<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8972
INDYMAC MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-3983415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
155 North Lake Avenue
Pasadena, California 91101-7211
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (800) 669-2300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding as of March 31, 2000: 72,710,556 shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1999
----------- -------------- ------------
(Unaudited) (Unaudited)
(Pro forma)(1)
ASSETS
------
<S> <C> <C> <C>
Loans held for sale, net
Mortgages--prime..................... $ 574,291 $ 543,893 $ 504,755
Mortgages--subprime.................. 239,182 114,946 110,488
---------- ---------- ----------
813,473 658,839 615,243
Loans held for investment, net
Mortgage loans....................... 918,088 869,213 869,213
Residential construction
Builder............................ 683,722 732,466 732,466
Consumer........................... 381,662 356,149 356,149
Income property...................... 132,824 140,174 140,174
Revolving warehouse lines of credit.. 247,005 241,123 241,123
---------- ---------- ----------
2,363,301 2,339,125 2,339,125
Mortgage securities available for
sale.................................. 755,257 650,586 471,231
Mortgage servicing rights.............. 162,307 140,309 --
Investment in and advances to IndyMac,
Inc................................... -- -- 125,353
Collateral for collateralized mortgage
obligations........................... 84,224 88,973 88,973
Other assets........................... 179,179 147,179 86,597
---------- ---------- ----------
Total assets..................... $4,357,741 $4,025,011 $3,726,522
========== ========== ==========
LIABILITIES
-----------
Loans and securities sold under
agreements to repurchase.............. $2,452,308 $2,188,763 $2,018,010
Syndicated bank lines and commercial
paper conduit......................... 836,391 792,479 703,340
Collateralized mortgage obligations.... 79,130 82,434 82,434
Senior unsecured notes................. 60,226 60,189 60,189
Accounts payable and accrued
liabilities........................... 74,344 73,616 35,019
---------- ---------- ----------
Total liabilities................ 3,502,399 3,197,481 2,898,992
Shareholders' equity
Preferred stock--authorized,
10,000,000 shares of $.01 par value;
none issued......................... -- -- --
Common stock--authorized, 200,000,000
shares of $.01 par value; issued
80,454,084 shares (72,710,556
outstanding) at March 31, 2000 and
issued 80,720,129 shares (75,076,868
outstanding) at December 31, 1999... 809 807 807
Additional paid-in capital........... 898,881 895,668 1,080,327
Treasury stock, at cost, 7,743,528
shares at March 31, 2000 and 5,643,261
shares at December 31, 1999........... (103,693) (76,378) (76,378)
Accumulated other comprehensive
income................................ 7,399 7,433 7,433
Cumulative earnings.................... 51,946 -- 393,149
Cumulative distributions to
shareholders.......................... -- -- (577,808)
---------- ---------- ----------
Total shareholders' equity....... 855,342 827,530 827,530
---------- ---------- ----------
Total liabilities and
shareholders' equity............ $4,357,741 $4,025,011 $3,726,522
========== ========== ==========
</TABLE>
- --------
(1) Pro forma gives the effect to the change in the Company's structure to a
fully taxable entity and the buyout of the minority interest in IndyMac,
Inc. effective January 2000.
The accompanying notes are an integral part of these statements.
2
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
2000 1999 1999
-------- ------------ -------
Pro forma(1)
<S> <C> <C> <C>
Revenues:
Interest income
Loans held for sale
Mortgages-prime............................. $ 15,010 $ 17,893 $15,332
Mortgages-subprime.......................... 4,012 4,092 3,772
Manufactured housing........................ -- 6,075 5,557
Home improvement............................ -- 7,168 5,179
-------- -------- -------
19,022 35,228 29,840
Loans held for investment, net
Mortgage loans.............................. 20,871 11,719 11,719
Residential construction....................
Builder................................... 21,916 20,298 20,298
Consumer.................................. 8,085 9,906 9,906
Income property............................. 3,849 4,224 4,224
Revolving warehouse lines of credit......... 4,400 6,093 6,093
-------- -------- -------
59,121 52,240 52,240
Mortgage securities available for sale........ 18,211 12,313 2,428
Collateral for collateralized mortgage
obligations.................................. 1,525 2,815 2,815
Advances to IndyMac Operating................. -- -- 5,585
Other......................................... 209 624 624
-------- -------- -------
Total interest income..................... 98,088 103,220 93,532
Interest expense
Loans and securities sold under agreements to
repurchase................................... 39,227 46,794 38,405
Syndicated bank lines and commercial paper
conduit...................................... 13,224 11,854 10,669
Collateralized mortgage obligations........... 1,449 2,976 2,976
Senior unsecured notes........................ 1,384 1,384 1,384
-------- -------- -------
Total interest expense.................... 55,284 63,008 53,434
-------- -------- -------
Net interest income............................ 42,804 40,212 40,098
Provision for loan losses...................... 4,316 6,790 6,681
-------- -------- -------
Net interest income after provision for
loan losses.............................. 38,488 33,422 33,417
Service fee income............................. 8,236 5,615 --
Gain on sale of loans.......................... 19,115 27,976 --
Gain (loss) on sale of securities, net......... 963 (15,362) (69)
Equity in earnings (loss) of IndyMac, Inc...... -- -- (2,323)
Other income, net.............................. 6,213 6,518 1,755
-------- -------- -------
Net revenues.............................. 73,015 58,169 32,780
Expenses:
Salaries and related benefits.................. 22,496 22,074 5,914
General and administrative..................... 12,976 14,220 3,257
Non-recurring charges.......................... 10,223 -- --
-------- -------- -------
Total expenses............................ 45,695 36,294 9,171
-------- -------- -------
Income before provision for income tax.... 27,320 21,875 23,609
Provision for income tax....................... 11,474 9,297 --
Income tax benefit from termination of REIT
status........................................ (36,100) -- --
-------- -------- -------
Total provision (benefit) for income tax.. (24,626) 9,297 --
-------- -------- -------
Net earnings.............................. $ 51,946 $ 12,578 $23,609
======== ======== =======
Earnings per share:
Basic EPS..................................... $ 0.70 $ 0.16 $ 0.30
Diluted EPS................................... $ 0.69 $ 0.16 $ 0.30
Weighted average shares:
Basic......................................... 74,028 77,858 77,858
Diluted....................................... 74,787 78,027 78,027
</TABLE>
- --------
(1) Pro forma gives effect to the change in the Company's structure to a fully
taxable entity and the buyout of the minority interest in IndyMac, Inc.
effective January of 2000.
The accompanying notes are an integral part of these statements.
3
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................... $ 51,946 $ 23,609
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization and depreciation....................... 40,630 12,257
Gain on sale of loans............................... (19,115) --
Severance expense................................... 9,380 --
Provision for loan losses........................... 4,316 6,681
Deferred compensation and 401(k) expense............ 1,184 390
Equity in (earnings) loss of IndyMac, Inc. ......... -- 2,323
Sale of and payments from mortgage loans held for
sale................................................. 1,272,196 1,974,461
Purchases of mortgage loans held for sale............. (1,487,669) (1,480,784)
Net increase in other assets.......................... (19,413) (3,254)
Net decrease in other liabilities..................... (4,078) (9,620)
----------- -----------
Net cash provided by (used in) operating
activities........................................ (150,623) 526,063
----------- -----------
Cash flows from investing activities:
Payments and sales from mortgage loans held for
investment........................................... 40,543 125,974
Net decrease (increase) in manufactured housing loans
held for investment.................................. 86 (13,960)
Net decrease in home improvement loans held for
investment........................................... 8,045 --
Net (increase) decrease in construction loans
receivable........................................... (37,892) 4,180
Net (increase) decrease in revolving warehouse lines
of credit............................................ (6,070) 134,487
Purchases of mortgage securities available for sale... (146,502) (6,853)
Sales of and payments from mortgage securities
available for sale................................... 15,132 14,488
Payments from collateral for collateralized mortgage
obligations.......................................... 4,777 20,045
Purchases of mortgage servicing rights................ (317) --
Purchase of IndyMac, Inc. ............................ 1,797 --
Net decrease in advances to IndyMac, Inc. ............ -- 16,071
----------- -----------
Net cash provided by (used in) investing
activities........................................ (120,401) 294,432
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in loans and securities sold
under agreements to repurchase....................... 262,422 (803,038)
Net increase (decrease) in syndicated bank lines and
commercial paper conduit............................. 43,912 (8,386)
Principal payments on collateralized mortgage
obligations.......................................... (3,350) (20,290)
Net proceeds from issuance of common stock............ 1,000 46,454
Acquisition of common stock........................... (27,315) --
Cash dividends paid................................... -- (28,780)
----------- -----------
Net cash provided by (used in) financing
activities........................................ 276,669 (814,040)
----------- -----------
Net increase in cash and cash equivalents............. 5,645 6,455
Cash and cash equivalents at beginning of period...... 4,488 815
----------- -----------
Cash and cash equivalents at end of period......... $ 10,133 $ 7,270
=========== ===========
Supplemental cash flow information:
Cash paid for interest.............................. $ 53,139 $ 55,566
=========== ===========
Supplemental disclosure of noncash investing and
financing activities:
The fair value of noncash assets acquired and
liabilities assumed in the purchase of IndyMac,
Inc. in January of 2000 was approximately $424
million and $332 million, respectively.
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Cumulative
Additional Other Distributions Total
Common Paid-in Treasury Comprehensive Cumulative Comprehensive to Shareholders'
Stock Capital Stock Income (Loss) Earnings Income Shareholders Equity
------ ---------- --------- ------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $758 $1,018,859 $ (13,062) $(18,776) $ 277,220 $(442,896) $822,103
Common stock options
exercised.............. 2 263 -- -- -- -- -- 265
Directors' and officers'
notes receivable....... -- 469 -- -- -- -- -- 469
Deferred compensation,
restricted stock....... -- 212 -- -- -- -- -- 212
401(k) contribution..... -- 178 -- -- -- -- 178
Net gain on available
for sale securities.... -- -- -- 19,235 -- 19,235 -- 19,235
Dividend reinvestment
plan................... 43 45,677 -- -- -- -- -- 45,720
Net earnings............ -- -- -- -- 23,609 23,609 -- 23,609
Dividends paid.......... -- -- -- -- -- -- (28,780) (28,780)
---- ---------- --------- -------- --------- ------ --------- --------
Net change.............. 45 46,799 -- 19,235 23,609 42,844 (28,780) 60,908
---- ---------- --------- -------- --------- ------ --------- --------
Balance at March 31,
1999................... $803 $1,065,658 $ (13,062) $ 459 $ 300,829 $(471,676) $883,011
==== ========== ========= ======== ========= ========= ========
Balance at December 31,
1999................... $807 $1,080,327 $ (76,378) $ 7,433 $ 393,149 $(577,808) $827,530
Common stock options
exercised.............. 2 900 -- -- -- -- -- 902
Directors' and officers'
notes receivable....... -- 29 -- -- -- -- -- 29
Deferred compensation,
restricted stock....... -- 1,982 -- -- -- -- -- 1,982
401(k) contribution..... 233 -- -- -- -- -- 233
Net loss on mortgage
securities available
for sale............... -- -- (34) -- (34) -- (34)
Dividend reinvestment
plan................... -- 69 -- -- -- -- -- 69
Acquisition of treasury
stock.................. -- -- (27,315) -- -- -- -- (27,315)
Close-out of cumulative
earnings and
distributions to
additional paid-in
capital................ -- (184,659) -- -- (393,149) -- 577,808 --
Net earnings............ -- -- -- -- 51,946 51,946 -- 51,946
---- ---------- --------- -------- --------- ------ --------- --------
Net change.............. 2 (181,446) (27,315) (34) (341,203) 51,912 577,808 27,812
---- ---------- --------- -------- --------- ------ --------- --------
Balance at March 31,
2000................... $809 $ 898,881 $(103,693) $ 7,399 $ 51,946 $ -- $855,342
==== ========== ========= ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
NOTE A--BASIS OF PRESENTATION
IndyMac Mortgage Holdings, Inc. ("IndyMac") conducts a diversified mortgage
lending business, including the origination and purchase of and investment in
conforming, non-conforming and jumbo residential loans, subprime loans,
construction loans, mortgage-backed securities and other mortgage-related
assets. References to "IndyMac" refer to the parent company alone, while
references to the "Company" mean the parent company and its consolidated
subsidiaries. The accompanying consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements.
Prior to January of 2000, IndyMac elected to be treated as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended.
The consolidated financial statements as of and for the three months ended
March 31, 1999 include the accounts of IndyMac and its qualified REIT
subsidiaries. Through December 31, 1999, IndyMac owned all the preferred non-
voting stock and had a 99% economic interest in IndyMac, Inc. ("IndyMac
Operating"). Accordingly, IndyMac's investment in IndyMac Operating was
accounted for under a method similar to the equity method because IndyMac had
the ability to exercise influence over the financial and operating policies of
IndyMac Operating through its ownership of the preferred stock and other
contracts. In January of 2000, IndyMac acquired all of the voting stock of
IndyMac Operating. See Note B--Acquisition of IndyMac Operating's Common
Stock, for further information.
During 1999, IndyMac's Board of Directors and shareholders approved the
termination of its income tax status as a REIT, effective January of 2000. As
a result of its conversion to a fully taxable status, an income tax benefit
and related deferred tax asset of $36.1 million was recorded in January of
2000. In addition, the Company's $393.1 million and $577.8 million balance of
cumulative earnings and distributions to shareholders, respectively, were
closed against additional paid in capital. As a fully taxable entity, IndyMac
will no longer be required to distribute 95% of its taxable income to its
shareholders, but will be taxed on its earnings based on currently enacted tax
rates.
Certain reclassifications have been made to the financial statements for the
period ended March 31, 1999 to conform to the March 31, 2000 presentation. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the quarter ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1999.
All significant intercompany balances and transactions with Company's
consolidated subsidiaries have been eliminated in consolidation of the
Company.
NOTE B--ACQUISITION OF INDYMAC OPERATING'S COMMON STOCK
In January of 2000, IndyMac purchased all of IndyMac Operating's outstanding
common stock, which was held by Countrywide Home Loans, Inc. ("CHL"), for $1.8
million (the "acquisition"). IndyMac Operating's total assets and
shareholder's equity on the date of the acquisition were approximately $424
million and $92 million, respectively. CHL's minority interest investment of
1% in IndyMac Operating as of the effective date of the purchase was $922,300.
As IndyMac owns 100% of the outstanding common and preferred stock of IndyMac
Operating subsequent to the buyout of CHL's common stock effective January of
2000, the
6
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consolidation method of accounting is used for IndyMac's investment in IndyMac
Operating. Included on the consolidated balance sheets and consolidated income
statements is the pro forma effect to IndyMac's financial statements as of
December 31, 1999 and for the three months ended March 31, 1999, had IndyMac
used the consolidation method of accounting for its investment in IndyMac
Operating during such time period.
NOTE C--SEGMENT REPORTING
The Company's reportable operating segments include Mortgage Banking,
Investment Portfolio and Commercial Lending. The Mortgage Banking segment
purchases conforming, jumbo and other non-conforming mortgage loans from
business-to-business ("B2B") customers, and funds loans directly to consumers.
These loans are then securitized through the issuance of mortgage backed
securities ("MBS"), resold in bulk whole loan sales to permanent investors or
government sponsored enterprises, or retained by the Company's Investment
Portfolio segment. The Mortgage Banking segment also administers the related
construction advances for the purchase of construction-to-permanent mortgage
loans originated by or sourced through the Company's B2B sellers and LoanWorks
customers ("consumer construction"). The Investment Portfolio segment invests
in residential loans on a long-term basis and securities retained in
connection with loan sales activities or purchased on the open market. The
Investment Portfolio also performs mortgage servicing activities. The
Commercial Lending segment offers a variety of residential construction, land
and lot loan programs for builders and developers. This segment also engages
in secured warehouse lending operations for mortgage brokers and mortgage
bankers. Operating segments' profitability is measured on a fully-leveraged
basis. Excess liquidity is unallocated and included in the other operating
segment. The Company does not allocate corporate costs such as corporate
salaries and related expenses, and non-recurring corporate items. These
corporate items are included in the Other operating segment.
In connection with an internal reorganization in the first quarter of 2000,
the consumer construction business was moved to the Mortgage Banking segment
and servicing operations were moved to the Investment Portfolio Segment. In
addition, in prior periods corporate support costs were allocated to the
operating segments. Segment reporting for the three months ended March 31,
1999 has been restated to conform to the current method of reporting segments.
Segment information for the three months ended March 31, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
Mortgage Investment Commercial
Banking Portfolio Lending Other Consolidated
---------- ---------- ---------- ------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Three months ended March
31, 2000
Net interest income... $ 8,567 $ 11,190 $ 13,215 $ 9,832 $ 42,804
Net revenues.......... 30,591 17,897 13,071 11,456 73,015
Tax provision
(benefit)............ 5,284 5,344 4,132 (39,386) (24,626)
Net earnings.......... 7,298 3,235 5,705 35,708 51,946
Three months ended March
31, 1999(1)
Net interest income... $ 10,671 $ 13,387 $ 13,206 $ 2,948 $ 40,212
Net revenues.......... 44,815 6,425 3,814 3,115 58,169
Tax provision
(benefit)............ 13,256 (1,878) (12) (2,069) 9,297
Net earnings.......... 18,307 (2,594) (17) (3,118) 12,578
Assets as of March 31,
2000................... $1,247,387 $1,997,061 $1,058,643 $54,650 $4,357,741
Assets as of March 31,
1999(1)................ $1,230,288 $2,289,908 $1,244,591 $24,197 $4,788,984
</TABLE>
- --------
(1) Balances presented on a pro forma basis to give effect to the change in
the Company's structure to a fully taxable entity and the buyout of the
minority interest in IndyMac, Inc. effective January of 2000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
IndyMac Mortgage Holdings, Inc. ("IndyMac") conducts a diversified mortgage
banking business, manages an investment portfolio, and offers commercial
lending products including builder construction loans and warehouse lines of
credit. References to "IndyMac" refer to the parent company alone, while
references to the "Company" mean the parent company and its consolidated
subsidiaries.
Through December 31, 1999, IndyMac elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a result of this election, IndyMac was not, with certain
limited exceptions, taxed at the corporate level on the net income distributed
to IndyMac's shareholders. On December 14, 1999, the shareholders of IndyMac
approved the conversion of IndyMac from a REIT to a fully taxable entity,
effective January of 2000. As a fully taxable entity, IndyMac will no longer
be required to distribute 95% of its taxable income to its shareholders, but
will be taxed on its earnings based on currently enacted tax rates. Payment of
future dividends is subject to declaration by the Company's Board of
Directors.
In July of 1999, IndyMac announced that it had signed a definitive agreement
to acquire SGV Bancorp, Inc. ("SGVB"), the holding company for First Federal
Savings and Loan Association of San Gabriel Valley (the "Bank"). SGVB is a
Southern California-based savings and loan holding company whose federally
chartered savings and loan subsidiary had nine branches, $364.5 million in
deposits, and approximately 27,000 customer accounts as of March 31, 2000. The
shareholders of IndyMac and SGVB approved the acquisition on December 14,
1999. IndyMac will acquire SGVB in a cash purchase transaction for $25.00 per
share for all of the SGVB shares outstanding and subject to option as of the
date of purchase. This price is subject to adjustment in the event of changes
in the value of certain assets and liabilities of SGVB. The acquisition is
subject to Office of Thrift Supervision ("OTS") approval, which is anticipated
to be granted during the second quarter of 2000. The application was deemed
complete by the OTS on April 24, 2000.
Mortgage Banking Operations
The Company's mortgage banking operations include (1) Business-to-Business
("B2B") transactions, whereby the Company purchases loans from mortgage
brokers, mortgage bankers and community financial institutions through the use
of its proprietary Internet-based underwriting and risk-based pricing system,
e-MITS/1/ (electronic-Mortgage Information and Transaction System), (2)
LoanWorks/2/, which originates a variety of residential loans for consumers,
and (3) IndyMac Construction Lending Division ("IndyMac CLD"), which
originates or purchases a variety of residential construction, land and lot
loans through its B2B customers and LoanWorks. The Company's mortgage
production includes conforming, non-conforming and jumbo prime and subprime
residential mortgage loans. The Company's principal sources of income from its
mortgage banking operations are gains recognized on the sale or securitization
of mortgage loans, fee income from the origination or purchase of such loans,
and the net spread between interest earned on mortgage loans and the interest
costs associated with the borrowings used to finance such loans pending their
sale or securitization.
B2B funded $1.4 billion of prime and subprime loans during the three months
ended March 31, 2000, compared with $1.3 billion during both the fourth and
first quarters of 1999. B2B's loan production was financed using equity and
short-term financing in the form of repurchase agreements and other credit
facilities. The Company sold $1.3 billion of prime and subprime loans during
the three months ended March 31, 2000, compared with $1.2 billion and $2.0
billion of sales during the fourth and first quarters of 1999, respectively.
Loans funded through e-MITS during the three months ended March 31, 2000
totaled $1.0 billion, representing 70% of the Company's B2B prime and subprime
mortgage production for the quarter, up from $193 million or 15% of production
during the three months ended March 31, 1999.
- --------
/1/ Registered in the U.S. Patent and Trademark Office. Patent pending.
/2/ Registered in the U.S. Patent and Trademark Office.
8
<PAGE>
LoanWorks funded $139 million of mortgage loans during the three months
ended March 31, 2000, an increase of 29% in comparison to $108 million of
loans during the three months ended December 31, 1999.
At March 31, 2000, IndyMac CLD had outstanding commitments to fund consumer
construction loans of $647.9 million compared to outstanding commitments of
$609.2 million at December 31, 1999.
Investment Portfolio Operations
The Company invests in residential loans and mortgage securities either
retained in connection with the issuance of mortgage-backed securities or
purchased from third parties with the intent to hold on a long-term basis. The
Company acts as primary servicer and master servicer with respect to
substantially all of the mortgage loans it sells pursuant to private-label
securitizations, and a portion of those loans sold to government sponsored
entities ("GSEs").
LoanWorks Servicing's portfolio at March 31, 2000 and December 31, 1999 was
$10.6 billion and $10.1 billion, respectively, with a weighted average coupon
of 8.7% as of March 31, 2000 and 8.6% as of December 31, 1999. At March 31,
2000 and December 31, 1999, the Company's master servicing portfolio had
aggregate outstanding principal balances of $15.7 billion and $16.1 billion,
respectively, with weighted average coupons of 8.3% and 8.2% respectively.
Commercial Lending Operations
The Company conducts its builder construction lending activities through
Construction Lending Corporation of America ("CLCA"), which offers a variety
of residential construction, land and lot loan programs for builders and
developers. Warehouse lending activities are conducted through Warehouse
Lending Corporation of America ("WLCA"), which provides various types of
short-term revolving financing to small-to-medium size mortgage bankers and
brokers.
At March 31, 2000, CLCA had outstanding commitments to fund builder
construction loans of $1.4 billion compared to outstanding commitments of $1.3
billion at December 31, 1999. At March 31, 2000, IndyMac had extended
commitments to make warehouse and related lines of credit in an aggregate
amount of $955.0 million, compared to commitments of $985.5 million at
December 31, 1999.
Operations Following Acquisition of SGVB
The Company anticipates that its acquisition of SGVB will be completed
during the second quarter of 2000. In connection with the acquisition, IndyMac
Operating will be merged into SGVB and substantially all of the assets,
liabilities and operations of the Company, including the mortgage banking,
investment portfolio, and commercial lending operations, will be transferred
to the Bank.
Following the acquisition of SGVB, the Company will generally continue to
operate and develop its existing mortgage and consumer lending businesses, and
to institute new lending strategies and programs as the mortgage and consumer
lending markets evolve. The Company expects that the most significant change
from its current operations will be the expansion of its funding sources to
include federally insured deposits products offered by the Bank and, to the
extent circumstances warrant, advances to the Bank from the Federal Home Loan
Bank ("FHLB") of San Francisco. In addition to continuing to obtain deposits
in California through the Bank's existing branch network, the Company expects
to market deposits nationally through the Internet and a centralized
telebanking operation. The Company anticipates that the availability of these
new funding sources will reduce its reliance on the capital markets for its
funding requirements, and will therefore make the Company less vulnerable to
future adverse changes in the capital markets.
9
<PAGE>
Financial Condition
Loans Held for Sale, Net: The Company's $813.5 million portfolio of loans
held for sale at March 31, 2000 consisted of $574.3 million and $239.2 million
of prime and subprime products, respectively. The Company's $658.8 million
portfolio of loans held for sale at December 31, 1999 (on a pro forma basis)
consisted of $543.9 million and $114.9 million of prime and subprime products,
respectively. The overall 23% increase in the loans held for sale, net, from
December 31, 1999 to March 31, 2000 was primarily due to subprime mortgage
production of $183.8 million through the B2B channel during the three months
ended March 31, 2000.
Mortgage Loans Held For Investment, Net: The $918.1 million portfolio of
mortgage loans held for investment, net, at March 31, 2000 included $949.8
million in outstanding principal, net of $31.7 million in net discounts and
loan loss reserves. The Company's loans held for investment, net portfolio of
$918.1 million included $608.7 million, $17.3 million, $201.5 million, and
$90.6 million of prime loans, subprime loans, home improvement loans, and
manufactured housing loans, respectively, at March 31, 2000. The prime and
subprime loan portfolio consisted of $153.5 million of varying types of
adjustable-rate products, which contractually re-price in monthly, semi-annual
or annual periods; $278.0 million of loans which have a fixed interest rate
for a period of three, five, seven or ten years and subsequently convert to
adjustable-rate mortgage loans that re-price annually; and $206.6 million of
fixed-rate loans.
At December 31, 1999, the Company held $869.2 million of mortgage loans held
for investment, net, which consisted of $546.3 million of prime loans, $17.9
million of subprime loans, $211.0 million of home improvement loans, and $94.0
million of manufactured housing loans.
Residential Construction: At March 31, 2000, CLCA had outstanding balances
of $648.4 million, compared to outstanding balances of $692.2 million at
December 31, 1999. At March 31, 2000, IndyMac CLD had outstanding balances of
$417.0 million compared to outstanding balances of $396.4 million at December
31, 1999.
CLCA's outstanding balances of $648.4 million and $692.2 million at March
31, 2000 and December 31, 1999, respectively, included $646.5 million and $1.9
million of builder and consumer products at March 31, 2000, respectively, and
$688.3 million and $3.9 million at December 31, 1999, respectively. IndyMac
CLD's outstanding balances of $417.0 million and $396.4 million at March 31,
2000 and December 31, 1999, respectively, included $37.2 million and $379.8
million of builder and consumer products at March 31, 2000, respectively, and
$44.2 million and $352.2 million at December 31, 1999, respectively.
Mortgage Securities Available for Sale: At March 31, 2000 and December 31,
1999, the fair value of the Company's mortgage securities portfolio totaled
$755.3 million and $650.6 million (on a pro forma basis), respectively. The
balances consisted of the following types of securities:
<TABLE>
<CAPTION>
March December 31,
31, 2000 1999
-------- ------------
(Dollars in
thousands)
<S> <C> <C>
AAA rated interest-only securities..................... $321,260 $341,447
Agency securities...................................... 183,687 140,372
AAA rated senior securities............................ 116,408 46,871
Other investment grade securities...................... 62,016 47,959
-------- --------
Total investment grade securities.................... 683,371 576,649
-------- --------
Non-investment grade residual securities............... 38,725 42,784
Other non-investment grade securities.................. 33,161 31,153
-------- --------
Total non-investment grade securities................ 71,886 73,937
-------- --------
Total mortgage securities............................ $755,257 $650,586
======== ========
</TABLE>
10
<PAGE>
The Company evaluates the carrying value of its AAA rated interest-only
securities and residual securities monthly by discounting estimated net future
cash flows. Adjustments to the carrying value are recorded as a component of
other comprehensive income in shareholders' equity. The assumptions used to
value these securities at March 31, 2000 and December 31, 1999 follow:
<TABLE>
<CAPTION>
Actual Valuation Assumptions
-------------------------------------------------------- --------------------------
3-Month Wtd. Annual
Book Collateral Gross Interest Prepayment Avg. Prepayment Discount Loss
Value Balance WAC Strip Speeds Multiple Speeds Yield Rate
-------- ----------- ----- -------- ---------- -------- ---------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 2000
AAA rated interest-only
securities............. $321,260 $11,326,392 8.11% 0.8% 12.1% 3.37 12.5% 12.5% NA
Non-investment grade
residual securities
Prime residual
securities............ 8,748 282,402 8.37% 1.4% 14.1% 2.20 23.2% 20.0% 0.3%
Subprime residual
securities............ 27,957 826,664 9.60% 2.5% 27.0% 1.34 30.7% 20.0% 1.3%
Manufactured housing
securities............ 2,020 390,997 10.26% 2.5% 100 MHP 0.20 180 MHP 25.0% 1.7%
-------- ----------- ----- --- ---- ---- ---
Total non-investment
grade residual
securities............ $ 38,725 $ 1,500,063 9.54% 2.3% 1.11 21.3% 1.2%
======== =========== ===== === ==== ==== ===
December 31, 1999
AAA rated interest-only
securities............. $341,447 $11,019,669 8.14% 0.9% 15.8% 3.37 12.7% 12.7% NA
Non-investment grade
residual securities
Prime residual
securities............ 8,524 294,189 8.38% 1.5% 17.3% 1.93 30.0% 20.0% 0.4%
Subprime residual
securities............ 31,579 890,281 9.56% 2.6% 28.6% 1.36 35.1% 20.0% 1.2%
Manufactured housing
securities............ 2,681 402,071 10.16% 2.5% 135 MHP 0.27 208 MHP 20.0% 1.8%
-------- ----------- ----- --- ---- ---- ---
Total non-investment
grade residual
securities............ $ 42,784 $ 1,586,541 9.49% 2.6% 1.04 20.0% 1.2%
======== =========== ===== === ==== ==== ===
</TABLE>
The fair value for the Company's other investment and non-investment grade
securities is estimated based on market quotes when available or discounted
cash flow techniques using assumptions for prepayment rates, market yield
requirements and credit losses. Adjustments to the carrying value are recorded
as a component of other comprehensive income in shareholders' equity. The
detail of other investment and non-investment grade securities by credit
rating as of March 31, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Premium
Current (Discount)
Face To Face Amortized Book
Value Value Cost Value
-------- --------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
March 31, 2000
AAA rated principal-only securities...... $ 6,727 $ (1,154) $ 5,573 $ 4,479
A........................................ 2,874 (109) 2,765 2,627
BBB...................................... 59,946 (4,474) 55,472 54,910
-------- -------- -------- -------
Total other investment grade
securities............................ 69,547 (5,737) 63,810 62,016
BB....................................... 38,337 (8,988) 29,349 25,026
B........................................ 9,421 (2,012) 7,409 6,063
NR....................................... 11,274 (10,020) 1,254 2,072
-------- -------- -------- -------
Total other non-investment grade
securities............................ 59,032 (21,020) 38,012 33,161
-------- -------- -------- -------
Total other investment and non-
investment grade securities........... $128,579 $(26,757) $101,822 $95,177
======== ======== ======== =======
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Premium
Current (Discount)
Face To Face Amortized Book
Value Value Cost Value
-------- --------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1999
AAA rated principal-only securities...... $ 5,948 $ (810) $ 5,138 $ 3,990
AA....................................... 208 8 216 206
A........................................ 2,690 (117) 2,573 2,407
BBB...................................... 46,767 (4,464) 42,303 41,356
-------- -------- ------- -------
Total other investment grade
securities............................ 55,613 (5,383) 50,230 47,959
BB....................................... 43,987 (9,486) 34,501 28,365
B........................................ 1,934 (808) 1,126 1,102
NR....................................... 9,209 (8,531) 678 1,686
-------- -------- ------- -------
Total other non-investment grade
securities............................ 55,130 (18,825) 36,305 31,153
-------- -------- ------- -------
Total other investment and non-
investment grade securities........... $110,743 $(24,208) $86,535 $79,112
======== ======== ======= =======
</TABLE>
Mortgage Servicing Rights: At March 31, 2000 and December 31, 1999, the
Company's mortgage servicing rights balance totaled $162.3 million and $140.3
million, respectively. The increase in the mortgage servicing rights balance
was primarily due to assets retained totaling $28.1 million resulting from
securitizations during the three months ended March 31, 2000. The assumptions
used to value mortgage servicing rights at March 31, 2000 and December 31,
1999 follow:
<TABLE>
<CAPTION>
Valuation
Actual Assumptions
----------------------------------------------- -------------------
Book Collateral Gross Servicing Wtd. Avg. Prepayment Discount
Value Balance WAC Fee Multiple Speeds Yield
-------- ----------- ----- --------- --------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 2000
Master servicing........ $ 52,607 $14,286,042 8.29% 0.1% 3.38 14.2% 20.2%
Primary servicing
Prime/subprime......... 108,349 8,572,698 8.43% 0.4% 3.41 10.2% 13.1%
Manufactured housing... 1,351 383,288 10.26% 1.0% 0.35 180 MHP 16.0%
-------- ----------- ----- --- ---- ----
Total primary
servicing............ $109,700 $ 8,955,986 8.51% 0.4% 3.08 13.3%
-------- =========== ===== === ==== ====
Total mortgage
servicing rights..... $162,307
========
December 31, 1999
Master servicing........ $ 51,365 $13,829,264 8.21% 0.1% 3.27 14.3% 16.3%
Primary servicing
Prime/subprime......... 87,548 7,352,119 8.29% 0.3% 3.55 13.5% 12.1%
Manufactured housing... 1,396 394,545 10.26% 1.0% 0.35 208 MHP 15.0%
-------- ----------- ----- --- ---- ----
Total primary
servicing............ $ 88,944 $ 7,746,664 8.39% 0.4% 3.10 12.0%
-------- =========== ===== === ==== ====
Total mortgage
servicing rights..... $140,309
========
</TABLE>
12
<PAGE>
Asset Quality
A summary of the Company's non-performing loans as of March 31, 2000 and
December 31, 1999 follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------- ------------------
% of % of
Amount Portfolio Amount Portfolio
------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Non-performing loans:
Single family residential ("SFR")
mortgage loans......................... $53,049 3.68% $ 58,359 4.76%
Builder construction and income property
loans.................................. 19,390 2.32% 23,885 2.67%
Consumer construction loans............. 3,238 0.83% 2,906 0.80%
Revolving warehouse lines of credit..... 1,994 0.80% 5,731 2.35%
Manufactured housing loans.............. 7,263 6.66% 7,396 6.72%
Home improvement loans.................. 1,022 0.48% 5,890 2.71%
------- ---- -------- ----
Totals................................ $85,956 2.65% $104,167 3.41%
======= ==== ======== ====
</TABLE>
SFR Mortgage Loans: Non-performing loans decreased $5.4 million to $53.0
million at March 31, 2000 compared to $58.4 million at December 31, 1999 in
part due to seasonality related to the timeliness of loan payments during the
holiday season.
Builder Construction and Income Property Loans: Non-performing loans
decreased $4.5 million to $19.4 million at March 31, 2000 compared to $23.9
million at December 31, 1999. The decrease in non-performing loans was
primarily the result of the payoff of a $4.4 million loan during the three
months ended March 31, 2000 that was included in the non-performing loan
portfolio at December 31, 1999.
Consumer Construction: The balance of non-performing loans was comparable at
March 31, 2000 and December 31, 1999 at $3.2 million and $2.9 million,
respectively.
Revolving Warehouse Lines of Credit: Non-performing loans decreased $3.7
million to $2.0 million at March 31, 2000 compared to $5.7 million at December
31, 1999. The decrease is primarily due to a $4.1 million non-performing loan
as of December 31, 1999 that was brought current during the three months ended
March 31, 2000.
Manufactured Housing Loans: Non-performing loans at March 31, 2000 and
December 31, 1999 were comparable at $7.3 million and $7.4 million,
respectively.
Home Improvement Loans: Non-performing loans decreased $4.9 million to $1.0
million at March 31, 2000 compared to $5.9 million at December 31, 1999. The
decrease is primarily due to the charge-off of all loans greater than 120 days
delinquent. The entire balance of the loans that was charged-off during the
three months ended March 31, 2000 was fully reserved for at December 31, 1999.
Allowance for Loan Losses: The Company's allowance for loan losses totaled
$55.2 million at March 31, 2000, or 1.70% of the book value of loans
outstanding, compared to $53.9 million at December 31, 1999, or 1.77% of the
book value of loans outstanding. The allowance for loan losses was increased
through the provision for loan losses during the three months ended March 31,
2000 to maintain the allowance at prudent levels given the composition of the
loan portfolio and management's assessment of the level of losses inherent in
the Company's loan portfolio at March 31, 2000. Net charge-offs totaled $3.0
million during the three months ended March 31, 2000, compared to $4.4 million
during the three months ended December 31, 1999.
13
<PAGE>
Real Estate Acquired in Settlement of Loans (REO): At March 31, 2000 and
December 31, 1999, the Company's REO balance, which is recorded at estimated
net realizable value, totaled $26.6 million and $22.3 million, respectively
(included in other assets in the consolidated balance sheets). The Company
recognized a total of $24 thousand in net losses on sale of REO during the
three months ended March 31, 2000, and a mark to market loss of $506 thousand
during the three months ended March 31, 2000.
REO consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(Dollars in
thousands)
<S> <C> <C>
SFR mortgage loans.................................... $ 7,501 $ 7,389
Builder construction and income property loans........ 14,330 11,107
Consumer construction loans........................... 1,568 1,182
Manufactured housing loans............................ 3,204 2,645
------- -------
$26,603 $22,323
======= =======
</TABLE>
Results of Operations
Three months ended March 31, 2000 compared to the three months ended March 31,
1999
Highlights for the three months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
For the three months
ended March 31,
-----------------------
2000 1999
------- --------------
(Pro forma)(1)
(Dollars in thousands)
<S> <C> <C>
Net earnings before non-recurring items............ $21,775 $12,578
Return on average assets before non-recurring
items............................................. 2.08% 0.94%
Return on average equity before non-recurring
items............................................. 10.64% 6.28%
Interest spread
Yield on interest-earning assets................. 10.03% 7.98%
Cost of interest-bearing liabilities............. 6.72% 5.65%
Interest spread.................................. 3.31% 2.33%
Net interest margin.............................. 4.42% 3.12%
</TABLE>
- --------
(1) Pro forma gives effect to the change in the Company's structure to a fully
taxable entity and the buyout of the minority interest in IndyMac, Inc.
effective January of 2000.
Net Earnings: The Company's net earnings were $51.9 million for the three
months ended March 31, 2000, compared to $23.6 million for the three months
ended March 31, 1999. The Company's pro forma net earnings for the first
quarter of 1999 would have been $12.6 million had the Company owned 100% of
IndyMac, Inc.'s common stock, and had it been a fully taxable entity. The
$39.3 million increase in net earnings (comparing to the quarter ended March
31, 1999 on a pro forma basis) was primarily associated with the Company's
conversion to a fully taxable entity, at which time the Company recorded a
$36.1 million deferred tax asset and associated tax benefit.
Interest Income: Total interest income was $98.1 million and $93.5 million
for the three months ended March 31, 2000 and 1999, respectively. On a pro
forma basis, total interest income was $103.2 million during the three months
ended March 31, 1999. The decrease in interest income of $5.1 million
(comparing to the quarter ended March 31, 1999 on a pro forma basis) was
primarily the result of a decrease in average interest earning assets of $1.3
billion to $3.9 billion during the three months ended March 31, 2000 from $5.2
billion during the three months ended March 31, 1999. The decrease in average
interest earning assets during the first quarter of 2000 compared to the first
quarter of 1999 was primarily due to the Company's efforts to reduce asset
14
<PAGE>
size and increase liquidity. The decrease in the average balance of interest
earning assets was partially offset by an increase in yield of 205 basis
points, primarily due to the rising interest rate environment over the course
of the past year, and a $3.0 million impairment charge recognized on mortgage
securities during the three months ended March 31, 1999.
Loans held for sale, net: Interest income on loans held for sale totaled
$19.0 million and $29.8 million for the three months ended March 31, 2000
and 1999, respectively. On a pro forma basis, interest income on loans held
for sale for the three months ended March 31, 1999 was $35.2 million. The
decrease in interest income on loans held for sale was primarily the result
of a decrease in the average balance of such loans by $856.8 million to
$819.0 million from $1.7 billion for the three months ended March 31, 2000
and 1999, respectively. This reduction was partially offset by an increase
in the effective yield to 9.3% from 8.5%. The increase in the effective
yield was primarily due to the increase in rates during the year, offset in
part by the transfer of the Company's manufactured housing and home
improvement loans portfolio to the held for investment portfolio in the
third quarter of 1999.
Mortgage loans held for investment, net: Interest income on mortgage
loans held for investment totaled $20.9 million and $11.7 million for the
quarters ended March 31, 2000 and 1999, respectively. The $9.2 million
increase was primarily the result of an increase in the average balance of
such loans by $278.9 million to $897.3 million during the three months
ended March 31, 2000, from $618.5 million during the three months ended
March 31, 1999, as well as an increase in the effective yield to 9.4% from
7.7%. The increase in the effective yield was primarily due to the increase
in rates during the year, as well as the transfer of the Company's
manufactured housing and home improvement loans portfolio to the held for
investment portfolio during 1999.
Residential construction loans: Interest income on residential
construction loans totaled $30.0 million and $30.2 million for the three
months ended March 31, 2000 and 1999, respectively. The average balance of
residential construction loans outstanding was $1.1 billion for the three
months ended March 31, 2000 and $1.3 billion for the three months ended
March 31, 1999. Interest was earned at an effective yield of 11.2% and 9.8%
during the three months ended March 31, 2000 and 1999, respectively. The
increase in the effective yield was primarily due to the increase in rates
during the year.
Income property loans: Interest income on income property loans totaled
$3.8 million and $4.2 million for the three months ended March 31, 2000 and
1999, respectively. The $400 thousand decrease was primarily the result of
a decrease in the average balance of such loans to $137.5 million from
$183.5 million during the three months ended March 31, 2000 and 1999,
respectively. The decrease in the average balance was the result of
discontinuing this product during the prior year. The decrease in interest
income due to the decrease in the average balance outstanding was partially
offset by an increase in the effective yield to 11.3% from 9.3%. The
increase in the effective yield was primarily due to the increase in rates
during the year, as well as cash received during the three months ended
March 31, 2000 on loans previously on non-accrual status.
Revolving warehouse lines of credit: Interest income on revolving
warehouse lines of credit totaled $4.4 million and $6.1 million for the
three months ended March 31, 2000 and 1999, respectively. The $1.7 million
decrease was primarily the result of a decrease in the average balance of
such lines to $192.0 million from $293.4 million during the quarters ended
March 31, 2000 and 1999. This reduction was partially offset by an increase
in the effective yield to 9.2% from 8.4%.
Mortgage securities available for sale: Interest income on mortgage
securities totaled $18.2 million and $2.4 million for the three months
ended March 31, 2000 and 1999, respectively. On a pro forma basis, interest
income on mortgage securities during the three months ended March 31, 1999
was $12.3 million. The average balance of mortgage securities available for
sale was $714.9 million compared to $1.0 billion (on a pro forma basis) for
the three months ended March 31, 2000 and 1999, respectively. The decrease
in the average balance of mortgage securities was partially offset by an
increase in the effective yield to 10.3% from 4.8%. The 4.8% effective
yield during the three months ended March 31, 1999 was primarily due to
15
<PAGE>
impairment charges totaling $3.0 million recorded as a reduction to
interest income. Had there been no impairment during the three months ended
March 31, 1999, the effective yield on mortgage securities would have
approximated 9.4%.
Collateral for CMO's: Interest income on collateral for CMO's was $1.5
million and $2.8 million for the three months ended March 31, 2000 and
1999, respectively. This decrease was primarily attributable to a decrease
in the average aggregate principal amount of collateral for CMO's
outstanding to $85.8 million from $153.9 million for the quarters ended
March 31, 2000 and 1999, respectively.
Interest Expense: Total interest expense was $55.3 million and $53.4 million
for the three months ended March 31, 2000 and 1999, respectively. On a pro
forma basis, total interest expense during the three months ended March 31,
1999 was $63.0 million. The average balance of interest bearing liabilities
during the three months ended March 31, 2000 and 1999 was $3.3 billion and
$4.5 billion (on a pro forma basis), respectively. This reduction was
partially offset by an increase in the Company's cost of funds to 6.7% from
5.7%.
Provision for Loan Losses: The provision for loan losses decreased to $4.3
million from $6.7 million during the three months ended March 31, 2000 and
1999, respectively. IndyMac's determination of the level of the allowance for
loan losses and correspondingly, the provision for loan losses, is based on
various judgments and assumptions regarding various matters, including general
economic conditions, loan portfolio composition, delinquency trends and prior
loan loss experience.
Equity in Earnings (Loss) of IndyMac Operating: IndyMac had a 99% equity
interest in IndyMac Operating during the three months ended March 31, 1999. In
January of 2000, IndyMac purchased the minority interest in IndyMac Operating
from CHL. As such, there is no equity in earnings (loss) of IndyMac Operating
in 2000, whereas a loss of $2.3 million was recognized during the three months
ended March 31, 1999.
Net Gain (Loss) on Sale of Securities: The Company recorded a gain on sale
of mortgage securities of $963 thousand during the three months ended March
31, 2000, compared to a loss of $69 thousand during the three months ended
March 31, 1999. On a pro forma basis, the Company recognized a loss of $15.4
million during the three months ended March 31, 1999, primarily due to IndyMac
Operating's sale of U.S. Treasuries at a loss of $14.8 million during this
time period.
Other Income, net: Other income consists primarily of fee income and gain
(loss) on sale of REO and other assets. Other income totaled $6.2 million for
the three months ended March 31, 2000 and $1.8 million for the three months
ended March 31, 1999, respectively. On a pro forma basis, other income was
$6.5 million for the three months ended March 31, 1999.
Expenses: Total expenses were $45.7 million and $9.2 million for the three
months ended March 31, 2000 and 1999, respectively. On a pro forma basis,
total expenses were $36.3 million for the three months ended March 31, 1999.
The increase in expenses period over period was primarily due to non-recurring
expenses of $10.2 million recognized during the three months ended March 31,
2000. This $10.2 million consisted primarily of $9.4 million in compensation
expense related to the resignation of Mr. Mozilo from the Board of Directors
and $843 thousand related to the buyout of CHL's minority interest in IndyMac
Operating.
Liquidity and Capital Resources
The Company's principal financing needs are the financing of its mortgage
loan inventory and its investment in mortgage backed securities. The Company's
primary sources of funds used to meet these financing needs include cash flow
from operations, committed and uncommitted borrowings, structured financing,
and unsecured debt.
At March 31, 2000, the Company had liquidity approximating $282.3 million,
with a leverage ratio (debt to equity) of 4.1:1. The Company believes that its
liquidity levels and borrowing capacity are sufficient to meet its
16
<PAGE>
current operating requirements. However, the Company's liquidity and capital
resources will continue to depend on factors such as cash flow from operations
and margins on financial collateral required by lenders.
The table below summarizes the Company's sources of financing as of March
31, 2000:
<TABLE>
<CAPTION>
Committed Outstanding
Financial Institution Financing Balances Type of Financing Maturity Date
--------------------- --------- ----------- ------------------------ --------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Merrill Lynch........... $1,500 $1,475 Repurchase Agreement May 2001
Paine Webber............ 500 467 Repurchase Agreement September 2001
Morgan Stanley.......... 500 232 Repurchase Agreement June 2001
Credit Suisse First
Boston................. 500 47 Repurchase Agreement November 2000
First Union Bank
Syndicate.............. 900 683 Revolving Bank Line February 2001
Bank of America......... 50 -- Revolving Bank Line September 2000
Bank of America......... 200 154 Commercial Paper Conduit March 2001
Various................. 60 60 Senior Unsecured Notes October 2002
------ ------
Total committed
financing............ 4,210 3,118
Uncommitted repurchase
facilities............. -- 231
------ ------
Total financing....... $4,210 $3,349
====== ======
</TABLE>
The Company's ability to meet its long-term liquidity requirements is
subject to the renewal of its repurchase and credit facilities and/or
obtaining other sources of financing, including access to federally insured
customer deposits and FHLB borrowings after the pending acquisition of SGVB,
and issuing additional debt or equity from time to time. Decisions by the
Company's lenders and investors to make additional funds available to the
Company in the future will depend upon a number of factors. These include the
Company's compliance with the terms of its existing credit arrangements, the
Company's financial performance, industry and market trends in the Company's
various businesses, the general availability of, and rates applicable to,
financing and investments, such lenders' and/or investors' own resources and
policies concerning loans and investments, and the relative attractiveness of
alternative investment or lending opportunities.
In July of 1999, IndyMac's Board of Directors approved a $100 million share
repurchase plan. Through March 31, 2000, the Company had repurchased 6.6
million shares in open market transactions at an average price of
approximately $13.64 per share, completing $90.6 million of the $100 million
plan. In April of 2000, IndyMac's Board of Directors approved an additional
$100 million to continue the program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As part of its interest rate risk management process, the Company performs
various interest rate calculations that quantify the financial impact of
changes in interest rates on its interest-earning assets, commitments and
hedges. As of March 31, 2000, there were no material changes to the Company's
interest rate risk management process, or to the financial impact of changes
in interest rates on its interest-earning assets, commitments, and hedges,
from that which was disclosed in the Company's annual report on Form 10-K for
the year ended December 31, 1999. For further information, refer to Item 7A.
Quantitative and Qualitative Disclosure About Market Risk included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
Forward-Looking Statements
Certain statements contained in this Form 10-Q may be deemed to be forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements include the Company's statements regarding liquidity, provisions
for loan losses, capital resources, and anticipated future expense levels and
other anticipated aspects of future operations. Forward-looking statements
typically include the words "anticipate," "believe," "estimate," "expect,"
17
<PAGE>
"intend," and other similar expressions. These statements reflect the
Company's current views with respect to future events and financial
performance. They are subject to risks and uncertainties, including those
identified below, which could cause future results to differ materially from
historical results or from the results anticipated.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates or as of the date hereof if no
other date is identified. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following factors could cause
future results to differ materially from historical results or those
anticipated in any forward-looking statements herein:
(1) the level of demand for consumer loans, mortgage loans and
construction loans, which is affected by such external factors as the
level of interest rates, the strength of various segments of the
economy and demographics of the Company's lending markets;
(2) the availability of funds from the Company's lenders and other
sources of financing to support the Company's lending activities;
(3) the direction of interest rates and the relationship between interest
rates and the cost of funds;
(4) federal and state regulation of the Company's consumer lending
operations;
(5) the actions undertaken by both current and potential new competitors;
(6) matters relating to the proposed acquisition of SGVB, including the
timing and uncertainty of the regulatory approval process and other
consents and approvals that may be required, the changing nature and
size of the surviving corporation's business, and the possibility
that the assimilation of SGVB's operations upon completion of the
acquisition may be more difficult or costly, and may take longer than
expected by the Company; and
(7) other risks and uncertainties detailed herein under "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
18
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
10.1 Resignation Agreement dated February 29, 2000 between IndyMac Mortgage
Holdings, Inc. and Angelo R. Mozilo
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on May 15, 2000 for the three months ended
March 31, 2000.
INDYMAC MORTGAGE HOLDINGS, INC.
/s/ Michael W. Perry
By: _________________________________
Michael W. Perry
Vice Chairman of the Board of
Directors and Chief Executive
Officer
/s/ Carmella L. Grahn
By: _________________________________
Carmella L. Grahn
Executive Vice President and
Chief Financial Officer
20
<PAGE>
Execution Copy
RESIGNATION AGREEMENT
THIS RESIGNATION AGREEMENT (the "Agreement") is effective as of February
29, 2000 (the "Effective Date"), by and between IndyMac Mortgage Holdings, Inc.,
a Delaware corporation (the "Company"), and Angelo R. Mozilo ("Mr. Mozilo").
In consideration of the mutual promises and covenants herein contained, the
parties hereto agree as follows:
1. Resignation; Termination of Employment Agreement.
------------------------------------------------
(a) Resignation. Mr. Mozilo and the Company hereby acknowledge Mr.
-----------
Mozilo's resignation, effective as of the Effective Date, as an officer and
employee of the Company under Section 5(e) of that certain Employment Agreement,
dated as of December 23, 1998, by and between the Company and Mr. Mozilo (the
"Employment Agreement"), and the parties hereby waive the termination notice
provisions of Section 5(f) of the Employment Agreement.
(b) Waiver of Compensation and Termination Bonus. Mr. Mozilo hereby
--------------------------------------------
waives his right to receive any further compensation, severance or other
remuneration or benefits under the Employment Agreement from and after the
Effective Date, including without limitation the termination bonus described in
Section 4(g) of the Employment Agreement. Without limiting the foregoing,
nothing herein shall affect Mr. Mozilo's entitlement to all benefits in which he
became vested prior to the Effective Date or which are otherwise payable in
respect of periods ending prior to the Effective Date.
(c) Termination of Employment Agreement. The parties hereby terminate the
-----------------------------------
Employment Agreement by mutual written consent, as provided in Section 8(c)
thereof, effective as of the Effective Date.
2. New Stock and Restricted Stock. On the Effective Date, the Company
------------------------------
shall grant to Mr. Mozilo 25,000 shares of unrestricted common stock of the
Company pursuant to its then effective stock incentive plan. The 97,802 shares
of restricted stock of the Company otherwise held by Mr. Mozilo on the Effective
Date will vest over time in accordance with their current terms, provided that
no further vesting of such restricted stock shall occur from and after any time
at which Mr. Mozilo violates the provisions of Section 6 hereof.
3. Stock Options. On the Effective Date, the Company shall grant to Mr.
-------------
Mozilo options to acquire 67,115 shares of common stock of the Company, which
options will vest as to one-third of the shares on the first, second and third
anniversaries of the date of grant. All stock options to acquire shares of
common stock of the Company and held by Mr. Mozilo on December 31, 1999 and the
67,115 options referred
-1-
<PAGE>
to in the previous sentence shall continue to vest in accordance with their
original vesting schedule as if Mr. Mozilo had remained an employee of the
Company throughout the option term. Mr. Mozilo, or his heirs in the event of his
death, may exercise such options at any time from the date of vesting through
the first to occur of (i) the expiration of the original term of the option,
(ii) four years and 90 days from December 31, 1999 (i.e., March 30, 2004), or
(iii) 12 months from the date of Mr. Mozilo's death. Mr. Mozilo hereby waives
any right to receive stock options for calendar year 2000 pursuant to the terms
of the Employment Agreement or as a director of the Company.
4. Forgiveness of Indebtedness. As of the Effective Date, there were
---------------------------
outstanding certain unsecured loans from the Company to Mr. Mozilo in the
aggregate principal amount of $3,346,216.16 (the "Loans"). The Company hereby
forgives, as of the Effective Date, the principal balance and any and all
accrued and unpaid interest on the Loans. The Company shall also provide to Mr.
Mozilo a credit against his obligations to the Company under the next sentence
in the amount of $3,581,677.00 (the "Credit"). Mr Mozilo shall pay the Company,
concurrently with the execution of this Agreement, an amount equal to the total
of any and all federal, state and local withholding or similar taxes that the
Company may be required to withhold from Mr. Mozilo and pay to taxing
authorities on his behalf as a result of all events associated with or
triggered by the termination of his employment hereunder, including without
limitation (a) the foregoing forgiveness of debt, (b) the foregoing Credit and
(c) the 25,000 shares of stock to be granted pursuant to Section 2, above; the
amounts so payable by Mr. Mozilo, as calculated by the Company, aggregate
$3,581,677.00.
5. Resignation as Vice Chairman and Director. Mr. Mozilo hereby submits
-----------------------------------------
his resignation, as of the March 31, 2000, as both the Vice Chairman and a
member of the Board of Directors of the Company. Mr. Mozilo further requests
that his name be removed from the nominated slate of directors of the Company
for the coming year.
6. Goodwill. Mr. Mozilo was instrumental in the founding of the Company
--------
and has contributed greatly to its growth over the past 15 years. In light
thereof, the Company has requested, and Mr. Mozilo has agreed, that during the
time prior to the full vesting of all his options and restricted stock in the
Company in accordance with their normal vesting schedules Mr. Mozilo will
continue to promote the goodwill of the Company in his activities. The
foregoing sentence is not intended to interfere in any way with any duties Mr.
Mozilo may have to Countrywide Credit Industries, Inc. or any of its
subsidiaries nor is it intended to impose any particular affirmative obligations
on Mr. Mozilo.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
INDYMAC MORTGAGE HOLDINGS, INC.
ATTEST
____________________ By: ____________________________
Secretary Title: _________________________
Dated: March 30, 2000
MR. MOZILO
________________________________
Angelo R. Mozilo
Dated: March 30, 2000
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,133
<SECURITIES> 755,257
<RECEIVABLES> 3,637,117
<ALLOWANCES> 63,245
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 36,884
<DEPRECIATION> (18,405)
<TOTAL-ASSETS> 4,357,741
<CURRENT-LIABILITIES> 74,344
<BONDS> 3,428,055
0
0
<COMMON> 809
<OTHER-SE> 854,533
<TOTAL-LIABILITY-AND-EQUITY> 4,357,741
<SALES> 0
<TOTAL-REVENUES> 77,331<F1>
<CGS> 0
<TOTAL-COSTS> 45,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,316
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27,320
<INCOME-TAX> (24,626)
<INCOME-CONTINUING> 51,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,946
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.69
<FN>
<F1>Includes 55,284 of interest expense related to mortgage loan activities
</FN>
</TABLE>
