IndyMac Bancorp (IMB) reported yesterday that it suffered its third-consecutive quarterly loss and will be taking other measures to preserve capital, such as deferring interest payments on some preferred securities.

IndyMac said it endured a net loss of $184 million for the first quarter, marking an improvement over the $509 million net loss in the fourth quarter of 2007, but worse than both consensus estimates and the $52 million profit reported in the same period a year earlier.

The narrowing of the net loss reflected a reduction in quarterly provisions for loan losses, and $322 million in losses on loans sold during the fourth quarter of 2007.

Capital Levels

In its earnings release for the first quarter, IndyMac sought to assuage fears of continued capital erosion. Through its direct investment program, the company raised $39 million in capital during the first quarter, after raising $676 million during 2007.

IndyMac also announced the painful step of deferring interest on the holding company's trust preferred securities and suspending dividends of non-cumulative perpetual preferred stock at IndyMac Bank, its main subsidiary. These steps will preserve $10.6 million in capital per quarter. Dividends on common shares had already been suspended for the first quarter of 2008, after being cut in half the previous quarter.

BankingMyWay

Not surprisingly, IndyMac Capital Trust I, Warrants and Income Redeemable Equity Securities ( IMBPR) were down 32% in afternoon trading, closing at $12.55.

Common shares were down 11%, closing at $3.06.

It appears that capital-raising efforts will need to be stepped up. IndyMac Bank's risk-based capital ratio dropped to 10.26% as of March 31, from 10.81% last quarter. This ratio, which factors in asset quality and loan-loss reserve coverage, needs to be at least 10% for an institution to be considered well-capitalized under regulatory guidelines.

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.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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