans served for others, which
increased by $55 billion, or 65%, to 140 billion;
|
|
|
•
|
Strong return on equity of 19%, slightly lower than last
year’s 21% level.
|
Net revenues of $1.3 billion for 2006 reflect an increase
of 22% over 2005. Key drivers of this growth included the
following:
1) Growth in average interest earning assets of 32% from
$19.6 billion in 2005 to $26.0 billion in 2006,
leading to an increase in net interest income of 24% to
$526.7 million. The increase was primarily driven by the
growth in production, increased retention of securities and
loans in our held for investment portfolio, offset by the sale
of loans. Net interest margin declined from 2.16% to 2.02%
during a period of inverted yield curve. Factors contributing to
this decline included higher cost of funds and hedging cost,
higher premium amortization and increased non-performing loans.
This decline somewhat mitigated the positive impact from the
growth in average interest earning assets.
2) Growth in mortgage production of 48% in 2006 over 2005
to a record high of $90.0 billion, led to a 51% increase in
loans sold to $79.0 billion. Our market share increased
from 2.01% in 2005 to 3.58% in 2006. Leading
21
this growth were our Financial Freedom and conduit channels with
increases in production of 71% and 90%, respectively. This
volume growth mitigated a decline in the MBR margin on loans
sold, resulting from a decline in higher margin pay option ARM
volume and a higher mix of lower margin conduit and
correspondent channel volume. The MBR margin on loans sold was
1.06% in 2006, down from 1.36% in 2005.
3) Provision for loan loss increased from
$10.0 million for 2005 to $20.0 million for 2006
mainly due to an increase in our non-performing assets as
delinquencies worsened. As of December 31, 2006, the
allowance for loan losses represented 4.9 times net charge-offs,
down from 7.2 times at December 31, 2005 as net charge-offs
for 2006 increased 4 basis points to 0.14% of average loans
held for investment.
4) Service fee income of $101.3 million in 2006 grew
129% over 2005 driven by the increase in the principal balance
of loans serviced for others combined with effective hedging
performance and slowing prepayments attributable to reduced
refinancing and home sales.
Operating expenses of $789.0 million in 2006 reflected an
increase of 28%, consistent with the growth in our operations
and infrastructure investments in order to execute on our
strategy to increase production and revenue. During 2006, we
opened three new regional centers, which increased our total
regional centers to 16 at December 31, 2006. In addition,
average FTE increased 27% from 6,240 to 7,935 during the year
supporting this growth.
SUMMARY
OF BUSINESS SEGMENT RESULTS
Our segment reporting is organized consistent with our hybrid
business model. Mortgage banking involves the origination,
securitization and sale of mortgage loans and related assets,
and the servicing of those loans. The revenues from mortgage
banking consist primarily of gains on the sale of the loans,
fees earned from origination, net interest income earned while
the loans are held pending sale, and servicing fees. On the
thrift side, we generate core spread income from our investment
portfolio of prime SFR mortgage loans, MBS and consumer
construction loans.
As conditions in the U.S. mortgage market have
deteriorated, we have exited certain production channels and are
reporting them in a separate category in our segment reporting,
“Discontinued Business Activities” as a result of our
continuing involvement with these activities. These exited
production channels include the conduit, homebuilder and home
equity channels. These activities are not considered
discontinued operations as defined by SFAS 144. We
segregated the business activities we have exited so that the
segments represent our new business model. See the
“Discontinued Business Activities” section for more
information.
We have developed a detailed reporting process that computes net
earnings and ROE for our key business segments each reporting
period, and we use the results to evaluate our managers’
performance and determine their incentive compensation. In
addition, we use the results to evaluate the performance and
prospects of our divisions and adjust our capital allocations to
those that earn the best returns for our shareholders.
We predominantly use GAAP to compute each division’s
financial results as if it were a stand-alone entity. Consistent
with this approach, borrowed funds and their interest cost are
allocated based on the funds actually used by the Company to
fund the division’s assets and capital is allocated based
on regulatory capital rules for the specific assets of each
segment. Additionally, transactions between divisions are
reflected at arms-length in these financial results, and
intercompany profits are eliminated in consolidation. We do not
allocate fixed corporate and business unit overhead costs to our
profit center divisions, because the methodologies to do so are
arbitrary and would distort each division’s marginal
contribution to our profits. However, the cost of these overhead
activities is included in the following tables to reconcile to
our consolidated results and is tracked closely, so the
responsible managers can be held accountable for the level of
these costs and their efficient use.
The following table and discussions explain the recent results
of our two major operating segments, mortgage banking and
thrift. These activities, combined with the eliminations and
other category, which includes supporting deposit and treasury
costs as well as eliminating entries and discontinued business
activities, form our total operating results. Our unallocated
corporate overhead costs are also presented and discussed. We
have also included supplemental tables showing detailed division
level financial results for each of our major operating segments.
22
The following summarizes the Company’s financial results by
segment for the years indicated (dollars in thousands):
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Discontinued
|
|
|
|
|
|
|
Banking
|
|
|
Thrift
|
|
|
Eliminations
|
|
|
Operating
|
|
|
Corporate
|
|
|
On-Going
|
|
|
Business
|
|
|
Total
|
|
|
|
Segment
|
|
|
Segment
|
|
|
& Other(1)
|
|
|
Results
|
|
|
Overhead
|
|
|
Businesses
|
|
|
Activities
|
|
|
Company
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
93,248
|
|
|
$
|
234,865
|
|
|
$
|
107,937
|
|
|
$
|
436,050
|
|
|
$
|
(9,437
|
)
|
|
$
|
426,613
|
|
|
$
|
140,129
|
|
|
$
|
566,742
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
(185,919
|
)
|
|
|
—
|
|
|
|
(185,919
|
)
|
|
|
—
|
|
|
|
(185,919
|
)
|
|
|
(209,629
|
)
|
|
|
(395,548
|
)
|
Gain (loss) on sale of loans
|
|
|
96,858
|
|
|
|
24,409
|
|
|
|
(168,083
|
)
|
|
|
(46,816
|
)
|
|
|
—
|
|
|
|
(46,816
|
)
|
|
|
(307,544
|
)
|
|
|
(354,360
|
)
|
Service fee income (expense)
|
|
|
427,490
|
|
|
|
—
|
|
|
|
88,357
|
|
|
|
515,847
|
|
|
|
—
|
|
|
|
515,847
|
|
|
|
3,406
|
|
|
|
519,253
|
|
Gain (loss) on securities
|
|
|
(35,595
|
)
|
|
|
(339,010
|
)
|
|
|
(42,965
|
)
|
|
|
(417,570
|
)
|
|
|
—
|
|
|
|
(417,570
|
)
|
|
|
(22,143
|
)
|
|
|
(439,713
|
)
|
Gain on sale and leaseback of building
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,982
|
|
|
|
23,982
|
|
|
|
—
|
|
|
|
23,982
|
|
Other income (expense)
|
|
|
43,467
|
|
|
|
29,349
|
|
|
|
3,582
|
|
|
|
76,398
|
|
|
|
1,408
|
|
|
|
77,806
|
|
|
|
5,402
|
|
|
|
83,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
625,468
|
|
|
|
(236,306
|
)
|
|
|
(11,172
|
)
|
|
|
377,990
|
|
|
|
15,953
|
|
|
|
393,943
|
|
|
|
(390,379
|
)
|
|
|
3,564
|
|
Operating expenses
|
|
|
812,639
|
|
|
|
97,130
|
|
|
|
65,182
|
|
|
|
974,951
|
|
|
|
161,188
|
|
|
|
1,136,139
|
|
|
|
76,912
|
|
|
|
1,213,051
|
|
Severance charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,850
|
|
|
|
31,850
|
|
|
|
—
|
|
|
|
31,850
|
|
Pension curtailment gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,335
|
)
|
|
|
(10,335
|
)
|
|
|
—
|
|
|
|
(10,335
|
)
|
Deferral of expenses under SFAS 91
|
|
|
(244,421
|
)
|
|
|
(8,251
|
)
|
|
|
(78
|
)
|
|
|
(252,750
|
)
|
|
|
—
|
|
|
|
(252,750
|
)
|
|
|
(6,405
|
)
|
|
|
(259,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
57,250
|
|
|
|
(325,185
|
)
|
|
|
(76,276
|
)
|
|
|
(344,211
|
)
|
|
|
(166,750
|
)
|
|
|
(510,961
|
)
|
|
|
(460,886
|
)
|
|
|
(971,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
1,288
|
|
|
|
1,207
|
|
|
|
20,029
|
|
|
|
22,524
|
|
|
|
48
|
|
|
|
22,572
|
|
|
|
449
|
|
|
|
23,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
Net earnings (loss)
|
|
$
|
32,964
|
|
|
$
|
(199,247
|
)
|
|
$
|
(65,797
|
)
|
|
$
|
(232,080
|
)
|
|
$
|
(101,599
|
)
|
|
$
|
(333,679
|
)
|
|
$
|
(281,129
|
)
|
|
$
|
(614,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
8,386,138
|
|
|
$
|
14,976,535
|
|
|
$
|
(88,143
|
)
|
|
$
|
23,274,530
|
|
|
$
|
553,740
|
|
|
$
|
23,828,270
|
|
|
$
|
7,403,916
|
|
|
$
|
31,232,186
|
|
Allocated capital
|
|
|
823,308
|
|
|
|
670,476
|
|
|
|
4,325
|
|
|
|
1,498,109
|
|
|
|
58,570
|
|
|
|
1,556,679
|
|
|
|
420,253
|
|
|
|
1,976,932
|
|
Loans produced
|
|
|
58,217,003
|
|
|
|
2,988,322
|
|
|
|
N/A
|
|
|
|
61,205,325
|
|
|
|
—
|
|
|
|
61,205,325
|
|
|
|
17,111,059
|
|
|
|
78,316,384
|
|
Loans sold
|
|
|
59,148,675
|
|
|
|
6,363,003
|
|
|
|
(15,194,611
|
)
|
|
|
50,317,067
|
|
|
|
—
|
|
|
|
50,317,067
|
|
|
|
20,846,657
|
|
|
|
71,163,724
|
|
MBR margin
|
|
|
0.39
|
%
|
|
|
0.38
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.17
|
%
|
|
|
(1.17
|
)%
|
|
|
(0.22
|
)%
|
ROE
|
|
|
4
|
%
|
|
|
(30
|
)%
|
|
|
N/A
|
|
|
|
(15
|
)%
|
|
|
N/A
|
|
|
|
(21
|
)%
|
|
|
(67
|
)%
|
|
|
(31
|
)%
|
Net interest margin
|
|
|
N/A
|
|
|
|
1.57
|
%
|
|
|
N/A
|
|
|
|
1.87
|
%
|
|
|
N/A
|
|
|
|
1.79
|
%
|
|
|
1.89
|
%
|
|
|
1.81
|
%
|
Net interest margin, thrift
|
|
|
N/A
|
|
|
|
1.57
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2.16
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Average FTE
|
|
|
7,173
|
|
|
|
436
|
|
|
|
333
|
|
|
|
7,942
|
|
|
|
1,241
|
|
|
|
9,183
|
|
|
|
335
|
|
|
|
9,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
80,721
|
|
|
$
|
197,333
|
|
|
$
|
76,139
|
|
|
$
|
354,193
|
|
|
$
|
(8,737
|
)
|
|
$
|
345,456
|
|
|
$
|
181,265
|
|
|
$
|
526,721
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
(12,728
|
)
|
|
|
—
|
|
|
|
(12,728
|
)
|
|
|
—
|
|
|
|
(12,728
|
)
|
|
|
(7,265
|
)
|
|
|
(19,993
|
)
|
Gain (loss) on sale of loans
|
|
|
616,594
|
|
|
|
42,649
|
|
|
|
(67,639
|
)
|
|
|
591,604
|
|
|
|
—
|
|
|
|
591,604
|
|
|
|
76,450
|
|
|
|
668,054
|
|
Service fee income (expense)
|
|
|
136,790
|
|
|
|
—
|
|
|
|
(35,939
|
)
|
|
|
100,851
|
|
|
|
—
|
|
|
|
100,851
|
|
|
|
466
|
|
|
|
101,317
|
|
Gain (loss) on securities
|
|
|
19,173
|
|
|
|
3,434
|
|
|
|
10,809
|
|
|
|
33,416
|
|
|
|
—
|
|
|
|
33,416
|
|
|
|
(12,934
|
)
|
|
|
20,482
|
|
Other income (expense)
|
|
|
12,268
|
|
|
|
26,771
|
|
|
|
(1,664
|
)
|
|
|
37,375
|
|
|
|
2,220
|
|
|
|
39,595
|
|
|
|
10,527
|
|
|
|
50,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
865,546
|
|
|
|
257,459
|
|
|
|
(18,294
|
)
|
|
|
1,104,711
|
|
|
|
(6,517
|
)
|
|
|
1,098,194
|
|
|
|
248,509
|
|
|
|
1,346,703
|
|
Operating expenses
|
|
|
685,867
|
|
|
|
81,720
|
|
|
|
49,009
|
|
|
|
816,596
|
|
|
|
168,697
|
|
|
|
985,293
|
|
|
|
72,160
|
|
|
|
1,057,453
|
|
Deferral of expenses under SFAS 91
|
|
|
(247,047
|
)
|
|
|
(8,812
|
)
|
|
|
(2,229
|
)
|
|
|
(258,088
|
)
|
|
|
—
|
|
|
|
(258,088
|
)
|
|
|
(8,158
|
)
|
|
|
(266,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
426,726
|
|
|
|
184,551
|
|
|
|
(65,074
|
)
|
|
|
546,203
|
|
|
|
(175,214
|
)
|
|
|
370,989
|
|
|
|
184,507
|
|
|
|
555,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
259,225
|
|
|
$
|
112,394
|
|
|
$
|
(34,352
|
)
|
|
$
|
337,267
|
|
|
$
|
(106,705
|
)
|
|
$
|
230,562
|
|
|
$
|
112,367
|
|
|
$
|
342,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
6,291,661
|
|
|
$
|
12,037,309
|
|
|
$
|
(89,838
|
)
|
|
$
|
18,239,132
|
|
|
$
|
588,649
|
|
|
$
|
18,827,781
|
|
|
$
|
7,200,495
|
|
|
$
|
26,028,276
|
|
Allocated capital
|
|
|
636,786
|
|
|
|
536,943
|
|
|
|
2,108
|
|
|
|
1,175,837
|
|
|
|
182,550
|
|
|
|
1,358,387
|
|
|
|
437,873
|
|
|
|
1,796,260
|
|
Loans produced
|
|
|
56,802,029
|
|
|
|
2,937,596
|
|
|
|
—
|
|
|
|
59,739,625
|
|
|
|
—
|
|
|
|
59,739,625
|
|
|
|
31,958,199
|
|
|
|
91,697,824
|
|
Loans sold
|
|
|
54,536,739
|
|
|
|
2,666,610
|
|
|
|
(9,184,815
|
)
|
|
|
48,018,534
|
|
|
|
—
|
|
|
|
48,018,534
|
|
|
|
31,030,428
|
|
|
|
79,048,962
|
|
MBR margin
|
|
|
1.30
|
%
|
|
|
1.60
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.42
|
%
|
|
|
N/A
|
|
|
|
1.06
|
%
|
ROE
|
|
|
41
|
%
|
|
|
21
|
%
|
|
|
N/A
|
|
|
|
29
|
|
|
|
N/A
|
|
|
|
17
|
%
|
|
|
26
|
%
|
|
|
19
|
%
|
Net interest margin
|
|
|
N/A
|
|
|
|
1.64
|
%
|
|
|
N/A
|
|
|
|
1.94
|
%
|
|
|
N/A
|
|
|
|
1.83
|
%
|
|
|
2.52
|
%
|
|
|
2.02
|
%
|
Net interest margin, thrift
|
|
|
N/A
|
|
|
|
1.64
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2.11
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Average FTE
|
|
|
5,586
|
|
|
|
473
|
|
|
|
314
|
|
|
|
6,373
|
|
|
|
1,232
|
|
|
|
7,605
|
|
|
|
330
|
|
|
|
7,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% change in net earnings
|
|
|
(87
|
)%
|
|
|
(277
|
)%
|
|
|
(92
|
)%
|
|
|
(169
|
)%
|
|
|
5
|
%
|
|
|
(245
|
)%
|
|
|
(350
|
)%
|
|
|
(279
|
)%
|
% change in capital
|
|
|
29
|
%
|
|
|
25
|
%
|
|
|
105
|
%
|
|
|
27
|
%
|
|
|
(68
|
)%
|
|
|
15
|
%
|
|
|
(4
|
)%
|
|
|
10
|
%
|
|
|
|
(1) |
|
Included are eliminations, deposits, and treasury items. See the
“Eliminations and Other Segment” section for details. |
23
MORTGAGE
BANKING SEGMENT
Our mortgage banking segment primarily consists of the mortgage
production division and the mortgage servicing division, which
services the loans that Indymac originates, whether they have
been sold into the secondary market or are held for investment
on our balance sheet.
The mortgage banking segment reported net earnings of
$33.0 million for the year ended December 31, 2007
compared with net earnings of $259.2 million in the prior
year. These lower results were caused by a large decline in
earnings from our mortgage production division, which reported a
$96.8 million after-tax loss this year, partially offset by
very strong returns and growth in the mortgage servicing
division.
The primary driver of the loss in the mortgage production
division in 2007 was the decline in the MBR margin from 1.29% of
loans sold in 2006 to 0.32% of loans sold in 2007. A large
increase in production credit costs was the primary cause of
this decline. Mortgage banking revenue was reduced by
$476.5 million in pre-tax credit related costs in 2007,
representing a $377.6 million increase from
$98.9 million in 2006. As credit conditions in the
U.S. mortgage market have deteriorated, our loan production
credit costs have increased. Thus, we discontinued the offering
of products where these losses were concentrated. As a result,
substantially all of the production credit losses we incurred in
the fourth quarter of 2007 resulted from products we no longer
offer.
In addition to the increased credit losses, the continued severe
disruption in the secondary market for loans and securities not
sold to the GSEs has caused us to rapidly change our production
business model from a primary focus on non-GSE mortgage banking
to a model that now produces production that is 75%-85% eligible
for sale to the GSEs. This change in our business model has
temporarily reduced the profitability of our production
divisions, as we have worked to lower our costs and our
salesforce has adapted to selling these GSE products.
The mortgage banking segment was also negatively impacted in
2007 as it includes two
start-up
businesses, the retail lending group and commercial mortgage
banking division, which are currently unprofitable. These two
businesses reported a combined after-tax loss of
$38.8 million in 2007. We expect these businesses to
contribute to mortgage banking profits in 2008.
The significant disruption in credit and housing markets that
occurred during 2007 had a materially negative impact on our
production results. These disruptions have resulted in higher
non-GSE mortgage rates, significantly more restrictive
underwriting guidelines and declining home prices, all of which
worked to slow prepayments in our servicing portfolio. The loans
in our servicing portfolio prepaid at an annual rate of 10% in
2007 compared with 20% in 2006. The expectation of slower
non-GSE prepayments offset the impact of lower market interest
rates and resulted in strong hedging results. As a result, the
net income from our mortgage servicing division increased 174%
from $66.1 million in 2006 to $181.4 million in 2007
and resulted in a 50% return on the approximately
$400 million of capital we have invested in this division.
24
The following provides details on total mortgage banking segment
for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
|
|
Mortgage
|
|
|
Mortgage
|
|
|
Mortgage
|
|
|
Mortgage
|
|
|
Mortgage
|
|
|
|
Production
|
|
|
Servicing
|
|
|
Banking
|
|
|
Banking
|
|
|
Banking
|
|
|
|
Division
|
|
|
Division
|
|
|
O/H(1)
|
|
|
Division
|
|
|
Segment
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
132,086
|
|
|
$
|
(40,563
|
)
|
|
$
|
853
|
|
|
$
|
872
|
|
|
$
|
93,248
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
45,872
|
|
|
|
56,124
|
|
|
|
—
|
|
|
|
(5,138
|
)
|
|
|
96,858
|
|
Service fee income (expense)
|
|
|
38,046
|
|
|
|
389,441
|
|
|
|
—
|
|
|
|
3
|
|
|
|
427,490
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
(35,595
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(35,595
|
)
|
Other income (expense)
|
|
|
29,543
|
|
|
|
12,986
|
|
|
|
701
|
|
|
|
237
|
|
|
|
43,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
245,547
|
|
|
|
382,393
|
|
|
|
1,554
|
|
|
|
(4,026
|
)
|
|
|
625,468
|
|
Operating expenses
|
|
|
632,431
|
|
|
|
97,073
|
|
|
|
73,998
|
|
|
|
9,137
|
|
|
|
812,639
|
|
Deferral of expenses under SFAS 91
|
|
|
(229,972
|
)
|
|
|
(13,619
|
)
|
|
|
—
|
|
|
|
(830
|
)
|
|
|
(244,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(156,912
|
)
|
|
|
298,939
|
|
|
|
(72,444
|
)
|
|
|
(12,333
|
)
|
|
|
57,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
604
|
|
|
|
627
|
|
|
|
28
|
|
|
|
29
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(96,777
|
)
|
|
$
|
181,427
|
|
|
$
|
(44,146
|
)
|
|
$
|
(7,540
|
)
|
|
$
|
32,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
7,135,160
|
|
|
$
|
1,176,711
|
|
|
$
|
2,427
|
|
|
$
|
71,840
|
|
|
$
|
8,386,138
|
|
Allocated capital
|
|
|
441,917
|
|
|
|
361,405
|
|
|
|
14,208
|
|
|
|
5,778
|
|
|
|
823,308
|
|
Loans produced
|
|
|
53,263,377
|
|
|
|
4,592,979
|
|
|
|
—
|
|
|
|
360,647
|
|
|
|
58,217,003
|
|
Loans sold
|
|
|
55,035,002
|
|
|
|
4,071,678
|
|
|
|
—
|
|
|
|
41,995
|
|
|
|
59,148,675
|
|
MBR margin
|
|
|
0.32
|
%
|
|
|
1.38
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.39
|
%
|
ROE
|
|
|
(22
|
)%
|
|
|
50
|
%
|
|
|
N/A
|
|
|
|
(130
|
)%
|
|
|
4
|
%
|
Net interest margin
|
|
|
1.85
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.21
|
%
|
|
|
N/A
|
|
Average FTE
|
|
|
5,433
|
|
|
|
281
|
|
|
|
1,420
|
|
|
|
39
|
|
|
|
7,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
91,648
|
|
|
$
|
(11,489
|
)
|
|
$
|
562
|
|
|
$
|
—
|
|
|
$
|
80,721
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
585,501
|
|
|
|
31,093
|
|
|
|
—
|
|
|
|
—
|
|
|
|
616,594
|
|
Service fee income (expense)
|
|
|
21,141
|
|
|
|
115,649
|
|
|
|
—
|
|
|
|
—
|
|
|
|
136,790
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
19,173
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,173
|
|
Other income (expense)
|
|
|
1,958
|
|
|
|
7,015
|
|
|
|
3,295
|
|
|
|
—
|
|
|
|
12,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
700,248
|
|
|
|
161,441
|
|
|
|
3,857
|
|
|
|
—
|
|
|
|
865,546
|
|
Operating expenses
|
|
|
564,200
|
|
|
|
60,894
|
|
|
|
59,997
|
|
|
|
776
|
|
|
|
685,867
|
|
Deferral of expenses under SFAS 91
|
|
|
(238,979
|
)
|
|
|
(8,068
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(247,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
375,027
|
|
|
|
108,615
|
|
|
|
(56,140
|
)
|
|
|
(776
|
)
|
|
|
426,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
227,739
|
|
|
$
|
66,147
|
|
|
$
|
(34,189
|
)
|
|
$
|
(472
|
)
|
|
$
|
259,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
5,707,401
|
|
|
$
|
581,789
|
|
|
$
|
2,471
|
|
|
$
|
—
|
|
|
$
|
6,291,661
|
|
Allocated capital
|
|
|
370,703
|
|
|
|
253,235
|
|
|
|
12,848
|
|
|
|
—
|
|
|
|
636,786
|
|
Loans produced
|
|
|
54,103,697
|
|
|
|
2,698,332
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,802,029
|
|
Loans sold
|
|
|
52,480,834
|
|
|
|
2,055,905
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,536,739
|
|
MBR margin
|
|
|
1.29
|
%
|
|
|
1.51
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.30
|
%
|
ROE
|
|
|
61
|
%
|
|
|
26
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
41
|
%
|
Net interest margin
|
|
|
1.61
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Average FTE
|
|
|
4,324
|
|
|
|
201
|
|
|
|
1,060
|
|
|
|
1
|
|
|
|
5,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% change in net earnings
|
|
|
(142
|
)%
|
|
|
174
|
%
|
|
|
(29
|
)%
|
|
|
N/A
|
|
|
|
(87
|
)%
|
% change in capital
|
|
|
19
|
%
|
|
|
43
|
%
|
|
|
11
|
%
|
|
|
N/A
|
|
|
|
29
|
%
|
|
|
|
(1) |
|
Included mortgage production division overhead, servicing
overhead and secondary marketing overhead of
$(16.6) million, $(14.1) million and
$(13.5) million, respectively, for the year ended
December 31, 2007. For the year ended December 31,
2006, the mortgage production division overhead, servicing
overhead and secondary marketing overhead were
$(14.4) million, $(10.1) million and
$(9.7) million, respectively. |
25
MORTGAGE
PRODUCTION DIVISION
The mortgage production division originates loans through three
divisions: mortgage professionals group (“MPG”),
Financial Freedom and consumer direct. The MPG sources loans
through relationships with mortgage brokers, financial
institutions, Realtors, and homebuilders, and is composed of two
channels: retail and mortgage broker and banker.
The consumer direct division offers mortgage loans directly to
consumers via our Southern California retail branch network and
our centralized call center, sourcing leads through direct mail,
internet lead aggregators, online advertising and referral
programs.
Within the MPG, the retail channel provides mortgage financing
directly to home purchase oriented consumers by targeting
Realtors®,
homebuilders and financial professionals via storefront mortgage
loan offices. With the goal of becoming a top 15 retail lender
over the next five years, our April 2007 acquisition of the
retail platform of NYMC and the hiring of retail lending
professionals provide a model for this division. As of
December 31, 2007, we have 182 retail mortgage
offices/branches throughout the U.S.
Mortgage broker and banker is the largest channel in our MPG,
funding loans originated through mortgage brokers and emerging
mortgage bankers nationwide. This channel also purchases closed
loans — those already funded — on a flow
basis from mortgage brokers, realtors, homebuilders, mortgage
bankers and financial institutions.
Financial Freedom provides reverse mortgage products directly to
seniors (age 62 and older) and through the mortgage broker
and banker channel. Through this division, we remain the leader
in the fast growing reverse mortgage market. Financial Freedom
also retains MSRs and receives fees and ancillary revenues for
servicing loans sold into the secondary market.
26
The following provides details on the results for the mortgage
production division for the years indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Professionals Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
Consumer
|
|
|
|
|
|
Broker and
|
|
|
Mortgage
|
|
|
Financial
|
|
|
Mortgage
|
|
|
|
Direct
|
|
|
Retail
|
|
|
Banker
|
|
|
Professionals
|
|
|
Freedom
|
|
|
Production
|
|
|
|
Division
|
|
|
Channel
|
|
|
Channel
|
|
|
Group
|
|
|
Division
|
|
|
Division
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,238
|
|
|
$
|
4,324
|
|
|
$
|
106,736
|
|
|
$
|
111,060
|
|
|
$
|
19,788
|
|
|
$
|
132,086
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
7,804
|
|
|
|
(1,511
|
)
|
|
|
(99,838
|
)
|
|
|
(101,349
|
)
|
|
|
139,417
|
|
|
|
45,872
|
|
Service fee income (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,046
|
|
|
|
38,046
|
|
Other income (expense)
|
|
|
726
|
|
|
|
12,485
|
|
|
|
15,978
|
|
|
|
28,463
|
|
|
|
354
|
|
|
|
29,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
9,768
|
|
|
|
15,298
|
|
|
|
22,876
|
|
|
|
38,174
|
|
|
|
197,605
|
|
|
|
245,547
|
|
Operating expenses
|
|
|
23,917
|
|
|
|
104,122
|
|
|
|
367,567
|
|
|
|
471,689
|
|
|
|
136,825
|
|
|
|
632,431
|
|
Severance charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferral of expenses under SFAS 91
|
|
|
(10,856
|
)
|
|
|
(37,512
|
)
|
|
|
(153,973
|
)
|
|
|
(191,485
|
)
|
|
|
(27,631
|
)
|
|
|
(229,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(3,293
|
)
|
|
|
(51,312
|
)
|
|
|
(190,718
|
)
|
|
|
(242,030
|
)
|
|
|
88,411
|
|
|
|
(156,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
7
|
|
|
|
46
|
|
|
|
319
|
|
|
|
365
|
|
|
|
232
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(2,013
|
)
|
|
$
|
(31,295
|
)
|
|
$
|
(116,466
|
)
|
|
$
|
(147,761
|
)
|
|
$
|
52,997
|
|
|
$
|
(96,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
116,713
|
|
|
$
|
171,477
|
|
|
$
|
5,879,797
|
|
|
$
|
6,051,274
|
|
|
$
|
967,173
|
|
|
$
|
7,135,160
|
|
Allocated capital
|
|
|
5,710
|
|
|
|
13,761
|
|
|
|
288,202
|
|
|
|
301,963
|
|
|
|
134,244
|
|
|
|
441,917
|
|
Loans produced
|
|
|
1,062,934
|
|
|
|
2,027,631
|
|
|
|
45,449,927
|
|
|
|
47,477,558
|
|
|
|
4,722,885
|
|
|
|
53,263,377
|
|
Loans sold
|
|
|
1,139,515
|
|
|
|
1,569,648
|
|
|
|
47,536,034
|
|
|
|
49,105,682
|
|
|
|
4,789,805
|
|
|
|
55,035,002
|
|
MBR margin(1)
|
|
|
0.79
|
%
|
|
|
0.18
|
%
|
|
|
0.01
|
%
|
|
|
0.02
|
%
|
|
|
3.32
|
%
|
|
|
0.32
|
%
|
ROE
|
|
|
(35
|
)%
|
|
|
(227
|
)%
|
|
|
(40
|
)%
|
|
|
(49
|
)%
|
|
|
39
|
%
|
|
|
(22
|
)%
|
Net interest margin
|
|
|
1.06
|
%
|
|
|
2.52
|
%
|
|
|
1.82
|
%
|
|
|
1.84
|
%
|
|
|
2.05
|
%
|
|
|
1.85
|
%
|
Average FTE
|
|
|
266
|
|
|
|
1,005
|
|
|
|
2,814
|
|
|
|
3,819
|
|
|
|
1,348
|
|
|
|
5,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
2,478
|
|
|
$
|
30
|
|
|
$
|
79,222
|
|
|
$
|
79,252
|
|
|
$
|
9,918
|
|
|
$
|
91,648
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
32,162
|
|
|
|
315
|
|
|
|
392,180
|
|
|
|
392,495
|
|
|
|
160,844
|
|
|
|
585,501
|
|
Service fee income (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,141
|
|
|
|
21,141
|
|
Other income (expense)
|
|
|
469
|
|
|
|
336
|
|
|
|
1
|
|
|
|
337
|
|
|
|
1,152
|
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
35,109
|
|
|
|
681
|
|
|
|
471,403
|
|
|
|
472,084
|
|
|
|
193,055
|
|
|
|
700,248
|
|
Operating expenses
|
|
|
54,248
|
|
|
|
3,654
|
|
|
|
371,052
|
|
|
|
374,706
|
|
|
|
135,246
|
|
|
|
564,200
|
|
Deferral of expenses under SFAS 91
|
|
|
(22,330
|
)
|
|
|
(98
|
)
|
|
|
(184,295
|
)
|
|
|
(184,393
|
)
|
|
|
(32,256
|
)
|
|
|
(238,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
3,191
|
|
|
|
(2,875
|
)
|
|
|
284,646
|
|
|
|
281,771
|
|
|
|
90,065
|
|
|
|
375,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
1,943
|
|
|
$
|
(1,751
|
)
|
|
$
|
173,349
|
|
|
$
|
171,598
|
|
|
$
|
54,198
|
|
|
$
|
227,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
202,035
|
|
|
$
|
2,637
|
|
|
$
|
4,885,249
|
|
|
$
|
4,887,886
|
|
|
$
|
617,480
|
|
|
$
|
5,707,401
|
|
Allocated capital
|
|
|
10,814
|
|
|
|
131
|
|
|
|
263,328
|
|
|
|
263,459
|
|
|
|
96,430
|
|
|
|
370,703
|
|
Loans produced
|
|
|
1,922,448
|
|
|
|
35,845
|
|
|
|
47,121,871
|
|
|
|
47,157,716
|
|
|
|
5,023,533
|
|
|
|
54,103,697
|
|
Loans sold
|
|
|
1,968,766
|
|
|
|
31,548
|
|
|
|
45,982,168
|
|
|
|
46,013,716
|
|
|
|
4,498,352
|
|
|
|
52,480,834
|
|
MBR margin(1)
|
|
|
1.76
|
%
|
|
|
1.09
|
%
|
|
|
1.03
|
%
|
|
|
1.03
|
%
|
|
|
3.80
|
%
|
|
|
1.29
|
%
|
ROE
|
|
|
18
|
%
|
|
|
N/M
|
|
|
|
66
|
%
|
|
|
65
|
%
|
|
|
56
|
%
|
|
|
61
|
%
|
Net interest margin
|
|
|
1.23
|
%
|
|
|
1.14
|
%
|
|
|
1.62
|
%
|
|
|
1.62
|
%
|
|
|
1.61
|
%
|
|
|
1.61
|
%
|
Average FTE
|
|
|
372
|
|
|
|
25
|
|
|
|
2,655
|
|
|
|
2,680
|
|
|
|
1,272
|
|
|
|
4,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% change in net earnings
|
|
|
(204
|
)%
|
|
|
N/M
|
|
|
|
(167
|
)%
|
|
|
(186
|
)%
|
|
|
(2
|
)%
|
|
|
(142
|
)%
|
% change in capital
|
|
|
(47
|
)%
|
|
|
N/M
|
|
|
|
9
|
%
|
|
|
15
|
%
|
|
|
39
|
%
|
|
|
19
|
%
|
|
|
|
(1) |
|
MBR margin is calculated using the sum of consolidated gain
(loss) on sale of loans and the net interest income earned on
HFS loans by our mortgage production division divided by total
loans sold. The gain (loss) on sale of loans includes fair value
adjustments on HFS loans in our portfolio at the end of the year
that are not included in the amount of total loans sold. |
27
The following summarizes the key production drivers for the
mortgage broker and banker channel for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2007/2006
|
|
|
2005
|
|
|
2007/2005
|
|
|
Key Production Drivers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active customers(1)
|
|
|
8,294
|
|
|
|
7,927
|
|
|
|
5
|
%
|
|
|
6,728
|
|
|
|
23
|
%
|
Sales personnel
|
|
|
1,140
|
|
|
|
1,025
|
|
|
|
11
|
%
|
|
|
712
|
|
|
|
60
|
%
|
Number of regional offices
|
|
|
16
|
|
|
|
16
|
|
|
|
—
|
|
|
|
13
|
|
|
|
23
|
%
|
|
|
|
(1) |
|
Active customers are defined as customers who funded at least
one loan during the most recent
90-day
period. |
Loan
Production
Loan production and sales are the drivers of our mortgage
banking segment. While the mortgage production division of our
mortgage banking segment contributes 68% to our total loan
originations, the following discussion refers to our total
production, through both the mortgage banking and thrift
segments and the discontinued business activities.
We generated SFR mortgage loan production of $77.0 billion
for the year ended December 31, 2007, down
$13.0 billion from the year ended December 31, 2006,
and up $16.2 billion from the year ended December 31,
2005. Total loan production, including commercial real estate
loans and builder financings, reached $78.3 billion for
2007, compared to $91.7 billion for 2006 and
$62.7 billion for 2005. At December 31, 2007, our
total pipeline of SFR mortgage loans in process was
$7.5 billion, down 37% from $11.8 billion at
December 31, 2006, and down 28% from $10.5 billion at
December 31, 2005. On February 15, 2008, the MBA
issued an estimate of the industry volume for 2007 of
$2,332 billion, which represents a 14% drop from 2006, and
a 23% drop from 2005. Based on this estimate, our market share
is 3.30% for the year ended December 31, 2007 and remained
flat compared to the year ended December 31, 2006, but up
from 2.01% for the year ended December 31, 2005.
The decline in our SFR mortgage loan production from 2006 was
attributable to the overall drop in industry mortgage
origination volumes and from our transition to becoming
primarily a GSE lender as a result of the severe disruption in
housing and credit markets. Total SFR mortgage loan production
decreased primarily due to the $14.0 billion decrease in
our conduit business and the discontinuance of various products
due to credit and liquidity concerns. We exited the conduit
channel as a response to the disruption in the secondary market.
Excluding production from the conduit channel, total SFR
production increased $1.0 billion
year-over-year.
MPG’s mortgage broker and banker channel declined
$1.7 billion in production from 2006. Our retail channel
generated $2.0 billion in production for 2007. The
Financial Freedom division saw a 6% decline in its reverse
mortgage production from 2006 as competition intensified in the
reverse mortgage market.
28
The following summarizes our loan production by division and
channel for the years indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2007/2006
|
|
|
2005
|
|
|
2007/2005
|
|
|
Production by Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loan production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage professionals group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage broker and banker channel(1)
|
|
$
|
45,449
|
|
|
$
|
47,123
|
|
|
|
(4
|
)%
|
|
$
|
34,864
|
|
|
|
30
|
%
|
Retail channel
|
|
|
2,027
|
|
|
|
7
|
|
|
|
N/M
|
|
|
|
—
|
|
|
|
N/A
|
|
Consumer direct division
|
|
|
1,063
|
|
|
|
1,951
|
|
|
|
(46
|
)%
|
|
|
2,883
|
|
|
|
(63
|
)%
|
Financial Freedom division
|
|
|
4,723
|
|
|
|
5,024
|
|
|
|
(6
|
)%
|
|
|
2,935
|
|
|
|
61
|
%
|
Servicing retention division
|
|
|
4,593
|
|
|
|
2,698
|
|
|
|
70
|
%
|
|
|
1,079
|
|
|
|
326
|
%
|
Consumer construction division(2)
|
|
|
2,988
|
|
|
|
2,937
|
|
|
|
2
|
%
|
|
|
2,994
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-going businesses
|
|
|
60,843
|
|
|
|
59,740
|
|
|
|
2
|
%
|
|
|
44,755
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit channel
|
|
|
16,097
|
|
|
|
30,101
|
|
|
|
(47
|
)%
|
|
|
15,811
|
|
|
|
2
|
%
|
Home equity division(2)
|
|
|
39
|
|
|
|
110
|
|
|
|
(65
|
)%
|
|
|
208
|
|
|
|
(81
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued business activities
|
|
|
16,136
|
|
|
|
30,211
|
|
|
|
(47
|
)%
|
|
|
16,019
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SFR mortgage loan production
|
|
|
76,979
|
|
|
|
89,951
|
|
|
|
(14
|
)%
|
|
|
60,774
|
|
|
|
27
|
%
|
Commercial loan production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage banking division — on-going
businesses
|
|
|
361
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
N/A
|
|
Homebuilder division(2) — discontinued business
activities
|
|
|
976
|
|
|
|
1,747
|
|
|
|
(44
|
)%
|
|
|
1,940
|
|
|
|
(50
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan production
|
|
$
|
78,316
|
|
|
$
|
91,698
|
|
|
|
(15
|
)%
|
|
$
|
62,714
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pipeline of SFR mortgage loans in process at year
end
|
|
$
|
7,506
|
|
|
$
|
11,821
|
|
|
|
(37
|
)%
|
|
$
|
10,488
|
|
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The mortgage broker and banker channel includes
$5.3 billion, $3.3 billion and $1.3 billion of
production from wholesale inside sales for 2007, 2006 and 2005,
respectively. The mortgage broker and banker inside sales force
focuses on small and geographically remote mortgage brokers
through centralized in-house sales personnel instead of field
sales personnel. |
|
(2) |
|
The amounts of HELOCs, consumer construction loans and builder
construction loans originated by these channels represent
commitments. |
29
The following summarizes our loan production by product type for
the years indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007/2006
|
|
|
2005
|
|
|
2007/2005
|
|
|
|
|
|
Production by Product Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard first mortgage products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime(1)
|
|
$
|
62,917
|
|
|
$
|
71,403
|
|
|
|
(12
|
)%
|
|
$
|
48,315
|
|
|
|
30
|
%
|
|
|
|
|
Subprime(1)
|
|
|
2,617
|
|
|
|
2,674
|
|
|
|
(2
|
)%
|
|
|
2,276
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total standard first mortgage products (S&P evaluated)
|
|
|
65,534
|
|
|
|
74,077
|
|
|
|
(12
|
)%
|
|
|
50,591
|
|
|
|
30
|
%
|
|
|
|
|
Specialty consumer home mortgage products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs(1)/Seconds
|
|
|
3,496
|
|
|
|
7,199
|
|
|
|
(51
|
)%
|
|
|
3,653
|
|
|
|
(4
|
)%
|
|
|
|
|
Reverse mortgages
|
|
|
4,723
|
|
|
|
5,024
|
|
|
|
(6
|
)%
|
|
|
2,935
|
|
|
|
61
|
%
|
|
|
|
|
Consumer construction(2)
|
|
|
3,182
|
|
|
|
3,651
|
|
|
|
(13
|
)%
|
|
|
3,595
|
|
|
|
(11
|
)%
|
|
|
|
|
Government — FHA/VA(3)
|
|
|
44
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal SFR mortgage production
|
|
|
76,979
|
|
|
|
89,951
|
|
|
|
(14
|
)%
|
|
|
60,774
|
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loan products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
361
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
|
|
Builder construction commitments(2)
|
|
|
976
|
|
|
|
1,747
|
|
|
|
(44
|
)%
|
|
|
1,940
|
|
|
|
(50
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production
|
|
$
|
78,316
|
|
|
$
|
91,698
|
|
|
|
(15
|
)%
|
|
$
|
62,714
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total S&P lifetime loss estimate(4)
|
|
|
1.14
|
%
|
|
|
1.90
|
%
|
|
|
|
|
|
|
1.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The loan production by product type provides a breakdown of
standard first mortgage products by prime and subprime only. As
the definition of various product types tends to vary widely in
the mortgage industry, we believe further classification may not
accurately reflect the credit quality of loans produced implied
through such classification. |
|
(2) |
|
Amounts represent total commitments. |
|
(3) |
|
Amounts represent loans insured by the Federal Housing
Administration (“FHA”) and loans guaranteed by the
Veterans Administration (“VA”). |
|
(4) |
|
While our production is evaluated using the Standard &
Poor’s (“S&P”) Levels model, the data are
not audited or endorsed by S&P. S&P evaluated
production excludes second liens, HELOCs, reverse mortgages, and
construction loans. All loss estimates reported here have been
restated to use S&P’s new 6.1 model which was released
in November 2007. |
30
Loan
Sale and Distribution
The following shows the various channels through which loans
were distributed for the Company during the years indicated
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Distribution of Loans by Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of GSE equivalent loans
|
|
|
48
|
%
|
|
|
20
|
%
|
|
|
17
|
%
|
Private-label securitizations
|
|
|
34
|
%
|
|
|
40
|
%
|
|
|
60
|
%
|
Whole loan sales, servicing retained
|
|
|
17
|
%
|
|
|
38
|
%
|
|
|
20
|
%
|
Whole loan sales, servicing released
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan sales percentage
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan sales
|
|
$
|
71,164
|
|
|
$
|
79,049
|
|
|
$
|
52,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the disruptions in the secondary mortgage market, we have
tightened our guidelines and focused on GSE eligible mortgage
products. As a result, sales to GSEs increased to 48% of total
loan distribution for the year ended December 31, 2007, up
from 20% for the year ended December 31, 2006. We expect
that a very high percentage of our loan sales will be to the
GSEs until the private MBS market recovers.
In conjunction with the sale of mortgage loans, we generally
retain certain assets. The primary assets retained include MSRs
and, to a lesser degree, AAA-rated and agency interest-only
securities, AAA-rated principal-only securities, prepayment
penalty securities, late fee securities, investment and
non-investment grade securities, and residual securities. The
allocated cost of the retained assets at the time of sale is
recorded as an asset with an offsetting increase to the gain on
sale of loans (or a reduction in the cost basis of the loans
sold). During the year ended December 31, 2007, the
calculation of gain (loss) on sales of loans included the
retention of $988.2 million of MSRs and $2.8 billion
of other retained assets, consisting of investment-grade
securities of $581.4 million and non-investment grade and
residual securities of $169.0 million. During the year
ended December 31, 2007, assets previously retained
generated cash flows of $858.5 million. For more
information on the valuation assumptions related to our retained
assets, see “Table 12. Valuation of MSRs, Interest-Only,
Prepayment Penalty, and Residual Securities” of
“Appendix A: Additional Quantitative Disclosures.”
The profitability of our loans is measured by the MBR margin,
which is calculated using mortgage banking revenue divided by
total loans sold. MBR includes total consolidated gain (loss) on
sale of loans and the net interest income earned on mortgage
loans held for sale by mortgage banking production divisions.
Most of the gain (loss) on sale of loans resulted from the loan
sale activities in our mortgage banking segment. The gain (loss)
on sale recognized in the thrift segment is included in the MBR
margin calculation.
The following summarizes the amount of loans sold and the MBR
margin during the years indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2007/2006
|
|
|
2005
|
|
|
2007/2005
|
|
|
Total loans sold
|
|
$
|
71,164
|
|
|
$
|
79,049
|
|
|
|
(10
|
)%
|
|
$
|
52,297
|
|
|
|
36
|
%
|
MBR margin after production hedging
|
|
|
0.99
|
%
|
|
|
1.41
|
%
|
|
|
(30
|
)%
|
|
|
1.70
|
%
|
|
|
(42
|
)%
|
MBR margin after credit costs
|
|
|
—
|
|
|
|
1.28
|
%
|
|
|
—
|
|
|
|
1.62
|
%
|
|
|
—
|
|
Net MBR margin
|
|
|
(0.22
|
)%
|
|
|
1.06
|
%
|
|
|
(121
|
)%
|
|
|
1.37
|
%
|
|
|
(116
|
)%
|
For more details on our MBR margin, see “Table 7. MBR
Margin” of “Appendix A: Additional Quantitative
Disclosures.”
31
MORTGAGE
SERVICING DIVISION
Servicing is a key component of our business model, as it is a
natural complement to our mortgage production operations and its
financial performance tends to run countercyclical to the
mortgage production business. Our mortgage servicing platform
remains a strong and stable source of profitability in the midst
of the current mortgage market turmoil.
Through MSRs retained from our mortgage banking activities, we
collect fees and ancillary revenues for servicing loans sold
into the secondary market. As interest rates rise
and/or
mortgage spreads widen, the expected life of the underlying
loans is generally extended, which extends the life of the
income stream flowing from those loans. This in turn increases
the capitalized value of the associated MSRs. Conversely, as
interest rates decline
and/or
mortgage spreads tighten, the value of the MSRs may also
decline. To mitigate the potential volatility in the MSRs, we
hedge this asset to earn a stable return throughout the interest
rate cycle. For more information on servicing hedges, see the
“Consolidated Risk Management Discussion” section.
During 2007, our MSRs experienced a decline in value due to
significantly lower mortgage interest rates. However, this was
more than offset by gains in value in our hedging instruments
and from a continued decline in actual prepayment speeds in the
year. Actual prepayment speeds have declined due to the impact
of tighter guidelines on available mortgage loans in the market
and declining home prices limiting the refinance capability of
consumers.
Our servicing portfolio provides opportunities to cross sell
other products, such as checking accounts, certificates of
deposit, and other deposit services. In a declining interest
rate environment, our servicing portfolio provides an existing
base of customers who may be in the market to refinance.
Capturing or “retaining” these customers helps
mitigate the decline in the value of our mortgage servicing
asset caused by prepayment of the original loan.
The fair value of our MSRs is determined using discounted cash
flow techniques benchmarked against a third-party opinion of
value. Estimates of fair value involve several assumptions,
including assumptions about future prepayment rates, market
expectations of future interest rates, cost to service the loans
(including default management costs), ancillary incomes, and
discount rates. Prepayment speeds are projected using a
prepayment model developed by a third-party vendor and
calibrated for the Company’s collateral. The model
considers key factors, such as refinance incentive, housing
turnover, seasonality, and aging of the pool of loans.
Prepayment speeds incorporate expectations of future rates
implied by the market forward LIBOR/swap curve, as well as
collateral specific current coupon information. For further
detail on the valuation assumptions, see “Table 12.
Valuation of MSRs, Interest-Only, Prepayment Penalty, and
Residual Securities” of “Appendix A: Additional
Quantitative Disclosures.”
Total capitalized MSRs reached $2.5 billion as of
December 31, 2007, up $673.0 million, or 37%, from
$1.8 billion at December 31, 2006.
32
The following provides additional details on the results for the
mortgage servicing division for the years indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
Total
|
|
|
|
Servicing
|
|
|
Servicing
|
|
|
Mortgage
|
|
|
|
Rights
|
|
|
Retention
|
|
|
Servicing
|
|
|
|
Channel
|
|
|
Channel
|
|
|
Division
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(52,008
|
)
|
|
$
|
11,445
|
|
|
$
|
(40,563
|
)
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
2,241
|
|
|
|
53,883
|
|
|
|
56,124
|
|
Service fee income
|
|
|
389,441
|
|
|
|
—
|
|
|
|
389,441
|
|
Gain (loss) on securities
|
|
|
(35,595
|
)
|
|
|
—
|
|
|
|
(35,595
|
)
|
Other income
|
|
|
6,042
|
|
|
|
6,944
|
|
|
|
12,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
310,121
|
|
|
|
72,272
|
|
|
|
382,393
|
|
Operating expenses
|
|
|
48,390
|
|
|
|
48,683
|
|
|
|
97,073
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
(13,619
|
)
|
|
|
(13,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
261,731
|
|
|
|
37,208
|
|
|
|
298,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
562
|
|
|
|
65
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
158,833
|
|
|
$
|
22,594
|
|
|
$
|
181,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
343,595
|
|
|
$
|
833,116
|
|
|
$
|
1,176,711
|
|
Allocated capital
|
|
|
324,001
|
|
|
|
37,404
|
|
|
|
361,405
|
|
Loans produced
|
|
|
—
|
|
|
|
4,592,979
|
|
|
|
4,592,979
|
|
Loans sold
|
|
|
—
|
|
|
|
4,071,678
|
|
|
|
4,071,678
|
|
MBR Margin
|
|
|
N/A
|
|
|
|
1.32
|
%
|
|
|
1.38
|
%
|
ROE
|
|
|
49
|
%
|
|
|
60
|
%
|
|
|
50
|
%
|
Net interest margin
|
|
|
N/A
|
|
|
|
1.37
|
%
|
|
|
N/A
|
|
Average FTE
|
|
|
91
|
|
|
|
190
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(16,277
|
)
|
|
$
|
4,788
|
|
|
$
|
(11,489
|
)
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
1,994
|
|
|
|
29,099
|
|
|
|
31,093
|
|
Service fee income
|
|
|
115,657
|
|
|
|
(8
|
)
|
|
|
115,649
|
|
Gain (loss) on securities
|
|
|
19,173
|
|
|
|
—
|
|
|
|
19,173
|
|
Other income
|
|
|
1,755
|
|
|
|
5,260
|
|
|
|
7,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
122,302
|
|
|
|
39,139
|
|
|
|
161,441
|
|
Operating expenses
|
|
|
31,529
|
|
|
|
29,365
|
|
|
|
60,894
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
(8,068
|
)
|
|
|
(8,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
90,773
|
|
|
|
17,842
|
|
|
|
108,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
55,281
|
|
|
$
|
10,866
|
|
|
$
|
66,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
242,837
|
|
|
$
|
338,952
|
|
|
$
|
581,789
|
|
Allocated capital
|
|
|
236,770
|
|
|
|
16,465
|
|
|
|
253,235
|
|
Loans produced
|
|
|
—
|
|
|
|
2,698,332
|
|
|
|
2,698,332
|
|
Loans sold
|
|
|
29,961
|
|
|
|
2,025,944
|
|
|
|
2,055,905
|
|
MBR Margin
|
|
|
N/A
|
|
|
|
1.44
|
%
|
|
|
1.51
|
%
|
ROE
|
|
|
23
|
%
|
|
|
66
|
%
|
|
|
26
|
%
|
Net interest margin
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Average FTE
|
|
|
88
|
|
|
|
113
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
% change in net earnings
|
|
|
187
|
%
|
|
|
108
|
%
|
|
|
174
|
%
|
% change in capital
|
|
|
37
|
%
|
|
|
127
|
%
|
|
|
43
|
%
|
SFR mortgage loans serviced for others reached
$181.7 billion (including reverse mortgages and HELOCs) at
December 31, 2007, with a weighted average coupon of 6.89%.
In comparison, we serviced $139.8 billion of mortgage loans
owned by others at December 31, 2006, with a weighted
average coupon of 7.05%.
33
The following provides the activity in the servicing portfolio
for the years indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Unpaid principal balance at beginning of year
|
|
$
|
139,817
|
|
|
$
|
84,495
|
|
Additions
|
|
|
72,613
|
|
|
|
80,237
|
|
Clean-up
calls exercised
|
|
|
(153
|
)
|
|
|
(31
|
)
|
Loan payments and prepayments
|
|
|
(30,553
|
)
|
|
|
(24,884
|
)
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance at end of year
|
|
$
|
181,724
|
|
|
$
|
139,817
|
|
|
|
|
|
|
|
|
|
|
The following provides additional information related to the
servicing portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
By Product Type:
|
|
|
|
|
|
|
|
|
Fixed rate mortgages
|
|
|
36
|
%
|
|
|
35
|
%
|
Intermediate term fixed-rate loans
|
|
|
35
|
%
|
|
|
30
|
%
|
Pay option ARMs
|
|
|
17
|
%
|
|
|
23
|
%
|
Reverse mortgages
|
|
|
10
|
%
|
|
|
9
|
%
|
HELOCs
|
|
|
1
|
%
|
|
|
2
|
%
|
Other
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Additional Information(1)
|
|
|
|
|
|
|
|
|
Weighted average FICO(2)
|
|
|
702
|
|
|
|
703
|
|
Weighted average original LTV(3)
|
|
|
73
|
%
|
|
|
73
|
%
|
Average original loan size (in thousands)
|
|
|
247
|
|
|
|
232
|
|
Percent of portfolio with prepayment penalty
|
|
|
33
|
%
|
|
|
42
|
%
|
Portfolio delinquency (% of unpaid principal balance)(4)
|
|
|
7.31
|
%
|
|
|
5.02
|
%
|
By Geographic Distribution:
|
|
|
|
|
|
|
|
|
California
|
|
|
43
|
%
|
|
|
43
|
%
|
Florida
|
|
|
8
|
%
|
|
|
8
|
%
|
New York
|
|
|
8
|
%
|
|
|
8
|
%
|
New Jersey
|
|
|
4
|
%
|
|
|
4
|
%
|
Virginia
|
|
|
4
|
%
|
|
|
4
|
%
|
Other
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Portfolio delinquency is calculated for the entire servicing
portfolio. All other information presented excludes reverse
mortgages. |
|
(2) |
|
FICO scores are the result of a credit scoring system developed
by Fair Isaacs and Co. and are generally used by lenders to
evaluate a borrower’s credit history. FICO scores of 700 or
higher are generally considered in the mortgage industry to be
very high quality borrowers with low risk of default, but in
general, the secondary market will consider FICO scores of 620
or higher to be prime. |
|
(3) |
|
Combined
loan-to-value
(“LTV”) ratio for loans in the second lien position is
used to calculate weighted average original LTV ratio for the
portfolio. |
|
(4) |
|
Delinquency is defined as 30 days or more past the due date
excluding loans in foreclosure. |
34
THRIFT
SEGMENT
Our thrift segment invests in loans originated by our various
production units as well as in MBS. We manage our investments in
the thrift portfolio based on the extent to which the ROEs
exceed the cost of both core and risk-based capital, or they are
needed to support the core mortgage banking investments in
mortgage servicing rights and residual and non-investment grade
securities, if the ROEs are below our cost of capital.
Additionally, the segment engages in consumer construction
lending. These investing activities provide core spread income
and generally, a more stable return on equity.
In addition to the $33.0 million net earnings in our
mortgage banking segment, our thrift segment reported a
$199.2 million net loss in 2007 that was also caused by a
large increase in credit related costs. Credit related costs for
the thrift segment are reflected in the provision for loan
losses as well as the valuation of our investment grade,
non-investment grade and residual securities. Credit costs in
the thrift segment for the year ended December 31, 2007
totaled $748 million pre-tax compared with only
$28 million in credit costs in the thrift segment for the
year ended December 31, 2006, as the provision for loan
losses was offset by credit related valuation gain on residual
securities. Although all the divisions in the thrift segment
incurred higher credit costs in 2007, the majority of the
increase was concentrated in the non-investment grade and
residual securities divisions.
35
The following provides details on the results for divisions of
our thrift segment for the years indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Grade and
|
|
|
Mortgage-
|
|
|
SFR
|
|
|
|
|
|
|
|
|
|
|
|
|
Grade
|
|
|
Residual
|
|
|
Backed
|
|
|
Mortgage
|
|
|
Consumer
|
|
|
Warehouse
|
|
|
Total
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Loans HFI
|
|
|
Construction
|
|
|
Lending
|
|
|
Thrift
|
|
|
|
Channel
|
|
|
Channel
|
|
|
Division
|
|
|
Division
|
|
|
Division
|
|
|
Division
|
|
|
Segment
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
37,723
|
|
|
$
|
57,033
|
|
|
$
|
94,756
|
|
|
$
|
78,201
|
|
|
$
|
56,715
|
|
|
$
|
5,193
|
|
|
$
|
234,865
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(145,364
|
)
|
|
|
(40,256
|
)
|
|
|
(299
|
)
|
|
|
(185,919
|
)
|
Gain (loss) on sale of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,225
|
)
|
|
|
31,634
|
|
|
|
—
|
|
|
|
24,409
|
|
Service fee income (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on securities
|
|
|
(53,206
|
)
|
|
|
(284,175
|
)
|
|
|
(337,381
|
)
|
|
|
—
|
|
|
|
(1,629
|
)
|
|
|
—
|
|
|
|
(339,010
|
)
|
Gain on sale and leaseback of building
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other income (expense)
|
|
|
613
|
|
|
|
(3
|
)
|
|
|
610
|
|
|
|
2,065
|
|
|
|
24,660
|
|
|
|
2,014
|
|
|
|
29,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
(14,870
|
)
|
|
|
(227,145
|
)
|
|
|
(242,015
|
)
|
|
|
(72,323
|
)
|
|
|
71,124
|
|
|
|
6,908
|
|
|
|
(236,306
|
)
|
Operating expenses
|
|
|
1,023
|
|
|
|
2,771
|
|
|
|
3,794
|
|
|
|
23,091
|
|
|
|
66,547
|
|
|
|
3,698
|
|
|
|
97,130
|
|
Severance charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,251
|
)
|
|
|
—
|
|
|
|
(8,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(15,893
|
)
|
|
|
(229,916
|
)
|
|
|
(245,809
|
)
|
|
|
(95,414
|
)
|
|
|
12,828
|
|
|
|
3,210
|
|
|
|
(325,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
176
|
|
|
|
324
|
|
|
|
500
|
|
|
|
492
|
|
|
|
208
|
|
|
|
7
|
|
|
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(9,855
|
)
|
|
$
|
(140,343
|
)
|
|
$
|
(150,198
|
)
|
|
$
|
(58,600
|
)
|
|
$
|
7,604
|
|
|
$
|
1,947
|
|
|
$
|
(199,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
4,850,600
|
|
|
$
|
346,845
|
|
|
$
|
5,197,445
|
|
|
$
|
6,782,388
|
|
|
$
|
2,802,416
|
|
|
$
|
194,286
|
|
|
$
|
14,976,535
|
|
Allocated capital
|
|
|
88,879
|
|
|
|
191,489
|
|
|
|
280,368
|
|
|
|
239,633
|
|
|
|
135,035
|
|
|
|
15,440
|
|
|
|
670,476
|
|
Loans produced
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,988,322
|
|
|
|
—
|
|
|
|
2,988,322
|
|
Loans sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,735,736
|
|
|
|
2,627,267
|
|
|
|
—
|
|
|
|
6,363,003
|
|
ROE
|
|
|
(11
|
)%
|
|
|
(73
|
)%
|
|
|
(54
|
)%
|
|
|
(24
|
)%
|
|
|
6
|
%
|
|
|
13
|
%
|
|
|
(30
|
)%
|
Net interest margin, thrift.
|
|
|
0.78
|
%
|
|
|
16.44
|
%
|
|
|
1.82
|
%
|
|
|
1.15
|
%
|
|
|
2.02
|
%
|
|
|
2.67
|
%
|
|
|
1.57
|
%
|
Efficiency ratio
|
|
|
(7
|
)%
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
|
|
32
|
%
|
|
|
52
|
%
|
|
|
51
|
%
|
|
|
(176
|
)%
|
Average FTE
|
|
|
3
|
|
|
|
8
|
|
|
|
11
|
|
|
|
12
|
|
|
|
384
|
|
|
|
29
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
35,158
|
|
|
$
|
37,059
|
|
|
$
|
72,217
|
|
|
$
|
76,081
|
|
|
$
|
45,546
|
|
|
$
|
3,489
|
|
|
$
|
197,333
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,225
|
)
|
|
|
(3,322
|
)
|
|
|
(181
|
)
|
|
|
(12,728
|
)
|
Gain (loss) on sale of loans
|
|
|
(122
|
)
|
|
|
—
|
|
|
|
(122
|
)
|
|
|
3,703
|
|
|
|
39,068
|
|
|
|
—
|
|
|
|
42,649
|
|
Service fee income (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on securities
|
|
|
(1,359
|
)
|
|
|
3,750
|
|
|
|
2,391
|
|
|
|
384
|
|
|
|
659
|
|
|
|
—
|
|
|
|
3,434
|
|
Other income (expense)
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
1,637
|
|
|
|
23,412
|
|
|
|
1,725
|
|
|
|
26,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
33,674
|
|
|
|
40,809
|
|
|
|
74,483
|
|
|
|
72,580
|
|
|
|
105,363
|
|
|
|
5,033
|
|
|
|
257,459
|
|
Operating expenses
|
|
|
1,131
|
|
|
|
2,418
|
|
|
|
3,549
|
|
|
|
4,978
|
|
|
|
69,073
|
|
|
|
4,120
|
|
|
|
81,720
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,812
|
)
|
|
|
—
|
|
|
|
(8,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
32,543
|
|
|
|
38,391
|
|
|
|
70,934
|
|
|
|
67,602
|
|
|
|
45,102
|
|
|
|
913
|
|
|
|
184,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
19,819
|
|
|
$
|
23,380
|
|
|
$
|
43,199
|
|
|
$
|
41,170
|
|
|
$
|
27,468
|
|
|
$
|
557
|
|
|
$
|
112,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
3,329,118
|
|
|
$
|
210,352
|
|
|
$
|
3,539,470
|
|
|
$
|
5,876,399
|
|
|
$
|
2,502,397
|
|
|
$
|
119,043
|
|
|
$
|
12,037,309
|
|
Allocated capital
|
|
|
65,735
|
|
|
|
109,616
|
|
|
|
175,351
|
|
|
|
227,937
|
|
|
|
123,273
|
|
|
|
10,382
|
|
|
|
536,943
|
|
Loans produced
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,937,596
|
|
|
|
—
|
|
|
|
2,937,596
|
|
Loans sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
170,296
|
|
|
|
2,496,314
|
|
|
|
—
|
|
|
|
2,666,610
|
|
ROE
|
|
|
30
|
%
|
|
|
21
|
%
|
|
|
25
|
%
|
|
|
18
|
%
|
|
|
22
|
%
|
|
|
5
|
%
|
|
|
21
|
%
|
Net interest margin, thrift.
|
|
|
1.06
|
%
|
|
|
17.62
|
%
|
|
|
2.04
|
%
|
|
|
1.29
|
%
|
|
|
1.82
|
%
|
|
|
2.93
|
%
|
|
|
1.64
|
%
|
Efficiency ratio
|
|
|
3
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
55
|
%
|
|
|
79
|
%
|
|
|
27
|
%
|
Average FTE
|
|
|
5
|
|
|
|
7
|
|
|
|
12
|
|
|
|
13
|
|
|
|
422
|
|
|
|
26
|
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% change in net earnings
|
|
|
(150
|
)%
|
|
|
N/M
|
|
|
|
(448
|
)%
|
|
|
(242
|
)%
|
|
|
(72
|
)%
|
|
|
250
|
%
|
|
|
(277
|
)%
|
% change in capital
|
|
|
35
|
%
|
|
|
75
|
%
|
|
|
60
|
%
|
|
|
5
|
%
|
|
|
10
|
%
|
|
|
49
|
%
|
|
|
25
|
%
|
36
The following tables and discussions present supplemental
information to help understand the composition and credit
quality of the assets held in our thrift portfolios. This
section refers to company-wide assets, a small portion of which
may be held in our mortgage banking segment.
MORTGAGE-BACKED
SECURITIES DIVISION
The following provides the details of the MBS portfolio as of
the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Trading
|
|
|
AFS
|
|
|
Total
|
|
|
Trading
|
|
|
AFS
|
|
|
Total
|
|
|
Trading
|
|
|
AFS
|
|
|
Total
|
|
|
Mortgage banking segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated agency securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,915
|
|
|
$
|
2,915
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
AAA-rated and agency interest-only securities
|
|
|
59,844
|
|
|
|
—
|
|
|
|
59,844
|
|
|
|
66,581
|
|
|
|
—
|
|
|
|
66,581
|
|
|
|
73,430
|
|
|
|
—
|
|
|
|
73,430
|
|
AAA-rated principal-only securities
|
|
|
88,024
|
|
|
|
—
|
|
|
|
88,024
|
|
|
|
38,478
|
|
|
|
—
|
|
|
|
38,478
|
|
|
|
9,483
|
|
|
|
—
|
|
|
|
9,483
|
|
Prepayment penalty and late fee securities
|
|
|
79,678
|
|
|
|
—
|
|
|
|
79,678
|
|
|
|
93,176
|
|
|
|
—
|
|
|
|
93,176
|
|
|
|
73,443
|
|
|
|
—
|
|
|
|
73,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking
|
|
|
227,546
|
|
|
|
—
|
|
|
|
227,546
|
|
|
|
198,235
|
|
|
|
2,915
|
|
|
|
201,150
|
|
|
|
156,356
|
|
|
|
—
|
|
|
|
156,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thrift segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated non-agency securities
|
|
|
510,371
|
|
|
|
5,543,306
|
|
|
|
6,053,677
|
|
|
|
43,957
|
|
|
|
4,604,489
|
|
|
|
4,648,446
|
|
|
|
52,633
|
|
|
|
3,524,952
|
|
|
|
3,577,585
|
|
AAA-rated agency securities
|
|
|
—
|
|
|
|
45,296
|
|
|
|
45,296
|
|
|
|
—
|
|
|
|
62,260
|
|
|
|
62,260
|
|
|
|
—
|
|
|
|
43,014
|
|
|
|
43,014
|
|
AAA-rated and agency interest-only securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,989
|
|
|
|
—
|
|
|
|
6,989
|
|
|
|
5,301
|
|
|
|
—
|
|
|
|
5,301
|
|
Prepayment penalty and other securities
|
|
|
2,349
|
|
|
|
—
|
|
|
|
2,349
|
|
|
|
4,400
|
|
|
|
—
|
|
|
|
4,400
|
|
|
|
2,298
|
|
|
|
—
|
|
|
|
2,298
|
|
Other investment grade securities
|
|
|
275,691
|
|
|
|
451,798
|
|
|
|
727,489
|
|
|
|
29,015
|
|
|
|
160,238
|
|
|
|
189,253
|
|
|
|
8,829
|
|
|
|
83,291
|
|
|
|
92,120
|
|
Other non-investment grade securities
|
|
|
93,859
|
|
|
|
61,889
|
|
|
|
155,748
|
|
|
|
41,390
|
|
|
|
38,784
|
|
|
|
80,174
|
|
|
|
4,480
|
|
|
|
53,232
|
|
|
|
57,712
|
|
Non-investment grade residual securities
|
|
|
112,727
|
|
|
|
3,687
|
|
|
|
116,414
|
|
|
|
218,745
|
|
|
|
31,828
|
|
|
|
250,573
|
|
|
|
119,065
|
|
|
|
48,706
|
|
|
|
167,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total thrift
|
|
|
994,997
|
|
|
|
6,105,976
|
|
|
|
7,100,973
|
|
|
|
344,496
|
|
|
|
4,897,599
|
|
|
|
5,242,095
|
|
|
|
192,606
|
|
|
|
3,753,195
|
|
|
|
3,945,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
$
|
1,222,543
|
|
|
$
|
6,105,976
|
|
|
$
|
7,328,519
|
|
|
$
|
542,731
|
|
|
$
|
4,900,514
|
|
|
$
|
5,443,245
|
|
|
$
|
348,962
|
|
|
$
|
3,753,195
|
|
|
$
|
4,102,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated MBS represented 85%, 89% and 90% of the total
portfolio at December 31, 2007, 2006 and 2005,
respectively. These securities had an expected weighted average
life of 3.0 years, 2.9 years and 2.6 years at
December 31, 2007, 2006 and 2005, respectively. Due to
downgrades of investment grade securities in January 2008, we
anticipate an increase in non-investment grade securities.
In 2007, the Bank securitized $24.0 billion of mortgage
loans. The Bank retained $2.8 billion of the securities and
sold $21.2 billion. Of the $2.8 billion retained
securities recorded as MBS, $2.2 billion and
$0.6 billion were classified as available for sale and
trading, respectively.
SFR
MORTGAGE LOANS HFI DIVISION
The SFR mortgage HFI portfolio is comprised primarily of
interest-only loans and adjustable-rate mortgage loans.
At December 31, 2007, we had $3.0 billion in pay
option ARM loans, or 26% of the portfolio, as compared to
$1.2 billion, or 18% of the portfolio, at December 31,
2006. As of December 31, 2007, approximately 91% (based on
loan count) of our pay option ARM loans had negatively
amortized, resulting in an increase of $102.3 million to
their original loan balance. This is an increase from 83% at
December 31, 2006. The net increase in unpaid principal
37
balance due to negative amortization was $75.5 million for
the year ended December 31, 2007, which approximated the
deferred interest recognized for the years.
We transferred HFS mortgage loans in the fourth quarter of 2007
with an original cost basis of $10.9 billion to HFI as we
no longer intend to sell these loans given the extreme
disruption in the secondary mortgage market. These loans were
transferred at LOCOM and, accordingly, we reduced the cost basis
by $0.6 billion resulting in an increase in HFI loans of
$10.3 billion. The $0.6 billion reduction was a
combination of LOCOM reserves existing in the third quarter of
2007 and additional charges to gain on sale of loans during the
fourth quarter of 2007. Embedded in this reduction are estimated
credit losses of $474 million. During the year, the Bank
securitized $24.0 billion, of which $2.0 billion of
mortgage loans came from the SFR mortgage loans HFI division.
The following provides a composition of the SFR mortgage loans
HFI portfolio and the relevant credit quality characteristics as
of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Outstanding balance (recorded value)(1)
|
|
$
|
11,411,464
|
|
|
$
|
6,519,340
|
|
Average loan size
|
|
$
|
270
|
|
|
$
|
310
|
|
Non-performing loans
|
|
|
6.47
|
%
|
|
|
1.09
|
%
|
Estimated average life in years(2)
|
|
|
2.4
|
|
|
|
2.6
|
|
Estimated average net duration in months(3)
|
|
|
2.1
|
|
|
|
(3.5
|
)
|
Annualized yield
|
|
|
7.03
|
%
|
|
|
6.01
|
%
|
Percent of loans with active prepayment penalty
|
|
|
43
|
%
|
|
|
34
|
%
|
By Product Type:
|
|
|
|
|
|
|
|
|
Fixed-rate mortgages
|
|
|
15
|
%
|
|
|
5
|
%
|
Intermediate term fixed-rate loans
|
|
|
15
|
%
|
|
|
15
|
%
|
Interest-only loans
|
|
|
43
|
%
|
|
|
60
|
%
|
Pay option ARMs
|
|
|
26
|
%
|
|
|
18
|
%
|
Other
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Additional Information:
|
|
|
|
|
|
|
|
|
Average FICO score
|
|
|
693
|
|
|
|
716
|
|
Original average LTV
|
|
|
76
|
%
|
|
|
73
|
%
|
Current average LTV(4)
|
|
|
77
|
%
|
|
|
61
|
%
|
Geographic distribution of top five states:
|
|
|
|
|
|
|
|
|
Southern California
|
|
|
30
|
%
|
|
|
32
|
%
|
Northern California
|
|
|
15
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
Total California
|
|
|
45
|
%
|
|
|
52
|
%
|
Florida
|
|
|
9
|
%
|
|
|
6
|
%
|
New York
|
|
|
7
|
%
|
|
|
4
|
%
|
New Jersey
|
|
|
3
|
%
|
|
|
2
|
%
|
Maryland
|
|
|
3
|
%
|
|
|
2
|
%
|
Other
|
|
|
33
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The outstanding balance at December 31, 2007 includes
$286.3 million of lot loans. |
|
(2) |
|
Represents the estimated length of time, on average, the SFR
loan portfolio will remain outstanding based on our estimates
for prepayments. |
|
(3) |
|
Average net duration measures the expected change in the value
of a financial instrument in response to changes in interest
rates, taking into consideration the impact of the related
hedges. The negative net duration implies an increase in value
as rates rise while the positive net duration implies a decrease
in value. |
|
(4) |
|
Current average LTV ratio is estimated based on the Office of
the Federal Housing Enterprise Oversight House Price Index
Metropolitan Statistical Area data for the year ended
December 31, 2007 on a loan level basis. |
38
CONSUMER
CONSTRUCTION DIVISION
Our consumer construction division provided construction
financing for individual consumers who want to build a new
primary residence or second home. The primary product is a
construction-to-permanent
(“CTP”) residential mortgage loan. This product
typically provides financing for a construction term from 6 to
12 months and automatically converts to a permanent
mortgage loan at the end of construction. The end result is a
loan product that represents a hybrid activity between our
portfolio lending and mortgage banking activities. As of
December 31, 2007, based on the underlying note agreements,
80% of the construction loans will be converted to
adjustable-rate permanent loans, 13% to intermediate term
fixed-rate loans, and 7% to fixed-rate loans.
The consumer construction division temporarily suspended all new
CTP production on January 31, 2008 to help manage our
balance sheet. Our consumer construction division had previously
suspended lot and single spec production in 2007.
During 2007, we entered into new consumer construction
commitments of $3.2 billion, which is a decrease of 13%, or
$470 million from 2006. Approximately 68% of new
commitments are generated through mortgage broker customers of
the MPG, and the remaining 32% of new commitments are retail
originations. Consumer construction loans outstanding at
December 31, 2007 increased 3% from December 31, 2006.
Since the introduction of a monthly adjusting construction
period ARM product in the second quarter of 2006, the percentage
of adjustable-rate loans in our portfolio has increased to 72%
at December 31, 2007 from 29% at December 31, 2006.
The ratio of non-performing loans increased to 3.31% of the
portfolio at December 31, 2007, compared to 1.14% at
December 31, 2006. As a result, we increased the allowance
for loan losses to $32.3 million for the year ended
December 31, 2007 from $11.8 million for the year
ended December 31, 2006 and increased the percentage of
allowance for loan losses to recorded value to 1.38% at the end
of 2007 from 0.52% at the end of 2006.
39
Information on our consumer construction portfolio is presented
in the following table as of the dates indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Outstanding balance (recorded value)
|
|
$
|
2,343,094
|
|
|
$
|
2,276,133
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
|
3,503,790
|
|
|
|
3,600,454
|
|
|
|
|
|
|
|
|
|
Average loan commitment(1)
|
|
|
570
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
Non-performing loans
|
|
|
3.31
|
%
|
|
|
1.14
|
%
|
|
|
|
|
|
|
|
|
By Product Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate loans
|
|
|
28
|
%
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
Adjustable-rate loans
|
|
|
72
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average LTV ratio(2)
|
|
|
73
|
%
|
|
|
73
|
%
|
|
|
|
|
|
|
|
|
Average FICO score
|
|
|
722
|
|
|
|
718
|
|
|
|
|
|
|
|
|
|
Geographic distribution of top five states:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern California
|
|
|
30
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
Northern California
|
|
|
12
|
%
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total California
|
|
|
42
|
%
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
Florida
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
Washington
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
New York
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Arizona
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
39
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In March 2007, estate lending was introduced for loans on
commitments greater than $2.5 million. We originated
approximately $306 million or 96 loans in 2007 for an
average loan size of $3.2 million which contributed to the
increase in loan size during the year. |
|
(2) |
|
The average LTV ratio is based on the most recent estimated
appraised value of the completed project compared to the
commitment amount at the date indicated. |
The following provides details on the aggregate maturities of
construction loan balances due at December 31, 2007
(dollars in thousands):
|
|
|
|
|
|
|
|
|
Within one year or less
|
|
$
|
2,229,491
|
|
|
|
|
|
Between one to five years (98% adjustable-rate and 2% fixed-rate)
|
|
|
112,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,342,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ELIMINATIONS &
OTHER SEGMENT
This segment contains the fixed costs of our deposit raising and
treasury functions that are not allocated to our operating
divisions, as well as entries to eliminate the impact of
transactions between segments. In addition to selling loans into
the secondary market, our mortgage production division regularly
sells loans to our SFR mortgage loans HFI division. These
transactions are recorded at arms-length in our segment results
resulting in intercompany gain on sale in the mortgage
production division and a premium in the SFR mortgage loans HFI
division that is amortized over the life of the loan. Both the
gain and the premium amortization are eliminated in
consolidation.
40
The mortgage production division and the mortgage servicing
division are exposed to movements in the intermediate fixed-rate
loan spreads. Mortgage spread is the difference between mortgage
interest rates and LIBOR/interest rate swap rates. Tighter
spreads benefit mortgage production as they lead to improved
loan sales execution while wider spreads lead to slower
projected prepayment speeds and an increase in the MSR value.
Due to the inherent difficulty in hedging the movement of these
spreads, the potential for an internal hedge exists whereby the
risks from the spread movements will be shared between the two
groups. Starting in the first quarter of 2007, the mortgage
production division and the mortgage servicing division entered
into an inter-divisional transaction to economically hedge their
respective financial risks to mortgage spreads for certain
products in the absence of readily available derivative
instruments. With all else remaining constant, when mortgage
spreads widen, the pipeline of mortgage loans held for sale is
negatively impacted and mortgage servicing is positively
impacted. The impact of the hedges has been reflected in the
respective channel results with the consolidation adjustment
recorded under “Interdivision Hedge Transactions”
within “Eliminations”.
The following provides additional details on deposits, treasury
and eliminations for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interdivision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interdivision
|
|
|
Hedge
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
Treasury
|
|
|
Loan Sales(1)
|
|
|
Transactions
|
|
|
Other
|
|
|
Total
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
—
|
|
|
$
|
45,072
|
|
|
$
|
37,513
|
|
|
$
|
—
|
|
|
$
|
25,352
|
|
|
$
|
107,937
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,081
|
)
|
|
|
(84,921
|
)
|
|
|
(1,081
|
)
|
|
|
(168,083
|
)
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84,921
|
|
|
|
3,436
|
|
|
|
88,357
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,965
|
)
|
|
|
(42,965
|
)
|
Other income
|
|
|
4,431
|
|
|
|
1,269
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,118
|
)
|
|
|
3,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
4,431
|
|
|
|
46,341
|
|
|
|
(44,568
|
)
|
|
|
—
|
|
|
|
(17,376
|
)
|
|
|
(11,172
|
)
|
Operating expenses
|
|
|
27,815
|
|
|
|
54,665
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,298
|
)
|
|
|
65,182
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(78
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(23,384
|
)
|
|
|
(8,324
|
)
|
|
|
(44,568
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(76,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
3
|
|
|
|
20,026
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(14,244
|
)
|
|
$
|
(25,095
|
)
|
|
$
|
(26,458
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(65,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
—
|
|
|
$
|
28,235
|
|
|
$
|
32,275
|
|
|
$
|
—
|
|
|
$
|
15,629
|
|
|
$
|
76,139
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
(67,639
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(67,639
|
)
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,361
|
)
|
|
|
—
|
|
|
|
(31,578
|
)
|
|
|
(35,939
|
)
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
10,809
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,809
|
|
Other income
|
|
|
3,476
|
|
|
|
677
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,817
|
)
|
|
|
(1,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
3,476
|
|
|
|
28,912
|
|
|
|
(28,916
|
)
|
|
|
—
|
|
|
|
(21,766
|
)
|
|
|
(18,294
|
)
|
Operating expenses
|
|
|
26,764
|
|
|
|
40,107
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,862
|
)
|
|
|
49,009
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,229
|
)
|
|
|
(2,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(23,288
|
)
|
|
|
(11,195
|
)
|
|
|
(28,916
|
)
|
|
|
—
|
|
|
|
(1,675
|
)
|
|
|
(65,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(14,182
|
)
|
|
$
|
(6,818
|
)
|
|
$
|
(17,610
|
)
|
|
$
|
—
|
|
|
$
|
4,258
|
|
|
$
|
(34,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes loans sold of $15.2 billion and $9.2 billion
for the years ended December 31, 2007 and 2006,
respectively. |
41
CORPORATE
OVERHEAD SEGMENT
As previously mentioned, we do not allocate fixed corporate
overhead costs to our profit center divisions, because the
methodologies to do so are arbitrary and distort each
division’s marginal contribution to our profits. These
unallocated corporate overhead costs are reported in the
corporate overhead segment. The after-tax loss from this segment
increased from a loss of $106.7 million in 2006 to a loss
of $101.6 million in 2007.
DISCONTINUED
BUSINESS ACTIVITIES
As conditions in the U.S. mortgage market have
deteriorated, we have exited certain production channels and are
reporting them in a separate category in our segment reporting.
These exited production channels include conduit, home equity
and homebuilder. Of the $698.6 million in total credit
costs we reported in 2007, $543.5 million were in these
discontinued businesses, driving the total after-tax loss of
$281.1 million for these discontinued businesses for the
year. These activities are not considered discontinued
operations as defined by SFAS 144 due to our significant
continuing involvement in these activities.
42
The following provides details on the results of our exited
businesses for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Business Activities
|
|
|
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit
|
|
|
|
Equity
|
|
|
|
Homebuilder
|
|
|
|
|
|
|
|
|
|
|
|
|
Channel
|
|
|
|
Division
|
|
|
|
Division
|
|
|
|
Other
|
|
|
|
Total
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
63,658
|
|
|
|
$
|
28,072
|
|
|
|
$
|
46,602
|
|
|
|
$
|
1,797
|
|
|
|
$
|
140,129
|
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
|
(29,960
|
)
|
|
|
|
(178,144
|
)
|
|
|
|
(1,525
|
)
|
|
|
|
(209,629
|
)
|
|
Gain (loss) on sale of loans
|
|
|
(205,207
|
)
|
|
|
|
(102,337
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(307,544
|
)
|
|
Service fee income (expense)
|
|
|
—
|
|
|
|
|
3,406
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
3,406
|
|
|
Gain on sale and leaseback of building
|
|
|
—
|
|
|
|
|
(22,143
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(22,143
|
)
|
|
Other income (expense)
|
|
|
(316
|
)
|
|
|
|
6,295
|
|
|
|
|
(577
|
)
|
|
|
|
—
|
|
|
|
|
5,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
(141,865
|
)
|
|
|
|
(116,667
|
)
|
|
|
|
(132,119
|
)
|
|
|
|
272
|
|
|
|
|
(390,379
|
)
|
|
Operating expenses
|
|
|
37,667
|
|
|
|
|
15,461
|
|
|
|
|
23,539
|
|
|
|
|
245
|
|
|
|
|
76,912
|
|
|
Severance charges
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
|
(455
|
)
|
|
|
|
(5,950
|
)
|
|
|
|
—
|
|
|
|
|
(6,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(179,532
|
)
|
|
|
|
(131,673
|
)
|
|
|
|
(149,708
|
)
|
|
|
|
27
|
|
|
|
|
(460,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
133
|
|
|
|
|
234
|
|
|
|
|
78
|
|
|
|
|
4
|
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(109,468
|
)
|
|
|
$
|
(80,424
|
)
|
|
|
$
|
(91,250
|
)
|
|
|
$
|
13
|
|
|
|
$
|
(281,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
4,517,142
|
|
|
|
$
|
1,632,317
|
|
|
|
$
|
1,222,646
|
|
|
|
$
|
31,811
|
|
|
|
$
|
7,403,916
|
|
|
Allocated capital
|
|
|
202,651
|
|
|
|
|
122,980
|
|
|
|
|
91,802
|
|
|
|
|
2,820
|
|
|
|
|
420,253
|
|
|
Loans produced
|
|
|
16,096,606
|
|
|
|
|
38,435
|
|
|
|
|
976,018
|
|
|
|
|
—
|
|
|
|
|
17,111,059
|
|
|
Loans sold
|
|
|
19,836,221
|
|
|
|
|
1,010,436
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
20,846,657
|
|
|
MBR margin
|
|
|
(0.71
|
)
|
%
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
(1.17
|
)
|
%
|
ROE
|
|
|
(54
|
)
|
%
|
|
|
(65
|
)
|
%
|
|
|
(99
|
)
|
%
|
|
|
—
|
|
|
|
|
(67
|
)
|
%
|
Net interest margin
|
|
|
1.41
|
|
%
|
|
|
1.72
|
|
%
|
|
|
3.81
|
|
%
|
|
|
5.65
|
|
%
|
|
|
1.89
|
|
%
|
Net interest margin, thrift
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
Efficiency ratio
|
|
|
N/A
|
|
|
|
|
(17
|
)
|
%
|
|
|
38
|
|
%
|
|
|
14
|
|
%
|
|
|
(39
|
)
|
%
|
Average FTE
|
|
|
135
|
|
|
|
|
79
|
|
|
|
|
121
|
|
|
|
|
—
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
79,138
|
|
|
|
$
|
39,503
|
|
|
|
$
|
60,422
|
|
|
|
$
|
2,202
|
|
|
|
$
|
181,265
|
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
|
(1,800
|
)
|
|
|
|
(3,800
|
)
|
|
|
|
(1,665
|
)
|
|
|
|
(7,265
|
)
|
|
Gain (loss) on sale of loans
|
|
|
52,465
|
|
|
|
|
23,996
|
|
|
|
|
—
|
|
|
|
|
(11
|
)
|
|
|
|
76,450
|
|
|
Service fee income (expense)
|
|
|
—
|
|
|
|
|
466
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
466
|
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
|
(12,934
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(12,934
|
)
|
|
Other income (expense)
|
|
|
(63
|
)
|
|
|
|
8,723
|
|
|
|
|
1,867
|
|
|
|
|
—
|
|
|
|
|
10,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
131,540
|
|
|
|
|
57,954
|
|
|
|
|
58,489
|
|
|
|
|
526
|
|
|
|
|
248,509
|
|
|
Operating expenses
|
|
|
29,841
|
|
|
|
|
20,496
|
|
|
|
|
21,516
|
|
|
|
|
307
|
|
|
|
|
72,160
|
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
|
(1,165
|
)
|
|
|
|
(6,993
|
)
|
|
|
|
—
|
|
|
|
|
(8,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
101,699
|
|
|
|
|
38,623
|
|
|
|
|
43,966
|
|
|
|
|
219
|
|
|
|
|
184,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
61,935
|
|
|
|
$
|
23,523
|
|
|
|
$
|
26,775
|
|
|
|
$
|
134
|
|
|
|
$
|
112,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
4,149,226
|
|
|
|
$
|
1,934,429
|
|
|
|
$
|
1,076,213
|
|
|
|
$
|
40,627
|
|
|
|
$
|
7,200,495
|
|
|
Allocated capital
|
|
|
182,133
|
|
|
|
|
148,033
|
|
|
|
|
104,123
|
|
|
|
|
3,584
|
|
|
|
|
437,873
|
|
|
Loans produced
|
|
|
30,102,134
|
|
|
|
|
109,375
|
|
|
|
|
1,746,690
|
|
|
|
|
—
|
|
|
|
|
31,958,199
|
|
|
Loans sold
|
|
|
28,425,553
|
|
|
|
|
2,604,875
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
31,030,428
|
|
|
MBR margin
|
|
|
0.46
|
|
%
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
ROE
|
|
|
34
|
|
%
|
|
|
16
|
|
%
|
|
|
26
|
|
%
|
|
|
4
|
|
%
|
|
|
26
|
|
%
|
Net interest margin
|
|
|
1.91
|
|
%
|
|
|
2.04
|
|
%
|
|
|
5.61
|
|
%
|
|
|
5.42
|
|
%
|
|
|
2.52
|
|
%
|
Net interest margin, thrift
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
Efficiency ratio
|
|
|
N/A
|
|
|
|
|
32
|
|
%
|
|
|
23
|
|
%
|
|
|
14
|
|
%
|
|
|
25
|
|
%
|
Average FTE
|
|
|
147
|
|
|
|
|
75
|
|
|
|
|
108
|
|
|
|
|
—
|
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year to Year Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% change in net earnings
|
|
|
(277
|
)
|
%
|
|
|
(442
|
)
|
%
|
|
|
(441
|
)
|
%
|
|
|
(90
|
)
|
%
|
|
|
(350
|
)
|
%
|
% change in capital
|
|
|
11
|
|
%
|
|
|
(17
|
)
|
%
|
|
|
(12
|
)
|
%
|
|
|
(21
|
)
|
%
|
|
|
(4
|
)
|
%
|
CONDUIT
CHANNEL
The conduit channel purchased pools of closed loans for
portfolio, resale, or securitization and this channel was
characterized by its low cost operations and quick asset turn
times. For the year ended December 31, 2007, our loan
production from the conduit channel dropped 47% to
$16.1 billion as compared to $30.1 billion for the
year
43
ended December 31, 2006. This decline in volume was
attributable to the fact that we exited this channel due to its
inherently lower profit margins and the current uncertainty with
respect to secondary market spreads and execution. The conduit
channel recorded a net loss of $109.5 million for the year
ended December 31, 2007, down 277% from net earnings of
$61.9 million for the year ended December 31, 2006.
HOME
EQUITY DIVISION
The home equity division provided HELOC and closed-end second
mortgages nationwide through our retail and mortgage broker and
banker channels. We have ceased new originations in this
division as a response to extreme disruptions in the housing and
mortgage markets.
At December 31, 2007, our total HELOC servicing portfolio
amounted to $4.2 billion, an increase of approximately
$599.4 million from December 31, 2006. We produced
$2.2 billion of new HELOC commitments through our mortgage
banking segment and internal channels during 2007, sold
$1.0 billion and realized a net loss on sale of
$85.0 million primarily due to LOCOM adjustments of
$100.0 million. During 2006, we produced $3.9 billion
of HELOC loans and sold $2.6 billion with a corresponding
net gain on sale of $24.6 million.
Our HELOC securitization agreements contain provisions that,
under certain circumstances, the securitization enters a
“rapid amortization period”. During this period, all
new draws on revolving HELOC loans are allocated to a
seller’s interest on our consolidated balance sheets. This
causes the outstanding bonds to pay down quickly.
Our securitization agreements treat our seller’s interest
as “pari passu” to the securitization trust.
Accordingly, any cash received on the underlying loans is
distributed on a pro-rata basis, and our seller’s interest
is not subordinated to the securitization trust, even in rapid
amortization. As of December 31, 2007, none of our
securitizations were in a rapid amortization period. However, we
believe one or more securitizations will enter rapid
amortization in 2008. Since our seller’s interest is not
subordinated, the expected impact on our financial statements is
projected to be a small increase in HELOC loans outstanding,
which will likely be offset by the run-off in the existing HFI
portfolio.
All HELOC loans are adjustable-rate loans and indexed to the
prime rate. Information on the combined HELOC portfolio,
including both HFS and HFI loans, is presented as of the dates
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Outstanding balance (recorded value)
|
|
$
|
1,628,282
|
|
|
$
|
656,714
|
|
Total commitments(1)
|
|
|
3,239,902
|
|
|
|
2,211,298
|
|
Average spread over prime
|
|
|
1.16
|
%
|
|
|
1.39
|
%
|
Average FICO score
|
|
|
736
|
|
|
|
737
|
|
Average combined LTV ratio(2)
|
|
|
77
|
%
|
|
|
77
|
%
|
44
Additional
Information on HELOC Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan
|
|
|
|
|
|
Current
|
|
|
30+ Days
|
|
December 31, 2007
|
|
Outstanding
|
|
|
Commitment
|
|
|
Average Spread
|
|
|
Average
|
|
|
Delinquency
|
|
Combined LTV
|
|
Balance
|
|
|
Balance
|
|
|
Over Prime
|
|
|
FICO
|
|
|
%(3)
|
|
|
96% to 100%
|
|
$
|
70,936
|
|
|
$
|
85
|
|
|
|
2.44
|
%
|
|
|
709
|
|
|
|
9.92
|
%
|
91% to 95%
|
|
|
264,639
|
|
|
|
91
|
|
|
|
1.77
|
%
|
|
|
720
|
|
|
|
5.82
|
%
|
81% to 90%
|
|
|
538,212
|
|
|
|
80
|
|
|
|
1.55
|
%
|
|
|
718
|
|
|
|
4.12
|
%
|
71% to 80%
|
|
|
431,064
|
|
|
|
136
|
|
|
|
0.57
|
%
|
|
|
744
|
|
|
|
2.06
|
%
|
70% or less
|
|
|
323,431
|
|
|
|
142
|
|
|
|
0.40
|
%
|
|
|
755
|
|
|
|
1.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,628,282
|
|
|
|
108
|
|
|
|
1.16
|
%
|
|
|
736
|
|
|
|
3.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan
|
|
|
|
|
|
Current
|
|
|
30+ Days
|
|
December 31, 2006
|
|
Outstanding
|
|
|
Commitment
|
|
|
Average Spread
|
|
|
Average
|
|
|
Delinquency
|
|
Combined LTV
|
|
Balance
|
|
|
Balance
|
|
|
Over Prime
|
|
|
FICO
|
|
|
%(3)
|
|
|
96% to 100%
|
|
$
|
87,718
|
|
|
$
|
141
|
|
|
|
2.14
|
%
|
|
|
728
|
|
|
|
4.16
|
%
|
91% to 95%
|
|
|
115,868
|
|
|
|
124
|
|
|
|
2.17
|
%
|
|
|
715
|
|
|
|
0.62
|
%
|
81% to 90%
|
|
|
226,440
|
|
|
|
114
|
|
|
|
1.58
|
%
|
|
|
719
|
|
|
|
2.34
|
%
|
71% to 80%
|
|
|
129,441
|
|
|
|
198
|
|
|
|
0.63
|
%
|
|
|
746
|
|
|
|
0.77
|
%
|
70% or less
|
|
|
97,247
|
|
|
|
200
|
|
|
|
0.35
|
%
|
|
|
754
|
|
|
|
0.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
656,714
|
|
|
|
156
|
|
|
|
1.39
|
%
|
|
|
737
|
|
|
|
1.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On funded loans. |
|
(2) |
|
The combined LTV combines the LTV on both the first mortgage
loan and the HELOC. |
|
(3) |
|
30+ days delinquency include loans that are 30 days or more
past the due date including loans in foreclosure. |
HOMEBUILDER
DIVISION
The homebuilder division has ceased new originations in response
to the extreme disruptions in the housing and mortgage markets.
We do not anticipate being in this business once the current
portfolio is worked out and paid off. We are monitoring this
portfolio very closely, as the housing fundamentals are expected
to continue to weaken, which affects both the underlying
collateral values and the projected repayment sources for these
loans. Accordingly, we expect to have additional downgrades,
additional provisions for loan losses, and charge-offs relating
to this portfolio.
The rapid deterioration in the California and Florida real
estate markets and the disruption in the mortgage market
nationwide that began in the third quarter of 2006 had a
significant impact on our homebuilder borrowers and on our
portfolio of loans. Classified assets were $675.3 million,
or 56% of outstandings at December 31, 2007, up from
$121.2 million or 11% of outstandings at December 31,
2006. At December 31, 2007, non-performing loans rose to
$480.2 million, from $9.0 million at December 31,
2006. A loan is considered non-performing if the loan becomes
delinquent in excess of 90 days from the due date or full
payment of interest or principal is no longer anticipated. It
can also be considered non-performing if the accrual of interest
from the interest reserve will cause a loss.
There were 1,288 unsold units under construction or completed at
December 31, 2007 compared to 1,254 unsold units at
December 31, 2006. The weighted average LTV ratio of this
portfolio increased to 82% at December 31, 2007 compared to
73% at December 31, 2006.
The increase in non-performing and classified assets resulted in
a provision to the allowance for loan losses of
$178.1 million for 2007, or 14.49% of average loans for the
year, up from $3.8 million, or 0.35% of average loans for
2006. The total allowance for loan losses increased to
$198.6 million, or 16.66% of recorded value of total loans,
at December 31, 2007, up from $20.5 million or 1.79%
of recorded value of total loans, at December 31, 2006.
45
There were no charge-offs and REO in 2007, but we believe we
will have charge-offs and REO in 2008 although we cannot predict
at this time the extent of any future charge-offs or REO.
Information on our homebuilder portfolio is presented in the
following table as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Outstanding balance (recorded value)
|
|
$
|
1,192,093
|
|
|
$
|
1,144,835
|
|
Total commitments
|
|
|
1,662,060
|
|
|
|
2,010,727
|
|
Average loan commitments
|
|
|
8,480
|
|
|
|
10,810
|
|
Percentage of homes under construction or completed that are sold
|
|
|
30
|
%
|
|
|
37
|
%
|
Non-performing loans
|
|
|
40.28
|
%
|
|
|
0.78
|
%
|
Allowance for loan losses as a percentage of recorded value
|
|
|
16.66
|
%
|
|
|
1.79
|
%
|
Additional Information:
|
|
|
|
|
|
|
|
|
Average LTV ratio(1)
|
|
|
82
|
%
|
|
|
73
|
%
|
Geographic distribution of top five states:
|
|
|
|
|
|
|
|
|
Southern California
|
|
|
37
|
%
|
|
|
41
|
%
|
Northern California
|
|
|
29
|
%
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
Total California
|
|
|
66
|
%
|
|
|
60
|
%
|
Florida
|
|
|
10
|
%
|
|
|
11
|
%
|
Illinois
|
|
|
7
|
%
|
|
|
9
|
%
|
Oregon
|
|
|
4
|
%
|
|
|
6
|
%
|
Arizona
|
|
|
3
|
%
|
|
|
4
|
%
|
Other
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The average LTV ratio is based on the most recent estimated
appraised value of the completed project compared to the
commitment amount at the date indicated. |
The following provides details on the aggregate maturities of
construction loan balances due at December 31, 2007
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year or less
|
|
$
|
988,590
|
|
|
|
|
|
|
|
|
|
Between one to five years(1)
|
|
|
202,964
|
|
|
|
|
|
|
|
|
|
More than five years
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(2)
|
|
$
|
1,192,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
71.5% of these loans are scheduled to mature in 2009 while the
remaining loans are scheduled to mature through 2012. |
|
(2) |
|
100% of these construction loans have all floating rates. |
CONSOLIDATED
RISK MANAGEMENT DISCUSSION
We manage many types of risks with several layers of risk
management and oversight, using both a centralized and
decentralized approach. Our philosophy is to put risk management
at the core of our operations and establish a unified framework
for measuring and managing risk across the enterprise, providing
our business units with the tools — and
accountability — to manage risk. At the corporate
level, this consolidated risk management is known as Enterprise
Risk Management (“ERM”). ERM, in partnership with the
Board of Directors and senior management, provide support to and
oversight of the business units.
46
ERM, as a part of management, develops, maintains and monitors
our cost effective yet comprehensive enterprise-wide risk
management framework, including our system of operating internal
controls. ERM fosters a risk management culture throughout
Indymac and exists to help us manage unexpected losses, earnings
surprises and reputation damage. It also provides management and
the Board with a better understanding of the trade-offs between
risks and rewards, leading to smarter investment decisions and
more consistent and generally higher long-term returns on equity.
CAMELS
FRAMEWORK FOR RISK MANAGEMENT
The framework for organizing ERM is based on the six-point
rating scale used by the OTS, our regulating body, to evaluate
the financial condition of savings and loan associations. A
discussion of the areas covered by CAMELS (Capital, Asset
Quality, Management, Earnings, Liquidity and Sensitivity to
Market Risk) follows.
CAPITAL
The Bank is subject to regulatory capital regulations
administered by the federal banking agencies. As of
December 31, 2007, Indymac Bank met all of the requirements
of a “well-capitalized” institution under the general
regulatory capital regulations. Refer to
“Note 22 — Regulatory Requirements” in
the accompanying notes to consolidated financial statements for
further discussion.
Our business is primarily centered on single-family lending and
the related production and sale of loans. Due to the disruption
of the secondary markets, loan sales were adversely impacted,
resulting in lower than normal volume. Thus, we significantly
changed our production model and transitioned to primarily
become a GSE lender.
The accumulation of MSRs is a large component of our strategy.
As of December 31, 2007, the capitalized value of MSRs was
$2.5 billion. OTS regulations effectively impose higher
capital requirements on the amount of MSRs that exceeds total
Tier 1 capital. These higher capital requirements could
result in lowered returns on our retained assets and could limit
our ability to retain servicing assets and even cause our
capital levels to decline significantly if the value of our MSRs
grows. While management believes that compliance with the
capital limits on MSRs will not materially impact future
results, no assurance can be given that our plans and strategies
will be successful.
Capital
Management and Allocation
As a federally regulated thrift, we are required to measure
regulatory capital using two different methods: core capital and
risk-based capital. Under the core capital method, a fixed
percentage of capital is required against each dollar of assets
without regard to the type of asset. Under the risk-based
capital method, capital is held against assets which are
adjusted for their relative credit risk using standard
“risk weighting” percentages. We allocate capital
using the regulatory minimums for well-capitalized institutions
for each applicable asset class. The ratios are below the
regulatory minimums due to the use of trust preferred securities
as a form of regulatory capital.
47
The following provides information on the core and risk-based
capital ratios for the two segments and each of their operating
divisions for the year ended December 31, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
Core
|
|
|
Risk-Based
|
|
|
|
|
|
|
% of
|
|
|
Avg.
|
|
|
% of
|
|
|
|
|
|
|
|
|
Avg.
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Total
|
|
|
Allocated
|
|
|
Total
|
|
|
Capital/
|
|
|
|
|
|
Allocated
|
|
|
Total
|
|
|
Capital/
|
|
|
|
|
Year Ended December 31, 2007
|
|
Assets
|
|
|
Assets
|
|
|
Capital
|
|
|
Capital
|
|
|
Assets
|
|
|
ROE
|
|
|
Capital
|
|
|
Capital
|
|
|
Assets
|
|
|
ROE
|
|
|
Mortgage Banking Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Direct Division
|
|
$
|
121,984
|
|
|
|
0.4
|
%
|
|
$
|
4,800
|
|
|
|
0.2
|
%
|
|
|
3.9
|
%
|
|
|
(43
|
)%
|
|
$
|
5,710
|
|
|
|
0.3
|
%
|
|
|
4.7
|
%
|
|
|
(35
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Channel
|
|
|
187,865
|
|
|
|
0.5
|
%
|
|
|
6,972
|
|
|
|
0.4
|
%
|
|
|
3.7
|
%
|
|
|
(454
|
)%
|
|
|
13,761
|
|
|
|
0.7
|
%
|
|
|
7.3
|
%
|
|
|
(227
|
)%
|
Mortgage Broker and Banker Channel
|
|
|
5,900,356
|
|
|
|
16.4
|
%
|
|
|
232,224
|
|
|
|
11.7
|
%
|
|
|
3.9
|
%
|
|
|
(51
|
)%
|
|
|
288,202
|
|
|
|
14.6
|
%
|
|
|
4.9
|
%
|
|
|
(40
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Professionals Group
|
|
|
6,088,221
|
|
|
|
16.9
|
%
|
|
|
239,196
|
|
|
|
12.1
|
%
|
|
|
3.9
|
%
|
|
|
(63
|
)%
|
|
|
301,963
|
|
|
|
15.3
|
%
|
|
|
5.0
|
%
|
|
|
(49
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Freedom Division
|
|
|
1,247,910
|
|
|
|
3.5
|
%
|
|
|
142,607
|
|
|
|
7.2
|
%
|
|
|
11.4
|
%
|
|
|
37
|
%
|
|
|
134,244
|
|
|
|
6.8
|
%
|
|
|
10.8
|
%
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Production Division
|
|
|
7,458,115
|
|
|
|
20.8
|
%
|
|
|
386,603
|
|
|
|
19.5
|
%
|
|
|
5.2
|
%
|
|
|
(26
|
)%
|
|
|
441,917
|
|
|
|
22.4
|
%
|
|
|
5.9
|
%
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Servicing Rights Channel
|
|
|
3,095,917
|
|
|
|
8.6
|
%
|
|
|
204,790
|
|
|
|
10.4
|
%
|
|
|
6.6
|
%
|
|
|
74
|
%
|
|
|
324,001
|
|
|
|
16.4
|
%
|
|
|
10.5
|
%
|
|
|
49
|
%
|
Servicing Retention Channel
|
|
|
836,318
|
|
|
|
2.3
|
%
|
|
|
32,687
|
|
|
|
1.7
|
%
|
|
|
3.9
|
%
|
|
|
68
|
%
|
|
|
37,404
|
|
|
|
1.9
|
%
|
|
|
4.5
|
%
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Servicing Division
|
|
|
3,932,235
|
|
|
|
10.9
|
%
|
|
|
237,477
|
|
|
|
12.1
|
%
|
|
|
6.0
|
%
|
|
|
74
|
%
|
|
|
361,405
|
|
|
|
18.3
|
%
|
|
|
9.2
|
%
|
|
|
50
|
%
|
Mortgage Bank Overhead
|
|
|
149,312
|
|
|
|
0.4
|
%
|
|
|
5,635
|
|
|
|
0.3
|
%
|
|
|
3.8
|
%
|
|
|
N/A
|
|
|
|
14,208
|
|
|
|
0.7
|
%
|
|
|
9.5
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Mortgage Banking
|
|
|
11,539,662
|
|
|
|
32.1
|
%
|
|
|
629,715
|
|
|
|
31.9
|
%
|
|
|
5.5
|
%
|
|
|
5
|
%
|
|
|
817,530
|
|
|
|
41.4
|
%
|
|
|
7.1
|
%
|
|
|
5
|
%
|
Commercial Mortgage Banking Division
|
|
|
73,956
|
|
|
|
0.2
|
%
|
|
|
2,616
|
|
|
|
0.1
|
%
|
|
|
3.5
|
%
|
|
|
(295
|
)%
|
|
|
5,778
|
|
|
|
0.3
|
%
|
|
|
7.8
|
%
|
|
|
(130
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Banking Segment
|
|
|
11,613,618
|
|
|
|
32.3
|
%
|
|
|
632,331
|
|
|
|
32.0
|
%
|
|
|
5.4
|
%
|
|
|
4
|
%
|
|
|
823,308
|
|
|
|
41.7
|
%
|
|
|
7.1
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thrift Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade securities
|
|
|
4,876,783
|
|
|
|
13.6
|
%
|
|
|
192,983
|
|
|
|
9.8
|
%
|
|
|
4.0
|
%
|
|
|
(2
|
)%
|
|
|
88,879
|
|
|
|
4.5
|
%
|
|
|
1.8
|
%
|
|
|
(11
|
)%
|
Non-investment grade and residuals securities
|
|
|
401,745
|
|
|
|
1.1
|
%
|
|
|
12,225
|
|
|
|
0.6
|
%
|
|
|
3.0
|
%
|
|
|
N/M
|
|
|
|
191,489
|
|
|
|
9.7
|
%
|
|
|
47.7
|
%
|
|
|
(73
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage-Backed Securities
|
|
|
5,278,528
|
|
|
|
14.7
|
%
|
|
|
205,208
|
|
|
|
10.4
|
%
|
|
|
3.9
|
%
|
|
|
(75
|
)%
|
|
|
280,368
|
|
|
|
14.2
|
%
|
|
|
5.3
|
%
|
|
|
(54
|
)%
|
SFR Mortgage Loans HFI Division
|
|
|
6,799,552
|
|
|
|
18.9
|
%
|
|
|
266,148
|
|
|
|
13.5
|
%
|
|
|
3.9
|
%
|
|
|
(21
|
)%
|
|
|
239,633
|
|
|
|
12.1
|
%
|
|
|
3.5
|
%
|
|
|
(24
|
)%
|
Consumer Construction Division
|
|
|
2,811,039
|
|
|
|
7.8
|
%
|
|
|
109,977
|
|
|
|
5.6
|
%
|
|
|
3.9
|
%
|
|
|
6
|
%
|
|
|
135,035
|
|
|
|
6.8
|
%
|
|
|
4.8
|
%
|
|
|
6
|
%
|
Warehouse Lending Division
|
|
|
190,374
|
|
|
|
0.5
|
%
|
|
|
7,531
|
|
|
|
0.4
|
%
|
|
|
4.0
|
%
|
|
|
20
|
%
|
|
|
15,440
|
|
|
|
0.8
|
%
|
|
|
8.1
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Thrift Segment
|
|
|
15,079,493
|
|
|
|
41.9
|
%
|
|
|
588,864
|
|
|
|
29.9
|
%
|
|
|
3.9
|
%
|
|
|
(35
|
)%
|
|
|
670,476
|
|
|
|
33.9
|
%
|
|
|
4.4
|
%
|
|
|
(30
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Bank — Deposits
|
|
|
51,727
|
|
|
|
0.1
|
%
|
|
|
2,031
|
|
|
|
0.1
|
%
|
|
|
3.9
|
%
|
|
|
N/A
|
|
|
|
4,325
|
|
|
|
0.2
|
%
|
|
|
8.4
|
%
|
|
|
N/A
|
|
Treasury
|
|
|
—
|
|
|
|
—
|
|
|
|
374,618
|
|
|
|
18.7
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Eliminations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
|
|
|
26,744,838
|
|
|
|
74.3
|
%
|
|
|
1,597,844
|
|
|
|
80.7
|
%
|
|
|
6.0
|
%
|
|
|
(13
|
)%
|
|
|
1,498,109
|
|
|
|
75.8
|
%
|
|
|
5.6
|
%
|
|
|
(15
|
)%
|
Corporate overhead
|
|
|
1,773,748
|
|
|
|
4.9
|
%
|
|
|
86,171
|
|
|
|
4.4
|
%
|
|
|
4.9
|
%
|
|
|
N/A
|
|
|
|
58,570
|
|
|
|
3.0
|
%
|
|
|
3.3
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total On-Going Businesses
|
|
|
28,518,586
|
|
|
|
79.2
|
%
|
|
|
1,684,015
|
|
|
|
85.1
|
%
|
|
|
5.9
|
%
|
|
|
(19
|
)%
|
|
|
1,556,679
|
|
|
|
78.8
|
%
|
|
|
5.5
|
%
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Business Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit Channel
|
|
|
4,566,315
|
|
|
|
12.7
|
%
|
|
|
181,077
|
|
|
|
9.2
|
%
|
|
|
4.0
|
%
|
|
|
(61
|
)%
|
|
|
202,651
|
|
|
|
10.3
|
%
|
|
|
4.4
|
%
|
|
|
(54
|
)%
|
Home Equity Division
|
|
|
1,673,894
|
|
|
|
4.7
|
%
|
|
|
64,413
|
|
|
|
3.3
|
%
|
|
|
3.8
|
%
|
|
|
(130
|
)%
|
|
|
122,980
|
|
|
|
6.2
|
%
|
|
|
7.3
|
%
|
|
|
(65
|
)%
|
Homebuilder Division
|
|
|
1,182,714
|
|
|
|
3.3
|
%
|
|
|
46,376
|
|
|
|
2.3
|
%
|
|
|
3.9
|
%
|
|
|
(202
|
)%
|
|
|
91,802
|
|
|
|
4.6
|
%
|
|
|
7.8
|
%
|
|
|
(99
|
)%
|
Other
|
|
|
27,513
|
|
|
|
0.1
|
%
|
|
|
1,051
|
|
|
|
0.1
|
%
|
|
|
3.8
|
%
|
|
|
(8
|
)%
|
|
|
2,820
|
|
|
|
0.1
|
%
|
|
|
10.2
|
%
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Discontinued Business Activities
|
|
|
7,450,436
|
|
|
|
20.8
|
%
|
|
|
292,917
|
|
|
|
14.9
|
%
|
|
|
3.9
|
%
|
|
|
(98
|
)%
|
|
|
420,253
|
|
|
|
21.2
|
%
|
|
|
5.6
|
%
|
|
|
(67
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
$
|
35,969,022
|
|
|
|
100.0
|
%
|
|
$
|
1,976,932
|
|
|
|
100.0
|
%
|
|
|
5.5
|
%
|
|
|
(31
|
)%
|
|
$
|
1,976,932
|
|
|
|
100.0
|
%
|
|
|
5.5
|
%
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As the table shows, certain asset types require more or less
capital depending on the capital measurement method. For
example, non-investment grade and residual securities are
allocated 3.0% core capital and 47.7% risk-based capital. These
differing methods result in significantly different ROEs as
shown. We attempt to manage our business segments and balance
sheet to optimize capital efficiency under both capital methods.
48
ASSET
QUALITY
Indymac uses both a centralized and a decentralized approach to
credit risk management. At the corporate level, ERM oversees the
development of a framework (through people, policies and
processes) for credit risk management the business unit leaders
use to document and “matrix manage” their credit and
fraud risk. This framework includes the establishment and
enforcement of strong corporate credit governance to maintain
investment, lending and fraud policies that are simple, but
highly effective. Each business unit has its own chief credit
officer to oversee and implement these procedures. By tracking
historical credit losses and factors contributing to the losses,
we continuously implement changes to significantly reduce the
likelihood of similar losses repeating. This ongoing analysis of
credit performance provides a feedback loop that serves to
continually refine and enhance credit risk policies.
We assume risk through our origination of loans, investments in
whole loans and mortgage securities, and our construction
lending operations. As a result of standard representations and
warranties to investors, we also retain credit exposure from
repurchase obligations on certain types of mortgage sales.
The following shows a summary of reserves against our key credit
risks as of December 31, 2007 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“Reserve”
|
|
|
|
|
Credit Risk Area
|
|
Reserve Type
|
|
Balance
|
|
|
Balance
|
|
|
UPB
|
|
|
Mortgage Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale(1)
|
|
Market valuation reserve
|
|
$
|
3,777
|
|
|
$
|
3
|
|
|
$
|
3,711
|
|
Repurchase risk(2)
|
|
Secondary market reserve
|
|
|
N/A
|
|
|
|
180
|
|
|
|
181,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thrift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment(3)
|
|
Allowance for loan losses and estimated credit losses embedded
in basis reductions due to loans transferred from HFS
|
|
|
16,454
|
|
|
|
872
|
|
|
|
16,728
|
|
Non-investment grade and residual securities(4)
|
|
Loss assumption in valuations
|
|
|
272
|
|
|
|
1,262
|
|
|
|
22,437
|
|
Foreclosed assets
|
|
Reduction in book value due to liquidation costs and/or property
value deterioration
|
|
|
196
|
|
|
|
61
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Reserves
|
|
$
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Risks include possible borrower credit deterioration which could
adversely impact loan salability; potential further
deterioration of credit quality of loans previously repurchased
for repurchase/warranty issues or through called deals; and
actual losses exceeding losses that are assumed in our
valuations. The reserve is for delinquent loans. |
|
(2) |
|
Risks include repurchase of impaired loans due to early payment
default or other repurchase and warranty violations beyond the
amount reserved at time of sale. |
|
(3) |
|
Risk includes credit losses exceeding the risk reserved for in
the allowance. Total reserves include $398 million of
allowance for loan losses and $474 million of credit losses
estimated in the determination of the market value discount on
transferred loans. |
|
(4) |
|
Reserve balance for non-investment grade and residual securities
represents the expected remaining cumulative losses. |
Total credit-related reserves were $2.4 billion at
December 31, 2007, compared to $619 million at
December 31, 2006. For 2007, we recorded credit costs of
$1.4 billion compared to $126.1 million for 2006.
49
Non-Performing
Assets
The following presents the details of our loan portfolio by
product as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
Total held for sale portfolio
|
|
$
|
3,776,904
|
|
|
|
18.7
|
%
|
|
$
|
9,467,843
|
|
|
|
48.2
|
%
|
|
$
|
6,024,184
|
|
|
|
42.1
|
%
|
|
$
|
4,445,572
|
|
|
|
39.7
|
%
|
|
$
|
2,573,248
|
|
|
|
25.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loans and HELOCs
|
|
|
12,555,889
|
|
|
|
62.1
|
%
|
|
|
6,507,221
|
|
|
|
33.1
|
%
|
|
|
5,427,270
|
|
|
|
38.0
|
%
|
|
|
4,450,921
|
|
|
|
39.7
|
%
|
|
|
5,587,409
|
|
|
|
55.7
|
%
|
Land and other mortgage loans
|
|
|
660,550
|
|
|
|
3.3
|
%
|
|
|
375,215
|
|
|
|
1.9
|
%
|
|
|
260,615
|
|
|
|
1.8
|
%
|
|
|
158,468
|
|
|
|
1.4
|
%
|
|
|
162,329
|
|
|
|
1.6
|
%
|
Builder construction loans
|
|
|
818,035
|
|
|
|
4.0
|
%
|
|
|
786,279
|
|
|
|
4.0
|
%
|
|
|
612,061
|
|
|
|
4.3
|
%
|
|
|
512,191
|
|
|
|
4.6
|
%
|
|
|
438,873
|
|
|
|
4.4
|
%
|
Consumer construction loans
|
|
|
2,342,060
|
|
|
|
11.6
|
%
|
|
|
2,225,979
|
|
|
|
11.3
|
%
|
|
|
1,883,674
|
|
|
|
13.2
|
%
|
|
|
1,574,378
|
|
|
|
14.1
|
%
|
|
|
1,191,050
|
|
|
|
11.9
|
%
|
Revolving warehouse lines of credit
|
|
|
48,633
|
|
|
|
0.2
|
%
|
|
|
246,778
|
|
|
|
1.3
|
%
|
|
|
48,616
|
|
|
|
0.3
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core held for investment loans
|
|
|
16,425,167
|
|
|
|
81.2
|
%
|
|
|
10,141,472
|
|
|
|
51.6
|
%
|
|
|
8,232,236
|
|
|
|
57.6
|
%
|
|
|
6,695,958
|
|
|
|
59.8
|
%
|
|
|
7,379,661
|
|
|
|
73.6
|
%
|
Others(1)
|
|
|
28,879
|
|
|
|
0.1
|
%
|
|
|
35,737
|
|
|
|
0.2
|
%
|
|
|
46,133
|
|
|
|
0.3
|
%
|
|
|
53,795
|
|
|
|
0.5
|
%
|
|
|
69,524
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held for investment portfolio
|
|
|
16,454,046
|
|
|
|
81.3
|
%
|
|
|
10,177,209
|
|
|
|
51.8
|
%
|
|
|
8,278,369
|
|
|
|
57.9
|
%
|
|
|
6,749,753
|
|
|
|
60.3
|
%
|
|
|
7,449,185
|
|
|
|
74.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
20,230,950
|
|
|
|
100.0
|
%
|
|
$
|
19,645,052
|
|
|
|
100.0
|
%
|
|
$
|
14,302,553
|
|
|
|
100.0
|
%
|
|
$
|
11,195,325
|
|
|
|
100.0
|
%
|
|
$
|
10,022,433
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This includes manufactured home loans and home improvement. |
Loans are generally placed on non-accrual status when they are
90 days past due. Non-performing assets include
non-performing loans and foreclosed assets. We record the
balance of our assets acquired in foreclosure or by deed in lieu
of foreclosure at estimated net realizable value.
The following summarizes our non-performing assets as of the
dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Non-performing loans HFI
|
|
$
|
1,308,148
|
|
|
$
|
108,483
|
|
|
$
|
43,404
|
|
|
$
|
49,122
|
|
|
$
|
37,592
|
|
Non-performing loans HFS
|
|
|
5,737
|
|
|
|
54,347
|
|
|
|
20,805
|
|
|
|
54,611
|
|
|
|
38,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
1,313,885
|
|
|
|
162,830
|
|
|
|
64,209
|
|
|
|
103,733
|
|
|
|
76,447
|
|
REO
|
|
|
196,049
|
|
|
|
21,638
|
|
|
|
8,817
|
|
|
|
19,161
|
|
|
|
23,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
1,509,934
|
|
|
$
|
184,468
|
|
|
$
|
73,026
|
|
|
$
|
122,894
|
|
|
$
|
100,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due 90 days or more as to interest or principal and
accruing interest
|
|
$
|
4,081
|
|
|
$
|
185
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets to total assets
|
|
|
4.61
|
%
|
|
|
0.63
|
%
|
|
|
0.34
|
%
|
|
|
0.73
|
%
|
|
|
0.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, non-performing assets as a percentage
of total assets was 4.61%, increasing from 0.63% at
December 31, 2006. The weakening real estate market and the
general tightening of underwriting in the mortgage industry
continue to have a negative impact on our portfolios. It became
increasingly difficult for distressed borrowers to find
alternative financing in order to avoid foreclosure. This
resulted in a higher percentage of loans going through
foreclosure and a longer average time for us to liquidate our
REO. We expect to have an even higher level of non-performing
loans in the future due to the continued market disruption. In
addition to our non-performing loans, we have loans classified
as sub-standard in the amount of $1.7 billion at
December 31, 2007 as
50
disclosed in our Thrift Financial Report filed with the OTS. We
consider the sub-standard loan classification when determining
the allowance for loan losses.
Non-performing loans held for investment increased by
$1.2 billion from December 31, 2006 to
$1.3 billion at December 31, 2007, while
non-performing loans held for sale decreased by
$48.6 million during the same time period to
$5.7 million. As a result of the increased delinquencies in
these portfolios, foreclosure activities rose during the period,
leading to REO of $196.0 million at December 31, 2007.
The following provides additional comparative data on
non-performing loans for the loans HFI portfolio by division as
of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
SFR mortgage loans HFI
|
|
$
|
736,159
|
|
|
$
|
66,360
|
|
|
$
|
27,960
|
|
|
$
|
20,957
|
|
|
$
|
11,227
|
|
Consumer construction
|
|
|
77,562
|
|
|
|
25,957
|
|
|
|
9,446
|
|
|
|
9,553
|
|
|
|
9,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-going businesses
|
|
|
813,721
|
|
|
|
92,317
|
|
|
|
37,406
|
|
|
|
30,510
|
|
|
|
20,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder
|
|
|
480,157
|
|
|
|
8,981
|
|
|
|
—
|
|
|
|
11,546
|
|
|
|
9,704
|
|
Other(1)
|
|
|
14,270
|
|
|
|
7,185
|
|
|
|
5,998
|
|
|
|
7,066
|
|
|
|
7,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued business activities
|
|
|
494,427
|
|
|
|
16,166
|
|
|
|
5,998
|
|
|
|
18,612
|
|
|
|
17,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans HFI
|
|
$
|
1,308,148
|
|
|
$
|
108,483
|
|
|
$
|
43,404
|
|
|
$
|
49,122
|
|
|
$
|
37,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans HFI(2)
|
|
|
30
|
%
|
|
|
58
|
%
|
|
|
127
|
%
|
|
|
108
|
%
|
|
|
140
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes loans from the home equity and discontinued products
divisions. |
|
(2) |
|
For December 31, 2007, including the embedded credit
reserves of $474 million in transferred loans increase this
ratio to 67%. |
The increase in non-performing HFI loans is mainly seen in the
SFR mortgage loans HFI division and the homebuilder division
portfolios. As previously noted, the increases in non-performing
loans in our SFR mortgage loans HFI division portfolio is
primarily due to the delinquency worsening credit environment
and declining home prices primarily as it relates to higher LTV
products. The non-performing loans in our homebuilder
division’s portfolio are in markets that have seen both
price and sales declines over the last several months. For
further discussion on this portfolio, see “Summary of
Business Segment Results — Discontinued Business
Activities — Homebuilder Division”.
Our non-accrual/non-performing loans by collateral type are
summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Homebuilder loans
|
|
$
|
480,157
|
|
|
$
|
8,981
|
|
|
$
|
—
|
|
Consumer construction loans
|
|
|
77,562
|
|
|
|
25,957
|
|
|
|
9,446
|
|
SFR mortgage loans HFI and other non-accrual/non-performing loans
|
|
|
756,166
|
|
|
|
127,892
|
|
|
|
54,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual/non-performing loans
|
|
$
|
1,313,885
|
|
|
$
|
162,830
|
|
|
$
|
64,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the total non-accrual loans at December 31, 2007,
approximately $480.2 million of impaired homebuilder loans
were accounted for in accordance with SFAS 114,
“Accounting by Creditors for Impairment of a Loan”
(“SFAS 114”). As of December 31, 2006
and 2005, there were no impaired loans accounted for in
accordance with SFAS 114. For the year ended
December 31, 2007, the average balance for the
SFAS 114 impaired loans was $127.1 million. The
allowance for loan losses related to those SFAS 114
impaired loans was $95.0 million at December 31, 2007.
For the year ended December 31, 2007, no interest income
was recognized on the SFAS 114
51
impaired loans once they were deemed impaired. There were no
significant non-accrual loans accounted for under SFAS 114
at December 31, 2006 and 2005.
Troubled debt restructurings, where management has granted a
concession to a borrower experiencing financial difficulty, were
approximately $33.1 million as of December 31, 2007.
We have no significant commitments to lend additional funds to
borrowers with restructured loans. There were no significant
troubled debt restructuring loans at December 31, 2006 and
2005.
Allowance
for Loan Losses
For the loans held for investment portfolio, an allowance for
loan losses is established and allocated to various loan types
for segment reporting purposes. The determination of the level
of the allowance for loan losses and, correspondingly, the
provision for loan losses, is based on delinquency trends, prior
loan loss experience, and management’s judgment and
assumptions regarding various matters, including general
economic conditions and loan portfolio composition. Management
continuously evaluates these assumptions and various relevant
factors impacting credit quality and inherent losses. A
component of the overall allowance for loan losses is not
specifically allocated (“unallocated component”). The
unallocated component reflects management’s assessment of
various factors that create inherent imprecision in the methods
used to determine the specific portfolio allocations. Those
factors include, but are not limited to, levels of and trends in
delinquencies and impaired loans, charge-offs and recoveries,
volume and terms of the loans, effects of any changes in risk
selection and underwriting standards, other changes in lending
policies, procedures, and practices, and national and local
economic trends and conditions. As of December 31, 2007,
the unallocated component of the total allowance for loan losses
was $72.5 million, compared to $17.2 million at
December 31, 2006.
In the fourth quarter of 2007, we transferred mortgage loans
with a net investment amount of $10.9 billion from HFS to
HFI. We recorded a reduction to the net investment in the amount
of $0.6 billion resulting in a net increase in HFI loans of
$10.3 billion. A portion of the valuation reduction in net
investment represents credit losses we estimated in determining
the market value of loans. This amount, which totals
$474 million, represents a “reserve” for future
realized credit losses. If our estimate of inherent credit
losses in the transferred pool increases, we may record a
provision for loan losses which will increase the allowance for
loan losses.
The following summarizes our loans HFI portfolio by division and
the corresponding allowance for loan losses as of the dates
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
ALL as a%
|
|
|
|
|
|
ALL as a%
|
|
|
|
|
|
ALL as a%
|
|
|
|
|
|
ALL as a%
|
|
|
|
|
|
ALL as a%
|
|
|
|
|
|
|
of Recorded
|
|
|
|
|
|
of Recorded
|
|
|
|
|
|
of Recorded
|
|
|
|
|
|
of Recorded
|
|
|
|
|
|
of Recorded
|
|
By Division
|
|
ALL
|
|
|
Value
|
|
|
ALL
|
|
|
Value
|
|
|
ALL
|
|
|
Value
|
|
|
ALL
|
|
|
Value
|
|
|
ALL
|
|
|
Value
|
|
|
SFR mortgage loans HFI(1)
|
|
$
|
131,345
|
|
|
|
1.2
|
%
|
|
$
|
21,540
|
|
|
|
0.3
|
%
|
|
$
|
17,848
|
|
|
|
0.3
|
%
|
|
$
|
15,575
|
|
|
|
0.4
|
%
|
|
$
|
15,774
|
|
|
|
0.3
|
%
|
Consumer construction
|
|
|
32,317
|
|
|
|
1.4
|
%
|
|
|
11,779
|
|
|
|
0.5
|
%
|
|
|
11,775
|
|
|
|
0.6
|
%
|
|
|
11,474
|
|
|
|
0.7
|
%
|
|
|
10,769
|
|
|
|
0.9
|
%
|
Warehouse lending
|
|
|
344
|
|
|
|
0.7
|
%
|
|
|
298
|
|
|
|
0.1
|
%
|
|
|
117
|
|
|
|
0.2
|
%
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-going businesses
|
|
|
164,006
|
|
|
|
1.2
|
%
|
|
|
33,617
|
|
|
|
0.4
|
%
|
|
|
29,740
|
|
|
|
0.4
|
%
|
|
|
27,049
|
|
|
|
0.5
|
%
|
|
|
26,543
|
|
|
|
0.4
|
%
|
Homebuilder
|
|
|
198,590
|
|
|
|
16.7
|
%
|
|
|
20,448
|
|
|
|
1.8
|
%
|
|
|
16,648
|
|
|
|
1.9
|
%
|
|
|
15,748
|
|
|
|
2.4
|
%
|
|
|
14,838
|
|
|
|
2.5
|
%
|
Home equity
|
|
|
30,452
|
|
|
|
2.1
|
%
|
|
|
2,452
|
|
|
|
10.4
|
%
|
|
|
2,443
|
|
|
|
7.7
|
%
|
|
|
2,394
|
|
|
|
5.2
|
%
|
|
|
4,263
|
|
|
|
0.6
|
%
|
Other
|
|
|
5,087
|
|
|
|
17.6
|
%
|
|
|
5,869
|
|
|
|
16.4
|
%
|
|
|
6,337
|
|
|
|
13.7
|
%
|
|
|
7,700
|
|
|
|
14.3
|
%
|
|
|
7,001
|
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued business activities
|
|
|
234,129
|
|
|
|
8.7
|
%
|
|
|
28,769
|
|
|
|
2.4
|
%
|
|
|
25,428
|
|
|
|
2.7
|
%
|
|
|
25,842
|
|
|
|
3.4
|
%
|
|
|
26,102
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HFI portfolio
|
|
$
|
398,135
|
|
|
|
2.4
|
%
|
|
$
|
62,386
|
|
|
|
0.6
|
%
|
|
$
|
55,168
|
|
|
|
0.7
|
%
|
|
$
|
52,891
|
|
|
|
0.8
|
%
|
|
$
|
52,645
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The recorded value as of December 31, 2007 includes basis
adjustments of $581 million created upon the transfer of
$10.9 billion of loans from HFS to HFI in the fourth
quarter of 2007. |
For the homebuilder division, the allowance for loan losses
increased to $198.6 million, or 16.7% of the recorded value
of its portfolio. We are monitoring this portfolio very closely
due to rapidly changing conditions
52
affecting both the underlying collateral values and the
projected repayment sources in the current environment. The
allowance for loan losses increased substantially on the SFR
mortgage loans HFI division, homebuilder division, and home
equity division portfolios as well as higher realized
delinquency rates and other current environmental factors have
resulted in our projecting higher future losses than were
previously expected.
Summarized below are changes to the allowance for loan losses
for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Balance, beginning of year
|
|
$
|
62,386
|
|
|
$
|
55,168
|
|
|
$
|
52,891
|
|
|
$
|
52,645
|
|
|
$
|
50,761
|
|
Allowance transferred to loans HFS
|
|
|
(7,574
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Provision for loan losses
|
|
|
395,548
|
|
|
|
19,993
|
|
|
|
9,978
|
|
|
|
8,170
|
|
|
|
19,700
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loans HFI division
|
|
|
(29,186
|
)
|
|
|
(6,003
|
)
|
|
|
(2,116
|
)
|
|
|
(1,810
|
)
|
|
|
(2,382
|
)
|
Consumer construction division
|
|
|
(19,835
|
)
|
|
|
(3,549
|
)
|
|
|
(2,422
|
)
|
|
|
(1,492
|
)
|
|
|
(1,621
|
)
|
Homebuilder division
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,136
|
)
|
Other(1)
|
|
|
(7,138
|
)
|
|
|
(5,586
|
)
|
|
|
(4,979
|
)
|
|
|
(6,829
|
)
|
|
|
(12,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(56,159
|
)
|
|
|
(15,138
|
)
|
|
|
(9,517
|
)
|
|
|
(10,131
|
)
|
|
|
(19,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loans HFI division
|
|
|
1,200
|
|
|
|
470
|
|
|
|
639
|
|
|
|
336
|
|
|
|
233
|
|
Consumer construction division
|
|
|
117
|
|
|
|
231
|
|
|
|
127
|
|
|
|
29
|
|
|
|
102
|
|
Other(1)
|
|
|
2,617
|
|
|
|
1,662
|
|
|
|
1,050
|
|
|
|
1,842
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
3,934
|
|
|
|
2,363
|
|
|
|
1,816
|
|
|
|
2,207
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs, net of recoveries
|
|
|
(52,225
|
)
|
|
|
(12,775
|
)
|
|
|
(7,701
|
)
|
|
|
(7,924
|
)
|
|
|
(17,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
398,135
|
|
|
$
|
62,386
|
|
|
$
|
55,168
|
|
|
$
|
52,891
|
|
|
$
|
52,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized charge-offs to average loans HFI
|
|
|
0.52
|
%
|
|
|
0.14
|
%
|
|
|
0.10
|
%
|
|
|
0.11
|
%
|
|
|
0.34
|
%
|
|
|
|
(1) |
|
Includes loans from the warehouse lending, home equity and
discontinued divisions. |
In 2007, net charge-offs increased to $52.2 million from
$12.8 million in 2006, primarily in the SFR mortgage loans
HFI division and the consumer construction division portfolios.
This is consistent with the overall conditions in both the
mortgage and the housing markets that contributed to the overall
increase in delinquencies and loans migrating through the
foreclosure process.
While we consider the allowance for loan losses to be adequate
based on information currently available, future adjustments to
the allowance may be necessary due to changes in economic
conditions, declines in real estate values, delinquency levels,
foreclosure rates, or loss rates. The level of allowance for
loan losses is also subject to review by the OTS. The OTS may
require the allowance for loan losses be increased based on its
evaluation of the information available to it at the time of its
examination of the Bank.
With respect to mortgage loans HFS, pursuant to the applicable
accounting rules, we do not provide an allowance for loan
losses. Instead, a component for credit risk related to loans
HFS is embedded in the market valuation for these loans. Given
the changes in our production volume and quality, we expect this
amount to be significantly less in 2008 than in 2007.
Credit
Discounts
Due to the disruption in the secondary mortgage market, our HFS
loans in 2007 decreased by $5.7 billion from 2006 primarily
due to the $10.9 billion of cost basis in mortgage loans
transferred from HFS to HFI in the fourth quarter of 2007.
53
The following summarizes our HFS portfolio, the corresponding
market valuation reserves and non-performing assets as of the
dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Loans HFS before market valuation reserves
|
|
$
|
3,780,368
|
|
|
$
|
9,507,307
|
|
|
$
|
6,034,429
|
|
|
$
|
4,456,604
|
|
|
$
|
2,587,240
|
|
Market valuation reserves
|
|
|
(3,464
|
)
|
|
|
(39,464
|
)
|
|
|
(10,245
|
)
|
|
|
(11,032
|
)
|
|
|
(13,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans HFS portfolio
|
|
$
|
3,776,904
|
|
|
$
|
9,467,843
|
|
|
$
|
6,024,184
|
|
|
$
|
4,445,572
|
|
|
$
|
2,573,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market valuation reserves as a % of gross loans HFS
|
|
|
0.09
|
%
|
|
|
0.42
|
%
|
|
|
0.17
|
%
|
|
|
0.25
|
%
|
|
|
0.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans HFS before market valuation reserves
|
|
$
|
8,227
|
|
|
$
|
78,238
|
|
|
$
|
31,050
|
|
|
$
|
65,643
|
|
|
$
|
52,847
|
|
Market valuation reserves
|
|
|
(2,490
|
)
|
|
|
(23,891
|
)
|
|
|
(10,245
|
)
|
|
|
(11,032
|
)
|
|
|
(13,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-performing loans HFS
|
|
|
5,737
|
|
|
$
|
54,347
|
|
|
$
|
20,805
|
|
|
$
|
54,611
|
|
|
$
|
38,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans held for sale as a % of net loans HFS
portfolio
|
|
|
0.15
|
%
|
|
|
0.57
|
%
|
|
|
0.35
|
%
|
|
|
1.23
|
%
|
|
|
1.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secondary
Market Reserve
We do not generally sell loans with recourse. However, we can be
required to repurchase loans from investors when our loan sales
contain individual loans that do not conform to the
representations and warranties we made at the time of sale
(including early payment default provisions). We maintain a
secondary market reserve for losses that arise in connection
with loans that we may be required to repurchase from whole loan
sales, sales to the GSEs, and securitizations. The reserve has
two general components: reserves for repurchases arising from
representation and warranty claims and reserves for repurchases
arising from early payment defaults.
The following reflects our loan sale and repurchase activities
for the years indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Loans sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
GSEs and whole loans
|
|
$
|
46,798
|
|
|
$
|
47,878
|
|
|
$
|
20,924
|
|
Securitization trusts
|
|
|
24,366
|
|
|
|
31,171
|
|
|
|
31,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,164
|
|
|
$
|
79,049
|
|
|
$
|
52,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchases(1)
|
|
$
|
613
|
|
|
$
|
194
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases as a percentage of total loans sold during the year
|
|
|
0.86
|
%
|
|
|
0.25
|
%
|
|
|
0.21
|
%
|
|
|
|
(1) |
|
Amounts exclude repurchases that are administrative in nature
and generally are re-sold immediately at little or no loss. |
54
The following reflects our activity in the secondary market
reserve for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Balance, beginning of year
|
|
$
|
33,932
|
|
|
$
|
27,638
|
|
|
$
|
35,610
|
|
|
$
|
34,000
|
|
|
$
|
37,636
|
|
Additions/provisions
|
|
|
232,536
|
|
|
|
37,333
|
|
|
|
19,551
|
|
|
|
22,922
|
|
|
|
26,706
|
|
Actual losses/mark-to-market
|
|
|
(88,022
|
)
|
|
|
(32,817
|
)
|
|
|
(28,860
|
)
|
|
|
(24,843
|
)
|
|
|
(34,805
|
)
|
Recoveries on previous claims
|
|
|
1,346
|
|
|
|
1,778
|
|
|
|
1,337
|
|
|
|
3,531
|
|
|
|
4,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
179,792
|
|
|
$
|
33,932
|
|
|
$
|
27,638
|
|
|
$
|
35,610
|
|
|
$
|
34,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve levels are a function of expected losses based on actual
pending and expected claims and repurchase requests, historical
experience, loan volume and loan sales distribution channels and
the assessment of the probability of investor claims. While the
ultimate amount of repurchases and claims is uncertain,
management believes the reserve is adequate. The provision for
the secondary market reserve increased to $232.5 million
for the year ended December 31, 2007 from
$37.3 million for the year ended December 31, 2006.
This increase is due to the rise in representation and warranty
demands and expected demands due to the deteriorating loan
performance, particularly in 80/20 products where we have
observed increasing delinquency and repurchase demands. We had
charges to the secondary market reserve of $88.0 million in
2007, mainly for
mark-to-market
adjustments on loans repurchased during the year, of which
80/20s and pay option ARMs accounted for over 80% of the
adjustments. As previously noted, we no longer originate 80/20s
and pay option ARMs. We will continue to evaluate the adequacy
of our reserve and allocate a portion of our gain on sale
proceeds to the reserve going forward although we cannot predict
at this time the extent to which we will allocate such gain on
sale to the reserve. This secondary market reserve is included
on the consolidated balance sheets as a component of “Other
Liabilities”.
Credit
Reserves Embedded in Non-Investment Grade and Residual
Securities
As part of the securitization process, we create non-investment
grade and residual securities which historically could be sold
into the secondary market or retained on our balance sheet.
These securities provide credit enhancement to absorb the losses
in the securitization trust. Worsening loan performance has
necessitated an increase in the amount of credit losses
estimated in these securities.
The following shows more information on our non-investment grade
and residual securities for the years indicated (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Non-investment Grade and Residual Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value
|
|
$
|
272
|
|
|
$
|
331
|
|
|
$
|
225
|
|
As a percentage of Tier 1 (core) capital
|
|
|
14
|
%
|
|
|
16
|
%
|
|
|
14
|
%
|
UPB of underlying collateral
|
|
|
22,437
|
|
|
|
13,361
|
|
|
|
7,961
|
|
Credit reserves embedded in value
|
|
|
1,262
|
|
|
|
477
|
|
|
|
266
|
|
Additions to credit reserves
|
|
|
1,020
|
|
|
|
238
|
|
|
|
136
|
|
Net realized credit losses
|
|
|
235
|
|
|
|
27
|
|
|
|
15
|
|
Credit reserves/non-performing assets
|
|
|
78
|
%
|
|
|
77
|
%
|
|
|
140
|
%
|
MANAGEMENT
We manage key CAMELS risks through policies and procedures that
begin with the Board, senior executives and the ERM group,
creating standardized frameworks and processes for the business
units to implement. We strive for accountability, transparency
and consistency, including a semi-annual certification process
that keeps business units up to date on the administration of
key CAMELS risks. Management maintains a central database of
internally
55
identified findings, and this, in conjunction with operational
and financial controls, requires
follow-up
and accountability for any issues identified in this process.
Models are used as key decision making tools in executing
transactions, such as the pricing and trading of loans, and in
hedging risks. They are also used to assist us in valuing assets
and liabilities that don’t have readily available market
prices. Given the importance of these models to our operations
and financial position, it is the responsibility of Corporate
Model Management and Research (“CMMR”) to develop and
maintain an effective model management framework across the
Company. CMMR determines that key models are consistent and
accurate (e.g., utilize the best available assumptions,
particularly for prepayment and credit) across the enterprise
and result in the correct economic decisions being made and
assets and liabilities being properly valued (both on a GAAP and
economic basis).
EARNINGS
Our regulators evaluate the quality and consistency of our
earnings. See “Narrative Summary of Consolidated Financial
Results” and “Summary of Business Segment
Results” for a discussion of our earnings for the years
ended December 31, 2007 and 2006.
LIQUIDITY
During 2007, the secondary market for MBS and asset-backed
securities (“ABS”) experienced significant disruption
resulting in a further decline in overall market liquidity. In
response to these disruptions, we further increased our emphasis
of its funding strategy to deposits and borrowings from the
Federal Home Loan Bank (“FHLB”). As a result of this
effort, we were able to increase our deposits and advances from
FHLB by $6.9 billion and $0.8 billion, respectively,
during the year.
Our principal financing needs are to fund acquisitions of
mortgage loans and our investment in mortgage loans, MBS and
MSRs. Our primary sources of funds used to meet these financing
needs are loan sales and securitizations, deposits, advances
from the FHLB, borrowings, custodial balances and retained
earnings. The sources used vary depending on such factors as
rates paid, collateral requirements, maturities and the impact
on our capital. Additionally, we may occasionally securitize
mortgage loans that we intend to hold for investment to lower
our costs of borrowing against such assets and reduce the
capital requirement associated with such assets.
At December 31, 2007, we had total liquidity of
$6.3 billion consisting of $0.5 billion in short-term
liquidity (primarily cash), and $4.8 billion in operating
liquidity, which represents unpledged liquid assets on hand plus
amounts that may be immediately raised through the pledging of
other available assets as collateral pursuant to committed
financing facilities, and we also had access to
$1.0 billion in financing at the Federal Reserve Discount
Window. We currently believe our liquidity level is sufficient
to satisfy our operating requirements and meet our obligations
and commitments in a timely and cost effective manner.
56
The following presents the components of our major sources of
funds as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Deposits
|
|
$
|
17,815,243
|
|
|
$
|
10,898,006
|
|
|
|
|
|
Advances from FHLB
|
|
|
11,188,800
|
|
|
|
10,412,800
|
|
|
|
|
|
Other Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper
|
|
|
—
|
|
|
|
2,115,839
|
|
|
|
|
|
Loans and securities sold under agreements to repurchase
|
|
|
—
|
|
|
|
1,407,199
|
|
|
|
|
|
HELOC notes payable
|
|
|
212,747
|
|
|
|
659,283
|
|
|
|
|
|
Trust preferred debentures
|
|
|
441,285
|
|
|
|
456,695
|
|
|
|
|
|
Other notes payable
|
|
|
—
|
|
|
|
1,009
|
|
|
|
|
|
Others(1)
|
|
|
(1,254
|
)
|
|
|
(3,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other borrowings
|
|
|
652,778
|
|
|
|
4,637,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,656,821
|
|
|
$
|
25,947,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This represents unamortized portion of the facility issue cost
and commitment fee. |
Principal
Sources of Cash
Loan
Sales and Securitizations
Our business model has relied heavily upon selling the majority
of our mortgage loans shortly after acquisition. The proceeds of
these sales are a critical component of our liquidity. Due to
the disruption of the MBS and ABS secondary markets, loan sales
and securitizations were adversely impacted, resulting in lower
than normal volume. Thus, we significantly changed our
production model and transitioned to become a GSE lender. During
the year ended December 31, 2007, we sold
$71.2 billion of mortgage loans, which represented
approximately 92% of our funded mortgage loans during the year,
to third-party investors through three channels: (1) GSEs;
(2) private label securitizations; and (3) whole loan
sales. Our prime SFR mortgage loans HFI portfolio also acquired
$10.9 billion of loans for our portfolio of HFI mortgage
loans from our HFS portfolio due primarily to our inability to
sell these loans in the secondary market. These loans will also
provide future interest income. The remainder of our funded
mortgage loans during the year is retained in our HFS portfolio
for future sale.
Our business model has been negatively impacted as our sales
channels continue to be disrupted. As a result, our earnings
were also adversely impacted. If these disruptions continue, or
there are other economic events or factors beyond our control,
our earnings could continue to be negatively impacted.
Deposits/Retail
Bank
We solicit deposits from the general public and institutions by
offering a variety of accounts and rates through our network of
33 branches (up from 29 branches as of December 31,
2006) in Southern California and our telebanking, Internet,
and Money Desk and Institutional channels. Through our web site
at www.imb.com, consumers can access their accounts
24-hours a
day, seven days a week. Online banking allows customers to
access their accounts, view balances, transfer funds between
accounts, view transactions, download account information, and
pay their bills conveniently from any computer terminal. Total
deposits increased to $17.8 billion at December 31,
2007, up from $10.9 billion at December 31, 2006. We
estimate that in excess of 95% of our total deposits are fully
insured by the FDIC.
Advances
from the Federal Home Loan Bank
The FHLB system functions as a borrowing source for regulated
financial depositories and similar institutions engaged in
residential housing finance. As a member of the FHLB of
San Francisco, we are required to own capital stock of the
FHLB and are authorized to apply for advances from the FHLB, on
a secured basis, in amounts
57
determined by reference to available collateral. SFR mortgage
loans, agency and AAA-rated MBS are the principal collateral
that may be used to secure these borrowings, although certain
other types of loans and other assets may also be accepted
pursuant to FHLB policies and statutory requirements. The FHLB
offers several credit programs, each with its own fixed or
floating interest rate, and a range of maturities.
Currently, Indymac Bank is approved for collateralized advances
from FHLB of up to $16.7 billion. At December 31,
2007, advances from the FHLB totaled $11.2 billion, of
which $7.2 billion were collateralized by mortgage loans
and $4.0 billion were collateralized by MBS.
Other
Borrowings
Other borrowings, excluding the subordinated debentures
underlying the trust preferred securities, consist of
asset-backed commercial paper (“ABCP”), loans and
securities sold under committed financing facilities and
uncommitted agreements to repurchase, and notes payable. Total
other borrowings decreased to $0.2 billion at
December 31, 2007, from $4.2 billion at
December 31, 2006. Our repurchase agreement borrowings and
extendible asset-backed commercial paper remained unused as of
December 31, 2007 as a result of our strategy to increase
our deposits and advances from the FHLB.
Our credit facilities do not have default triggers tied to our
credit rating. While a change in rating would therefore not
directly affect our current borrowing capacity in a material
manner, it might affect our lenders’ decisions to renew
credit facilities with us or it may change market perceptions
and impact our trading and loan sales activities.
Below are the corporate ratings assigned to IndyMac Bancorp and
Indymac Bank at December 31, 2007 and January 24, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominion Bond
|
|
|
Fitch, IBCA,
|
|
|
Moody’s
|
|
|
Standard & Poor’s
|
|
Rating Service
|
|
|
Duff & Phelps
|
|
|
2007
|
|
2008(1)
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008(1)
|
|
|
2007
|
|
2008
|
|
IndyMac Bancorp:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outlook
|
|
Review for
downgrade
|
|
|
—
|
|
|
Negative
|
|
Negative
|
|
Negative
|
|
|
—
|
|
|
Negative
|
|
Negative
|
Long term issuer credit
|
|
Ba2
|
|
|
—
|
|
|
BB+
|
|
BB+
|
|
BBH
|
|
|
—
|
|
|
BBB−
|
|
BB
|
Short term issuer credit
|
|
N/A
|
|
|
—
|
|
|
B
|
|
B
|
|
R4
|
|
|
—
|
|
|
F3
|
|
B
|
Indymac Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outlook
|
|
Review for
downgrade
|
|
|
—
|
|
|
Negative
|
|
Negative
|
|
Negative
|
|
|
—
|
|
|
Negative
|
|
Negative
|
Long term issuer credit
|
|
Ba1
|
|
|
—
|
|
|
BBB−
|
|
BBB−
|
|
BBBL
|
|
|
—
|
|
|
BBB−
|
|
BB
|
Short term issuer credit
|
|
NP
|
|
|
—
|
|
|
A3
|
|
A3
|
|
R3
|
|
|
—
|
|
|
F3
|
|
B
|
|
|
|
(1) |
|
We terminated the rating relationship with Moody’s and
Dominion, and they subsequently withdrew their ratings at our
request in January 2008. |
The Enterprise Risk Management Committee, in its capacity as a
committee of the Indymac Board of Directors, is directly
responsible for the oversight of the Company’s
relationships with external credit rating agencies. For fiscal
year ended December 31, 2007, Indymac paid approximately
$17.7 million in aggregate fees to external credit rating
agencies, of which $15.1 million was for services related
to securitizations, with the balance for services related to
servicer ratings and other corporate rating related transactions.
58
Direct
Stock Purchase Plan
Our direct stock purchase plan offers investors the ability to
purchase shares of our common stock directly over the Internet.
During the year ended December 31, 2007, we raised
$145.6 million of capital by issuing 7,427,104 shares
of common stock through this plan.
SENSITIVITY
TO MARKET RISK
A key area of risk for us is interest rate risk sensitivity.
This is due to the impact that changes in interest rates can
have on the demand for mortgages, as well as the value of loans
in our pipeline and assets on our balance sheet, particularly
the valuation of our MSRs. To manage interest rate risk
sensitivity we have a Centralized Interest Rate Risk Group
(“CIRRG”). CIRRG fosters an interest rate and market
risk management culture throughout the Company and exists to
assist in protecting the Company from unexpected losses,
earnings surprises and reputation damage due to interest rate
risk. It also provides management and the Board with a better
understanding of the trade-offs between risk and rewards,
leading to smarter risk management and investment decisions, and
more consistent and generally higher long term returns on
equity. We hedge our assets at the portfolio level to ensure
accountability and make certain that each portfolio can stand on
its own.
To evaluate our ability to manage interest rate risk, there are
a number of performance measures we track. These include net
interest margin for both the total Company as well as our
segments, the fluctuation in net interest income and expense and
average balances, and the net portfolio value of our net assets.
59
Net
Interest Margin
The following presents information regarding our consolidated
average balance sheets (all segments are combined), along with
the total dollar amounts of interest income and interest expense
and the weighted-average interest rates for the years indicated
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
$
|
5,753,699
|
|
|
$
|
406,376
|
|
|
|
7.06
|
%
|
|
$
|
4,658,402
|
|
|
$
|
319,846
|
|
|
|
6.87
|
%
|
|
$
|
3,652,102
|
|
|
$
|
208,560
|
|
|
|
5.71
|
%
|
Loans held for sale
|
|
|
14,063,412
|
|
|
|
994,886
|
|
|
|
7.07
|
%
|
|
|
11,488,630
|
|
|
|
797,460
|
|
|
|
6.94
|
%
|
|
|
7,746,762
|
|
|
|
430,857
|
|
|
|
5.56
|
%
|
Mortgage loans held for investment
|
|
|
7,039,623
|
|
|
|
460,898
|
|
|
|
6.55
|
%
|
|
|
6,243,353
|
|
|
|
365,158
|
|
|
|
5.85
|
%
|
|
|
5,282,342
|
|
|
|
256,427
|
|
|
|
4.85
|
%
|
Builder construction loans
|
|
|
812,129
|
|
|
|
72,179
|
|
|
|
8.89
|
%
|
|
|
735,841
|
|
|
|
76,006
|
|
|
|
10.33
|
%
|
|
|
578,865
|
|
|
|
51,772
|
|
|
|
8.94
|
%
|
Consumer construction loans
|
|
|
2,237,473
|
|
|
|
179,706
|
|
|
|
8.03
|
%
|
|
|
2,014,213
|
|
|
|
144,574
|
|
|
|
7.18
|
%
|
|
|
1,627,281
|
|
|
|
97,656
|
|
|
|
6.00
|
%
|
Investment in FHLB stock and other
|
|
|
1,325,850
|
|
|
|
73,662
|
|
|
|
5.56
|
%
|
|
|
887,837
|
|
|
|
47,972
|
|
|
|
5.40
|
%
|
|
|
757,659
|
|
|
|
29,083
|
|
|
|
3.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
31,232,186
|
|
|
|
2,187,707
|
|
|
|
7.00
|
%
|
|
|
26,028,276
|
|
|
|
1,751,016
|
|
|
|
6.73
|
%
|
|
|
19,645,011
|
|
|
|
1,074,355
|
|
|
|
5.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing assets
|
|
|
2,201,169
|
|
|
|
|
|
|
|
|
|
|
|
1,436,725
|
|
|
|
|
|
|
|
|
|
|
|
786,622
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2,535,667
|
|
|
|
|
|
|
|
|
|
|
|
1,843,873
|
|
|
|
|
|
|
|
|
|
|
|
846,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
35,969,022
|
|
|
|
|
|
|
|
|
|
|
$
|
29,308,874
|
|
|
|
|
|
|
|
|
|
|
$
|
21,277,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
12,790,494
|
|
|
|
663,217
|
|
|
|
5.19
|
%
|
|
$
|
8,663,777
|
|
|
|
408,208
|
|
|
|
4.71
|
%
|
|
$
|
5,938,147
|
|
|
|
195,528
|
|
|
|
3.29
|
%
|
Advances from Federal Home Loan Bank
|
|
|
13,531,225
|
|
|
|
701,226
|
|
|
|
5.18
|
%
|
|
|
10,560,896
|
|
|
|
491,300
|
|
|
|
4.65
|
%
|
|
|
8,439,903
|
|
|
|
281,929
|
|
|
|
3.34
|
%
|
Other borrowings
|
|
|
4,393,049
|
|
|
|
256,522
|
|
|
|
5.84
|
%
|
|
|
5,985,486
|
|
|
|
324,787
|
|
|
|
5.43
|
%
|
|
|
4,235,298
|
|
|
|
172,187
|
|
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
30,714,768
|
|
|
|
1,620,965
|
|
|
|
5.28
|
%
|
|
|
25,210,159
|
|
|
|
1,224,295
|
|
|
|
4.86
|
%
|
|
|
18,613,348
|
|
|
|
649,644
|
|
|
|
3.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3,277,322
|
|
|
|
|
|
|
|
|
|
|
|
2,302,455
|
|
|
|
|
|
|
|
|
|
|
|
1,283,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
33,992,090
|
|
|
|
|
|
|
|
|
|
|
|
27,512,614
|
|
|
|
|
|
|
|
|
|
|
|
19,897,026
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
1,976,932
|
|
|
|
|
|
|
|
|
|
|
|
1,796,260
|
|
|
|
|
|
|
|
|
|
|
|
1,380,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
35,969,022
|
|
|
|
|
|
|
|
|
|
|
$
|
29,308,874
|
|
|
|
|
|
|
|
|
|
|
$
|
21,277,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
566,742
|
|
|
|
|
|
|
|
|
|
|
$
|
526,721
|
|
|
|
|
|
|
|
|
|
|
$
|
424,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread(1)
|
|
|
|
|
|
|
|
|
|
|
1.72
|
%
|
|
|
|
|
|
|
|
|
|
|
1.87
|
%
|
|
|
|
|
|
|
|
|
|
|
1.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(2)
|
|
|
|
|
|
|
|
|
|
|
1.81
|
%
|
|
|
|
|
|
|
|
|
|
|
2.02
|
%
|
|
|
|
|
|
|
|
|
|
|
2.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net interest spread calculated as the yield on total average
interest-earnings assets less the yield on total average
interest-bearing liabilities. |
|
(2) |
|
Net interest margin calculated as annualized net interest income
divided by total average interest-earning assets. |
Average balances are calculated on a daily basis. Non-performing
loans are included in the average balances for the years
presented. The allowance for loan losses is excluded from the
average loan balances and included in the average other assets
line. Minority interests and perpetual preferred stock in
subsidiary are included in average other liabilities.
60
Interest income and interest expense fluctuations depend upon
changes in the average balances and interest rates of
interest-earning assets and interest-bearing liabilities.
The following details the changes in interest income and expense
by key attribute for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) Due to
|
|
|
|
Volume(1)
|
|
|
Rate( 2)
|
|
|
Mix(3)
|
|
|
Total Change
|
|
|
Year Ended December 31, 2007 vs. 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
75,203
|
|
|
$
|
9,171
|
|
|
$
|
2,156
|
|
|
$
|
86,530
|
|
Loans held for sale
|
|
|
178,723
|
|
|
|
15,279
|
|
|
|
3,424
|
|
|
|
197,426
|
|
Mortgage loans held for investment
|
|
|
46,572
|
|
|
|
43,607
|
|
|
|
5,561
|
|
|
|
95,740
|
|
Builder construction loans
|
|
|
7,880
|
|
|
|
(10,607
|
)
|
|
|
(1,100
|
)
|
|
|
(3,827
|
)
|
Consumer construction loans
|
|
|
16,025
|
|
|
|
17,201
|
|
|
|
1,906
|
|
|
|
35,132
|
|
Investment in Federal Home Loan Bank stock and other
|
|
|
23,667
|
|
|
|
1,355
|
|
|
|
668
|
|
|
|
25,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
348,070
|
|
|
|
76,006
|
|
|
|
12,615
|
|
|
|
436,691
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
194,437
|
|
|
|
41,029
|
|
|
|
19,543
|
|
|
|
255,009
|
|
Advances from Federal Home Loan Bank
|
|
|
138,182
|
|
|
|
55,995
|
|
|
|
15,749
|
|
|
|
209,926
|
|
Other borrowings
|
|
|
(86,409
|
)
|
|
|
24,722
|
|
|
|
(6,578
|
)
|
|
|
(68,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
246,210
|
|
|
|
121,746
|
|
|
|
28,714
|
|
|
|
396,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
101,860
|
|
|
$
|
(45,740
|
)
|
|
$
|
(16,099
|
)
|
|
$
|
40,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 vs. 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
57,467
|
|
|
$
|
42,193
|
|
|
$
|
11,626
|
|
|
$
|
111,286
|
|
Loans held for sale
|
|
|
208,114
|
|
|
|
106,869
|
|
|
|
51,620
|
|
|
|
366,603
|
|
Mortgage loans held for investment
|
|
|
46,651
|
|
|
|
52,524
|
|
|
|
9,556
|
|
|
|
108,731
|
|
Builder construction loans
|
|
|
14,039
|
|
|
|
8,020
|
|
|
|
2,175
|
|
|
|
24,234
|
|
Consumer construction loans
|
|
|
23,220
|
|
|
|
19,145
|
|
|
|
4,553
|
|
|
|
46,918
|
|
Investment in Federal Home Loan Bank stock and other
|
|
|
4,997
|
|
|
|
11,855
|
|
|
|
2,037
|
|
|
|
18,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
354,488
|
|
|
|
240,606
|
|
|
|
81,567
|
|
|
|
676,661
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
89,748
|
|
|
|
84,257
|
|
|
|
38,675
|
|
|
|
212,680
|
|
Advances from Federal Home Loan Bank
|
|
|
70,850
|
|
|
|
110,701
|
|
|
|
27,820
|
|
|
|
209,371
|
|
Other borrowings
|
|
|
71,154
|
|
|
|
57,631
|
|
|
|
23,815
|
|
|
|
152,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
231,752
|
|
|
|
252,589
|
|
|
|
90,310
|
|
|
|
574,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
122,736
|
|
|
$
|
(11,983
|
)
|
|
$
|
(8,743
|
)
|
|
$
|
102,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in volume are calculated by taking changes in average
balances multiplied by the prior year’s average interest
rate. |
|
(2) |
|
Changes in the rate are calculated by taking changes in the
average interest rate multiplied by the prior year’s
average balance. |
|
(3) |
|
Changes in rate/volume (“mix”) are calculated by
taking changes in rates times the changes in volume. |
61
Net
Interest Margin by Segment
The following summarize net interest margin by segment for the
years indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
Net
|
|
|
Net
|
|
|
Average
|
|
|
Net
|
|
|
Net
|
|
|
Average
|
|
|
Net
|
|
|
Net
|
|
|
|
Earning
|
|
|
Interest
|
|
|
Interest
|
|
|
Earning
|
|
|
Interest
|
|
|
Interest
|
|
|
Earning
|
|
|
Interest
|
|
|
Interest
|
|
|
|
Assets
|
|
|
Income
|
|
|
Margin
|
|
|
Assets
|
|
|
Income
|
|
|
Margin
|
|
|
Assets
|
|
|
Income
|
|
|
Margin
|
|
|
By Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thrift segment and other
|
|
$
|
15,442
|
|
|
$
|
334
|
|
|
|
2.16
|
%
|
|
$
|
12,536
|
|
|
$
|
265
|
|
|
|
2.11
|
%
|
|
$
|
10,228
|
|
|
$
|
232
|
|
|
|
2.27
|
%
|
Mortgage banking segment
|
|
|
8,386
|
|
|
|
93
|
|
|
|
1.11
|
%
|
|
|
6,292
|
|
|
|
81
|
|
|
|
1.28
|
%
|
|
|
4,689
|
|
|
|
63
|
|
|
|
1.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-going businesses
|
|
|
23,828
|
|
|
|
427
|
|
|
|
1.79
|
%
|
|
|
18,828
|
|
|
|
346
|
|
|
|
1.83
|
%
|
|
|
14,917
|
|
|
|
295
|
|
|
|
1.98
|
%
|
Discontinued business activities
|
|
|
7,404
|
|
|
|
140
|
|
|
|
1.89
|
%
|
|
|
7,200
|
|
|
|
181
|
|
|
|
2.52
|
%
|
|
|
4,728
|
|
|
|
130
|
|
|
|
2.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
$
|
31,232
|
|
|
$
|
567
|
|
|
|
1.81
|
%
|
|
$
|
26,028
|
|
|
$
|
527
|
|
|
|
2.02
|
%
|
|
$
|
19,645
|
|
|
$
|
425
|
|
|
|
2.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The consolidated net interest margin during 2007 was 1.81%, down
from 2.02% for 2006. Thrift net interest margin of 2.16% for
2007 increased slightly from 2.11% for 2006.
Loans
Held for Sale and Pipeline Hedging
We hedge the interest rate risk inherent in our pipeline of
mortgage loans held for sale to protect our margin on sale of
loans. We focus on trying to maintain stable profit margins with
an emphasis on forecasting expected fallout to more precisely
estimate our required hedge coverage ratio and minimize hedge
costs. By closely monitoring key factors, such as product type,
origination channels, progress or “status” of
transactions, as well as changes in market interest rates since
we committed a rate to the borrower (“rate lock
commitments”), we seek to quantify the optional component
of each rate lock, and in turn, the aggregate rate lock
pipeline. By accurately evaluating these factors, we can
minimize the cost of hedging and also stabilize gain on sale
margins over different rate environments.
We also attempt to hedge the type of spread widening caused by
the secondary market disruptions started in the first quarter of
2007. However, given the current uncertainties and resulting
volatility in the secondary market, our hedging activities may
not be effective. When spread widening does occur, we increase
our loan pricing to attain our target MBR margins on future
production.
In addition to mortgage loans held for sale, our hedging
activities also include rate lock commitments. Rate lock
commitments on mortgage loans that are intended to be sold are
considered to be derivatives pursuant to SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities,” (“SFAS 133”). The rate lock
commitments are initially valued at zero and continue to be
adjusted for changes in value resulting from changes in market
interest rates, pursuant to SAB 105. Staff Accounting
Bulletin No. 109, “Written Loan Commitments
Recorded at Fair Value Through Earnings”
(“SAB 109”) supersedes SAB 105 and is
effective prospectively for loan commitments issued or modified
beginning January 1, 2008. Upon adoption of SAB 109,
we will recognize revenue at the inception of a rate lock
commitment.
We economically hedge the risk of changes in fair value of rate
lock commitments by selling forward contracts on securities of
Fannie Mae or Freddie Mac, Eurodollar futures and other hedge
instruments as we deem appropriate to prudently manage this
risk. These forward and futures contracts are also accounted for
as derivatives and recorded at fair value.
62
The following summarizes the effect that hedging for interest
rate risk management had on our gross mortgage banking revenue
margin for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
2005
|
|
|
% Change
|
|
|
Gross MBR margin
|
|
|
1.00
|
%
|
|
|
1.50
|
%
|
|
|
(33
|
)%
|
|
|
1.59
|
%
|
|
|
(37
|
)%
|
MBR margin after hedging(1)
|
|
|
0.99
|
%
|
|
|
1.41
|
%
|
|
|
(30
|
)%
|
|
|
1.70
|
%
|
|
|
(42
|
)%
|
|
|
|
(1) |
|
Before credit costs and SFAS 91 deferred costs. |
Hedging
Interest Rate Risk On Servicing-Related Assets
We are exposed to interest rate risk with respect to the
investment in servicing-related assets. The mortgage servicing
division is responsible for the management of interest rate and
prepayment risks in the servicing-related assets, subject to
policies and procedures established by, and oversight from, our
management-level Interest Rate Risk Committee
(“IRRC”), Asset and Liability Valuation Committee
(“ALVC”) and ERM group, and our Board of
Directors-level ERM Committee.
The objective of our hedging strategy is to maintain stable
returns in all interest rate environments and not to speculate
on interest rates. As such, we manage the comprehensive interest
rate risk of our servicing-related assets using various
financial instruments. Historically, we have hedged
servicing-related assets using a variety of derivative
instruments and on-balance sheet securities. As there are no
hedge instruments that would be perfectly correlated with these
hedged assets, we use a mix of the instruments designed to
correlate well with the hedged servicing assets.
In addition to the hedging gain (loss) on MSRs, we also use
other hedging strategies to manage our economic risks associated
with MSRs.
A summary of the performance on MSRs, including AAA-rated and
agency interest-only securities, and hedges for the respective
years follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Valuation adjustment due to market changes and external
benchmarking
|
|
$
|
156,327
|
|
|
$
|
7,721
|
|
|
$
|
(13,460
|
)
|
Hedge loss on MSRs
|
|
|
61,476
|
|
|
|
(32,353
|
)
|
|
|
2,360
|
|
Hedge (loss) gain on AAA-rated and agency interest-only
securities
|
|
|
2,346
|
|
|
|
(8,678
|
)
|
|
|
2,348
|
|
Unrealized gain on AAA-rated and agency interest-only securities
|
|
|
(734
|
)
|
|
|
3,136
|
|
|
|
(13,864
|
)
|
Unrealized (loss) gain on principal-only securities
|
|
|
(1,852
|
)
|
|
|
(811
|
)
|
|
|
(704
|
)
|
Unrealized (loss) gain on prepayment penalty securities
|
|
|
(44,215
|
)
|
|
|
23,625
|
|
|
|
21,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain on MSRs, AAA-rated and agency interest-only
securities, and hedges
|
|
$
|
173,348
|
|
|
$
|
(7,360
|
)
|
|
$
|
(1,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above gains and losses include costs inherent in transacting
and holding the hedge instruments. If these assets were
perfectly hedged, a net loss would have been reported
representing these costs. In 2007, hedges on the
servicing-related assets had a net gain of $61.5 million as
they benefited from the decline in market interest rates.
Moreover, our MSRs experienced a decline in value less than
expected from the decline in interest rates as a result of
slower prepayment rates currently and in the future.
Value-at-Risk
We use a
value-at-risk
(“VAR”) measure to monitor the interest rate risk on
our assets. The measure incorporates a range of market factors
that can impact the value of these assets and supplements other
risk measures such as duration gap and stress testing. VAR
estimates the potential loss over a specified period at a
63
specified confidence level. We have chosen a historical approach
that uses 500 days of market conditions along with current
portfolio data to estimate the potential
one-day loss
at a 95% confidence level. This means that actual losses are
estimated to exceed the VAR measure about five times every
100 days.
In modeling the VAR, we have made a number of assumptions and
approximations. As there is no standardized methodology for
estimating VAR, different assumptions and approximations could
result in materially different VAR estimates.
As of December 31, 2007, the combined portfolio of MSRs and
interest-only securities (the “MSR/IO portfolio”) and
the mortgage-backed securities portfolio were valued at
$2.4 billion and $6.4 billion, respectively. The
average VAR (after the effect of hedging transactions) for the
year on the MSR/IO portfolio was $3.4 million, or
14 basis points of the recorded value, and the average VAR
(after the effect of hedging transactions) for the year on the
MBS portfolio was $1.3 million, or 2 basis points of
the recorded value. During the year, the VAR measure ranged from
$1.3 million to $7.8 million and from
$0.8 million to $2.6 million for the MSR/IO and MBS
portfolios, respectively.
Net
Portfolio Value
In addition to our hedging activities to mitigate the interest
rate risk in our pipeline of mortgage loans held for sale, rate
locks and our investment in servicing-related assets, we perform
extensive, company-wide interest rate risk management. A primary
measurement tool used to evaluate interest rate risk over the
comprehensive balance sheet is net portfolio value
(“NPV”) analysis. The NPV analysis and duration gap
estimate the exposure of the fair value of net assets
attributable to changes in interest rates.
The following sets forth the NPV and change in NPV that we
estimate might result from a 100 basis point change in
interest rates as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Effect of Change in
|
|
|
|
|
|
Effect of Change in
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
|
Decrease
|
|
|
Increase
|
|
|
|
|
|
Decrease
|
|
|
Increase
|
|
|
|
Fair Value
|
|
|
100 bps
|
|
|
100 bps
|
|
|
Fair Value
|
|
|
100 bps
|
|
|
100 bps
|
|
|
Cash and cash equivalents
|
|
$
|
561,567
|
|
|
$
|
561,567
|
|
|
$
|
561,567
|
|
|
$
|
541,545
|
|
|
$
|
541,545
|
|
|
$
|
541,545
|
|
Trading securities
|
|
|
1,221,319
|
|
|
|
1,277,821
|
|
|
|
1,181,673
|
|
|
|
541,175
|
|
|
|
573,028
|
|
|
|
522,503
|
|
Available for sale securities
|
|
|
5,892,727
|
|
|
|
6,011,674
|
|
|
|
5,725,050
|
|
|
|
4,183,629
|
|
|
|
4,272,980
|
|
|
|
4,064,097
|
|
Loans held for sale
|
|
|
3,814,287
|
|
|
|
3,977,569
|
|
|
|
3,804,344
|
|
|
|
9,566,224
|
|
|
|
9,645,767
|
|
|
|
9,440,968
|
|
Loans held for investment
|
|
|
15,655,523
|
|
|
|
15,944,607
|
|
|
|
15,351,165
|
|
|
|
10,191,350
|
|
|
|
10,266,772
|
|
|
|
10,081,430
|
|
MSRs
|
|
|
2,495,407
|
|
|
|
1,953,198
|
|
|
|
2,898,889
|
|
|
|
1,822,455
|
|
|
|
1,393,979
|
|
|
|
2,142,276
|
|
Other assets
|
|
|
1,807,917
|
|
|
|
2,084,403
|
|
|
|
1,610,292
|
|
|
|
1,992,698
|
|
|
|
2,317,284
|
|
|
|
1,813,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
31,448,747
|
|
|
$
|
31,810,839
|
|
|
$
|
31,132,980
|
|
|
$
|
28,839,076
|
|
|
$
|
29,011,355
|
|
|
$
|
28,606,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
17,886,754
|
|
|
$
|
17,933,343
|
|
|
$
|
17,840,519
|
|
|
$
|
11,045,977
|
|
|
$
|
11,076,458
|
|
|
$
|
11,015,812
|
|
Advances from Federal Home Loan Bank
|
|
|
11,355,215
|
|
|
|
11,559,467
|
|
|
|
11,153,554
|
|
|
|
10,409,767
|
|
|
|
10,565,054
|
|
|
|
10,256,128
|
|
Other borrowings
|
|
|
(1,150
|
)
|
|
|
(1,150
|
)
|
|
|
(1,150
|
)
|
|
|
3,464,290
|
|
|
|
3,466,577
|
|
|
|
3,462,006
|
|
Other liabilities
|
|
|
477,180
|
|
|
|
477,180
|
|
|
|
477,180
|
|
|
|
775,455
|
|
|
|
775,455
|
|
|
|
775,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
29,717,999
|
|
|
$
|
29,968,840
|
|
|
$
|
29,470,103
|
|
|
$
|
25,695,489
|
|
|
$
|
25,883,544
|
|
|
$
|
25,509,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (NPV)
|
|
$
|
1,730,748
|
|
|
$
|
1,841,999
|
|
|
$
|
1,662,877
|
|
|
$
|
3,143,587
|
|
|
$
|
3,127,811
|
|
|
$
|
3,096,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change from base case
|
|
|
|
|
|
|
6.43
|
%
|
|
|
(3.92
|
)%
|
|
|
|
|
|
|
(0.50
|
)%
|
|
|
(1.48
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our NPV model has been built to focus on the Bank alone and
excludes $226.7 million of assets held at Indymac Bancorp
and its non-bank subsidiaries.
64
The decrease in the NPV of shareholders’ equity from
December 31, 2006 to December 31, 2007 is primarily
due to net operating losses and declines in asset values
relative to liabilities during the year. This NPV analysis is
based on an instantaneous change in interest rates and does not
reflect the impact of changes in hedging activities as interest
rates change nor changes in volumes and profits from our
mortgage banking operations that would be expected to result
from the interest rate environment.
In conjunction with the NPV analysis, we also estimate the net
sensitivity of the fair value of our financial instruments to
movements in interest rates using duration gap. This calculation
is performed by estimating the change in dollar value due to an
instantaneous parallel change in the interest rate curve. The
resulting change in dollar value per one basis point change in
interest rates is used to estimate the sensitivity of our
portfolio. The dollar values per one basis point change are then
aggregated to estimate the portfolio’s net sensitivity. To
calculate duration gap, the net sensitivity is divided by the
fair value of total interest-earning assets and expressed in
months. A duration gap of zero implies that the change in value
of assets from an instantaneous rate move will be accompanied by
an equal and offsetting move in the value of debt and
derivatives, thus leaving the net fair value of equity unchanged.
The assumptions inherent in our interest rate shock models
include expected valuation changes in an instantaneous and
parallel interest rate shock and assumptions as to the degree of
correlation between the hedges and hedged assets and
liabilities. These assumptions may not adequately reflect
factors such as the spread-widening or spread-tightening risk
among the changes in rates on Treasury securities, the
LIBOR/swap curve, mortgages, changes in the shape of the yield
curve and volatility. In addition, the sensitivity analysis
described in the prior paragraph is limited by the fact that it
is performed at a particular point in time and does not
incorporate other factors that would impact our financial
performance in these scenarios, such as increases in income
associated with the increase in production volume that could
result from a decrease in interest rates. Consequently, the
preceding estimates should not be viewed as a forecast, and it
is reasonable to expect that actual results could vary
significantly from the analyses discussed above.
At December 31, 2007, net duration gap for our mortgage
banking and thrift segments was negative 16.9 months and
0.8 months, respectively, with the overall net duration gap
of negative 3.0 months. Fair value gains and losses will
generally occur as market conditions change. We actively manage
duration risk through asset selection by appropriate funding and
hedging to within the risk limits approved by senior management
and the Board of Directors. The duration gap measures are
estimated on a daily basis for the mortgage servicing rights,
mortgage backed securities, whole loan investment, and pipeline
portfolios and on a monthly basis for the other assets in our
thrift portfolio.
EXPENSES
Our operating expenses for the year ended December 31, 2007
were $973.7 million, up 23% from $789.0 million for
the year ended December 31, 2006.
The increase in expenses is primarily due to the increase in our
salaries and related expenses by $80.7 million. This is due
to the 20% growth of our average FTEs from 7,935 for the year
ended December 31, 2006 to 9,518 for the year ended
December 31, 2007, which was primarily the result of the
expansion of our retail lending group and some necessary growth
in loan servicing and default management functions. We continued
our investments in the retail channel and commercial mortgage
banking division, with the bulk of the increase coming from the
April 1, 2007 acquisition of the retail lending platform of
NYMC, including roughly 400 employees, and the hiring of
over 1,400 retail lending professionals in the third quarter of
2007 primarily from American Home Mortgage. In addition, we
recorded $28 million severance-related charges in the third
quarter of 2007 as a result of the reduction of our workforce
through both the voluntary resignation with severance program
and targeted involuntary layoffs for regular employees and
reductions in our offshore and temporary workforce. These
increases were offset partially by the reduction of roughly
1,500 positions, or 15% of our non-retail lending workforce in
2007.
Another factor contributing to the increase in expenses were REO
related expenses which significantly increased by
$42.2 million in 2007 as compared to 2006. The significant
increase was driven by the further write-downs on REOs resulting
from the rapid decline in values. Also, our REO related expenses
increased due to higher foreclosures resulting from worsened
delinquencies in our portfolio.
65
Refer to “Note 16 — Non-Interest
Expense” in the accompanying notes to consolidated
financial statements for a summary of expenses.
PROSPECTIVE
TRENDS AND FUTURE OUTLOOK
We have a solid and a realistic plan that we believe will return
Indymac to profitability in 2008. While forecasting continues to
be a challenge as the housing and mortgage market remain
uncertain and volatile, we believe that our new, more
GSE-oriented mortgage production business will be profitable
beginning in the second quarter of 2008. While we are projecting
a loss in the first quarter of 2008, which is driven by
restructuring charges from the workforce reduction we announced
in January, we currently project a return to profitability in
the second quarter of 2008 and growth in profits in the
subsequent quarters of the year.
We expect our return to profitability to be driven by reduced
credit costs and operating expenses, conversion of our
production model and the continued strong performance of our
mortgage servicing business. We believe we will see significant
improvement in credit costs in 2008, given the large reserves we
established in 2007 and because the new loans we are now
originating are predominantly those eligible for sale to the
GSEs, whereas the vast majority of the loans causing the losses
in 2007 are in loan types that have been cut from our
guidelines. In addition, we are rapidly making the transition
from primarily an Alt-A lender to being a GSE lender, and we are
seeing our mortgage production volumes stabilize. Also, we
expect the reduction in our workforce announced in January 2008
and other efficiency measures to provide us with substantial
annual savings and be essential in our drive to returning
Indymac to profitability.
This “Prospective Trends and Future Outlook”
section contains certain forward-looking statements. See
“Part I — Forward-Looking Statements”
for a description of factors which may cause our actual results
to differ from those anticipated.
OFF-BALANCE
SHEET ARRANGEMENTS
In the ordinary course of our business, we engage in financial
transactions that are not recorded on our balance sheet. These
transactions are structured to manage our interest rate, credit
or liquidity risks, to diversify funding sources or to optimize
our capital usage.
Substantially all of our off-balance sheet arrangements related
to the securitization of mortgage loans. Our mortgage loan
securitizations are normally structured as sales in accordance
with SFAS 140, which involves the transfer of the mortgage
loans to “qualifying special-purpose entities” that
are not subject to consolidation. In a securitization, an entity
transferring the assets is able to convert those assets into
cash. Special-purpose entities used in such securitizations
obtain cash to acquire the assets by issuing securities to
investors. We also, generally, have the right to repurchase
mortgage loans from the special-purpose entities if the
remaining outstanding balance of the mortgage loans falls to a
level where the cost of servicing the loans exceeds the revenues
we earn.
In connection with our loan sales that are securitization
transactions, there are $74.8 billion in loans owned by
off-balance sheet trusts as of December 31, 2007. The
trusts have issued bonds secured by these loans. We have no
obligation to provide funding support to either the third-party
investors or the off-balance sheet trusts. Generally, neither
the third-party investors nor the trusts have recourse to our
assets or us, and they have no ability to require us to
repurchase their loans other than for non-credit-related
recourse that can arise under standard representations and
warranties. We maintain secondary market reserves mostly for
losses that could arise in connection with loans that we are
required to repurchase from GSEs, whole loan sales and
securitizations. For information on the sales proceeds and cash
flows from our securitizations for 2007, see “Consolidated
Risk Management Discussion — CAMELS Framework for Risk
Management — Liquidity — Principal Sources
of Cash — Loan Sales and Securitizations.”
We usually retain certain interests, which may include
subordinated classes of securities, MSRs, AAA-rated and agency
interest-only securities, prepayment penalty and residual
securities in the securitization trust. The performance of the
loans in the trusts will impact our ability to realize the
current estimated fair value of these assets that are included
on our balance sheet. For more information on MSRs and other
retained assets, see “Summary of
66
Business Segment Results — Mortgage Banking
Segment — Mortgage Servicing Division” and
“Summary of Business Segment Results — Thrift
Segment — Mortgage-Backed Securities Division.”
Management does not believe that any of its off-balance sheet
arrangements have or are reasonably likely to have a current or
future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
AGGREGATE
CONTRACTUAL OBLIGATIONS
The following summarizes our material contractual obligations as
of December 31, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due(4)
|
|
|
|
|
|
|
January 1,
|
|
|
January 1,
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
through
|
|
|
through
|
|
|
After
|
|
|
|
|
|
|
Note
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
Reference
|
|
|
2008
|
|
|
2010
|
|
|
2012
|
|
|
2012
|
|
|
Total
|
|
|
Deposits Without a Stated Maturity
|
|
|
9
|
|
|
$
|
2,488,855
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,488,855
|
|
Custodial Accounts and Certificates of Deposits
|
|
|
9
|
|
|
|
15,085,947
|
|
|
|
189,649
|
|
|
|
50,665
|
|
|
|
127
|
|
|
|
15,326,388
|
|
FHLB Advances
|
|
|
10
|
|
|
|
3,584,000
|
|
|
|
4,236,000
|
|
|
|
2,594,800
|
|
|
|
774,000
|
|
|
|
11,188,800
|
|
HELOC Notes(1)
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
212,747
|
|
|
|
212,747
|
|
Trust Preferred Debentures
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
414,285
|
|
|
|
414,285
|
|
Accrued Interest Payable
|
|
|
—
|
|
|
|
238,458
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
238,458
|
|
Deferred Compensation
|
|
|
—
|
|
|
|
41,100
|
|
|
|
3,343
|
|
|
|
3,674
|
|
|
|
4,936
|
|
|
|
53,053
|
|
Operating Leases(2)
|
|
|
20
|
|
|
|
51,536
|
|
|
|
85,052
|
|
|
|
57,255
|
|
|
|
71,594
|
|
|
|
265,437
|
|
Employment Agreements(3)
|
|
|
—
|
|
|
|
8,431
|
|
|
|
14,072
|
|
|
|
6,716
|
|
|
|
—
|
|
|
|
29,219
|
|
Purchase Obligations
|
|
|
—
|
|
|
|
6,841
|
|
|
|
8,652
|
|
|
|
1,495
|
|
|
|
—
|
|
|
|
16,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
21,505,168
|
|
|
$
|
4,536,768
|
|
|
$
|
2,714,605
|
|
|
$
|
1,477,689
|
|
|
$
|
30,234,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
HELOC notes are non-recourse and secured by AAA-rated HELOC
certificates. |
|
(2) |
|
Total lease commitments are net of sublease rental income. |
|
(3) |
|
With the exception of our Chief Executive Officer, the amounts
represent compensation for ten senior executives and include
both base salary and estimated bonuses, calculated based on the
terms in their respective written employment agreements.
According to our Chief Executive Officer’s employment
agreement, his bonus is contingent upon our future financial
performance and cannot be reasonably estimated for future years.
As a result, only his base salary and his actual 2007 bonus to
be paid in 2008 are included above. |
|
(4) |
|
The payment amounts represent those amounts contractually due to
the recipient and do not include any unamortized premiums or
discounts, hedge basis adjustments, or other similar carrying
value adjustments. |
The following schedule presents significant commitments at
December 31, 2007 (dollars in thousands):
|
|
|
|
|
|
|
Payment Due
|
|
|
Undisbursed loan commitments:
|
|
|
|
|
Reverse mortgages
|
|
$
|
349,208
|
|
Builder construction
|
|
|
465,688
|
|
Consumer construction
|
|
|
1,148,188
|
|
HELOCs
|
|
|
1,573,522
|
|
Revolving warehouse lending
|
|
|
379,037
|
|
Stand-By Letters of credit
|
|
|
4,308
|
|
67
At December 31, 2007, there were no loan purchase
commitments under our
clean-up
call rights. See “Note 20 — Commitments and
Contingencies” in the accompanying notes to consolidated
financial statements for further details of our
clean-up
call rights.
In connection with standard representations and warranties on
loan sales and securitizations, we are occasionally required to
repurchase loans or make certain payments to settle claims based
on breaches of these representations and warranties. In 2007,
our active mortgage banking operations have sold
$71.2 billion in loans and repurchased $613 million
loans, or 0.86% of total loans sold. To provide for probable
losses related to loans sold, we established a reserve based on
estimated losses on actual pending and expected claims and
repurchase requests, historical experience, loan sales volume
and loan sale distribution channels and the assessment of the
probability of vendor or investor claims, which is included in
“Other liabilities” on the consolidated balance
sheets. The balance in this reserve totaled $179.8 million
at December 31, 2007. For further information, see
“Consolidated Risk Management Discussion — CAMELS
Framework for Risk Management — Asset Quality
— Secondary Market Reserve.”
RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS
RISKS
RELATED TO OUR BUSINESS GENERALLY
The
continuation of current market conditions could adversely impact
our business.
Our business is affected, directly and indirectly, by domestic
and international economic and political conditions and by
governmental monetary and fiscal policies. Conditions such as
inflation, recession, real estate values, unemployment, volatile
interest rates, government monetary policy, and other factors
beyond our control may adversely affect our results of
operations. Adverse economic conditions could result in an
increase in loan delinquencies, foreclosures and nonperforming
assets and a decrease in the value of property or other
collateral which secures our loans, all of which could adversely
affect our results of operations.
In 2007, a significant disruption in global credit and housing
markets throughout the United States culminated in an
industry-wide increase in borrowers unable to make their
mortgage payments and increased delinquency and foreclosure
rates. Lenders in certain sections of the housing and mortgage
markets were forced to close or limit their operations. In
response, financial institutions, including Indymac, have
tightened their underwriting standards, limiting the
availability of sources of credit and liquidity to consumers.
Any continued economic slowdown or recession may be accompanied
by a further decreased demand for consumer credit, decreased
real estate values, and increased rates of delinquencies,
defaults and foreclosures. In addition, mortgage loans we
originate during an economic slowdown may not be as valuable to
us because potential purchasers of our mortgage loans might
reduce the premiums they pay for the mortgage loans to
compensate for any increased risk arising during such periods.
Any sustained increase in delinquencies, defaults or
foreclosures is likely to significantly harm the pricing of our
future mortgage loan sales and also our ability to finance our
mortgage loan originations. If these negative market conditions
become more widespread or continue for a prolonged period of
time, our earnings and capital could be negatively impacted.
Current and anticipated deterioration in the housing
market and the homebuilding industry may lead to increased loss
severities and further worsening of delinquencies and
non-performing assets in our loan portfolios. Consequently, our
results of operations may be adversely impacted.
Recently, the housing and the residential mortgage markets have
experienced a variety of difficulties and changed economic
conditions. If market conditions continue to deteriorate beyond
what is anticipated in our loss models, they may lead to
additional losses in our loan portfolio and real estate owned as
we continue to reassess the market value of our loan portfolio,
the loss severities of loans in default, and the net realizable
value of real estate owned.
The homebuilding industry has experienced a significant and
sustained decline in demand for new homes and an oversupply of
new and existing homes available for sale in various markets,
including the ones in which we lend through our homebuilder
division. Our builders/borrowers face a greater difficulty in
selling their homes in markets where these trends are more
pronounced. We do not anticipate that the housing market will
improve in the near-
68
term. Accordingly, additional downgrades, provisions for loan
losses and charge-offs relating to this loan portfolio may occur.
The current dislocations in the mortgage market, and the
current weakness in the broader financial markets, could
adversely affect us.
From
2004-2006,
the mortgage market was characterized by increased competition
for loans and customers which simultaneously lowered profit
margins on loans and caused lenders to be more aggressive in
making loans to relatively less qualified customers. By the end
of 2006, the sustained pricing competition and higher risk
portfolios of loans reduced the appetite for loans among whole
loan buyers, who offered increasingly lower prices for loans,
thereby shrinking profit margins. In addition, the higher levels
of credit risk taken on by lenders resulted in higher rates of
delinquency in the loans held for investment and in increasing
frequency of early payment defaults and repurchase demands on
loans that had been sold. These trends accelerated during 2007,
and the industry experienced a period of turmoil which has
continued into 2008. At the end of 2007, more than 225 mortgage
companies operating in the mortgage industry failed and many
others faced serious operating and financial challenges.
Also, as a result of conditions within the mortgage industry,
rating agencies, financial guarantee insurers and investors have
recently begun and may continue in the future, to require
additional credit enhancements to support the mortgage loans
sold into the secondary market. This requirement generally has
the effect of reducing our earnings and increasing the overall
expense of selling mortgage loans into the secondary market.
We may be required to raise capital at terms that are
materially adverse to our shareholders.
We suffered a loss in excess of $600 million during 2007
and as a result, saw our shareholders’ equity and
regulatory capital decline in the second half of the year. While
we currently have regulatory capital ratios in excess of the
“well capitalized” requirement and have implemented a
plan to reduce our balance sheet and increase our capital
ratios, there can be no assurance that we will not suffer
material losses or that our plans to reduce the balance sheet
will succeed. In those circumstances, we may be required to seek
additional regulatory capital to maintain our capital ratios at
the “well capitalized” level. Such capital raising
could be at terms that are very dilutive to existing
shareholders and there can be no assurance that any capital
raising we undertake would be successful given the current level
of disruption in financial markets.
We expect to sell a significant portion of our loan
production to GSEs and actions by the GSEs could impact our
results.
Given the disruption in U.S. housing and mortgage markets,
the ability to sell mortgages in the private label
securitization market is virtually non existent at
December 31, 2007. As a result, we have changed our loan
production so that a significant majority of our production will
be salable to the GSEs. While the GSEs remain active purchasers
of loans, they have limited certain types of loans and imposed
higher fees on production. There can be no assurance that
actions by the GSEs will not have a materially adverse impact on
our results and ability to originate loans.
A sustained reduction of our mortgage origination volume
could harm us financially.
The volume of mortgage loans we originate has declined
substantially in recent periods. This is a result of decreased
demand for mortgage loans by investors, which is primarily the
result of increased delinquencies and early payment defaults.
Additionally, demand among borrowers for mortgage products has
decreased significantly in recent months as the real estate
market has experienced significant turmoil. Any sustained period
of reduced origination volume is likely to significantly harm
our business.
Changes in interest rates may adversely affect our
business, including net interest income and earnings.
Changes in interest rates, including changes in the relationship
between short-term rates and long-term rates, may have negative
effects on our net interest income and, therefore, our earnings.
Changes in interest rates may affect our mortgage banking
business in complex and significant ways. For example, changes
in interest rates can affect gain on sale on mortgage loans and
loan servicing fees, which are the principal components of
revenue from sales and servicing of home mortgage loans. When
mortgage rates decline, the fair value of MSR assets generally
69
declines and gain from mortgage loans tends to increase, to the
extent we are able to sell or securitize mortgage loans in the
secondary market. When mortgage rates rise, we generally expect
loan volumes and payoffs in our servicing portfolio to decrease.
As a result, the fair value of our MSR asset generally increases
and gain from mortgage loans decreases. In recent periods,
however, declines in general interest rates have not resulted in
an increase in prepayment rates, due in part to the reduced
liquidity in the mortgage markets making refinancing by
borrowers more difficult.
Economic downturns or disasters in our principal lending
markets, including California, New York, Florida, Washington and
New Jersey, could adversely impact our earnings.
A majority of our loans are geographically concentrated in
certain states, including California, New York, Florida,
Washington and New Jersey, with 38% of our loans receivable
balance at December 31, 2007 being in California. Any
adverse economic conditions in these markets, including a
continued downturn in real estate values, will likely cause the
number of loans acquired to decrease resulting in a
corresponding decline in revenues and an increase in the overall
credit risk in our loan portfolios. Also, we could be adversely
affected by business disruptions triggered by natural disasters
or acts of war or terrorism in these geographic areas.
Actions undertaken by current and potential competitors
could adversely impact our earnings and financial
position.
While the current disruptions in the housing and credit markets
have reduced the number of competitors, we still face
significant competition for lending volume. Many of our
competitors are larger and enjoy both financial and customer
awareness advantages over us. In addition, the reduction in
salability of many mortgages has caused us to temporarily
discontinue certain lending products that many of our
competitors are able to originate.
While we believe that our current plans and strategies will
allow us to compete in the market, there can be no assurance
that we will succeed and as a result, our financial results
could be materially worse than we expect.
We are subject to changing government laws and
regulations, which could adversely affect our operations.
The banking industry, in general, is heavily regulated. As a
savings and loan holding company, we are subject to regulation
by the OTS, and Indymac Bank is subject to regulation by the OTS
and the Federal Deposit Insurance Corporation
(“FDIC”). The economic and political environment
influence regulatory policies, and as such, any or all of our
business activities are subject to change if and when our
primary regulators change the policies and regulations. As a
result of recent negative publicity surrounding the mortgage
industry, politicians and regulators are likely to impose
additional laws, rules and regulations that could adversely
affect our operations. Several pieces of legislation are under
consideration at both the federal and state levels that could
affect the ways in which we make loans, as well as the ways in
which we are able to proceed against delinquent borrowers. Our
business is subject to the laws, rules and regulations of
various federal and state government agencies. These laws, rules
and regulations, among other things, limit the interest rates,
finance charges and other fees we may charge, require us to make
extensive disclosure and prohibit discrimination. We also are
subject to inspection by the OTS and the FDIC. The federal
regulations also have been revising the risk-based capital
rules, and the results of these revisions may affect our lending
business or our competitive position relative to large mortgage
lenders.
Our business is also subject to laws, rules and regulations
regarding the disclosure of non-public information about our
customers to non-affiliated third parties. Our operations on the
Internet are not currently subject to direct regulation by any
government agency in the United States beyond OTS regulations
and regulations applicable to businesses generally. A number of
legislative and regulatory proposals currently under
consideration by federal, state and local governmental
organizations may lead to laws or regulations concerning various
aspects of business on the Internet, including: user privacy,
taxation, content, access charges, liability for third-party
activities, and jurisdiction. The adoption of new laws or a
change in the application of existing laws may decrease the use
of the Internet, increase our costs or otherwise adversely
affect our business.
Regulatory and legal requirements are subject to change. If such
requirements change and become more restrictive, it would be
more difficult and expensive for us to comply and could affect
the way we conduct our business, which could adversely impact
our operations and earnings.
70
Our financial condition and results of operations are reported
in accordance with GAAP. While not impacting economic results,
future changes in accounting principles issued by the Financial
Accounting Standards Board could impact our earnings as reported
under GAAP. As a public company, we are also subject to the
corporate governance standards set forth in the Sarbanes-Oxley
Act of 2002, as well as applicable rules and regulations
promulgated by the SEC and the New York Stock Exchange.
Complying with these standards, rules and regulations may impose
administrative costs and burdens on us.
Additionally, political conditions could impact our earnings.
Acts or threats of war or terrorism, as well as actions taken by
the U.S. or other governments in response to such acts or
threats, could impact business and economic conditions in which
we operate.
Our business is highly dependent upon technology for
execution of our business model.
Our business performance is highly dependent on solidly
executing our mortgage banking business model. We must properly
price and continue to expand our products, customer base and
market share. In addition, the execution of our hedging
activities is critical as we have significant exposure to
changes in interest rates.
We are highly dependent on the use of technology in all areas of
our business and we must take advantage of advances in
technology to stay competitive. There are no guarantees as to
our degree of success in anticipating and taking advantage of
technological advances or that we will be more successful in the
use of technology than our competitors.
Our business process outsourcing and information
technology outsourcing activities in India may be adversely
impacted by instability in the Indian business environment
caused by political factors or data security breaches involving
outsourcing firms.
Through the Global Resources program, we utilize an off-shore
workforce in India predominantly in non-customer-facing back
office functions to enhance service levels and improve
efficiencies. Political instability, increasing labor disputes
and public uprisings may cause disruptions to the general
business environment in India. We do not believe these issues
should materially impact our outsourcing activities. However, if
political and social unrest in India dramatically worsens, our
outsourcing activities may be adversely impacted.
Additionally, there have been reported incidences of alleged
security breaches and loss of customer data involving the
outsourcing industry in India. While we have not been affected
by any such security breaches and we believe our overall
information security framework is very solid, we cannot
guarantee that all potential security risks abroad have been
eliminated.
We may be affected by the further right-sizing of our
workforce.
During 2007, we reduced our workforce by roughly 1,600 staff
through a successful voluntary resignation program, targeted
layoffs and eliminations of various outsourced and temporary
personnel. In January 2008, Indymac announced further reductions
of roughly 2,400 staff. These reductions have been spread
throughout the Company’s global workforce. We anticipate
additional staff reductions of 500 to 1,000 in the first half of
2008. We believe rightsizing of our workforce is not unusual due
to the unprecedented disruption of the mortgage market. However,
should this rightsizing hinder our ability to retain or attract
talented employees, it may have a negative effect on our
business and operating results.
RISKS
RELATED TO OUR INTEREST RATE HEDGING STRATEGIES
Certain hedging strategies that we use to manage our
assets and liabilities may be ineffective to mitigate the impact
of interest rate changes.
We utilize various hedging strategies to mitigate the interest
rate risk and prepayment risk inherent in many of our assets,
including our mortgage pipeline, our portfolio of interest-only
securities, our mortgage servicing rights portfolio, and other
financial instruments in which we invest.
Due to the characteristics of our financial assets and
liabilities and the nature of our business activities, our
liquidity, financial position, and results of operations may be
materially affected by changes in interest rates in various
ways. The objective of our hedging strategies is to mitigate the
impact of interest rate changes, on an
71
economic and accounting basis, on net interest income and the
fair value of our balance sheet. The overall effectiveness of
these hedging strategies is subject to market conditions, the
quality of our execution, the accuracy of our asset valuation
assumptions and other sources of interest rate risk discussed
further below.
Certain hedging strategies that we use to manage our
mortgage pipeline may be ineffective to mitigate the risk of
overall changes in fair value of loans held for sale and
interest rate lock commitments.
The mortgage pipeline consists of our commitments to purchase
mortgage loans, or interest rate locks, and funded mortgage
loans that will be sold in the secondary market. The risk
associated with the mortgage pipeline is that interest rates
will fluctuate between the time we commit to purchase a loan at
a pre-determined price, or the customer locks in the interest
rate on a loan, and the time we sell or commit to sell the
mortgage loan. These commitments are managed net of the
anticipated loan funding probability, or fallout factor.
Generally speaking, if interest rates increase, the value of an
unhedged mortgage pipeline decreases, and gain on sale margins
are adversely impacted. Typically, we hedge the risk of overall
changes in fair value of loans held for sale by either entering
into forward loan sale agreements, selling forward Fannie Mae or
Freddie Mac MBS or using other derivative instruments to hedge
loan commitments and to create fair value hedges against the
funded loan portfolios. If the hedging strategies we use to
mitigate interest rate risk in our mortgage pipeline are
ineffective, our gain on sale margins may be compressed and our
earnings may be adversely impacted.
Certain hedging strategies that we use to manage our
investment in Mortgage Servicing Rights and other retained
assets may be ineffective to mitigate the risk of changes in the
fair value of these assets due to changes in interest
rates.
We invest in MSRs and other retained assets to support our
mortgage banking strategies and to deploy capital at acceptable
returns. The value of these assets and the income they provide
tend to be counter-cyclical to the changes in production volumes
and gain on sale of loans that result from changes in interest
rates. We also enter into derivatives and other mortgage-related
securities to hedge our MSRs and other retained assets to offset
losses in fair value resulting from increased prepayments in
declining interest rate environments. The primary risk
associated with MSRs and other retained assets are that they
will lose a substantial portion of their value as a result of
higher than anticipated prepayments occasioned by declining
interest rates. Conversely, these assets generally increase in
value in a rising rate environment. Our hedging strategies are
highly susceptible to prepayment risk, basis risk, market
volatility and changes in the shape of the yield curve among
other factors. In addition, our hedging strategies rely on
assumptions and projections regarding our assets and general
market factors. If these assumptions and projections prove to be
incorrect or our hedging strategies do not adequately mitigate
the impact of changes in interest rates or prepayment speeds, we
may incur losses that could adversely impact our earnings.
Certain hedging and asset/liability management strategies
that we use to manage our other financial instruments may be
ineffective to mitigate the risk of interest rate
fluctuations.
Certain other financial instruments that we invest in tend to
decrease in value as interest rates increase and tend to
increase in value as interest rates decline. These include fixed
rate mortgage loans held for investment, fixed rate investment
grade and non-investment grade mortgage-backed and asset-backed
securities. To a lesser extent, adjustable mortgage loans held
for investment and mortgage securities supported by adjustable
rate mortgage loans may change in value as interest rates
change, if the timing or absolute level of interest rate
adjustments on the underlying loans do not correspond to
applicable changes in market interest rates. We invest in these
assets to earn stable spread income. Such assets are subject to
interest rate risk because actual future cash flows may vary
from expected cash flows primarily due to borrower prepayment
behavior.
We use hedging and asset/liability management strategies to
mitigate the impact that changes in interest rates will have on
these financial instruments. These strategies require us to make
certain assumptions and use estimates that may prove to be
incorrect and make these strategies ineffective to mitigate the
interest rate risk embedded in these financial instruments. If
these strategies are ineffective our net interest income and
earnings may be adversely impacted.
72
There can be no assurance that our interest rate risk
strategies or their implementation will be successful in any
particular interest rate environment.
We seek to mitigate our interest rate risks through the various
strategies described above. However, there can be no assurance
that these strategies (including assumptions concerning the
correlation thought to exist between different types of
instruments) or their implementation will be successful in any
particular interest rate environment, as market volatility
cannot be predicted.
The following are the primary sources of risk that we must
manage in our hedging strategies:
Basis Risk. In connection with our interest
rate risk management, basis risk is most prevalent in our
hedging activities, in that the change in value of hedges may
not equal or completely offset the change in value of the
financial asset or liability being hedged. While we choose
hedges we believe will correlate effectively with the hedged
asset or liability under a variety of market conditions, there
are no assurances that the hedges we choose will be perfectly
correlated with the assets or liabilities we attempt to hedge.
Further, we make assumptions in our financial models as to how
LIBOR/swap, treasury, agency and private-label mortgage rates,
and other hedges that we might use will change in relation to
one another. From time to time, in certain interest rate
environments, the relative movement of these different interest
rates and the corresponding change in value of the applicable
hedge instruments do not change in accordance with our
assumptions, which may result in an imperfect correlation
between the values of the hedges and the hedged assets making
our hedges ineffective in mitigating basis risk which may result
in our earnings being adversely impacted.
Options Risk. An option provides the holder
the right, but not the obligation, to buy, sell, or in some
manner alter the cash flows of an instrument or financial
contract. Options may be stand-alone instruments, such as
exchange-traded options and
over-the-counter
contracts, or they may be embedded within standard instruments.
Instruments with embedded options include bonds and notes with
call or put provisions, loans that give borrowers the right to
prepay balances, and adjustable rate loans with interest rate
caps or floors that limit the amount by which the rate may
adjust. Loans that give borrowers the right to prepay balances
present the most significant option risk that we must manage.
There are no assurances that the hedges that we select for any
type of option will effectively offset the interest rate risks.
Repricing Risk. Repricing risks arise from the
timing difference in the maturity
and/or
repricing of assets, liabilities and off-balance sheet
positions. While such repricing mismatches are fundamental to
our business, they can expose us to fluctuations in income and
economic value as interest rates vary. We monitor and manage
repricing risk by calculating and monitoring the duration gap on
our individual positions and in the aggregate, and maintaining
certain risk tolerances. In certain circumstances, however, this
internal risk management process may not eliminate repricing
risk. If we inadequately manage our repricing risk through our
hedging strategies, our operations and earnings may be adversely
impacted.
Yield Curve Risk. The value of certain loans,
securities and hedges we hold is based on a number of factors,
including the shape or slope of the appropriate yield curve, as
the market values of financial assets and hedge instruments are
based on expectations for interest rates in the future. Yield
curves typically reflect the market’s expectations for
future interest rates. In valuing our assets and related hedge
instruments, in formulating our hedging strategies and in
evaluating the interest rate sensitivity for risk management
purposes, our models use market yield curves, which are
constantly changing. If the shape or slope of the market yield
curves changes unexpectedly, the market values of our assets and
related hedges may be negatively impacted
and/or
changes in the value of the hedges may not be effectively
correlated with the changes in the value of the hedged assets or
liabilities.
RISKS
RELATED TO OUR VALUATION OF ASSETS
We use estimates in determining the fair value of certain
assets, such as Mortgage Servicing Rights, AAA-rated and agency
interest-only securities, non-investment grade securities, and
residual securities. If our estimates prove to be incorrect, we
may be required to write down the value of these assets which
could adversely impact our earnings.
We hold assets that we retain in connection with the sale or
securitization of mortgage loans, including MSRs, AAA-rated and
agency interest-only securities, prepayment penalty securities,
non-investment grade securities and
73
residuals. We use third party vendor financial models to value
each of the asset types referred to above. These models are
complex and use asset specific collateral data and market inputs
for interest rates. In addition, the modeling requirements of
MSRs and residual securities are significantly more complex than
those of AAA-rated and agency interest-only securities because
of the high number of variables that drive cash flows associated
with MSRs and the complex cash flow structures, which may differ
on each securitization, that determine the value of residual
securities. There are no assurances that we can properly manage
the increased complexity of our models and valuations to ensure,
among other things, that the models are properly calibrated, the
assumptions are reasonable, the mathematical relationships used
in the model are predictive and remain so over time, and the
data and structure of the assets and hedges being modeled are
properly input.
Even if the general accuracy of the valuation model is
validated, valuations are highly dependent upon the
reasonableness of our assumptions and the predictability of the
relationships which drive the results of the model. Such
assumptions are complex as we must make judgments about the
effect of matters that are inherently uncertain. As the number
of variables and assumptions affecting the possible future
resolution of the uncertainties increases, those judgments
become even more complex. If loans in our investment portfolio,
or loans underlying certain assets in our investment portfolio
prepay faster than estimated or loan loss levels are higher than
anticipated, we may be required to write down the value of
certain assets which could adversely impact our earnings.
Our valuation assumptions regarding securities acquired
from third party issuers may be incorrect, which could adversely
impact our earnings.
From time to time, we may acquire securities from third party
issuers. We value these securities with complex financial models
that incorporate significant assumptions and judgments, which
could vary significantly as market conditions change. If our
assumptions with respect to these types of assets are incorrect,
we may be required to write down the value of some or all of
these assets which could adversely impact our earnings.
RISKS
RELATED TO OUR ASSUMPTION OF CREDIT RISK
The rate of loan losses we incur may exceed the level of
our loss reserves, which could adversely impact our
earnings.
We establish reserves for various credit risk exposures. These
reserves are often based on estimates of borrower behavior and
the value of underlying collateral. Both our business units and
corporate oversight groups review the adequacy of these reserves
and the underlying estimates on a periodic basis and we make
adjustments to the reserves when required. There is no assurance
that our actual losses will not exceed our estimates and
adversely impact our earnings.
We hold in our portfolio a significant number of builder
construction loans, which may pose more credit risk than other
types of mortgage loans typically made by savings
institutions.
We ceased offering residential construction loans for builders
and developers. Builder construction loans are considered more
risky than other types of residential mortgage loans. Due to the
disruptions in credit and housing markets, many of the builders
we lend to experienced a dramatic decline in sales of new homes
from their projects. As a result of this unprecedented market
disruption, a significant portion of our builder construction
portfolio is expected to become non-performing as builders are
unable to sell homes in volumes large enough for orderly
repayment of loans.
While we believe we have established adequate reserves on our
financial statements to cover the credit risk of our builder
construction loan portfolio, there can be no assurance that
losses will not exceed our reserves, which could adversely
impact our earnings. Given the current environment we expect
that the non-performing loans in our builder construction
portfolio will increase substantially and these non-performing
loans could result in a material level of charge-offs that will
negatively impact our earnings, liquidity and capital. Our
failure to adequately address the related risks could have an
adverse effect on our business and results of operations.
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Our risk management policies and practices may not
adequately manage our exposure to credit risk in our business
operations.
We have assumed a degree of credit risk in connection with our
investments in certain mortgage securities and loans held for
investment and sale, as well as in connection with our
construction lending operations and our mortgage banking
activities. We have established risk management and credit
polices to manage our exposure to credit losses in each of these
business operations. We have also established a central credit
risk management group to monitor the credit quality of our
balance sheet and production. We cannot be sure, however, that
the risk management polices and practices in place will provide
adequate oversight of our credit risk.
Our earnings could be adversely impacted if the
assumptions underlying our risk-based pricing models prove to be
incorrect.
Our mortgage loan underwriting process, including our
e-MITS
underwriting and pricing system, depends heavily on risk-based
pricing models. Our risk-based pricing models, including the
risk-based pricing models utilized in
e-MITS, are
based primarily on standard industry loan loss data supplemented
by our historical loan loss data and proprietary logic developed
by us. Because the models cannot predict the effect of financial
market and other economic performance factors, there are no
assurances that our risk-based pricing models are a complete and
accurate reflection of the risks associated with our loan
products which may reduce the quality of our loan portfolio and
could adversely impact our earnings.
We are exposed to credit risk related to counterparties in
many of our businesses. If these counterparties are unable to
perform according to the terms of our contract, our earnings may
be adversely impacted.
In connection with our trading and hedging activities, we do
business only with counterparties that we believe are
established and sufficiently capitalized. In addition, with
respect to hedging activities on the pipeline of mortgage loans
held for sale, we enter into “master netting”
agreements with the Fixed Income Clearing Corporation, an
independent clearinghouse. This entity collects and pays daily
margin deposits to reduce the risk associated with counterparty
credit quality. We do not engage in any foreign currency
trading. All interest rate hedge contracts are with entities
(including their subsidiaries) that are approved by a committee
of our Board of Directors and that generally must have a long
term credit rating of “A” or better (by one or more
nationally recognized statistical rating organization) at the
time the relevant contract is consummated.
Our earnings could be adversely impacted by incidences of
fraud and compliance failures that are not within our direct
control.
We are subject to fraud and compliance risk in connection with
the purchase or origination of mortgage loans. Fraud risk
includes the risk of intentional misstatement of information in
property appraisals or other underwriting documentation provided
to us by third parties. This risk is typically higher in the
acquisition of a loan from a third-party seller. Compliance risk
is the risk that loans are not originated in compliance with
applicable laws and regulations, and to our standards. There can
be no assurance that we can prevent or detect acts of fraud or
violations of law or our compliance standards by third parties
that we deal with. Frequent incidences of fraud or violations of
law or our compliance standards may require us to repurchase
loans that we have originated and sold at a more frequent rate
than we have anticipated and could have an adverse impact on our
earnings.
We are exposed to credit risk from the sale of mortgage
loans.
We retain limited credit exposure from the sale of mortgage
loans. We make standard representations and warranties to the
transferee in connection with all such dispositions. These
representations and warranties do not assure against credit risk
associated with the transferred loans, but if individual
mortgage loans are found not to have fully complied with the
associated representations and warranties we have made to a
transferee, we may be required to repurchase the loans from the
transferee or we may make payments in lieu of curing such
breaches of these representations and warranties. Given the
significant delinquencies in higher CLTV/LTV products, we expect
that claims for repurchases pursuant to contractual
representation and warranties will increase. While we have
established reserves for what we consider as probable and
reasonably estimable losses, there can be no assurance that
losses will not ultimately exceed our reserves and materially
impact future results.
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Our management of the credit risk associated with
non-investment grade MBS and residual securities depend upon
estimates and assumptions that may not be accurate.
We assume a certain degree of credit risk in connection with
investments in non-investment grade MBS and residual securities
that we occasionally acquire from third-party issuers or retain
from our own securitizations. Non-investment grade securities
(rated below BBB) may or may not represent the second loss
position, depending on the rating, but are typically subject to
a disproportionate amount of the credit risk. Residuals
represent the first loss position and are not typically rated by
a nationally recognized rating agency. In general,
non-investment grade securities bear losses prior to the more
senior investment grade securities, and therefore bear a
disproportionate amount of the credit risk with respect to the
underlying collateral.
Non-investment grade securities represent leveraged credit risk
as they absorb a disproportionate share of credit risk as
compared to investment grade securities. These securities are
recorded net of discount that is based upon, among other things,
the estimated credit losses, expected prepayments, as estimated
by internal loss models
and/or
perceived by the market, and the coupons, associated with these
securities. The adequacy of this discount is dependent upon how
accurate our estimate is of both the amount and timing of the
cash flows paid to the non-investment grade securities, which is
primarily based upon our estimate of the amount and timing of
credit losses and prepayments on the underlying loan collateral.
Residual securities possess a greater degree of risk because
they are relatively illiquid, represent the first loss position
and require a higher reliance on financial models in determining
their fair value. Realization of this fair value is dependent
upon the accuracy of our estimate of both the amount and timing
of the cash flows paid to the residual securities, which are
based primarily on our estimate of the amount and timing of
credit losses on the underlying loan collateral and to a lesser
extent prepayment rates on the underlying loan collateral.
If we do not adequately estimate the credit losses, prepayments
and the amount and timing of cash flows associated with
non-investment grade and residual securities that we hold, our
earnings and cash flows may be adversely impacted.
RISKS
RELATED TO OUR LIQUIDITY
If current market conditions persist, our ability to
increase liquidity, including through the sale of mortgage loans
in the secondary market or otherwise, could be limited, which
could adversely affect our earnings.
Our liquidity may be affected by an inability to access the
capital markets, which may arise due to circumstances beyond our
control, such as general market disruption. During 2007, and
continuing into 2008, there has been significant volatility in
the mortgage market, including non-conforming residential
mortgages. Since the second quarter of 2007, liquidity in the
secondary market for nonconforming residential mortgages and
securities backed by such loans has diminished significantly.
While these market conditions persist, our ability to increase
liquidity through the sale of mortgage loans in the secondary
market will be adversely affected. We cannot predict with any
degree of certainty how long these market conditions may
continue or whether liquidity for nonconforming residential
mortgages will improve.
Our ability to borrow funds and raise capital could be
limited, which could adversely affect our earnings.
We have significant sources of liquidity as a result of our
federal thrift structure. During 2007, we paid off all of our
borrowings under reverse repurchase facilities and asset backed
commercial paper facilities as market conditions made the cost
and availability of funds from these facilities more onerous. We
significantly increased our deposits and as of December 31,
2007, our only significant borrowings were from the FHLB,
deposits and long term liabilities. As a thrift, we also have
access to significant liquidity from the Federal Reserve
Discount Window, although we have not utilized that facility. In
order to further reduce our risk and strengthen our liquidity,
we focus our deposit gathering on deposits that are fully
insured by the FDIC. We estimate that approximately 95% of all
deposits are fully insured. While our sources of liquidity are
strong and have been stable throughout this current market
disruption, there can be no assurance that actions by the FHLB
or the Federal Reserve would not reduce our borrowing capacity
or that we would be unable to attract deposits at competitive
rates. Such events could have a material adverse impact on our
results of operations and financial condition.
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Additionally, we are required to maintain adequate capital by
the OTS. There is no guarantee that we will be able to
adequately access capital markets when or if a need for
additional capital arises which could limit our ability to
increase the assets on our balance sheet and adversely impact
our earnings.
The accumulation of MSRs is a large component of our strategy.
As of December 31, 2007, the capitalized value of MSRs was
$2.5 billion. OTS regulations effectively impose higher
capital requirements on the amount of MSRs that exceeds total
Tier 1 capital. These higher capital requirements could
result in lowered returns on our retained assets and could limit
our ability to retain servicing assets and even cause our
capital levels to decline significantly if the value of our MSRs
grows. While management believes that compliance with the
capital limits on MSRs will not materially impact future
results, no assurance can be given that our plans and strategies
will be successful.
Significant illiquidity, volatility and spread widening
(i.e., an increase in credit risk premiums required by investors
between mortgage-backed securities and comparable duration
Treasury securities) in the secondary markets could have a
material adverse impact on our mortgage production earnings and
the earnings of the Company overall.
We rely heavily on the secondary markets, having sold 25% of the
loans we sold in the fourth quarter of 2007 and 34% of the loans
we sold in the year ended December 31, 2007 in private
label securitizations, and 0% and 18% for the same periods,
respectively, to whole loan investors. The secondary markets are
currently experiencing mortgage spread widening and reduced
liquidity, and this could continue or worsen in the future. One
factor contributing greatly to secondary market uncertainty at
present is uncertainty with respect to potential actions to be
taken by the major agencies who rate mortgage-backed securities
(Standard and Poor’s, Moody’s and Fitch). The agencies
have recently downgraded many securities, announced that others
are under review and stated that they are reviewing their models
for determining subordination levels given mortgage industry
credit deterioration, which will likely result in increased
subordination levels and, therefore, increased mortgage credit
costs for borrowers.
Spread widening can be severe and happen abruptly, as has
happened recently. Indymac hedges the interest rate risk
inherent in our pipeline of mortgage loans held for sale and
rate-locked loans in process to protect our MBR margins. We
attempt to hedge the type of spread widening caused by the
secondary market disruptions we have experienced in 2007. Severe
and abrupt spread widening, as we have recently experienced, can
have a material adverse impact on our near-term earnings. Given
the current uncertainties and resulting volatility in the
secondary market, the risk of further spread widening must be
considered significant, and our hedging activities may not be
effective.
Illiquidity in the secondary market at present means that with
respect to private label securitizations, there is reduced
investor demand for mortgage-backed securities. Illiquidity is
also reducing demand from whole loan investors. Under these
conditions, we use our capital capacity and liquidity to hold
increased levels of both securities and loans. While our capital
and liquidity positions are currently strong, our capacity to
retain loans and securities on our balance sheet is not
unlimited. A prolonged period of secondary market illiquidity
could result in us having to implement further mortgage
guideline tightening, which would result in lower mortgage
production volumes. This could have a material adverse impact on
our future earnings.
CRITICAL
ACCOUNTING POLICIES AND JUDGMENTS
Several of the critical accounting policies important to the
portrayal of our financial condition and results of operations
require management to make difficult and complex judgments that
rely on estimates about the effect of matters that are
inherently uncertain due to the impact of changing market
conditions
and/or
consumer behavior. We believe our most critical accounting
policies relate to: (1) assets that are highly dependent on
internal valuation models and assumptions rather than market
quotations, including MSRs and non-investment grade securities
and residuals; (2) derivatives and other hedging
instruments; (3) allowance for loan losses
(“ALL”); (4) loans held for sale, including
estimates of fair value, LOCOM valuation reserve and sale
accounting treatment; and (5) secondary market reserve.
Management discusses these critical accounting policies and
related judgments with Indymac’s Audit Committee and
external auditors on a regular basis. We believe the judgments,
estimates and assumptions used in the preparation of our
consolidated financial statements are appropriate given the
factual circumstances at the
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time. However, given the sensitivity of our consolidated
financial statements to these critical accounting policies, the
use of other judgments, estimates and assumptions could result
in material differences in our results of operations or
financial condition. Our accounting policies are described in
“Note 1 — Summary of Significant Accounting
Policies.”
FAIR
VALUE INSTRUMENTS
With the exception of the ALL, these items are generally created
in connection with our loan sale and securitization process. The
allocated cost of the retained assets at the time of the sale is
recorded as a component of the net gain (loss) on sale of loans.
Such retained assets were comprised of MSRs and to a much lesser
degree, AAA-rated agency and non-agency securities, AAA-rated
and agency interest-only securities, AAA-rated principal-only
securities, prepayment penalty securities, late fee securities,
investment grade and non-investment grade securities, and
residual securities.
Fair values for these assets are determined by using available
market information, historical performance of the assets
underlying collateral and internal valuation models as
appropriate. The reasonableness of fair values will vary
depending upon the availability of third party market
information, which is a function of the market liquidity of the
asset being valued. In connection with our mortgage banking and
investment portfolio operations, we invest in assets created
from the loan sale and securitization process, for which markets
are relatively limited and illiquid. As a result, the valuation
of these assets is subject to our assumptions about future
events rather than market quotations. These assets generally
include MSRs, AAA-rated and agency interest-only securities,
non-investment grade securities and residuals. As the number of
variables and assumptions used to estimate fair value increases
and as the time period increases over which the estimates are
made, such estimates will likely change in a greater number of
periods, potentially adding volatility to our valuations and
financial results. For further information regarding the
sensitivity of the fair value of these assets to changes in the
underlying assumptions, refer to “Note 13 —
Transfers and Servicing of Financial Assets” in the
accompanying consolidated financial statements of the Company.
We use fair value hedge accounting for a portion of our loans
held for sale. There is a risk that at times we might not
satisfy the requirements for fair value hedge accounting under
SFAS 133, as amended, for a portion of our loans held for
sale because we do not meet the required complex hedge
correlation tests. This could cause temporary fluctuations in
our reported income but not in the ultimate economic results.
Any potential fluctuation in our reported results if hedge
accounting is not achieved would be over a very short period
during 2007 and the economic effect of both the hedges and loans
would be recorded once the sale was completed. In addition, any
imprecision in valuation of these items would be adjusted and
recorded in a short period through our gain (loss) on sale
margin once the sale of the loans was completed.
MORTGAGE
SERVICING RIGHTS
MSRs are created on the sale of loans to GSEs, in private-label
securitizations, and sometimes, from the sale of whole loans. We
also purchase MSRs from time to time from third parties. The
carrying value of MSRs in our financial statements represents
our estimate of the present value of future cash flows to be
received by us as servicer of the loans. In general, future cash
flows are estimated by projecting the service fee, plus late
fees and reinvestment income associated with interest earned on
“float,” after subtracting guarantee fees on agency
portfolios, the cost of reimbursing investors for compensating
interest associated with the early pay-off of loans, the market
cost to service the loans, the cost of mortgage insurance
premiums (if applicable), and estimated prepayments.
MSRs are recorded at fair value with valuation changes, net of
hedges, being reported in “Service fee income” in the
consolidated statements of operations. We use option adjusted
spread (“OAS”) to determine the fair value of MSRs and
benchmark this value to a third party valuation model. The key
assumptions include prepayment rates and, to a lesser degree,
reinvestment income and discount rates. Based on these
assumptions, our model calculates implied discount rates, which
we compare to market discount rates and risk premiums to
determine if our valuations are reasonable.
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In addition to considering actual prepayment trends, future
prepayment rates are estimated based on the following factors:
1) Relative Coupon Rate. The interest
rate the borrower is currently paying relative to current market
rates for that type of loan is the primary predictor of the
borrower’s likelihood to prepay. We assume a
borrower’s propensity to prepay increases when the
borrower’s loan rate exceeds the current market rates.
2) Seasoning. Based on prepayment curves
and other studies performed by industry analysts of prepayment
activity over the life of a pool of loans, a pattern has been
identified whereby prepayments typically peak in years one to
three, consistent with borrower moving habits.
3) Seasonality. Seasonality refers to the
time of the year that prepayments occur. All else being
constant, prepayments tend to be higher in summer months due to
borrowers’ tendency to move outside of the school year and
lower in winter months due to the holiday season.
4) Burn Out. Burn out is associated with
a pool of mortgage loans which has endured a variety of high
prepayment environments such that it may be assumed that the
remaining borrowers are insensitive to any subsequent decline in
interest rates. Consequently, all else being equal, projected
prepayment speeds for such a pool of loans would be lower than a
newly originated loan pool with comparable characteristics.
As cash flows must be estimated over the life of the pool of
mortgage loans underlying the MSRs, assumptions must be made
about the level of interest rates over that same time horizon,
which is primarily three to five years. We utilize a credit
spread over the market LIBOR/interest rate swap forward curve to
estimate the level of mortgage interest rates over the life of
the pool of loans. We believe a forward curve, as opposed to
static or spot interest rates, incorporates the market
perception about expected changes in interest rates and provides
a more realistic estimate of lifetime interest rates and
therefore prepayment rates.
The discount rate represents the implicit yield a knowledgeable
investor would require to purchase or own the projected cash
flows. Using an OAS model, embedded options and other cash flow
uncertainties are quantified across a large number of
hypothetical interest rate environments. The OAS is essentially
the credit spread over the risk free rate after the option costs
(e.g., hedge costs) are considered. Overall, we evaluate the
reasonableness of the discount rate based on the spread over the
risk free rate (duration adjusted LIBOR securities) relative to
other cash flow sensitive investments with higher and lower risk
profiles.
Reinvestment income represents the interest earned on custodial
balances, often referred to as float. Custodial balances are
generated from the collection of borrower principal and interest
and escrow balances which we generally hold on deposit for a
short period until the required monthly remittance of such funds
to a trustee. Reinvestment income is reduced by compensating
interest, or “interest shortfall,” which we must pay
to investors to compensate for interest lost on the early payoff
of loans pursuant to our servicing obligations. Our estimate of
reinvestment income is a function of float, which is derived
from our estimate of prepayment speeds, and an estimate of the
interest rate we will earn by temporarily investing these
balances. The reinvestment rate is typically based on the
Federal Funds rate, and we factor in the market forward curve to
derive a long-term estimate.
The valuation of MSRs includes numerous assumptions of varying
lower sensitivities in addition to the assumptions discussed
above. For example, other assumptions include, but are not
limited to, market cost to service loans, prepayment penalties,
delinquencies and the related late fees and escrow balances.
NON-INVESTMENT
GRADE SECURITIES AND RESIDUALS
General
Non-investment grade securities and residuals are created upon
the issuance of private-label securitizations. Non-investment
grade securities (rated below BBB) represent leveraged credit
risk as they typically absorb a disproportionate amount of
credit losses before such losses affect senior or other
investment grade securities. Residuals represent the first loss
position and are not typically rated by the nationally
recognized agencies. The value of residuals represents the
present value of future cash flows expected to be received by us
from the excess cash flows created in the securitization
transaction. In general, future cash flows are estimated by
taking the coupon
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rate of the loans underlying the transaction less the interest
rate paid to the investors and contractually specified servicing
and trustee fees, and estimated prepayments and credit losses.
Cash flows are also dependent upon various restrictions and
conditions specified in each transaction. For example, residuals
are not typically entitled to any cash flows unless
over-collateralization has reached a certain level. The
over-collateralization represents the difference between the
bond balance and the collateral underlying the security. A
sample over-collateralization structure may require 2% of the
original collateral balance for 36 months. At month 37, it
may require 4%, but on a declining balance basis. Due to
prepayments, that 4% requirement is generally less than the 2%
required on the original balance. In addition, the transaction
may include an over-collateralization “trigger event,”
the occurrence of which may require the over-collateralization
to be increased. An example of such a trigger event is
delinquency rates or cumulative losses on the underlying
collateral that exceed stated levels. If over-collateralization
targets were not met, the trustee would apply cash flows that
would otherwise flow to the residual security until such targets
are met. A delay or reduction in the cash flows received will
result in a lower valuation of the residual.
We consider certain of our investment grade securities to be
economic hedges of our non-investment grade securities and
residuals. We classify these investment grade securities as
trading securities in order to reflect changes in their fair
values in our current results. Residuals are generally
classified as trading securities so the accounting for these
securities will mirror the economic hedging activities. All
other MBS, including a portion of our non-investment grade
securities, are classified as available for sale. At least
quarterly, we evaluate the carrying value of non-investment
grade securities and residuals in light of the actual
performance of the underlying loans. If fair value is less than
amortized cost and the estimated undiscounted cash flows have
decreased compared to the prior period, the impairment is
recorded through earnings. We classify our non-investment grade
residuals as trading and therefore record them at fair value,
with changes in fair value being recorded through earnings. We
use a third-party model, using the “cash-out” method
to value these securities. This method reflects when we receive
the cash, which may be later than when the trust receives the
cash. The model takes into consideration the cash flow structure
specific to each transaction (such as over-collateralization
requirements and trigger events). The key valuation assumptions
include credit losses, prepayment rates and, to a lesser degree,
discount rates.
Loss
Estimates
We use a proprietary loss estimation model to project credit
losses. This model was developed utilizing our actual loss
experience for prime and subprime loans. The modeling logic has
been reviewed by ERM. The expected loan loss is a function of
loan amount, conditional default probability and projected loss
severity. Characteristics that impact default probability vary
depending on loan type and current delinquency status, but
generally include the borrower’s credit score,
loan-to-value
ratio, loan amount,
debt-to-income
ratio, and loan purpose, among other variables. Characteristics
that impact loss severity includes unpaid principal balance,
loan-to-value,
days to liquidation and mortgage insurance status. The loss
estimation model also includes conditional default curves, which
relate to the expected timing of the estimated loss. In our
experience, default probabilities generally reach a peak within
two to three years of loan origination and become less likely
after four to five years. While there can be no assurance as to
the accuracy of the model in predicting losses, we have
“back tested” the model’s default probability
logic. The model is updated and recalibrated periodically based
on our on-going actual loss experience.
Prepayment
Speeds
We estimate prepayments on a collateral-specific basis and
consider actual prepayment activity for the collateral pool. We
also consider the current interest rate environment, the market
forward curve projections and prepayments estimated on similar
collateral pools where we own MSRs. While higher prepayment
speeds tend to be closely correlated with a reduced credit
environment, increasing prepayments may reduce the value of
residual securities since these securities represent excess
spread on the underlying collateral. Therefore, higher
prepayments, in isolation, reduce the life of the residual and
total cash flows resulting in a reduction in the fair value of
the residual.
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Discount
Rates
We determine static discount rates based on a number of factors,
including but not limited to the collateral type and quality,
structure of the transaction, market interest rates and our
ability to generate an appropriate after tax return on equity
given the other valuation assumptions and resulting projected
cash flows. We also review the discount rates used by other
investors for similar securities to evaluate the appropriateness
of our assumptions. As non-investment grade securities and
residuals are our higher risk assets, and liquidity is generally
the lowest for these assets on a duration adjusted basis, the
spread over the risk free rate is also the highest of all of our
cash flow sensitive assets.
DERIVATIVES
AND OTHER HEDGING INSTRUMENTS
The accounting and reporting standards for derivative financial
instruments are established in SFAS 133. SFAS 133
requires that we recognize all derivative instruments on the
balance sheet at fair value. The accounting for changes in fair
value of these instruments depends on the intended use of the
derivative and the associated designation. If certain conditions
are met, hedge accounting may be applied and the derivative
instrument may be specifically designated as a fair value hedge
or a cash flow hedge. In designating hedges of certain funded
mortgage loans in our pipeline and our borrowings and advances
as fair value hedges and cash flow hedges, respectively, we are
required by SFAS 133 to establish at the inception of the
hedge the method we will use in assessing the effectiveness of
the hedging relationship, for hedge accounting qualification,
and in measuring and recognizing hedge ineffectiveness, for
financial reporting purposes. In accordance with the
requirements of SFAS 133, these methods are consistent with
our approach to managing risk.
In complying with the requirements of SFAS 133, our
management team has made certain judgments in identifying
derivative instruments, designating hedged risks, calculating
hedge effectiveness, and measuring, recognizing, and classifying
changes in value. Critical judgments made with respect to our
hedge designations include:
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Hedge Effectiveness Testing
Methodology. SFAS 133 requires we identify
and consistently follow a methodology justifying our expectation
that our hedges will continue to be highly effective at
achieving offsetting changes in value. In devising such a
methodology, which is consistent with our risk management
policy, we have exercised judgment in identifying: (1) the
scope and the types of historical data and observations;
(2) the mathematical formulas and quantitative steps to
calculate hedge effectiveness; and (3) the frequency and
necessity of updates to our calculations and assumptions. As
discussed in the footnotes to our financial statements, we have
designated certain forwards, futures, and interest rate swaps to
hedge the benchmark interest rate risk in our funded mortgage
loan pipeline and borrowings exposures, respectively, as
SFAS 133 hedges. If the results of our hedge effectiveness
tests determine that our hedges are not effective, we do not
adjust the basis of our pipeline mortgage loans, in the case of
disqualified fair value hedges, or defer derivative gains and
losses in “Other comprehensive income”
(“OCI”), in the case of disqualified cash flow hedges,
from the date our hedges were last effective to the date they
are again compliant with SFAS 133. Therefore, the ability
to recognize hedge accounting basis adjustments and OCI
deferrals may cause us to report materially different results
under different conditions or using different assumptions.
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Hedge Ineffectiveness Measurement. Regardless
of our method of proving hedge effectiveness, we are required to
recognize hedge ineffectiveness in earnings to the extent that
exact offset is not achieved, as defined by SFAS 133. As
discussed in the footnotes to the financial statements, the
estimated fair value amounts of our financial instruments have
been determined using available market information and valuation
methods we believe are appropriate under the circumstances.
These estimates are inherently subjective in nature and involve
matters of significant uncertainty and judgment to interpret
relevant market and other data. The use of different market
assumptions
and/or
estimation methods may have a material effect on the estimated
fair value amounts, and, therefore, on the recognition of basis
adjustments and OCI deferrals for hedged mortgage loans and
forecasted borrowing/advance cash flows, respectively, as well
as the hedge ineffectiveness recognized in the income statement
for both hedge types.
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Some of our hedges, including certain elements of our pipeline
which are required to be carried at fair value as derivative
instruments in accordance with SFAS 133, and other
derivative instruments for which we do not designate hedging
relationships for accounting purposes, involve estimates of fair
value where no direct exchange-traded or indirect
“proxy” market prices are immediately available. As
noted above and in the footnotes to our financial statements, we
employ available market information and valuation methods we
believe are appropriate under the circumstances and, as
applicable, within the range of industry practice.
Changes in either the mix of market information or the valuation
methods used would change the fair values carried on the balance
sheet, the associated impact on the income statement, and the
application and impacts of SFAS 133 hedge accounting.
SAB 105 provides guidance regarding loan commitments
accounted for as derivative instruments. As noted in the
footnotes to the financial statements, interest rate lock
commitments are valued at zero at inception in accordance with
SAB 105. The rate locks are adjusted for changes in value
resulting from changes in market interest rates. SAB 109
supersedes SAB 105 and is effective prospectively for loan
commitments issued or modified beginning January 1, 2008.
Upon adoption of SAB 109, we will recognize revenue at the
inception of a rate lock commitment.
Non-derivative contracts sometimes contain embedded terms
meeting the definition of a derivative instrument under
SFAS 133. In certain circumstances, management has
concluded such terms are appropriately excluded from fair value
accounting as they are clearly and closely related to the
economic characteristics of the non-derivative “host”
contract, in accordance with SFAS 133. Under different
facts and circumstances, should such embedded terms not be
considered clearly and closely related, recognition of such
embedded derivatives on the balance sheet at fair value would be
required by SFAS 133.
ALLOWANCE
FOR LOAN LOSSES
For the loans held for investment portfolio, an ALL is
established and allocated to various loan types. The
determination of the level of the ALL and, correspondingly, the
provision for loan losses, is based on delinquency trends, prior
loan loss experience, and management’s judgment and
assumptions regarding various matters, including general
economic conditions and loan portfolio composition. Management
continuously evaluates these assumptions and various relevant
factors impacting credit quality and inherent losses. We utilize
several methodologies to estimate the adequacy of our ALL and to
ensure the allocation of the ALL to the various portfolios is
reasonable given current trends and economic outlook. In this
regard, we segregate assets into homogeneous pools of loans and
heterogeneous loans.
Homogeneous pools of loans exhibit similar characteristics and,
as such, can be evaluated as pools of assets through the
assessment of default probabilities and corresponding loss
severities. Our homogeneous pools include residential mortgage
loans, consumer construction loans, HELOCs, closed-end seconds,
manufactured home loans and home improvement loans. The estimate
of the ALL for homogeneous pools is based on recent
product-specific migration patterns and recent loss experience.
Our builder construction loans generally carry higher balances
and involve unique loan characteristics that cannot be evaluated
solely through the use of default rates, loss severities and
trend analysis. To estimate an appropriate level of ALL for our
heterogeneous loans, we constantly screen the portfolios on an
individual asset basis to classify problem credits and to
estimate potential loss exposure. In this estimation, we
determine the level of adversely classified assets (using the
classification criteria described below) in a portfolio and the
related loss potential and extrapolate the weighting of those
two factors across all assets in the portfolio.
Our asset classification methodology was designed in accordance
with guidelines established by our supervisory regulatory
agencies as follows:
|
|
|
|
•
|
Pass — Assets classified Pass are assets that
are well protected by the net worth and paying capacity of the
borrower or by the value of the asset or underlying collateral.
|
|
|
•
|
Special Mention — Special Mention assets have
potential weaknesses that require close attention, but have not
yet jeopardized the timely repayment of the asset in full.
|
82
|
|
|
|
•
|
Substandard — This is the first level of
adverse classification. Assets in this category are inadequately
protected by the net worth and paying capacity of the borrower
or by the value of the collateral. Substandard assets are
characterized by the distinct possibility some loss will occur
if the deficiencies are not corrected.
|
|
|
•
|
Doubtful — Assets in this category have the
same weaknesses as a substandard asset, with the added
characteristic that based on current facts, conditions and
values, liquidation of the asset in full is highly improbable.
|
|
|
•
|
Loss — Assets in the Loss category are
considered uncollectible and of such little value that the
continuance as an asset, without establishment of a specific
valuation allowance, is not warranted.
|
A component of the overall ALL is not specifically allocated
(“unallocated component”). The unallocated component
reflects management’s assessment of various factors that
create inherent imprecision in the methods used to determine the
specific portfolio allocations. Those factors include, but are
not limited to, levels of and trends in delinquencies and
impaired loans, charge-offs and recoveries, volume and terms of
the loans, effects of any changes in risk selection and
underwriting standards, other changes in lending policies,
procedures, and practices, and national and local economic
trends and conditions.
Impaired loans include loans classified as non-accrual where it
is probable we will be unable to collect the scheduled payments
of principal and interest according to the contractual terms of
the loan agreement. When a loan is deemed impaired, the amount
of specific allowance required is measured by a complete
analysis of the most probable source of repayment, including the
present value of the loan’s expected future cash flows, the
fair value of the underlying collateral less costs of
disposition, or the loan’s estimated market value. In these
measurements, we use assumptions and methodologies that are
relevant to estimating the level of impaired and unrealized
losses in the portfolio. To the extent the data supporting such
assumptions has limitations, our judgment and experience play a
key role in enhancing the ALL estimates.
We transferred mortgage loans HFS to HFI and recorded a
reduction to the net investment, a portion of this reduction
represents credit losses we estimated in determining the market
value of loans. This amount represents a “reserve” for
future realized credit losses. If our estimate of inherent
credit losses in the transferred pool increases, we may record a
provision for loan losses which will increase the ALL.
As the housing and mortgage markets deteriorated during 2007, we
made adjustments to key assumptions used to establish our loss
reserves. Generally, we adjusted our assumptions as to frequency
of mortgage loans moving to default and the expected severities
of losses from sales of underlying REO properties. We also
adjusted assumptions on our builder construction portfolio to
give consideration to the project and market specific condition
for loans in this portfolio that have or are expected to default.
LOANS
HELD FOR SALE
Loans held for sale are carried at the lower of aggregate cost,
net of purchase discounts or premiums, deferred fees, deferred
origination costs and effects of hedge accounting, or fair
value. Historically, the fair value of loans held for sale was
determined using current secondary market prices for loans with
similar coupons, maturities and credit quality. Given recent
market disruptions, these current secondary market prices
generally relied on to value conditions of the HFS loans were
not available. As a result, the Company considered other
factors, including: 1) quoted market prices for to be
announced (“TBA”) securities (for agency-eligible
loans); 2) recent transaction settlements or traded but
unsettled transactions for similar assets; 3) recent third
party market transactions for similar assets; and
4) modeled valuations using assumptions the Company
believes a reasonable market participant would use in valuing
similar assets (assumptions may include loss rates, prepayment
rates, interest rates, volatilities, mortgage spreads). At
December 31, 2007, the majority of the Company’s loans
HFS are GSE-eligible. As these loans have reliable market price
information, the fair value of these loans continues to be based
on quoted market prices of similar assets. For the non
GSE-eligible loans, including loans transferred to HFI at the
lower of cost or fair value, the valuation of these loans
requires more reliance on recent third party market transactions
for similar assets and modeled valuations using assumptions the
Company believes a reasonable market participant would use in
valuing similar assets.
83
Since there was very limited available price discovery due to
the collapse of the secondary market for non-GSE mortgages, the
estimation of fair value in the second half of 2007 required
significant management judgment.
While management believes its determination of fair values is
reasonable in the circumstances, even small changes in the
underlying assumptions, application of different valuation
approaches or a different assessment of the weight of evidence
from the available sources of information could have resulted in
significantly different estimates.
Our recognition of gain or loss on the sale of loans is
accounted for in accordance with SFAS 140. Typically, we
structure such transfers to meet the sale accounting criteria as
set forth in SFAS 140 and record the commensurate gain on
sale. SFAS 140 requires a transfer of financial assets in
which we surrender control over the assets be accounted for as a
sale to the extent that consideration, other than beneficial
interest in the transferred assets, is received in exchange. The
carrying value of the assets sold is allocated between the
assets sold and the retained interest based on their relative
fair values.
SFAS 140 requires, for certain transactions completed after
the initial adoption date, a “true sale” analysis of
the treatment of the transfer under state law as if we were a
debtor under the bankruptcy code. A “true sale” legal
analysis includes several legally relevant factors, such as the
nature and level of recourse to the transferor and the nature of
retained servicing rights. The analytical conclusion as to a
“true sale” is never absolute and unconditional, but
contains qualifications based on the inherent equitable powers
of a bankruptcy court, as well as the unsettled state of the
common law. Once the legal isolation test has been met under
SFAS 140, other factors concerning the nature and extent of
the transferor’s control over the transferred assets are
taken into account in order to determine whether derecognition
of assets is warranted, including whether the special-purpose
entity has complied with rules concerning qualifying
special-purpose entities.
SECONDARY
MARKET RESERVE
As part of the normal course of business involving loans sold to
the secondary market, we can be required to repurchase loans or
make payments to settle breaches of the standard representations
and warranties made as part of our loan sales or
securitizations. We can be required to repurchase loans from
investors when our loan sales contain individual loans that do
not conform to the representations and warranties we made at the
time of sale (including early payment default provisions). We
maintain a secondary market reserve for losses that arise in
connection with loans that we may be required to repurchase from
whole loan sales, sales to the GSEs, and securitizations. The
reserve has two general components: reserves for repurchases
arising from representation and warranty claims and reserves for
repurchases arising from early payment defaults.
The reserve level is a function of expected losses based on
actual pending claims and repurchase requests, historical
experience, loan volume and loan sales distribution channels,
the assessment of probable vendor or investor claims and even
small changes in assumptions could result in a significantly
higher or lower estimate. Our analysis includes an estimate of
representation and warranty demands, expected demands due to
deteriorating loan performance and probable obligations related
to disputes with investors and vendors with respect to
contractual obligations pertaining to mortgage origination
activity. An increase to this reserve is recorded as a reduction
of the “Gain (loss) on sale of loans” in our
consolidated statements of operations and the corresponding
reserve is recorded in “Other liabilities” in our
consolidated balance sheets. At the time we repurchase a loan,
the estimated loss on the loan is charged against this reserve
and recorded as a reduction of the basis of the loan. The
significant increase in the secondary market reserve is due to
our expectation of significantly higher volumes of repurchase
demands and increased loss severity from declining home prices.
SENSITIVITY
ANALYSIS
Changing the assumptions used to estimate the fair value of
AAA-rated and agency interest-only securities, MSRs,
principal-only securities, prepayment penalty securities, late
fee securities, investment grade securities, non-investment
grade securities and residuals (“the retained assets”)
could materially impact the amount recorded in our balance sheet
and in our gain on sale of loans. Initially, the estimation of
the fair value of the retained assets from loan securitizations
and sales impacts the financial statements of our
mortgage-banking segment. Thereafter,
84
adjustments to fair value impact the retained assets and
servicing division’s financial statements. Provisions to
the secondary market reserves and adjustments to the ALL may
impact any of our segments. Refer to
“Note 13 — Transfers and Servicing of
Financial Assets” in the consolidated financial statements
of Indymac for further information on the hypothetical effect on
the fair value of our retained assets using various unfavorable
variations of the expected levels of certain key assumptions
used in valuing these assets at December 31, 2007.
REGULATORY
UPDATE
In December 2007, the OTS endorsed a private-sector initiative
to help families avoid foreclosure and stay in their homes. The
American Securitization Forum (“ASF”), representing
mortgage investors, and the HOPE NOW alliance (“HOPE
NOW”), whose members represent more than 80% of the
subprime mortgage servicing market, developed the details of the
streamlined process for refinancing and modifying subprime
adjustable-rate mortgages. The new process is intended as a
blueprint for standard industry practice.
The OTS endorsed private-sector initiative consists of the
Streamlined Foreclosure and Loss Avoidance Framework (the
“ASF Framework”), which was issued by the ASF during
the same month. The ASF Framework requires a borrower and its
U.S. subprime residential mortgage variable loan to meet
specific conditions to qualify for a modification under which
the qualifying borrower’s loan interest rate would be kept
at the existing rate, generally for five years following an
upcoming reset period. The ASF Framework is focused on
U.S. subprime first-lien adjustable-rate residential
mortgages that have an initial fixed interest rate period of
36 months or less, are included in securitized pools, were
originated between January 1, 2005 and July 31, 2007,
and have an initial interest rate reset date between
January 1, 2008 and July 31, 2010. Any loan
modifications we make in accordance with the ASF Framework will
not have a material impact on our accounting for the mortgage
loans.
Prior to the aforementioned endorsement in December 2007, the
OTS, as well as other federal banking agencies, issued a
statement related to loss mitigation strategies for servicers of
residential mortgages. This statement, which is broader than the
ASF Framework, provides guidance to servicers under the
governing securitization documents to take appropriate steps
when an increased risk of default is identified, including,
proactively identifying borrowers at heightened risk of
delinquency or default, such as those with interest rate resets;
contacting borrowers to assess their ability to pay; assessing
whether there is reasonable basis to conclude that default is
“reasonably foreseeable”; and exploring where
appropriate, a loss mitigation strategy that avoids foreclosure
or other actions that result in a loss of homeownership.
Management believes the Company’s loss mitigation
activities comply with this OTS issued statement.
OTHER
CONSIDERATIONS
Under OTS regulations, limitations have been imposed on all
capital distributions, including cash dividends. IndyMac
Bancorp, as the holding company for the Bank, is substantially
dependent upon dividends from the Bank for cash used to pay
dividends on common stock and other cash outflows. We are
required to seek approval from the OTS in order to pay dividends
from the Bank to the Parent Company. There is no assurance that
the Bank will be able to pay such dividends in the future or
that the OTS will continue to grant approvals. While the holding
company maintains cash balances at all times to manage its
liquidity, a disruption in dividends from the Bank could cause
the holding company to reduce or eliminate the dividends paid on
common stock.
For holders of the Bank’s Series A preferred stock and
IndyMac Bancorp’s common stock, dividends we pay will be
treated as dividends for U.S. federal income tax purposes
only to the extent paid out of our current or accumulated
“earnings and profits.” Any dividend that we pay at a
time when we do not have any current or accumulated earnings and
profits will not be taxable as a dividend for U.S. federal
income tax purposes, and instead will be treated first as a
return of capital, reducing a holder’s basis in its stock
to the extent of such basis, and thereafter as capital gain. Any
dividends we pay that are not treated as dividends will not be
eligible for the dividends-received deduction or the reduced
rates of taxation available for certain holders subject to
U.S. federal income tax.
85
APPENDIX A: ADDITIONAL
QUANTITATIVE DISCLOSURES
We believe the information provided in the body of this
Form 10-K
provides a good overview of our business and our results for
2007. However, we include the following for a more detailed
analysis of our operations:
TABLE OF
CONTENTS
86
|
|
TABLE
1.
|
PRODUCT
PROFITABILITY ANALYSIS
|
As part of our process of measuring results and holding managers
responsible for specific targets, we evaluate profitability at
the product level in addition to our segment results. We
currently have four product groups: standard consumer home loans
held for sale, specialty consumer home loans held for sale
and/or
investment, home loans and related investments, and specialty
commercial loans held for sale
and/or
investment.
As conditions in the U.S. mortgage market have
deteriorated, we have discontinued certain products and are
reporting them in a separate category, “Discontinued
Products”. Discontinued products include closed-end second
liens (“seconds”), HELOCs, subdivision loans and
manufactured housing loans.
See the table below for details on the products included within
each product group.
|
|
|
Standard Consumer Home
Loans Held for Sale |
|
Includes first mortgage products originated for sale through the
various Indymac channels (excluding the servicing retention
channel and consumer construction division). These products
include prime and subprime loans. |
|
|
|
Prime |
|
|
|
First mortgage loans for sale that meet the underwriting
guidelines of Fannie Mae and Freddie Mac or that have prime
credit characteristics but do not meet the GSE underwriting
guidelines. |
|
|
|
Subprime |
|
|
|
Includes first mortgage loans that are extended to borrowers
with impaired credit with one or more of the following
characteristics: 1) FICO score of less than 620;
2) late mortgage payment in the last 12 months; or
3) bankruptcy in the last 2 years. |
|
Specialty Consumer Home
Loans Held for Sale and/or Investment |
|
Includes specialty mortgage products originated through the
various Indymac channels and adjusted for intercompany activity.
These products include reverse mortgages and CTP/Lot. |
|
|
|
Reverse Mortgages |
|
|
|
Reverse mortgage loans extended to borrowers age 62 and
older secured by equity in a primary residence. |
|
|
|
CTP/Lot |
|
|
|
CTP loans made to homeowners for the construction of new custom
homes which automatically convert to permanent mortgage loans at
the end of construction; and lot loans. |
|
Home Loans and Related Investments |
|
Includes all investment related activity including home loans
held for investment, variable cash flow instruments,
mortgage-backed securities and other related investments. |
|
|
|
Retained Assets and Retention Activities |
|
|
|
Mortgage banking, trading and hedging activity associated with
the purchase, management and sale of mortgage banking assets and
variable cash flow instruments retained in connection with the
Company’s loan sales. Activity also includes loans acquired
through
clean-up
calls and originated through customer retention programs. |
87
|
|
|
|
|
MBS |
|
|
|
Trading and investment activity related to the purchase,
management and sale of investment grade and non-investment grade
mortgage-backed securities. |
|
|
|
SFR Loans Held for Investment |
|
|
|
Company-wide loan investment activity related to the purchase,
management and sale of single family residential mortgage loans
held for investment. |
|
Specialty Commercial Loans
Held for Sale and/or
Investment |
|
Includes the consolidated loan activity associated with loans
that are made to commercial customers such as commercial
builders and mortgage brokers and bankers for the purposes of
either building residential homes or financing the purchase of
these homes. |
|
|
|
Single Spec |
|
|
|
Loans that are made to homebuilders to build individual custom
homes for resale to consumers. |
|
|
|
Warehouse Lending |
|
|
|
Warehouse lines of credit to mortgage brokers to finance their
inventory of loans prior to sale. |
|
|
|
Commercial Real Estate Lending |
|
|
|
Permanent loans for multi-family and commercial properties. |
|
Overhead |
|
Includes all fixed operating costs associated with production
divisions and servicing loans that are not allocated to the
respective products for which these services are provided. In
addition, it includes all corporate fixed costs that do not vary
in the short term with changes in business activity. These fixed
costs include corporate administration, financial management,
enterprise risk management, centralized information technology
and other unallocated fixed costs. |
|
Discontinued Products |
|
HELOCs/Seconds |
|
|
|
Home equity lines of credit and closed-end second lien mortgages. |
|
|
|
Subdivision |
|
|
|
Subdivision lending for commercial acquisition, development and
construction loans to commercial builders. |
|
|
|
Other |
|
|
|
Dealer originated manufactured housing and home improvement
loans. |
88
The following summarizes the profitability for each of the four
product groups and the discontinued products group for the years
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
|
|
Specialty
|
|
|
Loans &
|
|
|
Specialty
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Consumer
|
|
|
Related
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
On-Going
|
|
|
Discontinued
|
|
|
Total
|
|
|
|
Home Loans
|
|
|
Home Loans
|
|
|
Investments
|
|
|
Loans
|
|
|
Treasury
|
|
|
Overhead
|
|
|
Products
|
|
|
Products
|
|
|
Company
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
156,573
|
|
|
$
|
82,226
|
|
|
$
|
162,621
|
|
|
$
|
16,646
|
|
|
$
|
2,597
|
|
|
$
|
16,462
|
|
|
$
|
437,125
|
|
|
$
|
129,617
|
|
|
$
|
566,742
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
(35,856
|
)
|
|
|
(145,364
|
)
|
|
|
(4,699
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(185,919
|
)
|
|
|
(209,629
|
)
|
|
|
(395,548
|
)
|
Gain (loss) on sale of loans
|
|
|
(233,739
|
)
|
|
|
177,324
|
|
|
|
48,899
|
|
|
|
(5,138
|
)
|
|
|
—
|
|
|
|
(192
|
)
|
|
|
(12,846
|
)
|
|
|
(341,514
|
)
|
|
|
(354,360
|
)
|
Service fee income
|
|
|
—
|
|
|
|
38,046
|
|
|
|
454,695
|
|
|
|
3
|
|
|
|
—
|
|
|
|
2,263
|
|
|
|
495,007
|
|
|
|
24,246
|
|
|
|
519,253
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
(1,629
|
)
|
|
|
(301,775
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(303,404
|
)
|
|
|
(136,309
|
)
|
|
|
(439,713
|
)
|
Gain on sale and leaseback of building
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,982
|
|
|
|
23,982
|
|
|
|
—
|
|
|
|
23,982
|
|
Other income
|
|
|
28,253
|
|
|
|
22,247
|
|
|
|
10,771
|
|
|
|
5,018
|
|
|
|
1,269
|
|
|
|
4,894
|
|
|
|
72,452
|
|
|
|
10,756
|
|
|
|
83,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue (expense)
|
|
|
(48,913
|
)
|
|
|
282,358
|
|
|
|
229,847
|
|
|
|
11,830
|
|
|
|
3,866
|
|
|
|
47,409
|
|
|
|
526,397
|
|
|
|
(522,833
|
)
|
|
|
3,564
|
|
Variable expenses
|
|
|
274,901
|
|
|
|
116,610
|
|
|
|
24,236
|
|
|
|
3,817
|
|
|
|
—
|
|
|
|
—
|
|
|
|
419,564
|
|
|
|
34,458
|
|
|
|
454,022
|
|
Severance charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,850
|
|
|
|
31,850
|
|
|
|
—
|
|
|
|
31,850
|
|
Deferral of expenses under SFAS 91
|
|
|
(189,542
|
)
|
|
|
(35,585
|
)
|
|
|
(10,440
|
)
|
|
|
(1,127
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,694
|
)
|
|
|
(22,461
|
)
|
|
|
(259,155
|
)
|
Fixed expenses
|
|
|
243,211
|
|
|
|
82,369
|
|
|
|
90,677
|
|
|
|
13,411
|
|
|
|
12,190
|
|
|
|
277,843
|
|
|
|
719,701
|
|
|
|
28,993
|
|
|
|
748,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(377,483
|
)
|
|
|
118,964
|
|
|
|
125,374
|
|
|
|
(4,271
|
)
|
|
|
(8,324
|
)
|
|
|
(262,284
|
)
|
|
|
(408,024
|
)
|
|
|
(563,823
|
)
|
|
|
(971,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
456
|
|
|
|
412
|
|
|
|
1,522
|
|
|
|
64
|
|
|
|
7,630
|
|
|
|
12,475
|
|
|
|
22,559
|
|
|
|
462
|
|
|
|
23,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(230,343
|
)
|
|
$
|
71,423
|
|
|
$
|
74,832
|
|
|
$
|
(2,666
|
)
|
|
$
|
(12,699
|
)
|
|
$
|
(171,525
|
)
|
|
$
|
(270,978
|
)
|
|
$
|
(343,830
|
)
|
|
$
|
(614,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
10,241,209
|
|
|
$
|
3,548,742
|
|
|
$
|
13,007,665
|
|
|
$
|
478,270
|
|
|
$
|
—
|
|
|
$
|
537,109
|
|
|
$
|
27,812,995
|
|
|
$
|
3,419,191
|
|
|
$
|
31,232,186
|
|
Allocated capital
|
|
$
|
474,759
|
|
|
$
|
172,351
|
|
|
$
|
801,757
|
|
|
$
|
38,843
|
|
|
$
|
—
|
|
|
$
|
160,305
|
|
|
$
|
1,648,015
|
|
|
$
|
328,917
|
|
|
$
|
1,976,932
|
|
Loan production
|
|
|
59,529,001
|
|
|
|
9,617,560
|
|
|
|
4,156,353
|
|
|
|
543,931
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,846,845
|
|
|
|
4,469,539
|
|
|
|
78,316,384
|
|
Loans sold
|
|
|
53,730,095
|
|
|
|
7,417,072
|
|
|
|
7,807,414
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,954,581
|
|
|
|
2,209,143
|
|
|
|
71,163,724
|
|
MBR margin
|
|
|
(0.09
|
)%
|
|
|
3.01
|
%
|
|
|
0.63
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.24
|
%
|
|
|
(14.29
|
)%
|
|
|
(0.22
|
)%
|
ROE
|
|
|
(49
|
)%
|
|
|
41
|
%
|
|
|
9
|
%
|
|
|
(7
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(16
|
)%
|
|
|
(105
|
)%
|
|
|
(31
|
)%
|
Net interest margin
|
|
|
1.53
|
%
|
|
|
2.32
|
%
|
|
|
1.25
|
%
|
|
|
3.48
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.57
|
%
|
|
|
3.79
|
%
|
|
|
1.81
|
%
|
Efficiency ratio
|
|
|
(135
|
)%
|
|
|
51
|
%
|
|
|
28
|
%
|
|
|
97
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
131
|
%
|
|
|
(13
|
)%
|
|
|
244
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
126,582
|
|
|
$
|
58,214
|
|
|
$
|
168,025
|
|
|
$
|
16,795
|
|
|
$
|
(3,343
|
)
|
|
$
|
6,992
|
|
|
$
|
373,265
|
|
|
$
|
153,456
|
|
|
$
|
526,721
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
(2,906
|
)
|
|
|
(9,225
|
)
|
|
|
(597
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,728
|
)
|
|
|
(7,265
|
)
|
|
|
(19,993
|
)
|
Gain (loss) on sale of loans
|
|
|
432,508
|
|
|
|
201,605
|
|
|
|
35,058
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
669,171
|
|
|
|
(1,117
|
)
|
|
|
668,054
|
|
Service fee income
|
|
|
—
|
|
|
|
21,141
|
|
|
|
72,227
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,951
|
|
|
|
95,319
|
|
|
|
5,998
|
|
|
|
101,317
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
659
|
|
|
|
37,331
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,990
|
|
|
|
(17,508
|
)
|
|
|
20,482
|
|
Other income
|
|
|
—
|
|
|
|
20,512
|
|
|
|
6,920
|
|
|
|
5,777
|
|
|
|
677
|
|
|
|
3,917
|
|
|
|
37,803
|
|
|
|
12,319
|
|
|
|
50,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue (expense)
|
|
|
559,090
|
|
|
|
299,225
|
|
|
|
310,336
|
|
|
|
21,975
|
|
|
|
(2,666
|
)
|
|
|
12,860
|
|
|
|
1,200,820
|
|
|
|
145,883
|
|
|
|
1,346,703
|
|
Variable expenses
|
|
|
233,344
|
|
|
|
116,702
|
|
|
|
11,994
|
|
|
|
2,694
|
|
|
|
—
|
|
|
|
—
|
|
|
|
364,734
|
|
|
|
61,428
|
|
|
|
426,162
|
|
Deferral of expenses under SFAS 91
|
|
|
(178,637
|
)
|
|
|
(40,760
|
)
|
|
|
(5,772
|
)
|
|
|
(308
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(225,477
|
)
|
|
|
(40,769
|
)
|
|
|
(266,246
|
)
|
Fixed expenses
|
|
|
186,182
|
|
|
|
83,002
|
|
|
|
52,818
|
|
|
|
6,817
|
|
|
|
8,529
|
|
|
|
269,174
|
|
|
|
606,522
|
|
|
|
24,769
|
|
|
|
631,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
318,201
|
|
|
|
140,281
|
|
|
|
251,296
|
|
|
|
12,772
|
|
|
|
(11,195
|
)
|
|
|
(256,314
|
)
|
|
|
455,041
|
|
|
|
100,455
|
|
|
|
555,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
193,785
|
|
|
$
|
84,779
|
|
|
$
|
153,039
|
|
|
$
|
7,779
|
|
|
$
|
(6,818
|
)
|
|
$
|
(150,812
|
)
|
|
$
|
281,752
|
|
|
$
|
61,177
|
|
|
$
|
342,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
8,536,707
|
|
|
$
|
2,866,578
|
|
|
$
|
9,915,750
|
|
|
$
|
363,337
|
|
|
$
|
—
|
|
|
$
|
562,241
|
|
|
$
|
22,244,613
|
|
|
$
|
3,783,663
|
|
|
$
|
26,028,276
|
|
Allocated capital
|
|
$
|
398,215
|
|
|
$
|
134,942
|
|
|
$
|
625,456
|
|
|
$
|
29,694
|
|
|
$
|
—
|
|
|
$
|
266,316
|
|
|
$
|
1,454,623
|
|
|
$
|
341,637
|
|
|
$
|
1,796,260
|
|
Loan production
|
|
|
70,043,484
|
|
|
|
10,284,979
|
|
|
|
2,232,454
|
|
|
|
190,908
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82,751,825
|
|
|
|
8,945,999
|
|
|
|
91,697,824
|
|
Loans sold
|
|
|
63,635,182
|
|
|
|
6,994,666
|
|
|
|
2,226,201
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,856,049
|
|
|
|
6,192,913
|
|
|
|
79,048,962
|
|
MBR margin
|
|
|
0.88
|
%
|
|
|
3.56
|
%
|
|
|
1.57
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.11
|
%
|
|
|
0.58
|
%
|
|
|
1.06
|
%
|
ROE
|
|
|
49
|
%
|
|
|
63
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
19
|
%
|
Net interest margin
|
|
|
1.48
|
%
|
|
|
2.03
|
%
|
|
|
1.69
|
%
|
|
|
4.62
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.68
|
%
|
|
|
4.06
|
%
|
|
|
2.02
|
%
|
Efficiency ratio
|
|
|
43
|
%
|
|
|
53
|
%
|
|
|
18
|
%
|
|
|
41
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
61
|
%
|
|
|
30
|
%
|
|
|
58
|
%
|
89
The following provides details on the profitability for the
standard consumer home loans held for sale for the years
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Consumer Home Loans
|
|
|
|
Prime
|
|
|
Subprime
|
|
|
Total
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
149,249
|
|
|
$
|
7,324
|
|
|
$
|
156,573
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
(206,277
|
)
|
|
|
(27,462
|
)
|
|
|
(233,739
|
)
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other income
|
|
|
27,367
|
|
|
|
886
|
|
|
|
28,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
(29,661
|
)
|
|
|
(19,252
|
)
|
|
|
(48,913
|
)
|
Variable expenses
|
|
|
250,261
|
|
|
|
24,640
|
|
|
|
274,901
|
|
Deferral of expenses under SFAS 91
|
|
|
(172,224
|
)
|
|
|
(17,318
|
)
|
|
|
(189,542
|
)
|
Fixed expenses
|
|
|
224,547
|
|
|
|
18,664
|
|
|
|
243,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(332,245
|
)
|
|
|
(45,238
|
)
|
|
|
(377,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
449
|
|
|
|
7
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(202,786
|
)
|
|
$
|
(27,557
|
)
|
|
$
|
(230,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
9,996,322
|
|
|
$
|
244,887
|
|
|
$
|
10,241,209
|
|
Allocated capital
|
|
$
|
460,005
|
|
|
$
|
14,754
|
|
|
$
|
474,759
|
|
Loan production
|
|
|
56,986,937
|
|
|
|
2,542,064
|
|
|
|
59,529,001
|
|
Loans sold
|
|
|
51,466,679
|
|
|
|
2,263,416
|
|
|
|
53,730,095
|
|
MBR margin
|
|
|
(0.06
|
)%
|
|
|
(0.85
|
)%
|
|
|
(0.09
|
)%
|
ROE
|
|
|
(44
|
)%
|
|
|
(187
|
)%
|
|
|
(49
|
)%
|
Net interest margin
|
|
|
1.49
|
%
|
|
|
2.99
|
%
|
|
|
1.53
|
%
|
Efficiency ratio
|
|
|
N/M
|
|
|
|
(135
|
)%
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
110,903
|
|
|
$
|
15,679
|
|
|
$
|
126,582
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
409,503
|
|
|
|
23,005
|
|
|
|
432,508
|
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
520,406
|
|
|
|
38,684
|
|
|
|
559,090
|
|
Variable expenses
|
|
|
204,391
|
|
|
|
28,953
|
|
|
|
233,344
|
|
Deferral of expenses under SFAS 91
|
|
|
(156,352
|
)
|
|
|
(22,285
|
)
|
|
|
(178,637
|
)
|
Fixed expenses
|
|
|
168,511
|
|
|
|
17,671
|
|
|
|
186,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
303,856
|
|
|
|
14,345
|
|
|
|
318,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
185,049
|
|
|
$
|
8,736
|
|
|
$
|
193,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
7,956,667
|
|
|
$
|
580,040
|
|
|
$
|
8,536,707
|
|
Allocated capital
|
|
$
|
362,396
|
|
|
$
|
35,819
|
|
|
$
|
398,215
|
|
Loan production
|
|
|
67,458,207
|
|
|
|
2,585,277
|
|
|
|
70,043,484
|
|
Loans sold
|
|
|
61,013,270
|
|
|
|
2,621,912
|
|
|
|
63,635,182
|
|
MBR margin
|
|
|
0.85
|
%
|
|
|
1.48
|
%
|
|
|
0.88
|
%
|
ROE
|
|
|
51
|
%
|
|
|
24
|
%
|
|
|
49
|
%
|
Net interest margin
|
|
|
1.39
|
%
|
|
|
2.70
|
%
|
|
|
1.48
|
%
|
Efficiency ratio
|
|
|
42
|
%
|
|
|
63
|
%
|
|
|
43
|
%
|
90
The following provides details on the profitability for the
specialty consumer home loans held for sale
and/or
investment for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Consumer Home Loans
|
|
|
Reverse
|
|
|
|
|
|
|
Mortgages
|
|
CTP/Lot
|
|
Total
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
19,788
|
|
|
$
|
62,438
|
|
|
$
|
82,226
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
(35,856
|
)
|
|
|
(35,856
|
)
|
Gain (loss) on sale of loans
|
|
|
139,417
|
|
|
|
37,907
|
|
|
|
177,324
|
|
Service fee income
|
|
|
38,046
|
|
|
|
—
|
|
|
|
38,046
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
(1,629
|
)
|
|
|
(1,629
|
)
|
Other income
|
|
|
354
|
|
|
|
21,893
|
|
|
|
22,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
197,605
|
|
|
|
84,753
|
|
|
|
282,358
|
|
Variable expenses
|
|
|
83,354
|
|
|
|
33,256
|
|
|
|
116,610
|
|
Deferral of expenses under SFAS 91
|
|
|
(27,631
|
)
|
|
|
(7,954
|
)
|
|
|
(35,585
|
)
|
Fixed expenses
|
|
|
53,471
|
|
|
|
28,898
|
|
|
|
82,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
88,411
|
|
|
|
30,553
|
|
|
|
118,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
232
|
|
|
|
180
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
52,997
|
|
|
$
|
18,426
|
|
|
$
|
71,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
967,173
|
|
|
$
|
2,581,569
|
|
|
$
|
3,548,742
|
|
Allocated capital
|
|
$
|
55,627
|
|
|
$
|
116,724
|
|
|
$
|
172,351
|
|
Loan production
|
|
|
4,722,885
|
|
|
|
4,894,675
|
|
|
|
9,617,560
|
|
Loans sold
|
|
|
4,789,805
|
|
|
|
2,627,267
|
|
|
|
7,417,072
|
|
MBR margin
|
|
|
3.32
|
%
|
|
|
1.44
|
%
|
|
|
3.01
|
%
|
ROE
|
|
|
95
|
%
|
|
|
16
|
%
|
|
|
41
|
%
|
Net interest margin
|
|
|
2.05
|
%
|
|
|
2.42
|
%
|
|
|
2.32
|
%
|
Efficiency ratio
|
|
|
55
|
%
|
|
|
45
|
%
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
9,918
|
|
|
$
|
48,296
|
|
|
$
|
58,214
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
(2,906
|
)
|
|
|
(2,906
|
)
|
Gain (loss) on sale of loans
|
|
|
160,844
|
|
|
|
40,761
|
|
|
|
201,605
|
|
Service fee income
|
|
|
21,141
|
|
|
|
—
|
|
|
|
21,141
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
659
|
|
|
|
659
|
|
Other income
|
|
|
1,152
|
|
|
|
19,360
|
|
|
|
20,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
193,055
|
|
|
|
106,170
|
|
|
|
299,225
|
|
Variable expenses
|
|
|
79,858
|
|
|
|
36,844
|
|
|
|
116,702
|
|
Deferral of expenses under SFAS 91
|
|
|
(32,256
|
)
|
|
|
(8,504
|
)
|
|
|
(40,760
|
)
|
Fixed expenses
|
|
|
55,388
|
|
|
|
27,614
|
|
|
|
83,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
90,065
|
|
|
|
50,216
|
|
|
|
140,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
54,198
|
|
|
$
|
30,581
|
|
|
$
|
84,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
Average interest-earning assets
|
|
$
|
617,480
|
|
|
$
|
2,249,098
|
|
|
$
|
2,866,578
|
|
Allocated capital
|
|
$
|
31,712
|
|
|
$
|
103,230
|
|
|
$
|
134,942
|
|
Loan production
|
|
|
5,023,533
|
|
|
|
5,261,446
|
|
|
|
10,284,979
|
|
Loans sold
|
|
|
4,498,352
|
|
|
|
2,496,314
|
|
|
|
6,994,666
|
|
MBR margin
|
|
|
3.80
|
%
|
|
|
1.63
|
%
|
|
|
3.56
|
%
|
ROE
|
|
|
171
|
%
|
|
|
30
|
%
|
|
|
63
|
%
|
Net interest margin
|
|
|
1.61
|
%
|
|
|
2.15
|
%
|
|
|
2.03
|
%
|
Efficiency ratio
|
|
|
53
|
%
|
|
|
51
|
%
|
|
|
53
|
%
|
91
The following provides details on the profitability for the home
loans and related investments and the loan servicing operations
for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Loans and Related Investments
|
|
|
|
Retained Servicing
|
|
|
|
|
|
SFR Loans
|
|
|
|
|
|
|
and Retention
|
|
|
|
|
|
Held for
|
|
|
|
|
|
|
Activities
|
|
|
MBS
|
|
|
Investment
|
|
|
Total
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
4,197
|
|
|
$
|
74,652
|
|
|
$
|
83,772
|
|
|
$
|
162,621
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
(145,364
|
)
|
|
|
(145,364
|
)
|
Gain (loss) on sale of loans
|
|
|
56,124
|
|
|
|
—
|
|
|
|
(7,225
|
)
|
|
|
48,899
|
|
Service fee income
|
|
|
454,695
|
|
|
|
—
|
|
|
|
—
|
|
|
|
454,695
|
|
Gain (loss) on securities
|
|
|
(37,968
|
)
|
|
|
(263,807
|
)
|
|
|
—
|
|
|
|
(301,775
|
)
|
Other income
|
|
|
8,096
|
|
|
|
610
|
|
|
|
2,065
|
|
|
|
10,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
485,144
|
|
|
|
(188,545
|
)
|
|
|
(66,752
|
)
|
|
|
229,847
|
|
Variable expenses
|
|
|
24,236
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,236
|
|
Deferral of expenses under SFAS 91
|
|
|
(10,440
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,440
|
)
|
Fixed expenses
|
|
|
63,792
|
|
|
|
3,794
|
|
|
|
23,091
|
|
|
|
90,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
407,556
|
|
|
|
(192,339
|
)
|
|
|
(89,843
|
)
|
|
|
125,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
614
|
|
|
|
416
|
|
|
|
492
|
|
|
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
247,588
|
|
|
$
|
(117,550
|
)
|
|
$
|
(55,206
|
)
|
|
$
|
74,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
1,172,090
|
|
|
$
|
5,074,815
|
|
|
$
|
6,760,760
|
|
|
$
|
13,007,665
|
|
Allocated capital
|
|
$
|
353,415
|
|
|
$
|
209,563
|
|
|
$
|
238,779
|
|
|
$
|
801,757
|
|
Loan production
|
|
|
4,156,353
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,156,353
|
|
Loans sold
|
|
|
4,071,678
|
|
|
|
—
|
|
|
|
3,735,736
|
|
|
|
7,807,414
|
|
MBR margin
|
|
|
1.38
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.63
|
%
|
ROE
|
|
|
70
|
%
|
|
|
(56
|
)%
|
|
|
(23
|
)%
|
|
|
9
|
%
|
Net interest margin
|
|
|
0.36
|
%
|
|
|
1.47
|
%
|
|
|
1.24
|
%
|
|
|
1.25
|
%
|
Efficiency ratio
|
|
|
16
|
%
|
|
|
(2
|
)%
|
|
|
29
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
12,752
|
|
|
$
|
72,217
|
|
|
$
|
83,056
|
|
|
$
|
168,025
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,225
|
)
|
|
|
(9,225
|
)
|
Gain (loss) on sale of loans
|
|
|
31,477
|
|
|
|
(122
|
)
|
|
|
3,703
|
|
|
|
35,058
|
|
Service fee income
|
|
|
72,227
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,227
|
|
Gain (loss) on securities
|
|
|
34,556
|
|
|
|
2,391
|
|
|
|
384
|
|
|
|
37,331
|
|
Other income
|
|
|
5,286
|
|
|
|
(3
|
)
|
|
|
1,637
|
|
|
|
6,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
156,298
|
|
|
|
74,483
|
|
|
|
79,555
|
|
|
|
310,336
|
|
Variable expenses
|
|
|
11,994
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,994
|
|
Deferral of expenses under SFAS 91
|
|
|
(5,772
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,772
|
)
|
Fixed expenses
|
|
|
44,291
|
|
|
|
3,549
|
|
|
|
4,978
|
|
|
|
52,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
105,785
|
|
|
|
70,934
|
|
|
|
74,577
|
|
|
|
251,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
64,423
|
|
|
$
|
43,199
|
|
|
$
|
45,417
|
|
|
$
|
153,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
520,965
|
|
|
$
|
3,539,470
|
|
|
$
|
5,855,315
|
|
|
$
|
9,915,750
|
|
Allocated capital
|
|
$
|
223,023
|
|
|
$
|
175,352
|
|
|
$
|
227,081
|
|
|
$
|
625,456
|
|
Loan production
|
|
|
2,232,454
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,232,454
|
|
Loans sold
|
|
|
2,055,905
|
|
|
|
—
|
|
|
|
170,296
|
|
|
|
2,226,201
|
|
MBR margin
|
|
|
1.53
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.57
|
%
|
ROE
|
|
|
29
|
%
|
|
|
25
|
%
|
|
|
20
|
%
|
|
|
24
|
%
|
Net interest margin
|
|
|
2.45
|
%
|
|
|
2.04
|
%
|
|
|
1.42
|
%
|
|
|
1.69
|
%
|
Efficiency ratio
|
|
|
32
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
18
|
%
|
92
The following provides details on the profitability for the
specialty commercial loans held for sale
and/or
investment for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Commercial Loans
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Warehouse
|
|
|
Real Estate
|
|
|
|
|
|
|
Single Spec
|
|
|
Lending
|
|
|
Lending
|
|
|
Total
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
10,581
|
|
|
$
|
5,193
|
|
|
$
|
872
|
|
|
$
|
16,646
|
|
Provision for loan losses
|
|
|
(4,400
|
)
|
|
|
(299
|
)
|
|
|
—
|
|
|
|
(4,699
|
)
|
Gain (loss) on sale of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,138
|
)
|
|
|
(5,138
|
)
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
3
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other income
|
|
|
2,767
|
|
|
|
2,014
|
|
|
|
237
|
|
|
|
5,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
8,948
|
|
|
|
6,908
|
|
|
|
(4,026
|
)
|
|
|
11,830
|
|
Variable expenses
|
|
|
2,328
|
|
|
|
—
|
|
|
|
1,489
|
|
|
|
3,817
|
|
Deferral of expenses under SFAS 91
|
|
|
(297
|
)
|
|
|
—
|
|
|
|
(830
|
)
|
|
|
(1,127
|
)
|
Fixed expenses
|
|
|
2,065
|
|
|
|
3,698
|
|
|
|
7,648
|
|
|
|
13,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
4,852
|
|
|
|
3,210
|
|
|
|
(12,333
|
)
|
|
|
(4,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
28
|
|
|
|
7
|
|
|
|
29
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
2,927
|
|
|
$
|
1,947
|
|
|
$
|
(7,540
|
)
|
|
$
|
(2,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
212,144
|
|
|
$
|
194,286
|
|
|
$
|
71,840
|
|
|
$
|
478,270
|
|
Allocated capital
|
|
$
|
17,625
|
|
|
$
|
15,440
|
|
|
$
|
5,778
|
|
|
$
|
38,843
|
|
Loan production
|
|
|
183,284
|
|
|
|
—
|
|
|
|
360,647
|
|
|
|
543,931
|
|
Loans sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
ROE
|
|
|
17
|
%
|
|
|
13
|
%
|
|
|
(130
|
)%
|
|
|
(7
|
)%
|
Net interest margin
|
|
|
4.99
|
%
|
|
|
2.67
|
%
|
|
|
1.21
|
%
|
|
|
3.48
|
%
|
Efficiency ratio
|
|
|
31
|
%
|
|
|
51
|
%
|
|
|
(206
|
)%
|
|
|
97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
13,306
|
|
|
$
|
3,489
|
|
|
$
|
—
|
|
|
$
|
16,795
|
|
Provision for loan losses
|
|
|
(416
|
)
|
|
|
(181
|
)
|
|
|
—
|
|
|
|
(597
|
)
|
Gain (loss) on sale of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other income
|
|
|
4,052
|
|
|
|
1,725
|
|
|
|
—
|
|
|
|
5,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
16,942
|
|
|
|
5,033
|
|
|
|
—
|
|
|
|
21,975
|
|
Variable expenses
|
|
|
2,694
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,694
|
|
Deferral of expenses under SFAS 91
|
|
|
(308
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(308
|
)
|
Fixed expenses
|
|
|
1,921
|
|
|
|
4,120
|
|
|
|
776
|
|
|
|
6,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
12,635
|
|
|
|
913
|
|
|
|
(776
|
)
|
|
|
12,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
7,694
|
|
|
$
|
557
|
|
|
$
|
(472
|
)
|
|
$
|
7,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
244,294
|
|
|
$
|
119,043
|
|
|
$
|
—
|
|
|
$
|
363,337
|
|
Allocated capital
|
|
$
|
19,312
|
|
|
$
|
10,382
|
|
|
$
|
—
|
|
|
$
|
29,694
|
|
Loan production
|
|
|
190,908
|
|
|
|
—
|
|
|
|
—
|
|
|
|
190,908
|
|
Loans sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
ROE
|
|
|
40
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
26
|
%
|
Net interest margin
|
|
|
5.45
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.62
|
%
|
Efficiency ratio
|
|
|
25
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
41
|
%
|
93
The following provides details on the overhead costs for the
years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing
|
|
|
Banking
|
|
|
Deposit
|
|
|
Corporate(1)
|
|
|
Total Overhead
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
20
|
|
|
$
|
833
|
|
|
$
|
25,349
|
|
|
$
|
(9,740
|
)
|
|
$
|
16,462
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
(189
|
)
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(192
|
)
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,263
|
|
|
|
2,263
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain on sale and leaseback of building
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,982
|
|
|
|
23,982
|
|
Other income
|
|
|
2,742
|
|
|
|
(1,857
|
)
|
|
|
4,431
|
|
|
|
(422
|
)
|
|
|
4,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
2,573
|
|
|
|
(1,027
|
)
|
|
|
29,780
|
|
|
|
16,083
|
|
|
|
47,409
|
|
Variable expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Severance charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,850
|
|
|
|
31,850
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fixed expenses
|
|
|
25,643
|
|
|
|
48,355
|
|
|
|
53,164
|
|
|
|
150,681
|
|
|
|
277,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(23,070
|
)
|
|
|
(49,382
|
)
|
|
|
(23,384
|
)
|
|
|
(166,448
|
)
|
|
|
(262,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
—
|
|
|
|
28
|
|
|
|
3
|
|
|
|
12,444
|
|
|
|
12,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(14,050
|
)
|
|
$
|
(30,101
|
)
|
|
$
|
(14,244
|
)
|
|
$
|
(113,130
|
)
|
|
$
|
(171,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
—
|
|
|
$
|
2,427
|
|
|
$
|
176
|
|
|
$
|
534,506
|
|
|
$
|
537,109
|
|
Allocated capital
|
|
$
|
(155
|
)
|
|
$
|
14,362
|
|
|
$
|
4,325
|
|
|
$
|
141,773
|
|
|
$
|
160,305
|
|
Loan production
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loans sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
ROE
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net interest margin
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Efficiency ratio
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(247
|
)
|
|
$
|
809
|
|
|
$
|
14,364
|
|
|
$
|
(7,934
|
)
|
|
$
|
6,992
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain (loss) on sale of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Service fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,951
|
|
|
|
1,951
|
|
Gain (loss) on securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other income
|
|
|
3,003
|
|
|
|
292
|
|
|
|
3,476
|
|
|
|
(2,854
|
)
|
|
|
3,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
2,756
|
|
|
|
1,101
|
|
|
|
17,840
|
|
|
|
(8,837
|
)
|
|
|
12,860
|
|
Variable expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferral of expenses under SFAS 91
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fixed expenses
|
|
|
19,376
|
|
|
|
40,621
|
|
|
|
41,128
|
|
|
|
168,049
|
|
|
|
269,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(16,620
|
)
|
|
|
(39,520
|
)
|
|
|
(23,288
|
)
|
|
|
(176,886
|
)
|
|
|
(256,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(10,122
|
)
|
|
$
|
(24,068
|
)
|
|
$
|
(14,182
|
)
|
|
$
|
(102,440
|
)
|
|
$
|
(150,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
2
|
|
|
$
|
2,470
|
|
|
$
|
181
|
|
|
$
|
559,588
|
|
|
$
|
562,241
|
|
Allocated capital
|
|
$
|
205
|
|
|
$
|
12,643
|
|
|
$
|
2,108
|
|
|
$
|
251,360
|
|
|
$
|
266,316
|
|
Loan production
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
—
|
|
Loans sold
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
—
|
|
ROE
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net interest margin
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Efficiency ratio
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
Corporate overhead under the product profitability analysis is
different from the corporate overhead under the business segment
results as certain elimination items are included here. |
94
The following provides details on the discontinued products for
the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Products
|
|
|
|
HELOCs/
|
|
|
|
|
|
|
|
|
|
|
|
|
Seconds
|
|
|
Subdivision
|
|
|
Other
|
|
|
Total
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
81,218
|
|
|
$
|
46,602
|
|
|
$
|
1,797
|
|
|
$
|
129,617
|
|
Provision for loan losses
|
|
|
(29,960
|
)
|
|
|
(178,144
|
)
|
|
|
(1,525
|
)
|
|
|
(209,629
|
)
|
Gain (loss) on sale of loans
|
|
|
(341,514
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(341,514
|
)
|
Service fee income
|
|
|
24,246
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,246
|
|
Gain (loss) on securities
|
|
|
(136,309
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(136,309
|
)
|
Other income
|
|
|
11,333
|
|
|
|
(577
|
)
|
|
|
—
|
|
|
|
10,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
(390,986
|
)
|
|
|
(132,119
|
)
|
|
|
272
|
|
|
|
(522,833
|
)
|
Variable expenses
|
|
|
25,624
|
|
|
|
8,834
|
|
|
|
—
|
|
|
|
34,458
|
|
Deferral of expenses under SFAS 91
|
|
|
(16,511
|
)
|
|
|
(5,950
|
)
|
|
|
—
|
|
|
|
(22,461
|
)
|
Fixed expenses
|
|
|
14,043
|
|
|
|
14,705
|
|
|
|
245
|
|
|
|
28,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss)
|
|
|
(414,142
|
)
|
|
|
(149,708
|
)
|
|
|
27
|
|
|
|
(563,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
380
|
|
|
|
78
|
|
|
|
4
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(252,593
|
)
|
|
$
|
(91,250
|
)
|
|
$
|
13
|
|
|
$
|
(343,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
2,164,734
|
|
|
$
|
1,222,646
|
|
|
$
|
31,811
|
|
|
$
|
3,419,191
|
|
Allocated capital
|
|
$
|
234,295
|
|
|
$
|
91,802
|
|
|
$
|
2,820
|
|
|
$
|
328,917
|
|
Loan production
|
|
|
3,493,521
|
|
|
|
976,018
|
|
|
|
—
|
|
|
|
4,469,539
|
|
Loans sold
|
|
|
2,209,143
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,209,143
|
|
MBR margin
|
|
|
(14.29
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(14.29
|
)%
|
ROE
|
|
|
(108
|
)%
|
|
|
(99
|
)%
|
|
|
N/A
|
|
|
|
(105
|
)%
|
Net interest margin
|
|
|
3.75
|
%
|
|
|
3.81
|
%
|
|
|
5.65
|
%
|
|
|
3.79
|
%
|
Efficiency ratio
|
|
|
(6
|
)%
|
|
|
38
|
%
|
|
|
14
|
%
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
90,832
|
|
|
$
|
60,422
|
|
|
$
|
2,202
|
|
|
$
|
153,456
|
|
Provision for loan losses
|
|
|
(1,800
|
)
|
|
|
(3,800
|
)
|
|
|
(1,665
|
)
|
|
|
(7,265
|
)
|
Gain (loss) on sale of loans
|
|
|
(1,106
|
)
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
(1,117
|
)
|
Service fee income
|
|
|
5,998
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,998
|
|
Gain (loss) on securities
|
|
|
(17,508
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,508
|
)
|
Other income
|
|
|
10,452
|
|
|
|
1,867
|
|
|
|
—
|
|
|
|
12,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (expense)
|
|
|
86,868
|
|
|
|
58,489
|
|
|
|
526
|
|
|
|
145,883
|
|
Variable expenses
|
|
|
52,746
|
|
|
|
8,682
|
|
|
|
—
|
|
|
|
61,428
|
|
Deferral of expenses under SFAS 91
|
|
|
(33,776
|
)
|
|
|
(6,993
|
)
|
|
|
—
|
|
|
|
(40,769
|
)
|
Fixed expenses
|
|
|
11,628
|
|
|
|
12,834
|
|
|
|
307
|
|
|
|
24,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings
|
|
|
56,270
|
|
|
|
43,966
|
|
|
|
219
|
|
|
|
100,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
34,268
|
|
|
$
|
26,775
|
|
|
$
|
134
|
|
|
$
|
61,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets
|
|
$
|
2,666,823
|
|
|
$
|
1,076,213
|
|
|
$
|
40,627
|
|
|
$
|
3,783,663
|
|
Allocated capital
|
|
$
|
233,930
|
|
|
$
|
104,123
|
|
|
$
|
3,584
|
|
|
$
|
341,637
|
|
Loan production
|
|
|
7,199,309
|
|
|
|
1,746,690
|
|
|
|
—
|
|
|
|
8,945,999
|
|
Loans sold
|
|
|
6,192,913
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,192,913
|
|
MBR margin
|
|
|
0.58
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.58
|
%
|
ROE
|
|
|
15
|
%
|
|
|
26
|
%
|
|
|
4
|
%
|
|
|
18
|
%
|
Net interest margin
|
|
|
3.41
|
%
|
|
|
5.61
|
%
|
|
|
5.42
|
%
|
|
|
4.06
|
%
|
Efficiency ratio
|
|
|
35
|
%
|
|
|
23
|
%
|
|
|
14
|
%
|
|
|
30
|
%
|
95
|
|
TABLE
2.
|
S&P
LIFETIME LOSS ESTIMATES
|
One method we use to evaluate the credit quality of our
production is the S&P Levels model. We believe this model
provides another objective, third-party method to evaluate our
production. The S&P Levels model is the oldest licensed
mortgage loss model in the industry, developed and tested over
various economic cycles, and one of only two models accepted by
the industry for evaluating securitizations. The loss estimates
are shown to describe the relative level of credit risk in our
loan production at the time of origination. Because we routinely
sell the vast majority of loans produced, these estimates do not
reflect the amount of credit risk retained by us. In addition,
recent revisions to the model by S&P have resulted in
significantly higher losses being estimated than prior versions
of the model.
The following summarizes the estimated lifetime losses for
mortgage production using the S&P Levels model for the
years indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Total S&P average lifetime loss estimates(1)
|
|
|
1.14
|
%
|
|
|
1.90
|
%
|
Total S&P evaluated production(2)
|
|
$
|
65,534
|
|
|
$
|
74,077
|
|
|
|
|
(1) |
|
All loss estimates reported here have been restated to use
S&P’s new 6.1 model which was released in November
2007. |
|
(2) |
|
While our production is evaluated using the S&P Levels
model, the data are not audited or endorsed by S&P.
S&P evaluated production excludes second liens, HELOC,
reverse mortgages, and construction loans. |
Total average lifetime loss rate for the year ended
December 31, 2007 decreased 76 basis points to 1.14%
from 1.90% for the year ended December 31, 2006. The
year-over-year decrease was due to us substantially eliminating
subprime loans, low documentation Alt-A loans and 80/20
piggyback loans from our product offerings. For the quarter
ended December 2007, the S&P lifetime loss estimates on new
production was 45 bps.
|
|
TABLE
3.
|
PRODUCTION
BY PRODUCT — FICO AND CLTV
|
The following shows the average FICO and CLTV by portfolio for
loans originated during the years indicated (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2007
|
|
2006
|
|
|
Production
|
|
|
FICO
|
|
|
CLTV
|
|
Production
|
|
|
FICO
|
|
|
CLTV
|
|
Total production
|
|
$
|
78,316
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
91,698
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs(1)/Seconds
|
|
|
3,496
|
|
|
|
711
|
|
|
|
85%
|
|
|
|
7,199
|
|
|
|
712
|
|
|
|
88%
|
|
Reverse mortgages
|
|
|
4,723
|
|
|
|
N/A
|
|
|
|
57%
|
|
|
|
5,024
|
|
|
|
N/A
|
|
|
|
54%
|
|
Consumer construction(1)
|
|
|
3,182
|
|
|
|
726
|
|
|
|
75%
|
|
|
|
3,651
|
|
|
|
721
|
|
|
|
76%
|
|
Government — FHA/VA
|
|
|
44
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Commercial real estate
|
|
|
361
|
|
|
|
730
|
|
|
|
68%
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
Builder construction commitments(1)
|
|
|
976
|
|
|
|
N/A
|
|
|
|
73%
|
|
|
|
1,747
|
|
|
|
N/A
|
|
|
|
74%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total S&P evaluated production
|
|
$
|
65,534
|
|
|
|
703
|
|
|
|
78%
|
|
|
$
|
74,077
|
|
|
|
701
|
|
|
|
80%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent total commitments. |
96
|
|
TABLE
4.
|
SFR
MORTGAGE PRODUCTION AND PIPELINE BY PURPOSE
|
The following presents SFR mortgage loan production and pipeline
by purpose as of and for the years indicated (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
Production and Pipeline by Purpose:
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loan production:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase transactions
|
|
$
|
26,197
|
|
|
$
|
35,189
|
|
|
|
(26
|
)%
|
Cash-out refinance transactions
|
|
|
34,740
|
|
|
|
41,764
|
|
|
|
(17
|
)%
|
Rate/term refinance transactions
|
|
|
16,042
|
|
|
|
12,998
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SFR mortgage loan production
|
|
$
|
76,979
|
|
|
$
|
89,951
|
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% purchase and cash-out refinance transactions
|
|
|
79
|
%
|
|
|
86
|
%
|
|
|
(8
|
)%
|
% of loan production GSE eligible
|
|
|
53
|
%
|
|
|
40
|
%
|
|
|
33
|
%
|
Mortgage industry market share
|
|
|
3.30
|
%
|
|
|
3.30
|
%
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loan pipeline at period end(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase transactions
|
|
$
|
2,563
|
|
|
$
|
3,914
|
|
|
|
(35
|
)%
|
Cash-out refinance transactions
|
|
|
2,891
|
|
|
|
4,193
|
|
|
|
(31
|
)%
|
Rate/term refinance transactions
|
|
|
2,052
|
|
|
|
1,792
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specific rate locks
|
|
|
7,506
|
|
|
|
9,899
|
|
|
|
(24
|
)%
|
Non-specific rate locks on bulk purchases
|
|
|
—
|
|
|
|
1,922
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SFR mortgage loan pipeline
|
|
$
|
7,506
|
|
|
$
|
11,821
|
|
|
|
(37
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total pipeline of loans in process includes rate lock
commitments we have provided on loans that are specifically
identified or non-specific bulk packages, and loan applications
we have received for which the borrower has not yet locked in
the interest rate commitment. Non-specific bulk packages
represent pools of loans we have committed to purchase, where
the pool characteristics are specified but the actual loans are
not. |
|
|
TABLE
5.
|
SFR
MORTGAGE LOAN PRODUCTION BY AMORTIZATION TYPE
|
The following presents SFR mortgage loan production by
amortization type for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
SFR Mortgage Production by Amortization Type:
|
|
|
|
|
|
|
|
|
Fixed-rate mortgages
|
|
|
28
|
%
|
|
|
21
|
%
|
Intermediate term fixed-rate loans
|
|
|
7
|
%
|
|
|
7
|
%
|
Interest-only loans
|
|
|
44
|
%
|
|
|
37
|
%
|
Pay option ARMs
|
|
|
9
|
%
|
|
|
23
|
%
|
Other ARMs
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
97
|
|
TABLE
6.
|
SFR
MORTGAGE LOAN PRODUCTION BY GEOGRAPHIC DISTRIBUTION
|
The following presents SFR mortgage loan production by
geographic distribution for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Geographic distribution:
|
|
|
|
|
|
|
|
|
California
|
|
|
43
|
%
|
|
|
45
|
%
|
Florida
|
|
|
8
|
%
|
|
|
8
|
%
|
New York
|
|
|
7
|
%
|
|
|
6
|
%
|
New Jersey
|
|
|
4
|
%
|
|
|
4
|
%
|
Arizona
|
|
|
3
|
%
|
|
|
3
|
%
|
Other
|
|
|
35
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The following shows a reconciliation of gross MBR margin to
net MBR margin for the years indicated (in basis points
unless otherwise noted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Loans sold (in millions)
|
|
$
|
71,164
|
|
|
$
|
79,049
|
|
|
$
|
52,297
|
|
Gross MBR
|
|
|
100
|
|
|
|
150
|
|
|
|
159
|
|
Pipeline hedging
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
11
|
|
MBR after hedging(a)
|
|
|
99
|
|
|
|
141
|
|
|
|
170
|
|
Net HFS credit losses
|
|
|
(66
|
)
|
|
|
(8
|
)
|
|
|
(3
|
)
|
Secondary market reserve accrual
|
|
|
(33
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Total production credit costs(b)
|
|
|
(98
|
)
|
|
|
(13
|
)
|
|
|
(8
|
)
|
Production credit costs/MBR after hedging(b/a)
|
|
|
99
|
%
|
|
|
9
|
%
|
|
|
5
|
%
|
Net MBR after production credit costs/MBR after hedging
|
|
|
—
|
|
|
|
128
|
|
|
|
162
|
|
FAS 91 deferred cost
|
|
|
(23
|
)
|
|
|
(22
|
)
|
|
|
(25
|
)
|
Net MBR reported
|
|
|
(22
|
)
|
|
|
106
|
|
|
|
137
|
|
98
|
|
TABLE
8.
|
SERVICING
FEE INCOME
|
The following presents the components of service fee income for
the Company for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
BPS
|
|
|
|
|
|
BPS
|
|
|
|
|
|
BPS
|
|
|
|
2007
|
|
|
UPB
|
|
|
2006
|
|
|
UPB
|
|
|
2005
|
|
|
UPB
|
|
|
Service fee income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross service fee income
|
|
$
|
705,637
|
|
|
|
43
|
|
|
$
|
500,904
|
|
|
|
45
|
|
|
$
|
282,420
|
|
|
|
44
|
|
Change in MSR value due to portfolio run-off
|
|
|
(408,107
|
)
|
|
|
(25
|
)
|
|
|
(374,955
|
)
|
|
|
(34
|
)
|
|
|
(227,085
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fee income, net of change in value due to portfolio
run-off
|
|
|
297,530
|
|
|
|
18
|
|
|
|
125,949
|
|
|
|
11
|
|
|
|
55,335
|
|
|
|
9
|
|
Change in MSR value due to application of external benchmarking
policies
|
|
|
3,920
|
|
|
|
—
|
|
|
|
(16,459
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
MSR valuation adjustment due to market changes
|
|
|
156,327
|
|
|
|
10
|
|
|
|
24,180
|
|
|
|
2
|
|
|
|
(13,460
|
)
|
|
|
(2
|
)
|
Gain (loss) on financial instruments used to hedge MSRs
|
|
|
61,476
|
|
|
|
4
|
|
|
|
(32,353
|
)
|
|
|
(3
|
)
|
|
|
2,360
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
519,253
|
|
|
|
32
|
|
|
$
|
101,317
|
|
|
|
9
|
|
|
$
|
44,235
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the growth in our servicing portfolio and slower
run-off of the portfolio, servicing income before hedging
activities increased during the year ended December 31,
2007, compared to the prior year. In addition, the financial
instruments used to hedge MSRs also experienced a gain of
$61.5 million this year, compared to a loss of
$32.4 million in 2006.
|
|
TABLE
9.
|
GAIN
(LOSS) ON MORTGAGE-BACKED SECURITIES
|
The following presents the components of the Company’s gain
(loss) on MBS for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net gain (loss) on MBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss on available for sale securities
|
|
$
|
(486
|
)
|
|
$
|
3,715
|
|
|
$
|
6,054
|
|
Impairments on available for sale securities
|
|
|
(40,036
|
)
|
|
|
(10,238
|
)
|
|
|
(607
|
)
|
Unrealized gain (loss) on prepayment penalty securities
|
|
|
(44,215
|
)
|
|
|
23,625
|
|
|
|
21,694
|
|
Unrealized gain (loss) on late fee securities
|
|
|
183
|
|
|
|
—
|
|
|
|
—
|
|
Unrealized gain (loss) on AAA-rated and agency interest-only
securities
|
|
|
(1,204
|
)
|
|
|
3,136
|
|
|
|
(13,864
|
)
|
Unrealized gain (loss) on non-investment grade residual
securities
|
|
|
(146,378
|
)
|
|
|
(1,444
|
)
|
|
|
(3,106
|
)
|
Net gain (loss) on trading securities and other instruments(1)
|
|
|
(207,577
|
)
|
|
|
1,688
|
|
|
|
7,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain (loss) on MBS, net
|
|
$
|
(439,713
|
)
|
|
$
|
20,482
|
|
|
$
|
17,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount for the year ended December 31, 2007 includes
$126.2 million of credit related losses on non-investment
grade securities. |
99
|
|
TABLE
10.
|
MORTGAGE-BACKED
SECURITIES BY CREDIT RATING
|
The following presents fair values of MBS by credit ratings as
of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Current
|
|
|
Net Premium
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Face
|
|
|
(Discount) to
|
|
|
Amortized
|
|
|
|
|
|
2006
|
|
|
|
Value
|
|
|
Face Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
AAA-rated mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated non-agency securities
|
|
$
|
6,127,260
|
|
|
$
|
23,108
|
|
|
$
|
6,150,368
|
|
|
$
|
6,053,677
|
|
|
$
|
4,648,446
|
|
AAA-rated agency securities
|
|
|
46,465
|
|
|
|
(240
|
)
|
|
|
46,225
|
|
|
|
45,296
|
|
|
|
65,175
|
|
AAA-rated and agency interest-only securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59,844
|
|
|
|
73,570
|
|
AAA-rated principal-only securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
88,024
|
|
|
|
38,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AAA-rated mortgage-backed securities
|
|
$
|
6,173,725
|
|
|
$
|
22,868
|
|
|
$
|
6,196,593
|
|
|
$
|
6,246,841
|
|
|
$
|
4,825,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment penalty and late fee securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,027
|
|
|
$
|
97,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investment grade mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AA+
|
|
$
|
23,230
|
|
|
$
|
(3,076
|
)
|
|
$
|
20,154
|
|
|
$
|
18,569
|
|
|
$
|
7,513
|
|
AA
|
|
|
508,435
|
|
|
|
(28,019
|
)
|
|
|
480,416
|
|
|
|
424,701
|
|
|
|
86,311
|
|
AA−
|
|
|
18,944
|
|
|
|
(1,061
|
)
|
|
|
17,883
|
|
|
|
14,864
|
|
|
|
14,138
|
|
A+
|
|
|
15,606
|
|
|
|
(3,702
|
)
|
|
|
11,904
|
|
|
|
11,904
|
|
|
|
—
|
|
A
|
|
|
199,054
|
|
|
|
(20,348
|
)
|
|
|
178,706
|
|
|
|
146,737
|
|
|
|
2,160
|
|
A−
|
|
|
16,490
|
|
|
|
(2,865
|
)
|
|
|
13,625
|
|
|
|
13,625
|
|
|
|
—
|
|
BBB+
|
|
|
5,423
|
|
|
|
(67
|
)
|
|
|
5,356
|
|
|
|
3,215
|
|
|
|
—
|
|
BBB
|
|
|
66,250
|
|
|
|
(24,753
|
)
|
|
|
41,497
|
|
|
|
41,828
|
|
|
|
20,734
|
|
BBB−
|
|
|
79,109
|
|
|
|
(26,518
|
)
|
|
|
52,591
|
|
|
|
52,046
|
|
|
|
58,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other investment grade mortgage-backed securities
|
|
$
|
932,541
|
|
|
$
|
(110,409
|
)
|
|
$
|
822,132
|
|
|
$
|
727,489
|
|
|
$
|
189,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-investment grade mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BB+
|
|
$
|
2,509
|
|
|
$
|
(2,494
|
)
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
7,299
|
|
BB
|
|
|
132,546
|
|
|
|
(53,589
|
)
|
|
|
78,957
|
|
|
|
79,859
|
|
|
|
49,856
|
|
BB−
|
|
|
67,312
|
|
|
|
(37,941
|
)
|
|
|
29,371
|
|
|
|
29,371
|
|
|
|
21,170
|
|
B
|
|
|
69,007
|
|
|
|
(46,165
|
)
|
|
|
22,842
|
|
|
|
23,250
|
|
|
|
1,442
|
|
B−
|
|
|
44,405
|
|
|
|
(35,895
|
)
|
|
|
8,510
|
|
|
|
8,510
|
|
|
|
—
|
|
CCC+
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
CCC
|
|
|
29,887
|
|
|
|
(25,489
|
)
|
|
|
4,398
|
|
|
|
4,416
|
|
|
|
—
|
|
CC
|
|
|
20,727
|
|
|
|
(20,191
|
)
|
|
|
536
|
|
|
|
536
|
|
|
|
—
|
|
C
|
|
|
24,353
|
|
|
|
(20,726
|
)
|
|
|
3,627
|
|
|
|
3,627
|
|
|
|
—
|
|
D
|
|
|
1,226
|
|
|
|
(1,226
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
67,886
|
|
|
|
(61,807
|
)
|
|
|
6,079
|
|
|
|
6,164
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-investment grade mortgage-backed securities
|
|
$
|
459,858
|
|
|
$
|
(305,523
|
)
|
|
$
|
154,335
|
|
|
$
|
155,748
|
|
|
$
|
80,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-investment grade residual securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
116,414
|
|
|
$
|
250,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,328,519
|
|
|
$
|
5,443,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, other investment grade and
non-investment grade MBS totaled $883.2 million, of which
94% were collateralized by prime loans and 6% were
collateralized by subprime loans.
100
|
|
TABLE
11.
|
OTHER
RETAINED ASSETS
|
The carrying value of AAA-rated and agency interest-only,
principal-only, prepayment penalty, late fee, non-investment
grade, and residual securities is evaluated by discounting
estimated net future cash flows. For 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. The models used for
estimation are periodically tested against historical prepayment
speeds and our valuations are benchmarked to external sources,
where available. We also may retain certain other investment
grade securities from our securitizations and to a lesser extent
purchase from third parties to serve as hedges for our AAA-rated
and agency interest-only securities.
101
The following presents a summary of the activity of the retained
assets for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
AAA-rated and agency interest-only and other investment grade
securities:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
262,823
|
|
|
$
|
170,851
|
|
Retained investments from securitizations
|
|
|
525,658
|
|
|
|
73,277
|
|
Purchases
|
|
|
277,060
|
|
|
|
72,366
|
|
Transfer from MSRs
|
|
|
56,040
|
|
|
|
—
|
|
Transfer to non-investment grade securities
|
|
|
(61,360
|
)
|
|
|
—
|
|
Impairment
|
|
|
(24,380
|
)
|
|
|
(183
|
)
|
Sales
|
|
|
(71,225
|
)
|
|
|
(32,735
|
)
|
Clean-up
calls exercised
|
|
|
—
|
|
|
|
(107
|
)
|
Cash received, net of accretion
|
|
|
(35,949
|
)
|
|
|
(23,607
|
)
|
Valuation gains before hedges
|
|
|
(141,334
|
)
|
|
|
2,961
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
787,333
|
|
|
$
|
262,823
|
|
|
|
|
|
|
|
|
|
|
Principal-only securities:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
38,478
|
|
|
$
|
9,483
|
|
Retained investments from securitizations
|
|
|
8,157
|
|
|
|
13,862
|
|
Purchases
|
|
|
44,472
|
|
|
|
121,281
|
|
Sales
|
|
|
—
|
|
|
|
(100,761
|
)
|
Cash received, net of accretion
|
|
|
(1,231
|
)
|
|
|
(4,576
|
)
|
Valuation gains (losses) before hedges
|
|
|
(1,852
|
)
|
|
|
(811
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
88,024
|
|
|
$
|
38,478
|
|
|
|
|
|
|
|
|
|
|
Prepayment penalty and late fee securities:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
97,576
|
|
|
$
|
75,741
|
|
Retained investments from securitizations
|
|
|
47,555
|
|
|
|
43,094
|
|
Transfer from MSRs/residual securities
|
|
|
3,359
|
|
|
|
4,523
|
|
Sales
|
|
|
—
|
|
|
|
(2,078
|
)
|
Cash received, net of accretion
|
|
|
(22,431
|
)
|
|
|
(47,329
|
)
|
Valuation gains (losses) before hedges
|
|
|
(44,032
|
)
|
|
|
23,625
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
82,027
|
|
|
$
|
97,576
|
|
|
|
|
|
|
|
|
|
|
Non-investment grade securities:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
80,173
|
|
|
$
|
57,712
|
|
Retained investments from securitizations
|
|
|
128,896
|
|
|
|
34,205
|
|
Purchases
|
|
|
12,646
|
|
|
|
3,697
|
|
Transfer from investment grade securities
|
|
|
61,360
|
|
|
|
—
|
|
Impairments
|
|
|
(5,877
|
)
|
|
|
(846
|
)
|
Sales
|
|
|
—
|
|
|
|
(13,542
|
)
|
Cash received, net of accretion
|
|
|
767
|
|
|
|
369
|
|
Valuation gains (losses) before hedges
|
|
|
(122,217
|
)
|
|
|
(1,421
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
155,748
|
|
|
$
|
80,174
|
|
|
|
|
|
|
|
|
|
|
Residual securities(1):
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
250,573
|
|
|
$
|
167,771
|
|
Retained investments from securitizations, net(2)
|
|
|
40,178
|
|
|
|
224,014
|
|
Transfer to prepayment penalty securities
|
|
|
(3,076
|
)
|
|
|
200
|
|
Transfer due to
clean-up
calls and other
|
|
|
(5,615
|
)
|
|
|
—
|
|
Impairments
|
|
|
(9,778
|
)
|
|
|
(9,209
|
)
|
Sales
|
|
|
—
|
|
|
|
(107,360
|
)
|
Clean-up
calls exercised
|
|
|
(2,106
|
)
|
|
|
—
|
|
Cash received, net of accretion
|
|
|
(7,385
|
)
|
|
|
(22,362
|
)
|
Valuation gains (losses) before hedges
|
|
|
(146,377
|
)
|
|
|
(2,481
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
116,414
|
|
|
$
|
250,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in the residual securities balance at December 31,
2007 were $3.7 million of HELOC residuals retained from two
separate guaranteed mortgage securitization transactions. There
was no gain on sale of loans recognized in connection with these
transactions. |
|
(2) |
|
Amounts retained consist of 100% in HELOCs for the year ended
December 31, 2007. |
102
|
|
TABLE
12.
|
VALUATION
OF MSRs, INTEREST-ONLY, PREPAYMENT PENALTY, AND RESIDUAL
SECURITIES
|
MSRs, AAA-rated and agency interest-only securities, prepayment
penalty securities, and residual securities are recorded at fair
market value. The following presents relevant information and
assumptions used to value these securities as of dates indicated
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Valuation Assumptions
|
|
|
|
|
|
|
|
|
|
Gross Wtd.
|
|
|
Servicing
|
|
|
3-Month
|
|
|
Weighted
|
|
|
Lifetime
|
|
|
3-Month
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Collateral
|
|
|
Average
|
|
|
Fee/Interest
|
|
|
Prepayment
|
|
|
Average
|
|
|
Prepayment
|
|
|
Prepayment
|
|
|
Discount
|
|
|
Cumulative
|
|
|
|
Book Value
|
|
|
Balance
|
|
|
Coupon
|
|
|
Strip
|
|
|
Speeds
|
|
|
Multiple
|
|
|
Speeds
|
|
|
Speeds
|
|
|
Yield
|
|
|
Loss Rate(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs
|
|
$
|
2,495,407
|
|
|
$
|
181,723,633
|
|
|
|
6.89
|
%
|
|
|
0.34
|
%
|
|
|
9.7
|
%
|
|
|
4.01
|
|
|
|
19.6
|
%
|
|
|
15.1
|
%
|
|
|
9.7
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated interest-only securities
|
|
$
|
59,844
|
|
|
$
|
5,246,602
|
|
|
|
6.60
|
%
|
|
|
0.49
|
%
|
|
|
8.5
|
%
|
|
|
2.31
|
|
|
|
24.5
|
%
|
|
|
12.9
|
%
|
|
|
12.3
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment penalty securities
|
|
$
|
59,147
|
|
|
$
|
18,736,690
|
|
|
|
7.21
|
%
|
|
|
N/A
|
|
|
|
7.0
|
%
|
|
|
N/A
|
|
|
|
23.0
|
%
|
|
|
15.2
|
%
|
|
|
19.0
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot loan residual securities
|
|
|
53,849
|
|
|
$
|
1,783,644
|
|
|
|
9.70
|
%
|
|
|
4.21
|
%
|
|
|
27.3
|
%
|
|
|
1.31
|
|
|
|
32.5
|
%
|
|
|
29.2
|
%
|
|
|
21.8
|
%
|
|
|
3.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC residual securities
|
|
|
30,573
|
|
|
$
|
2,693,499
|
|
|
|
8.40
|
%
|
|
|
2.58
|
%
|
|
|
18.3
|
%
|
|
|
0.44
|
|
|
|
19.9
|
%
|
|
|
23.8
|
%
|
|
|
21.0
|
%
|
|
|
8.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end seconds residual securities
|
|
|
14,056
|
|
|
$
|
1,862,794
|
|
|
|
10.50
|
%
|
|
|
3.72
|
%
|
|
|
11.1
|
%
|
|
|
0.20
|
|
|
|
21.4
|
%
|
|
|
37.8
|
%
|
|
|
23.1
|
%
|
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime residual securities
|
|
|
17,936
|
|
|
$
|
3,670,520
|
|
|
|
8.60
|
%
|
|
|
3.03
|
%
|
|
|
23.5
|
%
|
|
|
0.16
|
|
|
|
24.7
|
%
|
|
|
25.6
|
%
|
|
|
24.4
|
%
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-investment grade residual securities
|
|
$
|
116,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs
|
|
$
|
1,822,455
|
|
|
$
|
139,816,763
|
|
|
|
7.05
|
%
|
|
|
0.37
|
%
|
|
|
20.2
|
%
|
|
|
3.57
|
|
|
|
25.8
|
%
|
|
|
19.8
|
%
|
|
|
8.8
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated interest-only securities
|
|
$
|
73,570
|
|
|
$
|
5,957,550
|
|
|
|
6.93
|
%
|
|
|
0.51
|
%
|
|
|
19.5
|
%
|
|
|
2.41
|
|
|
|
16.4
|
%
|
|
|
19.7
|
%
|
|
|
15.4
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment penalty securities
|
|
$
|
97,576
|
|
|
$
|
20,282,718
|
|
|
|
7.40
|
%
|
|
|
N/A
|
|
|
|
18.1
|
%
|
|
|
N/A
|
|
|
|
28.2
|
%
|
|
|
20.6
|
%
|
|
|
26.3
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot loan residual securities
|
|
|
57,640
|
|
|
$
|
2,246,833
|
|
|
|
9.24
|
%
|
|
|
3.54
|
%
|
|
|
35.6
|
%
|
|
|
0.73
|
|
|
|
39.8
|
%
|
|
|
37.9
|
%
|
|
|
23.5
|
%
|
|
|
0.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC residual securities
|
|
|
98,697
|
|
|
$
|
3,039,555
|
|
|
|
9.59
|
%
|
|
|
2.71
|
%
|
|
|
43.7
|
%
|
|
|
1.20
|
|
|
|
50.3
|
%
|
|
|
47.6
|
%
|
|
|
20.2
|
%
|
|
|
1.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end seconds residual securities
|
|
|
14,572
|
|
|
$
|
1,737,859
|
|
|
|
10.44
|
%
|
|
|
3.69
|
%
|
|
|
17.5
|
%
|
|
|
0.23
|
|
|
|
37.1
|
%
|
|
|
24.8
|
%
|
|
|
24.6
|
%
|
|
|
8.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime residual securities
|
|
|
79,664
|
|
|
$
|
4,848,859
|
|
|
|
7.74
|
%
|
|
|
1.68
|
%
|
|
|
33.0
|
%
|
|
|
0.98
|
|
|
|
39.5
|
%
|
|
|
38.1
|
%
|
|
|
20.4
|
%
|
|
|
5.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-investment grade residual securities
|
|
$
|
250,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a percentage of the original pool balance, the actual loss
rate to date totaled 2.21%, 3.75%, 1.02% and 0.02% for HELOC,
closed-end seconds, subprime, and lot loans, respectively, at
December 31, 2007. |
The lifetime prepayment speeds represent the annual constant
prepayment rate estimated for the remaining life of the
collateral supporting the asset. The prepayment rates are
projected using a prepayment model developed by a third-party
vendor and calibrated for our collateral. The model considers
key factors, such as refinance incentive, housing turnover,
seasonality and aging of the pool of loans. Prepayment speeds
incorporate expectations of future rates implied by the market
forward LIBOR/swap curve, as well as collateral specific current
coupon information.
The weighted-average multiple for MSRs, AAA-rated and agency
interest-only securities and residual securities represent the
recorded value divided by the product of collateral balance and
servicing fee/interest strip. While the weighted-average life of
such assets is a function of the undiscounted cash flows, the
multiple is a function of the discounted cash flows. With regard
to AAA-rated and agency interest-only securities, the
marketplace frequently uses calculated multiples to assess the
overall impact valuation assumptions have on value. Collateral
type, coupon, loan age and the size of the interest strip must
be considered when comparing these multiples. The mix of
collateral types supporting servicing-related assets is
primarily non-conforming/conventional, which may make our MSR
multiples incomparable to peer multiples whose product mix is
substantially different.
Beginning in the fourth quarter of 2006, the calculation of
remaining cumulative loss rate changed to using the remaining
lifetime loss projection divided by current collateral balance.
All prior periods have been adjusted to reflect such change.
103
|
|
TABLE
13.
|
DEPOSITS
BY CHANNEL
|
The following shows our deposits by channel as of the dates
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
Amount
|
|
|
Deposits
|
|
|
Amount
|
|
|
Deposits
|
|
|
Deposit Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch
|
|
$
|
6,992,091
|
|
|
|
40
|
%
|
|
$
|
5,211,365
|
|
|
|
48
|
%
|
Internet
|
|
|
1,588,558
|
|
|
|
9
|
%
|
|
|
1,185,423
|
|
|
|
11
|
%
|
Telebanking
|
|
|
2,017,128
|
|
|
|
11
|
%
|
|
|
1,290,595
|
|
|
|
12
|
%
|
Money desk
|
|
|
6,492,273
|
|
|
|
36
|
%
|
|
|
2,593,719
|
|
|
|
24
|
%
|
Custodial
|
|
|
725,193
|
|
|
|
4
|
%
|
|
|
616,904
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
17,815,243
|
|
|
|
100
|
%
|
|
$
|
10,898,006
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our deposit products include regular savings accounts, demand
deposit accounts, money market accounts, certificates of
deposit, and individual retirement accounts. Refer to
“Note 9 — Deposits” in the accompanying
notes to consolidated financial statements for details of
deposit category.
|
|
TABLE
14.
|
AVERAGE
BALANCE AND RATE OF DEPOSITS BY CATEGORY
|
The following sets forth the average balance of, and the average
interest rate paid on deposits, by deposit category for the
years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Interest-bearing checking
|
|
$
|
54,842
|
|
|
|
1.43
|
%
|
|
$
|
52,875
|
|
|
|
1.26
|
%
|
|
$
|
51,487
|
|
|
|
1.17
|
%
|
Savings
|
|
|
2,322,158
|
|
|
|
4.89
|
%
|
|
|
1,539,701
|
|
|
|
4.64
|
%
|
|
|
1,302,158
|
|
|
|
2.88
|
%
|
Certificates of deposit
|
|
|
10,413,494
|
|
|
|
5.28
|
%
|
|
|
7,071,201
|
|
|
|
4.77
|
%
|
|
|
4,584,502
|
|
|
|
3.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
12,790,494
|
|
|
|
5.19
|
%
|
|
|
8,663,777
|
|
|
|
4.71
|
%
|
|
|
5,938,147
|
|
|
|
3.29
|
%
|
Non-interest-bearing checking
|
|
|
75,753
|
|
|
|
0.00
|
%
|
|
|
67,681
|
|
|
|
0.00
|
%
|
|
|
60,778
|
|
|
|
0.00
|
%
|
Custodial accounts
|
|
|
804,695
|
|
|
|
0.00
|
%
|
|
|
643,124
|
|
|
|
0.00
|
%
|
|
|
657,596
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
13,670,942
|
|
|
|
4.86
|
%
|
|
$
|
9,374,582
|
|
|
|
4.35
|
%
|
|
$
|
6,656,521
|
|
|
|
2.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued but unpaid interest on deposits included in other
liabilities totaled $1.6 million, $3.8 million and
$10.7 million at December 31, 2007, 2006 and 2005,
respectively.
104
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market risk is the exposure to loss resulting from secondary
market disruption, changes in interest rates, foreign currency
exchange rates, commodity prices and equity prices. The primary
market risk to which we are exposed is interest rate risk,
including fluctuations in short and long term interest rates. An
additional risk is the early prepayment of loans held for
investment, MBS and mortgage loans underlying our MSRs,
AAA-rated and agency interest-only securities and residuals. Our
mortgage servicing division is responsible for the management of
interest rate and prepayment risks subject to policies and
procedures established by, and oversight from, our
management-level Interest Rate Risk Committee, Variable
Cash Flow Instruments Committee, management level ERM group
and Board of Directors-level ERM Committee. See
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Risk
Factors That May Affect Future Results” above for further
discussion of risks.
We utilize a variety of means in order to manage interest rate
risk. We invest in MSRs and AAA-rated and agency interest-only
securities to generate core interest and fee income. The value
of these instruments and the income they provide tends to be
counter-cyclical to the changes in production volumes and gain
on sale of loans that result from changes in interest rates.
With regard to the pipeline of mortgage loans held for sale, in
general, we hedge this asset with forward commitments to sell
Fannie Mae or Freddie Mac securities of comparable maturities
and weighted average interest rates. To hedge our investments in
MSRs, AAA-rated and agency interest-only and residual
securities, we use several strategies, including buying
and/or
selling mortgage-backed or U.S. Treasury securities,
forward rate agreements, futures, floors, swaps, or options,
depending on several factors. Lastly, we enter into swap
agreements and utilize FHLB advances to mitigate interest rate
risk on mortgage loans and securities held for investment. In
connection with all of the above strategies, we use hedging
instruments to reduce our exposure to interest rate risk, not to
speculate on the direction of market interest rates.
The primary measurement tools used to evaluate risk include
value at risk, duration gap, and NPV analysis. These tools
attempt to measure the sensitivity of our assets and liabilities
to various changes in interest rates. See “Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Consolidated Risk
Management Discussion — CAMELS Framework for Risk
Management — Sensitivity to Market Risk” for a
further discussion of our measurement tools used to analyze
interest rate risk.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The information called for by this Item 8 is set forth
beginning at
page F-1
of this
Form 10-K.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
The management of Indymac is responsible for establishing and
maintaining effective disclosure controls and procedures, as
defined under
Rules 13a-15
and 15d-15
of the Securities Exchange Act of 1934. As of December 31,
2007, an evaluation was performed under the supervision and with
the participation of the Company’s management, including
the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of Indymac’s
disclosure controls and procedures. Based on that evaluation,
management concluded that Indymac’s disclosure controls and
procedures as of December 31, 2007 were effective in
ensuring that information required to be disclosed in this
Annual Report on
Form 10-K
(“Annual Report”) was recorded, processed, summarized,
and reported within the time period required by the SEC’s
rules and forms.
Management’s responsibilities related to establishing and
maintaining effective disclosure controls and procedures include
maintaining effective internal controls over financial reporting
that are designed to produce reliable financial statements in
accordance with accounting principles generally accepted in the
United States. As disclosed in the Report of Management on
Internal Control over Financial Reporting (“Report of
Management”) included in this Annual Report, management
assessed the Company’s internal control over financial
reporting as of
105
December 31, 2007, in relation to criteria for effective
internal control over financial reporting as described in
“Internal Control — Integrated
Framework”, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
assessment, management concluded the Company’s internal
control over financial reporting is effective as of
December 31, 2007. The independent registered public
accounting firm that audited the financial statements included
in this Annual Report has issued an attestation report of the
Company’s effectiveness of internal control over financial
reporting as of December 31, 2007. The Report of Management
and the attestation report are included in this Annual Report
under Exhibit 99.1 “Reports on Internal Control Over
Financial Reporting”.
There have been no significant changes in the Company’s
internal controls or in other factors that could significantly
affect the Company’s disclosure of controls and procedures
subsequent to December 31, 2007.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The information required by this Item 10 is hereby
incorporated by reference to IndyMac Bancorp’s definitive
proxy statement, to be filed pursuant to Regulation 14A
within 120 days after the end of our 2007 fiscal year.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item 11 is hereby
incorporated by reference to IndyMac Bancorp’s definitive
proxy statement, to be filed pursuant to Regulation 14A
within 120 days after the end of our 2007 fiscal year.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item 12 is hereby
incorporated by reference to IndyMac Bancorp’s definitive
proxy statement, to be filed pursuant to Regulation 14A
within 120 days after the end of our 2007 fiscal year.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
The information required by this Item 13 is hereby
incorporated by reference to IndyMac Bancorp’s definitive
proxy statement, to be filed pursuant to Regulation 14A
within 120 days after the end of our 2007 fiscal year.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this Item 14 is hereby
incorporated by reference to IndyMac Bancorp’s definitive
proxy statement, to be filed pursuant to Regulation 14A
within 120 days after the end of our 2007 fiscal year.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) (1) and (2) — Financial Statements and
Schedules
The information required by this section of Item 15 is set
forth in the Index to Consolidated Financial Statements at
page F-2
of this
Form 10-K.
(3) — Exhibits
106
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
3
|
.1*
|
|
Restated Certificate of Incorporation of IndyMac Bancorp, Inc.
(incorporated by reference to Exhibit 3.1 to IndyMac
Bancorp’s
Form 10-Q
for the quarter ended September 30, 2000).
|
|
3
|
.2*
|
|
Amended and Restated Bylaws of IndyMac Bancorp, Inc.
(incorporated by reference to Exhibit 3.1 to IndyMac
Bancorp’s
Form 8-K
filed with the SEC on September 21, 2007).
|
|
4
|
.1*
|
|
Indenture dated as of November 14, 2001 between IndyMac
Bancorp and The Bank of New York (“BoNY”), as Trustee
(incorporated by reference to Exhibit 4.8 to IndyMac
Bancorp’s
Form 10-K
for the year ended December 31, 2001).
|
|
4
|
.2*
|
|
First Supplemental Indenture dated as of November 14, 2001
between IndyMac Bancorp and BoNY, as Trustee (incorporated by
reference to Exhibit 4.9 to IndyMac Bancorp’s
Form 10-K
for the year ended December 31, 2001).
|
|
4
|
.3*
|
|
Rights Agreement dated as of October 17, 2001 between
IndyMac Bancorp and BoNY, as Rights Agent (incorporated by
reference to Exhibit 4.1 to IndyMac Bancorp’s
Form 8-K
filed with the SEC on October 18, 2001).
|
|
10
|
.1*
|
|
Amended and Restated Trust Agreement dated as of
November 14, 2001 between IndyMac Bancorp, as Sponsor,
Roger H. Molvar and Richard L. Sommers, as Administrative
Trustees, Wilmington Trust Company, as Property Trustee and
as Delaware Trustee, BoNY, as Paying Agent, Registrar, Transfer
Agent and Authenticating Agent and several Holders of the
Securities (incorporated by reference to Exhibit 10.11 to
IndyMac Bancorp’s
Form 10-K
for the year ended December 31, 2001).
|
|
10
|
.2*
|
|
Unit Agreement dated as of November 14, 2001 between
IndyMac Bancorp, IndyMac Capital Trust I, Wilmington
Trust Company, as Property Trustee, and BoNY, as Agent
(incorporated by reference to Exhibit 10.12 to IndyMac
Bancorp’s
Form 10-K
for the year ended December 31, 2001).
|
|
10
|
.3*
|
|
Warrant Agreement dated as of November 14, 2001 between
IndyMac Bancorp and BoNY, as Warrant Agent (incorporated by
reference to Exhibit 10.13 to IndyMac Bancorp’s
Form 10-K
for the year ended December 31, 2001).
|
|
10
|
.4*
|
|
Guarantee Agreement dated as of November 14, 2001 between
IndyMac Bancorp, as Guarantor, and BoNY, as Guarantee Trustee
(incorporated by reference to Exhibit 10.14 to IndyMac
Bancorp’s
Form 10-K
for the year ended December 31, 2001).
|
|
10
|
.5*
|
|
IndyMac Bancorp, Inc. Cash Incentive Award Program Under the
2002 Incentive Plan, As Amended and Restated (incorporated by
reference to Exhibit 10.2 to IndyMac Bancorp’s
Form 10-Q
for the quarter ended September 30, 2004).
|
|
10
|
.6*
|
|
Form of Director Indemnification Agreement (incorporated by
reference to Exhibit 10.1 to IndyMac Bancorp’s
Form 10-Q
for the quarter ended March 31, 2006).
|
|
10
|
.7*
|
|
Employment Agreement entered into May 23, 2006 between
IndyMac Bank, F.S.B. and Charles A. Williams (incorporated by
reference to Exhibit 10.6 to IndyMac Bancorp’s
Form 8-K
filed with the SEC on May 30, 2006).
|
|
10
|
.8*
|
|
IndyMac Bancorp, Inc. Amended Director Emeritus Plan effective
as of May 24, 2006 (incorporated by reference to
Exhibit 10.2 to IndyMac Bancorp’s
Form 10-Q
for the quarter ended June 30, 2006).
|
|
10
|
.9*
|
|
Amended and Restated Employment Agreement entered into
July 1, 2006 between IndyMac Bank, F.S.B. and James R.
Mahoney (incorporated by reference to Exhibit 10.1 to
IndyMac Bancorp’s
Form 8-K
filed with the SEC on July 5, 2006).
|
|
10
|
.10*
|
|
Letter Agreement entered into July 1, 2006 between IndyMac
Bank, F.S.B. and James R. Mahoney (incorporated by reference to
Exhibit 10.2 to IndyMac Bancorp’s
Form 8-K
filed with the SEC on July 5, 2006).
|
|
10
|
.11*
|
|
Form of Director’s Agreement, effective August 1, 2006
(incorporated by reference to Exhibit 10.1 to IndyMac
Bancorp’s
Form 8-K
filed with the SEC on August 2, 2006).
|
|
10
|
.12*
|
|
Summary of Terms of Stock Option Awards Granted to Executive
Officers (incorporated by reference to Exhibit 10.25 to
Indymac Bancorp’s
Form 10-K
for the year ended December 31, 2006).
|
|
10
|
.13*
|
|
2000 Stock Incentive Plan, as Amended (incorporated by reference
to Exhibit 4.1 to IndyMac Bancorp’s
Form 10-Q
for the quarter ended September 30, 2007).
|
107
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.14*
|
|
2002 Incentive Plan, as Amended and Restated (incorporated by
reference to Exhibit 4.2 to IndyMac Bancorp’s
Form 10-Q
for the quarter ended September 30, 2007).
|
|
10
|
.15*
|
|
IndyMac Bancorp, Inc. Senior Manager and Non-Employee Director
Deferred Compensation Plan Amended and Restated on
September 17, 2007 (incorporated by reference to
Exhibit 10.3 to IndyMac Bancorp’s
Form 10-Q
for the quarter ended September 30, 2007).
|
|
10
|
.16*
|
|
IndyMac Bank, F.S.B. Deferred Compensation Plan, Amended and
Restated Effective as of January 1, 2008 (incorporated by
reference to Exhibit 10.2 to IndyMac Bancorp’s
Form 10-Q
for the quarter ended September 30, 2007).
|
|
10
|
.17
|
|
Amended Director Compensation and Stock Ownership Policy
Requirements, revised January 29, 2008.
|
|
10
|
.18
|
|
Employment Agreement entered into May 23, 2006 between
IndyMac Bank, F.S.B. and S. Blair Abernathy, as amended
effective January 29, 2008.
|
|
10
|
.19
|
|
Employment Agreement entered into May 23, 2006 between
IndyMac Bank, F.S.B. and Ashwin Adarkar, as amended effective
January 29, 2008.
|
|
10
|
.20
|
|
Employment Agreement entered into May 23, 2006 between
IndyMac Bank, F.S.B. and Scott Keys, as amended effective
January 29, 2008.
|
|
10
|
.21
|
|
Employment Agreement entered into May 23, 2006 between
IndyMac Bank, F.S.B. and Frank M. Sillman, as amended effective
January 29, 2008.
|
|
10
|
.22
|
|
Amended and Restated Employment Agreement entered into
September 17, 2007 between IndyMac Bancorp and Michael W.
Perry, as further amended on February 15, 2008.
|
|
10
|
.23
|
|
Amended and Restated Employment Agreement entered into
September 17, 2007 between IndyMac Bank, F.S.B. and Richard
Wohl, as further amended on February 15, 2008.
|
|
21
|
.1
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Chief Executive Officer’s Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Chief Financial Officer’s Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Chief Executive Officer’s Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Chief Financial Officer’s Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
99
|
.1
|
|
Reports on Internal Control Over Financial Reporting.
|
|
|
|
* |
|
Incorporated by reference. |
108
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 February 29, 2008.
INDYMAC BANCORP, INC.
(Registrant)
Michael W. Perry
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/ Michael
W. Perry
Michael
W. Perry
|
|
Chairman of the Board of Directors
Chief Executive Officer
(Principal Executive Officer)
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Scott
Keys
Scott
Keys
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Louis
E. Caldera
Louis
E. Caldera
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Lyle
E. Gramley
Lyle
E. Gramley
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Hugh
M. Grant
Hugh
M. Grant
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Patrick
C. Haden
Patrick
C. Haden
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Terrance
G. Hodel
Terrance
G. Hodel
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Robert
L. Hunt II
Robert
L. Hunt II
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Lydia
H. Kennard
Lydia
H. Kennard
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Senator
John Seymour (ret.)
Senator
John Seymour (ret.)
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
|
|
|
|
/s/ Bruce
G. Willison
Bruce
G. Willison
|
|
Director
|
|
February 29, 2008
|
|
|
109
CONSOLIDATED
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
INDYMAC BANCORP, INC.
AND SUBSIDIARIES
December 31, 2007, 2006 and 2005
F-1
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2007, 2006 and 2005
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-3
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
F-2
Report of
Independent Registered Public Accounting Firm
Board of Directors and Shareholders
IndyMac Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of
IndyMac Bancorp, Inc. and subsidiaries (the Company) as of
December 31, 2007 and 2006, and the related consolidated
statements of operations, shareholders’ equity and
comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2007. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2007 and
2006, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
As discussed in Notes 1 and 7 to the consolidated financial
statements, on January 1, 2006, the Company changed its
method of accounting for share-based payments in accordance with
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment, under the
modified-retrospective transition method, and its method of
accounting for mortgage servicing rights in accordance with
Statement of Financial Accounting Standards No. 156,
Accounting for Servicing of Financial Assets, an amendment of
FASB Statement No. 140.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2008 expressed an unqualified
opinion thereon.
/s/ Ernst &
Young LLP
Los Angeles, California
February 28, 2008
F-3
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
561,832
|
|
|
$
|
541,725
|
|
Securities classified as trading
|
|
|
1,222,543
|
|
|
|
542,731
|
|
Securities classified as available for sale
|
|
|
6,105,976
|
|
|
|
4,900,514
|
|
Loans held for sale
|
|
|
3,776,904
|
|
|
|
9,467,843
|
|
Loans held for investment, net of allowance for loan losses of
$398,135 and $62,386 at December 31, 2007 and 2006,
respectively
|
|
|
16,055,911
|
|
|
|
10,114,823
|
|
Mortgage servicing rights
|
|
|
2,495,407
|
|
|
|
1,822,455
|
|
Other assets
|
|
|
2,515,895
|
|
|
|
2,105,225
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
32,734,468
|
|
|
$
|
29,495,316
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
17,815,243
|
|
|
$
|
10,898,006
|
|
Advances from Federal Home Loan Bank
|
|
|
11,188,800
|
|
|
|
10,412,800
|
|
Other borrowings
|
|
|
652,778
|
|
|
|
4,637,000
|
|
Other liabilities
|
|
|
1,242,509
|
|
|
|
1,519,242
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
30,899,330
|
|
|
|
27,467,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual preferred stock in subsidiary
|
|
|
491,314
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 108,860,912 shares and
102,258,939 shares at December 31, 2007 and 2006,
respectively
|
|
|
1,089
|
|
|
|
1,023
|
|
Additional
paid-in-capital,
common stock
|
|
|
1,750,419
|
|
|
|
1,597,814
|
|
Accumulated other comprehensive loss
|
|
|
(139,221
|
)
|
|
|
(31,439
|
)
|
Retained earnings
|
|
|
238,972
|
|
|
|
983,348
|
|
Treasury stock
|
|
|
(507,435
|
)
|
|
|
(522,478
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
1,343,824
|
|
|
|
2,028,268
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
32,734,468
|
|
|
$
|
29,495,316
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and other securities
|
|
$
|
406,376
|
|
|
$
|
319,846
|
|
|
$
|
208,560
|
|
Loans held for sale
|
|
|
994,886
|
|
|
|
797,460
|
|
|
|
430,857
|
|
Loans held for investment
|
|
|
712,783
|
|
|
|
585,738
|
|
|
|
405,855
|
|
Other
|
|
|
73,662
|
|
|
|
47,972
|
|
|
|
29,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,187,707
|
|
|
|
1,751,016
|
|
|
|
1,074,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
663,217
|
|
|
|
408,208
|
|
|
|
195,528
|
|
Advances from Federal Home Loan Bank
|
|
|
701,226
|
|
|
|
491,300
|
|
|
|
281,929
|
|
Other borrowings
|
|
|
256,522
|
|
|
|
324,787
|
|
|
|
172,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,620,965
|
|
|
|
1,224,295
|
|
|
|
649,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
566,742
|
|
|
|
526,721
|
|
|
|
424,711
|
|
Provision for loan losses
|
|
|
395,548
|
|
|
|
19,993
|
|
|
|
9,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
171,194
|
|
|
|
506,728
|
|
|
|
414,733
|
|
Non-interest income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of loans
|
|
|
(354,360
|
)
|
|
|
668,054
|
|
|
|
592,175
|
|
Service fee income
|
|
|
519,253
|
|
|
|
101,317
|
|
|
|
44,235
|
|
Gain (loss) on mortgage-backed securities
|
|
|
(439,713
|
)
|
|
|
20,482
|
|
|
|
17,866
|
|
Fee and other income
|
|
|
107,190
|
|
|
|
50,122
|
|
|
|
36,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(167,630
|
)
|
|
|
839,975
|
|
|
|
690,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
3,564
|
|
|
|
1,346,703
|
|
|
|
1,105,710
|
|
Non-interest expense
|
|
|
975,411
|
|
|
|
790,083
|
|
|
|
619,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before provision (benefit) for income taxes and
minority interests
|
|
|
(971,847
|
)
|
|
|
556,620
|
|
|
|
486,622
|
|
Provision (benefit) for income taxes
|
|
|
(380,060
|
)
|
|
|
212,567
|
|
|
|
191,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) before minority interests
|
|
|
(591,787
|
)
|
|
|
344,053
|
|
|
|
294,633
|
|
Minority interests
|
|
|
(23,021
|
)
|
|
|
(1,124
|
)
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(614,808
|
)
|
|
$
|
342,929
|
|
|
$
|
293,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(8.28
|
)
|
|
$
|
5.07
|
|
|
$
|
4.67
|
|
Diluted(1)
|
|
$
|
(8.28
|
)
|
|
$
|
4.82
|
|
|
$
|
4.43
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,261
|
|
|
|
67,701
|
|
|
|
62,760
|
|
Diluted(1)
|
|
|
74,261
|
|
|
|
71,118
|
|
|
|
66,115
|
|
Dividends declared per share
|
|
$
|
1.75
|
|
|
$
|
1.88
|
|
|
$
|
1.56
|
|
|
|
|
(1) |
|
Due to the net loss for the year ended December 31, 2007,
no potentially dilutive shares are included in the diluted loss
per share calculation as including such shares in the
calculation would be anti-dilutive. |
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
Common
|
|
|
Paid-In-
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Shareholders’
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Loss
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance at December 31, 2004, retrospectively
adjusted
|
|
|
61,995,480
|
|
|
$
|
912
|
|
|
$
|
1,254,793
|
|
|
$
|
(20,304
|
)
|
|
$
|
564,705
|
|
|
$
|
(519,835
|
)
|
|
$
|
1,280,271
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, retrospectively adjusted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
293,128
|
|
|
|
—
|
|
|
|
293,128
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on mortgage-backed securities available for
sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,733
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,733
|
)
|
Net unrealized gain on derivatives used in cash flow hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,880
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
298,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises of common stock options
|
|
|
1,833,369
|
|
|
|
18
|
|
|
|
43,435
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,453
|
|
Exercises of warrants
|
|
|
138,794
|
|
|
|
1
|
|
|
|
3,035
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,036
|
|
Compensation expenses for common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
12,109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,109
|
|
Net officers’ notes receivable payments
|
|
|
—
|
|
|
|
—
|
|
|
|
101
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
101
|
|
Deferred compensation and restricted stock amortization, net of
forfeitures
|
|
|
295,544
|
|
|
|
3
|
|
|
|
5,278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,281
|
|
Purchases of common stock
|
|
|
(16,420
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(582
|
)
|
|
|
(582
|
)
|
Cash dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(98,503
|
)
|
|
|
—
|
|
|
|
(98,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005, retrospectively
adjusted
|
|
|
64,246,767
|
|
|
|
934
|
|
|
|
1,318,751
|
|
|
|
(15,157
|
)
|
|
|
759,330
|
|
|
|
(520,417
|
)
|
|
|
1,543,441
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
342,929
|
|
|
|
—
|
|
|
|
342,929
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on mortgage-backed securities available for
sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,921
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,921
|
|
Net unrealized loss on derivatives used in cash flow hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,035
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
332,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative-effect adjustment due to change in accounting for MSRs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,624
|
|
|
|
—
|
|
|
|
10,624
|
|
Adjustment on initial application of SFAS 158, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,168
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,168
|
)
|
Issuance of common stock
|
|
|
3,532,360
|
|
|
|
35
|
|
|
|
148,435
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
148,470
|
|
Exercises of common stock options
|
|
|
857,489
|
|
|
|
9
|
|
|
|
23,486
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,495
|
|
Exercises of warrants
|
|
|
3,957,000
|
|
|
|
40
|
|
|
|
86,883
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
86,923
|
|
Compensation expenses for common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
9,630
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,630
|
|
Net officers’ notes receivable payments
|
|
|
—
|
|
|
|
—
|
|
|
|
109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109
|
|
Deferred compensation and restricted stock amortization, net of
forfeitures
|
|
|
475,468
|
|
|
|
5
|
|
|
|
10,520
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,525
|
|
Purchases of common stock
|
|
|
(51,728
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,061
|
)
|
|
|
(2,061
|
)
|
Cash dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(129,535
|
)
|
|
|
—
|
|
|
|
(129,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
73,017,356
|
|
|
|
1,023
|
|
|
|
1,597,814
|
|
|
|
(31,439
|
)
|
|
|
983,348
|
|
|
|
(522,478
|
)
|
|
|
2,028,268
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(614,808
|
)
|
|
|
—
|
|
|
|
(614,808
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on mortgage-backed securities available for
sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(97,769
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(97,769
|
)
|
Net unrealized loss on derivatives used in cash flow hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,922
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,922
|
)
|
Change in pension liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,909
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(722,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
7,427,104
|
|
|
|
74
|
|
|
|
145,514
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145,588
|
|
Exercises of common stock options
|
|
|
145,033
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,591
|
|
|
|
2,592
|
|
Exercises of warrants
|
|
|
63,888
|
|
|
|
1
|
|
|
|
1,405
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,406
|
|
Compensation expense for common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
7,943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,943
|
|
Net officers’ notes receivable payments
|
|
|
—
|
|
|
|
—
|
|
|
|
342
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
342
|
|
Deferred compensation and restricted stock amortization, net of
forfeitures
|
|
|
275,272
|
|
|
|
(9
|
)
|
|
|
(2,600
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
14,009
|
|
|
|
11,400
|
|
Purchases of common stock
|
|
|
(43,232
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,557
|
)
|
|
|
(1,557
|
)
|
Cash dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(129,568
|
)
|
|
|
—
|
|
|
|
(129,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
80,885,421
|
|
|
$
|
1,089
|
|
|
$
|
1,750,419
|
|
|
$
|
(139,221
|
)
|
|
$
|
238,972
|
|
|
$
|
(507,435
|
)
|
|
$
|
1,343,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(614,808
|
)
|
|
$
|
342,929
|
|
|
$
|
293,128
|
|
Adjustments to reconcile net (loss) earnings to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of loans
|
|
|
354,360
|
|
|
|
(668,054
|
)
|
|
|
(592,175
|
)
|
Compensation expenses related to stock options and restricted
stock
|
|
|
19,343
|
|
|
|
20,155
|
|
|
|
17,389
|
|
Other amortization and depreciation
|
|
|
126,914
|
|
|
|
93,515
|
|
|
|
59,393
|
|
Change in valuation of mortgage servicing rights
|
|
|
(1,120
|
)
|
|
|
367,234
|
|
|
|
269,586
|
|
Loss (gain) on mortgage-backed securities, net
|
|
|
439,714
|
|
|
|
(20,482
|
)
|
|
|
(17,866
|
)
|
Provision for loan losses
|
|
|
395,548
|
|
|
|
19,993
|
|
|
|
9,978
|
|
(Benefit) provision for deferred income taxes
|
|
|
(380,060
|
)
|
|
|
245,115
|
|
|
|
166,369
|
|
Net (increase) decrease in other assets and liabilities
|
|
|
134,272
|
|
|
|
90,012
|
|
|
|
17,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities before activity for
trading securities and loans held for sale
|
|
|
474,163
|
|
|
|
490,417
|
|
|
|
222,912
|
|
Net (purchases) sales of trading securities
|
|
|
(436,971
|
)
|
|
|
360,547
|
|
|
|
109,721
|
|
Net (purchases and origination) sales of loans held for sale
|
|
|
(7,530,130
|
)
|
|
|
(8,253,670
|
)
|
|
|
(4,909,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(7,492,938
|
)
|
|
|
(7,402,706
|
)
|
|
|
(4,576,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Additions to) repayments of loans held for investment, net
|
|
|
(857,854
|
)
|
|
|
(157,373
|
)
|
|
|
176,639
|
|
Proceeds from sale of loans held for investment
|
|
|
3,304,640
|
|
|
|
1,147,292
|
|
|
|
932,378
|
|
Purchases of mortgage-backed securities available for sale
|
|
|
(622,347
|
)
|
|
|
(1,170,559
|
)
|
|
|
(819,997
|
)
|
Proceeds from sales of and principal payments from
mortgage-backed securities available for sale
|
|
|
1,438,804
|
|
|
|
997,623
|
|
|
|
822,748
|
|
Net decrease (increase) in investment in FHLB stock, at cost
|
|
|
85,977
|
|
|
|
(205,792
|
)
|
|
|
(165,546
|
)
|
Net (increase) decrease in real estate investment
|
|
|
(1,009
|
)
|
|
|
10,780
|
|
|
|
(32,260
|
)
|
Net sale (purchases) of property, plant and equipment
|
|
|
28,610
|
|
|
|
(99,947
|
)
|
|
|
(109,076
|
)
|
Purchase of Financial Freedom minority interest
|
|
|
—
|
|
|
|
(40,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
3,376,821
|
|
|
|
482,024
|
|
|
|
804,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
6,908,823
|
|
|
|
3,222,155
|
|
|
|
1,925,557
|
|
Net increase in advances from Federal Home Loan Bank
|
|
|
776,000
|
|
|
|
3,459,800
|
|
|
|
791,000
|
|
Net (decrease) increase in borrowings
|
|
|
(4,040,448
|
)
|
|
|
69,797
|
|
|
|
1,104,208
|
|
Net proceeds from issuance of common stock
|
|
|
145,588
|
|
|
|
148,470
|
|
|
|
—
|
|
Net proceeds from issuance of trust preferred securities
|
|
|
30,000
|
|
|
|
188,000
|
|
|
|
90,000
|
|
Redemption of trust preferred securities
|
|
|
(48,268
|
)
|
|
|
(47,271
|
)
|
|
|
—
|
|
Net proceeds from stock options, warrants, and notes receivable
|
|
|
4,340
|
|
|
|
110,527
|
|
|
|
46,591
|
|
Proceeds from issuance of preferred stock by subsidiary
|
|
|
491,314
|
|
|
|
—
|
|
|
|
—
|
|
Cash dividends paid
|
|
|
(129,568
|
)
|
|
|
(129,535
|
)
|
|
|
(98,501
|
)
|
Purchases of common stock
|
|
|
(1,557
|
)
|
|
|
(2,061
|
)
|
|
|
(582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,136,224
|
|
|
|
7,019,882
|
|
|
|
3,858,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
20,107
|
|
|
|
99,200
|
|
|
|
86,368
|
|
Cash and cash equivalents at beginning of year
|
|
|
541,725
|
|
|
|
442,525
|
|
|
|
356,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
561,832
|
|
|
$
|
541,725
|
|
|
$
|
442,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,546,637
|
|
|
$
|
1,168,615
|
|
|
$
|
600,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) for income taxes
|
|
$
|
12,185
|
|
|
$
|
(56,258
|
)
|
|
$
|
70,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfer of loans held for sale to loans held for investment
|
|
$
|
10,240,773
|
|
|
$
|
2,951,131
|
|
|
$
|
2,691,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfer of loans held for investment to loans held for sale
|
|
$
|
1,865,072
|
|
|
$
|
957,563
|
|
|
$
|
849,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfer of mortgage servicing rights to trading securities
|
|
$
|
54,993
|
|
|
$
|
4,723
|
|
|
$
|
8,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1 —
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Financial
Statement Presentation
IndyMac Bancorp, Inc. is a savings and loan holding company.
References to “IndyMac Bancorp” or the “Parent
Company” refer to the parent company alone while references
to “Indymac,” the “Company,” “we”
or “us” refer to Indymac Bancorp and its consolidated
subsidiaries.
The consolidated financial statements include the accounts of
Indymac Bancorp and all of its wholly-owned and majority-owned
subsidiaries, including IndyMac Bank, F.S.B. (“Indymac
Bank” or “Bank”) and variable interest entities.
All significant intercompany balances and transactions with
Indymac’s consolidating subsidiaries have been eliminated
in consolidation. Minority interests and perpetual preferred
stock in Indymac’s majority-owned subsidiaries or variable
interest entities are either reported separately or included in
other liabilities on the consolidated balance sheets. Minority
interests in Indymac’s earnings are reported separately on
the consolidated statements of operations.
The consolidated financial statements of Indymac are prepared in
conformity with U.S. generally accepted accounting
principles (“U.S. GAAP”). Certain prior year
amounts have been reclassified to conform to the current year
presentation.
Use of
Estimates
The preparation of these consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Significant
estimates include the allowance for loan losses
(“ALL”), lower of cost or market (“LOCOM”)
on loans held for sale, secondary market reserves and the
valuation of our hedging instruments, mortgage servicing rights
(“MSRs”), AAA-rated and agency interest-only and
principal-only securities, late fee securities, prepayment
penalty securities, non-investment grade securities and residual
interests for which active markets do not exist. Actual results
may differ significantly from those estimates and assumptions.
New
Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(“FASB”) issued Interpretation 48, “Accounting
for Uncertainty in Income Taxes”
(“FIN 48”), an interpretation of FASB
Statement No. 109, “Accounting for Income
Taxes”. FIN 48 clarifies the accounting and
reporting for income taxes where interpretation of the law is
uncertain. FIN 48 prescribes a comprehensive model for the
financial statement recognition, measurement, presentation and
disclosure of income tax uncertainties with respect to positions
taken or expected to be taken in income tax returns. FIN 48
is effective for fiscal years beginning after December 15,
2006. The Company adopted this Statement on January 1, 2007
and recognizes interest and penalties in other expense. The
adoption of FIN 48 did not have a material impact on the
consolidated financial statements.
In September 2006, the FASB issued Statement No. 157,
“Fair Value Measurements”
(“SFAS 157”). SFAS 157 addresses how
companies should measure fair value when they are required to
use a fair value measure for recognition or disclosure purposes
under U.S. GAAP. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS 157 is
effective prospectively for fiscal years beginning after
November 15, 2007. The Company will adopt SFAS 157
prospectively on January, 1, 2008, with no cumulative-effect
adjustment to beginning retained earnings.
In February 2007, the FASB issued Statement No. 159,
“The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS 159”).
SFAS 159 would allow the Company an irrevocable election to
measure certain financial assets and liabilities at fair value,
with unrealized gains and losses on the elected items recognized
F-8
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in earnings at each reporting period. The fair value option may
only be elected at the time of initial recognition of a
financial asset or financial liability or upon the occurrence of
certain specified events. The election is applied on an
instrument by instrument basis, with a few exceptions, and is
applied only to entire instruments and not to portions of
instruments. SFAS 159 also provides expanded disclosure
requirements regarding the effects of electing the fair value
option on the financial statements. SFAS 159 is effective
prospectively for fiscal years beginning after November 15,
2007. The Company intends to elect the fair value option
effective January 1, 2008 for certain existing and new
loans held for sale, including reverse mortgage loans. This
adoption will not have a material impact on the consolidated
financial statements.
In April 2007, the FASB issued FSP
No. FIN 39-1,
“Amendment of FASB Interpretation No. 39”
(“FSP 39-1”).
FSP 39-1
amends FIN No. 39, “Offsetting of Amounts
Related to Certain Contracts”
(“FIN 39”), to permit a reporting entity to
offset fair value amounts recognized for the right to reclaim
cash collateral (a receivable) or the obligation to return cash
collateral (a payable) against fair value amounts recognized for
derivative instruments executed with the same counterparty under
the same master netting arrangement offset in accordance with
FIN 39.
FSP 39-1
also amends FIN 39 for certain terminology modifications.
FSP 39-1
is effective for fiscal years beginning after November 15,
2007, with early application permitted. Upon adoption of
FSP 39-1,
a reporting entity is permitted to change its accounting policy
to offset or not offset fair value amounts recognized for
derivative instruments under master netting arrangements. The
Company adopted
FSP 39-1
on September 30, 2007 and elected to offset derivative
instruments executed with the same counterparty under the same
master netting arrangement and to net cash collateral paid or
collected in accordance with
FSP 39-1.
The adoption of
FSP 39-1
did not have a material impact on the consolidated financial
statements.
In October 2007, the Securities Exchange Commission
(“SEC”) issued Staff Accounting
Bulletin No. 109, “Written Loan Commitments
Recorded at Fair Value Through Earnings”
(“SAB 109”). SAB 109 supersedes
SAB No. 105, “Application of Accounting
Principles to Loan Commitments”
(“SAB 105”), to provide guidance regarding
written loan commitments accounted for at fair value through
earnings. The SEC determined the expected net future cash flows
related to the associated servicing of the loan should be
included in the measurement of all written loan commitments that
are accounted for at fair value through earnings. The Company
will adopt SAB 109 prospectively for derivative loan
commitments issued or modified beginning January 1, 2008.
This adoption will not have a material impact on the
consolidated financial statements.
In December 2007, the FASB issued Statement No. 141
(revised 2007), “Business Combinations”
(“SFAS 141(R)”), which requires an acquiring
entity to recognize, with certain exceptions, the fair value of
the acquired entity as a whole, regardless of the percentage
ownership in the acquired entity or how the acquisition was
achieved. This Statement also recognizes contingent
consideration arrangements at their acquisition-date fair
values, with subsequent changes in fair value generally
reflected in earnings. SFAS 141(R) is effective for
business combination transactions for which the acquisition date
is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, with early
adoption prohibited. The Company will adopt this Statement on
January 1, 2009.
In December 2007, the FASB issued Statement No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements” (“SFAS 160”), an amendment
of Accounting Research Bulletin No. 51,
“Consolidated Financial Statements.”
SFAS 160 is based on the economic entity concept of
consolidated financial statements, and all residual economic
interest holders in an entity have an equity interest in the
consolidated equity, even if the residual interest is relative
to only a portion of the entity. This Statement requires the
presentation of noncontrolling interests and controlling
interests as separate components of equity in the consolidated
statement of financial position with disclosures about
attributes and transactions pertaining to noncontrolling
interests. SFAS 160 also requires that earnings attributed
to the noncontrolling interests are to be recorded as part of
consolidated earnings and not as a separate component of income
or expense. The Statement requires disclosure of the attribution
of consolidated earnings to the controlling and noncontrolling
interests on the consolidated income statement. SFAS 160 is
effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. SFAS 160 is required
to be
F-9
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
adopted prospectively, except for certain provisions which are
required to be adopted retrospectively. The Company will adopt
this Statement on January 1, 2009, and is assessing the
impact of the adoption of this Statement.
Cash
and Cash Equivalents
Cash and cash equivalents include non-restricted cash on deposit
and overnight investments.
Mortgage-Backed
Securities
Mortgage-backed securities (“MBS”) consist of
AAA-rated senior securities, investment and non-investment grade
securities, AAA-rated and agency interest-only and
principal-only securities, prepayment penalty securities, late
fee securities, residual securities, and agency notes. AAA-rated
interest-only securities, prepayment penalty securities, late
fee securities, and residual securities, as well as the
securities that the Company considers as hedges of its AAA-rated
interest-only securities, residual securities and MSRs, are
carried as trading securities. All other MBS are classified as
available for sale, including home equity lines of credit
(“HELOCs”) residual securities created in two separate
securitization transactions through which HELOCs loans were
recharacterized as securities available for sale. All securities
are carried at fair value, which is estimated based on market
quotes, when available, or on discounted cash flow techniques
using assumptions for prepayment rates, market yield
requirements and credit losses when market quotes are not
available. We estimate future prepayment rates based upon
current and expected future interest rate levels, collateral
seasoning and market forecasts, as well as relevant
characteristics of the collateral underlying the assets, such as
loan types, prepayment penalties, interest rates and recent
prepayment experience. These assumptions are estimates as of a
specific point in time and will change as interest rates or
economic conditions change. Premiums or discounts on securities
available for sale are amortized or accreted into income using
the effective interest method.
Securities classified as trading are carried at fair value with
changes in fair value being recorded through current earnings.
Unrealized gains and losses resulting from fair value
adjustments on investment securities and MBS available for sale
are excluded from earnings and reported as a separate component
of other comprehensive income (“OCI”), net of taxes,
in shareholders’ equity. If we determine a decline in fair
value of an available for sale security is other than temporary,
an impairment write-down is recognized in current earnings.
Realized gains and losses are calculated using the specific
identification method.
Loans
Held for Sale
Loans held for sale (“HFS”) consist primarily of
residential mortgage loans, which are secured by one-to-four
family residential real estate located throughout the United
States. We originate and purchase mortgage loans generally with
the intent to sell them in the secondary market. Loans HFS are
carried at the lower of aggregate cost, net of purchase
discounts or premiums, deferred fees, deferred origination costs
and effects of hedge accounting, or fair value. Historically,
the fair value of loans HFS was determined using current
secondary market prices for loans with similar coupons,
maturities and credit quality. Given recent market disruptions,
these current secondary market prices generally relied on to
value HFS loans were not available. As a result, the Company
considered other factors, including: 1) quoted market
prices for to be announced (“TBA”) securities (for
agency-eligible loans); 2) recent transaction settlements
or traded but unsettled transactions for similar assets;
3) recent third party market transactions for similar
assets; and 4) modeled valuations using assumptions the
Company believes a reasonable market participant would use in
valuing similar assets (assumptions may include loss rates,
prepayment rates, interest rates, volatilities, mortgage
spreads). At December 31, 2007, the majority of the
Company’s loans HFS are GSE-eligible. As these loans have
reliable market price information, the fair value of these loans
continues to be based on quoted market prices of similar assets.
For the non eligible for sale to Government Sponsored
Enterprises (“GSEs”) loans, including loans
transferred to held for investment at the lower of cost or fair
value, the valuation of these loans necessarily requires more
reliance on recent third party market transactions for similar
assets and
F-10
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
modeled valuations using assumptions the Company believes a
reasonable market participant would use in valuing similar
assets.
Since there was very limited available price discovery due to
the collapse of the secondary market for non-GSE mortgages, the
estimation of fair value in the second half of 2007 required
significant management judgment.
While management believes its determination of fair values is
reasonable in the circumstances, even small changes in the
underlying assumptions, application of different valuation
approaches or a different assessment of the weight of evidence
from the available sources of information could have resulted in
significantly different estimates.
The Company adopted SAB 105 on April 1, 2004 and will
adopt SAB 109 on January 1, 2008 on a prospective
basis. In accordance with SAB 105, the Company no longer
recognizes any revenue at the inception of a rate lock
commitment, and thus excludes the day one value on rate lock
commitments from the fair value of loans HFS. Initial value
inherent in the rate lock commitments at origination is
recognized at the time of the sale of the underlying loans. Upon
adoption of SAB 109, the Company will recognize revenue at
the inception of a rate lock commitment.
The fair value of mortgage loans is subject to change primarily
due to changes in market interest rates. Under our risk
management policy, we hedge the changes in fair value of our
loans HFS primarily by selling forward contracts on agency
securities. We formally designate and document certain of these
hedging relationships as fair value hedges and record the
changes in the fair value of hedged loans HFS, as an adjustment
to the carrying basis of the loan through gain on sale of loans
in current earnings. We record the related hedging instruments
at fair value with changes in fair value also recorded in gain
on sale of loans in current earnings. The non-designated
pipeline hedges are recorded at fair value in gain on sale of
loans.
As part of our mortgage banking operations, we enter into
commitments to purchase or originate loans whereby the interest
rate on the loans is determined prior to funding (“rate
lock commitments”). We report rate lock commitments on
loans we intend to sell as derivatives as defined in
SFAS 133 and determine the fair value of rate lock
commitments using current secondary market prices for underlying
loans with similar coupons, maturity and credit quality, subject
to the anticipated loan funding probability, or fallout factor.
Similar to loans HFS, the fair value of rate lock commitments is
subject to change primarily due to changes in interest rates. In
addition, the value of rate lock commitments is affected by
changes in the anticipated loan funding probability or fallout
factor. Under our risk management policy, we hedge these changes
in fair value primarily by selling forward contracts on agency
securities. Both the rate lock commitments and the related
hedging instruments are recorded at fair value with changes in
fair value being recorded in gain on sale of loans in current
earnings.
Our recognition of gain or loss on the sale of loans is
accounted for in accordance with FASB Statement No. 140,
“Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,”
(“SFAS 140”). SFAS 140 requires that a
transfer of financial assets in which we surrender control over
the assets be accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred
assets is received in exchange. The carrying value of the assets
sold is allocated between the assets sold and the retained
interests based on their relative fair values.
SFAS 140 requires, for certain transactions completed after
the initial adoption date, a “true sale” analysis of
the treatment of the transfer under state law as if the Company
was a debtor under the bankruptcy code. A “true sale”
legal analysis includes several legally relevant factors, such
as the nature and level of recourse to the transferor and the
nature of retained servicing rights. The analytical conclusion
as to a “true sale” is never absolute and
unconditional, but contains qualifications based on the inherent
equitable powers of a bankruptcy court, as well as the unsettled
state of the common law. Once the legal isolation test has been
met under SFAS 140, other factors concerning the nature and
extent of the transferor’s control over the transferred
assets are taken into account in order to determine whether
derecognition of assets is warranted, including whether the
special-purpose entity (“SPE”) has complied with rules
concerning qualifying special-purpose entities.
F-11
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company is not eligible to become a debtor under the
bankruptcy code. Instead, the insolvency of the Company is
generally governed by the relevant provisions of the Federal
Deposit Insurance Corporation (“FDIC”) Federal Deposit
Insurance Act and the FDIC’s regulations. However, the
“true sale” legal analysis with respect to the Company
is similar to the “true sale” analysis that would be
done if the Company were subject to the bankruptcy code.
A legal opinion regarding legal isolation for each
securitization has been obtained by the Company. The “true
sale” opinion provides reasonable assurance the purchased
assets would not be characterized as the property of the
transferring Company’s receivership or conservatorship
estate in the event of insolvency and also states the transferor
would not be required to substantively consolidate the assets
and liabilities of the purchaser SPE with those of the
transferor upon such event.
The securitization process involves the sale of the loans to one
of our wholly-owned bankruptcy remote special-purpose entities
which then sells the loans to a separate, transaction-specific
securitization trust in exchange for the considerations
generated by the sale of the MBS issued by the securitization
trust. The securitization trust issues and sells undivided
interests to third-party investors that entitle the investors to
specified cash flows generated from the securitized loans. These
undivided interests are usually represented by certificates with
varying interest rates, and are secured by the payments on the
loans acquired by the trust, and commonly include senior and
subordinated classes. The senior class securities are usually
rated “AAA” by at least two of the major independent
rating agencies and have priority over the subordinated classes
in the receipt of payments. We have no obligation to provide
credit support to either the third-party investors or the
securitization trusts. Generally, neither third-party investors
nor securitization trusts have recourse to our assets or us; and
neither have the ability to require us to repurchase their
securities other than through enforcement of the standard
representations and warranties. We do make certain
representations and warranties concerning the loans, such as
lien status or mortgage insurance coverage, and if we are found
to have breached a representation or warranty, we may be
required to repurchase the loan from the securitization trust.
We do not guarantee any securities issued by the securitization
trusts. The securitization trusts represent “qualified
special-purpose entities,” which meet certain criteria of
SFAS 140, and are therefore not consolidated for financial
reporting purposes.
In addition to the cash we receive from the sale of MBS, we
often retain certain interests in the securitization trust.
These retained interests may include subordinated classes of
securities, MSRs, AAA-rated interest-only and principal-only
securities, residual securities, cash reserve funds, securities
associated with prepayment charges and late fees on the
underlying mortgage loans, or an over collateralization account.
Other than MSRs, AAA-rated interest-only and principal-only
securities, and securities associated with prepayment charges
and late fees on the underlying mortgage loans, these retained
interests are subordinated and serve as credit enhancement for
the more senior securities issued by the securitization trust.
AAA-rated interest-only and principal-only securities,
securities associated with prepayment charges and late fees on
the underlying mortgage loans, and non-HELOC residual interests
retained are included in “Securities classified as
trading,” while other subordinated securities retained and
HELOC residuals are included in “Securities available for
sale” on the consolidated balance sheets.
We usually retain the servicing function for the securitized
mortgage loans. As a servicer, we are entitled to receive a
servicing fee equal to a specified percentage of the outstanding
principal balance of the loans or a fixed dollar amount for our
reverse mortgage servicing. We may also be entitled to receive
additional servicing compensation, such as late payment fees or
prepayment charges.
Transaction costs associated with the securitizations are
recognized as a component of the gain or loss at the time of
sale.
When we reclassify loans from held for investment to held for
sale, we reclassify them net of the portion of the ALL that is
attributable to the transferred loans, with a corresponding
reduction in the ALL.
F-12
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Loans
Held for Investment
Loans are classified as held for investment (“HFI”)
based on management’s intent and ability to hold the loans
for the foreseeable future. Loans HFI are recorded at their
unpaid principal balance, net of discounts and premiums,
unamortized net deferred loan origination costs and fees and
allowance for loan losses. Discounts, premiums, and net deferred
loan origination costs and fees are amortized to income over the
contractual life of the loan using the effective interest method.
Interest is recognized as revenue when earned according to the
terms of the loans and when, in the opinion of management, it is
collectible. Loans are evaluated for collectability and, if
appropriate, interest accrual is discontinued and previously
accrued interest is reversed.
When we have both the intention and ability to hold the loans
for the foreseeable future, we reclassify loans from HFS to HFI
at the lower of cost or fair value.
Non-Accrual
Loans
Loans are generally placed on non-accrual status when they are
90 days past due and charged-off upon foreclosure. Large
groups of smaller-balance homogeneous loans are collectively
evaluated for impairment. Impairment is measured based on the
present value of expected future cash flows discounted at the
loan’s effective interest rate, based on a loan’s
observable market price, or the fair value of the collateral if
the loan is collateral dependent. Specific factors used in the
impaired loan identification process include, but are not
limited to, delinquency status, loan-to-value ratio, the
condition of the underlying collateral, credit history, and debt
coverage. For impaired loans on non-accrual status, cash
receipts are applied, and interest income is recognized, on a
cash basis. For all other impaired loans, cash receipts are
applied to principal and interest in accordance with the
contractual terms of the loan and interest income is recognized
on the accrual basis. Generally, a loan may be returned to
accrual status when all delinquent principal and interest are
brought current in accordance with the terms of the loan
agreement and certain performance criteria have been met. The
estimated loss upon liquidation on all other loans held for
investment is charged-off prior to or upon foreclosure.
We account for troubled loans in accordance with FASB Statement
No. 15, “Accounting by Debtor and Creditors for
Troubled Debt Restructurings.” Troubled debt
restructured loans are tested for impairment under FASB
Statement No. 114, “Accounting by Creditors for
Impairment of a Loan” (“SFAS 114”), and
placed on non-accrual status. If borrowers perform pursuant to
the modified loan terms for at least six months and the
remaining loan balances are considered collectible, the loans
are returned to accrual status.
Allowance
for Loan Losses
We maintain an allowance for loan losses (the
“allowance” or ALL) on loans held for investment.
Additions to the allowance are based on assessments of certain
factors, including but not limited to, estimated probable losses
on the loans, borrower credit quality, delinquency, prior loan
loss experience and general economic conditions. Additions to
the allowance are provided through a charge to earnings.
Specific valuation allowances may be established for loans that
are deemed impaired, if default by the borrower is deemed
probable, and if the fair value of the loan or the collateral is
estimated to be less than the gross carrying value of the loan.
Actual losses on loans are recorded as a reduction to the
allowance through charge-offs. Subsequent recoveries of amounts
previously charged-off are credited to the allowance.
For the loans held for investment portfolio, an ALL is
established and allocated to various loan types. The
determination of the level of the ALL and, correspondingly, the
provision for loan losses, is based on delinquency trends, prior
loan loss experience, and management’s judgment and
assumptions regarding various matters, including general
economic conditions and loan portfolio composition. Management
continuously evaluates these assumptions and various relevant
factors impacting credit quality and inherent losses. We utilize
several
F-13
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
methodologies to estimate the adequacy of our ALL and to ensure
the allocation of the ALL to the various portfolios is
reasonable given current trends and economic outlook. In this
regard, we segregate assets into homogeneous pools of loans and
heterogeneous loans.
Homogeneous pools of loans exhibit similar characteristics and,
as such, can be evaluated as pools of assets through the
assessment of default probabilities and corresponding loss
severities. Our homogeneous pools include residential mortgage
loans, consumer construction loans, HELOCs, closed-end seconds,
manufactured home loans and home improvement loans. The estimate
of the ALL for homogeneous pools is based on recent
product-specific migration patterns and recent loss experience.
Our builder construction loans generally carry higher balances
and involve unique loan characteristics that cannot be evaluated
solely through the use of default rates, loss severities and
trend analysis. To estimate an appropriate level of ALL for our
heterogeneous loans, we constantly screen the portfolios on an
individual asset basis to classify problem credits and to
estimate potential loss exposure. In this estimation, we
determine the level of adversely classified assets (using the
classification criteria described below) in a portfolio and the
related loss potential and extrapolate the weighting of those
two factors across all assets in the portfolio.
Our asset classification methodology was designed in accordance
with guidelines established by our supervisory regulatory
agencies as follows:
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|
|
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•
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Pass — Assets classified Pass are assets that
are well protected by the net worth and paying capacity of the
borrower or by the value of the asset or underlying collateral.
|
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•
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Special Mention — Special Mention assets have
potential weaknesses that require close attention, but have not
yet jeopardized the timely repayment of the asset in full.
|
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•
|
Substandard — This is the first level of
adverse classification. Assets in this category are inadequately
protected by the net worth and paying capacity of the borrower
or by the value of the collateral. Substandard assets are
characterized by the distinct possibility some loss will occur
if the deficiencies are not corrected.
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•
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Doubtful — Assets in this category have the
same weaknesses as a substandard asset, with the added
characteristic that based on current facts, conditions and
values, liquidation of the asset in full is highly improbable.
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•
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Loss — Assets in the Loss category are
considered uncollectible and of such little value that the
continuance as an asset, without establishment of a specific
valuation allowance, is not warranted.
|
A component of the overall ALL is not specifically allocated
(“unallocated component”). The unallocated component
reflects management’s assessment of various factors that
create inherent imprecision in the methods used to determine the
specific portfolio allocations. Those factors include, but are
not limited to, levels of and trends in delinquencies and
impaired loans, charge-offs and recoveries, volume and terms of
the loans, effects of any changes in risk selection and
underwriting standards, other changes in lending policies,
procedures, and practices, and national and local economic
trends and conditions.
Impaired loans include loans classified as non-accrual where it
is probable we will be unable to collect the scheduled payments
of principal and interest according to the contractual terms of
the loan agreement. When a loan is deemed impaired, the amount
of specific allowance required is measured by a complete
analysis of the most probable source of repayment, including the
present value of the loan’s expected future cash flows, the
fair value of the underlying collateral less costs of
disposition, or the loan’s estimated market value. In these
measurements, we use assumptions and methodologies that are
relevant to estimating the level of impaired and unrealized
losses in the portfolio. To the extent the data supporting such
assumptions has limitations, our judgment and experience play a
key role in enhancing the ALL estimates.
We transferred mortgage loans HFS to HFI and recorded a
reduction to the net investment, a portion of this reduction
represents credit losses we estimated in determining the market
value of loans. This amount represents a
F-14
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
“reserve” for future realized credit losses. If our
estimate of inherent credit losses in the transferred pool
increases, we may record a provision for loan losses which will
increase the ALL.
As the housing and mortgage markets deteriorated during 2007, we
made adjustments to key assumptions used to establish our loss
reserves. Generally, we adjusted our assumptions as to frequency
of mortgage loans moving to default and the expected severities
of losses from sales of underlying REO properties. We also
adjusted assumptions on our builder construction portfolio to
give consideration to the project and market specific condition
for loans in this portfolio that have or are expected to default.
Secondary
Market Reserve
The Company maintains a secondary market reserve for losses that
arise in connection with loans we are required to repurchase
from GSEs and whole loan sales. This reserve has two general
components: reserves for repurchases arising from representation
and warranty claims, and reserves for disputes with investors
and vendors with respect to contractual obligations pertaining
to mortgage operations. Reserve levels are a function of
expected losses based on expected and actual pending claims and
repurchase requests, historical experience, loan volume and loan
sales distribution channels and the assessment of probability
related to such claims, and even small changes in assumptions
could result in significantly higher or lower estimate. While
the ultimate amount of repurchases and claims is uncertain,
management believes the reserve is adequate. We will continue to
evaluate the adequacy of our reserve and may continue to
allocate a portion of our gain on sale proceeds to the reserve
going forward. Changes in the level of provision to this reserve
impacts the overall gain on sale margin from period to period.
The entire balance of our secondary market reserve is included
on the consolidated balance sheets as a component of “Other
liabilities”.
Mortgage
Servicing Rights
We retain MSRs in connection with our mortgage banking
operations. Under primary servicing agreements, we collect
monthly principal, interest and escrow payments from individual
mortgagors and perform certain accounting and reporting
functions on behalf of the mortgage investors. Under master
servicing agreements, we collect monthly payments from various
sub-servicers and perform certain accounting and reporting
functions on behalf of the mortgage investors.
We recognize MSRs as separate assets only when servicing is
contractually separated from the underlying mortgage loans by
sale or securitization of the loans with servicing retained or
by separate purchase or assumption of the servicing. MSRs are
recorded at fair value with valuation changes, net of hedges,
reported in “Service fee income” in the consolidated
statements of operations. Because a limited and illiquid market
exists for MSRs, we determine the fair value of our MSRs using
discounted cash flow techniques. Using models primarily
purchased from third parties, we determine the fair value of
recognized MSRs by estimating the present value of anticipated
future net cash flows. Estimates of fair value involve several
assumptions, including the key valuation assumptions about
market expectations of future prepayment rates, interest rates
and discount rates, which are subject to change over time.
Changes in these underlying assumptions could cause the fair
value of MSRs to change significantly in the future. The Company
maintains an economic hedge of its MSRs, designed primarily to
mitigate the effects of changes in market interest rates,
however, there could be significant fluctuations in the fair
value of the MSRs in excess of the economic offset provided by
the related hedging instruments. Prior to adoption of
FAS 156, we carried MSRs at amortized cost subject to
periodic impairment assessment. For purposes of impairment
evaluation and measurement, we stratify our MSRs based on
predominant risk characteristics, underlying loan type, interest
rate type, and interest rate level.
F-15
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Derivative
Instruments
In seeking to protect our financial assets and liabilities from
the effects of changes in market interest rates, we have devised
and implemented an asset/liability management strategy that
seeks, on an economic basis, to mitigate significant
fluctuations in our financial position and results of
operations. We invest in MSRs, AAA-rated and agency
interest-only and residual securities to generate core fee and
interest income. The value of these instruments and the income
they provide tends to be somewhat counter-cyclical to the
changes in production volumes and gain on sale of loans that
result from changes in interest rates. With regard to the
pipeline of mortgage loans held for sale, in general, we hedge
these assets with forward commitments to sell Fannie Mae
(“FNMA”) or Freddie Mac (“FHLMC”) securities
with comparable maturities and weighted average interest rates.
Also, we use futures or options in our pipeline hedging. To
hedge our investments in MSRs, AAA-rated and agency
interest-only and residual securities, we use several
strategies, including buying
and/or
selling mortgage-backed or U.S. Treasury securities,
forward rate agreements, futures, floors, interest rate swaps,
or options, depending on several factors. Lastly, we enter into
interest rate swap and interest rate swaption agreements to
hedge the cash flows on advances or borrowings that are
collateralized by our mortgage loans held for investment and MBS.
SFAS 133 requires that we recognize all derivative
instruments on the balance sheet at fair value. If certain
conditions are met, hedge accounting may be applied and the
derivative instrument may be specifically designated as:
(a) a hedge of the exposure to changes in the fair value of
a recognized asset or liability or unrecognized firm commitment,
referred to as a fair value hedge, or (b) a hedge of
the exposure to the variability of cash flows of a recognized
asset, liability or forecasted transaction, referred to as a
cash flow hedge.
In the case of a qualifying fair value hedge, changes in the
value of the derivative instruments that are highly effective
(as defined in SFAS 133) are recognized in current
earnings along with the change in value of the designated hedged
item. In the case of a qualifying cash flow hedge, changes in
the value of the derivative instruments that are highly
effective are recognized in “Accumulated other
comprehensive income (loss)” (“AOCI”) on the
consolidated balance sheets, until the hedged item is recognized
in earnings. The ineffective portion of a derivative’s
change in fair value is recognized through earnings. Upon the
occasional termination of a cash flow hedge, the remaining cost
of that hedge is amortized over the remaining life of the hedged
item in proportion to the change in the hedged forecasted
transaction. We have derivatives in place to hedge the exposure
to the variability in future cash flows for forecasted
transactions through 2017. Derivatives that are non-designated
hedges, as defined in SFAS 133, are adjusted to fair value
through earnings. We formally document all qualifying hedge
relationships, as well as our risk management objective and
strategy for undertaking each hedge transaction. We are not a
party to any foreign currency hedge relationships.
Foreclosed
Assets
Real estate acquired in settlement of loans is initially
recorded at fair value of the underlying property, less
estimated costs to sell, through a charge to the allowance for
loan losses, secondary market reserve or to the related
valuation reserves for loans held for sale. Subsequent operating
activity and declines in value are charged to earnings.
Goodwill
and Other Intangible Assets
Goodwill, representing the excess of purchase price over the
fair value of net assets acquired, resulted from acquisitions we
have made. Core deposit intangible asset is amortized using an
accelerated method of amortization over a period of ten years,
which is the estimated life of the deposits acquired. Intangible
assets from the acquisition of the remaining shares of Financial
Freedom Senior Funding Corporation are amortized on a
straight-line basis over a three-year period. Goodwill is not
amortized, and we review our goodwill and other intangible
assets for other-than-temporary impairment at least annually. If
circumstances indicate that other-than-temporary impairment
might exist, recoverability of the asset is assessed based on
expected undiscounted net cash flows.
F-16
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Fixed
Assets
Fixed assets are included in other assets and are stated at
cost, less accumulated depreciation and amortization.
Depreciation is provided using the straight-line method in
amounts sufficient to relate the cost of depreciable assets to
current earnings over their estimated service lives. Estimated
service lives of furniture and equipment generally range from
three to seven years and 20 to 40 years for buildings.
Leasehold improvements are amortized using the straight-line
method over the lesser of the life of the lease or the service
lives of the improvements.
Software
Development
We capitalize external direct costs of materials and services
consumed in developing or obtaining internal-use computer
software and direct salary and benefit costs relating to the
respective employees’ time spent on the software project
during the application development stage. The estimated service
lives for capitalized software generally range from three to
seven years.
Income
Taxes
Deferred income taxes in the accompanying consolidated financial
statements are computed using the liability method. Under this
method, deferred income taxes are provided for differences
between the financial accounting and income tax basis of our
assets and liabilities.
Share-Based
Compensation
Our share-based compensation is provided to employees in
accordance with the 2000 Stock Incentive Plan, as amended, and
the 2002 Incentive Plan, as amended and restated, which allow
for the grant of various types of awards (“Awards”)
including, but not limited to, non-qualified stock options,
incentive stock options, restricted stock awards, performance
stock awards, and stock bonuses to our employees, including
officers and directors. Awards are granted at the average market
price of our stock on the grant date.
The Company adopted FASB Statement No. 123 (revised 2004),
“Share-Based Payment”
(“SFAS 123(R)”), amendment of Statement
No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”) and
Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,”
(“APB 25”), on January 1, 2006 using the
modified-retrospective method, which requires the recognition of
compensation expenses related to stock options, and revised all
prior periods in accordance with SFAS 123(R) at the time of
adoption. See “Note 23 — Benefit Plans”
for further details on stock incentive plans.
The following summarizes net earnings as well as diluted
earnings per share for the year ended December 31, 2005
(dollars in thousands, except per share data):
|
|
|
|
|
Reported net earnings
|
|
$
|
300,226
|
|
Retrospective application of SFAS 123(R)
|
|
|
7,098
|
|
|
|
|
|
|
Adjusted net earnings
|
|
$
|
293,128
|
|
Adjusted average diluted shares
|
|
|
66,115
|
|
Reported diluted earnings per share
|
|
$
|
4.54
|
|
Adjusted diluted earnings per share
|
|
$
|
4.43
|
|
On April 1, 2007, the Company executed its definitive
agreement with New York Mortgage Trust, Inc. to purchase certain
assets of the retail mortgage banking business of its
wholly-owned taxable real estate investment trust
(“REIT”) subsidiary, The New York Mortgage Company,
LLC (“NYMC”), for a purchase price of
F-17
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
approximately $13.4 million. The Company purchased
substantially all of the operating assets related to NYMC’s
retail mortgage banking platform, including the use of The New
York Mortgage Company name, and assumed certain liabilities of
NYMC’s retail platform, including certain lease liabilities
and obligations under the pipeline of loan applications. The
Company hired a majority of NYMC employees and assumed a portion
of the retention and severance expenses associated with the
transaction.
On July 16, 2004, the Company acquired 93.75% of the
outstanding common stock of Financial Freedom Holdings Inc.
(“FFHI”) and related assets from Lehman Brothers Bank,
F.S.B. and its affiliates for an aggregate cash purchase price
of $84.6 million. In November 2004, FFHI merged into its
wholly owned subsidiary, Financial Freedom Senior Funding
Corporation (“FFSFC”) in November 2004, with FFSFC as
the surviving entity. The Company owned 93.75% of the
outstanding common stock of FFSFC, with the remaining 6.25%
ownership held by its Chairman (FFHI and FFSFC are referred to
collectively as Financial Freedom herein). The transaction was
accounted for using the purchase method of accounting and
resulted in $48.4 million recorded as goodwill. On
July 3, 2006, the Company acquired the remaining 6.25% of
the outstanding common stock of Financial Freedom from the
Company’s Chairman for an aggregate cash purchase price of
$40.0 million. Goodwill and other intangibles recorded from
the purchase were $29.1 million and $3.8 million,
respectively. As a result of this transaction, Financial Freedom
became a wholly-owned subsidiary of Indymac Bank.
|
|
NOTE 3 —
|
SEGMENT
REPORTING
|
The Company operates through two primary segments: mortgage
banking and thrift. The Company predominantly uses generally
accepted accounting principles to compute each division’s
financial results as if it were a stand-alone entity. Consistent
with this approach, borrowed funds and their interest cost are
allocated based on the funds actually used by the Company to
fund the division’s assets and capital is allocated based
on regulatory capital rules for the specific assets of each
segment. Additionally, transactions between divisions are
reflected at arms-length in these financial results and
intercompany profits are eliminated in consolidation. We do not
allocate fixed corporate and business unit overhead costs to our
profit center divisions, because the methodologies to do so are
arbitrary and distort each division’s marginal contribution
to our profits. To reconcile to our consolidated results,
commercial mortgage banking, mortgage banking overhead,
elimination and other, and corporate overhead costs are included
in the “Other” column in the table below.
As conditions in the U.S. mortgage market have
deteriorated, we have exited certain production channels and are
reporting them in a separate category in our segment reporting.
These exited production channels include the conduit,
homebuilder and home equity channels. These activities are not
considered discontinued operations as defined by FASB Statement
No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets” due to our substantial continuing
involvement.
Loans are occasionally transferred (“sold”) from the
production divisions to the thrift divisions at a premium based
on the estimated fair value. The premium paid for the loans is
recorded as a gain in the production divisions and a premium on
the asset in the thrift divisions and eliminated in
consolidation. In subsequent periods, this premium is amortized
as part of the thrift divisions’ net interest margin and
the amortization is reversed in the “Other” column in
the tables below.
F-18
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents segment information for the years
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Segment
|
|
|
|
|
|
|
|
|
|
|
|
Conduit,
|
|
|
|
|
|
|
Mortgage
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
Total
|
|
|
Home Equity,
|
|
|
|
|
|
|
Production
|
|
|
Servicing
|
|
|
Thrift
|
|
|
|
|
|
On-Going
|
|
|
Homebuilder
|
|
|
Total
|
|
|
|
Division
|
|
|
Division
|
|
|
Segment
|
|
|
Other
|
|
|
Business
|
|
|
Divisions
|
|
|
Company
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
132,086
|
|
|
$
|
(40,563
|
)
|
|
$
|
234,865
|
|
|
$
|
100,225
|
|
|
$
|
426,613
|
|
|
$
|
140,129
|
|
|
$
|
566,742
|
|
Net revenues (expense)
|
|
|
245,547
|
|
|
|
382,393
|
|
|
|
(236,306
|
)
|
|
|
2,309
|
|
|
|
393,943
|
|
|
|
(390,379
|
)
|
|
|
3,564
|
|
Net earnings (loss)
|
|
|
(96,777
|
)
|
|
|
181,427
|
|
|
|
(199,247
|
)
|
|
|
(219,082
|
)
|
|
|
(333,679
|
)
|
|
|
(281,129
|
)
|
|
|
(614,808
|
)
|
Allocated average capital
|
|
|
441,917
|
|
|
|
361,405
|
|
|
|
670,476
|
|
|
|
82,881
|
|
|
|
1,556,679
|
|
|
|
420,253
|
|
|
|
1,976,932
|
|
Assets as of December 31, 2007
|
|
$
|
2,783,814
|
|
|
$
|
3,839,975
|
|
|
$
|
21,811,374
|
|
|
$
|
1,242,243
|
|
|
$
|
29,677,406
|
|
|
$
|
3,057,062
|
|
|
$
|
32,734,468
|
|
Return on equity
|
|
|
(22
|
)%
|
|
|
50
|
%
|
|
|
(30
|
)%
|
|
|
N/A
|
|
|
|
(21
|
)%
|
|
|
(67
|
)%
|
|
|
(31
|
)%
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
91,648
|
|
|
$
|
(11,489
|
)
|
|
$
|
197,333
|
|
|
$
|
67,964
|
|
|
$
|
345,456
|
|
|
$
|
181,265
|
|
|
$
|
526,721
|
|
Net revenues (expense)
|
|
|
700,248
|
|
|
|
161,441
|
|
|
|
257,459
|
|
|
|
(20,954
|
)
|
|
|
1,098,194
|
|
|
|
248,509
|
|
|
|
1,346,703
|
|
Net earnings (loss)
|
|
|
227,739
|
|
|
|
66,147
|
|
|
|
112,394
|
|
|
|
(175,718
|
)
|
|
|
230,562
|
|
|
|
112,367
|
|
|
|
342,929
|
|
Allocated average capital
|
|
|
370,703
|
|
|
|
253,235
|
|
|
|
536,943
|
|
|
|
197,506
|
|
|
|
1,358,387
|
|
|
|
437,873
|
|
|
|
1,796,260
|
|
Assets as of December 31, 2006
|
|
$
|
4,570,229
|
|
|
$
|
2,961,833
|
|
|
$
|
14,309,474
|
|
|
$
|
1,005,435
|
|
|
$
|
22,846,971
|
|
|
$
|
6,648,345
|
|
|
$
|
29,495,316
|
|
Return on equity
|
|
|
61
|
%
|
|
|
26
|
%
|
|
|
21
|
%
|
|
|
N/A
|
|
|
|
17
|
%
|
|
|
26
|
%
|
|
|
19
|
%
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
67,931
|
|
|
$
|
(4,022
|
)
|
|
$
|
199,253
|
|
|
$
|
31,464
|
|
|
$
|
294,626
|
|
|
$
|
130,085
|
|
|
$
|
424,711
|
|
Net revenues (expense)
|
|
|
664,636
|
|
|
|
78,980
|
|
|
|
238,816
|
|
|
|
(32,535
|
)
|
|
|
949,897
|
|
|
|
155,813
|
|
|
|
1,105,710
|
|
Net earnings (loss)
|
|
|
242,995
|
|
|
|
27,992
|
|
|
|
108,481
|
|
|
|
(153,808
|
)
|
|
|
225,660
|
|
|
|
67,468
|
|
|
|
293,128
|
|
Allocated average capital
|
|
|
260,591
|
|
|
|
119,071
|
|
|
|
421,345
|
|
|
|
297,992
|
|
|
|
1,098,999
|
|
|
|
281,868
|
|
|
|
1,380,867
|
|
Assets as of December 31, 2005
|
|
$
|
2,758,337
|
|
|
$
|
1,493,680
|
|
|
$
|
10,598,882
|
|
|
$
|
1,389,691
|
|
|
$
|
16,240,590
|
|
|
$
|
5,211,709
|
|
|
$
|
21,452,299
|
|
Return on equity
|
|
|
93
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
N/A
|
|
|
|
21
|
%
|
|
|
24
|
%
|
|
|
21
|
%
|
F-19
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 4 —
|
MORTGAGE-BACKED
SECURITIES
|
The following presents the composition of our MBS as of the
dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Mortgage-backed securities — trading
|
|
|
|
|
|
|
|
|
AAA-rated non-agency securities
|
|
$
|
510,371
|
|
|
$
|
43,957
|
|
AAA-rated and agency interest-only securities
|
|
|
59,844
|
|
|
|
73,570
|
|
AAA-rated principal-only securities
|
|
|
88,024
|
|
|
|
38,478
|
|
Prepayment penalty and late fee securities
|
|
|
82,027
|
|
|
|
97,576
|
|
Other investment grade securities
|
|
|
275,691
|
|
|
|
29,015
|
|
Other non-investment grade securities
|
|
|
93,859
|
|
|
|
41,390
|
|
Non-investment grade residual securities
|
|
|
112,727
|
|
|
|
218,745
|
|
|
|
|
|
|
|
|
|
|
Total MBS — trading
|
|
$
|
1,222,543
|
|
|
$
|
542,731
|
|
|
|
|
|
|
|
|
|
|
MBS — trading pledged as collateral for borrowings
|
|
$
|
685,869
|
|
|
$
|
152,895
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities — available for sale
|
|
|
|
|
|
|
|
|
AAA-rated non-agency securities
|
|
$
|
5,543,306
|
|
|
$
|
4,604,489
|
|
AAA-rated agency securities
|
|
|
45,296
|
|
|
|
65,175
|
|
Other investment grade securities
|
|
|
451,798
|
|
|
|
160,238
|
|
Other non-investment grade securities
|
|
|
61,889
|
|
|
|
38,784
|
|
Non-investment grade residual securities
|
|
|
3,687
|
|
|
|
31,828
|
|
|
|
|
|
|
|
|
|
|
Total MBS — available for sale
|
|
$
|
6,105,976
|
|
|
$
|
4,900,514
|
|
|
|
|
|
|
|
|
|
|
MBS — available for sale pledged as collateral for
borrowings
|
|
$
|
5,685,770
|
|
|
$
|
4,149,201
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
$
|
7,328,519
|
|
|
$
|
5,443,245
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities of the MBS generally range from 10 to
30 years. Expected weighted average lives of these
securities generally range from several months to five years due
to borrower prepayments occurring prior to the contractual
maturity.
The following summarizes the unrealized gains and losses of
securities available for sale as of the dates indicated (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Amortized cost
|
|
$
|
6,296,827
|
|
|
$
|
4,930,825
|
|
Gross unrealized holding gains
|
|
|
13,743
|
|
|
|
13,675
|
|
Gross unrealized holding losses
|
|
|
(204,594
|
)
|
|
|
(43,986
|
)
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
6,105,976
|
|
|
$
|
4,900,514
|
|
|
|
|
|
|
|
|
|
|
F-20
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents the unrealized losses and fair value of
securities that have been in a continuous unrealized loss
position for less than 12 months and 12 months or
greater as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities — available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated non-agency securities
|
|
$
|
(74,718
|
)
|
|
$
|
2,980,556
|
|
|
$
|
(33,446
|
)
|
|
$
|
1,324,275
|
|
|
$
|
(108,164
|
)
|
|
$
|
4,304,831
|
|
AAA-rated agency securities
|
|
|
(137
|
)
|
|
|
6,643
|
|
|
|
(1,233
|
)
|
|
|
11,349
|
|
|
|
(1,370
|
)
|
|
|
17,992
|
|
Other investment grade securities
|
|
|
(93,937
|
)
|
|
|
375,797
|
|
|
|
(1,123
|
)
|
|
|
21,990
|
|
|
|
(95,060
|
)
|
|
|
397,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(168,792
|
)
|
|
$
|
3,362,996
|
|
|
$
|
(35,802
|
)
|
|
$
|
1,357,614
|
|
|
$
|
(204,594
|
)
|
|
$
|
4,720,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities — available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated non-agency securities
|
|
$
|
(1,482
|
)
|
|
$
|
460,767
|
|
|
$
|
(39,315
|
)
|
|
$
|
1,649,480
|
|
|
$
|
(40,797
|
)
|
|
$
|
2,110,247
|
|
AAA-rated agency securities
|
|
|
(585
|
)
|
|
|
31,865
|
|
|
|
(172
|
)
|
|
|
16,498
|
|
|
|
(757
|
)
|
|
|
48,363
|
|
Other investment grade securities
|
|
|
(477
|
)
|
|
|
13,369
|
|
|
|
(1,891
|
)
|
|
|
25,998
|
|
|
|
(2,368
|
)
|
|
|
39,367
|
|
Residual securities
|
|
|
(64
|
)
|
|
|
4,563
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(64
|
)
|
|
|
4,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2,608
|
)
|
|
$
|
510,564
|
|
|
$
|
(41,378
|
)
|
|
$
|
1,691,976
|
|
|
$
|
(43,986
|
)
|
|
$
|
2,202,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the available for sale securities
that have been in unrealized loss position for 12 months or
more are primarily related to AAA-rated non-agency securities
issued by private institutions. These unrealized losses are
primarily attributable to changes in interest rates. Because we
have the ability and the intent to hold these investments until
a recovery of fair value, which may be maturity, we do not
consider these investments to be other-than-temporarily impaired
at December 31, 2007.
As a result of our periodic reviews for impairment in accordance
with Emerging Issues Task Force (“EITF”)
99-20,
“Recognition of Interest Income and Impairment on
Certain Investments”
(“EITF 99-20”),
during the years ended December 31, 2007, 2006 and 2005, we
recorded $40.0 million, $10.2 million and
$0.6 million, respectively, in impairment charges on
investment grade, non-investment grade and residual securities.
We value AAA-rated interest-only securities using an
option-adjusted spread (“OAS”) methodology, in which
discount rates and future cash flows vary over time with the
level of rates implied by each of 200 randomly-generated forward
interest rate paths. When available, market information is used
to validate these assumptions. The prepayment rates used to
value our AAA-rated interest-only securities portfolio are based
primarily on four-factor prepayment models which incorporate
relative weighted average coupon (“WAC”), seasoning,
burnout, and seasonality, as well as expectations of future
rates implied by the forward LIBOR/swap curve. At
December 31, 2007 and 2006, the weighted average constant
lifetime prepayment rate assumption was 24.5% and 16.4%,
respectively, and the implied yield was 12.3% and 15.4%,
respectively.
The fair value of our residual securities is determined by
discounting estimated net future cash flows, using discount
rates that approximate current market rates and expected
prepayment rates. Estimated net future cash flows include
assumptions related to expected credit losses on these
securities. We maintain a model that evaluates the
F-21
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
default rate and severity of loss on the residual
securities’ collateral, considering such factors as loss
experience, delinquencies, loan-to-value ratio, borrower credit
scores and property type.
The following details the assumptions used in valuing the
residual securities as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Closed-End
|
|
|
|
|
|
|
|
|
|
|
|
Closed-End
|
|
|
|
|
|
|
|
|
|
|
|
|
Seconds
|
|
|
Subprime
|
|
|
Lot
|
|
|
HELOC
|
|
|
Seconds
|
|
|
Subprime
|
|
|
Lot
|
|
|
HELOC
|
|
|
Weighted average discount rate
|
|
|
23.1
|
%
|
|
|
24.4
|
%
|
|
|
21.8
|
%
|
|
|
21.0
|
%
|
|
|
24.6
|
%
|
|
|
20.4
|
%
|
|
|
23.5
|
%
|
|
|
20.2
|
%
|
Projected prepayment rate
|
|
|
21.4
|
%
|
|
|
24.7
|
%
|
|
|
32.5
|
%
|
|
|
19.9
|
%
|
|
|
37.1
|
%
|
|
|
39.5
|
%
|
|
|
39.8
|
%
|
|
|
50.3
|
%
|
Remaining cumulative losses
|
|
|
14.6
|
%
|
|
|
14.4
|
%
|
|
|
3.2
|
%
|
|
|
8.6
|
%
|
|
|
8.1
|
%
|
|
|
5.9
|
%
|
|
|
0.6
|
%
|
|
|
1.1
|
%
|
There were no prime residual securities as of December 31,
2007 and 2006.
The fair value of all of our other investment and non-investment
grade mortgage-backed securities is estimated based on
discounted cash flow techniques using assumptions for prepayment
rates, market yield requirements and credit losses, and market
information when available.
As of December 31, 2007, the aggregate amount of the
securities from each of the following issuers was greater than
10% of consolidated shareholders’ equity (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair Market
|
|
Name of Issuer
|
|
Cost
|
|
|
Value
|
|
|
IndyMac INDX Mortgage Loan
Trust 2007-AR21IP
|
|
$
|
1,592,652
|
|
|
$
|
1,541,965
|
|
IndyMac INDA Mortgage Loan
Trust 2007-AR8
|
|
|
185,933
|
|
|
|
172,264
|
|
IndyMac INDX Mortgage Loan
Trust 2006-AR19
|
|
|
245,970
|
|
|
|
244,835
|
|
Residential Asset Securitization
Trust Series 2006-A4IP
|
|
|
306,691
|
|
|
|
303,245
|
|
Residential Asset Securitization
Trust Series 2006-A16
|
|
|
189,016
|
|
|
|
186,836
|
|
IndyMac Certificate
Trust 2004-2
|
|
|
225,083
|
|
|
|
225,083
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,745,345
|
|
|
$
|
2,674,228
|
|
|
|
|
|
|
|
|
|
|
These issuers are qualifying special-purpose entities created by
the Company in conjunction with the securitization transactions
with the objective to recharacterize loans as securities for the
following purposes: (1) lower our cost of funds;
(2) improve our liquidity profile; and (3) improve our
risk profile through the use of bond insurance. Of the total
securities from these issuers, 95% of the securities are
AAA-rated asset-backed certificates. Approximately
$0.2 billion of these securities are insured by a third
party.
F-22
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following sets forth certain information regarding the
weighted average yields and remaining contractual maturities of
our MBS portfolio as of December 31, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More Than One Year
|
|
|
More Than Five
|
|
|
|
|
|
|
|
|
|
One Year or Less
|
|
|
to Five Years
|
|
|
Years to Ten Years
|
|
|
More Than Ten Years
|
|
|
Total
|
|
|
|
|
|
|
Wtd.
|
|
|
|
|
|
Wtd.
|
|
|
|
|
|
Wtd.
|
|
|
|
|
|
Wtd.
|
|
|
|
|
|
Wtd.
|
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
|
Value
|
|
|
Yield(1)
|
|
|
Value
|
|
|
Yield(1)
|
|
|
Value
|
|
|
Yield(1)
|
|
|
Value
|
|
|
Yield(1)
|
|
|
Value
|
|
|
Yield(1)
|
|
|
AAA-rated mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated agency securities
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
1,908
|
|
|
|
6.45
|
%
|
|
$
|
43,388
|
|
|
|
5.87
|
%
|
|
$
|
45,296
|
|
|
|
5.89
|
%
|
AAA-rated non-agency securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,053,677
|
|
|
|
5.75
|
%
|
|
|
6,053,677
|
|
|
|
5.75
|
%
|
AAA-rated and agency interest-only securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169
|
|
|
|
15.95
|
%
|
|
|
59,675
|
|
|
|
14.45
|
%
|
|
|
59,844
|
|
|
|
14.45
|
%
|
AAA-rated principal-only securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
88,024
|
|
|
|
9.12
|
%
|
|
|
88,024
|
|
|
|
9.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AAA-rated mortgage-backed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,077
|
|
|
|
7.22
|
%
|
|
|
6,244,764
|
|
|
|
5.88
|
%
|
|
|
6,246,841
|
|
|
|
5.88
|
%
|
Prepayment penalty and late fee securities
|
|
|
2
|
|
|
|
57.28
|
%
|
|
|
1,186
|
|
|
|
15.00
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
80,839
|
|
|
|
21.75
|
%
|
|
|
82,027
|
|
|
|
21.66
|
%
|
Other investment grade mortgage-backed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
3,810
|
|
|
|
8.04
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
723,679
|
|
|
|
7.70
|
%
|
|
|
727,489
|
|
|
|
7.70
|
%
|
Other non-investment grade securities
|
|
|
—
|
|
|
|
—
|
|
|
|
17,067
|
|
|
|
11.27
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
138,681
|
|
|
|
10.95
|
%
|
|
|
155,748
|
|
|
|
10.99
|
%
|
Non-investment grade residual securities
|
|
|
—
|
|
|
|
—
|
|
|
|
40,846
|
|
|
|
22.00
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
75,568
|
|
|
|
21.71
|
%
|
|
|
116,414
|
|
|
|
21.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
$
|
2
|
|
|
|
57.28
|
%
|
|
$
|
62,909
|
|
|
|
18.11
|
%
|
|
$
|
2,077
|
|
|
|
7.22
|
%
|
|
$
|
7,263,531
|
|
|
|
6.50
|
%
|
|
$
|
7,328,519
|
|
|
|
6.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted average yield is computed based on the amortized
costs of the securities. |
Given prepayments on the underlying collateral of our MBS, we do
not expect our MBS to remain outstanding throughout their
contractual maturity periods. Therefore, contractual maturity is
not a relevant measure of the timing of our future expected cash
flows. Actual economic cash flows are expected to be received
much sooner.
F-23
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 5 —
|
LOANS
RECEIVABLE
|
The following represents a summary of loans receivable as of the
dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Loans held for sale
|
|
|
|
|
|
|
|
|
Principal balance of loans HFS
|
|
$
|
3,704,681
|
|
|
$
|
9,331,112
|
|
Unamortized premiums and fees
|
|
|
46,856
|
|
|
|
176,094
|
|
Hedge effects and other valuation adjustments
|
|
|
25,367
|
|
|
|
(39,363
|
)
|
|
|
|
|
|
|
|
|
|
Total loans held for sale
|
|
$
|
3,776,904
|
|
|
$
|
9,467,843
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment
|
|
|
|
|
|
|
|
|
Principal balance of mortgage loans HFI
|
|
$
|
13,522,119
|
|
|
$
|
6,828,862
|
|
Basis adjustment on transferred loans and unamortized premium on
mortgage loans HFI
|
|
|
(276,805
|
)
|
|
|
89,306
|
|
Outstanding balance on other loans HFI(1)
|
|
|
3,202,111
|
|
|
|
3,259,532
|
|
Unamortized net deferred loan fees on other loans HFI
|
|
|
6,621
|
|
|
|
(491
|
)
|
Allowance for loan losses
|
|
|
(398,135
|
)
|
|
|
(62,386
|
)
|
|
|
|
|
|
|
|
|
|
Total loans held for investment
|
|
$
|
16,055,911
|
|
|
$
|
10,114,823
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
$
|
19,832,815
|
|
|
$
|
19,582,666
|
|
|
|
|
|
|
|
|
|
|
Loans receivable pledged as collateral for borrowings
|
|
$
|
14,498,952
|
|
|
$
|
14,878,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes consumer and builder construction loans and revolving
warehouse lines of credit. |
The Company transferred mortgage loans in the fourth quarter of
2007 with a net investment of $10.9 billion from HFS to HFI
at the lower of cost or fair value as the Company no longer
intended to sell these loans in the secondary market. At the
time of transfer, the mortgage loans carrying value of
$10.3 billion included $0.6 billion impairment loss
which was recorded as a component of gain on sale of loans
primarily during the third and fourth quarters of 2007.
F-24
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents our loans receivable by product as of the
dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Loans held for sale
|
|
|
|
|
|
|
|
|
SFR mortgage loans
|
|
$
|
3,286,886
|
|
|
$
|
8,801,252
|
|
HELOCs
|
|
|
168,702
|
|
|
|
633,096
|
|
Commercial real estate loans
|
|
|
320,554
|
|
|
|
—
|
|
Consumer lot loans
|
|
|
762
|
|
|
|
33,495
|
|
|
|
|
|
|
|
|
|
|
Total loans held for sale
|
|
$
|
3,776,904
|
|
|
$
|
9,467,843
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment
|
|
|
|
|
|
|
|
|
SFR mortgage loans
|
|
$
|
11,125,188
|
|
|
$
|
6,519,340
|
|
Consumer construction loans
|
|
|
2,342,060
|
|
|
|
2,225,979
|
|
Builder construction loans
|
|
|
818,035
|
|
|
|
786,279
|
|
HELOCs
|
|
|
1,459,580
|
|
|
|
23,618
|
|
Land and other mortgage loans
|
|
|
660,550
|
|
|
|
375,215
|
|
Revolving warehouse lines of credit
|
|
|
48,633
|
|
|
|
246,778
|
|
Allowance for loan losses
|
|
|
(398,135
|
)
|
|
|
(62,386
|
)
|
|
|
|
|
|
|
|
|
|
Total loans held for investment
|
|
$
|
16,055,911
|
|
|
$
|
10,114,823
|
|
|
|
|
|
|
|
|
|
|
Our non-accrual/non-performing loans by collateral type are
summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Homebuilder loans
|
|
$
|
480,157
|
|
|
$
|
8,981
|
|
|
$
|
—
|
|
Consumer construction loans
|
|
|
77,562
|
|
|
|
25,957
|
|
|
|
9,446
|
|
SFR mortgage loans HFI and other non-accrual/non-performing loans
|
|
|
756,166
|
|
|
|
127,892
|
|
|
|
54,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual/non-performing loans
|
|
$
|
1,313,885
|
|
|
$
|
162,830
|
|
|
$
|
64,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the total non-accrual loans at December 31, 2007,
approximately $480.2 million of impaired homebuilder loans
were accounted for in accordance with SFAS 114. As of
December 31, 2006 and 2005, there were no impaired loans
accounted for in accordance with SFAS 114. The average
balance for the SFAS 114 impaired loans during 2007 was
$127.1 million. The allowance for loan losses related to
these SFAS 114 impaired loans was $95.0 million at
December 31, 2007. For the year ended December 31,
2007, no interest income was recognized on the SFAS 114
impaired loans subsequent to the determination of impairment.
There were no significant non-accrual loans accounted for under
SFAS 114 at December 31, 2006 and 2005.
Troubled debt restructurings, where management has granted a
concession to a borrower experiencing financial difficulty, were
approximately $33.1 million as of December 31, 2007.
We have no significant commitments to lend additional funds to
borrowers with restructured loans. There were no significant
troubled debt restructuring loans at December 31, 2006 and
2005.
|
|
NOTE 6 —
|
ALLOWANCE
FOR LOAN LOSSES
|
Our determination of the level of the allowance for loan losses
and, correspondingly, the provision for loan losses, is based on
management’s judgments and assumptions regarding various
matters, including general economic conditions, loan portfolio
composition, loan demand, delinquency trends, and prior loan
loss experience.
F-25
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The allowance for loan losses of $398.1 million is
considered adequate to cover probable losses inherent in the
loan portfolio at December 31, 2007. However, no assurance
can be given that we will not, in any particular period, sustain
loan losses that exceed the allowance, or that subsequent
evaluation of the loan portfolio, in light of then-prevailing
factors, including economic conditions, credit quality of the
assets comprising the portfolio and the ongoing examination
process, will not require significant changes in the allowance
for loan losses.
Summarized below are changes to the allowance for loan losses
for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance, beginning of year
|
|
$
|
62,386
|
|
|
$
|
55,168
|
|
|
$
|
52,891
|
|
Allowance transferred to HFS loans
|
|
|
(7,574
|
)
|
|
|
—
|
|
|
|
—
|
|
Provision for loan losses
|
|
|
395,548
|
|
|
|
19,993
|
|
|
|
9,978
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loans
|
|
|
(29,186
|
)
|
|
|
(6,003
|
)
|
|
|
(2,116
|
)
|
Consumer construction loans
|
|
|
(19,835
|
)
|
|
|
(3,549
|
)
|
|
|
(2,422
|
)
|
Other(1)
|
|
|
(7,138
|
)
|
|
|
(5,586
|
)
|
|
|
(4,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(56,159
|
)
|
|
|
(15,138
|
)
|
|
|
(9,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
SFR mortgage loans
|
|
|
1,200
|
|
|
|
470
|
|
|
|
639
|
|
Consumer construction loans
|
|
|
117
|
|
|
|
231
|
|
|
|
127
|
|
Other(1)
|
|
|
2,617
|
|
|
|
1,662
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
3,934
|
|
|
|
2,363
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs, net of recoveries
|
|
|
(52,225
|
)
|
|
|
(12,775
|
)
|
|
|
(7,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
398,135
|
|
|
$
|
62,386
|
|
|
$
|
55,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes loans from the warehouse lines of credit, home equity
lines of credit and of discontinued loan products. |
|
|
NOTE 7 —
|
MORTGAGE
SERVICING RIGHTS
|
The following presents the assumptions used to value MSRs as of
the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
$
|
2,495,407
|
|
|
$
|
1,822,455
|
|
|
$
|
1,094,490
|
|
Collateral Balance
|
|
|
181,723,633
|
|
|
|
139,816,763
|
|
|
|
84,495,133
|
|
Gross Weighted-Average Coupon (“WAC”)
|
|
|
6.89
|
%
|
|
|
7.05
|
%
|
|
|
6.19
|
%
|
Servicing Fee
|
|
|
0.34
|
%
|
|
|
0.37
|
%
|
|
|
0.37
|
%
|
3-Month
Prepayment Speed
|
|
|
9.7
|
%
|
|
|
20.2
|
%
|
|
|
21.7
|
%
|
Weighted-Average Multiple
|
|
|
4.01
|
|
|
|
3.57
|
|
|
|
3.54
|
|
Valuation Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Lifetime Prepayment Speeds (“CPR”)
|
|
|
19.6
|
%
|
|
|
25.8
|
%
|
|
|
21.4
|
%
|
Discount Yield
|
|
|
9.7
|
%
|
|
|
8.8
|
%
|
|
|
10.7
|
%
|
F-26
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents the changes in MSRs for the years
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance, beginning of the year
|
|
$
|
1,822,455
|
|
|
$
|
1,094,490
|
|
|
$
|
640,794
|
|
Cumulative-effect adjustment due to change in accounting for MSRs
|
|
|
—
|
|
|
|
17,561
|
|
|
|
—
|
|
Additions from loan sale or securitization
|
|
|
976,482
|
|
|
|
1,075,740
|
|
|
|
701,178
|
|
Purchase or assumption
|
|
|
2,268
|
|
|
|
8,658
|
|
|
|
5,463
|
|
Transfers to prepayment penalty and/or AAA-rated and agency
interest-only securities
|
|
|
(57,065
|
)
|
|
|
(4,723
|
)
|
|
|
(8,491
|
)
|
Transfers due to
clean-up
calls and other
|
|
|
(873
|
)
|
|
|
(274
|
)
|
|
|
(3,911
|
)
|
Change in fair value due to run-off
|
|
|
(408,107
|
)
|
|
|
(376,718
|
)
|
|
|
—
|
|
Change in fair value due to market changes
|
|
|
156,327
|
|
|
|
24,180
|
|
|
|
—
|
|
Change in fair value due to application of external benchmarking
policies
|
|
|
3,920
|
|
|
|
(16,459
|
)
|
|
|
—
|
|
Amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
(227,084
|
)
|
Valuation/impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
2,495,407
|
|
|
$
|
1,822,455
|
|
|
$
|
1,094,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs as a percentage of the unpaid principal balance (UPB) of
the underlying loans serviced (in basis points)
|
|
|
137
|
|
|
|
130
|
|
|
|
130
|
|
The following presents changes in the valuation allowance for
impairment of MSRs for the years indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of the year
|
|
$
|
(127,818
|
)
|
|
$
|
(87,997
|
)
|
Remeasurement to fair value
|
|
|
127,818
|
|
|
|
—
|
|
Provision for valuation
|
|
|
—
|
|
|
|
(42,502
|
)
|
Clean-up
calls exercised
|
|
|
—
|
|
|
|
2,681
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
—
|
|
|
$
|
(127,818
|
)
|
|
|
|
|
|
|
|
|
|
Upon the Company’s adoption on January 1, 2006 of FASB
Statement No. 156, “Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities”, we elected to
prospectively apply the fair value method for all classes of its
separately recognized MSRs with changes in fair value reflected
in the service fee income in the statement of operations. The
difference between the fair value and the carrying amount, net
of any related valuation allowance, was recorded as a
cumulative-effect adjustment to retained earnings as of
January 1, 2006.
F-27
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents the major components of other assets as
of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Investment in Federal Home Loan Bank (“FHLB”) stock,
at cost
|
|
$
|
676,077
|
|
|
$
|
762,054
|
|
Derivative financial instruments and hedging related deposits
|
|
|
404,881
|
|
|
|
349,663
|
|
Servicing related advances
|
|
|
346,125
|
|
|
|
108,835
|
|
Interest receivable
|
|
|
343,324
|
|
|
|
217,667
|
|
Real estate owned (“REO”), net of valuation allowance
of $60,939 and $6,441 at December 31, 2007 and 2006,
respectively
|
|
|
196,049
|
|
|
|
21,638
|
|
Fixed assets, net of accumulated depreciation of $157,826 and
$122,113 at December 31, 2007 and 2006, respectively
|
|
|
136,328
|
|
|
|
181,304
|
|
Goodwill and other intangible assets
|
|
|
123,937
|
|
|
|
112,608
|
|
Accounts receivable
|
|
|
98,255
|
|
|
|
102,597
|
|
Software development, net of accumulated amortization of
$119,178 and $81,984 at December 31, 2007 and 2006,
respectively
|
|
|
88,308
|
|
|
|
94,509
|
|
Other
|
|
|
102,611
|
|
|
|
154,350
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
2,515,895
|
|
|
$
|
2,105,225
|
|
|
|
|
|
|
|
|
|
|
The investment in FHLB stock consisted of capital stock, at
cost, totaling $676.1 million and $762.1 million as of
December 31, 2007 and 2006, respectively. Total dividend
income recognized was $39.9 million, $32.1 million and
$21.2 million, respectively, in 2007, 2006 and 2005. We
earned a dividend yield of 5.20%, 5.37% and 4.44% in 2007, 2006
and 2005, respectively. The investment in FHLB stock is required
to permit Indymac Bank to borrow from the FHLB of
San Francisco.
Hedging related deposits represent margin deposits with our
clearing agent or counterparties associated with our hedge
positions. For further information on our derivative financial
instruments, see “Note 14 — Derivative
Instruments.”
In the third quarter of 2007, the Company completed the sale and
leaseback of one of its properties in Pasadena, California for a
purchase price of $116 million and entered into a lease
agreement for a portion of the property with an initial term of
ten years. The leased portion of the property serves as our
mortgage banking headquarters. Accordingly, the Company removed
the $54.8 million carrying value of related fixed assets
from the balance sheet and recognized approximately
$60 million in total gain from the sale and leaseback
transaction, with approximately $24 million recognized upon
sale in the third quarter of 2007 and the $36 million
balance amortized over the term of the lease.
Depreciation and amortization expense was $77.4 million,
$63.7 million and $44.1 million for the years ended
December 31, 2007, 2006, and 2005, respectively.
F-28
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents a summary of the carrying value of
deposits, rates, and remaining maturities of certificates of
deposit as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Non-interest-bearing checking
|
|
$
|
73,343
|
|
|
|
0.0
|
%
|
|
$
|
72,081
|
|
|
|
0.0
|
%
|
Non-interest-bearing custodial loans servicing accounts
|
|
|
725,194
|
|
|
|
0.0
|
%
|
|
|
616,904
|
|
|
|
0.0
|
%
|
Interest-bearing checking
|
|
|
68,977
|
|
|
|
1.5
|
%
|
|
|
54,844
|
|
|
|
1.2
|
%
|
Savings
|
|
|
2,346,534
|
|
|
|
4.5
|
%
|
|
|
1,915,333
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
3,214,048
|
|
|
|
3.3
|
%
|
|
|
2,659,162
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit, due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
14,360,754
|
|
|
|
5.2
|
%
|
|
|
7,970,763
|
|
|
|
5.2
|
%
|
One to two years
|
|
|
150,023
|
|
|
|
5.0
|
%
|
|
|
147,519
|
|
|
|
4.9
|
%
|
Two to three years
|
|
|
39,626
|
|
|
|
5.0
|
%
|
|
|
56,009
|
|
|
|
4.8
|
%
|
Three to four years
|
|
|
38,826
|
|
|
|
5.2
|
%
|
|
|
25,879
|
|
|
|
5.0
|
%
|
Four to five years
|
|
|
11,839
|
|
|
|
5.0
|
%
|
|
|
38,475
|
|
|
|
5.2
|
%
|
Over five years
|
|
|
127
|
|
|
|
5.2
|
%
|
|
|
199
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificates of deposit
|
|
|
14,601,195
|
|
|
|
5.2
|
%
|
|
|
8,238,844
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
17,815,243
|
|
|
|
4.8
|
%
|
|
$
|
10,898,006
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following presents interest expense by deposit type for the
years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest-bearing checking
|
|
$
|
784
|
|
|
$
|
665
|
|
|
$
|
603
|
|
Savings
|
|
|
113,520
|
|
|
|
71,385
|
|
|
|
37,561
|
|
Certificates of deposit
|
|
|
548,913
|
|
|
|
336,158
|
|
|
|
157,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense on deposits
|
|
$
|
663,217
|
|
|
$
|
408,208
|
|
|
$
|
195,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, accrued interest payable was
$1.6 million for interest-bearing checking, savings and
certificates of deposit and is included in “Other
liabilities” on the consolidated balance sheets.
The following summarizes certificates of deposit in amounts of
$100,000 or more by remaining contractual maturity as of the
dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Three months or less
|
|
$
|
5,250,166
|
|
|
$
|
2,407,796
|
|
Three to six months
|
|
|
2,981,531
|
|
|
|
1,604,348
|
|
Six to twelve months
|
|
|
1,731,101
|
|
|
|
848,732
|
|
Over twelve months
|
|
|
109,476
|
|
|
|
127,884
|
|
|
|
|
|
|
|
|
|
|
Total certificates of deposit ($100,000 or more)
|
|
$
|
10,072,274
|
|
|
$
|
4,988,760
|
|
|
|
|
|
|
|
|
|
|
F-29
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 10 —
|
ADVANCES
FROM THE FHLB
|
As a member of the FHLB, we maintain a credit line based largely
on a percentage of total regulatory assets. Advances totaled
$11.2 billion and $10.4 billion at December 31,
2007 and 2006, respectively, and are collateralized in the
aggregate by loans, securities, all FHLB stock owned and by
deposits with the FHLB. The maximum amount of credit that the
FHLB will extend for purposes other than meeting withdrawals
varies from time to time in accordance with its policies. The
interest rates charged by the FHLB for advances typically vary
depending upon maturity, the cost of funds of the FHLB, and the
collateral for the borrowing.
The following presents the scheduled maturities of advances from
the FHLB as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Within one year
|
|
$
|
3,584,000
|
|
|
|
4.9
|
%
|
|
$
|
5,053,000
|
|
|
|
5.2
|
%
|
One to two years
|
|
|
2,757,000
|
|
|
|
4.8
|
%
|
|
|
1,151,000
|
|
|
|
4.8
|
%
|
Two to three years
|
|
|
1,479,000
|
|
|
|
4.8
|
%
|
|
|
1,491,000
|
|
|
|
4.9
|
%
|
Three to four years
|
|
|
1,789,800
|
|
|
|
5.2
|
%
|
|
|
759,000
|
|
|
|
4.8
|
%
|
Four to five years
|
|
|
805,000
|
|
|
|
5.1
|
%
|
|
|
1,789,800
|
|
|
|
5.2
|
%
|
Over five years
|
|
|
774,000
|
|
|
|
5.0
|
%
|
|
|
169,000
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,188,800
|
|
|
|
4.9
|
%
|
|
$
|
10,412,800
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following presents financial data pertaining to advances
from the FHLB as of or for the dates indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of or For the Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average coupon rate, end of year
|
|
|
4.9
|
%
|
|
|
5.1
|
%
|
Weighted average rate during the year, including hedge effect
|
|
|
5.2
|
%
|
|
|
4.7
|
%
|
Average balance of advances from FHLB during the year
|
|
$
|
13,531,225
|
|
|
$
|
10,560,896
|
|
Maximum amount of advances from FHLB at any month-end
|
|
$
|
14,546,800
|
|
|
$
|
12,688,800
|
|
Interest expense for the year
|
|
$
|
701,226
|
|
|
$
|
491,300
|
|
Amount of advances subject to call/put options
|
|
$
|
899,000
|
|
|
$
|
309,000
|
|
We had $5.5 billion and $5.2 billion of unused
committed financing from the FHLB at December 31, 2007 and
2006, respectively.
F-30
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 11 —
|
OTHER
BORROWINGS
|
The following presents other borrowings of the Company as of the
dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Trust preferred debentures
|
|
$
|
441,285
|
|
|
$
|
456,695
|
|
HELOC notes payable
|
|
|
212,747
|
|
|
|
659,283
|
|
Asset-backed commercial paper
|
|
|
—
|
|
|
|
2,115,839
|
|
Loans and securities sold under agreements to repurchase
|
|
|
—
|
|
|
|
1,407,199
|
|
Other notes payable
|
|
|
—
|
|
|
|
1,009
|
|
Others(1)
|
|
|
(1,254
|
)
|
|
|
(3,025
|
)
|
|
|
|
|
|
|
|
|
|
Total other borrowings
|
|
$
|
652,778
|
|
|
$
|
4,637,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This represents the unamortized portion of the facility issue
cost and commitment fee. |
At December 31, 2007, we had $4.8 billion in committed
financing whole loan financing facilities. Of these committed
financing facilities, $1.0 billion was available for use
based on eligible collateral. Decisions by our lenders and
investors to make additional funds available to us in the future
will depend upon a number of factors. These include our
compliance with the terms of existing credit arrangements, our
financial performance, eligible collateral, changes in our
credit rating, industry and market trends in our various
businesses, the general availability and interest rates
applicable to financing and investments, the lenders’
and/or
investors’ own resources and policies concerning loans and
investments and the relative attractiveness of alternative
investment or lending opportunities.
Asset-Backed
Commercial Paper
In April 2006, we established the North Lake Capital Funding
Program, a single seller asset-backed commercial paper
(“ABCP”) facility, which allows us to directly issue
secured liquidity notes backed by mortgage loans. Both the
collateral pledged and secured liquidity notes are recorded on
our balance sheet as assets and liabilities, respectively. The
secured liquidity notes have been rated F-1+ by Fitch Ratings,
P-1 by
Moody’s Investors Service and
A-1+ by
Standard & Poor’s, and are supported by credit
enhancements, such as over collateralization, excess spread, and
market value interest rate swaps provided by highly rated
counterparties. We are authorized to issue up to
$4.0 billion in short-term notes, with expected maturities
not to exceed 180 days after issuance and final maturities
of 60 days following the expected maturities. As of
December 31, 2007, we did not have any secured liquidity
notes outstanding. As a result of the disruption in the
extendible ABCP market, we actively paid down this facility
during the third quarter of 2007. Additionally, the viability of
the extendible ABCP market and this facility is unknown and
therefore, at this time, we are not relying on this facility for
future funding needs. As of February 2008, we are in the process
of terminating this facility.
In November 2006, we established a multi-seller ABCP facility
(which is supported by backstop liquidity facilities from highly
rated banks) to provide up to $1.5 billion dedicated
financing for our construction to permanent, lot, and reverse
mortgage loans. This is an annually renewable
364-day
committed facility administered by Citicorp North America, Inc.
This facility was terminated effective November 2007.
Loans
and Securities Sold Under Agreements to Repurchase
We had no repurchase agreement borrowings at December 31,
2007 as a result of our strategy to increase our deposits and
advances from the FHLB. The amount outstanding under loans and
securities sold under agreements to repurchase was
$1.4 billion at December 31, 2006. Our outstanding
repurchase agreements have an average maturity of less than
30 days. These repurchase agreements generally reprice on
an overnight-to-one-month basis
F-31
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
for loans, and a one-to-three-month basis for securities,
bearing interest at rates indexed to LIBOR or the federal funds
rate, plus an applicable margin. We were in compliance with all
material financial covenants under these repurchase agreements
at December 31, 2007 and 2006. For the years ended
December 31, 2007 and 2006, the weighted average borrowing
rate on repurchase agreements, including the multi-seller ABCP
facility, was 5.8% and 5.2%, respectively.
The following presents additional information related to our
repurchase agreements (including the ABCP facility) as of or for
the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or For the Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Average balance during the year
|
|
$
|
2,088,580
|
|
|
$
|
3,726,067
|
|
|
$
|
2,947,552
|
|
Maximum balance outstanding at any month-end(1)
|
|
|
3,601,049
|
|
|
|
6,026,510
|
|
|
|
5,254,136
|
|
Balance at December 31
|
|
|
—
|
|
|
|
2,455,505
|
|
|
|
3,057,262
|
|
Weighted average interest rate, end of year
|
|
|
—
|
|
|
|
5.5
|
%
|
|
|
4.7
|
%
|
Weighted average coupon rate during the year
|
|
|
5.8
|
%
|
|
|
5.2
|
%
|
|
|
3.9
|
%
|
|
|
|
(1) |
|
The maximum amount of borrowings outstanding occurred in
February 2007, February 2006, and August 2005. |
Trust Preferred
Securities and Warrants
On November 14, 2001, we completed an offering of Warrants
and Income Redeemable Equity Securities (“WIRES”) to
investors. Gross proceeds of the transaction were
$175 million. The securities were offered as units
consisting of trust preferred securities, issued by a trust
formed by us, and warrants to purchase IndyMac Bancorp’s
common stock. As part of this transaction, IndyMac Bancorp
issued subordinated debentures to the trust and purchased common
securities from the trust. The yield on the subordinated
debentures and the common securities is the same as the yield on
the trust preferred securities. Also, we issued 3,500,000
warrants, each convertible into 1.5972 shares of IndyMac
Bancorp’s common stock as part of the WIRES offering.
Beginning on November 14, 2006, Indymac has the option to
redeem the warrants for cash equal to the warrant value subject
to the conditions in the prospectus. During 2007, a total of
40,000 warrants were exercised at an exercise price of $35.17
per share to purchase 63,888 shares of IndyMac
Bancorp’s common stock. During 2006, a total of
2.5 million warrants were exercised at an average exercise
price of $35.09 per share to purchase 4.0 million shares of
IndyMac Bancorp’s common stock. To date, total warrants of
2.6 million have been exercised and converted into a total
of 4.2 million shares of IndyMac Bancorp’s common
stock. Subordinated debentures redeemed in conjunction with the
warrant exercises totaled $130.2 million and
$64.5 million as of December 31, 2007 and 2006,
respectively.
F-32
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In 2007, we issued an additional $30 million in pooled
trust preferred securities. To date, we have issued
$398 million trust preferred securities (without warrants
attached). The following summarizes the trust preferred
securities by issuance at December 31, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face Amount
|
|
|
Interest Rate
|
|
|
Maturity Date
|
|
June 2007
|
|
$
|
30,000
|
|
|
|
6.80
|
%
|
|
|
June 2037
|
|
December 2006
|
|
|
20,000
|
|
|
|
6.74
|
%
|
|
|
January 2037
|
|
December 2006
|
|
|
40,000
|
|
|
|
6.90
|
%
|
|
|
March 2037
|
|
September 2006
|
|
|
38,000
|
|
|
|
6.96
|
%
|
|
|
December 2036
|
|
June 2006
|
|
|
90,000
|
|
|
|
7.35
|
%
|
|
|
September 2036
|
|
December 2005
|
|
|
90,000
|
|
|
|
6.31
|
%
|
|
|
December 2035
|
|
December 2004
|
|
|
30,000
|
|
|
|
5.83
|
%
|
|
|
March 2035
|
|
December 2003
|
|
|
30,000
|
|
|
|
6.30
|
%
|
|
|
January 2034
|
|
July 2003
|
|
|
30,000
|
|
|
|
6.05
|
%
|
|
|
July 2033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
398,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates on these securities are fixed for terms ranging
from 5 to 10 years, after which the rates reset quarterly
indexed to
3-month
LIBOR. The securities can be called at the option of IndyMac
Bancorp five or ten years after issuance. In each of these
transactions, IndyMac Bancorp issued subordinated debentures to,
and purchased common securities from, each of the trusts. The
rates on the subordinated debentures and the common securities
in each of these transactions matches the rates on the related
trust preferred securities. The proceeds of these securities
have been used in ongoing operations.
Recorded values of the subordinated debentures underlying the
trust preferred securities, which represent the liabilities due
from IndyMac Bancorp to the trusts, totaled $441.3 million
and $456.7 million at December 31, 2007 and 2006,
respectively. These subordinated debentures are included in
“Other borrowings” on the consolidated balance sheets.
Revolving
Syndicated Bank Credit Facilities
In June 2005, a revolving unsecured syndicated bank facility in
the aggregate amount of $75 million was executed between
IndyMac Bancorp and Wells Fargo Bank, N.A., which was later
increased to $100 million in June 2006. The interest rate
is based on LIBOR plus an applicable margin. We did not draw on
the line during 2007 and 2006 and this facility was terminated
in November 2007.
Other
Notes Payable
The Company participates in certain real estate construction
projects through the builder construction division. The special
purpose entities formed related to these real estate projects
have been evaluated and determined to be VIEs under the
definition of FIN 46R and we are deemed as the primary
beneficiary of the VIEs, and thus, required to consolidate the
VIEs. At December 31, 2007, there was no notes payable in
the VIEs.
Commitment
Fees
At December 31, 2007 and 2006, we had deferred commitment
fees totaling $1.3 million and $3.0 million,
respectively. Amortization of $4.7 million and
$4.4 million was recognized as interest expense in 2007 and
2006, respectively. We amortize these fees over the contractual
life of the borrowings.
F-33
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Pledged
Assets for Borrowings
We pledged certain of our loans and securities for our
borrowings, which mainly consist of advances from FHLB and loans
and securities sold under agreements to repurchase. The
following provides information related to such pledged assets as
of the dates indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Loans pledged for FHLB advances
|
|
$
|
11,896
|
|
|
$
|
8,747
|
|
Securities pledged for FHLB advances
|
|
|
6,372
|
|
|
|
3,598
|
|
Loans pledged for repurchase agreements
|
|
|
1,347
|
|
|
|
4,058
|
|
Securities pledged for repurchase agreements
|
|
|
—
|
|
|
|
704
|
|
Loans pledged for other
|
|
|
1,256
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
Total pledged loans and securities
|
|
$
|
20,871
|
|
|
$
|
19,181
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, pledged assets exceeded our
borrowings. The excess collateral was held by a trustee and
pledged to our lenders.
The following details the amounts allocated among the various
lenders as of the dates indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
FHLB
|
|
$
|
7,079
|
|
|
$
|
1,932
|
|
Federal Reserve
|
|
|
1,256
|
|
|
|
662
|
|
Dresdner
|
|
|
867
|
|
|
|
—
|
|
Morgan Stanley
|
|
|
480
|
|
|
|
126
|
|
Merrill Lynch
|
|
|
—
|
|
|
|
1,001
|
|
UBS Warburg
|
|
|
—
|
|
|
|
513
|
|
Greenwich
|
|
|
—
|
|
|
|
378
|
|
Citicorp
|
|
|
—
|
|
|
|
266
|
|
North Lake Capital Funding
|
|
|
—
|
|
|
|
350
|
|
Other
|
|
|
—
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Total excess
|
|
$
|
9,682
|
|
|
$
|
5,249
|
|
|
|
|
|
|
|
|
|
|
Debt
Covenants
The Company is subject to various debt covenants as a condition
of its borrowing facilities. As of December 31, 2007, in
addition to the standard covenants of timely repayments of
interest and principal, the key debt covenants include
maintaining minimum well-capitalized capital ratios (5%, 6%, and
10% for Tier 1 (core) capital, Tier 1 risk-based
capital and total risk-based capital, respectively) and minimum
net worth of $1 billion for the Company. As of
December 31, 2007, we believe we were in compliance with
all material financial covenants under our borrowing facilities.
F-34
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following summarizes our sources of financing as of
December 31, 2007 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed
|
|
|
Outstanding
|
|
|
|
|
|
Financial Institution or Instrument
|
|
Financing
|
|
|
Balances
|
|
|
Type of Financing
|
|
Maturity Date
|
|
North Lake Capital Funding
|
|
$
|
4,000
|
|
|
$
|
—
|
|
|
|
Asset-Backed Commercial Paper
|
|
|
|
April 2010
|
|
Morgan Stanley
|
|
|
—
|
|
|
|
—
|
|
|
|
Whole Loan Repurchase Agreement
|
|
|
|
(1)
|
|
Dresdner
|
|
|
750
|
|
|
|
—
|
|
|
|
Whole Loan Repurchase Agreement
|
|
|
|
May 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,750
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Advances from FHLB
|
|
|
16,732
|
|
|
|
11,189
|
|
|
|
|
|
|
|
|
|
HELOC Note Trust
(2004-2)
|
|
|
213
|
|
|
|
213
|
|
|
|
Note Trust
|
|
|
|
October 2036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total financing
|
|
|
21,695
|
|
|
|
11,402
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
—
|
|
|
|
17,815
|
|
|
|
|
|
|
|
|
|
Trust Preferred Debentures
|
|
|
—
|
|
|
|
441
|
|
|
|
Trust Preferred Debentures
|
|
|
|
November 2031 – June 2037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing
|
|
$
|
21,695
|
|
|
$
|
29,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This facility was terminated effective December 31, 2007. |
|
|
NOTE 12 —
|
PARENT
COMPANY FINANCIAL STATEMENTS
|
The following presents condensed financial statements of the
Parent Company, IndyMac Bancorp, as of and for the years
indicated (dollars in thousands):
Condensed
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
63,952
|
|
|
$
|
153,839
|
|
Securities classified as trading
|
|
|
1,224
|
|
|
|
1,556
|
|
Securities classified as available for sale
|
|
|
502
|
|
|
|
57,037
|
|
Loans held for investment, net
|
|
|
283
|
|
|
|
922
|
|
Investment in and advances to subsidiaries
|
|
|
1,711,582
|
|
|
|
2,304,573
|
|
Investment in non-consolidated subsidiaries
|
|
|
17,069
|
|
|
|
16,960
|
|
Other assets
|
|
|
29,375
|
|
|
|
22,580
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,823,987
|
|
|
$
|
2,557,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Trust preferred debentures
|
|
$
|
441,459
|
|
|
$
|
458,218
|
|
Loans and securities sold under agreements to repurchase
|
|
|
—
|
|
|
|
55,034
|
|
Other liabilities
|
|
|
15,175
|
|
|
|
14,821
|
|
Shareholders’ equity
|
|
|
1,367,353
|
|
|
|
2,029,394
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,823,987
|
|
|
$
|
2,557,467
|
|
|
|
|
|
|
|
|
|
|
F-35
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and trading
|
|
$
|
1,423
|
|
|
$
|
5,357
|
|
|
$
|
7,836
|
|
Loans
|
|
|
120
|
|
|
|
196
|
|
|
|
328
|
|
Other
|
|
|
6,529
|
|
|
|
5,074
|
|
|
|
2,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
8,072
|
|
|
|
10,627
|
|
|
|
10,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred debentures
|
|
|
31,927
|
|
|
|
26,652
|
|
|
|
17,182
|
|
Other
|
|
|
2,210
|
|
|
|
3,483
|
|
|
|
4,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
34,137
|
|
|
|
30,135
|
|
|
|
21,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(26,065
|
)
|
|
|
(19,508
|
)
|
|
|
(10,439
|
)
|
Provision for loan losses
|
|
|
—
|
|
|
|
25
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense after provision for loan losses
|
|
|
(26,065
|
)
|
|
|
(19,533
|
)
|
|
|
(9,939
|
)
|
Non-interest income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
(570,050
|
)
|
|
|
360,393
|
|
|
|
304,601
|
|
Net gain (loss) on securities
|
|
|
(2,066
|
)
|
|
|
3,591
|
|
|
|
4,299
|
|
Other income, net
|
|
|
2
|
|
|
|
85
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(572,114
|
)
|
|
|
364,069
|
|
|
|
308,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (loss)
|
|
|
(598,179
|
)
|
|
|
344,536
|
|
|
|
299,014
|
|
Non-interest expense
|
|
|
9,859
|
|
|
|
13,461
|
|
|
|
17,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before provision (benefit) for income taxes
|
|
|
(608,038
|
)
|
|
|
331,075
|
|
|
|
281,638
|
|
Provision (benefit) for income taxes
|
|
|
(14,379
|
)
|
|
|
(11,100
|
)
|
|
|
(8,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(593,659
|
)
|
|
$
|
342,175
|
|
|
$
|
290,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(593,659
|
)
|
|
$
|
342,175
|
|
|
$
|
290,505
|
|
Adjustments to reconcile net (loss) earnings to net cash (used
in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and net amortization (accretion)
|
|
|
2,545
|
|
|
|
608
|
|
|
|
(1,869
|
)
|
Compensation expenses related to stock options and restricted
stock
|
|
|
2,827
|
|
|
|
3,275
|
|
|
|
10,067
|
|
Loss (gain) on mortgage-backed securities, net
|
|
|
2,066
|
|
|
|
(3,591
|
)
|
|
|
(4,299
|
)
|
Provision for loan losses
|
|
|
—
|
|
|
|
25
|
|
|
|
(500
|
)
|
Loss (equity) in earnings of subsidiaries
|
|
|
570,050
|
|
|
|
(360,393
|
)
|
|
|
(304,601
|
)
|
Payments from trading securities
|
|
|
253
|
|
|
|
7,703
|
|
|
|
19,332
|
|
Net (increase) decrease in other assets and liabilities
|
|
|
(2,062
|
)
|
|
|
(9,440
|
)
|
|
|
7,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(17,980
|
)
|
|
|
(19,638
|
)
|
|
|
16,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in loans held for investment
|
|
|
634
|
|
|
|
1,059
|
|
|
|
1,809
|
|
Net purchases of securities available for sale
|
|
|
—
|
|
|
|
(22,207
|
)
|
|
|
(21,196
|
)
|
Proceeds from sale of and net payments from available for sale
securities
|
|
|
55,629
|
|
|
|
39,474
|
|
|
|
41,304
|
|
Cash dividends from Indymac Bank
|
|
|
186,244
|
|
|
|
178,132
|
|
|
|
146,212
|
|
Decrease in investment in and advances to subsidiaries, net of
cash payments
|
|
|
607
|
|
|
|
7,228
|
|
|
|
5,102
|
|
Capital contributions to Indymac Bank and other subsidiaries
|
|
|
(260,000
|
)
|
|
|
(354,127
|
)
|
|
|
(247,265
|
)
|
Net sale (purchases) of property, plant and equipment
|
|
|
(11
|
)
|
|
|
2,552
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(16,897
|
)
|
|
|
(147,889
|
)
|
|
|
(74,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of trust preferred debentures
|
|
|
30,000
|
|
|
|
188,000
|
|
|
|
90,000
|
|
Redemption of trust preferred securities
|
|
|
(48,268
|
)
|
|
|
(47,271
|
)
|
|
|
—
|
|
Net decrease in borrowings
|
|
|
(55,545
|
)
|
|
|
(14,461
|
)
|
|
|
(17,118
|
)
|
Net proceeds from issuance of common stock
|
|
|
145,588
|
|
|
|
148,470
|
|
|
|
—
|
|
Net proceeds from stock options, warrants, and notes receivable
|
|
|
4,340
|
|
|
|
110,527
|
|
|
|
46,590
|
|
Cash dividends paid
|
|
|
(129,568
|
)
|
|
|
(129,535
|
)
|
|
|
(98,501
|
)
|
Purchases of common stock
|
|
|
(1,557
|
)
|
|
|
(2,061
|
)
|
|
|
(582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(55,010
|
)
|
|
|
253,669
|
|
|
|
20,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(89,887
|
)
|
|
|
86,142
|
|
|
|
(37,389
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
153,839
|
|
|
|
67,697
|
|
|
|
105,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
63,952
|
|
|
$
|
153,839
|
|
|
$
|
67,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 13 —
|
TRANSFERS
AND SERVICING OF FINANCIAL ASSETS
|
Retained
Assets
In conjunction with the sale of mortgage loans in private-label
securitizations and GSE transactions, the Company generally
retains certain assets. The primary assets retained include
MSRs, AAA-rated agency and non-agency securities, and to a
lesser degree, AAA-rated interest-only and principal-only
securities, prepayment penalty and late fee securities, other
investment grade securities, non-investment grade securities,
and residual securities. The allocated cost of the retained
assets at the time of sale is recorded as an asset with an
offsetting increase to the gain on sale of loans (or a reduction
in the cost basis of the loans sold).
The key assumptions used in measuring the fair value of retained
assets at the time of sale during the year ended
December 31, 2007 on a weighted average basis were as
follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
|
|
|
|
Retained
|
|
|
Lifetime
|
|
|
Discount
|
|
|
Loss
|
|
|
|
Balance
|
|
|
CPR
|
|
|
Yield
|
|
|
Rate
|
|
|
MSRs
|
|
$
|
988,198
|
|
|
|
22.11
|
%
|
|
|
7.72
|
%
|
|
|
N/A
|
|
AAA-rated agency and non-agency securities
|
|
|
2,006,563
|
|
|
|
22.51
|
%
|
|
|
5.86
|
%
|
|
|
N/A
|
|
AAA-rated interest-only securities
|
|
|
6,044
|
|
|
|
27.01
|
%
|
|
|
17.64
|
%
|
|
|
N/A
|
|
AAA-rated principal-only securities
|
|
|
8,158
|
|
|
|
10.34
|
%
|
|
|
6.84
|
%
|
|
|
N/A
|
|
Prepayment penalty and late fee securities
|
|
|
47,555
|
|
|
|
22.62
|
%
|
|
|
12.64
|
%
|
|
|
N/A
|
|
Other Investment grade mortgage-backed securities
|
|
|
519,613
|
|
|
|
24.68
|
%
|
|
|
7.11
|
%
|
|
|
N/A
|
|
Non-investment grade mortgage-backed securities
|
|
|
128,896
|
|
|
|
20.13
|
%
|
|
|
15.68
|
%
|
|
|
2.00
|
%
|
Non-investment grade residual securities
|
|
|
40,179
|
|
|
|
31.31
|
%
|
|
|
22.17
|
%
|
|
|
4.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,745,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following shows the hypothetical effect on the fair value of
our retained assets using various unfavorable variations of the
expected levels of certain key assumptions used in valuing these
assets at December 31, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
|
|
|
|
AAA-Rated
|
|
|
Prepayment
|
|
|
Grade
|
|
|
Grade
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Agency and
|
|
|
AAA-Rated
|
|
|
Principal-
|
|
|
Penalty
|
|
|
Mortgage-
|
|
|
Mortgage-
|
|
|
|
|
|
|
|
|
|
Servicing
|
|
|
Non-Agency
|
|
|
Interest-Only
|
|
|
Only
|
|
|
and Late Fee
|
|
|
Backed
|
|
|
Backed
|
|
|
Residual
|
|
|
|
|
|
|
Rights
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Total
|
|
|
Balance sheet carrying value of retained interests
|
|
$
|
2,495,407
|
|
|
$
|
6,098,973
|
|
|
$
|
59,844
|
|
|
$
|
88,024
|
|
|
$
|
82,027
|
|
|
$
|
727,489
|
|
|
$
|
155,748
|
|
|
$
|
116,414
|
|
|
$
|
9,823,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment speed assumption
|
|
|
19.60
|
%
|
|
|
22.40
|
%
|
|
|
24.50
|
%
|
|
|
17.48
|
%
|
|
|
22.14
|
%
|
|
|
21.70
|
%
|
|
|
25.10
|
%
|
|
|
23.30
|
%
|
|
|
N/A
|
|
Impact on fair value of 10% adverse change of prepayment speed
|
|
$
|
152,956
|
|
|
$
|
(74,269
|
)
|
|
$
|
5,740
|
|
|
$
|
(2,672
|
)
|
|
$
|
(2,924
|
)
|
|
$
|
(1,477
|
)
|
|
$
|
1,802
|
|
|
$
|
12,573
|
|
|
$
|
91,729
|
|
Impact on fair value of 20% adverse change of prepayment speed
|
|
$
|
288,464
|
|
|
$
|
(9,430
|
)
|
|
$
|
10,679
|
|
|
$
|
(5,048
|
)
|
|
$
|
(6,180
|
)
|
|
$
|
(2,804
|
)
|
|
$
|
2,733
|
|
|
$
|
23,134
|
|
|
$
|
301,548
|
|
Discount rate assumption
|
|
|
9.70
|
%
|
|
|
6.30
|
%
|
|
|
12.30
|
%
|
|
|
8.45
|
%
|
|
|
15.27
|
%
|
|
|
11.20
|
%
|
|
|
31.20
|
%
|
|
|
22.20
|
%
|
|
|
N/A
|
|
Impact on fair value of 100 basis point adverse change
|
|
$
|
90,712
|
|
|
$
|
145,912
|
|
|
$
|
3,089
|
|
|
$
|
2,843
|
|
|
$
|
1,376
|
|
|
$
|
35,390
|
|
|
$
|
5,661
|
|
|
$
|
4,637
|
|
|
$
|
289,620
|
|
Impact on fair value of 200 basis point adverse change
|
|
$
|
174,540
|
|
|
$
|
286,511
|
|
|
$
|
6,099
|
|
|
$
|
5,488
|
|
|
$
|
2,664
|
|
|
$
|
59,189
|
|
|
$
|
10,966
|
|
|
$
|
8,865
|
|
|
$
|
554,322
|
|
Net credit loss assumption
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5.00
|
%
|
|
|
8.60
|
%
|
|
|
N/A
|
|
Impact on fair value of 10% adverse change in credit losses
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13,810
|
|
|
$
|
20,782
|
|
|
$
|
34,592
|
|
Impact on fair value of 20% adverse change in credit losses
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
22,712
|
|
|
$
|
36,490
|
|
|
$
|
59,202
|
|
F-38
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The adverse change of prepayment speed is assumed as an increase
in prepayment speed as MSRs represent our second largest
retained assets at December 31, 2007 and most sensitive to
changes in prepayment speeds. The negative amounts in the table
indicate increases in value resulting from changes in prepayment
speed, which partially offset the declines in value of other
retained assets.
These sensitivities are hypothetical and should be used with
caution. Changes in fair value based on a ten percent variation
in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair
value may not be linear. The effect of a variation in a
particular assumption on the fair value of the retained interest
is calculated without changing any other assumption, or
considering the offsetting hedging impacts. In reality, changes
in one factor may result in changes in another, such as hedging
strategies and associated gains or losses, which might magnify
or counteract the sensitivities.
Credit
Risk on Securitizations
With regard to the issuance of private-label securitizations, we
generally retain limited credit exposure in that we retain
certain non-investment grade securities and residual securities.
These securities are subordinate to investors’
investment-grade securities. We do not have credit exposure
associated with non-performing loans in securitizations beyond
our investment in retained interests in non-investment grade
securities and residual securities. The value of our retained
interests include credit loss assumptions on the underlying
collateral pool to estimate this risk.
The following summarizes the collateral balance associated with
our servicing portfolio of sold loans, and the balance of
non-investment grade securities and residual securities retained
at December 31, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of Retained Assets
|
|
|
|
|
|
|
with Credit Exposure
|
|
|
|
Total Loans
|
|
|
Non-Investment
|
|
|
Residual
|
|
|
|
Serviced
|
|
|
Grade Securities
|
|
|
Securities
|
|
|
Prime
|
|
|
|
|
|
|
|
|
|
|
|
|
Indymac securitizations
|
|
$
|
76,319,778
|
|
|
$
|
112,703
|
|
|
$
|
84,422
|
|
GSEs
|
|
|
70,119,928
|
|
|
|
—
|
|
|
|
—
|
|
Whole loan sales
|
|
|
29,676,055
|
|
|
|
—
|
|
|
|
—
|
|
Subprime
|
|
|
|
|
|
|
|
|
|
|
|
|
Indymac securitizations
|
|
|
4,881,209
|
|
|
|
43,044
|
|
|
|
31,993
|
|
GSEs
|
|
|
452,466
|
|
|
|
—
|
|
|
|
—
|
|
Whole loan sales
|
|
|
186,543
|
|
|
|
—
|
|
|
|
—
|
|
Manufactured housing securitization
|
|
|
87,654
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,723,633
|
|
|
$
|
155,747
|
|
|
$
|
116,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of the normal course of business involving loans sold to
the secondary market, we can be required to repurchase loans or
make certain payments to settle breaches of our standard
representations and warranties made as part of the loan sales or
securitizations. In anticipation of future expected losses
related to these loans, we have established secondary market
reserves and have recorded provisions of $232.5 million,
$37.3 million, and $19.6 million to this reserve as
reductions to our gain on sale of loans during 2007, 2006, and
2005, respectively. The balance in this reserve was
$179.8 million and $33.9 million at December 31,
2007 and 2006, respectively, which is included on the
consolidated balance sheets as a component of “Other
liabilities”. The calculation of the reserve is a function
of estimated losses based on expected and actual pending claims
and repurchase requests, historical experience, loan volume and
loan sale distribution channels, and even small changes in
assumptions could result in a significantly higher or lower
estimate.
F-39
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Qualifying
Special-Purpose Entities
All loans sold in our private-label securitizations are issued
through securitization trusts, which are “qualifying
special-purpose entities” (“QSPEs”) under
SFAS 140. The following presents cash flows received from
and paid to securitization trusts for the years indicated
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Proceeds from new securitizations
|
|
$
|
21,382,056
|
|
|
$
|
29,557,068
|
|
|
$
|
31,018,699
|
|
Servicing fees received
|
|
|
103,554
|
|
|
|
89,993
|
|
|
|
63,720
|
|
Other cash flows received on retained interests
|
|
|
491,575
|
|
|
|
340,843
|
|
|
|
240,703
|
|
Clean-up
calls
|
|
|
—
|
|
|
|
(31,483
|
)
|
|
|
(141,487
|
)
|
Loan repurchases for representations and warranties
|
|
|
(36,562
|
)
|
|
|
(19,632
|
)
|
|
|
(8,400
|
)
|
As part of our normal servicing operations, the Company advanced
cash to investors totaling $1.2 billion and
$195.3 million during the years ended December 31,
2007 and 2006, respectively, and received cash reimbursements
from investors totaling $1.1 billion and
$171.1 million, respectively.
From time to time, Indymac creates net interest margin
(“NIM”) trusts for the securitization of residual
securities and securities associated with prepayment charges on
the underlying mortgage loans from prior or recently completed
securitization transactions. NIM trusts issue notes to outside
investors secured by the residual securities and securities
associated with prepayment charges on the underlying mortgage
loans we contribute to the trusts. The cash proceeds from the
sale of the NIM notes to investors are paid to us as payment for
the securities. The NIM notes are obligations of the NIM trusts
and are collateralized only by the residual securities and
securities associated with prepayment charges on the underlying
mortgage loans. We are not obligated to make any payments on the
notes. These entities represent QSPEs and meet the legal
isolation criteria of SFAS 140. Therefore, these entities
are not consolidated for financial reporting purposes in
accordance with SFAS 140. At inception, the outside
investors have the majority interest in the fair value of the
residual securities and securities associated with prepayment
charges on the underlying mortgage loans. We receive cash flows
from our retained interests in the NIM trusts once the notes
issued to the investors are fully paid off. We created one NIM
trust during 2007 and three NIM trusts during 2006. At
December 31, 2007 and 2006, our retained interests in these
NIM trusts were valued at $1.3 million and
$89.1 million, respectively. Our retained interests in the
NIM trusts are included as a component of “Securities
classified as trading” in the consolidated balance sheets.
|
|
NOTE 14 —
|
DERIVATIVE
INSTRUMENTS
|
We follow the provisions of SFAS 133, as amended, for our
derivative instruments and hedging activities, which require us
to recognize all derivative instruments on the consolidated
balance sheets at fair value. FNMA and FHLMC forward contracts,
forward rate agreements, interest rate swap agreements, interest
rate swaption agreements, interest rate floor agreements,
interest rate cap agreements, Eurodollar futures, and rate lock
commitments were identified as derivative financial instruments
and recorded at fair value as of December 31, 2007 and 2006.
Generally speaking, if interest rates increase, the value of our
rate lock commitments and funded loans decrease and loan sale
margins are adversely impacted. We economically hedge the risk
of overall changes in fair value of loans held for sale and rate
lock commitments generally by selling forward contracts on
securities of GSEs and by using futures and options. Under
SFAS 133, certain of these positions qualify as a fair
value hedge of a portion of the funded loan portfolio and result
in adjustments to the carrying value of designated loans through
gain on sale based on value changes attributable to the hedged
risk. The forward contracts used to economically hedge the loan
commitments are accounted for as non-designated hedges and
naturally offset loan commitment mark-to-market gains and losses
recognized as a component of gain on sale. The loan commitments
are initially valued at zero, and the Company records only the
change in the fair value of the loan commitments. The initial
value inherent
F-40
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in the loan commitments at origination is recorded as a
component of gain on sale of loans when the underlying loan is
sold. At December 31, 2007 and 2006, the fair value of
these commitments amounted to $7.7 million and
$(9.8) million, respectively.
We use interest rate swaps, interest rate swaption agreements
and interest rate caps to reduce our exposure to interest rate
risk inherent in a portion of the current and anticipated
borrowings and advances. An interest rate swap agreement is a
contract between two parties to exchange cash flows based on
specified underlying notional amounts and indices. An interest
rate swaption agreement is an option to enter into an interest
rate swap agreement in the future. An interest rate cap is a
derivative that protects the holder from rates rising above the
agreed strike price. The holder receives money at the end of
each period in which the interest rate exceeds the agreed strike
price. Under SFAS 133, the interest rate swaps, interest
rate swaption agreements and caps used to hedge our anticipated
borrowings and advances qualify as cash flow hedges. As of
December 31, 2007, our interest rate swaps and caps carried
deferred losses of $16.8 million, while our interest rate
swaption agreements carried deferred losses of
$18.9 million. The net deferred loss of $21.7 million
(net of tax) was recorded as a component of AOCI. Future
effective changes in fair value on these interest rate swap,
interest rate swaption agreements and interest rate caps will be
adjusted through AOCI as long as the cash flow hedge
requirements continue to be met. AOCI contains approximately
$4.7 million (net of tax) in deferred cash flow hedge gains
and $6.4 million (net of tax) in deferred cash flow hedge
losses that the Company expects to be realized into income over
the next 12 months, based on the respective
December 31, 2007 valuations. At December 31, 2006,
our interest rate swaps, interest rate swaptions and caps
carried a net deferred valuation loss of $6.8 million (net
of tax), which was recorded as a component of AOCI.
We use instruments including Eurodollar futures, forward rate
agreements, interest rate caps, interest rate swaps and interest
rate swaptions to economically hedge our MSR asset, thereby
mitigating valuation declines that result from changes and
volatility in the interest rate environment. Gains and losses on
these derivative financial instruments are classified as a
component of “Service fee income” for mortgage
servicing rights, and as a component of “Gain (loss) on
mortgage-backed securities”, for our AAA-rated and agency
interest-only, principal-only securities, and residual
securities.
Indymac recognizes ineffective changes in hedge values resulting
from designated SFAS 133 hedges discussed above in the same
income statement captions as effective changes when such
ineffectiveness occurs. Indymac recognized gains (losses)
totaling $6.2 million, $(3.0) million, and
$(1.2) million of ineffectiveness in earnings for the years
ended December 31, 2007, 2006, and 2005, respectively.
F-41
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents derivative financial instruments as of
the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Expiration
|
|
|
|
Amounts
|
|
|
Fair Value
|
|
|
Dates
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale/loans held for investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate lock commitments
|
|
$
|
4,840,998
|
|
|
$
|
7,713
|
|
|
|
2008
|
|
Forward agency and loan sales
|
|
|
3,737,149
|
|
|
|
(21,908
|
)
|
|
|
2008
|
|
Eurodollar futures contracts
|
|
|
14,856,000
|
|
|
|
(24,950
|
)
|
|
|
2012
|
|
Mortgage servicing and other servicing-related assets hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps (LIBOR/Swaps)
|
|
|
146,474
|
|
|
|
1,737
|
|
|
|
2008-2012
|
|
Forward agency and loan sales
|
|
|
12,152,000
|
|
|
|
73,880
|
|
|
|
2008
|
|
Forward rate agreements
|
|
|
2,000,000
|
|
|
|
(2,780
|
)
|
|
|
2008
|
|
Eurodollar futures contracts
|
|
|
20,150,000
|
|
|
|
(8,096
|
)
|
|
|
2008-2010
|
|
Swap spreadlocks
|
|
|
500,000
|
|
|
|
(2,590
|
)
|
|
|
2008
|
|
Interest rate swaps (LIBOR)
|
|
|
28,212,310
|
|
|
|
(28,408
|
)
|
|
|
2008-2037
|
|
Interest rate swaptions (LIBOR)
|
|
|
13,745,000
|
|
|
|
472,281
|
|
|
|
2008-2018
|
|
Other MBS hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward agency and loan sales
|
|
|
(80,000
|
)
|
|
|
(681
|
)
|
|
|
2008
|
|
Interest rate swaps (LIBOR)
|
|
|
1,340,000
|
|
|
|
(22,238
|
)
|
|
|
2009-2018
|
|
Interest rate swaptions (LIBOR)
|
|
|
790,000
|
|
|
|
12,821
|
|
|
|
2008-2009
|
|
Eurodollar futures contracts
|
|
|
4,200,000
|
|
|
|
(5,660
|
)
|
|
|
2008-2012
|
|
Borrowings and advances hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (LIBOR)
|
|
|
300,000
|
|
|
|
(18,646
|
)
|
|
|
2014-2017
|
|
Interest rate swaptions (LIBOR)
|
|
|
295,000
|
|
|
|
520
|
|
|
|
2008-2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,184,931
|
|
|
$
|
432,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate lock commitments
|
|
$
|
8,181,111
|
|
|
$
|
(9,751
|
)
|
|
|
2007
|
|
Forward agency and loan sales
|
|
|
5,076,325
|
|
|
|
4,562
|
|
|
|
2007
|
|
Eurodollar futures contracts
|
|
|
25,524,000
|
|
|
|
7,813
|
|
|
|
2007-2011
|
|
Mortgage servicing and other servicing-related assets hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps (LIBOR/Swaps)
|
|
|
454,218
|
|
|
|
2,918
|
|
|
|
2007-2011
|
|
Forward agency and loan sales
|
|
|
1,115,000
|
|
|
|
(4,938
|
)
|
|
|
2007
|
|
Forward rate agreements
|
|
|
26,000,000
|
|
|
|
8,355
|
|
|
|
2007
|
|
Eurodollar futures contracts
|
|
|
16,455,000
|
|
|
|
2,460
|
|
|
|
2007-2010
|
|
Interest rate swaps (LIBOR)
|
|
|
16,105,316
|
|
|
|
17,453
|
|
|
|
2007-2036
|
|
Interest rate swaptions (LIBOR)
|
|
|
4,780,000
|
|
|
|
165,212
|
|
|
|
2007-2011
|
|
Borrowings and advances hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps (LIBOR/Swaps)
|
|
|
40,822
|
|
|
|
218
|
|
|
|
2007
|
|
Interest rate swaps (LIBOR)
|
|
|
1,943,476
|
|
|
|
21,054
|
|
|
|
2007-2016
|
|
Interest rate swaptions (LIBOR)
|
|
|
745,000
|
|
|
|
3,623
|
|
|
|
2007-2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,420,268
|
|
|
$
|
218,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
While we do not anticipate nonperformance by the counterparties,
we manage credit risk with respect to such financial instruments
by entering into agreements with entities (including their
subsidiaries) approved by a committee of the Board of Directors
and with a long term credit rating of “A” or better.
For certain counterparties, we do receive margin deposits (cash
collateral) to support the financial instruments with these
approved entities.
|
|
NOTE 15 —
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Fair value estimates were determined for existing balance sheet
and off-balance sheet financial instruments, including
derivative instruments, without attempting to estimate the value
of certain assets and liabilities that are not considered
financial instruments. Significant assets that are not
considered financial instruments under FASB Statement
No. 107, “Disclosures about Fair Value of Financial
Instruments,” include MSRs, foreclosed assets, fixed
assets, goodwill and intangible assets.
The estimated fair value amounts of our financial instruments
have been determined using available market information and
valuation methods we believe are appropriate under the
circumstances. These estimates are inherently subjective in
nature and involve matters of significant uncertainty and
judgment to interpret relevant market and other data. The use of
different market assumptions
and/or
estimation methods may have a material effect on the estimated
fair value amounts.
The following presents the estimated fair values of financial
instruments as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
561,832
|
|
|
$
|
561,832
|
|
|
$
|
541,725
|
|
|
$
|
541,725
|
|
Securities classified as trading
|
|
|
1,222,543
|
|
|
|
1,222,543
|
|
|
|
542,731
|
|
|
|
542,731
|
|
Securities classified as available for sale
|
|
|
6,105,976
|
|
|
|
6,105,976
|
|
|
|
4,900,514
|
|
|
|
4,900,514
|
|
Loans held for sale
|
|
|
3,776,904
|
|
|
|
3,814,008
|
|
|
|
9,467,843
|
|
|
|
9,565,821
|
|
Loans held for investment
|
|
|
16,055,911
|
|
|
|
15,647,700
|
|
|
|
10,114,823
|
|
|
|
10,184,055
|
|
Investment in FHLB stock
|
|
|
676,077
|
|
|
|
676,077
|
|
|
|
762,054
|
|
|
|
762,054
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
17,815,243
|
|
|
|
17,823,350
|
|
|
|
10,898,006
|
|
|
|
10,673,718
|
|
Advances from the FHLB
|
|
|
11,188,800
|
|
|
|
11,355,215
|
|
|
|
10,412,800
|
|
|
|
10,409,767
|
|
Other borrowings
|
|
|
652,778
|
|
|
|
461,336
|
|
|
|
4,637,000
|
|
|
|
4,679,943
|
|
Derivative Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to purchase and originate loans
|
|
|
7,713
|
|
|
|
7,713
|
|
|
|
(9,751
|
)
|
|
|
(9,751
|
)
|
Commitments to sell loans and securities
|
|
|
51,291
|
|
|
|
51,291
|
|
|
|
(376
|
)
|
|
|
(376
|
)
|
Forward rate agreements
|
|
|
(2,780
|
)
|
|
|
(2,780
|
)
|
|
|
8,355
|
|
|
|
8,355
|
|
Interest rate swaps
|
|
|
(69,292
|
)
|
|
|
(69,292
|
)
|
|
|
38,507
|
|
|
|
38,507
|
|
Interest rate swaptions
|
|
|
485,622
|
|
|
|
485,622
|
|
|
|
168,835
|
|
|
|
168,835
|
|
Interest rate caps, floors, flooridors and futures
|
|
|
(36,969
|
)
|
|
|
(36,969
|
)
|
|
|
13,409
|
|
|
|
13,409
|
|
Swap spreadlocks
|
|
|
(2,590
|
)
|
|
|
(2,590
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial instruments
|
|
$
|
432,995
|
|
|
$
|
432,995
|
|
|
$
|
218,979
|
|
|
$
|
218,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following describes the methods and assumptions we use in
estimating fair values:
Cash and Cash Equivalents. Carrying amount
represents fair value.
Securities Classified as Trading and Available for
Sale. Carrying amount represents fair value. Fair
value is estimated using quoted market prices or by discounting
future cash flows using assumptions for prepayment rates, market
yield requirements and credit losses.
Loans Held for Sale and Held for
Investment. The fair value of loans held for sale
and held for investment is estimated by considering:
1) quoted market prices for TBA securities (for
agency-eligible loans); 2) recent transaction settlements
or traded but unsettled transactions for similar assets;
3) recent third party market transactions for similar
assets; and 4) modeled valuations using assumptions the
Company believes a reasonable market participant would use in
valuing similar assets (assumptions may include loss rates,
prepayment rates, interest rates, volatilities, mortgage
spreads). Certain portfolio valuation within the loans held for
investment line, namely builder and consumer construction, are
solely based on present value models as no markets or
transaction exists for comparison.
Loans Held for Investment. Fair value is
estimated using quoted market prices or by discounting future
cash flows using assumptions for prepayment rates, market yield
requirements and credit losses.
Investment in FHLB Stock. The carrying amount
represents the fair value. FHLB stock does not have a readily
determinable fair value, but can be sold back to the FHLB at its
par value with stated notice.
Deposits. The fair value of time deposits and
transaction accounts is determined using a cash flow analysis.
The discount rate for time deposits is derived from the rate
currently offered on alternate funding sources with similar
maturities. The discount rate for transaction accounts is
derived from a forward LIBOR curve plus a spread. Core deposit
intangibles are included in the valuation.
Advances from FHLB. The fair value of advances
from FHLB is valued using a cash flow analysis. The discount
rate is derived from the rate currently offered on similar
borrowings.
Other Borrowings. Fair values are determined
by estimating future cash flows and discounting those using
interest rates currently available to us on similar borrowings.
Commitments to Purchase and Originate
Loans. Fair value is estimated based upon the
difference between the current value of similar loans and the
price at which we have committed to purchase or originate the
loans, subject to the anticipated loan funding probability, or
fallout factor. The fair value represents the amount of change
in value since the inception of the commitments and does not
include initial value inherent at origination.
Commitments to Sell Loans and Securities. We
utilize forward commitments to hedge interest rate risk
associated with loans held for sale and commitments to purchase
loans. Fair value of these commitments is determined based on
the difference between the settlement values of the commitments
and the quoted market values of the securities.
Forward Rate Agreements, Interest Rate Swaps, Interest Rate
Swaptions, Caps, Floors, Flooridors, Futures, and Put
Options. Valuing forward rate agreements involves
forecasting forward mortgage and swap yields using current
interest rates and comparing the value of each instrument versus
market pricing indications. Fair value for the caps, floors,
flooridors, and put options is estimated based upon specific
characteristics of the option being valued, such as the
underlying index, strike rate, and time to expiration, along
with quoted market levels of implied volatility for similar
instruments. Interest rate and Eurodollar futures are traded on
the Chicago Board of Trade and market pricing is readily
available and continuously quoted on systems such as Bloomberg.
Fair value for interest rate swap and interest rate swaption
agreements is estimated using discounted cash flow analyses
based on expectations of rates over the life of the interest
rate swap or interest rate swaption as implied by the forward
swap curve.
F-44
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Further, we have identified: 1) intermediate term fixed
rate or ARM loans that are subject to future payment increases;
2) pay option ARM loans that permit negative amortization;
and 3) loans with combined loan-to-value ratios above 80%,
underlying our assets whose contractual terms may give rise to a
concentration of credit risk and increase our exposures to risk
of nonpayment or realization.
The following details the unpaid principal balance of these
loans at December 31, 2007 and the related asset carrying
value (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Investment Grade
|
|
|
Non-Investment Grade
|
|
|
|
SFR Mortgage Loans HFI
|
|
|
Mortgage Servicing Rights
|
|
|
Securities
|
|
|
Residuals
|
|
|
|
UPB of
|
|
|
% of
|
|
|
UPB of
|
|
|
% of
|
|
|
UPB of
|
|
|
% of
|
|
|
UPB of
|
|
|
% of
|
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Hybrid, Option ARM, and All Other ARM Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hybrid 2/1
|
|
$
|
398,443
|
|
|
|
3.42
|
%
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Hybrid 3/1
|
|
|
341,927
|
|
|
|
2.93
|
%
|
|
|
3,573,134
|
|
|
|
2.18
|
%
|
|
|
734,523
|
|
|
|
3.75%
|
|
|
|
323,314
|
|
|
|
3.23%
|
|
Hybrid 5/1
|
|
|
3,626,862
|
|
|
|
31.08
|
%
|
|
|
38,902,096
|
|
|
|
23.68
|
%
|
|
|
5,715,243
|
|
|
|
29.20%
|
|
|
|
274,831
|
|
|
|
2.75%
|
|
Hybrid 7/1
|
|
|
852,157
|
|
|
|
7.30
|
%
|
|
|
7,483,083
|
|
|
|
4.56
|
%
|
|
|
1,502,742
|
|
|
|
7.68%
|
|
|
|
1,684
|
|
|
|
0.02%
|
|
Hybrid 10/1
|
|
|
782,364
|
|
|
|
6.71
|
%
|
|
|
10,987,108
|
|
|
|
6.69
|
%
|
|
|
2,458,722
|
|
|
|
12.56%
|
|
|
|
1,493
|
|
|
|
0.01%
|
|
Option ARMs
|
|
|
2,973,888
|
|
|
|
25.49
|
%
|
|
|
27,170,661
|
|
|
|
16.54
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All Other ARMs
|
|
|
332,406
|
|
|
|
2.85
|
%
|
|
|
4,963,320
|
|
|
|
3.02
|
%
|
|
|
2,114,097
|
|
|
|
10.80%
|
|
|
|
2,838,346
|
|
|
|
28.35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,308,047
|
|
|
|
79.78
|
%
|
|
$
|
93,079,402
|
|
|
|
56.67
|
%
|
|
$
|
12,525,327
|
|
|
|
63.99%
|
|
|
$
|
3,439,668
|
|
|
|
34.36%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with Original Combined Loan-to-Value (“CLTV”)
Ratios Above 80%:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
>80% — =90%
|
|
$
|
1,702,777
|
|
|
|
14.60
|
%
|
|
$
|
27,831,347
|
|
|
|
16.95
|
%
|
|
$
|
2,298,651
|
|
|
|
11.74%
|
|
|
$
|
2,714,404
|
|
|
|
27.12%
|
|
>90% — =100%
|
|
|
1,669,367
|
|
|
|
14.31
|
%
|
|
|
38,536,888
|
|
|
|
23.46
|
%
|
|
|
915,778
|
|
|
|
4.68%
|
|
|
|
2,561,318
|
|
|
|
25.58%
|
|
>100%.
|
|
|
9,752
|
|
|
|
0.08
|
%
|
|
|
29,921
|
|
|
|
0.02
|
%
|
|
|
4,282
|
|
|
|
0.02%
|
|
|
|
5,663
|
|
|
|
0.06%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,381,896
|
|
|
|
28.99
|
%
|
|
$
|
66,398,156
|
|
|
|
40.43
|
%
|
|
$
|
3,218,711
|
|
|
|
16.44%
|
|
|
$
|
5,281,385
|
|
|
|
52.76%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Underlying Single Family Residential Mortgage Loans and
HELOCs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral
|
|
$
|
11,667,013
|
|
|
|
|
|
|
$
|
164,236,946
|
|
|
|
|
|
|
$
|
19,573,334
|
|
|
|
|
|
|
$
|
10,010,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
11,411,464
|
|
|
|
|
|
|
$
|
2,343,165
|
|
|
|
|
|
|
$
|
155,748
|
|
|
|
|
|
|
$
|
116,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our mortgage servicing rights related to reverse mortgages of
$152.2 million with underlying collateral of
$17.5 billion at December 31, 2007, were not included
in the table above as these loans do not represent significant
risk of nonpayment.
F-45
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 16 —
|
NON-INTEREST
EXPENSE
|
The following presents a summary of non-interest expense for the
years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Salaries and related
|
|
$
|
770,429
|
|
|
$
|
689,742
|
|
|
$
|
552,550
|
|
Premises and equipment
|
|
|
107,112
|
|
|
|
79,102
|
|
|
|
55,424
|
|
Data processing
|
|
|
83,490
|
|
|
|
64,826
|
|
|
|
45,341
|
|
Office and related
|
|
|
64,471
|
|
|
|
68,730
|
|
|
|
50,891
|
|
Loan purchase and servicing costs
|
|
|
58,093
|
|
|
|
55,055
|
|
|
|
42,739
|
|
Operations and sale of foreclosed assets
|
|
|
46,198
|
|
|
|
3,958
|
|
|
|
2,364
|
|
Professional services
|
|
|
44,066
|
|
|
|
35,838
|
|
|
|
29,237
|
|
Advertising and promotion
|
|
|
34,181
|
|
|
|
44,369
|
|
|
|
44,959
|
|
Litigation settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
9,000
|
|
Other
|
|
|
24,857
|
|
|
|
13,586
|
|
|
|
10,391
|
|
Deferral of expenses under SFAS 91
|
|
|
(259,206
|
)
|
|
|
(266,246
|
)
|
|
|
(224,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
973,691
|
|
|
|
788,960
|
|
|
|
618,497
|
|
Amortization of other intangible assets
|
|
|
1,720
|
|
|
|
1,123
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
975,411
|
|
|
$
|
790,083
|
|
|
$
|
619,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following presents the income tax provision (benefit)
composition for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current tax (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
(35,016
|
)
|
|
$
|
18,654
|
|
State
|
|
|
—
|
|
|
|
2,468
|
|
|
|
6,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax (benefit) expense
|
|
|
—
|
|
|
|
(32,548
|
)
|
|
|
25,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(318,823
|
)
|
|
|
219,174
|
|
|
|
139,312
|
|
State
|
|
|
(61,237
|
)
|
|
|
25,941
|
|
|
|
27,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (benefit) expense
|
|
|
(380,060
|
)
|
|
|
245,115
|
|
|
|
166,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
$
|
(380,060
|
)
|
|
$
|
212,567
|
|
|
$
|
191,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents the tax effect of temporary differences
that gave rise to significant portions of deferred tax assets
and liabilities as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating losses and credits
|
|
$
|
547,456
|
|
|
$
|
12,988
|
|
Allowance for loan losses
|
|
|
151,697
|
|
|
|
25,399
|
|
Mortgage-backed securities
|
|
|
52,442
|
|
|
|
—
|
|
Compensation
|
|
|
46,041
|
|
|
|
22,927
|
|
State taxes
|
|
|
41,078
|
|
|
|
33,403
|
|
Interest receivable
|
|
|
18,759
|
|
|
|
2,815
|
|
Other, net
|
|
|
—
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
857,473
|
|
|
|
97,593
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
(948,751
|
)
|
|
|
(676,486
|
)
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
(1,778
|
)
|
FHLB stock
|
|
|
(38,641
|
)
|
|
|
(27,601
|
)
|
Other
|
|
|
(4,977
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(992,369
|
)
|
|
|
(705,865
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liability, net
|
|
$
|
(134,896
|
)
|
|
$
|
(608,272
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company had a net operating
loss (“NOL”) carryforward for federal income tax
purposes of approximately $1.3 billion which expires in
2028. The NOL carryforward for state income tax purposes of
approximately $1.4 billion has various expirations ranging
from five to twenty years through the year 2028.
The effective income tax rate differed from the federal
statutory rate for the years indicated as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax effect
|
|
|
4.1
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
39.1
|
%
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
The effective income tax rate on earnings was 39.1% and 38.3%
for the years ended December 31, 2007 and 2006,
respectively. The increase was due primarily to the fact that
2006 included the cumulative effect of a reduction in the state
income tax rate on the net deferred tax liability.
F-47
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 18 —
|
EARNINGS
(LOSS) PER SHARE
|
The following is a reconciliation of the numerator and
denominator of the basic and diluted earnings (loss) per share
calculation for the years indicated (dollars in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
Average Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss
|
|
$
|
(614,808
|
)
|
|
|
74,261
|
|
|
$
|
(8.28
|
)
|
Effect of stock options, restricted stock and warrants(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss(1)
|
|
$
|
(614,808
|
)
|
|
|
74,261
|
|
|
$
|
(8.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$
|
342,929
|
|
|
|
67,701
|
|
|
$
|
5.07
|
|
Effect of stock options, restricted stock and warrants
|
|
|
—
|
|
|
|
3,417
|
|
|
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
|
|
$
|
342,929
|
|
|
|
71,118
|
|
|
$
|
4.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$
|
293,128
|
|
|
|
62,760
|
|
|
$
|
4.67
|
|
Effect of stock options, restricted stock and warrants
|
|
|
—
|
|
|
|
3,355
|
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
|
|
$
|
293,128
|
|
|
|
66,115
|
|
|
$
|
4.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Due to the net loss for the year ended December 31, 2007,
no potentially dilutive shares are included in the diluted loss
per share calculation as including such shares in the
calculation would be anti-dilutive. |
In November 2001, we issued 3,500,000 warrants, each convertible
into 1.5972 shares of IndyMac Bancorp’s common stock,
as part of the WIRES offering (described more in detail in
“Note 11 — Other Borrowings”). At
December 31, 2007, there were 895,636 warrants remained
outstanding at an average exercise price of $31.78 per share.
For December 31, 2006 and 2005, there were 935,636 and
3,413,100 warrants remained outstanding at an average exercise
price of $31.68 per share and $31.59 per share, respectively.
Outstanding warrants were included in our 2006 and 2005 dilutive
earnings per share calculation.
Stock options to purchase 4,457,262 shares of common stock
at a weighted average exercise price of $30.20 were outstanding
at December 31, 2007. For December 31, 2006 and 2005,
there were outstanding options to purchase 56,100 and
47,000 shares of common stock at weighted average exercise
price of $44.86 and $44.09, respectively. These stock options
were not included in the computation of diluted earnings per
share because the stock options’ exercise prices were
greater than the average market price of the common stock and,
therefore, the effect would be anti-dilutive.
F-48
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 19 —
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
|
The following presents the balance in accumulated other
comprehensive income (loss) for each component for the years
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net unrealized loss on mortgage-backed securities available for
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated agency securities
|
|
$
|
(566
|
)
|
|
$
|
(387
|
)
|
|
$
|
(141
|
)
|
AAA-rated non-agency securities
|
|
|
(58,885
|
)
|
|
|
(18,595
|
)
|
|
|
(26,219
|
)
|
Other investment and non-investment grade securities
|
|
|
(56,777
|
)
|
|
|
523
|
|
|
|
1,354
|
|
Residual securities
|
|
|
—
|
|
|
|
—
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on mortgage-backed securities available for
sale
|
|
|
(116,228
|
)
|
|
|
(18,459
|
)
|
|
|
(24,380
|
)
|
Net unrealized (loss) gain on derivatives used in cash flow
hedges
|
|
|
(21,734
|
)
|
|
|
(6,812
|
)
|
|
|
9,223
|
|
Change in pension liability
|
|
|
(1,259
|
)
|
|
|
(6,168
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(139,221
|
)
|
|
$
|
(31,439
|
)
|
|
$
|
(15,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following presents the changes to accumulated other
comprehensive loss and the related tax effect for each component
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net unrealized (loss) gain on mortgage-backed securities
available for sale
|
|
$
|
(160,540
|
)
|
|
$
|
9,987
|
|
|
$
|
(27,658
|
)
|
Related tax benefit (expense)
|
|
|
62,771
|
|
|
|
(4,066
|
)
|
|
|
10,925
|
|
Net (loss) gain on derivatives used in cash flow hedges
|
|
|
(24,503
|
)
|
|
|
(26,430
|
)
|
|
|
36,165
|
|
Related tax benefit (expense)
|
|
|
9,581
|
|
|
|
10,395
|
|
|
|
(14,285
|
)
|
Change in pension liability
|
|
|
8,061
|
|
|
|
(10,128
|
)
|
|
|
—
|
|
Related tax (expense) benefit
|
|
|
(3,152
|
)
|
|
|
3,960
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change to accumulated other comprehensive income (loss)
|
|
$
|
(107,782
|
)
|
|
$
|
(16,282
|
)
|
|
$
|
5,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 20 —
|
COMMITMENTS
AND CONTINGENCIES
|
Legal
Matters
In the ordinary course of business, the Company and its
subsidiaries are defendants in or parties to a number of legal
actions. Certain of such actions involve alleged violations of
employment laws, unfair trade practices, consumer protection
laws, including claims relating to the Company’s sales,
loan origination and collection efforts, and other federal and
state banking laws. Certain of such actions include claims for
breach of contract, restitution, compensatory damages, punitive
damages and other forms of relief. The Company reviews these
actions on an on-going basis and follows the provisions of FASB
Statement No. 5, “Accounting for
Contingencies” when making accrual and disclosure
decisions. When assessing reasonably possible and probable
outcomes, the Company bases its decisions on the evidence
discovered and in its possession, the strength of probable
witness testimony, the viability of its defenses and the
likelihood of prevailing at trial or resolving the matter
through alternative dispute resolution. Due to the difficulty of
predicting the outcome of such actions, the Company can give no
assurance that it will prevail on all claims made against it;
however, management believes, based on current knowledge and
after consultation with counsel, that these legal actions,
individually and in the aggregate, and the losses, if any,
resulting
F-49
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
from the likely final outcome thereof, will not have a material
adverse effect on the Company and its subsidiaries’
financial position, but may have a material impact on the
results of operations of particular periods.
Commitments
We enter into a number of commitments in the normal course of
business. These commitments expose us to varying degrees of
credit and market risk and are subject to the same credit and
risk limitation reviews as those recorded on the consolidated
balance sheets.
The following types of non-derivative commitments were
outstanding as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Undisbursed loan commitments:
|
|
|
|
|
|
|
|
|
Reverse mortgages
|
|
$
|
349,208
|
|
|
$
|
426,977
|
|
Builder construction
|
|
|
465,688
|
|
|
|
858,525
|
|
Consumer construction
|
|
|
1,148,188
|
|
|
|
1,317,346
|
|
HELOC
|
|
|
1,573,522
|
|
|
|
1,582,748
|
|
Revolving warehouse lending
|
|
|
379,037
|
|
|
|
465,222
|
|
Letters of credit
|
|
|
4,308
|
|
|
|
14,042
|
|
Our Homebuilder Division issues standby letters of credit to
municipalities to guarantee the performance of improvements
related to tract construction projects. The risk of loss on the
standby letters of credit is mitigated as the funds to complete
the improvements are included in the construction loan balance
and supported by the underlying collateral value. We have not
incurred any loss on these standby letters of credit since the
inception of this practice.
Leases
We lease office facilities and equipment under lease agreements
extending through 2016. Future minimum annual rental commitments
under these non-cancelable operating leases, with initial or
remaining terms of one year or more, are as follows for the
years indicated (dollars in thousands):
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
2008
|
|
$
|
51,536
|
|
2009
|
|
|
46,494
|
|
2010
|
|
|
38,558
|
|
2011
|
|
|
33,288
|
|
2012
|
|
|
23,967
|
|
Thereafter
|
|
|
71,594
|
|
|
|
|
|
|
Total
|
|
$
|
265,437
|
|
|
|
|
|
|
Sublease rental income totaling $2.3 million reduced the
above rental commitments. Rental expense, net of sublease
income, for all operating leases was $52.6 million,
$33.5 million, and $22.0 million, in 2007, 2006, and
2005, respectively.
F-50
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 21 —
|
RELATED
PARTY LOANS
|
At December 31, 2007 and 2006, we had $1.6 million and
$1.7 million, respectively, in notes receivable from
employees. There were no such loans outstanding with directors.
These loans have varying interest rates and terms and were
mostly secured by Indymac stock or real estate.
|
|
NOTE 22 —
|
REGULATORY
REQUIREMENTS
|
The banking industry, in general, is heavily regulated. As a
savings and loan holding company, we are subject to regulation
by the Office of Thrift Supervision (“OTS”), and
Indymac Bank is subject to regulation by the OTS and the Federal
Deposit Insurance Corporation (“FDIC”). The economic
and political environment influence regulatory policies, and as
such, any or all of our business activities are subject to
change if and when our primary regulators change the policies
and regulations. We are also subject to inspection and
examination by the OTS and the FDIC.
Federal Reserve Board regulations require depository
institutions to maintain certain deposit reserve balances.
Indymac Bank is a depository institution required to maintain
deposit reserves under the Federal Reserve Board regulations. At
December 31, 2007, Indymac Bank’s deposit reserve
balance of $4.7 million, included in “Cash and cash
equivalents” on the consolidated balance sheets, met the
required level.
Indymac Bank’s primary federal regulatory agency, the
Office of Thrift Supervision (“OTS”), requires savings
associations to satisfy three minimum capital ratio
requirements: tangible capital, Tier 1 (core) capital and
risk-based capital. To meet general minimum adequately
capitalized requirements, a savings association must maintain
(1) a tangible capital ratio of 1.5% of tangible assets;
(2) a Tier 1 (core) capital ratio of 3% of adjusted
total assets for strong rated associations that are not
anticipating or experiencing significant growth and have
well-diversified risks, including no undue interest rate
exposure, excellent asset quality, high liquidity, and good
earnings, and 4% for others; and (3) a total risk-based
capital ratio of 8% of risk-weighted assets. Most associations
are expected to maintain capital levels in excess of the
above-mentioned capital levels. The OTS regulations also specify
minimum requirements to be considered a “well-capitalized
institution.” A “well-capitalized” savings
association must have a total risk-based capital ratio of at
least 10% of risk-weighted assets, a Tier 1 risk-based
capital ratio of at least 6% of risk-weighted assets, and a
Tier 1 (core) capital ratio of at least 5% of adjusted
total assets. In order not to be deemed “critically
undercapitalized” and therefore subject to immediate
remedial action, a savings association must exceed a tangible
equity to tangible assets ratio of 2%. As of December 31,
2007, Indymac Bank met all of the requirements of a
“well-capitalized” institution under the general
regulatory capital regulations.
The Company’s business is primarily focused on
single-family lending and the related production and sale of
loans. As such, the accumulation of MSRs is a large component of
our strategy. As of December 31, 2007, the capitalized
value of MSRs was $2.5 billion. OTS regulations generally
impose higher capital requirements on MSRs that exceed total
Tier 1 capital. These higher capital requirements could
result in lowered returns on our retained assets and could limit
our ability to retain servicing assets. While management
believes compliance with the capital limits on MSRs will not
materially impact future results, no assurance can be given that
our plans and strategies will be successful.
In the second quarter of 2007, the Bank received
$491 million in net proceeds from the issuance of
20 million shares of Perpetual Non-Cumulative Fixed Rate
Preferred Stock with a liquidation preference of $25 per value
(the “Series A Preferred Stock”). Dividends, when
declared by Indymac Bank’s Board of Directors, are payable
quarterly at a rate of 8.5%. At the option of Indymac Bank, the
Series A Preferred Stock may be redeemed on or after
June 15, 2017 at $25 per share plus any declared and unpaid
dividends. The Series A Preferred Stock qualifies as
Tier 1 (core) capital of the Bank under the OTS’s
applicable regulatory capital regulations.
In December 2006, the federal bank and thrift regulatory
agencies issued an interim decision that any amounts reported in
AOCI resulting from the adoption of FASB Statement No. 158,
“Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans”, an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
F-51
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(“SFAS 158”). SFAS 158 should be excluded
from regulatory capital until the regulatory agencies determine
otherwise. As a result, $4.9 million in AOCI was excluded
from our regulatory capital at December 31, 2006.
The following presents Indymac Bank’s actual and required
capital ratios and the minimum required capital ratios to be
categorized as “well-capitalized” as of the dates
indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios
|
|
|
|
Tangible
|
|
|
Tier 1 (Core)
|
|
|
Tier 1 Risk-Based
|
|
|
Total Risk-Based
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported on Thrift Financial Report
|
|
|
6.24
|
%
|
|
|
6.24
|
%
|
|
|
9.56
|
%
|
|
|
10.81
|
%
|
Well-capitalized minimum requirement
|
|
|
2.00
|
%
|
|
|
5.00
|
%
|
|
|
6.00
|
%
|
|
|
10.00
|
%
|
Excess over well-capitalized minimum requirement
|
|
$
|
1,367,732
|
|
|
$
|
399,280
|
|
|
$
|
689,633
|
|
|
$
|
157,907
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported on Thrift Financial Report
|
|
|
7.39
|
%
|
|
|
7.39
|
%
|
|
|
11.40
|
%
|
|
|
11.77
|
%
|
Well-capitalized minimum requirement
|
|
|
2.00
|
%
|
|
|
5.00
|
%
|
|
|
6.00
|
%
|
|
|
10.00
|
%
|
Excess over well-capitalized minimum requirement
|
|
$
|
1,533,111
|
|
|
$
|
679,311
|
|
|
$
|
877,511
|
|
|
$
|
288,242
|
|
IndyMac Bancorp, the holding company for Indymac Bank, is
substantially dependent upon dividends from the Bank for cash
used to pay dividends on common stock and other cash outflows.
We are required to seek approval from the OTS in order to pay
dividends from the Bank to the holding company. There is no
assurance the Bank will be able to pay such dividends in the
future or that the OTS will continue to grant approvals. While
the holding company maintains cash and an unsecured line of
credit to manage its liquidity, a disruption in dividends from
the Bank could cause the holding company to reduce or eliminate
the dividends paid on common stock.
Under the capital distribution regulations, a savings
association that is a subsidiary of a savings and loan holding
company must notify the OTS of an association capital
distribution at least 30 days prior to the declaration of a
dividend or the approval by the Board of Directors of the
proposed capital distribution. The
30-day
period provides the OTS an opportunity to object to the proposed
distribution if it believes that the distribution would not be
advisable.
An application to the OTS for specific approval to pay a
dividend, rather than the notice procedure described above, is
required if: (a) the total of all capital distributions
made during a calendar year (including the proposed
distribution) exceeds the sum of the institution’s
year-to-date net income and its retained income for the
preceding two years; (b) the institution is not entitled
under OTS regulations to “expedited treatment” (which
is generally available to institutions the OTS regards as well
run and adequately capitalized); (c) the institution would
not be at least “adequately capitalized” following the
proposed capital distribution; or, (d) the distribution
would violate an applicable statute, regulation, agreement, or
condition imposed on the institution by the OTS.
In addition to applicable OTS regulatory requirements, Indymac
Bank is required to maintain compliance with various servicing
covenants such as a minimum net worth requirement. Management
believes Indymac Bank was in compliance with all material
financial covenants as of December 31, 2007 and 2006.
Stock
Incentive Plans
The Company has two stock incentive plans, the 2002 Incentive
Plan, as amended and restated, and the 2000 Stock Incentive
Plan, as amended (collectively, the “Plans”), which
provide for the granting of non-qualified and incentive stock
options, restricted and performance stock awards, and other
awards to employees (including officers) and directors. On
April 25, 2006, the 2002 Incentive Plan, as amended and
restated, was approved by
F-52
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
shareholders to increase the total number of shares of common
stock reserved and available for issuance from 6,000,000 to
11,200,000. Each share issued pursuant to a full value award
(such as restricted stock) will reduce the number of shares of
common stock available for future grant by 3.5 shares. The
term of stock options granted under the 2002 Incentive Plan (the
“Plan”) was reduced from ten years to seven years, and
the Company is no longer able to grant stock appreciation
rights, bonus stock, stock units, performance shares or
performance units under the Plan.
Stock options granted under the Plans have an exercise price
equal to the fair market value of the underlying common stock on
the date of grant, and generally vest based on one, three or
five years of continuous service. Grants issued after
April 25, 2006 will expire in seven years from the grant
date, while grants issued prior to April 25, 2006 continue
to have a ten-year term. Certain stock option and share awards
provide for accelerated vesting if there is a change in control
(as defined in the Plans). The fair value of each stock option
award is estimated on the date of grant using an enhanced
binomial lattice model.
Prior to January 1, 2006, the Company accounted for the
Plans under the recognition and measurement provisions of APB 25
and related Interpretations, as permitted by SFAS 123.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS 123(R) using the
modified-retrospective-transition method. Under this method,
compensation cost recognized for 2006 includes compensation cost
for all stock options granted prior to, but not yet vested as of
January 1, 2006, and all stock options granted subsequent
to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of Statements 123
and 123(R), respectively.
The fair value of each stock option award is estimated on the
date of grant. For grants issued on and after January 1,
2006, the fair value is determined using an enhanced binomial
lattice model. For stock options granted prior to
January 1, 2006, the fair value of these awards was based
on the fair value calculated for purposes of the SFAS 123
pro-forma disclosures which used the Black Scholes option
pricing model.
The following presents the assumptions used in the valuations
for stock options granted during the years indicated:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Expected volatility
|
|
26.68-30.20%
|
|
28.11-28.44%
|
|
25.96%-29.42%
|
Expected dividends
|
|
5.08-6.76%
|
|
4.00-4.60%
|
|
3.52-4.65%
|
Weighted average expected term (in years)
|
|
5.20-5.50
|
|
6.89-7.34
|
|
5.00
|
Risk-free rate
|
|
4.58-4.82%
|
|
4.54-4.73%
|
|
4.16-4.64%
|
Expected volatilities are based on the historical volatility of
the Company’s common stock and other factors. For the Black
Scholes valuation model, the expected term of the stock options
is estimated based on historical option exercise activity. For
the enhanced binomial valuation model, the Company uses
historical data to estimate assumptions for expected stock
option exercise and expected employee termination rates. The
expected term of stock options granted is derived from the
output of the binomial model and represents the period of time
that stock options granted are expected to be outstanding. The
range given above results from certain groups of employees
exhibiting different behavior. The risk-free rate for periods
within the contractual life of the stock option is based on the
U.S. Treasury yield curve in effect at the time of grant.
F-53
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents the impact of stock option compensation
cost to the statements of operations for the years indicated
(dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stock option compensation cost, before tax
|
|
$
|
7,943
|
|
|
$
|
9,630
|
|
|
$
|
12,109
|
|
Stock option compensation cost, after tax
|
|
|
5,230
|
|
|
|
5,951
|
|
|
|
7,098
|
|
Effect on basic earnings per share
|
|
|
0.07
|
|
|
|
0.09
|
|
|
|
0.11
|
|
Effect on diluted earnings per share
|
|
|
0.07
|
|
|
|
0.08
|
|
|
|
0.11
|
|
The following presents stock option activity under the Plans for
the year ended December 31, 2007 (dollars in thousands,
except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
Stock Options:
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Fair Value
|
|
|
Outstanding at December 31, 2006
|
|
|
7,703,205
|
|
|
$
|
26.31
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
1,088,913
|
|
|
|
29.61
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(143,542
|
)
|
|
|
24.60
|
|
|
|
—
|
|
|
|
—
|
|
Canceled, forfeited and expired
|
|
|
(125,288
|
)
|
|
|
35.58
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
8,523,288
|
|
|
|
26.62
|
|
|
|
4.90
|
|
|
$
|
7.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
6,766,319
|
|
|
|
25.01
|
|
|
|
4.39
|
|
|
|
7.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of stock options
granted during the years ended December 31, 2007, 2006 and
2005 were $5.43, $9.13 and $7.68, respectively. For the years
ended December 31, 2007, 2006 and 2005, the total fair
value of options exercised was $1.0 million,
$5.7 million and $10.9 million, respectively.
The following presents nonvested shares activity for the year
ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
|
Fair Value
|
|
Nonvested Stock Options:
|
|
Shares
|
|
|
per Share
|
|
|
Outstanding at December 31, 2006
|
|
|
1,668,512
|
|
|
$
|
8.27
|
|
Granted
|
|
|
1,088,913
|
|
|
|
5.43
|
|
Vested
|
|
|
(946,981
|
)
|
|
|
8.02
|
|
Canceled, forfeited and expired
|
|
|
(53,475
|
)
|
|
|
7.92
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,756,969
|
|
|
|
6.63
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there was $6.0 million of
total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested stock options under the Plans.
That cost is expected to be recognized in less than three years.
The total fair value of shares vested during the years ended
December 31, 2007, 2006 and 2005, were $7.6 million,
$12.8 million and $14.3 million, respectively.
Cash received from stock options exercised under the Plans for
the years ended December 31, 2007, 2006 and 2005 was
$3.5 million, $20.1 million and $31.5 million,
respectively. The actual tax benefit for the tax deductions from
stock option exercises totaled $0.7 million,
$6.6 million and $15.7 million, for the years ended
December 31, 2007, 2006 and 2005, respectively. To the
extent the tax deductions exceed the amount previously expensed
for
F-54
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
financial accounting purposes, the related tax benefit on the
excess is credited to equity, but only if that benefit can be
realized currently.
The Company recorded compensation cost of $9.0 million,
$10.1 million and $5.6 million related to the
restricted stock granted under the Plans for the years ended
December 31, 2007, 2006 and 2005, respectively.
The following presents restricted stock activity under the Plans
for the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
|
Fair Value
|
|
Restricted Stock:
|
|
Shares
|
|
|
per Share
|
|
|
Outstanding at December 31, 2006
|
|
|
889,117
|
|
|
$
|
39.14
|
|
Granted
|
|
|
648,228
|
|
|
|
27.91
|
|
Vested
|
|
|
(163,851
|
)
|
|
|
37.22
|
|
Canceled and forfeited
|
|
|
(373,054
|
)
|
|
|
36.58
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,000,440
|
|
|
|
33.13
|
|
|
|
|
|
|
|
|
|
|
Pension
Plan and Other Postretirement Benefit Plan
Through December 31, 2002, Indymac Bank provided a defined
benefit pension plan (the “DBP Plan”) to substantially
all of its employees. Employees hired prior to January 1,
2003, with one or more years of service, are entitled to annual
pension benefits beginning at normal retirement age
(65 years of age) equal to a formula approximating 0.9% of
final average compensation multiplied by credited service (not
in excess of 35 years), subject to a vesting requirement of
five years of service. Our policy is to contribute the amount
actuarially determined to be necessary to pay the benefits under
the DBP Plan, and in no event to pay less than the amount
necessary to meet the minimum funding standards of employee.
Employee Retirement Income Security Act of 1974
(“ERISA”). Employees hired after December 31,
2002 are not eligible for the DBP Plan.
In April 2007, the Board of Directors, at management’s
recommendation, approved a resolution to freeze the DBP Plan
effective May 31, 2007. Participants would no longer accrue
additional benefits starting with the 2007 Plan year. As a
result, we recognized a net pre-tax curtailment gain of
$10.3 million ($6.3 million after tax) as a reduction
to pension expense. This pre-tax curtailment gain was recorded
in accordance with FASB Statement No. 88,
“Employers’ Accounting for Settlements and
Curtailments of Defined Benefit pension Plan and for Termination
Benefits” and includes the gross pre-tax curtailment
gain of $20.0 million related to pension benefits partially
offset by approximately $8.1 million of actuarial net loss
and prior service cost and $1.7 million of pre-curtailment
pension expense.
F-55
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following sets forth the change in the pension benefit
obligation, pension plan assets and accrued pension costs
recognized in the accompanying consolidated balance sheets for
the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
46,680
|
|
|
$
|
37,895
|
|
Service cost
|
|
|
1,626
|
|
|
|
6,052
|
|
Interest cost
|
|
|
2,003
|
|
|
|
2,301
|
|
SFAS 88 curtailment
|
|
|
(20,000
|
)
|
|
|
—
|
|
Benefits paid including expense
|
|
|
(49
|
)
|
|
|
(30
|
)
|
Actuarial loss (gain)
|
|
|
(4,008
|
)
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
26,252
|
|
|
$
|
46,680
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation, end of year
|
|
$
|
26,252
|
|
|
$
|
28,228
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
34,817
|
|
|
$
|
27,579
|
|
Actual return on plan assets
|
|
|
1,586
|
|
|
|
3,427
|
|
Employer contributions
|
|
|
—
|
|
|
|
3,841
|
|
Benefits paid including expense
|
|
|
(49
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
36,354
|
|
|
$
|
34,817
|
|
|
|
|
|
|
|
|
|
|
Accrued pension costs
|
|
|
|
|
|
|
|
|
Funded status, end of year
|
|
$
|
10,102
|
|
|
$
|
(11,863
|
)
|
|
|
|
|
|
|
|
|
|
Accrued pension cost was included in “Other assets” at
December 31, 2007, and “Other liabilities” at
December 31, 2006 on the consolidated balance sheets.
The following presents the components of net periodic expense
for the DBP Plan for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
1,627
|
|
|
$
|
6,052
|
|
Interest cost
|
|
|
2,003
|
|
|
|
2,301
|
|
Expected return on assets
|
|
|
(2,627
|
)
|
|
|
(2,212
|
)
|
Recognized actuarial loss
|
|
|
48
|
|
|
|
376
|
|
Amortization of prior service cost
|
|
|
15
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Net periodic expense
|
|
$
|
1,066
|
|
|
$
|
6,573
|
|
|
|
|
|
|
|
|
|
|
Included in AOCI at December 31, 2006 were unrecognized
prior service costs of $0.5 million and unrecognized
actuarial losses of $7.5 million. These amounts were fully
recognized in pension expense during the year ended
December 31, 2007 when the DPB Plan was frozen.
Accordingly, the Company is not required to fund the DBP Plan in
2007.
F-56
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents the weighted average assumptions used in
computing the preceding information for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Benefit obligations:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.60
|
%
|
|
|
6.00
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
4.00
|
%
|
Net periodic costs:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Expected return on assets
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
The following presents the DBP Plan’s weighted average
asset allocation as of the measurement date, by asset category,
for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Bond and mortgage
|
|
|
32
|
%
|
|
|
32
|
%
|
Large cap stock index
|
|
|
68
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The investment goals and the allocation of the plan assets are
determined jointly by the Employee Benefits Fiduciary Committee
and Principal Life Insurance Company, the investment manager of
the Plan. The assets of the DBP Plan are invested to provide
safety through diversification in a portfolio of equity
investments, common stocks, bonds and other investments which
may reflect varying rates of return. Only classes or categories
of investments allowed by the Employee Retirement Income
Security Act of 1974 (“ERISA”) as acceptable
investment choices are considered. The overall return objective
for the portfolio is a reasonable rate on a long-term basis that
would balance the benefit obligations with the appropriate asset
allocation mix consistent with the risk levels established by
our Employee Benefits Fiduciary Committee.
The Company’s 2007 and 2006 pension expense was calculated
based upon a number of actuarial assumptions, including an
expected long-term rate of return on plan assets of 7.5% for
both years. In developing the long-term rate of return
assumption, historical asset class returns as well as expected
returns were evaluated based upon broad equity and bond indices.
The expected long-term rate of return on plan assets assumes an
asset allocation of approximately 68% in equity and 32% in fixed
income financial instruments. The Employee Benefits Fiduciary
Committee regularly reviews the asset allocation with its plan
investment manager and periodically rebalances the investment
mix to achieve certain investment goals when considered
appropriate. Actuarial assumptions, including the expected rate
of return, are reviewed at least annually, and are adjusted as
necessary.
The discount rate that was utilized for determining our pension
obligation and net periodic cost was based on a review of
long-term bonds that received one of the two highest ratings
given by a recognized rating agency. The discount rate for our
pension obligation remained the same at 6.00% in 2007.
F-57
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following indicates the benefits expected to be paid in each
of the next five fiscal years, and in the aggregate for the five
fiscal years thereafter (dollars in thousands):
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
2008
|
|
$
|
210
|
|
2009
|
|
|
225
|
|
2010
|
|
|
291
|
|
2011
|
|
|
374
|
|
2012
|
|
|
466
|
|
2013-2017
|
|
|
3,798
|
|
|
|
|
|
|
Total
|
|
$
|
5,364
|
|
|
|
|
|
|
The Company adopted FASB Statement No. SFAS 158,
“Employers’ Accounting for Defined Benefit Pensions
and Other Postretirement Plans,” on December 31,
2006 and the following shows the incremental effect of applying
the provisions of SFAS 158 on individual line items in the
consolidated balance sheet at December 31, 2006 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Application
|
|
|
|
|
|
After Application
|
|
|
|
of SFAS 158
|
|
|
Adjustments
|
|
|
of SFAS 158
|
|
|
Accrued pension cost
|
|
$
|
3,802
|
|
|
$
|
8,061
|
|
|
$
|
11,863
|
|
Accrued postretirement cost
|
|
|
—
|
|
|
|
2,067
|
|
|
|
2,067
|
|
Deferred income taxes
|
|
|
612,232
|
|
|
|
(3,960
|
)
|
|
|
608,272
|
|
Total liabilities
|
|
|
27,460,880
|
|
|
|
6,168
|
|
|
|
27,467,048
|
|
Accumulated other comprehensive loss
|
|
|
(25,271
|
)
|
|
|
(6,168
|
)
|
|
|
(31,439
|
)
|
Total shareholders’ equity
|
|
|
2,034,436
|
|
|
|
(6,168
|
)
|
|
|
2,028,268
|
|
Defined
Contribution Plan
We also offer a defined contribution plan (the “401(k)
Plan”) covering substantially all of our employees.
Employees with one full month of continuous service may
contribute up to 40% of annual compensation to a maximum of
$15,500 of pre-tax annual compensation in 2007. We may
determine, at our discretion, the amount of employer matching
contributions to be made. During 2007, 2006 and 2005, the
Company matched, for eligible participants following the
completion of one year of service, 75% of the first 3% of the
annual compensation contributed by the employee and 25% of the
second 3% of the annual compensation contributed by the employee
to the 401(k) Plan. We contributed a total of $7.0 million,
$8.4 million, and $6.3 million during the years ended
December 31, 2007, 2006 and 2005, respectively. The
employer matching contribution was made in cash.
|
|
NOTE 24 —
|
PERPETUAL
NON-CUMULATIVE PREFERRED STOCK
|
In the second quarter of 2007, Indymac Bank received
approximately $491 million in net proceeds from the
issuance of 20 million shares of Series A Perpetual
Non-Cumulative Fixed Rate Preferred Stock with a $25.00
liquidation preference value (the “Series A Preferred
Stock”) and distributed $100 million of the net
proceeds to the Parent Company. As of December 31, 2007,
$491 million is reflected as “Perpetual preferred
stock in subsidiary” on the consolidated balance sheets.
Dividends, when declared by the Bank’s Board of Directors,
are payable quarterly at a rate of 8.5%. At the option of the
Bank, the Series A Preferred Stock may be redeemed on or
after June 15, 2017 at $25 per share plus any declared and
unpaid dividends. Outstanding shares of Series A Preferred
Stock rank senior to the Bank’s common shares both as to
dividends and liquidation preferences but do not have any voting
rights.
F-58
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 25 —
|
SHAREHOLDER
RIGHTS PLAN
|
Our Board of Directors adopted a Shareholder Rights Plan (the
“Rights Plan”) on October 17, 2001. The
Board’s purpose in adopting the Rights Plan is to protect
shareholder value in the event of an unsolicited offer to
acquire us, particularly one that does not provide equitable
treatment to all shareholders. In connection with the adoption
of the Rights Plan, we declared a distribution of one right to
purchase one one-hundredth of a share of Series A Junior
Participating Preferred Shares (“Preferred Shares”)
for each outstanding share of common stock, payable to the
shareholders of record on November 1, 2001. These rights
automatically become associated with outstanding shares of
common stock on our books, and individual shareholders need take
no action with respect thereto. The rights will not become
exercisable unless an investor acquires 15 percent or more
of our common shares, or announces a tender offer that would
result in the investor owning 15 percent or more of our
common shares or makes certain regulatory filings seeking
authority to acquire 15 percent or more of our common
shares. If someone does acquire 15 percent or more of our
common shares, or acquires us in a merger or other transaction,
each right would entitle the holder, other than the investor
triggering the rights and related persons, to purchase common
shares, or shares of an entity that acquires us, at half of the
then current market price. The Board of Directors authorized and
directed the issuance of one right with respect to each common
share issued thereafter until the redemption date (as defined in
the Rights Agreement). The terms of the rights are set forth in
the Rights Agreement between us and the Bank of New York, as
Rights Agent, dated as of October 17, 2001. The rights will
expire at the close of business on October 17, 2011, unless
we redeem them earlier. The Preferred Shares have a par value of
$0.01 per share, are junior to all other series of our preferred
shares, and are entitled to quarterly dividends at a rate equal
to the dividends paid, if any, on 100 common shares. Each one
one-hundredth of a Preferred Share entitles the holder to one
vote on matters submitted to a vote of our shareholders. The
Rights Plan can be terminated or amended by the Board at any
time.
F-59
INDYMAC
BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
NOTE 26 —
|
QUARTERLY
FINANCIAL DATA — UNAUDITED
|
The following presents selected quarterly financial data for the
years indicated (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
532,677
|
|
|
$
|
554,477
|
|
|
$
|
557,851
|
|
|
$
|
542,702
|
|
Interest expense
|
|
|
397,607
|
|
|
|
405,233
|
|
|
|
415,673
|
|
|
|
402,452
|
|
Net interest income
|
|
|
135,070
|
|
|
|
149,244
|
|
|
|
142,178
|
|
|
|
140,250
|
|
Provision for loan losses
|
|
|
10,687
|
|
|
|
17,204
|
|
|
|
98,279
|
|
|
|
269,378
|
|
Gain (loss) on sale of loans and securities, net
|
|
|
112,196
|
|
|
|
54,683
|
|
|
|
(334,788
|
)
|
|
|
(616,166
|
)
|
Net earnings (loss)
|
|
|
52,382
|
|
|
|
44,639
|
|
|
|
(202,717
|
)
|
|
|
(509,113
|
)
|
Earnings (loss) per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.72
|
|
|
$
|
0.62
|
|
|
$
|
(2.77
|
)
|
|
$
|
(6.43
|
)
|
Diluted(2)
|
|
|
0.70
|
|
|
|
0.60
|
|
|
|
(2.77
|
)
|
|
|
(6.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
377,846
|
|
|
$
|
412,211
|
|
|
$
|
446,751
|
|
|
$
|
514,208
|
|
Interest expense
|
|
|
250,636
|
|
|
|
282,057
|
|
|
|
310,040
|
|
|
|
381,562
|
|
Net interest income
|
|
|
127,210
|
|
|
|
130,154
|
|
|
|
136,711
|
|
|
|
132,646
|
|
Provision for loan losses
|
|
|
3,822
|
|
|
|
2,230
|
|
|
|
4,988
|
|
|
|
8,953
|
|
Gain on sale of loans and securities, net
|
|
|
138,584
|
|
|
|
209,917
|
|
|
|
179,193
|
|
|
|
160,842
|
|
Net earnings
|
|
|
79,849
|
|
|
|
104,659
|
|
|
|
86,180
|
|
|
|
72,241
|
|
Earnings per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.24
|
|
|
$
|
1.57
|
|
|
$
|
1.25
|
|
|
$
|
1.02
|
|
Diluted
|
|
|
1.18
|
|
|
|
1.49
|
|
|
|
1.19
|
|
|
|
0.97
|
|
|
|
|
(1) |
|
Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings
per share may not equal the total for the year. |
|
(2) |
|
Due to the net loss for the quarters ended September 30,
2007 and December 31, 2007, no potentially dilutive shares
are included in the diluted loss per share calculations as
including such shares in the calculations would be anti-dilutive. |
|
|
NOTE 27 —
|
SUBSEQUENT
EVENT
|
In January 2008, the Company announced a further reduction in
its global workforce of roughly 2,400 people, or 24% of
overall workforce, spread throughout the Company, including a
27% reduction in staff with our outsourced and temporary vendors.
F-60