IndyMac Bancorp (IDMCQ) 10-Q 2005 Q2 Quarterly report

UNITED STATES

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, 2005

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	91101-7211
(Address of principal executive offices)	(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 filing 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 22, 2005: 63,495,866 shares

FORM 10-Q QUARTERLY REPORT

For the Period Ended June 30, 2005

TABLE OF CONTENTS

			Page
PART I. FINANCIAL INFORMATION
Forward-Looking Statements				3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				3
Highlights for the Quarter				3
Overall Results				5
Our Business				6
	Mortgage Banking			25
		Loan Production		25
		Mortgage Production by Division		28
		Loan Sales		30
		Mortgage Servicing and Mortgage Servicing Rights		34
		AAA-Rated Agency Interest-Only, Prepayment Penalty and Residuals Securities		35
		Other Investment Grade and Non-Investment Grade Securities		36
		Valuation of Servicing-Related Assets		37
		Hedging Interest Rate Risk on Servicing-Related Assets		38
	Thrift			39
		SFR Mortgage Loans Held for Investment		40
		Mortgage-Backed Securities		41
		Construction Lending		42
		HELOC Portfolio		44
	Net Interest Income			45
	Overall Interest Rate Risk Management			48
	Credit Risk and Reserves			49
	Secondary Market Reserves			52
	Operating Expenses			53
	Dividend			54
	Share Repurchase Activities			54
	Future Outlook			54
Liquidity and Capital Resources				55
	Overview			55
	Principal Sources of Cash			55
	Principal Uses of Cash			58
	Accumulated Other Comprehensive Loss			58	��
	Regulatory Capital Requirements			58
Off-Balance Sheet Arrangements				59
Aggregate Contractual Obligations				60
Key Operating Risks				61
	Interest Rate Risk			61
	Valuation Risk			61
	Credit Risk			61

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		Page
	Liquidity Risk		62
	Cyclical Industry		62
	Competition		62
	Laws and Regulations		62
	Geographic Concentration		63
	Business Execution and Technology Risk		63
Critical Accounting Policies and Judgments			63
Item 3. Quantitative and Qualitative Disclosures About Market Risk			63
Item 1. Financial Statements (Unaudited)			64
	Consolidated Balance Sheets		64
	Consolidated Statements of Earnings		66
	Consolidated Statements of Shareholders’ Equity and Comprehensive Income		67
	Consolidated Statements of Cash Flows		68
	Notes to Consolidated Financial Statements		69
Item 4. Controls and Procedures			76
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			76
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			76
Item 4. Submission of Matters to a Vote of Security Holders			77
Item 6. Exhibits			77
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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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,” “goal,” “target” 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” beginning on page 61 and to IndyMac’s annual report on Form 10-K for the year ended December 31, 2004.

      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, 2005.

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

HIGHLIGHTS FOR THE QUARTER

      Highlights for the quarters ended June 30, 2005, June 30, 2004 and March 31, 2005, were as follows:

			Three Months Ended							Six Months Ended
			June 30,		June 30,			March 31,		June 30,		June 30,
			2005		2004(1)			2005		2005		2004(1)
			(Dollars in millions, except per share data)
Income Statement
	Net interest income after provision for loan losses		$	94	$	104		$	102	$	196	$	196
	Gain on sale of loans			159		118			144		304		202
	Other income			35		(24	)		7		42		(26	)
	Net revenues			289		198			253		542		372
	Operating expenses			151		108			145		296		212
	Net earnings			83		55			65		149		96
	Basic earnings per share			1.33		0.94			1.06		2.40		1.68
	Diluted earnings per share		$	1.26	$	0.90		$	1.01	$	2.28	$	1.60
Other Per Share Data
	Dividends declared per share		$	0.38	$	0.30		$	0.36	$	0.74	$	0.55
	Book value per share at end of quarter			22.12		19.35			21.28		22.12		19.35
	Closing price per share		$	40.73	$	31.60		$	34.00	$	40.73	$	31.60
	Average Common Shares (in thousands)
		Basic		62,304		58,137			61,798		62,052		57,548
		Diluted		65,799		60,588			64,763		65,281		60,180

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		Three Months Ended									Six Months Ended
		June 30,			June 30,			March 31,			June 30,			June 30,
		2005			2004(1)			2005			2005			2004(1)
		(Dollars in millions, except per share data)
Performance Ratios
	Return on average equity (annualized)		25.25	%		19.46	%		21.18	%		23.29	%		17.88	%
	Return on average assets (annualized)		1.67	%		1.29	%		1.43	%		1.55	%		1.23	%
	Dividend payout ratio(2)		30.16	%		33.33	%		35.64	%		32.46	%		34.38	%
	Net interest income to pretax income after minority interest		70.04	%		118.65	%		96.32	%		81.62	%		125.99	%
	Average cost of funds		3.26	%		2.29	%		2.98	%		3.13	%		2.30	%
	Net interest margin		2.08	%		2.75	%		2.49	%		2.28	%		2.78	%
	Efficiency ratio(3)		52	%		54	%		57	%		54	%		56	%
	Capital to net revenue ratio(4)		113.43	%		139.68	%		122.49	%		117.67	%		144.19	%
	Capital adjusted efficiency ratio(5)		59	%		75	%		69	%		64	%		81	%
	Operating expenses to loan production		1.02	%		1.11	%		1.21	%		1.10	%		1.26	%
Balance Sheet and Asset Quality Ratios
	Average interest-earning assets	$	18,561		$	15,669		$	17,039		$	17,800		$	14,519
	Average equity	$	1,321		$	1,127		$	1,254		$	1,287		$	1,085
	Debt to equity ratio(6)		12.8:1			12.1:1			12.5:1			12.8:1			12.1:1
	Core capital ratio(7)		7.22	%		7.65	%		7.35	%		7.22	%		7.65	%
	Risk-based capital ratio(7)		11.77	%		12.47	%		11.85	%		11.77	%		12.47	%
	Non-performing assets to total assets		0.38	%		0.73	%		0.54	%		0.38	%		0.73	%
	Allowance for loan losses to total loans held for investment		0.72	%		0.76	%		0.72	%		0.72	%		0.76	%
	Allowance for loan losses and other credit reserves to non-performing loans		101.43	%		78.48	%		80.73	%		101.43	%		78.48	%
	Allowance for loan losses to annualized net charge-offs		739.05	%		521.70	%		708.33	%		726.93	%		580.18	%
	Provision for loan losses to net charge-offs		131.60	%		126.48	%		131.89	%		131.68	%		103.30	%
Other Selected Items
	Loans serviced for others(8)	$	63,676		$	34,618		$	55,995		$	63,676		$	34,618
	Loan production(9)		14,831			9,727			11,975			26,806			16,873
	Pipeline of mortgage loans in process		8,294			5,179			7,489			8,294			5,179
	Loans sold	$	11,534		$	7,638		$	9,654		$	21,188		$	12,524
	Net margin on sale of loans		1.38	%		1.55	%		1.49	%		1.43	%		1.61	%

(1)  For the three and six months ended June 30, 2004, the data is presented on a pro forma basis excluding the effect of change in accounting principle for rate lock commitments under SAB No. 105 of $52.2 million before-tax. A full reconciliation between the pro forma amounts and amounts calculated in accordance with generally accepted accounting principles, or GAAP, is as follows:

	Three Months Ended								Six Months Ended
	June 30,					June 30,			June 30,			June 30,
	2004					2004			2004			2004
	GAAP			Adjustments		Pro Forma			GAAP			Pro Forma
	(Dollars in millions, except per share data)
Gain on sale of loans	$	66		$	52	$	118		$	150			202
Net revenues		146			52		198			319			372
Other expense		108			—		108			212			212
Income taxes		15			20		35			42			63
Net earnings	$	23		$	32	$	55		$	65		$	96
Diluted earnings per share	$	0.38		$	0.52	$	0.90		$	1.08		$	1.60
Return on average equity (annualized)		8.19	%				19.46	%		12.02	%		17.88	%
Return on average asset (annualized)		0.54	%				1.29	%		0.83	%		1.23	%

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

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(3)	Defined as operating expenses divided by net interest income and other income.
(4)	Average equity divided by net interest income and other income.
(5)	Efficiency ratio multiplied by the capital to net revenue ratio.
(6)	Debt includes deposits.
(7)	IndyMac Bank, F.S.B. (excludes unencumbered cash at the Parent Company available for investment in IndyMac Bank). Risk-based capital ratio is calculated based on the regulatory standard risk weighting adjusted for the additional risk weightings for subprime loans.
(8)	Represents the unpaid principal balance on loans sold with servicing retained by IndyMac.
(9)	Includes newly originated commitments on construction loans and warehouse lending.

OVERALL RESULTS

      The second quarter ended June 30, 2005 was a record setting quarter for IndyMac Bancorp, achieving record production of $14.8 billion, record quarterly earnings per share of $1.26, and record total assets of $19.4 billion as of June 30, 2005. Our second quarter results reflected the ability of our thrift/mortgage banking business model to generate stable to increasing earnings throughout various interest rate environments.

      The Company achieved a new record of total production of $14.8 billion, of which $14.2 billion were record mortgage production, in the second quarter of 2005, an increase of 52% over the second quarter of 2004 and an increase of 24% from the prior record achieved in the first quarter of 2005. Based on this production and the mortgage industry volume published by Mortgage Bankers Association on July 12, 2005, our mortgage industry market share increased to 1.82%,⁽¹⁾ up 56% from 1.17% a year ago. In addition to the strong production results, our loan sales volume and average earning assets reached record levels of $11.5 billion and $18.6 billion, respectively, this quarter, offsetting the decreases in net interest and gain on sale margins. The quarterly earnings per share for the second quarter of 2005 were a record $1.26, an increase of 40% from the pro forma $0.90 per share in the second quarter of 2004 and an increase of 25% from the record earnings per share of $1.01 in the first quarter of 2005.

      In addition to solid performance in the Company’s origination and portfolio businesses, the focus on interest rate risk management played a significant role during the quarter. Long-term interest rates declined approximately 60 basis points during the quarter while short-term rates rose 50 basis points. While the flatter yield curve resulted in a decrease in the net interest margin compared to prior quarters, the trade-off was higher loan production volumes and higher revenues earned on loans sold. The Company’s strategy with respect to interest rate risk management is to hedge in order to protect performance, not to trade or hold a bias for short-term gains.

      As indicated in Note 1 to the consolidated financial statements, in the current period the Company changed its basis of presentation of the deferral of certain fees collected and related incremental direct costs associated with originating loans under Statement of Financial Accounting Standards No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases” (“SFAS No. 91”). The Company previously classified the initial deferral of the incremental direct

(1)  Our market share is calculated based on our total loan production, both purchased (correspondent and conduit) and originated (retail and wholesale), in all of our channels (the numerator) divided by the MBA’s estimate of the overall mortgage market (the denominator) per their July 12, 2005 Mortgage Finance Forecast. As we review industry publications such as National Mortgage News, we have confirmed that our calculation is consistent with its methodologies for reporting market share of IndyMac and our mortgage banking peers. It is important to note that these industry calculations cause purchased mortgages to be counted more than once, i.e., first when they are originated and again by the purchasers (through correspondent and conduit channels) of the mortgages. Therefore, our market share calculation may not be mathematically precise in the absolute sense, but it is consistent with industry calculations, which provide investors with a good view of our relative standing compared to the other top mortgage lending peers.

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origination costs net of the fees collected on the loans as a net reduction in operating expenses but during this period we have revised the presentation to reflect the deferral of the total fees collected as a reduction of fee and other income and the deferral of the incremental direct origination costs as a reduction of operating expenses. All prior periods have been revised to agree with the current period presentation. This revision had no impact on reported earnings or the balance sheet in the current period or in any prior period. Certain performance ratios based on net revenues or operating expenses have been revised accordingly.

OUR BUSINESS

      IndyMac is the holding company for IndyMac Bank®, the largest savings and loan or savings bank in Los Angeles, the 10th largest thrift nationwide based on assets, and the 11th residential originator according to the National Mortgage News. IndyMac is in the business of designing, manufacturing, and distributing cost-efficient financing for the acquisition, development, and improvement of single-family homes. IndyMac also provides financing secured by single-family homes to facilitate consumers’ personal financial goals and strategically invests in single-family mortgage related assets. We facilitate the acquisition, development, and improvement of single-family homes through our award-winning e-MITS® (Electronic Mortgage Information and Transaction System) platform that automates underwriting, risk-based pricing and rate locking on a nationwide basis via the Internet at the point of sale. IndyMac Bank offers highly competitive mortgage products and services that are tailored to meet the needs of both consumers and mortgage professionals.

      During the first quarter of 2005, we realigned our segments from the previous four operating segments structure based on products and customers to two primary operating segments, the mortgage banking and the thrift segments. These two operating segments more clearly highlight our hybrid thrift/mortgage banking business model and are consistent with the way we manage and evaluate our business. Additionally, we moved the retained assets and loan servicing division to become a part of our mortgage banking segment because we believe the ability to service mortgage loans is an integral part of our mortgage banking business. These segment results depict our profitability by channel of origination. Each channel’s results include the impact of intercompany transactions between channels, which are eliminated in consolidation. Additionally, these segment changes provide clear transparency to the two primary activities in our hybrid model: mortgage banking with high asset turn and high returns on equity, and thrift investing characterized by lower but more consistent returns on equity. Prior period segment results have been revised to conform to this new presentation.

      The mortgage banking segment offers many types of home mortgage products, predominantly prime credit quality, to our customers using a technology-based approach across multiple channels on a nationwide basis. Our broad product line includes adjustable-rate mortgages (“ARMs”) offering borrowers multiple payment options, fixed-rate mortgages, both conforming and non-conforming, subprime mortgage and reverse mortgages. Our largest production channel, mortgage professionals, originates or purchases mortgage loans through its relationships with mortgage brokers, mortgage bankers, and financial institutions. We also offer mortgages and reverse mortgages to consumers through channels such as direct mail, Internet leads, online advertising, affinity relationships, real estate professionals, including Realtors, and through our Southern California retail banking branches. This segment generally provides higher returns on invested equity than the thrift segment through quicker asset turnover. We sell the majority of the mortgage loans originated or purchased by this segment on an on-going basis in the secondary market, and to a lesser extent may transfer loans to our thrift segment. In conjunction with the sale of mortgage loans, we generally retain the right to continue to perform the mortgage loan servicing function on behalf of the investors in the loans sold for a specified servicing fee plus late fees and any reinvestment income (mortgage servicing rights or MSRs). We also retain, to a lesser degree than MSRs, certain other servicing-related assets including AAA-rated interest-only securities, prepayment penalty securities associated with prepayment charges on the underlying mortgage loans, non-investment grade securities and residual securities from the sale of mortgage loans. To hedge the prepayment risk embedded in these assets, we use a combination of several financial instruments such as U.S. Treasury securities, principal-only securities, agency debentures, futures, floors, swaps, or options to protect the value of these assets. The principal sources of revenue for the mortgage banking segment include

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gain on sale of mortgage loans, fee income and net interest income during the period loans are held pending sale and service fee income related to the MSRs.

      In an effort to diversify and stabilize company-wide earnings, mitigate, to an extent, the cyclicality of our mortgage banking segment, and leverage our capital and infrastructure as a nationwide mortgage lender and an FDIC-insured financial institution, we allocate capital to invest in certain of our mortgage loan products and other specialty mortgage products and commercial loans in our thrift segment. The focus of this segment is the generation of core stable net interest income to provide a return on invested capital with minimum threshold returns established for various types of investments based on the underlying risks of the investments. The principal investments in this segment include single-family residential (“SFR”) mortgage loans (predominantly prime ARMs), construction financing for single-family residences or lots provided directly to individual consumers, builder construction financing facilities for larger residential subdivision loans, home equity lines of credit (“HELOCs”), and mortgage-backed securities. Additionally, beginning in 2005, we reentered the warehouse lending business, which provides short-term revolving warehouse lending facilities to small-to-medium size mortgage bankers and brokers to finance mortgage loans from the closing of the loans until they are sold. The thrift segment leverages the mortgage banking segment’s infrastructure as a source for much of its investments. Revenues generated by the thrift segment are primarily net interest income on loans and securities, and to a lesser extent, gain on sale of loans and service fee income on HELOCs.

      The following tables summarize the Company’s financial results for the three months ended June 30, 2005, illustrating the revenues earned by its two primary segments via each of its operating channels. The profitability of each operating channel is measured on a fully-leveraged basis after allocating capital based on regulatory capital rules.

      Operating channels that originate mortgage loans are credited with gain on sale at funding based on the estimated fair value. Any difference between the actual gain on sale realized and the estimate is credited or charged to the operating channel in the period the loan is sold or transferred to the held for investment portfolio. Differences between the gain on sale credited to the operating channels and the consolidated gain on sale due to timing of loan sales or transfers to the held for investment portfolio are eliminated in consolidation. The Company uses a funds transfer pricing (“FTP”) system to allocate interest income and expense to the operating channels. Each operating channel is allocated funding with maturities and interest rates matched with the expected lives and repricing frequencies of the channel’s assets. 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 channels.

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      The following table summarizes the segment financial highlights for the three months ended June 30, 2005:

				Mortgage Banking
							MSRs and			Loan
				Production			Other Retained			Servicing													Total
				Divisions			Assets			Operations			Total			Thrift			Other				Company
				(Dollars in thousands)
Operating Results
Net interest income				$	24,900		$	12,219		$	(33	)	$	37,086		$	54,775		$	4,544			$	96,405
Provision for loan losses					—			—			—			—			(2,407	)		—				(2,407	)
Gain (loss) on sale of loans					194,872			128			—			195,000			15,539			(51,162	)			159,377
Gain (loss) on securities					—			14,361			—			14,361			1,005			485				15,851
Service fee income					3,032			(3,691	)		—			(659	)		1,754			9,704				10,799
Other income					14,541			1,393			520			16,454			8,437			(16,245	)			8,646
	Net revenues (expense)				237,345			24,410			487			262,242			79,103			(52,674	)			288,671
	Operating expenses				92,025			7,489			4,827			104,341			20,460			26,233				151,034
		Pretax income (loss)			145,320			16,921			(4,340	)		157,901			58,643			(78,907	)			137,637
			Net income (loss)	$	87,901		$	10,237		$	(2,626	)	$	95,512		$	35,479		$	(47,845	)		$	83,146
Ratios
Percentage of average total assets					30	%		7	%		—			37	%		58	%		5	%			100	%
Percentage of total revenue					82	%		9	%		—			91	%		27	%		(18	)%			100	%
Percentage of pretax income					106	%		12	%		(3	)%		115	%		42	%		(57	)%			100	%
Balance Sheet Data
Average interest-earning assets(1)				$	5,689,983		$	555,790		$	—		$	6,245,773		$	11,645,739		$	669,060			$	18,560,572
Average total assets				$	5,909,126		$	1,397,460		$	51,968		$	7,358,554		$	11,674,360		$	985,786			$	20,018,700
Allocated capital				$	375,397		$	235,766		$	5,183		$	616,346		$	601,232		$	103,109			$	1,320,687
Allocated capital/average total assets					6.35	%		16.87	%		9.97	%		8.38	%		5.15	%		10.46	%			6.60	%
Operating Data
Loans produced				$	13,196,407		$	173,754		$	—		$	13,370,161		$	1,460,746		$	—			$	14,830,907
Operating expense to loans produced					0.70	%		4.31	%		N/A			0.78	%		1.40	%		N/A				1.02	%
Loans sold					10,468,343			199,614			N/A			10,667,957			866,143			N/A				11,534,100
Margin on loans sold					1.86	%		0.06	%		N/A			1.83	%		1.79	%		N/A				1.38	%
Loans serviced for others					5,888,088			—			56,452,036			62,340,124			1,335,821			N/A				63,675,945
Performance Ratios
Return on equity (ROE)					94	%		17	%		N/A			62	%		24	%		N/A				25	%
Return on assets (ROA)					5.97	%		2.94	%		N/A			5.21	%		1.22	%		N/A				1.67	%
Net interest margin					1.76	%		8.82	%		N/A			2.38	%		1.89	%		N/A				2.08	%
Efficiency ratio					39	%		31	%		N/A			40	%		25	%		N/A				52	%
Capital adjusted efficiency ratio					15	%		74	%		N/A			23	%		46	%		N/A				59	%
Average FTE					3,621			108			366			4,095			540			990		��		5,625

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

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      The following table provides additional detail on the results for the production divisions of our mortgage banking segment for the three months ended June 30, 2005:

				Mortgage Banking Production Divisions
																			Financial
				Mortgage Professionals												Consumer			Freedom
																Direct and			(Reverse
				Wholesale			Correspondent			Conduit			Total			Indirect			Mortgage)			Overhead			Total
				(Dollars in thousands)
Operating Results
Net interest income				$	10,193		$	2,643		$	10,292		$	23,128		$	1,139		$	502		$	131		$	24,900
Provision for loan losses					—			—			—			—			—			—			—			—
Gain (loss) on sale of loans					132,791			23,203			2,281			158,275			19,369			17,228			—			194,872
Gain (loss) on securities					—			—			—			—			—			—			—			—
Service fee income					(3	)		—			—			(3	)		—			3,035			—			3,032
Other income					11,565			544			61			12,170			1,723			656			(8	)		14,541
	Net revenues (expense)				154,546			26,390			12,634			193,570			22,231			21,421			123			237,345
	Operating expenses				44,685			4,059			3,623			52,367			19,328			12,665			7,665			92,025
		Pretax income (loss)			109,861			22,331			9,011			141,203			2,903			8,756			(7,542	)		145,320
			Net income (loss)	$	66,466		$	13,510		$	5,452		$	85,428		$	1,756		$	5,280		$	(4,563	)	$	87,901
Ratios
Percentage of average total assets					14	%		3	%		10	%		27	%		2	%		1	%		—			30	%
Percentage of total revenue					54	%		9	%		4	%		67	%		8	%		7	%		—			82	%
Percentage of pretax income					80	%		16	%		7	%		103	%		2	%		6	%		(5	)%		106	%
Balance Sheet Data
Average interest-earning assets(1)				$	2,769,263		$	557,558		$	1,979,241		$	5,306,062		$	277,301		$	106,543		$	77		$	5,689,983
Average total assets				$	2,775,633		$	558,791		$	1,986,474		$	5,320,898		$	289,208		$	218,869		$	80,151		$	5,909,126
Allocated capital				$	155,707		$	29,877		$	105,996		$	291,580		$	16,424		$	60,148		$	7,245		$	375,397
Allocated capital/average total assets					5.61	%		5.35	%		5.34	%		5.48	%		5.68	%		27.48	%		9.04	%		6.35	%
Operating Data
Loans produced				$	7,191,986		$	1,419,921		$	3,206,983		$	11,818,890		$	738,137		$	639,380		$	—		$	13,196,407
Operating expenses to loans produced					0.62	%		0.29	%		0.11	%		0.44	%		2.62	%		1.98	%		N/A			0.70	%
Loans sold					5,821,079			1,205,031			2,271,186			9,297,296			556,611			614,436			N/A			10,468,343
Margin on loans sold					2.28	%		1.93	%		0.10	%		1.70	%		3.48	%		2.80	%		N/A			1.86	%
Loans serviced for others					—			—			—			—			—			5,888,088			—			5,888,088
Performance Ratios
Return on equity (ROE)					171	%		181	%		21	%		118	%		43	%		35	%		N/A			94	%
Return on assets (ROA)					9.60	%		9.70	%		1.10	%		6.44	%		2.44	%		9.68	%		N/A			5.97	%
Net interest margin					1.48	%		1.90	%		2.09	%		1.75	%		1.65	%		1.89	%		N/A			1.76	%
Efficiency ratio					29	%		15	%		29	%		27	%		87	%		59	%		N/A			39	%
Capital adjusted efficiency ratio					7	%		4	%		60	%		10	%		16	%		42	%		N/A			15	%
Average FTE					1,778			170			102			2,050			569			708			294			3,621

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

Mortgage Banking Production Divisions

Mortgage Professionals	This group is responsible for the production of mortgage loans through relationships with mortgage brokers, mortgage bankers, financial institutions and homebuilders via three channels: wholesale, correspondent and conduit. Mortgage loans could be either funded by us (wholesale) or obtained as closed loans on a flow basis (correspondent) or in bulk purchases (conduit). While the wholesale and correspondent channels focus on producing loans via wholesale and correspondent delivery method, respectively, the production volume by wholesale and correspondent channels do not always correspond strictly with the table-funded (wholesale) and flow (correspondent) delivery method.
Consumer Direct and Indirect	This channel offers consumers mortgage lending through our Web site, direct Internet leads developed through on line advertising, affinity relationships, company referral programs, relationships with Realtors and through our Southern California retail banking branches.
Financial Freedom	This group is responsible for the generation of predominantly reverse mortgage products with senior customers (age 62 or older) via a wholesale relationship sales force and a retail loan officer sales force.
Overhead	Items included in this column primarily represent the mortgage banking segment’s cost for productivity process improvement which do not directly relate to the production generated in the current period.

9

      The following table provides additional detail on the results for the retained assets and servicing division in our mortgage banking segment for the three months ended June 30, 2005:

				Retained Assets and
				Servicing Division
				MSRs and Other			Loan Servicing
				Retained Assets			Operations
				(Dollars in thousands)
Operating Results
Net interest income				$	12,219		$	(33	)
Provision for loan losses					—			—
Gain (loss) on sale of loans					128			—
Gain on securities					14,361			—
Service fee income					(3,691	)		—
Other income					1,393			520
	Net revenues (expense)				24,410			487
	Operating expenses				7,489			4,827
		Pretax income (loss)			16,921			(4,340	)
			Net income (loss)	$	10,237		$	(2,626	)
Ratios
Percentage of average total assets					7	%		—
Percentage of total revenue					9	%		—
Percentage of pretax income					12	%		(3	)%
Balance Sheet Data
Average interest-earning assets(1)				$	555,790		$	—
Average total assets				$	1,397,460		$	51,968
Allocated capital				$	235,766		$	5,183
Allocated capital/average total assets					16.87	%		9.97	%
Operating Data
Loans produced via retention program				$	173,754		$	—
Operating expenses to loans produced					4.31	%		N/A
Loans sold					199,614			N/A
Margin on loans sold					0.06	%		N/A
Loans serviced for others					—			56,452,036
Performance Ratios
Return on equity (ROE)					17	%		N/A
Return on assets (ROA)					2.94	%		N/A
Net interest margin					8.82	%		N/A
Efficiency ratio					31	%		N/A
Capital adjusted efficiency ratio					74	%		N/A
Average FTE					108			366

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

Retained Assets and Servicing Division	The retained assets and servicing division has been realigned with our mortgage banking segment, because we believe the ability to service mortgage loans is integral to obtaining the best execution on our mortgage loan sales. The ability to service mortgage loans provides the Company with additional loan sale channels in the secondary market such as sales to the government sponsored enterprises (“GSEs”) and private-label mortgage securitization transactions. The Company’s objective is to maintain multiple outlets for loan sale distribution to optimize returns and reduce the risk of one or more channels being disrupted.
	The retained assets and servicing division holds the following asset classes: (i) MSRs, interest-only strips and residual securities, (ii) securities held as hedges of such assets, including principal-only securities, agency debentures and U.S. Treasury bonds, (iii) loans acquired through clean-up calls or originated through the Company’s customer retention programs and (iv) investment and non-investment grade securities.
	The Company hedges the MSRs to protect the economic value of the MSRs. The economic value may vary from the GAAP value due to the lower of cost or market limitations of GAAP. The results in the table above reflect the economic fair value of the MSRs. Differences between the economic value and the GAAP value are eliminated in consolidation.

10

     The following table provides additional detail on the results for divisions of our thrift segment for the three months ended June 30, 2005:

				Thrift
													Consumer
				Mortgage-			Prime SFR			Home			Construction			Subdivision
				Backed			Mortgage			Equity			and Lot			Construction			Warehouse			Discontinued
				Securities			Loans			Lending			Loans			Financing			Lending			Products			Total
				(Dollars in thousands)
Operating Results
Net interest income				$	5,838		$	17,648		$	7,361		$	13,076		$	10,011		$	49		$	792		$	54,775
Provision for loan losses					—			(700	)		—			(573	)		(500	)		(84	)		(550	)		(2,407	)
Gain (loss) on sale of loans					—			3,056			646			11,827			—			—			10			15,539
Gain (loss) on securities					724			—			397			(116	)		—			—			—			1,005
Service fee income					—			278			1,476			—			—			—			—			1,754
Other income					(1	)		914			1,788			5,521			138			76			1			8,437
	Net revenues (expense)				6,561			21,196			11,668			29,735			9,649			41			253			79,103
	Operating expenses				241			462			3,007			12,810			2,693			743			504			20,460
		Pretax income (loss)			6,320			20,734			8,661			16,925			6,956			(702	)		(251	)		58,643
			Net income (loss)	$	3,824		$	12,544		$	5,240		$	10,240		$	4,208		$	(425	)	$	(152	)	$	35,479
Ratios
Percentage of average total assets					11	%		25	%		8	%		10	%		4	%		—			—			58	%
Percentage of total revenue					2	%		8	%		4	%		10	%		3	%		—			—			27	%
Percentage of pretax income					5	%		15	%		6	%		12	%		5	%		(1	)%		—			42	%
Balance Sheet Data
Average interest-earning assets(1)				$	2,131,235		$	5,050,001		$	1,559,134		$	2,091,337		$	751,327		$	12,800		$	49,905		$	11,645,739
Average total assets				$	2,145,998		$	5,060,676		$	1,574,319		$	2,090,807		$	745,170		$	14,460		$	42,930		$	11,674,360
Allocated capital				$	47,037		$	245,109		$	97,834		$	119,939		$	85,547		$	1,329		$	4,437		$	601,232
Allocated capital/average total assets					2.19	%		4.84	%		6.21	%		5.74	%		11.48	%		9.19	%		10.34	%		5.15	%
Operating Data
Loans produced				$	—		$	—		$	55,716		$	772,804		$	594,226		$	38,000		$	—		$	1,460,746
Operating expenses to loans produced					N/A			N/A			5.40	%		1.66	%		0.45	%		1.96	%		N/A			1.40	%
Loans sold					—			111,299			130,497			624,347			—			—			—			866,143
Margins on loans sold					N/A			2.75	%		0.50	%		1.89	%		N/A			N/A			N/A			1.79	%
Loans serviced for others					—			—			1,335,821			—			—			—			—			1,335,821
Performance Ratios
Return on equity (ROE)					33	%		21	%		21	%		34	%		20	%		(128	)%		(14	)%		24	%
Return on assets (ROA)					0.71	%		0.99	%		1.34	%		1.96	%		2.27	%		(11.79	)%		(1.42	)%		1.22	%
Net interest margin					1.10	%		1.40	%		1.89	%		2.51	%		5.34	%		1.54	%		6.37	%		1.89	%
Efficiency ratio					4	%		2	%		26	%		42	%		27	%		NM			63	%		25	%
Capital adjusted efficiency ratio					7	%		6	%		54	%		42	%		56	%		NM			87	%		46	%
Average FTE					5			10			26			377			90			18			14			540

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

Mortgage-backed securities (“MBS”)	Assets include AAA-rated agency and private label MBS.
Prime SFR Mortgage Loans	Assets include all single-family residential mortgage loans held for investment other than discontinued products.
Home Equity Lending	This activity focuses on the production of home equity lines of credit (HELOCs) and closed-end seconds through marketing strategies focused on direct interaction with consumers.
Consumer Construction and Lot Loans	This activity provides construction-to-permanent and lot loan financing to individuals who are in the process of building their own homes. This channel leverages our relationship sales force in the mortgage professional channel to produce these products in addition to programs offered directly to consumers.
Subdivision Construction Financing	This division offers financing to subdivision developers.
Warehouse Lending	Through this division, we reentered the warehouse lending business in the first quarter of 2005, providing short-term revolving warehouse lending facilities to small-to-medium size mortgage bankers and brokers from the time the loan is closed until the loan is sold.
Discontinued Products	Home improvement and manufactured housing loans.

11

     The following table provides additional details on the results for all other business units for the three months ended June 30, 2005:

							Total
							Operating									Corporate			Total
				Eliminations			Results			Deposits			Treasury			Overhead			Company
				(Dollars in thousands)
Operating Results
Net interest income				$	7,840		$	99,701		$	—		$	(540	)	$	(2,756	)	$	96,405
Provision for loan losses					—			(2,407	)		—			—			—			(2,407	)
Gain (loss) on sale of loans					(51,162	)		159,377			—			—			—			159,377
Gain (loss) on securities					485			15,851			—			—			—			15,851
Service fee income					9,704			10,799			—			—			—			10,799
Other income					(17,780	)		7,111			618			128			789			8,646
	Net revenues (expense)				(50,913	)		290,432			618			(412	)		(1,967	)		288,671
	Operating expenses				(13,764	)		111,037			3,389			1,487			35,121			151,034
		Pretax income (loss)			(37,149	)		179,395			(2,771	)		(1,899	)		(37,088	)		137,637
			Net income (loss)	$	(22,475	)	$	108,516		$	(1,676	)	$	(1,149	)	$	(22,545	)	$	83,146
Ratios
Percentage of average total assets					—			95	%		—			4	%		1	%		100	%
Percentage of total revenue					(17	)%		101	%		—			—			(1	)%		100	%
Percentage of pretax income					(27	)%		130	%		(2	)%		(1	)%		(27	)%		100	%
Balance Sheet Data
Average interest-earning assets(1)				$	—		$	17,891,512		$	172		$	711,067		$	(42,179	)	$	18,560,572
Average total assets				$	—		$	19,032,914		$	32,480		$	734,031		$	219,275		$	20,018,700
Allocated capital				$	—		$	1,217,578		$	1,650		$	36,827		$	64,632		$	1,320,687
Allocated capital/average total assets					N/A			6.40	%		5.08	%		5.02	%		29.48	%		6.60	%
Operating Data
Loans produced				$	—		$	14,830,907		$	—		$	—		$	—		$	14,830,907
Operating expense to loans produced					N/A			0.75	%		N/A			N/A			N/A			1.02	%
Loans sold					N/A			11,534,100			N/A			N/A			N/A			11,534,100
Margin on loans sold					N/A			1.38	%		N/A			N/A			N/A			1.38	%
Loans serviced for others					N/A			63,675,945			N/A			N/A			N/A			63,675,945
Performance Ratios
Return on equity (ROE)					N/A			36	%		N/A			N/A			N/A			25	%
Return on assets (ROA)					N/A			2.29	%		N/A			N/A			N/A			1.67	%
Net interest margin					N/A			2.24	%		N/A			N/A			N/A			2.08	%
Efficiency ratio					N/A			38	%		N/A			N/A			N/A			52	%
Capital adjusted efficiency ratio					N/A			39	%		N/A			N/A			N/A			59	%
Average FTE					—			4,635			200			30			760			5,625

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

	Eliminations by Type
	Intercompany			MSR Economic		FAS 91
	Loan Sales			Value		Reclass			Other			Total
	(Dollars in thousands)
Net interest income	$	7,840		$	—	$	—		$	—		$	7,840
Gain (loss) on sale of loans		(51,162	)		—		—			—			(51,162	)
Gain (loss) on sale of securities		485			—		—			—			485
Service fee income		4,411			5,293		—			—			9,704
Other income		—			—		(17,780	)		—			(17,780	)
Operating expenses		—			—		17,780			(4,016	)		13,764
	$	(38,426	)	$	5,293	$	—		$	(4,016	)	$	(37,149	)

      As part of our process of measuring results and holding business managers accountable for the achievement of target objectives, our system provides that the thrift segment pays a premium to the production divisions for the acquisition of product from such divisions. This ensures that the investment divisions in the thrift segment achieve a target return on equity on a market basis. The premium paid (part of gain on sale of loans in the mortgage banking segment) is eliminated in consolidation and reverses as the thrift segment amortizes the premium.

      Statement of Financial Accounting Standards No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases” requires that certain fees and related incremental direct costs associated with originating loans be deferred when incurred. Net deferred amounts related to loans held for sale are recognized when the loans are sold and are included in the gain on sale of loans. We previously classified the initial deferral of the incremental direct origination costs net of the fees collected on the loans as a net reduction in operating expenses but during this period we have revised the presentation to reflect the deferral of the total fees collected as a reduction of fee and other income and the deferral of the incremental direct origination costs as a reduction of operating expenses on the consolidated statements of earnings. However, in reporting the operating results of the segments, we have continued to report the deferral of direct origination

12

costs and the fees as a net reduction in operating expenses for consistency with prior periods. The difference between the segment results and the consolidated amount is included in the eliminations as shown above.

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

	Mortgage Banking
				Retained
	Production			Assets and												Total
	Divisions			Servicing			Total			Thrift			Other			Company(1)
	(Dollars in thousands)
Net Revenues
Q2 05	$	237,345		$	24,897		$	262,242		$	79,103		$	(52,674	)	$	288,671
Q2 04		148,203			(4,759	)		143,444			84,112			(29,000	)		198,556
Percent Change		60	%		623	%		83	%		(6	)%		(82	)%		45	%
Q1 05		202,537			20,086			222,623			75,236			(44,510	)		253,349
Annualized Percent Change		69	%		96	%		71	%		21	%		(73	)%		56	%
Net Income
Q2 05		87,901			7,611			95,512			35,479			(47,845	)		83,146
Q2 04		48,721			(9,459	)		39,262			41,920			(26,632	)		54,550
Percent Change		80	%		180	%		143	%		(15	)%		(80	)%		52	%
Q1 05		70,850			5,157			76,007			34,936			(45,467	)		65,476
Annualized Percent Change		96	%		190	%		103	%		6	%		(21	)%		108	%
Performance Ratios
Q2 05
Return on equity (ROE)		94	%		13	%		62	%		24	%		N/A			25	%
Return on assets (ROA)		5.97	%		2.11	%		5.21	%		1.22	%		N/A			1.67	%
Net interest margin		1.76	%		8.79	%		2.38	%		1.89	%		N/A			2.08	%
Efficiency ratio		39	%		49	%		40	%		25	%		N/A			52	%
Capital adjusted efficiency ratio		15	%		120	%		23	%		46	%		N/A			59	%
Average FTE		3,621			474			4,095			540			990			5,625
Q2 04
Return on equity (ROE)		72	%		(19	)%		33	%		34	%		N/A			19	%
Return on assets (ROA)		4.44	%		(2.35	)%		2.62	%		1.66	%		N/A			1.29	%
Net interest margin		3.57	%		6.69	%		4.16	%		2.17	%		N/A			2.75	%
Efficiency ratio		46	%		(229	)%		55	%		17	%		N/A			54	%
Capital adjusted efficiency ratio		21	%		NM			45	%		24	%		N/A			75	%
Average FTE		2,457			407			2,864			404			793			4,061
Q1 05
Return on equity (ROE)		86	%		8	%		52	%		25	%		N/A			21	%
Return on assets (ROA)		5.76	%		1.26	%		4.63	%		1.29	%		N/A			1.43	%
Net interest margin		2.26	%		6.73	%		2.94	%		2.19	%		N/A			2.49	%
Efficiency ratio		42	%		58	%		44	%		23	%		N/A			57	%
Capital adjusted efficiency ratio		17	%		185	%		29	%		41	%		N/A			69	%
Average FTE		3,454			476			3,930			491			1,024			5,445

(1)  For the second quarter of 2004, net revenues, net income and performance ratios of the total Company are presented on a pro forma basis. The pro forma results excluded the $52.2 million SAB No. 105 impact to the gain on sale of loans. Please refer to the “Highlights for the Quarter” section on page 4 for full reconciliation between pro forma and GAAP results for the quarter ended June 30, 2004.

13

      The following table compares the quarterly detail results of operations for the production divisions of our mortgage banking segment by period, continued:

	Mortgage Banking Production Divisions
							Financial
				Consumer			Freedom
	Mortgage			Direct and			(Reverse
	Professionals			Indirect			Mortgage)			Overhead			Total
	(Dollars in thousands)
Net Revenues
Q2 05	$	193,570		$	22,231		$	21,421		$	123		$	237,345
Q2 04		118,124			30,079			—			—			148,203
Percent Change		64	%		(26	)%		N/A			N/A			60	%
Q1 05		162,355			20,562			19,309			311			202,537
Annualized Percent Change		77	%		32	%		44	%		(242	)%		69	%
Net Income
Q2 05		85,428			1,756			5,280			(4,563	)		87,901
Q2 04		49,061			4,056			—			(4,396	)		48,721
Percent Change		74	%		(57	)%		N/A			(4	)%		80	%
Q1 05		70,515			(5	)		4,242			(3,902	)		70,850
Annualized Percent Change		85	%		NM			98	%		(68	)%		96	%
Performance Ratios
Q2 05
Return on equity (ROE)		118	%		43	%		35	%		N/A			94	%
Return on assets (ROA)		6.44	%		2.44	%		9.68	%		N/A			5.97	%
Net interest margin		1.75	%		1.65	%		1.89	%		N/A			1.76	%
Efficiency ratio		27	%		87	%		59	%		N/A			39	%
Capital adjusted efficiency ratio		10	%		16	%		42	%		N/A			15	%
Average FTE		2,050			569			708			294			3,621
Q2 04
Return on equity (ROE)		84	%		46	%		N/A			N/A			72	%
Return on assets (ROA)		5.22	%		2.58	%		N/A			N/A			4.44	%
Net interest margin		3.52	%		3.86	%		N/A			N/A			3.57	%
Efficiency ratio		31	%		76	%		N/A			N/A			46	%
Capital adjusted efficiency ratio		16	%		23	%		N/A			N/A			21	%
Average FTE		1,466			812			—			179			2,457
Q1 05
Return on equity (ROE)		115	%		—			29	%		N/A			86	%
Return on assets (ROA)		6.52	%		(0.01	)%		7.98	%		N/A			5.76	%
Net interest margin		2.22	%		2.51	%		1.78	%		N/A			2.26	%
Efficiency ratio		28	%		100	%		64	%		N/A			42	%
Capital adjusted efficiency ratio		11	%		22	%		49	%		N/A			17	%
Average FTE		1,943			654			639			218			3,454

      Mortgage banking production divisions’ net income for the second quarter of 2005 increased by 24%, or $17.1 million compared to the first quarter of 2005, and 80% or $39.2 million from the second quarter of 2004. The increase from the first quarter of 2005 was primarily due to an increase in gain on sale of loans resulting from the increase in the amount of loans sold. The increase from the second quarter of 2004 also was due to an increase in gain on sale of loans resulting from the increase in the amount of loans sold, which was somewhat offset by the increase in operating expenses due to a 47% increase in average FTE and the decrease in net interest income as our loan portfolio has shifted to predominantly lower yielding ARM loans.

14

      The following table compares the quarterly detail results of operations for the retained assets and servicing division of our mortgage banking segment by period, continued:

	Retained Assets and Servicing Division
	MSRs and
	Other Retained			Loan Servicing
	Assets			Operations			Total
	(Dollars in thousands)
Net Revenues
Q2 05	$	24,410		$	487		$	24,897
Q2 04		(5,348	)		589			(4,759	)
Percent Change		556	%		(17	)%		623	%
Q1 05		20,021			65			20,086
Annualized Percent Change		88	%		NM			96	%
Net Income
Q2 05		10,237			(2,626	)		7,611
Q2 04		(6,141	)		(3,318	)		(9,459	)
Percent Change		267	%		21	%		180	%
Q1 05		7,935			(2,778	)		5,157
Annualized Percent Change		116	%		22	%		190	%
Performance Ratios
Q2 05
Return on equity (ROE)		17	%		N/A			13	%
Return on assets (ROA)		2.94	%		N/A			2.11	%
Net interest margin		8.82	%		N/A			8.79	%
Efficiency ratio		31	%		N/A			49	%
Capital adjusted efficiency ratio		74	%		N/A			120	%
Average FTE		108			366			474
Q2 04
Return on equity (ROE)		(12	)%		N/A			(19	)%
Return on assets (ROA)		(1.53	)%		N/A			(2.35	)%
Net interest margin		6.69	%		N/A			6.69	%
Efficiency ratio		(90	)%		N/A			(229	)%
Capital adjusted efficiency ratio		861	%		N/A			2,463	%
Average FTE		61			346			407
Q1 05
Return on equity (ROE)		13	%		N/A			8	%
Return on assets (ROA)		2.00	%		N/A			1.26	%
Net interest margin		6.87	%		N/A			6.73	%
Efficiency ratio		34	%		N/A			58	%
Capital adjusted efficiency ratio		109	%		N/A			185	%
Average FTE		85			391			476

      The net income increased $2.5 million from the first quarter of 2005, representing the net effect of an increase in gain on securities and decrease in service fee income on an economic basis due to increased prepayment expectations as a result of the decline in long-term rates. Compared to the second quarter of 2004, the net income increased by $17.1 million, driven primarily by the increase in gain on securities as a result of appreciation in the value of prepayment penalty securities, partially offset by a decrease in gain on sale of loans due to a lesser amount of loans sold and a decrease in net interest income due to a decline in average interest-earning assets.

15

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

	Thrift
	Mortgage-									Consumer			Subdivision
	Backed			Prime SFR			Home Equity			Construction			Construction			Warehouse			Discontinued
	Securities			Mortgage			Lending			and Lot			Financing			Lending			Products			Total
	(Dollars in thousands)
Net Revenues
Q2 05	$	6,561		$	21,196		$	11,668		$	29,735		$	9,649		$	41		$	253		$	79,103
Q2 04		9,109			27,822			7,392			32,504			7,637			—			(352	)		84,112
Percent Change		(28	)%		(24	)%		58	%		(9	)%		26	%		N/A			172	%		(6	)%
Q1 05		9,419			17,732			12,907			25,459			9,496			8			215			75,236
Annualized Percent Change		(121	)%		78	%		(38	)%		67	%		6	%		NM			71	%		21	%
Net Income
Q2 05		3,824			12,544			5,240			10,240			4,208			(425	)		(152	)		35,479
Q2 04		5,330			16,418			3,260			14,123			3,453			—			(664	)		41,920
Percent Change		(28	)%		(24	)%		61	%		(27	)%		22	%		N/A			77	%		(15	)%
Q1 05		5,577			10,407			6,132			9,069			4,167			(336	)		(80	)		34,936
Annualized Percent Change		(126	)%		82	%		(58	)%		52	%		4	%		(106	)%		(360	)%		6	%
Performance Ratios
Q2 05
Return on equity (ROE)		33	%		21	%		21	%		34	%		20	%		(128	)%		(14	)%		24	%
Return on assets (ROA)		0.71	%		0.99	%		1.34	%		1.96	%		2.27	%		(11.79	)%		(1.42	)%		1.22	%
Net interest margin		1.10	%		1.40	%		1.89	%		2.51	%		5.34	%		1.54	%		6.37	%		1.89	%
Efficiency ratio		4	%		2	%		26	%		42	%		27	%		NM			63	%		25	%
Capital adjusted efficiency ratio		7	%		6	%		54	%		42	%		56	%		NM			87	%		46	%
Average FTE		5			10			26			377			90			18			14			540
Q2 04
Return on equity (ROE)		50	%		28	%		22	%		61	%		21	%		N/A			(48	)%		34	%
Return on assets (ROA)		1.07	%		1.37	%		1.39	%		3.40	%		2.17	%		N/A			(4.73	)%		1.66	%
Net interest margin		1.78	%		1.30	%		2.56	%		3.68	%		4.92	%		N/A			7.27	%		2.17	%
Efficiency ratio		3	%		2	%		27	%		27	%		24	%		N/A			65	%		17	%
Capital adjusted efficiency ratio		4	%		5	%		52	%		19	%		50	%		N/A			79	%		24	%
Average FTE		4			9			16			285			65			—			25			404
Q1 05
Return on equity (ROE)		48	%		19	%		22	%		35	%		23	%		NM			(7	)%		25	%
Return on assets (ROA)		1.03	%		0.91	%		1.59	%		1.95	%		2.53	%		NM			(0.71	)%		1.29	%
Net interest margin		1.74	%		1.53	%		2.28	%		2.95	%		5.55	%		5.52	%		6.84	%		2.19	%
Efficiency ratio		2	%		3	%		21	%		40	%		26	%		NM			39	%		23	%
Capital adjusted efficiency ratio		3	%		8	%		46	%		41	%		48	%		NM			52	%		41	%
Average FTE		5			10			27			336			85			15			13			491

      The net income for the second quarter of 2005 is comparable to the net income for the first quarter of 2005, but declined by 15%, or $6.4 million from the second quarter of 2004. The decrease from the second quarter of 2004 is primarily due to the decrease in gain on sale of loans and an increase in operating expenses due to an increase in FTE in the construction lending units, partially offset by the increase in net interest income due to the increase in average interest-earning assets.

16

      The following table compares the quarterly detail results of operations for all other divisions by period, continued:

				Total
				Operating									Corporate			Total
	Eliminations			Results			Deposits			Treasury			Overhead			Company
	(Dollars in thousands)
Net Revenues
Q2 05	$	(50,913	)	$	290,432		$	618		$	(412	)	$	(1,967	)	$	288,671
Q2 04		(21,379	)		206,177			537			(7,560	)		(598	)		198,556
Percent Change		(138	)%		41	%		15	%		95	%		(229	)%		45	%
Q1 05		(43,579	)		254,280			504			169			(1,604	)		253,349
Annualized Percent Change		(67	)%		57	%		90	%		NM			(91	)%		56	%
Net Income
Q2 05		(22,475	)		108,516			(1,676	)		(1,149	)		(22,545	)		83,146
Q2 04		(5,452	)		75,730			(2,012	)		(5,024	)		(14,144	)		54,550
Percent Change		(312	)%		43	%		17	%		77	%		(59	)%		52	%
Q1 05		(18,465	)		92,478			(2,621	)		35			(24,416	)		65,476
Annualized Percent Change		(87	)%		69	%		144	%		NM			31	%		108	%
Performance Ratios
Q2 05
Return on equity (ROE)		N/A			36	%		N/A			N/A			N/A			25	%
Return on assets (ROA)		N/A			2.29	%		N/A			N/A			N/A			1.67	%
Net interest margin		N/A			2.24	%		N/A			N/A			N/A			2.08	%
Efficiency ratio		N/A			38	%		N/A			N/A			N/A			52	%
Capital adjusted efficiency ratio		N/A			39	%		N/A			N/A			N/A			59	%
Average FTE		—			4,635			200			30			760			5,625
Q2 04
Return on equity (ROE)		N/A			31	%		N/A			N/A			N/A			19	%
Return on assets (ROA)		N/A			1.88	%		N/A			N/A			N/A			1.29	%
Net interest margin		N/A			3.03	%		N/A			N/A			N/A			2.75	%
Efficiency ratio		N/A			39	%		N/A			N/A			N/A			54	%
Capital adjusted efficiency ratio		N/A			45	%		N/A			N/A			N/A			75	%
Average FTE		—			3,268			159			24			610			4,061
Q1 05
Return on equity (ROE)		N/A			32	%		N/A			N/A			N/A			21	%
Return on assets (ROA)		N/A			2.12	%		N/A			N/A			N/A			1.43	%
Net interest margin		N/A			2.60	%		N/A			N/A			N/A			2.49	%
Efficiency ratio		N/A			39	%		N/A			N/A			N/A			57	%
Capital adjusted efficiency ratio		N/A			44	%		N/A			N/A			N/A			69	%
Average FTE		—			4,421			183			28			813			5,445

      The financial results reported for IndyMac’s operating segments include revenues and expenses computed using methodologies that are inconsistent with GAAP, but we believe, are better measures for analyzing channel profitability. Examples include crediting gain on sale for funded loans prior to sale, crediting gains for loans transferred to other channels, and reporting the MSR and other retained assets channel on an economic basis excluding the impact of lower of cost or market limits. The eliminations unit is used to adjust the operating unit financials to the company’s consolidated GAAP results. The net income reported in the eliminations unit can vary significantly from period to period depending on the percentage of production sold in a period and the economic performance of MSR’s versus GAAP.

17

      In addition to our operating segment results, which analyze profitability by loan origination channel, we analyze a supplemental calculation of profitability by loan product type as presented in the following tables. The marginal contribution of each product is presented in its respective column, with its related fixed operating expenses consolidated in the operating expense column. This allows for evaluation of individual products on a marginal basis as well as evaluating the consolidated product group basis with overhead included. The revenue allocated to each product is consistent with our GAAP results, so this schedule requires no eliminating entries for intercompany transactions or for the economic adjustments described in our segment results by channel. The profitability for each product is before the allocation of costs determined to be fixed in nature and represents management’s best estimate of the contribution of each product to the company’s financial results for the period.

      We currently have four product groups: standard consumer home loans held for sale, specialty consumer home loans held for sale and/or investment, home loans and related investments, and specialty commercial loans held for investment.

      The standard consumer home loans held for sale include the consolidated mortgage banking activity of first mortgage products originated for sale through the various IndyMac channels (excluding servicing retained and consumer construction channels). These products include agency conforming/jumbo, Alt-A and subprime loans.

      The specialty consumer home loans held for sale and/or investment include the consolidated product related activity of specialty mortgage products originated through the various IndyMac channels and adjusted for intercompany activity. These products include, HELOCs/seconds, reverse mortgages, CTP/ Lot and discontinued products.

      The home loans and related investments include all investment related activity including home loans held for investment, variable cash flow instruments, mortgage backed securities and other related investments.

      The specialty commercial loans held for investment includes the consolidated loan activity associated with loans that are made to commercial customers such as homebuilders, commercial builders and mortgage brokers and bankers for the purposes of either building residential homes or financing the purchase of these homes.

18

      The following table summarizes the profitability for each of the four product groups and the loan servicing operations for the three months ended June 30, 2005:

							Specialty									Loan
				Standard			Consumer			Home Loans			Specialty			Servicing
				Consumer Home			Home Loans			& Related			Commercial			Operations						Total
				Loans HFS			HFI/HFS			Investments			Loans			Expense			Other			Company
				(Dollars in thousands)
Operating Results
Net interest income				$	22,113		$	25,291		$	36,730		$	12,133		$	(33	)	$	171		$	96,405
Provision for loan losses					—			(988	)		(700	)		(719	)		—			—			(2,407	)
Gain (loss) on sale of loans					120,961			35,400			3,016			—			—			—			159,377
Service fee income					(3	)		4,511			998			—			—			5,293			10,799
Gain (loss) on sale of securities					—			281			15,570			—			—			—			15,851
Other income					13,661			7,747			2,306			657			520			(16,245	)		8,646
	Net revenues (expense)				156,732			72,242			57,920			12,071			487			(10,781	)		288,671
	Operating expenses				73,402			34,111			7,816			4,645			4,827			26,233			151,034
		Pretax income (loss)			83,330			38,131			50,104			7,426			(4,340	)		(37,014	)		137,637
			Net income (loss)	$	50,414		$	23,052		$	30,314		$	4,493		$	(2,626	)	$	(22,501	)	$	83,146
Balance Sheet Data
Average interest-earning assets(1)				$	5,423,226		$	3,782,144		$	7,713,653		$	928,628		$	—		$	712,921		$	18,560,572
Average total assets				$	5,529,276		$	3,855,431		$	8,580,761		$	923,174		$	51,968		$	1,078,090		$	20,018,700
Allocated capital				$	306,793		$	224,829		$	526,743		$	102,369		$	5,183		$	154,770		$	1,320,687
Performance Ratios
Return on equity (ROE)					66	%		41	%		23	%		18	%		N/A			N/A			25	%
Net interest margin					1.64	%		2.68	%		1.91	%		5.24	%		N/A			N/A			2.08	%
Gain on sale margin					1.25	%		2.27	%		N/A			N/A			N/A			N/A			1.38	%
Efficiency ratio					47	%		47	%		13	%		36	%		N/A			N/A			52	%
Capital adjusted efficiency ratio					23	%		36	%		30	%		73	%		N/A			N/A			59	%
Operating Data
Loan production					11,552,867			2,405,560			150,578			721,902			—			—			14,830,907
Loans sold					9,661,726			1,561,461			310,913			—			—			—			11,534,100

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

19

      The following table provides details on the profitability for the standard consumer home loans held for sale for the three months ended June 30, 2005:

				Standard Consumer Home Loans Held for Sale
				Agency									Fixed
				Conforming/									Operating
				Jumbo			Alt-A			Subprime			Expense			Total
				(Dollars in thousands)
Operating Results
Net interest income				$	1,837		$	15,378		$	4,767		$	131		$	22,113
Provision for loan losses					—			—			—			—			—
Gain (loss) on sale of loans					5,473			132,717			8,619			(25,848	)		120,961
Service fee income					—			(3	)		—			—			(3	)
Gain (loss) on sale of securities					—			—			—			—			—
Other income					1,242			9,094			3,333			(8	)		13,661
	Net revenues (expense)				8,552			157,186			16,719			(25,725	)		156,732
	Operating expenses				3,512			37,809			4,418			27,663			73,402
		Pretax income (loss)			5,040			119,377			12,301			(53,388	)		83,330
			Net income (loss)	$	3,049		$	72,223		$	7,442		$	(32,300	)	$	50,414
Balance Sheet Data
Average interest-earning assets(1)				$	329,056		$	4,475,332		$	618,761		$	77		$	5,423,226
Average total assets				$	330,633		$	4,496,767		$	621,725		$	80,151		$	5,529,276
Allocated capital				$	17,367		$	237,086		$	45,095		$	7,245		$	306,793
Performance Ratios
Return on equity (ROE)					70	%		122	%		66	%		N/A			66	%
Net interest margin					2.24	%		1.38	%		3.09	%		N/A			1.64	%
Gain on sale margin					0.97	%		1.59	%		1.18	%		N/A			1.25	%
Efficiency ratio					41	%		24	%		26	%		N/A			47	%
Capital adjusted efficiency ratio					21	%		9	%		18	%		N/A			23	%
Operating Data
Loan production				$	522,026		$	10,487,478		$	543,363		$	—		$	11,552,867
Loans sold				$	561,930		$	8,366,952		$	732,844		$	—		$	9,661,726

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

Agency Conforming/ Jumbo	First mortgage loans for sale that meet the underwriting guidelines of Fannie Mae and Freddie Mac. Also includes loans that meet all these guidelines, but exceed the loan size acceptable to these agencies.
Alt-A	First mortgage loans for sale that have prime credit characteristics, but do not meet the GSE underwriting guidelines.
Subprime	Includes marginal product performance of first mortgage loans that are extended to borrowers with impaired credit with one or more of the following characteristics: 1) FICO score of less than 620; 2) late mortgage payment in the last 12 months; and 3) bankruptcy in the last 2 years.

20

      The following table provides details on the profitability for the specialty consumer home loans held for sale and/or investment for the three months ended June 30, 2005:

				Specialty Consumer Home Loans Held for Sale and/or Investment
				HELOC/			Reverse
				Seconds			Mortgages			CTP/Lot			Discontinued			Total
				(Dollars in thousands)
Operating Results
Net interest income				$	10,614		$	502		$	13,383		$	792		$	25,291
Provision for loan losses					—			—			(438	)		(550	)		(988	)
Gain (loss) on sale of loans					5,439			17,228			12,723			10			35,400
Service fee income					1,476			3,035			—			—			4,511
Gain (loss) on sale of securities					397			—			(116	)		—			281
Other income					2,012			656			5,078			1			7,747
	Net revenues (expense)				19,938			21,421			30,630			253			72,242
	Operating expenses				9,341			12,665			11,601			504			34,111
		Pretax income (loss)			10,597			8,756			19,029			(251	)		38,131
			Net income (loss)	$	6,411		$	5,280		$	11,513		$	(152	)	$	23,052
Balance Sheet Data
Average interest-earning assets(1)				$	1,703,771		$	106,543		$	1,921,925		$	49,905		$	3,782,144
Average total assets				$	1,719,723		$	170,426		$	1,922,352		$	42,930		$	3,855,431
Allocated capital				$	104,732		$	11,705		$	103,955		$	4,437		$	224,829
Performance Ratios
Return on equity (ROE)					25	%		181	%		44	%		(14	)%		41	%
Net interest margin					2.50	%		1.89	%		2.79	%		6.37	%		2.68	%
Gain on sale margin					1.69	%		2.80	%		2.04	%		N/A			2.27	%
Efficiency ratio					47	%		59	%		37	%		63	%		47	%
Capital adjusted efficiency ratio					62	%		8	%		31	%		87	%		36	%
Operating Data
Loan production					538,369			639,380			1,227,811			—			2,405,560
Loans sold					322,678			614,436			624,347			—			1,561,461

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

HELOCs/ Seconds	Home equity lines of credit and closed-end second mortgages.
Reverse Mortgages	Reverse mortgage loans extended to borrowers age 62 and older secured by equity in a primary residence.
CTP/ Lot	Consumer construction and lot loans, as well as loans converted to permanent status that are held for sale.
Discontinued	Manufactured housing and home improvement loans.

21

      The following table provides details on the profitability for the home loans and related investments and the loan servicing operations for the three months ended June 30, 2005:

				Home Loans and Related Investments
				Retained Assets						SFR Loans						Loan Servicing
				and Retention						Held for						Operations
				Activities			MBS			Investment			Total			Expense
				(Dollars in thousands)
Operating Results
Net interest income				$	12,219		$	5,838		$	18,673		$	36,730		$	(33	)
Provision for loan losses					—			—			(700	)		(700	)		—
Gain (loss) on sale of loans					128			—			2,888			3,016			—
Service fee income					720			—			278			998			—
Gain (loss) on sale of securities					14,846			724			—			15,570			—
Other income					1,393			(1	)		914			2,306			520
	Net revenues (expense)				29,306			6,561			22,053			57,920			487
	Operating expenses				7,113			241			462			7,816			4,827
		Pretax income (loss)			22,193			6,320			21,591			50,104			(4,340	)
			Net income (loss)	$	13,427		$	3,824		$	13,063		$	30,314		$	(2,626	)
Balance Sheet Data
Average interest-earning assets(1)				$	555,790		$	2,131,235		$	5,026,628		$	7,713,653		$	—
Average total assets				$	1,397,460		$	2,145,998		$	5,037,303		$	8,580,761		$	51,968
Allocated capital				$	235,766		$	47,037		$	243,940		$	526,743		$	5,183
Performance Ratios
Return on equity (ROE)					23	%		33	%		21	%		23	%		N/A
Net interest margin					8.82	%		1.10	%		1.49	%		1.91	%		N/A
Gain on sale margin					0.06	%		N/A			N/A			N/A			N/A
Efficiency ratio					24	%		4	%		2	%		13	%		N/A
Capital adjusted efficiency ratio					49	%		7	%		5	%		30	%		N/A
Operating Data
Loan production				$	150,578		$	—		$	—		$	150,578		$	—
Loans sold				$	199,614		$	—		$	111,299		$	310,913		$	—

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

Retained Assets and Retention Activities	Mortgage banking and trading activity associated with the purchase, management and sale of mortgage banking assets and variable cash flow instruments. Activity also includes loans originated through the servicing function.
MBS	Trading and investment activity related to the purchase, management and sale of investment grade mortgage-backed securities.
SFR Loans Held for Investment	Company-wide loan investment activity related to the purchase, management and sale of single family residential mortgage loans held for investment.
Loan Servicing Operations Expense	Includes all fixed operating costs associated with servicing loans held for sale, held for investment and loans serviced for others that are not allocated to the respective products for which these services are provided.

22

      The following table provides details on the profitability for the specialty commercial loans held for investment for the three months ended June 30, 2005:

				Specialty Commercial Loans Held for Investment
				Single						Warehouse
				Spec			Subdivision			Lending			Total
				(Dollars in thousands)
Operating Results
Net interest income				$	2,352		$	9,732		$	49		$	12,133
Provision for loan losses					(135	)		(500	)		(84	)		(719	)
Gain (loss) on sale of loans					—			—			—			—
Service fee income					—			—			—			—
Gain (loss) on sale of securities					—			—			—			—
Other income					443			138			76			657
	Net revenues (expense)				2,660			9,370			41			12,071
	Operating expenses				1,209			2,693			743			4,645
		Pretax income (loss)			1,451			6,677			(702	)		7,426
			Net income (loss)	$	878		$	4,040		$	(425	)	$	4,493
Balance Sheet Data
Average interest-earning assets(1)				$	164,501		$	751,327		$	12,800		$	928,628
Average total assets				$	163,544		$	745,170		$	14,460		$	923,174
Allocated capital				$	15,493		$	85,547		$	1,329		$	102,369
Performance Ratios
Return on equity (ROE)					23	%		19	%		N/A			18	%
Net interest margin					5.73	%		5.20	%		N/A			5.24	%
Gain on sale margin					N/A			N/A			N/A			N/A
Efficiency ratio					43	%		27	%		N/A			36	%
Capital adjusted efficiency ratio					60	%		59	%		N/A			73	%
Operating Data
Loan production					89,676			594,226			38,000			721,902
Loans sold					—			—			—			—

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

Single Spec	Loans that are made to homebuilders to build 1-4 custom homes for resale to consumers.
Subdivision Construction	Subdivision lending for commercial acquisition, development and construction loans to commercial builders.
Warehouse Lending	Warehouse lines of credit to mortgage brokers to finance their inventory of loans prior to sale.

23

      The following table provides details on the profitability for all other business units for the three months ended June 30, 2005:

				Deposits			Treasury			Corporate OH			Total Company
				(Dollars in thousands)
Operating Results
Net interest income				$	3,467		$	(540	)	$	(2,756	)	$	96,405
Provision for loan losses					—			—			—			(2,407	)
Gain (loss) on sale of loans					—			—			—			159,377
Service fee income					—			—			5,293			10,799
Gain (loss) on sale of securities					—			—			—			15,851
Other income					618			128			(16,991	)		8,646
	Net revenues (expense)				4,085			(412	)		(14,454	)		288,671
	Operating expenses				6,856			1,487			17,890			151,034
		Pretax income (loss)			(2,771	)		(1,899	)		(32,344	)		137,637
			Net income (loss)	$	(1,676	)	$	(1,149	)	$	(19,676	)	$	83,146
Balance Sheet Data
Average interest-earning assets(1)				$	172		$	711,067		$	1,682		$	18,560,572
Average total assets				$	32,480		$	734,031		$	311,579		$	20,018,700
Allocated capital				$	1,650		$	36,827		$	116,293		$	1,320,687
Performance Ratios
Return on equity (ROE)					N/A			N/A			N/A			25	%
Net interest margin					N/A			N/A			N/A			2.08	%
Gain on sale margin					N/A			N/A			N/A			1.38	%
Efficiency ratio					N/A			N/A			N/A			52	%
Capital adjusted efficiency ratio					N/A			N/A			N/A			59	%
Operating Data
Loan production				$	—		$	—		$	—		$	14,830,907
Loans sold				$	—		$	—		$	—		$	11,534,100

(1)  The allowance for loan losses is excluded from average loan balances for purposes of calculating average interest-earning assets.

Deposits	Includes all deposit generating activities to raise deposits from retail bank branch customers to be used in certain lending activities. The Deposits group is organized as a cost center whereby its interest expense from deposits is offset by allocations from Treasury.
Treasury	Includes all financing activity related to providing funds (FHLB and private borrowings, debt and other securities issuances and deposits generation) to IndyMac businesses to fund loans and investments. The use of funds is charged to each business unit according to IndyMac’s capital allocation and funds transfer pricing methodology with the difference residing in Treasury.
Corporate Overhead	Includes all corporate fixed costs that do not vary in the short term with changes in business activity. Fixed costs include corporate administration, financial management, enterprise risk management, centralized information technology and other unallocated fixed costs.

24

MORTGAGE BANKING

      While loan production, loan sales and the performance of servicing functions are the core activities of our mortgage banking segment, our thrift segment also produces specialty loan products such as construction financing, home equity lines of credit, and warehouse lending, much of which is produced by leveraging the infrastructure of our mortgage banking operations. The thrift segment also occasionally engages in loan sales with servicing retained, principally of HELOCs and lot loans, as part of our balance sheet management efforts and our efforts to optimize returns on equity. The following discussions of loan production, loan sales, mortgage servicing and mortgage servicing rights, AAA-rated agency interest-only, prepayment penalty and residual securities, other investment and non-investment grade securities, valuation of servicing-related assets and hedging are provided on a consolidated basis.

Loan Production

      During the second quarter of 2005, the Company’s mortgage loan production reached a new record level at $14.2 billion, a 51% increase over the $9.4 billion of loans produced during the second quarter of 2004 and a 22% increase over the prior record of $11.6 billion of mortgage loans produced in the first quarter of 2005. Total second quarter loan production, including subdivision construction and warehouse lending commitments reached $14.8 billion, also a new record for the Company.

      Our continued production growth in the second quarter of 2005 is the result of our focus on less cyclical products, such as Alt-A, HELOCs, construction loans and reverse mortgages, and geographic expansion. The production volume for each of these products in the second quarter of 2005 has increased compared to the same quarter a year ago and the first quarter of 2005. These increases in aggregate exceeded the decreases in our agency conforming and jumbo products, which tend to be more cyclical in nature, tracking changes in the overall mortgage market. Additionally, we continued to further penetrate the purchase and cash-out refinance market, increasing our purchase and cash-out refinance transactions 77% year over year and continued to successfully adapt our production mix to the demand for adjustable rate mortgages.

      Total production by loan type was as follows:

			Three Months Ended
			June 30,		June 30,		Percent			March 31,		Percent
			2005		2004		Change			2005		Change
			(Dollars in millions)
Volume by product:
Prime(1)
	Alt-A		$	11,053	$	6,447		71	%	$	8,693		27	%
	Agency conforming			241		511		(53	)%		287		(16	)%
	Jumbo			352		730		(52	)%		518		(32	)%
	Reverse mortgages			639		—		N/A			507		26	%
Subprime(1)				546		567		(4	)%		555		(2	)%
Home equity line of credit(2)				451		408		11	%		343		31	%
Consumer construction(2)				917		760		21	%		699		31	%
		Subtotal mortgage production		14,199		9,423		51	%		11,602		22	%
Subdivision construction commitments(2)				594		304		95	%		353		68	%
Warehouse lending(2)				38		—		N/A			20		90	%
		Total production	$	14,831	$	9,727		52	%	$	11,975		24	%
Mortgage — Web-based production			$	9,133	$	5,973		53	%	$	7,482		22	%
Mortgage pipeline at period end(3)			$	8,294	$	5,179		60	%	$	7,489		11	%

(1)	Fundings.
(2)	New commitments.

25

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

      The tables below provide the production by delivery method and interest rate amortization type for the quarters ended June 30, 2005 and 2004, and March 31, 2005:

			Three Months Ended
			June 30,		June 30,		Percent			March 31,		Percent
			2005		2004		Change			2005		Change
			(Dollars in millions)
Production by Delivery Method:
	Wholesale(1)		$	6,903	$	4,717		46	%	$	5,664		22	%
	Correspondent(2)			6,252		3,020		107	%		4,942		27	%
	Retail(3)			1,044		1,686		(38	)%		996		5	%
		Total mortgage production		14,199		9,423		51	%		11,602		22	%
	Subdivision construction commitment			594		304		95	%		353		68	%
	Warehouse lending commitments			38		—		N/A			20		90	%
		Total Production	$	14,831	$	9,727		52	%	$	11,975		24	%

(1)	Loans obtained through relationships with mortgage brokers and funded by IndyMac Bank.
(2)	Closed loans acquired by IndyMac through relationships with mortgage bankers and financial institutions on a flow basis, as well as loans obtained through bulk purchases by our mortgage professional conduit group.
(3)	Direct to consumer channels.

		Three Months Ended
		June 30,		June 30,		March 31,
		2005		2004		2005
Production by Interest Rate Amortization Type:
	Fixed Rate Mortgages		26%		39%		26%
	Hybrid ARMs		31%		36%		33%
	ARMs		43%		25%		41%
			100%		100%		100%

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      The following table details the mix of our production and pipeline between purchase, cash-out refinance and rate/term refinance transactions as of and for the quarters ended June 30, 2005 and 2004, and March 31, 2005.

	As of and For the Three Months Ended
	June 30,			June 30,			Percent			March 31,			Percent
	2005			2004			Change			2005			Change
	(Dollars in millions)
Mortgage loan production:
Purchase transactions	$	6,370		$	3,882			64	%	$	4,895			30	%
Cash-out refinance transactions		6,336			3,301			92	%		5,342			19	%
Rate/term refinance transactions		1,493			2,240			(33	)%		1,365			9	%
Total mortgage loan production	$	14,199		$	9,423			51	%	$	11,602			22	%
% purchase and cash-out refinance transactions		89	%		76	%					88	%
Mortgage pipeline:
Purchase transactions	$	3,681		$	2,542			45	%	$	3,296			12	%
Cash-out refinance transactions		3,457			1,737			99	%		3,036			14	%
Rate/term refinance transactions		1,156			900			28	%		1,157			0	%
Mortgage pipeline at period end	$	8,294		$	5,179			60	%	$	7,489			11	%
% purchase and cash-out refinance transactions		86	%		83	%					85	%

      During the six months ended June 30, 2005 the Company’s mortgage loan production reached a new record level of $25.8 billion, a 58% increase over the $16.3 billion of loans produced during the six months ended June 30, 2004. Total loan production for the six months ended June 30, 2005, including subdivision construction and warehouse lending commitments, reached $26.8 billion, also a new record for the Company.

      Total production by loan type was as follows:

			Six Months Ended
			June 30,		June 30,		Percent
			2005		2004		Change
			(Dollars in millions)
Volume by product:
Prime(1)
	Alt-A		$	19,746	$	10,785		83	%
	Agency conforming			528		1,098		(52	)%
	Jumbo			870		1,366		(36	)%
	Reverse mortgages			1,146		—		N/A
Subprime(1)				1,101		1,063		4	%
Home equity line of credit(2)				794		652		22	%
Consumer construction(2)				1,616		1,363		19	%
		Subtotal mortgage production		25,801		16,327		58	%
Subdivision construction commitments(2)				947		546		73	%
Warehouse lending(2)				58		—		N/A
		Total production	$	26,806	$	16,873		59	%
Mortgage — Web-based production			$	16,615	$	10,292		61	%

(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.

27

Mortgage Production by Division

      IndyMac generates its mortgage production through multiple channels on a nationwide basis with a concentration in those regions of the country in which IndyMac has regional offices or in which there are higher home prices, including California, Florida, New Jersey and New York. We currently have established ten regional operating centers in eight states; our highest concentration of mortgage loans relates to properties in California. For the quarters ended June 30, 2005 and 2004, the geographic distribution of our total production was as follows, with the top five states listed separately:

			June 30,			June 30,
			2005			2004
Geographic distribution:
	California			44	%		49	%
	New York			9	%		7	%
	Florida			7	%		6	%
	New Jersey			4	%		4	%
	Michigan			4	%		3	%
	Other			32	%		31	%
		Total		100	%		100	%

      Our production by division for the three and six months ended June 30, 2005 and 2004, and for the three months ended March 31, 2005 are shown in the tables below.

				Three Months Ended
				June 30,		June 30,		Percent			March 31,		Percent
				2005		2004		Change			2005		Change
				(Dollars in millions)
Mortgage Loan Production:
	Mortgage Professionals, excluding Conduit			$	8,612	$	5,372		60	%	$	6,909		25	%
	Mortgage Professionals, Conduit				3,207		1,792		79	%		2,605		23	%
	Consumer Direct and Indirect				738		1,229		(40	)%		686		8	%
	Financial Freedom				639		—		N/A			507		26	%
	Servicing Retention				174		418		(58	)%		222		(22	)%
	HELOC				56		44		27	%		42		33	%
	Consumer Construction and Lot			$	773	$	568		36	%	$	631		23	%
		Total Mortgage Loan Production		$	14,199	$	9,423		51	%	$	11,602		22	%
Commercial Loan Production:
	Subdivision Construction			$	594	$	304		95	%	$	353		68	%
	Warehouse Lending				38		—		N/A			20		90	%
		Total Commercial Loan Production		$	632	$	304		108	%	$	373		69	%
			Total Production	$	14,831	$	9,727		52	%	$	11,975		24	%

28

				Six Months Ended
				June 30,		June 30,		Percent
				2005		2004		Change
				(Dollars in millions)
Mortgage Loan Production:
	Mortgage Professionals, excluding Conduit			$	15,521	$	9,246		68	%
	Mortgage Professionals, Conduit				5,812		2,962		96	%
	Consumer Direct and Indirect				1,424		2,305		(38	)%
	Financial Freedom				1,146		—		N/A
	Servicing Retention				396		700		(43	)%
	HELOC				98		79		24	%
	Consumer Construction and Lot			$	1,404	$	1,035		36	%
		Total Mortgage Loan Production		$	25,801	$	16,327		58	%
Commercial Loan Production:
	Subdivision Construction			$	947	$	546		73	%
	Warehouse Lending				58		—		N/A
		Total Commercial Loan Production		$	1,005	$	546		84	%
			Total Production	$	26,806	$	16,873		59	%

      Our largest production channel, mortgage professionals, excluding conduit, increased production by 60% year over year and by 25% from the first quarter of 2005, due to strong execution on IndyMac’s strategy to increase market share in the mortgage industry by increasing the size of its sales force, by growing its purchase mortgage business, by investing in geographic expansion, and continuing its focus on less interest rate-sensitive products such as Alt-A. The number of active mortgage professional customers grew 45% from the second quarter of the prior year and 15% from the first quarter of this year. This growth is the direct result of IndyMac’s focus on increasing the size of its sales force nationwide and the newer sales people demonstrating increasing effectiveness as they gain experience with IndyMac’s products and technology. Our sales personnel grew 42% year over year and 6% over the first quarter of 2005. We have been successful in attracting experienced, quality salespeople because of our broad array of mortgage products which are available for all members of the sales force to market.

      The consumer direct and indirect operation has generally been refinance-oriented. Consistent with the market contraction, particularly in refinance-oriented originations, the production volume from this channel has decreased 40% compared to the second quarter of 2004. However, this group experienced an increase in volume of 8% to $738 million in the second quarter of 2005 from $686 million in the first quarter of 2005 and returned to profitability in the current quarter.

      Our construction lending operations continued to show growth as our two construction units take advantage of the strong home building market. Our subdivision construction division produced new commitments of $594 million during the second quarter of 2005, 95% higher than the second quarter of 2004 and 68% higher than the first quarter of 2005. Similarly, our consumer construction new commitments produced by both mortgage professionals and consumer construction divisions grew to $773 million, a 36% increase over the second quarter of 2004 and a 23% increase from the first quarter of this year. Combined with consumer construction division’s permanent mortgage production of $401 million, our consumer construction and permanent mortgage production increased 34% year over year and 18% over the first quarter of 2005.

29

      The table below provides key performance indicators for mortgage professionals, excluding conduit, for the three months ended June 30, 2005 and 2004, and March 31, 2005:

		Three Months Ended
		June 30,			June 30,		Percent			March 31,		Percent
		2005			2004		Change			2005		Change
		(Dollars in millions)
Key Performance Indicators:
Active Customers:(1)
	Average monthly active customers		3,600			2,527		42	%		3,059		18	%
	Active customers during the quarter		6,191			4,273		45	%		5,394		15	%
Net new customers during the quarter(2)			(402	)		874		(146	)%		1,286		(131	)%
Sales personnel			678			476		42	%		640		6	%

(1)	Active customers are defined as customers who funded at least one loan during the most recent 90-day period.
(2)	Net new customers are the number of new customers signed up during the period less those terminated. During the quarter ended June 30, 2005, the number of terminated customers exceeded the number of new customers, mostly due to inactivity.

Loan Sales

      The Company sold $11.5 billion and $7.6 billion of loans during the three months ended June 30, 2005 and 2004, respectively, and $21.2 billion and $12.5 billion for the six months ended June 30, 2005 and 2004, respectively. The gain on sale of loans was $159.4 million and $118.3 million (pro forma) for the three months ended June 30, 2005 and 2004, respectively, representing a margin of 1.38% and 1.55% (pro forma), respectively. The decline in our net gain on sale margin year over year was primarily due to the shift in our channel mix from retail to conduit channels, and the sale of higher profit margin products such as lot loans as well as loans called from previous securitizations in the second quarter of 2004. Comparing to the first quarter of 2005, the margin dropped from 1.49% in the first quarter of 2005 to 1.38% in the second quarter of 2005. The higher margin in the first quarter of 2005 was caused by higher demand for mortgage-backed securities as spreads tightened.

      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. Hedging practices can vary significantly from company to company ranging across a broad spectrum. At one extreme, a mortgage banker may choose not to hedge its pipeline at all. Mortgage bankers who choose not to hedge their pipeline will typically report higher earnings and margins in a falling interest rate environment, and lower earnings and margins in a rising interest rate environment. This would be the most profitable strategy over an indefinite period of time as more production is done in the declining rate environment, assuming that rates rise as often as and as much as they fall. However, such a strategy results in highly volatile earnings and could result in losses for an extended period of time potentially risking the depletion of capital reserves. Conversely, at the other extreme, a mortgage banker can choose to hedge 100% of its pipeline with option-based instruments to closely offset the “free option” enjoyed by the mortgage loan applicant to not close on his or her loan (i.e. “fallout”). This hedging strategy will generally produce stable and consistent results, but profitability is significantly reduced as the cost of the options can be prohibitive.

      Generally, prudent mortgage bankers will choose a strategy that falls within the boundaries of the above extremes. In this respect, IndyMac tends to utilize instruments such as forward sale agreements whose change in value as interest rates change is expected to offset the change in value of its underlying mortgage pipeline based on expected closing ratios. Utilizing this strategy, IndyMac focuses on trying to maintain stable profit margins with an emphasis on forecasting expected fallout to more precisely estimate our required hedge coverage ratio and minimize hedge costs. By closely monitoring key factors such as product type, origination channels, progress or “status” of transactions, as well as changes in market interest rates since IndyMac

30

committed a rate to the borrower (“rate lock commitments”), the Company seeks to quantify the optional component of each rate lock, and in turn, the aggregate rate lock pipeline. By accurately evaluating these factors, the Company has been able to minimize the purchase of options and also stabilize gain on sale margins over different rate environments. Companies with lower coverage ratios may tend to follow the market, increasing their hedge costs and reducing their profit margins as interest rates rise. In comparing financial results, investors should be aware of the varying results that can be achieved under different hedge strategies.

      The following tables illustrates the impact of the Company’s pipeline hedging activities (second quarter 2004 is reflected on a pro forma basis (1)):

	Three Months Ended
	June 30,			June 30,			Percent			March 31,			Percent
	2005			2004(1)			Change			2005			Change
	(Dollars in millions)
Gross gain on mortgage loan sales(1)	$	204		$	54			278	%	$	117			74	%
Gross margin before hedging		1.77	%		0.71	%		149	%		1.22	%		45	%
Gross hedging gains (losses)	$	(45	)	$	64			(170	)%	$	27			(267	)%
Net gains on sale(1)	$	159		$	118			35	%	$	144			10	%
Net margin after hedging(1)		1.38	%		1.55	%		(11	)%		1.49	%		(7	)%

(1)  The gain on mortgage loan sales for the three months ended June 30, 2004 excludes the $52.2 million SAB No. 105 adjustment. The GAAP gain on mortgage loan sales was $66.1 million for the three months ended June 30, 2004 representing a net margin after hedging of 0.87%.

	Six Months Ended
	June 30,			June 30,			Percent
	2005			2004(1)			Change
	(Dollars in millions)
Gross gain on mortgage loan sales(1)	$	322		$	181			78	%
Gross margin before hedging		1.52	%		1.44	%		6	%
Gross hedging gains (losses)	$	(18	)	$	21			(186	)%
Net gains on sale(1)	$	304		$	202			50	%
Net margin after hedging(1)		1.43	%		1.61	%		(11	)%

(1)  The gain on mortgage loan sales for the six months ended June 30, 2004 excludes the $52.2 million SAB No. 105 adjustment. The GAAP gain on mortgage loan sales was $149.8 million for the six months ended June 30, 2004 representing a net margin after hedging of 1.20%.

      During the quarter ended June 30, 2005, the Company’s pipeline hedging activities resulted in hedging losses of $45 million compared to hedging gains of $64 million for the quarter ended June 30, 2004. The gross hedging losses in the second quarter of 2005 were consistent with the declining interest rate environment and were more than offset by an increase in the value of the mortgages hedged.

      In addition to mortgage loans held for sale, the pipeline also includes 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”). The rate lock commitments are initially valued at zero and continue to be adjusted for changes in value resulting from changes in market interest rates, pursuant to the Staff Accounting Bulletin No. 105,“Application of Accounting Principles to Loan Commitments.”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, Euro Dollar futures and other hedge instruments as the Company deems appropriate to prudently manage this risk. These forward and futures contracts are also accounted for as derivatives and recorded at fair value.

      We earn spread (net interest income) and fee income on our mortgage loans held for sale in addition to the gain on sale. It is important to look at the entire mortgage banking revenue stream in evaluating

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performance, as these components may vary in differing interest rate environments, and due to product/ channel mixes, and loan sale strategies.

      The following table presents the total revenue margin on mortgage loans sold, which is calculated by dividing the sum of gain on sale of loans and the net interest income by the amount of loans sold. In the second quarter of 2005, we changed the basis of presentation of the deferral of certain fees collected on the loans originated under SFAS No. 91. The Company previously classified the initial deferral of the incremental direct costs net of the fees collected on the loans as a net reduction in operating expenses but during this quarter has revised the presentation to reflect the deferral of the total fees collected as a reduction of fee and other income. As a result, the fee income on our mortgage loans held for sale after SFAS No. 91 deferral is relatively insignificant.

      The gain on sale of loans represents the total gains recognized on a consolidated basis from both the mortgage banking and thrift segments. The net interest income is the amount earned primarily by the mortgage banking segment while the loans are held for sale. Overall mortgage banking revenue margins decreased compared to the second quarter of 2004 and the first quarter of 2005 due to the compressions of margins on the gain on sale of loans and net interest income.

		Three Months Ended
		June 30,		% of Loans			June 30,		% of Loans			March 31,		% of Loans
		2005		Sold			2004(1)		Sold			2005		Sold
		(Dollars in thousands)
Gain on sale of loans(1)		$	159,377		1.38	%	$	118,307		1.55	%	$	144,322		1.49	%
Net interest income			28,407		0.25	%		50,391		0.66	%		32,522		0.34	%
	Total revenues on loans sold	$	187,784		1.63	%	$	168,698		2.21	%	$	176,844		1.83	%
Loans sold		$	11,534,100				$	7,638,446				$	9,653,751

	Six Months Ended
	June 30,		% of Loans			June 30,		% of Loans
	2005		Sold			2004(1)		Sold
	(Dollars in thousands)
Gain on sale of loans(1)	$	303,699		1.43	%	$	201,975		1.61	%
Net interest income		60,929		0.29	%		91,727		0.73	%
Total mortgage banking revenue	$	364,628		1.72	%	$	293,702		2.34	%
Loans sold	$	21,187,851				$	12,545,170

(1)  The gain on sale of loans for the three and six months ended June 30, 2004 excludes the $52.2 million SAB No. 105 adjustment. The GAAP gain on sale of loans was $66.1 million and $149.8 million for the three and six months ended June 30, 2004, respectively.

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

		Three Months Ended
		June 30,		Distribution			June 30,		Distribution			March 31,		Distribution
		2005		Percentages			2004		Percentages			2005		Percentages
		(Dollars in millions)
Sales to the GSEs(1)		$	1,103		9	%	$	2,249		25	%	$	1,313		12	%
Private-label securitizations			9,112		77	%		3,845		43	%		5,356		51	%
Whole loan sales			1,319		11	%		1,544		18	%		2,985		28	%
	Subtotal sales		11,534		97	%		7,638		86	%		9,654		91	%
Investment portfolio acquisitions(2)			310		3	%		1,236		14	%		917		9	%
	Total loan distribution	$	11,844		100	%	$	8,874		100	%	$	10,571		100	%

		Six Months Ended
		June 30,		Distribution			June 30,		Distribution
		2005		Percentages			2004		Percentages
		(Dollars in millions)
Sales to the GSEs(1)		$	2,416		11	%	$	4,553		33	%
Private-label securitizations			14,468		65	%		4,930		35	%
Whole loan sales			4,304		19	%		3,062		22	%
	Subtotal sales		21,188		95	%		12,545		90	%
Investment portfolio acquisitions(2)			1,227		5	%		1,431		10	%
	Total loan distribution	$	22,415		100	%	$	13,976		100	%

(1)	Government-sponsored enterprises.
(2)	Loan production that IndyMac elected to retain in its investment portfolio.

      Loan sales to government-sponsored enterprises (“GSEs”) dropped to 9% of total sales for the quarter ended June 30, 2005 compared to 25% for the same period a year ago and 12% for the previous quarter ended March 31, 2005. The decrease reflects the fact that a higher percentage of loans produced consisted of ARMs and subprime mortgages, which the Company does not generally sell to the GSEs. In addition, higher margins were generated by securitizing certain fixed rate loans in private transactions, versus selling them to the GSEs. This resulted from a significant tightening of mortgage spreads related to private-label securitizations, which was not replicated with the GSEs.

      In conjunction with the sale of mortgage loans in private-label securitizations and GSEs transactions, the Company generally retains certain assets. The primary assets retained include MSRs and, to a lesser degree, AAA-rated interest-only securities, AAA-rated principal-only securities, prepayment penalty securities, investment and 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 $159.4 million in gain on sale of loans earned during the three months ended June 30, 2005 included the retention of $168.1 million of servicing-related assets, and $4.2 million of other investment and non-investment grade securities. During the three months ended June 30, 2005, the assets previously retained generated cash flows of $101.1 million. More information on the valuation assumptions related to the Company’s retained assets can be found at page 37, under the heading “Valuation of Servicing-Related Assets.”

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Mortgage Servicing and Mortgage Servicing Rights

      In addition to its own loans, IndyMac serviced $63.7 billion of mortgage loans (including reverse mortgages and HELOCs) owned by others at June 30, 2005, with a weighted average coupon of 5.91%. In comparison, IndyMac serviced $56.0 billion of mortgage loans owned by others at March 31, 2005, with a weighted average coupon of 5.79%. The table below shows the activity in the servicing portfolios during the quarters ended June 30, 2005 and 2004 and March 31, 2005:

		Servicing Portfolio
		Three Months Ended
		June 30, 2005			June 30, 2004			March 31, 2005
		(Dollars in millions)
Unpaid principal balance at beginning of period		$	55,995		$	32,122		$	50,219
Additions			11,454			7,086			9,553
Clean-up calls exercised			(210	)		(672	)		(269	)
Loan payments and prepayments			(3,563	)		(3,918	)		(3,508	)
	Unpaid principal balance at end of period	$	63,676		$	34,618		$	55,995

		Servicing Portfolio
		Six Months Ended
		June 30, 2005			June 30, 2004
		(Dollars in millions)
Unpaid principal balance at beginning of period		$	50,219		$	30,774
Additions			21,007			11,762
Clean-up calls exercised			(479	)		(991	)
Loan payments and prepayments			(7,071	)		(6,927	)
	Unpaid principal balance at end of period	$	63,676		$	34,618

      The capitalized value of MSRs totaled $738.8 million as of June 30, 2005, and $734.2 million as of March 31, 2005, an increase of $4.6 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,
		2005			2004			2005			2005			2004
		(Dollars in thousands)
Balance at beginning of period		$	734,238		$	414,358		$	640,794		$	640,794		$	443,688
Additions			149,616			92,190			132,900			282,516			142,943
Transfers from (to) prepayment penalty and/or AAA-rated agency interest-only securities			(3,364	)		(14,293	)		(5,127	)		(8,491	)		(14,293	)
Clean-up calls exercised			(471	)		(8,226	)		(1,396	)		(1,867	)		(12,016	)
Amortization			(52,083	)		(38,747	)		(45,792	)		(97,875	)		(61,607	)
Valuation/impairment			(89,092	)		48,594			12,859			(76,233	)		(4,839	)
	Balance at end of period	$	738,844		$	493,876		$	734,238		$	738,844		$	493,876

      Although we hedge our MSRs on an economic basis, we have elected to designate SFAS No. 133 fair value hedge accounting on certain tranches of the total MSRs. The changes in the value of the designated MSRs attributable to the hedged risk, and the fair value of the designated hedges, are recorded through income if the hedging relationships are proven to be effective under the provisions of SFAS No. 133. All MSRs, regardless of hedge designation, are then adjusted to the lower of cost or market (“LOCOM”).

      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 stratify our MSRs based on predominant risk characteristics, underlying loan type, interest rate type and interest rate band. Then, for

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each stratum, we determine the fair value of MSRs using our valuation models, which are benchmarked quarterly to 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. As of June 30, 2005, the valuation allowance on MSRs totaled $134.2 million. The temporary valuation writedowns of $89.1 million on MSRs during the second quarter of 2005 were almost perfectly offset by the gains on MSR hedges of $87.6 million.

AAA-Rated Agency Interest-Only, Prepayment Penalty and Residual Securities

      We evaluate the carrying value of our AAA-rated agency interest-only, prepayment penalty 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 securities. Our models used for estimation are periodically tested against historical prepayment speeds and our valuations benchmarked to external sources where available.

      A summary of the activity in the AAA-rated and agency interest-only, prepayment penalty and residual securities portfolios for the three and six months ended June 30, 2005 and 2004, and for the three months ended March 31, 2005, follows:

			Three Months Ended									Six Months Ended
			June 30,			June 30,			March 31,			June 30,			June 30,
			2005			2004			2005			2005			2004
			(Dollars in thousands)
AAA-rated and agency interest-only securities
	Beginning balance		$	83,080		$	149,152		$	90,658		$	90,658		$	146,179
		Retained investments from securitizations		4,106			5,358			—			4,106			38,936
		Transfer from MSRs		—			14,293			—			—			14,293
		Sales		—			(15,171	)		—			—			(15,171	)
		Clean-up calls exercised		(171	)		(1,655	)		—			(171	)		(2,806	)
		Cash received, net of accretion		(5,669	)		(11,042	)		(6,214	)		(11,883	)		(22,812	)
		Valuation (losses) gains before hedges		(18,294	)		14,299			(1,364	)		(19,658	)		(3,385	)
	Ending balance		$	63,052		$	155,234		$	83,080		$	63,052		$	155,234
Prepayment penalty securities:
	Beginning balance		$	45,649		$	4,309		$	33,451		$	33,451		$	2,096
		Retained investments from securitizations		1,749			7,822			8,393			10,142			10,021
		Transfer from MSRs		3,364			—			5,127			8,491			—
		Cash received, net of accretion		(4,162	)		(1,199	)		(2,812	)		(6,974	)		(1,628	)
		Valuation gains		15,683			633			1,490			17,173			1,076
	Ending balance		$	62,283		$	11,565		$	45,649		$	62,283		$	11,565
Residual securities
	Beginning balance		$	131,374		$	61,322		$	135,386		$	135,386		$	56,156
		Retained investments from securitizations		18,150			11,827			30			18,180			28,334
		Cash received, net of accretion		(8,948	)		(3,704	)		(2,960	)		(11,908	)		(14,794	)
		Valuation gains (losses) before hedges		5,218			3,187			(1,082	)		4,136			2,936
	Ending balance		$	145,794		$	72,632		$	131,374		$	145,794		$	72,632

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Other Investment Grade and Non-Investment Grade Securities

      Non-investment grade securities (rated below BBB-) are created in connection with our private-label securitizations and valued by discounting the estimated net future cash flows. We also may retain certain other investment grade securities from our securitizations and to a lesser extent purchased from third parties to serve as hedges for our AAA-rated interest-only securities.

      The fair value of other investment grade and non-investment grade securities by credit rating as of June 30, 2005 and December 31, 2004, is as follows:

												December 31,
			June 30, 2005									2004
					Premium
			Current		(Discount)
			Face		to Face			Amortized
			Value		Value			Cost		Fair Value		Fair Value
			(Dollars in thousands)
Other investment grade mortgage- backed securities:
	AA		$	22,138	$	245		$	22,383	$	22,411	$	76,941
	A			262		(20	)		242		250		5,087
	BBB			32,436		(1,561	)		30,875		31,557		33,764
	BBB-			42,761		(3,573	)		39,188		40,128		31,030
		Total other investment grade mortgage-backed securities	$	97,597	$	(4,909	)	$	92,688	$	94,346	$	146,822
Non-investment grade mortgage- backed securities:
	BB		$	42,357	$	(4,723	)	$	37,634	$	38,537	$	53,065
	BB-			13,524		(196	)		13,328		13,524		13,516
	B+			468		(391	)		77		77		101
	B			10,104		(5,178	)		4,926		5,238		14,449
	Other			6,035		(5,630	)		405		574		1,921
		Total other non-investment grade mortgage-backed securities	$	72,488	$	(16,118	)	$	56,370	$	57,950	$	83,052

      At June 30, 2005, of the total other investment grade and non-investment grade mortgage-backed securities, $103.1 million was collateralized by prime loans and $49.2 million by subprime loans.

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Valuation of Servicing-Related Assets

      MSRs, AAA-rated agency interest-only securities, prepayment penalty securities, and residual securities are recorded at fair market value. MSRs are further subject to the lower of cost or market limitations. Relevant information and assumptions used to value the Company’s servicing-related assets and residual securities at June 30, 2005, March 31, 2005, and December 31, 2004 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			Speeds			Yield			Loss Rate(1)
	(Dollars in thousands)
June 30, 2005
MSRs	$	738,844	$	63,675,945		5.91	%		0.37	%		23.6	%		3.17		24.1	%		26.5	%		9.7	%		N/A
AAA-rated agency interest-only securities	$	63,052	$	7,245,470		6.30	%		0.37	%		27.4	%		2.37		18.4	%		26.8	%		11.6	%		N/A
Prepayment penalty securities	$	62.283	$	10,232,512		5.72	%		N/A			22.2	%		N/A		25.5	%		27.8	%		9.2	%		N/A
Prime residual securities	$	4,693	$	1,378,280		6.16	%		1.33	%		48.5	%		0.26		33.2	%		35.8	%		15.0	%		0.10%
Lot loan residual securities		23,983	$	578,922		7.03	%		2.98	%		41.3	%		1.39		41.9	%		41.3	%		19.7	%		0.68%
HELOC residual securities		64,038	$	1,397,532		7.47	%		3.14	%		44.3	%		1.46		45.4	%		50.0	%		19.0	%		0.82%
Subprime residual securities		53,080	$	4,273,283		7.37	%		2.77	%		29.9	%		0.45		35.9	%		30.1	%		24.9	%		2.87%
Total non-investment grade residual securities	$	145,794
March 31, 2005
MSRs	$	734,238	$	55,994,639		5.79	%		0.36	%		21.4	%		3.64		20.5	%		20.6	%		11.0	%		N/A
AAA-rated agency interest-only securities	$	83,080	$	7,623,711		6.30	%		0.37	%		29.7	%		2.95		14.4	%		25.4	%		11.0	%		N/A
Prepayment penalty securities	$	45,649	$	8,351,419		5.22	%		N/A			21.6	%		N/A		20.6	%		19.0	%		13.5	%		N/A
Prime residual securities	$	4,813	$	1,510,690		6.40	%		1.01	%		36.8	%		0.31		29.9	%		37.2	%		15.0	%		0.20%
Lot loan residual securities		18,594	$	394,413		7.09	%		3.65	%		35.1	%		1.29		42.2	%		42.8	%		19.6	%		0.39%
HELOC residual securities		59,800	$	1,372,162		6.87	%		3.28	%		47.5	%		1.33		49.1	%		50.0	%		19.0	%		0.72%
Subprime residual securities		48,167	$	3,451,302		7.29	%		2.56	%		26.9	%		0.54		34.1	%		22.1	%		24.9	%		2.88%
Total non-investment grade residual securities	$	131,374
December 31, 2004
MSRs	$	640,794	$	50,218,965		5.73	%		0.36	%		24.0	%		3.54		20.8	%		21.9	%		10.3	%		N/A
AAA-rated agency interest-only securities	$	90,658	$	8,472,502		6.65	%		0.38	%		34.3	%		2.82		14.9	%		26.9	%		11.3	%		N/A
Prime residual securities	$	6,495	$	1,668,429		6.55	%		1.00	%		40.9	%		0.39		36.9	%		37.3	%		15.0	%		0.21%
Lot loan residual securities		17,675	$	441,884		7.02	%		4.13	%		36.5	%		0.97		41.0	%		41.6	%		19.3	%		0.42%
HELOC residual securities		66,077	$	1,352,181		6.48	%		3.41	%		32.1	%		1.43		36.7	%		43.4	%		19.0	%		0.91%
Subprime residual securities		45,139	$	2,757,236		7.44	%		3.29	%		24.1	%		0.50		33.6	%		22.8	%		24.7	%		2.55%
Total non-investment grade residual securities	$	135,386

(1)  As a percentage of the original pool balance, the actual cumulative loss rate to date totaled 0.03%, 0.01%, 0.09% and 0.65% for prime, lot loans, HELOC and subprime, respectively, at June 30, 2005.

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      The lifetime prepayment speeds represent the annual constant prepayment rate (“CPR”) we estimate for the remaining life of the collateral supporting the asset. For MSRs and AAA-rated agency interest-only securities, we project prepayment rates using an industry standard prepayment model. The model considers key factors such as refinance incentive, housing turnover, seasonality and aging of the pool of loans. Prepayment speeds incorporate expectations of future rates implied by the market forward LIBOR/swap curve as well as collateral specific current coupon information.

      The weighted-average multiple for MSRs, AAA-rated agency interest-only securities 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 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 whose product mix is substantially different.

      As of June 30, 2005, the weighted-average multiple for MSRs has decreased compared to March 31, 2005, primarily due to the higher prepayment assumptions based on lower long-term interest rates. The actual prepayments in the servicing portfolio during the second quarter of 2005 were faster than projected as a result of a 60 basis-point drop in 10-year swap rates and the concentration of our servicing portfolio in hybrid-ARM and ARM loans which tend to prepay faster and have a shorter average life. Similarly, the weighted-average multiple for AAA-rated interest-only securities decreased from that of the first quarter of 2005. Our residual securities are less interest-rate sensitive and thus the weighted-average multiples are more comparable from period to period.

      The prepayment penalty securities are held mainly as hedges of the related MSR asset. The prepayment penalty securities increased in value as declining rates drove a forecasted increase in prepayment penalty fees from the underlying collateral. In addition, the discount yield used in valuation was reduced as a result of observed sale prices of prepayment penalty securities as well as the expected shortened life of the securities due to falling rates. The gains in the prepayment penalty securities were largely offset by declines in value in the related MSR asset.

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 retained assets and servicing division is responsible for the management of interest rate and prepayment risks in the servicing-related assets, subject to policies and procedures established by, and oversight from, our management-level Asset and Liability Committee (“ALCO”), management level Enterprise Risk Management (“ERM”) group, and our Board of Directors-level ERM committee.

      The objective of our hedging strategy is to mitigate the impact of changes in interest rates on the net economic value of the balance sheet and quarterly earnings, not to speculate on interest rates. As such, we manage the comprehensive interest rate risk of our servicing-related assets using financial instruments and our servicing portfolio retention efforts. Historically, we have hedged servicing-related assets using a mix of securities on our balance sheet, such as AAA-rated principal-only securities, prepayment penalty securities, buying and/or selling mortgage-backed or U.S. Treasury securities, as well as derivatives such as futures, floors, interest rate swaps, or options. As there are no hedge instruments that would be perfectly correlated with these hedged assets, we use a mix of the above instruments designed to correlate well with the hedged servicing assets and our anticipated servicing retention rates.

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      The following table breaks out the components of service fee income/expense and the net (loss) gain on mortgage-backed securities:

			Three Months Ended									Six Months Ended
			June 30,			June 30,			March 31,			June 30,			June 30,
			2005			2004			2005			2005			2004
			(Dollars in thousands)
Service fee (expense) income:
	Gross service fee income		$	64,358		$	29,879		$	54,989		$	119,347		$	57,959
	Amortization			(52,083	)		(38,747	)		(45,792	)		(97,875	)		(61,607	)
	Service fee (expense) income, net of amortization			12,275			(8,868	)		9,197			21,472			(3,648	)
	Valuation adjustments on MSRs			(89,092	)		48,594			12,859			(76,233	)		(4,839	)
	Hedge gain (loss) on MSRs			87,616			(67,533	)		(17,638	)		69,978			(22,464	)
		Total service fee (expense) income	$	10,799		$	(27,807	)	$	4,418		$	15,217		$	(30,951	)
Net loss on securities:
	Realized gain on available for sale securities		$	5,731		$	631		$	(350	)	$	5,381		$	1,531
	Impairment on available for sale securities			(78	)		(565	)		(337	)		(415	)		(666	)
	Unrealized gain (loss) on prepayment penalty securities			15,683			633			1,491			17,174			(392	)
	Unrealized (loss) gain on AAA-rated and agency interest-only and residual securities			(12,826	)		17,486			(4,268	)		(17,094	)		1,019
	Net gain (loss) on trading securities and other instruments used to hedge AAA-rated and agency interest-only and residual securities			7,341			(21,599	)		(1,182	)		6,159			(9,893	)
		Total gain (loss) on mortgage-backed securities, net	$	15,851		$	(3,414	)	$	(4,646	)	$	11,205		$	(8,401	)

THRIFT

      IndyMac’s thrift segment serves to diversify IndyMac’s mortgage banking revenue stream through its investments in SFR mortgage loans (predominantly prime ARMs and hybrid ARMs), construction loans, HELOCs, and MBS and provides core spread and fee income to stabilize earnings.

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      The following table details the loans held for investment and MBS as of June 30, 2005, and December 31, 2004. The loans held for investment, AAA-rated agency and non-agency available for sale MBS and HELOC residual securities are held by our thrift segment while all other trading and available-for-sale securities are held by our mortgage banking segment. Please refer to page 35 for further discussions on AAA-rated agency interest-only, prepayment penalty and residual securities.

					June 30,			December 31,
					2005			2004
					(Dollars in thousands)
Loans held for investment:
	SFR mortgage				$	4,989,025		$	4,458,784
	Consumer construction					1,493,948			1,443,450
	Builder construction					752,466			643,116
	HELOC					39,512			45,932
	Land and other mortgage					183,032			158,471
	Revolving warehouse lines of credit					27,974			—
				Total — loans held for investment		7,485,957			6,749,753
Mortgage-backed securities:
	Trading securities:
		AAA-rated and agency interest-only securities				63,052			90,658
		AAA-rated principal-only securities				—			18,599
		Prepayment penalty securities				62,283			33,451
		Other investment grade securities				9,320			9,219
		Other non-investment grade securities				—			4,198
		Non-investment grade residual securities				97,657			78,911
				Total trading securities		232,312			235,036
	Available for sale securities:
		AAA-rated non-agency securities				3,186,980			3,166,600
		AAA-rated agency securities				11,827			14,903
		Other investment grade securities				85,026			137,603
		Other non-investment grade securities				57,950			78,854
		Non-investment grade HELOC residual securities				48,137			56,475
			Total available for sale securities			3,389,920			3,454,435
				Total — mortgage-backed securities		3,622,232			3,689,471
				Total	$	11,108,089		$	10,439,224
Percentage of securities portfolio rated investment grade						93	%		93	%
Percentage of securities portfolio rated AAA						90	%		89	%

      AAA-rated interest-only securities, prepayment penalty securities, non-investment grade 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 and HELOC residuals are classified as available for sale, and changes in fair value of these assets are recorded in equity.

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 and hybrid adjustable-rate mortgage loans to mitigate interest rate risk. The Company plans on increasing its portfolio of mortgage loans held for investment to achieve

40

better balance in its thrift segment relative to its mortgage banking segment, which tends to be more cyclical. The Company added $310 million of mortgage loans in accordance with this strategy during the quarter ended June 30, 2005.

      The following table shows the composition of the portfolio as of June 30, 2005 and December 31, 2004, and relevant credit quality characteristics at June 30, 2005 and December 31, 2004.

	June 30,			December 31,
	2005			2004
	(Dollars in thousands)
SFR mortgage loans held for investment	$	4,989,025		$	4,458,784
Average loan size	$	305		$	305
Non-performing loans as a percentage of SFR loans		0.55	%		0.60	%
Estimated average life in years(1)		2.6			2.4
Estimated average duration in years(2)		1.3			1.5
Yield		4.63	%		4.38	%
Fixed-rate mortgages		7	%		9	%
Adjustable-rate mortgages		28	%		18	%
Hybrid adjustable-rate mortgages		65	%		73	%

			June 30,			December 31,
Additional Information			2005			2004
Average FICO score(3)				717			720
Average loan to value ratio				72	%		71	%
Geographic distribution of top five states:
	Southern California			32	%		31	%
	Northern California			20	%		21	%
	Michigan			5	%		6	%
	Florida			5	%		4	%
	New York			4	%		4	%
	Georgia			3	%		3	%
	Other			31	%		31	%
		Total		100	%		100	%

(1)	Represents the estimated length of time, on average, the SFR loan portfolio will remain outstanding based on the Company’s estimates for prepayments.
(2)	Average duration measures the expected change in the value of a financial instrument in response to changes in interest rates.
(3)	FICO scores are the result of 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.

Mortgage-Backed Securities

      The Company’s portfolio of mortgage-backed securities totaled $3.6 billion and $3.7 billion at June 30, 2005, and December 31, 2004, respectively. Included in the portfolio at June 30, 2005 were $1.0 billion of AAA-rated HELOC-backed certificates that are guaranteed by a third party insurer and $153.7 million of AAA-rated senior mortgage-backed securities issued by us. These securities were created from our three separate on-balance sheet financing transactions in which the loans were recharacterized to securities. The

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primary objectives of these transactions were to improve our liquidity profile, lower our cost of funds, and optimize return on equity. These assets amounted to $1.0 billion and $198.0 million, respectively, at December 31, 2004.

      The MBS securities are recorded at fair value. The Company invests in high-quality MBS to provide net interest income. At June 30, 2005, 90% of the portfolio was rated AAA with an expected weighted-average life of 2.2 years.

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 to 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. These loans are typically fixed-rate loans during the construction period. When the loan converts to permanent status, the interest rate may be adjusted based on the underlying permanent note. As of June 30, 2005, based on the underlying note agreements, 50% of the construction loans would be converted to adjustable-rate permanent loans, 31% to hybrid adjustable-rate loans, and 19% to fixed-rate loans. New consumer construction commitments grew 31% from the first quarter of 2005 and 21% over the same quarter of 2004 to $917 million, as we continue to take advantage of the strong “new home” purchase market. Once the loan has converted to a permanent mortgage loan, the mortgage is classified as a mortgage loan held for sale and may be sold in the secondary market or acquired by the SFR mortgage loan portfolio. Mortgage loans that converted to permanent status grew 10% from the first quarter of 2005 and 29% over the same quarter of 2004 to $401 million. Overall, the Company is one of the largest custom residential construction lenders in the nation. Consumer construction loans outstanding at June 30, 2005 remained comparable to December 31, 2004 at $1.5 billion.

      Builder construction loans are typically adjustable rate loans, indexed to the prime interest rate. The strong homebuilding market continues to provide growth opportunities in coordination with opening new offices. During the second quarter of 2005, we entered into new tract construction commitments of $594 million, up 95%, or $290 million, from the second quarter of 2004. Builder loans outstanding at June 30, 2005, including construction and land and other mortgage loans, totaled $927.7 million, a $130.4 million, or 16% increase compared to December 31, 2004. A substantial portion of our builder construction loans is secured by corporate or personal guarantees of the builders as well as the underlying real estate.

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      The following tables present further information on our Construction Lending portfolios.

	As of
	June 30, 2005						December 31, 2004
	Consumer			Builder			Consumer			Builder
	Construction			Construction			Construction			Construction
	Loans			Loans			Loans			Loans
	(Dollars in thousands)
Construction loans	$	1,493,948		$	752,466		$	1,443,450		$	643,116
Lot, land and other mortgage loans	$	112,735		$	175,216		$	37,172		$	154,123
Outstanding commitments	$	2,708,603		$	1,515,566		$	2,528,054		$	1,461,296
Average loan commitments	$	421		$	9,185	(1)	$	410		$	7,033
Non-performing loans		0.55	%		0.71	%		0.65	%		1.45	%
Annualized yield on construction loans		5.56	%		8.56	%		5.56	%		7.35	%
Fixed-rate loans		94	%		—			98	%		—
Adjustable-rate loans		6	%		99	%		2	%		98	%
Hybrid adjustable-rate loans		—			1	%		—			2	%

(1)  In calculating the average builder construction loan commitments, total commitments of $324.0 million of builder spec loans, with average loan commitments of $388 thousand are excluded in the calculation at June 30, 2005. As of December 31, 2004, builder spec loans had total commitments of $223.4 million with average loan commitments of $387 thousand.

Additional Information as of June 30, 2005

		Consumer				Builder
		Construction				Construction
		Loans				Loans
Average loan-to-value ratio(1)			74	%			71	%
Average FICO score(2)			711				N/A
Geographic distribution of top five states:
	Southern California		30	%	Southern California		41	%
	Northern California		18	%	Northern California		15	%
	Hawaii		6	%	Illinois		11	%
	Florida		6	%	Florida		5	%
	New York		4	%	Arizona		5	%
	Washington		3	%	Massachusetts		3	%
	Other		33	%	Other		20	%
	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, 2005.
(2)	FICO scores are not calculated for corporate entities and, therefore, are not applicable to the builder construction portfolio.

      For information related to the Company’s balance of non-performing assets and related credit reserves, see discussion in the “Credit Risk and Reserves” section at page 49.

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HELOC Portfolio

      The HELOC portfolio, including the HELOC securitized loans, totaled $1.8 billion at June 30, 2005, which represents an increase of approximately $100 million from the portfolio size at December 31, 2004. During the second quarter of 2005, we produced $451 million of new HELOC commitments, largely from our mortgage banking segment and internal channels, and sold $130 million of HELOC loans, realizing a $1.8 million of gain on sale. For the six months ended June 30, 2005, we produced $794 million of new HELOC commitments and sold $292 million of HELOCs, realizing a $4.5 million of gain on sale. HELOC loans that we plan to sell or securitize are classified as held for sale on our balance sheet.

      The following table presents information on the combined HELOC portfolio, including both held for sale and held for investment loans, as of and for the three months ended June 30, 2005, March 31, 2005, and December 31, 2004. All HELOC loans are adjustable rate loans and indexed to the prime rate.

	June 30,			March 31,			December 31,
	2005			2005			2004
	(Dollars in thousands)
Outstanding balance	$	461,293		$	409,948		$	404,342
Outstanding commitments(1)	$	913,845		$	821,991		$	838,534
Average spread over prime		1.31	%		1.31	%		1.41	%
Average FICO score		732			729			726
Average CLTV ratio(2)		76	%		76	%		76	%

Additional Information as of June 30, 2005

				Average Loan							30+ Days
		Outstanding		Commitment		Average Spread			Average		Delinquency
CLTV		Balance		Balance		Over Prime			FICO		Percentage
		(Dollars in thousands)
96% to 100%		$	98,038	$	66		2.39	%		738		0.52	%
91% to 95%			41,877		64		1.95	%		725		0.53	%
81% to 90%			100,834		65		1.79	%		713		0.54	%
71% to 80%			113,716		94		0.62	%		731		0.43	%
70% or less			106,828		89		0.36	%		744		0.00	%
	Total	$	461,293	$	79		1.31	%		732		0.38	%

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

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NET INTEREST INCOME

      The following table sets forth information regarding our consolidated average balance sheets (all segments 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, 2005							June 30, 2004							March 31, 2005
		Average				Yield/			Average				Yield/			Average				Yield/
		Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
		(Dollars in thousands)
Securities		$	3,563,192	$	47,701		5.37	%	$	2,877,174	$	34,365		4.80	%	$	3,657,831	$	51,324		5.69	%
Loans held for sale			6,844,766		87,756		5.14	%		5,282,806		69,395		5.28	%		6,047,608		79,383		5.32	%
Mortgage loans held for investment			5,312,122		61,339		4.63	%		5,424,545		56,827		4.21	%		4,890,267		56,220		4.66	%
Builder construction and income property			727,731		15,535		8.56	%		546,597		8,820		6.49	%		656,007		12,993		8.03	%
Consumer construction			1,398,654		19,372		5.56	%		1,208,522		17,003		5.66	%		1,371,321		19,285		5.70	%
Investment in Federal Home Loan Bank stock and other			714,107		7,043		3.96	%		329,231		3,898		4.76	%		416,033		4,393		4.28	%
	Total interest-earning assets		18,560,572		238,746		5.16	%		15,668,875		190,308		4.88	%		17,039,067		223,598		5.32	%
Other			1,458,128							1,317,607							1,529,126
	Total assets	$	20,018,700						$	16,986,482						$	18,568,193
Interest-bearing deposits		$	5,693,146		44,326		3.12	%	$	4,076,509		23,697		2.34	%	$	5,258,418		35,892		2.77	%
Advances from Federal Home Loan Bank			8,216,382		64,091		3.13	%		5,775,468		33,919		2.36	%		7,300,102		52,713		2.93	%
Other borrowings			3,594,250		33,924		3.79	%		4,800,920		25,714		2.15	%		3,635,020		30,573		3.41	%
	Total interest-bearing liabilities		17,503,778		142,341		3.26	%		14,652,897		83,330		2.29	%		16,193,540		119,178		2.98	%
Other			1,194,235							1,206,297							1,121,105
	Total liabilities		18,698,013							15,859,194							17,314,645
	Shareholders’ equity		1,320,687							1,127,288							1,253,548
	Total liabilities and shareholders’ equity	$	20,018,700						$	16,986,482						$	18,568,193
Net interest income				$	96,405						$	106,978						$	104,420
Net interest spread							1.90	%						2.59	%						2.34	%
Net interest margin							2.08	%						2.75	%						2.49	%

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		Six Months Ended
		June 30, 2005							June 30, 2004
		Average				Yield			Average				Yield
		Balance		Interest		Rate			Balance		Interest		Rate
		(Dollars in thousands)
Securities		$	3,610,512	$	99,025		5.53	%	$	2,491,321	$	61,220		4.94	%
Loans held for sale			6,446,186		167,139		5.23	%		4,485,728		124,141		5.57	%
Mortgage loans held for investment			5,101,194		117,559		4.65	%		5,516,402		114,868		4.19	%
Builder construction and income property			691,869		28,528		8.31	%		526,633		16,860		6.44	%
Consumer construction			1,384,987		38,657		5.63	%		1,174,446		32,998		5.65	%
Investment in Federal Home Loan Bank stock and other			565,070		11,436		4.08	%		324,776		6,780		4.20	%
	Total interest-earning assets		17,799,818		462,344		5.24	%		14,519,306		356,867		4.94	%
Other			1,493,628							1,248,121
	Total assets	$	19,293,446						$	15,767,427
Interest-bearing deposits		$	5,475,782		80,218		2.95	%	$	3,957,510		46,179		2.35	%
Advances from Federal Home Loan Bank			7,758,242		116,804		3.04	%		5,491,302		64,839		2.37	%
Other borrowings			3,614,635		64,497		3.60	%		4,166,462		44,938		2.17	%
	Total interest-bearing liabilities		16,848,659		261,519		3.13	%		13,615,274		155,956		2.30	%
Other			1,157,671							1,066,848
	Total liabilities		18,006,330							14,682,122
	Stockholders’ equity		1,287,116							1,085,305
	Total liabilities and stockholders’ equity	$	19,293,446						$	15,767,427
Net interest income				$	200,825						$	200,911
Net interest spread							2.11	%						2.64	%
Net interest margin							2.28	%						2.78	%

      The net interest margin during the second quarter of 2005 was 2.08%, a decrease from 2.49% from the first quarter of 2005 and a decrease from 2.75% for the second quarter of 2004. The margin decline year over year was primarily due to our mortgage loan held for sale portfolio. As shown in the table below, the net interest margin in the held for sale portfolio declined 178 basis points from the second quarter a year ago and 56 basis points from the first quarter of 2005. These declines are attributable to increases in short-term interest rates, and a shift in portfolio composition to lower rate ARM products. The decrease in net interest margin from the first quarter of 2005 was principally as a result of the continuing flattening of the yield curve.

		Three Months Ended
		June 30, 2005							June 30, 2004							March 31, 2005
		Average		Net		Net			Average		Net		Net			Average		Net		Net
		Earning		Interest		Interest			Earning		Interest		Interest			Earning		Interest		Interest
		Assets		Income		Margin			Assets		Income		Margin			Assets		Income		Margin
		(Dollars in millions)
By Segment:
Thrift segment and other		$	12,315	$	59		1.93	%	$	10,346	$	52		2.02	%	$	11,389	$	63		2.26	%
Mortgage banking segment			6,246		37		2.38	%		5,323		55		4.16	%		5,650		41		2.94	%
	Total Company		18,561		96		2.08	%		15,669		107		2.75	%		17,039		104		2.49	%

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      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:

•  changes in volume (changes in average outstanding balances multiplied by the prior period’s rate),

•  changes in the rate (changes in the average interest rate multiplied by the prior period’s volume), and

•  changes in rate/volume (“mix”) (changes in rates times the changes in volume).

				Three Months Ended June 30,
				2005 vs. 2004
				Increase/(Decrease) Due to
				Volume			Rate			Mix			Total Change
				(Dollars in thousands)
Interest income:
	Securities			$	8,310		$	4,047		$	979		$	13,336
	Loans held for sale				20,764			(1,850	)		(553	)		18,361
	Mortgage loans held for investment				(1,025	)		5,639			(102	)		4,512
	Builder construction and income property				2,955			2,816			944			6,715
	Consumer construction				2,729			(310	)		(50	)		2,369
	Investment in Federal Home Loan Bank stock and other				4,580			(660	)		(775	)		3,145
		Total interest income			38,313			9,682			443			48,438
Interest expense:
	Interest-bearing deposits				9,488			7,955			3,186			20,629
	Advances from Federal Home Loan Bank				14,468			11,009			4,695			30,172
	Other borrowings				(6,410	)		19,475			(4,855	)		8,210
		Total interest expense			17,546			38,439			3,026			59,011
			Net interest income	$	20,767		$	(28,757	)	$	(2,583	)	$	(10,573	)

				Six Months Ended June 30,
				2005 vs. 2004
				Increase/(Decrease) Due to
				Volume			Rate			Mix			Total Change
				(Dollars in thousands)
Interest income:
	Mortgage-backed securities			$	27,256		$	3,250		$	7,299		$	37,805
	Loans held for sale				53,761			(3,252	)		(7,511	)		42,998
	Mortgage loans held for investment				(8,940	)		(982	)		12,613			2,691
	Builder construction and income property				5,229			1,524			4,915			11,668
	Consumer construction				5,808			(22	)		(127	)		5,659
	Investment in Federal Home Loan Bank stock and other				4,984			(139	)		(189	)		4,656
		Total interest income			88,098			379			17,000			105,477
Interest expense:
	Interest-bearing deposits				17,539			11,958			4,542			34,039
	Advances from Federal Home Loan Bank				26,513			18,065			7,387			51,965
	Other borrowings				(6,060	)		29,612			(3,993	)		19,559
		Total interest expense			37,992			59,635			7,936			105,563
			Net interest income	$	50,106		$	(59,256	)	$	9,064		$	(86	)

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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, rate locks and our investment in servicing-related assets, we perform extensive, company-wide 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 may have on the fair value of shareholders’ equity.

      The following table sets forth the NPV and change in NPV that we estimate might result from a 100 basis point change in interest rates as of June 30, 2005, and December 31, 2004. Our NPV model has been built to focus on the Bank alone as the $1.1 billion of assets at the Parent Company and its non-bank subsidiaries have very little interest rate risk exposure.

		June 30, 2005								December 31, 2004
				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		$	352,482	$	352,482		$	352,482		$	352,664	$	352,664		$	352,664
Trading securities			216,573		214,103			222,308			215,480		202,801			224,716
Available for sale securities			2,304,438		2,331,927			2,253,616			2,362,108		2,398,485			2,303,858
Loans held for sale			6,086,526		6,127,848			6,002,193			4,474,459		4,530,902			4,385,744
Loans held for investment			7,475,437		7,541,068			7,368,808			6,725,541		6,792,345			6,616,173
MSRs			743,869		593,041			861,747			640,794		509,099			728,703
Other assets			1,097,083		1,140,457			1,132,815			898,496		959,259			926,602
	Total assets	$	18,276,408	$	18,300,926		$	18,193,969		$	15,669,542	$	15,745,555		$	15,538,460
Deposits		$	6,567,010	$	6,620,743		$	6,523,651		$	5,688,988	$	5,741,396		$	5,640,149
Advances from Federal Home Loan Bank			7,597,772		7,621,742			7,574,172			6,160,151		6,189,573			6,131,386
Other borrowings			1,873,000		1,874,394			1,871,609			1,865,801		1,867,124			1,864,481
Other liabilities			423,762		424,107			423,417			299,876		300,119			299,631
	Total liabilities		16,461,544		16,540,986			16,392,849			14,014,816		14,098,212			13,935,647
Shareholders’ equity (NPV)		$	1,814,864	$	1,759,940		$	1,801,120		$	1,654,726	$	1,647,343		$	1,602,813
% Change from base case					(3.03	)%		(0.76	)%				(0.45	)%		(3.14	)%

      The increase in the net present value of equity from December 31, 2004, to June 30, 2005, is primarily due to (i) the increase in retained earnings of IndyMac Bank in the amount of $84.4 million, (ii) a capital contribution of $40.0 million from IndyMac Bancorp to IndyMac Bank, (iii) lower relative valuation of certain liabilities as interest rates have increased, and (iv) higher relative valuation of hedging instruments for servicing-related assets. The June 30, 2005 results indicate that IndyMac Bank has a relatively neutral profile in an up and down 100 basis point scenarios, similar to the profile at December 31, 2004. It should be noted that this analysis is based on instantaneous change in interest rates and does not reflect (i) the impact of changes in hedging activities as interest rates change, and (ii) 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 shock models include expected valuation changes in an instantaneous and parallel interest rate shock, and assumptions as to the degree of correlation between the hedges and hedged assets and liabilities. These assumptions may not adequately reflect factors such as the spread-widening or spread-tightening risk among the changes in rates on Treasury, LIBOR/swap curve, mortgages, shape of the yield curve and volatility. 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, such as increases in income associated

48

with the increase in production volume that could result from a decrease in interest rates. Consequently, the preceding estimates should not be viewed as a forecast, and it is reasonable to expect that actual results could vary significantly from the analyses discussed above.

CREDIT RISK AND RESERVES

      The following table summarizes the Company’s allowance for loan losses/credit discounts and non-performing assets as of June 30, 2005. The overall adequacy of the allowance for loan losses is based on the allowance in its entirety. The allocation amongst the various loan products is representative of our judgments and assumptions at a specific point in time and may be reallocated in the future based on changes in performance and other circumstances.

										Total Reserves					QTD Net			YTD Net
						Allowance				as a		Non-			Charge			Charge
						For Loan		Credit		Percentage of		Performing			Offs/Net			Offs/Net
Type of Loan				Book Value		Losses		Discounts(2)		Book Value		Assets			REO (Gains)			REO (Gains)
				(Dollars in thousands)
Held for investment portfolio
	SFR mortgage loans and HELOCs			$	4,979,168	$	18,544	$	—		0.37%	$	22,890		$	254		$	1,075
	Land and other mortgage loans				183,032		3,500		—		1.91%		74			41			41
	Builder construction and income property loans				752,466		14,557		—		1.93%		6,552			72			72
	Consumer construction loans				1,493,948		10,130		—		0.68%		8,506			375			870
	Revolving warehouse Lines of credit				27,974		84		—		0.30%		—			—			—
		Total core held for investment loans			7,436,588		46,815		—		0.63%		38,022			742			2,058
	Discontinued product lines(1)				49,369		7,254		—		14.69%		4,880			1,089			1,661
			Total held for investment portfolio		7,485,957	$	54,069		—		0.72%		42,902			1,831			3,719
Held for sale portfolio					6,046,746			$	9,597		0.16%		19,865			—			—
			Total loans	$	13,532,703								62,767		$	1,831		$	3,719
Foreclosed assets
Core portfolios													10,928		$	(1,337	)	$	(1,795	)
Discontinued product lines													391			52			4
Total foreclosed assets													11,319		$	(1,285	)	$	(1,791	)
Total non-performing assets												$	74,086
Total non-performing assets as a percentage of total assets													0.38	%

(1)	Discontinued product lines include manufactured home loans and home improvement, which were discontinued during 1999.
(2)	The amount represents the lower of cost or market adjustments on non-performing loans in the held for sale portfolio.

      The allowance for loan losses is allocated for segment reporting purpose to the various loan products, as shown in the table above. The entire allowance for loan losses is available to cover losses in any of the loan portfolios. A component of the overall allowance for loan losses is not specifically allocated to the loan portfolios in the overall assessment of adequacy (“unallocated component”). The unallocated component

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reflects management’s assessment of various factors that create inherent imprecision in the methods used to determine the specific portfolio allocations. Those factors include, but are not limited to levels of and trends in delinquencies and impaired loans, charge-offs and recoveries, volume and terms of the loans, effects of any changes in risk selection and underwriting standards, other changes in lending policies, procedures, and practices, and national and local economic trends and conditions. As of June 30, 2005, $17.4 million or 32% of the total allowance for loan losses related to the unallocated component.

      The following table provides additional comparative data on non-performing assets.

					June 30,			June 30,			December 31,
					2005			2004			2004
					(Dollars in thousands)
Loans held for investment
	Portfolio loans
		SFR mortgage loans			$	22,890		$	12,625		$	22,155
		Builder construction and income property loans				6,552			9,162			11,546
		Consumer construction loans				8,506			10,203			9,553
		Land and other mortgage loans				74			—			—
			Total portfolio non-performing loans			38,022			31,990			43,254
			Discontinued product lines			4,880			6,024			5,868
				Total non-performing loans held for investment		42,902			38,014			49,122
Allowance for loan losses to non-performing loans held for investment						126	%		139	%		108	%
Non-performing loans held for sale						19,865			47,823			54,611
				Total non-performing loans		62,767			85,837			103,733
Foreclosed assets						11,319			27,316			19,161
				Total non-performing assets	$	74,086		$	113,153		$	122,894
Total non-performing assets to total assets						0.38	%		0.73	%		0.73	%

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      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,
			2005			2004			2005			2004
			(Dollars in thousands)
Core portfolio loans
Balance, beginning of period			$	45,700		$	45,043		$	45,191		$	45,644
Provision for loan losses				1,857			1,701			3,682			2,101
Charge-offs net of recoveries
		SFR mortgage loans		(254	)		(1,120	)		(1,075	)		(2,046	)
		Land and other mortgage loans		(41	)		—			(41	)		—
		Builder construction		(72	)		(10	)		(72	)		(10	)
		Consumer construction		(375	)		(329	)		(870	)		(404	)
	Charge-offs net of recoveries			(742	)		(1,459	)		(2,058	)		(2,460	)
Balance, end of period				46,815			45,285			46,815			45,285
Discontinued product lines
Balance, beginning of period				7,793			7,083			7,700			7,001
Provision for loan losses				550			1,499			1,215			2,599
	Charge-offs net of recoveries			(1,089	)		(1,071	)		(1,661	)		(2,089	)
Balance, end of period				7,254			7,511			7,254			7,511
		Total allowance for loan losses	$	54,069		$	52,796		$	54,069		$	52,796
Annualized charge-offs to average loans held for investment				0.10	%		0.14	%		0.10	%		0.13	%
Charge-offs to quarterly production				0.01	%		0.03	%		0.01	%		0.03	%
Core portfolio loans only
Annualized charge-offs to average loans held for investment				0.04	%		0.08	%		0.06	%		0.07	%
Charge-offs to quarterly production				0.01	%		0.01	%		0.01	%		0.01	%

      Total credit-related reserves, including the allowance for loan losses and the market valuation reserves, amounted to $63.7 million at June 30, 2005, compared to $63.9 million at December 31, 2004. As of June 30, 2005, the allowance for loan losses of $54.1 million for loans held for investment, represented 0.72% of total loans held for investment, comparable to the allowance for loan losses to total loans held for investment of 0.78% at December 31, 2004 and 0.76% at June 30, 2004. Total charge-offs decreased from $2.5 million for the second quarter of 2004 to $1.8 million for the second quarter of 2005, with improvements in the SFR mortgage loans portfolio. The charge-offs as a percent of loans held for investment also improved from 0.14% for the second quarter of 2004 to 0.10% for the second quarter of 2005.

      Loans are generally placed on non-accrual status when they are 90 days past due. Non-performing assets include non-performing loans and foreclosed assets. We record the balance of our assets acquired in foreclosure or by deed in lieu of foreclosure at estimated net realizable value. Total non-performing assets amounted to $74.1 million at June 30, 2005, a decrease of $48.8 million from December 31, 2004 and $39.1 million from June 30, 2004. The reductions of non-performing assets during the second quarter of 2005 were primarily due to the liquidations of non-performing loans held for sale and the sales of foreclosed assets. The ratio of non-performing assets to total assets was 0.38% at June 30, 2005, improved from 0.73% at June 30, 2004 and 0.73% at December 31, 2004, attributable to the environment of rising home prices and our strategy of retaining a higher quality portfolio.

      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, loan demand, delinquency trends and prior loan loss

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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 of manufactured housing 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 primary federal regulator, the Office of Thrift Supervision (“OTS”). The OTS may require that our allowance for loan losses be increased based on its evaluation of the information available to it at the time of its examination of the Bank.

      With respect to mortgage loans held for sale, we do 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 market valuation for these loans. Lower of cost or market valuation adjustments related to the credit risk on loans held for sale totaled $9.6 million at June 30, 2005.

SECONDARY MARKET RESERVES

      We do not generally 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 do not conform with the representations and warranties we made at the time of sale. We have made significant investments in our pre-production and post-production quality control processes to identify potential issues that could cause repurchases. We believe that these efforts have improved our production quality; however, possible increases in default rates due to an economic slowdown could cause the overall rate of repurchases to remain constant or even increase. Since 1993, the Company has repurchased a very small number 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 include whole loan and GSE sales. While sales through these channels typically generate enhanced cash flows, they tend to have a greater level of representation and warranty and repurchase 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		$	157.1	$	63,153		0.25	%
Securitization trusts			13.7		87,094		0.02	%
	Total	$	170.8	$	150,247		0.11	%

      The Company maintains secondary market reserves for losses that arise in connection with loans that we may be required to repurchase from whole loan sales, securitization transactions and sales to the GSEs. These reserves, which totaled $37.0 million at June 30, 2005, 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, 2005.

	Three			Six
	Months			Months
	(Dollars in thousands)
Balance, Beginning of the Period	$	36,357		$	35,610
Additions/provisions		4,993			9,993
Claims reimbursement and estimated discounts on loans held for sale/charge-offs		(4,845	)		(9,372	)
Recoveries on previous claims		538			812
Balance, June 30, 2005	$	37,043		$	37,043

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      During the second quarter of 2005, the Company reached a settlement with Washington Mutual over the previously disclosed lawsuit related to the loans sold by the Company to PNC Mortgage Corporation during the period 1997 to 2000, prior to Washington Mutual’s acquisition of PNC Mortgage Corporation in 2001. The settlement calls for a cash payment of $10 million and the repurchase of certain loans for approximately $7.86 million, with an estimated loss of $3 million. Therefore, the total cost of the settlement is approximately $13 million, which will reduce the secondary market reserve during the third quarter of 2005 when paid and fully resolve the lawsuit. The cost of the settlement approximated our reserves established previously for the lawsuit.

      Reserve levels are a function of expected losses based on actual pending and expected claims and repurchase requests, historical experience, loan volume and loan sales distribution channels and the assessment of the probability of vendor or investor claims. While the ultimate amount of repurchases and claims is uncertain, management believes that the reserves are adequate. We have no other pending dispute similar to the Washington Mutual case as of June 30, 2005. The remaining secondary market reserves after the Washington Mutual settlement are for repurchases arising from general representation and warranty claims. We will continue to evaluate the adequacy of our reserves and may continue to allocate a portion of our gain on sale proceeds to these reserves going forward. The entire balance of our secondary market reserves is 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,
	2005			2004		2005		2005		2004
	(Dollars in thousands)
Salaries and related	$	82,267		$	51,149	$	74,840	$	157,107	$	102,589
Premises and equipment		13,630			9,938		12,613		26,243		19,531
Loan purchase costs		9,249			10,244		8,720		17,969		17,551
Professional services		6,202			5,844		6,956		13,158		10,917
Data processing		11,316			8,580		9,913		21,229		17,171
Office		8,383			5,758		6,623		15,006		11,737
Advertising and promotion		10,608			9,167		11,150		21,758		18,023
Operations and sale of foreclosed assets		(889	)		1,419		1,601		712		3,554
Litigation settlement		3,000			—		6,000		9,000		—
Other		6,802			6,113		6,097		12,899		10,739
	$	150,568		$	108,212	$	144,513	$	295,081	$	211,812

      General and administrative expenses, including salaries and related, increased during the quarter ended June 30, 2005 to $150.6 million, compared to $108.2 million during the same period in 2004. The increase was largely driven by increases in salaries, premises and equipment, data processing and office expenses as a result of the Company’s operational expansion in support of the continued record-level of production volume. The Company’s average full-time equivalent employees increased by 38%, from 4,061 during the quarter ended June 30, 2004, to 5,625 during the quarter ended June 30, 2005.

      Included in operating expenses for the three months ended June 30 and March 31, 2005 is a $3 million and $6 million pretax charge, respectively, for the settlement of two previously disclosed class action lawsuits. The parties agreed to the settlements during the quarter in which the expenses were recorded. Management believes that the charge is sufficient to fully resolve the matters.

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DIVIDEND

      IndyMac’s Board of Directors declared a cash dividend of $0.40 per share, up 25% from the dividend declared and paid in the third quarter last year, representing IndyMac’s ninth consecutive increase in the quarterly dividend. The cash dividend is payable September 8, 2005 to shareholders of record on August 11, 2005.

SHARE REPURCHASE ACTIVITIES

      In June 1999, our Board of Directors approved a $100 million share repurchase program, which was subsequently increased by the Board to $500 million. The Board of Directors also approved a special repurchase of 3,640,860 shares from Countrywide Financial Corporation, Inc. (“Countrywide”), which was not a part of our share repurchase program. From the share repurchase program’s inception through December 31, 2002, we repurchased 28 million shares in open market transactions and from Countrywide at an average price of approximately $18.02 per share, for an aggregate investment of $504.4 million. At June 30, 2005, we had $63.6 million of remaining capacity to repurchase under the current authorization from the Board of Directors. No share repurchases under this program have been made since December 31, 2002.

      From time to time, we also repurchase shares from certain employees and officers at the then-current market price under the Company’s stock incentive plans. The following table summarizes the share repurchase activities from our employees and officers during the first six months of 2005, as well as the information during the same period regarding our publicly announced share repurchase program described above:

								Maximum Approximate
						Total Number of		Dollar Value
		Total				Shares Purchased		(in millions) of Shares
		Number of		Weighted		as Part of Publicly		that May Yet Be
		Shares		Average Price		Announced Plansor		Purchased Under the
Period		Purchased(1)		Paid Per Share		Programs		PlansorPrograms(2)
January 1, 2005 — January 31, 2005			13,385	$	34.67		—	$	63.6
February 1, 2005 — February 28, 2005			224		38.69		—		63.6
March 1, 2005 — March 31, 2005			—		—		—		63.6
	First Quarter Total		13,609		34.73		—		63.6
April 1, 2005 — April 30, 2005			—		—		—		63.6
May 1, 2005 — May 31, 2005			2,251		37.86		—		63.6
June 1, 2005 — June 30, 2005			—		—		—		63.6
	Second Quarter Total		2,251		37.86		—		63.6
Six Months Total			15,860	$	35.18		—	$	63.6

(1)	All shares purchased during the periods indicated were purchased pursuant to the Company’s stock incentive plans at the then-current market prices.
(2)	Our Board of Directors approved a $100 million share repurchase program in June of 1999, which was subsequently increased by the Board to $500 million. The Board of Directors also approved a special repurchase of 3,640,860 shares from Countrywide, which was not a part of our share repurchase program.

FUTURE OUTLOOK

      On average, U.S. mortgage debt outstanding has grown approximately 7% to 8% per year over the last two decades and is projected, based on economic demographics, to continue this level of approximate growth. At this rate, mortgage debt outstanding roughly doubles every decade. We believe, based on our confidence in our employees, hybrid thrift/mortgage banking business model, capital strength and ability to gain market share, that we are positioned to grow earnings per share at a compounded growth rate of approximately 15% over the

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long run, or approximately double the rate of the industry. In fact, IndyMac’s historical track record has exceeded this target over the last twelve and half years with compounded annual growth of 28% under its current senior management team.

      With that said, the past few years have been extraordinary years for the mortgage industry. Industry mortgage production has achieved historic highs as a result of historically low interest rates, which led to record refinancing of mortgages. The industry is in the midst of a major transition from these historic highs back to more normalized levels. According to forecasts published by the MBA, although the industry volumes are projected to increase 6% in 2005, they are expected to decline in 2006 by 9%.

      Given our strong second quarter results and the current mortgage industry forecasts published by the MBA, we are increasing our guidance for the full year 2005 to $4.62 per share. This forecast is up $0.27 per share from the $4.35 per share guidance provided in our April earnings release and reflects a 36% increase over our 2004 pro forma results. Our forecast incorporates incremental margin compression but continued strong production volumes given our diverse product mix, our successful market share expansion and the strong execution that has driven our pipeline to record levels. In addition, within this forecast, the spread between short-term and long-term interest rates is assumed to continue to narrow with the 1-month LIBOR increasing from 3.33% at June 30 to 4.17% by year end and the 10-year Treasury increasing from 3.92% at June 30 to 4.29% by year end. This EPS forecast is considered our best estimation in light of current market expectation for interest rates and industry volume for 2005. However, economy, interest rates and our industry remain volatile and, as a result, our actual results could vary significantly from this forecast.

      The above forecast excludes the impact of the implementation of SFAS Statement No. 123 (revised 2004),Share-Based Payment, which requires the expensing of stock options. Given that the required implementation date of SFAS 123R has been delayed to fiscal years beginning after June 15, 2005, we do not expect to implement this standard until required on January 1, 2006.

     This “Future Outlook” section contains certain forward-looking statements. See the section of this Form 10-Q entitled “Forward-Looking Statements” for a description of factors which may cause our actual results to differ from those anticipated.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

      Our principal financing needs are to fund acquisitions of mortgage loans and our investment in mortgage loans, MBS 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 (“FHLB”), borrowings, custodial balances and retained earnings. The sources used vary depending on such factors as rates paid, collateral requirements, maturities and the impact on our capital. Additionally, we may occasionally securitize mortgage loans that we intend to hold for investment to lower our costs of borrowing against such assets and reduce the capital requirement associated with such assets. During the quarter ended June 30, 2005, we had average total liquidity of $1.3 billion, which consists of 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

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, 2005, we sold $11.5 billion of our mortgage loans, which represents approximately 81% of our funded mortgage loans in the second quarter of 2005, to third party

55

investors through three channels: (1) GSEs; (2) private label securitizations; and (3) whole loan sales. Our thrift investment divisions also elected to retain $310 million of the mortgage loans for our portfolio of mortgage loans held for investment to provide future interest income for the Company. The remainder of our funded mortgage loans during the quarter is retained in our held for sale portfolio for future sale. Had we needed to raise more cash for liquidity reasons, loans retained in our held for investment portfolio could have been sold via one of the three channels.

      Our liquidity could be negatively impacted if any of our sales channels were disrupted. 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.

Advances from Federal Home Loan Bank

      The FHLB 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 MBS 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, IndyMac Bank is approved for collateralized advances of up to $9.8 billion, of which $7.6 billion were outstanding at June 30, 2005. The FHLB offers several credit programs, each with its own fixed or floating interest rate, and a range of maturities.

Deposits/ Retail Bank

      We solicit deposits from the general public and institutions by offering a variety of accounts and rates through our network of 19 branches in Southern California, two of which were opened during the second quarter of 2005, our telebanking, and Internet channels. Through our web site atwww.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, 2005					June 30, 2004					December 31, 2004
				% of					% of					% of
				Total					Total					Total
		Amount		Deposits			Amount		Deposits			Amount		Deposits
		(Dollars in thousands)
Non-interest-bearing checking		$	63,848		1	%	$	49,299		1	%	$	55,359		1	%
Interest-bearing checking			51,566		1	%		42,030		1	%		42,306		1	%
Savings			1,276,499		19	%		1,757,560		37	%		1,527,466		27	%
Custodial accounts			636,469		10	%		616,470		13	%		622,589		11	%
	Total core deposits		2,028,382		31	%		2,465,359		52	%		2,247,720		40	%
Certificates of deposit			4,556,150		69	%		2,293,196		48	%		3,495,759		60	%
	Total deposits	$	6,584,532		100	%	$	4,758,555		100	%	$	5,743,479		100	%

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

		June 30, 2005					June 30, 2004					December 31, 2004
				% of					% of					% of
				Total					Total					Total
		Amount		Deposits			Amount		Deposits			Amount		Deposits
		(Dollars in thousands)
Branch		$	2,868,298		44	%	$	1,903,211		40	%	$	2,271,605		40	%
Internet			664,079		10	%		520,536		11	%		579,503		10	%
Telebanking			760,710		12	%		486,926		10	%		639,584		11	%
Money desk			1,654,976		25	%		1,231,412		26	%		1,630,199		28	%
Custodial			636,469		9	%		616,470		13	%		622,588		11	%
	Total deposits	$	6,584,532		100	%	$	4,758,555		100	%	$	5,743,479		100	%

      Included in deposits at June 30, 2005, December 31, 2004, and June 30, 2004 were non-interest-bearing custodial accounts, primarily related to our GSE servicing portfolio, totaling $636.5 million, $622.6 million and $616.5 million, respectively.

Trust Preferred Securities and Warrants

      On November 14, 2001, we completed an offering of Warrants and Income Redeemable Equity Securities (“WIRES”) to investors. Gross proceeds of the transaction were $175 million. The securities were offered as units consisting of trust preferred securities, issued by a trust formed by us, and warrants to purchase IndyMac Bancorp’s common stock. As part of this transaction, IndyMac Bancorp issued subordinated debentures to the trust and purchased common securities from the trust. The yield on the subordinated debentures and the common securities is the same as the yield on the trust preferred securities. The proceeds from the offering are used in ongoing operations and will fund future growth and/or repurchases of IndyMac Bancorp common stock under its share repurchase program (see “Share Repurchase Activities” on page 54).

      In both July and December 2003, two trusts formed by us each issued $30.0 million of trust preferred securities, yielding 6.05% and 6.30%, respectively. In December 2004, a trust formed by us issued an additional $30.0 million of trust preferred securities with a yield of 5.83%. In each of these transactions, IndyMac Bancorp issued subordinated debentures to, and purchased common securities from, each of the trusts. The yield on the subordinated debentures and the common securities in each of these transactions matches the yields on the related trust preferred securities. The proceeds of these securities have been used in ongoing operations.

      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 trusts have been deconsolidated from the financial statements of the Company. The subordinated debentures underlying the trust preferred securities, which represent the liabilities due from IndyMac Bancorp to the trusts, amounted to $215.5 million and $215.2 million at June 30, 2005, and December 31, 2004, respectively. These subordinated debentures are included in Other Borrowings on the consolidated balance sheets.

Other Borrowings, Excluding Subordinated Debentures Underlying Trust Preferred Securities

      Other borrowings, excluding the subordinated debentures underlying the trust preferred securities, consist of loans and securities sold under committed financing facilities and uncommitted agreements to repurchase, CMO collateral and notes payable. Total other borrowings increased to $3.0 billion at June 30, 2005, from $2.9 billion at December 31, 2004. The increase of $3.9 million was primarily the result of additional draws on our credit facilities to fund mortgage loan originations.

      At June 30, 2005, we had $5.1 billion in committed financing facilities, of which $3.0 billion was utilized and $660.6 million was available for 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

57

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. As of June 30, 2005, we believe we were in compliance with all representations, warranties, and financial covenants under our borrowing facilities.

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. The amounts of net acquisitions of loans held for sale, and trading securities included as components of net cash used in operating activities totaled $2.9 billion during the six months ended June 30, 2005 and $3.1 billion during the six months ended June 30, 2004. Excluding the purchase and sale activity for loans held for sale and trading securities, the net cash provided by the Company’s operating activities totaled $104.4 million and $211.3 million for the six months ended June 30, 2005 and 2004, respectively.

ACCUMULATED OTHER COMPREHENSIVE LOSS

      Accumulated other comprehensive losses were $15.0 million at June 30, 2005, compared to $20.3 million of losses at December 31, 2004. This decrease in unrealized losses was a result of the increase in the fair value of the swaps and swaptions designated as cash flow hedges of floating rate borrowings. It should be noted that accumulated other comprehensive gain or loss does not include the increases in the fair value of loans held for investment that are funded by borrowings that are hedged by a portion of these interest rate swaps and swaptions. Accumulated other comprehensive gain or loss is not a component of the determination of regulatory capital.

REGULATORY CAPITAL REQUIREMENTS

      IndyMac 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 IndyMac Bank hold Tier 1 (core) capital of at least 8% of adjusted total assets for three years following the consummation of the transaction and maintain a total risk-based capital position of at least 10% of total risk-weighted assets. This particular condition expired on July 1, 2003. As of June 30, 2005, IndyMac Bank met all of the requirements of a “well-capitalized” institution under the general regulatory capital regulations.

      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 Company generally classifies all non-GSE loans in a first lien position with a FICO score less than 620 and all non-GSE loans in a second lien position with a FICO score less than 660 as subprime. We report our subprime loan calculation in an addendum to the Thrift Financial Report that we file with the OTS. Subprime loans held for investment and subprime loans held for sale which are either delinquent or more than 90 days old since origination are supported by capital two times that of similar prime loans. These subprime loans totaled $162.7 million at June 30, 2005.

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      The following table presents IndyMac Bank’s actual and required capital ratios and the minimum required capital ratios to be categorized as “well-capitalized” at June 30, 2005. The impact of the additional risk-weighting criteria related to subprime loans had the effect of reducing IndyMac’s total risk-based capital by 13 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:
Tier 1 core		7.22	%		7.22	%		5.00	%
Tier 1 risk-based		11.44	%		11.31	%		6.00	%
Total risk-based		11.90	%		11.77	%		10.00	%

      We believe that, under current regulations, IndyMac Bank will continue to meet its “well-capitalized” minimum capital requirements in the foreseeable future. IndyMac 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 our mix of assets, interest rate fluctuations, loan loss provisions and credit losses, or significant changes in the economy in areas where we have most of our 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 IndyMac Bank to meet its future minimum capital requirements.

OFF-BALANCE SHEET ARRANGEMENTS

      In the ordinary course of our business, we engage in financial transactions that are not recorded on our balance sheet. These transactions are structured to manage our interest rate, credit or liquidity risks, to diversify funding sources or to optimize our capital usage.

      Substantially all of our off-balance sheet arrangements relate to the securitization of mortgage loans. Our mortgage loan securitizations are normally structured as sales in accordance with SFAS 140, which involves the transfer of the mortgage loans to “qualifying special-purpose entities” that are not subject to consolidation. In a securitization, an entity transferring the assets is able to convert those assets into cash. Special-purpose entities used in such securitizations obtain cash to acquire the assets by issuing securities to investors. We also, generally, have the right to repurchase mortgage loans from the special-purpose entities if the remaining outstanding balance of the mortgage loans falls to a level where the cost of servicing the loans exceeds the revenues we earn.

      In connection with our loan sales that are securitization transactions, there are $45 billion in loans owned by off-balance sheet trusts as of June 30, 2005. 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. Generally, neither the third party investors nor the trusts have recourse to our assets or us, and they have no ability to require us to repurchase their loans other than for non-credit-related recourse that can arise under standard representations and warranties. We maintain secondary market reserves for losses that could arise in connection with loans that we are required to repurchase from GSEs and whole loan sales.

      We often retain certain interests, which may include subordinated classes of securities, MSRs, AAA-rated interest-only securities, prepayment penalty 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. MSRs, AAA-rated interest-only securities, prepayment penalty and residual securities were $738.8 million, $63.1 million, $62.3 million, and $145.8 million, respectively, at June 30, 2005.

      Management does not believe that any of its off-balance sheet arrangements have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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AGGREGATE CONTRACTUAL OBLIGATIONS

      The following table summarizes our material contractual obligations as of June 30, 2005. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.

	Payment Due
	July 1, 2005		January 1, 2006		January 1, 2008
	through		through		through		After
	December 31, 2005		December 31, 2007		December 31, 2009		December 31, 2009		Total
	(Dollars in thousands)
Deposits Without a Stated Maturity	$	1,391,913	$	—	$	—	$	—	$	1,391,913
Custodial Accounts and Certificates of Deposits		3,450,076		1,692,911		46,716		2,916		5,192,619
FHLB Advances		5,961,000		1,572,000		65,000		—		7,598,000
Repurchase Agreements		1,951,185		—		—		—		1,951,185
HELOC Notes(1)		—		—		—		997,602		997,602
Other Notes		1,055		—		—		1,055		2,110
Trust Preferred Debentures		—		—		—		215,537		215,537
Accrued Interest Payable		65,406		—		—		—		65,406
Deferred Compensation		272		2,660		7,989		22,032		32,953
Operating Leases(2)		11,168		45,323		37,068		35,904		129,463
Employment Agreements(3)		5,086		12,480		325		—		17,891
Purchase Obligations		920		7,376		—		—		8,296
Total	$	12,838,081	$	3,332,750	$	157,098	$	1,275,046	$	17,602,975

(1)	HELOC notes are non-recourse and secured by AAA-rated HELOC certificates.
(2)	Total lease commitments are net of sublease rental income.
(3)	Represents compensation for ten senior executives and includes both base salary and estimated bonuses. Amount is calculated based on the terms in their respective written employment agreements.

      A schedule of significant commitments at June 30, 2005 follows:

		Payment Due
		(Dollars in thousands)
Undisbursed loan commitments:
	Builder construction	$	904,359
	Consumer construction		1,105,993
	HELOCs		479,115
	Revolving warehouse lending		29,928
Letters of credit		$	11,520

      Additionally, in connection with standard representations and warranties on loan sales and securitizations, we are occasionally required to repurchase loans or make certain payments to settle claims based on breaches of these representations and warranties. From inception of our active mortgage banking operations on January 1, 1993 through June 30, 2005, we have sold $150.2 billion in loans and repurchased $170.8 million loans, or 0.11% of total loans sold. To provide for probable future losses related to loans sold, we have established a reserve based on estimated losses on actual pending and expected claims and repurchase requests, historical experience, loan sales volume and loan sale distribution channels and the assessment of the probability of vendor or investor claims, which is included in other liabilities on the consolidated balance sheets. The balance in this reserve totaled $37.0 million at June 30, 2005. See the “Secondary Market Reserves” section on page 52 for further information.

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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, 2004.

INTEREST RATE RISK

      Due to the characteristics of our financial assets and liabilities and the nature of our business activities, our liquidity, 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. In addition, the impact of our interest rate risk management strategies on our economic and accounting performance may differ materially because GAAP results may not be consistent with economic performance.

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 active market quotations or sale information to value such assets. The assets include MSRs, AAA-rated interest-only securities, prepayment penalty securities, 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 approximately 6% of total assets and 76% of total equity at June 30, 2005. The fair value of these assets could vary significantly as market conditions change. We periodically obtain appraisals from mortgage servicing brokers who benchmark our valuation assumptions to those of our industry peers and consider this information in the estimation of fair value.

CREDIT RISK

      A significant portion of our investment portfolio consists of prime residential SFR loans held for investment and non-investment grade securities and residual securities collateralized by mortgage loans. We also provide construction loans to consumers and developers to build residential properties. The credit risk profile on consumer construction 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, 2005, the book value of these non-core portfolios was $42.1 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.

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LIQUIDITY RISK

      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 securitizations could adversely impact the availability and pricing of future transactions.

CYCLICAL INDUSTRY

      The mortgage industry is a cyclical business that generally performs better in a low interest rate environment such as the current one. The environment of historically low interest rates over the past three years has been very favorable for mortgage bankers, such as us. As the industry transitions to a higher interest rate environment, the demand for mortgage loans is expected to decrease, which would cause a lower level of growth, or even a reduction, in earnings per share, in the short run. In addition, other external factors, including tax laws, the strength of various segments of the economy and demographics of our lending markets, could influence the level of demand for mortgage loans. Gain on sale of loans is a large component of our revenue and would be adversely impacted by a significant decrease in our mortgage loan volume. We have continued to grow our investment in mortgage loans to provide a level of core net interest income in an effort to mitigate the cyclicality.

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 MBS 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 approximately 1.82% for the second quarter of 2005. A number of our competitors have significantly larger market share and financial resources. We seek to compete with financial institutions and mortgage companies through an emphasis on quality of service, diversified products and maximum use of technology.

      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.

LAWS AND REGULATIONS

      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 and supervision by financial regulatory authorities covering all aspects of their organization, management and operations. The OTS and the FDIC are primarily responsible for the federal regulation and supervision of the Bank and its 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. Enforcement powers can be exercised in a number of ways, through either formal or informal actions. Informal enforcement actions customarily remain confidential between the regulator and the financial

62

institution, while more formal enforcement actions are customarily publicly disclosed. Further, the Bank’s operations are subject to regulation at the state level, including a variety of consumer protection provisions. Banking institutions also are affected by the various monetary and fiscal policies of the U.S. government, including those of the Federal Reserve Board, and these policies can influence financial regulatory actions. 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.

      The Company’s financial condition and results of operations are reported in accordance with U.S. GAAP. While not impacting economic results, future changes in accounting principles issued by various accounting standard setters could impact our financial condition and operational results as reported under U.S. GAAP.

      Additionally, political conditions could impact the Company’s earnings. Acts or threats of war or terrorism, as well as actions taken by the U.S. or other governments in response to such acts or threats, could impact business and economic conditions in which the Company operates.

GEOGRAPHIC CONCENTRATION

      A majority of our loans are geographically concentrated in certain states, including California, New York, Florida and New Jersey with 52% of our loan receivable balance at June 30, 2005 being in California. Any adverse economic conditions in these markets could cause the number of loans acquired to decrease, likely resulting in a corresponding decline in revenues and an increase in credit risk. Also, we could be adversely affected by business disruptions triggered by natural disasters or acts of war or terrorism in these geographic areas.

BUSINESS EXECUTION AND TECHNOLOGY RISK

      Our business performance is highly dependent on solidly executing our hybrid thrift/mortgage banking business model. We must properly price and continue to expand our products, customer base and market share. In addition, the execution of our hedging activities is critical as we have significant exposure to changes in interest rates.

      We are highly dependent on the use of technology in all areas of our business and we must take advantage of advances in technology to stay competitive. There are no guarantees as to our degree of success in anticipating and taking advantage of technological advances or that we will be more successful in the use of technology than our competitors.

CRITICAL ACCOUNTING POLICIES AND JUDGMENTS

      Several of the critical accounting policies that are very important to the portrayal of our financial condition and results of operations require management to make difficult and complex judgments that rely on estimates about the effect of matters that are inherently uncertain due to the impact of changing market conditions and/or consumer behavior. We believe our most critical accounting policies relate to (1) assets that are highly dependent on internal valuation models and assumptions rather than market quotations, including, AAA-rated agency interest-only securities, prepayment penalty securities, MSRs and non-investment grade and residual securities; (2) derivatives hedging instruments and hedge accounting; (3) our allowance for loan losses (“ALL”); and (4) our secondary market reserve.

      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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      See “Overall Interest Rate Risk Management” beginning on page 48 for quantitative and qualitative disclosure about market risk.

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ITEM 1. FINANCIAL STATEMENTS

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				June 30,			December 31,
				2005			2004
				Unaudited
				(Dollars in thousands)
Assets
Cash and cash equivalents				$	353,974		$	356,157
Securities classified as trading ($42.1 million and $54.4 million pledged as collateral for borrowings at June 30, 2005 and December 31, 2004, respectively)					232,312			235,036
Securities classified as available for sale, amortized cost of $3.4 billion and $3.5 billion at June 30, 2005 and December 31, 2004, respectively ($2.2 billion and $2.3 billion pledged as collateral for borrowings at June 30, 2005 and December 31, 2004, respectively)					3,389,920			3,454,435
Loans receivable:
	Loans held for sale
		Prime			5,149,692			3,491,064
		Subprime			360,761			563,274
		HELOC			421,781			358,410
		Consumer lot loans			104,915			32,824
			Total loans held for sale		6,037,149			4,445,572
	Loans held for investment
		SFR mortgage			4,989,025			4,458,784
		Consumer construction			1,493,948			1,443,450
		Builder construction			752,466			643,116
		HELOC			39,512			45,932
		Land and other mortgage			183,032			158,471
		Revolving warehouse lines of credit			27,974			—
	Allowance for loan losses				(54,069	)		(52,891	)
			Total loans held for investment		7,431,888			6,696,862
		Total loans receivable ($9.5 billion and $8.1 billion pledged as collateral for borrowings at June 30, 2005 and December 31, 2004, respectively)			13,469,037			11,142,434
Mortgage servicing rights					738,844			640,794
Investment in Federal Home Loan Bank stock					484,569			390,716
Interest receivable					97,264			78,827
Goodwill and other intangible assets					81,131			81,445
Foreclosed assets					11,319			19,161
Other assets					557,517			426,639
		Total assets		$	19,415,887		$	16,825,644

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			June 30,			December 31,
			2005			2004
			Unaudited
			(Dollars in thousands)
Liabilities and Shareholders’ Equity
Deposits			$	6,584,532		$	5,743,479
Advances from Federal Home Loan Bank				7,598,000			6,162,000
Other borrowings				3,166,434			3,162,241
Other liabilities				661,963			493,953
		Total liabilities		18,010,929			15,561,673
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 92,701,254 shares (63,511,959 outstanding) at June 30, 2005, and issued 91,168,915 shares (61,995,480 outstanding) at December 31, 2004			927			912
	Additional paid-in-capital			1,220,558			1,186,682
	Accumulated other comprehensive loss			(15,033	)		(20,304	)
	Retained earnings			718,899			616,516
	Treasury stock, 29,189,295 shares and 29,173,435 shares at June 30, 2005 and December 31, 2004, respectively			(520,393	)		(519,835	)
		Total shareholders’ equity		1,404,958			1,263,971
		Total liabilities and shareholders’ equity	$	19,415,887		$	16,825,644

The accompanying notes are an integral part of these statements.

65

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

					For the Three Months					For the Six Months
					Ended June 30,					Ended June 30,
					2005		2004			2005		2004
					(Unaudited)
					(Dollars in thousands, except per share data)
Interest income
Mortgage-backed and other securities					$	47,701	$	34,365		$	99,025	$	61,220
Loans held for sale
	Prime					67,256		58,842			124,553		103,173
	Subprime					11,622		7,681			26,119		16,189
	HELOC					6,002		—			12,354		—
	Consumer lot loans					2,876		2,872			4,113		4,779
		Total loans held for sale				87,756		69,395			167,139		124,141
Loans held for investment
	SFR mortgage					56,936		49,744			108,934		98,962
	Consumer construction					19,372		17,003			38,657		32,998
	Builder construction					15,535		8,621			28,528		16,147
	Land and other mortgage					3,694		2,957			7,331		5,935
	HELOC					541		4,325			1,124		10,684
	Revolving warehouse lines of credit					168		—			170		—
		Total loans held for investment				96,246		82,650			184,744		164,726
Other						7,043		3,898			11,436		6,780
		Total interest income				238,746		190,308			462,344		356,867
Interest expense
	Deposits					44,326		23,697			80,218		46,179
	Advances from Federal Home Loan Bank					64,091		33,919			116,804		64,839
	Other borrowings					33,924		25,714			64,497		44,938
		Total interest expense				142,341		83,330			261,519		155,956
			Net interest income			96,405		106,978			200,825		200,911
Provision for loan losses						2,407		3,200			4,897		4,700
			Net interest income after provision for loan losses			93,998		103,778			195,928		196,211
Other income
	Gain on sale of loans					159,377		66,084			303,699		149,752
	Service fee (loss) income					10,799		(27,807	)		15,217		(30,951	)
	Gain (loss) on mortgage-backed securities, net					15,851		(3,414	)		11,205		(8,401	)
	Fee and other income					8,646		7,692			15,971		12,816
		Total other income				194,673		42,555			346,092		123,216
			Net revenues			288,671		146,333			542,020		319,427
Other expense
	Operating expenses					150,568		108,212			295,081		211,812
	Amortization of other intangible assets					150		179			307		367
		Total other expense				150,718		108,391			295,388		212,179
	Earnings before provision for income taxes and minority interests					137,953		37,942			246,632		107,248
		Provision for income taxes				54,491		14,987			97,419		42,363
			Net earnings before minority interests			83,462		22,955			149,213		64,885
	Minority interests					316		—			591		—
				Net earnings	$	83,146	$	22,955		$	148,622	$	64,885
Earnings per share:
	Basic				$	1.33	$	0.39		$	2.40	$	1.13
	Diluted				$	1.26	$	0.38		$	2.28	$	1.08
Weighted-average shares outstanding:
	Basic					62,304		58,137			62,052		57,548
	Diluted					65,799		60,588			65,281		60,180
Dividends declared per share					$	0.38	$	0.32		$	0.74	$	0.62

The accompanying notes are an integral part of these statements.

66

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

								Accumulated
						Additional		Other						Total						Total
	Shares			Common		Paid-In-		Comprehensive			Retained			Comprehensive			Treasury			Shareholders’
	Outstanding			Stock		Capital		Loss			Earnings			Income			Stock			Equity
	(Unaudited)
	(Dollars in thousands)
Balance at December 31, 2003		56,760,313		$	859	$	1,043,856	$	(26,454	)	$	518,408					$	(519,238	)	$	1,017,431
Common stock issued		3,200,000			32		96,218		—			—		$	—			—			96,250
Common stock options exercised		1,049,051			10		23,290		—			—			—			—			23,300
Net directors’ and officers’ notes receivable payments		—			—		33		—			—			—			—			33
Deferred compensation, restricted stock		107,115			2		1,225		—			—			—			—			1,227
Net unrealized loss on mortgage-backed securities available for sale		—			—		—		(15,515	)		—			(15,515	)		—			(15,515	)
Net unrealized gain on derivatives used in cash flow hedges		—			—		—		26,889			—			26,889			—			26,889
Purchases of common stock		(17,452	)		—		—		—			—			—			(533	)		(533	)
Cash dividends		—			—		—		—			(31,663	)		—			—			(31,663	)
Net earnings		—			—		—		—			64,885			64,885			—			64,885
Total comprehensive income		—			—		—		—			—		$	76,259			—			—
Balance at June 30, 2004		61,099,027		$	903	$	1,164,622	$	(15,080	)	$	551,630					$	(519,771	)	$	1,182,304
Balance at December 31, 2004		61,995,480		$	912	$	1,186,682	$	(20,304	)	$	616,516					$	(519,835	)	$	1,263,971
Common stock options exercised		1,265,135			12		31,317		—			—		$	—			—			31,329
Net directors’ and officers’ notes receivable payments		—			—		16		—			—			—			—			16
Deferred compensation, restricted stock		267,204			3		2,543		—			—			—			—			2,546
Net unrealized gain on mortgage-backed securities available for sale		—			—		—		13			—			13			—			13
Net unrealized gain on derivatives used in cash flow hedges		—			—		—		5,258			—			5,258			—			5,258
Purchases of common stock		(15,860	)		—		—		—			—			—			(558	)		(558	)
Cash dividends		—			—		—		—			(46,239	)		—			—			(46,239	)
Net earnings		—			—		—		—			148,622			148,622			—			148,622
Total comprehensive income		—			—		—		—			—		$	153,893			—			—
Balance at June 30, 2005		63,511,959		$	927	$	1,220,558	$	(15,033	)	$	718,899					$	(520,393	)	$	1,404,958

The accompanying notes are an integral part of these statements.

67

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

				For the Six Months Ended
				June 30,
				2005			2004
				(Unaudited)
				(Dollars in thousands)
Cash flows from operating activities:
	Net earnings			$	148,622		$	64,885
	Adjustments to reconcile net earnings to net cash used in operating activities:
		Total amortization and depreciation			126,421			104,391
		Provision for valuation adjustment of mortgage servicing rights			76,233			4,839
		Gain on sale of loans			(303,699	)		(149,752	)
		(Gain) loss on mortgage-backed securities, net			(11,205	)		8,401
		Provision for loan losses			4,897			4,700
		Net increase in deferred tax liability			55,648			16,470
		Net decrease in other assets and liabilities			7,518			157,338
	Net cash provided by operating activities before activity for trading securities and loans held for sale				104,435			211,272
	Net sales (purchases) of trading securities				57,051			(31,501	)
	Net purchases of loans held for sale				(2,933,362	)		(3,053,980	)
			Net cash used in operating activities		(2,771,876	)		(2,874,209	)
Cash flows from investing activities:
	Net sales of and payments from loans held for investment				487,092			1,089,165
	Net sales (purchases) of mortgage-backed securities available for sale				150,560			(111,018	)
	Net increase in investment in Federal Home Loan Bank stock, at cost				(93,853	)		(32,497	)
	Net purchases of property, plant and equipment				(38,552	)		(17,790	)
			Net cash provided by investing activities		505,247			927,860
Cash flows from financing activities:
	Net increase in deposits				840,042			407,782
	Net increase in advances from Federal Home Loan Bank				1,436,000			624,001
	Net increase in borrowings				3,856			1,041,457
	Net proceeds from issuance of common stock				—			96,250
	Net proceeds from stock options and notes receivable				31,345			23,333
	Cash dividends paid				(46,239	)		(31,663	)
	Purchases of common stock				(558	)		(533	)
			Net cash provided by financing activities		2,264,446			2,160,627
Net (decrease) increase in cash and cash equivalents					(2,183	)		214,278
Cash and cash equivalents at beginning of period					356,157			115,485
Cash and cash equivalents at end of period				$	353,974		$	329,763
Supplemental cash flow information:
	Cash paid for interest			$	247,516		$	147,122
	Cash paid for income taxes			$	35,596		$	31,330
Supplemental disclosure of non-cash investing and financing activities:
	Net transfer of loans held for sale to loans held for investment			$	1,188,321		$	1,089,351
	Recharacterization of loans to mortgage-backed securities available for sale			$	—		$	500,012
	Net transfer of mortgage servicing rights to trading securities			$	8,491		$	14,293

The accompanying notes are an integral part of these statements.

68

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2005

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

      IndyMac Bancorp, Inc. is a savings and loan holding company. References to “IndyMac Bancorp” or the “Parent Company” refer to the parent company alone while references to “IndyMac,” the “Company,” “we” or “us” refer to IndyMac Bancorp and its consolidated subsidiaries.

      The consolidated financial statements include the accounts of IndyMac Bancorp and all of its wholly-owned and majority-owned subsidiaries, including IndyMac Bank, F.S.B. (“IndyMac Bank”). All significant intercompany balances and transactions with IndyMac’s consolidating subsidiaries have been eliminated in consolidation. Minority interests in IndyMac’s majority-owned subsidiary are included in “other liabilities” on the consolidated balance sheets and the minority interests on IndyMac’s earnings are reported separately. The consolidated financial statements of IndyMac are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior year amounts have been reclassified to conform to the current year presentation. 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, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004.

      Statement of Financial Accounting Standards No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases” requires that certain fees and related incremental direct costs associated with originating loans be deferred when incurred. Net deferred amounts related to loans held for sale are recognized when the loans are sold and are included in the gain on sale of loans. The Company previously classified the initial deferral of the incremental direct origination costs net of the fees collected on the loans as a net reduction in operating expenses but during this period has revised the presentation to reflect the deferral of the total fees collected as a reduction of fee and other income and the deferral of the incremental direct origination costs as a reduction of operating expenses. All prior periods have been revised to agree with the current period presentation. This revision had no impact on reported earnings or the balance sheet in the current period or in any prior period.

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 (revised 2004),“Share-Based Payment”(“SFAS No. 123(R)”), which requires the cost resulting from stock options be measured at fair value and recognized in earnings. This Statement replaces Statement No. 123,“Accounting for Stock-Based Compensation”(“SFAS No. 123”) and supersedes Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,”(“APB No. 25”) which permitted the recognition of compensation expense using the intrinsic value method. SFAS No. 123(R) will be effective July 1, 2005. However, on April 15, 2005, the Securities Exchange Commission (“SEC”) issued a press release announcing the amendment of the compliance date for SFAS No. 123(R) to be no later than the beginning of the first fiscal year beginning after June 15, 2005. The Company plans to adopt SFAS No. 123(R) on January 1, 2006 using the modified-retrospective method. Under the modified-retrospective method, the Company is allowed to restate prior periods by recognizing compensation cost in the amount previously reported in the pro forma footnote disclosures under the provisions of SFAS No. 123. We estimate that the impact of adoption of SFAS No. 123(R) will approximate the impact of the adjustments made to determine pro forma net income and pro forma earnings per share under SFAS No. 123.

      In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB No. 107”),Share-Based Payment, providing guidance on option valuation methods, the accounting for income tax effects of share-

69

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

based payment arrangements upon adoption of SFAS No. 123(R), and the disclosures in MD&A subsequent to the adoption. We will provide SAB No. 107 required disclosures upon adoption of SFAS No. 123(R) on January 1, 2006.

      On March 3, 2005, the FASB Staff issued FSP FIN 46(R)-5,Implicit Variable Interests under FASB Interpretation No. 46 (FIN 46R — Revised December 2003), Consolidation of Variable Interest Entities (“VIE”). This FSP requires a reporting enterprise to consider the impact of implicit variable interests in determining whether the reporting enterprise may absorb variability of the VIE or potential VIE. This staff position was effective in the second quarter of 2005 and its adoption did not have a material impact on our consolidated financial statements.

      At the April 13, 2005 FASB Board meeting, the Board authorized the final drafting of certain amendments to Statement on Financial Accounting Standards No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities(“SFAS 140”) regarding beneficial interests and servicing rights. Management is currently monitoring and evaluating the potential impact of these various amendments, including the proposed one-time irrevocable election to move servicing rights from a LOCOM to a fair value accounting basis, which management intends to adopt as soon as such election becomes available.

      Additionally, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 03-3,“Accounting for Certain Loans or Debt Securities Acquired in a Transfer”(“SOP 03-3”), which addresses the accounting for differences between contractual cash flows and expected cash flows related to purchased debt securities and loans held for investment, if those differences are attributable, at least in part, to credit quality. The Company adopted SOP 03-3 on January 1, 2005 and there was no cumulative adjustment required.

      At the June 29, 2005 FASB Board meeting, the Board agreed to issue FSP FAS 115-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investmentswhich will replace the guidance previously set forth in EITF 03-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP effectively eliminates the accounting guidance provided in EITF 03-1 in favor of existing impairment recognition guidance under SFAS 115, SAB 59, APB No. 18, and EITF Topic D-44. The effective date of the FSP is for periods beginning after September 15, 2005, but is not expected to have a material impact on our consolidated financial statements.

70

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 3 — MORTGAGE-BACKED SECURITIES AND AGENCY NOTES

      As of June 30, 2005 and December 31, 2004, our MBS and agency notes were comprised of the following:

			June 30,		December 31,
			2005		2004
			(Dollars in thousands)
Mortgage-backed securities — Trading
	AAA-rated and agency interest-only securities		$	63,052	$	90,658
	AAA-rated principal-only securities			—		18,598
	Prepayment penalty securities			62,283		33,451
	Other investment grade securities			9,320		9,219
	Other non-investment grade securities			—		4,198
	Non-investment grade residual securities			97,657		78,912
		Total mortgage-backed securities — Trading	$	232,312	$	235,036
Mortgage-backed securities and agency notes — Available for sale
	AAA-rated non-agency securities		$	3,186,980	$	3,166,600
	AAA-rated agency securities			11,827		14,903
	Other investment grade securities			85,026		137,603
	Other non-investment grade securities			57,950		78,854
	Non-investment grade HELOC residual securities			48,137		56,475
		Total mortgage-backed securities and agency notes — Available for sale	$	3,389,920	$	3,454,435

      The unrealized losses and fair value of securities that have been in a continuous unrealized loss position for less than 12 months and 12 months or greater were as follows:

			As of June 30, 2005
			Less Than 12 Months					12 Months or Greater					Total
			Unrealized					Unrealized					Unrealized
			Losses			Fair Value		Losses			Fair Value		Losses			Fair Value
			(Dollars in thousands)
Securities — Available for Sale:
	AAA-rated agency securities		$	—		$	—	$	(201	)	$	3,182	$	(201	)	$	3,182
	AAA-rated non-agency securities			(5,665	)		751,224		(14,808	)		852,454		(20,473	)		1,603,678
	Other non-investment grade securities			(2	)		664		—			—		(2	)		664
		Total Securities — Available for Sale	$	(5,667	)	$	751,888	$	(15,009	)	$	855,636	$	(20,676	)	$	1,607,524

      The securities that have been in unrealized loss position for 12 months or more are primarily related to AAA-rated securities issued by private institutions. These unrealized losses are primarily attributable to changes in interest rates and individually were 4% or less of their respective amortized cost basis.

NOTE 4 — SEGMENT REPORTING

      Effective January 1, 2005, we realigned our segments from the previous four operating segments structure based on products and customers to two primary operating segments, the mortgage banking and the thrift segments. They more clearly highlight our hybrid thrift/mortgage banking business model and are consistent

71

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

with the way we manage and evaluate our business. Additionally, we moved the mortgage servicing and retained assets division to become a part of our mortgage banking segment as we believe the ability to service mortgage loans is an integral part of our mortgage banking business. These segment results depict our profitability by channel of origination. Each channel’s results include the impact of intercompany transactions between channels, which are eliminated in consolidation. Additionally, these segment changes provide clear transparency to the two primary activities in our hybrid model-mortgage banking with high asset turn and high returns on equity and thrift investing characterized by lower but more consistent returns on equity. Prior period segment results have been revised to conform to this new presentation.

      Operating channels that originate mortgage loans are credited with gain on sale at funding based on the estimated fair value. Any difference between the actual gain on sale realized and the estimate is credited or charged to the operating channel in the period the loan is sold or transferred to the held for investment portfolio. Differences between the gain on sale credited to the operating channels and the consolidated gain on sale due to timing of loan sales or transfers to the held for investment portfolio are eliminated in consolidation. The Company uses a funds transfer pricing (“FTP”) system to allocate interest income and expense to the operating channels. Each operating channel is allocated funding with maturities and interest rates matched with the expected lives and repricing frequencies of the channel’s assets. 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 “Other” column. Also included in the “Other” column 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, 2005 and 2004, was as follows:

		Mortgage Banking
					MSRs			Loan
		Production			and			Servicing									Total
		Divisions			Retained Assets			Operations			Thrift			Other			Company
		(Dollars in thousands)
Three months ended June 30, 2005
	Net interest income (expense)	$	24,900		$	12,219		$	(33	)	$	54,775		$	4,544		$	96,405
	Net revenues (expense)		237,345			24,410			487			79,103			(52,674	)		288,671
	Net earnings (loss)		87,901			10,237			(2,626	)		35,479			(47,845	)		83,146
Allocated capital			375,397			235,766			5,183			601,232			103,109			1,320,687
Assets as of June 30, 2005		$	5,412,285		$	1,522,086		$	43,235		$	11,512,592		$	925,689		$	19,415,887
Return on equity			94	%		17	%		N/A			24	%		N/A			25	%
Three months ended June 30, 2004
	Net interest income (expense)	$	38,176		$	16,912		$	—		$	54,409		$	(2,519	)	$	106,978
	Net revenues (expense)		148,203			(5,348	)		589			84,112			(81,223	)		146,333
	Net earnings (loss)		48,721			(6,141	)		(3,318	)		41,920			(58,227	)		22,955
Allocated capital			271,042			205,192			—			502,698			148,356			1,127,288
Assets as of June 30, 2004		$	3,828,962		$	1,149,819		$	44,170		$	9,792,010		$	723,555		$	15,538,516
Return on equity			72	%		(12	)%		N/A			34	%		N/A			8	%

72

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Mortgage Banking
					MSRs			Loan
		Production			and			Servicing									Total
		Divisions			Retained Assets			Operations			Thrift			Other			Company
		(Dollars in thousands)
Six months ended June 30, 2005
	Net interest income (expense)	$	51,537		$	26,893		$	(335	)	$	114,174		$	8,556		$	200,825
	Net revenues (expense)		439,882			44,431			552			154,339			(97,184	)		542,020
	Net earnings (loss)		158,751			18,172			(5,404	)		70,415			(93,312	)		148,622
Allocated capital			354,687			243,961			5,373			582,719			100,376			1,287,116
Assets as of June 30, 2005		$	5,412,285		$	1,522,086		$	43,235		$	11,512,592		$	925,689		$	19,415,887
Return on equity			90	%		15	%		N/A			24	%		N/A			23	%
Six months ended June 30, 2004
	Net interest income (expense)	$	68,404		$	31,826		$	—		$	107,793		$	(7,112	)	$	200,911
	Net revenues (expense)		265,546			7,092			1,073			145,871			(100,155	)		319,427
	Net earnings (loss)		82,191			(1,883	)		(5,546	)		70,600			(80,477	)		64,885
Allocated capital			222,144			203,033			—			492,943			167,185			1,085,305
Assets as of June 30, 2004		$	3,828,962		$	1,149,819		$	44,170		$	9,792,010		$	723,555		$	15,538,516
Return on equity			74	%		(2	)%		N/A			29	%		N/A			12	%

NOTE 5 — STOCK-BASED COMPENSATION

      We have two stock incentive plans, the 2002 Incentive Plan, as Amended and Restated, and the 2000 Stock Incentive Plan, as amended (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). Options and awards are granted at the average market price of our common stock on the date of grant, and vest over varying periods. Options expire ten years from the date of grant. Unearned compensation on stock awards is being amortized to compensation expense over the service period, not exceeding five years, and is recorded as a reduction in shareholders’ equity.

      As mentioned in Note 2, the Company will adopt SFAS No. 123(R) on January 1, 2006, which requires the recognition of compensation expenses related to stock options, and will revise all prior periods in accordance with SFAS No. 123(R) at the time of adoption. When revising prior periods under the modified-retrospective-transition method, the compensation cost recognized in prior periods will be the same as previously reported in the pro forma disclosures.

      For the second quarter of 2005, we continue to measure and recognize compensation expense using the intrinsic value method specified in Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,” and provide disclosures on pro forma net income and pro forma basic and diluted earnings per share as if the fair value method had been applied to all stock awards as required under the provisions of SFAS 148,“Accounting for Stock-Based Compensation — Transition and Disclosure.”

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INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table discloses the pro forma net income and pro forma basic and diluted earnings per share for the three and six months ended June 30, 2005 and 2004:

			Three Months						Six Months
			Ended June 30,						Ended June 30,
			2005			2004			2005			2004
			(Dollars in thousands, except per share data)
Net Earnings
	As reported		$	83,146		$	22,955		$	148,622		$	64,885
		Stock-based compensation expense		(2,663	)		(2,859	)		(5,388	)		(5,687	)
		Tax effect		814			1,129			1,594			2,246
	Pro forma		$	81,297		$	21,225		$	144,828		$	61,444
Basic Earnings Per Share
	As reported		$	1.33		$	0.39		$	2.40		$	1.13
	Pro forma		$	1.30		$	0.37		$	2.28		$	1.07
Diluted Earnings Per Share
	As reported		$	1.26		$	0.38		$	2.34		$	1.08
	Pro forma		$	1.23		$	0.35		$	2.22		$	1.02

      During the three months ended June 30, 2005 and 2004, we recognized compensation expense of $1.5 million ($898,000, net of taxes) and $721,000 ($436,000, net of taxes), respectively, related to restricted stock awards. These expenses were included in net earnings as reported.

NOTE 6 — DEFINED BENEFIT PENSION PLAN NET PERIODIC COST

      We provided a defined benefit pension plan (the “DBP Plan”) to substantially all of our employees hired prior to January 1, 2003. Employees hired after December 31, 2002 are not eligible for the DBP Plan. The net periodic benefit cost of the DBP Plan, which is based on actuarial assumptions, is presented in the following table for the three and six months ended June 30, 2005 and 2004:

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2005			2004			2005			2004
	(Dollars in thousands)
Service cost	$	1,812		$	1,209		$	3,624		$	2,418
Interest cost		507			323			1,014			646
Expected return on assets		(453	)		(294	)		(906	)		(588	)
Recognized actuarial loss		139			73			278			146
Amortization of prior service cost		14			14			28			28
Net periodic benefit costs	$	2,019		$	1,325		$	4,038		$	2,650

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INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The weighted-average assumptions used in computing the net periodic cost at June 30, 2005 and 2004, were as follows:

	Three Months
	Ended June 30,
	2005		2004
Assumed discount rate		6.00%		6.00%
Rate of compensation increase		4.00%		4.00%
Expected return on assets		7.50%		7.50%

      The Company previously disclosed in its financial statements for the year ended December 31, 2004, that it expected to contribute $8.0 million to the DBP Plan in 2005 for the 2004 plan year. The contribution will be made as a lump sum payment later during 2005. No contribution was made during the six months ended June 30, 2005.

NOTE 7 — LEGAL MATTERS

      In the ordinary course of business, the Company and its subsidiaries are defendants in or parties to a number of pending or threatened legal actions. Certain of such actions involve alleged violations of employment laws, unfair trade practices, consumer protection laws, including claims relating to the Company’s loan origination and collection efforts, and other federal and state banking laws. Certain of such actions include claims for breach of contract, restitution, compensatory damages, punitive damages and other forms of relief. The Company reviews these actions on an on-going basis and follows the provisions of Statement of Financial Accounting Standards No. 5,“Accounting for Contingencies”when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, the Company bases its decisions on the evidence discovered and in its possession, the strength of probable witness testimony, the viability of its defenses and the likelihood of prevailing at trail or resolving the matter through alternative dispute resolution. While the Company can give no assurance that it will prevail on all claims made against it or that reserves the Company has established will be sufficient to satisfy any resulting liabilities, management believes, based on current knowledge and after consultation with counsel, that these legal actions, individually and in the aggregate, and the losses, if any, resulting from the final outcome thereof, will not have a material adverse effect on the Company and its subsidiaries’ financial position or results of operations.

      During the second quarter, the Company accrued $3 million in connection with the settlement of a class action lawsuit involving an alleged violation of consumer protections laws.

      During the second quarter of 2005, the Company reached a settlement with Washington Mutual over the previously disclosed lawsuit related to the loans sold by the Company to PNC Mortgage Corporation during the period 1997 to 2000, prior to Washington Mutual’s acquisition of PNC Mortgage Corporation in 2001. The settlement calls for a cash payment of $10 million and the repurchase of certain loans for approximately $7.86 million, with an estimated loss of $3 million. Therefore, the total cost of the settlement is approximately $13 million, which will reduce the secondary market reserves during the third quarter of 2005 when paid and fully resolve the lawsuit. The cost of the settlement approximated our reserves established previously for the lawsuit.

      Included in operating expense in the first quarter of 2005 is a $6 million pretax charge for the settlement of a previously disclosed class action lawsuit involving employee classification and overtime matters. The settlement was agreed to by the parties and disclosed during the quarter ended March 31, 2005.

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ITEM 4. CONTROLS AND PROCEDURES

      The management of IndyMac is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15 and 15d-15 of Securities Exchange Act of 1934. As of June 30, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of IndyMac’s disclosure controls and procedures. Based on that evaluation, management concluded that IndyMac’s disclosure controls and procedures as of June 30, 2005 were effective in ensuring that information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported within the time period required by the SEC’s rules and forms.

      There have been no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect the Company’s disclosure of controls and procedures subsequent to June 30, 2005.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      In the ordinary course of business, the Company and its subsidiaries are defendants in or parties to a number of pending or threatened legal actions. Certain of such actions involve alleged violations of employment laws, unfair trade practices, consumer protection laws, including claims relating to the Company’s loan origination and collection efforts, and other federal and state banking laws. Certain of such actions include claims for breach of contract, restitution, compensatory damages, punitive damages and other forms of relief. The Company reviews these actions on an on-going basis and follows the provisions of Statement of Financial Accounting Standards No. 5,“Accounting for Contingencies”when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, the Company bases its decisions on the evidence discovered and in its possession, the strength of probable witness testimony, the viability of its defenses and the likelihood of prevailing at trail or resolving the matter through alternative dispute resolution. While the Company can give no assurance that it will prevail on all claims made against it or that reserves the Company has established will be sufficient to satisfy any resulting liabilities, management believes, based on current knowledge and after consultation with counsel, that these legal actions, individually and in the aggregate, and the losses, if any, resulting from the final outcome thereof, will not have a material adverse effect on the Company and its subsidiaries’ financial position or results of operations.

      During the second quarter, the Company accrued $3 million in connection with the settlement of a class action lawsuit involving an alleged violation of consumer protections laws.

      During the second quarter of 2005, the Company reached a settlement with Washington Mutual over the previously disclosed lawsuit related to the loans sold by the Company to PNC Mortgage Corporation during the period 1997 to 2000, prior to Washington Mutual’s acquisition of PNC Mortgage Corporation in 2001. The settlement calls for a cash payment of $10 million and the repurchase of certain loans for approximately $7.86 million, with an estimated loss of $3 million. Therefore, the total cost of the settlement is approximately $13 million, which will reduce the secondary market reserves during the third quarter of 2005 when paid and fully resolve the lawsuit. The cost of the settlement approximated our reserves established previously for the lawsuit.

      Included in operating expense in the first quarter of 2005 is a $6 million pretax charge for the settlement of a previously disclosed class action lawsuit involving employee classification and overtime matters. The settlement was agreed to by the parties and disclosed during the quarter ended March 31, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      See “Share Repurchase Activities” beginning on page 54 for a discussion of share repurchases conducted by IndyMac during the second quarter of 2005.

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

      At the annual meeting of IndyMac Bancorp, Inc.’s shareholders held on April 27, 2005, the shareholders voted to elect IndyMac Bancorp’s directors. The votes cast in this regard were as follows:

	Shares for		Shares Withheld
Michael W. Perry		56,379,096		2,125,165
Louis E. Caldera		57,513,063		991,198
Lyle E. Gramley		57,454,117		1,050,144
Hugh M. Grant		57,332,878		1,171,383
Patrick C. Haden		57,516,613		987,648
Terrance G. Hodel		57,520,824		983,437
Robert L. Hunt II		57,315,877		1,188,384
Senator John Seymour (ret.)		57,492,708		1,011,553
James R. Ukropina		57,330,770		1,173,491

      The shareholders also voted to ratify the appointment of Ernst & Young LLP as IndyMac Bancorp’s independent auditors for the year ending December 31, 2005. The votes cast in this regard were as follows:

	Number of
	Votes Cast
For		57,316,201
Against		1,108,063
Abstain		79,997

ITEM 6. EXHIBITS

10	.1	IndyMac Bancorp, Inc. Board Compensation Policy & Stock Ownership Requirements, as Amended.
10	.2	Employment Agreement Dated October 15, 2003 between IndyMac Resources, Inc. and Frank Sillman
10	.3	Employment Agreement Entered Into July 26, 2005 between IndyMac Bank, F.S.B. and Terrence O. Hughes
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.

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SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized, in the City of Pasadena, State of California, on July 28, 2005.

INDYMAC BANCORP, INC.

(Registrant)

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

78