IndyMac Seeks to Preserve Capital

Loan Quality Continues to Slide

Nonperforming loans totaled $1.85 billion as of March 31, increasing a whopping 40.56% just from last quarter. Loan-loss reserves totaled $483 million, or 26% of nonperforming loans. However, previous markdowns of problem loans transferred from held-for-sale to IndyMac's investment portfolio, created "embedded credit reserves" of $481 million.

When these are factored in, IndyMac's loan-loss reserves covered 52% of nonperforming loans as of March 31, according to the holding company's 10-Q filing.

On the holding-company level, nonperforming assets, including nonaccrual loans and repossessed real estate, comprised 6.51% of total assets as of March 31, compared to 4.61% last quarter and 1.09% in March 2007.

In the 10-Q filing, the company stated it expects "to have an even higher level of non-performing loans in the future due to the continued market disruption."

Net loan charge-offs totaled $46 million for the quarter, while loan-loss provisions totaled $132 million. So loan-loss provisions continued to outpace charge-offs. During IndyMac's earnings conference call, CEO Michael Perry stated that the company did not expect to make extraordinarily large quarterly provisions for loan-loss reserves over the next four quarters, as the company had built credit reserves in advance of actual losses.

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