INDYMAC BANCORP INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2003

or

o		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 Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Delaware		95-3983415
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

155 North Lake Avenue, Pasadena, California (Address of principal executive offices)		91101-7211 (Zip Code)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the exchange act). Yes þ No o

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 July 25, 2003: 55,515,347 shares

TABLE OF CONTENTS


	FORWARD-LOOKING STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	HIGHLIGHTS FOR THE QUARTER
	OVERALL RESULTS
	OUR BUSINESS
MORTGAGE BANKING ACTIVITIES
	Loan Production
	Mortgage Production by Division and Channel
INVESTING ACTIVITIES
	Investment Portfolio Group
Construction Lending
HELOC Portfolio
	NET INTEREST INCOME
	OVERALL INTEREST RATE RISK MANAGEMENT
	CREDIT RISK AND RESERVES
GENERAL
SECONDARY MARKET RESERVES
	OPERATING EXPENSES
	DIVIDEND POLICY
	FUTURE OUTLOOK
	LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
PRINCIPAL SOURCES OF CASH
PRINCIPAL USES OF CASH
ACCUMULATED OTHER COMPREHENSIVE LOSS
REGULATORY CAPITAL REQUIREMENTS
	KEY OPERATING RISKS
INTEREST RATE RISK
VALUATION RISK
CREDIT RISK
LIQUIDITY RISK/ACCESS TO CAPITAL MARKETS
GOVERNMENT REGULATION AND MONETARY POLICY
COMPETITION
OTHER RISKS
	CRITICAL ACCOUNTING POLICIES
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
	ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2
EXHIBIT 99.1

FORM 10-Q QUARTERLY REPORT

For the Period Ended June 30, 2003

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION
	Forward-looking Statements		2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2
	Highlights for the Quarter		2
	Overall Results		3
	Our Business		4
	Mortgage Banking Activities		11
	Loan Production		11
	Mortgage Production by Division and Channel		12
	Loan Sales		16
	Investing Activities		19
	Investment Portfolio Group		21
	Construction Lending		28
	HELOC Portfolio		30
	Net Interest Income		31
	Overall Interest Rate Risk Management		34
	Credit Risk and Reserves		35
	General		35
	Secondary Market Reserves		38
	Operating Expenses		39
	Dividend Policy		39
	Future Outlook		39
	Liquidity and Capital Resources		40
	Overview		40
	Principal Sources of Cash		40
	Principal Uses of Cash		42
	Accumulated Other Comprehensive Loss		42
	Regulatory Capital Requirements		43
	Off-Balance Sheet Arrangements		44
	Contractual Obligations		44
	Key Operating Risks		44
	Interest Rate Risk		44
	Valuation Risk		45
	Credit Risk		45
	Liquidity Risk/Access to Capital Markets		45
	Government Regulation and Monetary Policy		46
	Competition		46
	Other Risks		46
	Critical Accounting Policies		46
Item 3.	Quantitative and Qualitative Disclosure about Market Risk		47
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets		48
	Consolidated Statements of Earnings		50
	Consolidated Statements of Shareholders’ Equity and Comprehensive Income		51
	Consolidated Statements of Cash Flows		52
	Notes to Consolidated Financial Statements		53
Item 4.	Controls and Procedures		56
PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		57
Item 6.	Exhibits and Reports on Form 8-K		57

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains statements that 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 statements regarding our projected financial condition and results of operations, plans, objectives, future performance and business. Forward-looking statements typically include the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend” and other similar expressions. These statements reflect our current views with respect to future events and financial performance. They are subject to risks and uncertainties that 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. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For further information on our key operating risks, refer to “Key Operating Risks” at page 44 and IndyMac’s annual report on Form 10-K for the year ended December 31, 2002.

References to “IndyMac Bancorp” or “the Parent Company” refer to the parent company alone while references to “IndyMac,” the “Company,” or “we” refer to IndyMac Bancorp, Inc. and its consolidated subsidiaries. References to “IndyMac Bank” or the “Bank” refer to our subsidiary IndyMac Bank, F.S.B. and its consolidated subsidiaries. The following discussion addresses the Company’s financial condition and results of operations for the three and six months ended June 30, 2003.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

HIGHLIGHTS FOR THE QUARTER

Highlights for the three and six months ended June 30, 2003 were as follows:



			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2003			2002			2003			2003			2002


			(Dollars in millions, except per share data)
Income Statement
	Net interest income after provision for loan losses		$	61		$	46		$	60		$	121		$	95
	Gain on sale of loans			102			71			84			186			149
	Other income			11			22			13			24			36
	Net revenues			173			139			157			330			280
	Operating expenses			105			81			96			200			160
	Net earnings		$	41		$	35		$	37		$	78		$	71
Per Share Data
	Basic earnings per share		$	0.75		$	0.58		$	0.67		$	1.43		$	1.17
	Diluted earnings per share			0.73			0.56			0.66			1.39			1.14
	Dividends declared per share			0.10			0.00			0.10			0.20			0.00
	Book value per share at end of quarter			16.48			15.06			15.99			16.48			15.06
	Closing price per share		$	25.42		$	22.68		$	19.45		$	25.42		$	22.68
	Average Common Shares (in thousands)
		Basic		55,015			60,050			54,827			54,922			60,139
		Diluted		56,711			61,763			55,979			56,345			61,903
Performance Ratios
	Return on average equity (annualized)			18.34	%		15.74	%		17.20	%		17.79	%		16.31	%
	Return on average assets (annualized)			1.52	%		1.93	%		1.49	%		1.51	%		1.94	%
	Dividend payout ratio(1)			13.70	%		0.00	%		15.15	%		14.39	%		0.00	%
	Net interest income to pretax income			98.74	%		85.25	%		103.29	%		100.88	%		86.27	%
	Average cost of funds			2.94	%		4.47	%		3.20	%		3.07	%		4.55	%
	Net interest margin			2.73	%		3.04	%		2.80	%		2.76	%		3.13	%
	Efficiency ratio(2)			58	%		57	%		60	%		59	%		56	%
	Capital to net revenue ratio(3)			1.25	%		1.55	%		1.36	%		1.30	%		1.52	%



		Three Months Ended									Six Months Ended

		June 30,			June 30,			March 31,			June 30,			June 30,
		2003			2002			2003			2003			2002


		(Dollars in millions, except per share data)
Performance Ratios, Continued
	Capital adjusted efficiency ratio(4)		73	%		88	%		81	%		77	%		85	%
	Operating expenses to loan production		1.28	%		1.68	%		1.45	%		1.36	%		1.78	%
Balance Sheet and Asset Quality Ratios
	Debt to equity ratio(5)		10.7:1			7.3:1			9.7:1			10.7:1			7.3:1
	Core capital ratio(6)		8.53	%		10.26	%		9.14	%		8.53	%		10.26	%
	Risk-based capital ratio(6)		14.46	%		16.09	%		14.83	%		14.46	%		16.09	%
	Non-performing assets to total assets		0.88	%		1.32	%		1.03	%		0.88	%		1.32	%
	Allowance for loan losses to total loans held for investment		1.09	%		1.87	%		1.20	%		1.09	%		1.87	%
	Allowance for loan losses and other reserves to non-performing loans		97	%		77	%		83	%		97	%		77	%
	Allowance for loan losses to annualized net charge-offs		176	%		305	%		347	%		233	%		284	%
	Provision for loan losses to net charge-offs		97.1	%		82.3	%		85.8	%		93.3	%		83.2	%
	Provision to net charge-offs (core loan portfolio)(7)		119.7	%		198.3	%		115.9	%		118.8	%		152.7	%
Other Selected Items
	Loans serviced(8)	$	32,974		$	25,789		$	30,944		$	32,974		$	25,789
	Loan production(9)		8,193			4,790			6,585			14,778			8,992
	Pipeline of mortgage loans in process		6,929			3,722			6,044			6,929			3,722
	Loans sold	$	6,336		$	3,707		$	5,524		$	11,860		$	7,973

(1) Dividends declared per common share as a percentage of diluted earnings per share.

(2) Defined as operating expenses divided by net interest income and other income.

(3) Average equity divided by net interest income and other income.

(4) Efficiency ratio multiplied by the capital to net revenue ratio.

(5) Debt includes deposits.

(6) IndyMac Bank, F.S.B. (excludes unencumbered cash at the Parent Company available for investment in IndyMac Bank). Risk based capital ratio is based on the regulatory standard risk weighting. With IndyMac’s additional subprime risk weightings, the ratios are 13.22%, 15.10% and 13.76% for the three months ended June 30, 2003, June 30, 2002 and March 31, 2003, respectively.

(7) Represents the total loan portfolio excluding amounts of loans from discontinued product lines.

(8) Represents entire servicing portfolio including IndyMac owned loans and loans subserviced for others on an interim basis.

(9) Includes newly originated commitments on construction loans.

OVERALL RESULTS

IndyMac’s overall results for the quarter ended June 30, 2003 were characterized by record high production of mortgage loans, high volume of loan sales and strong earnings. IndyMac increased its loan production by 71% in the second quarter of 2003 over the second quarter of 2002. IndyMac’s loan sales also increased significantly by 71%. Partially offsetting the strong financial results in our mortgage banking activities, the earnings related to our servicing-related assets declined due to the increased levels of prepayment activity, which resulted from interest rates at 45-year lows creating an environment of record refinancing of mortgage loans throughout the industry. IndyMac’s operating expenses increased by 30% from the second quarter of 2002 as a direct result of the growth in our mortgage loan production. The ratio of operating expenses to loan production of 1.28% reflects significant improvement in cost efficiency relative to the 1.68% ratio during the second quarter of 2002, due to our lower fixed cost structure platform and

scalability of operations. Overall net earnings for the quarter increased $7 million over the second quarter of 2002, resulting in earnings per share (“EPS”) growth of 30%.

“IndyMac’s performance this year continues to be outstanding, with strong growth in production and mortgage banking revenues partially offset, by design, with lower returns in our investing activities. We have continued to invest in mortgage loans, mortgage servicing rights and mortgage-backed securities to enhance the diversification and consistency of our revenue streams. In light of the recent significant increase in long-term Treasury and mortgage rates, the industry appears to be in for an abrupt return to a more normal purchase-dominated mortgage market. Given that the majority of our capital is devoted to investment portfolio activities as opposed to mortgage origination activities and we currently have $259 million of excess capital, we believe we are reasonably well positioned for this likely challenging transition,” commented Mr. Michael W. Perry, IndyMac’s Chairman and Chief Executive Officer. “While recent interest rate volatility makes earnings forecasting more difficult, we expect that earnings per share for the full year 2003 will range from $2.70 to $2.80 per share, reflecting growth of 12% to 16% over 2002,” concluded Mr. Perry.

OUR BUSINESS

IndyMac is structured to achieve synergies among its operations and to enhance customer service. Operating through its three main segments, IndyMac Mortgage Bank, IndyMac Consumer Bank and the Investment Portfolio Group, the common denominator of the Company’s business is providing consumers with single-family residential mortgages through relationships with each segment’s core customers via the channels in which each operates. IndyMac Mortgage Bank is focused on providing consumers with mortgage products through relationships with the Company’s business customers — mortgage brokers, mortgage bankers, community financial institutions, real estate professionals and homebuilders. IndyMac Consumer Bank provides the platform for the mortgage and deposit services that IndyMac offers directly to consumers. The Investment Portfolio Group serves as the main link to customers whose mortgages we service. Through its investments in single-family residential (“SFR”) mortgages, mortgage-backed securities and mortgage servicing rights (“MSRs”), the Investment Portfolio Group is a core unit of the Bank and it provides critical support to IndyMac’s mortgage lending operations.

While our segments are structured to achieve synergies with our varying customer base and marketing strategies, our operating activities primarily consist of two broad categories: mortgage banking activities and investing activities. Both of these activities are performed to varying degrees by each of our main segments as shown in the tables that follow. Mortgage banking activities are characterized by high asset turnover (the production and sale of mortgage loans) and efficient utilization of capital but can be cyclical in nature depending on interest rates. Revenues generated by mortgage banking activities include gain on sale of mortgage loans, fee income and net spread (interest) income during the period loans are held pending sale. Investing activities tend to provide a source of revenues which is generally counter-cyclical to mortgage banking revenues, comprised primarily of net interest income and servicing fees. IndyMac is strategically focused on increasing the relative size of its portfolios of mortgage loans and HELOC loans held for investment and mortgage servicing to achieve greater balance between its mortgage banking activities and its core investing activities. Over the long-term, we believe that our investing activities stabilize IndyMac’s core income. In addition to its revenue contribution, the Investment Portfolio Group performs the mortgage servicing function, which includes default management. The mortgage servicing function creates added opportunities to retain customers when the interest rate environment makes it attractive for them to refinance and cross-market customers with other Company products. Default management, which includes the processes of collections, foreclosures, bankruptcies, claims, and foreclosed assets management, enables IndyMac to proactively manage its credit risk.

The following tables summarize the Company’s financial results for the three months ended June 30, 2003, illustrating the revenues earned in its mortgage banking activities and investing activities by each of its divisions. The profitability of each operating segment is measured on a fully-leveraged basis after allocating capital based on regulatory capital rules. The Company uses a transfer pricing system to allocate net interest income to the operating segments. Each operating segment is allocated funding with maturities and interest rates matched with the expected lives, repricing frequencies and financing liquidities of the segment’s assets. The Retail Bank division within the Consumer Banking Group receives a funding credit using a similar methodology. The difference between these allocations and the Company’s actual net interest income and capital levels resulting from centralized management of funding costs is reported in the Treasury unit. Corporate overhead costs related to managing the Company as a whole are not allocated to the operating segments.

The following table presents the segment financial highlights for the three months ended June 30, 2003:



					Relationship Businesses —
					IndyMac Mortgage Bank

					B2B			B2R			HCL			HBD			Total


					(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income					$	24,060		$	954		$	2,903		$	482		$	28,399
Gain on sale of loans						59,070			3,583			4,197			1,439			68,289
Other income						9,389			654			1,312			173			11,528

	Net revenues					92,519			5,191			8,412			2,094			108,216
	Operating expenses					31,885			4,117			418			840			37,260

		Pretax income				60,634			1,074			7,994			1,254			70,956

Investing Activities
Net interest income						—			—			9,247			7,654			16,901
Provision for loan losses						—			—			(355	)		(312	)		(667	)
Service fee income						—			—			—			—			—
Loss on sale of securities						—			—			—			—			—
Other income						—			—			1,323			180			1,503

	Net revenues					—			—			10,215			7,522			17,737
	Operating expenses					—			—			6,525			1,252			7,777

		Pretax income				—			—			3,690			6,270			9,960

Financing and Other Activities
Net interest income						—			—			—			—			—
Other income						—			—			—			—			—

	Net revenues					—			—			—			—			—
	Operating expenses					—			—			—			—			—

		Pretax income				—			—			—			—			—

			Total pretax income			60,634			1,074			11,684			7,524			80,916

				Net income	$	36,684		$	650		$	7,069		$	4,552		$	48,955

Ratios
Percentage of assets						21	%		1	%		10	%		6	%		38	%
Percentage of total revenue						53	%		3	%		11	%		6	%		73	%
Percentage of pretax income						89	%		1	%		17	%		11	%		118	%
Balance Sheet Data
Average interest-earning assets					$	2,145,098		$	94,683		$	1,143,691		$	664,504		$	4,047,976
Average total assets					$	2,245,769		$	100,804		$	1,150,037		$	668,327		$	4,164,937
Allocated capital					$	139,148		$	5,773		$	62,518		$	69,570		$	277,009
Allocated capital/ total average assets						6.20	%		5.73	%		5.44	%		10.41	%		6.65	%
Loans Produced					$	4,987,150		$	273,996		$	747,445		$	354,901		$	6,363,492
Purchase mortgages						28	%		31	%		99	%		70	%		35	%
Cash out refinance mortgages						46	%		34	%		0	%		16	%		39	%
Rate and term refinance mortgages						26	%		35	%		1	%		14	%		26	%
Performance Ratios
Return on equity						106	%		45	%		45	%		26	%		71	%
Return on assets						6.55	%		2.59	%		2.47	%		2.73	%		4.71	%
Net interest margin						4.50	%		4.04	%		4.26	%		4.91	%		4.49	%
Efficiency ratio						34	%		79	%		37	%		21	%		36	%
Capital adjusted efficiency ratio						13	%		22	%		30	%		37	%		19	%
Average FTE						1,231			158			204			101			1,694



IndyMac Mortgage Bank Divisions

B2B		Business-to-Business division.
B2R		Business-to-Realtor division.
HCL		Home Construction Lending division.
HBD		Homebuilder division.

The following table details the segment financial highlights for the three months ended June 30, 2003, continued:



					Consumer Direct Businesses —
					IndyMac Consumer Bank

																	Investment
											Retail						Portfolio
					B2C			HELOC			Bank			Total			Group


					(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income					$	5,764		$	—		$	311		$	6,075		$	4,730
Gain on sale of loans						28,277			—			1,507			29,784			13,826
Other income						6,259			—			267			6,526			—

	Net revenues					40,300			—			2,085			42,385			18,556
	Operating expenses					17,511			—			722			18,233			186

		Pretax income				22,789			—			1,363			24,152			18,370

Investing Activities
Net interest income						—			3,135			—			3,135			14,292
Provision for loan losses						—			(1,373	)		—			(1,373	)		(4,853	)
Service fee income						—			—			—			—			(2,122	)
Loss on sale of securities						—			—			—			—			(10,002	)
Other income						—			389			—			389			764

	Net revenues					—			2,151			—			2,151			(1,921	)
	Operating expenses					—			838			—			838			10,570

		Pretax income				—			1,313			—			1,313			(12,491	)

Financing and Other Activities
Net interest income						—			—			2,281			2,281			—
Other income						—			—			471			471			—

	Net revenues					—			—			2,752			2,752			—
	Operating expenses					—			—			5,156			5,156			—

		Pretax income				—			—			(2,404	)		(2,404	)		—

			Total pretax income			22,789			1,313			(1,041	)		23,061			5,879

				Net income	$	13,787		$	794		$	(630	)	$	13,951		$	3,557

Ratios
Percentage of assets						5	%		4	%		1	%		10	%		48	%
Percentage of total revenue						23	%		1	%		3	%		27	%		10	%
Percentage of pretax income						33	%		2	%		(2	)%		33	%		9	%
Balance Sheet Data
Average interest-earning assets					$	554,588		$	434,741		$	46,912		$	1,036,241		$	4,580,606
Average total assets					$	586,872		$	442,042		$	76,320		$	1,105,234		$	5,208,573
Allocated capital					$	34,024		$	42,878		$	7,929		$	84,831		$	390,295
Allocated capital/ total average assets						5.80	%		9.70	%		10.39	%		7.68	%		7.49	%
Loans Produced(1)					$	1,488,027		$	228,957		$	112,779		$	1,829,763			—
Purchase mortgages						4	%		N/A			18	%		5	%		N/A
Cash out refinance mortgages						43	%		N/A			32	%		42	%		N/A
Rate and term refinance mortgages						53	%		N/A			50	%		53	%		N/A
Performance Ratios
Return on equity						163	%		7	%		N/A			66	%		4	%
Return on assets						9.42	%		0.72	%		N/A			5.06	%		0.27	%
Net interest margin						4.17	%		2.89	%		N/A			4.45	%		1.67	%
Efficiency ratio						43	%		24	%		N/A			50	%		50	%
Capital adjusted efficiency ratio						9	%		72	%		N/A			22	%		227	%
Average FTE						622			11			219			852			430




IndyMac Consumer Bank Divisions

B2C		Business-to-Consumer division.
HELOC		Home Equity Line of Credit division.
Retail Bank		Retail Bank division.

(1) All HELOC products produced by the business units during the second quarter of 2003 were consolidated into the HELOC division for segment reporting.

The following table details the segment financial highlights for the three months ended June 30, 2003, continued:



					Treasury						Corporate
					Group(2)			Subtotal			Overhead			Eliminations			Total


					(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income					$	—		$	39,204		$	—		$	—		$	39,204
Gain on sale of loans						—			111,899			—			(9,753	)		102,146
Other income						—			18,054			—			(43	)		18,011

	Net revenues					—			169,157			—			(9,796	)		159,361
	Operating expenses					—			55,679			—			—			55,679

		Pretax income				—			113,478			—			(9,796	)		103,682

Investing Activities
Net interest income						—			34,328			—			1,238			35,566
Provision for loan losses						—			(6,893	)		—			(7	)		(6,900	)
Service fee income						—			(2,122	)		—			721			(1,401	)
Loss on sale of securities						—			(10,002	)		—			744			(9,258	)
Other income						—			2,656			105			—			2,761

	Net revenues					—			17,967			105			2,696			20,768
	Operating expenses					—			19,185			—			—			19,185

		Pretax income				—			(1,218	)		105			2,696			1,583

Financing and Other Activities
Net interest income						(9,572	)		(7,291	)		36			—			(7,255	)
Other income						—			471			—			8			479

	Net revenues					(9,572	)		(6,820	)		36			8			(6,776	)
	Operating expenses					902			6,058			24,053			—			30,111

		Pretax income				(10,474	)		(12,878	)		(24,017	)		8			(36,887	)

			Total pretax income			(10,474	)		99,382			(23,912	)		(7,092	)		68,378

				Net income	$	(6,337	)	$	60,126		$	(14,467	)	$	(4,290	)	$	41,369

Ratios
Percentage of assets						3	%		99	%		1	%		0	%		100	%
Percentage of total revenue						(6	)%		104	%		0	%		(4	)%		100	%
Percentage of pretax income						(15	)%		145	%		(35	)%		(10	)%		100	%
Balance Sheet Data
Average interest-earning assets					$	275,276		$	9,940,099		$	(31,062	)		—		$	9,909,037
Average total assets					$	277,640		$	10,756,384		$	125,340			—		$	10,881,724
Allocated capital					$	13,764		$	765,899		$	138,652			—		$	904,551
Allocated capital/ total average assets						4.96	%		7.12	%		110.62	%		—			8.31	%
Loans Produced						—		$	8,193,255			—			—		$	8,193,255
Purchase mortgages						N/A			N/A			N/A			N/A			32	%
Cash out refinance mortgages						N/A			N/A			N/A			N/A			38	%
Rate and term refinance mortgages						N/A			N/A			N/A			N/A			30	%
Performance Ratios
Return on equity						N/A			31	%		N/A			N/A			18	%
Return on assets						N/A			2.24	%		N/A			N/A			1.52	%
Net interest margin						N/A			2.67	%		N/A			N/A			2.73	%
Efficiency ratio						N/A			43	%		N/A			N/A			58	%
Capital adjusted efficiency ratio						N/A			44	%		N/A			N/A			73	%
Average FTE						23			2,999			506			N/A			3,505

(2) During the three months ended June 30, 2003, the Treasury Group reported net interest expense of $9.6 million. These amounts include the interest expense related to the trust preferred securities issued by the Company in November 2001, which is not allocated to the business units. Additionally, the net expense in Treasury reflects fixed rate liabilities assumed in prior years with maturities longer than the related assets and the subsequent decline in net interest income as interest rates fell. As these liabilities continue to mature, the Company expects the loss in Treasury to decline further and ultimately approach $0.

The following table compares the quarterly detail segment results of operations by period:



	Relationship Businesses —
	IndyMac Mortgage Bank

Three Months Ended
June 30, 2003	B2B			B2R			HCL			HBD			Total(1)


	(Dollars in thousands)
Mortgage Banking Activities
Q2 03 — Pretax income	$	60,634		$	1,074		$	7,994		$	1,254		$	70,956
Q1 03 — Pretax income		56,620			(98	)		8,915			919			66,356
Annualized Variance Percent		28	%		NM			(41	)%		146	%		28	%
Q2 02 — Pretax income		47,890			(254	)		5,366			(467	)		52,535
Variance Percent		27	%		NM			49	%		NM			35	%
Investing Activities
Q2 03 — Pretax income		—			—			3,690			6,270			9,960
Q1 03 — Pretax income		—			—			3,388			5,516			8,904
Annualized Variance Percent		NM			NM			36	%		55	%		47	%
Q2 02 — Pretax income		—			—			6,202			7,284			13,486
Variance Percent		NM			NM			(41	)%		(14	)%		(26	)%
Financing and Other Activities
Q2 03 — Pretax income		—			—			—			—			—
Q1 03 — Pretax income		—			—			—			—			—
Q2 02 — Pretax income		—			—			—			—			—
Net Income
Q2 03 — Net Income		36,684			650			7,069			4,552			48,955
Q1 03 — Net Income		34,254			(59	)		7,443			3,893			45,531
Annualized Variance Percent		28	%		NM			(20	)%		68	%		30	%
Q2 02 — Net Income		28,686			(152	)		6,929			4,083			39,546
Variance Percent		28	%		NM			2	%		11	%		24	%
Performance Ratios
Q2 03
ROE		106	%		45	%		45	%		26	%		71	%
ROA		6.55	%		2.59	%		2.47	%		2.73	%		4.71	%
NIM		4.50	%		4.04	%		4.26	%		4.91	%		4.49	%
Efficiency ratio		34	%		79	%		37	%		21	%		36	%
Capital adjusted efficiency ratio		13	%		22	%		30	%		37	%		19	%
Average FTE		1,231			158			204			101			1,694
Q1 03
ROE		113	%		(4	)%		50	%		23	%		71	%
ROA		7.10	%		(0.25	)%		2.70	%		2.35	%		4.81	%
NIM		4.86	%		4.10	%		4.39	%		4.94	%		4.71	%
Efficiency ratio		32	%		102	%		33	%		33	%		35	%
Capital adjusted efficiency ratio		12	%		34	%		26	%		57	%		19	%
Average FTE		1,073			145			211			90			1,519
Q2 02
ROE		164	%		(26	)%		51	%		19	%		75	%
ROA		9.16	%		(1.81	)%		2.84	%		2.19	%		5.26	%
NIM		4.90	%		4.24	%		4.90	%		5.18	%		4.96	%
Efficiency ratio		34	%		112	%		30	%		33	%		35	%
Capital adjusted efficiency ratio		8	%		30	%		23	%		68	%		18	%
Average FTE		1,022			89			163			95			1,369

(1) The Mortgage Bank segment’s net income, from both mortgage banking and investing activities, grew by $3.4 million, or 30%, during the second quarter of 2003 versus the first quarter of this year. This increase was primarily related to higher levels of mortgages produced and sold. Compared with the second quarter of 2002, the Mortgage Bank segment’s net income increased $9.4 million or 24% which is also due to the higher levels of mortgages produced and sold, partially offset by the decline in the earnings related to the portfolio lending activities of its construction divisions as margins have compressed with the decline in market interest rates.

The following table compares the quarterly detail segment results of operations by period, continued:



	Consumer Direct Businesses —
	IndyMac Consumer Bank
													Investment
							Retail Bank/						Portfolio
	B2C			HELOC			Deposits			Total(2)			Group(3)


	(Dollars in thousands)
Mortgage Banking Activities
Q2 03 — Pretax income	$	22,789		$	—		$	1,363		$	24,152		$	18,370
Q1 03 — Pretax income		16,553			—			701			17,254			7,454
Annualized Variance Percent		151	%		NM			378	%		160	%		586	%
Q2 02 — Pretax income		8,155			—			247			8,402			610
Variance Percent		179	%		NM			452	%		187	%		2,911	%
Investing Activities
Q2 03 — Pretax income		—			1,313			—			1,313			(12,491	)
Q1 03 — Pretax income		—			1,060			—			1,060			3,290
Annualized Variance Percent		NM			95	%		NM			95	%		(1,919	)%
Q2 02 — Pretax income		—			327			—			327			16,545
Variance Percent		NM			302	%		NM			302	%		(175	)%
Financing and Other Activities
Q2 03 — Pretax income		—			—			(2,404	)		(2,404	)		—
Q1 03 — Pretax income		—			—			(2,045	)		(2,045	)		—
Q2 02 — Pretax income		—			—			(28	)		(28	)		—
Net Income
Q2 03 — Net Income		13,787			794			(630	)		13,951			3,557
Q1 03 — Net Income		10,015			641			(813	)		9,843			6,499
Annualized Variance Percent		151	%		95	%		(90	)%		167	%		(181	)%
Q2 02 — Net Income		4,885			196			131			5,212			10,276
Variance Percent		182	%		305	%		(581	)%		168	%		(65	)%
Performance Ratios
Q2 03
ROE		163	%		7	%		—			66	%		4	%
ROA		9.42	%		0.72	%		—			5.06	%		0.27	%
NIM		4.17	%		2.89	%		—			4.45	%		1.67	%
Efficiency ratio		43	%		24	%		—			50	%		50	%
Capital adjusted efficiency ratio		9	%		72	%		—			22	%		227	%
Average FTE		622			11			219			852			430
Q1 03
ROE		128	%		7	%		—			54	%		8	%
ROA		8.09	%		0.74	%		—			4.38	%		0.53	%
NIM		4.14	%		2.98	%		—			4.90	%		1.77	%
Efficiency ratio		46	%		47	%		—			56	%		44	%
Capital adjusted efficiency ratio		12	%		146	%		—			27	%		176	%
Average FTE		553			9			203			765			450
Q2 02
ROE		127	%		5	%		—			55	%		19	%
ROA		7.29	%		0.51	%		—			4.54	%		1.18	%
NIM		4.03	%		2.23	%		—			7.24	%		2.34	%
Efficiency ratio		58	%		35	%		—			65	%		32	%
Capital adjusted efficiency ratio		12	%		147	%		—			24	%		62	%
Average FTE		375			6			184			565			415

(2) The Consumer Bank segment’s net income was up $4.1 million compared with the first quarter of 2003 and was up $8.7 million versus last year’s second quarter. These increases were largely due to the higher levels of mortgages produced and sold.

(3) The Investment Portfolio Group segment’s net income in the second quarter of 2003 declined $2.9 million in comparison to the first quarter of 2003 and declined $6.7 million in comparison to the second quarter of 2002. These decreases are primarily the result of the significant reduction in earnings related to the segment’s investment in mortgage servicing and servicing-related assets. Interest rates at 45-year lows have created an environment of significant mortgage refinancing causing the underlying mortgages to prepay very quickly which required accelerated amortization of the servicing-related assets. Offsetting the decline in servicing fee income were gains on the sale of mortgage loans obtained through the exercise of the Company’s right as the master servicer on several pools of mortgage-backed securities to call loans at par when the balance of the pool of loans sold falls below 10% of the original pool balance and other loan sale activities. These called loans have higher coupons than prevailing market rates and the Company is then able to resell these loans at gains. This right to call the loans serves as a partial hedge on the servicing investments in this period of intense prepayment activity.

The following table details the segment financial highlights for the three months ended June 30, 2003, continued:


	Treasury						Corporate
	Group			Subtotal			Overhead			Eliminations			Total


	(Dollars in thousands)
Mortgage Banking Activities
Q2 03 — Pretax income	$	—		$	113,478		$	—		$	(9,796	)	$	103,682
Q1 03 — Pretax income		—			91,064			—			(8,271	)		82,793
Annualized Variance Percent		NM			98	%		NM			74	%		101	%
Q2 02 — Pretax income		—			61,547			—			(1,933	)		59,614
Variance Percent		NM			84	%		NM			407	%		74	%
Investing Activities
Q2 03 — Pretax income		—			(1,218	)		105			2,696			1,583
Q1 03 — Pretax income		—			13,254			—			1,581			14,835
Annualized Variance Percent		NM			(437	)%		NM			282	%		(357	)%
Q2 02 — Pretax income		—			30,358			(77	)		383			30,664
Variance Percent		NM			(104	)%		(236	)%		604	%		(95	)%
Financing and Other Activities
Q2 03 — Pretax income		(10,474	)		(12,878	)		(24,017	)		8			(36,887	)
Q1 03 — Pretax income		(11,447	)		(13,492	)		(23,116	)		—			(36,608	)
Q2 02 — Pretax income		(15,885	)		(15,913	)		(16,646	)		—			(32,559	)
Net Income
Q2 03 — Net Income		(6,337	)		60,126			(14,467	)		(4,290	)		41,369
Q1 03 — Net Income		(6,925	)		54,948			(13,985	)		(4,046	)		36,917
Annualized Variance Percent		(34	)%		38	%		14	%		24	%		48	%
Q2 02 — Net Income		(9,515	)		45,519			(10,017	)		(928	)		34,574
Variance Percent		(33	)%		32	%		44	%		362	%		20	%
Performance Ratios
Q2 03
ROE		—			31	%		—			—			18	%
ROA		—			2.24	%		—			—			1.52	%
NIM		—			2.67	%		—			—			2.73	%
Efficiency ratio		—			43	%		—			—			58	%
Capital adjusted efficiency ratio		—			44	%		—			—			73	%
Average FTE		23			2,999			506			—			3,505
Q1 03
ROE		—			32	%		—			—			17	%
ROA		—			2.25	%		—			—			1.49	%
NIM		—			2.77	%		—			—			2.80	%
Efficiency ratio		—			44	%		—			—			60	%
Capital adjusted efficiency ratio		—			45	%		—			—			81	%
Average FTE		22			2,756			529			—			3,285
Q2 02
ROE		—			38	%		—			—			16	%
ROA		—			2.57	%		—			—			1.93	%
NIM		—			2.88	%		—			—			3.04	%
Efficiency ratio		—			44	%		—			—			57	%
Capital adjusted efficiency ratio		—			37	%		—			—			88	%
Average FTE		27			2,376			454			—			2,830

MORTGAGE BANKING ACTIVITIES

Loan Production

During the three months ended June 30, 2003, the Company produced $8.2 billion of loans, which was a 71% increase over the $4.8 billion of loans produced during the three months ended June 30, 2002, and a 24% increase over the $6.6 billion of loans produced during the first quarter of 2003. Total production by loan type was as follows:



			Three Months Ended

			June 30,		June 30,		Variance			March 31,		Variance
			2003		2002		Percent			2003		Percent


			(Dollars in millions)
Volume by product
Prime(1)
	Agency conforming		$	1,469	$	738		99	%	$	1,418		4	%
	Alt-A			4,081		1,956		109	%		3,017		35	%
	Jumbo			1,192		968		23	%		1,013		18	%
	Government — FHA/ VA			2		48		(96	)%		3		(33	)%
Subprime(1)				465		392		19	%		384		21	%
Home equity line of credit(2)				229		82		179	%		180		27	%
Consumer construction(2)				518		416		25	%		440		18	%

		Subtotal mortgage production		7,956		4,600		73	%		6,455		23	%
Subdivision construction commitments				237		190		25	%		130		82	%

		Total production volume	$	8,193	$	4,790		71	%	$	6,585		24	%

Mortgage — Web-based production			$	5,994	$	3,141		91	%	$	4,920		22	%
Mortgage pipeline at period end(3)			$	6,929	$	3,722		86	%	$	6,044		15	%

(1) Fundings.

(2) New commitments.

(3) Includes rate lock commitments for loans in process plus loans that have been submitted for processing, but not yet rate locked.

During the six months ended June 30, 2003, the Company produced $14.8 billion of loans, which was a 64% increase over the $9.0 billion of loans produced during the six months ended June 30, 2002. Total production by loan type was as follows:



			Six Months Ended

			June 30,		June 30,		Variance
			2003		2002		Percent


			(Dollars in millions)
Volume by product
Prime(1)
	Agency conforming		$	2,887	$	1,708		69	%
	Alt-A			7,098		3,180		123	%
	Jumbo			2,205		2,032		9	%
	Government — FHA/ VA			5		108		(95	)%
Subprime(1)				849		726		17	%
Home equity line of credit(2)				409		139		194	%
Consumer construction(2)				958		766		25	%

		Subtotal mortgage production		14,411		8,659		66	%
Subdivision construction commitments				367		333		10	%

		Total production volume	$	14,778	$	8,992		64	%

Mortgage — Web-based production			$	10,914	$	6,383		71	%
Mortgage pipeline at period end(3)			$	6,929	$	3,722		86	%

(1) Fundings.

(2) New commitments.

(3) Includes rate lock commitments for loans in process plus loans that have been submitted for processing, but not yet rate locked.

Mortgage Production by Division and Channel

IndyMac generates its mortgage production through multiple channels on a nationwide basis with a concentration in those regions of the country in which we have regional offices or in which there are higher home prices, including California, Florida, New Jersey and New York. Our highest concentration of mortgage loans relates to properties in California. Mortgages secured by California properties accounted for 52% of the mortgage loans produced in the three months ended June 30, 2003 based on dollar value, and 43% based on number of loans.

IndyMac Mortgage Bank produces mortgages through its Business-to-Business (“B2B”), Business-to-Realtor (“B2R”), Consumer Construction (“Home Construction Lending” or “HCL”) and Homebuilder (“HBD”) divisions. IndyMac Consumer Bank produces mortgages through its Business-to-Consumer (“B2C”), HELOC and Retail Bank divisions.

The following table shows production and key performance indicators of the various relationship businesses of IndyMac Mortgage Bank during the three and six months ended June 30, 2003.



			Relationship Businesses —
			IndyMac Mortgage Bank

Three Months Ended June 30, 2003			B2B			B2R			HCL			HBD			Total


			(Dollars in millions)
Volume by Channel and Customer Source
	Mortgage brokers		$	3,109		$	—		$	380		$	—		$	3,489
	Mortgage bankers			1,341			—			223			—			1,564
	Conduit			497			—			—			—			497
	Realtors			—			279			—			—			279
	Builder/ Builder affiliates			—			—			17			121			138
	Financial institutions			125			—			—			—			125
	Consumer direct marketing by HCL			—			—			128			—			128

		Subtotal mortgage production		5,072		$	279			748			121			6,220
	Builder and subdivision construction commitments			—			—			—			237			237

		Total relationship businesses production volume	$	5,072		$	279		$	748		$	358		$	6,457

Percentage of total production				63	%		3	%		9	%		4	%		79	%
Percentage change relative to:
		2nd quarter 2002		56	%		205	%		16	%		74	%		54	%
		1st quarter 2003		27	%		13	%		10	%		61	%		25	%
Composition of mortgage production
		Purchase transactions		28	%		31	%		99	%		70	%		35	%
		Cash-out refinance transactions		46	%		34	%		0	%		16	%		39	%
		Rate/term refinance transactions		26	%		35	%		1	%		14	%		26	%
Key Performance Indicators for the Three Months Ended June 30, 2003
Active Customers(1)
	Average monthly active customers			2,211			249			252			30			2,742
	Active customers during the quarter			3,416			504			609			49			4,578
	Net new customers during the quarter(2)			522			173			N/A			10			705
Sales and marketing personnel				400			72			72			27			571
Cost per funded mortgage loan (bps)				73			189			80			103			N/A
Percentage Change for the Three Months Ended June 30, 2003 vs. June 30, 2002
Active Customers(1)
	Average monthly active customers			28	%		147	%		16	%		233	%		33	%
	Active customers during the quarter			12	%		108	%		18	%		113	%		20	%
Sales and marketing personnel				33	%		118	%		44	%		69	%		43	%
Cost per funded mortgage loan (bps)				(26	)%		(31	)%		(7	)%		N/A			N/A



			Relationship Businesses —
			IndyMac Mortgage Bank

Six Months Ended June 30, 2003			B2B			B2R			HCL			HBD			Total


			(Dollars in millions)
Volume by Channel and Customer Source
	Mortgage brokers		$	5,550		$	—		$	695		$	—		$	6,245
	Mortgage bankers			2,461			—			461			—			2,922
	Conduit			836			—			—			—			836
	Realtors			—			526			—			—			526
	Builder/ Builder affiliates			—			—			33			213			246
	Financial institutions			228			—			—			—			228
	Consumer direct marketing by HCL			—			—			239			—			239

		Subtotal mortgage production		9,075		$	526			1,428			213			11,242
	Builder and subdivision construction commitments			—			—			—			367			367

		Total relationship businesses production volume	$	9,075		$	526		$	1,428		$	580		$	11,609

Percentage of total production				61	%		4	%		10	%		4	%		79	%
Percentage change relative to:
		2nd quarter 2002		49	%		184	%		22	%		65	%		49	%
Composition of mortgage production
		Purchase transactions		26	%		30	%		99	%		72	%		34	%
		Cash-out refinance transactions		47	%		35	%		0	%		15	%		40	%
		Rate/term refinance transactions		27	%		35	%		1	%		13	%		26	%
Key Performance Indicators for the Six Months Ended June 30, 2003
Active Customers(1)
	Average monthly active customers			2,101			237			226			29			2,593
	Active customers during the six months			4,145			715			903			66			5,829
	Net new customers during the six months(2)			965			237			N/A			15			1,217
Cost per funded mortgage loan (bps)				75			198			79			106			N/A
Percentage Change for the Six Months Ended June 30, 2003 vs. June 30, 2002
Active Customers(1)
	Average monthly active customers			20	%		137	%		19	%		222	%		26	%
	Active customers during the six months			7	%		95	%		21	%		61	%		16	%
Cost per funded mortgage loan (bps)				(23	)%		(27	)%		3	%		N/A			N/A

(1) Active customers are defined as customers who funded at least one loan during the period. The HCL division utilizes the B2B marketing relationships with mortgage brokers and mortgage bankers to produce consumer construction loans. As a result, there is some overlap of the two active customer statistics and new customers. The sales and marketing personnel under the HCL division are primarily focused on marketing the consumer construction product directly to consumers.

(2) Net new customers are the number of new customers signed up during the period less those terminated.

IndyMac Mortgage Bank’s production increase of 54% from the three months ended June 30, 2002 to the three months ended June 30, 2003 was driven by 56% growth in the core B2B channel and bolstered by even faster growth in our newer channels including B2R and HBD partially offset by the slower growth in HCL. The mix of business was driven heavily towards refinance activity, reflecting the overall refinance environment. In addition, we continue to focus on activating new customers and made progress in all channels. At the same time, we have been more disciplined in adding new customers that possess a profile that is more likely to remain active over the long term. Our active customer base has increased by 12% from the second quarter of 2002. Consistent with our focus on new customers, we are expanding our sales staff in all channels, focusing on under-penetrated markets consistent with our overall strategy to expand the geographic distribution of our operating centers. During the second quarter 2003, we opened our Texas Regional Operations Center and plan to open two Regional Operations Centers in the second half of 2003. With respect to costs, while we continue to implement permanent process improvements in our mortgage operations, the bulk of improvements in costs in basis points are attributable to greater scale due to increased volume and higher average balances obtainable in a refinance environment.

The following table shows production and other key performance indicators of the various consumer direct businesses of IndyMac Consumer Bank during the three months ended June 30, 2003.



			Consumer Direct Businesses —
			IndyMac Consumer Bank

Three Months Ended June 30, 2003			B2C			HELOC			Retail Bank			Total


			(Dollars in millions)
Volume by Channel and Source(1)
Web-based Production
	Direct at www.indymacmortgage.com		$	331		$	—		$	—		$	331
	Indirect Web-based leads			150			—			—			150
Cross-marketing and portfolio refinancing				882			—			59			941
Direct telemarketing and affinity relationships				208			46			—			254
Retail banking branches				—			—			60			60

	Total consumer direct production volume		$	1,571		$	46		$	119		$	1,736

Percentage of total production				19	%		1	%		1	%		21	%
Percentage change relative to:
		2nd quarter 2002		175	%		N/A			325	%		189	%
		1st quarter 2003		20	%		12	%		52	%		21	%
Composition of mortgage production
	Purchase transactions			4	%		N/A			18	%		5	%
	Cash-out refinance transactions			43	%		N/A			32	%		42	%
	Rate/term refinance transactions			53	%		N/A			50	%		53	%
Key Drivers of Growth and Profitability for the Three Months Ended June 30, 2003
Marketing costs (in thousands)			$	3,408			N/A		$	32		$	3,440
Marketing cost per funded loan (dollars)			$	404			N/A		$	52		$	456
Cost per funded mortgage loan (bps)				157			N/A			112			N/A



			Consumer Direct Businesses —
			IndyMac Consumer Bank

Six Months Ended June 30, 2003			B2C			HELOC			Retail Bank			Total


			(Dollars in millions)
Volume by Channel and Source(1)
Web-based Production
	Direct at www.indymacmortgage.com		$	659		$	—		$	—		$	659
	Indirect Web-based leads			249			—			—			249
Cross-marketing and portfolio refinancing				1,557			—			73			1,630
Direct telemarketing and affinity relationships				420			87			—			507
Retail banking branches				N/A			—			124			124

	Total consumer direct production volume		$	2,885		$	87		$	197		$	3,169

Percentage of total production				19	%		1	%		1	%		21	%
Percentage change relative to:
		2nd quarter 2002		153	%		N/A			286	%		166	%
Composition of mortgage production
	Purchase transactions			4	%		N/A			17	%		5	%
	Cash-out refinance transactions			42	%		N/A			34	%		41	%
	Rate/term refinance transactions			54	%		N/A			49	%		54	%
Key Drivers of Growth and Profitability for the Six Months Ended June 30, 2003
Marketing costs (in thousands)			$	6,271			N/A		$	64		$	6,335
Marketing cost per funded loan (dollars)			$	411			N/A		$	63		$	474
Cost per funded mortgage loan (bps)				155			N/A			123			N/A

(1) HELOC amounts represent the loans produced only by the HELOC division. HELOC loans produced by other business divisions totaled $185 million and $324 million during the three and six months ended June 30, 2003, respectively. HELOC loans produced by business divisions other than the HELOC division are included in the production volume of the respective originating business division.

B2C’s production volume grew 175% for the three months ended June 30, 2003 compared to the three months ended June 30, 2002, resulting in a decrease in cost per funded loan of 22%. The B2C division is currently our most established consumer-direct business, generating 91% of the total consumer-direct business in 2003. This business is expected to be more cyclical as a result of changes in interest rates. The HELOC division was established during 2002 to facilitate targeted marketing of our HELOC product directly to consumers in addition to the production of HELOCs within our other production channels. Through a streamlined application process and competitive pricing, this division provides homeowners the ability to easily access the excess equity in their homes for a variety of uses. Currently, we hold the HELOCs generated by the HELOC division for investment, as these HELOCs are prime rate based, and have high FICO scores and low combined loan-to-value ratios. The HELOC product also tends to be somewhat counter-cyclical to the mortgage industry. As interest rates rise, consumers who want to access the equity in their home are more inclined to utilize a HELOC product rather than a cash-out refinance of their existing low-rate mortgage loan. As a result, we expect the HELOC division’s production to increase when the mortgage refinance boom abates.

Loan Sales

The Company sold $6.3 billion and $3.7 billion of loans during the three months ended June 30, 2003 and 2002, respectively, and $11.9 billion and $8.0 billion for the six months then ended. The Company’s gain on sale of loans increased 44% in the second quarter of 2003 to $102 million, from $71 million in the second quarter of 2002. The increase in the gain on sale was a result of the 71% increase in loans sold, partially offset

by the decrease of 31 basis points in the profit margin, net of hedging losses, from 1.92% in the second quarter of 2002 to 1.61% in the second quarter of 2003. The decrease in the net margin after hedging is due to a combination of factors including: (1) a higher concentration of lower margin loans sold; (2) higher hedging costs due to the volatility of interest rates; and (3) additions to our repurchase reserve. These items were partially offset by the sale of certain higher margin loans that were obtained through the exercise of IndyMac’s call provision as the master servicer of its loan securitization transactions.

The Company hedges the interest rate risk inherent in its pipeline of mortgage loans held for sale to protect its margin on sale of loans. In a period of declining interest rates, hedging has the effect of reducing the gain on sale of the Company’s mortgage loans. In a period of rising rates, hedging protects the Company from deterioration in the net margin. The table below illustrates the impact of the Company’s pipeline hedging activities.



	Three Months Ended

	June 30,			June 30,						March 31,
	2003			2002			% Change			2003			% Change


	(Dollars in millions)
Gross gain on mortgage loan sales	$	163		$	133			23	%	$	118			38	%
Gross margin before hedging		2.57	%		3.59	%		(28	)%		2.14	%		20	%
Hedging losses	$	(61	)	$	(62	)		(2	)%	$	(34	)		79	%
Net gains on sale	$	102		$	71			44	%	$	84			21	%
Net margin after hedging		1.61	%		1.92	%		(16	)%		1.52	%		6	%



	Six Months Ended

	June 30,			June 30,
	2003			2002			% Change


	(Dollars in millions)
Gross gain on mortgage loan sales	$	281		$	224			25	%
Gross margin before hedging		2.37	%		2.81	%		(16	)%
Hedging losses	$	(95	)	$	(75	)		27	%
Net gains on sale	$	186		$	149			25	%
Net margin after hedging		1.57	%		1.87	%		(16	)%

The Company enters into commitments to make loans whereby the interest rate on the loan is set prior to funding (“rate lock commitments”). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”) and therefore, they are recorded at fair value. The Company hedges the risk of changes in fair value of rate lock commitments by selling forward contracts on securities of Fannie Mae or Freddie Mac. These forward contracts are also accounted for as derivatives and recorded at fair value.

In measuring the fair value of rate lock commitments, the expected profit margin of the loan that would be realized upon a loan sale is used. This value excludes the value of the MSRs inherent in the loan except for certain high quality, liquid, conventional mortgages where whole loan sale prices including servicing rights are readily available. These values are calculated using the same methodologies that are used in our loan sales, adjusted using an anticipated fallout factor for rate lock commitments that will likely not be funded. This policy of recognizing the value of the derivative has the effect of recognizing a portion of the gain from mortgage loans before the loans are funded. There is a diversity in practice among participants in the mortgage banking industry, and the possibility exists that further accounting guidance for determining the fair value of rate lock commitments could be developed, which would result in a change in our valuation policies. It is important to note that the time from rate lock commitment to loan sale is generally less than 90 days; therefore, any change to current practice would have only a short-term impact on revenues and net income. As of June 30, 2003, the fair value of the rate lock commitments, net of related hedges, was $36.8 million.

In addition to the gain on sale, IndyMac earns spread and fee income on its mortgage loans held for sale. It is important to look at the entire mortgage banking revenue stream in evaluating performance as these

components may vary in differing interest rate environments and sale strategies. The following table depicts the total revenue margin on mortgage loans sold, which is calculated by dividing the sum of gain on sale of loans, net interest income (refer to “Note 4: Segment Reporting” in the accompanying notes to the consolidated financial statements for further information on our method of allocating interest expense to the operating segments), and fee income by the amount of loans sold:



	Three Months Ended

	June 30,		% of loans			June 30,		% of loans			March 31,		% of loans
	2003		sold			2002		sold			2003		sold


	(Dollars in thousands)
Gain on sale of loans	$	102,146		1.61	%	$	71,280		1.92	%	$	83,784		1.52	%
Net interest income		39,204		0.62	%		18,990		0.51	%		32,007		0.58	%
Fee income		18,011		0.29	%		9,526		0.26	%		14,791		0.26	%

Total mortgage banking revenue	$	159,361		2.52	%	$	99,796		2.69	%	$	130,582		2.36	%

Loans sold	$	6,335,907				$	3,707,070				$	5,523,701



	Six Months Ended

	June 30,		% of loans			June 30,		% of loans
	2003		sold			2002		sold


			(Dollars in thousands)
Gain on sale of loans	$	185,929		1.57	%	$	148,746		1.87	%
Net interest income		71,211		0.60	%		44,694		0.56	%
Fee income		32,802		0.27	%		19,444		0.24	%

Total mortgage banking revenue	$	289,942		2.44	%	$	212,884		2.67	%

Loans sold	$	11,859,608				$	7,973,389

The following table shows the various channels through which loans were distributed.



		Three Months Ended

		June 30,		Distribution			June 30,		Distribution			March 31,		Distribution
		2003		Percentages			2002		Percentages			2003		Percentages


		(Dollars in millions)
Sales to the GSEs(1)		$	3,459		48	%	$	2,032		53	%	$	3,464		58	%
Private-label securitizations			1,617		23	%		1,277		33	%		1,471		25	%
Whole loan sales			1,260		18	%		398		10	%		589		10	%

	Subtotal sales		6,336		89	%		3,707		96	%		5,524		93	%
Investment portfolio acquisitions(2)			798		11	%		143		4	%		403		7	%

	Total loan distribution	$	7,134		100	%	$	3,850		100	%	$	5,927		100	%



		Six Months Ended

		June 30,		Distribution			June 30,		Distribution
		2003		Percentages			2002		Percentages


				(Dollars in millions)
Sales to the GSEs(1)		$	6,923		53	%	$	4,650		56	%
Private-label securitizations			3,088		24	%		2,819		34	%
Whole loan sales			1,849		14	%		504		6	%

	Subtotal sales		11,860		91	%		7,973		96	%
Investment portfolio acquisitions(2)			1,200		9	%		292		4	%

	Total loan distribution	$	13,060		100	%	$	8,265		100	%

(1) Government-sponsored enterprises.

(2) Loan production that IndyMac elected to retain in its investment portfolio.

In conjunction with the sale of mortgage loans in private-label securitizations and GSE transactions, the Company generally retains certain assets. The primary assets retained include MSRs and, to a lesser degree, AAA-rated and agency interest-only securities, non-investment grade securities and residual securities. The allocated cost of the retained assets at the time of sale is recorded as an asset with an offsetting increase to the gain on sale of loans (or a reduction in the cost basis of the loans sold). The calculation of the $102.1 million in gain on sale of loans earned during the three months ended June 30, 2003 included the retention of $87.1 million of servicing-related assets. Cash flow collected during the three months ended June 30, 2003 from assets previously retained amounted to $21.7 million. More information on the valuation assumptions related to IndyMac’s retained assets can be found on page 25.

INVESTING ACTIVITIES

IndyMac’s Investment Portfolio Group complements the Company’s mortgage banking activities and serves to diversify the Company’s revenue stream through its investments in single-family residential mortgage loans, mortgage-backed securities and servicing-related assets.

The Investment Portfolio Group’s investment in prime SFR loans, mortgage-backed securities and mortgage loan servicing also helps to provide a source of income to counterbalance the cyclical nature of mortgage production. Should loan production decline due to factors such as increasing interest rates, the value and fee income of the Investment Portfolio Group’s MSRs generally rises, as there is less incentive for borrowers to refinance at a higher interest rate. Similarly, when loan production increases, the value of the MSRs generally decreases. We believe this serves to stabilize the Company’s revenue stream through increased interest income and servicing fees when production slows.

In addition to the Investment Portfolio Group’s investments, certain investing activities also take place in IndyMac Mortgage Bank and IndyMac Consumer Bank. These activities include the investment in construction loans and HELOCs by these business units.

The following table shows average annualized net returns for all of our investing activities, which is calculated by dividing the sum of net interest income after allocated interest expense (see “Note 4: Segment Reporting” in the accompanying notes to the consolidated financial statements for further information on our method of allocating interest expense to the operating segments) and provision for loan losses, service fee income and related net gains or losses by the average balance of investment assets. Service fee income includes gross service fee income, amortization of MSRs, valuation adjustments and net hedging gains and losses. Gross service fee income includes reinvestment income, prepayment and late fee income net of compensating interest paid to borrowers and investors in addition to the contractual servicing fees.



	Three Months Ended

	June 30,			June 30,			March 31,
	2003			2002			2003


	(Dollars in thousands)
Net interest income after provision for loan losses	$	28,666		$	35,766		$	36,190
Service fee (loss) income		(1,401	)		6,405			2,383
(Loss) gain on mortgage-backed securities, net		(9,258	)		2,701			(6,910	)
Other income		2,761			2,716			2,493
Average balance of interest-earning assets and MSRs	$	6,443,855		$	4,973,972		$	6,211,387
Investing activities’ return on interest-earning assets and MSRs (annualized)		1.29	%		3.84	%		2.23	%



	Six Months Ended

	June 30,			June 30,
	2003			2002


	(Dollars in thousands)
Net interest income after provision for loan losses	$	64,856		$	74,176
Service fee income		982			14,227
Loss on mortgage-backed securities, net		(16,168	)		(4,287	)
Other income		5,255			6,089
Average balance of interest-earning assets and MSRs	$	6,327,621		$	4,929,896
Investing activities’ return on interest-earning assets and MSRs (annualized)		1.75	%		3.69	%

The decrease in margin results from the impact of higher prepayment rates on MSRs and mortgage-backed securities in this low interest rate environment.

Investment Portfolio Group

The following table sets forth the composition of the Investment Portfolio Group’s assets as of June 30, 2003 and December 31, 2002, respectively.


				June 30,			December 31,
				2003			2002


				(Dollars in thousands)
SFR mortgage loans held for investment				$	2,465,393		$	2,096,517
SFR mortgage loans held for sale					360,515			—
Mortgage-backed and U.S. Treasury securities:
	Trading securities
		AAA-rated and agency interest-only securities			135,264			187,060
		AAA-rated principal-only securities			4,255			79,554
		U.S. Treasury securities			50,414			282,219
		AAA-rated non-agency securities			—			101,185
		AAA-rated agency securities			—			25,055
		Other investment grade securities			8,760			9,114
		Other non-investment grade securities			2,060			2,956
		Residual securities			66,031			78,740

			Subtotal — trading securities		266,784			765,883
	Available for sale securities
		AAA-rated non-agency securities			1,070,270			1,406,321
		AAA-rated agency securities			46,544			123,269
		Other investment grade securities			33,272			39,258
		Other non-investment grade securities			8,653			4,362

			Subtotal — available for sale securities		1,158,739			1,573,210

			Total mortgage-backed and U.S. Treasury securities		1,425,523			2,339,093
Mortgage servicing rights					335,727			300,539

			Total	$	4,587,158		$	4,736,149

Percentage of securities portfolio rated investment grade					95	%		96	%
Percentage of securities portfolio rated AAA					92	%		94	%

AAA-rated and agency interest-only securities and residual securities and securities used to hedge these securities, are classified as trading securities. Changes in the fair value of these securities are recorded in earnings. All other mortgage-backed securities are classified as available for sale.

SFR Mortgage Loans Held for Investment

The Company’s portfolio of mortgage loans held for investment is comprised primarily of SFR mortgage loans, with a concentration in adjustable-rate loans to mitigate interest rate risk. The Company is focused on increasing its portfolio of mortgage loans held for investment to achieve better balance in its investing activities relative to its mortgage banking activities, which tends to be more cyclical. During the quarter, the Company added $798 million of mortgage loans in accordance with this strategy. The following table shows

the composition of this portfolio as of June 30, 2003 and December 31, 2002, respectively, and relevant credit quality characteristics at June 30, 2003.


			June 30,			December 31,
			2003			2002


			(Dollars in thousands)
SFR mortgage loans held for investment			$	2,465,393		$	2,096,517
Average loan size				267			227
Non-performing loans as a percentage of SFR loans				0.74	%		1.20	%
Estimated average life in years(1)				3.13			3.36
Estimated average duration in years(2)				0.98			1.39
Yield				4.70	%		5.69	%
Fixed-rate mortgages				11	%		23	%
Adjustable-rate mortgages				32	%		28	%
Hybrid adjustable-rate mortgages				57	%		49	%
Additional Information as of June 30, 2003

Average FICO score(3)				706
Average loan to value ratio				72	%
Geographic distribution:
	Southern California			38	%
	Northern California			23	%
	New York			5	%
	Michigan			4	%
	Florida			2	%
	Colorado			2	%
	Other (each individually< 2%)			26	%

		Total		100	%

(1) Represents the estimated length of time, on average, the SFR loan portfolio will remain outstanding based on the Bank’s estimates for prepayments.

(2) Average duration measures the expected variability of the value of a financial instrument in response to changes in interest rates.

(3) FICO scores reflect a credit scoring system developed by Fair Isaacs and Co. and are generally used by lenders to evaluate a borrower’s credit history. FICO scores of 700 or higher are generally considered in the mortgage industry to be very high quality borrowers with low risk of default, but in general, the secondary market will consider FICO scores of 620 or higher to be prime.

SFR Mortgage Loans Held for Sale

Loans held for sale in the Investment Portfolio Group are substantially comprised of SFR mortgage loans acquired through exercising our right to call selected transactions as Master Servicer when the outstanding loan balances in the securitization trust declines to a specified level, typically 10% of the original collateral balance. During the quarter ended June 30, 2003, we sold approximately $158 million of loans acquired through clean-up call exercises for a pretax gain of $7.7 million. The balance at June 30, 2003 in loans held for sale for the Investment Portfolio Group represents the inventory of called loans that remain unsold. We expect to exercise our option to call additional loans of approximately $500 million during the remainder of the year, the exact timing and amount of which is dependent upon the future interest rate environment and borrower prepayment behavior. We currently expect that gains in the second half of 2003 will be consistent with the results of the first six months of 2003.

Mortgage-backed Securities and U.S. Treasury Securities

The Company’s portfolio of mortgage-backed securities and U.S. Treasury securities totaled $1.4 billion and $2.3 billion at June 30, 2003 and December 31, 2002, respectively. These securities are recorded at fair value. The Company invests in high quality mortgage-backed securities to provide net interest income. The extreme prepayment environment has negatively impacted interest spreads on these securities. At June 30, 2003, 92% of the portfolio was rated AAA with an expected weighted average life of 3.2 years. U.S. Treasury securities in the trading portfolio are purchased to hedge the interest rate risk associated with servicing-related assets, among other types of investments. AAA rated principal-only securities are retained from securities purchased in the secondary market to hedge MSR related assets. The Company actively trades its hedging instruments to rebalance its portfolio into instruments we believe will most effectively hedge the underlying asset.

The fair value of other investment grade and non-investment grade securities by credit rating as of June 30, 2003 and December 31, 2002 follows:



	June 30,									December 31,
	2003									2002

	Current		Discount
	Face		To Face			Amortized		Fair
	Value		Value			Cost		Value		Fair Value


	(Dollars in thousands)
Investment grade mortgage-backed securities
AAA	$	8,163	$	83		$	8,246	$	8,250	$	—
AA		11,739		(172	)		11,567		11,883		22,133
A		2,187		(121	)		2,066		2,225		2,445
BBB		16,833		(1,019	)		15,814		16,040		18,450
BBB-		4,000		(365	)		3,635		3,634		5,344

Total other investment grade mortgage-backed securities	$	42,922	$	(1,594	)	$	41,328	$	42,032	$	48,372

Non-investment grade mortgage-backed securities
BB	$	4,713	$	(725	)	$	3,988	$	3,986	$	3,661
BB-		1,768		(942	)		826		818		—
B		3,563		(2,136	)		1,427		1,724		351
CCC		6,234		(4,668	)		1,566		1,618		2,955
C		7,741		(5,585	)		2,156		2,218		—
NR		871		(548	)		323		349		351

Total other non-investment grade mortgage-backed securities	$	24,890	$	(14,604	)	$	10,286	$	10,713	$	7,318

At June 30, 2003, of the total other investment grade and non-investment grade mortgage-backed securities, $40.0 million was collateralized by prime loans, $10.6 million by subprime loans and $2.1 million by manufactured housing loans.

Mortgage Servicing and Mortgage Servicing Rights

In addition to its own loans, IndyMac serviced $29.9 billion of mortgage loans owned by others at June 30, 2003 with a weighted average coupon of 6.97%. In comparison, IndyMac serviced $28.4 billion of mortgage loans at December 31, 2002. The table below shows the activity in the servicing portfolio during the quarter and six months ended June 30, 2003.


	Three Months			Six Months
	Ended			Ended
	June 30, 2003			June 30, 2003

	Servicing Portfolio			Servicing Portfolio


	(Dollars in millions)
Unpaid principal balance at beginning of period	$	29,835		$	28,376
Additions		5,334			10,655
Clean-up calls exercised		(381	)		(932	)
Loan payments and prepayments		(4,930	)		(8,241	)

Unpaid principal balance at June 30, 2003	$	29,858		$	29,858

MSRs totaled $335.7 million as of June 30, 2003 and $300.5 million as of December 31, 2002, reflecting an increase of $35.2 million. The table below shows the activity in MSRs.



	Three Months Ended									Six Months Ended

	June 30,			June 30,			March 31,			June 30,			June 30,
	2003			2002			2003			2003			2002


	(Dollars in thousands)
Balance at beginning of period	$	343,544		$	390,131		$	300,539		$	300,539		$	321,316
Additions		73,732			52,473			67,742			141,474			125,141
Transfers to AAA-rated agency interest-only securities		(17,812	)		(63,690	)		—			(17,812	)		(66,288	)
Clean-up calls exercised		(1,481	)		—			(2,475	)		(3,956	)		—
Scheduled amortization		(21,832	)		(16,958	)		(21,150	)		(42,982	)		(35,811	)
Valuation/ impairment		(40,424	)		(45,177	)		(1,112	)		(41,536	)		(27,579	)

Balance at end of period	$	335,727		$	316,779		$	343,544		$	335,727		$	316,779

Each quarter, we evaluate the MSRs for impairment in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” We first stratify our MSRs based on predominant risk characteristics, underlying loan type, interest rate type, and interest rate band. Then, for each stratum, we determine the fair value of MSRs using our valuation models, which are periodically validated by third party opinions of value. If the carrying value exceeds the fair value by individual stratum, a valuation allowance is recorded as a charge to service fee income in current earnings. However, if such impairment is determined to be other-than-temporary and the recoverability of the value is remote, we recognize a direct write-down. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the MSR asset and the related valuation allowance, precluding subsequent reversals. For the six months ended June 30, 2003, we recorded a direct write-down of MSRs totaling $102.7 million, which was written off against the valuation allowance previously provided. We did not record any direct write-down of MSRs during the three months ended June 30, 2003. As of June 30, 2003, the valuation allowance on MSR’s totaled $107.2 million.

AAA-Rated and Agency Interest-Only Securities and Residuals

We evaluate the carrying value of our AAA-rated and agency interest-only securities and residual securities by discounting estimated net future cash flows. For these securities, estimated net future cash flows are primarily based on assumptions related to prepayment speeds, in addition to expected credit loss assumptions on the residual and non-investment grade securities.

A summary of the activity in the AAA-rated and agency interest-only securities and residual securities portfolios for the three and six months ended June 30, 2003 and 2002 and for the three months ended March 31, 2003, follows:



		Three Months Ended									Six Months Ended

		June 30,			June 30,			March 31,			June 30,			June 30,
		2003			2002			2003			2003			2002


		(Dollars in thousands)
AAA-rated and agency interest-only securities
	Beginning balance	$	156,212		$	192,932		$	187,060		$	187,060		$	211,104
	Retained investments from securitizations		12,017			2,092			13,416			25,433			2,092
	Transfers from MSRs		17,812			63,690			—			17,812			66,288
	Clean-up calls exercised		(7,077	)		—			(12,048	)		(19,125	)		—
	Cash received, net of accretion		(13,629	)		(11,269	)		(14,071	)		(27,699	)		(21,353	)
	Valuation losses before hedges		(30,071	)		(15,291	)		(18,145	)		(48,217	)		(25,977	)

	Ending balance	$	135,264		$	232,154		$	156,212		$	135,264		$	232,154

Residual securities
	Beginning balance	$	77,998		$	55,395		$	78,740		$	78,740		$	43,123
	Retained investments from securitizations		112			17,497			14,626			14,738			31,553
	Sales		—			—			(10,525	)		(10,525	)		—
	Cash received, net of accretion		(6,189	)		(5,607	)		(6,865	)		(13,054	)		(8,430	)
	Valuation (losses) gains before hedges		(5,890	)		707			2,022			(3,868	)		1,746

	Ending balance	$	66,031		$	67,992		$	77,998		$	66,031		$	67,992

Valuation of Servicing-Related Assets

AAA-rated and agency interest-only securities and residual securities are recorded at fair market value. MSRs are subject to lower of cost or market limitations. We determine the fair value of MSRs using our valuation models, which are periodically validated by third party opinions of value. Relevant information and assumptions used to value the Company’s servicing related assets at June 30, 2003, March 31, 2003 and December 31, 2002 are shown below.



	Actual															Valuation Assumptions

					Gross Wtd.			Servicing			3-Month			Weighted		Lifetime			3-Month						Remaining
	Book		Collateral		Average			Fee/Interest			Prepayment			Average		Prepayment			Prepayment			Discount			Cumulative
	Value		Balance		Coupon			Strip			Speeds			Multiple		Speeds(1)			Speeds(1)			Yield			Loss Rate(2)


	(Dollars in thousands)
June 30, 2003
AAA-rated and agency interest-only securities	$	135,264	$	14,684,652		7.30	%		0.44	%		42.5	%		2.09		24.5	%		51.3	%		7.6	%		N/A

Prime residual securities	$	32,211	$	3,422,320		7.22	%		1.24	%		55.3	%		0.76		24.8	%		53.9	%		15.2	%		0.5	%
Sub-prime residual securities		33,820	$	1,430,135		9.24	%		4.20	%		37.9	%		0.56		33.2	%		34.4	%		22.7	%		2.5	%

Total noninvestment grade residual securities	$	66,031

MSRs(3)(4)	$	335,727	$	29,858,219		6.97	%		0.33	%		46.6	%		3.41		25.6	%		48.6	%		9.1	%		N/A

March 31, 2003
AAA-rated and agency interest-only securities	$	156,212	$	12,924,037		7.68	%		0.51	%		38.8	%		2.37		21.9	%		46.6	%		8.9	%		N/A

Prime residual securities	$	42,703	$	3,537,589		7.27	%		1.46	%		38.5	%		0.83		21.8	%		36.1	%		15.2	%		0.6	%
Sub-prime residual securities		35,295	$	1,636,487		9.34	%		4.04	%		34.0	%		0.53		33.3	%		35.7	%		22.9	%		2.6	%

Total noninvestment grade residual securities	$	77,998

MSRs(4)	$	343,544	$	29,834,709		7.27	%		0.33	%		39.5	%		3.49		21.2	%		42.9	%		9.5	%		N/A



	Actual															Valuation Assumptions

					Gross Wtd.			Servicing			3-Month			Weighted		Lifetime			3-Month						Remaining
	Book		Collateral		Average			Fee/Interest			Prepayment			Average		Prepayment			Prepayment			Discount			Cumulative
	Value		Balance		Coupon			Strip			Speeds			Multiple		Speeds(1)			Speeds(1)			Yield			Loss Rate(2)


	(Dollars in thousands)
December 31, 2002
AAA-rated and agency interest-only securities	$	187,060	$	14,214,229		7.77	%		0.53	%		38.5	%		2.48		23.6	%		39.7	%		8.7	%		N/A

Prime residual securities	$	33,400	$	2,968,794		7.51	%		1.44	%		35.5	%		0.78		18.9	%		40.3	%		15.2	%		0.7	%
Sub-prime residual securities		45,340	$	1,968,041		9.54	%		4.21	%		30.3	%		0.55		32.1	%		35.0	%		27.1	%		2.8	%

Total noninvestment grade residual securities	$	78,740

MSRs(4)	$	300,539	$	28,375,897		7.56	%		0.33	%		40.7	%		3.21		22.0	%		36.3	%		9.5	%		N/A

(1) Assumed prepayment speeds are higher in the short term and lower in the long term based on the market forward curve for interest rates rising over the life of the asset.

(2) As a percentage of the original pool balance, the actual cumulative loss rate to date totaled 0.08% and 1.23% for prime and subprime residuals, respectively, at June 30, 2003.

(3) At June 30, 2003, the capitalized servicing asset includes primary servicing of $28.7 billion of loans serviced by us and master servicing of $1.1 billion whose primary servicing is performed by other servicers. In addition to the primary servicing of $28.7 billion in loans, we also service $4.2 billion of IndyMac-owned loans and loans subserviced for others on an interim basis for a total primary servicing portfolio of $33.0 billion.

(4) Our collateral balance includes primary and master serviced loans of $28.7 billion and $1.1 billion, respectively at June 30, 2003. In comparison, we had primary and master serviced loans of $28.2 billion and $1.6 billion, respectively at March 31, 2003. At December 31, 2002, we had primary and master serviced loans of $25.8 billion and $2.6 billion, respectively.

The lifetime prepayment speeds represent the annualized constant prepayment rate (“CPR”) we estimate for the remaining life of the collateral supporting the asset. For MSRs and AAA-rated and agency interest-only securities, we project prepayment rates using four-factor prepayment models which incorporate relative weighted average note rate, seasoning, seasonality and burn-out of the pool of loans relative to expectations of future rates implied by the market forward LIBOR/swap curve.

The weighted average multiple for MSRs, AAA-rated and agency interest-only and residual securities represents the book value divided by the product of collateral balance and servicing fee/interest strip. While the weighted average life of such assets is a function of the undiscounted cash flows, the multiple is a function of the discounted cash flows. With regard to AAA-rated and agency interest-only securities, the marketplace frequently uses calculated multiples to assess the overall impact valuation assumptions have on value. Collateral type, coupon, loan age and the size of the interest strip must be considered when comparing these multiples. The mix of collateral types supporting servicing-related assets is primarily non-conforming/ conventional, which may make comparisons of the Company’s MSR multiples misleading relative to peer multiples.

Lifetime prepayment assumptions for AAA-rated and agency interest-only, prime residuals and mortgage servicing increased at June 30, 2003 compared to March 31, 2003 reflecting the decline in interest rates from March to June and the higher actual prepayment speeds experienced in the second quarter. Discount yields decreased at June 30, 2003 as compared to March 31, 2003 also reflecting the decline in interest rates as well as a shorter weighted average life of the assets and lower option costs.

Hedging Interest Rate Risk on Servicing-Related Assets

With respect to the investment in servicing-related assets (AAA-rated and agency interest-only securities, non-investment grade residual securities and MSRs), the Company is exposed to interest rate risk as a result of other than predicted prepayment of loans. Our Investment Portfolio Group is responsible for the management of interest rate and prepayment risks in the investment portfolio, subject to policies and procedures established by, and oversight from, our management level Asset and Liability Committee

(“ALCO”) and Board of Directors level ALCO. To hedge our investments in servicing-related assets, we use several strategies, including investing in AAA-rated principal-only securities, buying and/or selling mortgage-backed or U.S. Treasury securities, futures, floors, swaps, or options, depending on several factors.

Temporary impairment as a result of accelerated prepayments on the servicing-related assets totaled $76.4 million in the second quarter of 2003. These losses were offset by $60.8 million of gains on trading securities and derivative instruments utilized to hedge the interest rate risk on the servicing-related assets and $0.9 million of net interest income earned on the hedging instruments.

The following breaks out the components of service fee income and the gain on mortgage-backed securities, net.



			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2003			2002			2003			2003			2002


			(Dollars in thousands)
Service fee income
	Gross service fee income		$	25,510		$	25,907		$	24,057		$	49,567		$	51,987
	Amortization			(21,832	)		(16,958	)		(21,150	)		(42,982	)		(35,811	)

	Service fee income net of amortization			3,678			8,949			2,907			6,585			16,176
	Valuation adjustments on MSRs			(40,424	)		(45,177	)		(1,112	)		(41,536	)		(27,579	)
	Hedges gains			35,345			42,633			588			35,933			25,630

		Total service fee (expense) income	$	(1,401	)	$	6,405		$	2,383		$	982		$	14,227

Net (loss) gain on securities
	Realized gain on available-for-sale securities		$	2,022		$	4,857		$	—		$	2,022		$	7,477
	Impairment on available-for-sale securities			(808	)		(1,931	)		(580	)		(1,388	)		(2,431	)
	Unrealized loss on AAA-rated and agency interest only and residual securities			(35,962	)		(15,291	)		(16,123	)		(52,085	)		(25,977	)
	Net gain on trading securities and other instruments used to hedge AAA-rated and agency interest only and residual securities			25,490			15,066			9,793			35,283			16,644

		Total (loss) gain on mortgage-backed securities, net	$	(9,258	)	$	2,701		$	(6,910	)	$	(16,168	)	$	(4,287	)

The following table summarizes the results of our hedges of our servicing-related assets and hedging activities:



			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2003			2002			2003			2003			2002


			(Dollars in thousands)
Gross service fee income			$	25,510		$	25,907		$	24,057		$	49,567		$	51,987
Net interest income on residuals				3,493			3,670			3,305			6,798			6,424
Net interest income on AAA-rated and agency interest only securities				1,286			1,744			1,569			2,855			5,202

	Subtotal			30,289			31,321			28,931			59,220			63,613
Amortization of MSRs				(21,832	)		(16,958	)		(21,150	)		(42,982	)		(35,811	)
Net valuation losses				(76,386	)		(60,469	)		(17,235	)		(93,620	)		(53,556	)

	Subtotal			(98,218	)		(77,427	)		(38,385	)		(136,602	)		(89,367	)
Net interest income on cash hedges				874			1,081			2,460			3,334			1,153
Net hedge gains				60,835			57,699			10,381			71,216			42,273

	Subtotal			61,709			58,780			12,841			74,550			43,426

		Total	$	(6,220	)	$	12,674		$	3,387		$	(2,832	)	$	17,672

Average balance			$	548,172		$	615,639		$	553,290		$	550,731		$	599,283

Return				(4.54	)%		8.23	%		2.45	%		(1.03	)%		5.90	%

The decline in servicing-related income during the quarter is the result of increased amortization of the assets due to unprecedented levels of prepayments and reduced reinvestment income on the cash flows during the period combined with higher levels of compensating interest on loan payoffs.

Offsetting the reduction in servicing-related assets, we realized income on the sale of loans obtained through our right as the Master Servicer for our various securitizations, to call the securities when the outstanding loan balance in the securitization trust declines to a specified level, typically 10%, of the original balance. When the fair value of remaining loans exceeds expected costs to exercise the call, we will typically exercise our option. During the second quarter 2003, we sold approximately $158 million of loans acquired through clean-up call exercises for a pretax gain of $7.7 million. We realized a $14.5 million gain on sale of clean-up call loans for the six months ended June 30, 2003. We also earned $1.9 million in net interest income from holding these loans prior to sale during the second quarter of 2003.

Construction Lending

IndyMac provides construction financing for individual consumers who are in the process of building their own home (consumer construction) and for residential subdivision developers (builder construction). With respect to consumer construction, the primary product is a construction-to-permanent residential mortgage loan. This product provides financing for the 9-12 month term of construction and automatically converts to a permanent mortgage loan at the end of construction. As a result, this product represents a hybrid activity between our portfolio lending activities and mortgage banking activities. The Company earns net interest income during the construction phase. When the loan converts to permanent status the loan is transferred into the Company’s pipeline of mortgage loans held for sale. These loans are typically fixed-rate loans. Consumer construction loan origination grew 10% over the first quarter 2003 and 16% over the same quarter of 2002, consistent with seasonal increases in single-family residence construction. Increases in both origination channels (B2B and B2C) were driven by growth in active customers and marketing leads. The cost of funding an HCL construction loan decreased 7% from the same quarter of 2002 due to the implementation of several cost efficiency initiatives. Consumer construction loans outstanding at June 30, 2003 were $988 million, up 13% compared to the amount at December 31, 2002.

With respect to builder construction loans, our activities have been increasingly focused on those homebuilders that provide our mortgage loans to their customers when they sell the completed residence. New production is limited to nine states for new commitments (California, Illinois, Nevada, Utah, Arizona, Colorado, Washington, Oregon and Florida). Builder construction loans are typically based on prime rates. Builder loans outstanding, including construction and land and other mortgage loans, declined $8.7 million or 1.4% as compared to December 31, 2002. Commitments related to these outstanding loans declined $19.1 million or 1.7% over the same period. This decline is the result of loan payoffs exceeding new production and is expected to continue through the fourth quarter 2003.

The following tables present further information on our construction loan portfolios.



	As of


	June 30, 2003						December 31, 2002

	Consumer			Builder			Consumer			Builder
	Construction			Construction			Construction			Construction
	Loans			Loans			Loans			Loans


	(Dollars in thousands)
Construction loans	$	988,020		$	509,196		$	875,335		$	482,408
Land and other mortgage loans	$	137,226		$	87,610		$	81,885		$	123,066
Outstanding commitments	$	1,847,554		$	1,085,062		$	1,531,011		$	1,104,160
Average construction loan commitment	$	393		$	2,596		$	415		$	1,982
Non-performing loans		0.98	%		0.62	%		1.08	%		2.92	%
Yield		6.53	%		6.75	%		7.13	%		7.06	%
Fixed-rate loans		95	%		0	%		94	%		1	%
Adjustable-rate loans		0	%		98	%		0	%		96	%
Hybrid adjustable-rate loans		5	%		2	%		6	%		3	%

Additional Information as of June 30, 2003


		Consumer				Builder
		Construction				Construction
		Loans				Loans

Average loan to value ratio(1)			73	%			69	%
Average FICO score(2)			707				N/A

Geographic distribution(3)
	Southern California		32	%	Southern California		38	%
	Northern California		20	%	Northern California		24	%
	New York		7	%	Illinois		20	%
	Hawaii		4	%	Texas		2	%
	Florida		3	%	Colorado		2	%
	Colorado		3	%	Nevada		2	%
	Connecticut		3	%	Florida		2	%
	Other (each individually< 2%)		28	%	Other (each individually< 2%)		10	%

	Total Consumer Construction		100	%	Total Builder Construction		100	%

(1) The average loan to value ratio is based on the estimated appraised value of the completed project compared to the commitment amount at June 30, 2003.

(2) FICO scores are not calculated for corporate entities and, therefore, are not applicable to the builder construction portfolio.

(3) Geographic distribution is based on outstanding balances. Some projects are continuing to be built out in states in which we no longer solicit new loans.

For information related to the Company’s balance of non-performing assets and related credit reserves, see discussion in “Credit Risk and Reserves” at page 35.

HELOC Portfolio

The following table presents information on our HELOCs as of June 30, 2003, March 31, 2003 and December 31, 2002. All HELOC loans are adjustable rate loans and indexed to the prime rate.


	June 30,			March 31,			December 31,
	2003			2003			2002


	(Dollars in thousands)
Outstanding balance	$	485,471		$	391,002		$	312,881
Outstanding commitments(1)	$	763,504		$	586,192		$	459,537
Average spread over prime		1.97	%		2.02	%		1.78	%
Average FICO score		712			706			711
Average CLTV ratio(2)		77	%		78	%		78	%

Additional Information as of June 30, 2003


		Total		Average Loan							30+ Days
		Outstanding		Commitment		Average Spread			Average		Delinquency
CLTV		Balance		Balance		Over Prime			FICO		Percentage



		(Dollars in thousands)
>96% &< 100%		$	14,356	$	45		4.38	%		722		0.60	%
>91% &< 95%			73,852		50		3.44	%		715		0.52	%
>81% &< 90%			190,074		49		2.30	%		695		0.56	%
>71% &< 80%			110,736		79		1.01	%		716		0.33	%
<70%			96,453		84		0.92	%		727		0.12	%

	Total	$	485,471

(1) On funded loans.

(2) The CLTV combines the loan to value on both the first mortgage loan and the HELOC.

NET INTEREST INCOME

The following table sets forth information regarding our consolidated average balance sheets (Mortgage Bank, Investment Portfolio and Consumer Bank are combined), along with the total dollar amounts of interest income and interest expense and the weighted average interest rates for the periods presented. Average balances are calculated on a daily basis. Non-performing loans are included in the average balances for the periods presented. The allowance for loan losses is excluded from the average loan balances.



		Three Months Ended


		June 30, 2003							June 30, 2002							March 31, 2003

		Average				Yield			Average				Yield			Average				Yield
		Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate


		(Dollars in thousands)
Securities		$	1,553,656	$	16,111		4.16	%	$	1,620,863	$	27,933		6.91	%	$	1,920,645	$	20,961		4.43	%
Loans held for sale			3,467,140		52,460		6.07	%		1,640,629		28,373		6.94	%		2,867,547		45,201		6.39	%
Mortgage loans held for investment			3,173,541		37,201		4.70	%		1,810,660		30,795		6.82	%		2,759,900		35,962		5.28	%
Builder construction and income property			570,944		9,768		6.86	%		555,027		10,925		7.90	%		570,886		9,720		6.91	%
Consumer construction			899,204		14,639		6.53	%		723,301		13,949		7.74	%		839,772		14,396		6.95	%
Investment in Federal Home Loan Bank stock and other			244,552		2,298		3.77	%		138,650		1,585		4.59	%		181,268		1,957		4.38	%

	Total interest-earning assets		9,909,037		132,477		5.36	%		6,489,130		113,560		7.02	%		9,140,018		128,197		5.69	%
Other			972,687							699,058							894,643

	Total assets	$	10,881,724						$	7,188,188						$	10,034,661

Interest-bearing deposits		$	2,996,427		21,950		2.94	%	$	2,652,629		26,828		4.06	%	$	2,736,822		21,687		3.21	%
Advances from Federal Home Loan Bank			3,588,032		28,308		3.16	%		1,922,567		25,004		5.22	%		2,709,008		25,558		3.83	%
Trust preferred securities			117,005		2,765		9.48	%		116,463		2,757		9.50	%		116,866		2,763		9.59	%
Other borrowings			2,159,954		11,939		2.22	%		1,089,202		9,768		3.60	%		2,695,541		15,164		2.28	%

	Total interest-bearing liabilities		8,861,418		64,962		2.94	%		5,780,861		64,357		4.47	%		8,258,237		65,172		3.20	%

Other			1,115,755							526,226							906,201

	Total liabilities		9,977,173							6,307,087							9,164,438
	Shareholders’ equity		904,551							881,101							870,223

	Total liabilities and shareholders’ equity	$	10,881,724						$	7,188,188						$	10,034,661

Net interest income				$	67,515						$	49,203						$	63,025

Net interest spread							2.42	%						2.55	%						2.49	%

Net interest margin							2.73	%						3.04	%						2.80	%



		Six Months Ended


		June 30, 2003							June 30, 2002

		Average				Yield			Average				Yield
		Balance		Interest		Rate			Balance		Interest		Rate


		(Dollars in thousands)
Securities		$	1,737,151	$	37,072		4.30	%	$	1,588,444	$	56,815		7.21	%
Loans held for sale			3,167,344		97,661		6.22	%		1,851,862		65,116		7.09	%
Mortgage loans held for investment			2,966,721		73,164		4.97	%		1,758,802		61,694		7.07	%
Builder construction and income property			570,915		19,488		6.88	%		589,842		22,324		7.63	%
Consumer construction			869,488		29,035		6.73	%		714,790		27,926		7.88	%
Investment in Federal Home Loan Bank stock and other			212,910		4,254		4.03	%		138,990		3,367		4.89	%

	Total interest-earning assets		9,524,529		260,674		5.52	%		6,642,730		237,242		7.20	%
Other			933,665							685,617

	Total assets	$	10,458,194						$	7,328,347

Interest-bearing deposits		$	2,866,625		43,638		3.07	%	$	2,807,688		58,136		4.18	%
Advances from Federal Home Loan Bank			3,148,520		53,866		3.45	%		1,939,597		49,393		5.14	%
Trust preferred securities			116,936		5,528		9.53	%		116,398		5,513		9.55	%
Other borrowings			2,427,748		27,102		2.25	%		1,093,624		21,243		3.92	%

	Total interest-bearing liabilities		8,559,829		130,134		3.07	%		5,957,307		134,285		4.55	%

Other			1,010,978							498,163

	Total liabilities		9,570,807							6,455,470
	Shareholders’ equity		887,387							872,877

	Total liabilities and shareholders’ equity	$	10,458,194						$	7,328,347

Net interest income				$	130,540						$	102,957

Net interest spread							2.45	%						2.65	%

Net interest margin							2.76	%						3.13	%

The net interest spread during the second quarter of 2003 is fairly comparable to that of the first quarter of 2003. However, the yield on interest bearing assets continued to decline due to high prepayment speeds in the low interest rate environment and the addition of mortgage loans held for investment at lower coupon rates. The decline in the yield on assets was partially offset by the reduction in cost of funds. However, the yield curve flattened during the quarter resulting in spread compression. When the yield curve flattens, medium to long-term interest rates, which influence asset yields, decline more significantly than shorter term interest rates, which influence a portion of our liabilities.

The dollar amounts of interest income and interest expense fluctuate depending upon changes in the average balances and interest rates of interest-earning assets and interest-bearing liabilities. The following table details changes attributable to: (1) changes in volume (changes in average outstanding balances multiplied by the prior period’s rate), (2) changes in the rate (changes in the average interest rate multiplied by the prior period’s volume); and, (3) changes in rate/volume (“mix”) (changes in rates times the changes in volume).



		Three Months Ended June 30, 2003 vs. 2002


		Increase/(Decrease) Due to

		Volume			Rate			Mix			Total Change


		(Dollars in thousands)
Interest income
Mortgage-backed securities		$	(1,158	)	$	(11,125	)	$	461		$	(11,822	)
Loans held for sale			31,586			(3,549	)		(3,950	)		24,087
Mortgage loans held for investment			23,179			(9,570	)		(7,203	)		6,406
Builder construction and income property			313			(1,429	)		(41	)		(1,157	)
Consumer construction			3,393			(2,175	)		(528	)		690
Investment in Federal Home Loan Bank stock and other			1,211			(282	)		(216	)		713

	Total interest income		58,524			(28,130	)		(11,477	)		18,917
Interest expense
Interest-bearing deposits			3,477			(7,396	)		(959	)		(4,878	)
Advances from Federal Home Loan Bank			21,660			(9,835	)		(8,521	)		3,304
Trust preferred securities			12			(4	)		0			8
Other borrowings			9,603			(3,748	)		(3,684	)		2,171

	Total interest expense		34,752			(20,983	)		(13,164	)		605

	Net interest income	$	23,772		$	(7,147	)	$	1,687		$	18,312



		Six Months Ended June 30, 2003 vs. 2002


		Increase/(Decrease) Due to

		Volume			Rate			Mix			Total Change


		(Dollars in thousands)
Interest income
Mortgage-backed securities		$	5,319		$	(22,917	)	$	(2,145	)	$	(19,743	)
Loans held for sale			46,255			(8,016	)		(5,694	)		32,545
Mortgage loans held for investment			42,372			(18,320	)		(12,582	)		11,470
Builder construction and income property			(394	)		(2,486	)		44			(2,836	)
Consumer construction			5,639			(3,769	)		(761	)		1,109
Investment in Federal Home Loan Bank stock and other			1,791			(590	)		(314	)		887

	Total interest income		100,982			(56,098	)		(21,452	)		23,432
Interest expense
Interest-bearing deposits			1,220			(15,395	)		(323	)		(14,498	)
Advances from Federal Home Loan Bank			30,786			(16,210	)		(10,103	)		4,473
Trust preferred securities			25			(10	)		0			15
Other borrowings			25,914			(9,035	)		(11,020	)		5,859

	Total interest expense		57,945			(40,650	)		(21,446	)		(4,151	)

	Net interest income	$	43,037		$	(15,448	)	$	(6	)	$	27,583

OVERALL INTEREST RATE RISK MANAGEMENT

In addition to our hedging activities to mitigate the interest rate risk in our pipeline of mortgage loans held for sale and our investment in servicing-related assets, we perform extensive overall interest rate risk analyses. The primary measurement tool used to evaluate interest rate risk over the comprehensive balance sheet is a net portfolio value (“NPV”) analysis that simulates the effects changes in interest rates have on the fair value of shareholders’ equity.

The following table sets forth the NPV and change in NPV of the Bank that we estimate might result from a 100 basis point change in interest rates as of June 30, 2003 and December 31, 2002. IndyMac’s NPV model has been built to focus on the Bank alone as the $91.6 million of assets at the Parent Company have relatively little interest rate risk exposure.



		June 30, 2003								December 31, 2002


				Effect of Change in								Effect of Change in
				Interest Rates								Interest Rates

				Decrease			Increase					Decrease			Increase
		Fair Value		100 bps			100 bps			Fair Value		100 bps			100 bps


		(Dollars in thousands)
Cash and cash equivalents		$	408,490	$	408,490		$	408,490		$	196,589	$	196,589		$	196,589
Mortgage-backed and U.S. Treasury securities			1,400,804		1,394,026			1,398,395			2,292,250		2,301,966			2,270,640
Loans receivable			7,709,574		7,815,664			7,571,969			6,132,127		6,226,597			6,014,990
MSRs			335,727		252,423			429,138			299,215		226,834			365,046
Other assets			684,385		694,773			673,800			466,370		473,382			459,294
Derivatives			30,646		8,911			65,566			72,445		67,868			104,189

	Total assets	$	10,569,626	$	10,574,287		$	10,547,358		$	9,458,996	$	9,493,236		$	9,410,748

Deposits		$	3,906,225	$	3,957,196		$	3,858,150		$	3,177,911	$	3,217,410		$	3,139,628
Advances from Federal Home Loan Bank			3,511,226		3,541,797			3,480,257			2,786,237		2,820,402			2,753,314
Other borrowings			1,802,862		1,804,171			1,801,360			2,493,168		2,495,465			2,490,801
Other liabilities			310,654		310,833			310,420			140,853		140,897			140,741

	Total liabilities		9,530,967		9,613,997			9,450,187			8,598,169		8,674,174			8,524,484

Shareholders’ equity (NPV)		$	1,038,659	$	960,290		$	1,097,171		$	860,827	$	819,062		$	886,264

% Change from base case					(7.55	)%		5.63	%				(4.85	)%		2.95	%

The increase in the fair value of equity from December 31, 2002 to June 30, 2003 is primarily due to retained earnings, growth in the pipeline of mortgage loans in process and a deposit mix more heavily weighted towards transaction accounts. The June 30, 2003 analysis indicates that the Bank is more asset sensitive and better positioned for rising rates in an up 100 basis points scenario. It should be noted that this analysis does not reflect changes in volumes and profits from our mortgage banking operations that would be expected to result from the interest rate environment.

The assumptions inherent in our interest rate models include expected valuation changes in an instantaneous and parallel interest rate shock and assumptions as to the degree of correlation between our hedge positions and the hedged assets and liabilities. These assumptions may not accurately predict factors such as the spread-widening or spread-tightening risk among the changes in rates on Treasury, LIBOR/ swap curve and mortgages. In addition, the sensitivity analysis described in the prior paragraph is limited by the fact that it is performed at a particular point in time and does not incorporate other factors that would impact our financial performance in these scenarios. These factors include, but are not limited to expected increases in income associated with the expected increase in production volume that could result from a decrease in interest rates and changes in the asset, liability and derivative mix during interest rate changes. Consequently, the preceding simulation should not be viewed as a forecast, as it is reasonable to expect that actual results will vary significantly from the analyses discussed above.

The Company’s Board of Directors level and management level ALCOs monitor our hedging activities to determine whether the value of our hedge positions, their correlation to the balance sheet item being hedged, and the amounts being hedged, continue to provide adequate protection against interest rate risk. While there can be no assurances that our interest rate management strategies will be effective, we believe we have adequate internal controls to monitor and manage our interest rate risk within reasonable levels.

CREDIT RISK AND RESERVES

GENERAL

The following table summarizes the Company’s allowance for loan losses/ credit discounts and non-performing assets as of June 30, 2003.


					Allowance								QTD Net			YTD Net
					for Loan		Total Reserves						Charge			Charge
					Losses/Credit		as a Percentage			Non-Performing			Offs/Net			Offs/Net
Type of Loan			Book Value		Discounts		of Book Value			Assets			REO (Gains)			REO (Gains)


			(Dollars in thousands)
Held for investment portfolio
SFR mortgage loans and HELOCs			$	2,866,833	$	16,432		0.57	%	$	11,059		$	691		$	1,857
Land and other mortgage				94,165		3,178		3.37	%		2,214			—			—
Builder construction and income property				556,163		12,332		2.22	%		1,605			3,066			3,066
Consumer construction				988,020		10,404		1.05	%		10,654			421			570

	Total core held for investment loans			4,505,181		42,346		0.94	%		25,532			4,178			5,493
	Discontinued product lines(1)			84,031		7,696		9.16	%		7,126			2,926			5,226

		Total held for investment portfolio		4,589,212		50,042		1.09	%		32,658			7,104			10,719
Held for sale portfolio				3,155,163		11,076		0.35	%		30,054			—			—

		Total loans	$	7,744,375	$	61,118		0.79	%		62,712		$	7,104		$	10,719

Foreclosed assets
Core portfolios											29,587		$	(922	)	$	(1,225	)
Discontinued product lines											1,441			133			(136	)

Total foreclosed assets											31,028		$	(789	)	$	(1,361	)

Total non-performing assets										$	93,740

Total non-performing assets as a percentage of total assets											0.88	%

(1) Discontinued product lines include manufactured home loans, home improvement loans and warehouse lines of credit.

The following tables provide additional comparative data on non-performing assets relative to the allowance for loan losses.


				June 30,			June 30,			December 31,
				2003			2002			2002


				(Dollars in thousands)
Loans held for investment
	Portfolio loans
		SFR mortgage loans		$	11,059		$	21,512		$	15,097
		Land and other mortgage loans			2,214			9,581			8,376
		Builder construction			1,605			13,363			9,275
		Consumer construction			10,654			9,426			10,257

			Total portfolio non-performing loans		25,532			53,882			43,005
	Discontinued product lines				7,126			11,669			10,005

Total non-performing loans held for investment					32,658			65,551			53,010
Non-performing loans held for sale					30,054			10,889			10,626

			Total non-performing loans		62,712			76,440			63,636
Foreclosed assets					31,028			21,569			36,526

			Total non-performing assets	$	93,740		$	98,009		$	100,162

Total non-performing assets to total assets					0.88	%		1.32	%		1.05	%

Allowance for loan losses to non-performing loans held for investment					153	%		81	%		96	%

The following shows the activity in the allowance for loan losses during the indicated periods:



			Three Months Ended						Six Months Ended

			June 30,			June 30,			June 30,			June 30,
			2003			2002			2003			2002


			(Dollars in thousands)
Core portfolio loans
Balance, beginning of period			$	41,524		$	42,202		$	41,314		$	41,771
Provision for loan losses				5,000			2,127			6,525			4,303
Charge-offs net of recoveries
		SFR mortgage loans		(691	)		(971	)		(1,857	)		(1,743	)
		Land and other mortgage loans		—			—			—			—
		Builder construction		(3,066	)		—			(3,066	)		(973	)
		Consumer construction		(421	)		(102	)		(570	)		(102	)

	Charge-offs net of recoveries			(4,178	)		(1,073	)		(5,493	)		(2,818	)
	Transfers to held for sale portfolio			—			(3,158	)		—			(3,158	)

Balance, end of period				42,346			40,098			42,346			40,098
Discontinued product lines
Balance, beginning of period				8,722			14,700			9,447			15,929
Provision for loan losses				1,900			1,441			3,475			3,451
	Charge-offs net of recoveries			(2,926	)		(3,261	)		(5,226	)		(6,500	)

Balance, end of period				7,696			12,880			7,696			12,880

		Total allowance for loan losses	$	50,042		$	52,978		$	50,042		$	52,978

Net charge-offs to average loans				0.11	%		0.13	%		0.18	%		0.26	%
Net charge-offs to quarterly production				0.09	%		0.06	%		0.07	%		0.08	%
Core portfolio loans only:
Net charge-offs to average loans				0.07	%		0.03	%		0.09	%		0.08	%
Net charge-offs to quarterly production				0.05	%		0.02	%		0.04	%		0.03	%

Total credit-related reserves, including the allowance for loan losses and the lower of cost or market valuations, amounted to $61.1 million at June 30, 2003, compared to $57.7 million at December 31, 2002. The allowance for loan losses of $50.0 million for loans held for investment at June 30, 2003 represented 1.09% of total loans held for investment. This compares to an allowance for loan losses of $50.7 million, or 1.28% of total loans held for investment, at December 31, 2002. Net charge-offs decreased from 0.12% of average loans during the fourth quarter of 2002 to 0.07% of average loans during the second quarter of 2003.

Our overall asset quality improved from non-performing assets to total assets of 1.05% at December 31, 2002 to 0.88% at June 30, 2003. Total non-performing assets decreased by $6.5 million, from $100.2 million at December 31, 2002 to $93.7 million at June 30, 2003. Non-performing loans in our held for investment portfolio decreased $20.4 million compared to December 31, 2002. The improvement was due to liquidation of non-performing loans and transfers to foreclosed assets. Overall foreclosed assets decreased $5.5 million during the first half of 2003 primarily due to sales of these assets. These decreases were partially offset by the increase in non-performing loans held for sale of $19.4 million from $10.6 million at December 31, 2002. The increase in non-performing loans held for sale is a result of the loans acquired through clean up calls exercised during the second quarter 2003. The clean up call non-performing loans amounted to $16.7 million at June 30, 2003, which accounted for 55% of the total non-performing loans held for sale.

As master servicer for our various securitizations, we retain the right to call the securities when the outstanding loan balance in the securitization trust declines to a specified level, typically 10%, of the original balance. When the fair value of loans remaining within a securitization exceeds the expected losses on nonperforming loans and the cost of exercise, we will typically exercise our option to call. We called a total of $272.6 million loans during the second quarter of 2003. A portion of the loans we acquired pursuant to clean-up calls was delinquent or non-performing. At June 30, 2003, non-performing assets acquired through clean-up calls amounted to $19.4 million, which are primarily classified as loans held for sale at June 30, 2003. We anticipate that approximately $500 million in loans will be eligible for clean-up calls during the remainder of 2003. Therefore, it is possible that the absolute levels of non-performing loans held by us may increase temporarily between the time of the call exercise and the disposition of these loans.

With respect to the portfolio of loans held for investment in IndyMac’s core businesses, the allowance for loan losses at June 30, 2003 was $42.3 million or 0.94% of loan balance, compared to 1.50% of total loan balance at June 30, 2002. The overall asset quality improved due to decreases in non-performing loans held-for-investment and disposition of foreclosed assets. Non-performing loans decreased by $28.4 million from $53.9 million at June 30, 2002 to $25.5 million at June 30, 2003. Charge-offs in our core loans held for investment portfolio in the second quarter of 2003 included a $3.1 million charge-off on one large builder construction loan, forecasted in prior disclosures. Charge-offs in the second half of 2003 are expected to approximate the charge-offs for the six months ended June 30, 2003.

With respect to IndyMac’s non-core liquidating portfolios, consisting primarily of manufactured housing and home improvement loans, net charge-offs totaled $2.9 million during the second quarter of 2003, down from the $3.3 million of charge-offs on these portfolios during the second quarter of 2002. After provision for loan losses of $1.9 million, the allowance for loan losses was $7.7 million, or 9.2% of the remaining principal balance of such liquidating portfolios, compared to the 11.8% reserve coverage at June 30, 2002.

Our determination of the level of the allowance for loan losses and, correspondingly, the provision for loan losses, is based on management’s judgments and assumptions regarding various matters, including general economic conditions, loan portfolio composition, delinquency trends and prior loan loss experience. In assessing the adequacy of the allowance for loan losses, management reviews the performance in the portfolios of loans held for investment and the non-core portfolio of discontinued product lines which consists primarily of manufactured housing loans and home improvement loans.

While we consider the allowance for loan losses to be adequate based on information currently available, future adjustments to the allowance may be necessary due to changes in economic conditions, delinquency levels, foreclosure rates, or loss rates. The level of our allowance for loan losses is also subject to review by our federal regulator, the Office of Thrift Supervision (“OTS”). Our regulator may require that our allowance for

loan losses be increased based on their evaluation of the information available to them at the time of their examination of the Bank.

With respect to mortgage loans held for sale, IndyMac does not provide an allowance for loan losses, pursuant to the applicable accounting rules. Instead, a component for credit risk related to loans held for sale is embedded in the lower of cost or market valuation for these loans. The lower of cost or market on loans held for sale totaled $11.1 million at June 30, 2003. The increase in non-performing loans held for sale was largely due to the delinquent loans acquired as part of the clean-up calls exercised by the Company during the second quarter 2003. Therefore, the increase in non-performing loans is not related to our core lending portfolios and is expected to be temporary until the disposition of these loans.

SECONDARY MARKET RESERVES

We do not sell loans with recourse in our loan sale activities. However, we can be required to repurchase loans from investors when our loan sales contain individual loans that are not in conformity with the representations and warranties we make at the time of sale. We have made significant investments in our pre-production and post-production quality control processes to identify potential systemic issues that could cause repurchases. We believe that these efforts have improved our production quality; however, increases in default rates due to an economic slowdown could cause the overall rate of repurchases to remain constant or even increase. Since inception in 1993, the Company has repurchased only a very small amount of loans from its securitization trusts. The increase in repurchase activity in recent years has been primarily a function of IndyMac’s diversification of its loan sale channels to whole loan and GSE sales. While sales through these channels generate enhanced cash flows, they tend to have a greater level of representation and warranty risk. The following table shows the amount of loans we have repurchased from each distribution channel, since the Company began active lending operations in January 1993.


			Amount				Percentage
			Repurchased		Total Sold		Repurchased


			(Dollars in millions)
Loans sold:
	GSEs and whole loans		$	74.1	$	45,284		0.16	%
	Securitization trusts			7.7		41,422		0.02	%

		Total	$	81.8	$	86,706		0.09	%

The Company maintains secondary market reserves for losses that arise in connection with loans that we are required to repurchase from whole loan sales or securitization transactions. These reserves, which totaled $30.1 million at June 30, 2003, have two general components: reserves for repurchases arising from representation and warranty claims, and reserves for disputes with investors and vendors with respect to contractual obligations pertaining to mortgage operations. The table below shows the activity in the reserves during the three and six months ended June 30, 2003.


	Three			Six
	Months			Months


	(Dollars in thousands)
Balance, beginning of period	$	34,171		$	37,636
Additions/provisions		7,767			11,811
Claims reimbursement and estimated discounts on loans held for sale/charge-offs		(11,838	)		(19,347	)

Balance, June 30, 2003	$	30,100		$	30,100

Reserve levels are a function of expected losses based on actual pending claims and repurchase requests, historical experience, loan volume and loan sales distribution channels and the assessment of probable vendor or investor claims. While the ultimate amount of repurchases and claims is uncertain, management believes that the reserves are adequate. The Company will continue to evaluate the adequacy of our reserves and may

continue to allocate a portion of its gain on sale proceeds to these reserves going forward. The entire balances of our secondary market reserves are included on the consolidated balance sheets as a component of other liabilities.

OPERATING EXPENSES

A summary of operating expenses follows:



	Three Months Ended						Six Months Ended

	June 30,		June 30,		March 31,		June 30,		June 30,
	2003		2002		2003		2003		2002


	(Dollars in thousands)
Salaries and related	$	57,030	$	47,188	$	53,094	$	110,125	$	96,723
Premises and equipment		8,138		7,741		8,306		16,444		14,594
Loan purchase costs		7,810		4,668		7,058		14,868		8,516
Professional services		5,086		5,017		4,610		9,696		9,811
Data processing		8,131		4,803		6,764		14,895		9,365
Office		5,860		4,248		5,260		11,120		8,181
Advertising and promotion		6,580		2,772		6,064		12,644		5,382
Operations and sale of foreclosed assets		794		968		956		1,750		977
Other		5,329		3,297		3,546		8,874		6,707

	$	104,758	$	80,702	$	95,658	$	200,416	$	160,256

General and administrative expenses, including salaries, increased during the three months ended June 30, 2003 to $104.8 million, compared to $80.7 million during the same period in 2002, as the Company has continued to build new product lines and channels and infrastructure and to open new locations to support its projected continued growth in its operations. This is evident in the 41.7% increase in the Company’s average full-time equivalent employees from 2,473 for the three months ended June 30, 2002 to 3,505 for the three months ended June 30, 2003. The Company has also made investments to: (1) enhance its quality controls and compliance structure to ensure continued improvement in asset quality and support the growth of higher margin products; (2) strengthen its technology platform; (3) expand its sales force infrastructure with dedicated resources focused on new customer activation, customer training and support, and improve its conversion of loan submissions to fundings; and, (4) enhance its customer service response performance.

DIVIDEND POLICY

Based on IndyMac’s strong operating performance and strong financial position, including earnings, capital and liquidity and its commitment to shareholder value, IndyMac’s Board of Directors declared a cash dividend of $0.15 per share, up 50%, from $0.10 per share in the previous quarter. The cash dividend is payable September 18, 2003 to shareholders of record on August 14, 2003. This increased dividend now represents a payout ratio of 21%, up from a payout ratio of 14% previously.

FUTURE OUTLOOK

On average, U.S. mortgage debt outstanding has grown approximately 7% to 8% per year over the last twenty years and is projected, based on economic demographics, to continue this level of growth over the next decade. At this rate, mortgage debt outstanding roughly doubles every decade. Since the inception of its operating business plan 10 years ago in January 1993 IndyMac has grown earnings at a compounded annual growth rate of 39% and EPS at a compounded annual growth rate of 28%. We believe, as a result of our business model, employees, current market share, capital strength and historic performance, that we can achieve growth at approximately two times the industry rate, or approximately 15% over the intermediate term. Our results are nonetheless subject to a variety of factors that are not within our control, including those

referred to under “Forward-Looking Statements,” elsewhere in this report and in our annual, quarterly and other reports filed with the Securities and Exchange Commission.

For 2003, the Company expects that earnings per share will grow 12% to 16% compared to 2002. However, the mortgage banking industry is cyclical in nature and can fluctuate materially on a near term basis. The environment of historically low interest rates over the past two years has been very favorable for mortgage bankers such as IndyMac. It is possible that as the industry transitions to a higher interest rate environment, the Company could see lower levels of growth, or even a reduction in earnings per share, given the volatility of the industry. The Company expects, however, that its annual growth rate will normalize at around 15% over the intermediate term.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

At June 30, 2003, we had operating liquidity of $1.3 billion, which is represented by unpledged liquid assets on hand plus amounts that may be immediately raised through the pledging of other available assets as collateral pursuant to committed financing facilities. We currently believe that our liquidity level is in excess of that necessary to satisfy our operating requirements and meet our obligations and commitments in a timely and cost effective manner.

PRINCIPAL SOURCES OF CASH

Our principal financing needs are to fund acquisitions of mortgage loans and our investment in mortgage loans, mortgage-backed securities and MSRs. Our primary sources of funds used to meet these financing needs are loan sales and securitizations, deposits, advances from the Federal Home Loan Bank, other borrowings and retained earnings. The sources used vary depending on such factors as rates paid, maturities and the impact on our capital.

Loan Sales and Securitizations

Our business model relies heavily upon selling the majority of our mortgage loans shortly after acquisition. The proceeds of these sales are a critical component of the liquidity necessary for our ongoing operations. During the three months ended June 30, 2003, we sold our loans through three channels: (1) GSEs; (2) private label securitizations; and, (3) whole loan sales. If any of our sales channels were disrupted, our liquidity could be negatively impacted. Disruptions in our whole loan sales and mortgage securitization transactions can occur as a result of the performance of our existing securitizations, as well as economic events or other factors beyond our control.

Deposits/ Retail Bank

We solicit deposits from the general public and institutions by offering a variety of accounts and rates through our network of 10 branches in Southern California, telebanking, and internet channels. Through our web site at www.indymacbank.com, consumers can access their accounts 24-hours a day, seven days a week. Online banking allows customers to access their accounts, view balances, transfer funds between accounts, view transactions, download account information and pay their bills conveniently from any computer terminal.

Our deposit products include regular savings accounts, demand deposit accounts, money market accounts, certificates of deposit and individual retirement accounts.

The following table sets forth the balance of deposits, by deposit category, as of the following period ends:



		June 30, 2003					June 30, 2002					December 31, 2002

				% of					% of					% of
				Total					Total					Total
		Amount		Deposits			Amount		Deposits			Amount		Deposits


		(Dollars in thousands)
Noninterest-bearing checking		$	40,483		1	%	$	34,444		1	%	$	38,430		1	%
Interest-bearing checking			37,256		1	%		36,212		1	%		37,867		1	%
Savings			1,225,707		32	%		497,908		18	%		635,608		21	%
Custodial accounts			716,578		18	%		252,873		9	%		497,462		16	%

	Total core deposits		2,020,024		52	%		821,437		29	%		1,209,367		39	%
Certificates of deposit			1,883,461		48	%		1,984,698		71	%		1,931,135		61	%

	Total deposits	$	3,903,485		100	%	$	2,806,135		100	%	$	3,140,502		100	%

The following table sets forth the balance of deposits, by deposit channel, as of the following period ends:



		June 30, 2003					June 30, 2002					December 31, 2002

				% of					% of					% of
				Total					Total					Total
		Amount		Deposits			Amount		Deposits			Amount		Deposits


		(Dollars in thousands)
Branch		$	1,526,351		39	%	$	1,223,829		44	%	$	1,297,668		41	%
Telebanking			488,575		13	%		567,624		20	%		489,977		16	%
Internet			476,645		12	%		344,084		12	%		338,830		11	%
Money desk			695,336		18	%		417,725		15	%		516,565		16	%
Custodial			716,578		18	%		252,873		9	%		497,462		16	%

	Total deposits	$	3,903,485		100	%	$	2,806,135		100	%	$	3,140,502		100	%

Included in deposits at June 30, 2003 and December 31, 2002 were non-interest bearing custodial accounts, primarily related to our GSE servicing portfolio, totaling $716.6 million and $497.5 million, respectively.

Advances from Federal Home Loan Bank

The Federal Home Loan Bank system functions as a borrowing source for regulated financial depositories and similar institutions that are engaged in residential housing finance. As a member of the FHLB of San Francisco, we are required to own capital stock of the FHLB and are authorized to apply for advances from the FHLB, on a secured basis, in amounts determined by reference to available collateral. SFR mortgage loans, agency and AAA-rated mortgage-backed securities are the principal collateral that may be used to secure these borrowings, although certain other types of loans and other assets may also be accepted pursuant to FHLB policies and statutory requirements. Currently, the Bank is approved for collateralized advances of up to $4.2 billion, of which $3.5 billion were outstanding at June 30, 2003. The FHLB offers several credit programs, each with its own fixed or floating interest rate, and a range of maturities.

Trust Preferred Securities and Warrants

On November 14, 2001, we completed an offering of Warrants and Income Redeemable Equity Securities to investors. Gross proceeds of the transaction were $175 million. The securities were offered as units consisting of a trust preferred security, issued by a trust formed by us, and a warrant to purchase IndyMac Bancorp’s common stock. The proceeds from the offering are used in ongoing operations and will fund future growth and/or repurchases of IndyMac Bancorp stock under its share repurchase program. Upon the adoption of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of

Accounting Research Bulletin (ARB ) No. 51, on July 1, 2003, the trust has been deconsolidated from the financial statements of the Company, which will not have a significant impact on our consolidated financial statements.

We issued an additional $30 million of 6.05% trust preferred securities in July 2003, the proceeds of which will also be used in operations. These securities did not contain any warrants on IndyMac Bancorp common stock.

Other Borrowings

Other borrowings consist of loans and securities sold under committed financing facilities and uncommitted agreements to repurchase. Total other borrowings decreased to $1.8 billion at June 30, 2003, from $2.5 billion at December 31, 2002. The decrease of $700 million was the result of using funds generated from sales of loans and securities, an increase in FHLB advances and an increase in savings deposits, instead of borrowings to fund mortgage loans originated during the three months ended June 30, 2003.

At June 30, 2003, we had $2.9 billion in committed financing facilities, of which $1.1 billion was utilized and $827.5 million was available to use, based on eligible collateral. Decisions by our lenders and investors to make additional funds available to us in the future will depend upon a number of factors. These include our compliance with the terms of existing credit arrangements, our financial performance, eligible collateral, changes in our credit rating, industry and market trends in our various businesses, the general availability and interest rates applicable to financing and investments, the lenders’ and/or investors’ own resources and policies concerning loans and investments and the relative attractiveness of alternative investment or lending opportunities.

PRINCIPAL USES OF CASH

In addition to the financing sources discussed above, cash uses are funded by net cash flows from operations, sales of mortgage-backed securities and principal and interest payments on loans and securities.

As a financial institution, the lending and borrowing functions are integral parts of our business. When evaluating our sources and uses of cash, we consider cash used to grow our investments, and the borrowings used to finance those investments, separately from the Company’s operating cash flows. Our most significant use of cash is for the acquisition of mortgage loans and securities. In accordance with accounting principles generally accepted in the United States of America (“US GAAP”), purchases of loans held for sale and trading securities, net of sales of such loans and securities, are required to be included in our consolidated statements of cash flows (see page 52) as a component of net cash used in operating activities, whereas the borrowings used to fund a substantial portion of such loan and securities purchases are required to be recorded in our cash flow statements as a component of net cash provided by financing activities. The amounts of net purchases of loans held for sale and trading securities included as components of net cash (used in)/provided by operating activities totaled ($1.3) billion during the six months ended June 30, 2003 and $360.1 million during the six months ended June 30, 2002. Excluding the purchase and sale activities for loans held for sale and trading securities, the net cash provided by the Company’s operating activities totaled $154.1 million and $54.0 million for the six months ended June 30, 2003 and 2002, respectively.

ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss was $(29.4) million at June 30, 2003, compared to ($17.7) million at December 31, 2002. This change was a result of: (1) the decline in value of securities classified as available for sale; and, (2) the decline in fair value of certain interest rate swaps designated as cash flow hedges of floating rate borrowings and does not include related increases in the fair value of loans held for investment that are funded by borrowings that are hedged by these interest rate swaps. Accumulated Other Comprehensive Loss is not a component of the determination of regulatory capital.

REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to regulatory capital regulations administered by the federal banking agencies. In addition, as a condition to its approval of our acquisition of SGV Bancorp, Inc. in July 2000, the OTS required that the Bank hold Tier 1 (core) capital of at least 8% of adjusted assets for three years following the consummation of the transaction and maintain a total risk-based capital position of at least 10% of risk-weighted assets. This particular condition expired on July 1, 2003 and the Bank has committed to the OTS to maintain total risk-based capital and Tier 1 risk-based capital (core capital minus the deduction for low-level recourse and residual interests) equal to at least 10% and 6%, respectively, of risk-weighted assets. As of June 30, 2003, the Bank met all of the requirements of a “well-capitalized” institution under the general regulatory capital regulations as well as the additional requirements of the OTS approval condition, which expired on July 1, 2003.

During 2001, the OTS issued guidance for subprime lending programs, which requires a lender to quantify the additional risks in its subprime lending activities and determine the appropriate amounts of allowances for loan losses and capital it needs to offset those risks. The OTS guidance suggests that subprime portfolios be supported by capital equal to one and one-half to three times greater than what is appropriate for similar prime assets. The OTS has accepted the Bank’s approach to conform to this guidance, which is based on the secondary market and rating agency securitization models. We segment the subprime loans into categories based on quantifiable, increasing risk levels. Category I includes all subprime loans with 1.0% to 1.5% estimated lifetime loss; Category II includes all subprime loans with 1.5% to 2.0% estimated lifetime loss; and Category III includes all subprime loans with greater than 2.0% estimated lifetime loss. These categories are risk-weighted for capital purposes at 150%, 200% and 300% of the standard risk weighting for the asset type, respectively. We report our subprime loan calculation in an addendum to the Thrift Financial Report that we file with the OTS. The levels and balances within each level were as follows at June 30, 2003:


		06/30/03		Multiple of Standard		Risk-Based
		Balance		Risk Weighting		Capital %


		(Dollars in thousands)
Category I		$	361,215		1.5		10	%
Category II			92,748		2.0		12	%
Category III			240,197		3.0		22	%

	Total subprime	$	694,160				15	%

As of June 30, 2003, $436.6 million or 71.5% of our subprime loans are held for sale as calculated for regulatory reporting purposes.

The following table presents the Bank’s actual and required capital ratios and the minimum required capital ratios to be categorized as “well-capitalized” at June 30, 2003. Because not all institutions have uniformly implemented the new subprime guidance, it is possible that IndyMac’s risk-based capital ratios will not be comparable to other institutions. The impact of the additional risk weighting criteria had the effect of reducing IndyMac’s risk-based capital by 124 basis points as noted in the table below.


		As Reported			Adjusted for
		Pre-Subprime			Additional Subprime			Well-Capitalized
		Risk-Weighting			Risk-Weighting			Minimum

Capital Ratios:
	Tangible		8.53	%		8.53	%		2.00	%
	Tier 1 core		8.53	%		8.53	%		5.00	%
	Tier 1 risk-based		13.79	%		12.62	%		6.00	%
	Total risk-based		14.46	%		13.22	%		10.00	%

The ratios above do not include $40.8 million of unencumbered cash at IndyMac Bancorp that is available for contribution to the Bank’s regulatory capital. Including the excess capital held by the Bank and such cash, we had $97.2 million of total excess capital at June 30, 2003. Excess capital would increase to

$258.9 million using the general well-capitalized minimums. The additional capital requirements of the OTS approval condition for our acquisition of SGV Bancorp expired on July 1, 2003. As a result, the Bank became subject to the less stringent general well-capitalized minimums.

We believe that, under current regulations, the Bank will continue to meet its “well-capitalized” minimum capital requirements in the foreseeable future. The Bank’s regulatory capital compliance could be impacted, however, by a number of factors, such as changes to applicable regulations, adverse action by our regulators, changes in the Bank’s mix of assets, interest rate fluctuations or significant changes in the economy in areas where the Bank has most of its loans. Any of these factors could cause our actual future results to vary from anticipated future results and consequently could have an adverse impact on the ability of the Bank to meet its future minimum capital requirements.

OFF-BALANCE SHEET ARRANGEMENTS

We are party to various transactions that have an off-balance sheet component. In connection with our securitization transactions that have been structured as sales, there are $11.4 billion in loans owned by off-balance sheet trusts as of June 30, 2003. The trusts have issued bonds secured by these loans. We have no obligation to provide funding support to either the third party investors or the off-balance sheet trusts. The third party investors or the trusts generally have no recourse to our assets or us and have no ability to require us to repurchase their securities other than for non-credit-related recourse that can arise under standard representations and warranties.

We often retain certain interests, which may include subordinated classes of securities, MSRs, AAA-rated and agency interest-only securities and residual securities in the securitization trust. The performance of the loans in the trusts will impact our ability to realize the current estimated fair value of these assets that are included on our balance sheet.

As of June 30, 2003, we have utilized various hedging instruments, including AAA-rated principal-only securities, buying and/or selling mortgage-backed or U.S. Treasury securities, futures, floors, swaps, and options, to reduce our interest-rate exposure on these assets. The hedging assets carried a fair value of $89.3 million at June 30, 2003.

CONTRACTUAL OBLIGATIONS

The following table summarizes our material contractual obligations as of June 30, 2003. The debt includes advances from Federal Home Loan Bank, other borrowings and trust preferred securities.



		Payment Due

		July 1, 2003		January 1, 2004		January 1, 2007
		through		through		through		After
		December 31, 2003		December 31, 2006		December 31, 2009		December 31, 2009


		(Dollars in thousands)
Debt		$	4,122	$	679	$	455	$	117
Operating Leases			7,750		40,274		23,335		19,299

	Total	$	11,872	$	40,953	$	23,790	$	19,416

KEY OPERATING RISKS

Like all businesses, we assume a certain amount of risk in order to earn returns on our capital. The following is a summary discussion of key operating risks. For further information on these and other key operating risks, refer to IndyMac’s annual report on Form 10-K for the year ended December 31, 2002.

INTEREST RATE RISK

Due to the characteristics of our financial assets and liabilities and the nature of our business activities, our financial position and results of operations may be materially affected by changes in interest rates in

various ways. While we have devised and implemented a comprehensive asset/ liability management strategy that seeks, on an economic and an accounting basis, to mitigate significant fluctuations in our financial position and results of operations likely to be caused by market interest rate changes, there can be no assurance that this strategy (including assumptions concerning the correlation thought to exist among different types of instruments) or its implementation will be successful in any particular interest rate environment.

VALUATION RISK

In connection with the loan sale process, we retain certain assets for which the market is limited and illiquid. As a result, valuations are derived using complex modeling and significant assumptions and judgments, in the absence of third party market quotations or sale information to value such assets. The assets include AAA-rated and agency interest-only securities, MSRs, non-investment grade securities and residuals. In addition, from time to time, we may acquire these types of securities from third party issuers. These assets represented 5% of total assets and 60% of total equity at June 30, 2003. The fair value of these assets could vary significantly as market conditions change.

CREDIT RISK

A significant portion of our Investment Portfolio consists of prime residential SFR loans held for investment, and non-investment grade securities and residuals collateralized by mortgage loans. We also provide construction lending to consumers and developers to build residential properties. The credit risk profile on consumer loans is very similar to that of our permanent mortgage loans, while builder construction loans tend to have a higher credit risk profile than permanent mortgage loans. While the majority of our loans are to prime quality borrowers and secured by residential property, there is no guarantee that, in the event of borrower default, we will be able to recoup the full principal amount and interest due on a loan. We have adopted underwriting and loan quality monitoring systems, procedures and credit policies, including the establishment and review of the allowance for loan losses, that management believes are prudent and appropriate to minimize this risk by tracking loan performance, assessing the likelihood of nonperformance and diversifying our loan portfolio. Such policies and procedures, however, may not prevent unexpected losses that could adversely affect our results. In addition, while we have discontinued our home improvement and manufactured housing lending programs, we continue to liquidate portfolios of these loans, which have greater credit risk than that of our core mortgage loan portfolios. At June 30, 2003, the book value of these non-core portfolios was $76.3 million, net of reserves.

We also sell loans to GSEs, to outside investors, and to securitization trusts. In these instances, we are subject to repurchase risk in the event of breaches of representations or warranties we make in connection with the loan sales. While we have established what we believe to be adequate secondary marketing reserves, there can be no guarantee that the amount reserved is sufficient to cover all potential losses resulting from such repurchases.

LIQUIDITY RISK/ ACCESS TO CAPITAL MARKETS

We finance a substantial portion of our assets through consumer deposits insured by the Federal Deposit Insurance Corporation (“FDIC”) and through borrowings from the FHLB. We also obtain financing from investment and commercial banks. There is no guarantee that these sources of funds will continue to be available to us, or that our borrowings can be refinanced upon maturity, although we are not aware of any trends, events or uncertainties that we believe are reasonably likely to cause a decrease in our liquidity from these sources.

We utilize three sales channels to sell loans to the secondary market: whole loan sales, sales to the GSEs, and private-label securitizations. A disruption in the securitization market could adversely impact our ability to fund mortgage loans and our gains on sale, leading to a corresponding decrease in revenue and earnings. Likewise, a deterioration in the performance of our private-label securities could adversely impact the availability and pricing of future transactions.

GOVERNMENT REGULATION AND MONETARY POLICY

The banking industry in general is extensively regulated at the federal and state levels. Insured depository institutions and their holding companies are subject to comprehensive regulation, supervision, and examination by financial regulatory authorities covering all aspects of their organization, management and operations. The OTS and the FDIC are the primary federal regulatory agencies for us and our affiliated entities. In addition to their regulatory powers, these two agencies also have significant enforcement authority that they can use to address unsafe and unsound banking practices, violations of laws, and capital and operational deficiencies. Accordingly, the actions of those governmental authorities responsible for regulatory, fiscal and monetary affairs can have a significant impact on the activities of financial services firms such as ours. Our operations are also subject to regulation at the state level, including a variety of consumer protection provisions. Banking institutions are further affected by the various monetary and fiscal policies of the U.S. government, which can influence financial regulatory actions.

COMPETITION

We face significant competition in acquiring and selling loans. In our mortgage banking operations, we compete with other mortgage bankers, GSEs, established third party lending programs, investment banking firms, banks, savings and loan associations, and other lenders and entities purchasing mortgage assets. With regard to mortgage-backed securities issued through our mortgage banking operations, we face competition from other investment opportunities available to prospective investors. We estimate our market share of the U.S. mortgage market to be less than 1%. A number of our competitors have significantly larger market share and financial resources. While we believe our small market share creates opportunities for growth, there is no assurance that we can effectively compete with these entities in the future.

The GSEs have made and we believe will continue to make significant technological and economic advances to broaden their customer bases. When the GSEs contract or expand, there are both positive and negative impacts on our mortgage banking lending operations. As GSEs expand, additional liquidity is brought to the market, and loan products can be resold more quickly. Conversely, expanding GSEs increase competition for loans, which may reduce profit margins on loan sales. We seek to address these competitive pressures by making a strong effort to maximize our use of technology, by diversifying into other residential mortgage products that are less affected by GSEs, and by operating in a more cost-effective manner than our competitors. There can be no assurance that these efforts will be successful.

The primary competition for our Mortgage Banking Group comes from banks and other financial institutions and mortgage companies. We seek to compete with financial institutions and mortgage companies through an emphasis on quality of service, diversified products and maximum use of technology.

OTHER RISKS

We are subject to various other risks, including changes in the demand for mortgage loans, which historically tends to decrease as interest rates increase. Also, a majority of our loan acquisitions are geographically concentrated in certain states, including California, New York, Florida and New Jersey. Any adverse economic conditions in these markets could cause the number of loans acquired to decrease and delinquencies to increase, causing a corresponding decline in revenues. Lastly, there are no guarantees as to our degree of success in managing loan portfolio concentrations, anticipating and taking advantage of technological advances, or executing upon our growth plans for our mortgage banking operations.

CRITICAL ACCOUNTING POLICIES

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified five policies, that, due to the judgments, estimates and assumptions inherent in those policies are critical to an understanding of our financial statements. These policies relate to: (1) the valuation of AAA-rated and agency interest-only securities; (2) the valuation of MSRs; (3) the valuation of non-investment grade securities and

residuals; (4) the methodology for determining our allowance for loan losses; and, (5) the valuation of our secondary market reserves. Management discusses these critical accounting policies and related judgments with IndyMac’s audit committee and external auditors on a quarterly basis. We believe that the judgments, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. For further information on the Company’s critical accounting policies, refer to IndyMac’s annual report on Form 10-K for the year ended December 31, 2002.


ITEM 3.	*QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK*

See “Overall Interest Rate Risk Management” above for quantitative and qualitative disclosure about market risk on page 34.


ITEM 1.	*FINANCIAL STATEMENTS*

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


					June 30,			December 31,
					2003			2002

					(Unaudited)

					(Dollars in thousands)
ASSETS
Cash and cash equivalents					$	408,821		$	196,720
Securities classified as trading ($69.0 million and $472.0 million pledged as collateral for repurchase agreements at June 30, 2003 and December 31, 2002, respectively)						266,784			765,883
Mortgage-backed securities available for sale, amortized cost of $1.2 billion and $1.6 billion at June 30, 2003 and December 31, 2002, respectively ($1.1 billion and $974.2 million pledged as collateral for repurchase agreements at June 30, 2003 and December 31, 2002, respectively)						1,158,739			1,573,210
Loans receivable:
	Loans held for sale
		Prime				2,572,722			1,939,780
		Subprime				440,695			213,405
		Consumer lot loans				130,670			74,498

			Total loans held for sale			3,144,087			2,227,683
	Loans held for investment
		SFR mortgage				2,465,393			2,096,517
		Land and other mortgage				94,166			130,454
		Builder construction				509,196			482,408
		Consumer construction				988,020			875,335
		Income property				46,966			64,053
		HELOC				485,471			312,881
	Allowance for loan losses					(50,042	)		(50,761	)

			Total loans held for investment			4,539,170			3,910,887

				Total loans receivable ($1.7 billion pledged as collateral for repurchase agreements at June 30, 2003 and December 31, 2002)		7,683,257			6,138,570
Mortgage servicing rights						335,727			300,539
Investment in Federal Home Loan Bank stock, at cost						232,345			155,443
Interest receivable						47,625			47,089
Goodwill and other intangible assets						34,101			34,549
Foreclosed assets						31,028			36,526
Other assets						462,968			325,925

				Total assets	$	10,661,395		$	9,574,454

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS — (Continued)


			June 30,			December 31,
			2003			2002

			(Unaudited)

			(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits			$	3,903,485		$	3,140,502
Advances from Federal Home Loan Bank				3,452,834			2,721,783
Other borrowings				1,803,044			2,491,715
Trust preferred securities				117,097			116,819
Other liabilities				472,376			253,670

		Total liabilities		9,748,836			8,724,489
Shareholders’ Equity
	Preferred stock — authorized, 10,000,000 shares of $0.01 par value; none issued			—			—
	Common stock — authorized, 200,000,000 shares of $0.01 par value; issued 84,517,758 shares (55,364,271 outstanding) at June 30, 2003 and issued 83,959,547 shares (54,829,486 outstanding) at December 31, 2002			845			840
	Additional paid-in-capital			1,015,314			1,007,936
	Accumulated other comprehensive loss			(29,356	)		(17,747	)
	Retained earnings			444,975			377,707
	Treasury stock, 29,153,487 shares and 29,130,061 shares at June 30, 2003 and December 31, 2002, respectively			(519,219	)		(518,771	)

		Total shareholders’ equity		912,559			849,965

		Total liabilities and shareholders’ equity	$	10,661,395		$	9,574,454

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS



			For the Three Months					For the Six Months
			Ended June 30,					Ended June 30,

			2003			2002		2003			2002


			(Unaudited)
			(Dollars in thousands, except per share data)
Interest income
Mortgage-backed and other securities			$	16,111		$	27,933	$	37,072		$	56,815
Loans held for sale
	Prime			43,344			26,102		80,768			59,429
	Subprime			7,142			2,271		13,386			5,687
	Consumer lot loans			1,974			—		3,507			—

		Total loans held for sale		52,460			28,373		97,661			65,116
Loans held for investment
	SFR mortgage			30,458			22,782		59,973			46,016
	Land and other mortgage			1,792			6,194		4,093			12,554
	Builder construction			8,682			9,438		17,283			19,731
	Consumer construction			14,639			13,949		29,035			27,926
	Income property			1,086			1,487		2,205			2,593
	HELOC			4,951			1,819		9,098			3,124

		Total loans held for investment		61,608			55,669		121,687			111,944
Other				2,298			1,585		4,254			3,367

		Total interest income		132,477			113,560		260,674			237,242
Interest expense
Deposits				21,950			26,828		43,638			58,136
Advances from Federal Home Loan Bank				28,308			25,004		53,866			49,393
Trust preferred securities				2,765			2,757		5,528			5,513
Other borrowings				11,939			9,768		27,102			21,243

		Total interest expense		64,962			64,357		130,134			134,285

		Net interest income		67,515			49,203		130,540			102,957
Provision for loan losses				6,900			3,568		10,000			7,754

		Net interest income after provision for loan losses		60,615			45,635		120,540			95,203
Other income
	Gain on sale of loans			102,146			71,280		185,929			148,746
	Service fee (loss) income			(1,401	)		6,405		982			14,227
	(Loss)gain on mortgage-backed securities, net			(9,258	)		2,701		(16,168	)		(4,287	)
	Fee and other income			21,251			12,680		38,979			26,289

		Total other income		112,738			93,066		209,722			184,975

		Net revenues		173,353			138,701		330,262			280,178
Other expense
	Operating expenses			104,758			80,702		200,416			160,256
	Amortization of other intangible assets			217			280		448			579

		Total other expense		104,975			80,982		200,864			160,835

Earnings before provision for income taxes				68,378			57,719		129,398			119,343
	Provision for income taxes			27,009			23,145		51,112			48,750

		Net earnings	$	41,369		$	34,574	$	78,286		$	70,593

Earnings per share
	Basic		$	0.75		$	0.58	$	1.43		$	1.17
	Diluted		$	0.73		$	0.56	$	1.39		$	1.14
Weighted average shares outstanding
	Basic			55,015			60,050		54,922			60,139
	Diluted			56,711			61,763		56,345			61,903
Dividends declared per share			$	0.10			—	$	0.20			—

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


									Accumulated
									Other
						Additional			Comprehensive						Total						Total
	Shares			Common		Paid-In-			Income			Retained			Comprehensive			Treasury			Shareholders’
	Outstanding			Stock		Capital			(Loss)			Earnings			Income			Stock			Equity


	(Unaudited)
	(Dollars in thousands)
Balance at December 31, 2001		60,366,266		$	833	$	996,649		$	570		$	234,314		$	—		$	(387,228	)	$	845,138
Common stock options exercised		411,174			4		7,969			—			—			—			—			7,973
Net directors’ and officers’ notes (receivables)		—			—		(379	)		—			—			—			—			(379	)
Deferred compensation, restricted stock		17,040			—		857			—			—			—			—			857
Net loss on mortgage securities available for sale		—			—		—			8,772			—			8,772			—			8,772
Net unrealized loss on derivatives used in cash flow hedges		—			—		—			(3,970	)		—			(3,970	)		—			(3,970	)
Dividend reinvestment plan		1,341			—		33			—			—			—			—			33
Purchases of common stock		(1,545,189	)		—		—			—			—			—			(36,689	)		(36,689	)
Net earnings		—			—		—			—			70,593			70,593			—			70,593

Total comprehensive income		—			—		—			—			—		$	75,395			—			—

Balance at June 30, 2002		59,250,632		$	837	$	1,005,129		$	5,372		$	304,907					$	(423,917	)	$	892,328

Balance at December 31, 2002		54,829,486		$	840	$	1,007,936		$	(17,747	)	$	377,707		$	—		$	(518,771	)	$	849,965
Common stock options exercised		385,624			5		6,132			—			—			—			—			6,137
Net directors’ and officers’ notes payments		—			—		196			—			—			—			—			196
Deferred compensation, restricted stock		172,587			—		1,050			—			—			—			—			1,050
Net loss on mortgage securities available for sale		—			—		—			(7,014	)		—			(7,014	)		—			(7,014	)
Net unrealized loss on derivatives used in cash flow hedges		—			—		—			(4,595	)		—			(4,595	)		—			(4,595	)
Purchases of common stock		(23,426	)		—		—			—			—			—			(448	)		(448	)
Cash dividends		—			—		—			—			(11,018	)		—			—			(11,018	)
Net earnings		—			—		—			—			78,286			78,286			—			78,286

Total comprehensive income		—			—		—			—			—		$	66,677			—			—

Balance at June 30, 2003		55,364,271		$	845	$	1,015,314		$	(29,356	)	$	444,975					$	(519,219	)	$	912,559

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



				For the Six Months
				Ended June 30,

				2003			2002


				(Unaudited)
				(Dollars in thousands)
Cash flows from operating activities:
	Net earnings			$	78,286		$	70,593
	Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
		Total amortization and depreciation			99,159			62,733
		Provision for valuation adjustment of mortgage servicing rights			41,536			27,579
		Gain on sale of loans			(185,929	)		(148,746	)
		Loss on mortgage-backed securities, net			16,168			4,287
		Provision for loan losses			10,000			7,754
		Net decrease in other assets and liabilities			93,634			30,675

			Net cash provided by operating activities before activity for trading securities and held for sale loans		152,854			54,875
		Net sales (purchases) of trading securities			520,647			(376,879	)
		Net (purchases) sales of loans held for sale			(1,843,049	)		737,010
		Net decrease (increase) of mortgage servicing rights			1,226			(853	)

			Net cash (used in) provided by operating activities		(1,168,322	)		414,153

Cash flows from investing activities:
	Net sales (purchases) of and payments from loans held for investment				272,790			(269,751	)
	Net payments of mortgage-backed securities available for sale				400,890			29,672
	Net increase in investment in Federal Home Loan Bank stock, at cost				(76,902	)		(7,124	)
	Net purchases of property, plant and equipment				(16,240	)		(26,842	)

			Net cash provided by (used in) investing activities		580,538			(274,045	)

Cash flows from financing activities:
	Net increase (decrease) in deposits				762,983			(432,735	)
	Net increase (decrease) in advances from Federal Home Loan Bank				730,914			(12,767	)
	Net (decrease) increase in other borrowings				(688,879	)		289,960
	Net proceeds/payments from stock options and notes receivable				6,333			7,707
	Cash dividends paid				(11,018	)		—
	Purchases of common stock				(448	)		(36,689	)

			Net cash provided by (used in) financing activities		799,885			(184,524	)

Net increase (decrease) in cash and cash equivalents					212,101			(44,416	)
Cash and cash equivalents at beginning of period					196,720			153,295

Cash and cash equivalents at end of period				$	408,821		$	108,879

Supplemental cash flow information:
			Cash paid for interest	$	132,804		$	132,039

			Cash paid for income taxes	$	6,208		$	611

Supplemental disclosure of noncash investing and financing activities
			Net transfer of loans held for sale to (from) loans held for investment	$	925,550		$	(413,891	)

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003

(Unaudited)

Note 1 — Basis of Presentation

IndyMac Bancorp, Inc. is a savings and loan holding company. References to “IndyMac Bancorp” refer to the parent company alone while references to “IndyMac” or “we” refer to IndyMac Bancorp and its consolidated subsidiaries. Our primary business is mortgage banking. We offer a wide array of home mortgage products using a technology-based approach, leveraged across multiple products, channels and customers.

The consolidated financial statements include the accounts of IndyMac Bancorp and its subsidiaries, including IndyMac Bank®, F.S.B. (“IndyMac Bank”). All significant intercompany balances and transactions with IndyMac’s consolidated subsidiaries have been eliminated in consolidation. The consolidated financial statements of IndyMac are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The foregoing financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods have been included. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in IndyMac’s annual report on Form 10-K for the year ended December 31, 2002.

Note 2 — Newly Adopted or Issued Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, and Interpretation of Accounting Research Bulletin (ARB) No. 51, (the Interpretation). The Interpretation introduces a new consolidation model — the variable interests model — which determines control (and consolidation) based on potential variability in gains or losses of the entity being evaluated for consolidation. The party with the majority of the variability in gains or losses of the variable interest entity (VIE) is required to consolidate the VIE. However, qualifying special-purpose entities defined under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, are not required to be consolidated in the financial statements of a transferor. We adopted the Interpretation on July 1, 2003 which did not result in any material impact or change on our financial statements.

The FASB issued Statement of Financial Accounting Standards No. 149 (SFAS No. 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” on April 30, 2003. SFAS No. 149 does not amend the definition of a derivative. The provisions of SFAS No. 149 merely represent the codification of previous Derivatives Implementation Group decisions, which are already effective and being applied. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the financial condition or the operating results of the Company.

On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS No. 150), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 requires liability accounting for certain freestanding financial instruments that are either indexed to, or potentially settled in shares of the issuer. SFAS No. 150 does not apply to obligations incurred pursuant to stock compensation arrangements accounted for under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise effective for the Company on July 1, 2003. Application of SFAS No. 150 to instruments that exist on the date of adoption should be reported through a cumulative effect of a change in an accounting principle. The adoption of SFAS No. 150 did not have a material impact on the financial condition or the operating results of the Company.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3 — Securities

The following table details our securities classified as trading and mortgage-backed securities available for sale as of June 30, 2003 and December 31, 2002, respectively.


			June 30,		December 31,
			2003		2002


			(Dollars in thousands)
Securities classified as trading:
	AAA-rated and agency interest-only securities		$	135,264	$	187,060
	AAA-rated principal-only securities			4,255		79,554
	U.S. Treasury securities			50,414		282,219
	AAA-rated non-agency securities			—		101,185
	AAA-rated agency securities			—		25,055
	Other investment grade securities			8,760		9,114
	Other non-investment grade securities			2,060		2,956
	Residual securities			66,031		78,740

		Total	$	266,784	$	765,883

Mortgage-backed securities available for sale:
	AAA-rated non-agency securities		$	1,070,270	$	1,406,321
	AAA-rated agency securities			46,544		123,269
	Other investment grade securities			33,272		39,258
	Other non-investment grade securities			8,653		4,362

		Total	$	1,158,739	$	1,573,210

Note 4 — Segment Reporting

IndyMac operates through its three main segments: IndyMac Mortgage Bank, IndyMac Consumer Bank and the Investment Portfolio Group. IndyMac Mortgage Bank is centered on providing consumers with mortgage products through relationships with the Company’s business customers — mortgage brokers, mortgage bankers, financial institutions, real estate professionals and homebuilders. IndyMac Consumer Bank provides the platform for the mortgage and deposit services that IndyMac offers directly to consumers. Loans produced by IndyMac Mortgage Bank and IndyMac Consumer Bank are then securitized through the issuance of mortgage-backed securities, sold to government-sponsored enterprises, resold in bulk whole loan sales to investors, or transferred to and retained by our Investment Portfolio Group. The Investment Portfolio Group serves as the main link to customers whose mortgages we service. Through its investments in single-family residential mortgages, mortgage-backed securities and mortgage servicing rights, it serves a critical support function for IndyMac’s mortgage lending operations.

Prior to 2003, we managed our business through only two operating segments: Mortgage Banking and Investment Portfolio. Previously, our consumer mortgage loan production business units were included with Mortgage Banking, and our consumer banking operations were included as overhead to the Company, or “Other.” Segment information for 2002, including a change in the allocation method of interest expense to the operating segments, has been adjusted to conform to the current method of segment disclosure.

The profitability of each operating segment is measured on a fully-leveraged basis after allocating capital based on regulatory capital rules. The Company uses a match-funded transfer pricing system to allocate net

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

interest income to the operating segments. Each operating segment is allocated funding with maturities and interest rates matched with the expected lives, repricing frequencies and financing liquidities of the segment’s assets. Deposits receive a funding credit using a similar methodology. The difference between these allocations and the Company’s actual net interest income and capital levels resulting from centralized management of funding costs is reported in Other. Also included in Other are unallocated corporate costs such as corporate salaries and related expenses, excess capital, and non-recurring corporate items.

Segment information for the three and six months ended June 30, 2003 and 2002 was as follows:


		IndyMac		IndyMac		Investment
		Mortgage		Consumer		Portfolio
		Bank		Bank		Group		Other			Consolidated


		(Dollars in thousands)
Three months ended June 30, 2003
	Net interest income (expense)	$	45,300	$	11,491	$	19,022	$	(8,298	)	$	67,515
	Net revenues (loss)		125,953		47,288		16,635		(16,523	)		173,353
	Net earnings (loss)		48,955		13,951		3,557		(25,094	)		41,369
Assets as of June 30, 2003		$	3,999,004	$	1,077,683	$	4,880,072	$	704,636		$	10,661,395
Three months ended June 30, 2002
	Net interest income (expense)	$	36,637	$	7,545	$	17,353	$	(12,332	)	$	49,203
	Net revenues (loss)		101,962		25,077		26,338		(14,676	)		138,701
	Net earnings (loss)		39,546		5,212		10,276		(20,460	)		34,574
Assets as of June 30, 2002		$	2,598,407	$	374,841	$	4,195,349	$	266,237		$	7,434,834


		IndyMac		IndyMac		Investment
		Mortgage		Consumer		Portfolio
		Bank		Bank		Group		Other			Consolidated


		(Dollars in thousands)
Six months ended June 30, 2003
	Net interest income (expense)	$	89,051	$	21,902	$	38,107	$	(18,520	)	$	130,540
	Net revenues (loss)		242,452		84,991		36,927		(34,108	)		330,262
	Net earnings (loss)		94,486		23,794		10,056		(50,050	)		78,286
Assets as of June 30, 2003		$	3,999,004	$	1,077,683	$	4,880,072	$	704,636		$	10,661,395
Six months ended June 30, 2002
	Net interest income (expense)	$	79,645	$	16,070	$	37,563	$	(30,321	)	$	102,957
	Net revenues (loss)		216,915		51,090		47,321		(35,148	)		280,178
	Net earnings (loss)		85,346		10,822		17,549		(43,124	)		70,593
Assets as of June 30, 2002		$	2,598,407	$	374,841	$	4,195,349	$	266,237		$	7,434,834

Note 5 — Stock-Based Compensation

We have two stock incentive plans, the 2002 Incentive Plan and the 2000 Stock Incentive Plan (collectively, the “Plans”), which provide for the granting of non-qualified stock options, incentive stock options, restricted stock awards, performance stock awards, stock bonuses and other awards to our employees (including officers and directors). Awards are granted at the average market price of our stock on the grant date, vest over varying periods generally beginning at least one year from the date of grant, and expire ten years from the date of grant.

As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), we continue to measure and recognize compensation expense using the intrinsic value method specified in

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25). As required under the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” the following table discloses the pro forma net income and pro forma basic and diluted earnings per share had the fair value method been applied to all stock awards for the three and six months ended June 30, 2003 and 2002:



			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2003			2002			2003			2002


			(Dollars in thousands,						(Dollars in thousands,
			except per share data)						except per share data)
Net Earnings
	As reported		$	41,369		$	34,574		$	78,286		$	70,953
		Stock-based compensation expense		(4,575	)		(5,753	)		(9,110	)		(9,575	)
		Tax effect		1,807			2,272			3,598			3,782

	Pro forma		$	38,601		$	31,093		$	72,774		$	65,160

Basic Earnings Per Share
	As reported		$	0.75		$	0.58		$	1.43		$	1.17
	Pro forma		$	0.70		$	0.52		$	1.33		$	1.08
Diluted Earnings Per Share
	As reported		$	0.73		$	0.56		$	1.39		$	1.14
	Pro forma		$	0.68		$	0.50		$	1.29		$	1.05

In addition, during the three months ended June 30, 2003 and 2002, we recognized compensation expense of $561 thousand ($339 thousand, net of taxes) and $453 thousand ($274 thousand, net of taxes), respectively, related to restricted stock awards. These expenses were included in net earnings as reported.

ITEM 4. CONTROLS AND PROCEDURES

As of June 30, 2003, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2003. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to June 30, 2003.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the annual meeting of IndyMac Bancorp’s stockholders held on April 30, 2003, the stockholders voted to elect IndyMac Bancorp’s directors. The votes cast in this regard were as follows:


	Shares For		Shares Withheld

Michael W. Perry		45,814,179		5,331,224
Louis E. Caldera		49,414,258		1,731,145
Lyle E. Gramley		50,049,388		1,096,015
Hugh M. Grant		33,613,435		17,531,968
Patrick C. Haden		35,680,798		15,464,605
Robert L. Hunt II		33,615,555		17,529,848
James R. Ukropina		33,555,507		17,589,896

In addition, the stockholders voted to ratify the appointment of Ernst & Young LLP as IndyMac Bancorp’s independent public accountants for the year ending December 31, 2003. The votes cast in this regard were as follows:


	No. Of
	Votes Cast

For		30,153,315
Against		20,663,271
Abstain		328,817

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits


10.1		IndyMac Bancorp, Inc. Director Emeritus Plan effective as of April 30, 2003.
31.1		Chief Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Chief Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Chief Executive Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Chief Financial Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		IndyMac Bancorp, Inc. Earnings Press Release dated August 1, 2003.

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended June 30, 2003. A report on Form 8-K was furnished on May 2, 2003 that included:


Item 7.		Financial Statements and Exhibits regarding First Quarter 2003 Earnings (Earnings press release dated April 30, 2003 and webcast presentation dated April 30, 2003).
Item 9 and Item 12.		Regulation FD Disclosure regarding press release and webcast presentation.

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 August 1, 2003 for the three months ended June 30, 2003.

INDYMAC BANCORP, INC.

By: /s/ MICHAEL W. PERRY

Michael W. Perry

Chairman of the Board of Directors

and Chief Executive Officer

By: /s/ SCOTT KEYS

Scott Keys

Executive Vice President

and Chief Financial Officer


(1)	Dividends declared per common share as a percentage of diluted earnings per share.

(2)	Defined as operating expenses divided by net interest income and other income.

(3)	Average equity divided by net interest income and other income.

(4)	Efficiency ratio multiplied by the capital to net revenue ratio.

(5)	Debt includes deposits.

(6)	IndyMac Bank, F.S.B. (excludes unencumbered cash at the Parent Company available for investment in IndyMac Bank). Risk based capital ratio is based on the regulatory standard risk weighting. With IndyMac’s additional subprime risk weightings, the ratios are 13.22%, 15.10% and 13.76% for the three months ended June 30, 2003, June 30, 2002 and March 31, 2003, respectively.

(7)	Represents the total loan portfolio excluding amounts of loans from discontinued product lines.

(8)	Represents entire servicing portfolio including IndyMac owned loans and loans subserviced for others on an interim basis.

(9)	Includes newly originated commitments on construction loans.


(1)	All HELOC products produced by the business units during the second quarter of 2003 were consolidated into the HELOC division for segment reporting.


(2)	The Consumer Bank segment’s net income was up $4.1 million compared with the first quarter of 2003 and was up $8.7 million versus last year’s second quarter. These increases were largely due to the higher levels of mortgages produced and sold.

(3)	The Investment Portfolio Group segment’s net income in the second quarter of 2003 declined $2.9 million in comparison to the first quarter of 2003 and declined $6.7 million in comparison to the second quarter of 2002. These decreases are primarily the result of the significant reduction in earnings related to the segment’s investment in mortgage servicing and servicing-related assets. Interest rates at 45-year lows have created an environment of significant mortgage refinancing causing the underlying mortgages to prepay very quickly which required accelerated amortization of the servicing-related assets. Offsetting the decline in servicing fee income were gains on the sale of mortgage loans obtained through the exercise of the Company’s right as the master servicer on several pools of mortgage-backed securities to call loans at par when the balance of the pool of loans sold falls below 10% of the original pool balance and other loan sale activities. These called loans have higher coupons than prevailing market rates and the Company is then able to resell these loans at gains. This right to call the loans serves as a partial hedge on the servicing investments in this period of intense prepayment activity.


(1)	Fundings.

(2)	New commitments.

(3)	Includes rate lock commitments for loans in process plus loans that have been submitted for processing, but not yet rate locked.


(1)	Active customers are defined as customers who funded at least one loan during the period. The HCL division utilizes the B2B marketing relationships with mortgage brokers and mortgage bankers to produce consumer construction loans. As a result, there is some overlap of the two active customer statistics and new customers. The sales and marketing personnel under the HCL division are primarily focused on marketing the consumer construction product directly to consumers.

(2)	Net new customers are the number of new customers signed up during the period less those terminated.


(1)	HELOC amounts represent the loans produced only by the HELOC division. HELOC loans produced by other business divisions totaled $185 million and $324 million during the three and six months ended June 30, 2003, respectively. HELOC loans produced by business divisions other than the HELOC division are included in the production volume of the respective originating business division.


(1)	Government-sponsored enterprises.

(2)	Loan production that IndyMac elected to retain in its investment portfolio.


(1)	Represents the estimated length of time, on average, the SFR loan portfolio will remain outstanding based on the Bank’s estimates for prepayments.

(2)	Average duration measures the expected variability of the value of a financial instrument in response to changes in interest rates.

(3)	FICO scores reflect a credit scoring system developed by Fair Isaacs and Co. and are generally used by lenders to evaluate a borrower’s credit history. FICO scores of 700 or higher are generally considered in the mortgage industry to be very high quality borrowers with low risk of default, but in general, the secondary market will consider FICO scores of 620 or higher to be prime.


(1)	Assumed prepayment speeds are higher in the short term and lower in the long term based on the market forward curve for interest rates rising over the life of the asset.

(2)	As a percentage of the original pool balance, the actual cumulative loss rate to date totaled 0.08% and 1.23% for prime and subprime residuals, respectively, at June 30, 2003.

(3)	At June 30, 2003, the capitalized servicing asset includes primary servicing of $28.7 billion of loans serviced by us and master servicing of $1.1 billion whose primary servicing is performed by other servicers. In addition to the primary servicing of $28.7 billion in loans, we also service $4.2 billion of IndyMac-owned loans and loans subserviced for others on an interim basis for a total primary servicing portfolio of $33.0 billion.

(4)	Our collateral balance includes primary and master serviced loans of $28.7 billion and $1.1 billion, respectively at June 30, 2003. In comparison, we had primary and master serviced loans of $28.2 billion and $1.6 billion, respectively at March 31, 2003. At December 31, 2002, we had primary and master serviced loans of $25.8 billion and $2.6 billion, respectively.


(1)	The average loan to value ratio is based on the estimated appraised value of the completed project compared to the commitment amount at June 30, 2003.

(2)	FICO scores are not calculated for corporate entities and, therefore, are not applicable to the builder construction portfolio.


(3)	Geographic distribution is based on outstanding balances. Some projects are continuing to be built out in states in which we no longer solicit new loans.


(1)	On funded loans.

(2)	The CLTV combines the loan to value on both the first mortgage loan and the HELOC.


(1)	Discontinued product lines include manufactured home loans, home improvement loans and warehouse lines of credit.



	Michael W. Perry
	Chairman of the Board of Directors
	and Chief Executive Officer



	Scott Keys
	Executive Vice President
	and Chief Financial Officer