Online Lender Getting Steady Access To Capital, New Name
Irvine-based LoanWorks just got itself a new sibling with $350 million in deposits that the company hopes will help the online lender expand its business.
LoanWorks is the Internet mortgage division of Pasadena-based IndyMac Bancorp Inc., which last week bought SGV Bancorp Inc., the parent of First Federal Savings and Loan Association of San Gabriel Valley.
As a result of the deal, LoanWorks is slated to see its Orange County staff grow from 160 to 200 people and expects to see its monthly loan originations nearly double as a result of having access to capital from SGV Bancorp, company officials said.
“It gives us more flexibility, more staying power,” said Joel Packer, LoanWorks president.
With SGV Bancorp, Packer said LoanWorks hopes to build a stronger brand since it will be able to offer certificates of deposit, credit cards, home equity lines of credit and establish an Internet bank. To reflect its diversification efforts, LoanWorks plans to change its name to IndyMac Bank Home Lending, he said.
Parent IndyMac Bancorp, which provides loans through mortgage brokers and offers construction financing, is looking to acquire another Orange County lender in the next year, according to President Michael Perry.
“We are looking to grow,” he said.
As it is, LoanWorks’ Irvine facility is just half full,something Perry said he hopes to change. LoanWorks is originating about $60 million of loans per month, but Perry wants that to grow to $100 million. The company has the capacity to do $300 million a month, he said.
By acquiring SGV Bancorp, IndyMac will now be able to finance its operations with deposits instead of by issuing debt. The aim is to insulate against market gyrations like those of the past two years, which crimped the company’s ability to raise money.
“They realize that it is a tough business,” said Gary Gordon, an analyst with PaineWebber Group Inc. who follows IndyMac.
IndyMac, which recently changed its corporate structure from a real estate investment trust to a depositary institution, used to have just three channels to fund its loans: borrowing, selling loans as securities and issuing stock. But none of those options looked too promising back in 1998 and early 1999, when Russia’s debt default and a big hedge fund collapse soured investors on financial stocks.
“All three of those channels were disrupted at that time,” said Pamela Marsh, a director of investor relations with IndyMac.
IndyMac originated $2 billion in loans in the first quarter of this year. The company is largely a prime lender, with 85% of it originations in the prime sector. The remaining are non-prime loans to those with less than perfect credit.
For IndyMac, having SGV Bancorp in the family frees up capital the company previously had to reserve for its loans. As a depository institution, the thrift’s deposits now back up IndyMac’s loans.
IndyMac also is in the middle of a share buyback program. The company plans to buy back $400 million of its stock in the next three years and already has repurchased $133 million of its shares since the inception of its share buyback last year. IndyMac shares were trading at about 14 last week.
“Our stock price, in our view, is a very good buy,” Perry said. “We saw the ability to leverage our capital now that we are retaining earnings.”
As a REIT, IndyMac had to give back 95% of its earnings to its shareholders as dividends. As a depositary institution, it can retain all of its earnings.
In terms of assets, IndyMac Bank is now the ninth largest institution headquartered in California.
With the extra capital backing, the company hopes to grow its assets from $5 billion to $10 billion in the next five years. Its mortgage originations are about $10 billion a year, but Perry said they could grow to $20 billion by the end of 2002. n
