IndyMac Announces 57% Increase in Third Quarter EPS to $0.55

Business Wire, Oct 18, 2001

The Company has continued to evaluate alternatives under SFAS 133, and has decided to adopt hedge accounting for mortgage servicing rights in the near future. Implementation of SFAS 133 hedge accounting for mortgage servicing will provide the Company with the ability to realize the appreciation in mortgage servicing rights (net of hedges) in a rising interest rate environment by removing the lower of cost or market limitation, provided that hedge effectiveness under SFAS 133 is achieved.

Continued Focus Toward Strengthening Asset Quality

The ratio of non-performing assets to total assets continued to improve and was 1.61 percent at September 30, 2001 compared with 1.75 percent at June 30, 2001 and 2.19 percent at September 30, 2000. Of note, the ratio improved despite the decline in total assets attributable to more efficient asset turnover. Total non-performing assets of $113.3 million reflected a decline of 13% from the $130.4 million at June 30, 2001. The allowance for loan losses of $65.7 million at September 30, 2001 represented 1.3 percent of total loans and 4.5 times annualized net charge offs. This compares to an allowance of $58.9 million at September 30, 2000. Reserves, including credit-related market valuations on whole loans, were $72.2 million or 1.5 percent of total loans at September 30, 2001.

In addition to the allowance for loan losses, the Company has been progressively building a reserve for credit losses primarily related to potential loan repurchases arising from its increased utilization of whole loan sales and sales to the government sponsored enterprises (GSEs). This reserve was established in 1999 as the Company began to expand its loan sale distribution channels. Whole loan and GSE sales tend to have a higher level of loan repurchases than private-label securitizations. The balance in this reserve at September 30, 2001 is $16.2 million. This reserve will increase as a function of loan volume growth and mix of loan sale distribution channels. The Company will continue to evaluate the adequacy of this reserve and, likely will continue to allocate a portion of its gain on sale proceeds to increase this reserve going forward.

Total credit related reserves, including the allowance for loan losses, reserve for potential repurchases and market valuations, were $88.4 million at September 30, 2001.

No Shares Repurchased During Quarter

The Company did not repurchase any shares during the quarter pursuant its share repurchase program and at this time has no plans to do so.

Adoption of Shareholder Rights Plan

IndyMac's Board of Directors has adopted a Shareholder Rights Plan (the Rights Plan). The Board's purpose in adopting the Rights Plan is to protect shareholder value in the event of an unsolicited offer to acquire the Company, particularly one that does not provide equitable treatment to all shareholders. Adoption of the Rights Plan is designed to encourage a potential acquiror of the Company to negotiate directly with the Board of Directors, and to provide the Board with greater leverage in such negotiations so as to provide the greatest value for the Company's shareholders. The Rights Plan will not interfere with any merger, acquisition or business combination that the Company's Board believes to be in the best interest of IndyMac shareholders.